INCOME TAX OFFICER, MUMBAI V. SHAILESH A JHAVERI (HUF), MUMBAI

ITA 4596/MUM/2024

AI Insights

The case involves an appeal by the Income Tax Officer, Mumbai against Shailesh A. Jhaveri (HUF), concerning the assessment year 2014-15. The primary issue was the addition of Rs.1,43,79,450 to the assessee's income, which included a disallowance of share trading losses and an alleged commission on these transactions. The AO had disallowed the losses based on information from the Kolkata Investigation Directorate, suspecting the transactions involved in penny stocks were bogus. However, the ld. CIT(A) reversed this decision, leading to the revenue's appeal. The Tribunal supported the CIT(A)'s decision, emphasizing the lack of evidence linking the assessee to any manipulation or irregularity in the stock transactions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 35500 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2014-2015
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHANGEPATIL PUSHKARAJ RAMESH; DR
• Assessee Lawyers: SUCHEK ANCHALIYA; VANSHIKA AGARWAL; ARS
• Keywords: Unexplained cash credit; Capital Gains; Accommodation entries; Penny stocks; Bogus
• Section: 68

Judgement Text

"| आयकर अपीलीय अिधकरण \fा यपीठ, मुंबई | IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, HON’BLE VICE PRESIDENT & SHRI NARENDRA KUMAR BILLAIYA, HON’BLE ACCOUNTANT MEMBER I.T.A. No. 4596/Mum/2024 Assessment Year: 2014-15 Income Tax Officer, Mumbai Vs Shailesh A. Jhaveri (HUF), Mumbai 11-B, 5th Floor Rockside Building Walkeshwar Road Opp. Dani Sadan Maharashtra - 400006 [PAN: AABHJ9176K] अपीला थ\u0016/ (Appellant) \u0017\u0018 यथ\u0016/ (Respondent) Assessee by : Shri Suchek Anchaliya, C.A. & Ms. Vanshika Agarwal, A/Rs Revenue by : Shri Bhangepatil Pushkaraj Ramesh, Sr. D/R सुनवाई की तारीख/Date of Hearing : 22/01/2025 घोषणा की तारीख /Date of Pronouncement: 29/01/2025 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM: This appeal by the revenue is preferred against the order dated 09/07/2024 by NFAC Delhi [hereinafter ‘the ld. CIT(A)’], pertaining to AY 2014-15. 2. The sum and substance of the grievance of the revenue is that the ld. CIT(A) erred in deleting the addition of Rs.1,43,79,450/- made by the AO comprising Rs.1,40,97,500/- being the disallowance of share trading loss and Rs. 2,81,950/- being commission @2% on the impugned transactions. 3. Briefly stated the facts of the case are that the assessee filed its return of income on 27/09/2014, declaring total income at Rs. Nil. The return was selected for scrutiny assessment and accordingly statutory I.T.A. No. 4596/Mum/2024 2 notices were issued and served upon the assessee. The assessee is a trader in shares and has booked loss in respect of two scrips, namely, Rutron International and Shree Nath. The same can be understood from the following chart:- 4. The AO was in possession of the information from Kolkata Investigation Directorate which had undertaken investigation into 84 penny stocks from which the beneficiaries have made bogus long term capital gain/short term capital loss. Taking a leaf of the of the modus operandi explained by the Investigation Wing, Kolkata, the AO formed a belief that the nature of transactions entered into by the assessee, the share trading loss claimed by the assessee in respect of aforementioned two scrips is not acceptable and added Rs.1,40,97,500/- being purchase value as unexplained cash credit u/s 68 of the Act and made a further addition of Rs.2,81,950/- being alleged commission @2% for taking the aforementioned accommodation entries. 5. The assessment was challenged before the ld. CIT(A). It was strongly contended that during the year the assessee has traded in 27 I.T.A. No. 4596/Mum/2024 3 scrips and has made loss in 14 scrips and out of which the AO picked up only two scrips for making the impugned addition which deserves to be deleted. After considering the facts and the submissions, the ld. CIT(A), observed as under:- “6.3.7 In view of the submission made by the appellant and material placed on record it is observed that appellant has dealt with various scripts. It can be seen from the audited balance sheet that the appellant had traded in 27 scripts and had made losses in 14 scripts. It is also fact on record that two of these scripts are categorized as penny stock as per the investigation wing Kolkata. The assessing officer has relied heavily on these reports and has come to conclusion that appellant was making loss on penny stocks. On the basis of the report of the investigation wing he has proceeded to disallow the claim of the appellant and had made addition of Rs. 1,40,97,500/- shown as purchase value of the stocks. It is also seen from record that appellant had submitted all the relevant documents of purchase and sale of these scripts in the recognized stock exchange and all the details were submitted before the assessing officer including the payments were made through banking channels only. The assessing officer completely overlooked the various documents and supporting evidences submitted by the appellant and he has not analysed these documents and he merely proceeded to make the addition based on the investigation carried on by the investigation wing. Merely because appellant had dealt with suspected scripts therefore he has proceeded to make the disallowance. Appellant has purchased and sold these shares through recognized stock exchange and nowhere it is brought on record that appellant is one of the party involved in the entry provider or involved in manipulating the prices or it is proved that appellant is one of the exist providers. It is also seen that appellant is a regular trader in various scripts. This proves that appellant is a regular investor and may be he has dealt with suspected script merely on the basis of movement of share prices, there is nothing on record to prove that appellant is anywhere involved in any type of irregularity.” 5.1. The ld. CIT(A) deleted the impugned addition of Rs.1,40,97,500/- and accordingly also deleted Rs.2,81,950/-. 6. Before us the ld. D/R strongly supported the findings of the AO and the ld. Counsel for the assessee, reiterated what has been stated before the lower authorities. 7. We have given a thoughtful consideration to the orders of the authorities below. At the very outset, we have to say that the entire addition made by the AO is illogical and against the relevant provisions I.T.A. No. 4596/Mum/2024 4 of the Act inasmuch as the AO has added the purchase value of Rs.1,40,97,500/-, of the two scrips, namely, Rutron International and Shree Nath. The purchase value is always a debit entry and Section 68 of the Act, is only for credit entries. Therefore, making addition of a debit entry u/s 68 of the Act is against the canons of the law. 7.1. The undisputed fact is that the name of the assessee is nowhere in the investigation report of the Investigation Wing, Kolkata, Investigation Wing Mumbai or Investigation Wing of SEBI. It is equally true that even the name of broker of the assessee is not in any of the reports. Looking at the financials of the assessee, we do not find any reason to doubt the loss only in respect of two scrips when the turnover of the assessee is more than Rs. 100 Crores. The undisputed fact is that the assessee is involved in the stock market and is well aware of the price fluctuations in the market. Merely because some of the stockbrokers/operators colluded in the alleged rigging of share prices and merely because the assessee was benefited indirectly cannot be a reason to disallow the claim of the assessee on the alleged ground that the assessee has also participated in the rigging of share prices. It is not the case of the revenue that the assessee has purchased shares off- market as all the transactions have been done online. The payments have been made through banking channels. 8. In our considered opinion price rigging is done to rig the benefit by purchasing the shares at a meagre price and selling them at a very exorbitant and high price thereby booking substantial profit and since long term capital gains was exempted from tax, without paying any tax, the beneficiaries used to bring in their unaccounted money. But in the I.T.A. No. 4596/Mum/2024 5 case in hand, the allegation is just the opposite inasmuch as the assessee has claimed set off of loss. In our view, no prudent person would purchase losses to set off with accounted income and convert into black money. In our considered opinion, the losses incurred by the assessee are in the regular course of business and deserve to be set-off against the regular business profit. Therefore, we do not find any error or infirmity with the findings of the ld. CIT(A). Accordingly, the effective grounds raised by the revenue are dismissed. 9. In the result, appeal of the revenue is dismissed. Order pronounced in the Court on 29th January, 2025 at Mumbai. Sd/- Sd/- (SAKTIJIT DEY) (NARENDRA KUMAR BILLAIYA) VICE-PRESIDENT ACCOUNTANT MEMBER Mumbai, Dated 29/01/2025 *SC SrPs *SC SrPs *SC SrPs *SC SrPs आदेश की \u0015ितिलिप अ\u001aेिषत /Copy of the Order forwarded to : 1. अपीलाथ\u001c / The Appellant 2. \u0015\u001dथ\u001c / The Respondent 3. संबंिधत आयकर आयु\" / Concerned Pr. CIT 4. आयकर आयु\" ) अपील ( / The CIT(A)- 5. िवभागीय \u0015ितिनिध ,आयकर अपीलीय अिधकरण, मुंबई /DR,ITAT, Mumbai, 6. गाड& फाई/ Guard file. आदेशानुसार/ BY ORDER, TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Mumbai "