DCIT,Central Circle-5(1), Kolkata, Kolkata V. M/s PRB Securities Pvt.Ltd., Kolkata

ITA 211/KOL/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0158 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 07-02-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MANISH TIWARI
• Assessee Lawyers: SAURABH KUMAR
• Keywords: Unexplained cash credit; Principle of natural justice; Opportunity of cross examination; Retrospective amendment; Additional evidence; Accommodation entries; Onus to prove; Penny stocks
• Section: 143(3); 133A; 12AA; 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SHRI A T VARKEY, JM, & SHRI M.BAL AGANESH, AM] I.T.A NO. 211/KOL/201 7 ASSESSMENT YEAR : 2013-1 4 DCIT, CIRCLE-5(1), KOLKATA -VS- M/S PRB SECUR ITIES PVT. LTD. [PAN: AABCP 5425 G ] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI SAURABH KUMAR , ADDL. CIT SR. DR FOR THE RESPONDENT : SHRI MANISH TIWARI, AR DATE OF HEARING : 22.11.2018 DATE OF PRONOUNCEMENT : 05.12.2018 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE REVENUE ARISES OUT OF THE OR DER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-2, KOLKATA [IN SHORT THE LD CIT (A)] IN APPEAL NO. 131/CIT(A)- 2/201-17 DATED 09.12.2016 AGAINST THE ORDER PASSED BY THE DCIT, CIRCLE-5(1), KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 22.03.2016 FOR THE ASSESSMENT YEAR 20 13-14. 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DISALLOWING THE BUSINESS LOSS TREATING THE SAME AS BOGUS LOSS IN THE SUMS OF RS 1,53,47,039/- IN RESPECT OF SALE OF SHARES OF BLUE CIRCLE SERVICES LIMITED AND RS 2 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 2 2,32,23,735/- IN RESPECT OF SALE OF SHARES OF TUNI TEXTILE MILLS LTD, AS UNEXPLAINED CASH CREDIT , IN THE FACTS AND CIRCUMSTANCES OF THE CASE . 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSES SEE IS ENGAGED IN THE BUSINESS OF SHARE BROKINGM SUB BROKING ETC. THE ASSESSEE FILED ITS R ETURN OF INCOME FOR THE ASST YEAR 2013-14 ON 11.9.2013 DECLARING TOTAL INCOME OF RS 3 ,37,95,314/-. THE LD AO OBSERVED THAT THE ASSESEE COMPANY HAD BOUGHT 310000 SHARES O F BLUE CIRCLE SERVICES LIMITED AND INCURRED TRADING LOSS OF RS 1,53,47,039/- THERE ON ON ITS SALE. SIMILARLY, HE OBSERVED THAT THE ASSESSEE PURCHASED 24500 SHARES OF TUNI TE XTILE MILLS LIMITED AND INCURRED TRADING LOSS OF RS 2,32,23,735/- ON ITS SALE. THES E TWO TOTAL TRADING LOSS WORKED OUT TO RS 3,85,70,774/- WHICH WAS SOUGHT TO BE EXAMINED BY THE LD AO IN THE ASSESSMENT. SINCE THE MAIN ACTIVITY OF THE ASSESSEE IS TRADING IN SHARES IN THE CAPACITY OF BROKER AND AS WELL AS DEALING ON ITS PERSONAL ACCOUNT, THE LOS S INCURRED ON SALE OF THE AFORESAID SHARES WERE CLAIMED AS REGULAR BUSINESS LOSS IN THE RETURN OF INCOME. THE LD AO OBSERVED THAT THE ASSESSEE WAS INVOLVED IN A LONG D RAWN PROCESS OF RIGGING OF STOCK MARKET PRICES IN COLLUSION WITH THE VARIOUS ENTRY O PERATORS. HE OBSERVED THAT THE ASSESSEE HAD INVESTED IN THE SHARES OF THE AFORESAI D COMPANIES WHICH ARE NOT HAVING ANY SOUND FINANCIAL POSITION OR BUSINESS ACTIVITY. THE CASES OF SUMATI DAYAL VS. CIT 214 ITR 801 (SC) AND CIT VS. DURGA PRASAD MORE (1971) 82 ITR (SC) WERE QUOTED IN SUPPORT TO PLEAD THAT THE ASSESSEE HAD ACTED IN COL LUSION WITH VARIOUS ENTRY OPERATORS FOR THE PURPOSE OF OBTAINING BOGUS LOSS IN ISSUE. THE LD AO DISALLOWED THE BUSINESS LOSS INCURRED ON BLUE CIRCLE SERVICES LIMITED AND TUNI T EXTILE MILLS LTD IN THE SUM OF RS 3,85,70,774/- IN THE ASSESSMENT AS BOGUS LOSS. THE LD CITA DELETED THE SAID DISALLOWANCE . AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND TH AT THE LD AO OBSERVED THAT THE ASSESSEE HAD ACTED IN COLLUSION WITH VARIOUS ENTRY OPERATORS FOR THE PURPOSE OF OBTAINING BOGUS LOSS IN RESPECT OF THE AFORESAID TWO SCRIPS. THIS OBSERVATION OF LD AO WAS 3 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 3 ADMITTEDLY BASED ON THE REPORT OF THE INVESTIGATION WING OF KOLKATA INCOME TAX DEPARTMENT. CERTAIN DETAILS AND DATA GATHERED BY THE LD AO REGARDING THE INVESTIGATION CARRIED OUT BY THE INVESTIGATION WING OF INCOME TAX DEPARTMENT WERE HANDED OVER TO THE ASSESSEE DURING THE COURSE OF AS SESSMENT PROCEEDINGS . THE ASSESSEE ON EXAMINATION OF THE SAME REPLIED BEFORE THE LD AO THAT THE DETAILS AND DATA GIVEN TO THE ASSESSEE IN PEN DRIVE DID NOT CONTAIN ANY DATA OR INFORMATION RELATING TO THE TRANSACTIONS OF SCRIPS CARRIED OUT BY THE ASSESSEE HEREIN RESULTING IN THE LOSS OF RS 3,85,70,774/- ( 1,53,47,039 + 2,32,23,735). IT WAS SPECIFICALLY POINTED OUT THAT THE SCRIPS WHICH THE LD AO HAD ALLEGED TO BE BOGUS, WER E NOT SUSPENDED BY SEBI ON INDEPENDENT INVESTIGATION CARRIED OUT BY IT. THE T ABULATION IN THIS REGARD IS REFLECTED IN PAGES 5 AND 8 OF THE ASSESSMENT ORDER. IT WAS ALSO POINTED OUT THAT IN THE ABSENCE OF ANY SUCH SPECIFIC INFORMATION ALLEGEDLY RECEIVED BY THE LD AO FROM PRINCIPAL DIT (INV.) KOLKATA AND WITHOUT FURNISHING THE SAME TO ASSESSEE , NO ADVERSE INFERENCE COULD BE DRAWN AGAINST THE ASSESSEE MORE PARTICULARLY WHEN A LL THE DETAILS AND EVIDENCES WERE PRODUCED BY THE ASSESSEE BEFORE THE LOWER AUTHORITI ES IN RESPECT OF ALL THE TRANSACTIONS OF DEALING IN SHARES AND SECURITIES ON WHICH PROFITS A ND / LOSSES WERE EARNED / INCURRED DURING THE PREVIOUS YEAR RELEVANT TO ASST YEAR 2013 -14. WE FIND THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD DEALT WITH 743 SCRIPS AND HAD EARNED PROFITS OR INCURRED LOSSES AS THE CASE MAY BE. THE LD AO AC CEPTED THE PROFITS AND LOSSES FROM ALL OTHER SCRIPS EXCEPT LOSS INCURRED ON BLUE CIRCLE SE RVICES LIMITED AND TUNI TEXTILE MILLS LTD AND ACCORDINGLY PROCEEDED TO DISALLOW THE BUSIN ESS LOSS CLAIMED THEREON IN THE SUM OF RS 3,85,70,774/- IN THE ASSESSMENT AS BOGUS LOSS . 4.1. WE FIND THAT THE ASSESSEE HAD FURNISHED THE FO LLOWING DETAILS BEFORE THE LD AO :- A) EVIDENCE TO PROVE THAT THE ASSESSEE COMPANY ITSE LF IS A REGISTERED STOCK BROKER WITH SEBI HAVING MEMBERSHIP OF SEBI RECOGNIZED STOCK EXC HANGES VIZ NATIONAL STOCK EXCHANGE (NSE), BOMBAY STOCK EXCHANGE OF INDIA (BSE ) AND MCX STOCK EXCHANGE (MCX-SX). 4 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 4 B) STATEMENT OF QUANTITY OF SHARES PURCHASED AND SO LD FOR 743 SCRIPS DURING THE YEAR UNDER CONSIDERATION AND THE SCRIP WISE PROFIT AND L OSS EARNED DURING THE YEAR. C) DETAILS OF PURCHASES AND SALES OF SCRIPS AS CALL ED FOR IN THE REQUISITE FORMAT BY THE LD AO. D) OBLIGATION FILES OF THE STOCK EXCHANGE FOR CERTA IN SETTLEMENT NUMBERS 100, 103, 113, 162, 167, 170, 171, 177, 204,219, 222, 223, 224, 23 4 & 235. E) TRADE FILES RECEIVED FROM THE STOCK EXCHANGE IN WHICH THE SETTLEMENT NUMBER, SETTLEMENT DATE, TRADE DATE, DISTINCT ORDER NUMBERS , TRADE NUMBERS AND TRADE TIME WERE GIVEN SHOWING THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE. F) DEMAT TRANSACTION AND HOLDING STATEMENTS SHOWING DELIVERY OF SHARES FOR PURCHASE AND SALE OF SHARES. G) COPY OF BANK STATEMENTS MARKING THE PAYMENTS MAD E TO / RECEIVED FROM STOCK EXCHANGE IN RESPECT OF PURCHASE AND SALE OF SHARES. H) COPIES OF CONTRACT NOTES ISSUED BY REGISTERED SH ARE BROKER FOR PURCHASE AND SALE OF SHARES OF AFORESAID TWO COMPANIES. 4.2. WE FIND THAT NEITHER SEBI NOR ANY OTHER REGULA TORY AUTHORITY HAD PASSED ANY ADVERSE ORDER AGAINST THE ASSESSEE COMPANY FOR HAVI NG INVOLVED IN ARTIFICIAL RIGGING OF SHARE PRICES OR FOR PROVIDING ALLEGED ACCOMMODATION ENTRY OF ALLEGED BOGUS LOSS ON SHARES . INFACT THE SEBI ON ITS INVESTIGATION HAD NOT SUSPENDED THE SCRIPS OF BLUE CIRCLE SERVICES LIMITED AND TUNI TEXTILE MILLS LIMITED AS IS EVIDENT FROM THE OUTCOME OF THE INVESTIGATION REPORT MENTIONED IN PAGES 5 & 8 OF AS SESSMENT ORDER. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAD RESORTED TO ANY C LIENT CODE MODIFICATION. ALL THE TRANSACTIONS WERE ROUTED THROUGH RECOGNIZED STOCK E XCHANGE WITH REGISTERED SHARE BROKER AT THE PREVAILING MARKET PRICES AFTER DULY S UFFERING STT . THE DOCUMENTATION MAINTAINED BY THE ASSESSEE IS THE SAME FOR ALL THE 743 SCRIPS AND WHEN THE SAID DOCUMENTS ARE ACCEPTED BY THE LD AO FOR 741 SCRIPS, THERE IS NO REASON TO DISBELIEVE THE SAME FOR SHARES OF BLUE CIRCLE SERVICES LIMITED AND TUNI TEXTILE MILLS LTD ALONE. 5 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 5 THERE IS ABSOLUTELY NO DISPUTE THAT THE ASSESSEE HA D DULY FILED THE REQUISITE DOCUMENTS IN CONNECTION WITH THE PURCHASE AND SALE OF SHARES AS DETAILED SUPRA AND THAT THE PRICES THEREON WERE MARKET DRIVEN. 4.3. WE FIND THAT THE LD CITA HAD DELETED THE DISAL LOWANCE BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHORIZE D REPRESENTATIVE OF THE APPELLANT AS WELL AS THE ASSESSMENT ORDER FRAMED IN THE LIGHT OF THE MATERIALS AVAILABLE ON RECORD BEFORE THE ASSESSING OFFICER DURING-THE ASSESSMENT PROCEEDINGS. THE APPELLANT IS A REGISTERED SHARE BROKER WITH SEC URITIES & EXCHANGE BOARD OF INDIA (SEBI). IT HAS ACTIVE MEMBERSHIP OF NATIONAL STOCK EXCHANGE (NSE) SINCE 1995, BOMBAY STOCK EXCHANGE (BSE) SINCE 2000 AND MCX STOC K EXCHANGE OF INDIA (MCX- SX) SINCE 2008. DURING THE RELEVANT YEAR UNDER CONS IDERATION THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ELECTRONICALLY DECLARING AN INCOME OF RS 3,37,95,314/-. THE 'SAID INCOME WAS DECLARED AFTER CLAIMING LOSS ON PU RCHASE AND SALE OF EQUITY SHARES OF RS 3,85,70,774/-. THE SAID LOSS WAS INCURRED FOR SA LE OF 3,10,000 EQUITY SHARES OF BLUE CIRCLE SERVICE LTD OF RS 1,53,47,039/- AND 1,25,800 EQUITY SHARES OF TUNI TEXTILES LTD OF RS 2,32,23,735/-. THE CASE WAS SELECTED FOR SCRUTIN Y ASSESSMENT, THE AO ASSESSED THE INCOME OF RS 8,89,91,088/- WHILE FRAMING THE SCRUT INY ASSESSMENT THE AO HAS DISALLOWED SHARE LOSS INCURRED BY THE APPELLANT IN RESPECT OF TWO SCRIPTS NAMELY BLUE CIRCLE SERVICES LTD AMOUNTING TO RS 1,53,47,039/- A ND TUNI TEXTILES LTD AMOUNTING TO RS 2,32,23,735/-. THE TOTAL DISALLOWANCE ON ACCOUNT OF ALLEGED BOGUS SHARE LOSS STOOD AT RS 3,85,70,774/-: THE AO HAS FURTHER DISALLOWED SUM OF RS 1,66,25,000/- CLAIMED BY THE APPELLANT U/S 35(1)(II) OF THE ACT. IT HAS BEEN ALLEGED BY THE AO THAT THE DONATION PAID TO SCHOOL OF HUMAN GENETICS AND POPULATION HEA LTH (SHG&PH) IS BOGUS IN NATURE AND THEREFORE THE APPELLANT WAS NOT ELIGIBLE TO CLAIM ANY DEDUCTION U/S 35 (L)(II) OF THE ACT. AT PARA 1.2 OF THE ASSESSMENT ORDER THE AO ALLEGES THAT HE HAS RECEIVED SOME INFORMATION FROM THE INVESTIGATION WING KOLKATA ABO UT THE APPELLANT THAT IT HAS CLAIMED BOGUS / FICTITIOUS LOSS BY TRADING IN SCRIPTS NAMEL Y 'BLUE CIRCLE SERVICES LTD' & 'TUNI TEXTILE LTD. THE APPELLANT FILED A DETAILED REPLY V IDE LETTER DATED 16.03.2016 WHICH HAS BEEN REPRODUCED BY THE AO. AT PARA 1.3 OF THE ASSES SMENT ORDER. IT WAS EXPLAINED TO THE AO THAT THE ALLEGED INFORMATION RECEIVED BY THE AO DID NOT INCLUDE NAME OF THE APPELLANT. THE INFORMATION WAS THOROUGHLY GONE THRO UGH BUT THE APPELLANT COULD NOT FIND ANY DATA OR INFORMATION RELATING TO ITS TRANSA CTIONS IN THESE SCRIPTS. IT WAS ALSO EXPLAINED THAT IN ABSENCE OF ANY SPECIFIC INFORMATI ON AGAINST THE APPELLANT NO ADVERSE INFERENCE CAN BE DRAWN. THE APPELLANT ALSO REQUESTE D THE AO TO PROVIDE THE HARD COPY OF THE RELEVANT INFORMATION ALLEGEDLY RECEIVED BY H IM FROM THE INVESTIGATION WING, KOLKATA. THE APPELLANT ALSO REQUESTED TO SUPPLY COP IES OF ALL THE STATEMENTS RECORDED BY THE AO OR ANY OTHER AUTHORITY WHICH ARE RELIED UPON BY THE AO AGAINST THE APPELLANT COMPANY. HOWEVER, NO SUCH REPORT OR COPIES OF STATE MENTS WERE EVER PROVIDED TO THE 6 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 6 APPELLANT. THE AO FURTHER AT PARAS 2.4 TO 2.9 OF TH E ASSESSMENT ORDER HAS REPRODUCED EXTRACTS OF THE REPORT OF THE INVESTIGATION WING, K OLKATA. GIST OF SUCH OBSERVATIONS ARE AS FOLLOWS:- SURVEY WAS CONDUCTED ON 30 SHARE BROKING ENTITIES AND ENTRY OPERATORS WORKING IN KOLKATA. ENQUIRIES REVEALED THAT THROUGH THE VARIOU S LEVELS OF ENTRY OPERATORS UNACCOUNTED CASH OF BENEFICIARIES IS TAKEN AND PRIC ES OF SHARES ARE MANIPULATED TO HIGH PRICES RESULTING IN LONG TERM CAPITAL GAINS TO THE BENEFICIARY. REVERSE MODUS OPERANDI IS ADOPTED IN ORDER TO PRO VIDE SHORT TERM CAPITAL LOSS. THE BENEFICIARIES BUY SHARES FROM EXISTING PROMOT ERS EITHER THROUGH OFFLINE MODE OR THROUGH ONLINE MODE AND AFTER A PERIOD OF MORE THAN ONE YEAR PRICES OF SUCH SCRIPTS INCREASE 10 TO 20 TIMES GIVING RISE TO EXEMPT LTCG. THE OPERATORS MAY INCORPORATE NEW COMPANY AND GET IT LISTED ON STOCK EXCHANGE OR BY WAY OF AMALGAMATION LISTING CAN BE DONE AT THE STOC K EXCHANGE. 'THEREAFTER, THE OPERATOR MANIPULATES THE SHARE PRICES. THE INVESTOR S ARE THOSE PERSONS WHO WANT THEIR UNACCOUNTED CASH TO BE CONVERTED TO BOGUS TAX EXEMP T LTCG. THE BUSINESS TRANSACTIONS OF SUCH COMPANIES ARE M ERE PAPER TRANSACTIONS. THE SHARE PRICES CONSISTENTLY RISE NORTHWARDS TILL THE PURPOR TED MARKET PRICE OF SHARE ATTAINS THE DESIRED LEVEL. THE RISE & FALL IN PRICE OF THE SHAR ES IS SHARP AND IT IS NOT AT ALL CORRELATED & COMMENSURATE WITH FUNDAMENTALS OF THE COMPANY. TH E FINANCIALS OF SUCH COMPANIES DO NOT JUSTIFY SUCH, RISE AND FALL IN THE PRICES OF SHARES OF ,SUCH COMPANIES. WHEN THE TIME IS RIPE FOR THE LTCG, CASH IS PROVI DED BY THE BENEFICIARIES TO THE AGENTS AND THEN THIS CASH IS HANDED OVER TO OPERATOR. THES E PERSONS THEN RECEIVE RTGS IN LIEU OF SUCH CASH FROM SMALL RTGS OPERATORS. THE INITIAL TRANSFER OF SHARES IN THE NAME OF BEN EFICIARY CM BE AN 'OFF MARKET TRANSACTION' OR 'ONLINE TRANSACTION' AND, THEREAFTE R, ISSUE OF ' PREFERENTIAL SHARES' AT NOMINAL RATES OR ISSUE OF BONUS SHARES EVEN THOUGH THERE IS HARDLY ANY PROFIT OR BUSINESS ACTIVITY IN THESE COMPANIES. ENQUIRIES FURTHER REVELS THAT THE FUNDS FOR THE P URCHASE OF SHARES WHICH ARE OFF- LOADED TO BOOK FACTIOUS LTCG, .AS ALREADY MENTIONED ABOVE, ARE IN FACT PROVIDED BY THE BENEFICIARIES IN CASH. FINALLY AT PARA 2.8 THE AO HAS SUMMARIZED THAT AS R EPORTED BY THE INVESTIGATION WING KOLKATA THE PROMOTERS OF THE LISTED PENNY STOCK COM PANIES RUN THE SYNDICATE, THE BROKERS AND THE ENTRY OPERATORS THROUGH WHOSE PAPER / SHELL COMPANIES CASH WERE ROUTED WERE MAINLY COMMISSION AGENTS. THE PENNY STO CK LISTED COMPANY IS SUCH THAT THOUGH ITS CAPITAL BASE IS SMALL ITS MARKET CAPITAL IZATION IS MANY TIMES ITS CAPITAL BASE. THIS WAS MANAGED GAIN THROUGH SMALL VOLUME PREDETER MINED TRANSACTION AMONGST MEMBERS OF THE SYNDICATE. THE PRICES OF SHARES WERE THUS MANIPULATED MANY TIMES THE 7 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 7 FACE VALUE. THE PURCHASE CONSIDERATION IS AGAIN PRO VIDED IN CASH BY THE INVESTOR WHICH IS LAUNDERED TO THE BUYER ACCOUNT THROUGH MAZE OF S HELL COMPANIES AS MENTIONED IN THE PREVIOUS METHOD. IN PARA 2.9 IT IS MENTIONED THAT PEOPLE WHO HAVE HU GE PROFIT TAKE SHORT TERM LOSS TO SET- OFF THEIR PROFIT. THE METHODOLOGY USED WAS THE SAME . THE BENEFICIARY WHO WANTS LOSS BUYS THE SHARE AT HIGH RATE FROM THE BENEFICIARY WH O IS TAKING LTCG. ' IN PARA 2.10 THE AO HAS LISTED NAMES OF 84 SCRIPTS FURNISHED BY THE INVESTIGATION RING WHICH ARE ALLEGED TO BE USED FOR PROVIDING BOGUS AC COMMODATION ENTRIES OF LOSS OR GAIN. OUT OF SUCH 84 ENTITIES 24 ENTITIES HAVE BEEN SUSPENDED BY SEBI. THE NAME OF BLUE CIRCLE AND TUNI TEXTILE IN WHICH THE APPELLATE CLAI MED LOSS ARE APPEARS AT SERIAL NUMBER 8 & 61 IN THE SAID LIST, BUT BOTH THE SCRIPTS WERE NOT SUSPENDED BY SEBI. IT CLEARLY INDICATED THAT THERE WAS NO SUCH EVIDENCE WHICH SUG GEST ANY ACTION AGAINST THE COMPANY. THEREFORE, RELIANCE UPON THE LIST BY THE A O CANNOT BE MADE TO DISALLOW ANY LOSS INCURRED BY THE APPELLANT. ' AT PARA 2.11 OF THE ASSESSMENT ORDER THE AO HAS MEN TIONED NAMES 'OF PROMOTERS/ KEY OPERATORS OF THE PENNY STOCK. IN SUCH LIST, NAME OF BLUE CIRCLE SERVICES LTD APPEAR AT SERIAL NUMBER 1 AND THE NAME OF PROMOTER / OPERATOR SRI JAGDISH PUROHITWHOSE STATEMENTS HAS BEEN RECORDED BY INVESTIGATION WING IS MENTIONED BUT NO LINKAGE OR NEXUS HAS BEEN ESTABLISHED BY THE INVESTIGATION WIN G IN THEIR REPORT OR BY THE AO DURING THE ASSESSMENT PROCEEDINGS OF SRI JAGDISH PUROHIT A ND THE APPELLANT COMPANY. THE COPY OF SUCH STATEMENT WAS NEVER FURNISHED TO THE A PPELLANT. ~URTHER IT IS PERTINENT TO MENTIONED THAT THERE IS NO MENTION OF NAME OF TUNI TEXTILE IN THIS LIST. THE AO, REASON BEST KNOWN TO HIM IN SPITE OF HAVING THE STATEMENT OF SHRI JAGDISH PUROHIT, DID NOT INVESTIGATE THE MATTER TO COLLECT THE FURTHER EVIDE NCE IN THE MATTER TO STRENGTHEN HIS CASE AND THERE IS NO SUCH MATERIAL ON RECORD THAT MR. PU ROHIT WAS CROSS EXAMINED AND CONFRONTED. IN PARA 2.12 THE AO HAS REPRODUCED THE REPORT OF IN VESTIGATION WING DESCRIBING HOW BOGUS SHORT TERM CAPITAL LOSS IS UNDERTAKEN. IT IS ALSO STRANGE THAT THE MODUS OPERANDI AND PROCEDURE OF PRICE RIGGING WAS VERY MUCH IN THE KNOWLEDGE OF THE AO AT THE TIME OF PASSING OF THE ASSESSMENT ORDER BUT IN SPITE OF THA T HE FAILED TO ESTABLISH THE PRESUMPTION INTO FACTS. SINCE IT'S A GENERAL OBSERV ATION WITHOUT ANY SUPPORTING MATERIAL. THE OBSERVATIONS ARE JUST OPINION OF THE INVESTIGATION WING WITHOUT ESTABLISHING ANY NEXUS WITH THE APPELLANT COMPANY. IT IS A SETTLED POSITION OF LAW THAT A DISALLOWANCE CANNOT BE MADE MERELY UPON PRESUMPTION AND WHIMS OR SUSPICION OF THE AO. NO MATTER HOW SO EVER STRONG THE SUSPICION IS, IN ABSENCE OF ANY CORROBORATIVE MATERIAL DISALLOWANCE IS UNJUSTIFIED AND BAD IN LAW . THE AO AT PAGE 13 TO 15 HAS MADE SOME CHARTS TO IND ICATE HOW THE PRICES OF TUNI TEXTILE MILLS LTD AND BLUE CIRCLE SERVICES LTD MOVE D OVER A PERIOD OF FIVE YEARS IN BSE. THIS IS ACADEMIC IN NATURE AND HAS NO BEARING OF UP ON THE APPELLANT'S CLAIM OF LOSS ON SALE OF THESE SHARES. THE AO IN HIS ORDER VERY MUCH EXPLAIN THE THEORY BUT AT THE SAME TIME HE FAILED TO ESTABLISH THE LOSS AS BOGUS WITH DOCUMENTARY EVIDENCES. 8 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 8 FINALLY AT PARA 2.14 AND 2.15 AO RELYING ENTIRELY U PON THE VAGUE REPORT OF THE INVESTIGATION WING KOLKATA, AO HELD THAT LOSS INCUR RED BY APPELLANT COMPANY BY TRADING IN SCRIPTS OF BLUE CIRCLE SERVICES LIMITED AMOUNTIN G TO RS 1,53,47,039/ - AND TUNI TEXTILE MILLS LTD AMOUNTING TO RS 2,32,23,735/- IS A FICTITIOUS LOSS AND ACCORDINGLY, HE DISALLOWED AND MADE ADDITION OF RS 3,85,70,774/- DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDING S THE AO ASKED THE APPELLANT COMPANY TO JUSTIFY ITS CLAIM OF LOSS IN RESPECT OF THE SHARES MENTIONED HEREIN ABOVE. THE AR OF THE APPELLANT FILED COMPLETE DETAILS IN RESPE CT OF SHARES PURCHASED AND SOLD BY THE APPELLANT COMPANY VIDE HIS LETTER, DATED 10.03.2016 . THE SAID LETTER INCLUDED COMPLETE DETAILS OF PURCHASE, SALE, PAYMENTS, MOVEMENT OF SH ARES, TRADE FILES AND OBLIGATION STATEMENT RECEIVED FROM RESPECTIVE STOCK EXCHANGE, LOSS/ GAINS ETC, IN RESPECT OF EACH AND EVERY SHARES WHICH WERE TRADED BY THE APPELLANT DURING THE RELEVANT ASSESSMENT YEAR. THE DOCUMENTS, EVIDENCES FILED BY THE APPELLA NT WERE NOT FOUND TO BE BOGUS OR FALSE. THERE WAS NO IRREGULARITY OR DISCREPANCY POI NTED OUT BY THE AO IN RESPECT OF DETAILS FILED BY THE APPELLANT IN SUPPORT OF ITS CL AIM THAT THE SHARE LOSS IS A GENUINE LOSS. THE AO IN THE ASSESSMENT ORDER; BESIDES RELYING UPO N THE GENERAL REPORT OF THE INVESTIGATION WING, KOLKATA HAS NOT BROUGHT ON RECO RD ANY COGENT, RELEVANT EVIDENCES AND FACTS WHICH CAN. PROVE THAT IN REALITY THERE WA S IN FACT NO PURCHASE & SALE OF SHARES BY THE APPELLANT. THE APPELLANTS BEING A REGISTERED SHARE BROKER ITS INCOME IS FROM SHARE TRADING AND BROKERAGE DONE ON BEHALF OF ITS CLIENTS. THE PURCHA SE AND SALE OF SHARES IS THE REGULAR BUSINESS ACTIVITY OF THE APPELLANT. IT IS NOT THAT THE APPELLANT HAS ONLY DEALT IN SHARES OF THESE TWO COMPANIES, THE 'APPELLANT HAS TRADED IN N UMBER OF SCRIPTS' WHICH HAS RESULTED IN PROFITS AS WELL AS LOSSES ALSO. SO, IT'S A REGUL AR BUSINESS ACTIVITY OF THE APPELLANT COMPANY. THE APPELLANT FILED COMPLETE DETAILS OF EN TIRE SHARE TRANSACTION INCLUDING THOSE MENTIONED HEREIN ABOVE BEFORE THE AO. SUCH DE TAILS INCLUDED STATEMENT OF QUANTITY OF SHARES PURCHASED AND SOLD OF EACH SCRIP , SCRIP WISE PROFIT AND LOSS EARNED DURING THE RELEVANT AY, DETAILS OF PURCHASE AND SAL E OF TUNI TEXTILE MILLS LTD AND BLUE CIRCLE SERVICES LTD ALONG WITH TRADE FILES AND OBLI GATION STATEMENT RECEIVED FROM RESPECTIVE STOCK EXCHANGE INCLUDING SETTLEMENT NUMB ER, DEMAT STATEMENT (DULY CERTIFIED BY THE DEPOSITORY PARTICIPANT) SHOWING INWARD AND O UTWARD MOVEMENT IN SUCH SCRIPTS. COPIES OF BANK STATEMENTS WERE ALSO FURNISHED TO SU BSTANTIATE THE PAYMENTS MADE AND PAYMENTS RECEIVED IN RESPECT OF TRADING OF SHARES O F THESE SCRIPTS. AN EXPLANATION WAS ALSO FILED VIDE LETTER DATED 16.03.2016 EXPLAINING AS TO WHY NO DISALLOWANCE OF SHARE LOSS SHOULD BE MADE BY THE AO. DURING-THE APPELLATE PROCEEDING, I HAVE GONE THROUG H THE DETAILS OF THE APPELLATE AS FILED DURING THE ASSESSMENT PROCEEDINGS. THE INFORM ATION REVEALS THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION PURCHASE AND SO LD 743 SCRIPT. THE TOTAL PURCHASE AMOUNT IS OF RS 39648.59 CRORES AND SALE AMOUNT IS OF RS 39667.05 CRORES. THE NET PROFIT IS OF RS 18.46 CRORES. I HAVE ALSO GONE THRO UGH THE SCRIPT WISE DETAILS OF TRADED SCRIPTS WHICH IS PART OF PAPER BOOK FILED BY THE AP PELLATE DURING THE APPELLATE PROCEEDINGS AND IT WAS ALSO FILED BEFORE THE AO DUR ING THE ASSESSMENT PROCEEDINGS. SO 9 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 9 IT CANNOT BE SAID THAT THE APPELLATE DEALS ONLY IN THESE TWO SCRIPTS AND TO CLAIM BOGUS LOSSES. I HAVE ALSO GONE THROUGH THE DEMAT STATEMENT OF THE APPELLATE. IT WAS MAINTAINED WITH THE AUTHORIZED OP R. M. SHARES TRADING PVT. LTD (A THIRD PARTY). THE PURCHASED SHARES WERE VERY MUCH DEPOSITED / CREDITED IN THE DEMAT AC COUNT MAINTAINED WITH THIRD PARTY IN DUE COURSE AND AT THE SAME TIME THE SOLD SHARES WER E ALSO DEBITED FROM THE DEMAT ACCOUNT IN DUE COURSE. THE DETAILS OF THESE SHARES PURCHASED AND DEPOSITED / SOLD AND DEBITED IN THE DEMAT ACCOUNT ARE AS UNDER: ALL THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES WERE MADE THROUGH ONLINE TRADING SYSTEM. THE TRANSACTION STATEMENT CLEARLY INDICATED THE TRADE NO AND TIME, ORDER DATE AND TIME. THE SCRIPTS WERE NOT SUSPENDED BY SEB! EI THER AT THE TIME OF TRANSACTION ENTERED BY THE APPELLANT OR THEREAFTER. THERE IS NO DENIAL OF ANY OF THE TRANSACTION OF EITHER PURCHASE OR SALE BY THE STOCK EXCHANGES WHER E THE TRANSACTIONS WERE ENTERED UPON, THE SHARES WERE PURCHASED AND SOLD AT PREVAIL ING MARKET RATE THROUGH THE STOCK EXCHANGE AND THE ENTIRE TRANSACTIONS WERE ROUTED TH ROUGH PROPER BANKING CHANNEL. THE SHARES WERE DULY REFLECTED IN THE DEMAT ACCOUNT OF THE APPELLANT COMPANY. THE AO HAS DISREGARDED THE CLAIM OF THE APPELLANT AND DISALLOW ED SHARE TRADING LOSS OF RS 3,85,70,774/- MERELY RELYING UPON A GENERAL REPORT OF INVESTIGATION WING KOLKATA IN 10 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 10 RESPECT OF VARIOUS 84 SCRIPTS AND HELD THAT FROM TH E DATE WISE CHART OF THE PRICE MOVEMENT OF THE AFORESAID SCRIPTS THERE WAS SHARP I NCREASE AND DECLINE IN THE PRICE OF THE SCRIPTS AND THE MODUS OPERANDI ADOPTED BY THE A PPELLANT WAS TO AVOID TAXES. THE TRADE FILES AND OBLIGATION STATEMENT RECEIVED FROM RESPECTIVE STOCK EXCHANGE IN SUPPORT OF PURCHASE AND SALE SUCH SHARES, CLEARLY I NDICATED THAT THE APPELLANT HAS PAID ALL THE STATUTORY CHARGES LEVIED BY THE STOCK EXCHA NGES. THE DEMAT ACCOUNT AND BANK STATEMENT OF THE APPELLANT COMPANY PLACED IN THE PA PER BOOK REFLECT ALL THE TRANSACTIONS OF THE APPELLANT. THE MATERIALS AS AVAILABLE IN PAPER BOOK, IT CAN SA FELY BE CONCLUDED THAT THE TRANSACTIONS WERE COMPLETE IN TERMS OF DOCUMENTATIO N AND THERE WAS NO DEFECT IN THE PAPERS SUBMITTED BY THE APPELLANT IN SUPPORT OF THE TRANSACTIONS. THE APPELLANT HAS PROVED THE TRANSACTION ON THE BASIS OF DOCUMENTS. N O INVESTIGATION HAS BEEN CARRIED OUT BY THE AO OR BY THE INVESTIGATION WING TO BRING ON RECORD ANY MATERIAL TO DISBELIEVE THE CLAIM OF THE APPELLANT. THE AO OR THE INVESTIGATION WING HAS MADE ACADEMIC DISCUSSION REGARDING THE PROBABILITY OF THE APPELLANT HAVING E NTERED INTO TRANSACTIONS IN COLLUSION WITH OPERATOR OF SCRIPTS WITH A VIEW TO CLAIM LOSS IN SHARE TRADING BUSINESS AND THEREBY REDUCING THE TAXABLE INCOME AND TAX LIABILITY. IN F ACT THERE IS NO EVIDENCE THAT THE PRICES OF THE SCRIPTS HAVE BEEN DEFLATED. THE AO HAS NOT D OUBTED THE PURCHASE OR SALE PRICE PREVAILING AT THE MATERIAL POINT OF TIME. THERE IS NO ALLEGATION THAT THE TRANSACTIONS WERE ENTERED BETWEEN RELATED PARTIES. IN ABSENCE OF ANY EVIDENCE TO SHOW THAT LOSS INCURRED BY THE APPELLANT IS A FICTITIOUS LOSS, THE ENTIRE GENERAL DISCUSSION IN THE ASSESSMENT ORDER SHOULD FADE INTO INSIGNIFICANCE. I T IS A 'SETTLED LAW THAT NO ADDITION OR DISALLOWANCE SHOULD BE MADE OR SUSTAINED ON CONJECT URES, SPECULATION & SUSPICION, HOW HIGH OR STRONG THEY MAY BE, BECAUSE SUSPICION A ND SURMISES WITHOUT ANY EVIDENCE CANNOT TAKE THE PLACE OF PROOF. IT IS FURTHER SUBMITTED THAT ON 16.03.2016 THE APPE LLANT SUBMITTED WRITTEN SUBMISSION BEFORE THE ASSESSING OFFICER AND ALSO MADE A SPECIF IC REQUEST BEFORE AO TO PROVIDE HARD COPY OF THE RELEVANT INFORMATION ALLEGEDLY REC EIVED BY THE AO FROM THE PR. DIT(INV) RELATING TO ALLEGED FALSE TRANSACTION OF L OSS OF RS.3,85,70,774/- ON THE BASIS OF WHICH ADVERSE INFERENCE IS SOUGHT TO BE DRAWN AGAIN ST THE APPELLANT BUT AO HAS NEVER HANDED OVER THE HARD COPY OF THE RELEVANT INFORMATI ON RECEIVED BY HIM FROM THE PR. DIT(INV.). THE ASSESSEE COMPANY ALSO ASKED THE ASSE SSING OFFICER TO ALLOW OPPORTUNITY OF CROSS-EXAMINATION OF THOSE PERSONS WHOSE STATEME NTS ARE USED AGAINST THE ASSESSEE TO DRAW ANY ADVERSE INFERENCE. THEREFORE, IT IS CLEAR CUT VIOLATION OF PRINCIPLE OF NATURAL JUSTICE. IN THE CASE OF COLONIZERS VS. ACIT (1992) 41 ITD 57 (HYD) (SB), THE ISSUE BEFORE THE HON'BLE SPECIAL BENCH WAS WHETHER THE ADDITIONS MAD E BY THE ASSESSING OFFICER IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE SHOU LD BE SET ASIDE AS VOID AB INITIO AND THUS DELETED OR SHOULD THE CASE BE RESTORED TO THE ITO WITH DIRECTIONS FOR-REDOING? IN THIS RESPECT, IT WAS HELD AS UNDER: - 'IN REGARD TO THE SECOND POINT OF DIFFERENCE, TWO S EGMENTS OF IT EXISTED. THE FIRST SEGMENT WAS AS TO WHETHER THE ADDITIONS MADE IN VIO LATION OF THE PRINCIPLES OF 11 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 11 NATURAL JUSTICE SHOULD BE SET ASIDE AS VOID AB INIT IO. THE SECOND SEGMENT WAS AS TO WHETHER THE ADDITION SHOULD BE DELETED OR SHOULD THE CASE BE RESTORED TO THE ITO, WITH A DIRECTION FOR RE-DOING. THE RULES OF N ATURAL JUSTICE OPERATE AS IMPLIED MANDATORY REQUIREMENT, NON-OBSERVANCE OF WH ICH AMOUNTS TO ARBITRARINESS AND DISCRIMINATION. THE PRINCIPLES OF NATURAL JUSTICE HAVE BEEN ELEVATED TO THE STATUS OF FUNDAMENTAL RIGHTS GUARAN TEED IN THE CONSTITUTION AS IS EVIDENT FROM THE DECISION OF THE FULL BENCH OF THE SUPREME COURT IN THE CASE A/UNION OF INDIA V. TULSIRAM PATEL AIR 1985 SC 1416 AT P. 1460, HOLDING '{FIAT THE PRINCIPLES OF NATURAL JUSTICE HAVE THUS COME TO BE RECOGNISED AS BEING A PART OF THE GUARANTEE CONTAINED IN ARTICLE 14 OF THE CON STITUTION BECAUSE A/THE NEW AND DYNAMIC INTERPRETATION GIVEN BY THE SUPREME COU RT TO THE CONCEPT OF EQUALITY WHICH IS THE SUBJECT-MATTER OF THAT ARTICL E AND THAT VIOLATION OF PRINCIPLES OF NATURAL JUSTICE BY A STATE ACTION IS A VIOLATION OF ARTICLE 14. IN FACT, THE PRINCIPLES OF NATURAL JUSTICE, IN THE REALM OF LIFE AND LIBERTY, WOULD IPSO FACTO EVEN BE READ INTO ARTICLE 21 BECAUSE ANY PROCEDURE WHICH AFFECTED LIFE OR LIBERTY HAD TO BE A JUST, FAIR AND REASONABLE PR OCEDURE WHICH NECESSARILY MEANT THE OBSERVANCE OF THE PRINCIPLES OF NATURAL J USTICE. THAT IS WHY THESE PRINCIPLES HAVE BEEN CALLED AS PART OF THE UNIVERSA L LAW, AS PART OF THE RULE OF LAW AND HAVE ALSO BEEN TERMED AS FAIR PLAY IN ACTIO N. AUDI ALTERARM PARTEM IS ONE OF THE FUNDAMENTAL PRIN CIPLES OF NATURAL JUSTICE. A QUASI-JUDICIAL OR ADMINISTRATIVE DECISION RENDERED OR AN ORDER MADE IN VIOLATION OF THE RULE OF AUDI ALTERAM PARTEM IS NULL AND VOI D AND THE ORDER MADE IN SUCH A CASE CAN BE STRUCK DOWN AS INVALID ON THAT SCORE AL ONE - MANEKA GANDHI V. UNION OF INDIA AIR 1978 SC.597, GANGADHARAN PILLAI V. ACED [1980] 126 ITR 356 AT PP. 365 TO 367 (KER.). IN OTHER WORDS, THE O RDER WHICH INFRINGES THE FUNDAMENTAL PRINCIPLE, PASSED IN VIOLATION OF AUDI ALTERAM PARTEM RULE, IS A NULLITY. WHEN A COMPETENT COURT OF AUTHORITY HOLDS SUCH AN ORDER AS INVALID OR SETS IT ASIDE, THE IMPUGNED ORDER BECOMES NULL AND VOID - NAWABKHAN ABBASKHAN V. STATE OF GUJARAT AIR 1974 SC 1471 AT P . 1479. IN THE LIGHT OF THESE DECISIONS, THE ADDITIONS MADE BY THE ASSESSING OFFI CER IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE HAD TO BE SET ASIDE A S VOID ONLY INSOFAR AS THE ADDITIONS BY WAY OF CASH CREDITS ALONE WERE CONCERN ED, WHICH WERE SEPARABLE FROM THE OTHER ADDITIONS IN THE ORDER THAT WERE NOT CHALLENGED.' IN VIEW OF SUCH AUTHORITATIVE LEGAL POSITION, I AM OF THE CONSIDERED VIEW THAT THE WELL- SETTLED PRINCIPLES OF NATURAL JUSTICE HAVE NOT BEEN FOLLOWED BY THE AO. THE APPELLANT WAS NEVER PROVIDED HARD COPY OF THE RELEVANT INFORM ATION ALLEGEDLY RECEIVED BY THE AO FROM THE PR. DIT (LNV) RELATING TO ALLEGED FALSE TR ANSACTION OF LOSS OF RS 3,85,70,774/- ON THE BASIS OF WHICH ADVERSE INFERENCE IS SOUGHT T O BE DRAWN AGAINST THE APPELLANT BUT AO HAS NEVER HANDED OVER THE HARD COPY OF THE RELEV ANT INFORMATION RECEIVED BY HIM FROM THE PR. DIT(INV.). MOST RESPECTFULLY, FOLLOWIN G THE RATIO LAID DOWN IN THE CASE OF COLONIZERS VS. ACIT [SUPRA] AS DISCUSSED ABOVE, THE CONCLUSION REACHED BY THE AO WITHOUT ADHERING TO THE RULE OF AUDI ALTERAM PARTEM IS EX-FACIE NULL AND AB INITIO VOID AND THE SAME IS HEREBY STRUCK DOWN ON THIS SCORE ON LY. 12 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 12 BE THAT AS IT MAY, ON MERITS ALSO IT IS OBSERVED TH AT 'THE ADDITION WAS MADE WITH THE PREDETERMINED MIND-SET THAT THE LOSSES ARE BOGUS AN D THE APPELLANT HAVING ENTERED INTO TRANSACTIONS IN COLLUSION WITH OPERATOR OF SCRIPTS WITH A VIEW TO CLAIM LOSS IN SHARE TRADING BUSINESS AND THEREBY REDUCING THE TAXABLE I NCOME AND TAX LIABILITY. THIS PROPOSITION IS SUPPORTED BY THE JUDGMENT OF TH E PATNA HIGH COURT IN THE CASE OF ADDITIONAL CIT V. BAHRI BROTHERS PVT. LTD. (1985) 1 54 ITR 244 AND THE JUDGMENT OF THE SUPREME COURT OF INDIA IN THE CASE OF CIT V. ORISSA CORPORATION PVT. LTD. (1986) 159 ITR 78 (SC). THUS THE APPELLANT HAVING DISCHARGED T HE BURDEN, IT IS THE REVENUE WHICH HAD TO VERIFY THE GENUINENESS OF THE TRANSACTION AN D THE PRIMARILY IN CASE AO DID NOT DISCHARGE THE BURDEN WHICH HAD SHIFTED ON HIM AND H AD JUST MECHANICALLY ADHERED TO DISALLOW THE LOSS .AIMED BY THE APPELLANT WITHOUT R EBUTTING ANY OF THE SUBMISSIONS OF THE APPELLANT. . THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F THE CIT VS EASTERN COMMERCIAL ENTERPRISES [1994] 210 ITR 103, HELD THAT RIGHT TO CROSS-EXAMINE A WITNESS ADVERSE TO THE ASSESSEE IS AN INDISPENSABLE RIGHT AND THE OPPO RTUNITY OF SUCH CROSS-EXAMINATION IS ONE OF THE CORNER-STONES OF NATURAL JUSTICE. THUS O N THIS LIMB OF THE ARGUMENT ITSELF THE ASSESSMENT ORDER SHOULD BE HELD TO BE BAD IN LAW. W HEN THE AO IS HAVING THE STATEMENT OF MR JAGDISH PUROGIT, HE MUST HAVE CROSS EXAMINED WITH THE APPELLATE TO COLLECT THE EVIDENCE IN THE MATTER, WHICH HAS NOT BEEN DONE IN THE CASE. THUS THE AO HAS FAILED TO DISCHARGE HIS DUTIES. THE HON'BLE DELHI HIGH COURT IN THE CASE OF IN THE CASE OF DHARAM PAL PRERN CHAND LTD REPORTED IN 295 ITR 105; WHILE DISMISSING THE A PPEAL FILED BY THE REVENUE HAS HELD AS UNDER (PAGE 108): THERE IS NO DOUBT THAT EVEN IF THE STRICT RULES OF EVIDENCE MAY NOT APPLY, THE BASIC PRINCIPLES OF NATURAL JUSTICE WOUL D APPLY TO THE FACTS OF THE CASE. THE ASSESSING OFFICER PLACED RELIANCE UPON THE REPORT O F THE SHRI RAM INSTITUTE FOR INDUSTRIAL RESEARCH FOR DECIDING AGAINST THE ASSESS EE. THE REPORT CANNOT BE AUTOMATICALLY ACCEPTED PARTICULARLY SINCE THERE IS A CHALLENGE TO IT AND THE ASSESSEE HAD SOUGHT PERMISSION TO CROSS-EXAMINE THE ANALYST MAKI NG THE REPORT. SINCE THE ASSESSING OFFICER DID NOT PERMIT THE CORRECTNESS OR OTHERWISE OF THE REPORT TO BE TESTED, THERE IS A CLEAR VIOLATION OF THE PRINCIPLES OF NATURAL JUSTIC E COMMITTED BY HIM IN RELYING UPON IT TO THE DETRIMENT OF THE ASSESSEE. THE ASSESSING OFFICER FAILED TO APPRECIATE THAT REP LY LETTERS DATED 10.03.2016 AND 16.03.2016 FILED BY THE APPELLANT SEEKING COPIES OF STATEMENTS OF OPERATORS RECORDED BY THE INVESTIGATION WING. BUT THE AO MECHANICALLY AND ARBITRARILY FOLLOWED THE INVESTIGATION REPORT AS WELL AS STATEMENT RECORDED DURING THE COURSE OF SURVEY PROCEEDINGS WITHOUT ESTABLISHING ANY LINK OF SUCH S TATEMENTS WITH THAT OF THE APPELLANT COMPANY: IT IS ALSO APPARENT FROM THE IMPUGNED ASSE SSMENT ORDER THAT NO INDEPENDENT FINDING IS RECORDED IN DISALLOWING THE LOSS INCURRE D IN RESPECT OF BLUE CIRCLE SERVICES LIMITED AMOUNTING TO RS 1,53,47,039/- AND TUNI TEXT ILE MILLS LIMITED AMOUNTING TO RS 2,32,23,735/- BECAUSE THE AO FAILED TO INVESTIGATE THE MATTER TO COLLECT THE EVIDENCES. 13 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 13 IN SPITE OF SPECIFIC REQUEST FOR PROVIDING INFORMAT ION OF PR. DIT (INV.), KOLKATA AND THE STATEMENTS OF VARIOUS PERSONS USED AGAINST THE ASSE SSEE COMPANY, THE ASSESSING OFFICER DISALLOWED THE LOSS OF RS.3,85,70,774 SUFFERED BY T HE ASSESSEE COMPANY IN DEALING IN SHARES OF BLUE CIRCLE AND TUNI TEXTILES, WITHOUT FU RNISHING THE SAID INFORMATION AND THE STATEMENTS OF THIRD PARTIES. WHILE DISALLOWING THE AFORESAID LOSS, THE ASSESSING OFFICER ALLEGED THAT THE SHARES OF THE TWO COMPANIES WERE ' PENNY STOCKS' RUN BY THE BROKERS AND THE ENTRY OPERATORS. THE ASSESSING OFFICER, IN PARAS 2.4 TO 2.15 OF THE IMPUGNED ASSESSMENT ORDER REFERRED TO THE REPORT OF THE INVE STIGATION WING OF THE DEPARTMENT AND ALSO THE STATEMENTS OF VARIOUS PERSONS RECORDED UND ER SECTION 131 OF THE ACT TO HOLD THAT THE PRICES OF THE SHARES OF MANY COMPANIES LIS TED IN STOCK EXCHANGE WERE RIGGED BY BROKERS / PERSONS TO PROVIDE LONG TERM CAPITAL GAIN S' AND/OR PROFITS AND LOSSES TO DESIRED PERSONS. THE ASSESSING OFFICER, REFERRING T O THE REPORT OF INVESTIGATION WING, FURNISHED THE LIST OF SCRIPS OF VARIOUS COMPANIES L ISTED IN BSE/NSE WHICH WERE SUSPENDED FOR DUBIOUS TRADING. HOWEVER, THE SAID LI ST OF SUSPENDED SHARES DID NOT INCLUDE THE NAME OF 'BLUE CIRCLE' AND TUNI TEXTILE S IN WHICH THE ASSESSEE COMPANY TRADED AND SUFFERED LOSSES. THE SAID REPORT, AS IS EVIDENT FROM PARA2.4 TO 2.15 OF THE ASSESSMENT ORDER, CONTAINS VARIOUS PRESUMPTIONS AND ALLEGATIONS WITHOUT ANY AUTHENTIC LEGAL EVIDENCES THEREOF. THE ASSESSING OFFICER DISALLOWED THE LOSS OF RS.3,8 5,70,77 4 SUFFERED BY THE ASSESSEE COMPANY ON VARIOUS ALLEGATIONS MADE IN PARA 2.4 TO 2)5 OF THE IMPUGNED ASSESSMENT ORDER WHICH WERE BASED ON SUSPICION, SURMISES AND C ONJECTURES ONLY ALTHOUGH IT IS SETTLED LAW THAT NO ASSESSMENT CAN BE MADE ON SUSPI CION HOWSOEVER STRONG IT MAY BE. THE HON'BLE SUPREME COURT IN THE CASE OF UMACHARAN SHAW & BROTHERS VS. CIT [1959] 37 ITR 271 (SC) HELD THAT ' ..... THERE ARE MANY SU RMISES AND .CONJECTURES, AND THE CONCLUSION IS THE RESULT OF SUSPICION WHICH CANNOT TAKE THE 'PLACE OF PROOF IN THESE MATTERS ..... '.' RELIANCE IN THIS CONNECTION IS PL ACED ON THE CELEBRATED DECISION OF THE HON'BLE SUPREME COURT IN LALCHAND BHAGAT AMBICA RAM VS. CIT [1959] 37 ITR 288 (SC) WHEREIN THE HON'BLE APEX COURT HAD RELIED ON I TS EARLIER JUDGEMENT RENDERED IN THE CASE OFOMAR SALAY MOHAMED SAIT [1959] 37 ITR 15 1 (SC) AND HAD HELD THAT: 'IT IS, THEREFORE, CLEAR THAT THE TRIBUNAL IN ARRIV ING AT THE CONCLUSION IT DID IN THE PRESENT CASE INDULGED IN SUSPICIONS, CONJECTURES AN D SURMISES AND ACTED WITHOUT ANY EVIDENCE OR UPON A VIEW OF THE FACTS WHICH COUL D NOT REASONABLY BE ENTERTAINED OR THE FACTS FOUND WERE SUCH THAT NO PE RSON ACTING JUDICIALLY AND PROPERLY INSTRUCTED AS TO THE RELEVANT LAW COULD HA VE FOUND, OR- THE FINDING WAS, IN OTHER WORDS, PERVERSE AND THIS COURT IS ENTITLED TO INTERFERE,' IT IS SETTLED LAW THAT, NO ADDITION CAN BE MADE ON THE BASIS OF SURMISES, SUSPICION AND CONJECTURES. RELIANCE IS ALSO PLACED ON THE DECISIO N OF THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF C.I.T. (CENTRAL) CALCUTTA VS. DAULATRARN RAWATMULL (87 ITR 349) WHEREIN IT HAD HELD THAT 'THE ONUS TO PROVE THAT TH E APPARENT IS NOT THE REAL IS ON THE PARTY WHO CLAIMS IT TO BE SO. THE ASSESSING OFFICER MADE VARIOUS OTHER ALLEGATION S LIKE PRICE RIGGING ETC. WITHOUT BRINGING ON RECORD ANY COGENT MATERIAL AND CORROBOR ATIVE EVIDENCES. THERE IS NOTHING ON RECORD TO SUGGEST THAT THE PRICES WERE RIGGED BY THE ASSESSEE COMPANY AND/OR ANY 14 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 14 OTHER PERSON TO PROVIDE ANY SUCH BENEFIT TO IT AS A LLEGED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER ALSO ALLEGED THAT SOME UNSCRUPULO US OPERATORS WERE RUNNING A SCHEME OF PROVIDING ENTRIES OF LTCG/STCG FOR A COMM ISSION. THE ASSESSING OFFICER ALSO ALLEGED THAT IN THE STATEMENT RECORDED OF BROK ERS/OPERATORS/DIRECTORS OF PAPER COMPANIES THEY HAVE CONFESSED TO SUCH SCHEME WITH D ETAILED DATA. THE ASSESSING OFFICER HAS NOT BROUGHT ANY EVIDENCE ON RECORD WHIC H SUGGESTED INVOLVEMENT OF THE ASSESSEE COMPANY IN SUCH ALLEGED MANIPULATIONS. THE AFORESAID ALLEGATIONS CLEARLY SHOW THAT THESE ARE SUSPICION, SURMISES AND CONJECT URES AND ARE DEFINITELY ALIEN TO THE FACTS AND THE EVIDENCES BROUGHT ON RECORD BY THE A SSESSEE COMPANY. THERE WERE NO EVIDENCE AND MATERIALS ON RECORD WHICH CAN BE AID T O BE LEGAL POSITIVE EVIDENCE, SUPPORTING THE CASE OF THE ASSESSING OFFICER, MORE SO THEN THE APPELLATE COMPANY HAD DISCHARGED ITS PRIMARY ONUS BY PRODUCING THE BOOKS OF ACCOUNTS AND ALL EVIDENCES IN SUPPORT OF ITS CLAIM OF THE AFORESAID TRADING LOSS OF RS.3,85,70,774. THUS ALL THE INFERENCES DRAWN BY THE ASSESSING OFFICER, MORE PAR TICULARLY AT.PARA'2.4 TO 2.14 OF THE IMPUGNED ASSESSMENT ORDER ARE BASED ON SUSPICION, S URMISES AND CONJECTURES ALONE WITHOUT ANY COGENT MATERIALS AND/OR EVIDENCES BROUG HT ON RECORD BY HIM AGAINST THE ASSESSEE COMPANY. THE APPELLANT HAD DISCHARGED ITS ONUS OF PROVING TH E GENUINENESS OF THE TRANSACTIONS RESULTING IN TRADING LOSS AND WHEN THE ASSESSEE HAS DISCHARGED ITS ONUS OF PROVING THE GENUINENESS OF THE TRANSACTIONS BY FURNISHING ALL E VIDENCES, NO ADVERSE INFERENCE COULD BE DRAWN UNLESS THE SAME ARE PROVED TO BE FALSE OR BOGUS. THE HON'BLE JURISDICTIONAL HIGH COURT OF CALCUTTA WHERE THE GAINS/LOSSES ARISI NG FROM THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES WERE HELD TO BE GENUINE WHEN IT WAS FOUND THAT THE TRANSACTIONS ARE SUPPORTED BY DOCUMENTARY EVIDENCES LIKE CONTRACT NOTES, BILLS AND VOUCHERS AND WHERE THE TRANSACTIONS WERE SETTLED BY ACCOUNT PAYEE CHEQUES/BANKING CHANNELS. THE COURTS HELD THAT THE SAME COULD NOT H ELD TO BE BOGUS ON THE BASIS OF GENERAL ADVERSE REPORTS OF INVESTIGATION WING AND/O R SOME OTHER AGENCIES OF THE GOVERNMENT AND/OR ENQUIRY MADE BY THE ASSESSING OFF ICER. THE HON'BLE HIGH COURT IN THE CASE OF CIT VS. LAKSH MANGARH ESTATE & TRADING CO. LTD. - ITA NO, 270 OF 1999 (JUDGMENT DATED 7TH OCTO BER, 2013) HELD THAT 'ON-THE BASIS OF A SUSPICION HOWSOEVER STRONG IT IS NOT POSSIBLE TO RECORD ANY FINDING OF FACT. AS A MATTER OF FACT. SUSPICION CAN NEVER TAKE THE PLACE OF PROOF WHAT WERE THE INDIVIDUAL FACTS AND CIRCUMSTANCES IN THE CASE OF OTHER INVESTORS INDICATED IN THE CHART APPEARING AT PAGE-51 OF THE PAPER BOOK ARE NOT KNOWN TO US. IN SO FAR AS THE ASSESSEE IS CONCERNED, THE FAC TS AND CIRCUMSTANCES ARE BEFORE US WHICH WE HAVE ALSO TABULATED. THE FINDING ARRIVE D AT BY THE TRIBUNAL INDICATED ABOVE WAS NOT EVEN ALLEGED BY MR. DUTTA T O HAVE NOT BEEN BASED ON EVIDENCE. IN, THE TEETH OF THE AFORESAID FINDINGS M ADE BY THE TRIBUNAL ON THE BASIS OF EVIDENCE, IT IS DIFFICULT, IF NOT IMPOSSIB LE, TO HOLD THAT THE TRANSACTION OF BUYING AND SELLING OF SHARES OF HINDUSTAN DEVELOPME NT CORPORATION LTD. WAS A COLOURABLE TRANSACTION OR WAS RESORTED TO WITH ANY ULTERIOR MOTIVE OF REDUCING THE TAX PAYABLE FOR LONG TERM CAPITAL GAIN. 15 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 15 THE HON'BLE HIGH COURT IN THE CASE OF CIT VS. BHAGW ATI PRASAD AGARWAL- ITA NO. 22 OF 2009 (JUDGMENT DATED 29TH APRIL, 2009) HELD THAT TH E CHAIN OF TRANSACTION ENTERED INTO BY THE ASSESSEE HAVE BEEN PROVED, ACCOUNTED FOR, DO CUMENTED AND SUPPORTED BY EVIDENCE. THE ASSESSEE PRODUCED THE CONTRACT NOTES, DETAILS OF HIS DEMAT ACCOUNT AND, ALSO, PRODUCED DOCUMENTS SHOWING THAT ALL PAYMENTS WERE RECEIVED BY THE ASSESSEE THROUGH BANK. IN THESE CIRCUMSTANCES THE INFORMATIO N FROM STOCK EXCHANGE CANNOT BE USED TO DENY EXEMPTION OF LTCG CLAIMED BY ASSESSEE. THE HON'BLE HIGH COURT IN THE CASE OF CLASSIC GROWE RS LTD. VS. CIT - ITA NO. 129 OF 2012 (JUDGMENT DATED 28TH FEBRUARY, 2013), WHILE DE ALING WITH THE CASE WHERE THE ASSESSEE CLAIMED LOSS IN TRANSACTIONS OF PURCHASE A ND SALE OF SHARES AND CLAIMED SET OFF AGAINST THE INCOME FROM INTEREST YEAR AFTER YEAR AN D THE AA HELD THAT THE ASSESSEE WAS INDULGING IN SUCH ACTIVITY OF GENERATING LOSSES YEA R AFTER YEAR TO REDUCE ITS TAX LIABILITY, HELD AS UNDER. 'THEREFORE, IT CANNOT BE SAID BY ANY STRETCH OF IMA GINATION THAT ANY LOSS WAS GENERATED. THE OPINION THAT THE ASSESSEE GENERATED A SIZEABLE AMOUNT OF LOSS OUT OF PRE-ARRANGED TRANSACTIONS SO AS TO REDUCE THE QU ANTUM OF INCOME LIABLE FOR TAX MIGHT HAVE BEEN THE VIEW EXPRESSED BY THE ASSES SING OFFICER, BUT HE MISERABLY FAILED TO SUBSTANTIATE THAT LOSS MIGHT HA VE BEEN SUFFERED. IF THE LOSS WAS SUFFERED, THEN APPROPRIATE DEDUCTION HAS TO BE MADE AND THERE IS NO REASON WHY THE ASSESSING OFFICER SHOULD HAVE REFUSED TO DO SO. THE LEARNED TRIBUNAL RESTORED THE ORDER OF THE ASSESSING OFFICER AND SET ASIDE THE ORDER PASSED BY THE CIT (APPEAL) WITHOUT APPLICATION OF MIND. THE LEARN ED TRIBUNAL IGNORED THE FACT THAT THE TRANSACTION WAS CARRIED OUT AT THE PREVAIL ING PRICE. THEREFORE, THE QUESTION OF GENERATING LOSS COULD NOT HAVE ARISEN. THE SUSPICION ENTERTAINED BY THE ASSESSING OFFICER WAS MISPLACED OR IN ANY EVENT NOT SUBSTANTIATED. THE HON'BLE HIGH COURT IN THE CASE OFCIT VS. SHREYA SHI GANGULI - ITAT NO. 196 OF 2012 (JUDGMENT DATED 5 TH SEPTEMBER, 2012) FOUND THAT THE TRANSACTIONS WERE AS PER NORMS UNDER CONTROLLED BY THE SECURITIES TRANSACTIO N TAX, BROKERAGE SERVICE TAX AND CESS, WHICH WERE ALREADY PAID. THEY WERE COMPLIED W ITH. ALL THE TRANSACTIONS WERE THROUGH BANK. THERE IS NO IOTA OF EVIDENCE OVER THE ABOVE TRANSACTIONS AS IT WERE THROUGH D-MAT FORMAT. HENCE, HON'BLE COURT AGREED W ITH THE FINDINGS OF THE LEARNED COMMISSIONER OF THE INCOME-TAX (APPEALS) IN ACCEPTI NG THE TRANSACTIONS AS GENUINE. JURISDICTIONAL HON'BLE CALCUTTA HIGH COURT HAD HELD THAT: 'THE ASSESSING OFFICER HAS DOUBTED THE TRANSACTION SINCE THE SELLING BROKER WAS- SUBJECTED TO SEBI'S ACTION. HOWEVER, THE D-MAT ACCO UNT GIVEN THE STATEMENT OF TRANSACTIONS FROM 1.4.04 TO 31.3.2005 I.E. RELEVANT FOR THE ASSESSMENT YEAR UNDER APPEAL [2005-06] ARE BEFORE US. THERE CANNOT BE ANY DOUBT ABOUT THE TRANSACTION AS HAS BEEN OBSERVED BY THE ASSESSING O FFICER. THE TRANSACTIONS WERE AS PER NORMS UNDER CONTROLLED BY THE SECURITIE S TRANSACTION TAX. BROKERAGE SERVICE TAX AND CESS. WHICH WERE ALREADY PAID. THEY WERE COMPLIED WITH. ALL THE TRANSACTIONS WERE THROUGH BANK. THERE IS NO IOTA OF EVIDENCE OVER THE ABOVE TRANSACTIONS AS IT WERE THROUGH D-MAT FOR MAT. HENCE, WE AGREE WITH THE GIVEN FINDINGS OF THE LEARNED COMMISSIONER OF T HE INCOME-TAX (APPEALS) IN 16 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 16 ACCEPTING THE TRANSACTIONS AS GENUINE TOTO. IN VI EW OF THE FACT FINDINGS WE CANNOT RE-APPRECIATE, RECORDING IS SUCH, CANNOT BE SAID TO BE PERVERSE AS IT IS NOT FACT FINDING OF THE LEARNED TRIBUNAL ALONE. THE COMMISSIONER OF INCOME TAX CAME TO THE SAME FACT FINDING. CONCURRENT FACT FIND ING ITSELF MAKE THE STORY OF PERVERSITY, UNBELIEVABLE. AND THE APPEAL WAS PREFER RED ON THE SAME POINT. THAT WAS DISMISSED IN VIEW OF THE DECISIONS RENDERED IN THE FIRST MENTIONED APPEAL ON THE IDENTICAL POINT.' THE HON'BLE HIGH COURT IN THE CASE OF CIT VS. KEDAR NATH AGARWAL (HUF) ITAT NO. 6 OF 2011 - IN THIS CASE THE AO OBSERVED THAT THE ASSESS EE SUFFERED HUGE LOSSES ON SALE OF SHARES OF HINDUSTAN DEVELOPMENT CORPORATION LTD. IN QUIRY WAS MADE BY THE AO FROM CALCUTTA STOCK EXCHANGE LTD. ON RECEIPT OF INFORMAT ION FROM STOCK EXCHANGE IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THERE WERE M ANY ANOMALIES IN THE SHARE TRANSACTIONS CARRIED OUT BY THE ASSESSEE. THE ASSES SEE, HOWEVER, CLARIFIED THAT HE HAD CARRIED OUT ALL THE TRANSACTIONS OF PURCHASE AND SA LE OF THOSE SHARES THROUGH REGISTERED SHARE BROKERS OF CALCUTTA STOCK EXCHANGE AND THAT T HEY HAD ISSUED THE CONTRACT NOTES WHICH HAD BEEN DULY SUBMITTED. IT WAS ALSO POINTED OUT THAT THE CONSIDERATION FOR PURCHASE AND 'SALE OF THOSE SHARES HAVE BEEN PAID O R RECEIVED THROUGH BANKING CHANNELS AND COPIES OF BANK STATEMENTS HAVE ALSO BE EN SUBMITTED. IT FURTHER APPEARED THAT ON PURCHASE OF THESE SHARES THE DELIVERY WAS T AKEN IN DEMAT ACCOUNT AND SIMILARLY WHEN THE SHARES WERE SOLD, THE DELIVERY TO THE RESP ECTIVE BROKERS HAVE ALSO BEEN GIVEN THROUGH DEMAT ACCOUNT. THE COPY OF THE DERNAT ACCOU NT WAS ALSO SUBMITTED DURING THE ASSESSMENT PROCEEDING. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAD INCURRED LOSS IN THOSE SHARES WHICH WERE LISTED ON THE CALCUTTA STOCK EXCHANGE WHICH WAS BOGUS. HOWEVER, THE APPELLATE AUTHORITY CAME TO THE CONCLUSION THAT SO FAR THE ASSESSEE WAS CONCERNED, HE HAD ENTERED INTO TRANSAC TIONS OF PURCHASE AND SALE THROUGH BROKERS AND HE WAS NOT RESPONSIBLE FOR THE MANNER I N WHICH THE BROKERS CARRIED OUT THE TRANSACTIONS. IT WAS POINTED OUT THAT THE ASSESSEE WAS CONCERNED ONLY ABOUT THE RECEIPTS OF THE SHARES ON PURCHASE AND DELIVERY OF SHARES TO THE BROKERS ON THEIR SALE AND THE ASSESSING OFFICER HAD NOT BROUGHT ANYTHING ON RECOR D TO PROVE THAT THERE WAS ANY CONNIVANCE BETWEEN THE ASSESSEE AND THE SHARE BROKE RS. THE APPELLATE AUTHORITY FURTHER CAME TO THE CONCLUSION THAT THE ASSESSING AUTHORITY HAD DISALLOWED THE CAPITAL LOSS OF RS.15,29,049 ONLY ON THE BASIS OF INFORMATION SUBMI TTED BY THE STOCK EXCHANGE AND THE ASSESSING OFFICER HIMSELF HAD NOT BROUGHT ANYTHING ON RECORD TO PROVE THAT THE TRANSACTIONS OF PURCHASE AND SALE OF THE SHARES IN WHICH THE ASSESSEE HAD SUFFERED THE LOSS WERE NOT GENUINE TRANSACTIONS. IT IS FURTHER R ECORDED BY THE APPELLATE AUTHORITY THAT THE ASSESSEE HAD SUBMITTED THE COMPLETE DOCUMENTARY EVIDENCES TO PROVE HIS TRANSACTIONS OF PURCHASE AND SALE OF THOSE SHARES A ND THE ASSESSING OFFICER COULD NOT PROVE THAT THE EVIDENCE SUBMITTED BY THE ASSESSEE W AS EITHER FALSE OR FICTITIOUS.' IT WAS FURTHER POINTED OUT THAT THE ASSESSEE HAD- PURCHASE D AND SOLD THE SHARES THROUGH THE REGISTERED SHARE BROKERS OF THE CSE, THE DELIVERY O F SHARES WAS RECEIVED OR GIVEN THROUGH THE DEMAT ACCOUNT AND THE PAYMENTS WERE MAD E OR RECEIVED THROUGH THE ACCOUNT PAYEE CHEQUES AND THE CORRECTNESS OF THOSE DOCUMENTS WAS BEYOND ANY DOUBT. THE HON'BLE HIGH COURT HELD THAT ON THE FACTS AND M ATERIALS AVAILABLE ON RECORD THE CAPITAL LOSS INCURRED BY THE ASSESSEE ON THE SALE O F SHARES LISTED ON CSE AND OTHERS WAS REALLY GENUINE LOSS AND THUS, THE TRIBUNAL BELOW RI GHTLY CONFIRMED THE ORDER PASSED BY 17 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 17 THE APPELLATE AUTHORITY AND THE APPEAL FILED BY RE VENUE WAS DISMISSED BEING DEVOID OF ANY MERIT. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF SHYAM R PAWAR [2015] 54 TAXMANN.COM 108 (BOMBAY) IT APPEAL NOS. 1568.TO 157 1 OF 2012 DECEMBER 10, 2014 HAS HELD UNDER:- . 'SECTION 68 OF THE INCOME-TAX ACT, 1961 - CASH CRED IT (SHARE DEALINGS) - ASSESSMENT YEARS 2003- 04 TO 2006-07 - ASSESSEE DECLARED CAPIT AL GAIN ON SALE OF SHARES OF TWO COMPANIES - ASSESSING OFFICER, OBSERVING THAT TRANS ACTION WAS DONE THROUGH BROKERS AT CALCUTTA AND PERFORMANCE OF CONCERNED COMPANIES WAS NOT SUCH AS WOULD JUSTIFY INCREASE IN SHARE PRICES, HELD SAID TRANSACTION AS BOGUS AND HAVING BEEN DONE TO CONVERT UNACCOUNTED MONEY OF ASSESSEE TO ACCOUNTE D INCOME AND, THEREFORE, MADE ADDITION UNDER SECTION 68 - ON APPEAL, TRIBUNAL DEL ETED ADDITION OBSERVING THAT DMAT ACCOUNT AND CONTRACT NOTE SHOWED CREDIT/DETAILS OF SHARE TRANSACTIONS; AND THAT REVENUE HAD STOPPED INQUIRY AT PARTICULAR POINT AND DID NOT CARRY FORWARD IT TO DISCHARGE BASIC ONUS - WHETHER ON FACTS, TRANSACTIONS IN SHARES WER E RIGHTLY HELD TO BE GENUINE AND ADDITION MADE BY ASSESSING OFFICER WAS RIGHTLY DELE TED - HELD, YES [PARA 7] [IN FAVOUR OF ASSESSEE]' THE AR ALSO PLACED HIS RELIANCE ON THE FOLLOWING JU DGMENT OF THE JURISDICTIONAL KOLKATA ITAT AND OTHER HIGH COURT AND ITATS WHERE SIMILAR V IEW HAS BEEN TAKEN BY THE COURTS. ITO VS. BIJAYA GANGULI - ITA NOS. 624 & 625/KOL/2 011 (JUDGMENT DATED 26.11.2015) GANESHMULL BIJAY SINGH BAID (HIUF) VS. DCIT - ITA NO.544/KOL/2013 (JUDGMENT DATED 04.12.2015) PAVILLION COMMERCIAL PVT. LTD. VS. ITO - ITA NO.9 35/KOI/2012 (JUDGMENT DATED 12.08.2016) THE HON'BLE TRIBUNAL RELIED ON THE JUDG MENT OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. KORLAY TRADING CO. LTD. (1998) 232 ITR 0820. DCIT VS. SUNITA KHEMKA - ITA NOS. 71.4 TO 718/KOL /2011 ITO VS. PKS HOLDINGS [2016] 71 TAXMANN.COM 345 (K OLKATA TRIBUNAL) DCIT CIRCLE-7 VS M/S RUNGTA PROPERTIES PVT LTD, I TAT KOLKATA ITA NO-626,627 & 1536/KOL/ LALIT JAGMOHAN JAIAN(HUF) VS. ACIT [ITA NO.693/KO L/2009, ORDER DATED 10.02.2016, KOL ITAT ITO VS. VIJAY KUMAR KHEMKA, I.T.A NO. 834/KOL/08, ORDER DT. 19/12/2008 ACIT VS. SWAPAN KR. BISWAS, I.T.A NO. 121/KOL/08, ORDER DT. 25/07/2008 18 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 18 ANIL KR. KHEMKA VS DCIT, I.T.A NO. 901 TO 905/KOL /09, ORDER DT. 28/01/2010 SRI JAYWANT HEMANI VS ITO, I.T.A NO. 340/KOL/07, ORDER DT. 06/12/2007 ACIT VS SHRI NIRANJAN MONDAL, I.T.A NO. 1778/KOL/ 10, ORDER DT. 04/11/2011 ACIT VS ABHISHEK AGARWAL, I.T.A NO; 1593/KOL/09, ORDER DT. 11/11/2011 RAKESH KUMAR KEDIA VS DCIT, I.T.A NO. 2107/KOL/08 , ORDER DT. 23/01/2009 DCIT VS. BISSESWARLAL MANNALAL & SONS, IT.A NO. 1 318/KOL/09, ORDER DT. 22/01/2010 CIT VS. SUDEEP GOENKA [2013] 29 TAXMANN.COM 402 ( ALLAHABAD HC) CIT VS. MUKESH RATILAL MAROLIA IT APPEAL NO. 456 OF2007 (JUDGMENT OF BOMBAY HIGH COURT DATED 7TH SEPTEMBER, 2011) MUKESH R. MAROLIA VS. ADDL. CIT, RANGE-15(2) (200 6) 6 SOT 247 (MUM) CIT VS. JAMNADEVI AGARWAL [2010] 328 ITR 656 (BOM ) -CIT VS. VISHAL HOLDING & CAPITAL (P.) LTD. [2011] 12 TAXMANN.COM (DELHI) CIT VS. MAHESH CHANDRA G. VAKIL [2013] 40 TAXMANN .COM 326 (GUJRAT) CIT VS. ARUN KUMAR AGARWAL (HUF) & OTHERS TAX APP EAL NO. 4 OF 2011 AND OTHERS- JHARKHAND HIGH COURT (JUDGMENT DATED 13.07.2012 CIT VS. SUMITRA DEVI [2014] 49 TAXMANN.COM 37 (RA JASTHAN) CIT VS. UDIT NARAIN AGARWAL IN ITA 560 OF 2009 HO N'BLE HIGH COURT OF ALIAHABAD CIT VS. M/S VER AAR LEASINGH & FINANCE COMPANY LT D. [2014J 45 TAXMANN.COM 420 (ALLAHABAD) BAIJNATH AGARWAL VS. ACIT [2010] 40 SOT (AGRA) (T M) ITO VS. INDRAVARDHAN LAIN HUF - ITA NO. 4861/MUM/ 2014 (ORDER DATED 27.05.2016 MS. FARRAH MARKER VS. ITO - ITA NO. 3801/MUM/2011 - ORDER DATED 27.04.2016 SRI PADUCHURI JEEVAN PRASHANT VS. ITO - ITA NO. 4 52/HYD/2015 -ORDER DATED 09.08.2016 . SHRI DHAVAL SHAH VS. TRO & AO - ITA NO. 2235/PN/ 2013 (ORDER DATED 31.03.2015 19 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 19 SHRI CHANDRAKANG G PATEL VS. ITO - ITA NO. 2705/M UM/2004 ANIL KISHOR GOYAL V ACIT(ITANO.1256/PN/2012) - TH E HON'BLE PUNE BENCH OF ITAT AFTER REFERRING TO A NUMBER OF DECISIONS INCLUDING THAT OF MUMBAI TRIBUNAL IN THE CASE OF MUKESH R. MAROLIA VS. ADDL. CIT [6 SOT 247] IT IS NOT A CASE WHERE THE APPELLATE ONLY PURCHAGED AND SOLD ONLY THESE TWO SHARES. THE APPELLANT IS REGULARLY ENGAGED IN THE BUSINESS OF P URCHASE & SALES OF SHARES AND SECURITIES SINCE LONG TIME PAST. THE APPELLANT DURI NG THE RELEVANT ASSESSMENT YEAR 2013-14, HAS TRADED IN 743 SCRIPS LISTED IN THE SEB I RECOGNIZED' STOCK EXCHANGES, VIZ., NATIONAL STOCK EXCHANGE (NSE), BOMBAY STOCK EXCHANG E (BSE) AND MCX STOCK EXCHANGE LTD. (MCX- SX). THERE IS 13 SCRIPTS WHERE THE APPELLATE EARNED PROFIT OVER 50 LACS AND IN 4 SCRIPTS WHERE THE APPELLATE SUFFERED LOSS OVER 50 LACS INCLUDING THESE TWO SCRIPTS. THE OTHER SCRIPT WHICH IS NIFTY WHERE LOSS OFRS 1.27 CRORES WAS INCURRED DURING THE YEARS. IN VIEW OF ABOVE IT CAN SAFELY PR ESUMED THAT THE APPELLATE IS REGULARLY ENGAGED IN THE BUSINESS OF PURCHASE & SALES OF SHAR ES AND SECURITIES AND EARNED BOTH PROFIT AND LOSS. THE DETAILS OF THESE SCRIPT ARE AS UNDER: IT IS NOT A CASE WHERE CLIENT CODE MODIFICATION HAS BEEN DONE BY THE BROKER. IT IS NOT THE CASE OF THE AO THAT THE APPELLANT HAS RESORTED TO A NY CLIENT CODE MODIFICATION. NO CLIENT CODE MODIFICATION HAS BEEN DONE/AND ALL TRADES HAVE BEEN EXECUTED IN APPELLANT'S PROPRIETARY ACCOUNT. IT IS NOT A CASE WHERE THE AO HAS MADE ANY ENQUIRY ABOUT THE 20 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 20 DIRECTORS OF THE COMPANY WHOSE SHARES WERE TRADED. THE ASSESSMENT ORDER DOES NOT SUGGEST IT. THE AO HAS ALSO NOT BROUGHT OUT ANY MAT ERIAL ON RECORD THAT CASH TRAIL OF THE APPELLATE COMPANY WAS PREPARED BY THE INVESTIGATION WING, OR BY THE AO AND THE APPELLANT HAS BEEN CONFRONTED BY ANY INVESTIGATION WING OF THE COUNTRY IN COURSE OF ANY INVESTIGATION. THE AO ALSO NOT BROUGHT OUT ANY MATE RIAL ON RECORD THAT THE COMPANY WHOSE SHARE WERE PURCHASED HAS BEEN CONFRONTED BY A NY INVESTIGATION WING OF THE COUNTRY. THERE IS NO SUCH MATERIAL ON RECORD WHICH SUGGEST THAT THE COMPANY WHOSE SHARE WERE PURCHASED HAS ACCEPTED HAVING TAKEN THE ENTRIES FOR A COMMISSION AND HAS VOLUNTARILY SURRENDERED. FURTHER, THE APPELLANT IS NOT A ONE OF THAT COMPANY / BENEFICIARIES WHO HAD TAKEN ENTRIES AND' HAVE VOLUN TARILY SURRENDERED IT FOR TAXATION WITHOUT ANY FURTHER ENQUIRY. THERE IS NO MATERIAL O N RECORDS WHICH SUGGEST THAT THE APPELLANT OR THE SHARES WHICH WERE TRADED BY THE AP PELLANT WERE ONE OF THOSE ALLEGED BENEFICIARIES. THERE IS NO MATERIAL ON RECORD WHICH SUGGEST THAT ANY INVESTIGATION WAS EVER CONDUCTED BY ANY INVESTIGATION WING IN APPELLA NT'S CASE. ALL THE TRANSACTIONS WERE IN THE NATURE OF PROPRIET ARY TRADES AND WERE EXECUTED IN APPELLANT'S PROPRIETARY ACCOUNT AND IN CASE OF PROP RIETARY TRADES, THE ASSESSEE IS PROVIDED WITH SYSTEM GENERATED TRADE FILES BY THE S TOCK EXCHANGE IN WHICH THE SETTLEMENT NUMBER, SETTLEMENT DATE, TRADE DATE, DIS TINCT ORDER NUMBERS, ORDER TIME, TRADE NUMBERS AND TRADE TIME ARE MENTIONED, WHICH HAS BEE N DULY FILED BY THE APPELLATE BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCE EDINGS VIDE OUR LETTER DATED 10TH MARCH, 2016 AND SAME IS ALSO FILED DURING APPELLATE PROCEEDINGS. UNDER THE ONLINE TRADING SYSTEM OF THE STOCK EXCHAN GES, ALL THE SETTLEMENT OF TRADES (THE PAYMENT FOR PURCHASE AND SALE OF SHARES) ARE C ARRIED OUT BY THE CLEARING CORPORATION OF THE STOCK EXCHANGES SET UP IN PURSUA NT TO THE SECURITIES CONTRACTS (REGULATION) (STOCK EXCHANGES AND CLEARING CORPORAT IONS) REGULATIONS, 2012 BY VIRTUE OF WHICH THE CLEARING CORPORATION ACTS AS A CENTRAL COUNTERPARTY BETWEEN THE BUYER AND THE SELLER AND GUARANTEES CONTRACTUAL PERFORMAN CE BY BECOMING BUYER TO EVERY SELLER AND SELLER TO EVERY BUYER. IN CASE OF BOMBAY STOCK EXCHANGE LTD. CBSE), INDIAN CLEARING CORPORATION LTD. (ICCL) ACTS AS CLEARING C ORPORATION. FURTHERMORE AS PER SEBI GUIDELINE, THE APPELLANT IS REQUIRED TO OPERAT E A SEPARATE SETTLEMENT BANK ACCOUNT SPECIFICALLY FOR THE CLEARING AND SETTLEMEN T OF TRADES EXECUTED ON A STOCK EXCHANGE. PAYMENTS FOR ALL PURCHASES ARE MADE TO TH E ICCL THROUGH THE SETTLEMENT BANK ACCOUNT OF THE COMPANY. SIMILARLY RECEIPTS AGA INST ALL SALE OF SHARES ARE RECEIVED FROM ICCL IN THE SETTLEMENT BANK ACCOUNT OF THE COM PANY. NO PART OF PAYMENT FOR PURCHASE OF SHARES MADE OR RECEIPT AGAINST SALE OF SHARES WERE DONE IN CASH. AS FAR AS AO'S OBSERVATION THAT THERE IS SHARP INCR EASE/ DECREASED IN THE SHARES PRICES DURING THE PERIOD CANNOT BE THE REASON FOR TREATING GENUINE LTCL AS ACCOMMODATION / BOGUS ENTRY BECAUSE THIS IS A FREE MARKET WHERE THE INVESTOR DOES NOT HAVE ANY CONTROL OVER PRICE. THE ASSESSING OFFICER DID NOT HAVE ANY MATERIAL ON RECORD TO SHOW THAT THE PURCHASE AND SALE OF SHARES WERE' BOGUS. PURELY REL YING ON THE REPORT FORWARDED BY THE INVESTIGATION WING, THE ASSESSING OFFICER CAME TO A CONCLUSION THAT THE ENTIRE TRANSACTION OF LOSS ON PURCHASE AND SALE OF SHARES AS BOGUS. 21 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 21 THEREFORE, I AM INCLINED TO HOLD THAT THE ACTION O F AO WAS PREDETERMINED AND COMPLETELY GUIDED BY THE DDIT (INV), KOLKATA'S REPO RT. THUS AFTER CAREFUL CONSIDERATION OF THE ENTIRE GAMUT OF ASSESSMENT ORDER, STATEMENTS RECORDED BY THE DDIT(INV), WRITTEN SUBMISSIONS AS WELL AS THE PAPER BOOK AND THE DECIS IONS RELIED UPON BY THE AR OF THE APPELLANT, THE DISALLOWANCE AS MADE BY AO IS DESERV E TO BE DELETED. ACCORDINGLY, THE AO IS DIRECTED TO DELETE THE ADDITION. THIS GROUND OF APPEAL IS ALLOWED. 4.4. MOREOVER, WE FIND THE ISSUE OF GAINS ARISING OUT OF SHARES OF THESE TYPE OF COMPANIES HAD BEEN THE SUBJECT MATTER OF ADJUDICATI ON BY THIS TRIBUNAL IN THE CASE OF SMT. SAVITA BHURA VS DCIT IN ITA NO. 12/KOL/2017 DA TED 19.9.2018 FOR ASST YEAR 2013-14 WHEREIN RELIANCE WAS PLACED ON VARIOUS DECI SIONS OF TRIBUNALS AND HIGH COURTS. SOME OF THEM WERE EVEN FOLLOWED BY THE LD CITA WHIL E GRANTING RELIEF TO THE ASSESSEE. HENCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD CITA GRANTING RELIEF TO THE ASSESSEE. 4.5. IN VIEW OF THE AFORESAID FINDINGS IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENT RELIE D UPON HEREINABOVE, WE HOLD THAT THE LD AO HAD ERRED IN DISALLOWING THE BUSINESS LOSS IN CURRED IN THE SUM OF RS 3,85,70,774/- IN RESPECT OF TWO SCRIPS AS BOGUS WHICH WERE RIGHTL Y DELETED BY THE LD CITA. ACCORDINGLY, THE GROUNDS 1 & 2 RAISED BY THE REVENU E ARE DISMISSED. 5. THE LAST ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE U/S 35(1)(II) OF THE ACT IN THE SUM OF RS 1,66,25,000/- IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 6. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE CLAIMED DEDUCTION OF RS 1,66,25,000/- (BEING 175% OF RS 95,00,000/-) U/S 35(1)(II) OF THE ACT FOR THE SCIENTIFIC RESEARCH ORGANIZATION DONATION MADE TO SCHOOL OF HUMAN GENET ICS & POPULATION HEALTH (SHGPH IN SHORT). SURVEY OPERATIONS U/S 133A OF T HE ACT WERE CONDUCTED ON 22 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 22 27.1.2015 IN THE PREMISES OF SHGPH BY THE DIRECTORA TE OF INVESTIGATION, KOLKATA. IN SUCH SURVEY, IT WAS FOUND THAT THE SAID CONCERN WAS ENGAGED IN COLLECTING BOGUS DONATIONS U/S 35(1)(II) OF THE ACT FROM BENEFICIARI ES TO ENABLE THEM TO CLAIM WEIGHTED DEDUCTION OF 175% OF THE AMOUNTS ACTUALLY PAID BY SUCH BENEFICIARIES. THE LD AO ISSUED A SHOW CAUSE NOTICE ASSERTING THE FOLLOWING :- THESE INSTITUTIONS ARE ENGAGED IN THE BOGUS DONATIO N U/S 35(1)(II) OF THE ACT THROUGH VARIOUS BROKERS IN LIEU OF COMMISSION. BOGU S DONATIONS ARE RECEIVED THROUGH CHEQUES/RTGS AND THEREAFTER CASH IS RETURNE D TO THE DONORS AFTER DEDUCTING COMMISSION. STATEMENTS OF KEY PERSONS LIKE SECRETARY/TREASURES/ PRESIDENT AND OTHER PERSONS RECORDED DURING THE SURVEY HAS CONFIRMED TH E ABOVE BOGUS ACTIVITY BY THESE INSTITUTIONS. STATEMENT OF AUDITOR RECORDED DURING THE COURSE OF SURVEY CLEARLY SHOWS LACUNAS IN THE AUDIT DONE BY THEM. STATEMENTS OF NUMBER OF BROKERS/ENTRY OPERATORS REC ORDED IN COURSE OF SURVEY PROCEEDINGS HAVE CONFIRMED THE BOGUS BILLING OR ACC OMMODATION ENTRIES FROM THESE INSTITUTIONS. PRE SURVEY & POST SURVEY ENQUIRIES HAVE FOUND THAT MOST OF THE EXPENSE SIDE PARTIES ARE PAPER & BOGUS CONCERNS. THE BANK STATEMENTS OF THESE INSTITUTIONS SHOW CLEA R PATTERN OF DONATION COMING AND GOING VIDE THE ABOVE MODUS OPERANDI. SHG&PH HAVE GONE IN SETTLEMENT COMMISSION ADMITTING THAT IN LIEU OF SERVICE CHARGE THEY HAVE PROVIDED ACCOMMODATION ENT RIES OF DONATION TO THE DONORS. THE BOOKS OF ACCOUNTS WERE NOT THERE AT THE REGISTE RED OFFICES. IN CASE OF SHG&PH THERE ARE BROKER WISE LEDGERS OF COMMISSION. NO PURCHASE BILLS WERE FOUND FOR FINANCIAL YEAR 2014-15. DOCUMENTS RE LATED TO COMMISSION WERE FOUND AND IMPOUNDED. 23 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 23 THESE INSTITUTIONS HAVE FEW PERSONS WITH GOOD CV WH O ARE ASSOCIATED ONLY IN HONORARY POSITION AND THEY ARE NOT INVOLVED IN THE DAY TO DAY ACTIVITIES. THE RESEARCH WORK SHOWN IS JUST REPRODUCTION OF PUB LISHED MATERIAL. DETAILS IN RESPECT OF RESEARCH WORK COULD NOT BE FURNISHED BY THESE INSTITUTIONS. THESE INSTITUTIONS HAVE MINISCULE PRESENCE AND THEI R CONTRIBUTION TO SCIENTIFIC RESEARCH IS TOO NEGLIGIBLE FOR THE KIND OF DONATION THEY RECEIVED. THE RESEARCH FACILITIES ARE NEAR ABOUT MISSING IN THESE INSTITUT ES. THESE INSTITUTES HAVE BLATANTLY VIOLATED RULE 5C, 5 D & 5E OF INCOME TAX RULES WHICH ARE REQUIRED TO BE COMPLIED BY THE INST ITUTES APPROVED U/S 35(1)(II) OF THE ACT. 7. THE ASSESSEE IN RESPONSE TO SHOW CAUSE NOTICE RE PLIED AS UNDER:- PLEASE REFER TO SHOW CAUSE NOTICE NO. DCIT/ CIR-5( 1)/KOL/AABCP5425G/2976 DATED 01.03.2016 SERVED ON THE COMPANY ON 02.03.2016 ASKI NG TO SHOW CAUSE AS TO WHY NOT THE DEDUCTION UNDER SECTION 35 OF THE ACT AMOUNTING TO RS. 1,66,25,000/- CLAIMED BY THE COMPANY BE DISALLOWED FOR THE REASONS STATED IN THE SAID LETTER. IN THIS CONNECTION WE HAVE TO STATE AS UNDER: I) WE HAD MADE A DONATION OF A SUM OF RS. 95,00,000/- TO THE SCHOOL OF HUMAN GENETICS AND POPULATION HEALTH IN THE PREVIOUS YEA R RELEVANT TO THE ASSESSMENT YEAR 2013-14. THE SAID ORGANIZATION IS A DMITTEDLY REGISTERED UNDER SECTION 12AA OF THE ACT AND ALSO APPROVED AS A SCIE NTIFIC RESEARCH ASSOCIATION UNDER SECTION 35(2)(II) OF THE ACT BY CENTRAL GOVER NMENT FROM ASSESSMENT YEAR 2008-09 AND ONWARDS VIDE NOTIFICATION NO. 4/2010 (F .NO. 203/64/2009/INCOME TAX ACT-II DATED 28.01.2010 PUBLISHED IN OFFICIAL G AZETTE OF INDIA. THE SAID ORGANIZATION WAS CARRYING OUT SCIENTIFIC RESEARCH W ORK IN THE FIELD OF GENETIC COUNSELING, EPIDEMIOLOGIC STUDY AND HUMAN GENETIC R ESEARCH & DEVELOPMENT FOR WHICH THE CENTRAL GOVERNMENT APPROVED THE ORGANIZAT ION UNDER SECTION 35(1)(II) OF THE ACT. THE DONATION IN THE SAID ORGA NIZATION WAS MADE ON THE BASIS OF THE REPRESENTATION FROM THE ORGANIZATION THAT IT WAS WORKING FOR THE BETTERMENT OF MEDICAL RESEARCH TO FACILITATE ITS RE ACH TO THE COMMON MAN. THE ORGANIZATION HAD VARIOUS LUMINARIES FROM THE FIELD OF MEDICINE AND RESEARCH. THE ORGANIZATION IS REGISTERED AS A SOCIETY UNDER T HE W.B. SOCIETIES REGISTRATION ACT, 1961 VIDE REGISTRATION NO. S/73334. THE ORGANI ZATION WAS ALSO REGISTERED WITH VARIOUS OTHER GOVERNMENT DEPARTMENT. THERE ARE MANY OTHER RENOWNED LEARNED PROFESSORS AND DOCTORS ON THE BOARD OF THE ORGANIZATION. THE ORGANIZATION WAS ALSO AWARDED BHARAT NIRMAN AWARD F OR THE AREA OF RURAL DEVELOPMENT IN 2005, GLOBAL ACHIEVERS FOUNDATION AW ARD IN 2012 AND BHARAT VIBHUSHAN SAMMAN PURASKAR IN 2013. THE ORGANIZATION HAS ALSO WORKED WITH THE GOVERNMENTAL WING. WEST BENGAL STATE AIDS PREVE NTION & CONTROL SOCIETY 24 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 24 (WBSAP&C) AS PARTNER NGO IN 2005. THESE FACTS CLEAR LY SHOW THAT IT WAS AN ORGANIZATION OF REPUTE, WHICH WAS CARRYING ON THE W ORK OF RESEARCH AND DEVELOPMENT UNDER THE GUIDANCE OF PROF. D.P. MUKHER JEE, PH.D. (U.K.) II) IN THE ABOVE SHOW CAUSE NOTICE DATED 01.03.2016 YOU HAD ALLEGED, ON THE BASIS OF INFORMATION RECEIVED BY YOU FROM INVESTIGATION W ING OF THE DEPARTMENT, KOLKATA, THAT THE SAID TRUST HAS ACCEPTED BOGUS DON ATIONS. THE AFORESAID IS BEING MADE SOCIETY ON THE BASIS OF STATEMENTS RECOR DED UNDER SECTION 131 OF THE ACT IN THE COURSE OF SURVEY PROCEEDINGS IN THE CAS E OF SOME PERSONS ACTING AS AN AGENT FOR COLLECTING DONATIONS FOR AN ON BEHALF OF THE SCHOOL OF HUMAN GENETICS AND POPULATIONS HEALTH , WHO ARE NOT KNOW N TO US. ON THE BASIS OF SUCH ALLEGATION YOU PROPOSE TO DISALLOW A SUM OF RS . 1,66,25,000/- CLAIMED AS DEDUCTION UNDER 35 OF THE ACT. III) BEFORE PROCEEDING FURTHER IN THE MATTER AND BEFORE MAKING OUR SUBMISSIONS AGAINST YOUR SHOW CAUSE NOTICE WE DENY THAT WE HAVE EVER GIVEN BOGUS DONATIONS TO ANY PERSON WHATSOEVER. THE BASIS OF YO UR ALLEGATION IS THE AFORESAID STATEMENTS OF SOME MANAGERIAL STAFF OF TH E TRUST AND SOME BROKERS, RECORDED UNDER SECTION 131 OF THE ACT IN THE COURSE OF SURVEY PROCEEDINGS BY THE INVESTIGATION WING OF KOLKATA IN THEIR CASES. THE STATEMENTS OF THESE PERSONS HAVE NOT BEEN PROVIDED TO US. IV) WE SUBMIT THAT THE STATEMENTS RECORDED U/S 131 OF T HE ACT IN THE COURSE OF SURVEY CANNOT BE USED AS EVIDENCE AGAINST US, INASM UCH AS THERE IS NO POWER TO ANY AUTHORITY WHATSOEVER TO RECORD A STATEMENT UNDE R SECTION 131 OF THE ACT IN THE COURSE OF SURVEY PROCEEDINGS. FOR THIS PROPOSIT ION WE RELY ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS . S. KHADER KHAN SON [2008]300 ITR 157 (MAD). THIS JUDGMENT OF HONBLE M ADRAS HIGH COURT HAS BEEN AFFIRMED BY HONBLE APEX COURT IN THE CASE OF S. KHADER KHAN SON 352 ITR 480 (SC). THE HONBLE HIGH COURT IN THIS CASE HAD H ELD THAT THE STATEMENT RECORDED UNDER SECTION 131 OF THE ACT IN SURVEY PRO CEEDING HAS NO EVIDENTIARY VALUE. THIS JUDGMENT IS A CELEBRATED JUDGMENT AND HAS BEEN FOLLOWED BY ALL THE COURTS OF THE COMPANY. V) IN THE SAID SHOW CAUSE NOTICE YOU HAVE ALLEGED THAT THE INSTITUTION IS ENGAGED IN THE BOGUS DONATION U/S 35(1)(II) OF THE ACT THRO UGH VARIOUS BROKERS IN LIEU OF COMMISSION. IT HAS ALSO BEEN ALLEGED THAT THE SAID INSTITUTION ACCEPTS DONATION VIDE CHEQUE / RTGS AND THEREAFTER AFTER DEDUCTING C OMMISSION, THE SAME IS ROUTED BACK TO THE DONOR IN THE FORM OF CASH VIDE 3 -4 LAYERS AFTER BOGUS BILLING OR OTHER ACCOMMODATION ENTRIES IN THE BOOKS OF THES E INSTITUTES. WE DENY OF HAVING ANY SUCH KNOWLEDGE OF THE AFORESA ID ALLEGATION AND WE ALSO DENY OUR INVOLVEMENT IN THE AFORESAID ACTIVITIES. W E SAY AND SUBMIT THAT WE DID NOT RECEIVE ANY CASH/ CHEQUE IN LIEU OF DONATION OF RS. 95,00,000/- MADE TO SCHOOL OF HUMAN GENETICS AND POPULATION HEALTH. VI) ALL THE PAYMENTS FOR DONATION UNDER SECTION 35(1)(I I) TO THE ORGANIZATION WERE MADE BY ACCOUNT PAYEE CHEQUES AND A CERTIFICATE FOR THE SAME WAS RECEIVED FROM THE ORGANIZATION (COPY ENCLOSED). WE ARE ALSO ENCLOSING THE ANNUAL REPORT OF THE SCHOOL OF HUMAN GENETICS AND POPULATION HEAL TH FOR 2011-12, WHERE THE GOVERNING BODY MEMBERS ARE DETAILED. ON GOING THROU GH THE ADVISORY COMMITTEE MEMBERS LIST, IT WOULD BE FOUND THAT VARI OUS DISTINGUISHED PERSONS 25 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 25 WHICH ALSO INCLUDE HONBLE JUSTICE BISWANATH SAMADD AR, DR. TILAK BAGCHI, ASS., DIRECTOR, CENSOR BOARD AND MAY OTHERS ASSOCIA TED WITH THE SAID INSTITUTION FOR THE OBJECTS OF THE INSTITUTION. WE ALSO PROVIDE YOU WITH THE NEWSPAPER CUT OUT OF TELEGRAPH KOLKATA DATED 27.09.2012 SHOWING THE D ETAILS OF THE WORKSHOP CONDUCTED BY THE SCHOOL OF HUMAN GENETICS AND POPUL ATION HEALTH AND THE DETAILS OF THE AWARDS AND ACHIEVEMENT OF SCHOOL OF HUMAN GENETICS AND POPULATION HEALTH. THE ABOVE CLEARLY SHOW THAT THE SAID INSTITUTION IS ONE WHICH IS OF REPUTE AND THE DONATION MADE IN THE SAME COUL D NOT BE DOUBTED AS THE SAID ORGANIZATION WAS ACTIVELY INVOLVED IN THE FIELD OF RESEARCH FOR BETTERMENT OF THE COMMON MAN. THE PEOPLE INVOLVED WITH THE ORGANIZATI ON HAD CREDENTIALS WHICH CLEARLY DEMONSTRATED THE QUALITY OF THE INSTITUTION AND LED THE COMPANY TO DONATE IN THE SAID TRUST. VII) WITHOUT PREJUDICE , THE STATEMENTS OF SOME MANAGERI AL STAFF OF THE TRUST AND SOME BROKERS, RECORDED UNDER SECTION 131 OF THE ACT IN THE COURSE OF SURVEY PROCEEDINGS BY THE INVESTIGATION WING OF KOLKATA, I N OUR HUMBLE AND RESPECTFUL SUBMISSION, CANNOT BE USED AGAINST THE COMPANY, WIT HOUT ANY OPPORTUNITY OF CROSS EXAMINATION. VIII) WE HOPE THAT YOU WILL FIND THE AFORESAID EXPLANATIO N IN ORDER AND WILL NOT MAKE ANY DISALLOWANCE OF THE SUM OF RS. 1,66,25,000/- UN DER SECTION 35 OF THE ACT CLAIMED BY THE COMPANY. IN CASE THE AFORESAID EXPLA NATION IS FOUND TO BE NOT ACCEPTABLE FOR ANY REASONS WHATSOEVER, WE REQUEST Y OU TO PLEASE LET US KNOW TO ENABLE US TO MAKE OUR SUBMISSIONS THEREON. IX) WE HOPE THAT THE AFORESAID SUBMISSIONS, DETAILS AND EVIDENCES ARE IN CONFORMITY WITH THE REQUISITIONS MADE IN PURSUANCE TO YOUR AFO RESAID SHOW CAUSE NOTICE. IN CASE YOU NEED ANY OTHER DETAILS AND/ OR EXPLANATION , WE WOULD SUBMIT THE SAME ON HEARING FROM YOU. 7.1. THE ASSESSEE ALSO ENCLOSED THE FOLLOWING DOCUM ENTS ALONG WITH ITS REPLY DATED 10.3.2016 IN RESPONSE TO THE SHOW CAUSE NOTICE BEFO RE THE LD AO AS UNDER:- 26 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 26 5. THE LD AO RELIED ON THE SURVEY REPORT AND OBSERV ED THAT THE ASSESSEE COMPANYS NAME APPEAR IN THE SURVEY REPORT AMONGST THE LIST O F NAMES FURNISHED BY THE DDIT (INV.) UNIT 4(1), KOLKATA IN THE CASE OF SGHPH REFL ECTING BOGUS DONATION TRANSACTION OF THE ASSESSEE COMPANY. THE LD AO THEN EXTRACTED T HE STATEMENTS RECORDED BY THE DDIT, INVESTIGATION WING, KOLKATA FROM VARIOUS PERSONS BE LONGING TO SGHPH. THE LD AO PLACED RELIANCE ON CERTAIN EXTRACTS OF STATEMENTS O F SMT MOUMITA RAGHAVAN, SMT SAMADRITA MUKHERJEE SARDAR, SHRI PINAKI PAL, SHRI A RVIND TEWARI, SHRI SHAILESH AGARWAL, SHRI AKASH AGARWAL, SHRI AVIJIT SINHA ROY AND SHRI VIJAY KUMAR AGARWAL FOR CONCLUDING THAT THE ASSESSEE IS NOT ELIGIBLE FO R WEIGHTED DEDUCTION U/S 35(1)(II) OF THE ACT AND ACCORDINGLY DISALLOWED A SUM OF RS 1,66 ,25,000/- IN THE ASSESSMENT. 6. THE ASSESSEE FILED A DETAILED WRITTEN SUBMISSION S BEFORE THE LD CITA MEETING OUT EACH AND EVERY POINT OF THE ORDER OF THE THE LD AO WHICH ARE REPRODUCED IN PAGES 42 TO 55 OF THE ORDER OF THE LD CITA WHICH ARE NOT REITER ATED HEREIN FOR THE SAKE OF BREVITY. THE LD CITA APPRECIATED THE CONTENTIONS OF THE ASSE SSEE AND DELETED THE DISALLOWANCE. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ISSUE UNDER DISPUTE IS ALREADY ADD RESSED BY THE ORDER OF THIS TRIBUNAL IN THE CASE OF DCIT VS M/S MACO CORPORATION (INDIA) PV T LTD IN ITA NO. 16/KOL/2017 DATED 14.3.2018 FOR ASST YEAR 2013-14 WHEREIN IT WA S HELD AS UNDER:- 8.1. THE BRIEF FACT PERTAINING TO SGHPH ARE AS UND ER:- A) SGHPH WAS RECOGNIZED VIDE GAZETTE NOTIFICATION D ATED 28.1.2009 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES (CBDT IN SHORT), MINISTRY OF FINANCE (DEPARTMENT OF REVENUE), GOVERNMENT OF INDIA, U/S 3 5(1)(II) OF THE ACT. B) SGHPH WAS ALSO RECOGNIZED AS A SCIENTIFIC INDUST RIAL RESEARCH ORGANIZATION (SIRO) BY MINISTRY OF SCIENCE & TECHNOLOGY, GOVERNM ENT OF INDIA. THE RENEWAL OF RECOGNITION AS SIRO BY THE DEPARTMENT OF SCIENTI FIC AND INDUSTRIAL RESEARCH UNDER THE SCHEME ON RECOGNITION OF SCIENTIFIC AND I NDUSTRIAL RESEARCH ORGANISATION , 1988 WAS MADE FOR THE PERIOD FROM 1. 4.2010 TO 31.3.2013 VIDE COMMUNICATION IN F.NO. 14/473/2007-TU-V DATED 17.6. 2010. 27 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 27 8.2. AT THE OUTSET, WE FIND THAT THE TAXATION LAWS (AMENDMENT) ACT, 2006 WITH RETROSPECTIVE EFFECT FROM 1.4.2006 HAD INTRODUCED A N EXPLANATION IN SECTION 35 OF THE ACT WHICH READS AS UNDER:- SECTION 35(1)(II) EXPLANATION THE DEDUCTION, TO WHICH THE ASSESSEE IS ENTITLED IN RESPECT OF ANY SUM PAID TO A RESEARCH ASSOCIATION, UNIVERSITY, COLLEGE OR O THER INSTITUTION TO WHICH CLAUSE (II) OR CLAUSE (III) APPLIES, SHALL NOT BE D ENIED MERELY ON THE GROUND THAT, SUBSEQUENT TO THE PAYMENT OF SUCH SUM BY THE ASSESSEE, THE APPROVAL GRANTED TO THE ASSOCIATION, UNIVERSITY, COLLEGE OR OTHER INSTITUTION REFERRED TO IN CLAUSE (II) OR CLAUSE (III) HAS BEEN WITHDRAW N. HENCE THE AFORESAID PROVISIONS OF THE ACT ARE VERY CLEAR THAT THE PAYER (THE ASSESSEE HEREIN) WOULD NOT GET AFFECTED IF THE RECO GNITION GRANTED TO THE PAYEE HAD BEEN WITHDRAWN SUBSEQUENT TO THE DATE OF CONTRI BUTION BY THE ASSESSEE. HENCE NO DISALLOWANCE U/S 35(1)(II) OF THE ACT COUL D BE MADE IN THE INSTANT CASE. 8.3. 8.4. WE ALSO FIND THAT THE CO-ORDINATE BENCH OF THI S TRIBUNAL IN EXACTLY SIMILAR FACTS HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESS EE IN THE FOLLOWING CASES:- A) RAJDA POLYMERS VS DCIT IN ITA NO. 333/KOL/2017 F OR ASST YEAR 2013-14 DATED 8.11.2017. B) SAIMED INNOVATION VS ITO IN ITA NO. 2231/KOL/201 6 FOR ASST YEAR 2013-14 DATED 13.9.2017. THE FINDINGS OF THOSE DECISIONS ARE NOT REITERATED HEREIN FOR THE SAKE OF BREVITY. 8.5. IN VIEW OF THE AFORESAID FINDINGS IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE VARIOUS JUDICIAL PRE CEDENTS RELIED UPON HEREINABOVE, WE HOLD THAT THE LD CITA HAD RIGHTLY D ELETED THE DISALLOWANCE U/S 35(1)(II) OF THE ACT IN THE SUM OF RS 3,06,25,000/- MADE BY THE LD AO. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 7.1. RESPECTFULLY FOLLOWING THE AFORESAID JUDICIAL PRECEDENT, WE HOLD THAT THE LD CITA HAD RIGHTLY DELETED THE DISALLOWANCE U/S 35(1)(II) OF THE ACT IN THE SUM OF RS 1,66,25,000/- MADE BY THE LD AO. ACCORDINGLY, THE G ROUNDS 3 & 4 RAISED BY THE REVENUE ARE DISMISSED. 28 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 28 8. THE GROUND NO. 5 RAISED BY THE REVENUE WAS WITH REGARD TO VIOLATION OF RULE 46A(3) OF THE INCOME TAX RULES BY THE LD CITA. DURING THE COURSE OF HEARING, THE LD DR WAS NOT ABLE TO POINT OUT THE FACT AS TO WHICH WERE THE ADDITIONAL EVIDENCES THAT WERE FILED BY THE ASSESSEE BEFORE THE LD CITA FOR THE FIRST TI ME. BUT FROM THE PERUSAL OF THE ORDER OF THE LD CITA, WE FIND THAT THE LD CITA HAD CATEGO RICALLY MENTIONED THAT HE HAD PERUSED AND EXAMINED THE VARIOUS DOCUMENTS AND DETA ILS THAT WERE FURNISHED BY THE ASSESSEE IN THE ASSESSMENT PROCEEDINGS ONLY AND HAD ACCORDINGLY GRANTED RELIEF. HENCE THERE CANNOT BE ANY VIOLATION OF PROVISIONS OF RULE 46A(3) OF THE IT RULES. ACCORDINGLY, THE GROUND NO. 5 RAISED BY THE REVENUE DESERVE TO BE DISMISSED. 9. THE GROUND NO. 6 RAISED BY THE REVENUE IS GENERA L IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE COURT ON 05.12.2 018 SD/- SD/- [A T VARKEY] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 05.12.2018 SB, SR. PS 29 ITA NO.211/KOL/2017 M/S PRB SECURITIES PVT. LTD. A.YR. 2013-14 29 COPY OF THE ORDER FORWARDED TO: 1. DCIT, CIRCLE-5(1), KOLKATA, P-7, CHOWRINGHEE SQU ARE, KOLKATA-700069. 2. M/S PRB SECURITIES PVT. LTD., GATE NO. 3, 6 TH FLOOR, PODDAR COURT, 18, RABINDRA SARANI, KOLKATA-700001. 3. C.I.T(A)- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, KOLKA TA BENCHES