Samson Foundations, CHENNAI V. ACIT Non Corporate Circle 5(1), CHENNAI

ITA 2432/CHNY/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 6867 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 24-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A. SUNDARARAJAN
• Assessee Lawyers: G. RAMAKRISHNAN
• Keywords: Principle of natural justice; Speculation loss; Accommodation entries; Penny stocks; Capital Gains; Bogus
• Section: 143(3); 43(5); 73

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI , , BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ./I.T.A. NO.2432/CHNY/2018 ! ' / ASSESSMENT YEAR : 2015-2016. M/S. SAMSON FOUNDATIONS, NO.191, DEMELLOW ROAD, CHOOLAI, CHENNAI 600 112. [PAN ADBFS 9862J VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, NON CORPORATE CIRCLE 5(1) CHENNAI. ( / APPELLANT) ( /RESPONDENT) # $ % / APPELLANT BY : SHRI. G. RAMAKRISHNAN, C.A. &' # $ % /RESPONDENT BY : SHRI.A.SUNDARARAJAN, ADDL.CIT ( ) $ * /DATE OF HEARING : 08-01-2020 +,'! $ * /DATE OF PRONOUNCEMENT : 30-01-2020 / O R D E R PER INTURI RAMA RAO , ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-5 , CHENNAI (CIT(A) FOR SHORT) DATED 12.06.2018 FOR THE ASSES SMENT YEAR (AY) 2015-16. ITA NO.2432/2018 :- 2 -: 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF AP PEAL: 1. FOR THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO LAW, FACTS AND CIRCUMS TANCES OF THE CASE AND AT ANY RATE IS OPPOSED TO THE PRINCIPLES O F EQUITY, NATURAL JUSTICE AND FAIR PLAY. SPECULATION LOSS ON SHARES: 2. (A) FOR THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN TREATING THE LOSS FROM SALE OF S HARES AS SPECULATION LOSS AS PER SECTION 43(5) OF INCOME TAX ACT, 1961. WHEREAS THE ASSESSING OFFICER HAD DISALLOWED THE TR ADING LOSS BASED ON INFORMATION FROM INVESTIGATIONS WING AND T REATED THE SAME AS PENNY STOCKS. (B) THE APPELLANT SUBMITS THAT THE ORDER OF ASSESSI NG OFFICER IN CONSIDERING THE LOSS AS BUSINESS LOSS ARISING OUT O F PENNY STOCKS AND ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN CONSIDERING THE SAME AS SPE CULATION LOSS ARE CONTRARY VIEWS. (C) FURTHER AS PER SECTION 43(5) OF THE INCOME TAX ACT, 1961 SPECULATIVE TRANSACTION MEANS A TRANSACTION IN WH ICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TR ANSFER OF THE COMMODITY OR SCRIPS. (D) FOR THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THE FACT THAT APPELL ANT HAD UNDERTAKEN TRADING IN SHARES OF COMPANIES WHICH WER E LISTED IN STOCK EXCHANGE AND DOCUMENTS PRODUCED BY THE APPELL ANT TO THE ASSESSING OFFICER AS WELL AS TO THE LEARNED COM MISSIONER OF INCOME TAX (APPEALS) IN THE FORM OF DEMAT STATEM ENTS, CONTRACT NOTES FOR PURCHASES AND SALE OF SHARES AFT ER PAYMENT OF SIT AND BANK STATEMENTS WHICH WAS ACKNOWLEDGED B OTH BY THE ASSESSING OFFICER AND BY THE COMMISSIONER OF IN COME TAX (APPEALS) IN THEIR RESPECTIVE ASSESSMENT ORDER AND APPEAL ORDER ALSO ESTABLISHES THE FACT THAT THE TRANSACTIO NS DOES NOT FALL UNDER THE AMBIT OF SECTION 43(5) OF THE INCOME TAX ACT, 1961 FOR IT TO BE TREATED AS LOSS FROM SPECULATION BUSINESS. ITA NO.2432/2018 :- 3 -: (E) THE APPELLANT FURTHER SUBMITS THAT THE OBSERVAT ION OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THAT T HE ASSESSEE DID NOT FURNISH ANY EVIDENCE TO PROVE THE GENUINENESS OF THE LOSS AND TO PROVE THAT THE LOSS WAS NOT SPEC ULATIVE EVEN THOUGH ACKNOWLEDGING THE EVIDENCE FURNISHED BY THE APPELLANT IN THE FORM OF DEMAT STATEMENTS, CONTRACT NOTES AND BANK STATEMENTS IN HIS APPELLATE ORDER IS CONTRARY. (F) THE JUDICIAL PRECEDENCE RELIED UPON BY THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS) ARE IN THE CAS E OF COMPANIES WHEREAS THE APPELLANT IS A PARTNERSHIP FI RM AND HENCE THE APPLICABILITY SECTION 73 IN THE CASE OF T HE APPELLANT DOES NOT ARISE. (G) ON THE BASIS OF THE ABOVE FACTS THE ORDER OF TH E LEARNED COMMISSIONER OF INCOME TAX (APPEALS) TREATING THE B USINESS LOSS INCURRED BY THE APPELLANT ON TRADING IN SHARES AS SPECULATION LOSS AND DENYING THE SET OFF OF THIS LO SS AGAINST OTHER INCOME IS NOT IN ACCORDANCE WITH LAW. 3. FOR THESE GROUNDS AND SUCH OTHER GROUNDS THAT MA Y BE ADDUCED BEFORE OR DURING THE HEARING OF THIS APPEAL WITH THE LEAVE OF THE HONBLE TRIBUNAL, IT IS PRAYED THAT TH E HONBLE TRIBUNAL MAY BE PLEASED TO: (A) ALLOW THE LOSS CLAIMED BY THE APPELLANT BY TREA TING THE SAME AS BUSINESS LOSS. (B) RESTRICT THE LEVY OF INTEREST UNDER SECTION 234 B AND 234C. (C) SUCH OTHER ORDERS AS MAY BE PASSED AS THIS RESP ECTFUL AUTHORITY MAY DEEM FIT. 3. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE APPELLANT IS A PARTNERSHIP FIRM DERIVING INCO ME UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND ENGAGED I N THE BUSINESS OF TRADING IN SHARES AND SECURITIES IN STOCK EXCHANGES AND POWER ITA NO.2432/2018 :- 4 -: GENERATION FROM WINDMILLS. THE RETURN OF INCOME FO R THE AY 2015-16 WAS FILED ON 30.11.2015 DISCLOSING TOTAL INCOME OF RS.2,12,62,770/-. AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT W AS COMPLETED BY THE DEPUTY COMMISSIONER OF INCOME TAX, NON CORPOR ATE CIRCLE-5, CHENNAI (HEREINAFTER CALLED AO) VIDE ORDER DATED 26.12.2017 PASSED U/S. 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AT TOTAL INCOME OF RS. 3,27,17,223/-. WHILE DOING SO, THE A O DISALLOWED THE CLAIM FOR SET OFF OF LOSS ARISING ON SALE OF SHARES OF RS.1,14,54,453/- BY HOLDING THAT SHARES OF THE COMPANY WHICH WERE SOLD WERE PENNY STOCKS. WHILE COMING TO THIS CONCLUSION, THE ASSES SING OFFICER HAD TAKEN NOTE OF THE FOLLOWING FACTS. (I) ASSESSEE COMPANY HAD NOT TRADED IN BLUE CHIP C OMPANIES. OUT OF THE TOTAL SHARES OF RS.3,99,00,000/-, ONLY S HARES WORTH RS.22,00,000/- WERE BROUGHT IN BLUE CHIP COMPANIES. (II) SHARES OF THE COMPANIES IN WHICH LOSS WAS CLAI MED STATED TO HAVE BEEN INDULGED IN PROVIDING BOGUS ACCOMMODATION ENTRIES IN LONG TERM CAPITAL GAINS/ LOSS AS PER THE REQUIREMENT OF THE ASSESSEE . 4. BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE THE LD.CIT(A), CONTENDING THAT SHARES OF THE COMPANIES WERE NOT PENNY STOCKS FOR THE FOLLOWING REASONS. ITA NO.2432/2018 :- 5 -: (I) THE APPELLANT IS A TRADER IN SHARES AND SECURITIES IN STOCK MARKETS. (II) THE APPELLANT HAD PURCHASED AND SOLD SHARES THROUGH KOTAK SECURITIES WHO ARE MEMBERS OF BOMBAY STOCK EXCHANGE. (III) THE APPELLANT HAD PAID FOR PURCHASE OF SHARES AND RECEIVED FOR SALE OF SHARES IN BANK ACCOUNT (IV) THE PURCHASE AND SALE OF SHARES ARE REFLECTED IN T HE DEMAT ACCOUNT. HOWEVER, THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) HAD AGREED WITH THE ASSESSING OFFICER AND ACCORDINGLY DISMISSE D THE APPEAL. 5. BEING AGGRIEVED BY THE ORDER OF THE LD. COMMISSIONE R OF INCOME TAX (APPEALS) THE ASSESSEE IS IN APPEAL B EFORE US IN THE PRESENT APPEAL. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT STOCKS PURCHASED AND SOLD DURING THE YEAR ARE NOT P ENNY STOCKS AS HELD BY THE ASSESSING OFFICER. THE ENTIRE TRANSACTI ONS WERE DONE THROUGH REGISTERED BROKER M/S. KODAK SECURITIES LTD AND THE SHARES WERE DEMATED AND GAP BETWEEN PURCHASE AND SALE OF S HARES WERE MORE THAN ONE YEAR. HE FURTHER SUBMITTED THAT MEREL Y BECAUSE COMPANIES WHOSE SHARES WERE BROUGHT BY THE ASSESSE E WERE FIGURING ITA NO.2432/2018 :- 6 -: IN THE LIST OF PENNY STOCKS AS PER THE REPORT OF D IRECTOR OF INVESTIGATION WING, INCOME TAX DEPARTMENT, KOLKATA PER SE CANNOT BE REASON TO DOUBT THE GENUINENESS OF THE TRANSACT ION. 6. ON THE OTHER HAND, THE LD. SR. DEPARTMENTAL REPR ESENTATIVE PLACED RELIANCE ON THE ORDERS OF LOWER AUTHORITIES. 7. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSING OFFICER DISALLOWED THE CLAI M FOR SET OFF OF LOSS INCURRED IN THE BUSINESS OF PURCHASE AND SALE OF S HARES DOUBTING THE GENUINENESS OF THE TRANSACTIONS OF PURCHASE AND SAL E OF SHARES. THE ASSESSING OFFICER WAS OF THE OPINION THAT SET OFF OF LOS CANNOT BE ALLOWED, AS SHARES OF THE COMPANIES IN RESPECT OF W HICH LOSS WAS CLAIMED BY THE ASSESSEE WERE PENNY STOCKS AS PER T HE REPORT OF DIRECTOR OF INVESTIGATION WING, INCOME TAX DEPART MENT, KOLKATA. FROM THE PERUSAL OF THE ORDER OF THE LOWER AUTHORI TIES THERE IS NOTHING ON RECORD TO SAY THAT REPORT OF THE DIRECTOR OF IN VESTIGATION WING, KOLKATA WAS MADE AVAILABLE TO THE ASSESSEE. FURT HERMORE, THE ASSESSING OFFICER HAD NOT ESTABLISHED COLLUSION O F THE ASSESSEE IN THE ALLEGED FRAUD. M/S. KODAK SECURITIES LTD IS NOT ON E OF THOSE BANNED ENTITIES BY SEBI. THE TIME GAP INVOLVED BETWEEN PUR CHASE AND SALE OF SHARES IS MORE THAN ONE YEAR AND SHARES WERE DEMATE D. IN THE ITA NO.2432/2018 :- 7 -: CIRCUMSTANCES, THE TRANSACTIONS CANNOT BE HELD AS NOT GENUINE MERELY BASED ON SUSPICION. SUSPICION HOWEVER, BE STRONG CANNOT TAKE THE PLACE OF PROOF. IT IS SETTLED POSITION OF LAW THAT NO ADDITION CAN BE MADE ON MERE SUSPICION . THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT DISALLOWANCE OF CLAIM FOR SET OFF OF LOSS IN TRADING OF THE TRANSACTIONS CANNOT BE UPHELD. HENCE, WE REVERSE TH E ORDER OF THE LOWER AUTHORITIES AND ALLOW THE APPEAL OF THE ASSES SEE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED ON 30TH DAY OF JANUARY, 2020, AT CHENNAI. SD/- SD/- ( ) (GEORGE MATHAN) /JUDICIAL MEMBER ( ) (INTURI RAMA RAO) /ACCOUNTANT MEMBER -) / CHENNAI . / DATED: 30TH JANUARY, 2020. KV /0 $0& *12032'* / COPY TO: 0 1 . # / APPELLANT 3. 0 ( 4*056 / CIT(A) 5. 278 0& * 9 / DR 2. &' # / RESPONDENT 4. 0 ( 4* / CIT 6. 8:0;) / GF