M/S. ADIHEMSHREE FINANCIAL , ,I,NAO V. PR. CIT - 19, MUMBAI

ITA 326/MUM/2021

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 7227 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 18-03-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHAILAJA RAI
• Keywords: Revision of order; Audit objection; Penny stocks; Set aside; Bogus
• Section: 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘A‘ BENCH MUMBAI BEFORE: SHRI M.BALAGANESH, ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA No.326/Mum/2021 (Assessment Year :2015-16) M/s. Adihemshree Financial 11-B, Wing, 5 th Floor Rockside Apartment Walkeshwar Road Mumbai – 400 006 Vs. Pr. CIT-19, Room No.228, 2 nd Floor Matru Mandir Tardeo Road Mumbai – 400 007 PAN/GIR No.AAXFA8211E (Appellant) .. (Respondent) Assessee by Shri Suchek Anchaliya Revenue by Ms. Shailaja Rai Date of Hearing 11/11/2021 Date of Pronouncement 30/11/2021 आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in ITA No.326/Mum/2021 for A.Y.2015-16 preferred by the order against the revision order of the ld. Principal Commissioner of Income Tax-19, Mumbai u/s.263 of the Act dated 08/03/2021 for the A.Y.2015-16. 2. The only issue to be decided in this appeal is as to whether the ld. Pr. Commissioner of Income Tax (PCIT) was justified in invoking revision jurisdiction u/s.263 of the Act in the facts and circumstances of the instant case. ITA No.326/Mum/2021 M/s. Adihemshree Financial 2 3. We have heard rival submissions and perused the materials available on record. We find that assessee is in the business of share trading. The return of income for the A.Y.2015-16 was electronically filed by the assessee firm on 11/09/2015 declaring loss of Rs.21,37,669/-. During the course of assessment proceedings, the assessee was asked to submit the complete break-up of business loss on sale of shares, which was duly furnished by the assessee before the ld. AO. Since the assessee had claimed huge loss from sale of shares and had sought to set off the same from income from business, the ld. AO sought sought to examine in detail the veracity of the loss claimed by the assessee on sale of shares. In the course of such examination, the ld. AO found that assessee had dealt with penny stocks and had declared huge loss on those shares and had sought to set off the same with business income of the assessee. The ld. AO observed that assessee had shown loss on sale of 3 penny stock scrips i.e Cressenda Company Ltd., Pearl Electric Ltd., and Pine Animations Ltd. totaling to Rs.4,26,63,518. The ld. AO heavily placed reliance on the findings of Investigation Wing of Kolkata Income Tax department, and even reproduced the financials of those three companies apart from statement recorded from various entry operators and explaining the entire modus operandi on how certain people were involved in manipulation of prices of shares of certain scripts as a pre- planned activity. Finally, the ld. AO proceeded to disallow the loss on sale of shares of Rs.4,26,63,518/- arising from the aforesaid three scripts categorising them as tainted scrips. Against this assessment order, the assessee has preferred an appeal before the ld. CIT(A) and the same is pending. Meanwhile, the ld. PCIT sought to invoke revision jurisdiction u/s.263 of the Act on the ground that assessee had also traded in four more scrips and incurred loss and that these scrips were also part of the 84 penny stock companies investigated by Kolkata Income Tax ITA No.326/Mum/2021 M/s. Adihemshree Financial 3 department. The four scrips which were sought to be treated as penny stock by the ld. PCIT are as under:- Sr. No. Name of the share Purchase quantity Purchase amount Sale quantity Sale amount Profit/loss 1 MKEL (Matra Kaushal Enterprise Ltd.) : 2,21,000 V ' 1,10,94,170 2,21,000 18,09,990 (-)92,84,180 2 Pearl Agriculture Ltd. 3,94,000 2,13,35,331 3,94,000 42,96,980 (-)1, 70,38,351 3 Rajlaxmi Ind 12,000 36,62,306 12,000 11,22,360 (-)25,39,946 4 Sunrise Asian 3,000 13,83,510 3,000 11, 97,324 (-)1,86,185 . - Total Loss (-)2,90,48,662 3.1. The ld. PCIT observed that the loss claimed by the assessee on the aforesaid four scrips ought to have been disallowed by the ld. AO in view of the findings of Kolkata Investigation Wing of Income Tax department. The ld. PCIT stated that since the assessment order was completed without making necessary enquiries and verification in respect of aforesaid four scrips, the order of the ld. AO is erroneous in so far as it is prejudicial to the interest of the Revenue. It was specifically pointed out by the assessee that proper enquiries were indeed made by the ld. AO during the course of assessment proceedings in as much as the details of total loss claimed by the assessee on sale of shares of all the scrips were ITA No.326/Mum/2021 M/s. Adihemshree Financial 4 indeed submitted with supporting documents before the ld. AO by the assessee. Out of the said details, the ld. AO has chosen to disallow loss claimed on three scrips on the pretext that they are part of penny stocks being investigated by Investigation Wing of Kolkata Income Tax department. It was also specifically brought to the attention of the ld. PCIT that assessee during the year under consideration had traded in more than 160 scrips and had incurred loss in so many transactions thereon. These details were indeed submitted before the ld. AO also. Out of 160 scrips, the ld. AO has chosen only three scrips and proceeded to disallow the loss claimed thereon, after conducting detailed enquiries thereon. It was specifically submitted that the ld. AO had made the analysis of the scrip with respective information available with the ld. AO at the time of framing of assessment proceedings. The ld. PCIT however, disregarded all the contentions of the assessee and came to the conclusion that the loss claimed by the assessee on sale of shares of aforesaid four scrips totaling to Rs.2,90,48,662/- are in the list of penny stocks investigated by the DIT-Investigation, Kolkata and that without proper verification, the ld. AO had allowed the same. Accordingly, the ld. PCIT set aside the order of the ld. AO treating the order of ld. AO to be erroneous and prejudicial to the interest of the Revenue. 3.2. The preliminary facts stated hereinabove are undisputed and hence the same are not reiterated herein for the sake of brevity. It is a fact that assessee had traded in 160 scrips during the year and had incurred loss. It is a fact that assessee has incurred loss during the year on sale of shares in respect of the following scrips:- Name Op.Qty Op. Amount P.Qty P.Amount S.Qty S. A mount CL.Qty Cl. Amount Profit Loss B.H.E.L. DM 4,50,000 11,36,84,482.95 4,50,000 10,11,69,034.10 (1,25,15,448.85) BALAJI TELE DM 2,00,000 1,37,62,000.00 2,00,000 1,36,33,356.50 (1,28,643.50) ITA No.326/Mum/2021 M/s. Adihemshree Financial 5 BALLRPUR IND DM 5,00,000 97,29,895.15 5,00,000 88,99,003.40 (8,30,891.75) BOMBAYDY 50,000 41,53,883.40 50,000 33,97,820.95 (7,56,062.45) BRITANNIA IN DM 2,000 44,33,464.85 2,000 43,87,542.74 (45,922.11) CRESSANDACO DM 2,97,000 1,59,02,092.55 2,97,000 34,90,230.00 (1,24,11,862.55) DBREALTY 1,00,000 83,97,789.25 37,500 27,20,204.75 62,500 52,54,375.00 (4,23,209.50) DENA BANK DM 1,00,000 88,57,045.85 1,00,000 57,95,030.51 (30,62,015.34) E.MERK PUB DM 10,000 86,86,618.70 10,000 84,14,519.89 (2,72,098.81) ECONO TRADE INDIA LTD 10,000 21,01,700.00 10,000 6,27,500.00 (14,74,200.00) ELECON ENG DM 1,00,000 54, i 0,299.98 1,00,000 53,95,767.57 (14,532.41) ESSDEE 15,000 82,89,390.57 15,000 57,03,003.36 (25,86,387.21) GREEMCREST FIN. SER. 80,000 51,45,800.00 80,000 48,93,500.00 (2,52,300.00) HEG LTD, DM 2,39,129 7,92,59,372,67 2,39,129 5,82,09,560.75 (2,10,49,811.92) HIND CONSTN DM 67,65,454 26,12,05,807.66 44,65,454 12,82,14,419.45 23,00,00 0 8,59,40,976.14 (4,70,50,412.07) j & K BANK DM 6,50,000 10,63,41,885.65 6,50,000 8,19,08,415.23 (2,44,33,470.42) JAI PRAKASH ASSOCIATE 16,! 0,000 10,47,40,900.92 14,10,000 6,95,89,895.22 2,00,000 65,05,350.22 (2,86,45,655.48) JAJCORP 4,97,200 3,46,29,980.00 75,000 77,91,067.60 5,72,200 4,13,81,714.35 (10,39,333.25) JAYPEE INFRATECH 2,50,000 81,48~,982.00 2,50,000 53,43,819.75 (28,05,162.25) JET AIRWAYS 3,55,000 12,96,26,151.96 20,000 45,00,966.52 3,35,000 12,45,87,943.70 (5,37,241.74) JRt INDUST. & INFRA LTD. 2,82,000 5,45,26,263.85 2,82,000 1,87,09,985.19 (3,58,16,278.66) KIRLOSKAR ELECTRIC CO LTD 2,30,425 75,90,583.00 2,30,425 62,21,104.80 (13,69,478.20) LAKSHMI VILAS BANK LTD 1,00,000 87,13,149.30 1,00,000 82,04,313.25 (5,08,836.05) LICHSGFIN 50,000 1,42,87,559.05 50,000 1,41,65,467.70 (1,22,091.35) MAIIADUSH1 INTERNATION AL 1,50,000 44,14,150.00 1,50,000 18,16,500.00 (25,97,650.00) MAN ALUMIN DM 26,000 21,52,466.20 26,000 20,17,237.75 (1,35,228.45) MERCATORLIN DM 31,003 5,35,035.01 1,86,506 61,10,136.29 2,17,509 47,52,088.43 (18,93,082.87) ITA No.326/Mum/2021 M/s. Adihemshree Financial 6 MKEL 2,21,000 1,10,94,170.10 2,21,000 18,09,990.00 (92,84,180.10) MORARJEE DM 1,50,000 57,45,211.60 50,000 16,66,080.35 1,00,000 36,27,754.80 (4,51,376.45) NUT DM 4,50,000 2,27,07,421.14 4,50,000 2,19,12,290.86 (7,95,130.28) NYSSA CORPORATION LTD. 25,000 23,39,250.00 25,000 12,24,000.00 (11,15,250.00) PEARL AGRICULTURE LTD 3,94,000 2,13,35,331.60 3,94,000 42,96,980.00 (1,70,38,351.60) PEARL ELECTRIC DM 2,88,000 1,56,09,405.65 2,88,000 27,04,320.00 (1,29,05,085.65) PINE ANIMATION LTD 4,28,000 3,37,12,230.00 4,28,000 1,63,65,660.00 (1,73,46,570.00) RADICO KHAIT 9,16,528 11,70,86,640.53 9,16,528 10,00,18,009.83 (1,70,68,630.70) RAJLAXM1 IND DM 12,000 36,62,306.50 12,000 11,22,360.00 (25,39,946.50) SAMLEPU DM 1 1,88,500 5,36,60,504.82 9,48,883 1,21, 83,657.72 2,39,617 1,02,25,448.01 (3,12,51,399.09) SUNDRAM.FAS T DM 2,10,997 3,70,12,751,39 2,10,997 3,63,38,817.97 (6,73,933.42) SUNRISE ASIAN L DM 3,000 13,83,510.00 3,000 11,97,324.81 (1,86,185.19) SWADESHI IND DM 18,90,728 6,73,58,347.56 18,90,728 87,54,258.80 (5,86,04,088.76) TORRONT POWER 15,000 25,68,112.80 15,000 23,24,578.05 (2,43,534.75) UNITECH (P) DM 65,00,000 17,44,42^24.85 65,00,000 14,97,27,459.15 (2,47,14,865.70) VANDANA KNITWEAR DM 3,64^31 1,11,78,287.28 3,64,331 26,24,379.36 (85,53,907.92) WOKHARDD DM 85,000 7,21,98,779.21 85,000 7,12,81,572.00 (9,17,207.21) ZEE MEDIA 5,00,000 1,10,47,401.15 5,00,000 95,09,181.75 (15,38,219.40) 3.3. We also find that the entire details of various shares traded by the assessee during the year which includes both profit earned by the assessee as well as the loss incurred by the assessee, were duly filed before the ld. AO during the course of assessment proceedings. This fact is confirmed and acknowledged by the ld. AO in para 5 of the assessment order. We also find from the notice issued u/s.142(1) of the Act on ITA No.326/Mum/2021 M/s. Adihemshree Financial 7 04/08/2021 by the ld. AO during the course of original assessment proceedings, which is enclosed in page 1 of the paper book, that the ld. AO vide question Nos. 6 & 8 had specifically called for the copy of DEMAT account and details of share transactions. The assessee vide letter dated 22/08/2017 had duly furnished the reply which are enclosed in pages 3 & 4 of the paper book. Further the assessee has also furnished yet another reply dated 08/11/2017 reconciling the share transaction that are reflected in Annual Information Return (AIR). We find that assessee had duly furnished copies of contract notes for sales and purchase of the scrips that were called for by the ld. AO and that were also reflected in the Annual Information Return. The details of bank statement evidencing the source of payment for purchase of shares together with sale proceeds getting credited in the bank statement alongwith Demat statement reflecting the trading of share. We find that the ld. AO during the course of assessment proceedings examined the partner of the assessee firm Shri Hemal J Jhaveri and recorded a statement on oath from him on 15/12/2017. In response to the query raised by the ld. AO as to how the firm had dealt with the purchase and sale of certain scrips, the concerned partner had replied that the firm would trade only on the share market news received and that the investment in shares are made based on the information that the price of those shares are likely to be increased based on reliable news. It was also specifically stated by the partner that all the shares were purchased only through recognized stock exchange of NSE and BSE and all stocks were sold only through NSE and BSE through registered share broker. The decision to sell the shares were taken by the assessee as the prices of the scrips were going down and in order to restrict losses, the assessee had to sell shares. With regard to specific query pointed out to the partner vide Question No.12 about the Investigation carried out by the Kolkata Investigation carried out by the ITA No.326/Mum/2021 M/s. Adihemshree Financial 8 Kolkata Income Tax department on scrips, broking firm and certain individuals involved in providing accommodation entries in the form of bogus long term capital gains by prices rigging of shares, the concerned partner replied that he does not know anything about it and that purchase and sale of shares had been done through recognized stock exchange. After this reply, the ld. AO did not pose any question to the concerned partner. He directly proceeded to disallow the losses claimed on three scrips i.e. Cressenda Company Ltd., Pearl Electric Ltd., and Pine Animations Ltd. totaling to Rs.4,26,63,518/- and completed the assessment. 3.4. Even before the ld. PCIT, in respect of specific four scrips i.e.MKEL (Matra Kaushal Enterprise Ltd.,), Pearl Agriculture Ltd., Rajlaxmi Industries Ltd., and Sunrise Asian Ltd., the assessee furnished the following documents to justify its contention:- a) Copies of contract notes for sale and purchase of the above scripts evidencing that all buying & selling transactions in the all the scripts are carried out on a recognized stock exchange through authorized brokers who are duly registered with SEBI & BSE. b) Details of Sales & Purchase of the above script with source of payments made for purchase of the above script c) Copies of Ledger A/c. of the /Assessee in the books of the share broker wherein entries for purchase and sales of the above scripts are duly reflected. d) Copies of Demat transaction statement reflecting trades in the above e) Copies of Bank Statements duly marking payment made and received from the brokers for purchase, and sales of the above scripts respectively. ITA No.326/Mum/2021 M/s. Adihemshree Financial 9 3.5. The ld. PCIT does not find fault with any of the documentary evidences submitted by the assessee. He merely placed reliance on the investigation report of DIT investigation Kolkata and concludes that the loss claimed on these four scrips are bogus on the fact that these four scrips figured in the 84 penny stocks investigated by Kolkata Investigation Wing of Income Tax department. Having said so, the ld. PCIT finally concluded that no enquiries were carried out by the ld. AO with regard to loss claimed on sale of shares of aforesaid scrips. We find that the ld. PCIT had not carried out any analysis of the documentary evidences submitted by the assessee and had not taken any effort to prove how the loss claimed on the aforesaid four scrips is ingenuine and how the assessee has not discharged its onus for claiming deduction on account of said loss. We find that the ld. PCIT nowhere in his order had stated that the documentary evidences furnished by the assessee are wrong. We hold that if there is some grievance for the ld. PCIT that the ld. AO has not carried out any enquiry with regard to certain facts, which in our concerned opinion is not the matter of fact in this case as enquiries were indeed carried out by the ld. AO in the assessment proceedings, when the documentary evidences supporting the said facts are furnished by the assessee before the ld. PCIT, then it becomes incumbent on the part of the ld. PCIT to examine the same and come to a conclusion that order of the ld. AO is erroneous and prejudicial to the interest of the Revenue. In the instant case, there is absolutely no examination carried out by the ld. PCIT to dispute the supporting documents furnished by the assessee. The ld. PCIT merely placed reliance on the investigation report of Kolkata Income Tax department to arrive at his conclusion. Reliance is heavily placed on the decision of the Hon’ble Jurisdictional High Court in the case of Nirav Modi reported in 390 ITR 292 in support of our aforesaid observations. ITA No.326/Mum/2021 M/s. Adihemshree Financial 10 3.6. The ld. AR argued before us that the entire revision proceedings u/s.263 of the Act has been initiated based on revenue audit objection dated 21/02/2017 and hence, it is a clear case of borrowed satisfaction on the part of the ld. PCIT and hence, the assumption of jurisdiction u/s.263 is to be quashed. In support of this contention, he placed on record the copy of audit objection which are enclosed in pages 8-10 of the paper book. From the perusal of the pages 8-10 of the paper book filed before us we find that the letter written by the ld. AO on 17/05/2019 addressed to the ld. PCIT stating that audit objection has been received vide LAR No.MUM/CA/2018-19/0199 dated 21/02/2017. In the said letter dated 17/05/2019, the ld. AO says that the audit objection was raised by the audit party that losses claimed in respect of the aforesaid four scrips totaling to Rs.2,90,48,662/- should have been disallowed based on the findings of DIT Investigation, Kolkata and that the audit objection is found to be acceptable to him and accordingly, the ld. AO had sought remedial action and necessary direction to be issued by the ld. PCIT to him. Thereafter, the ld. PCIT in pursuance to the said audit objection sought to examine the record and at the time of such examination, the audit objection given by the audit party was part of such records and thereafter proceeded to take remedial action by invoking his revision jurisdiction u/s.263 of the Act. In our considered opinion, no error could be found on the said action and the ld. PCIT as admittedly the audit objection was part of the records of the ld. PCIT at the time of his examination. From the show-cause notice issued by the ld. PCIT and from the perusal of the orders of the ld. PCIT, we find that the ld. PCIT has independently applied his mind for invoking revision jurisdiction u/s.263 of the Act and not merely been driven by the audit objection, Hence, the legal objection raised by the ld. AR in this regard is hereby dismissed. ITA No.326/Mum/2021 M/s. Adihemshree Financial 11 3.7. However, on the primary facts that no enquiries were carried out is the primary observation of the ld. PCIT with regard to the loss claimed on sale of shares by the assessee. We have already dealt in detail hereinabove that the entire details of profit earned from sale of shares and loss incurred on sale of shares were indeed submitted by the assessee before the ld. AO in the course of assessment proceedings. Moreover, we find that assessee during the year had dealt with 160 scrips and out of that, it had incurred losses in respect of 45 scrips during the year which had already been tabulated hereinabove. Out of the same, the ld. PCIT had identified four scrips and had decided to treat the said loss as bogus loss in the light of findings of the DIT Investigation Kolkata and not based on his independent analysis and undoubtedly the said details were indeed filed before the ld. AO. The ld. AO in examination of the details of all the scrips had chosen to disallow loss only in respect of three scrips. Hence, it could be safely concluded that the ld. AO had indeed taken a possible view on the matter. The ld. PCIT merely because he has got a different view on the same set of facts cannot try to substitute his view in place of the view already taken by the ld. AO by invoking his revision jurisdiction u/s.263 of the Act. Reliance in this regard is placed on the decisions of Hon’ble Jurisdictional High Court in the case of Gabriel India Ltd., reported in 203 ITR 108 and Nirav Modi reported in 390 ITR 292. 3.8. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we have no hesitation in quashing the revision order passed u/s 263 of the Act by the ld. PCIT. Accordingly, the ground raised by the assessee is allowed. ITA No.326/Mum/2021 M/s. Adihemshree Financial 12 4. In the result, appeal of the assessee is allowed. Order pronounced on 30/11/2021 by way of proper mentioning in the notice board. Sd/- (PAVAN KUMAR GADALE) Sd/- (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 30/ 11/2021 KARUNA, sr.ps Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy//