M/S VORA FINANCIAL SERVICES PRIVATE LIMITED, MUMBAI V. DEPUTY COMMISSIONR OF INCOME TAX, CIRCLE-2(3)(1), MUMBAI

ITA 3835/MUM/2023

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 8322 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2024
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: F
• Next Hearing Date: 05-03-2024
• Assessment Year: 2012-2013
• Appeal Filed On: 24-10-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESHWARI MENON
• Keywords: Reopening of assessment; Business income; Accommodation entries; Penny stocks
• Section: 148; 12A

Judgement Text

आयकर अपीलीय अिधकरण मुंबई पीठ “एफ”,मुंबई ी िवकास अव थी, ाियक सद एवं सु ी प ावती. एस, लेखाकार स के सम IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “F”, MUMBAI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER& MS. PADMAVATHY.S, ACCOUNTANT MEMBER आअसं.3835/मुं/2023 (िन.व. 2012-13) ITA NO.3835/MUM/2023(A.Y.2012-13) M/s.Vora Financial Services Private Limited, 081, 806, 8 th Floor, Elite Square, 274, Perin Nariman St., Bazar Gate, Fort, Mumbai – 400 001 PAN: AAACV-1975-E ...... अपीलाथ /Appellant बनाम Vs. Deputy Commissioner of Income Tax, Cir. 2(3)(1) Room No.552, 5 th Floor, Aaykar Bhavan, M.K.Road, Mumbai -400 020. ..... ितवादी/Respondent अपीलाथ ारा/ Appellant by : Shri K. Gopal, Advocate with Ms. Neha Paranjpe ितवादी ारा/Respondent by : Ms. Rajeshwari Menon सुनवाई की ितिथ/ Date of hearing : 06/03/2024 घोषणा की ितिथ / Date of pronouncement : 08/03/2024 आदेश/ORDER PER VIKAS AWASTHY, JM: This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘the CIT(A)’] dated 30/08/2023,for Assessment Year 2012-13. 2. Shri K.Gopal appearing on behalf of the assessee narrating facts of the case submitted that assessee is a Private Limited Company engaged in trading 2 ITA NO.3835/MUM/2023 (A.Y.2012-13) of shares and securities The assessment for Assessment Year 2012-13 in the case of assessee was reopened vide notice u/s. 148 of the Income Tax Act, 1961 [in short ‘the Act’] dated 31/03/2019. As per the reasons provided to the assessee, the assessment was reopened on account of assessee’s alleged obtaining of bogus gain/loss from trading in following penny stocks: (i) Nivyah Infrastructure & Telecom Ltd. (ii) Exelon Infrastructure & Telecom Ltd. (iii)Banas Finance Ltd. (iv)Gemstone Investments Ltd. (v) Divine Multimedia India Ltd. (vi) Scan Steel Ltd. (vii) VMS Industries Ltd. The ld.Counsel for the assessee submits that in grounds of appeal the assessee has assailed reopening of assessment as well as addition on merits. He submitted that since, the assessee has a good case on merits he would be confining his submissions on meritsof the addition at this stage. 2.1 The ld.Counsel for the assessee pointed that the Assessing Officer has dealt with each of the alleged penny stock commenting upon the rise and fall of the rates and making general comments on the manner of trading of penny stocks. The ld.Counsel for the assessee pointed that in respect of Nivyah Infrastructure & Telecom Ltd. that the Assessing Officer has stated that the share price of the company rose from Rs.6.10 on 21/02/2007 to Rs.131/- on 07/01/2008. The share price mentioned in the assessment order has no relevance to the assessment year under appeal. The said period does not fall within the relevant period for Assessment Year 2012-13. He further referred 3 ITA NO.3835/MUM/2023 (A.Y.2012-13) to the fluctuations of the price of said share between 29/04/2009 to 12/01/2011. Again the said period is irrelevant for the purpose of assessment for Assessment Year 2012-13. He pointed that similarly for Banas Finance Ltd., the Assessing Officer has referred to the period which falls outside the relevant period for the purpose of Assessment Year 2012-13. In respect of Gemstones Investment Ltd., the ld.Counsel for the assessee pointed that Assessing Officer has observed that the SEBI had passed an order u/s. 11(4) and 11B of SEBI Act, 1922 and u/s. 12A of the Securities Contract Regulations Act, 1956 banning trading of shares. However, the said ban was during the period 2008 to 2010, outside the period of consideration for Assessment Year 2012-13. Likewise, he pointed discrepancies in the findings of the Assessing Officer in respect of other penny stocks. He finally submitted that in entire assessment order the Assessing Officer has been mentioning about bogus long term capital gain/short term capital loss from trading in penny stocks. In para 5.1 of the assessment order the Assessing Officer held that the assessee has booked long term capital loss in the penny stocks. The Assessing Officer in penultimate para of the assessment order refers to the modus operandi of obtaining long term capital gain from trading in penny stocks and applied the principles of preponderance of probabilities to deny business loss from trading in shares to the assessee. While drafting the assessment order, the entire focus of the Assessing Officer was on long term capital gain/short term capital loss from trading in penny stock, the Assessing Officer failed to consider the fact that the assessee has not claimed short term capital loss but ‘Business Loss’ in trading of shares. The Assessing Officer completed the assessment without proper appreciating evidences furnished by the assessee to substantiate business loss from trading in shares. 4 ITA NO.3835/MUM/2023 (A.Y.2012-13) 2.2 The ld.Counsel for the assessee referred to the details of purchase and sale of shares during the Financial Year 2011-12 relevant to the Assessment Year 2012-13 at pages 30 to 69 of the paper book. He submitted that the assessee is in the business of regular trading of shares. The assessee has not only traded in the shares of alleged penny stock, but other companies as well. He asserted that the assessee has diversified investment portfolio. The assessee has suffered business loss of Rs.1.98 crores from trading in alleged penny stocks. The ld.Counsel for the assessee submitted that assessee has been trading in shares through JMP Securities Pvt. Ltd. The broker has filed confirmation that the assessee has indeed traded in the shares. He has given the details viz. quantity of shares purchased and sold, value of shares purchased and sold, date of purchase and sale, etc. The said confirmation is at page 70 to 77 of the paper book. The ld.Counsel for the assessee has also placed on record extracts of assessee’s Demat Account to substantiate that alleged penny stocks were credited and debited to assessee’s Demat account on purchase and sale. Thus, trading of shares was delivery based and the payments were actually made by the assessee for purchase and sale of shares. To substantiate payment of shares at the time of purchase he submitted that the assessee is having running account with its broker. The broker made the payment at the time of purchase from the running account of the assessee and in similar manner on sale of shares the amount was added in the running account of the assessee maintained by the broker. The assessee in support of his submissions furnished ledger account of JMP Securities Pvt. Ltd. in the books of assessee, as well as bank statement indicating amounts paid to the broker at different intervals. 5 ITA NO.3835/MUM/2023 (A.Y.2012-13) 3. Per contra, Ms. Rajeshwari Menon representing the Department vehemently supported the impugned order. The ld.Departmental Representative submits that it is an undisputed fact that assessee has traded in penny stocks. The Assessing Officer has explained the modus operandi adopted by the assessee for trading in penny stocks. It is undisputed that assessee has offered loss in trading in penny stocks The assessee has set off loss from penny stocks against ‘Business Income’ to reduce tax liability. 4. We have heard the submissions made by rival sides and have examined the documents on record. The Assessing Officer has reopened the assessment on the ground that the assessee has indulged in sale and purchase of penny stocks to obtain bogus gains/loss. At the outset we observe that in the assessment order the Assessing Officer has time and again referred to long term capital gain /short term capital loss from penny stocks. No where in the entire assessment order the Assessing Officer has referred to the business loss from trading in shares(penny stocks). A perusal of the assessment order shows that the Assessing Officer has framed the assessment with a pre-determined notion that it is a case of accommodation entries in the nature of long term capital gain /short term capital loss. The Assessing Officer lost sight of the fact that he is dealing with assessee’s assessment where the assessee has claimed business loss from sale of shares alleged to be penny stocks. 5. The assessee in order to substantiate that the assessee has indeed purchased and sold penny stocks and in the process has suffered loss, furnished details of trading in shares during the Financial Year 2011-12, relevant to the Assessment Year 2012-13, at page 30 to 69 of the paper book. A perusal of the statement shows that the assessee has not only traded in 6 ITA NO.3835/MUM/2023 (A.Y.2012-13) seven penny stocks as identified by the Assessing Officer but has traded in various other shares which has ultimately resulted in net loss of Rs.9,65,37,048/- in shares trading and the said amount has been duly reflected in books of the assessee. The assessee has earned positive income from increase in Stocks Rs.6,32,96,097/- and Future & Options Rs.8,33,74,434/-. Thus, the assessee’s net revenue from operations is Rs.5,01,33,484/- and same has been reflected in the P&L Account. The Assessing Officer has raised no doubts over the books of assessee. 6. To test check whether the trade in penny stocks was delivery based,ld.Counsel for the assessee was asked to show the transaction of purchase and sale of shares of Exelon Infrastructure Ltd. in Financial Year 2011- 12 and corresponding entries of sale and purchase in Demat account of the assessee. On sample examination it was found that 2003 shares purchased by assessee on 31/10/2011 were duly credited in Demat account of the assessee on 02/11/2011. Similarly, the transaction of purchase of 13000 shares of Exelon Infrastructure Ltd. on 01/11/2011 and sale of 2300 shares on same day of the said company was duly reflected in Demat account of the assessee. Thus, from the documents on record it is evident that the assessee has indeed traded in shares alleged to be penny socks. It is not a case of bogus entries of losses to reduce tax liability. The Assessing Officer miserably failed to examine the transactions before coming to the conclusion and disallowing assessee’s claim of business loss. It would be relevant to mention here that the assessee has suffered loss of Rs.9.65 crores from trading in shares out of which loss in trading of alleged penny stocks is Rs.1.98 cores. Thus, the assessee has not only suffered loss in trading of penny stock alone. 7 ITA NO.3835/MUM/2023 (A.Y.2012-13) 7. The CIT(A) while examining the issue has given a finding on the business loss of the assessee from trading in penny stocks by primarily placing reliance on the decision in the case of PCIT vs. Swati Bajaj, 139 taxmann.com 352 (Cal). The CIT(A) has failed to examine documents on record and peculiar facts of the case. Here it would be apposite to add that each case has to be decided on its facts. Merely for the reason that the assessee has traded in penny stocks would not mean that the assessee has indulged in bogus transactions. Indeed trading in penny stock scrips raises a red flag and such cases have to be dealt with extra caution and require deep investigation, but that would not mean that all case of penny stocks have to decided in a particular manner with a pre-determined notion. The Assessing Officer has to make out a case for addition/disallowance after detailed examination and correct appreciation of documents on record. In light of our above findings, assessee succeeds on ground No.II of appeal. 8. No submissions were advanced by the ld.Counsel for the assessee assessee on the legal ground i.e. ground No.I, challenging validity of reopening of assessment. Hence, the said ground is kept open at this stage. 9. In the result, appeal of assessee is partly allowed. Order pronounced in the open court on Friday the 08 th day of March, 2024. Sd/- Sd/- (PADMAVATHY. S) (VIKAS AWASTHY) लेखाकार सद&/ACCOUNTANT MEMBER 'ाियक सद&/JUDICIAL MEMBER मुंबई/Mumbai, िदनांक/Dated: 08/03/2024 Vm, Sr. PS(O/S) 8 ITA NO.3835/MUM/2023 (A.Y.2012-13) ितिलिप अ ेिषतCopy of the Order forwarded to : 1. अपीलाथ /The Appellant , 2. ितवादी/ The Respondent. 3. आयकर आयु(CIT 4. िवभागीय ितिनिध, आ .अप .अ ., मुबंई/DR, ITAT, Mumbai 5.. गाड, फाइल/Guard file. BY ORDER, //True Copy// (Dy./Asstt.Registrar) ITAT, Mumbai