Shree Vishvamurte Trad Invest Private Limited, Ahmedabad V. The ITO, Ward-4(1)(3), Ahmedabad

ITA 506/AHD/2024

• Counselvise Citation: [2024] 130 COUNSELVISE.COM (IT) 1807 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-08-2024
• Assessment Year: 2015-2016
• Appeal Filed On: 19-03-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C DHARNIDAS V.S
• Assessee Lawyers: DEEPAK R SHAH
• Keywords: Bogus
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD BEFORE SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER & SHRI NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No. 506/Ahd/2024 (िनधाᭅरण वषᭅ िनधाᭅरण वषᭅ िनधाᭅरण वषᭅ िनधाᭅरण वषᭅ / Assess ment Year : 2015-16) Sh ree V is hv a mu rt e T ra d In ve st Pr iv at e Li m ite d D-1 2 3, Gh an ta ka ra n, Ma ha vir M ar ke t, Sar an gp ur , A h med aba d, Gu jar at , 38 00 01 बनाम बनामबनाम बनाम/ V s . IT O W ar d 4( 1) (3 ), Ah m eda ba d ᭭थायी लेखा सं./जीआइआर सं./P A N / G IR N o . : A A A C V 6 2 4 7 M (Appellant) . . (Respondent) अपीलाथᱮ ओर से /Appellant by : Shri Deepak R Shah, AR ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri C Dharnidas V.S, Sr. DR D a t e o f H e a r i n g 21/08/2024 D a t e o f P r o n o u n c e m e n t 04/09/2024 O R D E R PER SHRI NARENDRA PRASAD SINHA, AM: This appeal is filed by the assessee against the order of the National Faceless Appeal Centre ( NFAC), Delhi, (i n short ‘the CIT( A) ’) dated 18.03.2024 for the Assessment Year 2015-16. ITA No. 506/Ahd/2024 [Shree Vishvamurte Trad Invest Private Limited vs. ITO] A.Y. 2015-16 - 2 – 2. The brief facts of the case are that the assessee co mpany is engaged in trading of shares and secu rities. The return of inco me for A.Y. 2015-16 was filed on 26.09 .2015 declaring total inco me of Rs.3,33,040/-. The case was selec ted for scrutin y under C ASS and statutory notices we re issued. During the ye ar, t he assessee had incurred business loss of Rs.54,09,97/- on trading in shares of certain co mpanies. The AO disallowed this loss by holding that the purchase and sale of shares of the co mpanies in which the losses were incu rred, were sha m transactions. F urther, the expenses pertaining to these bogus losses were also proportionately disallowed. Accordingly, addition of Rs.57,04,623/- was made on account of disallowance of losses and disallowance of expenses. The assess ment was co mpleted under Section 143(3) of the Inco me Tax Act, 1961 (in short ‘the Act ’) on 28.12.2017 at total inco me of Rs.60,37,664/-. Aggrieved with the order of the AO, the assessee has filed an appeal before the First Appellate Authority which has been decided vide the i mpugned order. The disallowance of loss and the ad dition on account of proportionate expense as made b y the AO was confir med b y the Ld. C IT( A) . 3. Now, the assessee is in second appeal before us. The assessee has taken following grounds in this appeal: ITA No. 506/Ahd/2024 [Shree Vishvamurte Trad Invest Private Limited vs. ITO] A.Y. 2015-16 - 3 – “ 1 . T h e C I T ( A ) e r r e d i n l a w a n d i n t h e f a c t s o f t h e c a s e i n c o n f i r m i n g t h e o r d e r o f t h e A O i n m a k i n g d i s a l l o w a nc e o f b u s i n e s s l o s s o f R s . 5 4 , 0 9 , 9 7 9 / - . 2 . T h e C I T ( A ) e r r e d i n l a w a n d i n t h e f a c t s o f t h e c a s e i n c o n f i r m i n g t h e o r d e r o f t h e A O i n m a k i n g d i s a l l o w a nc e o f e x p e n d i t u r e o f R s . 2 , 9 4 , 6 4 4 / - . ” 4. Shri Deepak R. S hah, Ld. AR appearing for the asse ssee submitted that the business of the assessee itself is trading in shares and securities. The loss incurred b y the assessee was on account of valuation of closing stock and was genuine ad missible business loss. He explained that all the transactions were done through the stock exchange on which STT was paid. The transactions of purchase and sales were carried out through SEBI registered intermediar y on the f loor of authorized stock exchange, the payments were mad e/received through account payee cheques and deliver y of share s wer e made through de- mat account. Thus, al l the transactions made b y the assessee were genuine. The Ld . AR sub mitted that AO was not correct in treating the share trading transactions of the assessee as sha m or bogus; as the brokers and entr y providers had nowhere i mplicated the assessee in the alleged acco mmodation entr y of an y LTC G/S TCG. The assessee never had an y transaction with the share brokers/entry providers who had made those s tate ments. Further, no specific evidence of an y acco mmoda tion entry transaction was b rought on record by the AO. Ther efore, the ITA No. 506/Ahd/2024 [Shree Vishvamurte Trad Invest Private Limited vs. ITO] A.Y. 2015-16 - 4 – disallowance of l oss as made b y t he AO was not c orrect. He further submitted that the Ld. CI T(A) was also not correct in confir ming the action of the AO b y mer el y rel ying upon the decision of Hon’ble Calcutta High Court in the case of Swati Bajaj and without exa mining the fa cts of the case . The Ld. AR further submitted that the disallowance of expenses as made b y the AO was also not correct. Accord ing to the Ld. AR the loss in the account of the assessee was nor mal trading loss and there was no LTC G loss cl ai med b y the ass essee. He relied upon the decision of this Tr ibunal in the case of Shree Mallikarjun Trade Invest Pvt. Ltd. i n IT A No .551/Ahd/2023, wherein an identical issue was involved and the relief was allowed b y this Tribunal. 5. Per contra, Shri C. Dharnidas V.S , Ld . Sr . DR strongly supported the orders of the AO and the Ld. CI T(A). He submitted that the AO had r elied upon the report of Kolkata Investigation Directorate and the state ments of share brokers/entry providers who had stated that the shares of t he co mpanies, in which the assessee had incurred losses, were utilized for providing bogus acco mmodation entries in the form of bogus LTCG/ STCG. He further submitted that the assessee had never sought any opportunity to cro ss exa mine the brokers/intermediarie s who had given those statements. The Ld. S r. DR sub mitted t hat merel y because the transactions were mad e through stock exchange it doesn’t establish that the transactions were genuine. ITA No. 506/Ahd/2024 [Shree Vishvamurte Trad Invest Private Limited vs. ITO] A.Y. 2015-16 - 5 – 6. We have car efully considered the rival sub missions. The first ground taken by the assessee is against disallowance of business loss of R s.54,09,979/-. The losses wer e incu rred b y the assessee in the trading of the following shares: S . N o . S c r i p L o s s / R e d u c t i o n i n v a l u e o f C l . S t o c k 1 I n d i n f o 1 3 1 4 8 6 2 K a p p a c P h a r m a 2 2 9 8 0 3 3 S h r e e n a t h 8 2 7 4 A n u k a r a n C o m 8 6 4 1 9 1 5 B l a z o n M a r b l e 1 1 1 0 0 8 7 6 U n n o I n d u s t r i e s 3 0 7 3 5 8 5 T o t a l L o s s 5 4 , 0 9 , 9 7 9 7. The AO had disallowed the loss for the reason that transaction of purchase and sale of shares as referred a bove were sha m transactions. According to the AO, these transactions were only pre-arrange d in order to e nable the beneficiaries for entry/exit transact ions to book their Long Ter m Capital Gain / Long Ter m Capita l Loss. According to the Revenue, these scrips were utilized b y th e entr y providers f or providing accommodation entries and that the transactions carried out by the asse ssee were part of such operation. 8. We have carefull y gone through the order of the AO and are of the opinion that the transactions we re held as sha m/bogus transactions on the basis of mere c onjuncture and presu mptions and without bringing any concrete e vidence to establish that the ITA No. 506/Ahd/2024 [Shree Vishvamurte Trad Invest Private Limited vs. ITO] A.Y. 2015-16 - 6 – assessee had provided acco mmodation entries in respect of these transactions. The AO has discussed in detail the modus operandi of providing accommodation entr y f or bogus losses and has relied upon the state ments of share broker s of Kolkata. Ho wever, no evidence has been brought on record to establish that the assessee had provided any acco mmodation e ntry in respect of the shares as transacted by hi m. Further , the assessee was nowhere i mplicated in an y of the state ments of the share brokers/entry operators of Kolkata as relied upon b y the AO. It is found that the assessee was trading in shares and securities and inco me fro m sale of shares of Rs.62,66,30,600/- was disclosed in the P&L account. Thus the assessee was a reg ular dealer in shares and was not an investor/beneficiar y of any acco mmodation entry in respect of LTCG/ LTGL. The assessee had not shown any long ter m c apital gain and claimed exe mption u/s 10(38) of the Act. The loss as disclosed by the assessee was also not long term capital loss. Under the circu ms tances the allegation of acco mmodation entry on the part o f the assessee in respect of bogus LTC G/LTC L is not sustainable at all. 9. In the scrip of Indinfo, the assessee had incurred loss of Rs.1,31,486/- whereas in another tra nsaction of the sa me share, the assessee had shown profit of Rs.38,88,767/-. It is not the case that the only trans action in the share of Indinfo had resulted into loss. The assessee had also made pr ofit in another transaction of Indinfo. The AO was not corr ect in disallowing loss of ITA No. 506/Ahd/2024 [Shree Vishvamurte Trad Invest Private Limited vs. ITO] A.Y. 2015-16 - 7 – Rs.1,31,486/- without considering the profit of Rs.38,88,767/- made in the ano ther transaction of the sa me share. Mer el y because the assessee had made off market purchase of shares, the profit earned in the transactions cannot be held as ‘inco me fro m other sources’. It is thus found that the AO had disallowed the loss of Rs.1,31,486/- in the transaction of Indinfo without considering the totality of the transactions. Therefor e, the loss of Rs.1,31,486/- a s disallowed by the AO in respect o f share of Indinfo is liable to be deleted. 10. Regarding the loss incurred in other shares, it is found that there was no actual loss in the transaction of the shares and the loss was due to re duction in the value of closing stock. In the case of Unno Industries, the assessee had purchased 46,91,786 shares, out of which 25,75,974 shares were sold during the year and 21,15,812 shares re mained in the closing stock. This closing stock was valued at lower of cost or market value, which resulted in valuation loss of Rs.35,52,333/-. As the assessee had made profit of Rs.4,78,749/- in the other transactions of this scrip sold during the year , the net loss in thi s script was Rs.30,73,584/- only. It is, thus, found that the entire loss in the scrip of Unno Industries was on account of valuation of closing stock. Sa me is the situation in re spect of other scri ps as well. Thus, the entire loss of Rs.52,78,493/- in respect of other 5 shares was not actual loss on account of trading of share s but this loss was due to reduction in the value of closing stock. In view of this fact, the ITA No. 506/Ahd/2024 [Shree Vishvamurte Trad Invest Private Limited vs. ITO] A.Y. 2015-16 - 8 – loss as declared by the assessee could not have been held as sha m or bogus as no act ual loss in trading of the shares was incurred and the purchase and sale of shares were never disputed. The AO was, therefore, not correct is disallowing this loss of Rs.52,78,493/- as well. 11. The Ld. CIT(A) ha s erred in confir mi ng the disallowance of losses without exa mining the facts of the case. He h as merel y relied upon the decision of Hon’ble High Court of Calcutta in the case of Swati Bajaj without considering that the facts of this case were totally differ ent. That the losses in this case wer e pri maril y on account of valuation of closing stock. It is found that similar matter was involved in the case of S hree Mallikarjun Trad Invest Pvt. Ltd. vs. IT O i n ITA No.551/Ahd/2023, dated 15.03.2024 and the Co-ordinate Bench of this Tribunal had held that the AO was not correct in disallowing the loss on the identical facts and circu mstances of the case. In view of the above facts and the judicial precedent, the loss of Rs.5 4,09,974/- as disallow ed by the AO is d eleted . 12. The next ground pertains to disallowance of proportionate expenditure of Rs.2,94,644/-. The AO had made this disallowance for the r eason that the trading in the scrips were treate d as bogus and the losses were disallowed. Accordingly, the AO had disallowed the proportionate expense in respect of these shares. As alread y held a bove, the addition on account of disallowance ITA No. 506/Ahd/2024 [Shree Vishvamurte Trad Invest Private Limited vs. ITO] A.Y. 2015-16 - 9 – of loss has bee n deleted. Ther efore, the ver y basis of disallowance of expense no longer exists. Accord ingly, the proportionate disallowance of expe nditure of Rs .2,94,644/- as mad e by the AO , is also deleted. 13. In the result, appeal preferred b y the assessee is allowed. This Order pronounced on 04/09/2024 Sd/- Sd/- (T.R. SENTHIL KUMAR) (NARENDRA PRASAD SINHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 04/09/2024 S. K. SINHA True Copy आदेश कᳱ ᮧितिलिप अᮕेिषत आदेश कᳱ ᮧितिलिप अᮕेिषतआदेश कᳱ ᮧितिलिप अᮕेिषत आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant 2. ᮧ᭜यथᱮ / The Respondent. 3. संबंिधत आयकर आयुᲦ / Concerned CIT 4. आयकर आयुᲦ(अपील) / The CIT(A)- 5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडᭅ फाईल / Guard file. आदेशानुसार आदेशानुसारआदेशानुसार आदेशानुसार/ BY ORDER, उप उपउप उप/सहायक पंजीकार सहायक पंजीकारसहायक पंजीकार सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद अहमदाबादअहमदाबाद अहमदाबाद / ITAT, Ahmedabad