STAR TRAFIN PVT. LTD.,KOLKATA V. A.C.I.T., CENTRAL CIRCLE - 3(1), KOLKATA

ITA 1829/KOL/2024

AI Insights

The case involves Star Trafin Private Limited, which appealed against the order of the National Faceless Appeal Centre, Delhi, confirming the disallowance of a business loss of Rs.10,82,319. This loss was incurred from the purchase and sale of Equity shares of Nikki Global Finance Limited, a company listed as a penny stock by SEBI. The AO disallowed the loss, treating it as a bogus transaction aimed at introducing unaccounted money into the books. The CIT(A) upheld this decision, referencing a judgment by the Hon'ble Jurisdictional High Court in the case of PCIT Vs. Swati Bajaj & Others, which dealt with similar issues of bogus capital gains from penny stocks. The Tribunal, after considering the facts and the legal precedents, dismissed the appeal, agreeing with the lower authorities that the transaction was not genuine and constituted an accommodation entry.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 23962 (ITAT-KOLKATA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Other Referred Cases: PCIT Vs. Swati Bajaj & Others, Manoj Kumar Jain HUF, Shyam Sunder Bajaj
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KAPIL MONDAL
• Keywords: Set aside; Unexplained cash credit; Capital Gains; Principle of natural justice; Wrong claim; Penny stocks; Bogus
• Section: 143(3); 263; 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHES “SMC”, KOLKATA BEFORE DR.MANISH BORAD, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No.1829/Kol/2024 Assessment Year: 2014-15 Star Trafin Private Limited, 39, Kali Krishna Tagore Street, Kolkata, West Bengal – 700 007 PAN : AADCS5989A V/s ACIT, Central Circle-3(1), Kolkata Appellant Respondent आदेश / ORDER PER DR. MANISH BORAD, ACCOUNTANT MEMBER : The captioned appeal pertaining to Assessment Year 2014- 15 at the instance of assessee is directed against the order dated 16.07.2024 passed by National Faceless Appeal Centre, Delhi u/s.250 of the Income-tax Act, 1961 (in short ‘the Act’) which in turn is arising out of Assessment Order dated 03.12.2016 passed u/s. 143(3) of the Act. 2. When the appeal was called for, none appeared on behalf of the assessee despite due service of notice of hearing. It is found from the order sheet that on earlier two occasions as well, none appeared on behalf of the assessee. I therefore proceed to dispose of the appeal with the able assistance of the ld. Departmental Representative exparte qua the assessee. Assessee by : None Revenue by : Shri Kapil Mondal Date of hearing : 26.11.2024 Date of pronouncement : 29.01.2025 ITA No.1829/Kol/2024 Star Trafin Pvt. Ltd. 3. The sole grievance of the assessee is that the ld.CIT(A) erred in confirming the action of the AO denying business loss of Rs.10,82,319/- suffered by the assessee from purchase and sale of Equity shares of Nikki Global Finance Limited. 4. Facts in brief are that the assessee is a Private Limited company engaged in the business of Share Trading. Income of Rs.3,378/- was declared in the return of income for the A.Y. 2014-15 filed on 23.11.2014. The case selected for scrutiny through CASS followed by validly serving of notices u/s.143(1)/142(1) of the Act. In the course of assessment proceedings, ld. AO observed that assessee has incurred short term capital loss of Rs.10,82,319/- from sale of Equity shares of Nikki Global Finance Limited. Ld. AO observed that Nikki Global Finance Limited is part of the 84 companies which is alleged to be a penny stock company as per the list issued by SEBI and that these companies have been allegedly used by the entry operators for arrangement of bogus long term capital gains. Ld. AO noticed that assessee set off the loss of Rs.10,82,319/- from sale of Equity shares of Nikki Global Finance Limited against its taxable profits. Ld. AO therefore disallowed the claim and made addition of Rs.10,82,319/-. 5. Aggrieved assessee preferred appeal before the ld.CIT(A) but failed to succeed as ld.CIT(A) applying the ratio of the Hon’ble Jurisdictional High Court in the case of PCIT Vs. Swati Bajaj & Others reported in (2022) 139 taxmann.com 352 (Calcutta) treating it to be a bogus loss. 6. Now the assessee is in appeal before the Tribunal. 7. Ld. Departmental Representative supported the order of ld.CIT(A). ITA No.1829/Kol/2024 Star Trafin Pvt. Ltd. 8. I have heard the ld. Departmental Representative and perused the record placed before me. The issue before me is regarding the denial of claim of business loss of Rs.10,82,319/- suffered by the assessee from sale of Equity shares of Nikki Global Finance Limited. It is not in dispute that Nikki Global Finance Limited is in the list of 84 companies which are alleged to be a penny stock company as per the list issued by SEBI and further investigations by the income-tax department. The ratio laid down by the Hon’ble Jurisdictional High Court in the case of Swati Bajaj and Others (supra) dealing with such claim of bogus long term capital gain u/s.10(38) of the Act have been considered by me in another case in Manoj Kumar Jain HUF in ITA No.1782/Kol/2018 dated 21.09.2023 observing as follows : “5. We have heard the rival contentions and perused the relevant material placed before us. We notice that the issue with regard to unexplained cash credit for alleged bogus long-term capital gain under section 10(38) of the Act is in dispute before us. We notice that the alleged long-term capital gain has been earned by the assessee during the year under appeal from sale of equity shares of Sulabh Engineers & Services Limited. This company is in the list of 84 companies, which has been found to be penny stock company. The assessee had made huge gain due to price increase, in comparison to the purchase price, but the increase in price of shares is not commensurate to the financials of the company as observed by the lower authorities. 6. It is also pertinent to observe that recently Hon’ble Jurisdictional High Court has examined the issue of bogus capital gain claim made by a large number of assessees in Kolkata. This issue has been examined in the case of Swati Bajaj & Others (2022) 139 taxmann.com 352(Cal.) pronounced on 14.06.2022. A large number of assessees have claimed long-term capital gain/loss. The Income Tax Department has carried out search/survey upon different entities, which unearthed that certain companies and professionals were providing such claim in the shape of accommodation by manipulating the stocks of certain shell companies. The Hon’ble Court has made a detailed analysis of the material found during the course of search and survey on the premises of third entities and set aside the orders of the ITAT in a group of appeals by holding that such claim by the assessees for long- term capital gain was a bogus claim. 7. The issue raised before us is with regard to genuineness of the claim of exempt income under section 10(38) of the Act in respect of long-term capital gain arising sale of equity shares from the listed companies, which were found to be the penny stock companies by both the lower authorities and the long-term capital gain so claimed found to be bogus in nature. We find that recently this Tribunal has adjudicated the similar issue under identical in the case of Shyam Sunder Bajaj in ITA No.1829/Kol/2024 Star Trafin Pvt. Ltd. ITA No. 2552/KOL/2018 and others vide order dated 17th October, 2022 and after placing reliance on the judgment of Hon’ble Jurisdictional High Court in the case of SwatiBajaj & Others (2022) 139 taxmann.com 352(Cal.) pronounced on 14.06.2022, observed as under:- “4. All the present cases were selected for scrutiny u/s. 143(3) through CASS and the issue in all of them for selection relates to ‘suspicious long term capital gain on shares’. In all the above appeals, according to the ld. AO, LTCG reported by the assessee in respective return was bogus and the entire transactions were done with the objective to introduce unaccounted money of the assessee in the books by using the route of LTCG which was exempt from tax u/s 10(38) of the Act, except in one case, where the assessee has booked trading loss on transaction of shares of two Companies, which have been treated as penny stock. Thus, ld. AO held that the said LTCG/loss are fabricated/engineered transactions by the respective assessees, sale of which falls under the category of penny stocks and the same were treated as bogus which were added in the total income by treating it as unexplained cash credit u/s. 68 of the Act. Ld. AO based his decision of treating the impugned transaction of sale of shares as bogus transaction by relying on the report of Investigation Wing of the Department wherein the Investigation Wing of the Department had studied the modus operandi of rigging the prices of penny stocks and generation of capital gain /trading loss there from. On appeal, ld. CIT(A) confirmed the action of the ld. AO. Aggrieved, assessees are in appeal before the Tribunal. 5. Recently on 14.06.2022, the Hon’ble jurisdictional High Court of Calcutta passed a judgment in the case of Swati Bajaj and others [2022] 139 taxmann.com 352 (Cal) dealing with set of cases with similar fact patterns as narrated above for the present appeals under consideration before us. Hon’ble jurisdictional High Court by taking the report of the Directorate of Investigation of the Department as the basis, gave its observations and findings, which are summarized hereunder. 5.1. There are two category of cases dealt with by the Hon’ble High Court, viz. first category being those arising out of the order of Tribunal dated 26.06.2019 in which 90 appeals filed by the assessees were allowed and second category is of those cases where1 assessee has challenged the assumption of jurisdiction by CIT under section 263 of the Act. In the present set of appeals before us, we are concerned with the first category whose relevant observations and findings by the Hon’ble High Court are noted below: a) From the assessment order passed in the case of the assessee Smt. Swati Bajaj, we find that the genesis of the issue commenced from an investigation report submitted by the Directorate of Income Tax, Investigation, Kolkata (DIT). The investigation report has been prepared by the Deputy Director of Income Tax, Investigation Unit - II and III, Kolkata. [para 43] b) The assessee were conscious of the fact that they have not been named in the report, therefore made a vague and bold statement that the non-furnishing of report would vitiate the proceedings. Therefore, merely by mentioning that statements have not been furnished can in no manner advance the case of the assessee. If the ITA No.1829/Kol/2024 Star Trafin Pvt. Ltd. report was available in the public domain as has been downloaded and produced by the revenue, nothing prevented the assessees who are ably defended by the Chartered Accountants and Advocates to download such reports and examine the same and thereafter put up their defence. Therefore, the based on such statements of violation of principles of natural justice the assessees have not made out any case. [para 65] c) The test to be applied is the test of preponderance of probabilities to ascertain as to whether there has been violation of the provisions of the Income-tax Act. In such a circumstance, the conclusion has to be gathered from various circumstances like the volume from trade, period of persistence in trading in the particular scrips, particulars of buy and sell orders and the volume thereof and proximity of time between the two which are relevant factors. Therefore, the methodology adopted by the revenue cannot be faulted. [para 69] d) Test of preponderance of probabilities have to be applied and while doing so, the court cannot loose sight of the fact that the shares of very little known companies with in-significant business had a steep rise in the share prices within the period of little over a year. [para 73] e) The assessee was not named in the report and when the assessee makes the claim for exemption, the onus of proof is on the assessee to prove the genuinity. [para 73] f) It is incorrect to argue that the assessees have been called upon to prove the negative in fact, it is the assessees duty to establish that the rise of the price of shares within a short period of time was a genuine move that those penny stocks companies had credit worthiness and coupled with genuinity and identity. [para 73] g) The assessee cannot escape from the burden cast upon him and unfortunately in these cases the burden is heavy as the facts establish that the shares which were traded by the assessees had phenomenal and fanciful rise in price in a short span of time. [para 75] h) The exercise that was required to be done by the Tribunal is to consider the totality of the circumstances because the transactions are shown to be very complex, the meeting of minds of the 'players' can never be established by direct evidence and therefore the surrounding circumstances was required to be taken note of by the Tribunal which exercise has not been done. [para 99] i) The assessee had opportunity to prove that there was no manipulation at the other end and whatever gains the assessee has reaped was not tainted. This has not been proved or established by any of the assessee. [para 99] j) The tribunal being the last fact finding authority was required to go deeper into the issue as the matter have manifested large scale ITA No.1829/Kol/2024 Star Trafin Pvt. Ltd. scam. Thus, the orders of the tribunal are not only perfunctory but perverse as well. The exercise that was required to be done by the tribunal is to consider the totality of the circumstances because the transactions are shown to be very complex, the meeting of minds of the \"players\" can never be established by direct evidence and therefore the surrounding circumstances was required to be taken note of by the tribunal which exercise has not been done. [para 99] k) In such factual scenario, the Assessing Officers as well as the Commissioner (Appeals) have adopted an inferential process which is found to be a process which would be followed by a reasonable and prudent person. The Assessing Officers and the Commissioner (Appeals) have culled out proximate facts in each of the cases, took into consideration the surrounding circumstances which came to light after the investigation, assessed the conduct of the assessee, took note of the proximity of the time between the buy and sale operations and also the sudden and steep rise of the price of the shares of the companies when the general market trend was admittedly recessive and thereafter arrived at a conclusion which is a proper conclusion. [para 99] l) For all the above reasons, we hold that the Tribunal committed a serious error in setting aside the orders of the CIT(A) who had affirmed the orders of the Assessing Officer. [para 101] m) In the result, these appeals are allowed and the substantial questions of law framed/suggested are answered in favour of the revenue and against the assessee restoring the orders passed by the respective Assessing Orders as affirmed by the CIT(A). [para 102] 6. In the context of factual matrix of the present appeals before us narrated above, the position of law as enunciated by the Hon’ble jurisdictional High Court of Calcutta in Swati Bajaj (supra) carrying force of binding nature on the issue under consideration for us, was confronted to the respective ld. Counsels of the assessee who appeared before us. Ld. Counsels were fair enough to state that issue involved in these appeals is squarely covered against the assessee by the said decision as the fact involved are identical to that which were before the Hon’ble High Court. For cases where none appeared before us on behalf of the assessee, the relevant factual matrix was captured with the assistance of Ld. Sr. DR / CIT DR (already narrated above). Since the matter is squarely covered by the decision of Hon’ble jurisdictional High Court of Calcutta in the case of Swati Bajaj & others (supra), we have taken up these also for adjudication ex parte, qua the assessee. 7. After hearing both the sides and taking into consideration the factual matrix of the cases before us vis-à-vis the decision of Hon’ble jurisdictional High Court of Calcutta in Swati Bajaj & others (supra), we respectfully following the said decision carrying the force of binding nature, being the jurisdictional High Court, dismiss the appeals of the assessee and restore the order of the respective ld. AO as affirmed by the respective ld. CIT(A)” ITA No.1829/Kol/2024 Star Trafin Pvt. Ltd. 8. On going through the above decision of this Tribunal, wherein ratio laid down by the Hon’ble Jurisdictional High Court in the case of Swati Bajaj & Others (supra) has been referred and relied. Hon’ble Court has held such transactions of earning of long-term capital gain of penny stock companies as bogus based on the test of preponderance of probability gathered from various circumstances like volume from trade, period of persistence in trading in the particular scrip, particulars of buy and sale orders, steep increase in the price of the equity shares not commensurate with the financial of the alleged penny stock companies and also rigged of entry operators, who have accepted of being providing accommodation entries in the form of bogus long-term capital gain. We find that the said judgment of the Hon’ble Jurisdictional High Court in the case of Swati Bajaj & Others (supra) is completely applicable on the facts of the instant case. So far as the reliance placed by the ld. A.R. on the decision of this Tribunal in the case of M/s. Gateway Financial Services Limited(supra), we find that this Tribunal after considering the order of the Security & Exchange Board of India, in which one of the parties was the assessee dealt by this Tribunal and the SEBI after detailed investigation and considering the facts of the case exonerated the assessee from the charges leveled in the showcause notice, which means that SEBI which controls the platform on which transaction of purchase and sale of equity shares is carried out, has specifically carried out the detailed investigation and the preponderance of probability was ruled out and the assessee was not found to be engaged in the manipulation of price of the alleged penny stock companies. Thus the facts of the case before us in the case of M/s. Gateway Financial Services Limited are totally distinguishable and cannot be applied in the facts of the case of the assessee in the instant appeal as no such order of the SEBI exonerating the assessee has been placed before us. 9. Therefore, since no other binding precedence in favour of assessee is placed before us, we respectfully following the decision of this Tribunal dated 17.10.2022 as well as the judgment of the Hon’ble Jurisdictional High Court in the case of Swati Bajaj & Others (supra) find no infirmity in the orders of the ld. CIT(Appeals) and, thus, dismiss all the grounds raised by the assessee for A.Y. 2015-16.” 9. Now going through the above decision and also considering the facts of the instant case, I notice that Nikki Global Finance Limited is also part of the 84 companies and the capital gain arising therefrom have been held to be bogus in other cases where the claim of long term capital gains have been done. In the instant case, there is no detail available on record which could prove that the assessee suffered alleged business loss in the regular course of its business activity and that it is a genuine loss and not a accommodation entry in nature. In absence of any evidence and submissions on behalf of the assessee, I am of the considered view that ratio laid down by the Hon’ble Jurisdictional High Court in the case of Swati ITA No.1829/Kol/2024 Star Trafin Pvt. Ltd. Bajaj and Others (supra) apply on the facts of the instant case also and that the assessee has taken accommodation entry in the form of business loss to evade its tax liability. Therefore, I find no infirmity in the impugned order denying set off of the business loss at Rs.10,82,319/-. Therefore, no interference is called for in the order passed by ld.CIT(A). Grounds of appeal raised by the assessee are dismissed. 10. In the result, the appeal of the assessee is dismissed. Order pronounced on this 29th day of January, 2025. - Sd/- (MANISH BORAD) ACCOUNTANT MEMBER पुणे/Pune; \u0001दनांक / Dated : 29th January, 2025 Satish आदेश क\u0002 \u0003ितिलिप अ\tेिषत / Copy of the Order forwarded to : 1. अपीलाथ\f / The Appellant. 2. \r\u000eयथ\f / The Respondent. 3. The Pr. CIT concerned. 4. िवभागीय \rितिनिध, आयकर अपीलीय अिधकरण, “(SMC)” ब\u0014च, Kolkata/ DR, ITAT, “(SMC)” Bench, Kolkata. 5. गाड\u0018 फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Assistant Registrar, ITAT, Kolkata "