Income Tax Appellate Tribunal - Jaipur
Assistant Commissioner Of Income Tax, ... vs Shri Gyandeep Khemka, Jaipur on 8 March, 2019
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE-A, JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 842/JP/2018
fu/kZkj.k o"kZ@Assessment Year : 2014-15
Assistant Commissioner cuke Shri Gyandeep Khemka,
of Income-tax, Vs. 30, Khemka House, Kishan
Central Circle-4, Jaipur Nagar, Shyam Nagar Extn.
Janpath, Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AGBPK0640F
vihykFkhZ@Appellant izR;FkhZ@Respondent
izR;k{[email protected]. No. 28/JP/2018
(Arising out of vk;dj vihy la-@ITA No. 842/JP/2018)
fu/kZkj.k o"kZ@Assessment Year 2014-15
Shri Gyandeep Khemka, cuke DCIT,
30, Khemka House, Kishan Vs. Central Circle-4,
Nagar, Shyam Nagar Extn. Jaipur
Janpath, Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AGBPK0640F
izR;k{ksid@Objector izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Shri J. C. Kulhari (JCIT)
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s Assessee by : Shri Bhupendra Shah (CA)
lquokbZ dh rkjh[k@ Date of Hearing : 11/12/2018
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 08/03/2019
vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the Revenue directed against the order of the ld. CIT(A), Kota dated 15/03/2018 and the cross objection filed 2 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur by the assessee for A.Y 2014-15 wherein respective grounds of appeal are as under:-
Grounds of Revenue's appeal:
"1. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in deleting the additions on account of bogus business loss from share trading activities of Rs. 1,67,29,332/- and addition of Rs. 3,34,587/- on account of estimated unexplained commission expenses for arranging the accommodation entry of bogus business loss.
2. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in deleting the additions by observing that the AO made addition without establishing proper default through corroborative evidences and just by seeing the names forwarded by the investigation wing and later SEBI, completely ignoring the fact that the investigation wing and later SEBI, has laboriously established that the script M/s Nikki Global Finance Ltd was used as an instrument of generating bogus losses only."
Grounds of assessee's Cross objection:
"1. In the facts and circumstances of the case and in law, the learned Assessing Officer erred in disallowing Rs. 3,28,345/- u/s 14A read with Rule 8D even though
a) Proper satisfaction for disallowance was not recorded.
b) By overlooking the fact that no expenditure was incurred for earning such income.
3 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur
c) By overlooking the fact that dividend received was only Rs. 23,314/-.
d) By wrongly including PPF, Insurance and other shares of Pvt. Ltd co. on which no dividend was earned in the calculation of average investment u/r 8D(3)."
2. In respect of Revenue's appeal, briefly stated, the facts of the case are that the assessee has filed his return of income declaring total income of Rs. 15,30,380/- under the heads salary, house property, business & profession, capital gains and other sources. The assessment was completed u/s 143(3) by the DCIT, Circle-2, Jaipur wherein he disallowed business loss on sale of scrip amounting to Rs. 1,67,29,332/- and disallowance u/s 14A r/w Rule 8D(3) amounting to Rs. 3,28,345/-. Further, the Assessing Officer brought to tax an amount of Rs. 3,34,587/- as undisclosed expenditure for acquiring accommodation entry of business loss. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who deleted the disallowance of business loss of Rs. 1,67,29,332/- as well as addition on account of unexplained expenditure of Rs. 3,34,587/-. However, the disallowance made by the AO u/s 14A r/w Rule 8D(3) amounting to Rs. 3,28,345/- was upheld. Now, the Revenue is in appeal against the findings of the ld.CIT(A) in allowing the business loss on sale of scrip as well as addition made on account of unexplained expenditure and the assessee in his cross objection has raised a solitary ground challenging the sustenance of disallowance made u/s 14A of the Act.
3. During the course of hearing, the ld. DR submitted that the assessee has claimed business loss on sale of scrip namely M/s Nikki Global Finance Limited amounting to Rs. 1,67,29,332/-. It was submitted by the ld DR that the assessee purchased the share at a price 4 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur of Rs. 911/- and the assessee retained the shares with himself for almost 3-4 months only and thereafter, when the price reached a level of Rs. 142.5/-, i.e. a humongous fall of over 84.35% over a very short period of just 3-4 months, the assessee sold the shares and booked the business loss and has set it off against other income. It was submitted that the share price movement and the loss booked by the assessee was beyond human probabilities and therefore the Assessing Officer carried out further, investigation in the matter and based on such investigation, the AO has rightly reached a conclusion that the reasons of the astronomical price rise & huge fall in price of the subject scrip were located somewhere else and certainly could not be related to the fundamental or any hypothetical promising future or unreliable future of the company by any stretch of imagination, and price rise and fall both have been manipulated by the so called entities who are engaged in providing bogus losses.
4. It was submitted by the ld. DR that it is a case of penny stock company wherein the assessee has invested and thereafter has booked a business loss in order to set it off against his other income. It was submitted that the shares in M/s Nikki Global Finance Ltd has been identified as penny stock by the Investigation wing of the department. The price of these shares are not based on fundamentals/business results of the companies but the same are fluctuated by insider's trading from zero value to very high price and vice versa without any reason or basis to accommodate or generate bogus capital gain or loss and it was accordingly submitted that given the surrounding circumstances, human conduct and preponderance of probabilities along with related documentary evidences, the assessee is involved in taking bogus business loss entry and which has been rightly disallowed by the 5 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur Assessing Officer. Further, he relied heavily on the findings of the Assessing Officer.
5. Per contra, the ld. AR submitted that the assessee purchased 22,200/- shares of M/s Nikki Global Finance Limited, which are listed on a recognized stock exchange through a recognized BSE broker in the month of January 2014. Further, given the huge fall in the price of the shares, the assessee decided to sell his holding in the month of March' 2014 and as a result, he has incurred a loss of Rs. 1,67,29,332/-. It was submitted that the sale was also done through the recognized BSE broker on the stock exchange and STT was also paid. It was submitted that all the transactions of purchase and sale of shares have been done through the banking channels and the supporting documentation in terms of contract notes of the broker, Demat account statement, STT payment details and copy of the bank statement have been duly submitted before the Assessing Officer and the same are not disputed by the Assessing Officer. It was submitted that since the transactions have been executed on a recognised stock exchange, the assessee has absolutely no control on the price movement of the stock. It was further submitted that the assessee is not aware of any investigation and consequent finding of SEBI wherein scrip of M/s Nikki Global Finance Ltd., has been subject matter of investigation and in particular, of any price manipulation in the said scrip as so alleged by the Assessing Officer. It was further submitted that the AO has referred to the statement of Shri Sanjay Vora and Shri Deepak Patwari however no such statement were confronted to the assessee and no cross examination of these persons were given to the assessee. It was further submitted that even in these statements, there is no mention of any scrip by the name of M/s Nikki Global Finance Limited. It was accordingly submitted that where the purchase and sale of the shares 6 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur have not been disputed by the Assessing Officer and based on the movement in the price of the shares which are listed on a recognized stock exchange and over which the assessee has no control, the assessee decides to sell his share holding and in the process, incurs business loss, the Assessee cannot be penalized again by disallowance of the said business loss for tax purposes which he has actually incurred. It was further submitted that the AO has wrongly invoked the provisions of section 115BBE which does not apply to business loss as in the instant case. Further, the ld. AR supported the findings of the ld. CIT(A) who has rightly appreciated the factual position of the assessee. Further, the ld. AR relied on the Co-ordinate Bench decision in case of Kiran Kothari HUF, Kolkata vs. ITO, Ward 35(3), Kolkata dated 15th November, 2017 and decision of the Co-ordinate Bench in case of Pramod Jain and others (ITA No. 368-372/JP/2017) which has been subsequently approved by the Hon'ble Rajasthan High Court. Further, the ld. AR relied on the decision of Hon'ble Rajasthan High Court in case of CIT vs. Smt. Pooja Agarwal (DB Appeal No. 385/JP/2011 dated 11/09/2017).
6. In order to appreciate the rival contentions raised by both the parties, we refer to the findings of the Assessing Officer as well as the findings of ld. CIT(A).
7. The Assessing Officer based on the investigation carried out by the investigation wing of the department stated that M/s Nikki Global Finance Ltd. (Scrip Code-531272) is a penny stock listed company. It has very small capital base but its market capitalization is multifold to its capital base. The Assessing Officer further observed that on examination of the purchase and sale transactions made by the assessee during the year, it was found that the assessee has purchased 7 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur 22,200 shares of M/s Nikki Global Finance Limited from open market on different dates at prices of Rs. 911/- (approx.). The assessee retained the shares with himself for almost 3-4 months only and during the time when the shares were kept by the assessee, it was found that the price of the scrip kept falling throughout the period and its prices reached at level of Rs. 142.5/-, i.e. a humongous fall of over 84.35% over a very short period of just 3-4 months. The assessee thereafter sold his shares for consideration of Rs. 31,56,698 and claimed a loss of Rs. 1,67,29,332/-.
8. The Assessing Officer observed that these facts demanded a deeper study of the price movements and share market behavior of the entities involved in trade of the scrips as the share price movements and the profit/loss earned by the beneficiaries were beyond human probabilities. Thus a deeper study was needed to ascertain whether the transactions were genuine investment transactions or sham and colourable devices only to covert the unaccounted cash into tax exempt income. In short, it was to be ascertained whether the apparent was real. Thereafter, the Assessing Officer noted that M/s Nikki Global Finance Ltd., was incorporated in 1986 at Delhi and examined the profit/loss account, the balance sheet, key financial ratios of the company as well as capital structure and the price movement of the scrip. The Assessing Officer observed that the company's share prices were on the higher side during the period from November, 2013 to January, 2014, whereas on examination, it is detected that no such fundamentals had existed which can act as a catalyst to boost the prices of shares in such a high time, the revenue from operations was minimal as so the expenditure on consumption of raw materials, purchase of traded goods, stocks, power & fuel, employee cost. Even the company did not claim any depreciation. Similarly, no such circumstances exist 8 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur which justify huge fall in share prices as there was no huge loss or rejection of any big corporate order during the period of 3-4 months wherein steep fall in price of shares occurred. It only substantiates that the company was merely a paper company and the rise as well as fall in share prices were due to human intervention only. It further corroborates that price rise and price fall both have been manipulated by the so called entities in providing bogus losess. The Assessing Officer further stated that a close look at all such data suggests that there is a common pattern in the trading of the scrip wherein the scrip represent a bell shape in its trading wherein prices start from a low range, then it rises rapidly, stays there for a while and then it decreases more rapidly.
9. The Assessing Officer further referred to the survey operation in the case of M/s Anand Rathi Shares and Stock Brokers Ltd., Kolkata, wherein Shri Sanjay Vora S/o Late Dhiraj Lai Vora accepted that he allowed Shri Deepak Patwari, Shri Parvesh Beria and others to trade without any verification due to old relationship. The Assessing Officer further referred to the statement of Shri Deepak Patwari recorded u/s 131 wherein he stated that scrip of different companies which are listed on BSE have been purchased through brokers on the instructions of financiers who manages the funds for the purposes of providing capital gains to beneficiaries by increasing the price and his jamakharche companies have been used to provide such capital gains entry. The Assessing Officer thereafter held that the stake holder involved in these transactions were either bogus or devoid of any financial capabilities to make such investment and were conscious parties in this entire scheme and provided exit to the beneficiaries of the scheme i.e. the person who were allotted shares. As such, the whole transaction of purchase & sale of shares of M/s Nikki Global Finance Ltd by the assessee is sham transaction camouflaged with an intention to evade taxes. It was held 9 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur that the shares price movement and sale purchase transactions were not genuine, were result of meticulously planned circular trading and the entities involved were part of this exercise in an effort to create documentary evidences for a pre-planned scheme for converting unaccounted money into tax exempt income. The AO further held that the huge business loss earned by the assessee within a very short period of time by investing in penny stock i.e. M/s Nikki Global Finance Ltd whose fundamentals, had no support for the premium it commanded, was neither the result of a coincidence nor of a genuine investment activity but were created through well planned and executed scheme in which the company, the brokers and the buyers and sellers of the scrip worked in tandem to achieve the predetermined objectives.
10. The Assessing Officer further referred to the modus operandi which has been deduced by various investigation wings of the income tax department, SEBI and other government agencies and referred to findings of SEBI in the case of M/s First Financial Services Ltd. (WTM/RKA/ISD/162/2014 dated 19/12/2014), M/s Moryo Industries Ltd., (WTM/RKA/140/ISD/2014 dated 04/12/2014), M/s Pine Animation Ltd., (WTM/RKA/ISD/36/2015 dated 08/05/2015), M/s Redford Global Ltd (WTM/RKA/ISD/143/2015 dated 09/11/2015), M/s Sunrise Asian (WTN/RKA/ISD/30/2015 dated 17/04/2015) etc. which has spelt out this modus operandi and successfully established that that entities involved in such schemes are manipulating the markets to generate tax exempt LTCG. The AO further held in para 3.8.2 of order that SEBI has started inquiries in this particular scrip i.e. M/s Nikki Global Finance Ltd., (Scrip Code-531272) and SEBI has also provided information pertaining to the scrip to the Income tax department. It was thereafter held by the AO that the company, M/s Nikki Global Finance Ltd., and various entities involved in circular trading and sale and purchase of the scrip have all 10 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur been part of this edifice to convert unaccounted money into accounted one by following the above modus operandi.
11. Thereafter on 23.08.2016 a show cause was issued to the assessee as to why the whole scheme should not be treated as an attempt to camouflage to reduce tax liability & impugned business loss amounting to Rs. 1,67,29,232/- in M/s Nikki Global Finance Ltd. was proposed to be added on account of undisclosed income. The assessee in his response dated 24.10.2016 stated that he purchases the shares M/s Nikki Global Finance Ltd. in normal course of investment and payments were made by crossed account payee cheque/RTGS and the purchase of shares were done through a recognized BSE share broker and it was a genuine transaction. It was further submitted that the sale was also made online after paying STT at the prevalent market rates, therefore sale transactions were also genuine. The contentions so advanced by the assessee were examined but not found acceptable to the Assessing Officer. The relevant findings of the Assessing Officer are contained at para 3.12 and 3.13 of assessment order which are reproduced as under:-
"3.12. Further, the contention of the assessee was also examined under following points:-
(a) As a nature, every investor wants to buy the share at lower prices & sale the same at higher prices to maximize profits. However, if after purchases, the prices reduces i.e. transaction gives loss, then the investor does not sell the shares and wait until it become a profit giving share. Notwithstanding that the prices of the scrip i.e. M/s Nikki Global Finance Ltd have come down significantly after assesssee's purchases, the assessee sold as soon as significant losses have occurred and did 11 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur not wait for prices to increase, only indicate whole practice is a sham practice.
(b) The particular scrip has been held during the period of December to February/March of AY as required under prevailing instructions of the Act and after such period and with the connivance of various entities when the prices of shares have decreased to optimal level or so (thereby giving Business Loss during the Year), the assessee made exit.
(c) The assessee purchased shares of the penny stock company who do not have any fundamentals whatsoever. The prices of the scrip i.e. M/s Nikki Global Finance Limited were rigged thereby giving LTCG to certain beneficiaries and thereafter prices were again rigged thereby giving business loss to certain beneficiaries (assessee is one of them).
(d) Of Late, the Department started Income Declaration Scheme- 2016. In the said Scheme, many investors who have taken bogus entries for the sake of Long Term Capital Gain/short term capital loss in the very scrip i.e. M/s Nikki Global Finance Limited, while accepting the modus operandi, has surrendered on account of bogus Long Term Capital Gain/short term capital Loss. It further substantiate that whole scheme was for some particular investors started by some particular brokers in connivance with operators/entities.
(e) The shares in which the assessee has claimed to have made a deal, are identified as Penny Shares by the investigation wing of the department because rates of these shares are not based on business results of the companies but same are fluctuated by insider's trading from zero value (negligible price) to very high price and vice versa without any reason or basis to accommodate or generate bogus capital gain or loss.
12 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur
(f) Furthermore, the assessee was served upon notice dated 14.10.2016 u/s 142(1) of the Act for providing certain information. The ld. A/R replied vide letter 24.10.2016 that investment in the scrip i.e. M/s Nikki Global Finance Limited has been made as regular investor. However, it is not so in view of the aforesaid discussion. The assessee on one side is investing in blue chip shares as well as good shares having robust fundamentals whereas on the other side, it is investing in such a weak share does not make sense. It also shows that assessee is having inputs about price rigging in shares of M/s Nikki Global Finance Ltd. It also confirms that whole transaction as a SHAM transaction and assessee's involvement in taking bogus business loss entries from the alleged entities.
3.13. According to Oxford English dictionary SHAM means 'A thing that is not what it is purported to be. In this instant case even though prima facie it appears that the assessee received the aforementioned proceeds out of sale of shares of the scrip, in reality it was his own cash which he received back through some clandestine deals. The detailed analysis and the modus operandi discussed above firmly establish the events in the instant case. Now the question is whether to prove some transaction as sham, does the assessing authority needs to expose all the four corners of the scheme and establish its findings through foolproof, documentary evidences only at par as required in a criminal proceeding and further, whether the surrounding circumstances, human conduct and preponderance of probabilities along with related documentary evidences are not sufficient to establish a transaction as such."
13 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur
12. The Assessing Officer thereafter referred to the decision of Co- ordinate Bench in case of Hersh Win Chadha vs. DCIT (ITA No. 3088 to 3098 & 3107/Del/2005) wherein it was held that the admissibility of documents, evidence or material differs greatly in Income tax proceedings and criminal proceedings respectively. In the criminal proceedings, the charge is to be proved by the State against the accused, established it beyond doubt, whereas as per the settled proposition of law, the income tax liability is ascertained on the basis of the material available on record, the surrounding circumstances, human conduct and preponderance of probabilities. The AO further referred to the decision of Hon'ble Supreme Court in case of Sumati Dayal vs. CIT (214 ITR 801) and Durga Prasad More vs. CIT and held that the apparent must be considered real untill it is shown that there are reasons to believe that the apparent is not real and that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by the applying the test of human probabilities. The Assessing Officer held that in the case of the assessee, prices of both the scrips have reduced to almost 75-85% within a period of almost 3-4 months (just before ending of particular AY) enabling the assessing to set off its capital gain from impugned derived Short Term Capital Loss defies any logic or human probabilities and therefore cannot be considered as genuine. The AO accordingly held that the amount of Rs. 1,67,29,332/- introduced by the assessee, out of these purported share sale receipts during the F.Y 2013-14 in books of accounts as business loss as Sham transaction which are taxable @ 30% as provided u/s 115BBE. Accordingly, the impugned loss of Rs. 1,67,29,332/- was disallowed.
13. Further, the Assessing Officer held that it is also unearthed during the course of investigation by the Wing that the beneficiaries have paid 14 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur 1% to 2% commission on acquiring accommodation entries for Bogus Business Loss on the scrip. Therefore, 2% commission paid i.e. Rs. 3,34,587/- (2% of Rs. 1,67,29,332/-) was treated as undisclosed expenditure for acquiring accommodation entry of loss and which was brought to tax in the hands of the assessee.
14. We now refer to the findings of the ld. CIT(A). Firstly, he referred to the findings of the Assessing Officer and stated that the AO has proceeded on a presumption that based on searches by investigation wing carried out in case of certain entities, it was found that they were engaged in providing bogus entries of loss/gains for trading in shares of penny stock companies. In the present case, the AO has listed that the assessee transacted in shares of M/s Nikki Global Finance Ltd., being a penny stock listed company. The ld CIT(A) stated that the main objection of the AO was that the assessee purchased 22200 shares of M/s Nikki Global Finance Ltd., from open market at a very high price of Rs. 911/- and within 3 to 4 months, the share price fell to Rs. 142/- per share which comes to a fall of 84.3% in a very short span. The AO also doubted the financials of the company (which is in existence for around more than 25 years) and noted that the case fell beyond human probabilities. The ld. CIT(A) further stated that the AO has raised certain theoretical objections to the trades conducted by the assessee stating that the assessee on the one hand is investing in Blue chip shares & on the other hand in such weak shares which does not make sense and hence he was aware of price rigging in this share, several persons (no such list made available) have declared/surrendered loss/gain earned in the scrip Nikki Global Finance Ltd., under the Income Declaration Scheme, 2016, thus proving that the scrip was not genuine, there was a connivance of various entities in this manipulation and since the assessee sold the share without waiting for a price to 15 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur increase, indicates that it was a sham practice. The ld. CIT(A) further referring to the finding of the Assessing Officer wherein the latter cites the definition of word "sham" and certain case laws on rules of evidence justifying statements recorded elsewhere u/s 133A & 131 being admissible as evidences based on surrounding circumstances, human conduct & preponderance of probabilities.
15. Regarding statements of Sh. Sanjay Vora, the ld. CIT(A) held that said person who has claimed to have allowed persons Sh. Deepak Patwari, Sh. Pravesh Beria & others to trade without any verification due to old relationship is nowhere an implication for taxability in the appellant's hands. The ld. CIT(A) further referred to the statement of Sh. Sanjay Vora wherein he was asked a leading question by the officer who recorded his statement regarding Jamakharchi Companies being run by Sh. Deepak Patwari & Shri Pritam & Sh. Parvesh Beria, but he denied any knowledge of the same. He even mentioned that they collected declarations from these clients (who were clients of Anand Rathi Shares & Stock Brokers) that they were not doing any suspicious trades. He talks about client code modification in the process & that it was stopped from head office at Mumbai. In fact, his entire statement was not categorical regarding bogus companies & penny stocks managed through Sh. Deepak Patwari & others, though he mentioned that they barred trading in their scrips from February, 2015 due to trading pattern. He denied being part of any bogus LTCG syndicate and mentioned that they had earned only brokerage income from these transactions. Referring to the statement of Sh. Deepak Patwari recorded u/s 131, the ld. CIT(A) held that in his statement, Sh. Deepak Patwari accepted before Kolkata investigation wing of the department regarding trading in unquoted shares and that he provided accommodation entries to different beneficiaries through shell companies controlled through 16 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur dummy directors. However, he has nowhere named dealing in the scrip of Nikki Global Finance Ltd., for this purpose.
16. Taking into consideration the findings of the Assessing Officer and submissions of the assessee, the ld. CIT(A) has recorded his findings which are contained at page 65 to 66 of his order which is reproduced as under:-
"The submissions made as well as the case laws referred have been examined at length.
From a perusal of the facts, the following points are seen:-
1) Over the period from 1st October 2013 to 30th April 2014, i.e. a period of 7 months, the trades affected in the scrip exceeded lakhs, out of which, the assessee's scrips were only 22000. Secondly, scrip trading at Rs. 140/- per share odd cannot be said to be a 'Penny' Stock in the real value sense of the term. Thirdly, the scrip started in October 1st, 2013 at Rs. 865/- per share and over a period of 3 months i.e. Jan. 2014, it was still trading at Rs. 890/- odd per share.
How this control was maintained despite such voluminous transactions is not clear in the order?
Even by prudence, it would be natural for any investor/trader to sell the shares if the scrip is 'falling' down so as to salvage his investment once he feels he no longer can wait for the scrip to give good returns. That is why the concept of gain & loss is there in the Act. It cannot be always a win- win situation for everyone. The uncertainty of stock markets is a well known phenomenon worldwide.
17 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur
2) The appellant submitted all the details in respect of the transactions carried out in respect of the scrip to the A.O. including details of purchase, bank transaction related to the purchase & sale of the scrip, contract notes of the broker, STT payment details etc. thus discharging his primary onus in respect of the transaction.
3) While disallowing the trading loss claimed the AO did not bring on record any direct evidence of the loss being bogus except mentioning that Nikki Global Finance was a Penny Stock company used for providing such bogus gains/losses by certain entities/person colluding & manipulating the prices of the shares at the exchange.
4) On his part, the A.O. did not bring on record any evidence of 'accommodation' entry or cash amount exchanging hands in the case or the reason why such 'bogus' short term loss was transacted.
5) No details of 'Exit Providers' was mentioned who purchased such shares at a loss as mentioned in the `modus operandi' is there.
6) No detail of SEBI finding specific to the scrip in which the assessee traded has been mentioned the SEBI orders referred in the A.O.'s order (Page 36) does not certain the name of Nikki Global Finance Ltd.
7) No examination of broker through whom the share was traded has been recorded nor any payment of cash to him for arranging the alleged 'circular' trading has been brought on record by the A.O. The A.O. has not questioned the source of the purchase related payment, nor the process of online transaction on BSE through the broker. In fact if it was an accommodation entry, he should have first confronted the broker with his books of accounts to try & prove that 18 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur cash exchanged hands there or at least figure out his modus operandi. The nexus between the broker and the 'Penny Stock' company was also not figured out in the assessment order. The `unaccounted money' mentioned in the modus. operandi listed by the A.O. has not been established. How the assessee established contact with the entry operator, (who was probably located in Kolkata) is also not clear. How did the "circular trading" happened in this case, who were the 'Exit Providers' and what action was taken in their case is also not spelled out. Thus, the entire addition appears to be based on a theory which was considered as "established" may be in the course of some action by the investigation wing and had widely been circulated to the A.O.'s who without establishing proper default through corroborative evidences, made additions/disallowances just on seeing the names forwarded by the investigation wing & later SEBI."
17. Further, ld. CIT(A) referred to the decision of Co-ordinate Benches in case of Kiran Kothari HUF, Kolkata vs. ITO, Ward 35(3), Kolkata; Pramod Jain and others (ITA No. 368-372/JP/2017) and the decision of the Hon'ble Rajasthan High Court in case of CIT vs. Smt. Pooja Agarwal wherein similar finding has been given and drawing support from the said decisions, the ld CIT(A) gave his concluding finding that the claim of business loss advanced by the assessee cannot be denied merely on the basis of presumption and surmises in respect of penny stock trade by disregarding the direct evidences on record relating to the BSE portal based online sale/purchase transactions in shares supported by broker's contract notes, confirmation of receipt of sale proceeds through regular banking channels and brokerage related payment entries in the accounts. The AO on his part has not brought on record any direct, cogent and corroborative material or evidence against 19 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur the assessee and based her addition on purely indirect basis of nexus prevailing in such cases. The disallowance of loss of Rs. 1,67,29,332/- from share trading activities is therefore not upheld and the matter was decided in favour of the assessee.
18. Regarding addition on account of commission paid @ 2% on the aforesaid accommodative transaction, The ld. CIT(A) held that it is consequential to the matter of business loss and which has already been decided in favour of the assessee. The addition made by the AO on account of notional commission paid of Rs. 3,34,587/- was accordingly held as sustainable being consequential to the first issue and was also directed to be deleted.
19. We have heard the rival contentions and perused the material available on record. The assessee has purchased shares of M/s Nikki Global Finance Ltd, a company listed on a recognised stock exchange through a registered stock broker M/s Basan Equity Broking Ltd. As per the copy of the contract notes available on the record, the assessee has purchased 5,500/- shares of M/s Nikki Global Finance Ltd., on 20.12.2014 at a price of Rs. 911 per share for a total value of Rs. 50,10,100/- and has paid security transaction tax of Rs. 5,010/-. Thereafter, the assesse has purchased another lot of 5,500 shares of M/s Nikki Global Finance Ltd on 21.01.2014 at a price of Rs. 896/-per share for a total consideration of Rs. 49,28,033/- and has paid security transaction tax of Rs. 4,982/-. Thereafter, the assesse has purchased another lot of 5,600 shares of M/s Nikki Global Finance Ltd on 22.01.2014 at a price of Rs. 889/-per share for a total consideration of Rs. 49,81,640/- and has paid security transaction tax of Rs. 4,982/-. The assessee has further purchased another lot of 5,600/- shares of M/s 20 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur Nikki Global Finance Ltd. on 24.01.2014 at a price of Rs. 884/- per share for a total consideration of Rs. 49,66,256/- and has paid security transaction tax of Rs. 4,966/-. The payment for the said purchases has been made through banking channel and the amounts have been debited in the assessee's bank A/C No. 00500340004413 maintained with HDFC Bank. Subsequently, these shares have been credited in the assessee's DMAT account maintained with Maverick Share Brokers Limited, DP of Central Depository Services (I) Ltd., in two lots of 16,600 and 5,600 shares, therefore as on 29.01.2014, the assessee was holding 22,200/- shares in his DMAT account. Therefore, as per the assessee purchase transactions are concerned, the same are duly supported by the contract notes as well as the bank statement of the assessee and the shares were dematerialized and the assessee produced his DMAT account statement which clearly reflect the shares of M/s Nikki Global Finance Ltd. totaling to 22,200/- in his account. We also find that these are not isolated transactions of purchase and sale of shares of Nikki Global Finance Ltd by the assessee but there are a number of other transactions wherein the assessee has purchased and sold the shares of different companies through IPO as well as other transactions such as JUST DIAL, Power Grid Corporation of India Ltd. The assessee has subsequently sold his entire shareholding in Nikki Global Finance Limited through the stock exchange. In this regard, we refer to the contract notes issued by Basan Equity Broking Ltd wherein on 22.03.2014, the assessee has sold 17,232 number of his shares in M/s Nikki Global Finance Ltd. at a price of Rs. 142.50/- for a total sale consideration of Rs. 24,55,216/- and on which the assessee has paid security transaction tax of Rs. 2,455/-. Further on 24.03.2014, the assessee has sold 4,968 shares in M/s Nikki Global Finance Ltd. at a price of Rs. 141.20/- for a total sale consideration of Rs. 701,481/- and on which the assessee has 21 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur paid security transaction tax of Rs. 701. Correspondingly, all 22,200 shares have been debited in the demat account of the assessee and as on 31.03.2014, the assessee was having Nil holding in M/s Nikki Global Finance Ltd. The total sale consideration of Rs. 31,50,247/- has been received through cheque and credited in the assessee's bank account maintained with HDFC Bank on 26th March, 2014. It is not in dispute that M/s Nikki Global Finance Ltd. was listed on the stock exchange. The AO has not disputed the prevailing market price and the shares at the time of purchase and at the time of sale. Though there is a manifold decrease in the market price of the shares at the time of sale in comparison to the time of purchase, however, the said price was not disputed as the prevailing market price at the relevant point in time. Since this company was listed on the stock exchange, there was no hurdle at determining the prevailing market of the price at the time of purchase as well as sale. Since the market price and the price at which the assessee purchased the shares and subsequently sold are not in dispute then merely because there is a huge loss incurred by the assessee on the sale of his share holding, the same cannot be a basis for holding the transaction as a sham transaction. Though the decrease in the market price of this subject scrip is manifold, the same can be a reason to conduct the enquiry to verify the genuineness of the claim but the same cannot be a basis of holding the transaction as bogus. Therefore in absence of any material or fact to show that the assessee has introduced his own unaccounted money in the shares of M/s Nikki Global Finance Ltd. and in the process has incurred a business loss, the mere suspicious is not enough to deny the claim of the assessee. The decision of the AO holding the transaction as sham and denying the claim of business loss is purely based on suspicion without any material evidence to controvert or disapprove the evidence produced by the 22 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur assessee. Though there is a substantial fall in the share price by as much as 84.3% in a very short span of time and the suspicion of the Assessing Officer may be well founded, however, the fact of the matter is that there is no specific finding by the SEBI to hold that the price of scrip has been rigged or manipulated. In absence of the said finding by the said authority which is the appropriate authority and the regulator for monitoring the transactions on the stock exchange, the suspicion of the AO however strong cannot be a basis for denying the claim of business loss in the hands of the assessee in absence of any evidence or wrong doing on part of the assessee. In fact the Assessing Officer in para 3.8.2 of his order has stated that SEBI has started enquiry in this particular scrip M/s Nikki Global Finance Ltd. This in fact corroborates the fact that it was purely a suspicion in the mind of the AO and a mere initiation of the enquiry proceedings and in absence of any specific finding by SEBI, the very basis of disallowing the claim of business loss cannot be sustained. Further, the Assessing Officer has referred to the general modus operandi and the searches conducted by the Investigation wing of the department in other cases relating to accommodation entries of bogus long term capital gains and losses through trading in penny stock and has also referred to the statement of Sh. Sanjay Vora of M/s Anand Rathi Shares & Stock Brokers and Sh. Deepak Patwari. We however find that the assessee has carried out his transactions through M/s Basan Enquity Broking Ltd., and not through M/s Anand Rathi Shares & Stock Brokers and further in these statements so referred by the AO, we do not find any iota of evidence or even mention of the scrip of M/s Nikki Global Finance Ltd. Therefore, general information about the modus operandi of obtaining accommodation entry in the form of business loss would be of no use to the Revenue unless and until there is some specific information and 23 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur material qua the subject scrip and the assessee. Therefore, in light of above discussion, we donot see any infirmity in the findings of the ld. CIT(A) wherein he has held that the claim of business loss cannot be denied to the assessee merely on presumption and surmises by disregarding the direct evidence on record relating to BSE listed company and online sale& purchase transactions duly supported by brokers contract notes, receipt of sale proceeds in the assessess's bank account and payment of brokerage, STT by the assessee.
20. The Coordinate Bench of this Tribunal in the case of Pramod Jain (supra) has dealt with an identical issue and in para 6 & 7 has held as under :--
"6. We have considered the rival submissions as well as relevant material on record. The assessee purchases 800 equity shares M/s Gravity Barter Ltd. for a consideration of Rs. 4 lacs the assessee has produced the purchase bill of the shares purchase from M/s Winall Vinimay Pvt. Ltd. which shows that the assessee purchase 800 equity shares having face value of Rs. 10/- each M/s Gravity Barter Pvt. Ltd. in allots of 400 each for a consideration of Rs. 2 lacs each total amount to Rs. 4 lacs @ Rs. 500 per shares. The purchase price of Rs. 500 per share itself shows that it was not a transaction of purchase of penny stock. These shares were duly reflected in the balance sheet as 31.03.2011. The payment of the purchase consideration was made by the assessee vide cheque on 17.05.2011 which is evident from the bank account of the assessee at page 40 of the paper book. In the mean time the said M/s Gravity Barter Pvt. Ltd. changed its status from private limited to a public limited and fresh certificate was issued by the Registrar of company on 05.02.2011 which is placed at page 43 of the paper book.
24 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur Therefore, there is no reason to disbelief the fact of fresh certificate issued by the Registrar of companies on 05.02.2011 and hence, the date mentioned in the order of the Hon'ble Kolkata High Court as 18.04.2011 appears to be typographical mistake. Even otherwise these two dates do not have any effect on the genuineness of the transactions of purchase of equity shares by the assessee of M/s Gravity Barter Pvt. Ltd. The assessee though produced al1 the relevant records and evidences right from the purchase bills, certificate issued by the Registrar about the change of name, the communication between the assessee and the seller of the shares and thereafter, the amalgamation of M/s Gravity Barter Ltd. with M/s Oasis Cine Communication Ltd. which was duly approved by the Hon'ble High Court vide order dated 28.8.2011. The assessee in the mean time got the physical share certificate dematerialized into Demat account on 16.02.2012. There is no reason to doubt the allotment of the shares to the assessee after amalgamation took place between M/s Gravity Barter Ltd. and M/s Oasis Cine Communication Ltd. and subsequent to amalgamation the assessee was allotted shares of M/s Oasis Cine Communication Ltd. on 04.02.2012. Hence, the allotment of 35,200 equity shares of M/s Oasis Cine Communication Ltd. cannot be doubted or disputed as these shares were issued post amalgamation and by a listed company. It is also not in dispute that these shares of M/s Oasis Cine Communication Ltd. were issued in exchange of the shares held by the assessee of M/s Gravity Barter Ltd. Therefore, once the shares issued by M/s Oasis Cine Communication Ltd. cannot be doubted then the holding of the shares of the M/s Gravity Barter Ltd. by the assessee correspondingly cannot be 25 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur doubted because of the reasons that the shares of M/s Oasis Cine Communication Ltd. could be allotted only in exchange of shares of M/s Gravity Barter Ltd. The holding the shares of M/s Gravity Barter Ltd. and the allotment of shares M/s Oasis Cine Communication Ltd. are directly interconnected. In the absence of holding of shares M/s Gravity Barter Ltd. the shares of the M/s Oasis Cine Communication Ltd. could not be issued or allotted to the assessee. Therefore, holding of the shares by the assessee at least at time of amalgamation took place and shares of the M/s Oasis Cine Communication Ltd. on 04.02.2012 cannot be doubted. Moreover, these shares were dematerialized by the assessee in the Demat account, therefore, on the date of allotment of share of M/s Oasis Cine Communication Ltd the assessee was holding these shares and prior to that the assessee was holding the shares of M/s Gravity Barter Ltd. on exchange of the same the shares of M/s Oasis Cine Communication Ltd. were issued to the assessee. The Assessing Officer has doubted the genuineness of the transactions however, once the holding of shares of the assessee at the time of the same were issued by M/s Oasis Cine Communication Ltd. is not in dispute then the holding of shares of M/s Gravity Barter Ltd. also cannot be dispute because of the fact that without holding of the same the shares of M/s Oasis Cine Communication Ltd. could not be issued to the assessee. Once, the shares were held by the assessee then, the question of genuineness of the transaction does not arise however, the purchase consideration can be doubted by the AO if the shares were claimed to have been purchased against consideration paid in cash which is not in case of the assessee. The assessee has paid purchase consideration through cheque 26 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur and therefore, even if the said consideration is found to be very less in comparison to the sale price at the time of sale of shares in the absence of any material or other facts detected or brought on record by the AO that the assessee has brought back his own unaccounted money in the shape of long term capital gain and has used the same as a device to avoid tax, the purchase consideration paid by the assessee cannot be doubted in the absence of any corroborating evidence. The Assessing Officer has not disputed that the fair market value of the shares of M/s Gravity Barter Ltd. was more than the purchase price claimed by the assessee. It may be a case that ensuring merger/amalgamation of the said company with M/s Oasis Cine Communication Ltd. the assessee might have anticipant the exceptional appreciation in the share price due to extraordinary event of merger/ amalgamation. However, the same cannot be a reason for doubting genuineness of the transaction if the motive of purchase of the share is to earn an extraordinary gain because of some internal information available to the assessee.
7. In case of equity shares M/s Paridhi Properties Ltd. the assessee purchase 50,000 equity share on 26.03.2011 by paying share application money of Rs. 5 lacs which is duly reflected in the bank account of the assessee as paid on 28.03.2011. Therefore, the payment of share application money has been duly established by the assessee through his bank account for allotment of shares of 50,000 equity shares of M/s Paridhi Properties Ltd. The share allotted in private placement as per of Rs. 10/- cannot be termed as penny stock. The AO doubted that the entire process of application and allotment of shares as it 27 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur have been completed within a short duration of 5 days, which in the opinion of the AO is not possible in ordinary course. However, when the assessee has produced the record including the share application, payment of share application money, allotment of share then merely because of a short period of time will not be a sufficient reason to hold that the transaction is bogus. The shares allotted to the assessee vide share certificate dated 31.03.2011 were dematerialized on 21.10.2011, therefore, on the date of dematerialization of the shares the holding of the shares of the assessee cannot be doubted and hence the acquisition of the shares of the assessee cannot be treated as a bogus transaction. Nobody can have the shares in his own name in demant account without acquiring or allotment through due process hence, except the purchase consideration paid by the assessee holding of shares cannot be doubted when the assessee has produced all the relevant record of issuing of allotment of shares, payment of share application money through bank, share certificate and demat account showing the shares credited in the demat account of the assessee on dematerialization. The said company M/s Paridhi Properties Ltd. was subsequently merged with M/s Luminaire Technologies Ltd. vide scheme approved by the Hon'ble Bombay High Court order dated 27.07.2012. Hence, the assessee got allotted the equity shares of M/s Luminaire Technologies Ltd. as per swap ratio approved in the scheme and consequently the assessee was allotted 5 lacs share of Rs. 1/- each on M/s Luminaire Technologies Ltd. The evidence produced by the assessee leave no scope of any doubt about the holding of the shares by the assessee."
28 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur
21. The Hon'ble Rajasthan High Court in PCIT vs Pramod Jain & Others (in D.B. Income Tax Appeal No. 209/2018 & others dated 24.07.2018) has approved the aforesaid decision of the Coordinate Bench and the relevant findings are as under:
"5. However, now the issue is squarely covered by the decision of this court in ITA No.385/2011 (Commissioner of Income Tax vs. Smt. Pooja Agarwal) decided on 11.9.2017 which reads as under:-
"6. Counsel for the appellant has taken us to the order of AO stating that the assessee involved in jewelry business has taken entry for the purpose of converting the black money into white and referred this entry from broker, one Shri P.K.Agarwal. Entry provided from Calcutta has been taken.
7. The assessee derives income from salary, capital gains and other sources. A survey under Section 133A of the Act was conducted as the business premises of M/s Royal Jewellers, Telipada of which assessee is 50% partner, on 21st and 22nd of January, 2008, during which various incriminating documents were found and impounded wherein several unaccounted transaction were recorded. Reassessment proceedings were initiated by issuing notice under Section 147 R/W 148 of the Act. Vide Show Cause Notice the assessee was specifically asked as to why the amount of Rs.98,56,872/- should not be treated as an accommodation entry.
8. The assessee submitted reply to the Show Cause Notice contending therein that the share transactions are genuine and the 'Short Term Capital Gain' of Rs.98,56,872/- has been earned 29 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur from the purchases and sales of shares of Konark Commercial Ltd. And Limtux Investment Ltd. Investigation revealed that the entire share transactions were bogus and mere accommodation entries obtained from an entry provider Shri P.K.Agarwal form Kolkata. The said fact was revealed during search carried out by the Investigation Wing, Jaipur in the case of B.C.Purohit Group.
9. It is pertinent to note that during the survey operation, it was admitted by the assessee that no investment in shares was made by him during the said period. It was further found that the company M/s Konark Commercial Ltd. Was never listed in Calcutta Stock Exchange and the assessee was never its shareholder.
10. After considering the entire factual matrix the Assessing Officer held that the assessee had arranged the said accommodation entries from entry providers for converting its undisclosed money into white money and thus the amount of Rs.98,56,872/- was treated as undisclosed income of the assessee.
11. Counsel for appellant has taken us to the order of AO.
12. However, counsel for the respondent has taken us to the order of CIT(A) and also to the order of Tribunal and contended that in view of the finding reached, which was done through Stock Exchange and taking into consideration the revenue transactions, the addition made was deleted by the Tribunal observing as under:-
30 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur "Contention of the AR is considered. One of the main reasons for not accepting the genuineness of the transactions declared by the appellant that at the time of survey the appellant in his statement denied having made any transactions in shares. However, subsequently the facts came on record that the appellant had transacted not only in the shares which are disputed but shares of various other companies like Satyam Computers, HCL, IPCL, BPCL and Tata Tea etc. Regarding the transactions in question various details like copy of contract note regarding purchase and sale of shares of Limtex and Konark Commerce & Ind. Ltd., assessee's account with P.K. Agarwal & co. share broker, company's master details from registrar of companies, Kolkata were filed. Copy of depository a/c or demat account with Alankrit Assignment Ltd., a subsidiary of NSDL was also filed which shows that the transactions were made through demat a/c. When the relevant documents are available the fact of transactions entered into cannot be denied simply on the ground that in his statement the appellant denied having made any transactions in shares. The payments and receipts are made through a/c payee cheques and the transactions are routed through Kolkata Stock Exchange. There is no evidence that the cash has gone back in appellants's account. Prima facie the transaction which are supported by documents appear to be genuine transactions. The AO has discussed modus operandi in some sham transactions which were detected in the search case of B.C. Purohit Group. The AO has also stated in the assessment order itself while discussing the modus operandi that accommodation entries of long term capital gain were purchased as long term capital gain either was exempted from tax or was taxable at a lower rate. As the 31 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur appellant's case is of short term capital gain, it does not exactly fall under that category of accommodation transactions. Further as per the report of DCIT, Central Circle- 3 Sh. P.K. Agarwal was found to be an entry provider as stated by Sh. Pawan Purohit of B.C. Purihit and Co. group. The AR made submission before the AO that the fact was not correct as in the statement of Sh. Pawan Purohit there is no mention of Sh. P. K. Agarwal. It was also submitted that there was no mention of Sh. P. K. Agarwal in the order of Settlement Commission in the case of Sh. Sushil Kumar Purohit. Copy of the order of settlement commission was submitted. The AO has failed to counter the objections raised by the appellant during the assessment proceedings. Simply mentioning that these findings are in the appraisal report and appraisal report is made by the Investing Wing after considering all the material facts available on record does not help much. The AO has failed to prove through any independent inquiry or relying on some material that the transactions made by the appellant through share broker P.K. Agarwal were non-genuine or there was any adverse mention about the transaction in question in statement of Sh. Pawan Purohi. Simply because in the sham transactions bank a/c were opened with HDFC bank and the appellant has also received short term capital gain in his account with HDFC bank does not establish that the transaction made by the appellant were non genuine. Considering all these facts the share transactions made through Shri P.K. Agarwal cannot be held as non- genuine. Consequently denying the claim of short term capital gain made by the appellant before the AO is not approved. The AO is therefore, directed to accept claim of short term capital gain as shown by the appellant."
32 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur
13. The same was confirmed by CIT appeal, in view of this we are of the opinion that the view taken by the Tribunal as well as CIT is correct.
14. In that view of the matter, the issues are answered in favour of the assessee and against the department.
In that view of the matter, no substantial question of law arises. Hence, the appeals stand dismissed."
22. In light of above discussions and in the entirety of facts and circumstances of the case and respectfully following the decision of the Hon'ble Rajasthan High Court referred supra, the disallowance of business loss of Rs. 1,67,29,332/- from share trading activity so claimed by the assessee is directed to be deleted. The order of the Assessing officer to this extent is set-aside and the order of the ld CIT(A) is confirmed. Further, the disallowance of commission of Rs. 334,587/- is consequential in nature. The same is also directed to be deleted. The grounds of appeal taken by the Revenue are thus dismissed.
23. In its cross objection, the assessee has challenged the disallowance of Rs. 3,28,345/- u/s 14A of the Act. During the course of hearing, the ld. AR submitted that the Assessing Officer has not recorded any satisfaction before disallowance was made by him. Further it was submitted that the assessee has not incurred any expenditure for earning dividend income and during the year under consideration, only an amount of Rs. 23,314/- was earned by the assessee as dividend income and it is now a settled proposition that the disallowance cannot 33 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur exceed the quantum of exempt income. Per contra, the ld. DR relied on the finding of the lower authorities and submitted that the provisions of section 14A are clearly applicable as the assessee has earned exempt dividend income. Further, the ld. CIT(A) has rightly sustained the disallowance holding that the provisions of section 14A in relation to those shares which are held as stock in trade has been settled by the Calcutta High Court in the case of Dhanuka & Sons v. CIT [2011] 339 ITR 319.
24. Heard both the parties. We agree with the contention of the ld AR that the disallowance u/s 14A cannot exceed the exempt income as the same has been held by the various Courts and even this Bench has consistently taken the same view. Given that the assessee has earned dividend income of Rs. 23,314/-, the disallowance so made by the AO is restricted to Rs 23,314 and the balance addition is hereby directed to be deleted. In the result, the ground is partly allowed.
In the result, the appeal of the Revenue is dismissed and cross- objection is partly allowed.
Order pronounced in the open Court on 08/03/2019
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vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- ACIT, Central Circle-4, Jaipur
2. izR;FkhZ@The Respondent- Shri Gyandeep Khemka, Jaipur
3. vk;dj vk;qDr@ CIT 34 ITA 842/JP/2018 & C.O. 28/JP/2018_ ACIT, Jaipur vs. Shri Gyandeep Khemka, Jaipur
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 842/JP/2018 & 28/JP/2018) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar