Income Tax Appellate Tribunal - Kolkata
Classic Growers Ltd., Kolkata vs Department Of Income Tax on 24 September, 2012
आयकर अपीलीय अधीकरण, Ûयायपीठ - " ए ", कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH "A", KOLKATA
(सम¢)Before डां.ौी ओ.के.नारायणन,
नारायणन, उपाÚय¢ एवं/and
Dr.Shri O.K.Narayanan, Vice-
President
ौी महावीर िसंह, Ûयाियक सदःय
Shri Mahavir Singh, Judicial Member
आयकर अपील संÉया /
ITA No.1922/Kol/2009
िनधॉरण वषॅ/Assessment Year : 2006-07
(अपीलाथȸ/APPELLANT ) (ू×यथȸ/RESPONDENT)
I.T.O., Ward-7(4), Kolkata M/s.Classic Growers
Ltd., Kolkata
(PAN:AABCC 3758 M)
अपीलाथȸ कȧ ओर से/ For the Appellant: Shri Amitabha Roy,
Sr.DR
ू×यथȸ कȧ ओर से/For the Respondent: Shri M.Tiwary, CA
सुनवाई कȧ तारȣख/Date of Hearing : 24.09.2012.
घोषणा कȧ तारȣख/Date of Pronouncement : 26.09.2012.
आदे श/ORDER
Per Dr.O.K.Narayanan, V.P. This is an appeal filed by the Revenue for Assessment Year 2006-07. The appeal is directed against the order of CIT(A)-VIII, Kolkata dated 18.09.2009 and arises out of the assessment made u/s 143(3) of the I.T.Act, 1961.
2. The assessee is a Non Banking Financial Company (NBFC) and also carries on trading in securities and shares. The assessee company filed its return of income in the impugned assessment year for a total income of Rs.5,10,255/-. During the assessment proceedings the Assessing Officer found that the assessee company has claimed a trading loss of Rs.92,48,663/- in computing the taxable income. This loss pertained to the purchase and sale of shares of the following companies :
21) M/s.Ankit Prachi Trading Limited
2) M/s.G.R.Industries Limited
3) M/s.Parbati Holdings Limited
4) M/s.Rohan Finance Limited.
3. In fact the assessee had transacted a number of deals in the purchase and sale of securities of other companies; mainly in the shares of blue chip companies. But the losses claimed by the assessee related to the transactions concluded with reference to the shares of the above mentioned four companies. Therefore the enquiries made by the Assessing Officer were more pointed towards the transactions of the purchase and sale of the shares of the above stated companies. The Assessing Officer found that in the case of majority of the transactions including that of blue chip companies the assessee has done business through Bombay Stock Exchange (BSE) or National Stock Exchange (NSE). The transactions in the scrips of the above four companies were made through Calcutta Stock Exchange (CSE) or through private negotiations out of the market. He also found that the off-market transactions concluded by the assessee company had not been registered in the Stock Exchange as per the norms prescribed by the SEBI. He also found that the above mentioned scrips were transacted through brokers namely M/s.Ahilya Commercial Pvt,. Ltd., M/s.Bubna Stock Broking Services Ltd., etc. who were suspended from Stock Exchange since 29.09.2005 and 15.07.2005 respectively. He also observed that the details collected from Calcutta Stock Exchange showed that the trading of scrips in the above mentioned four companies were in fact cross-deals resulted by way of arranging the buyers and sellers going through the same terminal of the broker with the same trading numbers. The Assessing Officer also observed that the price of the shares of the above mentioned companies made a forward movement to a very high price and immediately thereafter fell down to a lower price within a short span of time which normally indicate the manipulative practice followed by certain brokers to the benefit of tax dodgers.
34. In the above circumstances the Assessing Officer proposed to disallow the trading loss of Rs.92,48,663/- claimed by the assessee and to add back the same to the income returned by the assessee.
5. The assessee company gave a detailed reply with explanations objecting the proposal made by the Assessing Officer. The assessee company explained that the transactions have been properly documented and all the transactions were routed through lawful means. The settlement of the transactions were made through account payee cheques and all such movement of funds are reflected in the bank accounts. The Assessing Officer had summoned the concerned parties to enquire the genuineness of the transactions and all of them have unequivocally confirmed before the Assessing Officer that these transactions were in fact carried out in the course of regular business carried on by them. The assessee also explained before the Assessing officer that such trading losses were claimed by the assessee in the earlier assessment years as well, and such losses were allowed by the assessing authorities in computing the taxable income of the assessee. Further, relying on a series of judicial pronouncements, the assessee submitted before the Assessing officer that such a disallowance cannot be made only on the ground of surmises and presumptions.
6. The objections raised by the assessee were over ruled by the assessing authority and the disallowance was made as proposed by him resulting in an addition of Rs.92,48,663/-.
7. The addition was carried in first appeal before the ld. CIT(A). The ld.CIT(A) after considering the factual matrix of the case and explanations offered by the assessee company, held that there is no reason available on record to disallow the claim of trading loss made by the assessee company in its return. The CIT(A) observed that the suspension of the brokers cannot be used against the assessee as the assessee has no role in the suspension of those brokers. The transactions the assessee had entered into with those brokers have been recorded in the books of accounts of all the concerned parties and the particulars are very much available in the details 4 furnished by the Calcutta Stock Exchange. When all these transactions were carried out by the assessee in accordance with the rules and procedures and all such transactions are supported by proper internal and external evidences, the result of the transactions cannot be disbelieved by the Assessing officer only for the reason that the transactions resulted in loss and some of the brokers were suspended by the Stock Exchange. He also observed that there is no evidence available on record to support the anxiety of the Assessing Officer that all these transactions were stage managed to reduce the taxable income of the assessee company. The CIT(A) further held that there is no evidence to show that transactions have been entered into by the assessee either to evade tax or for ulterior purposes. He further observed that even in the case of off-market deals, proper evidences were produced by the assessee.
8. In the light of the above observations, the CIT(A) deleted the addition of Rs.92,48,663/- made by the assessing authority.
9. The Revenue is aggrieved on the relief granted by the CIT(A) and therefore the second appeal filed before us.
10. It is the ground of the Revenue that CIT(A) has erred in deleting the addition on account of trading loss of Rs.92,48,663/- in respect of alleged trading in four penny shares viz. Ankit Prachi Trading Limited, G.R.Industries Limited, Parbati Holdings Limited and Rohan Finance Limited without realizing the motive of the assessee being setting off the loss from arranged trading in shares with the genuine income from investments and also by ignoring the circumstances of the case.
11. We heard Shri Amitabha Roy, ld. Addl.Commissioner of Income Tax appearing for the Revenue and Shri M.Tiwary, ld. Chartered Accountant appearing for the respondent-assessee.
12. When we examined the facts and circumstances of the case, we find that the CIT(A) has arrived at his findings on the basis of the explanations offered by the 5 assessee but at the same time without applying his mind to the gravity of the situation explained by the assessing authority in his order. It was not the case of the Assessing Officer that the assessee had not maintained formal documents to support the transactions of purchase and sale of shares in respect of the four companies. The Assessing officer has no case that the details of these transactions are not reflected in the records of the Calcutta Stock Exchange. The crux of the arguments of the Assessing Officer is that all the formal evidences produced by the assessee were stage managed, to generate a sizeable amount of loss out of pre-arranged transactions so as to reduce the quantum of income liable for tax.
13. The Assessing Officer had a provocation to investigate the matter in the above angle for the reason that trading loss happened in respect of shares of the above four companies alone. In respect of the purchase and sale of share of other reputed companies, the assessee had not incurred any loss. The loss reported by the assessee is very huge. This peculiar situation prompted the Assessing officer to verify the genuineness of these transactions.
14. As already stated, the Assessing officer never had a grievance that the assessee had not maintained formal records to support its transactions. The case of the Assessing Officer is that these evidences are not sufficient to prove the genuineness of the transactions. One of the most important observations made by the Assessing officer is that the share prices of those four companies had risen to a marvelous height and fallen down to the deep ground within a very short span of time. This shift movement in the graph was never explained by the assessee either before the Assessing Officer or before the CIT(A). We find that it will not be proper to ignore such a crucial aspect which ultimately resulted in generating huge loss in the hands of the assessee company. The assessee has not stated anything on this. This rise and fall happened in a short span of time without any apparent reason. That is why, the Asssessing Authority has treated them as penny shares susceptible for manipulation.
615. It is in this background we have to examine certain observations made by the Assessing Officer; that the brokers were suspended by the Stock Exchange and the transactions were carried out through the office of those brokers. This is a speaking remark against the assessee. It is to be further seen that many of the transactions were off-market dealings. It was also brought on record that many of the transactions carried out on the floor of the Stock Exchange were in fact cross-deals. When all these matters are put together, there is a formidable case against the assessee that the loss claimed by the assessee company is not arising out of its normal business activities. What is contemplated by the profit and loss is profit or loss made or incurred by an assessee in the course of carrying on of its business in an ordinary manner. This particular amount of loss claimed by the assessee does not have any nexus to the business carried by the assessee in its usual course.
16. In these circumstances, we agree with the Assessing Officer that the assessee could not establish the genuineness of the loss claimed by it in the return of income. Accordingly, we find that the Assessing Officer is justified in making the addition of Rs.92,48,663/- to the returned income of the assessee company.
17. Therefore we set aside the order of the ld. CIT(A) on this point and restore the addition made by the AO.
18. In result, this appeal filed by the Revenue is allowed.
Order pronounced in the court on Wednesday, the 26th Sept.2012 at Kolkata Sd/- Sd/-
महावीर िसंह, Ûयाियक
Ûयाियक सदःय डां.ओ.के.नारायणन,
नारायणन, उपाÚय¢
Mahavir Singh, Judicial Member Dr.O.K.Narayanan, Vice-President
Date : 26.09.2012.
R.G.(P.S.)
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आदे श कȧ ूितिलǒप अमेǒषतः-
Copy of the order forwarded to:
1. I.T.O., Ward-7(4), Kolkata.
2 M/s.Classic Growers Ltd., Room No.68A, 2nd floor, 209, A.J.C.Bose Road,
Kolkata-700017.
3. The C.I.T. 4. CIT(A)-VIII, Kolkata.
5. The CIT(DR), Kolkata Benches, Kolkata
स×याǒपत ूित/True Copy,
आदे शानुसार/ By order,
Deputy /Asst. Registrar, ITAT, Kolkata Benches
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