Case Law Details

Case Name : JCIT (OSD) Vs Public Employees Retirement System of Ohio (ITAT Mumbai)
Appeal Number : ITA No. 1527/Mum/2022
Date of Judgement/Order : 18/08/2022
Related Assessment Year : 2015–16

JCIT (OSD) Vs Public Employees Retirement System of Ohio (ITAT Mumbai)

ITAT held that addition of loss from traded in penny stock not justified if no information about engagement of assessee in manipulative activities and details of purchase/sales of shares submitted by him was not doubted.

The assessee is a statutory authority in the state of Ohio, United States of America and is a tax resident of USA. It is engaged in providing retirement benefit to certain public employees of that state. It is also registered with SEBI as a foreign portfolio investor and is regularly investing in Indian market earning capital gain, dividend and interest income. During the year, the assessee incurred a loss of ₹6,66,454/- in the shares of Kailash Auto Finance Limited which is flagged as penny stock by the Revenue authorities and therefore, the above loss was disallowed.

Assessee submitted all the details of purchases and sales in the above script, such as the purchase and sale bills of the registered brokers as well as the demat statement of National Securities and Depository Limited. The transactions in the above shares were made through stock exchange and further, the learned Assessing Officer made the addition only because of the reason that assessee traded in the shares of Kailash Auto Finance Limited which has been classified as a penny stock. Neither the information is available that assessee has engaged into any manipulative activities with respect to the purchase and sale of above shares and further the complete details was filed before the learned Assessing Officer was not at all doubted. Therefore, we do not find any reason to state that the short term capital loss by the assessee is not genuine.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

01. This appeal is filed by the Jt. Commissioner of Income–tax (OSD), International Taxation, (the learned Assessing Officer) Circle 3(2)(2), Mumbai against the appellate order of the Commissioner of Income Tax– 57, Mumbai [the learned CIT(A)] dated 10th March, 2022 for A.Y. 2015–16, raising solitary ground of appeal that appellate order is erroneous in allowing the carry forward of short term capital loss of ₹6,66,454/–, wherein the assessee was involved in alleged sham transaction of trading in shares of M/s Kailash Auto Finance Limited.

02. Brief facts of the case shows that the assessee company is a statutory authority in the state of Ohio, USA, registered with the Securities and Exchange Board of India as a foreign portfolio investor for carrying out investment in India Market in equity shares and debt securities.

03. It filed its return of income on 27th August, 2015 declaring total income of ₹11,74,65,700/–. The case of the assessee was selected for scrutiny for the reason that suspicious sale transaction in shares and exempt long term capital gain shown in the return in penny stock Tab in ITS. Statutory notices were issued.

04. The learned Assessing Officer found that assessee has incurred a loss under the head Short Term Capital Gain of ₹6,66,454/– in purchase and sale of shares of M/s Kailash Auto Finance Limited. The assessee provided the confirmation of the brokers note. However, the learned Assessing Officer found that one of the reason for selection of scrutiny is suspicious sale transaction in shares and exempt Long Term Capital Gain in penny stock, he disallowed the short term capital loss of Rs.6,66,454/-. Accordingly, the assessment order under Section 143(3) r.w.s. 144C(1) of the Act was passed on 20th November, 2017. As the assessee did not prefer any objection before the learned DRP but decided to go before the learned CIT(A), assessment order u/s 143(3) r.w.s. 144C(3) of the Act was passed on 26th December, 2017 taking the status of the assessee as foreign company determining the total income at ₹11,74,65,700/-.

05. Assessee aggrieved with the same preferred the appeal before the learned CIT(A) contesting the disallowance of carry forward of short term capital loss of ₹6,66,454/-. The learned CIT(A) passed an order on 10th March, 2022. The learned CIT(A) found that the assessee has furnished the complete details of the capital gain and there is no evidence against the assessee that the above loss is fraudulent, he allowed the appeal of the assessee. Thus, learned Assessing Officer is aggrieved with the deletion of disallowance of carry forward of short term capital loss and preferred this appeal before us.

06. The learned DR supported the order of the learned Assessing Officer, whereas learned AR supported the order of the learned CIT(A).

07. We have carefully considered the rival contentions and perused the orders of the lower authorities. The assessee is a statutory authority in the state of Ohio, United States of America and is a tax resident of USA. It is engaged in providing retirement benefit to certain public employees of that state. It is also registered with SEBI as a foreign portfolio investor and is regularly investing in Indian market earning capital gain, dividend and interest income. During the year, the assessee incurred a loss of ₹6,66,454/- in the shares of Kailash Auto Finance Limited which is flagged as penny stock by the Revenue authorities and therefore, the above loss was disallowed.

Assessee submitted all the details of purchases and sales in the above script, such as the purchase and sale bills of the registered brokers as well as the demat statement of National Securities and Depository Limited. The transactions in the above shares were made through stock exchange and further, the learned Assessing Officer made the addition only because of the reason that assessee traded in the shares of Kailash Auto Finance Limited which has been classified as a penny stock. Neither the information is available that assessee has engaged into any manipulative activities with respect to the purchase and sale of above shares and further the complete details was filed before the learned Assessing Officer was not at all doubted. Therefore, we do not find any reason to state that the short term capital loss by the assessee is not genuine. Accordingly, we confirm the order of the learned CIT(A) and dismiss the appeal of the ld AO.

08. In the result, appeal filed by the learned Assessing Officer is dismissed.

Order pronounced in the open court on 18.08.2022.

Download Judgment/Order

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