Case Law Details
Vishwas Marketing Services Pvt. Ltd. Vs ITO (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT), Delhi Bench, decided two appeals filed by the assessee for Assessment Years 2014-15 and 2015-16 relating to disallowance of losses arising from transactions in shares of SRK Industries Ltd. and denial of exemption under Section 10(38) of the Income Tax Act. Since similar issues were involved in both years, the Tribunal heard the matters together and treated Assessment Year 2014-15 as the lead case.
The assessee had filed its return for AY 2014-15 declaring a loss of Rs.21,119/-. During scrutiny assessment, the Assessing Officer observed that the assessee had declared dividend income and conducted transactions in shares. The assessee had purchased shares of SRK Industries Ltd. in December 2013 and sold them in March 2014, resulting in a short-term capital loss of Rs.1,71,72,155/-. To verify the transactions, the Assessing Officer issued notice under Section 133(6) to SRK Industries Ltd. and sought information regarding the share dealings.
The Assessing Officer concluded that the details submitted by SRK Industries Ltd. were incomplete and relied upon investigation reports from the Kolkata Investigation Wing alleging that the scrip of SRK Industries Ltd. was used for accommodation entries and bogus long-term capital gains. Statements of several persons including Shri Bidyoot Sarkar, Shri Sanjay Vora, Shri Jai Kishan and Shri Anil Kedia were referred to in the assessment order. Based on these materials, the Assessing Officer treated the scrip as a penny stock and disallowed the loss claimed by the assessee after applying the “human probability test” and relying on judicial precedents including Mac Dowell & Company and Sumati Dayal.
The assessee challenged the assessment before the Commissioner of Income Tax (Appeals), but the appeal was dismissed. Before the Tribunal, the assessee argued that the Assessing Officer’s own inquiries had confirmed the genuineness of the transactions. It was submitted that SRK Industries Ltd. had confirmed the purchase and sale transactions and denied allotting shares directly to the assessee. The assessee’s broker, Share India Securities Ltd., also confirmed the transactions, furnished contract notes and client ledger details, and stated that no notice had been received regarding trades conducted in SRK Industries Ltd.
The assessee further argued that none of the investigation materials referred to by the Assessing Officer specifically named the assessee. It was contended that merely because certain operators manipulated share prices, transactions carried out through the stock exchange could not automatically be treated as bogus without corroborative evidence. Reliance was placed on decisions including PCIT v. Krishna Devi and Karuna Garg v. ITO. The assessee also contended that the Commissioner (Appeals) denied exemption under Section 10(38) without seeking further details regarding the holding period of shares of Alliance Integrated Ltd., despite such shares being reflected in earlier balance sheets.
The Revenue argued that the assessee had held the SRK scrip for less than six months and had booked substantial losses. Reference was made to statements recorded during investigation proceedings and to the Kolkata Investigation Wing’s report indicating manipulation of SRK Industries Ltd. shares. The Revenue also referred to inquiries showing that notices issued under Section 133(6) to certain entities were returned unserved with remarks such as “no such company/person exists.” It was further argued that the assessee continued to invest in SRK shares in subsequent years despite weak financial fundamentals, making the transactions questionable.
In rejoinder, the assessee submitted that important documents and information obtained through the Right to Information Act were not properly considered by the Assessing Officer. It was argued that the assessment was completed without discussing crucial materials already available on record, including confirmations from SRK Industries Ltd., broker records, and other supporting documents. The assessee maintained that all transactions were conducted through the stock exchange and banking channels.
After considering the submissions, the Tribunal observed that the Assessing Officer had primarily relied upon the Kolkata Investigation Wing report and financial details of SRK Industries Ltd. to conclude that the assessee booked bogus losses, without properly verifying the transactions carried out by the assessee. The Tribunal noted that information collected by the assessee through RTI applications went to the root of the matter and had not been adequately examined. It further observed that the assessment appeared to have been completed hurriedly without proper appreciation of the materials collected during assessment proceedings.
The Tribunal therefore remitted the matter back to the file of the Assessing Officer for fresh assessment after granting proper opportunity of hearing to the assessee and directing consideration of all information available in the assessment records. Since the facts for AY 2015-16 were similar, the Tribunal applied the same reasoning to that year as well. Both appeals were accordingly allowed for statistical purposes.
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