Case Law Details
PCIT Vs Sangitaben Jagdishkumar Shah (Gujarat High Court)
Bogus Loss Allegation Rejected Because SEBI Had Not Blacklisted the Share Script; Share Trading Loss Allowed Because Transactions Were Conducted Through Banking Channels; Revenue Appeal Fails Because No Evidence Contradicted Genuine Share Transactions; Loss on Share Transactions Cannot Be Treated as Bogus Without Defects in Evidence.
The Gujarat High Court dismissed a tax appeal filed by the Revenue challenging the order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2011-12. The Revenue sought consideration of a substantial question of law regarding whether the Tribunal had erred in deleting an addition of ₹3,33,466 made on account of an alleged bogus loss arising from transactions in the shares of VAS Infrastructure Ltd., which the Assessing Officer treated as a penny stock and part of an organized tax evasion arrangement.
The assessee had originally filed her return of income on 31 March 2012 declaring a total income of ₹4,46,520. Subsequently, information was received from the office of the Deputy Director of Income Tax (Investigation), Mumbai, stating that VAS Infrastructure Ltd. was a penny stock allegedly used to provide accommodation entries of bogus long-term capital gains and losses to beneficiaries. The information also indicated that the assessee was one of the beneficiaries. Based on this information, the assessment was reopened under Sections 147 and 148 of the Income Tax Act after recording reasons and obtaining the necessary approval.
In response to notices issued during reassessment proceedings, the Assessing Officer conducted inquiries, including issuing notices to the Bombay Stock Exchange and the assessee’s stock broker, Monarch Research & Brokerage Pvt. Ltd. According to the Assessing Officer, the assessee failed to provide satisfactory clarification regarding the transactions. The Assessing Officer concluded that the loss of ₹3,33,466 arising from trading in the shares of VAS Infrastructure Ltd. was a bogus loss used to facilitate accommodation entries and reduce taxable income from other share transactions. The amount was therefore added back to the assessee’s income, and separate penalty proceedings were initiated for furnishing inaccurate particulars of income.
The assessee challenged the addition before the Commissioner of Income Tax (Appeals). The appellate authority examined the records and found that the assessee had disclosed complete details of the share transactions. Copies of contract notes were produced, and the transactions were shown to have been carried out in the normal course of business through the stock exchange trading platform. The payments and receipts relating to the transactions were made through banking channels, and statutory levies including Securities Transaction Tax (STT) and service tax had been paid. After considering the supporting documents and explanations, the Commissioner (Appeals) concluded that the transactions were genuine and could not be treated as bogus.
The Revenue appealed before the ITAT. The Tribunal affirmed the findings of the Commissioner (Appeals). It noted that, according to the SEBI report, the script of VAS Infrastructure Ltd. had not been blacklisted and had not been identified as a penny stock by the stock exchange regulatory authority. The Tribunal also took note of the fact that the assessee had furnished contract notes issued by a registered stock broker, trading bills, and evidence that all transactions had been conducted through banking channels with payment of STT. The Tribunal observed that, apart from relying on the investigation report, the Assessing Officer had not identified any discrepancy in the documentary evidence produced by the assessee. On that basis, the Tribunal upheld the deletion of the addition and dismissed the Revenue’s appeal.
The High Court examined the orders of both the Commissioner (Appeals) and the Tribunal and found that there were concurrent findings of fact based on the material available on record. The Court held that the conclusions reached by the appellate authorities were founded on factual evidence and did not give rise to any substantial question of law. Since no substantial question of law arose for consideration, the Court dismissed the Revenue’s appeal without any order as to costs.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. This tax appeal challenges the order dated 15.05.2023 passed by the Income Tax Appellate Tribunal (for short ‘the Tribunal’) for the assessment year 2011-12.
2. The following substantial question of law has been raised in this appeal for consideration:
(i) Whether in the facts and circumstances of the case and in law, the Hon’ble ITAT has erred in deleting the addition of Rs.3,33,466/- made on account of disallowance of bogus loss incurred in penny stock, without appreication that the transaction was part of an organised tax evasion scam, pre-arranged as well as sham and was carried out through penny scripts companies/papers companies?”
3. The assessee had filed her return of income for A.Y. 2011-12 on 31.03.2012 declaring total income at Rs.4,46,520/-. The information and documentary evidences were received from the office of the DDIT(Inv.), Unit 6(2), Mumbai vide its letter No. DDIT(Inv)-6(2)/ Information/VAS/ 2017/18 dated 23.03.2018, wherein, it was intimated that the VAS Infrastructure Ltd is a penny stock which has been used to provide accommodation entry of bogus LTCG/ Loss to the beneficiaries. It was further intimated that the assessee is one of the beneficiaries / member of this accommodation entry syndicate. The case was re-opened u/s. 147 of the IT Act by issuing notice u/s. 148 of the IT Act dated 30.03.2018, after recording the reasons and obtaining approval of Pr. CIT, Ahmedabad-1, Ahmedabad.
3.1 In response to notice u/s 148, the assessee filed her return of income for A.Y. 2011-12 on 03.05.2018. The copy of reasons recorded was provided to the assessee alongwith notice u/s. 143(2) of the IT Act dated 19.06.2018. Thereafter notice u/s 142(1) of the IT Act calling for detailed information was issued to the assessee on 19.07.2018 and for verification of penny stock transactions made by the assessee, notice u/s 133(6) of the IT Act was issued to BSE on 02.07.2018 and share broker M/s Monarch Research & Brokerage Pvt. Ltd on 08.08.2018.
3.2 The assessee failed to furnish any clarification/ explanation in this regard. Accordingly, the AO held that the said loss of Rs.3,33,466/- is nothing but the bogus loss taken by the assessee to provide accommodation entry for inflated LTCG to the beneficiaries and to reduce the income earned from trading in other shares. Hence, the loss incurred due to trading in script of “VAS Infra” is found to be bogus loss and the same is required to disallowed and added to the total income of the assessee. Accordingly, the amount of Rs.3,33,466/- is added to the income of the assessee. A penalty proceeding u/s 271(1) (c) is initiated separately for furnishing inaccurate particulars of income.
3.3 On an appeal filed by the assessee before the Principal CIT the appellate authority found that the assessee had shown full details of the transaction which was done in the normal course of business. The contract note copies were placed on record and that the trading dates showed that the transactions were genuine and were done on BOLT during routine business. The payment or receipt of such transactions was done through banking channel and service tax and STT had been duly paid. The CIT(A) viewing the details and explanation found the share transactions genuine and the same cannot be considered as bogus.
4. Affirming the view of the CIT(A), the Tribunal held as under:
“7. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that as per the SEBI report the script VAS Infrastructure Ltd. was not blacklisted and was not termed as penny stock by the Stock Exchange Regulatory Authority. The period for purchase and sale was mentioned by the Assessing Officer dealt with 10000 shares for which the trading data was taken into account by the CIT(A). The details filed by the assessee such as contract note of transactions in respect of Monarch Research And Brokerage Pvt. Ltd. which is a registered stock broker as well as copy of trading bills were also presented before the Assessing Officer as well as before the CIT(A). The assessee has paid Securities Transaction Tax i.e. “STT” and all the transaction was through banking channel. Besides the investigation report the Assessing Officer has not pointed out any discrepancy in the evidences produced by the assessee, therefore, the CIT(A) has rightly allowed the bill of the assessee and deleting the addition. There is no need to interfere with the finding of the CIT(A). Hence, the appeal of the Revenue is dismissed.”
5. Having gone through the two orders of the CIT(A) and the Tribunal, we are of the opinion that there are concurrent findings of fact before this court recording such findings based on factual details available on record. There is no substantial question of law that arises for adjudication.
6. For the aforesaid reason and hence in absence of any substantial question of law involved, the appeal is dismissed with no order as to costs.
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