The Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ) has held that trading loss incurred cannot be held bogus merely based on modus operandi unearthed from third party without cogent materials.
The Revenue challenged the order of CIT(A) in deleting the addition of Rs.36,29,308/- on account of loss claimed in trading of penny stock script and commission expenses of Rs.72,586/- incurred for obtaining such business loss.
S.J. Infratech Pvt. Ltd, the assessee is a private limited company engaged in the business activity of the capital market. The assessee during the year traded in the scrip of Regency Trust Ltd. The assessee during the year sold 75763 shares of Regency Trust Ltd for Rs. 17,45,092/- out of the opening quantity and purchases made during the year. In the process, the assessee incurred a loss of Rs. 36,93,308/- and claimed the same as a trading loss.
The AO found that the company i.e. Regency Trust Ltd, incorporated in 1988 and registered as NBFC, was not having any significant business activity. The Regency Trust Ltd as of 19-01-2010 came with preferential allotment of shares. At the time of preferential allotment, the scrip of Regency Trust was trading between Rs. 28 to 31 per share.
It was submitted by the assessee that it is engaged in the activity of trading in the capital market through the stock broker namely JM Financial Services Ltd and SSJ Finance and Securities Ltd, both are recognized by the SEBI. All the transactions of purchase and sale of the scrip of Regency Trust Ltd. were carried out in open market at stock exchange through Demat account, supported by the broker note and Demat statement.
It was observed that the impugned loss occurred in normal trading of the scrip of Regency Trust Ltd. Furthermore, the allegation of the AO that the scrip of Regency Trust was found as a penny stock by the ADIT but on perusal of the ADIT report, the same is found to be incorrect. The AO made an addition arbitrarily without having any material on record and thus the same needs to be deleted.
A Coram comprising of Shri Waseem Ahmed, Accountant Member observed that without further corroboration based on cogent material, the revenue can’t justify his conclusion that the transaction is bogus, a sham and nothing other than a racket of accommodation entries.
There was no evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting the benefit of LTCG.
In the absence of any such material, the additions cannot be sustained and the Tribunal upheld the order of CIT(A). The appeals of the Revenue were dismissed.
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