DCIT, Circle - 35, Kolkata, Kolkata v. Kedar Nath Agarwal, Kolkata

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : KOLKATA [BEFORE HONBLE SRI D. K. TYAGI JM & HONBLE SRI C . D. RAO AM] I.T.A. NO. 2095/KOL/2009 ASSESSMENT YEAR :2004-05 DEPUTY COMMISSIONER OF INCOME-TAX -VS- KEDAR NAT H AGARWAL CIRCLE-35 KOLKATA. (PA NO.ADAPA 4902 G) (APPELLANT) (RESPONDENT) APPELLANT BY : SRI M. K. SINGHANIA & SMT. JYOTI KU MARI RESPONDENT BY : SRI R. SALARPURIA O R D E R PER D. K. TYAGI JM : THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER OF THE LD. CIT(A) KOLKATA DATED 22.09.2009 FOR ASSESSMENT YEA R 2004-05 ON THE FOLLOWING GROUNDS : 1. LD. CIT(A) ERRED BOTH IN FACTS AND IN LAW IN A LLOWING THE DISALLOWANCE OF RS.2 35 38 632/- WITHOUT PROPER APPRECIATION OF OBS ERVATION OF AO AND THE MATERIALS BROUGHT ON RECORD DURING THE COURSE OF ASSESSMENT. 2. LD. CIT(A) ERRED BOTH IN FACTS AND IN LAW IN ALL OWING THE DISALLOWANCE OF RS.49 97 836/- WITHOUT PROPER APPRECIATION OF OBSER VATION OF AO AND THE MATERIALS BROUGHT ON RECORD DURING THE COURSE OF ASSESSMENT 2. IN RESPECT OF GROUND NO. 1 BRIEF FACTS OF THE C ASE ARE THAT THE ASSESSEE IS A SHARE BROKER AND WAS A MEMBER OF NATIONAL STOCK EXCHANGE DURING THE RELEVANT PREVIOUS YEAR. THE ASSESSEE HAS EARNED INCOME ON ACCOUNT OF SHARE TRADING AND INCOME FROM OTHER SOURCES. HE HAS FILED HIS RETURN OF INCOME FO R A.Y. 2004-05 ON 26-08-2004 DECLARING TOTAL INCOME OF RS.40 96 480/-. THE ASSES SMENT WAS COMPLETED AT TOTAL ASSESSED INCOME OF RS.3 24 74 040/-. WHILE THE ASSE SSMENT THE AO HAS MADE DISALLOWANCE OF RS.2 35 38 632/- BEING SHARE TRADIN G LOSS AND HAS ALSO DISALLOWED LOSS OF RS.49 97 836/- BY REFERRING TO THE PROVISIONS OF SECTION 94(8). DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY THE AO TH AT DURING THE RELEVANT PREVIOUS YEAR THE ASSESSEE HAS INCURRED LOSS TO THE TUNE OF RS.3 09 93 335/- ON SHARE TRADING. THIS LOSS INCLUDES LOSS OF RS.2 35 38 632/- ON ACCOUNT O F 18 SCRIPS OF SHARES REGISTERED AT CALCUTTA STOCK EXCHANGE(CSE). IN ORDER TO VERIFY TH E GENUINENESS OF THE TRANSACTIONS IN THE CASE OF SHARES LISTED AT CSE THE AO HAS ISSUED A LETTER TO THE EXCHANGE ALONG WITH COPIES OF CONTRACT NOTES OF PURCHASE AND SALES SUBM ITTED BY THE ASSESSEE. ON RECEIPT OF INFORMATION FROM THE EXCHANGE IT WAS OBSERVED BY T HE AO THAT THERE WERE SEVERAL 2 DISCREPANCIES AS PER THE DETAILS AND CONTRACT NOTES SUBMITTED BY THE ASSESSEE VIS--VIS THE INFORMATION FORWARDED BY THE STOCK EXCHANGE. IT WAS OBSERVED BY THE AO THAT IN CERTAIN CASES THERE WAS DIFFERENCE IN THE QUANTITY OF PURCHASE/SALE OF SHARES DIFFERENCE IN THE DATE OF TRANSACTION AND TRADE NO. ETC. IT WA S ALSO OBSERVED BY THE AO THAT WITH REGARD TO CERTAIN TRANSACTIONS THE STOCK EXCHANGE HAS INFORMED THAT THE CONCERNED BROKER HAS NOT CARRIED OUT ANY TRANSACTION ON THE D ATE MENTIONED ON THE CONTRACT NOTES. IT WAS FURTHER OBSERVED BY THE AO THAT IN THE CASES OF SOME OF THE SCRIPS OF SHARES THE CONCERNED BROKERS HAVE ENTERED INTO CROSS DEALS. TH E DISCREPANCIES NOTED BY THE AO WERE COMMUNICATED TO THE ASSESSEE FOR HIS EXPLANATI ON. IN RESPONSE THE ASSESSEE HAS FIED HIS EXPLANATION BY LETTER DATED 15-12-2006 WHE REIN IT WAS SUBMITTED BY HIM THAT HE HAS SUBMITTED COPIES OF CONTRACT NOTE ISSUED BY THE RESPECTIVE BROKER THROUGH WHOM TRANSACTIONS OF PURCHASE AND SALES WERE CARRIED OUT AND THAT HE WAS NOT AWARE OR CONCERNED ABOUT THE FATE OF THE TRANSACTION REGARDI NG REPORTING OR NON-REPORTING OF THE SAME TO THE STOCK EXCHANGE BY THE CONCERNED BROKER. IT WAS ALSO SUBMITTED BEFORE THE AO THAT THE ASSESSEE HAS PURCHASED SHARES WHICH WER E CREDITED IN THE DEMAT ACCOUNT AND THE PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CH EQUES. SIMILARLY THE SHARES WERE DELIVERED ON SALE THROUGH DEMAT ACCOUNT AND THE CON SIDERATION WAS RECEIVED BY CHEQUE. HOWEVER THE AO WAS NOT CONVINCED WITH THE SUBMISSI ON OF THE ASSESSEE AND AFTER MAKING SEVERAL OBSERVATION HE HAS DISALLOWED THE TR ADING LOSS TO THE EXTENT OF RS.2 35 38 632/- BY OBSERVING AS UNDER : (I) IN MANY CASES THERE ARE DIFFERENCES IN INFORMAT ION REGARDING THE QUANTITY OF SHARES PURCHASED/SOLD DATE AND NO. OF TRANSACTION RATE TRADE NO. ETC WHEN COMPARED WITH THE INFORMATION AS AVAILABLE FROM THE CONTRACT NOTES ISSUED BY THE BROKERS THROUGH WHOM THE PURCHASE/SALE OF SHARES HA D TAKEN PLACE. II) FROM THE REPORT OF STOCK EXCHANGE IT IS APPAREN T THAT MANY OF THOSE SHARES WERE NOT AT ALL TRADED ON THAT DAY OR IN THE NAME O F THE ASSESSEE THROUGH HIS OWN CODE AS REQUIRED AS PER LAW AND IN MOST OF THE CAS ES THE TRADES WERE DONE THROUGH BROKERS CODE HAVING THE POSSIBILITY OF M ANIPULATION. III) A BROKER CANNOT AND SHOULD NOT TRADE ON BEHALF OF HIS CLIENT THROUGH HIS OWN CODE AS IT ITSELF GIVES INDICATION OF OTHER INTENTI ON BEHIND IT. IT IS NOT PERMISSIBLE IN LAW THAT A BROKER PURCHASES SHARES IN HIS OWN NA ME BY USING HIS OWN CODE AND THEN TRANSFERS THE SAME TO HIS CLIENTS ACCOUNT SHO WING THE ORIGINAL PURCHASE AS HAVING BEEN MADE BY THE CLIENT. (IV) MOST OF THE TRANSACTIONS WERE CLONE IN THE FOR M OF CROSS DEAL. IN CASE OF CROSS DEALS THE TRANSACTIONS ARE MOSTLY MADE BETWEE N TWO CLIENTS UNDER THE SAME BROKER. 3 (V) THE SHARES OF THE COMPANIES IN WHICH THE ASSESS EE HAS INVESTED WERE NOT WORTH INVESTING AS THOSE COMPANIES HAD SMALL LOSS/P ROFIT AND SMALL CAPITAL BASE AND THE ASSESSEE COULD HAVE PURCHASED SHARES OF BET TER COMPANIES AT THE PRICES AT WHICH HE HAS PURCHASED PENNY STOCKS. (VI) THE ASSESSEE HAS OBTAINED LOAN FROM THE COMPAN IES FOR ACQUIRING THOSE SHARES. SUCH COMPANIES FROM WHOM LOANS WERE TAKEN BY THE ASSESSEE WERE THEMSELVES IN THE BUSINESS OF INVESTING IN SHARES A ND HAD NO FUNDAMENTAL STRENGTH AS WELL. THE SOURCE AS WELL AS THE SOURCE OF LOANS TAKEN FROM DIFFERENT PARTIES FOR ACQUIRING THE SHARES ARE ALSO IN DOUBT. (VII) IT IS HIGHLY UNNATURAL AND NOT UNDERSTANDABLE AS TO HOW ALL HIS INVESTMENT IN SHARES LISTED WITH CSE ONLY SUFFERED SO MUCH LOSS W HEREAS IN CASE OF ASSESSEES OTHER SHARES TRANSACTION THE LOSSES WERE MINIMUM. N OBODY WOULD BE W)IING TO USE HIS OWN FUND FOR PURCHASING THOSE BAD SHARES AN D NATURALLY M6NEY STARTED FLOWING INTO ASSESSEES ACCOUNT-FROM THE ACCOUNTS OF OTHER INTERESTED PERSON OR PERSONS IN THE CHAIN. (VIII) THE ASSESSEE HAS FAILED TO DISCHARGE THE ONU S TO PROVE THE GENUINENESS OF TRANSACTIONS AND THE CONTRACT NOTES CANNOT BE ACCEP TED AS SACROSANCT EVIDENCE TO PROVE THE GENUINENESS OF THE TRANSACTION. THE ASSES SES FAILURE TO EXPLAIN THE MATTER IS ITSELF SUFFICIENT REASON TO CONSIDER MANY OF ASSESSES TRANSACTION IN THOSE SHARES AS NON-GENUINE AND BOGUS AND SO THE QU ESTION OF LOSS CLAIMED TO HAVE BEEN SUFFERED DOES NOT ARISE AT ALL. THUS IN VIEW OF ABOVE MENTIONED OBSERVATIONS IT W AS HELD BY THE AO THAT THE PURCHASE AND SALE TRANSACTIONS OF SCRIPS LISTED AT CSE IN WH ICH THE ASSESSEE HAS INCURRED THE LOSS OF RS.2 35 38 632/- WERE NOT GENUINE. HENCE THE LO SS INCURRED BY THE ASSESSEE WAS DISALLOWED BY THE AO. 2.1. IN APPEAL THE LD. CIT(A) DELETED THE DISALLOW ANCE AS MADE BY THE AO. AGGRIEVED BY THE SAID ORDER NOW THE REVENUE IS IN APPEALS BEFORE US. 3 AT THE TIME OF HEARING BEFORE US THE LD. DR RELI ED ON THE ORDER OF THE AO AND SUBMITTED THAT IN THIS CASE THE ASSESSEE WAS A STO CK BROKER AND MEMBER OF CALCUTTA STOCK EXCHANGE BOMBAY STOCK EXCHANGE (BSE) NATION AL STOCK EXCHANGE (NSE). DURING THE COURSE OF HEARING AFTER ELABORATE EXPLI CIT DISCUSSION CONSIDERING ALL THE MATERIALS ON RECORD AND AFTER CONFRONTING THE ASSE SSES ARGUMENT HAS DISALLOWED CAPITAL LOSS OF RS.2 35 38 632/-. THE LD. CIT(A) ON THE OT HER HAND WITHOUT PROPER APPRECIATION OF THE ARGUMENT PUT FORWARD BY THE AO DURING PASSING THE ORDER U/S. 143(3) HAS HELD THAT THE LOSS INCURRED BY THE ASSESSEE ON SALE OF SHARES LISTED ON CSE WAS A GENUINE TRADING LOSS AND DIRECTED TO DELETE THE ADD ITIONS. HE LASTLY URGED BEFORE THE BENCH TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THAT OF AO. 4 4. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSES SEE RELIED ON THE ORDER OF THE LD. CIT(A) AND URGED BEFORE THE BENCH TO CONFIRM THE SA ME. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS PERUSED THE MATERIAL AVAILABLE ON RECORD AND THE ORDERS OF THE LOWER AUTHORITIES. WE FIND T HAT THE LD. CIT(A) WHILE GIVING RELIEF TO THE ASSESSEE HAS GIVEN FOLLOWING FACTUAL FINDING VIDE PARA 4.2 OF HIS ORDER : I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AS WELL AS THE DOCUMENTS FILED BY HIM. I HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER. THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE APPELLANT ARE ALSO CONSIDERED. IN THE ASSESSMENT ORDER THE AO HAS DISALLOWED THE TRADING LOSS OF RS.2 35 38 638/- SUF FERED BY THE APPELLANT ON ACCOUNT OF 18 SCRIPS OF SHARES (AS PER ANNEXURE A ENCLOSED W ITH ASSESSMENT ORDER) TRADED IN BY THE APPELLANT. ALL THESE SCRIPS WERE LISTED ON CS E. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE APPELLANT HAS SUBMITTED COPIES OF PURCHASE AND SALE CONTRACT NOTES ISSUED BY THE BROKERS ALONG WITH THE COPIES OF DEMA T ACCOUNT AS WELL AS THE COPIES OF HIS BANK STATEMENTS. IN ORDER TO VERIFY THE GENUIN ENESS OF PURCHASE AND SALE TRANSACTION OF THE SHARES THE AO HAS CALLED FOR CER TAIN INFORMATION FROM KOLKATA STOCK EXCHANGE AND HE HAS ALSO FORWARDED THE COPIES OF CO NTRACT NOTES TO THE STOCK EXCHANGE SUBMITTED BY THE APPELLANT. ON RECEIPT OF INFORMATI ON FROM THE STOCK EXCHANGE IT WAS OBSERVED BY THE AO THAT THERE WERE MANY ANOMALIES I N THE SHARE TRANSACTIONS CARRIED OUT BY THE APPELLANT AS PER THE CONTRACT NOTES VIS- -VIS THE INFORMATION SUBMITTED BY THE STOCK EXCHANGE. IT WAS OBSERVED BY THE AO THAT THE SAID ANOMALIES WERE WITH RESPECT TO QUANTITY OF SHARES PURCHASED /SOLD DATE AND NUMBER OF TRANSACTION RATE AND TRADE NO. ETC. ON BEING CONFRONTED WITH THE APPELLANT IT WAS SUBMITTED BY HIM THE HE HAS CARRIED OUT ALL THE TRANSACTIONS OF PURCHASE ARID SALE OF T HESE SHARES THROUGH REGISTERED SHARE BROKERS OF KOLKATA STOCK EXCHANGE AND THEY HAVE ISS UED THE CONTRACT NOTE WHICH HAVE ALREADY BEEN SUBMITTED. THE CONSIDERATION FOR THE P URCHASE AND SALE OF THESE SHARES HAS BEEN PAID/RECEIVED THROUGH THE BANKING CHANNELS. TH E COPIES OF BANK STATEMENTS HAVE ALSO BEEN SUBMITTED. FURTHER ON PURCHASE OF THESE SHARES THE DELIVERY WAS TAKEN IN DEMAT ACCOUNT AND SIMILARLY WHEN SHARE WAS SOLD THE DELIVERY TO THE RESPECTIVE BROKERS HAS ALSO BEEN GIVEN THROUGH THE DEMAT ACCOUNT. THE COPY OF DEMAT ACCOUNT WAS ALSO SUBMITTED DURING THE ASSESSMENT PROCEEDINGS. IT WAS SUBMITTED BY THE APPELLANT THAT THE NUMBER OF SHARES PURCHASED BY HIM AS PER CONTRACT N OTES WERE DELIVERED TO HIM BY THE BROKERS AND THERE IS NO DIFFERENCE IN THE QUANTITY. SIMILAR IS THE CASE WHEN THE SHARES WERE SOLD BY THE APPELLANT. HOWEVER THE SUBMISSION OF THE APPELLANT WAS NOT ACCEPTABLE TO THE AO AND AFTER MAKING SEVERAL OBSER VATIONS IN THE ASSESSMENT ORDER HE HAS DISALLOWED THE TRADING LOSS ON SALE OF THESE SH ARES AMOUNTING TO RS.2 35 38 632/-. ACCORDING TO AO THE APPELLANT HAS INCURRED LOSS IN THOSE SHARES WHICH WERE LISTED ON THE KOLKATA STOCK EXCHANGE. HOWEVER I DO NOT AGREE WITH THIS OBSERVATION OF THE AO BECAUSE HE HIMSELF HAS MENTIONED ON PAGE NO. 8 OF H IS ORDER THAT THE APPELLANT HAS SUFFERED TOTAL LOSS OF RS.3 09 93 335/- IN THE TRAD ING OF 59 SCRIPS. IT MEANS THERE WERE 41 OTHER SCRIPS WHICH WERE LISTED ON BSE/NSE WHEREIN T HE APPELLANT HAS SUFFERED TRADING LOSS. THUS IT WOULD BE WRONG TO CONCLUDE THAT THE APPELLANT HAS INCURRED LOSSES ONLY IN THOSE SHARES WHICH WERE LISTED AT CSE THE AO HAS ME NTIONED THAT THERE WAS DIFFERENCE IN THE QUANTITY OF SHARES PURCHASED /SOLD AS PER TH E CONTRACT NOTES AND THE INFORMATION SUBMITTED BY THE STOCK EXCHANGE. HOWEVER THE AO HA S NOT BROUGHT ANYTHING ON THE RECORD TO SUBSTANTIATE HIS CONTENTION THAT THIS HA S ACTUALLY HAPPENED BECAUSE ALL THE SHARES PURCHASED BY THE APPELLANT AS PER THE CONTRA CT NOTES WERE RECEIVED BY HIM IN HIS DEMAT ACCOUNT AND SIMILARLY ON SALE THE DELIVERY WA S GIVEN THROUGH THE DEMAT ACCOUNT. 5 THE COPY OF DEMAT ACCOUNT WAS PRODUCED BEFORE THE A O AND HE HAS FAILED TO PINPOINT ANY OF THE SCRIP WHEREIN THE NUMBER OF SHARES PURCH ASED/SOLD WERE NOT AS PER THE CONTRACT NOTES BUT WAS AS PER THE INFORMATION PROVI DED BY THE STOCK EXCHANGE. THE AO HAS FURTHER OBSERVED IN ORDER THAT IN THE CASES OF SEVERAL SCRIPS THE RESPECTIVE BROKERS HAVE CARRIED OUT THE CROSS DEAL I.E. THE SELLING PA RTY AS WELL AS BUYING PARTY WERE THE CLIENT OF THE SAME BROKER. IT WAS ALSO OBSERVED BY THE AO THAT IN SOME OF THE CASES THE BROKER HAS NOT CARRIED OUT THE TRANSACTION ON THE C LIENTS CODE BUT ON HIS OWN CODE. ACCORDING TO THE AO A BROKER CANNOT AND SHOULD NOT TRADE ON BEHALF OF HIS CLIENT THROUGH HIS OWN CODE AS IT IS NOT PERMISSIBLE UNDER THE LAW AND HAS SCOPE OF MANIPULATION. I FIND IN THE ASSESSMENT ORDER THAT T HE AO HAS NOT BROUGHT ANYTHING ON RECORD TO PROVE THAT UNDER WHICH LAW SUCH TRANSACTI ONS ARE PROHIBITED AND BY EXECUTING SUCH TRANSACTIONS HOW THE MANIPULATION IN THE SHARE TRANSACTIONS HAS BEEN DONE BY THE BROKER AND THE APPELLANT. IN MY OPINION AS FAR AS APPELLANT IS CONCERNED HE HAS ENTERED INTO TRANSACTIONS OF PURCHASE AND SALE THRO UGH THE BROKERS AND HE HAS NO CONTROL OVER THE MANNER IN WHICH THE BROKER HAS CAR RIED OUT THE TRANSACTION. THE APPELLANT IS CONCERNED ONLY ABOUT THE RECEIPT OF SH ARES ON PURCHASE AND DELIVERY OF SHARES TO THE BROKER ON THEIR SALE. THE AO HAS NOT BROUGHT ANYTHING ON RECORD TO PROVE THAT THERE WAS ANY CONNIVANCE BETWEEN THE APPELLANT AND SHARE BROKERS. THE AO HAS FURTHER OBSERVED THAT THE COMPANIES IN W HICH THE APPELLANT HAS INVESTED/TRADED WERE NOT WORTH INVESTING AS THOSE C OMPANIES HAD SMALL PROFIT/LOSS AND SMALL CAPITAL BASE. THE APPELLANT IN PLACE OF BUYIN G THESE SHARES COULD HAVE PURCHASED SHARES OF BETTER COMPANIES AT THE PRICES AT WHICH H E HAD PURCHASED SHARES OF SMALL COMPANIES. IN THIS REGARD I INTEND TO AGREE WITH T HE APPELLANT THAT THE AO CANNOT DICTATE HIS TERMS OR IMPOSE HIS THOUGHTS ON THE APP ELLANT THAT WHAT HE SHOULD HAVE DONE AND WHAT NOT. IT WAS FURTHER OBSERVED BY THE AO THA T THE APPELLANT HAS OBTAINED LOAN FUND FOR INVESTING IN SUCH SHARES AND THE PERSONS F ROM WHOM LOANS WERE TAKEN WERE ALSO IN THE BUSINESS OF INVESTMENT IN SHARES AND HA VE NO FUNDAMENTAL STRENGTH AS WELL. ACCORDING TO THE AO NOBODY IS WILLING TO USE HIS OW N FUND FOR PURCHASING THESE BAD SHARES AND NATURALLY TO BUY THESE SHARES MONEY STAR TED FLOWING INTO THE APPELLANTS ACCOUNT FROM THE ACCOUNTS OF OTHER INTERESTED PERSO N IN THE CHAIN. HOWEVER I DO NOT APPROVE THIS OBSERVATION OF THE AO FOR THE REASON T HAT HE HAS NOT BROUGHT ANY EVIDENCE ON THE RECORD TO PROVE THAT EITHER THERE WAS A CHAI N OR THE APPELLANT HAS RECEIVED FUNDS FROM SOME OTHER INTERESTED PERSON TO BUY THESE SHAR ES AS ALLEGED BY HIM. THE AO HAS ALSO FAILED TO MENTION AS TO WHO WERE THE OTHER CON STITUENTS OF THE ALLEGED CHAIN. MERELY ON SUSPICION IT CANNOT BE CONCLUDED THAT THERE WAS ANY CHAIN OF INTERESTED PERSONS AND THE APPELLANT WAS ONE OF THE CONSTITUENT OF THAT CH AIN. WITHOUT ANY EVIDENCE IT WILL NOT BE JUSTIFIED TO SAY THAT THE MONEY STARTED FLOWING IN THE ACCOUNT OF THE APPELLANT FROM THE ACCOUNTS OF THE OTHER INTERESTED PERSONS FOR PU RCHASE OF THESE SHARES. FROM THE ASSESSMENT ORDER IT IS APPARENT THAT THE AO HAS DIS ALLOWED THE TRADING LOSS OF RS.2 35 38 632/- ONLY ON THE BASIS OF INFORMATION S UBMITTED BY THE STOCK EXCHANGE. THE AO HIMSELF HAS NOT BROUGHT ANYTHING ON RECORD TO PR OVE THAT THE TRANSACTIONS OF PURCHASE AND SALE OF THE SHARES IN WHICH THE APPELL ANT HAS SUFFERED THE LOSS WERE NOT GENUINE TRANSACTIONS. ON THE OTHER HAND THE APPELL ANT HAS SUBMITTED THE COMPLETE DOCUMENTARY EVIDENCES TO PROVE HIS TRANSACTIONS OF PURCHASE AND SALE OF THESE SHARES. THE AO HAS NOT PROVED THAT THE EVIDENCES SUBMITTED BY THE APPELLANT WERE FALSE OR FICTITIOUS. THE SUSPICION CANNOT REPLACE THE REAL E VIDENTIARY DOCUMENTS. THE APPELLANT HAS PURCHASED AND SOLD THE SHARES THROUGH THE REGIS TERED SHARE BROKERS OF THE CSE THE 4ELIVERY OF SHARES WAS RECEIVED / GIVEN THROUGH THE DEMAT ACCOUNT AND THE PAYMENTS WERE MADE /RECEIVED THROUGH THE ACCOUNT PAYEE CHEQU ES. THE AO HAS NOT DOUBTED ABOUT THE CORRECTNESS OF THESE DOCUMENTS SUBMITTED BY THE APPELLANT BEFORE HINT. THE AO HAS ALSO FAILED TO EXAMINE ANY OF THE SHARE BROKERS IF HE WAS HAVING ANY DOUBT ABOUT THE TRANSACTIONS CARRIED OUT BY THE APPELLANT. HIS ENTI RE OBSERVATIONS AND CONCLUSIONS IN 6 THE ASSESSMENT ORDER ARE BASED SOLELY ON THE INFORM ATION SUBMITTED BY THE CSE. I AM OF THE OPINION THAT THE LOSS SUFFERED BY THE APPELLANT IN TRADING OF 18 SCRIPS LISTED ON CSE CANNOT BE DISALLOWED MERELY BY OBSERVING CERTAIN AN OMALIES REPORTED BY THE STOCK EXCHANGE. I FIND THAT NOWHERE THE STOCK EXCHANGE H AS MENTIONED THAT THE TRANSACTIONS IN THESE SCRIPS WERE NOT CARRIED OUT BY THE BROKER S WHO HAVE ISSUED THE CONTRACT NOTES TO THE APPELLANT. IN VIEW OF ABOVE I AM OF THE OP INION THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING THE TRADING LOSS OF RS.2 35 38 632/-. SUBSEQUENTLY THE LD. CIT(A) DISCUSSED THE FOLLOWIN G CASE LAWS : I) ITO VS- RAJ KUMAR AGARWAL ITA NO. 1130/KOL/200 7 (KOL) II) MUKESH R. MAROLIA VS- ACIT (2006) 6 SOT 247 (M UM) III) ACIT VS- SWAPAN KUMAR BISWAS ITA NO.121/KOL/ 2008 IV) DCIT VS- SHRI BHAGWATI PRASAD AGARWAL ITA NO. 1230/KOL/2008. V) SHRI JAYWANT HIMANI VS- ITO ITA NO.340/KOL/20 07 VI) SHRI ACCHYALAL SHAW VS- ITO ITA NO.1977/KOL/2 008 VII) ANUP KUMAR JAYASWAL ITA NOS. 1678 & 1679/KOL /2004 VIII) ACIT VS- RITU KAKRANIA ITA NO.939/KOL/2008 IX) ITO VS- KANTA KANCHAN RANI ITA NO.238/KOL/200 7 X) ITO VS- NIDHI TREXIM LTD. ITA NO. 1414./KOL/200 6 XI) CIT VS- KUNDAN INVESTMENT LTD. 130 TAXMAN 689 XII) CIT VS- JANKI TEXTILES & INDUSTRIES LTD. (GAU ) 186 CTR 84 XIII) CIT VS- KUNDAN INVESTMENT LTD. (CAL) 179TAX MAN 647 XIV) CIT VS- DHAWAN INVESTMENT & TRADING CO. LTD. 100 TAXMAN 562 (CAL) XV) CIT VS- CARBO INDUSTRIAL HOLDINGS LTD. 244 ITR 422 (CAL) XVI) CIT VS- JANKI TEXTILES & INDUSTRIES LTD. 186 CTR 84 (GAU) AND XVII) DUDHORIA CONSTRUCTION CO. LTD. VS- ITO 43 T TJ 280 (CAL). AND HELD THAT THE CAPITAL LOSS INCURRED BY THE ASSE SSEE ON SALE OF SHARES LISTED ON CSE AND OTHERS WAS A GENUINE LOSS. SINCE THE ABOVE FIN DING OF FACTS OF THE LD. CIT(A) REMAINED UNCONTROVERTED BEFORE US AND THE LD. CIT(A ) HAS PLACED RELIANCE ON THE CASE LAWS DECIDED BY THE COORDINATE BENCH OF THIS TRIBUN AL ON SIMILAR FACTS WE FIND NO INFIRMITY IN THE ORDER PASSED BY HIM DELETING THE A DDITION OF RS.2 35 38 632/-. THEREFORE THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 6. GROUND NO. 2 IN RESPECT OF REVENUES APPEAL RELA TING TO INDIVIDUALS CASE IS AS UNDER : 2. THE LD. CIT(A) ERRED BOTH IN FACTS AND IN LAW I N ALLOWING THE DISALLOWANCE OF RS.49 97 836/- WITHOUT PROPER APPRECIATION OF OBSER VATION OF AO AND THE MATERIALS BROUGHT ON RECORD DURING THE COURSE OF ASSESSMENT. 6.1. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAD PURCHASED 4 66 434 UNITS OF SUNDARAM MUTUAL FUND FOR RS.1 CRORE ON 18.3.2004. THE ASSESSEE RECEIVED UNITS OF THE RATION 1:1. AND THE ASSESSEE SOLD ALL ORIGINAL UNI TS ON 23.3.2004 FOR RS.50 02 164/- AND SUFFERED A LOSS OF RS.49 97 836/-. THE AO HAS HELD THAT THE ASSESSEE PURCHASED THE UNITS 7 ONLY BEFORE THE DECLARATION OF BONUS AND SOLD THE U NITS UNDER AN ARRANGEMENT TO CREATE LOSS. THE WHOLE PROCESS WAS ONLY A COLOURABLE DEVI CE FOR THE PURPOSES OF AVOIDING TAX. AND THEREFORE BY THE PRINCIPLE LAID DOWN IN THE C ASE OF MCDOWELL & CO. LTD. VS. CIT (1985) 154 ITR 148 (SC) THE CONSEQUENTIAL LOSS IN THE TRANSACTION SHOULD BE IGNORED. THE AO ALSO MADE A REFERENCE TO THE PROVISIONS OF S ECTION 94(8) WHICH WERE INTRODUCED BY THE FINANCE ACT 2004 WITH EFFECT FROM 1.4.2005. THE AO THEN DISALLOWED THE LOSS OF RS.49 97 836/-. IN APPEAL THE LD. CIT(A) DELETED THE DISALLOWANCE AS MADE BY THE AO. AGGRIEVED BY THE SAID ORDER NOW THE REVENUE IS IN APPEAL BEFORE US. 6.2. AT THE TIME OF HEARING BEFORE US THE LD. DR R ELIED ON THE ORDER OF THE AO AND SUBMITTED THAT THE ISSUE OF DISALLOWANCE OF RS.49 9 7 836/- ON SALE OF UNITS MUTUAL FUND HAS BEEN ELABORATELY DISCUSSED WITH JUDICIAL PRONOU NCEMENTS DURING THE PASSING THE ORDER U/S. 143(3). THE LD. CIT(A) HAS ALSO DELETED THE SAID ADDITION WITHOUT PROPER APPRECIATION OF THE REASONING AS PUT FORWARD BY THE AO DURING THE COURSE OF ASSESSMENT. HE THEREFORE PRAYED BEFORE THE BENCH TO CONFIRM T HE ACTION OF THE AO. IN THIS REGARD. 6.3. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASS ESSEE RELIED ON THE ORDER OF THE LD. CIT(A) AND PRAYED BEFORE THE BENCH TO CONFIRM THE S AME. 6.4 WE HAVE HEARD THE RIVAL SUBMISSIONS PERUSED TH E MATERIAL AVAILABLE ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW. WE FIND T HAT THE LD. CIT(A) WHILE DELETING THE ADDITION HAS OBSERVED AS UNDER : 5.2. I HAVE PERUSED THE ASSESSMENT ORDER AND CON SIDERED THE SUBMISSION OF THE APPELLANT. THE AO HAS BROUGHT NO MATERIAL OR EVIDEN CE ON RECORD TO ESTABLISH THAT THE PURCHASE AND SALE OF UNITS WAS MADE UNDER AN ARRANG EMENT TO CREATE LOSS AND THEREBY AVOID TAX. THE GENUINENESS OF THE TRANSACTIONS IS N OT DISPUTED BY THE AO. THE TRANSACTIONS ARE WITH UNRELATED PARTIES AND ARE AT ARMS LENGTH. THE RELIANCE PLACED BY THE AO IN THE CASE OF MCDOWELL & CO LTD VS CTO (198 5) 154 ITR 148 (SC) IS FAR FETCHED. THE HONBLE SUPREME COURT IN ITS LATER JU DGEMENT IN THE CASE OF AZADI BACHAO ANDOLAN VS UNION OF INDIA (2003) 263 1TR 706 HAS A LREADY HELD THAT EVERY TAX PLANNING CANNOT BE TREATED AS ILLEGITIMATE. THE PRO VISIONS OF SECTION 94(8) ARE INSERTED WITH EFFECT FROM 01-04-2005 AND ARE CLEARLY NOT APP LICABLE IN THE CASE OF THE APPELLANT I FIND NO JUSTIFICATION FOR THE AO TO DISALLOW THE LO SS OF RS 49 97 836/- WHICH THE APPELLANT SUFFERED IN NORMAL COURSE OF BUSINESS AND WHICH IS SUPPORTED BY PROPER EVIDENCE. THE DISALLOWANCE MADE BY THE AO IS BASED ON PRESUMPTIONS ALSO CONTRARY TO THE MATERIAL AND EVIDENCE ON RECORD. SUCH ADDITIONS ARE NOT SUSTAINABLE IN THE EYES OF LAW. THE DISALLOWANCE MADE BY THE AO IS DIRECTED TO BE DELETED. GROUND NO. 3 IS ALLOWED. THE LD. DR AT THE TIME OF HEARING BEFORE US COULD N OT CONTROVERT THE FINDINGS OF THE LD. CIT(A) BY PRODUCING ANY COGENT MATERIAL/EVIDENCE. H ENCE WE DO NOT FIND ANY INFIRMITY 8 IN THE ORDER OF THE LD.CIT(A) AND THE SAME IS HEREB Y UPHELD. THEREFORE THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 7. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9.4.2010 SD/- SD/- (C. D. RAO) ( D. K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 9TH APRIL 2010 COPY FORWARDED TO THE :- 1) DCIT CIRCLE-35 KOLKATA. 2) SRI KEDARNATH AGARWAL 405 TODI CHAMBER 2 LAL BAZAR STREET KOLKATA-1. 3) CIT(A) KOLKATA 4) CIT KOLKATA. 5) D. R. ITAT KOLKATA. (TRUE COPY) BY ORDER DEPUTY REGISTRAR JD. (SR. P.S.) I.T.A.T. KOLKATA