AO shall not disallow business loss incurred in share transactions without verifying documents: ITAT [Read Order]

Top Stories AO shall not disallow business loss incurred in share transactions without verifying documents: ITAT [Read Order] By Aparna. M – On January 4, 2024 8:01 pm – 2 mins read The Income Tax Appellate Tribunal (ITAT), Ahmedabad bench, held that the Assessing Officer should not disallow business loss incurred in share transactions without verifying the documents.

The assessee, Suprinit Tradinvest Pvt. Ltd., is engaged in the business of trading in shares and securities. After filing the return of income, the assessee’s case was selected for scrutiny. Upon verification of the books of account, the Assessing Officer observed that, among other shares, the assessee had carried out share transactions in scripts admittedly used by entry providers for providing accommodation entry of Long Term Capital Gain/Short Term Capital Gain/Business Loss. Thus, after verifying the submission of the assessee, the AO treated the transaction of purchase and sale of shares, along with the claimed loss of Rs.1,53,890/-, as sham transactions and disallowed the same. Aggrieved, the assessee filed an appeal before the CIT(A), who dismissed the appeal. Subsequently, the assessee filed another appeal before the tribunal.

Tej Shah, Counsel for the assessee, submitted that the Assessing Officer failed in his duty, making erroneous observations about the share trading transactions, resulting in an aggregate loss of Rs.1,53,890/- being non-genuine merely on suspicion and not a specific basis. Furthermore, the assessee had already submitted documentary evidence regarding genuine transactions, discharging the onus to prove the actual loss incurred. Urjit Shah, Counsel for Revenue, argued that the assessee did not address the admission of various parties related to the transactions. Moreover, the shares involved were admittedly controlled by entry providers during the relevant period, and considering their modus operandi, it could be concluded that all trades during such a period were pre-arranged.

The bench observed during the proceedings that documents such as contract notes, investor’s report, and client-wise sauda summary were before the Assessing Officer, but he did not take cognizance of these documents, stating that the assessee was directly involved in sham and bogus transactions of entry providers. After reviewing the facts and records, the two-member bench of Suchitra Kamble (Judicial Member) observed that the Assessing Officer should not disallow business loss incurred in share transactions without verifying the documents.

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