Universal Enterprises Limited v. Income Tax Officer Ward 6/2 Kolkata And Ors

ORDER SHEETWPO/1022/2023IN THE HIGH COURT AT CALCUTTACONSTITUTIONAL WRIT JURISDICTIONORIGINAL SIDE UNIVERSAL ENTERPRISES LIMITED VS INCOME TAX OFFICER WARD 6/2 KOLKATA AND ORS. BEFORE: The Hon'ble JUSTICE MD. NIZAMUDDIN Date: 17[th] May, 2023. Appearance:Ms. Swapna Das, Adv.Mr. Siddharth Das, Adv.…For the PetitionerMr. Om Narayan Rai, Adv.Mr. Prithu Dudhoria, Adv.…For the Respondents The Court: Heard learned advocates appearing for the parties. By this writ petition, petitioner has challenged the impugned orderdated 23[rd] July, 2022, under Section 148A(d) of the Income Tax Act, 1961relating to the assessment year 2015-16. I have perused the aforesaid impugned order which was passed aftergiving opportunity of hearing to the petitioner and it appears on perusal ofthe aforesaid order that in course of investigation carried out by Unit-6(Inv.), Mumbai under the “Project Falcon”, regarding the claim of fictitiouslosses/profits through coordinated and premeditated trading in illiquidstock options and it had come to notice that there are severalinstances/internal alerts wherein a set of entities were consistently seenincurring trading loss by executing Reversal of trades in options onindividual stocks (“stock options”) in Equity Derivative Segment. It alsoappears from the said investigation as has been recorded that along withReversal of Trades, huge losses are being generated by various clients by letting the option expire instead of acting upon the option. It alsoappears on investigation as appears from recording by the assessing officerthat in course of investigation, statements under oath were recorded fromvarious brokers involved in the above mentioned transactions and in theirstatements brokers had admitted that various clients traded in illiquid stockthrough derivatives options with a sole motive of generating losses. Furtherthe modus operandi which were corroborated with the fact that transactionsare either left to expire or reversed on the same day within few seconds tofew hours. Further relevant portion of the aforesaid impugned order showinginvolvement of the petitioner is recorded as hereunder : “In this light, the transactions done by the assessee is analysed andthey are found to be an unfair trade practice with an intention to create anartificial loss/profit. A general observation that emerges in the impugnedtransactions is that the same have been carried on in Option Segment atstrike prices which are deep in-the-money or deep out-of-the money andnever at strike prices around at the money. The trading in options isgoverned by the premium associated at every strike prices which inter-aliahave a definite intrinsic value for all options in the money. The intrinsicvalue is said to be zero or all out of money strike prices. In the present casethe assessee has paid an abnormally high premium through a presetarrangement in a case where there was no intrinsic value and hardly anytime value being a settlement day trade (OR “near to a settlement day trade”)which is beyond what a reasonable person can act and the preponderance ofhuman probabilities is weighed heavily against the assessee who is engaged in a got up transactions to book bogus loss to set-off his profits whichcould have otherwise subjected to tax. In the light of the above discussion and on the basis of materialavailable on the record, it can be safely deduced that the assessee-companyhad taken bogus loss amounting to the tune of Rs. 2,08,13,125/- by theway of coordinated and premeditated trading in illiquid stock options on theBombay Stock Exchange. Commission expenses @ 2% of Loss of Rs.2,08,13,125/- which comes to Rs. 4,16,263/- is also to be included in theincome escaped for assessment. It is clear that the impugned income (Rs.2,08,13,125/- + 4,16,263/-) totaling to Rs. 2,12,29,388/- is chargeable totax which has escaped assessment for the assessment year 2015-16.” in a got up transactions to book bogus loss to set-off his profits whichcould have otherwise subjected to tax. In the light of the above discussion and on the basis of materialavailable on the record, it can be safely deduced that the assessee-companyhad taken bogus loss amounting to the tune of Rs. 2,08,13,125/- by theway of coordinated and premeditated trading in illiquid stock options on theBombay Stock Exchange. Commission expenses @ 2% of Loss of Rs.2,08,13,125/- which comes to Rs. 4,16,263/- is also to be included in theincome escaped for assessment. It is clear that the impugned income (Rs.2,08,13,125/- + 4,16,263/-) totaling to Rs. 2,12,29,388/- is chargeable totax which has escaped assessment for the assessment year 2015-16.” In view of the facts as recorded hereinabove, this Court is not inclinedto exercise its Writ Jurisdiction under Article 226 of the Constitution ofIndia and accordingly this writ petition being WPO 1022 of 2023 isdismissed. (MD. NIZAMUDDIN, J.) TR/