BALBIR CHAND MAINI vs. COMMISSIONER OF INCOME TAX-III, LDH.

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ITA/173/2007HC Punjab & HaryanaPHHC01072850200705 April 2011Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE ADARSH KUMAR GOEL8 pages
AI SummaryDismissed

What did the High Court hold?

The High Court found no merit in the assessee's arguments. Regarding the first issue, the Court referred to Explanation-3 to Section 147 of the Act, inserted retrospectively, which allows additions on issues that come to notice during reassessment, even if not in the original reasons for reopening. This rendered the assessee's argument regarding the validity of the Section 148 notice unsustainable. On the second issue, the Court affirmed the Tribunal's finding that the share transaction was not genuine. The Tribunal's reasoning, as detailed in the judgment, highlighted several factors: the broker (M/s. S.K. Sharma & Co.) failed to produce books of account and relevant documents; the sale did not occur through any stock exchange; cash deposits preceded cheques issued to the assessee; the broker could not identify the purchasers; shares were not transferred from the assessee's name even during the inquiry; and the market value of the shares was significantly lower than claimed. The Court also noted that in a similar case involving a family member (Som Nath Maini), identical transactions were held to be non-genuine. Therefore, no perversity or error of law was found in the Tribunal's findings.

What were the facts?

The assessee, Balbir Chand Maini, filed an appeal before the High Court of Punjab and Haryana against an order of the Income Tax Appellate Tribunal (ITAT) for the assessment year 1998-99. The ITAT had reversed the order of the CIT(A) and upheld additions made by the Assessing Officer (AO). The AO had initiated reassessment proceedings under Section 148 of the Income Tax Act, 1961, after the assessee filed a return declaring an income of Rs. 7,93,140. During reassessment, the AO found that the assessee had purchased 30,000 shares of M/s. Ankur International and sold 24,000 shares through M/s. S.K. Sharma & Co. The AO determined the value of these shares to be significantly lower than claimed by the assessee, making an addition of Rs. 12,47,500 as income from undisclosed sources.

What were the issues?

1. Whether reassessment proceedings could be initiated when the notice under Section 148 of the Income Tax Act, 1961, was found to be incorrect? (Question of law) 2. Whether the ITAT was justified in concluding that the sale and purchase of shares by the assessee was a bogus transaction, given the material on record? (Question of mixed law and fact) Assessee's contentions: - There was no justification for the Tribunal not to accept the assessee's explanation that the share transaction was genuine and capital gains were earned. - The Tribunal disbelieved the transaction based on conjectures and surmises. - The reassessment proceedings under Section 148 were not justified as the ground for reopening was not valid. Revenue's contentions: - The Tribunal's order was supported by a decision of the High Court in the case of Som Nath Maini (a family member of the assessee), where identical transactions were held to be non-genuine.

Which sections of the Income-tax Act were involved?

Section 143(1),Section 148,Section 147,Section 260A

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Income Tax Appeal No.173 of 2007 [1] IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 173 of 2007 Date of decision: 5.4.2011 Balbir Chand Maini --- Appellant Versus Commissioner of Income Tax-III Ludhiana and another --- Respondents --- CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Mr. Akshay Bhan and Mr. Animesh Sharma, Advocates for the appellants. Mr. Denesh Goyal, Standing Counsel for the respondent-Revenue. --- AJAY KUMAR MITTAL, J.

Income Tax Appeal No.173 of 2007 [2] The paper-book of this case has not been received from the concerned Branch as the same is said to have been burnt in the fire incident that took place in the premises of this Court on the night of 30 th January, 2011. Learned counsel for the appellant has made available two copies of paper-book to the Court for reconstruction of the file. The said copies are taken on record and the file of the appeal is treated as having been reconstructed.

2.

This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the assessee against the order dated 28.11.2006, passed by the Income Tax Appellate Tribunal Chandigarh Bench ‘A’, Chandigarh (in short “the Tribunal”) in ITA No. 731/CHANDI/2004, relating to the assessment year 1998-99. 3. The appeal was admitted for determination of the following substantial questions of law by this Court: “(i) Whether in the facts and circumstances of the case, the reassessment proceedings could be carried when the notice issued under Section 148 of the Act is found to be incorrect? (ii) Whether in the facts and circumstances of the case, the learned ITAT was justified in arriving at the conclusion that the sale and purchase of the shares by the assessee was a bogus transaction when there was no material on record on which such apprehensions could be based?

4.

The facts, in brief, necessary for adjudication as narrated in the appeal, are that the return for the assessment year 1998-99, filed by the assessee on 31.10.1998 at the income of Rs. 7,93,140/- was processed under Section 143(1) of the Act and accordingly a notice under Section 148 was issued to him on 29.5.2001. In response to the notice,

Income Tax Appeal No.173 of 2007 [3] the assessee again filed return on 16.10.2001 declaring the same income as shown in the return filed earlier. The Assessing Officer, however, vide order dated 21.3.2003 completed re-assessment at the income of Rs. 20,24,602/-. It was found by the assessing officer that the assessee had purchased 30000 shares of M/s.Ankur International at the rate between Rs. 2.50 and Rs. 3.40 per share, in the month of April, 1997 and out of those shares, he sold 24000 shares through a broker, namely, M/s. S.K. Sharma & Co. During reassessment proceedings, the assessing officer came to the opinion that the value of the said shares could not be as high as Rs.55/- per share and accordingly made an addition of Rs. 12,47,500/- to the income of the assessee as income from undisclosed sources. However, he determined a sum of Rs. 2,85,620/- as long term capital loss, while computing the income.

5.

The Commissioner of Income-tax (Appeals) {in short “the CIT (A)”}, by order dated 23.3.2004 deleted the additions made by the assessing officer whereas in the appeal taken by the Revenue, the Tribunal vide order under challenge herein reversed the order of the CIT (A) and upheld the additions so made by the assessing officer.

6.

We have heard learned counsel for the parties and have perused the record.

7.

Learned counsel for the assessee submitted that there was no justification for the Tribunal not to accept the explanation of the assessee. The transaction entered into by the assessee was a genuine transaction and sale and purchase of shares was actually carried out and the assessee had earned capital gains thereon. The Tribunal had disbelieved the same on conjectures and surmises. Learned counsel for the assessee further submitted that this was not a ground on which the re-

Income Tax Appeal No.173 of 2007 [4] opening was initiated under Section 148 of the Act by the assessing officer and there was no justification in making addition on that count under Section 148 of the Act. The said proceedings were, thus, against law and are vitiated.

8.

Learned counsel for the Revenue, on the other hand, supported the order passed by the Tribunal. He placed reliance on a decision of this Court in Income Tax Appeal No. 499 of 2005 (Som Nath Maini v. The Commissioner of Income Tax-II, Ludhiana), dated 7.11.2006 wherein, in the case of family member of the assessee, Shri Som Nath Maini, this Court had held identical transactions to be non- genuine and upheld the order of the Tribunal on the similar ground.

9.

We have gone through the record and do not find any force in the argument of the learned counsel for the assessee.

10.

The Tribunal while adjudicating the issue against the assessee had recorded a finding of fact that the transaction of sale and purchase of shares of M/s. Ankur International Ltd. was not a genuine transaction, a part where of relevant to the present issue, mentioned in para Nos. 27 and 28 of the order, reads as under: “We would also like to refer to certain material on the basis of which the finding of fact has been arrived at by the Assessing Officer and confirmed by the Tribunal. The assessee had furnished evidence in regard to sale of shares through M/s. S.K. Sharma & Co. and the formal confirmation from the broker. The Assessing Officer had recorded the statement of Shri S.K. Sharma of M/s. S.K. Sharma & Co. and demanded details about the sale of shares. Though M/s. S.K. Sharma admitted to have purchased the shares of M/s. Ankur

Income Tax Appeal No.173 of 2007 [5] International Limited from the assessee, yet it was found by the Assessing Officer that he failed to produce the books of account and other relevant documents. It was also found by the Assessing Officer that the alleged sale of shares had not taken place through any stock exchange. On scrutiny of the books of account of M/s. S.K. Sharma & Co., it was found by the Assessing Officer that there were cash deposits in their bank account preceding the issue of cheques in the name of the assessee for purchase of shares claimed to be the sale proceeds of the same shares received in advance. M/s. S.K. Sharma & Co. could not give the details of the purchaser of the shares. As pointed out earlier, the books of accounts of M/s. S.K. Sharma & Co. were not produced. Other relevant data which could show the genuineness of the transactions between the assessee and M/s. S.K. Sharma & Co. were not produced before the Assessing Officer. The contention advanced on behalf of the assessee that M/s. S.K. Sharma & Co. having confirmed to have issued the cheques in the name of the assessee and the sale of shares having taken place through them, no addition could be made in the hands of the assessee for non-production of records by M/s. S.K. Sharma & Co. The contention advanced on behalf of the assessee appears to be attractive at first sight. So, however, when all the facts and circumstances of this case are viewed in totality, the assessee cannot be said to have discharged the onus in regard to the genuineness of the transaction of sale of shares through M/s. S.K. Sharma & Co. The information appearing

Income Tax Appeal No.173 of 2007 [6] from the bank account of M/s. S.K. Sharma & Co. and the non-production of the records relating to transaction by M/s. S.K. Sharma & Co. have got to be viewed in the light of the attendant facts and material collected by the Assessing Officer. On enquiry by the Assessing Officer, it was found that the shares of M/s. Ankur International Limited had not been quoted in Ludhiana Stock Exchange beyond 17.7.1997. As on 17.7.1997, the said shares were quoted at Rs. 17/- per share. Thereafter the shares were not quoted at all. As per Ludhiana Stock Exchange records, there was no trading of shares of M/s. Ankur International Limited after 17.7.1997. This is one aspect of the matter. The other aspect of the matter is that the assessee had furnished evidence to establish that the shares of M/s. Ankur International Limited had been sold by one Shri Rajinder Bansal to Shri Anurag Rastogi and latter sold the same to Shri Sunil Bakiwal on the same date who in turn again sold back the same shares to the original allottee Shri Rajinder Bansal on the same date i.e. 9.2.1998. The Assessing Officer accordingly held that it was a close circuit transaction and clearly a structured one. Other two transactions of 100 shares each were also held to be structured transactions. It was also found by the Assessing Officer that the shares claimed to have been sold through M/s. S.K. Sharma & Co. had not been transferred even at the time of making the enquiry by the Assessing Officer. The said shares continued to be registered in the name of the assessee.

Income Tax Appeal No.173 of 2007 [7]

28.

The Assessing Officer had also determined the value of shares of M/s. Ankur International Limited on the basis of the financial data collected by him and worked out the value of shares not to be more than Rs. 9.37 per share by adopting two methods for calculation of N.A.V. (net asset value).”

11.

No perversity or error of law could be pointed out by the learned counsel for the appellant so as to persuade this Court to interfere with the said findings which are accordingly affirmed. Further, in Som Nath Maini’s case (supra), under identical circumstances this Court had upheld the findings of the Tribunal against the assessee and held that no substantial question of law arises. Still further, Explanation-3 to Section 147 of the Act has been inserted by Finance (No.2) Act, 2009, retrospectively from 1.4.1989 wherein it has been provided that the assessing officer is justified in making addition even in respect of those issues which come to his notice subsequently in the course of re- assessment proceedings though such issue was not included in the reasons recorded while initiating proceedings under Section 147 of the Act. In view of this, the argument raised by the learned counsel for the assessee does not carry any weight.

12.

Accordingly, we find no merit in the appeal and the same is dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) April 5, 2011

JUDGE *rkmalik*

Income Tax Appeal No.173 of 2007 [8]

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