PARAS KUMAR JAIN,JAIPUR vs. ITO, KOTA

PER VIJAY PAL RAO, JM :

This appeal by the assessee is directed against the order dated 19th January,

2017 of ld. CIT (A), Kota for the assessment year 2008-09. The assessee has

raised the following grounds :-

“ 1.1. The assessment order passed u/s 148 is bad in law as well as on facts and hence, the same may please be quashed.

1.2. The reasons recorded by the ld. AO did not form any reason to believe that any income escaped from assessment and hence the consequent reopening of assessment is also bad in law as well as on the facts of the present case and the ld. CIT (A) erred in sustaining the same.

Without prejudice to above

2 ITA No. 279/JP/2017 Shri Paras Kumar Jain, Kota.

gain as income from undisclosed sources and the ld. CIT (A) erred in sustaining the same and hence, the entire addition may please be deleted.”

6,23,510/-. Subsequently, the AO received information from the Investigation Wing,

Mumbai regarding accommodation entries in the shape of Long Term Capital Gain

from the concerns of Shri Mukesh Choksi. Accordingly, the AO reopened the assessment by issuing notice under section 148 of the IT Act on 26th March, 2015. In

response to the notice issued under section 148, the assessee vide letter dated 16.04.2015 submitted that the return of income filed on 10th March, 2009 may be

treated as return of income filed in compliance to notice under section 148. The AO

consequently completed the re-assessment under section 143(3) read with section

147 of the Act on 11.01.2016 whereby long term capital gain on sale of shares were

treated as undisclosed income of the assessee and the amount of Rs. 17,00,180/-

was added to the total income of the assessee. The assessee challenged the

addition before the ld. CIT (A) but could not succeed.

Ground No. 1 is regarding challenging the validity of the order

passed under section 148 of the IT Act.

assessment based on the information/report of the Investigation Wing, Mumbai

without conducting a separate and independent enquiry about the fact whether the

claim of the assessee of long term capital gain is genuine or bogus. Hence the

3 ITA No. 279/JP/2017 Shri Paras Kumar Jain, Kota.

reopening is not sustainable in law as the same is based on the borrowed

satisfaction and not on independent application of mind.

the purchase and sale of 32,000 shares of M/s. Axon Infotech Ltd. through broker

M/s. Alliance Intermediaries & Network Pvt. Ltd. which is a group concern of Shri

Mukesh Choksi and in the investigation proceedings in case of Shri Mukesh Choksi it

was detected that all the concerns including M/s. Alliance Intermediaries & Network

Pvt. Ltd. were engaged in providing accommodation /bogus entries of Long Term

Capital Gains etc. on receipt of money. Thus once the AO has received the

information along with the statement of Shri Mukesh Choksi wherein the

transactions of purchase and sale of shares through the group concern of Shri

Mukesh Choksi were found to be bogus and accommodation entries to avoid the tax

liability, then the AO was having reason to believe that the income assessable to tax

in the shape of long term capital gain of Rs. 21,00,720/- has escaped assessment.

He has relied upon the orders of the authorities below.

record. There is no dispute that the return of income filed by the assessee under

section 139 of the IT Act was not taken up for scrutiny assessment. Subsequently,

the AO received the information from Investigation Wing, Mumbai regarding the

discovery of the fact that Shri Mukesh Choksi through his various concerns including

M/s. Alliance Intermediaries & Network Pvt. Ltd. has indulged in providing

accommodation and bogus entries of long term capital gain etc. against receipt of

cash from the persons. This information along with the statement of Shri Mukesh

Choksi constitutes a tangible material to form the belief that the income assessable

4 ITA No. 279/JP/2017 Shri Paras Kumar Jain, Kota.

to tax and claimed as exempt from tax has escaped assessment. Therefore, once

the original return of income was not taken up for scrutiny assessment, then the

said information and facts discovered by the Investigation Wing Mumbai along with

the statement of Shri Mukesh Choksi constitutes a material on the basis of which the

AO can reasonably form a belief that the income in the shape of long term capital

gain claimed as exempt has escaped assessment. At the stage of reopening of the

assessment what is required is prima facie reason to believe that income assessable

to tax has escaped assessment and the AO is not required to establish the fact by

legal evidence or conclusion. Accordingly we do not find any error or illegality in the

impugned order of ld. CIT (A) qua this issue.

Ground No. 3 is regarding the addition made by the AO by treating

the long term capital gain as income from undisclosed sources.

2006 for a consideration of Rs. 2,02,000/-. These shares were purchased through M/s. Alliance Intermediaries & Network Pvt. Ltd. as per the Contract Note dated 10th

July, 2006. Subsequently, the said company issued bonus shares in the ratio 3:1 in

the month of September, 2007, hence 8000 shares held by the assessee were

converted to 32000 shares. The assessee finally sold 16,000 shares on 16.01.2008

and balance 16,000 shares on 08.02.2008 for a total consideration of Rs.

21,10,720/-. The ld. A/R has thus submitted that when the assessee held these

shares for more than one year as these shares were acquired in the month of July,

2006 and sold in the month of January and February, 2008 then the gain arising

5 ITA No. 279/JP/2017 Shri Paras Kumar Jain, Kota.

from sale of shares is a long term capital gain. Further, the sale of shares were not

through broker M/s. Alliance Intermediaries & Network Pvt. Ltd. but these shares

were sold through a different broker which is not related to Shri Mukesh Choksi or

his concerns. He has referred to the sale bill/broker’s note at pages 33 and 34 of

the paper book and submitted that the shares were sold through M/s. A.C. Choksi

Share Brokers Pvt. Ltd. which is not a group concern of Shri Mukesh Choksi. Hence,

once the shares were sold by the assessee not through the group concern of Shri

Mukesh Choksi, the capital gain on sale of the shares cannot be treated as bogus

claim. In support of his contention, he has relied upon the CBDT Circular No. 704 dated 28th April, 1995 and submitted that the CBDT has clarified that in case of

securities transacted through Stock Exchanges, the date of broker’s note should be

treated as the date of transfer in cases of sale and purchase of shares. The ld. A/R

then submitted that Shri Mukesh Choksi in his statement has not mentioned the

name of the assessee as the beneficiary of the alleged accommodation entries

provided by his group concern. Further, the shares were sold through a different

broker and, therefore, there is no question of giving any cash for obtaining the long

term capital gain in question. Once the assessee has placed the relevant record

showing the purchase of shares through the broker’s note, sale of shares through a

different broker and receipt of sale consideration through banking channel, then the

transactions of purchase and sale of shares cannot be held as bogus and

consequently the claim of capital gain cannot be treated as income from undisclosed

sources of the assessee. The ld. A/R has relied upon the following decision in

support of his contention :-

6 ITA No. 279/JP/2017 Shri Paras Kumar Jain, Kota. (1) Order dated 4th September, 2015 of Hyderabad Bench of the Tribunal in case of DCIT vs. Vinay Kumar Agarwal in ITA No. 153/Hyd/2015 & C.O. No. 16/H/2015 and submitted that the Tribunal after considering the CBDT Circular No. 407 dated 28th April, 1995 has held that the date of purchase of shares shall be taken as the date of Broker’s Note and not the actual date of transfer of shares.

He has then relied upon the decision of Mumbai Bench of the Tribunal in case of

Kamla Devi S. Doshi vs. ITO, (2017) 50 CCH 72 (Mumbai Trib.) as well as the

decision of Hon’ble Jurisdictional High Court in case of CIT vs. Pooja Agarwal dated 11th September, 2017 in DBIT appeal no. 385/2011. Thus the ld. A/R has submitted

that once the asseessee has produced the record showing the purchase and sale

transactions made on-line and identity of seller and purchasers are unknown then

the transactions cannot be held as bogus transactions. He has further contended

that as the assessee has shown the purchase of 8000 shares of M/s. Axon Infotech Ltd. in the Balance Sheet as on 31st March, 2007 and the AO has accepted that fact

for the assessment year 2007-08, then the said transaction cannot be held as bogus

only when the shares were sold by the assessee in the subsequent year. He has

further contended that the transactions of purchase and sale has suffered STT and

carried out through Stock Exchange, therefore, the question of genuineness of the

transaction cannot be raised. Hence the ld. A/R has submitted that the AO has

treated the transaction as bogus based on the statement of Shri Mukesh Choksi

which is not a conclusive evidence to take a decision when the assessee was not

stated as the beneficiary of the transaction provided by Shri Mukesh Choksi and his

group concerns.

taking the accommodation entries when the assessee claimed to have purchased the

7 ITA No. 279/JP/2017 Shri Paras Kumar Jain, Kota.

shares in the month of July, 2006 through Stock broker M/s. Alliance Intermediaries

& Network Pvt. Ltd. which is a group concern of Shri Mukesh Choksi. However, the

shares were not transferred in the name of the assessee till the month of January,

2008 when the shares were finally sold by the assessee. Therefore, just few days

before the sale of shares the shares were transferred in the account of the assessee

and prior to that there was no record to show that these shares were actually

transferred in the name of the assessee or in the account of the assessee.

Therefore, the claim of purchase of shares in the month of July, 2006 itself is bogus

claim and not proved by the assessee except producing a Contract Note of a tainted

company for which the Investigation Wing found it indulged in providing

accommodation entries. In view of the facts as brought by the AO that the said

company M/s. Alliance Intermediaries & Network Pvt. Ltd. is one of the group

concerns of Shri Mukesh Choksi and engaged in providing accommodation /bogus

entries in capital gain, then the claim of the assessee solely based on the contract

note was found to be bogus. He has relied upon the orders of the authorities below

and submitted that the ld. CIT (A) has discussed this issue in detail and after relying

upon various decisions has confirmed the finding of the AO that the claim of long

term capital gain exempt from income-tax is nothing but a bogus claim.

record. The assessee claimed to have purchased 4000 shares of M/s. Axon Infotech Ltd. on 5th July, 2006 and again 4000 shares of the same company on 10th July,

2006 for a total consideration of Rs. 4,10,540/-. It is pertinent to note that as per contract note dated 10th July, 2006 there is no transfer of purchase consideration by

the assessee either in favour of the broker or in favour of any other party. Thus the

8 ITA No. 279/JP/2017 Shri Paras Kumar Jain, Kota.

said broker’s note relied upon by the assessee does not prove the transaction of

purchase of shares by the Broker on behalf of the assessee against consideration.

The assessee has not placed any record regarding payment of purchase

consideration, therefore, in the absence of any record or material to show payment

of purchase consideration by the assessee, the broker’s note itself cannot be

considered a conclusive proof of purchase of shares when the actual holding of the

shares taken place only in the month of January, 2008 itself. We note that in the

month of September, 2007 the company M/s. Axon Infotech Ltd. issued bonus

shares 3:1 and thereby the assessee claimed that the 8000 shares were converted

into 32000 shares by virtue of bonus shares. Even after the issuance of bonus

shares, there is no record to show that either the original shares or the bonus shares were transferred in the name of the assessee prior to 11th January, 2008 when the

shares were finally credited to the demat account of the assessee. It is pertinent to

note that the purchase and sale of the shares are claimed to have been made on-

line and, therefore, there is no physical transfer of shares and once the shares are

purchased on-line and in the digital form then immediately after purchase the shares

are to be credited into the demat account of the assessee. However, the only

explanation of the assessee in this respect is that the shares were in the common

pool of the broker’s account though purchased on behalf of the assessee. We do not

accept this explanation of the assessee in the absence of any record to show that

the shares were purchased by the broker in the name of the assessee. It appears

that the shares were held by the broker M/s. Alliance Intermediaries & Network Pvt.

Ltd. and only in the month of January, 2008 these shares were transferred in the

name of the assessee and finally credited in the demat account of the assessee on

9 ITA No. 279/JP/2017 Shri Paras Kumar Jain, Kota. 11th January, 2008. Therefore, prior to 11.01.2008 there is no material or record to

show that the assessee had ever held these shares. The ld. A/R of the assessee

though contended that the assessee has shown the shares in his balance sheet as on 31st March, 2007, however, we find that the return of income for the assessment year 2007-08 was filed by the assessee only on 27th March, 2008 which is

subsequent to the sale of the shares in the months of January and February, 2008.

Thus filing of the return for the assessment year 2007-08 will not help the assessee

to claim that these shares were declared by the assessee in the balance sheet when

the return was filed belatedly and that too after the sale of the shares. Accordingly,

the purchase transaction of the shares remained unsubstantiated. The ld. A/R has

relied upon the various decisions on the point that the date of broker’s note should

be considered as date of purchase of shares. However, we find that only in case of

dispute about the date of purchase when there is a reasonable time gap between

the Contract Note and actual transfer of the shares in the name of the assessee then

subject to the condition that the shares are actually transferred in the name of the

assessee, the date of purchase shall be considered as the date of broker’s note. In

the case in hand, the broker’s note as relied upon by the assessee was not found to

be a genuine document as there is no other supporting evidence to prove the

transaction of purchase and particularly the payment of purchase consideration is

not proved by the assessee. Therefore, the decisions relied upon by the assessee

are not in help to the case of the assessee. Once the facts on record have

established that the shares in question were transferred in the name of the assessee

only on 11.01.2008, then prior to the said date the claim of the assessee cannot be

accepted as a genuine claim. The entire claim of the assessee is based on the

10 ITA No. 279/JP/2017 Shri Paras Kumar Jain, Kota.

contract note dated 10th July, 2006 which itself does not establish the fact of

purchase in the absence of any purchase consideration and any other record

showing the transfer of the shares in the name of the assessee. Hence, we find that

the ld. CIT (A) has decided this issue as under :-

“ As regards Ground of appeal no. 2, it is seen that the shares of so-called companies were never with the assessee in the physical format (Demat) since his Demat account was opened much after the alleged purchase in 2006 itself. Secondly, the very brokerage firm which had ‘arranged’ the capital gains receipt for the assessee was figuring in the list of ‘controlled’ brokers of Sh. Mukesh Chokshi, the person behind ‘arranging’ such bogus Capital Gains entries in exchange of cash as is very clear from his statements given in the course of search proceedings elsewhere in which he had listed the beneficiaries of such “bogus” Capital gains receipts, and the appellant figured in that list.

The assessee appellant on his part has produced no documentary evidences in his support like confirmations of ledger accounts of the broker showing his transaction, evidence of holding possession of the shares in question at any time physically etc. Thirdly, once the activities of the broker company being suspect, and it was also ‘blacklisted’ by SEBI, the regulatory body for the stock & share dealings, the beneficiaries attached to his transacted business, in the light of his own admissions could not be held to have had genuine Capital gains Income on which they could be given benefit of Tax exemptions. HIGH COURT OF DELHI in the case of Commissioner of Income-tax v. Nova Promoters & Finlease (P) Ltd. 18 taxmann.com 217 (Delhi) held that –

Section 68 of the Income-tax Act, 1961 – Cash credits – Assessment year 2000-01 – for relevant assessment year, assessee filed its return declaring loss – Said return was processed under section 143(1) – Subsequently, Assessing Officer received information from Investigation Wing that assessee had obtained accommodation entries in garb of share application monies – In order to examine genuineness and creditworthiness of companies which gave entries to assessee, Assessing Officer

11 ITA No. 279/JP/2017 Shri Paras Kumar Jain, Kota.

issued summons to two persons namely, ‘M’ and ‘R’ who did not appear before him – Subsequently, assessee filed a letter with Assessing Officer along with affidavits of ‘R’ and ‘M’ in which both of them had stated that transactions with assessee were genuine and earlier statements recorded from them by investigation wing were given under pressure – Assessing Officer did not accept those affidavits and made certain addition to assessee’s income under section 68 – Tribunal, however, taking a view that there was no dispute about identity of fhsare holders namely ‘M’ and ‘R’, deleted addition made by Assessing Officer – On revenue’s appeal, it was noted that both .M. and ‘R’ had admitted before Additional Commissioner (Investigation) that they were acting as accommodation entry providers – They had also given a list of 22 companies in which they were operating accounts – It was also apparent that out of 22 companies whose names figured in information given by them to investigation wing, 15 companies had provided so-called ‘share subscription monies’ to assessee – Whether on facts, there was specific involvement of assessee company in modus operandi followed by ‘M’ and ‘R’. Held, yes – Whether, therefore, impugned order passed by Tribunal deleting addition was to be set aside – Held, yes (In favour of revenue).

Section 148 of the Income-tax Act, 1961 – Income escaping assessment – Issue of notice for – Assessment year 2000-01 – Whether at stage of issuing notice under section1 48 merits of matter are not relevant and Assessing Officer at that stage is required to form only a prima facie belief or opinion that income chargeable to tax has escaped assessment – Held, yes – Whether however, once that stage is crossed and reassessment proceedings are set in motion, material on basis of which requisite belief was formed by Assessing Officer has to be appraised and examined – Held, yes ….. the Court cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self- confessed ‘accommodation entry providers’, whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus operandi is clearly indicted by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such

12 ITA No. 279/JP/2017 Shri Paras Kumar Jain, Kota.

‘entry providers’. The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre-meditated plan – a smokescreen – conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. The ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under section 68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The instant case does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary. Thus when viewed in the context of the modus operandi involved in the present case as well, the bonafides get obliterated in the background of the findings recorded from the alleged entry provider Sh. Mukesh Chokshi. Though the addition in this case has not been made u/s 68, but the principle behind introducing entries on the receipt side of the books of accounts is guided by the principle of genuineness of the source of such receipts.

In a similar context, the Special Bench in the case of CIT v. Sophia Finance Ltd. (1994) 205 ITR 98/70 Taxman 69 (Delhi) opined that section 68 is very widely worded and an Income-tax officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money. Mere fact that thepayment was received by cheque or that the applicants were companies, borne on the file of Registrar of Companies were held to be neutral facts and did not prove that the transaction was genuine. HIGH COURT OF DELHI in Sarita Aggarwal v. Income-tax Officer, 56 taxmann.com 195 (Delhi) referred to certain other legal precedents while deciding on the issue of section 68 that Reference can be made to CIT v. Durga Prasad More (1971) 82 ITR 540 (SC), CIT v. Daulat Ram Rawatmull (1973) 87 ITR 349 (SC) and other cases referred to in CIT v. Nova Promoters and Finlease (P) Ltd. (2012) 342 ITR 169 (Delhi). In these cases, it has been observed that what is apparent must be considered real until it is shown that there are reasons to believe that the apparent is not real. Caution must be exercised on self-serving statements made in the

13 ITA No. 279/JP/2017 Shri Paras Kumar Jain, Kota.

documents as they are easy to make and rely upon in case an assessee wants to evade taxes. Proof is required and the assessing authorities should not put blinkers while looking at the documents before them. Surrounding circumstances are equally important.” (Emphasis supplied).

Since the appellant, in the course of assessment as well as appellate proceedings, has failed to bring any evidences on record to justify that these were genuine transactions, and on the contrary looking to lack of evidences, background & nature of dubious activities admitted clearly by the broker providing such bogus capital gains, I am of the view that the addition of Rs. 17,00,180/- has rightly been made in this case by the AO as income from undisclosed sources and the same deserves to be confirmed. This ground of appeal is accordingly dismissed.”

Therefore, we concur with the view to the extent that the claim of purchase of

shares in question in the month of July, 2006 is not proved by the assessee.

However, once the shares were finally credited in the demat account of the assessee on 11.01.2008, then the said fact of holding the shares as on 11th January, 2008 cannot be denied. The shares were then sold on 16th January, 2008 and 8th

February, 2008 consequently the gain, if any, in the transaction would be only short

term capital gain. However, there is another aspect in this transaction which is the

purchase price as on 11.01.2008. Since the transaction is on-line and through stock

exchange, therefore, the prevailing price of the shares in question can be

ascertained from the stock exchange and, therefore, the difference of prevailing

price and the cost of purchase claimed by the assessee can be treated as

unexplained investment. Accordingly, we set aside this issue to the record of the AO

14 ITA No. 279/JP/2017 Shri Paras Kumar Jain, Kota.

to reconsider the same in the light of above observation and after giving an

opportunity of hearing to the assessee.

Order is pronounced in the open court on 13/12/2018.

Sd/- Sd/- (foØe flag ;kno) (fot; iky jkWo ½ (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Jaipur Dated:- 13/12/2018. Das/

आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत

15 ITA No. 279/JP/2017 Shri Paras Kumar Jain, Kota.