NILESH HIRALAL SHAH,SURAT vs. ACIT 19(1), MUMBAI

This appeal has been filed by the assessee against the order dated 30.03.2015 passed by the Ld. Commissioner of Income Tax (Appeals)-30, Mumbai, for the assessment year 2008-09, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 143 (3) read with section 147 of the Income Tax Act, 1961 (for short ‘the Act’).

Brief facts of the case are that search action in the case of Mukesh Chouksi, Director of M/s Mahasagar Securities Pvt. Ltd. and other related group of companies including M/s Alliance Intermediaries and Network Ltd. M/s Goldstar Finvest Pvt. Ltd., M/s Mihir Agencies Pvt. Ltd. was taken place on the basis of information received from Financial Intelligence Unit, New Delhi regarding suspicious transactions in the bank account of M/s Mahasagar Securities Pvt. Ltd., Mumbai. During the search, Mukesh Chuoksi, one of the 2 Assessment Year: 2008-09 directors of these company admitted that he and his group companies were engaged in providing accommodation entries in order to enable the client to declare speculation profit/loss, short term capital gain, long term capital gain, profit/loss on account of commodity trading, introduce share application money or introduce money in the form of gifts. Verification revealed that the assessee had obtained accommodation entries for an amount of Rs. 18,56,250/- during the F.Y. 2007-08 relevant to the assessment year under consideration through Alliance Intermediaries and Network Pvt. Ltd. in respect of shares of M/s Ennore Coke Ltd. Accordingly, the AO issued notice u/s 148 and in reply to the said notice, the assessee asked to consider the return filed earlier as the return filed in compliance to notice u/s 148 of the Act. The assessee claimed that he had sold 25,000 shares of Ennore Coke Ltd. on 10.05.2007 through M/s Alliance Intermediaries and Network Pvt. Ltd. The assessee also produced the contract notes issued by M/s Alliance Intermediaries Network Pvt. Ltd. Broker bills, bank statements and further submitted that since the short term capital gain arising on the sale of said shares at Rs. 13,56,250/- has been offered to tax, there is no reason to tax on the amount of Rs. 18,56,250/-. However, the AO rejected the contention of the assessee holding that mere fact that the payments were received in bank account of the assessee from Alliance Intermediaries and Network Pvt. Ltd. does not prove that the same was the proceeds of share but prove that the assessee had obtained accommodation entries and obtained bogus bills from M/s Alliance Intermediaries and Network Pvt. Ltd. by making cash payment to them and receiving payment through cheques. Accordingly, the AO made addition of Rs. 18,93,375/- and as unexplained expenditure u/s 69C and further the commission of Rs. 37,125/- total Rs. 18,93,375/-.

The assessee challenged the assessment order before the Ld. CIT (A). The Ld. CIT (A) after hearing the assessee partly allowed the appeal and restricted 3 Assessment Year: 2008-09 the addition to Rs. 13,83,775/- after reducing the cost of purchase of Rs. 5,00,000/- . Still aggrieved, the assessee is in appeal before the Tribunal.

The assessee has preferred this appeal before the Tribunal on the following effective ground:- 1. “On the facts and in the circumstances of the case, the learned CIT (A) erred in upholding the addition made by the learned AO to the extent of Rs. 13,83,375/- (consisting of Rs. 13,56,250 plus 2% thereof of Rs. 27,125) as unexplained expenditure u/s 69C of the Act without appreciating the fact that the said amount of Rs. 13,56,250/- represents short term capital gains on sale of 25,000 Equity shares of ECL, which is eligible for concessional tax rate as per Sec. 111A of the Income tax Act. The Appellant prays that the learned AO be directed to:

There is a delay of 25 days in filing the present appeal. The assessee has moved an application for condonation of delay on the ground that the assessee was not keeping good health and had shifted from Mumbai to Surat, due to which he could not file the appeal within the limitation period. Before us, the Ld. counsel for the assessee submitted that the assessee is a heart patient and has shifted from Mumbai to Surat due to which the assessee could not file the present appeal within the prescribed period of limitation. The assessee has also filed an affidavit in support of its contention. In the light of the aforesaid facts the Ld. counsel submitted that since the delay is not intentional or due to negligence on the part of 4 Assessment Year: 2008-09 the assessee, the application may be allowed and the delay may be condoned. On the other hand, the Ld. DR opposed the application.

We have heard the rival submissions. Since, the delay is not inordinate and the assessee has furnished the sufficient cause for not filing the appeal within the prescribed period, we allowed the application and condoned the delay in the interest of justice and asked the Ld. counsel for the assessee to argue the appeal of the assessee on merits.

On merits, the Ld. counsel for the assessee submitted that the Ld. CIT (A) has failed to appreciate the fact that the assessee is a bona fide investor and was not aware of cancellation of registration of sub broker M/s Alliance Intermediaries and Network Ltd. by the NAC, the action of the AO is based on the statement of Mukesh Chouksi and there is no evidence to corroborate the said statement. The assessee has submitted copies of contracts, broker bills D-mat account bank statement reflecting the credit of sale proceed etc., therefore the assessee has discharged the primary onus to establish the genuineness of transaction. The AO has not brought on record any evidence to establish that the transaction is bogus. The Ld. counsel relied on the judgment of Hon’ble Supreme Court delivered in ITO vs. Laxmani Mewal Das 103 ITR 427 and the decision of Mumbai Bench of the ITAT in Jaferrali K Rattonsey vs. DCIT (2012) 53 SOT 220 (Mum).

On the other hand, the Ld. Departmental Representative (DR) relying on the order passed by the Ld. CIT (A ) submitted that since the assessee has failed to prove the genuineness of the transaction, the Ld. CIT (A) has rightly sustained the addition of Rs. 13,83,375/- including commission of Rs. 27,125/- claimed by the assessee.

We have heard the rival submissions and perused the material on record. The assessee has purchased 25,000 equity shares of Ennore Coke Ltd. for Rs. 5,00,000/- in March, 2007. The investment is reflected in the balance sheet of the assessee. The said shares were sold by the assessee after a gap of two months for Rs. 18,56,250/- and the assessee earned a short term capital gain of Rs. 13,56,250/- . The said payment was received by cheques which are supported by the share brokers note, D- mat account and bank statements etc. We notice that the action of the Ld. AO is based on the statement of Mukesh Choksi which is not corroborated by any other evidence.

In the case of Jaferrali K Rattonsey vs. DCIT (supra), the coordinate Bench has decided the similar issue in favour of the assessee. The observations of the coordinate Bench read as under:-

In the case of Arvind Asmal Mehta vs. ITO, A.Y. 2009-10, the coordinate Bench of the Tribunal has held that in the absence of any material on record to suggest that the sale consideration received by the assessee is on account of the transaction other than the sale of shares, the onus is on the Assessing Officer to establish that the purchase and sale of the shares are bogus. We further notice that the authorities below have not granted any opportunity to the assessee to confront the statement of Mukesh Chauksi. In the case of CIT vs. Arun Kumar Agarwal (HUF), the Hon’ble High Court of Jharkhand at Ranchi in Tax Appeal No. 4 of 2011, has held that even in case where the share broker was found involved in unfair trade practice and any person, who is not involved in unfair practice, if purchases share from that broker in good faith and if he shows his bona fide in transaction by showing relevant material facts, then only on the basis of the reason that share broker was involved in dealing in the share of a particular company in collusion with others the transactions cannot be held to be shame transaction. In the present case also, we do not find any mala fide on the part of the assessee. The assessee has discharged the primary onus of establishing the genuineness of the transaction. On the other hand, the authorities below have not pointed out any cogent evidence on the basis of which it can be concluded safely that the transactions are bogus. The AO has not rebutted the evidence on record which goes in favour of the assessee.