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Assessee by : Shri D.C. Saboo (AR) Revenue by : Shri Ram Tiwari (DR) : 26.12.2017 Date of hearing Date of Pronouncement : 07.02.2018 Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee under section 253 of Income-tax Act is directed against the order of Commissioner (Appeals) 27, Mumbai dated 26 September 2013 for assessment year 2004-05, which in turn arises from the assessment order passed by Assessing Officer under section 143(3) read with section 147 dated 30 December 2011. The assessee has raised following grounds of appeal;
1. CIT (A) has erred in law and facts confirming A.O. order.
2. CIT[A] has mention issue of notices for hearing but appellant had not received any notice for hearing 3. CIT[A] had wrongly mentioned that appellant was given an opportunity to get copies documents on the contrary CIT[A] told to appellant you will get copies of documents from A.O. 4. CIT[a] has confirm reopening of reassessment on ground other than ground on which appellant challenge the reopening.
ITA No. 7185/M/13 - Lalita V. Shah
5. CIT[A] erred in calculating 12 month of holding of share from the date of credit in demate account. Not considered fact that physical share are demate.
6. No application of mind by A.O. No independent enquiry were made by A.O. 7. CIT[A] has confirm order 1'assed by A.O. by violating principle of natural justice. 8. CIT[a] confirmed that it is mistake apparent on record even though he mentioned that it is typical error .CIT[A]has not taken in to consideration that A.O. has assessed capital gain and not sale consideration 9. CIT[A] has not gone through proceeding of precedes 10. CIT[A] has ignore fact that appellant purchase share which were transfer in his name than demat and from de mate without instruction cannot be debit to demate account holder 11. notice under section 148 issued after 4 year so reason recorded are not according to law
Brief facts of the case are that assessee filed her return of income for relevant assessment year on 30th March 2005. The return was processed and accepted by revenue under section 143(1). Subsequently, the assessment was reopened under section 147. Notice under section 148 dated 28 March 2011 was served upon the assessee to furnish return of income. The assessee vide her reply dated 7th April 2014 contended that the return of income filed originally on 30th March 2005 may be treated as return in response to the notice under section 148. The assessee demanded the reasons recorded. The following reasons were supplied to the assessee;
Reasons for the belief that income has escaped assessment The assessee Smt. Lalita Vinod Shah, filed the return of income for the A.Y.2004-05 on 30/03/2005, declaring total income of Rs.5,756/- in the individual capacity. This return was processed u/s 143(1) of the I.T. Act on 30/03/2005. No assessment u/s.143(3) or 144 of the I.T.Act,1961 was made on this return. A Search and seizure action u/s 132 of the Income tax Act,1961 was carried out in the case of M/s Mahasagar Securities Private Limited by the DDIT (Inv) - 1(4), Mumbai on 25.11.2009 and subsequent dates .It was on the basis of information received in an FIU alert from New Delhi regarding suspicious transactions taking place in the bank accounts of 2 ITA No. 7185/M/13 - Lalita V. Shah this company and its related group of companies and related companies. The Directors of these companies' were namely, Shri Mukesh M Choksi and Shri Jayesh K Sampat . During the course of the search and seizure action, it was revealed by them that the Mahasagar Securities Private Limited- and its related group of 34 odd companies (the prominent ones being M/s Alliance Intermediaries & Network Private Limited, M/s Mihir Agencies Private Limited, M/s Goidstar Finvesi Private Limited etc. all run by Shri Mukesh M Choksi and his associates) are engaged in fraudulent billing activities and are in the business of providing entries for speculation profit / loss, short term I long term capital gain / loss, share application money, commodities profit I loss on commodity trading. (through MCX). These entries are bogus. No such transaction in the name of person, to whom these entries has been provided were made. No 'contract notes' for these transactions on the date of transactions were issued. These activities were carried out in the past many years. In the statement recorded during the course of search and seizure proceeding, Shri Mukesh Choksi has admitted of having provided accommodation entries to various persons. The above named assessee, who is assessed to tax with this office, is one of such person, who has obtained bogus entries towards the purchase and sale of shares and securities .Whatever income she has generated from a source, which she has not disclosed to the department in her return of income, has been offered to tax as income generated out of these transactions which never took place. Some of these income has boon claimed as exempt as long term capital gains or offered to tax as short term capital gains, at lower rate of tax. On verification of the data as found during the course of search and seizure proceedings, it is found that the above named assessee has shown Long Term Capital Gain of Rs 34,86,758/- during the F.Y. 2003- 04 relevant to the A.Y. 2004-05 on sale of shares of M/s Talent Infoway Ltd. through M/s Gold Star Finvest Securities Pvt. Ltd. This income has been claimed as exempt u/s 54 F of the Act. This is nothing but an income earned from a source which has not been disclosed to the Department. In view of the above, I have reason to believe that income chargeable to tax to the tune of Rs 34,86,758/- has escaped assessment for the A.Y. 2004-05. Issue notice under section 148 of the Income tax act, 1961. Requisite approval of the authority u/s 151 of the act has been obtained. F.No. Range 16(1)/Approval u/s 148/2010-11 dated 28.03.2011 issue notice u/s 148 of the IT Act,1961.
The Assessing Officer preceded to reassessment the income of the assessee. During the re-assessment proceedings the assessee was asked to explain as to why the Long Term Capital Gain of Rs. 34,86,758/- should - Lalita V. Shah not be treated as bogus and as income from undisclosed sources. The assessee filed her reply and contended that the Shares were purchased through broker registered with SEBI. All purchases of Sharer are supported by contract note, and the purchases were made at prevailing market rates at the relevant time. Physical shares were also taken and duly recorded in the companies transfer record. The shares were sold through broker registered with SEBI at the prevailing market rate. The assessee received payments by cheques which are duly reflected in books of account. The shares sold were duly transferred to the purchasers through demat account, which were hold for more than one year. The assessee prayed to allow the Long Term Capital Gain. The contention of the assessee was not accepted by assessing officer. The Assessing Officer on the basis of statement of Mukesh Choksi recorded under section 131 on 11th December 2009 treated the Long Term Capital Gain (LTGC) as income of the assessee from undisclosed sources. The Assessing Officer also added Rs.1,74,337/-, being 5% of undisclosed income as commission paid for getting entries from Gold Star Finvest Pvt. Ltd. (managed by Mukesh Choksi). Aggrieved by the order of Assessing Officer the assessee filed appeal before the Commissioner (Appeals), challenging the validity of reopening of the assessment as well as the addition made by treating the Long Term Capital Gain and 5% of commission payment on the income from undisclosed sources. The learned Commissioner 4 ITA No. 7185/M/13 - Lalita V. Shah (Appeals) upheld the action of assessing officer. Further aggrieved by the order of Commissioner (Appeals) the assessee has filed present appeal before us.
We have heard learned AR of the assessee and learned DR for revenue and perused the material available on record. We have noticed that the assessee has raised as many as twelve grounds of appeal. However, as per our considered view, the only substantial grounds of appeal are:
(i) whether in the facts and circumstances of this case, the re-opening of the assessment is invalid. (ii) whether in the facts and circumstances of this case, the AO erred in taxing the LTCG by denying exemption and treating the same as income from undisclosed source and further erred in adding 5% commission on such income. The ld. AR of the assessee argued that assessment was reopened without any valid reasons. Copy of statement of Mukesh Choksi, on the basis of which assessment was re- opened was not supplied to the assessee. The assessee demanded opportunity for cross-examination of Mukesh Choksi to the Assessing Officer. The assessee had supplied complete details of transaction for purchase and sale of share and the LTCG earned by assessee. The assessee has filed complete details of all documents before the Tribunal.
The lower authority has not given any finding on the documents furnished by assessee during the assessment proceedings. The AO relied on third party statement. The statement of third party (Mukesh Choksi) is 5 - Lalita V. Shah not creditworthy. No addition on the basis of Mukesh Choksi can be made without giving opportunity of cross-examination to the assessee. It was further argued that similar addition was made after re-opening the assessment of family member of the assessee, which was deleted by the co-ordinate bench of this Tribunal. The ld. AR of the assessee filed copy of decision of his family member in case of Vishal V. Shah vs. ITO in ITA No. 1979/M/14 dated 07.10.2016. On the other hand, ld. DR for the Revenue supported the orders of lower authorities. It was argued that the DDIT (Inv.) carried out a search and seizure action on Mukesh Choksi group. Mukesh Choksi was managing more than thirty companies/concerned and was providing accommodation entries for Long Term/Short Term Capital Gain or Loss and share application money. The entries provided by Mukesh Choksi group were bogus. Shri Mukesh Choksi in the statement admitted that he has provided accommodation entries to a number of persons. In the data found during the course of search, the name of assessee has shown who has availed LTCG during the FY 2003-04. On the basis of such information the assessment was re- opened. The AO was having credible information about escaping the assessment of income of assessee. During the re-assessment, the assessee could not prove the genuinity of LTCG.
On the rejoinder argument, the ld. AR of the assessee submits that the AO passed the assessment order in violation of principle of natural justice and 6 ITA No. 7185/M/13 - Lalita V. Shah without opportunity of cross-examination of Mukesh Choksi, on whose statement, the assessment was re-opened. It was prayed that despite seeking the copy of statement of Mukesh Choksi and further permission for his cross-examination, the AO, neither the copy of statement nor details of investigation carried out against Mukesh Choksi was provided nor opportunity to cross-examine him was given by AO.
We have considered the rival submission of both the parties and perused the material available on record. Ground No.1 relates to validity of re- opening. We have noted that the AO made the re-opening on the basis of information received from DDIT (Inv.) that assessee is one of the beneficiaries, who has availed accommodation entries of LTCG. In our view, the AO has sufficient reason to make an opinion for re-opening of the assessment. Thus, we do not find any merit in the ground no.1 of the appeal raised by the assessee and the same is dismissed.
Ground No.2 relates to treating the LTCG as Income from Undisclosed Source and further addition of 5% commission on such income. We have noted that the AO re-opened the assessment on the basis of statement of Mukesh Choksi recorded on 11.12.2009 under section 131 of the Act. We have further noted that the assessee has filed documentary evidences consisting of brokers bill, contract note for sale of shares, details of share purchases and acknowledgement of shares sent for demat, copy of physical share certificate and purchase bill. The AO has not given any 7 - Lalita V. Shah finding on all these documentary evidences. We have further noted that assessee has demanded copy of details of investigation carried by DDIT (Inv.) against Mukesh Choksi and the statement recorded under section 131 of the Act. We have further noted that the assessee vide her application dated 14.11.2011 requested for cross-examination of the broker (Mukesh Choksi), on the basis of which the re-opening was made.
Considering the fact that the AO has neither rejected the application of assessee dated 14.11.2011 nor gave any opportunity to cross-examine the said broker. The AO relied upon the statement of Shri Mukesh Choksi without supplying his statement and further opportunity to the assessee for his cross-examination. Thus, considering the fact of this case, we restored the case to the file of AO to pass the order afresh after considering the documentary evidences furnished by assessee and to provide an opportunity of cross-examination of Mukesh Choksi in accordance with law. In the result, ground no.2 is allowed for statistical purpose.
In the result, appeal of the assessee is partly allowed. Order pronounced in the open court on 7th day of February 2018. Sd/- Sd/-/- (R.C.SHARMA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 07/02/2018 S.K.PS Copy of the Order forwarded to :
ITA No. 7185/M/13 - Lalita V. Shah