ARVIND MITHAILAL AGRAWAL,NASHIK vs. DEPUTY COMMISSIONER OF INCOME TAX,

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ITA 154/PUN/2017Status: DisposedITAT Pune06 June 2018AY 2007-086 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that taxing the entire sale proceeds would amount to double taxation as the purchase consideration was already added in a previous assessment year. Therefore, the addition should be restricted to the long-term capital gains.

What were the facts?

The assessee originally filed his return of income, but the case was re-opened. The Assessing Officer (AO) determined the total income at a higher amount, treating the sale proceeds of shares as undisclosed income. The Commissioner (Appeals) upheld the AO's order.

What were the issues?

Whether the entire sale proceeds of shares should be treated as undisclosed income under Section 68, or if the addition should be restricted to the capital gains, considering the purchase consideration was already taxed.

Which sections of the Income-tax Act were involved?

Section 68,Section 144,Section 148,Section 142(1),Section 143(2),Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE

For Appellant: Shri Sanket Joshi
For Respondent: Shri Vivek Aggarwal
Hearing: 10.04.2018Pronounced: 06.06.2018

PER ANIL CHATURVEDI, AM :

1.

This appeal filed by the assessee is emanating out of the order of Commissioner of Income Tax (A) – 1, Nashik dt.11.11.2016 for the assessment year 2007-08. 2. The relevant facts as culled out from the material on record are as under :-

Assessee is an individual stated to be having income from business. Assessee originally filed his return of income for A.Y. 2007-08 on 04.02.2008 declaring total income of Rs.7,29,803/-.

2 The case was re-opened by issuing notice u/s 148 of the Act dt.

25.03.

2014, which was also served on the assessee on the same

date. Notice u/s 142(1) and 143(2) of the Act were served on assessee to which and there was no response by the assessee. AO

thereafter framed assessment u/s 144 of the Act vide order

dt.25.03.2015 and the total income was determined at Rs.19,65,926/-. Aggrieved by the order of AO assessee carried the matter before Ld.CIT(A), who vide order dt.11.11.2016 (in appeal

No.NSK/CIT(A)-1/190/2015-16) dismissed the appeal of the assessee. Aggrieved by the order of Ld.CIT(A) assessee is now in appeal before us and has raised the following grounds :

“1. The learned CIT(A) has erred in confirming the addition of Rs.12,36,123/- made by the learned A.O. u/s 68 of the Act.

2.

The learned CIT(A) erred in holding that the transactions of purchase and sale of shares of Taneja Aerospace Ltd. and Silverline Industries Ltd. shown by the assessee were bogus and hence, the entire amount of sale proceeds of Rs.12,36,123/- in respect of these shares was to be treated as undisclosed income of the assessee u/s 68. 2. 1. The learned CIT(A) failed to appreciate that the transactions of purchase and sale of the above shares were genuine and hence, the long term capital gains ofRs.9,38,797/- declared by the assessee on sale of the above shares should have been accepted for the following reasons - a. The purchase and sale of these shares was supported by contract notes & account statements issued by the broker, M/s. Alliance Intermediaries & Network Pvt. Ltd. wherein the broker had confirmed to have entered the above transactions on behalf of the assessee and hence, merely because the details like order no., order time, etc. mentioned by the broker in the said contract notes were found to be bogus, there was no reason to hold that the transactions of purchase and sale of the shares were bogus. b. The reliance placed on the statement of the broker, Shri Mukesh Choksi was not justified since the assessee was not granted the opportunity to cross examine the broker and hence, there was no reason to hold that the transaction of purchase of the said shares was bogus by relying on the said statement of the broker.

3 c. The sale of the above shares was made through Demat A/c of the assessee and the sale proceeds were also received through bank A/c and thus, when the A.O. had not doubted the genuineness of the sale of the above shares, there was no reason to doubt the genuineness of the purchase transactions.

Without prejudice to the above grounds, assuming without admitting that the transactions of purchase and sale of the above shares are bogus, it is submitted as under –

3.

The learned CIT(A) failed to appreciate that if at all, any addition was to be made, then only the undisclosed income allegedly introduced in the books of accounts by the assessee under the garb of long term capital gains of Rs.938,797/- could have been taxed and there was no reason to treat the entire proceeds on sale of shares of Rs.12,36,123/- as undisclosed income of the assessee u/s 68. 3. 1. The learned CIT(A) erred in not appreciating that the payments made towards purchase of the above shares in the earlier year were recorded in the books of the assessee and thus, the source of the sale proceeds to the extent of the purchase consideration paid by the assessee was duly explained and therefore, if at all, any addition was to be made u/s 68, then the same should have been restricted to the profit! income i.e. LTCG declared on sale of the above shares.”

3.

Before us, at the outset, Ld.A.R. submitted that though the assessee has raised various grounds but the sole controversy is with respect to addition of Rs.12,36,123/- made u/s 68 of the Act.

4.

During the course of assessment proceedings, AO noticed

that a search and seizure action was conducted on Mahasagar

Securities and Mukesh Choksi Group on 25.11.2009. In the statement Shri Mukesh Choksi has admitted that he and his group

were engaged in fraudulent billing activities and in giving

accommodation entries in order to enable the clients to declare

Speculation profit / loss, profit / loss on account of Commodity

Trading etc. Mr. Mukesh Choksi also identified names of beneficiaries and certified that they are accommodation entries.

One of the beneficiaries identified by Mr. Mukesh Choksi was the 4 assessee. AO noted that assessee had allegedly made purchases of shares from M/s. Alliance Intermediaries Networks Pvt. Ltd. for value of Rs.2,96,728/- during the A.Y. 2006-07 and sold the same

in A.Y. 2007-08 at Rs.12,36,123/- making long term capital gain.

AO has noted that Bombay Stock Exchange was conveyed that M/s. Alliance Intermediaries Networks Pvt. Ltd was neither

registered trading member nor broker affiliated to any trading

member. In the re-assessment proceedings assessee was asked to explain the transaction. In the absence of any justification or explanation, AO noted that the gross sale profits of Rs.12,36,123/-

as unexplained cash credit were covered u/s 68 of the Act as it was a sham transaction. Aggrieved by the order of AO, assessee

carried the matter before Ld.CIT(A), who upheld the order of AO.

5.

Aggrieved by the order of AO, assessee is now in appeal

before us.

6.

Before us, Ld.A.R. submitted that on 18.04.2005 assessee

had purchased shares of “Taneja Aerospace Limited” for Rs.2,06,546/- and shares of “Silverline Industries Limited” for Rs.90,177/-. The aforesaid shares were bought through M/s.

Alliance Intermediaries Networks Pvt. Ltd and were sold during the year under consideration. He submitted that the purchase of the aforesaid shares were paid in cash and were recorded in the books

of account. He further submitted that while framing the assessment in A.Y. 2007-08, the aforesaid purchases were disallowed and addition of Rs.2,96,728/- was made as unexplained

5 investment. He submitted that during the year the assessee had sold the shares and earned long term capital gain on Rs.9,39,400/- which was offered by the assessee. He submitted

that since the addition of Rs.2,96,728/- has already been made in the hands of the assessee, the addition of Rs.12,36,123/- made in the year would amounts to double taxation of Rs.2,96,728/- which has clearly been added in A.Y. 2007-08. He therefore submitted

that the addition be restricted only to the extent of capital gains.

Ld.D.R. on the other hand, supported the order of AO and Ld.CIT(A).

7.

We have heard the rival submissions and perused the material on record. The issue in the present case is with respect to addition made on sale of shares which was considered to be bogus

by the AO. It is an undisputed fact that purchase of shares for a value of Rs.2,96,728/- was made by the assessee in A.Y. 2006-07

and was disallowed by the AO while framing the assessment u/s 143(3) of the Act. In the year under consideration, the entire sale

proceeds are being considered as unexplained cash credit u/s 68 of the Act and addition has been made of Rs.12,36,123/-. We find

force in the argument of the assessee that since Rs.2,96,728/- has already been added in the hands of assessee in A.Y. 2007-08, we

are of the view that if the entire amount of Rs.12,36,123/- is added it would amount to taxing Rs.2,96,728/- in A.Y. 2006-07

and A.Y. 2007-08. We therefore direct that the addition be restricted only to the extent of Rs.9,39,400/- being the long term

capital gains / sale consideration received by the assessee during

6 the year. We therefore direct the addition be restricted to Rs.9,39,400/-. Thus, the ground of the assessee is partly allowed.

8.

In the result, the appeal of the assessee is partly allowed.

Order pronounced on 6th day of June, 2018. (SUSHMA CHOWLA) (ANIL CHATURVEDI) "या"यक सद"य / JUDICIAL MEMBER लेखा सद"य / ACCOUNTANT MEMBER

पुणे Pune; "दनांक Dated : 6th June, 2018. Yamini

आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to :

1.

अपीलाथ" / The Appellant

2.

""यथ" / The Respondent

3.

CIT(A)-1, Nashik.

4.

CIT, Nashik. 5 "वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, “एक सद"य” / DR, ITAT, “SMC” Pune; 6. गाड" फाईल / Guard file.

आदेशानुसार/ BY ORDER

//// व"र"ठ "नजी स"चव / Sr. Private Secretary आयकर अपील"य अ"धकरण ,पुणे / ITAT, Pune.

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