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Income Tax Appellate Tribunal, “SMC - A” BENCH : BANGALORE
Before: SHRI SUNIL KUMAR YADAV
This appeal is preferred by the assessee against the order of CIT(Appeals) inter alia on the following grounds:-
“1. In the impugned order, the Assessing Officer (A.O') erred in law and on facts in determining the total income of the Appellant at Rs. 25,03,900 as against Rs. 1,97,900 as computed by the Appellant. 2. That in the impugned order, the A.O erred in arriving at a 'total demand of Rs. 15,77,200 including interest u/s 234A of Rs. 61,976 and u/s 234C of Rs. 7, 35,965. 3. The learned A.O has erred in making an addition of Rs. 23,05,996/- under the head income from other sources, the transaction being Long term capital gain as unexplained sources on account of purchase and sale of share. In this case the brief facts are that original return was processed u/s 143(1) of the Income Tax Act, 1961 on 16 February 2010, accepting the returned income of the assessee. Subsequently, this assessment was reopened u/s 147 on the grounds that capital gain on sale of share was arising out of unexplained purchase and sale of shares.
From the order of the A.O, it transpires that a search had been conducted by the income tax authorities at Mumbai on M/s. Mahasagar Securities and Mukesh Choksi Group. At that time, Mr. Mukesh Choksi had admitted to have made accommodation entries in his books to enable the clients to declare speculation profit/loss, shorter gains, etc., and had identified the petitioner herein and certain others as some of the beneficiaries of the fraudulent entries/transactions by giving a sworn statement in that regard and it is based on the said sworn statement of Mukesh Choksi, respondent has re-opened the proceedings. Accommodation entries means where the unaccounted income are routed and brought into the books of accounts either through loan or share investment i.e., where unaccounted income is in loop leading to laundering of money. Here in our case, there is no trail of cash nor was there a book entry as the share so purchased of Jai Corporation Limited was out of the profit earned from sale of share of Grasim Industries Limited and the purchase of Jai Corporation Limited was clearly evident in the contract note issued by M/s Alliance Intermediaries & Network Pvt. Ltd.
5. The learned A.O in Para 5.3 of the order states that Mr. Mukesh Choksi who was the key person of the Mahasagar Group of companies was searched on 25/11/2009 and has given a sworn statement that he has indulged in fradulent activities such as bill trading, accommodation entries etc. The appellant begs to submit before you that no such sworn statement was provided to the assessee and he is not aware of any such fraudulent works that Mr. Mukesh Chokshi was indulging in. In fact the assessee was not even aware of any person by name of Mukesh Chokshi. The appellant had purchased shares and sold the same from his DMAT account and was not aware of any such fraudulent activities happening.
6. The appellant begs to submit that she has purchased shares of M/s Jai Corporation Limited from Alliance Intermediaries & Network Limited for which a contract note was given to the appellant. The same is forming part of this appeal. We are unable to understand on how the CIT(A) while passing the order in Para 7 has stated that the share were purchased at a price below the listed price. We beg to submit that the shares of Jai Corp Limited were purchased at the listed price only and the contract note and BSE price on the date of purchase is enclosed.
Your attention is invited to the Para 7 of the order of the C!T(A) where the CIT(A) has stated certain facts which are irrelevant to our case and were not even raised by the assessing officer. The CIT(A) goes on to state that the shares were purchased off the market and at a price lower than the market value. We bring to your notice that none of these matters were mentioned in the assessment order passed by the ITO and the CIT(A) has concluded on the same without even calling for any of the above mentioned details. We are unable to understand on what basis the CIT(A) has concluded on this.
The learned assessing officer while making the addition in Para 7 has stated that the assessee has not furnished the explanation for purchase of the shares of Jai Corporation Limited, however, we beg to submit that the shares of Jai Corporation Limited were purchased out of the profits made out of intraday trading and the contract notes for the same were already made available to the learned A.O. Copies of the same are enclosed herewith.
We bring to your notice the judgment of the Karnataka High Court in the case of Jayshree Devi Kothari vs ITO, The Jurisdictional High Court of Karnataka, it is stated that" Unless petitioner is given opportunity to have his say in this matter with regard to the said statement and its content; It cannot be said that assessee was given opportunity of being heard in this matter. Hence, it has to be held that impugned order is passed without providing any fair & reasonable opportunity of being heard to the assessee".
The facts of the case are exactly similar to our case had the Karnataka High Court has held that an opportunity of cross examination must be provided to the assessee.
Tribunal at Kolkata in case of DCIT vs Sunita Khema in to 718/ kol/2011 has held that :- The AO cannot treat a transaction as bogus only on the basis of suspicion or surmise. He has to bring material on record to support his finding that there has been collusion/connivance between the broker and the assessee for the introduction of its unaccounted money. A transaction of purchase and sale of shares, supported by Contract Notes and demat statements and Account Payee Cheques cannot be treated as bogus.
In support of the above contentions, we present before you the following additional judgments: a. The Jurisdictional Bangalore Tribunal in the case of Dharmichand Chajjer & Others vs ITO Ward - 2, Raichur ITA No. 875 has held that ''Statement given by a party who is totally unrelated to the asses sees could not be taken as evidence for disbelieving the evidence furnished by the assessees" In the instant case, all the documents on record prove that conditions of Section 10(38) are fully satisfied, the A.O has merely relied on certain statements made by persons unknown to the appellant and concluded the order. The above judgment clearly requires a detailed examination and corroboration of the evidence by the A.O b. The Rajasthan High Court, in the case of Kan Singh Rathore D.D.ITA No. 192/2014 has also held that an unconfronted reliance on a statement made by the third parties cannot be considered as basis for making an addition to the income. The appellant must also be given a fair opportunity to examine the evidence relied upon by the A.O. c. The High Court of Gujarat in case of Commissioner of Income-tax-I Vs. Maheshchandra G. Vakil [2013]40 taxmann.com 326 (Gujarat) held that Where assessee proved genuineness of share transactions by contract notes for sale and purchase, bank statement of broker, demat account
showing transfer in and out of shares, as also abstract of transactions furnished by stock exchange, Assessing Officer was not justified in treating capital gain arising from sale of shares as unexplained cash credit. d. High Court of Gujarat in case of Commissioner of Income- tax-I Vs. Himani M Vakil [2013J10 taxmann.com 326 (Gujarat) held that where assessee duly proved genuineness of share transactions by bringing on record contract notes for sale and purchase, bank statement of broker and demat account showing transfer in and out of shares, Assessing Officer was not justified in bringing to tax capital gain arising from sale of shares as unexplained cash credit. e. Tribunal at Kolkata in case of DCIT vs Sunita Khema in to 718/ kol/2011 has held that :- The AO cannot treat a transaction as bogus only on the basis of suspicion or surmise. He has to bring material on record to support his finding that there has been collusion/connivance between the broker and the assessee for the introduction of its unaccounted money. A transaction of purchase and sale of shares, supported by Contract Notes and demat statements and Account Payee Cheques cannot be treated as bogus. f. Tribunal at Mumbai in case of Tekchand Rambhiya HUF in ITA nos 930/Mum/2012 has held that the Hon'ble High Court, in the case of CIT vs. Jamnadevi (328 ITR 656) has observed in paragraphs 11 & 12 as under: "11. We see no merit in the above contentions. The fact that the assessees in the group have purchased and sold shares of similar companies through the same broker cannot be a ground to hold that the transactions are sham and bogus/ especially when documentary evidence was produced to establish the genuineness of the claim. From the documents produced before us, which were also in the possession of the Assessing Officer, It is seen that the shares in question were in fact purchased by the assessees on the respective dates and the company has confirmed to have handed over the shares purchased by the assessees. Similarly, the sale of the shares to the respective buyers is also established by producing documentary evidence. It is true that some of the transactions were off-market transactions However, the purchase and sale price of the shares declared by the assessees were in conformity with the market rates prevailing on the respective dates as is seen from the documents furnished by the assessees. Therefore, the fact that some of the transactions were off- market transactions cannot be a ground to treat the transactions as sham transactions as a sham transaction.” Thus the fact that some of the transactions were off market transaction cannot be a ground to treat the transaction. In view of the above facts and discussion, as well as the decisions of the Hon'ble jurisdictional High Court, we are of the considered opinion that the assessee has discharged its onus of proving the fact that shares were purchased by the assessee in the year 2002 which were dematerialized in the Demat account of the assessee on 23/5/2003 and therefore these shares were held by the assessee up till the same were sold from the Demat account of the assessee. The transaction of holding shares are reflected in the Demat account and the sale of shares are also through Demat account and consequently the. transaction cannot be doubted as sham or bogus transaction. g. High Court of Rajasthan at Jodhpur in case of CIT Vs. Smt Sumitra Devi in ITA 54/2012 has held that:- "True it is that several suspicious circumstances were indicated by the AO but then the findings as ultimately recorded by him had been based more on presumptions rather than on cogent proof. As found concurrently by the CIT(A) and the ITA T, the AO had failed to show that the material documents placed on record by the assessee like broker's note, contract note, relevant extract of cash book, copies of share certificate, de-mat statement etc. were false, fabricated or fictitious. The appellate authorities have rightly observed that the facts as noticed by the AO, like the notice under Section 136 to the company having been returned unserved; delayed payment to the brokers; and de- materialisation of shares just before the sale would lead to suspicion and call for detailed examination and verification but then, for these facts alone, the transaction could not be rejected altogether, particularly in absence of any cogent evidence to the contrary.” h. Tribunal at Mumbai in case of ACIT Vs Shri Ravindrakumar Toshiwal in has held that :- AO has treated the said transactions as bogus transactions on the ground that (a) The sale transactions were not on the floor of the ASEL but were off market transactions; (b) The address of the M/s Buniyad Chemical Ltd. and M/s Talent Infoway Ltd. was the same and the contact person for M/s Buniyad Chemical Ltd. on the floor of ASEL was Shri Mukesh Chokshi. (c) Mr. Mukesh Chokshi had stated that the sale proceeds have been paid to the assessee through the funds provided by the assessee. As regards point (a) above, we find that the issue is covered by the decision of the Tribunal in the case of Mukesh R. Marolia wherein it has been held that off market transaction is not a unlawful activity and there is no relevance in seeking details of share transaction from stock exchange when the sale was not on stock exchange and relying upon it for making addition. As regards points (b) & (c) above, we find that the assessee has filed relevant documentary evidence before the AO but the AO has failed to consider the same. The CIT[A] in his order has considered the said evidence and has come to the conclusion that the share transactions are genuine. However, as held by the Tribunal in the case of Rajinidevi A. Chowdhary vs ITO in ITA 6455/M/07 dated 30.04.2008, which is on similar set of facts, the AO could have verified from the Registrar of companies as to whether the shares have been transferred and the names of the shareholders in whose names shares have been transferred. The decision of the Tribunal in the case of Rajinidevi A. Chowdhary has also been upheld by the jurisdictional High Court as taken note of by this Tribunal in the case of Shri Pinakin L. Shah in ITA nos 3030 & 3454/M/08 dated 14.07.2009, to which one of us i.e. the Judicial Member, is a party. In these facts and circumstances of the case, we do not see any reason to interfere with the order of the CIT[A] and the same is upheld.
Further, we refer to the case of Vitrag Metal (P) Ltd v/s ITO, (2016) 46 ITR 201 (the 'statement' of one of the directors of the investing company which is a general 'statement' and not a specific 'statement' and also that on the basis of the 'statement' it cannot be presumed that accommodation entry has been given .. ': therefore it can not be presumed that transaction occurred was mere accommodation entry. Mum- Trib where it states that " .. addition cannot be made merely on the basis of 13. It can be noticed that the entire basis for the impugned order is the sworn statement of Mr. Mukesh Choksi. Referring to case of Jayshree Devi Kothari v/s ITO, The Jurisdictional High Court of Karnataka, it is stated that "Unless petitioner is given opportunity to have his say in this matter with regard to the said statement and its content, it cannot be said that assessee was given opportunity of being heard in this matter. Hence, it has to be held that impugned order is passed without providing any fair & reasonable opportunity of being heard to the assessee". 14. The ITAT OF KOLKATA ,Surya Prakash Toshniwal HUF v/s ITO, which has similar facts as that of the assessee, It can be inferred that the present assessee is a Hindu Un divided family (HUF) and derived his income from trading in shares and securities. AO treated the income as Business Income from undisclosed sources which are being assessed under section 68 on the following grounds: a. Dividend received is negligible b. Frequency for sale-purchase and magnitude of transactions reflects activities of assessee as in the nature of business. The aggrieved assessee preferred an appeal before CIT where assessee being Karta of HUF had no knowledge of share market. Therefore, the assessee cannot do business in shares. The assessee had shown all its securities under the head "Investment" and it was never shown as Closing stock. As per the assessee the income was treated as Capital Gains. In the result Assessee's appeal stand allowed.
In Para 7, where AO has concluded that all the transactions entered into by Mr. Mukesh Choksi and his group of companies were sham transactions, and hence the assessee had obtained a mere accommodation entry. Also it is said that assessee had not furnished any explanation for source of purchase of shares of M/s Jai Corporation Ltd. Hence the profit of Rs. 23,05,996 arising out of unexplained purchase and sale of share of Jai Corporation Ltd., is brought to tax under the residuary head 'Income from Other Sources'. Whereas, the assessee had submitted following evidence to prove the genuineness of transaction at the time of assessment: a. Copy of bank statement. b. Copy of contract notes and demat statement. c. Copy of Statement of Affairs, computation along with return of Income. The assessee had faith that the transaction with M/s Alliance Intermediaries & Network Pvt. Ltd was bonafide and hence the share transaction which had occurred was genuine and true. Further the purchases of shares of Jai Corporation Ltd. were out of the profit on sale of shares of Grasim Industries Ltd. and the sale considerations received from sale of Jai Corporation Ltd. were through bank. Therefore, the long term capital gain on sale of share which is exempt U/.s 10(38) is genuine income and same was not escapement of income and should not be taxed under Income from Other Sources.
The only reason for making addition was that during the course of search Mr. Mukesh Choksi admitted that he is a name lender and arranging profit/loss/share application and etc, to various person. It is also an undisputed fact that transactions with this company are well supported with the documents and were done through bank. Merely because Mr. Mukesh Choksi is indulged in clandestine activities would not make the transactions with the assessee non genuine. 17. The A.O has in his order erred in computing the gross total income of the assessee. The A.O has directly summed the incomes of the appellant totalling to Rs. 25,03,900 as the taxable total income of the assessee without allowing exemption on sale of Long term capital gain on which STT was paid u/s 10(38).
The A.O erred in levying interest of Rs. 61,976 under section 234A of the Act.
The A.O erred in computing interest under section 234B of the Act at Rs.7,35,965. The Appellant submits that the above grounds are independent and without prejudice to one another. The Appellant craves leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of appeal, at any time before or during the hearing of the appeal.”
During the course of hearing, the ld. counsel for the assessee has invited my attention to the assessment order with the submission that search was conducted in a group of Shri Mukesh Choksi and on the basis of the statement of Mukesh Choksi, the AO has treated the share transactions entered upon by the assessee as bogus and made the addition of the same in the hands of the assessee.
The ld. counsel for the assessee further contended during the course of assessment proceedings assessee has asked for opportunity to cross-examine Shri Mukesh Choksi, whose statement is being relied upon for making the addition in the hands of assessee; but the assessee has not been afforded opportunity to cross-examine him. Rather, statement of Mukesh Choksi recorded during the course of his own assessment was also not confronted to the assessee. Therefore, the additions made in the hands of assessee are not sustainable in the eyes of law.
4. The ld. DR, on the other hand, has placed reliance upon the order of CIT(Appeals).
Having carefully examined the orders of lower authorities in the light of rival submissions, I find that during the course of search conducted upon the Mukesh Choksi group, statement of Mukesh Choksi was recorded and in his statement he has admitted that he was providing accommodation entries to those who were interested to earn capital gain. On a careful perusal of the assessment order, I find that there is no finding with regard to the supply of statement of Mukesh Choksi to the assessee. Moreover, nothing is available on record, wherefrom it could be inferred that assessee was ever allowed to cross-examine Mr. Mukesh Choksi. It is settled position of law that statement or the evidence which is being relied upon by the AO for making the addition in the hands of assessee, the same should be confronted to the assessee and the assessee should be allowed to cross-examine the witness in this regard.
From a careful perusal of the orders of lower authorities, it is quite evident that statement of Mr. Mukesh Choksi was relied on for making the addition, but assessee was never allowed to cross-examine him. In these circumstances, I am of the view that the AO was not justified in making addition in the hands of assessee, without allowing the assessee to cross- examine Mr. Mukesh Choksi, whose statement was relied upon for making the above additions. I accordingly set aside the order of CIT(Appeals) and restore the matter to the file of AO with a direction to first confront the statement of Mr. Mukesh Choksi to the assessee and allow him to cross- examine Mr. Mukesh Choksi to dig out the truth in this regard. Accordingly, the appeal of assessee is allowed for statistical purposes.
Pronounced in the open court on this 19th day of May, 2017.