SMT. SHUBHA V. TIWARI,MUMBAI vs. ITO - 20(3)(2), MUMBAI

The present Appeal filed by the assessee is against the order of Commissioner of Income Tax (Appeals)-31, Mumbai dated 22.02.13 for AY 2003-04 on the grounds mentioned herein below:-

The Learned CIT (Appeals) has erred in confirming the interest uls.234A at Rs. 1,120/-. Reasons assigned by him for doing the same are wrong and insufficient. Provision of the Act ought to have been properly construed before disallowing the same. Regards being had to the facts and circumstances of the case, the said interest ought not to have been charged.

The Learned CIT (Appeals) has erred in confirming the interest u/s.234B at Rs. 1,03,043/-. Reasons

At the very outset, it is noticed that none has appeared on behalf of assessee in spite of several calls and even no application for adjournment was moved. On the other hand Ld. DR is present in the court and is ready with arguments. Therefore we have decided to proceed with the hearing of the case ex-parte with the assistance of the Ld. DR and the material placed on record.

We have heard Ld. DR and we have also perused the material placed on record as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the assessee in its detailed order. The operative portion of the order of Ld. CIT(A) is contained in para no. 4.2, 4.3 & 4.4 of its order and the same is reproduced below:-

We have heard Ld. DR and we have also perused the material placed on record as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the assessee in its detailed order. The operative portion of the order of Ld. CIT(A) is contained in para no. 4.2, 4.3 & 4.4 of its order and the same is reproduced below:- 5.3 I have carefully considered the facts related to this issue as they emerge from the assessment order and the submissions made during these proceedings. The appellant has shown purchase of 4200 shares of M/s Buniyad Chemicals for Rs.2530.75 on 01.05.2001. These shares are stated to have been sold for Rs. 3,56,082/- on 13.02.2003. The appellant has claimed long-term capital gain of Rs. 3,53,427/- on Shubha V. Tiwari this transaction. Both transactions have been carried out through M/s Gold Star Finvest P. Ltd. The purchases were made off- market, through cash payment. The price of these shares as on the stated date of purchase was nominal to say the least. The assessment record shows a copy of letter dated 20th November 2001 from the company to the appellant which reads as follows: "Ref: SH/TRF/2001/70008207 20th November, 2001 To SHUBHA TIWARI, 501, Holy Cross Apartment, Off Parsi Panchayat Road, Andheri(E), Mumbai-69 Dear Sir(s) / Madam, Sub : Dematerialization of Shares We are happy to inform you that the shares of our company have been permitted to transform into demat form physical. Under the circumstances, we request you to send your share certificates, in case, you desire to convert into a demat form. We will be doing demat & will give the credit to your demat a/c after receiving intimation from you of the following: DP ID Shubha V. Tiwari DP NAME CLIENT ID Kindly acknowledge the receipt. Thanking you, Yours faithfully For Buniyad Chemicals Ltd. Authorized Signatory 5.4 It is to be noted that generally companies are not given to issuing letters by name to individual shareholders asking them to send across shares for the purpose of converting to demat. Subsequently, vide letter dated 09.01.2003, the company once again has informed the appellant that the shares in question have been converted to demat. By happy coincidence for the appellant, this happens just 4 days before the appellant sells these shares. As stated above, both the purchase and sale transactions have been made through M/s Gold Star Finvest P. Ltd, which was amongst the concerns floated by Mr. Mukesh Choksi and was found to have been engaged in providing accommodation entries to interested parties. The modus operandi followed for these transactions was identified following the extensive enquiries made by the Investigation Wing of the Department and was Shubha V. Tiwari confirmed by Mr. Mukesh Choksi in the statement recorded from him u/s 131 of the I.T. Act. The report of the DDIT(Inv) dated 26/3/2010, sent to all officers in Mumbai after the search operation in case of Mukesh Choksi, forms the very basis of the reopening of these cases. This report clearly brings out the fact that Shri Mukesh Choksi ran an intricate network of several companies floated by him to provide accommodation bills. Shri Mukesh Choksi in his statement during the search had also clearly stated that all transactions carried by his companies were in nature of accommodation bills. The statement of Mukesh Choksi gained strength from the details of modus operandi uncovered as a result of the enquiries carried out by the Investigation Wing. It has been clearly brought out in the DDIT's report that M/s Gold Star Finvest Pvt. Ltd. was also one of the entities controlled by Mukesh Choksi. An assertion has been made by the appellant, that the shares purchased were duly reflected in the balance sheet filed by the appellant and that the shares were duly dematerialized and transferred in name of appellant by the company before being sold. It has also been submitted that the receipt of sale proceeds is through banking channels. In my view, while these factors may carry weight in ordinary circumstances, but in Shubha V. Tiwari the backdrop of the elaborate web of deception created and sustained successfully by operators such as Mr. Mukesh Choksi, they lose any material significance. In fact in his statement Shri Mukesh Choksi himself admitted that he used to provide accommodation bills for listed companies on prices as per prices for which they were traded on stock exchange. The mere fact proceeds have come through banking channels does not by itself proves the genuineness of transactions in the background o the serious admissions made by Mukesh thoksi duty corroborated by independent enquiries made by the Investigation Wing. In the following decisions, it has been held that mere fact that transactions are through banking channels is of no consequence by itself: - • P Mohankala 291 1TR 278(SC) • Diza Holdings 255 ITR 573(Ker) • Precision finance 208 ITR 265(Cal) 5.5 The recent decision of ITAT Mumbai in 1TA No. 7024/M/2010 dated 30.01.2013 in the case of Arvind M. Kariya, the Hon'ble Tribunal had occasion to deliberate on a similar transaction wherein accommodation entries had been obtained and the assessee had claimed LTCG on the sale proceeds received. In the said case, the appellant had pleaded before the Tribunal that purchase transactions were Shubha V. Tiwari supported by contract notes and the sale transactions were through demat account. It had been argued that the fact that the delivery was taken in physical forms and that transactions were off market transactions could not be the basis for concluding against the assessee when necessary documents and evidences supported each stage of the transaction. It was also submitted that the appellant had not been confronted with the statement of the concerned chartered accountant, on the basis of which adverse conclusions were drawn. The ITAT, after considering all relevant factors and the modus operandi followed by the perpetrators of such schemes as well as the beneficiaries observed as under: 14 It is a settled law that in all cases in which a receipt is sought to be taxed as income, the burden lies on the department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within the exemption provided by the Act lies upon the assessee. But, in view of section 68 of the I T Act, 1961, where any sum is found credited in the books of an assessee for any previous year, it may be charged to income of the assessee of that previous year, if the explanation offered by the assessee about the nature and source thereof is, in the Shubha V. Tiwari opinion of the AO, not satisfactoty. In such a case, there is prima facie evidence against the assessee, vis- à-vis the receipt of money and if he falls to rebut the said evidence, it can be used against him by holding that it was a rece,ot of income nature. While considering the explanation of the assessee, the department cannot, however, act unreasonably.

The assessee has placed strong rellance on the sale transaction, which has been executed through BSE. There is no dispute that the sale consideration was ,vcM'ed by the asssee fim'n the sa@ of s cIM& is mat they were actually purchased on tile puipcwted date as da'm& by the This raises the question whether the apparent can be awls& as the ra3f. As down by the Hon'b/e Supreme Court in the case of CiT Vs Duga Aad Afore 82 JTR 540, the apparent must be considered as real only it is shown that there are reasons to believe that the apparent is not the real and that too taxing authcvftAs are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probability. For this preposition, we draw support from the decision of the Hon Z/e Supreme Court in Shubha V. Tiwari the case of Sumati Dayal Vs CIT 214 JTR 0801, wherein in the Hon ble Supreme Court has thus held:- "dismissing the appeal, that the Settlement Commission after considering the surrounding circumstances and applying the test of human probabilities had rightly concluded that the appellant's claim about the amount being her winnings from races was not genuine." Therefore, the present case has to be considered in the light of human probability. The transaction about purchases of shares in physical form of such companies, whose share prices have been rigged by some fraudulent operators' cannot have any direct evidences. An inference about such a purchase connived with such companies have to be drawn on the basis if the circumstances available on the record. As pointed out, the shares have been transferred within 4 days of the date of purchases, raises ample doubt the credibility of the company. As pointed out in all probabilities, the company must have been involved in such fraudulent transactions. Post year 2000, it is improbable that any person would transact in shares by taking physical delivery of the shares. When many instances have been surfaced relating to bad delivery or bogus scri;os, the regulatory Shubha V. Tiwari authorities have made it compulsory to transact through demat account.

Having regard to the circumstances and the conduct of the assessee as disclosed in his statement u/s 132(4) of the Act as well as other material on record, inference could be reasonably drawn that the shares purchased by the assessee have been backdated to give it a colour of long term capital gain by showing the period of holding for more than 12 months.

Needless to say that income tax proceedings are civil proceedings and the degree of proof required is by preponderance of probabilities, therefore applying the test of preponderance of probabilities, and considering the entire sequence of events, the revenue authorities have rightly concluded that the assessee 's claim about the long term capital gains from the sale of shares is not genuine.

Therefore, it cannot be said that the explanation offered by the assessee in respect of the sale consideration has been rejected unreasonably and that the findings that the said amounts are income of the assessee from other sources is not based on evidence. Accordingly, findings of the Ld CJT(A) are confirmed. Ground No. 1 is dismissed."

The appellant has contested that the Assessing Officer has erred in charging interest under sections 234A, 234B and 234C of the Act. The charging of interest are mandatory and consequential in nature. However, in view of my decision on the other grounds raised by the appellant as discussed in the preceding paragraphs of this order, the AO is directed to rework out interest chargeable under sections 234A, 234B and 234C while giving effect to this order. Subject to these Shubha V. Tiwari remarks, the grounds raised becoming infructuous is treated as dismissed for statistical purposes.