DILIP VADILAL SHAH,MUMBAI vs. ITO 21(1)(1), MUMBAI

This is an appeal filed by the assessee against the order of CIT(A)- 32, Mumbai dated 28/11/2013 for the A.Y.2005-06 in the matter of order passed u/s.144 r.w.s.147 of the IT Act wherein assessee is aggrieved for addition of Rs.40,43,175/- and Rs.2,02,159/- as unexplained credits u/s.69C of the IT Act.

At the outset, learned AR placed on record the order of the Co-ordinate Bench in the case of daughter of the assessee and contended that under similar facts and circumstances, additions so made was deleted by the Tribunal vide its order dated 30/09/2016.

Facts in brief are that information was received by the AO, assessee being one of the beneficiaries of Mahasagar Securities Ltd., (now Alag Securities Pvt. Ltd.,) group cases of share scam, from DDIT(Inv.), Mumbai vide letter dated 26/03/2010. Search and seizure action had revealed a scam wherein the said group of Mahasagar Securities Ltd. were found to be engaged in fraudulent billing activities and in the business of providing bogus speculation profit/loss, STCG/LTCG, commodity trading (through MCX) and having continuing this business for many years. In the said information supplied by the DDIT(Inv.) to the AO, the name of the assessee as one of the beneficiaries appeared, who had laundered their money by paying cash to the said group.

The AO observed that the assessee was one of the beneficiaries who had launched his money by way of bogus accommodation bills of transactions of shares of Asian Paints, Kotak Mahindra Bank, Alfa Level India Ltd., Ashok Layland Ltd., Prraneta Ind., Bharat Forge Go. Ltd., Bharat Heavy Ele. Ltd., Abb Ltd., Aventis Pharma Bajaj Auto Ltd., Inter Link, Micro Techn. Through M/s. Alliance Intermediateries & Network Pvt. Ltd., amounting to Rs.1,14,93,977/-. The information revealed that the companies floated by Shri Mukesh Chokshi were engaged in the business of issuing bogus bills for providing LTCG/Loss, Speculation profit or loss. Accordingly for the reasons recorded u/s. 147 of the Act, notice u/s. 148 dated 28.3.2011 was issued and duly served on the assessee.

The AO observed that during the year under consideration, the appellant had shown gain on share trading by way of speculation profit of Rs.2,03,777/-, the assessee had entered into transactions of purchase/sale of share only through M/s. Alliance Intermediateries & Network Pvt. Ltd., amounting to Rs.1,14,93,377/-. The AO observed that the assessee had connived with M/s. Alliance Intermediateries & Network Pvt. Ltd., only for the purpose of benefit of bogus gain. He also observed that there was no evidence of legal purchase / sale of shares and further, Shri Mukesh Chokshi on a statement on oath had given details how the fraudulent activity was carried out. In response to question No.3 of his statement, Shri Mukesh Chokshi had described the modus operandi where the party first decides the amount of LTCG required by them following which the scrip was decided. The parties acquired the shares in DMAT Account out of their own fund and Dilip V Shah which then were sold in the open market. The group companies simply provided the bills of sale of purchase.

In the remand, AO further observed that addition was made on account of speculation transaction of purchase and sales entry by the assessee and according to the total amount of purchase, the addition was correctly worked out to be Rs.1,14,93,377/-. In the remand AO also observed that there exist no payment between assessee and M/s. Alliance Intermediateries & Network Pvt. Ltd as the modus operendi is to show bogus day trading which is in turn used to show bogus purchase of shares.

It was contented by learned AR that the source of fund was shown by the assessee out of profit from speculation transaction which was entered on the very same day with regard to purchases as well as sales. The profit arising out of speculation transaction was already offered by the assessee for tax purposes which amounts to Rs.4,07,148/- for purchase of shares which was sold in the subsequent year and profit thereon was also declared in the next year and also assessed by the AO under Section 143(3) amounting to Rs.70,27,062/-. Our attention was also invited to the computation of total income filed alongwith return of income for the Assessment Year 2006-2007 wherein under the head income from other sources assessee has offered income of Rs.70,27,062/- Our attention was also invited to the assessment framed by the AO u/s. 153A read with Section143(3) of the I.T. Act dated 31/03/2015 for the assessment year 2006-2007 wherein AO has assessed income of Rs.70,27,062/- on the head income from other sources. Under these circumstances contention of the learned AR was that no addition was warranted in the year under consideration.

On the other hand, learned DR relied on the order of the lower authorities.

We have considered rival contentions and carefully gone through the orders of the authorities below. We have also considered the remand report and documents to which our attention was invited by learned AR. From the record we found that AO has made addition of Rs.1,14,93,977/- in respect of amount of shares purchased by the assessee. We found that as per the remand report, the shares so purchased were sold by the assessee on the very same date and profit has been booked in respect of these transactions without Dilip V Shah taking or giving delivery of shares. It is also finding of the AO in remand report that no payment has been made in respect of these purchases. When no payment has been made towards the purchases, there is no question for making any addition under Section 69C. So far as profit earned in respect of these speculative transactions are concerned, we found that assessee has duly offered the same during the year under consideration only. The profit so arose on speculative transaction was utilised for purchase of shares and alleged to be sold in next year on which assessee had offered income in the next year amounting to Rs.70,27,062/- under the head of income from other sources.

We also found that as per the assessment order framed for the assessment year 2006-2007 vide order dated 31/03/2015 passed under Section 153A read with Section 143(3), the AO has already brought to tax Rs.70,27,062/- under the head income from other sources. Under these circumstances, when during the year under consideration, assessee has not made any payment on account of purchase of share nor received any payment on account of sale of shares, there does not arise any justification for making any addition under Section 69C by presuming that assessee has made payment for the purchases without disclosing its source. As per the remand report, all these transactions of purchases were speculative in nature and on the very same date sales have been effected in respect of purchases so made. Nothing was brought on record by learned AO or CIT(A) to say that assessee has made any actual payment on account of purchase of shares or received any cheque against the sales of shares made by it. The assessee has already disclosed profit / loss on these speculative transactions. Accordingly, there is no justification for the additions so made by the AO on account of purchase amount of shares u/s.69C.

In the result, appeal of the assessee is allowed.

We have considered rival contentions and carefully gone through the orders of the authorities below. We have also gone through the order of the Tribunal dated 30/09/2016 in case of assessee’s daughter, Bela V Shah. We found that similar addition made in the hands of the daughter of the assessee was deleted by the Tribunal vide its order dated 30/09/2016, after observing that assessee has duly offered income arising out of the transaction in the immediately subsequent assessment year 2006-07 and the same has been accepted by the AO while passing order u/s.143A r.w.s. 143(3). The Tribunal have also observed that in the assessment so framed, AO has brought to tax Rs.70,27,062/- under the head ‘income Dilip V Shah from other sources’. The Tribunal has also observed that during the year under consideration, assessee has not made any actual payment on account of purchase of shares or received any cheque against the sale of shares made by it, therefore, no addition was warranted u/s.69C of the Act. Under these facts and circumstances, the addition so made was deleted by the Tribunal. However, in the instant case before us, facts are not clear as to whether assessee has offered the income in the subsequent year so as to persuade us to follow the decision of Co- ordinate Bench in the case of daughter of assessee in order dated 30/09/2016. We also found that assessment was framed u/s.144 since nobody appeared on behalf of the assessee nor any return submission was filed inspite of AO having issued notice u/s.142(1) dated 19/09/2011, 05/10/2011 and 03/11/2011. However, in reply to the remand report, assessee has alleged that the AO has failed to provide details for rebuttal / cross examination, that while giving the details of transactions in the name of the assessee, the AO has not provided any opportunity to the assessee to cross examine the parties who have alleged that the transactions have been done on behalf of the assessee. Thus the documents, on which the AO wants to rely, cannot be accepted without providing opportunity to the assessee to cross examine such persons. We also found that in reply to the remand report before the CIT(A), the assessee has contended that he has already given all the documents such as copy of bank account, return of income from the F.Y.2003-04, 2004-05 & 2005-06 in order to prove that he has not entered Dilip V Shah into any transactions with M/s. Alliance Intermediaries Pvt. Ltd., and no bogus purchases / profits have been claimed in the Return of Income.

In view of the above discussion and in the large interest of justice, we restore the matter back to the file of the AO for deciding afresh after considering the detailed reply filed by assessee with regard to the remand report and the decision of the Tribunal in the case of assessee’s daughter. We direct accordingly.

In the result, appeal of the assessee is allowed for statistical purposes.