VISHALV SHAH,MUMBAI vs. ITO 16(1)(1), MUMBAI

Per Jason P. Boaz, A.M.

This appeal by the assessee is directed against the order of the CIT(A)- 28, Mumbai dated 30.12.2013 for A.Y. 2004-05. 2. The facts of the case, briefly, are as under: - 2.1 The assessee filed the return of income for A.Y. 2004-05 on 31.03.2005 declaring income of `7,47,052/-. Proceedings were initiated under section 147 of the Income Tax Act, 1961 (in short 'the Act') for reopening the assessment for A.Y. 2004-05 and after recording reasons for formation of belief that income of the assessee had escaped assessment, the Assessing Officer (AO) issued notice under section 148 of the Act on 29.03.2011 to the assessee. In response thereto, the assessee submitted that the return of income for A.Y. 2004-05 filed on 31.03.2005 be treated as filed against the said notice under section 148 of the Act. The assessment was completed under section 143(3) r.w.s. 147 of the Act vide

2 ITA No. 1737/Mum/2014 Shri Vishal V. Shah order dated 30.12.2011 wherein the assessee’s income was determined at `18,64,860/- in view of the following additions/disallowances: - (i) Long Term Capital Gains (LTCG) on sale of `7,78,816/- 7500 shares of Buniyad Chemicals (ii) Disallowance of transfer fee `3,00,000/- (iii) Commission paid @ 5% ` 38,943/- 2.2 Aggrieved by the order of assessment for A.Y. 2004-05 dated 30.12.2011, the assessee preferred an appeal before the CIT(A)-28, Mumbai. The learned CIT(A) disposed off the assessee’s appeal vide order dated 30.12.2013 allowing the assessee partial relief on the issue cited at (iii) in para 2.1 by restricting the disallowance of commission to 0.15% of the transaction value, but upheld the AO’s finding on the issues listed at (i) and (ii) at para 2.1 (supra). 3. Aggrieved by the order of the CIT(A)-28, Mumbai dated 30.12.2013, the assessee has preferred this appeal raising the following grounds: - “1. CIT (A) has erred in law and facts confirming order of A.O. ignoring submission made by appellant. Appellant was prevented by sufficient cause for not a attending on appointed date 2. CIT[A] has erred in confirming addition on the basis of appellants father's case confirming in A.Y. 2003-04 by CIT[A] 27 without appreciating fact that appeals of ground are different and each year assessment is independent asst year. 3. CIT[A] had wrongly mentioned that the appellant has also raised similar contentions/grounds of appeal. Contention and grounds of appeal both are different in both appeal. 4. CIT[A] has not disposed off all grounds of appeal no observation on action u/s 147 reason recorded are not relevant to escapement of income which are challenge by appellant. 5. CIT[A] has not any observation on the capital gain added to income. 6. Reopening u/s 147 is bad in law, notice u/s 148 is bad in law no application of mind by A.O. No independent enquiry were made by A.O. 7. CIT[A] has confirm order passed by A.O. by violating principle of natural justice. 8. CIT[A] has ignore fact that appellant purchase physical shares which were duly transfer in his name than send for demate. The sold shares has been debited in demate account.

3 ITA No. 1737/Mum/2014 Shri Vishal V. Shah 9. A.O. has mentioned that bogus income if it is bogus income how it can be taxes as undisclosed income. 10. Notice under section 148 issued after 4 year so in reason recorded A.O. had come to conclusion that there is a failure on the part of the assessee to disclose material facts in the return. 11. A.O. has not proved nexus. A.O. has erred in disallowing transfer fee of Rs 300000/ 12. Appellant craves your leave add alter and modify these grounds of appeal.” 4. Grounds 1 to 3, 5, 7, 11 and 12 4.1 At the outset of the hearing, the learned A.R. of the assessee submitted that the grounds raised by assessee at S. Nos. 1 to 3, 5, 7, 11 and 12 (supra) stated to be general in nature are not being pressed in this appeal. Since these ground 1 to 3, 5, 7, 11 and 12 are not pressed, they are rendered infructuous and are accordingly dismissed as not pressed. 5. Grounds 8 and 9 5.1.1 In these grounds the assessee has challenged the orders of the authorities below in holding that the assessee had not given any details of purchase and sale of shares of Buniyad Chemicals Ltd. when the copy of brokers note for purchase and sale of shares, copy of assessee’s demat account statement with Stockholding Corporation of India, financial statements for the period relevant to A.Y. 2004-05 were furnished to establish the said transactions. 5.1.2 According to the learned A.R. of the assessee, the assessee had purchased 61000 shares of Buniyad Chemicals Ltd. on 18.04.2001. Out of these, 53500 shares were sold by assessee in the period relevant to A.Y. 2003-04, and 7500 shares pertain to the period under consideration. The learned A.R. of the assessee draw the attention of the Bench to pg. 8 and 9 of the paper book which is copy of the purchase bill for purchase of 61000 shares of Buniyad Chemicals Ltd., though the broker M/s. Goldstar Finvest Pvt. Ltd.; copies of sale bills of shares of Buniyad Chemicals Ltd. through broker Goldstar Finvest P. Ltd. are placed at pg 21 to 28 of paper book which show that the sale in this year took place in the period between 11.06.2003 and 25.06.2003. It is submitted that it is based on

4 ITA No. 1737/Mum/2014 Shri Vishal V. Shah these transactions of sale of 7500 shares of Buniyad Chemicals Ltd. that LTCG of `7,78,861/- arose to the assessee, which was then invested in its purchase of a residential flat at Jaldarshan Society, Malabar Hills, Mumbai and exemption under section 54F was claimed thereon. 5.1.3 As per the learned A.R. of the assessee, the AO’s reasons recorded for reopening the assessment and finding was based on the statement of one Shri Mukesh Choksi dated 11.12.2009 by the DDIT (Inv)(1)(4), Mumbai and submitted that a copy of the said statement has not been provided to the assessee in the course of assessment proceedings, even though copies of the same were requested for on many occasions. It is contended that before placing reliance on the statement of Shri Mukesh Choksi, neither was the assessee provided with a copy of the said statement nor was the assessee provided any opportunity of cross examination of Shri Mukesh Choksi. The learned A.R. contends that in view of the above, the AO’s action in treating the assessee’s LTCG of `7,78,861/- arising from sale of 7500 shares of Buniyad Chemicals Ltd. as unexplained investment in the purchase of property/flat at Jaldarshan Society, Mumbai based on the aforesaid statement of Shri Mukesh Choksi in the factual circumstances laid out above is not sustainable either in law or on facts. Consequently, the addition of commission paid @ 0.15% is also to be deleted. 5.1.4 In support of its contentions, the learned A.R. of the assessee placed reliance on the decision of the Coordinate Bench in the assessee’s own case for A.Y. 2003-04 in ITA No. 4209/Mum/2014 dated 10.08.2016 wherein the assessee had declared LTCG of `43,52,980/- on sale of 53500 shares of Buniyad Chemicals Ltd. It is submitted that the AO based on the same statement of Shri Mukesh Choksi was of the view that the assessee had invested his own money from undisclosed sources into shares and added the same to the assessee’s income. On appeal by the assessee, the learned CIT(A) vide order dated 27.03.2014 deleted the aforesaid addition of `43,52,980/- and treated the profit on sale of these shares of Buniyad Chemicals Ltd. to be LTCG. On further appeal by Revenue, the ITAT, Mumbai dismissed Revenue’s appeal and decided the issue in favour of the

5 ITA No. 1737/Mum/2014 Shri Vishal V. Shah assessee in its order (supra), following, inter alia, the decision of the Coordinate Bench of ITAT Mumbai in the case of Shri Kamlesh Mundra vs. Income Tax Officer in ITA No. 6428/Mum/2012. It was prayed that since the transaction of sale and purchase of shares in the year under consideration is connected and similar to that of A.Y. 2003-04, wherein the issue has been decided in favour of the assessee by the orders of the ITAT Mumbai referred to above (supra), the assessee’s appeal on this issue be allowed. 5.2 Per contra, the learned D.R. for Revenue placed reliance on the orders of the authorities below. 5.3.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncements cited. On an appreciation of the facts on record we find that in the case on hand, the assessee has placed on record before the authorities below copies of purchase bills for purchase of shares of Buniyad Chemicals Ltd. on 18.04.2001 through share broker Goldstar Finvest P. Ltd. (pg. 8 and 9 of paper book) as well as sale bills of 7500 shares of Buniyad Chemicals Ltd. through broker Goldstar Finvest P. Ltd. (pg. 21 to 28 of paper book) which took place in the period between 11.06.2003 and 25.06.2003. It is also seen that the AO relied upon the statement of Shri Mukesh Choksi dated 11.12.2009 to hold that the purchase bills showed fictitious profits generated by investment of the assessee’s undisclosed income therein to enable the assessee to avail the benefit of LTCG for investment in property. However, we find that the assessee was not afforded opportunity of cross examining Shri Mukesh Choksi on the veracity of the said statement in the facts and circumstances of the case on hand. Nor was any independent enquiry caused in this regard by the AO. From the orders of the authorities below, it appear to us that the basic and sole reason for the AO’s initiation of reassessment proceedings and finding rendered in the order of assessment; treating LTCG on sale of 7500 shares of Buniyad Chemicals Ltd. as undisclosed income; was the statement of Shri Mukesh Choksi only. We find that no independent inquiry seems to have been

6 ITA No. 1737/Mum/2014 Shri Vishal V. Shah carried out to verify the veracity of the statement of Mukesh Choksi admitting to issuing bogus bills; especially when the assessee has denied the same in assessment and appellate proceedings and has submitted relevant bills and other details to establish the genuineness of his claim. In the light of the facts narrated above, the AO appears to have approached this issue with preconceived notions and a closed mind. When the AO has based his decision on the statement of Shri Mukesh Choksi, it was incumbent on him to have provided a copy of the same to the assessee and also to have provided him with opportunity for cross examination, before coming to a conclusion in the matter. The AO’s failure to do so in the case on hand goes against the principles of natural justice and an addition/ finding rendered in this manner, as has been done in the case on hand, is not sustainable. 5.3.2 We find that similar/identical situation has been considered, inter alia, by the Coordinate Bench of the Tribunal in the case of Shri Kamlesh Mundra in ITA No. 6428/Mum/2012 at paras 6 & 7 thereof have held as under: - “6. We have heard the counsels for both the parties and we have also perused the material placed on record as well as the orders passed by the lower authorities and after considering the same, we have observed that the co-ordinate Bench of ITAT ‘Mumbai’ has already dealt with the similar issue in ITA No. 1175/Mum/2012 and ITA No. 1176/Mum/2012 where in also the assessee’s in those cases have dealt with the share transaction with the same companies. We referred the operative para of ITA No. 1175/Mum/2012 titled “Smt. Durgadevi Mudra vs. ITO” and the same is reproduced here in below: “I have heard the parties and perused the record. The Ld. Counsel submits that in respect of the 'Shares Scam' alleged to be involved by Shri Mukesh Chokshi actions were taken against many persons disallowing their claim in respect of long-term capital gain and short term capital gain. He submits that on identical set of facts the issue has been considered by the Tribunal. The Ld. Counsel filed the copies of the Tribunal decision by way of compilation as under: i) Mukesh R. Marolia vs. Addl. CIT -6 SOT 247 ii) Rajnudevi Chowdhary vs. ITO -ITA 6455/M/2007(Bom) iii) ITO vs. Truptic Shah -ITA 6455/M/2007(Bom) iv) Chandrakant Babulal Shah -ITA 6108/M/2009(Bom) v) ACIT vs. Shri Ravindrakumar Thshinwal -ITA5302/M/2008(Bom)

7 ITA No. 1737/Mum/2014 Shri Vishal V. Shah 5. He, therefore, pleaded for accepting the claim of the assessee in respect of long-term capital gain. I have also heard the Ld. D.R. 6. I find that in the present case, the assessee has produced the bills showing the purchase of the shares. The assessee also proved that the shares were sold through the share broker and he produced the proof for the same. The identical situation has been considered by the ITAT ‘C’ Bench, Mumbai in the case of Chandrakant Babulal Shah (supra). The operative part of the order of the Tribunal is as under: 7. We have considered the submissions of the rival parties and examined the record. The case relied upon by the learned Counsel are not directly applicable to the facts of the case as in those cases the sale proceeds are treated as undisclosed income denying the entire transaction as such, whereas, in the present case, the Assessing Officer did not treat the sale of shares as bogus. He has only examined the purchase of shares and doubted the date of purchase. But in the computation he has given benefit to the same cost of purchase of shares and taxed the long term capital gain offered as short term capital gain only. As far as the date of purchase is concerned, the evidence on record indicate that the assessee had indeed earned speculation profit by sale of APTECH shares which the Assessing Officer has not doubted. Further the assessee also suffered speculation loss as stated above in February, 2001 and debit and credit entries pertaining to same broker were shown in the balance sheet in the return filed for the AY 2001- 2002 in August, 2001. There is also a mention of purchasing of shares of the company in the return. It is also on record that the said company vide letter dated 30- 6-2000 had transferred the shares in the name of the assessee with the folio No. 15021 and certificate Nos. 105744 to 105848. The Assessing Officer neither questioned the said company nor disproved the transfer of share certificates by 30/6/2000. The only basis for arriving at the conclusion that the transaction is not genuine is on the basis of the statement given by Mr. Mukesh Chokshi on 20-6- 2004/20-6-2002 before the DDIT (Inv.) with reference to certain transactions undertaken by Mr. Mukesh Chokshi and his group of companies, mainly Gold Finvest Pvt. Ltd. Richmond Securities and Alembic Securities, which are dealing in interconnected stock exchange/ NSC. Most of the enquiries pertains to the transactions in interconnected stock exchange and sale of shares In the company viz., Rashel Agro Tech Ltd. The enquiry in the said group of companies was with reference. to the issuance of bogus , purchase and sale bills and accommodating various parties in earning the capital gains. However, as submitted by the learned Counsel, the assessee's name is not figuring in the transactions which were originally enquired by the DDIT (Inv.) on 26-4-2002. Even though the modus operandi was explained and stated that they were getting 0.5% commission in arranging the transactions, nothing was concluded against the assessee in the said statement. The Assessing Officer in the course of assessment again recorded the statement

8 ITA No. 1737/Mum/2014 Shri Vishal V. Shah under section 131 on 9-11-2006 in which question No. 4 and 5 which are extracted in the assessment order itself. The main reliance is on question No. 5 which is as under: "Q.5 : Please give the details of bills of profit issued by your company as stated above. Ans: These bills numbers Bills No. CC/2000/16/12501 dt.18-4-2000 which shows that B.87610.85 payable to Shri Chandrakant D. shah. There is another Bill No. CC/2001/07/164 (N) dt.20/2/2001 in which Rs.89602 was receivable by Shri Chandrakant B. Shah. These bills are issued showing fictitious profit and therefore the purchase are not substantiated by genuine payments." "8. This statement was relied upon by the Assessing Officer to state that the purchase bills are issued showing fictitious profit. However, the assessee was not given an opportunity to cross examine Mr. Mukesh Chokshi and when an opportunity was given and assessee was present Mr. Mukesh Chokshi was not available. The only basis for this above statement is that the payments are not made immediately but even statement itself indicate that they were capital gains earned by the assessee as speculation profits and in question No. 4 in the statement Mr. Mukesh Chokshi admits the purchase of 10500 shares of Rashel Agro Tech, Ltd. made out of adjusted share profits and therefore confirmed that this is an 'adjustment transaction). In view of this statement in question Nos. 4 and 5) we are unable to understand how the transactions becomes a bogus one. There is no evidence except this oral statement which is also not submitted for cross- examination to prove/ disprove the transaction. Whereas the assessee furnished transaction details) the bank accounts) purchase and sale of other listed companies) speculation profit and loss and also evidence in the form of balance sheet filed much before the said shares were sold. The sale of shares was undertaken in December 2001 whereas the return for AY 2001-2002 was filed by August 2001 itself indicating the purchase of shares and outstanding amounts to M/ s. Golden Finvest Ltd in the statements. In view of the documentary evidence in favour of the assessee, we are unable to accept the contention of the Assessing Officer based on the statement which is also un supported by any other evidence to deny the benefit of purchase of shares by the assessee on 8-4-2000. Not only that the Assessing Officer has also gave credit for the same amount of purchase of shares at cost and did not treat the sale proceeds as bogus/unaccounted income. The only action taken by the Assessing Officer is to deny the assessee the benefit of long term capital gain and subsequent deduction under section 54EC of the Act as the assessee invested the capital gains in REC Bonds. We do not see any reason to agree with the findings of the' Assessing Officer and also the findings of the CIT (A). In fact, the CIT (A) has went ahead in treating the entire transaction as bogus and confirmed the action of the Assessing Officer while holding "this will be more for an unexplained receipt of money of the appellant. Hence, Assessing Officer had rightly added the amount by and the action of

9 ITA No. 1737/Mum/2014 Shri Vishal V. Shah the Assessing Officer in making this addition is confirmed treating it as STCG)). In arriving at this conclusion, the CIT (A) presumed that assessee could have paid full payment of 16 lakhs by way of cash which was not the case of the Assessing Officer either. There is no evidence even to presume these observations of the CIT (A) as stated above. 7. The facts are identical in this case as in the case of Chandrakant Babulal shah (supra). I hold that the assessee has proved the genuineness of the share transactions and there is no justification to disallow the claim of the assessee in respect of the long-term capital gain. I, accordingly, direct the A.O. to allow the same. Accordingly, ground no.2 is allowed. Assessee's appeal is partly allowed.” In addition we have also analyse the orders passed in ITA No. 1176/Mum/2012 titled “Shri Mahesh Mundra vs. ITO” the operative para is reproduced here in below: “I have heard the parties. In this case also the assessee has declared the long-term capital gain in respect of the sale of the shares of M/ s. Buniyad Chemicals Ltd. It was claimed that the shares were sold through M/ s. Goldstar Finvest Pvt. Ltd. There was investigation against Shri Mukesh Chokshi who was the mentor and the main person in the entire shares' 'Scam'. The facts are identical as in the case of Smt. Durgadevi Mundra in ITA No.1175/M/2012. Hence, to avoid the repetition of the facts and for the sake of brevity, I adopt the facts mentioned in the case of Smt. Durgadevi Mundra as well as the reasons. In this case also the A.O. assessed capital gain declared by the assessee as 'income from other sources'. I, therefore, following my reasons and decision in the case of Smt. Durgadevi Mundra (supra) allow ground no.2 in this appeal also and direct the A.O. to assess the long-term capital gain declared by the assessee as such and accept the same.” 7. After analyzing the afore mentioned orders, we found that the issue contained in the present case are similar to the issues of afore mentioned cases. Therefore, keeping in view the principles of judicial consistency and while respectfully following the judgements passed by the coordinate bench, We also hold that in the present case by virtue of independent documents as referred in paper book the assessee has proved the genuineness of the share transaction and there was no justification to disallow the claim of the assessee in respect of long term capital gain merely on the basis of information received from DDIT which is based on admission of Shri Mukesh Chokshi. Therefore accordingly, we direct the AO to assess the long term capital gain declared by assessee as such and accept the same.” 5.3.3 As submitted by the learned A.R. of the assessee the very same issue of the capital gain on purchase/sale of shares of Buniyad Chemicals Ltd. being treated as investment made in these shares out of undisclosed

10 ITA No. 1737/Mum/2014 Shri Vishal V. Shah income of the assessee to avail the benefit of LTCG and exemption under section 54F of the Act was up for consideration before the Coordinate Bench of the Tribunal in the assessee’s own case for A.Y. 2003-04. In its order in ITA No. 4209/Mum/2014, the Coordinate Bench, following the decision of the Coordinate Bench in the case of Shri Kamlesh Mundra (supra) it held the action of the AO in treating the LTCG declared by the assessee to be income from undisclosed sources and not granting the assessee exemption under section 54F of the Act to be erroneous and directed the AO that profit on sale of the impugned shares is to be brought to tax as LTCG as declared by the assessee and exemption under section 54F of the Act is to be allowed. 5.3.4 Respectfully following the aforesaid decisions of the Coordinate Bench in the case of Shri Kamlesh Mundra (supra) and in the assessee’s own case for A.Y. 2003-04 in ITA No. 4209/Mum/2014 dated 16.08.2016, we hold that by virtue of the details/documents, etc. filed by the assessee before the authorities below (as laid out in submissions in the paper book referred to earlier in this order), the assessee has proved the genuineness of the share transactions on sale/purchase of 7500 shares of Buniyad Chemicals Ltd. We, therefore, are of the view that there was no justification on the part of the AO to disallow the assessee’s claim of LTCG of `7,79,681/- arising on sale of the aforesaid shares merely on the basis of the uncorroborated statement of Mukesh Choksi dated 11.12.2009 in respect of which no enquiry was carried out by the AO to establish the veracity thereof and without giving the assessee an opportunity to cross examine Shri Mukesh Choksi thereon. In this view of the matter and keeping in mind the principles of judicial consistency, we reverse the findings of the learned CIT(A) and AO and direct the AO to assess the LTCG declared by the assessee on sale of 7500 shares of Buniyad Chemicals Ltd. as declared at `7,78,861/- and allow the assessee exemption under section 54F of the Act. 6. In view of our findings on merits of the issues raised by the assessee in respect of grounds 8 and 9 (supra) and rendered by us at paras 5.3.1 to

11 ITA No. 1737/Mum/2014 Shri Vishal V. Shah 5.3.4 of this order (supra), the assessee’s grievances have been addressed on merits and we do not deem it necessary to adjudicate on the technical ground raised at S. Nos. 4, 6 and 10 (supra) as they become academic in nature at this juncture. 7. In the result, the assessee’s appeal for A.Y. 2004-05 is partly allowed. Order pronounced in the open court on 9th November, 2016. Sd/- Sd/- (C.N. Prasad) (Jason P. Boaz) Judicial Member Accountant Member

Mumbai, Dated: 9th November, 2016

Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) -28, Mumbai 4. The CIT - 16, Mumbai 5. The DR, “F” Bench, ITAT, Mumbai By Order

//True Copy// Assistant Registrar ITAT, Mumbai Benches, Mumbai n.p.