DEEPAK V, DOSHI,MUMBAI vs. ITO WD 20(2)(1), MUMBAI

BEFORE SHRI SAKTIJIT DEY, JM AND SHRI RAJESH KUMAR, AM आमकय अऩीर सं./ (ननधधारण वषा / Assessment Years : 2006-07) Shri Deepak V Doshi, बनधम/ Income Tax Officer 20(2)(1), 602/603, Amartaru Apartments, Mumbai. Vs. 5, New Nagardas Cross Road, Andheri (E), Mumbai-69, स्थधयी ऱेखध सं./ PAN : AAEPD5070D (अऩीराथी /Appellant) .. (प्रत्मथी / Respondent) अऩीराथी की ओय से/Appellant by : Shri Ashwin S Chhag प्रत्मथी की ओय से/ Respondent by : Shri B S Bist सुनवाई की तायीख / Date of Hearing : 2.5.2016 घोषणा की तायीख /Date of Pronouncement :27.10.2016 आदेश / O R D E R PER RAJESH KUMAR, AM :

This is an appeal filed by the assessee against the order dated 31.3.2015 passed by the ld.CIT(A)-36, Mumbai and it relates to the assessment year 2006-07.

3. The brief facts of the case are that the assessee filed its original return of income on 22.9.2006 declaring the total income of Rs.12,86,780/- which was processed under section 143(1) of the Act. The case of the assessee was reopened under section 147 of the Act and the notice u/s 148 of the Act dated 13.1.2012 was issued. On receipt of information from DDIT Investing Wing 1(4) Mumbai, the AO found that the assessee was one of the beneficiaries who had availed bogus bills/accommodation entries through M/s Alliance Intermediateries and Network Pvt Ltd. which was a group concern run by Shri Mukesh Chokshi. The AO on the basis of said information by DDIT Int.U 1(4), Mumbai reopened the case of the assessee after taking the approval from the Addl.CIT. During the year the assessee has shown STCG on sale of Rs.10000 equity shares of M/s Aptech Ltd which was sold through R R Nabar and Co. Shares Brokers Pvt Ltd on 2.3.2006 for a total consideration of Rs.11,97,600/-. The said shares were claimed to be purchased on 19.5.2005 through M/s Alliance Intermediateries and Network Pvt Ltd for a consideration of Rs.3,31,573/- and accordingly, the assessee disclosed STCG of Rs.8,66,100/-. The assessee was found to be beneficiary of the said bogus transactions during the course of search operation on Mr.Mukesh Chokshi and his group companies when the search team extracted the list of beneficiaries from the computer of Mr. Mukesh Chokshi and the assessee was one of the 3000 beneficiaries. The AO during the course of assessment proceedings required the assessee to file the necessary proof and evidence as regards to purchase and sale of shares. It was submitted before the AO that the assessee has purchased 10000 shares on 19.5.2005 for a total consideration of Rs.3,31,573/- which paid by account payee cheque bearing no.564901 dated 20.2.2006 drawn on Bank of Baroda approximately 9 months after the date of purchase of shares. The AO recorded the statement of the assessee under section 131 of the Act on 26.11.2012 in which the assessee in reply to question no.5(a) submitted that “yes I have purchased the shares of Aptech Ltd, the date of purchase is 19.5.2005. The total no. of shares purchased were 10000”” and in response to the query from the AO regarding the credit of shares in to demat account, the assessee submitted that these were credited in he month of February 2006 and accordingly payment was also made to Broker M/s Alliance Intermediateries and Network Pvt Ltd. The assessee also submitted the detailed demat account that transactions entered through the above Broker besides the submitted the bank statement corroborating the payment. The delay for crediting the shares in the demat account by 9 months was explained by the assessee by submitting that initially 2000 shares were purchases but broker has purchased 10000 shares in his name which could not be paid to the share broker due to non availability of funds with the purchaser and as a result, the shares purchased by the broker on behalf of the assessee were kept by the broker in pull account with the assurance that money will be paid as and when the assessee may arrange the funds. The payment was ultimately paid made in the ensuing month of Feb. 2006 and the broker allowed the credit facility to the assessee. However, the AO rejected the contention of the ld.AR and came to the conclusion that transactions shown by the assessee through M/s Alliance Intermediateries and Network Pvt Ltd. were colourable device for the purpose of evading the tax by showing gain as gain as STCG and paying tax at the rate of 10%. The AO finally passed an order u/s 143(3) r.w.s.147 of the Act vide order dated 31.12.2012 assessing the total income at Rs.12,86,780/- by treating the STCG as unexplained cash credit u/s 68 of the Act. Being aggrieved by the order of AO, the assessee preferred an appeal before the first appellant authority who also dismissed the appeal of the assessee and enhanced the addition from Rs.8,66,100/- to Rs.11,85,586/- by observing and holding as under : “5. I have carefully considered the facts relating to the grounds raised in appeal as they emanate from the impugned order and the submissions made during these proceedings.

5.1 Ground No. 1, is general in nature and requires no specific adjudication. Accordingly the same is treated as dismissed for statistical purposes. 5.2 In Grounds No. 2, 3 and 4 the appellant has challenged the addition of Rs. 8,66,100/- as unexplained cash credit u/s 68. During the course of reassessment proceedings the AO noted that the appellant had shown capital gain on sale of 10,000 shares of Mls Aptech Ltd. on 02/03/2006. The AO further noted that these shares had been shown as purchased from M/s Alliance Interrnediaries and Network Private Ltd. for an amount of Rs.3,31,573/-. The AO observed that though the shares were stated to have been purchased on 19/05/2005, the payment for these shares was only made on 20/02/2006. The AO also recorded the statement of the appellant u/s 131 and noted that the regular broker of the appellant M/s R.R.Nabar & Co. did not extend credit with regard to payment for purchase of shares as was alleged to have been extended by M/s Allliance Intermediaries and Network Private Ltd. The AO further noted that even though the appellant stated that the delayed payment was made on account of dispute between the appellant and M/s Alliance Intermediaries and Network Private Ltd the appellant furnished any evidence to support this argument. The AO considered the facts of the case in the light of the evidence unearthed by the search and seizure operation is carried on by the Department on the Mukesh Choksi, his associate and the various concerns run by him all of which had been found to be engaged in the process of providing accommodation entries/bogus bills to interested parties, and held the capital gain of Rs. 8,66,100/- as income from undisclosed sources. 5.3 In appeal it has been submitted that the order for the shares of Aptech Ltd. was initially placed on phone and for 2000 shares but that the broker M/s Alliance Intermediaries and Network Private Ltd. erroneously bought 10,000 shares of the said company. It was further submitted that during that period the appellant had no money to pay up the purchase consideration of 10,000 shares and accordingly requested the broker to retain the shares for payment as and when possible. It was submitted that the broker accepted the request of the appellant and retained the shares in their pull account, transferring it to the Demat account of the appellant when full payment of Rs. 3,31,573/- was made. The appellant further submitted that he could only pay this amount by cheque no. 564901 dated 20/02/2006 drawn on the Bank of Baroda and that the shares were subsequently transferred to the appellant's Demat account with M/s Action Financial Services (India) Ltd. on 28/02/2006. It was further stated that these shares were sold through M/s R.R.Nabar & Co., Share brokers on 28/02/2006 and that after this initial unhappy experience with M/s Alliance Intermediaries and Network Private Ltd., the appellant had stopped doing trade with that broker. 5.4 I have considered the facts in the instant case and the submissions of the appellant. From the same, it is clear that the main evidence relied by the appellant in support of the contention that the transactions in question are genuine comprises brokers notes/bills issued by M/s Alliance Intermediaries & Network Pvt. Ltd. (aka Mahasagar Securities Ltd.) and the fact that the sale proceeds were received through cheques. In the following cases of Shri Mukesh Choksi and his associates, the ITAT has held that Shri Mukesh Choksi and all his associates are engaged only in providing bogus accommodation entries of shares transactions etc. (a) Order dated 28.03.2008 in and 5000/Mum/2005 for AY 2002-03 in case of M/s. Gold Star Finvest P. Ltd. (b) Order dated 29.08.2008 in the cases of (i) Richmond Securities P.Ltd (Subsequently known as Mahasagar Securities P. Ltd. and now knows as Alag Securities) in ITA No.4624/MUM/2005 for the A.Y.2002-03, and M/s. Alpha Chemie Trade Agencies Pvt. Ltd. In ITA No.4999/Mum/2005 for the A.Y.2002-03. c) Order dated 30.05.2008 in ITA No.4912/Mum/2005, in the case of M/s. Mihir Agencies Pvt. Ltd. 5.5 In light of the above facts, the A.R. of the appellant, vide order sheet noting dated 19/03/2015, was asked why the entire amount of sales proceeds of Rs.11,85,576/- should not be considered as income from undisclosed sources and assessed income be enhanced by the difference of Rs. 3,19,476/- u/s 251(1). Vide reply dated 30/03/2015, the appellant submitted that he had engaged in genuine purchase of the said shares and that he was unaware of the mala-fide activities of the broker concerned as he had never come across such behaviour before. It was submitted that the appellant should not be made to suffer for the acts of the unscrupulous broker and therefore he should not be taxed further.

5.6 In the present case, it is seen that the transaction for purchase of shares of M/s Aptech L.td. was stated to have been made by the appellant through M/s Alliance Intermediaries and Network Private Ltd., even though the appellant was having a regular broker M/s R.R. Nabar & Co. The appellant has not been able to clarify why the said transaction was done through M/s Alliance Intermediaries and Network Private Ltd. and not through his regular broker. Other than the purchase of Aptech shares, no other transactions were done by the appellant with M/s Alliance Intermediaries and Network Private Ltd. The appellant has also stated that he had a dispute with the broker M/s Aliiance Intermediaries and Network Private Ltd. who had erroneously purchased 10,000 shares of M/s Aptech Ltd. and that the said broker had willingly kept these shares in its pull account in the name of the appellant for a long period of 9 months, till the appellant was in a position to make the payment of Rs. 3,31,573/-. As rightly observed by the AO, the sequence of events drawn up by the appellant is not believable as the appellant did not produce any evidence to show that there was actually any dispute between him and M/s Alliance Intermediaries and Network Private Ltd. Further the appellant was unable to explain how he managed to get an unusually long credit window of 9 months without any security from the said broker in this sole transaction whereas his regular broker also did not allow him such credit facility as brought to light by the statement of the appellant recorded by the AO. Though subsequent sale and transfer of shares after sale from the appellant are shown but the purchases are not substantiated. In light of the facts unearthed by the Investigations carried out by the Department, the payment shown to or from M/s Alliance Intermediaries & Network Pvt. Ltd. cannot be held to be genuine as these are only accommodation entries. Therefore, it is held on the basis of various decisions of ITAT, Mumbai in the case of Shri Mukesh Choksi Group Companies that the assessee has not made any genuine purchases of shares of M/s Aptech Ltd. since Shri Mukesh Choksi and his Companies have indulged in providing only accommodation entries i.e. M/s Alliance Intermediaries and Network. Private Ltd. has provided only an accommodation entry. In absence of a genuine purchase, deduction for cost of purchase cannot be allowed. Hence, the entire sale proceeds of shares of M/s Aptech Ltd. of Rs. 11,85,576/- is assessable as income of appellant under head 'Income from Other Sources' and the income of the appellant is enhanced by an amount of Rs. 3,19,476/-. The A.O is therefore directed to assess Rs. 11,85,576/-as income from other sources from the bogus shares transaction. In view of these facts, the addition of Rs. 8,66,100/- is enhanced to Rs. 11,85,576/-. Accordingly, the grounds raised by the appellant are dismissed”

4. The ld. AR of the assessee vehemently submitted before us that the ld. CIT(A) has wrongly dismissed the appeal of the assessee and enhanced the disallowance as made by the AO by ignoring all the relevant facts of the case. The ld. AR argued that the assessee has purchased 10000 shares on 19.5.2005 of M/s Aptech Ltd through M/s Alliance Intermediaries P Ltd for a total consideration of Rs.3,31,573/-. These shares were transferred to and credited in Demat account of the appellant on 28.2.2006 opened with M/s Action Financial Services (India) Ltd. Thereafter the ld.AR submitted that these shares were sold on Bombay Stock Exchange through M/s R.R Nabbar and Co. on 28.2.2006 for a total consideration of Rs.11,85,576/- and these were transferred and deleted from the demat account of the assessee. The ld. Counsel also submitted that payment for these shares was made by the account payee cheque drawn on Bank of Baroda on 28.2.2006. Therefore, the assessee has proved all the ingredients proving the genuineness i.e. identity of the creditor, creditworthiness of the creditor and the genuineness of the transaction and therefore no addition could be made u/s 68 of the Act by the AO. Mere finding the name of the assessee in the list of beneficiary during search operation on Shri Mukesh Chokshi and his group companies could not be the basis for making genuine purchases as non- genuine and making it as addition/s 68 of the Act. When the payments were duly recorded in the books of account and made through banking channel. The delay in making payment and transferring the share into demat account was also duly explained before the AO and also at the time recording the statement of the assessee under section 131 of the Act on 26.11.2012. The ld. AR also submitted that no cross-examination of Shri Mukesh Chokshi was allowed to the assessee as the AO framed the assessment on the strength of information found from the search on Shri Mukesh Chokshi and his group companies that the assessee was one of the beneficiary of 3000 beneficiaries. Accordingly, the ld. AR submitted that the AO has violated principle of natural justice.

in B, C, D and E are general in nature and therefore dismissed.

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