SUDHANSHU SURESH PANDHARE,MUMBAI vs. ITO WD 21(3)(2), MUMBAI

Facts relating to the issue are stated in brief. The assessee filed its return of income declaring total income of ` 5.48 lakhs on 29.7.2004 which was processed u/s. 143(1) of the I.T. Act. Subsequently the Assessing Officer received information from DDIT(Investigation) that search action conducted in Mukesh Chokshi group has revealed that the said group companies were engaged in providing bogus bills for generation of short term/long term capital gains. The main person of the group named Shri Mukesh Chokshi had admitted that all transactions carried out by his group-companies were bogus and he has provided only accommodation bills. It was stated that the assessee

Before learned CIT(A) the assessee challenged the validity of reopening and also assessment of long term capital gain as undisclosed income of the assessee. Learned CIT(A) expressed the view that the Assessing Officer had sufficient reason to believe about escapement of income and accordingly, by placing reliance on the decision rendered by Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P) Ltd. (291 ITR 500) and also other cases mentioned in the order, dismissed the ground relating to validity of reopening of the assessment.

Before learned CIT(A), the assessee also contended that he was not allowed to cross examine Mukesh Chokshi since assessment has been made by the Assessing Officer on the basis of the statement given by him. Learned CIT(A) rejected the said contention by observing that the assessee did not place evidence on record to suggest that the specific request was made by him before the Assessing Officer to cross examine Mukesh Chokshi.

On merits, the Ld CIT(A) observed that the statement given by Mukesh Chokshi was corroborated by the transactions entered into the books of account and furthers evidences furnished by the assessee to prove the purchase and sale of shares matched with the modus operandi followed by Mukesh Chokshi. The Ld CIT(A) also observed that the ITAT has accepted in the case of Mukesh Chokshi group of companies that they were providing only accommodation entries by charging commission @ of 0.15%. Accordingly, learned CIT(A) held that the assessee has generated Long term capital gains through accommodation bills and accordingly confirmed the assessment made by the Assessing Officer.

Learned AR submitted that the reopening is bad in law since the Assessing Officer has reopened the assessment on the general statement given by Mukesh Chokshi. Learned AR submitted that the Assessing Officer has not shown that Mukesh Chokshi has admitted that the transaction of purchase and sale of shares made by the assessee was bogus in nature. Further the Assessing Officer did not furnish copy of statement given by Mukesh Chokshi. He submitted that the assessee has made specific plea asking for the statement before the Assessing Officer during the course of assessment proceedings by filing a letter dated 18.10.2011. Subsequently when the appellate proceedings were going on, the assessee filed another letter dated 16.4.2012 before learned CIT(A) asking for a copy of statement. Thereafter the assessee filed another letter dated 19.10.2015 before the Assessing Officer asking for copy of statement given by Mukesh Chokshi, since the matter is pending before the ITAT. In response thereof, the Assessing Officer has 4 Sudhanshu Suresh Pandhare furnished a letter dated 11.5.2015, wherein the Assessing Officer has stated that cross examination of Mukesh Chokshi is not relevant after completion of the assessment proceedings. Accordingly learned AR submitted that the Assessing Officer has failed to furnish copy of the copy of statement given by Mukesh Chokshi, which was the basis for framing the present assessment. Accordingly he submitted that the Assessing Officer has committed gross violation of the natural justice and hence on this count alone the impugned assessment order is liable to be quashed.

Learned AR further submitted that the assessee has furnished evidences substantiating purchase and sale of shares by furnishing copies of broker note. The broker has sold shares through Ahmedabad stock exchange and issued cheques towards sale proceeds. The cheques received by the assessee have been duly encashed through Bank of Maharashtra. He submitted that the Assessing Officer did not make any inquiry with the stock exchange to find out veracity of the broker’s note. He further submitted that the brokerage license of broker was canceled subsequent to the completion of transaction of the assessee and hence the same cannot be taken a ground to disbelieve the claim of the assessee.

On the contrary, the Ld D.R reiterated the stand taken by the tax authorities. He submitted that the main person Shri Mukesh Choksi has admitted the modus operandi followed by him and his group of companies. The assessee has purchased and sold shares through one of the group companies and the modus operandi narrated by Shri Mukesh Choksi matches with the transactions of the assessee. He submitted that the Tribunal has accepted the version of Shri Mukesh Choksi and accordingly estimated the commission income in his hands and also in the hands of his group of companies He further submitted that the broker license of M/s Gold Star Finvest P. Ltd has been cancelled subsequently.

We have heard rival contentions and perused the record. We notice that the assessing officer has disbelieved the claim of Long term capital gains only on the basis of the statement given by the broker. However, we notice that the assessee has furnished the details of purchase of shares, copies of share certificates, the details of sale of shares and the details of receipt of money towards the sale consideration. Further it is stated that the sale of shares has taken place through Ahmedabad Stock Exchange. We notice that the above said documents and the claim of the assessee were not examined at all by the AO. We further notice that the assessee has filed return of income showing the purchases in the year relevant to AY 2003-04 and the sales in the return of income relating to AY 2004-05.

We further notice that the assessee has sought for the copy of statement claimed to have been given by Shri Mukesh Choksi with regard to the transactions carried on by his group of companies. However, the same has not been provided to the assessee. According to the Ld A.R, the assessing officer has not shown that the transactions of the assessee have been claimed to be accommodation entries by Shri Mukesh Choksi. Accordingly it was submitted that the tax authorities should not have taken adverse view of the matter on the basis of generalized statement.

We find merit in the contentions of Ld A.R. We notice that the tax authorities have placed full reliance on the statement given by Shri Mukesh Choksi and it was not shown that the transactions entered with the assessee were claimed to be bogus. Further the tax authorities have not examined the documents furnished by the assessee and did not carry out verification with third parties. We have also noticed that the statement of Shri Mukesh Choksi has been relied upon without confronting the same with the assessee. Under these set of facts, we are of the view that there is no justification in disbelieving the claim of the assessee.

In view of the above, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to accept the long term capital gains disclosed by the assessee.

Since we have decided the main issue in favour of the assessee, we do not find it necessary to adjudicate other grounds urged by the assessee.

In the result, the appeal filed by the assessee is treated as allowed. Order has been pronounced in the Court on 05.10.2016