DEEPAK ASHOK AGARWAL,MUMBAI vs. ITO WD 16(2)(1), MUMBAI

Brief facts are, the assessee is an individual. She filed her return of income for the impugned assessment year on 7th July 2006, declaring loss of ` 13,44,110, which included short term capital gain on sale of shares amounting to ` 12,40,841. As observed by the Assessing Officer, a search and seizure operation was carried out in case of Mahasagar Securities Pvt. Ltd. and Alliance Intermediaries and Network Pvt. Ltd., in the course of which the directors of the company Shri Mukesh Choksi and Shri Jayesh K. Sampat, had stated of being engaged in fraudulent billing activities by providing bogus speculations profit / loss, short term loss, capital gain / loss entries, on the basis of these information the Assessing Officer re–opened the assessment under section 147 by issuing notice to the assessee under section 148 of the Act. In the course of assessment proceedings, in response to 3 Deepika Ashok Agarwal the query raised by the Assessing Officer, it was submitted by the assessee that she had purchased and sold shares of one company Sucheta Metal Ltd. and the transactions were made through the share broking firm Alliance Intermediaries and Network Pvt. Ltd. In support of the genuineness of the share transactions, the assessee submitted bank statement, demat statement, broker’s bill pertaining to transactions of purchase and sale of shares. However, the Assessing Officer did not find merit in the submissions of the assessee. Relying upon the statement recorded from Shri Mukesh Choksi, under section 131 of the Act, on 11th December 2009, the Assessing Officer ultimately concluded that the share transaction is bogus and the assessee has merely taken the entries of share transaction from the broker company for converting unaccounted funds to accounted funds in the guise of short term capital gain. Thus, he treated the short term capital gain shown by the assessee as income from other sources. The Assessing Officer also treated the purchase value of shares as bogus and sham transaction and added back the amount as income from undisclosed sources. Accordingly, he completed the assessment.

Assessee challenged the assessment order by preferring an appeal before the learned Commissioner (Appeals) who also confirmed the assessment made by the Assessing Officer.

Learned Authorised Representative submitted before us that in the return of income, the assessee has provided all material relating to share transaction, therefore, there was no tangible material before the Assessing Officer for forming belief that income has escaped assessment. Learned Authorised Representative submitted, the investment in shares having been made by the assessee from disclosed sources under no circumstances can lead to escapement of income. Therefore, re–opening of assessment is bad–in–law. As far as merits of the addition made by the Assessing Officer, learned Authorised Representative submitted, the assessee in course of assessment proceedings has submitted all documentary evidences to conclusively prove the genuineness of the share transactions. He submitted, the Assessing Officer made the addition solely relying upon the statement recorded from Shri Mukesh Choksi, under section 131 of the Act. However, neither the statement was confronted / supplied to the assessee nor the assessee was allowed to cross examine Shri Mukesh Choksi to test the veracity of his statement. He submitted, assessee in the course of assessment proceedings has furnished all relevant and necessary documentary evidence to prove the genuineness of share transactions. Whereas, the Assessing Officer without bringing any material on record to disprove the claim of the assessee and solely relying upon the statement of a third party, that 5 Deepika Ashok Agarwal too, without confronting to the assessee has made the addition as income from other sources. He submitted, when the assessee has entered into the share transaction in regular course, the same cannot be treated as sham / bogus by relying upon some untested / unverified material collected from third parties. He, therefore, submitted the addition made should be deleted. In support of his contention, learned Authorised Representative relied upon the following decisions:–

Learned Departmental Representative relying upon the order of the learned Commissioner (Appeals) and the Assessing Officer submitted, when the directors of the company from which the assessee had purchased the shares admitted of having provided

We have considered the submissions of the parties and perused the material available on record. Undisputed facts are, the assessee claimed to have purchased 68,500 shares of Sucheta Metals worth ` 834418=52, through a share broking company Alliance Intermediaries and Network Pvt. Ltd. The assessee also claimed to have sold the shares for a sale consideration of ` 20,51,375 and has declared capital gain of ` 12,16,956=49. It is also evident, in the course of assessment proceedings, assessee has submitted all relevant and necessary details such as demat statement, broker bills pertaining to purchase and sale of shares, bank statement copies reflecting share transactions before the Assessing Officer. As against the aforesaid documentary evidence submitted by the assessee to prove the share transactions, the Assessing Officer has treated the share transaction as sham / bogus by solely relying upon the statement of Shri Mukesh Choksi, director of Mahasagar Securities Pvt. Ltd. and Alliance Intermediaries Network Pvt. Ltd., wherein he allegedly admitted of having provided accommodation entries only and there was no share transaction actually made. Apart from the statement of Shri Mukesh Choksi, the Assessing Officer has not referred to any other material or evidence which could corroborate or conclusively prove the facts stated by Shri