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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, JM & SHRI RAJESH KUMAR, AM
PER RAJESH KUMAR, AM :
This is an appeal filed by the assessee against the order dated 28.1.2014 passed by the ld. CIT(A)-26, Mumbai and it relates to the assessment year 2005-06.
The only ground raised by the assessee is against upholding of AO’s order of treating share transactions amounting to Rs.10,46,075/- as bogus and adding the same to the total income of the assessee.
Brief facts of the case are that the assessee filed his return of income on 16.3.2005 declaring a total income of Rs.60,523/- which was processed under section 143(1) of the Income Tax Act, 1961 (the Act ). Subsequently, the case of the assessee was reopened u/s 147 of the Act and notice u/s 148 was issued to the assessee on the ground that the assessee had entered into a bogus share transactions and gain on such transactions amounting to Rs.10,46,075/- was also bogus and has escaped assessment within the meaning of section 147 r.w.s.148 of the Act. The reopening proceedings were in consequence to search and seizure operation carried out on Mr Mukesh M. Chokshi and his associate companies under section 132 of the Act by Investigation Wing of the Income Tax Department on 25.11.2009. During the course of search proceedings, Mr.Mukesh M Chokshi and Shri Jayesh K Sampat, Directors of the Companies admitted that M/s Mahasagar Securities Pvt. Ltd (related company) and other related companies were engaged in the fraudulent billing activities and thus were in the business of providing accommodation speculation profit/loss, commodities, profit/loss on commodity trading through MCX for the last so many years. During the course of search, a list of clients was extracted from the computer seized from M/s Mahasagar Securities Pvt.Ltd. In the list of beneficiaries, the name of the assessee(HUF) also appeared and thereafter the matter was intimated to the AO of the assessee. On the basis of the said intimation of Investigation Wing , the AO formed an opinion that the assessee has entered into bogus transactions of sale and purchase of shares. and resultant long term capital gain was also not genuine. Thereafter the case of the assessee was re-opened by initiating proceedings, u/s 147 of the Act by issuing notice 148 to the assessee. The AO on going through the return of assessee came to the conclusion that the assessee had entered into bogus transactions by bogus billing to the extent of Rs.10,46,075/- with M/s Alliance Intermediaries Private Limited. The assessee purchased 12000 equity shares of M/s Talent Infoways Ltd on 7.10.2003 for a total consideration of Rs. 17,417/- which were sold on 29.3.2005 for a consideration of Rs.10,46,075/-. The said shares were transferred in the name of the assessee on 29.11.2003 in physical form vide Registered folio No.M010004, dated 19.1.2000, Certificate of Transfer No.00104185 (5000 shares), Registered folio No.M010004, dated 19.1.2000, Certificate of Transfer No.00104186 (5000 shares), Registered folio No.M010004, Certificate of Transfer No.00104191 (2000 shares), and thereafter, these shares thereafter dematerialized before sale. Aggrieved by the order of the AO, the assessee challenged the order before the First Appellate Authority who also confirmed and upheld the order of the AO after considering the reply of the assessee. The observations of the ld.CIT(A) is forming part of his order at para 3.1.7 to 3.1.9 which are reproduced below: “3 1.7 Based upon these ITAT orders, all the concerns Including M/s Mahasagar Securities (P) Ltd., M/s. Alliance Intermediaries and Network P. Ltd.,M/s. Gold Star Finvest P. Ltd. and M/s. Alpha Chemie Trade Agencies Pvt. Ltd. have also filed their returns declaring it to be in the business of an entry provider and estimating its income @O.15% of total receipts from entry seekers. The same has been accepted in the assessment order dated 12.11.2008 for the A.Y.2007-08 u/s.143(3) by ACIT (OSD-1), Central Range-7, Mumbai. 3.1.8 On the basis of the aforesaid orders of ITAT in case of Shri Mukesh Chokshi and his associates, it is a concluded fact that Shri Mukesh Chokshi is not doing any business of share transactions or stock brokering but he has provided only accommodation entries of share transactions and thus facilitated in helping the appellant for showing bogus, tax free, Long Term Capital Gain and other income/losses as required by various persons. For accommodation entries provided by Shri Mukesh Chokshi and his associates, his net income @O.15% of total transactions has been shown as income and has been accepted by the ITAT. 3.1.9 Since the person from whom shares are shown purchased and through whom the sales is also claimed, has categorically been found by ITAT in providing only accommodation entries and no genuine transaction have been found to have been done by such person, no purchase and sale of shares from or through such person is genuine. Therefore, all the transactions showing Long Term Capital Gain in the return are bogus. Accordingly, the addition made by the AO is upheld, and grounds of appeal
are hereby dismissed.”
4. The ld.AR of the assessee vehemently submitted before us that the action of the AO and the order of the ld.CIT(A) confirming the action of the AO were totally wrong and against the facts and circumstances of the case. The assessee’s purchase and sales of shares were not considered and appreciated correctly by the authorities below. The ld. Counsel submitted that the assessee has purchased 12000 shares for a consideration of Rs.17,417/- from M/s. Talent Infoways Ltd. on 17.10.2003 by referring to the bills and contract notes as filed in paper book. Similarly, The ld. AR submitted that these shares were firstly received in the physical form and were duly registered in the name of the assessee on 29.11.2003 vide share certificates as filed at pagers 12 to 14 of the paper book and thereafter these were dematerialized in the account of the assessee and ultimately sold on 29.3.2005. The ld. Counsel also submitted before us that the AO treated the sale-purchase of shares as bogus merely on the basis of the statement of third party namely Shri Mukesh M Choksi which was given by him during the course of search operation u/s 132 of the Act on 25.11.2009. Mere admission on the part of Mr.Choksi that he and his group companies including M/s Mahasagar Securities Private Limited were engaged in the fraudulent activity by issuing bogus bills for sale and purchase of shares in no way proved that the shares transactions of the assessee were bogus especially the transactions of shares were fully supported and vouched by bills/contact, shares certificates , proof of payment . The ld. AR also strongly objected to the manner in which the said statement of Mr. Choksi was applied to the case of the assessee without being given a copy of the said statement to the assessee to rebut the same or without allowing the cross- examination of such person. The ld. AR vehemently argued that the principle of natural justice and fair play were violated in making assessment. Lastly, the ld. AR submitted that the purchase of shares by the assessee which was duly supported with the payment of consideration and the share certificates and documents of shares and entry in de-mat account of the assessee and subsequent sale thereof could not be treated as bogus when the same is supported by the certificates and documentary proof and bills of the parties and prayed that the order of the ld. CIT(A) be reversed by directing the AO to treat the long term capital gain from shares as returned in the income. In support of his argument, the ld. AR strongly relied upon the decision of the Tribunal in the case of Ulka Vijay Salvi V/s ITO passed in (AY-2005-06) order dated 30.11.2015, wherein the ld.AR submitted that the similar issue came up for the consideration before the coordinate Bench and was decided the issue in favour of the assessee.
The ld. DR, on the other hand, submitted by opposing the arguments of the ld. AR that the assessee was found a beneficiary of the fraudulent bills during the course of search and seizure at the premises of Mr.Mukesh M Choksi and his group companies on 25.11.2009 and it was only upon the admission of Mr.Choksi during the course of search that all these companies were not carrying on any business but doing bogus sale and purchase of shares by way of accommodation entries. The ld. DR also submitted that name of the assessee was appeared in the list of beneficiaries which was extracted from the computer of M/s Mahasagar Securities Pvt Ltd during the course of search and seizure action. Finally, the ld. DR prayed for upholding the orders of authorities below.
We have considered the rival contentions and perused the relevant material placed before us including the orders of authorities below. We find that the case of the assessee was reopened following the search and seizure action on Mr.Kukesh M Choksi and his group companies including M/s Mahasagar Securities Private Ltd on 29.11.2009 and during the course of which Mr.Mukesh M Choksi admitted that he and his group companies were indulged in the fraudulent billing of shares and securities. It was further found upon the extraction of data from computer of M/s Mahasagar Securities Private Limited during search that the name of the assessee figured in the list of the beneficiaries of the said fraudulent billing.d The case of the assessee was reopened us/ 147 of the Act on the basis of information to this effect from the Investigation Wing of the Income Tax Department and the AO ultimately added the said consideration of Rs.10,46,417/-to the income of the assessee by holding that the purchase and sale of the said shares were bogus transactions. Thus the action of the AO was solely based upon the intimation given by the investigation wing that the assessee was one of the beneficiaries of the fraudulent billings. We find from the record that the assessee has purchased 12000 shares of M/s. Talent Infoways Ltd. for a total consideration of Rs.17,417/- and the share certificates were received in the physical form which were dematerialized in the name of the assessee and ultimately sold on 29.3.2005. Thus the assessee held the shares for more than 12 months and the gain resulting from the sale of shares was to be exempt under the Act as being long term under the relevant provisions of Act. The AO rejected the claim of the assessee on the basis of such statement and came to the conclusion that these transactions entered by the assessee were bogus as the same made through Mr.Mukesh Choksi and his associate concern. It is clear that the only basis of rejection of claim of the assessee was statement of Mr.Mukesh M Choksi given during the course of search and seizure action. Similar issue came up for consideration before the co-ordinate bench of the Tribunal in the case of Ulka Vijay Salvi (supra) under the identical facts and the tribunal decided the issue in favour of the assessee by holding that the sale and purchase can not be doubted just on the basis of statement of the third party. The relevant para no 6 and 7 are extracted below:-has held as under : “6. Having considered the rival stands, I find that the entire case of the Revenue rests on a statement purported to have been tendered by one Mr. Mukesh Choksi to the Investigation wing of the Department. On the strength of such statement the Assessing Officer canvassed that the transactions entered into by the assessee are through a concern controlled by Mr. Mukesh Choksi, who has admitted that he was carrying out bogus capital gain/speculative profit/bogus capital loss accommodation entries. In this context, the Assessing Officer also referred to the fact that the material obtained from Mr.Mukesh Choksi contains reference of M/s. Alliance Intermediaries & Network Pvt. Ltd., through whom the assessee had transacted in the shares of M/s. Buniyad Chemicals Ltd. Therefore, the Assessing Officer came to conclude that the entire transaction i.e. purchase and sale of shares of M/s. Buniyad Chemicals was part of an accommodation business carried out by Mr. Mukesh Choksi and that the assessee routed her unaccounted money through the guise of capital gains. 6.1 The aforesaid conclusion of the Assessing Officer is entirely based on the result of the investigations carried out in the case of Mr. Mukesh Choksi. Similar situation came up before the Tribunal in the case of Shri Ravindra Kumar Toshniwal vide for assessment year 2005-06, wherein also the sale and purchase of shares undertaken in M/s. Buniyad Chemicals was held to be a bogus transaction. The relevant discussion in the order of the Tribunal dated 24/02/2010(supra) reveals that the arguments set up by the Assessing Officer were similar to those which are before me. The Tribunal considered the material sought to be relied upon by the Assessing Officer in the present case. Firstly, the Tribunal observed that merely because a transaction was not undertaken on the floor of Stock Exchange is no ground to doubt its veracity. In the present case too emphasis has been on the fact that the impugned transaction was an off- market transaction. Having regard to the precedent in the case of the order of the Tribunal dated 24/10/2010 in the case of Ravindra Kumar Toshniwal (supra), I find no reason to uphold the stand of the Revenue. 6.2 Secondly, in the case of Shri Ravindra Kumar Toshniwal(supra), for assessment year 2006-07 vide order dated 13/03/2013, the Tribunal considered the sale and purchase of shares of M/s. Buniyad Chemicals which is also the case before me, wherein also the Tribunal differed with the Assessing Officer and instead upheld the stand of the assessee regarding the nature of gain on sale and purchase of shares. 6.3 Similarly, in the case of Smt. Hamida J.Rattorsey(supra) also, the Tribunal found no reason to doubt the sale and purchase of shares undertaken by the assessee merely on account of statement Mr. Mukesh Choksi, which is also being relied upon by the Revenue before me. In view of the aforesaid precedent, which has directly considered the evidence being relied upon by the Revenue before me I find no reason to uphold the reliability of such material. The decision of the Tribunal in the case of Smt. Ananya Singh (supra) is also to the same effect and deals with the statement of Mr. Mukesh Choksi. 6.4 Considering the decisions stated above, which has been rendered in identical circumstances, I find no reason to uphold the conclusion of the lower authorities. 6.5 Before parting, I may also refer to certain other decisions stated by the assessee before me, wherein also additions were made on the basis of the statement of Mr.Mukesh Choksi, though the investment companies were different. One such case was the decision of the Mumbai Bench of the Tribunal in the case of Mukesh R. Marolia vs. Addl.CIT, 6 SOT 247 (Mum). The Ld. Representative for the assessee also pointed out that such judgment has since been approved by the Hon’ble Bombay High Court in the case of CIT vs. Shri Mukesh Ratilal Marolia, Income Tax Appeal No.456 of 2007 dated 07/09/2011. 6.6 Considering the aforesaid discussion, in my view, the CIT(A) fell in error in upholding the conclusion of the Assessing Officer that the sale and purchase of shares of M/s. Buniyad Chemicals Ltd., was a bogus transaction. Accordingly, the order of the CIT(A) is set aside and the Assessing Officer is directed to delete the addition of Rs.3,94,135/-.
In the result, the appeal of the assessee is allowed”
7. Considering the above decision of the tribunal under identical facts in the case of Ulka Vijay Salvi(supra), we find that the assessee’s case is squarely covered by the ratio laid down by the Tribunal. We ,therefore , respectfully following the same, set aside the order of the order of ld. CIT(A) and direct the AO to delete the addition of Rs.10,46,418/-.
In the result, the appeal of the assessee is allowed.