DIPEN VINOD SHAH,MUMBAI vs. ITO 16(1)(1), MUMBAI

Brief facts which are common for both the assessment years are, the assessee is an individual. For the assessment year 2003–04, assessee filed his return of income on 31st March 2004, declaring income of ` 1,66,225. Similarly, for the assessment year 2004–05, assessee filed his return of income on 30th March 2005, declaring total income of ` 7,20,675. Subsequently, on the basis of information obtained during the search and seizure operation conducted in case of a number of companies owned and operated by Shri Mukesh Choksi and Shri Jayesh K. Sampat, the Department found that those companies were engaged in issuing fictitious bills of purchase and sales of shares, share application and arranging bogus / fictitious profits, (short term and long term) on payment of cash for such gain on commission basis in relation to fictitious trade of shares of various companies from one of which, namely, Gold Star Finvest Pvt. Ltd., the assessee was engaged in share transaction the Assessing Officer re– opened the assessment under section 147 by issuing a notice under 3 Shri Dipen Vinod Shah section 148 of the Act. In the course of re–assessment proceedings, the assessee was called upon to substantiate the claim of capital gain exemption amounting to ` 44,77,238 on sale of shares. In response to the show cause notice, the assessee submitted its reply with copy of demat statement and contract note and justified its claim of declaring the income from sale of shares under the head long term capital gain. The Assessing Officer, however, was not convinced with the explanation of the assessee. He was of the view that there were no real purchase and sale of shares and the capital gain was generated through fictitious bills through the front companies of Shri Mukesh Choksi. He, therefore, rejected assessee’s claim of long term capital gain and treated the amount of ` 44,17,238 claimed to have been received as gain from share transactions as unexplained investment of the assessee because the assessee has shown such amount towards investment in purchase of flats. Further, Assessing Officer also added an amount of ` 2,20,862 as payment of commission for getting entries from Gold Star Finvest Pvt. Ltd. Similarly, for the assessment year 2004–05 also, the Assessing Officer treated the long term capital gain of share transaction amounting to ` 19,60,554 as unexplained investment as the assessee had claimed exemption under section 54F on the same amount towards investment in flats. Further, the Assessing Officer also added an amount of ` 98,027 being 5% of the 4 Shri Dipen Vinod Shah long term capital gain shown towards commission paid to get the entries. Being aggrieved of the assessment orders so passed, assessee preferred appeal before the learned Commissioner (Appeals) raising a number of grounds including legal ground challenging the validity of notice issued under section 148 of the Act as well as violation of the principle of natural justice in not allowing the assessee to cross– examine the persons whose statements were utilised by the Assessing Officer for making the addition.

In the course of hearing before the first appellate authority, though, the assessee made elaborated submissions, the learned Commissioner (Appeals) finding no merit in the submissions of the assessee upheld the assessment made by the Assessing Officer. As far as the assessment year 2004–05 is concerned, the learned Commissioner (Appeals) alleging that the assessee has not complied to the queries made by him on 5th December 2013, followed the observations made by the first appellate authority in the assessment year 2003–04 and upheld the order of assessment.

We have considered the submissions of the parties and perused the material available on record. The main grievance of the assessee as could be gathered from the submissions of the learned Authorised Representative is the learned Commissioner (Appeals) has not 5 Shri Dipen Vinod Shah provided reasonable opportunity of being heard to the assessee. Neither considered the specific issues raised by the assessee nor the documentary evidences brought on record. The learned Authorised Representative submitted, though the assessee has raised specific ground challenging the validity of the assessment on the issue of re– opening of assessment, violation of rules of natural justice for not providing opportunity of cross–examination to the assessee, learned Commissioner (Appeals) has not at all considered the issues in proper perspective. He, therefore, submitted, matters for both the years may be restored back to the file of the learned Commissioner (Appeals) for re–hearing. Learned Departmental Representative has not opposed the aforesaid contention of the assessee and has no objection if all the issues are restored back to the file of the learned Commissioner (Appeals) for hearing afresh.

As is evident from the assessment orders passed for the impugned assessment year, the Assessing Officer while coming to the conclusion that the share transaction entered into by the assessee with some companies are fictitious / non–genuine has relied upon the information obtained from the search conducted in the case of various companies owned by Shri Mukesh Choksi. It is further evident, the Assessing Officer has also relied upon the statement recorded under section 131 from Shri Mukesh Choksi, wherein he allegedly admitted

As far as assessment year 2004–05 is concerned, on a perusal of the first appellate order it is noticed that the learned Commissioner (Appeals) has simply relied upon his order for the assessment year 2003–04 and upheld the assessment order. Therefore, after over all consideration of facts and material on record, we are of the opinion, the learned Commissioner (Appeals) having not considered the submissions and dealt with the issues raised by him properly, orders passed by the learned Commissioner (Appeals) deserves to be set aside. We direct accordingly and restore the matter back to the file of the learned Commissioner (Appeals) for both the years under consideration for hearing afresh. The assessee is at liberty to put forward his argument on all the issues raised by him before the first appellate authority with supporting evidences. The learned Commissioner (Appeals) must deal with the submissions of the assessee and decide all the issues raised by the assessee by passing a well reasoned order. Needless to mention, the learned Commissioner (Appeals) must afford reasonable opportunity of being heard to the assessee before deciding the issues.

In the result, assessee’s appeals are allowed for statistical purposes. Order pronounced in the open Court on 13.05.2016