SHRI PRAHLAD S. MEHTA L/H OF LATE RAJPAL P. MEHTA,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-10(3) NOW WARD-5(2)(3), AHMEDABAD

आदेश/ORDER

PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-

These two different assessee’s appeals for A.Y. 2004-05, arise from order of the CIT(A)-5, Ahmedabad dated 26-02-2016, in proceedings under section 147 r.w.s. 143(3) of the Income Tax Act, 1961; in short “the Act”.

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During the course of assessment proceedings, the assessee has raised objection that in his case earlier order u/s. 143(3) r.w.s. 147 was passed on 24th December, 2010 and once again notice u/s. 148 was issued. The assessing officer has explained that contention of the assessee was incorrect because in earlier the order u/s. 143(3) r.w.s. 147 was passed for the assessment year 2003-04 and not for assessment year 2004-05.During the course of assessment proceedings, show cause notice was issued to the assessee to explain why not the undisclosed income of Rs. 5,59,500/- from the sale of the shares of Talent Infoways Ltd should not be treated as income from undisclosed source. The assessee has objected to the show cause notice by furnishing the following submissions:- “1. There is no justification in making addition of the income because the nature and character of income is off Short Term Capital Gain chargeable to tax. 2. The assessee has purchased the shares through broker M/s. Gold Star Finvest Pvt Ltd. the assessee has received delivery of shares into demate account with HDFC Bank. The assesseefias also shown the shares. The off Market transaction does not vitiate or Jeopardize of transaction which is not a illegal transaction. 3. The purchase and sale of the share are shown 1% to another person who purchased and sale the share. It is commercial transactions and it does not changed character and nature of income and its chargeability. 4. M/s. Gold Star Finvest Pvt Ltd was broker acting genially on behalf of the client for the purchase and sale of share. 5. The assessment proceeding are purely based on presumption and on the basis of statement recorded of Shri Mukesh Chokshi. 6. The assessee has shown the relevant income from Short Jerm Capital Gain in the return of income and hence there is no escapement of income. 7. The assessee has relied upon on following decision. [a] Mukesh R. Morolia vs. Addl. CIT (2006) SOT 247 (Mumbai) [b] ITO 14(3)-l, vs Smt. Navneet Mehta [c] ACIT 14(3), Mumbai vs. Shri Ravindrakumar Toshniwal”

The assessing officer has not accepted the submission of the assessee on the ground that Shri Mukesh Chokshi admitted various companies floated by him were provided accommodation entries, one of which was M/s Golt Star Finvest Pvt. Ltd. The assessee has

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received long term capital gain on sale of share of Talent Infoway Ltd. through Gold State Finvest P. Ltd amounting to Rs. 5,59,500/-. It was observed that the purchase consideration was paid in cash and these transactions were actually carried out off market. The shares were demated to the demat a/c of the assessee only on 13th November, 2003 and were sold on 14th November, 2003. Consequently, the assessing officer has added Rs. 5,59,500/- as undisclosed income u/s. 68 to the total income of the assessee. Aggrieved assessee preferred appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee partly by observing as under:- “4.16 In view of the discussions in the proceedings paras, it is concluded that the transaction of the appellant has its direct nexus with bogus and fraudulent transactions committed by the promoters of the company and the appellant has willfully, deliberately and knowingly conspired there in. The appellant cannot argue that it was cheated into such transactions. Fact of the matter indicate that all the beneficiaries ( i.e. the persons who bought and sold shares) of Sh Mukesh Choksi's group of companies were active collaborators to the bogus share transactions with the intent and objective of giving a colour of credence and genuineness to the incomes otherwise, earned from unaccounted sources. 4.17. Here it is to be mentioned that there was search and seizure action carried out on 25.11.2009 in the group cases of M/s. Mahasagar Securities Ltd. and its group companies controlled by Shri Mukesh N. Chkshi at Mumbai. During the course of search proceedings Shri Mukesh N. Chokshi himself has admitted that all his group companies were providing entries for taking profit or loss by showing purchases or sales of shares and securities to various parties across India on which he was charging certain commission from the beneficiary parties. This information was received by the AO from the office of DIT(I&CI) New Delhi vide letter dtd. 7.3.2013 alongwith copy of statement of Shi Mukesh N. Chokshi recorded by the department u/s.131 of the Act. Further Shri Mukesh N. Chokshi, the controlling person admitted in his statement recorded under oath u/s.131 on 16.1.2013 by Shri P.S. Nayak, DCIT(Central) Cir.46, Mumbai. The payment has also been shown in cash of which sources have not been explained. On going through the purchase and sale bill copies it is found that no client code "of the appellant has been mentioned on the bills and neither the same has been shown to be routed through any stock exchange. Thus the authenticity of the purchases was unproved. More so it was in doubt for the reasons that when the delivery of the shares was claimed to have been taken in physical form and the same were deposited in the demat account just before few days from the date of sale. The transactions have been through Shri Mukesh Chokshi group of companies and all the transactions routed through the aforesaid companies were admittedly non-genuine as per the statement of Shri Mukesh Chokshi himself. 4.17. The appellant has alternatively submitted that the appellant has returned short term capital gain of Rs.5,3 3,747/- from sale of shares of Talent Infotech Ltd. and sale price of these shares Rs.5,59,500/- is added as income from undisclosed sources, therefore, Rs.5,33,747/- is requested to be reduced from income of appellant if addition of Rs.5,59,500/- is sustained or else there shall be double taxation of income.”

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9.1 Following these precedents, the ITAT-Ahmedabad by following judgments, deleted similar additions made by authorities below by holding that Short/Long Term Capital Gain offered by assessee were accommodation entries provided by such persons and adding the amounts of such gains u/s. 68 / 69 of the I. T. Act, 1961: a) ITO vs. Shri Prakashchand S. Sandh b) ACIT vs. MaheshG. Vakil c) ACIT vs. Himani M. Vakil d) ManojkumarSarawangi HUF vs. ACIT 9.2 The proposition that, share purchases through broker Mahasagar Securities Pvt. Ltd. are not recorded in the name of, the assessee on the floor of stock exchanges outside the floor of stock exchange has not been held as unlawful activity as held by Mumbai ITAT in the case of Mukesh Moralia ((2006) 6 SOT 247) as under: "10.3 Purchase and sale of shares outside the floor of Stock Exchange is not an unlawful activity. Off-market transactions are not illegal. It is always possible for the parties to enter into transactions even without the help of brokers. Therefore, it is not possible to hold that the transactions reported by the assessee were quite sham on the legal proposition arrived at by the CIT(A) that off-market transactions are not permissible. The assessee has stated that the transactions were made with the help of professional mediators who are experts in off-market transactions. 70.4 When the transactions were off-market transactions, there is no relevance in seeking details of share transactions from Stock Exchanges. Such attempts would be futile. Stock Exchanges cannot give details of transactions entered into between the parties outside their floor. Therefore, the reliance placed by the assessing authority on the communications received from the Stock Exchanges that the particulars of share transactions entered into by the assessee were not available in their records, is out of place. There is no evidential value for such reliance placed by the assessing authority. The assessee had made it very clear that the transactions were not concluded on the floor of the Stock Exchange. The matter being so, there is no probative value for the negative replies solicited by the assessing authority from the respective Stock Exchanges. We are of the considered view that the materials collected by the assessing authority from the Stock Exchanges are not valid to dispel or disbelieve the contentions of the assessee." 9.3 The Mumbai Tribunal order in the case of Shri Mukesh Moralia has been upheld and confirmed by the Bombay High Court in Tax Appeal No.456 of 2007. Therefore, in view of foregoing, the shares purchased through off-market trade the same cannot be considered non- genuine ignoring the facts that the purchases are accepted by Department in preceding year by two assessments for the same year and the payments of purchases and sales are effected by a/c payee cheques. 9.4 Further in the case of Smt. Jaya Vineet Agarwal for A. Y. 2004-05, ld. CIT(A)-XI, Ahmedabad vide its Appeal order No. CIT(A)-XI/437/ACIL Cir. 6(5)/11-12 dated 07/05/2012, on similar facts, has also deleted addition u/s. 69 of the I.T. Act, 1961 on the facts and circumstances relating to the statement of Shri Mukesh Choksi. This order has been accepted by the Revenue. The parties to share transactions and facts being similar, ld. CIT(A) has taken a correct view in deleting the additions. 9.5 Ld. AO, though confirmed the sale of 30,000 Shares of Neptune Securities P. Ltd, however for part of 20,000 sale of shares held to be non-genuine and Rs. 13,17,873 were added u/s 68 on proportionate basis. It leads to a contradiction and despite the facts that BSE has confirmed transaction of 30,000 Shares. In the absence of any inquiry from Vimla Exim P. Ltd who is a undisputedly a member of Ahmedabad Stock Exchange no adverse inference can be drawn. 9.6 In view of these glaring facts, the assessment of Smt. Jaya Agrawal and the fact that the relevant purchases for AY 2004-05 have been held to be genuine, we see no infirmity in the order of ld. CIT(A) in deleting these additions. On the issues of Shri Chokshi, Mahasagar Securities Pvt. Ltd. and Goldstar Finvest Pvt. Ltd., a catena of judgments from ITAT, Mumbai and Ahmedabad is available in favour of the assessee which view also stands confirmed by Hon’ble Bombay High court in the case of Shri Mukesh Moralia. Respectfully following these judicial precedents and facts

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and circumstances as mentioned above, we uphold the order of ld. CIT(A). Revenue’s ground stands dismissed.” We further find that the decision of the Co-ordinate Bench of ITAT was confirmed by the Hon’ble High Court of Gujarat vide Tax appeal no. 645 of 2017 dated 4th September, 2017. The Ld. Counsel has also placed reliance on the decision of the Co-ordinate Bench of the ITAT vide ITA Nos. 810 to 815,922 to 926/Ahd/2015 in the case of Pratik Suryakant Shah & others on the identical issue. The relevant part of the decision is reproduced as under:-

“13. Having heard the rival contentions, we have carefully perused the orders of the authorities below. As mentioned elsewhere, we have considered the facts in ITA No.810/Ahd/2015. We find that the assessee had purchased 3000 shares of Telant Info Ltd from M/s. Mahasagar Securities Pvt Ltd on April 2004. The consideration was paid and the payment of consideration is not in dispute. The shares of Telant Info Ltd were listed in the Bombay Stock Exchange at that point of time. The shares so purchased were sold through M/s. Alliance Intermediateries & Network Pvt Ltd and the consideration was received by cheque. It would be pertinent to mention here that though the shares were purchased in physical form, the same were sent to the company with share application form and the shares were transferred by the company in the name of the purchaser. Thereafter, the shares were transferred in the demat account, from where they were sold. It is not the case of the Revenue that the consideration paid by the assessee at the time of purchase of shares was received back in cash, nor it is the case of the Revenue that the sale consideration received by the assessee was returned back in cash. It is also not the case of the Revenue that the shares in question are still lying with the assessee, nor it is the case of the Revenue that the amounts received by the assessee on sale of the shares is more than what is declared by the assessee. 14. The entire assessment is based upon the statement of Shri Mukesh Choksi. It is an undisputed fact that neither a copy of the statement was supplied to the assessee nor any opportunity of cross- examination was given by the Assessing Officer/CIT(A). The Hon'ble Supreme Court in the ITA Nos. 810 to 815, 922 to 926/Ahd/2015 Shri Pratik Suryakant Shah & others - Total 11 Appls AYs 2006-07 & 2008-09 case of Andaman Timber Industries in Civil Appeal No. 4228 of 2006 was seized with the following action of the Tribunal:- "6. The plea of no cross examination granted to the various dealers would not help the appellant case since the examination of the dealers would not bring out any material which would not be in the possession of the appellant themselves to explain as to why their ex factory prices remain static. Since we are not upholding and applying the ex factory prices, as we find them contravened and not normal price as envisaged under section 4(1), we find no reason to disturb the Commissioners orders." 15. The Hon'ble Apex Court held as under:- "According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two

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witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter ITA Nos. 810 to 815, 922 to 926/Ahd/2015 Shri Pratik Suryakant Shah & others - Total 11 Appls AYs 2006-07 & 2008- 09 of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal."

ITA Nos. 810 to 815, 922 to 926/Ahd/2015 Shri Pratik Suryakant Shah & others - Total 11 Appls AYs 2006-07 & 2008-09

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Assessing Officer is directed to treat the surplus as Long Term Capital Gains and allow the exemption as claimed by the assessees. 20. In the result, all the appeals filed by the assessees are allowed”. Respectfully following the decision of the Co-ordinate Bench of the ITAT as supra in this case, the appeal of the assessee is allowed.

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information received from the investigation wing on the basis of action carried out u/s. 132 as the main person has admitted that these companies were not doing genuine business. After considering the above facts and findings we observed that reopening of the case assessee was initiated on the basis of specific information and admission of Shri Mukesh Chokshi as elaborated supra in this order. Therefore, we do not find any error in the findings of the ld. CIT(A) on this issue. Accordingly, this ground of the assessee is dismissed. In the result, this ground of appeal is dismissed.

Sd/- Sd/- (MAHAVIR PRASAD) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 16/11/2017

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आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद