STATUS CREDIT & CAPITAL P.LTD,MUMBAI vs. ITO 4(3)(4), MUMBAI

This appeal by the assessee is directed against the order of the CIT(Appeals)-8, Mumbai dated 10/05/2012 for the assessment year 2004-05.

2.1 The assessee, a company engaged in carrying on a business centre, finance and investment and dealing in shares and securities, filed the return of income for the assessment year 2004-05 on 1/11/2004 declaring total income of Rs.40,420/-. The return was processed u/s. 143(1)(a) of the Income tax Act, 1961 (in short ‘the Act’). Subsequently, information was received by the Assessing Officer (AO) from the DDIT(Inv.) Unit-I(4), Mumbai that search action u/s. 132 of the Act was carried out in the case of Mahasagar Securities Pvt. Ltd., group concerns in the course of which the statement of one Shri Mukesh Choksi, Director, Alliance Intermediaries & Network Pvt. Ltd., M/s. Buniyad Chemicals Ltd. etc. Was recorded u/s. 132(4) of the Act. In his statement Shri Choksi submitted that though his companies were not allowed to operate in the Stock Exchange, these concerns were providing accommodation entries for persons who have unaccounted money and are in need of claiming bogus profits, capital gains etc., The list of beneficiaries of such activities/transactions, inter alia, included the assessee in the case on hand. On the basis of this information, the AO initiated proceedings u/s. 147 of the Act and subsequently notice u/s. 148 of the Act was issued to the assessee on 16/3/2011.In response thereto, the assessee filed a return declaring income of Rs.40,418/-. The assessment was completed u/s. 143(3) r.w.s. 147 of the Act vide order dated 25/10/2011 wherein the income of the assessee was determined at Rs.13,77,501/- in view of an addition of Rs.12,99,820/- u/s. 69C of the Act on account of unaccounted investment in purchase of the following shares from Alliance Intermediaries & Network Pvt. Ltd.

S.No. Date Name of the No. Of Investment Company shares (Rs.) 1. 8/4/2003 East India 2950 4,55,402.43 Hotels ltd. 2. 8/4/2003 Orient Bank 3550 2,52,595.46 Ltd. 3. 8/4/2003 Buniyad 57,300 5,91,822.53

Chemicals Ltd. TOTAL 12,99,820.42 2.2 Aggrieved by the order of AO for the AY 2004-05 dated 25/10/2011, the assessee preferred an appeal before the CIT(Appeals)-8, Mumbai who disposed off the same vide order dated 10/5/2012 allowing the assessee partial relief.

3.1 Aggrieved by the order of the CIT(A)-8 , Mumbai dated 10/5/2012 for the AY 2004-05, the assessee has preferred this appeal raising the following grounds:-

“1. On the facts and in the circumstances of the case, the learned Commissioner of Income tax (Appeals) erred in upholding the addition of Rs.12,99,820/- as unexplained expenditure u/s.69C of the Income tax Act, 1961 made by the Assessing Officer. The appellant submits that there is no unexplained expenditure claimed by the appellant to the tune of Rs.12,99,820/- and hence the addition confirmed ought to be deleted.

2. Without prejudice to ground No.1 above and on the facts and in the circumstances of the case, the learned Commissioner of Income tax (Appeals) erred in rejecting the appellant's alternative plea that if the purchases are treated as bogus purchases, the corresponding sales recorded in the books of accounts and shown in the audited statement of accounts should also be treated as bogus sales and such sales should be deleted from the Profit & Loss account.

3.2.2 The Ld. Representative for the assessee further submits that in the course of assessment proceedings the Assessing Officer on noticing that the assessee had shown 4000 shares of Buniyad Chemicals Ltd., in its investment schedule required the assessee to explain the said transaction. The assesse’s explanation was that the said transaction was genuine. It was submitted before the Assessing Officer that the share transaction were as under:-

(i) that 2950 shares of East India Hotels Ltd. were purchased for Rs.4,55,325/- and sold for Rs.5,56,888/- and profits declared for tax.

(ii) that 3550 shares of Orient Bank Ltd. were purchased for Rs.2,52,552/- and sold for Rs.2,81,482/- and profit declared.

(iii) In respect of M/s. Buniyad Chemicals, 57,300 shares were purchased for Rs.5,91,305, out of which 53,300 were sold at a profit of Rs.6,476/-, which was booked and the balance 4,000 shares were carried forward at a cost of Rs.41,313/-.

3.2.3 It is submitted that the authorities below have rejected the assessee’s explanation and details and evidences filed in this regard and proceeded to treat the purchase of shares as bogus merely based on the unsubstantiated statement of Shri Mukesh Choksi, which has no corroborative evidence to support it. It is contended that the authorities below have not considered or appreciated evidence placed by the assessee before them in support of its stand, such as purchase and sale bills from Alliance Intermediaries & Netwok Pvt. Ltd. bank account reflecting the receipt of sale proceeds, details of sale of shares of M/s. Buniyad Chemicals Ltd., share transfer forms, financial statements of the assessee to show that profits/gains thereon had been declared by the assessee. It was thus, pleaded that the Assessing Officer had erred in adding the said amount of Rs.12,99,820/- and the Ld. CIT(A) erred in confirming the same. The Ld. Representative for the assessee also placed reliance on the following decisions of the various Co-ordinate benches of the ITAT, Mumbai to contend that in similar circumstances, similar additions had been deleted by the Tribunal on the basis that apart from the information received /statement given there was no corroborative material evidence on record which could establish that the purchase and sale transactions entered into by the assessee were bogus.

(i) Smt Shashi K. Lahoti (ITA No.7637/Mum/2013 dated 1/12/2014); (ii) Smt. Navneeta Mhera(ITA No.3632/Mum/2010 dated 29/7/2011); (iii) Shri Sachin N. Morakhia (ITA No.1122/Mum/2012 dated 01/06/2012); (iv) M/s. Navjeevan Credit and Holdings Ltd. (ITA No.5422/Mum/2012 dated 27/11/2012); (v) Smt. Durgadevi Mundra (ITA No.1176/Mum/2012 dated 1/6/2012); (vi) Smt. Radhika R. Toshniwal (ITA NO.1331/Mum/2010 dated 13/3/2013) and Ravindra Toshniwal (ITA No.1356/Mum/2010)

3.3 Per contra, the Ld. Departmental Representative appearing for the Revenue placed strong reliance on the orders of the authorities below. It was reiterated by the Ld. Departmental Representative appearing for the Revenue that the purchases and sales of shares shown by the assessee were bogus as these transactions were entered into by the assessee through M/s. Alliance Intermediaries & Network Pvt. Ltd., which is a concern in which Shri Mukesh Choksi on whom search was carried out is a Director and who admitted in his statement that he and his group of concerns indulged in bogus purchase and sales of shares with various persons/concerns; one of whom is the assessee in the case on hand.

3.4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial decisions cited. The sale and purchase of shares in the relevant period by the assessee are supported by documentary evidence which has not been controverted by the authorities below. Rather, we find that the authorities below have made and confirmed the additions based merely on information that the assessee has entered into the share transactions with a concern engaged in bogus billing. It is seen that there is no material on record to establish that the share transactions entered into by the assessee were bogus either in terms of purchase and sale thereof or in terms of the rates at which these shares were purchased and sold. On the contrary, the assessee has filed evidence before the authorities below to show that these shares were purchased and sold for prices prevalent in the market and payments for purchases thereof was made through banking channels. Relevant documentary evidence in this regard has been filed in the paper book placed before us, which is certified as having been placed before the authorities below. In this view of the matter and taking into account the relevant facts and circumstances of the case, we are of the considered opinion that the judicial pronouncements placed reliance upon by the Ld. Representative for the assessee (supra) would be applicable to the case on hand.

3.4.2 Following the decision of the Co-ordinate bench of ITAT, Mumbai in the case of Smt.Shashi K. Lahoti in dated 1/12/2014, wherein similar additions were made, and Smt. Duradevi Mundra v. ITO (supra), we delete the addition of Rs.12,99,820/-. In the case of Smt. Shashi K. Lahoti (supra) the assessee had entered into purchase and sale of shares of Media Matrix through M/s. Alliance Intermediaries & Network Pvt. Ltd. and had incurred a short term capital loss of Rs.3,33,956/- which claim was disallowed by Revenue. In the case of Smt. Durgadevi Mundra (supra), where similar addition of Rs.2,67,247/- was made, the assessee had entered into purchase and sale transactions of 3,400 shares of M/s.Buniyad Chemicals Ltd., and 1,000 shares of M/s.Jay Kee Dee Indl. Ltd. The resultant profit of Rs.2,67,247/- was brought to tax by the Department. The additions in the aforementioned cases was deleted by the Co-ordinate benches with the following observations as extracted from para-5 of the decision in the case of Smt.Shashi K. Lahoti (supra):-

However, there is no material on record to suggest that the transactions entered into by the assessee were bogus either in the terms of sale and purchase or in the terms of rates at which these shares were purchased and sold. Rather assessee has filed evidence to show that these shares were purchased for a price which were prevalent in the market and payments were made through banking channel and these shares were also sold at the prevalent market rate. These shares were also credited in the D-mat account and have gone out of the D-mat account. The relevant documentary evidence has been filed in the paper book. In this view of the situation, I am of the opinion that the decisions relied upon by Ld. AR would be applicable to the present case. Respectfully following the same I delete the addition. For the sake of completeness reference can be made to the aforementioned decision of Smt. Durgadevi Mundra vs. ITO (supra), wherein similar addition of Rs.2,67,247/- was made. The assessee in that case was entered into purchase and sale of 3400 shares of M/s.Buniyad Chemicals Ltd. and 1000 shares of M/s. Jay Kee Dee Indl. Ltd. and these transactions of sale long term capital gain was shown at Rs.2,67,247/-, which was taxed by the Department as income from other sources. The said addition was deleted with the following observations: “4. I have heard the parties and perused the record. The Ld. Counsel submits that in respect of the ‘Shares Scam’ alleged to be involved by Shri Mukesh Chokshi actions were taken against many persons disallowing their claim in respect of long-term capital gain and short term capital gain. He submits that on identical set of facts the issue has been considered by the Tribunal. The Ld. Counsel filed the copies of the Tribunal decision by way of compilation as under: i) Mukesh R. Marolia vs. Addl. CIT -6 SOT 247 ii) Rajnudevi Chowdhary vs. ITO -ITA 6455/M/2007(Bom) iii) ITO vs. Truptic Shah -ITA 6455/M/2007(Bom) iv) Chandrakant Babulal Shah -ITA 6108/M/2009(Bom) v) ACIT vs. Shri Ravindrakumar Thshinwal-ITA5302/M/2008(Bom) 5. He, therefore, pleaded for accepting the claim of the assessee in respect of long-term capital gain. I have also heard the Ld. D.R.

“7. We have considered the submissions of the rival parties and examined the record. The case relied upon by the learned Counsel are not directly applicable to the facts of the case as in those cases the sale proceeds are treated as undisclosed income denying the entire transaction as such, whereas, in the present case, the Assessing Officer did not treat the sale of shares as bogus. He has only examined the purchase of shares and doubted the date of purchase. But in the computation he has given benefit to the same cost of purchase of shares and taxed the long term capital gain offered as short term capital gain only. As far as the date of purchase is concerned, the evidence on record indicate that the assessee had indeed earned speculation profit by sale of APTECH shares which the Assessing Officer has not doubted. Further the assessee also suffered speculation loss as stated above in February, 2001 and debit and credit entries pertaining to same broker were shown in the balance sheet in the return filed for the AY 2001-2002 in August, 2001. There is also a mention of purchasing of shares of the company in the return. It is also on record that the said company vide letter dated 30-6-2000 had transferred the shares in the name of the assessee with the folio No. 15021 and certificate Nos. 105744 to 105848. The Assessing Officer neither questioned the said company nor disproved the transfer of share certificates by 30/6/2000. The only basis for arriving at the conclusion that the transaction is not genuine is on the basis of the statement given by Mr. Mukesh Chokshi on 20-6-2004/20-6-2002 before the DDIT (Inv.) with reference to certain transactions undertaken by Mr. Mukesh Chokshi and his group of companies, mainly Gold Finvest Pvt. Ltd. Richmond Securities and Alembic Securities, which are dealing in interconnected stock exchange/NSC. Most of the enquiries pertains to the transactions in interconnected stock exchange and sale of shares in the company viz., Rashel Agro Tech Ltd. The enquiry in the said group of companies was with reference to the issuance of bogus purchase and sale bills and accommodating various parties in earning the capital gains. However, as submitted by the learned Counsel, the assessee’s name is not figuring in the transactions which were originally enquired by the DDIT (Inv.) on 26-4-2002. Even though the modus operandi was explained and stated that they were getting 0.5% commission in arranging the transactions, nothing was concluded against the assessee in the said statement. The Assessing Officer in the course of assessment again recorded the statement under section 131 on 9-11-2006 in which question No. 4 and 5 which are extracted in the assessment order itself. The main reliance is on question No. 5 which is as under :

“Q.5 : Please give the details of bills of profit issued by your company as stated above. Ans: These bills numbers Bills No. CC/2000/16/12501 dt.18-4-2000 which shows that B.87610.85 payable to Shri Chandrakant D. shah. There is another Bill No. CC/2001/07/164 (N) dt.20/2/2001 in which Rs.89602 was receivable by Shri Chandrakant B.Shah. These bills are issued showing fictitious profit and therefore the purchase are not substantiated by genuine payments.”

“8. This statement was relied upon by the Assessing Officer to state that the purchase bills are issued showing fictitious profit. However, the assessee was not given an opportunity to cross examine Mr. Mukesh Chokshi and when an opportunity was given and assessee was present Mr. Mukesh Chokshi was not available. The only basis for this above statement is that the payments are not made immediately but even statement itself indicate that they were capital gains earned by the assessee as speculation profits and in question No. 4 in the statement Mr. Mukesh Chokshi admits the purchase of 10500 shares of Rashel Agro Tech Ltd. made out of adjusted share profits and therefore confirmed that this is an ‘adjustment transaction’. In view of this statement in question Nos. 4 and 5, we are unable to understand how the transactions becomes a bogus one. There is no evidence except this oral statement which is also not submitted for cross-examination to prove/disprove the transaction. Whereas the assessee furnished transaction details, the bank accounts, purchase and sale of other listed companies, speculation profit and loss and also evidence in the form of balance sheet filed much before the said shares were sold. The sale of shares was undertaken in December 2001 whereas the return for AY 2001-2002 was filed by August 2001 itself indicating the purchase of shares and outstanding amounts to M/s. Golden Finvest Ltd in the statements. In view of the documentary evidence in favour of the assessee, we are unable to accept the contention of the Assessing Officer based on the statement which is also unsupported by any other evidence to deny the benefit of purchase of shares by the assessee on 8-4-2000. Not only that the Assessing Officer has also gave credit for the same amount of purchase of shares at cost and did not treat the sale proceeds as bogus/unaccounted income. The only action taken by the Assessing Officer is to deny the assessee the benefit of long term capital gain and subsequent deduction under section 54EC of the Act as the assessee invested the capital gains in REC Bonds. We do not see any reason to agree with the findings of the Assessing Officer and also the findings of the CIT (A). In fact, the CIT (A) has went ahead in treating the entire transaction as bogus and confirmed the action of the Assessing Officer while holding “this will be more for an unexplained receipt of money of the appellant. Hence, Assessing Officer had rightly added the amount by and the action of the Assessing Officer in making this addition is confirmed treating it as STCG”. In arriving at this conclusion, the CIT (A) presumed that assessee could have paid full payment of ` 16 lakhs by way of cash which was not the case of the Assessing Officer either. There is no evidence even to presume these observations of the CIT (A) as stated above.

We accordingly, allow the assessee’s appeal.

Order pronounced in the open court on 13/01/2016