Shri.Vijay Hahar, Bangalore V. Income Tax Officer, Bangalore

ITA 2195/BANG/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5521 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 13-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A R V SREENIVA SAN J
• Assessee Lawyers: H N KHINCHA
• Keywords: Search and seizure; Accommodation entries
• Section: 68; 148; 132

Judgement Text

`IN THE INCOME TAX APPELLATE TRIBUNAL SMC - C BENCH : BANGALORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 2193/BANG/2016 ASSESSMENT YEAR: 2007-08 SMT. ASHA NAHAR, # 121, OPP. MARATHA HOSTEL, BULL TEMPLE ROAD CROSS, BANGALORE 560 019. PAN: ABCPN 0164B VS. THE INCOME TAX OFFICER, EARLIER: WARD-3(3), NOW: WARD -5(2)(1), BANGALORE. APPELLANT RESPONDENT ITA NO. 2194/BANG/2016 ASSESSMENT YEAR: 2007-08 SMT. H.V. PINKY, # 121, OPP. MARATHA HOSTEL, BULL TEMPLE ROAD CROSS, BANGALORE 560 019. PAN: AEPPP 6598H VS. THE INCOME TAX OFFICER, WARD 2(3)(4), BANGALORE. APPELLANT RESPONDENT ITA NO. 2195/BANG/2016 ASSESSMENT YEAR: 2007-08 SHRI VIJAY NAHAR, # 121, OPP. MARATHA HOSTEL, BULL TEMPLE ROAD CROSS, BANGALORE 560 019. PAN: AAJPN 3398K VS. THE INCOME TAX OFFICER, EARLIER: WARD-3(3), NOW: WARD -5(2)(4), BANGALORE. APPELLANT RESPONDENT ITA NOS. 2193 TO 2195/BANG/2016 PAGE 2 OF 12 APPELLANT BY : SHRI H.N. KHINCHA, CA RESPONDENT BY : SHRI AR.V. SREENIVASAN, JCIT(DR) DATE OF HEARING : 21.02.2017 DATE OF PRONOUNCEMENT : 18.04.2017 O R D E R PER VIJAY PAL RAO, JUDICIAL MEMBER THESE THREE APPEALS BY THREE INDIVIDUAL ASSESSES A RE DIRECTED AGAINST THE THREE SEPARATE ORDERS OF CIT(A) DATED 14.10.2016 AN D 06.10.2016 FOR THE ASSESSMENT YEAR 2007-08. SINCE THESE APPEALS ARE P ERTAINING TO THREE RELATED ASSESSES AND INVOLVING COMMON ISSUE AS WELL AS ARIS ING FROM IDENTICAL FACTS AND CIRCUMSTANCES THEREFORE, FOR THE SAKE OF CONVENIENC E THESE THREE APPEALS WERE CLUBBED TOGETHER FOR THE PURPOSE OF HEARING AND ARE DISPOSED OF BY THIS COMPOSITE ORDER. FOR THE PURPOSE OF RECORDING THE FACTS AND GROUNDS THE APPEAL IN ITA NO. 2193/BANG/2016 IS TAKEN AS LEAD CASE WHE REIN THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: ITA NOS. 2193 TO 2195/BANG/2016 PAGE 3 OF 12 ITA NOS. 2193 TO 2195/BANG/2016 PAGE 4 OF 12 ITA NOS. 2193 TO 2195/BANG/2016 PAGE 5 OF 12 2. GROUND NO. 1 IS GENERAL IN NATURE AND DOES NOT REQU IRE ANY SPECIFIC ADJUDICATION. 3. GROUND NO. 2 IS REGARDING VALIDITY OF REOPENING. A T THE TIME OF HEARING THE LD. AR OF THE ASSESSEE HAS STATED AT BAR THAT T HE ASSESSEE DOES NOT PRESS GROUND NO. 2 AND THE SAME MAY BE DISMISSED AS NOT P RESSED. THE LD. DR HAS RAISED NO OBJECTION IF GROUND NO. 2 IS DISMISSE D AS NOT PRESSED. ACCORDINGLY, THE GROUND NO. 2 OF THE ASSESSEES APP EAL IS DISMISSED BEING NOT PRESSED. 4. GROUND NOS. 3 TO 8 ARE REGARDING REJECTION OF CLAIM OF LONG TERM CAPITAL GAIN FROM SALE OF SHARES AND TREATING THE SAME AS I NCOME FROM OTHER SOURCES. THE ASSESSEE IS AN INDIVIDUAL AND FILED T HE RETURN OF INCOME DECLARING INTER ALIA THE LONG TERM CAPITAL GAIN OF RS. 7,40,586/- ON SALE OF SHARES OF M/S. TALENT INFOWAY LIMITED AND CLAIMED E XEMPT U/S. 10(38) OF THE ACT. THERE WAS A SEARCH AND SEIZURE ACTION U/S . 132 OF THE IT ACT IN CASE OF M/S. MAHASAGAR SECURITIES AND MUKESH CHOKSI GROUP ON 25.11.2009, WHEREIN SHRI MUKESH CHOKSI THE KEY PERS ON OF THE SAID GROUP ADMITTED IN THE STATEMENT RECORDED BY THE INV ESTIGATION WING THAT HIS GROUP COMPANIES INCLUDING M/S. MAHASAGAR SECURI TIES, M/S. ALLIANCE INTERMEDIATIRES & NETWORKS PVT LTD. ETC WERE ENGAGE D IN PROVIDING ITA NOS. 2193 TO 2195/BANG/2016 PAGE 6 OF 12 ACCOMMODATION ENTRIES IN ORDER TO ENABLE THE CLIENT S TO DECLARE SPECULATIVE PROFIT / LOSS, SHORT TERM CAPITAL GAIN, LONG TERM CAPITAL GAIN ON ACCOUNT OF COMMODITY TRADING, SHARE APPLICATION MON EY ETC. ACCORDINGLY, THE INVESTIGATION WING OF THE IT DEPAR TMENT GAVE INFORMATION TO THE AO THAT DURING THE FINANCIAL YEA R 2006-07, THE ASSESSEE PURCHASES M/S. TALENT INFOWAY LIMITED SHARES THROUG H THE BROKER M/S. GOLDSTAR FINVEST PVT. LTD. THE ASSESSMENT WAS REOP ENED BY THE AO BY ISSUING NOTICE U/S. 148 OF IT ACT. THE AO COMPLETE D THE REASSESSMENT BY MAKING AN ADDITION U/S. 68 TOWARDS THE SALE CONSIDE RATION RECEIVED ON ACCOUNT OF SALE OF M/S. TALENT INFOWAY LIMITED. TH US THE AO MADE AN ADDITION ON ACCOUNT OF SHARE TRANSACTIONS TREATING THEM AS INCOME FROM OTHER SOURCES ON THE GROUND THAT SHRI MUKESH CHOKSI HAS STATED IN THE STATEMENT THAT THE ENTRIES ARE ACCOMMODATIVE IN NAT URE AND THE BROKER WHO ISSUED THE CONTRACT NOTES WAS NOT ENTITLED TO O PERATE IN ANY OF THE STOCK EXCHANGE. FURTHER THE ASSESSEE CLAIMED TO HA VE PURCHASED THE SHARES OF M/S. TALENT INFOWAY LIMITED BY WAY OF CAS H AND DEMATERIALIZATION OF THE SHARES SUBSEQUENTLY WAS HE LD BY THE AO HAS AFTER THOUGHT TO GET BENEFIT OUT OF SUCH ACCOMMODATIVE EN TRIES BY COLORABLE DEVICE. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE CIT(A) BUT COULD NOT SUCCEED. ITA NOS. 2193 TO 2195/BANG/2016 PAGE 7 OF 12 5. BEFORE THE TRIBUNAL, THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE PURCHASES THE SHARES OF M/S. TALENT INFOWA Y LIMITED ON 15.04.2004 FOR A CONSIDERATION OF RS. 11,914/- WHIC H WERE DEMATERIALIZED IN THE MONTH OF DECEMBER 2005 AND THEREAFTER THE SH ARES WERE SOLD ON 27.02.2007. THUS THE LD. AR HAS SUBMITTED THAT THE SALE OF SHARES WERE NOT IN DISPUTE AS THE ASSESSEE SOLD THE SHARES FROM ITS DEMAT ACCOUNT AND THE ENTIRE TRANSACTION OF SALE WAS THROUGH BANKING CHANNEL. THUS, THE PROFIT ON SALE OF SHARES OF M/S. TALENT INFOWAY LIM ITED IS LONG TERM CAPITAL GAIN WHICH IS EXEMPT U/S. 10(38) OF THE IT ACT. HE HAS FURTHER CONTENTED THAT THE ASSESSEE IN SUPPORT OF ITS CLAIM FURNISHED THE CONTRACT NOTES OF THE BROKER THEREBY THE SHARES WERE PURCHAS ED BY THE ASSESSEE. FURTHER THE ASSESSEE HAS DULY SHOWN THE SHARES IN T HE BALANCE SHEET AS ON 31.03.2005. THEREFORE, THE ASSESSEE HAS PRODUCED A LL RELEVANT EVIDENCE TO ESTABLISH THE GENUINENESS OF THE TRANSACTION OF PUR CHASE AND SALE OF 7,900 SHARES OF M/S. TALENT INFOWAY LIMITED. HE HAS REFE RRED TO THE DEMAT ACCOUNT DETAILS OF THE ASSESSEE AND SUBMITTED THAT A TRANSACTION HAS BEEN REFLECTED IN THE DEMAT ACCOUNT AND THEREFORE IT CAN NOT BE DOUBTED AS HELD BY THE AO AND CONFIRMED BY THE CIT(A) TREATING IT A S A BOGUS TRANSACTION IN THE NATURE OF ACCOMMODATION ENTRIES TAKEN FROM A GROUP CONCERN OF SHRI MUKESH CHOKSI. IN SUPPORT OF HIS CONTENTION H E HAS RELIED UPON DECISION DATED 23.03.2011 OF THE COORDINATE BENCH O F THE TRIBUNAL IN CASE ITA NOS. 2193 TO 2195/BANG/2016 PAGE 8 OF 12 OF SMT. VIMALA DEVI CHHAJER AT PAGE 25 OF THE PAPER BOOK AND OTHERS IN ITA NOS. 513 TO 526/BANG/2010, 946/BANG/2010 TO 949 /BANG/2010, 953/BANG/2010 TO 956/BANG/2010, 970/BANG/2010, 1000 /BANG/2010 TO 1005/BANG/2010 AND 1071/BANG/2010 AND SUBMITTED THA T WHEN THE SHARES WERE REFLECTED IN THE BALANCE SHEET OF THE ASSESSEE AS WELL AS IN THE DEMAT ACCOUNT AND SALES OF SHARES WERE SHOWN IN DEMAT ACC OUNT OF THE ASSESSEE THEN THE TRANSACTION CANNOT BE DOUBTED. THEREFORE, THE PROFIT ON SALE OF SHARES HAS TO BE TREATED AS LONG TERM CAPITAL GAIN. THE LD. AR HAS ALSO REFERRED TO THE PROVISIONS OF SECTION 10(38) AND SU BMITTED THAT IF A TRANSACTION OF SALE OF SHARES IS SUBJECTED TO SECUR ITY TRANSACTION TAX (STT) THEN THE LONG TERM CAPITAL GAIN ARISING OF SU CH TRANSACTIONS IS EXEMPT. HE HAS THEN REFERRED TO THE CONTRACT NOTE AND SUBMITTED THAT THE TRANSACTION OF SALE WAS DULY SUBJECTED TO STT AND T HEREFORE THE BENEFIT OF SECTION 10(38) CANNOT BE DENIED. 6. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT TH E SALE IN QUESTION IS NOT THROUGH STOCK EXCHANGE AND THEREFORE NO STT WAS PAID ON THESE TRANSACTIONS. FURTHER, THE ENTIRE TRANSACTION IS F OR THE ACCOMMODATION ENTRIES PROVIDED BY MUKESH CHOKSI GROUP THROUGH ITS GROUP CONCERNS. THE ASSESSEE HAS NOT PROVED THE GENUINENESS OF PURC HASE OF SHARES AS IT WAS CLAIMED THE PURCHASES AGAINST CASH. THEREFORE, THE CLAIM OF THE ITA NOS. 2193 TO 2195/BANG/2016 PAGE 9 OF 12 ASSESSEE IN THE ABSENCE OF EVIDENCE CANNOT BE ACCEP TED. THE AO HAS EXAMINED THE CONTRACT NOTE RELIED UPON BY THE ASSES SEE AND FOUND THAT THE BROKER IN QUESTION WAS NOT AUTHORIZED TO TRADE IN T HE STOCK EXCHANGE AND IN THE SHARES. THEREFORE, THE CONTRACT NOTE PRODUC ED BY THE ASSESSEE DOES NOT PROVE THE TRANSACTION OF PURCHASE. FURTHER, TH E ASSESSEE HAS ALSO FAILED TO PROVE THE PAYMENT OF CONSIDERATION AS THE ASSESSEE HAS CLAIMED THE PAYMENT THROUGH CASH. HE HAS RELIED UPON THE O RDERS OF THE AUTHORITIES BELOW. 7. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE ASSESSEE CLAIMED TO HAVE PURCHASED 7,9 00 SHARES OF M/S. TALENT INFOWAY LIMITED ON 15.04.2004. IN SUPPORT O F ITS CLAIM THE ASSESSEE PRODUCED CONTRACT NOTE OF THE BROKER. HOW EVER, THE AO IN THE ENQUIRY FOUND THAT THE ALLEGED BROKER WAS NOT AN AU THORIZED BROKER OF THE STOCK EXCHANGE TO DEAL IN THE SALE AND PURCHASE OF SHARES. THEREFORE THE AO REJECTED THE SAID CONTRACT NOTE. FURTHER, SINCE THE ASSESSEE HAS CLAIMED TO HAVE PURCHASED THE SHARES AGAINST CASH T HE AO HAS REJECTED THE CLAIM. THE PURCHASE PRICE CLAIMED BY THE ASSESSEE IS ONLY RS. 11,914/- WHEREAS THE SHARES WERE SOLD FOR A CONSIDERATION OF RS. 7,51,816.31/- AND THEREBY CLAIM TO HAVE EARNED LONG TERM CAPITAL GAIN OF RS. 7,39,902.31/- AGAINST THE INVESTMENT OF RS. 11,914/-. THE NATURE OF TRANSACTION ITSELF IS NOT FREE FROM THE DOUBT OF MANIPULATION IN THE PURC HASES AND SALE ITA NOS. 2193 TO 2195/BANG/2016 PAGE 10 OF 12 TRANSACTION AND THEREFORE THE AO WAS REQUIRED TO CO NDUCT A PROPER ENQUIRY. THE AO HAS REJECTED THE CLAIM OF THE ASSE SSEE ON THE GROUND THAT IN THE CASE OF SEARCH AND SEIZURE ACTION U/S. 132 OF THE IT ACT SHRI MUKESH CHOKSI IN HIS STATEMENT HAS STATED THAT HE I S PROVIDING ACCOMMODATION ENTRIES IN ORDER TO ENABLE THE CLAIMS TO DECLARE SPECULATION PROVIDED CAPITAL GAIN ETC. IT IS PERTA INING TO NOTE THAT THOUGH THE PURCHASE TRANSACTION AS CLAIMED BY THE ASSESSEE ON 15.04.2004, MAY NOT BE ACCEPTABLE HOWEVER, WHEN THE SHARES ARE DEMA TERIALIZED AND SHOWN IN THE DEMAT ACCOUNT OF THE ASSESSEE THEN ON THE SAID DATE OF DEMATERIALIZATION OF SHARES THE EXISTENCE OF THE SH ARES IN THE NAME OF THE ASSESSEE CANNOT BE DISPUTED. THEREFORE EVEN IF THE ASSESSEE HAS NOT PRODUCED A CONCLUSIVE EVIDENCE TO PROVE THE TRANSAC TION OF PURCHASE ON 15.04.2004 HOWEVER THE HOLDING OF SHARES BY THE ASS ESSEE AS ON THE DATE OF DEMATERIALIZATION CANNOT BE DOUBTED. THE ASSESS EE HAS CLAIMED THAT THE SHARES WERE DEMATERIALIZED IN THE MONTH OF DECE MBER 2005. IN SUPPORT OF CLAIM THE ASSESSEE HAS REFERRED THE DEMA TERIALIZATION REQUEST FORM DATED 08.12.2005, AND THE DETAILS OF DEMAT ACC OUNT WHEREIN THE TRANSACTION OF SALE OF SHARES OF M/S. TALENT INFOWA Y LIMITED HAS BEEN REFLECTED. IT IS NOT IN DISPUTE THAT THESE SHARES WERE FINALLY DEMATERIALIZED AND SHOWN IN THE DEMAT ACCOUNT OF THE ASSESSEE HOWE VER, THE ACTUAL DATE OF DEMATERIALIZATION ENTRY IN THE DEMAT ACCOUNT IS NOT PROVED BY THE ITA NOS. 2193 TO 2195/BANG/2016 PAGE 11 OF 12 ASSESSEE. THE REQUEST FOR DEMATERIALIZATION DATED 08.12.2005 ITSELF IS NOT A CONCLUSIVE PROOF OF CONVERTING THE SHARES INTO TH E DEMAT ACCOUNT AND FURTHER THE DETAILS FILED BY THE ASSESSEE REGARDING THE DEMAT ACCOUNT ALSO DO NOT REFLECT THE ENTRY OF SHARES IN THE DEMAT ACC OUNT. ONLY THE SALE TRANSACTION AS ON 27.02.2007 HAS BEEN REFLECTED IN THE DEMAT ACCOUNT. THEREFORE THE TRANSACTION OF SALE IS NO DOUBT PROVE D BY THE ASSESSEE. BUT, THE DATE OF PURCHASE IS STILL NOT CLEAR. THUS THE ONLY QUESTION WHICH REMAINS TO BE ASCERTAINED IS THE DATE OF DEMATERIAL IZATION OF THESE SHARES AND THEREFORE THE MARKET PRICE OF THE SHARES ON THE DATE OF DEMATERIALIZATION WOULD BE CONSIDERED AS PURCHASE C ONSIDERATION OF THE SHARES AND CONSEQUENTLY THE SALE ON 27.02.2007 MAY RESULT SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN AS CASE MAY BE DEPENDING UPON THE DATE OF DEMATERIALIZATION OF THE SHARES. FURTHER T HE QUANTUM OF CAPITAL GAIN IS ALSO DEPENDING ON THE PURCHASE PRICE WHICH IS THE PREVAILING PRICE ON THE DATE OF DEMATERIALIZATION. ACCORDINGLY, THI S ISSUE OF COMPUTATION OF CAPITAL GAIN WHETHER IT IS SHORT TERM OR LONG TE RM AS WELL AS THE PURCHASE PRICE ON THE DATE OF DEMATERIALIZATION IS REMANDED TO THE RECORD OF THE AO FOR PROPER VERIFICATION. THE AO IS SPECI FICALLY DIRECTED TO FIND OUT THE ACTUAL DATE OF DEMATERIALIZATION OF SHARES AND THE PREVAILING MARKET PRICE OF THE SHARES ON THE DATE OF DEMATERIA LIZATION TO BE CONSIDERED AS PURCHASE CONSIDERATION AND THEN COMPU TE THE CAPITAL GAIN. ITA NOS. 2193 TO 2195/BANG/2016 PAGE 12 OF 12 SINCE THE FACTS ARE IDENTICAL IN ALL THE CASES THER EFORE THE ISSUE IN ALL THREE CASES IS SET ASIDE TO THE RECORD OF THE AO. 8. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE ALLO WED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF APRIL, 2017 SD/- (VIJAY PAL RAO) JUDICIAL MEMBER BANGALORE, DATED, THE 18 TH APRIL, 2017. / MS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.