FALGUNI SANGHAVI, MUMBAI V. ASST CIT IR 16(2), MUMBAI

ITA 540/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93169 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 20-11-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 25-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAWAN KU MAR BEERLA
• Keywords: Search and seizure; Share purchase agreement; Opportunity of cross examination; Third party statement; Accommodation entries; Reason to believe
• Section: 143(3); 131; 148; 132

Judgement Text

SMT FALGUNI SANGHAVI ITA NO. 5 4 0 /M/201 2 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F , MUMBAI . . , , BEFORE SHRI G S PANNU , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIA L MEMBER ITA NO. : 5 4 0 /MUM/20 1 2 ( ASSESSMENT YEAR: 200 3 - 0 4 ) SMT FALGUNI SANGHAVI , B - 1607, SANKARSETH PALACE, TARDEO ROAD, GRANT ROAD, MUMBAI - 400 007 .: PAN : A C A PS 6640 J VS ASST. COMMISSIONER OF INCOME TAX, CIRCLE 16(2) , MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAKESH JOSHI RESPONDENT BY : SHRI PAWAN KUMAR BEERLA /DATE OF HEARING : 06 - 05 - 2015 / DATE OF PRONOUNCEMENT : 08 - 07 - 2015 ORDER PER AMIT SHUKLA , J.M. : THE A FORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST IMPUGNED ORDER DATED 17 . 11 .201 1 , PASSED BY CIT(A) - 2 7 , MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) R.W.S. 147 FOR THE ASSESSMENT YEAR 200 3 - 0 4 ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE L EARNE D CIT(A) HAS ERRED IN CONFIRM ING THE ACTION OF LEARNED ASSESSING OFFICER IN REOPENING THE CASE, WITHOUT CONSIDERING THE PROVISION OF LAW. 2. ON THE FACTS A ND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF LEARNED ASSESSING OFFICER IN TREATING THE LONG TERM CAPITAL GAIN OF RS. 12,01,513/ - EARNED ON ACCOUNT OF SALE OF SHARE OF M/S BUNIYAAD CHEMICALS LTD. A S SHORT TERM CAPITAL GAIN, WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. SMT FALGUNI SANGHAVI ITA NO. 5 4 0 /M/201 2 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSES S EE HAD FILED A RETURN OF INCOME FOR AY 2003 - 04 ON 30.03.2004 DECLARING TOTAL INCOME OF RS. 13,96,425/ - WHICH INCLUDED LON G - TERM - CAPITAL - GAIN ON SALE OF SHARES OF M/S BUNIYAAD CHEMICALS LTD. THE SAID RETURN OF INCOME WAS DULY PROCESSED U/S 143( 1 ). LATER ON, IN THE WAKE OF SEARCH AND SURVEY ACTION TAKEN IN THE CASE OF MUKESH CHO KSHI AND HIS GROUP OF COMPANIES, IT CAME TO SURFA CE THAT THE SAID COMPANIES WERE ENGAGED IN THE BUSINESS OF PROVIDING ACCOMMODATION ENTRIES TO VARIOUS PERSONS TO BOOK BOGUS CAPITAL G A I NS. THE ASSESSING OFFICER AFTER RECEIVING THE INFORMATION FROM THE INVESTIGATION WING THAT THE ASSESSEE IS ONE OF THE PAR TIES, WHO HAD SOLD THE SHARES OF M/S BUNIYAAD CHEMICALS LTD. T HR O UGH MR. MUKESH CHOKSHI S COMPANIES , REOPENED THE CASE U/S 147 BY ISSUANCE OF NOTICE U/S 148 , AFTER RECORDING FOLLOWING REASONS: 1. 'THE ASSESSEE FLIED HIS RETURN OF INCOME FOR A.Y. 2003 - 04 O N 30/03/2004 DECLARING AN INCOME OF RS. 13,96,425/ - IN THE STATUS OF INDIVIDUAL. THE RETURN WAS FILED WITH ACIT 16(2), MUMBAI. IT INCLUDES AN INCOME FROM BUSINESS AND PROFESSION OF RS. 38,277/ - , LONG TERM CAPITAL OF RS. 12,67,271 AND OTHER SOURCES OF RS.1, 22,212/ - . THE RETURN WAS PROCESSED U/S 143(1) OF THE I.T. ACT AND NET DEMAND PAYABLE OF RS.10,797/ - WAS DETERMINED. 2. DURING THE COURSE OF SEARCH AND SEIZURE ACTION U/S 132 OF THE I.T.ACT,1961 CARRIED OUT IN THE PREMISES OF M/S MAHASAGAR SECURITIES (P) L TD. (NOW M/S ALAG SECURITIES (P) LTD.) GROUP OF CONCERNS AND PERSONS ON 25.11.2009, IT HAS COME TO THE NOTICE OF THIS OFFICE, FROM THE LEDGER COPY OF THE ACCOUNT OF THE ASSESSEE FOR THE PERIOD 1.4.2002 31.3.2002, THAT THE ASSESSEE HAS SOLD 21000 SHARES BUR IYAD CHEMICALS ON 27.4.2002, 23.04.2002 AND 24.3.2002 AND PURCHASED 9500 SHARES OF TALENT INFOWAYS LTD. ON 4.03.2003, THE SAID LEDGER ACCOUNT OF THE ASSESSEE IS MAINTAINED BY M/S GOLD STAR FINVEST PRIVATE LTD. SMT FALGUNI SANGHAVI ITA NO. 5 4 0 /M/201 2 3 3. SHRI MUKESH MANEKLAL CHOKSHI, WHO HAS FLO ATED COMPANIES OF THIS GROUP HAS CATEGORICALLY ADMITTED IN A STATEMENT RECORDED U/S 131 OF THE I.T. ACT ON 25.11.2009 THAT HE IS ENGAGED IN THE BUSINESS OF PROVIDING ACCOMMODATION ENTRIES TO VARIOUS PERSONS THROUGH VARIOUS COMPANIES FLOATED BY HIM. MRS. FA LGUNI A. SANGHAVI, THE ASSESSEE IS O E SUCH PERSONS WHO HAS OBTAINED SUCH ACCOMMODATION ENTRIES. 3. THE ASSESSING OFFICER ENQUIRED THE ASSESEE TO EXPLAIN THE MODE OF PURCHASE OF SHARES OF M/S BUNIYAAD CHEMICALS LTD. , HOWEVER, THE ASSESSEE SUBMITTED THAT TH E SAME WAS ADJUSTED AGAINST THE SPECULATION PROFIT ON OR BEFORE THE PURCHASE OF SHARES. THE AO NOTED THAT THE ASSESSEE COULD NOT SUBMIT THE CONTRACT NOTES AND THE DETAILS SHOWING THE EARNING OF SPECULATIVE PROFIT AND NO EVIDENCE COULD BE FURNISHED AS TO HOW THE PURCHASE PRICE WAS PAID. THE AO TREATED THE SAID LONG - TERM - CAPITAL - GAIN A S SHORT - TERM - CAPITAL - GAIN AFTER OBSERVING AND HOLDING AS UNDER: 4. I HAVE CAREFULLY CONSIDERED THE APPELLANTS SUBMISSIONS AND THE CONTENTS OF THE ASSESSMENT ORDER. AT THE O UTSET, IT IS AN UNDISPUTED FACT THAT SHRI MUKESH CHOKSHI HIMSELF IS A DIRECTOR OF M/S BUNIYAAD CHEMICALS LTD. AND WAS ALSO A DIRECTOR OF GOLD STAR FILVEST PVT LTD, CARRYING ON THE BUSINESS OF SHARE BROKER. IT IS ALSO A FACT THAT THE APPELLANT SOLD HER SHAR ES IN M/S BUNIYAAD CHEMICALS LTD., THROUGH MR. MUKESH CHOKSHI. DURING THE COURSE OF SEARCH/SURVEY CONDUCTED IN THE PREMISES OF MR. MUKESH CHOKSHI, THE SAID PERSON HAS STATED ON OATH U/S 131 OF THE ACT THAT HE WAS ENGAGED IN GIVING ACCOMMODATION BILLS TO BO OK LONG TERM CAPITAL GAINS. IT WAS ALSO NOTICED THAT THE APPELLANT WAS ONE OF THE BENEFICIARIES AS PER THE BOOKS OF MR. MUKESH CHOKSHI. IN OTHER WORDS, THE INFORMATION WAS EMANATING FROM ONE OF THE PARTIES INVOLVED IN THE IMPUGNED TRANSACTIONS AND THEREFOR E, THE STATEMENT OF MR. MUKESH CHOKSHI CANNOT BE REGARDED AS A THIRD PARTY STATEMENT. SMT FALGUNI SANGHAVI ITA NO. 5 4 0 /M/201 2 4 FURTHER, THE AO HAS FURNISHED THE COPY OF THE REASONS RECORDED FOR RE - OPENING THE ASSESSMENT TO THE APPELLANT AT HER REQUEST, BEFORE COMPLETION OF THE ASSESSMENT. IN THIS BACKGROUND I DO NOT FIND ANY INFIRMITY IN RE - OPENING THE ASSESSMENT U / S.147 OF THE ACT BY THE AO. AS REGARDS THE DATE OF PURCHASING THE SHARES OF M / S. BUNIYAAD CHEMICALS LTD., IT IS A FACT THAT THE APPELLANT FAILED TO FURNISH EVIDENCE AS TO THE ACTUAL DAT E ON WHICH THESE SHARES WERE PURCHASED. THE INFORMATION THAT WAS AVAILABLE ON RECORD WAS THAT THE APPELLANT HAS GOT THE IMPUGNED SHARES DEMATERIALIZED WITH NSDL ON 4.4.2002. THERE WAS NO INFORMATION OF ANY SORT FOR THE PERIOD PRIOR TO THIS DATE. SECONDLY, THERE WAS ALSO NO EVIDENCE PRODUCED AS TO THE ACTUAL PURCHASE PRICE PAID FOR ACQUIRING THESE SHARES. THE APPELLANT HAS FILED COPY OF HER BANK STATEMENT IN BANK OF BARODA WHICH REFLECTS THE PAYMENTS RECEIVED BY HER ON SALE OF SHARES AND THEREFORE, THE AFORE SAID MATERIAL IS NOT RELEVANT TO FIND OUT EITHER THE DATE OF PURCHASE OR THE COST PRICE AT WHICH THE IMPUGNED SHARES WERE PURCHASED. THE SITUATION IS NO DIFFERENT DURING THE PROCEEDINGS BEFORE ME. THE AR MERELY MADE AN ATTEMPT TO STRESS THE POINT THAT THE APPELLANT HAD CERTAIN SPECULATION PROFIT IN THE FINANCIAL YEAR 2001 - 02, THE PROCEEDS OF WHICH WERE UTILIZED TO PURCHASE THE IMPUGNED SHARES. NEITHER THE RETURN OF INCOME FILED BY THE APPELLANT IN FORM 2D NOR THE COMPUTATION OF INCOME ENCLOSED THERE TO, THR OW ANY LIGHT AS TO THE PURCHASE OF IMPUGNED SHARES. MERE OFFERING OF INCOME FROM SPECULATION PROFIT DOES NOT LEAD THE APPELLANT ANYWHERE. IN THE ESSENCE THERE IS NO EVIDENCE PLACED EITHER BEFORE THE AO OR BEFORE ME AS TO THE DATE AND PRICE OF PURCHASING THE IMPUGNED SHARES. IN THE ABOVE BACKGROUND THE AO WAS PERFECTLY RIGHT IN TREATING THE AFORESAID TRANSACTION AS SHORT TERM IN NATURE AND BRINGING THE STCG TO TAX. I DO NOT FIND SMT FALGUNI SANGHAVI ITA NO. 5 4 0 /M/201 2 5 ANY INFIRMITY IN THE ASSESSMENT ORDER. APPELLANT FAILS ON THIS GROUND . SUCH AN ACTION OF THE AO HAS BEEN CONFIRMED BY THE CIT(A) NOT ONLY UPHOLDING THE VALIDITY OF THE PROCEEDINGS U/S 147 BUT ALSO ON MERITS. 4. BEFORE US THE LD. COUNSEL, SHRI RAKESH JOSHI SUBMITTED THAT THE REOPENING U/S 147 IN THE CASE OF THE ASSESSEE IS BAD IN LAW, FIRSTLY, FOR THE REASONS THAT THE RETURN OF INCOME FILED ORIGINALLY AND INCOME ASSESSED BY THE AO IN THE IMPUGNED ORDER IS THE SAME AND THE ONLY DIFFERENCE IS BEING THAT THE INCOME WHICH HAS BEEN OFFERED AS LONG - TERM - CAPITAL - GAIN HAS BEEN TREATED AS S HORT - TERM - CAPITAL GAIN AND THERE IS NO INCOME ESCAPING ASSESSMENT ; SECONDLY, SECTION 149 PROVIDES THAT IF THE NOTICE U/S 148 IS ISSUED AFTER THE PERIOD OF 4 YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR THEN INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT SHOULD BE RS. 1 LAKH OR MORE. HERE, IN THIS CASE, THE INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT IS NIL AND ONLY DIFFERENCE IS IN THE RATE OF TAX. SECTION 147 ENVISAGES THAT INCOME CHARGEABLE TO TAX MUST HAVE ESCAPED ASSESSMENT AND IN THIS CASE, IT CANNOT BE HELD THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED THE ASSESSMENT. ANOTHER CONTENTION RAISED BY THE LD. COUNSEL IS THAT , THE AO HAS NOTED THAT THE ASSESSEE HAS SOLD 21,000 SHARES OF THE M/S. BUNIYAAD CHEMICALS LTD. WHICH, IN FACT , IS NOT CORRECT AS THE ASSESSEE HAS SOLD 30,000 SHARES AND HE HAS ALSO NOTED THAT ASSESEE HAS MAINTAINED LEDGER ACCOUNT WITH GOLDSTAR FINVEST, WHICH FACT AGAIN IS NOT CORRECT. THE ASSESSEE HAS NO TRANSACTION WITH GOLDSTAR FINVEST. THUS THE GROUNDS RAISED IN REASONS RECORDED ARE NOT BASED ON CORRECT APPRECIATION OF FACTS; LASTLY, HE SUBMITTED THAT SIMPLY RELYING UPON STATEMENT RECORDED U/S 131 OF THE THIRD PARTY , CANNOT FORM THE BASIS FOR ENTERTAINING THE REASON TO BELIEVE FOR REOPENING THE CASE. SMT FALGUNI SANGHAVI ITA NO. 5 4 0 /M/201 2 6 5. ON M ERITS, LD. COUNSEL SUBMITTED THAT THERE IS NO DISPUTE REGARDING SALE OF SHARES AND ALSO PURCHASE OF SHARES. THE ONLY DISPUTE WHICH HAS BEEN RAISED BY THE ASSESSING OFFICER IS THAT PURCHASES HAVE NOT BEEN DONE IN THE YEAR 2001 B UT IN THE YEAR 2002 , WHEN THE SHARES WERE DEMATERIALIZED ON 04.04.2002 AND WERE SOLD IN JUNE, 2002. THE PURCHASE PRICE IS ALSO NOT IN DISPUTE. THUS, THE ONLY REASON FOR DISBELIEV ING THE ASSESSEES CONTENTION THAT SHARES WERE DEMATERIALIZED SIX MONTHS PRIOR TO THE DATE OF SALE. ON THE CONTRARY, THE ASSESEE HAD FILED A COPY OF LETTER FROM M/S. BUNIYAAD CHEMICALS LTD. WHICH IS DATED 28 TH APRIL, 2001 MENTIONING SHARE CERTIFICATES WERE DULY TRANSFERRED IN FAVOUR OF THE ASSESSEE. THUS, WHATEVER MA Y BE THE SOURCE, THE ASSESSEE HAS ESTABLISHED THAT THE SHARES WERE DULY TRANSFERRED IN THE NAME OF THE ASSESSEE IN APRIL, 2001 ITSELF, THEREFORE, THE SALE MADE AFTER THE EXPIRY OF ONE YEAR IS TO BE TREATED AS LONG - TERM - CAPITAL - GAINS. 6. ON THE OTHER HAND, THE LD. DR STRONGLY RELIED UPON THE ORDER OF THE CIT(A) AND SUBMITTED THAT ASSESSEE HAS FAILED TO PROVE THE PURCHASE IN THE YEAR 2001. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO THE RELEVANT MATERIAL PLACED ON RECORD. ON THE PERUSAL OF THE RECORDS AND THE ASSESSEES CONTENTION, PRIMA FAC IE WE FIND THAT , ON MERITS IT IS NOT IN DISPUTE THAT ASSESSEE HAVE SOLD THE SHARES AFTER JUNE, 2002 AND THE PURCHASE OF SHARES AND PURCHASE AMOUNT HAVE ALSO NOT BEEN DISPUTED. THE ONLY CONTENTION RAISED BY THE DEPARTMENT IS THAT PURCHASE DATE SHOULD BE TRE ATED FROM THE DATE OF DEMATERIALIZATION I.E. WHEN THE SHARES WERE ENTERED INTO DMAT ACCOUNT . IN FACT FOR ACTUAL PURCHASE PRICE PAID BY THE ASSESSEE , THEY ARE ACCEPTING THE PURCHASE OF THE SHARES. BEFORE THE CIT(A), THE ASSESSEE HAVE CONTENDED THAT THE SH ARES OF M/S. BUNIYAAD CHEMICALS LTD. WERE TRANSFERRED IN THE NAME OF THE ASSESSEE IN APRIL, 2001. THIS FACT IS ALSO SUPPORTED BY CERTIFICATE/LETTER DATED 1 ST APRIL, 2001 ISSUED BY M/S. BUNIYAAD CHEMICALS LTD. THROUGH THE ASSESSEE, WHEREIN, 30,000 SHARES HA VE BEEN TRANSFERRED IN SMT FALGUNI SANGHAVI ITA NO. 5 4 0 /M/201 2 7 FAVOUR OF THE ASSESSEE. THIS INTER - ALIA MEANS THAT THE ASSESSEE WAS IN POSSESSION OF THE SHARES IN APRIL, 2001. ONCE THE SOURCE OF PURCHASE HAVE NOT BEEN DISPUTED AND LONG - TERM - CAPITAL - GAIN IS TREATED AS SHORT - TERM MERELY ON THE DATE OF ACQUISITION , THEN ON STRENGTH OF THE CERTIFICATE ITSELF IT GOES TO SHOW THAT THE ASSESSEE WAS THE OWNER OF THE SHARES IN THE MONTH OF APRIL, 2001 AND HENCE, THE SALE OF SHARES AFTER JUNE, 2002 IS NOTHING BUT LONG - TERM - CAPITAL - GAIN, THEREFORE, TREATING THE GAIN ON SALE OF SHARES AS SHORT - TERM - CAPITAL - GAIN BY THE AO AS WELL AS CIT(A) IS NOT CORRECT . T HE OTHER OBSERVATIONS THAT THE SOURCE OF PURCHASE OUT OF SPECULATION PROFIT IS NOT PROVED MA Y NOT BE VERY SIGNIFICANT AS ULTIMATELY NOTHING HAS BEEN BROUGHT ON RECORD AS THE SHARES WERE PURCHASED ONLY IN THE MONTH OF APRIL, 2002 AND TRANSFER CERTIFICATE BY THE COMPANY IS NOT GENUINE. ACCORDINGLY, ON MERITS ITSELF WE HOLD THAT THAT THE GAIN IN SALE OF SHARES IS ASSESSABLE UNDER THE HEAD LONG - TERM - CAPITAL - GAIN. 8. AS REGARD ASSESSEES ARGUMENTS ON VALIDITY OF REOPENING U/S 147 ON VARIOUS GROUNDS, THE SAME HAVE BEEN RENDERED ACADEMIC IN VIEW OF OUR FINDING GIVEN ABOVE ON MERITS . ACCORDINGLY, THE GROUNDS OF APPEAL OF THE ASSESSEE ARE TREATED AS ALLOWED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH JU LY , 2015. SD/ - SD/ - ( . . ) ( ) ( G S PANNU ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 8 TH JU LY , 2015 / COPY TO: - 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT (A) - 27 , MUMBAI 4) THE CIT CITY XIV/26 , MUMBAI . SMT FALGUNI SANGHAVI ITA NO. 5 4 0 /M/201 2 8 5) , , / THE D .R. F BENCH, MUMBAI. 6) COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS