FALGUNI SANGHVI, MUMBAI V. ASST CIT CIR 16(2), MUMBAI

ITA 5847/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2758 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2004-2005
• Appeal Filed On: 18-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K RAJNEESH K ARVIND
• Assessee Lawyers: RISHABH S HAH
• Keywords: Income from undisclosed sources; Share purchase agreement; Accommodation entries
• Section: 69C; 143(3); 131; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER ITA NO. 5847/MUM/2014 (ASSESSMENT YEAR: 2004-05) SMT. FALGUNI SANGHAVI VS. ACIT, CIRCLE 16(2) B - 1607, SANKARSETH PALACE TARDEO ROAD, GRANT ROAD MUMBAI 400007 MUMBAI PAN - ACAPS6640J APPELLANT RESPONDENT APPELLANT BY: SHRI RISHABH SHAH RESPONDENT BY: SHRI K. RAJNEESH K. ARVIND DATE OF HEARING: 20.09.2016 DATE OF PRONOUNCEMENT: 23.09.2016 O R D E R PER JASON P. BOAZ, A.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)- 27, MUMBAI DATED 27.03.2014 FOR A.Y. 2004-05. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER: - 2.1 THE ASSESSEE, AN INDIVIDUAL DERIVING INCOME FRO M BUSINESS, CAPITAL GAINS AND HOUSE PROPERTY, FILED HER RETURN OF INCOM E FOR A.Y. 2004-05 ON 29.03.2005 DECLARING TOTAL INCOME OF ` 23,20,279/- INCLUDING LONG TERM CAPITAL GAINS (LTCG) OF ` 6,94,327/- ON SALE OF SHARES OF M/S. TALENT INFOWAY LTD. SUBSEQUENTLY, IN VIEW OF THE SEARCH AN D SURVEY ACTION CONDUCTED IN THE CASE OF SHRI MUKESH CHOKSI AND HIS COMPANIES, IT CAME TO LIGHT THAT THE SAID COMPANIES WERE ENGAGED IN TH E BUSINESS OF PROVIDING ACCOMMODATION ENTRIES TO VARIOUS PERSONS TO BOOK BO GUS CAPITAL GAINS. THE ASSESSING OFFICER (AO), ON RECEIPT OF INFORMATION I N THIS REGARD FROM THE INVESTIGATION WING OF THE INCOME TAX DEPARTMENT THA T THE ASSESSEE IS ONE OF THE PARTIES WHO SOLD THE SHARES OF M/S. TALENT I NFOWAY LTD. THROUGH SHRI MUKESH CHOKSIS COMPANIES INITIATED PROCEEDINGS TO REOPEN THE CASE UNDER SECTION 147OF THE INCOME TAX ACT, 1961 (IN SH ORT 'THE ACT'), AFTER ITA NO. 5847/MUM/2014 SMT. FALGUNI SANGHAVI 2 RECORDING REASONS IN THIS REGARD AND TAKING NECESSA RY APPROVAL, THEN ISSUED NOTICE UNDER SECTION 148 OF THE ACT. 2.2 THE AO THEN REQUIRED THE ASSESSEE TO EXPLAIN TH E MODE OF PURCHASE OF 9500 SHARES OF TALENT INFOWAY LTD. CLAIMED TO BE MADE THROUGH GOLDSTAR FINVEST LTD. THE ASSESSEE SUBMITTED THAT IT HAD PUR CHASED THE 9500 SHARES OF M/S. TALENT INFOWAY LTD. THROUGH GOLDSTAR FINVEST PVT. LTD. VIDE BILL NO. CC/2003/044/21 DATED 04.03.2003 FOR ` 14,655.21 AND SOLD THEM IN THE YEAR UNDER CONSIDERATION FOR A CONSIDERATION OF ` 7,08,982/-, THEREBY RESULTING IN LTCG OF ` 6,94,327/- WHICH HAS BEEN INCLUDED IN THE COMPUTATION OF INCOME ATTACHED TO THE RETURN OF INC OME. THE AO, HOWEVER, DID NOT ACCEPT THE ASSESSEES EXPLANATION AND TREAT ED THE SAID LTCG OF ` 6,94,327/- AS INCOME FROM UNDISCLOSED SOURCES AND A LSO MADE AN ADDITION OF ` 8,679/- UNDER SECTION 69C OF THE ACT ON ACCOUNT OF ALLEGED COMMISSION PAID IN CASH @1.25% OF ` 6,94,327/-. THE ASSESSMENT WAS ACCORDINGLY COMPLETED UNDER SECTION 143(3) R.W.S. 1 47 OF THE ACT VIDE ORDER DATED 21.12.2011. 2.3 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR A.Y. 2 004-05 DATED 21.12.2011, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A)-27, MUMBAI, INTER ALIA, CHALLENGING THE ACTION OF THE A O IN REOPENING THE ASSESSMENT UNDER SECTION 147 OF THE ACT AND TREATIN G THE LTCG OF ` 6,94,327/- EARNED ON SALE OF SHARES AS INCOME FROM UNDISCLOSED SOURCES AND CONSEQUENT COMMISSION OF ` 8,679/- @ 1.25% THEREON. THE LEARNED CIT(A) APART FROM UPHOLDING THE AOS ACTION IN REOP ENING THE ASSESSMENT FOR A.Y. 2004-05, ALSO UPHELD THE AOS ACTION IN TR EATING THE LTCG AS INCOME FROM UNDISCLOSED SOURCES AS HE WAS OF THE VI EW THAT IT IS AMPLY CLEAR THAT THE ASSESSEE HAD FAILED TO PRODUCE DETAI LS OF PURCHASE OF SHARES ALLEGED TO HAVE BEEN OBTAINED IN THE EARLIER YEARS. OBSERVING THAT IN VIEW OF THE STATEMENT OF SHRI MUKESH CHOKSI, THAT HE TOOK M ONEY FROM THE PARTIES (WHICH INCLUDED THE ASSESSEE) WHO CAME TO HIM FOR A CCOMMODATION BILLS ON THE BASIS OF WHICH HE USED TO PREPARE BOGUS AND BAC K DATED ACCOUNTS IN THE NAMES OF THESE PARTIES FOR PROFIT, WHICH IN TUR N WERE SHOWN TO HAVE BEEN UTILIZED FOR PURCHASE OF SHARES OF THE BOGUS C OMPANIES FLOATED BY HIM, THE LEARNED CIT(A) HELD THAT THE ASSESSEE WAS COMPLETELY INVOLVED IN ITA NO. 5847/MUM/2014 SMT. FALGUNI SANGHAVI 3 ROUTING OF HER UNACCOUNTED INCOME AND CONVERTING IT INTO ALLEGE LTCG THROUGH BOGUS TRANSACTION WHICH REMAINED ON PAPER. THE LEARNED CIT(A) ACCORDINGLY DISMISSED THE ASSESSEES APPEAL VIDE TH E IMPUGNED ORDER DATED 23.07.2014. 3. AGGRIEVED BY THE ORDER OF THE CIT(A)-27, MUMBAI DAT ED 23.07.2014 FOR A.Y. 2004-05, THE ASSESSEE HAS PREFERRED THIS A PPEAL RAISING THE FOLLOWING GROUNDS: - 1. ON THE FACT AND CIRCUMSTANCES OF THE CASE AS WE LL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION O F LEARNED ASSESSING OFFICER IN REOPENING THE CASE, WITHOUT CO NSIDERING THE PROVISION OF LAW. 2. ON THE FACT AND CIRCUMSTANCES OF THE CASE AS WEL L AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION O F LEARNED ASSESSING OFFICER IN TREATING THE LONG TERM CAPITAL GAIN OF RS.6,94,3271- EARNED ON ACCOUNT OF SATE OF SHARE OF MIS. TALENT INFOWAYS LTD. AS ALLEGED INCOME FROM UNDISCLOSED SO URCES, WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. ON THE FACT AND CIRCUMSTANCES OF THE CASE AS WEL L AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION O F LEARNED ASSESSING OFFICER IN MAKING AN ADDITION U/S. 69C OF THE INCOME TAX ACT, 1961 OF RS.8,679/-ON ACCOUNT OF ALLEGED CO MMISSION PAID IN CASH 1.25% OF RS.6,94,327/-, WITHOUT CONSIDERI NG THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE THE SAID GROUND OF APPEAL. 4.1.1 THE LEARNED A.R. FOR THE ASSESSEE WAS HEARD IN SUPPORT OF THE GROUND NO. 1. ACCORDING TO THE LEARNED A.R., THE AOS ACTI ON IN REOPENING THE ASSESSMENT FOR A.Y. 2004-05 UNDER SECTION 147 OF TH E ACT WAS BAD IN LAW SINCE THE INCOME RETURNED IN THE RETURN OF INCOME F ILED, I.E. ` 23,20,278/- AND THE ASSESSED INCOME IS THE SAME IN THE ORDER OF ASSESSMENT DATED 21.12.2011, EXCEPT FOR THE FACT THAT THE INCOME WHI CH HAD BEEN ADMITTED AS LTCG HAS BEEN TREATED AS UNDISCLOSED INCOME OF T HE ASSESSEE FROM OTHER SOURCES. SECONDLY, SECTION 149 OF THE ACT PRO VIDES THAT IF THE NOTICE UNDER SECTION 148 IS ISSUED AFTER THE PERIOD OF FOU R YEARS FROM THE END OF THE RELEVANT A.Y. 2004-05, I.E. AFTER 31.03.2009, T HEN THE INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT SHOU LD BE ` 1 LAKH OR MORE, WHEREAS IN THE CASE ON HAND FOR THE YEAR UNDE R CONSIDERATION, THE INCOME CHARGEABLE TO TAX THAT HAS ESCAPED ASSESSMEN T IS ACTUALLY NIL, THE ITA NO. 5847/MUM/2014 SMT. FALGUNI SANGHAVI 4 ONLY DIFFERENCE BEING THE TAX RATE APPLICABLE. THE LEARNED A.R. FOR THE ASSESSEE CONTENDS THAT SECTION 147 OF THE ACT REQUI RES THAT INCOME CHARGEABLE TO TAX MUST HAVE ESCAPED ASSESSMENT AND IN THE CASE ON HAND NO INCOME CHARGEABLE TO TAX HAD ACTUALLY ESCAPED ASSES SMENT. THE LEARNED A.R. FOR THE ASSESSEE SUBMITS THAT THE REASONS RECORDED BY THE AO ARE NOT BASED ON A CORRECT APPRECIATION OF FACTS. IT WAS FURTHER CONTENDED THAT RELIANCE ON THE STATEMENT RECORDED UNDER SECTION 131 OF THE ACT OF A THIRD PARTY CANNOT CONSTITUTE THE BASIS FOR THE AO ENTERTAINING REASO N TO BELIEVE FOR INITIATING PROCEEDINGS UNDER SECTION 147 OF THE ACT FOR REOPEN ING THE CASE. 4.1.2 IN RESPECT OF GROUNDS 2 AND 3, THE LEARNED A. R. FOR THE ASSESSEE SUBMITTED THAT THERE IS NEITHER ANY DISPUTE WITH RE SPECT TO THE PURCHASE ON 04.03.2003 AND SALE OF 9500 SHARES OF TALENT INF OWAY LTD. IN THE YEAR UNDER CONSIDERATION NOR PURCHASE AND SALE CONSIDERA TION AND ALL DETAILS IN THIS REGARD TO ESTABLISH THE GENUINENESS SUCH AS; C ONTRACT NOTE FOR SHARES SOLD, BANK STATEMENT REFLECTING AMOUNTS INVESTED, I NVESTMENT ACCOUNT, DETAILS OF TRANSFER OF SHARE CERTIFICATE IN PHYSICA L FORM, ETC. HAS BEEN FILED BEFORE THE AO. WITHOUT MAKING ANY ENQUIRY, THE AO H AS MADE THE ADDITION ON THE BASIS OF INFORMATION FROM INVESTIGATION WING OF I.T. DEPARTMENT BASED ON STATEMENT OF THIRD PARTY WITHOUT PROVIDING THE ASSESSEE OPPORTUNITY TO CROSS EXAMINE SHRI MUKESH CHOKSI THA T HIS COMPANIES WERE GIVING BOGUS ENTRIES FOR CAPITAL GAIN. THE LEARNED A.R. CONTENDED THAT THE AOS VIEW THAT THESE SHARES ARE UNDISCLOSED AND THA T THE INCOME ON SALE THEREOF HAS NOT BEEN OFFERED FOR TAXATION IS WITHOU T BASIS AND THEREFORE THE ADDITION OF THE SAME AS UNDISCLOSED INCOME REQUIRES TO BE DELETED, SINCE HE HAS NOT ONLY BRUSHED ASIDE THE STACK OF EVIDENCE WH ICH THE ASSESSEE HAD FILED, BUT ALSO NOT GIVEN COGENT REASONS OR BASIS F OR REACHING THE CONCLUSION HE DID. 4.2 PER CONTRA, THE LEARNED D.R. PLACED STRONG RELI ANCE ON THE IMPUGNED ORDER OF THE LEARNED CIT(A). 4.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH T HE PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. ON AN APPRECIATION OF THE RECORDS AND ASSESSEES CONTENTIONS, WE, PRIMA FACIE , FIND THAT ON MERITS IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS PURCHASED THE 9500 SHARES OF TALENT ITA NO. 5847/MUM/2014 SMT. FALGUNI SANGHAVI 5 INFOWAY LTD. FOR ` 14,655/- VIDE BILL DATED 04.03.2003 (CONTRACT NOTE PLACED AT PAGE 23 OF THE PAPER BOOK) AND THAT THE SAME HAV E BEEN SOLD FOR A TOTAL CONSIDERATION AMOUNTING TO ` 7,08,982/- IN THE YEAR UNDER CONSIDERATION ON 20.03.2004 AND 26.03.2004 (DETAILS/SUMMARY PLACE D AT PAGE 47 TO 59 OF PAPER BOOK). ONCE THE DATE AND SOURCE OF PURCHAS E OF THE SAID SHARES AND THE DATE AND SALE CONSIDERATION THEREOF ARE NOT DISPUTED, IN OUR CONSIDERED VIEW, THE TRANSACTION IS ONE OF LTCG AS DECLARED BY THE ASSESSEE IN THE RETURN OF INCOME FOR A.Y. 2004-05 A ND THEREFORE THE TREATMENT OF THE SAME AS INCOME FROM UNDISCLOSED SO URCE BY THE AUTHORITIES BELOW IS INCORRECT. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS DISCUSSED FROM PARA 4.1.1 TO 4.3.1 O F THIS ORDER, ON MERITS OF THE ISSUE WE HOLD THAT THE GAIN OF ` 6,94,327/- ON SALE OF 95000 SHARES OF TALENT INFOWAY LTD. BY THE ASSESSEE IN THE YEAR UND ER CONSIDERATION IS TO BE ASSESSED UNDER THE HEAD LONG TERM CAPITAL GAIN A ND WE THEREFORE DELETE THE FINDING OF THE AUTHORITIES BELOW THAT THIS INCO ME OF ` 6,94,327/- BE ASSESSED AS UNDISCLOSED INCOME ALONGWITH THE ADDITI ON OF ` 8,679/- UNDER SECTION 69C OF THE ACT ON ACCOUNT OF ALLEGED COMMIS SION @1.25% THEREON. CONSEQUENTLY, GROUNDS 2 AND 3 OF THE ASSESSEES APPEAL ARE ALLOWED. 5. AS REGARDS GROUND NO. 1 RAISED BY ASSESSEE, ON THE VALIDITY OF THE INITIATION OF PROCEEDINGS UNDER SECTION 147 OF THE ACT FOR REOPENING THE ASSESSMENT FOR A.Y. 2004-05, THE SAME ARE RENDERED ACADEMIC IN NATURE IN VIEW OF OUR FINDING RENDERED ON MERITS ON THE GROUN DS 2 AND 3 RAISED BY THE ASSESSEE. 6. GROUND NO. 4 IS GENERAL IN NATURE AND THEREFORE NO ADJUDICATION IS CALLED FOR THEREON. 7. IN THE RESULT, THE ASSESSEES APPEAL FOR A.Y. 2004- 05 IS ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD SEPTEMBER, 2016. SD/ - SD/ - (SANDEEP GOSAIN) (JASON P. BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 23 RD SEPTEMBER, 2016 ITA NO. 5847/MUM/2014 SMT. FALGUNI SANGHAVI 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -27, MUMBAI 4. THE CIT - 16, MUMBAI 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.