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2016 (3) TMI 676 - ITAT AHMEDABAD

2016 (3) TMI 676 - ITAT AHMEDABAD - TMI - Reopening of assessment - Held that:- Assessing Officer has initiated proceedings on the basis of information received from the documents pertaining to search operation in the case of Mahasagar Securities Ltd. and further the Assessing Officer has specifically mentioned the total value of transactions relating to purchase and sale of securities and proceedings have been initiated for reassessment to verify the value of transactions of ₹ 1,43,042/- .....

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formation along with computation of income filed with original return of income prior to date of search and further supporting evidence supplied by assessee proving that some transaction has happened on 9.8.2005 by sale of Sardar Sarovar bonds which have been acquired by the assessee in January, 1995 and have been sold on 9.8.2005 after paying service tax and turnover charges through broker of National Stock Exchange mentioning three bonds in the contract note, then it was the duty of the Assess .....

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the help of assessee from the department of Sardar Sarovar Ltd. keeping record of shares transfer so as to verify that whether the assessee was the owner of three bonds of Sardar Sarovar from January, 1995 onwards till the date of sales i.e. 9.8.2005 and whether there was transfer of bonds from assessee’s account to some other persons’ account pursuant to sale of bonds. The Assessing Officer should frame a fresh assessment order on the basis of this information which is crucial for deciding that .....

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s also remitted to the file of Assessing Officer to take necessary information from Sardar Sarovar Ltd. that whether Sardar Sarovar bonds are in the nature fo equity shares or debenture. If the Assessing Officer comes across to this effect that Sardar Sarovar bonds are not equity shares and only in the nature of debenture on which interest income is received by the debenture holder then the assessee will not be eligible for exemption income u/s 10(38) of the Act. - Decided partly in favour of as .....

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sessee has raised following grounds of appeal :- 1.1 The order passed u/s 250 on 23.4.2015 for Asst. Year 2006-07 by CIT(A)-10 Ahmedabad, upholding the addition of ₹ 1,43,042/- is wholly illegal, unlawful and against the principles of natural justice. 1.2 The ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the explanations furnished and the evidence produced by the appellant. 1.3 The ld. CIT(A) has grievously erred in confirming the addition of .....

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e and reflected in the original return. 2.2 That in the facts and circumstances of the case as well as in law, the ld. CIT(A) has grievously erred in upholding addition of ₹ 1,43,042/- as unexplained income from fictitious transaction with Mahasagar Securities Ltd. group. 3.1 The ld. CIT(A) has grievously erred in upholding that notice of reopening u/s 148 and proceedings initiated were not illegal and unlawful. Since the conditions precedent for reopening the assessment were not satisfied .....

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5/11/2009 in the case of M/s Mahasagar Securities Ltd. and other group companies and the information received from DIT (System), New Delhi, it was ascertained by the department that the assessee is also involved in taking entries from group companies belonging to Mukesh Chokshi group during F.Y. 2005-06 and total transaction involved is ₹ 1,43,042/-. On the basis of this information the assessment was reopened u/s 147 of the Act and notice u/s 148 of the Act was issued on 30/03/2013 after .....

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77; 1,42,008/- through sub-broker Alliance Intermediaries & Network Pvt. Ltd. On the basis of information available with the Assessing Officer mentioning that the registration of sub-brokership of M/s Alliance Intermediaries & Network Pvt. Ltd. was cancelled on 19/02/2004 whereas the assessee has furnished the sale bill dated 9/8/2005 of Alliance Intermediaries & Network Pvt. Ltd. Due to this reason the Assessing Officer came to a conclusion that this transaction of receipt of ₹ .....

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& Network Pvt. Ltd. is a registered sub-broker (INS 230783537) affiliated to M/s ISE Securities & Services Ltd. (TM code 10777), a registered trading number of the Exchange. The date of registration of M/s Alliance Intermediaries & Network Pvt. Ltd. in the capital market segment is October 12,2000. The registration was cancelled on February 19, 2004. The assessee has furnished the bills dated 9/8/2005 of Alliance Intermediaries & Network Pvt. Ltd. through whom the assessee has sh .....

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the above facts, it is proved that the assessee has taken accommodation entries from the Mahasagar group of companies and is not able to prove transactions of shares of ₹ 1,43,042/-. Therefore, the amount of investment in shares of ₹ 1,43,042/- is treated as unexplained income and added to the total income of the assessee. Since the assessee has conceale4d the particulars of income and also furnished in accurate particulars of income, the penalty proceedings u/s 271(1)(c) of the IT .....

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one of his bogus companies, had provided accommodation entries. The AO observed that the appellant had shown LTCG sale of bonds through one of the bogus companies floated by Mukesh Choksi. Based on this, the AO had reason to believe the income had escaped assessment. The Courts have held that the AO must have a belief that income has escaped assessment and that the requirement is not that the AO should have finally ascertained the fact by legal evidence or conclusion. Hon ble Supreme Court in A .....

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reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. Hon ble Punjab & Haryana High Court in Arunkumar Goyal vs. CIT (2012) 28 taxmann.com 248 (P & H) has held as under :- (13). The expression "reason to believe" thus cannot be restrictively construed to say as if the AO is obligated firstly to finally ascertain the factum of escaped inc .....

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al vs. CIT (1956) 28 ITR 299 (Patna) held as follows :- The ITO has jurisdiction to initiate a proceeding under section 34 of the 1922 Act if upon information presented before him the ITO believes in good faith that income has escaped assessment. The jurisdiction of the ITO to start a proceeding under section 34 of the 1922 Act cannot obviously depend upon the ultimate result of the proceedings. Even if it is found ultimately upon enquiry that there has been no escapement of income, it is, not a .....

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, the AO re-opened the assessment after recording reasons to do so. Copy of reasons was provided to the appellant. The appellant raised objections to re-opening vide letter dated 23.12.2013. the AO rejected the objections by a speaking order dated 24.12.13. Thus it is seen that the AO had reopened the assessment after following due procedure as prescribed in the Act. Hence, I find no infirmity in the action of the AO in reopening the assessment. With due regard to ratio of judgments relied on by .....

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re made through. Alliance Intermediaries Net work Pvt. Ltd. company which was engaged in providing accommodation entries. The AO observed that this share broker was not registered with National Stock Exchange (NSE) as per information received from this stock exchange and that registration of alliance Intermediaries was cancelled on 19.2.2004, much before the appellant made the transactions. Based on all this, the AO concluded that the appellant had not carried out any genuine transaction for sal .....

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facts and in law as under :- (a) Firstly, the AO has observed that Shri Mukesh Chokshi in his statement on 16/1/2013 admitted to have provided accommodation entries wherein there were 829 beneficiaries including the present appellant. However, the AO had not provided copy of said statement of Shri Chokshi on which he has placed heavy reliance though the appellant had asked for the copy as well as cross examination of Shri Chokshi vide letter dated 6/1/2014. It is now well settled position in la .....

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f Shri Maulik Shah (307 ITR 137 ) (Guj) (SLP rejected as per 322 ITR-2 (ST), it was held that simply on the basis of statement of a third party without any corroborative evidence, no adverse view can be taken or addition made. (b) Secondly, The AO has failed to appreciate that the testimony of Shri Chokshi was not reliable in the sense that he has subsequently changes his statements to suit his convenience at various points of time. At the time of search in his case, he stated that many of the t .....

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observed that a man indulging into double speak cannot be stated by any means a truthful man at any stage and no Court can decide on which occasion ne was truthful. (Refer to decision in case of Rajkumar Shorewala ITA No. 10S-11 O/Mum/2010 dt14-5-2010 at page-5 of the order) (C) Thirdly, as regards the merits of the case, the appellant hacl furnished the evidence by way of bought notes and contract notes in respect of purchase and sale of shares, copy of bank, passbook with UCO bank a/c 157280. .....

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ount from share broker in connection with the sale of shares, AO was not justified in rejecting the genuineness of receipt of money from sale of shares and treating the entire amount as income from undisclosed sources. The contention of AO that the registration of the broking firm with NSE was cancelled on 19-2-2004 has no relevance because the customer dealing with the broker is not supposed to verify the said details and he is entitled to presume from the details given on the , . contract note .....

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ITA No 2301/M/2010, A.Y.07-08 have observed as follows:- "2. Briefly stated facts of the case are that there was a search conducted in case of one Shri Hitesh M.Bagthariya on 28.6.2006 during the course of which in his statement recorded under section "! 32(4) he had stated that he was an entry operator and he used to arrange cheques of M/s Mahasagar Securities Pvt. Ltd. and M/s.Goldstar Finvest Pvt. Ltd. It was also stated by him that Mr. Mukesh Chowkshi, the assessee in this appeal, .....

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Securities (P) Ltd. iii) M/s. Alliance Intermediateries (P) Ltd. iv) M/s.Mahasagar Securities (P) Ltd. (formerly known as Richmond Securities (P) Ltd. v) M/s.AlphaChemie Trade Agency (P) Ltd. vi) M/s.Mihir Agencies (P) Ltd. vii) M/s.TalentInfoway (P) Ltd. viii) M/s. Buniyad Chemicals Ltd. ix) MukeshChowkshi, Individual 3. The AO noted that the modus operand! adopted by the assessee was that he first received cash from entry seekers which were deposited in the bank account of one of the group com .....

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as shown to have been received as sale consideration by the above modus. Further, the AO has mentioned that registration of Alliance Intermediaries was cancelled way back in 2004 much before the appellant undertook the share transactions. Further, the AO has also observed that NSE has informed that Alliance Intermediaries is not registered with them. In the absence of registration with NSE, how can the share broker enter into transactions. The appellant has not brought out anything to controvert .....

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appeal is dismissed. 5. We have heard the rival contentions and perused the material on record. From going through the grounds we find that there are two issues which need to be adjudicated. (1) That ld. CIT(A) has grievously erred in upholding that notice of reopening u/s 148 of the Act and proceedings initiated were not illegal and unlawful. (2) Treating the sale consideration of sale of Sardar Sarovar Bonds as unexplained income at ₹ 1,43,042/-. 6. First we take the legality of reopenin .....

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ough group companies belong to Shri Mukesh Choksi which was known as Mahasagar Securities Ltd. and coordinate bench quashed the assessment order by deciding that the notice u/s 148 of the Act was not valid because Assessing Officer has not recorded his satisfaction in the notice with regard to escapement of income. 7. From going through the facts of the case we find that the facts are not similar to the facts of the case referred by ld. AR in the decision of co-ordinate bench in the case of Sona .....

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pening the assessment is enclosed herewith. 3. On perusal of the reasons recorded it revealed that there was search in the case of M/s Mahasagar Securities Ltd. group on 25/11/2009 and the statement on oath of Shri Mukesh M. Chokshi has been recorded in which it is admitted that the groups companies are providing entries for taking profit/loss by showing purchase and sale of shares in the name of various parties. Further, on verification of data it is ascertained that you are also involved in ta .....

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t 11.30 a.m. and furnish your reply to the above issues of show cause notice, as mentioned above failing which the decision for making addition on the above issue will be taken on merits on the basis of details available on record. Yours faithfully, Sd/- (R.A. Rathod) Income-tax Officer, Ward-3(4), Ahmedabad. 8. From going through the above referred notice we find that the Assessing Officer has initiated proceedings on the basis of information received from the documents pertaining to search ope .....

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t in upholding that notice of reopening u/s 148 was not illegal and unlawful. Therefore, this ground of the assessee is dismissed. 9. The next ground is against the action of ld. CIT(A) confirming the addition of ₹ 1,43,042/- as unexplained income from fictitious transaction with Mahasagar Securities Ltd. group. During assessment proceedings u/s 143(3) r.w.s. 147 of the Act the Assessing Officer observed that in the computation of income assessee has shown long term capital gain of ₹ .....

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as assessee has furnished contract note dated 9.8.2005 and due to this reason the amount of ₹ 1,43,042/- was added to the income of the assessee as unexplained income on account of investment in shares of ₹ 1,43,042/-. 10. From going through the above observation, we find that the Assessing Officer has mentioned the amount of ₹ 1,43,042/- in his assessment order. The ld. CIT(A) in her order has mentioned the long term capial gain of ₹ 1,43,042/- on sale of Sardar Sarovar .....

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ffected on 9.8.2005. It seems that there is some confusion in between the records made available by the assessee and information available with the Assessing Officer and further figures mentioned by ld. CIT(A) in her order. To arrive at the correct figure of sale consideration as well as capital gain the matter needs to be re-examined by the Assessing Officer by taking appropriate information from assessee as well as verifying the records at the end of AO in relation to information received with .....

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income along with showing the date of acquisition as January, 1995 and cost price of three Sardar Sarovar Bonds for ₹ 3,600/- each. The ld. Assessing Officer has made addition only on the basis of information of the registration being cancelled of M/s Alliance Intermediaries & Network Pvt. Ltd. He ought to have appreciated the fact that Sardar Sarovar Bonds are Government Securities and assessee has mentioned the purchase and sale dates of the bonds and further details of the transfer .....

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5 by sale of Sardar Sarovar bonds which have been acquired by the assessee in January, 1995 and have been sold on 9.8.2005 after paying service tax and turnover charges through broker of National Stock Exchange mentioning three bonds in the contract note, then it was the duty of the Assessing Officer to verify the genuineness of the transaction through the share transfer department of Sardar Sarovar bonds after taking necessary information including distinctive number of Sardar Sarovar bonds fro .....

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rds till the date of sales i.e. 9.8.2005 and whether there was transfer of bonds from assessee s account to some other persons account pursuant to sale of bonds. The Assessing Officer should frame a fresh assessment order on the basis of this information which is crucial for deciding that whether transaction shown by the assessee is long term capital gain was genuine or it was a sham transaction. 10.3 Further in the assessment order Assessing Officer has mentioned that assessee is not eligible t .....

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rdar Sarovar bonds. 10.4 From going through the assessment order we find that Assessing Officer has not made any separate disallowance in computing the assessed income by denying exemption u/s 10(38) of the Act. However, ld. Assessing Officer has specifically mentioned in his order that Sardar Sarovar bonds are not equity shares and they are in the nature of bonds on which the bond holder receives interest. Section 10(38) of the Act reads as under :- Sec. 10(38) any income arising from the trans .....

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