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2016 (11) TMI 364 - ITAT MUMBAI

2016 (11) TMI 364 - ITAT MUMBAI - TMI - Reopening of assessment - income from undisclosed sources - Held that:- We are of the opinion that the AO was justified in issuing the reassessment notice. He had sufficient material, at the time of issuing the notice u/s. 148 of the Act, that certain portion of income had not suffer taxation. We are of the opinion that the order of the FAA does not suffer from any legal infirmity. Therefore, confirming the same we decide the first effective ground of appe .....

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sale price unrealised. It was upon the appellant to discharge the onus which heavily lay on him and he miserably failed. - In the case under consideration, it was proved that the apparent is not real. Genuineness of the transaction was examined, not only taking into consideration the documents, but considering the surrounding circumstances were also considered. In our opinion, these aspects were of significance and importance, when the genuineness of the transaction in question was an issue .....

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t PER RAJENDRA, AM- Challenging the order, dated 02/02/2015, of the CIT (A)-10, Mumbai the assessee company has filed the present appeal. The return of income, declaring total income of ₹ 46.52 lakhs, was filed on 26/05/2006. The return was processed u/s. 143(1) of the Act, on 28/06/2007. Subsequently, the case was re-opened by issuing a notice u/s. 148 of the Act, dated 28/03/2013. In response to the same, the assessee, vide its letter, dated 01/04/2013, stated that return filed by it on .....

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e the First Appellate Authority (FAA). Before him, the assessee agitated the issue of reopening as well as challenged the addition made by the AO. The FAA upheld the reopening as well as the addition. Hence, the assessee is before us. 2. First effective ground of appeal (GOA.1-3) deals with reopening. Before the FAA, it was argued that the AO had reopened the assessment on the basis of information received, that it had entered into accommodation entries with M/s. Mahasagar Securities Group, that .....

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detailed explanation for Short-Term Capital Gains(STCG), that it had purchased shares through M/s. Alliance Intermediaries & Networks Private Ltd. (Alliance), that it had sold the shares through other broker, that it had paid STT on sale of shares, that it had enclosed the copy of bills for purchase and sales of shares and also the demat-statement highlighting the transaction, that the purchase of shares had been disclosed in the books of accounts, that the copies of bank statement evidenci .....

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son to support the claim that the reopening was bad in law, that specific information was received by the AO from the departmental authority on the basis of which he came to the conclusion that the assessee had obtained bogus entry of capital gain, that return filed by the assessee was processed u/s. 143 (1) of the Act, that the AO found reasons to believe that taxable income had escaped assessment, that accordingly he had issued the notice u/s. 148, that in the case under consideration the AO h .....

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hat the return was processed, that the AO had dealt with the objections raised by the assessee. He relied upon the case of Shamim M. Bharwani (ITA No. 4906/Mum/2011, dated 27.03.2015, AY :2006-07). 5. We have heard the rival submissions and perused the material before us. We find that the return, filed by the assessee, was processed by CPC and no regular assessment was completed as per the provisions of section 143(3) of the Act. The processing of return and acknowledging the income filed by the .....

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been conducted in the case of Mukesh Choksi and its related group Companies, which include M/s. Alliance Intermediatories & Net Work Pvt. Ltd., M/s. Gold Star Finvest Pvt. Ltd., M/s Mihir Agencies Pvt. Ltd. on 25/11/2009. The search was conducted on the basis of information received from Financial Intelligence Unit, New Delhi regarding suspicious transactions in the bank account of one M/s. Mahasagar Securities Pvt. Ltd., having address at Block-H, Shree Sadashiv CHS, Santa Cruz East, Mumbai .....

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tern of cash deposits and transfers did not correspond with the business claimed to be carried on. Thus the search action was carried out in the said companies. Shri Mukesh Choksi, one of the Directors of these companies, in the sworn-in statement recorded admitted that he and his group companies were engaged in fraudulent billing activities and in giving accommodation entries in order to enable the clients to declare Speculation profit/loss, Short Term Capital Gain, Long Term Capital Gain, Prof .....

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ation of the data from the statement recorded it is found that the above named assessee has obtained accommodation entries during the F. Y 2005-06 relevant to A.Y 2006-07 in respect of purchase of shares of Maruti Infra amounting to ₹ 12, 66, 943/- through Alliance Intermediaries P. Ltd. which is one of the 34 odd companies floated by Mukesh Choksi. This is nothing but income earned from sources which has not been disclosed to the department in his return of income. Hence, the assessee has .....

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, 66, 943/- are nongenuine and that extent income of the assessee has escaped assessment for the AY 2006-07. In view of the above, I have reason to believe that Income chargeable to tax to the tune of ₹ 12, 66, 943/- or any other income chargeable to tax which comes to my notice subsequently in the course of proceedings for re-assessment, has escaped assessment, within the meaning of provision of Sec. 147 of the Act, 1961. Therefore, I am satisfied that the assessee has failed to disclose .....

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the requirement of reason to believe even after the amendment of section 147 of the Income-tax Act, 1961, therefore, must be seen in the background of such facts. The Supreme Court never meant to convey that to reopen an assessment, which was accepted u/s. 143(1) of the Act, there must be some tangible material, which is alien to the record. To say that when the Assessing Officer records his reason to believe that income chargeable to tax has escaped assessment, he cannot rely on the original a .....

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e or untenable so as to terminate the assessment on the ground that the Assessing Officer could not be stated to have had any reason to believe or tangible material to form an opinion that income chargeable to tax had escaped assessment. Prima facie the facts were glaring. Whether the assessee would be able to discharge the burden of establishing the identity, source and creditworthiness of the depositors was not a question which could be answered without scrutiny. Whether or not the assessee ha .....

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ening of the assessment was valid. In the case of Rajesh Jhaveri Stockbrokers Private Ltd(291 ITR 500) the Hon ble Supreme Court has held as under: Under the scheme of section 143(1) of the Income-tax Act, 1961, as substituted with effect from April 1, 1989, and prior to its substitution with effect from June 1, 1999, what were permissible to be adjusted under the first proviso to section 143(1)(a) were : (i) only apparent arithmetical errors in the return, accounts or documents accompanying the .....

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hority to make adjustments or adjudicate upon any debatable issues. In other words, the Assessing Officer had no power to go behind the return, accounts and documents, either in allowing or in disallowing deductions, allowance or relief. Though technically the intimation issued was deemed to be a demand notice u/s. 156, that did not preclude the right of the Assessing Officer to proceed u/s. 143(2) : that right is preserved and not taken away. With effect from April 1, 1998, the second proviso t .....

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by the information given in the return could be made by the Assessing Officer. The intimation u/s. 143(1)(a) cannot be treated to be an order of assessment. Under the first proviso to the newly substituted section 143(1), with effect from June 1, 1999, except as provided in the provision itself, the acknowledgment of the return shall be deemed to be an intimation u/s. 143(1) where (a) either no sum is payable by the assessee, or (b) no refund is due to him. It is significant that the acknowledgm .....

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u/s. 143(1) (a), the question of change of opinion does not arise. The expression reason to believe in section 147 would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, he can be said to have reason to believe that 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. What is required is reason .....

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s recorded by the AO, we are of the opinion that the AO was justified in issuing the reassessment notice. He had sufficient material, at the time of issuing the notice u/s. 148 of the Act, that certain portion of income had not suffer taxation. We are of the opinion that the order of the FAA does not suffer from any legal infirmity. Therefore, confirming the same we decide the first effective ground of appeal against the assessee. 6. The second effective ground of appeal is about the addition ma .....

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confirmation from the broker namely Alliance for purchase of shares, executed with Alliance and UCC code, proof of delivery of physical shares on the date of purchase. As per the AO the assessee did not furnish any of the above details. He had received information from the investigation wing that the assessee was one of the beneficiaries of bogus STCG entries from the MC group. The AO issued a notice to the assessee on 20/01/2014 wherein details of STCG were given and assessee was directed to e .....

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the contract notes and bills issued by Alliance to the assessee, by the AO in following manner : Q.4. I m showing you the contract notes and bills issued by M/s. Alliance Intermediaries & Network P.Ltd. to M/s. Ecofriendly Hotels Pvt.Ltd, as under: S.No. Contract Note No. Bill No. Date 1. 091/720 082 21/05/2005 2. 092/719 092 16/05/2005 3. 093/609 093 17/05/2005 4. 097/717 097 23/05/2005 5. 098/718 098 24/05/2005 6. 127/602 127 04/07/2005 7. 91/720 91 13/05/2005 Please state whether the tran .....

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he transaction. It was also supplied the copies of statement of MC, recorded on various occasions. He issued one more letter to the assessee giving it one more opportunity to present its case with supporting document. He asked the assessee to show cause as to why the addition proposed by him vide his notice, dated 20/01/2014, should not be made to the total income. After considering the submission of the assessee dated 25/ 02/2014, the AO held that assessee had not purchased the shares of Maruti .....

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ate of sale, that no genuine purchase was made by the assessee in the month of May/ July, 2005. The AO also made enquiries with the NSE. After considering the available material, he held that no actual transactions were carried out by the assessee as per the contract note for purchase of shares, that MC had specifically confirmed on both that contract notes issued by him to the assessee were just to fabricate the STCG of the assessee, that it was supplied the copies of statement given by MC, tha .....

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issued a contract note, that the Tribunal had declared Alliance an entry-provider. Finally, he held that no genuine purchase were made by the assessee of the shares of Maruti and Sundaram, that the transactions were fabricated transact - tions resulting in artificial/bogus capital gains, that the STCG of ₹ 83. 98 lakhs was to be treated as undisclosed income of the assessee introduced in the garb of sale proceeds of the shares which were generally not purchased. He further held that assess .....

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providing hawala entries of capital gains, share application money/giftsthat the statement was further corroborated by the fact that none of the entities were carrying out any genuine business, that the onus was on the assessee, in respect of the amount credited in its books of accounts, to prove that transactions questioned by the AO were genuine, that there appeared a well thought design by which the assessee had arranged the profit, that it had had introduced its own unaccounted money under .....

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injal A Shah(45CCH 38, Mum-Trib.);Jafferali K. Rattonsey (31 CCH 308, Mum-Trib)) and Eastern Commercial Enterprises(210 ITR 103). The DR supported the order of the AO and the FAA and referred to the case of Shameem M Bharwani(ITA/ 4906/ Mum/2011-AY.2006-07, dated 27/03/2015). 9. We have heard the rival submissions and perused the material before us. We find that the assessee had claimed capital gains of ₹ 38.98 lakhs, that the AO and FAA had rejected the claim, that it did not provide supp .....

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the AO/FAA not merely to look at the documents but to consider the surrounding circumstances so as to conclude what is the real character of the transaction. In that context, the income-tax authorities are entitled to decide as to whether a transaction is illusory or a device or a ruse. For that purpose they can penetrate the veil covering such transaction and ascertain the truth. Transactions entered into the normal course of business have to be accepted as such. But, where an assessee adopts .....

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decided considering the surrounding circumstances and logical inferences based on certain facts. One is required to arrive at the conclusion on the basis of human probability. Human probability cannot be ignored for persons like share-broker not to charge money for the shares sold for months together. Alliance, a company controlled by MC, would not leave the sale price unrealised. It was upon the appellant to discharge the onus which heavily lay on him and he miserably failed. The Hon'ble A .....

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tribunal. Therefore, the courts and Tribunals have to judge the evidence before them by applying the test of human probabilities. Human minds may differ as to the reliability of a piece or evidence." Similarly, the Hon'ble Supreme Court had decided the matter of Sumati Dayal(214 ITR 801), after considering the surrounding circumstances and applying the test of human probabilities. In the matter of L.N.Dalmia the Hon ble Calcutta High Court (207 ITR 89)had considered the surrounding cir .....

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ffairs were hidden and they were successful in unearthing it. The AO after receiving the specific information from the investigation wing, directed the assessee to produce the proof the purchase of shares of two companies. It could not furnished any documents that could lead to establish fact that the transaction entered in to by the assessee was genuine one. It was claimed that it had purchased shares from Alliance. But, the director of Alliance i.e. M C had, during the search proceedings, admi .....

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transactions in light of the statements of MC. It was duty of the assessee to produce MC and to prove that purchase of share from Alliance was above board. It is also a fact that the assessee had not furnished any supporting evidence of physical delivery of shares on the date of purchase, that payment for shares allegedly purchased in the months of May and July was made in the month of Decemeber, that the assessee was not the regular customer of Alliance, that there was no justification for hold .....

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