Income Tax Appellate Tribunal - Hyderabad
Aditya Sreeramji Magapu, Hyd, ... vs Ito, Ward-14(3), Hyderabad, Hyderabad on 5 July, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B", HYDERABAD
BEFORE SHRI D. MANMOHAN, VICE PRESIDENT
AND
SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
I.T.A. No. 866/HYD/2017
Assessment Year: 2007-08
M. Aditya Sreeramji, The Income Tax Officer,
HYDERABAD Vs Ward-14(3),
[PAN: AIIPM5030G] HYDERABAD
(Appellant) (Respondent)
For Assessee : Shri P. Murali Mohan Rao, AR
For Revenue : Smt. N. Swapna, DR
Date of Hearing : 08-06-2018
Date of Pronouncement : 05-07-2018
ORDER
PER B. RAMAKOTAIAH, A.M. :
This is an appeal by assessee against the order of the Commissioner of Income Tax(Appeals)-6, Hyderabad, dated 06-04-2017, on the issue of treating assessee's capital gain as 'bogus' by the Assessing Officer (AO) but as 'income from other source' by the Ld.CIT(A).
2. Briefly stated, assessee has filed return of income admitting total income of Rs. 6,41,730/- inter alia claiming exemption of Long Term Capital Gain to an extent of Rs. 4,64,41,737/-. AO initiated re-assessment proceedings :- 2 -:
I.T.A. No. 866/Hyd/2017 u/s. 147 by issuance of notice u/s. 148 of the Act on 20-03- 2013 recording a satisfaction that 'as per the information received from the CCIT, Mumbai, assessee is one of the beneficiaries of fraudulent activities and accommodation entries made by Shri Mukesh Choksi in order to enable his clients to declare speculations profit/loss, Short Term Capital Gain, Long Term Capital Gain, profit/loss on account of commodity trading etc., introduces share application money or introduces money in the form of gifts, as admitted by him in his sworn statements given in connection with search and seizure operations and during the scrutiny assessment proceedings consequent to search and seizure operations'. AO further noted that 'as per information received, Shri Mukesh Choksi group has given accommodation bill of Rs. 5,08,45,425/- to the assessee. The cost value of the bill is only Rs. 83,002/-. Thus, assessee reaped benefit of Rs. 5,07,22,422/- through fake bills received from Shri Mukesh Choksi and group during the year under consideration i.e., FY. 2006-07 relevant to the AY. 2007-08'. Accordingly, he has recorded that he has 'reason to believe that income chargeable to tax to the tune of Rs. 5,07,22,422/- as escaped assessment for the AY 2007-08 as per the provisions of Sec.147 of the I.T. Act'. It was also on record that approval from Addl.CIT, Range- 6 was received on 24-03-2014 and notice was issued accordingly.
3. In the consequential proceedings, AO neither provided copy of the statement recorded from the said Shri :- 3 -:
I.T.A. No. 866/Hyd/2017 Mukesh Choksi to assessee nor provided information received from CCIT, Mumbai. However, in the reasons communicated to AO, Placed in Paper book of assessee at page no.407 instead of amounts mentioned in the order sheet as stated above, has communicated the different amounts of cost price at Rs. 15,98,415 and benefit at Rs. 4,92,07,010/- though the matter is reported verbatim. Assessee objected to the reopening of assessment on the reason that such information cannot be used for re-opening assessment as there is no basis for such opinion. AO, however, did not specifically reject the contentions but informed assessee that his objections are not valid and went on to complete the assessment proceedings. In the course of assessment proceedings, assessee has submitted the necessary details that he has purchased shares in the earlier year (Demat through NSDL) and subsequently, sold them in the stock exchange and received the consideration by way of cheques through Bank. It was submitted that the purchases were made by the broker, M/s. Alliance Intermediaries and Network Pvt. Ltd., [M/s. AINP Ltd.,] and the shares even though were purchased in cash were kept in custody of the said M/s. AINP Ltd., and subsequently, transferred to Dmat account of assessee. It was submitted that at the time of sale, the shares purchased were already credited to assessee's account by the NSDL and sales were also made through the Inter-connected Stock Exchange of India Limited. It was further submitted that AO has reopened the assessment in the AY. 2006-07 for examining the purchase :- 4 -:
I.T.A. No. 866/Hyd/2017 of shares and those proceedings were dropped accepting the purchase of shares.
3.1. It was further contended that since assessee has purchased the shares and sold the shares through stock exchange, the transaction being Long Term Capital Gain the gain is exempt from tax and assessee has correctly claimed the exemption. AO, however, did not agree with the contentions of assessee. Based on the so called statement of Shri Mukesh Choksi, AO treated the transactions as 'bogus' and has brought to tax the entire amount of Rs. 4,80,40,150/- received by assessee as sale consideration as 'unexplained credit' and assessed accordingly without even allowing the cost of purchase.
4. On appeal by assessee, Ld.CIT(A) vide order dt. 06-04-2017, partly allowed the contentions of assessee that purchase cost is to be given credit. Accordingly, the amount of addition was restricted to the capital gain amount of Rs.
4,64,41,737/-. However, Ld.CIT(A) rejected the contentions on reopening of assessment u/s. 147 and also on exemption claimed u/s.10 on the Long Term Capital Gain. Ld.CIT(A) changed the head of income as 'income from other sources' and directed the AO to tax the amount after giving credit for the purchase cost of shares at Rs. 15,98,415/-. The contentions that if statement of Shri Mukesh Choksi is to be considered, then, proceedings u/s. 153C should have been initiated and not u/s. 147 were also rejected.
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I.T.A. No. 866/Hyd/2017
5. Contesting the above order of the Ld.CIT(A), assessee originally raised many grounds and filed various sets of additional grounds in the course of appellate proceedings.
Many of the grounds are repetition of the same issue and more or less like submissions on the same point. The summarised contentions of assessee in various grounds can be stated as under:
a. Reopening of assessment is bad in law;
b. Reliance on the statement of Shri Mukesh Choksi, is bad in law;
c. Non-furnishing of statement/information/cross- examination vitiates the proceedings;
d. The evidence of assessee in justifying the share transactions should have been accepted;
e. Long Term Capital Gain should have been allowed as exemption u/s. 10(38);
6. We have heard the rival contentions of Ld.Counsel and Ld.DRs, over a period of time and at various stages of hearings parties filed written submissions, case law and placed further documents on record. It is to be admitted that assessee was not provided with the copy of the reasons recorded for reopening the assessment till the same was placed on record in the form of paper book by the Revenue before us. There is variation in the amounts mentioned in the actual recording of reasons and reasons communicated to assessee in the course of assessment proceedings. Ld. Counsel took objections to the difference in the amounts mentioned. AO originally records :- 6 -:
I.T.A. No. 866/Hyd/2017 that Shri Mukesh Choksi has been providing accommodation bill of Rs. 5,08,05,425/- with cost value of only Rs. 83,000/-, whereas in the impugned assessment year, the gross sale consideration was Rs. 4,80,40,150/- and the purchase consideration was Rs. 15,98,415/-, which in fact was purchased in previous year 2005-06 relevant for AY. 2006-07. It is also noted that neither the statement of Shri Mukesh Choksi was furnished to assessee nor he was allowed cross- examination in spite of asking for the same. Even the information received from the CCIT, Mumbai was not placed on record. It is also to be noted from the Paper book of Revenue that ITO, Ward-14(3) has placed on record now certified copies of statements Shri Mukesh Choksi and certified copy of letter of ITO, Ward-6(3), forwarding information which was filed by the DR on 10-05-2018. This communication indicates that ITO, Ward-6(3) has informed ITO, Ward-6(4) at Hyderabad as under:
Sub: I.T. Asst. Year 2007-08 & 2008-09 - PAN: AIIPM5030G - In the case of Sri Aditya Sreeramji Magapu - Forwarding of - Reg.
*** As per the letter received from the CCIT, Mumbai a search operation was conducted in the case of Mahasagar Group. Sri Mukesh Choksi of Mahasagar Group has admitted that he has given accommodation bills/entries to various persons. Shri Aditya Sreeramji, Villa No. 10, Villa Grande, H.No. 8-1-330 to 346, Shaikpet, Tolichowki, Hyderabad, is one among them. During the Asst. years 2007-08 and 2008-09 the assessee has entered into share transactions, the details of which are as under:
Sl.No. Asst.Year Purchase Sale
1 2007-08 83002.97 50805425
2 2008-09 4475495 3723913.5
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I.T.A. No. 866/Hyd/2017
The information as above is forwarded for necessary action at your end as the jurisdiction over the case vests with you.
information as above is forwarded for necessary action at your end as the jurisdiction over the case vests with you.
Yours faithfully, Sd/-xxxxxx ( P. MADHU ) Incometax Officer, Ward 6(3), Hyderabad 6.1. The statement of Shri Mukesh Choksi placed on record by the Department indicates that the statement was recorded u/s. 131 in the O/o. DCIT, Central Circle-4(6), on 16-
01-2013 whereas the search u/s. 132 of the Act in the case of Shri Mukesh Choksi and his group cases seems to have happened on 25-11-2009 as referred in the statement. If the search happened on 25-11-2009 and if Shri Mukesh Choksi has given statement on 132(4), the same could have been the basis for consequential proceedings in almost all the cases. However, it is surprising to note that after lapse of three years, a statement has been recorded u/s. 131 and the enclosed communication indicates certain names of assessees in Hyderabad and Mumbai, which are deemed to be bogus. Whether this is the entire list or only few of the transactions conducted by M/s. Mahasagar Group to which Shri Mukesh Choksi belongs to is not available in the statement furnished along with the recorded deposition. However, such statement indicates the name of assessee, bill details as per which the total sale amount against assessee were shown at Rs. 6,60,25,564/- and total purchase amounts were shown at :- 8 -:
I.T.A. No. 866/Hyd/2017 Rs. 68,25,531/- with a profit/loss of Rs. 5,92,00,034/-. The statement does not indicate the period of purchase, the period of sale or the year-wise bifurcation and on what basis the department could bifurcate the transactions into respective years is also not clear. Not only that the enclosed statement filed by the Revenue indicates the purchase amount at Rs. 68,25,531/-, whereas the communication from ITO, Ward-6(3) to 6(4) extracted above indicates the total purchases at not more than Rs. 6 Lakhs. The sale consideration shown was also at variance as the total sale amount was shown at more than 6.6 crores, whereas the communication by the ITO indicates the sales of less than Rs. 5.5 Crores. On what basis, Revenue has relied on the data so as to reopen the assessment is not forthcoming in any of the paper books placed on record.
6.2. It is the contention of assessee that he has placed all the relevant documents of purchase invoice bills and transactions in the DMAT account with the bank account statements and receipt of money through banking channel and the sale invoices undertaken by M/s. AINP Ltd.
6.3. It was one of the contentions of Revenue that the M/s. Mahasagar Group has indulged in bogus accommodation bills and M/s. AINP Ltd., was suspended to be a broker and the Inter-connected Stock Exchange of India Limited was also suspended and the transactions are not genuine. However, the departmental paper book placed on record has a communication from National Securities Depository Limited :- 9 -:
I.T.A. No. 866/Hyd/2017 (NSDL) addressed to ITO, Ward-6(4), dt. 14-11-2014 which indicates as under:
1. This has reference to your office letter ref. no. ITO-
6(4)/AIIPM5030G/2014-15 dated November 10, 2014 (received at NSDL on November 12, 2014).
2. At the outset we wish to inform that the compact disc (CD) containing the Transaction Statement of Beneficial Owner (BO) account viz., Client ID: 10088992, DP ID: IN300079 held in the name of 'Aditya Sree Ram Ji Magapu' and bills issued by Alliance Intermediaries & Network Pvt. Ltd as forwarded vide your above office letter was received in damage (broken) status at NSDL.
3. Accordingly, we have extracted Transaction Statement from our electronic records in respect of BO account (Client ID:
10088992, DP ID: IN300079) of 'Aditya Sree Ram Ji Magapu' for the period from the date of opening of BO account (i.e., July 15, 2006) till the date of your above office letter (i.e., November 10, 2014); which is enclosed and marked as Annexure 'A'.
4. From the above Transaction Statement it is observed that the credit of securities (i.e., equity shares of Alchemist Ltd., Lok Housing & Constructions Limited, Maharashtra Polybutenes Limited, MMTC Limited, Paramount Communication Ltd. and Shree Ram Urban Infrastructure Ltd) were received in the BO account (Client ID: 10088992, DP ID: IN300079) of Shri Aditya Sreeramji on various dates [from July 31, 2006 to September 1, 2008] from the BO account of 'Alliance Participant - IL&FS Securities Services Limited. The dates on which securities were credited in the said BO account of 'Aditya Sree Ram Ji Magapu' are provided in the enclosed Transaction Statement at Annexure 'A' above.
5. Further, from the above Transaction Statement it is observed that 'Aditya Sree Ram Ji Magapu' has transferred (debited) securities (i.e., equity shares of Alchemist Ltd., Lok Housing & Constructions Limited, Maharashtra Polybutenes Limited, MMTC Limited, Paramount Communication Ltd., and Shree Ram Urban Infrastructure Ltd) on various dates [from August 2, 2006 to September 4, 2008] from his BO account (Client ID:
10088922, DP ID: IN300079) towards market obligations for trades executed on the trading platform of inter-connected stock :- 10 -:
I.T.A. No. 866/Hyd/2017 Exchange of India Ltd., (ISF) under various settlement number through the Broker/Clearing Member (CM) - Alliance Intermediaries and Network Pvt. Ltd. For further information you may contact Broker/CM-'Alliance Intermediateries and Network Pvt. Ltd.,' at the following address as per our records:
Alliance Intermediateries and Network Pvt. Ltd., Block-H, Shri Sadashiv Chs, Gr.Floor, 6th Road, Santacruz-East, Mumbai-400055
6. As the above transfers have been made towards market obligations for trades executed on the trading platform of ISE, the details of the Purchasers like name, PAN, address, etc., is not known to NSDL. The same would be available with the concerned stock exchange viz., ISE. For further information you may contact BSE at the following address:
Inter-connected Stock Exchange of India Limited, International Infotech Park, Tower No. 7, 5th Floor, Sector 30-A, Vashi, Navi Mumbai-400 703.
Maharashtra
7. Further, we wish to inform that NSDL has established a facility for investors to hold and transfer securities in dematerialized from. NSDL does not have information about the trading activities of investors, dates on which trades are executed through broker, etc. Trading activities are undertaken by investors at Stock Exchange(s) and such information would be available with the concerned Stock Exchange or the broker with whom the 'Aditya Sree Ram Ji Magapu' would have had dealings. It is requested that your office may obtain such information from ISE or Alliance Intermediateries and Network Pvt. Ltd; whose addresses are provided above.
The communication received from NSDL do indicate that assessee has a 'client ID' and 'DP ID' and transactions were through the said broker M/s. AINP Ltd., and the transactions were undertaken on Inter-connected Stock Exchange of India Limited whose address was given by NSDL. In view of the categorical confirmation received from NSDL and fact that :- 11 -:
I.T.A. No. 866/Hyd/2017 these transactions have happened through the account of assessee in NSDL the contention of Revenue that both the M/s. AINP Ltd., and Inter-connected Stock Exchange of India Limited were suspended during that period cannot be accepted. There is nothing on record justifying the stand taken by AO. Even though AO tried to enquire from the stock exchange, the stock exchange which AO enquired is NSE and BSE, not Inter-connected Stock Exchange of India Limited.
6.4. In the written submissions filed by the department at various points of time, it is mainly on the statement of Shri Mukesh Choksi, that was relied wherein he has accepted that he has undertaken providing accommodation bills. Since from the time of search to the time of final statement more than three years have passed, the veracity of the statement is to be accepted with little caution. The transaction pertains to FY.
2006-07, and the relevant statement u/s 132(4) admitting the bogus nature of transactions was not placed on record. Statement given in the year 2013 u/s 131 stating that all the transactions are bogus cannot be accepted, unless there is a corresponding evidence attributing to the bogus nature of the transactions. Mere statement by a person without any authenticated / corroborative information cannot be relied upon to refuse or reject the contentions of assessee which based on the documents, placed on record in support of his claim. As already pointed above, there are variations on the information enclosed to the statement also and the information communicated between one officer to another. How these :- 12 -:
I.T.A. No. 866/Hyd/2017 variations have come has not been explained and the basis on which the entire exercise has been undertaken itself has become circumspect. Apart from the above discrepancies / inconsistencies / lack of providing natural justice to assessee, it is to be noted that in similarly placed cases of Smt. Sarita Devi Vs. ITO (ITA No. 1228/Hyd/2016) and Smt. Nitika Kumari VS. ITO (ITA No. 1229/Hyd/2016), whose names are also figuring in the list and in whose cases same action was undertaken, Co-ordinate Bench at Hyderabad has considered the facts and held as under:
"10. We have considered the rival contentions and carefully perused the evidence placed on record and orders of the authorities. It was admitted by the order of AO and CIT(A) that some communication was received from CCIT, Mumbai that Mr. Chokshi has given a statement that he has provided accommodation entries. How those statements are relevant to the assessee or whether any transactions of the assessees were specifically stated is not forthcoming either from the orders of the authorities or from the documents furnished before us. In fact, neither the statement of Mr. Chokshi was provided to the assessees nor the cross-examination was allowed. The same was not even on record. Even though Ld. CIT(A) gave a finding that the assessment was reopened on the basis of the communication of the CCIT, whether there was any statement enclosed or not could not be verified. Surprisingly, the A.O. himself informed assessee that reopening was not based on the statement of Mr. Chokshi. The communication given to assessee viz., Smt. Sarita Devi vide letter dated 16.03.2015 placed in paper book at page 85 is extracted hereunder for ready reference :
"The scrutiny assessment proceedings for the Asst. year 2007-08 in your case are pending with the undersigned. As requested by you, letter from NSE stating that M/ s. Alliance Intermediateries & Network Pvt. Ltd. is not a broker/ subbroker with them is hereby provided. You have requested this office to summon Mr. Mukesh Choksi for crossverification. But, the assessment in your case is made basing on the information furnished by NSE and the material provided by yourse if. Hence, there is no necessity of producing Mr. Mukesh Choksi for your cross verification". (emphasis supplied) :- 13 -:
I.T.A. No. 866/Hyd/2017 10.1 This indicates that Revenue is not having any information and even though the assessment is reopened on that basis as communicated in the reasons for reopening, A.O. simply denies the same in order to avoid cross-examination to be provided to the assessee. Under these circumstances, since neither the communication from CCIT, Mumbai nor the so-called statement of Mr. Mukesh Chokshi was provided either for verification or for cross- examination, it cannot be stated that A.O. has any 'tangible information' so as to reopen the assessments under section 147. The returns were already filed admitting incomes under capital gains. These were accepted under section 143(1). Assessees have furnished the necessary information of purchase bills, sale bills, ledger accounts, De-mat account copies in support of transactions. Since there is no other information so as to come to conclusion that the transactions entered by the assessee are bogus, these are to be accepted as transactions entered in normal course. The enquiry from the NSE that M/ s. Alliance Intermediaries and Net Work P. Ltd., is not a broker or sub-broker does not establish that the transactions with that company is bogus. Moreover, as far as Smt. Sarita Devi is concerned, the purchase transactions mostly pertain to long term capital gains and have been entered in earlier year and have been recorded as on 31.03.2006. A.O. even though has reopened the assessment in that year also, much before this assessment was reopened, the said proceedings were dropped without taking any adverse view. Consequently, the purchases shown in that year in the balance sheet has to be accepted as genuine and subsequent sale thereon cannot be considered as bogus, on presumptions and assumptions. In view of that we have no hesitation in holding that the capital gains declared by the assessee should be assessed as capital gains only.
11. As seen from the orders, the A.O. has treated the entire sale consideration received as bogus and brought to tax the entire amount as stated to have communicated to him. The Ld. CIT(A) examined this aspect and gave finding that the transactions in the case of Smt. Sarita Devi are not to the extent of Rs.2.20 crores and restricted the sale amount to the extent of Rs. 90. 75 lakhs correctly. She also gave correct finding that the entire gross receipts cannot be brought to tax and only the gain can be taxed. Similarly in the case of Ms. Nitika also, the correct amount was determined and amount to be taxed was the short term capital gain received by assessee. To that extent findings of Ld. CIT(A) are correct. It is to be noted that the Revenue has not come in appeal on that aspect. Therefore, only issue to be considered is with the direction of the CIT(A) to tax the said amounts as 'income from other sources'. For the reasons stated above, we are not in agreement with the action of the A.O. either for reopening of :- 14 -:
I.T.A. No. 866/Hyd/2017 assessment or for treating the transactions as bogus, since the very basis for reopening the assessment was not provided to the assessee nor an opportunity was given to cross-examine the so called Mr. Chokshi. There is no basis for treating the said transactions as not genuine. Considering the documents placed on record and the case law relied, we have no hesitation in directing the A.O. to accept the long term capital gains and short term capital gains declared by Smt. Sarita Devi and short term capital gains declared by Ms. Nitika Kumari under the head "Capital Gains" only. The grounds are accordingly allowed".
6.5. However, in this case Revenue filed the statements and communications on record for the first time without confronting to assessee earlier. But the facts are same. Respectfully following the decision stated above, we have no hesitation to hold that the action of AO in reopening the assessment based on the statement of Shri Mukesh Choksi to hold the transaction as bogus is not supported by any evidence.
6.6. Assessee has furnished the information with reference to purchase of shares [though in cash] which was accepted by the AO in the re-opening proceedings in the AY. 2006-07, and evidence of subsequent sale during the year, receipt of sale consideration through bank accounts and further there is no dispute with reference to the sale of shares through the stock exchange as confirmed by the NSDL (in the communication to the AO extracted above) we are of the opinion that Revenue has failed to establish that the transactions are bogus. Since assessee's claim for exemption in Long Term Capital Gain is supported by the documents including the transaction in DMAT account and sales through :- 15 -:
I.T.A. No. 866/Hyd/2017 the stock exchange, the claim u/s. 10(38) of the Act cannot be denied, based on the assumptions and presumptions which are not supported by any evidence. In view of that the grounds raised by assessee on merits are allowed. AO is directed to treat the gains as such and allow the benefit u/s. 10(38).
7. In the course of the hearing of the case, both the parties have relied on various case law - both relevant and not relevant. It is not required to extract the principles decided in various cases contesting various issues given in various fact circumstances. Suffice to say that since the very basis for the reopening is only statement from Shri Mukesh Choksi, without there being any authentic information, that too in the form of statement u/s 131 after three years after the search and seizure operation, the same cannot be considered as genuine so as to deny the contentions of assessee. That statement may be valid in the assessment of that assessee or the group of concerns in which he is involved. But certainly cannot help Revenue in denying the benefits to various other persons simply because, the person has given a statement to the AO. Various case law relied upon by the parties have been considered, but we are of the opinion that there is no need to analyse each of the case law relied upon as the facts are glaring on the record and as stated above Revenue has not established that the transactions are bogus. Since we have considered the issue on merits, the contentions raised on reopening of assessment becomes academic. Moreover, :- 16 -:
I.T.A. No. 866/Hyd/2017 Ld.CIT(A) has considered this aspect elaborately and has held that there is same information. Since the assessment has not been done u/s. 143(3) earlier and only return has been accepted u/s. 143(1), in our view the AO has correctly initiated the reopening proceedings. The statement relied was u/s 131 so the question of initiation of proceedings u/s 153C also does not arise. To that extent, the order of CIT(A) is confirmed. The contentions of assessee on reopening are not considered valid. However, as Revenue failed to establish that the transactions undertaken by assessee are bogus on merits, we agree with the contentions of assessee that the transactions are undertaken in the normal course and assessee is entitled for the deductions / exemptions so claimed.
8. In the result, the appeal of assessee is partly allowed.
Order pronounced in the open court on 5th July, 2018 Sd/- Sd/-
(D. MANMOHAN) (B. RAMAKOTAIAH)
VICE PRESIDENT ACCOUNTANT MEMBER
Hyderabad, Dated 5th July, 2018
TNMM
:- 17 -:
I.T.A. No. 866/Hyd/2017
Copy to :
1. Shri M. Aditya Sreeramji, Hyderabad. C/o. P. Murali & Co., Chartered Accountants, 6-3-655/2/3, 1st Floor, Somajiguda, Hyderabad.
2. The Income Tax Officer, Ward-14(3), Hyderabad.
3. CIT(Appeals)-6, Hyderabad.
4. Pr.CIT-6, Hyderabad.
5. D.R. ITAT, Hyderabad.
6. Guard File.