Income Tax Appellate Tribunal - Ahmedabad
Vaishal Suryakant Shah,, Ahmedabad vs Income Tax Officer, Ward-5(2)(3),, ... on 20 March, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD '' SMC " BENCH - AHMEDABAD
Before Shri S. S. Godara, JM & Shri Manish Borad, AM.
Sr.No ITA No. AY Appellant Respondent CIT(A)'s
order dated
1 1499/Ahd/16 2007-08 Shri Vaishal Suryakant Shah, Ito, Wd- 13.04.2016
F-104, Tulip Citadel Flats, 5(2)(3),
Shreyans Tekra Ambawadi, Ahmedabad.
Ahmedabad.
PAN APXPS 7301G
2 1500/Ahd/16 -do- Shri Pratik S. Shah, -do-- -do-
F-104, Tulip Citadel Flats,
Shreyans Tekra, Ambawadi,
Ahmedabad.
PAN APZPS0112B
3 1501/Ahd/16 -do- Shri Suryakant P. Shah, -do- -do-
F-104, Tulip Citadel Flats,
Shreyans Tekra, Ambawadi,
Ahmedabad.
PAN ACXPS 7059J
4 1502/Ahd/16 -do- Shri Suryakant P. Shah(HUF) -do- -do-
F-104, Tulip Citadel Flats,
Shreyans Tekra, Ambawadi,
Ahmedabad.
PAN AAPHS 7043J
Appellant by Shri Bharat S. Shah, AR
Respondent by Shri Sita Ram Meena, Sr.DR
Date of hearing: 16.3.2017
Date of pronouncement: 20/03/2017
ORDER
PER Manish Borad, Accountant Member.
The above captioned four appeals by different assessees have been preferred against separate orders of ld. Commissioner of Income Tax(A)-5, Ahmedabad. Since the grounds raised in all these appeals are common, the issues are similar and the assessees are of ITA No. 1499 to 1502/Ahd/2016 2 Asst. Year 2007-08 the same group, these were heard together and are being disposed of by this common order for the sake of convenience.
2. The common grievance in all these appeals is relating to reopening of assessment u/s 147 of the Income-tax Act, 1961 (in short the Act) and another common issue is about long term capital gain from sale of shares treated as undisclosed income of the assessee thereby denying exemption u/s 10(38) of the Act.
3. For the sake of consideration, we take up the case of Shri Vaishal Suryakant Shah in ITA No.1499/Ahd/2016 wherein following grounds have been raised :- :
1. The part of impugned order is contrary to the evidence and material on record, contrary to the principles of law and binding judgments of the Court, contrary to the relevant provisions of the Act and deserves to be quashed and set aside.
2. The learned CIT(A) has grievously erred confirming the invocation of the provisions u/s 147 made by learned A.O. and who does not have any reason to believe that the income chargeable for the year has escaped the assessment.
3. Without prejudice to the above the learned CIT(A) should not have accepted the addition of Rs.3,51,540/- being income of Long Term Capital Gain u/s.10(38) of Income-tax Act, 1961 The said addition is made by learned A.O. without going into the facts and learned CIT(A) should have decided the issue on merits of the facts.
4. The appellant craves leave to add to, alter, amend, modify and/or vary any or all of the grounds aforesaid at the time of hearing.
4. Briefly stated facts as culled out from the records are that assessee being an individual filed his return of income on 22.02.2008 declaring total income of Rs.1,36,738/- and the said return was duly processed u/s 143(1) of the Act. Subsequently on the basis of information received from Investigation Department in relation to a ITA No. 1499 to 1502/Ahd/2016 3 Asst. Year 2007-08 search and seizure action carried out in the case of M/s Mahasagar Securities (P) Ltd. and group companies which were controlled by Mr. Mukesh M. Choksi, ld. Assessing Officer in order to reopen the assessment u/s 147 of the Act issued notice u/s 148 of the Act on 28.03.2014 after recording the reasons and obtaining necessary approval u/s 151 of the Act. A show cause notice dated 8.12.2014 was issued and duly served on the assessee and relevant portion of this notice reads as follows :-
"This office has received information that you have made purchase sale transactions has been received by this office from the DIT(I & CI), New Delhi that Shri Mukesh M. Chokshi and all his group companies are providing entry for talking profit or loss by showing purchase or sale of the shares and securities to various parties or loss by showing purchase or sale of the share and securities to various parties across India on which he was charged certain commission from the beneficiary parties. The same information received by this office supplied by the Director of Income Tax ( I & CI), New Delhi vide letter dated 07.03.2013 along with copy of statement of Shri Mukesh M. Chokshi recorded by the Department on oath u/s.131 of the IT Act. In which also detail pertain to various assessee of the CIT-V, Ahmedabad'\s charge, which were by name only and without PAN. Accordingly, all the purchase and sale transactions regarding shares and securities made by the above named assessee through group companies belonging to Shri Mukesh M. Chokshi which was known as Mahasagar Securities Ltd., which is totally unverifiable transaction as the controlling person namely Shri Mukesh M. Chokshi himself admitted in his statement recorded. On deep scrutinized to the data/details received in this office it is ascertain that the assessee namely Vaishal Shah was also involved for taking unverifiable/bogus beneficial entries from the group companies belongs to Shri Mukesh Chokshi during the F. Y,2006-07 the assessee's total transaction involved of Rs.3,51,540/- for taking unverifiable/bogus entries by showing purchase and sale of share and securities. As the information received without PAN hence assessee has whether filed return of income for A,y.2007-08 or not is not accessible. Accordingly, all the transactions made by the assessee are unverifiable and also not ascertained that the assessee said transactions whether reflected in his return of income or not. Hence, same transactions also should be required for detailed verification from various aspects for genuineness of the said transactions as per the information supplied by the Director of Income-tax ( I & CI), New Delhi in this case."ITA No. 1499 to 1502/Ahd/2016 4
Asst. Year 2007-08 In view of the above, you are hereby required to show cause as to why the amount of Rs.3,51,540/- should not be added to your total income as unexplained income. In absence of satisfied reply by the given date, the amount of Rs.3,51,540/- will be added to your total income."
5. In response to the above referred notice and the queries necessary details were filed by the assessee relating to the nature of transaction including purchase and sale of shares. It was also explained that payment has been received through banking channels and the shares were transferred to the respective demat account and were sold thereof. During the course of assessment proceedings assessee also questioned the statement of Shri Mukesh M. Choksi and strongly contended that no adverse view should be taken merely on the basis of statement of a third party. However, ld. Assessing Officer dismissed the request of assessee for providing an opportunity of cross-examination and the relevant finding of Assessing Officer is reproduced below :-
(vi) Regarding assessee's opinion/request to give an opportunity ^ examination both of material found from the third party, i.e. his book, etc. as well as cross-examination of the person who has" without compliance of the same, it would be correct or maintainable to draw any adverse inference as observed ion the show cause notice, it h as no weight for the following reasons :
a) It is confirmed by the NSC/BSE that no trades have been executed in the names of the persons who have traded through the group companies of M/s.Mahasagar Securities Pvt. itd.
controlled by Shri Mukesh R. Chokshi.
b) Since, M/s.Alliance Intermdiateries & Network Pvt. Ltd. is no more sub-broker in NSC, so how it is possible to give credit of any claim consequent upon the shares traded through M/s.Alliance Intermediateries & Network Pvt. Ltd.
c) Further, the key person of M/s.Alliance Intermediateries & Network Pvt. Ltd. Shh Mukesh Chokshi has himself admitted in his statement during the search operation u/s.132 of the I.T. Act that his group companies were engaged in fraudulent billing activities in the business of providing bogus speculation profit/loss, short-term/long-term capital gain/loss, commodities profit/loss on commodity trading (through MCX).
d) The assessee has not furnished any supporting evidences for purchase and sale of shares, such as nature and source of payment, payment receipts, the name and address of ITA No. 1499 to 1502/Ahd/2016 5 Asst. Year 2007-08 the party to whom payment was made for purchase of shares, copy of bills/invoices, copy of transfer forms, any details regarding any application made for demat of such shares, etc.
e) There is no reason to disbelieve the statement of Shri Mukesh R. Chokshi that he was engaged in fraudulent billing activities in the business of providing bogus speculation profit/loss, short term/long term capital gain/loss etc and the relevant findings of the DDIT(Inv), Mumbai in this regard that no company other than M/s.Richmond Securities pvt. Ltd. has traded thought our exchange. Thus, the transactions which have not been carried out though the stock / exchange are illegal and fraudulent and are not eligible for claim of exempt u/s. 10(38) of the IT Act.
Thus, as stated above, there is no reason to give an opportunity to the assessee to cross- examine Shri Mukesh R. Chokshi and the materials found from the third party i.e. books, etc. Therefore, I do not agree with the opinion of the assessee and reject the request of the assessee.
After taking the above view ld. Assessing Officer denied assessee's claim of long term capital gain exemption u/s 10(38) of the Act of Rs.3,51,540/-.
6. Aggrieved, assessee went in appeal before ld. Commissioner of Income Tax(A) but could not succeed.
7. Now the assessee is in appeal before the Tribunal challenging the reopening of assessment proceedings u/s 147 of the Act as well as denial of exemption u/s 10(38) of the Act for long term capital gain. At the outset ld. Authorised Representative submitted that the issues raised in these appeals are squarely covered in favour of assessee by the decision of the Co-ordinate Bench in the case of Shri Pratik Suryakant Shah & others in ITA No.810/Ahd/2015 for Asst. Year 2006-07 & ors. wherein appeal of the assessee has been allowed directing the Assessing Officer to treat the surplus as long term capital gain and allow exemption as claimed by the assessee.
ITA No. 1499 to 1502/Ahd/2016 6Asst. Year 2007-08
8. Ld. Departmental Representative could not make any distinction of the facts adjudicated by the Co-ordinate Bench in the case relied on by the ld. Authorised Representative.
9. We have heard the rival contentions and perused the record. Common grievances in all these four appeals are challenging the reassessment proceedings u/s 147 of the Act as well as ld. Commissioner of Income Tax(A)'s confirming the action of ld. Assessing Officer by not allowing the benefit of exemption u/s 10(38) of the Act for long term capital gain on shares.
10. We observe that facts, grounds of appeal and other related issues raised in these four appeals are verbatim similar to those dealt by the Co-ordinate Bench in the case of Pratik Suryakant Shah & others (supra) so much so that the language of notices as well as re- assessment orders are also similar except with the change of figure(s) of long term capital gain which differs from case to case. Common fact also relates to not providing opportunity of cross- examination to the assessee with the third parties whose full statements have been relied on for taking action against the assessee. We observe that Co-ordinate Bench allowed assessee's appeal in the case of Pratik Suryakant Shah by observing as follows:-
"13. Having heard the rival contentions, we have carefully perused the orders of the authorities below. As mentioned elsewhere, we have considered the facts in ITA No.810/Ahd/2015. We find that the assessee had purchased 3000 shares of Telant Info Ltd from M/s. Mahasagar Securities Pvt Ltd on April 2004. The consideration was paid and the payment of consideration is not in dispute. The ITA No. 1499 to 1502/Ahd/2016 7 Asst. Year 2007-08 shares of Telant Info Ltd were listed in the Bombay Stock Exchange at that point of time. The shares so purchased were sold through M/s. Alliance Intermediateries & Network Pvt Ltd and the consideration was received by cheque. It would be pertinent to mention here that though the shares were purchased in physical form, the same were sent to the company with share application form and the shares were transferred by the company in the name of the purchaser. Thereafter, the shares were transferred in the demat account, from where they were sold. It is not the case of the Revenue that the consideration paid by the assessee at the time of purchase of shares was received back in cash, nor it is the case of the Revenue that the sale consideration received by the assessee was returned back in cash. It is also not the case of the Revenue that the shares in question are still lying with the assessee, nor it is the case of the Revenue that the amounts received by the assessee on sale of the shares is more than what is declared by the assessee.
14. The entire assessment is based upon the statement of Shri Mukesh Choksi. It is an undisputed fact that neither a copy of the statement was supplied to the assessee nor any opportunity of cross-examination was given by the Assessing Officer/CIT(A). The Hon'ble Supreme Court in the case of Andaman Timber Industries in Civil Appeal No. 4228 of 2006 was seized with the following action of the Tribunal:-
"6. The plea of no cross examination granted to the various dealers would not help the appellant case since the examination of the dealers would not bring out any material which would not be in the possession of the appellant themselves to explain as to why their ex factory prices remain static. Since we are not upholding and applying the ex factory prices, as we find them contravened and not normal price as envisaged under section 4(1), we find no reason to disturb the Commissioners orders."
15. The Hon'ble Apex Court held as under:-
"According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an ITA No. 1499 to 1502/Ahd/2016 8 Asst. Year 2007-08 opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross- examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross- examine those dealers and what extraction the appellant wanted from them. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions.
In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal."
16. On the strength of the aforementioned decision of the Hon'ble Supreme Court, the assessment order has to be quashed.
17. For the sake of the completeness of the adjudication, even on facts of the case, the orders of the authorities below cannot be accepted. There is no denying that consideration was paid when the shares were purchased. The shares were thereafter sent to the company for the transfer of name. The company transferred the shares in the name of the assessee. There is nothing on record which could ITA No. 1499 to 1502/Ahd/2016 9 Asst. Year 2007-08 suggest that the shares were never transferred in the name of the assessee. There is also nothing on record to suggest that the shares were never with the assessee. On the contrary, the shares were thereafter transferred to demat account. The demat account was in the name of the assessee, from where the shares were sold. In our understanding of the facts, if the shares were of some fictitious company which was not listed in the Bombay Stock Exchange/National Stock Exchange, the shares could never have been transferred to demat account. Shri Mukesh Choksi may have been providing accommodation entries to various persons but so far as the facts of the case in hand suggest that the transactions were genuine and therefore, no adverse inference should be drawn.
18. In the light of the decisions of the Hon'ble Supreme Court in the case of Andaman Timber Industries (supra) and considering the facts in totality, the claim of the assessee cannot be denied on the basis of presumption and surmises in respect of penny stock by disregarding the direct evidences on record relating to the sale/purchase transactions in shares supported by broker's contract notes, confirmation of receipt of sale proceeds through regular banking channels and the demat account.
19. As mentioned elsewhere and as agreed by the Representatives of both the sides; since the facts are common in all the impugned appeals, all the appeals by the assessees are allowed. The Assessing Officer is directed to treat the surplus as Long Term Capital Gains and allow the exemption as claimed by the assessees."
11. Respectfully following the decision of Co-ordinate Bench which has relied on the judgment of Hon. Apex Court in the case of Andaman timber Industries in Civil appeal no.4228 of 2006 and considering the facts in totality including the claim of assessee of the long term capital gain from sale of shares disregarding the direct evidences on record, relating to sale/purchase transactions in shares supported by brokers contract notes, confirmation of receipt of sale proceeds through regular banking channels and demant account, we quash the re-assessment proceedings u/s 147 of the Act and direct the Assessing Officer to treat the surplus as long term capital gain ITA No. 1499 to 1502/Ahd/2016 10 Asst. Year 2007-08 from sale of shares and allow exemption u/s 10(38) of the Act. Accordingly all the four appeals are allowed.
12. In the result, all the four appeals of assessees are allowed.
Order pronounced in the open Court on 20th March, 2017 Sd/- sd/-
(S. S. Godara) (Manish Borad)
Judicial Member Accountant Member
Dated 20/03/2017
Mahata/-
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Asst. Registrar, ITAT, Ahmedabad
ITA No. 1499 to 1502/Ahd/2016 11
Asst. Year 2007-08
1. Date of dictation: 17/03/2017
2. Date on which the typed draft is placed before the
Dictating Member: 20/03/2017 other Member:
3. Date on which approved draft comes to the Sr. P. S./P.S.:
4. Date on which the fair order is placed before the Dictating Member for pronouncement: __________
5. Date on which the fair order comes back to the Sr. P.S./P.S.:
6. Date on which the file goes to the Bench Clerk: 20/3/17
7. Date on which the file goes to the Head Clerk:
8. The date on which the file goes to the Assistant Registrar for signature on the order:
9. Date of Despatch of the Order: