Income Tax Appellate Tribunal - Ahmedabad
Amita Mukesh Mody, , Ahmedabad vs Assessee on 5 February, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD ''B" BENCH - AHMEDABAD
Before S/Shri Rajpal Yadav, JM, & Manish Borad, AM.
ITA No.1863/Ahd/2015
Asst. Year: 2006-07
Amita Mukesh Mody Vs. ITO, Ward 3(4), Ahmedabad.
74, Sardar Patel Market,
o/s Jamalpur Gata,
Ahmedabad
Appellant Respondent
PAN AAPPM 4760L
Appellant by Shri S. N. Divatia, AR
Respondent by Vilas V. Shinde, DR
Date of hearing: 30/11/2015
Date of pronouncement: 05/02/2016
ORDER
PER Manish Borad, Accountant Member.
This appeal of the assessee is directed against the order of CIT(A) -10, Ahmedabad, dated 23.04.2015. Assessment was framed u/s 143(3) r.w.s. 147 of the Income-tax Act, 1961 (in short the Act) by ITO, Wd-3(4), Ahmedabad for Asst. Year 2006-07. The assessee 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 Rs.1,43,042/- is wholly illegal, unlawful and against the principles of natural justice.ITA No. 1863/Ahd/2015 2
Asst. Year 2006-07 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 Rs.1,43,042/- without giving to the appellant copy of the material, statement report u/s 133(6) etc. relied in assessment and thereby violating the principles of natural justice. Ld. CIT(A) ought to have held the impugned order illegal and unlawful.
2.1 The ld. CIT(A) has grievously erred in law and or on facts in confirming the addition of Rs.1,43,042/- as unexplained income from fictitious transaction with Mahasagar Securities Ltd. group, though the same was duly supported by evidence 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 Rs.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 the entire reopening u/s 147 was bad in law and without jurisdiction.
4.1 The ld. CIT(A) has grievously erred in holding that LTCH on sale of SSNL bonds was not exempt from tax.
2. Briefly stated facts are that the assessee is an individual. She filed her return of income on 27/12/2006 declaring total income at Rs.1,48,989/- and the said return was processed u/s 143(1) of the Act. Further on the basis of information with the department pursuant to search and seizure action carried out on 25/11/2009 in the case of M/s Mahasagar Securities Ltd. and other group companies and the information received from DIT (System), New Delhi, it was ITA No. 1863/Ahd/2015 3 Asst. Year 2006-07 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 Rs.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 recording the reasons. In response to this notice, assessee submitted on 4.4.2013 that the original return which was filed on 27.12.2006 may be considered as return filed in compliance with notice u/s 148 of the Act. Thereafter notices u/s 143(1) and u/s 142(1) of the Act were issued on 3.12.2013.
3. During the course of re-assessment proceedings the Assessing Officer observed that assessee has shown long term capital gain at Rs.1,31,208/- on account of sale of Sardar Sarovar Bonds for Rs.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 Rs.1,43,042/- for sale of Sardar Sarovar Bonds was bogus and added the same to the total income of the assessee as undisclosed income and assessed the income of the assessee at Rs.2,92,030/- by observing as under :-
ITA No. 1863/Ahd/2015 4Asst. Year 2006-07 "6.2 Further, inquiries were carried out by the undersigned by issuing notice u/s 133(6) to the National Stock Exchange India Ltd. In response to which it is categorically stated vide letter dtd.19/11/2013 that from the records available with exchange, M/s Alliance Intermediaries & 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 shown Sardar Sarovar Bonds were as the registration of the said has been cancelled by the NSC on 19/2/2004 name Alliance Intermediaries & Network Pvt. Ltd. In the return of income assessee has shown only income from other source of Rs.2,48,989/- and after claiming the deduction of Rs.1,00,000/- the net income is shown of Rs.1,48,989/-. The income from long term capital gain on sale of Sardar Sarovar Bond has been claimed as exempt income u/s 10(38) of the IT Act.
6.3 Considering 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 Rs.1,43,042/-. Therefore, the amount of investment in shares of Rs.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 Act, is initiated."
4. Aggrieved, assessee went in appeal before CIT(A) which also did not bring relief to the assessee and ld. CIT(A) while dismissing the appeal of assessee in relation to validity of reopening of assessment u/s 147 of the Act, has observed as under :-
ITA No. 1863/Ahd/2015 5Asst. Year 2006-07 "The rival submissions have been considered. I hold that the contentions of the appellant are devoid of merit. As mentioned above, the AO had information that the appellant was one of the beneficiaries to whom Mukesh Choksi through 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 ACIT vs. Rajesh Zaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500 (SC) has held as follows :
16. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe"
would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have 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 income on the basis of admissible evidence and then only to issue show cause to the assessee. The Supreme Court held that the final outcome of the proceedings initiated under Section 147 is not relevant and what is of relevance is the existence of reasons to make the AO believe that there has been under- assessment of the assessee's income for a particular year.[Ref, Central Provinces Manganese Ore Co. Ltd.
vs. ITO (1991) 59 taxmann 17 (SC)' Further Hon'ble Patna High Court in Mahasukhram Madanlal vs. CIT (1956) 28 ITR 299 (Patna) held as follows :-
ITA No. 1863/Ahd/2015 6Asst. Year 2006-07 "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 sound argument to advance that the ITO has no jurisdiction to initiate the proceeding. The test of jurisdiction is not the ultimate result of the enquiry but the test is, whether the ITO entertained a bona fide belief upon the definite information presented before him that income has escaped."
The ratio of above judgments are squarely applicable to the present case in the present case, based on information in his possession the AO had reason to believe that income has escaped assessment.
Further, 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 re-
opening the assessment. With due regard to ratio of judgments relied on by the appellant, the same are not applicable in the present case as the facts are different. Hence, I uphold the action of the AO of re-opening the assessment. The ground of appeal is dismissed."
In relation to addition of Rs.1,43,042/- as unexplained income-
During the assessment proceedings, the AO observed that the appellant had shown LTCG of Rs.1,43,042/- on sale of Sardar Sarovar bonds which were claimed as except u/s 10(38) of the Act. The AO observed that the above transactions were made through. Alliance Intermediaries Net work Pvt. Ltd. company which was engaged in providing accommodation entries. The AO ITA No. 1863/Ahd/2015 7 Asst. Year 2006-07 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 sale/purchase of bonds and that the alleged transactions from which the appellant has earned LTCG were only accommodation entries. The AO concluded that the sale consideration shown to have been received by the appellant was nothing but appellant's own income from undisclosed sources. Thus the AO added Rs.1,43,042/- as unexplained income.
During the appeal proceedings, the appellant submitted as follows -
"The appellant submits that the impugned addition made by AO is wholly unjustified both on 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 law that the assessment made by AO without furnishing the copy of all such material relied upon for the purpose of assessment is illegal and against the principles of natural justice and equity. Refer to case of Dakeshwari Cottom Mills Ltd. ITR..... In case of Kishanchand Chetlaram vs. CIT 125 ITR 713)(SC) it was held that the addition made on the basis of material collected behind the back of the assessee and without allowing opportunity to cross examine was unjustified, Similarly, in case of 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 transactions were bogus whereas subsequently he confirmed that the transactions of the assessee- Rajkumar R. Shorewala were genuine by way of affidavit. There was no reason or evidence to retract, from this affidavit and give another statement again reaffirming that the transactions were bogus. This conduct of the said party cannot be relied upon and said to be a credible witness. Reliance is placed on the decision in case of CIT v. Eastern Commercial Enterprises ( 210 ITR 103)(Cal) wherein it is 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. 1863/Ahd/2015 8 Asst. Year 2006-07 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. The AO has observed in show cause notice dt 16^12.2013 that as per information gathered and admitted by Shri Choksi, the present appellant was one of the entities to whom entry was provided, but AO has failed to bring any material to establish the same. Even in para-5 of the impugned order, no such finding has been given by AO. Recently, in the case of ITO Vs. Srnt. Bibi Rani Bansal (133 TTJ 394) [Agra) (TM], it has been held that the assessee had furnished contract note, bill, statement of account 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 notes etc that he was having such registration (Unless circumstances are such as may give rise to disbelieve it and ask for verification)".
The appellant relied on several judgments in support of her contentions.
The rival submissions have been considered. In this case, the appellant had carried out share transactions through share broker Alliance Intermediaries (P) Ltd. Hon'ble ITAT, Mumbai in Mukesh Choksi vs. ACIT in ITA No. 2299/M/2010 A.Y.02-03, ITA No. 2300/M/2010, A.Y.2006-07 and in 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, had floated various companies including his personal capacity for providing accommodation entries to the entry seekers. A survey under section 133A was also carried out on the same day at the business premises of Mr. Mukesh Chowkshi and his concern M/s. Mahasagar Securities Pvt, Ltd. Shri Chowkshi at the time of survey admitted that the following companies had been operating at the address and they were engaged in providing accommodation entries:
i) M/s.GoldstarFinvest (P) Ltd.
ii) M/s.Richmond Securities (P) Ltd.
iii) M/s. Alliance Intermediateries (P) Ltd.ITA No. 1863/Ahd/2015 9
Asst. Year 2006-07
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 companies end after depositing the cash in the bank accounts, a ; cheque was issued and the equal amount in favour of entry . seekers. The assessee thus returned the cash of the entry seekers in the guise of cheque after retaining commission."
From the above it is established that Alliance Intermediaries was involved in providing accommodation entries. From the modus explained above, it is clear that what appellant has shown as LTCG is appellant's own money from undisclosed sources which was 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 these findings of the AO. With due regard to ratio of judgments relied on by the appellant, the same are not applicable in the present case as the facts are different. Thus the AO was justified in treating the share transactions shown by the appellant as bogus.
In view of discussion, I hold that the AO was justified in treating the amount of Rs.1,43,042/- as undisclosed income of the appellant. Accordingly, addition of Rs.1,43,042/- is upheld and the same is confirmed. This ground of 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.
ITA No. 1863/Ahd/2015 10Asst. Year 2006-07 (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 Rs.1,43,042/-.
6. First we take the legality of reopening of the case u/s 147 of the Act by issuing notice u/s 148 of the Act. During the course of hearing before us ld. AR has referred and relied on the decision of Co- ordinate Bench in the case of Sonal Arpit Doshi vs. ITO in ITA No. 366/Ahd/2015 for Asst. Year 2006-07 vide order dated 21.10.2015 wherein it was submitted that similar reasons of reopening of assessment u/s 147 of the Act were given by the Assessing Officer, wherein purchase and sale transaction regarding shares and securities made through group companies belong to Shri Mukesh Choksi which was known as Mahasagar Securities Ltd. and co- ordinate 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 Sonal Arpit Doshi vs. ITO (supra) which can be verified by going through the notice u/s 148 of the Act issued by the Assessing Officer in the case of assessee which is reproduced below :-
ITA No. 1863/Ahd/2015 11Asst. Year 2006-07 "To Amita Mukesh Mody c/o M/s Jamnadas Muljibhai, 14 Sardar Patel Market, Jamalpur, Ahmedabad.
Sir, Sub: Re-assessment proceedings in the case of amita Mukesh Mody for AY 2006-07 Show cause notice -
regarding.
Please refer to the above.
2. As per your request letter dtd.4.4.2013, the copy of reasons recorded for reopening 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 taking entries from above group of companies belonging to Shri Mukesh Chokshi. During the year under consideration you have made total transaction of Rs.1,43,042/- for taking fictitious and bogus entries by showing purchase and sale of shares and securities. You are therefore, required to show cause as to why the amount of Rs.1,43,042/- should not be added to your total income as income from undisclosed sources.
4. In this connection, you are requested to attend my office on 23/12/2013 at 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 ITA No. 1863/Ahd/2015 12 Asst. Year 2006-07 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 Rs.1,43,042/- which was sale consideration of Sardar Sarovar Bonds effected by the assessee through Alliance Intermediaries & Network Pvt. Ltd. on 9.8.2005. We, therefore, are of the view that ld. CIT(A) was correct 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 Rs.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 Rs.1,31,208/- from sale of Sardar Sarovar bonds on 9.8.2005 and the sale consideration of Rs.1,42,008/-. This sale of Sardar Sarovar bonds was effected through sub-broker of NSE namely M/s Alliance Intermediaries & Network Pvt. Ltd. through settlement No.2005152 dated 9.8.2005. On going through the search records of Mukesh Choksi group it was noticed by Assessing Officer that the registration of M/s Alliance Intermediaries & Network Pvt. Ltd. was cancelled on 19th February, 2004 whereas assessee has furnished contract note dated 9.8.2005 and due to this reason the amount of Rs.1,43,042/- was added to the income of the assessee as ITA No. 1863/Ahd/2015 13 Asst. Year 2006-07 unexplained income on account of investment in shares of Rs.1,43,042/-.
10. From going through the above observation, we find that the Assessing Officer has mentioned the amount of Rs.1,43,042/- in his assessment order. The ld. CIT(A) in her order has mentioned the long term capial gain of Rs.1,43,042/- on sale of Sardar Sarovar bonds which have been claimed as exempt u/s 10(38) of the Act by assessee and she has confirmed the addition of Rs.1,43,042/- assessed by the Assessing Officer as unexplained income.
10.1 On the other hand, from going through the computation of income submitted by assessee in the paper book long term capital gain claimed to be exempt u/s 10(38) is shown at Rs.1,31,208/- which has been arrived at after deducting costing of Rs.10,800/- from sale consideration of Rs.1,42,008/- effected 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 the I.T. department.
10.2 Further as regards the transaction of sale of Sardar Sarovar bonds, from going through computation of income and return of ITA No. 1863/Ahd/2015 14 Asst. Year 2006-07 income filed on 27.12.2006 we find that this return was filed much before the date of search i.e. 25.11.2009, complete details have been mentioned about long term capital gain arising from sale of Sardar Sarovar bonds. The assessee has clearly mentioned all the transactions relating to sale of Sardar Sarovar bonds on 9.8.2005 in its computation of income along with showing the date of acquisition as January, 1995 and cost price of three Sardar Sarovar Bonds for Rs.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 of the Sardar Sarovar bonds mentioned in the contract note may have been easily verified by taking information from Sardar Sarovar office regarding share transfer. This exercise seems to have not been done by the Assessing Officer. In view of the fact that assessee has submitted various information 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 Assessing Officer to verify the genuineness of the transaction through the share transfer department of Sardar Sarovar bonds after taking necessary ITA No. 1863/Ahd/2015 15 Asst. Year 2006-07 information including distinctive number of Sardar Sarovar bonds from the assessee. Therefore, in our view this matter needs to be remitted back to the file of Assessing Officer with the instruction of providing necessary opportunity of hearing to the assessee after calling upon the distinctive number of Sardar Sarovar bonds and get the same verified with 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 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 to claim exemption u/s 10(38) of the Act because Sardar Sarovar bonds are neither equity shares nor equity oriented funds. But while framing the assessment order, Assessing Officer has only made an addition on account of unexplained income and has not made addition by denying the long term capital gain at Rs.1,31,208/- and has only mentioned in the assessment order that long term capital gain of Rs.1,31,208 is chargeable to tax u/s 45 of the Act as long term capital gain from sale of Sardar Sarovar bonds.
ITA No. 1863/Ahd/2015 16Asst. Year 2006-07 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 transfer of a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund [or a unit of a business trust] where--
(a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force; and
(b) such transaction is chargeable to securities transaction tax under that Chapter :
[Provided that the income by way of long-term capital gain of a company shall be taken into account in computing the book profit and income-tax payable under section 115JB.] Explanation.--For the purposes of this clause, "equity oriented fund" means a fund--
(i) where the investible funds are invested by way of equity shares in domestic companies to the extent of more than 41[sixty-five] per cent of the total proceeds of such fund; and
(ii) which has been set up under a scheme of a Mutual Fund specified under clause (23D) :
Provided that the percentage of equity shareholding of the fund shall be computed with reference to the annual average of the monthly averages of the opening and closing figures;] From going through the above provisions we find that exemption u/s 10(38) of the Act is available only if there is a transfer of long term capital asset (held for more than one year) as exempt if it is equity share in a company or a unit of equity oriented fund. With reference to Sardar Sarovar bonds that whether they are in nature of equity shares or debenture is not clearly available on record and for this reason this issue is also remitted to the file of Assessing Officer to ITA No. 1863/Ahd/2015 17 Asst. Year 2006-07 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.
11. In the result, assessee's appeal is partly allowed for statistical purposes.
Order pronounced in the open Court on 5th February, 2016 Sd/- Sd/-
(Rajpal Yadav) (Manish Borad)
Judicial Member Accountant Member
Dated 05/02/2016
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. 1863/Ahd/2015 18
Asst. Year 2006-07
1. Date of dictation: __/02/2016
2. Date on which the typed draft is placed before the Dictating Member: __4/02/2016 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: 5/2/16
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: