2015 (9) TMI 1420 - AT - Income Tax

Income from unexplained sources u/s. 68 - Held that - AO had made addition to the income of the assessee u/s.68 of the Act on the basis of the report of the investigation wing of the department,that the officers of the wing had carried out a search and seizure action in the case of Mukesh Choksi group concerns who were engaged in the business of providing accommodation entries,that the was informed that the assessee was beneficiary of the entries provided by one of the Mukesh Choksi group concern i.e.GFPL,that the had claimed LTCG for four scrips,that two out of four were sold on stock exchange and remaining two were sold off market,that the FAA had given categorical finding of fact that the assessee was holding the shares for more than one year,that folio no and copies of certificates were made available to the AO,that the stamp of the company proved that shares were actually transferred in the name of the assessee,that sale of the shares and receiving the sale proceeds through banking channels is not in doubt,that Mukesh Choksi had not alleged that the transactions in question were tainted,that the assessee was not allowed cross examination of Mukesh Choksi with regard to the transactions entered in to by her.Considering the above facts, we are of the opinion that the FAA was justified in reversing the order of the AO.The information received by the AO was a good starting point for further investigation but was not a reliable evidence to make addition u/s.68 of the Act.The assessee had discharged the burden of proving the genuineness of transactions and therefore confirming the order of the FAA,we decide effective ground of appeal against the AO. - Decided in favour of assessee

Summary

Issues:
1. Relief to beneficiary of dubious transaction
2. Application of Rule 46A for cross-examination
3. Classification of income under Capital gain or u/s. 68 of IT Act
4. Allowability of deduction u/s. 54F

Issue 1 - Relief to beneficiary of dubious transaction:
The Assessing Officer (AO) challenged the order of CIT(A) allowing relief to the beneficiary of dubious transactions based on the quantification of income of M/s. Goldstar Finvest Pvt. Ltd. The AO argued that the ITAT had quantified income of M/s. Goldstar Finvest Pvt. Ltd. for A.Y. 2002-03, and the CIT(A) erred in considering the relief to the assessee on this basis.

Issue 2 - Application of Rule 46A for cross-examination:
The AO contended that the CIT(A) erred in not applying Rule 46A of the IT Rules 1962 for the cross-examination of Shri Mukesh Chokshi, which was crucial for the case.

Issue 3 - Classification of income under Capital gain or u/s. 68 of IT Act:
The AO disputed the classification of income amounting to Rs. 27,33,262 under Capital gain instead of income falling under section 68 of the IT Act, 1961. The AO argued that the CIT(A) erred in this classification.

Issue 4 - Allowability of deduction u/s. 54F:
The AO challenged the CIT(A)'s decision of considering the deduction under section 54F as allowable, contending that it was erroneous.

The case involved a search action under section 132 of the Act in the case of Mahasagar Securities Pvt. Ltd., leading to the discovery of fraudulent activities involving bogus bills of transactions in shares and securities. The investigation implicated the assessee as a beneficiary of such transactions. The AO proceeded to assess the income of the assessee, disputing the genuineness of the sale of shares in four scrips. The AO added the proceeds from these transactions as income from unexplained sources under section 68 of the Act.

The First Appellate Authority (FAA) considered the submissions of the assessee and found merit in the genuineness of the transactions. The FAA concluded that the shares were held for a significant period, the transactions were supported by documentary evidence, and the sale proceeds were received through legitimate channels. The FAA overturned the AO's order, leading to an appeal by the AO.

Upon review, the ITAT upheld the FAA's decision, emphasizing that the assessee had proven the genuineness of the transactions and discharged the burden of proof. The ITAT found the information provided by the investigation wing insufficient to make additions under section 68 of the Act. The ITAT dismissed the AO's appeal, affirming the FAA's findings and supporting the genuineness of the transactions based on the evidence presented.

In conclusion, the ITAT dismissed the AO's appeal, upholding the FAA's decision regarding the genuineness of the transactions and the insufficiency of evidence to support additions under section 68 of the IT Act.