2017 (3) TMI 1570 - AT - Income Tax

Reopening of assessment proceedings u/s 147/148 - Held that - We find that there was admission by Shri Mukesh Chokshi that he was engaged in providing bogus long term gains claim in lieu of cash and he was duly examined by the assessee. Totality of facts clearly indicates that there was reasonable belief with the Assessing Officer that income has escaped assessment, therefore, so far as, reopening is concerned, we find no infirmity in the conclusion of the Ld. Commissioner of Income Tax (Appeal), thus, this ground is decided against the assessee. Bogus accommodation entries - Held that - On the basis of the orders of ITAT in case of Shri Mukesh Chokshi and his associates, it is a concluded fact that Shxi Mukesh Chokshi is not doing any business of share transactions or stock brokering but he has provided only accommodation entries of share transactions and thus facilitated in helping the appellant for showing bogus, tax free, Long Term Capital Gain. For accommodation entries provided by Shri Mukesh Chokshi and his associates, his net income @0.15% of total transactions has been shown as income and has been accepted by the ITAT. Therefore, all these transactions are bogus and also the Long Term Capital Gain shown in the return is bogus. Accordingly, the addition made by the AO is upheld and grounds of appeal No. 1, 3 & 4 are dismissed. Addition made under section 68 of the Act as well as the consequential addition representing commission paid to the parties who facilitated the transactions, is upheld. - Decided against assessee.

Issues Involved:
1. Initiation/Reopening of assessment proceedings under Section 147/148 of the Income Tax Act, 1961.
2. Validity of transactions and assessment of income as bogus.

Issue-wise Detailed Analysis:

1. Initiation/Reopening of Assessment Proceedings under Section 147/148:

The assessee challenged the initiation and reopening of assessment proceedings under Sections 147/148 of the Income Tax Act, 1961. The assessee's counsel argued that the figures did not tally and that the reasons recorded by the Assessing Officer (AO) should be considered. It was acknowledged that the notice issued under Section 148 was duly received by the assessee. The revenue defended the assessment order, explaining that the AO had sufficient reasons to believe that income had escaped assessment, and emphasized that the assessment was framed under Section 143(1) and not 143(3), indicating no change of opinion by the AO. The reopening was argued to be valid, supported by the decision from the Hon'ble Apex Court in 291 ITR 500 (SC).

Upon reviewing the facts, the tribunal noted that the assessee had declared an income of ?4,60,890 in the return filed on 16/09/2003, which was processed under Section 143(1). The case was reopened under Section 147 based on information from the DDIT regarding bogus transactions, leading to a search and seizure action under Section 132. The tribunal cited various judicial precedents to support the validity of reopening, emphasizing that the AO must have "reason to believe" that income had escaped assessment, which can be based on any material, not necessarily due to the assessee's failure to disclose material facts.

The tribunal concluded that the AO had reasonable grounds to believe that income had escaped assessment, thus validating the reopening under Sections 147/148. The tribunal referenced multiple cases to support the broad powers of the AO to initiate reassessment proceedings, provided there is a reasonable belief of escaped income.

2. Validity of Transactions and Assessment of Income as Bogus:

On the merits, the tribunal examined whether the transactions claimed by the assessee were genuine. The AO had treated the transactions as bogus, based on the statement of Shri Mukesh Chokshi, who admitted to providing accommodation entries through various companies. The statement detailed the modus operandi of issuing bogus bills for speculation profit, short-term gain, long-term gain, and share application adjustment entries.

During cross-examination, Shri Mukesh Chokshi confirmed that the transactions were off-market and that the bills issued were bogus. The tribunal noted that the assessee was one of the beneficiaries of these bogus transactions, which were mere paper entries without actual delivery of shares. The tribunal referenced ITAT orders in similar cases involving Shri Mukesh Chokshi and his associates, where it was concluded that these entities were not engaged in genuine business but were providing accommodation entries.

The tribunal upheld the AO's addition of ?7,66,653 as unexplained cash credit under Section 68, rejecting the assessee's claim of genuine long-term capital gain. The tribunal directed the AO to verify the correct amount received by the assessee from Shri Mukesh Chokshi and his associates and tax only the correct amount after providing an opportunity for the assessee to be heard.

The tribunal concluded that the transactions were illusory and bogus, affirming the order of the Commissioner of Income Tax (Appeal) and dismissing the assessee's appeal.

Conclusion:

The tribunal validated the reopening of assessment under Sections 147/148, citing reasonable belief of escaped income based on material evidence. On the merits, it upheld the AO's addition, concluding that the transactions were bogus accommodation entries, and dismissed the assessee's appeal.

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