2016 (10) TMI 1125 - AT - Income Tax

Validity of reopening of assessment - assessment of long term capital gain as his undisclosed income u/s 68 - Held that - We notice that the assessing officer has disbelieved the claim of Long term capital gains only on the basis of the statement given by the broker. We notice that the assessee has furnished the details of purchase of shares, copies of share certificates, the details of sale of shares and the details of receipt of money towards the sale consideration. Further it is stated that the sale of shares has taken place through Ahmedabad Stock Exchange. We notice that the above said documents and the claim of the assessee were not examined at all by the AO. We further notice that the assessee has filed return of income showing the purchases in the year relevant to AY 2003-04 and the sales in the return of income relating to AY 2004-05. We further notice that the assessee has sought for the copy of statement claimed to have been given by Shri Mukesh Choksi with regard to the transactions carried on by his group of companies. However, the same has not been provided to the assessee. According to the Ld A.R, the assessing officer has not shown that the transactions of the assessee have been claimed to be accommodation entries by Shri Mukesh Choksi. Accordingly it was submitted that the tax authorities should not have taken adverse view of the matter on the basis of generalized statement. We notice that the tax authorities have placed full reliance on the statement given by Shri Mukesh Choksi and it was not shown that the transactions entered with the assessee were claimed to be bogus. Further the tax authorities have not examined the documents furnished by the assessee and did not carry out verification with third parties. We have also noticed that the statement of Shri Mukesh Choksi has been relied upon without confronting the same with the assessee. Under these set of facts, we are of the view that there is no justification in disbelieving the claim of the assessee. - Decided in favour of assessee.

Summary

Issues:
Validity of reopening of assessment and assessment of long term capital gain as undisclosed income.

Validity of Reopening of Assessment:
The Assessing Officer reopened the assessment based on information received regarding bogus transactions involving the assessee. The assessee challenged the validity of reopening before the CIT(A), arguing lack of specific evidence and cross-examination opportunity. The CIT(A) upheld the reopening, citing the decision in the case of Rajesh Jhaveri Stock Brokers (P) Ltd. The assessee's contention of not being allowed to cross-examine Mukesh Chokshi was rejected by the CIT(A) due to lack of evidence of a specific request for cross-examination.

Assessment of Long Term Capital Gain:
The Assessing Officer assessed long term capital gain as undisclosed income based on the belief that the assessee obtained backdated purchase bills for shares and sold them for bogus gains. The CIT(A) confirmed this assessment, stating that the transactions matched the modus operandi of providing accommodation bills by Mukesh Chokshi's group. The assessee argued against the assessment, presenting evidence of share transactions and challenging the lack of inquiry into the broker's note. The Tribunal found merit in the assessee's contentions, noting that the AO solely relied on Mukesh Chokshi's statement without verifying the documents or confronting the statement with the assessee. Consequently, the Tribunal directed the AO to accept the disclosed long term capital gains.

Conclusion:
The Tribunal allowed the appeal, setting aside the CIT(A)'s order and directing the AO to accept the disclosed long term capital gains. Other grounds raised by the assessee were not adjudicated due to the favorable decision on the main issue. The order was pronounced on 05.10.2016.