2016 (8) TMI 1304 - AT - Income Tax

Bogus share transaction - veracity of statement made under section 131 - Held that - Assessing Officer has treated the share transaction as sham / bogus by solely relying upon the statement of Shri Mukesh Choksi, director of Mahasagar Securities Pvt. Ltd. and Alliance Intermediaries Network Pvt. Ltd., wherein he allegedly admitted of having provided accommodation entries only and there was no share transaction actually made. Apart from the statement of Shri Mukesh Choksi, the Assessing Officer has not referred to any other material or evidence which could corroborate or conclusively prove the facts stated by Shri Mukesh Choksi. Moreover, it is uncontroverted fact that the statement recorded of Shri Mukesh Choksi, under section 131 and other adverse materials claimed to be in the possession of the Department, which were utilised for treating the share transactions of the assessee as sham / bogus was never confronted to the assessee nor the assessee was supplied with those materials. The assessee was not allowed the opportunity to cross examination Shri Mukesh Choksi, to test the veracity of statement made by him under section 131 of the Act. Though, the assessee raised this issue before the learned Commissioner (Appeals), but the learned Commissioner (Appeals) has neither properly considered nor appreciated the contention of the assessee. In our view, without confronting the statement of third party on the basis of which the Assessing Officer made the addition and without allowing opportunity to the assessee to cross examine the concerned person no addition can be made on the basis of such untested material.

Summary

Issues:
1. Validity of notice issued u/s. 148 and order passed u/s. 143(3) r.w.s. 147
2. Addition of consideration paid for purchase of shares under 'income from undisclosed sources'
3. Assessment of capital gains as income from undisclosed sources

Analysis:

Issue 1: Validity of notice u/s. 148 and order u/s. 143(3) r.w.s. 147
The assessee challenged the validity of the notice issued under section 148 and the subsequent order passed under section 143(3) r.w.s. 147. The Assessing Officer reopened the assessment based on information obtained during a search and seizure operation at certain companies. The assessee contended that there was no tangible material for the Assessing Officer to believe that income had escaped assessment. The assessee argued that the share transactions were genuine and made from disclosed sources. The Assessing Officer relied on a statement from a third party without providing an opportunity for cross-examination to the assessee. The Tribunal held that without proper confrontation and cross-examination, additions based on untested material are unsustainable. The Tribunal deleted the addition and did not delve into the legality of the reassessment.

Issue 2: Addition of consideration for purchase of shares
The Assessing Officer treated the consideration paid for the purchase of shares as income from undisclosed sources. The assessee provided documentary evidence to prove the genuineness of the share transactions. The Tribunal noted that the Assessing Officer solely relied on a statement from a director of the broker company without corroborating evidence. The Tribunal found that the addition based on untested material was unsustainable and deleted the addition.

Issue 3: Assessment of capital gains
The Assessing Officer assessed the capital gains as income from undisclosed sources. The assessee submitted all relevant details to prove the genuineness of the share transactions. The Tribunal observed that the Assessing Officer's conclusion was based on uncorroborated statements and lacked proper confrontation or cross-examination. Relying on previous decisions and the principle of natural justice, the Tribunal held the addition as income from undisclosed sources to be unsustainable and deleted it.

In conclusion, the Tribunal partially allowed the appeal, deleting the additions made by the Assessing Officer. The decision emphasized the importance of proper evidence, confrontation, and cross-examination in making additions based on untested material.