2016 (10) TMI 1139 - AT - Income Tax

Addition u/s 68 - bogus share transactions - Held that - The assessee has purchased 10000 shares of M/s Aptech Ltd through M/s Alliance Intermediaries and Network P Ltd which was a group company of Mr. Mukesh Chokshi. We also find that the said shares were purchased and paid through banking channel by cheque bearing no.564901 dated 20.2.2006 drawn on Bank of Baroda. The said statement was corroborated by a documentary evidences and were placed before the AO. The said shares were also demated thereafter ultimately sold on 2.3.2006. Thus the assessee has proved the share transactions by filing a copy of account with broker copy of bank statement and Demat account. We find that the third party evidence has been used against the assessee without allowing the assessee to cross-examine Mr.Mukesh Chokshi on the basis of which the addition was made. Whereas the assessee has furnished all the necessary evidences to prove that share transactions were not bogus and the transactions were recorded in the books of account of the assessee Thus direct the AO to delete the addition made under section 68 of the Act and allow STCG as returned by the assessee. - Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of the assessment under Section 147 read with Section 148 of the Income Tax Act, 1961.
2. Treatment of Short Term Capital Gains (STCG) as undisclosed income from other sources under Section 68 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Reopening of the Assessment under Section 147 read with Section 148:

The assessee challenged the reopening of the assessment for the assessment year 2006-07, arguing it was ab initio null and void. The original return was filed on 22.09.2006, declaring a total income of ?12,86,780, which was processed under Section 143(1). The case was reopened under Section 147, and a notice under Section 148 was issued on 13.01.2012 based on information from the DDIT Investigation Wing 1(4), Mumbai. The AO found that the assessee had availed bogus bills/accommodation entries through M/s Alliance Intermediaries and Network Pvt Ltd., a group concern run by Shri Mukesh Chokshi. The AO reopened the case after obtaining approval from the Addl.CIT. The Tribunal, however, dismissed the issue of reopening and jurisdictional matters as academic in nature since the appeal was decided on merits.

2. Treatment of STCG as Undisclosed Income from Other Sources under Section 68:

The assessee declared STCG of ?8,66,100 from the sale of 10,000 equity shares of M/s Aptech Ltd., which were claimed to be purchased on 19.05.2005 for ?3,31,573 and sold on 02.03.2006 for ?11,97,600. The AO, based on the information from the DDIT, concluded that these transactions were bogus and treated the STCG as unexplained cash credit under Section 68, assessing the total income at ?12,86,780.

Upon appeal, the CIT(A) dismissed the assessee's appeal and enhanced the addition from ?8,66,100 to ?11,85,576, considering the entire sale proceeds as income from undisclosed sources. The CIT(A) relied on the findings from the search operations on Mukesh Chokshi and his group companies, which indicated that they were engaged in providing accommodation entries. The CIT(A) noted inconsistencies in the assessee's explanations and the lack of evidence supporting the genuineness of the transactions.

The assessee argued that the transactions were genuine, supported by documentary evidence such as broker notes, bank statements, and demat account details. The assessee also contended that no cross-examination of Mukesh Chokshi was allowed, violating the principle of natural justice.

The Tribunal found that the assessee had provided sufficient evidence to prove the genuineness of the transactions, including the purchase and sale of shares through banking channels and the demat account. The Tribunal noted that the third-party evidence was used against the assessee without allowing cross-examination. Citing similar cases decided by the Co-ordinate Benches of the Tribunal in favor of the assessee, the Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition made under Section 68 and allow the STCG as returned by the assessee.

Conclusion:

The Tribunal allowed the appeal of the assessee, rejecting the additions made under Section 68 and accepting the STCG as genuine. The issues of reopening and jurisdiction were dismissed as academic. The final order was pronounced on 27th October 2016.