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2016 (5) TMI 1414 - AT - Income TaxBogus share transactions - Reopening of assessment - intimation given by the investigation wing that the assessee was one of the beneficiaries of the fraudulent billings done by - Mr.Mukesh M Choksi who admitted being indulged in the fraudulent billing of shares and securities - Held that - We find from the record that the assessee has purchased 12000 shares of M/s. Talent Infoways Ltd. for a total consideration of ₹ 17,417/- and the share certificates were received in the physical form which were dematerialized in the name of the assessee and ultimately sold on 29.3.2005. As assessee held the shares for more than 12 months and the gain resulting from the sale of shares was to be exempt under the Act as being long term under the relevant provisions of Act. The AO rejected the claim of the assessee on the basis of such statement and came to the conclusion that these transactions entered by the assessee were bogus as the same made through Mr.Mukesh Choksi and his associate concern. It is clear that the only basis of rejection of claim of the assessee was statement of Mr.Mukesh M Choksi given during the course of search and seizure action. Similar issue came up for consideration before the co-ordinate bench of the Tribunal in the case of Ulka Vijay Salvi (2015 (11) TMI 1724 - ITAT MUMBAI) under the identical facts and the tribunal decided the issue in favour of the assessee by holding that the sale and purchase can not be doubted just on the basis of statement of the third party. - Decided in favour of assessee.
Issues Involved:
1. Reopening of assessment under section 147 of the Income Tax Act. 2. Treatment of share transactions as bogus. 3. Addition of ?10,46,075 to the total income of the assessee. 4. Violation of principles of natural justice. Detailed Analysis: 1. Reopening of Assessment under Section 147: The assessee filed a return of income on 16.3.2005 declaring a total income of ?60,523, which was processed under section 143(1) of the Income Tax Act, 1961. The case was reopened under section 147 based on information from the Investigation Wing of the Income Tax Department following a search and seizure operation on Mr. Mukesh M. Chokshi and his associate companies. The AO issued a notice under section 148, suspecting the assessee had entered into bogus share transactions resulting in a gain of ?10,46,075 that had escaped assessment. 2. Treatment of Share Transactions as Bogus: The AO concluded that the assessee's share transactions were bogus, based on the statement of Mr. Mukesh M. Chokshi, who admitted that his companies, including M/s Mahasagar Securities Pvt. Ltd., were engaged in fraudulent billing activities. The AO noted that the assessee had purchased 12,000 shares of M/s Talent Infoways Ltd. for ?17,417 and sold them for ?10,46,075. These transactions were deemed non-genuine as they were processed through entities linked to Mr. Chokshi. 3. Addition of ?10,46,075 to the Total Income: The AO added ?10,46,075 to the assessee's income, treating the share transactions as accommodation entries provided by Mr. Chokshi's companies. The CIT(A) upheld this addition, referencing ITAT orders that established Mr. Chokshi's companies as entry providers and not genuine business entities. The CIT(A) concluded that no genuine purchase and sale of shares occurred through these entities. 4. Violation of Principles of Natural Justice: The assessee argued that the AO's and CIT(A)'s actions were incorrect and against the facts. The assessee contended that the transactions were genuine, supported by bills, contract notes, share certificates, and dematerialization records. The assessee also argued that the statement of Mr. Chokshi was used without providing a copy or allowing cross-examination, violating principles of natural justice and fair play. Tribunal's Observations and Decision: The Tribunal considered the rival contentions and perused the relevant materials. It noted that the reopening of the case was solely based on the statement of Mr. Chokshi without independent verification of the assessee's transactions. The Tribunal referenced a similar case (Ulka Vijay Salvi V/s ITO) where the ITAT ruled in favor of the assessee, stating that transactions could not be doubted solely based on a third-party statement. The Tribunal found that the assessee's transactions were supported by documentary evidence and that the AO's rejection of the assessee's claim was unwarranted. Conclusion: The Tribunal set aside the CIT(A)'s order and directed the AO to delete the addition of ?10,46,075, allowing the appeal of the assessee. Order Pronounced: The appeal of the assessee was allowed, and the order was pronounced in the open court on 25th May 2016.
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