2010 (2) TMI 894 - AT - Income Tax

Reopening of assessment - undisclosed income in respect of sale of shares - Held that - t on the basis of documents produced by the assessee it has not been proved and established that the amount of Rs.3 lacs received by the assessee during the year under consideration and the balance amount of Rs.4,04,340/- received in next year, has been received on account of sale consideration of the 1200 numbers of shares sold through CMS Securities Ltd. It is an admitted position that the draft, which has been received by the assessee, have been given by M/s. Kusum and Co. and shares were not sold by the assessee to M/s. Kusum and Co. In the statement of account furnished by CMS Securities Ltd., date and the amount of demand draft is only mentioned without any further details, such as, name of the bank from which demand draft were purchased or without giving any explanation as to how the demand draft came to be issued by M/s. Kusum and Co. against the sale consideration of shares payable by CMS Securities Ltd to the assessee. It is well settled that the receipt of amount by the assessee is itself a prima-facie evidence against the assessee and the receipt can be treated to be the assessee s undisclosed income when the assessee is unable to prove and establish the nature and the genuineness of the receipt received from M/s. Kusum and Co. Thus uphold the addition only to the extent of Rs.3 lacs being credited in the assessee s bank account u/s.68/69 being unexplained money introduced in the bank account, in the present assessment year and the rest amount of Rs.4,04,340/- as introduced by the assessee in its bank account in the next financial year relevant to the A.Y. 1999-2000, which has also been remained unexplained AOdirected to make addition of Rs.4,04,340/- in the A.Y. 1999-2000 after reopening the assessment u/s.147 of the Act read with section 150 of the Act. Against assessee.

Summary

Issues Involved:
1. Addition on account of undisclosed income from the sale of shares.
2. Validity of reassessment proceedings initiated under Section 147/148 of the Income Tax Act.
3. Genuineness of the transaction of purchase and sale of shares.
4. Failure to produce necessary documentary evidence regarding the transaction of shares.

Issue-Wise Detailed Analysis:

1. Addition on Account of Undisclosed Income from Sale of Shares:
The primary issue revolves around the addition of Rs.7,04,340/- made by the Assessing Officer (AO) on account of undisclosed income from the sale of shares. The AO treated the entire sale proceeds of shares as income from undisclosed sources due to the lack of sufficient evidence to substantiate the transaction. The assessee claimed the sale of 1200 shares of M/s. Baba Business Services Ltd. through brokers, but the AO found discrepancies and lack of credible evidence, leading to the addition.

2. Validity of Reassessment Proceedings Initiated under Section 147/148:
The AO issued a notice under Section 148 based on information received from the Director of Income Tax (Investigation), Kanpur, indicating that the assessee might have engaged in bogus transactions. The CIT(A) quashed the reassessment proceedings, stating that the AO had no independent material to conclude that income had escaped assessment. However, the Tribunal upheld the AO's action, stating that the AO had "reason to believe" based on relevant material that income had escaped assessment, thus validating the reassessment proceedings.

3. Genuineness of the Transaction of Purchase and Sale of Shares:
The AO questioned the genuineness of the transactions due to the lack of response from the brokers and the inconsistency in the documents provided by the assessee. The assessee failed to produce sufficient evidence to prove the genuineness of the purchase and sale of shares. The Tribunal noted that the transaction did not stand the test of human probability and surrounding circumstances, raising doubts about the authenticity of the sale at such a high price compared to the purchase price.

4. Failure to Produce Necessary Documentary Evidence:
The assessee could not produce necessary documents to support the transactions, such as confirmation from the brokers and transfer of shares in the purchaser's name. The Tribunal found that the assessee's claim of losing documents and later producing some documents created suspicion about their veracity. The Tribunal emphasized that the assessee failed to prove the nature and genuineness of the receipt of money from M/s. Kusum and Co., leading to the conclusion that the amount received was undisclosed income.

Conclusion:
The Tribunal upheld the AO's action to initiate reassessment proceedings and partially allowed the revenue's appeal. The addition of Rs.3,00,000/- was sustained as undisclosed income for the assessment year 1998-99, and the remaining amount of Rs.4,04,340/- was directed to be added in the assessment year 1999-2000 after reopening the assessment. The Tribunal found that the assessee failed to provide credible evidence to substantiate the transactions and the nature of the receipts, leading to the conclusion that the amounts were undisclosed income.