2014 (6) TMI 2 - AT - Income Tax

Reassessment u/s 147 - fraudulent transactions in shares Full and true disclosure - Held that - The information which was received after the search operation was new information which was not revealed by the assessee and that information came to the notice of the AO consequently after the search was conducted - there was no belief of the AO - the reopening was held as not sustainable in the eyes of law - once, the reason recorded were assigned by the AO then it is wrong to say that he has not applied his mind, there was a proper application of mind by the AO - The AO has given copy of the reasons for reopening to the assessee which was duly signed - although the notice was issued after the expiry of four years but it was issued within six year- This fact has not been controverted by the assessee - the time limit for notice as prescribed u/s 149 of IT Act was not in controversy because the amount which has escaped the assessment had exceeded Rs.1 lac thus, there was no force on the ground of the assessee challenging the reopening of the assessment Decided against Assessee. Addition made Sale and purchase of scrips Held that - The purchase as well as the sale transactions of the scrips was not genuine - The reason for taking this view is that the purchase rate had not tallied with the rate as per BSE website and that the purchases have also been made in cash - only paper transactions have been made because there was no evidence of physical delivery of the shares - The AO was right in asking the details of the dividend if any received during the holding period - But no such information was provided at any stage of proceeding. Even, the entries in the Demat Account were not sacrosanct because the AO had found on investigation that those were all off market transactions - those companies were nothing but entry providers - it was proved beyond doubt that Mahasagar Group was engaged in the business of issuance of fraudulent bills thus, the order of the CIT(A) is upheld Decided against Assessee.

Issues Involved:
1. Reopening of the assessment.
2. Addition of Rs. 4,80,035/- as unexplained cash credit.

Detailed Analysis:

I. Reopening of the Assessment:
1. Validity of Reopening Conditions:
The Assessing Officer (AO) reopened the assessment based on information from the DIT (Investigation), Surat, indicating that the assessee had engaged in transactions with M/s. Mahasagar Securities Pvt. Ltd., which was involved in providing bogus speculation profit/loss. The AO issued a notice under Section 148 on 23rd March 2011, claiming that income chargeable to tax had escaped assessment.

2. Procedural Formalities:
The assessee challenged the reopening, arguing that the AO did not independently apply his mind and merely acted on the DIT's information. The CIT(A) rejected this argument, stating that the AO had followed all procedural formalities and had valid reasons to believe that income had escaped assessment.

3. Application of Mind by AO:
The assessee contended that the AO did not provide a copy of the DIT report, which was the basis for reopening. The Tribunal noted that the AO had recorded his satisfaction and provided the reasons for reopening to the assessee, thus demonstrating proper application of mind.

4. Time Limit for Issuing Notice:
The notice was issued after four years but within six years from the end of the relevant assessment year. The Tribunal held that the AO had valid reasons to believe that income had escaped assessment due to the assessee's failure to disclose all material facts fully and truly.

5. Legal Precedents:
The Tribunal referred to various case laws, including Rajesh Jhaveri Stock Brokers (P) Ltd., SFIL Stock Broking Ltd., and others, to support the validity of the reopening. The Tribunal concluded that the reopening was justified and dismissed the assessee's challenge.

II. Addition of Rs. 4,80,035/-:
1. Genuineness of Share Transactions:
The AO doubted the genuineness of the share transactions, noting discrepancies in the purchase and sale prices of shares compared to the BSE website. The AO found that the transactions were "off market" and lacked evidence of physical delivery of shares.

2. Evidence and Documentation:
The assessee provided documents such as the Demat Account, bank statements, and contract notes. However, the AO found that these documents did not substantiate the genuineness of the transactions, as the shares were purchased in cash and there was no evidence of dividend received during the holding period.

3. Role of Mahasagar Group:
The AO noted that the Mahasagar Group, including M/s. Alliance Intermediaries & Network Pvt. Ltd., was involved in fraudulent billing activities and was declared as entry providers by the ITAT Mumbai Bench. The AO concluded that the assessee's transactions were fictitious and treated the amount as unexplained cash credit under Section 68.

4. CIT(A) and Tribunal's Findings:
The CIT(A) upheld the AO's findings, and the Tribunal agreed, noting that the transactions were not genuine and were part of a scheme to introduce unaccounted income as long-term capital gains. The Tribunal dismissed the assessee's appeal, affirming the addition of Rs. 4,80,035/- as unexplained cash credit.

Conclusion:
The Tribunal dismissed the assessee's appeal, upholding both the reopening of the assessment and the addition of Rs. 4,80,035/- as unexplained cash credit. The Tribunal found that the AO had valid reasons to believe that income had escaped assessment and that the share transactions were not genuine, being part of a scheme involving fraudulent billing activities by the Mahasagar Group.

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