2015 (4) TMI 677 - AT - Income Tax

Addition of unexplained income under section 69A of the Income Tax Act, 1961 - Purchase & sale of shares - De-materialised shares - Stock exchange denied any such transaction on exchange platform - Held that - The foregoing discussions would show that the tax authorities have proceeded to assess the amount of ₹ 1.00 crores on suspicion, conjectures and surmises. Further they have not disproved the various documents furnished by the assessee in support of purchase and sale of shares by conducting specific enquiries with the brokers who had purchased and sold the shares on behalf of the assessee. The strong fact relating to the dematerialization of shares was not disproved by the tax authorities. The fact of purchase of shares was disclosed by the assessee in its return of income filed for AY 2002-03. The source of purchase was the speculation profit arising on sale of certain shares and the said speculation profit was also assessed in AY 2002-03. The assessee has dematerialized the shares through M/s RBK Share Broking Ltd, one of the depository participants of M/s CDSL. Without availability of physical shares, one cannot set them for de-materialisation. These factual aspects have not been disproved by the tax authorities. The shares were sold in the off-market and hence the transaction of sales was not routed through the stock exchange. The shares were held in the name of the partners on behalf the assessee firm and hence, naturally, the name of assessee firm would not find place in the transactions. Under these set of facts, the letters issued by the Stock Exchange could not be relied upon by the tax authorities. The case law relied upon by the Ld CIT(A) were also not found to be supporting the case of the tax authorities. We have also noticed that the assessing officer has assessed the Long term capital gain arising on sale of impugned shares. Under these set of facts, we are of the view that the tax authorities are not justified in suspecting the claim of purchase and sale of shares and also assessing the amount of ₹ 1.00 crore as undisclosed income of the assessee. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the assessing officer to delete the assessment of ₹ 1.00 crore made in the hands of the assessee. - Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of the assessment.
2. Assessment of Rs. 1 crore as unexplained income under section 69A of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Reopening of the Assessment:
- At the time of hearing, the counsel for the assessee did not press the ground relating to reopening of the assessment. Consequently, this issue was dismissed as not pressed.

2. Assessment of Rs. 1 Crore as Unexplained Income under Section 69A of the Income Tax Act, 1961:
- Facts of the Case:
- The assessee filed a return declaring total income of Rs. 4.83 crores, including Long Term Capital Gain (LTCG) of Rs. 4.46 crores.
- The Assessing Officer (AO) received information that M/s Mahasagar Securities Pvt. Ltd. and its related companies were providing bogus speculation profits/losses, and LTCG/losses to convert undisclosed income into income from share trading.
- The assessee sold 2,00,000 shares of M/s Buniyad Chemicals Ltd through M/s Goldstar Invest Pvt. Ltd. and received a cheque of Rs. 99,69,498.
- The AO, based on the statement of Shri Mukesh Chokshi, Director of M/s Mahasagar Securities Pvt. Ltd., concluded that the transactions were merely accommodation entries, thus assessing Rs. 1 crore as unexplained money under section 69A.

- Appellate Proceedings:
- The assessee provided all relevant details before the CIT(A), who called for a remand report from the AO.
- The Stock Exchange confirmed that the transactions did not occur in the names of M/s R.C. Enterprises or M/s Goldstar Finvest Pvt. Ltd.
- The CIT(A) upheld the AO's decision, referencing the Supreme Court case CIT V/s Durga Prasad More and a Mumbai Tribunal decision in Ramesh Kumar D Jain V/s ITO.

- Tribunal's Analysis:
- The Tribunal reviewed the fact sheet provided by the assessee, detailing the sequence of purchase and sale of shares.
- The assessee purchased 2,00,000 shares of M/s Buniyad Chemicals Ltd. in April 2001, which were later dematerialized and sold in May 2002 through M/s Goldstar Finvest Pvt. Ltd.
- The Tribunal noted that the shares were held in demat form with M/s CDSL, a reputable depository, and the transactions were off-market.
- The AO relied on generalized statements by Shri Mukesh Choksi without specific inquiries into the assessee's transactions.
- The Tribunal found that the tax authorities did not disprove the purchase and dematerialization of shares nor conducted specific inquiries with brokers or M/s CDSL.
- The Tribunal concluded that the tax authorities' assessment of Rs. 1 crore as unexplained income was based on suspicion and not supported by disproven evidence.

- Conclusion:
- The Tribunal set aside the CIT(A)'s order, directing the AO to delete the assessment of Rs. 1 crore made in the hands of the assessee.
- The appeal filed by the assessee was allowed.

Pronouncement:
- The judgment was pronounced in the open court on 8.04.2015.