2015 (5) TMI 460 - AT - Income Tax

Reopening of assessment - addition made on account of income from undisclosed sources - Held that - There was a search undertaken in the case of M/s Mahasagar Securities P.Ltd. and its group companies including M/s.Gold Star Finvest P.Ltd. on 25.11.2009. A statement of Shri Mukesh Chokshi Director of M/ s. Mahasagar Securities P.Ltd. was recorded during the search wherein Mukesh Chokshi had explained in detail the modus of operation of the accommodation entries racket being run by him by floating some 34 companies and admitted to be in business of providing the bogus accommodation entries. On the basis of the details obtained during the search by the investigation wing it was noted that the assessee also had made sales and purchases of shares of M/s Buniyad Chemicals Ltd through M/s. Gold Star Finvest P.Ltd which had provided the accommodation entries. M/s Buniyad Chemicals Ltd as well as M/ s. Gold Star Finvest P.Ltd were floated by Mukesh Chokshi only. Since it was admitted by Mukesh Chokshi that he was providing accommodation entries only through its various companies accordingly a notice u/s. 148 was issued after recording the reasons. Thus AO was having sufficient reasons to believe that there was an escapement of income accordingly he was justified in reopening the assessment u/s.147 of the Act - Decided against assessee. Ingenuine transactions - bogus accommodation bills - Held that - AR placed reliance in the case of Shri Anantrai B Shah vs. ITO 21(1)(1) Mumbai 2012 (12) TMI 966 - ITAT MUMBAI wherein it was held that Shri Mukesh Choksi has issued a general statement however the statement was not provided by the assessee therefore a general statement given by Mukesh Choksi cannot by applied to each and every case. The additions made were deleted as there was no direct evidence against the assessee. Neither the statement of Mukesh Choksi was provided to the assessee nor any opportunity for cross examination of Mukesh Choksi was provided. Further reliance was placed in the case of Global Stock Broking P Ltd. vs. ACIT 2007 (11) TMI 591 - ITAT MUMBAI it was held that where oral evidence of any party is sought to be used against an assessee it is necessary that information relating to such statement or the copy of deposition should be furnished to the assessee with opportunity to cross examine the deponent if required by the assessee .If it is not done it is violation of principle of natural justice. - Decided in favour of assessee.

Summary

Issues:
1. Reopening of assessment under section 147
2. Addition made on account of income from undisclosed sources

Reopening of Assessment under Section 147:
The appeal was filed against the order of CIT(A) for the assessment year 2003-04, challenging the reopening of assessment under section 147 of the Income Tax Act. The search conducted in the case of certain companies revealed a modus operandi of providing accommodation entries. It was confirmed that the assessee had engaged in transactions with one of these companies. The Assessing Officer (AO) had sufficient reasons to believe there was an escapement of income, justifying the reopening of the assessment. Consequently, the grounds raised by the assessee against the reopening were dismissed.

Addition on Account of Income from Undisclosed Sources:
The assessee had purchased shares through a company and subsequently sold them, with the AO treating the entire sale consideration as income from undisclosed sources. However, the assessee provided evidence of the share transfer during the assessment proceedings. The AO's conclusion that the assessee was involved as a beneficiary was based on the admission of the main person involved in the accommodation entries racket. The appellate tribunal noted that the AO did not consider the supporting evidence provided by the assessee. The tribunal referred to previous cases where it was held that reliance on general statements without providing direct evidence or opportunity for cross-examination violates principles of natural justice. Citing these precedents, the tribunal directed the AO to delete the addition made on the sale proceeds of shares, as there was no merit in treating it as undisclosed income. Consequently, the appeal of the assessee was allowed in part.

This detailed analysis of the judgment provides insights into the issues of reopening assessment under section 147 and the addition made on account of income from undisclosed sources, highlighting the key legal arguments and decisions made by the appellate tribunal.