2016 (4) TMI 702 - AT - Income Tax

Unexplained expenditure u/s 69C for the commission paid to the brokerage company for arranging bogus bills - AO added income from other sources which was long term capital gain from shares by treating the same as bogus for the reasons that the company M/S Goldstar Finvest Pvt Ltd was a group company of Mr Mukesh Chokshi which was involved in issuing bogus bills for purchase - Held that - the basis of additions by the AO is completely unfounded and the AO made the addition on the basis of just conjecture and surmises that the assessee had transacted through M/S Goldstar Finvest Pvt Ltd which was a group company of Mr.Mukesh Chokshi a hawala dealer. The ld AR submitted before us that no materials has been brought on records by the AO while making additions by just giving one line (last line) observation of the assessment order. We find merit in the arguments of the ld AR that there is no basis for the said addition u/s 69 of the Act and order of FAA confirming the same is also wrong. In view of our observation in hereinabove we allow this ground in favour of assessee by deleting the addition - Decided in favour of assessee

Issues Involved:
1. Addition of Rs. 5,50,520/- as income from undisclosed sources.
2. Addition of Rs. 55,050/- as unexplained expenditure under Section 69C.
3. Interest charged under Sections 234A, 234B, and 234C.

Detailed Analysis:

1. Addition of Rs. 5,50,520/- as Income from Undisclosed Sources:
The primary issue was the confirmation of an addition of Rs. 5,50,520/- by the CIT(A), which was made by the AO on the grounds that the income was from transactions with M/s. Gold Star Finance Pvt. Ltd., a company linked to Mukesh Choksi. The assessee had declared this amount as long-term capital gains from the sale of 8,200 equity shares of M/s. Buniyad Chemicals Ltd. The AO re-opened the case under Sections 147 and 148 of the Act after receiving information from the DIT Investigation that Mukesh Choksi and his associated companies were involved in bogus billing of shares. The AO concluded that the transactions were part of a hawala racket and added the long-term gain to the assessee's income as income from other sources.

The CIT(A) upheld the AO's decision, doubting the genuineness of the transactions, as they were off-market and linked to a company involved in a hawala scam. The assessee argued that similar cases had been decided in favor of the assessee by the ITAT Mumbai benches, citing several cases where the transactions were deemed genuine despite being linked to Mukesh Choksi.

The Tribunal, after considering the rival submissions and various case decisions, found that similar issues had been decided in favor of the assessee. It was noted that the AO's addition was based on suspicion and conjecture without disproving the documents provided by the assessee. The Tribunal decided in favor of the assessee, deleting the addition of Rs. 5,50,520/- and directing the AO accordingly.

2. Addition of Rs. 55,050/- as Unexplained Expenditure under Section 69C:
The second issue was the confirmation of an addition of Rs. 55,050/- as unexplained expenditure under Section 69C, which was purportedly paid as commission to the brokerage company for arranging bogus bills. The AO added this amount, treating the long-term capital gain from shares as bogus, and the CIT(A) upheld this addition.

The Tribunal heard the submissions and found that the AO's addition was unfounded, based merely on conjecture and surmises. The AO had not provided any substantial evidence or material to support the addition. The Tribunal found merit in the assessee's argument that there was no basis for the addition under Section 69C and deleted the addition of Rs. 55,050/-, directing the AO accordingly.

3. Interest Charged under Sections 234A, 234B, and 234C:
The third ground pertained to the interest charged under Sections 234A, 234B, and 234C, amounting to Rs. 1,759/-, Rs. 1,66,241/-, and Rs. 545/- respectively. Since the primary additions were deleted, this ground was deemed consequential and did not require separate adjudication.

Conclusion:
In conclusion, the appeal of the assessee was allowed, with the Tribunal deleting both the additions of Rs. 5,50,520/- and Rs. 55,050/-, and directing the AO accordingly. The order was pronounced in the open court on 26th February 2016.

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