2017 (5) TMI 1111 - AT - Income Tax

Assessment of income - capital gains or under other sources - proof of bogus transaction - Held that - Assessee have furnished the necessary information of purchase bills, sale bills, ledger accounts, De-mat account copies in support of transactions. Since there is no other information so as to come to conclusion that the transactions entered by the assessee are bogus, these are to be accepted as transactions entered in normal course. The enquiry from the NSE that M/s. Alliance Intermediaries and Net Work P. Ltd., is not a broker or sub-broker does not establish that the transactions with that company is bogus. Moreover, as far as Smt. Sarita Devi is concerned, the purchase transactions mostly pertain to long term capital gains and have been entered in earlier year and have been recorded as on 31.03.2006. A.O. even though has reopened the assessment in that year also, much before this assessment was reopened, the said proceedings were dropped without taking any adverse view. Consequently, the purchases shown in that year in the balance sheet has to be accepted as genuine and subsequent sale thereon cannot be considered as bogus, on presumptions and assumptions. In view of that we have no hesitation in holding that the capital gains declared by the assessee should be assessed as capital gains only. We are not in agreement with the action of the A.O. either for reopening of assessment or for treating the transactions as bogus, since the very basis for reopening the assessment was not provided to the assessee nor an opportunity was given to cross-examine the socalled Mr. Chokshi. There is no basis for treating the said transactions as not genuine. Considering the documents placed on record and the case law relied, we have no hesitation in directing the A.O. to accept the long term capital gains and short term capital gains declared by Smt. Sarita Devi and short term capital gains declared by Ms. Nitika Kumari under the head Capital Gains only. - Decided in favour of assessee.

Issues Involved:
1. Validity of reopening of assessments under section 147.
2. Tangibility of material for reopening assessments.
3. Provision of cross-examination and natural justice.
4. Classification of income as 'capital gains' or 'income from other sources'.

Detailed Analysis:

1. Validity of Reopening of Assessments under Section 147:
The assessees contested the reopening of their assessments, arguing that there was no tangible material to justify the reopening. The A.O. had reopened the assessments based on information from the CCIT, Central, Mumbai, suggesting that the assessees were beneficiaries of accommodation entries provided by Shri Mukesh Chokshi. The A.O. issued notices and the assessees responded by requesting that their original returns be treated as responses to these notices. However, the A.O. did not agree with the assessees' objections and concluded that the transactions were bogus. The CIT(A) upheld the reopening, stating that it was valid despite the assessees' contentions.

2. Tangibility of Material for Reopening Assessments:
The assessees argued that there was no tangible material to conclude that the transactions were bogus. They had already declared their incomes, including long-term and short-term capital gains, which were initially accepted under section 143(1). The A.O. based the reopening on a statement from Shri Mukesh Chokshi, which was not provided to the assessees for verification or cross-examination. The assessees contended that the transactions were genuine and supported by necessary documentation, including purchase and sale invoices, ledger copies, and De-mat account certificates.

3. Provision of Cross-Examination and Natural Justice:
The assessees claimed that the principles of natural justice were violated as they were not provided with the statement of Shri Mukesh Chokshi or any communication received from Mumbai. The A.O. did not allow cross-examination of Shri Mukesh Chokshi, which the assessees argued was crucial to verify the genuineness of the transactions. The CIT(A) rejected this contention, but the appellate tribunal noted that the statement and communication were not on record, and the A.O. himself denied that the reopening was based on the statement of Shri Mukesh Chokshi.

4. Classification of Income as 'Capital Gains' or 'Income from Other Sources':
The CIT(A) directed that the gains be treated as income from 'other sources' rather than 'capital gains', asserting that the transactions were not genuine share transactions but mere paper entries. The assessees contended that their transactions were genuine and should be classified as capital gains. The appellate tribunal examined the evidence and found that the transactions were supported by documentation and that the purchases for long-term capital gains were recorded in the previous year and accepted by the department. The tribunal concluded that the transactions should be accepted as genuine and the gains should be assessed under 'capital gains' rather than 'other sources'.

Conclusion:
The appellate tribunal allowed the appeals of the assessees, directing the A.O. to accept the long-term and short-term capital gains as declared by the assessees under the head 'Capital Gains'. The tribunal found that the reopening of assessments was not justified as there was no tangible material and the principles of natural justice were violated by not providing the statement of Shri Mukesh Chokshi or allowing cross-examination. The tribunal also held that the transactions were genuine and supported by necessary documentation.

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