2021 (5) TMI 59 - AT - Income Tax

Unexplained investment under section 69 - Before CIT(A), it was explained that someone else s cheques are fraudulently credited in the closed ledger account mentioned with the assessee s broker - assessee submitted that he closed the account - HELD THAT - Assessee has filed a complaint with Bombay Stock Exchange in respect of unauthorized trade in assessee s account which was already closed. From the reply of advocate Dinesh Tiwari of Bombay Stock Exchange categorically stated that all the trades in the assessee s account were operated by some shah family and also the outstanding liability of ₹8.06 crores in the said account was taken over by one Mr. Mahesh C Shah. Also, in the letter from the broker to the BSE, it has been confirmed that payments in assessee s account has been received from Mr. Mahesh C Shah. Even, as per the Memorandum Of Understanding (MOU), which is signed between MK Shares and Stock brokers Ltd. and also Mahesh C Shah and his family, the outstanding liability of the assessee has been taken by Mr. Mahesh C Shah and this MOU is never signed by the assessee. It is also submitted that police complaint was filed against the said broker for unauthorized trade carried out towards assessee s account and misusing his name. We are of the view that the Assessing Officer could not understand the fraudulent transaction carried out by one Shri Mahendra Shah and made addition of unexplained investment amounting to ₹ 3,35 crores under section 69 of the Act in the hands of the assessee. Hence, we are of the view that the CIT(A) has rightly deleted the addition. We confirm the order of CIT(A) and this appeal of Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition under Section 69 of the Income-tax Act, 1961 amounting to ?3.35 crores.
2. Verification of facts during the appellate process.
3. Duty of appellate authority to correct errors and remit the matter for reconsideration.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 69:
The core issue in this appeal was the deletion of an addition of ?3.35 crores made by the Assessing Officer (AO) under Section 69 of the Income-tax Act, 1961, which pertains to unexplained investments. The AO had received AIR information indicating that the assessee had engaged in share transactions worth ?117,53,50,740/- through the Bombay Stock Exchange during the Financial Year 2008-09. The AO required the assessee to explain the source of funds for these transactions. The assessee denied any such transactions and provided evidence including bank statements and affidavits. Despite this, the AO made an addition of ?3.35 crores as unexplained investment based on a confirmation from Emkay Global Financial Services Ltd. that they had received this amount from the assessee.

2. Verification of Facts:
The CIT(A) found that the assessee did not have any bank account in the State Bank of Patiala, which was purportedly used for these transactions. The assessee provided evidence that the transactions were fraudulently conducted by a third party, Mahendra Shah, and had filed complaints with BSE, NSE, SEBI, and the police. The CIT(A) noted these complaints and the affidavit filed by the assessee, which remained uncontroverted. The RTI information from the State Bank of Patiala confirmed that the cheques were issued by other parties and not the assessee.

3. Duty of Appellate Authority:
The CIT(A) corrected the errors made by the AO, who failed to consider the evidence and complaints provided by the assessee. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO could not understand the fraudulent nature of the transactions carried out by Mahendra Shah. The Tribunal confirmed that the CIT(A) had rightly deleted the addition, as the evidence overwhelmingly supported the assessee's claim that the transactions did not pertain to him.

Conclusion:
The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s order to delete the addition of ?3.35 crores under Section 69 of the Act. The Tribunal found that the AO failed to properly verify the facts and consider the substantial evidence provided by the assessee, which indicated that the transactions were fraudulently conducted by a third party. The Tribunal emphasized the duty of the appellate authority to correct such errors and ensure justice.