2008 (8) TMI 414 - AT - Income Tax

Summary

Issues Involved:

1. Reduction of Addition as Short-Term Capital Gain
2. Confirmation of Addition as Short-Term Capital Gain
3. Validity of Agreement and Transaction
4. Modus Operandi and Accommodation Entries
5. Documentary vs. Oral Evidence
6. Diversion of Income by Overriding Title

Summary:

1. Reduction of Addition as Short-Term Capital Gain:
The Revenue contended that the learned CIT(A) erred in reducing the addition of Rs. 71,00,000 as short-term capital gain to Rs. 35,75,000. The Tribunal found that the CIT(A) had accepted the agreement between the assessee and JTFSPL as genuine and that the payment of Rs. 27.25 lakhs to JTFSPL was not an accommodation entry. Therefore, the Tribunal upheld the reduction of the addition.

2. Confirmation of Addition as Short-Term Capital Gain:
The assessee argued that the CIT(A) erred in confirming the addition of Rs. 35,75,000 out of the Rs. 71,00,000 made by the AO. The Tribunal found no justification for the CIT(A)'s decision to hold Rs. 35.75 lakhs as accommodation entries, as no cogent and reliable material was brought on record to corroborate the oral statement made for the return of money by JTFSPL to the appellant. Thus, the Tribunal set aside the CIT(A)'s decision on this account.

3. Validity of Agreement and Transaction:
The assessee contended that the agreement with JTFSPL was valid and notarized, and the transaction was genuine. The Tribunal found that the AO did not bring any material to prove that the agreement was sham. The documentary evidence, including the notarized agreement and confirmatory letter from JTFSPL, supported the genuineness of the transaction.

4. Modus Operandi and Accommodation Entries:
The AO relied on the statement of Shri Gajendra Porwal, who admitted to providing accommodation entries. However, the Tribunal found no similarity between the sale of the hotel property by the assessee and the accommodation entries provided by Shri Gajendra Porwal Group. The AO did not prove that the transaction was part of the modus operandi described by Shri Gajendra Porwal.

5. Documentary vs. Oral Evidence:
The Tribunal emphasized that documentary evidence, such as the notarized agreement and audited accounts, should not be discarded based on the oral statement of a third party. The AO wrongly accepted the oral evidence against the documentary evidence provided by the assessee.

6. Diversion of Income by Overriding Title:
The Tribunal found that the amount of Rs. 71 lakhs did not reach the assessee as his own income but was factually diverted to JTFSPL. The CIT(A) laid no basis to hold that Rs. 35.75 lakhs had come back to the assessee. The Tribunal concluded that the case involved the diversion of income by overriding title, not the application of income.

Conclusion:
The Tribunal allowed the appeal of the assessee and dismissed the appeal by the Revenue, finding no merit in the Revenue's contentions and setting aside the CIT(A)'s decision to hold Rs. 35.75 lakhs as accommodation entries.