2025 (2) TMI 185 - AT - Income Tax

Estimation of income - bogus purchase of shares as undisclosed income - HELD THAT - AO s observation regarding the calculation of the purchase value was found to be incorrect and was duly rectified by the CIT(A) who deleted the excess addition. As noted that no allegations were made against the sale transactions or the profits declared by the assessee. AO s focus was solely on the purchase of shares for the purpose of making the addition. Upon verification through notice issued u/s 133(6) of the Act it was observed that the contract note issued by the broker had been suspended by the National Stock Exchange (NSE). Nonetheless the sales transactions and the corresponding profits were duly accepted and only the purchase aspect was disallowed. We respectfully rely on S.V. Jiwani 2022 (10) TMI 173 - BOMBAY HIGH COURT which involved a similar set of facts and circumstances. In that case the Hon ble Jurisdictional High Court upheld the decision holding that restricting the addition to 12.5% of the bogus purchases was fair and reasonable. We hold that the addition confirmed by the Ld. CIT(A) is unwarranted and deserves to be deleted. Appeal of assessee allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issue in this case is whether the addition of Rs. 5,32,900/- as unexplained investment under Section 69 of the Income-tax Act, 1961, towards the alleged bogus purchase of shares should be upheld. The Tribunal also considered whether the reopening of the assessment under Section 148 was valid, given the information received about the alleged bogus transactions.

ISSUE-WISE DETAILED ANALYSIS

1. Legitimacy of the Share Purchases:

Relevant Legal Framework and Precedents: The case revolves around Section 69 of the Income-tax Act, which deals with unexplained investments. The Tribunal also referenced precedents, including the judgment of the Bombay High Court in PCIT vs. S.V. Jiwani, concerning the treatment of alleged bogus purchases.

Court's Interpretation and Reasoning: The Tribunal noted that the Assessing Officer (AO) had recalculated the purchase value of shares and treated the transaction as bogus based on the suspension of the broker from the NSE and the lack of evidence of the transactions from the share registrars. However, the CIT(A) restricted the addition to Rs. 5,32,900/-, the amount initially claimed as the purchase cost by the assessee.

Key Evidence and Findings: The AO relied on information from the NSE and share registrars, which indicated that the broker was suspended and that there were no records of the alleged share purchases. The assessee, however, provided bank statements and demat account records to support the legitimacy of the transactions.

Application of Law to Facts: The Tribunal considered whether the AO's reliance on external information without independent verification was sufficient to justify the addition. The CIT(A) had already reduced the addition, recognizing the purchase value initially claimed by the assessee.

Treatment of Competing Arguments: The Tribunal evaluated the AO's argument of fictitious transactions against the assessee's evidence of banking and demat records. It also considered the CIT(A)'s decision to restrict the addition to the purchase amount claimed by the assessee.

Conclusions: The Tribunal concluded that the addition of Rs. 5,32,900/- was unwarranted, given the lack of allegations against the sale transactions and the acceptance of the short-term capital gains by the AO.

2. Validity of Reopening the Assessment:

Relevant Legal Framework and Precedents: The reopening of assessments under Section 148 requires the AO to have reason to believe that income has escaped assessment. The Tribunal considered whether the information received constituted a valid basis for reopening.

Court's Interpretation and Reasoning: The Tribunal noted that the reopening was based on information about accommodation entries from Mahasagar Securities Group. The CIT(A) found that the AO had concrete information beyond the report of the Investigation Wing.

Key Evidence and Findings: The AO received information from the NSE about the suspension of the broker and from share registrars denying the transactions. The CIT(A) upheld the reopening, citing concrete information.

Application of Law to Facts: The Tribunal examined whether the AO had independently applied his mind or merely acted on the information received. The CIT(A) concluded that the reopening was justified based on the available information.

Treatment of Competing Arguments: The Tribunal considered the assessee's argument that the reopening was based solely on external information without independent verification by the AO.

Conclusions: The Tribunal upheld the CIT(A)'s finding that the reopening was based on concrete information and not merely on the Investigation Wing's report.

SIGNIFICANT HOLDINGS

Core Principles Established: The Tribunal emphasized the importance of independent verification by the AO when relying on external information for reopening assessments. It also highlighted the necessity of concrete evidence to justify additions under Section 69.

Final Determinations on Each Issue: The Tribunal allowed the appeal, deleting the addition of Rs. 5,32,900/-, and upheld the reopening of the assessment as valid.

Verbatim Quotes of Crucial Legal Reasoning: "Respectfully following the ruling of the Hon'ble Jurisdictional High Court, we hold that the addition of Rs. 5,32,900/- confirmed by the Ld. CIT(A) is unwarranted and deserves to be deleted."