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2016 (3) TMI 676 - AT - Income TaxReopening of assessment - Held that - Assessing Officer has initiated proceedings on the basis of information received from the documents pertaining to search operation in the case of Mahasagar Securities Ltd. and further the Assessing Officer has specifically mentioned the total value of transactions relating to purchase and sale of securities and proceedings have been initiated for reassessment to verify the value of transactions of ₹ 1,43,042/- which was sale consideration of Sardar Sarovar Bonds effected by the assessee through Alliance Intermediaries & Network Pvt. Ltd. on 9.8.2005. We, therefore, are of the view that ld. CIT(A) was correct in upholding that notice of reopening u/s 148 was not illegal and unlawful. Therefore, this ground of the assessee is dismissed. Treating the sale consideration of sale of Sardar Sarovar Bonds as unexplained income - Held that - In view of the fact that assessee has submitted various information along with computation of income filed with original return of income prior to date of search and further supporting evidence supplied by assessee proving that some transaction has happened on 9.8.2005 by sale of Sardar Sarovar bonds which have been acquired by the assessee in January, 1995 and have been sold on 9.8.2005 after paying service tax and turnover charges through broker of National Stock Exchange mentioning three bonds in the contract note, then it was the duty of the Assessing Officer to verify the genuineness of the transaction through the share transfer department of Sardar Sarovar bonds after taking necessary information including distinctive number of Sardar Sarovar bonds from the assessee. Therefore, in our view this matter needs to be remitted back to the file of Assessing Officer with the instruction of providing necessary opportunity of hearing to the assessee after calling upon the distinctive number of Sardar Sarovar bonds and get the same verified with the help of assessee from the department of Sardar Sarovar Ltd. keeping record of shares transfer so as to verify that whether the assessee was the owner of three bonds of Sardar Sarovar from January, 1995 onwards till the date of sales i.e. 9.8.2005 and whether there was transfer of bonds from assessee s account to some other persons account pursuant to sale of bonds. The Assessing Officer should frame a fresh assessment order on the basis of this information which is crucial for deciding that whether transaction shown by the assessee is long term capital gain was genuine or it was a sham transaction. Exemption u/s 10(38) of the Act is available only if there is a transfer of long term capital asset (held for more than one year) as exempt if it is equity share in a company or a unit of equity oriented fund. With reference to Sardar Sarovar bonds that whether they are in nature of equity shares or debenture is not clearly available on record and for this reason this issue is also remitted to the file of Assessing Officer to take necessary information from Sardar Sarovar Ltd. that whether Sardar Sarovar bonds are in the nature fo equity shares or debenture. If the Assessing Officer comes across to this effect that Sardar Sarovar bonds are not equity shares and only in the nature of debenture on which interest income is received by the debenture holder then the assessee will not be eligible for exemption income u/s 10(38) of the Act. - Decided partly in favour of assessee for statistical purposes.
Issues Involved:
1. Legality of reopening the assessment under Section 147 of the Income-tax Act, 1961. 2. Addition of Rs. 1,43,042/- as unexplained income from fictitious transactions with Mahasagar Securities Ltd. group. 3. Denial of exemption for Long Term Capital Gains (LTCG) on sale of Sardar Sarovar Bonds under Section 10(38) of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Legality of Reopening the Assessment under Section 147: The appellant contested the legality of the reopening of the assessment under Section 147 of the Income-tax Act, 1961, arguing that the conditions precedent for reopening were not satisfied, making the entire process unlawful. The CIT(A) upheld the reopening, stating that the Assessing Officer (AO) had information suggesting that the appellant was a beneficiary of accommodation entries provided by Mukesh Choksi's group companies. The AO had reason to believe that income had escaped assessment based on this information. The CIT(A) cited several judicial precedents, including the Supreme Court's decision in ACIT vs. Rajesh Zaveri Stock Brokers Pvt. Ltd., which clarified that the AO must have a belief that income has escaped assessment, not necessarily final legal evidence. The Tribunal concurred with the CIT(A), noting that the AO had initiated proceedings based on specific information from search operations and had followed due procedure. Therefore, the notice of reopening under Section 148 was deemed valid and lawful. 2. Addition of Rs. 1,43,042/- as Unexplained Income: The AO added Rs. 1,43,042/- to the appellant's income, treating it as unexplained income from fictitious transactions with Mahasagar Securities Ltd. group. The AO observed that the appellant had shown LTCG from the sale of Sardar Sarovar Bonds through Alliance Intermediaries & Network Pvt. Ltd., whose registration was canceled before the transaction date. The CIT(A) upheld this addition, agreeing with the AO's conclusion that the transactions were accommodation entries and not genuine. The appellant argued that the AO relied on the statement of Mukesh Choksi without providing a copy or allowing cross-examination, violating principles of natural justice. The Tribunal noted discrepancies in the figures mentioned by the AO and CIT(A) and the appellant's records. It found that the AO did not verify the genuineness of the transaction through the share transfer department of Sardar Sarovar Ltd. The Tribunal remitted the matter back to the AO for re-examination, instructing the AO to verify the distinctive numbers of the Sardar Sarovar Bonds and confirm the transaction's genuineness. 3. Denial of Exemption for LTCG on Sale of Sardar Sarovar Bonds: The AO denied the exemption for LTCG under Section 10(38) of the Act, arguing that Sardar Sarovar Bonds are not equity shares but bonds on which interest is received. The CIT(A) confirmed this view. The Tribunal noted that the AO did not make a separate disallowance in computing the assessed income but mentioned that LTCG from the sale of Sardar Sarovar Bonds is chargeable to tax under Section 45. The Tribunal highlighted that Section 10(38) exempts LTCG only if the asset is an equity share or a unit of an equity-oriented fund. The Tribunal remitted this issue back to the AO to verify whether Sardar Sarovar Bonds are equity shares or debentures. If found to be debentures, the exemption under Section 10(38) would not be applicable. Conclusion: The Tribunal upheld the legality of reopening the assessment under Section 147 but remitted the issues of unexplained income and denial of exemption for LTCG back to the AO for re-examination and verification. The appeal was partly allowed for statistical purposes.
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