2019 (5) TMI 624 - AT - Income Tax

Reassessment proceedings u/s 147 - bogus share transaction - the statement of Shri Mukesh Chokshi, which was the very basis of reassessment proceedings, was not placed / available on record or folder? - revenue has controverted the same by submitting letter dated 24/07/2018 issued by concerned ITO-33(1)(1) enclosing the statement of Shri Mukesh Chokshi dated 16/01/2013 which formed the basis of reopening and also list of beneficiaries for FY 2007-08 uploaded on the ITD System - HELD THAT - The said information is being supplied as per the direction of the bench vide order sheet entry dated 28/06/2018. Upon perusal of the Ld. AO s reply, prima-facie, it appears that the requisite information in the shape of statement of Shri Mukesh Chokshi along with list of beneficiaries was very much available on the record so as to trigger reassessment proceedings. Therefore, we are not inclined to agree with the submission made by AR that the reassessment proceedings were not valid. The legal grounds stand dismissed. Exemption u/s 10(38) - sale of IFCI, Indian Bank Jai Corp scrips - HELD THAT - The payment of purchase of scrips has been made through banking channels as evident from assessee s bank statements, ledger confirmation etc. Upon perusal of financial statements, we find that the investment in the scrips was duly reflected by the assessee in its Balance Sheet as on 31/03/2006 31/03/2007, which is un-controverted fact. The sale of scrips during impugned AY has taken place in stock exchange through an independent broker namely M/s JCSL and the delivery of the shares have been given from the assessee s demat account and the sale consideration has been received through banking channels. The assessee is in possession of broker bills contract notes in respect to purchase as well as sale of these scrips. There is credit and debit of shares in assessee s demat account. The scrips are of reputed corporate entities like IFCI, Indian Bank Jai Corp. Nothing on record establishes that the broker namely M/s JCSL was, in any manner, connected with the tainted group. Therefore, there could be no occasion to treat the sale transactions as bogus transaction. As a natural corollary, since there could be no sale of scrips without actual purchase of scrips, the purchase transactions could not be termed as bogus transactions. AO, in the process of making additions, has heavily relied upon the statement of Shri Mukesh Chokshi without bringing on record any cogent material to establish that the sale transactions carried out by the assessee though M/s JCSL were bogus transactions. In fact, the lower authorities, in our opinion, has missed out the fact that the sale transactions had taken place through an independent broker namely M/s JCSL and not through M/s AINPL. Another aspect is that additions have been made merely by relying upon third party statements which were never confronted to the assessee in violation of principle of natural justice. The assessee, in our opinion, discharged the primary onus of proving the stated transactions by submitting purchases bills, contract notes of purchase of shares, holding letter from the broker, bank pass book evidencing payment through banking channels towards purchase of shares, copy of ledger account in the books of share broker, sales bills and sale contract notes issued by M/s JCSL, copy of ledger account in the books of M/s JSCL, delivery position and global net position demat report, bank pass book evidencing receipt of sale consideration through banking channels. Unexplained investments - Upon perusal of financial statement for impugned AY, it is noted that the stated investments have duly been reflected in assessee s Balance Sheet as on 31/03/2008 and there could be no occasion to consider them as unexplained investment. In support of the purchases, the assessee has placed on requisite documentary evidences in the shape of broker bills, contract notes, ledger confirmation etc. The payment of the same has been made through banking channels. Therefore, the same could not be treated as unexplained investments. By deleting the same, we allow this ground of appeal.

Summary

Issues:
1. Validity of reassessment proceedings.
2. Treatment of Long Term Capital Gains and purchase of shares as bogus transactions.
3. Admissibility of exemption u/s 10(38) and payment of Security Transaction Tax.
4. Confirmation of additions by the lower authorities.
5. Justification of the second addition as unexplained investments.

Validity of reassessment proceedings:
The appeal contested the order of the Ld. Commissioner of Income-Tax (Appeals) regarding the confirmation of two additions of ?28,02,666/- and ?4,52,994/- for Assessment Year 2008-09. The reassessment was triggered based on information obtained during search operations, leading to the addition of Long Term Capital Gains and purchase of shares. The Assessee challenged the validity of the reassessment proceedings, claiming that the statement forming the basis was not available. However, the Tribunal found that the necessary information was indeed on record, dismissing the challenge.

Treatment of transactions as bogus:
The Long Term Capital Gains on sale of shares and purchase of MMTC shares were treated as bogus transactions due to alleged fabrication. The lower authorities disbelieved the genuineness of the transactions, leading to the additions in the income of the Assessee. The Tribunal, after thorough examination, found substantial evidence supporting the transactions, including purchase bills, contract notes, and bank statements. The sale transactions were conducted through an independent broker, and the Assessee provided detailed documentation to substantiate the transactions, leading to the deletion of the additions.

Admissibility of exemption u/s 10(38) and STT payment:
The Ld. CIT(A) denied exemption u/s 10(38) due to non-payment of Security Transaction Tax (STT) on the sale and purchase of shares. The Tribunal upheld this decision, emphasizing that the conditions under Section 10(38) were not fulfilled. The transactions were scrutinized, and the lack of STT payment led to the confirmation of the additions. The Tribunal supported this decision by distinguishing the case laws relied upon by the Assessee.

Confirmation of additions by lower authorities:
The Ld. CIT(A) confirmed both additions based on the lack of STT payment and the nature of transactions conducted through entities not registered as sub-brokers. The Tribunal reviewed the facts and evidence presented, ultimately concluding that the additions were unjustified. The Assessee provided substantial documentation to prove the genuineness of the transactions, leading to the allowance of the appeal and deletion of the additions.

Justification of second addition as unexplained investments:
The addition of ?4,52,994/- as unexplained investments was challenged by the Assessee, who presented detailed financial statements and supporting documents. The Tribunal observed that the investments were duly reflected in the Balance Sheet and supported by appropriate documentation. Consequently, the Tribunal allowed this ground of appeal, leading to the partial allowance of the appeal and deletion of the additions.

This detailed analysis of the judgment from the Appellate Tribunal ITAT MUMBAI highlights the key issues, arguments presented, and the Tribunal's findings regarding the validity of reassessment proceedings, treatment of transactions, admissibility of exemptions, confirmation of additions, and justification of the second addition as unexplained investments.