Case Law Details

Case Name : Asst. CIT Vs. Bhavik Bharatbhai Padia (ITAT Ahemdabad)
Appeal Number : IT Appeal Nos. 1440 & 1441 (Ahd.) of 2013
Date of Judgement/Order : 14/12/2016
Related Assessment Year : 2009- 10
Courts : All ITAT (4069) ITAT Ahmedabad (312)

It is seen that it is undisputed and uncontroverted that (a) the shares have been purchased against the payment (again supported by the contract notes); (b) such shares have been found to be credited into the DEMAT account of the assessee; (c) on sale of such shares there were debited from the DEMAT account of the assessee; (d) the assessee has received payment against the sale of such shares through banking channel and (e) the transaction of sale on the floor of BSE is found to be genuine and confirmed by the BSE. I fail to understand that when the shares were found to be credited and debited in the DEMAT account and sale of shares were found to be genuine, then what is the basis to contend that purchases of the said shares were not made by the appellant. Therefore, two observations of the assessing officer for making an addition under section 68 of the Income Tax Act, 1961 are not found unquestionable.

Full Text of the ITAT Order is as follows:-

These two appeals preferred by the department are directed against two separate orders of the Commissioner (Appeals)-XIV, Ahmedabad, dated 20-3-2013 and 22-3-2013 for the assessment year (AY) 2009-10, in the case of two different assessees.

2. First we take up the Revenue’s appeal in ITA No. 1440/Ahd/2013 for the assessment year 2009-10. The assessee has taken following grounds of appeal :–

(i) The learned Commissioner (Appeals) has erred in law and on facts in deleting the addition of Rs. 69,28,919 made under section 68 treating the STCG declared by the assessee as being unexplained cash credits.

(ii) The learned Commissioner (Appeals) has erred in law and on facts in accepting the contention of the assessee that purchase and sale of shares was genuine, which was substantiated by bogus documents.

(iii) On the facts and circumstances of the case, the learned Commissioner (Appeals) ought to have upheld the order of the assessing officer.

(iv) It is, therefore, prayed that the order of the learned Commissioner (Appeals) may be set-aside and that of the assessing officer be restored.

3. Now we take up the Revenues appeal in ITA No. 1441/Ahd/2013 for assessment year 2009-10. The revenue has taken the following grounds :–

(i) The learned Commissioner (Appeals) has erred in law and on facts in deleting the addition of Rs. 89,90,400 made under section 69 treating the share transaction as being unexplained source.

(ii) The learned Commissioner (Appeals) has erred in law and on facts in accepting the contention of the assessee that purchase and sale of shares was genuine, which was substantiated by bogus documents.

(iii) On the facts and circumstances of the case, the learned Commissioner (Appeals) ought to have upheld the order of the assessing officer.

(iv) It is, therefore, prayed that the order of the learned Commissioner (Appeals) may be set-aside and that of the assessing officer be restored.

4. The facts of the case are :–

After going through the details submitted by the assessee, it was noticed that, during the year under consideration assessee has shown STCG of Rs. 69,28,919 by share transactions and paying tax on the same under section 111A of the Income Tax Act, 1961. In all these share transactions assessee has purchase shares through the broker M/s. Mahasagar Securities Pvt. Ltd. and sold through the M/s. Krone Research and Brokerage Pvt. Ltd.

5. This broker M/s. Mahasagar Securities Pvt. Ltd. was claiming “dealer of Interconnected Stock Exchange of India Limited/Sub-broker of National Stock Exchange India Limited member – ISE Securities and Services Limited, SEBI Reg. No. INB-230683331/23-10777.”

6. Regarding the status of the Mahasagar Securities Pvt. Ltd., a letter under section 133(6) of the Income Tax Act, 1961 has been sent to the NSE and ISE. In response NSE furnished a reply dated 22-11-2011 and stated that “No similar name as M/s. Mahasagar Securities Pvt. Ltd. found as per membership database.” Further, in this regard ISE stated “Mahasagar Securities Pvt. Ltd. neither a trading member of ISE nor a sub-broker of ISS”.

7. Further, a letter under section 133(6) of the Income Tax Act, 1961 has been sent to NSE, BSE & ISE to verify the share transactions done by the assessee during the year. In reply ISE stated that “as per our record no trades were executed on our exchange in the name of Bhavik Bharatbhai Padia during F.Y. 2008-09”. Similarly NSE stated that “based on the PAN provided in your letter, record having matching pattern with data uploaded by trading members to the exchange as on date for the client Bhavik Bharatbhai Padia (PAN: ANFPP8202R) for the capital market segment are being enclosed as annexure-A.

Kindly note that as per the records available with exchange, no trade were found to be executed for the combination of member and client code for the period 1-4-2008 to 31-3-2009 in the capital market segment hence not furnished”.

8. It was also stated that there was a search & seizure action under section 132 of the Income Tax Act. was carried out in the group cases of Mahasagar Securities Pvt. (now Known as Alag Securities Pvt. Ltd.) and Shri Mukesh Choksi who had managed and control over the above group has admitted during the course of search that the group was engaged fraudulent billing activities in the business of providing bogus speculation profit/loss, short-term/long-term capital gain/loss, commodities profit/loss on commodity trading (through MCX). The assessee was one of the beneficiaries because assessee has also done some transactions with the M/s. Mahasagar Securities Pvt. Ltd.

9. The modus operadi adopted by the assessee is same as accepted by the prop. of the M/s. Mahasagar Securities Pvt. Ltd. as the shares reflected in the demat account of the assessee are coming within the one week of the sale.

10. Since, it is very clear that the sales of the assessee were genuine but purchases for the alleged shares were bogus. This facts was also supported by demat statement of the assessee in which the alleged share came within one week of the sale. Further, the payment for the all the shares purchase has been made after the sales.

11. Hence, considering the above facts and circumstances, assessee was given a show cause that your purchase from M/s. Mahasagar Securities Pvt. Ltd. seems bogus because as per NSE and ISE M/s. Mahasagar Securities Pvt. Ltd. is no more existed. Further, NSE and ISE has denied about any transactions in your name, so, why should not your capital gain be treated as cash credit under section 68 of the Income Tax Act, 1961 as it looks just accommodation entries on the basis of that you are claiming STCG.

12. The assessee filed the detail written a reply but after due considering the reply of the assessee and points raised by the assessee. There are some apparent points emerged as :–

Assessee is claiming that he has purchased the alleged shares through off market simultaneously he claimed that he has paid STT on purchase.

Since the key person of the M/s. Mahasagar Securities Pvt. Ltd., Shri Mukesh Ghoksi has already admitted in his statement on oath under section 131 of the Income Tax Act, 1961 during the search operation carried out by the Mumbai Investigation Wing that M/s. Mahasagar Securities Pvt. Ltd. was engaged in fraudulent billing activities for speculation profit/loss, short-term/ long-term capital gain/loss, commodities profit/loss on commodity trading (through MCX). In such a situation what is the validity of the affidavit. Further, if somebody is giving affidavit than it is necessary for him to present the person for cross verification but assessee did not discuss about the same and stated that he is unable to produce the Shri Mukesh Choksi. If it is treated that the statement taken by the Mumbai Investigation Wing during the search operation as cross examination than affidavit filed by the assessee will be Null and Void.

13. Hence, after due considering facts that the purchase of the assessee is bogus but BSE is confirming the sale so at max assessee can avail STCG for the period of shares coming in demat account and going out of the same (holding period). On the basis of market information (exchange) and demat account statements assessee the STCG for holding period as shown in demat account is worked out at Rs. (-)4,523. This STCG was calculated after taking consideration of the T + 2 days delivery system of share transactions and closing price of the scripts.

Working of the STCG:

S.No. Script Name Purchase Value Sale value Profit/ Loss
1. ESSAR OIL 48,57,605 48,27,180 (-) 30425
2. RICHA INDUSTRIES 20,30,110 20,25,315 (-) 4795
3. RNRL 27,30,025 27,60,722 30697
TOTAL LOSS (-) 4523

14. Since, if we calculate, as per the demat holding than assessee has earning loss so, it can be assume that the alleged capital gain is based upon only accommodation entries provided by M/s. Mahasagar Securities Pvt. Ltd. Hence, in view of the above total capital gain of the assessee of Rs. 69,28,919 is treated cash credit under section 68 of the Income Tax Act, 1961, i.e., income from other sources. Penalty under section 271(1)(c) of the Income Tax Act, 1961 has been initiated for furnishing inaccurate particulars.

15. Subject to above, the total assessed income is computed as under :–

Rs.
Total Income as per return of income 79,08,620
Less: STCG as shown in the return (treated separately) 69,28,919
Total income other than STCG 9,79,701
Add: Addition under section 68, income from other sources 69,28,919
79,08,620
Add: STCG NIL
Assessed total income 79,08,620

16. Against this assessing officer order appellant preferred first statutory appeal before the learned Commissioner (Appeals). Learned Commissioner (Appeals) held the assessing officer has made following two further observations which also weighed him to believe that purchase of shares were not genuine :–

(a) the assessee has shown inability to submit the pool account of the broker in which assessee has stated to have kept the shares;

(b) how the shares have been credited into DEMAT account of the assessee from ILFS and what is relationship between ILFS and Mahasagar Securities Pvt. Ltd.

17. It is seen that it is undisputed and uncontroverted that (a) the shares have been purchased against the payment (again supported by the contract notes); (b) such shares have been found to be credited into the DEMAT account of the assessee; (c) on sale of such shares there were debited from the DEMAT account of the assessee; (d) the assessee has received payment against the sale of such shares through banking channel and (e) the transaction of sale on the floor of BSE is found to be genuine and confirmed by the BSE. I fail to understand that when the shares were found to be credited and debited in the DEMAT account and sale of shares were found to be genuine, then what is the basis to contend that purchases of the said shares were not made by the appellant. Therefore, two observations of the assessing officer for making an addition under section 68 of the Income Tax Act, 1961 are not found unquestionable.

18. Further it will not be out of place to refer Board Circular Nos. 704, dt. 28-4-1995 and 768, dt. 24-6-1998, which provides that in case of securities the “date of purchase” has to be taken from the broker’s note/contract note and the period of holding is also to be reckoned from the “date of purchase” and not from the “date of dematerialization”. Therefore, it is a matter of non-consequences as to when the shares were credited into the DEMAT account of the assessee. Further I find that the Mumbai Tribunal in the case of Jafferali K. Rattonsey v. Dy. CIT (2012) 53 SOT 220 (Mum.) (URO) and Jurisdictional Ahmedabad Tribunal in the case of Manoj Kumar Sarwangi (supra) (para 9 on pg. nos. 93-95 of compilation of orders) after taking into consideration of Board Circular Nos. 704 and 768 have categorically held that in case of securities the “date of purchase” has to be taken from the broker’s note/contract note and the period of holding is also to be reckoned from the “date of purchase” and not from the “date of dematerialization”. Therefore, even the observation of the assessing officer that the shares were lately credited in the DEMAT account after the purchase of shares to hold that the shares were not genuinely purchased by the appellant is not on strong footing.

19. Further it is seen that the assessing officer has accepted the genuineness of the transaction of sale of shares carried out through broker krone Research & Brokerage Pvt. Ltd. and accordingly source of the sale proceeds credited to the bank account of the Assessee is found to be proved. Therefore, there is no undisclosed cash credit involved in this case and therefore addition could not have been made by the assessing officer under section 68 of the Act.

20. Learned Commissioner (Appeals) also observed that the conditions to invoke section 68 of the Income Tax Act, 1961 are not prevailing in this case especially cogent explanation supported by plethora of evidence is on record. Considering the facts and circumstances of the case, I decide that the assessing officer is not justified in making addition under section 68 of the Act on account of unexplained cash credit under section 68 of the Act, and therefore, the same is hereby deleted.

21. Finally, the appeal of the assessee are partly allowed by the learned Commissioner (Appeals).

22. Now matter is before us, we have gone through the relevant record and impugned order and we find that (a) assessee had purchased concerned shares through “off-market trade” however ISE, BSE and NSE informed assessing officer that no transaction has taken place in the name of assessee. (b) Concerned shares were kept in pool account which shows that such shares were not purchased by assessee. (c) Shri Mukesh Cokshi, director of Mahasagar Securities Pvt. Ltd. (“MSPL” for short) had admitted in his statement recorded under section 131 that MSPL is engaged in the business of providing bogus bills for capital gain.

23. When transactions are “off-market”, it is not possible for stock exchanges to provide details in respect of the same. Further, off-market transactions are not at all illegal at all and concerned share were duly purchased by assessee and it is an undisputed fact that such shares came to the demat a/c of assessee from IL&FS securities. In fact, such shares have been subsequently sold through broker “Krone Research and Brokerage Pvt. Ltd.” Therefore, question of raising doubt as to purchase of shares by assessee is not sustainable.

Shri Mukesh Chokshi stated in his statement that (MSPL) was engaged in providing accommodation entries for speculation/delivery profit. Assessee has only purchased shares from MSPL which has been doubted by assessing officer whereas “sales” have been made through “Krone Research & Brokerage Pvt. Ltd.” which has been accepted. Had the assessee obtained accommodation entries from MSPL as to purchase of shares, concerned shares might have been even sold through MSPL which is not the case.

Assessee has neither been provided with the copy of statement of Shri Mukesh Chokshi based on which impugned addition has been made nor has the assessee been given an opportunity to cross examine Mukesh Chokshi. In absence of cross-examination, no addition could have been made based on statement of Mukesh Chokshi recorded behind assessee’s back.

Assessee has placed on record affidavit of Mukesh Chokshi so as to prove that assessee has genuinely purchased shares form MSPL which has not found to be incorrect by learned assessing officer.

In absence of cross-examination of deponent with reference to statement made in affidavit, it is not open to the revenue to challenge the correctness of the statement made by the deponent in the affidavit. Same has been held in the matter of “Glass Lines Equipment Co. Ltd. Vs. CIT (2002) 253 ITR 454 (Guj.)”.

Shares have been purchased against payment duly supported by the contract notes and shares have been found to be credited in the assessee’s demat a/c and on sale of such shares, the same were debited from demat a/c of the assessee and assessee has received payment through banking channel and sale of shares on the floor of BSE has been found to be genuine and also found to be confirmed by the BSE.

There is nothing in record to even remotely suggest that such shares were never transferred in the name of the assessee. Had it been the case, assessee couldn’t have sold the same from his demat a/c.

Further, Shri Mukesh Choksi himself admits in his affidavit that MSPL had acquired the concerned shares on behalf of the assessee which were later on transferred to assessee’s demat a/c and payment in respect of the same was received from the assessee and particularly the contents have not been controverter by assessing officer, so it can be presumed that whatever have been stated therein in the affidavit of Mukesh Choksi is seems to be credited. So in our considered opinion that Commissioner (Appeals) has rightly deleted the addition made by the learned assessing officer.

24. Both the appeal of revenue are dismissed.

Download Judgment/Order

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Category : Income Tax (24686)
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Tags : Bogus purchases (59) ITAT Judgments (4342)

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