Case Law Details

Case Name : Sri Lal A. Khemani Vs. The Income Tax Officer (ITAT Hyderabad)
Appeal Number : ITA No. 549/Hyd/17
Date of Judgement/Order : 17/11/2017
Related Assessment Year : 2004- 05
Courts : All ITAT (5013) ITAT Hyderabad (294)

Sri Lal A. Khemani Vs. ITO (ITAT Hyderabad)

There is no dispute that assessee had purchased shares through stock exchange as evidenced by the broker’s note and also sold through stock exchange by way of another broker’s note. Both of which contain the transaction details, time of transaction along with STT paid. There is no indication that these transactions are bogus, either through statement of Shri Mukesh Choski (Choksi ?) or through independent inquiries by the AO. Just because Shri Mukesh Choski has given a statement that he was in the business of providing accommodation entries through his companies, whether that statement can be brought to deny the capital gains earned by assessee in the course of his regular transactions is the moot question. The fact that assessee also filed returns for AY. 2003-04 admitting the investment also indicate that the purchase is genuine and subsequent sale is also genuine. Except the so called statement, AO has not brought anything on record to establish that the transactions entered by assessee are not genuine. Assessee is able to establish that the transactions are genuine, payments were made by way of cheques and transacted through the Stock Exchange, DMAT A/c and STT was also paid. Moreover, the so called statement was not provided to assessee and cross examination was not provided even. There is no reference to the particular transactions, except a general statement that the accommodation entries were provided for commission. If AO relies on that the payment of commission also should have been taxed as unaccounted payment. AO failed to establish that the transactions entered by assessee are not genuine. It is for the revenue to prove. Ld. CIT(A) erred in considering that assessee failed to prove that these are not accommodation entries. That burden is on revenue to establish, which it failed. Hence, I am satisfied that the earning of capital gains is genuine, so the action of AO treating the entire sale proceeds as ‘income’ cannot be upheld. Accordingly, the orders of AO and CIT(A) are modified and AO is directed to accept the capital gains as declared.

Full Text of the ITAT Order is as follows:-

These three appeals are filed by the family members and are having similar issues for adjudication. For the sake of clarity, the appeal in ITA No. 549/Hyd/2017 in the case of Sri Lal A. Khemani is considered in detail.

2. Brief facts of the case are that, assessee is an individual, deriving income from house property, capital gains and other sources. He filed return of income for the AY. 2004-05 declaring total income of Rs. 15,07,680/-, including capital gains of Rs. 4,87,992/-. On the reason that the capital gains earned is not genuine, consequent to information received from Mumbai, on the basis of statement of one Mr. Mukesh Choski, Assessing Officer (AO) had reopened the assessment u/s. 147 of the Income Tax Act [Act] within a period of six years. In the re-assessment proceedings, assessee was asked to explain the transaction of capital gains. AO was of the opinion that Shri Mukesh Choski has given a statement that the transactions in Buniyad Chemicals (P) Ltd., which were transacted by assessee on the stock exchange and earned capital gains are accommodation entries for providing capital gains profits on a fees of 0.15%. AO asked assessee to explain the transactions involved in shares of Buniyad Chemicals (P) Ltd., through M/s. Gold Star Finvest (P) Ltd., a group company of Maha Sagar Securities. AO also noticed that assessee purchased the shares on 19-12-2002 for an amount of Rs. 6,453/- and sold it on 29-02- 2004 for Rs. 4,94,446/- and the difference was shown as ‘capital gains’. After discussing various issues, AO was of the opinion that strong substantial evidence and surrounding circumstances doubt the veracity of the documentary evidence in the transactions and these were treated as ‘not genuine’. The entire sale proceeds of Rs. 4,49,446/- were brought to tax as ‘income’ and taxed at normal rate.

3. Before the Ld.CIT(A), assessee contended that reopening of assessment u/s. 147 is bad in law and the so called statement recorded from Shri Mukesh Choski was not provided to assessee nor any cross-examination is provided. On facts, it was further contended that assessee has transacted on the stock exchange and entire evidence pertaining to transactions through stock exchange were furnished to AO. It was further submitted that assessee has shown the investment in the balance sheet as on 31-03-2003, return of which filed, before the sale transactions of Buniyad Chemicals (P) Ltd., in the stock exchange. It was also further submitted that shares were passed through the DMat A/c and the amounts were paid by way of cheques, both purchase and sale. However, the Ld.CIT(A) rejected the contentions by stating as under:

“6.3 I have carefully considered the facts of the case, the assessment order of the Assessing Officer and the submissions of the appellant. The Assessing Officer has treated the transactions as bogus based on the evidence available with him. But appellant failed to produce proper details before the Assessing Officer to prove the grounds raised by him. During the appellate proceedings also the appellant produced only certain share certificates and mainly relied on the case law of Mumbai ITAT in the case of Ravindra Kumar Toshniwal. The details filed by the appellant and the case law are not accepted since in the case law relied upon by the appellant, the assessee produced contract notes, bills, copies of cheques, copies of bank statements, copies of account with share brokers duly confirmed by the share brokers, confirmation letters from concerned banks and copies of demat accounts before the AO and before CIT(A) also. But all these details were not submitted before me by the appellant except contract notes and share certificates by the broker. Here the issue is not allotment of shares. The shares were issued and profit was earned simply based on accommodation entries. Since there is no evidence to prove that the transactions were not accommodation entries, I am in agreement with the Assessing Officer and the addition made by the Assessing Officer is confirmed”.

4. The AR referring to Paper Book filed, submitted that all the transactions have happened through stock exchange, amounts were paid by way of cheques and were also recorded in the stock exchange and these are not off-market transactions. Further, it was also submitted that assessee has paid STT on the transactions and these were disclosed to the department in the course of returns regularly. He referred to the return filed for AY. 2003-04 showing the investments in shares which were duly reflected in the statements. It was further submitted that there is no information from Shri Mukesh Choski (in all other cases, his name is referred as Mukhesh Choksi but AO refers the name as Shri Mukesh Choski) that the transactions of assessee are not genuine and no cross-examination was provided nor the so called statement relied upon was provided to assessee. It was submitted that earning of capital gains is normal, as assessee was investing in shares and there is no unusual transactions, like in other cases where those could be an off-market transaction or transactions in cash. It was further submitted that since the transactions happened on the stock exchange, the reliance on the broker’s note cannot be rejected, without subjecting them to further verification.

5. Ld.DR, however, relied on the orders of the authorities to submit that Shri Mukesh Choski has been providing this sort of accommodation entries and there are number of cases of similar nature. Hence, the capital gains earned by assessee is not genuine.

6. Ld. Counsel in reply submitted that various orders of ITAT given in the case of Shri Mukesh Choksi and also relied on the Co-ordinate Bench deision in the case of Smt. Sarita Devi and Smt. Nitika Kumari in ITA Nos. 1228 and 1229/Hyd/20 16, dt. 05-05- 2017 to submit that in that case even CIT(A) has given relief following the orders of ITAT, which were confirmed by the Bench.

7. I have considered the rival contentions and perused the documents placed on record. There is no dispute that assessee had purchased shares through stock exchange as evidenced by the broker’s note and also sold through stock exchange by way of another broker’s note. Both of which contain the transaction details, time of transaction along with STT paid. There is no indication that these transactions are bogus, either through statement of Shri Mukesh Choski (Choksi ?) or through independent inquiries by the AO. Just because Shri Mukesh Choski has given a statement that he was in the business of providing accommodation entries through his companies, whether that statement can be brought to deny the capital gains earned by assessee in the course of his regular transactions is the moot question. The fact that assessee also filed returns for AY. 2003-04 admitting the investment also indicate that the purchase is genuine and subsequent sale is also genuine. Except the so called statement, AO has not brought anything on record to establish that the transactions entered by assessee are not genuine. Assessee is able to establish that the transactions are genuine, payments were made by way of cheques and transacted through theStock Exchange, DMAT A/c and STT was also paid. Moreover, the so called statement was not provided to assessee and cross examination was not provided even. There is no reference to the particular transactions, except a general statement that the accommodation entries were provided for commission. If AO relies on that the payment of commission also should have been taxed as unaccounted payment. AO failed to establish that the transactions entered by assessee are not genuine. It is for the revenue to prove. Ld. CIT(A) erred in considering that assessee failed to prove that these are not accommodation entries. That burden is on revenue to establish, which it failed. Hence, I am satisfied that the earning of capital gains is genuine, so the action of AO treating the entire sale proceeds as ‘income’ cannot be upheld. Accordingly, the orders of AO and CIT(A) are modified and AO is directed to accept the capital gains as declared.

7.1. The facts in other two cases are also similar to the assessee. In the case of Late Pushpa A. Khemani, Rep. by L.R. Sri Lal A. Khemani in ITA No. 550/Hyd/20 17, the capital gain involved is Rs. 14,64,046/- involving purchase and sale of M/s buniyad Chemicals Ltd and another company M/s Amluckie invest co. In case of Shri Prakash Lal Khemani, in ITA No. 551/Hyd/2017, the capital gains involved is Rs. 9,89,221/-on sale of Buniyad chemicals Ltd. Since the transactions are similar and evidences are similar, the facts given in the above case i.e., in ITA No. 549/Hyd/2017 will equally apply to these cases also as well. AO is directed to accept the capital gains as declared by these two assessees also.

8. In the result, all the appeals are allowed.

Order pronounced in the open court on 17th November, 2017

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Tags : Bogus purchases (79) ITAT Judgments (5198)

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