2014 (5) TMI 1064 - HC - Income Tax

Tribunal upholds Income Tax Act proceedings, dismisses appeals on bogus gains, unexplained investments

The Tribunal upheld the validity of proceedings under Sections 147/148 of the Income Tax Act, finding the reopening justified based on the assessee's ... Reopening of assessment - unaccounted giving of accommodation/book entries - Held that:- During survey operation carried out on the premises of the assessee, it was discovered that the assessee was giving accommodation/book entries to various persons and this business was being carried out during the previous years relevant to assessment years 2002-03 and 2003-04. For reopening under section 147 of the Act, the appellant was found to be indulging in the business of arranging bogus long/short term gain/gifts/accommodation entries on commission basis. Evidence of cash deposits into various banks was also found. As no return had been filed for the assessment year 2002-03, the income generated from above business had escaped assessment within the meaning of Section 147 of the Act. The Tribunal held that the assessee had not furnished any returns of income for both the assessment years i.e. 2002-03 and 2003-04 and in the absence of the returns of income and because of availability of the information of escapement of income with the Assessing officer, the formation of belief under Section 147 of the Act and issue of notice under Section 148 of the Act was valid. In the light of the above, there is no justification in the submission made by learned counsel for the appellant that reopening was invalid. After taking into consideration the totality of facts and circumstances where the assessee himself had admitted to have been carrying on the business of providing accommodation entries through several accounts belonging to him, his family members, brokers and also the admission of different stock brokers etc., the addition had been rightly made in his income.The narration of aforesaid factual matrix points out that the department had discharged the initial onus to prove the undisclosed income of the assessee and it was upon the assessee to have produced relevant material to rebut the same. No illegality or perversity could be shown in the aforesaid findings. In such circumstances, the findings recorded by the authorities below cannot be faulted. - Decided against assessee. G.P. rate of 0.5% of the turnover - Held that:- As decided in assess's own case wherein rate of 0.5% of the turnover has been upheld Unexplained investment on account of profit of trading of shares of assessee - Held that:- Tribunal upheld the order of the CIT(A) in the absence of any evidence that the said shares being actually purchased either in the name of the assessee or in the names of his family members was the unaccounted investment of the assessee and the same was to be included in the hands of the assessee. As regards the amount for the purchase of shares paid out of the bank accounts of the assessee, his mother and his son, the Tribunal restored the issue back to the Assessing officer to verify the source of payments made by the assessee to Mr. R.K.Kohli & Co. vis a vis the details of shares acquired. It was observed that if it was found that the transactions in the relevant source bank account had been considered while estimating the income in the hands of the assessee for accommodation basis, necessary credit shall be allowed while computing unexplained investments. The Tribunal further observed that in the assessment years 2003-04 and 2004-05, the benefit of telescoping is to be allowed in respect of income assesseed in the earlier years. The revenue had challenged the observations of the Tribunal with regard to the telescoping whereby the assessee was entitled to allowance of investment in shares relating to this period.The issue has been remitted to the Assessing Officer requiring re- examination for determining the quantum of unaccounted income in the hands of the assessee. In view of the above, no interference is called for. Issues Involved:1. Validity of proceedings under Section 147 read with Section 143(3) without disposing of objections.2. Perceived perversity in Tribunal's order regarding objections to reopening under Section 148.3. Legality of proceedings under Section 147 read with Section 143(3) based on statements without cross-examination.4. Tribunal's overlooking of the Income Tax department's report and comparable case while confirming the GP rate.5. Justification of calculating turnover based on bank accounts not belonging to the assessee.6. Sustainability of the Tribunal's order regarding unexplained investment and profit from trading of shares.Detailed Analysis:Re: (i) & (ii)The first two questions pertain to the jurisdiction assumed under Sections 147/148 of the Income Tax Act. The assessee argued that the reasons recorded for reopening did not contain specific figures or calculations, making the reopening conjectural. The Assessing Officer's reasons included findings from a survey under Section 133A, revealing the assessee's involvement in arranging bogus capital gains and accommodation entries. The Tribunal found that the assessee had not filed returns for the relevant years, validating the Assessing Officer's belief under Section 147 and the issuance of notice under Section 148. Thus, the reopening was deemed valid.Re: Q. (iii) & (v)Questions (iii) and (v) revolve around the inclusion of turnover based on bank statements of other entities and the denial of cross-examination. A survey revealed that the assessee was engaged in providing accommodation entries. The assessee's statement during the survey admitted involvement with various concerns and bank accounts. The Assessing Officer included transactions from these accounts in the assessee's turnover, which was recomputed by the CIT(A). The Tribunal upheld these findings, noting the assessee's modus operandi and the possession of blank signed cheque books. The department had discharged its initial burden, and the assessee failed to rebut the evidence, justifying the additions.Re: Q.(iv)The fourth question concerns the application of a GP rate of 0.5% of the turnover. This issue was resolved by a previous order of the court in ITA No.36 of 2011, which upheld the rate of 0.5%. Thus, the Tribunal's application of this rate was consistent with established precedent.Re: Q.(vi)The sixth question addresses the unexplained investment and profit from trading shares. The Assessing Officer found investments in shares without a disclosed source, leading to additions for unexplained investments and profits. The CIT(A) and Tribunal upheld these findings due to the lack of evidence from the assessee. The Tribunal remanded the issue to the Assessing Officer to verify the source of payments and allow credit for transactions already considered in the income estimation. The revenue's challenge to the telescoping benefit was addressed by clarifying that it could only be allowed if there was a direct nexus between the sale and purchase of shares.Conclusion:The appeals were dismissed as the appellant's counsel could not demonstrate any illegality or perversity in the findings. The Tribunal's decisions were upheld, and no substantial question of law was found to merit further consideration.