2017 (11) TMI 1136 - AT - Income Tax

Appeal Dismissed: Sham Share Purchase to Convert Income

The Tribunal dismissed the appeal, upholding the AO and Commissioner of Income-tax (Appeals)' findings that the assessee's purchase transaction of shares ... Short-term capital gains on sale of shares as income under the head 'Income from other source' - disallowance of purchase cost of shares by treating the same as an unexplained expenditure under section 69 of the Act and bringing to tax the same under the head 'Income from other sources' - Held that:- The activities of share transactions in the case of listed shares is highly regulated activity which is controlled, monitored and regulated by the SEBI and stock exchanges. The assessee could not explain why the said intermediary Alliance Intermediaries and Network P. Ltd. did not demand the payment in the intervening period from May 15, 2007 till November 29, 2007 and why they did not resorted to the prescribed modes of auction, penalty etc., as stipulated by stock exchanges in case of defaulting clients such as auction, penalties etc. The assessee did not brought on record what happened to the delivery of shares which was purchased on May 15, 2007 and no evidence is brought on record that Alliance Intermediaries and Network P. Ltd. was holding the said shares physically/electronically from May 15, 2007 to December 5, 2007 in brokers client pool account on behalf of the assessee. It is also claimed that the said Alliance Intermediaries and Network P. Ltd. charged interest of ₹ 9,155 from the assessee for delayed payment but the assessee did not made payment for the interest of ₹ 9,155 while payment for purchase consideration of ₹ 93,755.95 was made on December 3, 2007 as the statement of account issued by Alliance Intermediaries and Network P. Ltd. shows interest of ₹ 9,155 recoverable from assessee as on March 31, 2008 (page 6/pb). There is no evidence on record which proves that the assessee did make payment of the said interest to Alliance Intermediaries and Network P. Ltd. Thus, even if we eschew the statement of Mr. Mukesh Choksi, then also the primary onus as cast upon the assessee did not stood discharged by the assessee. The Revenue rebutted the claims of the assessee but the assessee could not rebut the incriminating material brought on record by the Revenue which is obtained as a result of an enquiry, as detailed above. Since the assessee is asking the Tribunal to accept a course which is not a normal course of conduct prevailing on the stock exchanges for dealing in securities, the onus is heavy on the assessee to prove why he deviated from the normal course of conduct while dealing in securities which the assessee in the instant case failed to discharge. In any case now it is settled by the Tribunal in the cases of Mr. Mukesh Choksi that he and his group concerns had indulged in providing accommodation entries wherein some of the orders of the Tribunal are detailed in the preceding paragraphs. Thus, we have no hesitation in confirming the appellate orders of the learned Commissioner of Income-tax (Appeals) which we affirm/confirm. The assessee fails in this appeal and the appeal of the assessee stood dismissed. - Decided in favour of revenue Issues Involved:1. Validity of the reopening of assessment under section 147 of the Income-tax Act, 1961.2. Treatment of short-term capital gains as income from other sources.3. Disallowance of purchase cost of shares as unexplained expenditure under section 69 of the Act.Issue-wise Detailed Analysis:1. Validity of the Reopening of Assessment:The assessee initially challenged the legality and validity of the reopening of the assessment under section 147 of the Income-tax Act, 1961. However, during the proceedings, the assessee chose not to press these grounds. Consequently, the Tribunal directed the dismissal of these grounds as not pressed. The reopening was based on information received from the Deputy Director of Income-tax (Investigation), Mumbai, regarding the assessee being a beneficiary of accommodation entries provided by M/s. Mahasagar Securities P. Ltd. group. The reopening was within four years from the end of the assessment year, and no original assessment under section 143(3) was framed.2. Treatment of Short-term Capital Gains as Income from Other Sources:The Assessing Officer (AO) treated the short-term capital gains of Rs. 14,33,599 on the sale of shares as income from other sources. The AO observed that the assessee had shown the sale and purchase of shares through M/s. Alliance Intermediaries and Network Pvt. Ltd., which was found to be providing bogus accommodation entries. The AO issued notices to NSE and BSE, which revealed that M/s. Alliance Intermediaries and Network Pvt. Ltd. was not registered with these exchanges during the relevant period. The AO concluded that the purchase of shares was a sham transaction aimed at introducing undisclosed income as short-term capital gains. The Commissioner of Income-tax (Appeals) upheld this view, noting that the purchase transaction was not genuine and was used to claim short-term capital gains at a lower tax rate.3. Disallowance of Purchase Cost of Shares as Unexplained Expenditure:The AO disallowed the purchase cost of shares amounting to Rs. 93,756, treating it as unexplained expenditure under section 69 of the Act. The AO observed that the purchase transaction was not routed through any recognized stock exchange and that M/s. Alliance Intermediaries and Network Pvt. Ltd. was not a registered broker. The AO's findings were based on the fact that the shares were not delivered to the assessee's demat account until after the payment was made, which was against the normal conduct of share transactions. The Commissioner of Income-tax (Appeals) agreed with the AO, emphasizing that the transaction was a sham and that the assessee failed to provide satisfactory explanations for the delayed payment and delivery of shares.Conclusion:The Tribunal dismissed the appeal, agreeing with the findings of the AO and the Commissioner of Income-tax (Appeals). The Tribunal held that the purchase transaction was a sham aimed at converting undisclosed income into short-term capital gains. The Tribunal also noted that the assessee did not discharge the primary onus of proving the genuineness of the transaction and failed to provide satisfactory explanations for the discrepancies pointed out by the AO. The appeal was dismissed, and the order of the Commissioner of Income-tax (Appeals) was affirmed.