2018 (1) TMI 661 - AT - Income Tax

Tribunal upholds Income Tax Appeals Commissioner's findings on case reopening, unexplained income, and share transactions

Arvind Balkrishna Goregaonkar Versus I.T.O. -21 (2) (1), Mumbai

The Tribunal upheld the Commissioner of Income Tax (Appeals)' findings in all aspects of the case. The reopening of the case under Section 148 was deemed ... Reopening of assessment - reason to believe - receipt of accommodation entries - Held that:- In this case cogent and credible information was received that the assessee has obtained accommodation entries from entities managed by Shri Mukesh Choksi and Associates. Shri Mukesh Choksi has admitted that the group was engaged in fraudulent billing activities and giving accommodation entries in order to enable the clients to declare speculation profit/loss, short term capital gain/long term capital gain, profit/loss on account of accommodated trading, introduction of share application money, or introduction of money in the form of gifts, etc. Information was received that the assessee had obtained accommodation entries and claimed the same as long term capital gain as exempt. In this scenario, the assessment was reopened. It is the settled law that at the time of reopening there should be reasonable cause and the escapement of income need to be proved to hilt at the time of reopening. This proposition is duly supported in the case of CIT vs. Kelvinator of India Ltd. [2010 (1) TMI 11 - SUPREME COURT OF INDIA] . The overwhelming evidence are available with the revenue that the share transactions reflected by the assessee were bogus transaction routed through bogus entities managed by Shri Mukesh Choksi and Associates. The assessee has given no cogent reason to counter the aforesaid findings. The Assessing Officer has clearly mentioned in the show cause that after examining the transactions and after thorough verification of details submitted by the assessee, he was not convinced. In these circumstances, in my considered opinion, it is clear from the factual date noted hereinabove that the assessee has entered into dubious transaction meant to reflect its undisclosed income in the garb of long term capital gain. - Decided against assessee Issues Involved:1. Validity of reopening the case under Section 148 of the Income Tax Act.2. Confirmation of addition of Rs. 13,04,274 as unexplained income.3. Denial of the opportunity for cross-examination.4. Addition made under Section 68/69.5. Treatment of genuine share transactions as accommodation transactions.Issue-wise Detailed Analysis:1. Validity of Reopening the Case under Section 148:The appellant contested the reopening of the case under Section 148, arguing that the reasons assigned were against the principle and spirit of law. The Commissioner of Income Tax (Appeals) held that the Assessing Officer (AO) had material before him to form a reasonable belief of income escapement, which had a live nexus with the material in his possession. The sufficiency of reasons for reopening an assessment does not fall for determination at the stage of reopening. The AO's belief must be based on some tangible material, which was present in this case. The reopening was thus deemed valid.2. Confirmation of Addition of Rs. 13,04,274 as Unexplained Income:The assessee argued that the addition of Rs. 13,04,274 as unexplained income was wrong and should be deleted. The Commissioner of Income Tax (Appeals) confirmed the addition, noting that the transactions were not genuine and were part of an accommodation entry racket managed by Mukesh Choksi. The investigation revealed that the transactions were not conducted through authorized stock exchanges and were fraudulent. The mere fact that transactions were through banking channels did not prove their genuineness.3. Denial of Opportunity for Cross-Examination:The appellant claimed that the opportunity for cross-examination of the evidence relied upon by the department was not extended, violating the principle of natural justice. The Commissioner of Income Tax (Appeals) observed that there was no evidence that a specific request for cross-examination was made by the appellant. The court held that if there are sufficient other collateral evidences, mere denial of cross-examination would not be prejudicial.4. Addition Made under Section 68/69:The appellant argued that the addition should not have been made under Section 68/69. The Commissioner of Income Tax (Appeals) held that the transactions were not genuine and were a 'colourable device'. The profit credited by the appellant on the alleged bogus sale of shares was treated as unexplained cash credits under Section 68/69. The credit of profits amounting to Rs. 13,04,274 was assessed as unexplained, while the appellant received relief for the amount pertaining to dealings with other brokers.5. Treatment of Genuine Share Transactions as Accommodation Transactions:The appellant contended that genuine share transactions were wrongly treated as accommodation transactions. The Commissioner of Income Tax (Appeals) found that the transactions were part of a fraudulent scheme managed by Mukesh Choksi. The investigation established that the transactions were not conducted through demat accounts and were manipulated to reflect undisclosed income as long-term capital gain. The court upheld the findings that the transactions were dubious and meant to account for undisclosed income.Conclusion:The Tribunal upheld the findings of the Commissioner of Income Tax (Appeals) on all issues. The reopening of the case was deemed valid, the addition of Rs. 13,04,274 as unexplained income was confirmed, and the denial of cross-examination was not found to be prejudicial given the overwhelming evidence. The addition under Section 68/69 was justified, and the transactions were correctly treated as accommodation entries. The appeal by the assessee was dismissed.