TaxTMI 
TaxTMI 
2017 (3) TMI 1570
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....tement of Shri Mukesh Chokshi was recorded, wherein, he never tendered that the transaction was bogus. Our attention was invited to pages 2, 4 and 9 of the paper book. It was explained that the assessee purchased a shares from Gold Star Fin Invest. Pvt. Ltd., Buniyad Chemicals and N.E. Electronics. For the details of the same, our attention was invited to paged 9 to 25 of the paper book. It was contended that the shares were purchased in earlier years. Reliance was placed upon the decision in 6 SOT 247 (Trib.), which was approved by Hon'ble High Court in ITA No.456 of 2007. 2.1. On the other hand, the ld. DR, Shri Purushottam Kumar, strongly defended the assessment order as well as impugned order by explaining the factual matrix of the present appeal as well as the search carried out at Mr. Mukesh Chokshi. It was explained that the Ld. Assessing Officer was having good and sufficient reasons to believe that income had escaped assessment. The ld. DR explained that the assessment was framed u/s 143(1) of the Act and not u/s 143(3) of the Act. It was asserted that even there is no change of opinion by the Assessing Officer. Reliance was placed upon the decision from Hon'ble A....
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....otices u/s 143(2) and 142(1) of the Act were issued and served upon the assessee. In response to these notices, the assessee attended the proceedings and furnished the details. There was an information from the DDIT with respect to bogus transactions, therefore, search and seizure action u/s 132 of the Act was carried out upon Mahanagar Securities Pvt. Ltd. (now Alag Securities Pvt. Ltd.) on 25/11/2009. During search action, it was revealed that Mahanagar Securities Pvt. Ltd.and its related group of 34 odd companies including M/s Gold Star Finvest Pvt. Ltd., run by Shri Mukesh Chokshi, were engaged in fraudulent billing activities and are engaged in providing bogus speculation profit. One of the beneficiaries of such transaction is the present assessee, who has procured bogus bills from M/s Gold Star Finvest Pvt. Ltd. It was also revealed that there was heavy cash deposit in certain accounts including M/s Gold Star Finvest Pvt. Ltd. During search operation, it was also found/revealed that Shri Mukesh Chokshi, a Chartered Accountant by profession had floated these companies/approximately 34 companies like M/s Talent Infoway Ltd. and M/s Buniyad Chemicals. It was also revealed that n....
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....ngs u/s 68 of the Act along with penalty proceedings was initiated against the assessee. The assessee duly responded to the show cause notice/proceedings by claiming the same to be genuine. The Assessing Officer vide letter dated 02/12/2010 (served upon the assessee 03/12/2010) asked the assessee to furnish/explained the details as mentioned in para-10 of the assessment order. In turn, the assessee vide letter dated 09/12/2010 reiterated the stand taken in earlier letter dated 18/11/2010 by explaining that the assessee met the broker at a party and as per the suggestion of the broker the scrip was purchase in cash. The assessee also claimed that the actual delivery of shares was taken. The assessee vide letter dated 08/12/2010, the assessee claimed that the long term capital gain may be treated as taxable as NSE informed that no transaction have taken place. The explanation of the assessee was duly examined and finally the sale transaction of Rs. 7,66,653/- and brokerage of 130 was treated as bogus/non-genuine and consequently, addition u/s 68 was made. In such a situation, now question arises, whether reopening of assessment u/s 147/148 of the Act is valid or not. 2.5. Under the ....
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....to tax has escaped assessment, namely :- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E; (c) where an assessment has been made, but- (i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed; (d) where a person is found to have any asset (including financial interest in any entity) located outside India. ....
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....2.7. We are aware that "mere change of opinion" cannot form the basis of reopening when the necessary facts were fully and truly disclosed by the assessee in that situation, the ITO is not entitled to reopen the assessment merely on the basis of change of opinion. However, powers under amended provision are wide enough where there is a reasonable belief with the Assessing Officer, that income has escaped assessment, because the powers with effect from 01/04/1989 are contextually different and the cumulative conditions spelt out in clauses (a) and (b) of section 147, prior to its amendment are not present in the amended provision. The only condition for action is that the Assessing Officer "should have reason to believe" that income chargeable to tax has escaped assessment. Such belief can be reached in any manner and is not qualified by a pre-condition of faith and true disclosure of material facts by an assessee as contemplated in pre-amended section 147. Viewed in that angle, power to reopen assessment is much wider under the amended provision. Our view is fortified by the decision from Hon'ble Delhi High Court in Bawa Abhai Singh vs DCIT (2001) 117 taxman 12 and Rakesh Agarwal v....
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....o far as, the meaning of expression, "reason to believe" is concerned, it refers to belief which prompts the Assessing Officer to apply section 147 to a particular case. It depend upon the facts of each case. The belief must be of an honest and reasonable person based on reasonable grounds. The Assessing Officer is required to act, not on mere suspicion, but on direct or circumstantial evidence. Our view find support from the ratio laid down in following cases:- i. Epica Laboratories Ltd. vs DCIT 251 ITR 420, 425-426 (Bom.), ii. Vishnu Borewell vs ITO (2002) 257 ITR 512 (Orissa), iii. Central India Electric Supply Company Ltd. vs ITO (2011) 333 ITR 237 (Del.), iv. V.J. Services Company Middle East ltd. vs DCIT (2011) 339 ITR 169 (Uttrakhand), v. CIT vs Abhyudaya Builders (P. ) Ltd. (2012) 340 ITR 310 (All.), vi. CIT vs Dr. Devendra Gupta (2011) 336 ITR 59 (Raj.), vii. Emirates Shipping Line FZE vs Asst. DIT (2012) 349 ITR 493 (Del.). viii. Reference may also made to following judicial decisions:- ix. Safetag international India P. Ltd. (2011) 332 ITR 622 (Del.), x. CIT vs Orient Craft Ltd. (2013) 354 ITR 536 (Del.) xi. Acorus Unitech Wirelss Pvt. Ltd. vs ACIT (2....
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....in section 153(2). The reassessment proceedings were held to be valid. In Indian Hume Pipe Co. Ltd. v. Asst. CIT, (2012) 348 ITR 439 (Bom), both in the computation of taxable long-term capital gains in the original return of income and in the computation that was submitted in response to the query of the Assessing Officer there was a complete silence in regard to the dates on which the amounts were invested, as such there being a failure to disclose fully and truly material facts necessary for assessment. The reassessment proceedings were held to be valid. This view was also confirmed in following cases:- a. Dalmia P. Ltd. v. CIT, (2012) 348 ITR 469 (Del); b. CIT v. K. Mohan & Co. (Exports), (2012) 349 ITR 653 (Bom); c. Remfry & Sagar v. CIT, (2013) 351 ITR 75 (Del); d. OPG Metals & Finsec Ltd. v. CIT, (2013) 358 ITR 144 (Del). 2.14. In the case of Venus Industrial Corporation v. Asst. CIT, (1999) 236 ITR 742, 746 (P & H) [Where initiation was started within four years for re-examining the deduction under section 80HHC, was held to be wrongly allowed in the original assessment. Identically, in the case of Happy Forging Ltd. v. CIT, (2002) 253 ITR 413,416-17 (P & H), where ....
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.... respect of which the petitioner had been claiming depreciation, were actually owned by it. 2.16. In Jawand Sons v. CIT(A), (2010) 326 ITR 39 (P & H), in the initial assessment, the benefit of deduction of the duty drawback and DEPB under section 80-IB was wrongly granted to the assessee, for which it was not entitled. Therefore, reassessment proceedings to withdraw the deduction were held to be valid. Likewise, in CIT v. Hindustan Tools & Forgings P. Ltd., (2008) 306 ITR 209 (P & H), where, the assessee in the regular assessment had been allowed deduction more than actually allowable under section 80HHC. Therefore, the action initiated by the AO for reassessment under section 147(b) could not be held to be invalid. 2.17. In the case of Markanda Vanaspati Mills Ltd. v. CIT, (2006) 280 ITR 503 (P & H), wherein, the information furnished by the assessee gave no clue to the payment of liability in regard of the sales tax collected in excess. The Assessing Officer was held to be validly initiated the reassessment proceedings under section 147 for both the years under consideration. In the case of Sat Narain v. CIT, (2010) 320 ITR 448 (P & H), the document did not form the sole basis ....
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....ation Officer and the reasons that led to the issue of the notice were duly recorded and the same were also adequate and based on relevant facts and material, initiation was upheld. In Triple A Trading & Investment Pvt. Ltd. v. Asst. CIT, (2001) 249 ITR 109, 110-11 (MP), where the notice was issued after recording reasons in that regard, initiation was upheld. 2.20. Likewise, Hon'ble Gujarat High Court in Garden Finance Ltd. v. Add/. CIT, (2002) 257 ITR 481, 489, 494-95, special leave petition dismissed by the Supreme Court: (2002) 255 ITR (St.) 7-8 (SC), where the assessee was holding shares in an amalgamating company and he was allotted shares in the amalgamated company and such shares were sold by him and he has disclosed the market price of such shares as on the date of amalgamation as the cost of acquisition of such shares and has not disclosed the cost of acquisition of shares in the amalgamating company in accordance with section 49(2) read with section 47(vii), initiation of reassessment proceedings after four years has been sustained because there was failure on the part of the assessee to disclose material facts necessary for assessment. Likewise, in Suman Steels v. Unio....
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.... Assessing Officer collected further information to complete the reassessments which was also permissible under the Act. The finding of the first appellate authority as well as the Tribunal, that the Assessing Officer had no material to believe that the income had escaped assessment was wrong and contrary to facts. The assessee had not maintained any books of account. Therefore, the reopening of assessments was held to be valid and within time. In the case of CIT v. Uttam Chand Nahar, (2007) 295 ITR 403 (Raj), the notice requiring the assessee to file the return within 30 days was in accordance with section 148 as it must be deemed to be in force with effect from 1-4-1989, and in force as on the date notice was issued. There was no violation of section 148 in respect of the specified period within which the return is to be submitted. The reassessment proceedings were held to be valid. 2.23. In the case of CIT v. C. V. layachandran, (2010) 322 ITR 520 (Ker), where, the assessee did not concede the income on capital gain either under the un-amended provision or un-der the amended provision, the recourse open to the Department was to bring to tax income escaping assessment under sect....
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.... was valid due to the omission of the time-limit by the Finance (No.2) Act, 1996, with effect from 1-4-1989. In the absence of specific provision in the Finance (No. 2) Act, 1996, invalidating proceedings initiated by the Income-tax Officer, the action taken by him applying the then existing law could not be said to be invalid. 2.25. Likewise, in CIT v. S.R. Talwar, (2008) 305 ITR 286 (All), the factum of taking advances or loan from T and K, in which the assessee was one of the directors had not been disclosed nor a copy of the ledger account of the assessee maintained by the company filed. In view of the absence of these details, the Assessing Officer could not examine the taxability of advances or loan raised by the assessee. There was failure to disclose material facts necessary for assessment. The reassessment proceedings were held to be valid. In another case, the Hon'ble Allahabad High Court in Chandra Prakash Agrawal v. Asst. CIT, (2006) 287 ITR 172 (All), wherein, the Income-tax Department had sent a requisition on 27-3-2002, under section 132A requisitioning the books of account and other documents seized by the Central Excise Department. The record of the proceeding dat....
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....essary for the assessment. In the case of CIT v. Best Wood Industries & Saw Mills, (2011) 331 ITR 63 (Ker), the assessee challenged the validity of the reassessment on the ground that the AO had exceeded his jurisdiction under section 147 and both the first appellate authority as well as the Tribunal accepted the contention of the assessee holding that so far as the reassessments related to assessment of unexplained trade credits, they were invalid. On appeal, it has been held that the reassessments were to be valid. In Honda Siel Power Products Ltd. v. Deputy CIT, (2012) 340 ITR 53 (Del), there being omission and failure on the part of the assessee to disclose fully and truly material facts Thus reassessment proceedings were held to be valid. In Atma Ram Properties Private Ltd. v. Deputy CIT, (2012) 343 ITR 141 (Del), as the books of account and other material were not produced and no letter was filed, the order passed by the Commissioner (Appeals) in the assessment year 2001-02 would constitute 'information' or material from any external source and, as such, the reassessment proceedings for the assessment year 2000-01 were held to be valid. Likewise, in the case of CIT v.....
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....Court, while coming to a particular conclusion, only in a situation, when not a single piece of paper or document was recovered, therefore, the Hon'ble Court held that since there was no tangible material found and the addition was merely on the basis of statement only then reopening of assessment u/s 147 of the Act was not permissible. It is further noted that retraction was made by the assessee, merely after a long gap of more than two years and not at the earliest possible time. It was merely as afterthought. There is a possibility that the statement, if, recorded under duress and threat (which is not the case in the present appeals) in that situation, there is a less possibility of retraction during that period, however, if the retraction is made within short span of time then retraction carries more weight. The assessee never alleged that the statement was recorded under duress and threat. Likewise, in the case of CIT vs S. Khader Khan Son (2012) 254 CTR 228 (SC), affirming the decision of Madras High Court in (2008) 300 ITR 157 (Mad.), the whole addition was made solely on the basis of statement u/s 133A and no other material was found, in that situation, it was held that the....
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.... In brief the various business activities carried out by my companies are as below: i. Speculation profit adjustment entries ii. Short term profit adjustment entries iii. Long term capital gains adjustment entries iv. Share application adjustment entries Q.3. Kindly describe in detail the modus operandi followed by you in providing these difference types of entries, details of receipts of cash/cheques and details of services provided by you to the beneficiaries. Ans. 1) Speculation profit a) Our agents send us the names of entry seekers and their respective amount of entries desired by them. We receive this information either through phone or fax. b) On receipt of the information we prepare the bills. c) We deliver the bills to the agents. d) Agents issue cheques to the beneficiaries. The signed cheque books are kept with the agents. e) The agents receive the fund and deposit the same in the bank account. The cheques issued by them are then cleared. f) We receive the commission on the total amount of bank transaction on monthly basis When the agents are new, we request them to car ry out transactions through us. Few agents are getting bills printed outside....
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....se, speculation profit or sale followed by the name of the company in which the alleged purchase, speculation or sale has taken place. Here "maha" refers to Mahasagar Securities P. Ltd., "Alliance" or "All" refers to Alliance Intermediaries & Network P. Ltd., "Gold" refers to Goldstar Finvest Pvt. Limited. On the left hand side of the page is written the numbers of the shares allegedly purchased or sold, the name of the company whose shares were purchased or sold, the date on which the bogus purchase/ sale has been booked, bill and transaction No./ valan No., name of beneficiaries, amount purchased/ sold/ transacted. For e.g. the entry on Pg 2-3 of Annexure 'A-60' is 14/4105 'Purchase Alliance" e.g. 50,000 -- Prrenta Industries 16/8/04 157/2 Shailesh Vaishnav 355575/51 As explained above this represents the fact that 50000 shares of Prrenta Indust r ies have been purchased on 14.04.2005 with the bill dated 16.08.2004, bearing bill No.15712 for Shri Shailesh Vaishnav and the amount of this purchase which took place in the company M/s. Alliance Intermediatories & Network Pvt. Limited is Rs. 355575.51. E.g. 2 on page 93 of the same notebook, a sale of 20500 shares of K....
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.... action u/s.132 at your office) prepared? Ans. Last year balances are carried forward with only a difference in bank balance. The turnover of the various companies represents the total of the entries in the bank statements of the various companies (i.e. turnover of bogus share billing/ adjustment entries). Q.14 Kindly throw light on the Share Application Adjustment entries carried on by your group companies and give the names of the companies who have taken share application money from your companies. Ans. These share subscription transactions are known as either 'One Time Settlement' transactions or 'Two Time Settlement' transactions, In One Time Settlement transaction, my company will subscribe to shares of say 'X' Pvt. Ltd., shares with a face value of Rs. 10 will be subscribed at a premium of say Rs, 190 per share. Hence the subscription of shares of face value of Rs. 1,00,000 will entail payment of share premium to the tune of Rs, 19 lakhs. These kinds of transactions are done to convert black into while money. In Two time settlement transactions, my company subscribes shares at a premium and after a gap of 1-2 years, those shares are bought back ....
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....Mrs. Disha N. Laiwani, it has come to light that the assessee had sold certain shares details of which are as under: (a) Buniyad Chemicals 3500 shares (b) N.E. Electronics 2600 shares The total consideration received in respect of the sale of above shares was Rs. 5,58,937/- after brokerage. Consequently, the assessee had declared long term capital gain of Rs. 5,51,006/- and claimed exemption. Please explain. Ans. Yes, I confirm the same. AO to Deponent No.1' Ans. Yes, I confirm the same. Q.4 Deponent No.2 As you are aware, you are asking for an opportunity to cross examine Mr. Mukesh Chokshi before the CIT'A) and accordingly, the case has been remanded back to the undersigned. Now Mr. Mukesh Chokshi is present before you. Therefore, I request you to the this opportunity and cross examine Mr. Mukesh Chokshi. Ans. Yes, I do. Deponent No.2 to Deponent No.1: (a) I am showing you certain bills issued by your off ice in the name of Leela G.. Lalwani regarding the sale of shares of above share scrips during the financial year 2002-03. Ans. I have seen the bill: and conf irm that the bills have been issued by my office regarding sale of above shares. (b) Can....
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....ares were given actually, the transactions had taken place through sub-broker and therefore I cannot comment about the transactions. Q.7 A perusal of the answer given to Q.No.6, it is clear that there is a contradiction in your answer given before DDI and the answer given today. Please explain. Ans. As my answer to Q.No.6, the transactions are routed through sub-brokers and therefore I am unable to comment on the said transactions. Q.8 AO to Deponent No.1 &.2 Do you want to add anything other than the above? Ans. No, " 3.7 From answers to question Nos. 2, 3, 6, 7, 9, 10, 11, 12 etc. of statement of Shri Mukesh Chokshi recorded u/s.131 of the Act on 11.12.2009, it is evident that broker Shri Mukesh Chokshi has admitted that he has been engaged in providing accommodation entries and he also explained the manner in which accommodations entries have been provided for various transactions including Long Term Capital Gain and details of such transactions are recorded in various books seized. During the cross-examination of Shri Mukesh Chokshi before the AO, Shri Chokshi has admitted the transactions made in the name of the appellant. Shri Chokshi has also admitted that the tra....
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....ong Term Capital Gain shown in the return is bogus. Accordingly, the addition made by the AO is upheld and grounds of appeal No. 1, 3 & 4 are dismissed. 4. Regarding second ground of appeal, an opportunity of crossexamination has already been provided to the appellant, therefore, this ground is already allowed. 5. The Ld. AR has further argued that he has shown an income of Rs. 5,51,006/- only under the head Long Term Capital Gain out of total sale proceeds of Rs. 5,58,937/- and therefore, addition of Rs. 7,66,653/- against receipt of Rs. 5,58,937/- cannot be made and further details of transactions resulting into Long Term Capital Gain of Rs. 7,66,653/- have not been given by the AO. "As regards the contention of the assessee that the receipt on account of sale proceeds of shares were adopted in the assessment at Rs. 7,66,6531- as against Rs. 2,81,0061- shown by the assessee in the return, the same appears to be baseless as he assessee himself has shown Rs. 5,51,006/- in his computation of total income. As such, if at all there is a difference, the same is insignificant. Further, the assessee'S claim for exemption uls.54EC is also not considered since the income shown unde....
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....essee is also one of the beneficiaries of such camouflage. Thus, when the total transaction is illusory/bogus. Our view find supports from the ratio laid down by the Indore Bench of the Tribunal in the case of M/s Agarwal Cole Corporation (63 DTR 201; 135 ITD 270)(Indore Bench of the Tribunal), wherein, one of us (Judicial Member) is signatory to the order. The ratio laid down in the case of CIT vs Nova Promoters and Finlease Pvt. Ltd. (2012) 324 ITR 0169 (Del.) supports our view. It is also noted that the Hon'ble Delhi High Court while coming to a particular disapproved the decision taken in CIT vs Oasis Hospitalities Pvt. Ltd. (2011) 333 ITR 119 and also considered the decision in DIT vs Bharat Diamond Bourse (2003) 259 ITR 280 (SC) and Lovely Exports Pvt. Ltd. (2008) 299 ITR 268 (SC). The relevant finding from the aforesaid order dated 15/02/2012 (Nova Promotors and Finlease Pvt. Ltd.) is reproduced hereunder:- "The assessee seems to have sent the Assessing Officer on a vain chase. It was first pleaded that the statements of Mukesh Gupta and Rajan Jassal should be given to it for rebuttal. They were given along with other material available with the Assessing Officer. When....
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....t. Every company incorporated under the Companies Act, 1956 has to comply with statutory formalities. That these companies were complying with such formalities does not add any credibility or evidentiary value. In any case, it does not ipso facto prove that the transactions are genuine. The finding that Mukesh Gupta and Rajan Jassal were involved with only 4 out of the 16 companies which advanced monies is only part of the picture. They had stated before the investigation wing that their operations were routed through 22 companies whose names were also given. Fifteen out of those 22 companies have subscribed to the shares of the assessee. Therefore even if they were not directors of 12 companies, the fact remains, as admitted by them, that their entry providing operations were carried out through 22 companies, 15 of which have subscribed to the shares of the assessee-company. The Tribunal has ignored this vital aspect and has examined the issue rather superficially. Compliance with statutory norms and requirements is only one aspect, but in the present case a deeper scrutiny was required and the camouflage adopted was the primary aspect that required adjudication. This aspect has ....
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....e of subscription to share capital, for a consideration in the form of commission. As already pointed out, names of several companies which figured in the statements given by the above persons to the investigation wing also figured as share-applicants subscribing to the shares of the assesseecompany. These constitute materials upon which one could reasonably come to the conclusion that the monies emanated from the coffers of the assessee-company. The Tribunal, apart from adopting an erroneous legal approach, also failed to keep in view the material that was relied upon by the Assessing Officer. The CIT(Appeals) also fell into the same error. If such material had been kept in view, the Tribunal could not have failed to draw the appropriate inference. (Para 31) One is unable to uphold the order of the Tribunal confirming the deletion of the addition of Rs. 1,18,50,000 made under section 68 of the Act as well as the consequential addition of Rs. 2,96,250. The question of law is answered in favour of the department. The assessee shall pay costs of Rs. 30,000/-. Commissioner of Income-Tax, West Bengal II v. Durga Prasad More, (1971) 82 ITR 540, Commissioner of Income-Tax (Central), Cal....