TaxTMI 
TaxTMI 
2017 (3) TMI 1570
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee. It was contended that the statement 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nse to notice u/s 148 of the Act. Thereafter, notices 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation entries to generate bogus credits. Proceedings 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oses of this section, the following shall also be deemed to be cases where income chargeable 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 u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent so long as the Assessing Officer has independently applied his mind to all the relevant aspect and has arrived to a belief the reopening cannot be said to be invalid. 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 muc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... vs ACIT (2004) 268 ITR 400, 405 (All.) and Ratnachudamani S. Utnal vs ITO (2004) 269 ITR 272, 277 (Karnataka) applying Sowdagar Ahmed Khan vs ITO (1968) 70 ITR 79(SC). 2.9. So 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. Refer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntly Explanation 2(c)(iv) of section 147 would apply. The reassessment proceedings after four years were valid. 2.13. In the case of Deputy CIT v. Gopal Ramnarayan Kasat, (2010) 328 ITR 556 (Bom), it was not the case of the assessee that the notice issued was after the expiry of the time limit provided 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 c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....siness of financing of vehicles and consumer durables on 'hire-purchase basis' as well as on 'lease/rent basis', a reassessment notice issued after four years has been held not to suffer from any illegality as the same was based on the bona fide action of the competent authority to determine whether or not the vehicles in 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he notice of the authority during the course of enquiry. The notice was held to be valid by the Hon'ble High Court. In the case of Vippy Processors Pvt. Ltd. v. CIT, (2001) 249 ITR 7, 8 (MP), where the need to issue notice arose due to noticing of vast difference in value of properties disclosed by the assessee and that of the report of the Valuation 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 no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s, it was not clear as to in whose hands the amount in question had to be assessed. The ITO was justified in taking proceedings under section 147 for assessing the amounts in the hands of the petitioners according to the claim made by the petitioners. Likewise, Hon'ble Kerala High Court in CIT v. Dr. Sadique Ummer, (2010) 322 ITR 602 (Ker), where, the 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. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s, the assessment was held to be validly reopened under Explanation 2(c) to section 147. Likewise, in CIT v. N. Jayaprakash, (2006) 285 ITR 369 (Ker), where, the assessee could not, after having persuaded the assessing authority to withdraw the notice dated 1-10-1993, pointing out that it was not in conformity with law, be allowed to contend that the notice 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....owards sundry creditors in the balance-sheet of the assessee-firm for the previous year relevant to the assessment year 1989-90. These materials had a direct link and nexus for formation of a belief by the Assessing Officer that income of the assessee-firm had escaped assessment because of failure of the assessee to disclose fully and truly all material facts necessary 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Prakash [(2013) 353 ITR 158 (Guj)]; xv. Inductotherm (India) P. Ltd. v. M. GopaLan, Deputy CIT [(2013) 356 ITR 481 (Guj)]; CIT v. Dhanalekshmi Bank Ltd. [(2013) 357 ITR 448 (Ker)]; xvi. Sitara Diamond Pvt. Ltd. v. ITO [(2013) 358 ITR 424 (Bom)]; xvii. Rayala Corporation P. Ltd. v. Asst. CIT [(2014) 363 ITR 630 (Mad)]. 2.29. So far as, the decision in the case of CIT vs Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) is concerned, the Hon'ble Apex 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ut by you at Block No. H, Shree Sadashiv CHS Ltd., 6th Road, Santacruz (East), Mumbai -55. Ans. I am a Chartered Accountant by training, having completed my Chartered Accountancy in 1978. I am engaged in the business of providing the accommodation entries through various companies floated by me like Mahasagar Securities P. Ltd., Mihir Agenecies P. Ltd., Alliance Intermediaries & Network P. Ltd., Gold Star Finvest P. Ltd. etc. which all are run by me from the office at 6 Road, Santacruz (E) above. 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 th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....notebooks contains the details of various bogus contract notes issued by you to various parties over the years. Ans. Yes. I confirm the same. Q.6 I am showing you by way of example, notebook No.A-60 which contain written pages from 1 to 170. Kindly explain the entries in various pages Ans. Page 1 - It is titled S.M. which is the name of one of my agent - Sandeep Merchant Page 2 contains the entries/ bogus contact notes issued on 14.04.2005 from Mahasagar Securities P. Ltd., Alliance Intermediaries & Network P. Ltd. Here "SP" refers to speculation profit, "pur" refers to purchase, "sal" refers to sale, "SIT" or "D/L" refers to speculation loss or delivery loss. The method of making entries is to make purchase, 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 sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... A-60 wherein 8600 shares of "Media Matrix" have been actually purchased on 14.04.2005 but the bill is dated 11.01.2004? Ans. Yes. In this case the beneficiary of such long term capital gain is Shri Shashi K. Lahoti. Q.12 It is seen that the companies Mahasagar Securities Pvt. Ltd., M/s Alliance Intermediatories & Network Pvt. Ltd. and M/s. Goldststar Finvest Pvt. Ltd. have entered into such huge transactions amounting to crores of rupees. Have regular hooks of account been maintained for these companies? If so, where are they being maintained? Ans. No Apart from bank book, no books of accounts are being maintained for these companies and the transactions reflected in them are bogus transactions. Q.13 Then on what basis are the Profit and Loss Accounts, Balance sheet etc. of these companies (which were found during course of 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.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed to me and also I conf irm that the consequences of false statement given on oath is explained to me. AO to Deponent No.2 Please identify yourself and confirm that oath is administered to you and also conf irm that the consequences of false statement given on oath is explained to you. Ans. I am Shri Jiyo Ghansh yam Lalwani, aged 47 years residing at flat No.J-301, Vardhaman Nagar, Junction of R.P. and M.G. Road, Mulund(W), Mumbai-400080. I confirm that oath has been administered to me and also I confirm that the consequences of false statement given on oath is explained to me. Q.2 AO to Deponent No.2 Please state the capacity in which you are giving the present statement. Ans. lam holding a letter of authority on behalf of my sisterin- law Smt. Disha N. Laiwani, on the strength of which I am giving the present deposition. Q.3 AO to Deponent No.2 During the course of assessment proceedings in the case of 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eived. Ans. Since all my data has been seized by the Department and certain data was corrupted, there might be some error. We have already issued copy of ledger account which shows the correct figure. Q.5 Deponent No.2 to AO As per the bills available with us and the total amount of consideration received by way of cheque from Mukesh Choksi in connection with the above transaction, the total receipt comes to Rs. 5,58,937/- only whereas you have made an addition of Rs. 7,66,653/- under this head that too without making any mention or break up with respect to the amount of Rs. 7,66,653/-. May I request you to please explain the above discrepancy. Ans. The amount of Rs. 7,66,653/- is based on the statement forwarded by the Investigation Wing along with their forwarding letter. Q.6 AO to Deponent No.1 In this connection, I invite your kind attention to your statement recorded uls.131 by the DDIT(Inv.), Unit I(4), Mumbai dated 11.12.2009 wherein you have categorically affirmed that all the bills issued to different entities are accommodation entries without having any proper transactions. Please comment. Ans. It was my gener....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de Agencies Pvt. Ltd. in ITA No.4999/Mum/2005 for the A.Y.2002-03. (c) Decision in ITA No.4912/Mum/2005 dated 30.05.2008, in the case of M/s. Mihir Agencies Pvt. Ltd. Based upon these ITAT orders, all the concerns including M/s. Alliance Intermediaries and Network P. Ltd., M/s. Gold Star Finvest P. Ltd. and M/s. Alpha Chemie Trade Agencies Pvt. Ltd. have also filed their returns declaring it to be in the business of an entry provider and estimating its income @0.15% of total receipts from entry seekers. The same has been accepted in the assessment order dated 12.11.2008 for the A.Y.2007-08 u/s.143(3) by ACIT (OSD-1), Central Range-7, Mumbai. 3.10 On the basis of the aforesaid orders of ITAT in case of Shri Mukesh Chokshi and his associates, it is a concluded fact that Shxi Mukesh Chokshi is not doing any business of share transactions or stock brokering but he has provided only accommodation entries of share transactions and thus facilitated in helping the appel lant for showing bogus, tax free, Long Term Capital Gain. For accommodation entries provided by Shri Mukesh Chokshi and his associates, his net income @0.15% of total transactions has been shown as income and ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....accommodation entries such as long term capital gains, wherein, the assessee is one of the beneficiaries. It is evidently clear that off-market transactions were carried out by the assessee in collusion with Shri Mukesh Chokshi. The transactions were given the colour of genuine transaction but fact remains that only paper work was done in lieu of cash and there was no actual gain/transaction. It is also noted that identically in the case of Mukesh Chokshi/associates/firms of Mukesh Chokshi, there are various orders like M/s Goldstar Finvest Pvt. Ltd. ITA No.4625/Mum/2005 and 5000/Mum/2005 order dated 28/03/2008, Richmond Securities Pvt. Ltd. (subsequently known as Mhanagar Securities Pvt. Ltd. and now known as Alag Securities Pvt. Ltd.) ITA No.4624/Mum/2005 and M/s Alpha Chemie Trade Agencies Pvt. Ltd. (ITA No.4999/Mum/2005) for Assessment Year 2002-03 along with the case of M/s Mihir Agencies Pvt. Ltd. (ITA No.4912/Mum/2005) order dated 30/05/2008. All these orders and the fact clearly indicates that Shri Mukesh Chokshi was actually not doing any business of share transaction/stock broking but was merely providing accommodation entries of share transaction showing the bogus long t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....empt of the assessee is there to see. It had been blocking any enquiry by the Assessing Officer at every stage on some plea or the other, including a frivolous plea even before the CIT(Appeals) that no cross-examination of Mukesh Gupta and Rajan Jassal was allowed, overlooking that once they filed the affidavits retracting from their earlier statements the plea loses force. There is no explanation as to why the deponents could not be produced and did not appear. (Para 28) The findings of the Tribunal cannot be upheld as they are based on irrelevant material or have been entered by ignoring relevant material. The finding that the share application monies have come through account payee cheques is, at best, neutral. The question required a thorough examination and not a superficial examination. If anything, in the light of the material gathered by the investigation wing about the modus operandi followed by the entry providers, the statements of Mukesh Gupta and Rajan Jassal the plea that the money was sent through banking channels loses all force. The Tribunal ought to have seen that the modus operandi involves receipt by the entry providers of equivalent amount of cash from the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to have proved that the monies emanated from the coffers of the assessee-company and came back as share capital. Section 68 permits the Assessing Officer to add the credit appearing in the books of account of the assessee if the latter offers no explanation regarding the nature and source of the credit or the explanation offered is not satisfactory. It places no duty upon him to point to the source from which the money was received by the assessee. The view taken by the Tribunal on the duty cast on the Assessing Officer by section 68 is contrary to the law laid down by the Supreme Court. Even if one were to hold, albeit erroneously and without being aware of the legal position adumbrated above, that the Assessing Officer is bound to show that the source of the unaccounted monies was the coffers of the assessee, we are inclined to think that in the facts of the present case such proof has been brought out by the Assessing Officer. The statements of Mukesh Gupta and Rajan Jassal, the entry providers, explaining their modus operandi to help assessee's having unaccounted monies convert the same into accounted monies affords sufficient material on the basis of which the Assessing Of....