| COURT: | ITAT Mumbai |
| CORAM: | G. S. Pannu (AM) |
| SECTION(S): | 143(3), 68 |
| GENRE: | Domestic Tax |
| CATCH WORDS: | Bogus purchases, Bogus Sales |
| COUNSEL: | Rahul Sarda |
| DATE: | February 29, 2016 (Date of pronouncement) |
| DATE: | May 21, 2016 (Date of publication) |
| AY: | 2009-10 |
| FILE: | Click here to download the file in pdf format |
| CITATION: | |
| Bogus purchase and sale of shares: Law explained as to on whom the onus is to show that the purchase and sale of shares are bogus and the circumstances required to be proved by the AO | |
During the year, the assessee sold shares through a stock broker M/s Hem Securities Limited and treated the gains as exempt long term capital gains. The AO treated the sale as bogus on the ground that certain information was received from the Investigation Wing as a consequence of a search and seizure action carried out under section 132 of the Act in the case of M/s Alliance Intermediaries & Network Pvt. Ltd., through which the assessee had effected purchase of the impugned shares in the immediately preceding year. As a result, the sale consideration has been treated as income from undisclosed sources on the ground that there was no real sale and purchase of shares.
Held, the purchase of shares in the immediately preceding year was accepted by the Department in an order u/s 147 r.w.s 143(3) of the Act. The shares were evidenced by entries in the demat statement and consideration was received through banking channel. There was no clinching material to say that the impugned transaction was bogus. Also, the statement recorded during the search on M/s Alliance Intermediaries & Network Pvt. Ltd. does not contain any infirmity qua the impugned transaction. Therefore, the addition as income from undisclosed income was liable to be deleted.
It is a very bad order and serves the purpose of fraudulent assessees. The same INCOME TAX APPELLATE TRIBUNAL “I” Bench, Mumbai on 11/02/2011 Before Shri D.K. Agarwal (JM) and Shri Rajendra Singh(AM)in ITA No.2299/M/2010 Assessment Year 2002-03
ITA No.2300/M/2010 Assessment Year 2006-07
ITA No.2301/M/2010 Assessment Year 2007-08
of the kingpin in all these transactions Shri Mukesh Choksi PAN AAAPC7767J accepted the pleathat penalty u/s 271D cannot be levied when the assessee has received commission by providing accomodation entries, which is less than 40 Lakhs in quantum. The highest fact finding authority accepted the affirmation of the appellant in his affidavit that he was only an accomodator. The relevant excerpts of the order are reproduced below:
ORDER
PER RAJENDRA SINGH (AM) These appeals by the assessee are directed against common order dated 8.2.2010 of CIT(A) for the assessment years 2002-03, 2006-07 and 2007-08. The common dispute raised in all these appeals is regarding levy of penalty of Rs.1 lac by the AO in each of the years involved which has been confirmed by the CIT(A).
2. Briefly stated facts of the case are that there was a search conducted in case of one Shri Hitesh M.Bagthariya on 28.6.2006 during the course of which in his statement recorded under section 132(4) he had stated that he was an entry operator and he used to arrange cheques of M/s.Mahasagar Securities Pvt. Ltd. and M/s.Goldstar Finvest Pvt. Ltd. It was also stated by him that Mr. Mukesh Chowkshi, the assessee in this appeal, had floated various companies including his personal capacity for providing accommodation entries to the entry seekers. A survey under section 133A was also carried out on the same day at the business premises of Mr. Mukesh Chowkshi and his concern M/s. Mahasagar Securities Pvt. Ltd. Shri Chowkshi at the time of survey admitted that the following companies had been operating at the address and they were engaged in providing accommodation entries :
i) M/s.Goldstar Finvest (P) Ltd.
ii) M/s.Richmond Securities (P) Ltd.
iii) M/s. Alliance Intermediateries (P) Ltd.
iv) M/s.Mahasagar Securities (P) Ltd.
v) M/s.Alpha Chemie Trade Agency (P) Ltd.
vi) M/s.Mihir Agencies (P) Ltd.
vii) M/s.Talent Infoway (P) Ltd.
viii) M/s. Buniyad Chemicals Ltd.
ix) Mukesh Chowkshi, Individual
…………….
4. In appeal the assessee submitted that he was engaged only in the business of providing accommodation entries to the entry seekers and was earning commission there from @ 0.15%. The commission earned was therefore much less the limit of Rs.40 lacs for compulsory audit of accounts. It was also submitted that the amount received by the assessee belonged to the entry seekers and hence the same could not be regarded as the receipt of the assessee. His position was identical to that of share broker who earned commission on share transactions. The assessee referred to the decision of Ahmedabad Bench of the tribunal in case of R.Wadiwala & Co. vs ACIT (72 ttj
34) in which the tribunal had held that turnover of dealing in shares made on behalf of the various buyers and sellers of shares was not includable in the turnover for the purpose of section 44AB. It was pointed out that the AO himself had not initiated penalty proceedings in the earlier years and that the AO had not issued defect memo under section 139(9) of the Income-tax Act for defect in the return. The assessee also referred to the CBDT circular No.452 dated 17.3.86 in which the Board had clarified that in case of Kaccha Arathia only the commission was to be considered for the purpose of determining the applicability of section 44AB. CIT(A) however did not accept the contentions raised. It was noted by him the assessee had taken conflicting stands. During the penalty proceedings the assessee had admitted his liability to get the accounts audited but during the appellate proceedings a different stand was taken that he was not liable to get the accounts audited. It was observed by him that the provisions of section 44AB were very clear which referred to total sale, turnover or gross receipts for the purpose of ceiling of Rs.40 lacs. Thus the essence of section 44AB was gross receipts and not the element of income. He distinguished the decision of tribunal in case of R.Wadiwala & Co. Vs ACIT (supra) on the ground that the same related to share transactions which were completely different from issuing accommodation bills. Moreover in that case genuineness of share transactions was not in doubt whereas in the present case the transaction was not genuine.
Either way the ITAT is inconsistent in its approach and tendency is to grant relief, though it is evident that the transactions mentioned in the above list of securities are fabricated and sham.
It is a very bad order and serves the purpose of fraudulent assessees. The same INCOME TAX APPELLATE TRIBUNAL “I” Bench, Mumbai on 11/02/2011 Before Shri D.K. Agarwal (JM) and Shri Rajendra Singh(AM)in ITA No.2299/M/2010 Assessment Year 2002-03
ITA No.2300/M/2010 Assessment Year 2006-07
ITA No.2301/M/2010 Assessment Year 2007-08
of the kingpin in all these transactions Shri Mukesh Choksi PAN AAAPC7767J accepted the pleathat penalty u/s 271D cannot be levied when the assessee has received commission by providing accommodation entries, which is less than 40 Lakhs in quantum. The highest fact finding authority accepted the affirmation of the appellant in his affidavit that he was only an accommodator. The relevant excerpts of the order are reproduced below:
“ORDER
PER RAJENDRA SINGH (AM) These appeals by the assessee are directed against common order dated 8.2.2010 of CIT(A) for the assessment years 2002-03, 2006-07 and 2007-08. The common dispute raised in all these appeals is regarding levy of penalty of Rs.1 lac by the AO in each of the years involved which has been confirmed by the CIT(A).
2. Briefly stated facts of the case are that there was a search conducted in case of one Shri Hitesh M.Bagthariya on 28.6.2006 during the course of which in his statement recorded under section 132(4) he had stated that he was an entry operator and he used to arrange cheques of M/s.Mahasagar Securities Pvt. Ltd. and M/s.Goldstar Finvest Pvt. Ltd. It was also stated by him that Mr. Mukesh Chowkshi, the assessee in this appeal, had floated various companies including his personal capacity for providing accommodation entries to the entry seekers. A survey under section 133A was also carried out on the same day at the business premises of Mr. Mukesh Chowkshi and his concern M/s. Mahasagar Securities Pvt. Ltd. Shri Chowkshi at the time of survey admitted that the following companies had been operating at the address and they were engaged in providing accommodation entries :
i) M/s.Goldstar Finvest (P) Ltd.
ii) M/s.Richmond Securities (P) Ltd.
iii) M/s. Alliance Intermediateries (P) Ltd.
iv) M/s.Mahasagar Securities (P) Ltd.
v) M/s.Alpha Chemie Trade Agency (P) Ltd.
vi) M/s.Mihir Agencies (P) Ltd.
vii) M/s.Talent Infoway (P) Ltd.
viii) M/s. Buniyad Chemicals Ltd.
ix) Mukesh Chowkshi, Individual
…………….
4. In appeal the assessee submitted that he was engaged only in the business of providing accommodation entries to the entry seekers and was earning commission there from @ 0.15%. The commission earned was therefore much less the limit of Rs.40 lacs for compulsory audit of accounts. It was also submitted that the amount received by the assessee belonged to the entry seekers and hence the same could not be regarded as the receipt of the assessee. His position was identical to that of share broker who earned commission on share transactions. The assessee referred to the decision of Ahmedabad Bench of the tribunal in case of R.Wadiwala & Co. vs ACIT (72 ttj
34) in which the tribunal had held that turnover of dealing in shares made on behalf of the various buyers and sellers of shares was not includable in the turnover for the purpose of section 44AB. It was pointed out that the AO himself had not initiated penalty proceedings in the earlier years and that the AO had not issued defect memo under section 139(9) of the Income-tax Act for defect in the return. The assessee also referred to the CBDT circular No.452 dated 17.3.86 in which the Board had clarified that in case of Kaccha Arathia only the commission was to be considered for the purpose of determining the applicability of section 44AB. CIT(A) however did not accept the contentions raised. It was noted by him the assessee had taken conflicting stands. During the penalty proceedings the assessee had admitted his liability to get the accounts audited but during the appellate proceedings a different stand was taken that he was not liable to get the accounts audited. It was observed by him that the provisions of section 44AB were very clear which referred to total sale, turnover or gross receipts for the purpose of ceiling of Rs.40 lacs. Thus the essence of section 44AB was gross receipts and not the element of income. He distinguished the decision of tribunal in case of R.Wadiwala & Co. Vs ACIT (supra) on the ground that the same related to share transactions which were completely different from issuing accommodation bills. Moreover in that case genuineness of share transactions was not in doubt whereas in the present case the transaction was not genuine.”
If this yardstick and Sri.Chokshi’s declaration before ITAT in his appeal were admitted as facts, a decision contrary to it cannot be undertaken by another coordinate bench of ITAT. Either way the ITAT is inconsistent in its approach and tendency is to grant relief, though it is evident that the transactions mentioned in the above list of securities are fabricated and sham.
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