INCOME TAX ACT, 1961

Section 147 Section 69

Reassessment - Reason to believe - Sham and bogus share transaction vis-a-vis unexplained investment -

Search and seizure operations under section 132 were conducted in the case of M/s. LL Group by Investigation Wing, Chandigarh. It was then noticed that assessee had made investment of Rs. 2.50 Crores with M/s. TS & Co., Chandigarh, a partnership firm engaged in the business of Liquor Contractors. Payments were made in February, March and April, 1999. Money paid to M/s. TS & Co. had not been refunded or re-paid till the date of search. Detailed enquiries by the Investigation Wing on the source of investment had revealed that cash was first deposited in different accounts of stock-brokers before it was transferred to the bank account of the assessee with Bank of Baroda, Ludhiana. Source of deposits in the bank accounts of stock-brokers had remained unexplained and were dubious. AO had thereupon recorded 'reasons to believe' and notice under section 148 read with section 147 was issued. Addition of Rs. 2.50 crores on protective basis on account of unexplained deposits in bank account was made. It was also noted in the reasons for reopening of the assessment that assessee had given only entry and actually no deposits/investments were made with M/s. T S & Co., Chandigarh. Tribunal reversed order of AO.Held: Tribunal held that no information was received by the AO from the Investigation Wing that the assessee had received accommodation entry. Aforesaid rationale was incorrect, for whether or not any accommodation entry was received had to be inferred and concluded from the facts by the AO, and not by a third person. In this case, the stockbrokers had elucidated on the sham and bogus, nature of the share transaction, i.e., investment and sale of worthless shares which was done through unknown persons who were the assessee's representatives, and other facts accepted and admitted in the statements which were recorded by the Investigation Wing. The 'reason to believe' recorded cannot be set aside on the basis of the appellate order in the case of assessee making substantive addition instead of protective additions made in the assessment order. There was a contradiction in the findings recorded by the Tribunal.

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 1999-2000 & 2000-01

INCOME TAX ACT, 1961

Section 68

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