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22-08-2019, ANOOP JAIN, Section 69-A, 40A(3), 68, HIGH COURT OF DELHI

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5 months 3 weeks ago #10575 by amit
Section - 69-A, 40A(3), 68, 144A
Order Date - 22-08-2019
Favouring - Assessee
Appellant - CIT
Respondent - ANOOP JAIN
Citation - 819Taxpundit322
Appeal No. - ITA 927/2005
Asstt. Year - 1992-93


PER : Dr. S. Muralidhar, J.:

1. This is an appeal by the Revenue against the order dated 21st February, 2005 passed by the Income Tax Appellate Tribunal („ITAT‟) in ITA Nos. 2959 & 3221/Del./1996 for the Assessment Year („AY‟) 1992-93.

2. While admitting this appeal on 22nd August, 2007, the following question of law was framed for consideration:

“Whether the Income Tax Appellate Tribunal was correct in law in affirming the decision of the Commissioner of Income Tax (Appeals) deleting the addition of Rs.5,17,45,958/- made by the Assessing Officer under Section 69-A of the Income Tax Act, 1961?”

3. The background facts are that the Respondent/Assessee is stated to be a member of the Delhi Stock Exchange („DSE‟), carrying on business in the name and style of M/s. Jain and Company. He is also stated to be an empanelled broker of financial institutions and funds like Unit Trust of India („UTI‟), Indian Bank Mutual Fund, Can Bank Mutual Fund, etc.

4. For the AY in question, the Assessee filed a return declaring his income as Rs.3,96,960/-. The return was picked up for scrutiny. The Assessing Officer („AO‟) noticed that the Assessee had disclosed a bank account with Corporation Bank at Bombay in the Balance Sheet for the year ending on 31st March, 1993. This was, however, not disclosed in the Balance Sheet for the earlier year and the year ending on 31st March, 1992. In his statement on 13th February 1995 the Assessee claimed that this bank account had been inadvertently left out.

5. The AO further noticed that the balance in the said bank account as per the books of accounts of the Assessee was nil, whereas the bank statement showed it to be Rs.32,105/-. It was also noticed that as on 4th March, 1992, in the said account, there was a credit balance of Rs.1,03,31,250/-. Against this account, 24 cheques in different names had been issued between 11th and 17th March, 1992. The explanation offered by the Assessee was that this credit amount represented the sale proceeds of 7,25,000 units of the UTI 1964 Scheme sold to State Bank of Hyderabad („SBH‟).

6. Looking into the complexity of the account, the AO directed a special audit under Section 142 (2A) of the Income Tax Act, 1961 („Act‟). It transpired that a chain of transactions had led to the above credit entry into the bank account of the Assessee. On 6th February, 1992, 7,25,000 units of the UTI 1964 Scheme were purchased from SBH Funds Management Cell, Bombay at Rs.14.20 each, for a total consideration of Rs.1,02,95,000/-. SBH issued their bankers receipt for the same amount on the same date in lieu of the units sold by them. The payment of this amount was made by the Assessee by a cheque dated 6th February, 1992 drawn on Standard Chartered Bank („SCB‟) in favour of SBH, Bombay

7. After purchasing the above shares the Assessee sold the units on the same date to Mr. D. D. Chaturvedi. The Assessee explained to the AO that the Bank Receipt was purchased from SBH on 6th February, 1992 on behalf of Mr. Chaturvedi, who in turn had bought the same on behalf of M/s. Shri Maharaj Investment („SMI‟), which was a proprietory concern of Mrs. Sneh Pathak wife of Mr. Jaideep Pathak, the manager of SCB. The Assessee further explained that this bank receipt had been sold back to SBH on 4th March, 1992 for a consideration of Rs.1,03,02,250/- on the instructions of Mr. Chaturvedi. The Assessee thus claimed that he had entered into the transaction not on his own behalf but on behalf of Mr. Chaturvedi, who in turn was acting on behalf of SMI. The Assessee claimed that he had only made a profit of Rs.7,250/- in this transaction.

8. The AO, not being satisfied with the above explanation, recorded the statement of Mr. Chaturvedi. He also obtained statements of Mr. Jaideep Pathak and his wife Mrs. Sneh Pathak at Bombay. In his statement, Mr. Chaturvedi accepted the transaction of purchase and sale of units through the Assessee. However, Mr. Pathak and Mrs. Sneh Pathak denied having entered into any such transaction with Mr. Chaturvedi or with the Assessee. The AO found that SCB had issued a letter on 6th February, 1992 under the signature of Mr. Pathak by which a cheque for Rs.1,02,95,000/- was forwarded. The AO was of the view that the cheque had been issued on the instructions and at the instance of the Assessee i.e. M/s Jain & Company. It was concluded that this amount had been obtained by the Assessee from SCB by utilizing his own funds.

9. The AO found that there were in all 15 drafts/pay orders („PO‟) issued by Mr. Jaideep Pathak on behalf of SCB totalling to Rs.5,68,75,958/-. Out of these 15 POs, 13 were received by the Assessee, aggregating to Rs.5,17,45,958/-. The first of such POs of Rs.1,02,95,000/- was utilised for the purchase of 7,25,000 units from SBH. Remaining 12 POs were utilised for the purchase of shares of different companies by the Assessee on his own account which were later sold to Mr. Chaturvedi. Since the first PO of Rs.1,02,95,000/- was held to have emanated from the funds of Assessee, the AO held that for the remaining 12 POs, the same belonged to the Assessee on the parity of reasoning given with respect to the first PO of Rs.1,02,95,000/-. The AO noticed that the remaining 12 POs were not deposited in the Assessee's bank account with the Corporation Bank but were paid directly for the purchase of securities to the vendors.

10. The Assessee volunteered that this purchase was also done on behalf of

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