2022 (10) TMI 1258 - AT - Income Tax

Assessee fails to explain cash credits from shell companies under Section 68, additions sustained

Shri Mukul Kakar Versus The ACIT-21 (2), Mumbai.

ITAT Mumbai upheld CIT(A)'s decision sustaining additions under Section 68 for unexplained cash credits from unsecured loans. The assessee received loans ... Unexplained Cash Credits u/s 68 - unsecured loans taken by the assessee from 15 parties - HELD THAT:- Because of non-compliance on the part of the assessee full inquiry could not be carried out during the remand proceedings. CIT(A) has further observed from the report received from the AO that 13 companies out of the 15 companies from whom the assessee had obtained unsecured loan were based on common 4 addresses at Kolkata. It was also found from the search and survey action of the investigation wing of Kolkata that these companies were shell companies which were merely engaged in providing accommodation entries. Addition were sustained by the ld. CIT(A) correctly. Also during the course of appellate proceedings before us in spite of providing abundant opportunities to the assessee to contest facts on the basis of which the ld. CIT(A) has sustained the addition, neither anyone has attended nor furnished any written submission to controvert the finding of CIT(A), therefore, we don’t find any reason to interfere in the decision of CIT(A). Accordingly, the grounds of appeal of the assessee stand dismissed. Issues Involved:1. Unexplained Cash Credits under Section 68 of the Income Tax Act.Issue-wise Detailed Analysis:1. Unexplained Cash Credits:The primary issue in this case revolves around the addition of Rs. 373 lakhs as unexplained cash credits under Section 68 of the Income Tax Act. The Assessing Officer (A.O.) had classified unsecured loans taken by the assessee from 15 parties as unexplained cash credits due to the non-compliance of these parties with notices issued under Section 133(6) of the Act. The A.O. had requested bank statements and income tax return acknowledgments from these parties to verify their creditworthiness, but no responses were received.The assessee appealed against this decision, but the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the A.O.'s order. The CIT(A) noted that despite multiple opportunities, the assessee failed to produce the concerned parties for examination. Instead, the assessee provided names, addresses, PAN details, and balance sheets of 14 out of the 15 parties, downloaded from the Ministry of Corporate Affairs (MCA) website. However, the CIT(A) observed that most of these companies were based in Kolkata and shared common addresses and directors, indicating their involvement in shell companies.The CIT(A) further highlighted that the Investigation Wing of Kolkata had identified these companies as shell entities operated by an entry provider. The remaining two companies were also found to have dubious transactions and lacked genuine business activities. The CIT(A) concluded that the loans were not genuine, citing precedents from similar cases, such as Pavankumar M Sanghvi vs. ITO and Pr. CIT vs. Bikran Singh, where the courts held that the mere identity of lenders and transactions through banking channels do not establish the genuineness of loans if the lenders lack financial strength and there is no credible relationship or documentation.During the appellate proceedings, the CIT(A) called for a remand report from the A.O., who reiterated the non-compliance of the assessee in producing the lenders for examination. The A.O. also confirmed that the companies were shell entities providing accommodation entries. The CIT(A) sustained the addition based on these findings.The assessee's appeal before the Income Tax Appellate Tribunal (ITAT) was dismissed as well. The ITAT noted that despite multiple opportunities, the assessee failed to contest the facts or provide any written submissions to counter the CIT(A)'s findings. Consequently, the ITAT upheld the CIT(A)'s decision, confirming the addition of Rs. 373 lakhs as unexplained cash credits under Section 68 of the Income Tax Act.Conclusion:The appeal of the assessee was dismissed, and the addition of Rs. 373 lakhs as unexplained cash credits was confirmed. The decision was pronounced in the open court on 31.10.2022.