2025 (4) TMI 614 - HC - Income Tax

HC restores additions under sections 69-A and 69-C after ITAT deleted them in shell company money laundering case

Assistant Commissioner Of Income Tax Circle 2 (1) Raipur Versus Shri B.L. Agrawal.

The HC set aside ITAT's order deleting additions under sections 69-A and 69-C of the Income Tax Act. The case involved a complex money laundering scheme ... Addition u/s 69-A and 69-C - AO based addition on report of the handwriting expert proving the handwriting of the assessee on relevant documents - ITAT deleted addition - HELD THAT:- Tribunal has failed to properly appreciate the significant findings from the search operation conducted at multiple locations, including the assessee's residential premises, those of his partners/brothers, the business premises of M/s Prime Ispat Limited (a closely-held company dealing in the manufacture and sale of structural steel), and the residential and office premises of the then Chartered Accountant, Shri Sunil Kumar Agrawal. The search revealed that M/s Prime Ispat Limited, a newly established entity, had amassed substantial capital in its initial years. This capital was primarily sourced from cash deposits made by numerous individuals from the village of Kharoга and persons with no or inadequate means to invest such amounts. Tribunal has erred by not appreciating the significance of the statements made by Shri Vimal Agrawal and Shri Vinod Agrawal, who admitted that, under the direction of Shri Pawan Agrawal, Shri Ashok Agrawal, and Shri Babulal Agrawal, 13 companies and other firms were created. The primary objective of these entities was to convert black money into white, circumventing taxes. Approximately 230 bank accounts were opened in the names of various individuals, enabling the conversion and concealment of funds. These admissions should have been carefully considered, as they directly implicate the Assessee in a deliberate effort to evade tax obligations through illegal means. The learned Tribunal also erred by not acknowledging the full scope of the fund circulation scheme, which was exposed during the search at the premises of CA Shri Sunil Kumar Agrawal. Despite the clear implication of this statement, the respondent/assessee failed to provide any satisfactory explanation regarding these assertions, merely claiming that the CA had retracted his statement. In the absence of a credible explanation, the AO appears to have rightfully added these funds to the Assessee's income under sections 69-A and 69-C of the Income Tax Act, 1961. The scheme of fund transfer ultimately benefitted M/s Prime Ispat Limited. The unaccounted funds, which were transferred from individuals connected to the Company, were effectively placed at the disposal of the Company, thereby concealing the true origin of these funds and facilitating the further concealment of income. The Tribunal's failure to recognize this critical aspect of the case undermines the finding that the respondent/assessee's actions were part of a broader scheme to conceal income. Tribunal has further not taken into account the unaccounted income was introduced into M/s Prime Ispat Limited in the form of share capital and premium via 13 shell Companies and certain villagers from Kharora. The Tribunal did not adequately address the fact that M/s Prime Ispat Limited, being a new entity, could not have legitimately accumulated such large sums of capital, especially when the source of these funds can be traced to shell companies created to facilitate the conversion of black money into white. The statements of Shri Vimal Agrawal and Shri Vinod Agrawal confirm the deliberate actions taken to hide the true nature of these transactions, which were orchestrated by the respondent/ assessee and his associates. Tribunal has failed to consider crucial evidence and overlooked the implications of the statements made by key individuals involved in the case. The Tribunal's failure to appreciate the full scope of the evidence and its failure to apply relevant legal principles in the context of the assessee's actions has led to an erroneous conclusion. Tribunal as well as the CIT(A) have not taken into account the statements of Shri Vimal Agrawal and Shri Vinod Agrawal who were the Directors in the shell Companies through which huge sum was introduced in the garb of share capital and share premium in the books of M/s Prime Ispat Limited. The statement of these two individuals ought to have been considered in proper perspective before arriving at any finding. Shri Vinod Agrawal and Vimal Agrawal have accepted in their statement that on the direction of Shri Pawan Agrawal, Shri Ashok Agrawal and the appellant, 13 shell Companies and other firms were created as these persons wanted to convert their black money into white without paying any tax. Even as per the learned counsel for the parties, the CBI, ED and EOW has registered various cases against the respondent/Assessee which are pending consideration. Tribunal orders set aside - remand the matters back to the learned CIT(A) to consider the statements of the individuals and the grounds raised by the appellant/Revenue afresh. 1. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include:Whether the Tribunal was justified in deleting the addition made by the Assessing Officer (AO) by ignoring the report of the handwriting expert proving the handwriting of the assessee on relevant documents.Whether the Income Tax Appellate Tribunal (ITAT) was justified in ignoring the ratio of the decision rendered by the Supreme Court in relevant cases while passing the order against the revenue.Whether the ITAT was justified in ignoring the report of the forensic expert and recording a finding that Shri Anand Agrawal was not the benamidar of the assessee Shri B.L. Agrawal.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Justification of Tribunal in Deleting AdditionsThe relevant legal framework involves Sections 69A and 69C of the Income Tax Act, 1961, which pertain to unexplained money and unexplained expenditure, respectively. The Tribunal had deleted the additions made by the AO under these sections, which were based on the alleged investment in share capital and payment of commission.The Court found that the Tribunal failed to properly consider significant evidence from the search operations, which revealed that M/s Prime Ispat Limited had amassed substantial capital from individuals with no or inadequate means. The Tribunal did not adequately address the statements from key individuals, which implicated the assessee in tax evasion schemes.The Court noted that the Tribunal's decision was based on the retraction of a statement by CA Shri Sunil Kumar Agrawal, without considering corroborative evidence from other individuals involved. This oversight led to an erroneous conclusion by the Tribunal.Issue 2: Ignoring Supreme Court DecisionsThe Tribunal was criticized for not considering the ratio of decisions rendered by the Supreme Court in similar cases. The Court highlighted that the Tribunal should have taken into account the principles established in these cases, particularly concerning the treatment of protective assessments and the requirement for substantial evidence to support such assessments.The Court emphasized that the Tribunal's failure to apply these legal principles contributed to its erroneous decision to dismiss the Revenue's appeal.Issue 3: Forensic Evidence and Benami TransactionsThe Tribunal had disregarded forensic evidence and concluded that Shri Anand Agrawal was not a benamidar for the assessee. The Court found that the Tribunal did not adequately consider the forensic report and other evidence suggesting the involvement of benami transactions.The Court observed that the Tribunal's oversight in evaluating the forensic evidence and the statements from individuals involved in the scheme led to an incorrect conclusion regarding the ownership and source of the funds.3. SIGNIFICANT HOLDINGSThe Court held that the Tribunal and the CIT(A) failed to consider crucial evidence and statements from key individuals. The Tribunal's reliance on the retraction of a statement by CA Shri Sunil Kumar Agrawal, without considering corroborative evidence, was deemed insufficient.The Court established that protective assessments are justified when there is substantial evidence of tax evasion schemes involving benami transactions. The Tribunal's failure to apply relevant legal principles and consider all available evidence led to an erroneous conclusion.Final determinations included the setting aside of the Tribunal and CIT(A) orders, with a remand to the CIT(A) to reconsider the evidence and arguments presented by the Revenue.