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TaxTMI 
TaxTMI 
TaxTMI 
2017 (5) TMI 1159
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..... 20,00,000/- on account of unexplained cash credit u/s.68 being unwarranted, illegal, bad-in-law be deleted. GROUND II :- 1. On the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeal)-2, VADODARA ('hereinafter referred to as 'the CIT(A)') has erred in confirming an addition of Rs. 3,66,041/- on account of interest paid on unsecured loans considered as unexplained cash credit u/s.68 taken from M/s. Natasha Enterprises and M./s. Mohit International based on information received from DIT (Inv) in the case of Praveen Kumar Jain. 2. The appellant being aggrieved, prays that the addition made on account of Rs. 3,66,041/- on account of interest paid on unsecured loans being considered as unexplained cash credit u/s.68 being unwarranted, illegal, bad-in-law be deleted." 3. Briefly stated, the relevant material facts are as follows. The assessee before me is an individual, owning a proprietorship concern by the name of Ravi Steels, and he claims to have received unsecured loans of Rs. 10 lakhs each from Natasha Enterprises on 11th August 2006 and from Mohit International on 27th April 2006. His assessment was initially completed under section....
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....any disadvantage on the basis of a confessional statement recorded by a third party- particularly when the assessee did not even have the opportunity to peruse such a statement. Learned counsel further points out that the assessee was duly entitled to an opportunity to cross examine PKJ but the Assessing Officer did not provide the assessee any such opportunity. On these facts, according to the learned counsel, the impugned additions are contrary to the well settled principles of natural justice which are well entrenched in the tax jurisprudence. In any event, according to the learned counsel, PKJ has subsequently retracted, on 15th May 2014, his confessional statement, as evident from the retraction affidavit dated 15th May 2014 - a copy of which was also filed before me. Learned counsel then submits that nothing prevented the Assessing Officer from using his powers under section 133(6) and examining the matter further by enforcing attendance of the lenders, but, rather than doing what the Assessing Officer ought to have done, he is simply swayed by unverified inputs received from the investigation wing. Learned counsel then invites my attention to the affidavits filed by the prop....
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....l Representative, on the other hand, submits that it is inconceivable that some rank outsiders give unsecured loans, aggregating to Rs. 20,00,000, to the assessee, and yet the assessee is not even able to produce the same or give sufficient information about the nature of relationship with him. The documents filed by the assessee are self serving documents and a mere statement on affidavit cannot be accepted irrespective of the ground realities. It is submitted that in each loan transaction, three elements are required to be examined- existence of lender, genuineness of transaction and credit worthiness of the lender. In the present case, all that the assessee has proved is existence of the person as the transactions have taken place through banking channels. Just because a person existed, it does not mean that all the transactions with him are genuine and the person had means to advance the loans in question. It is also pointed out that the lenders are believed to be shell entities and this fact was duly brought to the notice of the assessee but the assessee did not have anything to say on this point. On one hand, according to the learned Departmental Representative, PKJ is so clo....
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....any issue against validity of reopening proceedings at any stage- assessment, first appeal as also second appeal. When the assessee was told about the alleged lenders being shell entities, he did not have anything to say either. The assessee did not ask for the cross examination of PKJ in the assessment proceedings nor did he raise that issue, as evident from a copy of the grounds of appeal before the CIT(A)- as filed before me, at the first appellate stage. Yet, his plea before me is that since he was not afforded any opportunity to cross examine PKJ, the impugned additions should be deleted. I donot think such a plea can be entertained at this stage, particularly in the light of peculiar facts of this case. I have noted that the assessee feigns ignorance about the statement of PKJ, as recorded by the income tax authorities, but he files a copy of the retraction affidavit dated 15th May 2014. There is an inherent contradiction in this approach. As a matter of fact, even in the first appellate proceedings, the assessee did not ask for the cross examination of PKJ as evident from the limited argument of the assessee, noted at page 5 of the CIT(A)'s order, to the effect that "it is s....
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....ctions. What he overlooks is that the existence of documentation in support of these transactions was not even disputed by the revenue authorities, and that the real issue, in the backdrop of these inputs, is on the genuineness of the transactions. There was not even an attempt to deal with that aspect of the matter, or state even one word against what the Assessing Officer had to tell the assessee on this front. In these circumstances, it cannot be open to the assessee to contend that the additions should be deleted simply on the ground that the assessee was not given an opportunity to cross examine PKJ. When the assessee is confronted with all the facts at the assessment stage, he has nothing to say. He maintains his stoic silence even at the first appellate stage. However, when he comes before me in the second appeal, his grievance is about violation of principles of natural justice at the assessment and the first appellate stage. There are clear inconsistencies and contradictions in the approach of the assessee. 6. Be that as it may what is even more important is that while the reassessment has indeed been resorted to on the basis of the inputs from the investigation wing, wit....
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....ench of Hon'ble Bombay High Court in the case of Ahmedabad Electricity Co Ltd Vs CIT [(1993) 199 ITR 351 (Bom FB)] and reiterated by a Special Bench of this Tribunal in the case of Tata Communications Ltd Vs JCIT [(2009) 121 ITD SB 384 (Mum)]. That is, of course, besides the fact that there is no attempt, direct or indirect, to enlarge the subject matter of appeal. The legal plea of the learned counsel proceeds on clearly fallacious assumptions. 8. As I proceed to deal with genuineness aspect, it is important to bear in mind the fact that what is genuine and what is not genuine is a matter of perception based on facts of the case vis-à-vis the ground realities. The facts of the case cannot be considered in isolation with the ground realties. It will, therefore, be useful to understand as to how the shell entities, which the loan creditors are alleged to be, typically function, and then compare these characteristics with the facts of the case and in the light of well settled legal principles. A shell entity is generally an entity without any significant trading, manufacturing or service activity, or with high volume low margin transactions- to give it colour of a normal busi....
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....e entity in question is a genuine business concern. A look at the financial statements filed by the assessee does not lead to this conclusion either. The lender has shown a turnover of Rs. 122.92 crores but there is no closing stock, and a profit of almost 0.09% on the turnover leading to a tax payment of Rs. 1,96,138. The lender makes purchases of Rs. 123.04 crores in such diversified areas as cut and polished diamonds (Rs 73.15 crores), plywood and aluminium (Rs 11.72 crore), rough diamonds (Rs 4.36 crores), software (Rs 25.01 crores) and other items (Rs 8.79 crores), and sells these products too but all that the lender has spent on salaries is Rs. 2,26,000, on office expenses is Rs. 8,560, on office rent is Rs. 27,600 and on printing and stationery is Rs. 8,560. All this is simply not representative of what a genuine business would typically be. As regards Mohit International also, the story is no different. The bank statement, which is placed at pages 75 onwards, has the same theme of high transactions during the day and a consistently minimal balance at the end of the working day. On 28th April 2006, i.e. the day the assessee is given Rs. 10,00,000, there are credit entries of....
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.... (SC)], to the effect that "Science has not yet invented any instrument to test the reliability of the evidence placed before a court or tribunal. Therefore, the courts and Tribunals have to judge the evidence before them by applying the test of human probabilities". Similarly, in a later decision in the case of Sumati Dayal Vs CIT [(1995) 214 ITR 801 (SC)], Hon'ble Supreme Court rejected the theory that it is for alleger to prove that the apparent and not real, and observed that, "This, in our opinion, is a superficial approach to the problem. The matter has to be considered in the light of human probabilities. ...........Similarly the observation......... that if it is alleged that these tickets were obtained through fraudulent means, it is upon the alleger to prove that it is so, ignores the reality. The transaction about purchase of winning ticket takes place in secret and direct evidence about such purchase would be rarely available..............In our opinion, the majority opinion after considering surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winning from races is not gen....
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....hority is made conclusive by law". This faith in the Tribunal by Hon'ble Courts above makes the job of the Tribunal even more onerous and demanding and, in my considered view, it does require the Tribunal to take a holistic view of the matter, in the light of surrounding circumstances, preponderance of probabilities and ground realities, rather than being swayed by the not so convincing, but apparently in order, documents and examining them, in a pedantic manner, with the blinkers on. I may also add that the phenomenon of shell entities being subjected to deep scrutiny by tax and enforcement officials is rather recent, and that, till recently, little was known, outside the underbelly of financial world, about modus operendi of shell entities. There were, therefore, not many questions raised about genuineness of transactions in respect of shell entities. That is not the case any longer. Just because these issues were not raised in the past does not mean that these issues cannot be raised now as well, and, to that extent, the earlier judicial precedents cannot have blanket application in the current situation as well. As Hon'ble Supreme Court has observed in the case in Mumbai Ka....