TaxTMI 
TaxTMI 
2019 (3) TMI 574
X X X X Extracts X X X X
X X X X Extracts X X X X
....ons of dates and quantum. Therefore, for the facility of reference, I am taking facts mainly from the Asstt.Year 2010-11. 4. Brief facts of the case are that the assessee at the relevant time was engaged in the business of dealing in export of cut & polished diamonds and jewellery in the name and style of M/s.Bony Exports. He has filed his return of income showing total income at Rs. 2,79,615/- and Rs. 5,15,600/- in the Asstt.Years 2010-11 and 2011-12. The information came to the possession of the AO that M/s.Bony Exports had made purchases from Kriya Impex Pvt. Ltd., and Kalash Enterprise which was run by one Shri Rajendra Jain who has carried out the business of providing accommodation entries. A search was carried out at the premises of Shri Rajendra Jain and he declared under oath that he has only provided accommodation entries. In the Asstt.Year 2011-12 such purchases were made from Kalash Enterprises which was run by Shri Manish Jain who was also engaged in the business of providing accommodation entries. On the basis of above information, assessment proceedings were reopened in both the years and notices under section 148 of the Act were issued and served upon the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ence regarding the details of Quantity of goods traded, internal communication regarding goods, transaction and delivery of goods and disposal of the above goods. (vi) The onus was upon the assessee to establish the genuineness of the purchases made by the assessee. (vii) Mere filing of evidences in support of purchases and payment through cheques can not be conclusive in a case where genuineness of transaction is in doubt. Payments by account payee cheques are not sacrosanct. (viii) All the evidences point to the fact that no actual goods were supplied by the above parties; the argument of the assessee that it purchased goods in the good faith is not tenable." 5. In this way, the ld.AO has made disallowance of Rs. 2 lakhs in the Asstt.Year 2010-11 and Rs. 5,63,833/- in the Asstt.Year 2011-12. On appeal, the assessee has reiterated his contentions, as were raised before the AO, but the ld.CIT(A) did not find any merit in the contentions of the assessee. Basically, the ld.CIT(A) has confirmed the addition by relying on the order of the ITAT, Ahmedabad in ITA No.2447/Ahd/2016 in the case of Pavankumar M. Sanghvi Vs. ITO. The ld.CIT(A) has reproduced this....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... It was in this backdrop that the assessment was reopened. During the ensuring reassessment proceedings, the assessee was confronted with this information but he had nothing to say. He did, at the fag end of assessment proceedings, filed the loan confirmations, copies of ledger account and other supporting evidences to justify the transactions. The Assessing Officer, however, was not satisfied. He noted that the assessee had nothing to say on the specific questions put to him on genuineness of these transactions He was thus apparently of the view that mere filing of balance confirmation and details of existence of the creditors does not show that the transactions are genuine. It was in this backdrop that the Assessing Officer proceeded to make addition of Rs. 20,00,000 as unexplained credits. The Assessing Officer also noted that the assessee had claimed deduction in respect of the interest payments, in respect of these alleged unsecured loans, aggregating to Rs. 3,66,041, but since the loan transactions were treated as not genuine, the interest was also liable to be disallowed. He thus disallowed deduction in respect of the interest deduction as well. Aggrieved by the sta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sons to reject bonafides of these loan transactions. It is then submitted that the loan transactions were by cheques, which is duly evidenced from the bank statements of the lenders as filed by the assessee, copies of loan confirmations and statements of accounts were duly filed by the assessee, the accounts of the lenders were duly audited under section 44AB, and that the initial onus of demonstrating the bonafides of loan transactions was duly discharged by the assessee. Learned counsel then referred to Hon'ble Supreme Court's judgment in the case of Kishanchand Chelaram Vs CIT [(1980) 125 ITTR 713 (SC)] in support of the proposition that the income tax authorities could not rely upon any statement which has not been confronted to the assessee and in respect of which the assessee has not been given opportunity to cross examine. Learned counsel for the assessee also referred to certain discrepancies pointed out by the CIT(A) and made an effort to demonstrate that these discrepancies are factually incorrect. A reference was then made to Hon'ble Bombay High Court's judgment in the case of H R Mehta Vs ACIT (ITA No. 58 of 2001; unreported judgment dated 30th June 2016....
X X X X Extracts X X X X
X X X X Extracts X X X X
....proceedings, the assessee asked for the statement of PKJ or expressed the desire to cross examine PKJ. Even the fact of the alleged lenders being in the business of giving accommodation entries was duly put to the assessee during the assessment proceedings, by way of note sheet entries, and the assessee had nothing to say on this point during the assessment proceedings. In any case, irrespective of the statement of Praveen Kumar Jain, the onus is on the assessee to demonstrate that the loan transactions are genuine, in the normal course of business, and bonafide. This onus has not been discharged by the assessee. It is also submitted that the alleged lenders are shell entities, and, in the case of shell entities, it is not the completion of paper work but genuineness of transactions which is crucial. My attention is then drawn to the apparent inconsistencies in the version put by the assessee. I am urged to disregard the make believe documents filed by the assessee and uphold the findings of the authorities below. In his brief rejoinder, learned counsel reiterated his submissions and submits that the legal contentions advanced by him remain uncontroverted. He also submits ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... incorrectness of the original statement of PKJ but all that the assessee states is that this statement in subsequently retracted. It is also interesting to note that, as has been observed in the assessment order at page 2, the income tax authorities had, during the search operations on PKJ group, also recorded a statement of Nilesh Parmar, proprietor of Mohit International and the person who looked after the accounting and all other matters of Natasha Enterprises, but neither the assessee disputes nor raises any issues about it. There is no suggestion about retraction of this statement either. The assessee has filed an affidavit dated 27th February 2017 of Nilesh Parmar, claiming bonafides of assessee's transactions with Mohit International, but neither there is any issue about cross examining him nor any mention of retraction, if any, of his confessional statement. The assessee has so much of an access to these lenders that he is able to produce their bank accounts, their year end financial statements and even all the audit reports, but he is unaware of the statement these lenders made to the income tax authorities and yet he is not in a position to produce the parties or eve....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncerned, it consists of assessee's inability to satisfy the Assessing Officer about all the three essential ingredients of a credit entry in the books of accountsexistence of the lender, ability of the lender to advance funds in question, and, above all, genuineness of the transaction. There is no dispute about the basic legal position about section 68 which provides that where any sum is found credited in the books of accounts of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and sources thereof, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as income of the assessee of that previous year. The expression 'nature and source' appearing in section 68 has to be understood as a requirement of identification of source and its genuineness. It is also a settled legal position that the onus of the assessee, of explaining nature and source of credit, does not get discharged merely by filing confirmatory letters, or demonstrating that the transactions are done through the banking channels or even by filing the income tax assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to legitimise illicit monies and evade taxes, that takes it actions beyond what is legally permissible. These entities have every semblance of a genuine business- its legal ownership by persons in existence, statutory documentation as necessary for a legitimate business and a documentation trail as a legitimate transaction would normally follow. The only thing which sets it apart from a genuine business entity is lack of genuineness in its actual operations. The operations carried out by these entities, are only to facilitate financial manoeuvring for the benefit of its clients, or, with that predominant underlying objective, to give the colour of genuineness to these entities. These shell entities, which are routinely used to launder unaccounted monies, are a fact of life, and as much a part of the underbelly of the financial world, as many other evils. Even a layman, much less a Member of this specialized Tribunal, cannot be oblivious of these ground realities. 9. I have noted that the assessee has received an amount of Rs. 10,00,000 from Natasha Enterprises on 12th August 2006, and, as a plain look at the Canara Bank statement of the lender, which is placed at pages 40 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....statement is placed before me. On 23rd March 2007, for example, the opening balance is Rs. 1,36,611 and there are huge debits and credit entries on 23rd and 24th March, aggregating to almost Rs. 4 crores on debit as also credit, and the closing balance at the end of 24th March is Rs. 85,991. On a turnover of Rs. 127.87 crores, the profit is less than 0.09% resulting in tax outgo of Rs. 2,96,218. To effect this scale of operations, the lender incurs no travelling or telephone expense, and entire expenses of the business, except on brokerage and assortment of diamonds, are less than Rs. 5 lakhs in the year. Interestingly, in today's world where an average human being, much less a business organization, can live without telephones, this business entity has prospered without a rupee spent of telephones. The level of turnover and the expenditure incurred on achieving such high turnover do not match at all. The numbers do not add up and the details filed in respect of these lenders do not convince me that the lenders are routine businesses. Given this background the assessee's inability to produce the related persons or even give their current whereabouts makes the story of genui....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ficial in my approach in case I donot examine the claim of the assessee on the basis of documents and affidavits filed by the assessee and overlook clear the unusual pattern in the documents filed by the assessee and pretend to be oblivious of the ground realities. As Hon'ble Supreme Court has observed, in the case of Durga Prasad More (supra), ".....it is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... binding law. It is not of scriptural sanctity but of ratio-wise luminosity within the edifice of facts where the judicial lamp plays the legal flame. Beyond those walls and de hors the milieu we cannot impart eternal vernal value to the decisions, exalting the precedents into a prison house of bigotry, regardless of the varying circumstances and myriad developments. Realism dictates that a judgment has to be read, subject to the facts directly presented for consideration and not affecting the matters which may lurk in the dark". Genuineness of transactions thus cannot be decided on the basis of inferences drawn from the judicial precedents in the cases in which genuineness did come up for examination in a very limited perspective and in the times when shell entities were virtually nonexistent. As the things stand now, genuineness of transactions is to be examined in the light of the prevailing ground realities, and that is precisely what I have done. In my considered view, and for the detailed analysis set out earlier in this order, the alleged loan transactions of the assessee cannot be held to be genuine on the peculiar facts and circumstances of this case. As ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent of Hon'ble Gujarat High Court in the case of Pr.CIT Vs. Tejua Rohitkumar Kapadia rendered in Tax Appeal No.691 of 2017. He further contended that in the case of Tejua Rohitkumar Kapadia(supra), SLP of the Department has also been dismissed by the Hon'ble Supreme Court. 8. On the other hand, the ld.DR relied upon orders of the Revenue authorities. He contended that order of the ITAT relied upon by the CIT(A) has also been upheld by the Hon'ble Gujarat High Court as well as Hon'ble Supreme Court. 9. The ld.counsel for the assessee also contended that he was not allowed to cross-examine Shri Rajendra Jain, and therefore, his statement cannot be relied upon by the AO. 10. I have duly considered rival contentions and gone through the record carefully. A perusal of the assessment order would indicate that the AO has not basically relied upon the statement of Shri Rajendra Jain or any other persons for doubting the transaction of the assessee. He only confronted the assessee that the Department was able to lay its hand on the information that these concerns were indulging in providing accommodation entries. They were not having actual business. This is one of the facets of tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tation as necessary for a legitimate business and a documentation trail as a legitimate transaction would normally follow. The only thing which sets it apart from a genuine business entity is lack of genuineness in its actual operations. The operations carried out by these entities, are only to facilitate financial manoeuvring for the benefit of its clients, or, with that predominant underlying objective, to give the colour of genuineness to these entities. These shell entities, which are routinely used to launder unaccounted monies, are a fact of life, and as much a part of the underbelly of the financial world, as many other evils. Even a layman, much less a Member of this specialized Tribunal, cannot be oblivious of these ground realities. 11. I have examined the evidence submitted by the assessee in the light of the above discussion, and find that only evidence possessed by the assessee is that payment to the alleged seller was made through banking channel. Payment through banking channel cannot be sacrosanct in all conditions. It has its own limitation to prove genuineness of the transaction. It is one of the basic conditions for making accommodation entries that payment sh....