TaxTMI 
TaxTMI 
TaxTMI 
2019 (6) TMI 543
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....tion entries through cheque in lieu of cash. Accommodation entries were provided to various beneficiary companies/ entities through a number of papers/dummy companies. Cash received from the beneficiaries was routed through paper companies and these dummy companies were managed and controlled by Shri S.K.Jain and Shri Virendra Jain. The accommodation entries were provided by way of share capital, share application money and commission charged was from beneficiaries for providing such accommodations entries. The Investigation Report detailing the modus operandi adopted by the entry operators has been reproduced by the AO in the assessment order which gives complete details showing receipt of accommodation entry by the assessee from entry providing companies, amount of entries, bank account and cheque details and money of middle men instrumental in managing the entries for the beneficiaries, i.e., the assessee. 3. As per information provided by investigation wing, the Assessing Officer noted that the assessee has obtained accommodation entries amounting to Rs. 56,00,000/- from S. K. Jain group of companies as below :- MANNAT HOSPITALITY P. LTD. CHEQUE BOOK ENTRIES Date From ....
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.... incriminating seized documents are selfspeaking and give graphic picture of the modus operandi adopted by the parties involved. It is quite disturbing to note the ease with which the assessee has been conducting its affair by laundering its unaccounted money at: into regular transactions. The law allows the Assessing Officer to lift the corporate veil to unmask the real from the apparent and also to go behind the transaction to understand their true import. The law also allows the authorities to test the transactions on a touches tone of human probability to arrive at a conclusion which the rationale mind would arrive at. After going behind the transactions on paper and after lifting the corporate veil, as discussed in earlier paragraphs, it has been proved that the apparent was not real. 11.3 I conclude therefore, in view of the foregoing discussion that a sum of Rs. 56,00,000/- credited in the books of account of the assessee fails to pass the test of genuineness within the meaning of Section 68 of the Act and is held to be the income of the assessee u/s 68 of the Income Tax Act, 1961 and is added to its income. (Addition of Rs. 56,00,000/-) 6. The Assessing officer furth....
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....ficer of the assessee (person other than the search person) cannot be compelled to pursue the remedy u/s. 153C of the IT Act. 11. So far as the addition on merit of the case is concerned, the Ld. CIT(A) also upheld the action of the Assessing Officer by observing as under :- 5.2 The revised ground of appeal No. 3 challenges the addition of Rs. 56,00,000/- under section 68. The revised ground of appeal No. 4 challenges the addition of Rs. 1,08,000/- o account of commission paid. Since these grounds of appeal are interlinked, these are being adjudicated together. 5.2.1 On the issue of addition under section 68 on account of unexplained credit of Rs. 56,00,000/- and commission at the rate of 1.8%, I have considered the facts of the case, the basis of addition made by the AO and the submissions of the appellant. As noted above, the reason to believe that income has escaped assessment in this case emanates from a search/seizure action under section 132 which was conducted at the residential and business premises of Shri S.K. Jain and Shri Virendra Jain by Investigation Wing, New Delhi resulting into seizure of a large number of incriminating documents during the course of search....
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....has been examined and it is seen that instead of supporting the case of appellant, these documents only reinforce the findings of the AO which are based on the facts and circumstances of the case alongwith deep and wide Investigation carried out by the Department in the case of Shri S.K. Jain and Shri Virendra Jain group of cases as these documents are in tune with modus-operandi through which accommodation entries have been provided by the said group. 5.2.4 From the analysis of their financial statements it is apparent that the companies which have given share capital to the appellant company are dummy companies having substantial share capital & reserve created by manipulations with the sole motive of providing accommodation entries, bank statements of the companies clearly show that huge amount of money is transferred to the company only to be immediately transferred to the bank accounts of the beneficiaries. For instance, from the bank statement of Manimala Delhi Properties Pvt. Ltd. (page 28 of the paper book) it is seen that an amount of Rs. 16,03,000/- was received from Tulika on 12/01/2009 and on the same day, i.e., on 12/01/2009, an amount of Rs. 16,00,000/- is shown to....
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....vert to the facts of the case before us. The assessee before us is a private limited company which is, by law, prohibited from offering its securities for subscription by general public. It cannot, therefore, be really open to the assessee to say that we have no clue about who the subscribers to the share capital are; these cannot be rank outsiders or walk in subscribers- as perhaps in the cases of public limited companies. Yet, all that the company has to offer, to establish genuineness of transactions of subscribing to the shares, are the bank statements. The assessee is not able to produce the brains behind these companies and the documents with respect to the their financials either. As for the other documents, these documents have to be there for issuance of share capital anyway- genuine subscription or not so genuine subscription. Genuineness of a transaction cannot be demonstrated on the basis of these documents. The assessee has not been able to produce the principal officers of these entities, but then, given the way the facts about these entities have unfolded, the reasons for the limitations of the assessee are not difficult to seek. As per decisions of this Tribunal fil....
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....ent to some other company. On 25th June and 28th June, it is the same story again though the amounts or debits and credits are Rs. 15,00,0000 and Rs. 10,00,000 respectively. As regards the other bank account of Geefcee in ABN Amro Bank is concerned, the situation is no better. On 3rd June, i.e. opening day of this bank statement, there is a credit balance of Rs 5,742.32. On June 9, there are deposits of Rs. 20,10,000 and, on the same day, a payment of Rs 20,15,000 is made leaving a balance of less than Rs. 1,000. On 11th June, there are deposits of Rs. 10,00,000 and on the same day, there is a payment of Rs 10,00,000. On 16th June again, it is the same story but the amount is now Rs. 20,00,000. On other dates in the ABN Amro Bank statement, as given to us, is the same story. What do we conclude from these statements? The overnight balance in the bank accounts are of small amounts and the payments made from these accounts are almost at the time of making payment are transferred front other sources, for which no explanation is available. This is typical of a situation in which the bank accounts are used as a conduit to launder the ill gotten money. It is impossible for even a layman,....
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....lays 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 non-existent. 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 we have done. We are of the considered view that there is nothing to establish genuineness of the share subscription transactions on the facts of this case. The assessee does not know anything about these companies or these persons. The assessee has no documents about their financial activities or their balance sheets. The assessee is a private limited company and these en....
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....a Fashion Pvt. Ltd. in ITA No. 1716/ Ahd./2012 dated 18.08.2i relevant, wherein it has been held as under:- "19. From going through all the above judgments and decision, we find that along with evidence surrounding circumstances, human probability and intentional acts are also to be taken note off accepting the identity, creditworthiness and genuineness of the cash creditors which in this case is the applicants. In the case before us we observe that assessee is trying to assert again and again upon the PAN, IT returns, bank statement and confirmations of the impugned 5 parties but has nowhere tried to clarify disclose the fact which has embedded in the financial statement of these 5 parties which speaks in itself they are paper companies. Further if it has been genuine transaction and assessee company is asked to produce the new share holders who have been allotted a substantial portion of equity shares, he would have easily ca upon the investors. The investors could have come along with all the financial documents and could h clarified about his intention to make investment in the equity shares of the company because every investor wants to earn income from investment in the fo....
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....ing Officer were justified and sustainable. 22. We are, therefore, of the view that in the given facts and circumstances of the case and respectfully following the judgments of Hon. Supreme Court, High Court and the decision of Co-ordinate Bench as discussed above, we are of the confirmed view that assessee has been able to just prove the identity of the company but unable to prove the genuineness & creditworthiness of the impugned 5 parties. In the result, the sum of Rs. 3.5 crores has rightly been treated as unexplained money u/s 68 of the Act by the Id. Assessing Officer. We set aside the order of Id. CIT (A) and restore that of the Assessing Officer. We set aside the order of Ld. CIT(A) and restore that of the Assessing Officer. In the result ground no. (i) of Revenue is allowed." 5.2.7 Reliance is also placed on the decision of the Hon'ble Delhi High Court in the case of CIT vs. Navodaya Castles Pvt. Ltd. dated 25/08/2014 in [(2014) 367 ITR 306 (Delhi)], in which SLP filed by the assessee was dismissed[(2015) 230 Taxman 268 (SC)],where it has been held that: "14. Certificate of incorporation, PAN etc. are relevant for purchase of identification, but have their lim....
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....dentity or ascertaining active nature of business activity. PAN is a number which is allotted and helps the Revenue keep track of the transactions. PAN number is relevant but cannot be blindly and without considering surrounding circumstances treated as sufficient to discharge the onus, even when payment is through bank account. 19. On the question of creditworthiness and genuineness, it was highlighted that the money no doubt was received through banking channels, but did not reflect actual genuine business activity. The share subscribers did not have their own profit making apparatus and were not involved in business activity. They merely rotated money, which was coming through the bank accounts, which means deposits by way of cash and issue of cheques. The bank accounts, therefore, did not reflect their creditworthiness or even genuineness of the transaction. The beneficiaries, including the respondent-assessee, did not give any share- dividend or interest to the said entry operators/subscribers. The profit motive normal in case of investment, was entirely absent. In the present case, no profit or dividend was declared on the shares. Any person, who would invest money or give....
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....ir books of account their unaccounted monies through the medium of share subscription, and the assessee . . . The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a premeditated plan-a smoke screen - conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio." 5.2.10 Section 102 of Indian Evidence Act makes it clear that initial onus is on person who substantially asserts a claim. If the onus is discharged by him and a case is made out, the onus shifts on to deponent. It is pertinent to mention here that the phrase "burden of proof" is used in two distinct meanings in the law of evidence viz, 'the burden of establishing a case', and 'the burden of introducing evidence'. The burden of establishing a case remains throughout trial where it was originally placed, it never shifts. The burden of evidence may shift constantly as evidence is introduced by one side or the others. In this case, once the evidence that assessee has obtained accommodation entry was introduced by the AO, the burden of evidence shifted to the assessee. During the assessment proc....
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.... his own proof. He cannot be heard to say that it was too difficult or virtually impossible to prove the matter in question. Since in this case the appellant had made the claim that it had received genuine share application money, all the facts were especially within its knowledge. 5.2.12 In the present case, as discussed above, there is overwhelming evidence that the transaction on which adverse view has been taken was a prearranged transaction under taken with the sole motive to evade tax. All these above-mentioned cases are also applicable to the facts and circumstances of the present case in which the various judicial authorities have decided the cases in favour of revenue after going through the entirety of the facts and circumstances. Hence, in view of the facts and circumstances of the case and legal precedents as discussed above, I am of the view that documents submitted as evidences to prove the genuineness of the transactions are themselves found to serve as smoke screen to cover up the true nature of the transactions. Accordingly, in view of the above discussion and judicial precedents, it is held that AO was justified in making addition of Rs. 56,00,000/- as income o....
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....e is fully explained with reference to the all ingredients as to the identity, credit worthiness and genuineness of the same as required by law by producing credible and verifiable evidences; ii proviso to Sec. 68 is applicable from A.Y. 20113-14 & onwards only, i.e. no retrospective effect; and as such the addition made by the Assessing Officer is purely on surmises and conjectures. That the CIT(A) erred in confirming an addition of Rs. 1,08,000/- as unexplained investment despite the fact that Assessing Officer has completely failed in bringing out any specific material in record for the justification of his assumption for expenditure; That the CIT(A) failed to appreciate that Assessing Officer erred in charging interest u/s 234A / 234B / 234C and 234D of the Act. That CIT(A) erred in not dismissing the ground of initiating penalty proceedings u/s 271 (1)(c) of the Act. That the appellant crave leave to take additional ground or grounds of appeal or to alter or vary any or all the grounds of appeal before or at the time of hearing of the appeal. Total Tax Effect 13. The Ld. Counsel for the assessee referring to the decision of the coordinate bench of the Tr....
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....as held that the practice of conversion of un-accounted money through cloak of Share Capital/ Premium must be subjected to careful scrutiny especially in private placement of shares. Filling primary evidence is not sufficient. The onus to establish credit worthiness of the investor companies is on the assessee. The assessee is under legal obligation to prove the receipt of share capital/ premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the assessee. 19. Referring to the decision of Hon'ble Delhi High court in the case of PCIT Vs. NDR Promoters Private Limited reported in 410 ITR 379, he submitted that the Hon'ble Delhi High Court in the said decision has held that where the transaction in question is sham and make believe with paper work to camouflage the bogus nature, the transaction is to be treated as unexplained credit u/s. 68 of the IT Act. He accordingly submitted that the order of the CIT(A) be upheld both legally and factually. So far as the arguments of the assessee that opportunity of cross-examination was not given he submitted that no such ground has been taken by the assessee. Further it is not fatal ....
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.... case of person searched or covered u/s 153A of the Act, then only recourse was to initiate proceedings under section 153C of the Act and not under section 147 of the Act. At the outset, we do not. find any quarrel to the proposition that the validity of assessment or reassessment cannot be challenged in the revisionary proceedings u/s 263, however, on the facts of the present case, the ratio laid down in such judgments would not be applicable at all, because here in this case no document or material belonging to the assessee was found in the course of search proceedings in the case of S.K. Jain group, albeit assessee's name appears as one of the beneficiaries of accommodation entries in the books of account maintained by one of the concern of S.K. Jain group. The entries in the books of account of S.K. Jain group cannot be reckoned as any material or document belonging to the assessee so as to constitute document or asset seized or requisitioned in the case of person searched in terms of scope of section 153C of the Act. If certain documents or asset: or books of account belonging to the assessee would have been found during the course of search proceedings of S.K. Jain and his gr....