TaxTMI 
TaxTMI 
2021 (5) TMI 293
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.....2 The ground raised by the assessee read as under: - 1. On the facts and in the circumstances of the case, the Ld Commissioner of Income Tax (Appeals) - 52, Mumbai ("herein after referred to as the CIT (A)) has erred in confirming the addition of Rs. 3,50,00,000/- as unexplained cash credit u/s. 68 in respect of amount received during the year as share capital and premium from M/s. Vanguard Jewels Ltd, Ansh Merchandise Pvt Ltd., Alka Diamond Industries Ltd & Talent Infoway Pvt Ltd. 2. The appellant company being aggrieved, prays that the addition of Rs. 3,50,00,000/- on account of unexplained cash credit u/s. 68 being unwarranted, illegal, bad in law be deleted. 3. On the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs. 3,50,000/- out of Rs. 3,50,00,000/- as unexplained cash credit u/s. 68 on mere estimation basis that some commission must have been paid for securing accommodation entry. 4. The appellant company being aggrieved, prays that the addition of Rs. 3,50,000/- on account of unexplained cash credit u/s. 68 being unwarranted, illegal, bad in law be deleted. 1.3 The ground raised by the....
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....t commission in various forms to other companies. In assessee's case, it was alleged that the assessee also introduced share capital and share premium in its books of accounts in various years through accommodation entries as provided by Shri Praveen Kumar Jain and his associated group companies. 3.3 Similar search was carried out in the case of another entry provider namely Shri Mukesh Chokshi on 27/02/2014 wherein similar admission of indulgence in accommodation entries against commission were made. 3.4 It was alleged by Ld.AO that during the year under consideration, the assessee introduced share capital and share premium of Rs. 20 Crores in its books of accounts through accommodation entries from the tainted group's 21 entities as detailed below: - No. Name of the Companies Amount 1. M/s. Alka Diamond Industries Ltd. 100 Lacs 2. M/s. Dreamland Plaza Ltd. 100 Lacs 3. M/s. Gravity Barter Pvt Ltd. 100 Lacs 4. M/s. Handsome Sales Pvt. Ltd. (M/s. Murlidhar Sales Pvt. Ltd.) 40 Lacs 5, M/s. Stocknet International Ltd. 200 Lacs 6. M/s, Vangaurd Jewels Ltd. 100 Lacs 7. M/s. Ansh Mercantile Pvt. Ltd. (M/s. Newpla.net Trading Co. Pvt. Ltd.) 100 Lacs 8. M/s. Cas....
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....oup concern i.e. M/s Sahakar Infracon Projects Private Ltd. Lastly, the director agreed to offer these accommodation entries to tax in respective years in which the same were introduced in the books of accounts. The details of shares capital so received by the assessee in various years has already been tabulated in para 6.3 of the assessment order. The detail for this year has already been tabulated by us in preceding para 3.4. 3.8 On the basis of aforesaid facts, following conclusions were drawn by Ld. AO: - In view of above acceptance by Shri Kishore P. Agarwal, MD of M/s Sahakar Global Limited and statement of Shri Mukesh M. Chokshi recorded during the course of search action and pre-search enquiries, it strengthens the stand that companies from whom M/s Sahakar Global Limited has taken share application money is just accommodation entries and this share application money is actually the cash generated from the business of Sahakar Global Ltd. and on-money received on sale of flats booked in Sahakar Heights project built by assessee's sister concern Sahakar Infracon Pvt. Ltd. which has been brought back into the books of accounts of the assessee company through thee accommodat....
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.... entities, establish their creditworthiness and also the genuineness of the transactions, the aforesaid sum was added to assessee's income u/s 68 as unexplained cash credit. 4. Assessee's Submissions during Appellate Proceedings 4.1 During appellate proceedings, the assessee, inter-alia, submitted that at the time of search operation on 27/02/2014, it had cash-in-hand as per cash book for Rs. 12.94 Crores approx. However, the actual cash as found during the search operation was Rs. 32.49 Lacs only. The said cash-in-hand for Rs. 12.94 Crores, as per books of accounts, was duly entered in to cash book by crediting toll receipts account which ultimately got reflected by way of credit to Profit & Loss Account. Out of the said cash-in-hand of Rs. 12.94 Crores, a sum of Rs. 9 Crores was used in various years to obtain cheques for share capital / share premium from various parties from time to time. The sum of Rs. 3.50 Crores was stated to be so received during this year from 3 entities listed at serial nos. 17 to 19 of table extracted in preceding para 3.4. These entities were:(i) M/s Oshin Investment & Finance Pvt. Ltd. (Rs. 90 Lacs); (ii) M/s Albatross Share Registry Pvt. Ltd. (Rs. 1....
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....ns stood discharged. The adverse statement of tainted group as used by Ld. AO against the assessee was never provided to the assessee and no cross-examination was granted despite specific request by the assessee to Ld. AO vide letter dated 15/02/2016. The failure to do so grossly breached the principles of natural justice which would make the additions fatal in the eyes of law as per the decision of Hon'ble Apex Court in Kishanchand Chellaram V/s CIT 125 ITR 713 and also in M/s Andaman Timber Industries V/s CCE (CA No.4228 of 2006) which held that not allowing the assessee to cross-examine the witnesses by the adjudicating authority though the statement of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity in as much as it amounts to violation of principal of natural justice because of which the assessee was adversely affected. Similar ratio was stated to be followed by Hon'ble Bombay High Court in R.W. Promotions Private Ltd vs. ACIT (ITA No.1489 of 2013). 4.5 Refuting Ld. AO's allegation of buy back, the attention was drawn to the fact that there was no buy back of shares and the shareholders continue to be the shareholders ....
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.... addition. Similar was the view of Hon'ble Delhi High court in CIT V/s Vrindavan Farms (P) Ltd. (ITA No. 71/2015 dated 12/8/2015). Further, in terms of decision of Hon'ble Apex Court in CIT V/s Lovely Exports (P) Ltd. (2008 216 CTR 195), the department could not proceed against the assessee but it could proceed against the alleged doubted subscribers. 4.9 In the above background, it was submitted that since the assessee produced sufficient documentation to discharge initial onus of showing the genuineness and creditworthiness of the share applicants, it was obligatory for Ld. AO to have undertaken some inquiry and investigation before coming to a conclusion that the transactions were not genuine. Where the complete particulars of the share applicants was furnished to the AO and the AO fails, no addition could be made in the hands of assessee u/s 68. 4.10 Keeping in view the submissions made by the assessee refuting allegations leveled by Ld. AO, various opportunities were provided to Ld. AO to attend the appellate proceedings and furnish a report whether these letters / replies received from the investor entities were indeed filed by them. However, despite various opportunities,....
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....nted to Ld. AO, however, as noted earlier, Ld. AO failed to attend the hearing and did not file any reply despite various reminders by Ld. CIT(A). The same led the Ld. CIT(A) to adjudicate the issue on the basis of material on record. Upon perusal of documentary evidences, it was noted by Ld. CIT(A) that these entities had, in fact, responded to notices issued by Ld.AO u/s 133(6) as well as summons issued u/s 131. These entities had duly furnished their respective return of income, financial statements, copy of PAN card, Memorandum & Article of Association, source of investments, allotment letter and copy of bank statement etc. to Ld. AO to confirm the transactions. It was stated by all of them that there was no buyback of shares and the investments were sourced out of company's funds. They also submitted purchase details of shares. The ROC website reflected the status of these companies as 'active'. Their Balance Sheet, Profit Loss account and Auditors' report was available on ROC website. The Ld. CIT(A), upon perusal of all these documentary evidences, concurred with assessee's submissions that these entities did not belong to the tainted groups. They had duly confirmed th....
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.... course of assessment proceedings to nail it. Since, apparently no incriminating evidence has been found in respect of the above mentioned 12 entities during the course of search nor any evidence was gathered by Ld. AO later during the course of assessment proceedings, he could not make additions simply on the basis of statements. Hence, the impugned addition against these entities was to be deleted. 5.4 Regarding balance addition of Rs. 3.50 Crores stated to be received from 3 entities (listed at serial nos. 17 to 19 of table in para 3.4) belonging to Shri Mukesh Chokshi Group, it was the submissions of the assessee that investments were sourced out of cash-in-hand held by the assessee in its books of accounts. Since, the cash was duly accounted for in the books of account, addition so made would amount to double taxation and would be against the principles of taxation. Even Ld. AO, in para 6.5 of the assessment order accepted that share application money was in the nature of accommodation entries sourced out of cash generated by the assessee. Upon perusal, Ld. CIT(A) concurred with the submissions that cash-in-hand, on the date of search, as per assessee's books of accounts was....
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.... 6.1 Upon careful consideration of factual matrix as enumerated in preceding paragraphs as well as after perusal of material on record including orders of lower authorities, we find that the assessee group was subjected to search action on 27/02/2014 which was triggered on the basis of pre-search enquiries conducted by the department that the assessee received accommodation entries from various concerns being run /operated by Shri Pravin Kumar Jain Group and Shri Mukesh Choksi Group. It was the allegations that the shares were bought back in subsequent years. During search operations, the director of the assessee-company, made admission of the fact that the assessee obtained accommodation entries partly by exchanging cash generated from toll business as well as partly out of 'on-money' generated by assessee's sister concern i.e. M/s Sahakar Infracon Projects Private Limited from realty business. The key person of the assessee agreed to offer the said amount in various years to tax. However, the said statement was retracted immediately upon receipt of copies of statement from the department on 12/12/2015. The retraction as filed vide letter dated 28/12/2015 (as placed on record) is....
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....where in dispute. There is nothing contrary on record to dispute this fact. This being so, considering the allegation of the Ld. AO that accommodation entries were sourced out of cash generated by the assessee in its toll business coupled with surrounding facts and circumstances, it could safely be presumed that the cash shortage arose due to the fact that cash was given to entry providers against cheques received from them. However, once the same has been sourced out of cash held by the assessee in its books of accounts, the same could not be treated as unexplained money of the assessee since the cash would be generated only out of toll receipts credited by the assessee in its books of accounts. In other words, it could not be said that the entries were sourced from cash generated out of the books and therefore, the entries to that extent could not be said to be unexplained money of the assessee. This is further fortified by the undisputed fact that the entries of Rs. 9 Crores have subsequently been reversed by the assessee, in its books of accounts, in financial year 2013-14. We concur with the findings of Ld. CIT(A) finding, in this regard, as rendered in the impugned order. 6.....
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....cted. Similar ratio was stated to be followed by Hon'ble Bombay High Court in R.W. Promotions Private Ltd vs. ACIT (ITA No.1489 of 2013). Further, no addition could be made merely on the basis of suspicious, conjectures or surmises as held by Hon'ble Supreme Court in Omar Salay Mohamed Sait V/s CIT (1959 37 ITR 151) wherein it was held that the suspicion however strong could not partake the character of legal evidence as held by Hon'ble Supreme Court in Umacharan Shaw & Bros. V/s CIT (1959 37 ITR 271). In the above background, it could be seen that Ld. CIT(A) has trifurcated the investor entities into three categories- (i) entities not belonging to tainted group with respect of whom no incriminating material was found during search; (ii) entities belonging to tainted group where cash was exchanged in lieu of accommodation entries; (iii) entities belonging to tainted group which was confirmed on the basis of appellate order for AY 2009-10; We proceed to deal with each category of investor entities as follows:- 6.6 Entities not belonging to tainted group with no incriminating material The addition with respect to first category of investor entities has been deleted by Ld. CIT(A) i....
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....to these entities. We order so. Resultantly, the grounds raised by the revenue, in this regard, stand dismissed. 6.7 Entities belonging to tainted group where cash was exchanged The second set of entities comprises-off of 3 entities belonging to Shri Mukesh Chokshi Group. From the factual matrix, it is quite evident that cash was given to these entities out of cash-in-hand held by the assessee in its books of accounts. The cash was generated out of cash intensive toll business carried out by the assessee. In such a case, the same could not be treated as unexplained money of the assessee since the cash would be generated only out of toll receipts credited by the assessee in its books of accounts. In other words, it could not be said that the entries were sourced from cash generated out of the books and therefore, the entries to that extent could not be said to be unexplained money of the assessee. This is further fortified by the undisputed fact that the entries of Rs. 9 Crores have subsequently been reversed by the assessee, in its books of accounts, in financial year 2013-14. Therefore, on the facts and circumstances, the Ld. CIT(A), in our considered opinion, has rightly estima....
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....ncial statements, source of investments, copies of Memorandum & Articles of Association, details of directors, basis of investment, details of purchase of shares, allotment letter etc. They have confirmed that there was no buy back of shares. These entities are not listed as entities to whom the cash is stated to have been paid by the assessee in exchange of accommodation entries. Therefore, the allegations of lower authorities would have no legs to stand. Consequently, the addition in AY 2009-10 stand deleted. The assessee's appeal for AY 2009-10 stands allowed. Similar is the position in this year. The Ld. CIT(A) has relied upon appellate order for AY 2009-10 while confirming the additions in this year. Therefore, since additions have been deleted by us in AY 2009-10, the addition in this year also stand deleted except for entity listed at serial no.1 i.e. M/s Alka Diamonds Industries Ltd. since this entity is tabulated as en entity from whom accommodation entries have been obtained in lieu of cash. The addition against this entity is sustained to the extent of 1% of Rs. 100 Lacs which comes to Rs. 1 Lacs. The balance addition of Rs. 349 Lacs stands deleted. 7. The assessee's a....
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....matter of assessment u/s 153A since it was not a case of abated assessment. Therefore, in the absence of any incriminating material with respect to this entity, this addition is not sustainable in the eyes of law. By deleting the same, we allow the assessee's ground, to that extent. 8.8 The fourth category of investors for Rs. 100 Lacs comprise-off two associated entities of the assessee group (M/s Atharva Business Private Limited & M/s Viraj Mercantile P. Ltd.). The addition has been confirmed by Ld. CIT(A) by observing that there is no concrete proof that the on-money of M/s Sahakar Infracon Projects Private Limited has gone towards receipt of share application money. However, we find that there are no evidence of cash exchange between the assessee and these two entities. Rather this cash has been sourced out of 'on-money' received by M/s Sahakar Infracon Projects Private Limited which is altogether separate entity. Therefore, this money could not be treated as assessee's unexplained money. Hence, we are inclined to delete the same. 9. Consequently, the assessee's appeal for AY 2012-13 stands partly allowed whereas the revenue's appeal stand dismissed. 10. Cross-Appeals for AY....