TaxTMI 
TaxTMI 
TaxTMI 
2022 (2) TMI 219
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.....A and assessee is one of the beneficiary in the group. 2. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in deleting the addition of Rs. 2,02,07,402/- made on account of bogus capital created by the assessee in the hands of various parties ignoring the fact that the assessee which shows that the entire bogus capital was declared as income of the Shri Mohan D Patel before the settlement commission. 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the addition of Rs. 90,000/- made on account of unexplained gifts ignoring that assessee has failed to prove with documentary evidence that the alleged gifts were received from the persons who were among the parties owned up by Shri M.D. Patel before the settlement commission." 2. Brief facts of the case are that a survey action under section 133A was carried out on the premises of assessee group and one Chartered Accountant, namely Pankaj Danawala at Surat on 11.03.2005. During survey action Pankaj Danawala was found to have created a large number of bogus capital in the name of various parties (154 parties) by adopting modus operandi in ....
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....ted in the hands of 43 out of 154 persons. There is no funds transfer from 43 persons to the assessee in the current year. Further it was held that in absence of fund for accommodation entry in the form of gifts, loan and there is no reason to tax the fictitious capital created in case of other taxpayer in the hands of assessee. 4. The ld CIT(A) further recorded that it was submitted before him that creation of capital is mere paper creation and not backed by real asset. The unaccounted money of group is routed to them only when the bogus capital is created is utilized for accommodation entries in the form of gifts or loans. And those similar additions in group cases of out of 154 parties were deleted by Tribunal by accepting the theory that mere paper creation entry cannot be taxed. The ld CIT(A) quoted the relevant part of decisions of Tribunal in his order at page No. 14 &15 in ITA No. 3382/Ahd/ 2008/SRT dated 07.09.2018in ACIT Vs Chandulal A. Shah ("tying mistake in impugned order as ITA No. 3382/Ahd/2018") and in Alkaben Guru and Krihan Lal Rana dated 28.03.2018 in ITA No.885 &1506/Ahd/2013. On the basis of the aforesaid decision the ld CIT(A) deleted the addition of Rs. 2,02....
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....taking entry form these files in regular books of accounts of the beneficiaries, who are the members of M D Group. The ld AR for the assessee further submits that these 154 parties were owned by M D Patel, while filing petition before ITSC and utilisation out of the capital so created is considered by him while calculating his additional income which is offered in his settlement petition. The current status of the settlement petition is that it is pending before Hon'ble Bombay High Court as it was abated on some technical reason and stay has been granted by High Court. The ld AR for the assessee submits that in similar appeals of MD Patel Group wherein similar additions were made on the basis of survey action, the additions have been deleted by the Tribunal by holding the assessee has not earned such income though the action to increase the capital was carried out. The ld AR further submits that Surat bench of Tribunal in Alkaben Amrutram and Kanchanlala Rana in ITA No. 885 & 1506 /Ahd/2013 has set aside the similar case to the file of AO to verify the issue of capital crated in these cases. In pursuance of direction of the Tribunal, the AO verify the issue of bogus capital formati....
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....e assessee is real beneficiary of such capital creation. The ld CIT(A) deleted the entire additions by taking view that that M D Patel filed petition before the Income Tax Settlement Commission (ITSC) for settlement of dispute with department. The said amount is separately added by AO in the hand of assessee. The ld CIT(A) held that the AO made addition of fictitious capital created in the hands of 43 out of 154 persons in the hand of assessee. There is no funds transfer from 43 persons to the assessee in the current year and in absence of fund for accommodation entry in the form of gifts, loan and there is no reason to tax the fictitious capital created in case of other taxpayer in the hands of assessee. 11. The ld CIT(A) while deleting the additions recorded that it was submitted before him that creation of capital is mere paper creation and not backed by real asset. The unaccounted money of group is routed to them only when the bogus capital is created is utilized for accommodation entries in the form of gifts or loans. And those similar additions in group cases of out of 154 parties were deleted by Tribunal by accepting the theory that mere paper creation entry cannot be taxed....
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.... of accounts was that of Shri Pankaj Danawala, about which a layman is not competent enough and cannot be expected to understand the implication and consequences of such an act. The ld. A.R. submitted that fictitious entries were neither supported by any independent corroborative evidence nor such capital was utilized, therefore, the view taken by the Learned Commissioner of Income Tax(Appeals) be upheld. 8. Having heard both the sides, we have carefully gone through the orders of authorities below. It is pertinent to note that the Assessing Officer, in the assessment order, himself observed that "considering the admission made by the Mohanbhai Dhanjibhai Patel Group, this is required to be taxed in the hands of Mohanbhai Dhanjibhai Patel substantively alongwith the enhanced capital of Rs. 15,00,000/- altogether which works out to Rs. 15,00,000/- and on protective basis in the case of the assessee". This clearly indicates that the Assessing Officer himself was not sure whether this income of Rs. 15,00,000/- is earned and actually belonged to the assessee. The assessee has filed an affidavit before the Assessing Officer. From the perusal of the same and after considering the total....
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.... there is no justification in making addition of Rs. 17,00,000/- in each case, which is deleted. The assessees' appeals are thus allowed." 14. Now adverting to the facts of the present case the ld CIT(A) in his finding has clearly held that there is no funds transfer from 43 persons to the assessee in the current year and in absence of fund for accommodation entry in the form of gifts, loan and there is no reason to tax the fictitious capital created in case of other taxpayer in the hands of assessee. Thus, in view of above factual and legal discussions and keeping in view of the decisions of Tribunal in various case of assessee's group we affirm the order of the ld CIT(A). 15. We further find one more reasons to affirm the order of ld CIT(A) that the AO in case of Alkaben Amrutram and Kanchanlala Rana (supra) which were restore by Tribunal to the file of AO to verify the issue of capital crated in these cases and in pursuance of direction of the Tribunal, the AO verified the issue of bogus capital formation and completed the assessment without making additions of bogus capital created and accepted the similar version of those assessee. Thus, ground No.1 & 2 of the revenue is....
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....p; 2001-02 Gift received assessment order passed u/s 143(3) /147 dated 31.12.2008 90,000 By AO in assessment order passed u/s 143(3) rws 254 dated 22.05.2019 Kirit M Patel 2000-01 Gift received, assessment order dated 29.12.2006 90,000 ITSC vide its Order dated 18.11.2018 u/s 245D(4) 2001-02 Gift received, assessment order u/s 143/147 dated 29.12.2008 90,000 By CIT(A) in order passed u/s 250 rws 254 dated 14.03.2018 Arvind Patel HUF 2000-01 Gift received, assessment order u/s 143/147 dated 29.12.2008 90,000 ITSC vide its Order dated 08.11.2017 u/s 245D(4) 2001-02 Gift received, assessment order u/s 143/147 dated 29.12.2008 90,000 ITSC vide its Order dated 08.11.2017 u/s 245D(4) M D Creation 2002-03 Partners capital introduction order, assessment passed u/s 143 dated 31.12.2007 13,15,000 By AO in assessment order passed u/s 143(3) rws 254 dated 12.06.2019 Priyangaben Patel 2000-01 Gift received, assessment order u/s 143/147 dated 29.12.2008 By AO in assessment order passed u/s 143(3) rws 254 dated 24.06.2019 18. On the basis of aforesaid details the ld AR for the assessee submits that since utilisation i....