AI Drafter 
TaxTMI 
TaxTMI 
2022 (5) TMI 1094
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....e circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition made on account of bogus unsecured loan of Rs. 1,74,00,000/- as the investigation wing of Kolkata establishes that the loan creditors are accommodation entry provider. 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition made on account of bogus unsecured loan ignoring the facts brought out by AO in the assessment order. 3. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition relying upon the judgement of various courts which are distinguishable on facts, however has overlooked the judgement of Hon'ble Indore Bench of ITAT in case of Agrawal Coal Corporation (P) Ltd. vs Asst. CIT 63 DTR 201 and judgement of Delhi High Court in case of CIT vs N R Portfolio Pvt. Ltd (Delhi High Court) wherein the Hon'ble courts have held that merely because the companies were registered with ROC, were filing return of income , having PAN/Bank accounts etc. did not establish their identity as these companies might have been existing on papers or in real sense at the time of registration ....
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....orded. The documents found during course of survey revealed that various on-monies representing undisclosed consideration on sale of flats were received by the appellant and also the noting of bills, vouchers, etc relating to expenses were found during course of survey. The statement of the partners Mr. Ghanshyam Sompura and Mr. Govind Patel were recorded wherein such partners denied of having received any undisclosed on-money on sale of flats. During course of assessment, the AO issued the show cause notice on proposing to make the addition of the on-money representing undisclosed sale consideration on the flats sold by the appellant. The AO also observed that the appellant has received the unsecured loans from Kolkata based companies which had been held as non-genuine in the assessment order for A.Y-2013-14 and proposed to make the addition of the unsecured loans and consequential disallowance of interest on the loans. The appellant furnished the submissions and documentary evidences before the AO to dispute the allegations of the AO. However, AO was not satisfied with the reply of the appellant and accordingly made the addition of the unsecured loans received during the years an....
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....rguments advanced by Ld. AR. On perusing the documents filed on record, it is observed that the appellant had furnished the PAN, AO details, CIN master data (ROC) to prove the identity of the lenders. The appellant had filed the copies of ledger account, confirmation of account, TDS certificates and own bank statements to justify the genuineness of the loans. The appellant had filed the copies of I.T acknowledgement receipts, balance-sheets and bank statement of the lenders to prove the credit worthiness of the lenders. The appellant had also filed the copies of the TDS certificate issued u/s 194A to justify the interest paid on such loans. The tabular chart filed on record discloses the receipt of the loans through Banking channel and the appellant had even repaid such loans through banking channel along with interest payment after TDS u/s 194A deduction. The appellant had reasonably discharged its onus on furnishing the above stated documentary evidences, thereby proving the identity and credit-worthiness of the lenders and genuineness of the loans. The bank statement of the lenders does not disclose any cash deposits supporting to the loans advanced by such lenders to the appell....
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....eedhata Tower Put Ltd (ITA no. 819 of 2015) and H. R Mehta (ITA no. 58 of 2001) had decided that the source of payer's funds may not be proved. The operating Para of the Hon'ble Bombay High Court's decision is reproduced as under: "In our view in the light of the fact that the monies were advanced apparently by the account payee cheque and was repaid vide account payee cheque the least that the revenue should have done was to grant an opportunity to the assessee to meet the case against him by providing the material sought to be used against assessee in arriving before passing the order of reassessment. This not having been done, the denial of such opportunity goes to root of the matter and strikes at the very foundation of the reassessment and therefore renders the orders passed by the CIT (A) and the Tribunal vulnerable. In our view the assessee was bound to be provided with the material used against him apart from being permitting him to cross-examine the deponents. Despite the request dated 15th February 1996 seeking an opportunity to cross examine the deponent and furnish the assessee with copies of statement and disclose material, these were denied to him. In this vi....
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....68 as income from undisclosed sources CIT(A) deleted addition holding that source of cash creditors was not required to be proved by assessee once identity, capacity and genuineness stands proved ITAT dismissed revenue's appeal Held, all cash creditors had affirmed in their examination that they had advanced money to assessee from their own respective bank accounts Therefore, when there was categorical finding even by AO that money came from respective bank accounts of creditors, which did not flow in shape of money, then, such addition could not be sustained and had been rightly deleted by both two appellate authorities There was no clinching evidence in present case nor AO had been able to prove that money actually belonged to none but assessee himself Action of AO was based on mere suspicion." In the case of DCIT vs. Rohini Builders reported in 256 ITR 360, Hon'ble High Court of Gujarat decided that: "Assessee furnished complete addresses of all the creditors along with GIR numbers/PAN as well as confirmations along with copies of assessment orders passed in the cases of individual creditors, wherever available, and copies of returns filed by the creditors in t....
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....r if such returns were not accepted by their AOs." In the case of CIT vs. Varinder Rawlley reported in 366 ITR 232, Hon'ble High Court of Punjab & Haryana decided that: It has come on record that the Assessee-respondent received the amount by way of an account payee cheque. The amount was returned by way of an account payee cheque. The transactions were reflected in the bank accounts of the Assessee as well as the creditor. It appears that no enquiry was made by the Assessing Authority. If the Assessing Officer had any doubts about the entry, instead of drawing any inference, the Assessing Officer could have summoned the proprietor of the firm. No attempt was made by the Assessing Officer to ascertain the factum of clearance of cheque from the bank and subsequent refund of the amount. Once It is so, in Court's view the Assessee had sufficiently discharged the burden which lay upon it to explain the nature and source of the credit entry appearing in its accounts and the burden clearly shifted in the present case on to the department to prove to the contrary and hold that in spite of the Assessee's explanation, the entries could still be held to represent the Assess....
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....eserves and surplus are there in the balance-sheet of lender entities, arisen out of share premium which amounts for 90% of the total capital base. This fact itself creates a serious doubt about the genuineness and creditworthiness of the lender company where they fetch huge premium along with equity share capital but of no use except deploying them into loans and advances. Out of these loans and advances there is no reasonable income in any form being generated by them? Looking at the facts and surrounding circumstances "A commission u/s 131 of the Act was issued to DDIT (Inv), Kolkata to enquire into the creditworthiness of the said concerns and genuineness of the transactions of unsecured loans advanced to the assessee. 4.4 The DDIT (inv), Kolkata vide a detailed report dated 14.12.2015 stated as follows: "A COMMISSION U/S 131(1) (d) of the Income Tax Act, 1961 dated 14/10/2015 was received by this office to enquire about the genuineness and existence of 22 (twenty two) corporate entities as per the enclosure to your above mentioned letter in connection with the survey conducted u/s 133A in the case of Sai Everest Builders and Developers. Out of the 22 companie....
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....ators and the persons who acted as dummy director controlled by the above entry operators have been recorded earlier in which they have accepted that they are in the business of providing different forms of accommodation entries on commission to various beneficiaries using the network of numerous bogus/ paper companies. Statements of the said accommodation entry operators are being enclosed for your perusal and necessary action. Names of 10 (ten) paper/shell/bogus companies out of the above 15 (fifteen) are reflected in the Said statements which are now available with us. The statements reflecting the names of other 5 (five) companies - Joyprit Hote! Pvt Ltd, Shirdhan Jewellery, Shiv Shakti Comm. Pvt Ltd, Skylight Distributors Pvt Ltd and Sustha Distributors Pvt Ltd are not readily available at this end. However, these five companies are also paper/shell/bogus companies as per the database of Kolkata Investigation Wing. The necessary enquiry may be conducted at your end by checking the list of companies in which different identified dummy directors of the said entry operator are/ have been one of the directors in the case of remaining five companies. The names of such persons who h....
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....nt evidences on 22.12.2017. (b) Mr. Kartikey Shelat, Director of M/s Sustha Distributors Pvt Ltd. attended and his statement of oath was recorded u/s 131 of the I.T. Act. In his statement recorded, it was stated by him that though the company was incorporated in 2004, the company's existence in Maharashtra is from November, 2016 only. This fact proves that the outcome of enquiry as discussed in Para in the case of Sustha Distributors made by the DIT Kolkata (Inv,} in FY, 2015-16 was appropriate and proper. It will not be out of place to mention again that the name of M/s Sustha Distributors Pvt Ltd bearing CIN - U51909WB2004PTC098191 appears at Sl. No. 9605 in the list of Shell Companies issued by competent authority. Apparent could not be considered as real and that when there was no reason to believe that the apparent was not real, the Taxing Authorities were entitled to look into the surrounding circumstances to find out the reality and the matter had to be considered as per such a finding. Accordingly, the entire unsecured loan money was brought to tax by the assessment order. Assessing Officer was entitled to conduct a full-fledged enquiry for as....
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....eived loan money through shell entities and multiple layering of the transfers from one company to another. It will, therefore, be useful to understand as to how the shell entities, which the lenders 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 business entity, used as a vehicle for various financial manoeuvres. A shell entity, by itself, is not an illegal entity, but it is their act of abatement of, and being part of, financial manoeuvring 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. Th....
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....ndry Debtors" figure of sales shown exponential growth from Rs. 2.45 lacs to Rs. 6 Cr., the figures shown in the balance-sheet clearly demonstrates that these are not the real balance-sheets reflecting true and fair view, rather manufactured one. 10. In closely held companies/firm where unsecured loan is raised from close knit circles mostly known to partners/owners, onus required under section 68 is very heavy on such firms to prove identity as well as creditworthiness of lenders and genuineness of transaction; mere submission of name and address of creditor, income tax returns, Balance Sheet/statement of affairs of creditor and bank statement of creditor is not sufficient. "Where lender companies immediately after receiving share capital with huge share premium from several entities in its bank account gave further huge amount of loans and advances to several companies with/without charging any interest and lender companies could not prove financial viabilities of their decisions, it could be said that lender companies are shell companies engaged in money laundering by providing bogus accommodation entries through a web of bank accounts, thus, addition under section68....
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....ained and order of Ld. CIT (A) is set-aside. 14. Ground No. 6 pertains to the addition made by the AO u/s 69A of Rs. 67, 60,000/- of the on-money received on sale of flats by the appellant. During course of Survey u/s. 133A conducted at premises of the appellant on 24.08.2015, a small diary inventoried as "A-3" was found and impounded. The AO had scanned and reproduced the relevant pages of the impounded diary in the assessment order. The AO held that the contents of such pages contained in the impounded diary discloses the entries with the contents "Ch", "Cas" and "Ca" along with the dates and amounts against each such entry. The AO held that the entries recorded in the impounded pages represent the on-money received by the appellant' in Lakhs on sale of the flats. The working partners Mr. Govind Patel and Mr. Ghanshyam Sompura were confronted with the contents of the diary and such partners, in statement recorded u/s.131, stated that the entries in impounded diary relate to the extra work such as of Grill changes, wall changes, bathroom, etc undertaken in the flat of the buyers. The AO prepared a tabular chart wherein the entries corresponding to "Ch" were matching with the ch....
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.... had not brought any credible evidence on record, thus the addition made in assessment is not justified. The AR also relied on the statements recorded on oath u/s 131 during course of survey of the partners Shri. Ghanshyam Sompura and Shri. Govind Patel wherein the said partners had stated that the entries in impounded diary represents the extra work done for the customers, labour payments, etc. The AR submitted that even if it is assumed that the appellant had received the undisclosed cash as recorded m impounded diary, still such undisclosed receipts cannot be brought to tax in hands of the appellant since such amounts are in the nature of reimbursements for undertaking the extra work on behalf of the flat buyers. In support, AR pointed that the entries recorded in the pages of the impounded diary discloses the sum received /receivable from the flat buyers for carrying the extra work whose expenses are to be borne by the respective flat owners and such receipts are in the nature of reimbursements. 16. The AR, in alternative manner, submitted that the addition of entire undisclosed cash receipts cannot be brought to tax and utmost the real profit embedded in the undisclosed tra....
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....n it does not give rise to any substantial question of law (see CIT v/s Piramal Spinning and Weaving Mills Ltd. 124 ITR 408). In this case, we find that the net profit estimated at 17.08% is a very possible view of the facts founds" In the case of Wall Street Construction Ltd. vs. Dy. CIT reported in 71 ITD 47 Hon'ble ITAT decided that: "While, the application of the rates of 12 per cent on the unrecorded turnover has to be upheld, we are of the opinion that the results shown by the assessee in the books of account have to be accepted. There is no dispute that the cash receipts of 'on money' for this year is Rs, 35, 00,000/- approximately. We are, therefore, of the opinion that on this turnover, a rate of 12 per cent should be applied following the order of the Tribunal for assessment year 1991-92. As far as the balance of the turnover is concerned, the rate as shown 12 per cent by the assessee should be accepted." In the case of Mehroo Irani vs. ACIT reported in 75 taxmann123 Hon'ble Mumbai ITAT decided that: "The totality of the facts, if considered in a dispassionate manner, could lead to a conclusion that the assessee in fact had received 'on....