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Ishwar Chand Jindal, New Delhi Versus ACIT, Central Circle-16, New Delhi

2015 (8) TMI 119 - ITAT DELHI

Deemed dividend under section 2(22)(e) - Held that:- The transactions between group companies are in the nature of current account transactions and cannot be regarded as deemed dividend. In this case, the admitted position is that there was opening balance of ₹ 4,33,000/- in the books of M/s. Magnum International of M/s. Courage Financial Services Pvt. Ltd. This opening balance of ₹ 4,33,000/- increased to ₹ 21,62,000/- on account of fresh amount of ₹ 17,29,000/- received .....

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have already held above following the judgment of CIT vs. Arvind Kumar Jain [2011 (9) TMI 363 - DELHI HIGH COURT] that business transactions did not constitute deemed dividend under section 2(22)(e) of the Act Following the above findings, additions made for deemed dividend are deleted - Decided in favour of assessee.

Unexplained cash credit under section 68 - Held that:- The ld. counsel in his arguments submitted that such surrender was never acted upon and no sum was offered for tax .....

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the appellant. We therefore direct that the issue regarding addition of ₹ 45,00,000/- be decided de-novo by the Assessing Officer after granting adequate opportunity of being heard to the appellant. - Decided in favour of assessee for statistical purposes. - ITA No.4967/Del /2012,ITA No.2002/Del /2013 - Dated:- 29-5-2015 - Shri I.C. Sudhir and Shri B.C. Meena, JJ. For the Petitioner : Shri Gautam Jain, CA. For the Respondent : Shri Sunil Bajpai, CIT. & Sri R.J.S Gill, CIT, DR. ORDER .....

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mity in the action of the AO assuming jurisdiction and passing order u/s 153A/143(3) of the Income Tax Act despite the fact that there was no undisclosed income and no material found during the search showing undisclosed income; 2 The ld. CIT(A) erred in declining to justly and fairly adjudicate appellant s contention that since there was no separate search warrant in appellant s case the search appellant u/s 132 was illegal; 3 The ld. CIT(A) erred in holding that there was no violating of the p .....

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out the invoices which were of excisable goods and were of the relevant period prior to the assessment and not after and which established the fact that the outstanding amount was on account of trade transaction and not loan or advances; 6 The ld. CIT(A) erred in considering the material evidences in the form of invoices and excisable goods which proved that the amount was on account of trade transaction and not loan or advances. These invoices were part of accounts which were examined by AO whi .....

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3) of the Income Tax Act 1961 is bad both on facts and in law 2 The ld. CIT(A)erred on facts and in law to dismiss appellant s ground that the assessment order having been passed in violation of the principle of natural justice and without giving adequate time and opportunity to the appellant to represent its case and to file its replies and clarification, is bad in the eyes of law and liable to be quashed; 3 The ld. CIT(A) erred on facts and in law to confirm addition of ₹ 45,00,000/- on .....

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dismiss appellant s grounds against the charging of interest u/s 234A and 234B of the Act. 7 That the appellant craves leave to add, alter, amend and/or rescind any of the ground of appeal. 4. The facts in brief as relevant to the both assessment years 2005-06 and 2007-08 are that a search and seizure action was conducted on 26.3.2010 under section 132 of the Act, 1961. Pursuant to the said action, notices under section 153A of the Act were issued on 20.4.2011 and in compliance to the notices, .....

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by CIT(A) except in A.Y. 2007-08 whereby addition of ₹ 78,85,954/- u/s 2(22)(e) of the Act has been enhanced by ₹ 9,59,87,046/- to ₹ 10,78,73,000/-. Hence these appeals by the appellant. Thus, the basic issue involved on merits as raised in Ground No. 4 to 5 of both appeals relates to additions of ₹ 51,92,470/- for A.Y. 2005-06 and ₹ 10,78,73,000/- for A.Y. 2007-08 under section 2(22)(e) of the Act. Apart from the above another issue involved in Ground No. 3 of A.Y. .....

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M/s. Deluxe Alloys Pvt. Ltd. in which, the assessee held 40% shares. The Assessing Officer proposed to tax the said loan as deemed dividend in the hands of the assessee. The assessee during the course of assessment proceedings, filed a reply dated 7.12.2011 contending that such transactions are for purchasing and selling of goods in normal course of business and therefore, these amounts were business transactions and hence were not taxable as deemed dividend under section 2(22)(e) of the Act. Th .....

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me to the conclusion that neither the Assessing Officer had refused to admit evidence in this case during assessment proceedings nor was the appellant prevented by any sufficient cause from production of the impugned evidence during the assessment proceedings. On these facts and following the guidance available in the above cited decision of the Hon ble ITAT, Delhi Bench, the additional evidence in the form of copies of bills purported to be issued by M/s BR Associates (P) Ltd. is rejected as pe .....

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act that the two companies have also filed their returns of income on the basis of the same audited balance sheet and tax audit reports which have classified the impugned debit balances as loan given by M/s BR Associates (P) Ltd. to M/s Deluxe Alloys (P) Ltd. and such returns of both the companies have been verified by their Directors as true the contention raised by the appellant in his own case that those balance sheets were not giving the correct picture is nothing but an afterthought. So lon .....

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ous evidence and, therefore, I see no reason to interfere with the action of the AO on this ground. The addition of ₹ 51,92,469/- u/s 2(22)(e) is therefore confirmed. 7. Before us, the learned AR for the appellant contended that the addition is based on the fundamental misconception of facts and law. It was submitted that during the financial year 2004-05 relevant to assessment year 2005-06, there were business transactions between M/s. B.R. Associates Pvt. Ltd. and M/s. Deluxe Alloys Pvt. .....

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constitute deemed dividend under section 2(22)(e) of the Act. Reliance was placed on the following judgments: i) CIT vs. Raj Kumar 318 ITR 462 (Del) ii) CIT vs. Ambassador Travels (P) Ltd. 318 ITR 376 (Del) iii) CIT vs. Creative Dyeing and Printing (P) Ltd. 318 ITR 476 (Del) iv) Pradip Kumar Malhotra vs. CIT 38 ITR 538 (Cal) 8. It was also submitted that nomenclature cannot be a conclusive basis to disregard and overlook the true nature of transaction and for this principle, reliance was placed .....

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R) on the other hand placed reliance on the orders of the authorities below and reiterated the contents of these orders. 9. We have gone through the submissions and perused the material on record. We find that the ledger account of M/s. B.R. Associates Pvt. Ltd. in the books of M/s. Deluxe Alloys Pvt. Ltd. has been placed in the Paper Book and is as under: 10 The perusal of the aforesaid would show that no money has been paid by M/s. Deluxe Alloys Pvt. Ltd. to M/s. B.R. Associates Pvt. Ltd. All .....

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cepted in the orders of assessment framed in the case of M/s. B.R. Associates Pvt. Ltd. and M/s. Deluxe Alloys Pvt. Ltd. Copies of orders of assessment of M/s. B.R. Associates Pvt. Ltd. dated 30.12.2011 for assessment year 2005-06 is placed at pages 116-123 and copy of order of assessment in the case of M/s. Deluxe Alloys Pvt. Ltd. dated 28.12.2011 for assessment year 2005-06 is placed at pages 106 to 115 of Paper Book. It is relevant to add here that both orders are framed by the same officer w .....

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td. In this regard, Hon ble Delhi High Court in the case of CIT vs. Arvind Kumar Jain (supra) has held as under: 6 Learned counsel for the appellant hammered the fact that the amount was shown by the assessee himself in his books of accounts as unsecured loan and, therefore, the order of the Assessing Officer was correct. 7 It is trite law that mere nomenclature of entry in the books of accounts is not determinative of the true nature of transaction. See Commissioner of Income Tax vs. India Disc .....

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sis to conclude that the business transactions between the two entities constitute deemed dividend under section 2(22)(e) of the Act. The Hon ble Delhi High Court in the case of CIT vs. Rajkumar (supra) has held as under: A close examination of the judgment of the Bombay High Court in the case of Nagindas M. Kapadia (supra) would show that the Court excluded from the ambit of 'dividend', monies which the assessee had received towards purchases. In our view both the CIT(A) and the Tribuna .....

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the principle that once the payment made to a shareholder is deemed as dividend then the mere fact that it is repaid would not take it out of the ambit of the tax net. In the instant case, however, a discussion with respect to which has been made hereinabove, the issue is whether the payment received by the shareholder would at all fall within the four corners of provisions of Section 2(22)(e) of the Act. Having held otherwise, the said judgments of the Supreme Court, in our view, will have no .....

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very strenuously urged that neither the Tribunal nor the judgment of this Court in Rajkumar's case(supra) deals with that part of the definition of deemed dividend under Section 2(22)(e) which states that deemed dividend does not include an advance or loan made to a shareholder by a company in the ordinary course of its business where the lending of money is a substantial part of the business of the company [Section 2(22)(e)(ii)] i.e. there is no deemed dividend only if the lending of moneys .....

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on of Section 2(22)(e)(ii) is basically in the nature of an explanation. That cannot however, have bearing on interpretation of the main provision of Section 2(22)(e) and once it is held that the business transactions does not fall within Section 2(22)(e), we need not to go further to Section 2(22)(e)(ii). The provision of Section 2(22)(e)(ii) gives an example only of one of the situations where the loan/advance will not be treated as a deemed dividend, but that's all. The same cannot be exp .....

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introducing the Finance Bill. Ultimately, this Court in the said judgment held as under: "10.3 A bare reading of the recommendations of the Commission and the Speech of the then Finance Minister would show that the purpose of insertion of clause (e) to section 2(6A) in the 1922 Act was to bring within the tax net monies paid by closely held companies to their principal shareholders in the guise of loans and advances to avoid payment of tax. 10.4 Therefore, if the said background is kept in .....

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pay or distribute, what would legitimately be dividend in the hands of the shareholders, money in the form of an advance or loan. 10.5 If this purpose is kept in mind then, in our view, the word 'advance' has to be read in conjunction with the word 'loan'. Usually attributes of a loan are that it involves positive act of lending coupled with acceptance by the other side of the money as loan: it generally carries an interest and there is an obligation of repayment. On the other ha .....

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by the Privy Council in the of Angus Robertson v. George Day (1879) 5 AC 63 by observing "it is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them" and our Supreme Court in the case of Rohit Pulp and Paper Magnum International Ltd.ls Ltd. v. Collector of Central Excise, AIR 1991 SC 754 and State of Bombay v. Hospital Mazdoor Sabha AIR 1960 SC 610." 12. Therefore, we hold that the Tribunal was .....

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in brief are that the AO had made addition of ₹ 78,85,954/- under section 2(22)(e) of the Act which has been enhanced by ₹ 9,59,87,046/- by the CIT(A) and thus, aggregate addition sustained by him is of ₹ 10,78,73,000/-. The break up of the addition sustained by him and disputed in this appeal is as under: Sr.No. Particulars Amount (Rs.) i) Advance made by M/s Magnum Steels Ltd. (hereinafter referred to as MSL ) to M/s Magnum International Ltd. 4,42,90,290/- ii) Advance made by .....

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ich represents addition made of ₹ 4,42,78,290/- representing advance made by M/s Magnum Steels Ltd. to M/s Magnum International Ltd. and ₹ 5,71,53,710/- representing advance made by M/s Magnum International Ltd. to M/s Magnum Steels Ltd. In this case, we notice that the Assessing Officer had made addition of ₹ 54,56,000/- by concluding that the loan given by M/s Magnum Steels Ltd. to M/s Magnum International Ltd. of ₹ 54,56,954/- is deemed dividend under section 2(22)(e) .....

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to M/s Magnum International Ltd.. and ₹ 10,14,44,000/- is advance by M/s Magnum International Ltd. to M/s Magnum Steels Ltd.; b) That out of the amount of ₹ 9,59,87,046/- sum of ₹ 4,27,16,756/- and ₹ 86,80,000/- aggregating to ₹ 5,13,96,756/- represents reversal entries which should be excluded from total advances and as such, he held that sum of ₹ 4,42,90,290/- (Rs. 9,59,87,046/- ₹ 5,13,96,756/-) is the advance given by Magnum Steels Ltd.. to M/s Magnu .....

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be summarized as under: Sr.No. Particulars Amount (Rs.) Adjustments Net Addition i) Amount advance by Magnum Steels Ltd. to Magnum International Ltd 9,59,47,046 (Total of the credit side of the ledger account of Magnum Steels Ltd. in the books of Magnum International Ltd.) 5,13,96,756 (Rs. 4,27,16,756 + ₹ 86,80,000/-) on account of reversal entry) 4,42,90,290 ii) Amount advance by Magnum International Ltd to Magnum Steels Ltd. 10,14,44,000 (total of the debit side in the ledger account of .....

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treated as part of that running account could be treated as loans or advances as the account is a continuously moving one and the balances reflected in that running account are momentary in nature and subject to frequent changes. It was further submitted that that the provisions contained in schedule to Limitation Act, 1963 explain the distinction provided by the statute between a mutual, open and current account and a loan account, for the purposes of limitation. As per Articles 1 and 19 of sch .....

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Ltd. vs. ROC reported in [1987] 62 Com. Cas. 112 18. Further reliance was also drawn on the following judicial pronouncements: i) Shri Pawan Bansal vs. ACIT ITA No. 2573/D/2010 A.Y. 2006-07 dated 14.2.2014 (pages 242-246 of JPB) ii) NH Securities Ltd. vs. DCIT 11 SOT 302 (Mum) 19. Apart from the above, it was submitted that payments made by M/s Magnum International Ltd. to M/s Magnum Steels Ltd. and M/s Magnum Steels Ltd. to M/s Magnum International Ltd. are mutual reciprocally transactions ent .....

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ssioner of Income Tax (Appeals) has incorrectly held at page 21 that assessee had not contended that both the companies were not engaged in the ordinary course of business of lending of money in terms of clause (ii) of proviso to section 2(22)(e) of the Act. In fact, specific contention was raised in para 9 at page 10 of the order, which is extract of submissions dated 15.1.2013. It was also submitted that ₹ 3 crores had been given as an advance for land is amplified from financial stateme .....

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id account, the learned CIT(A) has concluded that ₹ 9,59,87,056/- is advance given by Magnum Steels Ltd. to Magnum International Ltd. and ₹ 10,14,44,000/- is advance given by Magnum International Ltd. to Magnum Steels Ltd. He further held that out of the amount of ₹ 9,59,87,046/-, sum of ₹ 4,27,16,756/- and ₹ 86,80,000/- represents reversal entries which should be executed and as such, he held that sum of ₹ 4,42,90,290/- is the advance given by Magnum Steels L .....

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vance given by Magnum International Ltd. to Magnum Steels Ltd under section 2(22)(e) of the Act. The main contention raised by the appellant before us is that these are current account transactions between group companies and therefore, do not constitute deemed dividend under section 2(22)(e) of the Act. We find that identical issue had been considered by the ITAT in the case of Pawan Kumar Bansal in ITA No. 2573/D/04 for assessment year 2006-07 dated 14.2.2014 whereby following decisions of the .....

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The relevant findings are contained in para 6 & 7 of this order which are reproduced for the sake of convenience. 6. We have carefully considered the arguments of both the sides and perused the material placed before us. The copy of the assessee s account in the books of M/s Daisy Motors Pvt. Ltd. is placed at pages 19 & 20 of the assessee s paper book. For ready reference, the same is annexed herewith as Annexure 1. From a perusal of the above account, it is seen that there was opening .....

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s was only for a period of ten days i.e. from 23rd July to 8th August, 2006 while the credit balance of more than a crore remains for more than two months and credit balance of more than 20 lakhs remains for more than six months. From the copy of account, it is evident that the assessee also made purchase of ten vehicles. Thus, the account is clearly in the nature of a running current account and merely because for a few days there was a debit balance of 2,08,212/-, it cannot be said that such d .....

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oliday Resort (P) Ltd. and M/s Ambassador Tours (I) (P) Ltd. were also in the tourism business. The assessee was involved in the booking of resorts for the customers of these companies and entered into normal business transactions as a part of its day-to-day business activities. The financial transactions cannot in any circumstances be treated as loans or advances received by the assessee from these two concerns. 7. Similar view was also taken by their Lordships in the case of Creative Dyeing an .....

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that as per the aforesaid account, ₹ 4,27,16,756/-, ₹ 86,80,000/- credited on 10.10.2006 and 1.4.2006 are reversal entries and thus, if such entries are executed, there was an opening balance of ₹ 5,13,96,756/- payable by MIL to MSL. Thereafter, there were further payments made from 14.8.2006 of ₹ 1,25,50,000/- to 28.10.2006 whereby balance increased from ₹ 5,13,96,756/- to ₹ 6,03,96,756/-. Subsequently, there were repayments made by MIL to MSL other than the .....

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bunal in the case of NH Securities Ltd. vs. DCIT 11 SOT 302 has held as under. 37. In the light of the discussion made in paragraphs above, it is to be seen that payments made by a company through a running account in discharge of its existing debts or against purchases or for availing services, such payments made in the ordinary course of business carried on by both the parties could not be treated as deemed dividend for the purpose of section 2(22)(e). The deeming provisions of law contained i .....

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High Court in the case of Nagindas M. Kapadia (supra), we hold that payments made by a company in the course of carrying on of its regular business through a mutual, open and current account to a related party do not come under the purview of section 2(22)(e) of the Act. 26. In light of the aforesaid judgment, it is held that these are simple current account transactions between the two group companies which are business commercial transactions which cannot be regarded as deemed dividend under .....

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therefore, this sum represents deemed dividend under section 2(22)(e) of the Act. He has observed that in the audited balance sheet of M/s. B.R. Associates Pvt. Ltd., amount of ₹ 7,00,000/- was received from M/s. Courage Financial Services and the same is shown as unsecured loan instead of Sundry creditors. He thus held that the said sum represents deemed dividend under section 2(22)(e) of the Act. Here too, the appellant has contended that these are current account transactions and there .....

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med dividend in the hands of the appellant. Accordingly, the addition of ₹ 24,29,000/- (Rs. 17,29,000 + ₹ 7,00,000/-) u/s 2(22)(e) being amounts advanced by M/s Courage Finance Services Pvt. Ltd. to M/s Magnum International Ltd. and M/s BR Associates Pvt. Ltd. is confirmed. 28. We have considered the facts of the case and submissions made by the parties. We have already held above that the transactions between group companies are in the nature of current account transactions and cann .....

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e Financial Services Pvt. Ltd. which balance increased to ₹ 43,25,000/- at the close of the year on account of ₹ 7,00,000/- received during the year. Thus, apparently, these are transactions between group companies which are on year to year basis and therefore, the current account transactions and business transactions. 29. We have already held above following the judgment of Hon ble Jurisdictional Delhi High Court that business transactions did not constitute deemed dividend under s .....

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ad received ₹ 20,00,000/- on 25.10.2006 from M/s Chotti Leasing (P) Ltd. as advance for land. Likewise, he has noted that another sum of ₹ 25,00,000/- was received on 31.10.2006 (20,00,000) and 2.11.2006 (5,00,000) as advance for land from Asheem Gupta. However, since the assessee did not furnish any proof in respect of said advance and M/s Chotti Leasing (P) Ltd. was one of the concerns controlled by Shri Asheem Kumar Gupta who had admitted to arrange the accommodation entries in th .....

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e was detected subsequently and the said amount was credited in separate proper account styled as advance received for sale of land . The amounts were received by cheques and they were supported by sufficient evidences. The additions were made by the AO on the basis of suspicion and not on any material evidence on record. The parties from whom the advances were received were genuine and regularly assessed to tax. They had shown these amounts in their accounts. The AO was not justified in treatin .....

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search operation on 27.3.2010 was not valid in law because it was given under pressure, threat and coercion, I.C. Jindal was also not in proper state of mind at that time. The surrender of amount of ₹ 51 crores was obtained by pressure, threat and coercion and as such it was not valid in the search. No incriminating materal was found during the search which could indicate so much undisclosed income. Such surrender is not valid in law as held by the Hon ble Supreme Court in Pullangade Rubbe .....

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received from Aseem Gupta or his companies by the Magnum Group. Moreover, on cross questioning by I.C. Jindal, Aseem Gupta categorically denied the introduction of P.K. Aggarwal or Santosh Shah registered share brokers through whom Magnum Steel Ltd. had done transaction for sale and purchase of listed shares. Hence, the statement of Aseem Gupta was not based on facts and was incorrect. As such, the AO was not justified and was wrong in making additions on the basis of such statement. 32 The lea .....

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the land were received from companies controlled by one Shri Aseem Kumar Gupta, who had admitted in his statement recorded at the time of the search as well as during his own assessment to have given accommodation entries through various concerns controlled by him to the appellant and entities belonging to the group controlled by him. Shri I.C. Jindal himself had admitted having received accommodation entries in the form of share capital as per his statement recorded at the time of search. So mu .....

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nted with Shri Aseem Kumat Gupta and he did not deny the facts stated by the latter. Furthermore, none of the alleged advances for land appeared in the balance sheet for the year under consideration. The appellant s argument that the mistake was detected subsequently and the said amount was credited in a separate account appears to be nothing but an afterthought in view of the categorical admission of accommodation entries both by the appellant as well as by Sh. Aseem Kumar Gupta 7.3.2 From the .....

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d in law as the same were recorded under pressure, threat and coercion is not borne out of the records. There is no sign of application of any such tactics as alleged by the appellant nor the latter has brought any material on record to support his allegation. 7.4 The argument of the appellant that the ratio of the judgment in the case of Nova Promoters is not applicable in his has not been found to be convincing. The plea of the appellant that unlike Nova s case, the AO did not link the amount .....

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detailed findings recorded by the learned AO, the appellant s contention that he has proved the genuineness of the cash credits with evidences which were not controverted and not proved false is a wrong assertion. 33. Having considered the submissions made by the parties and perused the material on record we find that addition of ₹ 45,00,000/- represents sums of ₹ 20,00,000/- received from M/s Chotti Leasing (P) Ltd. and ₹ 25,00,000/- from Asheem Gupta. According to the appell .....

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upta is a director of M/s Chotti Leasing (P) Ltd. 34. The appellant contended that the amount received were incorrectly entered in an unrelated account containing debit balance of ₹ 50 lacs coming from earlier years and thereafter mistake was detected and subsequently the amount was credited in a separate account styled as advance received for sale of land . The learned CIT(A) has not recorded any finding on the aforesaid contention of the appellant which to our mind was the root cause for .....

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the said statement in Q.No. 20 would show that he has stated as under: Q.20 On examination of documents/loose papers, it is seen that you have made huge investments in property transaction and you have made cash sales in your group of companies. Further you have received share capital and capital gain also. Please explain whether you are offering any tax for above mentioned transactions/investments? Ans. Yes I agree that I have these transactions and I am surrendering ₹ 51 (Rs. Fifty One .....

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rrender company-wise will be submitted later on. For this purpose, I am presenting the following cheques for payments of taxes on surrendered additional undisclosed income of ₹ 51 crores. These cheques were issued from personal A/c for the time being and will be replaced. 36. The ld. counsel in his arguments submitted that such surrender was never acted upon and no sum was offered for tax or assessed to tax on the basis of such said surrender given by Shri I. C. Jindal. A chart tabulating .....

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ecided de-novo by the Assessing Officer after granting adequate opportunity of being heard to the appellant. The grounds raised in thus allowed for statistical purposes. 37 Ground No. 2 for A.Y. 2005-06 was not pressed and is therefore, dismissed. 38. Ground No. 3 for A.Y. 2005-06 and Ground No. 2 for A.Y. 2007-08 are general ground and, are therefore no specifically adjudicated 39. Ground No. 7 and 6 for A.Y. 2005-06 and A.Y. 2007-08 relate to levy of interest which is consequential in nature. .....

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return of income had been filed on 1.2.2008 which had been accepted u/s 143(1) of the Act. In otherwords, both the assessments were consolidated prior to search and, had not abated under second proviso to section 153A of the Act. It was thus submitted that the additions made are beyond the scope of assessments framed u/s 153A/143(3) of the Act. It was further submitted that in none of the orders any addition was made on the basis of material detected as a result of search on the assessee. Relian .....

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