TMI Blog2019 (3) TMI 574X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITAT, in the case of Pavankumar Sanghvi [2017 (5) TMI 1159 - ITAT AHMEDABAD] then it would reveal that it is not sufficient evidence to arrive at a conclusion that the assessee has made purchases from these concerns. - Decided against assessee. - ITA No.2304 and 2305/Ahd/2017 - - - Dated:- 8-3-2019 - Shri Rajpal Yadav, Judicial Member For the Assessee : Shri Anil Brahmkshatriya For the Revenue : Shri Anand Kumar, Sr.DR ORDER Present two appeals are directed at the instance of the assessee against separate orders of the ld.CIT(A) dated 4.9.2017 passed for the Asstt.Year 2010-11 and 2012-12. 2. The grounds of appeal taken by the assessee are verbatim same except variation in the quantum. He has taken three grounds of appeal in both the years. However, his grievance revolves around a single issue i.e. the ld.CIT(A) has erred in confirming the additions of ₹ 2,00,000/- and ₹ 5,63,833/- in the Asstt.Years 2010-11 and 2011-12 which have been added by the AO on the ground that the assessee has inflated its expenditure and failed to prove genuineness of the purchases made by him. 3. Facts on all vital points are common, rather assessment orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is one of the beneficiary of bogus bill and has obtained bogus bills for the purchase amounting to ₹ 2,00,000/- in F.Y.2008-09 relevant to A.Y.2009-10 from the Kriya Impex P.Ltd., Surat. (ii) The Income tax department has conducted search and seizure action in the case of Group concerns of Shri Rajendra Jain Gautam Jain and conclusively proved that these parties are engaged in the business of providing accommodation entries only as can be seen from the discussions in the preceding paragraphs. Kriya Impex Pvt. Ltd is run by shri Rajendra Jain and is issuing bills without delivering any goods and services. (iii) Evidently the assessee had adopted a modus operandi to reduce its true profits by inflating its purchase expenses by taking accommodation entries from Kriya Impex Pvt. Ltd. (iv) Thus in the stock statement of the assessee, the purchases to the extent made from Kriya Impex Pvt, Ltd remained un verifiable and hence I arrive at the conclusion that the purchases shown by the assessee in the stock statement are inflated and bogus purchases are debited to trading account to suppress the true profits from disclosure to the department. (v) Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintained by the appellant. The appellant also contended that opportunity of cross examination of Shri Rajendra Jain was not given to the appellant. The facts of the case, assessment order and the submission of the appellant has been carefully considered. It is found that the case of the appellant is squarely covered by the order of Hon'ble ITAT SMC Bench, Ahmedabad in ITA No.2447/AHD/2016 in the case of Pavankumar IVI. Sanghvi Vs, ITO 3(1U2), Vadodara. The above mentioned order is reproduced below: 3. Briefly stated, the relevant material facts are as follows. The assessee before me is an individual, owning a proprietorship concern by the name of Ravi Steels, and he claims to have received unsecured loans of ₹ 10 lakhs each from Natasha Enterprises on 11th August 2006 and from Mohit International on 27th April 2006. His assessment was initially completed under section 143(1) of the Act, but subsequently the Assessing Officer came to know, through reports received from the Directorate of Income Tax (Investigation), that Natsha Enterprises and Mohit International were a part of the group of shell entities, managed by one Praveen Kumar Jain (PKJ, in short), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cross examine PKJ but the Assessing Officer did not provide the assessee any such opportunity. On these facts, according to the learned counsel, the impugned additions are contrary to the well settled principles of natural justice which are well entrenched in the tax jurisprudence. In any event, according to the learned counsel, PKJ has subsequently retracted, on 15th May 2014, his confessional statement, as evident from the retraction affidavit dated 15th May 2014 - a copy of which was also filed before me. Learned counsel then submits that nothing prevented the Assessing Officer from using his powers under section 133(6) and examining the matter further by enforcing attendance of the lenders, but, rather than doing what the Assessing Officer ought to have done, he is simply swayed by unverified inputs received from the investigation wing. Learned counsel then invites my attention to the affidavits filed by the proprietors of Natasha Enterprises and Mohit International which confirm that the loans were actually advanced by these persons on 12% interest, that the loans have since been repaid and that the interest earned on these loans has been duly offered to tax. Under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sufficient information about the nature of relationship with him. The documents filed by the assessee are self serving documents and a mere statement on affidavit cannot be accepted irrespective of the ground realities. It is submitted that in each loan transaction, three elements are required to be examined- existence of lender, genuineness of transaction and credit worthiness of the lender. In the present case, all that the assessee has proved is existence of the person as the transactions have taken place through banking channels. Just because a person existed, it does not mean that all the transactions with him are genuine and the person had means to advance the loans in question. It is also pointed out that the lenders are believed to be shell entities and this fact was duly brought to the notice of the assessee but the assessee did not have anything to say on this point. On one hand, according to the learned Departmental Representative, PKJ is so closely in touch with the assessee that the assessee is able to obtain and file the retraction affidavit made by PKJ, and, on the other hand, the assessee feigns ignorance about the statement made by PKJ before the income tax authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either. The assessee did not ask for the cross examination of PKJ in the assessment proceedings nor did he raise that issue, as evident from a copy of the grounds of appeal before the CIT(A)- as filed before me, at the first appellate stage. Yet, his plea before me is that since he was not afforded any opportunity to cross examine PKJ, the impugned additions should be deleted. I donot think such a plea can be entertained at this stage, particularly in the light of peculiar facts of this case. I have noted that the assessee feigns ignorance about the statement of PKJ, as recorded by the income tax authorities, but he files a copy of the retraction affidavit dated 15th May 2014. There is an inherent contradiction in this approach. As a matter of fact, even in the first appellate proceedings, the assessee did not ask for the cross examination of PKJ as evident from the limited argument of the assessee, noted at page 5 of the CIT(A)'s order, to the effect that it is submitted that Pravin Kumar Jain has also retracted his statement on oath under section 131 dated 15.5.2014 and has confirmed that the above transactions with the said parties are genuine (copy enclosed herewi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , is on the genuineness of the transactions. There was not even an attempt to deal with that aspect of the matter, or state even one word against what the Assessing Officer had to tell the assessee on this front. In these circumstances, it cannot be open to the assessee to contend that the additions should be deleted simply on the ground that the assessee was not given an opportunity to cross examine PKJ. When the assessee is confronted with all the facts at the assessment stage, he has nothing to say. He maintains his stoic silence even at the first appellate stage. However, when he comes before me in the second appeal, his grievance is about violation of principles of natural justice at the assessment and the first appellate stage. There are clear inconsistencies and contradictions in the approach of the assessee. 6. Be that as it may what is even more important is that while the reassessment has indeed been resorted to on the basis of the inputs from the investigation wing, with which the assessee is not aggrieved anyway, in my considered view, the impugned additions are not made on the basis of these inputs simplictor. 7. In my considered view, so far as the lega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in the case of Tata Communications Ltd Vs JCIT [(2009) 121 ITD SB 384 (Mum)]. That is, of course, besides the fact that there is no attempt, direct or indirect, to enlarge the subject matter of appeal. The legal plea of the learned counsel proceeds on clearly fallacious assumptions. 8. As I proceed to deal with genuineness aspect, it is important to bear in mind the fact that what is genuine and what is not genuine is a matter of perception based on facts of the case vis- -vis the ground realities. The facts of the case cannot be considered in isolation with the ground realties. It will, therefore, be useful to understand as to how the shell entities, which the loan creditors 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 bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not lead to this conclusion either. The lender has shown a turnover of ₹ 122.92 crores but there is no closing stock, and a profit of almost 0.09% on the turnover leading to a tax payment of ₹ 1,96,138. The lender makes purchases of ₹ 123.04 crores in such diversified areas as cut and polished diamonds (Rs 73.15 crores), plywood and aluminium (Rs 11.72 crore), rough diamonds (Rs 4.36 crores), software (Rs 25.01 crores) and other items (Rs 8.79 crores), and sells these products too but all that the lender has spent on salaries is ₹ 2,26,000, on office expenses is ₹ 8,560, on office rent is ₹ 27,600 and on printing and stationery is ₹ 8,560. All this is simply not representative of what a genuine business would typically be. As regards Mohit International also, the story is no different. The bank statement, which is placed at pages 75 onwards, has the same theme of high transactions during the day and a consistently minimal balance at the end of the working day. On 28th April 2006, i.e. the day the assessee is given ₹ 10,00,000, there are credit entries of almost similar amounts, and he balance after these transactions is a small amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not yet invented any instrument to test the reliability of the evidence placed before a court or tribunal. Therefore, the courts and Tribunals have to judge the evidence before them by applying the test of human probabilities . Similarly, in a later decision in the case of Sumati Dayal Vs CIT [(1995) 214 ITR 801 (SC)], Hon'ble Supreme Court rejected the theory that it is for alleger to prove that the apparent and not real, and observed that, This, in our opinion, is a superficial approach to the problem. The matter has to be considered in the light of human probabilities. ...........Similarly the observation......... that if it is alleged that these tickets were obtained through fraudulent means, it is upon the alleger to prove that it is so, ignores the reality. The transaction about purchase of winning ticket takes place in secret and direct evidence about such purchase would be rarely available..............In our opinion, the majority opinion after considering surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winning from races is not genuine. It cannot be said that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusive by law . This faith in the Tribunal by Hon'ble Courts above makes the job of the Tribunal even more onerous and demanding and, in my considered view, it does require the Tribunal to take a holistic view of the matter, in the light of surrounding circumstances, preponderance of probabilities and ground realities, rather than being swayed by the not so convincing, but apparently in order, documents and examining them, in a pedantic manner, with the blinkers on. I may also add that the phenomenon of shell entities being subjected to deep scrutiny by tax and enforcement officials is rather recent, and that, till recently, little was known, outside the underbelly of financial world, about modus operendi of shell entities. There were, therefore, not many questions raised about genuineness of transactions in respect of shell entities. That is not the case any longer. Just because these issues were not raised in the past does not mean that these issues cannot be raised now as well, and, to that extent, the earlier judicial precedents cannot have blanket application in the current situation as well. As Hon'ble Supreme Court has observed in the case in Mumbai Kamgar Sabha v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly charged commission and the payment received/made by account payee cheques is nothing but to give colour of genuineness to the bogus transaction. Therefore, additions made by the A.O. are confirmed. This ground of appeal is dismissed. 6. Before me, the ld.counsel for the assessee submitted that similar purchases were made by the assessee in the Asstt.Year 2008-09 and 2012-13. On the basis of identical evidences, additions were deleted by the ld.CIT(A). Since the relief given by the CIT(A) was below monetary limit for filing such appeal before the ITAT, therefore, those orders attained finality. He submitted that on the basis of those order additions in these two years be also deleted. 7. In next fold of submissions, he submitted that the assessee has filed copy of income-tax return of Kriya Impex Pvt. Ltd. and Kalash Enterprises; stock register of the assessee, bank statement highlighting relevant transactions/payment and copies of purchase bills. He contended that the assessee has produced all the relevant evidences, and therefore addition ought to be deleted. In support of his contentions, he relied upon the order of the ITAT in the case of Shailesh Keshavlal Shah Vs. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken place. At the cost of repetition, I would like to take note of para-8 of that order which has highlighted this aspect: 8. As I proceed to deal with genuineness aspect, it is important to bear in mind the fact that what is genuine and what is not genuine is a matter of perception based on facts of the case vis- -vis the ground realities. The facts of the case cannot be considered in isolation with the ground realties. It will, therefore, be useful to understand as to how the shell entities, which the loan creditors 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 eve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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