TMI Blog2021 (5) TMI 293X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee. In such a case, the confession made by the assessee, in our opinion, would lose considerable credibility unless the confession was supported by some incriminating material as unearthed by the department during the course of search action on assessee. Another pertinent accepted fact is that cash allegedly used by the assessee to procure accommodation entries to have been sourced partly out of on-money received in real estate business of assessee s sister concern namely M/s Sahakar Infracon Projects Private Limited. This cash has also been treated as assessee s unexplained money despite concurrence of Ld. AO of the fact that accommodation entries were sourced partly out of cash generated by M/s Sahakar Infracon Projects Private Limited. No addition is shown to have been made in the hands of M/s Sahakar Infracon Projects Private Limited. These two entities, in our opinion, are separate legal entities and the one entities unaccounted money could not be added to the income of the other entity s income. Entities not belonging to tainted group with no incriminating material - The fact of huge share premium could not be held against the assessee in the absenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view of the allegations that there was buy back of shares in subsequent years. Further, the notices u/s 133(6) remained un-responded. However, we find that the opportunity to cross-examine Shri Pravin Kumar Jain was never provided to the assessee. Nor the copies of statements were furnished / confronted to the assessee. The failure to do so would make the additions unsustainable in the eyes of law in view of settled legal position as enumerated by us in para 6.5. Further, we find that all these entities have duly furnished replies to Ld. AO which are placed on Page nos. 34 to 64 of the paper book wherein the transactions have been confirmed by these entities along with sufficient documentary evidences in the shape of Income Tax Returns, bank statements, financial 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 author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n law be deleted. 1.3 The ground raised by the revenue read as under: - i. On the facts and in the circumstances of the case and in law, the CIT(A), while upholding the addition of ₹ 3.5 Crore on account of share capital and share premium, has erred in deleting the remaining addition on account of share capital and premium of ₹ 13,00,00,000/- received during the year and added as unexplained credit u/s 68 of the l.T.Act, 1961. ii. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition of share capital premium of ₹ 3,46,50,000/- (out of total addition of ₹ 3,50,00,000/-) by confirming only 1% of the above amount despite the fact that cash of ₹ 3.5 Cr. generated by the assessee was not taken on the receipt side while preparing the P L A/c. As evident, the sole subject-matter of cross-appeal is certain addition made u/s 68 since partial relief has been granted by Ld. CIT(A) to the assessee in the impugned order. 2. We have carefully heard the rival submissions as urged before us. We have also gone through material on record including documents placed in the paper-book and written submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Casper Enterprise Pvt. Ltd. 100 Lacs 9. M/s. Duke Business Pvt. Ltd. 100 Lacs 10. M/s. Talent Infoway Pvt. Ltd. 50 Lacs 11. M/s. Sidh Housing Development Pvt. Ltd. (M/s. Bhadrawti Ispat Energy Ltd.) 65 Lacs 12. M/s. Buniyad Chemicals Pvt. Ltd. 50 Lacs 13. M/s. Sarvashretha Traders Pvt. Ltd. 80 Lacs 14. M/s. Artillengence Bio Innovations Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acon 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 accommodation entry providers. The ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 12.94 Crores approx. However, the actual cash as found during the search operation was ₹ 32.49 Lacs only. The said cash-in-hand for ₹ 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 ₹ 12.94 Crores, a sum of ₹ 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 ₹ 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. (₹ 90 Lacs); (ii) M/s Albatross Share Registry P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee to substantiate the transactions 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 shareh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The failure to do so would justify the deletion of 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 inde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company till date. Though the submissions made by the assessee were duly confronted 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 submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the course of search and need to collect further evidence against the assessee during the 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is partly allowed. The aforesaid adjudication has given rise to present cross-appeals before us. 6. Our findings and Adjudication 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of search, the assessee had cash balance of approx. ₹ 12.94 Crores as against actual availability of cash to the extent of ₹ 32.49 Lacs. This fact is nowhere 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 ₹ 9 Crores have subsequently been reversed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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). 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 68. Similar is the position before us. No new material could be placed before us. Therefore, in our considered opinion, no infirmity could be found in the impugned order with respect 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 ₹ 9 Crores have su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are placed on Page nos. 34 to 64 of the paper book wherein the transactions have been confirmed by these entities along with sufficient documentary evidences in the shape of Income Tax Returns, bank statements, financial 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istered entity under CIN: U52100MH2010PTC205884. Pertinently, this entity does not belong to the tainted group and no incriminating material has been found against this entity during the search operation. This being so, this addition could not be subject 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 ₹ 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. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X
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