TMI Blog2022 (5) TMI 1094X X X X Extracts X X X X X X X X Extracts X X X X ..... another peculiar feature of a shell company engaged in laundering money by providing bogus accommodation entries through a web of shell companies and bank accounts. The orders of the authorities below have been carefully gone through and the assessee is not able to discharge its onus as is casted under section 68 as the assessee could not prove genuineness of the unsecured loan taken and underneath sources for making these investments. The assessee no doubt has produced bank statement/confirmation of the entities from which the money found its place in the bank account of the assessee to be further used in its business but the genuineness of these transactions could not be proved as the assessee did not bring on record cogent evidences to substantiate the unsecured loans taken. Merely bringing confirmations and showing that the payments were made through banking channel is not sufficient. As discussed above about the specifics of lender s financials it can be reasonably concluded that out of three essential ingredients, i.e. Identity of Creditor, Genuineness of the Transaction and Creditworthiness of the lender, only Identity can be assumed to be established. Rest of the 2 esse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 but were specifically found to be non-existent, and despite the submission of above details addition u/s 68 is valid -if the lender concerns do not respond summons. 4. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) deleted the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 and also made the disallowance of interest on such loans. The AO also made the addition u/s.69A of the on-money on sale of flats. 4. Ld. CIT (A) in his observation discussed the facts and various judicial decisions to support the case of the assessee, which is being reproduced as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 appellant. It is observed that AO had not pointed any fault in the above stated documents filed by the appellant on record. The AO had not issued any notice u/s. 133(6) to the banker of the lenders to verify the source of their funds and had not brought any credible evidence to prove that the undisclosed funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ently 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 view of the matter we are inclined to allow the appeal on this very issue. Also, Hon ble Apex Court in the case of Pr. CIT us, Vaishno devi Refoils Sol vex reported in 96 Taxmann.com 469 had dismissed the SLP and affirmed the decision of Hon ble Gujarat High Court on holding that the source of funds of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 the remaining cases-All loans were received and repaid by assessee by account payee cheques along with interest-Tribunal deleted the addition. In the case of CIT v. Avant Grade Carpets Lid reported in 9OCCH 462, Hon ble High court of Allahabad decided that: CIT (A) observed that balance sheet of lender as of 31 March 2009 had been p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Assessee s income. Tribunal had nightly concluded that it was sufficient to delete the addition. Thus, respectfully following the Judicial decisions cited supra and considering the fact the loans had been received through banking channel, repayment of such loans made through banking channel, interest payments made after TDS u/s 194A deduction and other documentary ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 companies mentioned in the list, one company named Manmade Fibers Pvt Ltd. mentioned at S. No. 11 has its address in Mumbai and, therefore, does not fall under the jurisdiction of this charge. The ITIs were deputed to serve the summons issued u/s 131 upon the Principal Officers of the rest 21 (Twenty One) companies asking them to produce the requisite documents in support of points of enqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hiv Shakti Comm. Pvt. Ltd. AAMCS8171R -do- 13 S K Stock Dealer Pvt. Ltd. AADCS7365Q Beni Prasad Lahoti 14 Skylight Distributors Pvt. Ltd. AAMCS8390J Praveen Agarwal 15 Sustha Distributors Pvt. Ltd. AAICS3474R -do- Statements of all the above entry operators 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 Shak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the letter dated 19.12.2017 for cross examination of one of the companies and their authorized representative in case of M/s Sustha Distributors Pvt. Ltd. only in the interest of justice and to allow witness to be questioned and to allow evidence and cross examination on the same. Therefore, the summons u/s 131 dated 19.12.2017 was issued to assessee for giving an opportunity for cross examination along with relevant 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e commercial world. On proceeding to deal with the genuineness aspect, it is also 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 from the ground realities. The allegation of the revenue is that the assessee has received 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2.5 lacs to Rs. 3.03 Cr. On the other hand, as per Schedule-VIII against there is phenomenal change in the figures of unsecured loans given from Rs. 4.91 Cr. to Rs. 9.31 Cr. 9. Similar are the facts of Sustha Distributors Pvt. Ltd. with a net worth of Rs. 14.76 Cr. company has a loss of Rs. 82,620/-. To divert the attention unsecured loans given shown under the head of Sundry 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 acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he findings given with reference to ground no.1 to 4 above and consequential in nature. Hence, as held above as the assessee failed to establish genuineness of the transactions and creditworthiness of the lenders, interest paid to lenders amounting to Rs. 20, 81,858/- also held to be disallowed. 13. In the result, this ground of revenue is allowed and order of AO is sustained 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uyers and accordingly, in absence of corroboration, the addition made by the AO is not justified. The AR also submitted that the heavy onus is cast on the AO to conclusively prove the allegation of the on-money received by the appellant, however AO had not carried any sort of investigation and even had not issued the notice u/s 133(6) to the buyers of the flats and since AO 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal with a new figure of net profit. This without in any manner showing that the estimating arrived at by the Tribunal in the impugned order is perverse. It is a settled position of law that in estimated net profit arrived at by the authorities is a question of fact and if the material on record does support the estimate arrived at by the Tribunal then 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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