9911796707
TMI Blog2019 (10) TMI 974X X X X Extracts X X X X X X X X Extracts X X X X ..... We are not inclined to interfere in the estimation done by the AO while computing commission @5% of accommodation entry amount which was brought to tax by the AO, as in our considered view it is a reasonable and honest estimation made by the AO and cannot be said to be perverse estimation defying all cannons of commercial logics and reasoning. Secondly, the additions to the tune of ₹ 15,69,500/- were made on protective basis in the hands of the assessee and although we are confirming this addition also but at the same time we are remitting this issue back to the AO for limited verification as to the fate of this addition made on substantive basis and accordingly the AO shall decide about the sustainability of this addition of ₹ 15,69,500/-. Revenue also succeed on this ground as indicated above - I.T.A. No.5242/Mum/2016 - - - Dated:- 31-7-2019 - SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER For The Revenue : Shri. Manoj Kumar Singh (DR) For The Assessee : Shri. Yogesh Joijode (AR) ORDER PER RAMIT KOCHAR, Accountant Member: This appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition of unaccounted commission earned by the assessee in the name-lending activities to provide accommodation entries without appreciating the fact that Shri Jagdish Purohit, one of the director of the assessee company was found to be involved in the process of providing accommodation entries through his various entities? The appellant prays that the order of Commissioner of Income Tax (Appeals) on the above grounds be set aside and that DCIT be restored. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary. Last date for filing second appal is 22.08.2016 . However, the appeal should be filed immediately. 3. The brief facts of the case are that the assessee has claimed itself to be a finance company. However, it is an admitted position that the assessee has not brought any approvals from Reserve Bank of India(RBI) to conduct business as Non-Banking Finance Company(NBFC), which is a mandatory requirement for conducting business of Finance, Investment and Financial Services. It was observed by AO that the assessee company has advanced share application money of ₹ 3,13,90,000/- to followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent evidences. The AO also observed that reasons for routing funds by Nabela Finvest Private Limited through assessee to Murliwala realtors Private Limited were not satisfactorily explained and also that assessee has not admitted any income out of this transaction. The AO observed that the assessee is appeared to be helping money laundering by routing unaccounted funds of some persons through several layers of bank accounts to make detection by investigation authorities difficult. The AO treated the said amount of ₹ 8,00,000/- as an unexplained credit u/s 68 of the 1961 Act as no satisfactory explanation for the debit and credit entries in the bank account was given by the assessee which stood added by the AO to the returned income and assessed as income of the assessee, vide assessment order dated 11.03.2013 passed by the AO u/s 143(3) of the 1961 Act. 3.5 The AO further observed that assessee has received an amount of ₹ 39.90 lakhs on 20.10.2009 in its Central Bank of India Bank account maintained with New Marine Lines Branch which was transferred on the same day to the bank account of M/s. Murliwala Realtors Private Ltd., maintained with same branch o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd ₹ 1.16 crores on 03.02.2010 and 04.02.2010 respectively. The AO observed that on 04.02.2010, the aforesaid amounts were transferred to the account of M/s Emarald Electronics Private Limited. The AO observed that as per bank statements the amount of ₹ 1.50 crores was received from Kukreja Builders Private Limited on 03.02.2010 while ₹ 1.16 crores was received from Nabela Finvest Private Limited on 04.02.2010. The assessee filed ledger copy of Central Bank of India bank account as is appearing in its books of accounts. The assessee did not furnish cheque numbers in both these cases. The assessee did not furnish further evidences such as confirmations from these parties . The AO also observed that copy of bank account was not signed by any competent person. The AO doubted genuineness of the ledger copy filed by the assessee. The AO observed that the assessee has declared share speculation profit of ₹ 79,340/- as gross income and net income declared was only ₹ 8875. It was held by the AO that sources of amount of ₹ 266.00 lacs were not proved by assessee through proper and satisfactory evidences. The AO also observed that assessee has also not exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al layers of bank accounts were used to show the transaction as a legitimate transaction done through banking channel and transactions were not satisfactorily explained by the assessee as to sources of funds brought into its bank account which led AO to make additions to the income of the assessee to the tune of ₹ 3,13,90,000/- introduced which was treated as an unexplained credit in the books of accounts of the assessee which was brought to tax as income of the assessee u/s 68 of the 1961 Act, vide assessment order dated 11.03.2013 passed by the AO u/s 143(3) of the 1961 Act. 4. Being aggrieved by assessment order dated 11.03.2013 passed by the AO u/s 143(3) of the 1961 Act, the assessee filed first appeal before learned CIT(A).The assessee filed certain additional evidences before learned CIT(A) and prayed for their admission keeping in view provisions of Rule 46A of the Income-tax Rules, 1962. The remand report was called by learned CIT(A) from AO on these additional evidences submitted by the assessee for the first time before learned CIT(A). The AO duly submitted its remand report before learned CIT(A) objecting to admission of these additional evidences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO on protective basis with respect to commission income on these accommodation entries, were deleted by Ld. CIT(A) vide appellate order dated 20.05.2016, by holding as under:- 9.41 have considered the submissions of the appellant and perused the materials available on record. The appellant has requested to delete the addition of ₹ 15,69,500/- made protectively on account commission income. The appellant's main contention is that the Ld. AO has made the said addition on ad hoc basis that too without any basis. The contention of the appellant has been considered carefully. As discussed above, in view of the remand report submitted by the Ld. AO, the source of investments made in share application of ₹ 3,13,90,000/- has been found to be properly explained and hence the above referred additions of ₹ 3,19,90,000/- has been deleted. Since the investment in share application money has been found to be genuine, so there is no question of earning any commission of the same. In view of the facts and circumstances of the case, the protective addition made of ₹ 15,69,500/- (wrongly mentioned in grounds of appeal as Rs, 16,69,500/-) is DELET ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said Remand Report is placed in file . On being asked by the Bench after observing the audited financial statements of the assessee for the financial year ended 31.03.2010 which are placed in paper book from page no. 2 to 7, wherein the assessee had total Share Capital and Reserves and Surplus, in aggregate to the tune of ₹ 14.53 crores as at 31.03.2010, the investments made by the assessee are to the tune of ₹ 7.7 crores as at 31.03.2010, while the Loans and Advances granted by the assessee including share applications money pending allotment were to the tune of ₹ 15.11 crores as at 31.03.2010, the assessee explained that it has not received any interest/divided income from these huge investments as well loans and advances granted by it to various entities. On further perusal of aforesaid Balance Sheet as at 31.03.2010, it was observed by the Bench that current liabilities including advances received and sundry creditors were to the tune of ₹ 8.55 crores, the assessee explained that no interest was paid on the borrowings /payable as is outstanding in its books of accounts as at 31.03.2010. The learned counsel for the assessee submitted that certain additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned CIT(A) by invoking Rule 46A of the 1962 Rules. The Remand Report was called by learned CIT(A) from the AO who objected to admission of these additional evidences which were mainly confirmations from the parties from whom the money was raised for making payments for share application money and their bank statements. The AO, however, commented in its Remand Report that source of application money as well source of the source stood explained, which led learned CIT(A) to delete the additions and grant relief to the assessee. The facts are dealt with by us in details in preceding para‟s of this order and there is no dispute between rival parties so far as facts are concerned. The facts are not repeated by us again as they were dwelt upon in details in preceding para‟s of this order. The whole controversy revolves around the mandate of Section 68 of the 1961 Act and whether the assessee had satisfied the mandate of Section 68 of the 1961 Act. We are of the considered view that Section 68 of the Act creates a legal fiction which cast obligation on the assessee to explain to the satisfaction of the AO about nature and source of credit in case any amount is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of India etc. . These members of public who make subscription are widely scattered all over the country or even outside India as any person entitle to apply as per the conditions prescribed in the prospectus can place an application subscribing to the shares of the company by depositing duly filled in application along with application money with the designated authorized recipients of the company stipulated in the prospectus such as bankers, brokers, under-writers, merchant bankers, company offices etc . These shareholders who are member of public are un-known persons to the company issuing shares and the company issuing shares have no control/mechanism to verify their creditworthiness etc. and the burden of proof in such cases is different, but there is another class of companies which are closely held companies in which public are not substantially interested who are mostly family controlled closely held companies and they raise their share capital from their family members, relatives and friends and in these companies since share capital is received from the close knit circles who are mostly known to the company/promoters, the onus as required u/s 68 of the Act is very hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions vide income from share speculation to the tune of ₹ 79,340/- on a total balance sheet size of ₹ 14.53 crores. The net income offered for taxation is meagre amount of ₹ 8,880/-. The assessee has granted huge loans and advances to the tune of ₹ 15.11 crores(including advances towards share application money to several companies) on which no interest income has been received by the assessee. The total interest income on these loans of ₹ 15.11 crores earned during the entire financial year was Rs. Nil. This has to be read in context of claim of the assessee that it is an NBFC company. It is highly incomprehensible and unacceptable that NBFC whose main business is of Finance will deploy its funds in loans without any interest which defies all logic and cannons of commercial expediency. The assessee had made investments in various entities to the tune of ₹ 7.7 crores during the previous year under consideration, for which no reasons and justification for making such a huge investment in these unlisted companies are brought on record. The financial viability of these investee companies, returns of investments, reasons, justification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diency in conducting normal business affairs. It is incomprehensible and unacceptable against the doctrine of commercial expediency that an NBFC which is formed for undertaking Finance business would grant all loans free of interest. If the expenses incurred by assessee during the year under consideration were compared with size of its sundry creditors, another inconsistency emerges which is against commercial expediency is the reporting of huge sundry creditors to the tune of ₹ 3.21 crores as at 31.03.2010 which could not be justified if the size of expenses incurred during the year under consideration is compared. Thus, there are no justification for such a huge magnitude of holding sundry creditors which is not supported by business conduct of the assessee. Similar is the position of advances received of ₹ 5.34 crores as at 31.03.2010. The other peculiar inconsistency vis-a-vis normal business conduct noticed is that the assessee has advanced share application money to the tune of ₹ 14.30 crores as at beginning of the year, whereas ₹ 3.14 crores was further investments in share application money during the year under consideration, while ₹ 6.4 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence of these extra-ordinary circumstances being present in assessee‟s audited financial statement vis-a-vis normal business conduct governed by commercial expediency, onus is now very heavy on assessee to bring on record cogent evidences and material to substantiate that its transactions are genuine and are not merely smoke screen or camouflaged with an intent to defraud Revenue. We have also observed that in all these cases wherein the assessee made investments to the tune of ₹ 3,13,90,000/-, the assessee has received money in its bank account immediately prior to investing the money in these investee company‟s wherein amounts were received in bank account of the assessee from different entities and immediately on being received an equivalent amount were transferred to the investee company . The perusal of the bank account of the assessee maintained with Central Bank of India at New Marine Lines Branch, Mumbai will reveal that (paper book /page no. 16 and 17) average bank balance maintained by assessee in its aforesaid bank account with Central Bank of India, New Marine Lines, Mumbai is an meagre amount of merely ₹ 16,000/- (approximately). Thus average ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transactions undertaken by the assessee are genuine transactions and are under the realm of commercial expediency. We have already held that the assessee‟s affairs as reflected in its audited financial statements clearly points to assessee being an accommodation entry provider, as detailed by us in this order. We have also observed that one of the Directors of the assessee company namely Mr Jagdish Purohit has admitted before ADIT(Inv) that he is engaged in providing bogus accommodation entries in lieu of commission income. The aforesaid statement was later retracted by Mr Jagdish Purohit after a gap of 39 months which does not inspire confidence more-so the affairs of the assessee company are so organised which points towards one and only one conclusion that the assessee company is an accommodation entry provider engaged in laundering of money. The decision of co-ordinate Bench of ITAT, Mumbai in the case of Royal Rich Developers Private Limited in ITA no. 1835 1836/Mum/2014 vide order dated 24.08.2016 is relevant, in which one of us being Accountant Member was part of Division Bench who pronounced the said order. The said order is now confirmed by Hon‟ble Bombay H ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
