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TMI Blog2022 (5) TMI 1094X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount are very meagre sum, while huge amounts of money suddenly comes into this bank accounts which immediately finds its exit into some other bank accounts, which is 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 ingredien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. 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 addition i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under: "4.1 I have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 belonging to the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue 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 lender may not be proved by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere 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 placed on record-Assessee had placed all bank accounts of lend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or. 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 evidences such as PAN, AO details, CIN master data (ROC), ledger account, conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 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 enquiry as referred by you. After visiting the spot and conducting elaborate local enquiries b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies - Joyprit Hote! Pvt Ltd, Shirdhan Jewellery, Shiv Shakti Comm. Pvt Ltd, Skylight Distributors Pvt Ltd and Sustha Distributors Pvt Ltd are not readily available at this end. However, these five companies are also paper/shell/bogus companies as per the database of Kolkata Investigation Wing. The necessary enquiry may be conducted at your end by checking the list of companies in which different identified dummy directors of the said entry operator are/ have been one of the directors in the case of remaining five companies. The names of such persons who have acted as directors of various paper/shell/bogus companies as per the instructions of the accommodation entry operators Praveen Agarwal are given below: 1. PINKY AGARWAL 2. PRAMOD RAMDIN SHARMA 3. UMESH SINGH 4. NEERAJ KEDIA 5. PULAK BAGCHI 6. PRAKASH JAIN 7. AJAY YADAV 8. VIJAY YADAV 9. CHARANJIT MAHANTA 10. VISHAL SHARMA It has been further noticed that there are similarities between the above identified paper companies and a few of the rest. For example, in the case of Welon Advisory Serv. Pvt Ltd., the address thereof is the same as that of identified paper company of Beni Prasad Lahoti. In anoth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. Apparent could not be considered as real and that when there was no reason to believe that the apparent was not real, the Taxing Authorities were entitled to look into the surrounding circumstances to find out the reality and the matter had to be considered as per such a finding. Accordingly, the entire unsecured loan money was brought to tax by the assessment order. Assessing Officer was entitled to conduct a full-fledged enquiry for ascertaining the true nature and source of any credit appearing in the books of accounts of the assessee and also brought out on facts as to how the creditworthiness of the persons, who were said have brought in the unsecured loan was not established and accordingly made the addition u/s. 68 of the Act. There is no, and there cannot be any, dispute on the fundamental legal position that the onus is on the assessee to prove 'bonafide' or 'genuineness' of the unsecured loan credited in his books of account. This approach finds support from the scheme of section68, which provides that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monies and evade taxes, that takes it actions beyond what is legally permissible. These entities have every semblance of a genuine business its legal ownership by persons in existence, statutory documentation as necessary for a legitimate business and a documentation trail as a legitimate transaction would normally follow. The only thing which sets it apart from a genuine business entity is lack of genuineness in its actual operations. The operations carried out by these entities, are only to facilitate financial manoeuvring for the benefit of its clients, or, with that predominant underlying objective, to give the colour of genuineness to these entities. These shell entities, which are routinely used to launder unaccounted monies, are a fact of life, and as much a part of the underbelly of the financial world, as many other evils. 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 the financial world, about modus operendi of shell entities. There were, therefore, not many questions raised about the genuineness of transactions in respect of shell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... premium from several entities in its bank account gave further huge amount of loans and advances to several companies with/without charging any interest and lender companies could not prove financial viabilities of their decisions, it could be said that lender companies are shell companies engaged in money laundering by providing bogus accommodation entries through a web of bank accounts, thus, addition under section68, in the hand of loan taker has to be justified." 11. On perusal of the bank account of the lenders it is revealed that average bank balance maintained by lender in its aforesaid bank account is a very meagre amount. Thus average bank balance maintained by lenders in the aforesaid bank account are very meagre sum, while huge amounts of money suddenly comes into this bank accounts which immediately finds its exit into some other bank accounts, which is 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 section68 as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing partners Mr. Govind Patel and Mr. Ghanshyam Sompura were confronted with the contents of the diary and such partners, in statement recorded u/s.131, stated that the entries in impounded diary relate to the extra work such as of Grill changes, wall changes, bathroom, etc undertaken in the flat of the buyers. The AO prepared a tabular chart wherein the entries corresponding to "Ch" were matching with the cheque payments received by the appellant, in its bank account, for sale of flats. Accordingly, AO held that the entries corresponding to "Ca" and "Cas" represents the on-money received on sale of flats. The AO issued the show cause notice on proposing to make the addition u/s.69A of the "Ca" and "Cas" entries recorded in the impounded diary found during course of Survey as on-money received on sale of flats. In response, the appellant disputed the proposed addition under the reason that no cash amount was found during course of Survey and the entries recorded in the impounded diary contained of the extra work, labour payments and does not represent as the on-money on sale of flats. However, AO rejected the contention of the appellant and held that the figures corresponding to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impounded diary discloses the sum received /receivable from the flat buyers for carrying the extra work whose expenses are to be borne by the respective flat owners and such receipts are in the nature of reimbursements. 16. The AR, in alternative manner, submitted that the addition of entire undisclosed cash receipts cannot be brought to tax and utmost the real profit embedded in the undisclosed transaction could be brought to tax. The AR pleaded to adopt the concept of real income and made a prayer to reasonably estimate the profit on the undisclosed consideration. In support, AR relied on the statements of the partners Shri. Ghanshyam Sompura and Shri. Govind Patel who had stated that the entries recorded in the impounded pages pertain to the extra work done for the customers, labour payments, etc. The AR submitted that the entries recorded in impounded diary discloses the gross monies received from the flat buyers for carrying the extra work whose expenses are to be borne by the appellant and such receipts are in mere nature of reimbursements. The AR argued that there cannot be a case of only receipts without payments and since there is no undisclosed cash found during cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As far as the balance of the turnover is concerned, the rate as shown 12 per cent by the assessee should be accepted." In the case of Mehroo Irani vs. ACIT reported in 75 taxmann123 Hon'ble Mumbai ITAT decided that: "The totality of the facts, if considered in a dispassionate manner, could lead to a conclusion that the assessee in fact had received 'on money' and had also incurred expenditure out of the same. An estimated addition to the total income based on the ground realities would be a better way out. In doing so, one should take into consideration the net profit disclosed by the assessee and also the net profit that would be reflected after the additions finally sustained were taken into consideration. In the instant case, having regard to the totality of the facts and circumstances of the case, a net addition of 5 per cent of the gross receipts exclusive of receipts on account of garages and installation of generator would meet the ends of Justice. Moreover, no separate addition of 'on money' would be necessary in regard to sale of garages which were nothing but parking spaces. In the result, appeal was partly allowed." The other judicial decisions relied by AR also s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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