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TMI Blog2023 (1) TMI 1216X X X X Extracts X X X X X X X X Extracts X X X X ..... ng material was already available with the search party confronted to the assessee were admitted having the unaccounted income. It is always not necessary that there have to be some paper trail, which should have been found during the course of search for making an addition. The statement made by the assessee confirming the information, admitting the unaccounted income, explaining the modus operandi of earning such income, naming the parties involved in such activity shows clear-cut evidences of earning unaccounted income. Therefore, we do not find any infirmity in the order of the learned CIT A the extent holding that that the addition of unaccounted long-term capital gain which is proved to be bogus is based on material found during the course of search and satisfies all the conditions prescribed under section 153A - no merit in the cross objections of the assessee, hence it is dismissed. Telescoping of the gross profit addition in the hands of this assessee company - The appeal filed by the learned assessing officer is allowed for statistical purposes setting aside back to the file of the learned CIT A to give clear-cut finding as to how merely an addition of ₹ 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rier details showing the commission how it is paid. Therefore, the addition deserves to be confirmed. Appeal filed by the assessee for all these years are dismissed and appeal of the learned assessing officer are allowed for statistical purposes. - ITA No. 2092/Mum/2019, ITA No. 2093/Mum/2019, ITA No. 2094/Mum/2019, ITA No. 2095/Mum/2019, ITA No. 2096/Mum/2019, CO No. 29/Mum/2021 (Arising out of ITA No.2092/Mum/2019), CO No. 30/Mum/2021 (Arising out of ITA No.2093/Mum/2019) - - - Dated:- 23-1-2023 - CO No. 32/Mum/2021 (Arising out of ITA No.2094/Mum/2019), CO No. 34/Mum/2021 (Arising out of ITA No.2095/Mum/2019) And CO No. 38/Mum/2021 (Arising out of ITA No.2096/Mum/2019), ITA No. 2062/Mum/2019, ITA No. 2063/Mum/2019, ITA No. 2065/Mum/2019, ITA No. 2066/Mum/2019, CO No. 28/Mum/2021 (Arising out of ITA No.2062/Mum/2019), CO No. 31/Mum/2021 (Arising out of ITA No.2063/Mum/2019), CO No. 35/Mum/2021 (Arising out of ITA No.2065/Mum/2019), CO No. 36/Mum/2021 (Arising out of ITA No.2066/Mum/2019), ITA No. 1899/Mum/2019, ITA No. 1900/Mum/2019, ITA No. 1901/Mum/2019, ITA No. 1902/Mum/2019, ITA No. 1903/Mum/2019, ITA No. 1904/Mum/2019, ITA No. 2085/Mum/2019, ITA No. 2086/Mum/2019, ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Whether on the facts and in the circumstances of the case and in law, the Id. Commissioner of Income Tax (Appeals) erred in deleting the addition made in the assessment order, by merely relying on the submissions of the assessee that the funds generated through accommodation entry were directly indirectly routed to Ms. Hazel Mercantile Ltd., without providing any opportunity of being heard or for verifying the submissions made by the assessee in the course of appellate proceedings, which is arbitrary and against the interests of the principles of natural Justice? 4. Whether on the facts and in the circumstances of the case and in law, the ld. Commissioner of Income Tax (Appeals) erred in sustaining the protective addition of only 5% of GP on alleged unaccounted sales in the case of the assessee company- Hazel Mercantile Ltd white on the other hand according relief of entire addition of Rs. 7,01,34,900/- which is arbitrary and against the interests of the principles of natural justice? 5. Whether on the facts and in the circumstances of the case and in law, the Id. Commissioner of Income Tax (Appeals) erred in not appreciating that the accommodation entries under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f cross objection of the assessee for all other five years are similar except change in amounts involved. 07. The brief facts of the case shows that i. for A.Y. 2010-11 the assessee filed return of income on 7th October, 2010 at a total income of ₹9,85,980/-. ii. Search and seizure operation under Section 132(1) of the Income-tax Act, 1961 (the Act) conducted on Veritas Group and Shri Nitin Kumar Dindayal Didwania, promoter of the group along with the family members on 10th September, 2015. iii. Assessee and his family engaged in the business of trading and distribution of chemicals. The assessee is deriving income from salary business and profession and capital gains and income from other sources. iv. Because of the search, the notice under Section 153A of the Act was issued and assessee filed his return of income on 9th December, 2016 declaring total income of ₹19,48,426/-. v. During search, it was found that there is claim of bogus long-term capital gain earned by the assessee, his family members and a company in which assessee is interested. vi. Statement on oath under Section 132(4) was recorded on 10 September 2015 where in assessee confessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial precedents wherein the Long Term Capital Gain has been accepted as genuine. Assessee also submitted a note on the Long Term Capital Gain earned by him. Assessee also asked from the learned Assessing Officer several information. xv. Learned Assessing Officer rejected the explanation of the assessee. The learned Assessing Officer for the following reasons made the addition:- a) Mr. Raj kumar Kedia an accommodation entry provider has confirmed in his statement recorded under Section 132(4) of the Act, wherein the companies in which the assessee has traded was stated to be an accommodation entry. The statement on oath of Mr. Manish Arora, employee of Mr. Raj Kumar Kedia also confirmed the modus operandi. b) The survey conducted on M/s Dhanleela Investments Trading Company in which the members of Veritas Group are one of the beneficiaries was also explained. c) Mere payment of purchase and sales through banking channel and through recognized exchanges cannot be enough to prove the genuineness of the transaction. d) Investment in nondescript company by way of preferential allotment and the financials of the company did not justify the investment and large-scale pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other significant capital gain except of this penny stock cases and nothing to support genuineness of dream windfall earned which was never replicated after research proves that genuineness of the claim is false. iv. Therefore, he confirmed the order of the learned CIT (A) to that extent. v. However, the learned CIT (A) noted that in the other family members such as assessee, his wife and Mrs. Sushma Dindayal Didwania [ Mother of Assessee ] in whose cases, the long term capital gain have been shown do not have source of income from which such huge funds could have been generated. vi. Main source of income is of the assessee is salary from Hazel Mercantile Ltd. vii. Assessee [Mr. Nitin Didwania] has earned the long-term capital gain of about Rs. 74 crores have been found as bogus. viii. On verification of the details about the subsequent use of the funds received as long term capital gain, it was found that this money has been ploughed back largely into one company Hazel Mercantile Ltd. ix. In terms of turnover and volumes, Hazel Mercantile Ltd is the flagship company of group and therefore, he accepted the explanation of ld AR that the funds were sourced from Haz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT (A) is challenged before us by the Revenue. 014. In the cross objections, the assessee has challenged the order of the learned CIT (A) on the issue that i. There is no incriminating material found during the course of search. The learned CIT (A) in absence of that should not have confirmed the addition. ii. On the merits of the addition challenge was made on the addition of long term capital gain along with commission expenditure and iii. Further absence of an opportunity to cross-examine third parties whose statements were relied upon. 015. Despite several opportunities granted to the assessee, none appeared on behalf of the assessee. On earlier occasions, there was a letter from the authorized representative of the assessee who submitted that they have withdrawn the letter of authority to represent the above cases. In view of this, we do not find any other option but to decide the issue on the merits of the case as per information available on record. Counsel of Assessee has filed a paper book that is also considered by us. 016. The learned Departmental Representative was heard. He submitted that i. Assessee has earned bogus long-term capital gain from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT (A) is incorrect in holding that the addition is confirmed by him in the hands of Hazel Mercantile Ltd, the addition is deleted in the hands of the assessee. He further referred to the provisions of section 68 of the Act and submitted that assessee has failed to prove the correct 'nature and sources' of the sum credited in the books of account in the form of bogus long term capital gain and therefore, the addition is required to be made in the hands of this assessee irrespective of the addition made in the hands of Hazel Mercantile Ltd. ix. He submitted that when Assessing Officer has not made addition on protective basis vs. substantive basis, the learned CIT (A) has fallen into an error in deleting the addition in the hands of the assessee holding that it deserves to be telescoped with the addition made in the hands of Hazel Mercantile Ltd. x. He submitted that even otherwise telescoping of the income in the hands of one assessee could not be granted for the income of another assessee. Therefore, to that extent the order of the learned CIT (A) is sustainable. xi. He extensively read the grounds of appeal and stated the learned CIT (A) has held so merely rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded and he was questioned about the Long Term Capital Gain and its genuineness. The assessee admitted that these are all bogus transaction. Further, in his statement, he expressed his ignorance about those companies, their business, their whereabouts, their financials, etc. Thus, he did not know anything about these companies. He also did not attend any of the meetings of those companies and never received any dividend. All the statements of entry operators and other intermediaries were confronted to the assessee but he expressed his ignorance. The assessee was also shown the various statements of the companies and their directors and in question no.38; he simply stated that he was acting on the advice of Mr. Girish Zaveri, who was an employee of the group. He also confessed that Mr. Girish Zaveri, introduced a person named Mr. Natwar and the whole unaccounted income was converted into capital gain through these persons. He, in the end, admitted that the Long Term Capital Gain earned by him, his family members is not genuine and is out of manipulation of the transactions carried out with the help of operators and its bogus Long Term Capital Gain shown in pre arranged manner. Furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and indirectly. He accepted the explanation of the learned Authorized Representative before him that funds were sourced from Hazel Mercantile is credible argument. He examined the statement of closing stock as per books of accounts and closing stock after accounting out of book sales of M/s Hazel Mercantile from A.Y. 2010-11 to 2016-17. He noted closing stock as the books of ₹445 crores as on 31st March, 2016 and the sale out of books in cash of ₹120 crores is possible. He therefore, held that it is reasonable to tax the same in the hands of entities that is the source. Therefore, he deleted the addition of Long Term Capital Gain and commission expenses for all these six years in the hands of the assessee and held that the addition is to be made in the hands of M/s Hazel Mercantile Ltd. He converted it on substantive basis in the hands of that company and deleted the addition in the hands of individual assessee. Therefore, finding of the learned CIT (A) is that though the assessee has earned bogus Long Term Capital Gain but as the money has been ploughed back in M/s Hazel Mercantile Ltd, no addition under Section 68 of the Act of Long Term Capital Gain earned by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Long term capital gain earned by Hazel mercantile Limited Gross profit addition upheld in case of Hazel Mercantile Limited (1) (2) (3) (4) (5) 2010-11 7,01,34,900 5,59,17,609 2,02,05,648 77,92,092 2011-12 5,77,49,901 2,98,13,063 2,89,39,693 67,63,037 2012-13 23,86,97,745 64,52,967 1,58,20,785 1,40,21,741 2013-14 Nil Nil 3,57,55,020 28,80,000 2014-15 21,48,94,044 1,00,91,369 2,97,47,206 1,67,64,049 2015-16 16,80,27,919 2,19,72,700 2,99,64,323 1,20,60,372 Total 74,95,04,509 12,42,47,438 16,04,32,675 6,02,81,291 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of bogus long-term capital gain on by the assessee on penny stock is based. Firstly there was an information prior to the search that the assessee and his family members along with the companies controlled by him have earned bogus long-term capital gain accommodation entries by selling the sale of various non-descript companies through a fraudulent scheme of tax evasion and money-laundering in a very large scale over the years and unaccounted money generated has been colored as exempt long-term capital gain introduced into the books of accounts of the family members in a pre-arranged manner of hundreds of crores of rupees. This has led to search on 10/9/2015. During the course of search, the long-term capital gain earned by the assessee claimed as exempt under section 10 (38) of the act was found recorded in the books of account of these non-genuine companies. The statement recorded of the assessee under section 132 (4), assessee himself has explained whole modus operandi of the scheme and admitted that long-term capital gain claimed by the assessee and his family members and the companies is bogus, nongenuine and all out of many political and fraudulent transactions. Furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee and his relatives, ignorance of the assessee about the companies in which assessee has invested to earn unaccounted income, the operators operating on behalf of the exit providers having their permanent account number is and matching stock exchange trading data, unfamiliarity of the assessee with respect to trading of shares, ignorance of the assessee how he came to know about preferential shares allotment of the invested companies, despite investing heavily in preferential sale allotment of the companies ignorance about even the business of those companies and directors of those companies, no explanation provided by the assessee despite confronting assessee with all those statements of persons involved in scheme of conversion of unaccounted income in bogus long-term capital gain, authorization of obtaining long-term capital gain scheme shown to the assessee by Mr. Girish and Mr. Natwar, Mr. Girish being an employee of the assessee, explaining the scheme in answer to question number 42, explaining the source of money given for obtaining unaccounted income in question number 43, explaining how the unaccounted payments were made in answer to question number 44, confirming in answe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urposes and the cross objections of the assessee are dismissed. 037. Identical facts exists for assessment year 2011 12, 2012 13, 2014 15, 2015 16 and 2016 17. Therefore, similar directions are also given for all these years allowing the appeal of the learned assessing officer for statistical purposes and dismissing cross objections of the assessee. 038. Accordingly, in case of Mr. Nitinkumar Deendayal Didwania, all the appeals filed by the learned assessing officer are allowed for statistical purposes and cross objections filed by the assessee are dismissed for all these years. 039. Coming to the appeal is filed by the learned assessing officer in case of Mrs. Nitti Nitinkumar Didwania for assessment year 2010 11, 2011 12, 2012 13, 2014 15 and 2015 16 as well as cross objections filed by the assessee for all these assessment years are having similar facts except the change of amounts of long-term capital gain. Therefore, for the reasons given by us while disposing of the appeal of the learned AO and cross objections of Mr. Nitinkumar Didwania, we also allow the appeals of the learned assessing officer in case of Mrs. Nitti Nitinkumar Didwania for stati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that assessee has unrecorded sales of ₹ 155,841,837 for assessment year 2010 11, ₹ 135,216,734 for assessment year 2011 12, ₹ 284,034,824 for assessment year 2012 13, ₹ 576 Lacs for assessment year 2013 14, ₹ 335,280,986 for assessment year 14 15 and ₹ 243,389,364/ for assessment year 2015 16 amounting to ₹ 1,207,870,747 for all these years taken together. The learned assessing officer also added to the income of the assessee 5% gross profit out of these unaccounted sales. Therefore, on account of unaccounted sales of ₹ 120 crores taken together for all these years 5% of gross profit works out to ₹ 6 crores. Thus, corresponding addition was made for all these years. 044. On appeal before the learned CIT A, the addition of long-term capital gain and commission expenditure was confirmed on the merits where the learned CIT A has categorically held that about long-term capital gain shown by the assessee is bogus and correctly taxed under section 68 of the act. Similar findings were with respect to the expenditure. 045. However, the learned CIT A held that the addition in the Hands of the assessee on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessing officer for all these years back to the file of the learned CIT A to decide a fresh and give a detailed finding as to how the telescoping of the gross profit addition in the hands of this assessee company amounting to ₹ 6 crores subsumes all the additions of penny stock in the hands of Mr. Nitin Didwania as well as his family members and companies of Rs 120 crores can be telescoped. Accordingly the appeal of the learned assessing officer for all these assessment years are allowed for statistical purposes with above directions. 050. For assessment year 2014 15 development assessing officer is made disallowance under section 14 A of ₹ 350,406/ deemed learned assessing officer invoke the provisions of rule 8D despite the assessee making a disallowance of ₹ 109,504, made an addition of ₹ 459,910. The learned CIT A held that there is no dispute on applicability of section 14 A, the assessee is not given its working for the computation of disallowance, therefore the satisfaction recorded by the learned AO is correct. However, he held that the investment made by the assessee in its subsidiaries and where share capital and free reserve of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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