AI Insights
The case involves an appeal by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals) which had deleted the additions made by the Assessing Officer on account of unexplained cash credits and unexplained expenditure related to unsecured loans received by the assessee, Kailash Darshan Housing Development Gujarat Pvt. Ltd., from Empower Industries India Ltd and Prabhav Industries Ltd. The Revenue contended that these companies were mere shell companies and the transactions were not genuine. However, the Tribunal found that the assessee had discharged its burden of proof by providing sufficient evidence of the genuineness of the transactions, including the identity, creditworthiness of the lender companies, and the genuineness of the banking transactions involved.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 135597 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
3 year(s) 2 month(s) 14 day(s)
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
18-05-2023
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
B
Next Hearing Date
07-05-2023
Assessment Year
2011-2012
Appeal Filed On
04-03-2020
Judgement Text
आयकर आयकरआयकर आयकर अपी अपीअपी अपीलीय लीयलीय लीय अिधकरण अिधकरणअिधकरण अिधकरण, अहमदाबाद अहमदाबादअहमदाबाद अहमदाबाद यायपीठ यायपीठ यायपीठ यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’ B’’ BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER, And SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER आयकर अपील सं./ITA No. 1276/AHD/2019 With CO. No.32/Ahd/2020 िनधा रण िनधा रणिनधा रण िनधा रण वष वष वष वष /Asstt. Year: 2011-12 D.C.I.T, Central Circle-1(2), Ahmedabad. Vs. Kailash Darshan Housing Development Gujarat Pvt. Ltd., 2 nd Floor Sarthik Annex, Near Fun republic Satellite, Ahmedabad. PAN: AACCK6422D (Applicant) (Respondent) Revenue by : Ms. Nupur Shah, AR Assessee by : Shri Rakesh Jha, Sr. DR सुनवाई क तारीख/Date of Hearing : 08/05/2023 घोषणा क तारीख /Date of Pronouncement: 19/05/2023 आदेश आदेशआदेश आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal and CO have been filed at the instance of the Revenue and the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-11, Ahmedabad, dated 28/05/2019 (in short “Ld. CIT(A)”) arising in the matter of assessment order passed under s. 143(3) r.w.s 147 of the Income Tax Act 1961 (here-in-after referred ITA no.1276/AHD/2019 With C.O.No.32/Ahd/2020 A.Y. 2011-12 2 to as "the Act"). The assessee has filed the Cross Objection in the Revenue’s appeal bearing ITA No. 1276/Ahd/2019 for the Assessment Year 2011-2012. 2. The Revenue has raised the following grounds of appeal: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition of ?2,25,00,000/- on account of unexplained credit in respect of unsecured loans u/s.68 of the Act. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition without considering the facts that cash payment against credit of ? 2.25 cores received by the assessee from Empower Industries India Ltd and Prabhav Industries Ltd which are managed and controlled by Shirish Chandrakant Shah are not genuine transactions as these companies are mere paper/shell companies having no business activities and the funds received in their accounts are also layering payment. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition without considering the facts that Shirish Chandrakant Shah has provided one time accommodation entries through the reference of 'pradeep ahd' to various companies during the period 29.06.2010 to 24.06.2011 and on correlation of the entries recorded in 'OT start to 3103.2012' it has been found that accommodation entries to the assessee alongwith other beneficiary companies have been provided. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition of ^4,50,QOQ/-on account of unexplained expenditure u/s.69C of the Act. 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O. 6. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent. 3. The first issue raised by the revenue is that the learned CIT(A) erred in deleting the addition made by the AO of Rs. 2,25,00,000/- being bogus unsecured loan under section 68 of the Act and expenses incurred for Rs. 4,50,000.00 in connection with such unsecured loan. 4. The facts in brief are that the assessee in the present case is a company and claims to be engaged in the business of building and construction. The history of the case is like this that a search and seizure action in the case of Shri Pradeep Birewar, an Ahmedabad ITA no.1276/AHD/2019 With C.O.No.32/Ahd/2020 A.Y. 2011-12 3 based accommodation entry provider, was carried out under section 132 of the Act. Likewise, another search and survey action were carried out at the office of premises of Shri Shirish Chandra Shah on 09.04.2013 situated at “Dwarka Ashish Building” Jambulwadi, Kalbadevi Road Mumbai. As a result of the search, various documents were unearthed showing the accommodation entries provided to the assessee. During search, the statement of Shri Pradip Birewar was recorded under section 132(4) of the Act wherein he stated that his role was to introduce clients desirous of obtaining accommodation entry to Shri Shirish Chandra Shah. The statement of Shirish Chandra Shah was also recorded under section 132(4) of the Act wherein it was accepted that he is engaged in providing accommodation entries against receipt of cash to his various clients including Kailash Darshan Housing Development (Gujrat) Pvt Ltd. 4.1 Thereafter, the case of assessee was reopened under section 147 of the Act after recording the reason to believe that income of the assessee has escaped assessment. Accordingly, a notice under section 148 of the Act was issued which was duly served upon the assessee. The AO found that the assessee during the year under consideration received unsecured loan of Rs. 75,00,000/-and Rs. 1,50,00,000/- from Empower Industries India Ltd and Prabhav Industries Ltd respectively. These companies are controlled by Shri Shirish Chandra Shah. On question, the assessee submitted that he has received unsecured loan of Rs 75,00,000/-and Rs 1,50,00,000/- from Empower Industries India Ltd and Prabhav Industries Ltd respectively and these funds were totally repaid back to the said companies. Empower Industries India Ltd and Prabhav Industries Ltd have huge amount of share capital and reserve to provide the loans and advances to the assessee company. The assessee has provided the PAN, address, and ledger account in its books of accounts of Empower Industries India Ltd. The assessee has also submitted PAN, ITR acknowledgement and ledger account of Prabhav Industries Ltd. 5. However, the AO found that the companies i.e. Empower Industries India Ltd and Prabhav Industries Ltd, managed and controlled by Shirish Chandra Shah, were merely ITA no.1276/AHD/2019 With C.O.No.32/Ahd/2020 A.Y. 2011-12 4 paper/shell companies, having no business activities and funds were received in their accounts after layering into many companies. Thus, the loan received by the assessee from these companies was not genuine. Therefore, AO treated the credit of loan amount as unexplained cash credit under section 68 of the Act and added to the total income of the assessee. 5.1 The AO further in view of the fact that the assessee has received accommodation entry from the parties as discussed above opined that assessee must have incurred certain expenses in connection with such accommodation entries. The cost of such expenses was worked out at ₹ 4,50,000/- being 2% of the value of the accommodation entries and added the same to the total income of the assessee. 6. Aggrieved assessee preferred an appeal before the learned CIT(A). 7. The assessee before the Ld. CIT(A) submitted that it had furnished name, address, and PAN, copies of audited accounts for FY 2010-11 of both the companies during the assessment proceeding. The acknowledgement of return filed by Prabhav Industries Ltd for AY 2011-12 was also furnished. Similarly, the assessee submitted its bank statement. 7.1 The assessee before the Ld. CIT(A) also submitted that the statement of Shri Shirish Chandra Shah and Pradip Birewar were not provided to it. Likewise, no independent inquiry was conducted by AO in respect of both the companies whose identity was not at all doubted by AO and no opportunity of cross examination of Shri Shirish Chandra Shah and Pradip Birewar was granted by the Ld. AO. The transactions of loan received and repaid are through normal banking channel. 8. The learned CIT(A) after considering the facts in totality deleted the addition made by the AO for the amount credited from Empower Industries India Ltd and Prabhav Industries Ltd by observing as under: ITA no.1276/AHD/2019 With C.O.No.32/Ahd/2020 A.Y. 2011-12 5 “In the present case the AO has not been able to dispute the evidence furnished by the appellant in support of the unsecured loan received by the appellant company from the parties namely M/s. Empower Industries (I) Ltd and M/s. Prabhav Industries Ltd. In view of these facts and discussion, the unsecured loan received from the above two companies stands explained from the point of view of the appellant and no addition can be made in the hands of the appellant company. After considering the findings given by the AQ, written submission made by the appellant and the factual evidence available on record, I am of the considered opinion that the unsecured loans received by the appellant company from the above two companies cannot be treated as unexplained as the amount has been received through cheque. It is duly reflected in the audited accounts of the There is no factual evidence to prove that the transactions were not genuine or there were some cash transactions to prove that the transaction was not genuine It is important to mention that the AO of the appellant company is also AO of Prabhav Industries Ltd which prove the identity and genuineness of the company. In view of the above facts and circumstances, I am of the view that in the given facts of the present case, the issue is covered by the decision of the Hon'ble Gujarat High Court in the case of DCIT v. Rohini Builders 256 ITR 360 (Guj.) wherein it has been held that - "The assessee was a firm engaged in the business of dealings inland. During the assessment year under consideration the assessee had taken loans from various parties and during the course of assessment proceedings, the assessee had furnished the loan confirmations giving full addresses, GIR Numbers/permanent account numbers, etc of all the depositors. The Assessing Officer however issued summons to some of the creditors and also conducted inquiries into the genuineness or otherwise of the loans taken by the assessee After considering the evidence, the Assessing Officer made an addition of Rs 12,85,000/- to the returned income of the assessee. This was confirmed by the Commissioner of Income tax (Appeals). On further appeal to the Tribunal the Tribunal held that the phraseology of section 68 of the income Tax Act, 1961, was clear, that the Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income- tax as the income of the assessee of that previous year, that the legislative mandate is not in terms of the words "shall be charged to income-tax as the income of the assessee of that previous year, that the un-satisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as income of the assessee. The Tribunal found that the assessee had discharged the initial onus which lay on it in terms of section 68 by proving the identity of the creditors by giving their complete addresses, GIR numbers/permanent account numbers and the copies of assessment orders wherever readily available, that it had also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee was not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source. Thus taking into consideration the totality of the facts and circumstances of the case, and, in particular the fact that the Assessing Officer had not disallowed the interest claimed/paid in relation to these credits in the assessment year under consideration or even in the subsequent years, and tax had been deducted at source out of the interest paid/credited to the creditors, the Tribunal held that the Departmental authorities were not justified in making the addition of Rs. 12,85,000/-. On appeal to the High Court:- Conclusion Tribunal having deleted the addition under s. 68 accepting the genuineness of loans which were received and repaid by assessee by account payee cheques, assessee having established the identity of the creditors by giving their complete addresses, GIR numbers/PAN ITA no.1276/AHD/2019 With C.O.No.32/Ahd/2020 A.Y. 2011-12 6 as well as confirmations along with the copies of their assessment orders wherever readily available, no substantial question of law arises; appeal under s. 260A dismissed. Following Rohini Builder's judgment, Gujarat High Court has very recently in the case of ITO Vs. Shanti Enterprise [2016] 71 taxmann.com 275 reconfirmed the views held in the case of Rohini Builders. Excerpts are produced here: ".....amounts were received by the assessee by account payee cheques and initial burden of proving the credits was discharged. It is held that the assessee need not prove the source of the credits and the fact that the explanation was not satisfactory would not automatically result in deeming amounts as income of the assessee...." Respectfully following the ratio of Hon'ble Gujarat High Court in the case of Rohini Builders (supra) and the facts of the present case, the addition made by the AO on account of unexplained cash credit u/s. 68 of the Act of Rs.2,25,00,000/- is not justified and the same is hereby deleted. This ground of appeal is allowed.” XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX DECISION 6.2 Submission of the appellant and facts mentioned in the assessment order has been carefully considered in totality. The AO in Para 9 on Page 29 of the assessment order has made an observation that further, as confessed by Shri Shirish Chandra C. Shah u/s 132(4) of the Act, he was charging 2% commission on the total amount of the accommodation entry provided. Since the assessee has obtained a one time accommodation entry of Rs 2,25,00,000/-, the commission paid to Shirish Chandra Shah @ 2% comes to Rs 4,50,000/- which is paid in cash by the assessee and this expenditure has been incurred without recording the same in the books of account. It is noticed that assessee has not offered source of the amount of Rs. 4,50,000/- in the return filed, which has led to believe that this amount has remained untaxed. Therefore, on this point, there is a failure on the part of the assessee to disclose fully and truly all incomes pertaining to the assessment year 2011-12". The appellant in the written submission filed during the course of appellate proceedings on 12.03.2019 submitted that the AO has made the addition of Rs. 4,50,000/- on the basis of statement recorded u/s: 132(4) of the Act during the course of search proceedings wherein he had stated that he was charging 2% commission on the total accommodation entry provided and the AO has made an addition of Rs. 4,50,000/- being 2% commission on Rs. 2,25,00,000/- It is submitted that the said unsecured loans were fully repaid back by the appellant during the year under consideration itself through proper banking channel and the appellant has also by furnishing various details and evidence on the record of the AO duly established the identity of the lender party, creditworthiness of the lender party and genuineness of the transaction. Further, for making the addition, the AO has not issued any specific show cause notice during the course of assessment proceedings hence the addition of Rs. 4,50,000/- made by the AO u/s. 60C of the Act is unjustified and band law and the same deserves to be deleted. I have already held in Para 5.2 herein above that the unsecured loan received by the appellant company from M/s. Empower Industries (1) Ltd and M/s. Prabhav Industries Ltd as genuine and the addition made by the AO of Rs. 2,25,00,000/- on account of unexplained cash credits under section 68 has been deleted, the stand of the AO to estimate the average rate of commission @ 2% of Rs. 4,50,000/- on Rs. 2,25,00,000/- is not found justified and hence the addition made by the AO of Rs. 4,50,000/- on account of unexplained money u/s. 69C of the Act is hereby deleted. This ground of appeal is allowed. ITA no.1276/AHD/2019 With C.O.No.32/Ahd/2020 A.Y. 2011-12 7 9. Being aggrieved by the order of the learned CIT(A), the revenue is in appeal before us. 10. The learned DR before us submitted that the onus is upon the assessee to establish the genuineness of the transactions and creditworthiness of the parties, but the assessee failed to do so. The ld. DR vehemently supported the order of the AO. 11. On the other hand, the learned AR before us filed three paper books running from pages 1 to 753 and reiterated the submission made before the ld. CIT-A after placing reliance on his order. 12. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that amount of loan shown by the assessee from the companies namely Empower Industries India Ltd and Prabhav Industries Ltd has been treated as unexplained cash credit in the hands of the assessee under section 68 of the Act. The basis of the AO for treating the impugned amount of loan as unexplained cash credit was that both the companies were engaged in providing the accommodation entry which was unearthed during the search proceedings in the case of the persons namely Shri Pradeep Birewar and Shirish Chandra Shah who were controlling and managing the affairs of these companies along with other companies. 12.1 It is the settled position of law that w here the assessing officer want to refer or relies upon material gathered back of the assessee or the statement of witness with intent to make addition against the assessee then he is duty bound to confront these material or statement with the assessee. When the material/statements do not confront with the assessee then it is violation of the principle of natural justice and entire addition solely based on such statement is likely to be deleted. In holding so, we rely on the judgement of Hon’ble Gujarat High Court in the case of CIT Vs. Indrajit Singh Suri reported in 33 taxmann.com 281 wherein it was held as under: ITA no.1276/AHD/2019 With C.O.No.32/Ahd/2020 A.Y. 2011-12 8 It further appears that no opportunity of cross examination of Shri Gajjar, though requested for, was granted by the Assessing Officer. Cumulatively, thus, when the Tribunal found that there was violation of principles of natural justice by not allowing cross examination despite such request coupled with absence of any evidence, no error much less any substantial error is committed by the Tribunal in deleting the said amount. This issue, therefore, requires no further consideration. 12.2 In the present case, the opportunity of cross examination was not afforded to the assessee despite the fact that the assessee has made out specific request to the AO during the assessment proceedings. The relevant extract of the request made by the assessee is reproduced as under: “a. The statement of Shirish Shah and Pradip Birewar are not provided to the appellant company on which AO has strongly relied upon; b. No independent inquiry is conducted by Ld AO during assessment proceedings in respect of both the companies whose identity was not at all doubted by AO; c. No opportunity of cross examination was granted by Ld AO though the same was asked by appellant company during assessment proceedings; d. Shirish Shah and Pradip Birewar were not cross-examined by Ld AO whose oral statements are strongly relied upon; e. Both the companies from whom loan is received had enough funds available as on 31.03.2010 and 31.03.2011 which is evident from Annual report and accounts which proves the capacity of lenders to advance money; f. The transactions of loan received and repaid are through normal banking channel which proves genuineness of transactions.” 12.3 Moving further, we note that the amount of loan received by the assessee was paid within the same financial year under consideration whereas search was conducted on the parties as discussed above subsequently i.e., after the repayment of the loan by the assessee. In this regard, we find that the Hon’ble Gujarat High Court in the case of CIT Vs. Rohini builders reported in 256 ITR 360 has observed as under: “The genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques.” 12.4 Had there been any doubt by the Revenue on the repayment of the loan as claimed by the assessee, it was the duty of the revenue to carry out the necessary verification. It is for the reason that the assessee has discharged its onus by furnishing the necessary details ITA no.1276/AHD/2019 With C.O.No.32/Ahd/2020 A.Y. 2011-12 9 in support of the repayment of the loan. Accordingly, the onus shifted upon the revenue to disprove the contention of the assessee based on the documentary evidence. But we note that no documentary evidence has been brought on record by the Revenue to disprove the contention of the assessee. 12.5 Besides the above, we also note that the loan parties were having sufficient share capital in their hands which can be verified from the following details available before the lower authorities: In case of Empower Industries(I) Ltd.- Loan received and repaid during the year of Rs.75,00,000/- i. Creditability/capacity of the lender • For the said company, the appellant company had provided 29 th Annual Report for FY 2010 which shows that this is very old company (Refer page no.354 to 428 of paperbook ii) The financial statement of this company reveals the following: Particulars As at 31.03.2011 As at 31.03.2010 Paperbook II page no. Eq. Share Capital & Reserves 3,74,97,84,800 1,06,48,19,791 413 Bank balance 97,10,201 5,46,84,505 414 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX b. In case of Prabhav Industries Ltd-Loan received and repaid during the year of Rs.1,50,00,000/- i. Creditability /capacity of the lender • For the said company, the appellant company had provided Annual Report for FY 2010-11. As per MCA Data date of incorporation of the said company is 08/12/1995 thus this also an old company (Refer page no.431to 470 of paper book II) The financial statement of this company reveals the following: Particulars As at 31.03.2011 As at 31.03.2010 Paperbook II page no. Eq. Share Capital & Reserves 1,48,72,41,750 1,48,72,41,750 451 Bank balance 24,67,473 90,94,380 452 Revenue from Operations 81,54,88,640/- 2,23,32,016 449 12.6 In view of the above and after considering the facts in totality, we are of the opinion that the order of the learned CIT(A) does not suffer from any infirmity and accordingly we decline to interfere in such an order of the learned CIT(A). Once the loan entries received by the assessee has been held as genuine, there is no question of calculating the amount of expenses to have been incurred by the assessee in connection with such loan. Hence, the addition made by the AO for ₹4,50,000/- is not sustainable. As such, the order of the learned CIT(A) is not required to be interfered with respect to such loan and expenses. Hence, the ground of appeal of the revenue is hereby dismissed. ITA no.1276/AHD/2019 With C.O.No.32/Ahd/2020 A.Y. 2011-12 10 12.7 In the result, the appeal of the Revenue is hereby dismissed. Coming to the CO No. 32/Ahd/2020, in ITA No. 1276/Ahd/2019 by the Assessee 13. At the outset, we note that the assessee in the CO filed by it has supported the order of the Ld. CIT-A. Accordingly, we hold that no separate adjudication is required for the CO filed by the assessee. Hence, we dismiss the same as infructuous. 14. In the result, the CO filed by the assessee is dismissed as infructuous. 15. In the combined result, the appeal of the Revenue and CO filed by the assessee are dismissed. Order pronounced in the Court on 19/05/2023 at Ahmedabad. Sd/- Sd/- (T.R. SENTHIL KUMAR) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 19/05/2023 Manish
Other Referred Cases
DCIT v. Rohini Builders, ITO Vs. Shanti Enterprise, CIT Vs. Indrajit Singh Suri
Laws Referred To
Income Tax Act 1961
1:1 Consultation on Tax Litigation
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1:1 Consultation on SME Listing
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1:1 Consultation on Salary Structuring
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Letter of Indemnity - Registering as Representative Assessee for Deceased
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Assignment of Registered Trademark
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