AI Insights
Sunshine Merchants Pvt. Ltd. appealed against the order of the Commissioner of Income-tax (Appeals)-52, Mumbai, which upheld the reassessment made by the Assessing Officer for the assessment year 2011-12. The reassessment was based on information from the Investigation Wing indicating that the assessee had taken accommodation entries in the guise of unsecured loans. The Tribunal dismissed the appeal, agreeing with the lower authorities that the reassessment was valid and the additions made were justified. The Tribunal noted that the assessee failed to provide credible evidence to prove the genuineness of the transactions or the creditworthiness of the lenders, which were identified as shell companies.
Appeal Details
Counselvise Citation
[2022] 140 COUNSELVISE.COM (IT) 123458 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 year(s) 9 month(s) 11 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
28-12-2022
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
E
Next Hearing Date
14-11-2022
Assessment Year
2011-2012
Appeal Filed On
17-03-2020
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “E” MUMBAI BEFORE SHRI VIKAS AWASTHY (JUDICIAL MEMBER) AND SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) ITA No. 1539/MUM/2020 Assessment Year: 2011-12 Sunshine Merchants Pvt. Ltd., 601, Sunshine Plaza, Niagaum Cross Road, Dadar East, Mumbai-400014. Vs. DCIT CC-4(1), Air India Building, 19 th floor, Nariman Point, Mumbai-400021. PAN No. AAGCA 1771 R Appellant Respondent Assessee by : None Revenue by : Mr. Ashish Heliwal, DR Date of Hearing : 15/11/2022 Date of pronouncement : 29/12/2022 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee is directed against order dated 31/01/2020 passed by the Ld. Commissioner of income- tax(Appeals)-52, Mumbai [in short the Ld. CIT(A)] for assessment year 2011-12, raising following grounds: 1. The CIT(A) erred in law and on facts in upholding the action of the Assessing Officer in making the impugned reassessment u/s of a borrowed satisfaction from the investigation wing and merely repeating the facts recorded by the investigation wing in its reference without establishing any direct link between the tangible material and formation of appellant had escaped assessment as is clear from the addition made that even the relevant assessment folder was never examined before issuing the impugned notice us 148 of the Act. Thus, the impugned reassessment which must be annulled. 2. The CIT(A) erred in law and on facts while confirming the addition of Rs.3,65,001 as below: a. b. c. d. e. f. f. That the interest was credited to the account reassessment u/s 143(3)/147 of the Act on the basis of a borrowed satisfaction from the investigation wing and merely repeating the facts recorded by the investigation wing in its reference without establishing any direct link between the tangible material and formation of the reason to believe that the income of appellant had escaped assessment as is clear from the addition made that even the relevant assessment folder was never examined before issuing the impugned notice us 148 of the Act. Thus, the impugned reassessment order is bad in law and void ab initio which must be annulled. The CIT(A) erred in law and on facts while confirming the addition of Rs.3,65,001 as below: That the appellant does not have to prove source of source of the loan creditor. That each of the lender companies had shareholders funds which was much more than the amount lent to the appellant. That quantum of loans and the capacity of the lenders do not at all justify to call them shell companies in any manner. That the premises taken by the CIT(A) is that the amounts received were stare capital cash credits. That the loan was received in earlier years by account payee cheques. f. That the interest was credited to the account of the lenders and applicable TDS on interest Sunshine Merchants Pvt. Ltd. ITA No. 1539/M/2020 2 143(3)/147 of the Act on the basis of a borrowed satisfaction from the investigation wing and merely repeating the facts recorded by the investigation wing in its reference without establishing any direct link between the tangible material and the reason to believe that the income of appellant had escaped assessment as is clear from the addition made that even the relevant assessment folder was never examined before issuing the impugned notice us 148 of the Act. Thus, the impugned order is bad in law and void ab initio The CIT(A) erred in law and on facts while confirming That the appellant does not have to prove source That each of the lender companies had sufficient much more than That quantum of loans and the capacity of the lenders do not at all justify to call them shell premises taken by the CIT(A) is that the received were stare capital cash That the loan was received in earlier years by f. That the interest was credited to the account of the lenders and applicable TDS on interest g. h. 2. At the outset, we may like to mention that despite notifying for the hearing detailed 15/11/2020, neither anyone attended nor any request for adjournment of the h it is seen that despite notifying none attended on behalf of the assessee on last many occasions i.e. 28/07/2022; 07/07/2022; 24/05/2022; 05/04/2022; 28/02/2022; 12/01/2022; 08/12/2021; 26/10/2021 and 13/09/2021. In the we were of the opinion that the assessee was not interested in prosecuting the appeal, and therefore same was heard the assessee, after hearing arguments of Representative. was deducted and paid which has been duly accepted and therefore, the addition deleted on account of interest claimed. That no opportunity to cross examine any person whose statements have been relied in the assessment proceedings. Thus, the additions confirmed for interest credited in the account of the lenders as fresh loan should be deleted. the outset, we may like to mention that despite notifying for the hearing detailed 15/11/2020, neither anyone attended nor any request for adjournment of the hearing was filed. From the record, it is seen that despite notifying none attended on behalf of the assessee on last many occasions i.e. 28/07/2022; 07/07/2022; 24/05/2022; 05/04/2022; 28/02/2022; 12/01/2022; 08/12/2021; 26/10/2021 and 13/09/2021. In the we were of the opinion that the assessee was not interested in prosecuting the appeal, and therefore same was heard the assessee, after hearing arguments of Ld. Sunshine Merchants Pvt. Ltd. ITA No. 1539/M/2020 3 was deducted and paid which has been duly accepted and therefore, the addition deleted on That no opportunity to cross examine any person whose statements have been relied in the irmed for interest credited in the account of the lenders as fresh the outset, we may like to mention that despite notifying for the hearing detailed 15/11/2020, neither anyone attended nor any earing was filed. From the record, it is seen that despite notifying none attended on behalf of the assessee on last many occasions i.e. 28/07/2022; 07/07/2022; 24/05/2022; 05/04/2022; 28/02/2022; 12/01/2022; 08/12/2021; 26/10/2021 and 13/09/2021. In the circumstances, we were of the opinion that the assessee was not interested in prosecuting the appeal, and therefore same was heard ex-parte qua Ld. Departmental 3. Briefly stated effects of the case are that the assessee filed its return of income for the assessment year under consideration on 26/09/2011 declaring total income of processed under section 143(1 short the Act). Subsequently, a search and seizure action under section 132 of the Shunshine group wherein it was noticed by the investigation wing of income – department that the assessee had taken accommodation entries from various entities in the guise of unsecured loans. In view of the information and relevant material received by the Assessing Officer, he issued notice under section 148 of Act on 27/03/2018 and commenced reassessment proceeding. The Assessing Of and considering the explanations of the assessee, assessment order, where he made a addition of the unsecured loan along with interest thereon as unexplained cash credit in terms of section 68 of the assessee challenged the validity of the reassessment proceeding as well as merit of the addition. The Ld. CIT(A) in his detailed finding Briefly stated effects of the case are that the assessee filed its return of income for the assessment year under consideration on 26/09/2011 declaring total income of ₹ 89, 02, 740/ processed under section 143(1) of the Income-tax Act, 1961 ( short the Act). Subsequently, a search and seizure action under section 132 of the Act was carried out on the premises of Shunshine group wherein it was noticed by the investigation wing department that the assessee had taken tries from various entities in the guise of unsecured loans. In view of the information and relevant material received by the Assessing Officer, he issued notice under section on 27/03/2018 and commenced reassessment The Assessing Officer after providing due opportunity and considering the explanations of the assessee, assessment order, where he made a addition of ₹7,30, the unsecured loan along with interest thereon as unexplained cash section 68 of the Act. Before the Ld. CIT(A), the assessee challenged the validity of the reassessment proceeding as well as merit of the addition. The Ld. CIT(A) in his detailed finding Sunshine Merchants Pvt. Ltd. ITA No. 1539/M/2020 4 Briefly stated effects of the case are that the assessee filed its return of income for the assessment year under consideration on 89, 02, 740/-, which was tax Act, 1961 (in short the Act). Subsequently, a search and seizure action under was carried out on the premises of Shunshine group wherein it was noticed by the investigation wing department that the assessee had taken tries from various entities in the guise of unsecured loans. In view of the information and relevant material received by the Assessing Officer, he issued notice under section on 27/03/2018 and commenced reassessment fter providing due opportunity and considering the explanations of the assessee, passed detailed 7,30,002/- holding the unsecured loan along with interest thereon as unexplained cash . Before the Ld. CIT(A), the assessee challenged the validity of the reassessment proceeding as well as merit of the addition. The Ld. CIT(A) in his detailed finding has rejected contention of the assessee challenging validity of the reassessment. The relevant part of his finding is reproduced as under: 5.3 The main plea of the assessee is that the AO has reopened the case on a borrowed satisfaction and has not conducted any investigation on his own. It is claimed that he has not includ independently applied my mind' etc in the 5.4 The appellant has validly enumerated the four primary requirements which need to be fulfilled before the case can be validly reopened. However, he has failed to appreciate the reasons recorded by the AO in light of these four requirements and has fallen into the trap for various decisions which have been liberally quoted by him in his submission. has been pr assessment us 143(3) had been made prior to issue of notice under section 148 of the Act. Hence, there was no onus on the AO to demonstrate that there was a failure on the part of the assessee to disclose full also noted that the AO has applied his mind, examined the assessee's case with respect to information before him and arrived at a satisfaction. 5.5 The reliance placed by the assessee on the decision in the case of Sho examined. It is noted that the Hon'ble High Court has has rejected contention of the assessee challenging validity of the eassessment. The relevant part of his finding is reproduced as 5.3 The main plea of the assessee is that the AO has reopened the case on a borrowed satisfaction and has not conducted any investigation on his own. It is claimed that he has not included the customary phrases like I have independently applied my mind' etc in the reasons. The appellant has validly enumerated the four primary requirements which need to be fulfilled before the case can be validly reopened. However, he has failed to appreciate the reasons recorded by the AO in light of these four requirements and has fallen into the trap for various decisions which have been liberally quoted by him in his It is to be noted that the case of the assessee has been processed under section 143(1) of the Act and no assessment us 143(3) had been made prior to issue of notice under section 148 of the Act. Hence, there was no onus on the AO to demonstrate that there was a failure on the part of the assessee to disclose fully and truly all material facts. It is also noted that the AO has applied his mind, examined the assessee's case with respect to information before him and arrived at a satisfaction. The reliance placed by the assessee on the decision in the case of Shodiman Investments Pvt Ltd (supra) has been examined. It is noted that the Hon'ble High Court has Sunshine Merchants Pvt. Ltd. ITA No. 1539/M/2020 5 has rejected contention of the assessee challenging validity of the eassessment. The relevant part of his finding is reproduced as 5.3 The main plea of the assessee is that the AO has reopened the case on a borrowed satisfaction and has not conducted any investigation on his own. It is claimed that he ed the customary phrases like I have reasons. The appellant has validly enumerated the four primary requirements which need to be fulfilled before the case can be validly reopened. However, he has failed to properly appreciate the reasons recorded by the AO in light of these four requirements and has fallen into the trap for various decisions which have been liberally quoted by him in his It is to be noted that the case of the assessee ocessed under section 143(1) of the Act and no assessment us 143(3) had been made prior to issue of notice under section 148 of the Act. Hence, there was no onus on the AO to demonstrate that there was a failure on the part of y and truly all material facts. It is also noted that the AO has applied his mind, examined the assessee's case with respect to information before him and The reliance placed by the assessee on the decision in Investments Pvt Ltd (supra) has been examined. It is noted that the Hon'ble High Court has reiterated that a reopening can be done only when there is tangible material before the AO which is the basis for forming the belief even in cases where assess completed us 143(3) of the Act. The reliance placed on the decision in the case of Orient Craft Ltd (supra) is required to be discussed in light of the decision of Shodiman Investments. In the case of Swastic Safe Deposit and Investments reiterated its findings in Shodiman Investments. In all these cases relied upon by the assessee, the key theme is that there should be tangible material based on which the AO has to arrive at a satisfaction with income. 5.6 In the present case, it is noted that there is sufficient tangible material in the form of the findings of elaborate investigation conducted by the Investigation Wing. That such a report constitutes a valid tangible ma affirmed by a number of judicial authorities. 5.7 The Hon'ble jurisdictional High Court, in the case of Export Credit Guarantee Corporation of India Ltd. [WRIT PETITION NO.502 OF 2012], in their decision dated 11 January, 2013, have noted The Assessing Officer even within a perind of four years cannot reopen an assessment merely on the basis of a change of opinion. The Assessing Officer has no power to review an assessment which has been concluded. reiterated that a reopening can be done only when there is tangible material before the AO which is the basis for forming the belief even in cases where assessment has not been completed us 143(3) of the Act. The reliance placed on the decision in the case of Orient Craft Ltd (supra) is required to be discussed in light of the decision of Shodiman Investments. In the case of Swastic Safe Deposit and Investments Ltd (supra), again the Bombay High Court has reiterated its findings in Shodiman Investments. In all these cases relied upon by the assessee, the key theme is that there should be tangible material based on which the AO has to arrive at a satisfaction with respect to escapement of In the present case, it is noted that there is sufficient tangible material in the form of the findings of elaborate investigation conducted by the Investigation Wing. That such a report constitutes a valid tangible material has been affirmed by a number of judicial authorities. The Hon'ble jurisdictional High Court, in the case of Export Credit Guarantee Corporation of India Ltd. [WRIT PETITION NO.502 OF 2012], in their decision dated 11 January, 2013, have noted that: The Assessing Officer even within a perind of four years cannot reopen an assessment merely on the basis of a change of opinion. The Assessing Officer has no power to review an assessment which has been concluded. But where he has tangible material Sunshine Merchants Pvt. Ltd. ITA No. 1539/M/2020 6 reiterated that a reopening can be done only when there is tangible material before the AO which is the basis for forming ment has not been completed us 143(3) of the Act. The reliance placed on the decision in the case of Orient Craft Ltd (supra) is required to be discussed in light of the decision of Shodiman Investments. In the case of Swastic Safe Deposit and Ltd (supra), again the Bombay High Court has reiterated its findings in Shodiman Investments. In all these cases relied upon by the assessee, the key theme is that there should be tangible material based on which the AO has respect to escapement of In the present case, it is noted that there is sufficient tangible material in the form of the findings of elaborate investigation conducted by the Investigation Wing. That such terial has been The Hon'ble jurisdictional High Court, in the case of Export Credit Guarantee Corporation of India Ltd. [WRIT PETITION NO.502 OF 2012], in their decision dated 11 th The Assessing Officer even within a perind of four years cannot reopen an assessment merely on the basis of a change of opinion. The Assessing Officer has no power to review an assessment which has been But where he has tangible material to come to the conclusion that there is an escapement of income from assessment, the power to reopen can be exercised. The expression reason to believe in Section 147 has been construed in the judgment of the Supreme Court in Assistant Commissioner of Inco Tax vs. Rajesh Jhaver Stock Brokers P. Ltd., to mean a cause or justification. However, at the stage when the Assessing Officer reopens an assessment, it is not necessary that the material before the Court should conclusively prove or establish that inc escaped assessment. A reason to believe at the stage of reopening is all that is relevant. This aspect must be emphasized because it clearly emerges from the judgment of Rajesh Jhaveri Stock Brokers: Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word reason' in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is to the conclusion that there is an escapement of income from assessment, the power to reopen can be exercised. The expression reason to believe in Section 147 has been construed in the judgment of the Supreme Court in Assistant Commissioner of Inco Tax vs. Rajesh Jhaver Stock Brokers P. Ltd., to mean a cause or justification. However, at the stage when the Assessing Officer reopens an assessment, it is not necessary that the material before the Court should conclusively prove or establish that inc escaped assessment. A reason to believe at the stage of reopening is all that is relevant. This aspect must be emphasized because it clearly emerges from the judgment of Rajesh Jhaveri Stock Brokers: Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word reason' in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is Sunshine Merchants Pvt. Ltd. ITA No. 1539/M/2020 7 to the conclusion that there is an escapement of income from assessment, the power to reopen can be exercised. The expression reason to believe in Section 147 has been construed in the judgment of the Supreme Court in Assistant Commissioner of Income Tax vs. Rajesh Jhaver Stock Brokers P. Ltd., to mean a cause or justification. However, at the stage when the Assessing Officer reopens an assessment, it is not necessary that the material before the Court should conclusively prove or establish that income has escaped assessment. A reason to believe at the stage of reopening is all that is relevant. This aspect must be emphasized because it clearly emerges from the Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word reason' in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally the fact by legal evidence or conclusion At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is reason to believe, but not established fact of escapement of income. At the stage of i notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because t by the Assessing Officer is within the realm of subjective satisfaction." 5.8 Hence, contrary to the averment of the assessee that the Assessing Officer should have conducted inquiries and should have phrased his satisfaction in a Hon'ble High Court as well as the Hon'ble Supreme Court have held that at the time of arriving at a prima face satisfaction, a full fledged inquiry is not expected from the AO. He needs to have tangible material before him and based on such tangible material and the facts contained in the assessment records of the Assessee, he can form a belief with respect to escapement of income. 4. After considering various precedents on the issue in dispute, the Ld. CIT(A) dismissed the ground as under: “5.13 Hence, in all such cases, the detailed investigation report of Investigation that has been accepted as a credible piece of information. The AO had a credible tangible material before him in the form of the re required is reason to believe, but not established fact of escapement of income. At the stage of i notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction." Hence, contrary to the averment of the assessee that the Assessing Officer should have conducted inquiries and should have phrased his satisfaction in a particular way, the Hon'ble High Court as well as the Hon'ble Supreme Court have held that at the time of arriving at a prima face satisfaction, a full fledged inquiry is not expected from the AO. He needs to have tangible material before him and such tangible material and the facts contained in the assessment records of the Assessee, he can form a belief with respect to escapement of income.” considering various precedents on the issue in dispute, the Ld. CIT(A) dismissed the ground challenging validity concluding 5.13 Hence, in all such cases, the detailed investigation report of Investigation that has been accepted as a credible piece of information. The AO had a credible tangible material before him in the form of the report of the Investigation Wing Sunshine Merchants Pvt. Ltd. ITA No. 1539/M/2020 8 required is reason to believe, but not established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern he formation of belief by the Assessing Officer is within the realm of Hence, contrary to the averment of the assessee that the Assessing Officer should have conducted inquiries and particular way, the Hon'ble High Court as well as the Hon'ble Supreme Court have held that at the time of arriving at a prima face satisfaction, a full fledged inquiry is not expected from the AO. He needs to have tangible material before him and such tangible material and the facts contained in the assessment records of the Assessee, he can form a belief considering various precedents on the issue in dispute, challenging validity concluding 5.13 Hence, in all such cases, the detailed investigation report of Investigation that has been accepted as a credible piece of information. The AO had a credible tangible material port of the Investigation Wing and based on information contained in the return of income of the assessee and the information available before him, he arrived at a satisfaction. The sufficiency of the satisfaction cannot be challenged. The assumption of ju AO is on valid ground. 5.14 The assessee has also raised an issue that the approval of the Pr. CIT and the Addl the approval note, they have merely mentioned that "Yes, I am satisfied". I am not convinced with the by the assessee. There is no requirement of the approving authorities to provide an elaborate reasoning with respect to their approval. That they have noted on the approval sheet that they are satisfied with the proposal is an indication of their perusal of the proposal and its approval and is a sufficient compliance with the requirements of the section. 5. On the issue of merit of the addition, the Ld. CIT(A) upheld the addition of unsecured loans of Rs. 3, 65, 001/ the addition of interest on those unsecured loans holding that said interest amount was not found to be based on any incriminating material. The relevant finding of the Ld. CIT(A) is reproduced as under: “6.2 The submissions of the assessce have been duly considered. It is noted that the assessee has not provided any rationale explanation with respect to the credibility of and based on information contained in the return of income of the assessee and the information available before him, he arrived at a satisfaction. The sufficiency of the satisfaction cannot be challenged. The assumption of jurisdiction by the AO is on valid ground. 5.14 The assessee has also raised an issue that the approval of the Pr. CIT and the Addl. CIT is mechanical as in the approval note, they have merely mentioned that "Yes, I am satisfied". I am not convinced with the argument taken by the assessee. There is no requirement of the approving authorities to provide an elaborate reasoning with respect to their approval. That they have noted on the approval sheet that they are satisfied with the proposal is an indication of their perusal of the proposal and its approval and is a sufficient compliance with the requirements of the section. On the issue of merit of the addition, the Ld. CIT(A) upheld the addition of unsecured loans of Rs. 3, 65, 001/-, however , deleted e addition of interest on those unsecured loans holding that said interest amount was not found to be based on any incriminating material. The relevant finding of the Ld. CIT(A) is reproduced as The submissions of the assessce have been duly nsidered. It is noted that the assessee has not provided any rationale explanation with respect to the credibility of Sunshine Merchants Pvt. Ltd. ITA No. 1539/M/2020 9 and based on information contained in the return of income of the assessee and the information available before him, he arrived at a satisfaction. The sufficiency of the satisfaction risdiction by the 5.14 The assessee has also raised an issue that the CIT is mechanical as in the approval note, they have merely mentioned that "Yes, I argument taken by the assessee. There is no requirement of the approving authorities to provide an elaborate reasoning with respect to their approval. That they have noted on the approval sheet that they are satisfied with the proposal is an indication of their perusal of the proposal and its approval and is a sufficient compliance with the requirements of the section.” On the issue of merit of the addition, the Ld. CIT(A) upheld the , however , deleted e addition of interest on those unsecured loans holding that said interest amount was not found to be based on any incriminating material. The relevant finding of the Ld. CIT(A) is reproduced as The submissions of the assessce have been duly nsidered. It is noted that the assessee has not provided any rationale explanation with respect to the credibility of these three companies from whom the appellant has taken loans. Investigations by the Revenue have sufficiently demonstrated that these are of these companies also reveal the same. The addresses of these companies are fictitious. The transactions of receipt of funds are unverifiable. Under the circumstances, the assessee could not bank on technicalities of lack examination to deny the onus cast on us. the assessee to prove the genuineness of the transaction in absence of any financial worth of the company or any commercial transactions undertaken by the company. The assessee has erred in arrive at a conclusion that the net worth of the company is sound while the fact is that the share capital is from unexplained sourcos and has been used for providing bogus entries while the income of the company is n no employees, no address, no operations etc. whatsoever. The high volume of transaction on capital account without any underlying revenue or physical activity clearly reveals the nature of entity as a shell company. While the appellant is correct in claiming that once the identity. genuineness of the transaction and creditworthiness of the lender is proved, no addition can be made, in the present case, the credit worthiness as well as the genuineness of the transaction has not been proved b transaction is with a company having negligible income and turnover and there is enough evidence to show that most of the transactions represent multiple layers of companies that have been created for the purpose of diver these three companies from whom the appellant has taken loans. Investigations by the Revenue have sufficiently demonstrated that these are shell companies. The financials of these companies also reveal the same. The addresses of these companies are fictitious. The transactions of receipt of funds are unverifiable. Under the circumstances, the assessee could not bank on technicalities of lack examination to deny the onus cast on us. The onus was on the assessee to prove the genuineness of the transaction in absence of any financial worth of the company or any commercial transactions undertaken by the company. The assessee has erred in noting the extent of share capital to arrive at a conclusion that the net worth of the company is sound while the fact is that the share capital is from unexplained sourcos and has been used for providing bogus entries while the income of the company is nil and there are no employees, no address, no operations etc. whatsoever. The high volume of transaction on capital account without any underlying revenue or physical activity clearly reveals the nature of entity as a shell company. While the appellant correct in claiming that once the identity. genuineness of the transaction and creditworthiness of the lender is proved, no addition can be made, in the present case, the credit worthiness as well as the genuineness of the transaction has not been proved by the assessee. In cases where the transaction is with a company having negligible income and turnover and there is enough evidence to show that most of the transactions represent multiple layers of companies that have been created for the purpose of diverting money or for Sunshine Merchants Pvt. Ltd. ITA No. 1539/M/2020 10 these three companies from whom the appellant has taken loans. Investigations by the Revenue have sufficiently shell companies. The financials of these companies also reveal the same. The addresses of these companies are fictitious. The transactions of receipt of funds are unverifiable. Under the circumstances, the assessee could not bank on technicalities of lack of cross The onus was on the assessee to prove the genuineness of the transaction in absence of any financial worth of the company or any commercial transactions undertaken by the company. The noting the extent of share capital to arrive at a conclusion that the net worth of the company is sound while the fact is that the share capital is from unexplained sourcos and has been used for providing bogus il and there are no employees, no address, no operations etc. whatsoever. The high volume of transaction on capital account without any underlying revenue or physical activity clearly reveals the nature of entity as a shell company. While the appellant correct in claiming that once the identity. genuineness of the transaction and creditworthiness of the lender is proved, no addition can be made, in the present case, the credit worthiness as well as the genuineness of the transaction has y the assessee. In cases where the transaction is with a company having negligible income and turnover and there is enough evidence to show that most of the transactions represent multiple layers of companies that ting money or for money laundering, the onus was on the assessee to demonstrate that its own transaction represented a genuine transaction. No such effort is forthcoming from the assessee. The claim of the assessee with respect to cross or lack of opportunity is also not found tenable in light of public listing of such companies as shell companies. 6.3 Another claim made by the assessee is that the loans pertain to earlier years and hence cannot be added in the current year. In this regard, the has been examined and it is noted that while the opening balance of the loans is Rs 10,00,000 in respect of each of these three companies, loans taken during the year has been shown at Rs 1,21,667/ companies. As such, the addition made by the AO to the extent of Rs 3,65,001/ correctly made by the AO and addition of Rs 3,65,0017 amount is not found to b the addition to this extent stands deleted. 6. We find that before us the assessee has neither filed any submission nor anyone rebutting the finding of the Ld. CIT(A) on the issue i therefore in absence of any material to the contrary, we uphold the finding of the Ld. CIT(A) on the issue of validity of the reassessment money laundering, the onus was on the assessee to demonstrate that its own transaction represented a genuine transaction. No such effort is forthcoming from the assessee. The claim of the assessee with respect to cross-examination of opportunity is also not found tenable in light of public listing of such companies as shell companies. Another claim made by the assessee is that the loans pertain to earlier years and hence cannot be added in the current year. In this regard, the details filed by the assessee has been examined and it is noted that while the opening balance of the loans is Rs 10,00,000 in respect of each of these three companies, loans taken during the year has been shown at Rs 1,21,667/- in respect of each of these companies. As such, the addition made by the AO to the extent of Rs 3,65,001/- under section 68 of the Act has be correctly made by the AO and is sustained. The additional addition of Rs 3,65,0017- shown as interest on the above amount is not found to be based on any material and hence, the addition to this extent stands deleted.” find that before us the assessee has neither filed any anyone appeared on behalf of the assessee for rebutting the finding of the Ld. CIT(A) on the issue i therefore in absence of any material to the contrary, we uphold the finding of the Ld. CIT(A) on the issue of validity of the reassessment Sunshine Merchants Pvt. Ltd. ITA No. 1539/M/2020 11 money laundering, the onus was on the assessee to demonstrate that its own transaction represented a genuine transaction. No such effort is forthcoming from the assessee. examination of opportunity is also not found tenable in light of public listing of such companies as shell companies. Another claim made by the assessee is that the loans pertain to earlier years and hence cannot be added in the details filed by the assessee has been examined and it is noted that while the opening balance of the loans is Rs 10,00,000 in respect of each of these three companies, loans taken during the year has been in respect of each of these companies. As such, the addition made by the AO to the under section 68 of the Act has been is sustained. The additional shown as interest on the above e based on any material and hence, find that before us the assessee has neither filed any appeared on behalf of the assessee for rebutting the finding of the Ld. CIT(A) on the issue in dispute, therefore in absence of any material to the contrary, we uphold the finding of the Ld. CIT(A) on the issue of validity of the reassessment as well as merit of the addition. The ground appeal of the assessee are accordingly dismissed. 7. In the result, the appeal filed by the assessee is dismissed. Order pronounced 1963 on 29/12/2022. Sd/- (VIKAS AWASTHY JUDICIAL MEMBER Mumbai; Dated: 29 /12/2022 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// as well as merit of the addition. The ground Nos. appeal of the assessee are accordingly dismissed. In the result, the appeal filed by the assessee is dismissed. Order pronounced under Rule 34(4) of the ITAT Rules, /2022. Sd/ VIKAS AWASTHY) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Sr. Private Secretary) ITAT, Mumbai Sunshine Merchants Pvt. Ltd. ITA No. 1539/M/2020 12 Nos. 1 and 2 of the In the result, the appeal filed by the assessee is dismissed. under Rule 34(4) of the ITAT Rules, Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Sr. Private Secretary) ITAT, Mumbai
Other Referred Cases
Shodiman Investments Pvt Ltd, Orient Craft Ltd, Swastic Safe Deposit and Investments Ltd, Export Credit Guarantee Corporation of India Ltd. [WRIT PETITION NO.502 OF 2012], Assistant Commissioner of Income Tax vs. Rajesh Jhaver Stock Brokers P. Ltd.
Laws Referred To
Income-tax Act, 1961
1:1 Consultation on SME Listing
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1:1 Consultation on Tax Litigation
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1:1 Consultation on Startup Compliance
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Affidavit - Application for condonation of delay in filing the appeal before ITAT - Type 2
Mehul₹0
Memorandum Amendment Resolution
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