The ACIT Central-2, Indore V. M/s Shubham Fininvest India P Ltd , Indore

ITA 169/Ind/2022

AI Insights

The case involves appeals by the Revenue against the order of the Commissioner of Income Tax (Appeals) which had deleted the additions made by the Assessing Officer on account of unexplained cash credits under section 68 of the Income-tax Act, 1961. The Revenue contended that the CIT(A) had misread the evidence and failed to appreciate the probative value of the facts brought on record by the AO, which included information from a search and seizure operation linked to Shri Praveen Kumar Jain, who was involved in providing accommodation entries. The Tribunal found that the CIT(A) had not conducted a proper verification of the records and thus remanded the matter back to the AO for a detailed examination.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130340 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 20-08-2023
• Assessment Year: 2008-2009
• Appeal Filed On: 01-06-2022
• Other Referred Cases: Sudarshan Silk and Sarees 300 ITR 205 (SC), Pr. CIT vs. M/s Chain House International Pvt. Ltd. 408 ITR 561, CIT vs. Orissa Corporation 159 ITR 78 (SC)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: VENUS
• Keywords: Unexplained cash credit; Search and seizure; Question of law; Accommodation entries; Set aside
• Section: 68; 205

Judgement Text

Page 1 of 10 आयकर अपील य अ धकरण, इंदौर यायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER ITA No.169 & 170/Ind/2022 (Assessment Year:2008-09 & 2009-10) ACIT Central-2 Indore Vs. M/s. Subham Fininvest India P. Ltd. 103, Laxmi tower, 576, MG Road, Indore (Appellant / Revenue) (Respondent/ Assessee) PAN:AANCS5071P Revenue by Shri Ashish Porwal, Sr. DR Respondent by Shri C.P. Rawka & Shri Venus Rawka, AR Date of Hearing 21.08.2023 Date of Pronouncement 13.09.2023 O R D E R Per Vijay Pal Rao, JM: These two appeals by the Revenue are directed against composite order dated 24.03.2022 of Commissioner of Income Tax(Appeals)-3 Bhopal, for Assessment Years 2008-09 & 2009-10 respectively. The revenue has raised common grounds in these appeals. Grounds raised for A.Y.2008-09 are as under: “1.Whether on the fact and in the circumstances of the case and in law, while deleting addition of Rs.1,83,21,000/- made by the AO on account of unexplained cash credit u/s 68 of the Income-tax Act, 1961, the ld. CIT(A) has failed to allude to relevant facts brought on record by AO, misread the evidences and its probative value which itself gives rise to question of law in view of ratio of decision in the case of Sudarshan Silk and Sarees 300 ITR 205 (SC). ITA No.169 & 170/Ind/2022 Subham fininvest India Pvt. Ltd. Page 2 of 10 Page 2 of 10 2.Whether on the fact and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the assessee has discharged its onus of cash credits u/s 68 of It Act especially when it was on record that accommodation entries were received from the companies controlled by Shri Praveen Kumar Jain, who himself in statement recorded u/s 132(4) of act has accepted that he is induldged in providing accommodation entries and all the companies controlled by him are mere paper companies with no real business.] 3.Whether on the fact and in the circumstances of the case and in law, the Ld. CIT (A) is justified in deleting the addition of Rs. 1,83,21,000/- made by the AO on account of unexplained cash credit u/s 68 of the Income-tax Act, 1961 without appreciating that in view of paper creditors without financial or commercial substance and failure on part of assessee to produce share applicants for cross examination, the burden of assessee in establishing the identity, creditworthiness and genuineness of transactions as required u/s 68 of the Income Tax Act could not be said to have been discharged.” 2. Ld. DR has submitted that the AO received information from investigation wing Mumbai as a result of search and seizure action u/s 132 of the Act conducted in case of Shri Praveen Kumar Jain on 01.10.2013 wherein he has accepted his indulgence in providing accommodation entries to various companies and assessee is one of the beneficiaries of accommodation entries. After analyzing the documents seized from Shri Praveen Jain the investigation wing Mumbai found that several transactions were made between the assesse company and various companies operated by Shri Praveen Kumar Jain. He has referred to the details of transactions as per the information received from the investigation wing Mumbai, reproduced by the AO in para no.2 of the assessment order. The assessing officer has reproduced the relevant part of the statement of Shri Praveen Kumar Jain recorded u/s 132(4) and specifically in reply to question no.66 wherein he has accepted that he is in the business of accommodation entries which are routed by the companies under his control. He has also explained the modus operandi of receiving funds and providing bogus accommodation entries like unsecured loans, long term capital gain etc. The assesse has taken share application money with a premium of Rs.90,00,000/- during the assessment year 2008-09 & Rs.1,93,21,000/- for A.Y.2009-10 from Shri ITA No.169 & 170/Ind/2022 Subham fininvest India Pvt. Ltd. Page 3 of 10 Page 3 of 10 Praveen Jain through his bogus paper companies. The assessing officer has verified and analyzed the financial report of these companies and found that these companies have not offered any income and have not commercial operations during the year under consideration and no profit and loss account has been prepared and total income has been taken at nil. Further, the AO noted that the share applicant company has shown outstanding share application money of Rs.1,83,21,000/- as on 31.03.2008. He has further submitted that the share applicant companies from whom the assessee has received money are not having any business activities, fixed asset or revenue from business operations but the source of funds is shown only from premium on securities which clearly manifest the paper transactions of accommodation entries. The AO also received the information from the investigation wing Indore as a result of investigation conducted in case of Moira Group of Indore, wherein share application from these companies were also found to be received. The AO asked the assesse to produce principal officers of companies from whom the assesse has received share application money along with their tax audit report, audited balance sheet, profit & loss account, bank statement etc. 3. In reply the assesse expressed its inability to produce the relevant record as well as Principal Officer of the share applicant companies and took an excuse that all these companies are based out of Indore. Therefore, the assesse failed to discharge its onus to prove the identity and creditworthiness of the creditors as well as the genuineness of the transactions. He has pointed out that the Ld. CIT(A) has deleted the addition on technical ground of cross examination not given to the assessee. He has relied upon the order of the AO. 4. On the other hand, Ld. AR has submitted that the assessee produced a copy of certificate of incorporation, Memorandum of Association, copy of PAN, audit accounts, acknowledgment of return of income, bank statement etc. of the share applicant companies. He has further submitted that all the relevant evidence was filed before the AO ITA No.169 & 170/Ind/2022 Subham fininvest India Pvt. Ltd. Page 4 of 10 Page 4 of 10 which is placed at page no.7 to 23 of the paper book. Further, the AO made double addition of the share application money received during three years but considered this consolidate amounts of the share application money for the years in which the shares were allotted by the assessee. Ld. AR has filed the bank account statements of the share applicants. He has pointed out that the assesse received share application money during the assessment years 2008-09 of Rs.90,00,000/- and Rs.1 crore during the assessment year 2009-10. However the AO has made addition of Rs.90,00,000/- for A.Y.2008-09 & Rs.1,93,21,000/- for A.Y.2009-10. Therefore, there is a double addition made by the AO. Ld. AR has submitted that the assesse discharged its initial onus to establish the identity, creditworthiness of the creditors and genuineness of the transactions by producing reliable evidence. The AO has not conducted any inquiry to disprove the evidence produced by the assessee and therefore, the addition made by the AO u/s 68 of the Act is not sustainable in law and liable to be deleted. The Ld. CIT(A) has rightly deleted the addition. He has relied upon the judgment of Jurisdictional High Court in case of Pr. CIT vs. M/s Chain House International Pvt. Ltd. 408 ITR 561 as well as judgment of Hon’ble Supreme Court in case of CIT vs. Orissa Corporation 159 ITR 78 (SC). He has supported the impugned order of the Ld. CIT(A). 5. We have considered the rival submissions as well as relevant material on record. The AO has extracted the information received from Investigation Wing Mumbai in para 2 of the assessment order as under: “2. The information extracted by the Investigation wing Mumbai in respect of Assessee Company is that the assessee had received share application money from various bogus companies floated by Shri Praveen Jain. The detail is as under] Sr. No. Name of Company A.Y.2008-09 A.Y.2009-10 1 Nakshtra Business Pvt. (Formerly known as Ltd. Hema 20,00,000/- ITA No.169 & 170/Ind/2022 Subham fininvest India Pvt. Ltd. Page 5 of 10 Page 5 of 10 Trading Company Pvt. Ltd.) 2 Olive Overseas Pvt. Ltd. (Formerly known as Real gold Trading Company Pvt. Ltd.) 10,00,000/- 3 Sanjivani Enviro Protection Pvt. 20,00,000/- 4 Traingular (Formerly Infocom Ltd. known as Lexus Infotech Pvt. Ltd.) 10,00,000/- 5 Yash-V Jewels Ltd. 50,00,000 15,00,000/- 6 Javda Impex Ltd. (Formerly known as Alka Finlease Ltd.) 40,00,000 15,00,000/- 7 Kush Hindustan Entertainment Ltd. 10,00,000/- Total 90,00,000 1,00,00,000/- 5.1. This information is not in dispute as the assessee received share application money of Rs.90,00,000/- from two companies during the assessment years 2008-09 & Rs.1,00,00,000/- from seven companies during the assessment year 2009-10. During the investigation conducted by the department in case of Shri Praveen Kumar Jain statement u/s 132(4) was recorded and the relevant part of statement in response to question no.66 is reproduced by the AO at page no.5 & 6 as under: “Q.66 Please give the list of the complete gamut of activities carried out by you in association with your family members and other close associates. ITA No.169 & 170/Ind/2022 Subham fininvest India Pvt. Ltd. Page 6 of 10 Page 6 of 10 Sir I am basically in the business of giving accommodation entries which are routed through the companies under my control. All the companies either owned by me or directly/indirectly under my control are paper companies with no real business transactions. In most of the cases various brokers who operate in the field of providing accommodation entries approach me when they want a certain type of accommodation entry like bogus unsecured loan, bogus LTCG etc. However, in very few cases the end beneficiaries also approach me when they want an accommodation entry, Sir, the nature of my business is such that trust is a very important factor and I do not deal with strangers and I mostly provide accommodation entries through brokers who are known to me. The clients who are desirous of taking accommodation entries approach different brokers who are in this field and through our network I get the requirement of the client. Based on the specific type of accommodation entry required, I either provide the same through the companies under my control or contact other brokers and facilitate the accommodation entries through the other accommodation entry providers. Sir, normally I provide the following types of accommodation entries: 1 Accommodation entry for unsecured loan/advances. 2. Accommodation entry for Share Application. 3. Accommodation entry for LTCG (I do not provide this type of entry through companies controlled by me but I get the same arranged through other brokers who provide such type of entries). 4.Accommodation entry for bogus sale and purchase (Before 2010 I used to provide accommodation entry for bogus sale and purchase in various kinds of commodities like damond, plywood, paper, steel, hardware etc. However, after 2010 I have provided bogus sale and purchase entries only for diamond] 5. Accommodation entry in the nature of turnover trading 6. Accommodation entry for facilitating exit from bagus LTCG scheme in penny stock 5.2. It is pertinent to note that the assessee is a Private Ltd. Company and has shown schedule forming part of share capital as on 31.03.2008 of Rs.1,02,000/- only as reflected in the balance sheet as under: ITA No.169 & 170/Ind/2022 Subham fininvest India Pvt. Ltd. Page 7 of 10 Page 7 of 10 5.3. The assesse has shown nil income for these two assessment years as it is clear from statement of total income at page no. A26 of the paper book: ITA No.169 & 170/Ind/2022 Subham fininvest India Pvt. Ltd. Page 8 of 10 Page 8 of 10 5.4. Therefore, the investment in loss making Private Limited Company can be made by closely related person knowing well the existing owners /promoters of the company and also expecting good future prospects of the company. It is pertinent to note that like a public limited company the financial details of the Pvt. Ltd. Company are not available in public domain. Therefore, the investment in such companies at premium of 90 times of the face value of shares requires a good business at present as well as in future which is not visible from the financials of the assessee company so far as these two years before us are concerned. Therefore, the proposition as laid down in cases relied upon by Ld. AR is not strictly applicable in case of the assesse being a closely held Pvt. Ltd. Company. Thus, more stringent burden is cast on the assessee to prove the capacity of the investor and genuineness of the transactions from the bank account statements of the assessee and share applicants. It is apparent that the alleged transactions of Rs.10,00,000/- from M/s. Real Gold Co. ITA No.169 & 170/Ind/2022 Subham fininvest India Pvt. Ltd. Page 9 of 10 Page 9 of 10 Pvt. Ltd. is not matching with the entries in the respective bank accounts statements. Therefore, it requires a proper verification to ascertain whether alleged money received by the assesse is actually transferred from the bank account of the investor companies. The Ld. CIT(A) has deleted the addition on the ground that the assessee has filed necessary documents however, except the submissions of the assessee there is nothing in the impugned order to reflect that such record was taken up for verification by the Ld. CIT(A). There is no reference to any of the transactions of the alleged share application money recorded in the bank account of the assesse or in the bank account of the share applicant company. We tried our best to ascertain the corresponding transactions from the bank account statements of the assessee and the bank account statement of the investor companies but could not find entries exactly match to each other. Therefore, in our considered view the Ld. CIT(A) has deleted the addition without conducting a proper verification of the record. Hence the matter requires a proper verification and examination of relevant fact and record. So far as the double addition made by the AO is concerned we find that when the assessee has shown the credit on account of share application money of Rs.90,00,000/- for A.Y.2008-09 and Rs.1,00,00,000/- for A.Y.2009-10 then the addition u/s 68 cannot be more than the said credited amount. Therefore, to that extent the addition made by the AO is rightly deleted by the Ld. CIT(A). Accordingly in the facts and circumstances of the case as discussed above we set aside the impugned order of the Ld. CIT(A) for A.Ys.2008-09 & 2009-10 and the matter is remanded to the record of the AO for proper verification and examination of the relevant record filed by the assessee and particularly the trail and moment of the money credited by the assesse on account of share application money during these two years. The entries in the bank account filed by the assessee before us are also required to be verified. The AO shall pass fresh order after giving an appropriate opportunity of hearing to the assessee. ITA No.169 & 170/Ind/2022 Subham fininvest India Pvt. Ltd. Page 10 of 10 Page 10 of 10 6. In the result, the appeal filed by the revenue for A.Y.2008-09 & 2009-10 are allowed for statistical purpose. Order pronounced in the open court on 13.09.2023. Sd/- Sd/- (B.M. BIYANI) (VIJAY PAL RAO) Accountant Member Judicial Member Indore, 13.09.2023 Patel/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore