M/s Nahata Holding & Consultants Pvt. Ltd., Kolkata V. ACIT, CC-XXIV, Kolkata

ITA 1719/KOL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4613 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 09-08-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 03-06-2013
• Court: TRIBUNAL
• Department Lawyers: RABIN CHOUDHARY
• Keywords: Unexplained cash credit; Income from undisclosed sources; Accommodation entries; Block assessment
• Section: 143(3); 32; 131; 68; 132

Judgement Text

1 ITA NO. 1719/KOL/2013 NAHATA HOLDINGS & CONSULTANTS P. LTD. AY 2003-04 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA [BEFORE SHRI M. BALAGANESH, AM & SHRI K. NARASIMHA CHARY, JM] I.T.A NO. 1719/KOL/2013 ASSESSMENT YEAR: 2003-04 NAHATA HOLDINGS & CONSULTANTS PVT. LTD. VS. ASSTT. COMMISSIONER OF INCOME-TAX, (PAN: AAACN9751G) CENTRAL CIRCLE-XXIV, KOLK ATA. ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 10.08.2016 DATE OF PRONOUNCEMENT: 24.08.2016 FOR THE APPELLANT: SHRI RAVI TULSIYAN, FCA FOR THE RESPONDENT: SHRI RABIN CHOUDHARY, JCIT , SR. DR ORDER PER SHRI M. BALAGANESH, AM: THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT(A), CENTRAL-III, KOLKATA VIDE APPEAL NO. 41/CC-XXIV/CIT(A)C-III/2006-07/KOL DATED 26.03.2013. ASSESSMENT WAS FRAMED BY ACIT, CC-XXIV, KOLKATA U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR AY 2003-04 VIDE HIS O RDER DATED 24.03.2006. 2. WE FIND THAT THE ASSESSEE HAD RAISED SOME ADDITI ONAL GROUNDS BEFORE US WHICH WERE WITHDRAWN BY IT VIDE LETTER DATED 30.6.2016. HENC E, THE SAME ARE NOT ADMITTED FOR ADJUDICATION. 3. THE FIRST REGULAR GROUND RAISED BY THE ASSESSEE IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. 4. THE FIRST ISSUE TO BE DECIDED IN THIS CASE IS A S TO WHETHER THE LD CIT(A) IS JUSTIFIED IN UPHOLDING THE ADDITION MADE U/S 68 OF THE ACT IN TH E SUM OF RS. 38,00,000/- IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE AS SESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND SECURITIES. THERE WAS A SEARCH U/S 1 32 OF THE ACT CARRIED OUT IN UIC GROUP OF CASES ON 7.5.2002. AS A CONSEQUENTIAL PROCEEDINGS, THE BLOCK ASSESSMENT FOR THE BLOCK 2 ITA NO. 1719/KOL/2013 NAHATA HOLDINGS & CONSULTANTS P. LTD. AY 2003-04 PERIOD ENDING 7.5.2002 WAS COMPLETED U/S 158BD OF T HE ACT IN THE HANDS OF THE ASSESSEE ON 30.11.2006 BY MAKING THE FOLLOWING OBSERVATIONS :- 28. BUT AT THE SAME TIME, ONE CANNOT OVERLOOK THE FACT THAT THE ASSESSEE WAS ACTING AS A NAME LENDER OR MERELY ACTING AS FACILITATORS FOR THE UIC GROUP TO CHANNEL THEIR UNACCOUNTED MONEY THROUGH ITSELF FOR WHICH IT WAS PAID A COMMISSION A MOUNT WHICH IS EVIDENT FROM THE COMPLICIT RELATIONSHIP OF MR. S. SINGHI AND MR. RAJESH JAJODI A WITH THE DIRECTORS OF THE UIC GROUP OF INDUSTRIES, MR. B.L. JAJODIA AND MR. MAHENDRA JAJOD IA AND THE ENTIRE PROCESS OF CHANNELIZING THE UNACCOUNTED MONEY OF THE UIC GROUP THROUGH THE COMPANIES OWNED AND MANAGED BY THEM. TAKING INTO ACCOUNT MANY PRECEDENT SEARCH CAS ES WHERE SIMILAR ACCOMMODATING CASH TRANSFERS HAVE BEEN DETECTED, IT WAS SEEN THAT NORM ALLY ALL THE CONDUITS INVOLVED IN SIMILAR RACKETS WERE PAID A COMMISSION AT THE RATE OF AROUN D 1%. THEREFORE, A COMMISSION RATE OF 1% IS ESTIMATED TO HAVE BEEN RECEIVED B7 THE ASSESSEE COMPANY FROM THE UIC GROUP WHICH WORKS OUT TO RS.2,65,300/- AND THIS AMOUNT IS ADDED BACK TO THE INCOME OF THE ASSESSEE FOR THE BLOCK PERIOD AND THIS AMOUNT IS ASSESSED IN THE HANDS OF THE ASSESSEE ON SUBSTANTIVE BASIS. IN THE SAID BLOCK ASSESSMENT, THE LD AO OBSERVED TH AT THE FUNDS TRANSFERRED FROM THE BANK ACCOUNTS OF FOUR PERSONS NAMELY SHANKAR LAL (A/C NO . 4934); SURENDRA (A/C NO. 4933); SUNIL (A/C NO. 4914) AND RAJENDRA (A/C NO. 4886) TO THE BANK ACCOUNT OF THE ASSESSEE TOWARDS SALE OF SHARES TO THE TUNE OF RS. 2,65,30,0 00/- IS NOT THE ASSESSEES ACTUAL INCOME BECAUSE THE ULTIMATE BENEFICIARY IS FINALLY THE UIC GROUP. THIS WAS OBSERVED IN PARA 26 OF THE SAID BLOCK ASSESSMENT ORDER BY THE LD AO. THE LD AO FURTHER OBSERVED THAT THE ENTIRE PURPOSE AND RIGMAROLE OF SHARE SALE AND PURCHASE BY THE TWO TO THREE LAYERS OF SHARE TRANSACTIONS UNDERTAKEN BY THE COMPANIES CONTROLLED BY MR. S. SINGHI AND MR. RAJESH JAJODIA IS A CLEAR, COVERT AND CONNIVING OPERATION TO CHANNELIZE THE UIC GROUPS OWN UNACCOUNTED MONEY BACK TO ITSELF THROUGH THIS MAZE OF CASH DEPOSITS AND SHARE TRANSACTIONS WHEN THERE WERE NO ACTUAL SHARE TRANSACTIONS BUT ON LY ACCOMMODATING BOOK ENTRIES OF THE RESPECTIVE INTERMEDIARY COMPANIES. THEREFORE, THE AMOUNTS IN QUESTION SHOULD BE RATHER TAXED ON PROTECTIVE BASIS IN THE HANDS OF THE ASSES SEE COMPANY AND ON SUBSTANTIVE BASIS IN THE HANDS OF THE UIC GROUP SINCE THE AMOUNT OF RS.2 ,65,30,000/- WAS NOT CONSIDERED IN THE BLOCK ASSESSMENT OF THE UIC GROUP. HENCE, THIS AMO UNT IS TAXED ON A PROTECTIVE BASIS IN THE HANDS OF THE ASSESSEE COMPANY. ACCORDINGLY, THE LD AO ADDED A SUM OF RS. 2,65,30,0 00/- ON PROTECTIVE BASIS AND GAVE A FINDING THAT THE ASSESSEE WAS ONLY IN RECEIPT OF CO MMISSION INCOME @ 1% ON THE ENTIRE BANK TRANSACTIONS OF AFORESAID FOUR PERSONS AND ADD ED A SUM OF RS. 2,65,300/- TOWARDS COMMISSION INCOME. 4.2. THE RETURN OF INCOME FOR THE ASST YEAR 2003-0 4 WAS REGULARLY FILED ON 1.12.2003 DISCLOSING LOSS OF RS. 3,428/- . THIS REGULAR RETU RN WAS SELECTED FOR SCRUTINY AND DURING THE 3 ITA NO. 1719/KOL/2013 NAHATA HOLDINGS & CONSULTANTS P. LTD. AY 2003-04 COURSE OF REGULAR ASSESSMENT PROCEEDINGS, THE LD AO OBSERVED THAT ON VERIFICATION OF BANK ACCOUNTS MAINTAINED BY SUNIL KR JAIN , RAJENDRA KR SURANA, SHANKAR LAL GODH AND S.K.HIRAWAT IN FEDERAL BANK, BURRABAZAR BRANCH, THA T HUGE CASH WERE DEPOSITED IN THEIR RESPECTIVE ACCOUNTS AND THEN TRANSFERRED FROM THEIR ACCOUNTS TO THE ACCOUNT OF THE ASSESSEE COMPANY DURING THE RELEVANT FINANCIAL YEAR AS WELL AS IN EARLIER YEAR. ACCORDINGLY THE LD AO OBSERVED THAT THE AMOUNTS WERE TRANSFERRED ONLY AFT ER DEPOSITING CASH EITHER ON THE SAME DAY OR ONE DAY BEFORE. THE DETAILS OF THE SAME ARE AS BELOW:- ACCOUNT NO. NAME OF THE HOLDER DATE OF CASH DEPOSIT AMOUNT OF CASH DEPOSIT (RS.) DATE OF TRANSFER TO ASSESSEES BANK A/C. AMOUNT (RS.) CA 4934 SHANKARLAL GUDH & BABULAL BAID 17.04.02 03.05.02 06.05.02 4,50,000/- 4,99,000/- 4,40,000/- 18.04.02 03.05.02 06.05.02 4,50,000/- 5,00,000/- 4,00,000/- 13,50,000/- CA 4886 RAJENDRA KUMAR SURANA 19.04.02 20.04.02 22.04.02 06.05.02 3,00,000/- 3,01,000/- 4,50,000/- 4,60,000/- 19.04.02 22.04.02 07.05.02 3,00,000/- 7,50,000/- 3,50,000/- 14,00,000/- CA 4933 SURENDRA KUMAR HIRAWAT 17.04.02 04.05.02 06.05.02 07.05.02 4,50,000/- 5,01,000/- 1,50,000/- 1,60,000/- 18.04.02 19.04.02 06.05.02 07.05.02 3,00,000/- 1,50,000/- 5,00,000/- 1,00,000/- 10,50,000/- 4.3. SINCE THE SOURCES OF SUCH CASH DEPOSITS AND C REDITWORTHINESS OF THE PERSONS COULD NOT BE PROVED ; SUMMONS U/S 131 OF THE ACT COULD NO T BE SERVED BY THE INSPECTOR DEPUTED FROM HIS OFFICE ; EVEN THE WATCHMAN OF THE BUILDING COULD NOT IDENTIFY THE AFORESAID PERSONS , CONSIDERING ALL THESE , THE LD AO DIRECTED THE AS SESSEE TO PRODUCE THE PARTIES NAMELY SHRI SHANKARLAL GODH, SHRI RAJENDRA KUMAR SURANA AND SHR I SURENDRA KUMAR HIRAWAT FOR RECORDING THEIR STATEMENTS. IN ITS REPLY, THE DIR ECTOR OF THE ASSESSEE COMPANY MR. ASHOK JHA STATED AS UNDER :- THE ACCOUNT OF THE AFORESAID PERSONS MENTIONED IN YOUR LETTER DOES NOT BELONG TO OUR COMPANY. WE HAVE ONLY SOLD OUR INVESTMENTS TO THESE PERSONS. IN CONSIDERATION THEREOF, THE PAYMENT RECEIVED HAS BEEN ACCOUNTED FOR ON REVENUE ACCOUNT AND SHOWN AS 'SALE PROCEEDS'. THUS, IT IS ONLY SUBSTITUTION OF ONE ASSET FOR OTHE R. IT IS NOT A CASE WHERE ASSESSEE HAS OBTAINED ANY CASH CREDIT. WE HAVING ALREADY ACCOUNTED FOR TH ESE AMOUNTS AS ITS INCOME IN ITS PROFIT & LOSS ACCOUNT, WE HAVE NOTHING MORE TO EXPLAIN. UNDERSIGNED THEREFORE, IS UNABLE TO COMMENT UPON TH E OBSERVATION MADE BY YOU IN RESPECT OF THE AFORESAID ACCOUNTS. THE COPIES OF TH E BILLS EVIDENCING THE SALE OF THE SHARES DULY CREDITED IN THE PROFIT & LOSS ACCOUNT COULD BE SEEN ENCLOSED. AS REGARDS NON-APPEARANCE / NON-AVAILABILITY BY / O F THE AFORESAID PARTIES, UNDERSIGNED WOULD LIKE TO SUBMIT THAT WE OWES NO RE SPONSIBILITY UNDER THE LAW TO PRODUCE 4 ITA NO. 1719/KOL/2013 NAHATA HOLDINGS & CONSULTANTS P. LTD. AY 2003-04 THEM. YOU HAVE ALL THE PLENARY POWERS TO CONDUCT EN QUIRY AT YOUR END IN CONNECTION WITH THESE PERSONS FOR FASTENING ANY LIABILITY ON THEM'. 4.4. THE LD AO OBSERVED THAT SINCE PROCEEDINGS U/S 158BD OF THE ACT HAVE ALREADY BEEN INITIATED IN THE NAME OF THE ASSESSEE AND ALL THE A BOVE DEPOSITS WERE WITHIN 7.5.2002 I.E THE PERIOD COVERED UNDER SUCH PROCEEDINGS , THE ABOVE A MOUNT OF RS. 38,00,000/- WAS ADDED ON PROTECTIVE BASIS AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT IN THE REGULAR ASSESSMENT PROCEEDINGS COMPLETED U/S 143(3) OF THE ACT ON 24.3 .2006. 4.5. BEFORE THE LD CITA , IT WAS ARGUED THAT IT I S AN ACCEPTED POSITION THAT THE AMOUNT OF RS 38,00,000/- WAS RECEIVED BY THE ASSESSEE THROUGH ACCOUNT PAYEE CHEQUES AGAINST SALE OF INVESTMENTS. THE SAID INVESTMENT WAS DULY DISCLOSE D IN THE BOOKS OF ACCOUNTS. THE ASSESSEE HAD DULY COMPUTED CAPITAL GAINS AND OFFERE D IT IN ITS INCOME TAX RETURN. THUS, THERE IS SUBSTITUTION OF ONE ASSET BY ANOTHER ASSET BY WA Y OF SALE. INVESTMENTS BELONGING TO THE ASSESSEE WERE REPLACED BY CONSIDERATION RECEIVED BY WAY OF SALE TO FOUR PERSONS. INVESTMENTS HAD GONE OUT OF THE POSSESSION OF THE A SSESSEE, WHICH IS DULY EVIDENCED BY THE BALANCE SHEET FILED BY THE ASSESSEE FOR THE RELEVAN T YEAR. IT WAS FURTHER ARGUED THAT THE LD AO HAD NOT DOUBTED THAT THE INVESTMENT HAD GONE OUT OF THE POSSESSION OF THE ASSESSEE. SINCE THE ASSESSEE WAS NO LONGER IN POSSESSION OF T HE SAID INVESTMENT, THE QUESTION OF UNEXPLAINED CREDIT U/S 68 OF THE ACT DOES NOT ARISE AT ALL. IN VIEW OF THE ABOVE, THE AMOUNT OF RS. 38,00,000/- WAS NOTHING BUT CONVERSION OF IN VESTMENT INTO CASH AND HENCE CANNOT BE TREATED AS INCOME FROM UNDISCLOSED SOURCES AND HENC E NO QUESTION OF APPLICABILITY OF SECTION 68 OF THE ACT ARISES IN AS MUCH AS AN AMOUNT CANNOT BE DOUBLY TAXED. 4.6. WITHOUT PREJUDICE, IT WAS ALSO ARGUED THAT IN ORDER TO PROVE THE CASH CREDIT , THE ASSESSEE HAD TO PROVE THE THREE INGREDIENTS VIZ (I) IDENTITY OF THE CREDITOR, (II) GENUINENESS OF THE TRANSACTION AND (III) CREDITWORTHINESS OF THE C REDITOR. IN THE INSTANT CASE, THE LD AO HAD ONLY DOUBTED THE CREDITWORTHINESS OF THE FOUR PERSO NS. IN THIS REGARD, IT WAS SUBMITTED THAT THE SAID PERSONS HAD SUFFICIENT BANK BALANCE AND TH E AMOUNT WAS RECEIVED FROM THEM BY ACCOUNT PAYEE CHEQUES AND ACCORDINGLY IT WAS ARGUED THAT THE CREDITWORTHINESS OF THE SAID PERSONS HAVE BEEN PROVED. THE LD CITA HOWEVER NO T CONVINCED WITH THE ARGUMENTS OF THE ASSESSEE CONFIRMED THE ADDITION MADE BY THE LD AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND NO. 2:- 5 ITA NO. 1719/KOL/2013 NAHATA HOLDINGS & CONSULTANTS P. LTD. AY 2003-04 2(A). ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(A) ERRED IN UPHOLDING THE ADDITION OF THE SUM OF RS.38,00,000/- U/S 68 OF THE INCOME-TAX ACT, 1961, BY CONSIDERING THE RECEIPT OF THE SAID AMOUNT AS UNEXP LAINED IN SPITE OF THERE BEING AMPLE EVIDENCES ABOUT THE GENUINENESS OF THE SAID RECEIPT OF MONEY BY THE APPELLANT BY WAY OF SALE OF SHARES. 2(B).WITHOUT ANY PREJUDICE TO ABOVE, THE LEARNED CI T(A) ERRED IN UPHOLDING THE ADDITION OF THE SUM OF RS.38,00,000/- SEPARATELY U/S 68 OF THE ACT, NEGLECTING TO TAKE INTO ACCOUNT THE FACT THAT THE AMOUNT HAD ALREADY BEEN CREDITED TO T HE ACCOUNTS OF THE APPELLANT AS 'SALE PROCEEDS OF SHARES' THUS LEADING TO A POSITION OF D OUBLE ADDITION OF THE SAME AMOUNT. 5. THE LD AR REITERATED THE SUBMISSIONS MADE BEFOR E THE LOWER AUTHORITIES AND PLACED A COPY OF THE BLOCK ASSESSMENT ORDER U/S 158BD OF THE ACT DATED 30.11.2006. IN RESPONSE TO THIS, THE LD DR VEHEMENTLY RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE LD AR HAD PLACED A COPY OF THE BLO CK ASSESSMENT ORDER FRAMED U/S 158BD OF THE ACT DATED 30.11.2006 AND ALSO FILED A STATEM ENT IN CHART FORM TO PROVE THAT RS. 38,00,000/- WAS INCLUDED IN THE TOTAL SUMS IN FOUR BANK ACCOUNTS OF FOUR PERSONS TOTALING TO RS. 2,65,30,000/-. IN OTHER WORDS, THE ADDITION MA DE IN THE SUM OF RS. 38,00,000/- IN THIS IMPUGNED ASSESSMENT IS INCLUDED IN THE TOTAL CREDIT S OF BANK ACCOUNTS OF FOUR PERSONS IN THE SUM OF RS. 2,65,30,000/-. WE FIND THAT THE ENTIRE CREDITS OF RS. 2,65,30,000/- IN THE BANK ACCOUNTS OF FOUR PERSONS HAVE ALREADY BEEN ADDED IN THE BLOCK ASSESSMENT PROCEEDINGS U/S 158BD OF THE ACT DATED 30.11.2006 IN THE HANDS OF T HE ASSESSEE, IN ADDITION TO ADDING THE COMMISSION INCOME THEREON @ 1% AMOUNTING TO RS. 2,6 5,300/-. WE ALSO FIND THAT IN THE SAID BLOCK ASSESSMENT ORDER, THE LD AO HAD GIVEN A CATEGORICAL FINDING THAT THE ASSESSEE IS ONLY PROVIDING ACCOMMODATION ENTRIES AND RECEIVING ONLY COMMISSION INCOME THEREON @ 1% . MOREOVER, THE LD AO HAD ALSO OBSERVED IN THE BLOCK ASSESSMENT ORDER SUPRA THAT THE ULTIMATE BENEFICIARY OF ALL THESE BANK TRANSACTIONS ARE ONLY UIC GROUP AND NOT THE ASSESSEE. THESE FACTS WERE NOT CONTROVERTED BY THE REVENUE BE FORE US. UNDER THESE CIRCUMSTANCES, WE HOLD THAT THERE IS NO NEED TO MAKE ANY ADDITION TOW ARDS CASH CREDIT OR COMMISSION INCOME UP TO 07.05.2002 IN THE REGULAR ASSESSMENT PROCEEDI NGS FOR THE ASST YEAR 2003-04 AS IT WOULD ONLY RESULT IN DOUBLE ADDITION. HENCE, THE AD DITION U/S 68 OF THE ACT IS DIRECTED TO BE DELETED. ACCORDINGLY, THE GROUND NO. 2 RAISED BY THE ASSESSEE IS ALLOWED. HOWEVER, SINCE THE BANK TRANSACTIONS UPTO THE DATE OF SEARCH I.E 7 .5.2002 HAVE BEEN CONSIDERED IN THE BLOCK ASSESSMENT PROCEEDINGS U/S 158BD OF THE ACT AND COM MISSION INCOME THEREON IS TAXED IN THE BLOCK ASSESSMENT, THE COMMISSION INCOME FROM 8. 5.2002 TO 31.3.2003 NEEDS TO BE TAXED 6 ITA NO. 1719/KOL/2013 NAHATA HOLDINGS & CONSULTANTS P. LTD. AY 2003-04 IN THE SIMILAR WAY. WE DEEM IT FIT AND APPROPRIATE TO DIRECT THE LD AO ACCORDINGLY TO MEET THE ENDS OF JUSTICE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24.08.2016 SD/- SD/- (K. NARASIMHA CHARY) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED :24TH AUGUST, 2016 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT M/S. NAHATA HOLDINGS & CONSULTANTS PVT. LTD., 133, CANNING STREET, 3 RD FLOOR, KOLKATA-700 001. 2 RESPONDENT ACIT, C.C XXIV, KOLKATA. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .