Assistant Commissioner of Income tax, Circle-1(1), Raipur V. MESERS SINGHANIA BUILDCON PRIVATE LIMITED, RAIPUR

ITA 199/RPR/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0597 (ITAT-RAIPUR)
• Duration Of Justice: 3 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 02-08-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 10-10-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Income from undisclosed sources; Bonafide belief; Earning of tax free income; Additional evidence; Accommodation entries; Onus to prove; Sham transactions; Capital expenditure; Rule 8D
• Section: 131; 68; 14A; 37(1)

Judgement Text

आयकर अपीलȣय अͬधकरण Ûयायपीठ रायप ु र मɅ। IN THE INCOME TAX APPELLATE TRIBUNAL, RAIPUR BENCH, RAIPUR BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER AND SHRI ARUN KHODPIA, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No.199/RPR/2019 Ǔनधा[रण वष[ / Assessment Year : 2014-15 The Assistant Commissioner of Income Tax, Circle-1(1), Raipur (C.G.) .......अपीलाथȸ/Appellant बनाम / V/s. M/s. Singhania Buildcon Pvt. Ltd. Amanaka, G.E. Road, Raipur (C.G.)-492 001. PAN : AAGCS0166A ......Ĥ×यथȸ / Respondent Assessee by : Shri Veekaas S Sharma, CA Revenue by : Shri Debashish Lahiri, CIT-DR स ु नवाई कȧ तारȣख / Date of Hearing :03.08.2022 घोषणा कȧ तारȣख / Date of Pronouncement : 17.10.2022 2 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 आदेश / ORDER PER RAVISH SOOD, JM: The present appeal filed by the department is directed against the order passed by the CIT(Appeals)-I, Raipur dated 01.07.2019, which in turn arises from the order passed by the A.O under Sec.143(3) of the Income-Tax Act, 1961 (for short ‘the Act’) dated 30.12.2016 for assessment year 2014-15. The department has assailed the impugned order on the following grounds of appeal before us : “(1) "Whether in law and in the facts and circumstances of the case, the Ld.CIT(A) is justified in restricting the disallowance of Rs.11,70,548/- to Rs.5,00,000/-out of labour expenses claimed by the assessee, ignoring the fact that the assessee failed to produce the relevant bills/ vouchers/ muster roll in support of his claim and instead, furnished only self-made vouchers in support of huge expenses of labor charges without discharging his onus to prove the genuineness of his claim?" (2) "Whether in law and in the facts and circumstances of the case, the Ld.CIT(A) is justified in deleting the addition of Rs.3,00,00,000/- made by the AO u/s 68 on account of bogus advance amount claimed to be received from Jessica Commercial Pvt. Ltd. ignoring the findings of the AO regarding the fake stamps used by the assessee for the alleged agreement which did not stand the test of verification from the Registrar office?" (3) "Whether in law and in the facts and circumstances of the case, the Ld.CIT(A) is justified in deleting the addition of Rs.3,00,00,000/- made by the AO u/s 68 on account of bogus advance amount claimed to be received from Jessica Commercial Pvt. Ltd. completely ignoring the subsequent report submitted by the AO on 06.09.2018 i.e. well before passing of appellate order, wherein the poor financials of the company having advanced Rs.3,00,00,000/- were clearly mentioned and 3 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 reported that the company was not having legitimate source to invest such huge sum with the assessee?" (4) "Whether in law and in the facts and circumstances of the case, the Ld.CIT(A) is justified in deleting the addition of Rs.3,00,00,000/- made by the AO u/s 68 on account of bogus advance amount claimed to be received from Jessica Commercial Pvt. Ltd. despite the fact that one of the Directors, Shri Krishna Kumar Dewangan failed to explain the source of investment to the satisfaction of the AO on being examined on oath by the ITO, JanjgirChampa?" (5) "Whether in law and in the facts and circumstances of the case, the Ld. CIT(A) is justified in deleting the addition of Rs.3,00,00,000/- made by the AO u/s 68 on account of bogus advance amount claimed to be received from Jessica Commercial Pvt. Ltd. despite the fact that it was reported by the AO that the company was created to provide accommodation entries and the investment of funds were not genuine?" (6) "Whether in law and in the facts and circumstances of the case, the Ld. CIT(A) is justified in deleting the addition of Rs.3,00,00,000/- made by the AO u/s 68 on account of bogus advance amount claimed to be received from Jessica Commercial Pvt. Ltd. even though the remand report submitted by the AO mentioned that the statement of one of the dummy directors of the company also proved the fact that the assessee had no business or any connection with the alleged investor company and suddenly got investment without having any security or legal agreement?" (7) "Whether in law and in the facts and circumstances of the case, the Ld. CIT(A) is justified in deleting the addition of Rs.3,00,00,000/- made by the AO u/s 68 on account of bogus advance amount claimed to be received from Jessica Commercial Pvt. Ltd. without appreciating the fact that no interest was charged by the Company on the advance of Rs.3,00,00,000/- given to the assessee which was returned by the assessee after three years?" (8) "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the 4 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 disallowance of Rs.6,51,605/- made by the AO u/s 14A of the Act r.w.r. 8D of the I.T. Rules?" (9) "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition made u/s 14A, when clause (3) of the Section 14A of the Act clearly prescribes that provision of section 14A(2) shall also apply in relation to case where any assessee claims that no expenditure has been incurred by him in relation to the income which does not part form part of the total income under this Act, as held in the case of Cheminvest Ltd. Vs ITO (ITAT, SB- Del) 121 ITD 318 and Pradeep Kar Vs ACIT(Kar) 319 ITR 416?" (10) "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition by ignoring the circular no. 05/2014 dated 11.02.2014 issued by CBDT wherein it has been clarified that the disallowance u/s 14A is applicable even where taxpayer in particular year has not earned any exempt income?" (11) "Whether in law and in the facts and circumstances of the case, the Ld. CIT(A) is justified in deleting the addition made u/s 14A of the I.T. Act r.w. Rule 8D of the I.T. Rule, holding that there was no exempt income during the financial year ignoring the CBDT Circular No.14 of 2001 in which it is clarified that expenditure which is relatable to earning of the exempt income is to be considered for disallowance ?" (12) "Whether in law and in the facts and circumstances of the case, the Ld. CIT(A) is justified in deleting the addition made u/s 14A of the I.T. Act r.w. Rule 8D of the I.T. Rule, ignoring the fact that, the word 'includible' is used in the heading of Section 14A of the I.T. Act and Rule 8D of the I.T. Rule, which clarifies amply that the expenditure relating to income not includible to the total income, is not to be deducted ?" (13) The order of the ld. CIT(A) is erroneous both in law and on facts. (14) Any other ground that may be adduced at the time of hearing.” 5 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 2. Succinctly stated, the assessee company which is engaged in the business of real estate had e-filed its return of income for the assessment year 2014-15, declaring an income of Rs. 89,20,210/-. Subsequently, the case of the assessee company was selected for scrutiny assessment u/s.143(2) of the Act. 3. During the course of the assessment proceedings, it was observed by the A.O that the assessee company had, inter alia, claimed to have received an advance of Rs.3 crore from M/s. Jessica Commercial Pvt. Ltd., Kolkata. The assessee on being queried claimed that it had executed an “agreement to sell” with the aforementioned company for a consideration of Rs.3,45,07,950/-, against which an amount of Rs.3 crore (supra) was received as advance/earnest money, as under: Ǒदनांक राͧश चेक नंबर/नगद आ टȣ जी अस नंबर 27.03.2014 10,00,000/- RTGS IBKLH14086032918 27.03.2014 2,50,000/- RTGS IBKLH14086036047 27.03.2014 44,50,000/- RTGS IBKLH14086036165 27.03.2014 13,00,000/- RTGS IBKLH14086040693 27.03.2014 27,00,000/- RTGS IBKLH14086040134 28.03.2014 19,40,000/- RTGS IBKLH14087042543 28.03.2014 30,00,000/- RTGS IBKLH14087044263 6 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 It was further stated by the assessee that the aforesaid “agreement to sell” was thereafter cancelled/repudiated vide a cancellation agreement, dated 31.03.2014. It was observed by the A.O that a perusal of the “agreement to sell” and the cancellation agreement revealed that that the same were executed on certain stamp papers sold by Shri Shaikh Sabbir, a Stamp Vendor of Raipur. The A.O in order to verify the authenticity of the impugned transaction as was projected by the assessee issued a letter u/s.133(6) of the Act, dated 27.12.2016 to the Sr. District Registrar, Raipur, therein, calling upon him to file his report as regards the stamp papers which were claimed to have been sold by Shri Shaikh Sabbir (supra), as under: 29.03.2014 32,10,000/- RTGS IBKLH14088053529 29.03.2014 39,00,000/- RTGS IBKLH14088053348 31.03.2014 24,00,000/- RTGS IBKLH14090061466 31.03.2014 25,00,000/- RTGS IBKLH14090063778 31.03.2014 25,00,000/- RTGS IBKLH14090064212 31.03.2014 8,50,000/- RTGS IBKLH14090061410 क ू ल:- 3,00,00,000/- ( अÈसरȣ तीन करोड़ ǽपये माğ) Đ. èटाàप Đ. èटाàप ǒबĐȧ Đ Ǒदनांक įरमाकŊ 1. H109348 12140 14.03.2013 2. K250558 15765 31.03.2014 3. G091300 13441 10.12.2015 7 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 4. In reply, the Sr. District Registrar, Raipur filed with the A.O a copy of the register of the aforementioned stamp vendor, viz. Shri Shaikh Sabbir, Raipur, Page 5 of assessment order. The A.O observed that the assessee’s claim of having purchased the stamp papers for executing the “agreement to sell” with M/s. Jessica Commercial Pvt. Ltd., [Stamp No. K-250558 of Shri Shaikh Sabbir, Stamp vendor, registration No. S No.15765 dated 31.03.201] could not be gathered from the copy of the register that was filed by the Sr. District Registrar, Raipur. Accordingly, the A.O on the basis of the said fact held the amount of Rs.3 Crore (supra) that was claimed by the assessee to have been received as an advance/earnest money from M/s. Jessica Commercial Pvt. Ltd as an unexplained cash credit u/s.68 of the Act. 5. The A.O further observed that though the assessee during the year had made an investment of Rs.10,66,79,071/- in exempt income yielding shares, however, it had not offered on a suo-motto basis disallowance of any part of expenditure that was incurred for earning of the exempt income arising therefrom. Accordingly, the A.O as per the mechanism contemplated in Section 14A r w. Rule 8D(2)(iii) worked out the disallowance at an amount of Rs.6,51,605/-. 6. The A.O further observed that though the assessee had claimed deduction of labour expenses of Rs.2,34,10,961/- but had supported the 8 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 same only on the basis of self-made bills/vouchers. It was noticed by the A.O that all the payments towards labour expenses were made in cash. The A.O further observed that as the assessee had not maintained any muster roll, therefore, the authenticity of its aforesaid claim of expenses could not be verified on the basis of self-made vouchers. Accordingly, the A.O on an ad-hoc basis disallowed 5% of the labour expenses and made a consequential disallowance of Rs.11,70,548/-. 7. The A.O after, inter alia, making the aforesaid additions/ disallowances vide his order passed u/s.143(3), dated 30.12.2016 assessed the income of the assessee company at Rs.4,07,42,363/-. 8. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals). It was the claim of the assessee that complete details of labour expenses were furnished in the course of the assessment proceeding with the A.O. Also, the assessee in order to buttress its aforesaid claim of having incurred labour expenses filed supporting documentary evidences with the CIT(Appeals). The assessee further rebutting the observation of the A.O that the payments towards labour expenses were made in cash, submitted, that majority of the payments were made to contractors through banking channels after deducting tax at source. The CIT(Appeals) observed that labour expenses of Rs.2.34 crore claimed by the assessee during the year were substantially on the lower side as against that amounting to Rs.12.43 9 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 crore which it had booked in the immediately preceding year i.e. A.Y. 2012- 13. The CIT(Appeals) considering the entire conspectus of the assessee’s claim for deduction of labour expenses under consideration, viz. (i). that the payments were made by the assessee to labour contractor through banking channel after deduction of tax at source; and (ii). that the labour expenses claimed by the assessee during the year were substantially lower than those of the preceding year, thus, restricted the disallowance to an amount of Rs.5 lacs. As regards the disallowance made by the A.O u/s.14A r.w.r. 8D of Rs. 6,51,605/-, it was observed by the CIT(Appeals) that the assessee during the year had substantial interest free funds which would justifiably explain the investments made in the exempt income yielding shares. Apart from that, it was noticed by the CIT(Appeals) that the assessee company during the year under consideration had not earned any exempt income. Thus, the CIT(Appeals) on the basis of his aforesaid observations vacated the disallowance of Rs.6,51,605/- made by the A.O u/s. 14A r.w. Rule 8D. 9. On the issue of addition of Rs. 3 crore (supra) that was made by the A.O u/s.68 of the Act, it was the claim of the assessee that the said addition was made without considering the documentary evidence that were filed in the course of the assessment proceedings to substantiate the authenticity of the transaction in question. The CIT(Appeals) observed that the assessee had filed with the A.O an “affidavit” of M/s. Jessica Commercial Pvt. Ltd. 10 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 (supra), wherein the said party had duly confirmed the payment of an advance/earnest money of Rs.3 crore to the assessee company. It was the claim of the assessee that the A.O had disregarded its claim without placing on record any material which would have otherwise proved to the contrary. It was the claim of the assessee that the A.O had grossly erred in loosing sight of the material fact that the entire advance of Rs.3 crore (supra) was already repaid to the aforementioned party. Also, the assessee had drawn support from the fact that not only the entire amount of Rs.3 crore (supra) was received through banking channel but was also repaid vide the said mode. The assesee in order to substantiate its aforesaid claim had also placed on record by way of additional documentary evidence the copy of its bank account. It was the claim of the assessee that as it was in the course of the assessment proceedings not called upon by the A.O to fortify its claim of having received the aforesaid amount of advance/earnest money of Rs. 3 crore (supra) on the basis of any documentary evidence, therefore, it had remained under a bonafide belief that he was satisfied with the genuineness and authenticity of the transaction in question. It was further brought to the notice of the CIT(Appeals) that though the A.O was specifically requested vide a letter dated 28.12.2016 to exercise his powers u/s 131 of the Act and summon the parties concerned, viz. (i). Senior District Registrar, Raipur ; and (ii). Shri. Shaikh Sabbir (stamp vendor) so that they may be cross- examined, but the said request had gone in vain. It was submitted by the 11 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 assessee that the standalone reason for dubbing the transaction in question as bogus was that the stamp paper on which the “agreement to sell” was executed was not found entered in the register of the stamp vendor. It was submitted by the assessee that as the A.O had never allowed the cross- examination of the aforesaid stamp vendor, therefore, his statement could not have been used for drawing of any adverse inferences in its case. The assessee had in support of his aforesaid contention relied on the judgment of the Hon’ble Supreme Court in the case of Andaman Timber Industries Vs. Commissioner of Central Excise (2015) 281 CTR 241 (SC). 10. The CIT(Appeals) after deliberating at length on the issue in hand, observed, that the A.O had drawn adverse inferences as regards the authenticity of the transaction in question by neither carrying out necessary enquiries nor considering the supporting documentary evidences which were placed on his record by the assessee. It was observed by the CIT(Appeals) that though the assessee in the course of the assessment proceeding had filed a confirmation of the aforementioned party, viz. M/s Jessica Commercial Pvt. Ltd. (supra), but the A.O instead of making necessary enquiries from the aforementioned party had held the loan/advance as ingenuine merely for the reason that the stamp paper on which the “agreement to sell” was executed was not entered in the register of the stamp vendor. The CIT(Appeals) observed that the assessee was never 12 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 confronted with statement of the stamp vendor, viz. Shri. Shaikh Sabbir (supra). Also, it was observed by the CIT(Appeals) that Shri. Shaikh Sabbir (supra) had thereafter filed an “affidavit” wherein he had not only confirmed that the assessee’s representative had purchased the stamp paper from him but had also stated that as he on the said date was having a heavy rush of customers, therefore, for the said reason he had failed to make the requisite entry in his register. As the aforesaid “affidavit” of Shri Shaikh Sabbir (supra) was in the nature of an additional evidence, therefore, the CIT(Appeals) forwarded the same to the A.O and called for a remand report. In reply, the A.O vide his remand report stated as under: “(i) The assessee submitted copy of affidavit of Sheikh Sabbir (Stamp Vendor) as fresh additional evidence which should not be admitted under rule 46A of IT Rule, (ii) In order to make further inquiry about veracity of transactions entered into with Jessica Commercial Pvt. Ltd., a commission u/s.131(1)(d) has been issued to ITO, Champa for making necessary inquiries and report. Copy of this letter is enclosed herewith for reference. Reply is awaited from the ITO, Champa. (iii) Further, multiple layered investigations have been conducted by Income Tax Deptt. in such types of sham transactions all over the country in past few years which ultimately proved that the theory propounded by the assessee was not in conformity with the findings and the nature of transactions. (iv) All the companies floated (including Jessica Commercial Pvt. Ltd.,) although still active for the sake of making sham entries and consequent squaring-up the same in future course, visibly had no business activity and their bankaccounts showed the identical trend of deposit of money towards share capital, premium and unsecured loan thereupon and immediately transfer of the amount to the beneficiary. The accounts were operated for a very brief period and the entries were just of deposit and immediate transfer. ft is a proved fact that 13 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 no prudent businessman will transact with a minority stake company of no financial standing as the same will not be financially beneficial. The only rationale behind such transaction is to route unaccounted money through a maze of such transactions through the facade of operator run companies to Show the money and transaction to be genuine. Searches in various such Hawala/Entry Operators in Mumbai and in the cases of Kolkata based Hawala Operator has proved the modus operandi of such orchestrated moment of unaccounted funds where balance-sheets of companies. of no worth are inflated by criss-cross method of investment in various companies by mutually paying huge premium and then. move the funds in such a way through various accounts to give accommodation entries against cash to beneficiaries for a commission. (v) Investigation in this case proved that the company M/s. Jessica Commercial Pvt. Ltd. was created just to give accommodation entries and the investments of funds are riot genuine investment but giving colour of genuineness. These companies were not having any proper funds of their ownbut received funds from Kolkata Based and apparently operators run companies. As per the PAN data of the company, the communication address is given as-14/1, Raja Brojendra Narayan, Street G R Floor, Kolkata whereas another address is given by the assessee which is based in Champa (Chhattisgarh). (vi) The questions raised in the statement of Raju Bhagat one of the dummy directors of the company Jessica Commercial prove the fact that the assessee had no business of personal connection with these. companies but suddenly got investment without having any security or legal agreement. The artificial increase and decrease of share value of structured companies and making investment by purchase and sale of shares thereby receiving funds and consequent transfer of such legally coloured funds to the ultimate beneficiary by way of advances, etc. remained a modus operandi for the past few years and this has been cracked by making in-depth investigation and inquiry by the Income tax Depth. (vii) Kolkata Investigation Team during their similar operations recorded statements of many directors of these sham companies. Although all the statements are important and all of them have accepted the aforesaid modus operandi in such kind of activities, however, for sake of convenience, copy of statement of one of the Directors of the company Jessica Commercial Pvt. Ltd is enclosed herewith. 14 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 (viii) The submission the assessee is not found to be convincing in the facts and circumstances of the case. It is apparently a self-serving agreement for the purpose of routing the unaccounted income of the assessee through such arrangement. In view of foregoing discussion, the A.O had rightly added the impugned advance money of Rs.3 cr. u/s.68 of the IT Act, 1961.” It was observed by the CIT(Appeals) that the A.O in the course of the remand proceedings by not carrying out any verifications from Shri. Shaikh Sabbir (supra), had thus, not even put in any effort to refute the claim of the assessee. In fact, it was observed by the CIT(Appeals) that the A.O in the course of the remand proceedings had tried to give a new direction to the issue in question by issuing a notice to M/s. Jessica Commercial Pvt. Ltd. (through ITO, Champa on 03.05.2018). It was, however, noticed by him that the report from ITO, Champa was yet not received. It was observed by the CIT(Appeals) that the A.O in his remand report had raised an unsubstantiated allegation that the assessee company in the garb of an advance/earnest money of Rs. 3 crore (supra) had only received an accommodation entry from M/s. Jessica Commercial Pvt. Ltd.(supra). It was further observed by the CIT(Appeals) that the A.O in order to buttress his aforesaid claim had referred to the statement of Shri Raju Bhagat, a person who was director of M/s. Jessica Commercial Pvt. Ltd. till 29.09.2011. It was observed by the CIT(Appeals) that as the transaction of receiving advance/earnest money by the assessee company from the aforementioned party, viz. M/s. Jessica Commercial Pvt. Ltd. pertained to the period relevant 15 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 to AY.2014-15 while for the aforesaid person namely Shri Raju Bhagat (supra) was a director in the aforesaid company till 29.09.2011, therefore, his statement had no relevance. On the contrary, it was observed by the CIT(Appeals) that Shri K.K Dewangan, an existing director of M/s. Jessica Commercial Pvt. Ltd., had confirmed the transaction in question. Accordingly, the CIT(Appeals) on the basis of his aforesaid observations was not inclined to accept the view taken by the A.O that the transaction in question i.e assessee’s claim of having received an advance/earnest money of Rs. 3 crore (supra) from M/s Jessica Commercial Pvt. Ltd. (supra) was to be held as bogus, and thus, vacated the adverse inferences that were drawn by the A.O and deleted the consequential addition of Rs. 3 crore (supra) that was made by him u/s.68 of the Act. 11. The revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 12. We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. 13. In so far the disallowance made by the A.O u/s.14A r.w Rule 8D is concerned, we are of the considered view that now when the assessee 16 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 company had admittedly not received any exempt income during the year under consideration, therefore, no disallowance u/s.14A of the Act could have been made its hand. Our aforesaid view is fortified by the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Chettinad Logistics Pvt. Ltd. (2018) 257 Taxmann 2(SC) and also those of the Hon’ble High Court of Delhi in the case of Cheminvest Limited Vs. CIT, (2015) 378 ITR 33 (Delhi) and CIT Vs. Holcim India P. Ltd. 57 Taxmann.com 28. We, thus, in the backdrop of the facts involved in the case before us r/w. the aforesaid settled position of law find substance in the claim of the Ld. AR that now when the assessee company had not received any exempt dividend income during the year under consideration, therefore, no disallowance u/s.14A of the Act was warranted in its case. Accordingly, in terms of our aforesaid observations the disallowance of Rs.6,51,605/- made by the A.O is vacated. Thus, the Grounds of appeal No.(s) 8 to 12 raised by the revenue are dismissed in terms of our aforesaid observations. 14. As regards the disallowance made by the A.O of 5% of the labour expenses i.e. Rs.11,70,548/-, we concur with the view taken by the CIT(Appeals) that as the A.O had failed to point out any specific expense which was not allowable as a deduction u/s.37(1) of the Act, therefore, there was no justification on his part for drawing adverse inferences as regards the assessee’s entitlement for claim for deduction of the expenses in 17 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 question. On a perusal of Section 37(1) of the Act, it transpires that the allowability of an expenditure is dependant primarily on satisfaction of two conditions, viz. (i) the assessee had incurred any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), which is laid out or expended wholly and exclusively for the purposes of the business or profession; and (ii) the expenditure incurred by the assessee should not be for any purpose which is an offence or which is prohibited by law. Admittedly, the A.O had failed to point out on the basis of any irrefutable material/observation that as to how the allowability of the assessee’s claim for deduction of labour expenses was hindered as per the parameters contemplated in Sec. 37(1) of the Act. All that is discernible from the assessment order is nothing but certain unsubstantiated allegations of the A.O. As observed by the CIT(Appeals) and, rightly so, as the labour expenses of Rs. 2.34 crores claimed by the assessee as a deduction during the year are substantially lower than those which it had claimed as a deduction in the immediately preceding year i.e. A.Y.2012-13 i.e Rs.12.43 crores, therefore, even otherwise there appears to be no justification on the part of the A.O for drawing adverse inferences as regards the allowability of the assessee’s claim for deduction of labour expenses incurred during the year. Be that as it may, as the CIT(Appeals) after considering the facts involved in the case had in order to prevent any leakage of revenue scaled 18 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 down the disallowance of labour expenses to an amount of Rs.5 lacs, therefore, finding no justification on our part in dislodging his well-reasoned view we uphold the same. Thus, the Ground of appeal No.1 raised by the revenue is dismissed in terms of our aforesaid observations. 15. As regards the addition of Rs. 3 crore made by the A.O u/s.68 of the Act, the CIT(Appeals) had after deliberating at length on the said issue deleted the said addition by observing as under: “3.3 I have gone through the submission of the appellant and also perused the assessment order. As per the above facts, it is seen that the A.O had treated the sales advance received by the assessee since the stamp vendor’s register did not contain the Sr. No of the stamp paper used for executing the agreement for sale with the prospective purchaser M/s. Jessica Commercial Pvt. Ltd. An amount of Rs.3,08,41,000/- was received by the assesee which included Rs.3,00,00,000/- from a company M/s Jessica Commercial Pvt. Ltd. The AO has treated this advance as assessee's income and has made the addition. This action of the AO has been taken on the ground that the stamp paper on which the agreement for sale against this advance was executed was fake and looking to the status of the purchaser company it is not possible to give such a huge amount of advance to the assessee. In this regard it is found that the Ld. AO has not made any inquiry to dispute the assessee's claim that the advance was receive through banking channel and was also returned back similarly. Confirmation was filed by the assessee. Instead of making inquiry from M/s Jessica Commercial Pvt. Ltd. he has arrived at his conclusion that the loan is not genuine, merely on the basis of defects in the stamp paper. As the assessee was not confronted with the findings regarding the stamp vendor and addition was made without giving opportunity to the assessee, subsequently and affidavit from the stamp vender Sheikh. Sabir was filed confirming the purchase of stamp paper by the assessee and stating that the entry in the register could not be made due to heavy rush of customers on the particular day when the assessee's representative purchases the stamp paper. The affidavit being additional evidence was forwarded to the AO and his report was obtained. His report is as under:- 19 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 “(i) The assessee submitted copy of affidavit of Sheikh Sabbir (Stamp Vendor) as fresh additional evidence which should not be admitted under rule 46A of IT Rule, (ii) In order to make further inquiry about veracity of transactions entered into with Jessica Commercial Pvt. Ltd., a commission u/s.131(1)(d) has been issued to ITO, Champa for making necessary inquiries and report. Copy of this letter is enclosed herewith for reference. Reply is awaited from the ITO, Champa. (iii) Further, multiple layered investigations have been conducted by Income Tax Deptt. in such types of sham transactions all over the country in past few years which ultimately proved that the theory propounded by the assessee was not in conformity with the findings and the nature of transactions. (iv) All the companies floated (including Jessica Commercial Pvt. Ltd.,) although still active for the sake of making sham entries and consequent squaring-up the same in future course, visibly had no business activity and their bankaccounts showed the identical trend ofdeposit of money towards share capital, premium and unsecured loan thereupon and immediately transfer of the amount to the beneficiary. The accounts were operated for a very brief period and the entries were just of deposit and immediate transfer. ft is a proved fact that no prudent businessman will transact with a minority stake company of no financial standing as the same will not be financially beneficial. The only rationale behind such transaction is to route unaccounted money through a maze of such transactions through the facade of operator run companies to Show the money and transaction to be genuine. Searches in various such Hawala/Entry Operators in Mumbai and in the cases of Kolkata based Hawala Operator has proved the modus operandi of such orchestrated moment of unaccounted funds where balance-sheets of companies. of no worth are inflated by criss-cross method of investment in various companies by mutually paying huge premium and then. move the funds in such a way through various accounts to give accommodation entries against cash to beneficiaries for a commission. (v) Investigation in this case proved that the company M/s. Jessica Commercial Pvt. Ltd. was created just to give accommodation entries and the investments of funds are riot genuine investment but giving colour of genuineness. These companies were not having any proper funds of their own but received funds from Kolkata Based and apparently operators run companies. As per the PAN data of the company, the communication address is given as-14/1, Raja Brojendra Narayan, Street G R Floor, Kolkata whereas another 20 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 address is given by the assessee which is based in Champa (Chhattisgarh). (vi) The questions raised in the statement of Raju Bhagat one of the dummy directors of the company Jessica Commercial prove the fact that the assessee had no business of personal connection with these. companies but suddenly got investment without having any security or legal agreement. The artificial increase and decrease of share value of structured companies and making investment by purchase and sale of shares thereby receiving funds and consequent transfer of such legally coloured funds to the ultimate beneficiary by way of advances, etc. remained a modus operandi for the past few years and this has been cracked by making in-depth investigation and inquiry by the Income tax Depth. (vii) Kolkata Investigation Team during their similar operations recorded statements of many directors of these sham companies. Although all the statements are important and all of them have accepted the aforesaid modus operandi in such kind of activities, however, for sake of convenience, copy of statement of one of the Directors of the company Jessica Commercial Pvt. Ltd is enclosed herewith. (viii) The submission of the assessee is not found to be convincing in the facts and circumstances of the case. It is apparently a self-serving agreement for the purpose of routing the unaccounted income of the assessee through such arrangement. In view of foregoing discussion, the A.O had rightly added the impugned advance money of Rs.3 cr. u/s.68 of the IT Act, 1961.” The AO did not make any inquiry from Sheikh Sabir, remanded u/r.46A, to substantiate or refute the claim made in. the assessment order. At the remand report stage the AO made inquiry in new direction by issuing notice to M/s. Jessica Commercial Pvt. Ltd. through ITO Champa on 03/05/2018. The outcome of the inquiry of ITO Champa has not been included in the remand report. In the remand report the AO has made conclusion that the company M/s. Jessica Commercial Pvt. Ltd. was created to provide accommodation entry. There are no facts to support this conclusion. It has been stated by the AO that Kolkata Investigation Team recorded statements of many directors of these sham companies. Although all the statements are important and all of them have accepted the aforesaid modus operandi in such kind of activities, however, for sake of convenience, copy of statement of one of the Directors of the company Jessica Commercial Pvt. Ltd is enclosed 21 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 herewith. The AO has mentioned about statement of a person named Shri Raju Bhagat. As per the record of directorship downloaded from MCA website Shri Raju Bhagat was director of M/s. Jessica Commercial Pvt. Ltd. till 29/09/2011. The transaction of obtaining advance related to FY 2013-14. In the said statement of Shri Raju Bhagat dated 05/06/2014 there are no question and replies relating to M/s. Jessica Commercial Pvt. Ltd. Therefore, this statement has no relevance. The existing director Shri K.K. Dewangan who was also the director at the time of making advance to the assessee has made all the compliances. He has confirmed the transaction. After recording statement of Shri Raju Bhagat and calling for register of stamp vendor, no opportunity was provided to the assessee to make submission on these points. Neither any opportunity was provided to cross examine the stamp vender or Shri Raju Bhagat. It has been held by Hon'ble Supreme Court in several cases such as KishanchandChellaram 125 ITR 713 that the assessment, framed without providing opportunity to the assessee to cross examine witnesses be held void-ab-initio. As per the AO the submissions of the assessee is not found to be convincing in the facts and circumstances of the case. It is apparently a self-serving agreement for the purpose of routing the unaccounted income of the 'assessee through such agreement. No reason has been given why the submission of assessee is not convincing and what are the facts which prove that submission of assessee are false. The issue is just that assessee has received advance as per agreement and that advance was later returned back. Both the receipt and return was through banking channel and backed by agreement, although as per AO, on non-genuine stamp paper which was denied later by the vendor. The assessee has also furnished agreement of cancellation of land sale after which the advance was returned back. Making of agreement on stamp paper is to provide legal sanctity to the agreement which can be admissible in courts in future in the event of any dispute between the parties. If the two contracting parties have mutual trust, an agreement on a plain paper or even a verbal agreement will be sufficient. As per law only certain specific agreements such as sale of immovable property must be recorded in stamp papers and registration duty be paid to the. Government. In the present case when the two contracting parties are confirming what has been written in the agreement even if made on a alleged fake stamp paper, even that will be sufficient. Suppose there is no agreement entered into between buyer and seller and two parties appears before the AO and confirmed making of payments, then inspite there being no agreement, the making of advance cannot be 22 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 denied. Often advances are made and received without any agreements. The AO has called for stamp vender register and did not find the serial number of stamp paper used by the assessee company to execute the agreement with M/s Jessica Commercial. However, the advance was receive through banking channel and also repaid back through banking channel. The advance was received against sale of land at Khasra no. 373/1, PH no. 103 Ward 62 Raipur Municipal Corporation. The sale agreement for this land of 18950 Sq. ft. was evidences by agreement dated 31/03/2014between the two parties. Subsequently the said land was to be acquired by Chhattisgarh Housing Board for executing their project, due to which the assessee was not able to sell the land to Mis Jessica Commercial Pvt. Ltd. Therefore, the agreement was cancelled on 10/12/2015 and thereafter the money was returned back during the FY 2015-16. The facts of the said land belonging to the assessee and the land being acquired by Chhattisgarh Housing Board are not denied. The receipt and payment of money through banking channel have not been denied. During the remand report stage the AO has further informed that in the course of survey u/s.133A bulk stamp papers and stamp vender register were found from assessee's premises. In his reply the AR has explained that these documents belonged to another stamp vender Shri Anup Agrawal. Letter dated 09/08/2017 of Shri Anup Agrawal addressed to the AO have been furnished. Shri Anup Agrawal stated that the bag contained stamp papersand the register belonged to him. The assessee provided business of sale of stamp paper to this person. On 27/05/2017 he was called for sale of stamp at assessee's office. When he reached there, the concerned staff was not available. Meanwhile it had started raining because of which he went away leaving his bag in the office of the assessee to avoid the stamp papers spoiled in the rain. When the genuineness and creditworthiness of creditors is established before the AO and the transaction have been entered through banking channel, there is no adverse fact to disbelieve the genuineness of advance, the amount cannot be treated as assessee's income. What is apparent has to be accepted as real unless the adverse facts are brought by the AO claiming that what is apparent from is not real (CIT Vs Daulat Ram 1972 CTR 311 SC). In view of these facts the addition is deleted, and appellant's ground is allowed.” 23 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 16. We have given a thoughtful consideration and concur with the view taken by the CIT(Appeals), who in the totality of the facts involved had rightly vacated the adverse inferences that were drawn by the A.O by treating the advance/earnest money of Rs. 3 crore (supra) received by the assessee from M/s. Jessica Commercial Pvt. Ltd. (supra) as an unexplained cash credit under Sec. 68 of the Act. As observed by us hereinabove, the very basis for drawing of adverse inferences leading to a consequential addition of Rs.3 crore (supra) in the hands of the assessee company was the observation of the A.O that as the entry of sale of stamp paper bearing S. No. 15765/K- 250558 on which the impugned “agreement to sell” of the assessee with the aforementioned party, viz. M/s. Jessica Commercial Pvt. Ltd. was executed was not entered in register of the concerned stamp vendor, viz. Shri Shaikh Sabbir, therefore, the impugned advance/earnest money that was claimed by the assessee to have been received pursuant to the impugned sale transaction which had never fructified was a bogus transaction; an eye wash, to give the color of genuineness to an accommodation entry which it had taken from the aforementioned company, viz. M/s Jessica Commercial Pvt. Ltd. However, it transpires that not only the very basis for drawing of adverse inferences as regards the genuineness and veracity of the receipt of advance/earnest money of Rs. 3 crore (supra) by the assessee from the aforementioned company, viz. M/s Jessica Commercial Pvt. Ltd. is not based on any such material which would irrefutably substantiate the view of the 24 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 A.O to the hilt, but in fact the same, as observed by the CIT(Appeals), pursuant to the “affidavit” of Shri. Shaikh Sabbir, Stamp vendor (supra) who had confirmed the factum of purchase of stamp paper by the assessee’s representative does not hold the ground any more. As observed by the CIT(Appeals) the aforesaid person, viz. Shri. Shaikh Sabbir (supra) had in his “affidavit” not only deposed that he had sold the stamp paper in question to the assessee’s representative, but had also stated that as on the relevant date he was facing heavy rush of customers, therefore, for the said reason he had failed to make the requisite entry in his register. Ostensibly, a perusal of the order passed by the A.O reveals that he had not made any independent enquiry as regards the genuineness and authenticity of the aforesaid transaction of receipt of advance/earnest money of Rs.3 crore (supra) by the assessee company from M/s Jessica Commercial Pvt. Ltd. On the contrary, it is the claim of the Ld. AR that the assessee in order to support the authenticity of its claim of having received advance/earnest money of Rs.3 crore (supra) in lieu of the “agreement to sell” had filed with the A.O supporting documentary evidence, viz. (i) copy of the sale agreement ; (ii) complete particulars of M/s. Jessica Commercial Pvt. Ltd. i.e. name, address a/w. PAN; (iii) ‘affidavit’ of M/s. Jessica Commercial Pvt. Ltd. confirming that it had given an advance of Rs. 3 crore (supra) to the assessee company in lieu of “agreement to sell” a/w. details of source out of which the said amount was paid; (iv) ledger account of the aforementioned party 25 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 as appearing in the books of account of the assessee company; and (v) copy of bank statement of the assessee reflecting both receipt of advance and repayment of the same. Also, as stated by the ld. A.R that pursuant to a notice issued by the CIT(Appeals) under Sec.133(6) of the Act, dated 23.05.2019 to M/s. Jessica Commercial Pvt. Ltd., the latter had filed with him documents substantiating the authenticity of the transaction in question, viz. copy of account of the assessee company as appearing in the books of account of the said party for FY 2013-14 to F.Y 2015-16; copy of return of income for A.Y.2014-15 a/w. financial statements; details as regards the shares of the companies (investments) which were sold by the aforementioned party a/w. details of the companies to whom the same were sold (out of which the advance/earnest money paid to the assessee company was sourced); copy of the bank accounts of the said party i.e. M/s. Jessica Commercial Pvt. Ltd. with IDBI Bank, Union Bank of India for the succeeding year i.e. FY 2015-16 wherein the amount refunded by the assesee company was deposited; certificate of incorporation a/w. memorandum of association and article of association of the aforesaid company; copy of the master data of the aforesaid company (as downloaded from the website of Ministry of Corporate Affairs); copy of PAN of the aforementioned company; copy of “agreement” dated 31.03.2014; copy of the cancellation deed dated 08.06.2015; and the “affidavit” dated 30.12.2016. We are of the considered view that a perusal of the aforesaid 26 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 substantial details that were filed by the assessee before the A.O, as well as those that were placed on the record of the CIT(Appeals) pursuant to notice issued by him u/s.133(6) of the Act, dated 23.05.2019 to M/s Jessica Commercial Pvt. Ltd, therein substantiates the authenticity of the transaction in question. Also, it is a matter of fact borne from record that the revenue had till date not rebutted the duly substantiated claim of the asseseee by placing on record any material proving to the contrary. Apart from that, we find that the assessee had before the lower authorities also given the reason for cancellation of the “agreement to sell”. It was the claim of the assessee that as the land in question was subsequently acquired by Chhattisgarh Housing Board (CHB) for executing their project, and it was no more possible for it to fructify the transaction and sell the land in question to M/s. Jessica Commercial Pvt. Ltd., therefore, as per mutual consent of the parties the “agreement to sell” was cancelled/repudiated. 17. We have given a thoughtful consideration to the aforesaid issue, and concur with the CIT(Appeals) that as the assessee on the basis of irrefutable documentary evidence had duly substantiated the authenticity of the transaction of having received an amount of Rs.3 crore (supra) as an advance/earnest money from M/s. Jessica Commercial Pvt. Ltd., therefore, there was no justification on the part of the A.O to have drawn adverse inferences as regards the same. We, thus, in terms of our aforesaid 27 ACIT, Circle-1(1) Vs. M/s. Singhania Buildcon Pvt. Ltd. ITA No.199/RPR/2019 observations finding no infirmity in the view taken by the CIT(Appeals) uphold the same. Thus, the Grounds of appeal No.(s) 2 to 7 raised by the revenue are dismissed in terms of our aforesaid observations. 18. In the result, appeal of the revenue is dismissed in terms of our aforesaid observations. Order pronounced under rule 34(4) of the Appellate Tribunal Rules, 1963, by placing the details on the notice board. Sd/- Sd/- ARUN KHODPIA RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायप ु र/ RAIPUR ; Ǒदनांक / Dated : 17 th October, 2022 ***SB आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of the Order forwarded to : 1. अपीलाथȸ / The Appellant. 2. Ĥ×यथȸ / The Respondent. 3. The CIT(Appeals)-1, Raipur (C.G) 4. The Pr. CIT-1, Raipur (C.G) 5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण,रायप ु र बɅच, रायप ु र / DR, ITAT, Raipur Bench, Raipur. 6. गाड[ फ़ाइल / Guard File. आदेशान ु सार / BY ORDER, // True Copy // Ǔनजी सͬचव / Private Secretary आयकर अपीलȣय अͬधकरण, रायप ु र / ITAT, Raipur.