DINYAR BAHADUR BALSARA, MUMBAI V. ACIT, CENTRAL CIRCLE-7(2), MUMBAI

ITA 2341/MUM/2022

AI Insights

The case revolves around an appeal by Dinyar Bahadur Balsara against the order of the Commissioner of Income Tax, which had added Rs.5,30,735 to his income for the assessment year 2016-17, alleging it as commission income from accommodation entries. The primary contention was that the assessee had incorporated seven private limited companies for forex business post the introduction of Section 269ST of the Income Tax Act, 1961, which imposed restrictions on cash transactions. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) had relied on statements recorded during a survey, which the Tribunal found to be uncorroborated and not directly linked to the assessee's activities in the relevant assessment year.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 300092 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 28-11-2022
• Assessment Year: 2016-2017
• Appeal Filed On: 14-09-2022
• Other Referred Cases: Khader Khan vs. Income Tax Officer
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 131; 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI BEFORE SHRI ABY T. VARKEY, JM आयकर अपील सं/ I.T.A. No.2341/Mum/2022 (निर्धारण वर्ा / Assessment Year: 2016-17) Dinyar Bahadur Balsara R. No. 39, 189, Hirabai Peti Bldg., 2 nd Floor, Alibhai Premaji Road. Opp. Grant Road Station (E), Mumbai- 400007. बिधम/ Vs. ACIT, Central Circle-7(2) Aayakar Bhavan, Maharishi Karve Road, Mumbai-400020. स्थधयी लेखध सं./जीआइआर सं./PAN/GIR No. : ACRPB4691D (अपीलार्थी /Appellant) .. (प्रत्यर्थी / Respondent) सुनवाई की तारीख / Date of Hearing: 29/11/2022 घोषणा की तारीख /Date of Pronouncement: 09/01/2023 आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax-49, Mumbai dated 20.07.2022 for assessment year 2016-17. 2. At the outset, the Ld. AR of the assessee brought to my notice that due to restriction imposed (limit on cash transaction) by the Finance Act 2017 u/s 269ST of the Income Tax Act, 1961 (hereinafter “the Act”) which came into force from 01.04.2017, the assessee got incorporated seven (7) private limited companies for “Forex” business which were incorporated only from AY. 2018-19 onwards; and there was neither any private limited company incorporated/existing nor any transaction of forex in the year under consideration i.e. AY. 2016-17. And the main allegation of AO is that those seven (7) companies Assessee by: Shri Rajesh Shah Revenue by: Smt. Nayana K. Kumar ITA No. 2341/Mum/2022 A.Y. 2016-17 Dinyar Bahadur Balsara 2 incorporated by assessee, have taken accommodation entry from two entry operators (i) Shri Mukesh Kapoorchand Kanungo and (ii) Shri Suresh Haran in the assessment year i.e. AY. 2016-17 and therefore, has made an addition of Rs.5,30,735/- (commission income). The Ld. AR brought to my notice that from a perusal of the show cause notice issued by the AO dated 23.02.2022, it will reveal that the addition made was on the basis of statement of Shri Santosh D. Oswal/ Shri Suresh Haran (who were alleged to be doing the business of arranging cash against RTGS credit entries received from various parties), which was taken behind the backs of assessee, wherein he [Shri Santosh D. Oswal] has explained the modus operandi of his business activity in detail. In this context, the Ld. AR pointed out the interesting fact was that assessee did not know Mr. Santosh Oswal prior to the year 2019, after he came into his contact in January, 2019 and there was no financial relation with Shri Oswal’s concerns [M/s. Krishna Enterprises and S. V. Enterprises] before 2019 and it was also brought to my notice that the following companies were incorporated by the assessee and the first company was incorporated only after July, 2017 (Certificate of Incorporation filed before us): - (i) M/s. Malacca Forex Pvt. Ltd., 06.07.2017- AY. 2018-19 (ii) M/s. Citylight Forex Pvt. Ltd. 05 July 2018 – AY. 2019-20 (iii) M/s. Faizan Forex & Tours & Travels Pvt Ltd 19 March 2018 – AY. 2018-19 (iv) M/s. Evon Forex Pvt. Ltd. 18 January 2019 – AY. 2019-20 (v) M/s. Donum Forex Pvt. Ltd. 17 January 2019 – AY. 2019-20 (vi) M/s. Velox Forex Pvt. Ltd. 16 January 2018 - AY. 2018-19 (vii) M/s. Gemmy Forex Pvt. Ltd. 16 January 2019 – AY. 2019-20 ITA No. 2341/Mum/2022 A.Y. 2016-17 Dinyar Bahadur Balsara 3 3. From a perusal of the aforesaid crucial fact, it is noticed that all the aforesaid Forex companies have been incorporated in AY. 2018- 19, AY. 2019-20; and no companies have been incorporated in the relevant year under consideration i.e. AY. 2016-17. Therefore, according to the Ld. AR, no addition on the presumption that assessee earned commission income could have been made in this assessment year based on the aforesaid submission recorded. The Ld. DR could not rebut the facts/submission made by the assessee’s AR (supra). 4. Having heard both the parties and after carefully going through the records, it is noted that the assessee incorporated the aforesaid forex companies only after July 2017 (i.e. only in AY. 2018-19 & AY. 2019-20) and not before that. Therefore, according to the assessee no addition could have made based on the statement/admission made by Shri Suresh Haran who was working as per the instruction of Shri Suresh D. Oswal. It is noted that as per the Finance Act, 2017 limit on cash transaction was imposed as per the Section 269ST of the Act, w.e.f. 1 st April, 2017. Therefore, the funds needed to be received directly in bank account by way of RTGS. And therefore, the assessee incorporated seven (7) companies) (supra) only after July 2017 which is seen from perusal of the certificate of incorporation. The assessee’s assertion of not knowing M/s. Santosh Oswal prior to 2019 has neither been controverted nor there is any statement of Shri Santosh Oswal stating so; and moreover, there is no evidence/material/statement to show that there was any financial relation of assessee with M/s. Krishna Enterprises and M/s. S. V. Enterprises. Therefore, the ITA No. 2341/Mum/2022 A.Y. 2016-17 Dinyar Bahadur Balsara 4 assessee’s case is that the aforesaid seven (7) companies since incorporated only after July 2017 and between January, 2019 could not be linked in respect of any kind of activities with M/s. Krishna & M/s. S. V. Enterprises. Therefore, according to assessee, the allegation of AO that the amount received in the respective account of M/s. Krishna Enterprises and M/s. S. V. Enterprises for AY 2016-17, was as per the instruction of assessee is erroneous and therefore no commission income could have been added in his hands for AY 2016-17. Moreover it was pointed out by the Ld. AR that AO could not have made the addition based on survey statement which has been recorded on oath as held by the Hon’ble Supreme Court in Khader Khan reported in 352 ITR 480. The Hon’ble Apex Court held that income tax authorities doesn’t have power to record statement on oath during survey u/s 133A of the Act and so evidentiary value cannot be given to such statement unless corroborated by material. In order to make the addition, the statement was recorded during survey operation u/s 133A of the Act which was carried out in the case of Shri Mukesh K. Kanungo (entry operator) wherein he admitted the modus of the transaction (accommodation entry) as per the instruction of Shri Suresh Haran, who also has given similar statement; and the AO also notes that Shri Santosh Oswal has also given statement in which he has named the assessee (Shri Dinyar Bahadur Balsara) as a person who has approached him to get the RTGS credit entries in their Bank Accounts. According to the AO, Shri Santosh D. Oswal has stated “Regarding the parties who approach him to get the RTGS credit entries in their Bank Accounts, he stated that the details of the Bank Account Nos. to ITA No. 2341/Mum/2022 A.Y. 2016-17 Dinyar Bahadur Balsara 5 whom the RTCG credit entries are given by the operators are given to him by one Shri Dinyar Balsara, who purchases forex from banks or major forex distributor companies with the RTGS funds transferred to him by the operators, and then sells the forex in grey market for cash at a premium, and returns the cash to him to be further returned to the operators from whom the RTGS credit entries were taken” . And on the basis of this statement recorded of Shri Santosh D. Oswal notice u/s 148 of the Act was issued on 30.03.2021 to the assessee and assessee’s statement was also recorded u/s 131 of the Act on 28.02.2020; and the AO at para no. 8 has recorded certain question and answer given by assessee as under: - “It is pertinent to mention here that the statement on oath of Shri Dinyar Balsara was also recorded u/s 131 of the Act on 28.02.2020, wherein he was confronted with the statements recorded on oath of Shri Santosh D. Oswal. In the said statement, in question 20, the assessee was shown the statement of Shri Santosh D. Oswal, as reply to Question No. 20, the assessee has stated that he has gone through the statement of Shri Santosh D. Oswal and the understood the same. Moreover, as reply to Question no. 21 of the statement, the assessee stated that he had given orders to Mr. Santosh Oswal” And on the basis of the aforesaid statement at para no. 8, the Leaned Counsel submitted that the AO has made adverse inference against the assessee by observing as under at para no. 9 to 9.2 of assessment order as under: - ITA No. 2341/Mum/2022 A.Y. 2016-17 Dinyar Bahadur Balsara 6 “9. On the basis of the details available on record and on the of examination statements under section 131 of the Income tax Act, 1961 recorded on oath, it is clear that Shri Mukesh Kanungo and Shri Suresh Haran were working under the instruction of Shri Santhosh Oswal who was working at the instruction of Shri Dinayar Balsara. Therefore, it is clear that Shri Dinayar Balsara had earned commission income for the transactions done by Shri Mukesh Kanungo and Shri Suresh Haran through the bank accounts in the name of their proprietorship concerns. 9.1. As discussed in paragraph 3 of this order, Shri Suresh Haran has admitted in his statement recorded on oath that he was working at the instructions of Shri Santosh Oswal, who in turn was working at the instructions of Shri Dinyar Balsara, therefore, 0.5% of commission income is estimated in the hands of Shri Dinyar Balsara, from the accommodation entries provided by Shri Suresh Haran through his proprietary concerns - M/s. Krishna Enterprises and M/s. SV Enterprises during the relevant assessment year. For the F.Y. 2015-16 total credits of Rs.9,04,85,408/- have been received in Account No. 2098 in the Zaveri Bazar branch of Bank of Baroda of M/s. Krishna Enterprises total credits of Rs.1,56,61,496/have been received in Account No. 1889 in the Zaveri Bazar branch of Bank of Baroda of M/s. SV Enterprises. 9.2. Therefore, on the basis of the facts elaborated in the foregoing paragraphs and on the basis of material available on record, an amount of Rs.5,30,735/- being 0.5% of the total credits of Rs.10,61,46,904/- in the bank accounts in the name of Shri Suresh Haran is added as commission income in the hands of the assessee for the year under consideration.” ITA No. 2341/Mum/2022 A.Y. 2016-17 Dinyar Bahadur Balsara 7 5. The assessee’s appeal against the addition made by AO was dismissed by the Ld. CIT(A).The main plea of the assessee is that based on the statement recorded during survey mainly of Shri Santosh Oswal’s, no addition could have been made in the hands of the assessee for the year under consideration i.e. AY. 2016-17 which is erroneous for the simple reason that the main allegation against the assessee is that the assessee (Shri Dinyar Bahadur Balsara) approached Shri Santosh Oswal to get the RTGS credit entry in the bank accounts of their proprietary concerns (M/s. Krishna Enterprises & M/s. S. V. Enterprises) and then assessee used to purchase forex from banks or major forex distributor companies with the RTGS funds transferred to him by the operators, and thereafter the assessee sells the forex in grey market for cash at a premium, and returns the cash from whom RTGS credit entries were taken. According to Ld. AR, even if for argument sake (not admitted) it is accepted that assessee indulged in same dealing with Shri Santosh Oswal (M/s. Krishna Enterprises & M/s. S. V. Enterprises) that was not an event which happened before the seven (7) companies were incorporated by the assessee as is evident from the certificate of incorporated. Therefore, the assessee asserts that he came in contact with Shri Santosh Oswal only in January 2019. And therefore this crucial fact since being not controverted, no adverse view could be drawn against the assessee for this year (i.e. AY. 2016- 17) and consequently the question of adding 5% of the deposits made in bank account of the proprietary concerns of Shri Suresh Haran (M/s. Krishna Enterprises and M/s. S. V. Enterprises) doesn’t arise. ITA No. 2341/Mum/2022 A.Y. 2016-17 Dinyar Bahadur Balsara 8 Therefore no addition could have been made against the assessee in this assessment year ie.. AY. 2016-17. In this context, it is noted that assessee has floated (seven) private limited companies after the Finance Act, 2017 by virtue of it under Section 269ST of the Act a limit on the cash transaction was imposed by the Parliament; and assessee in order to receive funds directly in bank account by way of RTGS incorporated these companies only after AY. 2018-19 (supra) necessary [seven (7) companies (supra)]. The main allegation of the AO is that the assessee has approached Shri Santosh D. Oswal for getting the RTGS credit entries in their bank accounts for purchase of forex from banks or major forex distributor companies. And that the assessee’s case is that he has carried out forex business only after incorporation of these seven (7) forex companies and since the first company was formed in AY. 2018-19, the allegation of assessee taking RTGS from entry operators proprietary concerns (M/s. Krishna Enterprises and M/s. S. V. Enterprises) which was operated by Shri Mukesh K. Kanungo, Shri Suresh Haran and Shri Santosh D. Oswal does not arise in AY. 2016-17. As per the modus-operandi of AO/Ld. CIT(A), as explained by Ld. CIT(A) at para 9.4 wherein it is observed “Regarding the parties who approach him to get the RTGS credit entries in their Bank Accounts, he stated that the details of the Bank account Nos. to whom the RTGS credit entries are given by the operators are given to him by one Shri Dinyar Balsara, the appellant who purchases forex from banks or major forex distributor companies with the RTGS funds transferred to him by the operators, and then sells the forex in grey market for cash at a premium, and returns the ITA No. 2341/Mum/2022 A.Y. 2016-17 Dinyar Bahadur Balsara 9 cash to him to be further returned to the operators from whom the RTGS credit entries were taken”. Therefore according to Ld. CIT(A)/AO, assessee purchased forex from banks/forex distributor with the RTGS funds transferred to him by entry-operators and then assessee sells the forex in grey market for cash at premium, and thereafter returns the cash to Shri Santosh D. Oswal to be further returned to the entry-operators (from whose accounts, funds were transferred to assessee’s account by RTGS) and in that process Shri Santosh Oswal & Proprietary concerns M/s. Krishna & M/s. S. V. Enterprises used to earn commission and thus 5% commission was estimated as income of assessee. So as per the modus operandi assessee after receiving RTGS (from operators of Shri Santosh Oswal) used to buy forex and then sell it in grey market, make profit and give back amount in cash [ which was received by assessee in his accounts as RTGS] and commission to Shri Santosh Oswal (M/s. Krishna Enterprises & M/s. S. V. Enterprises). From the aforesaid discussion, it is noted that the assessee might have indulged in forex activities but not in this AY. 2016-17. So the AOs’ reliance on the general statement of assessee (refer para 5 of AO) cannot be ground to make any ad- hoc/estimated addition, unless there was specific testimony or admission of assessee regarding any forex transaction in AY. 2016-17. And therefore the foundational fact/allegation against the assessee of taking accommodation entry fails and therefore the estimated the addition made 0.5% of total credit of Rs.9,04,85,408/- received in the bank account of M/s. Krishna Enterprises and M/s. S. V. Enterprises could not have made in the hands of the assessee because the assessee ITA No. 2341/Mum/2022 A.Y. 2016-17 Dinyar Bahadur Balsara 10 did not had any nexus of forex business in the relevant year under consideration. Therefore, even though there are certain admission made by assessee which have been selectively mentioned by the AO (para no. 8 of the AO order) cannot be basis for making addition in the hands of the assessee in this assessment year 2016-17. Therefore, the addition made of Rs.5,30,735/- is directed to be deleted. 7. Before parting, it is made clear that this order is based on the facts pertaining to AY. 2016-17 and cannot affect any orders passed by AO/Ld. CIT(A) for AY. 2018-19, AY. 2019-20. With this observation, the appeal of the assessee allowed. 8. In the result, appeal of the assessee is allowed. Order pronounced in the open court on this 09/01/2023. Sd/- (ABY T. VARKEY) JUDICIAL MEMBER Mumbai; Dated 09/01/2023. Vijay Pal Singh, (Sr. PS) आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : आदेशधिुसधर/ BY ORDER, सत्यापपत प्रपत //True Copy// उि/सहधयक िंजीकधर /(Dy./Asstt. Registrar) आयकर अिीलीय अनर्करण, मुंबई / ITAT, Mumbai 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. पवभागीय प्रपतपनपि, आयकर अपीलीय अपिकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file.