SHRI MUKUL KAKAR, MUMBAI V. ACIT-21(2), MUMBAI

ITA 2437/MUM/2018

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 9419 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 26-10-2022
• Assessment Year: 2013-2014
• Appeal Filed On: 19-04-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; TDS; Set aside
• Section: 68; 143(3); 133(6); 143(2); 13

Judgement Text

ITA No.2437/Mum/2018 A.Y.2013-14 Shri Mukul Kakar Vs. The ACIT-21(2) 1 IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA No. 2437/Mum/2018 (A.Y.2013-14) Shri Mukul Kakar 126, 12 th Floor, Belmonte Tower, Mogal Lane, Mahim, Mumbai Vs. The ACIT-21(2) 115, Piramal Chambers, Lalbaug, Mumbai - 400012 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: ADTPK3891M Appellant .. Respondent Appellant by : None Respondent by : Mahita Nair Date of Hearing 27.10.2022 Date of Pronouncement 31.10.2022 आदेश / O R D E R PER AMARJIT SINGH, AM: The present appeal filed by the assessee is directed against the order passed by the ld .CIT(A)-33, Mumbai, which in turn arises from the order passed by the A.O u/s 143(3) of the Act. The assessee has raised the following grounds before us: “1. Unexplained Cash Credits The learned ACIT has erred in holding unsecured loans amounting to Rs.373 lakhs taken by the assessee from 15 parties as unexplained cash credits and added the same to the income of the assessee u/s 68 of the Income Tax Act. On the facts & circumstances of the case and in law, the learned CIT (A) erred in upholding Assessing Officer's order by completely ignoring the fact that unsecured loan taken by the appellant is genuine. ITA No.2437/Mum/2018 A.Y.2013-14 Shri Mukul Kakar Vs. The ACIT-21(2) 2 On the facts & circumstances of the case and in law, the learned CIT (A) erred in upholding Assessing Officer's order by completely ignoring the fact that interest (on which TDS was deducted) on unsecured loans taken by the appellant has been allowed in toto, thereby treating the loans as genuine Without prejudice it is also submitted that the parties that have advanced loans must have taken credit for the interest and also the TDS deducted thereon. On the facts & circumstances of the case and in law, the leamed CIT (A) erred in upholding Assessing Officer's order by completely ignoring the fact that the unsecured loan taken by the appellant have largely been repaid through bank accounts due to which the parties concerned did not bother to come forth against notices issued w/s.133(6) On the facts & circumstances of the case and in law, the learned CIT (A) erred in upholding Assessing Officer's order by not accepting the Appellant's contention that the loan taken from the parties for which the appellant had submitted copies of the balance sheets of 14 parties for the financial year ended 31 March 2013 as downloaded from website of the MCA establishing the creditworthiness of the parties The Hon. CIT (A) erred in not affording the appellant an opportunity of cross- examining the party/ies mentioned in the second remand report of the Assessing Officer on which reliance was placed The Appellant prays that the addition on account of unexplained cash credits u/s 68 being grossly incorrect be completely deleted. 2. The appellant craves leave, to add, amend or alter the above grounds of appeal.” 2. This case was listed for hearing 15 times but neither anybody has attended from the side of the assessee nor furnished any written submission, therefore, the case of the assessee is adjudicated after hearing the ld. D.R and after taking into consideration the material on record. 3. Fact in brief is that return of income declaring total income of Rs.34,09,810/- was filed on 23.09.2014. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 02.09.2014. During the course of assessment to verify the unsecured loan obtained by the assessee the A.O issued notice u/s 133(6) of the Act to examine the creditworthiness of the parties. However, no compliance ITA No.2437/Mum/2018 A.Y.2013-14 Shri Mukul Kakar Vs. The ACIT-21(2) 3 has been made by any party in response to notices issued u/s 133(6) of the act to the 15 parties as mentioned at para 3 of the assessment order. Vide the aforesaid notices the parties were asked to furnish the bank statement through which the transaction of unsecured loan were taken place along with copies of the Income Tax return acknowledgment for assessment year 2011-12 to A.Y. 2013-14. Because of no compliance the A.O held that creditworthiness of the parties as per Sec. 68 of the Act could not be proved, therefore, the impugned unsecured loan of Rs.3.73 crores was treated as unexplained and added to the total income of the assessee. 4. The assessee filed appeal before the ld. CIT(A). The ld. CIT(A) sustained the disallowance made by the AO. The relevant part of the decision of CIT(A) is reproduced as under: “13 I have carefully gone through the impugned assessment order, remand report of the AO and rejoinder filed by the appellant and the material available on record. My observations are as under: 13.1 The impugned addition has been made as the 15 parties did not respond to notices issued by the AO. During the remand proceedings, on the request of the Ld. AR, the appellant was given an opportunity to produce these parties before the AO to establish identity, creditworthiness and genuineness of transactions It is observed that in-spite of giving a no of opportunities, the appellant failed to produce the parties concerned for examination by the AO. Instead of that he has produced names, address and PAN of the companies concerned and copies of the balance sheets of the 14 parties (out of total 15 parties) for the financial year ended 31st March 2013, as downloaded from website of the Ministry of Corporate Affairs (MCA) In order to establish genuineness of transactions, cheque no/RTGS/NEFT details and name of the bank on which the cheque/RTGS/NEFT were drawn, were submitted to the AO during the course of assessment proceedings and claimed that the loans are genuine. 13.2 From the details submitted during the assessment/appellate/remand proceedings, following facts have emerged. ITA No.2437/Mum/2018 A.Y.2013-14 Shri Mukul Kakar Vs. The ACIT-21(2) 4 (1) Out of 15 companies, 13 companies are based in Kolkata and traced to the following four addresses as below: 1. 1A, Grant Lane, Room No. 114, Kolkata WB 700012 2 95A, C R Avenue 1st Floor Kolkata WB 700073 3. 3, Saklat Place Kolkata WB 700072 4. 10A, Hospital Street 2nd Floor, Room No-205 Kolkata Wb 700072 (ii) These 12 out of 13 Kolkata based companies (Except M/s Shivsakti Commotrade Private Limited) have following four common directors. 1. Shri Ranjit Gupta (Director in 28 Companies) 2.Shri Debi Prasad Lal (Director in 36 Companies) 3.Shri Chiranjit Mahanta (Director in 30 companies) 4.Shri Umesh Singh (Director in 36 companies) It is reported that all these persons are directors in more than 20 companies in violation of Companies Act, 2013 (iii) It is also reported that the Investigation wing of Kolkata has conveyed that they had carried out search and survey action related to these companies and found these as shell companies It is also reported that these companies are operated by a person named Shri Parveen Agarwal, who was merely an entry provider (iv) As reported, the two remaining companies Ms Trison Agencies and M/s Meghan Financial Services Pvt. Ltd. are assessed in Mumbai. It is found that M/s Trison Agencies is a proprietary concern of Kamlesh Kanungo HUF. The statement of Shri Kamlesh Kanungo (Karta) was recorded on oath by the AO. As per statement, he admitted that loans were given only on relationship basis and no document was prepared. He has also admitted that he has never met Mr. Mukul Kakar personally and has not taken any interest on loan from Mr. Kakar. He did not have the phone number of Mr. Mukul Kakar. It is also seen from the bank statement (Yes Bank) submitted by Shri Kamlesh Kanungo of Trison Agencies that on 26.09.2012, a fund of Rs.7,00,000/- was transferred in their account and the same fund was transferred to Mr Mukul Kakkar on 26.09.2012 by way of RTGS. The time duration between the transfers is just few moments (v) Regarding M/s Meghan Financial Services Pvt Ltd, it is reported by the AO that there is no existence of this company at the address provided during the appellate proceedings. 13.3 From the rejoinder of the remand report particularly on the aspect of enquiry being carried out by the AO, it is observed that the Ld. AR has not denied the factual aspects of the report, as discussed above. His only argument is that since the loan was retumed back & TDS was deducted, the loan should be considered as genuine. Further, based on the ITA No.2437/Mum/2018 A.Y.2013-14 Shri Mukul Kakar Vs. The ACIT-21(2) 5 documents produced during appellate proceedings, it is contended that three ingredients regarding establishing genuineness of loan are fulfilled. In the process, he has relied upon few judgments in this regard. 13.4 In my considered opinion, once a finding of the fact about bogus nature of the companies being involved is brought on record by the AO, which is not disputed by the appellant or his Ld. AR further argument justifying genuineness of shell loans given by the 15 companies/entities being operated by an entry operator, will not hold good. Moreover, the judgments relied upon by the Ld. AR are completely distinguishable on facts 13.5 In this regard, it is observed that an identical issue was before the Hon'ble ITAT, Ahmedabad bench in the case of Pavankumar M Sanghvi vs ITO [2017] 81 taxmann.com 308. The fact of the case was that the assessee Shn Pavankumar M Sanghvi had received different amount on different dates dunng the year from two lenders. Hon'ble Tribunal after appreciation of facts, noted that the transactions in the bank accounts of the lenders did not inspire any faith in the proposition that the entity in question is a genuine business concerns One lender had shown a turnover of Rs 122 92 crore but without closing stock The level of turnover and the expenditure incurred on achieving such high turnover did not match Given this background the assessee's inability to produce the related persons makes the story of genuine transactions even more unbelievable Further, the fact that lending for an interest at the rate of 12 per cent per annum without any security is not something, which people do for There has to be some close association to get such a kind of unsecured credit at such low rates This situation, coupled with the fact that (i) the assessee has not been able to produce these lenders for verification and reasonably explain the complete circumstances in which these lenders, who were not even routinely engaged in the business of giving loans and advances, gave him unsecured loans on 12 per cent per annum interest which essentially is possible in situations of close relationships and trust, and (b) the assessee has maintained stoic silence on being told about these lenders being alleged to be shell entities, it cannot be believed that these are genuine business transactions A little probing was sufficient in the instant case to show that the apparent was not the real. 13.6 Hon'ble Tribunal has further held that the taxing authorities were not required to put on blinkers while looking at the documents produced before them. They LLO al fact finding authority, this Tribunal cannot were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. As a final fact finding authority, this Tribunal cannot be superficial in its assessment of genuineness of a transaction and this call is to be taken not only in the light of the face value of the documents sighted before the Tribunal but also in the light of all the surrounding circumstances, preponderance of human probabilities and ground realties Genuineness is a matter of perception but essentially a call on genuineness of transaction is to be taken in the light of well settled legal principles. There may be difference in subjective perception on ITA No.2437/Mum/2018 A.Y.2013-14 Shri Mukul Kakar Vs. The ACIT-21(2) 6 such issues, on the same set of facts, but that cannot be a reason enough for the fact finding authorities to avoid taking subjective calls on these aspects, and remain confined to the findings on the basis of irrefutable evidences: The phenomenon of shell entities being subjected to deep scrutiny by tax and enforcement officials is rather recent, and that, till recently, little was known, outside the underbelly of financial world, about modus operendi of shell entities. There were, therefore, not many questions raised about genuineness of transactions in respect of shell entities. That is not the case any longer Just because these issues were not raised in the past does not mean that these issues cannot be raised now as well, and, to that extent, the earlier judicial precedents cannot have blanket application in the current situation as well. Genuineness of transactions thus cannot be decided on the basis of inferences drawn from the judicial precedents in the cases in which genuineness did come up for examination in a very limited perspective and in the times when shell entities were virtually non-existent. As the things stand now, genuineness of transactions is to be examined in the light of the prevailing ground realities, and that is precisely what has been done Thus, for the detailed analysis set out earlier, the alleged loan transactions of the assessee cannot be held to be genuine on the peculiar facts and circumstances of this case 13.7 in para 7 of the order, Hon'ble Tribunal has noted that the legal foundation of the impugned additions is based on the assessee's inability to satisfy the Assessing Officer about all the three essential ingredients of a credit entry in the books of accounts existence of the lender, ability of the lender to advance funds in question, and, above all, genuineness of the transaction. There is no dispute about the basic legal position about section 68 which provides that where any sum is found credited in the books of accounts of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and sources thereof, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as income of the assessee of that previous year The expression nature and source' appearing in Section 68 has to be understood as a requirement of identification of source and its genuineness It is also a settled legal position that the onus of the assessee, of explaining nature and source of credit, does not get discharged merely by filing confirmatory letters, or demonstrating that the transactions are done through the banking channels or even by filing the income tax assessment particulars. In the case of CIT v. United Commercial and Industrial Co (P) Ltd [1991] 187 ITR 596/56 Taxman 304 (Cal), Hon'ble Calcutta High Court has held that "it was necessary for the assessee to prove prima facie the identity of creditors, the capacity of such creditors and lastly the genuineness of transactions" Similarly, in the case of CIT v Precision Finance (P) Ltd [1994] 208 ITR 465/1995] 82 Taxman 31 (Cal), it was observed that "it is for the assessee to prove the identity of creditors, their creditworthiness and genuineness of transactions" There is thus no escape from proving genuineness of a transaction. As regards learned counsel's contention that nothing can be added to the objections specifically taken by the Assessing ITA No.2437/Mum/2018 A.Y.2013-14 Shri Mukul Kakar Vs. The ACIT-21(2) 7 Officer, I am unable to approve this plea for the simple reason that as long as subject matter of the disallowance or addition is the same, there is no bar on examination of any related aspect by the Tribunal, as has been specifically held by a full bench of Hon'ble Bombay High Court in the case of Ahmedabad Electricity Co Ltd v CIT [1993] 199 ITR 351/66 Taxman 27 and reiterated by a Special Bench of this Tribunal in the case of Tata Communications Ltd v. Jt CIT [2009] 121 ITD 384 (Mum). That is, of course, besides the fact that there is no attempt, direct or indirect, to enlarge the subject matter of appeal. The legal plea of the learned counsel proceeds on clearly fallacious assumptions 13.8 It is further held by the Hon'ble Tribunal that what is genuine and what is not genuine is a matter of perception based on facts of the case vis-à-vis the ground realities. The facts of the case cannot be considered in isolation with the ground realties. It will, therefore, be useful to understand as to how the shell entities, which the loan creditors are alleged to be, typically function, and then compare these characteristics with the facts of the case and in the light of well settled legal principles. A shell entity is generally an entity without any significant trading, manufacturing or service activity, or with high volume low margin transactions to give it colour of a normal business entity, used as a vehicle for various financial maneuvers. A shell entity, by itself, is not an illegal entity but it is their act of abatement of, and being part of financial maneuvering to legitimise monies and evade taxes, that takes it actions beyond what is legally permissible. These entities have every semblance of a genuine business its legal ownership by person in existence statutory documentation as necessary for a legitimate business and a documentation trail as a legitimate transaction would normally follow. The only thing which sets it apart from a genuine business entity is lack of genuineness in its actual operations The operations carried out by these entities, are only to facilitate financial maneuvering for the benefit of its clients, or, with that predominant underlying objective, to give the colour of genuineness to these entities. These shell entities, which are routinely used to launder unaccounted monies, are a fact of life, and as much a part of the underbelly of the financial world, as many other evils. Even a layman, much less a member of this specialized Tribunal, cannot be oblivious of these ground realities. 13.9 It is observed that the facts of the instant case are identical to the facts of Pavankumar M Sanghvi vs ITO (supra). Hence, observation made Hon'ble Tribunal in the aforesaid case will be fully applicable to the instant case too. 13.10 In yet another landmark judgment of Pr. CIT vs Bikran Singh [2017] 85 taxmann.com 104 (Delhi), on the similar facts, Hon'ble Delhi High Court has held that the use of deceptive loan entries to bring unaccounted money into banking channels plagues the legitimate economy of our country. The mere fact that the identity of the lender is established and payment made by cheques does not mean they are genuine, If the lenders do not have the financial strength to lend such huge sums and if there is no explanation as ITA No.2437/Mum/2018 A.Y.2013-14 Shri Mukul Kakar Vs. The ACIT-21(2) 8 to their relationship with the assessee, no collateral security and no agreement, the transactions have to be treated as bogus unexplained credits Hon'ble Court has further held that:- “41. An analysis of the above facts shows that none of these four individuals have the financial strength to lend such huge sums of money to the Assessee, that too without any collateral security, without interest and without a loan agreement. The mere establishing of their identity and the fact that the amounts have been transferred through cheque payments, does not by itself mean that the transactions are genuine. The AO and the CIT (A) have rightly held that the identity, creditworthiness and the genuineness are all in doubt. Moreover, the Court notes that that these amounts have been advanced to the Assessee without any explanation as to their relationship with the Assessee, the reason for the payment of such huge amounts, as also whether any repayments have, in fact, been made. There are contradictions in the explanation given by the Assessee and the statements recorded by those four individuals, which are irreconcilable For example, in the case of Shri Ram Chander/Ram Charan, he had initially stated that he had given Rs. 10,00,000/- out of the proceeds of sale of the land but thereafter it was claimed by him that the money had come from her sister Vidya Such contradictions clearly render all these transactions dubious The ITAT could not have, merely because the payments were through cheques, held that the transactions were genuine The ITAT erred in simply accepting the explanation of the Assessee qua the four transactions The ITAT, clearly did not follow the binding precedent in Divine Leasing & Finance Ltd. (supra), which in no uncertain terms requires that the authonties are duty bound to investigate the creditworthiness of the creditors, subscribers and the genuineness of the transactions Thus the ITAT did not merely give findings of fact but misapplied the law. Hence the authorities CIT v. S. Nelliappan [1967] 66 ITR 722 (SC), Orissa Corpn. Pvt. Ltd (supra), Gun Nidhi Dalmia (supra) do not support the Assessee's case. The Assessee has failed to discharge his initial burden as the explanation given by the Assessee and the four individuals does not appear to be credible. 42. There is no dispute to the proposition that the source of the source need not be seen as held in Shiv Dhool Pearls & Investment Ltd. (supra) and the other cases relied upon by the Assessee. The ITAT has erred in its approach towards dealing with the transactions and has incorrectly held that the Assessee has discharged his onus merely because the money was advanced through the banking channels. The ITAT has ignored all the contradictions and has ignored glaring circumstances such as Shri Amar Singh, not even being an Income- fax Assessee, in holding that the transactions are genuine and creditworthiness is established The explanation for advancing the loans is clearly contradictory in respect of two of the creditors To accept such ITA No.2437/Mum/2018 A.Y.2013-14 Shri Mukul Kakar Vs. The ACIT-21(2) 9 explanations would in effect result in turning a blind eye as has been done by the ITAT, to transactions which clearly lacked bona fides Thus, the ITAT's order is erroneous and contrary to law and is accordingly, set aside. 43. The transactions in the present appeal are yet another example of the constant use of the deception of loan entries to bring unaccounted money into banking channels This device of loan entries continues to plague the legitimate economy of our country. As seen from the facts narrated above, the transactions herein clearly do not inspire confidence as being genuine and are shrouded in mystery, as to why the so-called creditors would lend such huge unsecured, interest free loans - that too without any agreement In the absence of the same, the creditors fail the test of creditworthiness and the transactions fail the test of genuineness. The findings of the CIT (A) are upheld and the order of the ITAT dated 19th July, 2016 is set aside to the extent of the deletion of four entries. The deletions made in respect of the transactions of the Assessee with Shri Amar Singh, Shri Chandan Singh, Shri Ram Charan/Ram Chander and Smt Sunita to the tune of Rs 50,00,000/- Rs. 1,10,00,000/- Rs. 10,00,000/- and Rs.98,00,000/- , respectively, are liable to be added back to the returned income of the Assessee for the relevant AY, under Section 68 of the Act.” 14. Considering the totality of the fact and circumstances of the issue involved, in my considered opinion, the ratio of the judgments in the Pavankumar M Sanghvi Vs. ITO (supra) and Pr. CIT vs Bikran Singh (supra) are fully applicable to the facts of the instant case Hence, respectfully following these discussions, it is held that the AO has correctly treated the unsecured loans amounting to Rs 373 lakhs taken by the appellant from fifteen (15) parties as unexplained cash credits u/s 68 of Income Tax Act. Hence, the addition is confirmed. Thus, the sole ground of appeal is rejected.” 5. Heard the ld. D.R and perused the material on record. During the course of appellate proceedings the ld. CIT(A) called the remand report from the A.O. In the remand report the A.O reported that as directed by the ld. CIT(A), vide letter dated 14.12.2016, the assessee was asked to produce the lenders for examination on 05.01.2017. However, the assessee vide letter dated 03.01.2017 requested the A.O to grant some more time because of the winter holiday season and requested for date after 02.01.2017. Accordingly, the A.O has adjourned the matter on the request of the assessee to 23.04.2017 for final hearing and asked the assessee to produce the lenders parties for examination. Even on ITA No.2437/Mum/2018 A.Y.2013-14 Shri Mukul Kakar Vs. The ACIT-21(2) 10 23.04.2017 the assesse has not produced even a single party from whom unsecured loan have been taken. Because of non-compliance on the part of the assessee full inquiry could not be carried out during the remand proceedings. The ld. CIT(A) has further observed from the report received from the A.O that 13 companies out of the 15 companies from whom the assessee had obtained unsecured loan were based on common 4 addresses at Kolkata. It was also found from the search and survey action of the investigation wing of Kolkata that these companies were shell companies which were merely engaged in providing accommodation entries. After considering the facts and circumstances as elaborated in the findings of the Ld. CIT(A) supra addition were sustained by the ld. CIT(A). 6. During the course of appellate proceedings before us in spite of providing abundant opportunities to the assessee to contest facts on the basis of which the ld. CIT(A) has sustained the addition, neither anyone has attended nor furnished any written submission to controvert the finding of ld. CIT(A), therefore, we don’t find any reason to interfere in the decision of ld. CIT(A). Accordingly, the grounds of appeal of the assessee stand dismissed. 7. In the result, the appeal of the assessee stand dismissed. Order pronounced in the open court on 31.10.2022 Sd/- Sd/- (Vikas Awasthy) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 31.10.2022 Rohit: PS ITA No.2437/Mum/2018 A.Y.2013-14 Shri Mukul Kakar Vs. The ACIT-21(2) 11 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. विभागीय प्रविवनवध, आयकर अपीलीय अवधकरण DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण/ ITAT, Bench, Mumbai.