DCIT CC 40, MUMBAI V. SUSHANT MAHADEO MALEKAR, MUMBAI

ITA 2825/MUM/2014

AI Insights

This case involves cross appeals by Shri Sushant M. Malekar and the DCIT concerning the assessment year 2007-08. The primary issues revolved around the additions made under Section 68 of the Income-tax Act, 1961, concerning unexplained cash credits and the genuineness of sales and purchases reported by the assessee. The Tribunal found that the assessee's affidavit and the circumstances suggested that the transactions might be bogus and directed a comprehensive re-investigation to ascertain the true nature of these transactions and the parties involved.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299198 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2023
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: E
• Next Hearing Date: 12-10-2022
• Assessment Year: 2007-2008
• Appeal Filed On: 24-04-2014
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Set aside
• Section: 147; 131; 68; 143(3); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI PAVAN KUMAR GADALE, JM ITA No.1838/Mum/2014 (Assessment Year 2007-08) Sushant Ma lekar D-9, Heena Ga rden Com ple x, Pipel ine Rd, Khadakpada, Kal ya n Dis t. T hane Mum bai Vs. DCIT-14(1) Mumbai (Appellant) (Respondent) PAN No. AHZPM9122D ITA No.2825/Mum/2014 (Assessment Year 2007-08) DCIT Centra l C i rcle-40 R.No. 653 6 th f loor, Aaykar Bha van, MK Road, Mum bai-400 020 Vs. Sushant Ma lekar D-9, Heena Ga rden Com ple x, Pipel ine Rd, Khadakpada, Kal yan (W est) Mum bai-421301 (Appellant) (Respondent) Assessee by : Shri. N.M. Porwal, AR Revenue by : Shri Sanjeev Kashyap, CIT DR Date of hearing: 13.10.2022 Date of pronouncement : 11.01.2023 O R D E R PER PRASHANT MAHARISHI, AM: 01. These are the cross appeals in case of Shri Sushant M. Malekar (assessee/ appellant) for A.Y. 2008-09 against the Page | 2 ITA No.1838 & 2825/Mum/2014 Shri Sushant M. Malekar; A.Y. 07-08 order of the Commissioner of Income-tax (Appeals)-38, Mumbai [the learned CIT (A)] dated 2 nd Jan, 2014. 02. Assessee has raised following grounds of appeal: - “1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the addition of ten loan creditors u/s. 68 of the Income-tax Act, 1961 at Rs.43,49,79,005/-. 2. The Ld. CIT(A) erred in not appreciating that it is the responsibility of the Assessing Officer to prove that the income of Rs.43,49,79,005/- sought to be added in the hands of the Appellant u/s. 68 is the income of the Appellant for the Assessment Year 2007 -08. 3. The Ld. CIT(A) erred in not appreciating that the Appellant belongs to a lower-middle class family and his total income for the prior five years is as under: 5. The Ld. CIT(A) erred in not appreciating that for earning an income of Rs.43,49,79,005/- outside the books of accounts, Appellant would require an investment of almost Rs.430 Crores outside the books of accounts, whereas his total assets as on 31st March, 2007 is at Rs.4,26,297/-/- as per his Balance Sheet filed with the Department both before and after Assessment Year 2007-08 for several years. Sr. No. Assessment Year. Total Income Date of filing of Return 1. 2002-03 ₹46,480/- 18.02.2003 2. 2003-04 ₹60,960/- 22-07-2003 3. 2004-05 ₹64,980/- 30-09-2004 4. 2005-06 ₹Nil (below taxable limit –return not Page | 3 ITA No.1838 & 2825/Mum/2014 Shri Sushant M. Malekar; A.Y. 07-08 filed) 5. 2006-07 (-) ₹2,35,547/- 30-10-2006 (loss return) 4. The ld. CIT (A) erred in not appreciating that the Appellant belongs to a lower-middle class family and his total income for the later four years is as under:- Sr. No. Assessment Year. Total Income Date of filing of Return 1. 2009-10 ₹ Nil --- (below taxable limit –return not filed) 2. 2010-11 ₹ Nil (below taxable limit –return not filed) 3. 2011-12 ₹ Nil --- (below taxable limit – return not filed) 4. 2012-13 ₹1,79,260/- 11-12-2013 5. The learned CIT (A) erred in not appreciating that for earning an income of ₹43,49,79,005/- outside the books of accounts, Appellant would require an investment of almost ₹430 Crores outside the books of accounts, whereas his total assets as on 31 st March, 2007 is at ₹4,26,297/- as per his Balance Sheet filed with the Department both before and after Assessment Year-2007-08 for several years. 6. The Ld. CIT(A) erred in not appreciating that all these ten loan creditors are big taxpayers paying taxes in crores of rupees and the Appellant had furnished their PAN Nos. to the ACIT so that with the help of these PAN Nos. he could trace their ITOS and in turn their addresses and serve on them u/s. 131 of the Income-tax Act, 1961. Page | 4 ITA No.1838 & 2825/Mum/2014 Shri Sushant M. Malekar; A.Y. 07-08 7. The Ld. CIT (A) erred in not appreciating that the Department had never issued any Notice u/s. 147 r.w.s. 148 to the Appellant under the pretext that the income has escaped assessment either for the prior years or for the later years thereby implying that the Department accepted the income filed by the Appellant both for the prior years as well as later years as noted above which never exceeded the figure of Rs.3 Lacs. 8. The Ld. CIT(A) erred in not appreciating that the Assessing Officer has added the same figures of the same loan creditors during the Assessment Year 2008-09 also which amounts to double taxation.” 03. The learned Assessing Officer has also raised following grounds of appeal in ITA No.2825/Mum/2014:- “1. On the facts and in the circumstances of the case and in law, the CITA) erred in deleting the addition of Rs.658,80,98,525/ made by the AO on account of sales by holding the same as unexplained cash credit u/s.68 of the Act, without appreciating the fact that the genuineness of the sales has not been established in view of the statement of the assessee recorded before the Asst. Commissioner of Sales Tax, Mumbai, wherein the assessee admitted that both goods and the cash is handled by M/s. Riddhi Siddhi Bullions Ltd and M/s. Hundia Exports and he had no storage space, no weighing machine and no premises of his own to carry on the business" Page | 5 ITA No.1838 & 2825/Mum/2014 Shri Sushant M. Malekar; A.Y. 07-08 2. On the facts and in the circumstances of the case and in law, the CIT(A) erred in allowing the claim of MCX trading loss of Rs. 1,34,28,014/-" by merely relying on the remand report of the then AO and recording his finding and satisfaction on the matter". 3. On the facts and in the circumstances of the case and in law, the CIT(A) erred in allowing the claim of MCX trading loss of Rs. 1,34,28,014/, without appreciating the fact that the remand proceedings and the appellate proceedings have been conducted in the manner which is akin to almost setting aside the assessment".” 04. Brief facts of the case shows that assessee is an individual stated to be dealing in gold and silver and at commodities exchange. He filed his return of income for A.Y. 2007-08 on 31 st October, 2007, declaring nil income. 05. The case of the assessee was picked up for scrutiny under the compulsory ground that assessee’s turnover is more than 20 crores. Several notices were issued to the assessee but no compliances were made. 06. Ultimately, the counsel of the assessee attended on 17 th December, 2009 and submitted statement of total income, profit and loss account, balance sheet under the covering letter. The current address of the assessee was also stated to be at D-9, Heena Garden Complex, Pipeline Road, Khadakpada, Kalyan. It was also stated that assessee has discontinued his business with effect from June, 2008. Page | 6 ITA No.1838 & 2825/Mum/2014 Shri Sushant M. Malekar; A.Y. 07-08 07. The counsel of the assessee was asked to produce sales bill, purchase bills, bank statement, balance sheet as on 30 th June, 2009 and list of debtors and creditors as on that date. Assessee submitted very few sale bills and purchase bills. 08. The learned Assessing Officer noted that assessee has a proprietary concern in the name of M/s Swastik Enterprises and has shown sales of ₹658,80,98,525/- as cash sales. Assessee states that he sold the gold and silver to individual parties. Assessee did not submit any documentary evidences for verification that transactions are in fact made. The complete name, address and payment details were also not submitted for verification. In most of the sale bills, the delivery is ‘hand to hand’. Thus, assessee has sold gold and silver on cash basis and has not given documentary evidences to prove that these sales are genuine. The learned Assessing Officer further found the fact in month wise summary in sales and purchases submitted. The bank statement of the assessee was also verified which did not show any reasoning of cash deposited and its subsequent withdrawal. Accordingly, the learned Assessing Officer a. treated the total sales amount as undisclosed income of the assessee under Section 68 of the Income-tax Act, 1961 (the Act). b. Further, the assessee has shown unsecured loans of ₹43,49,79,005/-. Assessee submitted the details Page | 7 ITA No.1838 & 2825/Mum/2014 Shri Sushant M. Malekar; A.Y. 07-08 when the assessment was getting time barred and therefore, the total unsecured loans were added. c. The assessee has also incurred losses on trading of ₹1,34,28,014/-, no details were furnished and therefore, same was not allowed. Accordingly, assessment order was passed, determining total taxable income of ₹702,30,77,530/- by the order dated 31 st Dec, 2009 passed under Section 143(3) of the Act. 09. Assessee preferred the appeal before the learned CIT (A). During hearing, assessee submitted certain details and sample copies of sales bills. The learned CIT (A) called for the remand report. a. With respect to the addition of sales, the learned CIT (A) considered that assessee has purchased gold worth ₹403 crores from M/s Riddhi Siddhi Bullion Ltd. and ₹155 crores from M/s Hundia exports. In the assessment of these two parties for A.Y. 2007-08, the entire purchases were made by the assessee was accepted. He further noted that assessee has made total gross profit of ₹42 lacs in cash transaction contrary to the observation of the learned Assessing Officer that no margin of profit was shown by the assessee. He further held that assessee has given the names of the customers and such sales were made out of the purchases from the above two parties. He further held that assessee has never Page | 8 ITA No.1838 & 2825/Mum/2014 Shri Sushant M. Malekar; A.Y. 07-08 done any business in the past and therefore, the source of the above sales as undisclosed income is not acceptable. Accordingly, he deleted the addition of ₹658 crores made by the learned Assessing Officer by bringing the entire sales to tax as undisclosed income. b. With respect to the trading loss of ₹1,34,28,014/- based on the verification of the contract notes and the copies of the ledger account of the assessee with MCX and NCDEX. c. With respect to the unsecured loan of ₹43,49,79,005/-, the learned CIT (A) after taking the remand report, he held that assessee has failed to establish the identity and creditworthiness of the creditors and the genuineness of the transaction and therefore, same is confirmed. However, he deleted the addition to the extent of ₹6,87,89,490/- pertaining to Union Bank of India. Accordingly, the appeal was partly allowed and therefore, both the parties are in appeal. 010. We first come to the appeal of the assessee. 011. Assessee has raised the following additional grounds of appeal as under:- “1. On the facts and in the circumstances of the case, the assessee, Shri. Sushant M.Malekar challenges the jurisdictional validity of the order u/s.143 (3) of the Page | 9 ITA No.1838 & 2825/Mum/2014 Shri Sushant M. Malekar; A.Y. 07-08 Income- tax, 1961 on the ground that Order was passed by DCIT- 14(1), Mumbai, who did not have the authority of law to act as Assessing Officer u/s.2 (7A) of the Income-tax Act, 1961 and, therefore, the impugned order was passed by him without authority of law. Thus, the order is bad in law. 2. The Department erred in not appreciating that the A.O. failed to issue notice u/s.143 (2) within the time prescribed under the Income-tax Act, 1961. 3. The Department erred in not appreciating that the time limit for completion of assessment for the A.Y.2007-08 expired on 31st December, 2009 under the 1st proviso to Section-153 whereas the assessment order was received by the assessee much beyond 31st December, 2009 thereby implying that assessment order must have been passed between 7th January to 10th January, 2010 and was received by the assessee on 16th January, 2010. The Appellant craves leave to add, to amend, alter or vary the Addl. Grounds of Appeal either before or at the time of hearing of the Appeal.” 012. At the time of hearing, the assessee submitted the copy of the affidavit of Assessee dated 11 th March, 2020, wherein assessee submitted that he belongs to poor family and one Mr. Dinesh Jani in the year 2005, motivated him to do some illegal business transaction. His affidavit is as under:- “ AFFIDAVIT Page | 10 ITA No.1838 & 2825/Mum/2014 Shri Sushant M. Malekar; A.Y. 07-08 I, Mr. Sushant M. Malekar, aged 41 years, son of Mahadeo Malekar, residing at D-9, Heena Garden Complex, Pipeline Road, Khadakpada, Kalyan (West), Thane 421 301, solemnly state and affirm as under:- 1. That I state that Advocate, Shri. N.M. Porwal is handling my Income-tax matters since last ten years. The CIT (A) Order was passed sometime in 2014 allowing almost 95% of the additions. Now the appeal is pending before the Hon'ble Tribunal for the balance addition of Rs.43 Crores approximately. The CIT (A) has deleted the addition of Rs.658 Crores approximately against which the Department is in appeal before the Hon'ble Tribunal. 2. All along, I made myself clear to M/s. Riddhi Siddhi Bullion Ltd and Shri. Dinesh Jani that I belong to a poor family and my monthly income is approximately Rs.25,000/- which is hardly sufficient to look after both the educational expenses of my child as well as maintenance of my family. Practically, there are no savings during the last fifteen years. 3. Shri. Dinesh Jani sometimes in the year 2005 motivated me to do some illegal business transactions of the following parties. In friendship, I listened to him and signed wherever Shri. Jani asked to me to sign the papers. I have no capacity to do such big transactions running into crores of rupees. I am very very poor person, how I can do transitions of such big amounts? You may please enquire about my financial position both with Shri. Bhawarlalji Kothari and Shri. Jani who motivated me to do such illegal business Page | 11 ITA No.1838 & 2825/Mum/2014 Shri Sushant M. Malekar; A.Y. 07-08 transactions and, as a result of which, I have filed false returns due to these persons i.e. Shri. Bhawarlalji Kothari and Shri. Dinesh Jani. Actually, I have not done any business transactions of purchase and supply of diamonds with the following parties:- (1) Riddhi Siddhi Bullion Ltd ] Amount (II) Anand Gupta ] Disallowed & (iii) Balaji Bullion Corporation ] additions (IV) Chaitanya Developers ] confirmed by (V) Lakeshore Tex Trade Pvt. Ltd ] CIT (A) now (VI) Leadway Realtors and Dev. Pvt. Ltd Jani ] Pending (VII) Nimit Tradelink - Prop: Dinesh ] before the (VIII)Orbit Finance Pvt. Ltd ] Hon'ble (IX) Silver Coin ] Tribunal for (X) Surya Movies ] ₹43 Crores (XI) Tenia Investment Pvt. Ltd ] approx The cheque book of my bank account in the name of Swastik Enterprises used to remain with M/s. Riddhi Siddhi Bullion Ltd for issuance of cheques as well as for depositing cheques. I used to sign all the blank cheques and return the same to Riddhi Siddhi Bullion Ltd through Mr. Dinesh Jani. 4. I have asked Shri. N.M. Porwal to see that the entire appeal is allowed and there is zero demand. Otherwise, I will come to the Tribunal personally and tell the court that I have nothing to do with all these transactions. They are benami transactions and the Hon'ble Bench may pass an order accordingly. If the Page | 12 ITA No.1838 & 2825/Mum/2014 Shri Sushant M. Malekar; A.Y. 07-08 court asks me in detail, I will submit the entire information in writing to the court. To the best of my knowledge and belief, what is stated above is true and correct.” 013. In the affidavit, Assessee has clearly submitted that his cheque book of the bank account of Mr. Swastik Enterprises used to remain with M/s. Riddhi Siddhi Bullion Ltd. It was further stated that Mr. Dinesh Jani and Mr. Shri. Bhawarlalji Kothari, are the two persons who motivated assessee to do the bogus business. Accordingly, he submitted that actually he has not done any business transaction of purchase and sales with M/s. Riddhi Siddhi Bullion Ltd. at all. In fact his submission is that he is a person of no mean who could not have done such business. The assessee also supported his return of income starting from A.Y. 2002-03 to 2019-20, which shows meager income. The learned Authorized Representative further referred to the paper book submitted on behalf of assessee. 014. Therefore, in the nutshell, the submission of the assessee is that he has not done any transaction but it is Mr. Dinesh Jani and Mr. Shri. Bhawarlalji Kothari, who motivated him to do the bogus business. In nutshell, the statement of the assessee also says that purchases showed by him from M/s. Riddhi Siddhi Bullion Ltd. are bogus. 015. The learned Departmental Representative vehemently supported the order of the learned Assessing Officer. It Page | 13 ITA No.1838 & 2825/Mum/2014 Shri Sushant M. Malekar; A.Y. 07-08 was submitted that the addition of sale consideration was wrongly deleted by the learned CIT (A) when assessee himself at present is saying that purchases made from M/s. Riddhi Siddhi Bullion Ltd. is bogus. He therefore submitted that the addition made by the learned Assessing Officer deserves to be confirmed. 016. We have carefully considered the rival contentions and perused the orders of the lower authorities. In the present case, the assessee himself on an affidavit stated that he is a person of no means and did not carry on of such huge business. He on an affidavit has stated that his purchases from M/s. Riddhi Siddhi Bullion Ltd. are bogus and his cheque book is also in the custody of Mr. Dinesh Jani of M/s. Riddhi Siddhi Bullion Ltd. Therefore, the finding of the learned CIT (A) falls flat. Now it cannot be said that purchases shown by Ridhi Sindhi Bullion and Hundia Exports to assessee is genuine. Even an affidavit of the assessee says that his purchase from M/s. Riddhi Siddhi Bullion Ltd. is bogus. Thus deletion of entire purchases of the assessee accepting it as genuine is not sustainable. 017. Further, the sale consideration received by the assessee is also in cash. There is no address of the parties who purchase the gold and silver from the assessee. Therefore, the whole transaction of purchase and sales shown by the assessee is merely a façade. The learned CIT (A) deleting the addition on account of sales and simultaneously accepting sales made by the assessee as also genuine is absolutely incorrect. Page | 14 ITA No.1838 & 2825/Mum/2014 Shri Sushant M. Malekar; A.Y. 07-08 018. Further, when the assessee himself says that he is a person of no means, the loss incurred by the assessee on MCX platform of ₹1,32,28,014/- is also not allowable. The margin paid by the assessee of ₹1.15 crores could not have been deposited by the assessee. 019. Similar is the case with respect to unsecured creditors appearing in the books of assessee cannot be accepted as genuine as sales and purchases both are not genuine. 020. Therefore, it is a clear-cut case that somebody else is operating on behalf of the assessee by using his bank account and of course, assessee cannot also be stated to be ignorant of the situation. Therefore, the assessee as well as the person who are trading with the assessee such as M/s. Riddhi Siddhi Bullion Ltd. is entering into purchase and sales of gold and silver with some ulterior motive. 021. In view of this, we set aside the whole appeal filed by the learned Assessing Officer as well as the assessee back to the file of the learned Assessing Officer to re-investigate the whole aspect of the huge transactions of purchases and sales of Gold and silver and to find out who are the real beneficiaries of these transactions. Prime facie it seems that Riddhi Sidhi Bullion and Hundia Exports have booked huge bogus sales in the name of this assessee. The proper examination of operation of bank account of the assessee by finding out who opened bank account, who operated it , who is beneficiary of the entries in bank account of assessee, who deposited the cash in bank accounts, in whose accounts the money is credited from Page | 15 ITA No.1838 & 2825/Mum/2014 Shri Sushant M. Malekar; A.Y. 07-08 the same account. This apparently seems to be a case of accommodation entry provider . But deeper and complete investigation leading to beneficiary of the transaction is required. It is also to be inquired whether the bankers have made any report of suspicious transaction or not. This case before us is not of merely assessing assessee’s income but a wider game plan of providing benefit to some other persons unscrupulously. In view of this, both the appeals of the assessee as well as the learned Assessing Officer are restored back to the file of the learned Assessing Officer with above direction, reversing the order of the learned CIT (A) in totality. 022. In the result, both the appeals are allowed for statistical purposes. Order pronounced in the open court on 11.01.2023. Sd/- Sd/- (PAVAN KUMAR GADALE) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated:11.01.2023 Sudip Sarkar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, True Copy// Page | 16 ITA No.1838 & 2825/Mum/2014 Shri Sushant M. Malekar; A.Y. 07-08 Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai