MOH Limited, Ahmedabad V. The Income Tax Officer, Ward-4(4), Ahmedabad

ITA 3135/AHD/2014

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1022 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-12-2019
• Assessment Year: 2004-2005
• Appeal Filed On: 26-11-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Business income; Depreciation; Accommodation entries; Unabsorbed depreciation; Set aside
• Section: 40A(3); 133(6); 69B; 13; 147; 68; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, HONBLE JUDICIAL MEMBER AND SHRI WASEEM AHMED HONBLE ACCOUNTANT MEMBER ITA.NO.1758/AHD/2014 / ASSTT.YEAR : 2001-2002 AND ITA NO.3134/AHD/2014 & 3135/AHD/2014 ASSTT.YEAR : 2002-03 AND 2004-05 MOH LIMITED 996, KHADIA CHAR RASTA AHMEDABAD 380 009. PAN : AABCM 0385 L VS ITO, WARD - 4(4) AHMEDABAD. ITA.NO.1928/AHD/2014 / ASSTT.YEAR : 2001-2002 ITO, WARD - 4(4) AHMEDABAD. VS MOH LIMITED 996, KHADIA CHAR RASTA AHMEDABAD 380 009. PAN : AABCM 0385 L / (APPELLANT) / (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : S MT.A PARNA AGGRAWAL, CIT - DR SHRI DEELIP KUMAR, SR.DR / DATE OF HEARING : 12/12/2019 / DATE OF PRONOUNCEMENT: 18/12/2019 !'/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER ITA NO.1758/AHD/2014 AND 3 OTHERS MOH LTD. VS. ITO 2 ASSESSEE AND REVENUE ARE IN CROSS APPEALS AGAINST O RDER OF THE LD.CIT(A)-VIII DATED 31.3.2014 PASSED FOR THE ASSTT .YEAR 2001-02. ASSESSEE IS ALSO IN APPEAL AGAINST ORDERS OF THE LD.CIT(A)- VIII OF EVEN DATED 26.9.2014 FOR THE ASSTT.YEARS 2002-03 AND 2004-05. SINCE ISS UES RAISED IN ALL THE APPEALS ARE MORE OR LESS INTER-RELATED, FOR THE SAK E OF CONVENIENCE, WE DISPOSE OFF ALL THESE APPEALS BY THIS CONSOLIDATED ORDER. 2. IN RESPONSE TO THE NOTICE OF HEARING, SHRI SUNIL M. SHAH, EX-DIRECTOR OF MOH LIMITED WRITTEN A LETTER DATED 30.10.2017TO REG ISTRY INTIMATING THAT THE COMPANY HAS WOUNDED UP AND OFFICIAL LIQUIDATOR HAS BEEN APPOINTED. COPY OF THIS LETTER HAS BEEN PLACED ON RECORD. THEREAFTER, NOTICES WERE SERVED THROUGH DEPARTMENT ON THE OL, BUT NONE HAS COME PRESENT ON BEHALF OF THE ASSESSEE, EVEN AFTER SERVICE OF REPEATED NOTICES. UNDER THE C OMPELLING CIRCUMSTANCES, WE PROCEED TO DECIDE THE APPEALS EX PARTE QUA THE ASSESSEE. 3. FIRST WE TAKE CROSS APPEALS FOR THE ASSTT.YEAR 2 001-02 I.E. APPEAL OF THE REVENUE IN ITA NO.1928/AHD/2014 AND APPEAL OF THE A SSESSEE IN ITA NO.1758/AHD/2014. 4. SOLE GROUND FOR OUR ADJUDICATION IN THE REVENUE S APPEAL FOR A.Y.2001-02 READS AS UNDER: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.9,33,00,000/- MADE U/S.68 OF THE ACT WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD. WHILE IN THE ASSESSEES APPEAL FOLLOWING TWO GROUN DS ARE RAISED: 1. THE LD.CIT(A) ERRED ON FACTS AND IN LAW IN CONF IRMING RETAINING INCOME OF RS.1,57,10,000/- WHICH WAS OFFERED TO TAX BY THE APPELLANT INSTEAD OF RESTRICTING THE SAME AT RS.2,57,500/- FR OM ROTATION OF FUNDS ITA NO.1758/AHD/2014 AND 3 OTHERS MOH LTD. VS. ITO 3 IN THE GUISE OF SOFTWARE BUSINESS BY IGNORING THE P RINCIPLES OF REAL INCOME THEORY. 2. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN D IRECTING THE AO NOT TO GRANT SET OF UNABSORBED DEPRECIATION AND BUS INESS LOSS FROM GRANITE BUSINESS ASSESSED UNDER THE HEAD INCOME FR OM BUSINESS AGAINST INCOME HELD TO BE ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. 5. GROUND NO.1 OF REVENUES APPEAL AND THE ASSESEE S APPEAL IS INTER- CONNECTED, THEREFORE WE DISPOSE OF BOTH THESE GROUN DS TOGETHER. 6. BRIEF FACTS OF THE CASE EMERGING FROM THE CASE R ECORD ARE THAT ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF PROCESSING, POLISHING AND TRADING OF GRANITES. BESIDES THIS REGULAR BUSI NESS, THE ASSESSEE HAS ALSO ROUTED CERTAIN TRANSACTIONS VIZ. SALES AND PURCHASE S OF SOFTWARE DURING THE RELEVANT PERIOD, WHICH STATED TO BE CARRIED OUT ON BEHALF OF ONE TRANS-TECHNO GROUP. FOR THIS ASSESSEE HAS PROVIDED INVOICES INDI CATING PURCHASES OF SOFTWARE BY THE ASSESSEE, WHICH IN TURN, SOLD TO OT HER PARTIES FOR WHOM ACCOMMODATION ENTRIES WERE RECORDED IN THE BOOKS. I T WAS STATED BY THE ASSESSEE THE SALE AND PURCHASE OF SOFTWARE WAS BACK TO BACK TRANSACTIONS WITHOUT INVOLVING ITS OWN FUNDS, STAFF AND RISK, AN D IN THE NATURE OF ACCOMMODATION ENTRIES. IT WAS FURTHER STATED THAT CREDITORS AND DEBTORS WHICH CAME TO THE BOOKS OF THE ASSESSEE AS A RESULT OF AC COUNTING OF PURCHASE AND SALE OF SOFTWARE WERE SQUARED OFF BY ROTATING FUNDS FROM THE BANK ACCOUNT OF TRANS-TECHNO GROUP (DEBTOR FOR SOFTWARE SALES) TO T HE ACCOUNT OF THE ASSESSEE, AND THEN TO THE ACCOUNT OF SUPPLIERS (CREDITORS IN THE BOOK AGAINST SOFTWARE PURCHASE). IN OTHER WORDS, MODUS OPERANDI IS THAT THE TRANS-TECHNO GROUP SUBSEQUENT TO THESE ACCOMMODATIVE ENTRIES STARTED S QUARING UP OF PARTY ACCOUNTS RELATING TO PURCHASE AND SALE OF SOFTWARE USING THE ASSESSEES BANK ACCOUNT, AND EVEN BY OPENING SEPARATE BANK ACCOUNTS IN A PARTICULAR BANK SO ITA NO.1758/AHD/2014 AND 3 OTHERS MOH LTD. VS. ITO 4 THAT BY CIRCULAR MOVEMENT OF FUNDS FROM THEIR BANK ACCOUNT TO THE ASSESSEES BANK ACCOUNT, AND THEN ASSESSEES BANK ACCOUNT TO T HE CREDITORS BANK ACCOUNT, AND THEN CREDITORS BANK ACCOUNT TO THEIR BANK ACCOU NTS ON A PARTICULAR DATE SO THAT ALL ACCOUNTS COULD REDUCE TO NIL WITHOUT INVOL VING ANY FUNDS OF THE ASSESSEE. THE ASSESSEE HAS FILED ITS RETURN OF INC OME FOR THE ASSTT.YEAR 2001- 02 ON 31.10.2001 DECLARING NIL INCOME. THE RETURN W AS SELECTED FOR SCRUTINY AND AFTER ISSUANCE OF NOTICES, ASSESSMENT WAS COMPL ETED ON 30.3.2004 DETERMINING TOTAL INCOME AT RS.6,92,81,214/-. ASSE SSEE PREFERRED APPEAL BEFORE LD.CIT(A) WHO DELETED THE ADDITION MADE UNDE R SECTION 68 OF THE ACT MADE BY THE AO BUT DIRECTED THE AO TO BRING ENTIRE SALE CONSIDERATION UNDER SECTION 68 IN THE YEAR IN WHICH FUNDS CAME TO THE B OOKS OF THE ASSESSEE. ASSESSEE AND REVENUE BOTH HAD PREFERRED APPEAL BEFO RE THE TRIBUNAL. THE TRIBUNAL AFTER HEARING BOTH THE PARTIES RESTORED TH E MATTER BACK TO THE FILE OF THE AO WITH A SPECIFIC DIRECTION TO DETERMINE AS TO WHETHER THE PROVISIONS OF SECTION 68 COULD BE APPLIED IN THE CASE OF THE ASSE SSEE; WHETHER SOFTWARE TRANSACTIONS ACCOUNTED IN THE BOOKS WERE IN THE NAT URE OF ACCOMMODATIVE; WHETHER ENTIRE SALE CONSIDERATION WAS REQUIRED TO B E BROUGHT TO TAX AS DIRECTED BY THE LD.CIT(A), AND WHETHER INCOME, IF ANY, FROM SUCH ACTIVITIES WOULD BE ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCE S OR UNDER THE HEAD INCOME FROM BUSINESS. ACCORDING, THE LD.AO INITI ATED FRESH ASSESSMENT. IN THE FRESH ASSESSMENT ASSESSEE FURNISHED DETAILED SU BMISSIONS AND CHART INDICATING CIRCULAR MOVEMENT OF FUNDS THROUGH SPECI FIC BANK ACCOUNTS. AFTER CONSIDERING THE DETAILS AND SUBMISSIONS OF THE ASSE SSEE, THE LD.AO HELD THAT THE ASSESSEE FAILED TO ESTABLISH GENUINENESS OF THE SO-CALLED CREDITORS SOFTWARE TRANSACTION OF RS.9,33,00,000/- AND MADE UNDER SECT ION 68 OF THE ACT. HE ALSO MADE ADDITION OF RS.1,57,10,000/- INCOME EARNED FR OM SOFTWARE ACTIVITIES. IN HOLDING SO, THE LD.AO OBSERVED THAT NO NEW FACTS EM ERGED DURING THE FRESH ASSESSMENT, AND EVEN THE ASSESSEE FAILED TO PROVE T HAT TRADING OF CUSTOMIZED ITA NO.1758/AHD/2014 AND 3 OTHERS MOH LTD. VS. ITO 5 SOFTWARE WAS FOR ROTATION OF TRANSACTION OF COMPANI ES BELONGING TO TRANS TECHNO GROUP OR THESE TRANSACTIONS WERE ACCOMMODATI ON ENTRIES OR BACK TO BACK TRANSACTIONS AND TREATED THE TRANSACTION AS BO GUS AND NON-GENUINE. IT WAS FURTHER OBSERVED BY THE AO THAT AS ON THE DATE OF BALANCE SHEET THERE WAS NO CREDIT BALANCE AGAINST THE CREDITORS CLAIMED. T HE ASSESSEE HAD IN FACT DISCHARGED ITS LIABILITY BY PAYING WITH CASH. THE BALANCE OF SHOWN IN THE BALANCE SHEET NO LONGER EXISTS, AND THE SAME IS LIA BLE TO THE TREATED AS INCOME OF THE ASSESSEE. IN SHORT, THE LD.AO MADE AN ADDIT ION OF RS.1,57,10,000/- AS PROFIT SHOWN BY THE ASSESSEE FROM SOFTWARE BUSINESS IN THE RETURN AND RS.9,33,00,000/- BEING THE AMOUNT STANDING AS LIABI LITY (SOFTWARE CREDITORS) IN THE BALANCE SHEET. AGAINST THIS ORDER OF THE AO, T HE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). AFTER EXAMINAT ION OF THE DETAILS AND EXPLANATION OF THE ASSESSEE, THE LD.CIT(A) DELETED ADDITION OF RS.9.33 CRORES MADE UNDER SECTION 68 BY THE AO, HOWEVER, INCOME OF RS.1,57,10,000/- EARNED FROM SOFTWARE BUSINESS AND AN AMOUNT OF RS.1 ,46,57,500/- BEING PAYMENTS MADE TO A&A SOFTWARES, CARRIER INFORMATION TECHNOLOGY AND CARRIER INFORMATION TECHNOLOGY OF RS.1,11,50,000/-, RS.13,50,000/- AND RS.20,00,000/- RESPECTIVELY, AND ALSO PAYMENT OF RO C FEES OF RS.7,500/- AND CASH INTRODUCED IN THE NAME OF NILESH KADIWALA AND ADMITTED AS INCOME OF RS.1,50,000/-. NOW, BOTH THE REVENUE AND THE ASSES SEE ARE IN FURTHER APPEAL BEFORE THE TRIBUNAL. REVENUE IS AGAINST DELETION OF ADDITION OF RS.9.33 CRORES MADE BY THE AO UNDER SECTION 68, WHILE ASSESSEE IS AGGRIEVED AGAINST CONFIRMATION OF ADDITION OF RS.1,57,10,000/-. 7. WITH THE HELP OF LD.DR, WE HAVE GONE THROUGH THE RECORD CAREFULLY. IT WOULD BE APPROPRIATE TO TAKE NOTE OF RELEVANT PART OF THE LD.CIT(A) ON THE ISSUES UNDER DISPUTE. IT READS AS UNDER: ITA NO.1758/AHD/2014 AND 3 OTHERS MOH LTD. VS. ITO 6 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSION OF THE APPELLANT. I HAVE ALS O CAREFULLY PERUSED THE ASSESSMENT ORDER PASSED BY THE AO IN THE FIRST ROUN D OF PROCEEDINGS AND THE MATERIAL AVAILABLE ON RECORD. IT IS NOTED THAT GRO UNDS OF APPEAL FROM 1 TO 9 ARE INTERLINKED AND ARE RELATED TO THE ADDITION OF RS. 9.33 CRORES UNDER SECTION 68 OF THE ACT. THESE GROUNDS ARE ACCORDINGL Y DECIDED TOGETHER. IN THIS CASE, THE APPELLANT HAD SHOWN TRADING OF CU STOMIZED SOFTWARE AND HAD SHOWN PROFIT OUT OF IT. DURING THE COURSE O F FIRST-ROUND OF ASSESSMENT PROCEEDINGS, THE AO MADE ENQUIRIES FROM THE BUYERS AND SELLERS OF THE SOFTWARE AND IT WAS NOTED THAT THE TRANSACTIONS WER E NOT GENUINE AND COULD NOT BE VERIFIED. THE MATTER REACHED THE HONOURABLE ITAT AHMEDABAD WHO HAD SET IT ASIDE TO THE FILE OF THE AO. THE HONOURA BLE ITAT DIRECTED THAT THE AO SHOULD VERIFY WHETHER THE TRADING OF CUSTOMIZED SOFTWARE WAS FOR ROTATION OF TRANSACTIONS OF COMPANIES AND WHETHER, TO THOSE TRANSACTIONS SECTION 68 WILL APPLY OR THE ENTIRE TURNOVER AND BE CONSIDERED FOR THE PURPOSE OF ASSESSMENT. IT WAS FURTHER DIRECTED THAT THE AO SHO ULD ALSO EXAMINE THAT WHETHER THE TRANSACTIONS WERE BACK-TO-BACK TRANSACT ION OR ACCOMMODATION ENTRIES. IT WAS ALSO DIRECTED THAT THE AO SHOULD VE RIFY WHETHER THE APPELLANT'S INCOME WAS INCOME WAS INCOME FROM OTHER SOURCES OR INCOME FROM BUSINESS. THE AO IN HIS ORDER PASSED IN CONSEQUENCE TO THE SE T-ASIDE PROCEEDINGS HAS HELD THAT THE APPELLANT HAD FAILED TO ESTABLISH THE GENUINENESS OF THE CREDITORS. HE HELD THAT THE APPELLANT HAD CLAIMED C REDITORS FOR SOFTWARE OF RS. 9.33 CRORES AND IT HAD FAILED TO PROVE THE GENU INENESS OF SO-SAILED CREDITORS. IT IS ALSO POINTED OUT BY THE AO THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE CREDITOR GAP CORPORATE S ERVICES PVT. LTD HAD DENIED FOR ENTERING ANY BUSINESS TRANSACTIONS WITH THE APPELLANT. FURTHER LETTERS ISSUED UNDER SECTION 133(6) CARRIER INFORMA TION TECHNOLOGY AND MAXIM INFO SYSTEMS WERE RETURNED UNSERVED. HE ACCOR DINGLY HELD THAT NO NEW FACTS EMERGED DURING THE COURSE OF FRESH ASSESS MENT PROCEEDINGS AND APPELLANT COULD NOT PROVE THAT THE TRADING OF CUSTO MIZED SOFTWARE WAS FOR THE ROTATION OF TRANSACTION OF COMPANIES BELONGING TO T RANCE TECHNO GROUP OR THESE TRANSACTIONS WERE ACCOMMODATION ENTRIES OR BA CK-TO-BACK TRANSACTIONS. HE ACCORDINGLY MADE THE ADDITION OF R S. 9.33 CRORES IN RESPECT OF THE CREDITS SHOWN BY THE APPELLANT UNDER SECTION 68 OF THE ACT. THE APPELLANT ON THE OTHER HAND HAS SUBMITTED THAT THE ENTIRE FACTS POINTED OUT BY THE AO IN THE EARLIER ORDER AND THE RESULTS OF ENQUIRIES MADE AT THAT TIME CLEARLY SHOW THAT THE TRANSACTIONS WER E BACK-TO-BACK AND WERE IN THE NATURE O-F ACCOMMODATION ENTRIES. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT HAS ALSO SUBMITTED A TAB LE INDICATING FLOW OF FUNDS WHICH WERE RECEIVED BY THE APPELLANT AGAINST SALE OF SOFTWARE DURING THE ASSESSMENT YEAR AND ITS SPECIFIC APPLICATION BY THE APPELLANT WITH REFERENCE TO THE VARIOUS BANK ACCOUNTS. IT WAS POIN TED OUT BY THE APPELLANT THAT THESE DETAILS OF BANK ACCOUNTS AND MOVEMENT OF FUNDS HAVE BEEN ITA NO.1758/AHD/2014 AND 3 OTHERS MOH LTD. VS. ITO 7 COMPILED BY IT ON THE BASIS OF INFORMATION COLLECTE D BY THE AO AS A RESULT OF ENQUIRIES MADE BY HIM IN THE FIRST ROUND OF PROCEED INGS. THE TABLE HAS BEEN GIVEN BY THE APPELLANT IN PAPER BOOK FROM PAGE NUMB ER 28 TO 32. IT HAS FURTHER BEEN SUBMITTED BY THE APPELLANT THAT IT HAS NOT EARNED ANY INCOME AND ON THE BASIS OF REAL INCOME THEORY THE INCOME S HOULD BE REVISED. IT WAS SUBMITTED THAT IN REALITY THERE WERE NO SALES AND P URCHASE OF SO-CALLED SOFTWARE IS OR ANY GENUINE BUSINESS DEALINGS BUT THOSE WERE PAPER TRANSACTIONS ONLY. IT HAS BEEN POINTED OUT BY THE APPELLANT WITH THE HELP OF THE TABLE MENTIONED ABOVE THAT THE, CREDITORS AND D EBTORS WHICH. CAME TO THE BOOKS OF THE APPELLANT AS A CONSEQUENCE OF ACCOUNTI NG OF PURCHASE AND SALE OF SOFTWARE WERE SQUARED OFF BY ROTATING FUNDS FROM BANK STATEMENT OF TRANCE TECHNO GROUP COMPANIES, WHICH WAS SHOWN AS D EBTORS IN THE BOOKS AGAIN THE SOFTWARE SALES, TO THE ACCOUNT OF THE APP ELLANT AND THEN TO THE % .RECOUNT OF SUPPLIERS, SHOWN AS CREDITORS IN THE BO OKS AGAINST THE SOFTWARE PURCHASES, AND THEN FROM THE ACCOUNT OF THE SUPPLIE RS TO THE ACCOUNT OF TRANCE TECHNO GROUP COMPANIES WHO BROUGHT IN THE FU NDS IN THE BANK ACCOUNT FOR ROTATING THE FUNDS LEADING TO RETENTION OF FUNDS BY TRANCE TECHNO GROUP COMPANIES. IT IS ALSO BEEN POINTED OUT BY THE APPELLANT THAT FOR THAT PURPOSE BANK ACCOUNT OF ALL THE PARTIES WERE OPENED IN THE SAME BANK AND IN THE SAME BRANCH. THE APPELLANT HAS THEREFORE, SUBMI TTED THAT AN AMOUNT OF RS.2,57,500/- SHOULD BE BROUGHT TO TAX THE AGAINST THE INCOME OF RS. 1,57,10,000/- RECORDED IN THE BOOKS OF ACCOUNTS APP LYING PRINCIPLES OF REAL INCOME THEORY. I HAVE CAREFULLY CONSIDERED ALL THE FACTS ON RECORD AND VARIOUS SUBMISSIONS, IT IS NOTED THAT THERE IS NO DISPUTE T HAT BOTH PURCHASE AND SALES TRANSACTIONS RECORDED IN THE BOOKS OF THE APPELLANT IN RELATION TO SOFTWARE BUSINESS WERE SHAM MERELY ON PAPER AND WERE BOGUS. THESE FACTS ARE CLEARLY BROUGHT OUT AS A RESULT OF THE ENQUIRY, MADE BY THE AO IN FIRST-ROUND OF ASSESSMENT. IT IS ALSO NOTED FROM THE CHART GIVEN B Y THE APPELLANT WHICH SHOW THE ROTATION OF FUND STARTED FROM BANK ACCOUNTS OF TRANCE TECHNO GROUP AND THE FUNDS HAVE REACHED BACK TO THAT ACCOUNT AGAIN. THESE TRANSITIONS WERE CONDUCTED IN THE SUBSEQUENT FINANCIAL YEAR AND THER EFORE, THE CREDITORS WERE SHOWN AS OUTSTANDING IN THE BOOKS OF ACCOUNTS OF TH E APPELLANT COMPANY. SINCE THESE CREDITORS HAVE ACTUALLY BEEN PAID THROU GH CHEQUE AND THE TRANSACTIONS HAVE ALSO BEEN PLACED BY THE AO ON REC ORD DURING THE FIRST ROUND OF ASSESSMENT PROCEEDINGS THE ADDITION UNDER SECTION 68 IN THE NAME OF THREE PARTIES THAT IS CARRIER INFORMATION T ECHNOLOGY AMOUNTING TO RS,3,24,50,000/-; GAP CORPORATE' SERVICES PVT LTD A MOUNTING TO RS. 3.5 CRORES AND MAXIM INFO SYSTEMS AMOUNTING TO RS.2,58, 50,000/- WAS THEREFORE, NOT CORRECT. THESE ACCOUNTS HAVE BEEN SUBSEQUENT LY SQUARED UP EITHER BY ROTATION OF FUNDS THROUGH BANK ACCOUNT WITHOUT RETA INING OR ENJOYING ANY FUNDS BY THE APPELLANT OR BY BOOK ENTRY ADJUSTMENTS BY INTRODUCING ANOTHER FICTITIOUS ACCOUNT FOR PURCHASE OF SALE SOFTWARE IN SUBSEQUENT YEAR AND BY REVERSING THE ENTRY IN SUBSEQUENT YEARS. THE ACCOUN T OF GAP CORPORATE ITA NO.1758/AHD/2014 AND 3 OTHERS MOH LTD. VS. ITO 8 SERVICES PVT LTD AND MAXIM INFO SYSTEMS HAVE BEEN S QUARED UP BY ROTATING FUNDS BETWEEN THE SKYLID TELECOMMUNICATIONS LIMITED APPELLANT AND GAP CORPORATE SERVICES PVT LTD/MAXIM INFO SYSTEMS LTD T HROUGH BANK ACCOUNTS MAINTAINED WITH VIJAYA BANK. FOR THIS PURPOSE THE F UNDS WERE FIRST BROUGHT IN BY SKYIID TELECOMMUNICATIONS LTD THEN SUCH FUNDS WERE TRANSFERRED TO APPELLANT'S BANK ACCOUNT, THEN TO. THE BANK ACCOUNT OF CORPORATE SERVICES PVT LTD/MAXIM INFO SYSTEMS AND THEN FROM THE BANK A CCOUNT TO SKYLID TELECOMMUNICATIONS LTD. SUCH ROTATION OF FUND IS CL EARLY EVIDENT FROM THE TABLE ON PAGE 28 TO 32 OF THE PAPER BOOK. IT IS NOT ED THAT THE APPELLANT HAS FURNISHED INFORMATION WITH REGARD TO CIRCULATION OF FUNDS IN THE BANK ACCOUNT BETWEEN THE PARTIES BROUGHT IN THE BOOKS AS SUPPLIE RS AND BUYERS OF SOFTWARE WHICH WERE NOT IN EXISTENCE AT ALL IN THOSE PAGES O F THE PAPER BOOK. A CAREFUL SCRUTINY OF FINANCIAL TRANSACTIONS IT IS NOTED THAT THE APPELLANT HAS RECEIVED RS. 1.25 CRORES BY CHEQUE FROM TRANCE TECHNO FOODS LTD IN HDFC, VEJALPUR BRANCH ACCOUNT ON 19/2/200T AND CLAIMED TH AT THE SAID AMOUNT WAS PAID BACK TO A &A- SOFTWARE: TO THE EXTENT OF RS.1, 11,50,000/- AND TO CARRIER INFORMATION TECHNOLOGY TO .THE EXTENT OF RS. 13.5 L ACS ON THE SAME DATE AS PART OF ROTATION OF FUNDS. SIMILARLY AN AMOUNT OF R S. 21 LAKH WAS RECEIVED FROM SKYLID TELECOMMUNICATIONS LTD ON 23/03/2001 AN D WAS CLAIMED TO BE PAID BACK CARRIER INFORMATION TECHNOLOGY ON AND 07/ 03/2001 TO THE EXTENT OF RS. 20 LAKH AND, THEREFORE, THE APPELLANT HAD CL AIMED THAT ONLY RS. 1 LAKH WAS RETAINED AND EARNED FROM THE AMOUNT SO RECEIVED . IT IS ALSO SEEN THAT ROC FEES OF THE APPELLANT WERE PAID BY TRANCE TECHN O FOODS LTD AMOUNTING TO RS. 7500 ON 19/02/2001. SIMILARLY THE APPELLANT HAS ALSO ADMITTED TO HAVE EARNED RS. 1.5 LACS IN CASH WHICH WERE BROUGHT IN T HE BOOKS IN THE NAME OF SHRI NILESH XADIWALA. THEREFORE, THE APPELLANT AND ACCORDINGLY CLAIMED THAT THE/ONLY INCOME EARNED BUT NOT DISCLOSED IN THE BOO KS WORKED OUT TO RS. 2,57,500/-. ON EXAMINATION OF THE FLOW OF FUNDS MENTIONED IN TH E PAPER BOOK IT IS NOTED THAT THE APPELLANT HAD EXPLAINED THE SOURCES OF FUNDS RECEIVED IN HDFC, VEJALPUR BRANCH FROM TRANCE TECHNO FOODS LTD AND SKYIID TELECOMMUNICATIONS LTD AMOUNTING TO RS. 1.46 CRORES AS WE!! AS PAYMENT OF ROC FEES OF RS.7500/- BY TRANCE TECHNO F OODS LTD FOR THE APPELLANT AND THEREFORE, THESE SUMS CANNOT BE TAXED UNDER SECTION 68 AS UNEXPLAINED CREDIT AS CONTRA ACCOUNTS, PAN AND CONF IRMATIONS HAVE BEEN FURNISHED. HOWEVER, IT IS NOTED THAT THE APPELLANT HAD NOT BEEN ABLE TO ESTABLISH THE PAYMENT OF RS.1,11,50,000/- AND RS.33 ,50,000/- WHICH ARE CLAIMED TO HAVE BEEN MADE TO A&A SOFTWARE AND CARRI ER INFORMATION TECHNOLOGY AS PART OF CIRCULATION OF FUNDS IN THE G UISE OF SOFTWARE BUSINESS AS NEITHER CONFIRMATION HAVE BEEN FURNISHED NOR THE BANK ACCOUNT OF BOTH THE FORMS HAVE BEEN GIVEN SO THAT THE CLAIM OF THE APP ELLANT REGARDING ONWARD MOVEMENT OF FUNDS TO TRANCE TECHNO GROUP COULD BE E STABLISHED. IT IS THEREFORE, CLEAR THAT THE APPELLANT HAS RETAINED TH ESE FUNDS WITH HIM OR HAS EARNED THAT MUCH PROFIT FOR WHICH THE APPELLANT HAS NOT BEEN ABLE TO EXPLAIN ITA NO.1758/AHD/2014 AND 3 OTHERS MOH LTD. VS. ITO 9 FORWARD FLOW OF FUNDS. THEREFORE, THESE PAYMENTS MA DE TO A SOFTWARE AND CARRIER INFORMATION TECHNOLOGY WERE NOTHING BUT UNE XPLAINED INVESTMENT OF THE APPELLANT AND THEREFORE, SHOULD BE TAXED UNDER SECTION 69B OF THE ACT. THE AMOUNT IS WORKED OUT AS UNDER: - UNEXPLAINED PAYMENTS CLAIMED TO HAVE BEEN MADE TO A & A SOFTWARE RS. 1,11,50,000/- UNEXPLAINED PAYMENT CLAIM, TO HAVE BEEN MADE TO CARRIER INFORMATION TECHNOLOGY ON 1 9/02/2001 RS. 13,50,000/- UNEXPLAINED PAYMENT CLAIM TO HAVE BEEN MADE TO CARRIER INFORMATION TECHNOLOGY ON 27/03/2001 RS. 20,00,000/- PAYMENT OF ROC FEES RS. 7,500/- CASH INTRODUCED IN THE NAME OF NILESH KADIWALA AND ADMITTED AS INCOME RS. 1,50,000/- TOTAL RS. 1,46,57,500/- IT IS NOTED THAT THE APPELLANT HAS DI SCLOSED AN INCOME OF RS.1,57,10,000/- THE RETURN OF INCOME FROM SOFTWARE BUSINESS WHICH IS HIGHER THAN THE INCOME WORKED OUT ABOVE AND THEREFORE, NO SEPARATE ADDITION IS REQUIRED TO BE MADE. THE ADDITION OF RS. 9.33 CRORE S MADE UNDER SECTION 68D IS NOT PROPER AS DISCUSSED IN THE PRECEDING DIS CUSSION AND IS DIRECTED TO BE DELETED. HOWEVER SINCE THE INCOME OF RS.1,57,10, 000/-WAS NOT EARNED FROM ANY BUSINESS ACTIVITY BUT FROM SOME OTHER SOUR CE OF INCOME IT IS DIRECTED TO BE ASSESSED UNDER THE HEAD 'INCOME FROM OTHER SOURCES' AND ACCORDINGLY THE SET OFF BUSINESS LOSS FROM THE GRAN ITE BUSINESS WILL NOT BE AVAILABLE TO THE APPELLANT AGAINST THIS INCOME. 8. A PERUSAL OF THE ABOVE ORDER WOULD INDICATE THAT THE LD.CIT(A) HAS RECORDED A FINDING OF FACT DEMONSTRATING THAT CREDI TORS AMOUNTING TO RS.9.33 CRORES DID NOT DESERVED TO BE ADDED IN THE HANDS OF THE ASSESSEE, BECAUSE THE LD.CIT(A) HAD MADE DETAILED ANALYSIS OF FUND FLOW S TATEMENT AND BANK ACCOUNTS PLACED BEFORE HIM. THE LD.CIT(A) WAS OF THE VIEW THAT AMOUNTS ITA NO.1758/AHD/2014 AND 3 OTHERS MOH LTD. VS. ITO 10 HAVE BEEN GENERATED FROM GROUP CONCERNS, AND THEY W ERE ROUTED AND ULTIMATELY A CHEQUE OF RS.1.25 CRORES WAS RECEIVED FROM TRANCE TECHNO FOODS LTD. IN HDFC BANK, VEJALPUR BRANCH ON 19.2.20 11 AND OUT OF THAT AMOUNT, A SUM OF RS.1,11,50,000/- WAS PAID TO A& A SOFTWARE, AND RS.13.5 LAKHS PAID TO CARRIER INFORMATION TECHNOLOGY. THUS , THE LD.CIT(A) FOUND A RECONCILIATION OF FUND FLOW, AND THEREAFTER OBSERVE D THAT ADDITION UNDER SECTION 68 WAS NOT REQUIRED TO BE MADE IN THE HANDS OF THE ASSESSEE. IN OTHER WORDS THE LD.CIT(A) HAS RECORDED A FINDING OF FACT THAT NOTHING HAS BEEN RETAINED BY THE ASSESSEE, WHICH HAS BEEN CONSIDERED AS UNEXPLAINED CASH CREDIT. THE ASSESSEE HAS EXPLAINED FUND FLOW I.E. DEMONSTRATING TRANSACTIONS WERE BACK TO BACK, AND WERE IN THE NATURE OF ACCOMM ODATION ENTRIES. SIMILARLY, THE LD.CIT(A) HAS HELD THAT ALLEGED RS.1 ,57,10,000/- WAS NOT EARNED FROM ANY BUSINESS ACTIVITY BUT FROM OTHER SOURCES O F INCOME. THIS WAS TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES . CONTRARY TO THE ABOVE FACTUAL FINDING OF THE LD.CIT(A), NEITHER REVENUE H AS FILED ANY EVIDENCE, NOR ASSESSEE HAS FILED ANY PAPER BOOK. IT HAS NOT BEEN BROUGHT TO OUR NOTICE, AS TO HOW THESE ANALYSES ARE CONTRARY TO THE RECORD. THE REFORE, WE ARE OF THE VIEW THAT THE LD.CIT(A) HAS MADE A LUCID ANALYSIS OF THE RECORD AVAILABLE BEFORE HER, AND APPRECIATED THE CONTROVERSY IN RIGHT PERSP ECTIVE. WE DO NOT FIND ANY MERIT IN THE GROUND OF APPEAL RAISED BY THE REVENUE CHALLENGING DELETION OF RS.9.33 CRORES AS WELL AS GROUND OF APPEAL RAISED B Y THE ASSESSEE PLEADING THEREIN THAT THE INCOME OF RS.1,57,10,000/- OUGHT T O HAVE BEEN ASSESSED AS BUSINESS INCOME INSTEAD OF INCOME FROM OTHER SOU RCES. 9. AS FAR AS GROUND NO.2 RAISED BY THE ASSESSEE IS CONCERNED IT HAS PLEADED THAT THE LD.CIT(A) HAS ERRED IN LAW IN DIRECTING TH E AO NOT TO GRANT SET OFF OF UNABSORBED DEPRECIATION AND BUSINESS LOSS FROM GRAN ITE BUSINESS UNDER THE HEAD INCOME FROM BUSINESS. WE DO NOT FIND ANY ME RIT IN THIS GROUND OF ITA NO.1758/AHD/2014 AND 3 OTHERS MOH LTD. VS. ITO 11 APPEAL, BECAUSE, THE LD.CIT(A) HAS RIGHTLY OBSERVED THAT THE INCOME OF RS.1,57,10,000/- IS NOT A INCOME FROM ANY REGULAR S OURCE OF BUSINESS, RATHER IT IS INCOME FROM OTHER SOURCES, AND THEREFORE, IT WOU LD NOT QUALIFY FOR GRANT OF SET OFF. NO DETAILS HAVE BEEN SUPPLIED BY THE ASSE SSEE BEFORE US IN THIS REGARD. THEREFORE, WE DO NOT FIND ANY MERIT IN GROUND NO.2 ALSO. 10. IN THE RESULT, BOTH THE APPEALS ARE DISMISSED. 11. NOW WE TAKE APPEAL OF THE ASSESSEE FOR THE ASSE SSMENT YEAR 2002-03. 12. GROUNDS RAISED IN THIS APPEAL READS AS UNDER: 1. THE LD. CIT (A) ERRED ON FACTS AND IN LAW IN CONFIR MING ACTION OF ASSESSING OFFICER IN ISSUING NOTICE U/S 148 AND MAK ING ASSESSMENT U/S 147 WITHOUT COMPLYING WITH THE REQUIREMENTS OF LAW. 2. THE LD. CIT (A) ERRED ON FACTS AND IN LAW IN CONFIR MING RETAINING INCOME OF RS. 45,53,000/- WHICH WAS OFFERED TO TAX BY THE APPELLANT INSTEAD OF RESTRICTING THE SAME AT LOSS OF RS. 12,25,957/- FRO M ROTATION OF FUNDS IN THE GUISE OF SOFTWARE BUSINESS BY IGNORING THE PRIN CIPLES OF REAL INCOME THEORY. 13. QUA GROUND NO.1, THE LD.CIT(A) HAS HELD THAT TH E AO HAS PROPERLY ASSUMED JURISDICTION UNDER SECTION 147 FOR MAKING T HE ASSESSMENT. THERE WAS NO ARGUMENT ON BEHALF OF THE ASSESSEE, THEREFORE, T HE SAME STANDS REJECTED. 14. QUA GROUND NO.2, WE HEARD THE LD.DR AND CONSIDE RED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE LD.CIT(A) HA S NOTED THAT THE ASSESSEE HAS RETAINED AN AMOUNT OF RS.7,79,000/-, AND THESE RECEIPTS WERE NOT PART OF ROTATION OF FUNDS FOR SQUARING UP THE ACCOUNTS OF T HE PARTIES BROUGHT ON THE BOOKS OF THE ASSESSEE BY RECORDING SALE AND PURCHAS E OF SOFTWARE. THESE DETAILS HAVE BEEN NOTICED BY THE CIT(A) IN HIS IMPU GNED ORDER AS UNDER: ITA NO.1758/AHD/2014 AND 3 OTHERS MOH LTD. VS. ITO 12 AMOUNT RECEIVED BY CHEQUE NO 453264 ON 18/12/2001 I N VIJAYA BANK ACCOUNT FROM SKYLID TELECOMMUNICATION L TD AND RETAINED BY THE APPELLANT RS. 22,000/- AMOUNT RECEIVED BY CHEQUE NO 453266 ON 22/12/2001 I N VIJAYA BANK ACCOUNT FROM SKYLID TETECOMMUNICATION L TD AND RETAINED BY THE APPELLANT RS. 70,000/- AMOUNT RECEIVED BY CHEQUE NO 200026 ON 03/05/2001 I N VIJAYA BANK ACCOUNT FROM TRANS TECHNO FOODS LTD AND RETAINED BY THE APPELLANT RS. 6,00,000/- AMOUNT RECEIVED BY CHEQUE NO 200037 ON 03/05/2001 I N VIJAYA BANK ACCOUNT FROM TRANS TECHNO FOODS LTD AND RETAINED BY THE APPELLANT RS. 87,000/- TOTAL RS. 7,79,000/- 15. THE LD.CIT(A) TREATED THE ABOVE AMOUNT AS INCOM E OF THE ASSESSEE. BESIDES THAT, HE ALSO OBSERVED THAT ASSESSEE HAS AL SO INTRODUCED FUNDS IN THE NAME OF GANESH INFOTECH AMOUNTING TO RS.13,20,934/- , WHICH WAS DISCLOSED AS SOFTWARE SALES. SINCE NO EXPLANATION WAS FURNIS HED BY THE ASSESSEE REGARDING THIS ENTRY, THE SAME WAS TREATED NON-GENU INE AND MADE ADDITION TO THAT EXTENT AND WORKED OUT A TOTAL ADDITION OF RS.2 0,99,934/-. HOWEVER, THE LD.CIT(A) OBSERVED THAT SINCE THE ASSESSEE HAS ALRE ADY OFFERED AN INCOME OF RS.45,53,000/- IN THE BOOKS OF ACCOUNTS, WHICH IS M ORE THAN THE ADDITION WORKED OUT, NO SEPARATE ADDITION WAS REQUIRED. ACC ORDINGLY, THE LD.CIT(A) RESTRICTED THE ADDITION TO RS.45,53,00/- WHICH WAS DISCLOSED BY THE ASSESSEE IN THE RETURN OF INCOME. TO CONTRADICT FINDING OF TH E LD.CIT(A), THERE IS NOTHING PLACED BEFORE US BY THE ASSESSEE EITHER IN THE FORM OF EXPLANATION OR IN THE FORM OF PAPER BOOK. THEREFORE, WE DO NOT FIND ANY MERIT IN THE GROUNDS OF APPEAL OF THE ASSESSEE. IT IS REJECTED. 16. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. ITA NO.1758/AHD/2014 AND 3 OTHERS MOH LTD. VS. ITO 13 17. NOW WE TAKE ASSESSEES APPEAL FOR THE ASSTT.YEA R 2014-15. 18. ASSESSEE HAS RAISED FOUR GROUNDS IN ITS APPEAL. THEY ARE AS UNDER: 1. THE LD. CIT (A) ERRED ON FACTS AND IN LAW IN NOT AD JUDICATING THE GROUND RELATING TO DISALLOWANCE OF WRITE OFF OF ADVANCE OF RS. 32,000/- GIVEN IN THE COURSE OF BUSINESS. 2. THE LD. CIT (A) ERRED ON FACTS AND IN LAW IN NOT AD JUDICATING THE GROUND RELATION TO ADDITION OF RS. 1,23,392/- IN RESPECT O F TRADE CREDITORS BY INVOKING PROVISIONS OF SECTION 68 OF THE ACT. 3. THE LD. CIT (A) ERRED ON FACTS AND IN LAW IN NOT AD JUDICATING THE GROUND RELATING TO DISALLOWANCE OF RS. 83,250/- BY INVOKIN G PROVISIONS OF SECTION 40A(3) OF THE ACT. 4. THE LD. CIT (A) ERRED ON FACTS AND IN LAW IN CONFIR MING SOFTWARE LOSS OF RS.2,33,85,000/-. 19. BRIEF FACTS OF THE CASE ARE THAT IN THE SET ASI DE ASSESSMENT PROCEEDINGS, THE LD.AO DETERMINED LOSS OF RS.3,64,152/- BY HOLDI NG THAT ASSESSEE HAS NOT BROUGHT ON RECORD ANY FRESH EVIDENCE OR FACT WHICH CAN ALTER THE ORIGINAL ASSESSMENT ORDER, AND THEREFORE, THE LD.AO FINALIZE D FRESH ASSESSMENT ON THE BASIS OF ORIGINAL ASSESSMENT ORDER. THE ISSUE OF D ISALLOWANCE OF LOSS OF RS.2,33,85,000/- AND DISALLOWANCE OF RS.32,000/- BE ING WRITTEN OFF OF ADVANCE, RS.1,23,392/- BEING THE ADDITION MADE UNDE R SECTION 68 OF THE ACT AND THE ADDITION OF RS.83,250/- MADE BY INVOKING PR OVISIONS OF SECTION 40A(3) OF THE ACT WERE CHALLENGED BY ASSESSEE BEFOR E THE LD.CIT(A). THE LD.CIT(A) UPHELD ORDER OF THE LD.AO BY OBSERVING AS UNDER: THE 2ND TO 6TH GROUNDS OF APPEAL ARE REGARDING THE DISALLOWANCE OF LOSS CLAIMED BY THE APPELLANT ON SOFTWARE TRANSACTIONS. THE AO HAS DISALLOWED THE LOSS OF RS 2.33 CRORES ON THE GROUND THAT THE T RANSACTIONS WERE BOGUS. IT IS NOTED THAT, CONSEQUENT TO THE SET ASIDE PROCEEDI NGS BY ITAT, THERE IS NO DISPUTE THAT BOTH PURCHASE AND SALE TRANSACTIONS RE CORDED IN THE BOOKS OF THE APPELLANT PERTAINING TO SOFTWARE BUSINESS WERE NON GENUINE AND SHAM. THE TRANSACTIONS WHICH HAVE RESULTED IN LOSS IN THE PRE SENT YEAR WERE RELATED TO THE REVERSAL OF SOFTWARE SALES DISCLOSED BY THE APP ELLANT IN A.Y 2001 - 02. IT HAS ALREADY BEEN HELD BY ME WHILE DECIDING THE APPE AL FOR A.Y 2001 - 02 AND A.Y. 2002 - 03 THAT THE SOFTWARE ACTIVITY WAS NOT G ENUINE AND WAS MERELY ON ITA NO.1758/AHD/2014 AND 3 OTHERS MOH LTD. VS. ITO 14 PAPER. THE ACTION OF THE AO IN DISALLOWING THE LOSS IN THE PRESENT YEAR IS THEREFORE JUSTIFIED. THE LOSS CLAIMED BY THE APPELL ANT IS ACCORDINGLY NOT ALLOWABLE AS THE SAME IS NOT GENUINE. THE DISALLOWA NCE MADE BY THE AO IS THEREFORE, UPHELD. THE RELATED GROUNDS OF APPEAL ARE ACCORDINGLY, DISM ISSED. 20. THERE IS NO MATERIAL BEING PLACED BEFORE US TO EXPEL THIS FINDING OF THE LOWER AUTHORITIES. THEREFORE, IN THE ABSENCE OF AN Y MATERIAL TO THE CONTRARY, WE DO NOT FIND ANY MERIT IN THESE GROUNDS OF APPEAL . THEY ARE REJECTED. ACCORDINGLY, APPEAL OF THE ASSESSEE IS DISMISSED. 21. IN THE RESULT, ALL APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 18 TH DECEMBER, 2019 AT AHMEDABAD. SD/- SD/- (WASEEM AHMED ) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER