DCIT, New Delhi V. M/s. Esha Securities Pvt. Ltd., New Delhi

ITA 3358/DEL/2013

AI Insights

The case involves appeals by the Revenue against the orders of the CIT (A) which deleted additions made by the assessing officer on account of unexplained credits received by Esha Securities Pvt. Ltd from Sh. S. K. Gupta and companies controlled by him. The Tribunal examined whether the CIT (A) was correct in deleting these additions despite evidence suggesting that Sh. S. K. Gupta was an entry provider involved in providing accommodation entries. The Tribunal noted that the assessee failed to produce necessary documents to substantiate the genuineness of the transactions and that the CIT (A)'s decision was based on insufficient grounds.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 302634 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2017
• Appeal Filed By: Department
• Order Result: PartlyAllowedDismissed
• Bench Allotted: B
• Next Hearing Date: 22-03-2023
• Assessment Year: 2005-2006
• Appeal Filed On: 26-05-2013
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Income from undisclosed sources; Accommodation entries; Capital Gains
• Section: 147; 148; 132

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B”: NEW DELHI BEFORE SHRI I.C.SUDHIR, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No. 3357 and 3358/Del/2013 (Assessment Year: 2004-05 and 2005-06) DCIT, Central Circle-13, Room No. 332, ARA Centre, Jhandewalan Extn., New Delhi Vs. Esha Securities Pvt. Ltd, 59/17, Bahubali Apartment, New Rohtak Road, Karol Bagh, New Delhi PAN:AAACE2862P (Appellant) (Respondent) Revenue by : Ms. Rachna Singh, CIT DR Assessee by: None Date of Hearing 04/09/2017 Date of pronouncement 13/09/2017 O R D E R PER PRASHANT MAHARISHI, A. M. 1. These are the appeals filed by the Revenue against the order of the ld CIT (A)-1, New Delhi dated 13.03.2013 for the Assessment Year 2004-05 and 2005-06. 2. The Revenue has raised the following grounds of appeal for Assessment Year 2004- 05:- “1. The order of the ld CIT(A) is not correct in law and facts. 2. On the facts and circumstances of the case the ld CIT(A) has erred in law in deleting the addition of Rs. 21007350/- on account of unexplained credits received by the assessee company from Shri SK Gupta and the various companies controlled by him without appreciating the fact that Shri SK Gupta is an established entry provider.” 3. The Revenue has raised the following grounds of appeal for Assessment Year 2005- 06:- “1. The order of the ld CIT(A) is not correct in law and facts. 2. On the facts and circumstances of the case the ld CIT(A) has erred in law in deleting the addition of Rs. 5077250/- on account of unexplained credits received by the assessee company from Shri SK Gupta and the various companies controlled by him without appreciating the fact that Shri SK Gupta is an established entry provider.” 4. Facts of the case:- assessee is a company, who filed return of income on 31/08/2005 declaring total income of Rs. 6 074365/–. Subsequently the assessment under section 143 (3) of Page 2 of 7 the income tax act, 1961 was passed on 23/12/2006, wherein the total income was assessed at Rs. 2 060 4010/–. Subsequently notice under section 148 was issued on 29/03/2007, and assessment was passed on the income of Rs. 2 060 4010 under section 143 (3) read with section 147 of the income tax act on 31/ 12/ 2007. Subsequently search was conducted under section 132 of the income tax act on M/s Bhushan steel group of cases on 03/03/2010. During the search, documents belonging to the assessee company have been found and seized. Therefore, notice under section 150 3C was issued on 23/11/2010 recording the satisfaction on 23/11/2010 and copy of the satisfaction note was given to the assessee on his request. In response to that notice, the assessee filed its return of income declaring the income already assessed. 5. The issue of addition: a survey under section 130 3A of the income tax act was carried out on the business premises of one Sh. S. K. Gupta, chartered accountant, by the investigation wing of the Department on 20/11/2007. It was found that he is engaged in the business of providing accommodation entries to various persons by running number of paper companies where his family members or acquaintances or the directors and major shareholders. In the top was also impounded during the course of survey with the detailed accounts of such accommodation entry was recorded in “tally” software. In that, particular software date was details of cash received and issuance of checks with the dates, check numbers name of issuing entities etc were mentioned. It also recorded the amount of commission warned by the Sh. S. K. Gupta will stop his statement was recorded on 20/11/2007 where he accepted that he is engaged in the business of providing accommodation entries by accepting cash. Therefore, there was a search on the Bhushan group of cases and Sh. RK Kedia group. During the course of search several name of the companies were found to be controlled by Sirius K. Gupta, from where he used to provide the accommodation entries. In those names one of the name was the assessee’s name, where it was found that in the financial year 2003 – 04 an amount of Rs. 2 036 5000 was recorded. Therefore, the Ld. assessing officer proceeded to determine the correct nature of these entries. 6. During the assessment proceedings, the assessee was provided with the details of entry provided stating that date and the amount with respect to various parties from whom the accommodation entries were obtained. These parties were also named by S K. Gupta, as the entreaties from whom he used to provide the accommodation entries. The assessee tried to explain the transaction by saying Page 3 of 7 that the name of the party of Sino securities for financial year 2003 2004 are also in the name of Lee asset management, Surya Ent . It was further stated that with respect to the purchase and sale of the shares tally is with the Ledger account and the big statement of the assessee and these are the regular transaction of purchase and sales of shares, which are recorded in the books of accounts. 7. The Ld. assessing officer rejected the contention of the assessee for the reason that Mr. S. K. Gupta categorically admitted in statement before the investigation wing that the various companies manage and control by him did not have any actual business activity but are paper companies. Further assessee did not produce any documentary evidence regarding the purpose of lending the money to Sh. S. K. Gupta and other companies controlled by him as claimed by the assessee. Before the Ld. assessing officer, assessee has not produced the contract notes of sale and purchase of such securities claim to have been sold to and purchased from S. K. Gupta. Therefore according to the Ld. assessing officer the assessee has failed to discharge its onus of proving the genuineness of its claims and hence an addition of Rs. 2 100 7350 was made to the total income of the assessee as unexplained income. 8. Assessee contested the above addition before the Ld. CIT A who rejected all the contention of the assessee on the jurisdictional issue of the provisions of section 153A and 153C, however he deleted the addition of Rs. 2 100 7350/– despite recording the facts are simply in his order that Sh. S. K. Gupta is an entry operator. He merely believed the confirmation of the statement of Sino securities and mutual benefit trust, S. K. Gupta and Mitsui securities for deleting the above addition. He also deleted the above addition for the simple reason that capital gains offered to tax on the sale is transaction have been charged to tax in the original assessments paid in the case of the assessee. He further referred to the fact that cross-examination was not afforded to the assessee of the persons concerned. He was referring to the statement of Mr. S. K. Gupta. Therefore, he was also of the view that proper opportunity of hearing was not granted to the appellant before the Ld. assessing officer. Therefore he deleted the addition of Rs. 2 100 7350/–. 9. Despite notice, none appeared before us. On looking at the proceeding sheet on last 3 occasions the assessee remained non-responsive to the dates of hearing. Therefore, the issue in this appeal is to be decided on the merits of the case. 10. The Ld. CIT (DR) vehemently supported the order of the Ld. Assessing officer. Her main argument was that the accounts revealed that the assessee has obtained accommodation entries. She submitted that all the three names matched with the transaction shown by the assessee. She further submitted that these are the shell companies operated by Mr. S. K. Gupta, from which assessee was obtaining Page 4 of 7 accommodation entries. She submitted that assessee has not produced the basic documents required to support its case therefore, there is no reason for the Ld. CIT appeal to delete the above addition. See submitted that first assessee must support this transaction by producing the basic evidences about the identity of the artiste with whom it is entered into transaction and creditworthiness and genuineness of those transactions. She submitted that when the identity, creditworthiness, and genuineness of these transactions are not proved and shall of shares are proved bogus and no evidences were supported by assessee before the Ld. assessing officer, the Ld. CIT appeal crossly erred in deleting the addition. She also stated that Ld. CIT appeal was grossly erred in stating that no opportunity of cross- examination was given by the Ld AO to the assessee. See submitted that a specific opportunity was given to the assessee, but it was not availed by the assessee. She further relied upon several decisions of various courts and strongly contested that order passed by the Ld. CIT appeal is not sustainable. 11. We have carefully considered the contentions of the Ld. departmental representative and submission made by the assessee before the Ld. CIT (A). We have also perused the orders of the lower authorities. Both the lower authorities have held that assessee has entered into certain transactions with one- accommodation entry providers, Mr. S. K. Gupta. Even the assessee has not denied entering into the transaction with Mr. S. K. Gupta, or all those entities, which are named by the Ld. assessing officer as accommodation entry providers. The only claim of the assessee was that the transactions entered into with these parties are the transaction of purchase and sale of shares, which are recorded in the books of accounts. However, assessee has not produced contract notes of sale and purchase of such securities, which have been claimed to be purchased and sold through Mr. S. K. Gupta and other companies, controlled by him. The assessee has not also produced any documentary evidence to show that amount of loan or financial transaction that were entered into with S. K. Gupta, or other companies controlled by him are genuine. Assessee also did not produce any loan agreement entered into between the parties. Against this, the claim of the revenue is that all these transactions were entered into through Mr. S. K. Gupta and the evidences have been collected from the laptop, which was found during the course of survey at his office showing that these are accommodation entries. The assessee was named as one of the beneficiary of the transactions of accommodation entries provided by Sh. S. K. Gupta. This was undisputedly confessed by the Shri S K Gupta and confirmed by both the lower authorities. During the course of appellate proceedings on the direction of Ld. CIT (A), an opportunity of cross-examination of Mr. S. K. Gupta was granted to the assessee which assessee did not avail. In view Page 5 of 7 of this, additions were made and additions were deleted by the Ld. CIT (A) for the reasons stated above. Firstly the reason given by the Ld. CIT appeal are that all the shares transactions for purchase and sales are offered as a capital gain by the assessee and therefore the addition cannot be made. On this aspect, We are of the opinion that when the sale/ purchase transaction of those shares are bogus or are merely accommodation entries, naturally the assessee will offer them as a sale purchase transaction offering capital gain amount thereon. However, it is for the first appellate authority who is the highest authority under the income tax act to decide the dispute of the assessee, decided this issue in such a blindfolded manner that he accepted such as shallow argument of the assessee. We are of the opinion that even transaction of purchase and sale of shares can also be part of accommodation entries, irrespective of the fact that profit or loss resulting there from are offered by the assessee as a capital gains. Naturally, an accommodation entry provider and the beneficiary would make an effort to sail through the investigating eyes of revenue by offering the result of this transaction under the head capital gain. However, it is for the officers of the revenue to look into the real nature of the transaction and not to brush aside the fact that these are not normal transactions, but highly abnormal transaction, as accommodation entry providers are involved in such transaction. The Ld. CIT A was also swayed by the fact mentioned by the assessee before him that all the transactions are entered by him through account payee cheques or banking channel. We are also surprised that despite there was an allegation of accommodation entry provider providing those entries to the assessee, the Ld. CIT A, believed them to be genuine transactions. The accommodation entries itself shows that the cheques are to be provided. Obviously through banking channel for unaccounted income of the beneficiaries. It is also very naïve to believe for the Ld. first appellate authority that if the transactions entered through banking channel, they should be accepted by the revenue as genuine. We are not aware of any such authority, which has stated so in case of such a blatant case of obtaining benefit of accommodation entries through unaccounted income. Even otherwise transaction through banking channel and transaction in cash does not have material difference except that when the entries are passed through banking channel. It has some level of KYC compliance. Use of banking channel makes an entry neither genuine nor ingenuine. With respect to the opportunity of cross-examination of Mr. S. K. Gupta to the assessee was not availed by the assessee for obvious reasons. Therefore, the Ld. CIT appeal has grossly erred in holding that AO did not offer cross-examination of the entry provider. Even otherwise, also when the assessee has failed to provide the basic documents about the nature of the transaction and identity and Page 6 of 7 creditworthiness of those parties regarding purchase and sale of shares, the assessee does not get right to ask for the cross-examination when assessee has failed to provide the basic documents. Even if for a while it is assumed that there is no statement of Mr. S. K. Gupta, it is for the assessee to substantiate entries recorded in its books of accounts with credible evidences. It is not the case of the assessee that he provided the complete details and Ld. assessing officer did not make any effort in proving those details as false. In the present case, the assessee could not even produce the basic details to prove the entries recorded in its books of accounts are true and correct. Therefore, it is incorrect for the Ld. CIT appeal to say that assessee officer has obtained certain information through private enquiries and which have not been confronted to the assessee. In the present case, the assessee was aware that he has taken and accommodation entry from Sh. S. K. Gupta and the evidences placed before us are so conclusive that they cannot be overlooked on technical and flimsy issue, which CIT appeal did. Over and above, the Ld. AO had the statement of Mr. S. K. Gupta, who confessed that he is merely entry provider, on survey at his premises in laptop was found, where from the amount of beneficial entry taken by the assessee was also found. The Ld. CIT A naively believed that if entries are through banking channel they are necessarily genuine in nature. We are sorry to say that such a statement. Therefore, in the overall circumstances of the facts of this case, we are not of the opinion that Ld. that CIT A was correct in deleting the above addition. On the order of the Ld. CIT A, less we comment is better. In view of the above facts and circumstances of the case, we reverse the finding of the Ld. CIT (A) and confirmed the addition of Rs. 2 100 7350/– made by the assessing officer as unexplained income of the assessee obtained from one accommodation entry provider Sh. S. K. Gupta. In the result ground No. 2 of the appeal of the revenue is allowed. 12. Ground No. 1 and 3 of the appeal of the revenue are general in nature and therefore dismissed. 13. In the result appeal of the revenue in ITA No. 3357/Del/2013 for assessment year 2004 – 05 is partly allowed. 14. Appeal for assessment year 2005-06 was preferred by revenue against the order of the Ld. CIT A dated 13/03/2013 wherein the addition of Rs. 5 077250/– with respect to the unexplained credit received by the assessee from Sh. S. K. Gupta was deleted. 15. The facts of the relevant issue involved in the appeal are similar to the facts discussed in the appeal of the assessee for assessment year 2004 – 05. During the year the information found from the laptop of Mr. S. K. Gupta was that assessee has obtained and accommodation entry of Rs. 5 255000 from that particular Page 7 of 7 person. The assessee could not produce the basic details before the Ld. assessing officer on the issue. On appeal before the Ld. CIT (A), the additions were deleted. For the similar reasons as given in the appeal of the revenue in the case of the assessee for assessment year 2004 – 05. 16. The arguments of the Ld. departmental representative remained the same for this year too. 17. We have carefully considered the submission of the Ld. departmental representative and perused the submission made by the assessee before the Ld. first appellate authority and the assessing officer. We have also perused the orders of the lower authorities on this issue. The facts of the impugned addition remain the same as they were in the appeal of the revenue for assessment year 2004 2005. The CIT A also deleted the addition on the reasons given by him in the appeal of the assessee for assessment year 2004 – 05 before him. As we have already confirmed the addition allowing the appeal of the revenue for assessment year 2004 – 05, we do not have any reason to deviate from the reasons for decision stated therein. In view of this, we allow the appeal of the revenue for assessment year 2005 – 06 reversing the finding of the Ld. CIT appeal in deleting the addition of Rs. 52555000/-on account of unexplained income with respect to accommodation entries provided by Sh. S. K. Gupta, who is beneficiary is assessee. In the result ground No. 2 of the appeal of the revenue is allowed. 18. Ground No. 1 and 3 of the appeal of the revenue is general in nature and therefore they are dismissed. 19. In the result appeal of the revenue is partly allowed. Order pronounced in the open court on 13/09/2017. -Sd/- -Sd/- (I.C.SUDHIR) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: /09/2017 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi