M/S BHOOMIKA MINERALS PVT. LTD, Nagpur V. A,C.I.T CENT CIR. 1(A), Nagpur

ITA 489/NAG/2016

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 9956 (ITAT-NAGPUR)
• Duration Of Justice: 5 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 05-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRADEEP HEDAOO
• Keywords: Bogus Share capital; Opportunity of being heard; Accommodation entries; Set aside
• Section: 132; 142(1); 139(1); 153C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA No. 489/Nag/2016 Assessment Year: 2008-09 ITA No. 490/Nag/2016 Assessment Year: 2009-10 ITA No. 491/Nag/2016 Assessment Year: 2010-11 ITA No. 492/Nag/2016 Assessment Year: 2011-12 & ITA No. 493/Nag/2016 Assessment Year: 2012-13 Bhoomika Minerals Pvt. Ltd., S-2, Wasantika Apartment, Raj Nagar, Nagpur – 440033 Vs. Asstt. Commissioner of Income Tax, Central Circle – 1(1), Nagpur PAN : AADCB2944A (Appellant) (Respondent) ORDER PER BENCH: These five appeals by the assessee are directed against five separate orders each dated 24/06/2016, passed by the learned Commissioner of Appellant by Shri Hitesh P. Shah (CA) Respondent by Shri Pradeep Hedaoo (CIT DR) Date of hearing 26.10.2021 Date of pronouncement 19.01.2022 2 ITA No. 489-493/Nag/2016 Assessment Years: 2008-09 to 2012-13 Income-tax (Appeals)-3, Nagpur for assessment year 2008-09 to 2012-13 respectively. The appeals being connected to one assessee and common issue in dispute involved in these appeals, same were heard together and disposed off by way of this consolidated for convenience and avoid repetition of facts. 2. In assessment year 2008-09 to 2012-13, there is a common ground against disallowance of expenses out of profit and loss account. In assessment year 2009-10 there is one more ground related to addition towards share application money. 3. Facts and circumstances of all the cases being identical, both the parties agreed to argue the ITA No.489/Nag/2016 for assessment year 2008-09 as lead case on the issue of disallowance of expenses and follow the finding in other cases. Accordingly, we have taken the appeal having ITA No. 489/Nag/2016 for adjudication as lead case. ITA No. 489/Nag/2016 for AY 2008-09 4. Briefly stated facts of the case are that a search and seizure operation under section 132 of the Income-tax Act, 1961 (in short, the Act) was carried out on 15/09/2009 at the premises of ‘Sh. Durga Prasad Sarda’, director of the assessee company along with M/s ‘Sunil Hitech’ Group of cases. During search operation, it was noticed that Shri Durga Prasad Sarda was engaged in issuing bogus bills of purchases and sales of coal and other commodities to M/s Sunil Hitech Group, Gupta Coal group and Linson Coal Group etc. through entities 3 ITA No. 489-493/Nag/2016 Assessment Years: 2008-09 to 2012-13 floated by him and by way of making his employees like drivers, servants, petty shopkeepers, workers or their relative and acquaintances as either partner or proprietor etc of firms. For example ‘M/s SN Coals and Coke’ is a concern in the name of Sh. Ravi Yadav, who is servant of Sh. DP Sharda; M/s ‘Ajay Trade Link’ is a proprietary concern in the name of Sri Ajay Yadav, who is relative of Shravi Yadav, who happened to be servant of Sh. DP Sharda. Similarly, the concern M/s PR Traders has been floated in the name of Sh. Rajesh Dass, who is friend of Sh. DP Sharda. Those persons admitted during the course of search that blank documents for opening bank accounts and obtaining permanent account Number (PAN) or TIN for those concerns were got signed by Sh Sharda. Signatures were also obtained on blank cheques. It has been noticed by the Investigation wing that money was circulated from bank accounts of one such concern to bank accounts of another concern for providing accommodation entries to various beneficiary groups like M/s Sunil Hitech etc. and commission was charged for arranging those accommodation entries . 4.1 It is noted by the Assessing Officer that assessee company is one such paper company floated by Shri DP Sarda with him and his wife as directors of the company, to provide accommodation entries to the various business groups. It has been noted by the Assessing Officer in the impugned assessment order that on verification by the investigation wing of the Income-tax Department during search proceeding, no business activity of any sort was 4 ITA No. 489-493/Nag/2016 Assessment Years: 2008-09 to 2012-13 found to be done by the assessee company and no godowns for keeping stock were found during the course of the search proceedings. 4.2 The Assessing Officer has noticed that no regular return of income in terms of section 139(1) of the Act was filed by the assessee for the year under consideration. In view of the incriminating material belonging to the assessee found during the course of the search on Sh. DP Sarda, after recording the satisfaction as required under the provisions of the Act, the Assessing Officer issued notice under section 153C of the Act on 11/08/2010 asking the assessee to file return of income in terms of provision of section 153C of the Act. In view of non-compliance, the Assessing Officer further issued notice under section 142(1) of the Act on 27/04/2011 and 28/06/2011 along with a detailed questionnaire, requiring the assessee to furnish explanation along with the return of income. Again another notice under section 142(1) of the Act was issued on 08/08/2011. In response to the notices issued, the assessee filed return of income on 28/11/2011 declaring total income of ₹ 21, 832/-. During assessment proceedings the Assessing Officer brought to their knowledge various facts observed during the course of search operation and evidences collected related to the assessee, which indicated that assessee company is only a paper company and not engaged in day-to-day regular business activity. The observation of the Assessing Officer made in assessment order dated 30/12/2011 are summarised as under: 5 ITA No. 489-493/Nag/2016 Assessment Years: 2008-09 to 2012-13 (i) “The assessee company was floated by Sh. DP Darda only for facilitating accommodation entries for various parties such as Sunil Hitech Group, Gupta Coal Group and Linkson coal group companies etc. (ii) Despite having huge turnover every year, the company was showing very less gross profit. No transportation expenses for transportation of goods have been claimed in books of accounts. (iii) In the audit report business activity has been claimed as trading- wholesaler , but neither any godown nor any closing stock of any material traded in was found during the course of search operation.” 4.3 In view of the above observations, the Assessing Officer was of the view that assessee is merely a paper company and therefore various expenses claimed in the profit and loss account were not allowable, as same have not been incurred wholly and exclusively for the purpose of the business. The assessee submitted that it carried out the business of purchase and sale of coal and minerals with or without delivery and also indulged in hedging transaction for which it had to incur various expenses like salary, bank commission and charges, electricity, rent rates and taxes and other incidental expenses, for carrying out the operation of the company. It was submitted by the assessee that expenses recorded in books of accounts were genuine and could be cross-examined with the supporting documents. However, the learned assessing officer rejected the contention of 6 ITA No. 489-493/Nag/2016 Assessment Years: 2008-09 to 2012-13 the assessee. The observations of the assessee in AY 2008-09 are reproduced as under: “8.3 The contradiction in the above reply of the assessee is self- evident. On one hand the assessee says that the company is not a paper company, while on the other he says that the concern carries out the business of sales of coal and g minerals, with or without delivery. As discussed before, it was found during search action by the Department that no business activity of any sort was found to be conducted by it. So the question that transactions of this concern are with delivery is completely ruled out. This is also proved by the fact that the assessee concern has not claimed any transportation expense in its P/L account. The only transactions which the concern has indulged into. are without-delivery paper transactions. Thus it can be logically concluded that the assessee company is merely a paper concern floated by Shri D.P. Sarda only to provide accommodation entries to various parties. With regards to its claim that it is involved in hedge transactions, no details or evidence whatsoever, of such transactions has been provided by the assessee in this regard, hence this claim of the assessee is unsustainable. 8.4 The following expenses claimed by the assessee are not genuine expenses for the purposes of business, and hence are hereby disallowed. Personal Expenses = Rs. 2,03,000/= Administrative & other expenses = Rs. 1,11,013 Interest etc. = Rs. 2706 Rs. 3,16,719/-“ 5. On further appeal, the Ld. CIT(A) in AY 2008-09 has upheld the disallowance observing as under: “5.1 It is seen that the assessee has stated that regular books were maintained accounts were audited u/s. 44AB. However, the assessee has not been able to controvert the findings during the 7 ITA No. 489-493/Nag/2016 Assessment Years: 2008-09 to 2012-13 search and stated by the AO in the assessment order. It is a matter of fact that concerns were floated in the names of Shri Ajay Yadav, Shri Ravi Yadav, Shri Rajesh Dass etc. and signatures of these papers on blank documents to open bank accounts and to obtained PAN were found from the premises of Shri D. P. Sarda during search as observed by the AO in the assessment order. The AO has also observed that signatures of the persons were obtained on biank cheque books and Income Tax Return form. Money were circulated from one bank account to another for the purposes of providing accommodation entries to various parties like Gupta Coal Group. Bogus bills were issued to parties from the concerns floated by Shn D. P. Sarda to facilitated booking of bogus expenses viz. in the case of Sunil Hitech Group. The AO has been able to establish in the assessment order that the assessee has not conducted the business reported in the accounts or in the audit report. The AO has effectively established that the assessee was paper concern floated by Shri D.P. Sarda to arrange accommodation entries. The judgment relied upon by the assessee are respectfully considered but none of them is relevant in the facts of the assessee’s case. 5.3 In the circumstances, the assessee's arguments have no merit and deserve to be rejected. In the result, it is held that the AO was justified in disallowance the expenses of Rs. 3,16,719/-claimed by the assessee under various heads in the profit and loss accounts considering that the expenses claimed were not genuine expenses. 5.4 Therefore, the addition made by the AO of Rs. 3,16,719/ under the narration “expenses disallowed" is upheld and confirmed. The AO is directed accordingly.” 6. Before us, the learned Counsel of the assessee has filed a paper-book for each of the assessment year containing copy of audited financial statement and vouchers supporting payment of Taxes, VAT return, VAT audit report etc. The Ld. Counsel submitted that even if it is presumed that assessee was engaged in providing accommodation entries, still certain expenses on 8 ITA No. 489-493/Nag/2016 Assessment Years: 2008-09 to 2012-13 salary of personals and maintenance of office like electricity, telephone, stationery etc, bank charges etc were required for that purpose and therefore disallowance of such expenses by the Assessing Officer is not warranted. 7. The Ld. DR on the other hand relied on the order of the lower authorities. 8. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. 8.1 As far as issue of disallowance of expenses is concerned, we find that the Assessing Officer has though observed that assessee is a paper company, however, neither rejected books of accounts of the assessee company nor altered the sales or income and conveniently, only disallowed the expenses debited on personals, administrative and other. In our view, once the Assessing Officer himself concluded that assessee company was a paper company and was engaged only in providing bogus entries of purchase of sales or accommodation entries then he is not justified in leaving the purchase / sales activity unaltered and only disallowing the expenses debited in profit loss account. The Assessing Officer himself in para five of the assessment order has observed that commission was charged by the assessee for arranging the accommodation entry transactions and percentage of such commission was dependent on nature of such transactions. We agree with the argument of the learned Counsel of 9 ITA No. 489-493/Nag/2016 Assessment Years: 2008-09 to 2012-13 the assessee that in case of providing accommodation entries transactions, certain expenses on salary of personals, maintainers of office, electricity expenses, telephone expenses etc are need to be incurred . The Ld. Counsel also submitted that vouchers of all those expenses were presented before the Assessing Officer for verification, however he did not verify. In our opinion, the Assessing Officer is blowing hot and cold simultaneously. In one breath, he is holding the assessee as paper company and engaged in earning commission for providing accommodation entries , but in another breath he is disallowing the expenses debited in profit and loss account on the ground that same have not been incurred wholly and exclusively for the purpose of business that too without rejecting books of account. The Assessing Officer being a quasi-judicial authority, he was required to determine income of the assessee in a holistic manner rather than in arbitrative manner .His action of disallowing only expenses in the profit and loss account without rejecting books of accounts and purchase and sale activity of the commodities, is not based on proper appreciation of the facts. If according to the Assessing Officer, the net profit offered to tax was not commensurate with the commission income on accommodation entries of sales bill provided by the assessee, then he could have altered the net profit declared by the assessee rather than disallowing the expenses. 9.0 In view of the above, we are of the opinion that action of the Assessing Officer of disallowing expenses, which has been sustained by the 10 ITA No. 489-493/Nag/2016 Assessment Years: 2008-09 to 2012-13 Ld. CIT(A), cannot be approved and accordingly, we reject the same. In the case of Sh. DP Sharda, the issue of commission earned on providing accommodation entries has been restored back to the Assessing Officer. Since the issue in the case of the assessee is connected with the issue case of Sh. DP Sharda, we feel appropriate to set aside the orders of lower authorities and restore the matter back to the Ld. Assessing Officer for deciding afresh. The assessee shall be afforded adequate opportunity of being heard. The corresponding ground raised in assessment year 2008-09 are accordingly allowed for statistical purpose. ITA No 490/Nag/2016 (Assessment Year 2009-10) ITA No. 491/Nag/2016 (Assessment Year 2010-11) ITA No. 492/Nag/2016 (Assessment Year 2011-12) ITA No. 493/Nag/2016 (Assessment Year 2012-13) 10. Similar disallowance of expenses debited in profit and loss account has been made by the Assessing Officer and upheld by the Ld. CIT(A). Since issue in dispute of disallowance of expenses debited in profit and loss account involved in above appeals from assessment year 2009-10 to 2012- 13 is identical to issue in dispute in AY 2008-09, therefore corresponding grounds in those appeals are also allowed for statistical purpose. 11.0 As far as ground related to addition of share application money in assessment year 2009-10 before us, the Ld. Counsel of the assessee has filed an application duly signed by the assessee during the year for 11 ITA No. 489-493/Nag/2016 Assessment Years: 2008-09 to 2012-13 admission of the additional evidences under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963. The learned Counsel submitted that during the year under consideration, the assessee has received share application money of ₹ 30, 25,000/-from seven persons. He submitted that various documents including return of acknowledgment, computation of income and other documents justifying their identity, creditworthiness and genuineness of the transaction could not be submitted either during the assessment proceeding or in appellate proceedings as same could not be collected during those proceedings. It was submitted that all those documents containing pages 66 to 116 of the paper-book might be admitted and matter maybe restored back to the file of the Learned Assessing Officer for deciding the issue of correctness of share application money afresh. The Learned DR on the other hand relied on the order of the lower authorities, however did not object for verifying the issue of genuineness of the share application money afresh by the Assessing Officer. 12. In view of the above circumstances, we are of the opinion that for deciding the issue of genuineness of the share application money, it is relevant to examine the documents filed by the assessee in support of identity, creditworthiness and genuineness of the transaction. In the interest of substantial justice, we feel it appropriate to restore the matter of genuineness of the share application money back to the file of the Assessing officer for deciding afresh after examining the additional evidences filed by 12 ITA No. 489-493/Nag/2016 Assessment Years: 2008-09 to 2012-13 the assessee. The Assessing Officer is at liberty to carry out any enquiry in the process of verification of share application money as deemed fit in facts and circumstances. Needless to mention that the assessee shall be provided adequate opportunity of being heard. In the result, the ground of the appeal for assessment year 2009-10 related to addition of share application money is allowed for statistical purposes. 13. In the result, appeals of the assessee are allowed partly for the statistical purposes. Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 by placing the details on the notice board. Sd/- Sd/- (SANDEEP GOSAIN) JUDICIAL MEMBER (OM PRAKASH KANT) ACCOUNTANT MEMBER Nagpur; Dated: 19.01.2022 AK, PS 13 ITA No. 489-493/Nag/2016 Assessment Years: 2008-09 to 2012-13 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A) 4. CIT 5. DR, ITAT, Nagpur 6. Guard file. BY ORDER, //True Copy// (Sr.PS/PS) ITAT, Nagpur