CHINUBHAI VAGHJIBHAI SHETH, SURAT V. ITO, WARD-3(2)(2), SURAT

ITA 572/SRT/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2021 (ITAT-SURAT)
• Duration Of Justice: 2 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 06-04-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 15-12-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bogus Share capital; Unexplained investment; Loose papers; Document seized; Opportunity of being heard; Corroborative evidences; Accommodation entries; Set aside
• Section: 69; 148; 132; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A.L. SAINI, AM आयकरअपीलसं./ITA Nos.541 & 572/SRT/2019 (िनधाŊरणवषŊ / Assessment Year: (2011-12) (Physical Court Hearing) Income Tax Officer, Ward -3(2)(2), Room No. 416, Aayakar Bhavan, Majura Gate, Surat-395001 Chinubhai Vaghjibhai Sheth 16, Chokshi Apartment, Opp. Jain Temple, Katargam, Surat-395004 Vs. Chinubhai Vaghjibhai Sheth 16, Choksi Apartment, Shop Opp. Jain Temple, Katargam, Surat- 395004 Income Tax Officer, Ward- 3(2)(2), Aaykar Bhavan, Room No. 416, 4 th Floor, Aaykar Bhawan, Majura Gate, Surat- 395001 ̾थायीलेखासं./जीआइआरसं./PAN/GIR No.: BPCPS 0828 C (Appellant ) (Respondent) आयकरअपीलसं./ITA No.571/SRT/2019 (िनधाŊरणवषŊ / Assessment Year: (2010-11) Chinubhai Vaghjibhai Sheth 16, Chokshi Apartment, Opp. Jain Temple, Katargam, Surat-395004 Vs. Income Tax Officer, Ward-3(2)(2), Aaykar Bhavan, Room No. 416, 4 th Floor, Aaykar Bhawan, Majura Gate, Surat-395001 ̾थायीलेखासं./जीआइआरसं./PAN/GIR No.: BPCPS 0828 C (Appellant) (Respondent) Assessee by : Shri Anil K. Shah, Advocate Respondent by : Shri H.P. Meena– CIT.DR & Shri Abhishek Gautam, SR-DR सुनवाई की तारीख/ Date of Hearing : 07/04/2022 घोषणा की तारीख/Date of Pronouncement : 31/05/2022 आदेश / O R D E R PER DR. A. L. SAINI, ACCOUNTANT MEMBER: This is set of three appeals, out of which two cross-appeals are pertaining to the assessment year 2011-12 and one appeal by assessee for assessment year 2010-11 are directed against the separate orders passed by the Learned Commissioner of Page | 2 ITA Nos.541, 572 & 571/SRT/2019 A.Y. 11-12 & 10-11 Sh. Chinubhai V Sheth Income Tax(Appeals)-3, Surat, which in turn arise out of separate assessment orders passed by the Assessing Officer u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). 2. At the outset, we note that assessee’s appeals for assessment years 2010- 11and 2011-12 are barred by limitation 12 days each. The assessee has moved two petitions requesting the Bench to condone the minor delay in these appeals. However, ld DR for the Revenue opposed the prayer of the assessee for condonation of delay and stated that delay in these appeals should not be condoned. 3. We have heard both the parties on this preliminary issue. We are aware of the famous judgment of the Hon'ble Apex Court in the case of Mst Khatiji vs. Collector, and we note that the power to condone the delay is a discretionary one. However, such discretionary power should be used with liberal approach to advance the justice. The ld Counsel stated that due to closure of assessee`s business, the necessary papers could not be collected on time and because of these reasons delay has occurred. We note that reasons given by the assessee are convincing and therefore, having regard to the reasons stated in both the petitions, we condone the delay of 12 days in both the assessee’s appeals and admit both the appeals for adjudication on merits. 4. Since the issue involved in all the appeals are common and identical except variance of amount, therefore these appeals have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. The grounds as well as facts narrated in ITA No.541/SRT/2019 for assessment year 2011- 12, have been taken into consideration for deciding the above appeals en masse. The ground of appeal raised by the Revenue in ITA No.541/SRT/2019 are as follows: “1. Whether on the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) has erred in restricting the addition of Rs.3,67,77,935/- u/s 68 of the I.T. Act to 0.50% as “commission income” out of cheque discounting business, without appreciating the fact that the assessee could not establish with documentary evidences during the assessment proceedings that the undisclosed credit entries reflected in the bank accounts of the assessee are out of his cheque discounting business? 2. Whether, on the facts and in law the Ld. CIT(A) was justified in partly allowing the appeal of the assessee relying upon the decision in the case of Maheshbhai Page | 3 ITA Nos.541, 572 & 571/SRT/2019 A.Y. 11-12 & 10-11 Sh. Chinubhai V Sheth Tulsibhai Patel, who is engaged in the business of cheque discounting, without considering the facts that the present assessee, as per Audit Repot in Form No. 3CD, is engaged in the business of “Trading in Diamonds” and also could not establish with documentary evidences that the credit entries found in the bank accounts are relating to the business of cheque discounting? 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the AO. It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and maybe restored.” 5. The grounds raised by the assessee in cross-appeal in ITA No.572/SRT/2019, for assessment year 2011-12 are as follows:- “1. The ld. CIT(A) has erred in confirming the addition of Rs.24,12,500/- u/s 69 on account of unexplained investment levied by AO. 2. The ld. CIT(A) has erred in confirming the addition of Rs.1,83,889/- being 0.50% of the total credits in the bank account. 3. The assessee craves leave to alter, amend, delete, all or any ground of the appeal. 4. The business of the assessee was closed and the necessary papers were under collection. Therefore there is a delay. Your honour is requested to condone the delay.” 6. First, we shall take assessee`s appeal in ITA No.572/SRT/2019, for assessment year 2011-12. Brief facts qua the issue are that assessee is an individual and filed his return of income for the year under consideration on 17.11.2017, declaring total income at Rs. 2,12,000/-. Later on, an information received by Assessing Officer that assessee has invested Rs.24,12,500/- during the financial year 2010-11 relevant to assessment year 2011-12, in Barter Group companies which were not found genuine. A search action u/s 132 of the Act was conducted in the group cases of Barter Group / accommodation entry provider group of Ahmedabad on 04.12.2014 and on subsequent dates. During the course of search, incriminating evidence were seized from various premises belonging to the persons of the group, which indicated that funds were received in various companies of the group, in the form of share capital and was not found genuine. It was also found that unaccounted funds received in cash have also routed into the books of account of the said companies in the form of share application money/ share capital / premium. During the course of search, evidences of accommodation entries /share application money Page | 4 ITA Nos.541, 572 & 571/SRT/2019 A.Y. 11-12 & 10-11 Sh. Chinubhai V Sheth have been gathered which revealed that assessee had shown to have invested a sum totaling of Rs.24,12,500/- as share capital in the company namely, M/s Poojan Tradecom Pvt. Ltd, during the financial year 2010-11 relevant to assessment year 2011-12. The said investment was found not genuine. Therefore, Assessing Officer had reasoned to believe that amount of Rs.24,12,500/- for assessment year 2011-12 had escaped assessment within the meaning of Section 147 of the Act. Therefore, subsequently case of assessee was re-opened u/s 147 of the Act. Therefore, notice u/s 148 of the Act was issued on 30.03.2017. In response to the notice u/s 148 of the Act, the assessee had not filed his return of income for the assessment year 2011-12. 7. During the course of search in the group cases of Barter ground / accommodation entry provider group of Ahmedabad on 04.12.2014 and subsequent dates, document seized from the secret office of Shri Anil Hiralal Shah and Atul Hiralal Shah (premises owned by Shri Bhadresh Natwarlal Shah, brother-in-law of Shri Atul Hiralal Shah) situated at B-406, Wall Street-II, Near Gujrat College, Ellisbridge, Ahmedabad, loose papers / registers / diaries inventorized and PAN cards, cheque books, original stamp and seal and books of account in tally and digital data as per panchanama dated 07.12.2014 was seized. Documents were also seized from the office situated at 612-A, Venus Altantis, Prahladnagar, Ahmedabad as per Annexure A/12. During the course of search incriminating evidences were seized from various premises belonging to the persons of the group, which indicates that the funds received in various companies of the group in the form of share capital was not found genuine. It was also found that the unaccounted funds received in cash have also routed into the books of account of the said companies in form of share application money / share capital / premium. Systematic cash book, wherein the receipts and payments of unaccounted cash transactions have been recorded, was seized from the residence of Shri Asit Haribhai Vora (employee and brother-in-law of Shri Anil Hiralal Vora). It has been found that the unaccounted cash was being routed in form of accommodation entries of unsecured loans, share application money in various companies of the group by the assessee. Page | 5 ITA Nos.541, 572 & 571/SRT/2019 A.Y. 11-12 & 10-11 Sh. Chinubhai V Sheth 8. During the course of search, the following companies were found to have been managed and controlled by Shri Atul Hiralal Shah and Anil Hiralal Shah wherein bogus share capital was introduced: Sl.No Name 1 Deesha Tie-Up Pvt. Ltd. 2 Three C Surveys Pvt. Ltd 3 Subodhsagar Shares and Services Pvt. Ltd 4 Buddhisagar Share & Services Pvt .Ltd. 5 Poojan Tradecom Pvt. Ltd. 6 Ghantakarna Shares & Services Pvt Ltd. 7 Ritesh Shares Advisors Pvt. Ltd 8 Sumtinath Shares &Services Pvt. Ltd. 9 Tirthankar Shares & Services Pvt. Ltd 10 HEM Stocks & Shares Services Pvt. Ltd. 11 Suparshvanth Stocks & Services Pvt. Ltd. 12 Ratnasuri Shares & Services Pvt. Ltd. 13 Manibhadra Shares & Services Pvt. Ltd. Therefore, during the course of search, the following points were noted:- o the shares have been issued as partly paid shares in case of all companies. o Same person has invested in many of the above companies o The address of many persons found to be same o In majority of cases shares allotted to the persons from whom funds have been received have been forfeited for non-payment of the second and final call of share capital. 9. Thus, during the course of search, evidences of accommodation entries/ share application money have been gathered which reveals that the assessee, (Shri Chinubhai Vaghjibhai Sheth) has shown to have invested Rs.24,12,500/- in M/s Poojan Tradecom Pvt. Ltd., as share capital during the financial year 2010-11 relevant to assessment year 2011-12, which was found non genuine. On verification of the original return of income filed by the assessee for the year under consideration for assessment year 2011-12, it transpired that alleged investment are not disclosed Page | 6 ITA Nos.541, 572 & 571/SRT/2019 A.Y. 11-12 & 10-11 Sh. Chinubhai V Sheth for assessment year 2011-12. Therefore, the assessee was asked as to why the amount of Rs.24,12,500/- should not be treated as unexplained investment and added to the total income of the assessee. In response, the assessee submitted his reply. After considering the reply of the assessee, the Assessing Officer added that amount of Rs.24,12,500/- as undisclosed investment in the hands of the assessee, under section 69 of the Act. 10. On appeal, Ld. CIT(A) confirmed the action of the Assessing Officer observing as follows: “6.1.1. I have considered the assessment order as well as the submissions of the appellant. The Grounds of appeal- Ground No. 1 pertains to the addition of Rs.24,12,500/- u/s 69 on account of unexplained investment. In this case, the AO had the information that the appellant had shown to have invested a sum of Rs.24,12,500/- as share capital in a company namely M/s Poojan Tradecom Pvt. Ltd and this said investment was found to be not genuine as revealed in the search action u/s 132 of the Act conducted in the Bartar Group Company who are in the business accommodation entry. The case was re-opened u/s 147 and the notice u/s 148 was issued on 30.03.2017 but no return of income was filed within the statutory period of 30 days. The appellant filed the return of income. The AO found that in the search action conducted on Bartar Group, several companies were found to have been managed and controlled by Shri Atul H Shah and Anil H Shah wherein bogus share capital was introduced which included M/s Poojan Tradecom Pvt Ltd in which the appellant had also made investment of Rs.24,12,500/-. On the verification of return of income filed by the appellant for AY 2010-11 it was found that the investment 24,12,500/- was not reflected in the books of accounts. The AO held that the contention of the appellant that he had not made any investment in M/s Poojan Tradecom Pvt Ltd and was doing cheque/DD/RTGS discounting work and got the commission @ 0.5% which is reflected in his P&L account was rejected by the AO held that no supporting evidence regarding the commission income on account of cheque discounting business was provided and therefore for AO made addition of Rs. 24,12,500/-. 6,1.2 The appellant submitted that he is in the business of cheque discounting business and has been showing the commission income received @ 0.05% in his return of income and he has not made any investments in share capital of Rs.24,12,500/-. The said amount was not reflected in the balance sheet as he had made no investments and in support he filed an affidavit. It was contended that he maintained two bank accounts. The account No. 051104000166751 with IDBI Bank and Account No. 270220110000621 with Bank of India had total credit entries of Rs.70,64,744/- and Rs.8,19,99,490/- respectively. He earned commission of Rs. 50/- on discounting of cheque/DD/TRTGS on Rs.1,00,000/- and had shown commission income from cheque discounting along with interest income and job work income in his books of account. It was further submitted that the Hon'ble ITAT Ahmedabad in the case of his brother Maheshbhai Tulsibhai Patel vide his order dated 07.09.2018 for AY 2011-12 in ITA No.2884 & 2285/Ahd/SRT/2015 had also upheld commission income @ 0.5% on the cheque discounting business. Page | 7 ITA Nos.541, 572 & 571/SRT/2019 A.Y. 11-12 & 10-11 Sh. Chinubhai V Sheth 6.1.3 On the perusal of the details, it is observed that the AO found on the basis of the information received from Investigation Wing, that the appellant had invested Rs.24,12,500/- in share capital but the verification of the return of income filed showed that the appellant had not disclosed this amount in his return of income. The appellant had shown commission income from cheque discounting, interest income and job work income. The incriminating documents found in the Barter Group case during the search proceedings revealed that the appellant had invested a sum of Rs.24,12,500/- as share capital in the company namely M/s Poojan Tradecom Pvt. Ltd. The appellant could not furnish any explanation regarding not making any investments in the Poojan Tradecom Pvt. Ltd. and only contended that he is in the cheque discounting business. Hence, in absence of any clarification or evidence the addition made by the AO for undisclosed investment u/s 69 is upheld and the ground of appeal is dismissed. 11. Aggrieved by the order of ld CIT(A), the assessee is in appeal before us. 12. The Learned Counsel for the assessee submitted that assessee is in the business of cheque discounting and has shown the commission income in his return of income. Therefore, maximum disallowance may be made to the extent of commission on cheque discounting business, which is 0.05%, hence ld Counsel prays that entire amount of Rs.24,12,500/- may not be disallowed and only 0.05% of Rs. 24,12,500/- may be disallowed. 13. On the other hand, ld DR for the Revenue stated that assessee has not engaged in cheque discounting business. His nature of business as per tax audit report is “trading in diamond”. Moreover, the accounting policies of the assessee, which is part of financial statements also shows that assessee is maintaining closing and opening stock of goods, assessee has debtors and creditors, hence based on these facts, the assessee cannot be treated to be engaged in cheque discounting business. 14. We have heard both the parties. From the assessee`s facts, it is clear that incriminating documents found in the Barter Group case during the search proceedings revealed that assessee had invested a sum of Rs.24,12,500/- as share capital in the company namely M/s Poojan Tradecom Pvt. Ltd. The said amount of Rs. 24,12,500/- does not belong to cheque discounting business of the assessee, rather it is investment in share capital. We have gone through the above findings of Ld. CIT(A) and noted that there is no infirmity in the order passed by Ld. CIT(A), Page | 8 ITA Nos.541, 572 & 571/SRT/2019 A.Y. 11-12 & 10-11 Sh. Chinubhai V Sheth hence we confirm and approve the order of Ld. CIT(A). Therefore, ground no.1 raised by the assessee is dismissed. 15. The ground no. 2 raised by the assessee relating to addition of Rs.1,83,889/- does not emanate from the assessment order. Apart from this, there is no reference in the appellate order of ld.CIT(A) about the addition of Rs.1,83,889/-, therefore, we dismiss the ground no.2 raised by the assessee. Therefore, we dismiss assessee’s appeal in ITA No. 572/SRT/19. 16. Now, we shall take assessee`s appeal in ITA No.571/SRT/2019, for assessment year 2010-11, wherein ground of appeal raised by the assessee are as follows: “1. The ld. CIT(A) has erred in confirming the addition of Rs.12,00,000/- u/s 69 on account of unexplained investment levied by AO. 2. The ld. CIT(A) has erred in confirming the addition of Rs.72,112/- being 0.50% of the total credits in the bank account. 3. The assessee craves leave to alter, amend, delete, all or any ground of the appeal. 4. The business of the assessee was closed and the necessary papers were under collection. Therefore there is a delay. Your honour is requested to condone the delay.” 17. As we have already confirmed the order of Ld. CIT(A) in assessment year 2011-12, in assessee’s appeal ITA No.572/SRT/2019 in para no.14 and 15 of this order. The grounds of appeal and assessee`s facts are similar and identical in assessment year 2010-11. Therefore, our above findings are applicable mutatis mutandis to the assessee’s appeal in ITA 571/SRT/2019 (supra). Hence, we confirm the order of Ld. CIT(A) and consequently we dismiss above ground no.1 and ground no.2 raised by the assessee in ITA No.571/SRT/2019 for assessment year 2010-11. 18. In the result, appeal of the assessee in ITA No.571/SRT/2019, for assessment year 2010-11, are dismissed. 19. Coming to the Revenue’s appeal in ITA No.541/SRT/2019 for AY 2011-12 wherein the Revenue disputed the deletion of addition by ld CIT(A) at Rs.3,67,77,935/-. Page | 9 ITA Nos.541, 572 & 571/SRT/2019 A.Y. 11-12 & 10-11 Sh. Chinubhai V Sheth 20. The brief facts qua the issue are that during the assessment proceedings, the Assessing Officer observed that Bank account No.051104000166751 maintained with IDBI Bank and Bank Account No. 270220110000621, maintained with Bank of India revealed that there were total credit entries of Rs.70,61,707/- instead of Rs.70,64,744/- and Rs.8,90,64,234/-respectively. Further it was observed by AO from the ITR filed for A.Y. 2011-12 that assessee has shown total receipt of Rs.5,22,86,299/- only. Thus, there is difference of Rs.3,67,77,935/-. Therefore, assessing officer made the addition of Rs.3,67,77,935/-. 21. On appeal, ld CIT(A), directed the Assessing Officer to re-calculate the commission income on the undisclosed receipt of Rs.3,67,77,935/- at the rate of @ 0. 50%. (0.50% of Rs.3,67,77,935). Aggrieved, the Revenue is in appeal before us. 22. The Learned Counsel for the assessee submitted that assessee is in the business of cheque discounting. The assessee has been showing the commission income received @ 0.05% in his return of income. This way ld Counsel defended the order passed by the ld CIT(A). 23. On the other hand, ld DR for the Revenue stated that assessee has not engaged in cheque discounting business. Just to file the return of income showing commission income, does not mean that assessee is engaged in cheque discounting business. The ld DR for the Revenue invited the attention of the Bench towards tax audit report of the assessee and financial statements of the assessee and pointed out that main business of the assessee is “Trading in Diamond”, vide tax audit report of the assessee, which is placed at paper book page no.9 of assessee`s paper book. Therefore, ld DR prayed the Bench that matter may be remitted back to the file of the assessing officer to examine the true nature of business. The ld DR also pointed out that cheque discounting business is not a legal business. 24. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We find merit in the proposition canvassed by Page | 10 ITA Nos.541, 572 & 571/SRT/2019 A.Y. 11-12 & 10-11 Sh. Chinubhai V Sheth ld DR for the Revenue that assessee is “Trading in Diamond”, vide tax audit report of the assessee. The same is reproduced below for ready reference: Page | 11 ITA Nos.541, 572 & 571/SRT/2019 A.Y. 11-12 & 10-11 Sh. Chinubhai V Sheth 25. Therefore, above tax audit report of the assessee clearly shows that assessee is engaged in “Trading in diamond”. 26. The significant accounting policies of the assessee are as follows: Page | 12 ITA Nos.541, 572 & 571/SRT/2019 A.Y. 11-12 & 10-11 Sh. Chinubhai V Sheth 27. The above significant accounting policies of the assessee shows that assessee is maintaining opening and closing stock. If the assessee is in cheque discounting commission business then there is no need to maintain stock of goods. Further, assessee has debtors and creditors in accounting policies, which shows that assessee is in trading activities. Therefore, above policies raises the doubt that assessee is not in cheque discounting business. We note that these documents, which we have referred above have not been examined by the assessing officer therefore, we are of the view that an opportunity should be given to the assessing officer to examine these documents. Therefore, we deem it fit and proper to set aside the order of the ld. CIT(A) and remit the matter back to the file of the Assessing officer to examine the above documents and other relevant evidence to determine the assessee`s nature of business and adjudicate the issue afresh on merits after providing sufficient opportunity of being heard to the assessee. For statistical purposes, the appeal of the Revenue is treated as allowed. 28. In the result, the appeal filed by the Revenue is allowed for statistical purposes. Registry is directed to place one copy of this order in all appeals folder / case files. Order pronounced in the open court on 31/05/2022 by placing the result on the notice board. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat/Ǒदनांक/ Date: 31/05/2022 Dkp Outsourcing Sr.P.S. Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr.CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat /