Mohan Polyfab Pvt. Ltd., Ahmedabad V. The ITO, Ward-2(1)(4), Ahmedabad

ITA 62/AHD/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 6188 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 27-01-2020
• Assessment Year: 2009-2010
• Appeal Filed On: 04-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AMAN SHAH
• Keywords: Principle of natural justice; Accommodation entries
• Section: 143(2); 148

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, VICE-PRESIDENT AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA NO.62/AHD/2018 / ASSTT. YEAR: 2009-2010 MOHAN POLYFAB P.LTD. C/O. KETAN H. SHAH, ADVOCATE 512, TIME SQUARE-1OPP: RAM BAUG BUNGALOW THALTEJ SHILA ROAD THALTEJ, AHMEDABAD PAN : AABCM 0389 G VS. ITO, WARD - 2(1)(4) AHMEDABAD. ( APPLICANT ) ( RESPONENT ) ASSESSEE BY : SHRI KETAN SHAH, AND SHRI AMAN SHAH, AR REVENUE BY : SHRI DILIPKUMAR, SR.DR / DATE OF HEARING : 27/01/2020 / DATE OF PRONOUNCEMENT: 12/02/2020 +,/ O R D E R PER RAJPAL YADAV, VICE-PRESIDENT ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF THE LD.CIT(A)-2, AHMEDABAD DATED 19.12.2017 PASSED FOR THE ASSTT.YEAR 2009- 10. 2. THE LD.COUNSEL FOR THE ASSESSEE AT THE VERY OUTS ET SUBMITTED THAT THOUGH THE ISSUE OF REOPENING IS INVOLVED IN THE PRESENT A PPEAL, BUT THE ASSESSEE DOES NOT WANT TO PRESS THIS ISSUE, THEREFORE, THE FINDIN G OF THE LD.CIT(A) TO THE EXTENT OF UPHOLDING OF REOPENING OF THE ASSESSMENT, IS CONFIRMED. ON MERIT, ITA NO.62/AHD/2018 2 THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.28,03,000/-. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 21.9.2009 DECLARING TOTAL INCOME AT NIL. THE A O HAS OBSERVED THAT AN INFORMATION VIDE LETTER DATED 4.3.2016 WAS RECEIVED FROM DCIT, CENT.CIR.4(3), MUMBAI EXHIBITING THE FACT THAT DURI NG THE INVESTIGATION IN THE CASE OF SATISH SARAF GROUP STATEMENTS OF KEY PERSON S OF THE GROUP, SHRI VISHAL BHUBANI, SHRI RAHUL JHUNJHUNWALA AND SHRI SATISH SA RAF WERE RECORDED. IN THESE STATEMENTS, THEY HAVE ADMITTED THAT THEY WERE ENGAGED DIRECTLY OR INDIRECTLY IN PROVIDING ACCOMMODATION ENTRIES IN VA RIOUS FORMS LIKE BOGUS UNSECURED LOANS, BOGUS SHARE CAPITAL, BOGUS SALES A ND PURCHASE ETC. AND CHARGED COMMISSION THEREON AT THE RATE OF 0.10% TO 0.30% DEPENDING ON THE NATURE OF ENTRY. ACCORDING TO THE AO, THE ASSESSEE WAS FOUND TO BE ONE OF THE BENEFICIARIES WHEREBY IT HAS TAKEN ENTRIES IN THE F ORM OF BOGUS COMMISSION EXPENDITURE FROM SUCH PAPER COMPANY VIZ. M/S.SUNLIG HT AGENCY P.LTD. ON THE STRENGTH OF THIS INFORMATION, REASONS WERE RECO RDED AND NOTICE UNDER SECTION 148 DATED 22.3.2016 WAS ISSUED TO THE ASSES SEE. IN RESPONSE TO THE NOTICE RECEIVED UNDER SECTION 148, THE ASSESSEE HAS FILED A LETTER CONTENDING THEREIN THAT RETURN FILED ORIGINALLY BE TREATED AS FILED IN RESPONSE TO THIS NOTICE. NOTICE UNDER SECTION 143(2) WAS ISSUED, AND THEREAF TER THE LD.AO HAS PASSED REASSESSMENT ORDER DATED 23.12.2016 UNDER SECTION 1 43(3) R.W.S. 147 OF THE ACT. THE LD.AO HAS MADE AN ADDITION OF RS.28,03,00 0/-. APPEAL TO THE CIT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. T HE LD.CIT(A) HAS CONFIRMED THIS ADDITION BY RECORDING THE FOLLOWING FINDING: 2.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, ASSESSMENT ORDER AND SUBMISSION OF THE APPELLANT. THE AO HAS MADE TH E DISALLOWANCE OF BOGUS COMMISSION OF RS.28,03,000/- ON THE BASIS OF INVESTIGATION CARRIED OUT IN THE CASE OF SHRI SATISH SARAF GROUP, WHERE SHRI RAHUL ITA NO.62/AHD/2018 3 JHUNJUNWLA HAS ADMITTED THAT HE WAS INDULGED IN PRO VIDING ACCOMMODATION ENTRIES TO VARIOUS COMPANIES THROUGH HIS PAPER COMPANY M/S. SUNLIGHT AGENCY PVT. LTD. 2.4. THE APPELLANT COMPANY HAS CLAIMED COMMISSION OF RS.28,03,000/-PAID TO M/S. SUNLIGHT AGENCY PVT. LTD . FOR THE SALE MADE TO M/S. SAJJAN INDIA LIMITED, MUMBAI. THE AO IN THE ASSESSMENT ORDER HAS NOTED THAT M/S.SUNLIGHT AGENCY PVT. LTD. IS A P APER COMPANY OF SHRI RAHUI JHUNJUNWLA WHICH HAS BEEN USED TO PROVID E ENTRY. THE HONOURABLE ITAT, AHMEDABAD IN THE CASE OF PAVANKUMA R M. SANGHVI VS. ITO, WD. 3(1 )(2), BARODA [2017] 81 TAXMANN.COM 308 HAS OBSERVED ON SUCH TYPE OF TRANSACTION AS UNDER:- '8. AS I PROCEED TO DEAL WITH GENUINENESS ASPECT, I T IS IMPORTANT TO BEAR IN MIND THE FACT THAT WHAT IS GENUINE AND W HAT IS NOT GENUINE IS A MATTER OF PERCEPTION BASED ON FACTS OF THE CASE VIS- A-VIS THE GROUND REALITIES. THE FACTS OF THE CASE C ANNOT BE CONSIDERED IN ISOLATION WITH THE GROUND REALITIES. IT WILL, THEREFORE, BE USEFUL TO UNDERSTAND AS TO HOW THE SH ELL ENTRIES, WHICH THE LOAN CREDITORS ARE ALLEGED TO BE, TYPICAL LY FUNCTION, AND THEN COMPARE THESE CHARACTERISTICS WITH THE FACTS O F THE CASE AND IN THE LIGHT OF WELL SETTLED LEGAL PRINCIPLES. A SH ELL ENTITY IS GENERALLY AN ENTITY WITHOUT ANY SIGNIFICANT TRADING , MANUFACTURING OR SERVICE ACTIVITY, OR WITH HIGH VOL UME LOW MARGIN TRANSACTIONS - TO GIVE IT COLOUR OF A NORMAL BUSINESS ENTITY USED AS A VEHICLE FOR VARIOUS FINANCIAL MANO EUVERS. A SHELL ENTITY, BY ITSELF, IT NOT AN ILLEGAL ENTITY BUT IT IS THEIR ACT OF ABATEMENT, OF, AND BEING PART OF, FINANCIAL MANOEUV RING TO LEGITIMIZE ILLICIT MONIES AND EVADE TAXES, THAT TAK ES IT ACTIONS BEYOND WHAT IS LEGALLY PERMISSIBLE. THESE ENTITIES HAVE EVERY SEMBLANCE OF A GENUINE BUSINESS - ITS LEGAL OWNERSH IP BY PERSONS IN EXISTENCE, STATUTORY DOCUMENTATION AS NECESSARY FOR A LEGITIMATE BUSINESS AND A DOCUMENTATION TRAIL AS A LEGITIMATE TRANSACTION WOULD NORMALLY FOLLOW. THE ONLY THING W HICH SETS ITS APART FROM A GENUINE BUSINESS ENTITY IS LACK OF GEN UINENESS IN ITS ACTUAL OPERATIONS. THE OPERATIONS CARRIED OUT BY TH ESE ENTITIES, ARE ONLY TO FACILITATE FINANCIAL MANOEUVRING FOR TH E BENEFIT OF ITS CLIENTS, OR, WITH THAT PREDOMINANT UNDERLYING OBJEC TIVE, TO GIVE THE COLOUR OF GENUINENESS TO THESE ENTITIES. THESE SHELL ENTITIES, WHICH ARE ROUTINELY USED TO LAUNDER UNACCOUNTED MON IES, ARE A FACT OF LIFE, AND AS MUCH A PART OF THE UNDERBELLY OF THE FINANCIAL WORLD, AS MANY OTHER EVILS. EVEN A LAYMAN, MUCH LES S A MEMBER ITA NO.62/AHD/2018 4 OF THIS SPECIALIZED TRIBUNAL, CANNOT BE OBLIVIOUS O F THESE GROUND REALITIES.' 2.5. IT IS NOTICED THAT M/S. SUNLIGHT AGENCY PVT. L TD. HAS BEEN ENGAGED IN PROVIDING ACCOMMODATION ENTRY AND HAS BEEN USED TO LAUNDER UNACCOUNTED MONEY. THE ABOVE COMPANY IS SHELL COMPA NY AND ITS NAME HAVE RECENTLY BEEN STRUCK OFF FROM REGISTRAR OF COM PANIES IN THE CRACKING DOWN THE SHELL COMPANIES BY GOVERNMENT. RE CENTLY, HONOURABLE MUMBAI HIGH COURT IN THE CASE OF SANJAY VIMALCHAND JAIN (L/H) SHANTIDEVI VIMALCHAND JAIN VS. PR. CIT - 1, NAGPUR IN THE INCOME TAX APPEAL NO. 18/2017 DATED 10/04/2017, AFT ER EXAMINING THE TRANSACTION OF SHRI RAHUL JHUNJUNWALA CONTROLLED CO MPANY HAS HELD THAT THE GROUP WAS INDULGED IN DUBIOUS TRANSACTION MEANT TO ACCOUNT FOR THE UNDISCLOSED INCOME. IN VIEW OF THE ABOVE, THE ADDITION MADE BY THE AO IS FOUND TO BE CORRECT AND JUSTIFIED AND HEN CE THE SAME IS CONFIRMED. 4. A PERUSAL OF THE RECORD WOULD INDICATE THAT STAN D OF THE AO IS THAT SHRI RAHUL JHUNJHUNWALA WAS FOUND TO BE INDULGED IN PROV IDING ONLY ACCOMMODATION ENTRIES, AND NOT IN CARRYING ANY BUSI NESS. THIS FACT REVEALED DURING THE SEARCH CARRIED OUT AT THE PREMISES OF SH RI RAHUL JHUNJHUNWALA. HE HAS ADMITTED THIS FACT BEFORE SEARCH PARTY. THUS, THE AO ON THE STRENGTH OF ENTRIES FOUND IN THE BOOKS OF ACCOUNTS OF RAHUL JHU NJHUNWALA ASSUMED THAT COMMISSION PAID BY THE ASSESSEE TO M/S.SUNLIGHT AGE NCY P.LTD ON ACCOUNT OF SALE FACILITATED BY THIS CONCERN TO SAJJAN INDIA LT D. IS BOGUS COMMISSION, AND IT DESERVES TO BE DISALLOWED AS EXPENDITURE OF THE ASSESSEE. THE CASE OF THE ASSESSEE IS THAT IT HAS NOT AVAILED ANY BOGUS COMMI SSION ENTRY. IT HAS REQUESTED FOR CROSS-EXAMINATION OF SUCH CONCERNED P ERSON VIZ. SHRI RAHUL JHUNJHUNWALA THAT OR ANY OTHER PERSON WHO HAS DISCL OSED THIS FACT. THE LD.AO DID NOT PROVIDE CROSS-EXAMINATION, RATHER CONCLUDED THAT AS FAR AS THE FACT OF ADMISSION BY SHRI RAHUL JHUNJHUNWALA THAT HE WAS IN DULGED IN PROVIDING ONLY ACCOMMODATION ENTRY IS CONCERNED, THIS HAS BEEN RES OLVED BY DCIT, CENT.CIR.4(3). IN OTHER WORDS, THE INFORMATION SUB MITTED BY THE DCIT, CENT.CIR.4(3)WAS TREATED BY THE AO AS GOSPEL TRUTH FOR MAKING A DISALLOWANCE ITA NO.62/AHD/2018 5 IN THE CASE OF THE ASSESSEE. 5. ON THE OTHER HAND, THE ASSESSEE PUT RELIANCE UPON THE JUDGMENT HONBLE SUPREME COURT IN THE CASE OF ANDAMAN TIMBER INDUSTRIES VS. COMM. OF CENTRAL EXCISE, KOLKATA (20 15) 62 TAXMANN.COM 3 (SC) AND CONTENDED THAT UNLESS INCRIMINATING MATERI AL PUT TO VERIFICATION OF THE ASSESSEE, AND THE STATEMENT AND THE MATERIAL US ED AGAINST THE ASSESSEE IS PUT-FORTH FOR CROSS-EXAMINATION, SUCH MATERIAL AS W ELL AS STATEMENT CANNOT BE USED AGAINST THE ASSESSEE. HONBLE SUPREME COURT I N THIS JUDGMENT HAS OBSERVED AS UNDER: ACCORDING TO US, NOT ALLOWING THE ASSESSEE TO CROSS -EXAMINE THE WITNESSES BY THE ADJUDICATING AUTHORITY THOUGH THE STATEMENTS OF THOSE WITNESSES WERE MADE THE BASIS OF THE IMPUGNED ORDER IS A SERIOUS FLAW WHICH MAKES THE ORDER NULLITY INASMUCH AS IT AMOUNT ED TO VIOLATION OF PRINCIPLES OF NATURAL JUSTICE BECAUSE OF WHICH THE ASSESSEE WAS ADVERSELY AFFECTED. IT IS TO BE BORNE IN MIND THAT THE ORDER OF THE COMMISSIONER WAS BASED UPON THE STATEMENTS GIVEN BY THE AFORESAID TWO WITNESSES. EVEN WHEN THE ASSESSEE DISPUTED THE CORRECTNESS OF THE STATEMENTS AND WANTED TO CROSS-EXAMINE, THE ADJUDIC ATING AUTHORITY DID NOT GRANT THIS OPPORTUNITY TO THE ASSESSEE. IT WOULD BE PERTINENT TO NOTE THAT IN THE IMPUGNED ORDER PASSED BY THE ADJUD ICATING AUTHORITY HE HAS SPECIFICALLY MENTIONED THAT SUCH AN OPPORTUN ITY WAS SOUGHT BY THE ASSESSEE. HOWEVER, NO SUCH OPPORTUNITY WAS GRAN TED AND THE AFORESAID PLEA IS NOT EVEN DEALT WITH BY THE ADJUDI CATING AUTHORITY. AS FAR AS THE TRIBUNAL IS CONCERNED, WE FIND THAT REJE CTION OF THIS PLEA IS TOTALLY UNTENABLE. THE TRIBUNAL HAS SIMPLY STATED T HAT CROSS- EXAMINATION OF THE SAID DEALERS COULD NOT HAVE BROU GHT OUT ANY MATERIAL WHICH WOULD NOT BE IN POSSESSION OF THE AP PELLANT THEMSELVES TO EXPLAIN AS TO WHY THEIR EX-FACTORY PRICES REMAIN STATIC. IT WAS NOT FOR THE TRIBUNAL TO HAVE GUESS WORK AS TO FOR WHAT PURP OSES THE APPELLANT WANTED TO CROSS-EXAMINE THOSE DEALERS AND WHAT EXTR ACTION THE APPELLANT WANTED FROM THEM. 6. IN THE PRESENT CASE, THE AO EXCEPT CONFRONTING T HE ASSESSEE WITH SOME DETAILS OBTAINED FROM SHRI RAHUL JHUNJHUNWALA AND H IS COMPANY, NOT ABLE TO PRODUCE ANY OTHER MATERIAL. THE AO SHOULD HAVE GRA NTED AN OPPORTUNITY TO CROSS-EXAMINE SHRI RAHUL JHUNJHUNWALA, SHRI SATISH SARAF OR ANY OTHER ITA NO.62/AHD/2018 6 CONCERNED WHOSE STATEMENTS HE WAS RELYING UPON, BEC AUSE ALL THESE STATEMENTS WERE NOT RECORDED BY THE AO DURING THE C OURSE OF ASSESSMENT PROCEEDINGS. THESE WERE RECORDED BY SOME OTHER AUT HORITIES DURING SOME OTHER INVESTIGATIONS. THIS CAN BE USED ONLY AS AN INFORMATION FOR INITIATING ACTION AGAINST THE ASSESSEE. THEY CANNOT BE TREATE D AS GOSPEL TRUTH AGAINST THE ASSESSEE. THEREFORE, IF THESE STATEMENTS ARE EXCLU DED ON THE STRENGTH OF HONBLE SUPREME COURT JUDGMENT CITED (SUPRA), THEN NOTHING REMAINED AGAINST THE ASSESSEE TO DOUBT THE ALLEGED COMMISSIO N EXPENSES. THEREFORE, IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE ALLOW THIS GROUND OF APPEAL, AND DELETE ADDITION. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE COURT ON 12 TH FEBRUARY, 2020 AT AHMEDABAD. S D / - (AMARJIT SINGH) ACCOUNTANT MEMBER S D / - (RAJPAL YADAV) VICE-PRESIDENT AHMEDABAD; DATED 12/02/2020