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Facts
The Revenue appealed against the CIT(A)'s orders deleting additions made by the Assessing Officer (AO) under Section 153A. The additions were related to alleged unexplained cash credits arising from repayments of advances/investments made in earlier years.
Held
The Tribunal held that the AO erred in treating the receipts as unexplained cash credits. The evidence did not establish that the transactions were accommodation entries or non-genuine. Therefore, the additions were deleted.
Key Issues
Whether the amounts received by the assessee represented genuine repayments of earlier advances/investments or were unexplained cash credits in the nature of accommodation entries, and if the AO had sufficient evidence to establish the latter.
Sections Cited
153A, 143(3), 68, 153C, 133(6), 131
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Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI MANISH AGARWAL
ORDER PER SATBEER SINGH GODARA, JM These Revenue’s twin appeals & 2461/Del/2022 for assessment years 2012-13 and 2017-18, arise against the Commissioner of Income Tax (Appeals)-31 [in short, the “CIT(A)”], New Delhi’s separate orders, both dated 21.07.2022 passed in case no.724/20-21 & 725/20-21, involving proceedings under section 153A r.w.s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’), respectively. Heard both the parties. Case files perused. 2. Coming to the Revenue’s former appeal we note at the outset that the learned departmental authorities had conducted the search in question in assessee’s case on 14.03.2018 leading to initiation of Section 153A proceedings culminating in the Assessing Officer’s assessment framed on 30.12.2019 making the additions in question. There could be hardly any dispute that we are dealing with an “unabated” assessment as on the date of search wherein and any addition has to be made in the assessee’s hands based on the specific seized material only as per PCIT Vs. Abhisar Buildwell P. Ltd. (2023) 454 ITR 212 (SC).
We are of the considered view that given the fact that there is no addition made on the basis of the specified seized material, we reject the Revenue’s instant appeal in very terms on this preliminary legal issue.
The Revenue’s latter appeal Assessing Officer’s action adding section 68 unexplained cash credits of Rs.6,24,56,500/- in his assessment framed on 30.12.2019 and reversed in the CIT(A)’s order as under: “5.2.2. I have carefully considered the submissions of the appellant as well as the assessment order. Firstly regarding the contention that documents found during search from the possession of third person cannot be used in the proceeding u/s 153A of the Income Tax Act and such documents, if at all relevant, should be considered in proceedings u/s 153C as held by the jurisdictional High Court in the case of PCIT (Central) 3 vs Anand Kumar Jain (HUF)
dated 12/02/2021, it is observed that the impugned documents were seized from the office of Sh. Achal Kumar, CA, which is also the registered office of the appellant. Therefore, documents seized from its registered office are seized from its own premises and cannot be said to be seized from premises of a third party. Therefore, this contention is not tenable. Further, regarding the contention of the appellant that the documents seized from Sh. Achal Kumar, CA do not constitute evidence regarding unexplained cash credit being obtained by the assessee in the form of repayment of loans, it has been submitted that the said seized documents are listed in a chart at para 5 (page 2 and 3) of the assessment order and also at para 5.1 (page 4) of the assessment order, and none of these are related to the receipt of non-genuine cash credits by the appellant. In this regard, the documents relied upon by the AO as incriminating material, are analysed as follows: a) Notings mentioned at Para no. 5 of impugned order (page no. 2 and 3 of impugned order) The relevant portion of chart given in para no. 5 of the impugned order is discussed as under: -
3 | P a g e i) Serial No. 1 of chart: The description given in serial no. 1 of chart given in Para no. 5 of impugned order is reproduced as under:- "This sheet contain the details of clients of Achal Kumar to whom he had provided accommodation entries in the form of loans, donations, bogus bills for booking income and expenses. Details of transactions pertaining to Rewin is also recorded in the said sheet." 5.2.3. From the perusal of the above it is observed that it has been mentioned that the said chart is related to clients of Shri Achal kumar with regard to accommodation entries in the form of loans, donations, income and expenses. As such, these notings are not related to non-genuine repayments of advances/investment received by the assessee. The AO has also mentioned that details of transactions pertaining to the appellant are also recorded in the said sheet. However, he has not given any details of such transactions pertaining to the appellant, let alone establishing such transactions to be related to receipt of non-genuine repayment of advances/investment by the appellant company during the year under consideration. It is further noted that the same chart containing the same evidences at S.No.1 to 6 therein has been cited as evidence by the AO in the assessment orders passed u/s 153A/143(3) for A.Ys. 2010-11, 2011-12, 2012-13, 2015-16 and 2016-17 in the case of M/s Aparajita Homes Pvt. Ltd., as well as in the orders passed in the case of the appellant for A.Ys. 2010-11, 2012-13 and 2017-18, in a very casual manner without pinpointing evidences specifically relevant to the assessee in question and to the issue in question. ii) Serial No. 2 of chart: - The description given in serial no. 2 of chart given in Para no. 5 of impugned order is reproduced as under:- "This pdf document is a letter on letterhead of Aparajita Foundation wherein it was mentioned that Aparajita Foundation had received the said donation from Phiroz Adi Vandrewala" 5.2.4. From the perusal of the above it is observed that the said noting is related to Aparajita Foundation with regard 4 | P a g e to donation and these notings are neither related to non- genuine repayments of advances received nor related to the appellant company. iii) Serial No. 3 of chart: - The description given in serial no. 3 of chart given in Para no. 5 of impugned order is reproduced as under:- "This file contain the details of properties of Anita Jha" 5.2.5. From the perusal of the above it is observed that the said noting is related to Anita Jha with regard to details of her properties and these notings are neither related to non- genuine repayments of advances received nor related to the appellant company. iv) Serial No. 4 of chart: The description given in serial no. 4 of chart given in Para no. 5 of impugned order is reproduced as under:- "This file contain the details of properties of Aparajita Homes Land" 5.2.6. From the perusal of the above it is observed that the said noting is related to details of properties held by M/s Aparajita Homes and is neither related to non-genuine repayments of advances received nor related to the appellant company. v) Serial No. 5 of chart: - The description given in serial no. 5 of chart given in Para no. 5 of impugned order is reproduced as under:- "This file contain the details of properties of Aparajita Prop" 5.2.7. From the perusal of the above it is observed that the said noting is related to Aparajita Properties with regard to details of properties held by the said company and these
5 | P a g e notings are neither related to non-genuine repayments of advances received nor related to the appellant company. vi) Serial No. 6 of chart: The description given in serial no. 6 of chart given in Para no. 5 of impugned order is reproduced as under:- M/s Rewin Ceramics Private Ltd., A.Y. 2017-1 "This image file contains the hand-written note about the payment received from certain entries along with the dates". 5.2.8. From the perusal of the above it is observed that the said noting is related to certain entities and it is not established by the AO to be either related to non-genuine repayments of advances received or related to the appellant company. b) Notings mentioned at para no.5.1 of impugned order (page no. 4 of impugned order) 5.2.9. From the perusal of notings mentioned at page no. 4 of impugned order, it is noted that an excel sheet with the title "PJ" was found in the laptop of CA Achal kumar. The AO has remarked that "this sheet contained details of entries in the form of bank transfers against cash in the books of various entities managed and controlled by Smt. Anita Jha, Rewin Ceramics Pvt Ltd being one of them. On further analysis of the books of account of Rewin it has been found that cash was not accounted for and transfer by various shell entities in books of Rewin was an arrangement to bring the unaccounted income of Rewin into its books of account". The AO has made general allegations against various group entities without specifying the basis of such allegations. The AO has also not specified as to which bank transfers were obtained against cash by the appellant, let alone establishing the same by citing appropriate evidences. The AO has further observed at para 5.1 that "the amount mentioned in the said sheet was used to provide accommodation entries in the firm Rewin Ceramics Put. Limited. It is worthwhile to mention here, that the most of the credits to the bank account of Rewin was through various shell entities such as Zane and Malvinimpex also, upon analysis of tally data of M/s Rewin Ceramics Pvt. Ltd. The total receipts as per day book of Rewin Ceramics was 6 | P a g e Rs.6,24,56,500/- from 18th May, 2016 to 31 March, 2017". Here again, the AO has failed to establish as to how the said sheet was used to provide accommodation entries to the appellant. The AO has further mentioned that most of the credits to the bank account of the appellant was through various shell entities such as Zane and Malvin Impex, which is also incorrect since only an amount of Rs.3,19,000/- has been received during the year from Malvin Impex Pvt. Ltd. and no amount has been received from any such entity by the name of Zane. In any case, the AO has not established any such entity as a shell entity by specifying the basis or evidence leading to such conclusion. It is of vital importance to note that the amounts aggregating to Rs.6,24,56,500/- added by the AO as unexplained cash credits are indeed repayments of advances given or investments made by the assessee in the earlier years. This fact has been mentioned by the AO himself three times in the assessment order at paras 5.4, 5.5 and 5.6. In such a case, where advances/investments have been made by the assessee in earlier years through the banking channel and recorded as such in its books and where such advances/investments are simply being received back through the banking channel during the impugned year, there remains no question firstly about the identity of the remitter since such remitter was already standing as investments in the balance sheet of the assessee, and secondly, about genuineness since it is not a fresh loan or capital infusion but is only a repayment of outstanding advances/investments, and thirdly about creditworthiness since the remitter is repaying the same amount it took from the assessee sometime earlier. In this regard, it is also noteworthy that there is no fresh infusion of funds during the year since the amounts invested by the assessee in the earlier years have simply been received back. There is no increase in the size of the balance sheet, which has in fact decreased from Rs.9.32 crores in the preceding year to Rs.8.66 crores during the year under consideration. The assessee had shown such invested amounts under the head "current investments" which were at Rs.8,14,56,500/- as on 31.03.2016 out of which funds aggregating to Rs.6,24,56,500/- were received back during the year. The provisions of Section 68 of the I.T. Act, 1961 are aimed at curbing fresh infusion of funds in various forms through dubious mechanisms, thereby introducing one's own unaccounted money into the books of account. However, such is not the case here since no fresh funds are received and only repayments of amounts invested earlier have been received during the year. 7 | P a g e 5.2.10 Further, at para 5.4, the AO has noted that "I have carefully gone through the written submission filed by AR of the assessee and found not convincing for the reason that the financial analysis of the companies which had invested in M/s Rewin Ceramics Pvt. Ltd, in the form of share capital and share premium shows that the investor companies are not doing any actual business and engaged in the business of providing accommodation entries to the beneficiaries as against the unaccounted income of the beneficiaries." Here, the AO has discussed that the investor companies, who have invested in the share capital of the assesee company are not doing any actual business and are engaged in providing accommodation entries to the beneficiaries. It is difficult to understand the relevance of this discussion since the issue at hand is totally different, being related to the repayments of advances/investments made earlier by the assessee. The AO has proceeded to state that "The assessee company had routed its own unaccounted income in the books of account in the through recovery and obtaining bogus share capital and share premium from various shell entities. These findings supported by the incriminating documents found and seized during the course of search proceedings as discussed above. Hence, it is clearly established that the recovery of loans and advances during the year under consideration is also related to the accommodation entries as against unaccounted income given to the entry provider for the year under consideration." Here, the AO has included recovery of amounts in the same bracket as obtaining bogus share capital from various shell entities. The AO has not specified any basis or evidence for such inference and has simply stated that such findings are supported by the incriminating documents found during search, whereas it has already been held that none of the documents/evidences found during search support the finding that the receipt of repayment of advances was non-genuine. The AO has indulged in making vague allegations without pinpointing any specific evidence which proves such allegations. Moreover, the AO has failed to gather adverse material by conducting inquiries u/s 133(6) or field inquiries through the Inspector, or recording statements of Directors of investee companies/entities u/s 131 and thereafter to confront the adverse material to the assessee. The AO has taken none of these steps, which if seen in conjunction with the lack of adverse material gathered during the search, leads to the conclusion that the AO did not have any kind 8 | P a g e of adverse material in respect of the repayments received by the assessee. Therefore, it is amply obvious that the AO has failed to establish that the said transactions are in the shape of accommodation entries and that the identity and creditworthiness of the remitters, as well as the genuineness of transactions, is not proven. The impugned addition of Rs.6,24,56,500/- on account of unexplained credits, is accordingly held to be untenable and is hereby deleted. Ground No.4 is allowed.
Since the addition of Rs.6,24,56,500/- has already been held to be untenable on the grounds of jurisdiction as well as merits, the following grounds /contentions (Ground Nos. 2 and 3) of the appellant are not adjudicated since these are rendered academic in nature:- Whether while making the addition of Rs. 6,24,56,500/-, the AO has rightly relied in drawing adverse inference based on the material recovered from Sh. Achal Kumar, CA, a third party, without providing any copies of the same to the assessee and also without providing the version of Sh. Achal Kumar, CA from whom the documents were seized and also without providing the opportunity of cross examination of Sh. Achal Kumar?
7. Ground no. 5 is general in nature and does not require specific adjudication.”
Suffice to say, it has already come on record that the impugned sum in fact represents repayments of the assessee’s advances/investments made to the party(ies) concerned in the preceding assessment years. Even the Revenue is fair enough in not disputing all this in the CIT(A)’s above extracted findings that the very fact stand duly admitted by the Assessing Officer in paragraph 5.4 to 9 | P a g e 5.6 in the assessment order. This being the clinching factual position, we are constrained to hold that the learned Assessing Officer had erred in law and on facts in treating the assessee’s receipts of repayment of the above amount in the impugned assessment year as unexplained cash credits which has been rightly deleted in the lower appellate proceedings. We thus affirm the learned CIT(A)’s findings to this effect in very terms. This Revenue’s latter appeal