KEN FINANCIAL SERVICES LTD.,MUMBAI vs. PR. CIT - 4, MUMBAI

आयकर अपीलीय अधिकरण eqacbZ ihB ß,pÞ eaqcbZ Jh fodkl voLFkh] U;kf;d lnL; ,oa Jh ,l fjQkSj jgeku] ys[kkdkj lnL; ds le{k IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “H” BENCH BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI S RIFAUR RAHMAN, ACCOUNTANT MEMBER vk-vk-la- 894@eaqcbZ@2021 ¼fu-oa- 2010&11½ ITA No.894/MUM/2021 (A.Y.2010-2011) Ken Financial Services Ltd. 101, Shah Arcade, A Wing, Shah Archade SRA CHS Ltd Rani Sati Marg, Malad (E) Mumbai-400 097 ..... vihykFkhZ/Appellant PAN No. AAACK4929K cuke Vs. Principal Commissioner of Income Tax Room No. 629, 6th Floor, Aayakar Bhavan, M.K. Road, ..... izfroknh/Respondent Mumbai-400 020

vihykFkhZ }kjk@Appellant by : Dr. K. Shivaram & Shri Rahul Hakani izfroknh }kjk@Respondent by : Shri Byomakesh P. K. Panda, CIT-DR lquokbZ dh frfFk@Date of hearing : 20/03/2023 ?kks”k.kk dh frfFk@Date of pronouncement : 31/05/2023 vkns’k/ ORDER PER VIKAS AWASTHY, JM:

This appeal by the assessee is directed against the order of Principal Commissioner of Income Tax-4, Mumbai (hereinafter referred to as “the PCIT”) dated 30.03.2021 passed u/s 263 of the Income Tax Act, 1961, (hereinafter referred to as “the Act”), for the assessment year 2010-11.

P a g e | 2 ITA No.894/MUM/2021 (A.Y.2010-11) KEN FINANCIAL SERVICES LTD. 2. Dr. K. Shivaram appearing on behalf of the assessee narrating facts of the case submitted, that the assessee filed its return of income for the impugned assessment year on 13.10.2010 declaring total income of Rs.21,29,210/-. The income tax return of the assessee was processed u/s 143(1) of the Act vide intimation dated 25/2/2011. Thereafter, the case of assessee was reopened u/s 147 of the Act. A notice u/s 148 of the Act was issued to the assessee on 30.03.2017. As per the reasons provided to the assessee, the assessment for AY 2010-11 was reopened consequent to search and seizure action carried out in the case of Vipul Vidur Bhatt and other related entities on 05.02.2016. In the statement recorded during course of search, Vipul Vidur Bhatt admitted that he is an entry operator. Through his 347 bogus entities/companies, he use to provide bogus accommodation entries in the form of Long Term Capital Gain/Short Term Capital Loss, Share Capital/Share Premium, Unsecured Loans, Sales Turnover and Expenditure against commission. The assessee is one of the alleged beneficiary and has obtained following bogus accommodation entries from Vipul Vidur Bhatt:

Sr. No. Name of Bogus Entities Amount Debit Amount Credit 1 Kalpit R Jani 00 5,00,000 2 Lunkad Textiles Pvt. Ltd. 1,00,000 00 3 Pratik S Patel 00 5,00,000 4 Shipra Fabrics Pvt. Ltd. 7,00,000 00 5 Shyam Alcohol & Chemicals Ltd 57,50,000 10,00,000 6 Voctory Sales P. Ltd. 21,00,000 00

The AO made a detailed enquiry with respect to the aforesaid bogus entries. The assessee during reassessment proceedings categorically denied that the assessee is not a beneficiary of any accommodation entry from any entity operated by Vipul Vidur Bhatt. Whatever transactions are with the entities of Vipul Vidur Bhat are

P a g e | 3 ITA No.894/MUM/2021 (A.Y.2010-11) KEN FINANCIAL SERVICES LTD. genuine business transactions. In any case during FY 2009-10, the assessee has not obtained any loans from any of the entities mentioned in the reasons recorded for reopening. In fact, the assessee had repaid the loans during the FY 2009-10. Therefore, reasons for reopening the assessment are itself wrong. During assessment proceedings, the Director of the assessee company had furnished an affidavit to that effect. The assessee had also furnished copy of the ledger accounts along with the bank statements indicating repayment of loans taken in earlier assessment years. The Assessing Officer (AO) after verifying all the documents and on being satisfied with the details furnished, made no addition on this account in reassessment order dated 29/12/2017.

2.1. Thereafter, for the same very alleged bogus transactions that were examined by the AO in reassessment proceedings, the PCIT issued show cause notice dated 24.03.2021 u/s 263 of the Act. However, the PCIT while issuing notice went a step ahead and questioned genuineness of opening balances and repayment of loans to the entities operated and managed by Vipul Vidur Bhatt. The assessee gave a detailed reply to the show cause notice on 30/3/2021 (at page 165 to 259 of the paper book). The AO in reassessment proceedings examined genuineness of the loans. After considering all relevant documents furnished by the assessee, the AO made no addition. The opening balances of the loans were considered while completing the assessment u/s 143(1) of the Act. The PCIT has exercised revisional jurisdiction on an issue which was not before the AO in reassessment proceedings.

2.2. The ld. Counsel made two fold arguments against the exercise of revisional powers by the PCIT:

1) The PCIT has gone beyond his jurisdiction in holding that the AO while completing reassessment proceedings has failed to examine repayment of

P a g e | 4 ITA No.894/MUM/2021 (A.Y.2010-11) KEN FINANCIAL SERVICES LTD. the loans to the entities operated by Vipul Vidur Bhatt. The PCIT has failed to take note of the fact that the scope of reopening was to examine the genuineness of the loans taken by assessee from the entities/companies operated by Vipul Vidur Bhatt and not the repayment of the loans or opening balances. In any case once no addition was made by the AO on the grounds for which assessment was reopened, the AO cannot make addition on any other issue. The PCIT vide impugned order directed the AO to verify the opening balances which were not subject matter of reopening assessment. 2) If at all, the PCIT wanted to examine opening balances, the PCIT should have revised order passed u/s 143(1) of the Act. In support of his submissions, he placed reliance on the decision in the case of CIT vs. Alagendran Finance Ltd., 293 ITR 1 (SC). In case, the time limit for revision of order u/s 143(1) had elapsed. Therefore, the PCIT could not have revised order u/s 143(1) of the Act. To support this contention, the ld. Counsel placed reliance on the decision of Tribunal in the case of Om Kailash and Investment Pvt. Ltd. vs. PCIT in ITA No.1782/Mum/2022, for the AY 2010-11 decided on 20.09.2021.

Without prejudice to the primary submission, the ld. Counsel made alternate submission that the opening balances of relevant Financial Year are the closing balances of the previous Financial Year. Thus, to verify as to how closing balances have been arrived at, the PCIT should have revised assessment for the preceding assessment year i.e. AY 2009-10. In support of his contentions, he placed reliance on the decision in the case of Ivan Singh vs. ACIT, 422 ITR 128 (Bombay)

2.3. The ld. Counsel for the assessee contended that for the very reason (i.e. alleged bogus entries from entities from entities of Vipul Vidur Bhatt) the AO had

P a g e | 5 ITA No.894/MUM/2021 (A.Y.2010-11) KEN FINANCIAL SERVICES LTD. made addition in AY 2009-10. The CIT(A) vide order dated 24.10.2019 deleted the addition. The Department carried the issue in appeal before the Tribunal in ITA no.7960/Mum/2019. However, appeal of the Revenue was dismissed vide order dated 08/6/2021 on account of low tax effect.

2.4. The ld. Counsel raised another argument that the PCIT while passing the impugned order invoked Explanation 2(a) to section 263 of the Act, whereas, in the show cause notice dated 24/3/2021, there was no reference to Explanation. Invoking of Explanation in order without confronting the assessee and without giving opportunity of hearing to the assessee makes the order unsustainable. He supported his submissions by placing reliance on the decision in the case of PCIT vs Shreeji Prints (P) Ltd. 130 taxmann.com 293 (Gujarat). He pointed that Departments SLP against the order of Hon’ble High Court has been dismissed.

P a g e | 6 ITA No.894/MUM/2021 (A.Y.2010-11) KEN FINANCIAL SERVICES LTD. “3. It was informed by the Investigation Wing that the assessee company had taken loans from entities operated by Shri Vipul Vidur Bhatt. It was also reported that the assessee company had repaid loans taken from the said entities to the tune of Rs.1,27,50,000/-. However, while completing the reopened assessment the assessing officer did not consider the loan repayments to such entities operated and managed by Shri Vipul Vidur Bhatt and no addition was made. 4. On perusal of the assessment records, it is noticed that the assessee company, during the course of reassessment proceedings had made various submissions, inter alia, with respect to the loans so repaid. The ledger account of the lenders filed during the course of reassessment proceedings show that the loans outstanding as on the opening of the Financial Year were as under: Sr. Name of the lender Opening balance as No on 01.04.2009 1 Shipra Fabrics Pvt. Ltd. 9,75,000 2 Shyam Alcohol & Chemical Ltd. 97,00,000 3 Lunkad Textiles Ltd. 9,00,000 4 Victory Sales Pvt. Ltd. 15,00,000 Total 1,30,75,000

The PCIT vide impugned order concluded that the reassessment order dated 29.12.2017 was completed without making enquiries or verifications which should

P a g e | 7 ITA No.894/MUM/2021 (A.Y.2010-11) KEN FINANCIAL SERVICES LTD. have been made. The PCIT invoked Explanation 2 (a) to section 263 of the Act while passing the impugned order.

“Information has been received from DDIT )-Unit 7(4), Mumbai vide letter dated 30 September, 2016, that a search and seizure action was carried out in the case of Mr Vipul Vidur Bhatt and other related entities on 05/02/2016 In the statement recorded during the course of search, Mr Vipul Vidur Bhatt admitted that he is an entry operator and controlled and managed 347 bogus entities/companies, which are used by him for providing various bogus accommodation entries to the various beneficiaries in the form of (a) Long Term Capital Gain/Short Term Capital Loss, (b) Share Capital/Share Premium (c) Unsecured loan entries (d) Sales Turnover (e) Expenditure for commission for commission Further on perusal of the ledger account of the bogus entities/companies managed controlled and operated by Shri Vipul Vidur Bhatt, it is seen that the assessee has taken following bogus accommodation entries The details are an under Sr. Name of Bogus Entities Amount Debit Amount Credit No. 1 Kalpit R Jani 00 5,00,000 2 Lunkad Textiles Pvt. Ltd. 1,00,000 00 3 Pratik S Patel 00 5,00,000 4 Shipra Fabrics Pvt. Ltd. 7,00,000 00 5 Shyam Alcohol & Chemicals Ltd 57,50,000 10,00,000 6 Voctory Sales P. Ltd. 21,00,000 00

In view of the same on the basis of the above information, it is seen that the total accommodation entries taken by the assessee amounting to Rs.1,06,50,000/- are not quantified, genuine and accordingly I have reason to believe that at least the income of Rs.1,06,50,000/- has escaped assessment for AY 2010-11 within the meaning of section 147 of the Income Tax Act, 1961 Thus the assessee has not disclosed true income for the AY 2010-11.”

P a g e | 8 ITA No.894/MUM/2021 (A.Y.2010-11) KEN FINANCIAL SERVICES LTD. From perusal of reasons for issuing notice u/s 148 of the Act it emerges that reassessment proceedings have been initiated to examine bogus accommodation entries allegedly obtained by the assessee from Vipul Vidur Bhatt. Although, the AO while passing assessment order has not deliberated on the issue on which assessment was reopened, the documents on record show that he had made enquiries and the assessee furnished all relevant documents in response to the queries raised by the AO. Finally, the AO made no addition in assessment u/s 147 r.w.s. 143(3) of the Act in respect of issue for which the assessment was reopened.

P a g e | 9 ITA No.894/MUM/2021 (A.Y.2010-11) KEN FINANCIAL SERVICES LTD. entities controlled and operated by Vipul Vidur Bhatt. The assessee carried the issue in appeal before the CIT(A). The CIT(A) vide order dated 24.10.2019 deleted the addition. The appeal of the Revenue before the Tribunal in ITA No.7960/Mum/2019, for AY 2009-10 was dismissed vide order dated 08.06.2021 on account of low tax effect. Thus, the order passed by CIT(A) attend finality. Now, the PCIT in AY 2010-11 cannot question opening balances of the loans that were the closing balances in the preceding assessment year. The assessment order for AY 2009-10 merged with the order of CIT(A), hence, beyond the scope of revision. The PCIT in exercise of his revisional powers cannot question the closing balances of the preceding Financial Year.

“68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income- tax as the income of the assessee of that previous year.” A perusal of section 68 of the Act would show, that it refers to any sum found credited in the books of assessee maintained for any ‘previous year’. The expression ‘previous year’ refers to the Financial Year immediately preceding the assessment year (Re. Section 3 of the Act). In the instance case, for AY 2010-11 the previous year is 2009-10. The PCIT has raised no doubt whatsoever in respect of the any credit entry in the books of the assessee for the previous year 2009-10. The PCIT has raised doubt over the genuineness of the opening balances that are the closing balances for AY 2009-10 relevant to previous year 2008-09. To examine the same PCIT ought to have exercised revisional jurisdiction for AY 2009-10 or the

P a g e | 10 ITA No.894/MUM/2021 (A.Y.2010-11) KEN FINANCIAL SERVICES LTD. AY in which the amounts were credited. Our this view gets support from the decision rendered by Hon’ble Jurisdiction High Court in the case of Ivan Singh vs. ACIT (supra). One of the substantial question of law for adjudication before the Hon’ble High Court was:

“(i) On the facts and in the circumstances of the case and in law, whether the Tribunal was right sustaining the additions made of old outstanding sundry credit balances amounting to Rs.62,24,163/- under section 68 of the said Act?” The Hon’ble High Court after examining the facts and provisions of section 68 held as under:

“9. From the plain reading of the provisions of section 68 of the IT Act, it does appear that where any sum is found to be credited in the books of Account maintained for any previous year and there is no proper explanation for such credit, the sum so credited can be charged to the income tax as the income of the assessee of "that previous year". 10. In the present case, the material on record indicates that the Assessing Officer has relied upon the credits for the financial year 2006-07. However, the sum so credited, in terms of such credit, is sought to be brought to tax as the income of the appellant-assessee, for the assessment year 2009-10, which means for the previous year 2008-09, in terms of the definition under section 3 of the IT Act. Dr. Daniel is justified in submitting that this is not permissible. 11. The view taken by this Court in CIT v. Bhaichand H. Gandhi [1982] 11 Taxman 59/[1983] 141 ITR 67 and by Rajasthan High Court in CIT v. Lakshman Swaroop Gupta & Brothers [1975] 100 ITR 222, supports the contentions raised by Dr. Daniel. Similarly, we find that in Bhor Industries Ltd. v. CIT [1961] 42 ITR 57 (SC), the Hon'ble Apex Court in the context of provisions of the Merged States (Taxation Concessions) Order (1949) has interpreted the expression "any previous year" to mean as not referring to all the previous years but, the previous year in relation to the assessment year concerned Again, this decisions also, to some extent supports the contentions of Dr. Daniel. 12. The crucial phrase in section 68 of the IT Act, which provides that the sum so credited in the books and which is not sufficiently explained may be charged to the income tax as income of the assessee of "that previous year" also lends support to the contentions of Dr. Daniel. 13. For all the aforesaid reasons, we answer the first substantial question of law in favour of the appellant- assessee and against the respondent-Revenue.”

P a g e | 11 ITA No.894/MUM/2021 (A.Y.2010-11) KEN FINANCIAL SERVICES LTD.

Order pronounced in the open court on Wednesday the 31st day of May 2023.

Sd/- Sd/- (S RIFAUR RAHMAN) (VIKAS AWASTHY) Yks[kkdkj lnL;/ACCOUNTANT MEMBER U;kf;d lnL;/JUDICIAL MEMBER eaqcbZ/Mumbai, fnukad/Dated: 31/05/2023 Mahesh R. Sonavane

P a g e | 12 ITA No.894/MUM/2021 (A.Y.2010-11) KEN FINANCIAL SERVICES LTD. izfrfyih vxzsf”kr Copy of the Order forwarded to: vihykFkh/The Appellant , 1. izfroknh/The Respondent. 2. vk;dj vk;qDr/ CIT 3. foHkkxh; izfrfu/kh] vk;- vih- vf/k-] eqacbZ/DR, ITAT, Mumbai 4. xkMZ QkbZy/Guard file. 5.

BY ORDER,

//True Copy// (Dy. /Asst. Registrar)/ Sr. Private Secretary ITAT, Mumbai