DCIT, CC-1(2), KOLKATA, KOLKATA vs M/S. SONATA CONSTRUCTION PVT. LTD. , KOLKATA

Income Tax Appellate Tribunal, ‘B’ BENCH, KOLKATA

Before: Shri Sanjay Garg & Dr. Manish Borad

Per Dr. Manish Borad, Accountant Member:- These are cross appeals directed against the order of ld. Commissioner of Income Tax (Appeals)-20, Kolkata dated 31st October, 2022 for assessment year 2017-18, are arising out of the order under section 144 of the Act dated 30.12.2019 framed by ld. ACIT, Central Circle-1(2), Kolkata.

Facts in brief are that the assessee is a Private Limited Company engaged in the business, but no return of income filed for A.Y. 2017-18. Based on the information that huge cash was deposited in the assessee’s Bank accounts, notice under section 142(1) of the Act was issued calling for various information, but no compliance was made by the assessee. The ld. Assessing Officer noticed that there was a credits of Rs.39.07 crores and Rs.59.74 crores in the Bank account of the assessee held with ICICI Bank and DCB Bank. The ld. Assessing Officer further noticed that alleged credits included cash deposit of Rs.11.11 crores. In absence of any explanation filed by the assessee-company and since the primary onus was on the assessee to explain the alleged credits, the ld. Assessing Officer made an addition of Rs.98.81 crores u/s 68 of the Act as income from other sources 2

ITA No.677/KOL/2022 (A.Y. 2017-2018) (A.Y. 2017-2018) M/s. Sonata Construction Pvt. Limited and assessed income accordingly. The assessee challenged the addition before the ld. CIT(Appeals) and filed written submissions.

The ld. CIT(Appeals) also called for a remand report since various documents were filed for the first time and the same was duly received. As far as the cash deposits of Rs.11.11 crores is concerned, it was claimed by the assessee that the source of deposit is duly explained by the cash withdrawal made by the assessee prior to this deposit and also opening cash in hand available with the assessee as reflected in its audited balance-sheet. However, ld. CIT(Appeals) was not satisfied because the purpose of cash withdrawal was not explained and also the assessee has not filed any documents for the preceding assessment year also. Accordingly addition for unexplained cash deposit of Rs.11.11 crores was confirmed by ld. CIT(Appeals).

As far as the remaining alleged credits of Rs.87.70 crores, the ld. CIT(Appeals) noticed that the same included unsecured loan of Rs. 30.79 crores from the Company namely M/s. EMC Limited, which was carrying out regular business and having huge turnover. Based on the facts that identity of the Company M/s. EMC Limited was established and creditworthiness of this party was beyond doubt, ld. CIT(Appeals) held that the addition under section 68 of the Act is not justified but ITA No.677/KOL/2022 (A.Y. 2017-2018) (A.Y. 2017-2018) M/s. Sonata Construction Pvt. Limited simultaneously observed that the purpose of such huge credits, huge loans have not been explained and he came to a conclusion that the assessee must have carried out the transactions for the purpose of earning commission and accordingly computed the income on unsecured loan from M/s. EMC Limited @ 5% and sustained the addition at Rs.1,53,93,800/-.

As far as the remaining amount of unexplained loan of Rs.52.25 crores (approx.), the assessee submitted various details but failed to satisfy the ld. CIT(Appeals) and ld. CIT(Appeals) in view of the judgment of the Hon’ble Supreme Court in the case of NRA Steel Pvt. Limited reported in (2019) 412 ITR 161 (SC) and other judgments as referred in the impugned order confirmed the said addition.

Aggrieved, both the Revenue and assessee are in appeals before the Tribunal raising the following grounds:- (Revenue’s appeal)- (1) Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law in deleting the addition u/s 68 of the I.T. Act, 1961 of Rs.30,78,76,005/- as in its order Ld. CIT(A) has never stated that the loan is genuine one. (2) Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law in deleting the addition u/s 68 of the I.T. Act, 1961 of Rs. 30,78,76,005/- as assessee has failed to prove the genuineness of the transaction. (3) Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law in deleting the addition u/s 68 of the I.T. Act, 1961 of Rs.30,78,76,005/- as Ld. CIT (A) himself stated that the said 4

ITA No.677/KOL/2022 (A.Y. 2017-2018) (A.Y. 2017-2018) M/s. Sonata Construction Pvt. Limited transaction is accommodation entry and in the order Ld. CIT(A) held that assessee has received 5% commission in respect of accommodation entries provided to M/s. EMC Ltd. (4) Whether on the facts and circumstances of the case, Ld. CIT(A) is not justified in deleting the addition u/s 68 of the I.T. Act, 1961 of Rs.30,78,76,005/- ignoring the facts that A.O. has made the additions based on the facts that all the limbs u/s 68 of the I.T. Act, 1961 are not satisfied in this case. (5) That department carves leave to add, alter or modify any or all grounds of appeal either before or during course of Appellate Proceedings. ITA No. 753/KOL/2022 (Assessee’s appeal)- “The ld. CIT(A) erred by upholding order of AO partially by confirming addition of Rs.64,89,78,072/- ignoring the fact that most of the money has been received are from old creditors as there are receipts as well as payments have been made. The ld. CIT(A) also ignored the fact that the total receipts and payments in bank accounts during the year are more or less equal. As such, how can he dispute only the receipts without disputing the payments. The AO has also not disputed payments”.

7. The assessee has also raised the following additional ground of appeal:-

“That the ld. CIT(A) erred in treating the money received from M/s. EMC Ltd. As accommodation entry and assuming 5% commission on the same. Firstly, it is not an accommodation entry and is actual transaction. Even presuming that it is accommodation entry, the rate of commission of 5% is excessive, which is generally between 0.10% to 0.25%”.

Ld. Counsel for the assessee vehemently argued referring to the submissions filed before the ld. CIT(Appeals) and also took us through the paper book (Volume I) containing 234 pages and paper book (Volume- II) containing 350 pages and also took us through various judgments referred in the case laws of the paper book and stated that the assessee-company has furnished all 5

ITA No.677/KOL/2022 (A.Y. 2017-2018) (A.Y. 2017-2018) M/s. Sonata Construction Pvt. Limited necessary details to explain the source of alleged cash deposits as well as credits through banking channels and, therefore, addition is not called for under section 68 of the Act. Alternative submission was that, even for the sake of argument, in case, the assessee is treated as accommodation entry provider, then also 5% commission rate is very excessive and the same can be between 0.10% to 0.25% as held in similar type of other entry operators referred in the decisions mentioned in the case laws.

On the other hand, ld. D.R. vehemently argued supporting the order of ld. Assessing Officer for the addition deleted by the ld. CIT(Appeals) and supported the finding of ld. CIT(Appeals) for various additions sustained by the ld. CIT(Appeals).

10.

We have heard the rival contentions and gone through the records placed before us. The addition under section 68 of the Act made by the ld. Assessing Officer towards unexplained cash deposits and unexplained credits in the Bank account is in dispute before us. It is an admitted fact that the assessee-company, which has received credits through cash and cheque mode during the year to the tune of Rs.94.14 crores (ld. Assessing Officer has taken the figure at Rs.98.81 crores but during the course of proceeding before the ld. CIT(Appeals), the correct amount was stated by the assessee), but still the ITA No.677/KOL/2022 (A.Y. 2017-2018) (A.Y. 2017-2018) M/s. Sonata Construction Pvt. Limited assessee-company has not filed its income tax return. Surprisingly, even for the preceding financial year also, the assessee has opted not to file the return of income. This action of the assessee-company not to file income tax return, prima facie, indicates that genuineness of the transaction carried out during the year is in doubt.

11.

Moving further, we notice that huge amount of cash has been deposited amounting to Rs.11.11 crores and it is an admitted fact that the assessee had withdrawn huge amount of cash prior to the said deposits and also had stated to have opening cash in hand as on 1st April, 2016 at Rs.5.76 crores, in support of which audited balance- sheet along with other details has been filed. In the past also, cash has been withdrawn, so the basic details to explain the cash deposits has been furnished, which ld. CIT(Appeals) has also appreciated for not making any addition under section 68 of the Act, however, the purpose of this huge cash deposits and withdrawals is not explained at any stage.

12.

As regards the unsecured loan through Banking channel is concerned, the assessee has placed various documents of all the alleged cash credits to explain the identity and creditworthiness of the cash creditors but the genuineness of the transaction remains in little doubt. One of the cash creditors is EMC Limited, which has given a loan of Rs.30.79 crores to the assessee-

ITA No.677/KOL/2022 (A.Y. 2017-2018) (A.Y. 2017-2018) M/s. Sonata Construction Pvt. Limited company but the purpose was not known. Similar is the situation for all the remaining loan creditors amounting to Rs.52.25 crores as referred in the impugned order for which also, the purpose of the loan is not explained.

13.

Further, in the balance-sheet furnished by the assessee-company, placed at pages 171 to 186 of the paper book (Volume-I), gross turnover is NIL and only other expenses of Rs.6,85,239/- has been booked, which has been claimed as loss. There is neither any purchase nor any sale. The other investment includes fixed assets for small amount of Rs.1,73,535/-. Under these given facts and circumstances, poor financial result of the assessee-company and the purpose of huge cash deposits and cash withdrawals not explained and funds rotated by raising loans and repaying loans, we are of the considered view that the addition under section 68 of the Act will not be justified in this case because the assessee has prima facie filed all the documents to prove the identity and creditworthiness of the alleged credits, but to some extent genuineness of the transaction is doubtful. We, therefore, proceed to estimate the income of the assessee assuming that it has carried out these transactions to earn commission income.

14.

So far as the contention of the assessee is concerned that the assessee is entry operator, we do not find any merit because in the case of typical entry operator, there

ITA No.677/KOL/2022 (A.Y. 2017-2018) (A.Y. 2017-2018) M/s. Sonata Construction Pvt. Limited is a regular movement of back entries i.e. inflow and outflow in the bank account for which no details are filed as to from whom it is received and where it has been given and in such type of transaction, a small percentage of commission income which is normally less than 1% is applied. But the case of the assessee is different as it has given all the details of inflow and outflow of the funds and the funds have been utilized for the purpose of business of other sister concern and are routed through assessee company. Therefore, we estimate the business income from commission @ 3% of the total credits during the year of Rs.94.14 crores and the same is computed at Rs.2,82,42,000/-. Thus the finding of ld. CIT(Appeals) is set aside and the income of the assesese-company is estimated at Rs.2,82,42,000/- and the remaining amount of addition stands deleted. Accordingly, all the grounds raised by the assessee and revenue stand disposed off.

DCIT, CC-1(2), KOLKATA, KOLKATA vs. M/S. SONATA CONSTRUCTION PVT. LTD. , KOLKATA