CHANDRAPRAKASH MADRECHA,MUMBAI vs. DCIT-CENTRAL CIRCLE-8(2), MUMBAI

आदेश / ORDER Per : Narender Kumar Choudhry, Judicial Member:

a. Rs. 2 crore from M/s. Krishna Infotech Pvt. Ltd. on 18.12.2015. b. Rs. 2.5 crore from M/s. Scrvenet Links Pvt. Ltd. on dated 19.12.2015. 5. The AO, in order to enquire the nature and source of these receipts, show-caused the Assessee, in response to which the Assessee filed his submission dated 18.12.2019 contending inter alia that money originated from TITISL, was routed through the aforementioned parties to the Assessee and thereafter immediately transferred back by the Assessee to TITISL as an interest-free loan and therefore, the transaction was a money trail. The Assessee, in support of the aforesaid contention, also filed bank statements.

6.1 The AO thus, on the aforesaid reasons, ultimately treated the entire amount of Rs. 4.5 crores as unexplained money under Section 69A of the Act and consequently added the same to the total income of the Assessee, being substantive in the hands of the Assessee, while making a protective addition in the hands of TITISL.

"The learned Assessing Officer has added Rs. 4,50,00,000/- by invoking the provisions u/s. 69A, whereas the transactions were duly explained and accounted, recorded, disclosed and declared in books of account of the Appellant. The appellant has already explained the source of the money received by him and also from whom the above parties have received money with actual trail of the transactions with the bank statement. The provisions of Section 69A are not applicable as the essential conditions for invoking the section are not met. The conditions are: (a) The transaction is not recorded in the books of accounts, and (b) The assessee offers no explanation, or the explanation is not satisfactory. In the appellant's case, the loan transaction of Rs. 4,50,00,000/- is recorded in the books of accounts, and loan confirmations and bank statements were submitted, proving the transaction was through banking channels. The assessee has also offered a clear explanation with a money trail that the funds originated from TITISL and returned to TITISL, making the appellant a mere conduit. The appellant argues that the money belongs to Trimax, was returned to Trimax, and has also been added to the income of Trimax, leading to double addition of the same amount. The appellant has placed reliance on the decisions of the Hon'ble ITAT, Mumbai Benches in the cases of M/s Karthik Construction Co. Vs Dy. Commissioner of Income Tax and M/s Pratik Technologies Pvt. Ltd. V/s Deputy Commissioner of Income Tax. It is argued that in the case of Pratik Technologies, on similar facts involving fund rotation from TITISL, the Hon'ble Tribunal held that the entire amount cannot be added in the hands of the conduit party, and the addition was deleted.

The appellant also submitted that as per an NCLT order dated 4th May, 2020, value of the appellant's shareholding investment was determined to be zero, which is relevant to the matter.” 8. The ld. Commissioner, though considered the claim of the Assessee, however, observed that the reasoning and conclusions of the AO are well-founded and based on concrete evidence unearthed during the search and seizure action and the arguments put forth by the Assessee are not tenable, for the following reasons:

“a) Unsatisfactory Explanation of Source and Genuineness: The primary onus to prove the nature and source of any credit entry in one's bank account lies squarely on the assessee. The appellant claims the source is a loan from the two named companies. However, the AO's investigation has comprehensively demonstrated that these companies were mere paper entities, or "shell companies," with no real business, no financial capacity to lend crores of rupees, and were admittedly engaged in the business of providing accommodation entries. The sworn statements of Shri Suresh Kumar and Shri Sourabh Gupta, the operators of these shell companies, are damning evidence. They have unequivocally stated that all transactions with the Trimax group were bogus, and they simply rotated funds as per instructions for a commission. This evidence strikes at the very root of the appellant's explanation and demolishes the identity, creditworthiness, and genuineness of the alleged lenders. The appellant's simple denial of these statements, without bringing any cogent evidence to the contrary, is insufficient to discharge his onus. b) Applicability of Section 69A: The appellant's contention that Section 69A is inapplicable because the transaction is recorded in his books of account is a flawed interpretation of the law. The provision of Section 69A reads: "Where in any financial year the assessee is found to be the owner of any money... and such money... is not recorded in the books of account... and the assessee offers no explanation about the nature and source... or the explanation offered by him is not... satisfactory, the money... may be deemed to be the income of the assessee...". While the appellant may have made an entry in his books, the critical test is whether the explanation regarding the nature and source is satisfactory. The AO has provided detailed and compelling reasons as to why the explanation is unsatisfactory. An assessee cannot legitimize an unexplained receipt of money by merely recording it under a particular head (e.g., "unsecured loan") in his books. The substance of the transaction must be proved, which the appellant has failed to do. The law is well-settled by the Hon'ble Supreme Court in the case of "Pr. CIT vs NRA Iron & Steel (P) Ltd." that the assessee must prove the identity and capacity of the lender and the genuineness of the transaction. The evidence on record proves the appellant has failed on all three counts. c) Argument of Money Trail and Conduit: The story of a circular transaction, where the appellant was a mere conduit, is a self-serving explanation that is not supported by the evidence. The fact is that Rs. 4,50,00,000/- was credited to the appellant's personal bank account. He was the owner of that money at that point in time. The supposed "loan confirmations" were found to be unreliable by the AO, with signatures not matching those of the deponents who admitted to being entry operators. The entire chain of transactions is evidently a sham designed to route unaccounted money. The appellant, being a key Director of TITISL, was a direct participant and beneficiary of this arrangement, and not a mere passive conduit. d) Plea of Double Taxation: The appellant's argument regarding double taxation is premature and misconceived. The assessment order explicitly clarifies that the addition of Rs. 4,50,00,000/- is made in the appellant's hands on a "substantive" basis, while it is proposed on a "protective" basis in the hands of TITISL. A protective assessment is not a final assessment and is made only to protect the interests of the revenue. It does not result in a collectible demand until the substantive assessment is settled. Therefore, there is no double taxation. The income is rightly taxed in the hands of the person in whose account the money was found and who failed to explain its source satisfactorily. e) Reliance on Case Laws: The reliance placed on the ITAT decision in the case of "M/s Pratik Technologies Pvt. Ltd." is misplaced. Decisions of appellate bodies are based on the specific facts and evidence presented in those cases. In the present case, the AO has built a robust case with direct evidence from the entry operators themselves, which the appellant has failed to rebut. The factual matrix being different, the ratio of that decision cannot be applied blindly. Similarly, the reference to the NCLT order concerning the valuation of the appellant's shares in 2020 has no bearing on the taxability of unexplained money received by him in the financial year 2015– 16.” 9. The ld. Commissioner thus, on the aforesaid reasons, affirmed the action/decision of the AO invoking Section 69A of the Act and making the addition and ultimately upheld the same by dismissing the appeal of the Assessee.

11.1 Further, by filing confirmation of loan amounts with their address, PAN, cheque numbers and bank details and the Assessee’s bank statements evidencing the loans routed through banking channel and the Assessee’s bank statement of subsequent year evidencing the repayment of loans through account payee cheque (names of such lenders reflected in the bank statements), the Assessee has proved the genuineness of the loan transaction.

11.2 The Assessee further claimed that by producing the bank statements of the lenders disclosing the source of their funds (not sourced out of cash deposits) and balance sheets of the lenders disclosing their worth/advances given (exceeding loan amount) and reflection of loan recoverable from the Assessee, he has discharged the onus to prove the creditworthiness of the lenders.

11.3 The Assessee further claimed that as the Assessee has discharged his prima facie onus by submitting the relevant documents and the AO failed to discharge the heavy onus cast upon him to prove contrary to the facts, therefore, the addition made by the AO is unsustainable and the same may be deleted.

11.4 The Assessee, further submitted that the Hon’ble Coordinate Benches of the Tribunal in identical cases such as Prateek Technologies Pvt. Ltd. vs. DCIT (ITA Nos. 1472 & 1471/M/2023 decided on 22.09.2023) and Standard Fiscal Markets Pvt. Ltd. vs. DCIT (ITA Nos. 1469 & 1470/M/2023 decided on 03.09.2023), have also dealt with identical additions under identical facts and circumstances and ultimately remanded the matters back to the file of the AO for decision afresh and therefore the instant case may also be remanded to the file of the AO, in the line of above judgment.

12.1 It was further contended that the investigation has clearly established that these entities were merely paper or “shell companies” with no genuine business activity or financial capacity to advance loans of such magnitude. The ld. D.R. also submitted that, although the Assessee has claimed to be merely a conduit, but he was in fact a key Director in TITISL and had directly participated in and benefited from the transactions; therefore, he cannot be regarded as a passive intermediary.

12.2 It was further argued that the Assessee has failed to discharge the prima facie onus cast upon him under the law and has also failed to controvert the findings arrived at during the course of investigation and assessment proceedings. Accordingly, it was submitted that, in view of the aforesaid facts and circumstances, the addition made on a substantive basis in the hands of the Assessee is justified and the appeal of the Assessee deserves to be dismissed.

13.1 It is also noted that although the Assessee has claimed to be merely a conduit, the fact remains that he was a key Director in M/s. Trimax IT Infrastructure and Services Ltd. (TITISL) and had actively participated in and benefited from the transactions; thus, he cannot be regarded as a passive intermediary. Further, mere recording of such transactions in the books does not validate unexplained receipts. The Assessee is required to establish the identity and creditworthiness of the lenders and the genuineness of the transactions, which he has failed to do as per the provision of the Act as the so-called loan confirmations were also found to be unreliable, as the signatures did not match those of the concerned Directors, thereby reinforcing the conclusion that the entire arrangement was a sham designed to route unaccounted funds.

13.2 It is further observed that the addition of Rs. 4.5 crores has been made substantively in the hands of the Assessee and protectively in the hands of TITISL, which does not result in double taxation, as protective assessments are made only to safeguard the interest of the Revenue. The reliance placed by the Assessee on the decision in the case of Prateek Technologies Pvt. Ltd. and Standard Fiscal Markets Pvt. Ltd. (supra) is misplaced, as the factual matrix of the present case is distinguishable from such cases and is supported by direct evidence from the entry operators, which remains uncontroverted.

13.3 At the same time, from the record it is evident that the Assessee has consistently taken a stand that he acted merely as a conduit in a circular routing of funds, wherein the funds originated from TITISL, passed through intermediary entities, including the Assessee, and were ultimately returned to TITISL. The bank statements and transaction trail placed on record prima facie indicate such circular movement of funds. It is also not in dispute that the Directors of the intermediary entities have admitted to providing accommodation entries and that the Assessee has not been able to effectively controvert such admissions, with any cogent evidence.

13.4 In such circumstances, the crucial issue that arises is whether the entire addition is liable to be sustained in the hands of the Assessee or whether only the real income embedded in such transactions is liable to be brought to tax in his hands. Considering the totality of facts and circumstances, we are of the considered view that although the transactions in question are not genuine loan transactions and form part of an accommodation entry arrangement, however the Assessee cannot be regarded, as the ultimate beneficiary of the entire sum of Rs. 4,50,00,000/- as per material available on record, which suggests that the Assessee has acted as an intermediary, in routing the funds.

13.5 Hence, in view of the above, taxing the entire amount in the hands of the Assessee would not be justified, particularly when protective addition has been made/proposed in the hands of the main entity, i.e., TITISL. However, the role of the Assessee as a facilitator in the accommodation entry mechanism cannot be ignored. It is a settled legal position that in such cases, the commission income or benefit derived by the conduit entity/person is liable to be brought to tax.

13.6 Thus, for the just and proper decision of the case and in the interest of justice and fair play, we deem it appropriate to restore this issue to the file of the Ld. Commissioner with the following directions:

(i) to examine the entire transaction trail in detail; (ii) to verify the claim of the Assessee regarding circular movement of funds; (iii) to ascertain the real beneficiary of the funds; and on finding the real picture of transaction; (iv) fasten the tax liability on the Assessee to the extent of role played or the benefit derived by him from executing or facilitating such transactions, in accordance with law. Suffice to say, the Ld. Commissioner shall afford reasonable opportunity of being heard to the Assessee and decide the issue afresh in accordance with law.

Order pronounced in the open court on 28.04.2026

Sd/- Sd/- PRABHASH SHANKAR NARENDER KUMAR CHOUDHRY ACCOUNTANT MEMBER JUDICIAL MEMBER Tarun Kushwaha Sr. Private Secretary. Copy to:

CHANDRAPRAKASH MADRECHA, 2501, ELECTRA PLANET GODREJ,TOWER,ST. GADGE 1 MAHARAJ CHOWK, MAHALAXMI, MUMBAI-400011, MAHARASHTRA DCIT-CENTRAL CIRCLE-8(2), 658,6TH FLOOR, AAYAKAR BHAVAN, 2 MAHARISHI KARVE ROAD, MUMBAI ,MAHARASHTRA , 400020, MUMBAI- 400020, MAHARASHTRA 3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE