INCOME TAX OFFICER, MUMBAI vs. BLUE MOON HOUSING 7 DEVELOPMENT PVT LTD, MUMBAI

In its appeal, the Revenue has raised the ground challenging the relief granted by the learned CIT(A) on merits. On the other hand, the assessee has filed the cross objection challenging the initiation of re-assessment proceedings under section 147 of the Act. As the issues raised by the assessee vide its cross objection are jurisdictional issues, which go to the root of the matter, therefore, we are considering the same at the outset.

As far as the issue relating to the validity of re-opening under section 147 of the Act, the brief facts are that the assessee is engaged in the business of housing and development. For the year under consideration, the assessee filed its return of income on 02/08/2013, declaring a total income of INR Nil. The return filed by the assessee was processed under section 143(1) of the Act. Subsequently, on the basis of the information received from the DDIT (Investigation), Unit-7 (4), Mumbai, pertaining to search and seizure action carried out in the case of Mr. Vipul Vidur Bhatt and his other related entities, during which it was found that Mr. Vipul Vidur Bhatt is an entry operator and provider of various bogus accommodation entries to various beneficiaries through 347 bogus entities and the assessee is one such beneficiary, notice under section 148 of the Act was issued to the assessee on 15/03/2018 and proceedings under section 147 of the Act were initiated. The Assessing Officer (“AO”), vide order dated 29/12/2018 passed under section 143(3) read with section 147 of the Act, after considering the submissions of the assessee made an addition under section 68 of the Act in respect of the unsecured loan received by the assessee from P.Saji Textiles Ltd, which was managed, controlled and operated by Mr. Vipul Vidur Bhatt, and also made an addition

The learned CIT(A), vide impugned order, upheld the initiation of re- assessment proceedings under section 147 of the Act, however, granted relief to the assessee on merits and deleted the additions made under section 68 and section 69 of the Act. Being aggrieved, the Revenue is in appeal before us, while the assessee has filed the cross objection raising ground challenging the initiation of re-assessment proceedings under section 147 of the Act.

During the hearing, the learned Authorised Representative (“learned AR”) submitted that the AO reopened the assessment of the assessee on the basis that the assessee has taken accommodation entries from the entity, which is controlled by Mr. Vipul Vidur Bhatt, who has admitted in the course of the search that he is an accommodation entry provider. The learned AR submitted that the loan was taken from P.Saji Textiles Ltd during the period September 2012 - October 2012 and was repaid in January 2013, however, Mr. Vipul Vidur Bhatt became the director of P.Saji Textiles Ltd w.e.f. 20/02/2013, i.e., after the transaction was closed, and accordingly the observation of the AO that the assessee has dealt with Mr. Vipul Vidur Bhatt controlled entity is erroneous. The learned AR further submitted that the statement by Mr. Vipul Vidur Bhatt was subsequently retracted, and therefore, the same cannot form the basis for making any addition in the hands of the assessee.

On the other hand, the learned Departmental Representative (“learned DR”) submitted that the re-assessment proceedings under section 147 of the Act were initiated in the present case on the basis of the information received from the office of Investigation Wing regarding the search and seizure action conducted under section 132 of the Act in the case of Mr. Vipul Vidur Bhatt. Accordingly, the learned DR submitted that the information received from the Investigation Wing constitutes new and tangible material for initiating the re- assessment proceedings in the case of the assessee.

We have considered the submissions of both sides and perused the material available on record. In the present case, on the basis of the information received from the Investigation Wing, Mumbai regarding the search and survey action carried out in the case of Mr. Vipul Vidur Bhatt, proceedings under section 147 of the Act were initiated in the case of the assessee, as it was found that the assessee has taken accommodation entries during the year under consideration from the entity, which is managed, controlled and operated by Mr. Vipul Vidur Bhatt. The reasons recorded by the AO while re-opening the assessment are reproduced as follows: –

From the perusal of the aforesaid reasons recorded by the AO while re- opening the assessment, we find that the proceedings under section 147 of the Act were initiated on the basis of the information along with the details received from the Investigation Wing, Mumbai, regarding accommodation entries provided by Mr. Vipul Vidur Bhatt through various companies. On the perusal of the details, it was noticed that the assessee has taken accommodation entries from parties, which Mr. Vipul Vidur Bhatt admitted in his statement to be managed, controlled and operated by him. Therefore, it is evident that the statement of Mr. Vipul Vidur Bhatt only corroborated the evidence and details found during the search and seizure action under section 132 of the Act that he was providing accommodation entries through various companies and the statement of Mr. Vipul Vidur Bhatt was not the sole basis for initiating the re-assessment proceedings in the present case. Thus, the mere fact that Mr. Vipul Vidur Bhatt subsequently retracted from his

As regards the other contention of the learned AR that Mr. Vipul Vidur Bhatt became the director of P.Saji Textiles Ltd w.e.f. 20/02/2013, i.e., after the transaction was closed, we are of the considered view that the information received from the Investigation Wing, Mumbai constitutes new and tangible material for initiating the reassessment proceedings in the case of the assessee. In ACIT v/s Rajesh Jhaveri Stock Brokers (P.) Ltd., reported in [2007] 291 ITR 500 (SC), the Hon’ble Supreme Court held that if there is relevant material on the basis of which a reasonable person can form a requisite belief that income chargeable to tax has escaped assessment, then proceedings under section 147 of the Act can be validly initiated. Further, it is also well settled that the sufficiency or correctness of the material is not a thing to be considered at the stage of recording the reasons. As a result, we

As far as the issue pertaining to the addition made under section 68 and section 69 of the Act, the brief facts of the case are that during the re- assessment proceedings, in order to prove the identity and creditworthiness of the loan lender and genuineness of the transaction, the assessee furnished the copy of the confirmation of loans received/paid along with copies of the balance sheet, profit and loss account, and acknowledgement of the return of income and bank statement highlighting the transactions. The AO, vide order passed under section 143(3) section 147 of the Act, held that the financial status of the assessee as per the bank statement is not sound enough to lend money and the assessee during the year paid a sum of INR 34,00,000 to Jagvi Developers. The AO further noted that there was no sufficient balance in the assessee’s bank account, and the funds were received through RTGS on the same date they were transferred to Jagvi Developers. Accordingly, the AO held that the assessee’s statement that the money was advanced to further the business is not justifiable and bona fide. As regards the bank statement of P.Saji Textiles Ltd, the AO held that whenever there is a fund transfer to the assessee from this party there were credit entries in the bank account of the accommodator to that extent, and therefore, the bank statements furnished in support of the creditworthiness cannot have much credibility. As regards the funds received from Dolex Commercial Private Limited, the AO held that the assessee has failed to prove the creditworthiness of the paying

The learned CIT(A), vide impugned order, allowed the appeal filed by the assessee on merits and deleted the additions made under section 68 of the Act, by observing as follows: –

Further, the learned CIT(A) also deleted the addition made under section 69 of the Act in respect of the amount paid to P.Saji Textiles Ltd and Jagvi Developers on the basis that the assessee has submitted the necessary documents in order to show the nature and source of the transaction. Being aggrieved, the Revenue is in appeal before us.

We have considered the submissions of both sides and perused the material available on record. During the year under consideration, the assessee received payments total amounting to INR 60 lakh from P.Saji Textiles Ltd. The assessee claimed that the said money was received from P.Saji Textiles Ltd as the said company was exploring the possibilities of business in the real estate sector and accordingly advanced a sum to the assessee. The assessee further submitted that it received a sum of INR 25 lakh from Dolex Commercial Private Ltd on behalf of P.Saji Textiles Ltd. Thus, the assessee claimed that from P.Saji Textiles Ltd it received a total sum of INR 85 lakh, which was in the nature of a loan, and the said amount was repaid to P.Saji textiles Ltd during the year itself. Page | 10

To prove the identity and creditworthiness of P.Saji Textiles Ltd, the assessee has placed on record the income tax return along with the computation of the total income of P.Saji Textiles Ltd for the assessment year 2013-14. From the perusal of the return of income for the year under consideration, forming part of the paper book from pages 35-36, we find that P.Saji Textiles Ltd declared a total income of INR 39,90,230. Further, the assessee has also placed on record a copy of the financial statement for the financial year 2012-13 of P.Saji Textiles Ltd, which forms part of the paper book from pages 37-64. Accordingly, it is the plea of the assessee that P.Saji Textiles Ltd had a total net worth of INR 3,37,12,209 for the year ending 31/03/2013, and thus, had sufficient creditworthiness for advancing the loan to the assessee. From the perusal of the financial statement of P.Saji Textiles Ltd, we find that the company earned its revenue from share trading, sale of fabrics and interest. The company has declared the revenue from the sale of fabrics at INR 70,81,33,823 and has shown an inventory of fabrics at INR 27,86,23,153 at the end of the year. Further, as fixed assets, P.Saji Textiles Ltd has declared computers and printers amounting to INR 1,15,000, in Note 10 of the financial statement, as its only tangible assets, which we found were also acquired only during the year. Further, we find that no rental expenditure was incurred by the company. Thus, from the perusal of the financial statements of P.Saji Textiles Ltd., it is evident that for a company which claims itself to have earned revenue of INR 70,81,33,823 from the sale of fabrics, it neither has any shop or warehouse as its fixed asset nor has paid any rental in respect of the same. Therefore, we are of the considered view that the Blue Moon Housing & Development Pvt Ltd.

Further, as regards the sum of INR 25 lakh received from Dolex Commercial Private Ltd, the assessee has only placed on record the confirmation from the said entity and from P.Saji Textiles Ltd that the sum of INR 25 lakh was paid to the assessee on behalf of P.Saji Textiles Ltd. However, we find that apart from the aforesaid confirmations, which form part of the paper book on pages 65 and 66, the assessee has not produced any evidence to show the financial capacity of Dolex Commercial Private Ltd to pay a sum of INR 25 lakh to the assessee.

Further, apart from merely stating that the sum of INR 85 lakh was advanced to the assessee with the intention to start some business with respect to real estate development, the assessee has not brought on record any documentary evidence to support the aforesaid claim. As regards the various decisions relied upon by the learned AR in support of its claim that the amount received as a loan from entities controlled by Mr. Vipul Vidur Bhat have been found to be genuine, we find from the perusal of these decisions that same have been rendered in their own facts and each case needs to be examined qua the facts involved. Accordingly, we are of the considered view that all the decisions relied upon by the learned AR do not apply to the facts of the present case, as, in the present case, the assessee has failed to prove the creditworthiness of the loan lender and genuineness of the transaction.

Therefore, we are of the considered view that the assessee has failed to prove the creditworthiness of P.Saji Textiles Ltd and Dolex Commercial Private Ltd from whom the assessee received the loan amount during the year under consideration. Consequently, we are of the considered view that the payment made by the assessee to P.Saji Textiles Ltd claimed to be the repayment of a loan also has no basis. Thus, we do not find any merits in the findings of the learned CIT(A) in holding that the assessee has discharged its primary onus of proving the nature and source of the sum credited in its books of account. Accordingly, the addition made by the AO under section 68 of the Act in respect of the sum received from P.Saji Textiles Ltd and Dolex Commercial Private Ltd is sustained. Further, since the assessee failed to satisfactorily

Further, as regards the payment of INR 34,00,000 to Jagvi Developers Ltd by the assessee, it is the claim of the assessee that it has advanced the loan to the aforesaid entity out of the money received from Parasrampuria Plantation Ltd. and Gokuldhma & Yashodham Dev. Pvt. Ltd. In this regard, the assessee placed reliance upon its bank statement and the confirmation received from Jagvi Developers Ltd. From the perusal of the loan confirmation received from Jagvi Developers Ltd, forming part of the paper book on page 67, we find that the same has only been signed by the authorised signatory of the assessee and signatures on behalf of Jagvi Developers Ltd are missing. Further, it is the plea of the assessee that under section 69 of the Act an addition can only be made in respect of an investment which is not recorded in the books of account. However, in the present case, the aforesaid transaction is not only reflected in its bank statement but also is reflected in its financial statements for the year ending 31/03/2013. However, from the perusal of the financial statements of the assessee, forming part of the paper book from pages 3-18, we find that for the year under consideration as well as in the preceding year, the assessee earned Nil revenue from operations. It is further pertinent to note that the only expenditure incurred by the assessee pertains to depreciation on fixed assets, which are nothing but air conditioner,

Accordingly, in view of the facts and circumstances of the present case, the impugned order passed by the learned CIT(A) is quashed and the additions made by the AO in the hands of the assessee are sustained. As a result, the grounds raised by the Revenue are allowed.