DCIT-CC-7(3), MUMBAI vs. M/S LOTUS ENGICON PVT. LTD., MUMBAI

The brief facts of the case are that a search action was carried out under section 132 of the Act on 09/10/2014 at the premises of Lotus group and their associates and at the residences of their directors. The search was concluded on 09/12/2014 and notices under section 153A(1)(a) of the Act was issued on 21/03/2016 and served on the assessee. In response to the notice, the assessee filed the return under section 153A and accordingly, the assessment was completed with an addition amount to Rs.17,60,500/- related to the unsecured loan from M/s Satyam Projects Ltd which was treated as non-genuine and bogus.So the addition was made under section 68 of the Act. The assessment order was assailed before the Ld. CIT(A). The assessee challenged the jurisdiction of the Ld.AO related to assessment under section 153A of the Act in absence of the incriminating material. The Ld.CIT(A) passed a speaking order and rejected the legal grounds of the assessee. But related to merit the ground of the appeal was allowed. Being aggrieved on the impugned appeal order, the revenue filed appeal and the assesse filed cross objection before the Tribunal.

& Others /Mum/2019 Lotus group 3.1. Related to search proceeding and the appeal filed by the department, the assessee submitted a statement related determination of unabated years. The said chart is reproduced as below:- Sr.No. Name of the assessee Assessment Section of Date of Time Limit for Date of Year Assessment filing of issue of search order Return notice u/s 143(2) 1 Lotus Logistics and 2010-11 153A r.w.s. 29/09/2010 30/09/2011 09/10/2014 Developers Pvt Ltd 143(3) 2 Lotus Spaces Pvt Ltd 2011-12 153A r.w.s. 23/09/2011 30/09/2012 09/10/2014 143(3) 3 Lotus Realtors 2012-13 153A r.w.s. 28/09/2012 30/09/2013 09/10/2014 143(3) 4 Lotus Engicon Pvt Ltd 2012-13 153A r.w.s. 28/09/2012 30/09/2013 09/10/2014 143(3) 5 Lotus Buildspace LLP 2013-14 153A r.w.s. 28/09/2013 30/09/2014 09/10/2014 143(3)

& Others /Mum/2019 Lotus group Related to the merit of the case, the Ld.CIT(A) has considered that the addition itself is non genuine and the identity, creditworthiness of the transactions through bank was duly submitted by the assessee during the assessment proceedings. The observation of the Ld.CIT(A) is reproduced as below: - “7.6. In light of above, it is now important to examine the validity of addition based on the aforesaid statement which have been retracted by the respective parties. I find that the assessee group was covered under search action and no document or other assets were found in the course of search which could indicate that the assessee had obtained accommodation entry. It is stated by the AR that a search is a strict measure under the Act which invades the privacy of the assessee and even in these proceedings no concrete evidence was found except for mere oral confirmation of certain parties which also stand retracted later. My attention in this regard was invited to the CBDT Instruction F.No.286/98/2013-IT (INV.II) dated 18/12/2014 and letter dated 10/03/2003 issued by the Ministry of Finance & Company Affairs wherein it is stated that the search party must focus on collection of evidences and not merely admission/ confession of additional income.The Hon'ble Gujarat High Court has relying on the aforesaid instructions upheld the view that addition should not be made based on oral confession in the case of CIT v. Ramanbhai Patel (ITA no. 207 of 2008) and Chetnaben J Shah v. ІТО [IТА Nо. 1437 of 2007]. Thus, respectfully following the CBDT circular as well as the decision cited by the assessee (supra), I find that the addition cannot be sustained merely on the basis of the statements taken during the search devoid of any evidence/material to incriminate the assessee. Section 68 is not a charging section but a deeming fiction dealing with the burden of proof. The section casts initial onus u/s. 68 of the Act on the assessee to prove identity, genuineness and creditworthiness of the transaction to the satisfaction of the AO. If the assessee fails to do so or the explanation offered by him is not satisfactory to the AO, the AO is empowered to add the same to the total income of the assessee. The said power is to be exercised judiciously by the AO. Thus, once the initial onus is discharged by the assessee, the onus shifts on the AO to bring out fallacies in evidence brought by the assessee or by bringing new evidence that indicate the & Others /Mum/2019 Lotus group transactions undertaken by the assessee are non-genuine. Thus, the section deals with an equilibrium of onus of proof and must be viewed to evaluate as to whether the evidences brought by the assessee or AO weigh more and accordingly in whose favour the equilibrium bends. In the present case, on one hand, the assessee has placed evidence in the form of voluminous documents in relation to RBI compliances, ROC compliances, audit compliances and merger sanctioned by the Hon’ble Calcutta High Court. Further, the assessee has also placed on record the assessment orders of 6 merged companies for the A.Y 2010-11 and also that of the alleged investor – M/s. Satyam Projects Ltd for A.Y. 2010-11. I have also gone through the confirmation, ITR Acknowledgement, financial statements of the investor company and bank statements relating to the alleged transaction of partner’s contribution received of Rs.17,60,50,000/- by the assessee during the year under consideration. It is observed that the investor company is formed in 1981 and is registered NBFC since 1998 and is engaged into the business of finance andinvestment and has also engaged into trading in cloth in the year under consideration. The investor company has shown substantial turnover of Rs. 9.15 crores with an income of Rs.51,81,018/- offered in its return of income. The transaction are also carried out through account payee cheques. Even, in the subsequent years, it is seen that the lender company has earned substantial income as under: A.Y. Returned Income 2014-15 1,61,13,093 2015-16 1,16,80,862 Accordingly, the assessee has discharged its onus u/s 68 of the Act by substantiating even the source of source of alleged lender company. On the contrary, the Assessing Officer has solely placed reliance on the statement of Hitesh Thakkar, Jignesh Mavadia and Uday Shankar Mahawar which has been retracted by all of them. Further, the AO has made allegation that M/s. Satyam Projects Ltd is a company run by various entry operators but have failed to bring anything concrete on record. In fact, during the course of assessment proceedings, enquiries were made by the AO in form of issue of notice u/s. 133(6) which was duly complied by the investor. Even the evidences referred above were not disputed & Others /Mum/2019 Lotus group by the Assessing Officer. It is informed that Uday Shankar Mahawar was appointed as a director in M/s. Satyam Projects Ltd on 30.10.2010 and Hitesh Thakkar and Jignesh Mavadia had been appointed as a director on 04.03.2014. Also, Shri. Uday Shankar Mahawar was produced before the Assessing Officer who had affirmed his retraction thereby confirming that the transaction of Satyam Projects Ltd were genuine and that it is not a paper company.” (Emphasis supplied) 5. The Ld. DR vehemently argued and filed a written note and confirmation letter of the Ld. ACIT CC-7(3)/Mumbai. The Ld. DR argued that addition made was related to accommodation entry received by assessee from paper companies. The argument only focused on activities of accommodation entry providers. The Ld. DR respectfully relied on the order of the Hon’ble Apex Court in NRA Iron & Steel Pvt Ltd 103 taxmann.com 43 (SC) and order of Hon’ble Calcutta High Court in PCIT vs. Swati Bajaj, 139 taxmann.com 352 (Cal). The relevant paragraphs of the submission of the Ld. ACIT CC-7(3)/Mumbai are reproduced as below:- “While the term incriminating material or evidence has neither been used u/s 153A nor has been defined in any section of the act. However, it may be appreciated that such incriminating material or evidence could be any books of accounts or document or information discovered during the course of search action having bearing on the determination of total income of person. Clearly, such incriminating material has to be either the books of accounts or document seized or requisition or any information gathered during the course of search action or in the form of statement recorded during the course of search action and it has a potential of affecting the determination of total income of the person. During the search proceedings, Incriminating evidences/information was unearthed wherein various Kolkata based companies, paper companies, are in the business of providing accommodation entries. During the search proceedings, Incriminating evidences and information were unearthed, revealing the involvement of paper companies in dubious transactions. Statement from various operators and Directors were recorded and a detailed post search analysis of financial trails indicated that transactions were made with various Jamakharchi entities. The Assessing Officer noted that while statements recorded u/s 132(4) or those made during the search without corroborative evidence may not independently qualify as conclusive incriminating material. Hence, Post search the transactions were analysed. On the & Others /Mum/2019 Lotus group analysis of the transactions, it was found that fund Trial lead to transactions being made with various Jamakharchi entities. The overall findings suggested a pattern of financial misrepresentation. The A.O further observed that the operators themselves admitted to their role in facilitating accommodation entries, strengthening the Departments case that these transactions were designed to evade taxes and manipulate financial records, The additions were made based on substantial incriminating evidences and information gathered during the search and post search investigations. The AO emphasized that these additions were not solely reliant on the statements of operators/Directors but were supported by corroborative financial data, fund trail and transactional linkage with Jamakharchi entities. Given the depth of analysis sand nature of evidence collected, the A.O concluded that the additions were justified and in line with established assessment principle. Therefore, the question of validity of these additions does not arise, as they are routed in concrete findings rather than mere statements. The question of validity of unabated assessment does not arise in these cases as assessments were completed on the basis of incriminating evidences/information gathered during the course of search/post search proceedings.”

by the assessee is upheld.

11. Since the legal issue is adjudicated in favour of the assessee, the factual issues remain academic and do not require adjudication. ITAs No.1482, 2340, 2341 & 4044/Mum/2019 & Cos 109, 112/Mum/2021 & Cos 111 & 44/Mum/2019