DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, KOTA vs. M/S KOTA DALL MILL, KOTA

PER BENCH :

These are seven sets of cross appeals directed against the respective orders

of the ld. CIT (A) arise from the assessment framed in pursuant to the search and

seizure action under section 132 of the IT Act for the assessment years 2010-11 to

2016-17 respectively. Out of these seven assessment years, the assessments were

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framed under section 153A for the assessment years 2010-11 to 15-16 and the

assessment for the assessment year 2016-17 was framed under section 143(3) read

with section 153B(1)(b) of the IT Act.

department in these appeals. However, for the sake of convenience and the issue

involved in these appeals, the assessment years 2010-11 to 13-14 are taken as a

separate group of cross appeals due to the reason that the assessments for these

four assessment years were not pending as on the date of search and hence the

objection raised by the assessee against the additions made by the AO is required to

be considered separately for these four assessment years. For the purpose of

recording the facts and grounds raised by the assessee as well as department, the

appeal for the assessment year 2010-11 is taken as a lead case.

have raised the following grounds :-

Assessee’s grounds :

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alleged accommodation entry providers, therefore the assessment order ought to held as bad in law and deserves to be annulled.

a) Solely relying on the statements of some alleged accommodation entry providers recorded by some other authorities in some other cases/actions and the opportunity to cross examination was also not provided to assessee.

b) Giving a contradictory finding that a doubt is raised on the identity and genuineness of the company whose name is mentioned in the statement of accommodation entry providers as well as reports of DDIT (Inv.), Kolkata.

c) Holding that the assessee has not adduced any evidence to rebut the adverse factual finding made by the AO in the assessment order though detailed paper book for relevant AY and common paper books have been submitted, and

d) Holding that incriminating material had been found during the course of search of accommodation entry provider. Further incriminating material had been gathered by issuing commission to DDIT (Inv.) Kolkata.

Name of the company from Amount Name of alleged entry whom loan received operator whose statement were relied Jalsagar Commerce Pvt. Ltd. 12,36,49,999 Shri Anand Sharma

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Department’s grounds :

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were produced before the AO failed to substantiate the genuineness of the alleged transactions.

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“ The Appellant crave, leave or reserving the right to amend modify, alter add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”

Ground No. 1 is regarding validity of re-assessment of income of the assessee under section153A for want of incriminating material. 4. The assessee is a partnership firm and filed its return of income for the

assessment years 2010-11 to 13-14 on 31.08.2010, 31.08.2011, 22.07.2012 and

03.08.2013 respectively. Therefore, the assessment on the original return of income

filed under section 139(1) was not pending on the date of search under section 132 conducted on 2nd July, 2015. Even for the assessment year 2010-11 the assessment

was completed under section 143(3) on 15.03.2013. Therefore, as per the

provisions of section 153A, the AO is bound to issue notice to the assessee to furnish

the return of income for each assessment year falling within the six assessment

years immediately preceding the assessment year relevant to the previous year in

which the search or requisition was made. The AO is empowered to assess or

reassess the total income of all the six years which means that there can be only

one assessment order in respect of each of the six assessment years in which both

disclosed and undisclosed income would be brought to tax. If there is no undisclosed

income for any of the assessment year out of the six assessment years in question,

then the AO has to complete the assessment or reassessment on the total income as

assessed under section 143(1)or 143(3)of the IT Act.The common facts and disputes

running through all the assessments framed under section 153A are that the AO

proposed to make the addition under section 68 of the IT Act in respect of the

unsecured loans and partners’ capital received by the assessee. The AO relied upon

the information/details and statement recorded by the Investigation Wing, Kolkata in

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case of third party. The assessee received unsecured loans and partners’ capital

from NBFC and other companies.

4.1. Before us, the ld. A/R of the assessee has submitted that in compliance to

notice under section 153A of the IT Act, the assessee submitted its e-return of income on 9th March, 2016 declaring total income which was same for the

assessment year 2010-11 though there were some variations in some of the

assessment years. The assessee objected to the proposed addition on the ground

that the said statement recorded by the department is behind the back of the

assessee and, therefore, the same cannot be used against the assessee without

giving opportunity of cross examination of the witnesses. Further it was contended

since there is no incriminating material found during the course of search and

seizure action, therefore, the AO is not empowered to make any addition in the total

income of the assessee. It is a settled position of law that there cannot be a review

under the garb of reassessment proceeding under section 153A of the Act and,

therefore, the proposed reassessment proceedings are absolutely in abuse of

process of law, illegal and bad in law. The provisions of section 153A cannot be

applied in respect of assessment which has already been completed unless some

incriminating material/information comes into the possession/knowledge of the AO

during the course of search proceedings. Since the assessments for these four

assessment years i.e. 2010-11 to 13-14 were not pending as on the date of search

and there is no incriminating material found or seized during the course of search,

then the AO is bound to reassess the total income as it was assessed on the original

return of income. Though the AO is legally bound to assess or reassess the total

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income of six years immediately preceding to the year of search, however, the

assessments which are pending on the date of search gets abated and the

assessments which were not pending on the date of search had attained the finality

and, therefore, the addition over and above the assessed income cannot be made de

hors the incriminating material found at the time of search while completing the

assessment under section 153A of the Act. If there is no incriminating material then

the original assessment made can be reiterated and no further addition is called for

otherwise addition can only be made on the basis of undisclosed income derived

from material/documents seized as a result of search. The completed assessment

can be interfered or disturbed by the AO while making the assessment under section

153A only on the basis of some incriminating material unearthed during the course

of search and requisition of income disclosing undisclosed income not already

disclosed or made known in the course of original assessment. Therefore, in the

absence of any incriminating material found or seized during the course of search

and seizure proceedings, the additions made by the AO during the course of

reassessment under section 153A of the Act are without jurisdiction and liable to be

deleted. In support of his contention the ld. A/R has relied upon the decision of

Hon’ble Delhi High Court in case of Kabul Chawla, 380 ITR 573 (Delhi) and

submitted that Hon’ble High Court has held that in case of completed assessment

not abated by virtue of search under section 132 of the Act in the absence of any

incriminating material, the same can be reiterated and, therefore, no addition could

have been made to the income already assessed. The ld. A/R has also relied upon

the following decisions :-

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Thus the ld. A/R has submitted that the Hon’ble Jurisdictional High Court has held

that the requirement of assessment or reassessment under section 153A has to be

read in the context of section 132 or 132A of the IT Act, in as much as in case

nothing incriminating is found on account of such search or requisition, then the

question of reassessment of concluded assessment does not arise, which would

require mere reiteration and it is only in the context of abated assessment under

second proviso which is required to be assessed. The underlined purpose of making

assessment of total income under section 153A of the Act is, therefore, to assess

income which was not disclosed or would not have been disclosed. The assessment

or reassessment proceedings which have already been completed and assessment

orders have been passed determining the assessee’s total income and, such orders

are subsisting at the time when search or requisition is made, there is no question of

any abated assessment since no proceedings were pending and, therefore, the

addition to the income that has already been assessed will be made on the basis of

incriminating material. In the absence of any incriminating material, the completed

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assessment can be reiterated and the abated assessment or reassessment can be

made. Thus the ld. A/R has submitted that the AO has made the additions in the

assessment under section 153A whereby the completed assessments have been

disturbed without even referring to any incriminating material found or seized during

the course of search and seizure under section 132 of the Act. The only basis of

addition is the statement of third party recorded in the search of the third party that

has no connection with the search proceedings of the assessee and, therefore, in the

absence of any incriminating material found or seized during the search of the

assessee, no addition can be made in the assessment framed under section 153A of

the Act.

income of the assessee relate to the unexplained cash credit in the books of account

introduced in the garb of unsecured loans, partners’ capital which in fact is the re-

routing of the assessee’s undisclosed income. It is clearly evident from the

innumerable evidences which came to the fore in the numerous investigations,

enquiries, search and survey actions carried out by the Investigation Wing of the

Department that the AO received information from the Investigation Wing Kolkata

regarding the involvement of KBM Group (assessee) in obtaining entries of bogus

unsecured loans, partners’ capital, special deposits etc. detected in the investigation

carried out by the Investigation Wing Kolkata. Such information was received prior

to the initiation of proceedings under section 153A and also during the pendency of

proceedings under section 153A. Accordingly, during the course of assessment

proceedings under section 153A, the AO conducted further enquiry about the

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genuineness of the transaction of unsecured loans, partners’ capital, special deposits

etc. The assessee was duly confronted with the results of all these enquiries and

information shared by the Investigation Wing. In these circumstances it cannot be a

case of addition made without any incriminating material but the AO was having

sufficient material disclosing the undisclosed and unexplained cash credit introduced

by the assessee in the garb of unsecured loans and partners’ capital. Once the

insurmountable evidences unearthed by the Investigation Wing Kolkata which is the

basis of the additions made by the AO, the assessee was required to discharge its

onus by producing the contrary evidence or by producing alleged creditors for

verification. The ld. CIT D/R has further submitted that the information received

from the Investigation Wing Kolkata is also the incriminating material found during

the search and pertains to the assessee disclosing undisclosed income. Therefore, it

is not a case of reassessment framed by the AO under section 153A without any

incriminating material. The AO even conducted further investigation during the

course of assessment proceedings through the Investigation Wing Kolkata and,

therefore, the addition is fully based on the evidence in the possession of the AO.

As per the provisions of section 132 read with section 153A of the IT Act, the AO has

to assess or reassess the income of last six years and total income refers to the sum

total of income in respect of which a person is assessable. The total income will

therefore cover not only the income emanating from the declared source or any

material omission before AO but from all sources including undisclosed ones or

based on unplaced material before the AO. The ld. CIT D/R has thus submitted that

the decisions in the case of M/s. All Cargo Global Logistics Ltd. as well as Kabul

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Chawla (supra) were challenged before the Hon’ble Supreme Court and the Hon’ble

Supreme Court has admitted the SLP for examination of the issue. Hence the issue is

still pending adjudication before the Hon’ble Supreme Court. He has relied upon the

orders of the authorities below.

record. Undisputedly, the assessments for the assessment years 2010-11 to 13-14 were not pending on the date of search on 2nd July, 2015. Even in some of the

assessment years orders under section 143(3) were passed and in other cases the

assessment was completed under section 143(1) of the Act. Thus the assessments

for the assessment years 2010-11 to 13-14 were not got abated by virtue of search under section 132 on 2nd July, 2015 and the AO would reassess the total income of

the assessee as per the provisions of section 153A in respect of these four

assessment years i.e. 2010-11 to 13-14. The proceedings under section 153A in

respect of these four assessment years would be in the nature of reassessment and

not in the nature of assessment as in the cases of the remaining two assessment

years i.e. 2014-15 and 15-16 those were got abated by virtue of search and seizure action under section 132 of the Act on 2nd July, 2015. It is a settled proposition of

law that the assessment or reassessment under section 153A in respect of the

assessment years which have already been completed and assessment orders have

been passed determining the assessee’s total income, the addition to the income

that has already been assessed can be made only on the basis of incriminating

material. In the absence of any incriminating material the completed assessment

can only be reiterated. The provisions of section 132 read with section 153A of the

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Act stipulate two types of situations – one where the assessment of any assessment

year falling within six assessment years is pending on the date of initiation of search

under section 132 or making of requisition under section 132A of the Act.

Therefore, the assessment under section 153A in respect of those assessment years

which stand abated due to the reason of pending on the date of initiation of search

or requisition shall be the original/first assessment. In the second category where

the assessment or reassessment has already been completed on the date of

initiation of search or making of requisition as the case may be, the assessment

under section 153A would be in the nature of reassessment. The Hon’ble Delhi High

Court in the case of CIT vs. Kabul Chawla while analyzing the provisions of section

153A read with section 132 of the Act has observed in para 37 and 38 as under :-

“37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance

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or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. Conclusion 38. The present appeals concern AYs, 2002-03, 2005-06 and 2006-07.On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed.”

Thus the Hon’ble High Court has held that in the absence of any incriminating

material, the completed assessment can be reiterated and the abated assessment or

reassessment can be made. The Hon’ble High Court has also referred the term used

in section 153A as “assess” which is relatable to abated proceedings and the word

“reassess” related to completed assessment proceedings. Therefore, the completed

assessments can be interfered with by the AO while making the assessment under

section 153A only on the basis of some incriminating material unearthed during the

course of search or requisition of document or undisclosed income or property

discovered in the course of search which were not produced or not already disclosed

or made known in the course of original assessment. The Hon’ble Delhi High Court

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has reiterated its view in case of Principal CIT vs. Kurele Paper Mills (supra) in para

1 to 3 as under :-

“1. The Revenue has filed the appeal against an order dated 14.11.2014 passed by the Income Tax Appellate Tribunal (ITAT) in 3761/Del/2011 pertaining to the Assessment Year 2002-03. The question was whether the learned CIT (Appeals) had erred in law and on the facts in deleting the addition of Rs. 89 lacs made by the Assessing Officer under Section 68 of the Income Tax Act, 1961 ('ACT') on bogus share capital. But, the issue was whether there was any incriminating material whatsoever found during the search to justify initiation of proceedings under Section 153A of the Act. 2. The Court finds that the order of the CIT(Appeals) reveals that there is a factual finding that "no incriminating evidence related to share capital issued was found during the course of search as is manifest from the order of the AO." Consequently, it was held that the AO was not justified in invoking Section 68 of the Act for the purposes of making additions on account of share capital. 3. As far as the above facts are concerned, there is nothing shown to the court to persuade and hold that the above factual determination is perverse. Consequently, after considering all the facts and circumstances of the case, the Court is of the opinion that no substantial question of law arises in the impugned order of the ITAT which requires examination.”

The SLP filed by the revenue against the said decision of Hon’ble Delhi High Court was dismissed by the Hon’ble Supreme Court vide order dated 7th December, 2015.

In a subsequent decision, the Hon’ble Delhi High Court in the case of Principal CIT

vs. Meeta Gutgutia has again analyzed this issue in para 55 to 71 as under :-

“55. On the legal aspect of invocation of Section 153A in relation to AYs 2000-01 to 2003-04, the central plank of the Revenue's submission is the decision of this Court in Smt. Dayawanti Gupta (supra). Before beginning to examine the said decision, it is necessary to revisit the legal landscape in light of the elaborate arguments advanced by the Revenue. 56. Section 153A of the Act is titled "Assessment in case of search or requisition". It is connected to Section 132 which deals with 'search and seizure'. Both these provisions, therefore, have to be read together. Section 153A is indeed an extremely

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potent power which enables the Revenue to re-open at least six years of assessments earlier to the year of search. It is not to be exercised lightly. It is only if during the course of search under Section 132 incriminating material justifying the re-opening of the assessments for six previous years is found that the invocation of Section 153A qua each of the AYs would be justified. 57. The question whether unearthing of incriminating material relating to any one of the AYs could justify the re-opening of the assessment for all the earlier AYs was considered both in Anil Kumar Bhatia (supra) and Chetan Das Lachman Das (supra). Incidentally, both these decisions were discussed threadbare in the decision of this Court in Kabul Chawla(supra). As far as Anil Kumar Bhatia (supra) was concerned, the Court in paragraph 24 of that decision noted that "we are not concerned with a case where no incriminating material was found during the search conducted under Section 132 of the Act. We therefore express no opinion as to whether Section 153A can be invoked even under such situation". That question was, therefore, left open. As far as Chetan Das Lachman Das (supra) is concerned, in para 11 of the decision it was observed: "11. Section 153A (1) (b) provides for the assessment or reassessment of the total income of the six assessment years immediately preceding the assessment year relevant to the previous year in which the search took place. To repeat, there is no condition in this Section that additions should be strictly made on the basis of evidence found in the course of the search or other post-search material or Information available with the Assessing Officer which can be related to the evidence found. This, however, does not mean that the assessment under Section 153A can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." 58. In Kabul Chawla (supra), the Court discussed the decision in Filatex India Ltd. (supra) as well as the above two decisions and observed as under: "31. What distinguishes the decisions both in CIT v. Chetan Das Lachman Das (supra), and Filatex India Ltd. v. CIT-IV (supra) in their application to the present case is that in both the said cases there was some material unearthed during the search, whereas in the present case there admittedly was none. Secondly, it is plain from a careful reading of the said two . decisions that they do not hold that additions can be validly made to income forming the subject matter of completed assessments prior to the search even if no incriminating material whatsoever was unearthed during the search. 32. Recently by its order dated 6th July 2015 in ITA No. 369 of 2015 (Pr. Commissioner of Income Tax v. Kurele Paper Mills P. Ltd.), this Court declined to frame a question of law in a case where, in the absence of any incriminating material being found during the search under Section 132 of the Act, the Revenue sought to justify initiation of proceedings under Section 153A of the Act and make an addition under Section 68 of the Act on bogus share capital gain. The order of the CIT (A), affirmed by the ITAT, deleting the addition, was not interfered with."

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(b) regarding other cases, the addition to the income that has already been assessed, the assessment will be made on the basis of incriminating material; and

(c) in absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made."

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same can be tinkered only based on the incriminating material found during the course of search or requisition of documents."' 60. In Kabul Chawla (supra), the Court also took note of the decision of the Bombay High Court in CIT v. Continental Warehousing Corpn (Nhava Sheva) Ltd. [2015] 58 taxmann.com 78/232 Taxman 270/374 ITR 645 (Bom.) which accepted the plea that if no incriminating material was found during the course of search in respect of an issue, then no additions in respect of any issue can be made to the assessment under Section 153A and 153C of the Act. The legal position was thereafter summarized in Kabul Chawla (supra) as under: "37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.

ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.

iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the. aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax".

iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material."

v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings.

vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other

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material existing or brought on the record of the AO.

vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment."

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search or requisition stands abated and the total income of the assessee is required to be determined under section 153A of the Act. Similarly, sub-section (2) provides for revival of any assessment or reassessment which stood abated, if any proceeding or any order of assessment or reassessment made under section 153A of the Act is annulled in appeal or any other proceeding. 16. Section 153A bears the heading "Assessment in case of search or requisition". It is "well settled as held by the Supreme Court in a catena of decisions that the heading or the Section can be regarded as a key to the interpretation of the operative portion of the section and if there is no ambiguity in the language or if it is plain and clear, then the heading used in the section strengthens that meaning. From the heading of section 153. the intention of the Legislature is clear, viz., to provide for assessment in case of search and requisition. When the very purpose of the provision is to make assessment In case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition, in other words, the assessment should connected With something round during the search or requisition viz., incriminating material which reveals undisclosed income. Thus, while in view of the mandate of sub-section (1) of section 153A of the Act, in every case where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition' or disallowance can be made only on the basis of material collected during the search or requisition, in case no incriminating material is found, as held by the Rajasthan High Court in the case of Jai Steel (India) v. Asst. CIT(supra), the earlier assessment would have to be reiterated, in case where pending assessments have abated, the Assessing Officer can pass assessment orders for each of the six years determining the total income of the assessee which would include income declared in the returns, if any, furnished by the assessee as well as undisclosed income, if any, unearthed during the search or requisition. In case where a pending reassessment under section 147 of the Act has abated, needless to state that the scope and ambit of the assessment would include any order which the Assessing Officer could have passed under section 147 of the Act as well as under section 153A of the Act. ** ** **

21 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

the view adopted by the Rajasthan High Court in the case of Jai Steel (India) v. Asst. CIT (supra). Besides, as rightly pointed out by the learned counsel for the respondent, the controversy involved in the present case stands concluded by the decision of this court In the case of CIT v. Jayaben Ratilal Sorathia (supra) wherein it has been held that while it cannot be disputed that considering section 153A of the Act, the Assessing Officer can reopen and/or assess the return with respect to six preceding years ; however, there must be some incriminating material available with the Assessing Officer with respect to the sale transactions in the particular assessment year.' 62. Subsequently, in Devangi alias Rupa (supra), another Bench of the Gujarat High Court reiterated the above legal position following its earlier decision in Saumya Construction (P.) Ltd. (supra) and of this Court in Kabul Chawla(supra). As far as Karnataka High Court is concerned, it has in IBC Knowledge Park (P.) Ltd. (supra) followed the decision of this Court in Kabul Chawla (supra) and held that there had to be incriminating material qua each of the AYs in which additions were sought to be made pursuant to search and seizure operation. The Calcutta High Court in Salasar Stock Broking Ltd. (supra), too, followed the decision of this Court in Kabul Chawla (supra). In Gurinder Singh Bawa(supra), the Bombay High Court held that: "6. . . . . . once an assessment has attained finality for a particular year, i.e., it is not pending then the same cannot be subject to tax in proceedings under section 153A of the Act. This of course would not apply if incriminating materials are gathered in the course of search or during proceedings under section 153A of the Act which are contrary to and/or not disclosed during the regular assessment proceedings." 63. Even this Court has in Mahesh Kumar Gupta (supra) and Ram Avtar Verma (supra) followed the decision in Kabul Chawla (supra). The decision of this Court in Kurele Paper Mills (P.) Ltd. (supra) which was referred to in Kabul Chawla (supra) has been affirmed by the Supreme Court by the dismissal of the Revenue's SLP on 7th December, 2015. The decision in Dayawanti Gupta 64. That brings us to the decision in Smt. Dayawanti Gupta (supra). As rightly pointed out by Mr. Kaushik, learned counsel appearing for the Respondent, that there are several distinguishing features in that case which makes its ratio inapplicable to the facts of the present case. In the first place, the Assessees there were engaged in the business of Pan Masala and Gutkha etc. The answers given to questions posed to the Assessee in the course of search and survey proceedings in that case bring out the points of distinction. In the first place, it was stated that the statement recorded was under Section 132(4) and not under Section 133A. It was a statement by the Assessee himself. In response to question no. 7 whether all the purchases made by the family firms, were entered in the regular books of account, the answer was: "We and our family firms namely M/s. Assam Supari Traders and M/s. Balaji Perfumes generally try to record the transactions made in respect of purchase, manufacturing and sales in our regular books of accounts but it is also fact that some time due to some factors like inability of accountant, our busy schedule and some family problems, various purchases and sales of Supari, Gutka and

22 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

other items dealt by our firms is not entered and shown in the regular books of accounts maintained by our firms." 65. Therefore, there was a clear admission by the Assessees in Smt. Dayawanti Gupta (supra) there that they were not maintaining regular books of accounts and the transactions were not recorded therein. 66. Further, in answer to Question No. 11, the Assessee in Smt. Dayawanti Gupta (supra) was confronted with certain documents seized during the search. The answer was categorical and reads thus: "Ans:- I hereby admit that these papers also contend details of various transactions include purchase/sales/manufacturing trading of Gutkha, Supari made in cash outside Books of accounts and these are actually unaccounted transactions made by our two firms namely M/s. Asom Trading and M/s. Balaji Perfumes." 67. By contrast, there is no such statement in the present case which can be said to constitute an admission by the Assessee of a failure to record any transaction in the accounts of the Assessee for the AYs in question. On the contrary, the Assessee herein stated that, he is regularly maintaining the books of accounts. The disclosure made in the sum of Rs. 1.10 crores was only for the year of search and not for the earlier years. As already noticed, the books of accounts maintained by the Assessee in the present case have been accepted by the AO. In response to question No. 16 posed to Mr. Pawan Gadia, he stated that there was no possibility of manipulation of the accounts. In Smt. Dayawanti Gupta(supra), by contrast, there was a chart prepared confirming that there had been a year-wise non-recording of transactions. In Smt. Dayawanti Gupta (supra), on the basis of material recovered during search, the additions which were made for all the years whereas additions in the present case were made by the AO only for AY 2004-05 and not any of the other years. Even the additions made for AYs 2004-05 were subsequently deleted by the CIT (A), which order was affirmed by the ITAT. Even the Revenue has challenged only two of such deletions in ITA No. 306/2017. 68. In para 23 of the decision in Smt. Dayawanti Gupta (supra), it was observed as under: "23. This court is of opinion that the ITAT's findings do not reveal any fundamental error, calling for correction. The inferences drawn in respect of undeclared income were premised on the materials found as well as the statements recorded by the assessees. These additions therefore were not baseless. Given that the assessing authorities in such cases have to draw inferences, because of the nature of the materials - since they could be scanty (as one habitually concealing income or indulging in clandestine operations can hardly be expected to maintain meticulous books or records for long and in all probability be anxious to do away with such evidence at the shortest possibility) the element of guess work is to have some reasonable nexus with the statements recorded and documents seized. In tills case, the differences of opinion between the CIT (A) on the one hand and the AO and ITAT on the other cannot be the sole basis for disagreeing with what is essentially a factual

23 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

surmise that is logical and plausible. These findings do not call for interference. The second question of law is answered again in favour of the revenue and against the assessee." 69. What weighed with the Court in the above decision was the "habitual concealing of income and indulging in clandestine operations" and that a person indulging in such activities "can hardly be accepted to maintain meticulous books or records for long." These factors are absent in the present case. There was no justification at all for the AO to proceed on surmises and estimates without there being any incriminating material qua the AY for which he sought to make additions of franchisee commission. 70. The above distinguishing factors in Smt. Dayawanti Gupta (supra), therefore, do not detract from the settled legal position in Kabul Chawla (supra) which has been followed not only by this Court in its subsequent decisions but also by several other High Courts. 71. For all of the aforementioned reasons, the Court is of the view that the ITAT was justified in holding that the invocation of Section 153A by the Revenue for the AYs 2000-01 to 2003-04 was without any legal basis as there was no incriminating material qua each of those AYs.”

The Hon’ble Delhi High Court has concurred with the view as taken in case of Kabul

Chawla (supra) as well as the decision of Hon’ble Jurisdictional High Court in the

case of M/s. Jai Steel India Ltd. vs. ACIT (supra). Even on the issue of addition

made by the AO in the proceedings under section 153A in respect of the assessment

year which was already completed on the date of search, the Hon’ble High Court has

held that in the absence of any material which was subsequently unearthed during

the search and was not already available to the AO, the additions made by the AO

on account of security deposits were rightly deleted by the ld. CIT (A). The relevant

observations of the Hon’ble High Court in case of Principal CIT vs. Meeta Gutgutia

(supra) are in para 53 as under :-

“53. At this stage, it is also to be noticed that an elaborate argument was made by Mr. Manchanda on the aspect of the security deposits accepted by the Assessee.

24 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

These were of two kinds - one was of refundable security deposits and the other for non-refundable security deposits. As far as the refundable security deposits were concerned, the AO himself in his remand report accepted them as having been disclosed. This has been noticed by the CIT (A) in para 7.2.1 of his order for AY 2004- 05. As regards non-refundable security deposit, the CIT (A) accepted the AO's findings that treating the sum as 'goodwill written off on deferred basis' was not correct, hence the addition of Rs. 5,09,343 was held to be justified and correct. It was duly accounted for under 'liabilities' and transferred to income in a phased manner. This was not done by manipulating the account books of the Assessee as alleged by the Revenue. This would have been evident had the return been picked up for scrutiny under Section 143(3) of the Act. This, therefore, was not material which was subsequently unearthed during the search which was not already available to the AO. Consequently, the additions sought to be made by the AO on account of security deposits were rightly deleted by the CIT (A).”

Thus the essential corollary of these decisions is that no addition can be made in the

proceedings under section 153A in respect of the assessments which were

completed prior to the date of search except based on some incriminating material

unearthed during the search which was not already available to the AO. It is

pertinent to note that the SLP filed by the revenue against the decision of Hon’ble

Delhi High Court in case of Principal CIT vs. Meeta Gutgutia was dismissed vide order dated 2nd July, 2018. There are series of decisions on this issue including the

decision of Hon’ble Jurisdictional High Court in case of M/s. Jai Steel India vs. ACIT

(supra) wherein the Hon’ble High Court has held in para 23 to 30 as under :-

“23. The reliance placed by the counsel for the appellant on the case of Anil Kumar Bhatia (supra) also does not help the case of the assessee. The relevant extract of the said judgment reads as under:—

25 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

"19. Under the provisions of Section 153A, as we have already noticed, the Assessing Officer is bound to issue notice to the assessee to furnish returns for each assessment year falling within the six assessment years immediately preceding the assessment year relevant to the previous year in which the search or requisition was made. Another significant feature of this Section is that the Assessing Officer is empowered to assess or reassess the "total income" of the aforesaid years. This is a significant departure from the earlier block assessment scheme in which the block assessment roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments. Under Section 153A, however, the Assessing Officer has been given the power to assess or reassess the 'total income' of the six assessment years in question in separate assessment orders. This means that there can be only one assessment order in respect of each of the six assessment years, in which both the disclosed and the undisclosed income would be brought to tax. 20. A question may arise as to how this is sought to be achieved where an assessment order had already been passed in respect of all or any of those six assessment years, either under Section 143(1)(a) or Section 143(3) of the Act. If such an order is already in existence, having obviously been passed prior to the initiation of the search/requisition, the Assessing Officer is empowered to reopen those proceedings and reassess the total income, taking note to the undisclosed income, if any, unearthed during the search. For this purpose, the fetters imposed upon the Assessing Officer by the strict procedure to assume jurisdiction to reopen the assessment under Sections 147 and 148, have been removed by the non obstante clause with which sub-section (1) of Section 153A opens. The time-limit within which the notice under Section 148 can be issued, as provided in Section 149 has also been made inapplicable by the non obstante clause. Section 151 which requires sanction to be obtained by the Assessing Officer by issue of notice to reopen the assessment under Section 148 has also been excluded in a case covered by Section 153A. The time-limit prescribed for completion of an assessment or reassessment by Section 153 has also been done away with in a case covered by Section 153A. With all the stops having been pulled out, the Assessing Officer under Section 153A has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by Section 153A, by even making reassessments without any fetters, if need be. 21. Now there can be cases where at the time when the search is initiated or requisition is made, the assessment or reassessment proceedings relating to any assessment year falling within the period of the six assessment years mentioned above, may be pending. In such a case, the second proviso to sub-section (1) of Section 153A says that such proceedings "shall abate". The reason is not far to seek. Under Section 153A, there is no room for multiple assessment orders in

26 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

respect of any of the six assessment years under consideration. That is because the Assessing Officer has to determine not merely the undisclosed income of the assessee, but also the 'total income' of the assessee in whose case a search or requisition has been initiated. Obviously there cannot be several orders for the same assessment year determining the total income of the assessee. In order to ensure this state of affairs namely, that in respect of the six assessment years preceding the assessment year relevant to the year in which the search took place there is only one determination of the total income, it has been provided in the second proviso of sub-Section (1) of Section 153A that any proceedings for assessment or reassessment of the assessee which are pending on the date of initiation of the search or making requisition "shall abate". Once those proceedings abate, the decks are cleared, for the Assessing Officer to pass assessment orders for each of those six years determining the total income of the assessee which would include both the income declared in the returns, if any, furnished by the assessee as well as the undisclosed income, if any, unearthed during the search or requisition. The position thus emerging is that the search is initiated or requisition is made, they will abate making way for the Assessing Officer to determine the total income of the assessee in which the undisclosed income would also be included, but in case where the assessment or reassessment proceedings have already been completed and assessment orders have been passed determining the assessee's total income and such orders subsisting at the time when the search or the requisition is made, there is no question of any abatement since no proceedings are pending. In this latter situation, the Assessing Officer will reopen the assessments or reassessments already made (without having the need to follow the strict provisions or complying with the strict conditions of Sections 147, 148 and 151) and determine the total income of the assessee. Such determination in the orders passed under Section 153A would be similar to the orders passed in any reassessment, where the total income determined in the original assessment order and the income that escaped assessment are clubbed together and assessed as the total income. In such a case, to reiterate, there is no question of any abatement of the earlier proceedings for the simple reason that no proceedings for assessment or reassessment were pending since they had already culminated in assessment or reassessment orders when the search was initiated or the requisition was made." (Emphasis supplied) 24. The said judgment also in no uncertain terms holds that the reassessment of the total income of the completed assessments have to be made taking note of the undisclosed income, if any, unearthed during the search and the income that escaped assessments are required to be clubbed together with the total income determined in the original assessment and assessed as the total income. The observations made in the judgment contrasting the provisions of determination of undisclosed income under Chapter XIVB with determination of total income under Sections 153A to 153C of the Act have to be read in the

27 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

context of second proviso only, which deals with the pending assessment/reassessment proceedings. The further observations made in the context of de novo assessment proceedings also have to be read in context that irrespective of the fact whether any incriminating material is found during the course of search, the notice and consequential assessment under Section 153A have to be undertaken. 25. The argument of the learned counsel that the AO is also free to disturb income, expenditure or deduction de hors the incriminating material, while making assessment under Section 153A of the Act is also not borne out from the scheme of the said provision which as noticed above is essentially in context of search and/or requisition. The provisions of Sections 153A to 153C cannot be interpreted to be a further innings for the AO and/or assessee beyond provisions of Sections 139 (return of income), 139(5) (revised return of income), 147 (income escaping assessment) and 263 (revision of orders) of the Act. 26. The plea raised on behalf of the assessee that as the first proviso provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words 'assess' or 'reassess' have been used at more than one place in the Section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word 'assess' has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents. 27. The Allahabad High Court in Smt. Shaila Agarwal's (supra) has held as under:— "19. The second proviso to Section 153A of the Act, refers to abatement of the pending assessment or re-assessment proceedings. The word 'pending' does not operate any such interpretation, that wherever the appeal against such assessment or reassessment is pending, the same along with assessment or reassessment proceedings is liable to be abated. The principles of interpretation of taxing statutes do not permit the Court to interpret the Second Proviso to Section 153A in a manner that where the assessment or reassessment proceedings are complete, and the matter is pending in appeal in the Tribunal, the entire proceedings will abate. 20. There is another aspect to the matter, namely that the abatement of any proceedings has serious causes and effect in as much as the abatement of the proceedings, takes away all the consequences that arise thereafter. In the present case after deducting bogus gifts in the regular assessment proceedings, the proceedings for penalty were

28 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

drawn under Section 271(1)(c) of the Act. The material found in the search may be a ground for notice and assessment under Section 153A of the Act but that would not efface or terminate all the consequence, which has arisen out of the regular assessment or reassessment resulting into the demand or proceedings of penalty." (Emphasis supplied) The said judgment which essentially deals with second proviso to Section 153A of the Act also supports the conclusion, which we have reached hereinbefore. 28. It has been observed by the Hon'ble Supreme Court in K.P. Varghese v. ITO [1981] 131 ITR 597/7 Taxman 13 that "it is well recognized rule of construction that a statutory provision must be so construed, if possible that absurdity and mischief may be avoided." 29. The argument of the counsel for the appellant if taken to its logical end would mean that even in cases where the appeal arising out of the completed assessment has been decided by the CIT(A), ITAT and the High Court, on a notice issued under Section 153A of the Act, the AO would have power to undo what has been concluded up to the High Court. Any interpretation which leads to such conclusion has to be repelled and/or avoided as held by the Hon'ble Supreme Court in the case of K.P. Varghese (supra). 30. Consequently, it is held that it is not open for the assessee to seek deduction or claim expenditure which has not been claimed in the original assessment, which assessment already stands completed, only because a assessment under Section 153A of the Act in pursuance of search or requisition is required to be made.”

In the case in hand, the transactions of unsecured loans as well as introduction of

capital by the partners were duly recorded in the books of account and available

with the AO. Further, during the course of search under section 132 of the Act on 2nd July 2015 no material much less incriminating material was either found or seized

to disclose any undisclosed income on account of unsecured loans or partners’

capital received by the assessee firm. The AO has proposed to make the addition on

account of unsecured loans and partners’ capital under section 68 being unexplained

cash credit solely on the basis of the information received from Investigation Wing

Kolkata. It is pertinent to note that the said information was available with the AO

29 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

prior to the search conducted under section 132 of the Act in case of the assessee on 2nd July, 2015. Therefore, even the sole basis of assessments framed under

section 153A of the Act is the information received from Investigation Wing Kolkata

and statement of one Shri Anand Sharma, who is stated to be an entry operator and

managed various concerns/companies including M/s.Royal Crystal Dealers, one of

the loan creditors of the assessee. Except the said statement and report of the

Investigation Wing Kolkata, the AO has neither referred to or was having in

possession of any material to indicate that the unsecured loans shown in the books

of accounts as well as partners’ capital received by the assessee are nothing but

assessee’s own unaccounted and undisclosed income routed back in the garb of

unsecured loans and partners’ capital. There is no dispute that these transactions of

unsecured loans and partners’ capital contribution are duly recorded in the books of

accounts and disclosed in the return of income which were already completed as the

assessments for these four assessment years were not pending on the date of

search, therefore, it is manifest from the record that during the course of search and

seizure under section 132 of the Act in the case of the assessee no material much

less the incriminating material was unearthed or any undisclosed income which was

not disclosed in the books of accounts was detected or found. The only incriminating

material which was referred by the AO is pages 21 to 26 of Annexure AS-1 in

respect of long term capital gain earned by Shri Rajendra Agarwal and his family

members. The said long term capital gain was disclosed by Shri Rajendra Agarwal in

his statement under section 132(4) and, therefore, it was surrendered and offered to

tax by Shri Rajendra Agarwal and his family members in the year of search. The AO

30 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

himself has not made any addition in the hand of the assessee on account of long

term capital gain which was found during the course of search and seizure. Thus,

except the material disclosing the long term capital gain in the hand of Shri Rajendra

Agarwal, no other incriminating material either found or referred or is the basis of

the addition made by the AO while framing the assessment under section 153A of

the Act for the assessment years 2010-11 to 13-14. It is appropriate to refer

relevant part of the assessment order in para 12 pages 48 to 50, para 19 page 83

and para 22 page 86 as under :-

“ 12. Submissions made on behalf of the assessee firm have been duly considered. However, even the very elaborate and case laws loaded submissions of the assessee are totally off the mark. Against the self-speaking facts of the very nature of the activities of the so called partner’s providing huge partner’s capital in the most uninterested manner and providing huge unsecured loans without any collateral or other security, the emphasis of the assessee firm in its submissions has been on seeking protection under various judicial decisions even without having any fact coherence. The submissions made by the assessee are completely devoid of merit in the light of the following facts and circumstances;

a. The department has very sound basis to treat, the receipts of unsecured loan and partner’s capital from the above mentioned companies as bogus and in genuine. The findings of this office and Investigation report of the Investigation Directorate Kolkata are not based on any presumption, assumption, guess or bare suspicion. Where the nature and source of a receipt, whether it be of money or other property, cannot be satisfactorily explained by the

31 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

assessee, it is open for the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that the income is from any particular source as enumerated the Hon’ble Supreme Court in the case of Roshan Di Hatti v. CIT (1977) 107 ITR 938 (SC) and Kale Khan Mohammad Hanif v. CIT (1963) 50 ITR 1 (SC).

Prima facie onus is always on the assessee to prove the cash credit entry found in the books of account of the assessee. In land mark cases like Kale Khan Mohammad Hanif v CIT (1963) 50 ITR 1 (SC), Roshan Di Hatti v CIT (1977) 107 ITR (SC) it has been held that the law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee, is on him. Where the nature and source thereof cannot be explained satisfactorily, it is open to the revenue to hold that it is the income of the assessee and no further burden is on the revenue to show that the income is from any particular source. It may also be pointed out that the burden of proof is fluid for the purposes of Section 68. Once assessee has submitted basic documents relating to identity, genuineness of transaction and creditworthiness then AO must do some inquiry to call for more details to invoke Section 68.

b. The assessee firm has filed confirmation letters and this office has carried out further enquiry to examine the reality of the transactions. An enquiry was sent to the Investigation Directorate Kolkata and it has been established that these investor or lender Companies are controlled by the entry operators. The statements of various entry operators are sufficient evide4nces to show that the unsecured loan and partner’s capital are assessee’s own undisclosed income brought into the books of the assessee under the garb of unsecured loan and partner’s capital. c. The department has carried out search over the assessee group and during the course of search action u/s 132 of the I.T. Act,

32 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

1961, the incriminating documents seized during search proceedings vide pg no. 21 to 26 of Annexure AS-1 of Party B-1, wherein the details of year-wise LTCG earned by Shri Rajendra Agrawal and his family members, is maintained, which during search action has been accepted to be bogus by all family members in their respective statements.”

“19. In view of above facts of the case and in the light of above judicial decision, it is established that genuineness of the transaction has not been proved. Section 68 of the I.T. Act provides for charging to income tax on any sum credited in the books of the assessee maintained for any previous year if the assessee offers no explanation about the nature and source thereof or the explanation offered is not, in the opinion of the Assessing Officer, satisfactory. It places no duty upon the Assessing Officer to point to the source from which the money was received by the assessee. Where an assessee fails to prove satisfactorily the source and the nature of certain amount of credit during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipt are of an assessable nature. Thus, the assessee is unable to discharge its burden of proof by failing to establish lender’s identity, forget the genuineness of transactions and creditworthiness of the lender. Hence, the unsecured loans and partner’s capital shown to have been received from various Kolkata Based Companies and other Companies remained unexplained. In the circumstances, I am left with no option than to tax the entire unexplained credits by way of partner’s capital and Unsecured loans received from the persons mentioned in para 5 above as unexplained cash credits u/s 68 of the Income Tax Act, chargeable to tax as income of the assessee firm for the respective assessment years.”

33 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

“ 22. After examination of the information and details placed on record and discussion with the assessee, the total income of the assessee is computed as under :-

Returned income as per ITR u/s 153A of Rs. 2,82,83,460/- the Act. Additions | Unexplained cash credits u/s Rs. 67,20,14,999/- | 68 of the Act in the form of | unsecured loan and partner’s | capital Assessed income Rs. 70,02,98,459/- R/o Rs. 70,02,98,459/-

The total income of the assessee in the status of Firm for Assessment Year 2010-11 relevant to Previous Year 2009-10 is assessed at Rs. 70,02,98,459/- u/s 153A read with section 143(3) of I.T. Act, 1961. The form ITNS-150 showing calculation of tax and interest chargeable, if any, is attached herewith and forms a part of this Order. A notice of demand u/s 156 of the Act and challan for payment of tax, if payable, is hereby issued. Penalty notice u/s 274 rws 271(1)(c) is issued separately.”

The entire finding of the AO is based on the information received from the

Investigation Wing Kolkata and statement of Shri Anand Sharma. The ld. CIT (A)

though has not disputed the legal proposition on this issue, however, the contention

of the assessee was turned down merely on the ground that the SLPs filed by the

revenue in the cases of Kabul Chawla (supra) and M/s. All Cargo Global Logistics

(supra) etc. have been admitted for decision by the Hon’ble Supreme Court. The

relevant part of the finding of the ld. CIT (A) in para 3.2.2 and 3.2.4 at pages 35 and

36 are as under :-

34 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

“3.2.2 As per the provisions of this section where a search is initiated u/s 132 of the Act, the A.O shall issue a notice requiring the person searched to furnish his return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. Once such returns are filed, the AO has to assess or reassess the total income of such six assessment years.(emphasis supplied by me). (The decisive words used in the provisions are to 'assessee or reassess the total income'). The A.O. is thus duty bound to determine the 'total income' of the assessee for such six assessment years and it is obvious that 'total income' refers to the sum total of income in respect of which a person is assessable. The total income therefore will cover not only the income emanating from declared sources or any material placed before the Assessing Officer but from all sources including the undisclosed ones, or based on the unplaced material before the AO. 3.2.3 The concept of ‘assess or reassess’ and ‘shall abate’ as contemplated u/s 153A is under hot judicial debate. I find that legally, this issue is very contentious in view of the divergent views of the various authorities. The appellant has tried to highlight most of them. However, it is equally pertinent to mention here that the Department has not accepted the decisions of Hon'ble Mumbai High Court in the case of M/s All Cargo Global Logistics as well as Continental Warehousing (Nhava Sheva) Ltd., and SLP has been filed before the Hon'ble Supreme Court. The Hon'ble Supreme Court has granted leave vide order dated 12.10.2015 as reported in 64 taxmann.com 34 (S.C.). Similarly, in the case of Kabul Chawla SLP has also been filed.

35 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

3.2.4 In view of SLPs admitted in case of Kabul Chawla, M/s All Cargo Global Logistics as well as Continental Warehousing (Nhava Sheva) Ltd., (supra), assessee’s contention cannot be accepted. Moreover, in any case, the additions are to be adjudicated on merits as per relevant ground of appeal, the issue raised in this ground for present remains for academic discussion only. Accordingly, issue raised in ground no. 12 is dismissed.”

Therefore, neither in the assessment order nor in the order of the ld. CIT (A) there

is any mention or finding that the additions have been made by the AO on the basis

of any incriminating material found during the course of search and seizure in the

case of the assessee. The AO has solely relied upon the report of the Investigation

Wing Kolkata and statement of one Shri Anand Sharma recorded by the

Investigation Wing during the survey under section 133A of the Act. Therefore,

even if the information/report of the Investigation Wing Kolkata is considered as a

relevant evidence, the same cannot be regarded as incriminating material unearthed

during the course of search and seizure under section 132 of the IT Act in case of

the assessee. The requirement for making the addition under section 153A in the

assessment years where the assessment was not pending on the date of search and

the proceedings are in the nature of reassessment is essentially the incriminating

material disclosing undisclosed income which was not disclosed by the assessee. In

the case in hand, the AO himself has not claimed any incriminating material found

during the search and seizure in the case of the assessee. Accordingly, in the facts

and circumstances of the case and in view of the binding precedents on this issue in

which the SLP filed by the revenue was also dismissed by the Hon’ble Supreme

36 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

Court, the additions made by the AO while passing the assessment orders under

section 153A for the assessment years 2010-11 to 13-14 are not sustainable and

accordingly the same are liable to be deleted. We order accordingly.

Now on merits : Ground No. 3 to 5 :

the addition of the entire amount of unsecured loans received from 5 (five) persons

and partners’ capital from 4 (four) persons for the assessment year 2010-11 treating

the same as unexplained cash credit. On appeal, the ld. CIT (A) has deleted the

additions made by the AO in respect of all the parties except in case of M/s. Jalsagar

Commerce Pvt. Ltd. which was stated to be the company managed by Shri Anand

Sharma. The ld. CIT (A) has deleted the addition in respect of all other parties on

the ground that the AO was not having any documentary evidence or even

statement of the persons who have allegedly provided the accommodation entries to

the assessee through the other companies/concerns. Thus both the assessee as

well as the revenue are aggrieved by the order of the ld. CIT (A) on the merits of

the addition and filed these cross appeals.

received unsecured loans from registered NBFC and other companies. The AO

issued show cause notice to the assessee calling upon to file the supporting

evidence. The assessee filed detailed reply of the show cause notice which has been

reproduced by the AO at pages 26 to 48 of the assessment order. The ld. A/R has

pointed out that while passing the assessment order under section 143(3), the AO

has accepted the loan as genuine transaction. Further, the partners’ capital was also

37 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

accepted by the AO. Similarly, for the assessment year 2012-13 while passing the

assessment order under section 143(3), the AO again accepted the loans as well as

partners’ capital as genuine transactions. Once the assessments were completed

under section 143(3) and the AO has accepted the transactions as genuine, then in

the proceedings under section 153A the same cannot be treated as unexplained

cash credit when there is no material or evidence to review his own decision. The

AO has made the additions under section 68 on account of unsecured loans by

applying peak credit theory. The ld. A/R has submitted that the assessee has duly

discharged its burden cast under section 68 of the Act by providing identity,

creditworthiness and genuineness of the transactions. All the creditors have

complied with the notices/summons issued by the AO/Department and also replied

to the queries raised by the department. Therefore, the existence of all the

companies was established when these companies have duly responded to the

notices issued by the department. The assessee produced all relevant documentary

evidences in support of the transactions which remained uncontroverted by the AO

during the assessment or appellate proceedings. Therefore, the veracity of

documentary evidence forming part of the assessment record is not doubted. The

AO has relied upon statement recorded by the Investigation Wing Kolkata behind the

back of the assessee and much before the date of search. The ld. A/R has

submitted that the AO was having only one statement of Shri Anand Sharma who

has stated that the accommodation entries were given to M/s. Jalsagar Commerce

Pvt. Ltd. by M/s. Royal Crystal Dealers Pvt. Ltd. Therefore, even Shri Anand Sharma

has nowhere stated that cash was given by the assessee. During the course of

38 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

assessment proceedings, the assessee produced the following documents of M/s.

Jalsagar Commerce Pvt. Ltd :-

S. No. Particulars of Documents Paper book page

1 Copy of Ack. of ITR of AY 2010-11 704 2 Copy of balance sheet and annexure of loans & advance of 705-706 AY 2010-11 3 Copy of relevant page of bank statement showing the entry of 707-775 payment made to assessee. 4 Confirmation of loan given to assessee from books of accounts 776-783 of party. 5 Confirmation of loan given to assessee from books of accounts 784-787 of assessee. 6 Copy of affidavit of Sangeeta Somani director of company. 788-791 7 Copy of balance sheet of company of 31.03.2010, 31-03- 792-798 2011,31-03-2012, 31-03-2013, 31-03-2014,31-03-2015 and 31-03-2016 8 Copy of assessment order passed in the case of above named 799-839 company for AY 2005-06, AY 2007-08, AY 2011-12, AY 2012-13 and 2014-15. 9 Copy of ROC master data. 840-841 10 Copy of PAN card. 842

All the loans were received through bank and verifiable from bank statement of the

assessee as well as bank statements of the loan creditors. The onus under section

68 of the Act is to prove the identity, capacity and genuineness of the transaction

which has been discharged by the assessee by producing the documentary evidence

as well as the notices issued by the AO were duly responded by the loan creditors.

The ld. A/R has submitted that the loan creditor company was assessed to tax and

there were assessment orders under section 143(3) for the assessment years 2005-

06, 2007-08, 2011-12, 12-13 & 2014-15. He has referred to the copies of the

39 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

assessment orders in case of M/s. Jalsagar Commerce Pvt. Ltd. for all these

assessment years at pages 804 to 838 of the paper book. Therefore, once the loan

creditor is subjected to scrutiny assessment for all these years, then the AO cannot

treat this company as only paper company and transactions of loan as bogus

transactions. These transactions were accepted by the AO in the assessments

framed under section 143(3) in the hand of the loan creditor. Further, the assessee

filed ROC master data showing the loan creditor company under the category

“Active”. Apart from these evidences, the assessee also filed confirmation from the

loan creditor, their ITR, Bank statement, Balance Sheets which proved the identity,

creditworthiness and genuineness of the transaction. In support of his contention,

he has relied upon the judgment of Hon’ble Jurisdictional High Court in case of

Aravali Trading Co. vs. ITO, 8 DTR 199 (Raj.) and submitted that the Hon’ble High

Court has held that once the existence of creditor is proved and such person owns

the credit, the assessee’s onus stand discharged and the assessee is not required to

prove the source from which the creditor could have acquired the money deposited

with him. Even otherwise, when the loan creditor was subjected to scrutiny

assessment under section 143(3) wherein the transactions of loan were accepted by

the AO then the creditworthiness of the loan creditor was also accepted. The ld. A/R

has also referred to the availability of the funds with loan creditor being share capital

which is much more than the loan given to the assessee. The AO has not found any

discrepancy in the accounts of the loan creditor and particularly the bank statement

of the loan creditor. Hence treating the transaction as bogus and in the nature of

mere entry provided against the cash without any material is not sustainable in law.

40 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

The creditor has given the confirmation of the loan amount and, therefore, admitted

the loan given to the assessee. The assessee has paid interest after deduction of

TDS and the interest expenditure was accepted by the AO as a genuine claim in the

assessment framed under section 143(3) as well as in the assessment framed under

section 153A of the IT Act. Once the interest payment is accepted, then the loan

amount cannot be treated as bogus and unexplained credit. The ld. A/R has pointed

out that even the assessee has repaid the loan amount in the subsequent years

which proves the genuineness of the transaction of loan and repayment of the same.

Therefore, the finding of the AO treating the loan as an accommodation entry is

without any basis, material evidence but the same is based purely on surmises,

conjectures and irrelevant material. No positive material was brought on record by

the AO to show the loan creditor company is a shell company whereas the assessee

has produced all the relevant documents to establish the identity, creditworthiness

and genuineness of the transaction as well as loan creditor.

is the statement of Shri Anand Sharma whereas the assessee was not given the

opportunity of cross examination despite repeated requests and demands. The AO

has violated the principles of natural justice by not providing the copies of material

used against the assessee at the assessment stage and further not providing the

opportunity of cross examination of the witness during the assessment stage as well

as appellate stage. Though the ld. CIT (A) called for a remand report and asked the

AO to provide opportunity of cross examination to the assessee, however, after the

remand proceedings the AO did not afford an opportunity of cross examination

41 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

rather the AO has asked the assessee to produce the witness instead of allowing the

assessee to cross examine the witness. In support of his contention, the ld. A/R has

relied upon the decision of Hon’ble Supreme Court in case of Andaman Timber

Industries vs. Commissioner of Central Excise (2016) 15 SCC 785 (SC). He has also

relied on the decision Hon’ble Delhi High Court in the case of CIT vs. Ashwani Gupta,

322 ITR 396 (Delhi) and submitted that the Hon’ble High Court has held that once

there is a violation of principles of natural justice inasmuch as seized material is not

provided to the assessee nor was permitted to cross examine a person on whose

statement the AO relied upon, it would amount to deficiency and denial of natural

justice. The ld. A/R has then referred to the decision of Hon’ble Bombay High Court

in the case of H.R. Mehta vs. ACIT, 387 ITR 561 (Bombay). Thus the ld. A/R has

submitted that once the assessee has already discharged its primary onus to prove

the cash credit by furnishing relevant documents, substantiated identity,

creditworthiness and genuineness of the transaction, then the burden is shifted on

the AO to disprove the documents produced by the assessee in support of the claim.

The AO has relied upon the statement of Shri Anand Sharma and no material was

brought on record to controvert the documentary evidence filed by the assessee.

Thus the ld. A/R has stated that the addition made by the AO and sustained by the

ld. CIT (A) be deleted.

the information from Investigation Directorate, Kolkata regarding involvement of the

assessee group in obtaining entries of bogus unsecured loans, share capital, special

deposits etc. detected in the investigation carried out by the DIT Kolkata. Such

42 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

information was received even prior to initiation of proceedings under section 153A

and also during the pendency of proceedings under section 153A. Once the AO has

confronted the assessee with the report of the Investigation Wing Kolkata as well as

the statement of Shri Anand Sharma and other persons who have admitted to have

provided accommodation entries of bogus unsecured loans, share capital, special

deposits etc. to the various parties through their companies and concerns and

assessee has shown the unsecured loans as well as partners’ capital from those

concerns, then onus was shifted on the assessee to establish the genuineness of the

transactions of unsecured loans and partners’ capital. During the course of

assessment proceedings, the AO again conducted enquiries through Investigation

Wing Kolkata regarding the genuineness of the transaction and the assessee was

duly confronted with the results of all these enquiries and information shared by the

Investigation Wing Kolkata. In these circumstances and in the interest of natural

justice, the assessee was required to produce the alleged creditors for examination

so that genuineness of cash credit could be verified by the AO. Despite providing

several opportunities, the assessee miserably failed to produce any creditor. The

assessee never expressed its inability to produce the alleged creditor nor the

assessee requested the AO to issue summon to the alleged creditor for verification

of the genuineness of the cash credit in the form of unsecured loan and partners’

capital. It is evident that the assessee never intended to produce the alleged

creditor. The ld. D/R has further submitted that the present case is not one where

assessee obtained small loans or insignificant share capital so that the assessee

could take the plea that it is not in a position to ensure presence of alleged creditors.

43 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

The size of the transactions which are tainted unsecured loans and partners’ capital

constitute the major portion of entire capital of the assessee and other group

companies. Even the assessee did not produce the partners who introduced the

capital for examination. Thus the assessee has failed to establish the identity,

creditworthiness of the creditor and genuineness of the transaction. The addition is

not made merely on the basis of report of the Investigation Wing Kolkata but the AO

conducted enquiry through Investigation Wing and statements of entry operators

were also recorded, therefore, overwhelming evidences in the possession of the AO

indicate bogus nature of transaction of loan and partners’ capital which has been

extensively discussed in the assessment order. During the course of assessment

proceedings, the assessee was provided a number of opportunities for producing the

alleged creditors for verification and failure of the assessee in producing the

creditors in the light of the evidences was enough to invoke the provisions of section

68 of the IT Act. The ld. D/R has further submitted that the repayment of loan for

credit entries also does not in itself prove the transactions to be genuine. Shell

companies are used to provide accommodation entries and even reversal of an entry

does not ipso facto prove the genuineness of the initial credit entry. In support of

his contention, he has relied upon the decision of Hon’ble Delhi High Court in the

case of CIT vs. Navodaya Castles Pvt. Ltd., 226 Taxman 190 (Mag.) and submitted

that the SLP filed by the assessee was dismissed by the Hon’ble Supreme Court

reported in 230 Taxman 268 (SC). Thus it is evident that the assessee has failed to

discharge its onus to rebut the evidence unearthed by the Investigation Wing

Kolkata which shows that the transactions of unsecured loans as well as partners’

44 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

capital are nothing but bogus accommodation entries wherein the assessee’s own

undisclosed income has been routed in the garb of unsecured loan and partners’

capital. As regards cross examination of the witnesses, since the witnesses belong

to Kolkata and statements were also recorded at Kolkata by the Investigation Wing,

therefore, it was not possible for the AO to issue summon to the witnesses for cross

examination at the office of the AO at Kota. The ld. CIT D/R has relied upon the

order of the AO.

record. For the assessment year 2010-11, the assessee has challenged the addition

sustained by ld. CIT (A) in respect of unsecured loan from M/s. Jalsagar Commerce

Pvt. Ltd. The other additions made by the AO on account of unsecured loans as well

as partners’ capital for the assessment year 2010-11 were deleted by the ld. CIT (A)

on the ground that the AO was not having in his possession even the statement of

the concerned persons in support of his finding that the alleged loan and partners’

capital is nothing but bogus accommodation entries. Therefore, the revenue has

challenged that part of the order in the cross appeal. The ld. A/R of the assessee

has pointed out that for the assessment year 2010-11 there was no loan from the

company controlled by Shri Anand Sharma, M/s. Royal Crystal Dealers Pvt. Ltd. but

the assessee took the loan from M/s. Jalsagar Commerce Pvt. Ltd. which is not the

company owned or controlled by Shri Anand Sharma. The ld. CIT (A) has sustained

the addition in respect of loan from M/s. Jalsagar Commerce Pvt. Ltd. in para 5.1 to

5.12 as under :-

45 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

“5.1 In this respect, I find that Shri Anand Sharma whose statement is reproduced at Page 56 of the Assessment Order has clearly accepted that M/s Jalsagar Commerce Pvt. Ltd. is beneficiary company like Kota Dal Mill and both of these were provided bogus loans/advances by Royal Crystal Dealer Pvt. Ltd which is a paper company controlled by him. He further stated that the beneficiary party such i.e, M/s Jalsagar Commerce Pvt. Ltd. gave him cash in lieu of which cheques was given by him for some commission income. He also admitted that some paper companies have sold to beneficiary parties. Though, in the initial report dated 28.11.2017, M/s Jalsagar Commerce Pvt. Ltd. was treated a party in Rajasthan, in later report dated 06.12.2017 the entry operator Shri Anand Sharma was linked with M/s Jalsagar Commerce Pvt. Ltd. as per the data base prepared by Directorate of InvestigationKolkata The relevant part of the said statement as reproduced on page no.57 of the assessment order is as under: -

46 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

5.2 However, it is the submission of the Appellant that no notice under Section 131 or 133(6) of the Act was issued to this company, either by the Ld. AO or by the concerned AO or by the DDIT (Inv.) Kolkata. Also, on bare perusal of the assessment order, it is evident that the name of the said companies does not appear in the statement of any of the entry operators as reproduced by the AO in the Assessment Order. However, the relevant documents including the Ledger a/c showing the transactions with appellant company, Source sheet of funds of transactions made with the Appellant, Copy

47 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. of bank statement showing the transactions, etc. stand submitted for confirmation of the transaction of loan with the Appellant. 5.3 In my considered view, as the name of M/s Jalsagar Commerce Pvt. Ltd. is clearly mentioned as beneficiary company in the statement of Shri Anand Sharma, and Shri Anand Sharma is mentioned that some of such paper company are sold to beneficiary party, in view of fact that name of M/s Jalsagar Commerce Pvt. Ltd. Is mentioned in the reports as discussed in para 4.4.7 above, a genuine doubt is raised on the identity and genuineness of company. Further, the adverse facts pointed out in the reports as discussed in para 4.4.7 above for established background of all these share holders / depositors being the puppet in the hand of one or other accommodation entry providers, layering the transaction by cheque deposit on the same day or preceding day of share application / deposits, the assertions of the AO for no- creditworthiness or in-adequate creditworthiness of the so-called shareholders / depositors holds fields. During the appellate proceeding before me, though paper books for relevant AY and common Paper Books have been submitted, the same does not adduce any evidence to rebut the adverse factual finding made by the AO in the assessment order as mentioned by me in Para 4.1 above and categorically mentioned in the reports as discussed in para 4.4.7 above. Under these adverse background of appellant employing modus-operendi of resorting accommodation entry provider to build-up share capital / unsecured loans by foul means, what the AO is vehemently making the case for is the law on the issue-section 68 of Income-tax Act has to be applied by evolving perceptions for the law on the issue and not on the basis of routine perceptions on the law on the issue that is losing their relevance. 5.4 With all due respect to authorities cited by the appellant for canvassing his stand point, I am not able to persuade my conscience to agree with appellants arguments. In my considered opinion, under the adverse background of appellant employing modus-operendi of resorting accommodation entry provider to build-up unsecured loans as established in the assessment order as

48 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. briefly highlighted in Para 4.1 above, and armed with several authorities on the issue cited by the AO, I fully agree with the view taken by AO. However, to fortify the finding of the AO and to highlight the guiding principle on adjudicating non-genuine unsecured loans raised through accommodation entry proviers, I place further reliance on few more case laws with underlining the similarity of adverse facts prevailing in the present case as follows:- 5.5 In case of Suman Gupta V/s. Income Tax Officer ITAT, Agra Bench (2012) 138 ITD 0153 held as under:-

The AO discussed each and every creditor in the assessment order and the crux of the findings of the AO had been that there were very small bank balances in the bank accounts of the creditors and they were having meager income and as such, they were not men of means to advance any loan to the assessee. It is well settled law that burden is upon the assessee to prove ingredients of section 68 of the Act by proving identity and creditworthiness of the creditors and genuineness of the transactions. The assessee has, however, failed to prove the creditworthiness of the creditors who were having only meager income. No details of their savings have been filed. The assessee has never shown his willingness to produce the remaining creditors for examination before the AO. Therefore, the genuineness of the transaction could not have been examined by the AO. The smallness of the bank balance in the bank accounts of the creditors prior to issue of cheques would clearly reveal that they were not having any source and it was the money of the assessee which was routed through the bank accounts of the creditors for the purpose of giving credits to the assessee. These were, therefore, accommodation entries only and as such, could not be considered as genuine transactions. Merely because the loans have been received through banking channel, is not sacrosanct to make a non-genuine transaction as genuine transaction. On consideration of the facts of the case in the light of above discussion and decision, there is no justification to interfere with the order of the ld. CIT(A).

49 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. The assessee has failed to prove the creditworthiness of all the creditors and no source of their income has been filed. At the best the assessee is able to prove identity of the creditors, but the assessee failed to prove the genuine credit in the matter. All the creditors have been rightly found to be men of meager means and no source of income have been filed to prove that they were having sufficient funds or savings in order to give loans to the assessee. On verification of the bank account of the depositors, it was specifically found that there were no sufficient funds available in their bank account and they were having only small bank balance, which was even not sufficient to meet out their household expenses or day-to-day requirements. Therefore, it is unbelievable to accept the contention of the assessee that said persons were having creditworthiness to advance any loan to the assessee. CIT(A) was justified in confirming the addition u/s. 68 of the IT Act. In the present case, the assessee has not adduced any sufficient evidence before the authorities below to prove the creditworthiness of the creditors and genuineness of the transactions in the matter. Therefore, the assessee has not satisfied the essential ingredients of section 68 of the IT Act. Conclusion: Merely because the loans have been received through banking channel, is not sacrosanct to make a non-genuine transaction as genuine transaction.

The above decision is confirmed by Hon’ble Allahabad High Court vide their judgment in ITA No.680/12 vide judgment dated 07.08.2012 and SLP of assessee was dismissed before the Hon’ble Apex Court as reported in 2013-LL- 0122-69 5.6 Hon’ble High Court of Delhi in case of Commissioner of Income Tax V/s. Navodaya Castles Pvt. Ltd. reported at (2014) 367 ITR 0306 involving exactly similar facts observed in Para 2, 3 then Para 2 as under:-

50 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. 2. The appeal arises out of the impugned order dated 31st October, 2011, passed by the Income Tax Appellate Tribunal, upholding the order passed by the Commissioner of Income Tax (Appeals) deleting addition of Rs.54,00,000/- made under Section 68 of the Income Tax Act, 1961 (Act, for short), by the Assessing Officer on account of share application. 3. The assessee, a company, had filed their return of income for the assessment year 2002-03 declaring loss of Rs.1,58,035/- on 20th October, 2002, which was processed under Section 143(1) of the Act. Subsequently, on the basis of a report submitted by the Investigation Wing that the assessee was a recipient of accommodation entries in form of share application money/share capital/share premium, notice under Section 147 read with Section 148 of the Act was issued and served on 25th March, 2009………………………………………………… ……..………………………………………………………………………………………

51 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. cash deposits in lacs were being regularly deposited in the said accounts and then pay orders/cheques were issued to the respondent assessee. 8. On 14th December, 2009, authorized representative appeared and stated that the assessee was unable to produce directors or principal officers of the six shareholder companies pleading that they were not shareholders now and seven years had passed since the transactions took place. The assessment order records and mentions about the transactions recorded in the bank accounts of the shareholder/entry operator companies to show and establish that there was immediate deposit of cash and then issue of cheques. It was further mentioned that these companies were under control of one Mahesh Garg and his group, who were operating various accounts. The Assessing Officer made addition of Rs.54,00,000/- under Section 68 of the Act and Rs.1,08,000/- as commission paid for procuring the said shares being 2% of Rs.54,00,000/-. .................................................................................................................... ……..……………………………………………………………………………………… 11. We have heard the Senior Standing counsel for the Revenue, who has relied upon decisions of the Delhi High Court in Commissioner of Income Tax Vs. Nova Promoters and Finlease (P) Ltd. [2012] 342 ITR 169 (Delhi), Commissioner of Income Tax Vs. N.R. Portfolio Pvt. Ltd., 206 (2014) DLT 97 (DB) (Del) and Commissioner of Income Tax-II Vs. MAF Academy P. Ltd., 206 (2014) DLT 277 (DB) (Del). The aforesaid decisions mentioned above refer to the earlier decisions of Delhi High Court in Commissioner of Income Tax Vs. Sophia Finance Ltd., [1994] 205 ITR 98 (FB)(Delhi), CIT Vs. Divine Leasing and Finance Limited [2008] 299 ITR 268 (Delhi) and observations of the Supreme Court in CIT Vs. Lovely Exports P. Ltd. [2008] 319 ITR (St.) 5 (SC).

52 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. through accounts payee cheques/bank account; and mere deposit of cash in the bank accounts prior to issue of cheque/pay orders etc. would only raise suspicion and, it was for the Assessing Officer to conduct further investigation, but it did not follow that the money belonged to the assessee and was their unaccounted money, which had been channelized. 13. As we perceive, there are two sets of judgments and cases, but these judgments and cases proceed on their own facts. In one set of cases, the assessee produced necessary documents/evidence to show and establish identity of the shareholders, bank account from which payment was made, the fact that payments were received thorough banking channels, filed necessary affidavits of the shareholders or confirmations of the directors of the shareholder companies, but thereafter no further inquiries were conducted. The second set of cases are those where there was evidence and material to show that the shareholder company was only a paper company having no source of income, but had made substantial and huge investments in the form of share application money. The assessing officer has referred to the bank statement, financial position of the recipient and beneficiary assessee and surrounding circumstances. The primary requirements, which should be satisfied in such cases is, identification of the creditors/shareholder, creditworthiness of creditors/shareholder and genuineness of the transaction. These three requirements have to be tested not superficially but in depth having regard to the human probabilities and normal course of human conduct. 14. Certificate of incorporation, PAN number etc. are relevant for purchase of identification, but have their limitation when there is evidence and material to show that the subscriber was a paper company and not a genuine investor. It is in this context, the Supreme Court in CIT vs. Durga Prasad More [1971] 82 ITR 540 (SC) had observed:- “Now we shall proceed to examine the validity of those grounds that appealed to the learned judges. It is true that the apparent must be considered real until it is shown that there are reasons to believe that

53 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents.”

“32. The tribunal also erred in law in holding Assessing Officer ought to have proved that the monies emanated from the coffers of the assessee-company and came back as share capital. Section 68 permits the Assessing Officer to add the credit appearing in the books of account of the assessee if the latter offers no explanation regarding the nature and source of the credit or the explanation offered is not satisfactory. It places no duty upon him to point to the source from which the money was received by the assessee. In A. Govindarajulu Mudaliar v CIT, (1958) 34 ITR 807, this argument advanced by the assessee was rejected by the Supreme Court. Venkatarama Iyer, J., speaking for the court observed as under (@ page 810):-

54 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. “Now the contention of the appellant is that assuming that he had failed to establish the case put forward by him, it does not follow as a matter of law that the amounts in question were income received or accrued during the previous year, that it was the duty of the Department to adduce evidence to show from what source the income was derived and why it should be treated as concealed income. In the absence of such evidence, it is argued, the finding is erroneous. We are unable to agree. Whether a receipt is to be treated as income or not, must depend very largely on the facts and circumstances of each case. In the present case the receipts are shown in the account books of a firm of which the appellant and Govindaswamy Mudaliar were partners. When he was called upon to give explanation he put forward two explanations, one being a gift of Rs. 80,000 and the other being receipt of Rs. 42,000 from business of which he claimed to be the real owner. When both these explanations were rejected, as they have been it was clearly upon to the Income-tax Officer to hold that the income must be concealed income. There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipt are of an assessable nature. The conclusion to which the Appellate Tribunal came appears to us to be amply warranted by the facts of the case. There is no ground for interfering with that finding, and these appeals are accordingly dismissed with costs.”(emphasis supplied)

Section 68 recognizes the aforesaid legal position. The view taken by the Tribunal on the duty cast on the Assessing Officer by section 68 is contrary to the law laid down by the Supreme Court in the judgment cited above. Even if one were to hold, albeit erroneously and without being aware of the legal position adumbrated above, that the Assessing Officer is bound to show that

55 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. the source of the unaccounted monies was the coffers of the assessee, we are inclined to think that in the facts of the present case such proof has been brought out by the Assessing Officer. The statements of Mukesh Gupta and RajanJassal, the entry providers, explaining their modus operandi to help assessee’s having unaccounted monies convert the same into accounted monies affords sufficient material on the basis of which the Assessing Officer can be said to have discharged the duty. The statements refer to the practice of taking cash and issuing cheques in the guise of subscription to share capital, for a consideration in the form of commission. As already pointed out, names of several companies which figured in the statements given by the above persons to the investigation wing also figured as share-applicants subscribing to the shares of the assessee-company. These constitute materials upon which one could reasonably come to the conclusion that the monies emanated from the coffers of the assessee-company. The Tribunal, apart from adopting an erroneous legal approach, also failed to keep in view the material that was relied upon by the Assessing Officer. The CIT (Appeals) also fell into the same error. If such material had been kept in view, the Tribunal could not have failed to draw the appropriate inference. 16. In the said case, the Division Bench had also examined the decision of the Supreme Court in Lovely Exports P. Ltd. (supra) and other cases in which the assessee had succeeded. It was noticed that in the case of Lovely Exports P. Ltd. affidavits/confirmations of shareholders were filed and income tax record numbers of the shareholders were made available, but the Assessing Officer, who had sufficient time, failed to carry out inquiry and examination. reference was made to the observations in Divine Leasing (supra) to the effect that there cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment as share capital must be firmly excoriated by the Revenue, but when there is preponderance of evidence to show absence of culpability, the assessee should not be harassed by the Revenue. A delicate balance must be maintained

56 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. between the two interests. In Divine Leasing (supra), the following proposition was elucidated:-

“In this analysis, a distillation of the precedents yields the following propositions of law in the context of Section 68 of the IT Act. The assessed has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the credit worthiness or financial strength of the creditor/subscriber. (4) If relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Share Application Forms, Share Transfer Register etc. it would constitute acceptable proof or acceptable Explanation by the assessed. (5) The Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessed nor should the AO take such repudiation at face value and construe it, without more, against the assessed. (7) The Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation.”

57 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. under sec.68 and the remedy open to the revenue is to go after the share applicants in accordance with law. We are afraid that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self-confessed “accommodation entry providers”, whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus operandi is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such “entry providers”. The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre-meditated plan – a smokescreen – conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec.68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence ormaterial in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary.”

58 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. that a reasonable approach has to be adopted and whether initial onus stands discharged would depend upon facts and circumstances of each case. In case of private limited companies, generally persons known to directors or shareholders, directly or indirectly, buy or subscribe to shares. Upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call money, dividends, warrants, etc. have to be sent and the relationship remains a continuing one. Therefore, an assessee cannot simply furnish some details and remain quiet when summons issued to shareholders remain un- served and uncomplied. As a general proposition, it would be improper to universally hold that the assessee cannot plead that they had received money, but could do nothing more and it was for the Assessing Officer to enforce shareholders’ attendance in spite of the fact that the shareholders were missing and not available. Their reluctance and hiding may reflect on the genuineness of the transaction and creditworthiness of the creditor. It would be also incorrect to universally state that an Inspector must be sent to verify the shareholders/subscribers at the available addresses, though this might be required in some cases. Similarly, it would be incorrect to state that the Assessing Officer should ascertain and get addresses from the Registrar of Companies’ website or search for the addresses of shareholders themselves. Creditworthiness is not proved by showing issue and receipt of a cheque or by furnishing a copy of statement of bank account, when circumstances requires that there should be some more evidence of positive nature to show that the subscribers had made genuine investment or had, acted as angel investors after due diligence or for personal reasons. The final conclusion must be pragmatic and practical, which takes into account holistic view of the entire evidence including the difficulties, which the assessee may face to unimpeachably establish creditworthiness of the shareholders.

59 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. “18. In the remand report, the Assessing Officer referred to the provisions of Section 68 of the Actand their applicability. The word “identity” as defined, it was observed meant the condition or fact of a person or thing being that specified unique person or thing. The identification of the person would include the place of work, the staff, the fact that it was actually carrying on business and recognition of the said company in the eyes of public. Merely producing PAN number or assessment particulars did not establish the identity of the person. The actual and true identity of the person or a company was the business undertaken by them. This according to us is the correct and true legal position, as identity, creditworthiness and genuineness have to be established. PAN numbers are allotted on the basis of applications without actual de facto verification of the identity or ascertaining active nature of business activity. PAN is a number which is allotted and helps the Revenue keep track of the transactions. PAN number is relevant but cannot be blindly and without considering surrounding circumstances treated as sufficient to discharge the onus, even when payment is through bank account.

60 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. case, no profit or dividend was declared on the shares. Any person, who would invest money or give loan, would certainly seek return or income as consideration. These facts are not adverted to and as noticed below are true and correct. They are undoubtedly relevant and material facts for ascertaining creditworthiness and genuineness of the transactions.

61 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. the Assessing Officer from the concerned bank, the Assessing Officer has observed that there were genuine concerns about identity, creditworthiness of shareholders as well as genuineness of the transactions.

As reported at 2015-TIOL-314-SC-IT, in the above case, the Hon’ble Supreme Court observed to effect that ‘merely because the assessee has been able to show that the shareholder companies were duly incorporated and their identity & genuineness stands established, there were deposits of cash in the bank accounts prior to issue of cheque or pay orders, the same would raise suspicion and addition can be made on such account’ 5.7 It may be mentioned that as reported at 2016-TIOL-207-SC-IT, the Hon’ble Supreme Court dismissed SLP by Rick Lunsford Trade & Investment Ltd in case of Rick Lunsford Trade & Investment Ltd Vs CIT ‘upholding that it is open to the Revenue Department to make addition on account of alleged share capital u/s 68, where the assessee company has failed to show genuineness of its shareholders.’ 5.8 Hon’ble Delhi High Court in case of Commissioner of Income Tax-II V/s MAF Academy Pvt. Ltd. involving exactly similar facts in ITA 341/2012 dated 28th November, 2013 observed in Para 33 to 36 as under:

62 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. Directors/family members of the Directors. The remaining share capital had been infused from parties which were completely unrelated either to the Assessee or to any of its Directors. In a private limited company, normally the investment of shares is from parties or persons who are friends or relatives of Promoters/Directors. 34. It is noticed that the shares had face value of Rs.100 /- and were allotted at a premium of Rs.100 /- to Rs.200/- and were then subsequently purchased by the Promoters/Directors, who had originally transferred these shares at Rs.35 /- per share. 35. It is really surprising that a person who had purchased shares at a premium of Rs.100 /- to Rs.200/- per share i.e. at a price of Rs.200 /- to Rs.300/- per share, sold the shares at Rs.35 /- per share i.e at a substantial loss. Another surprising factor is that the entire investment happened during a short span of time and re-transfer of the shares to the four Promoters/Directors of the company at Rs.35 /- per share by different parties also happened during a short span of few days. The modus operandi and the manner in which cash is deposited in a bank and then utilized by way of an account payee cheque for purchase of shares for a premium of Rs.100 /- to Rs.200/- per share and then the sale of shares at a loss clearly establishes that the said transaction was a camouflage transaction. The Assessee has clearly attempted to camouflage the accommodation entries and tried to give it a colour of purchase of share capital and then sale of the same at a loss. Thus the Assessee's capital increased or was enhanced by a substantial figure through these dubious transactions. This should be and has to be checked. 36. Out of Rs.4.35 crores received as share capital including premium, only Rs.92 lacs has been received from the directors or their family members and the remaining amount has been received from parties totally unrelated to the Assessee. Notices to some of the investors could not be served and even the Inspector who was deputed to serve the summons stated that none of the addresses could be found. The authorised representative of the Assessee

63 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. refused to produce the parties who had invested in the share capital on the ground that they were not in a position to produce them. The fact that the Assessee failed to produce the persons who had invested towards share capital shows that these were people who were completely unrelated to the Assessee and as such, all the entries were merely accommodation entries. Otherwise, in a private limited company, it would not have been difficult on the part of the Assessee to produce persons who were investing substantial amount of money in the company towards share capital. 37. The Assessing Officer in his order has as a sample referred to the entries in the account of some of the share holders noticing that there are cash deposits of the exact amount for which cheque is subsequently issued to the Assessee. Perusal of the bank statements clearly establishes that these parties were depositing cash and immediately either on the same day or in the near future withdrawing the same through a cheque which was issued in favour of the Assessee.

Then Hon’ble Delhi High Court held in Para 53 to 54 as under:-

64 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. 5.9 Hon’ble Income Tax Appellate Tribunal Delhi Bench: 'B’ in case of M/s. Amtrac Automotive India Pvt. Ltd. Versus ACIT, Circle 1(1), involving exactly similar facts in their appellate order ITA No.2920/Del/09 for A.Y. 2005-06 dated 31.12.2009 observed in Para 3 & then Para 2 as under:-

65 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. precluded from making enquiries in share application money, submitted that no addition can be made. 2.1.1 The AO however was not convinced with the submission of the appellant. He observed that that it was only in the course of enquiry that he tried to examine the above share applicants. Since the summons issued to such persons remained unserved, it became the duty of the appellant either to produce them for verification or to state their correct addresses. It appears to be highly improper that in a Private Ltd. Company, the assessee is not in a position to state the exact whereabouts or fail to produce the persons who collectively hold more than 25% of its total share holding. He also observed that mere filing of Asstt. year 2005-06 confirmation letters do not absolve the appellant from its onus to prove the credit entries reflected in its books of accounts as has been held by Hon'ble Calcutta High Court in the case of CIT vs. United Commercial & Industrial Co. (P) Ltd.[1991] 187 ITR 596. He further observed that the facts that the amount were paid by account payee cheques do not make it satisfactory as held in CIT vs. Precision finance Pvt. Ltd. 208 ITR 465 (Cal.). Even income -tax file particulars, where the share holder is assessed to tax is not sufficient as found in CIT vs. Korlay Trading Co. Ltd. 232 ITR 820 (Cal.) 2.1.2 The AO also referred the enquiry initiated by investigation wing of the Department in August 2003 which culminated into detection of many entry operators who are operating number of accounts in the same bank/branch or in different branches, in the names of companies, firms, proprietary concerns and individuals. For the operations of these bank accounts, filing income tax returns etc. persons are hired. Like any other business it does requires manpower according to the scale of operation. Except for two or three persons who are required regularly to visit banks and do other spade work like collection of cash etc., most of the other persons involved are on part time basis. The part time employees are called as and when required to sign documents, cheque books etc. Some of the entry operators have also roped in their own relatives for operation of entry accounts and filing the income tax

66 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. returns. Interestingly most of these concerns / individuals have obtained PAN from the department and are filing returns as well. What is shown in the returns is not the actual state of affairs. For example with one PAN several bank accounts are simultaneously Asstt. year 2005-06 operated and only one account might be shown for the purpose of audit and filing income tax returns. The entry operators provide entry in the garb of share application money, gifts, loans etc. through these accounts, in lieu of cash, to any person who is having unaccounted money.

2.1.2.1 The AO observed that some of the companies show above by the appellant as its share holders were found to have stated before investigation wing that they were mere name lender for advancing money. To quote some of them, Shri Rajesh Bansal, Director of M/s. Rubicon Associates Pvt. Ltd., Shri Mahesh Garg, Director of M/s. S.J. Hosiery Pvt. Ltd. Etc. have categorically stated before the Investigation wing, in their statement taken on oath, that they used to take the amount in cash and give entries to different concerns as gift, loan or share application money. According to AO, to enquire into this aspect also, the appellant was asked to produce the functional directors of such share holders. 2.1.3. In view of these facts and circumstances, the Assessing Officer concluded that the credit in the name of these shareholders are not genuine and represents unexplained cash credits. Accordingly he made addition of Rs. 1.50 lakhs to the returned income.

Then Hon’ble Income Tax Appellate Tribunal Delhi Bench: 'B’ held in Para 6 as under:

67 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. of Rs. 90/- totaling to Rs. 100/-. When the AO asked the appellant to furnish the details the assessee produced share application forms and other details like bank statement, copy of acknowledgment of return etc. However when the AO conducted inquiry at the stated address, summons were received back unserved with the postal remark "no such person in the above address". This fact was Asstt. year 2005-06 brought to the notice of assessee also. Thereafter the assessee except producing the papers could not prove existence or availability of the respective share applicants. When the identity of the person is required to be proved so as to examine whether in fact they have applied for allotment of shares, the existence itself is not proved. The existence of a person is not merely on paper. Particularly when the AO required the assessee to produce the share applicants and particularly when at the stated address the share applicants do not found to be existing, it cannot be said that the amount received by assessee is proved to be towards share capital. The transaction cannot be proved merely on paper. Neither before AO nor before Ld. CIT (A) the assessee could make the share applicants available. Therefore when the identity of the person itself is not proved, the amount received by assessee cannot be considered to be genuinely received.

6.1. It is also to be noted that the assessee company is stated to have issued shares at premium 9 times its face value. The assessee is a private limited company. It has not issued prospectus for issue of shares nor under the Companies Act 1956, it can invite the public to apply for and allot the shares. The company is prohibited from making any invitation for allotment of shares. How the premium was fixed is not forth coming. Looking to the balance sheet or past history of assessee, the assessee company has never declared dividend in the past. The company has no business plans which can raise its profitability in the near future. The income declared by the assessee is only by

68 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. way of short term capital gain and the assessee do not seem to have carried on any business. Asstt. year 2005-06 In such circumstances the share premium is not found to be justified by any of the act on the part of assessee. These facts are revealing more than the apparent shown on the paper. All these facts put together reveal that neither the identity of the share applicants are proved nor justification for share premium has been proved. In such circumstances the court cannot put blinker on the eye and look only at the papers presented before it. There is something more than that meets the eye. As rightly contended by Ld. DR in such situation the observation of Hon'ble Supreme Court in the case of CIT Vs. Durga Prasad More 82 ITR 540 and in the case of Sumati Dayal Vs. CIT 214 ITR 801 are apt for application. We therefore do not find any reason to hold that the share capital receipts by assessee were from persons whose identity is established and the amount is genuinely received towards share capital.

5.10 In a recent decision in case of Principal Commissioner Of Income vs Bikram Singh in ITA 55/2017, the Hon’ble High Court of Delhi held on 25 August, 2017 as under:-

"...16. In this analysis, a distillation of the precedents yields the following propositions of law in the context of Section 68 of the IT Act. The assessee has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber. (4) If relevant details of the

69 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Shared Application Forms, Share Transfer Register etc. it would constitute acceptable proof or acceptable explanation by the assessee. (5) The Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the AO take such repudiation at face value and construe it, without more, against the assesee. (7) The Assessing Officer is duty-bound to investigate the creditworthiness of the creditor /subscriber the genuineness of the transaction and the veracity of the repudiation...."

70 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. banking channels. This device of loan entries continues to plague the legitimate economy of our country. As seen from the facts narrated above, the transactions herein clearly do not inspire confidence as being genuine and are shrouded in mystery, as to why the so-called creditors would lend such huge unsecured, interest free loans - that too without any agreement. In the absence of the same, the creditors fail the test of creditworthiness and the transactions fail the test of genuineness.

5.11 In my considered view, the technical objections raised by the Appellant in respect of loan from M/s Jalsagar Commerce Pvt. Ltd. are of no avail to the appellant due to following undisputed facts:-

i. It is undisputed fact that the Income Tax Department has made tremendous investigations in such shell companies of Kolkata, Mumbai and Delhi providing accommodation entry and statements made by several accommodation entry providers have become virtually in public domain. It is no argument that the AO did not provide such statement before the assessement or in any of the notices. These facts were well known to the appellant group and ignorance is mere pretence. ii. Moreover, such statements are so vocal and undeniable that as mentioned in some of the case laws above, cross-examination of such accommodation entry provides by thousands of beneficiaries across India is neither practicable nor viable and therefore uncalled for. iii. It is undisputed fact that in the statement dated 06.02.2014 Shri Anand Sharma had admitted to be one of such accommodation entry providers. The sum and substance of the said statement is that the concern M/s Jalsagar Commerce Pvt. Ltd. was engaged in the activities of providing accommodation entries and the appellant happened to be one of such beneficiary of such concern. It is also admitted fact that Shri Anand Sharma had been running the affair of the said company.

71 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. v. The statement of Shri Anand Sharma in which name of M/s Jalsagar Commerce Pvt. Ltd. cannot be completely ignored solely on the legal grounds raised by the Appellant.

5.12 In view of above discussion, it is clear that the incriminating material had been found during the course of search of accommodation entry provider. Further incriminating material had been gathered by issuing commission to DDIT (Inv.) Kolkata, during the assessment proceedings and all such material have been shared with the appellant at least during the remand report proceeding. In view of nation-wide known scam by the accommodation entry providers of Kolkata and elsewhere burst by the Income Tax Department, there was no need to provide opportunity for cross-examination of same accommodation entry providers. Any way in the rejoinder submission to remand report the appellant is absolutely silient on cross-examination and by such conduct he has forgone his right to cross-examine. Therefore, the principles of natural justice have been followed. As discussed in preceding paras, under the facts and circumstance of the case, it could not be said that AO did not followed the binding decision of the Hon’ble Supreme Court and the Hon’ble jurisdiction Court. Therefore, in view of above facts discussed in Para 4.1 & 4.4.7, 5.1 to 5.3 and legal position apprised in Para 5.5 to 5.11 above, it is held that the addition made by the AO on account of unsecured loans amounting to Rs. 12,36,49,999/- from M/s Jalsagar Commerce Pvt. Ltd. sustainable and the same is confirmed.”

Thus the addition was confirmed based on the report of the DDIT (Inv.) Kolkata.

We find that the report of the DDIT (Inv.) Kolkata is also based on the statements of

various persons recorded during their investigation and the statement of Shri Anand

Sharma was also sent along with the report of the AO. The ld. CIT (A) has

72 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

confirmed the addition because of the reason that the statement of Shri Anand

Sharma was very much in the possession of the AO who has admitted in his

statement that M/s. Jalsagar Commerce Pvt. Ltd. was engaged in the activity of

providing accommodation entry. However, we find that M/s. Jalsagar Commerce

Pvt. Ltd is not managed or controlled by Shri Anand Sharma, rather the company

M/s. Royal Crystal Dealers Pvt. Ltd. was stated to have been owned by Shri Anand Sharma and in his statement dated 6th February, 2014 Shri Anand Sharma has

stated to have been providing entries from M/s. Royal Crystal Dealers Pvt. Ltd. to

M/s. Jalsagar Commerce Pvt. Ltd. Therefore, there is no allegation or any admission

in the statement of Shri Anand Sharma that he has provided bogus loan entry to the

assessee or any group concerns of the assessee. Since the name of M/s. Jalsagar

Commerce was crepted in his statement, the AO has presumed that the loan

provided by M/s. Jalsagar Commerce Pvt Ltd is nothing but the bogus

accommodation entry provided by Shri Anand Sharma through M/s. Royal Crystal

Dealers Pvt. Ltd. The AO has tried to establish the nexus of the loan received by the

assessee through the statement of Shri Anand Sharma where he has purported to

have provided the alleged entry. Since there is no direct allegation or admission of

providing loan by Shri Anand Sharma to the assessee through M/s.Royal Crystal

Dealers Pvt. Ltd., then even if there is a possibility of bogus accommodation entry

routed through another intermediary company M/s.Jalsagar Commerce Pvt. Ltd., it

requires a definite link of the transactions from M/s.Royal Crystal Dealers Pvt. Ltd. to

M/s.Jalsagar Commerce Pvt. Ltd. and then the loan to the assessee. Once the chain

of transactions and flow of money from one entity to another entity and finally to the

73 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

assessee has not been established, then the addition made merely on suspicion, how

so strong it may be, is not sustainable. On the contrary, when the assessee

produced all the relevant record which contains their financial statements, bank

accounts statement of loan creditor, return of income, assessment orders framed

under section 143(3), confirmation of the loan creditor, then a proper examination

could have very well established the link, if any, in providing the accommodation

entry from one entity to another and finally to the assessee. However, no such link

was found in the documents and financial statements of these companies, rather in

the bank account statement of loan creditor M/s. Jalsagar Commerce Pvt. Ltd. there

was no suspicious transaction of receiving any entry or any deposit of an equal

amount prior to giving the loan to the assessee. The assessee has paid interest to

the creditor, which was duly accepted by the AO as business expenditure.

Undisputedly, the assessee has produced the income-tax record of the loan creditor,

bank statement, financial statements including Balance Sheet, copy of ROC master

data showing the status of loan creditor company as “active”, confirmation of loan

given to the assessee. Further, the AO issued summons and also got the summons

served through DDIT Kolkata under section 131 of the IT Act which were duly

responded by the loan creditor. Except the statement of Shri Anand Sharma and the

report of the Investigation Wing Kolkata, the AO has not brought on record any

other material to controvert or disprove the documentary evidence produced by the

assessee. It is pertinent to note that the loan creditor was assessed to tax and the

AO completed the assessment under section 143 (3) for various assessment years

which are relevant for the assessment year under consideration. The AO in case of

74 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

loan creditor has not disturbed the transactions of loan given by this company to the

assessee. From the financial statements of the loan creditor it is apparent that the

loan creditor was having sufficient funds to advance the loan amount to the

assessee and once the said financial statements were not disturbed, then the

creditworthiness of the loan creditor cannot be doubted when it was accepted in the

assessment order passed under section 143(3) of the IT Act. We further note that

the AO insisted the assessee to produce the directors of the loan provider company.

The assesee produced the affidavit, and the notices issued by the AO under section

131 and 133(6) of the Act were duly complied with by the creditor. The statement

of the Director of M/s. Royal Crystal Dealers Pvt. Ltd. was also recorded by the AO

wherein the Director has confirmed the transaction of loan. There are various

reports of the DDIT Kolkata which are placed at pages 406 to 422 of the paper

book. We find that all these reports are based on the statements recorded during

the investigation but no documentary evidence was either gathered or has been

referred in these reports. Therefore, even if these reports are to be taken into

consideration, these are nothing but narration of the statements of various persons

taken during the investigation. It is well settled principle as well as the directions of

the CBDT issued under the Circulars that during the course of investigation, the

department should concentrate and focus on collecting documentary evidence

disclosing undisclosed income instead of obtaining the statement and then support

of their claim merely on the basis of the statement. Therefore, the statements

recorded by the DDIT Kolkata are also not based on any documentary evidence so

as to have an evidentiary value for sustaining the additions made by the AO. The

75 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

entire report of the Investigation Wing is based on statements recorded during

survey and search. Once the assessee has produced the documentary evidence and

particularly the financial statements of the loan creditors, their bank account

statement, then in the absence of any discrepancy or fault in these financial

statements or in the bank account statement to reflect that the transactions in

question are nothing but bogus accommodation entries, the addition made by the

AO is not sustainable as it is merely on the basis of surmises and conjectures and

not on any tangible material disclosing the non-genuineness of the transactions.

The AO has not disputed the transactions routed through banking channel having

sufficient funds which is also supported by the financial statements and further the

assessments of the loan creditor were completed under section 143(3). The details

of loans taken from M/s. Jalsagar Commerce Pvt. Ltd., interests credited/paid and

repayment of loan amount as well as closing balance are as under :-

Name of AY Opening Loan taken Interest Interest Loan repayment/ Closing Company Balance during the credited in credited in TDS/transfer in balance year loan a/c interest partner capital during the Paid during the year year /payable a/c Jalsagar Commerce 10-11 41,298 34,70,40,000 13,96,176 12,56,558 34,21,15,916 51,05,000 Private Ltd Jalsagar Commerce 11-12 51,05,000 77,18,70,000 16,71,599 15,04,439 77,18,37,160 53,05,000 Private Ltd Jalsagar Commerce 12-13 53,05,000 78,95,00,000 1,07,08,434 96,37,591 31,72,80,655 47,85,95,188 Private Ltd Jalsagar Commerce 13-14 47,85,95,188 2,76,31,50,000 0 0 2,97,53,40,000 26,64,05,188 Private Ltd Jalsagar Commerce 14-15 26,64,05,188 97,34,50,000 0 0 1,24,03,55,188 (5,00,000) Private Ltd Jalsagar Commerce 15-16 0 1,34,89,00,000 49,00,600 44,10,540 1,34,93,90,060 0 Private Ltd Jalsagar Commerce 16-17 0 87,11,00,000 1,67,23,178 1,50,50,860 87,27,72,318 0 Private Ltd

76 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

All these details were before the AO as all these assessment years were passed by

the AO pursuant to the search and seizure action under section 132 of the IT Act.

Thus it is clear that for the assessment year 2015-16 there was Nil balance on

account of loan taken from M/s. Jalsagar Commerce Pvt. Ltd. and the entire loan

was already repaid by the assessee. We further note that it is not the case of repayment of loan after the search action on 2nd July, 2015 but there is a regular

repayment of loan for each year as it is evident from the details reproduced above.

Therefore, the transactions of taking loan and repayment cannot be treated as

bogus once the assessee has been regularly repaying the loan amount and small

balance was there at the end of the year. Once there was no balance at the end of

the year on the loan account, then the addition cannot be made by treating the loan

taken and repaid as bogus transaction. Apart from these facts, the assessee has

also made the payment of interest which was also subjected to TDS. This shows the

genuineness of the transactions and all these transactions have taken place prior to

the date of search and duly recorded in the books of accounts and also subjected to

assessment under section 143(3) for some of the assessment years. Therefore,

even as per the evidence produced by the assessee, the alleged suspicion of the AO

was got dispelled and in the absence of any contrary evidence except the statement

which is not even a conclusive proof of transaction of bogus entry to the assessee,

the additions made by the AO are not sustainable.

11.1. Even otherwise, the assessment order is solely based on the report of the

Investigation Wing Kolkata which in turn is nothing but the narration of the

statements recorded during the investigation and the AO was having in possession

77 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

the statement of only Shri Anand Sharma. Therefore, all these proceedings

conducted by the Investigation Wing Kolkata were at the back of the assessee and

hence the statement which is the foundation of the report of the Investigation Wing

Kolkata as well as the assessment order cannot be accepted in the absence of giving

an opportunity of cross examination to the assessee. We find that the assessee has

insisted for cross examination during the assessment proceedings and further during

the appellate proceedings. The ld.CIT(A) even called for a remand report and

directed the AO to allow cross examination to the assessee. However, the AO has

expressed his inability to allow the assessee cross examination of the witnesses due

to the reason that the witnesses belong to Kolkata and it is not possible for AO to

make such arrangement. The ld. CIT(A) has finally denied the cross examination to

the assessee by giving his finding in para 5.11 at page 188 already reproduced in

the earlier part of this order and, therefore, the only reason for denial of cross

examination by the ld.CIT(A) is that the statements are so vocal and undeniable that

cross examination of such accommodation entry provided by thousands of

beneficiaries across India is neither practicable nor viable and therefore uncalled for.

We find that the assessee has demanded the cross examination only in respect of

the alleged transactions of loans and not for the entire business of the entry

providers providing the bogus entries. Undisputedly, the statement of Shri Anand

Sharma was recorded by the Investigation Wing Kolkata at the back of the assessee,

even the proceedings by the Investigation were conducted at the back of the

assessee, therefore, the said statement of Shri Anand Sharma cannot be the sole

basis of assessment without giving an opportunity of cross examination to the

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assessee. The Hon’ble Supreme Court in the case of Andaman Timber Industries

vs. CCE (supra) while dealing with the issue of violation of principles of natural

justice for not providing the opportunity of cross examination of the witnesses

whose statements were relied on by the AO has held in para 6 to 9 as under :-

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basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the show-cause notice.

Once the assessee has disputed the correctness of the statement and wanted to

cross examine the witness which was not given by the AO as well as ld. CIT (A),

then the orders passed based on such statement are not sustainable in law. The

Hon’ble Delhi High Court in case of CIT vs. Ashwani Gupta, 322 ITR 396 (Delhi)

while dealing with the issue of not providing the opportunity to cross examine the

witnesses has held in para 5 to 7 as under :-

“5. Secondly, in fact, a rectification application being MA 264/Delhi/2008 under section 254(2) of the Income-tax Act, 1961 had been filed by the revenue before the said Tribunal. In that also, in paragraph (g) of the Miscellaneous Application, the revenue had submitted as under:— "(g )Because, although findings of the Tribunal are factually correct but the decision of the Tribunal is not acceptable because violation of the canons of natural justice in itself is not fatal enough so as to jeopardize the entire proceedings. In the interest of justice, the Tribunal could have set aside the assessment order with the limited purpose of offering assessee an opportunity to cross-examine Shri Manoj Aggarwal before completing the proceedings." [Emphasis supplied] 6. A reading of the said paragraph (g) makes it clear that the revenue had accepted the findings of the Tribunal on facts as also the position that there had been a violation of principles of natural justice. However, the revenue's plea was that the violation of principles of natural justice was not fatal so as to jeopardize the entire proceedings. The said miscellaneous application was also rejected by the Tribunal by its order dated 28-11-2008. 7. In view of the foregoing circumstances, we feel that no interference with the impugned order is called for. The Tribunal has correctly understood the law and applied it to the facts of the case. Once there is a violation of the principles of natural justice inasmuch as seized material is not provided to an assessee nor is cross-examination of the person on whose statement the Assessing Officer relies upon, granted, then, such deficiencies would amount

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to a denial of opportunity and, consequently, would be fatal to the proceedings. Following approach adopted by us in SMC Share Brokers Ltd.'s case (supra), we see no reason to interfere with the impugned order. No substantial question of law arises for our consideration.”

Thus the Hon’ble High Court has held that once there is a violation of principles of

natural justice inasmuch as seized material is not provided to the assessee nor is

cross examination of the person on whose statement the AO relied upon, granted,

then, such deficiencies would amount to denial of opportunity and consequently

would be fatal to the proceedings. The Hon’ble Bombay High Court in the case of

H.R. Mehta vs. ACIT, 387 ITR 561 (Bombay) has also considered the issue of not

providing opportunity of cross examination in para 11 to 17 as under :-

“11. We have therefore proceeded to hear and decide the matter unassisted by the revenue. In the course of his submissions Mr. Tralshawala had pressed into service inter alia the decision of the Calcutta High Court in Mather & Platt (India) Ltd.(supra) and submitted that merely because a person is not found at an address after several years it cannot be held that he is non existent and that the assessee had discharged his primary onus by identifying the source of the amount paid. The Court observed that once the primary onus is discharged, the onus shifted to the revenue to verify genuineness of the transaction. In the present case no such effort was made by the revenue. We find that in S. Hastimal (supra) the Madras High Court observed that after a lapse of several years the assessee should not be placed upon the rack and called upon to explain not only merely, the origin and source of his capital contribution but the origin of origin and the source of source as well. In yet another case of Bahri Brothers (P) Ltd. (supra) the Division Bench of Patna High Court observed that where the assessee upon whom the initial burden lies, produces bank certificate to establish that the transaction was carried out through account payee cheques thus disclosing the identity of the creditors as also the source of income, the burden shifts on to the department and the department cannot add the cash credits to his income from undisclosed source. 12. The Hon'ble Supreme Court in Nemi Chand Kothari (supra) observed that in order to establish the receipt of a cash credit, the assessee must satisfy three conditions i.e. identity of the creditor, genuineness of the transaction and creditworthiness of the creditor. In the instant case by virtue of the fact that the

81 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

transaction was completed by cheque payments, the appellant has contended that it had satisfied all the three tests. 13. In Kishanchand Chellaram (supra) wherein the Supreme Court observed that the revenue authorities had not recorded the statement of the Manager of the bank and it was difficult to appreciate as to why it was not done and why the matter was not probed further by the revenue. 14. The Delhi High Court in Ashwani Gupta (supra)held that once there is a violation of the principles of natural justice inasmuch as when its seized material was not provided to an assessee nor was he permitted to cross examine a person on whose statement the Assessing Officer relied, it would amount to deficiency, amounting to a denial of opportunity and therefore violation of principles of natural justice. In that case CIT (A) had deleted addition made by the Assessing Officer since the Assessing Officer had failed to provide copies of seized material to the assessee nor had he allowed the assessee to cross-examine the party concerned. The Division Bench held that once there is violation of the principles of natural justice inasmuch as seized material was not provided to the assessee nor was given opportunity of cross examining the person whose statement was being used against the assessee the order could not be sustained. 15. In Andaman Timber Industries (supra) the Supreme Court found that the Adjudicating Authority had not granted an opportunity to the assessee to cross examine the witnesses and the tribunal merely observed that the cross examination of the dealers in that case, could not have brought out any material which would not otherwise be in possession of the appellant-assessee. The Supreme Court set aside the impugned order and observed that it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross examination and make the remarks such as was done in that case. 16. In the instant case although the appellant assessee has called upon us to draw an inference that the burden shifted to the revenue in the present case once it was established that the payments were made and repaid by cheque we need not hasten and adopt that view after having given our thought to various issues raised and the decisions cited by Mr.Tralshawalla and finding that on a very fundamental aspect, the revenue was not justified in making addition at the time of reassessment without having first given the assessee an opportunity to cross examine the deponent on the statements relied upon by the ACIT. Quite apart from denial of an opportunity of cross examination, the revenue did not even provide the material on the basis of which the department sought to conclude that the loan was a bogus transaction. 17. In our view in the light of the fact that the monies were advanced apparently by the account payee cheque and was repaid vide account payee cheque the least that the revenue should have done was to grant an opportunity to the assessee to meet the case against him by providing the material sought to be used against assessee in arriving before passing the order of reassessment. This not having been done, the denial of such opportunity goes

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to root of the matter and strikes at the very foundation of the reassessment and therefore renders the orders passed by the CIT (A) and the Tribunal vulnerable. In our view the assessee was bound to be provided with the material used against him apart from being permitting him to cross examine the deponents. Despite the request dated 15th February, 1996 seeking an opportunity to cross examine the deponent and furnish the assessee with copies of statement and disclose material, these were denied to him. In this view of the matter we are inclined to allow the appeal on this very issue.”

Thus the denial of opportunity to cross examine was considered by the Hon’ble High

Court which goes to the root of the matter and strikes at the very foundation of the

assessment and, therefore, renders the assessment order passed by the AO not

sustainable. The ld. A/R has submitted that Coordinate Bench of this Tribunal in the case of DCIT vs. Shri Prateek Kothari vide order dated 16th December, 2012 in ITA

No. 159/JP/2016 has considered this issue in para 2.8 to 2.11 as under :-

“2.8 We have heard the rival contentions and perused the material available on record. The transaction under question relates to unsecured loans taken by the assessee amounting to Rs 1 Crores from M/s Mehul Gems Pvt Ltd during the impunged assessment year and not accepting the said loan transaction as a genuine transaction by the Assessing officer and the resultant addition made under section 68 of the Act. Undisputedly, the primary onus to establish genuineness of the loan transaction is on the assessee. In the instant case, the assessee has provided the necessary explanation, furnished documentary evidence in terms of tax filings, affidavits and confirmation of the Directors, bank statements of the lender, balance sheet of the lender company, and an independent confirmation has also been obtained by the Assessing officer to satisfy the cardinal test of identity, creditworthiness and genuineness of the loan transaction. However, the Assessing officer has not given any finding in respect of such explanation, documentary evidence as well as independent confirmation. Apparently, the reason for

83 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

not accepting the same is that the Assessing officer was in receipt of certain information from the investigation wing of the tax department as per which the transaction under consideration is a bogus loan transaction. The said information received from the investigation wing thus overweighed the mind of the Assessing officer. The Assessing officer stated that the primary onus is on the assessee to establish the genuineness of the transaction claimed by it and if the investigation done by the department leads to doubt regarding the genuineness of the transactions, it is incumbent on the assessee to produce the parties alongwith necessary documents to establish the genuineness of the transaction. In response, the assessee submitted that Shri Bhanwarlal Jain is not known to him and regarding various incriminating documentary evidences seized during the course of search and statements recorded of Shri Bhanwarlal Jain and other persons, he specifically requested the AO to provide copies of such incriminating documents and statement of all various persons recorded in this regard and provide an opportunity to the assessee to cross examine such persons. However, the AO didn’t provide to the assessee copies of such incriminating documents and statements of various persons recorded and allow the cross-examination of any of these persons. While doing so, the AO stated that “in his statements, Bhanwarlal Jain had described that they are indulged in providing accommodation entries of bogus unsecured loans and advances through various Benami concerns (70) operated and managed by them. This admission automatically makes all the transactions done by them as mere paper transactions and in these circumstances, further as per the information name and address of assessee and the Benami Concern through which accommodation entry of unsecured loans was provided is appearing in the list of beneficiaries to whom the said Group has provided. This admission is sufficient to reject the contentions of the asseesse.” Further, regarding cross examination, the AO stated that “the right of cross examination is not an absolute right and it depends upon the circumstances of each case and also on the statute concerned. In the present case, no such circumstances are warranted as in the list of beneficiaries to whom accommodation entries were provided by the said group categorically contains the name and address of the assessee. Further the group has categorically admitted to providing of accommodation entries of unsecured loans through various benami concerns.” The AO further relied upon the decision of Hon’ble Supreme Court in the case of C. Vasantlal & Co. Vs. CIT 45 ITR 206(SC) and Hon’ble Rajasthan High Court in case of Rameshwarlal Mali vs. CIT 256 ITR 536(Raj.) among others. In this regard, it was submitted by the assessee that if the entries and material are

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gathered behind the back of the assessee and if the AO proposes to act on such material as he might have gathered as a result of his private enquiries, he must disclose all such material to the assessee and also allow the cross examination and if this is not done, the principles of natural justice stand violated.

2.9 In light of above discussions, in our view, the crux of the issue at hand is that whether the principle of natural justice stand violated in the instant case. In other words, where the AO doesn’t want to accept the explanation of the assessee and the documentation furnished regarding the genuineness of the loan transaction and instead wants to rely upon the information independently received from the investigation wing of the department in respect of investigation carried out at a third party, can the said information be used against the assessee without sharing such information with the assessee and allowing an opportunity to the assessee to examine such information and explain its position especially when the assessee has requested the same to the Assessing officer.

2.10 In this regard, the Hon’ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. v. CIT (1954) 26 ITR 775 (SC) (Copy at Case Law PB 812-818) has held that “The rule of law on this subject has been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Sinqh where it was stated that while proceeding under sub-section (3) of section 23, the Income-tax Officer, though not bound to rely on evidence produced by the assessee as he considers to be false, yet if he proposes to make an estimate in disregard of that evidence, he should in fairness disclose to the assessee the material on which he is going to find that estimate; and that in case he proposes to use against the assessee the result of any private inquiries made by him, he must communicate to the assessee the substance of the information so proposed to be utilized to such an extent as to put the assessee in possession of full particulars of the case he is expected to meet and that he should further give him ample opportunity to meet it.” It was held in that case that “In this case we are of the opinion that the Tribunal violated certain fundamental rules of justice in reaching its conclusions. Firstly, it did not disclose to the assessee what information had been supplied to it by the departmental representative. Next, it did not give any opportunity to the company to rebut the material furnished to it by him, and lastly, it declined to take all the material that the assessee wanted to produce in support of its case. The result is that the assessee had not had a fair hearing.”

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The Hon’ble Supreme Court in case of C. Vasantlal & Co. Vs. CIT 45 ITR 206 (SC) has held that “the ITO is not bound by any technical rules of the law of evidence. It is open to him to collect material to facilitate assessment even by private enquiry. But, if he desires to use the material so collected, the assessee must be informed about the material and given adequate opportunity to explain it. The statements made by Praveen Jain and group were material on which the IT authorities could act provided the material was disclosed and the assessee had an opportunity to render their explanation in that regard.”

The Hon’ble Supreme Court in case of Kishinchand Chellaram v. CIT (1980) 125 ITR 713 (SC) (Copy at Case Law PB 585- 591) has held that “whether there was any material evidence to justify the findings of the Tribunal that the amount of Rs. 1,07,350 said to have been remitted by Tilokchand from Madras represented the undisclosed income of the assessee. The only evidence on which the Tribunal could rely for the purpose of arriving at this finding was the letter, dated 18-2- 1955 said to have been addressed by the manager of the bank to the ITO. Now it is difficult to see how this letter could at all be relied upon by the Tribunal as a material piece of evidence supportive of its finding. In the first place, this letter was not disclosed to the assessee by the ITO and even though the AAC reproduced an extract from it in his order, he did not care to produce it before the assessee or give a copy of it to the assessee. The same position obtained also before the Tribunal and the High Court and it was only when a supplemental statement of the case was called for by this Court by its order, dated 16-8-1979 that, according to the ITO, this letter was traced by him and even then it was not shown by him to the assessee but it was forwarded to the Tribunal and it was for the first time at the hearing before the Tribunal in regard to the preparation of the supplemental statement of the case that this letter was shown to the assessee. It will, therefore, be seen that, even if we assume that this letter was in fact addressed by the manager of the bank to the ITO, no reliance could be placed upon it, since it was not shown to the assessee until at the stage of preparation of the supplemental statement of the case and no opportunity to cross examine the manager of the bank could in the circumstances be sought or availed of by the assessee. It is true that the proceedings under the income-tax law are not governed by the strict rules of evidence and, therefore, it might be said that even without calling the manager of the bank in evidence to prove this letter, it could be taken into account as evidence. But before the income-tax authorities could rely upon it, they were bound to produce it before the assessee so that the

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assessee could controvert the statements contained in it by asking for an opportunity to cross examine the manager of the bank with reference to the statements made by him.”

2.11 In light of above proposition in law and especially taking into consideration the decision of the Hon’ble Supreme Court in case of C. Vasantlal & Co. (supra) relied upon by the Revenue and which actually supports the case of the assessee, in the instant case, the assessment was completed by the AO relying solely on the information received from the investigation wing, statement recorded u/s 132(4) of Shri Bhanwarlal Jain and others, and various incriminating documentary evidence found from the search and seizure carried out by Investigation Wing, Mumbai on the Shri Bhanwarlal Jain group on 03.10.2013. It remains undisputed that the assessee was never provided copies of such incriminating documents and statements of Shri Bhanwarlal Jain and various persons and an opportunity to cross examine such persons though he specifically asked for such documents and cross examination. On the other hand, the burden was sought to be shifted on the ITA No. 159/JP/16 The ACIT, Central -2, Jaipur vs. M/s Prateek Kothari, Jaipur 21 assessee by the A.O. It is clear case where the principle of natural justice stand violated and the additions made under section 68 therefore are unsustainable in the eye of law and we hereby delete the same. The order of the ld CIT(A) is accordingly confirmed and the ground of the Revenue is dismissed.”

Thus when the assessee has specifically asked for cross examination of the

witnesses whose statements were relied upon by the AO, then the denial of the

opportunity to cross examine would certainly in violation of principles of natural

justice and consequently renders the assessment order based on such statement as

not sustainable in law. Hence in view of the facts and circumstances of the case

where the assessee has repeatedly requested and demanded the cross examination

of the witnesses whose statements were relied upon by the AO in the assessment

order and further the report of the DDIT Investigation Kolkata is also based on the

statement of such person then the denial of cross examination by the AO as well as

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ld. CIT (A) despite the fact that the assessee was ready to bear the cost of the cross

examination of the witnesses is a gross violation of principles of natural justice.

Thus the additions made by the AO on the basis of such statement without any

tangible material is not sustainable in law and liable to be deleted. Accordingly the

addition made by the AO is also deleted on merits apart from the legal issue decided

in favour of the assessee.

Ground No. 6 is regarding denial of benefit of telescoping, recycling

and rotation of funds by rejecting the peak credit theory.

additions in the cross appeal, therefore, this ground will be taken up after

considering the revenue’s appeal, if need arises.

Rs. 12,16,40,000/- made on account of unsecured loans from M/s. Birla Arts Pvt.

Ltd., M/s. Teac Consultant Pvt. Ltd and M/s. Sangam Distributors Pvt. Ltd. was

deleted by the ld. CIT (A).

13.1 The ld. CIT (A) has deleted the addition on account of unsecured loans from

these three parties due to the reason that the AO was not having any evidence to

show that these are accommodation entries. The AO was not having in his

possession the statements of the concerned persons and these parties have duly

complied with the summons issued by the DDIT Kolkata under section 131 as well as

the assessee produced all supporting documentary evidences to prove the identity,

creditworthiness and genuineness of the transactions.

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13.2. Before us, the ld. CIT D/R has reiterated the contentions as raised in respect

of the grounds in the assessee’s appeal. Thus he has contended that as per the

outcome of the investigation carried out by the Investigation Wing Kolkata, it was

discovered that all these parties were engaged in providing accommodation entries

of loans, partners’ capital etc. He has relied upon the order of the AO.

course of assessment proceedings the assessee submitted all the relevant supporting

documentary evidences to prove the identity, creditworthiness and genuineness of

the transactions in respect of the loans taken from M/s. Birla Arts Pvt. Ltd., M/s.

Teac Consultant Pvt. Ltd and M/s. Sangam Distributors Pvt. Ltd. He has referred to

the details of the documentary evidences produced in respect of these three

companies as under :-

2 Copy of balance sheet of company and Annexure of 482-483 loans & advances of AY 2010-11 3 Copy of relevant page of bank statement showing the 484-492 entry of payment made to assessee. 4 Confirmation of loan given to assessee from books of 493-495 accounts of party. 5 Confirmation of loan given to assessee from books of 496 accounts of assessee. 6 Copy of affidavit of Neelam Gautam director of 497-500 company. 7 Copy of balance sheet of company of 31.03.2010, 501-507 31.03.2011, 31.03.2012, 31.03.2013, 31.03.2014, 31.03.2015 and 31.03.2016. 8 Copy of assessment order passed in the case of above 508-530 named company for AY 2006-07,AY 2012-13, AY 2013- 14, AY 2014-15 9 Copy of ROC master data. 531-532

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10 Copy of PAN card. 533 11 Copy of Order Passed by Calcutta High Court regarding 534-560 amalgamation of other companies in this company.

1 Copy of Ack. of ITR of AY 2010-11 561

2 Copy of balance sheet of company and Annexure of 562-563 loans & advances of AY 2010-11 3 Copy of relevant page of bank statement showing the 564-574 entry of payment made to assessee. 4 Confirmation of loan given to assessee from books of 575-577 accounts of party. 5 Confirmation of loan given to assessee from books of 578-579 accounts of assessee. 6 Copy of affidavit of Jitendra Sharma director of 580-583 company. 7 Copy of balance sheet of company of 31.03.2010, 584-590 31.03.2011, 31.03.2012, 31.03.2013, 31.03.2014, 31.03.2015 and 31.03.2016. 8 Copy of assessment order passed in the case of above 591-610 named company for AY 2005-06,AY 2006-07, AY 2012- 13, AY 2014-15 9 Copy of ROC master data. 611-612 10 Copy of PAN card. 613 11 Copy of Summon no 1433 dated 13/10/2017 and 614-617 reminder notice no 1592 dated 31-10-2017 issued by DDIT(Inv), Unit-1(3), Kolkata u/s 131 of Income Tax Act, 1961 12 Copy of reply submitted by company in response to 618-620 notice/summon issued to it alongwith dispatched proof. 13 Copy of Certificate of NBFC Registration 621-622

2 Copy of balance sheet of company AY 2010-11 624 3 Copy of relevant page of bank statement showing the 625-644 entry of payment made to assessee. 4 Confirmation of loan given to assessee from books of 645-646 accounts of party. 5 Confirmation of loan given to assessee from books of 647 accounts of assessee.

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6 Copy of affidavit of Neelam Gautam director of 648-651 company. 7 Copy of Order Passed by Calcutta High Court regarding 652-678 amalgamation of other companies in this company. 8 Copy of balance sheet of company of 31.03.2010, 679-682 31.03.2011, 31.03.2012, 31.03.2013, 9 Copy of assessment order passed in the case of above 683-698 named company for AY 2006-07,AY 2007-08, AY 2013- 14, AY 2014-15 10 Copy of ROC master data. 699 11 Copy of PAN card. 700 12 Copy of Summon no 1755 dated 06/10/2017 issued by 701 DCIT Kota, Central Circle u/s 13(1) of Income Tax Act, 1961. 13 Copy of reply dated 06-10-2017 & 13-11-2017 submitted 702-703 by company in response to notice/summon issued to it alongwith dispatched proof.

The ld. A/R has thus submitted that all the loans were received through bank and

verifiable from the bank statements of the assessee as well as bank statements of

the creditors. The onus under section 68 of the IT Act to prove the identity,

capacity and genuineness of the transactions has been discharged by the assessee

by producing all the relevant documentary evidences. Further, the assessee also

produced the assessment orders passed under section 143(3) of the IT Act in the

case of the creditors. Thus the department has not disputed the identity of these

creditor companies when all are regularly assessed to income-tax. The ld. A/R has

referred to the assessment orders passed under section 143(3) of these three

concerns as under :-

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Assessment orders passed u/s 143(3) :

Name of Company Assessment Income year Assessed M/s Birla Arts Pvt. Ltd 2012-13 44,76,461 M/s Birla Arts Pvt. Ltd 2013-14 1,15,36,592 M/s Birla Arts Pvt. Ltd 2014-15 47,95,890 M/s Teac Consultants 2005-06 13,980 Pvt. Ltd M/s Teac Consultants 2006-07 45,395 Pvt. Ltd M/s Teac Consultants 2012-13 49,91,290 Pvt. Ltd M/s Teac Consultants 2014-15 10,14,150 Pvt. Ltd M/s Sangam Distributors 2006-07 Nil Pvt.Ltd M/s Sangam Distributors 2007-08 9,600 Pvt.Ltd M/s Sangam Distributors 2013-14 6,79,400 Pvt.Ltd M/s Sangam Distributors 2014-15 Nil Pvt.Ltd

The ld. A/R has then referred to the copies of the Master data of ROC of all three

companies and submitted that the status of these three companies have been shown

by the ROC as “active” and, therefore, these companies cannot be treated as Shell

company. Further, as per financial statements of these companies, they are having

more than sufficient funds to give the loan. In support of his contention, he has

relied upon the decision of Hon’ble Jurisdictional High Court in the case of Aravali

Trading Company vs. ITO, 8 DTR (Raj.) 199. Thus the ld. A/R has reiterated his

contention as raised in ground nos. 3 to 5 of the assessee’s appeal. He has also

supported the order of the ld. CIT (A).

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record. The AO has made the addition on account of unsecured loans taken from all

the parties whereas the ld. CIT (A) has deleted the addition in respect of the loans

taken from M/s. Birla Arts Pvt. Ltd., M/s. Teac Consultant Pvt. Ltd and M/s. Sangam

Distributors Pvt. Ltd. and confirmed the addition made on account of loan taken

from M/s. Jalsagar Commerce Pvt. Ltd. The issue of addition made in respect of the

unsecured loans taken from M/s. Jalsagar Commerce Pvt. Ltd. was considered and

decided by us in the assessee’s appeal. The revenue is aggrieved by the order of

the ld. CIT (A) as the unsecured loans taken from these three companies were

deleted on the ground that the AO was not having any material to substantiate that

these companies are controlled by so called entry operators. The relevant finding of

the ld. CIT (A) in para 6.1 to 6.14 are as under :

6.1 As discussed in para 4.4.8 above, in respect of these three lenders namely M/s Birla Arts Private Limited, M/s Teac Consultants Private Limited and M/s Sangam Distributors Private Limited adverse findings alongwith eloquent evidences in the form of statement on oath of relevant entry operators are not visible in the reports dated 28.11.2017 and 06.12.2017 from Investigation Directorate, Kolkata and therefore it could not be treated as shell company. 6.2 Now, coming to the loan from M/s Birla Arts Private Limited no notice under Section 131 or 133(6) of the Act was issued to this company, either by the AO or by the concerned AO or by the DDIT (Inv.) Kolkata. This shows that no independent enquiry was done by the AO to establish that the said companies were shell companies, blind reliance has been placed by the AO on the investigation report of the

93 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. DDIT, Kolkata. Also, on bare perusal of the assessment order, it is evident that the name of the said companies does not appear in the statement of any of the entry operators as reproduced by the AO in the Assessment Order. 6.3 As far as the remaining lender companies namely, M/s Teac Consultants Private Limited and M/s Sangam Distributors Pvt. Ltd. are concerned, it is evident from the documents placed on record that Notice was issued by DDIT, Kolkata u/s 131 to these companies which was duly complied with and relevant documents were filed. There is no fact on record that the notices remained unserved or these companies were not found existent on the given addresses. Furthermore, Affidavit of the directors were also submitted wherein the Directors confirmed providing unsecured loan to the Appellant and source of providing the said loan. Also, it is evident from the assessment Order that no statement/evidence has been relied upon or provided by the AO for substantiating that these companies are controlled by the so-called Entry Operators.

6.4 For these three creditors namely, M/s Birla Arts Private Limited, M/s Teac Consultants Private Limited and M/s Sangam Distributors Private Limited, the Appellant in discharge of its onus u/s 68 of the Act has filed confirmation of accounts as well as bank statement reflecting the transactions with other substantiating documents along with assessment orders in case of lender companies, which are available at page no.443 to 644 of PB. From these documentary evidences placed on record, identity, creditworthiness and genuineness of transactions is established. There is no gain saying that the onus squarely lies on the appellant to prove the identity, creditworthiness and genuineness of the cash credits. In the case of Addl. CIT v. Bahri Bros. (P) Ltd. [1985] 154 ITR 244 (Pat), the Hon'ble Patna High Court has held "if the loans are

94 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. given by an account paying cheque, it amounts to identification of the parties and discharge of burden by the borrower." In view of the above, it is clear that Appellant discharged its burden u/s 68 of the Act. Even otherwise, there is no adverse finding of any investigation conducted by the department in relation to these companies. Therefore, in the absence of any independent inquiry and any adverse findings to rebut the evidences filed by the Appellant, I find that the addition in respect of unsecured loans from 03 companies namely, M/s Birla Arts Private Limited, M/s Teac Consultants Private Limited and M/s Sangam Distributors Private Limited totaling to Rs. 12,36,40,000/- is unjustified; firstly, on the ground that no inquiries were made to rebut the evidences filed by the Appellant and secondly, on the ground that Appellant duly discharged its burden casted upon u/s 68 of the Act to explain nature and source of the transactions by proving the identity, creditworthiness of creditor and genuineness of the transaction. In particular, none of the material or statements have been provided in the Assessment Order wherein names of the said companies are mentioned. Notably, the transactions with the said four companies are duly verifiable from confirmation of accounts placed at page no. 453 to 455, 532 to 534 & 588 to 589 of PB with supporting bank statements placed at page no. 444 to 452, 521 to 531 & 571 to 587 PB and have been carried out through banking channels only and thus, appellant has duly proved the identity, creditworthiness and genuineness of the transactions. 6.5 Furthermore, from the perusal of documentary evidences submitted by the Appellant, it is seen that transactions have been done through banking channels and on the date of making of loans, there is balance available in the accounts of the borrowers, which proves the creditworthiness and genuineness of the transactions. There is no case of any cash deposition in the account of any of the creditors at the time of issuing cheques/RTGS in favour of the Assessee. Therefore, in view

95 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. of the settled judicial precedent in case of CIT V. VARINDER RAWLLEY [2014] 366 ITR 232 (PUNJAB & HARYANA), CIT V. VIJAY KUMAR JAIN [2014] 221 TAXMAN 180, CIT v. Victor Electrodes Ltd. [2010] 329 ITR 271, Addl. CIT v. Bahri Bros. (P) Ltd. [1985] 154 ITR 244 (Pat) and others as referred by the Appellant, I am of the considered view that Appellant duly discharged its burden casted upon it u/s 68 of the Act. It is further seen that no notice u/s 131 or 133(6) of the IT Act were issued to M/s Birla Arts Private Limited, however as far as the companies M/s Teac Consultants Private Limited and M/s Sangam Distributors Private Limited are concerned, these have duly replied to the notices issued by DCIT/DDIT(Inv.), Kolkata in respect of commission, these facts remain uncontroverted by the AO. 6.6 The AO during assessment proceedings took negative inference from the statement of Shri Rajendra Agarwal recorded during search u/s 132(4) wherein he made disclosure in respect of Long Term Capital Gain in his individual hands. I have gone through the statement of Shri Rajendra Agarwal and his disclosure made in his statement, Notably, the disclosure made was in his personal capacity only and with respect to LTCG only and not in respect of any other transactions be it be receipt of unsecured loans. Further, Rajendra Agarwal is not a partner in the Appellant Firm. Therefore, I find that in the absence of any nexus of the Statement of Shri Rajendra Agarwal with the appellant firm or its total income, this basis of addition adopted by the AO is farfetched & cannot be concurred. 6.7 It is further seen that AO has not brought any specific defect / discrepancies in the direct evidence brought on record by the Appellant. The AO has observed that on the date of debit in the account statement of creditor, there is corresponding credit entry of equal amount, however, this observation of the AO is itself not sufficient to prove beyond doubt that Appellant routed its unaccounted income by these

96 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. companies rather it proves the source in the hands of the Appellant. It is usual business practice, while making loans to party, funds are required to be arranged by the lender, therefore reflection of such entries in bank statement doesn’t lead to draw any adverse inference against the Appellant. Needless to say that Appellant is not required to prove source of the source u/s 68 of the Act in view of the settled judicial precedents. 6.8 In my considered view, mere not believing an explanation cannot lead to a conclusion that the borrowed amount is the income of the assessee (borrower) from some undisclosed sources while in the present case, no evidences of any generation of undisclosed income or their utilization in the form of unsecured loans has been found and brought on record. 6.9 Similarly, I find that various observations of the AO on balance sheet / ITR of the lender companies are misconstrued, misconceived and are factually incorrect. I further find that the various other allegations / observations of the AO are misconceived and premature only and in view the appellant’s submission made in para 10 as reproduced in Para No. 4.2 of this order, the same does not lead any where to draw any adverse inference against the Appellant. Further, the various case laws relied upon by the AO are distinguishable from the facts of the present case as categorically countered by the Appellant in his written submissions as mentioned in para 16 as reproduced in Para No. 4.2above. 6.10 It is settled judicial precedents that under the income tax law primary burden u/s 68 of the Act is on the Appellant and once this burden is discharged u/s 68 of the Act, no addition u/s 68 of the Act is justifiable in the hands of the Assessee in view of the judgments in case of Shree Barkha Synthetics Ltd. V/s Assistant Commissioner of Income- tax (2006) 155 TAXMAN 289 (RAJ.), COMMISSIONER OF INCOME-TAX, JAIPUR -II V. MORANI AUTOMOTIVES (P.) LTD.

97 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. [2014] 264 CTR 86 (RAJASTHAN-HC), CIT v. Orissa Corpn. (P.) Ltd. [1986) 159 ITR 78/25 Taxman 80F (SC), Commissioner of Income-tax v/s Mark Hospitals (P.) Ltd. [2015] 373 ITR 115 (Madras)(MAG.), Commissioner of Income-tax, Ajmer v. Jai Kumar Bakliwal [2014] 366 ITR 217 (Rajasthan), CIT v/s. Creative World Telefilms Ltd (2011) 333 ITR 100 (Bom), Commissioner of Income-tax-I v. Patel Ramniklal Hirji [2014] 222 Taxman 15 (Gujarat)(MAG.), Principal Commissioner of Income-tax-4 v. G & G Pharma India Ltd. [2016] 384 ITR 147 (Delhi) referred above which have been also been followed recently by Hon’ble Delhi Tribunal in case of ITO vs. Softline Creations (P) Ltd. in ITA No. 744/Del/2012 vide its order dated 10.02.2016. Further, Hon’ble Apex Court as well as High Court has held that once the identity of creditor is established, the department is free to reopen the assessment of creditor and no addition can be made in the hand of borrower as rightly held in case of CIT v/s Lovely Exports Pvt. Ltd. [2008] 216 CTR 195 (SC), Commissioner of Income-tax v. Rock Fort Metal & Minerals Ltd. [2011] 198 TAXMAN 497 (Delhi), Divine Leasing & Finance Limited [2008] 299 ITR 268 (Delhi) CIT v. Orissa Corporation (P.) Ltd. [1986) 159 ITR 78/25 Taxman 80F (SC) and others on this question of law. 6.11 Further, power to call for information/production of evidences or enforcing attendance under the law is given to the income tax authorities only and therefore, in view of the judgment CIT v/s Victor Electrodes Ltd. [2010] 329 ITR 271, the Appellant cannot be fastened upon the burden to produce the lenders before the assessing authorities though in the instance case, appellant has cooperated in assessment by showing his willingness to produce the directors of lender companies and some directors/officer were also produced before the AO. Thus, in view of the judicial precedents referred above, under the facts and circumstances of the present case it is untenable to make any addition for alleged non-

98 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. appearance by the concerned person before the authorities though they complied with the notices/summon issued to them. 6.12 In the present case in hand, I find that AO asked Assessee to produce lender companies without verifying the facts of lending money from respective jurisdiction assessing officer and without verifying their returns of income and balance sheet wherein these transactions are reported, accordingly the AO has not followed the principles laid down under section 68 of the Act. The Hon’ble Gujrat High Court in the case of Commissioner of Income-tax v. Ranchhod Jivabhai Nakhava [2012] 21 taxmann.com 159 (Guj.) has held that:-

Once the assessee has established that he has taken money by way of account payee cheques from the lenders who are all income tax assessees whose PAN have been disclosed, the initial burden under section 68 was discharged. It further appears that the assessee had also produced confirmation letters given by those lenders. [Para 15]

Once the Assessing Officer gets hold of the PAN of the lenders, it was his duty to ascertain from the Assessing Officer of those lenders, whether in their respective returns they had shown existence of such amount of money and had further shown that those amount of money had been lent to the assessee. If before verifying of such fact from the Assessing Officer of the lenders of the assessee, the Assessing Officer decides to examine the lenders and asks the assessee to further prove the genuineness and creditworthiness of the transaction, the Assessing Officer does not follow the principle laid down under section 68. [Para 16]

In the instance case before me , the AO has not followed the due procedure of law u/s 68 of the Act. Therefore, requiring the Assessee to produce the directors of the lender company was not legally tenable in view of the judgment of Gujrat High Court (supra). 6.13 It is noted that no clinching evidences has been brought on record that any unaccounted income was routed through unsecured loans by the

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Appellant Firm as no evidences as to receipt/payment of cash for receipt of unsecured loans were found during search in case of the Appellant. Mere suspicion howsoever strong cannot take place of evidence. Thus, in the absence of any incriminating material found during search to rebut the evidences filed by the Appellant, the impugned addition made in respect of unsecured loan u/s 68 of the Act is legally untenable and unjustified. 6.14 In view of the above discussion of relevant facts and following the several ratios on the subject from Hon’ble Apex Court, High Courts including jurisdictional High Courts, Tribunals including jurisdictional Tribunals, the impugned addition in respect of unsecured loans from 03 companies namely, M/s Birla Arts Private Limited, M/s Teac Consultants Private Limited and M/s Sangam Distributors Private Limited totaling to Rs.12,36,40,000/- is not sustainable and hence the same stands deleted.”

Thus the ld. CIT (A) was of the view that so far as the loans taken from M/s.

Jalsagar Commerce Pvt. Ltd., the AO was having the statement of Shri Anand

Sharma to the effect that the said company was involved in providing

accommodation entry and controlled by the entry operator whereas in respect of

these three companies the AO was not having any document or even the statement

of any person who are entry operators and controlling these companies so as to

establish that the transactions are in the nature of bogus accommodation entries.

We have already considered the issue on merits in respect of the addition made on

account of unsecured loans taken from M/s. Jalsagar Commerce Pvt. Ltd. whereas

the loans taken from these companies are even as per the revenue on better

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footings of genuineness than M/s. Jalsagar Commerce Pvt. Ltd. There is no dispute

that the AO was not having any evidence or even any statement to impugn the

transactions as bogus accommodation entries. Further, the assessee has produced

all the relevant supporting documentary evidence as we have reproduced in the

foregoing paras as referred by the ld. A/R of the assessee and these creditor

companies were subject to regular assessments and scrutiny assessments under

section 143(3) were completed by the department as per the details reproduced.

Therefore, once these creditor companies are regularly assessed to tax and duly

examined by the department at the scrutiny assessments, then the transactions of

loans cannot be held as bogus when the same were accepted in the hands of the

creditors. We further note that these companies were having sufficient funds in the

shape of share capital, reserves and surplus. The details of the share capitals of

these companies are as under :-

M/s Birla Arts Pvt. Ltd Assessment Year Financial Year Share capital raised 1998-1999 1997-1998 12,90,000 1999-2000 1998-1999 16,82,000 2003-2004 2002-2003 50,00,000 2004-2005 2003-2004 2,74,40,000 2005-2006 2004-2005 3,69,50,000 2007-2008 2006-2007 3,26,00,000 2010-2011 2009-2010 250,00,000 2011-2012 2010-2011 20,00,000 2014-2015 2013-2014 67,57,37,000

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M/s Teac Consultants Pvt. Ltd Assessment Year Financial Year Share capital raised 1996-1997 1995-1996 26,00,000 2001-2002 2000-2001 73,98,000 2003-2004 2002-2003 1,00,00,000 2005-2006 2004-2005 4,85,50,000 2007-2008 2005-2006 3,35,00,000 2010-2011 2009-2010 2,76,00,000 2011-2012 2010-2011 94,00,000

M/s Sangam Distributors Pvt. Ltd. Assessment Year Financial Year Share capital raised 2005-2006 2004-2005 2,47,50,000 2006-2007 2005-2006 10,50,00,000 2007-2008 2006-2007 7,93,50,000 2011-2012 2010-2011 2,50,00,000 2013-2014 2012-2013 13,00,00,000

These details clearly show that at the time of granting of loans to the assessee these

companies were having sufficient funds. Further, we have already recorded the

details of repayment made by the assessee of these loans and once regular

repayment was there even prior to the date of search, then the transactions cannot

be doubted as nothing can be achieved by taking the loan and then repaying the

same through banking channel even if there is corresponding channelization of cash.

As we have discussed earlier that the AO has not pointed out any discrepancy in the

financial statements or in the bank account statements of the loan creditors to show

that there was deposit or introduction of the cash prior to giving the loan to the

assessee, accordingly, in view of the facts and circumstances of the case as well as

102 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

our finding on the issue of addition in case of M/s. Jalsagar Commerce Pvt. Ltd., we

do not find any error or illegality in the order of ld. CIT (A) qua this issue.

Ground Nos. 7 to 11 of the revenue are regarding the addition of Rs.

42,47,25,000/- made on account of partners’ capital received from four

parties was deleted by the ld. CIT (A) on the similar ground that the AO

was not having any evidence or material to establish that the transactions

are bogus accommodation entries.

Advisory Pvt. Ltd., M/s. Vasundhara Advisory Pvt. Ltd., M/s. Prithvi Vinimay Pvt. Ltd.

and M/s. Macro Soft Technology Pvt. Ltd. The aforesaid corporate partners of the

assessee introduced capital in the assessee firm to the tune of Rs. 42,47,25,000/-.

While passing the assessment order, the AO made the addition of the said amount

under section 68 of the IT Act treating the same as unexplained cash credit. The

finding and the reasoning of the AO is identical as in respect of the unsecured loans

taken by the assessee. The ld. CIT (A) deleted the said addition on the identical

reasoning as given for deletion of addition on account of unsecured loans taken from

the three companies, namely, M/s. Birla Arts Pvt. Ltd., M/s. Teac Consultant Pvt. Ltd

and M/s. Sangam Distributors Pvt. Ltd. Thus the ld. CIT (A) has considered the

relevant facts as well as the documentary evidence produced by the assessee and

found that on the one hand the assessee has produced all the supporting

documentary evidence and further the notices issued to the four companies under

section 131/133(6) of the Act were duly complied with along with the copies of the

relevant documents. The affidavits of the Directors of all the companies were

103 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

submitted wherein the infusion of the partners’ capital was confirmed. Since there

was no statement in the possession of the A.O and even the report/inspection report

was also not shared with the assessee during the assessment proceedings,

therefore, the ld. CIT (A) deleted the addition.

the other issues raised in the assessee’s appeal as well as in the department’s

appeal. He has relied upon the order of the AO.

contentions and submissions made in respect of the assessee’s appeal as well as in

respect of the ground nos. 1 to 6 of the revenue’s appeal may be treated as the

submissions for these grounds of the revenue’s appeal.

record, we note that the AO has made the addition of the amount of partners’

capital from these four corporate entities on identical reasoning as the addition was

made on account of unsecured loans. During the year under consideration, the

assessee firm received Rs. 42,47,25,000/- on account of partners’ capital from the

corporate partners as under :-

S. Name of the Partner Addition of Capital No. during AY under Appeal 1 M/s Bansidhar Advisory Private Rs. 13,22,20,000/- Limited

2 M/s Vasundhara Advisory Private Rs. 8,96,45,000/- Limited

3 M/s Prithvi Vinimay Private Limited Rs. 13,93,45,000/-

104 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

4 M/s Macro Soft Technology Private Rs. 6,35,15,000/- Limited Total Rs. 42,47,25,000/-

We find that the assessee produced all the relevant documentary evidence in

support of the transactions before the AO. The summary of these documents are as

under :-

S.No Particulars Paper book Page No.

M/s Vasundhara Advisory Pvt. Ltd.

• Copy of ledger a/c of partner from books of accounts of assessee. 1 843-845 • Copy of Ack. of ITR of AY 2010-11 and computation of total income. 2 846-847 • Copy of Balance sheet of AY 2010-11 3 848-855 • Confirmation of a/c of the assessee from books of accounts of partner. 4 856-859 • Copies of relevant bank a/c of partner showing the entries of payment 5 860-872 made to assessee against capital introduce. • Copy of affidavit executed by Mr. Ravi Mundra director of Doshi 6 873-875 Management Pvt. Ltd on behalf of amalgamated Company M/s Vasundhara Advisory Pvt Ltd, • Copy of order of Calcutta High Court regarding amalgamation of 7 876-900 company in Doshi Management Pvt. Ltd • Copy of balance sheet of company of 31.03.2010, 31.03.2011, 8 901-904 31.03.2012 and 31.03.2013. • Copy of assessment order passed in the case of above named company 9 905-908 for AY 2014-15. • Copy of ROC master data. 10 909 • Copy of certificate dated 06.11.2011 issued by registrar of companies 11 910 regarding modification of charges/mortgage. • Copy of PAN card. 12 911 • Copy of Summon No. 1439 dated 13.10.2017 and reminder notice No. 13 912-915 1579 dated 31.10.2017 issued by DDIT (Investigation), Unit-1(3), Kolkata u/s 131 of Income Tax Act, 1961. • Copy of reply submitted by the company in response to 14 916-918 summon/notice issued to it along with dispatched proof

105 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

M/s. Prithivi Vinimay Pvt. Ltd.

• Copy of ledger a/c of partner from books of accounts of assessee. 15 919-921 • Copy of Ack. of ITR of AY 2010-11 and computation of total income. 16 922-923 • Copy of Balance sheet of AY 2010-11 17 924-942 • Confirmation of a/c of the assessee from books of accounts of partner. 18 943-946 • Copies of relevant bank a/c of partner showing the entries of payment 19 947-958 made to assessee against capital introduce • Copy of affidavit executed by Mr. Ravi Mundra director of Doshi 20 959-962 Management Pvt. Ltd on behalf of amalgamated Company M/s Prithvi Vinimay Pvt Ltd, • Copy of order of Calcutta High Court regarding amalgamation of 21 963-987 company in Doshi Management Pvt. Ltd • Copy of balance sheet of company of 31.03.2010, 31.03.2011, 22 988-991 31.03.2012 and 31.03.2013. • Copy of assessment order passed in the case of above named company 23 992-1000 for AY 2006-07 and 2014-15. • Copy of ROC master data. 24 1001-1002 • Copy of certificate dated 08.02.2013 issued by registrar of companies 25 1003 regarding modification of charges/mortgage. • Copy of PAN card. 26 1004 • Copy of Summon No. 1440 dated 13.10.2017 and reminder notice No. 27 1005-1008 1578 dated 31.10.2017 issued by DDIT (Investigation), Unit-1(3), Kolkata u/s 131 of Income Tax Act, 1961. • Copy of reply submitted by the company in response to 28 1009-1011 summon/notice issued to it along with displaced proof

M/s Macro Soft Technology Pvt. Ltd.

• Copy of ledger a/c of partner from books of accounts of assessee. 29 1012-1013 • Copy of Ack. of ITR of AY 2010 and computation of total income. 30 1014-1015 • Copy of Balance sheet of AY 2010-11 31 1016-1024 • Confirmation of a/c of the assessee from books of accounts of partner. 32 1025-1027 • Copies of relevant bank a/c of partner showing the entries of payment 33 1028-1033 made to assessee against capital introduce. • Copy of affidavit of Deepa Kriplani director of company. 34 1034-1037 • Copy of balance sheet of company of 31.03.2010, 31.03.2011, 35 1038-1044 31.03.2012, 31.03.2013, 31.03.2014, 31.03.2015 and 31.03.2016. • Copy of assessment order passed in the case of above named company 36 1045-1064 for AY 2009-10, 2011-12, AY 2012-13 and 2014-15. • Copy of ROC master data. 37 1065-1066 • Copy of certificate dated 06.11.2011 issued by registrar of companies 38 1067 regarding modification of charges/mortgage.

106 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. • Copy of PAN card. 39 1068 • Copy of notice No. 1604 dated 21.09.2017 issued by DCIT, CC, Kota 40 1069 u/s 131 of Income Tax Act, 1961. • Copy of Reply of Notice submitted by the company 41 1070 • Copy of Summon No. 2115 dated 31.10.2017 issued by DCIT, CC, 42 1071 Kota u/s 131 of Income Tax Act, 1961. • Copy of Reply of Notice submitted by the company on 13.11.2017 and 43 1072-1074 23.11.2017. M/s Banshidhar Advisory Pvt. Ltd • Copy of ledger a/c of partner from books of accounts of assessee. 44 1075-1077 • Copy of Ack. of ITR of AY 2010-11 and computation of total income. 45 1078-1079 • Copy of Balance sheet of AY 2010-11 46 1080-1089 • Confirmation of a/c of the assessee from books of accounts of partner. 47 1090-1093 • Copies of relevant bank a/c of partner showing the entries of payment 48 1094-1100 made to assessee against capital introduce. • Copy of affidavit executed by Mr. Ravi Mundra director of Doshi 49 1101-1103 Management Pvt. Ltd on behalf of amalgamated Company M/s Banshidhar Advisory Pvt Ltd, • Copy of order of Calcutta High Court regarding amalgamation of 50 1104-1128 company in Doshi Management Pvt. Ltd • Copy of balance sheet of company of 31.03.2010, 31.03.2011, 51 1129-1132 31.03.2012 and 31.03.2013. • Copy of assessment order passed in the case of above named company 52 1133-1137 for AY 2014-15. • Copy of ROC master data. 53 1138-1139 • Copy of certificate dated 06.11.2011 issued by registrar of companies 54 1140 regarding modification of charges/mortgage. • Copy of PAN card. 55 1141 • Copy of Summon No. 1438 dated 13.10.2017 and reminder notice No. 56 1142-1145 1580 dated 31.10.2017 issued by DDIT (Investigation), Unit-1(3), Kolkata u/s 131 of Income Tax Act, 1961. • Copy of reply submitted by the company in response to 57 1146-1148 summon/notice issued to it along with dispatched proof

Thus it is apparent that in support of the claim of identity of the corporate partners,

their capacity and genuineness of the transactions, relevant documentary evidences

were already filed before the AO. The assessee has also produced the assessment

orders passed under section 143(3) for various assessment years in case of these

four corporate partners who have introduced the partners’ capital in the assessee

firm. The details of the assessment orders passed under section 143(3) are as

under :-

107 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

Assessment u/s 143(3) Name of Company Assessment Paper Book page year no. M/s Vasundhara Advisory Pvt. 2014-15 905 Ltd. M/s Prithivi Vinimay Pvt. Ltd. 2006-07 992 M/s Prithivi Vinimay Pvt. Ltd. 2014-15 998 M/s Macro Soft Technology 2009-10 1048-1050 Pvt. Ltd. M/s Macro Soft Technology 2011-12 1052-1053 Pvt. Ltd. M/s Macro Soft Technology 2012-13 1059-1060 Pvt. Ltd. M/s Macro Soft Technology 2014-15 1061-1062 Pvt. Ltd. M/s Banshidhar Advisory Pvt. 2014-15 1133-1134 Ltd

All these four companies status has been shown in the Master data of ROC as

“Active” and three of which, namely, M/s. Banshidhar Advisory Pvt. Ltd., M/s.Prithvi

Vinimay Pvt. Ltd. and M/s. Vasundhara Advisory Pvt. Ltd. status was shown as

“Amalgamated”. Therefore, these companies have already under gone process of

amalgamation through the approval of the Hon’ble High Court. Hence, there cannot

be any dispute about the identity and the affairs of these companies as genuine.

The assessee also produced the records about the availability of the funds with

these four companies which were sufficient to introduce the partners’ capital. The

details of the source of funds of these four companies as submitted by the assessee

are as under :-

108 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

M/s Vasundhra Advisory Pvt. Ltd.

Assessment Financial Share capital Year Year raised 2006-07 2005-06 5,76,00,000 2010-11 2009-10 6,61,50,000 2011-12 2010-11 5,43,50,000 2014-15 2013-14 10,82,35,000

M/s Prithvi Vinimay Pvt. Ltd Assessment Financial Share capital Year Year raised 2005-06 2004-05 1,51,00,000 2006-07 2005-06 4,68,20,000 2007-08 2006-07 2,72,20,000 2010-11 2009-10 7,84,00,000 2011-12 2010-11 1,96,00,000 2014-15 2013-14 12,87,50,000

M/s Macro Soft Technology Pvt.Ltd Assessment Financial Share capital Year Year raised 2002-03 2001-02 9,98,000 2004-05 2003-04 9,75,00,000

M/s Bansidhar Advisory Pvt. Ltd Assessment Financial Share capital Year Year raised 2006-07 2005-06 5,76,00,000 2010-11 2009-10 10,64,00,000 2011-12 2010-11 1,61,00,000 2014-15 2013-14 15,00,00,000

The assessee has also submitted the records regarding the corporate guarantee of

Rs. 73.60 crores given by the SBBJ in favour of M/s. Bansidhar Advisory Pvt. Ltd.

and, therefore, it was brought on record the fact that the bank has issued the

corporate guarantee only after verification of the financial condition of the said

company. We find that the bank guarantee to the company of Rs. 73.60 crores

109 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

issued by the bank is always secured by the liquid-able assets of the company which

shows that the company was having underlined assets to secure the said bank

guarantee and consequently the creditworthiness of the said company was duly

examined by the bank. The ld. CIT (A) has considered all these facts while deciding

this issue in para 7.3 to 7.3.9 as under :-

7.3 It may be mentioned that same procedure of remand report have been done as discussed in para 4.3 above and the same is not repeated here. Similarly, as discussed in para 4.4.3 this matter too was referred by the AO for verification by issuing commission u/s 131(1)(d) to the Deputy Director of Income Tax (Inv), Unit-1(3), Kolkata vide same letters and same reports as discussed in para 4.4.4 were received from The Deputy Director of Income Tax (Inv), Unit-1(3), Kolkata. As observed in para 4.4.5 & 4.4.6, the two reports dated 28.11.2017 and 06.12.2017 from The Deputy Director of Income Tax (Inv), Unit-1(3), Kolkata are capable to findout where the appellant has employed foul means and where the transaction are of rutine business requirements. From the careful perusal of these the two reports dated 28.11.2017 and 06.12.2017 from the Deputy Director of Income Tax (Inv), Unit-1(3), Kolkata. I don’t find adverse findings alongwith eloquent evidences in the form of statement on oath of relevant entry operators in respect of capital contributions by four companies, namely, M/s Bansidhar Advisory Private Limited, M/s Vasundhara Advisory Private Limited, M/s Prithvi Vinimay Private Limited and M/s Macro Soft Technology Private Limited. The same is evident from the respective details for above lenders in the above reports dated 28.11.2017 and 06.12.2017 as under:-

110 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

“With reference to your above quoted letter, this office has issued Summon notices u/s 131 of the Income Tax Act, 1961 dated 13.10.2017 to the following sixteen (16) companies based in Kolkata as mentioned in your above quoted letter requesting to furnish the requisite details related to share application money/share premium/special deposits/unsecured loan/capital introduced by partners or any transactions made with group concerns of the KDM Group for the period from F.Y. 2009-10 to 2015-16 within 05 (five) days of receipt of Summon Notices. As regards 5 (five) assesses, Summons notices u/s 131 of the Income tax Act, 1961 has not been issued since it is observed that the present address of five (5) companies is located either in Rajasthan or Patiala. ............. In response to said both notices dated 13.10.2017 & 31.10.2017, none of the directors appeared personally but the following companies have submitted their reply containing various details by post on different dates, the details of which is mentioned under and the same is being forwarded herewith in original for your further necessary action at your end:”

S. No. NAME OF CONCERNS PARTICULARS OF Date of submission SUBMISSION received by post

111 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

transactions with KDM group concerns, nature of business & copy of Hon’ble High Court order in respect of Amalgamation. 13. VASUNDHARA ADVISORY Nature of business, 07.11.2017 PVT LTD (AMALGAMATED copy of Hon’ble High WITH DOSHI Court order in respect MANAGEMENT PVT LTD) of Amalgamation, transactions related to investment in equity shares and capital contribution with KDM group concern, bank statement depicting the transactions with KDM group concerns, audited accounts for F.Y. 09-10 to 12-13, source of fund, copy of certificate of incorporation & PAN Card, copy of ledger & copy of assessment order u/s 143(3) for the A.Y. 14-15. 14. PRITHVI VINIMAY PVT Transactions details, 07.11.2017 LTD (AMALGAMATED copy of ledger along WITH DOSHI with supporting MANAGEMENT PVT LTD) documents incl. Share applications, share allotment, account confirmation from Kota Dall Mill, Form-2, audited accounts for F.Y. 09-10 to 12-13, copy of assessment order u/s 143(3) for A.Y. 14-15, copy of certificate of incorporation and PAN card, details regarding source of fund, bank statement depicting the transactions details & copy of Hon’ble High Court order in respect of Amalgamation. No summons were issued for M/s Macro soft Technology Pvt. Ltd by DDIT (Inv.) Unit 1(3) Kolkata

112 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

“.......this office has also verified the companies as per database of paper/shell companies/entities prepared by Directorate of Investigation Wing, Kolkata on the basis of statements of various entry operators at different occasions before the Income Tax Department. On verification, the following facts has been emerged out from the database which reveals that some companies are listed in the database of paper/shell companies controlled & managed by entry operators and the same is being produced as under in the tabular form: SL. NAME OF PAN ADDRESS NOTICE ENTRY DUMMY NO. CONCERNS GIVEN IN ISSUED OPERATO DIRECTOR COMMISSION R 12.BANSIDHAR AACCB7815M 11A NOTICE This SHASHI ADVISORY PVT ESPLANADE ISSUED company is KUMARI 3RD LTD EAST U/S 131 amalgamate RAMANI- (AMALGAMATED FLOOR, AT dwith M/s The name of WITH DOSHI KOLKATA – GIVEN Doshi these dummy MANAGEMENT 700069 ADDRESS Managemen directors are PVT LTD) t Pvt Ltd listed in which has database, who been worked/works identified as under different paper/shell entry operators company for different controlled period, the & managed details of by entry which has operator been given Anand below in Sharma tabular form. 13.VASUNDHARA AACCV1837B 11A NOTICE This PUNAM ADVISORY PVT ESPLANADE ISSUED company is RAMANI – 3RD LTD EAST U/S 131 amalgamate The name of (AMALGAMATED FLOOR, AT dwith M/s these dummy WITH DOSHI KOLKATA – GIVEN Doshi directors are MANAGEMENT 700069 ADDRESS Managemen listed in PVT LTD) t Pvt Ltd database, who which has worked/works been under different identified as entry operators paper/shell for different company period, the controlled details of & managed which has by entry been given

113 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

operator below in Anand tabular form. Sharma 14.PRITHVI AADCP4531D 11A NOTICE This DEEPAK VINIMAY PVT ESPLANADE ISSUED company is TIBREWAL – 3RD LTD EAST U/S 131 amalgamate The name of (AMALGAMATED FLOOR, AT d with M/s these dummy WITH DOSHI KOLKATA – GIVEN Doshi directors are MANAGEMENT 700069 ADDRESS Managemen listed in PVT LTD) t Pvt Ltd database, who which has worked/works been under different identified as entry operators paper/shell for different company period, the controlled details of & managed which has by entry been given operator below in Anand tabular form. Sharma It may be mentioned here that amalgamation took place in July 2014 where as statement of Shri Anand Sharma are prior to March 2014.

“Further, the verification and investigation of past and present directors of following companies has been carried out with the help of Database of Entry Operators prepared by Directorate of Investigation Wing, Kolkata which reveal that the directors of these companies have been listed under the name of various entry operators who are engaged in the business of providing accommodation entries by appointing various dummy directors by known entry operators whose names has been mentioned in the under mentioned table. S. No. Name of Name of Period Name of Entry Operator company Director(s)

114 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

PVT LTD RAMANI

It may be mentioned here that three companies namely; M/s Bansidhar Advisory Private Limited, M/s Vasundhara Advisory Private Limited, M/s Prithvi Vinimay Private Limited were amalgamated with M/s Doshi Management Pvt Ltd in July 2014 in accordance with permission from Kolkata High Court, whereas the statements entry operator Anand Sharma are dated 02.07.2013 and 06.02.2017 i.e. prior to March 2014 by which M/s Doshi Management Pvt Ltd. Might have been identified as paper/shell company. Neither statement of Shri Anand Sharma not any list or annexure of said statements indentifying M/s Doshi Management Pvt. Ltd. Is available on record, though it is included in the report of DDIT (Inv.), Unit 1(3), Kolkatta. Therefore, the lable of paper/shell company cannot be applied to M/s Bansidhar Advisory Private Limited, M/s Vasundhara Advisory Private Limited, M/s Prithvi Vinimay Private Limited as at the relevant time they were not part of M/s Doshi Management Pvt Ltd. Moreover, in data base of directorships for these companies; M/s Bansidhar Advisory Private Limited, M/s Vasundhara Advisory Private Limited, M/s Prithvi Vinimay Private Limited as reproduce above also clearly show no direct controle or influence of the alleged entry operator Anand Sharma. Similarly, the statement of Ankit Bagri is not implicating M/s Bansidhar Advisory Pvt. Ltd. in any manner as Shell Company. There are no statements from Nawal Kishore Jalan and Pankaj Agarwal on record implicating M/s Vasundhara Advisory Private Limited, M/s Prithvi Vinimay Private Limited as shell companies. 7.3.1 In view of above ground reality I am treating M/s Bansidhar Advisory Private Limited, M/s Vasundhara Advisory Private Limited, M/s Prithvi Vinimay Private Limited not as shell company as treated by the AO as nowhere adverse facts, details and corroboratory evidences in

115 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. the form of statements of the alleged entry operator Anand Sharma or Ankit Bagri implicating them are found in the reports dated 28.11.2017 and 06.12.2017 from Investigation Directorate, Kolkata. I have also considered the assessment order, the remand report along with its all enclosures, the relevant statements reproduced in the Assessment Order by the AO, the submissions made by the appellant along with paper book for the year under consideration and all relevant material placed on record and could not find a single piece of evidence to say that any one of above could be shell company. 7.3.2 It is seen that during this year, the AO has made additions in the hands of Assessee on account of partner’s capital from four companies, namely, M/s Bansidhar Advisory Private Limited, M/s Vasundhara Advisory Private Limited, M/s Prithvi Vinimay Private Limited and M/s Macro Soft Technology Private Limited. The AO alleged that despite providing huge capital contribution, none of the newly introduced Partner is interested in the business activities of the Assessee Firm as there is no working Partner on their behalf and none of them have nominated any Director or other Officer of the Company to act as Working Partner in the Assessee Firm. 7.3.3 However, the A/R of the Appellant while representing the case has argued the matter in detail and has filed detailed submissions as reproduced above in response to the findings and allegations of the AO. A summarized form of the submissions and arguments put forth by the A/R is given hereunder: a) The Appellant has duly discharged the initial onus cast upon it u/s 68 of the Act by furnishing the Name, Address, PAN, Copy of ITR, Copy of Bank Statement and Confirmation from the Partners, Balance Sheet etc. Through the said documents, identity, creditworthiness of the corporate partners along with the genuineness of the transactions carried out with them was duly established.

116 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. b) The AO has not observed anything in the assessment order regarding any defect or flaw in the documents submitted. c) The capital contributions of the companies that have been treated as unexplained by the AO were introduced in AY 2012-13. In the assessment proceedings of AY 2012-13 which was completed u/s 143(3) of the Act, such capital contributions were treated as genuine. Thus, once in the completed assessment proceedings the capital contribution of those companies has been considered as genuine than there is no reason to treat the capital received from such companies during the year as non genuine without having any material and only on presumption, assumption and surmises. d) Submission made in Ground No. 2 in respect of unsecured loans may also be treated as a submissions for the purpose of this ground of appeal. e) All the partners must be working partners is not mandatory under any of the laws in force. f) All the transactions were done through proper banking channels. g) The notices issued to the four companies u/s 131/133(6) of the Act were duly complied with along with the copy of the relevant documents. h) Affidavits of the directors of all companies were submitted wherein the Directors confirmed their investment as partner’s capital in the Appellant Firm. i) No reliance can be placed on rejected books of account for working out peak credit for the purpose of making additions in the hands of the appellant. j) The reports/inspection report and statements relied upon by the AO were not provided to the appellant during assessment proceedings and directly reproduced in the assessment order.

7.3.4 In my considered view, as far as the partner’s capital from the companies namely, M/s Bansidhar Advisory Private Limited, M/s Vasundhara Advisory Private Limited, M/s Prithvi Vinimay Private Limited and M/s Macro Soft Technology Private Limited is concerned, it is evident from the documents placed on record that Notice was issued

117 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. by DDIT, Kolkata u/s 131/133(6) to these companies which was duly complied with and relevant documents were filed. There is no fact on record that the notices remained unserved or these companies were not found existent on the given addresses. Furthermore, Affidavit of the directors were also submitted wherein the Directors confirmed investment in the Appellant Firm in the form of partner’s capital. 7.3.5 The only allegation of the AO is that the Directors of these companies have not been nominated as working partners. In my view, such allegation is without any substance as there is no legal obligation on a partnership firm to appoint all the partners as working partners. There are various partners in firms which only do investment in the firm and do not participate in the regular business activities of the firm. Such partners are called sleeping partners and the said partners do exist in the normal business parlance. 7.3.6 The Appellant in discharge of its onus u/s 68 of the Act has filed confirmation of accounts as well as bank statement reflecting the transactions with other substantiating documents as well as the relevant assessment orders, which are available at page no. 645 to 867 of PB. From these documentary evidences placed on record, identity, creditworthiness and genuineness of transactions is established. There is no gain saying that the onus squarely lies on the appellant to prove the identity, creditworthiness and genuineness of the cash credits. In the case of Addl. CIT v. Bahri Bros. (P) Ltd. [1985] 154 ITR 244 (Pat), the Hon'ble Patna High Court has held "if the loans are given by an account paying cheque, it amounts to identification of the parties and discharge of burden by the borrower." In view of the above, it is clear that Appellant discharged its burden u/s 68 of the Act. Even otherwise, there is no adverse finding of any investigation conducted by the department in relation to the said companies. Therefore, in the absence of any independent inquiry and any adverse findings to rebut the evidences

118 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. filed by the Appellant, I find that the addition in respect of the partner’s capital from the aforesaid 04 companies totaling to Rs. 42,47,25,000/- is unjustified; firstly, on the ground that no inquiries were made to rebut the evidences filed by the Appellant and secondly, on the ground that Appellant duly discharged its burden casted upon u/s 68 of the Act to explain nature and source of the transactions by proving the identity, creditworthiness of the corporate partners and genuineness of the transaction. Notably, the transactions with the said four companies are duly verifiable from confirmation of accounts filed at page 650 to 653, 708 to711, 763 to 766 & 830 to 832 of PB with supporting bank statements placed at page 654 to 660, 712 to716, 767 to 778 & 833 to 838 of PB and have been carried out through banking channels only and thus, appellant has duly proved the identity, creditworthiness and genuineness of the transactions. 7.3.7 Furthermore, from the perusal of documentary evidences submitted by the Appellant, it is seen that transactions have been done through banking channels and on the date of making of loans, there is balance available in the accounts of the borrowers, which proves the creditworthiness and genuineness of the transactions. There is no case of any cash deposition in the account of any of the investor companies at the time of issuing cheques/RTGS in favour of the Assessee. Therefore, in view of the settled judicial precedents as already relied upon and mentioned in Ground No. 2 above, I am of the considered view that Appellant duly discharged its burden casted upon it u/s 68 of the Act. It is further seen that M/s Bansidhar Advisory Private Limited, M/s Vasundhara Advisory Private Limited, M/s Prithvi Vinimay Private Limited and M/s Macro Soft Technology Private Limited have duly replied to the notices issued by DCIT/DDIT(Inv.), Kolkata in respect of commission, these facts remain uncontroverted by the AO.

119 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. 7.3.8 Further, it is evident from the Assessment Order that other findings and allegations of the AO with respect to the partner’s capital are similar to the findings made by the AO with respect to the unsecured loans of the Appellant. As the said similar findings and allegations have already been dealt with in Ground No. 2 above, these are not again dealt with for the sake of brevity. However, my view regarding the findings and allegations as already discussed in Ground No. 2 above, shall mutatis mutandis apply to the findings and allegations of the AO with respect to partner’s capital made in this ground of appeal.

7.3.9 In view of the above discussion of relevant facts and following the several ratios on the subject from Hon’ble Apex Court, High Courts including jurisdictional High Courts, Tribunals including jurisdictional Tribunals, the impugned addition of Rs. 42,47,25,000/- on account of partner’s capital from M/s Bansidhar Advisory Private Limited, M/s Vasundhara Advisory Private Limited, M/s Prithvi Vinimay Private Limited and M/s Macro Soft Technology Private Limited is not sustainable and hence the same stands deleted.”

Thus the finding of the ld. CIT (A) are based on the facts as well as the

documentary evidence produced by the assessee whereas the AO has not brought

on record any contrary evidence except the allegation made in the report of the

Investigation Wing Kolkata. Therefore, the documentary evidences brought by the

assessee cannot be negated merely on the basis or allegation made in the report

which is nothing but narration of the statements recorded of certain persons. The

report of the DDIT Investigation cannot substitute the documentary evidence.

120 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

Accordingly, in view of the facts and circumstances, we do not find any error or

illegality in the order of the ld. CIT (A) qua this issue.

raised by the assessee becomes infructuous and does not require any adjudication.

unsecured loans and capital introduced by the corporate partners, all facts remain

same on the merits of the issues. Even the parties who have given the unsecured

loans are also identical. The ld. CIT (A) has also decided the issues by confirming

the part addition and deleting the part on the basis of bifurcation of these parties on

identical lines as for the assessment year 2010-11. The ld. A/R as well as the ld. CIT

D/R have fairly agreed that the issues are identical as the basis and grounds of

addition made by the AO as well as orders passed by the ld. CIT (A) in all these

appeals are identical and same, except the minor variation of the amounts.

Therefore, no separate argument or finding is needed for adjudication of the appeals

for the assessment years 2011-12 to 14-15.

CIT (A) and also gone through the documents filed by the assessee in support of the

claim and found that the assessee produced the identical documentary evidence as

in the case of assessment year 2010-11. Even the parties are same for these years

and, therefore, once the identity, creditworthiness and genuineness of the

transaction in respect of one party is decided, then the same is applicable for all the

subsequent years subject to condition that a sufficient fund was available with the

121 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

creditor. We note that except M/s. Royal Crystal Dealers Pvt. Ltd. and M/s. Doshi

Management Pvt. Ltd., additions for which were confirmed by the ld. CIT (A) for all

these years on the reasoning that these companies are managed and controlled by

Shri Anand Sharma, the alleged entry operator, the other creditors are common as

in the preceding years. This finding of the ld. CIT (A) is identical to the finding in

respect of M/s. Jalsagar Commerce Pvt. Ltd. for the assessment year 2010-11.

Accordingly, in view of our finding on this issue, the addition sustained by the ld. CIT

(A) is deleted. Rest of the parties for which the additions were deleted by the ld.

CIT (A) are same for which the AO was not having any material or document to

substantiate the finding of bogus accommodation entries as in the case of other

parties, namely, M/s. Birla Arts Pvt. Ltd., M/s. Tech Consultants Pvt. Ltd., M/s.

Sangam Distributors Pvt. Ltd. As regards the corporate partners who have

introduced the capital, they remain the same for all the years and, therefore, the

issue is common for all these years except the fact that for the assessment year

2014-15 only one partner, namely, M/s. Bansidhar Advisory Pvt. Ltd. introduced

some capital of Rs. 13.00 lacs and for the assessment year 2013-14 only three

partners introduced the capital. Therefore, in view of our finding on all these issues

while deciding the cross appeals for the assessment year 2010-11, the grounds

raised by the assessee and revenue for the assessment years 2011-12 and 14-15

stand disposed off on the same terms and finding of the assessment year 2011-12 is

mutatis-mutandis applicable for these assessment years.

addition in respect of only one party i.e. M/s. Capline Dealcome Pvt. Ltd. whereas for

122 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

the assessment year 2016-17, the ld. CIT (A) has confirmed the addition on account

of unsecured loans in respect of two parties, namely, M/s. Kapline Dealcome Pvt.

Ltd. and M/s. VSG Leasing & Finance Co. Pvt. Ltd. The assessee has shown

unsecured loans from M/s. Capline Dealcome Pvt. Ltd. of Rs. 1.50 crores and M/s.

VSG Leasing & Finance Co. Pvt. Ltd. of Rs. 10,88,45,000/-. The AO has supported

his finding in the assessment order by the statements of Shri Ankit Bagri and Shri

Shiv Shankar Banka. On appeal, the ld. CIT (A) has confirmed the additions on

account of unsecured loans from these parties by rejecting the contention of the

assessee of cross examination.

specifically demanded the cross examination of these witnesses whose statements

have been relied upon by the AO and those statements were recorded by the

Investigation Wing Kolkata at the back of the assessee. Despite the repeated

requests before the AO as well as before the ld. CIT (A), the assessee was not given

the opportunity of cross examination. Further, when the assessee produced all the

relevant documentary evidence in support of the claim as in the case of the other

parties which have been accepted by the ld. CIT (A), the mere statement of the third

person cannot over turn the documentary evidence produced by the assessee. The

ld. A/R has relied upon all the decisions we have already cited while deciding the

issue for the assessment year 2010-11. He has reiterated his contentions as raised

for the assessment year 2010-11. Thus the ld. A/R has submitted that the addition

based on the statement of third party without providing opportunity of cross

examination cannot be a basis of addition. The assessee specifically demanded the

123 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

cross examination and also given the undertaking to bear the cost of cross

examination. However, the ld. CIT (A) has turned down the demand of the assessee

on the identical reasoning as for the assessment year 2010-11.

below and reiterated his contention as raised for the assessment year 2010-11.

record. The AO has given the identical finding for all the assessment years which is

based on the report of the Investigation Wing Kolkata as well as the statement

recorded by the DDIT Kolkata. We note that the surrounding circumstances and the

facts are identical as for the A.Y. 2010-11 as recorded by the AO as well as the ld.

CIT (A). The ld. CIT (A) has turned down the request of cross examination in para

3.12 to 3.13 at pages 188 to 190 as under :-

“3.12 In my considered view, the technical objections raised by the Appellant in respect of loan from Caplin Dealcomm Private Limited and M/s VSG Leasing and Finance Co. Ltd. as above, are of no avail to the appellant due to following undisputed facts: i. It is undisputed fact that the Income Tax Department has made tremendous investigations in such shell companies of Kolkata, Mumbai and Delhi providing accommodation entry and statements made by several accommodation entry providers have become virtually in public domain. It is no argument that the AO did not provide such statement before the assessement or in any of the notices. These facts were well known to the appellant group and ignorance is mere pretence.

124 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. ii. Moreover, such statements are so vocal and undeniable that as mentioned in some of the case laws above, cross- examination of such accommodation entry provides by thousands of beneficiaries across India is neither practicable nor viable and therefore uncalled for. iii. It is undisputed fact that in the statement dated 03.07.2014 Shri Ankit Bagri and Shri Shankar BAnka had admitted to be one of such accommodation entry providers. The sum and substance of the said statement is that the concern M/s Caplin Dealcomm Private Limited, M/s VSG Leasing and Finance Co. Ltd. was engaged in the activities of providing accommodation entries and the appellant happened to be one of such beneficiary of such concern. It is also admitted fact that these operators had been running the affair of the said company. v. The statement of Shri Ankit Bagri and Shri Shankar Bank in which name of M/s Caplin Dealcomm Private Limited and M/s VSG Leasing and Finance Co. Ltd. respectively appeared, cannot be completely ignored solely on the legal grounds raised by the Appellant. 3.13 In view of above discussion, it is clear that the incriminating material had been found during the course of search of accommodation entry provider. Further incriminating material had been gathered by issuing commission to DDIT (Inv.) Kolkata, during the assessment proceedings and all such material have been shared with the appellant at least during the remand report proceeding. In view of nation-wide known scam by the accommodation entry providers of Kolkata and elsewhere burst by the Income Tax Department, there was no need to provide opportunity for cross-examination of same accommodation entry providers. Anyway, in the rejoinder submission to remand report the appellant is absolutely silent on cross-examination and by such

125 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

conduct he has forgone his right to cross-examine. Therefore, the principles of natural justice have been followed. As discussed in preceding paras, under the facts and circumstance of the case, it could not be said that AO did not followed the binding decision of the Hon’ble Supreme Court and the Hon’ble jurisdiction Court. In view of above discussion, the several other grounds raised for the issue are treated as dismissed. Therefore, in view of above facts discussed in Para 2.1, 2.4.3 to 2.4.7 and 3.1 to 3.4 & 3.12 and legal position apprised in Para 3.6 to 3.11 above, it is held that the addition made by the AO on account of unsecured loans amounting to Rs. 1,50,00,000/- and Rs. 10,88,45,000/- from M/s Caplin Dealcomm Private Limited and M/s VSG Leasing and Finance Co. Ltd. respectively, is sustainable and the same is confirmed.” Thus the ld. CIT (A) has decided the issue on identical terms as for the assessment

year 2010-11. We have already given our finding on this issue and referred various

decisions of Hon’ble Supreme Court, Hon’ble High Courts as well as this Tribunal.

Therefore, our finding on the issue for the assessment year 2010-11 is squarely

applicable as the facts and issues are identical for these years. Accordingly, we hold

that the addition based on the statement of third party recorded at the back of the

assessee without affording opportunity of cross examination is not sustainable in

law.

on merits the assessee produced all relevant documentary evidences in support of

the claim which is identical to all the other parties in respect of which the ld. CIT (A)

has deleted the addition. Even for sake of completeness, we refer to the

126 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

documentary evidence produced by the assessee in respect of these two companies

as under :-

PB Page S. No. Particulars No. 1. M/s Caplin Dealcomm Pvt. Ltd. • Copy of Ack. of ITR of AY 2016-17 987 • Copy of Balance sheet of AY 2016-17 988 • Copy of relevant page of bank statement showing the 989-1008 entry of payment made to assessee. • Confirmation of loan given to assessee from books of 1009-1011 accounts of party. • Confirmation of loan given to assessee from books of 1012-1013 accounts of assessee. • Copy of affidavit of Kavita Jain director of company. 1014-1017 • Order passed by Calcutta High Court regarding 1018-1039 amalgamation of other companies in this company • Copy of balance sheet of company of 31.03.2010, 1040-1046 31.03.2011, 31.03.2012, 31.03.2013, 31.03.2014, 31.03.2015 and 31.03.2016. • Copy of assessment order passed in the case of above 1047-1070 named company for AY 2006-07, 2008-09, 2009-10, 2010-11 and 2014-15. • Copy of ROC master data. 1071-1072 • Copy of NBFC Certificate. 1073 • Copy of PAN card. 1074 • Copy of summon no. 4560 dated 16.10.2017 and 1075-1077 reminder notice no. 1583 dated 31.10.2017 issued by DDIT (Investigation), Unit-1(3), Kolkata u/s 131 of Income Tax Act, 1961 • Copy of reply submitted by company in response to 1078-1080 notice/summon issued to it Along with dispatched proof 2. M/s VSG Leasing and Finance Co. Ltd. • Copy of Ack. of ITR of AY 2016-17 1144 • Copy of Balance sheet of AY 2016-17 along with 1145 annexure of Loan & Advances • Copy of relevant page of bank statement showing the 1146-1152 entry of payment made to assessee. • Confirmation of loan given to assessee from books of 1153-1154 accounts of party. • Confirmation of loan given to assessee from books of 1155 accounts of assessee.

127 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

When all the relevant details and documentary evidences produced by the assessee

to establish the identity, creditworthiness and genuineness of the transactions, then

the said evidences cannot be rejected on the basis of the statement without any

contrary documentary evidence. We further note that the assessments were

completed under section 143(3) of M/s. Caplin Dealcomm Pvt. Ltd. and the details of

which are as under :-

“ Name of Company Assessment Income Assessment Order year Assessed u/s 143(3) at PB pg of Vol.-III M/s Caplin Dealcomm 2008-09 1,40,710 1053-1054 Pvt. Ltd

M/s Caplin Dealcomm 2009-10 1,65,600 1059-1060 Pvt. Ltd

M/s Caplin Dealcomm 2010-11 1,20,000 1063-1064 Pvt. Ltd

M/s Caplin Dealcomm 2014-15 2,85,945 1066-1068 Pvt. Ltd

Once the party is regularly assessed to tax and orders under section 143(3) were

passed by the AO, then the transactions cannot be treated as bogus once. It is

manifest from the financial statements of these companies that the share capital and

reserve of M/s. Caplin Dealcomm Pvt. Ltd. and M/s. VSG Leasing & Finance Co. Pvt. Ltd. as on 31st March, 2016 were Rs. 136,63,90,504/- and Rs. 97,11,26,758/-

whereas the amounts given to the assessee by these two companies was

128 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

Rs. 16.10 crores and Rs. 10.88 crores respectively. Thus the creditworthiness of

these companies as evident from their financial statements was undisputedly

sufficient to give the amounts in question to the assessee. Accordingly, having

regard to the documentary evidence filed by the assessee and our findings on this

issue for the assessment year 2010-11, the additions made by the AO are not

sustainable and the same are deleted. This issue covers both the assessment years

2015-16 and 16-17.

The assessee has also raised Ground No. 5 regarding typographical

error in the finding of the AO/CIT (A) on account of late delivery charges

of Rs. 12 lacs.

Government Departments under the contract. The assessee was to supply

supplementary nutrition food under ICDS Scheme to Women and Child Development

of Government of Rajasthan and Government of Gujarat. The government

departments made certain deductions from the payments on account of late delivery

of products as provided under the terms and conditions of the contract. The

assessee claimed deduction of disallowance made by the Government under section

37 of the Act. The AO disallowed the claim of deduction by treating the same as

penal in nature. On appeal, the ld. CIT (A) has allowed the claim of the assessee.

However, the amount of disallowance made by the AO which was deleted by the ld.

CIT (A) was mistakenly mentioned as Rs. 4,11,08,334/- as against the total

disallowance made by the AO of Rs. Rs. 4,23,19,238/-. Therefore, both the

129 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

assessee as well as the revenue are in appeal against the said issue. The revenue

has raised this issue in ground no. 7 of the cross appeal.

material on record. At the outset, we note that an identical issue was considered

and decided by this Tribunal in assessee’s own case for the assessment year 2008-

09 and 09-10 and the ld. CIT (A) has decided this issue by following the earlier order

of this Tribunal in para 7.3.1 to 7.3.3 at pages 189 and 190 as under :-

“ 7.3.1. In my considered view, the late delivery charges are on account of contractual obligations of the Appellant with the Government departments. As per the terms and conditions of the contract the assessee is required to compensate to ICDS government of Jharkhand or ICDS Government of Gujarat on account of late supply make to them. A copy of contract of the government department has also been submitted during the appellate proceedings. Therefore, as the said expenditure of the Assessee is on account of contractual obligations, it cannot be regarded as any expenditure incurred by the assessee for infraction of law or for any purpose which is an offence or which is prohibited by law.

7.3.2 Further, it is an undisputed fact that in the earlier assessment for A.Y. 2008-09 and A.Y. 2009-10 this matter was raised by the assessing officer by disallowing the said expenditure. But the learned CIT Appeals, Ajmer vide order dated 18/03/2013 for A.Y. 2008-09 and Learned CIT Appeal, Kota Vide order dated 27.03.2014 for A.Y. 2009- 10 has allowed these expenditure to the Appellant. Also, on subsequent

130 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

appeal by the department in the Appellate Tribunal, the same was dismissed as non maintainable. 7.3.3 Therefore, by concurring with the view of the predecessor CIT (A), I allow this ground of appeal raised by the Appellant and thus, the addition of Rs. 4,11,08,334/- is deleted.”

Therefore, the issue on principle is already decided by this Tribunal and hence we do

not find any reason to interfere with the impugned order of the ld. CIT (A) so far as

the allowability of the claim is concerned. However, as regards the typographical

error of the amount, we find that the ld. CIT (A) in para 7.1 has mentioned the

disallowance made by the AO on this account of Rs.,4,23,19,238/-. The same is

reproduced as under :-

“ 7.1. As discussed in the Assessment order at page no. 2-3, AO disallowed the expenditure of Rs. 4,23,19,238/- holding that these charges are in violation of the law and thus penalty in nature. Accordingly, he disallowed late delivery charges of Rs. 5,90,515/- deducted by the WCD Department, Rajasthan, late delivery charges of Rs. 4,47,877/- deducted by the WCD Department, Jharkhand and late delivery charges of Rs. 4,12,80,846/- deducted by the WCD Department.”

Therefore, it is apparent that there is a mistake in the amount recorded by the ld.

CIT (A) while giving the finding in para 7.3.3. Accordingly, we modify the said part

of the order of the ld. CIT (A) and disallowance made by the AO of Rs. 4,23,19,238/-

is deleted.

131 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

two partners, namely, M/s. Competent Securities and M/s. Intellectual Builders for

the assessment years 2015-16 and 16-17 were deleted by the ld. CIT (A) on the

ground that the AO has not brought any material or documentary evidence to

establish that the transactions are bogus accommodation entries as there was no

statement of any person of alleged entry operator having control over these

companies or managing these companies.

wherein the ld. CIT (A) has deleted the additions for want of any documentary

evidence or any other material in support of the finding of the AO. Therefore, in

view of our finding on this issue in assessment year 2010-11, the finding of the ld.

CIT (A) is upheld.

rejection of books of account which is common for the assessment year 2011-12,

13-14 to 16-17.

account on the ground of non maintenance of quantitative details and then made a

lumpsum addition of Rs. 20 lacs. On appeal, the ld. CIT (A) has reversed the finding

of the AO and deleted the adhoc addition made by the AO.

material on record. The ld. D/R has relied upon the order of the AO. On the other

hand, the ld. A/R of the assessee has submitted that the assessee is maintaining

proper bills and vouchers for purchases, sales and expenses and entered all the

132 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

transactions in the books of accounts on day to day basis. The assessee has given

the valuation sheets of opening and closing stock, the completed audited books of

accounts along with the supporting vouchers were produced before the AO wherein

he could not point out any specific defect. Thus the ld. A/R has submitted that non

maintenance of day to day quantitative details is not affecting correctness and

completeness of record. The volume and quantum of transactions made it

impossible to maintain separate quantitative accounts of large and numerous entries

of raw material and finished goods on day to day basis. He has further submitted

that for the assessment year 2011-12, the GP declared by the assessee is better

than the earlier year and, therefore, even if the AO has rejected the books of

accounts, it would not automatically result in addition. He has referred to the

comparative details of GP of the earlier assessment years and submitted that for the

assessment year 2010-11 the AO while passing the assessment order under section

153A, has accepted the book results wherein the assessee declared GP at 3.79%

whereas gross profit for the year under consideration declared at 4.29% and that

too when there is a 242% increase in the turnover for the year under consideration

in comparison to the earlier year. Further, the AO has made a lump sum addition

without any basis or any proper and reasonable criteria. In support of his

contention, the ld. A/R has relied upon the decision of Hon’ble Supreme Court in

case of Dhakeswari Cotton Mills Ltd. vs. CIT, 26 ITR 775 (SC) as well as decision of

Hon’ble Jurisdictional High Court in case of Malani Ramjivan Jagannath vs. ACIT, 316

ITR 120 (Raj.). The ld. A/R has also referred a series of decisions on the point.

133 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

record. The AO has rejected the books of accounts for the assessment year 2011-12

on the ground that the assessee has not maintained the quantitative details of day

to day stock. The AO, thereafter, made a lump sum addition of Rs. 20 lacs. It is

pertinent to note that even if the books of accounts are rejected by invoking the

provisions of section 145(3), it would not ipso facto result in addition to the total

income of the assessee. After rejection of books of accounts, the AO is bound to

estimate the income of the assessee on the basis of some proper and reasonable

criteria. It is settled proposition of law that the past history of GP declared by the

assessee can be a proper and reasonable guidance for estimation of the income of

the assessee after rejection of books of accounts. We note that the assessee has

declared GP for the year under consideration which is better than the earlier

assessment year. The details of the comparative sales and the GP of the assessee

are as under :-

Assessment Year Sales Gross Profit G.P. Ratio

2009-10 91,73,52,630 5,15,69,065 5.62%

1010-11 145,59,46,303 5,52,49,358 3.79%

2011-12 499,23,48,131 21,40,87,419 4.29%

It is also not in dispute that for the assessment year 2010-11 that the AO has

accepted the GP declared by the assessee at 3.79% and no addition was made.

Therefore, comparing the earlier years’ GP as well as more than 200% or precisely

242% increase in the turnover for the year under consideration, no addition is

134 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

required to be made even after rejection of books of account. Accordingly the lump

sum addition made by the AO is without any basis and is highly arbitrary. The ld.

CIT (A) has decided this issue in para 9.3.1 to 9.3.6 at page 243 as under :-

“9.3.1 I find that the impugned addition is on estimate basis soley on the ground of non-maintaining quantitative details of raw material of different grade. 9.3.2 It is undisputed fact that the AO has not specifically workedout the possible leakage on account of shortcomings of non-maintaining quantitative details of raw material as pointed out by him. In fact the trading results are better than previour AY. 9.3.3 In my condidered view, it is not justified for rejecting the books of account on the sole ground of not maintaining quantitative details when there is complete record for volume of transaction and purchase thereof. 9.3.4 Following the ratios of decisions cited by the appellant in para 11 i) to iii) of his submission reproduced above, Thus, action of AO in rejection of books of accounts is not sustainable. 9.3.5 Moreover, the AO has made specific additions on account of unsecured loan and contributions by partners and a part of the same is already confirmed. 9.3.6 In view of above discussion, the impugned addition of Rs. 20,00,000/- is deleted.”

Therefore, when the AO has not found any discrepancy in the opening stock,

purchases and closing stock of the assessee, then merely because the assessee has

not maintained the day to day details of the movement of the stock due to the large

135 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

quantity and numerous entries of raw material and finished goods cannot be a basis

for rejection of books of accounts. The Hon’ble Jurisdictional High Court in the case

of Malani Ramjivan Jagannath vs. ACIT (supra) has held in para 10 & 11 as under :-

“10. In the face of these undisputed facts and circumstances, the Tribunal in our opinion could not have interfered with the order of CIT(A). In doing so, it had ignored all admitted facts noticed by us above, in the face of which there was no occasion for the Assessing Officer to have resorted to estimate method. The GP is primarily result of excess of sales over purchases, opening stock, closing stock, the unsold stock at two terminals is only balancing factor. Admittedly out of this four components of trading result, there could not have been any ground for the Revenue to arrive at different result. So far as closing stock is concerned, inventories of existing stock were not found to be incorrect by the Assessing Officer i.e.that position of stock as shown in the account books was not incorrect. There being no dispute about the sales and purchases, non-maintenance of stock register lost its significance so far as arriving at GP is concerned. Therefore, the CIT(A) was right in his reasoning about admitted state of affairs. Resorting to estimate of GP rate was founded on no material. It was merely a case of making certain additions on the basis of certain defects pointed out by the Assessing Officer and which he has shown in different account by giving margin of unvouched expenses. He has disallowed certain expenses. 11. The Tribunal committed basic error in not appreciating the reasoning given, by the CIT(A). It is trite to say that in the facts and circumstances of present case, account books are maintained as they were ordinarily maintained years after years and which were found to yield a fair result. Mere deviation in GP rate cannot be a ground for rejecting books of account, and entering realm of estimate and guesswork. Lower GP rate shown in the books of account during current year and fall in GP rate was justified and also admitted by the Assessing Officer as well as CIT(A) as well as the Tribunal. Therefore, fall in GP rate lost its significance. Having accepted the reason for fall in GP rate, namely, stiff competition in market and also that huge loss caused in particular transaction, neither the rejection of books of account was justified nor resort to substitution of estimated GP by rule of thumb merely for making certain additions. We are, therefore, of the opinion that the findings arrived at by the Tribunal suffers from basic defect of not applying its mind to the existing material which were relevant and went to the root of the matter. When all the data and entries made in the trading account were not found to be incorrect in any manner, there could not have been any other result except what has been shown by the assessee in the books of account. We are, therefore, unable to sustain the order of the Tribunal.”

136 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.

Accordingly, in the facts and circumstances of the case, we do not find any error or

illegality in the impugned order of ld. CIT (A) qua this issue.

36 This issue is identical for the assessment year 2011-12, 13-14, 14-15, 15-16

and 16-17. Since the AO has given an identical finding and the ld. CIT (A) has

deleted the addition by considering the same facts, therefore, our finding for the

assessment year 2011-12 is applicable on this issue for the assessment years 2013-

14 to 16-17 also.

are dismissed.

Order is pronounced in the open court on 31/12/2018.

Sd/- Sd/- (foØe flag ;kno) (fot; iky jkWo ½ (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member

Jaipur Dated:- 31/12/2018. Das/ आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

137 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota.