ASST CIT CC 1 (1), MUMBAI vs. SHRI. BABUBHAI V PATEL, NAVI MUMBAI

O R D E R Per Shamim Yahya (AM) :- These are appeals by the Revenue directed against the order of learned CIT(A) 20.9.2019 for A.Ys. 2012-13 & 2013-14. Since issues are common and connected they are being disposed of by this common order.

for A.Y. 2012-13 read as under :-

1. Whether on the facts and circumstances of the case and in law, learned CIT(A) was right in allowing the appeal filed by the assessee by relying on the decision of the Hon'ble Bombay High Court ignoring the fact that issue same as of this appeal is pending before the Hon'ble Supreme Court of India in various other appeals.

2. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was correct in narrowing down the scope of assessment u/s. 153A in respect of completed assessments by holding that only undisclosed income and undisclosed assets detected during the search could be brought to tax.

3. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) was correct in holding that the scope of section 153A is limited to assessing only search related income, thereby denying Revenue, the 2 Shri Babubhai V. Patel opportunity of taxing other escaped income that comes to the notice of the Assessing Officer.

4. Whether on the facts and circumstances of the case and in law, Ld.CIT(A) was correct in holding that information available with the Revenue department as well the information yielded during the post search proceedings and connected to the search and seizure proceedings regarding unsecured loans, in the form of statement recorded on oath is not incriminating material? 5. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was correct in allowing the appeal filed by the assessee and deleting the addition of Rs.4,15,00,000/- being the addition made u/s 68 of the I.T.Act 1961 though the creditworthiness of the parties from whom the share application money was received and genuineness of the said transaction were not proved.

6. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was correct in allowing the appeal filed by the assessee and deleting the addition of Rs.3,28,110/- being the addition made u/s 69C of the I.T.Act 1961 of interest expenses on unproven unsecured loans in consequence of deleting the additions made under section 68 of the I.T. Act, 1961 as above.

3 Shri Babubhai V. Patel son, who is at the helm of the overall affairs of the group concerns of Gajipara family, was asked to name the persons who had arranged the unsecured loan from such outstation companies to Mumbai based partnership firm. Further, he was asked to name directors/promoters of such companies, who had provided unsecured loan to the assessee Firm. But he could not reply to any of the questions.

S.No. Name Amount

1 Elgin sales Promotion Ltd. 3000000 2 Tristar Agencies P. Ltd. 5000000 3 Welon Advisory Services Pvt. Ltd. 2500000 Total 10500000 3.8.1 Further, the assessee during the year has accepted unsecured loans from the following parties;

S.No. Name of the party Loan

1. Alishan Estates P. Ltd 6000000 2. Growfast Realtors P. Ltd 9500000 3. Khusboo complex Pvt. Ltd. 2500000 4. Natural Housing P. Ltd. 2500000 5. Neelkamal Deal Comm P. Ltd. 2000000 6. Sampark Advisory Services Pvt. Ltd. 2500000 7. Skylight Distributors P. Ltd. 4000000 8. Oleander Manufacture & Credit Ltd. 2000000 31000000

4 Shri Babubhai V. Patel 3.8.2 To prove the genuineness of the transaction and the creditworthiness of the lender, the assessee has furnished a copy of Return of Income and bank statement of the lenders. However, perusal of the documents reveals that the above lenders are also Kolkata based companies and have same features as the companies mentioned in para above. For e.g. the returned income of these lender companies is also meager, but have claimed huge refunds, as depicted in the table below and the bank statements show that there is no substantial business activity except inward and outward transactions of loans. These are the traits found companies which are engaged only in the activity of providing accommodation entries. With these inherent features, the genuineness of the transactions as well as the creditworthiness of the lenders is not proved satisfactorily;

S.No. Name of the lender Returned Share Income Premium 1. Khusboo complex Pvt. Ltd. 164847 945945000 2. Sampark Advisory Services Pvt. Ltd. 530952 495145000 3. Alishan Estates P. Ltd. 96330 2195110 4. Growfast Realtors P. Ltd. 381290 1633760 5. Natural Housing P. Ltd. 899380 28245710 6. Neelkamal Deal Comm P. Ltd. 369710 6139330 7. Skylight Distributors P. Ltd. 375870 6279840 8. Oleander Manufacture & Credit Ltd. (-)17768552 220522000 3.9 As per Section 68 of the Act, the identity & creditworthiness of the party and the genuineness of the transaction needs to be proved & the onus to prove all these factors squarely lies upon the assessee. In the present case, the credit worthiness of all the above parties, mentioned in para 3.8 & para 3.8.1, as well the genuineness of transactions is not proved satisfactorily for aforesaid reasons. Further, it may also be mentioned here that the companies listed above at Sr.No. 1 to 7 are covered by the statement of Mr. Praveen Agarwal dated 11.02.2015, wherein he has categorically accepted that he is in the business of providing accommodation entries through this company in the guise of share application money, unsecured loans, bogus billing etc. The company listed at Sr. No. 8 above is also a Kolkata based company which is identified as entry provider by the DDIT(Inv), Kolkata.

3.10 In the case of Sumati Dayal vs. CIT [1995] 214 ITR 801 (SC), the Hon'ble Supreme Court has held that "in view of section 68, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such case there is prima facie evidence against the assessee, viz., the receipt of money, and if he fails to rebut the same, the said evidence being unrebutted, can be used against him by holding that it is a receipt of an income nature."

In the case of McDowell & Co Ltd (1985) 154 ITR 148, the following observation was made by the Supreme Court, "Colourable devices cannot be 5 Shri Babubhai V. Patel part of tax planning and it is wrong to encourage or entertain the belief that if its honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges."

3.12 In the case of CIT v Sri Meenakshi Mills Ltd 63 ITR 609, the Hon'ble Supreme Court observed that "For example, the court has power to disregard the corporate entity if it is used for tax evasion or to circumvent tax obligation."

3.13 In the case of CIT v Durga Prasad More 82 ITR 540, the Supreme Court has held that "Taxing authorities are not required to put on blinkers while looking at the documents produced before them. They are entitled to look into the surrounding circumstances to find out the reality of the recitals made in these documents."

3.14 In view of the aforesaid discussion, and relying upon aforesaid case laws, the amount received of Rs. 4,15,00,000/-, received as per the following details, is hereby added to total income of the assessee as unexplained cash credit u/s 68 of the Act;

S.No. Name of the party Loan

6 Shri Babubhai V. Patel Mumbai in the case of M/s. Geetanjali Space Pvt. Ltd. reproduced above, which is on similar facts and circumstances. In view of the order of the Hon'ble ITAT and also the binding precedents of the various Hon'ble Courts referred supra, it is held that no addition can be made u/s. 153A of the Act in an unabated case, where no incriminating material has been found or seized during the course of search operation. Accordingly, Ground of Appeal Nos. 1 to 3 for A.Y. 2012-13 raised by the Appellant are allowed. Following this appellate decision for A.Y. 2012-13, the Ground of Appeal Nos. 1 to 3 for A.Y. 2013-14 raised by the Appellant are also allowed, as they are based on identical facts and circumstances.

9.5 In the Ground No. 4 of A.Y. 2012-13, the Appellant had challenged the action of the Assessing Officer in not providing cross-examination of Shri Navneet Singhania and Shri Praveen Agarwal. In view of the binding decisions of the various Hon'ble Courts referred supra, it is held that non- providing of an opportunity for cross-examination is against the principles of natural justice and the Assessing Officer was legally bound to give an opportunity of cross-examination to the Appellant, before using the impugned statements against the Appellant in an adverse manner. Accordingly, Ground of Appeal No. 4 for A.Y. 2012-13 raised by the Appellant is allowed.

9.6 The Ground Nos. 5 to 16 of A.Y. 2012-13 are in relation to the addition made by the Assessing Officer on account of unsecured loans u/s 68 of the Act. This issue is covered in favour of the Appellant by the decision of the Hon'ble ITAT, Mumbai in the case of M/s. Geetanjali Space Pvt. Ltd. reproduced above, which is on similar facts and circumstances. In view of the order of the Hon'ble ITAT in the case of M/s. Geetanjali Space Pvt. Ltd., the various documentary evidences placed on record and after taking into consideration the fact that there is no adverse observation about the Appellant in the statements of Shri Navneet Singhania and Shri Praveen Agarwal, the addition made by the AO u/s 68 of the Act needs to be deleted, on merits also. Accordingly, Ground of Appeal Nos. 5 to 16 of A.Y. 2012-13 raised by the Appellant are allowed. Following this appellate decision for A.Y. 2012-13, the Ground of Appeal Nos. 1 to 3 of A.Y. 2014-15 raised by the appellant are also allowed, as they are based on identical facts and circumstances.

9.7 The Ground Nos. 17 to 29 of A.Y. 2012-13 are in relation to addition of interest under section 69C of the Act. I have noted that the Appellant had not claimed these interest expense in the return of income and further, these grounds of appeal are consequential in nature. Since, the addition of unsecured loans u/s 68 of the Act have been directed to be deleted, consequentially the interest payment addition u/s 69C of the Act also needs to be deleted. Accordingly, Ground of Appeal Nos. 17 to 29 of A.Y. 2012-13 raised by the Appellant are allowed. Following this appellate decision for A.Y. 2012-13, the Ground of Appeal Nos. 4 to 14 of A.Y. 2013-14, Ground of Appeal Nos. 4 to 17 of A.Y. 2014-15 & Ground of Appeal Nos. 1 to 5 of A.Y. 2015-16 raised by the Appellant are allowed, as they are based on identical facts and circumstances.”

7 Shri Babubhai V. Patel

“10. We have heard both the parties and perused the records. Ld. Counsel of the assessee contended that issue on validity of jurisdiction is fully covered by Hon'ble Bombay High Court decision in Continental Warehouse Corporation Ltd. 374 ITR 645 and Murali Agro Products Ltd. (49 taxmann.com 172). 11. Per contra Ld. DR could not despite the proposition.

, wherein it is submitted this department has not accepted the order of Hon'ble Bombay High Court and appeal has been preferred to Hon'ble Supreme Court. We do not find this any reason to interfere with order of Ld.CIT(A) on this issue. Hence, we hold that Ld.CIT(A) is correct in holding that assumption of jurisdiction u/s 153A is bad in absence of any incriminating material found in search, as this is not a non abated assessment. As regards the merits, we find that since the issue on jurisdiction has been decided in favour of assessee, adjudication on merits is order only of academic interest. Hence, we are not engaging in the same. The same is treated as infructuous.

13. Hence, revenue appeal is dismissed.”

for A.Y. 2013-14 read as under :

1. Whether on the facts and circumstances of the case and in law, learned CIT(A) was right in allowing the appeal filed by the assessee by relying on the decision of the Hon'ble Bombay High Court ignoring the fact that issue same as of this appeal is pending before the Hon'ble Supreme Court of India in various other appeals.

2. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was correct in narrowing down the scope of assessment u/s. 8 Shri Babubhai V. Patel 153A in respect of completed assessments by holding that only undisclosed income and undisclosed assets detected during the search could be brought to tax.

3. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) was correct in holding that the scope of section 153A is limited to assessing only search related income, thereby denying Revenue, the opportunity of taxing other escaped income that comes to the notice of the Assessing Officer.

4. Whether on the facts and circumstances of the case and in law, Ld.CIT(A) was correct in holding that information available with the Revenue department as well the information yielded during the post search proceedings and connected to the search and seizure proceedings regarding unsecured loans, in the form of statement recorded on oath is not incriminating material? 5. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was correct in allowing the appeal filed by the assessee and deleting the addition of Rs.1,16,00,000/- being the addition made u/s 68 of the I.T.Act 1961 though the creditworthiness of the parties from whom the share application money was received and genuineness of the said transaction were not proved.

6. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was correct in allowing the appeal filed by the assessee and deleting the addition of Rs. 12,69,698/- being the addition made u/s 69C of the I.T.Act 1961 of interest expenses on unproven unsecured loans in consequence of deleting the additions made under section 68 of the I.T. Act, 1961 as above.

Pronounced in the open court on 11.8.2021.