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Facts
The assessee company engaged in buying and selling land and property development did not file its return for AY 2010-11. The AO received information of an accommodation entry of Rs. 46,50,000/- from M/s Sarang Chemicals Limited, a bogus company. Despite the assessee filing a return declaring 'Nil' income and providing bank statements, the AO added the amount to the assessee's income under Section 68, relying on the statement of the director of Sarang Chemicals and case laws.
Held
The Tribunal noted that the appeal was filed with a delay of 36 days, which was condoned. The Ld. CIT(A) had dismissed the appeal for non-appearance and lack of reply. The Tribunal, considering the interest of justice and the quantum of addition, restored the matter to the Ld. CIT(A) for de novo consideration, giving the assessee an opportunity to be heard.
Key Issues
Whether the addition of share application money received from a company stated to be a paper company, without sufficient opportunity for the assessee to present its case, is justified?
Sections Cited
148, 68, 131
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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: DR. BRR KUMAR & SHRI SIDDHARTHA NAUTIYAL
(Assessment Year: 2010-11) Shree Sadgurukrupa Buildcon Vs. Income Tax Officer, Pvt. Ltd., Ward-2, 1, Deep Complex, Gaurav Path, Godhra Gidhra Kalal Darwaja, Opp. Unnati Vidyalaya, Godhra, Gujarat-389001 [PAN No.AANCS3173Q] (Appellant) .. (Respondent) Appellant by : Shri Kaushani Shah, A.R. Respondent by: Shri Ravindra, Sr. DR 19.02.2025 Date of Hearing Date of Pronouncement 12.03.2025 O R D E R
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi, vide order dated 02.02.2024 passed for A.Y. 2010-11.
The Assessee has taken the following grounds of appeal:-
“1. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-Tax (Appeals) has erred in passing order without providing enough opportunities to represent the case of the assessee.
2. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-Tax (Appeals) has erred in passing order without considering that CA Chirag Soni, who was handling assessee's appeal had expired and assessee was under the bonafide impression that the case is handled by his office.
Shree Sadgurukrupa Buildcon Pvt. Ltd. vs. ITO Asst.Year –2010-11 - 2– 3. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming initiation of re-assessment proceedings.
4. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the addition of Rs. 46,50,000/- on account of share application money received during the year along with premium thereon.
It is therefore prayed that the above addition/disallowance made by the assessing officer may please be deleted.
Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”
At the outset, we observe that the appeal is time barred by 36 days. The assessee filed an Affidavit for condonation of delay vide Affidavit dated 15.02.2025, wherein the assessee stated that the case of the assessee was pursued by his Chartered Accountant but the assessee was not informed about the appellate order which was passed on 02.02.2024. Thereafter, the assesse tried to contact the Chartered Accountant but came to know that the Chartered Accountant had passed away on 21.05.2021. Thereafter, the assessee took advise from his friends and family and the concerned Advocate advised him to file an appeal before the Tribunal on 08.05.2024. It was as a result of aforesaid reasons that there was a delay of 36 days in filing of the present appeal. The Counsel for the assessee submitted that there was no mala fide intention in delay in the filing of the appeal and hence the same may be kindly condoned.
Looking into the instant facts and the reasons cited by the assessee for the delay of 36 days in the filing of the present appeal, in the interest of justice, the delay in filing of the present appeal is hereby condoned.
Shree Sadgurukrupa Buildcon Pvt. Ltd. vs. ITO Asst.Year –2010-11 - 3– 5. The brief facts of the case are that the assessee is a private limited company engaged the business of buying and selling of land as well as constructing and development of properties. The assessee company had not filed return of income for assessment year 2010-11. The assessing officer received information that the assessee had availed accommodation entry of ₹46,50,000/- from M/s Sarang Chemicals Limited, a bogus company managed by Shri Pratik Shah. In response to notice issued by the assessing officer under section 148 of the act, the assessee filed return of income on 21-04-2017 declaring “Nil” income. Further, a show-cause notice was issued to the assessee company asking the assessee company to show cause as to why the share application money of ₹46,50,000/- received from bogus company M/s Sarang Chemicals Limited should not be added to the total income of the assessee under section 68 of the Act. In response, the assessee submitted that the money is received in the form of share application money from M/s Sarang Chemicals Limited through proper banking channels and a copy of the bank statement of the parties was also submitted before the assessing officer. However, the assessing officer did not agree with the contentions of the assessee for the reason that during the search operations carried out at the premises of M/s Sarang Chemicals Limited, the Director of the company stated that M/s Sarang Chemicals Limited was a mere paper company and no real business was carried out by such company. Further, in the statement recorded of the Director of the company on 07-05-2013, the Director of the company stated that M/s. Sarang Chemicals Ltd. was a paper company engaged the business of providing accommodation entries where cash or cheque were Shree Sadgurukrupa Buildcon Pvt. Ltd. vs. ITO Asst.Year –2010-11 - 4– received and no other activity was carried out by such company. Further, the statement of the key person (who was running the operations), Mr. Pratik Shah was also recorded, in which he stated that M/s Sarang Chemicals Limited was a mere paper company and not carrying out any real business activity. Accordingly, the Assessing Officer held that M/s Sarang Chemicals Limited is engaged the business of providing accommodation entries in the form of share capital to various companies and the investment claimed to have been made by M/s Sarang Chemicals Limited in the case of the assessee company amounting to ₹46,50,000/- during the impugned year under consideration, was merely an accommodation entry. The assessing officer placed reliance on various decisions to hold that made furnishing of particulars and mere making of payment through banking channels would not make/convert a non-genuine transaction into a genuine one. The assessing officer relied on the case of ITO v. Diza Holding Pvt. Ltd. 255 ITR 573 (Kerala), where the High Court held that where the sources of depositors were not satisfactory explained, the deposits so made were required to be added even if received by cheque and burden was on the assessee to explain the deposit satisfactory. Mere furnishing of particulars and payment through cheque/banking channels is not conclusive to prove the genuineness of the transaction. Accordingly, the Assessing Officer completed assessment by adding a sum of ₹46,50,000/- as unexplained income of the assessee under section 68 of the Act.
Shree Sadgurukrupa Buildcon Pvt. Ltd. vs. ITO Asst.Year –2010-11 - 5– 6. In appeal, Ld. CIT(Appeals) confirmed the additions by noting that despite several opportunities of hearing, the assessee did not cause appearance and did not furnish any reply to substantiate the grounds of appeal. Accordingly, Ld. CIT(Appeals) dismissed the appeal of the assessee with the following observations:
“In this ground the appellant has challenged the addition of Rs. 46,50,000/-/ made by the Assessing officer on account of un-explained credit u/s 68 of the Act. The Assessing Officer treted the receipts of Rs. 46,50,000/- shown by the appellant as share application money received from M/s, Sarang Chemical ltd. as unexplained as the directors of M/s Sarang chemical ltd. and the person who was managing the company both stated in their statements that M/s Sarang Chemical Ltd. was just a paper company, not doing any real business and involved in giving accommodation entries in form of loan and share capitals. The bonus modus operand! was stated by Shri Pratik R. Shah who was managing the company in his statement u/s 131 of the Act dated 05.01.2013 as under: "Ans. Sir, in one time of share capital and share premium cash is received from the parties which is either deposited in the bank accounts of the companies managed and controlled by me or against that cash cheque or draft is obtained through some cheque discounting agent i.e."shroffs". Then the funds are layered through the group companies and finally cheque is handed over to the party from whom cash is received. At the time of giving the entry the share application form and blank share transfer forms are handed over to the parties. At times shares are transferred back to the parties as per the names provided by them at nominal prices. However, at times no shares are transferred back to the parties. But, such onetime entries are duly reflected in the books of the company from whom the entry is given. In case of accommodation entries of "unsecure loans" similar to the "one time" entry cash is received and cheques are paid. The only difference is the unsecured loans are sometimes squared off by receiving the cheque back from the party. In some case cash is returned to the party and in some cases the cheques is rotated through the bank accounts of the companies managed by me and paid back from some different company to the entity from which the cheque has been received or some other entity as per the instructions of the client. In case of accommodation entry of "confirming party" an agreement is entered into with a party for purchase of some land some token amount is paid by the company managed by me. Then either a "concellation deed is entered" or "relinquishment deed ts entered" and in some cases the company is shown as a confirming party to the sale deed, In such case the company providing the Shree Sadgurukrupa Buildcon Pvt. Ltd. vs. ITO Asst.Year –2010-11 - 6– accommodation entry receives payments from the buyers through cheques. These cheques are then layered and cash rs withdrawn which is paid back to the seller." The Assessing Officer considered the reply of the appellant and found that and found that the reply was not tenable. The onus to explain the nature and source of the amount was on the appellant. The appellant submitted of bank statement both parties before the Assessing Officer wherein the entry was reflecting the Assessing Officer relied on the decision of Hon'ble Calcutta High Court in the case of CIT Vs. Precision Finance (P)Ltd. 208 ITR 465 (Cal) wherein it was held that mere furnishing of particulars is not enough, mere payment by account payee cheque is not sacrosanct nor can it make a non-genuine transaction genuine. He also relied on the decision of Hon'ble Kerala High Court in the case of ITO Vs. Diza Holding (P) Ltd. 255 ITR573 (Kerala) where it was held that when sources of depositors not satisfactorily explained, deposit to be added even if received by cheque and burden is on the assessee to explain the deposit satisfactorily, mere furnishing of particulars not enough, payment by cheque not conclusive. Hon'ble Dehli High Court in a similar case of PR. COMMISSIONER OF INCOME TAX -6, NEW DELHI vs NDR PROMOTERS PVT. LTD. (ITA 49/2018 order pronounced on 17.01.2019) held that:- "13. In view of the aforesaid factual position, we have no hesitation in holding that the transactions in question were clearly sham and make-believe with excellent paper work to camouflage their bogus nature. Accordingly, the order passed by the Tribunal is clearly superficial and adopts a perfunctory approach and ignores evidence and material referred to in the assessment order. The reasoning given is contrary to human probabilities, for in the normal course of conduct, no one will make investment of such huge amounts without being concerned about the return and safety of such investment.
Accordingly, the appeal is allowed. The substantial question of law framed above is accordingly answered in favour of the appellant-revenue and against the respondent-assessee. There would be no order as to costs." Further, the appellant has filed no submission/documentary evidences during the appellant proceedings to substantiate his ground of appeal. The genuineness of "transaction is not proved in this case. Thus the appellant has failed to discharge his onus of explaining the nature and source of the cash credit of Rs.46,50,000/- and therefore, the Assessing officer has rightly made the addition. Therefore, the ground of appeal is not tenable and is dismissed.”
Before us, the counsel for the assessee submitted that due to bona fide reasons, the assessee could not cause appearance before Ld. CIT(Appeals) and if given an opportunity of being heard, the assessee was Shree Sadgurukrupa Buildcon Pvt. Ltd. vs. ITO Asst.Year –2010-11 - 7– in a position to explain the source of share application money received by the assessee during the impugned year under consideration.
On going to the facts of the instant case and taking into consideration the quantum of additions made in the hands of the assessee company, in the interest of justice, the matter is restored to the file of Ld. CIT(Appeals) for de novo consideration, after giving due opportunity of hearing to the assessee to present its case on merits.
In the result, the appeal of the assessee is allowed for statistical purposes. This Order pronounced in Open Court on 12/03/2025 Sd/- Sd/- (DR. BRR KUMAR) (SIDDHARTHA NAUTIYAL) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 12/03/2025 TANMAY, Sr. PS TRUE COPY आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��थ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A)- 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,