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Facts
The Revenue appealed against the deletion of additions made by the Assessing Officer concerning unsecured loans received by the assessee. The AO treated these loans as accommodation entries, but the assessee provided documentary evidence showing the identity, genuineness, and creditworthiness of the creditor, along with proof of repayment within the same financial year.
Held
The Tribunal held that the assessee had sufficiently discharged their primary onus under Section 68 of the Income Tax Act. The creditor company was a listed entity with substantial net worth and financials that defied the AO's observation of it being a shell company. The material seized from a third party could not be applied against the assessee.
Key Issues
Whether the addition on account of unsecured loans under Section 68 of the Income Tax Act was justified when the assessee discharged the primary onus and the creditor was a genuine entity with substantial net worth and financials.
Sections Cited
143(3), 147, 148, 68, 132(4A), 133A, 131(1A)
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Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: Shri T.R. Senthil Kumar & Shri Narendra Prasad Sinha
The DCIT, Soham Commodities Pvt. Central Circle-1(1), Ltd. Ahmedabad Vs 307, Shayamak Complex, Nr. Panjarapole, (Appellant) Polytechnic, Ambawadi, Ahmedabad-380009 PAN: AAICS6376A (Respondent) Assessee Represented: Shri Deepak R Shah, A.R. Revenue Represented: Shri Rignesh Das, Sr.D.R. Date of hearing : 25-11-2024 Date of pronouncement : 16-01-2025 आदेश/ORDER & 1381/Ahd/2019 A.Y. 2010-11 Page No 2 DCIT Vs. Piyush Subodhbhai Jhaveri & Soham Commodities Pvt. Ltd.
PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
ITA No: 1380/Ahd/2019 for Asst. Year 2010-11. This appeal is filed by the Revenue as against the appellate order dated 10.06.2019 passed by the Commissioner of Income Tax (Appeals)- 11, Ahmedabad arising out of the assessment order passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2010-11.
Brief facts of the case is that the assessee is an individual and engaged in the business of share broking and also trading in Shares & Securities in his proprietary concern M/s. Shri Parshwa Finance. For the Asst. Year 2010-11, assessee filed his Return of Income on 28-03-2010 declaring total income of Rs.1,69,973/-. The return was processed u/s. 143(1) of the Act. Thereafter assessment was reopened by issuing a notice u/s. 148 of the Act dated 28-03- 2015, on the ground that the unsecured loans received from M/s. Prraneta Industries Ltd. of Rs.1,85,00,000/- is in the nature of accommodation entry through one Shri Shirish C. Shah (hereinafter referred to as SCS). The assessee filed his Return of Income in response to the 148 notice. After detailed discussions, the assessment was completed by making addition u/s. 68 of Rs.1,85,00,000/- received from M/s. Prraneta Industries Ltd. as bogus, paper/shell company and demanded tax thereon.
Aggrieved against the same, assessee filed an appeal before Ld. CIT(A). During the appellate proceedings, the assessee explained that the sum of Rs.1,85,00,000/- received from M/s. Prraneta & 1381/Ahd/2019 A.Y. 2010-11 Page No 3 DCIT Vs. Piyush Subodhbhai Jhaveri & Soham Commodities Pvt. Ltd. Industries Ltd. was a temporary loan which was repaid in the same financial year itself. The assessee filed the following details: (i) Ledger account of PIL for A. Y.2010-11 (ii) Ack. of IT Return of PIL for A.Y.2010-11 & 2011-12- (iii) Copy of Audited Accounts of PIL for A.Y.2010-11. (iv) Confirmation of A/c of the assessee from the books of PIL (v) Bank Statement of Prop Concern of the assessee Shri Parshwa Finance with Central Bank of India showing amount received from PIL and its repayment. (vi) Bank Statement of PIL with Standard Chartered Bank reflecting the payment of Rs. 1,85,00,000/- made by the said company to the assessee and its repayment made by the assessee to PIL. 3.1. Based on the same, the Ld. CIT(A) deleted the additions made by the A.O. by observing as follows: “………5.3 I find from the assessment order that the AO has not disproved/discredited the above documents/evidences placed on record by the appellant and have also not carried out any enquiries. Thus, in my considered view, the appellant had sufficiently and reasonably discharged his initial/primary burden that lay upon u/s 68 of the Act for the temporary loan received from PIL i.e. (a) Identity of the creditor (PIL) by submitting PAN, registered address, company master data from the website of MCA and details downloaded from the stock exchange as the company PIL is a listed company. (b) Genuineness of the transaction by furnishing bank statement, confirmation and audited accounts of the creditor (PIL) and (c) Credit Worthiness of the creditor (PIL) through its audited accounts and ITR which shows substantial net worth of the company. Further, on perusal of the bank statements of PIL as submitted before the AO as well as before me, I find that there is no cash deposit in the bank account of PIL against the issuance of RTGS for the amount given by the said company to the appellant towards temporary loan and the AO has also not controverted any of the evidences furnished by the appellant in support of the amounts received from PIL and also repaid by the appellant to the said company by Piyush Subodhbhal Jhaveri carrying out any enquiries on the basis of such evidences. In view of the foregoing discussion, I am of the considered opinion that the appellant has sufficiently and reasonably discharged his primary onus as laid down u/s 68 of the Act. The above view is supported by the ratio laid down in the following decisions of various courts of law:
& 1381/Ahd/2019 A.Y. 2010-11 Page No 4 DCIT Vs. Piyush Subodhbhai Jhaveri & Soham Commodities Pvt. Ltd. i) Rohini Builders vs. Dy. CIT (2002) 256 ITR 360 (Guj) [SLP of Revenue dismissed by the Hon'ble Supreme Court as reported in 254 ITR 275 (Statute)]. ii) CIT Vs. Orissa Corporation Pvt. Ltd. (1986) 159 ITR 78 (SC). iii) Pr. CIT v. Adamine Construction (P.) Ltd. (2018) 99 taxmann.com 44 (Delhi). iv) PrCIT v. Hi Tech Residency (P.) Ltd. [2018] 96 taxmann.com 402(Delhi). [SLP of Revenue dismissed by the Hon'ble Supreme Court as reported [2018] 96 taxmann.com 403]. v) PCIT v. Best Infrastructure (India) (P.) Ltd. [2017] 84 taxmann.com 287 (Delhi). vi) ACIT v. Shyam Indus Power Solutions (P.) Ltd. [2018] 90 taxmann.com 424 (Delhi - Trib). vii) CIT v. Haresh D. Mehta [2017] 86 taxmann.com 22 (Bom). viii) CIT v. Dharamdev Finance (P.) Ltd. [2014] 43 taxmann.com 395 (Guj). ix) CIT v. Apex Therm Packaging (P.) Ltd. (2014) 42 taxmann.com 473 (Guj). x) CIT v. Ayachi Chandrashekhar Narsangji [2014] 42 taxmann.com 251 (Gu)). xi) Dimco Silk Mills Vs. ITO (1999) 107 Taxman 41 (Ahd). …………………………………. Further. I differ with the view of the AO that the company viz PIL [now known as Aadhar Ventures (India) Ltd) in question from whom temporary loan of Rs.1,85,00,000/- has been received by the appellant and also repaid during the year itself is a paper/shell company. The company PIL is a listed company and as evident from the website of the stock exchange i.e. BSE. The status of the said company in question as on date is "ACTIVE" as per the records of Ministry of Corporate Affairs (MCA). Further, the AO has also ignored the financials of the said company placed on record by the appellant and which are also available on public domain. The financials of the said company for A.Y. 2010-11 i.e. the year in which the amount is received as temporary loan and also repaid by the appellant as well as previous and subsequent years are as under:
& 1381/Ahd/2019 A.Y. 2010-11 Page No 5 DCIT Vs. Piyush Subodhbhai Jhaveri & Soham Commodities Pvt. Ltd.
The above facts and figures are extracted from Page No 28 of written submissions of the appellant, Page No. 143 & 144 of the Paper Book and Exhibit 2 of the written submission. On plain perusal of the audited accounts and above facts and figures. the said company in question viz PIL has sufficient financial credentials and have substantial net worth and income from operations which defy the observation of the AO regarding paper/shell company and the allegation of no business activities being carried out by the said company. Hence, considering the totality of the facts of the case and evidences available on record, the company PIL cannot be held as paper/shell company as observed by AO in the assessment order. It is also an undisputed fact that the material relied upon and made part of the assessment order IN. Navkar Sheet] for making the addition of Rs. 1,85,00,000/-on account of temporary loan has been is found and seized from a third party viz. SCS and not the appellant. It is also an admitted fact that the so called records of providing alleged accommodation entries as referred to and relied upon by the AO is neither maintained by the appellant nor is in the handwriting of the appellant This being the case, the presumption under section 132(4A) of the Act is available only in respect of the person from whose possession the same is found and seized, which in the instant case is SCS and not the appellant and it could not be applied against a third party. No addition is warranted on the basis of material seized from the third party and the statement of such third party not corroborated by specific independent evidence and in absence of any cross examination of such persons granted to the appellant in whose case the same are relied upon. The said view is supported by the following judgments relied upon by the appellant. (i) Common Cause (A Registered Society) v. Union of India (2017) 77 taxmann.com 245 (SC) (ii) CIT v. Radico Khaitan Ltd (2017) 83 taxmann.com 375 (Delhi) (iii) Pavitra Realcon (P.) Ltd. vs. ACIT, (2017) 87 Taxmann.com 142 (Delhi-Trib.) (iv) Anil Jaggi v. ACIT (2018) 168 ITD 612 (Mumbai - Trib.)
& 1381/Ahd/2019 A.Y. 2010-11 Page No 6 DCIT Vs. Piyush Subodhbhai Jhaveri & Soham Commodities Pvt. Ltd.
(v) CIT-II v. Kantibhal Revidas Patel [2014] 42 taxmann.com 128 (Gujarat) vi) Bharat t A. Mehta vs. ITO [2001] 116 Taxman 301(AHD.) (Mag.) as affirmed by Hon'ble Gujarat High Court in ITO v. Bharat A. Mehta (2015) 60 taxmann.com 31. vii) Regency Mahavir Properties v. ACIT (2018) 89 taxmann.com 444 [Mum] viii) ACIT v. Omprakash & Co., (2004) 87 TTJ 183 (Mum-Trib) ……………………………… 57 After considering the facts and findings of the above decision, the relevant part of which is reproduced hereinabove, it is evident that SCS, and other persons connected with SCS which includes director the company PIL from whom the appellant has received temporary loan on whose statements/ affidavits, the AO has referred to and relied upon in the case of appellant have denied to have engaged/involved in providing accommodation entries, retracted from their earlier statements/affidavits and have categorically confirmed that the companies in which they are directors have been carrying out genuine business and investment activities which includes the company PIL The aforesaid decision has also dealt with each of the observations made by the AO in the assessment order of the appellant Facts of the appellant company's case and facts of the above decision are exactly identical and therefore, respectfully following the above decision of Hon'ble High Court of Madhya Pradesh, Revenue's SLP against which has also been dismissed by the Hon'ble Supreme Court, I hold that addition on account of temporary loan received by the appellant from PIL which has also been repaid during the year itself while considering the same as in the nature of accommodation entry and thereby unexplained cash credit u/s 68 of the Act is not justified. In view of the above facts and having regard to all the circumstances discussed herein above and respectfully following the ratio laid down in the decisions relied upon by the appellant, the appellant has sufficiently and reasonably discharged his primary onus u/s 68 of the Act. The AO was not justified in resting his case on the loose papers and documents found and seized from the premises of a third party viz SCS which even otherwise do not contain any noting of exchange of cash for which allegation of accommodation entries has been made in the assessment order as elaborately discussed hereinabove while ignoring the facts emerged from the survey proceedings u/s 133A of the Act carried out by the department in Rajesh Jhaveri Group and his statements recorded u/s. 131(1A) of the Act. Further, the creditor & 1381/Ahd/2019 A.Y. 2010-11 Page No 7 DCIT Vs. Piyush Subodhbhai Jhaveri & Soham Commodities Pvt. Ltd. company PIL cannot be treated as a paper/shell company based on facts and figures of its financials as discussed hereinabove. The AO is also not justified in relying upon the statements of SCS, directors of PIL and others for making the addition in absence of granting an opportunity of cross examination of such persons to the appellant Thus, considering my findings and observations discussed at length hereinabove, the addition of Rs 1,85,00,000/- made by the AO u/s 68 of the Act is deleted. This ground of appeal is allowed.
4. Aggrieved against the appellate order, the Revenue is in appeal before us raising the following Grounds of Appeal:
1. On the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.1,85,00,000/- made by the A.O. on account of unexplained unsecured loan u/s 68 of the Act.
2. The Ld. CIT(A) has erred in not taking cognizance of the fact that the company M/s Prraneta Industries Ltd. (PIL) in whose shares the assessee has claimed LTCG is one of the companies controlled by Shri Shirish Chandrakant Shah.
3. The Ld. CIT(A) has erred is ignoring the fact that Shri Shirish Chandrakant Shah has admitted that he was controlling and running number of companies to provide bogus accommodation entries of LTCG & Unsecured loans and PIL was one such company.
4. The Ld. CIT(A) has erred is ignoring the fact that the directors of the company PIL have categorically admitted that they were dummy directors & there was no business activity in the company.
5. The Ld. CIT(A) has erred is ignoring the fact that there was astronomical rise in the price of shares of PIL within a short period of time and the same was not supported by any improvement in financials or fundamentals of the company.
6. The Ld. CIT(A) has erred is ignoring the fact that during search operations on the premises of PIL and Shirish Chandrakant Shah evidences indicating manipulation of share prices and cash transactions against the accommodation entries for LTCG were seized.
& 1381/Ahd/2019 A.Y. 2010-11 Page No 8 DCIT Vs. Piyush Subodhbhai Jhaveri & Soham Commodities Pvt. Ltd.
7. The Ld. CIT(A) has erred is not applying the ratio of Hon'ble SC order in the cases of Sumati Dayal Vs Commissioner of Income Tax and Commissioner of Income tax Vs Durga Prasad More to the facts of this case.
8. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O.
9. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent. 5. At the outset, Ld. Counsel appearing for the Assessee Shri Deepak R Shah submitted that the tax effect in both the appeals are less than Rs. 60 Lakhs. Hence as per CBDT Circular, the Department is liable to withdraw the above appeals.
5.1. The Ld. Sr. D.R. was given time to verify this aspect from the Department and he submitted that as per CBDT Circular No. 05/2024 clause (h) in Para 3.1 where the exceptional cases reads as follows: “Cases involving organized tax evasion including cases of bogus capital gain/loss through penny stock and cases of accommodation entries.” 5.2. Since the present cases are of accommodation entries pertaining to Shri Shirish C. Shah, the above appeals does not fall under the CBDT Circular. Therefore the claim of assessee’s request that the above cases are covered by Low Tax Effect Circular are hereby rejected.
Heard rival submission at length and perused the materials available on record including the Paper Book filed by the assessee. It is undisputed fact that the assessee received 1,85,00,000/- by & 1381/Ahd/2019 A.Y. 2010-11 Page No 9 DCIT Vs. Piyush Subodhbhai Jhaveri & Soham Commodities Pvt. Ltd. five cheque payments on 19-05-2009, the same was repaid as follows: Dates Bank Amount 19-Jun-2009 Ch No. 20520 HDFC Bank 25,00,000 16-Sep-2009 Ch. No. SCB 1,00,00,000 18-Sep-2009 Ch. No. 20631 SCB 50,00,000 16-Jan-2010 Ch. No. 20536 HDFC Bank 10,00,000 6.1. Copies of the relevant bank statements are placed at Page Nos. 161 to 166 of the Paper Book. Further the Income Tax Returns filed by M/s. Prraneta Industries Ltd. for the Asst. Year 2010-11 and 2011-12 are against total income of Rs. 1,73,55,274/- and Rs. 1,93,48,498/- respectively. The Revenue could not dispute the repayment of loans by the assessee through banking channels.
In similar circumstances, the Hon’ble Jurisdictional High Court in the case of PCIT Vs. Ojas Tarmake (P.) Ltd. reported in [2023] 156 taxmann.com 75 held as follows: “Where assessee showed unsecured loans received during relevant assessment year and AO made addition on ground that assessee failed to discharge onus of liability as laid down under section 68, since amount of loan received by assessee was returned to loan party during year itself and all transactions were carried out through banking channels, impugned addition was to be deleted.” 7.1. Similarly Jurisdictional High Court in the case of PCIT Vs. Ganesh Plantation Ltd. [2022] 134 taxmann.com 149 held as follows: “Where Assessing Officer initiated reassessment on basis of Information that search in case of Venus Group showed that amount of Rs. 4 crores had been received by assessee from Builders of Venus Group through banking channel against corresponding payment of unaccounted cash by assessee to Builders, and considered this as accommodation entry and made addition under section 68, since no live link/proximate nexus of alleged & 1381/Ahd/2019 A.Y. 2010-11 Page No 10 DCIT Vs. Piyush Subodhbhai Jhaveri & Soham Commodities Pvt. Ltd.
dubious transactions between searched person and assessee had been brought on record, said addition was to be deleted.”
7.2. The Hon’ble Jurisdictional High Court in the case of Ambe Tradecorp (P.) Ltd. (cited supra) held as follows: “Assessee-company claimed to have received certain amount towards share application money from creditor 'R' during period from 1-4-2009 to 31-3-2010 and was paid back fully in financial year 2010-11 Assessing Officer opined that explanation was not satisfactory to prove creditworthiness of creditor and invoking provisions of section 68, treated amount as unexplained cash credit and added in total income of assessee Assessee had submitted Pan Card, Ledger Confirmation, his own bank statement and bank statement of 'R' to demonstrate that amount was received through banking channel Before Appellate Authority, assessee could establish that 'R' had received money from two persons and said factum was fortifiable from bank statement of 'R' Whether once books of account and facts reflected therein showed source of fund and identity of party and aspect that books of account also reflected receipt of amount and amount was repaid, it was not open to Assessing Officer to raise doubt about creditworthiness of creditor - Held, yes - Whether thus, Tribunal had not erred in deleting addition made under section 68 for funds received from said creditor.”
Respectfully following the above judicial precedents, we do not find any merit in the grounds raised by the Revenue. Further the order passed by the Ld. CIT(A) is a well-reasoned and detailed order which does not require any interference. for Asst. Year 2010-11
This appeal is filed by the Revenue as against the appellate order dated 10.06.2019 passed by the Commissioner of Income Tax & 1381/Ahd/2019 A.Y. 2010-11 Page No 11 DCIT Vs. Piyush Subodhbhai Jhaveri & Soham Commodities Pvt. Ltd. (Appeals)-11, Ahmedabad arising out of the assessment order passed under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2010-11.
The Grounds of Appeal
raised by the Revenue reads as under:
1. On the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.1,70,00,000/- made by the A.O. on account of unexplained unsecured loan u/s 68 of the Act.
2. The Ld. CIT(A) has erred in not taking cognizance of the fact that the company M/s Prraneta Industries Ltd. (PIL) in whose shares the assessee has claimed LTCG is one of the companies controlled by Shri Shirish Chandrakant Shah.
3. The Ld. CIT(A) has erred is ignoring the fact that Shri Shirish Chandrakant Shah has admitted that he was controlling and running number of companies to provide bogus accommodation entries of LTCG & Unsecured loans and PIL was one such company.
4. The Ld. CIT(A) has erred is ignoring the fact that the directors of the company PIL have categorically admitted that they were dummy directors & there was no business activity in the company.
5. The Ld. CIT(A) has erred is ignoring the fact that there was astronomical rise in the price of shares of PIL within a short period of time and the same was not supported by any improvement in financials or fundamentals of the company.
6. The Ld. CIT(A) has erred is ignoring the fact that during search operations on the premises of PIL and Shirish Chandrakant Shah evidences indicating manipulation of share prices and cash transactions against the accommodation entries for LTCG were seized.
7. The Ld. CIT(A) has erred is not applying the ratio of Hon'ble SC order in the cases of Sumati Dayal Vs Commissioner of Income Tax and Commissioner of Income tax Vs Durga Prasad More to the facts of this case.
& 1381/Ahd/2019 A.Y. 2010-11 Page No 12 DCIT Vs. Piyush Subodhbhai Jhaveri & Soham Commodities Pvt. Ltd.
8. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O.
It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent. 12. Brief facts of the case is that the assessee is a Private Limited Company engaged in the business of trading in Shares & Securities and also trading in Stock & Commodity Market. For the Asst. Year 2010-11, assessee filed his Return of Income on 29-09-2010 declaring loss of Rs.58,252/-. The return was reopened by issuing a notice u/s. 148 of the Act dated 25-03-2015 on the ground that the unsecured loan an amount of Rs. 5.5 crores received from M/s. Prraneta Industries Ltd is in the nature of accommodation entry through one Shri Shirish C. Shah (hereinafter referred to as SCS). The assessee filed his Return of Income in response to the 148 notice. After detailed discussions, the assessment was completed by making addition of Rs.1,70,00,000/- received from M/s. Prraneta Industries Ltd. as bogus, paper/shell company and demanded tax thereon.
Similar addition was deleted by Ld. CIT(A) in the case of Shri Piyush Subodhbhai Jhaveri on the loans taken from M/s. Prraneta Industries Ltd. In this case also, the assessee repaid Rs. 1,40,00,000/- on 17-06-2009; Rs. 25,00,000/- and Rs. 5,00,000/- on 06-07-2009 which are not disputed by the Assessing Officer. Thus the decision rendered by us in Shri Piyush Subodhbhai Jhaveri in Paragraph No. 5 to 8 of this order are squarely applicable to the present case by mutatis mutandis. Thus the & 1381/Ahd/2019 A.Y. 2010-11 Page No 13 DCIT Vs. Piyush Subodhbhai Jhaveri & Soham Commodities Pvt. Ltd. grounds raised by the Revenue are devoid of merits and liable to be dismissed.
In the result, the appeal filed by the Revenue in is hereby dismissed.
Order pronounced in the open court on 16-01-2025