DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-4(1), CENTRAL RANGE-4, MUMBAI vs. SAHAKAR GLOBAL LIMITED , MUMBAI

(अपीलाथी/Appellant) (प्रत्यथी / Respondent) : Assessee by : Shri Prakash Jhujhunwala-Ld.AR Revenue by : Shri Hemant Kumar Leuva-Ld. CIT-DR ुनवाई की तारीख/ : 05/02/2021 Date of Hearing घोषणा की तारीख / : 26/03/2021 Date of Pronouncement आदेश / O R D E R Per Bench 1.1 The assessee is in appeal for Assessment Years (AY) 2009-10 to 2012-13 whereas the revenue is in appeal for AYs 2010-11 to 2012-13. However the facts as well as issues in all the years are more or less similar and it is admitted position that adjudication in any one year shall substantially apply to other years also. Therefore, the appeals were heard together and are now being disposed-off by way of this common order for the sake of convenience & brevity. Taking facts from AY 2011- 12 as the lead year, we proceed to adjudicate the same in the succeeding paragraphs. The order under challenge has been passed by learned Commissioner of Income Tax (Appeals)-52, Mumbai [CIT(A)] on 05/06/2017. 1.2 The ground raised by the assessee read as under: -

1. On the facts and in the circumstances of the case, the Ld Commissioner of Income Tax (Appeals) - 52, Mumbai ("herein after referred to as the CIT (A)) has erred in confirming the addition of Rs. 3,50,00,000/- as unexplained cash credit u/s. 68 in respect of amount received during the year as share capital and premium from M/s. Vanguard Jewels Ltd, Ansh Merchandise Pvt Ltd., Alka Diamond Industries Ltd & Talent Infoway Pvt Ltd.

2. The appellant company being aggrieved, prays that the addition of Rs.3,50,00,000/- on account of unexplained cash credit u/s. 68 being unwarranted, illegal, bad in law be deleted.

3. On the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.3,50,000/- out of Rs.3,50,00,000/- as unexplained cash credit u/s. 68 on mere estimation basis that some commission must have been paid for securing accommodation entry.

4. The appellant company being aggrieved, prays that the addition of Rs.3,50,000/- on account of unexplained cash credit u/s. 68 being unwarranted, illegal, bad in law be deleted. 1.3 The ground raised

by the revenue read as under: - i. On the facts and in the circumstances of the case and in law, the CIT(A), while upholding the addition of Rs.3.5 Crore on account of share capital and share premium, has erred in deleting the remaining addition on account of share capital and premium of Rs.13,00,00,000/- received during the year and added as unexplained credit u/s 68 of the l.T.Act, 1961. ii. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition of share capital premium of Rs.3,46,50,000/- (out of total addition of Rs.3,50,00,000/-) by confirming only 1% of the above amount despite the fact that cash of Rs.3.5 Cr. generated by the assessee was not taken on the receipt side while preparing the P&L A/c. As evident, the sole subject-matter of cross-appeal is certain addition made u/s 68 since partial relief has been granted by Ld. CIT(A) to the assessee in the impugned order.

2. We have carefully heard the rival submissions as urged before us. We have also gone through material on record including documents placed in the paper-book and written submissions filed during the course of hearing. The judicial precedents as cited during hearing have duly been deliberated upon. The assessee being resident corporate assessee is stated to be engaged in the business of toll collection under government contracts. The key person of the assessee group is stated to be its Chairman & Managing Director (CMD) Shri Kishore P. Agrawal. Our adjudication to the subject matter of appeal would be in subsequent paragraphs.

3. Assessment Proceedings and findings of Ld. AO 3.1 An assessment has been framed against the assessee for the year under consideration u/s 143(3) r.w.s. 153A on 28/03/2016 in view of the fact that the assessee group was subjected to search action u/s 132 on 27/02/2014. The search action stem from pre-search enquiries conducted by the department wherein it was alleged that the assessee group obtained share capital and share premium from shell companies who had certain common features viz. common directors / common addresses, low turnover, meager income, low opening and closing bank balances, no genuine business etc. 3.2 During search action on one of such group being controlled by Shri Praveen Kumar Jain on 01/10/2013, an admission was made therein that the group was providing accommodation entries against commission in various forms to other companies. In assessee‟s case, it was alleged that the assessee also introduced share capital and share premium in its books of accounts in various years through accommodation entries as provided by Shri Praveen Kumar Jain and his associated group companies. 3.3 Similar search was carried out in the case of another entry provider namely Shri Mukesh Chokshi on 27/02/2014 wherein similar admission of indulgence in accommodation entries against commission were made. 3.4 It was alleged by Ld.AO that during the year under consideration, the assessee introduced share capital and share premium of Rs.20 Crores in its books of accounts through accommodation entries from the tainted group‟s 21 entities as detailed below: - No. Name of the Companies Amount 1. M/s. Alka Diamond Industries Ltd. 100 Lacs 2. M/s. Dreamland Plaza Ltd. 100 Lacs 3. M/s. Gravity Barter Pvt Ltd. 100 Lacs 4. M/s. Handsome Sales Pvt. Ltd. 40 Lacs (M/s. Murlidhar Sales Pvt. Ltd.)

5, M/s. Stocknet International Ltd. 200 Lacs 6. M/s, Vangaurd Jewels Ltd. 100 Lacs 7. M/s. Ansh Mercantile Pvt. Ltd. 100 Lacs (M/s. Newpla.net Trading Co. Pvt. Ltd.) 8. M/s. Casper Enterprise Pvt. Ltd. 100 Lacs 9. M/s. Duke Business Pvt. Ltd. 100 Lacs 10. M/s. Talent Infoway Pvt. Ltd. 50 Lacs 11. M/s. Sidh Housing Development Pvt. Ltd. 65 Lacs (M/s. Bhadrawti Ispat & Energy Ltd.) 12. M/s. Buniyad Chemicals Pvt. Ltd. 50 Lacs 13. M/s. Sarvashretha Traders Pvt. Ltd. 80 Lacs 14. M/s. Artillengence Bio Innovations Ltd. 200 Lacs 15. M/s. Gyaneshwar Trading & Fin. Co. Ltd. 185 Lacs (M/s. Bhadrawti Steel & Urja Ltd.) 16. M/s. Dream Valley Sales Pvt. Ltd. 80 Lacs 17. M/s. Oshin Investment & Finance Pvt. Ltd. 90 Lacs 18. M/s. Albatross Shares Registry Pvt. Ltd. 105 Lacs 19. M/s One2e Solution India Pvt. Ltd. 155 Lacs TOTAL 20 Crores 3.5 Accordingly, notice u/s 153A was issued to the assessee on 23/07/2015. In response to the same, the assessee filed return of income on 30/09/2015 declaring income of Rs.620.16 Lacs. The statutory notices u/s 143(2) & 142(1) were issued in due course of time calling for requisite information from the assessee. 3.6 During search action on assessee group on 27/02/2014, it was noted that the assessee was engaged in toll collection business which was cash intensive business. During various financial years, the assessee introduced share capital at high premium but in the next financial year, the shares were bought back at face value. During assessment proceedings, an opinion was formed by Ld. AO that investing companies were nothing but shell companies providing accommodation entries without having worth of introducing such big amount of funds in other companies. 3.7 During search operation, the statement of assessee‟s key person namely Shri Kishore P. Agarwal was recorded u/s 132(4), the relevant portion of which has already been extracted in the assessment order. In reply to question nos. 10, 12 & 13, admission was made as to the fact of acceptance of accommodation entries against cash. In response to question no.14, it was admitted that some portion of cash as introduced as share application money was generated from reality business of group concern namely M/s Sahakar Infracon Projects Private Ltd. whereas some cash was generated out of assessee‟s toll receipts. When loose papers were confronted to assessee vide question no.15, he submitted that the documents contained details of on-money received on sale of flats in project “Sahakar Heights” being developed by group concern i.e. M/s Sahakar Infracon Projects Private Ltd. Lastly, the director agreed to offer these accommodation entries to tax in respective years in which the same were introduced in the books of accounts. The details of shares capital so received by the assessee in various years has already been tabulated in para 6.3 of the assessment order. The detail for this year has already been tabulated by us in preceding para 3.4.

3.8 On the basis of aforesaid facts, following conclusions were drawn by Ld. AO: - In view of above acceptance by Shri Kishore P. Agarwal, MD of M/s Sahakar Global Limited and statement of Shri Mukesh M. Chokshi recorded during the course of search action and pre-search enquiries, it strengthens the stand that companies from whom M/s Sahakar Global Limited has taken share application money is just accommodation entries and this share application money is actually the cash generated from the business of Sahakar Global Ltd. and on-money received on sale of flats booked in Sahakar Heights project built by assessee‟s sister concern Sahakar Infracon Pvt. Ltd. which has been brought back into the books of accounts of the assessee company through thee accommodation entry providers. The above facts and admission of Shri Kishore P. Agarwal clearly shows that Sahakar Infracon Pvt. Ltd. had accepted on-money on sale of flats and routing the same into its books of accounts as Share capital and share premium from the accommodation entry provider (bogus companies) as discussed above. 3.9 However, the aforesaid statement stood retracted by the assessee vide retraction letter dated 28/12/2015 which was supported by the sworn affidavit. It was submitted that since the copies of statements recorded at the time of search were not provided to the assessee till 12/12/2015 despite repeated requests / reminders, the retraction affidavit could not be filed earlier. After receipt of copies of statements, the retraction affidavit has been filed. It was also submitted that the contents of the statements made during search operations were involuntary and under pressure and therefore it was not possible to recall the precise contents without perusing the written/recorded copies. In support, a sworn affidavit-cum-declaration was also filed before Ld. AO. The copies of the retraction as well as affidavit-cum-declaration as placed on record have also been considered by us. 3.10 However, the retraction made by the assessee-director was brushed aside by Ld. AO because of the fact that the mishandling or coercive measures allegedly adopted by the search team did not trigger any legal recourse/action by the assessee Further, the retraction made after 18 months was a mere afterthought and was to be disregarded. 3.11 Proceeding further, Ld. AO maintained that the assessee generated cash from its own business and reintroduced the same through entry-provider entities as detailed in the assessment order. Notices issued u/s 133(6) sent to these entities were allegedly returned / un-served by postal authorities (however, this fact has been disputed by the assessee). The assessee failed to produce any of the share- applicants for confirmation of transactions. Finally, in the light of various judicial pronouncements holding the field, it was alleged by Ld. AO that the assessee indulged in accepting accommodation entries in the form of share application money and premium by utilizing the unaccounted or undisclosed cash generated from the business carried on by it or its group concerns. Since the assessee failed to prove the identity of the investor entities, establish their creditworthiness and also the genuineness of the transactions, the aforesaid sum was added to assessee‟s income u/s 68 as unexplained cash credit.

4.8 Reliance was placed on the various decisions to assail impugned additions u/s 68. The Hon‟ble Bombay High Court in CIT V/s Creative World Telefilms Limited (2011 333 ITR 100) held that once assessee had given the details of name and address of the shareholder, their PAN/GIR number and had also given the cheque number, name of the bank, it was expected on the part of the Assessing Officer to make proper investigation and reach the shareholders. The Assessing Officer did nothing except issuing summons which was ultimately returned back. The Assessing Officer ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assesses to the Assessing Officer. The failure to do so would justify the deletion of addition. Similar was the view of Hon‟ble Delhi High court in CIT V/s Vrindavan Farms (P) Ltd. (ITA No. 71/2015 dated 12/8/2015). Further, in terms of decision of Hon‟ble Apex Court in CIT V/s Lovely Exports (P) Ltd. (2008 216 CTR 195), the department could not proceed against the assessee but it could proceed against the alleged doubted subscribers. 4.9 In the above background, it was submitted that since the assessee produced sufficient documentation to discharge initial onus of showing the genuineness and creditworthiness of the share applicants, it was obligatory for Ld. AO to have undertaken some inquiry and investigation before coming to a conclusion that the transactions were not genuine. Where the complete particulars of the share applicants was furnished to the AO and the AO fails, no addition could be made in the hands of assessee u/s 68.

4.10 Keeping in view the submissions made by the assessee refuting allegations leveled by Ld. AO, various opportunities were provided to Ld. AO to attend the appellate proceedings and furnish a report whether these letters / replies received from the investor entities were indeed filed by them. However, despite various opportunities, no compliance could be made by Ld. AO and no report was furnished. Left with no option, the matter was proceeded with by Ld. CIT(A) on the basis of material on record.

5.3 It was argued by assessee that 12 entities (listed at serial nos.2 to 5, 8, 9, 11 to 16 in the table as extracted in para 3.4. and also tabulated in para 18 of impugned order) from whom aggregate investment of Rs.13 Crores was received, did not belong to Shri Pravin Kumar Jain Group or to Shri Mukesh Choksi Group since there was no mention of these entities in the statement made by Shri Pravin Jain or Shri Mukesh Choksi during search action on them. Therefore, Ld. AO was not justified to club these entities along with other entities belonging to the tainted group. Further, no incriminating material or evidence was stated to have been found against these 12 entities during the course of search on assessee. The notices sent to all these entities u/s 133(6) were stated to be duly responded to by these entities. All these entities were stated to have remained invested in the assessee company till date. Though the submissions made by the assessee were duly confronted to Ld. AO, however, as noted earlier, Ld. AO failed to attend the hearing and did not file any reply despite various reminders by Ld. CIT(A). The same led the Ld. CIT(A) to adjudicate the issue on the basis of material on record. Upon perusal of documentary evidences, it was noted by Ld. CIT(A) that these entities had, in fact, responded to notices issued by Ld.AO u/s 133(6) as well as summons issued u/s 131. These entities had duly furnished their respective return of income, financial statements, copy of PAN card, Memorandum & Article of Association, source of investments, allotment letter and copy of bank statement etc. to Ld. AO to confirm the transactions. It was stated by all of them that there was no buyback of shares and the investments were sourced out of company's funds. They also submitted purchase details of shares. The ROC website reflected the status of these companies as „active‟.

Their Balance Sheet, Profit Loss account and Auditors‟ report was available on ROC website. The Ld. CIT(A), upon perusal of all these documentary evidences, concurred with assessee‟s submissions that these entities did not belong to the tainted groups. They had duly confirmed the transactions and furnished sufficient documentary evidences in support of investments made by them. All these entities had sufficient capital and reserves to make the investment in assessee. There was no immediate cash deposit in the banks of these entities before making investment in Assessee- Company and transactions had taken place through banking channels. There was no buy back of shares from these entities and therefore, the action of Ld. AO in making addition against these entities could not be held to be justified. The Ld. AO was not able to dispute the details furnished by the assessee. None of these entities were mentioned anywhere, either in the statement of Shri Pravin Kumar Jain or in the statement of Shri Mukesh Choksi and these entities apparently did not belong to the tainted group. No incriminating material was found against these entities. The share premium was supported by valuation report and various projections made in the valuation report were found to be true. The turnover as well as profitability of the assessee had been quite significant over last 4 to 5 years which could be gathered from the fact that that the turnover of the assessee rose from 203.93 Crores in AY 2008-09 to Rs.654.85 Crores in AY 2016-17. The assessee reflected significant growth in the profitability also. Therefore, the fact of huge share premium could not be held against the assessee in the absence of any incriminating material. More so, the statement made by Shri Kishore P. Agarwal stood retracted immediately after receipt of statement from the department. In fact, Ld. AO had summoned Shri Kishore Agarwal and his statement was again recorded on oath u/s 131 on 27/01/2016 wherein he affirmed the fact of retraction and contested the surrender earlier made by him. In terms of decision of Hon‟ble Gujarat High Court in Kailash Ben Manohar Lal Choksi Vs. CIT (328 ITR 411), when original statement was retracted by the assessee and the assessee had satisfactorily explained the delay in retraction, its evidentiary value gets reduced. In the given circumstances, it would be duty of Ld.AO to make water tight case by making necessary enquires and by bringing cogent evidences on record to prove otherwise. In a situation like above, the AO has to rely more on the evidences found during the course of search and need to collect further evidence against the assessee during the course of assessment proceedings to nail it. Since, apparently no incriminating evidence has been found in respect of the above mentioned 12 entities during the course of search nor any evidence was gathered by Ld. AO later during the course of assessment proceedings, he could not make additions simply on the basis of statements. Hence, the impugned addition against these entities was to be deleted. 5.4 Regarding balance addition of Rs.3.50 Crores stated to be received from 3 entities (listed at serial nos. 17 to 19 of table in para 3.4) belonging to Shri Mukesh Chokshi Group, it was the submissions of the assessee that investments were sourced out of cash-in-hand held by the assessee in its books of accounts. Since, the cash was duly accounted for in the books of account, addition so made would amount to double taxation and would be against the principles of taxation. Even Ld. AO, in para 6.5 of the assessment order accepted that share application money was in the nature of accommodation entries sourced out of cash generated by the assessee. Upon perusal, Ld. CIT(A) concurred with the submissions that cash-in- hand, on the date of search, as per assessee‟s books of accounts was Rs.12.94 Crores as against actual availability of cash of Rs.32.49 Lacs on the date of search. This fact would support the observation of Ld. AO that cash was given to entry providers to obtain accommodation entries which is further fortified by the fact that the recording of the said transactions was rectified in financial year 2013-14 by reducing share premium account with corresponding increase on cash-in-hand by Rs.9 Crores. Therefore, the investment, in principle, was to be treated as unexplained. But these entries were sourced only out of cash generated by the assessee in its toll business and the same was held by the assessee in its books of accounts. Therefore, the additions could not be sustained since assessee‟s own accounted cash was diverted / used to obtain these entries. But the assessee would have certainly paid commission to procure these entries and therefore, the addition to the extent of 1% was to be made in the hands of the assessee. The relevant observations of Ld. CIT(A), were as follows: - 34. In view of these facts, it is clear that the amount of Rs.3.50 cr as share application money from above company had been received by the assessee only through diversion of cash in hand of the appellant company and therefore, even though, these companies were entry providers, still no addition could have been made in the hands of the assessee as its own cash in hand is gone to procure these entries in the form of cash. Therefore, the sum could not be treated as unexplained cash credits in the hands of the assessee. However it is relevant to mention over here that the assessee must have paid some commission in securing such accommodation entries through Mukesh Choksi group against payment of cash. Such commission varies from 0.5% to 1% in such kind of business, which the assessee must have paid outside the books and therefore remains unexplained. Considering the facts of the case I am inclined to estimate such expenditure in securing accommodation entry @ 1% of such amount, which works out to Rs.3,50,000/- .

The aforesaid adjudication has given rise to present cross-appeals before us.

6.8 Remaining entities belonging to tainted group The addition with respect to balance entities (listed at serial nos. 1,6,7, & 10) allegedly belonging to Shri Mukesh Choksi has been confirmed on the basis of appellate order for AY 2009-10. Facts in AY 2009-10 are that consequent to search operation on assessee and on the basis of statements, similar assessment was framed against the assessee u/s 143(3) r.w.s. 153A on 28/03/2016. The assessee received share application money of Rs.200 Lacs from 4 entities belonging to Shri Pravin Kumar Jain Group. These entities were (i) M/s Real Gold Trading Private Limited; (ii) M/s Yash Jewels; (iii) M/s Vanguard Jewels Ltd.; (iv) M/s Lexus Infotech Ltd. The amount so received was added to assessee‟s income u/s 68 by Ld. AO on similar findings. The Ld. CIT(A) confirmed the addition by observing that these entities were mentioned in the statement of Shri Pravin Kumar Jain wherein he admitted that these entities were engaged in providing accommodation entries. Further, the shares of these entities were bought back by the assessee in subsequent years. Another fact observed by Ld. CIT(A) was that no evidence was furnished by the assessee that these entities replied to the notices issued u/s 133(6). Therefore, the addition was to be confirmed. Upon perusal of facts, it is noted that the additions have primarily been made on the basis of statement of Shri Pravin Kumar Jain and in view of the allegations that there was buy back of shares in subsequent years. Further, the notices u/s 133(6) remained un-responded. However, we find that the opportunity to cross-examine Shri Pravin Kumar Jain was never provided to the assessee. Nor the copies of statements were furnished / confronted to the assessee. The failure to do so would make the additions unsustainable in the eyes of law in view of settled legal position as enumerated by us in para 6.5. Further, we find that all these entities have duly furnished replies to Ld. AO which are placed on Page nos. 34 to 64 of the paper book wherein the transactions have been confirmed by these entities along with sufficient documentary evidences in the shape of Income Tax Returns, bank statements, financial statements, source of investments, copies of Memorandum & Articles of Association, details of directors, basis of investment, details of purchase of shares, allotment letter etc. They have confirmed that there was no buy back of shares. These entities are not listed as entities to whom the cash is stated to have been paid by the assessee in exchange of accommodation entries. Therefore, the allegations of lower authorities would have no legs to stand. Consequently, the addition in AY 2009-10 stand deleted. The assessee‟s appeal for AY 2009-10 stands allowed. Similar is the position in this year. The Ld. CIT(A) has relied upon appellate order for AY 2009-10 while confirming the additions in this year. Therefore, since additions have been deleted by us in AY 2009-10, the addition in this year also stand deleted except for entity listed at serial no.1 i.e. M/s Alka Diamonds Industries Ltd. since this entity is tabulated as en entity from whom accommodation entries have been obtained in lieu of cash. The addition against this entity is sustained to the extent of 1% of Rs.100 Lacs which comes to Rs.1 Lacs. The balance addition of Rs.349 Lacs stands deleted.

8.7 The second category is one investor entity (M/s Lalli Sales & Marketing Private Limited) for Rs.100 Lacs not belonging to tainted group wherein addition have been confirmed since the assessee could not furnish complete details. The perusal of document on record would show that this assessee is an Income Tax Assessee under PAN AABCL- 8428-P. It is duly registered entity under CIN: U52100MH2010PTC205884. Pertinently, this entity does not belong to the tainted group and no incriminating material has been found against this entity during the search operation. This being so, this addition could not be subject matter of assessment u/s 153A since it was not a case of abated assessment. Therefore, in the absence of any incriminating material with respect to this entity, this addition is not sustainable in the eyes of law. By deleting the same, we allow the assessee‟s ground, to that extent. 8.8 The fourth category of investors for Rs.100 Lacs comprise-off two associated entities of the assessee group (M/s Atharva Business Private Limited & M/s Viraj Mercantile P. Ltd.). The addition has been confirmed by Ld. CIT(A) by observing that there is no concrete proof that the on- money of M/s Sahakar Infracon Projects Private Limited has gone towards receipt of share application money. However, we find that there are no evidence of cash exchange between the assessee and these two entities. Rather this cash has been sourced out of „on-money‟ received by M/s Sahakar Infracon Projects Private Limited which is altogether separate entity. Therefore, this money could not be treated as assessee‟s unexplained money. Hence, we are inclined to delete the same.

(Mahavir Singh) (Manoj Kumar Aggarwal) उपाध्यक्ष / Vice President लेखा दस्य / Accountant Member मुिंबई Mumbai; सदनािंक Dated : 26/03/2021 Sr.PS, Jaisy Varghese आदेशकीप्रधिधलधपअग्रेधर्ि/Copy of the Order forwarded to : 1. अपीलाथी/ The Appellant 2. प्रत्यथी/ The Respondent 3. आयकरआयुक्त(अपील) / The CIT(A) 4. आयकरआयुक्त/ CIT– concerned 5. सवभागीयप्रसतसनसध, आयकरअपीलीयअसधकरण, मुिंबई/ DR, ITAT, Mumbai 6. गार्डफाईल / Guard File आदेशाि सार/ BY ORDER,