RKG HOUSING (P) LTD.,NEW DELHI vs. ITO, WARD- 20(3), NEW DELHI

This appeal by Assessee has been directed against the Order of the Ld. CIT(A)-36, New Delhi, Dated 01.12.2017, for the A.Y. 2007-2008.

2 ITA.No.1565/Del./2018 M/s. RKG Housing (P) Ltd., New Delhi. on 24.09.2007. The case was selected for scrutiny under section 147/148 of the I.T. Act and notice under section 148 was issued after recording reasons and getting approval of the competent authority. The reasons are reproduced in the assessment order as under :

“A search & seizure action was conducted by unit-VI(2) at the residence and offices of Sh. Surender Kumar Jain and. Sh. Virender Jain on 14.09.2010 various incriminating documents/material was seized during the course of search. During the post search investigation and perusal of seized documents it was observed that Sh. Surender1 Kumar Jain and Sh.

Virender Jain were engaged in the business of providing accommodation entries by providing cheques/PO/DD in lieu of cash to a large number of beneficiary companies thorough various paper and dummy companies floated and controlled by them. It was also evidently established by the wing that Sh. Surender Kumar Jain and Sh. Virender Jain are known entry providers and are the actual controllers of more than 100 companies/

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Proprietary firms/partnership firms. They control these entities through various persons, by appointing them as directors/partners/proprietors apart from nominating them as authorized signatories for maintaining the bank accounts of these entities but in fact all these persons act only as their stooges. The cash received from the recipient parties for providing the accommodation entries was first deposited in the accounts of these dummy firms/companies in the disguise of the cash received against the bogus sales, duly shown in the books of accounts. From there, this cash was transferred to the different paper companies floated by Sh. Surender Kumar Jain and Sh. Virender Kumar Jain through a complex trail of transactions, so as to hide the actual sources of funds of the last set of recipient companies of Sh. Surender Kumar Jain and Sh.

Virender Kumar Jain.

In this way, the reserve and surpluses and the capital account of a specific set of companies are enhanced with the help of the unexplained cash

4 ITA.No.1565/Del./2018 M/s. RKG Housing (P) Ltd., New Delhi. received by Sh. Surender Kumar Jain and Sh. Virender

Kumar Jain, which is routed to these companies through their dummy firm/companies. Once the funds of these companies have been enhanced sufficiently, accommodation entries through RTGS/ Cheque in the shape of the share capital, capital gains or loans as per the specific requirement of the recipient clients were provided them in lieu of the cash received from them. In this way, the chain for providing an accommodation, entry gets completed.

As per seized annexure, the assessee M/s RKG

Housing P. Ltd. has taken the following accommodation entries from the following person (beneficiary) as per details hereunder: - Bank To From Bank Amount Through Cheque Cheque pg. Annx. Book (Benefic /RTGS Date no. Date iary) no. 01-02-07 Hillridge RKG HDFC 01-02-07 20,00,000 Kukreja A-65 4 Investment s ltd. Housing P. Ltd. 08-02-07 Hillridge RKG Ch. No. UTI 08-02-07 20,00,000 Kukreja A-65 14 Investment s ltd 068153 Housing P. Ltd.

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In view of the report received from O/o the DIT

(Inv), New Delhi and in view of the facts narrated above it is clear that the assessee had provided its own cash to arrange a credit entry from the company Hillridge Investment Ltd. Controlled by Sh Surender Kumar Jain and Virender Jain.

Thus, the assessee has not disclosed fully and truly all material facts necessary for its assessment for that assessment year, therefore, reason to believe that the sum of Rs. 40,00,000/- chargeable to tax' has escaped assessment.”

2.1. The assessee, in response to the notice under section 148, filed letter stating that return filed originally may be treated as return filed in pursuance to notice under section 148 of the I.T. Act. The A.O. issued statutory notices for completion of re-assessment proceedings. The A.O. noted that the assessee company is engaged in the business of investment in real estate/securities. As per seized annexure, the assessee-company has taken the accommodation entries

6 ITA.No.1565/Del./2018 M/s. RKG Housing (P) Ltd., New Delhi. from M/s. Hillridge Investment Ltd., amounting to Rs.40,00,000/-. During the course of assessment proceedings, the assessee has furnished copy of share application form, copy of bank statement, copy of ITR etc. in support of its claim of having entered into genuine transaction. Perusal of bank account reveals that there have been regular debit and credit entries of equivalent amounts within a span of 2-3 days. Such is a general phenomenon in the case of the entry providers. The bank account of the Investor clearly defies the claim of genuineness and creditworthiness of the person who have allegedly made the investment as they never had sufficient balances and the cheque issued to the beneficiaries are cleared by way of transfer of funds from associate concerns involved in the business of providing bogus accommodation entries. As per explanation offered by the assessee about the nature and source of the sums found credited in the books was not satisfactorily explained and there was a prima facie evidence against the assessee of receipt of bogus accommodation entry. The assessee has failed to discharge its onus to 7 ITA.No.1565/Del./2018 M/s. RKG Housing (P) Ltd., New Delhi. produce legally acceptable evidence of creditworthiness of the subscribed. This is conscious and willful attempt on the part of the assessee to increase the share capital by way of entering into bogus transaction. The assessee was required to produce one of the Directors of the company to check the genuineness of the transaction and to see whether it was a real investor or only an angel investor. Sh. Naveen Kumar one of the Director of M/s Hillridge Investment Ltd was produced and his statement on oath was recorded, on 24.2.2015. As per his statement, he joined this company as Accountant in October 2013 and became Director in January 2014. He was not conversant with the financial affairs of the company of assessment year under appeal. He was not in a position to give even one reason for investing in the assessee company without any return and acting in an improbable manner against the wisdom of a normal and prudent person. The A.O. noted that in answer to question no. 24, he has admitted that M/s Hillridge Investment Ltd has given the accommodation entries of Rs.40 lacs as share money to assessee company in assessment year under 8 ITA.No.1565/Del./2018 M/s. RKG Housing (P) Ltd., New Delhi. appeal. The A.O, therefore, treated the amount of Rs.40 lakhs as bogus accommodation entry and addition was made of this amount against the assessee. The A.O. also noted that as per the modus operandi followed by the entry operators, they were charging commission ranging between 0.25% to 1% for their services of channelising undisclosed income of the beneficiaries through their bank accounts. The A.O, therefore made the addition of Rs.20,000/- being 0.5% of the amount involved and made the addition under section 69C of the I.T. Act on account of expenditure from undisclosed sources. The A.O, therefore, computed the total income at Rs.40,19,460/-. The assessee challenged the reopening of the assessment as well as addition on merit before the Ld. CIT(A). However, the appeal of assessee has been dismissed.

3. The assessee in the present appeal has challenged the reopening of the assessment under section 148 of the I.T. Act, addition of Rs.40 lakhs under section 68 of the I.T.

Act and addition of Rs.20,000/- under section 69C of the I.T. Act.

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5. Learned Counsel for the Assessee did not argue with regard to issue of reopening of the assessment. The Ld. CIT(A) considering the submissions of the assessee noted that the objections of the assessee with regard to initiation of reopening of the assessment under section 147/148 of the I.T. Act are without any basis, therefore, claim of assessee has been rejected. The A.O. has reproduced the reasons recorded for re-assessment in the assessment order which are also reproduced in this order hereinabove. The reasons clearly show that there was a credible information and material with the A.O. to show that assessee has received accommodation entry, therefore, reopening of the assessment is wholly justified in the matter. Since the Learned Counsel for the Assessee did not argue this ground, I do not find any infirmity in the order of the Ld. CIT(A) in confirming the initiation of re-assessment proceedings.

Therefore, this ground of appeal of Assessee is dismissed.

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6. Learned Counsel for the Assessee, as regards the other additions on merits submitted that assessee filed income tax record of the Investor, their copy of Bank Account, ROC Record and confirmation before the authorities below. PB-93 is Affidavit of the Director of the Investor confirming the transaction with the assessee. PB-46 is reply before A.O. PB-87 is P & L A/c, balance-sheet of the Investor Company. Pb-92 is bank statements of the Investor Company. He has submitted that A.O. has relied upon answer to Question No.24 of the statement of Shri Naveen Kumar, Director of the Investor Company to ignore the other questions. He has submitted that totality of all the answers should have been considered by the authorities below. He has submitted that since Investor Company has confirmed making investment in assessee company, therefore, addition should have been deleted.

taxmann.com 48 (SC).

11 ITA.No.1565/Del./2018 M/s. RKG Housing (P) Ltd., New Delhi.

2. PCIT vs. NDR Promoters Pvt. Ltd., 2019-TIOL-

172-HC-DEL-IT.

ITR 407 (Del.).

4. CIT vs. Nova Promoters & Finlease (P) Ltd., 342

ITR 169 (Del.).

291 (Del.)

12 ITA.No.1565/Del./2018 M/s. RKG Housing (P) Ltd., New Delhi.

Investment Ltd., for a sum of Rs.20 lakhs each [Rs.40 lakhs]. The assessee was asked to produce the evidence in support of the genuine transaction. The A.O. on perusal of Bank A/c of the Investor found that there have been regular debit and credit entries equivalent of the amount within span of 23 days which is common in the case of entry providers. The A.O, therefore, noted that entries in the Bank A/c of the Investor clearly show that there was no genuineness of the transaction in the matter and assessee failed to prove creditworthiness of the Investor. There was no sufficient balance and cheques have been issued to the beneficiaries which are cleared by way of transfer of funds from associated concerns. The A.O. asked the assessee to produce one of the Director of the Investor Company to check the genuineness of the transaction in the matter. Shri Naveen Kumar, one of the Director of M/s. Hillridge Investment Ltd., (Investor) was produced before A.O. and his statement was recorded on oath. Copy of his statement is filed on record in which he has stated that he joined this company as an Accountant in October, 2013 and become

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Director in January, 2014. He was not conversant with the financial affairs of the assessee company in assessment year under appeal. He was also not in a position to give any reasons for investing in assessee company without any return and acting in an improbable manner against the wisdom of a normal prudent person. Most of the questions he did not answer. In answer to Question No.24, he has admitted that M/s. Hillridge Investment Ltd., has given accommodation entry of Rs.40 lakhs to the assessee company in assessment year under appeal. At the end of his statement, he has admitted that he has signed the statement voluntarily and without any pressure or fear.

During the course of arguments, Learned Counsel for the Assessee has referred to PB-87 which is P & L A/c of Investor Company and has submitted that in assessment year under appeal, the Investor has total income of Rs.7,24,369.50ps for the year ended 31.03.2007. Learned Counsel for the Assessee also admitted by referring to this page that ultimately there is a loss to the Investor Company in assessment year under appeal as well as in subsequent

14 ITA.No.1565/Del./2018 M/s. RKG Housing (P) Ltd., New Delhi. assessment years ending on 31.03.2008. These facts clearly support the findings of the authorities below that assessee has failed to prove the creditworthiness of the Investor and genuineness of the transaction in the matter. The Ld. D.R. also referred to bank statements of the Investor Company, copy of which is filed in the paper book to show that before giving accommodation entry to the assessee, there was negligible balance in the account of the Investor Company.

These facts coupled with the statement of the Director of the Investor Company clearly show that M/s. Hillridge Investment Ltd., has given accommodation entry of Rs.40 lakhs to the assessee. The decisions relied upon by the Ld. D.R, thus, clearly supports the finding of fact recorded by the authorities below. Learned Counsel for the Assessee was not able to point-out any error in the Order of the authorities below for making the addition of Rs.40 lakhs and Rs.20,000/-. The Hon’ble Supreme Court in the cases of Durga Prasad More 82 ITR 540 (SC) and Sumati Dayal 214 ITR 801 (SC) held that “Courts and Tribunals have to judge the evidence before them by applying the test of human

15 ITA.No.1565/Del./2018 M/s. RKG Housing (P) Ltd., New Delhi. probabilities.” If the said test is applied in this matter, it clearly establish that assessee has failed to prove the creditworthiness of the Investor and genuineness of the transaction in the matter. We, therefore, do not find any merit in the appeal of the assessee and the same is accordingly dismissed.

Order pronounced in the open Court.