M/S. KASTURI RASHI DEVELOPERS,,PUNE vs. INCOME-TAX OFFICER, WARD - 5(3), , PUNE

आदेश / ORDER

PER R.S.SYAL, VP : This appeal by the assessee is directed against the order passed by the CIT(A) on 30-05-2017 in relation to the assessment year 2007-08. 2. Tersely stated, the facts of the case are that the assessee filed his return declaring Nil income. The Assessing Officer (AO) received information from DGIT(Investigation), Pune vide letter dated 11-03-2014 regarding the assesses, being, one of the beneficiaries of accommodation entries racket operated by one Mr. Praveen K. Jain. Notice was issued u/s.148.

2 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

During the course of the re-assessment proceedings, the AO

observed that the report of DGIT (Investigation), Pune

divulged the assessee to have received an alleged loan of

Rs.25.00 lakh from M/s. Mohit International through

accommodation entry. Vide letter dated 19-03-2015, an

opportunity was given to the assessee to explain its stand. In

its reply dated 21-03-2015, the assessee submitted in para 3

thereof that all the relevant information was already filed as

per Annexure 1 to 5 of its letter dated 27-06-2014 and as such,

the case was fully explained. The AO noticed that Mr. Nilesh

Parmar, who was looking after the accounts of 33 concerns

managed and controlled by Mr. Praveen K. Jain, in his

statement recorded u/s.131 of the Act on 02-01-2013 admitted

that Mr. Praveen K. Jain was engaged in providing

accommodation entries of sale, purchase and bogus loans and

advances to various parties through his fictitious concerns and

further one of the concerns was M/s. Mohit International. In

response to question nos. 31 and 32, Mr. Nilesh Parmar stated

that he was the Accountant of all the 33 concerns which were

merely engaged in providing accommodation entries. Mr.

3 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

Praveen K. Jain himself, in his statement recorded during the

course of search, explained the modus operandi of providing

accommodation entries. The relevant extracts of his statement

recorded u/s.132(4) have been reproduced in the assessment

order, through which he explained the entire mechanism of

giving accommodation entries of unsecured loans/advances

etc. through companies/partnership firms etc. controlled by

him. He further admitted of getting commission between

0.15% to 0.25% on such accommodation entries. In view of

this factual scenario, the AO made the addition of Rs.25.00

lakh. The assessee unsuccessfully challenged initiation of re-

assessment proceedings before the ld. CIT(A) and also the

addition on merits. In the instant appeal, the assessee has

challenged the impugned order on the question of jurisdiction

u/s.148 of the Income-tax Act, 1961 (hereinafter also called

`the Act’); on merits; and on the violation of principles of

natural justice.

relevant material on record. I espouse the three issues raised

by the assessee in seriatim.

4 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

I. INITIATION OF REASSESSMENT

u/s.148 of the tax Act. The Reasons recorded for issuing

notice u/s.148 read as under:

“REASONS RECORDED FOR ISSUING NOTICE U/s.148 OF THE I.T. ACT, 1961

In this case information received from the DGIT (Inv.) Pune vide letter dated 11.3.14, regarding the assessee who are beneficiaries of accommodation entries (loans, advances entries, sales entries, share capital entries etc.). On going through the table following details are available in r/o. above named assessee :

Bogus Loans & Advances

F.Y. Name of Name & address of Date of Amount concern- the beneficiary transaction involved controlled & (Rs.) managed by Praveen Kumar Jain 2006-07 Mohit M/s. Kasturi Rashi 26/02/2007 25,00,000/- International Developers, 842, Budhwar Peth, Rashi Developers, Laxmi Road, Pune Total 25,00,000/-

On going through the AST data, the assessee filed return on 19.10.2007 for AY. 2007-08 showing total loss of Rs.Nil. Thus, the bogus loans & advances shown from above named concerns managed by Mr. Praveen Kumar Jain, totaling to Rs.25 lac needs to be disallowed. I have, therefore, reason to believe that income to the extent of

5 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

Rs.25 lac has escaped assessment within the meaning of section 147 of the I.T. Act, 1961.”

received information from DGIT (Inv.), Pune giving a list of

beneficiaries of accommodation entries provided by Mr.

Praveen Kumar Jain group of concerns. In the list so received,

the name of the assessee appeared along with its address as

beneficiary and the name of the alleged lender, M/s Mohit

International, a concern controlled and managed by Mr.

Praveen Kumar Jain also figured with the date of transaction

on 26-02-2007 and the amount of alleged loan of Rs.25.00

lakh. The ld. AR contended that the AO did not record proper

satisfaction before issuing notice u/s 148 of the Act. He

submitted that the AO acted on a borrowed satisfaction from

the letter of DGIT(Inv.), Pune and did not conduct any further

enquiry to demonstrate that the assessee had escaped income

before issuing the notice. The AO’s action, in the words of the

ld. AR, was based on `reason to suspect’ and not ‘reason to

believe’ as is statutorily mandated. In support of his

contention, he relied on the judgment of the Hon’ble Delhi

High Court in Pr. CIT Vs. RMG Polyvinyl (I) Ltd. (2017) 396

6 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

ITR 5 (Delhi). He further buttressed the argument by relying

on the judgment of Hon’ble jurisdictional High Court in CIT

Vs. Shodiman Investments Pvt. Ltd. (2018) 167 DTR 290

(Bom.).

does not hold water because the AO got tangible material in

the shape of information from DGIT (Inv.), Pune giving list of

the beneficiaries of accommodation entries, which

unmistakably included the assessee’s name with its address

and also that of M/s. Mohit International, a concern controlled

by Praveen Kumar Jain which was admitted to be engaged in

providing accommodation entries. It is equally undisputed

that such loan appeared in the accounts of the assessee. The

condition precedent for issuing notice u/s.148 is that the AO

should have reason to believe that any income chargeable to

tax has escaped assessment in any assessment year. The

reasons to believe do not contemplate making out a fool-proof

case at the stage of initiation of re-assessment only. When the

search on Mr. Praveen Kumar Jain transpired that he was

engaged in the business of providing accommodation entries

7 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

and the list of beneficiaries submitted by him included the

name of the assessee, there remains no doubt about the AO

genuinely and lawfully entertaining reason to believe about the

escapement of income in the hands of the assessee, who had,

in fact, religiously shown such loan in its accounts.

forming a belief that there is some escapement of income,

which is a condition precedent for initiating reassessment.

The Hon’ble Supreme Court in Raymond Woollen Mills vs.

ITO (1999) 236 ITR 34 (SC) has held to this extent by laying

down that if prima facie some material exists on the basis of

which the Department can reopen the case, it is sufficient to

initiate reassessment. “The sufficiency or correctness of the

material is not a thing to be considered at this stage.” The

same view has been reiterated again by the Hon’ble Summit

court in ACIT vs. Rajesh Jhaveri Stock Broker (P) Ltd. (2007)

291 ITR 500 (SC). The Hon’ble Apex Court held in the latter

case that: “If the AO has cause or justification to know or

suppose that income had escaped assessment, it can be said to

have reason to believe that income had escaped assessment.

8 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

The expression cannot be read to mean that the AO should

have finally ascertained the fact by legal evidence or

conclusion………at that stage the final outcome of the

proceedings is not relevant.” It further went on to hold that:

“At the initiation stage, what is required is ‘reason to believe’,

but, not the establishment of fact of escapement of income. At

the stage of issue of notice, the only question is whether there

was relevant material on which a reasonable person could have

formed a requisite belief. Whether the materials would

conclusively prove the escapement is not the concern at that

stage.” The Hon’ble Delhi High Court has also laid down

similar proposition in several judgments including Areva T &

D, SA vs. Asstt. DIT (2012) 349 ITR 127. In that case also, no

return of income was filed by the petitioner. Upholding the

initiation of reassessment proceedings, the Hon’ble High

Court held that: “in any case, it is well settled that at this stage

only prima facie view is to be taken to determine and decide

whether there are reasons to believe that income has escaped

assessment. Whether or not any income of the petitioner is

chargeable to tax in India, whether the petitioner has a

9 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

permanent establishment in India, etc., are matters of merits

which are to be decided in the assessment proceedings.”

Similar view has been taken by the Hon’ble Delhi High Court

in Rolls Royce PLC vs. DIT (International Taxation) (2011)

339 ITR 147 (Del) upholding the view of the Tribunal in Rolls

Royce PLC vs. DIT 2007-TII-32-ITAT-DL-INTL, in which

case, the assessee had not filed its return of income prior to

issue of notice and the Tribunal rejected the assessee’s

challenge to the initiation of reassessment proceedings by

holding that the AO at that stage was required only to form a

prima facie opinion about the escapement of income, which

condition stood satisfied. In an earlier decision, the Hon’ble

Delhi High Court in Reach Cable Networks Ltd. vs. DDIT

(2008) 299 ITR 316 (Del) dismissed the writ petition

challenging the initiation of reassessment proceedings in

which the assessee had not originally filed the return of

income. In the words of the Hon’ble Delhi High Court in

Convergys Customer Management vs. Asstt. DIT (2013) 357

ITR 177 (Delhi) : `at the time of issuance of notices under

section 148, the Assessing Officer is not expected to form any

10 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

definite or conclusive opinion about the taxability of the

disputed amounts and that he is only expected to form a

tentative or prima facie belief regarding the escapement of

income chargeable to tax’.

judgments fairly brings out that the initiation of reassessment

proceedings requires the AO to form a prima facie view about

the escapement of income. There is no need to conclusively

establish at that stage itself that such and such income escaped

assessment. If it emerges from the reasons recorded, which, in

turn, are based on some cogent material, that the AO had

prima facie reason to believe about income escaping

assessment, the matter ends there insofar as the initiation of

reassessment proceedings is concerned. No fault can be found

with the jurisdiction of the AO to initiate reassessment.

Polyvinyl (I) Ltd. (Supra) relied on by the ld. AR. In that case,

the re-assessment was held to be invalidly initiated on two

counts viz., first, non-filing of return of income and the

second, that there was discrepancy in the amount of

11 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

accommodation entry set out in the notice and the order. The

case of the Department fell through because the assessee in

that case had already filed the return and secondly, the actual

amount of accommodation entry was Rs.78.00 lakh which was

recorded in the reasons as Rs.1.56 crore. Au contraire, the

facts of the instant case do not suffer from any such infirmity.

Here is a case in which the reasons clearly indicated the

assessee to have received bogus loan of Rs.25.00 loan from

M/s. Mohit International on 26-02-2007. It is the exact

amount of the alleged loan which was recorded by the assessee

in its books of account as having been received from M/s.

Mohit International on that date itself. There is hardly any

need to emphasize that the decision of a case primarily

depends upon the facts obtaining in that case. A slight change

in the factual panorama in another case possibly dents the

applicability of its conclusion in the later case. It can be seen

that there is a significant difference in the facts of the extant

case and that which were obtaining in the case before the

Hon’ble Delhi High Court. The second decision in the case of

Shodiman Investments Pvt. Ltd. (supra) is again

12 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

distinguishable. The Hon’ble Bombay High Court discussed

the reasons recorded by the AO before issuing notice u/s.148

in para 4 of its judgment. Such reasons did not indicate the

amount, which according to the AO, had escaped assessment.

It was on the basis of this uncertainty that the Hon’ble High

Court held the re-assessment to be invalidly initiated. Such

facts are absent in the instant case.

referred to the judgment of Hon’ble Bombay High Court in the

case of Om Vinyls Pvt. Ltd. Vs. ITO wherein the same Mr.

Praveen Kumar Jain group of cases was involved for providing

accommodation entries and on the basis of which the AO

initiated re-assessment proceedings. The Hon’ble High Court

dismissed the assessee’s writ petition challenging the initiation

of re-assessment. The ld. CIT(A) has also referred to another

judgment of the Hon’ble Gujarat High Court in Pushpak

Bullion Pvt. Ltd. Vs. DCIT, in which case again, that assessee

was one of the beneficiaries of Mr. Praveen Kumar Jain group

of cases, who had allegedly received accommodation entries

from M/s. Mohit International, being the same concern and

13 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

the same A.Y., from whom the assessee under consideration

received the alleged loan. The writ petition filed by that

assessee also came to be dismissed. There is a reference in the

impugned order to still another judgment of the Hon’ble High

Court in Ankit Financial Services Ltd. Vs. DCIT. That case

also involved one of the beneficiaries of Mr. Praveen Kumar

Jain group of cases, who approached the Hon’ble High Court

challenging the issuance of notice u/s.148 but without success.

in favour of the Revenue, I am of the considered opinion that

no interference is warranted in the impugned order upholding

initiation of re-assessment proceedings. This ground fails.

II. ADDITION ON MERITS

assessee was found to be a beneficiary of an accommodation

entry of loan of Rs.25.00 lakhs received from M/s. Mohit

International, a proprietorship concern of Mr. Nilesh Parmar, a

part of Mr.Praveen Kumar Jain group of assesses. Statement

of Mr. Nilesh Parmar was recorded u/s.131 of the Act by the

Investigation wing, wherein he admitted to be looking after the

14 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

accounts of Mr.Praveen Kumar Jain group of cases including

M/s. Mohit International. He admitted that M/s. Mohit

International was one of the concerns which were apparently

engaged in the business of Diamond trading, but actually there

was no diamond activity. In answer to question no.31, he

submitted that: “In my capacity as accountant of all the 33

concerns, having access to the books of accounts of these

concerns and as the person who makes entries of sale,

purchase and banking transaction, I would like to state that all

the 33 concerns mentioned above are merely engaged in

providing accommodation entries of sale, purchase and bogus

loans and advances to various parties”. He further stated in

answer to question no.32 that one: “Sandeep Maloo supervises

the work of giving accommodation entries of bogus sale,

purchase and bogus loans and advances. He advises Praveen

Jain as to how the accommodation entries are to be given”.

Then the statement of Mr. Praveen Kumar Jain was recorded

during the course of search, who, in answer to question No.65,

as reproduced in the assessment order, gave the list of his

employees, which included Mr. Nilesh Parmar who was

15 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

looking after the accounts. In answer to question no.66, which

has been reproduced at para 7 of the assessment order, he

admitted of being engaged: “basically in the business of

giving accommodation entries which are routed through the

companies under my control”. All the companies were

admitted to be either owned by him or directly/indirectly under

his control and were only paper companies with no real

business transactions except providing accommodation entries

of bogus unsecured loan, bogus LTCG etc. In answer to

question no.67, he admitted that: “I have earned in this entire

transaction is the commission on the accommodation entry

given to the beneficiary company/builder <0.15% to 0.20%

per month”. It was on the basis of such statements, that the

AO recorded the above reasons for reassessment and dealt

with the objections raised by the assessee through a separate

order, which was not challenged by the assessee before the

Hon’ble High Court. In support of the genuineness of the

transaction, the assessee furnished before the AO - Ledger

extracts of M/s. Mohit International from its books of account;

Bank statement; Confirmation from lender; Audited Statement

16 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

of accounts of lender; his PAN card; his Income-tax return

etc., which did not convince the AO as well as the ld. first

appellate authority.

transaction, I, firstly, deal with the above referred material

supplied by the assessee to the authorities below. The first and

the foremost thing to be noted is that M/s. Mohit International

is a proprietorship concern of Mr. Nilesh Parmar, whose PAN

and Income-tax return have been placed on record by the ld.

AR. At this stage, it is relevant to mention that the statement

of Mr. Nilesh Parmar was recorded on oath u/s.131 of the Act,

which has been referred to in para 6 of the assessment order.

In that statement, he admitted to be looking after the accounts

of all the 33 concerns which were managed and controlled by

Mr. Praveen Kumar Jain. Then Mr. Praveen Kumar Jain also

in his statement recorded u/s.132(4), as referred to in para 7 of

the assessment order, admitted that Mr. Nilesh Parmar was

looking after the accounts of his concerns. Thus, it becomes

evident that Mr. Nilesh Parmar who was working as an

Accountant with Mr. Praveen Kumar Jain was the alleged

17 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

owner of M/s. Mohit International, which provided

accommodation entry of unsecured loan of Rs.25.00 lakh to

the assessee.

of M/s. Mohit International for the year ending 31-03-2007 at

pages 56 and 57 of the paper book. Page 57 is a copy of the

Profit and loss account, which shows turnover of Rs.127.87

crore and purchase of Rs.127.75 crore, with the net profit at

Rs.9,37,568/-. The `Other income’ shown in the Profit and

loss account as per Schedule 7 is Rs.32,52,241/-. If the

amount of `Other income’ is excluded, M/s. Mohit

International suffered a loss of more than Rs.23.00 lakh on

sale of Rs.127.87 crore. What is the nature of the transactions

of purchase and sale is not borne out from any material

provided by the assessee. An interesting fact to be noted is

that there is no Opening stock or Closing stock of M/s. Mohit

International, despite such a huge turnover. It is further

important to note that the value of Fixed assets in the balance

sheet of M/s. Mohit International is Rs.3,17,856/-, which

shows that M/s. Mohit International carried out business of

18 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

Rs.127.00 crore with the fixed assets of Rs.3.17 lakh only.

This concern has shown Loans/advances on the asset side of

its Balance sheet at Rs.13.95 crore with Sundry Debtors at

Rs.37.30 crore. Though there is reference to Schedule No.4

giving details of Current assets, loans and advances, but such

Schedule is unfortunately again missing from the details filed

by the assessee. As against that, balance in the Proprietor’s

capital is only Rs.14,91,014/-. In fact, none of the Schedules

referred to either in the Profit and loss account or the Balance

sheet have been made available. On an examination of the

Profit and loss account and Balance sheet of this concern de

hors the other relevant details, I have no doubt that the Annual

accounts not only lack credence but also prove non-

genuineness of the transaction thereby destroying the

assessee’s façade of authenticity. Though the assessee placed

on record a copy of ledger extract, bank statements, income-

tax returns, PAN of Mr. Nilesh Parmar and TDS certificates

etc., but Schedules to the Profit and loss account and the

Balance sheet, which could have illuminated the issue further,

have not been made available. On a specific query, the ld. AR

19 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

denied to have possession of the Tax Audit Report which

could have thrown further light on the nature of activities

carried out by M/s. Mohit International. When the assessee

had such an easy access to the Annual accounts, Income tax

return and PAN along with the bank statements of M/s Mohit

International etc., I fail to comprehend as to what prevented it

from getting Schedules to the Annual accounts and its Tax

audit report, which could have indicated the nature of business

carried on by M/s. Mohit International and other crucial details

having bearing on the transaction with the assessee.

of income-tax return of Mr. Nilesh Parmar, proprietor of M/s.

Mohit International, has been placed at page 54 of the paper

book. The address of Sh. Nilesh Parmar in such a return of

income has been shown as that of Surat, Gujarat. Assuming

arguendo the contention of the ld. AR that M/s. Mohit

International was engaged in the business of Diamonds, a

question arises as to how the assessee, engaged in construction

activity based in Pune, came in touch with M/s. Mohit

International for obtaining a loan of Rs.25.00 lakh. No answer

20 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

could be given even by the ld. AR during the course of hearing

before the Tribunal. It is further interesting to note that the

amount of alleged loan was provided by M/s. Mohit

International from an account maintained with Axis Bank Ltd.

with branch ID of 00233. The said branch ID reveals that it

was located at New Marine Lines, Mumbai. This fact has been

pointed out by the ld. CIT(A), which could not be controverted

on behalf of the assessee. Thus, the situation which turns out

in this way is that the assessee, a builder based in Pune,

obtained a loan from Mr. Nilesh Parwar, doing business of

Diamonds in Surat through a bank account maintained by him

in Mumbai and on top of it, Mr. Nilesh Parmar was working as

an Accountant with Mr. Praveen Kumar Jain as admitted by

himself and Mr. Praveen Kumar Jain.

genuineness of the alleged loan transaction, the assessee

furnished a copy of bank account of M/s. Mohit International

from 25-11-2006 to 13.12.2006 at page 58 and from 27.2.2007

to 16-03-2007 at pages 59 of the paper book. The alleged loan

entry of Rs.25.00 lakh dated 28.2.2007 has been debited to the

21 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

Axis Bank account and in the Description column mentions

“KASTURI RASHI”, i.e. the name of the assessee. On a

perusal of these two pages of the bank account provided by the

assessee itself, it can be seen that there are transactions

running into lakhs and crores in such a bank account. The

transaction with the assessee is dated 28-02-2007. On that

date itself, there are 14 transactions. First six transactions are

Cancellation of DDs worth Rs.2.50 lakh approximately. Then

there is a transaction with the assessee amounting to Rs.25.00

lakh. On that date itself, there are six credit transactions worth

more than Rs.56.00 lakh and one debit transaction of Rs.12.70

lakh. Opening balance on 28.2.2007 as per the bank statement

is Rs.37.54 lakh and closing balance is Rs.59.18 lakh. Similar

is the position about several debit and credit entries on all the

dates and the balance in the bank account running into crores.

For example, on 16.3.2017, being the last date on two pages

given, there is a closing balance of Rs.1.87 crore. It is not

understandable as to how Mr. Nilesh Parmar, who was

working just as an Accountant with Mr. Praveen Kumar Jain,

could have managed to have bank transactions running into

22 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

crores of rupees. No answer could be given by the ld. AR to

this during the course of hearing before the Tribunal.

of the statement given by Mr. Nilesh Parmar himself that M/s.

Mohit International was one of the concerns which was

apparently engaged in the business of Diamonds trading but

actually providing accommodation entries, there remains no

doubt that the transaction of loan of Rs.25.00 lakh received by

the assessee is nothing but a bogus loan received from M/s.

Mohit International, through a proprietorship concern of Mr.

Nilesh Parmar, which was actually controlled by Mr. Praveen

Kumar Jain, with whom Mr. Nilesh Parmar was working as an

Accountant. Not only that, even Mr. Praveen Kumar Jain also

admitted before the authorities that he was engaged in giving

accommodation entries through companies under his control

and all of such companies were paper concerns with no real

business transactions. He also admitted to have provided

accommodation entries, inter alia, of unsecured

loans/advances, sale and purchase in various commodities

including Diamonds etc. He further admitted that his

23 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

beneficiaries included, inter alia, builders. During the course

of search, he provided a list of concerns controlled and

managed by him along with name and address of the

beneficiaries of accommodation entries. Such a list included

the name of the assessee as a beneficiary of a loan of Rs.25.00

lakh received on 26-02-2007 from the concern controlled and

managed by him by the name of M/s. Mohit International. On

a specific question, the ld. AR fairly admitted that loan of

Rs.25.00 lakh was received and recorded by the assessee from

M/s. Mohit International on 26-02-2007, though he insisted on

the genuineness of the transaction.

judgment of the Hon'ble Supreme Court in CIT vs. Durga

Prasad More (1971) 82 ITR 540 (SC), in which the assessee

claimed before the ITO that income of certain property should

not be taxed in his hands as it was a trust property. The ITO

rejected the claim and included the income in the hands of the

assessee. The Tribunal affirmed the decision of the ITO,

which was reversed by the Hon'ble High Court. Reversing the

verdict of the Hon’ble High Court, their Lordships noticed that

24 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

though the assessee made a claim that income of the property

was not his and produced conveyance executed in his favour

and the deed of settlement executed by his wife, nearly about a

year after the conveyance, however, when the ITO asked the

assessee about the source from which his wife got the amount,

apart from saying that it was ‘sthridhan’ property, he failed to

disclose any source from which his wife could have got the

amount for purchasing the premises. In this backdrop of facts,

the Hon'ble Supreme Court held that although the apparent

must be considered as real, but, if there are reasons to believe

that the apparent is not real, as is the case under consideration

as well, then the apparent should be ignored to unearth the

harsh reality.

CIT (1995) 214 ITR 801 (SC). The question for consideration

in that case was whether the assessee purchased winning

tickets after the event. It was observed that in all cases in

which a receipt is sought to be taxed as income, the burden lies

on the Department to prove that it is within the taxing

provision and if a receipt is in the nature of income, the burden

25 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

of proving that it is not taxable because it falls within

exemption provided by the Act, lies upon the assessee. But, 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 deciding the issue

against the assessee, their Lordships held that : `Apparent must

be considered real until it is shown that there are reasons to

believe that the apparent is not the real and that the taxing

authorities are entitled to look into the surrounding

circumstances to find out the reality and the matter has to be

considered by applying the test of human probabilities’. This

shows that a decision based on the attending circumstances

and human probabilities does not get vitiated if there are

compelling reasons to reject the frontage of a transaction

based on the so-called evidence, which is nothing more than a

mere paper work.

26 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

the Tribunal in ITO Vs. M/s. Shreedham Construction Pvt.

Ltd., copy placed at page 165 of the paper book, for

contending that the Tribunal accepted the genuineness of

transaction in respect of Mr. Parveen Kumar Jain group of

cases. On the other hand, the ld. DR relied on the decision of

the Ahmedabad Bench of the Tribunal in Pavankumar M.

Sanghvi Vs. ITO, Vadodara in ITA No.2447/Ahd/2016 which

has been discussed at page 30 of the impugned order. In view

of the fact that the decision in M/s. Shreedham Construction

Pvt. Ltd. (supra) pertains to years other than the assessment

year 2007-08 under consideration and the decision of

Ahmedabad Bench of the Tribunal in Pavankumar M. Sanghvi

(supra) relates to the assessment year under consideration and

also the loan transaction is from the same party, namely, M/s.

Mohit International, I am convinced to go with the decision of

the Ahmedabad Bench of the Tribunal.

no hesitation in countenancing the view of the ld. CIT(A) that

27 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

the assessee received accommodation entry of loan of

Rs.25.00 loan from M/s. Mohit International.

III. PRINCIPLES OF NATURAL JUSTICE

that adequate opportunity of hearing was not provided by the

authorities below. It was submitted that the AO wrongly

mentioned in para 6 of his order that the copy of the statement

was shown to the assessee. The ld. AR contended that in the

absence of furnishing of the statements of Mr. Nilesh Parmar

and Mr. Praveen Kumar Jain to the assessee, the assessment

was vitiated.

entire focus of the assessee in this ground has been on the fact

that the statements of Mr. Nilesh Parmar and Mr. Praveen

Kumar Jain were not supplied to him. It is a matter of record

that the reasons recorded by the AO clearly indicated that the

assessee received alleged loan of Rs.25.00 lakh from M/s.

Mohit International. The assessee raised objections against

such reasons which were disposed off by the AO, vide his

order dated 21-01-2015, whose copy is available at pages 14

28 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

and 15 of the assessment order. In para 3 of such order, the

AO has clearly referred to the transactions of the alleged loan

accepted by the assessee from M/s. Mohit International, who

was a mere accommodation entry provider to various

beneficiaries and the assessee was one of such beneficiaries.

This shows that the assessee was well aware about the

transaction under challenge allegedly entered into with M/s.

Mohit International, whose proprietor admitted to be an

accommodation entry provider. In support of the genuineness

of the transaction, it was the assessee, who placed on record

Ledger extracts, Bank statement, Confirmation from lender,

PAN card, Income-tax return and Annual accounts of the

lender etc. Submission of such documents in support of the

genuineness of the transaction pre-empts the argument of

ignorance of the case made against him by the AO. It is further

relevant to note that the AO has reproduced all the relevant

parts of the statements of Mr. Nilesh Parmar and Mr. Praveen

Kumar Jain in the body of the assessment order itself, which

form the basis of the addition. Except for harping on the

argument of non-provision of such statements before the

29 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

CIT(A), the assessee did not add any further evidence to prove

the genuineness of the transaction except for refurnishing the

documents pertaining to M/s Mohit International as were

placed before the AO. The material supposedly proving the

genuineness of the transaction furnished by the assessee,

speaks volumes of its unreliability and non-genuineness of the

transaction.

having provided statements on which reliance was placed, the

addition deserves to be deleted. For this proposition, he relied

on the judgment of Hon’ble Bombay High Court in Pr. CIT

Vs. Paradise Inland Shipping (P) Ltd. (2017) 84 taxmann.com

58 (Bom.) and CIT Vs. Ashish International (ITP

No.4299/2009). There can be no doubt about the proposition

that if the Department is relying on any statement etc. for

deciding the issue against the assessee, such statement must be

confronted to the assessee, so as to enable him to put across

his point of view. This general proposition holds good where

the assessee is unaware of the contents of the statements

sought to be used against him. If, however, the contents of the

30 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

statements are very well known to the assessee and the entire

factual panorama is very well in the knowledge of the

assessee, then he cannot be allowed to argue that he was

unaware of the material used against him. Here is a case in

which the assessee allegedly received loan of Rs.25.00 lakh

from M/s. Mohit International. This fact was conveyed to the

assessee by supplying the reasons for re-assessment against

which the assessee filed objections which were disposed off by

the AO. Thereafter, during the course of assessment

proceedings, the assessee was again informed about the

statement of Mr. Nilesh Parmar and shown the relevant

excerpts from the statement. The assessee, in support of his

submission and genuinely knowing that what was going on

against him, did furnish necessary evidence in the shape of

Ledger extracts of M/s. Mohit International, Bank statement of

M/s. Mohit International, PAN card, Income-tax returns and

Audited financials of M/s. Mohit International. In such

circumstances, it will be too much to contend that the assessee

was oblivious of the statements which were used against him.

31 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

appeal is a continuation of assessment proceedings. When the

assessment order containing all the relevant questions from the

statements of Mr. Nilesh Parmar and Mr. Praveen Kumar Jain

was challenged before the ld. CIT(A), the assessee did nothing

more than re-furnishing of the earlier documents viz., income-

tax returns and PAN card etc. of Mr. Nilesh Parmar, which it

had already filed with the AO. The assessee has failed to

make its case any better before the Tribunal as well. In view

of the above factual matrix, it is apparent that the assessee was

in full knowledge of the state of affairs and the transaction of

accommodation entry received from M/s. Mohit International,

on the basis of which the addition came to be made.

Kumar Singh and others in Civil Appeal No.3498/2020

(arising out of SLP (C) No.5136/2020 vide its judgment dated

16-10-2020 has extensively dealt with the question of

principles of natural justice and laid down the following

principles in para 39 of its judgment :

32 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

(1) Natural justice is a flexible tool in the hands of the judiciary to reach out in fit cases to remedy injustice. The breach of the audi alteram partem rule cannot by itself, without more, lead to the conclusion that prejudice is thereby caused.

(2) Where procedural and/or substantive provisions of law embody the principles of natural justice, their infraction per se does not lead to invalidity of the orders passed. Here again, prejudice must be caused to the litigant, except in the case of a mandatory provision of law which is conceived not only in individual interest, but also in public interest.

(3) No prejudice is caused to the person complaining of the breach of natural justice where such person does not dispute the case against him or it. This can happen by reason of estoppel, acquiescence, waiver and by way of non-challenge or non-denial or admission of facts, in cases in which the Court finds on facts that no real prejudice can therefore be said to have been caused to the person complaining of the breach of natural justice.

(4) In cases where facts can be stated to be admitted or indisputable, and only one conclusion is possible, the Court does not pass futile orders of setting aside or remand when there is, in fact, no prejudice caused. This conclusion must be drawn by the Court on an appraisal of the facts of a case, and not by the authority who denies natural justice to a person.

(5) The “prejudice” exception must be more than a mere apprehension or even a reasonable suspicion of a litigant. It should exist as a matter of fact, or be based upon a definite inference of likelihood of prejudice flowing from the non- observance of natural justice.

Hon’ble Apex Court, it is clear that when the facts are clear

from which only one conclusion is possible, the Court does not

pass futile orders of setting aside or remand when there is, in fact,

33 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

no prejudice caused. When I examine the facts of the instant

case on the touchstone of the above principle enunciated by

the Hon’ble Apex Court, it gets manifested that the assessee

was very well aware of the entire case against him. The fact

that Mr. Praveen Kumar Jain was engaged in the business of

providing accommodation entries was established twice,

firstly, in the statement of Mr. Nilesh Parmar recorded u/s.131

and, secondly, in the statement of Mr. Praveen Kumar Jain

recorded u/s.132(4) of the Act. All the attending facts and

circumstances flowing from the documents of M/s. Mohit

International, furnished by the assessee itself, as discussed

hereinabove, abundantly corroborate the version stated by Mr.

Nilesh Parmar and Mr. Praveen Kumar Jain in their respective

statements about the racket of accommodation entries. In such

circumstances, the assessee cannot claim any violation of

principles of natural justice.

Court delivered by a five Hon’ble judges-bench in Managing

Director, ECIL and others Vs. B. Karnakumar and others

(1993) 4 SCC 727 holding that if after hearing parties, the

34 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

Court/Tribunal comes to the conclusion that the non-supply of

the report would have made no difference to the ultimate

findings and the punishment given, the Court/Tribunal should

not interfere with the order of punishment by mechanically

setting-aside the order of punishment on the ground that the

report was not furnished.

Ltd. & Anr VS. CIT & Anr (2016) 382 ITR 639 (Del) has held

that where uncontroverted statement of witness was sufficient

to substantiate the case of the Revenue, the assessee cannot

take the plea of violation of principles of nature justice. This

judgment was rendered after considering the decision of

Hon’ble Supreme Court in Andaman Timber Industries v.

Commissioner of Central Excise, Kolkata-II (2015) 62

taxmann.com 3 (SC), on which the ld. AR has placed strong

reliance.

of either Mr. Nilesh Parmar or Mr. Praveen Kumar Jain as a

ground for quashing the instant assessment order. On a perusal

of the facts, it is seen that the assessee did not make such

35 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

claim before the AO for allowing their cross examination. The

reliance of the ld. AR on the judgment of Hon’ble Delhi High

Court in Ashish International (supra) is misplaced. In that

case, the appellate authority had sought remand report and

even at that stage the genuineness of statement was not

established by allowing cross examination of the person whose

statement was relied upon by the Revenue. The facts in the

instant case are far away from the factual situation prevailing

in that case. The second judgment in the case of Paradise

Inland Shipping Ltd. (supra) again does not support the

assessee’s case because the AO in that case initiated re-

assessment proceedings on the ground that the shares of the

assessee company were purchased by fictitious companies,

which were not in existence. When I turn to the facts of the

instant case, it is discernible that the assessee allegedly

received bogus loan of Rs.25.00 lakhs, which position got

specifically established by the statements of Mr. Nilesh

Parmar and Mr. Praveen Kumar Jain.

judgment of the Hon’ble jurisdictional High Court in Cenzer

36 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

Industries Ltd. VS. ITO (2016) 385 ITR 58 (Bom). In that

case, the assessee, placing reliance on Andaman Timbers

(supra), contended that in case the Revenue was relying upon

statement of an adverse witness, then the appellant should

have been given opportunity and having not done so, rendered

the order not sustainable. The Hon’ble High Court rejected the

contention of the assessee on finding that the assessee did not

seek any cross examination. Turning to the facts of the case

under consideration, my attention has not been drawn towards

any specific material indicating that the assessee requested for

cross examination of either or both of Mr. Nilesh Parmar and

Mr. Praveen Kumar Jain, which was not allowed by the AO.

very well aware of the contents of the statements of Mr. Nilesh

Parmar and Mr. Praveen Kumar Jain from the stage of the

initiation of the reassessment proceedings and the argument of

it being unaware to the statements, is nothing but a shield to

defend an undefendable case. It is pertinent to mention that

the assessee in its last reply dated 21-03-2015 submitted

personally to the AO on 24.3.2015, stated all that it was to

37 ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

state by mentioning in para 3 that: “we have already filed with

you all the relevant papers as Annexure 1 to 5 of our letter

dated 27-06-2014. You have also acknowledged the same in

Para 3 of your aforesaid letter. Under the circumstances, we

fully explained the said loan”. There is no reference to any so-

called violation of principles of natural justice by the AO not

supplying the statements of Mr. Nilesh Parmar and Mr.

Praveen Kumar Jain. In view of the foregoing discussion, I am

satisfied that the authorities below were justified in deciding

the issue against the assessee.

Order pronounced in the Open Court on 07th March,

2022.

Sd/- (R.S.SYAL) उपा�य�/ VICE PRESIDENT पुणे Pune; �दनांक Dated : 07th March, 2022 Satish

ITA No. 1961/PUN/2017 M/s. Kasturi Rashi Developers

आदेश क� ��त�ल�प अ�े�षत / Copy of the Order is forwarded to : 1. अपीलाथ� / The Appellant; 2. ��यथ� / The Respondent; आयकर आयु�(अपील) / 3. The CIT (Appeals)-8, Pune 4. The Pr. CIT-3, Pune 5. �वभागीय ��त�न ध, आयकर अपील!य अ धकरण, पुणे “SMC” / DR ‘SMC’, ITAT, Pune; 6. गाड� फाईल / Guard file.

आदेशानुसार/ BY ORDER,

// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

Date 1. Draft dictated on 02-03-2022 Sr.PS 2. Draft placed before author 07-03-2022 Sr.PS 3. Draft proposed & placed -- JM before the second member 4. Draft discussed/approved -- JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement Sr.PS on 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *