HORIZON BUILDMART PVT LTD,GURGAON vs. ACIT, CIRCLE-2, FARIDABAD

7. The Ld. AR further submits that before issuing the notice u/s 148 of the Act, AO has not carried out any independent enquiry or verification and simply based on the letter issued by DCIT for search and seizure action was conducted on M3M India Group, concluded that the funds received by the assessee from M/s Grand Realcon Pvt. Ltd. are not genuine. The Ld. AR further submits that the AO has inordinate delayed in supplying the reasons recorded to the assessee though the assessee had filed the return in response to notice u/s 148 and requested to supply the reasons so that the same could be challenged. He thus prayed for cancellation of the assessment order as reassessment order passed is not in accordance with the provisions of law.

12. Before us, ld. AR submits that the before AO, assessee submits the confirmed copy of ledger account, copy of income tax return, its bank statements and financial statements of M/s Grand Realcon Pvt. Ltd. Ld. AR submits that by filing the copy of ITR assessee has established the identity of the lender company. Regarding creditworthiness of the lender company, assessee has filed its financial statements and bank account for the relevant period and submits that lender company has sufficient net worth and there was sufficient balance when the funds were transferred to the assessee. Ld. AR further submits that the AO has relied upon the statements of third parties for alleging that the lender company is a paper company however, despite repeated requests, np opportunity to cross-examine those persons was allowed which is a violation of principal of natural justice.

13. It is further stated by ld. AR that the loan was repaid in the Financial Year 2013-14, and no action was taken by the department in that year. Further the AO has alleged that the funds were actually belonged to M/s Misty Meadows Pvt. Ltd and therefore protective addition is made in the hand of the assessee however, no substantive addition was made in the hands of M/s Misty Meadow Pvt. Ltd. prior to the addition made on protective basis. Ld. AR thus submits that the additions made on protective basis are without any authority of law and deserves to be deleted.

14. On the other hand, ld. CIT DR vehemently supported the order of lower authorities and submits that by making inquiries, Investigation wing has already proved that the lender company is merely a paper company managed and controlled by some entry operators and thus the addition made should be sustained.

15. Heard both the parties and perused the materials available on record. In the instant case, assessee has received unsecured loan of Rs.8.35 crores from M/s Grand Realcon Pvt. Ltd. and filed all the necessary documents to establish identity of lender and its creditworthiness. The lower authorities alleged that during the search on M3M group, it was found that the lender company was managed and controlled to provide accommodation entries of unsecured loans. However, it is seen that neither the copy of the said statements was provided to the assessee nor any opportunity of cross examination of such person was provided. The sole allegation in the instant case is based on the alleged admission made by the entry operator, however when neither his statements were provided nor any opportunity of cross examinations was provided, in our considered opinion it is violation of principal of natural justice and no addition could be made based on such statements.

“12. We have, considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the AO, in the instant case, reopened the assessment on the basis of the report of the Investigation Wing that the assessee has received accommodation entry of Rs.23,50,000/- from four companies, the details of which are given in the reasons recorded. We find, the AO after going through the various statements filed by the assessee from time to time, made addition of Rs.55,85,000/-being the share application money/share capital received by the assessee by invoking the provisions of section 68 of the Act and made further addition of Rs.83,775/ being 1.5% of the above amount which the assessee incurred as commission for arranging the accommodation entries. We find, the ld. CIT(A) dismissed the ground challenging the validity of the reassessment proceedings as well as the addition on merit. It is the submission of the ld. Counsel that the assessee during the assessment proceedings had categorically asked for the cross-examination of Shri S.K. Gupta, whose statement was the basis for making the addition of Rs.55,85,000/- to the total income of the assessee. However, we find from the assessment order that the AO rejected the request for cross-examination by observing as under:- 4.1 On 11.3.2014, another Counsel, Sh. V.K. Tulsian, CA attended on behalf of the assessee company but filed no details. He was informed that the name of the assessee company is very much visible at page 5 of the statement given by SK Gupta mentioned above. On the next date of hearing on 18.3.2014, the Counsel of the assessee again reiterated his objection to the reopening of the case which was not warranted as the same was already disposed off through a speaking order as mentioned earlier. He also objected to the name of the assessee and amount appearing in the statement of SK Gupta. It is an accepted fact that recording of reason is only the preliminary stage of initiating the assessment or re-assessment. What is relevant and to be taken here is the income and also any other income chargeable to tax which has escaped assessment and which comes to the notice of the AO subsequently in the course of the proceedings u/s 147. The assessee's request for cross-examination is also not acceptable and there is no need for it because there is no other statement of Sh. S.K. "Gupta which retracts from his earlier statement given on 20.11.2007. The original sworn statement of Sh. S.K. Gupta holds good till today which itself stands as the corroborating evidence of the escapement of income of this assessee. In reply to Q.No. 16, Sh. S.K. Gupta acknowledged that he himself maintained the bank accounts of the companies mentioned in the question out of which Dhamaka Trading & Construction (P) Ltd, ChanderPrabhu Financial Services Ltd, Central Gum & Chemicals Ltd, AGM Holdings Ltd were some of them. These paper companies were also functioning at the office premises of Sh.S.K. Gupta. In reply to Q.No. 7, Sh.S.K. Gupta also acknowledged that around 40 companies, registered at his office address, having no infrastructure, resources, employees and having no real business activities are created only for providing accommodation entries. The assessee's denial that it has no transaction with Sh.S K. Gupta has not absolved him from its onus u/s 68. It is reiterated here that Sh.S.K. Gupta is the entry operator, who through several dummy companies floated by him and controlled by him directly or indirectly, has given the accommodation entries to this assessee through the companies mentioned earlier. Till the last stage of proceedings, the assessee's counsel vide dtd 27.3.2014 again challenged assumption of jurisdiction u/s 147/148 stating that the name of entry provider was mentioned in the reason as 'Sh. Kapur. It may be clarified here that Sh. Kapoor mentioned in the form for recording reason is the middleman engaged by Sh. S.K. Gupta and he is a team of the entry provider, Sh.S.K. Gupta. To say that the name of Kapoor has not appeared except in the reason is factually wrong because this name has appeared as one of the intermediaries at page 8 of the sworn statement of S.K. Gupta, This trifle objection does not effect the nature of transactions, done by the assessee using the mode of accommodation entries to bring back its unaccounted income to its books. The assessee's has not discharged its onus cast u/s 68 as required. To say that the assessee has no control over the share applicants with whom it had many dealings is nothing but an admission of the fact that the entries taken by it are its own money shown in the garb of share application money and has no concern for those paper companies because his purpose has been served. Moreover, this office has already issued summons u/s 131 to the alleged share applicants on 15.10.2013 but some were returned back unserved and others did not comply with these summons. It is surprising to note that some confirmations were sent by post from the same address even in cases which were received back unserved from postal authorities. The fact is that in the course of assessment proceedings, the assessee's counsel was aware about non-service of notices/summons to alleged share subscribers. It appears that the so- called confirmations were got arranged and sent by the assessee himself. The papers arranged by the assessee and filed by its Counsel are nothing but paper trails which have no evidentiary value."

14. We find, identical issue had come up before the coordinate Bench of the Tribunal in the case of TRN Impex Pvt. Ltd. (supra) where the Tribunal deleted the addition on the ground that the AO did not grant the opportunity of cross-examination despite being asked for by the assessee. The relevant observation of the Tribunal from para 6 onwards reads as under:- 6. We have considered the rival submissions and perused the material on record. It is not in dispute that reopening of the assessment was made on the basis of the search conducted in the cases of Shri Deepak Agarwal and Shri Mukesh Kumar. Their statements were also recorded which were adverse in nature against the interests of the assessee. Certain documents were also found during the course of search from their premises to reveal that they have been providing accommodation entries. However, the details of the same have not been mentioned in the assessment order. Thus, the basis for reopening of the assessment and making addition against the assessee was on the basis of statement recorded by Investigation Wing of Shri Deepak Agarwal and Shri Mukesh Kumar implicating the assessee company of providing accommodation entries to the assessee company. The assessee made a specific request before A.O, to provide an opportunity to cross examine the statements of Shri Deepak Agarwal and Shri Mukesh Kumar, but, it were denied by the A.O. vide his letter Dated 05.11.2018 PB-75-76. The A.O. in his letter has mentioned that primary onus is upon assessee to prove its case and under such circumstances by asking for cross examination, the assessee is trying to shift the burden of proof on the Department. Therefore, request of assessee was declined. The Ld. CIT(A) instead of deciding the issue in proper perspective as per Law has also held that right of cross-examination to the statements of witnesses used against the assessee is not an absolute in nature. However, it is well settled Law that any material collected at the back of assessee or statement recorded at the back of assessee cannot be used in evidence against the assessee, unless the same is confronted to the assessee at assessment proceedings and right of cross-examination have been granted to assessee to such statements. We rely upon the Judgments of Hon'ble Supreme Court in the cases of Kishan Chand Chellaram (supra) and Andaman Timber Industries 281 CTR 214 (SC) and Judgment of Hon'ble Delhi High Court in the case of CIT us., SMC Share Broker Ltd., (supra). In view of the above, it is clear that right of assessee have been denied by the authorities below in not allowing the assessee to cross-examine the statements of Shri Deepak Agarwal and Shri Mukesh Kumar. Thus, these statements recorded at the back of the assessee which were adverse in nature to the interest of assessee cannot be relied upon against the assessee and no addition could be made on that basis. The decisions relied upon by the Learned Counsel for the Assessee above also apply to the facts and circumstances of the case. Thus, there is no material left on record with the Department to justify the addition of Rs. 10 lakhs against the assessee. It may also be noted here that assessee has produced the above documentary evidences noted above which clearly shows that the Investor company has made investment in assessee company which is confirmed by the Investor in their confirmation and affidavit of the Director. The balance-sheet of the Investor shows that they have made investment in assessee company and they have sufficient balance to make the investment in assessee company which was made through banking channel. No cash was found to have been deposited in the account of the Investor before making investment in assessee company and actual shares were also allotted to the Investor by the assessee company. Thus, documentary evidences on record have not been rebutted by the A.O. through any evidence or material on record. No independent enquiry has been made against these documentary evidences. Therefore, such documentary evidences clearly supports the explanation of assessee that genuine investment have been made in the assessee company. We rely upon Judgments of Hon'ble Delhi High Court in the cases of CIT us. Fair Investment Ltd., 357 ITR 146 (Del.); CIT vs. Kamdhenu Steel and Alloys Ltd., & Ors. 361 ITR 220 (Del.); CIT us. (i) Dwarakadhish Investment P. Ltd., (2011) 330 ITR 298 (Del.); CIT us. Winstral Petrochemicals P. Ltd., 330 ITR 603 (Del.); CIT vs. Value Capital Services Pvt. Ltd., (2008) 307 ITR 334 (Del.) and CIT vs., Kureli Papers Mills P. Ltd., 380 ITR 571 (Del.). 6.1. Considering the totality of the facts and circumstances of the case and that there is no adverse material available on record against the assessee so as to make the impugned addition of Rs.10 lakhs and that no investigation have been made by the A.O. on the documentary evidences submitted by assessee, we are of the view that addition of Rs. 10 lakhs is wholly unjustified. We, accordingly, set aside the Orders of the authorities below and delete the addition of Rs.10 lakhs. In view of the above, there is no need to decide the issue of reopening of the assessment which is left with academic discussion only. Accordingly, appeal of the Assessee is allowed.

15. Similar view has been taken by the coordinate Bench of the Tribunal in the case of Vijayshree Food Products Pvt. Ltd. (supra) where the Tribunal, following the decision of the Tribunal in the case of Kuber Khan Paan Udyog (P) Ltd. and Kuber Food Products India Pvt. Ltd. vide and 322/Del/2019, order dated 22nd October, 2019 for AY 2011-12 has deleted the addition on account of non-granting of opportunity of cross- examination to the assessee of the person whose statement was the basis for making the addition and which has been recorded behind the back of the assessee. Since, in the instant case also the reopening was made on the basis of the report of the Investigation Wing in the case of Mukesh Gupta group along with its close confidants Sh. Rajan Jassal and Sh. Surinder Pal Singh, but the addition was made on the basis of the statement of Shri S.K. Gupta recorded during the course of survey on 20.11.2007 in the case of M/s Sino Credits & Liasing Limited, M/s Rapid Packaging Limited, Girisho Company (P.) Limited, M/s Mitsu Securities Management (Pvt.) Ltd., M/s Sino Securities and M/s Anila Industries and since even after repeated requests of the assessee, the AO has not provided the opportunity of cross-examination of Shri S.K. Gupta to the assessee, therefore, respectfully following the decisions cited supra, we hold that the addition made by the AO and sustained by the CIT(A) is not in accordance with the law. We, therefore, delete the addition.”

13. Before Ld. CIT (A) assessee once again raised plea of cross-examination granted to assessee and materials not based upon which the submissions have been made has not been provided for examination. Even then opportunity was not granted to assessee, though Ld. CIT (A) had coterminous powers as that of Ld. AO.

"It will have to be kept in mind that Section 68 of the I.T. Act only sets up a presumption against the Assessee whenever unexplained credits are found in the books of accounts of the Assessee. It cannot but be gainsaid that the presumption is rebuttable. In refuting the presumption raised, the initial burden is on the Assessee. This burden, which is placed on the Assessee, shifts as soon as the Assessee establishes the authenticity of transactions as executed between the Assessee and its creditors. It is no part of the Assessee's burden to prove either the genuineness of the transactions executed between the creditors and the sub-creditors nor is it the burden of the Assessee to prove the creditworthiness of the sub-creditors.

Order is pronounced in the Open Court 16.01. 2026