PALCO RECYCLE EXCHANGE LTD.,KADI vs. ITO, WARD-3(1)(2), AHMEDABAD

O R D E R

PER T.R. SENTHIL KUMAR, JUDICIAL MEMBER:

SP 2 3. Brief facts of the case is that assessee-company is engaged in trading of ferrous and non-ferrous metal scrap. For the assessment year 2009-10, assessee filed its return of income on 27.8.2010 declaring total income of Rs.35,41,830/- and the same was processed under section 143(1) on 16.8.2011. Thereafter, the case of the assessee was reopened under section 147 of the Income Tax Act, 1961 ("the Act" for short) on the basis of information received from ADIT (Inv.,) Rajkot that company named “M/s.Bhoomidev Credit Corporation Ltd., Ahmedabad (“BCCL”) has indulged in providing accommodation entries of various kinds such as bogus loans & advances, bogus share capital etc. Copy of statement of Shri Prakash Bagrecha, (“Shri Prakash” for short) Director of BCCL recorded on 13.12.2011 wherein he has admitted having engaged in providing accommodation entries by providing cheque in lieu of cash and vice versa. Shri Prakash has also admitted of receiving commission at 1.5% of the transaction for providing such entries. Cash receipt from one client was set off with cheque of another client so that nowhere in the book of accounts of BCCL cash component was reflected. It is also found that BCCL has providing accommodation entry of Rs.45.00 lakhs as investment in the assessee-company. In response to the notice under section148, the assessee filed its return of income and replied to further notices that the assessee subscribed for 4,50,000 equity shares of Rs.10/- each towards the share capital of the company on 5.10.2009. Copy of such allotment was given to the AO. BCCL continued to hold shares in its name, and copy of a list of shareholders of the company as on 31.3.2007 filed with the annual return with ROC was also furnished to the AO, and that, the investment has been duly reflected in the balance sheet of the BCCL. Further, the assessee pointed out that on going through the statement of Shri Prakash, he has confirmed

SP 3 that BCCL company was involved in the business of investment and finance and nowhere he has stated all the transactions in the companies were allegedly business entries. It was further clarified that assessee came to know that Shri Prakash in his statement dated 9.12.2016 has very specifically stated that his previous statement dated 13.12.2011 was given without verification of its books of accounts. He further produced his bank statements and accounts to establish that the remaining transactions were genuine transactions of finance and investment business. Similar disallowance made in the case of Kutch Ginning & Spinning P.Ltd. which was also figured out in the statement dated 13.12.2011 has been deleted by the ld.CIT(A)-2, Rajkot for want of evidence on the ground that the sole basis of addition by the AO was the statement which was without any corroborating evidence. Thus, the assessee sought for an opportunity to cross-examine the above named Shri Prakash whose new statement was being relied upon by the department in making such disallowance. However, the AO held that the assessee is coming up with a new statement of Shri Prakash after a long period cannot be entertained. Therefore, the AO made addition to the total income of the assessee and determined tax accordingly.

“I have carefully considered the facts of the A.O, observations of the A.O as well as the submission of the appellant. The A.O has made addition of Rs.45,00,000/- u/s.68 on account of share subscription money received by the appellant. While finalizing the assessment proceedings, the A.O has relied on the information received from ADIT(lnv.)Rajkot wherein one of the directors of M/s. Bhoomidev Credit Corporation Ltd.(BCCL) i.e. Shri Prakash J. Bagrecha has admitted of having engaged in providing accommodation entries by giving cheque in lieu of cash. He also admitted to have received commission in the range of 1,5% to 2% of the transaction for providing such accommodation entries. The appellant during the course of appellate proceedings had reiterated the arguments made before the A.O. The appellant's objection is with regard to three issues mainly i.e. the A.O has ignored the statement of Shri Prakash Bagrecha recorded on 9/12/2016 subsequently. Secondly, no opportunity of cross examination was provided by the A.O and thirdly, the addition made in the case of M/s.Kutch Ginning and Spinning Pvt. Ltd, has been deleted by the CIT(A)-2, Rajkot.) On perusal of the facts as available on record, it is noticed that the A.O was absolutely right in ignoring the statement recorded of Shri Prakash Bagrecha on 9/12/2016 as on that date, he was not one of the directors of BCCL, and the answer given by him in questioning. 10 is testimony to this fact. Therefore, this statement does not have any evidential value as Mr. Bagrecha is not representing BCCL at that point of time. Further, in the original statement he has admitted of providing accommodation entries which was recorded on 13/12/2011 whereas the subsequent statement recorded is almost five years later. It is not understood why Mr. Bagrecha was waiting for such a long period to retract the averments made in the original statement recorded in 2011. As far as the relief granted by the CIT(A), Rajkot is concerned, the undersigned is not bound by it to take the decision. Moreover, no copy of that decision has been provided by the appellant during the course of appellate proceedings so as to examine the facts of that particular case and as to whether those facts are applicable in the case of appellant or not. Thirdly, with regard to providing an opportunity of cross examination, the A.O has dealt with this issue in para-12 of the assessment order specifically. The undersigned agrees with the stand taken by the A.O. The A.O has also dealt properly with the contention of the appellant with regard to transactions made through banking channels. Further, reliance in this regard is placed in the case of ITO vs Sohail Financials Ltd. in (Del) wherein it is held that :- e. Sanctity of the transaction entered into by cheque:-

Now a days it is naive to believe that the transactions entered into through banking channel proves identity, creditworthiness and genuineness of the transactions. The many reasons are that in cash, assessee could not have accepted such a huge amount. Necessarily accommodation entries are an exercise of introducing unaccounted money into the books of accounts of the assessee without payment of taxes and therefore to give it a colour of genuinity, the transactions are entered through banking channel. The accommodation entries are only with the object of camouflaging unaccounted money as tax paid and genuine money. One of the ways to do this is routing them in the books of accounts of the assessee through cheque. Therefore by very nature, generally accommodation entries are introduced in the books by banking channels. f. Bank statement of appellant :-

Bank statement of appellant company will show the banking transactions entered into by the company. That is not the dispute at all. The money has been deposited in the bank account of the assessee company, therefore naturally such entries would be shown in those bank accounts. However, the question is to whom this money belongs to, whether such person is credit worthy of depositing such sum and whether the depositing such sum is a genuine transfer of funds as share capital. g. Non deposit of cash in the bank accounts of the shareholders:-

Certain times, it is said that there is no deposit of cash in the bank account of the depositor shareholders prior to issue of cheques of share capital to the assessee company and further transactions are through banking channel, addition cannot be made u/s 68 of the act. There is no law shown to us that transactions entered into by the banking channel are genuine. No such provision was found by us in the Income Tax Act too. Equally, we also could not find any provision of the law either under the Income Tax Act or under any other law that when the cash is deposited in the bank account of depositors/shareholders the transactions become non genuine. Both the propositions cannot be looked into isolation but should be seen coupled with other circumstances of the whole transactions. It is also equally important that cash is routed through many bank accounts by the entry operators to build the bank balance in the parties and then brought into the banking transactions in the books of the depositor companies. Therefore generally the cash is never deposited in the bank account of the shell companies but are routed through various other accounts. Shell companies also credit the bank balance by selling of investments in other beneficiary companies to another shell company and generate bank balance through banking channel in their bank accounts. Therefore it is necessary to prove genuineness of the transactions, sources of the money in the bank account of the depositor with the business of the investors of the shareholder companies. Apparently, in this case assessee failed to prove it."

SP 6 In view of the above, the addition made by the A.O of Rs. 45,00,000/- u/s.68 of the I.T.Act is confirmed. This ground of appeal is dismissed.”

6. Assessee also filed an application for admission of additional evidences under Rule 29 of the Income Tax (Appellate Tribunal) Rules 1963. Since the same goes root of the case, we proceed to decide the same first.

7. Senior Advocate, Mr. Tushar Hemani for the assessee has invited our attention to the application for additional evidences along with supporting material which run over 52 pages, wherein affidavit of Shri Prakash Bagrecha as well as appellate orders of the CIT(A) in the cases of Kutch Ginning & Spinning Pvt.Ltd., Ideal Fertilizers P.Ltd., and Jai Adhyashakti Marketing P.Ltd. in support of addition was made under section 68 of the Act. It is submitted that the evidences are third-party evidences, which could not be gathered either at the stage of assessment or before the appellate proceedings. The assessee could gather the above documents only after putting in strenuous efforts during the pendency of the appeal before the Tribunal. The above documents are very vital and decisive to determine controversy on hand in just and equitable manner. The ld.Senior counsel further submitted that additional documents maybe taken on record and proper direction be given to the concerned authorities.

SP 7 8. In reply thereof, though the ld.Sr.DR for the Revenue has no serious objection in entertaining the above additional evidences filed by the assessee, but contended that there are concurrent findings by the lower authorities, and therefore, addition is to be sustained.

SP 8 order and CIT(A)’s order, proper opportunity was not given to the assessee to adduce these statements or evidence, which are no doubt belongs to third parties which could not be produced by the assessee during the proceedings before the lower authorities. Therefore, we are of the considered opinion that additional evidences filed by the assessee under Rule 29 are to be accepted, and on that basis a de novo assessment order is to be framed by the AO after providing reasonable opportunity to the assessee. Accordingly, we set aside the matter back to the file of the AO with a direction to pass a fresh assessment order after examining additional evidences referred to by the assessee in the application, and after giving reasonable opportunity of the hearing to the assessee in accordance with law. Assessee is also given liberty to file any other documents to support its case during the set aside proceedings. Needless to say, the assessee shall cooperate with the AO in the de novo assessment proceedings. With this observation, we dispose of the appeal, and treat the same as allowed for statistical purpose.