SHASHIKIRAN SHETTY,MUMBAI vs. ACIT CEN CIR 44, MUMBAI

per which, Shri Hitesh Lakhani, director of M/s Rikhav Brokers Pvt Ltd Pvt Ltd has issued bills against payment by cheque for which he has returned cash to assessee. The AO further observed that the seized document clearly indicated that expenditure has been booked in the books of M/s Sealand Ports Pvt Ltd and M/s Avash Logistics Park Pvt Ltd and cheques were also issued from two companies against cash to be receivable from Shri Hitesh Lakhani of M/s Rikhav Brokers Pvt Ltd Pvt Ltd. The relevant observations of the AO are as under:-

5 ITA 4019/Mum/2014 by the assessee, & that it represents its Undisclosed Income from the said transaction. In view of the above discussion, it was held that the amount of Rs.40,88,730/- represented undisclosed Income of M/s. Sealand Ports P. Ltd. 2010-11, & was taxed as such. Similarly, in respect of the payment made by M/s. Avash Park P. Ltd. of Rs.38,25,204/- to M/s. Rikhav Traders P. Ltd. on a~ccount of N.A. conversion work, it was held that the amount of Rs. 35,70,828/~ (after deducting the charges of M/s. Rikhav Traders P. Ltd.) represented the Undisclosed Income of M/s. Avash Logistics Park P, Ltd., & was taxed as such in that case. . Thus, totally an amount of Rs. 76,59,558/- was taxed as Undisclosed Income in both the above cases, viz. M/s. Avash Logistics Park P. Ltd. & M/s. Sealand Ports P. Ltd., put together. Moreover, during the course of the search action, a statement of Shri. Hitesh Lakhani, Director of M/s. Rikhav Brokers Pvt. Ltd. was recorded u/s. 131 of the IT Act. In the said statement, Shri. Hitesh Lakhani had confirmed that M/s. Rlkhav Brokers P. Ltd had raised Bills amounting to Rs. 48,31,1407- on M/s. Sealand Ports P. Ltd. & of Rs. 38,19,204/- on M/s. Avash Logistics Park P. Ltd.; against net cheques worth Rs. 42,83, 772/- & Rs. 33,91,8107-, respectively, were received - totally amounting to Rs. 76,75,582/-. It has also been confirmed by Shri. Hitesh Lakhani that M/s. Rikhav Brokers P. Ltd. has not provided any service to M/s. Avash Logistics Park P. Ltd. or to M/s. Sealand Ports P. Ltd. Further, in his statement, in the answer to Q. No. 6 there-of, it has been mentioned by him that: “Shri. Jiten Chokshi approached me through Mr. Ramnlklal. Mr. Jiten Chokshi ie from M/s. Allcargo Global Logistics Ltd. Mr. Jiten Chokshi had clear cut understanding with me that as soon as he requires cash as_per the expenditure requirement of the Company, he will give me a call and will arrange the cash at the location told by him……. . These cheques were given to me solely & wholly for meeting the Cash requirements of the company. This accommodation entry was reguiarized by Mr. Jiten Chokshi by 2 agreements dated 17.01,2009, bearing stamp paper nos. BP 062228 & BP 062250, signed between (i) Rikhav Brokers P. Ltd & M/s. Avash Logistics Park P. Ltd. for Rs. 1,38,72,000/- & (ii) M/s. Rikhav Brokers P. Ltd & M/s. Sealand Ports P. Ltd. for Rs. 1,75,20,000/-. Both these agreements are bogus & have been entered in to regularize the Cash requirement of M/s. Sealand Ports P. Ltd. & M/s, Avash" LogisticFPafinr Ltd." Thus, the entire payment made by M/s. Sealand Ports P. Ltd & M/s. Avash Logistics Park P. Ltd. to M/s. Rikhav Brokers P. Ltd is bogus, and through sych transaction the Cash to that extent has been received back by the assessee group. However, logically if the issue is analysed, the person who would receive the amount mentioned as "Receivable" in the seized document would be no one else than the Managing Director of the Group - & that is Shri. Shashikfran Shetty, the assessee himself. Earlier also, the assessee had owned up Unexplained Share application money Introduced in one of the Group concerns to the extent of Rs. 23 Crores & had paid taxes on the same. In view of this discussion, it is held that it was the assessee - Shrf. Shashlkiran Shetty, who has actually received the above mentioned Cash returned by M/s. Rikhav Traders P. Ltd. The assessee & his Group concerns, it seems, have developed this kind of 'Modus Operand!' for generating Cash against issue of Cheques through the Bank Accounts of the Group concerns. During the search in the of Shri, Babulaf Doshi, similar transactions were noticed. There, it was d that a few concerns of M/s. Allcargo Group had made payments to i? t%oncerns of.Shri. Babuial R. Doshi, who in-turn had withdrawn Cash & reiuped it. This issue has been discussed in detail in the assessment orders in the case of Shri. Babuial R. Doshi for AY 2004-05 to AY 20010-11.”

6 ITA 4019/Mum/2014

The assessee further submitted that the group has acquired lands in Gujarat for the purpose of development of ports through M/s Avash Logistics Park Pvt Ltd and whatever expenditure has been incurred for acquiring the land along with consequential expenses has been capitalised in the books of two companies. The addition made by the AO for Rs.40,88,730 and Rs.35,70,828 was capitalised in the books of the above companies. Making further addition in the hands of the assessee of same amount, amounts to double addition which is incorrect. The assessee has filed elaborate written submissions alongwith certain additional evidence which were forwarded to the AO for his comments. The AO, vide his remand report dated 18-12-2013 submitted his remand report on the additional evidence filed by the assessee. During

7 ITA 4019/Mum/2014 remand proceedings, the AO justified additions made towards expenditure booked in the name of M/s Sealand Ports Pvt Ltd and M/s Avash Logistics Park Pvt Ltd and receiving cash back from Shri Hitesh Lakhani, director M/s Rikhav Brokers Pvt Ltd Pvt Ltd on the ground that the seized document clearly indicated modus operandi of the assessee group as per which, the group was involved in booking bogus expenses and receiving cash back from the parties.

This fact is also admitted during the course of search in the statement recorded u/s 132(4) of the Act. The AO also commented about enhancement of assessment in respect of certain payments made to M/s Purvi Estate and M/s Kinjal Developers on the basis of bank statement filed by the assessee.

The AO has stated in his remand report that in financial year 2008-09, the assessee group has obtained bogus bills for approximately Rs.153 crores against issue of cheques to various parties and received back cash from entry providers. On going through the bank statement of M/s Sealand Ports Pvt Ltd in YES Bank and AXIS Bank, it could be seen that there was clear cut excess bogus bills accommodation entries worth Rs.11.31 crores which is over and above disclosed sum of Rs.153 crores during the course of search proceedings.

The excess payment amounting to Rs.11.31 crores have been found and accepted by the entry providers and the assessee during post search enquiries.

The above said amount has not been considered while concluding the 8 ITA 4019/Mum/2014 assessment. Therefore, the same may be brought to tax in appellate proceedings.

9 ITA 4019/Mum/2014 of search coupled with circumstantial evidence clearly indicate that the assessee is the ultimate beneficiary by systematically siphoning off the funds of the above mentioned companies for its own use. The assessee’s claim that the cash generated is used for additional cash payment for land and land development, therefore, the same is capitalised in the books of the relevant companies is only a make belief’’ statement or make belief’’ document, since such claim has not been proved. The surrounding circumstances show that the assessee, Shri Sashikiran J Shetty is in receipt of money from M/s Rikhav Brokers Pvt Ltd and also in receipt of Rs.4.9 crores as pointed out in the remand report. Therefore, he opined that there is no error in the findings of the AO in making addition towards expenditure booked in the hands of companies as unexplained income of the assessee because the assessee has failed to prove that the said expenditure has been incurred for those companies. Therefore, by following the decision of Hon’ble Supreme Court in the case of CIT vs Durgaprasad More 82 ITR 540 (SC) and also by taking into account the statements recorded from the parties, who were involved in providing accommodation entries, came to the conclusion that the assessee is the ultimate beneficiary of the money taken out from the companies.

Accordingly, he upheld addition made by the AO and also enhanced the 10 ITA 4019/Mum/2014 income to the tune of Rs.4.90 crores. The relevant observations of the Ld.CIT(A) are as under:-

“9.6 In the above transactions, the payment shown against M/s. Rikhav Brokers Pvt. Ltd. for Rs.0.33 crore as on 28.05.2009 and Rs.0.43 crore as on 12.08.2009 are already under consideration in the assessment order which is under consideration now. As against the payments in favour of M/s.Kinjal Developers of Rs.2.90 crore from the bank account of M/s.Avash Logistics Park Pvt. Ltd. and a sum of Rs.2 crore in favour of M/s.Purvi Estate from the bank account of M/s.Sealand Ports Pvt. Ltd., an enhancement proposal u/s.251(1)(a) of the Act was issued to the appellant affording opportunity under subsection 2 of section 251 of the Act requesting him to offer his comments and objections against the proposal. In response the appellant stated that the companies concerned have not claimed the said expenses and the same have been capitalized in their accounts. However capitalization of the said sums towards land account can be accepted only if the appellant could establish or prove that the payments have been made towards the cost of the land. Shri Vasudev Thakker merely stated that the said payments were made to the land owners as additional cash payment and also for land development. However the statement has not been proved. He failed to give details of such payments. If such payments were true, what prevented the appellant or Shri Vasudev Thakker from furnishing the complete details of payments to the land owners and other expenses alleged to have been incurred towards land development. Since the appellant Shri Shasikiran Shetty as well as Shri Vasudev Thakker failed to establish such payments towards land cost, the same cannot be accepted to be included as the cost of the land in the balance sheet. The appellant's claim that a sum of Rs.2.90 crore is part of Rs. 153 crore is also found to be not true. Alternatively, the only proposition that arises in the whole situation is that the appellant has received the cash and must have used it or planning to use it for various purposes known only to him. One such purpose came to be known is the investment made in the shares of M/s India Tourist and Heritage Village Pvt. Ltd. The circumstantial evidences clearly indicate that the~ appellant is the ultimate beneficiary by systematically siphoning off the funds of the above mentioned three companies for his own use. It is held by Hon'ble Supreme Court in the case of CIT vs. Durga Prasad More 82 ITR 540 (SC) that where a party relies on self-serving recitals in a document, it is for that party to establish the truth of these recitals. It was further held by the Apex Court in this case that the tax authorities are entitled to look into the surrounding circumstances to find out the reality of such recitals. 9.7 The appellant's claim that the cash generated is used for the additional cash payment for land purchase and land development, therefore, the same is capitalized in the books of the relevant companies is only a make believe statement or make believe document since such claim has not been proved. The surrounding circumstances show that the appellant Shri Shashikiran Shetty is in receipt of Rs.76,59,558/- as discussed in the 11 ITA 4019/Mum/2014 assessment order and also in receipt of Rs.4.90 crore as pointed out in the remand report. Funds siphoned off in this manner is income for the recipient as the appellant in the similar circumstances already admitted undisclosed income of Rs.23 crore as share capital invested in M/s.India Tourist and Heritage Village Pvt. Ltd. 9.8 The appellant also contended that no opportunity of being heard was granted by the A.O during the course of assessment proceedings. This contention was not accepted by the A.O in the remand report. Without prejudice to the above, it may be mentioned that the appellant was given sufficient opportunities on the issue during the course of appeal proceedings. Therefore, the submission of the appellant that no opportunity was granted is adequately taken care during appeal proceedings. The appellant also contended that no opportunity of cross examination of Shri Hitesh Lakhani, director of M/s.Rikhav Traders Pvt. Ltd. was given during the course of assessment proceedings. However, during the course of remand proceedings, the A.O pointed out that the appellant did not ask for cross examination at the time of assessment proceedings and therefore, the same was not provided. During the course of remand proceedings, the A.O vide order sheet noting dated 19.08.2013 had given opportunity to the representative of the appellant Shri C.C. Dangi to cross examine Shri Hitesh Lakhani, which was refused. This fact has been admitted by the appellant while submitting his rejoinder to the remand report. 9.9 In view of the above, addition of Rs.76,59,5587- brought to tax in the assessment order is hereby confirmed. The sum of Rs.4.90 crore pointed out in the remand report is brought to tax as the undisclosed income of the appellant and to that extent the total income is enhanced. The A.O shall issue the demand notice. Penalty u/s 271AAA of the Act is initiated on the undisclosed income of Rs.4.90 crore for the reasons mentioned above. 10.0 In ground no.5 and 6 the appellant contested that there is a double addition since the total sum receivable of Rs.76,59,5587- was added substantively in his case and the same amounts of Rs.40,88,7307- and Rs.35,70,8287- have also been added protectively in the companies hands viz., M7s.Sea Land Ports Pvt. Ltd. and M/s.Avash Logistics Park Pvt. Ltd. respectively. The submissions of the appellant are considered. Since the additions in the case of M7s.Sea Land Ports Pvt. Ltd. and M7s.Avash Logistics Park Pvt. Ltd. have been deleted vide this office appellate orders No.CIT(A)-38/IT-496/2011-12 and No.CIT(A)-38/IT- 495/2011-12 dated 25.03.2014 respectively, there is no double addition and accordingly these grounds are dismissed.”

12 ITA 4019/Mum/2014 Brokers Pvt. Ltd. in the hands of the assessee only on the basis of a piece of paper found during the course of search which neither proves that the assessee has received cash back in his individual capacity nor there was any further evidence in the possession of the AO to treat the same as undisclosed income of the assessee. The Ld.AR further submitted that the assessee has explained with necessary materials before the lower authorities that contents found in the documents seized during the course of search neither belonged to the assessee nor the transactions are entered into by the assessee in his individual capacity.

The assessee categorically admitted that those expenditures are booked in the hands of M/s Sealand Ports Pvt Ltd as also the said payment has been capitalised in the books of account. The AO, without any further evidence in his possession came to the conclusion that the assessee is ultimate beneficiary of cash siphoned off from the business for his personal use, despite the fact that the cash has been taken out from those companies for the purpose of making various payments in order to acquire lands and also for the purpose of NA conversion of lands. The Ld.AR further submitted that when the documents found during the course of search clearly indicated that the abovesaid expenditure is booked in the hands of company, how could it be treated as assessee’s unexplained income merely for the reason that the document is found in the possession of the assessee. The fact that the assessee has booked

13 ITA 4019/Mum/2014 expenditure in the hands of above two companies is not disputed. The AO as well as the Ld.CIT(A) have accepted the fact that the document found during the course of search is clearly in the name of above two companies. In fact, the director of M/s Rikhav Brokers Pvt Ltd has clearly accepted that he has transacted with M/s Sealand Ports Pvt Ltd and also money has been given to the company. Therefore, making addition in the hands of the assessee for the transaction between a company and a third party is incorrect.

15 ITA 4019/Mum/2014 that the assessee is in the habit of booking bogus expenditure in various companies in order to siphon off money for his personal use. This fact has been admitted by the assessee in his statement recorded during the course of search. This fact has been further supported by the statement recorded from the parties who had facilitated issue of bogus bills to the assessee where they had categorically admitted that as and when money is required, the assessee used to take bills from them by issuing cheques and after deducting their charges, cash was returned to the parties. Although, the assessee has taken argument that these expenditures are booked in the books of companies, the fact remains that the assessee has acted in a fiduciary capacity as head of group and the ultimate benefiary of this cash is the assessee. Therefore, the AO was very much within his limits to consider these transactions as unexplained income of the assessee. As regards enhancement made by the AO towards payment made to M/s Kinjal Developers and M/s Purvi Estates, the Ld.DR submitted that the above payments are clearly outside the amount of declaration given by the group during the course of search and this fact has been brought out by the AO during remand proceedings. The assessee could not rebut the findings recorded by the AO, except stating that the transactions were not pertaining to him. Therefore, the Ld.CIT(A) was right in enhancing the income to that extent and his order should be upheld.

16 ITA 4019/Mum/2014

Admittedly, the document has been found during the course of search contained details of certain bills issued by M/s Rikhav Brokers Pvt Ltd Pvt Ltd to M/s Sealand Ports Pvt Ltd and M/s Avash Logistics Park Pvt Ltd. In the said document, M/s Rikhav Brokers Pvt Ltd Pvt Ltd have issued two bills, i.e. one in the name of M/s Sealand Ports Pvt Ltd for Rs.42,83,772 and the other in the name of M/s Avash Logistics Park Pvt Ltd for Ras.38,19,204. In the said document, it was stated that pending account with SKS with a column receivable. From the above document, the AO came to the conclusion that the assessee has booked bogus expenditure in the hands of two companies and received cash back from the parties for his personal use. This fact was further strengthened by the statement of Shri Hitesh Lakhani and Shri Vasudev Thakkar recorded during the course of search proceedings where they have accepted that they involved in issuing accommodation bills to the group. Based on these facts, the AO came to the conclusion that the assessee acted in a fiduciary capacity as head of group and hence, the ultimate beneficiary of those transactions is the assessee, therefore, held that the same represents undisclosed income of the assessee for the relevant period.

17 ITA 4019/Mum/2014

Unless there is further evidence in the possession of the AO to come to the conclusion that the assessee is the ultimate beneficiary of transactions entered into by the above two companies with M/s Rikhav Brokers Pvt Ltd Pvt Ltd, no addition could be made only on the basis of a piece of paper found during the course of search, which neither stated that the assessee has received cash back from the parties nor the parties have admitted that they have returned cash to the assessee. When the document in the possession of the AO clearly proves that the said document pertains to a company and contents therein are not belonging to the assessee, at the best, the AO could have proceeded against those companies, but not against the assessee. Therefore, we are of the considered view that the addition made by the AO is nothing but on suspicion which is not based on any evidence. The suspicion, whatsoever strong may be, but it cannot lead to a conclusion that it leads to an evidence to make an addition. The Ld.CIT(A), without appreciating the fact, has simply upheld addition made by the AO only on the basis of circumstantial evidence coupled with theory of human probabilities to confirm addition made by the AO.

Hence, we reverse the finding of Ld.CIT(A) and direct the AO to delete addition

19 ITA 4019/Mum/2014 made towards transactions with M/s Rikhav Brokers Pvt Ltd Pvt Ltd by two companies in the hands of the assessee.

Therefore, he opined that the above two payments also belonged to the 20 ITA 4019/Mum/2014 assessee and the assessee is the ultimate beneficiary of transactions with M/s Purvi Estates and M/s Kinjal Developers.

The assessee further contended that merely for the reason that certain document is found during the course of search which was found in the possession of the assessee, an adverse inference cannot be drawn about undisclosed income unless there is strong evidence in the possession of the AO which proves that it represents undisclosed income of the assessee. The assessee has explained the above in the hands of M/s Avashi Logistics Park Pvt Ltd and M/s Sealand Port Pvt Ltd and filed complete details to the AO during assessment proceedings of those companies, where the AO has accepted the 21 ITA 4019/Mum/2014 payments. Further, the said payments of Rs.2.90 crores and rs.2 crores form part of the total sum of Rs.153 crores already considered in all the assessments completed u/s 143(3) r.w.s. 153A. Therefore, further addition made only on the basis of remand report, where the AO has picked up certain payments from the bank account of companies to argue that the above payments are not part of the sum of Rs.153 crores disclosed during the course of search.

22 ITA 4019/Mum/2014 by the assessee from his bank account. When the said document does not belong to the assessee and the contents recorded in the said document has been considered in the books of above two companies, the addition cannot be made in the hands of the assessee. Similarly, in respect of enhancement made by the Ld.CIT(A), similar findings hold good. In this case, the Ld.CIT(A) went on the wrong premises that whatever transactions between the companies and the parties, the ultimate beneficiary is assessee because the assessee has acted in a fiduciary capacity as head of the group, but such finding recorded by the Ld.CIT(A) is not based on any evidences. Unless, the Ld.CIT(A) has brought some more evidence to prove that the transactions between above two companies and the parties really represent undisclosed income of the assessee, merely on the basis of a piece of paper found during the course of search coupled with statement recorded from the parties, addition cannot be sustained in the hands of the assessee. Suspicion, however strong, may not lead to a conclusion that the authorities have evidence against the assessee. In this case, the enhancement made by the Ld.CIT(A) is nothing but an attempt to infer against the assessee without there being any evidence that the transactions between companies and the parties is in fact belonging to the assessee and the assessee is an ultimate beneficiary of the said transaction.

This fact has been strengthened by the decision of Hon’ble jurisdictional High

23 ITA 4019/Mum/2014 Court in assessee’s own case for AY 2009-10 in Writ Petition No.3059 of 2015 where the AO sought to reopen the assessment on the basis of remand report of the AO to tax certain payments pertaining to AY 2009-10. The assessee has challenged re-assessment notice issued by the AO in writ jurisdiction. The Hon’ble High Court while quashing re-assessment notice issued by the AO held that the AO has arrived at a conclusion that income chargeable to tax had been escaped assessment on the basis of cheques issued to Shri Vasudev Thakkar and Shri Nishant Thakkar where, in turn, paid to the petitioner, in cash. The Court further observed that this conclusion was arrived at without indicating any basis for the same. In this case also, the CIT(A) has enhanced assessment without there being any material to prove that payments made by M/s Avashi Logistics Park Pvt Ltd to M/s Purvi Estates and payment made by M/s Sealand Ports Pvt Ltd to M/s Kinjal Developers represent undisclosed income of the assessee. Therefore, we are of the considered view that the Ld.CIT(A) was erred in making enhancement of Rs.4.90 crores towards payment made by two companies to Shri Vasudev Thakkar as undisclosed income of the assessee.

25 ITA 4019/Mum/2014 and 263, if requisite conditions are fulfilled and it is inconceivable that in presence of such specific provisions, a power is available to first appellate authority. The Hon’ble Rajasthan High Court in the case of CIT vs Associated Garment Makers (1992) 197 ITR 350 held that a perusal of sections 246 to 251 of the Act makes it clear that any question arising out of the enhancement orders in an appeal by the assessee can be possible and wide powers are given to the appellate authority, but these powers are circumscribed by the assessment order in the matters arising thereto or a matter arising out of the proceedings. Even the appellate authority have suo moto power to consider the question arising thereto but there is no provision to go beyond the matter arising out of the proceedings before the assessing authority, more particularly, as separate provisions for that are made in the Act. In this case, the CIT(A) has enhanced the assessment by introducing a new source of income which was not at all a subject matter of assessment by the AO. The CIT(A) has brought to tax certain payments made by two companies to certain parties on the wrong premises that the assessee is the ultimate beneficiary of the transactions between the companies and the parties without there being any material to prove that the assessee has received cash back from the parties for his personal use. Therefore, we are of the considered view that the Ld.CIT(A) was 26 ITA 4019/Mum/2014 erred in enhancing the income of the assessee by Rs.4.90 crores. Hence, we delete the enhancement made by the Ld.CIT(A).

Order pronounced in the open court on 01 -02-2019.