NEW EDGE SHARES AND SECURITIES PRIVATE LIMITED,DELHI vs. INCOME TAX OFFICER, WARD 18(1), DELHI, DELHI

Briefly stated the assessee company is a Private Limited Company and Briefly stated the assessee company is a Private Limited Company and Briefly stated the assessee company is a Private Limited Company and was engaged in the business of trading of shares of listed and unlisted was engaged in the business of trading of shares of listed and unlisted was engaged in the business of trading of shares of listed and unlisted companies on commission basis. The assessee did companies on commission basis. The assessee did not file return of income for not file return of income for Assessment Year 2011-12 in question. The name of the assessee 12 in question. The name of the assessee is stated to 12 in question. The name of the assessee be struck off from record of Registrar of Company w.e.f 13.03.2012 struck off from record of Registrar of Company w.e.f 13.03.2012. On the struck off from record of Registrar of Company w.e.f 13.03.2012 basis of certain adverse information basis of certain adverse information discovered in the course of search an of search and seizure operation on 17.12.2015 on individuals namely Shri Anand Kumar seizure operation on 17.12.2015 on individuals namely Shri Anand Kumar seizure operation on 17.12.2015 on individuals namely Shri Anand Kumar Jain and Shri Naresh Kumar Jain (Jain Brothers), the Investigation Wing Jain and Shri Naresh Kumar Jain (Jain Brothers), the Investigation Wing of the Jain and Shri Naresh Kumar Jain (Jain Brothers), the Investigation Wing Income tax Department found that above individuals were engaged in the found that above individuals were engaged in the found that above individuals were engaged in the activities of providing accommoda accommodation entries to various beneficiar tion entries to various beneficiaries through cheques, demand draft (“DD”) (“DD”), RTGS, NEFT in lieu of cash through paper and , RTGS, NEFT in lieu of cash through paper and dummy companies floated and controlled by him. The Assessing Officer (“AO”) dummy companies floated and controlled by him. The Assessing Officer (“AO”) dummy companies floated and controlled by him. The Assessing Officer (“AO”) of the assessee was accordingly, intimated that the assess of the assessee was accordingly, intimated that the assessee is one of the ee is one of the beneficiaries who has taken accommodation entries of an amount of INR who has taken accommodation entries of an amount of INR who has taken accommodation entries of an amount of INR 98,20,055/- from the entities of the above searched persons. Based on the from the entities of the above searched persons. Based on the from the entities of the above searched persons. Based on the information, proceedings u/s 147/148 of the Act was , proceedings u/s 147/148 of the Act was initiated by issuance of by issuance of notice dated 26.03.2018 u/s 148 of the Act. The assessment was completed 3.2018 u/s 148 of the Act. The assessment was completed 3.2018 u/s 148 of the Act. The assessment was completed 144/147 of the Act wherein income was assessed at INR u/s 144/147 of the Act wherein income was assessed at INR u/s 144/147 of the Act wherein income was assessed at INR 1,41,50,800/- by making following additions: by making following additions:- * Addition of INR 98,20,000/ Addition of INR 98,20,000/- u/s 68 of I.T Act on the basis of the u/s 68 of I.T Act on the basis of the reason recorded on reason recorded on reopening of assessment. * Addition of INR 43,30,800/ Addition of INR 43,30,800/- estimating the business income @8% on estimating the business income @8% on the basis of credit submissions in the bank account. the basis of credit submissions in the bank account.

Aggrieved the assessee preferred appeal before the Ld.CIT(A). the assessee preferred appeal before the Ld.CIT(A). The the assessee preferred appeal before the Ld.CIT(A). Ld.CIT(A) also confirmed the additions Ld.CIT(A) also confirmed the additions of INR 98,20,000/- u/s 68 of the Act u/s 68 of the Act and also confirmed additions of INR 43,30,800/ additions of INR 43,30,800/- under the head ‘business under the head ‘business income’.

Further aggrieved the assessee preferred appeal before the Further aggrieved the assessee preferred appeal before the Tribunal Tribunal.

The assessee raises several legal grounds and in the same vain The assessee raises several legal grounds and in the same vain, The assessee raises several legal grounds and in the same vain submitted that the assessee has very strong case on merits also. submitted that the assessee has very strong case on merits also. On merits, submitted that the assessee has very strong case on merits also. the submissions on behalf of the assessee read as under: the submissions on behalf of the assessee read as under:- “From the reason recorded, it can be noticed that Ld AO found that “From the reason recorded, it can be noticed that Ld AO found that “From the reason recorded, it can be noticed that Ld AO found that assessee has accepted credits of Rs.98,20,055/ assessee has accepted credits of Rs.98,20,055/- from entities belonging to m entities belonging to Sh Naresh Jain and Sh Anand Jain. The copy of bank statement of Sh Naresh Jain and Sh Anand Jain. The copy of bank statement of Sh Naresh Jain and Sh Anand Jain. The copy of bank statement of appellant was obtained by the Ld AO u/s 131(1) of IT Act through summon appellant was obtained by the Ld AO u/s 131(1) of IT Act through summon appellant was obtained by the Ld AO u/s 131(1) of IT Act through summon dt: 18.10.2018 (PB 5) issued to M/s Kotak Mahindra Bank. From the bank dt: 18.10.2018 (PB 5) issued to M/s Kotak Mahindra Bank. From the bank dt: 18.10.2018 (PB 5) issued to M/s Kotak Mahindra Bank. From the bank statement so obtained (PB statement so obtained (PB 6-12), the assessing officer found that there are 12), the assessing officer found that there are other credit entries in the bank statement aggregating Rs.5,41,35,000/ other credit entries in the bank statement aggregating Rs.5,41,35,000/-. other credit entries in the bank statement aggregating Rs.5,41,35,000/ The Ld AO treated the credit entries of Rs.98,20,000/ The Ld AO treated the credit entries of Rs.98,20,000/-, the amount for , the amount for which action of reopening was taken as unexplained credits u/ which action of reopening was taken as unexplained credits u/s 68 of IT which action of reopening was taken as unexplained credits u/ Act and for the credits noticed during assessment proceedings, the Ld AO Act and for the credits noticed during assessment proceedings, the Ld AO Act and for the credits noticed during assessment proceedings, the Ld AO treated the same as business receipts and completed the assessment by treated the same as business receipts and completed the assessment by treated the same as business receipts and completed the assessment by estimating the net profit ratio of 8% on the above aggregate receipts to the estimating the net profit ratio of 8% on the above aggregate receipts to the estimating the net profit ratio of 8% on the above aggregate receipts to the extent of Rs.5,41,35,000/ extent of Rs.5,41,35,000/-. The appellant seeks to draw your kind attention to the peculiar facts of the The appellant seeks to draw your kind attention to the peculiar facts of the The appellant seeks to draw your kind attention to the peculiar facts of the case which have not been correctly appreciated by the Ld AO while case which have not been correctly appreciated by the Ld AO while case which have not been correctly appreciated by the Ld AO while Page | 3 passing the impugned order of assessment. The reason recorded clearly passing the impugned order of assessment. The reason recorded clearly passing the impugned order of assessment. The reason recorded clearly shows that the searched persons have bee shows that the searched persons have been found in the business of n found in the business of providing providing providing accommodation accommodation accommodation entries entries entries to to to various various various beneficiaries beneficiaries beneficiaries through through through cheques/DD/RTGS/NEFT In lieu of cash through various dummy and cheques/DD/RTGS/NEFT In lieu of cash through various dummy and cheques/DD/RTGS/NEFT In lieu of cash through various dummy and paper companies controlled by them. Kindly refer to para B(1) of reason paper companies controlled by them. Kindly refer to para B(1) of reason paper companies controlled by them. Kindly refer to para B(1) of reason recorded (PB 17) and in sub recorded (PB 17) and in sub-para 3(vii) there is mention of seizure of ara 3(vii) there is mention of seizure of documents and electronic data where material pertaining to shell documents and electronic data where material pertaining to shell documents and electronic data where material pertaining to shell companies were found and those companies were used as conduit to companies were found and those companies were used as conduit to companies were found and those companies were used as conduit to provide accommodation entries to various beneficiaries and those provide accommodation entries to various beneficiaries and those provide accommodation entries to various beneficiaries and those companies actually belonging to Jain Brothers and their associates. Kindly belonging to Jain Brothers and their associates. Kindly belonging to Jain Brothers and their associates. Kindly refer to sub-para x of above para 3. The fact of shell companies used for para x of above para 3. The fact of shell companies used for para x of above para 3. The fact of shell companies used for providing accommodation entries was reiterated in sub providing accommodation entries was reiterated in sub-para XVIII of the para XVIII of the above para where there is clear mention that such shel above para where there is clear mention that such shell companies floated l companies floated and controlled by those Jain Brothers. From these facts, it may be and controlled by those Jain Brothers. From these facts, it may be and controlled by those Jain Brothers. From these facts, it may be appreciated that there were two categories of entities involved in the appreciated that there were two categories of entities involved in the appreciated that there were two categories of entities involved in the activities of accommodation entries. In the first category are the companies activities of accommodation entries. In the first category are the companies activities of accommodation entries. In the first category are the companies which are beneficiari which are beneficiaries of the accommodation entries provided by the Jain es of the accommodation entries provided by the Jain brothers and such companies are under obligation to discharge burden u/s brothers and such companies are under obligation to discharge burden u/s brothers and such companies are under obligation to discharge burden u/s 68 qua the credits accepted from Jain brothers. But there is second 68 qua the credits accepted from Jain brothers. But there is second 68 qua the credits accepted from Jain brothers. But there is second category of companies which are used as conduit for providing category of companies which are used as conduit for providing category of companies which are used as conduit for providing accommodation entries by multi accommodation entries by multi-layering of transactions. Such companies layering of transactions. Such companies are simply engaged in providing accommodation entries either intra group are simply engaged in providing accommodation entries either intra group are simply engaged in providing accommodation entries either intra group or to the beneficiaries from the funds transferred by the group companies or to the beneficiaries from the funds transferred by the group companies or to the beneficiaries from the funds transferred by the group companies of Jain Brothers. The appellant was i The appellant was in the category of shell companies controlled and n the category of shell companies controlled and managed by Jain group falling in the second category. During the year managed by Jain group falling in the second category. During the year managed by Jain group falling in the second category. During the year under consideration, the total credits obtained by the appellant company under consideration, the total credits obtained by the appellant company under consideration, the total credits obtained by the appellant company from Jain group entities is Rs.6,39,55,000/ from Jain group entities is Rs.6,39,55,000/- out of which Rs.6,3 out of which Rs.6,39,50,000/- , were given to various entities who were either ultimate beneficiaries or , were given to various entities who were either ultimate beneficiaries or , were given to various entities who were either ultimate beneficiaries or the layer in the multi the layer in the multi- layering process adopted in the accommodation layering process adopted in the accommodation business. A complete chart how the amount received Rs.6,39,55,000/ business. A complete chart how the amount received Rs.6,39,55,000/- business. A complete chart how the amount received Rs.6,39,55,000/ was transferred to other entities was transferred to other entities is reproduced hereunder: Chart of inflow of funds in the bank account and corresponding Chart of inflow of funds in the bank account and corresponding Chart of inflow of funds in the bank account and corresponding out flow to other entities out flow to other entities Inflow of funds Outflow of funds Names of parties with amounts Addition made u/s 68 98,20,000/ 98,20,000/- Purushotam Invtofin Ltd. 4,60,50,000/- Additions on estimated 5,41,35,000/ 5,41,35,000/- A R Overseas Links P.Ltd. 50,00,000/- NRS Investment Consultants 38,00,000/- profit on the other P.Ltd. credits Expert Projects Consultants 25,00,000/- P.Ltd. Energic Advisory P.Ltd. PD Fabrication P.Ltd. 31,00,000/- 35,00,000/- Total 6,39,55,000/ 6,39,55,000/- Total 6,39,50,000/- Amounts received from 25,045/- Amounts spent for other Director Shri Rajan purposes Mehra not considered 1.Bank Charges 1158/- for addition 2.ROC Expenses 552/- Closing Balance 28,335/- Grand Total 6,39,80,045/ 6,39,80,045/- Grand Total 6,39,80,045/- It is therefore, a case where the department while initiating reassessment It is therefore, a case where the department while initiating reassessment It is therefore, a case where the department while initiating reassessment proceedings and also completing the reassessment proceedings has failed proceedings and also completing the reassessment proceedings has failed proceedings and also completing the reassessment proceedings has failed to take into account, the status of the to take into account, the status of the company being a conduit company company being a conduit company used by the Jain brothers for routing the accommodation entries to other used by the Jain brothers for routing the accommodation entries to other used by the Jain brothers for routing the accommodation entries to other beneficiaries. From these facts, the reason recorded are based on correct beneficiaries. From these facts, the reason recorded are based on correct beneficiaries. From these facts, the reason recorded are based on correct facts as in such cases, no cash is received from the appellant company but facts as in such cases, no cash is received from the appellant company but facts as in such cases, no cash is received from the appellant company but the cash is received from beneficiary to whom from the help of appellant, e cash is received from beneficiary to whom from the help of appellant, e cash is received from beneficiary to whom from the help of appellant, the accommodation entry lends up in the accounts of beneficiaries. It is a the accommodation entry lends up in the accounts of beneficiaries. It is a the accommodation entry lends up in the accounts of beneficiaries. It is a case where the transaction is done on some nominal commission and there case where the transaction is done on some nominal commission and there case where the transaction is done on some nominal commission and there is no justification to treat the amou is no justification to treat the amount to the extent of Rs.98,20,000/ nt to the extent of Rs.98,20,000/- as credits which are required to be explained. It is therefore a case where credits which are required to be explained. It is therefore a case where credits which are required to be explained. It is therefore a case where funds get transmitted to other entities as soon as these are provided to funds get transmitted to other entities as soon as these are provided to funds get transmitted to other entities as soon as these are provided to assessee and it will be fair and reasonable that a nominal income by way assessee and it will be fair and reasonable that a nominal income by way assessee and it will be fair and reasonable that a nominal income by way of commission be assessed in the hands of appellant. of commission be assessed in the hands of appellant.

The Ld. Counsel for the for the assessee thus, submitted that it is fact on record submitted that it is fact on record that the assessee is merely a pass merely a pass through entity and engaged in assistance of through entity and engaged in assistance of providing accommodation entries. The only option available providing accommodation entries. The only option available with the providing accommodation entries. The only option available Department is to estimate income of such transactions Department is to estimate income of such transactions by taking by taking nominal income by way of facilitation commission which in Assessment Year 2012 income by way of facilitation commission which in Assessment Year 2012-13 income by way of facilitation commission which in Assessment Year 2012 has been taken on 0.3% by the AO himself. T by the AO himself. Therefore, the Department herefore, the Department, at best, can adopt 0.3% on entire credits amount of INR 6,39,55,000/ can adopt 0.3% on entire credits amount of INR 6,39,55,000/-.

Ld. Counsel for the assessee also pointed out that the assessment order assessee also pointed out that the assessment order assessee also pointed out that the assessment order is also marred from the vi is also marred from the vice of lack of jurisdiction u/s 147 r.w.s. 148 of the e of lack of jurisdiction u/s 147 r.w.s. 148 of the Act as per Ground Nos. 1 & 2 of its appeal. However, if the additions on merits Act as per Ground Nos. 1 & 2 of its appeal. However, if the additions on merits Act as per Ground Nos. 1 & 2 of its appeal. However, if the additions on merits are restricted to 0.3% in line with the are restricted to 0.3% in line with the assessment order of essment order of succeeding Assessment Year 2012-13, , in that event he is ready to withdraw Ground Nos. 1 in that event he is ready to withdraw Ground Nos. 1 & 2 of its appeal to save time from protracted litigation. & 2 of its appeal to save time from protracted litigation.

The Ld. Sr. DR for the DR for the Revenue relied upon the actions taken by the relied upon the actions taken by the lower authorities.

We carefully considered considered the rival submissions. It is the case of the the rival submissions. It is the case of the assessee that total credit entries in the bank accounts of the struck off assessee that total credit entries in the bank accounts of the struck off assessee that total credit entries in the bank accounts of the struck off company stood at INR 6,39,55,000/ 6,39,55,000/- which wholly represents credits obtained represents credits obtained from Jain Group entities. Out of . Out of such credits received from Jain Group such credits received from Jain Group, INR 6,39,50,000/- were given to various were given to various entities who were either ultimate who were either ultimate beneficiaries or some layer layer entity in the multiple layering process adopted in in the multiple layering process adopted in the accommodation business. The assessee company thus is the accommodation business. The assessee company thus is apparently, a apparently, a conduit company used by the Jain Bros. for ro conduit company used by the Jain Bros. for routing the accommodation entries ting the accommodation entries to other beneficiaries. It is further the case of the assessee that in . It is further the case of the assessee that in identical . It is further the case of the assessee that in Page | 6 AO has applied 0.3% on the credits received from Jain has applied 0.3% on the credits received from Jain Group as has applied 0.3% on the credits received from Jain commission income vide assessment order dated 10.12.2019 passed u/s 143(3) sion income vide assessment order dated 10.12.2019 passed u/s 143(3) sion income vide assessment order dated 10.12.2019 passed u/s 143(3) of the Act relevant to Assessment Year 2012 of the Act relevant to Assessment Year 2012-13. The income for Assessment 13. The income for Assessment Year 2012-13 was thus, assessed at INR 4, 13 was thus, assessed at INR 4,83,000/- on the credits of INR on the credits of INR 16,10,00,000/- received in that year. in that year.

Having regard to the similarity of facts situation, there appears to be a Having regard to the similarity of facts situation, there appears to be a Having regard to the similarity of facts situation, there appears to be a force in the plea of the assessee for assessment of income @ force in the plea of the assessee for assessment of income @ 0.3% .3% of the credits received from Jain Group. The first appellate order is consequently, set aside received from Jain Group. The first appellate order is consequently, set aside received from Jain Group. The first appellate order is consequently, set aside and the additions made by the AO is modified to restrict the unaccounted and the additions made by the AO is modified to restrict the unaccounted and the additions made by the AO is modified to restrict the unaccounted income by applying 0.3% of the total credits received during the income by applying 0.3% of the total credits received during the y year.

Ground No.3 of the assessee’s appeal is thus, partly allowed. 3 of the assessee’s appeal is thus, partly allowed. 3 of the assessee’s appeal is thus, partly allowed.

Ground Nos. 1 & 2 of the assessee’s appeal are dismissed as withdrawn. Ground Nos. 1 & 2 of the assessee’s appeal are dismissed as withdrawn. Ground Nos. 1 & 2 of the assessee’s appeal are dismissed as withdrawn.