DCIT, CENTRAL CIRCLE - VII, KOLKATA, KOLKATA vs. M/S. APSARA FINTRADE PVT. LTD., KOLKATA

I.T.A. Nos. 404 & 405/KOL/2011 Assessment Year: 2006-07 & 2007-08 & Assessment Year: 2008-09 M/s. Apsara Fintrade Pvt. Limited

The assessee in the present case is a Company. The investigation carried out by the Department of Income Tax (Investigation), Kolkata revealed that some entities were involved in providing accommodation entries to various companies based in Mumbai, which in turn had used the said funds for payments to Madhipura Mercantile Cooperative Bank at Mumbai, which was controlled by Shri Ketan Parekh. Since the assessee- company was one of such entities, the statement of its Director Shri Kalikant Chowdhury was recorded under section 131 by the DDIT(Investigation), Kolkata on 24.11.2006. In the said statement given on oath, Shri Kalikant Chowdhury accepted that he had got cash of equivalent amount from the Mumbai based Companies belonging to Shri Ketan Parekh Group and after depositing the said cash into the Bank account of the assessee-company, cheques were issued to the said Companies. He also furnished a list of cheques so issued against cash that had been received by him. Although Shri Kalikant Chowdhury subsequently filed an affidavit retracting his statement, the Assessing Officer did not accept the same on the basis of the enquiries conducted by the Investigation Wing on a test-check basis, which revealed that cash was deposited in various Bank accounts in different stages. According to the Assessing Officer, this factual position substantiated the statement of Shri Kalikant Chowdhury, Director of the assessee-company that cash was indeed received by the assessee-company in lieu of cheques given to various companies belonging to Ketan Parekh Group. He accordingly held that accommodation entries were given by the assessee-company to various Mumbai based companies belonging to Ketan Parekh Group and since the accommodation entries so given during the previous year relevant to A.Y. 2006-07 aggregated to Rs.17,85,67,375/-, he added the commission income @ 2% amounting to Rs.35,71,347/- to the total income of the assessee in the assessment completed for A.Y. 2006-07 under section 143(3) vide an order dated 30.12.2008. In the assessment so made, he also made an addition of Rs.17,85,67,375/- in the hands of & 405/KOL/2011 Assessment Year: 2006-07 & 2007-08 & I.T.A. No. 489/KOL/2013 Assessment Year: 2008-09 M/s. Apsara Fintrade Pvt. Limited the assessee on protective basis observing that the unexplained income to that extent in the form of cash given by the Mumbai based companies was assessable on substantive basis in the hands of the said companies. The Assessing Officer made a further addition of Rs.4,80,000/- to the total income of the assessee for AY 2006-07 on account of unexplained cash deposits found to be made in the Bank account of the assessee. The assessments for A.Y. 2007-08 and 2008-09 were also completed by the Assessing Officer under section 143(3) vide orders dated 22.12.2009 and 28.12.2010 respectively wherein he made similar addition on account of commission income at the rate of 2% amounting to Rs.23,08,049/- and Rs.2,89,909/- to the total income of the assessee for A.Y. 2007-08 and 2008-09 respectively. He also made additions of Rs.11,54,02,442/- and Rs.1,44,95,484/- similarly on protective basis in the assessments completed under section 143(3) for A.Ys. 2007-08 and 2008-09 respectively for the total amount of accommodation entries provided by the assessee-company to the Mumbai based Companies belonging to Ketan Parekh Group observing that unexplained income to that extent was liable to be assessed on substantive basis in the hands of the said companies for the cash given to the assessee-company.

Against the orders passed by the Assessing Officer under section 143(3) for all the three years under consideration, appeals were preferred by the assesee-company before the ld. CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) deleted the addition made by the Assessing Officer to the total income of the assessee for A.Y. 2006-07 on account of the alleged accommodation entries given to the Mumbai based Companies in the form of commission income at the rate of 2% as well as further addition on account of protective basis for the following reasons given in paragraph no. 3.4 of his impugned order:-

As regards the addition of Rs.4,80,000/- made by the Assessing Officer to the total income of the assessee for A.Y. 2006-07 on account of unexplained cash deposits found to be made in the Bank accounts, the ld. CIT(Appeals) did not find the same to be sustainable for the following reasons given in paragraph no. 4.1 of his impugned order:- “4.1. I have carefully considered the submission of the ld. A.R. The AO has not disputed the fact that the books of accounts and bank statements were produced before him. From the extract of the cash book filed, it & 405/KOL/2011 Assessment Year: 2006-07 & 2007-08 & I.T.A. No. 489/KOL/2013 Assessment Year: 2008-09 M/s. Apsara Fintrade Pvt. Limited

We have heard the arguments of both the sides and also perused the relevant material available on record. The two common issues involved in all these three appeals relate to the deletion by the ld. CIT(Appeals) of the additions made by the Assessing Officer on account of alleged accommodation entries given to the Mumbai based Companies on protective basis and the deletion by the ld. CIT(Appeals) of the addition made by the Assessing Officer on account of commission income allegedly received by the assessee for giving accommodation entries. It is observed that the similar issues were involved in some other cases and all these cases were adjourned in the past and also blocked for some period for getting the information about the status or outcome of the cases where the similar amounts were added on substantive basis. Inspite of sufficient time given to both the parties, they have failed to furnish the said information. It is well settled that protective assessment is permissible in law and in case a doubt or ambiguity about real entity in whose hands a particular income is to be assessed, the assessing authority is entitled to have recourse to make a protective assessment. As held by the Hon’ble Supreme Court in the case of Lalji Haridas –vs.- ITO (43 ITR 387), the Officer may, when in doubt, to safeguard the interest of the revenue can assess it in more than one hand but this procedure can be permitted only at the stage of assessment. Protective assessment becomes redundant when the substantive assessment becomes final and if the substantive & 405/KOL/2011 Assessment Year: 2006-07 & 2007-08 & I.T.A. No. 489/KOL/2013 Assessment Year: 2008-09 M/s. Apsara Fintrade Pvt. Limited assessment fails, it is protective assessment which is to be treated as substantive. Keeping in view this corollary between the substantive assessment and protective assessment, an appeal against the protective assessment should ordinarily await the outcome of the substantive assessment so that the protective assessment can be inconformity with the substantive assessment. In the case of CIT –vs.- Surendra Gulab Chand Modi (140 ITR 517), the appeal arising out of the protective assessment was disposed of by the appellate authority i.e. Tribunal vacating the protective assessment without waiting for the final outcome of the proceedings arising from the substantive assessment, which matter was pending in the Hon’ble Supreme Court. The Hon’ble Gujarat High Court held that the Tribunal was not justified in proceeding with the matter and in disposing of it instead of blocking it till the disposal of the matter pending in the Hon’ble Supreme Court in order to bring it inconformity with the view of the Hon’ble Supreme Court. The Hon’ble Gujarat High Court accordingly directed the Tribunal to keep the matter alive and pending awaiting the decision of the Hon’ble Supreme Court in the proceedings arising from the substantive assessment.

In the present case, the ld. CIT(Appeals) did not await the outcome of the proceedings arising from the substantive assessment and since the said information was not forthcoming even after a considerable period from the concerned assessing officer, he proceeded to dispose of the appeals arising from the protective assessments by his impugned orders and deleted the addition made on protective basis without awaiting the final outcome of the proceedings arising from the substantive assessment. Keeping in view the decision of the Hon’ble Gujarat High Court in the case of CIT –vs.- Surendra Gulab Chand Modi (supra), we hold that the ld. CIT(Appeals) was not justified in deleting the additions made by the Assessing Officer on protective basis in all the three years under consideration without awaiting for the final outcome of the proceedings & 405/KOL/2011 Assessment Year: 2006-07 & 2007-08 & I.T.A. No. 489/KOL/2013 Assessment Year: 2008-09 M/s. Apsara Fintrade Pvt. Limited arising from this substantive assessment. We, therefore, set aside the impugned orders of the ld. CIT(Appeals) on this issue and remit the matter back to him for keeping it alive and pending till the outcome of the proceedings arising from the substantive assessment.

As regards the issue relating to the additions made on account of commission income allegedly received by the assessee for giving accommodation entries, we find that this issue is consequential to the issue relating to the addition made on protective basis on account of accommodation entries allegedly given by the assessee-company to the Mumbai based companies. Since the said issue is remitted back by us to the ld. CIT(Appeals), we also remit the consequential issue relating to addition on account of commission income back to the ld. CIT(Appeals) for deciding the same afresh. Grounds No. 1 & 2 of the Revenue’s appeals for all the three years under consideration are accordingly treated as allowed for statistical purposes.

As regards the remaining third issue relating to the deletion by the ld. CIT(Appeals) of the addition of Rs.4,80,000/- made by the Assessing Officer on account of unexplained cash deposits found to be made in the Bank account of the assessee, which is involved in A.Y. 2006-07, we find that the impugned cash deposits were claimed to be made by the assessee out of cash balances available in the cash book on the respective dates. The said cash book was also produced by the assessee before the Assessing Officer for verification. The Assessing Officer, however, still did not accept this explanation of the assessee and proceeded to treat the cash deposits found to be made in the bank account of the assessee as unexplained. It is observed that the ld. CIT(Appeals), however, found that sufficient cash balance was available with the assessee as per the cash book on the respective dates to make the deposits in the bank account and accordingly deleted the addition made by the Assessing Officer on & 405/KOL/2011 Assessment Year: 2006-07 & 2007-08 & I.T.A. No. 489/KOL/2013 Assessment Year: 2008-09 M/s. Apsara Fintrade Pvt. Limited this issue. At the time of hearing before the Tribunal, nothing has been brought on record to rebut or controvert the finding of fact recorded by the ld. CIT(Appeals) on verification of relevant cash book. We, therefore, find no infirmity in the impugned order of the ld. CIT(Appeals) deleting the addition made by the Assessing Officer on this issue.

In the result, the appeal of the Revenue for A.Y. 2006-07 is partly allowed for statistical purposes, while the appeals of the Revenue for A.Ys. 2007-08 & 2008-09 are treated as allowed for statistical purposes. Order pronounced in the open Court on March 25, 2019.