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Facts
The assessee, Surabhi Entertainment Pvt. Ltd., received Rs. 4.70 Crore as share application money and paid Rs. 9.40 Lakh as commission. The case was reopened under Section 148 after information revealed that the share application money was obtained through accommodation entries provided by an entry operator, S.K. Jain. The AO treated the entire amount as unexplained credit and the commission as unexplained expenditure under Section 68 of the Income Tax Act, which was upheld by the CIT(A).
Held
The Tribunal dismissed the assessee's appeal, upholding the additions made by the AO and confirmed by the CIT(A). It was held that the assessee failed to discharge the onus under Section 68 to prove the identity, creditworthiness, and genuineness of the share application transactions, despite repeated opportunities. The transactions were deemed sham and make-believe accommodation entries.
Key Issues
Whether the share application money of Rs. 4.70 Crore and related commission of Rs. 9.40 Lakh constitute unexplained credits/expenditure under Section 68 of the Income Tax Act, given the assessee's failure to prove the identity, creditworthiness, and genuineness of the transactions.
Sections Cited
Section 68, Section 234A, Section 234B, Section 143(3), Section 148, Section 147, Section 132, Section 144A
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Income Tax Appellate Tribunal, DELHI BENCH ‘G’: NEW DELHI
Before: SHRI KUL BHARAT & SHRI AVDHESH KUMAR MISHRA
Appellant by None Respondent by Sh. Anuj Garg, Sr. DR Date of Hearing 05/06/2024 Date of Pronouncement /09/2024 ORDER
PER AVDHESH KUMAR MISHRA, AM
1. This appeal for the Assessment Year (hereinafter, the ‘AY’) 2011- 12 filed by the assessee is directed against the order dated 31.10.2019 passed by the Commissioner of Income Tax (Appeals)-8, New Delhi [hereinafter, the ‘CIT(A)’].
Following grounds are raised in this appeal: -
On the facts and in the circumstances of the case the order passed by the CIT(A) is erroneous and also bad both in the eyes of the law in general and on fact.
2. On the facts and in the circumstances of the case Ld. CIT(A) has erred in law by the addition of Rs.4,70,00,000/- towards share application money received from Share Applicants and Rs.9,40,000/- as commission on the said amount.
A. Without prejudice to above on the facts and circumstances of the case the Ld. CIT(A) has erred by addition without proper application of mind but mechanically accepting the finding of the DG Investigation framing reason to belief, for an addition of Rs. 4.70 Crore in respect of share application money received from different companies.
B. Without prejudice to above under the facts and in the circumstances of the case the Ld. CIT(A) has erred in law by confirming the addition of Rs. 4.70 Crore, by traveling beyond reason to belief towards share application money received from various parties without proper enquiry and verifications of theshare application money of the parties and rejecting the explanation and evidence brought on record without verification.
C, On the facts and circumstances of the case, Ld. CIT(A) has erred both on facts and in law in confirming the said addition disregarding the settled legal position that the notices to shareholders having been served the AO had to bring the investigation to a logical end, as such no addition can be made on this count.
3. The Ld. CIT(A) has erred in law by addition without analyzing the information with reasons before invoking the provision of section 68 of the I. T. Act, 1961.
4. On the facts and in the circumstances of the case, Ld. CIT(A) has erred on facts and in law by the addition of Rs. 9,40,000/- towards commission @ 2% on the amount determined undersection 68 of the I. T. Act, 1961.
5. Without prejudice to above the Ld. CIT(A) has erredin law on facts of the case by the addition of Rs. 9,40,000/- as commission incurred without mentioning the provision of the Income Tax Law.
Levy of interest u/s 234A and 234B for the additions sustained by Ld. AO is not tenable in law.
The assessee craves the leave to add, alter, delete, withdraw any ground or grounds during the appellate proceedings.”
2.1 In nutshell, we are tasked to decide that whether the share application money of Rs. 4,70,00,000/- held as unexplained credit under section 68 of the of the Income Tax Act, 1961 (hereinafter, the ‘Act’) which were taken through accommodation entries on payment of commission of Rs. 9,40,000/- is justified.
Briefly, the facts of the case giving rise to this appeal are that the appellant/assessee, engaged in the business of production of TV Serials, publishing magazines, etc. as mentioned in its Income Tax Return (hereinafter, the ‘ITR’), filed its original ITR on 27.09.2011 disclosing loss of Rs. (-)1,83,71,231/-. The case was scrutinized and the assessment was completed accepting the returned loss vide order dated 30.01.2024 passed under section 143(3) of the Act. The appellant/assessee belonged to Pearl Group of companies. Later on, this case was reopened under section 148 of the Act on the reasoning that the appellant/assessee who received share application money of Rs.4,70,00,000/- was nothing but own money brought into the books of account in the garb of share application money received from the Entry Operators concerns. The consequential reassessment was completed at income of Rs.2,95,68,770/- vide order dated 20.12.2018 passed under section 147/143(3) of the Act. In the reassessment order, the AO treated the claimed share application money of Rs.4,70,00,000/- as unexplained credits and taxed the same. Besides, the commission of Rs.9,40,000/- having paid for obtaining the claimed share application money was also taxed as unexplained expenditure. The assessee filed the appeal before the CIT(A) but did not succeed. Hence, this appeal is before the Tribunal.
3.1 Mr. Surender Kumar Jain and others, an entry operator, were searched under section 132 of the Act on 14.09.2010. Various seized incriminating materials of Surender Kumar Jain Group revealed that 4 Mr. Surender Kumar Jain (hereinafter, S.K.Jain) along with his brother; Mr. Virender Kumar Jain (hereinafter, V. K. Jain) were involved in providing accommodation entries to various persons on commission basis. For camouflaging the real nature of the money, such amounts were subjected to multi layering of transactions through many companies. The search assessment of Mr. S.K.Jain and Mr. V. K. Jain for AY 2005-06 to 2011-12 revealed that they had provided accommodation entries to various persons in lieu of commission. The appellant/assessee is one of the beneficiaries of such accommodation entries who received share application money of Rs.4,70,00,000/- through accommodation entries. Based on this information, the case of appellant/assessee was reopened. During the reopened assessment proceedings, the appellant/assessee was required to explain the said credit received as a share application money from various shareholders. However, the appellant/assessee failed not only in explaining the same but also in demonstrating the genuineness of such transactions. Therefore, the AO not only taxed the entire share application money of Rs.4,70,00,000/- but also held that the share application money of Rs.4,70,00,000/- was obtained through accommodation entries after paying commission @ 2% of the sums taken through accommodation entries. Accordingly, he worked out the commission expenditure of Rs.9,40,000/- and taxed it.
Aggrieved, the appellant/assessee filed appeal before the CIT(A) but did not succeed. The Ld. CIT(A) observing as under, upheld the finding of the AO:- “5.1 I have carefully considered the assessment order passed by the AO and the submissions furnished by the Ld. AR. Reassessment proceedings were initiated, as the AO had received Information from DIT (Inv.)-II, New Delhi that the appellant was in receipt of accommodation entry introduced as share capital from M/s Euro Asia Mercantile Pvt. Ltd.& Others, company managed and controlled by Shri S. K. Jain group. The AO recorded exhaustive reasons bringing out clearly the modus operandi whereby Shri S. K. Jain and his associated concerns/companies were providing accommodation entries to interested persons and companies. In terms of the reasons recorded, the appellant company had received an amount of Rs. 4,70,00,000/- as share capital from M/s Euro Asia Mercantile Pvt. Ltd.& Others. The appellant had not filed confirmations from these parties. The appellant was further asked to produce the director of the alleged share applicant company which the appellant failed to do so. In such circumstances, It was held that appellant is not able to prove identity and creditworthiness as the appellant failed to file bank statement and even the Director of the share applicant company. As the appellant company could not discharge the initial onus of creditworthiness of shareholder, genuineness of transaction, the AO relying on the findings of the Department in the assessments of the entry operators of Shri S. K. Jain held that the appellant has received Rs.4,70,00,000/- as share capital as accommodation entry and added the same to the total income of the appellant as unexplained Investment.
5.2. Shri S. K. Jain and Shri V. K. Jain whose group company has provided accommodation entry to the appellant, in appeals against their individual assessments before the Hon'ble ITAT, Delhi in to 6997/Del/2014 for A.Y.s 2005-06 to 2011-12 (Shri Virender Kumar Jain) and to 7004/Del/2014 for A.Y.s 2005-06 to 2011-12 (Shri Surender Kumar Jain) have admitted that since they were engaged in the business of providing accommodation entries only commission Income on accommodation entry should be taxed in their individual hands and the substantive amount of accommodation entry be taxed in the hands of the beneficiaries. The Hon'ble ITAT in the said appeals decided as under: - “The AO is also directed to to 7004/Del/2014 take into consideration the principles laid down by the jurisdictional High Court and the Tribunal in various cases and dispose off the case by applying these principles some which we extract in this order for ready reference. The Delhi Benchof ITAT In the case of Tarun Goyal (supra) of para 23 and 24 has held as follows:-
“23. The AO shall after examining the evidence submitted by the assessee, consider all the cases together and, a) restrict the addition u/s 68 to only the peak unexplained credit in each case of after elimination circular transaction. b) To eliminate taxation of the same amount multiple times, due to the chain transactions which resulted due to layering Indulged by the assessee. c) Consider the material on record and the precedence available on the issue and determine the percentage of commission, which the assessees would have earned and bring the same to tax.
Before parting we make it clear that the burden of proof lay on the assessee. It is for the assessee to demonstrate the chain of transaction, the layering indulged by him, the calculation of peak unexplained credit etc. and to prove each credit in the books of each assessee. In the result all these appeals are set aside to the file of the AO for fresh adjudication in accordance with law.”
11. The Delhi Bench of the ITAT in the case of M/s Vijay Conductors India Pvt. Ltd., Assessment year 2008-09, order dated 28.1.2015 at para 17 held as follows:
17. Thus, there is an order of the Settlement Commission as well as the Additional Commissioner of Income Tax under Section 144A holding that Shri S.K. Gupta was providing accommodation entries, he used various companies as conduit for providing the accommodation entries, cash was received through mediators from the persons who wanted to avail the accommodation entries, such cash was deposited in the bank account of the conduit companies and thereafter, cheque of the similar amount was being issued to the beneficiaries (i.e. the person who wanted to avail the accommodation entry) within a day or so. The Assessing Officer himself in the assessment order has accepted these facts.Considering the totality of these facts and the logical consequences of the order of the Settlement Commission as well as of Additional CIT under Section 144A, we have no hesitation to hold that the addition under Section 68 cannot be made in the case of the conduit companies. Therefore, we delete the addition made under Section 68 in the case of all the nine companies, which are admittedly conduit companies of Shri S.K. Gupta.
The Hon'ble Delhi High Court in the case of Vijay Conductors India Pvt. Ltd. in vide judgment dated 29.9.2015 upheld this order in the case of M/s Vijay Conductors India Pvt. Ltd. and others in the following words:-
"The common issue in all the appeals issues concerns the additions made under Section 68 of the income Tax Act ("Act") which was directed to be deleted by the ITAT. The ITAT referred to the order dated 28th December 2010 of the Settlement Commission which records inter alia that Mr. Gupta was an entry provider and that in his case only the amount of premium /commission received by him after reducing expenses incurred would be his additional income.The Assessing Officer (AO) gave effect to the order of the Settlement Commission and determined the income of Mr. S.K. Gupta without making any addition for unexplained cash credit. During the course of assessment Proceedings of the intermediary companies, including the Respondent Assessees, the AO sought directions from the Additional Commissioner of Income Tax under Section 144A. The Additional CIT passed an order in which after discussing the facts he inter alia directed that it would be in the best interest of the Revenue to tax these transactions in the hands of beneficiaries and Mr. S.K. Gupta "without making any additions on this account in the hands of conduit entities". The said orders of the Settlement Commission or of the Additional CIT were binding on the AO. It is not in dispute that the Respondent Assessees are the conduit entities and not the beneficiaries. Consequently, the order of the ITAT deleting the addition under Section 68 of the Act in their hands does not suffer from any legal infirmity.
The AO is directed to follow the propositions laid down in these case lows"
5.3. It is therefore, evident that the Jain brothers admitted before the Hon'ble ITAT that they alongwith their group companies were engaged in the business of providing accommodation entry and earned commission on providing such entries. The Hon'ble ITAT treated Shri S. K. Jain and Shri V. K. Jain at par with other entry operators like Shri Tarun Goyal, Shri S. K. Gupta, as per the admission of the Jain brothers themselves and held that they should be taxed only on account of commission received as per principle followed in the case of other entry operators as decided by the Hon'ble High Court of Delhi in the case of Vijay Conductors India (P) Ltd. (supra) and the Settlement Commission. This conclusively settles the issue about the affairs of the company which has provided the accommodation entry as share capital to the appellant.
5.4. The Hon'ble Delhi ITAT In the case of Dhingra Global Credence (P) Ltd. 1 ITR (T) 529, has held the identity of a person is not proved on paper. The record available with the ROC is as filed by some persons but the office of the ROC never took any action to verify the existence of the companies at the so-called addresses. Since the existence of the share applicant itself is not found to be true, the AO 10 cannot further enquire as to the source of their investment. Mere filing of undated confirmation letters/share application forms will not prove the identity of the share applicant and genuineness of the transaction. The genuineness of the transactions and the creditworthiness of these parties is still a big question mark. The share application money in question is received by way of private placement and as already stated above, the Delhi High Court in several cases such as NR Portfolio Pvt. Ltd., N. Tarika Property Invest. (P) Ltd.(221 Taxman 14) and Navodaya Castle Pvt. Ltd. (226 Taxman 190), on identical facts of the case wherein it was found that there were corresponding deposits in the bank accounts before issue of share application cheques, has held that the certificate of incorporation, PAN etc. were not sufficient for purposes of Identification of the subscriber company. The Supreme Court of India has upheld the Delhi High Court's orders in N. Tarika Property Invest. (P) Ltd and Navodaya Castle Pvt. Ltd. (51 taxmann.com 387 and 56 taxmann.com 18) by dismissing the assessee's SLP.
5.5. The Hon'ble Delhi High Court in CIT vs. Focus Exports Pvt. Ltd. (228 Taxman 88) while examining the provisions of section 68 has ruled that where the assessee failed to offer a reasonable and acceptable explanation regarding the source and nature of credit, the AO is entitled to draw Inference that the receipt are that of an assessable nature. The High Court observed as under:
9. A bare reading of Section 68 of the Act suggests that there has to be credit of amounts in the books maintained by an assessee, such credit has to be a sum during the previous year and if the assessee offers no explanation about the nature and source of such credit or the explanation offered is not satisfactory, then the sums so credited can be treated as income of the assessee for that previous year. The expression 'no explanation is offered’ or ‘the explanation offered is not satisfactory’ puts an onus on the assessee to offer a lucid, reasonable and acceptable explanation before the Assessing Officer and thereupon the Assessing Officer should form an opinion accepting or rejecting the explanation based upon appreciation of facts/materials and other attending circumstances. Section 68 of the Act was examined in A. Govindarajulu Mudaliar v. CIT, (1958) 34 ITR 807 (SC) observing that there were ample authorities for the proposition that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during an accounting year, the Assessing Officer is entitled to draw Inference that the receipts are of an assessable nature. Whether explanation should be accepted or not is not to be examined factually but having regard to test of human probabilities and normal course of conduct. Reference can be made to CIT v. Durga Prasad More (1971) 82 ITR 540 (SC), CIT v. Daulat Ram Rawatmull, [1973] 87 ITR 349 (SC) and other cases referred to in CIT v. Nova Promoters & Finlease (P.) Ltd. (2012) 342 ITR 169/206 Taxman 207/18 taxmann.com 217 (Delhi). In these cases, it has been observed that what is apparent must be considered real until it is shown that there are reasons to believe that the apparent is not real. Caution must be exercised on self-serving statements mode in the documents as they are easy to make and rely upon in case on assessee wants to evade taxes. Proof is required and the assessing authorities should not put blinkers while looking at the documents before them. Surrounding circumstances are equally important.
5.9. Adverting to the facts in the appellant's case, it is obvious that only documentary evidence by way of confirmation, bank statement, copy of acknowledgement of return is filed to explain the source of the impugned credit. Despite, repeated opportunities, the Director of the company was not produced before the AO. Copy of bank accounts of the company also reveals simultaneous deposits and withdrawals leading credence to the modus operandi employed by such companies to provide accommodation entries. These facts only show that a paper trail is sought to be created to camouflage the entire transaction to Introduce unaccounted Income by way of share capital in the hands of the appellant company.
5.10 The Hon'ble jurisdictional High Court, Delhi in the case of PCIT -6, New Delhi vs. NDR Promoters Pvt Ltd in (Pronounced on 17.01.2019) had observed in para 4 of their order that in case of accommodation entry providers like Tarun Goel, CA, who had set up about 90 companies/firms for providing accommodation entries. Paper work was perfect but there were chinks, which had revealed that the true nature of the transactions was to convert illegitimate money by providing bogus or accommodation entries. In the final analysis, the Hon'ble High Court held that:
13. In view of the aforesaid factual position, we have no hesitation in holding that the transactions in question were clearly sham and make-believe with excellent paper work to camouflage their bogus nature. Accordingly, the order passed by the Tribunal is clearly superficial and adopts a perfunctory approach and ignores evidence and material referred to in the assessment order. The reasoning given is contrary to human probabilities, for in the normal course of conduct, no one will make investment of such huge amounts without being concerned about the return and safety of such Investment.
5.11 In a recent judgement, it has been held by the Apex Court in the case of PCIT vs. NRA Iron & Steel (P.) Ltd. [2019] 103 taxmann.com 48 (SC) that where there was failure of assessee to establish credit worthiness of Investor companies, Assessing Officer was justified in passing assessment order making additions under section 68 for share capital/premium received by assessee company. Merely because assessee company had filed all primary evidence, it could not be said that onus on assessee to establish credit worthiness of investor companies stood discharged. The Hon'ble Court in ultimate analysis further held that:-
The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee. The Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee.
On the facts of the present case, clearly the Assessee Company - Respondent failed to discharge the onus required under Section 68 of the Act, the Assessing Officer was justified in adding back the amounts to the Assessee's income.
Thus, in the above judgement, the Hon'ble Supreme Court has highlighted the importance of field enquiries, which are not done in certain cases. In the said case and the case of the appellant, the field enquiries in a legal manner were conducted and the result has not yielded a result which could work as a saviour for the appellant. After considering the facts in totality, the Inference drawn from the facts and documentary evidences submitted by the appellant, it is clear that the transaction in question is from a non- genuine source, in which the appellant has failed to discharge its complete onus as per the law laid down in the cases wherever the provisions of section 68 are considered.
Confirmed the additions made by the AO.” [Emphasized by us]
This case was scheduled for hearing many times; viz, 28.06.2022, 11.10.2022, 02.01.2023, 10.04.2023, 13.06.2023, 23.08.2023, 12.10.2023, 26.12.2023, 14.03.2024 and 05.06.2024. However, none attended ever from the appellant/assessee side or even sought adjournment. In such facts and circumstances, it was inferred by us that the appellant/assessee was not interested in pursuing this appeal. We therefore, heard the Ld. Senior Departmental Representative (hereinafter, the ‘Sr. DR’) at length. Due to consistent non-prosecution from the appellant/assessee side for more than 3 &1/2 years, we have no option except to decide this case after hearing the Ld. Sr. DR. Accordingly, we proceeded with.
We have heard the Ld. Sr. DR, who vehemently argued the case and submitted that the appellant/assessee had miserably failed to bring any material on record to controvert the finding of the Ld. CIT(A); therefore, the appeal might be dismissed.
6. The Ld. Sr.-DR, emphasizing on the above extracted part of the impugned order of the CIT(A), submitted that the AO had requested the appellant/assessee to produce directors/responsible persons of share applicants in person to demonstrate the genuineness of transactions along with the bank accounts of such share applicants. But the same was in vain. Non-production of directors/responsible persons of share applicants in person and bank accounts of such share applicants either before the AO or CIT(A), in pursuance of specific requests/directions of the CIT(A) demonstrated that these transactions were sham transactions and were rightly taxed as unexplained credits. The Ld. Sr. DR placed special emphasis on the above underlined portion of the impugned order reproduced above.
7. The Ld. Sr. DR, placing emphasis on the CIT(A)’s order and submissions of the assessee extracted in the AO’s order and the CIT(A)’s order, demonstrated that the appellant/assessee had failed to discharge the onus cast upon it under section 68 of the Act. To buttress his claim, the Ld. Sr. DR drew our attention to the following case laws:- 1. Order of the ITAT, Delhi in to 6997/Del/2014 for A.Y.s 2005-06 to 2011-12 (Shri Virender Kumar Jain) and to 7004/Del/2014 for A.Y.s 2005-06 to 2011-12 (Shri Surender Kumar Jain), 2. Order of the ITAT, Delhi in the case of M/s Vijay Conductors India Pvt. Ltd., ITA No.3484/Del/2013, 3. Vijay Conductors India Pvt. Ltd. in ITA No.683/2015 (Delhi High Court), 4. NR Portfolio Pvt. Ltd., N. Tarika Property Invest. (P) Ltd. (221 Taxman 14), 5. Focus Exports Pvt. Ltd. Delhi High Court) (228 Taxman 88), 6. Nova Promoters & Finlease (P.) Ltd. (2012) 342 ITR 169, 7. NDR Promoters Pvt Ltd in ITA No. 49/2018(Delhi High Court)(Pronounced on 17.01.2019), 8. NRA Iron & Steel (P.) Ltd. [2019] 103 taxmann.com 48 (SC),
9. Suman Gupta-(SLP(C)CC-2152-2013)(2013-LL-0122-69) SLP dismissed by the Hon’ble Supreme Court on 22.01.2013, 10. Pradhan Telecom India Pvt. Ltd. 2018-TIOL-1983(Mum.), 11. Seema Jain [2018] 96 taxmann.com 307 (Del), 12. Bikram Singh 399 ITR 407 (Del), 13. Sidharth Export [2019] 112 taxmann.com 193 (Del), 14. Krishna Kumar Sethi 92 taxmann.com 324 (Del), 15. Toby Consultants (P.) Ltd. 324 ITR 338 (Del) and 16. Sanraj Engineering Pvt. Ltd. (ITA 79/2016) (Del).
We have heard the Ld. Sr. DR at length and perused the case record and the above case laws. The sole issue for our consideration here is the taxability of the credits/share application money and commission expenditure for obtaining the share application money. We find force in the argument of the Ld. Sr. DR that the appellant/assessee did not bring any material on the record to contradict the finding of the CIT(A).
According to the Section 68 of the Act, where any sum is found credited in the books of assessee, the assessee offers no explanation about the nature and source of the same or explanation offered by him is not found satisfactorily in the opinion of the AO, the sum credited may be charged to tax as the income of the assessee of the relevant year. The identity, creditworthiness and genuineness of transactions have to be explained by the assessee if in his books of account that sum is found credited. In the present case, the identity, creditworthiness/financial strength of the shareholders and genuineness of such credits/share application money have to be proved/established by the appellant/assessee. The burden of proof of these is on the appellant/assessee, which it failed to do so. Here, in this case, we are of the considered opinion that the identity of shareholders had been proved by filing copies of ITRs but neither the bank accounts of shareholders nor the genuineness of transactions was produced and explained. Thus, these two limbs of Section 68 of the Act were never explained by the appellant/assessee. The creditworthiness of shareholders for making payment of share application money were not established/demonstrated beyond doubt. The Hon’ble Supreme Court in the case of N. R. Iron and Steel Pvt. Ltd. SlP No. 29855 of 2018, referring to the decision of Hon’ble Delhi High Court in the case of Oasis Hospitalities Pvt. Ltd. 333 ITR 119 (Del.) observed that merely proving the identity of the investor does not discharge the onus of the taxable in the capacity or creditworthiness has not been established.
In view of the above and following the ratio of above cited decisions, we are of the considered opinion that the 19 appellant/assessee failed to bring any material on the record to controvert the finding of the CIT(A). The CIT(A) has given detailed finding while dismissed the appeal. Hence, we decline to interfere with the decision of the Ld. CIT(A) and thus upheld the finding of the CIT(A).
In the result, this appeal stands dismissed on merit. Order pronounced in open Court on 3rd September, 2024