D.C.I.T., CC-XXI, KOLKATA, KOLKATA vs. M/S. SAFECO PROJECTS (P) LTD., KOLKATA

The only issue is to be decided as to whether the CIT-A justified in deleting the impugned addition made on account of unexplained cash credit u/s. 68 of the Act in the facts and circumstances of the case.

Brief facts of the case are that the assessee is a private limited company and dealing with share trading and contractors. The assessee filed its return of income showing total income of Rs. 97,36,280/-. Notices u/s. 143(2) and 142(1) of the Act were issued. In response to said notices, the assessee appeared and filed details. Prior to filing of this return a search and seizure operation was conducted on 10-10-2009 in Badalia Group of cases, wherein huge amount of money was found. Number of bank accounts belonging to Sri M.M. Daga, who is concerned person of the assessee were found. In the 131 proceedings Sri M.M.Daga admitted that the said bank 1 accounts were maintained by him, but he could not explain the commission totaling to Rs.3.05 crores for the A.Ys. 2007-08 to 2010- 11. In view of the same, the AO show caused the assessee as to why the said amount should not be added as cash credit u/s. 68 of the Act. The assessee in reply stated that it involved in trading in miscellaneous cloth items such as sarees, hosiery garments and allied items. But, however, the AO disbelieved the same as the assessee failed to establish the existence of actual business of cloth being carried out by it and treating the source of cash deposit as cash credit u/s. 68 of the Act added the same to the total income of the assessee.

In challenge before the CIT-A the assessee contended that for A.Y 2011-12 the assessee offered profit @ 0.26% and the same was accepted vide assessment proceedings under section 143(3) of the Act by order dt. 27-03-2014. Following the same, the CIT-A directed the AO to reduce the addition to Rs.5,67,964/- @ 0.25%. Relevant portion of the CIT-A order is reproduced herein below for better understanding:-

However, it is noted that in the remand proceedings, the assessing officer has recorded statement of Shri Aditya Chirimar, erstwhile director of the appellant company, under section 131 of the Act. In this, he has accepted that the cash deposited in the HDFC bank account of the appellant was out of cash, which the appellant company had received from the beneficiaries. It has been stated by him in reply to question no.25, that the transactions of cloth trading were to accommodate the entities from whom purchases were shown and commission was earned on the same, which was shown under the head 'provision for expenses'. Thus, it transpires, that the appellant company used to receive cash from beneficiaries and after depositing of cash in bank, account payee cheques were issued as if it was payment against purchase of cloth. Though the assessing officer has observed that this was merely a claim by Shri Chirimar, the same is found to in conformity with the facts and surrounding circumstances as discussed earlier. As mentioned earlier, the assessing officer has not found any genuine cloth business and the bank account of the appellant was detected at the time of survey action at the premises of Shri M.M.Daga, who had also stated an oath that the bank account was being used for taking cash from beneficiaries to be deposited in the said accounts and thereafter for issue of cheques in the name of the concerns mentioned by them. Thus, all the findings, including admission by the then director of the appellant company, clearly indicate that deposits in the bank account of the appellant are essentially out of cash taken from beneficiaries which was deposited in the accounts and cheques were issued. In such a situation, income of the account holder would normally be some percentage of the amount for which cash was received. The statement of Shri Chirimar is silent on the point of exact rate charged for giving entries. However, it has been stated by the appellant that in the books of accounts entries for purported cloth trading were made which resulted in profit of Rs.5,67,964/- which was, however, not offered for taxation in the return. According to the appellant, this represents net income of the appellant from the above transaction and comes to about 2.5% which is a reasonable rate in such a situation. In course of appellate proceedings, it was informed by the appellant that the department has accepted in several cases that net income from accommodation entries is a small part of amount of entry given. In the assessment order dated 27.12.2011 2 ITA No.1948/Kol/2014

Heard both the parties and perused the record. We find that the Revenue has accepted the submission of assessee in the case of M/s. Mercantile Pvt. Ltd in an identical situation that the commission of accommodation entries was Rs. 250 per lakh rupees and determined the tax @ 0.25%. Whereas in the present case the assessee itself offered profit rate at 0.26%, accepted by the revenue for the A.Y 2011-12 and which is more than in the case of M/s. Mercantile Pvt. Ltd , which was also related to Badalia Group of cases. In view of the same, we find that the CIT-A was correct in directing the AO to reduce the addition to Rs.5,67,964/-. We find no infirmity in the impugned order of the CIT-A and is it is justified. Therefore, the grounds raised by the revenue are dismissed.

In the result, the appeal of the revenue is dismissed.