DCIT CC 45, MUMBAI vs. ASPIRE MERCANTILE P.LTD, NAVI MUMBAI

The grounds of appeal read as under: Revenue appeals i. On the facts and circumstances of the case and in law, the CIT (A) erred in deleting the addition of Rs.1,95,00,000/- made in respect of alleged share application money merely relying on the facts that the alleged share applicants were incorporated as companies and therefore their identity could not be denied but without appreciating that during the search it was found that the alleged share applicants were indulging in accommodation transactions and were never produced for verification / examination before the Assessing Of to prove their creditworthiness and genuineness of/he transactions as required u/s. 68 of the Act." ii. On the facts and in the circumstances of the case, and in law, the CIT(A) was not justified in deleting the addition of Rs.1,25,85,000/- made u/s 68 of the Act by holding that the loan creditor was assessed to tax in the same charge, hence its identity could not he doubted, but ignoring that the capacity of creditor and genuineness of transactions had not been proved ", since party was found to Aspire Mercantile P. Ltd. ITA no.2186/Mum./2011 indulging in paper transactions, and therefore the assessee hadfailed to discharge the onus cast upon him." The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the Assessing Officer be restored. The appellant craves leave to amend or alter any ground and /or add new grounds which may be necessary.

Assessing Officer wanted to examine the identity the, credit worthiness and genuineness of these parties transactions. The A.O. requested the assessee to produce these parties. However, they were no so produced.

The A.O issued summon u/s. 131 to the Directors of m/s. Bombaiya Films Pvt. Ltd. A.O. recorded statement of the Directors. From the statement of the Directors reproduced in the assessment order the A.O. observed as under: “As clear from the above statement Mr. Deepak G. Gohli and Mrs. Naina D. Gohli, they don’t have much role to play as Directors of M/s. Bombaiya Films Pvt. Ltd. They were used for the purpose of account introduction and signing of cheques. They were not aware of the huge transactions in the bank statement of M/s. Bombaiya Films Pvt. Ltd. For this they received a monthly lump-sum amount from Mr. Shailesh M. Shah, who was mainly controlling the company. Even Mr. Shailesh M. Shah in his statement has admitted that all these transactions are merely 4 Aspire Mercantile P. Ltd. ITA no.2186/Mum./2011 accommodation entries backed by cash. They don’t have the capacity to advance such huge sum of money to anybody.” 6. Assessing Officer further, issued summons to the directors of M/s. Rubicon Pharmaceuticals Pvt. Ltd. The directors of these company were also director in four other companies. The A.O. issue summons u/s. 131 to Shri. Suraj Prakash Jindal director of these five companies. He recorded his statement. For most of the transactions his reply was “I cannot recollect and remember the nature of other details of transactions.” The A.O. reproduced the statement so obtain in the assessment order. On the basis of these statement the A.O. observed that the said person was not aware of the transactions its source, its genuineness and identity of theperson involved. That Shri. Jindal could not establish the credit worthiness of the company. 7. Assessing Officer further noted that assessee has received unsecured loans as under: S.No. Name of the Party Amounts (Rs.) 1. M/s. Three A Brothers 2,30,00,000/- 2. Accurate Mercantile Pvt. Ltd. 90,85,000/- 3. M/s. Haranba Finvest Ser. Pvt. Ltd. 25,00,000/- 4. M/s. Niketan Mercantile Pvt. Ltd. 10,00,000/- 5. M/s. Nisha Enterprises 2,38,40,000/- 6. Mr. Nitin Soni 36,50,000/- 7. M/s. Radhe Software Solution Pvt. Ltd. 2,50,000/- 8. M/s. Shree Siddhi Steel 28,75,000/- 9. M/s. India Infoline Sec. Pvt. Ltd. 49,77,485/- Total: 7,11,77,485/- Aspire Mercantile P. Ltd. ITA no.2186/Mum./2011 8. Assessing Officer examined the director of M/s. Accurate Mercantile Pvt. Ltd., M/s. Niketan Mercantile Pvt. Ltd. he also examined the proprietor of M/s. Nisha Enterprises, director of M/s. Shri Radhe Software Solution Pvt. Ltd. On the basis of their statement the A.O. observed that they were indulging in practice of providing various types entries, to the beneficiaries as accommodation entry. A.O further noted that other parties could not be produced. A.O further noted that there were various entry operators operating in Mumbai and Kolkata and they have opened bank accounts in the name of companies and concern. A.O mentioned their details and modus operandi in great details. The Assessing Officer concluded as under: Keeping in view of the discussion, as mentioned in paras - 6 to 10, share application money of Rs.1,95,00,000/- and unsecured loans of Rs.7,11,77,485/- In total Rs.9,06,77,4851-are added u/s.68 of I.T. Act, 1961 as- (i) the assessee failed to file the confirmation from the respective shareholders. (ii) the assessee failed to produce the respective shareholders, from where the share application was received. (iii) they failed to prove the identity of the shareholders as they were found to be nonexistent on the address mentioned in the bank statement. (iv) they failed to prove the creditworthiness of the shareholders as none of the shareholder as mentioned in the list of the share application money received during the year has the capacity to advance such huge sum of money Aspire Mercantile P. Ltd. ITA no.2186/Mum./2011 (v) they failed to prove the genuineness of the transactions (vi) the assessee company paid the cash and received share application money by cheuqe. (vii) none of the parties who were used in the chain of transfer of entries were not produced if verified. (viii) the assessee has failed to discharge its primary onus to prove the identity, creditworthiness and genuineness of the share applicants. (ix) the assessee didn't come forward for cross examination of the parties who stated that all these are accommodation entries. (x) the director of the company, Mr. Suraj Prakash Jindal was not aware of anything about the company and for every question he stated that "I don't know & I don't remember 9. Upon assessee appeal Ld. CIT-A referred to the Hon’ble Apex Court decision in the case of Lovely Exports. He noted that assessee company has received share application money. The name, Pan, balance-sheet, bank statement and conformation letter were submitted to the A.O. Ld. CIT-A concluded as under: “In the case of share application herein, all shareholders whose contributions have been assessed by the AO as appellant's income under the provision of the section 68 are duly incorporated companies. In the case of incorporated company, the existence of the party cannot be denied. Once incorporated, a company exists until liquidated in accordance with law. If it is the case of the AO that these art' bogus shareholders then the department is free to proceed to reopen their assessments in accordance Aspire Mercantile P. Ltd. ITA no.2186/Mum./2011 with law. But in case of appellant, once existence of the shareholders is not in doubt, no further action lies and the amount of share capital cannot be assessed as appellant company's income chargeable to tax. In view of this legal position declared by the highest court of the land, I hold that the addition of Rs. 1,95,00000/, being the amount of Share Application Money made by the AO in this behalf are required to be deleted in the impugned assessment year as all the limbs discussed in the decision of Lovely exports stands true in this case.”

As regard the issue of unsecured loan, Ld. CIT-A held as under: “I have considered the evidence produced before me as well as the Remand Report of the A.O. While going through the same, I find that the Accurate Mercantile Pvt. Ltd. Heranba Finvest Ser. Pvt. Ltd and Niketan Mercantile Private Limited are assessed to tax in the same charge. The identity of these loan creditors hence could not be in doubt. The Balance Sheet and accounts of these companies are on record and the loan transactions are reflected in these books of accounts and hence the capacity of these loan creditors cannot be doubted. These transactions stand proved and hence the additions on account of unsecured loans from these creditors are deleted. The appellant has filed loan confirmation from M/s. Nisha Enterprises. In this case the statement of the Proprietor of the firm has stated on oath that the transactions with M/s. Aspire Mercantile Pvt. Ltd. are merely accomodations entries. All the transactions are lieu by cash. Shree Siddhi Steel and Three. A Bros are the partnership firms of the directors of the Aspire Mercantile P. Ltd. ITA no.2186/Mum./2011 appellant firm. The assessee had filed the loan confirmation form M/s. Radhe Software Solutions Pvt. Ltd. together with its Return acknowledgment and Balance Sheet. In respect of loan from these parties I have seen that though the assessee filed loan confirmations before me supported by their return acknowledgement and balance sheet in most cases, the initial onus is not discharged and the assessee has failed to substantiate the genuineness of these transactions hence I treat these unsecured loans as unexplained income of the assessee. Hence the addition u/s. 68 in respect of unsecured loans from these parties is confirmed. The AR has drawn my attention to the tact that in respect of additions of Rs. 2,38,40,000/. being the loan taken from M/s. Nisha Enterprise, the said amount includes the opening credit balance. of Rs.25, 50,000 which amount has already been added u/s 68 of the Income Tax Act, 1961 in assessment year 2006-07 and hence amounts to double additions. The contention of the appellant is found correct and hence the addition on account of unsecured loan of Rs.2,38,40,000/- in the account of the said Nisha Enterprises is restricted to Rs. 2.12,90,000/-. Thus, the additions in respect of which the additions are confirmed are as under: S.No. Name of Lender Amount Received 1. Nisha Enterprises 2,12,90,000/- 2. Shree Siddhi Steel 28,75,000/- 3. Three A Brothers 2,30,00,000/- 4. India Infoline Pvt. Ltd. 49,77,485/- 5. Shree Radhe Software Soltuions Pvt. Ltd. 2,50,000/- 6. Nitin Soni 36,50,000/- Total 5,60,42,485/- Aspire Mercantile P. Ltd. ITA no.2186/Mum./2011 11. Against the above orders revenue and assessee are in cross appeal before us. We have heard the Ld. DR. Non-appeared on behalf of the assessee. It is also noted that these appeals are pending since 2011. Several notices have been given to the assessee and none is appearing on behalf of the assessee. Hence we proceed to adjudicate the issue on the basis perusal of records and hearing Ld. DR.

As regards the issue of share application money we note that assessee has received share application money from two Pvt. Ltd. Companies amounting to Rs.1,95,00000/- A.O. has examined the directors of these companies. From the said examination reproduced in the assessment order it is clear that these directors were totally unaware of the transactions of the company. From their statements the A.O. has brought on record that they could not corroborate the identity of this transactions the genuineness, credit worthiness. As against the above elaborate finding of the A.O, the Ld. CIT-A has deleted the entire addition on the ground that these are companies and the money received though banking channel. We find that just because these share applicant are companies and the money has been received through banking channel it doesn’t mean that the identity credit worthiness and genuineness and the transactions are disclosed. The A.O. has made elaborate enquiry and has examined the directors of these companies which has clearly brought on record that these are accommodation entries. In such circumstances in our considered opinion the order of Ld. CIT-A is not at all sustainable. Accordingly as Aspire Mercantile P. Ltd. ITA no.2186/Mum./2011 regards the issue of addition on share application money we set aside order of Ld. CIT-A and restored the A.O’s order. The addition stands confirmed.

As regards the issue of unsecured loan also assessing officer has brought on record the statement of the directors and proprietors of the loan givers and on that basis he has come to the conclusion that the unsecured loans were actually accommodation entries. Ld. CIT-A has deleted the addition on the ground that some of the assessee’s are assessed to tax in the same range. Hence their identities is not in doubt. That the balance sheet are on record hence this transactions are proved. We find that Ld. CIT-A here again has ignored the evidences and the statements obtain by the A.O. It is also not the case that Ld. CIT-A has examined the parties or the accounts himself. Hence the conclusion regarding the genuineness of these loans drawn by the Ld. CIT-A is also not at all sustainable. Thus we find that the deletion of addition unsecured loan by the Ld. CIT-A is not based upon any cogent finding. Only with regard to M/s. Nisha Enterprises where Ld. CIT-a has given a finding that a sum of the Rs. 25,50000/- was and opening balance which was already added u/s. 68 in the assessment year 2006-07. Hence except deletion of 25,50,000/- of this account we set aside the order by the CIT-A on the issue of deletion of unsecured loan. Hence, the addition by the AO in this regard is confirmed except for a sum of Rs. 25,50,000/- as deleted above. In the result appeal filed by the assessee stands dismissed and appeal by the revenue stands partly allowed.