ITO v. Hi-Link City Homes Pvt. Ltd.

Case snapshot

Sections / provisions: 68; alleged accommodation entries

Questions before the Court / Tribunal

• *“Alleged accommodation entries taken From alleged shell companies i.e. Jayant Securities & Finance Ltd. and Jay Jyoti (India) Pvt. Ltd. are Genuine Loans ”- ITAT Indore* The issue involved was whether “Merely for not producing the cash creditors before the Ld. AO even when all the necessary documents as required to prove the identity, creditworthiness and genuineness of the cash creditors are furnished by the assessee, can be a reasonable basis to make addition for unexplained cash credit u/s 68 of the Act.?” Which was held in favour of the assessee.
• What factual, statutory and procedural conditions control the relief?
• How does the operative order apply to the parties and the challenged proceeding?

Material facts and procedural background

ITA No.2/Ind/2021 Assessment Year: 2012-13 ITO, 2(1) M/s. Hi Link City Homes Indore Pvt. Ltd. बनाम/ 06, Sadhna Nagar, Vs. Airport Road, Indore (Appellant / Revenue) (Respondent / Assessee) PAN: AACCH5920K Assessee by Shri Milind Wadhwani & Shri Pankaj Shah, ARs Revenue by Shri Ashish Porwal, Sr. DR Date of Hearing 23.08.2022 Date of Pronouncement 19.09.2022

1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in allowing the appeal of the assessee, though the Assessing Officer vide remand report requested to hold the

3. Whether on the facts in the circumstance of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 1,50,00,000/- and Rs. 85,00,000/- ignoring the information available that assessee has taken and accommodation entry from M/s Jayant Securities and Finance Ltd and M/s Jay Jyoti India Pvt. Ltd, companies engaged purely in malpractice of accommodation entries to prospective beneficiaries.

5 Whether on the facts and in the circumstance of the case and in law, the Ld. CIT(A) was justified in deleting the addition on account of commission for obtaining unexplained cash credits Rs. 6,00,000/- and Interest on unexplained cash credits Rs. 18,85,033/- as the assessee has filed the genuineness of transactions.”

3. The assessee-company filed return of relevant-assessment year declaring a total income of Rs. 39,030/-, which was subjected to scrutiny, statutory notices u/s 143(2)/142(1) were issued and ultimately the assessment-order was passed u/s 143(3) at a total income of Rs. 2,49,76,970/- after making certain additions. Aggrieved, assessee filed appeal to Ld. CIT(A) and got relief. Being aggrieved by order of Ld. CIT(A), now the revenue is in appeal before us. We shall proceed ground by ground.

Appellant / assessee submissions

10. During assessment-proceeding, Ld. AO observed that the assesee- company had shown a cash-credit of Rs. 24,52,910/- from Shri Nilesh Jain. On enquiry by Ld. AO, the assessee submitted that it purchased stamp papers from Shri Nilesh Jain in regard to registries made for purchase of lands and the amounts of stamp-papers was outstanding. On further digging from database of Income-tax department, Ld. AO observed following financials of Shri Nilesh Jain:

“7. With reference to your query regarding Shri Nilesh Jain, it is submitted that we have already given you the confirmation, PAN No. and income-tax return of Shri Nilesh Jain. Also we are given the copies of registries in which they provide the stamps. Also we have requested you vide in our earlier reply that you may call their records directly at the cost of the assessee. We therefore request you kindly consider the above and oblige.”

12. Before us, Ld. DR placed a strong reliance on the observations made by Ld. AO. He strongly contested that the total sum of Rs. 1,21,49,560/- (of which Rs. 24,52,910/- is related to assessee) is not a petty sum, it is a whopping sum. Ld. DR submitted that the department has found that the taxable income of Nilesh Jain is very nominal and by no stretch of imagination, he has worth to make a hefty-investment of Rs. 1,21,49,560/- and allow credit to the assessee and group-companies of assessee and that too for earning a small amount of commission. Ld. DR submitted that the opportunity cost for making credit-sale would be much higher than earning commission. Ld. DR submitted that the Ld. AO has also served notices u/s 133(6) and 131 upon Nilesh Jain but he has not appeared to support the assessee’s stand. Ld. DR submitted that, in such circumstances, it is quite obvious that the nature and source of credit-entry of Rs. 24,52,910/- appearing in books of account of assessee is not satisfactorily explained. Ld. DR further submitted that the Ld. CIT(A) has not dealt with this issue adequately. With these submissions, Ld. DR made a strong contention that the Ld. AO has rightly made an…

13. Per contra, Ld. AR submitted that the assessee has filed sufficient documentary evidences to Ld. AO during the course of assessment- proceeding in the form of A/c Confirmation and Copy of income-tax return of Nilesh Jain. Ld. AR submitted that non-compliance of notices u/s 133(6) / 131 by Nilesh Jain is not within the control of assessee and that is why the assessee has even written to Ld. AO to proceed at his cost. Ld. AR has also invited our attention to the verdict of section 68 and placed certain judicial decisions to canvas that section 68 cannot apply to the issue in hand.

Revenue / respondent submissions

12. Before us, Ld. DR placed a strong reliance on the observations made by Ld. AO. He strongly contested that the total sum of Rs. 1,21,49,560/- (of which Rs. 24,52,910/- is related to assessee) is not a petty sum, it is a whopping sum. Ld. DR submitted that the department has found that the taxable income of Nilesh Jain is very nominal and by no stretch of imagination, he has worth to make a hefty-investment of Rs. 1,21,49,560/- and allow credit to the assessee and group-companies of assessee and that too for earning a small amount of commission. Ld. DR submitted that the opportunity cost for making credit-sale would be much higher than earning commission. Ld. DR submitted that the Ld. AO has also served notices u/s 133(6) and 131 upon Nilesh Jain but he has not appeared to support the assessee’s stand. Ld. DR submitted that, in such circumstances, it is quite obvious that the nature and source of credit-entry of Rs. 24,52,910/- appearing in books of account of assessee is not satisfactorily explained. Ld. DR further submitted that the Ld. CIT(A) has not dealt with this issue adequately. With these submissions, Ld. DR made a strong contention that the Ld. AO has rightly made an…

Court / Tribunal analysis and reasoning

“12.5. As regards the loan taken from Jayant Security and Finance Ltd. Badodara at Rs. 1.25 crores and interest paid thereon at Rs.8,79,041/- , we find that the alleged cash creditor is a limited Shri Sanjay Shukla, Indore 10 company, Permanent Account No. and address has been provided. Loan taken through proper banking channel Confirmation of account is on record. Jayant Security and Finance Ltd. is a nonbanking financial company having experience of 26 years. This company is regularly assessed to tax and has also been subjected to scrutiny assessment and the additions made thereon have traveled before Coordinate Bench Ahmedabad in the case of M/s. Jayant Security and Finance Ltd. in ITANo.753/Ahd/2012. We also find that the loan taken from alleged company has been treated as genuine and the additions made in the hands of other loan receivers have been deleted by this Tribunal in the case of M/s Tirupati Construction ITANo.533/Ind/2014 and M/s K.K. Patel Finance Ltd. ITANo.440/Ind/2010. We, therefore, find no reason to doubt the genuineness and creditworthiness of Jayant Security and Finance Ltd. and identity is well proved which has been rightly appreciated by Ld. CIT(A) in…

12.6. As regards the cash creditor namely M/s Jay Jyoti India Pvt. Ltd. Mumbai we find that this company was incorporated in 1999. As on 31.03.2013 it had share capital of Rs. 6,33,50,500/- and net reserves and surplus of Rs.1,08,62,25,646/-. Bank statement, confirmation of account, ledger statement, audited financial statement, Memorandum of Association and tax deducted at source certificate are placed on record which in totality are sufficient to prove identity of this company, genuineness of the transaction and creditworthiness of this company It is further proved with the fact Shri Sanjay Shukla, Indore 11 that it had merely advanced 0.75% of the funds which it was capable of i.e. it had financial capacity of advancing 133 times more than the loan given to the assessee company. Thus, Ld. CIT(A) has rightly appreciated these facts for deleting addition for made u/s 68 of the Act as well as the interest disallowance.”

14. We have considered rival submissions of both sides and also perused the record as well as judicial precedents cited. We observe that a total sum of Rs. 1,21,49,560/- (assessee’s part is Rs. 24,52,910/-) has been shown as outstanding by assessee and its group companies as payable to Nilesh Jain towards purchase of stamp papers for the registries made for purchase of land. On verification of data available with income-tax department, the Ld. AO observed that Mr. Nilesh does not have such a sound worth as to invest the sum of Rs. 1,21,49,560/- and allow credit to assessee just to earn a small % in the form of commission. We have also perused the A/c Confirmation of Nilesh Jain filed in the Paper-Book and observed the date- wise details of the outstanding sum of Rs. 24,52,910/- as under:

Operative decision and relief

7.4 Hence, in light of the above facts, it is very clear that the appellant had purchase stamp papers from shri Nilesh Jain appellant has also submitted the registries and sale deed to prove the same. The appellant has submitted all the required documents before the AO and the same was verified by the AO during the assessment proceedings. Hence, in light of the above, discussions, the addition so made by the AO is hereby deleted and accordingly, this ground of appeal is allowed.”

the cost of the assessee. We therefore request you kindly consider the above and oblige.”

As observed earlier, after this submission of assessee, the Ld. AO completed assessment without making any further effort. In such a situation, we feel it would be more appropriate to allow a fair play to both sides i.e. assessee as well revenue by remanding this issue back to Ld. AO for further enquiry. Needless to mention that the Ld. AO, in discharge of governmental function, is armed with sufficient powers under the scheme of Income-tax Law to investigate and adjudicate on the issues. Accordingly, the Ld. AO would once again take all necessary steps as required to unearth the truth and decide the issue afresh in accordance with law. Accordingly, this Ground No. 4 is remanded back to Ld. AO.

21. In the result, this appeal of revenue is partly allowed for statistical purpose.

Ratio and legal principle

• The packaged judgment addresses *“Alleged accommodation entries taken From alleged shell companies i.e. Jayant Securities & Finance Ltd. and Jay Jyoti (India) Pvt. Ltd. are Genuine Loans ”- ITAT Indore* The issue involved was whether “Merely for not producing the cash creditors before the Ld. AO even when all the necessary documents as required to prove the identity, creditworthiness and genuineness of the cash creditors are furnished by the assessee, can be a reasonable basis to make addition for unexplained cash credit u/s 68 of the Act.?” Which was held in favour of the assessee. The precise proposition must be read with the Court/Tribunal's reasoning and operative directions.
• Reliance depends on matching the statutory version, jurisdiction, procedural stage and material evidence recorded in the judgment.

Why this judgment matters

This decision is relevant to practitioners and affected parties dealing with *“alleged accommodation entries taken from alleged shell companies i.e. jayant securities & finance ltd. and jay jyoti (india) pvt. ltd. are genuine loans ”- itat indore* the issue involved was whether “merely for not producing the cash creditors before the ld. ao even when all the necessary documents as required to prove the identity, creditworthiness and genuineness of the cash creditors are furnished by the assessee, can be a reasonable basis to make addition for unexplained cash credit u/s 68 of the act.?” which was held in favour of the assessee. Its value lies in showing how the adjudicating forum connected the applicable rule to the proved facts and procedural posture.

Practitioner action points

• Match the statutory version, jurisdiction, procedural stage and decisive evidence before relying on the result.
• Verify current appellate, review and SLP history and any later amendment or controlling authority.
• Attach the complete judgment to the working paper or filing and cite the paragraph/page supporting the proposition.

Does this case match your facts?

Section / provision impact

• 68 - apply the exact version considered in the judgment.
• alleged accommodation entries - apply the exact version considered in the judgment.

Case network

Similar issue / useful comparison

• SANJAY VRAJLAL KOTHARI V ITO 25(2)(3), MUMBAI - ITAT Mumbai - G Bench
• Ramachandra Kanu Mendadkar v. CIT(A) - ITAT Mumbai - D Bench
• ACIT v Ramlal Jewellers Pvt. Ltd. - ITAT Mumbai - D Bench

Different outcome / possible distinction

• Krishna D. Pawar v. ITO - Operative order controls
• ACIT, Circle-9(2), New Delhi Vs. Four Star Constructions Pvt. Ltd. - Operative order controls

Related Finin2min resources

• Case Law Hub
• Search all judgments
• Income-tax study guide

Full judgment and source control

Read / download packaged judgment record

Source class: SANITIZED_LOCAL_FULL_JUDGMENT_COPY_PRIMARY_PENDING · Repository status: PUBLISH_READY