{"id":21946,"date":"2020-06-13T10:46:46","date_gmt":"2020-06-13T05:16:46","guid":{"rendered":"https:\/\/itatonline.org\/archives\/?p=21946"},"modified":"2020-06-13T10:46:46","modified_gmt":"2020-06-13T05:16:46","slug":"pcit-vs-alag-securities-pvt-ltd-bombay-high-court-s-68-bogus-cash-credits-in-the-case-of-an-assessee-engaged-in-providing-accommodation-entries-the-entire-deposits-cannot-be-assessed-as-unexpla","status":"publish","type":"post","link":"https:\/\/itatonline.org\/archives\/pcit-vs-alag-securities-pvt-ltd-bombay-high-court-s-68-bogus-cash-credits-in-the-case-of-an-assessee-engaged-in-providing-accommodation-entries-the-entire-deposits-cannot-be-assessed-as-unexpla\/","title":{"rendered":"PCIT vs. Alag Securities Pvt. Ltd (Bombay High Court)"},"content":{"rendered":"

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
\nORDINARY ORIGINAL CIVIL JURISDICTION
\nINCOME TAX APPEAL NO.1512 OF 2017
\nPrincipal Commissioner of Income Tax-14 … Appellant
\nVs.
\nAlag Securities Pvt. Ltd.
\n(Formerly known as Mahasagar Securities and
\nRichmond Securities Pvt. Ltd.) … Respondent
\nMr. Suresh Kumar for Appellant.
\nCORAM : UJJAL BHUYAN &
\nMILIND N. JADHAV, JJ.
\nReserved on : FEBRUARY 11, 2020
\nPronounced on : JUNE 12, 2020
\nP.C.:
\nHeard Mr. Suresh Kumar, learned standing counsel, Revenue for the
\nappellant.
\n2. This appeal under Section 260-A of the Income Tax Act, 1961 (briefly ‘the
\nAct’ hereinafter) has been preferred by the Revenue assailing the order dated
\n18.11.2016 passed by the Income Tax Appellate Tribunal, Mumbai Bench ‘A’,
\nMumbai (‘Tribunal’ for short) in ITA No.886\/Mumbai\/2012 for the assessment
\nyear 2003-04.
\n3. The appeal has been preferred by the Revenue projecting the following
\nquestions as substantial questions of law:-
\n\u201c1. Whether on the facts and in the circumstances of the case and in
\nlaw, Tribunal erred in restricting the addition of Rs.4,78,94,000.00
\nmade by the Assessing Officer on account of unexplained cash credits
\nunder Section 68 of the Act to commission income calculated at 0.15%
\nwithout appreciating that the assessee had failed to furnish satisfactory
\nexplanation with regard to identity of the parties, source and
\ngenuineness of the transactions?
\n2. Whether on the facts and in the circumstances of the case and in
\nlaw, Tribunal erred in restricting the addition made by the Assessing
\nOfficer to the commission income at 0.15% without considering that
\nthe material found during the course of search clearly established that
\nthe net commission charged by the assessee varied between 1.5% to
\n3.6% and that the decision in M\/s. Mihir Agencies Pvt. Ltd. relied upon
\nby the First Appellate Authority was clearly distinguishable?\u201d
\n4. Thus from the above, it is quite evident that the issue involved in the
\npresent appeal is restriction of the addition of Rs.4,78,94,000.00 made by the
\nAssessing Officer on account of unexplained cash credits under Section 68 of the
\nAct to the commission income at the rate of 0.15%.
\n5. Respondent is an assessee under the Act having the status of resident
\ncompany (hence also referred to as ‘assesee’). Assessee is engaged in the business
\nof providing accommodation entries to entry seekers. A search and seizure
\noperation under Section 132(1) of the Act was carried out on 28.06.2006 in the
\ncase of one Shri Hitesh M. Bagthariya who deposed that he was an entry operator
\nand that he used to arrange cheques of the assessee and M\/s. Goldstar Finvest Pvt.
\nLtd. Following the same, assessment under Section 143(3) read with Section 153-
\nC of the Act in the case of the assessee was made by the Assessing Officer for the
\nassessment year 2003-04 on 26.12.2008 determining the total income of the
\nassessee at Rs.62,480.00 as against the returned loss of Rs.14,596.00.
\n6. It may be mentioned that another search action under Section 132 of the Act
\nwas subsequently carried out on 25.11.2009 in the case of Mahasagar Group of
\nCompanies, now known as Alag Securities, to which assessee belongs. Following
\nthe same, assessment completed under Section 143(3) read with Section 153-C of
\nthe Act in the case of the assessee was reopened after recording the reasons and
\nafter taking prior approval of the higher authority. After hearing the assessee and
\nconsidering the materials on record, Assessing Officer passed the assessment order
\ndated 31.12.2010 under Section 143(3) read with Section 147 of the Act.
\nAssessing Officer held that the identity of the parties involved in the transactions
\nwere not furnished as well as genuineness of the transactions relating to total cash
\ndeposits of Rs.4,78,94,000.00 were not satisfactorily explained by the assessee.
\nHolding that the source, nature, genuineness and credit worthiness of the creditors
\nrelating to the transactions were not proved by the assessee, the aforesaid amount
\nwhich were found in deposits in various bank accounts was added back to the total
\nincome of the assessee as unexplained income from undisclosed sources under
\nSection 68 of the Act.
\n7. Aggrieved by the above and raising other issues as well, assessee preferred
\nappeal before the Commissioner of Income Tax (Appeals)-37, Mumbai (referred
\nto hereinafter as ‘CIT (A)’ or ‘the First Appellate Authority’). By the appellate order
\ndated 08.11.2011, CIT (A) noted that the same issue had cropped up before the
\nTribunal in several appeals including in the case of ITO Vs. Mihir Agencies Pvt.
\nLtd., ITA No.4912\/Mumbai\/2005 for the assessment year 2002-03 wherein
\nTribunal had held that only 0.15% of the total deposits were to be treated as
\nincome from commission in the hands of the respective entities. Following the
\nabove, CIT (A) directed the Assessing Officer to adopt only 0.15% of the total
\ndeposits as commission in the hands of the assessee and to delete the balance
\naddition.
\n8. Revenue challenged this order of CIT (A) before the Tribunal. Tribunal vide
\nthe order dated 18.11.2016 noted that the same issue arose in the case of M\/s.
\nGoldstar Finvest Pvt. Ltd. for the same assessment year i.e., assessment year
\n2003-04. In M\/s. Goldstar Finvest Pvt. Ltd., Tribunal took the view that assessee
\nwas only concerned with the commission earned on providing accommodation
\nentries. Commission in that case was assessed at 0.15%. Since assessee was part
\nof the group of entities in respect of which the same view was taken, Tribunal
\nupheld the order passed by the CIT(A) and dismissed the appeal of the Revenue.
\n9. Hence the present appeal by the Revenue.<\/p>\n

10. Mr. Suresh Kumar, learned standing counsel, Revenue has referred to
\nSection 68 of the Act and submits that Assessing Officer was fully justified in
\nadding the cash deposits amounting to Rs.4,78,94,000.00 to the income of the
\nassessee thus bringing those within the ambit of the tax net as the assessee had
\nfailed to discharge the primary onus on it by satisfactorily explaining those cash
\ndeposits. Assessing Officer had recorded a clear finding that assessee could not
\nsatisfactorily explain the source, nature, genuineness and credit worthiness of the
\ncreditors of those transactions. The First Appellate Authority was not at all
\njustified in restricting the addition to only a percentage of commission, that too, at
\nthe low rate of 0.15%. Tribunal committed a manifest error in affirming such
\ndecision of the First Appellate Authority. In this connection learned standing
\ncounsel has referred to and relied upon a decision of the Supreme Court in
\nPrincipal Commissioner of Income Tax Vs. NRA Iron and Steel (P) Ltd<\/a>., (2019)
\n103 Taxmann.com 48. He finally submits that the two questions proposed are
\nsubstantial questions of law which may be answered in favour of the Revenue.
\n11. Submissions made by Mr. Kumar have been considered. Also perused the
\nmaterials on record.
\n12. At the outset it would be apposite to deal with the assessment order in
\nquestion. As already noticed above, following search and seizure operation under
\nSection 132(1) of the Act assessment order under Section 143(3) read with Section
\n153C of the Act was passed on 26.12.2008 by the Assessing Officer determining
\nthe total income of the assessee at Rs.62,480.00 as against the returned loss of
\nRs.14,596.00.
\n13. Another search action under Section 132(1) of the Act was carried out
\nsubsequently on 25.11.2009 in the case of Mahasagar Group of Companies, now
\nknown as Alag Securities. Assessee was one of the companies of the above group.
\nConsequent thereto, the concluded assessment was reopened after recording
\nreasons and after taking prior approval of the higher authority. It was mentioned in
\nthe reasons recorded that the assessee along with the related 34 odd companies
\nforming part of the Mahasagar Group of Companies, now Alag Securities, were
\nengaged in fraudulent billing activities and in the business of providing bogus
\nentries. Shri Mukesh Choksi and Shri Jayesh K. Sampat were directors of those
\ncompanies. From their statements, it came to light that the said group of
\ncompanies was engaged in activities of laundering unaccounted cash of various
\nclients by having the cash deposited in the bank accounts of various companies,
\ntransfer of funds between various group companies and issue of cheques, etc. to
\nthe clients with bogus bills showing making of speculation profit \/ loss or short
\nterm capital gains \/ loss etc. It was noticed that there were cash deposits totalling
\nRs.4,78,94,000.00 in the bank accounts of the assessee which were not disclosed
\nto the Income Tax Department.
\n14. During the assessment proceedings, the assessee submitted that it was
\ninvolved in the business of facilitating and providing accommodation entries to
\nthe beneficiaries, details of which were explained during the search action. It was
\nalso explained that for such services rendered, assessee used to charge commission
\nand the rate of commission was taken at 0.15%. It was contended that assessee had
\ndeposited the cash received from the customers \/ beneficiaries and issued
\ncorresponding cheques to them for which it earned commission. This is the
\nadmitted case. Therefore, Section 68 of the Act would not be attracted in such a
\ncase because the cash credits did not belong to or formed part of the income of the
\nassessee.
\n15. However, the Assessing Officer did not accept the contention of the
\nassessee. Taking the view that the cash credits were not satisfactorily explained,
\nthe total cash deposits of Rs.4,78,94,000.00 was added to the total income of the
\nassessee as unexplained income from undisclosed sources under Section 68 of the
\nAct.<\/p>\n

16. In appeal before the CIT (A), assessee reiterated its contention. It was
\nexplained that customers made deposits in cash amounts and in turn they took
\ncheques from the assessee for amounts slightly lesser than the amounts of cash
\ndeposits, the difference representing the commission realized by the assessee. The
\ncommission rate on such dealings was 0.15%. CIT (A) noticed that in the case of
\nMihir Agencies Pvt. Ltd. belonging to the same group of companies for the
\nassessment year 2002-03, a similar issue had cropped up before the Tribunal. In
\nthat case, Tribunal held that the action of the Assessing Officer in treating the
\nentire deposits as unexplained cash credits could not be accepted in the light of
\nassessment orders passed in the case of the beneficiaries and also in the light of
\nthe fact that assessee was only concerned with the commission earned in providing
\naccommodation entries. Tribunal had noted that in earlier cases the average
\npercentage of commission was between 0.15% to 0.25% which was found to be
\nreasonable. Since the assessee i.e. Mihir Agencies Pvt. Ltd. had itself declared the
\ncommission at 0.15%, the same was accepted. CIT (A) held that facts of the
\npresent case were identical to the facts of Mihir Agencies Pvt. Ltd. Therefore,
\nfollowing the above decision, CIT (A) directed the Assessing Officer to adopt only
\n0.15% of the total deposits as commission in the hands of the assessee and to
\ndelete the balance addition.
\n17. When this issue came up before the Tribunal in appeal by the Revenue,
\nTribunal noticed that similar issue had arisen before it in the cases of M\/s.
\nGoldstar Finvest Pvt. Ltd., M\/s. Mihir Agencies Pvt. Ltd., M\/s. Alliance
\nIntermediateries and Network Pvt. Ltd. and Shri Mukesh Choksi, which were
\nrelied upon by the assessee. In fact, Tribunal found that in the case of M\/s.
\nGoldstar Finvest Pvt. Ltd., the dispute pertained to the assessment year 2003-04
\nwhich was also the assessment year in the appeal relating to the assessee and that
\nthe grounds of appeal raised by the Revenue were verbatim similar to the grounds
\nraised in the appeal by the assessee, the only difference being in the figures of
\namounts inolved. Therefore, Tribunal held that its decision in the case of M\/s.
\nGoldstar Finvest Pvt. Ltd. was applicable to the present case and following the
\nsame, Tribunal affirmed the order of CIT (A). Tribunal further held that assessee
\nand the other entities were part of the group of companies controlled by Mr.
\nMukesh Choksi and therefore the decision in M\/s. Goldstar Finvest Pvt. Ltd. was
\nclearly applicable to the case of the assessee. Since the order of CIT (A) was in
\nconformity with the view taken by the Tribunal in the group concerns of the
\nassessee, the appeal of the Revenue was dismissed.
\n18. Since Tribunal had relied upon its own decision in the case of M\/s. Goldstar
\nFinvest Pvt. Ltd., it would be useful to examine the same. In M\/s. Goldstar Finvest
\nPvt. Ltd. which pertained to assessment year 2003-04, Tribunal noted that the
\nsame issue had arisen before it in the assessee’s i.e., M\/s. Goldstar Finvest Pvt.
\nLtd., own case for the assessment year 2002-03. In that case, Tribunal had
\nobserved that in these type of activities, brokers are only concerned with their
\ncommission on the value of transactions. Therefore, Tribunal posed the question to
\nitself as to what would be the reasonable percentage of commission on the total
\nturnover. Tribunal observed that in all similar cases the average percentage of
\ncommission was between 0.15% to 0.25%. In the cases of Palresha and Company
\nand Kiran and Company, Tribunal had considered 0.1% as reasonable percentage
\nof commission to be earned on such turnover. Assessee itself had offered the
\npercentage of commission at 0.15% which was more than the percentage of
\ncommission considered to be reasonable by the Tribunal in the above two cases
\nhaving similar type of transactions. Tribunal held that the action of the Assessing
\nOfficer in treating the entire deposits as unexplained cash credits could not be
\naccepted in the light of assessment orders in the case of the beneficiaries and also
\nin the light of the fact that the assessee was only concerned with the commission
\nearned on providing accommodation entries. Therefore, Tribunal took the view
\nthat since the assessee had itself declared the commission on turnover at 0.15%
\nwhich was more than the percentage considered to be reasonable by the Tribunal,
\nthe same should be accepted. Accordingly, Tribunal accepted the commission
\ndeclared by the assessee i.e., M\/s. Goldstar Finvest Pvt. Ltd., and set aside the
\norder of CIT (A). Tribunal further noticed that the above stand had been
\nconsistently followed by the Tribunal in various orders. No distinguishing feature
\ncould be brought on record by the Revenue. Therefore, Tribunal following the
\nabove orders including the order in the case of the assessee i.e., M\/s. Goldstar
\nFinvest Pvt. Ltd. in the immediately preceding year had upheld the order of the
\nCIT (A).
\n19. As noticed above, Tribunal observed that this issue was present in all the
\nappeals of the group of entities controlled by Mr. Mukesh Choksi. Be it stated that
\nassessee was also part of the said group of entities. Therefore, maintaining
\nuniformity Tribunal held that CIT (A) made no mistake in arriving at the
\nimpugned decision which was in conformity with the position taken by the
\nTribunal in all the cases pertaining to the said group of entities. Thus, order of the
\nCIT (A) was affirmed and appeal of the Revenue was dismissed.
\n20. We are in agreement with the view taken by the Tribunal. In a case of this
\nnature Section 68 of the Act would not be attracted. Section 68 would come into
\nplay when any sum is found credited in the books of the assessee and the assessee
\noffers no explanation about the nature and source thereof or the explanation
\noffered by the assessee is not in the opinion of the Assessing Officer satisfactory.
\nIn such a situation the sum so credited may be charged to income tax as the
\nincome of the assessee of the relevant previous year. But that is not the position
\nhere. It has been the consistent stand of the assessee which has been accepted by
\nthe First Appellate Authority and affirmed by the Tribunal that the business of the
\nassessee centered around customers \/ beneficiaries making deposits in cash
\namounts and in lieu thereof taking cheques from the assessee for amounts slightly
\nlesser than the quantum of deposits, the difference representing the commission
\nrealized by the assessee. The cash amounts deposited by the customers i.e., the
\nbeneficiaries had been accounted for in the assessment orders of these
\nbeneficiaries. Therefore, question of adding such cash credits to the income of the
\nassessee, more so when the assessee was only concerned with the commission
\nearned on providing accommodation entries does not arise.
\n21. Coming to the percentage of commission, Tribunal had already held 0.1%
\ncommission in similar type of transactions to be a reasonable percentage of
\ncommission. Therefore Tribunal accepted the percentage of commission at 0.15%
\ndisclosed by the assessee itself. This finding is a plausible one and it cannot be
\nsaid that the rate of commission was arrived at in an arbitrary manner. The same
\ndoes not suffer from any error or infirmity to warrant interference, that too, under
\nSection 260-A of the Act.
\n22. In so far the decision of the Supreme Court in NRA Iron and Steel Pvt.
\nLtd. (supra) is concerned, the same is not attracted in the present case in as much
\nas facts of the present case are clearly distinguishable. Unlike the present case, the
\nassessee in NRA Iron and Steel Pvt. Ltd. (supra) claimed the cash credits as its
\nincome. However, it was found that the creditors had meagre or nil income which
\ndid not justify investment of such huge sums of money in the assessee. The field
\nenquiry conducted by the Assessing Officer revealed that in several cases the
\ninvestor companies were non-existent. Thus, it was held that the assessee had
\nfailed to discharge the onus which lay on it to establish the identity of the investor
\ncompanies and the credit worthiness of the investor companies. In such
\ncircumstances, the entire transaction was found to be bogus. But as already
\ndiscussed in the preceding paragraphs, assessee never claimed the cash credits as
\nits income. It admitted its business was to provide accommodation entries. In
\nreturn for the cash credits it used to issue cheques to the customers \/ beneficiaries
\nfor slightly lesser amounts, the balance being its commission. Moreover, the cash
\ncredits had been accounted for in the respective assessment of the beneficiaries.
\nTherefore, the decision in NRA Iron and Steel Pvt. Ltd. (supra) is clearly
\ndistinguishable and not attracted to the facts of the present case.
\n23. On a thorough consideration of all relevant aspects, we have no hesitation
\nto hold that the impugned order of the Tribunal does not suffer from any error or
\ninfirmity to warrant interference and no substantial question of law arises
\ntherefrom. There is no merit in the appeal. Appeal is accordingly dismissed.
\nHowever, there shall be no order as to costs.
\n(MILIND N. JADHAV, J.) (UJJAL BHUYAN, J.)<\/p>\n","protected":false},"excerpt":{"rendered":"

In so far the decision of the Supreme Court in NRA Iron and Steel Pvt. Ltd. (supra) is concerned, the same is not attracted in the present case in as much as facts of the present case are clearly distinguishable. Unlike the present case, the assessee in NRA Iron and Steel Pvt. Ltd. (supra) claimed the cash credits as its income. However, it was found that the creditors had meagre or nil income which did not justify investment of such huge sums of money in the assessee. The field enquiry conducted by the Assessing Officer revealed that in several cases the investor companies were non-existent. Thus, it was held that the assessee had failed to discharge the onus which lay on it to establish the identity of the investor companies and the credit worthiness of the investor companies. In such circumstances, the entire transaction was found to be bogus. But as already discussed in the preceding paragraphs, assessee never claimed the cash credits as its income. It admitted its business was to provide accommodation entries. In return for the cash credits it used to issue cheques to the customers \/ beneficiaries for slightly lesser amounts, the balance being its commission. Moreover, the cash credits had been accounted for in the respective assessment of the beneficiaries.<\/p>\n

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