The Commissioner Of[Income ][Tax] . Appellant v. Sanjay Mohan Aggarwal

IN THE HIGH COURT OF 2o3 of {lrA 2oo7} > I Jgdqment [Delivered ][O] ITA 2O3 of 2OO7 THE COMMISSIONER OF . APPELLANT THROUGH: Ms. Suruchi [Aggarwal'] Advocate VERSUS SANJAY MOHAN AGGARWAL THROUGH: None. . . .RESPONDENT CORAM:- THE HON',BLE MR. JUSTICE A.K. SIKRITHE HON'BLE MS. JUSTICE REVA 1. Whether Reporters of Local newspapers [may ][be allowed]to see the Judgment?to see the Judgment? Judgment?2. To be referred to the Reporter or not? 3. Whether the Judgment should be reported [in ][the ][Digest?] A.K. StKRt.l_,_(oRAL) + CM No.5596/2O1O in ITA No.203/2007 1. The assessee passed away during the [pendency ][of ][this ][appeal ][and]subsequently* an application for substitution [of ][the ][legal ][heirs ][was ][filed,]in which notice could not be issued by ordinary [process. ][Because of]these reasons, this application was filed for [substituted ][service ][and vide]orders dated 06.04.2010 [passed ]by the Registrar, the [appellant ][was]allowedto serve the respondent by way of [publication in ][the ][newspaper] "Statesman", Delhi Editign. The said notice has been [published ]andthe Registrar on 04.08.2010 [passed ]the orders that service [is ][complete.] In these circumstances, this application is [treated ][as ][disposed ][of,] 2. Nobody appears on behalf [of ][the ][respondent ][despite ][service.]Attendance of Mr. [V.K. ][Sabharwal, ][Advocate ][is noted in ][this ][appeal ][on]behalf of the respondent, [however, ][he ][appears ][in ][the ][connected ][appeal,]i.e., ITA No.136/2007. [As ][there is ][no ][opposition ][to ][these ][applications,]prayers made in these applications [are ][allowed. ][Delay ][in ][filing ].theapplication for substitution is [condoned ][for ][the ][reasons ][stated ][therein]and the [prayer ]for substitution [of ][legal heirs ][in ][place ][of ][the ][deceased]respondent is also allowed. These applications stand disposed [of.] ITA No.203/2OO7 3. Nobody has appeared on behalf of [the ][respondent ][in ][spite ][of]service of notice by way of [publication. ][We ][find ][that ][published ][notice]related not only to CMs for substitution [of ][legal heirs ][but ][also ][in ][respect]of appeal as well. Therefore, [the ][respondents ][are ][proceeded ][ex ][parte.]This appeal is admitted and finally [heard on ][the ][following ][question ][of]law:- "Whether on the facts of the [present ]case, theITAT was correct in law in deleting the additionof Rs. ].2,07,95,9151- made by the AssessingOfficer under Section 68 of the Act [on ][account of]unexplained cash credits?" 4. Search and seizure operation was conducted under [Section L32 ][ot]the Act on 02.12.Lgg7 on business [and ][residential ][premises ][of ][the]assessee and one Arvind Kumar Jain. During the course [of ][search, ][cash,]jewellery and bunch of papers were seized. In response to notice underSection 1588C dated 13.07.1998 of the Act, return [of ][income ][for ][the]block period was filed on 04.8.1999 and was verified with the [records] and seized materials in [possession. ][Further notices ][were ][issued ][under]Section 143 [(2) ]and \42 [(1) ][of ][the ][Act.] 5. During the course of [search, ][the ][assessee was ][found ][to ][be ][owner]of different companies. Arvind [Kumar ]Jain, [proprietor ][of ][M/s ][Ayush]Investments stated during the [course ][of ][search ][that the ][actual ][owner of]the concern was the assessee [and he only carried ][out ][transactions ][on]behalf of the assessee, [Share ][of ][different ][companies ][were ][stated ][to]have been sold through Ayush lnvestment [Proprietorship concern ][of]Arvind Kumar Jain, as broker. [The ][sale ][proceeds ][in ][cash ][were ][deposited]in the bank account of Ayush Investment [and ][thereafter, ][account ][payee]cheques were issued [from ][these ][banks ][to ][the ][various ][companies]belonging to the assessee, 5. During the course of [search, ][the ][assessee was ][found ][to ][be ][owner]of different companies. Arvind [Kumar ]Jain, [proprietor ][of ][M/s ][Ayush]Investments stated during the [course ][of ][search ][that the ][actual ][owner of]the concern was the assessee [and he only carried ][out ][transactions ][on]behalf of the assessee, [Share ][of ][different ][companies ][were ][stated ][to]have been sold through Ayush lnvestment [Proprietorship concern ][of]Arvind Kumar Jain, as broker. [The ][sale ][proceeds ][in ][cash ][were ][deposited]in the bank account of Ayush Investment [and ][thereafter, ][account ][payee]cheques were issued [from ][these ][banks ][to ][the ][various ][companies]belonging to the assessee, 6. Subsequently, [payment received ][by these ][companies ][was ][found]to be utilized for [giving ]hawala [entries ][to ][the ][persons ][in ][need ][of ][the]same. lt had been stated by Arvind [KumarJain ][that ][he ][is ][owner ][only ][for]the name sake and actual [owner ][is ][assessee ][and whatever ][cash ][has]been deposited was deposited by the [assessee ][only. lt ][was also ][found]that the assessee was a hawala [entry ][operator ][and ][for ][this ][purpose ][he]floated a number of companies, [concerns and ][firms, ][which are owned ][by]his employees for the [purpose ]of name [sake ]only. [For ][this ][purpose,]different bank accounts [have ][been opened ][where substantial ][cash ][was]deposited and then transferred to the [group companies. ][Hawala entries]are then given through account [payee cheques ][from ][the ][account ][of]group companies where the amounts are introduced after so [called ][sale]purchase of shares through the self managed share brokers like AyushInvestment. 7. As and when entries were to be [given ]to [some outsider, ][the ][cash]introduced in the book is [transferred ][through ][cheque ][to ][the ][bank]account of the [group ]company and then, [hawala ][entry ][is given through] 'Y1cheque to the outsiders. For the [reasons ][recorded ][in the ][ord]er ofassessment, M/s Ayush lnvestment [was ][held ][to ][be ][a ][benami concern of]the assessee and accordingly the [undisclosed ][income, ][as per ][Chapter]XIV B, was assessed in the hands of [the ][assessee] L several additions were made by the [while ][computing ][the]undisclosed income for the block [period. ][However, ][addition ][relevant ][for]the present appeal was the addiiion of [Rs. ][12.07 ][crore ][made ][under]Section 68 of the Act on account of [unexplained ][cash ][credits. ][The]contents of the [present ]appeal are restricted [to ][the ][aforesaid addition ][in]the interest of brevity. The total cash [deposits in ][the ][bank account of]Ayush investment was computed by the AO at [Rs. ][12.07 crores ][and ][was]added in the hands of the assessee in substantive [manner ][for ][the]Assessment year 1997-98 and 1998-99. [However, ][it ][may ][be ][mentioned]here that the same was added in the hands of Arvind [Kumar ]Jain [on]protective basis as undisclosed income. 9. Being aggrieved by the aforesaid order of the Assessing [Officer,]the assessee went in appeal before the CIT [(Appeal). ]The [(A)]confirmed the finding of fact that Arvind Kumar Jain was in [fact ][an]employee of the assessee and he was only a name lender as far [as]proprietorship of M/s Ayush lnvestment is concerned. CIT [(A) ]alsoaffirmed the finding that the real owner of M/s Ayush [Investment ][was]the assessee. The modus operandi adopted by the [assessee ][in]depositing the sale [proceeds ]in cash in the bank account of [M/s ][Ayush]lnvestment was also accepted by the CIT [(A).] 10. As noted above, the total amount thus deposited [was ][Rs. ][12,07]crores. An addition of this amount was made on account of unexplainedcash credits. The CIT [(A), ]however, deleted this amount as he [was ][of]the opinion that the assessee was in hawala business and, [therefore ][he]would have, at the most earned commission on the aforesaid deposits. 10. As noted above, the total amount thus deposited [was ][Rs. ][12,07]crores. An addition of this amount was made on account of unexplainedcash credits. The CIT [(A), ]however, deleted this amount as he [was ][of]the opinion that the assessee was in hawala business and, [therefore ][he]would have, at the most earned commission on the aforesaid deposits. He thus added a sum of [Rs. ][15.5 ][lacs calculated ]@ [1'5 ][% ][on ][the]aforesaid deposits in the [accounts ][and ][treated only ][Rs. ][15.5 ][lacs ][as]undisclosed income for the [assessment ][years 1997-98 and ][1998-99. ][The]ITAT has dismissed the [appeal ][of ][the ][revenue ][prqferred ][against ][this]order of the CIT [(A). ]lt is [how ][the ][revenue ][is in ][appeal before ][us.] 11. We have heard at length [the ][learned ][Counsel for ][the ][Revenue ][on]the question of law framed. [Her submission is ][that the ][addition ][of ][Rs.]1,2.07 crores was made as the [assessee ][had ][failed ][to ][satisfy ][the]condition contained in [Section ][68 ][of ][the ][Act. ][She ][further ][argued ][that]Mr. Arvind Kumar Jain has admitted [that ][all ][the ][transactions were ][done]on the behest and on the direction [of the ][assessee ][and ][in ][these]circumstances the assessee [was ][asked ][to ][give ][explanation ][regarding]deposit of this amount in cash [in ]the [account ][of ][M/s ][Ayush Investment.]However, the aSSeSSee [failed ][to ][give any ][explanation. ][He ][even ][did ][not]give the identity of buyers to whom the shares were [purportedly ][sold.]On that basis, the Assessing [Officer concluded ][that ][sale ][of ][shares ][was]not genuine and it was the [assessee ][who had made ][the ][deposits in the]account for which he could not [give any satisfactory ][explanation. ][In ][this]the [learned ][counsel, ][there ][was no ][basis ][for ] [(A) ][to]backdrop, argued treat the said deposits as deposits [of the third ][party/buyers ][and ][to]presume that the assessee only got commissions on [these ][deposits.]After reading the orders [passed ][by ][the ][Assessing ][Officer in ][the ][case ][of]the assessee as well as Mr. Arvind Kumar Jain [and ][also ][those of ] [(A)]and ITAT, we inclined to agree [with ][the ][submissions ][of ][learned ][counsel]for the revenue. The Assessing [Officer has ][described ][the ][nature ][and]modus of deposits, as indicated [by us ][in ][brief ][and ][has said ][that ][this]aspect is considered in detail [in ][the ][assessment ][order ][in ][the ][case ][of]Arvind Kumar Jain. Perusal of the [orders ][passed ][in ][the ][case ][of ][Arvind]Kumar Jain would show that [it ][was ][accepted ][that ][the ][cash ][which ][was]deposited in the account in fact [belonged ][to ][the ][assessee ][and ][no ][part ][of] this money was from the sale [of ][shares. ][Following discussion contained]the order of the Assessing Officer [in ][respect ][of ][Arvind ][Kumar ]Jain [is]worth a quote:- . "Clearly such reply is not going to discharge [the]burden cast on the assessee as [per section ][68. ][As]per this section, as well established by variousjudicial pronouncements, if any sum is foundcredited in the books of accounts of [the ][assessee,]he should satisfy the AO about the [three ][conditions]of such credit such as identity of the [payee, ][his]creditworthiness and the [genuineness ]of [the]transaction. In this case, sale [proceeds ][oflacs ][of]in each transaction has been [received ][in]rupees cash and the buyers is not identifiable. [The ][first ][and]the basic requisite of section 68 has not [been ][met]successfully by the assessee. There [are ][enough]circumstantial evidence to raise [grave doubts ][about]the identity, credit worthiness and [genuineness of]these transactions. . "Clearly such reply is not going to discharge [the]burden cast on the assessee as [per section ][68. ][As]per this section, as well established by variousjudicial pronouncements, if any sum is foundcredited in the books of accounts of [the ][assessee,]he should satisfy the AO about the [three ][conditions]of such credit such as identity of the [payee, ][his]creditworthiness and the [genuineness ]of [the]transaction. In this case, sale [proceeds ][oflacs ][of]in each transaction has been [received ][in]rupees cash and the buyers is not identifiable. [The ][first ][and]the basic requisite of section 68 has not [been ][met]successfully by the assessee. There [are ][enough]circumstantial evidence to raise [grave doubts ][about]the identity, credit worthiness and [genuineness of]these transactions. First, the shares are of unlisted companies, [and ][all]of them have paid cash of lacs but [have ][let ][no ][trace]of their identities. I its letter of []-3.I2.1999, ][the]assessee has [pleaded ]that if the entire [amount ][of]sale proceeds has been received, then it [is]necessary to retain the full [particulars ]of the [buyers.]But in his statement o oath dated 20.L2.:.-999, [it ][was]stated that [payments ]to the [parties ]were [made ][as]and when the same was received from the [buyers.]And interestingly when asked to [produce ][any ][record]to show the pending balances relating to any [such]buyer, no direct reply was forthcoming. [Third, ][no]copies of transfer forms was made available [which]could have thrown light on their identities. [Fourth,]no written agreement exists between the [assessee]and the companies, for whom shares are [being ][sold,]about the conditions of sale, [price ]at which to [be]sold etc. Only it has been stated that a [commission]of 0.15% to 0.5% is being received by the [assessee] Clearly the odds are heavily against the [assessee']As has been held by the Supreme Court [in ]the [case]of D.p. More in 82 ITR 540 [(1971), ]the [pre-]ponderance of probability is a valid evidence for l.T.Authorities. lt is absurd to argue that the assesseecould manage to sell shares of unlisted [companies]to the tune of L2 crores without knowing the [details]of the buyers. In the hands of the buyers, if [they]were engaged in trading of shares, such [cash]transaction would be covered by the mischief [u/s]40(4)(3), and nobody would take such [an]unwarranted risk. ln this context, it is important [to]note the assessee's version as [per ]statement [on]oath recorded uls L32 [(4) ]on 2.12.1997 "Whatever cash has been deposited in my firm M/sAyuSsh Investment has actually been done by [Sh.] Sanjay Mohan Aggarwal only. [No ][part of ][this ]monevis fiom sale of shares. [Have ][not signed ][any ][bill ][for]the same. I have [given ][back ][the entire ][amount from]Ayush lnvestment [to the ][different ][companies ][of ][Sh']Sinjay Mohan Aggarwal [by ][cheque. ][lt ][is not ][in ][my]knowiedge that there is any [trading ][in shares"] r> 12. These findings are not [disputed by ][the ] [(Appeal). ][No ][reply ][is]given to the query as to why the money deposited [in ][the ][account ][of ][M/s]Investment [be ][not ][treated ][as ][money ][of ][the ][assessee ][but ][that ][of]Ayush some third pafty and the assessee [had ][got ][only ][commission ][on ][these]deposits. The orders [of ][the ] [(A) ][as ][well ][as ] [have ][clearly ][glossed]over the vital material [facts ][brought ][on ][record by ][the ][Assessing Officer.]These orders are accordingly set [aside ][and ][assessment ][made ][by ][the]Assessing Officer [is ][restored. ]Question [of ][law is ][answered ][accordingly.] SEPTEMBER 6, 2O1O.skb/km (A:K. SIKRI)JUDGE (--(REVAKHETRAPAL)[w-rf]JUDGE