Darshan K Vakharia Mumbai Vs ITO (ITAT Mumbai)
ITAT Mumbai held that addition under section 68 of the Income Tax Act towards unexplained expenditure merely on the basis of suspicion without any other support is unsustainable in law.
Facts- The Assessee is engaged in the business of manufacturing of S. S. utensils. The Assessee borrowed loans/funds of Rs. 20,00,000/& Rs. 5,00,000/- from M/s. Santoshima and M/s. Vasudev respectively and during the year under consideration, has not taken any fresh loan from such concerns but paid interest of Rs. 2,40,000/- and Rs. 60,000/- respectively to the above two parties/entities.
In order to verify the said loan transactions, AO issued the notices u/s. 133(6) of the Act to M/s Santoshima and M/s. Vasudev. However, notice issued to M/s. Santoshima returned as un-served with the remarks “not known” and notice sent to the Vasudev P. Rawal (HUF) remained un-complied.
AO therefore construed that said parties have no explanation to offer and treated the interest amount of Rs. 3,00,000/- as unexplained expenditure u/s. 68 of the Act. Commissioner upheld the action of AO. Being aggrieved, the present appeal is filed by the assessee.
Conclusion- Held that it is a settled law that mere suspicion cannot takes place for the purpose of passing an order, in fact there must be something more than suspicion in support of an assessment. In the instant case, it is a fact that neither the Assessee has received any cash nor paid any cash and there was no real cash credit during the year under consideration, therefore the amount in question as unexplained expenditure could not arise, hence on this count also, the provisions of section 68 is not applicable and therefore addition u/s. 68 of the Act is un-sustainable.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These appeals have been preferred by the Assessee against the orders even dated 10-02-2023, impugned herein passed by the Ld. Commissioner of Income Tax(Appeals)/National Faceless Appeal Centre(NFAC) Delhi, u/s.250 of the Income Tax Act 1961 (in short „the Act‟) for AYs 2012-13 & 2013-14.
2. At the outset, we observe that there is delay of 23 days in filing of the instant appeal, for which the Assessee has claimed that though the appeal was prepared and signed and necessary appeal fee was deposited on 9th March, 2023 and handed over to Mr. Sanghavi for filing, however the same could not be filed due to death of father in law of Mr. Sanghavi. Somehow the same was filed on 2nd May 2023 with a delay of 23 days and the hence the delay of 23 days may be kindly be condoned. On the contrary the Ld. DR refuted the claim of the Assessee. We do not find any material/reason contrary to the claim of the Assessee qua occurring of delay and therefore considering the reason for delay as genuine and bonafide, we are inclined to condone the delay of 23 days in filling the instant appeal, hence the same is condoned.
3. Because, the facts and issues involved in these appeal are common, hence for the sake of brevity, we are inclined to decide ITA 1540/Mum/2023 as a lead case, and result of the same shall be applicable to both the appeals.
4. In ITA 1540/Mum/2023, the Assessee had declared its total income of Rs 4,19,950/- by filing its return of income on dated 28th Sep, 2012.Subsequently, on the basis of information received from the DDIT(Inv) unit 7(4) Mumbai, the following reasons for re-opening of the case u/s.147 of the Act, were recorded.
03. In this case the following information was received from DDIT (Investigation) Unit 7(4), Mumbai.
01. A Search and Seizure action u/s 132 of the Income-tax Act, 1961 was carried out in the case of Mr. Vipul Vidur Bhatt his other related entities uz (1) M/s. Sunrise Asian Limited, (ii) M/s. Sampada Chemicals Limited, (ii) M/s. P. Sajt Textile Limited, (iv) M/s. Shyam Alcohol and Chemicals Ltd, (v) M/s. Shipra Fabrics Pvt. Ltd., (vi) M/s. Victory Sales Private Limited, (vu) M/s. Lunked Textile Private Limited (viii) M/s. Eagar Corporation, (ix) M/s. Vikrant Marketing, (x) M/s. Acute Consultancy Limited and (xi) M/s. Dolex Commercial Private Limited on 05.02.2016.
During the search action the statement of Mr. Vipul Vidur Bhatt was recorded u/s 132(4) of the Income-tax Act, 1961 in which he has accepted that he is an entry operator and all the above mentioned entities/ companies which are used by him for providing various bogus accommodation entries to the various beneficiaries for commission Mr. Vipul Vidur Bhatt also accepted that he is a director in these entities/companies and all other directors of these entities/companies are dummy directors appointed by him. Mr. Vipul Vidur Bhatt further accepted that he controls the entire activities/affairs of these entities/companies and these entities/companies were incorporated for providing bogus accommodation entries only. In the statement recorded u/s 132(4) of the IT Act, 1961, Shri. Vipul Vidur Bhatt also accepted that he controlled, managed and operated as many as 347 bogus entities, which are operated by lum for providing bogus accommodation entries to the various beneficiaries for commission.
02. During the search action u/s 132 of the Income-tax Act, 1961, the entire books of accounts, Income Tax related documents, company law matter related documents, VAT/Sales tax etc. of all the 347 bogus entities/companies were found at an undisclosed premise 1407, 14th floor, New jaiphalwadi, Police colony, Tardeo, Mumbai-400034, which is neither registered office of these bogus entities/companies nor this premise is related to these bogus entities/companies in any way. In the statement recorded on 09.02.2016 u/s 132(4) of the Income-tax Act, 1961 Shri. Vipul Vidur Bhatt was asked to explain why the books of accounts and other documents of these entities/companies are kept and maintained, in the computer, kept at the above premuse. In response, Shri. Vipul Vidur Bhatt submitted that “Sir I am into the business of providing accommodations entries and I am managing and controlling various entities for this purpose. As this work is illegal, hence I am maintaining the books of accounts of these entities at my back office at 1407, 14th floor, new jaiphalwadi, Police colony, Tardeo, Mumbai-400034.”
03. On perusal of the ledger account of the bogus entities/ companies managed, controlled and operated by Shri. Vipul Vidur Bhatt, it is seen that the assessee (Shir Darshan Kumarpal Vakharia) was one of the beneficiaries who has taken the bogus accommodation entries worth Rs. 27,40,000/- in F.Y. 2011-12 from Santoshima Tradelinks Limited and Vasudev Rawal HUF being bogus entities which were managed, controlled and operated by Mr. Vipul Vidur Bhatt for providing bogues accommodation entities, the details of which are as under:
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