Case Law Details
DCIT Vs Henna Industries Pvt. Ltd. (ITAT Delhi)
The Revenue appealed against the order dated 15.07.2024 passed by the Commissioner of Income Tax (Appeals), New Delhi, arising from a reassessment order under Sections 143(3) read with 147 of the Income Tax Act, 1961 for Assessment Year 2012-13. The appeal challenged the deletion of an addition of ₹2 crore made under Section 68 of the Act.
The assessee, a private limited company engaged in manufacturing henna powder, powder hair dye and allied products under the brand name “Black Rose Kali Mehandi,” had originally filed its return declaring total income of ₹5,57,52,230. The original assessment under Section 143(3) resulted in additions, which were deleted in the first appellate proceedings. Subsequently, based on information received from the Investigation Wing, Faridabad, the Assessing Officer reopened the assessment under Sections 147 and 148, alleging that the assessee had received an accommodation entry of ₹8 crore from M/s PHV Securities Pvt. Ltd., which was alleged to be a bogus concern managed by Shri Himanshu Verma. The reassessment culminated in an addition of ₹2 crore under Section 68 on the ground that the amount represented an accommodation entry.
The Revenue argued before the Tribunal that M/s PHV Securities Pvt. Ltd. was a paper entity managed by Shri Himanshu Verma, who had admitted during search proceedings to providing accommodation entries through dummy entities. It was also submitted that physical verification revealed that the company was not functioning from its stated address and that the Memorandum of Understanding (MOU) and cancellation agreement relied upon by the assessee were afterthoughts. Reliance was placed on Sumati Dayal v. CIT in support of restoring the addition.
The assessee submitted that the search on Shri Himanshu Verma took place in 2017, whereas the transactions in question had occurred more than five years earlier. It explained that ₹2 crore had been advanced to M/s PHV Securities Pvt. Ltd. during 2011 for procuring land in Uttarakhand for setting up a factory. When the company expressed its inability to procure the land, the advance was refunded during March 2012. The assessee relied on the statement of its Director recorded before the Investigation Wing, the MOU, legal notices, the settlement agreement dated 25.03.2012, ledger accounts and banking records to support its explanation. It also contended that Section 68 was inapplicable since the amount represented repayment of its own advance, the source of which had never been questioned by the Assessing Officer.
The Tribunal examined the material on record and found that the assessee had advanced ₹2 crore to M/s PHV Securities Pvt. Ltd. through banking channels in May and November 2011. It noted that the MOU dated 02.06.2011 contemplated procurement of land in Uttarakhand, that legal notices had been issued when the land could not be procured, and that the parties subsequently entered into a settlement agreement dated 25.03.2012 under which the advance was refunded. The Tribunal observed that these documents had been produced before both the Assessing Officer and the CIT(A).
The Tribunal referred to the findings of the CIT(A), who had observed that the ledger accounts established payment of ₹2 crore through banking channels and that the settlement agreement showed the impugned receipts represented repayment of earlier advances. The CIT(A) also found that the Assessing Officer had ignored these documents, had not produced any direct evidence linking the assessee with bogus accommodation entries, had not relied upon any specific statement of Shri Himanshu Verma implicating the assessee, and had not identified any incriminating evidence showing that the receipts constituted unexplained cash credits. The CIT(A) further observed that when the assessee had receivables from PHV Securities, any subsequent payment by that entity would naturally reduce the outstanding amount. On these findings, the CIT(A) deleted the addition under Section 68.
The Tribunal agreed with the CIT(A). It held that the receipt of ₹2 crore represented recovery of an advance earlier paid by the assessee and therefore could not be treated as unexplained money under Section 68. It noted that the assessee’s Director had explained the transaction when examined by the Investigation Wing and that the Revenue had not produced any material to contradict this explanation apart from relying on statements of Shri Himanshu Verma recorded more than five years after completion of the transaction. The Tribunal also observed that the Assessing Officer had accepted the source of the original advance paid by the assessee and had not questioned that payment. According to the Tribunal, if the transaction itself had been a sham, the advance made by the assessee would also have been doubted, but no such finding had been recorded.
Finding no error in the order of the CIT(A), the Tribunal upheld deletion of the addition of ₹2 crore made under Section 68 and dismissed all the grounds raised by the Revenue. Consequently, the Revenue’s appeal was dismissed.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is filed by the Revenue against the order of Ld. Commissioner of Income Tax (Appeals), New Delhi [“Ld.CIT(A)”] dated 15.07.2024 in Appeal No. CIT(A), Faridabad/11123/2019-20 arising out of order passed u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) dated 24.12.2019 for Assessment Year 2012-13.
2. Brief facts of the case are that the assessee is a private limited company engaged in the business of manufacturing of Henna powder, powder hair dye and allied products in the band name “Black Rose Kali Mehandi”. The return of income was e-filed on 20.09.2012, declaring total income at Rs. 5,57,52,230/- and the assessment was completed u/s 143(3) vide order dated 31.03.2015 at an income of Rs. 26,07,13,910/- however, in first appeal, the additions made were deleted. Thereafter, based on the information supplied by the Investigation Wing, Faridabad, AO observed that assessee has received accommodation entry of Rs. 8,00,00,000/-from M/s PHV Securities Pvt. Ltd. found to be the bogus concern. Accordingly, notice u/s 148 was issued on 31.03.2019 after recording the reasons for initiating the reassessment proceedings u/s 147 of the Act. In response, the assessee filed the return of income on 18.04.2019 declaring same income of Rs.5,57,52,230/- which was declared in the return field u/s 139(1) of the Act. Thereafter, the AO completed the reassessment proceedings and after considering the submissions made by assessee, passed the reassessment order on 24.12.2019 u/s 143 r.w.s. 147 of the Act wherein addition of Rs. 2,00,00,000/- was made u/s 68 of the Act of the funds received from M/s PHV Securities Pvt. Ltd.. The AO observed that the said company was managed and operated by one Shri Himanshu Verma who admitted this fact in his statements recorded during the course of search u/s 132(4) of the Act and further in post search proceedings admitted to have engaged in providing the accommodation entries through control of dummy entities. He also admitted that he provided bogus bills/ entry of loans/ capital/sale/purchase of shares to the beneficiaries and after rotating the amount received from the beneficiary in some of his bogus companies, he ultimately transfers the amount to its beneficiary. As per the list provided by Shri Himanshu Verma of the companies and concerns controlled and managed by him, M/s PHV Securities Pvt. Ltd is also part of the same and thus AO concluded that it is a bogus concern and funds received from the said company is accommodation entry.
3. Against the said order, assessee filed an appeal before the Ld. CIT(A) who had allowed the appeal of the assessee.
4. Aggrieved by the said order, the Revenue is in appeal before the Tribunal by taking following ground of appeal:
“1. Whether the impugned order given by the Id. CIT(A) is perverse both on the law and the facts of the case.
2. Whether the impugned order given by the Ld. CITA) has interpreted the law correctly while interpreting section 68 of the Act which require the assessee to prove the nature/genuineness of the transaction satisfactorily as well.
3. Whether the impugned order given by the Ld. CIT(A) has appreciated the fact fully by not consideration the letter dated 20.03.2012 and agreement dated 25.03.2012 in which M/s PHV Securities Pvt Lid has assured the assessee to repay the amount by 31.03.2012 then now does the credit of 12.3.2012 and 16.03.2012 can be treated as return of the advance.
4. Whether the impugned order given by the Ld. CIT(A) has interpreted the law of Evidence correctly which says that an evidence has to be treated in full and not in parts W.r.t. the finding of the AO regarding M/s PHV Securities Pvt Lid being a paper entity and thus all the transactions in which M/s PHV Securities Pvt Ltd is involved shall be treated as non genuine.
5. Whether the impugned order given by the Ld. CIT(A) was justified in deleting the addition of Rs 2.00,00,000/- made by the AO by ignoring the finding that any transaction with paper entities are in nature of accommodation entries only and also un disregarding the fact that assessment order in the case of M/s PHV Securities Pvt Lid for A.Y. 2012-13 have itself found the said company as paper company.”
5. All the grounds of appeal of the Revenue are with respect to deletion of addition of Rs.2,00,00,000/- made u/s 68 of the Act as unexplained credits, thus, they are taken together for consideration.
6. Before us, Ld. Sr. DR for the Revenue submitted that the assessee has received accommodation entry of unsecured loans from the company M/s PHV Securities Pvt. Ltd., managed and operated by Shri Himanshu Verma who admitted this fact in his statements recorded during the course of search. Ld. Sr. DR further submits that the company was not found available at the address given when the enquiry was conducted on physical verification by the Circle Inspector of the office premises of the company M/s PHV Securities Pvt. Ltd. and the photograph of the present whereabout of the address alongwith the report of inspector is reproduced at pages 5 & 6 of the assessment order. The Ld. Sr. DR further submits that claim of the assessee that it had given advance to the company M/s PHV Securities Pvt. Ltd. for purchase of land is not correct and the copy of MOU dated 2.06.2011 executed between assessee and the company and cancellation agreement dated 25.03.2012, which were filed are after thought more particularly when the Director of M/s PHV Securities Pvt. Ltd. has admitted that the company was not having any business activity and managed and controlled by Shri Himanshu Verma. Ld. Sr. DR submits that Ld. CIT(A) filed to appreciate these facts and thus wrongly deleted the addition made. Ld. Sr. DR further placed reliance on the judgment of Sumat Dayal Vs. CIT reported in 214 ITR 801 (SC) and vehemently supported the order of the AO and requested for the restoration of the addition made by AO.
7. On the other hand, the Ld. AR for the assessee submits that the search in the case of Shri Himanshu Verma was conducted on 13.04.2017 whereas the transactions under reference was carried out in AY 2011-12 which is more than 5 years prior to the date of search. Ld. AR further drew our attention to the fact that assessee has given advance of Rs. 2,00,00,000/- to M/s PHV Securities Pvt. Ltd. in the month of May, 2011 which was refunded in the month of March, 2012. The Ld. AR submits that assessee had given advance to locate and soliciting the deal of purchase of property to establish a factory in the state of Uttarakhand, however, when the company M/s PHV Securities Pvt. Ltd. expressed its inability to procure the desired land to the assessee, advances given was refunded. Ld. AR drew our attention to the statements of the Director of assessee company Mr. Prem Prakash Gupta recorded on 10.09 2018 by the Investigation Wing and relevant extracts of Question and answer No.9 to 10 are reproduced in the report dt. 03.10.2018 available at pages 63-69 of PB. In the said statements, Shri Gupta, Director has categorically stated that the company M/s PHV Securities Pvt. Ltd. has refunded the advance given by the assessee towards the purchase of land as the deal could not be solicitated. The relevant questions and answer as appearing in the PB page 66 to 67 are reproduced herein below:-
—
8. The Ld. AR thus, submits that the provisions of section 68 of the Act are not applicable in the facts of present case as assessee has received back the advance given earlier to M/s PHV Securities Pvt. Ltd, and the source of such advance payment made by the assessee to M/s PHV Securities Pvt. Ltd. was never doubted by the AO. He thus, submits that Ld. CIT(A) after appreciating these facts, has deleted the addition and requested for the confirmation of the order of ld. CIT(A).
9. Heard the parties and perused the materials available on record. From the perusal of the facts, it is observed that assessee company has given advance of Rs. 2,00,00,000/- to M/s PHV Securities Pvt. Ltd. ( Rs. 1.00 cr. on 28.05.2011 and Rs. 1.00 Cr. on 22.11.2011, Rs. 50 lacs each of Two cheques) through banking channel. The assessee has filed copies of the ledger account of M/s PHV Securities Pvt. Ltd. as appearing in its books of accounts placed at page 89 of PB. It is further observed that in the reasons recorded, AO alleged that transaction of receipt of accommodation entry of bogus loan of Rs. 8,00,00,000/- taken by the assessee from the company M/s PHV Securities Pvt. Ltd. managed and controlled by Himanshu Verma wherein transactions carried out by with M/s PHV Securities Pvt. Ltd. were referred twice and further same transactions were again stated in the name of M/s Exprezer Infotech Pvt. Ltd. which actually be the changed name of M/s PHV Securities Pvt. Ltd., therefore, there is only one transactions of Rs. 2,00,00,000/- of advances given by the assessee to M/s PHV Securities Pvt. Ltd. in terms of MOU entered into between parties dated 02.06.2011 for soliciting the deal for purchase of land for the assessee in the state of Uttarakhand, copy of the MOU agreement is placed at PB pages 91 to 94. It is further observed that as per this MOU, assessee company has paid upward advance of Rs.1,00,00,000/- and the M/s PHV Securities Pvt. Ltd. had agreed to search the land for the assessee for the purpose of factory shed of approximately 5 acre. In the said agreement a reference has made that one Sh. Abhay Salwan would be coordinator of this transactions. As a consequence of the MOU, assessee has further paid Rs. 1.00 corers in the month of Nov. 2011 and thus, advance of Rs. 2.00 crores was made to M/s PHV Securities Pvt. Ltd. However, M/s PHV Securities Pvt. Ltd have expressed its inability to procure the land for the assessee thus assessee send legal notices which are placed at pages 95 to 101 of PB, and thereafter the company M/s PHV Securities Pvt. Ltd had refunded the advances so received from the assessee and a settlement agreement was executed between them on 25.03.2012 which is placed at pages 102-14 of the paper book. The assesse has filed all these documents before the AO as well as Ld. CIT(A) and ld. CIT(A) after appreciating the same has deleted the addition by making following observations in para 5.5 of the order:
“5.5. Ground no.8-Addition u/s 68 of the Act, 1961 is bad in law and on the facts of the case.
I have gone through the submissions of the appellant and the rival contentions. As seen from the ledger account it can be seen that the appellant had paid as um of Rs.2 Crores to M/s. PHV Securities P. Ltd. on 28.05.2011 and 22.11.2011 through banking channels. In this regard, the appellant had submitted the relevant ledger before the AO and the non-acceptance of the same by the AO cannot be understood. The appellant had also filed the settlement agreement before the AO and as per the settlement agreement, the above Rs. 2 crores received by the appellant is out of the advances paid which was of earlier dates. This settlement agreement is also ignored by the AO. The AO while completing the assessment proceedings could not point out the direct evidence against the appellant with respect to bogus accommodation entries said to be obtained from Himanshu Verma. The AO could not point out any statement given by Himanshu Verma specifically against the appellant. This is a case where the assessee had given a certain sum of money to PHV securities Itd and then the same money was received back. The section 68 can be invoked only if the assessee could not explain the transaction or the explanation provided by the assessee is not satisfactory. Here the alleged transaction was clearly explained by the appellant as the money returned back out from the earlier deposits. The above explanation was also provided to the AO who had stated that the earlier payments were not received by the appellant till 25.3.2012. He had stated that the amount of Rs.2 cr received by the assessee company on 12.3.2012 and 16.3.2012 is not the advance amount returned by PHV securities pvt ltd. However it is not clear why the appellant has to obtain an entry from his own debtor. When there are receivables from a particular person, any subsequent payment would go to reduce the debt of the assessee. The appellant in this regard had also explained that he had issued a legal notice on 20.3.2012 to PHV securities to receive the interest and other damages and the issue was amicably settled vide settlement agreement dtd 25.3.2012. He had also filed the settlement agreement with the PHV securities to supplement his arguments.
Another pertinent issue would be here that no specific documentary evidence was relied upon by the AO to prove that the appellant had taken entries from PHV securities. No incriminating evidence were mentioned by the AO which would necessitate to invoke the provisions u/s 68 of the Act. The AO had also not recorded any statement from any of the entry provider to specifically state that appellant had taken entries from such bogus shell companies. Only the corroborative statements given by one Mr. Himanshu Shrama was mentioned by the AO with respect to the accommodation entries given by PHV securities in general. No specific statement was given by Himanshu sharma against the appellant and the AO had not highlighted such statement to specifically indicate that the appellant had taken entries from PHV securities. Hence without any incriminating evidence and without any specific statement against the appellant, the sum of Rs.2cr received by the appellant from PHV securities cannot be held as unexplained cash credit within the purview of section 68 of the Act.
Hence, the ground no.8 filed by the appellant on the issue of addition u/s 68 is allowed.”
10. Since, it is admitted fact that assessee has given advance of Rs. 2.00 crores to M/s PHV Securities Pvt. Ltd. which was received back, therefore, the said receipt cannot be treated as unexplained money in the hands of the assessee and no addition could be made u/s 68 of the Act for the same. The director of the assessee company in the statements recorded before the Investigation Wing for the first time when the said transactions was confronted by the revenue, has given categorical statement that the said sum was received back against the advance given and entire transaction was explained which is evident from the perusal of the extract of relevant questions and answers reproduced herein above. Before us, revenue has failed to controvert such factual aspect nor any corroborative material was brought on record except relying upon the so-called statements of Shri Himanshu Verma which were recorded after the expiry of more than Five years from the end of the year when the alleged transaction was completed between the assessee and the company M/s PHV Securities Pvt. Ltd.. One important fact is that the AO has not doubted the source of advance made by the assessee to M/s PHV Securities Pvt. Ltd. which incidentally was paid during the previous year relevant to assessment year before us. If the transaction was sham transaction, the advances given should also be doubted but the same was accepted by the AO.
11. In view of above discussion, we find no error in the order of Ld. CIT(A) in deleting the additions made u/s 68 of the Act of such amount which was received back as recovery of advance given earlier to the said party. All the grounds of appeal of the Revenue are thus, dismissed.
12. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open Court on 14.05.2026.
Author Bio
