Income Tax Appellate Tribunal - Delhi
Rkg Finvest Ltd, New Delhi vs Acit, Circle-20(2), New Delhi on 27 September, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'F': NEW DELHI
B EFORES HRI KUL BHARAT,JUDICIAL MEMBER
AND
SHRI AVDHESH KUMAR MISHRA,ACCOUNTANT MEMBER
ITA No.1337/Del/2018, A.Y.2013-14
RKG Finvest Ltd. vs. ACIT,
22, Basement, Circle-20(2)
Rajindra Park, New Delhi
New Delhi
PAN: AAACR3749Q
(Appellant) (Respondent)
Appellantby None
Respondent by Sh. P.N.Barnw al, CIT DR
Date of Hearing 02/07/2024
Date of Pronouncement 27/09/2024
ORDER
PER AVDHESH KUMAR MISHRA, AM
This appeal of the Assessment Year [In short, the 'AY'] 2013-14 preferred by the assessee is directed against the order dated 29.12.2017 passed by the Commissioner of Income Tax (Appeals)-20, New Delhi [In short, the 'CIT(A)'].
2. Following grounds have been raised in this appeal:-
1. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner of Income Tax (Appeals) grossly erred in upholding the addition and alleging that the loss on sale of shares are sham loss and disallowing loss of 20,59,93,500/-.1 ITA No.1337 /Del/2018
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2. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner of Income Tax (Appeals) grossly erred in confirming the action of Ld. Assessing Officer in treating that sale of shares amounting to 1,85,68,96,500/- as sham transactions and adding the total sale consideration of 185,68,96,500/- U/s 68 of the Income Tax Act, 1961.
3. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner of Income Tax (Appeals) grossly erred in upholding the allegations and action of Ld. Assessing Officer in:-
a. Alleging that the appellant is the conduit company of S. K. Jain group for providing accommodation entry.
b. Misinterpretating and observing the facts of preceding years having no bearing on the facts of the year under consideration. c. Alleging that the company whose shares were purchased are Paper Company and Conduit Company of S. K. Jain Group for providing accommodation entry.
d. Alleging that the buyer of shares is paper/conduit Company of S.K. Jain Group and sale price is fixed to avoid the tax.
4. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner of Income Tax (Appeals) grossly erred in confirming the action of Ld. Assessing Officer of:-
a. Rejecting the purchase of shares made in earlier years disclosed as stock in trade and accepted as genuine in earlier years after scrutiny assessment U/s 143(3) of the Income Tax Act, 1961. b. Using the adverse material viz., appraisal report, report of AO of buyer of the shares, gathered at the back and behind of the appellant without providing the copy of the same for rebut the claim.2 ITA No.1337 /Del/2018
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c. Alleging that the buyer of the shares has not disclosed these transactions in their Income Tax Assessment.
d. Capriciously rejecting the legally tenable documentary evidences, in dependent confirmations from the buyer of the shares and numerous authorities of Hon'ble Supreme Court of India and Hon'ble High Court without any cogent ground/material on record. e. Relying and arriving on the conclusion solely based on appraisal report prepared by Investigation Wing way back in the year 2010. f. Ignoring the fact that the Income Tax Assessment of appellant for earlier years (after post search) are completed U/s 143(3) of the Income Tax Act, 1961 where in state of affair of the appellant was accepted after detail scrutiny.
5. The assessee craves right to alter/modify/amend/add/delete any or all grounds of appeal.
These action of Ld. Commissioner of Income Tax (Appeals) -XX, New Delhi., and Ld. Assessing officer being Arbitrary, unjust, Illegal and invalid in law are liable to quashed and it is prayed to Your Honor that they please be quashed and/or any other relief just deem fit and proper please be directed.Appellant Pray accordingly"
2.1 In nutshell, the appellant/assessee has challenged the disallowance of loss of Rs.20,59,93,500/- holding that the loss on the sale of share is nothing but sham transaction and the sham loss. Further, the share sale consideration of Rs.1,85,68,96,500/- has also been held as sham transactions and treated it as unexplained credits under section 68 of the Income Tax Act, 1961 (In short, the 'Act').3 ITA No.1337 /Del/2018
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3. The relevant facts giving rise to this appeal, in brief, are that, the appellant/assessee is a company under control & management of Sh.
Surender Kumar Jain (S.K.Jain) and his brother; namely, Sh. Virender Kumar Jain (V.K.Jain). It filed its Income Tax Return (hereinafter, the 'ITR') of the relevant year on 30.09.2013 declaring loss of Rs.31,06,159/-. The appellant/assessee is Non-Banking Financial Institution (hereinafter, the 'NBFI'). The appellant/assessee has shown sale of shares of various companies as tabulated in the chart mentioned on Page No. 1 and 2 of the assessment order. As per this chart, the appellant/assessee has shown loss of Rs.20,59,93,500/-. These companies were used for laundering unaccounted money for providing accommodation entries to the beneficiaries appeared in the list of 99 companies admitted by Sh. S.K.Jain and Sh.
V.K.Jain as paper companies which have been upheld by the Hon'ble ITAT and Income Tax Settlement Commission (Please refer Para 3.4.1 of the assessment order) wherein name of these companies appeared at various serial Nos. The appellant/assessee has shown purchases and sales of the shares of (i) Dewan Motors Investment & Finance Ltd., (ii) Geo Loan Plans India Ltd., (iii) Lunar Gold International Pvt. Ltd. and (iv) Mekaster Finlease Ltd. The shares of these four companies were purchased in 2010 at a price ranging from Rs.100 to Rs.300 per share that two on a single day on 31.03.2010 for aggregate purchase value of Rs.139.95 Crores whereas net 4 ITA No.1337 /Del/2018 R.K.G.Finvest Ltd.
worth of these companies as on 31.03.2010 was very nominal as detailed on page No. 3 to 07 of the assessment order. All these four companies were having negative net worth as mentioning Para 3.2 of the assessment order.
4. The share of these companies whose net worth were negative, were purchased on premium by the assessee raised suspicion and genuineness of the transactions. The Assessing Officer (Hereinafter, the 'AO') and the Ld. CIT(A), with the help of detailed reasoning mentioned in their orders, had held that these are the paper companies having dummy Directors and controlled & managed bySh. S.K.Jain and Sh. V.K.Jain for providing accommodation entries to beneficiaries. The AO has categorically held that the appellant/assessee had not filed the details of the persons from whom these shares were purchased by paying 490 Crores as a premium; therefore, the genuineness of the purchase cost is not proven at all. The shares purchased on high premium has sold to two companies; namely, Bilberry Securities Pvt. Ltd. and S.K.P.J. Finance Pvt. Ltd. during the relevant year. The AO issued summons to the Principal Officers of these companies but no compliance was ever made by these companies. As per MCA Website, the Directors of these companies were Shri Krishna Kumar, Shri Anil Kumar Bansal, Shri Rajesh Kumar Mishra and Shri Prem Kumar Mahato as detailed in Para 3.2 (xviii) of the assessment order. The addresses mentioned in respect of these persons were found non-existent by the AO 5 ITA No.1337 /Del/2018 R.K.G.Finvest Ltd.
and these persons were Directors in various other companies of Sh. S.K.Jain group, engaged in providing the accommodation entries. Neither the Bilberry Securities Pvt. Ltd. nor S.K.P.J. Finance Pvt. Ltd. had shown any loss or gain from the purchase and sale of the shares in their ITRs of the respective AYs. There is no mentioned of any asset as a share claim to have been purchased by the appellant/assessee. All these facts and findings of the AO and Ld. CIT(A) were not controverted at all before the Tribunal.
4.1 Similarly, the assessee traded in the shares of various companies who were found to be bogus in the nature and therefore, the sum of Rs.185,,68,96,500/- credited in the books of accountsthrough purchases & sales of shares of various companies found bogus/unverifiable were taxed in the hands of the appellant/assessee as a beneficiary as the appellant/assessee failed to explain and demonstrate the genuineness of these credits.
5. This case was scheduled for hearing many times; viz, 02.03.2021, 01.09.2021, 28.10.2021, 29.12.2021, 07.03.2022, 17.10.2022, 12.05.2022, 02.08.2022, 09.01.2023, 23.03.2023, 18.05.2023, 31.07.2023, 01.08.2023, 21.12.2023, 05.03.2024, 08.05.2024 and 02.07.2024. However, most of the times, either none attended from the appellant/assessee side or sought adjournments only on one reason or another. We heard the Commissioner of Income Tax, Departmental Representative (hereinafter, the 'CIT- DR') at 6 ITA No.1337 /Del/2018 R.K.G.Finvest Ltd.
length. Due to consistent non-prosecution from the appellant/assessee side for more than 3 & 1/2 years, we have no option except to decide this case after hearing the CIT-DR. Accordingly, we proceeded with.
6. None attended on behalf of the appellant/assessee. The Ld. CIT-DR reiterated the finding of the Ld. CIT(A) wherein it was categorically held that all these companies whose shares were purchased and sold by the appellant/assessee were found bogus in nature and therefore, these are nothing but the incomes of the assessee. The Ld. CIT-DR placed emphasis on the finding of the decision of the Co-ordinate Bench in the case of one of the companies Vijay Conductors India Pvt. Ltd. ITA No. 3484/Bel/2013, A.Y. 2008-09, order dated 28.01.2015, wherein ithas been held that Shri S.K.Jain and Sh. V.K.Jain were involved in providing accommodation entries through group concerns/companies. The finding of the Ld. CIT(A) in this regard in para 6.13 to 6.14 is worth extracting herein under:-
"6.13 In this light, it is also relevant to mention that Sh. Surendra Kumar Jain and Sh. Virendra Jain are facing cases u/s 3 & 4 of Prevention of Money Laundering Act, 2002 and it was alleged by Serious Fraud Investigation Officer that during the period of 2004 to 2010 Sh. S.K. Jain and Sh. V.K Jain entered into a criminal conspiracy for the purpose of providing accommodation entries to the various beneficiary companies with an aim of converting their unaccounted money through legitimate transactions by charging commission. The total enquiry was made under the directions of Ministry of Corporate Affairs and the criminal Complaint was filed against petitioner after this. It is also important to note that in this case it is alleged that Sh. S.K. Jain & Sh. V.K. Jain have received funds of Rs. 62 crores in defence from M/s Jagat projects Ltd. through Sh.7 ITA No.1337 /Del/2018
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Rajesh Aggarwal, Chartered Accountant and these facts is also mentioned on page 26 of the assessment order that one of the mediator Sh. Rajesh Aggarwal admitted that he arranged accommodation entry for a group through person named Sh. Ravinder Goel through various companies directly controlled by Sh. Surendra Kumar Jain and Sh. Virendra Kumar Jain.
Recently, in the Hon'ble Delhi High Court Bench order dated 20.07.2017 in Bail Application 113/2017 & CRL.M.A. 10245/2017 & in Bail Application 114/2017 & CRL.M.A. 10232/2017 has rejected the Bail application by observing the following which is relevant on the facts and circumstances of the case in support of the claim of the Assessing Officer that the transactions are sham transactions and Sh. Surendra Kumar Jain and Sh. Virendra Kumar Jain are involved in these sham transactions. The relevant para 21 to 39 of the order is reproduced here as under:-
"21. On the other hand, learned ASG Mr. Sanjay Jain has submitted that in the light of the investigation conducted so far, it is clearly established that petitioners, ie. (1) Virendra Jain and (2) Surendra Kumar Jain (Jain Brothers), are involved in the activities of laundering of money for clients having unaccounted cash with the help of a group of companies providing the facility of placement of unaccounted cash, layering of transactions and integration of the layered money into the books of the owners of unaccounted cash in the guise of fresh share subscription at a premium. He has further submitted that the original owners of unaccounted funds regain control over their entities by subsequent transfer of shares at a drastically discounted price in the names of close relatives/associates of the promoters/directors. He has further submitted that the full cycle of activities is clearly visible in the case of companies controlled by Jain Brothers (petitioners herein) and M/s Jagat Projects Ltd. with the mediation of Rajesh Aggarwal, Chartered Accountant.
22. The learned ASG has further submitted that M/s Jagat Projects Ltd, have converted its unaccounted money to the tune of Rs. 64.70 Crore into apparently legitimate transactions by way of share subscription by various companies. He has further submitted that this illegal activity related to the scheduled offence have generated 8 ITA No.1337 /Del/2018 R.K.G.Finvest Ltd.
property involved in money laundering to the extent of Rs. 64.70 Crore which was further invested by M/s Jagat Projects Ltd. into their sister concern M/s Divine Infracon Pvt. Ltd. for construction of hotel, (now managed by Radisson Blu) at Plot No. 4, Sector-13, Dwarka, New Delhi.
23. The learned ASG has further submitted that Jain Brothers have received funds of Rs. 62.20 Crore in advance from M/s Jagat Projects Ltd. through Rajesh Aggarwal, Chartered Accountant and placed the funds, pertaining to M/s Jagat Projects Ltd, from the accounts of various firms into the account of M/s Tulika Securities Pvt. Ltd. for layering and then these funds were transferred to 26 companies for final investment into M/s Jagat Projects Ltd. He has further submitted that for the entire process of receiving funds pertaining to M/s Jagat Projects Ltd, in the accounts of various firms and from there into the account of M/s Tulika Securities Pvt. Ltd. for layering and then transferring to the accounts of their 26 companies for final investment into M/s Jagat Projects Ltd, the petitioners, Le (1) Virendra Jain and (2) Surendra Kumar Jain (Join Brothers), have received commission to the tune of Rs. 1,11,96,000/ through their companies for converting unaccounted money of Rs. 62.20 Crore belonging to M/s Jagat Projects Ltd. into their share capital/premium. So the amount of Rs. 1,11,96,000/- received as commission is the proceeds of crime of Jain Brothers. He has further submitted that the proceeds of crime are inseparable between both brothers (petitioners herein) as they were involved in the accommodation entry business and were maintaining documents and records unitedly.
24. The learned ASG has further submitted that from the statements of petitioners, Le. (1) Virendra Jain and (2) Surendra Kumar Jain, and other evidences collected during investigation, it is established that Surendera Kumar Jain and Virendera Jain and the companies/firms controlled and managed by Surendera Kumar Jain and Virendera Jain (Jain Brothers) were involved in the offence of money laundering punishable under Section 4 of PMLA ibid. He has further submitted that investigation has revealed that the modus operandi of Jain brother was to launder the unaccounted money through the companies controlled and managed by them by process of placement of funds, 9 ITA No.1337 /Del/2018 R.K.G.Finvest Ltd.
layering of transactions and the final integration of laundered money into the banking channel camouflaged as legitimate share premium transactions. He has further submitted that funds were brought in by the mediators on behalf of the beneficiaries. The Jain Brothers (petitioners herein) were providing accommodation entries by accepting funds from their beneficiaries through mediators and converting the same into share premium transactions in the beneficiary company. In this process Jain Brother earned money as a certain percentage of the unaccounted money converted into share premium. Jain brothers have received funds of Rs. 62.20 Crore in advance from M/s Jagat Projects Ltd. through Rajesh Aggarwal, Chartered Accountant and placed the funds, pertaining to M/s Jagat Projects Ltd., from the accounts of various firms into the account of M/s Tulika Securities Pvt. Ltd., for layering and then these funds were transferred to 26 companies for final investment into M/s Jagat Projects Ltd. For the entire process of receiving funds pertaining to M/s Jagat Projects Ltd, in the accounts of various firms and from there into the account of M/s Tulika Securities Pvt. Ltd. for layering and then transferring to the accounts of their 26 companies for final investment into M/s Jagat Projects Ltd. the petitioners have received commission to the tune of Rs. 1,11,96,000/- through their companies for converting unaccounted money of Rs. 62.20 Crore belonging to M/s Jagat Projects Ltd. into their share capital/premium. Thus, the petitioners have directly attempted to indulge and knowingly assisted an actually Involved in the process of concealment, possession, acquisitions, use and projecting it as untainted property, and thereby they have committed an offence of money laundering.
25. The learned ASG on behalf of the respondent has submitted that at the very outset it becomes essential in the context of this matter to appreciate the parameters of grant or refusal of bail as envisaged under Section 45 of PMLA, 2002. It is noteworthy that Section 45 of PMLA entails with rigours before another decision is taken as to grant or refusal of bail rigours are that before a person can be considered to be released on bail. Public prosecutor has to be given an opportunity to oppose the application and if public prosecutor opposes the application, then the Court will have to be satisfied that there are reasonable grounds for believing that the petitioner is not guilty of the 10 ITA No.1337 /Del/2018 R.K.G.Finvest Ltd.
offence of Money Laundering and that he is not likely to commit any offence while on bail. We would submit that the ordinary law pertaining to grant or refusal of bail or as canvassed by learned counsel for the petitioners that only reasonable satisfaction is required, could not be the correct law to be applied in PMLA case. The learned counsel for the petitioners has urged that mainly because the provisions which constitute the Scheduled Offence have been migrated to Part-A only in 2013 and, therefore, the twin rigours would not apply because the offending act on behalf of the petitioners as per the case of the respondent/department had commenced prior to 2013 is also incorrect.
26. In this regard, the respondent/department would like to rely on the judgment of the Hon'ble Supreme Court in case Gautam Kundu vs. Directorate of Enforcement (Prevention of Money-Laundering Act), Government of India; (2015) 16 SCC 1. In the said judgment it was held by Hon'ble Supreme Court as regards the twin rigours of Section 45 of PMLA, that while there is no doubt that the conditions laid down under Section 45 of PMLA would bind the High Court as the provisions of special law having overriding effect on the provisions of Section 439 Cr. PC for grant of bail to any person accused of committing an offence under Section 4 of the PMLA. The said observation of the Hon'ble Supreme Court was followed in a subsequent judgment of the Hon'ble Supreme Court in Crl.A.No. 1223/2017 titled Union of India vs. Varinder Singh @Raja & Anr. dated 21.07.2017 in which it has been held that when complying with a requirement of Section 45 of PMLA, the High Court should not have granted the bail. By this order the Hon'ble Supreme Court had set aside the order of granting the bail passed by the High Court. The respondent/Department would also placed reliance on a judgment of a High Court of Karnataka passed in S.C. Jayachandra vs. Enforcement Directorate, Banglore; MANU/KA/0456/2017.
27. The Karnataka High Court discussed in detail as to whether the judgment of Punjab and Haryana High Court in Gorav Kathuria (supra) would be constituted as having binding effect within the meaning of Article 141 of the Constitution of India. After considering several judgments on this aspect, the Court came to the conclusion in para 30 of the judgment that Gorav Kathuria (supra) case cannot be treated as 11 ITA No.1337 /Del/2018 R.K.G.Finvest Ltd.
a binding precedent and further held that the pronouncement in Gautam Kundu (supra) was still the good law, so far as the question regarding limitations prescribed in Section 45 (1) of PMLA are concerned, in the said judgment, it has also been noticed that in Gorav Kathuria (supra), Union of India was neither present and hence could not be heard and more so, said judgment could not be taken as a binding precedent because the judgment itself was contrary to the law laid down by the Hon'ble Supreme Court in Gautam Kundu (supra). The respondent/department would further urge that the above view of the Karnataka High Court has been followed by several other High Courts as would be clear from the judgment of Pradeep Nirankarnath Sharma vs. Directorate of Enforcement; MANU/GJ/1110/2017.
28. It is, therefore, clear from the conjoint reading of the above judgment that listing of the schedule offence in Part-A by virtue of amendment in 2013 is not at all the relevant factor for deciding a bail application under Section 45 of PMLA and does not in any manner dilute or eclipse the twin rigours of Section 45 of PMLA which expect the Court considering the bail application to come to a satisfaction to the fact that there are reasonable grounds for believing that the petitioners are not guilty of offence of Prevention of Money Laundering Act and that they are not likely to commit any offence while on bail. The respondent/department would like to draw the kind attention of this Court on the seriousness and gravity of the offence as apparently is made out in the facts of the case. The respondent/department would like to draw the kind attention of this Court to the counter affidavit filed by it in which the relevant facts have been set out, particularly as regards the investigation conducted by SFIO.
29. The learned ASG has further submitted that there is a company of M/s Jagat Projects Limited which wanted accommodation entries. The unaccounted money of M/s Jagat Projects Limited was diverted to a mediator called Rajesh Aggarwal, Chartered Accountant for placement of the same through other companies. The said Rajesh Aggarwal, Chartered Accountant placed the unaccounted money of M/s Jagat Projects Limited through the companies managed and controlled by the petitioners. This was a method of layer. The unaccounted money of M/s Jagat Projects Limited pursuant to which the companies held and 12 ITA No.1337 /Del/2018 R.K.G.Finvest Ltd.
controlled by the petitioners made investment in M/s Jagat Projects Limited by purchasing their shares at Rs. 10/- per share at the high share premium of Rs. 400/- per share. In this manner, the unaccounted money of M/s Jagat Projects Limited challenges through Rajesh Aggarwal, Chartered Accountant and then the petitioners were brought back into the accounts of M/s Jagat Projects Limited in a laundered firm. Thus it is a most blatant case of Money Laundering. It is in these circumstances that the respondent/Enforcement Directorate had commenced the investigation under PMLA and having found unimpeachable material in the course of its investigation, eventually instituted the statutory complaint before the Special Court. The cognizance has already been taken in respect of PMLA complaint on 03.07.2017. In fact a bail application was filed before the Special Court also, which has been dismissed with a detailed reasoning vide order dated 02.05.2017.
30. It is further submitted that there is no change of circumstances. Since the time the bail was refused and in fact the special court had all the material available to it while adjudicating upon the said bail applications. As regards the argument of the ECIR wrongly been initiated for the reason that on 11.02.2017, the Court had not taken cognizance on the complaint filed by SFIO under the schedule offence the same is also incorrect because there is no requirement in law that for initiating an inquiry or investigation under PMLA the Court should have taken cognizance of the schedule offence. It is clear from the reading of the Section 19 of the Act that the factum of taking or not taking the cognizance of schedule offence is irrelevant and immaterial for the purposes of reason to believe under Section 19 for making arrest. The schedule offence has relevance only to the extent that for initiating inquiry under PMLA thereto either be an FIR under schedule offence or a complaint under schedule offence. The registration of FIR or the filing of complaint is only a trigger point for starting investigation under PMLA and in the entire it is nowhere mandatory that the authorities concerned with PMLA investigation should wait till such time cognizance of schedule offence is taken by the concerned Court.
31. The learned counsel for the respondent/department would therefore urge that none of the submissions made for grant of bail hold 13 ITA No.1337 /Del/2018 R.K.G.Finvest Ltd.
good because the investigation under PMLA was undertaken only after SFIO filed a complaint on 29.11.2016 under the schedule offences covered under Part-A; the offences where the Act is continuing un- awaited and in respect of which the starting point was immaterial and since proceeds of crime is not a seriously debatable issue as contended by learned counsel for the petitioners. It is urged by learned counsel for the respondent/department that rigours of Section 45 of PMLA would not permit the grant of bail inasmuch as it is urged that there is no record to contend that there are reasonable ground for believing that the petitioners are not involved in the offence of money laundering or that they are not likely to commit any offence while on bail. It is also urged by counsel for the respondent/department that there is a serious likelihood of tempering with the evidence. Keeping in view the nature of transaction which involves placement and layering of tainted money or the proceeds of crime by falsification of records and arbitrary and illegal enhancement of the share premium in respect of such shares which had no value in the market. The learned counsel for the respondent/department, therefore, urged that in view of the clear cut law laid down by Hon'ble Supreme Court in Gautam Kundu (supra), regularly followed by Hon'ble Supreme Court as well as different High Courts, there is no ground made out for grant of bail.
32. The instant petitions for grant of bail under Section 439 Cr.P.C. are arising from ECIR/01/DLZO-11/2017, under Sections 3 & 4 of Prevention of Money Laundering Act, 2002 on the basis of Criminal Complaint No. 57463 of 2016. The allegations made in ECIR/01/DLZO-11/2017 at para 7.3 is that M/s Jagat Projects Ltd.
with the help of Chartered Accountant Rajesh Aggarwal and other accused persons as shown in ECIR/01/DLZO-11/2017 dated 11.02.2017 were involved in money laundering activities wherein M/s Jagat Projects Ltd. succeeded in laundering its unaccounted income through a set of companies controlled by the petitioners in the guise of share subscription money at a huge premium to the tune of Rs. 64.70 Crore during the financial year 2008-09. The entire share subscription (including the share premium) of Rs. 64.70. Crore has been held to be unexplained cash credit under Section 68 of the Income Tax Act in the hands of M/s Jagat Projects Ltd.
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33. Further M/s Jagat Projects Ltd. failed to explain the payment of Rs. 1,16,46,000/- Crore @ 1.80% on the total accommodation entries of Rs. 64.70 Crore made to the petitioners for securing accommodation entries has been an unexplained expenses incurred during the assessment year 2009-10. The allegations qua against the present petitioners are that (1) Virendra Jain and (2) Surendra Kumar Jain (Jain Brothers) are involved in activities of laundering of money for clients having unaccounted cash and were providing the facility through skilled persons Chartered Accountant, Rajesh Aggarwal to make the unaccounted cash to white money and M/s Jagat Projects Ltd. succeeded in doing so to the tune of Rs. 64.70 Crore in the form of legitimate transaction through illegal act by way of share subscription by various companies controlled by Jain Brothers (petitioners herein) to avoid the income tax liabilities and obtained consequential payment of Rs. 1,16,40,000/- Crore @ 1.80% on the total accommodation entries of Rs 64.70 Crore. The said illegal activity is the schedule offence under the Prevention of Money Laundering Act, 2002.
34. The modus operandi adopted by the petitioners as per the counter affidavit filed by the respondent/department at para 10.16 is as under
:-
"10.16 The modus operandi adopted by Jain Brothers is to create artificially Reserve Surplus and consequent Investment in a set of private companies controlled by them. A total of approximately Rs. 8000 Crore in the balance sheet of 08 private limited companies was thus created. The second step is to acquire the management control of some listed companies through postal ballot. The subsequent step is to pick up one of the private companies controlled by them, and move an application for amalgamation. One scheme of amalgamation involving Rs. 1000 Crore of Reserve & Surplus and Investment, has already been was completed by Jain Brothers. Subsequently, Sh. Surendra Kumar Jain acquired SNLFL through postal ballot and filed an application for scheme of amalgamation between NKS and SNLFL. Jain brothers still left with 06 companies having Reserves & Surplus and investment of approximately Rs. 1000 Crore in each of these companies and two (2) listed NBFCs with arrangement control over them. It is through the liquidation of 15 ITA No.1337 /Del/2018 R.K.G.Finvest Ltd.
fictitious investment in the merged company, laundering of money can be done."
35. During the investigation the respondent/department recorded the statement of the petitioner-Surendra Kumar Jain under Section 50 of PMLA which reveals that the mediator Rajesh Aggarwal, Chartered Accountant has given cheque to their group/associate companies for buying shares of M/s Jagat Projects Ltd. at a high price, L.e. Premium of Rs 390/- per share on share of Rs. 10/- each per share with buy back guarantee and later on as per advice/direction of Rajesh Aggarwal, Chartered Accountant those shares were transferred to the companies of the persons/associates of M/s Jagat Projects Ltd. at a nominal price of Rs. 10-12/- per share; that due to this activity of buying shares at premium and selling the same at nominal price, their holding companies have made huge losses in the books of account but in actual the said amount has already been received by their companies in advance against the sale of shares from the beneficiary/mediator Rajesh Aggarwal, Chartered Accountant and all these transactions are duly recorded in books of account of respective companies.
36. Further, out of the 30 companies 26 companies belongs to the petitioner- Surendera Kumar Jain and the aforesaid 26 companies invested a sum of Rs. 62.20 Crore in the share capital of M/s Jagat Projects Ltd. @ premium of Rs. 390/- per share of Rs. 10/- each share. It further reveals that the said 26 companies which made investment in share capital of M/s Jagat Projects Ltd. through Rajesh Aggarwal, Chartered Accountant, got profit of approximately 1.50% by way of fund which was sent by Rajesh Aggarwal, Chartered Accountant to the petitioner's group companies for investment in M/s Jagat Projects Ltd. The profit received from Rajesh Aggarwal on behalf of M/s Jagat Projects Ltd. has gone up to Rs. 1,11,96,000/-.
37. Further, it is revealed that out of the 95 companies which were managed and controlled by the petitioner-Surendera Kumar Jain and his brother Virendra Jain, 17 companies are registered at 3198/15, 4th Floor, Gali No-1, Sangatrahsna, Paharganj, New Delhi-110055 and 24 persons who are directors in these 17 companies are having the 16 ITA No.1337 /Del/2018 R.K.G.Finvest Ltd.
same residential address. Further, 11 companies are registered at 209, Bhanot Plaza-11, 3 DB Gupta Road, Paharganj, New Delhi- 110055 and 15 persons who are directors in these 11 companies have the same residential address. The premises 3198/15, 4th Floor, Gali No-1, Sangatrahsna, Paharganj, New Delhi-110055 is owned by the petitioner-Virendra Jain and the premises 209, Bhanot Plaza-II, 3 DB Gupta Road, Paharganj, New Delhi-110055 is owned by the petitioner Surendra Kumar Jain and in these companies he himself and his family members, ie. Virendra Jain, Preeti Jain and Babita Jain, are the directors. It indicates that these 95 companies are merely companies on papers for making investments in share premium etc. by various beneficiaries through the mediators.
38. It further reveals that from the statement of the petitioner-Surendra Kumar Jain that an amount of Rs. 1,11,96,000/- was received as profit in the said transaction from M/s Jagat Projects Ltd. Further, the statement of the petitioner-Virendra Jain made under Section 50 of PMLA are also on the same line as that of the petitioner-Surendra Kumar Jain.
39. In totality the petitioners (1) Virendra Jain and (2) Surendra Kumar Jain has created a device of money laundering by making investment in the share capital of M/s Jagat Projects Ltd. through skilled person Rajesh Aggarwal, Chartered Accountant; without putting the business in reality by purchasing share capital at a high price, i.e. Premium of Rs 390/- per share on share of Rs. 10/- each per share each with buy back guarantee, which made them profit of Rs. 1,11,96,000/- through illegal means."
6.14 Further, the decision of Hon'ble ITAT in the case of Sh. Virendra Kumar Jain in ITA No. 6991 to 6997/Del/2014 in A.Y. 2005-06 to 2011- 12 and of Sh. Surendra Kumar Jain in ITA No. 6998 to 7004/Del/2014 in A.Y. 2005-06 to 2011-12 vide order dated 03.02.2016 is also important where the highest fact found authority of Income Tax proceedings have accepted the decision of CIT(A) that Sh. Surendra Kumar Jain and Sh. Virendra Kumar Jain were involved in providing accommodation entries. However, on the ground of violation of principal of natural justice matter was set aside to Assessing Officer to pass the order on the basis of the 17 ITA No.1337 /Del/2018 R.K.G.Finvest Ltd.
principle laid down by the Jurisdictional Delhi High Court in the case of Tarun Goyal and Vijaya Conductors Pvt. Ltd. vide order dated 28.01.2015 and vide order dated 29.09.2015 respectively. In this light the order of Hon'ble ITAT Delhi Bench in ITA No. 3484/Del./2013 in the case of Tarun Goyal on which the Hon'ble ITAT has relied upon in para 23 & 24 of the decision, makes it evident that it is for the assessee to demonstrate the chain of transaction. Para 24 of this order is again reproduced as under:-
"24. Before parting we make it dear that the burden of proof lay on the assessee It is for the assessee to demonstrate the chain of transaction, the layering indulged by him, the calculation of peak unexplained credit etc. and to prove each credit in the books of each assessee. In the result all these appeals are set aside to the file of the AO for fresh adjudication in accordance with law.
6.15 In this light, it is evident that in the case of the appellant neither during the course of assessment proceedings not during the course of appellate proceedings the appellant could demonstrate the chain of transaction of unexplained credit and to prove each credit in the books of accounts. It is relevant to mention that Shri S. K. Jain is a major shareholder in the case of the appellant company. Despite this, the appellant has failed to discharge its onus; hence, the benefit of only the addition of peak credit u/s 68 of the Act cannot be given to the appellant in the light of the decision of Hon'ble ITAT in the case of Shri S. K. Jain on which the Hon'ble ITAT has relied upon on the principles laid down in the case of Tarun Goyal. Further, in the case of M/s Vijay Conductors India Pvt. Ltd. Hon'ble ITAT has observed that the cash deposited in the bank account of various companies which were conduit companies cannot be said to be unexplained cash credit because the source of cash is from the beneficiary who wanted to avail the accommodation entry and to whom cheques for accommodation entries were issued almost of the similar amount. However, in the case of the appellant no evidence could be produced by the appellant at any stage who are the beneficiary companies for getting accommodation entry and whether the appellant is only a conduit company. On the other hand, the appellant's case is that the share transaction is a genuine transaction. Hence, no benefit of the case of M/s Vijay Conductors India Pvt. Ltd. Is available to the appellant 18 ITA No.1337 /Del/2018 R.K.G.Finvest Ltd.
unless this claim of accommodation entry is compiled on the part of the appellant.
In this light, there is no reason to interfere in the order of the Assessing Officer to treat the sum of Rs.185,68,96,500/- u/s 68 of the Act as unexplained and the addition made by the AO of Rs.185,68,96,500/- is confirmed. Similarly, on the basis of the detailed discussion made supra the action of the Assessing officer in making disallowance of loss shown on the sham transaction on the sale of share of Rs.20,59,93,500/- is also confirmed and the ground 1 to 4 of the appeal is dismissed."
[Emphasis supplied.]
7. We find force in the arguments/contention/submission of the Ld. CIT-
DR that the appellant/assessee did not furnish any material to controvert the findings of the Ld. CIT(A) and in particular the above extracted findings.
According to the Section 68 of the Act, where any sum is found credited in the books of account of assessee, the assessee offers no explanation about the nature and source of the same or explanation offered by him is not found satisfactory in the opinion of the AO, the sum credited may be charged to tax as the income of the assessee of the relevant year. All three limbs of section 68 of the Act; the identity, creditworthiness and genuineness of transactions have not been explained by the appellant/assessee not only before the lower authorities but also before us. Nothing has been brought on the record to controvert the finding of the Ld. CIT(A). In the present case, the creditworthiness/financial strength of the shareholders and genuineness of such credits have not been established by the appellant/assessee as the burden of proof of these is on the appellant/assessee. Following the ratio laid 19 ITA No.1337 /Del/2018 R.K.G.Finvest Ltd.
down by the Hon'ble Supreme Court in the case of N. R. Iron and Steel Pvt.
Ltd. SlP No. 29855 of 2018 and by the Hon'ble Delhi High Court in the case of Oasis Hospitalities Pvt. Ltd. 333 ITR 119, it is hereby held that the appellant/assessee has failed to prove and establish the creditworthiness and genuineness of transaction which resulted credits in the books of account of the appellant/assessee. In view of the above, we decline to interfere with the finding of the Ld. CIT(A).
8. In the result, the appeal of the assessee is dismissed.
Order pronounced in open Court on 27 September, 2024 Sd/- Sd/-
(KUL BHARAT) (AVDHESH KU MAR MISHRA)
JUDI CIAL MEMBER ACCO UNTANT MEMBER
Dated: 27/09/ 2024
Binita, Sr. PS
Copy forwarded to:
1. Appellant
2. Respondent
3. PCIT
4. CIT(Appeals)
5. CIT-DR
ASSISTANT REGISTRAR
ITAT, NEW DELHI
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