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Ltd.

5. Cosmos Tradelink Pvt. Ltd. --- 5,04,795/-

Total: 1,45,00,000/- 9,91,363/-

6.2.2. In the asst. proceedings, the AO had treated the aforesaid loan credits as uncategorized unexplained cash credits in the hands of the assessee. The AO had contended that during the asst. proceedings, the assessee had failed to produce any details and documents in respect of the aforesaid receipts from the aforesaid three lending entities. The AO had also contended that during the said survey operation done by the Investigation wing in the case of Avima Group, Shri. Viswanath Gupta and Shri. Vivek Gupta, directors and key persons of the said group had admitted on oath that the assessee was involved in availing accommodation entry from several shell companies in the form of unsecured loans. The AO had also alleged that the list of such shell companies includes the name of the above three lenders. Moreover, the AO had also alleged that the financial capacity of the said lending entities is very poor. Hence, they don't have the minimum financial magnitudes to extend such huge credits of Rs.1,45,00,000/- to the assessee company. The AO had also contended that the source of the funds of the said lending entities from which the said loans were extended to the assessee was not substantiated by both the lending entities as well as the assessee company. Hence, the AO had opined that the said unsecured loans were received by the assessee from shell companies and the said loans are bogus.

6.2.4. Further, the AO had also alleged that the said lending entities did not have minimum financial strengths to extend such funds to the assessee. It is noticed that to support his contention, both in the asst. proceedings as well as in the remand proceedings, the AO had published certain financial parameters like 'Fixed assets', 'Turnover', 'Rent Payment', 'PBT', 'PAT', 'Total other income' etc. of the aforesaid lending entities for the subjected AY. The AO had opined that as these parameters are very meagre and alike the characteristics of shell companies, the said lending entities are bogus entities and the transactions with these entities are done in pre-conceived notion. However, the contention of the AO is not acceptable in law. Financial strengths cannot be determined only based on the aforesaid parameters. One should obtain the 360-degree financials of any entity to infer any adverse statement against its genuineness. Reliance is placed in the case of 'CIT, Dehi vs. Ms. Mayawati, 338 ITR 563 (Del), 03/08/2011', where the Hon'ble Delhi High court held the following:

6.2.6. Further, the AO, in the remand proceedings had enquired into the source of the said lending entities for extending the said unsecured loans and found the same sources as not reliable and bogus based on his own logic and presumption. As an instance, in the case of one of the lending entities viz. M/s Good Point Real Estate Pvt. Ltd. (GPREPL), the AO had opined that the said lending entity is a shell entity floated by one Mukesh Banka, one of the famous entry operators of Kolkata. The AO had also alleged that M/s GPREPL was floated on 29.03.2012 with paid up capital of Rs.42,78,500/- with the help of two directors Jagdambi Sharma and Rajendra Kumar Pathak. The AO had also alleged that these two persons are dummy directors of many shell entities controlled, managed and operated by Manoharlal Nangalia and Arun Nangalia. Hence, the AO had opined that under the above facts, it cannot be accepted that the said lender company genuinely exists. The AO had also observed that in case of the said lending entity, the share capital and premium was given as loans and advances to different parties and it is found that such parties are well connected with shell companies appearing in shell company database. Further, the AO had also alleged that one share subscriber of the lending entity i.e., M/s Gritty Infrastructure Pvt. Ltd. was a 'struck off' company as per ROC. Hence, the AO had opined that where source of money is from a 'struck off' company and other 'doubtful' entities well connected with entry operators and identified shell entities by common directors, such source cannot be accepted as genuine and bonafide. Considering the above fact, there is substantial doubt in the aforesaid transactions and therefore, source of loan and creditworthiness of lender so explained by the lender deserves to be rejected.

6.2.7. However, on perusal of the above facts, one thing comes in common that all the allegations made above by the AO against the lending entity M/s GPREPL (supra) was without any supportive evidence on record. Low paid-up capital, low profit, high premiums per share, increase in incidental expenses can't fall in the purview of incremental evidences to term an entity as bogus and shell entity and the loan transaction of the said entity with the assessee as bogus and ingenuine loans. It is pertinent to mention that the AO had nowhere mentioned that the status of the said company was 'Struck off' at the time of investing in the shares of the lending entity M/s GPREPL. No independent enquiry was done by the AO except relying on the Page | 6 Avima Exports Private Limited; A.Y. 2016-17 investigation report on the said issue of M/s Gritty Infrastructure Pvt. Ltd. In respect of the allegation of the AO that the share subscriber companies of the said lending entity are shell companies, it would be apposite to discuss the definition of a shell company or its legal connotation at the outset. The expression shell company has not been defined under any law in India. Therefore, there is no statutory definition of shell company, be it in fiscal statutes or in penal statutes, Neither the Companies Act, 1956 nor the Companies Act, 2013 defines the expression shell company. In an interim order passed on 12.07.2018, the Hon'ble Apex Court observed that in the Concise th Oxford English Dictionary, 11 Revised Edition, shell company has been defined as a non-trading company used as a vehicle from various financial maneuvers. In popular parlance, a shell company is understood as having only a nominal existence; it exists only on paper without having any office and employee. Just like a shell company is understood as having only a nominal existence, it exists only on paper without having any office and employee. Just like a shell which has a thick outer covering but is hollow inside, a shell company is a corporate entity without having active business operations or significant assets. It may be used as a deliberate financial arrangement providing service as a tool or vehicle of others without itself having any significant assets or operations i.e. acting as a front. However, in the present case of the said lending entity and its share subscribers, there are registered offices and employees are present. The AO himself had contented that the said lending entity had inflated employee expenses. Presence of registered office of the said entity and its business affairs was not denied by the AO at any stage of the asst. proceedings.