Bombay High Court
Pr. Commissioner Of Income Tax-14 vs Buniyad Chemicals Ltd on 17 March, 2025
Author: M.S. Sonak
Bench: M.S. Sonak
SAYYED Digitally signed
by SAYYED
SAEED SAEED ALI
2025:BHC-OS:4245-DB
AHMED ALI
1 3.ITXA.1796.18.docx
ALI Date:
AHMED 2025.03.17
15:04:05 IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ALI +0530
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.1796 OF 2018
Principal Commissioner of Income-tax - 14 )
Room No.469, Aayakar Bhavan, )
M.K.Road, Mumbai 400020 )
Mumbai - 400 001. ) .. Appellant
Versus
M/s Buniyad Chemicals Ltd. )
Block H, Shri Sadashiv CHS Ltd )
6th Road, Santacruz East, )
Mumbai 400055 ) .. Respondent
______________________________________________________
Mr. Suresh Kumar for the petitioner.
Mr. Aditya Sharma i/by M.A.Narvekar for the respondent-
assessee.
______________________________________________________
CORAM
M.S. Sonak &
Jitendra Jain, JJ.
RESERVED ON: 5 March 2025
PRONOUNCED ON: 17 March 2025
JUDGMENT (Per Jitendra Jain, J):
–
1. This appeal filed by the appellant-revenue for the
assessment year (AY) 2009-10 challenges an order of the
Income-tax Appellate Tribunal dated 30 May 2017 and same
was admitted under Section 260A of the Income-tax Act, 1961
vide our order dated 5 February 2025 on the following
substantial questions of law :
“(a) Whether, on the facts and in the circumstances of the case
and in law, the Hon’ble Tribunal was justified in restricting the
addition made on account of unexplained cash credits u/s. 68 of
the Act to 0.15% without appreciating that the assessee had
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identity of the parties and the sources and genuineness of the
transaction ?
(b) Whether, on the facts and in the circumstances of the case
and in law, the Hon’ble Tribunal was justified in restricting the
addition to the commission income at 0.15% without considering
that the material found during the course of search clearly
established that the net commission charged by the assessee
group of companies varied between 1.5% and 3.5% ?”
Brief Facts :
2. The petitioner is a company formed and registered
under the Companies Act, 1956.
3. On 29 August 2009, return of income was filed by the
respondent-assessee declaring ‘NIL’ income. The said return of
income was selected for scrutiny assessment by issuing notice
under Section 142(1) of the Income-tax Act, 1961 (hereinafter
referred to as ‘the Act’).
4. On 28 December 2011, an assessment order under
Section 143(3) was passed assessing the income of the
respondent-assessee at Rs.10,73,52,550/-. In the said order it
is stated that the respondent had prepared profit and loss
account and filed tax audit report. In the assessment order, an
addition under Section 68 of the Act was made amounting to
Rs.10,73,52,553/- under the head ‘Income from other
sources’. The said addition was made on the ground that the
credits appearing in the disclosed and undisclosed bank
accounts of the respondent-assessee are unexplained, and
since no details or explanation regarding the identity, source
and genuineness of such deposits were submitted, the same
were treated as unexplained cash credits.
5. During the assessment proceedings, the respondent-
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assessee admitted that he is merely an accommodation entry
provider, and the receipts and payments appearing in the bank
accounts are of the customers from whom amounts were
received for giving accommodation entries. However, from the
assessment order, it is evident that no details of such
customers were ever provided to the Assessing Officer.
6. The respondent-assessee challenged the assessment
order by filing an appeal to the Commissioner of Income-tax
(Appeals) [hereinafter referred to as ‘the CIT(A)’]. On 4
October 2012, the CIT(A) disposed of the appeal, and the
operative part of the order reads as follows:
4.3 I have considered the facts of the case. In view of the
decision of my predecessor, if the beneficiaries are identified by
the appellant, the A.O. would adopt the rate of commission @
0.37% for A.Y.2009-10 as it is in the earlier assessment year. In
case the appellant fails to identify the beneficiaries in that case
the amounts credited in the bank account of the appellant would
stand confirmed as unexplained cash credit u/s.68 of the I. T.
Act. In the result, this ground of appeal is partly allowed.
[emphasis supplied]
7. Aggrieved by the CIT(A)’s order, the respondent-assessee
filed an appeal to the Tribunal being Appeal
No.7447/M/2012. The relevant grounds raised before the
Tribunal in form No.36 reads as follows:
1. On the facts and circumstances of the case the learned
Commissioner of Income Tax (Appeals) has erred in law and in
facts in passing the order u/s. 250 of the Act.
2. The learned Commissioner of Income Tax (Appeals) has erred
in law and in facts in passing the order without complying with
the principles of natural justice.
3. On the facts and circumstances of the case and in law the
learned Commissioner of Income Tax (Appeals) has erred in
confirming the additions at 0.37% on the gross deposits as
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4. The learned Commissioner of Income Tax (Appeals) has erred
in law and in facts in directing to assess the gross receipts 0.37%
on the condition that the appellant shall furnish the names &
addresses of the beneficiaries and failed to appreciate the facts
that the records including names and addresses of beneficiaries
are in possession of Income Tax Department and no copy of
computerized documents including the names & addresses were
furnished to the appellant
5. The learned Assessing Officer has erred in law and in facts in
levying interest u/s. 234B and 234C of the Act.
6. The appellant craves leave to add to, alter, amend and / or
delete in all the foregoing grounds of appeal.
8. On 30 May 2017, the Tribunal disposed of the appeal. In
para 11 of its order, the Tribunal reduced the rate of 0.37% to
0.15% by merely following its own order for earlier
assessment years.
9. It is on the above backdrop, that the present appeal is
filed by the appellant-revenue.
Submissions of the appellant-revenue :
10. Mr. Suresh Kumar, learned counsel for the appellant-
revenue, submitted that since the respondent-assessee did not
give the details of the credits appearing in its disclosed and
undisclosed bank accounts, the same stands unexplained and
therefore, the addition made under Section 68 of the Act is
justified. He further submitted that the CIT (A) finding on the
issue of applicability of Section 68 of the Act was not expressly
challenged by the respondent-assessee before the Tribunal and
therefore, no submissions on this count should be entertained.
He further submitted that CIT (A) was fair in restricting the
addition under Section 68 only to those cases where the
respondent-assessee failed to identify the beneficiaries of the
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amounts credited in the bank accounts. He, however,
submitted that the Tribunal was not justified in directing the
adoption of 0.15% on all the deposits, whether explained or
unexplained and thereby impliedly reversing the latter part of
the order of the CIT (A), which confirms additions under
Section 68 if beneficiaries are not identified. He submitted
that to that extent, the Tribunal’s order needs to be reversed.
He, therefore, prayed that the appeal be allowed in favour of
the revenue.
Submissions of the respondent-assessee :
11. Per contra, Mr. Aditya Sharma, learned counsel for the
respondent-assessee, submitted and admitted that the
respondent-assessee company is engaged in “a racket of illegal
business of providing accommodation entries” and, therefore,
queried the Court “How could such illegal transactions be
recorded by maintaining any books of accounts ?” He further
submitted that the amounts credited in the bank account do
not belong to the respondent-assessee but belong to its
customers. He further submitted that only the commission
amount deposited in the bank accounts can be added as his
income, which they have already offered for tax. He further
submitted that provisions of Section 68 are not applicable
since credits in the bank account do not constitute credits in
the assessee’s books.
12. Mr. Aditya Sharma heavily relied upon a statement
recorded on 16 January 2013 of Mr. Mukesh Choksi, Director
of the respondent-assessee company under Section 131 of the
Act. He stated that although the respondent-assessee and::: Uploaded on – 17/03/2025 ::: Downloaded on – 17/03/2025 22:17:31 :::
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director are engaged in the racket of providing
accommodation entries, the credits in the bank account, which
are not explained, cannot be taxed in the hands of the
respondent-assessee. He orally also submitted that these
amounts are already taxed in the hands of the beneficiaries. In
support of his submissions, Mr Sharma relied upon the
decision of this Court in the case of CIT (Pune) Vs Bhaichand
H. Gandhi1 and in the case of sister concern of the group
company of the respondent-assessee in the case of PCIT Vs
Alag Securities Pvt. Ltd.2 for the assessment year 2003-04. No
other submissions have been advanced by the learned counsel
for the respondent- assessee.
Analysis and Conclusion :
13. We have heard learned counsel for the appellant-
revenue and the respondent-assessee.
14. Section 68 of the Act as it existed for the assessment
year 2009-10 reads as under:
68. Cash credits
Where any sum is found credited in the books of an assessee
maintained for any previous year, and the assessee offers no
explanation about the nature and source thereof or the
explanation offered by him is not, in the opinion of the Assessing
Officer, satisfactory, the sum so credited may be charged to
income-tax as the income of the assessee of that previous year.
15. Before we delve into the issues raised in the present
appeal, it is important to reproduce the statement of the
Director of the respondent-assessee on which heavy reliance is
placed by the counsel for the respondent-assessee. The said1 (1983) 141 ITR 67
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statement is scanned as follows:
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16. At the outset, we wish to state that undisputedly and
admittedly, the details of the credits in the disclosed and
undisclosed bank accounts of the respondent-assessee
amounting to Rs.10,73,52,553/- were not furnished by the
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respondent-assessee during the assessment proceedings. In
our view, if the details of the credits appearing in the disclosed
and undisclosed bank accounts of the respondent-assessee
have not been explained, then we do not find any fault in the
action of the Assessing Officer in making the addition. No
submissions have been made that details of these credits are
not available with the respondent-assessee. These credits have
been extracted from the computer of the respondent assessee
and copied on CD as per the statement recorded and
reproduced above.
17. Section 68 requires an assessee to explain the credits by
providing the identity, creditworthiness and genuineness of
the credits. It was incumbent upon the respondent-assessee to
give the details of these credits because unless the details of
these credits are provided, it cannot be ascertained as to
whether the credits appearing belong to the customer of the
respondent-assessee. Merely because the respondent-assessee
states that he is only an accommodation entry provider and
therefore the credits in the respondent-assessee’s bank
accounts belong to the customers to whom the
accommodation entries were given cannot absolve the
respondent-assessee from its obligation to provide the details.
It is one thing to boldly and even proudly admit that a racket
for providing accommodation entries was being operated but
quite another to evade statutory liability or taxes based upon
such assertion.
18. In our view, even in the absence of provisions of Section
68 (the said section being only enabling provision), credits
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appearing in the bank accounts of an assessee could be added
as unexplained income of such an assessee if such assessee
fails to explain the details of the source from where such
deposits are made. The submission of the respondent-assessee
that in case of many deposits, he does not know the customer
who has deposited money in its bank account is a submission
which has to be rejected at the outset. Any law does not
support such a contention and cannot appeal to the
conscience of the Court.
19. Before the Assessing Officer, the respondent-assessee has
not made any submissions backed by any document to show
that the credits appearing in the bank account for AY 2009-10
have been assessed in the hands of the beneficiaries and,
therefore, no addition should be made. If that be the case, we
cannot accept the submission of the respondent-assessee that
the amount added is included in the assessment of the
beneficiaries and, therefore, same cannot be added once again
in the hands of the respondent-assessee. There is no basis for
such a submission made by the respondent-assessee, nor is it
stated so before the Assessing Officer or the Appellate
Authorities. Such a factual submission for the first time before
this Court in a third appeal by oral argument across the bar
cannot be permitted.
20. The CIT(A) has adopted a fair approach by stating that
if the respondent-assessee identifies the beneficiaries, then the
rate of commission adopted should 0.37% of such identified
beneficiaries and if the respondent-assessee fails to identify
the beneficiaries, then in that case, the sum credited in the
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bank accounts would stand confirmed under Section 68 of the
Act. In our view, the Tribunal was not justified in directing
0.15% of the total deposits (explained and unexplained)
appearing in the bank accounts as income. The Tribunal has
not given any reason as to why the directions of the CIT (A) in
para 4.3 of the CIT appeal’s order are wrong or erroneous. In
our view, the Tribunal did not consider the issue from the
proper perspective. The addition is made by the AO and
confirmed by CIT (A) under section 68 of the Act as ‘income
from other sources’ and under section 68 the unexplained
credit in books is treated as income.
21. Although it was the case of the respondent-assessee that
they are only accommodation entry providers and only certain
percentage should be taxed as income, in the assessment
order the addition is made that since the respondent-assessee
failed to explain the credits appearing in its bank account.
The Assessing Officer never accepted in the assessment order
that only certain percentage of such credit should be assessed
as income. Even the CIT(A) directed to adopt commission rate
only qua identified beneficiaries and not all the beneficiaries.
In any case, taxation of commission income and taxation of
unexplained credits are two different things. Therefore, the
same cannot be mixed to contend that only commission
income should be taxed, not unexplained cash credits.
22. The Tribunal has not given any reasons as to if the
respondent-assessee does not explain the beneficiary’s identity,
then why the whole amount should not be added under
Section 68, but only 0.15% of the said deposit. In our view,
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therefore, the Tribunal has adopted a very casual approach to
such a serious matter of rampant tax evasion by merely saying
issue is covered. In our view, in such cases Tribunal should not
go by the concession of the counsel before them but it was
their duty to examine the issue in proper perspective since
Tribunal is a final fact finding authority under the Act. We say
so because of the admission made by the respondent-assessee
in the statement of its director recorded under Section 131 of
the Act on which heavy reliance is placed by the counsel for
the respondent-assessee was not even considered by the
Tribunal. We now propose to deal with that statement.
23. In question No.2, Shri. Mukesh Choksi has admitted that
he is the director of the respondent-assessee, and therefore,
the statement is made in that capacity. In the said question,
the respondent-assessee has admitted that they are engaged in
the business of providing accommodation entries by charging
a commission of 0.15%. In answer to question No.7, the
respondent-assessee admitted that in so far as 3321 cases are
concerned, they do not have the details of the customers.
Thereby, the respondent-assessee has admitted that they are
not able to explain the source of credits appearing in its bank
statements. It is important to note that the respondent-
assessee has executed transactions of crores of rupees to
accommodate various parties. Still, many of these
beneficiaries’ details are unknown to the respondent-assessee.
This is something which this Court cannot accept.
24. In our view, such an explanation cannot be accepted
more so from the respondent-assessee company who is
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claiming to have been engaged in the business of providing
accommodation entries where crores of rupees are deposited
and withdrawn. If the respondent-assessee does not have the
details of the beneficiaries, then we fail to understand how the
money were deposited in the bank accounts of the
respondent-assessee and withdrawn from such bank accounts
without respondent assessee knowing the details of these
beneficiaries. The only person who can operate these bank
account would be the respondent-assessee, who, at least at the
time of withdrawing, would know to whom the amount
withdrawn is given. In the absence of any details of such
beneficiaries, we cannot accept the submissions of the
respondent-assessee that even if the credits are not explained
or details are not given, still such credits cannot be added in
the hands of the respondent-assessee.
25. Mr. Sharma learned counsel for the respondent-assessee
relied upon the decision in the case of group concern of the
respondent-assessee in the case of Alag Securities Pvt. Ltd
(Supra) and defended the order of the Tribunal. In para 20 of
the said order, the Co-ordinate Bench of this Court has
recorded a finding that the amount deposited by the
customers, i.e. beneficiaries, had been accounted for in the
assessment orders of these beneficiaries and, therefore, the
question of adding such cash credit to the income of the
assessee does not arise.
26. In our view, this finding is absent in the present case
before us, and no material has been shown to us by the
respondent-assessee that the sum added by the Assessing
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Officer in its case has been added in the assessment order of
various beneficiaries. On the contrary, the respondent-assessee
has failed to even identify the beneficiaries in the present case.
Therefore, this decision cannot assist the respondent-assessee
since the said is distinguishable on facts.
27. In fact, the CIT (A) in para 4.3 has given an express
finding that, if the respondent-assessee identifies the
beneficiaries, then same would not be added as income of the
respondent-assessee but if the respondent fails to identify the
beneficiaries, then same would be confirmed as unexplained
cash credit. In the instant case before us, the respondent-
assessee has not pleaded anywhere before the Assessing
Officer and appellate authorities, nor any evidence has been
laid to that effect that amount to Rs.10,73,52,550/- is added
in the assessment of the beneficiaries. Therefore, this decision
could not come to the rescue of the respondent-assessee.
28. The decision in the case of Alag Securities Pvt. Ltd.
(Supra) was where the Co-ordinate Bench refused to admit
the appeal on this factual finding, which is not the case before
us. The Learned counsel for the respondent-assessee, during
the hearing handed over an order giving effect to the ITAT’s
order for the AY 2003-04. We fail to understand how the said
order giving effect for AY 2003-04 is of any assistance for
considering the appeal for AY 2009-10 and more so when the
same does not show that the sum added in the assessment has
been assessed in the hands of the beneficiaries fot AY 2009-10
with which we are concerned.
29. Mr. Sharma, learned counsel for the respondent-
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assessee, thereafter relied upon the decision of the Co-
ordinate Bench of this Court in the case of Bhaichand H.
Gandhi (Supra) in support of his submission that bank
statement would not constitute ‘books of an assessee’ and
therefore, the provisions of Section 68 which requires the
credits in the books of an assessee are not attracted in the
present case and therefore, no addition is required to be made
based on credits appearing in the bank statements. He submits
that since the respondent-assessee is engaged in illegal
business, he is not maintaining any books of account or any
books for that matter and therefore, even if the provisions of
some other Acts are violated, no addition could be made
under Section 68 of the Income-tax Act.
30. In our view, the above submissions made by the learned
counsel for the respondent-assessee are required to be rejected
for more than one reason. In answer to question No.3 of the
statement recorded of Shri. Choksi, respondent-assessee has
admitted that books of accounts are maintained. The
Assessing Officer in the assessment order has mentioned that
the respondent-assessee has prepared the profit and loss
account and has also obtained a tax audit report and shown a
loss in the profit and loss account. Based on this profit and
loss account and tax audit report, a return of income is filed.
If the contention of Mr. Sharma is to be accepted that the
respondent-assessee has not maintained any books of account
or for that matter any books, then we fail to understand how
the profit and loss account was prepared, and tax audit report
and return of income based on such documents was filed. The
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profit and loss account and tax audit report can only be
prepared and filed if the respondent-assessee has maintained
books of accounts or for that matter any books. In none of the
pleadings before the assessing authority and appellant
authorities, the respondent-assessee pleaded that no books of
accounts are maintained for the assessment year under
consideration i.e. AY 2009-10. Therefore, the submissions
made by the learned counsel for the respondent-assessee have
to be rejected that no books or books of accounts are
maintained.
31. Section 68 of the Act was inserted in the 1961 Act and
there was no corresponding provision in 1922 Act. The phrase
‘books of an assessee’ appearing in Section 68 has to be
interpreted by adopting updated construction in accordance
with the changes in technology. Legislature is presumed to
anticipate the developments and to intend the Act to be
applied to such future developments. After the advent of
computers, the businessmen records its transaction in
computers and not in the ‘books’ as traditionally understood.
In the statement recorded of Mr. Choksi, director of the
respondent-assessee, he has stated in answer to question No.3
that the data appearing in 2 CDs are extracted by the
investigating wing from books of account. In answer to
question No.7, once more, it is reiterated that the data is
extracted from the CDs. In answer to question No.9, he has
admitted that the contra entries appearing as entries in favour
of beneficiaries. These contra entries are the entries which
admittedly are prepared by Mr. Choksi, director of the
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respondent-assessee. In answer to question No.19, the director
of the respondent-assessee has further admitted that whatever
details he has, the same, are reflected in the CDs and to the
same effect is answer to question No.23.
32. On a reading of various answers given by Shri. Choksi,
director of the respondent-assessee, it is admitted that books
of accounts are maintained by the respondent-assessee and
from those very books of accounts the revenue has extracted
the data by copying the same on 2 CDs. This statement has
been given on oath, and counsel for the respondent-assessee
has heavily relied on this very statement in his submissions
before this Court. In our view, based on above Shri. Choksi,
director of respondent-assessee has admitted that the
respondent-assessee has maintained the books of accounts.
Therefore, in our view, the contention of the respondent-
assessee that an addition cannot be made under Section 68 on
the ground that the respondent-assessee has not maintained
books and the bank statement cannot be treated as books is
self-destructive in itself since, he has admitted that books of
accounts are maintained and the data have been extracted
from those very books of accounts and based on this data,
addition has been made. Therefore, the decision relied upon
in the case of Bhaichand H. Gandhi (Supra) is distinguishable
on facts and not applicable to the present case.
33. Even otherwise, the phrase ‘books of an assessee’ should
be construed to mean data fed by the assessee in its computer
from which the contents are copied on CDs, which is based on
the entries recorded in the computer. The definition of ‘books
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or books of account’ in Section 2(12A) of the Act as existed
for AY 2009-10 includes ledgers, day-books, cash books,
account books and other books, whether kept in the written
form or as printouts of data stored in a floppy, disc, tape or
any other form of electromagnetic data storage device. In our
view, based on this definition read with the answers to various
questions in the statement, in the facts of the present case
submission of the respondent-assessee that provisions of
Section 68 are not attracted because no books are maintained
is required to be rejected. The data extracted from the
computer of the respondent-assessee in which these
transactions are recorded would constitute ‘books of an
assessee’ for the purpose of Section 68 of the Act. Our views
on what constitutes ‘books’ are supported by decision of the
Co-ordinate Bench of this Court in the case of Sheraton
Apparels Vs CIT3 Therefore, Section 68 should be interpreted
to mean books of an assessee to include the computer in
which the business transactions are recorded and from which
data was extracted on CD’s.
34. We now test the submissions of the learned counsel for
the respondent-assessee on the premise that assuming the
respondent-assessee maintains no books, whether addition
can be made under Section 68 of the Act. The respondent-
assessee is a company formed under the Companies Act, 1956.
As per Section 209 of the Companies Act 1956, books of
accounts are required to be kept by the company.
Corresponding Section of 2013 Act is Section 128. Section 44-
AA of the Income-tax Act also requires a person carrying on
3 (2002) 256 ITR 20
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business to maintain books of accounts and if the gross receipt
or turnover exceeds prescribed limit, then the same are
required to be audited under Section 44AB of the Act. In the
present case in the assessment order it is stated that tax audit
report is filed by the respondent-assessee.
35. In our view, the respondent-assessee cannot be heard to
say that the provisions of Section 68 cannot be made
applicable to its case because the respondent-assessee does
not maintain the books. The person who is required to
maintain the books of accounts and does not maintain books
of account cannot turn around and contend that because he
has not maintained books or books of accounts, provisions of
Section 68 which requires credits in the books of an assessee
cannot be made applicable. It is settled position that the
person cannot take the benefit of its own wrong or violation.
When it comes to provisions of Section 68 of the Act, such a
contention which is self-defeating and which will make the
provision of Section 68 otiose cannot be accepted. If the
contentions of the counsel for the respondent-assesses are
accepted, then it will amount to providing escape route to an
assessee who is unable to explain the credits but still goes
scot-free by arguing that since although he is required to
maintain books, but because he has not maintained books,
provisions of Section 68 of the Act cannot be made applicable.
Indeed, this Court cannot accept such a submission and
provide an escape route by making the provisions of section
68 redundant.
36. The Co-ordinate Bench of this Court in Arunkumar J.
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Muchhala Vs The Commissioner of Income-Tax – 8 4 needed to
consider such a similar submission made by the assessee
therein and the Court observed as under :
The facts as emerged before the Assessing Officer appears to be
not in dispute. The appellant has not denied that he has
received the said loan amount/cash deposits from those persons
whose list has been given in the order of the Assessing Officer.
He has revealed those names from the bank account of the
appellant. Now, the appellant intends to say that he has not
maintained the books of account and therefore, those amounts
cannot be considered. When the appellant is doing business,
then it was incumbent on him to maintain proper books and/or
books of account. It may be in any form. Therefore, if he had
not maintained it, then he cannot be allowed to take advantage
of his own wrong. Burden lies on him to show from where he
has received the amount and what is its nature. Unless this fact
is explained he cannot claim or have deduction of the said
amount from the Income-tax. Section 68 of the Income-tax Act
provides that where the assessee offers no explanation about
the nature and source of the credits in the books of account, all
the amounts so credited or where the explanation offered by the
assessee is not satisfactory in relation to the same then such
credits may be charged to tax as income of the assessee for that
particular previous year. It is to be noted here in this case that
huge amounts have been credited in the account of the
appellant and he has not explained the nature of the same. The
source of the said amount has been discovered by the Assessing
Officer from the bank pass book. It is to be noted that when the
source and nature has been held to have been explained, the
said amount has been deleted by the appellate forums. Now the
dispute has remained in respect of an amount of Rs. 9,00,000
from M/s. Pooja Corporation, Rs. 7,00,000 from M/s. Pooja
Enterprises, Rs. 24,00,000 from Shri. Ashok Mehta, Rs.
18,00,000 from Mr. Ajay Shah. No document was produced in
respect of these transactions nor the amounts have been
confirmed from those persons, who are shown to have lent
them. The authorities below have therefore, rightly held that
nature of the transaction has not been properly shown by the
appellant.
[Emphasis supplied]
4 (2017) 399 ITR 256
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37. We do not accept the submissions of the respondent-
assessee that because he is engaged in the business of
providing accommodation entry, revenue cannot assess the
credits appearing in its bank account which are the money
deposited by its customers. The respondent-assessee, to
succeed in this submission, must give verifiable details of
these customers; only then can the revenue verify whether the
credits appearing belong to such customers. The CIT (A),
therefore, gave the relief in para 4.3 by observing that an
estimate of income will be made only in case of identified
beneficiaries and balance credits would be assessed under
Section 68 of the Act.
38. The respondent-assessee cannot contend that they will
not give details of beneficiaries, but at the same time, credits
cannot be assessed in its hands. We wonder how the revenue
can find out to whom the credits belong to unearth
unaccounted income. The respondent-assessee cannot act as a
shield for beneficiaries by making such a submission and at
the same time refuse to pay taxes for the unexplained
amounts in its bank accounts.
39. If the submissions made by the counsel for the
respondent-assessee that since they are engaged in providing
accommodation entry and therefore, the credits appearing in
the bank cannot be assessed in its hands has to be accepted
without the respondent-assessee giving details of the
beneficiaries which they have flatly refused as recorded in the
statement referred to hereinabove then the consequence
would be that such unaccounted sum can never be brought to
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tax under the Act by the revenue authorities in the hands of
none of the assessee/persons to whom such unaccounted sum
belongs to. In the absence of any details provided by the
respondent-assessee of the beneficiaries, the revenue will not
be able to verify whether such credits really belong to those
beneficiaries, in which case provisions of Section 68 get
attracted in the hands of the respondent-assessee. Any
interpretation which would make admitted unaccounted
income tax free based on the denial by the assessee/persons to
give details has to be rejected.
40. Before we conclude, we will be failing in our duty as a
Court of law if we do not comment on the accommodation
entry provider, Mr. Mukesh Choksi through his web of shell
companies and various admissions made by the counsel for
the respondent-assessee. It is also important to note that Mr
Mukesh Choksi, director of the respondent-assessee in his
answer to question No.14 of the statement has admitted that
he was a practicing Chartered Accountant but has surrendered
the Certificate of Practice (COP) in 1993 and thereafter is only
engaged in the business of providing accommodation entries.
He has also stated that search action has been taken against
him/his companies more than once.
41. We are rather surprised that a Chartered Accountant
who may not be holding a COP but, if involved in illegal
activities, as to whether any action is or can be taken by the
Institute of the Chartered Accountants of India against such a
person. Suppose no action is taken against such a person. In
that case, we hereby direct the Institute of Chartered
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Accountants of India to inquire whether such a person is liable
for any professional misconduct as per the Chartered
Accountant’s Act, 1949.
42. In answer to question no.15, Shri Mukesh Choksi
through the respondent-assessee company has admitted that
the bills/vouchers and other documents given for providing
accommodation entries are not genuine. This would mean
that Shri Choksi has admitted that he was engaged in the
offence of commission of ‘fraud’. If so, and based on such
fraud, it is necessary to enquire whether he has committed an
offence under the Indian Penal Code/BNS, 2023. We,
therefore, direct that a necessary investigation be conducted
by the concerned police station against Shri Mehul Choksi to
ascertain the offence, if any, committed under Indian Penal
Code and the consequent action.
43. Shri Choksi, in this statement, has also admitted that he
has abetted in evasion of tax by various beneficiaries. He has
also admitted that he cannot give details of the beneficiaries.
Mr.Choksi has also admitted that by engaging in
accommodation entry, he has engaged in the laundering of
money. Therefore, in our view, the authorities under the
Prevention of Money Laundering Act, 2002 should also
investigate Shri Choksi on these activities.
44. This Court would also like to know from the Chief
Commissioner of Income Tax in charge of Mumbai whether
any prosecution is launched under the Income Tax Act and, if
not, why it is not launched. If launched, what is the status of
such prosecution and what steps the revenue has taken to
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expedite the prosecution hearings?
The counsel for the respondent assessee informed us that no
order giving effect to CIT (A)’s directions for AY 2009-10 has
been passed. If that is correct, then we direct the CCIT to
conduct an enquiry and fix the responsibility against the
officer responsible for the same.
45. We are conscious of the fact that we are sitting in appeal
under Section 260A of the Income Tax Act and not exercising
our jurisdiction under Article 226 of the Constitution of India.
However, we are still a Court of Law, formed under the
Constitution of India, hearing the appeal, and we cannot shut
our eyes to the admissions from the record buttressed by the
assessee’s counsel’s submissions in the presence of Mr. Choksi.
The Counsel boldly submitted that the activities may amount
to violations or crimes, but still under the tax regime
applicable, no tax was payable. The argument on tax regime is
found untenable. Still since the record and submissions
indicate prima facie commission of serious economic crimes,
investigations must be undertaken by the law enforcement
agencies.
46. By ignoring the material on record, we would be failing
in our duty and our oath if the activities of such persons are
not directed to be investigated into and taken to their logical
conclusion. Inaction only encourage more persons to engage
in illegal activities as admitted by the counsel for the
respondent-assessee during hearing. As a Court of law, we
cannot permit such a thing to happen in the future or at least
this Court should ensure that action against persons involved
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in such activities should be a deterrent for other persons to
think on such line. Therefore, we have given the above
directions for investigation.
47. This is a case where the low deterrent effect of the law
has worked on a professional talent to become a habitual
economic and financial offender, and this should be stopped in
the larger interest of our country.
48. Insofar as question (b) is concerned, the CIT (A) in its
order in paragraph 4.3 directed the AO to adopt the rate of
commission at 0.37% if the beneficiaries are identified by the
respondent-assessee. The revenue has not challenged the said
rate of 0.37% by filing an appeal to the Tribunal. However,
the respondent-assessee did challenge challenge the adoption
of this rate of 0.37%. It was the contention of the respondent-
assessee that the appropriate rate should be 0.15%. The
Tribunal followed its earlier order and opined 0.15% to be
applied as commission.
49. In our view, what rate should be adopted as commission
would be a pure question of fact and therefore, insofar as the
rate of commission with respect to those credits which are
identified by the respondent-assessee is concerned same
should be taken at 0.15%.
50. To conclude, we answer question (a) in favour of the
appellant-revenue and against the respondent-assessee.
Insofar as question (b) is concerned, we answer the same
against the appellant-revenue and in favour of the respondent-
assessee. Consequently, we reverse the Tribunal’s order and
restore para 4.3 of the CIT (A)’s order dated 4 October 2012
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subject to retaining the rate of commission at 0.15 % as
adopted by the Tribunal.
51. The appeal is allowed in the above terms.
52. Registry is directed to forward copy of this order to ;
i. Disciplinary Committee of the Institute of Chartered
Accountants of India;
ii. National Financial Reporting Authority;
iii. The Commissioner of Police-Economic Offence Wing,
Mumbai;
iv. Enforcement Director under PMLA Act;
v. The Chief Commissioner of Income-tax, Mumbai;
vi. Ministry of Corporate Affairs.
(Jitendra Jain, J) (M.S. Sonak, J)
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