Calcutta High Court
Commissioner Of Income Tax vs Pramod Sharma on 5 February, 2024
Author: Rajarshi Bharadwaj
Bench: Rajarshi Bharadwaj
AFR
ORDER O-17
IN THE HIGH COURT AT CALCUTTA
SPECIAL JURISDICTION (INCOME TAX)
ORIGINAL SIDE
ITA/165/2010
COMMISSIONER OF INCOME TAX, CENTRAL-I, KOLKATA
VERSUS
PRAMOD SHARMA
BEFORE :
THE HON'BLE JUSTICE SURYA PRAKASH KESARWANI
AND
THE HON'BLE JUSTICE RAJARSHI BHARADWAJ
Date : 5th February 2024.
Appearance:
Mr. Om Narayan Rai, Advocate
Mr. Amit Sharma, Advocate
...for the appellant.
1. Heard Sri Om Narayan Rai, learned senior standing counsel for the
appellant. None appears for the respondent assessee.
2. Affidavit of service filed today by learned counsel for the appellant, in
compliance of the orders dated 17.02.2023 and 15.01.2024, is taken on
record. Service of notice upon the respondent assessee is found to be
sufficient.
3. This appeal was admitted by order of this Court dated 03.09.2010, on the
following substantial questions of law:-
"i) Whether the Learned Tribunal was justified on the facts and
circumstances of this case to follow the ratio decided by the
2
Learned Tribunal in case of Praveen Kumar Agarwal vide
order dated 28.9.2007 in IT (SS) A No.74/Kol/2003, if not,
then
ii) Whether, on the facts and in the circumstances of the case, the
Income-tax Appellate Tribunal is correct in deleting the
addition of Rs.3,33,18,027, made in accordance with the
order of the Tribunal in case of Sri Praveen Kumar Agarwal,
being commission earned @ 2% of the accommodation entries
passed to the extent of Rs.166.59 crores?
iii) Whether, on the facts and in the circumstances of the case, the
Income-tax Appellate Tribunal is correct in deleting addition of
Rs.166.59 crores made under section 68 of the Income-tax Act,
1961 being unexplained cash credits in the bank accounts of
the assessee, the source whereof was not proved?
iv) Whether, on the facts and in the circumstances of the case, the
Income-tax Appellate Tribunal is correct in substituting the
income of Rs.4,07,17,055 as peak credit, on the basis of its
order in case of Sri Praveen Kumar Agarwal, in place of
additions on account of commission and cash credits without
appreciating the difference in the facts of the two cases?"
Facts
4. Briefly stated facts of the present case are that search and seizure operation
under Section 132 of the Income Tax Act, 1961 (hereafter referred to as the
'Act of 1961') was conducted in the business and residential premises of one
Sri Praveen Kumar Agarwal on 27.7.2019. An order in the case of Praveen
Kumar Agarwal was passed by the DCIT, Circle - 3, Kolkata under Section
158DC of the Act, 1961 for the block period 1.4.1990 to 27.7.1999 and
determining income by way of commission @2% for accommodation entries
provided by him for Rs.166.59 crores. Additionally, the tribunal applied the
peak balance and added the peak balance amount in the hands of Praveen
Kumar Agarwal.
5. During investigation by the Directorate of Income Tax (Investigation) Kolkata
it was found that the respondent/assessee is the sub-broker of the aforesaid
Praveen Kumar Agarwal engaged in providing accommodation entries to
various companies based at Mumbai who in turn used the said fund for
payments to Madhepura Mercantile Co-operative Bank at Mumbai which is
said to be controlled by one Ketan Parekh. The statement of the director of
the company based in Kolkata was recorded by the DCIT under Section 131
of the Act, 1961 who stated on oath that the transactions with Mumbai
based companies were only accommodation entries oriented transaction. The
assessee was the director of six companies as mentioned in the assessment
order. He had also formed eight proprietary concerns as mentioned in the
assessment order. Separate bank accounts in UTI Bank, Dalhousie Branch,
Kolkata in the name of eight proprietary concerns were opened, where the
assessee deposited a sum of Rs.166.59 crores and issued cheques to parties
to provide accommodation entries during the assessment year 2005-06
relevant to the previous year 2004-05. This cash deposit of Rs.166.59 crores
in eight bank accounts of proprietary concerns of the respondent/assessee
was sought to be added in income of the assessee by the assessing officer
invoking Section 88 of the Act, 1961.
6. The assessing officer passed the assessment order dated 31.12.2007
under Section 143(3) of the Act, 1961 determining the income of
Rs.3,33,18,027/- being brokerage/commission @2% on the aforesaid
cash deposits of Rs.166.59 crores. He also added the aforesaid amount
of Rs.166.59 crores in the income of the assessee as unexplained cash
credit under Section 68 of the Act, 1961. Aggrieved, the
respondent/assessee filed an appeal being Appeal No.107/CC-VII/CIT(A),C-
I/07-08 before the Commissioner of Income Tax (Appeals), Central - 1,
Kolkata which was dismissed by the CIT(A) by an order dated 30.12.2008.
Aggrieved with the order of the CIT(A), the respondent/assessee filed ITA
515(Kol) of 2009 before the Income Tax Appellate Tribunal, A-Bench, Kolkata
which was partly allowed by an order dated 14.10.2009. The tribunal
determined the income of the assessee at Rs.4,07,17,055/- applying peak
credit principle, which included brokerage. Aggrieved with the aforesaid
order of the ITAT, the department has filed the present appeal.
Submission
7. The learned counsel for the appellant submits that the tribunal has erred in
deleting the addition under Section 68 of the Act, 1961 and further
committed manifest error of law to apply the principle of peak credit. He
submits that the cash deposit of Rs.166.59 corres remained totally
unexplained by the respondent/assessee's income and, as such, the entire
amount was correctly added by the assessing officer and upheld by the
CIT(A) in the respondent/assessee invoking Section 68 of the Act, 1961. He
referred to provisions of Section 68 of the Act, 1961 and relied upon the
judgment of Hon'ble Supreme Court in Principal Commissioner of Income
Tax (Central-1) Vs. NRA Iron And Steel Private Limited (2019) 15 SCC 529
(paragraphs 9.2 and 9.3) and Division Bench judgment of Allahabad High
Court in Commissioner of Income Tax Vs. Vijay Agricultural Industries
(2007) 294 ITR 610 (Alla).
Discussion and Finding
8. We have carefully considered the submissions of the learned counsel for the
appellant and perused the paper book.
9. The entire submission of learned counsel for the appellant is with regard to
the applicability of Section 68 of the Act 1961 on facts of the present case.
Therefore, before proceeding to consider the submission, it would be
appropriate to reproduce Section 68 of the Act 1961, as then existed, as
under:-
"68. 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."
10. We find that while passing the assessment order dated 31.12.2007 under
Section 143(3) of the Act 1961, the assessing officer himself noted that the
assessee on being enquired about the nature of transaction with the Mumbai
companies submitted on oath on 15.12.2006 before the DDIT (I&B), Kolkata
that he has got cash of equivalent amount from the companies and against
the same, cheque has been issued. The assessing officer further noticed that
the detailed list of cheques issued to various Mumbai based companies of
the K. Parekh Group, the bank account numbers etc. submitted by the
assessee, against which cash were received. The assessee had deposited
cash of Rs.166.59 crore in the bank account of his eight proprietary
concerns during the year in question. The assessing officer found that the
original broker for providing accommodation entries is M/s. P.K. Agarwal
and Company of which Sri Praveen Kumar Agarwal is the proprietor. The
assessee was found to be sub-broker. On the facts as briefly noted above,
the assessing officer has recorded, in the assessment order, the following
finding:-
"In view of above the assessee's submission that his brokerage/
commission income of 0.15% is not accepted. Considering the order
of Hon'ble Tribunal in the case of assessee's principal broker,
Shri Praveen Kumar Agarwal an amount of 2% of the cash
deposited amounting to Rs.166.59 Crore in the year under
consideration i.e. Rs.3,33,18,027/- is taken as assessee's income
from business by way of commission.
11. Thus, as per assessment order, one Sri Praveen Kumar Agarwal was the
assessee's principal broker and the assessee has earned brokerage /
commission @ 2% on the cash deposit of Rs.166.59 crore which comes to
Rs.3,33,18,027/-. This commission/brokerage of Rs.3,33,18,027/- was
assessed as income of the respondent assessee.
12. In appeal, the CIT(A) upheld the assessment order and dismissed the appeal
of the assessee, holding as under:-
"In order to avoid such speculation, it is held that the commission
income in the assessment order will be treated as the income
accruing to the appellant from making the funds credited to the
appellant's account available for accommodation entries.
Consequently, the appeal is dismissed."
13. Since the assessment of the respondent/assessee was based on materials
found in the matter of aforesaid Sri Praveen Kumar Agarwal and addition
made in the hands of said Sri Praveen Kumar Agarwal who and the
Department contested the matter upto ITAT, therefore, the Tribunal followed
its order in the case of Sri Praveen Kumar Agarwal, after due discussion of
the fact of the respondent/assessee. The Tribunal noted that on being
enquired about the nature of transaction with the Mumbai based companies,
the assessee submitted on oath on 15.12.2008 before the DDIT (Inv), Kolkata
that he has got cash amount from the companies and against the same
cheques of equivalent amount were issued. The assessee also gave a detailed
list of cheques issued to various Mumbai based companies of the Ketan
Parekh Group, the bank account numbers etc. against which cash was
received by him. In the case of the principal broker i.e., Sri Praveen Kumar
Agarwal, the ITAT has held that the assessee was involved in the business
of entry operation and has earned only commission on such
transaction. Applying the peak credit principle and brokerage @ 2% earned
by the respondent/assessee on the total deposits, the Tribunal determined
the income of the respondent/assessee at Rs.4,07,17,055/- .
14. Thus, the assessing officer, the CIT and the ITAT all have recorded a
concurrent finding of fact that (i) the respondent/assessee is a sub-
broker of the principal broker Sri Praveen Kumar Agarwal and (ii) the
respondent/assessee has earned brokerage @ 2% on cash deposit of
Rs.166.59 crores. All the aforesaid three fact finding authorities have
determined/upheld the income of the respondent/assessee from
brokerage/commission @ 2% on cash deposits of Rs.166.59 crores. All the
three authorities have found that the respondent/assessee was engaged in
providing accommodation entries and was earning brokerage/commission @
2% in lieu of such accommodation entries. Thus, all the three authorities
have found that the respondent/assessee was involved in providing
accommodation entries and was earning brokerage/commission @ 2% on
cash deposited Rs.166.59 crore. The respondent/assessee has disclosed
before the authorities all the bank accounts and complete details of cheques
issued and cash deposits.
15. In the case of Commissioner of income Tax v. P. Mohannakala reported in AIR
2007 SC 2116 (paragraphs 15, 16 and 23), the Hon'ble Supreme Court
explained the nature and scope of Section 68 of the Act, 1961 and after
referring to its earlier judgments in Sumati Dayal v. Commissioner of Income
Tax, Bangalore reported in 1999 Supp (2) SCC 453 and several other
judgements, held as follows:
15. The question is what is the true nature and scope of Section 68
of the Act ? When and in what circumstances Section 68 of the Act
would come into play ? That a bare reading of Section 68 suggests
that there has to be credit of amounts in the books maintained by an
assessee; such credit has to be of a sum during the previous year;
and the assessees offer no explanation about the nature and
source of such credit found in the books; or the explanation
offered by the assessee in the opinion of the Assessing Officer
is not satisfactory, it is only then the sum so credited may be
charged to income tax as the income of the assessee of that previous
year. The expression "the assessees offer no explanation"
means where the assessees offer no proper, reasonable and
acceptable explanation as regards the sums found credited in
the books maintained by the assessees. It is true the opinion of
the Assessing Officer for not accepting the explanation offered by the
assessees as not satisfactory is required to be based on proper
appreciation of material and other attending circumstances available
on record. The opinion of the Assessing Officer is required to
be formed objectively with reference to the material available
on record. Application of mind is the sine qua non for forming
the opinion.
16. In Sumati Dayal vs. Commissioner of Income Tax, Bangalore
[1995 Supp. (2) SCC 453] this Court held:
"In all cases in which a receipt is sought to be taxed income, the
burden lies on the Department to prove that it is within the taxing
provision and if a receipt is in the nature of income, "the burden of
proving that it is not taxable because it falls within the exemption
provided by the Act lies upon the assessee. But, in view of Section
68 of the Act, where any sum is found credited in the books of the
assessee for any previous year the same may be charged to income
tax as the income of the assessee of that previous year if the
explanation offered by the assessee about the nature and source
thereof is, in the opinion of the Assessing Officer, not satisfactory. In
such a case there is, prima face, evidence against the assessee, viz.,
the receipt of money, and if he fails to rebut, the said evidence being
unrebutted, can be used against him by holding that it was a receipt
of an income nature."
... ... ...
23. It is true that even after rejecting the explanation given by
the assessees if found unacceptable, the crucial aspect whether
on the facts and circumstances of the case it should be
inferred the sums credited in the books of the assessees
constituted income of the previous year must receive the
consideration of the authorities provided the assessees rebut the
evidence and the inference drawn to reject the explanation offered
as unsatisfactory. We are required to notice that Section 68 of the
Act itself provides, where any sum is found credited in the books of
the assessees for any previous year the same may be charged to
income tax as the income of the assessees of the previous year if the
explanation offered by the assessees about the nature and source of
such sums found credited in the books of the assessees is in the
opinion of the Assessing Officer not satisfactory. Such opinion found
itself constitutes a prima facie evidence against the assessees, viz.,
the receipt of money, and if the assesses fail to rebut the said
evidence the same can be used against the assessees by holding
that it was a receipt of income nature. In the case in hand the
authorities concurrently found the explanation offered by the
assesses unacceptable. The authorities upheld the opinion formed
by the Assessing Officer that the explanation offered was not
satisfactory. The assessees did not take the plea that even if
the explanation is not acceptable the material and attending
circumstances available on record do not justify the sum
found credited in the books to be treated as a receipt of an
income nature. The burden in this regard was on the assessees.
No such attempt has been made before any authority. All the
decisions cited and referred to hereinabove are required to be
appreciated and understood in the light of the law declared by this
Court in Sumati Dayal (supra)." [emphasis supplied]
16. Section 68 of the Act, 1961 provides that 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. In the present set of facts, we
find that the assessee has disclosed complete details of bank accounts,
cheques issued and the cash received from those to whom accommodation
entries were given, which fact has not been disputed by the
appellant/department and, instead, brokerage/commission on the aforesaid
cash deposit of Rs.166.59 crores was determined as income of the assessee
for giving accommodation entries.
17. Thus, once the source of cash deposit was disclosed and in respect of such
cash deposit the respondent/assessee was treated as accommodation entry
provider and accordingly brokerage/commission on aforesaid cash deposit
was determined as income of the assessee for providing service in the form of
accommodation entry, then Section 68 of the Act, 1961 becomes
uninvokable on facts of the present case.
18. In the present set of facts we find that there being cash deposit of Rs.166.59
crores in the bank accounts, there was prima facie evidence against the
assessee i.e. receipt of money. The assessee explained it that cash were
given by those to whom cheques of equal amount were issued. He furnished
complete details of cheques issued and the cash deposits. The assessee was
held to be sub-broker of the principal broker Praveen Kumar Agarwal
engaged in providing accommodation entries to Ketan Parekh Group. On
these facts the assessing officer himself has treated the activity of the
respondent/assessee as accommodation entry provider on brokerage/
commission basis and, accordingly, determined the income of the
respondent/assessee @ 2% as brokerage on entire cash deposits of
Rs.166.59 crores. Further, the Assessing Officer has not inferred that the
sum credited in the books of the assessee constituted income of the
previous year and instead held that the income of the
respondent/assessee is 2% of the cash deposits, as brokerage. This
leads to an irresistible conclusion that cash deposits of Rs.166.59 crore was
not receipt of income of the assessee and instead his income was
brokerage/commission @ 2% of cash deposits as accommodation entry
provider. Under the circumstances, the addition of Rs.166.59 crores in the
hands of the respondent/assessee under Section 68 of the Act, 1961 was
correctly set aside by the ITAT.
19. Learned Counsel for the appellant has heavily relied upon paragraphs 9.2
and 9.3 of the judgment of NRA Iron And Steel Private Limited (supra).
20. We find that in paragraph 9.2 of the judgment in NRA Iron And Steel Private
Limited (supra) the Hon'ble Supreme Court has only reproduced Section 68
of the Act, 1961. In paragraph 9.3 the Hon'ble Supreme Court has held that
the initial onus is on the assessee to establish by cogent evidence;
genuineness of the transaction and creditworthiness of the investors under
Section 68 of the Act, 1961 by submitting proof of identity of the creditors;
capacity of creditors to advance money and genuineness of the transaction.
On facts of the present case, we find that the facts disclosed by the
respondent/assessee before the authorities as briefly noted/discussed
above, regarding cash deposits has not been disputed by the assessing
officer in the assessment order and instead he held that the assessee is
engaged in providing accommodation entries by receiving cash and issuing
cheques and accordingly he determined the income of the
respondent/assessee from brokerage @ 2% on the cash deposits. Under the
circumstances, the addition made by the assessing officer under Section 68
of the Act, 1961 was unsustainable.
21. In the case of Praveen Kumar Agarwal (principal broker), the ITAT held that
either 2% of the commission or the peak credits during the block period,
whichever is higher, has to be taken as income. Therefore, the assessee
submitted daily summary of cash for the period from 01.03.2004 to
30.09.2005 for all the eight bank accounts before the ITAT which established
the peak credit on 7th June 2004 to be Rs.4,07,17,055/-.
Brokerage/commission @ 2% on cash deposits was Rs.3,33,18,027/-.
Therefore, the ITAT applied the ratio of its decision of the case of the
principal broker to the case of the respondent/assessee (sub-broker) and
accordingly determined the aforesaid sum of Rs.4,07,17,055/- as income of
the respondent/assessee as against the declared income of Rs.25,00,000/-.
It has neither been argued nor shown to us that the decision of the ITAT in
the case of Praveen Kumar Agarwal (principal broker) has been interfered
with by the High Court. Therefore, the peak credit adopted by the ITAT to
determine income of the assessee does not require interference.
22. For all the above reasons afore-stated, all the substantial questions of law
are answered in favour of the assessee and against the revenue. The appeal
being without merit, is hereby dismissed.
(SURYA PRAKASH KESARWANI, J.)
(RAJARSHI BHARADWAJ, J.)
S.Kumar / S.Das / As
