THE ACIT (CENTRAL)-1, INDORE vs. DILIP KUMAR MAHENDRA KUMAR JAIN HUF, INDORE

PER MANISH BORAD, AM.

The above captioned appeal filed at the instance of revenue

pertaining to Assessment Year 2011-12 is directed against the order

of Commissioner of Income Tax (Appeals)-3 (in short ‘Ld.CIT’],

Bhopal dated 08/05/2019 which is arising out of the order u/s 147

r.w.s. 143(3) of the Income Tax Act 1961(In short the ‘Act’) dated

30.11.2018 framed by ACIT Central-1, Indore.

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1.On the facts and in the circumstances of the case the Ld . CIT(A) erred in deleting the addition of Rs.l,85,72,100/- out of -total addition of Rs.l,86,OO,OOO/-- made by Assessing Officer u/s 69 of the Income Tax Act, 1961 without appreciating the fact that their confirmation despite opportunities being the identity, credibility and genuineness of the so called lenders of the funds.

that the assessee is a Hindu Undivided Family deriving income from

profit and gains from business and profession income from other

sources. The appellant filed its Income Tax Return on 11.02.2012

declaring total income of Rs.4,66,890/-. A search u/s 132 of the Act

was conducted in the cases of MRJ group on 23.03.2018 and the

assessee being one of the main concerns of this group was also

covered. Case selected u/s 147 of the Act on the reason that

appellant had given loan to various parties in cash. In response to

the notices u/s 142(1)/143(2) of the Act assessee submitted

submissions along with the supporting documents and the 2

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reassessment completed u/s 143(3) r.w.s. 147 of the Act on

30.11.2018 assessing income at Rs.1,92,70,500/- adding

unexplained investment u/s 69 r.w.s. 115BBE at Rs. 1,86,00,000/-

and unaccounted interest income at Rs.2,03,610/-. Aggrieved

assessee preferred appeal before Ld. CIT(A) and partly succeeded.

finding of Ld. CIT(A) deleting the addition of Rs.1,85,72,100/- and

Rs.2,03,610/-.

supporting the order of Ld. A.O and contended that the seized

material was showing clear nexus of the cash loan given by the

assessee.

reliance on the findings of Ld. CIT(A) as well as submissions made

before the first appellate authority submitted that the assessee is a

finance broker and earns income from brokerage for arranging

loans on behalf of lender and borrower. The business was founded

by the father of the Karta in the year 1965 and has been

consistently carried on by the family. To substantiate this fact

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reference was made to the statements given during the course of

search wherein the assessee has clearly admitted of carrying out

business as finance broker and source of income is mainly

brokerage/commission. It was also stated that the movement of

funds was directly from lend or to the borrower and the appellant

acts purely as broker and borrowing and lending took place on

member to member basis and all the transactions were carried out

through account payee cheque only. It was also submitted that the

revenue has failed to establish that the assessee had given cash

loan to borrower. For invoking of Section 69 of the Act revenue has

to prove that the ownership of the investment is of the assessee. In

order to discharge its onus assessee had submitted various

documents showing that regular transactions of account payee

cheque has been carried out between the lenders and borrowers.

No corroborative evidence was brought on record by Ld. A.O to

substantiate the false allegation made on the assessee. No enquiry

was made with respect to the parties mentioned in the seized

documents appearing in the assessment order. Further during the

search proceedings assessee has offered real estate brokerage and

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finance brokerage to the tune of Rs. 4 crores in three individual

accounts which have been accepted during the search assessment.

Ld. CIT(A) has accepted assessee’s claim by confirming the addition

for brokerage of Rs.2,70,100/-. As regards the deletion of addition

of interest income of Rs.2,03,610/- Ld. Counsel for the assessee

placed reliance on the finding of Ld. CIT(A).

placed before us and gone through the finding of Ld. CIT(A) as well

as the submissions made by Ld. Counsel for the assessee.

challenged the finding of Ld. CIT(A) deleting the addition of

Rs.1,85,72,100/- out of the total addition made by Ld. A.O u/s 69

of the Act at Rs.1,86,00,000/-. we observe that during the course of

search carried out u/s 132of the Act on 23.03.2018 at MRJ group

which included the assessee also being main concern of the group

and various documents were seized. The statements given by the

assessee during the course of search proceedings also matches with

the return of income filed during the assessment year under appeal

in which it is claimed to have carried out the business of finance

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broker wherein the assessee act as a broker between the lender and

borrower and receives brokerage on the transactions so happening

between the two.

basis of which the assessee has been alleged to have given cash

loans. When the assessee was show caused for making addition u/s

69 of the Act, it was submitted during the assessment proceedings

that the allegation is not correct because the transactions with the

details mentioned in BS-28 were written on the request of the

borrower which are mostly from outstation and who requested to

arrange finance for them. Cheque details in front of the transaction

these are post dated cheque details taken by the assessee from the

borrower if the finance is arranged. All the transactions mentioned

in these documents are with regard to the loan given by the lenders

and received by the borrower. However these submissions of the

assessee were not sufficient to convince the Ld. A.O and he made

the addition for undisclosed investment u/s 69 of the Act. It is not

in dispute that no enquiry whatsoever was made by the Ld. A.O

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with the concerns/name of persons appearing in the seized

document.

of the case as well as referring to the statements given by the

assessee during the course of search and placing reliance on

judicial precedents deleted the addition of Rs.1,85,72,100/- and

sustained the addition of Rs.27,900/- being the brokerage @0.15%

of the alleged addition of Rs.1,86,00,000/- observing as follows:-

4.2 Ground No 2 to 5:- Through these grounds of appeal, the appellant has challenged additions of Rs. 1,86,00,000/- on account of unexplained investments u/s 69 r.w.s 115BBE and Rs. 2,03,610/- on account of unaccounted interest income. During the course of search in the case of MRJ Group on 23.03.2018, various documents pertaining to the appellant was found and seized. The AO on perusal of these documents transpired out that the assessee during FY 2010-11 has given cash loans amounting to Rs, 1.86 crores to various persons and has earned interest thereon. The AO required the assessee to explain these transactions, in reply the assessee-'-submitted that these are outstation loans and has been given through account payee cheques. The AO after considering reply of the assessee does not find the same acceptable and stated that the assessee failed to produce any kind of confirmations from the persons who has given loans and the assessee failed to produce the parties for examination on oath.

Further, the AO observed that the assessee has earned interest income of

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Rs. 2,03,610/- from various parties in cash and therefore required the assessee to explain these transactions. The assessee in reply submitted that it has been acting as a finance broker and the entire interest amount of Rs. 2,03,310/- has been paid to lender by the beneficiary through account payee cheques and no cash transaction has ever materialized. The AO after considering reply of the assessee stated that according to the loose papers the assessee has been receiving part of the interest in cash and part through cheques.

4.2.1 The appellant during the course of appellate proceedings submitted

that the appellant is a finance broker and earning brokerage income on

arrangement of loans on behalf of lender and borrowers. During the course

of search, statement of Shri Dilip Jain was recorded on oath on

16.05.2018, wherein he has clearly stated that he has been arranging

funds for borrowers and earning his commission which varies between 10

to 15 paise/hundred. The appellant has maintained a diary for keeping

track of these transactions and its brokerage. Further, all the transactions

were done through account payee cheques. The appellant has also

strongly contented that the addition made by the AO amounting to Rs.

2,03,610/- on account of interest income is merely on suspicion,

conjectures and surmises.

4.2.2 I have considered the facts of the case, plea raised by the appellant

and findings of the AO. The appellant in order to explain modus operandi

of the business submitted that the business of financing brokerage is an

ancestral business of the appellant. The business was started by Late Shri 8

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Mahendra Kumar Jain in the year 1965 along with Shri Dilip Jain and Shri

Hemant Jain and the business continued till the year 2012. Thereafter

Shri Dilip Jain and Shri Hemant Jain got separated and Shri Dilip Jain

along with his two sons Shri Mikesh Jain and Shri Rishab Jain continued

the business in the name of MRJ Group from the year 2012-13. The parties

wishing to borrow money usually approach the appellant and the

appellant according to their requirement finds a prospective lender.

Similarly, the parties having excess funds approaches the appellant and

the appellant would find a suitable borrower and the transactions

between the NW takes place. The appellant acted like a mediator/broker

and funds were directly given by the lender to the borrower. Out of the

fully materialized transactions appellant would get his

commission/brokerage @ 10 to 15 paise per hundred. The similar modus

operandi was explained by Shri Dilip J ain in his statement recorded on

oath on 16.05.2018 during the course of search. Thereafter statement of

Shri Mikesh J ain was also recorded on oath wherein, he has clearly

explained that the modus operandi of the business. The relevant extract of

statement of Shri Mikesh Jain is as under.-

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On a simple and plane reading of the statement it can be culled out that the appellant has been acting as a broker who receives funds through cheque from lender/creditor and give the same to borrower/debtor and documents are prepared such as receipt of cheque. Similarly, for repayment of loan or for payment of interest, brokerage cheques were issued by the borrower. Security deposits were also accepted in the form of PDCs (post Dated Cheques).

4.23 The appellant has also maintained diary/register which also contains details of loan which did not materialized. The details of

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cheques as mentioned in impugned loose papers (BS-28) ate post dated cheques taken by the appellant from the borrower and if the transaction is materialized the same were recorded in hundi papers and were also used in repaying loan. The appellant before the AO and before me has filed copy of ledger account reflecting name of borrowers and brokerage earned. The appellant has also submitted confirmation of some of the borrowers to whom funds were arranged by the appellant.

4.2.4 After considering the entire facts interalia submissions of the appellant I reached to the conclusion that the appellant from day one i.e. from the date of search till the completion of assessment proceedings has clearly explained the manner in which brokerage is earned by the appellant. Further, appellant in support has filed copies of ledger account of Shri Virchand Narsi (01.04.2010 to 31.03.2012), M/s Sachin Cotton Fibers (01.04.2009 to 31.03.2012), M/s Maa kamla Cotton lridustries (01.04.2009 to 31.03.2013), Navin Cotton Industries Sendhwa (01.04.2010 to 31.03.2011) showing all the transaction such as receipt of loan, repayment of loan, interest received and TDS deducted on interest. Appellant has filed copies of confirmations of M/s Agrawal Cotex, M/s Shree Annapurna Ginning Factory and M/s Shiv Shakti Trading Co. On perusal of the evidences filed by the appellant it is also observed that no amount was given in cash and also the interest paid was through cheques directly to the lender by the borrower. Appellant has provided various details such as name and. address of both lender and borrower, PAN no in few of the cases, further few of the details such as cheque no and bank details are also mentioned in the impugned diary, however, the AO except putting baseless blames on the appellant did not brought any corroborative evidence which could prove his allegations worthy. The appellant has clearly explained that the interest as well as principle was

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paid directly to the lender by the borrower and appellant was just a match maker according to the needs of both lender and borrower and earned his commission income which is duly recorded in books of accounts and has been duly taken into consideration before filing return of income. Thus, the AO except his theory of assumption and presumption has nothing on record which could create a direct nexus of the impugned investment and receipt of interest as alleged by the AO. It is well settled that no addition can be made as a leap in the dark: The AO is not entitled to make a guess without evidence. The assessment of any particular year cannot be based on mere suspicion or bare guess, but on a, legitimate material from which a reasonable inference of any unexplained cash credit can be made. Hon'ble Supreme Court in the case of Dhakeshwari Cotton Mills-Ltd. v/s CIT (1954) 26 ITR 775 (SC) has held that although strict rules of Evidence Act do not apply to income tax proceedings, still assessment cannot be made on the basis of imagination and guess work. It has been held in the case of Umacharan Saha & Bros Co. v/s Cl'T 37 ITR 21 (SC) that suspicion, however strong cannot take place of evidence. Similar views have been expressed by Apex court in the case of Dhiraj Lal Girdharilal v/s CIT (1954) 26 ITR 736 (Se). Also, once the assessee has discharged its onus of proving that the parties under consideration are genuine, now the ball lies in the court of AO to prove that the claim of appellant is false.

4.2.5 Nevertheless, no independent enquiry was carried out by the AO either from the concerned lender/borrower or from the banks whose names are mentioned in the seized diary. In few of the cases the appellant has even provided PAN no of the lender/borrower. The AO has also stated that in the case of ‘Pradeep Cotton Corporation' sum of Rs. 9 lacs has been borrowed for two months for which 1% per month is to be received by cheque and 0.3% in cash similarly in the case of Shri

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Ashok Kumar Mohanlal loan of Rs. 3 lacs has been given for 5 months @ 1.5% per month out of which 0.50% is to be received in cash. I find it utmost important to quote the decision of Hon'ble ITAT Mumbai in the case of Biren V Savla vs ACIT Central-ll (2006) 155 Taxman 270 (Mum) wherein it has been held that:-

Section 69 of the Income-tax Act, 1961 - Unexplained investments _ Assessment years 1993-94 to 1995-96 - Search and seizure operation under section 132 led to seizure of certain incriminating documents including A-2iA-4 diaries and A-3 and A-5 diaries _ While revenue accepted transactions recorded in A- 2/A-4 as true, it rejected same transactions recorded in A-3/A-5 because same reflected cash transactions and were outside books of account _ Revenue, thus, made additions under section 69 on ground that outgoings recorded in A-3/A-5 diaries were assessee's money which was unexplained - Assessee's case was that assessee was only a finance broker and money reflected in diaries A-3 and A-5 belonged to others i. e. borrowers/lenders finance brokerage on such lending and borrowing in no case funds were brought to books of assessee _ Whether since onus cast on revenue under section 69 to establish that outgoings belonged to assessee had not been discharged, deeming provision of section 69 could not be invoked in instant case - Held, yes Further Hon'ble ITAT CHANDIGARH BENCH 'A' in the case of ACIT vs V.Kishore Lal Balwant Rai [2007] 17 SOT 380 (CHD.) has held as under:-

Section! 58BD, read with section 158BC, of the Income-tax Act, 1961 _ Block assessment in search cases - Undisclosed income of any other person _ Pursuant to a search conducted at premises of a dalal (finance broker), a red bound bahi was seized - Statement of dalal was recorded to ascertain nature of entries contained in bahi _ Dalal explained that bald contained a recording of monies lent and borrowed by various people undertaken through him and that he was earning dalali income/!commission income from business of broking - n basis of said statement, Assessing Officer deduced that assessee had borrowed money from said broker and had lent monies to various borrowers and earned interest thereon _ Further, Assessing Officer he Id that entries recorded in bahi were not found

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recorded in regular books of account of assessee and, therefore, amount of loan along with interest earned thereon represented undisclosed income of assessee chargeable to tax in terms of section 158BD, read with section 158BC, and, accordingly, made certain addition - Whether since sole basis for making addition to income of assessee was statement of dalal which was not supported by any independent and corroborative evidence and, moreover, there was no such evidence available with revenue which could establish that entries in bahi represented honest and real to be deleted - Held, yes. 4.2.6 Appellant during the course of appellate proceedings as well as during appellate proceedings has filed confirmations and ledger account of few of the individuals/firms/companies. Since the appellant failed to furnish confirmations and other evidences of all the lenders/borrowers, in support of his contention, investment of money of the appellant cannot be ruled out and therefore, profit earned by appellant from its investment should be charged to tax. Thus, in view of the above discussion and case laws cited, the addition made by the AO amounting to Rs. 27,900/- (0.15% of Rs. 1,86,00,000/-) is Confirmed and appellant will get a relief of Rs. 1,85,72,100/-.

of Biren V Savla vs ACIT Central-II (2006) 155 Taxman 270 (Mum)

and the decision of Coordinate Bench of Chandigarh in the case of

ACIT vs V.Kishore Lal Balwant Rai [2007] 17 SOT 380 (CHD.) are

squarely applicable on the facts of the assessee which has been

reproduced in the finding of Ld. CIT(A) stated above. On perusal of

the above finding and the judicial precedents referred herein above

and also considering the fact that the assessee’s business is

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confined to that of finance broker and this business is consistently

been followed since many years and further since the Ld. A.O has

not brought any corroborative evidence on record by calling for

necessary information from the various parties whose names are

mentioned in the seized document, the case of the revenue becomes

weak. Further in the paper book assessee has filed ledger account

of various parties and the names of most of them are also appearing

in the seized document BS-28 and these confirmation accounts are

placed at page 79 to 114 and clearly reveals that there were regular

transactions with these parties through account payee cheques

with regard to the loan given by the lenders and received by the

borrowers and the repayment there after. No evidence have been

brought on record that any of these parties have accepted to have

taken loan in cash from the assessee.

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Rs.2,03,610/- made by the Ld. A.O on account of unaccounted

interest income, we observe that this addition was made by Ld. A.O

on the basis of seized document BS-28 observing that the alleged

interest income is received by the assessee on monthly basis on

cash loan given. This allegations of the Ld. A.O was rebutted by the

assessee submitting that there was no cash loan given and all the

transactions were through account payee cheques which have been

duly accounted in the books. Ld. CIT(A) has rightly deleted the

impugned addition observing as follows:-

4.2.7 Further, regarding the addition made by the AO on account of undisclosed interest income I find it important to mention that the AO has picked up transactions which have narration as interest received in cash, however, did =.0. e en discuss about the interest portion received through cheques. The interest portion received through cheques is also not recorded in books of appellant, if the AO has treated interest received in cash as undisclosed interest income they why the interest received through cheques is not charged to tax. The one and only reason for not making addition on account of interest received through cheque was that the interest has been actually received by the lender and not by the appellant. Thus, the AO was not justified in making additions on assumption and presumption basis and therefore, the additions made by the AO amounting to Rs. 2,03,610/- is Deleted. Therefore, appeal on these grounds is partly allowed.

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Ld. CIT(A) by placing any material in its favour and thus we find no

reason to interfere in the finding of Ld. CIT(A) deleting the addition

of Rs.2,03,610/- and the same stands confirmed. Ground No.2 of

Revenue’s appeal is dismissed.

The order pronounced in the open Court on 09.02.2021.

Sd/- Sd/- ( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER नांक /Dated : 09 February, 2021 /Dev Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file.

By Order, Asstt.Registrar, I.T.A.T., Indore