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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI B.R. BASKARAN & SHRI SANDEEP SINGH KARHAIL
PER SANDEEP SINGH KARHAIL, J.M.
The present appeals have been filed by the assessee challenging the separate impugned orders of even date 30/12/2020, passed under section 250 of the Income Tax Act, 1961 ("the Act") by the learned Commissioner of Income Tax (Appeals)–53, Mumbai, [“learned CIT(A)”], for the assessment years 2012-13 and 2013–14.
Since both the appeals pertain to the same assessee and involve a similar issue that arises out of a similar factual matrix, therefore, these appeals were heard together and are being decided by way of this consolidated order. With the consent of the parties, the appeal for the assessment year
Ramesh S. Shah ITA no.292/Mum./2021 ITA no.293/Mum./2021 2012-13 is taken up as a lead case and the decision rendered therein shall apply mutatis mutandis to the assessee’s appeal for the assessment year 2013-14.
ITA no.292/Mum./2021 Assessee’s Appeal – A.Y. 2012–13
In this appeal, the assessee has raised the following grounds:-
“ON NATURAL JUSTICE: 1.1 In the facts and circumstances of the case and in law the order passed by the Learned Commissioner of Income Tax (Appeals)-53, Mumbai ["the Ld. CIT(A)" for short] is bad in law and void since the same is based on extraneous and totally irrelevant considerations, ignoring the relevant material and considerations and is also contrary to various judicial precedents and the extant law. ON JURISDICTION: 2.1 In the facts and circumstances of the case and in law, the Ld. CIT(A), erred in confirming the action of the Learned Deputy Commissioner of Income Tax, Central Circle -5(3), Mumbai ["the Ld. AO" for short] in framing the assessment under section 143(3) r.w.s. 153C of the Income Tax Act, 1961 ["the Act"] in the case of the Appellant for the relevant assessment year. 2.2 While doing so, the Ld. CIT(A) failed to appreciate that: (i) The necessary pre-conditions for the initiation as well as completion of an assessment under section 153C of the Act were not fulfilled in the present case; (ii) The document on the basis of which the proceedings under section 153C of the Act were initiated did not 'belong to the Appellant and therefore the entire proceedings are invalid: (iii) The satisfaction as contemplated under section 153C of the Act to be recorded by the AO of the searched person is not proper, objective and judicious and is based on mere assumptions and presumptions; and (iv) The provisions relating to judicious, objective and non-mechanical sanction as contemplated under section 153D of the Act are not complied with in the present case and therefore also the impugned assessment order is void. ON MERITS: 3.1 In the facts and circumstances of the case the Ld. CIT(A) erred in observing that the amount of Rs 1,00,00,000/- is cash loan allegedly given by Page | 2
Ramesh S. Shah ITA no.292/Mum./2021 ITA no.293/Mum./2021 the searched person, one Mr. Suresh Gandhi, to the Appellant in FY 2010-11 (AY 2011-12) without any substantial and corroborative evidence whatsoever and thereby making extrapolated addition for the relevant assessment year AY 2012-13 in respect of alleged interest payment of Rs.16,90,166/- on the opening balance of such loan (inclusive of interest). 3.2 While so observing, the Ld. CIT(A) totally failed to appreciate that: (i) There is no real, substantial, effective and corroborative evidence before the Ld. AO to hold that the Appellant had taken cash loan from the searched person, Mr. Suresh Gandhi; ii) The only document on the basis of which the said observation is made is nothing but a mere dumb document, the ownership whereof has neither been established by the Ld. AO nor by the AO of the searched person; (iii) Nowhere in his statement or even at the time of search has Mr. Suresh Gandhi, the searched person, ever stated or admitted that he had personally handed over the cash to the Appellant and hence his admission could not be used against the Appellant; and: (iv) In any case, the entire statement of Mr. Suresh Gandhi, recorded during search and even subsequently was not handed over to the Appellant despite specific requests and without the said statement, it was neither possible to seek effective cross-examination of the said person nor effectively respond to the queries raised by the Ld. AO based on the said statement of Mr. Suresh Gandhi 4.1 In the facts and circumstances of the case the Ld. CIT(A) erred in confirming the action of the Ld. AO whereby the Ld. AO made an addition of Rs 16,90,166/- under section 69C of the Act in respect of alleged interest on the alleged cash loan. 4.2 While doing so, the Ld. CIT(A) completely failed to appreciate that: (i) No such interest has ever been paid by the Appellant since the existence of the transaction of loan itself is disputed; (ii) Neither the Ld. AO nor the Ld. CIT(A) have established that the alleged expenditure in the form of interest payment was actually incurred by the Appellant in order to trigger section 69C and the addition is merely confirmed on the basis of surmises and guesswork that the liability to pay arose and hence the addition must be confirmed; and; (iii) The addition is not based on any corroborative evidence but a mere dumb document. 4.3 In any case and without prejudice to the above assuming without accepting that the said document and the entries made therein are correct as stated by the Ld. AO, still, no addition under section 69C of the Act could be made in the hands of the Appellant since from that very document it is evident that the amount of alleged interest is added to the amount of alleged loan on 1 April of next year and hence there is no actual payment / outgo of the said
Ramesh S. Shah ITA no.292/Mum./2021 ITA no.293/Mum./2021 interest and hence no such expenditure is "incurred in the year under appeal so as to trigger section 69C of the Act. 5. All the above-mentioned grounds are without prejudice to each other. The Appellant craves leave to add, alter, delete or modify all or any the above grounds of appeal.”
The brief facts of the case as emanating from the record are: The assessee is an individual and for the year under consideration filed its return of income on 30/12/2013, declaring a total income of Rs.1,67,99,700. Subsequently, information was received from DCIT, Central Circle-1(2), Mumbai vide letter dated 18/12/2017, that a search and seizure action under section 132 of the Act was carried out on 17/06/2015, in the case of Ess Gee group of companies and its directors/promoters, etc. and during the course of proceedings under section 132 of the Act certain incrementing material containing information relating to the assessee was found and seized. Accordingly, vide aforesaid letter dated 18/12/2017, DCIT, Central Circle-1(2), Mumbai forwarded the relevant incrementing material and the satisfaction note for the correct determination of income of the assessee under section 153C of the Act. The satisfaction note dated 18/12/2017 is reproduced as under for the sake of reference:-
“Satisfaction drawn in the case of M/s ESS GEE Group for forwarding the seized cuments and the information contained therein, to the AQ of Shri Ramesh Shah: AY 2010-11 to AY 2015-16 1. A Search and seizure action u/s, 132 was conducted upon the ESS GEE group of companies and its directors/promoters etc on 17.06.2015 at various premises. During the course of search action at these premises, certain incriminating documents were found and seized wherein the information contained therein relates to Shri Ramesh Shah. The details of relevant seized documents are given as under: o Some loose papers were found and seized from the main office premises of Ess Gee Group at Nariman Point, Mumbal and the said seized loose papers were marked as Annexure "AS".On being asked to explain the Page | 4
Ramesh S. Shah ITA no.292/Mum./2021 ITA no.293/Mum./2021 contents of page 25 & 28 of Annxure", Shri Suresh Gandhi, the main director of the Group Companies, in his statement on oath dated 20.0.2015 (in reply to question No. 49) stated as under: "Page No. 25 reflects Interest calculation on the cash deposits given by me to one Shri Ramesh Shah. Cash amounting to Rs. 1,00,00,000/- was given to Shri Ramesh Shah on 04.06.2010 (FY. 2010-11) and Rs. 50,00,000 each totaling Rs. 1,00,00,000/- on 14.04.2012 and 30.04.2012 (F.Y. 2012-13). These amounts given to Shri. Ramesh Shah are in the nature of loans given in cash only." It is thus seen that Shri Suresh Amritlal Gandhi has given cash loans to Shri Ramesh Shah as per the following details: Cash Loan Date of Page no. of Name of the F.Y. A.Y. (Rs.) Payment Annexure A5 looanee 10000000 04.06.2010 2010–11 2011–12 25 Ramesh Shah 5000000 14.04.2012 2012–13 2013–14 25 Ramesh Shah 5000000 30.04.2012 2012–13 2013–14 25 Ramesh Shah 2. In light of the findings, I am satisfied that documents seized in the case of Ess Gee Group and Shri Suresh Amritlal Gandhi and the information contained therein, are required to be forwarded and handed over to the AO of Shri Ramesh Shah, for correct determination of his income u/s 153C of 1.T. Act, 1961.”
From the perusal of the aforesaid satisfaction note, it is evident that some loose papers were found and seized from the main office premises of Ess Gee Group during the search action, and on being asked to explain the contents, Mr. Suresh Gandhi, the main director of the Group Companies stated that the same reflects interest calculation on the cash deposit given by him to Mr. Ramesh Shah as loan. Upon receipt of the satisfaction note, the Assessing Officer (“AO”) of the assessee recorded satisfaction under section 153C of the Act on 16/03/2018. After recording the satisfaction note, the AO issued a notice under section 153C of the Act to the assessee and asked the assessee to furnish the return of income. The assessee finally filed his return of income on 26/11/2018, in response to the notice issued under section 153C of the Act. Thereafter, statutory notices under section 143(2) as well as section 142(1) of
Ramesh S. Shah ITA no.292/Mum./2021 ITA no.293/Mum./2021 the Act were issued and served on the assessee. Upon receipt of the incriminating material found during the search on Ess Gee Group and satisfaction note, the assessee filed his submission and denied that the assessee is the same person whose name is referred to in the statement of Mr. Suresh Gandhi recorded on oath under section 132(4) of the Act.
The AO, vide order dated 29/12/2018, passed under section 143(3) read with section 153C of the Act did not agree with submissions of the assessee and held that in the post search proceedings, vide letter dated 03/10/2015, Mr. Suresh Gandhi had provided the address and telephone number of Mr. Ramesh Shah which has been confirmed to be belonging to the assessee. In this regard, the AO also relied on the statement of Mr. Suresh Gandhi recorded under section 131 of the Act. The AO further negated the plea of the assessee that the loose papers found during the search were a dumb document and held that Mr. Suresh Gandhi described the contents of the seized document which clearly mentions the name of the assessee. The AO also rejected the submission of the assessee that he has not availed any cash loan from Mr. Suresh Gandhi on the basis that the incriminating document found and seized during the search bears the name of the assessee and identity of the assessee has also been confirmed by Mr. Suresh Gandhi in his statement recorded under section 132(4) of the Act and also during the post search proceedings office address and telephone number of the assessee was provided to the investigation wing.
During the assessment proceedings, the assessee was asked to show cause as to why the sum of Rs.16,90,166, being interest @15% payable to Mr. Page | 6
Ramesh S. Shah ITA no.292/Mum./2021 ITA no.293/Mum./2021 Suresh Gandhi should not be taxed as unexplained expenditure under section 69C of the Act. In response thereto, the assessee submitted that the documents relied is a dumb document and hence the addition cannot be made on the basis of such a document. Without prejudice to the aforesaid submission, the assessee submitted that no interest was paid by the assessee during the year under consideration and therefore addition under section 69C of the Act ought not to be made. The AO, vide assessment order, did not agree with the submissions of the assessee and held that the assessee is following a mercantile system of accounting and if this transaction was legitimately undertaken, the said interest of Rs.16,90,166, should have been taxed during the year under consideration. The AO further held that merely because the assessee has undertaken the transaction of obtaining out-of-book cash loans, there is no reason as to why the aforesaid amount of Rs.16,90,166, should not be taxed in the year under consideration. Accordingly, the AO considered the interest of Rs.16,90,166, as payable against the cash loans received from Mr. Suresh Gandhi and taxed the same as unexplained expenditure under section 69C of the Act. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee. Being aggrieved, the assessee is in appeal before us.
During the hearing, the learned Authorised Representative (“learned AR”) reiterated the submissions made before the lower authorities and submitted that no interest on the cash loan, as alleged by the Revenue, was paid by the assessee during the year and therefore no addition under section 69C of the Act can be made. On the other hand, the learned Departmental
Ramesh S. Shah ITA no.292/Mum./2021 ITA no.293/Mum./2021 Representative vehemently relied upon the orders passed by the lower authorities.
We have considered the submissions of both sides and perused the material available on record. In the present case, on the basis of incriminating documents found during the course of search action under section 132 of the Act in the case of Ess Gee Group of companies, proceedings under section 153C of the Act were initiated in the case of the assessee. On the basis of the incriminating document and statement recorded during the course of the aforesaid search, the AO came to the conclusion that the assessee has availed cash loan from Mr. Suresh Gandhi, and on the same interest was also payable by the assessee. Page no.25 of Annexure A-5 found during the search action and relied upon by the Revenue is reproduced as under:-
“INTEREST CALCULATION INTEREST DATE AMOUNT DAYS 15% RAMESH SHAH 04–06–10 10,000,000 301 1,236,986 31–03–11 10,000,000 1,236,986
01–04–11 11,236,986 366 1,690,166 31–03–12 11,236,986 1,690,166
01–04–12 12,927,152 365 1,939,073 14–04–12 5,000,000 352 723,288 30–04–12 5,000,000 336 690,411 31–03–13 22,927,152 3,352,771
01–04–13 26,279,924”
Ramesh S. Shah ITA no.292/Mum./2021 ITA no.293/Mum./2021 10. From the aforesaid information available in the document seized during the course of the search it is evident that the interest calculated at 15% was added to the principal amount and became the opening balance of the next year. As is evident, the interest of Rs. 16,90,166 as on 31/03/2012, was calculated at 15% on a sum of Rs.1,12,36,986, which is aggregate of Rs.1,00,00,000, as on 31/03/2011, and interest thereon of Rs.12,36,986. Further, in the next year, the interest of Rs.33,52,771, was computed on the sum of Rs.2,29,27,152, which is the aggregate of Rs.1,12,36,986, Rs.16,90,166 (i.e. the interest for the financial year 2011-12) and additional loan of Rs.1 crore. In the next financial year, the aggregate of Rs.2,29,27,152, and interest amount of Rs.33,52,771, was considered as an opening balance of Rs.2,62,79,924, as on 01/04/2013. As per the assessee, even on the basis of the aforesaid document, which has been alleged to have been found during the course of a search under section 132 on Ess Gee Group of companies, it is proved that the assessee did not pay any interest in any of the assessment year, as otherwise the interest amount would not have been aggregated with the closing balance of the loan amount for computing the opening balance of the subsequent year. Therefore, it was submitted that since the assessee did not incur any expenditure towards payment of interest on the alleged cash loan, no disallowance can be made under section 69C of the Act. Before proceeding further it is relevant to note the provisions of section 69C of the Act, which reads as under:-
“69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part
Ramesh S. Shah ITA no.292/Mum./2021 ITA no.293/Mum./2021 thereof, as the case may be, may be deemed to be the income of the assessee for such financial year : Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.”
Therefore, as per section 69C of the Act, if the assessee fails to offer an explanation regarding the source of any expenditure incurred by it or the explanation offered by the assessing is not satisfactory in the opinion of the AO, such expenditure shall be deemed to be the income of the assessee. In the present case, it is a consistent stand of the assessee that no expenditure was incurred by the assessee in respect of payment of interest. However, the Revenue on the basis that the assessee has availed cash loan on which interest has been accrued and since the assessee is following a mercantile system of accounting made the impugned addition under section 69C of the Act. It is pertinent to note that for the application of provisions of section 69C of the Act, it is necessary that the assessee should incur the expenditure and has failed to explain the source of such expenditure. Thus, the accrual of liability to incur the expenditure is not a pre-condition for invocation of provisions of section 69C of the Act. It is further pertinent to note that the onus cast on the assessee under section 69C of the Act to explain the source of expenditure can only be discharged once such expenditure is incurred by the assessee and the assessee cannot be asked to explain the source of expenditure under section 69C of the Act at the time of accrual of liability. In the present case, no material has been brought on record by the Revenue to show that the assessee incurred the alleged interest expenditure. Therefore, we are of the considered view that the provisions of section 69C of the Act are
Ramesh S. Shah ITA no.292/Mum./2021 ITA no.293/Mum./2021 not applicable to the facts of the present case, as no interest expenditure was incurred by the assessee. Further, it is undisputed that the AO has only made the addition by applying section 69C of the Act and no other addition was made on the basis of alleged incriminating material found during search action. Thus, in view of the aforesaid findings, the impugned addition by applying the provisions of section 69C of the Act is not sustainable and accordingly is directed to be deleted.
During the hearing, the learned AR submitted that if relief is granted on this short issue, the other grounds raised in the present appeal shall be kept open. Accordingly, no finding is rendered in respect of other grounds and the same are kept open.
In the result, the appeal by the assessee is allowed.
ITA no.293/Mum./2021 Assessee’s Appeal – A.Y. 2013–14
In this appeal, the assessee has raised the following grounds:-
“ON NATURAL JUSTICE: 1.1 In the facts and circumstances of the case and in law the order passed by the Learned Commissioner of Income Tax (Appeals) - 53, Mumbai ["the Ld. CIT(A)" for short] is bad in law and void since the same is based on extraneous and totally irrelevant considerations, ignoring the relevant material and considerations and is also contrary to various judicial precedents and the extant law. ON JURISDICTION: 2.1 In the facts and circumstances of the case and in law, the Ld. CIT(A), erred in confirming the action of the Learned Deputy Commissioner of Income Tax, Central Circle-5(3), Mumbai ["the Ld. AO" for short] in framing the assessment under section 143(3) r.w.s. 153C of the Income Tax Act, 1961 ["the Act"] in the case of the Appellant for the relevant assessment year. 2.2 While doing so, the Ld. CIT(A) failed to appreciate that: Page | 11
Ramesh S. Shah ITA no.292/Mum./2021 ITA no.293/Mum./2021
(i) The necessary pre-conditions for the initiation as well as completion of an assessment under section 153C of the Act were not fulfilled in the present case; (ii) The document on the basis of which the proceedings under section 153C of the Act were initiated did not belong to the Appellant and therefore the entire proceedings are invalid; (iii) The satisfaction as contemplated under section 153C of the Act to be recorded by the AO of the searched person is not proper, objective and judicious and is based on mere assumptions and presumptions; and (iv) The provisions relating to judicious, objective and non-mechanical sanction as contemplated under section 153D of the Act are not complied with in the present case and therefore also the impugned assessment order is void. ON MERITS: 3.1 In the facts and circumstances of the case the Ld. CIT(A) erred in observing that the amount of Rs 1,00,00,000/- is cash loan allegedly given by the searched person, one Mr. Suresh Gandhi, to the Appellant in FY 2010-11 (AY 2011-12) and the amount of Rs 1,00,00,000/- is cash loan allegedly given by the searched person, one Mr. Suresh Gandhi, to the Appellant in FY 2012-13 (AY 2013-14) without any substantial and corroborative evidence whatsoever and thereby making extrapolated addition for the relevant assessment year AY 2013-14 in respect of alleged interest payment of Rs.33,52,771/- on the opening balance of loan (inclusive of interest) and loan allegedly given by the searched person, one Mr. Suresh Gandhi, to the Appellant in FY 2012-13 (AY 2013-14). 3.2 While so observing, the Ld. CIT(A) totally failed to appreciate that: (i) There is no real, substantial, effective and corroborative evidence before the Ld. AO to hold that the Appellant had taken cash loan from the searched person, Mr. Suresh Gandhi; (ii) The only document on the basis of which the said observation is made is nothing but a mere dumb document, the ownership whereof has neither been established by the Ld. AO nor by the AO of the searched person; (iii) Nowhere in his statement or even at the time of search has Mr. Suresh Gandhi, the searched person, ever stated or admitted that he had personally handed over the cash to the Appellant and hence his admission could not be used against the Appellant; and; (iv) In any case, the entire statement of Mr. Suresh Gandhi, recorded during search and even subsequently was not handed over to the Appellant despite specific requests and without the said statement, it was neither possible to seek effective cross-examination of the said person nor effectively respond to the queries raised by the Ld. AO based on the said statement of Mr. Suresh Gandhi.
Ramesh S. Shah ITA no.292/Mum./2021 ITA no.293/Mum./2021 4.1 In the facts and circumstances of the case the Ld. CIT(A) erred in confirming the action of the Ld. AO whereby the Ld. AO made an addition of Rs 33,52,771/- under section 69C of the Act in respect of alleged interest on the alleged cash loan. 4.2 While doing so, the Ld. CIT(A) completely failed to appreciate that: (i) No such interest has ever been paid by the Appellant since the existence of the transaction of loan itself is disputed; (ii) Neither the Ld. AO nor the Ld. CIT(A) have established that the alleged expenditure in the form of interest payment was actually incurred by the Appellant in order to trigger section 69C and the addition is merely confirmed on the basis of surmises and guesswork that the liability to pay arose and hence the addition must be confirmed; and; (iii) The addition is not based on any corroborative evidence but a mere dumb document. 4.3 In any case and without prejudice to the above assuming without accepting that the said document and the entries made therein are correct as stated by the Ld. AO, still, no addition under section 69C of the Act could be made in the hands of the Appellant since from that very document it is evident that the amount of alleged interest is added to the amount of alleged loan on 1" April of next year and hence there is no actual payment / outgo of the said interest and hence no such expenditure is 'incurred in the year under appeal so as to trigger section 69C of the Act. 5. All the above-mentioned grounds are without prejudice to each other. The Appellant craves leave to add, alter, delete or modify all or any the above grounds of appeal.”
In this appeal, the learned AR raised a similar plea as in the appeal for the assessment year 2012-13 that no interest on the cash loan, as alleged by the Revenue, was paid by the assessee during the year and therefore no addition under section 69C of the Act can be made. Since a similar issue has already been decided in assessee’s appeal for the assessment year 2012-13, therefore the findings/conclusions rendered therein shall apply mutatis mutandis. Accordingly, the impugned addition by applying the provisions of section 69C of the Act is not sustainable and the same is directed to be deleted. The other grounds raised in assessee’s appeal are kept open, in view of the submission of the learned AR. Page | 13
Ramesh S. Shah ITA no.292/Mum./2021 ITA no.293/Mum./2021
In the result, the appeal by the assessee is allowed. 17. To sum up, both appeals by the assessee are allowed. Order pronounced in the open Court on 19/10/2023
Sd/- Sd/- B.R. BASKARAN SANDEEP SINGH KARHAIL ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 19/10/2023 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai