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Income Tax Appellate Tribunal, B BENCH, MUMBAI
order : 09.03.2023 O R D E R Per Bench 1. These are 2 appeals pertaining to Assessment Year 2013-14 and 2014-15 preferred by the Assessee against the orders passed by the Ld. Commissioner of Income Tax (Appeals) –Mumbai [hereinafter referred to as „the CIT(A)‟] against the assessment orders for Assessment Year 2013-14 and 2014-15, respectively. Since the appeals involve identical issues the same were heard together and are being disposed by way of a common order. & 2527/Mum/2022 Assessment Year: 2013-14 & 2014- (Assessment Year 2013-14) 2. We would first take up appeal for the Assessment Year 2013-14 which has been preferred by the Appellant challenging the order, dated 14.09.2022, passed by the CIT(A) for the Assessment Year 2013-14, whereby the Ld. CIT(A) had dismissed the appeal of the Appellant against the Assessment Order, dated 21.03.2016, passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟).
The Appellant has raised the following grounds in the Appeal “1. On the facts and in the circumstances of the case and in law, the Ld. A.O. erred in making addition on the basis of statements of Shri Gautam Jain whereas in his statement he had never alleged that the assessee was the beneficiary.
2. On the facts and in the circumstances of the case and in law, the Ld. A.O. erred in not providing opportunity for cross examination of Sh. Gautam Jain whose statements he has relied upon.
3. On the facts and in the circumstances of the case and in law, the Ld. A.O, erred in adding loan amount of Rs.40,00,000/- though there was no evidences in his possession in that regard. He deliberately overlooked the fact that loan was repaid.
4. On the facts and in the circumstances of the case and in law, the Ld. A.O. erred in making addition without doubting genuineness of evidences and transaction:
5. On the facts and in the circumstances of the case and in law, the Ld. A.O. erred in levied interest u/s 234A, 234B. 234C and 234D of the Income Tax Act.
6. On the facts and in the circumstances of the case and in law, the Ld. A.O. erred in levied penalty u/s 271(1)(c) of the Income Tax Act.”
4. The relevant facts in brief are that the Appellant, an individual proprietor of a proprietorship firm operating at the relevant time & 2527/Mum/2022 Assessment Year: 2013-14 & 2014-15 under the name „Marudhar Metals‟. The day to day operation of the aforesaid proprietorship concern, engaged in the business of trading in metals as a wholesaler, were managed by husband of the Appellant who passed away after prolonged illness on 14/01/2017.
4.1. The Appellant filed her return of income for the Assessment Year 2013–14 on 30/09/2013 declaring total income of INR 17,63,663/-. The return was processed under Section 143(1) of the Act. Subsequently, the case of the Appellant was selected for scrutiny and notice under Section 143 (2) of the Act, dated 05/09/2014 was issued to the Appellant.
4.2. During the course of assessment proceedings, the Assessing Officer noted that the Appellant had taken loan of INR.40,00,000/- from M/s Marine Gems Private Limited (MGPL) during the relevant previous year. The Assessing Officer noted that a search and seizure action was carried out by DGIT (Inv.), Mumbai in the case of Mr. Gautam Jain and his group concerns (hereinafter collectively referred to as „Gautam Jain Group‟) on 03/10/2013 wherein it was revealed that Gautam Jain Group was engaged in the business of providing accommodation entries through various benami concerns, directly or indirectly, operated and managed by Mr. Gautam Jain. The Assessing Officer noted that the Appellant had also obtained accommodation entries from MGPL which was part of the Gautam Jain Group. Therefore, the Appellant was asked to show cause why loan of INR.40,00,000/- taken by the Appellant from MGPL should not be treated as bogus/non-genuine transaction, and why the amount of INR 40,00,000/- should not be added to the total income of the Appellant. The Appellant filed response with the Assessing Officer. However, the Assessing & 2527/Mum/2022 Assessment Year: 2013-14 & 2014-15 Officer was not satisfied and taking into the consideration statement given by Mr. Gautam Jain, the Assessing Officer concluded that loan amount of INR 40,00,000/- received by the Appellant from MGPL was unexplained credit in the book of accounts of the Appellant which was liable to tax as income under Section 68 of the Act. While framing assessment vide Assessment Order, dated 21/03/2016 passed under Section 143(3) of the Act, the Assessing Officer concluded that the Appellant had failed to discharge the onus cast upon the Appellant to prove genuineness of the transaction and creditworthiness of MGPL.
4.3. Being aggrieved, the Appellant preferred appeal against the Assessment Order, dated 21/03/2016, before the CIT(A). The Appellant filed submissions along with the documents before the CIT(A) who forwarded the documents to the Assessing Officer and called for a remand report.
4.4. The Assessing Officer furnished Remand Report, dated 16/04/2019, pointing out that some of documents furnished by the Appellant were not filed during the assessment proceedings. However, the Assessing Officer also examined the documents and proceeded to give his report after examining the documents and stated in the Remand Report that even if the documents, which according to the Assessing Officer were in the nature of additional evidence, were taken into consideration, there would be no change in the conclusion drawn by the Assessing Officer that the loan transaction of INR 40,00,000/- with MGPL was bogus/non- genuine. Even after taking all the documents into consideration, it cannot be said that the Appellant has discharged the onus cast upon the Appellant in terms of Section 68 of the Act to provide the genuineness of the transaction and creditworthiness of MGPL. 4 & 2527/Mum/2022 Assessment Year: 2013-14 & 2014-15 Since the Appellant had sought a copy of statement given by Mr. Gautam Jain and his cross-examination before the CIT(A) contending that the Assessing Officer has failed to provide the same, the Assessing Officer stated that the Appellant had failed to ask for cross- examination during the assessment proceedings. The Assessing Officer relied upon the decision of the Tribunal in the case of GTC Industries Vs. Asst. CIT: 65 ITD 380 (Bom) to contend that it was not necessary to provide opportunity of cross examination to the assessee in all cases.
4.5. The Appellant was confronted with the Remand Report. In reply, the Appellant submitted that the day to day operations of the proprietorship concern were managed by the husband of the Appellant and that all the documents were filed during the assessment proceedings. Further, the Assessing Officer was not correct in stating that no opportunity of cross-examination was sought during the assessment proceedings. Even, in the remand report the Assessing Officer had contended that it was not necessary to grant opportunity to the Appellant to cross-examine Mr. Gautam Jain. It was contended by the Appellant that the comments given by the Assessing Officer were general in nature and that the documents submitted proved the genuineness of the loan transactions and the creditworthiness of the lender. The loans were taken during regular course of business 4.6. However, the CIT(A) was not satisfied and relying upon the Remand Report, the CIT(A) dismissed the appeal vide order, dated 14/09/2022. Though, the CIT(A) recorded the objections raised by the Assessing Officer in the Remand Report, the documents furnished by the Appellant were not specifically rejected by the CIT(A) as additional evidence not admissible in appellate 5 & 2527/Mum/2022 Assessment Year: 2013-14 & 2014-15 proceedings before the CIT(A).
4.7. Being aggrieved, the Appellant is in appeal before us against the order dated 14/09/2022 passed by the CIT(A).
The Ld. Authorised Representative for the Appellant appearing before us submitted that the day-to-day operations of the proprietorship concern of the Appellant before us were managed by her husband, Late Mr. Sumermal Jain, who expired on 14/01/2017 after prolonged illness. He submitted that the Appellant was of bonafide belief that all the documents filed before the CIT(A) were furnished during the assessment proceedings, and that the same clearly established the genuineness of the transaction and the creditworthiness of the parties.
5.1. He submitted that even during the assessment proceedings for the Assessment Years 2011-12 and 2012-13, the loans taken by the Appellant from MGPL were accepted as genuine by the Assessing Officer. For the Assessment Year 2012-13, assessment was completed under Section 143(3) of the Act and the Assessing Officer had verified the loans received by the Appellant from various parties including MGPL. During the relevant previous year, the Appellant had taken loan from a number of parties including a loan of INR 40,00,000/- from MGPL. The aforesaid loan was taken in the normal course of business and was repaid in full to MGPL before the end of the relevant previous year. Tax was deducted at source from the interest paid to MGPL on the loan and deduction for the aforesaid interest was claimed in the return of income. The receipt of loan, payment of interest and the repayment of loan were thereof were through banking channels which was supported by the bank statement of the Appellant as well as MGPL. The 6 & 2527/Mum/2022 Assessment Year: 2013-14 & 2014-15 Appellant had filed copy of its bank statement highlighting the aforesaid receipts/payments in order to discharge the primary onus. The Appellant had also filed its ITR for Assessment Year 2013-14, computation of income, copy of financial statements, and tax audit report. The Appellant had also filed ledger confirmation of the loan of MGPL, financial statement of MGPL for the Assessment Year 2013-14 and 2014-15, copy of bank statements of MGPL highlighting payment receipt and made by the Appellant during the previous year relevant to the Assessment Year 2013-14. There were no cash deposits in the bank account at the time of granting or repayment of loan. All the documents were sent to the Assessing Officer while calling the remand report by the CIT(A). The Assessing Officer had in the remand report provided comments on merits which have been considered, however, in our view no adverse inference can be drawn against the Appellant from the same. The Appellant had requested for a copy of statement of Mr. Gautam Jain on which reliance was placed by the Assessing Officer and also sought an opportunity to cross examining Mr. Gautam Jain. However, the Assessing Officer in the remand report submitted that no opportunity for cross examination of Mr. Gautam Jain was sought by the Appellant. The CIT(A), accepted the comments given by the Assessing Officer in the remand report on face value had concluded that the documents furnished by the Appellant failed to prove genuineness of the transaction and creditworthiness of MGPL. The addition made by the Assessing Officer cannot be sustained absent the opportunity of cross-examination of Mr. Gautam Jain having been granted to the Appellant as the Assessing Officer has made the addition solely by relying upon the statement of Mr. Gautam Jain. He further contended that even the statement of Mr. Gautam Jain was not provided to the Appellant despite repeated requests. The 7 & 2527/Mum/2022 Assessment Year: 2013-14 & 2014-15 Learned Authorized representative placed reliance on the judgments forming part of the paper-book in support of his contentions.
Per contra, the Ld. Departmental Representative relied upon the order passed by the authorities below. He submitted that the Appellant had failed to furnish that the relevant document and details before the Assessing Officer and therefore, failed to discharge the initial onus cast upon the Appellant in terms of Section 68 of the Act. He submitted that Gautam Jain Group was engaged in the business of providing accommodation entries. MGPL did not have any business and was engaged in the business of providing accommodation entries and therefore, creditworthiness of MGPL was doubtful. Referring to the Remand Report, the Ld. Departmental Representative submitted that MGPL did not have the requisite financial strength to grant loan to the Appellant. He submitted that the Appellant had not sought cross examination of Mr. Gautam Jain during the assessment proceedings. Further, he submitted the Appellant did not have any inherent right to examine Mr. Gautam Jain, who was not even examined by the Assessing Officer. The onus was on the Appellant to show that the loan transaction was genuine and the Appellant failed to discharge the same. The fact that in preceding assessment year loan transaction with MGPL were accepted as genuine is not relevant as by that time the report of the Investigation Wing was not available with the Assessing Officer wherein it was clearly stated that MGPL had taken accommodation entries. The Ld. Departmental Representative also placed reliance on the judgments in the case of PCIT (Central) – 1 Vs. NRA Iron & Steel Private Limited: [2019] 103 Taxmann.com 48 (SC) and Navodaya Castle Private Limited Vs. 8 & 2527/Mum/2022 Assessment Year: 2013-14 & 2014-15 CIT : [2015] 56 Taxmann.com 18 (SC). He further submitted that even if, for the sake of arguments, the Tribunal was to conclude that the Assessing Officer failed to make inquiries, the matter should be remanded back to the file of the Assessing Officer for carrying out fresh inquiries as per the judgment of the Hon‟ble Delhi High Court in the case of CIT-II Vs. Jansampark Advertising & Marketing Pvt. Ltd.: 2015 Taxmann.com 286 (Delhi).
We have considered the rival submissions and perused the material on record. Section 68 of the Act 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 found to be satisfactory by the Assessing Officer, the sum so credited may be charged to tax as the income of the assessee of that previous year. Thus, Section 68 casts obligation on the assessee to provide explanation about the nature and source credit in the books of accounts. Therefore, an assessee must discharge the primary onus to prove identity and creditworthiness of the transacting party and the genuineness of the transaction before the Revenue can be called upon discharge the onus to establish their case/allegation.
7.1. On perusal of the Assessment Order, it can be seen that Gautam Jain Group was engaged in providing accommodation entries to various concerns engaged primarily in the business of trading in diamond, and had indulged in providing accommodation purchase entries and accommodation unsecured loan entries. However, the statement of Mr. Gautam Jain, as reproduced in the Assessment Order, does not make any reference to MGPL or the Appellant. While MGPL could have been engaged in the business of trading & 2527/Mum/2022 Assessment Year: 2013-14 & 2014-15 in diamond, the Appellant was admittedly engaged in the business of trading in steel as a wholesaler and did not have any nexus with the business of trading in diamond.
7.2. We note that for the Assessment Year 2012-13 the assessment of the Appellant was completed under Section 143(3) of the Act and the Assessing Officer had, after scrutiny, accepted loan transaction between Appellant and MGPL as genuine transaction. For the assessment year before us, there was no change in the facts and circumstances except for the report of the Investigation Wing having been received by the Assessing Officer. Even this report from the Investigation Wing pertained to modus operandi of Gautam Jain Group unearthed after search and seizure operation conducted by the Revenue. On perusal of the Assessment Order, it can be seen that the only information regarding MGPL that was available and utilized by the Assessing Officer during the Assessment Year 2013-14, as compared to Assessment Year 2012-13, was that the Appellant had taken accommodation entries from MGPL forming part of Gautam Jain Group. We note that the Assessment Order is absolutely silent regarding MGPL and its activities and does not contain any discussion on the enquiry/investigation, if any, carried out by the Assessing Officer qua MGPL. The fact that MGPL was engaged in providing accommodation entry cannot lead to automatic conclusion that the loan granted by MGPL to the Appellant was an accommodation entry given the fact the Appellant has placed on record various documents to substantiate the loan transaction. In our view, the Appellant had placed sufficient material before the Assessing Officer as well as the CIT(A) to discharge the initial onus cast upon the Appellant under Section 68 of the Act. The Assessing Officer had not doubted the identity of MGPL. The 10 & 2527/Mum/2022 Assessment Year: 2013-14 & 2014-15 Appellant had furnished confirmation, ledger account, financial statements, its own bank statement and the bank statement of the lender showing receipts/repayment of loan through banking channels. The bank statements did not reflect any cash deposits before payment/repayment of the loan amount and this fact was also not controverted by the Assessing Officer in the Remand Report. The Assessing Officer has, in the remand report, after examining the financial statement of the lender stated that the source of funds advanced by the lender to the Appellant was trade payable/receivables and thus, the source of funds utilized by the lender for granting loan was known to the Assessing Officer. The Assessing Officer doubted the capacity of the lender to grant loan on the basis of his analysis of the financial position of the lender as emanating from the balance sheet. However, no enquiry or investigation was carried out by the Assessing Officer either during the assessment proceedings or during the remand proceedings regarding MGPL and its business activities. Further, the CIT(A) has while rejecting the Appellant‟s request to seek cross-examination, observed that Mr. Gautam Jain did not name the Appellant and merely stated that he had provided accommodation entries through MGPL. Thus, admittedly the sole basis of doubting genuineness of the loan transaction was that MGPL had no business as per the statement given by Mr. Gautam Jain. The statement was not provided to the Appellant nor was the Appellant granted any opportunity to cross-examine Mr. Gautam Jain. Thus, the statement of Mr. Gautam Jain cannot be taken as the sole basis to hold that the loan transaction was not genuine. Both, the Assessing Officer and the CIT(A), have essentially concluded the onus was on the Appellant and since the Appellant failed to discharge the onus, there was nothing required to be done at the end of the Assessing Officer or the CIT(A). We are not 11 & 2527/Mum/2022 Assessment Year: 2013-14 & 2014-15 inclined to accept the approach adopted by the Assessing Officer and CIT(A) in the facts and circumstances of the present case. We have already concluded herein above, that the Appellant had discharged the initial onus by providing necessary information, details and documents during the assessment/appellate proceedings. Thus, in our view, the onus shifted on the Revenue, and instead of bringing on record any material/information to controvert the claim of the Appellant the Assessing Officer and the CIT(A) neglected to discharge the onus moving on the incorrect premise that the onus still vested with the Appellant. No independent inquiry was conducted by the Assessing Officer. Neither any notice under Section 133(6) nor summon under Section 131 of the Act were issued by the Assessing Officer. Therefore, in our view the addition of INR 40,00,000/- made by the Assessing Officer under Section 68 of the Act in the hands of the Appellant cannot be sustained.
7.3. We note that during the course of hearing the Learned Departmental Representative had cited judgment which, in our view, do not come to the aid of Revenue as the same are distinguishable of facts, inter alia, having been rendered in the context of share capital transaction, whereas in the present case the transaction under consideration is unsecured loan transaction. Similar loan transaction with the same lender was accepted as genuine in the assessment proceedings for the immediately preceding assessment year (i.e., Assessment Year 2012-13) after scrutiny assessment. In case of Navodya Castel Private Limited (supra), and NRA Iron & Steel Private Limited (supra) the identity of the parties were under doubt whereas in the present case the Assessing Officer and CIT(A) have not doubted the identity of the lender. In Jansampark Advertising & Marketing there was a 12 & 2527/Mum/2022 Assessment Year: 2013-14 & 2014-15 pattern of cash deposits before making investments whereas in the present case there are no adverse findings regarding deposit of cash in the bank accounts. Further, in Jansampark Advertising & Marketing (supra) the Hon‟ble Delhi High Court also took note of the facts that the documents submitted by the assessee in that case did not cover all the transaction under examination and despite this the appellate authorities had allowed the appeal preferred by the assessee for want of proper inquiry by the Assessing Officer.
7.4. Accordingly, in view of the above, we accept the contention of the Appellant that the Assessing Officer as well as the CIT(A) erred in making/confirming addition of INR 40,00,000/- in the hands of the Appellant under Section 68 of the Act. Ground No. 1, to 4 raised by the Appellant are, therefore, allowed and Addition of INR 40,00,000/- is deleted. Ground No. 5 relating to levy of interest under Section 234A/B/CD of the Act is disposed off as being infructuous. While Ground No. 6 relating to initiation of penalty proceedings is disposed off as being premature.
7.5. Before parting we would also like to observe that while the Appellant had contended that all documents filed before CIT(A) were filed during the assessment proceedings. The CIT(A) has, relying upon the Remand Report, observed that the Appellant had failed to provide proof of furnishing the documents in assessment proceedings. We note that the Appellant had contended that the day-to-day operations of the proprietorship concern were managed by her husband who passed away after prolonged illness on 14.01.2017, i.e., few months after passing of the Assessment Order. Even if the documents filed by the Appellant before CIT(A) are considered to be additional evidence as alleged & 2527/Mum/2022 Assessment Year: 2013-14 & 2014-15 by the Assessing Officer, though the CIT(A) has not held so while disposing off the appeal, the Tribunal would not, in our view, be precluded to consider the same for the reason that the requirements of Rule 46A of the Income Tax Rules, 1962 has been, in spirit, complied with since, remand report on the documents was called by the CIT(A) from the Assessing Officer who despite objecting to the admission of additional evidence provided comments after examining the documents on merits. Further, another perspective to approach this issue could be that since the husband of the Appellant who was managing the affairs of the proprietorship concern was suffering from prolonged illness during the assessment proceedings and had passed away few months after framing of assessment, the Appellant was prevented by reasonable cause, being her husband‟s illness, to furnish these additional documents during the assessment proceedings. It is settled legal position that the matter of procedure is a handmaid of justice and substantive justice must always prevail over procedural or technical justice. Accordingly, we have taken into consideration the entire set of documents filed by the Appellant before Assessing Officer and the CIT(A) while adjudicating the appeal. (Assessment Year 2014-15) 8.1. Both the sides had agreed that facts and issues raise in appeal for the Assessment Year 2014-15 are identical to the appeal for the Assessment Year 2013-14, except for the fact that the additions made by the Assessing Officer pertain to the unsecured loan of INR 47,08,748/- and INR 1,75,00,000/- taken by the Appellant from MGPL and Maniratnam Exim Private Limited, respectively. For the Assessment Year 2014-15, reasoning identical to & 2527/Mum/2022 Assessment Year: 2013-14 & 2014-15 Assessment Year 2013-14 was given by the Assessing Officer/CIT(A) while making/sustaining disallowance of INR 2,22,08,748/- under Section 68 of the Act, which was countered by the Appellant by same submissions as made by the Appellant in relation to addition made under Section 68 of the Act for the Assessment Year 2013-14. Therefore, the decision rendered in appeal for the Assessment Year 2013-14 shall apply mutatis mutandis to appeal for the Assessment Year 2014-15. Accordingly, Ground No. 1, to 4 raised by the Appellant are, therefore, allowed and Addition of INR 2,22,08,748/- is deleted. Ground No. 5 relating to levy of interest under Section 234A/B/CD of the Act is disposed off as being infructuous. While Ground No. 6 relating to initiation of penalty proceedings is disposed off as being premature.
In result, the appeals preferred by the Appellant for the Assessment Year 2013-14 and 2014-15 are allowed.
Order pronounced on 09.03.2023.