DCIT CC 7(3), MUMBAI vs. M/S OM TRILOK REALTY & INFRASTRUCTURE , MUMBAI

“In the fact and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.3,00,00,000/- made by AO as unexplained cash credit received from M/s Muskan VyapaarPvt., M/s S K Stock Dealers Pvt. Ltd., M/s Fiscal Services Pvt. Ltd and M/s KoshishVyaapar Pvt Ltd in the form of unsecured loans u/s 68 of the Act without considering the fact that the statement of Shri Beni Prasad and other related concerns were recorded u/s 131 of the act wherein they had stated that the above mentioned companies were engaged in the business of providing accommodation entries”

“Whether on facts and in law the Ld. CIT(A) was correct in allowing the interest payment of Rs. 8,67,950/- on the unsecured loans received from the said four parties as the said loans were nothing but bogus accommodation entries.”

Brief facts: The assessee e-filed its return of income on 20.11.2014 declaring total income of Rs.9,05,480/-. The return of income was processed u/s 143(1) of the Income Tax Act, 1961. Subsequently, a search action u/s 132 was carried out on 09.10.2014 at the offices of Lotus/Kamdhenu/Green Valley/ Patel Patni Group and their associates as well as at the residences of their directors, it continued till 09.12.2014. Consequent to search, the case of the appellant was centralised to the office of the Ld. Assessing Officer-Dy. Commissioner of Income Tax- Central Circle 7(3), Mumbai. Notice u/s 153A(1)(a) dated 25.01.2016 was issued and served on the assessee. In compliance, the assessee e-

Aggrieved with the aforesaid enhancement in taxable income, assessee preferred an appeal before the First Appellate Authority / Ld. CIT(A), wherein the quantum additions made by Ld. AO u/s 69C and /s 68 of the Act are deleted by the Ld. CIT(A).

Since relief of substantive additions made by the Ld. AO are granted by Ld. CIT(A) to the assessee, now the revenue, being aggrieved is in appeal before us.

At the outset Ld. CIT DR, representing the revenue submitted that the issues raised by the assessee before the Ld. CIT(A) are decided in favour of the assessee placing reliance on certain decisions by the Ld. CIT(A) himself in assessee’s case for earlier years or by relying on the decision of Hon’ble Courts. It is the submission that the facts of case are not discussed or interpreted as to how the relevant years issues are matching with the issues which were relied to reach at a conclusion. It was alleged that the Ld. CIT(A) had only tried to find fault in the working of Ld. AO instead of analysing the information with further enquiries by self or through a remand report for any doubts, instead of providing benefit of such doubts to the assessee, thereby

7 Section 68 is not a charging section but a deeming fiction dealing with the burden of proof. The section casts initial onus u/s. 68 of the Act on the assessee to prove identity, genuineness and creditworthiness of the transaction to the satisfaction of the AO. If the assessee fails to do so or the explanation offered by him is not satisfactory to the AO, the AO is empowered to add the same to the total income of the assessee. The said power is to be exercised judiciously by the AO. Thus, orice the initial onus is discharged by the assessee, the onus shifts on the AO to bring out fallacies in evidence brought by the assessee or by bringing new evidence that indicate the transactions undertaken by the assessee are non-genuine Thus, the section deals with an equilibrium of onus of proof and must be viewed to evaluate as to whether the evidences brought by the assessee or AO weigh more and accordingly in whose favour the equilibrium bends. In the present case, on one hand, the assessee has placed evidence in support of its transactions with these lenders, however, on the contrary, the AO has solely placed reliance on the statement of Shri Beni Prasad Lahoti. There is no material in the possession of the AO to summarily doubt the commercial transaction on his own surmises and conjectures.

8 The expression "nature and source has to be understood together as requirement of identification of the source and the nature of the source, so that the genuineness or 6 DCIT-CC-7(3), Mumbai vs M/s Om Trilok Realty & Infrastructures otherwise could be inferred. The Hon'ble Supreme Court, in Kale Khan Mohd. Hanif vs. CIT, pointed out that the onus on the assessee has to be understood with reference to the facts of each case and proper inference drawn from the facts if the prima facie inference on the facts is that the assessee's explanation is probable, the onus will shift to the Revenue. As far as the creditworthiness or financial strength of the creditor/subscribers is concerned, that can be proved by producing the bank statement of the creditors/subscribers showing that it had sufficient balance in its accounts to enable it to subscriber to the share capital. Once these documents are produced, the assessee would have satisfactorily discharged the onus cast upon him. Thereafter, it is for the Assessing Officer to scrutinize the same and in case he nurtures any doubt about the veracity of these documents, to prove the matter further.

9 Element of credit worthiness and satisfaction of AO thereafter is subjective and requires more efforts/inquiry on the part of the AO to give a finding in the order that lender is not credit worthy. The AO must make proper enquiry before making any addition. In Khandelwal Constructions v. CIT 227 ITR 900 (Gau.), it has been held that the Assessing officer is empowered to make enquiry. If he is satisfied that these entries are not genuine he has every right to add these as income from other sources. But before rejecting the assessee's explanation, A.O. must make proper enquiries and in the absence of proper enquiries, addition cannot be sustained. In fact, in the present case, the lender parties have duly confirmed the transactions undertaken with the appellant company and made due compliance to the notice issued u/s. 133(6) of the Act 8.10 It is clear from the submission of the appellant that the transactions were through account payee cheques and appellant has submitted sufficient details before the AO during the assessment proceedings. The source of receipt was through the high net worth of the alleged lender companies which are capable of giving loans to other companies and sufficient bank balances in the bank statement of the lenders which clearly prove the creditworthiness of the said lenders. Interest is paid and TDS has been deducted by the appellant on such loans.

11 Further, in the case of Nemichand Kothari vs. CIT (264 ITR 254] [Gau), the Hon'ble High Court had held that "A harmonious construction of section 106 of the Evidence Act and section 68 of the Income-tax Act will be that though apart from establishing the identity of the creditor, the assessment establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub-creditor nor is it the burden of the assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been, eventually, received by the assessee. It is not the business of the assessee to find out the source of money of his creditor or of the 7 DCIT-CC-7(3), Mumbai vs M/s Om Trilok Realty & Infrastructures genuineness of the transaction, which took place between the creditor and sub- creditor and for creditworthiness of the sub-creditors, since, these aspects may not be within the special knowledge of the assessee.

12 The assessee must satisfy three important conditions, namely, (i) the identity of the creditor; (ii) the genuineness of the transaction; and (iii) the financial capacity of the person, i.e. the credit worthiness of the creditor. However, the onus of the assessee is limited to the extent of proving the source from which he received the cash credit. The creditworthiness of the creditor has to be judged vis-à-vis the transaction which had taken place between the assessee and the creditor, and it is not the burden of the assessee to find out the source of creditworthiness of the lender to prove the genuineness of the transaction. This issue is dealt by the Gauhati High Court in the case of CIT v. Smt. Sanghamitra Bharali (2014) 361 ITR 481 (Gau). The aforesaid points were also affirmed in the past by the Apex Court in the case of CIT v. Orissa Corporation P. Ltd reported in (1986) 159 ITR 78 (SC). In the case of CIT v. Varinder Rawley (2014) 366 ITR 232 (P & H) the court held that "where the assessee shows that the entries regarding credit in a third party's account were in fact received from the third party and are genuine, he discharges the onus. In that case, the sum cannot be charged as the assessee's income in the absence of any material to indicate that it belongs to assessee"

13 In view of the overall discussion made above, it is clear that the nature and source of loan obtained by the assessee stands explained. The AO has not pointed out any defect in the above-mentioned documentary evidences submitted during the assessment proceedings. Without pointing out any lacuna in the evidences submitted by the appellant, the source and the genuineness of transaction cannot be doubted. It is trite law that once evidences related to a transaction are submitted before the AO, the onus shifts on him to prove these as non-genuine. The AO has not discharged the onus cast upon him. Further, merely the statement of a third person with no locus standi and that too without any corroborative evidence will not make the loan transactions, in question, as accommodation entries. Also, nothing incriminating was found in the search conducted on the appellant company. Also, due compliance is made by the lender parties in response to notice issued u/s. 133(6) of the Act. As such, in the absence of any contrary evidence or findings placed on record, the transactions cannot be treated as accommodation entries.

14. Further, I find that the decision of the Hon'ble juri ictional High Court in the case of CIT v. Paradise Inland Shipping Pvt Ltd (TA No. 66 of 2016) (Bom HC) squarely applies to this case wherein it was observed as under:

We have given our thoughtful considerations to the rival contentions of the learned Counsel and we have also gone through the records. The basic contention of the learned Counsel appearing for the Appellants revolves upon the stand taken by the Appellants whether the 8 DCIT-CC-7(3), Mumbai vs M/s Om Trilok Realty & Infrastructures shareholders who have invested in the shares of the Respondents are fictitious or not. in this connection, the Respondents in support of their stand about the genuineness of the transaction entered into with such Companies has produced voluminous documents which, inter alia, have been noted at Para 3 of the Judgment of the CIT Appeals which reads thus

The Apex Court in the case of Orissa Corpn. (P) Lid (supra), has observed at Para 13 thus

This Court in the Judgments relied upon by the learned Counsel appearing for the Respondents, have come to the conclusion that once the Assessee has produced documentary evidence to establish the existence of such Companies, the burden would shift on the Revenue Appellants herein to establish their case. In the present case, the Appellants are seeking to rely upon the statements recorded of two persons who have admittedly not been subjected to cross examination in such circumstances, the question of remanding the matter for re-examination of such persons, would not at all be justified. The Assessing Officer, if he so desired, ought to have allowed the Assessee to cross examine such persons in case the statements were to be relied upon in such proceedings. Apart from that, the voluminous documents produced by the Respondents cannot be discarded merely on the basis of two individuals who have given their statements contrary to such public documents.

We find no infirmity in the findings arrived at by the ITAT as well as CIT Appeals on the contentions raised by the Appellants-Revenue in the present case and, as such, the question of interference by this Court in the present proceedings under Section 260A of the Income Tax Act would not at all be justified. Apart from that, as rightly pointed out by the learned Counsel appearing for the Respondents, the CIT Appeals had also noted that proceedings under Section 147 of the Income Tax Act cannot lead to re-verification of the records. These findings of the CIT Appeals have not been assailed before the Income Tax Appellate Court

In such circumstances, we find that there is no case made out by the Appellants-Revenue for any interference in the impugned Orders passed by the Courts below:

Hence, the Appeal stands rejected

15. I find that the addition u/s. 68 of the Act is uncalled for in the present facts and circumstances of the case in view of the discussion made above. Accordingly, the addition of Rs.3,00,00,000/- made by the AO deserves to be deleted. This ground of appeal is accordingly ALLOWED.

Ld. DR further submitted that in the instant case statements of Mr. Beni Prasad Lahoti are crucial and has substantial worth to be taken into cognizance, however, Ld. CIT(A) instead of analysing the same has only pointed out the mistakes in findings of the Ld. AO that it was a failure on his part to not point out any lacuna in the evidence or documents submitted. Even if the Ld. CIT(A) was the opinion that the Ld. AO was unable to prove the non-genuineness of the documents or evidence, it was his duty to find out the real fact, so as to arrive at a logical conclusion. Ld. CIT-DR further proposed that if the assessee was requesting for cross examination Ld. CIT(A) had the powers to restore the matter back to Ld. AO with directions to provide such opportunity but it was not done.

It was the prayer by revenue that the matter needs revisit, therefore shall be restore back to the file of Ld. CIT(A) for fresh adjudication for analysing the evidence and facts or records to check the ingredients like identity, genuineness and creditworthiness in terms of provisions of section 68 of the Act.

On the contrary, Ld. Authorised Representative on behalf of assessee submitted that the claim qua the interest expenditure on a loan from M/s Satyam was already dealt with in the earlier years and was allowed to the assessee by the Ld. CIT(A), thus there in no point to disallow the same in relevant year under consideration. A short-written submission also has been furnished by the assessee which is extracted as under: Assessee’s submission Ground No. 1: Disallowance of Interest ₹10,90,695 u/s 69C A.O.'s Contention:

Based on aforesaid submissions, Ld. AR requested that the Ld. CIT(A) had rightly decided the issues favouring assessee by deleting the additions made by the Ld. AO, thus the order of Ld. CIT(A) deserves to be upheld.

We have considered the rival submissions, perused the material available on records and jurisprudence relied upon by the parties. Factually, it is undisputed that the assessee had acquired unsecured loan from certain parties and have paid interest thereon through banking channel. The unsecured loans received by the assessee are treated as unexplained by the Ld. AO and interest thereon as bogus within the meaning of section 68/69C of the Act. Assessee contented that the Ld. AO’s stand was totally based on statement of Mr. Beni Prasad Lahoti, a third party, without any negative inference or deficiency being pointed out in the primary documents / evidence furnished by the assessee. Ld. CIT(A) found force in the contention of the assessee and had deleted the additions with the observation that Ld. AO failed to bring out fallacies in evidence brought on record by the assessee, there is no material in possession of the Ld. AO to summarily doubt the commercial transactions on his own surmise and conjectures.

On a thoughtful consideration of the aforesaid facts and observations of the revenue authorities, we find that both the authorities have 15 DCIT-CC-7(3), Mumbai vs M/s Om Trilok Realty & Infrastructures failed in examining the documents furnished by the assessee, rather it was the duty of Ld. CIT(A) analyse and express his views about the evidence furnished by the assessee so as to satisfy about the identity and credit worthiness of the lenders and genuineness of the transactions, instead of merely mentioning that the Ld. AO had not discharged the onus cast upon him. It would be pertinent to mention that the Ld. CIT(A) also has powers and duties coterminous with that of the AO, thus such exercise was supposed to be undertaken by him or though AOin the interest of justice, however, Ld. CIT(A) made only comments on the working of AO and deleted the addition. Such decisionby the First Appellate authority found to be unjustifiable, bereft of necessary enquiries and without stating the points for determinations qua the limbs of section 68/69 of the Act and reasons for deleting the additions, thus we found it appropriate to restore this matter back to the file of Ld. CIT(A) for fresh adjudication of the issues after examination of the evidence / documents furnished by the assessee in light of the provisions of section 68/69 of the Act, taking into consideration the statement of third parties and to pass a speaking order to meet the mandate of section 250(4) and (6) of the Act.

Needless to say, that the assessee would be allowed with reasonable opportunity of being heard in the set aside appellate proceedings and Ld. AO to be consulted or directed for any assistance to arrive at a logical conclusion.

In result the appeal of revenue is allowed for statistical purposes, in terms of our aforesaid observations.