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Facts
The assessee, a property development LLP, received information alleging accommodation entries of ₹1 Crore from a hawala operator. The AO initiated reassessment proceedings, made additions under Section 68 and Section 69C for the loan and related interest, without providing cross-examination or considering assessee's evidence of genuineness, repayment, and TDS deduction. The CIT(A) upheld the AO's order, leading to the present appeal.
Held
The Tribunal noted that the assessee had repaid the loan and paid interest with TDS, which was not disproved by the revenue. Citing the Bombay High Court, it held that if repayment is established, Section 69 (and by extension Section 69C) would not apply unless the revenue disproves the evidence. Since the AO failed to verify assessee's evidence and denied cross-examination, the additions made by the AO were deleted.
Key Issues
Violation of natural justice (denial of cross-examination and non-provision of material); Validity of reassessment proceedings framed under Section 147 instead of Section 153C; Merits of disallowance under Section 68 for accommodation entries and Section 69C for interest on alleged bogus loans.
Sections Cited
147, 143(3), 153C, 68, 69C, 148, 142(1), 143(2), 69
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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SMT. BEENA PILLAI & SMT. RENU JAUHRI
Per Smt. Beena Pillai, JM: Present appeal filed by the assessee arise out of order dated 03/07/2024 passed by NFAC, Delhi [hereinafter “the Ld. CIT(A)”] for assessment year 2012-13, on following grounds of appeal:-
1. 1. “1. 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), National Faceless Appeal Centre, ["the Ld. CIT(A)"] confirming the assessment order of the Learned Assessing Officer ["the Ld. AO"] is bad in law and void since the same is passed in gross violation of principles of natural justice; without considering the submissions filed by the Assessee and is a non-speaking order, without any independent reasoning whatsoever 2. ON VALIDITY OF THE ORDER: 2.1. In the facts and circumstances of the case and in law, the impugned assessment order passed by the Assessing Officer is bad in law and void since the same is in violation of Circular 19 of 2019 and the Ld. CIT(A) erred in affirming such an order.
3. ON VALIDITY OF THE RE-ASSESSMENT PROCEEDING: 3.1. In the facts and circumstances of the case and in law, the Assessment order passed by the Ld. AO as affirmed by the Ld. CIT (A) is bad in law and void for want of jurisdiction since the same is contrary to the extant law and also because the necessary pre-conditions for initiation as well as completion of a re-assessment are not fulfilled in the present case. In the facts and circumstances of the case and in law, the assessment framed u/s 143(3) r.w.s. 147 is bad in law and void since the assessment should have been framed u/s 153C of the Act and not u/s 147 of the Act. Without prejudice to the above, in the facts and circumstances of the case and in law, the impugned assessment proceeding is bad in law and void also because the same is based on material gathered at the back of the Appellant without providing the Appellant with an opportunity to furnish its response to the same and also cross examine the parties, whose statements are relied on.
4. ON MERITS OF THE DISALLOWANCE : 4.1. In the facts and circumstances of the case and in law, the Ld. CIT (A) erred in confirming the action of the Ld. AO in adding an amount of Rs.1,00,00,000/- u/s 68 of the Act in respect of the loan received by the Appellant and further disallowing an amount of Rs.3,78,740/-u/s 69C of the Act on account of interest paid on the said loan. 4.2. While doing so the Ld. CIT (A) failed to appreciate that: i. The said addition and disallowance made by the Ld. AO is contrary to law, based on mere assumption, presumptions and surmises, is based on irrelevant / extraneous considerations while ignoring the relevant and material considerations/ evidences furnished by the Appellant and based on certain material gathered at the back of the Appellant without confronting the same to the Appellant; Section 68 as well as 69C are not all applicable in the present case and the addition and disallowance are bad in law; iii. The CIT(A) has confirmed the disallowance without any independent reasoning as to why the action of the AO is sustainable; and; iv. Even otherwise, the disallowance is totally contrary to the extant law and therefore unsustainable.
4. The Appellant craves leave to add, amend, alter, delete or modify any or all the above grounds of Appeal
.”
2. Brief facts of the case are as under:-
The assessee is a Limited Liability Partnership engaged in the business of property development since 2006. The assessee filed its original return of income on 11.08.2012 declaring Nil income. The assessee undertook development project on Plot Nos. 11/50, 12/50 and 13/50, Tawari Pada, Dr. S.S. Rao Road, Lalbaug, Mumbai, jointly with Magnum Developers (Proprietor Shri Hemant Vyas) and the Slum Rehabilitation Authority (SRA). Subsequently, the Ld. AO received information from the Investigation Wing vide letter No. DIT(Inv.)/I/Information/PJ/2014-15 dated 07.07.2014, which was forwarded by ITO 21(1)(1), Mumbai vide letter dated 16.03.2016.
2.1. The information alleged that the assessee took accommodation entries of ₹1,00,00,000/- from entities controlled by Shri Praveen Kumar Jain, identified as a hawala operator. It was stated that the assessee received the said accommodation entry through Duke Business Pvt. Ltd. (formerly JPK Trading Pvt. Ltd.) during the relevant year.
2.2. Based on this information, the Ld. AO issued a notice under section 148 on 07.03.2019. In response, the assessee filed its return of income u/s 148 of the Act on 26.03.2019. The case was thereafter taken up for scrutiny, and notices under sections 142(1) and 143(2) were issued on 23.09.2019. During the assessment proceedings, the assessee furnished relevant details, including confirmations, bank statements, and documentary evidences to substantiate the genuineness of the transactions in question. The assessee also submitted that the alleged unsecured loan was duly repaid along with applicable interest. The Ld. AO, however, did not Shri Praveen Kumar Jain, without granting an opportunity to cross-examine. The Ld. AO invoked the provisions of section 69C of the Act and made an addition of ₹1,03,78,740/- treating the impugned transaction as unexplained expenditure.
Aggrieved by the order of the Ld. AO, assessee preferred appeal before the Ld. CIT(A).
Before the Ld. CIT(A) the assessee contended that the assessment was completed in disregard tothe principles of natural justice and without proper appreciation of evidences placed on record. The assessee submitted that the additions were made on an ad hoc basis, merely to conclude the assessment, despite complete documentation being available before the Ld. AO. The Ld. CIT(A) after considering the submission of the assessee observed and held as under:-
“5.7. Disallowance of interest expense:- The assessee has shown to have paid interest amounting to Rs. 3,78,740/- to the M/s Duke Business Pvt. Ltd. The assessee had shown to have paid the above said interest to the party from whom accommodation entry of loan had been raised. Considering that the expenses incurred on bogus entry cannot be treated as expenditure to have been incurred for the purpose of business and hence cannot be allowed. Accordingly, the same was added to the total income of the assessee by the AO as per provisions of section 69C of the Act. I have gone into the facts and circumstances of the case. It is a fact that the assessee failed to prove the creditworthiness and genuineness of transaction which he was supposed to do in view of the onus cast on it as per provisions of Section 68. This leads to the inference that the interest paid by the appellant to the M/s Duke Business Pvt. Ltd. amounting to Rs. 3,78,740/- cannot be accepted to have been incurred for the purpose of the business and hence cannot be considered as an allowable expenditure as per the relevant provisions. On the facts and circumstances of the case, I, therefore, find AO to disallow the interest amount of Rs. 3,78,740/- paid on bogus unsecured loan amount of Rs. 100,00,000/- and accordingly, the addition so made by the AO is upheld and the relevant ground of appeal of the appellant is dismissed.
6. In the result, the appeal of the appellant is dismissed.” Aggrieved by the order of the Ld. CIT(A), assesse is in appeal before this Tribunal.
The Ld. AR submitted that, assessee raised ground nos. 1 to 3 challenging validity of the re-assessment proceedings. However, at the outset, the Ld. AR submitted that assessee wishes to argue the issues raised on merits of the case.
Ground No. 4, raised by assessee is in respect of the addition amounting to Rs. 1 Crore, u/s 68 of the Act and disallowance of Rs. 3,78,740/- on account of interest paid on such loan u/s 69C of the Act.
5.1. The Ld.AR submitted that, the assessee provided preliminary documents to establish the creditworthiness, genuineness and identity of the loan transactions undertaken by assessee from Duke Business Pvt. Ltd. He submitted that based on an intimation received from Investigation Wing, the authorities below proceeded on the footing that the assessee is a beneficiary of the alleged loan from Duke Business Pvt. Ltd., which is one of the entities manage and controlled by Praveen Kumar Jain, a hawala operator.
5.2. The Ld. AR submitted that, the assesse filed evidence pertaining to the loan transactions and confirmations from the lender proving the genuineness of the loan taken. He submitted that, the assesse also has repaid the loan with interest to the 5.3. The Ld.AR submitted that authorities below did not have iota of evidence to rebut the evidence furnished by the assessee which is placed at pages 65 to 135 of the paper book. The Ld.AR also placed reliance on the decision of Hon'ble Bombay High Court in case of H.R. Mehta vs. ACIT in of 2001 vide order dated 30/06/2016 wherein Hon'ble High Court placing reliance on the decision of Hon'ble Delhi High Court in case of CIT vs. Ashwini Gupta reported in 322 ITR 396 and the decision of Hon'ble Supreme Court in case of M/s. Andman Timber Industries vs. Commissioner of Central Excise reported in (2015) 62 taxmann.com 3 observed as under :
"The Delhi High Court in Ashwani Gupta (supra)held that once there is a violation of the principles of natural justice inasmuch as when its seized material was not provided to an assessee nor was he permitted to cross examine a person on whose statement the Assessing Officer relied, it would amount to deficiency, amounting to a denial of opportunity and therefore violation of principles of natural justice. In that case CIT (A) had deleted addition made by the Assessing Officer since the Assessing Officer had failed to provide copies of seized material to the assessee nor had he allowed the assessee to cross- examine the party concerned. The Division Bench held that once there is violation of the principles material was not opportunity of cross examining justice inasmuch as seized provided Pauralsich be examin the assessee nor was given the person whose statement was being used against the assessee the order could not be sustained.
In M/s Andaman Timber Industries (supra) the Supreme Court found that the Adjudicating Authority had not granted an opportunity to the assessee to cross examine the witnesses and the tribunal merely observed that the cross examination of the dealers in that case, could not have brought out any material which would not otherwise be in possession of the appellant-assessee. The Supreme Court set aside the impugned order and observed that it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross examination and make the remarks such as was done in that case.
In the instant case although the appellant assessed has called upon us to draw an inference that the burden shifted to the revenue in the present case once it was established that the payments were made and repaid by cheque we need not hasten and adopt that view after having given our thought to various issues raised and the decisions cited by Mr.Tralshawalla and finding that on a very fundamental Prakash R Mehta (HUF) aspect, the revenue was not justified in making addition at the time of reassessment without ion at the time having first given the assessee an opportunity to cross examine the deponent on the statements relied upon by the ACIT. Quite apart from denial of an opportunity of cross examination, the revenue did not even provide the material on the basis of which the department sought to conclude that the loan was a bogus transaction.
In our view in the light of the fact that the monies were advanced apparently by the account payee cheque and was repaid vide account payee cheque the least that the revenue should have done was to grant an opportunity to the assessee to meet the case against him by providing the material sought to be used against assessee in arriving before passing the order of reassessment. This not having been done, the denial of such opportunity goes to root of the matter and strikes at the very foundation of the reassessment and therefore renders the orders passed by the CIT(A) and the Tribunal vulnerable. In our view the assessee bound to be provided with the material used against him apart from being permitting him to cross examine the deponents. Despite the request dated 15th February, 1996 seeking an opportunity to cross examine the deponent and furnish the assessee with copies of statement and disclose material, these were denied to him. In this view of the matter we are inclined to allow the appeal on this very issue." 5.4. On the contrary, the Ld.DR submitted that, identical issue arising out of search and survey action in the case of Shri. Pravin Kumar Jain was considered by Hon'ble Ahmedabad Tribunal, in case of Shri. Pravinkumar M Sagvi Vs. ITO in for the assessment year 2007-08, vide order dated 17.05.2017. He submitted that, Hon'ble Ahmedabad Tribunal has tradable analyzed genuineness and credit worthiness of the lender and came to the conclusion that lender were basically shell companies without any activities and that, the assessee had 5.5. The Ld.DR submitted that, the said decision of the Hon'ble Ahmedabad Tribunal has been upheld by the Hon'ble Gujarat Prakash R Mehta (HUF) High Court in vide order dated 12/02/2018. He thus heavily relied on the observation of the Hon'ble Ahmedabad Tribunal in similar circumstance.
We have perused the submissions advance by both sides in the light of record placed before us.
Primarily, in the present facts of the case, we note that, the assessee furnished relevant details as called for by the Ld. AO in respect of the loan creditor during assessment proceedings. However, the Ld. AO did not carry out any verification of the evidence submitted by the assessee as regard the source in the hands of the lenders.
6.1. However, we agree with the Ld.DR that the genuineness of the transaction does not get established even though the assessee filed all relevant documents required to discharge its onus u/s. 68 of the Act. Be that as it may, the observation of the Hon'ble Bombay High Court in case of H.R. Mehta vs. ACIT (supra) reproduced here in above, squarely applies to the present facts of the case. Specifically we refer to para 16 and 17 of the decision of Hon'ble Bombay High Court wherein, it is observed that once the repayment is made by assessee, it is established, the provisions of section 69 would not be applicable unless the revenue disproves the evidences furnished in respect of repayment.
6.2. It is further noted that, in the present facts interest was paid by the assessee to the lenders which has also not been disproved by the revenue. The decisions relied by the Ld.DR of Hon'ble Ahmedabad High Court is distinguishable with present facts in this specific circumstances. It is noted that, there was no repayment of loan by the assessee therein, based on which the Tribunal took such view. Thus the ratio of the decisions relied by Ld.DR is not applicable to the peculiar facts of therein present assessee. Based on the above we are of the opinion that the addition made by the Ld.AO in the present facts of the case deserves to be deleted.
Accordingly the Ground No.4 raised by the assessee stands allowed. As we have already decided the issues on merits in favour of the assessee, the legal issue raise by the assessee is kept open and left academic at this juncture.