DCIT-3(1)(1), MUMBAI, AAYAKAR BHAWAN vs. ASHISH INDUR CHOWDHRY, KALA NAGAR MUMBAI

The brief facts of the case are that the assessee, Shri Ashish Indur Chowdhry, is an individual engaged in the profession/business of acting, production and other entrepreneurial activities. The assessee filed his original return of income for A.Y. 2019-20 declaring total income of ₹91,30,510/-. Subsequently, on the basis of information available on the Insight Portal, the Assessing Officer noticed that the assessee had entered into a transaction of ₹10,00,000/- with M/s Consultshah Financial Services Pvt. Ltd. According to the information available with the Department, a search and seizure and survey action had been conducted on 15.02.2022 in the cases of Shri Ramesh Chaurasia, Shri Achal Chaurasia and the ARC Group, during which the Investigation Wing found physical and digital material that the group was generating unaccounted cash through illegal betting and gambling activities and routing such cash into the books through accommodation entries obtained from various intermediaries. The information acknowledged M/s Consultshah Financial Services Pvt. Ltd. as one of the concerns providing accommodation entries and identified the assessee as one of the beneficiaries.

On the basis of the said information, the Assessing Officer initiated re- assessment proceedings.

The assessee explained before the Assessing Officer that he had actually received a genuine loan of ₹10,00,000/- from M/s Consultshah Financial Services Pvt. Ltd. on 19.04.2018 through RTGS and had repaid the entire amount on 13.07.2018 through cheque, within a period of about 86 days. The assessee also explained the utilisation of the amount towards payment of TDS, investment in mutual funds, payment of income-tax demand and other business/personal payments through the bank account. The assessee furnished his bank statements, tax audit report, audited financial statements and income- tax records. The assessee also furnished the PAN, registered address and MCA Master Data of M/s Consultshah Financial Services Pvt. Ltd., along-with the audited financial statements of the lender for F.Ys. 2017-18, 2018-19 and 2019- 20 and the loan confirmation. The assessee further pointed out that the lender was an active company according to the records of the Ministry of Corporate Affairs and the transaction had been duly reported in the assessee's Tax Audit Report.

The Assessing Officer, however, did not accept the explanation. The Assessing Officer relied upon the High Risk CRIU/VRU information and the statements recorded during the search proceedings in the cases of third parties. The Assessing Officer held that M/s Consultshah Financial Services Pvt. Ltd. was providing fictitious loans against receipt of cash and merely because the assessee had received and repaid the amount through banking channels within the same financial year would not change the character of the accommodation entry. The Assessing Officer also rejected the assessee's request for cross- examination by relying upon the decisions referred to in the assessment order and held that the right of hearing did not necessarily include an absolute right of cross-examination in every case.

The Assessing Officer held that the assessee had failed to satisfactorily explain the transaction of ₹10,00,000/- and treated the same as a bogus accommodation entry. The Assessing Officer accordingly made an addition of ₹10,00,000/- under section 68 of the Actand initiated penalty proceedings under section 271AAC(1) of the Act.

The assessee challenged the addition before the learned CIT(A). The learned CIT(A) examined the documentary material which the assessee had furnished during the assessment proceedings and found that the assessee had produced sufficient evidence regarding the identity of the lender, its financial capacity and the genuineness of the loan transaction. The learned CIT(A) specifically found that the assessee had furnished the bank statement, audited financial statements of M/s Consultshah Financial Services Pvt. Ltd. for three financial years, MCA Master Data, the ledger account and confirmation of the lender. The learned CIT(A) also found that the assessee had explained how the loan had been utilized and had established that the loan received on 19.04.2018 had been repaid on 13.07.2018.

The learned CIT(A) further found that the Assessing Officer had not conducted any enquiry into the documentary evidence furnished by the assessee and had not brought any material on record to disprove the evidence relating to the lender or the transaction. The learned CIT(A), therefore, held that the assessee had satisfactorily discharged the initial burden cast upon him under section 68 of the Act in respect of the identity and creditworthiness of the lender and the genuineness of the transaction. The learned CIT(A) accordingly deleted the addition of ₹10,00,000/-.

The Department is in appeal before us against the order passed by the learned CIT(A) allowing the appeal of the assessee.

We have heard the rival submissions and perused the material available on record. The dispute before us is confined to the deletion of the addition of ₹10,00,000/- made by the Assessing Officer under section 68 on account of the loan received by the assessee from M/s Consultshah Financial Services Pvt. Ltd.

The learned Departmental Representative supported the assessment order and submitted that the Investigation Wing had identified M/s Consultshah Financial Services Pvt. Ltd. as a concern engaged in providing accommodation entries and the Assessing Officer was therefore justified in treating the loan received by the assessee as a bogus accommodation entry.

The learned Counsel for the assessee, on the other hand, placed reliance on the observations made by CIT(Appeals) in the appellate order.

We have considered the rival submissions. Section 68 of the Act permits an addition where a sum is found credited in the books of an assessee and the assessee either offers no explanation regarding the nature and source of the credit or the explanation offered is not found satisfactory. In the case of a loan, the assessee is required to establish the identity of the creditor, creditworthiness of the creditor and genuineness of the transaction. Once the assessee produces prima facie evidence establishing these ingredients, the Assessing Officer must examine the material and, if he seeks to reject it, bring some material on record showing why the evidence furnished by the assessee is unreliable.

Applying this principle to the facts before us, we find that the assessee furnished the PAN, registered address and MCA details of M/s Consultshah Financial Services Pvt. Ltd. The identity of the lender was therefore clearly established. Further, the MCA data furnished by the assessee showed the company as an active corporate entity.

As regards creditworthiness, the assessee furnished the audited financial statements of M/s Consultshah Financial Services Pvt. Ltd. for three consecutive financial years. The financial statements were therefore available with the Assessing Officer to examine whether the lender possessed the financial capacity to advance ₹10,00,000/-. The assessee specifically pointed out that the lender had shareholders' funds of approximately ₹1.24 crore as on 31.03.2019 and ₹1.93 crore as on 31.03.2020 and had disclosed profits in the relevant periods. The Assessing Officer did not point out any specific defect in these audited financial statements or demonstrate that the lender did not possess sufficient funds to advance ₹10,00,000/-.

As regards genuineness, we find that the assessee received the loan on 19.04.2018 through RTGS and repaid the entire amount on 13.07.2018 through cheque. Thus, there was a complete banking trail both at the stage of receipt and repayment. The loan was outstanding for only about 86 days and there was no closing balance at the end of the year. The ledger confirmation placed at page 466 of the Paper Book, which was also produced before us, takes note of the transaction between the assessee and the lender. The Department has not pointed out any discrepancy in the said ledger confirmation.

We also that the assessee had duly recorded the transaction in the books of account and the auditor also disclosed the transaction in the Tax Audit Report. The reporting of the transaction in the statutory audit material is an important circumstance supporting the assessee's case that the transaction was not an undisclosed cash arrangement which was later shown up as a loan.

We further find that the assessee explained the utilisation of the money taken. The assessee stated that part of the amount was utilised for payment of TDS of ₹1,47,993/-, investment in mutual funds, payment of income-tax demand of ₹1,00,000/- and other payments reflected in the bank account. The Assessing Officer has not shown that the money received through RTGS was immediately withdrawn in cash and returned to the lender or to any intermediary. Similarly, the Assessing Officer has not established that the assessee supplied ₹10,00,000/- in cash to M/s Consultshah Financial Services Pvt. Ltd. or to any third party before receiving the RTGS credit.

This aspect is important because the allegation of the Department is that the loan was merely an accommodation entry against cash. If that allegation is to be sustained against this particular assessee, there must be some material connecting the assessee with the cash component. The assessment order contains no evidence showing movement of ₹10,00,000/- in cash from the assessee to the lender or to an alleged entry operator. The Assessing Officer has not identified any seized material showing the assessee's name against a corresponding cash payment and has not established any cash trail.

We also find that the assessee had requested the Assessing Officer to independently verify the lender and, if necessary, issue notice under section 133(6) of the Act. Once the assessee furnished the PAN, address, financial statements and confirmation of the lender, nothing prevented the Assessing Officer from issuing notice directly to the lender or examining its bank account and books of account. The Assessing Officer, however, did not carry out such verification.

We further find that the Assessing Officer relied upon statements and information gathered during proceedings conducted in relation to Shri Ramesh Chaurasia, Shri Achal Chaurasia and the ARC Group. However, the assessment order does not bring out any direct material from those proceedings specifically establishing that the ₹10,00,000/- received by this assessee in F.Y. 2018-19 was an accommodation entry against cash.

We agree with the learned CIT(A) that the Assessing Officer could not reject the assessee's documentary evidence merely on the basis of a general allegation regarding the lender. The proposition that a particular entity may have provided accommodation entries to certain persons does not automatically mean that every transaction entered into by that entity with every person in every assessment year is necessarily bogus. The Assessing Officer must establish a nexus between the adverse material and the particular transaction sought to be taxed.

We are of the considered view that the learned CIT(A) correctly appreciated the facts. Accordingly, we find no infirmity in the order of Ld. CIT (Appeals) so as to call for any interference.

In the result, the appeal of the Department is dismissed.