M/S. BLUEFOREST AGRO ESTATE PVT LTD,MUMBAI vs. ITO WARD 9(2)(1), MUMBAI

Ld. Counsel for the assessee, at the outset, submitted that Ground Nos. 5 and 6 of the grounds of appeal are not pressed. Ground No. 5 is in respect of not providing sufficient time by the Assessing Officer during the assessment proceedings for filing responses and Ground No. 6 is in respect of the Assessing Officer not providing a copy of the approval obtained from the PCCIT u/s 151 of the Act.

In view of the submission of the Ld. Counsel for the assessee, Ground Nos. 5 and 6 of the grounds of appeal are dismissed as not pressed.

Ld. Counsel for the assessee, referring to Ground No. 4 of the grounds of appeal, which is in respect of the loan obtained by the assessee from M/s Diablue Exports Pvt. Ltd. during the assessment year under consideration, submitted that the assessee had taken a short term loan from the said party during the year assessment under consideration and the same was also repaid during the assessment year under consideration itself and therefore, there is no escapement of income. Ld. Counsel placed reliance on the decision of the Hon'ble Gujarat High Court in the case of Balkrishna Mangaldas Thakkar vs. DCIT, 178 taxman.com 281.

Ld. Counsel for the assessee, referring to pages 1 and 2 of the assessment order, submitted that during the investigation conducted by the Enforcement Directorate against M.D. Enterprises and other entities, it came to know that M.D. Enterprises had undertaken bogus and non-genuine business transactions during the assessment years 2013-14 and 2014-15. It was also noticed by the Revenue from the bank statement of M.D. Enterprises for the financial years 2012-13 and 2013- 2 14 that M/s Diablue Exports Pvt. Ltd. had undertaken certain transactions with M.D. Enterprises. However, M/s Diablue Exports Pvt. Ltd. had not disclosed the bank account in the return of income for the assessment year 2013-14. The Assessing Officer observed that M/s Diablue Exports Pvt. Ltd. was one of the beneficiaries involved in sending funds out of India through a host of intermediaries under the pretext of fake bills of entry. Ld. Counsel submitted that since M/s. Diablue Exports Pvt. Ltd. had undertaken non-genuine business transactions during the relevant assessment year with M.D. Enterprises and since the assessee-company had undertaken transactions with M/s. Diablue Exports Pvt. Ltd. through the bank account which was not disclosed in the return of income by M/s. Diablue Exports Pvt. Ltd., it was concluded by the Assessing Officer that the loan transaction entered into by the assessee-company with M/s. Diablue Exports Pvt. Ltd. could not be treated as a genuine business transaction. Accordingly, the Assessing Officer concluded that the sum of Rs.1,40,00,000/- received by the assessee during the financial year 2012-13, out of the total credit transactions appearing in the bank statement of the assessee with Bank of Maharashtra amounting to Rs.28,25,00,000/-, had remained unexplained and had escaped assessment. Ld. Counsel submitted that merely because the assessee had entered into transactions with M/s. Diablue Exports Pvt. Ltd., the transactions would not become non-genuine. Ld. Counsel submitted that during the investigation, it was only found by the agencies that the transactions between M.D. Enterprises and M/s. Diablue Exports Pvt.

Ld. Counsel for the assessee further referring to page 16 of the assessment order, submitted that during the course of assessment proceedings, the assessee filed confirmation of account from M/s. Diablue Exports Pvt. Ltd., a copy of the acknowledgment of the return of income of M/s. Diablue Exports Pvt. Ltd. for the assessment year 2013-14, a copy of the bank statement of the assessee with Bank of Maharashtra, and the company master data relating to M/s. Diablue Exports Pvt. Ltd., which clearly shows that the company is active and compliant. Ld. Counsel, further referring to page 15, submitted that during the course of assessment proceedings, the assessee furnished all 4 the details in respect of loans received by the assessee and repaid during the assessment year along with the address and PANs of the lenders, details of loans received by the assessee in the earlier years, details of TDS deducted, etc. Ld. Counsel for the assessee further made the following submissions with respect to loan taken and repaid to M/s. Diablue Exports Pvt. Ltd.

While framing the reassessment, the Assessing Officer treated Rs.4,50,00,000/- received from M/s. Diablue Exports Pvt. Ltd. and repaid to M/s. Diablue Exports Pvt. Ltd. during the financial year relevant to the assessment year under consideration as unexplained cash 8 credit u/s 68 of the Act on the ground that the transactions entered into by M/s. Diablue Exports Pvt. Ltd. were non-genuine transactions. Assessing officer also treated the balance credits of Rs.23,75,00,000/- (28,75,00,000 – 4,50,00,000) appearing in the bank account of the assessee as unexplained investment u/s 69 of the Act.

On careful perusal of the assessment order, it is observed that the only basis for treating the loan transactions between the assessee and M/s. Diablue Exports Pvt. Ltd. as non-genuine was the report of the Investigation Wing and the Enforcement Directorate that M.D. Enterprises and other entities had undertaken bogus and non-genuine transactions with M/s. Diablue Exports Pvt. Ltd. According to the Assessing Officer since the transactions entered into with M.D. Enterprises by M/s. Diablue Exports Pvt. Ltd. were not genuine the loan transactions undertaken by the Assessee with M/s Diablue Exports Pvt. Ltd., were also non-genuine.

We observed that the Assessing Officer without making any independent enquiry with M/s Diablue Exports Pvt. Ltd. with regard to the loan transactions entered into by the assessee, completely and solely relied upon the reports of the Investigation Wing and the Enforcement Directorate to conclude that every transaction entered into by M/s Diablue Exports Pvt. Ltd. was non-genuine.

On the other hand, the assessee furnished confirmation of account, acknowledgment of filing of the return of income by M/s Diablue Exports Pvt. Ltd., copy of the bank statement of the assessee reflecting 9 the loan transactions, the very same bank account was disclosed by the assessee in its return of income for the assessment year 2013-14, the company master data of M/s Diablue Exports Pvt. Ltd. downloaded from the MCA portal, which clearly shows that M/s Diablue Exports Pvt. Ltd. was active and compliant and held its last AGM on 28.10.2022 and had furnished its balance-sheet as on 31.03.2022. Despite the assessee furnishing all these details, the Assessing Officer concluded that the loan transactions entered into by the assessee with M/s. Diablue Exports Pvt. Ltd. were not genuine without making any further enquiry and simply relied upon the reports of the Investigation Wing. The assessment order does not suggest that any enquiry was made by the Assessing Officer by issuing notice u/s 133(6) to M/s Diablue Exports Pvt. Ltd.

We also observe that the assessment was reopened on the ground that transactions to the extent of Rs.1,40,00,000/- between the assessee and M/s. Diablue Exports Pvt. Ltd. had escaped assessment. However, during the course of reassessment proceedings, the Assessing Officer noticed that the assessee had entered into loan transactions amounting to Rs.4,50,00,000/- and not Rs.1,40,00,000/-. The Assessing Officer treated the loan transactions of Rs.4,50,00,000/- as unexplained cash credit ignoring the evidences furnished by the assessee.

In these circumstances, we are of the view that the addition made by the Assessing Officer u/s 68 of the Act in respect of the loan transactions between the assessee and M/s Diablue Exports Pvt. Ltd. cannot be sustained.

We further observe that the Hon'ble Gujarat High Court in the case of Balkrishna Mangaldas Thakkar vs. DCIT (supra) held that where the assessee entered into genuine temporary loan transactions through banking channels and there was no material to show that the assessee had obtained accommodation entries, the order passed u/s 148A(d) and the consequential notice issued u/s 148 were not sustainable.

We also observe that it is not even the case of the Assessing Officer that the transactions entered into by M/s Diablue Exports Pvt. Ltd. with the assessee were mere accommodation entries. Nothing was brought on record to suggest that these transactions were accommodation entries. Thus, we direct the Assessing Officer to delete the addition of Rs.4,50,00,000/- made u/s 68 of the Act. Ground No. 4 of the grounds of appeal is allowed.

Ld. Counsel for the assessee referring to Ground No. 10 of the grounds of appeal, which is in respect of challenging the order of the Assessing Officer in making an addition of Rs.23,75,00,000/- being the balance credit transactions reflected in the bank account of the assessee as unexplained investment u/s 69 of the Act.

Ld. Counsel submitted that this addition was not part of the reasons recorded for reopening the assessment. Ld. Counsel for the assessee, referring to page 19 of the assessment order, submitted that the Assessing Officer on perusal of the bank statement of the assessee noticed credits of Rs.28,25,00,000/-, out of which Rs.4,50,00,000/- had already been treated as unexplained cash credit u/s 68 of the Act and the balance amount of Rs.23,75,00,000/- was treated as non-genuine transactions and added as unexplained investment u/s 69 of the Act. Ld. Counsel submitted that during the course of the assessment proceedings, the assessee furnished its reply which has been extracted by the Assessing Officer at pages 14 to 19 of the assessment order. The assessee explained that the transactions amounting to Rs.23,75,00,000/- during the year under consideration were as follows.

Ld. Counsel, referring to the above table, submitted that the assessee obtained loans from Nam Technologies Pvt. Ltd., Centre Point Gems Pvt. Ltd. and Escalade Buildtech Pvt. Ltd. during the year under consideration. Insofar as Centre Point Gems Pvt. Ltd. is concerned, the entire loan was repaid during the assessment year itself. In respect of Nam Technologies Pvt. Ltd. and Escalate Buildtech Pvt. Ltd., the loans were partly repaid during the assessment year.

Insofar as the amount of Rs.18.25 crores appearing against Neelkanth Cities Pvt. Ltd. is concerned, Ld. Counsel submitted that the said amount represents repayment of loans given by the assessee to the said party in the earlier years. Therefore, no addition can be made in respect of Rs.18.25 crores u/s 69 of the Act.

Ld. Counsel further submitted that during the assessment proceedings, the assessee furnished ledger confirmations, PAN details, ROC master data of the lenders, bank statements of the assessee, cash book, and explained that all the loans had been received through banking channels by account payee cheques/RTGS. Copies of the assessee's bank statements were also filed. Ld. Counsel submitted that the Assessing Officer treated the said loans as unexplained investment u/s 69 of the Act for vague reasons though the assessee had filed sufficient details to discharge its onus. No enquiry whatsoever was made by the Assessing Officer with the lenders. Ld. Counsel further submitted that the addition made u/s 69 of the Act was not even part of the reasons recorded for reopening the assessment. Therefore, the Assessing Officer, without verifying the facts merely added the credit transactions reflected in the bank statement of the assessee. The Assessing Officer did not even consider that the transactions were loan transactions which were mostly squared up by the end of the year. The Assessing Officer also ignored the undisputed fact that Neelkanth Cities Pvt. Ltd. had not advanced any money to the assessee during the year under consideration but had only repaid the loans earlier advanced by the assessee. Therefore, there was no reason to treat such transactions as unexplained investment.

On the other hand, the Ld. DR strongly supported the orders of the authorities below and made submissions as under.

This explanation was completely ignored by the Assessing Officer as well as the learned CIT(A). The only reason assigned by the Assessing Officer for treating the amount as unexplained investment u/s 69 of the Act was that the name of Neelkanth Cities Pvt. Ltd. had been struck off from the records of the ROC. The Assessing Officer has not assigned any other reason for treating the said amount as unexplained investment. It is observed that the assessee furnished ledger confirmations of Neelkanth Cities Pvt. Ltd. for the period 01.04.2011 to 31.03.2012 and 01.04.2012 to 31.03.2013, copies of accounts, acknowledgment of the return of income for the assessment year 2013- 14 and copies of the bank statement of the assessee reflecting the transactions of advancing loans and partial repayment by Neelkanth Cities Pvt. Ltd. during the year under consideration. None of these 15 documents were doubted by the Assessing Officer nor was any further information was called for from the assessee except observing that the name of Neelkanth Cities Pvt. Ltd. had been struck off from the ROC.

Perusal of the bank statements furnished by the assessee at pages 91 to 93 of the paper book reflects that the assessee had advanced loans to Neelkanth Cities Pvt. Ltd. and the said company had partially repaid the loans through RTGS which are duly reflected in the bank statements. Therefore, the contention of the assessee that the amount represents repayment of loans advanced in the earlier years cannot be brushed aside. Accordingly, there is no justification in treating Rs.18.25 crores as unexplained investment u/s 69 of the Act.

Similarly, during the course of the assessment proceedings, the assessee furnished ledger confirmations, PAN details, ROC master data of the lenders, bank statements, cash book, and copies of the acknowledgments of the Income Tax Returns of the other three lenders. The lenders are income-tax assessees, their PAN details are available and copies of the acknowledgments of their returns of income were furnished.

The Assessing Officer failed to make any enquiry by issuing notices u/s 133(6) to the lenders. Therefore, in our considered view, the Assessing Officer, without examining the creditors by issuing notices u/s 133(6) and without examining the relevant documents furnished by the assessee concluded that the assessee had made unexplained investments u/s 69 of the Act though the assessee had received loans 16 from certain parties and repaid such loans partly during the year itself. Such transactions cannot be treated as unexplained investments u/s 69 of the Act. Thus, we direct the Assessing Officer to delete the addition made u/s 69 of the Act. Ground No. 10 is allowed.

Coming to Ground No. 9, which is in respect of the disallowance of interest on loans, we observe that it is only consequential in nature. Since we have deleted the addition made u/s 69 of the Act, the addition made by the Assessing Officer in respect of interest on loans is hereby deleted. Ground No. 9 is allowed.

In the result, the appeal of the assessee is partly allowed as indicated above.