RAJENDRA MUNILALJI HIRANI,MUMBAI vs. DCIT CENTRAL CIRCLE 2, THANE, THANE

On the facts and in the circumstances of the case and in law. the Honble CIT(A) erred in upholding the validity of notice issued by the Ld AO under section 148 of the IT Act 1961 and the reasons assigned for doing so are wrong and contrary to the provision of Income Tax Act and rules made there under.

On the facts and in the circumstances of the case and in law the Honble CIT(A) erred in upholding the addition of Rs.1,00,00,000/- made by the Ld AO to the returned income by wrongly treating the unsecured loan taken from M/s. Gloomy 2 Vincom Pvt Ltd a family owned concern as unexplained cash credit u/s 68 of the Income Tax Act 1961 without assigning any valid reason and the reason assigned for doing so are wrong and contrary to the Provisions of Income Tax Act and Rules made there under.

On the facts and in the circumstances of the case and in law, the Honble CIT(A) erred in upholding the penalty initiated by 3 the Ld AO u/s. 271(1)(c) of the IT Act 1961 and the reasons assigned for doing so are wrong and contrary to the provision of Income Tax Act and rules made there under.

Your Appellant crave, leave to add, alter, amend OR modify any OR all grounds of appeal on OR before the date of hearing.

Ground No. 1 raised by the assessee relates to challenging the validity of the notice issued by the AO under Section 148 of the Act. In this regard, the Ld. AR appearing on behalf of the assessee reiterated the same arguments as were raised by him before the Revenue Authorities and also relied upon the written submissions, more particularly Para Nos. 8 to 8.11 and the same is reproduced herein below:

On the contrary, the Ld. DR appearing on behalf of the Department relied upon the orders passed by the Revenue Authorities.

We have heard the counsel for both the parties, perused the material placed on record, the judgments cited before us, and also the orders passed by the Revenue Authorities. From the records, we noticed that the assessee categorically argued that the AO, while issuing notice for reopening, had not brought on record any allegation in the reasons recorded that there was any failure on the part of the assessee to disclose truly and fully any material facts, whereas on perusal of the said reasons, it is clear that the reasons given for initiating the reassessment proceedings under Section 148 of the Act were only on the basis of information received that M/s Gloomy Vincom was found to be a bogus entity based on directions made under Section 144A of the Act.

In this way, it was submitted that there was not even an allegation in the said reasons that there was any failure on the part of the assessee to disclose any material fact, let alone the details thereof, which led to any income escaping assessment. It was further submitted that the foremost requirement of law for reopening a completed assessment is that the AO must apply his mind to the material coming into his possession in order to form a belief that the income chargeable to tax has escaped assessment.

It was further submitted that on a bare reading of the reasons recorded, it is abundantly clear that the AO was not in possession of any material to justify that he had reason to believe for reopening the completed assessment, and thus relied on a number of decisions while reproducing the written submissions filed by the assessee.

After evaluating the entire record, we find that the original assessment under Section 153A of the Act was completed and the additions were deleted. However, in the present case, the reopening is based on new information, as has been argued by the Ld. DR, which came into the AO's possession subsequent to the completion of proceedings under Section 153A of the Act. The information regarding M/s Gloomy Vincom being a bogus entity was unearthed during separate assessment proceedings for AY 2015-16, which constitutes fresh, specific, and tangible material that was not examined during the earlier Section 153A proceedings. Thus, it cannot be treated as a "change of opinion" on the same set of facts. We find that the action of the AO was based on new information that provided reason to believe that income had escaped assessment.

We are of the view that completion of assessment under Section 153A does not grant permanent immunity from reopening under Section 147 of the Act if any new tangible information comes to the notice of the Department after the assessment proceedings under Section 153A of the Act have been concluded. Thus, in our view, as per the facts of the present case, the AO had not acted on borrowed satisfaction but had acted upon receiving specific information. Therefore, the case laws relied upon by the assessee differ on facts and are not applicable in the present case. In the present case, the AO had initiated the reopening proceedings on the basis of specific tangible information that income had escaped assessment, which was not available during the Section 153A proceedings. Further, the AO had duly provided the reasons for reopening to the assessee and disposed of the objections following the procedure prescribed by law.

The mere fact that while recording the reasons, instead of Rs. 1,00,00,000/-, the AO had mentioned Rs. 10,00,000/- is an inadvertent omission of one zero and cannot be made a ground for rejecting or quashing the entire process of reopening.

Thus, in our view, the order passed by the Ld. CIT(A) dismissing this ground is valid and is accordingly upheld. Consequently, this ground raised by the assessee stands dismissed.

Ground No. 2 raised by the assessee relates to challenging the order of the Ld. CIT(A) in upholding the addition of Rs. 1,00,00,000/- made by the AO to the returned income by wrongly treating the unsecured loan taken from M/s Gloomy Vincom Pvt. Ltd. under Section 68 of the Act as unexplained cash credit.

In this regard, the Ld. AR appearing on behalf of the assessee reiterated the same arguments as were raised by him before the Revenue Authorities and also relied upon the written submissions filed before us.

On the contrary, the Ld. DR appearing on behalf of the Revenue relied upon the orders passed by the Revenue Authorities.

We have heard the counsel for both the parties, perused the material placed on record, the judgments cited before us, and the orders passed by the Revenue Authorities. From the records, we noticed that during the year under consideration, the assessee had availed an unsecured loan of Rs. 1,00,00,000/- from M/s Gloomy Vincom Pvt. Ltd., which according to the assessee is a family-owned closely held company. In support thereof, the assessee had placed on record a copy of the company information from the MCA (Ministry of Corporate Affairs) portal. The same is at Pages 54-55 of the Paper Book, wherein the signing authorities, i.e., Directors, are close family members of the assessee.

Since the AO had made the addition by treating the same as non- genuine based on the report of the Investigation Wing, it has now become imperative to look into the documents which have been placed on record and relied upon by the assessee to substantiate that the loan availed by the assessee is a genuine transaction.

In support of this contention, the assessee had submitted and relied upon documents placed before the Revenue Authorities in the shape of a confirmation letter from M/s Gloomy Vincom Pvt. Ltd., financial statements of M/s Gloomy Vincom Pvt. Ltd., a copy of the ledger account and evidence of repayment of the loan, ITR acknowledgements for AYs 2012-13, 2013-14 and 2015-16, and bank statements of the party highlighting payment and repayment of the loan amount, thereby proving the identity, creditworthiness, and genuineness of the said transaction.

We noticed that the entire loan was availed by the assessee through RTGS. It is also important to note that the said loan has already been repaid in AYs 2013-14 and 2015-16, and copies of the same are enclosed in the Paper Book at Pages 1-12. Now, it is important to evaluate the provisions of Section 68 of the Act, which reads as under:

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, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year:

Having evaluated the provisions of Section 68 of the Act, we find that where any sum is credited in the books of account of the assessee for any previous year and the assessee fails to establish the identity of the creditor, the genuineness of the transaction, and the creditworthiness of the creditor, then in that eventuality the said credited sum found in the books of account of the assessee shall be treated as income of that year. Thus, to 13 come out from the shadow of the provisions of Section 68 of the Act, one has to prove the identity of the creditor, genuineness of the transaction, and creditworthiness of the creditor.

In the present case, the documents placed on record, as mentioned by us in the previous paragraph, go to show that the assessee had discharged its initial onus of proving all three ingredients, and therefore the burden shifted to the Revenue to prove otherwise that the said unsecured loan represented the unaccounted income of the assessee.

In order to verify the said transaction, it is an admitted fact that the AO had issued notice under Section 133(6) of the Act to the loan creditor and, in response thereto, the party submitted all evidence such as copies of ITRs for four years, bank statements highlighting the entries of loan and repayment, ledger confirmations for each year, etc., and the same has been acknowledged by the AO while passing the assessment order in Para Nos. 4.1 and 5 of its order.

We also noticed that even after having received all the documents which prove the genuineness, identity, and creditworthiness of the transaction with the loan creditor, the AO still went ahead and treated the said loan as non-genuine without finding any fault in the documents produced by the assessee or leading any independent evidence in order to controvert the documents relied upon by the assessee.

Thus, we find that the only reason for treating the same as non- genuine was that the AO had categorically stated that the party advancing the loan did not have the capacity to advance the loan to the assessee and therefore the genuineness of the transaction could not be proved.

In this regard, it is important to mention that M/s Gloomy Vincom Pvt. Ltd., in response to the notice under Section 133(6) of the Act, had confirmed the loan given to the assessee and the repayment of the said loan, and the same has also been accepted by the AO in his order. Moreover, it is on record that the said company had sufficient reserves to provide the loan despite its low income.

Copies of the balance sheets of the said company for the last three years have been placed on record at PB Page Nos. 13-48.

It is also important to mention that the assessment for AY 2011-12 was completed under Section 143(3) of the Act accepting the return, which also goes to prove the genuineness of the company's activities. A copy of the order is enclosed hereto at Page Nos. 49-53 of the PB. In this regard reliance is being placed on the following decisions:

Mr. Mohanty, learned Counsel appearing for the Revenue relies upon the order of the Assessing Officer to contend that this appeal would require admission.

We find that there are concurrent finding on facts rendered by the CIT(A) and the Tribunal holding that only Rs.36 lakhs can be added to the declared income and the balance amount of Rs.2.99 crores was 5 of 6 Uday S. Jagtap 786-16- ITXA-9-.doc not hit by section 68 of the Act. This finding is premised on the fact that no enquiry was made in respect of 76 creditors out of 77 creditors and the respondent had provided required documentary evidence in respect of the 76 creditors. Thus, these are essentially finding of fact and the view taken by the Tribunal is a possible view on these facts. In view of the above, the question as proposed does not give rise to any substantial question of law. Thus, not entertained.

Accordingly, appeal is dismissed. No order as to costs...

In the above circumstances, the view taken by the Tribunal is a reasonable and possible view in the facts of the present case. Consequently, no substantial question of law arises for our consideration.

The appeal is dismissed. No order as to costs..."

In this case, the assessee has filed all details to prove identity of the loan creditors genuineness of transactions and creditworthiness of the parties. In fact, the loans are taken from close family members and friends. It is not a case of the AO that the assessee had taken loans from certain unknown people whose identity is in doubtful. Therefore, we are of the considered view that, the AO is completely erred in making additions towards loan taken from above parties as unexplained credit u/s.68 of the Act. The Ld.CIT(A) after considering relevant facts has rightly deleted the additions made by the AO. Hence, we are inclined to uphold the findings of the Ld.CIT(A) and dismiss the appeal filed by the Revenue.

Apart from the facts discussed above, we also noticed that the loan was duly reflected under the Loans and Advances column in the balance sheet. There is no evidence on record of any cash deposit or withdrawal in any bank account suggesting the same to be accommodation entries. Further, there is no evidence that the loan had been availed against cash, in this regard reliance is being placed upon the decision of:

Thus, after evaluating the evidence as discussed above, we are of the view that once the assessee discharged his burden, the burden shifted to the Revenue to prove otherwise. However, in this case, the AO has not brought on record any evidence to prove that the said sum was the undisclosed income of the assessee. Therefore, the AO was not correct in making additions towards genuine unsecured loans received from the above company. Reliance in this regard is placed upon the decision in CIT vs. Lovely Exports (2008) 216 CTR 198, wherein the Hon'ble Apex Court held that once the initial burden regarding identity was discharged, the AO was at liberty to proceed against the creditors in accordance with law, but the same could not be treated as unexplained credit in the hands of the assessee. A similar view has been expressed by the Hon'ble Supreme Court in the case of M/s Steller Investments Ltd. [115 taxmann.com 99 (SC)]. Since the AO, before making the additions, had not brought on record any cogent evidence to establish that the said loan was non-genuine, the addition is not sustainable. Further reliance is being placed upon the decision in the case of :

In this way, satisfaction has to be derived from the relevant facts and that too on the basis of proper inquiry by the AO, and such inquiry must be reasonable and just. Further reliance in this regard is being placed upon the decision in the case of :

Thus, considering the totality of the facts and circumstances discussed above, and also keeping in view the decisions of the Hon'ble Supreme Court, Hon'ble High Courts, and Coordinate Benches of the Tribunal, we are of the view that the additions made by the AO and sustained by the ld. CIT(A) under Section 68 of the Act are unwarranted and are, therefore, directed to be deleted. Thus, Ground No. 2 raised by the assessee is accordingly allowed.

Ground Nos. 3 and 4 raised by the assessee become infructuous in view of the detailed findings recorded for Ground Nos. 1 and 2 and, therefore, do not require adjudication.

Consequently, the appeal filed by the assessee stands partly allowed.