BHATTAD BROTHERS REALTY PRIVATE LIMITED,MUMBAI vs. CIRCLE - 3(3)(1), MUMBAI

On the facts and circumstances of case and in law, the Ld. CIT has erred in confirming the Assessment Order passed by the Ld. AO under section 143(3) of Income Tax Act which is passed against the principal of natural justice.

On the facts and in the circumstances of the case and in law, the Ld. CIT has erred in confirming the addition of Rs.3,20,00,000/- (being unsecured loans of Rs.30,00,000/-from M/s Baahubali Properties Itd. And Rs.2,90,00,000/- from M/s Rangbarshi Projects Pvt Ltd) taken as unexplained cash under section 68 r.w.s 115BBE of the Income Tax Act, 1961 despite relevant documents being submitted in order to substantiate the claim.

On the facts and in the circumstances of the case and in law, the Ld. CIT has erred in confirming the application of Section 115BBE (taxation of unexplained credits at a higher rate) without establishing that the amount was undisclosed income. Further the Ld. AO has mechanically invoked Section 68 r.w.s. 115BBE of the Income Tax Act, 1961 without Pointing out specific deficiencies in the submitted documents. Disproving the authenticity of evidence through independent inquiry (e.g., issuing notices to the lender u/s 131). The order is vitiated by suspicion and non- application of mind, warranting quashing of the impugned addition.

On the facts and in the circumstances of the case and in law, the Ld. CIT has erred in confirming the addition of Rs.17,68,438/ being interest on loan against unsecured loans and thereby treating it as unexplained expenditure under section 69C of the Income Tax Act, 1961.

On the facts and in the circumstances of the case and in law, the Ld. CIT erred in confirming the order passed by the Ld. AO who has solely relied on third party statements without granting the assessee the opportunity for cross examination or without conducting independent verification.

On the facts and in the circumstances of the case and in law, the Ld. CIT erred in confirming the order passed by the Ld. AO although the assessee has discharged its onus of proving the identity, geniuneness and creditworthiness of the lenders.

On the facts and in the circumstances of the case and in law, the Ld. CIT erred in confirming the order passed by the Ld. AO who has relied heavily on the electronic record (whatsapp chats of the employees of the Bhattad Group) to establish the existence of the alleged bogus loan transactions. For any electronic record (like a whatsapp chat) to be admitted as evidence in a judicial proceeding, it is a mandatory requirement under Section 65B(4) of the Indian Evidence Act to obtain a certificate affirming the proper functioning of the computer system and the accuracy of the electronic record produced. A perusal of the assessment records and the impugned order clearly shows that no such certificate, as mandated by law, was ever obtained by the Ld. AO. In the absence of this statutory certificate, the contents of the pen drive are inadmissible as evidence and cannot be relied upon for making any addition.

On the facts and in the circumstances of the case and in law, the Ld. CIT erred in confirming the order passed by the Ld. AO wherein the Ld. AO doesnot have any evidence that the assessee has incurred cash transaction and he is solely relying on third party statements.

On the facts and in the circumstances of the case and in law, the learned Assessing Officer (AO) erred in passing the assessment order under Section 143(3) of the Income-tax Act, 1961, despite having no jurisdiction to do so, as the incriminating material found during the search action u/s 132 pertained to other persons and not the appellant. The assessment, if at all,

On the facts and in the circumstances of the case and in law, the Ld. CIT erred in confirming the order passed by the Ld. AO wherein he has disallowed the loss of Rs. 11,98,063/- under section 115JB claimed by the appellant.

On the facts and in the circumstances of the case and in law, The Ld. CIT(A) erred in confirming the charging of interest under section 234A and 234B of the Income Tax Act 1961.

On the facts and in the circumstances of the case and in law, the Ld. CIT erred in upholding initiation of penalty proceeding under section u/s 271AAB(1) of the Income Tax Act 1961.

The Appellant craves leave to add amend and or delete any of the above grounds of Appeals.

Ground Nos. 1 to 4 raised by the assessee are interrelated and interconnected and relates to challenging the order of the Ld. CIT(A) in confirming the additions made by the AO under Section 68 of the Act read with Section 115BBE of the Act. Therefore, we have decided to adjudicate these grounds through the present consolidated order.

Ld. AR appearing on behalf of the assessee reiterated the same arguments as were raised before the Revenue Authorities and also relied upon the written submissions filed before us and the same is reproduced herein below:

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 short- term borrowings of the assessee had increased from Rs. 50,83,948 to Rs. 9,17,05,5240 and the short-term loans and advances given had increased from Rs. 25,83,967 to Rs. 8,84,66,734. Thus, the assessee was asked to submit complete details of the loans taken vide notice issued during the course of assessment under Section 142(1) of the Act. In response to the same, the assessee furnished details and, as per the facts, survey action under Section 133A of the Act was carried out on Bhattad Group, which was converted into search action under Section 132 of the Act, and statements of Laxminarayan Bhattad were recorded, wherein it was admitted by the said Laxminarayan Bhattad that unaccounted cash was being received in the form of unexplained loans and other accommodation entries from Santosh Jain and other Kolkata-based entry providers, who in turn had confessed to their involvement in providing accommodation entries to various concerns floated for the specific purpose of providing accommodation entries in the form of loans, share premium, etc.

Since the assessee had availed loans of Rs. 30 lakhs from Bahubali Properties Limited and Rs. 2.90 crores from Rangbarshi Projects Pvt. Ltd., which were found to be accommodation entries in the books of the assessee, the additions were sustained by the Ld. CIT(A).

It is important to mention here that the provisions of Section 68 of the Act can only be invoked in a case wherein any sum is found credited in

In this regard, in order to prove the identity of the creditors, the assessee had placed on record the following documents: names, addresses, PAN, Income-tax jurisdiction details, etc. of the lender companies. The Income-tax jurisdiction details of the lenders proved the identity as well as the financial capacity, i.e., creditworthiness, of the lenders. Hence, the aforesaid documents proved the identity of the lenders.

In order to prove the genuineness of the transactions, the assessee had placed on record the following documents:

The Returns of Income of the lenders proved the identity as well as the financial capacity, i.e., creditworthiness, of the lenders. It is important to mention here that the lenders had confirmed the transactions with the assessee and, by submitting the above details, the assessee had discharged the primary onus of proving the unsecured loans as genuine transactions, whereas the AO could not controvert or rebut the documentary evidence furnished by the assessee and could not point out

We also noticed that although the assessee had placed on record all the books of accounts, which were duly audited, there was no adverse remark by the auditors in the audit report. Even the interest paid by the assessee to the lenders had been duly offered to tax by the lenders, which goes to show that the said loans and interest income had been accepted by the Department in the hands of the lenders. It is not wrong to assume that the Department had already accepted such income in the hands of the lenders and had not assessed any income by way of so-called entry commission as alleged.

In our view, since the assessee had already discharged the onus by placing on record the relevant and necessary documents which proved the creditworthiness and capacity of the lenders and also established the genuineness of the transactions, reliance is placed upon the decision of the Hon’ble Gauhati High Court in the case of CIT v. Smt. Sanghamitra Bharali (2014) 361 ITR 481 (Gau).

The aforesaid principles were also affirmed by the Hon’ble Apex Court in the case of C.I.T. v. Orissa Corporation P. Ltd. reported in (1986) 159 ITR 78 (SC), wherein it was held as under:

In view of all these facts, what is required to be proved in a case of cash credits under Section 68 of the Income-tax Act, 1961, are the following three ingredients:

In the case of the assessee, the identity of the creditors stands proved beyond doubt, as the lenders are borne on the records of the Income-tax Department, their PANs were filed before the Assessing Officer, and they are regularly filing their Returns of Income. The capacity of the creditors is also proved beyond doubt, as the loans were given through banking channels and the repayments were also made through banking channels. Besides, copies of the bank statements of both the parties were available on record as produced before the AO. The genuineness of the transactions is proved by producing loan confirmations and ledger extracts. There was nothing brought on record against the assessee by the AO.

It is settled law that it is mandatory for the AO to confront the assessee with any material collected at the back of the assessee and, in case of statements of third parties recorded at the back of the assessee, an opportunity of cross-examination has to be offered to the assessee, failing which such material/statements would be rendered unreliable and additions

Therefore, considering the totality of facts and circumstances discussed above, and also keeping in view the aforementioned judicial pronouncements and following the doctrine of binding precedents and judicial consistency, we direct the AO to delete the additions and allow the grounds raised by the assessee.

Other grounds raised by the assessee are consequential in nature and therefore do not require separate adjudication.

In the result, the appeal filed by the assessee is partly allowed.