DY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-3.1, AIR INDIA BUILDING, NARIMAN POINT,MUMBAI vs. BAZIGAR TRADING PRIVATE LIMITED , DR. D.B.MARG, MUMBAI

The Department has raised the following grounds of appeal:

Ground Nos. 1 and 2 raised by the Revenue are interrelated and interconnected, and relates to challenging the order of the Ld. CIT(A) in deleting the additions made by the AO under Section 68 of the Act. Therefore, we have decided to adjudicate these grounds through the present consolidated order.

Aggrieved by the said order, the assessee preferred an appeal before the Ld. CIT(A), who partly allowed the appeal. Being aggrieved, both the Revenue and the assessee have filed their respective appeals against the impugned order on the grounds mentioned hereinabove.

The Ld. DR submitted that information was received from the Investigation Wing, Mumbai, wherein it was found that the assessee had advanced a loan to M/s Nakshatra Private Limited, and the said transaction was not genuine. The Ld. DR further submitted that the Ld. CIT(A) erred in deleting the addition of Rs.3 crores made by the AO under Section 68 of the Act on the ground that the advance could not be taxed under Section 68 of the Act, without appreciating that mere mention of an incorrect provision would not invalidate the assessment proceedings.

On the contrary, the Ld. AR relied upon the order of the Ld. CIT(A) deleting the addition of Rs.3 crores and also relied on the written submissions filed before us.

After meticulously examining the facts of the case and the documents placed on record, we find that it is an undisputed fact that the assessee advanced a loan of Rs.3 crores to M/s Nakshatra Business Pvt. Ltd. (formerly known as M/s Hema Trading Pvt. Ltd.). The transaction was carried out through account payee cheques drawn on Axis Bank Limited, Mumbai. During the assessment proceedings, in order to substantiate the genuineness of the transaction, the assessee furnished copies of confirmation, bank statements, and complete financial statements of M/s Nakshatra Business Pvt. Ltd. It was also brought to the notice of the Revenue Authorities that the loan in question had already been repaid by M/s Nakshatra Business Pvt. Ltd. in Assessment Year 2012–13 through account payee cheques. In support, the bank statements of M/s Nakshatra Business Pvt. Ltd. evidencing repayment were also placed on record. Further, the assessee had received interest amounting to Rs.51,48,494 from M/s Nakshatra Business Pvt. Ltd., which was duly offered to tax.

The AO failed to controvert the documentary evidence placed on record and could not point out any defect therein. It is well settled that once the assessee discharges its initial onus by furnishing relevant documents to establish the identity, creditworthiness, and genuineness of the transaction, the burden shifts to the Revenue to rebut the same. However, in the present case, the AO failed to bring any material on record to disprove the evidence furnished by the assessee. The addition made by the AO is solely based on information received from the Investigation Wing, Mumbai, without any independent inquiry or corroborative evidence. Apart from this, no independent inquiry or verification was carried out by the AO, and even the documents submitted by the assessee were not rebutted. Even otherwise, the AO had invoked provisions of Section 68 of the Act though the amount in question represented an advance made by the assessee and not a credit appearing in its books, as can be seen from a reading of the said section and the same is reproduced herein below:

From a perusal of Section 68 of the Act, it is evident that the basic requirement for invoking this provision is that there must be a sum credited in the books of the assessee during the previous year. However, in the present case, the assessee had advanced a loan of Rs.3 crores, i.e., the amount was debited in the assessee’s books and not credited. Thus, the addition of Rs.3 crores made under Section 68 of the Act was not sustainable.

It is pertinent to mention that while making the addition, the AO had merely discussed the alleged modus operandi of providing accommodation entries in the form of bogus loans. In this regard, the statement of one Mr. Praveen Kumar Jain was referred to. However, the same by itself does not conclusively establish that the transaction entered into by the assessee was ingenuine, particularly when the assessee had advanced the loan to M/s Nakshatra Business Pvt. Ltd. through account payee cheques, and had also received interest thereon, which has been duly offered to tax. Further, to establish the identity, creditworthiness, and genuineness of the transaction, the assessee had furnished several documents as noted above.

Apart from the above, it has also been placed on record that the said Mr. Praveen Kumar Jain had already retracted the statement made before the Investigation Wing. Thus, in our view, the retracted statement cannot be relied upon in the absence of corroborative evidence. The AO has failed

Accordingly, we follow the decision of the Coordinate Bench of the ITAT in the case of Shreedham Builders in ITA No. 5589/Mum/2017 dated 22.06.2018, wherein additions made on the basis of the statement of Shri Praveen Kumar Jain were deleted on the ground that the assessee had furnished sufficient evidence to prove that the loans were genuine and no evidence of cash deposits was found. Therefore, additions under Section 68 of the Act were held to be unsustainable.

Considering the totality of the facts and circumstances as discussed above, and respectfully following the decision of the Coordinate Bench, we dismiss the grounds raised by the Revenue and uphold the finding of the Ld. CIT(A) on these grounds.

At the very outset we noticed that there is a delay of 6 days in filing of present appeal and in this regard assessee has filed an affidavit thereby explaining the delay.

We have heard counsel for both the parties and perused the material placed on record and also the affidavit filed by the assessee explaining 8

All the grounds raised by the assessee are interrelated and interconnected and relates to challenging the order of the Ld. CIT(A) in sustaining the addition of Rs.40,00,000/- made by the AO under Section 68 of the Act. Therefore, these grounds are adjudicated through this consolidated order.

We have heard the counsel for both parties, perused the material placed on record, the judicial pronouncements 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 sold equity shares of M/s Jagjit Estate & Dev. Co. Pvt. Ltd. through an off-market transaction to M/s James Vanijya Pvt. Ltd. for a total consideration of Rs.40,00,000/-. On such sale, the assessee company incurred a capital loss, which was duly reflected in the return of income/computation. Further, supporting evidences in the nature of share sale bills and bank statements

After meticulously examining the facts of the case, we find that the assessee had produced complete documentary evidence establishing that the buyer company, namely M/s James Vanijya Pvt. Ltd., is a registered corporate entity. Further, the transactions were carried out through banking channels, and delivery of shares was effected through duly transferred physical share certificates. Thus, in our view, the transaction stands duly explained.

On the other hand, the entire addition is based solely on the statement of a third party, namely Mr. Binay Kumar Taparia. We further observe that a copy of the said statement was never provided to the assessee, and consequently, no opportunity to cross-examine the said person was granted by the AO. This, in our view, is in clear violation of the principles of natural justice. In this regard, reliance is placed on the decision of the Hon’ble Supreme Court in the case of Andaman Timber Industries v. CCE (2015) 281 CTR 241 (SC). The said legal position has also been reiterated in CIT vs. F.E. Patanwala Pvt. Ltd. (Bombay High Court) and Vinod Solanki vs. Union of India (SC).

The addition in the present case appears to have been made merely on the basis of suspicion. It is pertinent to note that the transaction in question was duly disclosed by the assessee in its books of account and return of income, including the computation of capital loss. Therefore, the AO was fully aware of the transaction. Despite this, the addition has been made without any cogent evidence. In this regard, reliance is placed on the decision of the Hon’ble Supreme Court in Omar Salay Mohamed Sait vs. CIT (37 ITR 151), wherein it was held that suspicion, however strong, cannot take the place of evidence.

Further, various High Courts have consistently held that where transactions are carried out through banking channels and supported by documentary evidence, additions cannot be made merely on suspicion. In this regard, reliance is placed on the following decisions:

Considering the totality of the facts and circumstances discussed above, and taking into account that the addition in the present case is based solely on a third-party statement, while the assessee has placed on record sufficient documentary evidence to establish that the payments were

Further, as the assessee was not afforded an opportunity of cross- examination, thus, the addition is liable to be deleted. Accordingly, we direct the AO to delete the said addition and consequently, we allow this ground raised by the assesse.

In the result, the appeal filed by the Revenue stands dismissed and the appeal filed by the assessee stands allowed.