KALPANA RAMESH JAIN,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX- CENTRAL CIRCLE-4(3)(1), MUMBAI

Briefly stated, the facts borne out from the assessment records are that during the relevant previous year the assessee had received unsecured loan of Rs.50,00,000/- from M/s Aneri Fincap Ltd. through banking channels and the same was duly recorded in the regular books of account maintained in the normal course of business. The reassessment proceedings came to be initiated pursuant to certain information allegedly received from the Investigation Wing and material emanating from search and seizure proceedings conducted under section 132 in the case of “One World Group” and related entities. During the course of such search proceedings, statements of Shri Rajesh G. Mehta and

The Assessing Officer, while framing the reassessment order, referred extensively to the background of search proceedings carried out in the case of One World Group on 06.11.2019 and the alleged modus operandi unearthed during the course of investigation. The Assessing Officer observed that Shri Rajesh Mehta, in his sworn statement recorded under section 131 on 08.11.2019, had admitted that various entities controlled by him were engaged in providing accommodation entries without actual underlying business activities. Reliance was also placed upon the corroborative statement of Shri Urvil Jani, stated to be the key person of One World Group, wherein it was allegedly admitted that entities of the said group had availed bogus transactions from concerns controlled by Shri Rajesh Mehta. The Assessing Officer further observed that M/s Aneri Fincap Ltd. was one of the entities allegedly identified as being used for providing accommodation entries to beneficiaries and, therefore,

The assessment order further reveals that the Assessing Officer had heavily relied upon findings recorded in the assessment proceedings of M/s Aneri Fincap Ltd. itself. It was noted therein that summons issued under section 131 to persons shown as directors of M/s Aneri Fincap Ltd. did not evoke meaningful compliance and that one of the directors, namely Smt. Leena Krishnan Kavassery, allegedly admitted in her statement that she was merely a dummy director and had no knowledge regarding day-to-day affairs of the company. The Assessing Officer further observed that she had allegedly stated that the affairs of M/s Aneri Fincap Ltd. were being entirely controlled by Shri Rajesh Mehta. The Assessing Officer also referred to certain findings allegedly recorded in the assessment orders passed in the case of M/s Aneri Fincap Ltd., wherein it was held that the said entity was not carrying out genuine NBFC business during the relevant period and was merely engaged in routing accommodation entries to various beneficiaries.

Apart from the aforesaid search-related material, the Assessing Officer also drew adverse inference on the ground that the assessee had initially stated during the course of assessment proceedings that there was no formal loan

On the basis of the aforesaid material, statements and surrounding circumstances, the Assessing Officer concluded that the unsecured loan transaction was not genuine and represented unexplained money routed in the guise of loan through accommodation entry provider. Consequently, the amount of Rs.50,00,000/- was treated as unexplained money

Before the learned CIT(A), the assessee challenged the reassessment proceedings both on legal grounds as well as on merits. One of the primary contentions raised by the assessee was that the entire reopening was admittedly founded upon material and information gathered during search proceedings conducted in the case of third parties and, therefore, once the Assessing Officer had relied upon seized material and information pertaining to a searched person, the only permissible statutory route available under law was section 153C and not section 147 of the Act. It was contended that section 153C specifically contemplates a complete mechanism where books of account, documents or information seized during the course of search pertain to or relate to a person other than the searched person and, therefore, the assumption of jurisdiction under section 147 by bypassing the mandatory procedure prescribed under section 153C rendered the entire reassessment proceedings without jurisdiction and contrary to the express scheme of the Act.

The assessee had also challenged the reopening on the ground that the reasons recorded were vague, factually incorrect and mechanically reproduced without there being any independent application of mind by the Assessing Officer. It was submitted that the reasons recorded referred to allegations of bogus purchase and sale transactions carried out by concerns allegedly controlled by Shri Rajesh Mehta, whereas in the assessee’s case the transaction under consideration pertained only to unsecured loan transaction

On merits, the assessee had vehemently contended before the lower authorities that the unsecured loan of Rs.50,00,000/- was received through proper banking channels for legitimate business purposes and the same stood duly reflected in the regular books of account maintained in the ordinary course of business. It was specifically submitted that all primary evidences in support of the loan transaction had been furnished before the Assessing Officer, including loan confirmation, ledger account, bank statements, financial statements of the lender, loan agreement, no-dues certificate, PAN details, income tax return acknowledgements and RBI registration certificate of M/s Aneri Fincap Ltd. demonstrating that it was a registered NBFC since the year 1998. It was further submitted that the lender possessed sufficient financial capacity to advance the loan and had disclosed substantial interest income in its financial statements. The assessee also pointed out that the entire loan transaction was subsequently squared up and repaid along with interest in subsequent years and the repayment stood duly

The assessee further submitted that the loan was availed due to business exigencies and the funds were advanced to companies in which the assessee was a director for business requirements. It was also submitted that the interest income earned by the assessee stood duly supported from Form 16A and financial statements already placed on record. According to the assessee, the transaction was entirely commercial in nature and there was no material whatsoever to suggest that the assessee had introduced her own unaccounted income in the guise of unsecured loan. The assessee also submitted that no discrepancy had been pointed out by the Assessing Officer in the books of account, bank statements, confirmations or financial statements furnished during the course of assessment proceedings.

It was further contended by the assessee that the addition had been made merely on the basis of generalized allegations and statements recorded during third-party search proceedings without there being any direct incriminating material against the assessee establishing that the impugned loan transaction represented accommodation entry or unaccounted money. According to the assessee, her name nowhere appeared in the statement of Shri Rajesh Mehta and

Another important plank of the assessee’s submissions before the lower authorities was that the provisions of section 69A themselves had no application to the facts of the present case. It was argued that section 69A could be invoked only where the assessee is found to be owner of money, bullion, jewellery or other valuable article not recorded in the books of account and where the assessee either offers no explanation regarding the nature and source thereof or the explanation furnished is found unsatisfactory. According to the assessee, in the present case the amount in question was neither an unrecorded asset nor unexplained money found in possession

The learned CIT(A), however, was not persuaded by the explanation and submissions advanced on behalf of the assessee and substantially affirmed the action of the Assessing Officer. The learned CIT(A), while confirming the addition of Rs.50,00,000/- as well as the consequential disallowance of interest expenditure and denial of set off of interest income amounting to Rs.17,50,000/-, primarily concurred with the findings of the Assessing Officer that M/s Aneri Fincap Ltd. was one of the entities unearthed during the course of search proceedings as being engaged in providing bogus accommodation entries and that the assessee had failed to satisfactorily establish the genuineness of the

We have heard the rival submissions, carefully perused the assessment order, the impugned order of the learned CIT(A), the material placed in the paper book and the various documentary evidences furnished before the authorities below. Though the assessee has raised multiple legal and jurisdictional grounds challenging the validity of reassessment proceedings under section 147, including the plea that proceedings ought to have been initiated under section 153C inasmuch as the entire foundation of reopening emanates from search material pertaining to third parties,

From the records placed before us, it is manifest that the assessee had furnished extensive documentary evidences before the lower authorities substantiating not only the identity and creditworthiness of the lender but also the genuineness of the entire loan transaction. The paper book contains copy of show cause notice issued under section 148A(b), order passed under section 148A(d), copy of statement of Shri Rajesh Mehta relied upon by the Department, loan confirmation received from M/s Aneri

A careful examination of the audited financial statements of M/s Aneri Fincap Ltd. further reveals that the lender company possessed substantial financial strength and huge fund availability during the relevant period. The financial

The entire edifice of the assessment order rests predominantly upon statements recorded during the course of

Another important aspect which substantially weakens the Department’s case is that the transaction in question is fully recorded in the regular books of account maintained by the assessee in the ordinary course of business. The loan amount was received through normal banking channels and the repayment thereof along with interest in subsequent years is also duly evidenced from bank statements placed on record. Once the entire transaction stands transparently reflected in the books and supported by documentary evidences, invocation of section 69A itself becomes wholly misconceived. Section 69A contemplates a situation where the assessee is found to be owner of money, bullion, jewellery or other valuable article not recorded in the books of account and the assessee either offers no explanation regarding the nature and source thereof or the explanation furnished is found unsatisfactory. In the present case, neither any unaccounted asset has been found in possession of the assessee nor any unexplained money outside the books has been detected. On the contrary, the transaction is duly recorded in the books and fully traceable through banking channels. The Assessing Officer has not demonstrated that the explanation offered by the assessee is inherently false or impossible. Rather, the addition has been made merely on

The Assessing Officer has also drawn adverse inference from the fact that initially the assessee had stated that no formal loan agreement existed and subsequently furnished the same. However, in our considered opinion, such discrepancy by itself cannot become determinative factor to disregard the entire transaction, particularly when the agreement was later traced and voluntarily furnished and the transaction otherwise stands corroborated from multiple independent evidences already available on record. Human errors, inconsistencies or inability to immediately trace old documents cannot ipso facto lead to inference that the transaction itself is fictitious. Similarly, the observation of the Assessing Officer that the assessee had advanced funds to companies in which she was director or that some of such companies were loss-making concerns also cannot be basis to hold that the original loan transaction lacked genuineness. The commercial expediency or prudence of business decisions lies within the domain of the businessman and not that of the Assessing Officer unless the transaction itself is demonstrated to be sham or colourable device. The fact remains that the assessee has explained the purpose of availing loan and

We also find considerable force in the contention advanced on behalf of the assessee that no effective material directly implicating the assessee has emerged from the statements relied upon by the Department. Even from the statements of Shri Rajesh Mehta referred to in the assessment order, no specific allegation directly naming the assessee or referring to the impugned transaction has been brought to our notice. Further, though much emphasis has been laid by the Assessing Officer on alleged accommodation entry operations, no meaningful independent inquiry was conducted to establish actual cash trail or flow back of funds from the assessee. The addition has thus been made merely on inferential reasoning and generalized allegations emanating from third-party search proceedings. The learned CIT(A.), while affirming the addition, has also substantially reiterated the same reasoning without dealing with the crucial evidences furnished by the assessee, particularly the audited financial statements of the lender showing substantial funds and current assets, bank statements evidencing loan disbursement and repayment, RBI registration certificate of the NBFC lender, confirmations, loan agreement and no-dues certificate. Once these documentary evidences remain unrebutted and no contrary material is brought on record

Accordingly, considering the entirety of facts and circumstances of the case, the documentary evidences placed on record, the financial credentials and audited financial statements of the lender company, the banking trail evidencing receipt and repayment of loan, the fact that the transaction stood duly recorded in the regular books of account, and in absence of any direct incriminating material establishing that the impugned loan represented assessee’s own unaccounted income routed back in the guise of loan, we are of the considered opinion that the Assessing Officer was not justified in treating the unsecured loan of Rs.50,00,000/- as unexplained money under section 69A of the Act. The addition so made and sustained by the learned CIT(A.) is directed to be deleted. Consequently, since the disallowance of interest expenditure and denial of set off of interest income amounting to Rs.17,50,000/- are purely consequential to the alleged non-genuineness of the loan transaction and once we have held the principal transaction itself to be genuine and duly substantiated from documentary evidences, the consequential disallowance and denial of set off also cannot

In the result, the appeal of the assessee is allowed.