DCIT CIRCLE511, MUMBAI vs. HATIM GLAZING AND CLADDING PVT LTD, MUMBAI

“7 After carefully going through the details available on this issue the onus lay upon the assessee to prove the genuineness of the transaction when it claimed that the loans are genuine. From the above discussion on investigation, it is crystal clear that - (1) The primary onus is on the assessee to establish the genuineness of the loan claimed by it; (ii) If the investigation done by the Department leads to doubt regarding the genuineness of the loan it is incumbent on the and others Hatim Glazing and Cladding Pvt. Ltd assessee to produce the parties along with necessary documents to establish the genuineness of the transaction. (iii) Payment by account payee cheque is not sacrosanct. (iv) In fact, Self-interest talks in all sorts of tongues and plays all sorts of roles. The indifference of not producing the party which issued the bill is indicative of the truth. The Revenue is not doubting all the loans but doubting only those loans for which the genuineness could not be proved. One cannot lose sight of the fact that dark deeds are performed under the cover of darkness and direct evidence can never be available. Sometimes the facts speak loud and clear 8. The above statement clearly establishes that all the concerns are run, controlled and operated by Shri Bhanwarlal Jain and are not carrying out any genuine business actively 9. It is also observed that the report received from the office of the DGIT(INV), during the course of post search enquiries the above modus operandi followed by the above groups has been accepted by the key persons of the Groups. A statement of Shri Bhanwarlal Jain key person of the group was recorded u/s 132(4) of the Act on 03.10.2013. During the course of post search enquiries, Shri Bhanwarlal Jain admitted the fact that they are engaged in paper transactions only 10. Thus, the findings of the Investigation Team and statements of various persons recorded clearly establish that all the concerns run, controlled and Operated by Shri Bhanwarlal Jain is not carrying out any genuine business activity out indulged in the activity of providing accommodation entries only in the nature of bogus sales, bogus purchase, bogus unsecured loans and Bogus share application Money).

Cash Credits u/s 68 of the Act In view of the above, bogus unsecured loan made from the above hawala entities in all totaling to Rs. 41,00,000/- is treated as cash credits and accordingly disallowed and added to the total income of the assessee u/s 68 of the Act. In view of the fact as stated above, Penalty proceeding under Section 271(1)(c) of the I.T. Act are initiated for the default committed within the meaning of that Section.”

The ld. CIT(A), after an elaborate consideration of the assessee’s submissions and the documentary evidence placed on record, deleted the impugned addition as well as the consequential disallowance of interest. In doing so, he drew support from several decisions of the coordinate benches of the Tribunal wherein, in analogous factual matrices involving information from the Investigation Wing regarding the Bhanwarlal Jain Group, similar additions had been deleted.

We have carefully considered the submissions made by both the parties and examined the material available on record, including the detailed reasoning contained in the impugned order of the ld. CIT(A). On a close reading, it is and others Hatim Glazing and Cladding Pvt. Ltd evident that the entire basis of the Assessing Officer’s conclusion rests only on the statements of Shri Bhanwarlal Jain and certain other persons recorded during the course of search in that group, along with the general observations in the investigation report. That report broadly states that several concerns controlled by the said group were engaged in providing accommodation entries. However, what is lacking is any direct and specific evidence to show that the particular loan transaction in question in the assessee’s case was such an accommodation entry.

In the present case, the loan under dispute was taken by the assessee from M/s. Rose Gems Pvt. Ltd., a duly incorporated company. In order to prove the genuineness of the loan as required under section 68, the assessee submitted all relevant documents, including a written confirmation from the lender, its audited financial statements, bank statements, and income-tax returns. A perusal of the lender’s balance sheet shows that it had a gross total income of about Rs.26 crores and reserves and surplus exceeding Rs.1.37 crores. The lender is a regular assessee of the Department, has consistently filed returns of income, and has complied with all statutory requirements.

The bank statements of the lender show that it was engaged in regular trading activity, especially in the diamond business, and had received funds from various entities against sales made to them. There is nothing in the bank and others Hatim Glazing and Cladding Pvt. Ltd account to indicate that the funds given as a loan to the assessee came from any unexplained or undisclosed source.

Once such documentary evidence was provided, it was the duty of the Assessing Officer to verify these facts by conducting an independent enquiry, for example, by examining the lender, checking the source of its funds, and verifying the genuineness of the transactions shown in its bank statements. Merely repeating the general findings of the Investigation Wing, without any such independent verification, cannot be the basis for making an addition. While the investigation report may justify reopening the case, the addition itself must rest on proper verification of facts relevant to the assessee’s own case.

In the facts before us, the identity of the lender is clearly established. Its creditworthiness is supported by its financial statements and bank records, which show adequate funds. The genuineness of the loan transaction is further supported by the fact that the money came through normal banking channels, interest was paid on it with tax deducted at source, and the principal amount was repaid in the following year.

Importantly, there is no material on record to show that any director or key person of the lender company was involved in the affairs of the Bhanwarlal Jain Group in such a manner as to make this loan a sham. The audited accounts and bank records also do not show any suspicious pattern of transactions usually associated with entry-providing concerns. and others Hatim Glazing and Cladding Pvt. Ltd 12. The ld. CIT(A) has rightly pointed out that in several other cases, the coordinate benches of this Tribunal have deleted similar additions where the only basis was the Investigation Wing’s report, and no independent corroborative evidence was found in the assessee’s case.

Considering all these facts, we find no reason to interfere with the findings of the ld. CIT(A) in deleting the addition of Rs.41,00,000/- made under section 68, as well as the consequential disallowance of Rs.2,89,134/- towards interest. Accordingly, the appeal of the Revenue for A.Y. 2010–11 is dismissed.

The assessee, in defence, furnished a complete set of documents to substantiate the loan transaction. These included a confirmation from the lender, copies of its audited financial statements, bank statements, and income-tax returns. The bank records clearly show that the loan amount and others Hatim Glazing and Cladding Pvt. Ltd of Rs.25,00,000/- was advanced to the assessee on 16 August 2010 through normal banking channels, and the same was repaid in full on 9 March 2012. No irregularity in the flow of funds was pointed out by the Assessing Officer. However, instead of making any independent enquiry into the financial position of the lender or verifying the source of its funds, the Assessing Officer relied entirely on the general observations of the Investigation Wing’s report, mirroring the approach taken in the preceding year’s assessment.

In our view, the factual position and the evidentiary material available on record for this year are materially the same as in A.Y. 2010–11. The identity of the lender is established, its creditworthiness is supported by the documents on record, and the genuineness of the transaction is evidenced by the movement of funds through banking channels, the payment of interest with deduction of tax at source, and the eventual repayment of the loan. Our findings and reasoning given in relation to A.Y. 2010–11 therefore apply mutatis mutandis to this year as well. On that basis, we uphold the order of the ld. CIT(A) deleting both the addition of Rs.25,00,000/- under section 68 and the interest disallowance of Rs.3,69,000/-. The Revenue’s appeal for A.Y. 2011–12 is accordingly dismissed.

Based on the information received from the Investigation Wing, Vadodara in the case of PEL Industries Pvt. Ltd., it was reported that this company was engaged in providing accommodation purchase bills. After recording the detailed reasons recorded, ld. AO had issued a notice u/s.148 on 28/03/2019. As per the information received, it was found that assessee has undertaken purchases of following Section from M/s. PEL Industries Ltd., of various dates, the quantity and value of such purchases have been noted in the assessment order. The ld. AO without considering any of the document furnished by the assessee has simply relied upon the order of the Investigation Wing held that these purchases are bogus and treated the entire purchase of Rs.1,27,85,593/- as bogus purchase which was added u/s.69C.

The ld. CIT(A) after considering the entire documents filed on record held that ld. AO has not found any discrepancy in the document submitted purchase bills, copy of the bank statement of the party as well as by the assessee and the and others Hatim Glazing and Cladding Pvt. Ltd payments made, ledger confirmation of the transaction, disbursal utilization statement of the stock purchase from PEL Industries and further, ld. AO has not disputed the corresponding sales made by the assessee and he himself did not undertake any independent enquiry or investigation. Accordingly, he has deleted the said addition.

Having heard both the parties and carefully examined the material on record, we find that the assessee has placed before the authorities confirmed copies of ledger accounts from M/s. PEL Industries Ltd., duly evidencing the supply of aluminium sections along with corresponding bills and complete delivery details. These purchase bills carry all essential particulars such as dates, quantities, descriptions, and values, leaving little room for doubt regarding the nature of the transactions. The payments for these purchases have been made exclusively through account-payee cheques, as reflected in the assessee’s bank statements, copies of which were also furnished. The record further shows that the assessee has been procuring aluminium sections not only from M/s. PEL Industries Ltd. but also from other established and reputed suppliers, such as Pankaj Metals and Hindustan Aluminium, which lends credibility to the assessee’s procurement process. The trading results reveal that the assessee declared total sales in excess of Rs.26.64 crores, with a gross profit of Rs.3,05,10,957/-, translating into a GP rate of 11.45%, which is consistent with the nature of its business and in line with industry norms. and others Hatim Glazing and Cladding Pvt. Ltd 21. Once the sales declared by the assessee have been accepted by the Assessing Officer, and such sales are quantitatively and qualitatively in agreement with the corresponding purchases recorded in the books, the purchases cannot be brushed aside as non-genuine. The quantitative tally between purchases and sales, the acceptance of the gross profit rate, and the fact that the source of purchase payments is duly reflected in the assessee’s regular books of account and corroborated by its bank statements, all combine to form a complete chain of evidence supporting the genuineness of the purchases. In such circumstances, there remains no legal or factual basis for treating the purchase value as unexplained expenditure under section 69C of the Act. Indeed, when the purchases are duly recorded in the regular books, supported by verifiable banking transactions, and matched by accepted sales, any addition on this account would not only be unwarranted under section 69C but would equally fail the test of section 69A, since there is no unexplained investment or asset outside the books. Accordingly, we hold that the ld. CIT(A) was justified in deleting the impugned addition. The Revenue’s appeal for A.Y. 2012–13 is, therefore, dismissed.

The ld. CIT(A), applying the same yardstick as in the preceding year, deleted the addition. His finding was premised on the fact that the purchases in question were fully supported by documentary evidence, including purchase bills, delivery challans, ledger confirmations, and bank statements reflecting payments made exclusively through normal banking channels. Further, the corresponding sales arising from such purchases were duly accepted by the Assessing Officer in the assessment order, and there was no dispute raised regarding the trading results or the gross profit disclosed. The ld. CIT(A) also noted that the Assessing Officer had not undertaken any independent enquiry, such as issuing summons to the supplier, verifying stock movements, or examining the banking trail that could undermine the assessee’s evidence or demonstrate the purchases to be sham.

In light of our detailed discussion and findings recorded in paragraphs 21 to 23 above for A.Y. 2012–13 which, given the parity of facts and issues, apply mutatis mutandis here and accordingly, we hold that once the sales have been accepted, the quantities purchased match the quantities sold, and others Hatim Glazing and Cladding Pvt. Ltd the gross profit rate is in line with accepted norms, and the source of purchase payments is fully traceable in the assessee’s books and bank statements, there remains no scope for invoking section 69C. Indeed, in such a situation, even section 69A would not come into play, for there is no unexplained asset or investment outside the books. The purchases stand duly recorded, matched by accepted sales, and supported by verifiable banking transactions. Accordingly, the order of the ld. CIT(A) deleting the entire addition of Rs.95,80,505/- is upheld, and the Revenue’s appeal for A.Y. 2013–14 is dismissed in full.

In the result, all the appeals of the Revenue are dismissed.