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Facts
The assessee received an unsecured loan of Rs. 50,00,000 from M/s. Meenaxi Diamonds Pvt. Ltd. The Assessing Officer (AO) treated this as an unexplained cash credit under section 68 and also added commission for obtaining the loan. The Commissioner (Appeals) confirmed the addition. The matter was restored to the AO for further inquiry.
Held
The Tribunal held that the unsecured loan was genuine and properly documented, with interest paid and TDS deducted. The AO's failure to conduct a proper cross-examination on the source of funds, coupled with the documentary evidence, meant the addition u/s. 68 could not be sustained. The addition and related penalty were deleted.
Key Issues
Whether the unsecured loan of Rs. 50,00,000 from M/s. Meenaxi Diamonds Pvt. Ltd. was genuine and could be added as an unexplained cash credit. Whether disallowance of interest paid on such loan and penalty levied were justified.
Sections Cited
143(3), 271(1)(c), 133(6), 131, 132(4), 68, 153A, 142(1), 153A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘C’ BENCH
Before: SHRI AMIT SHUKLA & SMT RENU JAUHRI
आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeals in & 114/Mum/2024 have been filed by the assessee against order dated 28/08/2023 & 29/08/2023 respectively passed by NFAC Delhi for the quantum of assessment passed u/s. 143(3) r.w.s.
29/08/2023 passed by NFAC, Delhi, Mumbai in relation to the penalty proceedings u/s.271(1)(c) for the A.Y.2013-14.
2. In the grounds of appeal assessee has challenged the addition of Rs.50,00,000/- on account of unsecured loan taken from M/s. Meenaxi Diamonds Pvt. Ltd. during the relevant assessment year 2013-14.
3. The brief facts and background of the case are that the assessee is a private limited company engaged in the business of distributors, merchant traders, import and exports, buy sell and distribute material of various items. During the course of assessment proceedings, AO noted that assessee has received unsecured loans and inter-corporate deposits aggregating to Rs.60,00,000/-, out of which Rs.50,00,000/- was in form of unsecured loan from M/s. Meenaxi Diamonds Pvt. Ltd., and Rs.10,00,000/- was received from Paharimata Commodities Pvt. Ltd. An information was received from Investigation Wing that assessee has received unsecured loan of Rs.50,00,000/- from one of the companies managed and controlled by Shri Bhawarlal Jain, i.e., M/s. Meenaxi Diamonds Pvt. Ltd during the year under consideration. and others Opulent Trading and Investment Pvt. Ltd.
4. In response to the show-cause notice by the AO, assessee to substantiate the genuineness of the loan has furnished the following details before the ld. AO:- i. Acknowledgement of ITR filed for A.Y.2013-14 and copy of PAN Card of loan creditor, M/s Meenaxi Diamonds Pvt. Ltd. ii. Copy of Complete set of audited Financial (Annual) Account of loan creditor, M/s Meenaxi Diamonds Pvt. Ltd. of A.Υ.2013-14 iii. Duly executed loan confirmation letter from the books of impugned cash creditor containing complete details of loan transaction and interest payment by the assessee company in A.Y.2013-14 iv. Relevant bank statement of assessee company highlighting the loan transaction and interest payment to impugned cash creditor taken place through only normal banking channels in A.Y.2013-14 v. Copy of paid TDS challan evidencing the payment of TDS deducted on interest paid to above named loan creditor. vi. Relevant bank statement of abovenamed loan creditor highlighting the loan transaction and interest payment by assessee company taken place through only normal banking channels in A.Y.2013-14 vii. Relevant bank statement of assessee company for the period 01-04- 2014 to 31-03-2015 highlighting the repayment of entire loan along with due interest to above named loan creditor through normal banking channels in A.Υ.2015-16. viii. Duly executed loan confirmation letter along with copies of bank statement of above named loan creditor for the period 01-04- 2014 to 31- 03-2015 highlighting the repayment of entire loan along with due interest by the assessee appellant company through normal banking channels in Α.Υ.2015-16.
5. However, ld. AO sought for information u/s. 133(6) and issued notice of Principal Officer of M/s. Meenaxi Diamonds Pvt. Ltd., on 15/02/2016. In response, the said party filed letter dated 16/02/2016 alongwith copy of ledger account, copy of PAN card, copy of ITR for A.Y.2013-14, copy of bank statement and copy of balance sheet alongwith profit and loss account. However, ld. AO noted that a copy of bank statement reflecting the transaction of the assessee was not filed. He also issued summon u/s.131 on 03/03/2016 to the Principal Officer of M/s. Meenaxi Diamonds Pvt. Ltd., to attend personally to prove the genuineness and creditworthiness of the transaction. However, nobody appeared on behalf of the lender company. Apart from that he also noted that during the course of search action, statement of Shri Basant Jain, Director of M/s. Meenaxi Diamonds Pvt. Ltd., was recorded u/s 132(4) on 07/10/2013 wherein he has admitted that he was doing business on the direction of Shri Bhawarlal Jain and the relevant extract of his statement was incorporated in the original assessment order. Based on this information from the Investigation Wing, AO treated the unsecured loan of Rs.50,00,000 as unexplained cash credit which was added u/s.68. Apart from that commission for getting the unsecured loan was also added which worked out to Rs.2,58,561/-.
6. The assessee preferred appeal before the ld. CIT (A) wherein the addition made by the ld. AO was confirmed. Thereafter, the matter was travelled to the stage of the Tribunal and the matter and others Opulent Trading and Investment Pvt. Ltd. was restored back to the file of the ld. AO after making following observations:- “12. In this view of the matter and having considered the case laws discussed hereinabove, we are of the considered view that it is difficult to accept the arguments of the assessee that unsecured loan taken from M/s Meenakshi Diamonds Pvt Ltd is a genuine transaction firstly for the reason that such loan has been taken through proper banking channel and interest has been paid on such loan in compliance with TDS provisions, more particularly, when the facts gathered during assessment proceedings prove otherwise. At the same time, the AO has also not completed his investigation to reach to a conclusion that it is a sham transaction because the AO has heavily relied upon non appearance of the assessee in response to summons u/s 131. Therefore, we are of the considered view that the issue needs to be reexamined by the AO in the light of the claim of the assessee that transaction between parties are genuine transaction and that the identity of the party has not been disputed. Hence, we set aside the issue to the file of the AO and direct him to cause necessary enquiries in the light of our discussion hereinabove with a reasonable opportunity of hearing to the assessee"
In the set aside proceedings, ld. AO issued notice u/s.142(1) asking to upload the confirmation of the lender M/s. Meenaxi Diamonds Pvt. Ltd., regarding receiving of loan of Rs.50,00,000/- alongwith latest correspondence, address and communication of the Managing Director etc., and uploaded certificate, copy of bank statement of lender company, to upload complete set of ITR with all annexure for A.Y.2013-14 of the lender company and documentary evidence in respect of terms and conditions of huge loan taken from M/s. Meenaxi Diamonds Pvt. Ltd. In response, and others Opulent Trading and Investment Pvt. Ltd. assessee made the compliance to file those documents thereafter, ld. AO issued one summon u/s.131 to the Principal Officer of M/s. Meenaxi Diamonds Pvt. Ltd., in the faceless proceeding for compliance through video conference, however, on the date fixed, the Principal Officer of M/s. Meenaxi Diamonds Pvt. Ltd., did not appear through the video conferencing despite summon was issued through e-mail. Thus, ld. AO held that despite such an opportunity given, no compliance was made to summon issued u/s.131 and accordingly, he rejected the explanation and all the other evidences on record and same addition of Rs.50,00,000/-. The ld. CIT(A) too has confirmed the said finding of the ld. AO.
Before us at the time of hearing it was stated that Shri Basant Jain, Director of M/s. Meenaxi Diamonds Pvt. Ltd., had filed an affidavit duly sworn on oath giving entire details of loan alongwith RTGS details and various other documents and relied upon various documents filed on record. Regarding non- compliance u/s.131, he submitted that same was issued in the peak period of Covid and when the summons were issued, second wave of Covid was going on and the only time period was given for four days in the summons issued u/s.131 which was through electronic mode. Thus, no proper opportunity was given to him to appear before the ld. AO. Since the Managing Director of M/s. Meenaxi Diamonds Pvt. Ltd., had filed his affidavit therefore, this Bench directed the assessee to produce Shri Basant Jain before the ld. AO who shall cross examine him on the basis of his affidavit. The report of the ld. AO was called for and others Opulent Trading and Investment Pvt. Ltd. after examining Shri Basant Jain. The relevant content of the order sheet entry dated 08/01/2025 is reproduced hereunder:- “In the aforesaid case the main issue involved is addition on account of unsecured loan of Rs.50,00,000/- taken from M/s. Meenaxi Diamonds Pvt. Ltd., during the relevant A.Y.2013-14. During the course of the original assessment proceedings, assessee has filed various documents and also in response to the notice u/s.133(6) issued by the ld. AO , all these documents were filed again by the lender company. The details of these documents filed before the ld. AO were as under:- i. Acknowledgement of ITR filed for A.Y.2013-14 and copy of PAN Card of loan creditor, M/s Meenaxi Diamonds Pvt. Ltd. ii. Copy of Complete set of audited Financial (Annual) Account of loan creditor, M/s Meenaxi Diamonds Pvt. Ltd. of A.Υ.2013- 14 iii. Duly executed loan confirmation letter from the books of impugned cash creditor containing complete details of loan transaction and interest payment by the assessee company in A.Y.2013-14 iv. Relevant bank statement of assessee company highlighting the loan transaction and interest payment to impugned cash creditor taken place through only normal banking channels in A.Y.2013-14 v. Copy of paid TDS challan evidencing the payment of TDS deducted on interest paid to above named loan creditor vi. Relevant bank statement of above named loan creditor highlighting the loan transaction and interest payment by assessee company taken place through only normal banking channels in A.Y.2013-14 vii. Relevant bank statement of assessee company for the period 01-04- 2014 to 31-03-2015 highlighting the repayment and others Opulent Trading and Investment Pvt. Ltd. of entire loan along with due interest to above named loan creditor through normal banking channels in A.Υ.2015-16. viii. Duly executed loan confirmation letter along with copies of bank statement of abovenamed loan creditor for the period 01- 04-2014 to 31- 03-2015 highlighting the repayment of entire loan along with due interest by the assessee appellant company through normal banking channels in Α.Υ.2015-16.
In the first round of appeal, the matter had travelled upto the Tribunal in assessee’s appeal, wherein the Tribunal after noting all these facts that assessee had filed all the documents and even the lender party had complied with notice u/s.133(6), however, the lender company did not appear before the ld. AO and therefore, the identity and genuineness could not be established. The matter was restored back to the file of the ld.AO to re-examine the claim of the assessee that the transaction between the parties are genuine and ld. AO was directed to carry out necessary enquiries.
3. The ld. AO in the set aside proceedings had stated that the summon u/s.131 of the Act was issued to the Principal Officer of M/s. Meenaxi Diamonds Pvt. Ltd on 28/09/2021 in the Faceless Assessment proceedings for compliance through video conferencing at 12:30 pm on 24/09/2021 through system linked portal which was sent through e-mail. However, there was no compliance to summon issued u/s.131 and accordingly, ld. AO has made the addition of Rs.50,00,000/-. The same has been also confirmed by the ld. CIT(A). Now before us the affidavit of the Director of M/s. Meenaxi Diamonds Pvt. Ltd., Shri Basant Jain has been filed. Copy of affidavit is enclosed herewith as Annexure- I.
In the aforesaid affidavit Shri Basant Jain, Director of M/s. Meenaxi Diamonds Pvt. Ltd has made averment on oath that he has given loan to assessee from his bank account held with Indus- Ind Bank and was recorded in the books of accounts and also and others Opulent Trading and Investment Pvt. Ltd. reflected in the audited balance sheet. Further, the loan was given out of funds received through banking channel from M/s. Mayur Exports towards sale proceeds which also stood recorded in the books of account of the company. He has also stated that he has received interest after TDS deduction for the A.Yrs. 2013-14 to 2015-16 till the final repayment of loan on 20/03/2015 and also given the details of payment of loan received by the company.
Regarding non-compliance of summon u/s.131, he has stated that at that time when summon was issued for video conferencing, there was a second wave of Covid 2019 and the staff who were handling the computer operations, etc., and attending tax compliance were not attending the office at the relevant point of time and only four days were given therefore, he could not appear.
Since this affidavit has been filed before us and earlier the Tribunal had directed the ld. AO to carryout enquiry and ld. AO had issued notice u/s.131, which for the aforesaid reason was not complied with. Accordingly under these facts, it would be proper that Shri Basant Jain personally appears before the ld. JAO and the ld. JAO will verify the contents stated in the affidavit and cross examine Shri Basant Jain and submit his report alongwith copy of any statement if he records of Shri Basant Jain, Director of M/s.Meenaxi Diamonds Pvt. Ltd., 6. The ld. JAO if possible should also try to find out as to what had happened in the case of M/s. Meenaxi Diamond Pvt Ltd. or if there was any scrutiny assessment for A.Y.2013-14 in that case. Since ld. AR on behalf of assessee has agreed that the Director of the lender company will appear before the ld. AO as and when ld. AO calls or issue summon and accordingly, ld. AO should call upon the assessee as well as Shri Basant Jain and submit his remand report within one month. The case is fixed for further hearing on 13/02/2025 at 12:30 pm as part heard.”
The aforesaid order sheet entry captured the entire facts and the background of the case and assessee was directed to produce and others Opulent Trading and Investment Pvt. Ltd. Shri Basant Jain and directed the ld. AO to cross examine him on the basis of aforesaid affidavit. From the contents of the order sheet entry, Shri Basant Jain has appeared before the ld. AO for cross examination and his statement on oath was recorded by the ld. AO. His entire content of the statement has been filed before us by the ld. AO. However, the relevant questions start from Question No.6 onwards which for the sake of ready reference is reproduced hereunder:- Q.6; Please give details of companies/ partnership firm/concerns i n w h i c h y o u a r e d i r e c t o r / p a r t n e r / p r o p r i e t o r ? Ans.: The details are as under: Sr. Name of Director/ Address No. the concern Partner/Proprieto r 1. Meenaxi Director 228/229, Majestic Diamonds Shopping Centre, Private Girgaon- Mumbai 400004 Limited 2. Mahalaxmi Director 316, Panchratna Opera Gems House, Mumbai-400004 Private Limited 3. KPMC Director 401-B, Mahaveer Complex, Tax Dr. D.D Sathe Marg, Consultancy Girgaon Mumbai-400004 Private Limited 4.' Kavadia Director F-316, Boosa Apartment, Consultancy Near Khera Industries Services S.V.Road Santacruz (West), Mumbai -400 054 and others Opulent Trading and Investment Pvt. Ltd. Q.7: Please provide the details of business activity carried out in Meenaxi Diamonds Private Limited and whether the registered address is owned by you or the same is rented? Ans.: There is no business activity in Meenaxi Diamonds Private Limited since last five to seven years. I am submitting copy of acknowledgement of ROI for A.Y.2024-25 reflecting loss of Rs.8092/-. No activity of Meenaxi Diamonds Private Limited is being carried out from 228/229, Majestic Shopping Centre, Girgaon-Mumbai 400 004 since currently it is owned by some CA firm. Q.8: Please give details of directors of Opulent Trading and Investment Private Limited? Ans.: I only know one director of Opulent Trading and Investment Private Limited namely Mr. Sevanti Lal Jain. I don't know any other person from Opulent Trading and Investment Private Limited and I know Mr. Sevanti Lal Jain from last 12 years. Q.9: Please tell how you came in contact of Mr. Sevanti Lal Jain and whether you had any business relation with Mr. Sevanti Lal Jain? Ans.: Mr. Sevanti Lal Jain is from my community and I didn't had any business relation with Mr. Sevanti Lal Jain other than loan of Rs. 50 Lacs that I had authorized as Principal Director of Meenaxi Diamonds Private Limited to be advanced to Opulent Trading and Investment Private Limited. Q.10: Please state whether Opulent Trading and Investment Private Limited or its directors or any other concern of the directors has given any loan to you or any of your concerns? Ans.: No, neither Opulent Trading and Investment Private Limited nor any of the concerns of its directors has given any loan to me or any of my concerns. Q.11: Please state how a loan of Rs. 50 Lacs has been advance to Opulent Trading and Investment Private Limited from Meenaxi Diamonds Private Limited when you did not had any business and others Opulent Trading and Investment Pvt. Ltd. relation with it or any of its directors. Specially when you came in contact of Mr. Sevanti Lal Jain around the same time when the said loan was given? Ans.: I came in contact of Mr. Sevanti Lal Jain around 12 years ago in some religious gathering. The company was having surplus fund at that time and the loan was advanced in order to generate interest income. Q.12: Please state whether it is in normal course of business activity to advance such huge loan of Rs. 50 Lacs without any collateral Security? Ans. In our line of business advancing loan without any collateral security is normal as trust is paramount in the course of business. Q.13: The scrutiny assessment of Opulent Trading and Investment Private Limited for A.Y. 2013-14 was finalized treating unsecured loan of Rs. 50 Lacs given by Meenaxi Diamonds Private Limited as unexplained on the basis of information received regarding search action on Shri Bhanwar Lal Jain and his associates. Please state whether you had any business or personal relation with Shri Bhanwar Lal Jain and his associates? Ans: I didn't have any business relation with Shri Bhanwar Lal Jain and his associates however I know him personally since my wife had purchased flat at Santacruz in 2017, in which currently I am residing from Shri Bhanwar Lal Jain HUF. Q.14: Please provide the documents relied upon you in your affidavit dated 31.07.2024 submitted before Honble ITAT. Ans: I had given my affidavit to Shri Sevanti Lal Jain. I am submitting Audit Report of Meenaxi Diamonds Private Limited for F.Y. 2012-13 to 2014-15, Ledger confirmation alongwith Bank Statement for F.Y. 2012-13 to 2014-15. Q.15: On perusal of Profit and Loss account for A.Y.2013-14, it is noticed that your business income is of Rs. 3,58,740/- as against revenue of Rs. 212 Crores. Further, as per Balance Sheet as on and others Opulent Trading and Investment Pvt. Ltd. 31.03.2013 the Trade Payables of Rs. 71 Crores as against inventory of Rs. 8.67 Crores, Cash and Bank Balance of Rs. 3.23 Crores, Trade receivable of Rs. 39.02 Crores and loans and advance of Rs. 20 Crores. Further, almost the same income to turnover ratio and balance sheet details are reflected for other years also for which details have been submitted by you. Please explain whether such low income to turnover ratio and balance sheet is normal in your type of business. Ans This type of income to turnover ratio and balance sheet details are normal in the course of diamond business. There is exchange loss due to increase in dollar price as against INR, which results in low profit. Q.16: Do you wish to state anything else? Ans.: No. Whatever sated above is true and correct to the best of my knowledge and belief. The above statement is given by me voluntarily, without any force, threat, coercion, any inducement, promise, or any other undue influence was brought to bear on me. I further affirm that oath was administered to me before recording the statement. Further I declare that I have read, understood its contents and fully agree to the contents recorded.”
Based on this statement, ld. AO has submitted his report dated 10/02/2025. In his report ld. AO has acknowledged that Shri Basant Jain has appeared in response to summon u/s.131 and his statement was recorded on 07/02/2025. However, in the entire report, ld. AO has merely referred to and highlighted about his original statement recorded during the course of search u/s.132(4) without giving any specific finding during the course of cross examination by him based on the affidavit filed by Shri Basant Jain. For the sake ready reference, the relevant extract of the report of the ld. AO is reproduced hereunder:-
5. The report as per the directions of Hon’ble ITAT, Mumbai is submitted as under:- 5.1. Shri Basant Jain, Director of M/s. Meenaxi Diamonds Pvt. Ltd. L.. his statement recorded on oath u/s. 131 of the Income Tax Act, 1961 on 07.02.2025, in response to Q. No. 7 regarding the business activity carried out in Meenaxi Diamonds Pvt. Ltd. has stated that there is no business activity in Meenaxi Diamonds Pvt. Ltd. since last five to seven years. He has submitted copy of acknowledgement of ROI Meenaxi Diamonds Pvt. Ltd. for A.Y. 2024-25 reflecting loss of Rs. 8,092/. He has further stated that no activity of Meenaxi Diamonds Pvt. Ltd. is being carried out from the registered address, le., 228/229, Majestic Shopping Centre, Girgaon, Mumbai 400 004 since currently the said premises is owned by some CA firm. 5.2. Shri Basant Jain, Director of M/s. Meenaxi Diamonds Pvt. Ltd. in his statement recorded on oath u/s. 131 of the Income Tax Act, 1961 on 07.02.2025, in response to Q. No. 8 regarding the directors of Opulent Trading and Investment Pvt. Ltd. has stated that he only knows one director of Opulent Trading and Investment Pvt. Ltd. namely Mr. Sevanti Lal Jain. He don't know any other person from Opulent Trading and Investment Pvt. Ltd. and he knows Mr. Sevanti Lal Jain since last 12 years. 5.3. Shri Basant Jain, Director of M/s. Meenaxi Diamonds Pvt. Ltd. in his statement recorded on oath u/s. 131 of the Income Tax Act, 1961 on 07.02.2025, in response to Q. No. 9 regarding how he came in contact of Mr. Sevanti Lal Jain and whether he had any business relation with Mr. Sevanti Lal Jain has stated that Mr. Sevanti Lal Jain is from his community and he didn't had any business relation with Mr. Sevanti Lal Jain other than loan of Rs. 50 lakhs that he had authorized as Principal Director of Meenaxi Diamonds Pvt. Ltd. to be advanced to Opulent Trading and Investment Pvt. Ltd. 5.4. Shri Basant Jain, Director of M/s. Meenaxi Diamonds Pvt. Ltd. in his statement recorded on oath u/s. 131 of the Income Tax Act, 1961 on 07.02.2025, in response to Q No. 10 regarding whether and others Opulent Trading and Investment Pvt. Ltd. Opulent Trading and Investment Pvt. Ltd. or its directors or any other concern of the directors has given any loan to him or any of his concerns has stated that neither Opulent Trading and Investment Pvt. Ltd. nor any of the concerns of its directors has given any loan to him or any of his concerns. 5.5. Shri Basant Jain, Director of M/s. Meenaxi Diamonds Pvt. Ltd. in his statement recorded on oath u/a 131 of the Income Tax Act. 1961 on 07.02.2025, in response to O. No. 11 regarding how a loan of Rs. 50 lakhs has been advanced to Opulent Trading and Investment Pvt. Ltd. from Meenaxi Diamonds Pvt. Ltd. when he did not had any business relation with it or any of its directors and specially when he came in contact with Mr. Sevanti Lal Jain around the same time when the said loan was given has stated that he came in contact of Mr. Sevanti Lal Jain around 12 years ago in some religious gathering. Meenaxi Diamonds Pvt. Ltd. was having surplus fund at that time and the loan was advanced in order to generate interest income. 5.6. Shri Basant Jain, Director of M/s. Meenaxi Diamonds Pvt. Ltd. in his statement recorded on oath u/s. 131 of the Income Tax Act, 1961 on 07.02.2025, in response to Q. No. 12 regarding whether it is in normal course of business activity to advance such huge loan of Rs. 50 lakhs without any collateral security has stated that in his line of business advancing loan without any collateral security is normal as trust is paramount in the course of business. 5.7. Shri Basant Jain, Director of M/s. Meenaxi Diamonds Pvt. Ltd. in his statement recorded on oath u/s. 131 of the Income Tax Act, 1961 on 07.02.2025, in response to Q. No. 15 regarding Profit and Loss account for A.Y. 2013-14 having business income of Rs. 3,58,740/- as against revenue of Rs. 212 Crores and Balance Sheet as on 31.03.2013 having the Trade Payables of Rs. 71 Crores as against inventory of Rs. 8.67 Crores, Cash and Bank Balance of Rs. 3.23 Crores, Trade receivable of Rs. 39.02 Crores and loans and advance of Rs. 20 Crores and almost the same income to turnover ratio and balance sheet details in other years also and whether such low income to turnover ratio and balance sheet is normal in his type of business has stated that this type of income to turnover ratio and balance sheet details are normal in and others Opulent Trading and Investment Pvt. Ltd. the course of diamond business and there is exchange loss due to increase in dollar price as against INR, which results in low profit. 5.8. Further, the statement Shri Basant D. Jain was recorded on oath u/s. 132(4) of the Income Tax Act, 1961 on 07.10.2013 in connection with the search action in the case of accommodation entry provider Shri Bhanwarlal Jain and his associates (Copy of statement of Shri Basant D. Jain recorded on oath u/s. 132(4) of the Income Tax Act, 1961 on 07.10.2013 is enclosed herewith). 5.9. Shri Basant Jain, Director of M/s. Meenaxi Diamonds Pvt. Ltd. in his statement recorded on oath u/s. 132(4) of the Income Tax Act, 1961 on 07.10.2013, in response to Q. No. 7 regarding residential address had stated that the flat is owned by Bhanwarlal N. Jain HUF. 5.10. Shri Basant Jain, Director of M/s. Meenaxi Diamonds Pvt. Ltd. in his statement recorded on oath u/s. 132(4) of the Income Tax Act, 1961 on 07.10.2013, in response to Q. No. 58 regarding name and email id of the main persons of the foreign parties who are contacted by him for making exports had stated that he had never spoken to any representative of the concern and he do not have any mobile no./contact no. or email id of the foreign parties from whom imports were shown in the concerns in which he is a director. 5.11. Shri Basant Jain, Director of M/s. Meenaxi Diamonds Pvt. Ltd. in his statement recorded on oath u/s. 132(4) of the Income Tax Act, 1961 on 07.10.2013, in response to Q. No. 72 regarding ownership details of premises from where his concerns are operated had stated that the activities of all 4 of his concerns were operated from the premises owned either by Bhanwarlal N. Jain, his family members or their concerns. 5.12. Shri Basant Jain, Director of M/s. Meenaxi Diamonds Pvt. Ltd. in his statement recorded on oath u/s. 132(4) of the Income Tax Act, 1961 on 07.10.2013, in response to Q. No. 76 had admitted that he is merely a director for name sake in the concerns and the affairs of the concerns are completely managed and controlled by Bhanwarlal M. Jain and Rajesh B. Jain and he is employee of Bhanwarlal M. Jain and looks after the accounts of and others Opulent Trading and Investment Pvt. Ltd. all the concerns managed and controlled by Bhanwarlal M. Jain and group. 5.13. Shri Basant Jain, Director of M/s. Meenaxi Diamonds Pvt. Ltd. in his statement recorded on oath u/s. 132(4) of the Income Tax Act, 1961 on 07.10.2013, in response to Q. No. 79 had agreed with the recorded statements of Gautam Kumar N. Jain and Anil Khicha that he, Gautam Kumar N. Jain and Anil Khicha are merely dummy directors and the actual affairs and business decisions are taken by Bhanwarlal M. Jain and Rajesh B. Jain and group. 5.14. It is also submitted that the assessment in the case of M/s. Meenaxi Diamonds Pvt. Ltd. for A. Y. 2013-14 was completed on 28.03.2016 u/s. 153A r.w.s. 143(3) of the I. T. Act, 1961 (Copy of assessment order is enclosed herewith) wherein it was concluded that M/s. Meenaxi Diamonds Pvt. Ltd. was not carrying out any genuine business of trading in diamonds but was solely used to provided accommodation entries by Bhanwarlal Jain and addition of Rs. 75,26,213/- was made as commission income on providing accommodation entries of bogus unsecured loan, bogus purchases and imports made for real importers. Further, the assessment of M/s. Meenaxi Diamonds Pvt. Ltd. for other years were also finalized on the same basis.
In view of the above, the additions made by the A.O. in assessment orders for A.Y. 2013-14 and 2014-15 and penalty u/s. 271(1)(c) levied for A.Y. 2013-14 and the additions as well as penalty confirmed by ld. CIT(A) is justified and the Hon'ble ITAT may kindly be requested to dismiss the appeals filed by the assessee.”
We have heard both the parties at length and also perused the relevant finding given in the impugned orders as well as the material placed on record including the statement of Shri Basant Jain and the report of the ld. AO. As noted above in the first round, Tribunal has specifically set aside the matter to the ld. AO to conduct enquiry. During the course of set aside and others Opulent Trading and Investment Pvt. Ltd. proceedings although assessee has filed all the details, however, the ld. AO issued summons u/s.131to Principal Officer of M/s. Meenaxi Diamonds Pvt. Ltd., he could not appear. In the affidavit it was stated that summons were issued in the peak second wave of Covid period and time given was only four days through video conference which he could not attend and therefore under these circumstances, he could not appear before the ld. AO. In his affidavit he has made averment on oath that he has given loan of Rs.50,00,000/- as interest bearing through RTGS from his bank account of the company held with Indus-Ind Bank, Opera House Branch, Mumbai and loan was recorded in the books of accounts and in the audited balance sheet. He also gave source of his funds that the same was given out of funds received on 28/09/2012 received from M/s. Mayur Exports towards sale proceeds which also stood recorded in the books of account of the company. The interest income received on loan had been offered to tax and TDS was also deducted and the same has been reflected in the income tax returns for the A.Yrs. 2013-14 to 2015-16 till the final repayment of loan on 20/03/2015. Thus, the loan which was given was duly received back by the lender company. He has also mentioned the date of repayment through RTGS received in the bank account of the company. He also has given the reasons as to why he could not appear before the ld. AO.
However, thereafter, in response to our directions given to the assessee, he had appeared before the ld. AO and again his statement on oath was recorded. In his statement, he has stated and others Opulent Trading and Investment Pvt. Ltd. that now no business is being carried out in M/s. Meenaxi Diamonds Pvt. Ltd., from last 5-7 years. But, he has given the circumstances and explanation alongwith documentary evidences about giving of the loan of Rs.50,00,000/- to the assessee company and he has stated that the company had a surplus fund at that time and loan was advanced in order to generate interest income. This has been stated and replied in Question No.11.
Another important fact which has been stated before the ld. AO in reply to Question No.13 that he did not have any business relationship with Shri Bhawarlal Jain and his associates and he only know him personally only when his wife had purchased flat at Santacruz in the year 2017 from Shri Bhawarlal Jain HUF. Nowhere, he has acknowledged that he was associated with Shri Bhawarlal Jain nor ld. AO has got anything on record to establish that he was never part of Shri Bhawarlal Jain group or M/s. Meenaxi Diamonds Pvt. Ltd., was ever controlled and managed by Shri Bhawarlal Jain except for the information received from the Investigation Wing. Further, he has stated that apart from his affidavit where he has mentioned all the facts and documents filed during the assessment proceedings in response to notice u/s 133(6) which was the audit report of M/s. Meenaxi Diamonds Pvt. Ltd., for F.Y.2012-13 to 2014-15 alongwith ledger confirmation and bank statement. The ld. AO has also asked about the business income which was shown at a very meager income of Rs.3,58,740/- on huge turnover of revenue of Rs.212 and others Opulent Trading and Investment Pvt. Ltd. Crores. In response to the said question, Shri Basant Jain has given his reasons for low profit.
One very important fact which is to be noted here that, nowhere ld. AO had asked about the source of funds which Shri Basant Jain has stated in his affidavit that the same was received from the sale proceeds of Mayur Exports. The ld. AO was given opportunity to cross examine the averment made on the affidavit and what is seen from his report that he is simply relying upon the statement recorded in the year 2013. The said statement already stood retracted by him immediately after the search and thereafter, he has filed affidavit on which ld. AO was given opportunity to cross examine him on the averments made in the affidavit especially about the source of funds which was from sale proceeds to Mayur Exports. Since the original assessment order has been set aside by the Tribunal to make fresh enquiry and once the Director of the lender company had personally appeared before the ld. AO, then it was the duty of the ld. AO to cross examine about the source of the funds. In absence of any such question by the ld. AO, the averment made in the affidavit that the source of the loan given by the assessee is from the sale proceeds from Mayur Exports which has been duly recorded in the books of accounts has to be accepted. Once all these transactions have been recorded in the books and also reflected in the audited financial statement filed alongwith return of income and the source including the bank statement has been provided then there cannot be any doubt about the source. The genuineness also got established. Thus under these facts and and others Opulent Trading and Investment Pvt. Ltd. circumstances, addition u/s.68 cannot be made. Accordingly, in light of these materials coming on record, we do not find any reasons or justification for sustaining the addition of Rs.50,00,000/- and accordingly, the addition made by the ld. AO u/s.68 for Rs.50,00,000/- is deleted. Consequently, the interest paid by the assessee on such loan is also allowed and the minor amount of commission paid on such loan made on adhoc basis is also deleted.
In the result, appeal of the assessee is allowed.
16. The only issue involved is disallowance of interest payment on loan. Since we have dealt with loan of Rs.50,00,000/- received was genuine and therefore, interest which has been paid on such loan after deducting TDS cannot be disallowed. Accordingly, the disallowance of interest paid is deleted. 17. In the result, appeal of the assessee is allowed.
18. In so far as levy of penalty, the same have been levied on addition of Rs.50,00,000/-by the ld. AO. Since we have deleted the quantum addition, therefore, the penalty levied by the ld. AO of Rs.16,21,805/- and such addition stands deleted. In the result, appeal of the assessee is allowed.