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Income Tax Appellate Tribunal, “C” Bench, Mumbai
THE INCOME TAX APPELLATE TRIBUNAL “C” Bench, Mumbai Shri B.R. Baskaran (AM) & Shri Rahul Chaudhary (JM)
I.T.A. No. 751/Mum/2020 (A.Y. 2013-14) Vs. M/s. Poonam Shanti ACIT, Central Circle-1(3) 905, 9th Floor Developers Pratishtha Bhavan 66B, 3rd Floor, Poddar Old CGO Building Annexe Chambers, 22E Sayed M.K. Road Abdulla Barelvi Road Mumbai-400 020. Fort, Mumbai-400 001.
PAN : AAMFP0302N (Appellant) (Respondent)
I.T.A. No. 748/Mum/2020 (A.Y. 2011-12) I.T.A. No. 749/Mum/2020 (A.Y. 2012-13) Vs. M/s. Poonam Mega ACIT, Central Circle-1(3) 905, 9th Floor Developers Pratishtha Bhavan 66B, 3rd Floor, Poddar Old CGO Building Annexe Chambers, 22E Sayed M.K. Road Abdulla Barelvi Road Mumbai-400 020. Fort, Mumbai-400 001.
PAN : AAMFP4228F (Appellant) (Respondent)
I.T.A. No. 752/Mum/2020 (A.Y. 2012-13) Vs. M/s. Poonam Skyline ACIT, Central Circle-1(3) 905, 9th Floor Construction Pratishtha Bhavan 66B, 3rd Floor, Poddar Old CGO Building Annexe Chambers, 22E Sayed M.K. Road Abdulla Barelvi Road Mumbai-400 020. Fort, Mumbai-400 001.
PAN : AAHFP4019R (Appellant) (Respondent)
2 M/s. Poonam Shanti Developers Group I.T.A. No. 432/Mum/2020 (A.Y. 2013-14)
Vs. ACIT, Central Circle-1(3) M/s. Poonam Mega Developers 905, 9th Floor 66B, 3rd Floor, Poddar Pratishtha Bhavan Chambers, 22E Sayed Old CGO Building Abdulla Barelvi Road Annexe M.K. Road Fort, Mumbai-400 001. Mumbai-400 020.
PAN : AAMFP0302N (Appellant) (Respondent)
Assessee by Shri Mani Jain, CA & Shri Prateek Jain, CA Department by Shri Senthil Kumaran Date of Hearing 08.09.2022 Date of Pronouncement 05.12.2022
O R D E R Per Bench :-
All these assessees belong to the same group. Four appeals have been filed by the Revenue in respect of three assessees herein. The assessee M/s. Poonam Shanti Developers has also filed the appeal for A.Y. 2013-14. All these appeals are directed against the orders passed by the learned CIT(A)- 47, Mumbai. Since the underlying facts relating to the issues contested by the revenue are identical in nature in all these appeals, they were heard together and are being disposed of by this common order, for the sake of convenience.
The facts relating to the cases are common in nature and are stated in brief. The assessees herein are partnership firms. The revenue carried out search and seizure operations under section 132(1) of the I.T. Act in the case of Bhanwarlal Jain on 3.10.2013 and it was noticed that the above said person has floated many companies, through which he was giving accommodation entries in the form of unsecured loans. It was noticed that the assessee’s group concerns (Poonam group) have taken loans from companies belonging to above said Shri Bhanwarlal Jain. Hence the revenue
3 M/s. Poonam Shanti Developers Group carried out survey operations in the hands of Poonam group. During the course of survey operations, a statement was taken from Shri Ashwin Mehta, who looks after the financial matters of the group. He admitted that the Poonam group has taken loans from concerns managed and controlled by Shri Bhanwarlal Jain and his son Shri Rajesh B Jain.
The AO further noticed from the statement given Shri Ashwin Mehta that the Poonam group has obtained loans without entering into any agreement with the lender companies; without giving any security and without paying any stamp duty, levy or taxes, if any, levied by the State Government. The AO also noticed that the loans were arranged merely on casual visit of Shri Ashwin Mehta to the premises of Bhanwarlal Jain and no brokers have been involved. Since the normal procedures involved in granting of loans have not been followed, the AO came to the conclusion that the loans taken by these assessees are only accommodation entries. For the sake of clarity, we extract below the observations made by the AO in the case of M/s Poonam Shanti Developers in AY 2013-14:- “3.4 From the above statement recorded u/s 133A of the I T Act, 1961, it is established that the transactions with regard to the unsecured loans and advances were merely in the nature of accommodation entries, without having any commercial sense. It is also clear that all norms, which were required to be followed while granting of loans were not followed, which is evident from the admissions made by Shri Ashwin Mehta himself in his statement reproduced above. As such Shri Ashwin Menta, finance head has failed to prove the identity, genuineness and credit worthiness of the entities which had provided unsecured loans to the concerns of Poonam group. 3.5……………
3.6 The aforesaid findings do indicate that the transactions in the pretext of loans claimed by the assessee are nothing but accommodation entries, a modus operandi of which has already been narrated above. The above statement established beyond any shadow of doubt that the Poonam group is indulging in procuring bogus unsecured loans from the entities managed and controlled by Shri Bhanwarlal Jain and bringing back its unaccounted cash generated in its regular business. As such Shri Ashwin Mehta has failed to prove the identity, genuineness and credit worthiness of the entities which has provided unsecured loans to the group concerns of Poonam group.”
4 M/s. Poonam Shanti Developers Group Accordingly, the AO held that the loans taken by these assessees from concerns belonging to Shri Bhanwarlal Jain are bogus in nature and accordingly assessed the same as unexplained credits u/s 68 of the Act in the respective years in the hands of the assessees herein. The AO also disallowed the interest paid/payable on the above said loans. The Assessing Officer also took the view that the assessee would have paid commission for procuring bogus loans and accordingly estimated the commission expenses at 0.2% of the loan amount and accordingly added the amount so calculated by him towards commission expenses.
The AO further noticed that the assessees, viz., M/s Poonam Shanti Developers (in AY 2013-14); M/s Poonam Skyline Construction (in AY 2012- 13) and M/s Poonam Mega Developers (in AY 2012-13) have made purchases from certain concerns, which were identified by the VAT department of Maharashtra Government, as concerns providing accommodation sales bills without actually supplying the materials. The AO disallowed entire amount of alleged bogus purchases. The assessing officer also estimated commission expenses that would have been incurred by the assessee in procuring bogus purchase bills and added the same to the total income.
The Ld CIT(A) deleted the additions made u/s 68 of the Act in the hands of all the assessees herein. Consequently, the corresponding interest disallowance and addition of estimated commission expenses were also deleted by Ld CIT(A). With regard to the addition relating to bogus purchases, the first appellate authority restricted the addition to 12.50% of the amount of alleged bogus purchases. The revenue is aggrieved by the decisions so rendered by Ld CIT(A) and hence it has filed four appeals, referred above, in the hands of each of the assessees for the assessment years mentioned in the caption.
The assessee named in M/s Poonam Shanti Developers has filed appeal for AY 2013-14 contesting the addition of Rs.6.35 crores, being cash
5 M/s. Poonam Shanti Developers Group payments alleged to have been made in purchase of land from M/s Viva Swastik Developers. The AO assessed the same as income of the assessee and the Ld CIT(A) also confirmed the same. Hence the assessee has filed appeal challenging the decision so rendered by Ld CIT(A) in AY 2013-14.
We shall now take up appeals filed by the revenue in the hands of each of the assesses herein.
POONAM SHANTI DEVELOPERS (AY 2013-14):-
In the appeal for AY 2013-14, the revenue is aggrieved by the decision of Ld CIT(A)
(a) in deleting the addition of Rs.3,23,50,000/- made u/s 68 of the Act towards alleged bogus loans taken by the assessee
(b) in deleting the interest disallowance relating to the above said bogus loans and also commission estimated on procuring bogus loans.
(c) restricting the disallowance of bogus purchases to 12.50% instead of 100% of disallowance made by the AO.
8.1 The assessee had taken loans from the following concerns belonging to Bhanwarlal Jain group in this year:- M/s Amit Diamonds - Rs.25,00,000 M/s Kothari & Co. - Rs.30,00,000 M/s Laxmi Trading Co. - Rs.21,00,000 M/s Miles Stone - Rs.40,00,000 M/s Naman Exports - Rs.75,00,000 M/s Navkar Diamonds - Rs.12,50,000 M/s Rose Impex - Rs.40,00,000 M/s White Stone - Rs.80,00,000 --------------------- Rs.3,23,50,000
As observed earlier, the AO treated the above said loans as bogus in nature and accordingly assessed them as income of the assessee. The assessee had claimed interest expenses of Rs.29,32,575/- on the above said loans. The AO disallowed the interest expenditure, since the concerned loans had been
6 M/s. Poonam Shanti Developers Group considered by him as bogus. The AO also took the view that the assessee would have paid commission for procuring bogus loans and accordingly estimated the commission expenses at 0.2% of the loan amount and accordingly added a sum of Rs.4,80,200/- towards commission expenses.
8.2 The Ld CIT(A) deleted the above said additions and hence the revenue has filed appeal challenging the said order of Ld CIT(A).
8.3 The AO also noticed that the assessee has made purchases aggregating to Rs.31,20,825/- from the following concerns, who have been identified by the VAT department of Maharashtra State Government as concerns providing accommodation bills:- M/s Ankit Enterprises - Rs.22,57,500/- M/s Akash International - Rs. 8,63,325/- -------------------- Rs.31,20,825/- ============= The AO disallowed the entire amounts of alleged bogus purchases and the Ld CIT(A) restricted the addition to 12.50% of the value of alleged bogus purchases. Hence the revenue is challenging the said decision of Ld CIT(A).
POONAM SKYLINE CONSTRUCTIONS (AY 2012-13):-
In the appeal filed for AY 2012-13, the revenue is aggrieved by the decision of Ld CIT(A)
(a) in deleting the addition of Rs.1,15,00,000/- made u/s 68 of the Act towards alleged bogus loans taken by the assessee
(b) in deleting the interest disallowance relating to the above said bogus loans and also commission estimated on procuring bogus loans.
(c) restricting the disallowance of bogus purchases to 12.50% instead of 100% of disallowance made by the AO.
9.1 This assessee had taken loan of Rs.1,15,00,000/- from the following entities:-
7 M/s. Poonam Shanti Developers Group
a) M/s Daksha Diamonds - Rs.65,00,000/- b) M/s Naman Exports - Rs.50,00,000/- ---------------------- Rs.1,15,00,000/- =============== The AO treated the above said loans as bogus in nature and accordingly assessed them as income of the assessee. The assessee had claimed interest payment of Rs.56,875/- on the above said loans. The AO disallowed the interest expenditure, since the concerned loans had been considered by him as bogus. The AO also took the view that the assessee would have paid commission for procuring bogus loans and accordingly estimated the commission expenses at 0.2% of the loan amount and accordingly added a sum of Rs.36,000/- towards commission expenses.
9.2 The AO further noticed that the assessee has made purchases from the following concerns providing accommodation sales bills. According to AO, one Shri Jitendra Champalal Jain has admitted supplying of bogus sales bills. a) M/s Gold Star Trading Co. - Rs.55,32,386 b) M/s Augyesha Sales - Rs.32,15,250 c) M/s Akash International - Rs.18,84,798 ------------------- Rs.1,06,32,434/- ============= The AO disallowed above purchase expenses.
9.3 The Ld CIT(A) deleted above said additions of alleged bogus loans, related interest and commission expenses. With regard to addition relating to alleged bogus purchases, the ld CIT(A) restricted the addition to 12.50% of the value of purchases. The revenue is aggrieved by the decisions so rendered by Ld CIT(A).
POONAM MEGA DEVELOPERS – AY 2011-12:-
8 M/s. Poonam Shanti Developers Group 10. In this appeal filed for AY 2011-12, the revenue is aggrieved by the decision of Ld CIT(A)
(a) in deleting the addition of Rs.3,67,50,000/- made u/s 68 of the Act towards alleged bogus loans taken by the assessee
(b) in deleting the interest disallowance relating to the above said bogus loans and also commission estimated on procuring bogus loans.
10.1 This assessee had taken loan of Rs.3,67,50,000/- from the following entities:- a) M/s Jewel Diams - Rs. 50,00,000/- b) M/s Mann Diamonds - Rs.1,22,50,000/- c) M/s Mayur Exports - Rs. 30,00,000/- d) M/s Mohit Enterprises - Rs. 90,00,000/- e) M/s Rahul Export - Rs. 75,00,000/- ----------------------- Rs.3,67,50,000/- =============== The AO treated the above said loans as bogus in nature and accordingly assessed them as income of the assessee. The assessee had claimed interest payment of Rs.9,69,863/- on the above said loans. The AO disallowed the interest expenditure, since the concerned loans had been considered by him as bogus. The AO also took the view that the assessee would have paid commission for procuring bogus loans and accordingly estimated the commission expenses at 0.2% of the loan amount and accordingly added a sum of Rs.3,12,500/- towards commission expenses.
10.2 The Ld CIT(A) deleted above said additions of alleged bogus loans, related interest and commission expenses. The revenue is aggrieved by the decisions so rendered by Ld CIT(A).
POONAM MEGA DEVELOPERS – AY 2012-13:-
In the appeal filed for AY 2012-13, the revenue is aggrieved by the decision of Ld CIT(A)
9 M/s. Poonam Shanti Developers Group
(a) in deleting the addition of Rs.1,90,00,000/- made u/s 68 of the Act towards alleged bogus loans taken by the assessee
(b) in deleting the interest disallowance relating to the above said bogus loans and also commission estimated on procuring bogus loans.
(c) restricting the disallowance of bogus purchases to 12.50% instead of 100% of disallowance made by the AO.
11.1 This assessee had taken loan of Rs.1,90,00,000/- from the following entities:- a) M/s Sankhala Exports P Ltd - Rs.1,00,00,000/- b) M/s Surya Diam - Rs. 25,00,000/- c) M/s Aastha Impex - Rs. 25,00,000/- d) M/s Daksha Diamonds - Rs. 20,00,000/- e) M/s Pankaj Exports - Rs. 20,00,000/- ---------------------- Rs.1,90,00,000/- =============== The AO treated the above said loans as bogus in nature and accordingly assessed them as income of the assessee. The assessee had claimed interest payment of Rs.14,26,002/- on the above said loans. The AO disallowed the interest expenditure, since the concerned loans had been considered by him as bogus. The AO also took the view that the assessee would have paid commission for procuring bogus loans and accordingly estimated the commission expenses at 0.2% of the loan amount and accordingly added a sum of Rs.4,14,000/- towards commission expenses.
11.2 The AO further noticed that the assessee has made purchases from the following concerns providing accommodation sales bills. According to AO, one Shri Jitendra Champalal Jain has admitted supplying of bogus sales bills. a) M/s Gold Star Trading Co. - Rs.2,52,000 b) M/s Augyesha Sales - Rs.2,45,700 c) M/s Kumar Enterprises - Rs.3,38,100 ------------------- Rs.8,35,800/- =============
10 M/s. Poonam Shanti Developers Group The AO disallowed above purchase expenses. The assessing officer also estimated commission expenses that would have been incurred by the assessee in procuring bogus purchase bills at Rs.1,881/- and added the same to the total income.
11.3 The Ld CIT(A) deleted above said additions of alleged bogus loans, related interest and commission expenses. With regard to addition relating to alleged bogus purchases, the ld CIT(A) restricted the addition to 12.50% of the value of purchases. The revenue is aggrieved by the decisions so rendered by Ld CIT(A).
The Ld D.R submitted that the search was conducted by the revenue in the concerns belonging to Shri Bhanwarlal Jain and during the course of search action, many incriminating documents evidencing the fact that these concerns were providing only accommodation entries in the form of unsecured loans, bogus purchases etc, were found. There were many beneficiaries and one of the beneficiaries named M/s Hakman Financial Services P Ltd has accepted the availing of accommodation entries from the concerns belonging to Shri Bhanwarlal Jain group. He further submitted that the surrounding circumstances and activities of Bhanwarlal Jain group would show that they were providing only accommodation entries only. By placing reliance on the decision rendered by Hon’ble Supreme Court in the case of Sumati Dayal (241 ITR 801)(SC), the Ld D.R contended that the apparent transactions entered by these assessees with the concerns belonging to Bhanwarlal Jain group cannot be considered to be real. Accordingly, the Ld A.R contended that the additions made by the AO in respect of bogus loans should be sustained.
With regard to bogus purchases, the Ld D.R submitted that those concerns have been identified as providing only bogus sales bills without actually supplying goods. He submitted that in the case of Pradeep Pipe
11 M/s. Poonam Shanti Developers Group Structural (ITA No.3874/Mum/2015 and others dated 10-04-2019), the Tribunal has confirmed addition of entire amount of purchases. He further submitted that the Hon’ble Supreme Court has confirmed disallowance of entire amount of bogus purchases in the case of N K Proteins (SLP (C) No.769 of 2017 dated 16th January, 2017). Accordingly, he submitted that the Ld CIT(A) was not justified in restricting the addition towards bogus purchases to 12.50% of the value of purchases.
The Ld A.R, on the contrary, submitted that the AO has made the addition of loans u/s 68 of the Act, merely on surmises and conjectures. In respect of loans, the Ld A.R submitted that the assessees herein have discharged the burden placed upon it u/s 68 of the Act by proving all the three main ingredients, viz., identity of the creditor, credit worthiness of the creditor and genuineness of transactions. With regard to the addition relating to alleged bogus purchases, the Ld A.R submitted that the assessee has furnished all the details to prove the purchases. He further submitted that the AO has not furnished the documents relied upon him for making the additions in the hands of the assessees herein. In that case, the AO could not have made these additions as held by Hon’ble Delhi High Court in the case of Ashwani Gupta (322 ITR 396)(Del).
We heard the parties on this issue and perused the record. The first common issue in all the appeals filed by the revenue relate to the addition made u/s 68 of the Act, wherein cash credits, which are essentially capital receipts, are deemed to be revenue receipts by legal fiction, if the assessee fails to prove the nature and source of cash credits. In order to prove the cash credits, the assessee should discharge initial burden to prove the cash credits placed upon his shoulders of the assessee u/s 68 of the Act, i.e., the assessee is required to prove three main ingredients, viz., the identity of the creditor, the genuineness of the transactions and the credit worthiness of the creditor. If the assessee discharges the initial burden, then the burden would
12 M/s. Poonam Shanti Developers Group shift to the shoulders of the assessing officer, i.e., it is the responsibility of the AO to disprove the claim of the assessee by bringing evidences on record.
We shall now examine the facts prevailing in the instant cases. It is noticed that it is not the case of the AO that the assessees herein have not discharged the initial burden placed upon it with regard to the loans availed by it. There is not dispute with regard to the fact that the assessee has furnished all the details relating to the four creditors in order to discharge the burden placed upon it u/s 68 of the Act. However, the AO did not find fault with the evidences furnished by the assessee in order to discharge the burden shifted to his shoulders. On the contrary, the AO has heavily relied upon the report of the investigation wing with regard to the proceedings that took place in the case of Bhanwarlal Jain group. Further, the AO has also placed reliance on the statements given by Shri Ashwin Mehta, who is in charge of financial affairs of the assessee’s group. The AO has extracted the statement given by Shri Ashwin Mehta in the assessment order. We find that Shri Ashwin Mehta has not stated anywhere that the loan transactions were not genuine or accommodation entries. However, it is the case of the AO that the normal procedures involved in granting of loans like entering into loan agreement, conditions relating to security, local tax, if any payable etc, have not been followed and hence the loans are bogus in nature. In our view, the above said reasons cited by the AO are not the strong reasons to suspect the genuineness of the loans. The terms and conditions relating to loans are finalized as per the understanding between the lender and borrower. Hence, merely for the reason that normal procedures involved in loan transactions have not been followed, the same cannot constitute the reason to disbelieve the loan transactions. As noticed earlier, when the addition is made u/s 68 of the Act, what is required to be seen is as to whether the assessee has discharged initial burden placed upon his shoulders u/s 68 of the Act. If the assessee discharges the said burden and the AO has not disproved the burden shifted to his shoulders by showing that the evidences furnished by
13 M/s. Poonam Shanti Developers Group the assessee are not correct, then no addition could be made u/s 68 of the Act. It is a well settled proposition of law that the provisions of Income tax Act, more particularly the provisions relating to legal fiction, have to be interpreted strictly. Hence the AO could not make addition u/s 68 of the Act on mere suspicions, surmises and conjectures.
We notice that identical addition has been made in the hands of these assessees in other years and the said additions have been deleted by the Tribunal, by its common order dated 03-05-2019. The details of the order passed by the co-ordinate bench are given below:-
(a) M/s Poonam Shanti Developers (ITA No.2690/Mum/2018 relating to AY 2012-13)
(b) M/s Poonam Skyline Construction (ITA No.2692, 2692 & 2694/Mum/2018 relating to AY 2007-08, 2008-09 & 2013-14)
(c) M/s Poonam Mega Developers (ITA No.2691/Mum/2018 relating to AY 2013-14).
We notice that the Ld CIT(A) has deleted the addition by following the decision rendered by the Tribunal in the above said cases. The decision rendered in the above said cases has been extracted by Ld CIT(A) in his order and we also extract the same here, for the sake of convenience:-
“11. We have heard both the parties, perused the material available on record and gone ground through the orders of authorities below. The solitary issue that needs to be resolved under given facts and circumstances of this case is whether unsecured loans taken from certain companies controlled and managed by Shri Bhanwarlal Jain is unexplained cash credit, which comes under the provisions of section 68 of the Act or not. The AO has made additions of Rs.10,45,00,000/- towards unsecured loans taken from certain companies controlled and managed by Shri Bhanwarlal Jain u/s 68 of the Act, on the ground that the assessee has failed to file necessary documents in order to prove identity, genuineness of transactions and creditworthiness of the parties. The AO has extensively discussed the issue in his assessment order in
14 M/s. Poonam Shanti Developers Group light of facts gather during the course of search in case of Bhanwarlal Jain group of cases and survey in the case of assessee’s group concern. Accordingly, the AO, opined that although the assessee has furnished various documents including confirmations from the loan creditors and their ITR acknowledgment, but failed to prove the genuineness of transactions and creditworthiness of the parties in order to come out the provisions of section 68 of the Act. The AO further was of the opinion that mere furnishing certain paper documents is not sufficient enough in light of various facts gathered by the department during the course of search. The AO further was of the opinion that payment through proper banking channel and interest payment to those unsecured loans is not sacrosanct because all these shell companies/hawala operators would keep necessary paper document in order to give colour of genuineness to their transactions. Therefore, he opined that the transactions between the parties are failed to pass the test of genuineness and accordingly made additions u/s 68 of the Act.
The provisions of section 68 of the Act deals with the cases, where any sum found credited in the books of account of the assessee in any Financial Year, and the assessee offers no explanation about the nature and source thereof or explanation offered by the assessee is not in the opinion of the AO satisfactory, then the sum so credited may be charged to income tax as the income of the assessee of that previous year. A plain reading of section 68 makes it very clear that in order to fix any credit within the ambit of section 68 of the Act, the AO needs to examine three ingredients i.e. identity, genuineness of transactions and creditworthiness of the parties. If the assessee proves all ingredients provided u/s 68 of the Act, then the onus shifts to the AO to prove otherwise. In this legal background, if you examine the identity of the assessee in light of findings recorded by the AO in his assessment order, one has to examine whether the assessee has discharged burden caste upon it u/s 68 of the Act in respect of unsecured loan received from certain companies controlled and managed by Shri Bhanwarlal Jain. The AO never disputed the fact that the assessee furnished various evidences to prove identity of the loan creditors. The AO has categorically admitted that the assessee has filed various details including PAN Card, ITR acknowledgment, financial statements, bank statements, confirmation letters and affidavit from the parties from whom loan has been taken. The AO has disputed the genuineness of transactions and creditworthiness of the parties. The sole basis for the AO to doubt the genuineness of transaction is search conducted in the cases of Bhanwarlal Jain by the DGIT(Inv.), Mumbai unit, where certain incriminating material found and seized as per which Bhanwarlal Jain and his associates were involved in providing accommodation entries and the assessee is one of the beneficiaries of such accommodation entries. The AO has taken note of statement recorded by the department from Shri Bhanwarlal Jain and his associates. The AO has taken note to survey proceedings conducted in the group cases of assessee and statement recorded from directors and employees of the assessee group cases. Except this, no contrary evidences has been brought on record by the AO to disprove the claim of the assessee that these are
15 M/s. Poonam Shanti Developers Group genuine transactions and unsecured loan taken under normal business circumstances. Therefore, under these factual matrix, we have to examine whether the credits found in the books of accounts of the assessee are hit by the provisions of section 68 of the Act or not. The sole basis for the AO to make additions is statement of Shri Bhanwarlal Jain recorded u/s 132(4) of the Act, where he was admitted that he is involved in providing bogus unsecured loans entries to various beneficiaries. The statement given by Shri Bhanwarla Jain has been retracted by himself by filing affidavits before the income tax authorities. Therefore, there is no reason for the AO to go only on the basis of statement of Shri Bhanwarlal Jain so as to treat unsecured loan taken by the assessee from the firm and companies controlled and managed by Shri Bhanwarlal Jain and his associates.
Having said so, let us examine what is the basis for the AO to arrive at conclusion that the transactions between the parties are not genuine and which are hit by the provisions of section 68 of the Act. The AO never brought out any further facts to link credits found in the books of accounts of the assessee to the evidences found during the course of search in the case of Shri Bhanwaral Jain except statement of Shri Bhanwaral Jain. Even during the course of survey in group cases of assessee, no incriminating material was found which can be linked to evidences collected during the course of search in case of Shri Bhanwarlal Jain. Further, during the course of survey in assessee’s group cases, the directors and employees have categorically admitted that they have personally visited office of Shri Bhanwarlal Jain Group Companies for arranging loans. The AO did not controvert this fact by bringing any other evidences. On the other hand, the assessee has filed complete details including confirmations from loan creditors, their PAN details, master data, affidavit from the directors/partners/ proprietors of those companies, income tax acknowledgments receipts along with financial statements, bank statements of loan creditors in order to prove the identity, genuineness of transaction and creditworthiness of the parties.. We, further, noted that all these loans have been taken through proper banking channels. The assessee has paid interest after deducting applicable TDS as per the law. These loans have been repaid during next financial year. All these documents are part of assessment proceedings. The AO has never disputed these factual aspects. Therefore, once the assessee has discharged its initial burden by filing necessary evidences in order to prove identity, genuineness of transactions and creditworthiness of the parties, then there is no reason for AO to suspect the transactions between the parties only on the ground that the person who gave unsecured loan had admitted in his statement u/s 132(4) of the Act that these transactions are accommodation entries, more particularly when the person who gave the statement retracted his statement by filing affidavit. Further, the AO failed to carry out further enquiries in light of evidences gathered during the course of search and survey to establish the fact that in fact these transactions are non-genuine, but merely relied upon the statement of Shri Bhanwarlal Jain to make additions u/s 68 of the Act. No doubt, the AO is having every right to suspect the transactions but, that
16 M/s. Poonam Shanti Developers Group by itself would not give rise an occasion for the AO to make additions u/s 68 of the Act, when the evidences filed by the assessee clearly proves the facts that these transactions were genuine transactions which are undertaken under normal commercial business circumstances. Therefore, we are of the considered view that the AO was erred in making additions towards unsecured loan taken from companies controlled and managed by Shri Bhanwarlal Jain u/s 68 of the Act.
Coming to the cases relied upon by the assessee, the assessee has relied upon various judicial precedence including the decision of the Hon’ble Supreme Court in the case of CIT vs Lovely Export Pvt. Ltd. (2008) 216 CTR 195. The case laws relied upon by the assessee has been dealt as under:-
CIT vs. Goa Sponge and Power Ltd (13/02/2012) Tax Appeal No. 16 of 2012 (High Court-Bombay)
"Once the authorities have got all the details, including the name and addresses of the shareholders, their PAN/GIR number, so also the name of the Bank from which the alleged investors received money as share application, then, it cannot be termed as "bogus". The controversy is covered by the judgements rendered b y the Hon'ble Supreme Court in the case of Lovely Exports Pvt Ltd, vs. CIT, (2008) 216 CTR (SC) 195, as also by this Court in CIT vs. Creative World Tele films Ltd, (2011) 333 ITR 100 (Bom). In such circumstances, we are of the view that the Tribunal's finding that there is no justification in the addition made under Section 68 of the Income Tax Act,, 1961 neither suffers from any perversity nor gives rise to any substantial question of law."
CIT vs. Creative World Tele films Ltd (2011) 333 ITR 100 (Bom- High Court)
"The question sought to be raised in the appeal was also raised before the Tribunal and the Tribunal was pleased to follow the judgment of the apex Court in the case of CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195. wherein the apex Court observed that if the share application money is received by the assessee- company from alleged bogus shareholders, w hose names are given to the AO, then the Department can always proceed against them and if necessary reopen their individual assessments. In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their PAN/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the AO to make proper investigation and reach the shareholders. The AO did nothing except issuing summons which were ultimately returned back with an endorsement "not traceable In our considered view, the AO ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the shareholders since
17 M/s. Poonam Shanti Developers Group all the relevant material details and particulars were given by the assessee to the AO. In the above circumstances, the view taken by the Tribunal cannot be faulted."
CIT vs. Lovely Exports (P) Ltd (2008) 216 CTR 195 (SC)
"If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company."
CIT vs. Steller Investment Ltd (2001) 251 ITR 263 (SC) (civil appeal)
"That the increase in subscribed capital of the respondent company could not be a device of converting black money into white with the help of formation of an investment company, on the round that, even if it be assumed that the subscribers to the increased capital were not genuine, tinder no circumstances could the amount of share capital be regarded as un disclosed income, an appeal was taken by the Department to the Supreme Court. The Supreme Court dismissed the appeal holding that the Tribunal had come to a conclusion on facts and no interference was called for."
CIT vs. Nav Bharat Duolex Ltd (2013) 35 Taxmann.com289 (All- High Court)
"We have considered the arguments of the counsel for the parties. CIT(A) found that five companies subscribing the equity shares amounting to Rs. 25,00.000/- were identified and they had submitted their bank statements, cash extracts and returns filing receipts. As such identity of the share applicant companies and purchase of share had been proved by the assessee. Supreme Court in the cases of CIT v. Steller Investments Ltd. [2001] 251 ITR 263 and Lovely Exports case (supra), has held that the identity of the shareholder alone is required to be proved, in case of the capital contributed by the shareholders. Accordingly CIT(A) and the Tribunal has not committed any illegality in allowing the appeal of the assessee. We do not find any illegality in the judgment of the CIT(A) and the Tribunal."
CIT vs. JayDee Securities & Finance Ltd (2013) 32 Taxmann.com91 (All-High Court)
"The Tribunal recorded findings that the assessee had produced the return of income filed by the relevant shareholders who had paid share application money. The assessee had also produced the confirmation of share holders indicating the details of addresses, PAN and particulars of cheques through which the amount was
18 M/s. Poonam Shanti Developers Group paid towards the share application money. The Tribunal thereafter relied upon the judgment of the Supreme Court in CIT V. Lovely Exports (P.) Ltd wherein it was held that if the assessee produces the names, addresses, PAN details of the share holders then the onus on the assessee to prove the source o f share application money stands discharged. If the Assessing Authority was not satisfied with the creditworthiness of the shareholders, it was open to the Assessing Authority to verify the same in the hands of the shareholders concerned, The Tribunal has relied upon an order of the Supreme Court in case o f CIT v. Divine Leasing & Finance Ltd. In view of the decision 'of the Supreme Court, we dismiss the appeals with observations that the department is free to proceed to reopen their individual assessments of the shareholders whose names and details were given to the Assessing Officer."
ACIT vs. Venkateshwar lspat Pvt Ltd (2009) 319 ITR 393 (Chhatisgarh High Court)
"If the share applications are received by the assessee from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as the undisclosed income of the assessee."
Mod Creations Pvt Ltd vs. /TO (2013) 354 ITR 282 (Del-High Court)
"Held, allowing the appeal, (i) that the assessee had discharged the initial onus placed on it. In the event the Revenue still had a doubt with regard to the genuineness of the transactions in issue or as regards the creditworthiness of the creditors, it would have had to discharge the onus which had shifted on to it. A bald assertion by the Assessing Officer that the credits were a circular route adopted by the assessee to plough back its own undisclosed income into its accounts, could be of n o avail. The Revenue was required to prove this allegation. An allegation by itself which is based on assumption will not pass muster in law. The Revenue would be required to bridge the gap between the suspicions and proof in order to bring home this allegation. The Tribunal without adverting to the principle laid stress on the fact that despite opportunities, the assessee and/or the creditors had not proved the genuineness of the transaction. Based on this it construed the intentions of the assessee as being mala fide. The Tribunal ought to have analysed the material rather than be burdened by the fact that some of the creditors had chosen not to make a personal appearance before the Assessing Officer. If the Assessing Officer had any doubt about the material placed on record, which was largely bank statements of the creditors and their income-tax returns, it could gather the nece sary information from the sources to which the information was attributable......If it had any doubts with regard to their
19 M/s. Poonam Shanti Developers Group creditworthiness, the Revenue could always bring the sum in question to tax in the hands of the creditors or sub- creditors."
CIT vs. Al Anam Agro Foods (P.) Ltd (2013) 38 Taxmann.corn 375 (All-High Court)
“Tribunal, h o we v e r , h e ld that since identity o f s h a r e h o ld e r s s to o d p r o v e d o n record, amount of share application money could not be added to income of assessee. According to Tribunal, in such a case amount could be taxed in hands of persons who had invested"
CIT vs. Dwarkadhish Investment (P) Ltd (2011) 330 ITR 298 (Del-High Court)
"Just because the creditors/share applicants could not be found at the address given, it would not give the Revenue the right to invoke s. 68— Revenue has all the power and wherewithal to trace any person—Moreover, it is settled law that the assessee need not to prove the 'source of source'— In the instant case, the Tribunal has confirmed the order of the CIT(A) deleting the impugned addition holding t hat the assessee has been able to prove the identity of the share applicants and the share application money has been received by way of account payee cheques."
CIT vs. Namastey Chemicals Pvt Ltd (2013) 33 Taxmann.com271 (Guj-High Court)
"In the present case also, the respondent assessee has received share application money from different sub scribers. It was found that large number of subscribers had responded to the letters issued by the Assessing Officer or summons issued by him and submitted their affidavits. In so me cases such replies were not received through posts. Rs. 9 lacs represented those assessees who denied having made any investment altogether. The issue thus would fall squarely within the ambit of the judgment of the Supreme court in the case of Lovely Exports (supra). No error of law can be stated to have been committed by the Tribunal. Tax Appeal is therefore dismissed."
CIT vs. Peoples General Hospital Ltd (2013) 356 ITR 65 (MP- High Court)
"Held , dismissing the appeals , that it the assessee had received subscriptions to the public or rights issue through banking channels and furnished complete details of the shareholders, no addition could be made tinder section 68 of the Income-tax Act, 1961, in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part o f the share capital represented the company's own
20 M/s. Poonam Shanti Developers Group income from undisclosed sources. It was nobody's case that the non-resident Indian company was a bogus or non-existent company or that the amount subscribed by the company by way of share subscription was in fact the money of the assessee. The assessee had established the identity of the investor who had provided the share subscription an d that the transaction was genuine. Though the assessee's contention was that the creditworthiness of the creditor was also established, in this case, the establishment of the identity of the investor alone was to be seen. Thus, the addition was rightly deleted."
CIT vs. Shree Rama Multi Tech Ltd (2013) 34 Taxmann.com177 (Guj-HC)
"It is noted that Commissioner (Appeals) as well as the Tribunal have duly considered issue and having found complete details of the receipts of share application money, alongwith the form names and addresses, PAN and other requisite details, they found complete absence of the grounds noted for invoking the provision of section 68. Moreover, both rightly had applied the decision of CIT vs. Lovely Exports (P) Ltd to the case of the assessee. Therefore, no reason was found in absence of any illegality much less any perversity too to interfere with the order of the both these authorities, who had concurrently held the due details having been proved. The assessee company had presented the necessary worth proof before both the authorities and it was not expected by the assessee company to further prove the source of the deceased."
CIT vs. Nikunj Eximp Enterprises (P.) Ltd (2013) 35 Taxmann.com384 (Bom)
"Whether merely because suppliers had not appeared before Assessing Officer or Commissioner (Appeals), it cou ld not be concluded that purchases were not made by assessee - Held, Yes.... Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were in fact made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the CIT(A), one cannot conclude that the purchases were not made by the respondent- assessee"
CIT vs. Samir Bio- Tech Pvt Ltd (2010) 325 ITR 294 (Del-High Court)
"Identities of the subscribers are not in doubt. The transactions have also been undertaken through banking channels inasmuch as the application money for the shares was given through account payee cheques. The creditworthiness has also been established, as indicated by the Tribunal. The subscribers have given their complete details with regard to their tax returns and assessments.
21 M/s. Poonam Shanti Developers Group In these circumstances, the Department could not draw an adverse inference against the assessee only because the sub scribers did not initially respond to the summons. The subscribers, however, subsequently gave their confirmation letters as would be apparent from the impugned order. The identity of the subscribers stands established and it is also a fact that they have shown the said amounts in their audited balance sheets and have also filed returns before the IT authorities. The decision of the Tribunal deleting the addition cannot befaulted.”
The assessee has also relied upon various decision of the Co-ordinate Bench of ITAT, Mumbai. We find that the coordinate Bench of ITAT Mumbai, in number of cases has considered an identical issue in light of search and seizure operations as well as survey conducted by the department in light of statement of Shri Bhanwarlal Jain recorded during the course of search u/s 132(4) of the Act. The Tribunal after considering the relevant facts and also considering the retracted statements filed by Shri Bhanwarlal Jain came to the conclusion that one documents filed by the assessee to prove the identity, genuineness of transactions and creditworthiness of the parties are clearly established the fact that the transactions between the parties are genuine which are undertaken under normal commercial business, no reason for the AO to make additions u/s 68 of the Act.
We further noted that in most of the cases, the Tribunal has considered the companies controlled and operated by Shri Bhanwarlal Jain in light of observations made by the AO to make addition u/s 68 of the Act. We further noted that the Coordinate Bench of ITAT, Mumbai, in the case of Shri Sumit J. Jain vs ACIT in ITA No.145/Mum/2017 had an occasion to consider identical issue in light of unsecured loans taken from companies controlled and managed by Shri Bhanwarlal Jain. The Coordinate Bench, after considering the relevant facts, has held that when assessee has filed various documents to prove three ingredients provided u/s 68 of the Act, there is no reason for the AO to make additions towards u/s 68 of the Act only on the basis of statement of Shri Bhanwarlal Jain. The relevant findings of the Tribunal are as under:-
“3. I have considered the rival submissions and perused the material available on record. The facts in brief are that the assessee an individual engaged in the business of builder and developer declared loss of Rs. 1,29,68,736 in his return on 15.09.2009. The assessment was completed u/s 143(3) of the Act on 30.11.2011 assessing the loss at Rs. 1,13,73,448. The assessee carried the matter in appeal before the learned CIT(A) wherein vide order dated 03.02.2014, part relief was granted to the assessee. Later on, the case of the assessee was reopened u/s 147 on the basis of information that the assessee has received accommodation entry of unsecured loan from M/s. Laxmi Trading Company, M/s. Mouli Gems, M/s. Minal Gems, M/s. Naman Exports and M/s. Prime Star, pertaining to Bhawarlal Jain Group. As per the assessee,
22 M/s. Poonam Shanti Developers Group during the assessment proceedings, documentary evidences pertaining to loan from aforementioned parties like confirmation, bank statement and acknowledgment of return of income of loan, bank statement of the assessee reflecting the amounts and genuineness of transactions were filed. However, the learned Assessing Officer treated the loan as unexplained cash credit on the plea that the assessee could not produce the parties. Thereafter, the learned Assessing Officer computed the peak of unsecure loan amounting to Rs. 1,91,00,000 and made addition of Rs. 40,00,000 u/s 68 of the Act. On appeal, before the learned CIT(A), the addition so made was directed to be deleted. The assessee is in appeal before the Tribunal.
If the observations made in the assessment order leading to the addition and the conclusion arrived at in the impugned order, if kept in juxtaposition, and analysed there is a factual finding in Para-5.3 that the assessee discharged the primary onus as the lender had responded to notices issued u/s 133(6) of the Act confirming the transaction. The learned Assessing Officer did not controvert the claim of the assessee. The loans were taken through banking channel and the receipt of taking the loan has been duly examined in Para-5.3 (Page-13) of the impugned order. The loans were duly reflected in the loans and advances column in the Balance Sheet and there is further factual recording that there was neither any cash deposit nor any withdrawal in any bank account castigating the same as accommodation entries. It is further noted that the assessee duly paid the interest on the loan amount and deducted. Copy of Form no.16A was also filed and the learned Assessing Officer has not brought on record any evidence/reason to disbelieve the evidence filed by the assessee. I am satisfied with the reasoning of the learned CIT(A) that the addition was merely made on the basis of presumption that all the five concerns from whom loan was taken were managed and controlled by Shri Bhawarlal Jain. The statement was also recorded wherein there is no mention that any accommodation entry was obtained. Rather, the case of the assessee is fortified by the reply to question no.40 and 41 wherein it has been tendered that the loan was advanced and interest @ 9% p.a. was charged. The name of the assessee is nowhere mentioned in the list of suspicious dealer/person. Thus, I find no infirmity in the conclusion of the learned CIT(A), resulting into dismissal of the impugned ground raised by the Revenue.
The next ground pertained to deletion of addition of Rs. 5,78,278, made on account of interest expenditure on alleged bogus loans. The learned D.R. defended the addition, whereas, the learned Counsel for the assessee invited my attention to the finding recorded in Para-6.1 of the impugned order. On a perusal of record and the assertions made by the respective Counsels. There is a finding in the impugned order that the assessee duly produced the bank statement from where interests were paid also copies of form
23 M/s. Poonam Shanti Developers Group no.16A evidencing the TDS made and deposited into the Government account with respect to payment of interest. Since in earlier paras of this order since I have upheld the order of the learned CIT(A), therefore, the issue of interest is consequential in nature, therefore, the conclusion drawn in the impugned order is upheld.”
Coming to the cases relied upon by the Ld. DR in light of various case laws discussed by the AO as well as the Ld. CIT(A). We have considered the cases relied upon by the Ld. DR as well as the Ld. CIT(A) in light of facts of present case and we found that the case laws considered by lower authorities were rendered under different set of facts which cannot be applied to the facts of the present case. Accordingly, the cases relied upon by the Ld. DR are rejected.
In this view of the matter and considering the ratio of case laws discussed hereinabove, we are of the considered view that the assessee has discharged initial burden by filing various documents to prove identity, genuineness of transactions and creditworthiness of the parties. Therefore, we are of the considered view that the AO was erred in making additions towards unsecured loan u/s 68 of the Act. The Ld. CIT(A) without appreciating these facts simply confirmed the addition made by the AO. Hence, we reverse the findings of the Ld. CIT(A) and direct the AO to delete the additions made towards unsecured loans u/s 68 of the Act.
The next issue came up for our consideration is disallowance of interest and estimation of commission on unsecured loans obtained from companies controlled and operated by Shri Bhanwarlal Jain. The AO has disallowed interest paid on unsecured loans on the ground that once loans have been treated as bogus accommodation entries, then any interest paid on such unsecured loans also needs to be treated as bogus and accordingly disallowed total interest paid on unsecured loans. Similarly, the AO has estimated 0.2% commission on total unsecured loans taken from companies on the basis of statement of Shri Bhanwarlal Jain where he had admitted that he charged 0.2% commission on all accommodation entries. We noted that the issue of unsecured loans has been decided in preceding paragraphs, where we held that the transactions between the parties are genuine which cannot be considered as unexplained cash credit u/s 68 of the Act, consequently, additions made towards disallowance of interest and estimation of commission on such unsecured loans is also needs to be considered in the light of discussions in the preceding paragraphs. Therefore, we are of the considered view that the AO as well as the Ld. CIT(A) was erred in making additions towards interest on unsecured loans and commission on such unsecured loans. Accordingly, we direct the AO to delete the additions made towards disallowance of interest and estimation of commission.”
In view of the foregoing discussions and also following the decision rendered by the co-ordinate bench in the assessees’ own cases, we hold that
24 M/s. Poonam Shanti Developers Group the Ld CIT(A) was justified in deleting the additions relating to sec.68 of the Act, interest disallowance and commission expenses in the hands of the assessees herein for the assessment years under consideration. Accordingly, we uphold the orders passed by Ld CIT(A) on this issue in all the cases.
We shall now take up the issue of addition relating to bogus purchases. This issue arises in the cases of M/s Poonam Shanti Developers (in AY 2013- 14); M/s Poonam Skyline Construction (in AY 2012-13) and M/s Poonam Mega Developers (in AY 2012-13). These assessees have made purchases from certain concerns, which were identified by the VAT department of Maharashtra Government, as concerns providing accommodation sales bills without actually supplying the materials. The AO disallowed entire amount of alleged bogus purchases. The Ld CIT(A) restricted the addition to 12.50% of the value of alleged bogus purchases and hence the revenue has filed these appeals.
We notice that the Ld CIT(A) has so decided this issue by following the decision rendered by the co-ordinate bench in the assessees’ own cases rendered earlier (referred to in Paragraph 17 supra) in other assessment years. The co-ordinate bench has rendered the decision as under:- “21. We have heard both parties, perused the materials available on record and gone through orders of the authorities below. It is an admitted fact that the assessee has filed complete information including purchase bills, payment proof, against such purchases through proper banking channels and also confirmations from the parties. It is also an admitted fact that when the AO issued notice u/s 133(6), such notices were returned unserved by the postal authorities. The AO observed that the report of Inspector attached to the office of the AO also confirmed the fact that parties were not available at the given addresses. Under these factual backgrounds, the issue needs to be examined whether the purchases from above two parties can be considered as bogus and if at all purchases are bogus what is the additions to be made u/s 69C of the Act. The AO claims that the assessee failed to prove the purchases with necessary evidences. It is claim of the assessee that it has filed complete details of purchases including confirmations from the parties. We find that the AO neither carried out full enquiry to reach to the conclusion that the purchases from above parties are bogus purchases nor made out a case of discrepancy in the books of accounts. When the AO has not pointed out any
25 M/s. Poonam Shanti Developers Group discrepancies in the books of accounts or stock details filed by the assessee merely for the reason that notices issued u/s 133(6) were returned unserved, no adverse inference could not be drawn against the assessee, when assessee has filed sufficient material in order to prove the purchases from the above parties, no doubt, it is an admitted fact that the parties were never responded to notice u/s 133(6), but that by itself would not be a ground for holding the purchases as bogus in nature, that too when materials furnished by the assessee proves otherwise. The assessee has done its at best and filed whatever information available with it. The appearance of the parties is not within the control of the assessee. Further, when the parties are not appeared before the AO in response to notices, then separate procedure is provided under the Act to deal with those parties. For this purpose, the assessee cannot be blamed or made responsible for non-appearance of parties and also purchase from the parties cannot be considered as bogus when the assessee has filed all other evidences to prove the purchases from the parties. In this case, the assessee filed complete details including confirmations from the parties. The AO never disputed this fact. The AO also accepted sale declared by the assessee. Therefore, we are of the considered view that it is difficult to accept the arguments of the AO that purchases from above parties are bogus in nature.
Having said so, let us examine what is the amount of additions required to be made when both parties failed to conclusively prove the purchases in their favour. We find that this issue is recurring issue which is subject matter of deliberations by the Co-ordinate Bench of ITAT, Mumbai, in number of cases. The Tribunal, after considering the relevant facts and also taking note of nature of business carried out by the parties came to the conclusion that when both parties are failed to prove their contention, then only profit element embedded in those purchases needs to be taxed in order to settle the dispute between the parties. The Hon’ble Gujarat High Court in the case of Ld. Vijay Proteins vs CIT (2015) 58 taxmann.com 44(Guj.) had taken similar view in light of facts brought by the parties and held that where purchases are considered to be bogus, then only profit element embedded need to be taxed. In these cases, the assessee is in the business of real estate development. The profit element of real estate business is in the range of 8 to 15% depending upon the type of projects and places where project is executed by the parties. Therefore, considering the facts and circumstances of this case and also consistent with view taken by the coordinate Bench in the number of cases in order to resolve the dispute, we deem it appropriate to direct the AO to estimate 12.5% profit on alleged bogus purchases. Accordingly, we direct the AO to estimate 12.5% profit on total alleged bogus purchases.”
We notice that the co-ordinate bench has rendered its decision on an identical set of facts in other assessment years. Before us, no other material was brought by the revenue in order to compel us to deviate from the decision so rendered by the Tribunal. The Ld D.R took support of the
26 M/s. Poonam Shanti Developers Group decision rendered in the case of Pradeep Pipe Structural (supra). It is to be noted here that the impugned addition has been made on the basis of facts prevailing in the instant cases. The decision relied upon by Ld D.R has also been rendered on the basis of facts prevailing in that case. Before us, the Ld D.R did not show parity of facts and hence the said decision cannot be considered here. On the contrary, the co-ordinate bench has rendered its decision in the assessees’ own cases on identical set of facts. In that case, we have no other option, but to follow the decision rendered by the co-ordinate bench in the case of assessees herein. Accordingly, we confirm the order passed by Ld CIT(A), since he has rendered his decision following the decision rendered by the co-ordinate bench in the assessees’ own cases.
We shall now take up the appeal filed by the assessee named M/s. Poonam Shanti Developers for AY 2013-14.
In this appeal, the assessee is contesting the decision of the learned CIT(A) in confirming the addition of Rs. 6.35 crores made by the Assessing Officer on account of alleged cash payment made by the assessee in purchase of land. The facts relating thereto are that the revenue carried out search and seizure action under section 132 of the Act in the case of Swastik group of cases on 31.7.2014. From the documents seized during the course of search, it was noticed that the assessee has entered into an agreement with Swastik group for purchase of land in Survey No. 238 at “Nilmore’’. The said seized documents revealed that the assessee has agreed to pay sale consideration in two portions, viz., Rs.6.35 crores by way of cash and Rs.5.02 crores by way of cheque. Hence, the Assessing Officer asked explanation from the assessee with regard to the payment of cash of Rs. 6.35 crores.
The assessee submitted that it did not make any cash payment in connection with purchase of land from M/s. Viva Swastik Developers. The assessee requested the Assessing Officer
27 M/s. Poonam Shanti Developers Group (a) to furnish copy of materials which were relied upon by him in this regard.
(b) to provide an opportunity to cross examine persons whose statements have been referred to by the Assessing Officer.
However, the Assessing Officer did not furnish copies of seized materials on which he was placing reliance. Opportunity to cross examine persons was also not afforded to the assessee.
The Assessing Officer did not accept the explanations of the assessee. He also noticed that the assessee has purchased a portion of the land by entering into conveyance deed. Hence the Assessing Officer downloaded a copy of sale deed from website of Department of Registration and noticed from the said sale deed that the sale consideration has been shown as Rs.2.92 crores, whereas the market value was mentioned as Rs.6.85 crores. Based on this information, the Assessing Officer came to the conclusion that the assessee would have paid cash of Rs. 6.35 crores in the deal entered with Swastik group. Accordingly he made addition of Rs. 6.35 crores.
Before the learned CIT(A), the assessee submitted that it was not provided with the copies of seized materials and also opportunity for cross examination of the persons was also not provided. The assessee further contended that the Assessing Officer could not have made addition on the basis of materials seized from a third party without corroborating the same with the assessee. It also contended that the seized documents should be considered as dumb documents. In this regard the assessee placed reliance on the following case laws :- a) Addl.CIT Vs. Lata Mangeshkar (97 ITR 696) b) CBI Vs. Shri V.C. Shukla (3 SCC 410) c) Shri Mustafamiya H. Sheikh (ITA No. 2588/Ahd/2012 dated 15.2.2013) d) DCIT Vs. H.S. Chandramouli (ITA No. 1551/Bang/2012 dated 30.8.2013)
28 M/s. Poonam Shanti Developers Group e) M/s. Mohd. Ayub Mohd. Yakub Perfumers Pvt. Ltd. (ITA No. 388/LKW/2013 dated 10.12.2014) f) DCIT Vs. Pawan Kumar Agarwal (ITA No. 413/LKW/2012 dated 26.2.2015) g) M/s. Bhola Nath Radha Krishan (ITA No. 5149/Del/2012 dated 5.4.2013) h) Pradeep Amrutlal Runwal (149 ITR 548)
The learned CIT(A), however, was not convinced with the contention of the assessee. The learned CIT(A) referred to the seized materials and agreed with the view taken by the Assessing Officer. Accordingly, he confirmed the addition of Rs. 6.35 crores made by the Assessing Officer. It is pertinent to note that the learned CIT(A) also did not confront the seized material with the assessee.
We heard the parties on this issue and perused the record. We noticed earlier that the tax authorities have made the addition of Rs.6.35 crores on the basis of some material collected behind the back of the assessee and those materials were not confronted with the assessee. The question that arises is that whether the tax authorities could have relied upon those materials to make the addition. Before us, the Ld A.R placed his reliance on the decision rendered by Hon’ble Delhi High Court in the case of CIT vs. Ashwani Gupta (2010)(191 Taxman 51)(322 ITR 396)(Delhi) and contended that the AO could not have made this addition.
In the case of Ashwani Gupta (supra), the Hon’ble Delhi High Court has considered an identical issue and it was held as under:-
“2. The Tribunal has confirmed the order passed by the Commissioner of Income-tax (Appeals) which held the entire addition made by the Assessing Officer to be invalid and had deleted the same. The Commissioner of Income-tax (Appeals) had clearly held that the Assessing Officer had passed the assessment order in violation of the principles of natural justice inasmuch as he had neither provided copies of the seized material to the assessee nor had he allowed the assessee to cross-examine one Mr. Manoj Aggarwal on the basis of whose statement the said addition was made. The Commissioner of Income-tax (Appeals) also held that the
29 M/s. Poonam Shanti Developers Group entire addition deserved to be deleted, particularly so, because the transactions also stood duly reflected in his regular returns.
The Tribunal, after referring to the decision of this Court in the case of CIT v. SMC Share Brokers Ltd. [2007] 288 ITR 345, came to the conclusion that there was no infirmity in the order of the Commissioner of Income-tax (Appeals) and, therefore, declined to interfere with the same and dismissed the appeal of the revenue.
The learned counsel for the revenue/appellant sought to question the findings of the Tribunal to the effect that the principles of natural justice had not been followed. She attempted to challenge the finding that copies of the seized material had not been given to the assessee nor was the assessee allowed to cross-examine the said Mr. Manoj Aggarwal. She sought to draw our attention to the order-sheet of the Assessing Officer of 25-7-2005 to make submissions in this regard. But, such an attempt on her part cannot be allowed at this juncture particularly when the finding regarding violation of principles of natural justice had been accepted by the revenue before the Tribunal on more than one occasion. In the first instance, the only ground of appeal taken by the revenue was that the Commissioner of Income-tax (Appeals) had erred in deleting the addition of Rs. 6,53,250 made by the Assessing Officer as income from undisclosed sources. No ground was taken that the principles of natural justice had, in fact, been followed and that the Commissioner of Income-tax (Appeals) had wrongly held that copies of the seized material had not been provided or that opportunity to cross-examine Mr. Manoj Aggarwal had not been provided.
Secondly, in fact, a rectification application being MA 264/Delhi/2008 under section 254(2) of the Income-tax Act, 1961 had been filed by the revenue before the said Tribunal. In that also, in paragraph (g) of the Miscellaneous Application, the revenue had submitted as under:—
"(g )Because, although findings of the Tribunal are factually correct but the decision of the Tribunal is not acceptable because violation of the canons of natural justice in itself is not fatal enough so as to jeopardize the entire proceedings. In the interest of justice, the Tribunal could have set aside the assessment order with the limited purpose of offering assessee an opportunity to cross-examine Shri Manoj Aggarwal before completing the proceedings." [Emphasis supplied]
A reading of the said paragraph (g) makes it clear that the revenue had accepted the findings of the Tribunal on facts as also the position that there had been a violation of principles of natural justice. However, the revenue's plea was that the violation of principles of natural justice was not fatal so as to jeopardize the entire proceedings. The said miscellaneous application was also rejected by the Tribunal by its order dated 28-11- 2008.
30 M/s. Poonam Shanti Developers Group 7. In view of the foregoing circumstances, we feel that no interference with the impugned order is called for. The Tribunal has correctly understood the law and applied it to the facts of the case. Once there is a violation of the principles of natural justice inasmuch as seized material is not provided to an assessee nor is cross-examination of the person on whose statement the Assessing Officer relies upon, granted, then, such deficiencies would amount to a denial of opportunity and, consequently, would be fatal to the proceedings. Following approach adopted by us in SMC Share Brokers Ltd.'s case (supra), we see no reason to interfere with the impugned order. No substantial question of law arises for our consideration.
In this case, we notice that the assessing officer has drawn certain inferences on the basis of some material found in the premises of some other person. The said materials were not confronted with the assessee nor the AO did provide opportunity of cross examination. The said Agreement for sale was not executed fully, i.e., the AO himself admits that the assessee has purchased a portion of the land only. Since there was difference between the value shown in the conveyance deed and the value determined the stamp authorities, the AO has come to the conclusion that the assessee has paid the impugned amount in cash. In our view, the AO has entertained presumption only on surmises and conjectures. He has not brought any material to support his views. The uncorroborated material could not have been relied upon by the AO as held by Hon’ble jurisdictional Bombay High Court in the case of ADdl CIT vs. Lata Mangeshkar (97 ITR 696)(Bom). In addition to the above, there was clear violation of principles of natural justice in not providing the materials, which were relied upon by the AO. It is also not clear about the statement, if any given by the person, from whom the impugned documents were seized. If the said person had given any statement adverse to the assessee, the natural justice would call for providing opportunity of cross examination to the assessee. The AO has failed to provide the said opportunity despite being asked by the assessee. Hence, as held by Hon’ble Delhi High Court in the above said case, the impugned addition could not have been made by the AO and could not have been sustained by Ld CIT(A). Accordingly, we set aside the order passed by
31 M/s. Poonam Shanti Developers Group Ld CIT(A) on this issue and direct the AO to delete the addition of Rs.6.35 crores referred supra.
In the result, all the revenue appeals are dismissed and the appeal of the assessee is allowed.
Order pronounced in the open court on 05.12.2022.
Sd/- Sd/- (RAHUL CHAUDHARY) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai; Dated : 05/12/2022 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy//
(Assistant Registrar) PS ITAT, Mumbai