DEPUTY COMMISSIONER OF INCOME TAX 13(2)(2), MUMBAI vs. SUN METALLICS & ALLOYS PRIVATE LIMITED, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G”, MUMBAI BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI GAGAN GOYAL, ACCOUNTANT MEMBER ITA No. 2628/Mum/2018 (A.Y. 2012-13) ITA No. 2629/Mum/2018 (A.Y. 2013-14) Dy.CIT-13(2) (2), Room No. 146, 1st Floor, Aayakar Bhavan, M.K. Road, Mumbai-400020. ...... Appellant Vs. M/s. Sun Metallics & Alloys Pvt. Ltd. 14, Neha Industrial (W), Mumbai- 400067. PAN: AAPCS2702P ...... Respondent C.O. No. 95/Mum/2019 (A.Y. 2012-13) M/s. Sun Metallics & Alloys Pvt. Ltd. 14, Neha Industrial (W), Mumbai- 400067. PAN: AAPCS2702P ...... Appellant Vs. Dy.CIT-13(2)(2), Room No. 146, 1st Floor, Aayakar Bhavan, M.K. Road, Mumbai-400020. ...... Respondent Appellant/Revenue by : Sh. Satyapal Kumar, Sr. DR Respondent/Assessee by: Sh. K.Shivaram, Sr. Adv. & Ms. Neelam Jadhav. Date of hearing : 20/09/2022 Date of pronouncement : 21/11/2022

2 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. ORDER PER GAGAN GOYAL, A.M:

These two appeals by the Revenue and one Cross Objection by assessee are directed against the order of Commissioner of Income Tax (Appeals)-21, Mumbai [for short ‘CIT (A)’] vide common orders 31.01.2018 for the Assessment Years (AY) 2012-13 & 2013-14 and Cross Objection (CO) in ITA No. 2628/Mum/2018 for AY 2012-13. We shall take up Appeal No. 2628/Mum/2018 as lead case along with CO 95/M/2019. The Revenue has raised the following grounds of appeal: “1. On the facts and circumstances of the case and in law, the CIT (A) has erred in deleting the addition of Rs. 6.20 Crores being unsecured loan treated as unexplained cash credit u/s. 68 of the I. T. Act, without appreciating the fact that the said loan was obtained from various companies that are controlled, operated and managed by bogus accommodation entry provider Shri Pravin Kumar Jain and the assessee could not prove the genuineness of the transaction and creditworthiness of the lenders 2. On the facts and circumstances of the case and in law, the CIT (A) has erred in deleting the disallowance of Rs 53, 28,740/- being interest expenses claimed by the assessee on the unsecured loan of Rs 6.20 Crores, without appreciating the fact that the lending companies belonged to Pravin Kumar Jain group of companies involved in providing bogus accommodation entries and the assessee could not prove the genuineness of the loan transactions and creditworthiness of the lenders. 3. The appellant prays that the order of CIT (A) on the above ground be set aside and that of Assessing Officer be restored. 4. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary.” 2. In ITA No. 2629/Mum/2018 for A.Y. 2013-14, the Revenue has raised the following grounds of appeal: “1. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs. 7,80,00,000/- being unsecured loan treated as

3 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. unexplained cash credit u/s. 68 of the I.T. Act, without appreciating the fact that the said loan was obtained from various companies that are controlled, operated and managed by bogus accommodation entry provider Shri Pravin Kumar Jain and the assessee could not prove the genuineness of the transaction and creditworthiness of the lenders. 2. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs. 3,90,000/- being commission expenses on the unsecured loan of Rs. 7,80,00,000/-, without appreciating the fact that the lending companies belonged to Pravin Kumar Jain group of companies involved in providing bogus accommodation entries and Shri Pravin Kumar Jain in his statement recorded under oath has admitted that he generally charges commission/brokerage at around 0.5% on such transactions. 3. On the facts and circumstances of the case and in law, the CIT (A) has erred in deleting the disallowance of Rs. 92, 61,863/- being interest expenses claimed by the assessee on the unsecured loan of Rs. 7, 80, 00,000/- without appreciating the fact that the lending companies belonged to Pravin Kumar Jain group of companies involved in providing bogus accommodation entries and the assessee could not prove the genuineness of the loan transactions and creditworthiness of the lenders. 4. The appellant prays that the order of CIT (A) on the above ground be set aside and that of Assessing Officer be restored. 5. The appellant craves leave to amend or alter any grounds or add a new ground which is necessary.” 3. The assessee in C.O. has raised the following grounds of appeal: “1) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the Assessing Officer in reopening the assessment despite the issue of unsecured loans and interest expense was already examined during the original scrutiny assessment and thus the reopening was nothing but a change of opinion. Further, in the reason for reopening, such unsecured loan and interest thereon were not part of the reopening reasons. 2) On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in confirming the reopening of the assessment despite no addition being made based on the recorded reasons for reopening. The Respondent submits that the Bombay High Court in CIT v Jet Airways Ltd (331 ITR 236) held that if Assessing Officer does not assess income for which reasons were recorded u/s. 147 of the Act, he cannot assess other income u/s. 147 of the Act.

4 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. 3) The Respondent craves leave to add, amend, alter, or delete any or all the above grounds of cross objection.” 4. Brief facts of the case are that the assessee e-filed its return of income on 07-09-2012 declaring total income Rs 1, 96, 12,500/-. Assessees case was selected for scrutiny and assessed u/s. 143(3) at Rs 1, 99, 02,640/-. Assessee is a company engage into the business of manufacturing, import and trading of ferrous and nonferrous metal. Thereafter information was received from the investigation wing of the department that a survey action u/s. 133A of the act had been carried out at its different premises on 31-08-2015, where it was found that the assessee had made unaccounted cash investments in M/s. Omkar Group. During survey Mr. Manohar Lal Singhania, Director of assessee-company in his statement on oath u/s. 131 on 01-09-2015 admitted that such an investment in cash was sourced from sale of miss rolls in cash out of books and thus offered additional income totalling Rs 15 cr. for AY 2010-11 to 2016-17. For the year under consideration assessee offered Rs 3.8 cr. out of Rs 15 cr. mentioned supra. In the mean while the DDIT (Inv.) also forwarded a survey report narrating all the relevant facts regarding the assessee unaccounted receipts/expenses /investments. From the survey report it is found that during the year under consideration assessee had bogus unsecured loans amounting to Rs 6.2 cr., interest claimed on bogus unsecured loans amounting to Rs 22.5 lakhs and unaccounted income on sale of miss rolls amounting to Rs 4.46 cr. 5. Assessee case was reopened, and reasons recorded for reopening the case was supplied. Assessee objected to the reopening of its assessment on the ground that the assessment in its case has already been completed in scrutiny u/s. 143(3) of the Act and the reopening of the case is a mere change of opinion. During reassessment assessee made various submissions in response to the queries raise with reference to the points raised in survey report.

5 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. 6. Ultimately AO made additions of Rs 6.2 cr. for bogus unsecured loans and interest thereon amounting to Rs 53.28 lakhs. Being aggrieved with the order of AO, assessee preferred an appeal before the Ld. CIT (A)-21 (Mum). 7. We have duly considered the order of the AO, submission of the assessee during assessment proceedings and order of Ld. CIT (A). Before discussing merits of the case and order of Ld. CIT(A), against which revenue preferred this appeal, we deem it fit to refer the ground of cross objections taken by the assessee vide CO-95/M/2019. 8. Vide CO-95/M/2019 assessee raised two substantive grounds as under: “1) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the Assessing Officer in reopening the assessment despite the issue of unsecured loans and interest expense was already examined during the original scrutiny assessment and thus the reopening was nothing but a change of opinion. Further, in the reason for reopening, such unsecured loan and interest thereon were not part of the reopening reasons. 2) On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in confirming the reopening of the assessment despite no addition being made based on the recorded reasons for reopening. The Respondent submits that the Bombay High Court in CIT v Jet Airways Ltd (331 ITR 236) held that if Assessing Officer does not assess income for which reasons were recorded u/s. 147 of the Act, he cannot assess other income u/s. 147 of the Act. 9. We have gone through the reasons supplied for reopening of the case Vis- a Vis additions made during the reassessment proceedings by the AO and decision of Ld. CIT (A) on the same. To reopen the case assessing officer supplied the reasons which are as under: “Reasons for issue of notice uls 148 of the Income Tax Act, 1961 In this case, the assessee had filed e-return of income for A.Y.2012-13 on 07.09.2012 declaring total income at Rs.1, 96, 12,500/-. Subsequently the assessment was completed u/s. 143(3) of the Income Act 1961 on 31.10.2014 and assessed the income at Rs.1, 99, 02,640/-.

6 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. Information has been received from the DDIT (Inv.) unit 1(1), Mumbai that a survey action u/s. 133(A) of the I. T. Act has been carried out on M/s. Sun Metallic & Alloys Pvt. Ltd, on 31.08.2015. During the survey, it has been found out that the assessee company had made unaccounted cash investment in M/s. Omkar Group: During the survey, on oath statement of Shri Manoharlal Singhania, Director of the company was recorded u/s. 131 of the I. T. Act on 01.09.2015. In his statement Shri Singhania has stated that he has paid cash loan of Rs.3,00,00,000/- and 2,00,00,000/- to M/s. Omkar Group in December 2012 interest @ 15% p.a. Subsequently he received an offer from Shri Kamal Gupta, Director and Promotor of M/s. Omkar Group to invest in their upcoming SRA project at Majaswadi, Jogeshwari (E), Mumbai. After having negotiation with him, Shri Singhania made investment in cash and cheque for total area measured at 10,400 sqft comprising of 8 no's of flats @ Rs.8150/- per sqft and for 10 garages @Rs.8,00,000/- down payment for each garage. Accordingly, out of total cash loan of Rs. 5,00,00,000/- and accrued interest on such cash loan, an amount of Rs 4,08,00,000/- was adjusted in cash towards such investment/purchased and the balance amount of Rs.91,83,750/- was given in cheque. It was also admitted by Shri Singhania that such transactions are not reflected in the regular books of account maintained by him and the group concerns. In his statement, Shri Singhania admited that the said cash is generated from selling of "Miss Roll" in cash outside the books of account. Vide letter dated 20.10.2015 filed before the DDIT(Inv.) unit 1, Mumbai, Shri Singhania has offered additional income totalling to Rs.15,00,00,000/- for taxation for various years as mentioned bellow: Sr.No. A.Y. Return Income/ Assessed Additional Approximate Income Income Tax offered for (Including taxation Interest as (In Rs. per law ) Crores) (Rs.) 1 2010-11 Return not filed 2.50 1,21,13,313/- 2 2011-12 34,97,600 2.50 1,35,99,530/- 3 2012-13 1,99,02,640/- 3.80 1,67,73,080/- 4 2013-14 47,18,390/- 2.20 78,10,700/- 5 2014-15 60,56,010/- 1.00 48,47,780/- 6 202015-16 Nil. 2.00 20,56,596/-

7 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. 7 2016-17 Estimated Income as per 15.00 85,97,380/- order u/s. 210(3) dt. 20.02.2016 Rs. 60, 00,000/-. Total 15.00 6,57,98,479/-

Accordingly, I have reason to believe that there is an escapement of assessment to the tune of Rs. 3, 80, 00,000/- in the case of the assessee for A.Y 2012- 13 within the ambit and meaning of section 147 of the Income Tax Act, 1961. Therefore, the assessment of A.Y. 2012-13 which has been completed u/s 143(3) of the Act dated 31.10.2014 is reopened u/s 147 of the I.T Act, 1961.” 10. From our observation after going through the reasons supplied by the AO for reopening of the case, order of the AO u/s. 147 and order of the Ld. CIT(A) u/s. 250, following facts emerged which are relevant to adjudicate this appeal and CO-95/M/2019 filed by the assessee. i) Case of the assessee was assessed u/s. 143(3) wherein the issue of unsecured loans and interest thereon has been discussed and accepted by the AO. ii) Based on survey disclosure of the assessee, assessee’s case was reopened u/s. 148 with the reasons supplied as mentioned supra. iii) There was no addition made by the AO on the points on which reopening was made. In the reason recorded extracted in the preceding paras, AO proceeded to record the reasons on the basis of statement of one Mr. Singhania forwarded to him vide letter dated 20.10.2015 filed before the DDIT (Inv.), wherein he had offered additional income of Rs. 15 Cr. and accordingly AO proceeded to believe that there is an escapement of assessment to the tune of Rs. 3, 80, 00,000/- and initiated the re-opening proceeding under section 147 & 148 of the Act. However when we perused the assessment order passed by the AO under section 143(3)

8 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. r.w.s. 147 of the Act, he has made the addition for Rs. 6,20,00,000/- on account of unsecured loan taken by the assessee from some bogus entities who have never carried out any genuine activities. We failed to understand from where the figure of addition of Rs. 6, 20, 00,000/- have came on record. iv) So far as addition on account of bogus unsecured loan is concerned, this issue has already been decided by the Revenue while framing assessment under section 143(3) of the Act vide order dated 31.10.2014 available at page nos. 57 to 58 of the PB No.1 of CIT (A) and as such re- opening of the same issue is a mere change of opinion as there is no fresh material with the AO within four years. v) That from the reasons recorded and findings returned by the AO in the assessment order, it is proved on record that the AO had proceeded on the basis of information received from DDIT (Inv.) without applying his own mind. vi) Based on the above facts it is apparently found that additions made in the case of the assessee u/s. 68 and 69A, were not the part of reasons supplied for reopening of the case and thus a mere change of opinion. 11. When we examine the aforesaid facts and reasons recorded for initiating the re-opening of assessment proceedings under section 147 & 148 of the Act suddenly, AO dropped issue flagged in the “reasons recorded” rather proceeded to fix the liability of the assessee by making addition of Rs. 6.20 Cr. on some other issues as to taking unsecured loan from the bogus entry providers. 12. Hon’ble Bombay High Court in case of CIT vs. Jet Airways (I) Ltd. (supra) decided the identical issue that “when the assessment was sought to be

9 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. reopened on the ground that income had escaped assessment on a certain issue, the AO could not make an assessment or reassessment on other issue which comes to his notice during the proceedings, by returning following findings: “The Explanation 3 to section 147 lifts the embargo inserted by judicial interpretation on the making of an assessment or reassessment on grounds other than those on the basis of which a notice was issued under section 148 setting out the reasons for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of the Explanation 3 by the Finance (No. 2) Act, 2009. However, the Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or to render the substance and core nugatory. Section 147 has the effect that the Assessing Officer has to assess or reassess the income ('such income') which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepts the contention of the assessee and holds that the income for which he had initially formed a reason to believe that it had escaped assessment, has, as a matter of fact, not escaped assessment, it is not open to him to independently assess some other income, and if he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee. [Para 16] Section 147(1), as it stands, postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income 'and also' any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment . The words 'and also' are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by the Parliament. This view has been supported by the background which led to the insertion of the Explanation 3 to section 147. The Parliament must be regarded as being aware of the interpretation placed on the words 'and also', by the Rajasthan High Court in

10 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. CIT v. Shri Ram Singh [2008] 306 ITR 343. The Parliament has not taken away the basis of that decision. While it is open to the Parliament, having regard to the plenitude of its legislative powers to do so, the provisions of section 147(1), as they stood after the amendment of 1-4-1989, continue to hold the field. [Para 17] The question of law would, accordingly, stand answered against the revenue and in favour of the assessee. The appeal was, accordingly, to be dismissed. [Para 18]” 13. Similar issue has also been decided by the Hon’ble Gujarat High Court in case of CIT vs. Mohmed Juned Dadani (supra) wherein substantial question of law was framed as under: “Whether the Income Tax Appellate Tribunal was right in law in coming to the conclusion that when on the ground on which the reopening of assessment is based, no additions are made by the Assessing Officer in the order of assessment, he cannot make additions on some other grounds which did not form part of the reasons recorded by him.” and decided the substantial question of law in favour of the assessee by returning following findings: “29. Above decision has been referred to and relied upon in several subsequent decisions. Above proposition being well settled, it is not necessary to refer to all such decisions. 30. We may also approach the question from a slightly different angle. It is not in dispute that once an assessment is reopened by a valid exercise of jurisdiction under Section 147 of the Act, it is open for the Assessing Officer to assess or reassess any income which had escaped assessment which comes to his light during the course of his assessment proceedings which was not mentioned in the reason for issuing notice under Section 148 of the Act. In a notice for reassessment which has been issued beyond a period of four years from the end of relevant assessment year, the condition that income chargeable to tax has escaped assessment for the reason of the failure on the part of the assessee to disclose truly and fully all material facts for the purpose of assessment must also be established unless of course some other ground viz. non-filing of the return at all etc. is available to the Assessing Officer. If such non-disclosure of material facts is established with respect to the reason recorded for issuing notice for reopening the assessment, it would be open for the Assessing Officer to thereafter even assess other income which might have escaped assessment but

11 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. which may not necessarily satisfy the requirement of non-disclosure of true and full material facts. If in such a situation, the stand of the revenue is accepted, a very incongruent situation would come about if ultimately the Assessing Officer were to drop the ground on which notice for reopening had been issued but to chase some other grounds not so mentioned for issuance of the notice. In such a situation, even if a case where notice for reopening has been issued beyond a period of four years, the assessment would continue even though on all the grounds on which the additions are being made, there was no failure on the part of the assessee to disclose true and full material facts. In such a situation an important requirement of failure on part of the assessee to disclose truly and fully all material facts would be totally circumvented. 31. As already noted, except for the Punjab and Haryana High Court in case of Majinder Singh Kang (supra) all courts have uniformly taken a view that Explanation 3 to Section 147 of the Act does not change the situation insofar as the present controversy is concerned. Leading decision of Bombay High Court in case of Jet Airways (I) Ltd. (supra) has been followed by different High Courts. In case of Jet Airways (I) Ltd. (supra) the High Court, in its elaborate decision considering the statutory provisions, different judicial pronouncements and the explanatory memorandum for introduction of Explanation 3 to Section 147 of the Act ruled in favour of the assessee. 32. Punjab and Haryana High Court in case of Majinder Singh Kang (supra) ofcourse has sounded a different note. We may, however, notice that the explanatory memorandum to Explanation 3 to Section 147 of the Act was not brought to the notice of the High Court in the said decision. The High Court gave considerable importance on such Explanation 3 to Section 147 of the Act and the language used therein. 33. In the result, we answer the question in the affirmative i.e. in favour of the assessee and against the revenue. All tax appeals are dismissed.” 14. Similarly, Hon’ble Delhi High Court in case of Sh. Anugrah Varshney vs. ITO in ITA No.134/Ag/2014 order dated 05.04.2016 also decided the identical issue by interpreting explanation 3 to section 147 of the Act wherein the Ld. D.R. has tried to distinguish the fact of Jet Airways (I) Ltd. (supra) on the ground that at that point of time explanation 3 to section 147 of the Act was not in statute. However, the Hon’ble Delhi High Court by following the decision rendered by Hon’ble Bombay High Court in case of Jet Airways (I) Ltd. (supra) and Ranbaxy

12 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. Laboratories decided the identical issue in favour of the assessee by returning following findings: “The Hon'ble Delhi High Court following the above decision of the Bombay High Court has also upheld this view in Ranbaxy Laboratories Ltd. Vs. CIT(2011)336ITR 136. The argument of the Ld. DK that the ratio propounded in Jet Airways (Supra) and Ranbaxy Laboratories (Supra) does not apply since those cases related to assessment years when Explanation 3 to section 147 was not on the statute, we find has not merit since in the above mentioned decisions the Court has interpreted the provision of section 147 on first principle to hold that only if addition are made on account of income which the AO had reason to believe had escaped assessment that any other addition can be made. It is not Explanation 3 which had been interpreted in favour of the assessee in these cases. In fact we find that Explanation 3 empowers AO's to make assessment on any matter which comes to their notice during assessment proceedings. But the same alongwith section 147 has been interpreted as stated above. Therefore, the presence or absence of Explanation 3 to section 147 does not nullify the interpretation given by the courts in the above stated judgments. Further the argument of the Ld. DR that the reason is not rendered invalid merely because no addition has been made on account of incomes which the AO had reason to believe had escaped assessment, is also of no consequence, since as is evident from the order cited above, the courts have not held the reasons to be invalid in such cases and quashed the proceedings. The validity of the reasons had not been in issue in these cases, but the courts have interpreted the provisions of section 147 on first principles and held that the AO had no power to assess any other income to tax unless addition is made of income which he had reason to believe had escaped assessment. 11. Respectfully following the above judgments, we hold that in the absence of any addition having been made on incomes which the AO had reason to believe had escaped assessment, no addition of any other income could have been made and that the AO had exceeded his jurisdiction in passing the impugned order u/s 147. The same is liable to be quashed. We quash accordingly.” 15. So in view of the facts and law discussed in the earlier paras, we are of the considered opinion that very initiation of re-opening proceeding under section 147 of the Act is not valid and as such assessment is liable to be quashed on this ground only. When legal issue raised by the assessee by way of filing Cross

13 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. Objection has been decided in favour of the assessee, ground raised on merit by the Revenue have become academic and need not be decided. 16. In ITA No. 2629/Mum/2018 for A.Y. 2013-14, the Revenue has raised the following grounds of appeal: “1. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs. 7,80,00,000/- being unsecured loan treated as unexplained cash credit u/s. 68 of the I.T. Act, without appreciating the fact that the said loan was obtained from various companies that are controlled, operated and managed by bogus accommodation entry provider Shri Pravin Kumar Jain and the assessee could not prove the genuineness of the transaction and creditworthiness of the lenders. 2. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs. 3,90,000/- being commission expenses on the unsecured loan of Rs. 7,80,00,000/-, without appreciating the fact that the lending companies belonged to Pravin Kumar Jain group of companies involved in providing bogus accommodation entries and Shri Pravin Kumar Jain in his statement recorded under oath has admitted that he generally charges commission/brokerage at around 0.5% on such transactions. 3. On the facts and circumstances of the case and in law, the CIT (A) has erred in deleting the disallowance of Rs. 92, 61,863/- being interest expenses claimed by the assessee on the unsecured loan of Rs. 7, 80, 00,000/- without appreciating the fact that the lending companies belonged to Pravin Kumar Jain group of companies involved in providing bogus accommodation entries and the assessee could not prove the genuineness of the loan transactions and creditworthiness of the lenders. 4. The appellant prays that the order of CIT (A) on the above ground be set aside and that of Assessing Officer be restored. 5. The appellant craves leave to amend or alter any grounds or add a new ground which be necessary.” 17. Brief facts of the case are that the assessee e-filed its return of income on 16-09-2013 declaring total income Rs 47, 18,390/-. Assessees case was selected for scrutiny and assessed u/s. 143(3) at Rs 9, 23, 70,253/-. Assessee is a company engage into the business of manufacturing, import and trading of

14 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. ferrous and nonferrous metal. Thereafter information was received from the investigation wing of the department that a survey action u/s. 133(A) of the act had been carried out at its different premises on 31-08-2015, where it was found that the assessee had made unaccounted cash investments in M/s Omkar Group. During the course of survey Mr Manohar Lal Singhania director of assessee-company in his statement on oath u/s. 131 on 01-09-2015 admitted that such an investment in cash was sourced from sale of miss rolls in cash out of books and thus offered additional income totalling Rs 15 cr. for AY 2010-11 to 2016-17. For the year under consideration assessee offered Rs 2.20 cr. Out of Rs. 15cr mentioned supra. In the mean while the DDIT (Inv.) also forwarded a survey report narrating all the relevant facts regarding the assessee unaccounted receipts/expenses/investments. From the survey report it is found that during the year under consideration assessee had bogus unsecured loans amounting to Rs 7.8 cr., interest claimed on bogus unsecured loans amounting to Rs 92.61 lakhs and commission expenses paid on bogus unsecured loan @ 0.5% amounting to Rs 3.9 lakhs. 18. We have perused the order passed by the Ld. CIT(A) who has deleted the addition made by the AO to the tune of Rs.9,26,18,663/- i.e. on account of unexplained cash credit/unsecured loans and interest under section 68 to the tune of Rs.7,80,000/-, unexplained cash credit/commission paid on unsecured loan under section 68 to the tune of Rs.3,90,000/- and unexplained expenditure/interest expenditure on unsecured loan under section 69C to the tune of Rs.92,61,863/- by returning following findings: “7.3 I have carefully considered the facts of the case, assessment order and the written submissions of the appellant. The Assessing Officer has made addition of Rs 6:20 Crores being unsecured loans received from the following parties: S.No. Name of Company Amount

15 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. Received (Rs.) 1 M/s Olive Overseas Pvt. Ltd. 40,00,000 2 M/s Casper Enterprises Pvt. Ltd. 1,15,00,000 3 M/s Atharv Business Pvt. Ltd. 75,00,000 4 M/s Duke Business Pvt. Ltd. 1,95,00,000 5 M/s Sumukh Commercial Pvt. Ltd. 1,10,00,000 6 M/s Nakshatra Business Pvt. Ltd. 75,00,000 7 M/s Dolly Exim Pvt. Ltd. 1,00,00,000 8 M/s Manan Agro Pvt. Ltd. 70,00,000 Total 7,80,00,000

7.3.2 The aforesaid addition was based on the fact that companies such as Olive Overseas Pvt. Ltd.. M/s Casper Enterprises Pvt Ltd, M/s Nakshatra Business Pvt Ltd. Sumukh Commercial Pvt. Ltd, Atharv Business Pvt. Ltd. and Duke Business Pvt. Ltd. were group entities of Mr Praveen Jain. Mr Praveen Jain was found to be indulging in giving accommodation entries pursuant to a search conducted on 01.10.2013. In this case, the AO has relied on the documents received from the DGIT (Inv) Mumbai in the case of Shri Praveen Jain group. Further, in respect of Dolly Exim Pvt. Ltd. and Manan Agro P Ltd, during the survey, as per statement of Mr Ajay Lalgarhia, the appellant confessed to obtaining accommodating loans from these companies. 7.3.3 As per the appellant, the AO did not furnish the specific statements he was relying upon which allegedly contained the name of the appellant. The AO has not done any independent enquiry but only relied on the evidence gathered by the Investigation Wing. The AO has not issued notices u/s 133(6) to the lenders. Mr Praveen Jain is not a Director in all the companies. As regards, addition in respect of Dolly Exim Pvt. Ltd. and Manan Agro P Ltd, these companies were added based on the statement of Mr Ajay Lalgarhia This statement was subsequently retracted. This statement was not corroborated by independent evidence during the survey. 7.3.4 As per Section 68 of the Act, for any addition to be made, the identity, creditworthiness and genuineness of the parties must be in doubt. The AR, during the appellate proceedings has submitted as regards identity of the lender companies, all of them have a PAN and are assessed to tax. The addresses of the parties are on record: A summary of the parties is as follows:

16 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. S. Name of PAN CIN No Whether No. party existing co with ROC / latest balance sheet filed 1 Olive AACCR4512K U51909MH2003PTC139464 31.03.2016 Overseas Pvt. Ltd. 2 Sumukh AACCC7400M U51101MH2006PTC158570 31.03.2016 Commercial Pvt. Ltd. 3 Atharv AAACF9430A U51909MH2005PTC158553 31.03.2016 Business Pvt. Ltd. 4 Duke AABCJ6245N U00500MH2005PTC158500 31.03.2016 Business Pvt. Ltd. 5 Casper AAACO7955M U51900MH2005PTC158499 31.03.2016 Enterprises Pvt. Ltd. 6 Nakshatra AABCH4279G U51909MH2004PTC145254 31.03.2016 Business Pvt. Ltd. 7 Dolly Exim AAACD8592P U17299MH1994PTC080539 31.03.2016 Pvt. Ltd. 8 Manan Agro AAHCM7515Q U52100GJ2012PTC069019 31.03.2012 Pvt. Ltd.

7.3.4.1 As regards the creditworthiness of the parties, the bank statement shows that there were ample funds available. The net worth of the companies are sufficient to cover the loan given A summary of the transactions is as follows: Sr Name of Amount of Cheque Date Bank details How No party loan (Rs. No/RTGS shown in books of lender 1 Olive 25,00,000/- 25340 01.08.2012 Axis Bank Current Loans & Overseas a/c Advances

17 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. Pvt. Ltd. 911020006128275 Olive 15,00,000/- RTGS 01.08.2012 Indusind Bank a/c Loans & Overseas 0001CA0746060 Advances Pvt. Ltd. 2 Casper 75,00,000/- 110116 26.04.2012 Bharat Co- Loans & Enterprises operative bank Advances Pvt. Ltd. (Mumbai) Ltd. A/c 141/233 Casper 40,00,000/- Cheque 26.07.2012 Axis Bank a/c Loans & Enterprises 25930 910020039271107 Advances Pvt. Ltd. 3 Atharv 50,00,000/- Cheque 20.06.2012 Axis Bank a/c Loans & Business 992957 911020022151846 Advances Pvt. Ltd. Atharv 25,00,000/- NEFT 05.12.2012 Axis Bank a/c Loans & Business 911020022151846 Advances Pvt. Ltd. 4 Duke 25,00,000/- Cheque 10.04.2012 Bharat Co- Loans & Business 148997 operative bank Advances Pvt. Ltd. (Mumbai) Ltd. A/c 121/2956 Duke 40,00,000/- Cheque 31.07.2012 Axis Bank a/c No. Loans & Business 5256 910020050786017 Advances Pvt. Ltd. Duke 25,00,000/- NEFT 13.12.2012 Axis Bank a/c No. Loans & Business 912005078717 Advances Pvt. Ltd. Duke 25,00,000/- Cheque 21.12.2012 Axis Bank a/c Loans & Business 7856 910020050786017 Advances Pvt. Ltd. Duke 15,00,000/- Cheque 21.12.2012 Axis Bank a/c Loans & Business 7855 910020050786017 Advances Pvt. Ltd. Duke 30,00,000/- Cheque 21.12.2012 Axis Bank a/c Loans &

18 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. Business 7888 911020006052408 Advances Pvt. Ltd. 5 Sumukh 50,00,000/- Cheque 20.06.2012 Axis Bank a/c Loans & Commercial 992869 911020006052408 Advances Pvt. Ltd. Sumukh 60,00,000/- Cheque 18.02.2013 Axis Bank a/c Loans & Commercial 25281 911020006052408 Advances Pvt. Ltd. 6 Nakshatra 25,00,000/- Cheque 17.12.2012 Axis Bank a/c Loans & Business 5631 911020000040306 Advances Pvt. Ltd. Nakshatra 50,00,000/- Cheque 20.01.2013 Axis Bank a/c Loans & Business 5682 911020000040306 Advances Pvt. Ltd. 7 Dolly Exim 30,00,000/- RTGS 20.09.2012 Punjab national Loans & Pvt. Ltd. bank a/c Advances 3731009304750849 Dolly Exim 20,00,000/- RTGS 22.12.2012 Punjab national Loans & Pvt. Ltd. bank a/c Advances 3731009304750849 Dolly Exim 50,00,000/- RTGS 12.02.2013 Punjab national Loans & Pvt. Ltd. bank a/c Advances 3731009304750849 8 Manan 50,00,000/- RTGS 28.02.2013 HDFC bank a/c Loans & Agro Pvt. 00060340024719 Advances Ltd. Manan 20,00,000/- RTGS 16.10.2012 HDFC bank a/c Loans & Agro Pvt. 00060340024719 Advances Ltd.

7.3.4.2 It is also submitted that all the companies have a high net worth/total assets which runs in crores of rupees. M/s Olive Overseas has a returned income of Rs 53.20 lakhs. M/s Dolly Exim Pvt Ltd has a returned income of Rs 23.91 lakhs. A

19 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. summary of the returned income and net worth of each of the investors is as follows: Sr.No. Name of party Returned income Net (Rs.) worth/total assets (Rs. 1 M/s Olive Overseas Pvt. 53,20,710/- 3.33 Cr Ltd. 2 M/s Casper Enterprises 50,207/- 143.46 Cr Pvt. Ltd. 3 M/s Atharv Business Pvt. -1,71,72,493/- 162.06 Cr Ltd. 4 M/s Duke Business Pvt. 65,669/- 161.43 Cr Ltd. 5 M/s Sumukh Commercial -20,86,505/- 120.86 Cr Pvt. Ltd. 6 Nakshatra Business Pvt. 60,979/- 10.31 Cr Ltd. 7 M/s Dolly Exim Pvt. Ltd. 23,91,700/-

7.3.4.3 As regards the genuineness of the transaction, the AR submitted that all the loans were received through account payee cheque. A perusal of the bank statement of the lenders shows that no cash was deposited prior to the loan given which proves that the transaction was not accommodation entry. The signed confirmations are on record. The TDS certificates are on record that TDS has been deducted @10% on interest. The loans were repaid in the subsequent financial years. 7.4 Thus, the lenders have satisfied all the three tests of identity creditworthiness and genuineness. The lender companies' identity is not in doubt. They have confirmed the transaction and the amounts are paid through cheque by way of banking channels. The sources of funds of the lenders have been seen from their audited accounts 7.5 The AR of the assessee has also pointed out from the observation of the AO that he has only referred the information related to the outcome of search in the case of Shri Praveen Jain but he has failed to demonstrate that the appellant has in reality obtained accommodation entries. When these companies are filing regular returns

20 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. of income and there is transaction through banking channel, no addition can be made without having any contrary or cogent evidences in his possession. Further, the AO has not been able to specifically point out, in which statement of Shri Praveen Jain was the name mentioned. Further, the AO has failed to undertake his independent investigation by issuing notices u/s 133(6) to the lender companies. He has merely relied on the findings of the Investigation Wing without doing any independent enquiry” 7.8 After perusing the above judgments, I find that the common thread in all the judgments is that primary onus lies with the assessee to prove that the loans are genuine. However, once the assessee is able to produce documents in support of loan liability such as PAN of the lender, address, loan confirmation, bank statements, financial statements of the lenders etc., the burden shifts to the AO to prove that loans are non-genuine. The assessee's AR vehemently argued that the AO in such cases is then required to carry out the procedure to hold inquiries with the help of material produced by the assessee and brings on to record documentary evidence to prove that the assessee was accommodated by these parties, unless and until this evidence is brought on record. The additions cannot be made in the hands of the assessee, as the AO cannot make addition in the hands of the assessee when the material was put on record for him to carry out further inquiries. I find force in the argument of the appellant. 7.9 It is true that the AO unearthed evidence during the survey that the appellant was indulging in accommodation entries. It is also true that the AO issued a show cause notice to the appellant asking why the loans should not be added u/s 68 of the Act. However in response to the show cause notice, the appellant discharged its burden by submitting PAN, address, confirmation, Balance Sheet & IT returns of the lender companies, bank statements etc. The AR submitted that these evidences are adequate to support the stand of the assessee. 7.10 In the light of the detailed discussion, the addition of unsecured loans u/s 68 of Rs 6.20 Crores cannot be upheld and is hereby deleted Hence Ground No 3 of the appeal are allowed. The appellant is entitled to relief of Rs 7,80,00,000/-. 8. Ground No.4: Ground No 4 of the appeal challenges the addition made by the AO on account of alleged commission paid to the entry providers. The AO estimated that the appellant has paid commission for obtaining an accommodation entry and thus made addition at ad hoc rate of 0.5% of loans of Rs 7.80 Crores received amounting to Rs 3,90,000/-. The appellant submitted that no commission was paid and this ad hoc deletion ought to be deleted.

21 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. 8.2 I have carefully considered the facts of the case, assessment order and the appellant's submission. Since I have held that the unsecured loan is genuine, there is no question of adding any commission relatable to the alleged accommodation entry. 8.3 Hence, the addition of commission of Rs 3,90,000/- cannot be upheld and is hereby deleted Ground No 4 of the appeal is hereby allowed. 9. Ground No.5: Ground No 5 of the appeal challenges the addition made by the AO on account of interest paid to the entry providers. The AO disallowed interest in respect of the following parties: Sr No. Name of company Interest paid (Rs.) 1 Dolly Exim Pvt. Ltd. 15,99,288/- 2 Manan Agro Pvt. Ltd. 1,20,082/- 3 Loveable Lingerie Ltd. 14,68,480/- 4 Atharv Business Pvt. Ltd. 8,71,027/- 5 Casper Enterprises Pvt. Ltd. 11,14,890/- 6 Duke Business Pvt. Ltd. 18,05,918/- 7 Kush Hindustan Entertainment Ltd. 5,40,000/- 8 Olive Overseas Pvt. Ltd. 13,56,658/- 9 Sumukh commercial Pvt. Ltd. 2,36,342/- 10 Nakshatra Business Pvt. Ltd. 1,49,178/- Total 92,61,863/-

22 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. in case of Pravin Jain Group, in case of M/s. Dolly Exim Pvt. Ltd. and M/s. Manan Agro Pvt. Ltd. during the survey as per statement of Ajay Lalgarhia, the appellant confessed to have obtained accommodation loans-entries from these companies. 20. The Ld. CIT(A) also observed that Pravin Jain is not a director in all these companies and addition in respect of M/s. Dolly Exim Pvt. Ltd. and M/s. Manan Agro Pvt. Ltd. has been made on the statement of Ajay Lalgarhia which was subsequently retracted. 21. The Ld. CIT(A) has not tried to examine the fact as to when Ajay Lalgarhia has retracted. Whether his retraction was valid under the law within reasonable period. The Ld. CIT(A) has merely relied upon bank statements, PAN and income tax return of the lenders. It is a matter of record that whenever such accommodation entries are provided meticulous paper work has to be made by the entry provider as well as beneficiary. 22. When we examine the table given by Ld. CIT(A) in para 7.3.4.2 of the impugned order the Ld. CIT(A) has not taken into account meagre returned income of M/s. Casper Enterprises, M/s. Duke Business Pvt. Ltd and M/s. Nakshatra Business Pvt. Ltd. which is Rs.50,207/-, Rs.65,669/- & Rs.60,979/- respectively who have given loans to the tune of lacs of Rupees except in the case of M/s. Dolly Exim Pvt. Ltd. All the entities from whom the assessee has claimed to have taken loan are either having negative income or meager income except the income of M/s. Dolly Exim Pvt. Ltd. who has returned income of Rs.23,91,700/-. All the entities were having meager or negative returned income during the period under consideration. Ld. CIT(A) has not called to examine financials of such entities. Neither the Ld. CIT(A) himself nor through

23 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. the AO has examined all these facts but taken the argument of the assessee on face value in deleting the additions. 23. When the alleged accommodation entries have been questioned by the AO it was for the assessee to explain the same under section 68 of the Act who has failed to discharge the onus. Only on the basis of the fact that the AO has not issued notice under section 133(6) of the Act to the lenders/bogus entities and that the AO has not done any independent enquiry, the Ld. CIT(A) cannot delete the addition on the basis of mistake or fault committed by the AO. The Ld. CIT(A) was required to get all these facts examined from the AO or by himself. All these transactions are required to be examined in the light of surrounding circumstances and human probabilities which are visible from the facts on record in order to unearth bogus transactions as per findings returned by Hon’ble Apex Court in case of CIT vs. Durga Prasad More 1971 82 ITR 540 (SC) and in case of Sumati Dayal vs. CIT 214 ITR 801 (SC). In case of Sumati Dayal (supra) Hon’ble Apex Court has held that in such circumstances, tax authorities are entitled to look into the surrounding circumstances to find out the reality and matter has to be considered by applying the test of human probabilities. 24. In the light of above discussion, we are of the considered view that the Ld. CIT(A) has passed a mechanical order by admitting all the contentions raised by the assessee on face value without getting the issue examined. In order to decide the issue once for all and to curtail the multiplicity of litigation, we are of the considered view that complete enquiry is required to be conducted in this case by taking into account all the facts discussed in the preceding paras in the light of the decision rendered by Hon’ble Supreme Court referred to in the preceding paras. So the impugned order passed by the Ld. CIT(A) is set aside and case of the assessee for A.Y. 2013-14 is remanded back to the Ld. CIT(A) to

24 ITA No. 2628 & 2629/Mum/2018, C.O. 95/Mum/2019 M/s. Sun Metallics & Alloys Pvt. Ltd. decide as per observation made hereinbefore by providing opportunity of being heard to the assessee. 25. In the result, ITA No. 2628/Mum/2018 for A.Y. 2012-13 filed by the Revenue is dismissed and CO-95/M/2019 for A.Y 2012-13 filed by the assessee is allowed. 26. ITA No. 2629/Mum/2018 A.Y. 2013-14 filed by the Revenue is restored back to the file of AO to decide afresh after giving opportunity to the assessee. In the result, ITA No. 2629/Mum/2018 for A.Y. 2013-14 is allowed for statistical purposes. Order pronounced in the open court on 21st day of November, 2022. Sd/- Sd/- (KULDIP SINGH) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, िदनांक/Dated: 21/11/2022 SK, Sr.PS Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. 3. आयकर आयु�(अ)/The CIT(A)- 4. आयकर आयु� CIT 5. िवभागीय �ितिनिध, आय.अपी.अिध., मुबंई/DR, ITAT, Mumbai 6. गाड� फाइल/Guard file. BY ORDER, //True Copy// (Dy. /Asstt. Registrar) ITAT, Mumbai