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Facts
A search and seizure operation was conducted on related entities, and subsequently on the assessee. Incriminating materials related to alleged undisclosed money lending activity by Shri Nilesh Shamji Bharani were found. The AO initiated proceedings u/s 153A and added the alleged cash loan as unexplained investment and notional interest.
Held
The Tribunal held that the additions made by the AO were not based on cogent evidence. The evidence relied upon, primarily statements recorded during the search, were contradicted and lacked corroboration. The cross-examination of Shri Nilesh Shamji Bharani also denied any cash loan transaction with the assessee.
Key Issues
Whether the additions made on account of alleged cash loan and notional interest are sustainable without cogent corroborative evidence, especially when the primary evidence was retracted and denied.
Sections Cited
153A, 69, 132(4), 139(1), 131
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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, VP & SHRI GIRISH AGRAWAL, AM
O R D E R Per Saktijit Dey, VP:
The captioned appeals by the same assessee, arise out of separate orders of learned Commissioner of Income Tax (Appeals)-52, Mumbai, (‘ld.CIT(A) for short), pertaining to assessment years (A.Ys.) 2013-14 to 2018-19.
Since, dispute arising in these appeals are identical, they have been clubbed together and disposed of in a consolidated order for the sake of convenience.
Grounds raised in these appeals are more or less identical. There are legal grounds, challenging the validity of the proceedings-initiated u/s. 153A of the Act.
Whereas, there are grounds on merits, contesting the additions made u/s. 69 of the Act on estimate basis.
Briefly, the facts culled out from the record are, the assessee is a resident individual. For the assessment years under dispute, the assessee had filed its returns u/s. 139(1) of the Act in regular course. A survey cum search action was undertaken in case of Sunshine Group, M/s. Sabari Developers, LLP and M/s. Evergreen Enterprises and other related entities, including the main persons and their employees between the period 06.10.2017 to 11.10.2017. As a follow up of such search and seizure action, the assessee was also covered under search and seizure operation on 07.10.2017.
Consequent to the search and seizure operation carried out in case of assessee, proceedings were initiated u/s. 153A of the Act.
In course of assessment proceedings in pursuance to notice u/s. 153A of the Act, the Assessing Officer (AO) informed the assessee that during the search and seizure operation conducted in case of Shri Nilesh Shamji Bharani and M/s. Evergreen Enterprises on 06.10.2017, incriminating materials relating to undisclosed money lending activity carried out by Shri Nilesh Shamji Bharani were found and sized vide Annexure A-1 to A-117. The A.O. further informed the assessee that Shri Nilesh Shamji Bharani, being the partner of M/s. Evergreen Enterprises, gave a statement u/s. 132(4) of the Act on 11.10.2017, admitting that he is engaged in the business of finance, cash lending and borrowing activity and earns income in cash through brokerage. The A.O. informed that in the said statement Shri Nilesh Shamji Bharani has admitted of having persons/entities. The A.O. further brought to the notice of the assessee that when Shri Nilesh Shamji Bharani was questioned on the incriminating material being Annexure A-1 to A-117, he stated that the code name of the lender, “A/76/R”, represents Asha Consultancy, the proprietary concern of the assessee. The other figures in code words represents the amount of cash loan advanced. The A.O. further referred to the statements recorded u/s. 132(4) of the Act from other employees of M/s. Evergreen Enterprises namely Mr. Jagdish T Ramani, Ashwin Amritlal Rathod and Mrs. Vibha Sachin Rawate, Mr. Shankar G Jadhav Ramani, Mr. Nilesh Ramesh Chandra Shah, Kirti Rajaram Bendre and observed that all these persons were equivocally stated that cash loans were taken from the assessee and advanced to other persons. The A.O. further referred to books of accounts containing the ledger of lenders seized from the premises of Shri Nilesh Shamji Bharani and M/s. Evergreen Enterprises to observe that all these evidences point to the fact that the assessee has indulged in undisclosed money lending business in cash.
In response to the query raised by AO, the assessee straight away denied of having indulged in any money lending activity in cash with Shri Nilesh Shamji Bharani or any other person. Further, the assessee requested the A.O. to permit cross- examination of Shri Nilesh Shamji Bharani. On the request of the assessee, A.O. permitted the assessee to cross examine Shri Nilesh Shamji Bharani. As observed by the A.O, in course of such cross examination, Shri Nilesh Shamji Bharani contradicted his statement given u/s. 132(4) of the Act and stated that he has not taken any cash loan the cross examination was not given credence by the A.O. with the observation that it is merely a self-serving statement, as both the assessee and Shri Nilesh Shamji Bharani were acting to safeguard their own interest. Be that as it may, ultimately, the A.O. proceeded to rely upon the materials seized from the premises of Shri Nilesh Shamji Bharani and the statements recorded u/s. 132(4) of the Act and held that the entries appearing in the seized material represent cash loan transactions of the assessee.
Accordingly, he not only added back the alleged cash loan as unexplained investment u/s. 69 of the Act, but also computed notional interest thereon on estimate basis by applying the rate of interest of 1.50%. Accordingly, he completed the assessments for all the assessment years under dispute.
Though, the assessee contested the additions by filing appeals before learned first appellate authority, however, he was unsuccessful.
We have heard the parties and perused the materials on record. Before us, ld. Counsel for the assessee had advanced submissions both on legal grounds as well as on merits. Whereas, the learned Departmental Representative ('ld. DR' for short) has submitted his counter arguments.
Having considered rival submissions, we deem it appropriate to deal with the grounds raised on merits of the additions made, at the outset. As discussed earlier, basically, the A.O. has made two additions. Firstly, addition on account of unexplained investment, being the alleged cash loan advanced by the assessee and, secondly, assessment order reveals that these additions are entirely based on the document seized during the search conducted in the premises of Shri Nilesh Shamji Bharani annexed as Annexure A-1 to A-117 and statements recorded u/s. 132(4) of the Act, in course of search and seizure operation conducted in case of Shri Nilesh Shamji Bharani and M/s.
Evergreen Enterprises. It is a fact on record that the statements u/s. 132(4) of the Act and relied upon by the A.O. were recorded from persons closely related to M/s.
Evergreen Enterprises. While Shri Nilesh Shamji Bharani is a partner of M/s. Evergreen Enterprises, the other individuals are employees of the said concern. As could be seen from the seized material incorporated in the assessment order, it contains certain entries and some code words. The A.O. has observed that in the statement recorded u/s. 132(4) of the Act, Shri Nilesh Shamji Bharani has explained the seized document to be containing the undisclosed cash loan transaction between him and the assessee. As per the version of Shri Nilesh Shamji Bharani, the code words appearing in the seized documents represent the name of Asha Consultancy, the proprietary concern of the assessee and the amount of cash loan availed. The statements recorded from other individuals corroborated the facts stated by Shri Nilesh Shamji Bharani in the statement recorded u/s. 132(4) of the Act.
As discussed earlier, the search and seizure action in case of Shri Nilesh Shamji Bharani and M/s. Evergreen Enterprises commenced on 06.10.2017 and ended on 11.10.2017. The statements u/s. 132(4) of the Act were recorded on 11.10.2017.
However, immediately after four days, the persons from whom statements were the Commissioner of Income Tax (Investigation)-2, Mumbai on 14.10.2017, retracting the statements recorded u/s. 132(4) of the Act, stating that such statements were recorded under duress and when the statements were recorded, they were not in proper frame of mind. In the said letter, it was further stated that they would be in a position to properly reply to the queries raised by the department once the seized/impounded material are handed over to them and they are allowed time to go through such materials. It is further relevant to observe, in course of the assessment proceedings, Shri Nilesh Shamji Bharani had filed a detailed and exhaustive Affidavit, copy of which is placed in the paper book, completely disowning the statement recorded u/s. 132(4) of the Act and explaining the compelling circumstances under which he had given the statement. In the said Affidavit, Shri Nilesh Shamji Bharani has further stated that the statements recorded u/s. 132(4) of the Act from other individuals related to M/s.
Evergreen Enterprises, do not have much substance, as they were not aware of the real facts and they were merely acting on the directions of Shri Nilesh Shamji Bharani. In the said Affidavit, Shri Nilesh Shamji Bharani has explained that the entries appearing in the seized material actually represent cash given to him by his late father. In the said Affidavit, Shri Nilesh Shamji Bharani has further explained, had the cash transaction mentioned in the seized documents actually taken place then certainly some amount of cash would have been found in course of search and seizure operation. material and the statements recorded from Shri Nilesh Shamji Bharani and other individuals, he emphatically denied of having knowledge of any such transaction or having advanced any cash loan at any point of time to Shri Nilesh Shamji Bharani or M/s. Evergreen Enterprises. To bring out the true facts, the assessee demanded cross examination of Shri Nilesh Shamji Bharani. It is a fact on record that A.O. permitted such cross examination in course of the assessment proceedings. The details of which are as under:
Statement on oath of Shri Rajesh Shah, aged 53 years, 8/0. Shri Rameshchandra Shah, resides at 604, Nilgiri, Nilkanth Vihar, S B K. Ram Marg, Mumbai 400 077 recorded u/s. 131 of the Income- tax Act, 1961 on 25/11/2019 at 04.30 PM. and cross-examination of Shri Nilesh Shamji Bharani, S/o. Late Shri Shamji Popatbhai Bharani, aged 57 years, residing at B-803, Ekta Co-op. Hsg. Society Ltd., Plot No.79, Tilak Nagar, Opp. Nobel Medicals, Chembur West, Mumbai-400 089 recorded in the case of at Shri Rajesh R Shah, on 25.11.2019 at Room No.1918, 19th floor, Air India Building, Nariman Point, Mumbai-400021 OATH ADMINISTERED “I swear in the name of God that I will speak truth, only truth and nothing but the truth. I further confirm that I have been made aware of the consequences of making a false statement under oath" Before Me Deponent Deponent (Jinendra Yadav) (Rajesh R Shah) (Nilesh S Bharani) DCIT (CC-4(1), Mumbai Deponent Deponent
Q.1 Rajesh R Shah I am Shri Rajesh R Shah, resides at 604, Nilgiri, Nilkanth Vihar, SB K. Ram Marg, Mumbai-400 077.1 confirm that oath has been administered to me and that I have been made aware of giving any false statement under oath. I am showing you PAN card No:AFZPS2416N as proof of my identity. Ans Nilesh Bharani I am Shri Nilesh Shamji Bharani, aged 57 years, residing at B-803, Ekta Co-op. Hsg. Society Ltd., Plot No.79, Tilak Nagar, Opp. Nobel Medicals, Chembur West, Mumbai 400 089. 1 confirm that oath has been administered to me and that I have been made aware of giving any false statement under oath. I am showing you Aadhar card bearing No.963342127922 as proof of my identity. Q.2 Rajesh R Shah Please confirm that you can read, write and understant English. In which language would you like to give statement? Ans. Nilesh Bharani I can read, write and understand English. I wish my statement to be recorded in English. Q. 3 Rajesh R Shah Have 1 ever dealt in cash with you? to 5573/M/2024 (A.Ys.2013-14 to 2018-19) Rajeshkumar Rameshchandra Shah vs. DCIT Ans. Nilesh Bharani No Q.4 Rajesh R Shah Did I give you any cash loan or have you ever served any interest to me? Ans. Nilesh Bharani No Q.5 Rajesh R Shah In answer to question no.50 of the your recorded statement on 11.10.2017, you have stated name of Mr Nishith of Asha Consultancy (the broker) used to contact me through which Jayanti Agency (the borrower) has availed loan. You are requested to explain who is Nishith and how he is related to Asha consultancy. Ans. Nilesh Bharani I do not know Nishith and I do not recollect that I have mentioned the name of Nishith during the search proceedings Q.6 Rajesh R Shah Then, who has prepared these questions and answers(stated in the statement dated 11/10/2017)? Ans. Nilesh Bharani The questions were prepared by Income-tax officers and I have answered without understanding the content of the statement as statement was recorded early in the morning at 4. AM. Q.7 Rajesh R Shah When you have replied that I have not dealt in cash with you, then, why name is appearing as alleging page no.68 & 69. Ans. Nilesh Bharani When I replied to the department officer that I have no cash dealing with Rajesh Shah, they repeatedly asked me this question. At last, after several denial, I said that I dealing with Rajesh Shah to end the process. Q.8 Rajesh R Shah How we know each other? Ans. Nilesh Bharani I know you as a Bank loan arranger of Sunshine Group.
As could be seen from the above extract, in the cross examination taken on oath, on a specific question asked by the assessee, Shri Nilesh Shamji Bharani denied of having entered into any cash loan transaction with the assessee. Thus, the facts on record reveal that except the so called incriminating material seized from the premises of Shri Nilesh Shamji Bharani and some statements recorded u/s. 132(4) of the Act from individuals related to M/s. Evergreen Enterprises, the A.O. had no other corroborative evidence available with him to establish that the assessee had actually advanced any cash loan to Shri Nilesh Shamji Bharani. Moreover, the assessee from the very beginning had emphatically denied of having any cash loan transaction with Shri Nilesh Shamji Bharani. Even, a couple of days after recording of statements u/s. 132(4) of the Act, the concerned persons including Shri Nilesh Shamji Bharani had retracted their statements. In fact, Shri Nilesh Shamji Bharani had filed an Affidavit before the A.O. transaction and had explained that the entries appearing in the seized document, in reality, represents the cash given to him by his father.
When the assessee as well as Shri Nilesh Shamji Bharani and other individuals have denied of alleged cash transaction in subsequent events, the duty of the A.O. was to gather more corroborative evidence to establish on record that the entries appearing in the seized material actually represent cash loan transaction of the assessee. However, except the seized material and the statements recorded u/s. 132(4) of the Act from some third-party individuals, the A.O. has absolutely no other evidence on record to corroborate the alleged cash loan transaction of the assessee. Pertinently, though, during the time search and seizure operation was carried out in case of M/s. Evergreen Enterprises and Shri Nilesh Shamji Bharani, a search and seizure operation was also carried out in case of the assessee, however, not a single piece of incriminating material was recovered from the assessee indicating involvement of assessee in the alleged cash loan transaction or any other illegal activity. In fact, it is relevant to observe, in the statement recorded u/s. 132(4) of the Act, Shri Jagdish T Ramani, who allegedly was assisting Shri Nilesh Shamji Bharani in his work, had stated that Shri Nilesh Shamji Bharani had instructed him to follow up with the lender, i.e., the assessee, to determine the modality of payment. He had stated that he instructed one of the office boys to collect money from the lender and after the money is collected, it is given to the borrower on execution of a promissory note. He had further stated that after the money is delivered to the borrower and promissory note is obtained, he had instructed the office the magnitude of the alleged cash loan transaction appearing in the seized document, not a single piece of incriminating material relating a cash loan transaction was recovered from the assessee during the search and seizure operation conducted on assessee. If the version of Mr. Jagdish T Ramani that the promissory note given by the borrower is delivered to the lender is to be taken on face value, then at least if not all few such promissory notes would have been recovered in course of search and seizure operation carried out in case of the assessee. It is quite improbable that such huge amount of cash loan transaction would not leave any trace ofincriminating material /evidence with the assessee. Thus, on cumulative analysis of facts and materials available on record, we are of the opinion that is no conclusive evidence was available with the A.O. to establish on record that the entries appearing in the seized material actually represent cash loan transaction of the assessee.
In view of the aforesaid, we have no hesitation in holding that the additions made on account of unexplained investment on account of alleged cash loan transaction and addition made on account of notional interest thereon being not based on cogent evidence, are unsustainable. Accordingly, we direct the A.O. to delete the additions in all the years under dispute.
In view our decision above, the legal grounds raised by the assessee have become academic, hence, do not require adjudication.