ITO 2 (2), THANE vs. M/S SPAN REALTORS , BHAYANDER

3 to 7465/MUM/2019 M/s. Span Venture & M/s. Span Realtors 4. During the assessment proceedings, Assessing Officer observed that assessee has raised unsecured loans from various parties in earlier years and in the current year also. Assessing Officer asked the assessee to prove the genuineness of the unsecured loans obtained from M/s. Alka Diamonds Industries Ltd., M/s. Duke Business Pvt. Ltd., M/s. Sumukh Commercial Pvt. Ltd., and M/s. Nakshatra business Pvt. Ltd., which belong to Pravin Jain group, from whom the assessee has taken loan aggregating to ₹.1,92,24,986/-. In response assessee vide letter dated 09.03.2016 furnished detailed submissions which are mentioned in Para No. 4 of the Assessment Order and submitted that the transactions are genuine. Assessee contended that all the transactions are made through banking channels, thus the transactions made are genuine.

6. Aggrieved assessee preferred an appeal before Ld.CIT(A). Ld.CIT(A) considering the evidences and various submissions of the assessee had deleted the addition made by the Assessing Officer observing that the nature and source of credit in the Books of Accounts of the assessee stands explained. Against this order revenue is in appeal before us.

2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition with regards to disallowance of the interest of Rs. 12,00,000/- paid on unsecured loans, to M/s Sarup Developers Pvt Ltd.

3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the additions of Rs.1,65,00,000/- made u/s 68 on account of unsecured loans raised from the shell entities of Praveen Jain Group without appreciating the statement of Shri Praveen Jain recorded on oath u/s 132(4) on 01.10.2014 during the course of search & seizure action conducted on his group. concerns wherein, he had admitted that he was indulged in providing accommodation entries of unsecured loans, bogus share application and bogus. purchases. 3.1 Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in granting above relief to the 5 to 7465/MUM/2019 M/s. Span Venture & M/s. Span Realtors assessee firm without appreciating the following conclusions of search action conducted by the investigation wing. Mumbai in the case of Praveen Jain Group. i) This group through a web of concerns run and operated by Shri Praveen Jain, in providing accommodation entries of unsecured loans, bogus share application and bogus purchases. ii) Books of account of all such shell companies of this group are under the control of Shri Praveen Kumar Jain. iii) All such concerns are not carrying out any genuine business. They don't have any physical stock of goods which they claimed to be dealing in. iv) There is no place from where any genuine business activity is being carried out.

5. The appellant craves leave to add, amend, alter or delete any ground of appeal.”

8. Ld.DR relied on the order of the Assessing Officer and submitted that Ld. CIT(A) has simply deleted the addition made by the Assessing Officer rather than adhering to the investigation/enquiries conducted by the Assessing Officer. Ld. DR prayed that the order of the Assessing Officer be restored.

6 to 7465/MUM/2019 M/s. Span Venture & M/s. Span Realtors computation of income, Balance Sheet of the creditors and also the affidavit of the Shri Praveen Kumar Jain retracting his statement earlier given in the course of the search before investigation authorities. Therefore, all these evidences prove that the loan transaction is genuine. Ld. Counsel for the assessee submits that the assessee has established the identity, genuineness and credit worthiness and the primary onus cast on the assessee has been discharged.

7 to 7465/MUM/2019 M/s. Span Venture & M/s. Span Realtors 12. Considered the rival submissions and material placed on record, we observed that similar issue was considered and adjudicated by the Coordinate Bench in assessee’s own case for the A.Y. 2012-13 and decided the issue in favour of the assessee. While holding so the Coordinate Bench held as under: -

“8. We have heard the rival submissions of both the parties and perused the material on record including the impugned order of the Ld. CIT(A). The undisputed facts are that during the year the assessee took unsecured loans from five parties out of which three parties were related to Shri Praveen Kumar Jain group whereas the other two parties were unrelated parties. During the course of assessment proceedings, the assessee filed the copies of confirmations from the lenders, their bank statements, ITRs, audited annual accounts etc. to prove the genuineness, creditworthiness of the transactions and identities of the parties and even the notices issued under section 133(6) were not responded by three parties namely M/s. Alka Diamonds, M/s. Duke Business Pvt. Ltd. and M/s. Sarup Developers Pvt. Ltd. whereas the notices were not served to two parties namely Shri Darshika R. More and M/s. Nakshatara Business Pvt. Ltd. The AO has rejected the contentions of the assessee in respect of three parties related to Shri Praveen Kumar Jain on the ground that Shri Praveen Kumar Jain admitted in the statement recorded under section 132(4) of the Act that these were entities were engaged in issuing accommodation entries only without doing any real business. Whereas in respect of other two, the AO treated them as non genuine on the ground that notices under section 133(6) were not replied or served. Whereas on the other hand we observe from the records before us that Ld. CIT(A) has given a finding of fact to this effect that the responses to the notices issued under section 133(6) were duly filed by these parties when the fact of non services/non reply was confronted to the assessee though the same were responded by these parties when assessee perused the matter with them. We also note that the the unsecured loans were repaid in the subsequent years. However, the AO has not conducted any further enquiry on the information filed by the assessee and these lenders in order to verify these transactions vis- à-vis informations furnished by the assessee or as received from the lender of the assessee. Moreover, in the statement recorded under section 132(4) of Shri Praveen Kumar Jain the said person nowhere named the assessee or claimed that the assessee is a beneficiary of these accommodation entries. Moreover the AO has relied on the statement of 8 to 7465/MUM/2019 M/s. Span Venture & M/s. Span Realtors Shri Praveen Kumar solely to make the addition which stood retracted by him. The decisions relied upon by the Ld. D.R. are carefully perused and we observe that the same are distinguishable facts and not applicable to the present case. We also find that that the Hon’ble Bombay High in the case of CIT Vs Gagandeep Infrastructure Pvt Ltd. (supra) has held that the proviso is applicable from AY 2013-14. Moreover the case of the assessee is clearly covered by the various decisions referred to by the ld AR. Under these facts and circumstances, we are of the view that the order passed by Ld. CIT(A) is very reasoned and speaking order and department has failed to bring on record anything contrary to findings of the ld CIT(A). Thus we do not find any infirmity in the order or ld CIT(A) to deviate from the conclusion reached by the appellate authority. Accordingly, we are inclined to uphold the order of Ld. CIT(A) by dismissing the appeal of the Revenue on this issue.

9. Since we have upheld the order of Ld. CIT(A) wherein the Ld. CIT(A) has deleted the addition of Rs.2,25,00,000/- in respect of unsecured loans, consequently the deletion of disallowance of interest paid on these unsecured loans of Rs. 13,57,807/- is also upheld and the ground of the revenue is also dismissed.”

17. We further find that the decision of the Apex Court in the case of Pr. CIT vs. NRA Iron & Steel Pvt. Ltd. (supra) is not applicable to the assessee as the facts are distinguishable in the case of Pr. CIT vs. NRA Iron & Steel Pvt. Ltd. (supra). The AO has issued notices under section 133(6) of the Act and the parties were non existent and did not reply whereas in the present case all these investors were existing and assessee has filed all the evidences proving the identities and creditworthiness of the investors and genuineness of the transactions but the AO did not make any further enquiries or investigations to find out the truth and relied upon the statements which stood retracted. Under these circumstances we are of the considered view that order of Ld. CIT(A) is correct and needs to be upheld. Accordingly, we dismiss the ground raised by the Revenue by upholding the order of Ld. CIT(A) on this issue.”

11 to 7465/MUM/2019 M/s. Span Venture & M/s. Span Realtors “6.10 We find that as per the mandate of section 68 of the Act, the nature and source of credit in the books of the assessee has been duly explained by the assessee. The credit is in the form of receipt of unsecured loan from loan creditors. The nature of receipt towards unsecured loan is well established from the entries passed in the balance sheet of the assessee by crediting unsecured loan account. This is also cross-verifiable from the balance sheets of respective loan creditor companies, wherein they had reflected under ‘Loans and Advances’ in the asset side of their balance sheet. Hence the nature of receipt is proved by the assessee beyond doubt. In respect of source of credit, the assessee has to prove the three necessary ingredients i.e identity of loan creditors, genuineness of transactions and creditworthiness of loan creditors. We have already held hereinabove that all the three necessary ingredients of section 68 of the Act had been duly proved by the assessee beyond doubt. 6.11. Undisputedly the loan creditors in this case are the bank account holders in their respective banks in their own name and are sole owner of the credits appearing in their bank account from where they issued cheques to the assessee. For the proposition that a Bank Account holder himself is the 'owner' of 'credits' appearing in his account (with the result that he himself is accountable to explain the source of such credits in whatever way and form, the same have emerged) support can be derived from section 4 of Bankers Book Evidence Act 1891 which reads as under:- “4. Mode of proof of entries in bankers' books: Subject to the provisions of this Act, a certified copy of any entry in a bankers' book shall in all legal proceedings be received as prima facie evidence of the existence of such entry, and shall be admitted as evidence of the matters, transactions and accounts therein recorded in every cases where, and to the same extent as, the original entry itself is now by law admissible, but not further or otherwise.” 6.11. Following the said provisions, the co-ordinate bench of Allahabad Tribunal in the case of Anand Prakash Agarwal reported in 6 DTR (AllTrib) 191 held as under:- “The question that remains to be decided now is whether the subject matter of transfer was the asset belonging to the transferor/donors themselves. There is enough material on 12 to 7465/MUM/2019 M/s. Span Venture & M/s. Span Realtors record which goes to show that there were various credits in the bank accounts of the donors, prior to the transaction of gifts, which undisputedly belonging to the respective donors themselves, in their own rights. No part of the credits in the said bank' accounts was generated from the appellant and/or from its associates, in any manner. The certificates issued by the banks are construable as evidence about the ownership of the transferors or their respective bank accounts, as per s.4 of the Bankers' Books evidence Act 1891, which read as under: "4. Where an extract of account was duly signed by the agent of the bank and implicit in its was a certificate that it was a true copy of an entry contained in one of the ordinary books of the bank and was made in the usual and ordinary course of business and that such book was in the custody of the bank, it was held admissible in evidence. Radheshyam v. Safiyabai Ibrahim AIR 1988 Bom. 361: 1987 Mah. 725: 1987 Bank J 552.” In view of the position of law as discussed above, it is always open for a borrower to contend, that even the “creditworthiness” of the lender stands proved to the extent of credits appearing in his Bank Account and he should be held to be successful in this contention.” 6.12. We find that the Hon’ble Calcutta High Court in the case of S.K. Bothra & Sons, HUF v. Income-tax Officer, Ward- 46(3), Kolkata reported in 347 ITR 347(Cal) had held as follows: “15. It is now a settled law that while considering the question whether the alleged loan taken by the assessee was a genuine transaction, the initial onus is always upon the assessee and if no explanation is given or the explanation given by the appellant is not satisfactory, the Assessing Officer can disbelieve the alleged transaction of loan. But the law is equally settled that if the initial burden is discharged by the assessee by producing sufficient materials in support of the loan transaction, the onus shifts upon the Assessing Officer and after verification, he can call for further explanation from the assessee and in the process, the onus may again shift from the Assessing Officer to assessee.

13 to 7465/MUM/2019 M/s. Span Venture & M/s. Span Realtors 16. In the case before us, the appellant by producing the loanconfirmation-certificates signed by the creditors, disclosing their permanent account numbers and address and further indicating that the loan was taken by account payee cheques, no doubt, prima facie, discharged the initial burden and those materials disclosed by the assessee prompted the Assessing Officer to enquire through the Inspector to verify the statements.” 6.13. We find that the Hon’ble Supreme Court in the case of M/s Earthmetal Electricals P Ltd vs CIT & Anr. reported in 2010 (7) TMI 1137 in Civil Appeal No. 21073 / 2009 dated 30.7.2010 arising from the order of Hon’ble Bombay High Court had held as under:- ORDER Delay condoned. Leave granted. Heard learned counsel on both sides. We have examined the position. We find that the shareholders are genuine parties. They are not bogus and fictitious. Therefore, the impugned order is set aside. The appeal is allowed accordingly. No order as to costs. In the instant case before us, the loan creditors are private limited companies and are duly assessed to income tax. It is not in dispute that the loan creditors are in existence. It is not in dispute that the loan creditors are duly assessed to income tax and their income tax particulars together with the copies of respective income tax returns with their balance sheets are already on record . Hence it could be safely concluded that they are genuine lenders and not bogus and fictitious. Accordingly, the ratio laid down by the Hon’ble Apex Court in the case of M/s Earthmetal Electricals P Ltd supra would be squarely applicable to the facts of the instant case. 6.14. We find that the Hon’ble Apex Court recently in the case of Principal CIT vs Vaishnodevi Refoils & Solvex reported in (2018) 96 taxmann.com 469 (SC) had dismissed the SLP of the Revenue. The 14 to 7465/MUM/2019 M/s. Span Venture & M/s. Span Realtors brief facts were that the addition u/s 68 of the Act was made by the Assessing Officer in respect of capital contributed by the partner of the firm. The Hon’ble High Court noted that when the concerned partner had confirmed before the Assessing Officer about his fact of making capital contribution in the firm and that the said investment is also reflected in his individual books of accounts, then no addition could be made u/s 68 of the Act. The decision of Hon’ble Gujarat High Court is reported in (2018) 89 taxmann.com 80 (Guj HC) . The SLP of the revenue against this judgement was dismissed by the Hon’ble Supreme Court. 6.15. We also find that the Hon’ble Jurisdictional High Court in the case of CIT vs Orchid Industries Pvt Ltd reported in 397 ITR 136 (Bom) had held as under:- 5. The Assessing Officer added Rs. 95 lakhs as income under Section 68 of the Income Tax Act only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account.

15 to 7465/MUM/2019 M/s. Span Venture & M/s. Span Realtors 6.16. In view of the aforesaid observations in the facts and circumstances of the case and respectfully following the various judicial precedents relied upon hereinabove including the decisions of Hon’ble Jurisdictional High Court among other High Courts, we hold that the ld CITA erred in confirming the addition made u/s 68 of the Act in the instant case. Accordingly, the ground nos. 6 & 7 raised by the assessee for Asst Year 2013-14 are allowed.”

16 to 7465/MUM/2019 M/s. Span Venture & M/s. Span Realtors The loans were repaid after paying interest and deducting TDS. The Assessing Officer ignored the documentary evidences submitted by the assessee and has exclusively relied on statements of third party in making the addition. In spite of request by the assessee the Assessing Officer did not provide any cross-examination of the parties who have made the submissions. All these aspects have been considered by the Ld.CIT(A) and deleted the addition observing as under: “4.2.2. In the instant case, however, as seen from the details filed before the AO, a set of which were also filed before me, I do not find any inconsistency or incoherence in the receipt of loans from the parties. Firstly, as regards the transaction, the same has rooted through the banking channels and the source cannot be doubted. Secondly, as was held in several cases that whatever maybe the strength of presumption it cannot replace evidence. Even though, the transaction is from a tainted group, the AO has not gathered any additional/independent evidence to show that the transaction with the appellant company was sham, fictitious or artificial except believing the statements given by the entry operators. He has failed to gather evidence to show that the unaccounted cash of the appellant had changed hands subsequently replacing the cheque payments. Thirdly, he has also not answered several valid points raised by the appellant nor proved how the details like PAN, the IT returns, confirmation letters, bank statements of the creditors, audited balance sheet of the creditors cannot be taken note of. Fourthly, the ITAT Mumbai in the case of Anant Shelters P Ltd. (2012) 20 taxmann.com 153 has laid down certain principles with regard to section 68 which the AO is bound to follow. They are reproduced as under(para-7)- (i) Section 68 can be invoked when following three conditions are satisfied - (a) when there is credit of amounts in the books maintained by the assessee (b) such credit has to be a sum of money during the previous year (c) either the assessee offers no explanation about the nature and source of such credits found in the books or the explanation offered by the assessee, in the opinion of the AO, is not satisfactory. It is only then that the sum so credited may be charged to income-tax as the income of the assessee of that previous year.

17 to 7465/MUM/2019 M/s. Span Venture & M/s. Span Realtors (ii) The expression the assessee offers no explanation means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the AO for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on the record. The opinion of the AO is required to be formed objectively with reference to the material on record file. Once the explanation of the assessee is found unbelievable or false the AO is not required to bring positive evidence on record to treat amount in question as income of the assessee. While considering the explanation of the assessee, the AO has to act reasonably-application of mind is the sine qua non for forming the opinion. (iii) Phrase appearing in the section - nature and sources of such credits - should be understood in right perspective, so that genuineness of the transaction can be decided on merits and not on prejudices. Courts are of the firm view that the evidence produced by the assessee cannot be brushed aside in a causal manner. Assessee cannot be asked to prove impossible. Explanation about 'source of source' or 'origins of the origin' cannot and should not be called for while making inquiry under section. (iv) In the matters related to section 68 burden of proof cannot be discharged to the hilt -such matters are decided on the particular facts of the case as well as on the basis of preponderance of probabilities. Credibility of the explanation, not the materiality of evidences, is the basis for deciding the cases falling under Section 68. (v) Confirmatory letters or A/c payee cheques do not prove that the amount in question is properly explained for the purpose of section 68. Assessee has to establish identity and creditworthiness of the creditor as well as the genuineness of the transaction. All the three ingredients are cumulative and not exclusive. (vi) In matters regarding cash credit the onus of proof is not a static one. As per the provisions of the section the initial burden of proof lies on the assessee. Amount appearing in the books of a/cs. Of the assessee is considered a proof against him. He can prove the identity of the creditors by either furnishing their PANs or assessment orders. Similarly, genuineness of the transaction can be proved by showing that 18 to 7465/MUM/2019 M/s. Span Venture & M/s. Span Realtors the money was received by an account payee cheque or by draft. Credit worthiness of the lender can be established by attending circumstances. Once the assessee produces evidences about identity, genuineness and credit worthiness of the lender onus of proof shifts to the Revenue. Fifthly, the Honorable Supreme Court in the case of Lovely Exports Private Limited, (2008) 216 CTR 195 (SC), has stated that the AO is at liberty to bring to tax the amounts in their respective hands of the creditors if their identity, genuineness and creditworthiness is not proved. The AO should have made efforts to assess the amounts in the hands of the creditors at least on protective basis. Lastly, even if the creditworthiness of the creditors is not proved it will not automatically give license to the AO to make additions in the hands of the assessee u/s 68 unless it is proved that it is the unexplained money of the assessee which has been introduced in its books of account in the names of bogus/non-existent entities. In the instant case the AO has not made any dent in these lines. On the other hand, the appellant has filed the following details in the case of all the three creditors to prove the identity, genuineness and creditworthiness of the creditors. 1) Confirmation of A/c. by the parties. 2) Income tax returns of the parties for A.Y.2012-13. 3) Bank Statements of the parties showing the loan transactions. 4) Audited Balance sheet & P & L A/c of the creditors along with the schedule wherein credit in the name of the assessee is outstanding in their books. 5) Reply given by the parties to the notice issued by the AO u/s 133(6) confirming the transaction with the assessee. 6) Payment of interest to creditors after subjecting the amount to IDS. 4.2.3 As seen from the above, the appellant has furnished all the details proving conclusively the three ingredients of identity and creditworthiness of the creditors and the genuineness of the transaction. The amounts were paid by the creditors from their running bank accounts which were accounted in the books of the 19 to 7465/MUM/2019 M/s. Span Venture & M/s. Span Realtors appellant as well as the creditors as seen from the audited accounts filed. The transactions were also confirmed by all the creditors who are assessed to tax. Further, the appellant has paid interest through banks to the creditors by duly subjecting the interest amount to TDS as detailed in this order at para 5.2. I find that the AO was in possession of good information in the form of investigation report, to begin with, but he could neither succeed to repudiate the evidences filed by the appellant nor he could gather independent evidence even to establish the surrounding circumstances not to speak of leading evidence to prove his hypothesis. In view of the above discussion I hold that the loan taken by the appellant from the above three parties cannot be doubted and the addition made by the AO u/s 68 of the Act cannot survive the test of appeal. I therefore, direct the AO to withdraw the addition. The ground is allowed.

5. The second issue is with regard to addition of Rs.8,32,607/- on account of interest expenses u/s 69C of the Act. The AO has noticed payment of interest to the creditors from whom loan was taken. As the credits were disbelieved by the AO since the credits were given by the bogus concerns floated by Banwarlal Group who are the only entry operators, the AO has also disallowed interest claimed to have been paid to these creditors u/s 69C of the Act. 5.1 The appellant has objected for the disallowance of interest truly been paid to the creditors from whom loans were taken. He has further submitted that the payments were made through banking channel after making TDS applicable. 5.2 I have carefully considered the facts and submissions of the Id.AR. As seen from the details the appellant has borrowed money from four parties and paid interest after making TDS as under: - Net Interest IDS interest Name of the lenders. Capital borrowed. accrued. made paid to lender. Meenakshi Diamonds Pvt.Ltd. 40 lacs 7,24,657 72,466 6,52,191 Roshan Gems Pvt.Ltd. 25 lacs 12,705 1,270 11 ,435 Abhiman Gems Pvt.Ltd. 75 lacs 35,245 3,525 31,720 Madhur Gems Pvt.Ltd. 75 lacs cl.bal. (Outstanding 60,000 6,000 54,000 amount-no borrowing during the year.) Total 8,32,607/- 20 to 7465/MUM/2019 M/s. Span Venture & M/s. Span Realtors Since the loan given by the above parties were treated as genuine, in this order earlier paragraphs, the interest paid to those parties is also treated as genuine. Accordingly, the interest paid is allowed as expenditure and AO is directed to withdraw the addition made u/s 69C of the Act. The ground is allowed.”

9. On a careful reading of the order of the Ld.CIT(A), we do not find any infirmity in the order passed in deleting the addition made u/s. 68 of the Act and the consequential interest on the credits. Thus, we sustain the order of the Ld.CIT(A) and reject the grounds raised by the Revenue.”

Order pronounced in the open court on 15th July, 2022.