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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC” MUMBAI
Before: SHRI M. BALAGANESH & SHRI PAVAN KUMAR GADALE
Tax National Faceless Appeal Centre (NFAC), Delhi passed order u/s 143(3) and 250 of the Income Tax Act, 1961 (in short ‘the Act’). Since the issues in these appeals are common and identical, hence are clubbed, heard and consolidated order is passed.
For the sake of convenience, we shall take up appeal in for A.Y 2011-12 as a lead case and facts narrated. The assessee has raised following grounds of appeal:
1. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming validity of issue of notice u/s 148 of the Income Tax Act, 1961.
2. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming addition of Rs.10,00,000/- u/s 68 of the Act. 3. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming disallowance of interest expenses of Rs.87,354/- on genuine loan of Rs.10,00,000/- even without pointing out under which section addition was made.
The Brief facts of the case are that, the assessee is a partner in firms which are engaged in the business of trading and resale industrial diamonds after assortment and mixing. The assessee
3 Jagruti Hitesh Mehta to 67/Mum/2022 has filed the return of income for the assessment year 2011-12 disclosing a total income of Rs.3,32,808/-. The Assessing Officer (A.O) has received information that the assessee has obtained the unsecured loan of Rs.10,00,000/- from M/s Maniprabha Pvt. Ltd and recorded the reasons for reopening of Assesseement at page 2 of the order as under:
"The Deputy Commissioner of Income tax, Central Circl2-4, Surat vide letter dated 26.11.2015 has forwarded the information in respect of bogus sales, unsecured loans and accommodation entries by Rajendra Jain group, Sanjay Chaudhary group and Dharmichand jain group alongwith a list of beneficiaries of such accommodation entries.
A search and seizure action was carried out on Mumbai based non genuine concerns on 3.10.2013. Rajendra Jain group, Sanjay Chaudhary group and Dharmichand jain group are leading entry providers of Mumbai. These groups provide accommodation entries through various benanti concerns.
On perusal of the list, it is noticed that the assesse has taken bogus unsecured loan of Rs.10,00,000/- during F.Y. 2013-14 from M/s Maniprabha Impex Pot.Ltd,, a Rajendra Jain group concern. During re-assessment proceedings of Ay. 2014-15 of the assessee, it is found that the assessee has taken loan of Rs.10,00,000/- from M/s Maniprabha Impex P.ltd. During F.Y. 2010-11 and has also claimed interest of Rs.87,534/- as paid/payable on the said loan during F.Y. 2010-11. The assessee ought to have suo moto
4 Jagruti Hitesh Mehta to 67/Mum/2022 offered the said loan amount and interest on the above said transactions for taxation. The issue was also not examined by the Assessing Officer earlier for the relevant assessment year. Therefore, the assessee has failed to disclose fully and truly all material facts relevant to the assessment year under consideration.
In view of the above facts and circumstances, I have reasons to believe that the assessee has not disclosed fully and truly all material facts necessary for his assessment and R.10,87,534/- which was income chargeable to tax has escaped assessment within the meaning of section 147 of the I.T. Act, 1961."
2.1. Subsequently the A.O. has issued the notice u/s 148 of the Act and in compliance the assessee has filed letter dated 27.09.2017 to treat the return of income originally filed on 31.07.2011 as a due compliance. Further, the reasons recorded for reopening was provided to the assessee and the objections were filed. The Assessing Officer has issued notice u/s 143(2) and 142(1) of the Act along with questionnaire. The assessee has filed the details vide letter dated 27.09.2017 referred at page 3 Para 5 of the assessment order as under:
The representative of the assesssee vide their letter dated 27.9.2017 submitted as "a. The assessee has taken a loan from M/s Maniprabha Impex Pvt. Ltd. (MIPL) Rs.10,00.000/- on 20.4.2010 via RTGS
5 Jagruti Hitesh Mehta to 67/Mum/2022 b. Copy of assessee's bank statement of Corporation Bank is attached highlighting the receipt of loan amount via RTGS and the interest payment of Rs.87,534/- vide cheque. c. A confirmation of accounts duly signed by MIPL is attached. d. From the above it is evident that the loan taken from MIPL is genuine as the identity of the loan creditor vide the account confirmation by the loan creditor.
Its capacity to the loan is justified vis a vis the use of banking channels for taking the loan via RTGS.
We therefore request you to kindly allot the claims of the interest by the assessee on the said loan of Maniprabha Impex P. Ltd. and consider the loan as genuine"
2.2 Whereas the Assessing Officer to test the genuineness of the loan transaction has issued notice u/s 133(6) of the Act on the loan creditor M/s Maniprabha Pvt. Ltd and the said notice returned un-served by the postal authorities with the remarks ‘left’. Therefore, the Assessing Officer has issued show cause notice dated 27.09.2017 on the assessee to consider the loan transaction as sham and disallowance of interest on unsecured loan claimed by the assessee in the books of account. In reply to show cause notice, the assessee has filed reply dated 06.12.2017 referred at page 4 Para 8 of the order as under :
6 Jagruti Hitesh Mehta to 67/Mum/2022 “8. The assessee vide her reply dated 6.12.2017 stated as under:
"Our client denies that she obtained a bogus loan entry from M/s maniprabha Impex P. Ltd in view of several supporting proofs including bank statements, confirmation of the lender, payment of interest by cheques, the mode of receipt being RTS etc filed with our dated 27.9.2017.
2. During the assessment proceedings no proof was made available showing that the loan is by way of bogus entry.
3. Merely because M/s Maniprabha Impex P.Itd might have given accommodation entries to some parties does not by itself mean that all their transactions with our client are also in the nature of accommodation entries.
4. There is no proof available that the assessee returned back cash against credit for the loan RTGS deposits in her account or that the interest cheques were squared out by receipt of cash by our client.
5. The nature of business by third party in absence of any cogent evidence cannot be conclusive in respect of transactions of an assessee with that party.
6. If any proof is available to conclusively establish that the transaction with the assessee is bogus you are requested to provide the same to the asessee for verification.
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7. Before concluding that the loan is bogus inspite of several evidences to show that it is genuine, the assessee should get an opportunity to see the evidence and have cross examination of the parties concerned.
8. We therefore request you to accept the submission of the assessee and finalize the assessment which does not call for addition of the loan amount or interest thereon claimed by the assessee.”
2.3 The assessee has submitted the details i.e confirmation of lender, bank account of statement and financial statements etc to substantiate genuineness, identity and creditworthiness of the loan creditor. Further, the assessee has paid interest on loan to the lender and was confirmed by the parties. But the AO was not satisfied with the information and explanations and notice u/sec133(6) of the Act was un served on the loan creditor and observed that the assessee has not satisfied the ingredients required u/s 68 of the Act and made addition of Rs.10,00,000/- as unexplained cash credit and also disallowed interest on unsecured loan claimed of Rs.87,534/- and assessed the total income of Rs.14,20,340/- and passed the order u/s 143(3) r.w.s. 147 of the Act dated 19.12.2017.
3. Aggrieved by the order, the assessee has filed an appeal before the Ld. CIT(A). The Ld. CIT(A) has considered grounds of appeal, findings of scrutiny assessment, and the assessee has filed the 8 Jagruti Hitesh Mehta to 67/Mum/2022 submissions on unsecured loans and interest referred at page 7 Para 4.II of the order read as under :
“II. Re: Ground - II: Objection against addition of Unsecured Loan as unexplained cash credit us 68~ Rs.10,00,000/-
1. The Ld. AO had confirmed at point No.9.7 on page 5 of impugned AO that the has received Loan Confirmation, copy of ITR, PAN, Bank Passbook etc. These evidences are sufficient to establish identity, creditworthiness and genuineness of transaction of Loan.
2. The assessee has filed all the details necessary in respect of this loan obtained from the party. The Loan interest has been paid through account payee cheques, confirmations from the creditor containing name, address, PAN details, date of receipt of the loan, mode of payment by the loan creditor has been furnished, IT of the creditor, ledger copy the creditors, bank statements of the creditor, acknowledgement of return were furnished and attached herewith as Annexure
We submit that the assessee has proved the identity of the party by furnishing loan confirmations with name, address, PAN and also acknowledgment of filing the return of Income, bank statement of party for the relevant year. The assessee has filed bank statements of lender evidencing payments. The Loan confirmation shows credit of interest of Rs.87,534/- duly confirmed by the lender
9 Jagruti Hitesh Mehta to 67/Mum/2022 party. This along with ITR also establishes the existence of the party proving it's identity.
We also submit that the assessee has proved the genuineness of the transactions of interest from the lender by furnishing bank statements of lender evidencing payment of interest by the assessee. The lender has given loan by RTGS and they are reflected in their audited books of account for which they have filed their respective returns ofincome. Copy of Bank statements of the appellant as well as of lender party are attached herewith as Annexure 4.
Therefore, we submit that the assessee has established the identity, genuineness and creditworthiness of the creditor and primary onus cast on the assessee has been discharged. Section 68requires the assessee to offer explanation as to nature & source of credit which is done DV establishing identity, genuineness and creditworthiness of the creditor.
The LAO has not established any CASH TRAIL before drawing conclusion that the Loan is bogus. When transaction is through RTGS and copy of passbook is presented, no adverse conclusion can bedrawn without establishing any cash trail.
It is further submitted that the Assessing Officer disregarded all the evidences and proofs furnished by the assessee and no further enquiries have been made to disprove the evidences furnished by assessee. Mere
10 Jagruti Hitesh Mehta to 67/Mum/2022 general report of investigation wing on third party without making any further specific inquiry cannot be the base for terming explanation of any transaction as "not satisfactory".
RETRACTED STATMENTS The alleged so called suspicious concern director Mr. Dharmichand Jain has retracted the statements recorded by DIT (Inv.) after the conclusion of search action at their premises and filed with it along with 2Affidavits with Income Tax Office on 23.01.2015 (copy attached herewith as Annexure 5). In the retracted statements filed with the income tax authorities, the concerned director has denied all alleged charges and wrongdoing referred in their statements. In the affidavit dated20.01.2014 at point no.16 and in Affidavit dated 10.10.2013 at point no. 13, the said director has categorically mentioned that....
"I am not indulged in any kind of malpractices such as conduit for others, providing accommodation etc. I never provided accommodation entries of Loans or advances. All the Loans or Advances given by us are genuine and given out of the business proceeds during the course of business.
Therefore we submit that additions of Loans made in the appellant's case based on reported statements of DGIT (Inv.) which are retracted by the concerned parties cannot be sustained as has been held in various judicial rulings.
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Our above submissions gets support from following Judicial Decisions.
RELEVANT JUDICIAL DECISIONS:
The Hon'ble Supreme Court in the case of CIT v. Orissa Corporation Pvt. Ltd. (159 ITR 78) held that the assessee is required to prove (i) identity of the lender/party, (i) the genuineness of the transactions and (in) the credit worthiness of the lender/party. It is the case of the assessee that where the identity of the parties and their capacity is established, the initial burden which lies upon the Assessee can be said to have been discharged by the assessee. It will not, thereafter, be for the assessee to explain further how or in what circumstances the third party obtained money and how or why he came to make a deposit of the same with the assessee. The burden will then shift on to the A.O. to show why the assessee's case cannot be accepted and why it must be held that the entry, though purporting to be in the name of a third party, still represents the income of the assessee from a suppressed source. In order to arrive at such a conclusion, the A.O. has to be in possession of sufficient and adequate material. In this respect, the assessee relies on the decision of the Bombay High Court in the case of Orient Trading Co. Ltd, vs. CIT (49 TR 723) and the decision of the Patna High Court in the case of Sarai Credit Corporation vs. CIT (103 ITR 344).
11. The Ld. AO has failed to bring out how, in spite identity, creditworthiness and genuineness of transactions
12 Jagruti Hitesh Mehta to 67/Mum/2022 proved by the assessee as above how the transaction remained unexplained or bogus as alleged.
The assessee would also like to place reliance on following Judicial pronouncements which supports contention that once loan confirmations, ITR copies & both parties passbook entries are submitted, they are sufficient proof to prove genuineness of transaction.
1) ACIT v. Shri Joitkumar B. jain, Mumbai ITAT / dated 05.04.2019 - " In view of the evidences furnished by the assessee, we are of the view that the assessee has discharged his onus of proving the identity, genuineness and creditworthiness of the creditors and fulfilled the requirement of ingredients of section 68 of the Act. Thus, the addition made us. 68 of the Act without any enquiry is liable to be deleted" i. Relief sought In view of above facts and submissions and legal provisions supported by stated judicial decisions, we humbly request your Honor to grant following Relief:
Delete the additions made on account of unsecured Loan of Rs.10.00.000/-.
2. Delete the disallowance of interest of Rs.87534/-
3. Any other relief as your Honor may deem fit.”
3.1. Finally, The Ld. CIT(A) was not satisfied with the material information and has upheld the validity of assessment and 13 Jagruti Hitesh Mehta to 67/Mum/2022 affirmed the action of A.O. and sustained the addition of unsecured loan and interest and dismissed the assessee appeal. Aggrieved by the CIT(A) order, the assessee has filed an appeal with the Honble Tribunal.
4. At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in confirming the addition u/s 68 of the Act irrespective of the fact that the assessee has filed the details in respect of the loans and submitted the confirmation of the loan creditors along with other details. Further, the Ld. AR submitted that the assessee maintains the regular books of accounts and has obtained unsecured loan from genuine creditor. Whereas, the contentions raised by the assessee before the appellate authority that the confirmation of loan, bank statement of both the assessee and loan creditor, audited financial statements are filed to substantiate the genuineness, identity and creditworthiness of the loan creditor. Further, the assessee has paid interest to loan creditor and was confirmed by the parties. The Ld.AR supported the submissions on the disputed issues with the details and judicial decisions and prayed for allowing the appeal. Contra, the Ld. DR supported the order of the CIT(A).
5. We have heard the rival submissions and perused the material on record. The Ld. AR submitted that the Ld. CIT(A) erred in sustaining the addition u/s 68 of the Act in respect
14 Jagruti Hitesh Mehta to 67/Mum/2022 of unsecured loan and interest on loan. We find that before the Assessing Officer, the assessee has submitted information in respect of unsecured loan creditor and the A.O. has issued notice u/s 133(6) of the Act. On perusal of the assessment order, the assessee has submitted the documentary evidences but the A.O has over looked the vital documents in respect of the source filed by the assessee. The assessee has submitted the written submissions before the CIT(A) and the confirmation of loan creditor, PAN, Bank account details and the Income Tax return. We find the Ld. CIT(A) has dealt on the submissions of the assessee supporting the loan creditor with confirmation ledger, PAN, Bank Statement of loan creditor. We find that the assessee has to satisfy the 3 ingredients with respect to identity, creditworthiness and genuineness of the transaction. The CIT(A) has discussed on the provisions of the Act and Prima- facie the CIT(A) has not accepted the identity, credit worthiness and the genuineness of the transactions. We are of the opinion that the assessee has discharged the burden of proof in filling the documents before the A.O and the CIT(A). But the A.O has taken the different view and over looked the explanations of the assessee. The Ld.AR has relied on the judicial decisions as under: 1. CIT Vs. Lovely Exports P Ltd, 216 ITR 196 (SC) 2. CIT Vs. Divine Leasing and Finance Ltd, 158 Taxman 440 (Del) 3. Hindustan Inks & Resin Ltd Vs. DCIT, 60 DTR/8 (Guj)
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4. DCIT Vs. GP International Ltd 325 ITR 25 (P&H) 5. PCIT Vs. Adamine Construction Pvt ltd (2018) 99 taxmann.com 44 (Del) 6. PCIT Vs. Hitech Residency P Ltd, (2018), 96 Taxmann.com 402/257 Taxmann 390 (Del).
6. Accordingly, we set-aside the order of the CIT(A) and direct the Assessing officer to delete the addition of unsecured loan and allow this ground of appeal
in favour of the assessee.
7. On the second disputed issue, the A.O has disallowed the interest on unsecured loan. Since we have directed the A.O to delete the addition of unsecured loans in the abovePara-6, therefore the interest on the unsecured loan has to be allowed. Accordingly, we direct the A.O to delete the addition and allow the interest claim of the assessee on the unsecured loan creditor.
8. Since we have decided on the merits of the case, the grounds of appeal with respect to validity of re-assessment proceedings raised by the assessee becomes academic and are left open.
9. In the result, the appeal filed by the assessee is allowed. for AY 2012-13,ITA 66/MUM/2022 for AY 2013-14 &ITA 67/MUM/2022 for AY 2014-15.
10. As the facts and circumstances in these appeals are identical to ITA No.64/Mum/2022 on the disputed issue of 16 Jagruti Hitesh Mehta to 67/Mum/2022 interest on unsecured loan (except variance in figures) and the decision rendered in above paragraphs will apply mutatis mutandis to these appeals also. Accordingly, the grounds of appeal are allowed in favour of the assessee.
In the result, all the four appeals filed by the assessee are allowed.
Order pronounced in the open Court on 30/05/2022.