JT. CIT (OSD),CC -6 (3), MUMBAI vs. ADVENT DEVELOPER PVT. LTD., MUMBAI

This Appeal filed by the revenue challenges the impugned order dated 23.02.2018 passed by Ld. Commissioner of Income Tax (Appeals) – 54, Mumbai in short referred as „Ld. CIT(A)‟ in M/s Advent Developers Pvt. Ltd. deleting the additions made u/s 68 of Income Tax Act, 1961 (in short „I.T. Act‟) by not considering the fact that the lender was not creditworthy and that was only an accommodation entry provider. The grounds of appeal pertain to the AY 2010-11 in the present appeal are as follows:-

The Ld. DR Ms. Shailja Rai appearing for the revenue vehemently argued elaborating three aspects namely i) The nature of banking transaction, ii) The directors of the company and iii) The registered office of the said companies. The Ld. DR pointed out that there was always a deposit before most of the withdrawal without maintaining sufficient balance and directors of some of the company were also directors of other companies. The Ld. DR also stated that the registered office address of M/s Kush Hindustan Entertainment Ltd. and M/s Triangular Infocom Pvt. Ltd. were the same, but was intentionally given a different address only to camouflage that they were accommodation providers. The Ld. DR relied on various decisions of the Hon‟ble Supreme Court and the Tribunal on the issue of failure to render opportunity for cross examining the witnesses and on the issue of sustaining the addition on the basis of the banking transaction.

On the other hand, Ld. AR Shri Vishwas Mehendale contended that these were inter corporate deposits and there arises no necessity to know each and every lender who had given the unsecured loans. The Ld. AR also stated that the assessee had discharged his onus by providing the name, address, PAN, bank M/s Advent Developers Pvt. Ltd. statement of lender as well as the assessee firm in which amount has been credited, audit balance sheet and P & L Account alongwith audit report and all the annexures of lenders for the year under consideration, thereby establishing the identity, creditworthiness and genuineness of the transaction. The Ld. AR relied on a plethora of judgments to substantiate his claim.

We have given our careful consideration to the rival contentions and materials placed on record before us. The decisions relied upon by both the sides have also been considered. The only substantial issue that requires to be adjudicated is whether the unsecured loans availed from the alleged five companies is a genuine transaction or merely bogus accommodation entry. It is evident from the record submitted by the assessee that there was loan transactions where the assessee has borrowed unsecured loan from multiple lenders apart from the five alleged companies. The assessee had also submitted the details pertaining to the confirmation letter from the lenders alongwith with the name, address, PAN of the lender, bank statement of the both lenders as well as assessee, IT return of the lenders, audited balance sheet and P & L account alongwith audit report and all annexure of the lenders. We infer that the assessee has complied with the initial legal obligation enumerated in the provision of section 68 of the IT Act which requires that the assessee has to establish cogent evidence with regard to the identity and capacity /creditworthiness of the creditors and genuineness of transaction. It is then that the onus swifts to the M/s Advent Developers Pvt. Ltd. AO who must conduct an inquiry and if required, may even call for more detail. In exercise of the powers conferred by section 68 of the IT Act, the AO should have conducted a field enquiry and investigated into the creditworthiness of the lenders. The AO ought to have verified the nature of business activities that are carried out by these alleged companies. It is prerequisite that the AO, to his satisfaction should have perused the documents before invoking the provision of section 68 of the IT Act. In the present appeal, the AO has inherently failed to conduct such enquiry and has rather placed reliance only on the statement of Shri Praveen Kumar Jain recorded during the search proceeding and was later retracted by him. The Hon‟ble Supreme Court in the case of PCIT Central-1 Vs. NRA Iron & Steel (P) Ltd, reported in [2019] 103 taxman.com 48 (SC), after referring to the earlier decision of Hon‟ble Supreme Court in the case of Kale Khan Mohammad Hanif Vs. CIT (1963) 50 ITR 1 (SC) and Roshan Di Hatti Vs. CIT (1977) 107 ITR 938(SC), though decided in favour of the revenue, it is pertinent to consider the principles laid down in the said decision that “The onus of proving the source of a sum of money found to have been received by the assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of transaction and creditworthiness, then the AO must conduct an inquiry and call for more details before invoking section 68 of the Act. If the assessee is not able to provide a satisfactory explanation of the nature and source of the investments made, it is open to the revenue to hold that it is the income of the assessee and there M/s Advent Developers Pvt. Ltd. would be no further burden on the revenue to show that the income is from any particular source [para 8.2].” This principle has been reiterated in NRA Iron & Steel (supra) that the “AO is duty bound to investigate the creditworthiness of the creditor/subscriber, verify the identity of the subscriber and ascertain whether the transaction is genuine or these are bogus entries of name-lenders. „If the inquiry and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by section 68 of the IT Act.‟

In the instant case, the AO had failed to conduct detailed enquiry to contradict the evidence produced by the assessee. Although the burden of proof cannot be discharged to the hilt, the AO merely relied on general inference drawn from the statement of Shri Praveen Kumar Jain and nothing more than that. The AO has thus failed to disprove the bonafides of the assessee. The Ld. CIT(A) having plenary, co-terminus & co-extensive powers with that of AO in curing /rectifying the technical and legal defects of the assessing authorities have also failed to do so. Though the decision cited by the Ld. DR in I.C.D.S. Vs. Commissioner of Income Tax [2020] 117 taxmann.com 723 (SC) and Welspun India Ltd. Vs. Dy. CIT, CC-22 [2019] 104 taxmann.com 267 (Mum-Trib) with regard to the right of the assessee to cross examine the witnesses, the facts present in this appeal will not M/s Advent Developers Pvt. Ltd. hold good for the above mentioned decision. We are of the considered view that the statement of Shri Praveen Kumar Jain which vindicated the assessee was later retracted by him. Not given an opportunity to cross examine such hostile witnesses does not tantamount to violation of principles of natural justice. Though the Ld. CIT-DR vehemently contested that the transactions were not genuine, we are of the considered opinion that the documentary evidence produced by the assessee cannot be discredited merely on the basis of surmises and conjectures. Resultantly, we decline to interfere with the findings of the Ld. CIT(A).