DCIT, JAIPUR vs. SHRI PRATEEK KOTHARI, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh dqy Hkkjr] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 552/JP/2017 fu/kZkj.k o"kZ@Assessment Year : 2013-14 cuke Dy. Commissioner of Shri Prateek Kothari Vs. H-12, Sukh Jeevan, Jacob Income-tax, Road, Circle-2, Jaipur Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN No.: ABIPK8090R vihykFkhZ@Appellant izR;FkhZ@Respondent

jktLo dh vksj ls@Revenue by : Prithviraj Meena (Addl. CIT) fu/kZkfjrh dh vksj ls@Assessee by : Shri Vijay Goyal (CA) lquokbZ dh rkjh[k@Date of Hearing : 18/10/2017 ?kks"k.kk dh rkjh[k@Date of Pronouncement: 10/11/2017. vkns'k@ORDER

PER:SHRI VIKRAM SINGH YADAV, A.M.

This is an appeal filed by the Revenue against the order of Ld. CIT(A)- 04, Jaipur dated 28.04.2017 wherein the Revenue has taken following grounds of appeal: “1. Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in deleting the trading addition of Rs. 1,00,00,000/- on account of unexplained loans taken by the assessee from M/s Ankita Exports which is a benami/paper company of Shri Bhanwar Lal Jain ignoring the admission of Sh. Bhanwar Lal Jain recorded u/s 132(4) of the I.T.Act, 1961 that the said advances. 2. Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in deleting the addition of Rs. 9,14,301/- on account of interest paid on unexplained loans.

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur 3. Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in deleting the additions while placing reliance upon the Hon’ble ITAT order dated 16.12.2016 in ITA No. 159/JP/2016 for AY 2012-13 which is subjudice before the Hon’ble High Court.”

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur iii) Copy of acknowledgment of return of AY 2013-14, audited Balance sheet, profit & loss a/c and supporting annexure of 31.03.2013 of above named firm. iv) copy of relevant page of bank statement of above named firm showing the entry of loan given to the assessee. v) copy of PAN card of party.

2.1 It was submitted that from examination of the bank statement and the balance sheet of the firm, it can be noted that the firm was having sufficient source to advance money to the assessee. It was further submitted that the assessee was trying to get affidavits from partners of the firm regarding genuineness of the loan transaction and the same will be submitted as soon as the same is received by the assessee.

2.2 It was further submitted that the assessee doesnot know and aware of Shri Bhanwar Lal Jain and Bhanwar Lal Jain Group and not in contact with him or having transaction with him. The assessee has actually taken unsecured loan from M/s Mehul Gems Pvt. Ltd and M/s Ankita Exports and the same was repaid in July, 2014 and both the receipt and repayment have happened through the banking channel.

2.3 It was further submitted that regarding various incriminating documentary evidence which was seized during the course of search on Bhanwar Lal Jain Group and statement of various persons which were recorded, the assessee may be provided the copies of such incriminating documents and statements of various persons and also provided an opportunity to the assessee to cross examine such persons.

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur 2.4 The submission of the assessee was however not fully acceptable to the Assessing Officer for the reasons stated in the assessment order as under:- “(a) The unsecured loans was received by cheque does not make the transaction genuine. The Hon’ble ITAT Jaipur n the case of M/s Kanchwala Gems vs. JCIT, ITA No. 134/JP/02 dated 10.12.2003, and affirmed by the Hon’ble Supreme Court in 288 ITR 10 (SC) has held that even payment by account payee cheque is not sufficient to establish the genuineness of the transaction.

(b) The contentions of the assessee that neither Bhanwarlal Jain nor his sons are directors of the company, is also not relevant to the material fact that in the statements, Bhanwarlal Jain had described that they are indulged in providing accommodation entries of bogus unsecured loans and advances through various Benami concerns (70) operated and managed by them. This admission automatically makes all the transactions done by them as mere paper transactions and in these circumstances, further as per the information name and address of assessee and the Benami Concern through which accommodation entry of unsecured loans was provided is appearing in the list of beneficiaries to whom the said Group has provided. This admission is sufficient to reject the contentions of the asseesse.

(c) The assessee had requested for cross examination of such persons. In this regard, it is pointed out that the Hon’ble Supreme Court in the case of C. Vasantlal & Co. Vs. CIT 45 ITR 206(SC) (3 Judge Bench) had observed that “ the ITO is not bound by any technical rules of the law of evidence. It is open to him to collect material to facilitate assessment even by private enquiry. But, if he desires to use the material so collected, the assessee must be informed about the material and given adequate opportunity to explain it. The

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur statements made by Praveen Jain and group were material on which the IT authorities could act provided the material was disclosed and the assessee had an opportunity to render their explanation in that regard.”

(d) The right of cross examination is not an absolute right. (Nath International Sales vs. UOI, AIR 1992 (Del) 295). The Hon’ble Supreme Court has also held that the right of hearing does not necessarily include right of cross examination. The right of cross examination must depend upon the circumstances of each case and also on the statute concerned (State of J&K vs. Bakshi Gulam Mohammad AIR 1967 SC 122). The question whether the assessee is entitled to cross examination is a question which may largely depends on the facts and circumstances of the case (ef. Shyamlal Biri Merchant vs. UOI (1993) 68 ELT 548, 551(All.) In the present case no such circumstances are warranted as in the list of beneficiaries to whom accommodation entries were provided by the said group categorically contains the name and address of the assessee, further the group has categorically admitted to providing of accommodation entries of unsecured loans through various benami concerns.

(e) The Hon’ble Rajasthan High Court in the case of Rameshwarlal Mali vs. CIT 256 ITR 536(Raj.) has held that “there is no provision for permitting the cross examination of the persons whose statements were recorded during survey.”

2.5 Thereafter, the AO noted that as per the ROC records there exist a nexus among the various companies right from M/s Mehul Gems to M/s Roshan Gems (P) Ltd. to M/s Manish Floor Mills (P) Ltd. through common directors and in the last mentioned company, Shri Bhanwarlal Jain and Shri Manak Chand Jain were directors.

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur 2.6 Finally, the AO held that based on the information with the investigation department, statement recorded u/s 132(4) of Shri Bhanwarlal Jain and various incriminating documentary evidence found from the search and seizure carried out by Investigation Wing, Mumbai on the said group on 03.10.2013, and the existence of nexus as briefed above cannot be considered as a coincidence specially when Shri Bhanwarlal Jain has categorically admitted that his group was indulged in providing accommodation entries of bogus unsecured loans and advances through Benami concerns (70) operated and managed by him and his sons. Thus, under such facts and circumstances M/s Mehul Gems (P) Ltd. is nothing but a Benami concern of Shri Bhanwarlal Jain group.

2.7 Based on case laws and discussions, it was further stated by the AO that: (a) The primary onus is on the assessee to establish the genuineness of the transaction claimed by it. (b) If the investigation done by the department leads to doubt regarding the genuineness of the transactions, it is incumbent on the assessee to produce the parties alongwith necessary documents to establish the genuineness of the transaction.

(c) Payment by account payee cheque is not sacrosanct.

In light of the various judicial pronouncements and the above discussions it is to be seen whether the assessee was able to establish the genuineness of the transactions claimed by it or it has failed in discharging this onus. The information received from investigation wing and statement of Shri Bhanwarlal Jain and group clearly explains the modus operandi of this bogus transactions.”

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur 2.8 Finally, the AO concluded the assessment proceedings with the following findings:

“4.7 In continuation of the above discussion and considering the assessee’s reply it is evident that the assessee has not taken fresh unsecured loans from M/s Mehul Gems Pvt. Ltd. during the year under consideration whereas unsecured loan of Rs. 1,00,00,000/- of previous year was brought forwarded. Further, in the case of M/s Ankita Exports it is mentioned that assessee has taken unsecured loans of Rs. 1,00,00,000/- only instead of Rs. 2,01,04,301/- as reported in the information received in this office as mentioned in para above.

4.8 In the present case, assessee has shown unsecured loans of Rs. 1,00,00,000/- from M/s Ankita Exports, a benami concern of Shri Bhanwar Lal Jain Group, and this party is only providing bogus accommodation unsecured loans and advances for the reasons given in detail in the above para. Therefore, the unsecured loans from M/s Ankita Exports may be treated as unexplained cash credit u/s 68 of the I.T. Act, 1961. I hereby make an addition of Rs. 1,00,00,000/- to the declared income of the assessee u/s 68 of the I.T.Act, 1961. Therefore, as per section 115BBE (1)(a) the income of Rs. 1,00,00,000/- liable for tax @ 30%. As per sub-section 2 of section 115BBE of the I.T.Act, 1961 no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of this Act.

4.10 Further, it has been claimed by the assessee that he has paid interest of Rs. 8,10,000/- and Rs. 104,301/- to M/s Mehul Gems Private Limited and M/s Ankita Exports respectively. In this regard it relevant to mention here that, since, as per the discussion in above Para(s) it is abundantly clear that the unsecured loans taken from above parties is

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur nothing but an accommodation entry, under such facts and circumstances the claim of interest by the assessee cannot be allowed as expenditure. Therefore, a sum of Rs. 914301/- claimed as expenditure is disallowed and is added back to the total income of the assessee. 5. Further, on perusal of profit and loss account it has been noticed that assessee has claimed interest on TDS of Rs. 51520/-. In this regard the A/R of the assessee was asked to state his case to which he has agreed that this amount has left from adding back to the total income. Therefore, interest expense of Rs. 51520/- is disallowed and added back to the total income of the assessee.”

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur up for hearing before the Hon’ble High Court in DB Appeal no. 156/2017 wherein the Hon’ble High court vide its order dated 8.08.2017 has dismissed the appeal of the revenue on account of non-removal of defects. It was accordingly submitted that as on the date of hearing, the matter is not sub- judice before the Hon’ble High Court and hence, there is no infirmity in the order of the ld CIT(A) in relying on the order of Tribunal where the facts and circumstances of the case are identical.

b) The assessee has submitted before the ld. AO that the assessee does not know who is Shri Bhanwar lal Jain and never be in contact of Shri Bhanwar lal Jain. The Bhanwar lal Jain group not known to the assessee, therefore the modus operandi of this group is not known to the assessee and assessee has not carried out any transaction through this person. The assessee has actually taken the unsecured loan from M/s Ankita exports through account payee cheques.

c) In M/s Ankita Exports, Shri Gautam N. Kumat and Shri Vivek N. Kumat were partners. The same fact is verifiable from balance sheet of this firm. Thus Shri Bhanwar lal Sharma was not partner

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur of this firm, therefore without being partner of a firm how anyone can control the affairs of the firm. The name of the son of Shri Bhanwar Lal Sharma is not known to the assessee, therefore no comments can be made on the controlling of son of Shri Bhanwar lal Sharma in this concern. Further the AO has not brought any positive material to prove that M/s Ankita Exports is benami concern of Shri Bhanwar Lal Jain Group. The Ld AO has listed name of various companies in para 4.5, and your honor would find that the partners of M/s Ankita Exports and Shri Bhanwar lal Jain are not common partner in any concern.

d) As regard to contention of ld AO that various incriminating documentary evidences were seized during the course of search on Bhanwar Lal Jain and statement of several persons were recorded which proves that the entry of the assessee is accommodation entry this is to submit that the ld AO has not provided the copy of so called incriminating document or statement to the assessee and opportunity of confrontation was not given to assessee. The assessee has specifically demanded to ld AO to provide the copy of so called incriminating documents and statements but the same was not given to assessee. It is necessary that a copy of the incriminating statement of the witness must be given to the assessee in order to enable him to have an effective and useful cross examination as held in State of Punjab Vs Bhagat Ram AIR 1974 SC 2335; Vaasanji Ghela & Co Vs CST (1977) STC 544,553 (Bom), Gargi Din Jwala Prasad Vs CIT (1974) 96 ITR 97 (ALL). The learned AO violated the rule of audi alteram partem, which means that no one shall be condemned unheard, corollary of which is that he should be

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur given reasonable notice of the nature of the case to be met, there are other rules of common law to the same effect. Reliance is placed on Peerless General Finance & Investment Co. Ltd Vs DCIT (1999) 236 ITR 671, 682. (Cal)

In view of the above submission, we submit that the ld AO assessed the income of the assessee without providing the reasonable opportunity. The Assessing Officer is not absolved of the obligation to comply with the fundamental rules of justice, which have come to be known in administrative law as the principles of jurisprudence. Compliance with the audi alteram partem rule of natural justice is an indispensable requirement of a valid assessment order. kindly see, Jagadambika Pratap Narain Singh (Raja) v. CBDT (1975) 100 ITR 698 (SC), Government of India v. Maxim A Lobo (1990) 83 CTR (Mad) 103; CIT v. Vimladen Bhagwandas Patel (Smt.) (1979) 118 ITR 134 (Guj); Gangadharan Pillai (P) v. ACED (1980) 126 ITR 356 (Ker); A Sociedade de Fomento Industrial Pvt. Ltd. v. Lahiri (KC) (1983) Tax LR 2664 (Goa); Mallappa Kallappa Ugare v. Ag ITO (1973) 91 ITR 529 (Mys); State Bank of Patiala v Union of India (1973) 91 ITR 630 (P&H); CIT v Sham Lal (1981) 127 ITR 816 (P&H); Jai Prakash Singh v CIT (1978) 111 ITR 507 (Gau); Thomakutty (MO) v CIT (1958) 34 ITR 501 (Ker); Koyammankutty v ITO (1965) 58 ITR 871 (Ker); Menon (TCN) v ITO (1974) 96 ITR 148 (Ker.). e) Apart from the confirmation of the party the assessee has submitted following documents in support of genuineness of loan taken from this party: - i) Confirmation of the party.

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur ii) Copy of a/c of assessee in the books of accounts of above named firm. iii) Copy of acknowledgement of return of AY 2013-14, audited Balance sheet, profit & loss a/c and supporting annexure of 31.03.2013 of above named firm. iv) Copy of relevant page of bank statement of above named firm showing the entry of loan given to the assessee. v) Copy of PAN card of party. The copies of above documents were also filed before ld CIT(A). From examining the bank statement and balance sheet of this firm Ld CIT(A) found that this firm was having sufficient source to advance the money to the assessee. The turnover of cash creditor firm was 219.58 crores. Further during the course of assessment proceedings ld. AO made direct inquiries from this firm regarding loan taken by the assessee and this firm confirmed about giving the loan to the assessee. f) The assessee has discharged his initial onus: The assessee has discharged his initial onus laid down u/s 68 of Income Tax Act. The assessee has filed confirmation letters and affidavit of cash creditors before the AO who has admitted giving of money to the assessee as a loan. The ld AO has erred in making addition of Rs.1,00,00,000/- even in the facts and circumstances of the assessee and the learned AO has no material to reject the evidences filed before him. (i) Identity:- The identity of cash creditor stood proved in as much as copy of PAN card and copy of Income Tax return were filed. Hon’ble Rajasthan High Court in the case of Aravali Trading Co Vs Income Tax Officer (2008) 8 DTR (Raj) 199

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur has held that once the existence of the creditors is proved and such persons own the credits, the assessee’s onus stands discharged and the assessee is not required to prove the source from which the creditors could have acquired the money deposited with him. Hon’ble jurisdictional High Court has held that merely because the depositors’ explanation about the sources of money was not acceptable to the AO, it cannot be presumed that the deposit made by the creditors is money belonging to the assessee itself. (ii) Genuineness of Transaction:- The assessee has filed confirmation letter, ITR and Balance sheet of the firm wherein the amount given to assessee shown as loan. The assessee filed copy of bank statement of cash creditors where the amount of payment is reflected in bank statement. Further, the assessee has paid interest and deducted TDS. (iii) Capacity proved:- The assessee has filed copy of balance sheet and profit and loss account of the firm. The turnover of the firm is Rs 219.58 crores. The assessee has also filed copy of bank statement of the firm which shows huge number of transaction of high value. There is no onus on the assessee to prove source of source. Once the assessee able to establish that he has in fact received money from third party, it can’t be burdened with a further onus of establishing the source from which such third party had been able to obtain the money. Reliance is placed on the following decisions: -

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur (i) Sideways Investment Pvt. Ltd. Vs DCIT 24 Tax World 146 (JP ITAT) (ii) CIT Vs. Daulat Ram Rawatmal 87 ITR 349 (SC) (iii) Saraogi Credit Corp. Vs. CIT 103 ITR 344 (PAT)

(g) The assessee relies on the following decisions:- (i) CIT Vs Orissa Corporation (P) Ltd (1986) 159 ITR 79 (SC) The assessee had given named and addresses of the cash creditors, who were income tax assessees. Revenue apart from issuing summon u/s 131 notices to creditors, did not pursue the matter further- it did not examine creditworthiness of the creditors- assessee could not, under the circumstances do anything further. Held that the additions were rightly deleted.

(ii) CIT Vs Heera Lal Chagan Lal Tank (2002) 157 ITR 281 (Raj) Burden of the assessee stands discharged when the identity of the creditors is established and he confirms the loans.

h) The ld AO mentioned that cheque transaction is not sufficient to prove the genuineness of transaction. But in the case of assessee, the assessee is claiming the genuineness of the transaction not merely on the strength of cheque but he has submitted several other evidences such as income tax return and bank statement of cash creditor and Profit and loss account and balance sheet of cash creditor, which prove that the transaction of assessee is genuine.

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur

i) The ld AO held that M/s Ankita Exports is benami firm of Shri Bhanwar Lal Jain but the ld AO has not brought any positive material to show that M/s Ankita Exports is benami of Shri Bhanwar Lal Jain. To hold a person as Benami of another, one ought to have concrete evidences in contrast to sheer presumptions and suspicion and in such cases initial burden lies on revenue. The ld AO failed to appreciate the facts, evidence and the tests laid down by Apex Court and High Court. The assessee relies on the following decisions a) CIT Vs Daulat Ram Rawatmull 87 ITR 349 (SC) b) Jaydayal Poddar vs. Bibi Hazra, AIR 1974 SC 171 Hon’ble Supreme Court has held that it is well settled that the burden of proving that a particular sale is Benami and the apparent purchaser is not the real owner, always rests on the person asserting it to be so. c) Prakash Narain Vs CIT 134 ITR 364 (ALL) d) Lal Chand Agarwal vs. ACIT 21 Tax World 213 Hon’ble ITAT Jaipur Bench has held that to hold a person as benami of another, one ought to have concrete evidences in contrast to sheer presumptions and suspicion and in such cases initial burden lies on revenue ; e) ITO vs. Shree Ladani Family Trust 21 Tax World 351 Hon’ble ITAT Jaipur Bench has held that burden to prove Benami nature heavily lies on the department. f) DCIT vs. PSM Family Trust 21 Tax World 553

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur To hold benami Character of a business, it is essential to prove interlocking, interlacing and inter controlling between the two business. g) Ravi Mathur & Others vs. ACIT 22 Tax World 245 Held that burden to prove Benami nature of transaction heavily lies on the department. h) Ramjas Nawal vs. ACIT 22 Tax World 126 Held that A person cannot be held to be Benami of assessee simply because the vehicle along with its registration papers were recovered from the possession of assessee in absence of some positive evidence. S.S. Gupta vs. ACIT 22 Tax World 337 Held that to i) hold Benami character of a business, it is essential to prove interlocking, interlacing and inter linking between the two or more businesses. j) Sandeep Loomba vs. ACIT 26 Tax world 288 held that burden to prove Benami nature heavily lies on the department. k) ITO vs. Suresh Chand Gupta 26 Tax World 224 held that burden to bring material evidence on records to prove a person to be benami of another heavily lies on the revenue. l) Manju Devi Kogta vs. ITO 27 Tax World 385 held that burden to prove Benami nature heavily lies on the department. m) Smt Kesar Devi vs. ITO 28 Tax world 157 held that burden to prove Benami nature heavily lies on the department and what is apparent has to be treated as real in absence of any contrary material

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur n) Uttam Chand Nahar vs. ITO 28 Tax World 435 held that burden to prove benami nature heavily lies on the department. o) Vijendra Kumar Mamodia vs. DCIT 29 Tax World 51 held that burden to prove Benami nature heavily lies on the department and burden to prove an investment as Benami is on the person who alleges as such. p) Rajesh Jain vs. ITO 32 Tax World 72 held that burden to prove benami transaction lies on the person who asserts its and sharing of same business place and employees is not sufficient to hold one person as Benamidar of another. q) Radhey Shyam Ojha vs. ACIT 32 Tax World 81 held that it is the duty of AO to bring on record sufficient material to prove Benami nature. j) The AO appeared to be bent upon making the addition under the influence of some report without application of mind. AO cannot be guided for his decisions by what the officer preparing the report says. As per section 119 (1) (a) even the CBDT cannot issue directions or instructions to an AO so as to require any income tax authority to make a particular assessment or to dispose of a particular case in a particular manner. Recently, the SC in the case of Rajesh Kumar vs DCIT (2006) 157 Taxman 168 (SC) has said that an assessment order is the result of a judicial proceedings. According to the Apex Court an assessment proceeding a judicial proceeding. Obviously, no one can have influence or say in the course of judicial proceedings that a particular decision should be taken in a particular way or manner

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur affecting the independence of the decision-making authority. The AO must decide the issue before him on a proper appreciation of evidence adduced during the course of assessment proceedings and not to be swayed and carried away under some report. Hon’ble Apex Court has held in the case of Dakeshwari Cotton Mills Ltd Vs CIT 26 ITR 775-“that one who hears must decide the case.”

k) As regarding to disallowance of interest paid to M/s Mehul Gems Pvt. Ltd Rs. 8,10,000/- and M/s Ankita Exports Rs. 1,04,301/- this is to submit that the loan from M/s Mehul Gems Pvt. Ltd was taken in AY 2012-13 and in appeals the same has been accepted as genuine, therefore no interest on such loan can be disallowed. In view of above submission the loan taken from M/s Ankita Exports is also genuine and therefore the interest paid on such loan should also be allowed to assessee.”

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur 8. Now coming to the two transactions which are subject matter of dispute before us. First transaction relates to unsecured loan of Rs 1.00 crore taken by assessee from M/s Mehul Gems Pvt Ltd during the financial year relevant to AY 2012-13 and interest payable on such loan amounting to Rs 810,000 during the year under consideration. The second transaction relates to unsecured loan of Rs 1.00 crore taken by assessee from M/s Ankita Exports during the financial year relevant to impunged assessment year and interest payable on such loan amounting to Rs 104,301 during the year under consideration.

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur submitted that in compliance to the show cause notice issued, assessee filed following documents: (i) copy of confirmation letter of the above named cash creditor, (ii) copy of acknowledgment of return (iii) copy of Balance sheet and profit and loss account of the cash creditor (iv) copy of bank statement of the cash creditor (v) copy of Pan card of the cash creditor and

Further, on examination of the profit and loss account of the cash creditors namely M/s Ankita Exports & M/s Mehul Gems Pvt. Ltd., it is seen that their turnover for the year relevant to AY 2013-14 as per the P & L are Rs. 2,19,58,73,416/- and Rs. 1,49,93,46,244/-. Further on careful perusal of the bank statements of the cash creditors, the said entry of withdrawal of money are duly appearing in the name of assessee in the bank statement. It is also pertinent to mentioned that the source of payment as per the bank statement is also deposits of cheque by clearing. On careful perusal of bank statement of M/s Ankita Exports & M/s Mehul Gems Pvt. Ltd., no instance of cash deposit prior to issue of cheque to the assessee by the cash creditor have been found.

On receipt of these documentary evidences, it is also seen that AO has not brought on record any positive material to controvert the evidences and documents furnished by the assessee. Instead, AO insisted on physical presence/attendance of the directors of the cash creditors particularly when they there are not based in Jaipur. It is true that cheque does not make the transaction genuine but in this case, the assessee has submitted several documents including the bank

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur statements and sworn affidavit of cash creditors, which have not been controverted by AO on the basis of positive evidence. Merely on the basis of statement of Shri Bhanwal Lal Jain before Investigation Wing, Mumbai, the addition cannot be confirmed particularly when the copy of the sworn statement of Shri Bhanwar Lal Jain. As per findings given by the AO in assessment order, even Shri Bhanwar Lal Jain and the directors of the cash creditor company is not the common director in the said company. The AO alleged that the cash creditor company is a benami company of Shri Bhanwar Lal Jain. It is well settled law that the onus to prove benami is on the person who alleges. The AO has not brought any positive material to show that cash creditors are benami company of Shri Bhanwar Lal Jain. Further, on carefully examination of assessment records, it is seen that the AO has issued a letter dated 28.09.2015 u/s 133(6) of Act (by speed post) for direct inquiry to the cash creditors, relevant particulars of which is reproduced as under:- “Subject:- Information required u/s 133(6) of the IT Act, 1961, in the case of Sh. Prateek Kothari for AY 2012-13 (PAN: ABIPK8090R)-reg. 1. Please furnish brief of your business activities. 2. Please furnish the details of the transactions undergone with the above mentioned assessee. 3. Please furnish copy of ITR, computation and Balance Sheet, P & L with Audit report for the FY 2012-13. 4. Please furnish copy of bank statement through which the transactions were undergone for the relevant period i.e. FY 2012- 13. The above information may be furnished on or before 09.10.2015 in the office of the undersigned. This information is being called from you under the provisions of sec. 133(6) of the Income-tax Act, 1961.

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur Any failure to furnish the same would attract penalty u/s 272A(2)(c) of the Income-tax Act, 1961.......”

From the perusal of assessment records, it is also seen that M/s Mehul Gems Pvt Ltd has complied with its letter dt 05.10.2015 to the notice issued by the AO and the same was received in the office of AO on 08.10.2015. Similarly, M/s Ankita Exports has also complied with the notice vide letter dt 02.10.2015 (to be read as 07.03.2016). However, AO did not take any cognizance of the aforementioned compliance letter and finally added the same u/s 68 of the Act. From the above, it is seen that AO has not controverted the documentary evidences submitted by the assessee nor conducted any fruitful enquiry on that. Even compliance from M/s Ankita Exports & M/s Mehul Gems Pvt Ltd were not taken into cognizance when their written compliances were received in the AO’s office in the month of October 2015 and finally assessment order was passed on 28.03.2016 i.e., after a lapse of almost 5 months. Mere on the basis of surmises and suspicion, additions made by the AO cannot be sustained in view of judicial pronouncements relied upon by the assessee. It is pertinent to mention here that on similar facts in AY 2012-13 (ITA No. 718/14-15) addition made of Rs. 1,00,00,000/- as unexplained cash credit u/s 68 of the Act has been deleted vide order dt 23.12.2015 which has also been duly confirmed by Hon’ble ITAT Bench Jaipur vide order dt. 16.12.2016 (ITA No. 159/JP/16). In view of the above facts and circumstances of the case, the addition cannot be sustained in the hands of the assessee and the AO is directed to delete the addition of Rs. 1,00,00,000/- and Rs. 9,14,301/- made by the AO by applying the provisions of section 68 of Income Tax Act. Assessee’s appeal in ground No. 1,2 & 3 stands allowed.”

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur

“2.8 We have heard the rival contentions and perused the material available on record. The transaction under question relates to unsecured loans taken by the assessee amounting to Rs 1 Crores from M/s Mehul Gems Pvt Ltd during the impunged assessment year and not accepting the said loan transaction as a genuine transaction by the Assessing officer and the resultant addition made under section 68 of the Act. Undisputedly, the primary onus to establish genuineness of the loan transaction is on the assessee. In the instant case, the assessee has provided the necessary explanation, furnished documentary evidence in terms of tax filings, affidavits and confirmation of the Directors, bank statements of the lender, balance sheet of the lender 23

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur company, and an independent confirmation has also been obtained by the Assessing officer to satisfy the cardinal test of identity, creditworthiness and genuineness of the loan transaction. However, the Assessing officer has not given any finding in respect of such explanation, documentary evidence as well as independent confirmation. Apparently, the reason for not accepting the same is that the Assessing officer was in receipt of certain information from the investigation wing of the tax department as per which the transaction under consideration is a bogus loan transaction. The said information received from the investigation wing thus overweighed the mind of the Assessing officer. The Assessing officer stated that the primary onus is on the assessee to establish the genuineness of the transaction claimed by it and if the investigation done by the department leads to doubt regarding the genuineness of the transactions, it is incumbent on the assessee to produce the parties alongwith necessary documents to establish the genuineness of the transaction. In response, the assessee submitted that Shri Bhanwarlal Jain is not known to him and regarding various incriminating documentary evidences seized during the course of search and statements recorded of Shri Bhanwarlal Jain and other persons, he specifically requested the AO to provide copies of such incriminating documents and statement of all various persons recorded in this regard and provide an opportunity to the assessee to cross examine such persons. However, the AO didn’t provide to the assessee copies of such incriminating documents and statements of various persons recorded and allow the cross- examination of any of these persons. While doing so, the AO stated that “in his statements, Bhanwarlal Jain had described that

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur they are indulged in providing accommodation entries of bogus unsecured loans and advances through various Benami concerns (70) operated and managed by them. This admission automatically makes all the transactions done by them as mere paper transactions and in these circumstances, further as per the information name and address of assessee and the Benami Concern through which accommodation entry of unsecured loans was provided is appearing in the list of beneficiaries to whom the said Group has provided. This admission is sufficient to reject the contentions of the asseesse.” Further, regarding cross examination, the AO stated that “the right of cross examination is not an absolute right and it depends upon the circumstances of each case and also on the statute concerned. In the present case, no such circumstances are warranted as in the list of beneficiaries to whom accommodation entries were provided by the said group categorically contains the name and address of the assessee. Further the group has categorically admitted to providing of accommodation entries of unsecured loans through various benami concerns.” The AO further relied upon the decision of Hon’ble Supreme Court in the case of C. Vasantlal & Co. Vs. CIT 45 ITR 206(SC) and Hon’ble Rajasthan High Court in case of Rameshwarlal Mali vs. CIT 256 ITR 536(Raj.) among others. In this regard, it was submitted by the assessee that if the entries and material are gathered behind the back of the assessee and if the AO proposes to act on such material as he might have gathered as a result of his private enquiries, he must disclose all such material to the assessee and also allow the cross examination and if this is not done, the principles of natural justice stand violated.

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur

2.9 In light of above discussions, in our view, the crux of the issue at hand is that whether the principle of natural justice stand violated in the instant case. In other words, where the AO doesn’t want to accept the explanation of the assessee and the documentation furnished regarding the genuineness of the loan transaction and instead wants to rely upon the information independently received from the investigation wing of the department in respect of investigation carried out at a third party, can the said information be used against the assessee without sharing such information with the assessee and allowing an opportunity to the assessee to examine such information and explain its position especially when the assessee has requested the same to the Assessing officer.

2.10 In this regard, the Hon’ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. v. CIT (1954) 26 ITR 775 (SC) has held that “The rule of law on this subject has been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Sinqh where it was stated that while proceeding under sub-section (3) of section 23, the Income-tax Officer, though not bound to rely on evidence produced by the assessee as he considers to be false, yet if he proposes to make an estimate in disregard of that evidence, he should in fairness disclose to the assessee the material on which he is going to find that estimate; and that in case he proposes to use against the assessee the result of any private inquiries made by him, he must communicate to the assessee the substance of the information so proposed to be utilized to such an extent as to put the assessee

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur in possession of full particulars of the case he is expected to meet and that he should further give him ample opportunity to meet it.” It was held in that case that “In this case we are of the opinion that the Tribunal violated certain fundamental rules of justice in reaching its conclusions. Firstly, it did not disclose to the assessee what information had been supplied to it by the departmental representative. Next, it did not give any opportunity to the company to rebut the material furnished to it by him, and lastly, it declined to take all the material that the assessee wanted to produce in support of its case. The result is that the assessee had not had a fair hearing.” The Hon’ble Supreme Court in case of C. Vasantlal & Co. Vs. CIT 45 ITR 206 (SC) has held that “the ITO is not bound by any technical rules of the law of evidence. It is open to him to collect material to facilitate assessment even by private enquiry. But, if he desires to use the material so collected, the assessee must be informed about the material and given adequate opportunity to explain it. The statements made by Praveen Jain and group were material on which the IT authorities could act provided the material was disclosed and the assessee had an opportunity to render their explanation in that regard.” The Hon’ble Supreme Court in case of Kishinchand Chellaram v. CIT (1980) 125 ITR 713 (SC) has held that “whether there was any material evidence to justify the findings of the Tribunal that the amount of Rs. 1,07,350 said to have been remitted by Tilokchand from Madras represented the undisclosed income of the assessee. The only evidence on which the Tribunal could rely for the purpose of arriving at this finding was the letter, dated 18-2-1955 said to have been addressed by the manager of the bank to the ITO. Now it is difficult to see how

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur this letter could at all be relied upon by the Tribunal as a material piece of evidence supportive of its finding. In the first place, this letter was not disclosed to the assessee by the ITO and even though the AAC reproduced an extract from it in his order, he did not care to produce it before the assessee or give a copy of it to the assessee. The same position obtained also before the Tribunal and the High Court and it was only when a supplemental statement of the case was called for by this Court by its order, dated 16-8-1979 that, according to the ITO, this letter was traced by him and even then it was not shown by him to the assessee but it was forwarded to the Tribunal and it was for the first time at the hearing before the Tribunal in regard to the preparation of the supplemental statement of the case that this letter was shown to the assessee. It will, therefore, be seen that, even if we assume that this letter was in fact addressed by the manager of the bank to the ITO, no reliance could be placed upon it, since it was not shown to the assessee until at the stage of preparation of the supplemental statement of the case and no opportunity to cross examine the manager of the bank could in the circumstances be sought or availed of by the assessee. It is true that the proceedings under the income-tax law are not governed by the strict rules of evidence and, therefore, it might be said that even without calling the manager of the bank in evidence to prove this letter, it could be taken into account as evidence. But before the income-tax authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross examine the manager of the bank with reference to the statements made by him.”

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur

2.10 In light of above proposition in law and especially taking into consideration the decision of the Hon’ble Supreme Court in case of C. Vasantlal & Co. (supra) relied upon by the Revenue and which actually supports the case of the assessee, in the instant case, the assessment was completed by the AO relying solely on the information received from the investigation wing, statement recorded u/s 132(4) of Shri Bhanwarlal Jain and others, and various incriminating documentary evidence found from the search and seizure carried out by Investigation Wing, Mumbai on the Shri Bhanwarlal Jain group on 03.10.2013. It remains undisputed that the assessee was never provided copies of such incriminating documents and statements of Shri Bhanwarlal Jain and various persons and an opportunity to cross examine such persons though he specifically asked for such documents and cross examination. On the other hand, the burden was sought to be shifted on the assessee by the A.O. It is clear case where the principle of natural justice stand violated and the additions made under section 68 therefore are unsustainable in the eye of law and we hereby delete the same. The order of the ld CIT(A) is accordingly confirmed and the ground of the Revenue is dismissed.”

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur on 03.10.2013. It remains undisputed that the assessee was never provided copies of such incriminating documents and statements of Shri Bhanwarlal Jain and various persons and an opportunity to cross examine such persons though he specifically asked for such documents and cross examination.

In the result, the appeal of the Revenue is dismissed.

Order pronounced in the open court on 10/11/2017.

Sd/- Sd/- ¼dqy Hkkjr ½ ¼foØe flag ;kno½ (Kul Bharat) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Jaipur Dated:- /11/2017 *Ganesh Kr. आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Dy. Commissioner of Income-tax, Jaipur 1. izR;FkhZ@The Respondent- Shri Prateek Kothari, Jaipur 2. vk;dj vk;qDr@CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5.

ITA No. 552/JP/2017 Dy. Commissioner of Income-tax, Jaipur Vs Shri Prateek Kothari, Jaipur xkMZ QkbZy@Guard File (ITA No. 552/JP/2017) 6.

vkns'kkuqlkj@ By order, सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत.