I.T.O. - 25(2)(5), MUMBAI vs. SMT. LEENA HARESH HARDE, MUMBAI

Learned Counsel for the assessee submitted that during the assessment year under consideration assessee has obtained unsecured loans of ₹.36,40,000/-, ₹.1,17,00,000/- & ₹.2,13,60,000/- from M/s.Marine Gems Pvt. Ltd., M/s Parshwanath Gems Pvt Ltd. & M/s.Nikhil Gems Pvt. Ltd. respectively. Learned Counsel for the assessee submitted that all the three ingredients of section 68 of the Act i.e. identity, genuineness and creditworthiness of the total loan transactions have been duly established by furnishing the documentary evidences in the form of loan Confirmations, bank statements, financials and ITR

Ld. Counsel for the assessee further submits that the loans taken from all these parties were also duly repaid through banking channels in F.Y.2013-14 and F.Y.2015-16. Ld. Counsel for the assessee further submits that all the three lender companies had sufficient bank balances out of which the loans were advanced to the assessee. It was also not a case where any cash deposits were preceded before providing the funds to the assessee. Learned Counsel for the assessee submitted that adequate balance in the bank account of the companies clearly proves the creditworthiness of the lenders and this view was also upheld by the Hon'ble Delhi High Court in the case of CIT v. Oasis Hospitalities (P.) Ltd. [198 taxman 247 (Delhi)]. For the very same proposition that adequate funds in the bank account establishing creditworthiness of the parties, Ld. Counsel for the assessee placed reliance on the decision of the Hon'ble Bombay High Court in the case of PCIT v. M/s. Ami Industries (India) P. Ltd in of 2017 dated 29.01.2020.

Ld. Counsel for the assessee further submits that the entire assessment order has been framed based on the statement of Shri Gautam Jain who is neither a director nor a shareholder in the alleged creditor companies and therefore he has no locus standi to comment or to give any statement which could have any evidentiary value. Learned Counsel for the assessee submitted that the Assessing Officer treated the unsecured loans received by the assessee as unaccounted income of the assessee u/s. 68 of the Act solely based on the statements recorded from Shri Gautam Jain in the course of search proceedings in his case. Learned Counsel for the assessee submitted that Assessing Officer has not carried

Learned Counsel for the assessee submitted that it is the finding of the Assessing Officer in the assessment order that copy of statement recorded from Shri Gautham Jain has been provided to the assessee. However, it is submitted by the Ld. Counsel for the assessee that no such copy has ever been provided to the assessee except for relevant extracts of the same reproduced in the assessment order. Ld. Counsel submits that even in the reproduced content of the statement in the Assessment Order, there is no whisper about any accommodation entry provided to the assessee. Learned Counsel for the assessee submitted that even from said statement it is not known as to how the alleged lender companies belong to Shri Gautam Jain and used by him for alleged accommodation entries to the assessee when in fact, the Company Master Data of all these

Ld. Counsel for the assessee further submits that what has been received by the assessee is not share application money but unsecured loans and therefore even the 2nd proviso to section 68 of the Act is not applicable to the present case to prove the source of source of funds obtained. Reliance was placed on the following decisions: - (a) S. Hastimal v. CIT [49 ITR 273(Mad HC)] (b) Tolaram Daga v. CIT [59 ITR 632 (Gauhati HC)] (c) Nemichand Kothari v. CIT [264 ITR 254 (Gauhati HC)] (d) Murlidhar Lahorimal v. CIT [280 ITR 512 (Guj HC)] (A.Y: 2013-14) Smt Leena Haresh Harde 12. Ld. Counsel for the assessee further submits that no cogent material or evidence has been brought on record to indicate that the assessee's own unaccounted money has been received back under the garb of unsecured loans. Ld. Counsel for the assessee placed reliance on the decision of the Mumbai Bench of the Tribunal in the case of ITO v. M/s.Celebrity Lifespace Pvt Ltd. in dated 05.12.2019 and submitted that an identical issue in relation to addition of unsecured loans based on mere statement of Shri Gautam Jain was deleted by the Tribunal. Ld. Counsel for the assessee also placed reliance on the decision of the Mumbai Bench of the Tribunal in the case of ITO v. Shri Dhansukh D. Mehta in ITA No. 1725/Mum/2018 dated 12.07.2019 and submitted that similar issue of alleged accommodation loan entries from Surat based companies merely based on the statement of Shri Bhanwarlal Jain was held to be not correct and justified.

Ld. Counsel for the assessee coming to the decision relied on by the Ld. DR in the case of PCIT v. Bikram Singh (supra) submitted that the said decision is distinguishable due to peculiar facts involved. Ld. Counsel for the assessee submitted that in this case lender parties had no financial strength, wherein certain parties did not possess PAN and no return of income was filed and hence the assessee failed to prove the (A.Y: 2013-14) Smt Leena Haresh Harde creditworthiness of the transaction. There was a severe doubt as to the identity and genuineness of one of the creditors since there were contradictory statements by the very same party. Only partial documentary evidences were furnished to substantiate the transactions. One of the creditor denied the loan transaction and one of the creditors did not disclose the loan amount advanced in his return of income and financials. Therefore, it is submitted that for these distinguishable facts this decision has no application to the assessee’s case.

Coming to the decision in the case of CIT v. Navodaya Castles (P.) Ltd. (supra) Ld. Counsel for the assessee submitted that this decision is also distinguishable on facts as the nature of transaction is in the form of share application money and the bank statements revealed that issuance of cheques was immediately preceded by cash deposits.

In so far as the decision of the Hon'ble Supreme Court in the case of PCIT v. NRA Iron & Steel (P.) Ltd. (supra) is concerned Ld. Counsel for the assessee submitted that the same is distinguishable in view of peculiar facts involved since nature of transaction is in the form of share application money. The Assessing Officer made an independent and detailed field enquiry including survey on the investor companies at (A.Y: 2013-14) Smt Leena Haresh Harde various places and found that shareholders were non traceable and addresses were incorrect and premises were owned by some other person and lacked creditworthiness and it was in that context the Hon'ble Apex Court held that the identity of the investor companies was not discharged by the assessee. Ld. Counsel for the assessee further submits that none of the investor companies could establish the source of funds from which unjustified high premium was invested. Adequate documentary evidences including their bank statements were also not furnished explaining the source of funds invested. Ld. Counsel for the assessee further submits that this decision of the Hon'ble Supreme Court in the case of PCIT v. NRA Iron & Steel (P.) Ltd. (supra) has also been distinguished by the Hon'ble Bombay High Court in its recent decision in the case of PCIT v. M/s. Ami Industries (India) P Ltd., (supra).

Therefore, it is submitted that in view of these submissions and evidences furnished the assessee has discharged its onus u/s. 68 of the Act to prove the identity, genuineness and creditworthiness of the creditors, the nature and source of the alleged loans received from the said creditors and therefore the Ld.CIT(A) has rightly appreciated the evidences furnished and deleted the addition made by the Assessing (A.Y: 2013-14) Smt Leena Haresh Harde Officer. Thus, it is submitted that the order of the Ld.CIT(A) be sustained and the appeal of the Revenue be dismissed.

We have heard the rival submissions, perused the orders of the authorities below. On perusing the assessment order we find that the addition u/s. 68 of the Act was solely made based on the statement said to have been recorded in the case of Shri Gautam Jain in the course of search proceedings against him, where he has said to have deposed that he is providing accommodation entries. The assessment was reopened solely on the basis of the statements recorded from the third party. The evidences furnished before the Assessing Officer, First Appellate Authority and also before us suggests that the assessee has complied with the requirement of filing all the evidences to prove the genuineness, creditworthiness and identity of the creditors. The assessee has furnished confirmations of the creditors, copy of acknowledgement of returns of the creditors, copies of financials of the creditors, copies of bank statements of the creditors showing that the transactions were routed through banking channels. Nothing adverse comments were made by the Assessing Officer in respect of all these evidences furnished by the assessee except stating that the creditors have not responded to the notices issued u/s. 133(6) of the Act or the notices issued u/s. 133(6) of (A.Y: 2013-14) Smt Leena Haresh Harde the Act returned unserved. Except for these statements the Assessing Officer chose not to give any details in respect of which of the creditors he has issued notices, which of the creditors he has not able to serve the notices and from which of the creditors there is no responses. The evidences furnished before us shows that in fact out of three creditors two creditors have been responded to the notices issued u/s. 133(6) of the Act and furnished the information as required by the Assessing Officer. M/s.Marine Gems Pvt. Ltd., and M/s. Parshwanath Gems Pvt. Ltd., have furnished copy of ledger account, copy of acknowledgement of return, Copy of PAN, copy of Profit and Loss Account and balance sheet and copy of bank statement highlighting the transactions. Even though the Assessing Officer stated that statement of Shri Gautam Jain recorded u/s. 131 of the Act was provided to the assessee it is the contention of the assessee that no such copy of statement was provided.

On a perusal of the Assessment Order we find that the Assessing Officer has not made any sort of enquiries with respect to the evidences furnished by the assessee with the creditors. The Assessing Officer neither gave a finding in the Assessment Order which creditor has not responded nor he has made any independent enquiry with the creditors except relying on the statement of third party and whose statement was (A.Y: 2013-14) Smt Leena Haresh Harde also not provided to the assessee in spite of request for cross examination. The Assessing Officer not provided an opportunity to the assessee for cross examination and this fact was also recorded by the Ld.CIT(A). Ld.CIT(A) on examining the facts and the submissions recorded his findings as under: “7.1 During the appellate proceedings, the appellant has stated that the appellant has submitted the confirmation, bank statement, Acknowledgement, ITR and financial statements of the lender and affidavits during the scrutiny proceeding before the A.O. Further, stated that the AO has not brought any material on records to prove the loan taken by the appellant as the accommodation entry. On the contrary, the appellant has proved the transaction of loan as genuine loan with evidence on records. The AO has made the disallowance u/s 68 inspite of all the conditions satisfied by the appellant. 7.2 The expression "nature and source" has to be understood together as a requirement of identification of the source and the nature of the source, so that the genuineness or otherwise could be inferred. The Hon'ble Supreme Court, in Kale Khan Mohd.Hanif vs. CIT, pointed out that the onus on the assessee has to be understood with reference to the facts of each case and proper inference drawn from the facts. If the prima facie inference on the fact is that the assessee's explanation is probable, the onus will shift to the Revenue. As far as the creditworthiness or financial strength of the creditor/subscriber is concerned, that can be proved by producing the bank statement of the creditors/subscribers showing that it had sufficient balancein its accounts to enable it to subscribe to the share capital. Once these documents are produced, the assessee would have satisfactorily discharged the onus cast upon him. Thereafter, it is for the Assessing Officer to scrutinize the same and in case he nurtures any doubt about the veracity of these documents, to prove the matter further. 7.3 Element of credit worthiness and satisfaction of AO thereafter is subjective and requires more efforts/inquiry on the part of the AO to give a finding in the order that lender is not credit worthy. The AO must make proper enquiry before making any addition. In Khandelwal Constructions v. CIT 227 ITR 900 (Gau.), it has been held that empowers the Assessing officer to make enquiry. If he is satisfied that these entries are not genuine he has every right to add (A.Y: 2013-14) Smt Leena Haresh Harde these as income from other sources. But before rejecting the assessee's explanation, A.O. must make proper enquiries and in the absence of proper enquiries, addition cannot be sustained. 7.4. It is clear from the submission of appellant that the transactions were through account payee cheques and appellant has submitted sufficient details before the AO during the assessment proceedings. The source of receipt through banking channel clearly establish the genuineness of the credit which is reflected in the books of accounts. The decision of the Hon'ble Gujarat High Court in the case of Dy. CIT vs Rohini Builders - [256 ITR 360] is held that ail the loans were received by the assessee by account payee cheques and the repayment of loans have also been made by account payee cheques along with interest in relation to those loans and that the Assessing Officer having allowed the interest claimed/paid by the assessee in relation to the cash credits cannot treat the cash credits as not genuine. It held that the administrative expenses had dischared the initial onus which lay on it in terms of Section 68 by proving the identity of the creditors by giving their complete addresses, GIR nos. PAN Nos. and copies of Assessment Orders wherever readily available and that it has also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from the bank accounts of the creditors. It held that the assessee is not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of accounts but not the source of the source. 7.5 Further, in the case of Namichand Kothari vs CIT - [264 ITR 254] [Gau], the Hon'ble High Court had held that: "A harmonious construction of section 106 of the Evidence Act and section 68 of the Income-tax Act will be that though apart from establishing the identity of the creditor, the assessment establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub-creditor nor is it the burden of the assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been, eventually, received by the assessee. It is not the business of the assessee to find out (A.Y: 2013-14) Smt Leena Haresh Harde the source of money of his creditor or of the genuineness of the transaction, which took place between the creditor and sub-creditor and/or creditworthiness of the sub-creditors, since, these aspects may not be within the special knowledge of the assessee. 7.6. The assessee must satisfy three important conditions, namely, (i) the identity of the creditor; (ii) the genuineness of the transaction; and (iii) the financial capacity of the person, i.e. the credit worthiness of the creditor. However, the onus of the assessee is limited to the extent of proving the source from which he received the cash credit. The credit worthiness of the creditor has to be judged vis-a-vis the transaction which had taken place between the assessee and the creditor, and it is not the burden of the assessee to find out the source of creditworthiness of the lender to prove the genuineness of the transaction. This issue is dealt by the Gauhati High Court in the case of CIT v. Smt. Sanghamitra Bharali (2014) 361 ITR 481 (Gau). The aforesaid points were also affirmed in the past by the Apex Court in the case of CIT v. Orissa Corporation P. Ltd reported in (1986) 159 ITR 78 (SC). In the case of CIT v. Varinder Rawley (2014) 366 ITR 232 (P & H) the court held that "where the assessee shows that the entries regarding credit in a third party's account were in fact received from the third party and are genuine, he discharges the onus. In that case, the sum cannot be charged as the assessee's income in the absence of any material to indicate that it belongs to assessee", particularly in a case where no summons u/s 131 is issued against the third party. 7.7 From the assessment order, it transpires that the AO has solely relied upon the statement of Shri Gautam Jain and did not carry out any worthwhile independent inquiry in the matter. He has totally ignored the documentary evidences submitted by the appellant. The AO, in the assessment order, has admitted existence of these details. The AO has not pointed out any defect in the above mentioned documentary evidences submitted during assessment proceedings. Without pointing out any lacuna in the evidences submitted by the appellant, the sources and the genuineness of transaction cannot be doubted. Once evidences related to a transaction is submitted before the A.O., the onus shifts on him to prove these as non-genuine. The A.O. has not discharged the onus cast on him. In my opinion, merely based on the statement of a third person without any corroborative evidence will not make the loan transactions, in question, as accommodation entries. As such, in the absence of any contrary evidence placed on record, the transactions cannot be treated as accommodation entries. Identical issues decided by the Hon'ble ITAT, Mumbai in the case of Reliance (A.Y: 2013-14) Smt Leena Haresh Harde Corporation vs. ITO 32(3)(2), Mumbai dated on 12-04-2017 to 1071. The relevant part of decision are as under:- Held (i) that the assesses had established the identity of the creditors. The assessee had also shown, in accordance with the burden, which rested on him, under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors which was not in dispute. Once the assessee had established these, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter, the burden had shifted ITA No. 1069/M/2017 and other three appeals to the Assessing Office to prove the contrary. The failure on the part of the creditors to show that their Sub- creditors had creditworthiness to advance the said loan amounts to the assessee, could not, under the la\v be treated as the income by the appellant from undisclosed sources merely on the failure of the sub-creditors to prove their creditworthiness from undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or where owned by, the assessee. The Assessing Officer failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee. Therefore, the Assessing Officer could not have treated the said amounts as income derived by the assessee from undisclosed sources." (ii) that no assessment could be made contrary to the provisions of law. In the instant case, the very basis for making the assessment was under challenge. If the assessment was based on a completely erroneous view of law, such findings could not be regarded as mere findings of facts, but must be treated as substantial questions of law. Therefore, the question raised in the appeal was a substantial question of law because it went to the very root of the assessment made. The aforesaid view has been also considered and fortified and favourably referred to by the Allahabad High Court in the case of C.I.T. v. Shalimar Buildwell Pvt. Ltd. (2014) 220 Taxman 138 (All.) ln the case of Lalpuria Construction P. Ltd (supra) the Hon. Rajasthan High Court has held that "that in the case of Accommodation entry – without giving an opportunity of cross examination merely on the basis of oral statement additions cannot be made u/s.

It is further held that:

Sec. 68 can be invoked when there is a credit of amounts in the books maintained by the assessee, such credit is a sum (A.Y: 2013-14) Smt Leena Haresh Harde of money during the previous year and either the assessee offers no explanation about the nature and source of such credits or the explanation by the assessee in the opinion of the Assessing Officer is not satisfactory.

The opinion of the AO for not accepting the explanation offered by the assessee as not satisfactory is required to be formed objectively with reference to the material on record.

Courts are of the firm view that the evidence produced by the assessee cannot be brushed aside in a casual manner.

The onus of proof is not static. The initial burden lies on the assessee to establish the identity and the credit worthiness of the creditor as well as the genuineness of transaction.

The identity of creditors can be established by either furnishing their PANs or assessment orders. The genuineness of the transaction can be proved if it was shown that the money was received by A/c payee cheque. Creditworthiness of the lender can be established by attending circumstances. 7.13. During the assessment proceedings, the appellant has submitted Loan Confirmations, Copy of Acknowledgement and Copies of the Bank Statements of concerned parties. If the above referred principles are applied to the facts of the case under consideration, it can be seen that the identity of the creditors has been established as they are having PAN and they are regularly filing return of income. The genuineness of the transaction is established from the fact that both the acceptance and repayment of loan has been through banking channels. The creditworthiness of the lenders can be established from the statements. In the assessment order, the A.O. did not at all discuss the merit of submission made by the appellant and casually brushed aside the details filed by the appellant. Further, the appellant has stated that he had furnished all the relevant details during the course of the assessment proceedings and duly discharged its onus by furnishing the identity and address of the parties. 7.14 In view of the facts and circumstances mentioned above, in my opinion, that appellant has submitted sufficient documents to prove the genuineness of the loan transaction during the year under consideration. After considering the totality of facts, rival submissions, the applicable law and on the basis of discussion mentioned above, I have come to the conclusion that nature and source of loan transactions of Rs. 3,67,00,000/-stands explained.

In the case of PCIT v. Ami Industries (India) P. Ltd., (supra) the Hon'ble Jurisdictional High Court held as under: “17. In so far order passed by the Assessing Officer is concerned, he came to the conclusion that the three companies who provided share application money to the assessee were mere entities on paper without proper addresses. The three companies had no funds of their own and that the companies had not responded to the letters written to them which could have established their credit worthiness. In that view of the matter, Assessing Officer took the view that funds aggregating Rs. 34 Crores introduced in the return of income in the garb of share application money was money from unexplained source and added the same to the income of the assessee as unexplained cash credit under Section 68 of the Act. 18. In the first appellate proceedings, it was held that assessee had produced sufficient evidence in support of proof of identity of the creditors and confirmation of transactions by many documents, such as, share application form etc. First appellate authority also noted that there was no requirement under Section 68 of the Act to explain source of source. It was not necessary that share application money should be invested out of taxable income only. It may be brought out of borrowed funds. It was further held that nonresponding to notice would not ipso facto mean that the creditors had no credit worthiness. In such circumstances, the first appellate authority held that where all material evidence in support of explanation of credits in terms of identity, genuineness of the transaction and creditworthiness of the creditors were available, without any infirmity in such evidence and the explanation required under Section 68 of the Act having been discharged, Assessing (A.Y: 2013-14) Smt Leena Haresh Harde Officer was not justified in making the additions. Therefore, the additions were deleted.

In appeal, Tribunal noted that before the Assessing Officer, assessee had submitted the following documents of the three creditors: - a) PAN number of the companies; b) Copies of Income Tax return filed by these three companies for assessment year 2010-11; c) Confirmation Letter in respect of share application money paid by them; and d) Copy of Bank Statement through which cheques were issued.

From the above, it is seen that identity of the creditors were not in doubt. Assessee had furnished PAN, copies of the income tax returns of the creditors as well as copy of bank accounts of the three creditors in which the share application money was deposited in order to prove genuineness of the transactions. In so far credit worthiness of the creditors were concerned, Tribunal recorded that bank accounts of the creditors showed that the creditors had funds to make payments for share application money and in this regard, resolutions were also passed by the Board of Directors of the three creditors. Though, assessee was not required to prove source of the source, nonetheless, Tribunal took the view that Assessing Officer had made inquiries through the investigation wing of the department at Kolkata and collected all the materials which proved source of the source.

In the result, appeal of the Revenue is dismissed.

Before parting we noticed that this appeal was heard on 14.02.2020 and the pronouncement is delayed due to lockdown in view of COVID-19 pandemic. The pronouncement is as per Rule 34(5) of Income Tax Appellate Tribunal Rules, 1963 and Hon'ble Bombay High Court decision vide orders dated 15.04.2020 and 15.06.2020 extending the time bound periods specified by Hon'ble High Court by removing the period under lockdown. This aspect was also dealt with in detail by the Mumbai Bench of the Tribunal in case of DCIT v. JSW Steel Vide order dated 15.05.2020.