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Income Tax Appellate Tribunal, MUMBAI BENCH “G” MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
The captioned appeals filed by the assessee are directed against the order of the Commissioner of Income Tax (Appeals)-53, Mumbai [in short ‘CIT(A)’] and arise out of the assessment completed u/s 143 r.w.s 147 of the Income Tax Act 1961 (the ‘Act’). As common issues are involved, we are proceeding to dispose them off through a consolidated order for the sake of convenience. Facts being identical, we begin with the assessment year (AY) 2008-09.
ITA 2750 & 2751/MUM/2019/A.Y.2008-09 & 2009-10 SHREE SHANKAR SAREES 2 Assessment Year: 2008-09
The 1st ground of appeal:
In the facts and the circumstances of the case and in law, the AO erred in passing the order u/s 143(3) r.w.s. 147 by mere change of opinion which is bad in law as per the judgement of SC in the case of Kelvinator of India Ltd (320 ITR 561 SC), that too after four years and therefore rendering the whole re-assessment bad in law, also on the basis of borrowed satisfaction, presumption and surmises.
Briefly stated the facts are that the assessee filed its return of income for the A.Y. 2008-09 on 27.09.2008 declaring total income of Rs.10,15,730/. The assessee trades in sarees and saree fabrics. The return was processed u/s.143(1) of the Act. Thereafter, the assessment was completed u/s. 143(3) by the Assessing Officer (AO) on 03.09.2010 determining the total income at Rs.10,65,910/-. Thereafter, the return was revised to Rs.10,15,730/- after giving effect to the order of the CIT(A).
Subsequently, the AO received information from the Investigation Wing of the Department that the assessee had taken accommodation entry amounting to Rs.10,00,000/- from M/s. Kunal Gems, a concern controlled by Mr. Praveen Kumar Jain. On the basis of the above information, the AO reopened the assessment by issuing notice u/s.148 dated 30.03.2015 to the assessee. In response to the said notice, the assessee vide letter dated 02.04.2015 requested the AO to treat the original return filed on 27.09.2008 as the return filed in response to notice u/s. 148.
ITA 2750 & 2751/MUM/2019/A.Y.2008-09 & 2009-10 SHREE SHANKAR SAREES 3 4. In appeal, the ld. CIT(A) held that the assessee was a beneficiary in as much as the unsecured loan has been claimed to have been taken from Kunal Gems, which was a Praveen Kumar Jain group entity and it had not disclosed that it had taken accommodation entries of unsecured loans from Praveen Kumar Jain group. Further, it was observed by him that there was definite failure on the part of the assessee to disclose true and full material particulars in respect of its income.
With the above observations, the ld. CIT(A) affirmed the reopening u/s.148 done by the AO.
Before us, the ld. counsel for the assessee submits that the assessment completed u/s.143(3) cannot be reopened u/s. 147 after expiry of 4 years from the end of the relevant assessment year, unless the income chargeable to tax has escaped assessment for failure on the part of the tax payer to disclose fully and truly all material facts necessary for the assessment. In this regard, reliance is placed by him on the decision in Kelvinator of India Ltd. (supra).
On the other hand, the ld. Departmental Representative (DR) submits that it is not a case of change of opinion as the assessee failed to disclose the fact in the return of income that it had taken accommodation entries of unsecured loans from Praveen Kumar Jain group and the information came to the knowledge of the AO only after the original assessment order was passed in this case. Reliance was placed on the decision in ITO v. Purushottam Das Bangur (1997) 224 ITR 362 (SC) and M/s. Phool Chand Bajrang Lal and Anr. v. Income Tax Officer and Anr., (1993) 203 ITR 456 (SC).
ITA 2750 & 2751/MUM/2019/A.Y.2008-09 & 2009-10 SHREE SHANKAR SAREES 4 Thus, the ld. DR supports the order passed by the ld. CIT(A) on the above ground of appeal.
We have heard the rival submissions and perused the relevant material available on record. In the instant case, we find that the AO reopened the assessment on the basis of the findings in the search action u/s. 132 of the Act in the case of Praveen Kumar Jain group, wherein evidence was gathered that a large number of entitites managed and controlled by the Jain Group were engaged in providing accommodation entries and the assessee was a beneficiary in as much as unsecured loans have been claimed to have been taken from Kunal Gems, which was a Praveen Kumar Jain group. Further, the assessee had not disclosed the fact that it had taken accommodation entries of unsecured loans on the above group. Thus, there was a definite failure on the part of the assessee to disclose truly and fully the above information before the AO in original assessment completed u/s. 143(3) on 03.09.2010.
In CIT v. Kelvinator of India Ltd (2010) 320 ITR 561 (SC), it is held that the AO has power to reopen the assessment if there is tangible material to conclude, prima facie that there has been escapement of income. However, the Court cautioned that the power of assessment is not one of review and that it does not admit of information of a second opinion. The scope of the phrase "reason to believe" was examined by the Supreme Court previously in M/s. Phool Chand Bajrang Lal and Anr. v. Income Tax Officer and Anr., (1993) 203 ITR 456 (SC). In Phool Chand, the court made observations which remain undisturbed in Kelvinator:
"Thus, where the transaction itself on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the ITA 2750 & 2751/MUM/2019/A.Y.2008-09 & 2009-10 SHREE SHANKAR SAREES 5 time of original assessment proceedings, cannot be said to be disclosure of the "true" and "full" facts in the case and the I.T.O. would have the jurisdiction to reopen the concluded assessment in such a case. It is correct that the assessing authority could have deferred the completion of the original assessment proceedings for further enquiry and investigation into the genuineness to the loan transaction but in our opinion his failure to do so and complete the original assessment proceedings would not take away his jurisdiction to act under Section 147 of the Act, on receipt of the information subsequently".
7.1 In view of the above factual scenario and on an application of the law in Phool Chand Bajrang Lal (supra), we hold that the Ld. CIT(A) is justified in affirming the reopening done by the AO by issuing notice u/s.148 of the Act. Thus, the 1st ground of appeal is dismissed.
The 2nd ground of appeal:
In the facts and circumstances of the case and in law, the AO erred in making an addition ofRs.10,00,000/- on account of unsecured loan received from M/s Kunal Gems by overlooking the relevant loan confirmation, an affidavit along with the relevant Bank statements of the Appellant and those of the loan creditor and acknowledgement of return filed by them, details of repayment of loan already submitted by the Appellant.
The 3rd ground of appeal In the facts and circumstances of the case and in law, the learned AO erred in making an addition of Rs.58,849/- on account of interest payment on unsecured loan received from M/s Kunal Gems-although the TDS was deducted on such payment, also the TDS return is filed and amount paid through Account payee cheque.
During the course of assessment proceedings, the AO issued a show cause notice dated 25.01.2016 to the assessee to explain why the amount ITA 2750 & 2751/MUM/2019/A.Y.2008-09 & 2009-10 SHREE SHANKAR SAREES 6 of Rs.10,00,000/- shown as unsecured loans in the books of accounts should not be treated as accommodation entries and brought to tax as undisclosed cash credit u/s. 68 of the Act. In response to it, the assessee filed a reply dated 01.02.2016 stating that they have taken loan of Rs. 10,00,000/- from M/s. Kunal Gems (proprietary concern of Ashok Ratanlal Verma) by a/c payee cheque and the same was deposited in their bank account. It is further stated by the assessee before the AO that they had no business dealings with person called Praveen Kumar Jain.
However, the AO was not convinced with the above explanation of the assessee because the Jain group was operated by dummy directors /proprietors/partners, who were not carrying out any genuine business and in fact they were providing accommodation entries. As per the said findings, the assessee was one of the beneficiaries of accommodation entries in the form of unsecured loans of Rs. 10,00,000/- from M/s. Kunal Gems of Shri Praveen Kumar Jain group.
The AO further noted that the accommodation entries to various beneficiaries have been given in cheque/RTGS which have been routed through the bank account of the bogus concerns of Praveen Kumar Jain group. Against the cheque/RTGS, equivalent amount of cash is received from those beneficiaries through the Angadias and the recorded transactions are routed through banks and the same get reflected in the regular books of accounts of the benami concerns of Praveen Kumar Jain group.
With the above observations, the AO made an addition of Rs.10,00,000/- as unexplained cash credit u/s. 68 of the Act. Further, he ITA 2750 & 2751/MUM/2019/A.Y.2008-09 & 2009-10 SHREE SHANKAR SAREES 7 disallowed the interest of Rs.58,849/- to M/s. Kunal Gems against the above loans.
In appeal, the ld. CIT(A), confirmed the addition made by the AO after examining (i)the statement recorded on oath u/s.132(4) dated 01.10.2013 of Shri Praveen Kumar Jain, (ii)the statement of Shri Nilesh Parmar, proprietor of M/s. Mohit International recorded u/s.131 dated 02.10.2013, (iii) note on the findings of search action u/s. 132 by the Investigation Wing of the Department in the case of Shri Praveen Kumar Jain group.
Before us, the ld. counsel for the assessee files a paper book containing the documents which were filed before the AO, as well as CIT(A). Specific reference is made to the confirmation of loan of Kunal Gems and bank statement of the assessee showing loan and repayment. Also, the ld. counsel files a copy of the order of the Tribunal dated 06.06.2019 in the case of ITO v. Smt. Pratima Ashar [ITA No. 105/MUM/2018 for A.Y. 2010-11] and order dated 15.05.2019 in the case of ACIT v. M/s. Abani Sarbeswar Das [ITA No. 193/MUM/2018 for A.Y. 2010-11 & for A.Y. 2012-13].
Referring to the above orders of the Tribunal, the ld. counsel submits that facts being identical, those orders of the Co-ordinate Bench may be followed and the addition made by the AO be deleted.
On the other hand, the ld. Departmental Representative (DR) submits that the rigour of satisfaction u/s. 68 is far more when investment is made through personal contacts and private investments rather than public. Further, it is stated that in almost all decisions of High ITA 2750 & 2751/MUM/2019/A.Y.2008-09 & 2009-10 SHREE SHANKAR SAREES 8 Courts including Lovely Exports (Delhi H.C dated 16.11.2006), Courts have acknowledged and distinguished the discharge of onus in case of investments through public issue, where once identity of investor is established, the onus of assessee is discharged and AO is free to investigate sources of investor and however, where investment is not from public but from personal contacts, the onus on assessee is much more.
The ld. DR further submits that the newly introduced proviso to section 68 by Finance Act 2012 lays down a more stringent test for the companies, where public are not substantially interested as in the case of the assessee. It is argued that in the present case, the creditor i.e. Shri Praveen Kumar Jain as Director/Controller of Mohit International & Kunal Gems has clearly admitted to have provided bogus entries and earned commission @0.15% of such accommodation entries and therefore the requirement of Section 68 is more than fulfilled.
The ld. DR relied on the decision in McDowell & Co. Ltd v. CTO (1985) 154 ITR 148 (SC), CIT v. Divine Leasing & Finance Ltd. (ITA No. 53/2005, 56/2005, 305/2006) of Delhi High Court.
We have heard the rival submissions and perused the relevant material available on record. At this moment, we discuss the case laws relied on by the ld. DR. In the case of McDowell & Co. Ltd (supra), the issue was tax avoidance and the Hon’ble Supreme Court held that –
“Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by restoring to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges. Courts are now ITA 2750 & 2751/MUM/2019/A.Y.2008-09 & 2009-10 SHREE SHANKAR SAREES 9 concerning themselves not merely with the genuineness of a transaction, but with the intended effect of it for fiscal purposes. No one can now get away with a tax avoidance project with the mere statement that there is nothing illegal about it.”
In the case of Divine Leasing & Finance Ltd (supra), it is held that if the Revenue merely issues summons u/s.131 and does not pursue the matter further, the assessee does not become responsible for the same, even if the creditors do not appear and addition cannot be made u/s.68 of the Act.
In the instant case, the AO has made an addition of Rs.10,00,000/- as unexplained cash credit u/s. 68 and simultaneously disallowed interest of Rs.58,549/- exclusively on the basis of the information received from the Investigation Wing of the Department that the assessee, through M/s. Kunal Gems, a concern controlled by Shri Praveen Kumar Jain had taken an accommodation entry. Although, the assessee had filed before the AO confirmation of loan of Kunal Gems and bank statements showing loan and repayment, the AO did not examine it.
We are of the considered view that the AO should have verified the genuineness of transaction by starting with the confirmation of loan from Kunal Gems filed by the assessee and the bank statements showing loan and repayment. He has not done so.
Also we find that the ld. CIT(A) confirmed the addition made by the AO after examining (i)the statement recorded on oath u/s.132(4) dated 01.10.2013 of Shri Praveen Kumar Jain, (ii)the statement of Shri Nilesh Parmar, proprietor of M/s. Mohit International recorded u/s.131 dated 02.10.2013, (iii) note on the findings of search action u/s. 132 by the ITA 2750 & 2751/MUM/2019/A.Y.2008-09 & 2009-10 SHREE SHANKAR SAREES 10 Investigation Wing of the Department in the case of Shri Praveen Kumar Jain group.
The ld. CIT(A) could have remanded the matter to the AO u/s. 250(4) of the Act to make further enquiry before disposing of the appeal. To arrive at a finding without any verification of the transactions, would lead anyone to the realm of pure conjectures.
The reliance placed by the ld. DR on the decision in McDowell & Co. Ltd (supra) is misplaced as in the instant case the AO has not done any enquiry. The decision in Divine Leasing & Finance Ltd. (supra), rather supports the case of the assessee.
It is well-settled that u/s.68, the primary onus as to the receipt of the amount is on the assessee to show the identity of the lenders, their creditworthiness and the genuineness of the transactions. Only where the assessee discharges the burden prima facie, does the burden shift on to the Revenue. In the instant case, the assessee has discharged the burden prima facie by filing the confirmation of loan of Kunal Gems and bank statements showing loan and repayment.
An explanation, prima facie reasonable cannot be rejected on capricious or arbitrary grounds or on mere suspicion or on imaginary or irrelevant grounds. In this regard, we fruitfully refer to the decision in R.B.N.J. Naidu v. CIT, [1956] 29 ITR 194 (Nag.), Lajwanti Sial v. CIT, [1956] 30 ITR 228 (Nag.).
In view of the above factual matrix and position of law, we set aside the order of the ld. CIT(A) and delete (i) the addition of Rs.10,00,000/- ITA 2750 & 2751/MUM/2019/A.Y.2008-09 & 2009-10 SHREE SHANKAR SAREES 11 made by the AO u/s. 68 of the Act and (ii) disallowance of interest of Rs.58,849/-. Thus, the 2nd & 3rd ground of appeal are allowed.
Facts being identical our decision for the A.Y. 2008-09 applies mutatis mutandis to A.Y. 2010-11.
In the result, the appeals are partly allowed.
Order pronounced in the open Court on 31.10.2019