INCOME TAX OFFICER 15(1)(3), MUMBAI vs. M/S.CELEBRITY LIFESPACE PRIVATE LIMITED, MUMBAI

4. By the impugned order the CIT(A) deleted the addition by observing as under:

“I have considered the submissions filed by the assessee and the AO's findings in the assessment order. A search and seizure action u/s.132 of the I.T. Act, 1961 was carried out in . M/s. Celebrity Lifespace Pvdst Ltd., Mumbai. the case of ShiErav.een Kumar Jam, Gautam Jain and Vipul Vidur Bhatt and their other related entities and the assessee has taken/made transactions with Mr. Vipul Vidur Bhatt and his group concerns. The AO concluded that the above loans were not genuine, merely relying upon the Statements of Shr. Praveen Kumar Jam and Shri Gautam Jain recorded by the Department u/s 132 of the Income Tax Act, 1961 on 1st October, 2013 and Shri Vipul Vidur Bhatt, recorded by the Department u/s 132 of the Income Tax Act, 1961 on 09 February, 2016. The Appellant pointed out that through Serial No 5, 6 & 7 of the reply to 0 No. 15 posed to Vipul Bhatt, he has categorically stated that the above lender companies have given Bogus Unsecured Loan entries only to one M/s Moraj Building Concepts Private Limited. it was never an averment of Mr Vipul Bhatt that he had provided accommodation loan entries to the assessee through the above lender companies. Moreover, Mr Vipul Bhatt has retracted his statement by an affidavit made on 02nd September, 2016. It is settled law that when there are two contradictory statement of a person, the retracting statement is to be accepted unless it is provided otherwise by bringing in corroborative evidences. The AO, in this case, has merely relied upon the statement of Mr Vipul Bhatt (which was already been retracted) and did not make any inquiries with the lender companies to establish the genuineness of the transaction. The LAR also submitted a copy of the affidavit dated 15th May, 2014 made by Shri Praveen Jam, wherein he has retracted his earlier statements recorded by the Income Tax Department between 1st October, 2013 to 9th October, 2013. He has categorically affirmed that his statement recorded during the course of search were under duress and coercion. He further stated that his entire business has been completely legal and nothing incriminating has been found in the course of search to . M/s. Celebrity Lifespace Pvdst Ltd., Mumbai. establish the fact that he was in the business of providing the accommodation entries. The LAR has also contended that an opportunity of cross examination was not granted to the assessee In case of CIT v Ashish International High Court of Bombay (ITA NO 4299 of 2009) the Jurisdictional the Hon’ble Bombay High Court has held that the Tribunal has recorded a finding of fact that the assessee had disputed the correctness of the statement of the Director of M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. and admittedly the assessee was not given any opportunity to cross examine the concerned Director whose statement was relied upon by the Director. In case of Heirs And LRs of Late Laxmanbhai S. Patel v. CIT 22 CTR 0138 (Guj) the legal effect of the statement recorded behind the back of the assessee and without furnishing the copy thereof to the assessee or without giving an opportunity of cross- examination, if the addition is made, the same is required to be deleted on the ground of violation of the principles of natural justice. This is clearly stated by the Hon'ble Supreme Court in the case of KishinchandChellaram vs. CIT (supra) wherein it is stated that before the IT 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 Jurisdictional Mumbai ITAT in the case of Smt. Jyoti D. Shah (supra) has held that Shri Mukesh Choksi had issued a general statement, and therefore a general statement given by Mukesh Choksi cannot by applied to each and every case. The additions made were deleted as there was no direct evidence against the assessee. Neither the statement of Mukesh Choksi was provided to the assessee nor any opportunity for cross examination of Mukesh Choksi was provided. Various courts have held and reiterated the principle that . M/s. Celebrity Lifespace Pvdst Ltd., Mumbai. where the assessee is not granted an opportunity of cross examination of the person whose statement has been relied upon during the course of assessment, which could have held the assessee to rebut the statements, the addition made basis the statement is not correct as there is a violation of the principle of natural justice. This principle has been settled time and again by the Higher Courts. Section 68 of the Act casts the responsibility upon the assessee to prove the identity of the creditors, capacity of the creditors and genuineness of the loan. The assessee has been able to establish the identity of the cash creditors, their credit worthiness and the genuineness of transaction by furnishing evidence like their IT. details, mode of payment, etc. Once the assessee has discharged the obligation of establishing the identity, creditworthiness of those parties as well as genuineness of the transaction, the onus now shifts on the AO. It is noted that the A.O has not taken any steps to identify the creditworthiness of the lender companies as well as genuineness of the loan given. The AO has merely relied on the statements of Shri Praveen Kumar Jam Shri Gautam Jain and Shri Vipul Bhatt ignoring the fact that these statements were later retracted by them. The AO observed that the assessee company might have exchanged cash with the lender companies for the account payee cheques is totally based on conjectures and surmises. No material has been brought on record to prove that the cash credit in the books of the assessee company represent its income from undisclosed sources. Therefore, it cannot be charged as the assessee's income in the absence of any material to indicate that they belong to the assessee. The AO has to take cognizance of the evidence filed by the assessee company like, income tax details, PAN, bank account, mode of payment (by account payee cheques), loan confirmation, etc unless provided otherwise. The Hon'ble Gujarat High Court in the case of Murlidhar Lahorimal v. CIT 280 ITR 512 has held that 'an assessee can be asked to prove the source of credit in the books, . M/s. Celebrity Lifespace Pvdst Ltd., Mumbai. but he cannot be asked to prove the source of the source". Under the circumstances and facts of the case, the AO has not placed any evidence on record to support its claim that the transaction was accommodated except merely relying on the retracted statement and has taken no action to rebut the evidences produced by the assessee. On the other hand, the assessee has provided all the documents to prove the genuineness of the transaction entered into.

In CIT v. Orissa Corporation P. Ltd. [1986] 159 ITR 78 (SC), the Hon'ble Supreme Court held that once the primary onus of establishing the genuineness of the transaction is done by the assessee by furnishing the details like name, address, PAN, confirmation, copy of tax return, etc, it was the duty of the AO to verify the genuineness of these transactions by strictly enforcing the provisions of section 131 of the Act if at all those creditors were required to be produced before him. The entire transaction has been through the banking channels only and therefore, the AO should have verified the transaction with relevant banks and should have made further inquiries in this regard, which he failed to do so. The AO has not established the case or bought any material on record to even remotely record that the money originally belonged to the assessee and it was an adjustment entry. The assessee in facts has gone to establish that the lender companies had enough bank balance & before granting the loans and no cash was deposited by the lender companies while granting the loans. I have also perused the decisions cited by the assessee in its submissions. The AO has not discharged his onus of rebutting the documents submitted by the assessee by recoursing to the means of initiating inquires with the lender parties or issuing summons and producing the party for cross examination or proving that the transaction was an adjustment entry and that the cash had exchanged hands.

The assessee also submitted the details of confirmation of loans of . M/s. Celebrity Lifespace Pvdst Ltd., Mumbai. all the parties with their income tax acknowledgements of the return filed and financial statements and bank statements. On a perusal of the bank statement, it is noted that no cash have been deposited prior or subsequent to the amounts lent to the assessee. There was sufficient creditworthiness of the lending companies and bank balance before lending the monies to the assessee. The AO has not considered these evidences filed by the assessee and simply relied on the statements of Shri Praveen Kumar Jam, Shri Gautam Jain and Mr. Vipul Bhatt of which the statements of Shri Praveen Kumar jain and Mr. Vipul were retracted by them later without independently verifying any facts of the matter. The facts in the case of M/s. KomalAgrotech Pvt, Ltd. Vs ITO Ward 2(1), / HYD /2016, (Hyd) were as under—

The assesse company is engaged in the business of trading in pulses and grains.-On 28.07.2008 it initially filed its return of income for the assessment year 2007-08 admitting a total income of Rs. 7,89,900. The assessment was reopened and was completed under section, 143(3) r.w.s. 147 on 30.03.2015 determining total income at Rs. 82,89,890. The addition made and agitated in this appeal is the addition made u/s 68 of the Act to the tune of Rs. 75,00,000. The Assessing Officer has observed that during financial year 2006- 07, the appellant company had received a sum of Rs.75,00,000 as share capital including premium. As per the Assessing Officer the entire sum was received from certain companies managed by one Mr. Praveen Kumar Jain who has admitted that this money was routed through bogus share applications. According to the Assessing Officer, the said sum of Ps. 75,00,000 represented the amounts received from shell Companies. Therefore, the Assessing Officer had added the entire sum of Rs. 75,00,000 as unexplained credit u/s 68 of the Act.

. M/s. Celebrity Lifespace Pvdst Ltd., Mumbai.

The Hon'ble ITAT held that Ld. CIT(A) failed to note that the learned Assessing Officer merely relied on the information received from DGIT (Investigations), Mumbai to reopen the assessment and neither the assessment order nor the reasons communicated indicate that the Assessing officer had applied his mind to the issue and therefore the entire reassessment proceedings are invalid, without jurisdiction, has no legs to stand and hence must be quashed. The Ld. CIT(A) failed to note that the entire evidence and proof for the receipt of Rs. 75 lakhs by way of share application money and premiums were filed which has not been dispatched by any of the authorities and therefore the CIT(A) fell into error in confirming the addition of Rs. 75 lakhs. The Ld. CIT(A) erred in confirming the addition of Rs. 75 lakhs U/s. 68 of the I. T. Act, 1961. The Ld. CIT(A) at page 7.2 of the order erred in holding that the assessee failed to produce Mr. Praveen Kumar Jain for cross examination who was a witness for the department and failed to note that it was not the duty of the appellant to produce any person to substantiate the claim of the department and therefore the addition of Rs. 75 lakhs is to be deleted. The Ld. CIT('A) failed to note while confirming the addition or Ps. 75 lakhs that the entire enquiry by DGIT (Inv.), Mumbai and the information received by the Assessing Officer about Mr. Praveeen Kumar Jain was used against the appellant without giving a copy of the evidence/statement received from the DGIT (Inv.), Mumbai, thus violating the principles of natural justice and on this ground alone, the entire assessment most be quashed and more so that addition of Rs. 75 lakhs by the CIT(A). The Honorable Tribunal considered various judgments and finally came to the following conclusion: "9.

1. A plain reading of the assessment order demonstrate that the A. 0. merely went by the investigation done by the Office of D.G.l (Investigation), Mumbai. No enquiries or investigation was carried . M/s. Celebrity Lifespace Pvdst Ltd., Mumbai.

out. No evidence to controvert the claims of the assessee was brought on record by the A.

The Hon’ble Mumbai ITAT in case of MIs. Enrich Enterprises Pvt. Ltd. v. ITO Ward 4(1)(4) / MUM / 2015 quashed the reopening of the assessment where the facts were similar like in the case of the assessee. Having considered all of the above, I am of the view that the assessee has discharged his onus of establishing the genuineness of the transaction and the onus was on the department. The AO has not discharged his duties and proved otherwise except for relying on the statements of Shri Praveen Kumar Jam, Shri Gautam Jain and Mr. Vipul Bhatt of which the statements of Shri Praveen Kumar Jain and Mr. Vipul were retracted by them later. The AG has not granted the-opportunity of cross examination of all the three parties on whose statement he has relied upon. The AO also failed to make any further inquiries with the lender companies to establish the genuineness of the transaction and also failed to consider the various evidences filed by the assessee to prove the identity, creditworthiness and genuineness of the loans. The AO has not pointed out any defect / deficiencies in the evidences adduced by the assessee. All these clearly establishes that the principle of natural law and justice is violated and addition has been made u/s. 68 of the Act by simply relying on the statements of third parties which are not supplied to the assessee as well as no . M/s. Celebrity Lifespace Pvdst Ltd., Mumbai. - 11 - cross examination is conducted to establish the correctness of the same. In light of the same, the AO's consideration that the loan are not genuine is not correct. These grounds of appeal are allowed.

4.1 Addition made by disallowing claim of interest of Rs. 16,14,410/- was also allowed by CIT(A) after following observations

“The AO computed disallowance of Rs. 16,14,410/- on the loans granted to the above lender parties. Having concluded the above that the loans are not to be considered as in genuine, I hereby allow the interest paid on the same to the said lender parties and delete the addition made by the A.O. This ground of appeal is allowed”.

5. Against the above order of the CIT(A) the revenue is in further appeal before us.

5.1. At the outset, ld. AR placed on record order of the Tribunal in the case of group concerns M/s. Manba Finance Ltd in 1449 & 1461/Mum/2017 dated 15/10/2018 for the A.Yrs.2013-14, 2010-11 and 2011-12 wherein under similar facts and circumstances, the Tribunal have confirmed the order of CIT(A) for deleting similar additions made by the AO during the course of very same search. . M/s. Celebrity Lifespace Pvdst Ltd., Mumbai. - 12 - 5.2. Ld. AR also relied on the findings recorded by CIT(A) to the effect that loan was genuine and was repaid in next financial year. He also invited our attention to the observation of CIT(A) to the effect that the parties from whom loan was taken had sufficient creditworthy 5.3. On the other hand, ld. DR relied on the order passed by the AO and contended that CIT(A) was not justified in deleting addition so made.

6.1 From the record, we found that in respect of show cause notice as mentioned in para 7.4 of the assessment order, assessee has relied on all the documents and evidences filed in respect of these loan parties and also submitted that the three persons on whose statements department has relied have not mentioned name of the assessee in their statements. A.O has not accepted the reliance placed by assessee on various judgments which were submitted before the A.O. The A.O has relied on provisions of Sec. 292C of the Act, which raises a presumption against the persons in whose case search is conducted. However, in the case of assessee, no search or survey has taken place.

6.2 By the impugned order the Ld. CIT(A) has deleted addition after threadbare dealing with all the contentions of . M/s. Celebrity Lifespace Pvdst Ltd., Mumbai. - 14 - the A.O. On page No. 6 of the order, the Ld. CIT(A) has incorporated various decisions of Hon’ble ITAT, High Court and Supreme Court relied on by the assessee on the ground of not allowing cross examination of parties whose statement AO is relying on particularly the judgment of Hon’ble Supreme Court in the case of Andaman Timber Industries V. CIT, 281 CTR 241 along with following decisions.

6.3 It was contented by Ld. AR that in the statement of Shri Vipul Vidur Bhatt, he has replied regarding unsecured loans to only one party M/s Moraj Building concepts Pvt Ltd., and he has nowhere mentioned the name of the assessee company. Shri Vipul Vidur Bhatt has retracted the statement on 02.09.2016 by making an affidavit before notary public. Similarly, Shri Pravin Kumar Jain has . M/s. Celebrity Lifespace Pvdst Ltd., Mumbai. - 15 - retracted his statement on 15.05.2014 by making an affidavit before notary public. On page No. 8, Ld. CIT(A) has relied on submission made by assessee that the AO should not have relied on the three original statements made by Shri Vipul Vidur Bhatt and Shri Pravin Kumar Jain recorded during the course of search when they retracted their statements and in substance two contradictory statements made by these persons are available. Then the A.O should rely on the retraction statement.

6.4 Ld. AR relied on the decision of Hon’ble Supreme Court in the case of M/s. Mehta Parikh & Co., reported in 30 ITR 181, wherein it was held that once a statement given on oath is retracted, AO has to examine that person again and if that is not done, he cannot rely on original statement made by that person.

7.1 It is also clear from the record that all the loans taken during the year were repaid in next financial year. Therefore no addition can be made. For this purpose we rely on the decision of Hon’ble Bombay High Court in the case of M/s. Skylark Build in of 2016 dated 24.10.2018, 2018-TIOL-2323-HC-Mum-IT.

7.3 Further more Ld. CIT(A) has incorporated various judgments on page No. 18 of the order according to which by filing various documents the creditworthiness of lender parties is established. Ld. CIT(A) has incorporated the submission given by assessee in response to show cause notice issued by A.O on page No. 19 of his order. Ld. CIT(A) has given findings starting from page No. 20 of his order and relied on various judgments. The final findings are at page No. 25 of the order. Detailed finding so recorded by CIT(A) has not been controverted by Ld. DR by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the findings so recorded by CIT(A) which are as per material on record. . M/s. Celebrity Lifespace Pvdst Ltd., Mumbai. - 17 - 7.5. We had also carefully gone through the order of the Co-ordinate Bench in the case of group concern M/s.Manba Finance Ltd. dated 05/10/2010, wherein under similar facts and circumstances, the Tribunal have confirmed the order of CIT(A) for deleting the addition so made after having the following precise observation:-

7.6. We found that facts and circumstances during the year under consideration are parimateria, therefore, respectfully following order of the Tribunal in case of group concern, we do not find any infirmity in the order of CIT(A) for deleting the impugned addition.

This Order pronounced in Open Court on 05/12/2019