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Income Tax Appellate Tribunal, “H”, BENCH MUMBAI
Before: SHRI AMARJIT SINGH & SHRI G.MANJUNATHA
Date of Hearing 22/08/2019 Date of Pronouncement 28/08/2019 आदेश आदेश / O R D E R आदेश आदेश PER G.MANJUNATHA (A.M):
This appeal filed by the revenue is directed against the order of the Commissioner of Income Tax (Appeals)–9, Mumbai, dated 30/06/2017 and it pertains to the Assessment Year 2010-11.
The revenue has raised the following grounds of appeal:- 1. " On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in allowing relief to the assessee on account of bogus unsecured loans even though the loan parties involved were indulging and providing bogus entries s per the statement of Mr. Bhanwarlal Jain and group. 2. “The appellant craves leave to amend or alter any ground or add new ground which may be necessary.
3. The brief facts of the case are that the assessee company is engaged in the business of manufacturers/dealers in Blouse Cloth Materials, filed its return of income for AY 2010-11 on 22/09/2010, declaring total income of Rs. 3,26,31,088/-. Thereafter, the case has been reopened u/s 147 of the I.T.Act, 1961, for the reasons recorded as per which, income chargeable to tax had been escaped assessment, on account of obtaining accommodation entries of unsecured loan from two concerns namely M/s. Megha Gems for Rs. 80 Lacs and M/s. Rajan Diamonds for Rs. 75 Lacs, both companies controlled and managed by shri Bhanwarlal Jain. The assessment has been completed u/s 143(3) r.w.s. 147 of the I.T.Act, 1961, determining the total income at Rs. 4,82,85,690/- by making additions towards unsecured loans taken from M/s Megha Gems and M/s. Rajan Diamonds amounting to Rs. 1,55,00,000/- and also consequent interest expenditure amounting to Rs. 1,54,603/-
4. Aggrieved by the assessment order, the assesee preferred an appeal before the Ld.CIT(A). Before, the Ld.CIT(A), the assesee has filed elaborate written submissions on the issue, along with certain judicial precedents, which has been reproduced at para 5.2 on pages 3 to 10 of the Ld.CIT(A) order. The some and substance of arguments of the assessee before the Ld.CIT(A) order that it has filed necessary evidences, including confirmation from the party along with ledger extracts, bank statement, copy of PAN, acknowledgment of return of income, along with financial statements of two companies. The assesse has also filed retraction statement of Bhanwarlal Jain group along with affidavit explaining under what circumstances confessional statement has been given before the department. The Ld.CIT(A), after considering relevant submissions of the assessee and also by relied upon various judicial precedents deleted additions made by the AO towards unsecured loans taken from M/s Megha Gems and M/s Rajan Diamonds amounting to Rs. 1,55,00,000/-, along with interest expenses amounting to Rs. 1,54,603/-. The relevant findings of the Ld.CIT(A) are as under:
5.3.10 Thus, it has to be said that the appellant had done everything in its power to prove the 3 ingredients required to prove the satisfactory nature of the loan transactions. In these circumstances, the onus had shifted to the AO. If the AO was still not satisfied, he had the option of making inquiries from the alleged lenders by summoning them. However, as seen from the assessment order, he did not any such thing. Further, if the AO was not satisfied with what had been given to him by the appellant, he was duty bound to specify, what more material he wanted the appellant to furnish- The AO never asked for any further material, though time and again the appellant asked in their submissions. This leads to the inescapable conclusion that the AO could not think of any further material to ask for and proceeded to reject the appellant's claims, relying upon the information/material, which he never even brought to the notice of the appellant tor any rebuttal. The unequivocal conclusion is that all the 3 ingredients having been satisfied, the impugned loans have to be treated as explained satisfactorily and the AO was not justified in having disregarded overwhelmingly supportive evidence. No cogent material was adduced by him to show that loans were unexplained. Therefore, the. impugned additions, made in the assessment order, has to fail on several counts - (1) reliance on evidence that is totally inadequate; (2) failure to make available any incriminating material (reports, statements etc.) forming basis for action by the AO; (3) failure to give due opportunity to the appellant to cross examine witnesses, whose statement might have been relief upon; and (4) failure to recognize the satisfactory nature of the explanation /evidence tendered by the appellant to explain identity of creditors, creditworthiness of the creditors and the genuineness of the loan transactions. Thus, keeping in view of the facts and circumstances of the case as well as judicial pronouncements referred above, the addition made by the AO cannot be sustained. Accordingly, the addition of Rs,1,55,00,000/- with regard to the loan is also directed to be deleted by the AO. Further, the consequential disallowance of interest of Rs.l,54,603/-on the said loan is also directed to be deleted. In the result this ground of appeal is to be treated as Allowed.
5. Aggrieved by the Ld.CIT(A) order, the revenue is in appeal before us.
The Ld. DR submitted that the Ld.CIT(A) erred in allowing relief to the assesee, on account of bogus unsecured loans even though, the loan parties involved were indulging and providing bogus entries, as per the statement of Mr. Bhanwarlal Jain group of companies. The Ld. DR, further submitted that the AO has brought out various reasons to come to the conclusion that transactions between the parties are non genuine, which are used to convert unaccounted income of assessee, in form of unsecured loans.
Therefore, the Ld.CIT(A) merely on the basis of certain paper documents deleted additions made by the AO. In this regard, he relied upon plethora of judicial precedents, including the decision of Hon’ble Delhi High Court in the case of CIT vs M/s. Jansampark advertising and marketing Pvt.Ltd. (2015) 375 ITR 373.
The Ld. AR for the assessee, on the other hand strongly supporting order of the Ld.CIT(A) submitted that the Ld.CIT(A) has appraised correct facts, in light of various evidences filed by the assessee, including identity of the loan creditors and also documents to prove genuineness of transactions and creditworthiness of the parties. The ld. AR, further submitted that the AO has made additions only, on the basis of statement of shir Bhanwarlal Jain and his associates given, during the course of search in their case without confronting those statements to the assesee and also, the opportunity of cross-examination, even though the assesee has specifically asked for statement of shri Bhanwarlal Jain and his associates and also the opportunity of cross examination. In this regard, he relied upon the decision of Hon’ble Supreme Court in the case of Kishinchand chellaram vs CIT (1980) 125 ITR 730. Further, when the bench asked specific question to the Ld.AR for the assesee that he is willing to go back to the AO to avail opportunity of cross examination of the persons and also to produce necessary evidences, he fairly accepted that the issue may be set aside to the file of the AO and he is willing to avail of the opportunity of cross- examination of shri Bhanwarlal Jain and its associates and also to rebut his statements.
We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We find that the Ld. AR for the assessee has made a basic allegation on the AO in light of the decision of Hon’ble Supreme Court in the case of Kishinchand Chellaram vs CIT (1980) 125 ITR 730) (SC) to argue that the AO has relied upon third party statement to make additions towards unsecured loans taken from two concerns belongs to Mr.Bhanwarlal Jain group of companies without confronting those statements and also to allow opportunities of cross examination to the assessee, in spite, asking for cross-examination of the person, who gave the statement. We find that the Hon’ble Supreme Court in the case of Kishanchand Challaram vs CIT (supra) had considered an identical situation, in light of allegation of the assessee that the AO has violated principles of natural justice by not providing evidences used against the assesee and also, the opportunity of cross-examination and held that though, the proceedings under the I.T.Act are not governed by the strict Rules of evidence , the department is bound to afford an opportunity to controvert and cross- examine the evidence, on which the department places its reliance.
Opportunity of cross examination must be given. The consequences of breach of natural justice is that either the additions is void. We further noted that the Hon’ble Supreme Court, in the case of Andaman Timber Industries Ltd Vs CCE, Kolkata II in Appeal No 4228 of 2016 has considered identical issue and held that not allowing the assessee to cross-examine the witnesses by the adjudicating the authority, though the statements and those witnesses were made, the basis of the impugned order is a serious flaw, which makes the order nullity in, as much as, it amounts to violation of principle of natural justice, because of which, the assessee was adversely affected. In this case, the assessee has field necessary evidences including letter filed before the AO vide letter dated 21/08/2015, where the assessee has specifically asked for copies of statement that the AO has relied upon and also requested for opportunity of cross-examination of the person who gave statement. The Ld. AO, in spite of request made by the assesee denied, the opportunity of cross-examination to the assessee and thus violated principles of natural justice.
We, further note that the assessee has agreed to go back to the AO to avail the opportunity of cross-examination and also to rebut the statement given by the shri Bhanwaral Jain and his associates. Therefore, considering the facts and circumstances of this case and also by following, the decision of Hon’ble Supreme Court in the case of Kishinchand Chellaram vs CIT (supra), we are of the considered view that the issue needs to be set aside to the file of the AO to give an opportunity to the assesee to avail the benefit of statements of shri Bhanwrlal Jain and his associates and also to avail, the opportunity of cross-examination of the person, who gave statement. We, further direct the AO to provide copies of statements on which, he placed his reliance before taking an adverse view against the assesse and also to provide the opportunity of cross examination of the person, who gave statement to the assessee for its rebuttal.
In the result, appeal filed by the revenue is treated as allowed for statistical purposes.
Order pronounced in the open court on this 28 /08/2019