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Income Tax Appellate Tribunal, “A”, BENCH MUMBAI
Before: SHRI G. MANJUNATHA & SHRI RAM LAL NEGI
Date of Hearing 24/07/2019 Date of Pronouncement 23/08/2019 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 16/01/2017 and it pertains to the Assessment Year 2007-08.
The revenue has raised the following grounds of appeal:- 1. "On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in directing the AO to delete the addition made towards unexplained cash credit of Rs.1,25,00,000/- u/s. 68 of the I. T. Act.
2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred has erred in not appreciating the facts of the case that the assessee has failed to prove the identity, genuineness and credit worthiness of lender parties, invested as share application money in the assessee company.” 3. "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 trading of cloths and wholesalers, filed its return of income for AY 2007-08 on 25/10/2017, declaring total income of Rs. 3,76,660/-. Thereafter, the case has been reopened u/s 147 of the I.T.Act, 1961, on the basis of information received from the DGIT(Inv.), Mumbai, as per which a search and seizure action u/s 132 was carried out, in the case of Shri Praveen kumar Jain, where it was revealed that he was involved in providing accommodation entries of bogus purchases, unsecured loans and share capital ect. It was further, observed that Shri Praveen Kumar Jain, through his shell companies issued accommodation entries of share capital to various beneficiaries and accordingly, it was observed that the assessee M/s Agarwal Cloth Agency Pvt.Ltd. is one of the beneficiaries, who had obtained accommodation entries of share capital from M/s Nakshatra business Pvt.Ltd., M/s Olive overseas Pvt.Ltd. and M/s Lexuss infotec Ltd. amounting to Rs. 1,25,00,000/-,which resulted in under assessment of income chargeable to tax, accordingly notice u/s 148 of the I.T.Act, 1961, dated 26/03/2014 was issued. In response, the assessee has filed a letter dated 07/07/2014 and requested to treat return originally filed on 25/10/2007 is return filed in compliance to 148 notice. The assessee has also asked for reasons recorded for reopening of assessment. Thereafter, the case has been selected for scrutiny and during the course of assessment proceedings, the AO called upon the assesee to produce necessary evidences, in respect of share capital received from three companies, more particularly in the backdrop of information received from DGIT(Inv.). In response , the assessee has filed confirmation from the parties along with ledger account, bank statement and copy of the return of income filed by above companies.
The Ld. AO after considering relevant submissions of the assessee and also taken note of information received from DGIT(inv.), came to the conclusion that although, assesee has filed confirmation along with other details, in order to, prove the identity of the parties, but failed to prove genuineness of transactions and credit worthiness of parties, more particularly in the backdrop of clear finding by the DDIT(Inv.) Unit 3(2), Mumbai, during the course of search in the case of Shri Praveen Kumar Jain that he and his associates were involved in providing accommodation entries to various beneficiaries through a web of companies. The AO, further observed that no doubt, the assesee has filed confirmation and other details, but when a shadow is cost on genuineness of transactions, it is for the assesse to discharge, the shadow by filing conclusive evidences to prove genuineness of transactions. Mere, furnishing confirmation letters and income tax returns copies of shareholders is not sufficient enough to come out of the provision of section 68 of the I.T.Act, 1961. Therefore, he opined that when, a person provided accommodation entries categorically admitted that the assessee is one of the beneficiaries of accommodation entries of share capital, merely for the reason of filing confirmation, the said confessional statement cannot be disowned. Accordingly, he made additions of Rs. 1,25,00,000/- u/s 68 of the I.T.Act, 1961, as unexplained cash credit.
Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld.CIT(A), the assesee submitted that it has discharged onus cost upon u/s 68 of the I.T.Act, 1961, by the filing enormous documents including confirmation from the parties, name and address and PAN number of the shareholders, income tax acknowledgment of the shareholders, CIN Master data, Share application forms, Board resolution, return filed in ROC and bank statement to prove identity, genuineness of transactions and credit worthiness of the parties. The assessee has also filed affidavit from the shareholders, where they have categorically admitted that investment in shares of assessee company is a genuineness transactions. The Ld. CIT(A), after considering relevant submissions of the assessee and also taken note of various evidences filed, in support of share capital received from three companies held that the assessee has discharged three ingredients provided u/s 68 of the Act, including identity by filing enormous details. The Ld. CIT(A), further observed that when, the assessee has filed necessary documents and discharged its onus then, the onus shifted to the AO, in such circumstances, it is for the AO to carry out further enquiries in light of information received from DGIT(Inv.) to ascertain true nature of transactions between the parties. In this case, the Ld. AO never asked for any further material, though time and again the assessee asked in their submissions. This leads to inescapable conclusion that the AO could not think of any further material to ask for and proceeded to reject, the claim of the assessee only on the basis of information, which he never even brought to the notice to the assesee for any rebuttal.
Therefore, he opined that there is no reason for the AO to make additions towards share capital received from three companies u/s 68 of the I.T. Act, 1961,and accordingly, deleted additions made by the AO towards unexplained cash credit u/s 68 of the I.T.Act,1961.
The relevant findings of the Ld.CIT(A) are as under:-
5.3.23. 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 share applicants 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 for any rebuttal. The unequivocal conclusion is that all the 3 ingredients having been satisfied, the impugned share application money 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 addition of under the heading share application money as made in the assessment order, fails on several counts-(1) reliance on evidence that is totally inadequate; (2) failure to make available 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 Joan transactions. Hence the impugned addition cannot be sustained. 5.3.24. In view of the facts and circumstances of the case as well as Judicial pronouncements referred and relied above by me and a/so certain judicial pronouncements relied upon by the appellant in its written submission which has been produced above, addition made by the AO under the heading share capital/ share application money amount cannot be sustained and therefore the AO is directed to delete the amount of Rs 1,25,00,000/-
The Ld. DR submitted that Ld.CIT(A) deleted additions made by the AO towards share capital received from three companies belongs to Shri Praveen Kumar Jain, without appreciating the fact that the assessee has failed to prove the identity, genuineness and credit worthiness of the shareholders. The Ld. DR, further submitted that when the department has collected sufficient evidences during search proceedings, in the case of Shri Praveen Kumar Jain and also, he had admitted in his statement u/s 132(4) that he was involved in providing accommodation entries of share capital to various beneficiaries , the Ld. CIT(A) was erred in deleting additions only on the basis of evidences filed by the assesee, including confirmation ignoring , the crucial accept of the case that in all shell companies/entry provider cases, the documentation is arranged in a such manner that there should not be any doubt , in respect of genuineness of transactions. In this case although, the AO has brought out clear facts in light of statement of Shri Praveen Kumar Jain, the Ld. CIT(A) disregarded all evidences and deleted additions only on the basis of evidences filed by the assessee. In this regard, he relied upon the decision of Hon’ble Gujarat High Court in the case of Pavan Kumar M Sanghvi vs ITO (2018 90 taxmann.com 386).
The Ld. DR has relied upon the decision of Hon’ble Delhi High Court in the case of CIT vs Bikram Singh (2017) 399 ITR 407.
The Ld. AR for the assessee, on the other hand, strongly supporting order of the Ld.CIT(A) submitted that the assessee has discharged its onus by filing enormous documents, which is evident from the fact that the Ld. CIT(A) has thoroughly discussed, the issue in light of various judicial precedents to come to the conclusion that when, initial onus has been discharged by the assessee, then onus shifts to the AO to prove otherwise. The Ld.AR, further submitted that the AO has made additions only on the basis of information received from DGIT(Inv.) without carrying out any further enquiries in light of evidences filed by the assesee to ascertain true nature of transactions. Further, the AO not even provided, the copies of statement recorded from Shri Praveen Kumar Jain, even though, the same was specifically requested, during the assessment proceedings by the assessee. When the assessee has filed necessary details, it is the obligation of the AO to verify those details before coming to the conclusion that transactions between the parties are not genuine. In this case, the assessee has filed various details, including conformation letters from the parties and also filed affidavit of Shri Praveen Kumar Jain, where he has retracted from his statement given during the course of search. When a person retracted his statement by a sworn affidavit, then there is no evidencery value for such statement. The Ld. CIT(A) after considering all these facts has rightly come to the conclusion that the assessee discharged its onus and accordingly, deleted the additions made by the AO and therefore, his order should be upheld.
We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The provision of section 68 of the I.T.Act, 1961, deals with a cases, where any sum found credited in the books of accounts of an assessee, for which no explanation is offered or explanation offered by the assessee is not in the opinion of the AO is satisfactory, then sum so found credited may be treated as income of that year. A plain reading of section 68 of the Act, makes it very clear that in order to bring any credits within the ambit of Section 68 of the Act, the AO should prove that the credit found in the books of accounts of the assessee is unexplained and also the assessee has failed to prove identity, genuineness of transactions and credit worthiness of the parties. In this legal background, if you examine, the credits found in the books of accounts of the assessee in form of share capital received from three parties, we found that the assessee has filed enormous details in order to discharged its onus cast upon u/s 68 of the Act. The assessee has filed various documents, including confirmation from the shareholders along with their PAN number and income tax acknowledgement and CIN master data, share application forms, board resolution, return filed in ROC in form No. 2, bank statements. The assessee has also filed affidavit filed by the Pravin Kumar Jain, along with letter of retractions filed before the department from his statements recorded, during course of search proceedings. These documents are part of assessment proceedings.
The AO never disputed the fact that the assesee has discharged its onus by filing various documents. The AO has also never disputed the fact that the assesee has filed various documents to prove identity of the parties, but doubted genuineness of transactions and credit worthiness of the parties, on the basis of information received from DGIT(Inv.), as per which, Shri Praveen Kumar Jain, during search proceedings in his case admitted the fact that he was involved in providing accommodation entries of share capital to various beneficiaries. We further noted that when, the AO has not doubted identity of the shareholders, then it is the duty of the AO to carryout ,further enquiries, in order to ascertain genuineness of transactions and creditworthiness of the parties. In this case, the AO has not carried out any further enquiry in light of evidences filed by the assessee to reach to a conclusion that transactions between the parties are not genuine and the parties does not have capacity to subscribe share capital to assessee company, but he went on to decide the issue only on the basis of statement of shri Praveen Kumar Jain, ignoring the crucial aspect of the case that the person ,who gave statement has been retracted from his statement by filing sworn affidavit. We, further noted that when, the assesee has specifically asked for copies of statement recorded from shri Praveen Kumar Jain, and also wanted to avail cross-examination of the person, who gave statement, the Ld. AO has denied the opportunity of cross examination to the assessee and also not furnished statement of shri Praveen Kumar Jain, for its rebuttal.
When, the AO has relied upon third party information to draw an adverse inference against the assesse, it is the duty of the AO to provide said information to the assessee and also allow opportunity of cross examination, if such opportunity was asked by the assessee specifically. In absence of said information was available to the assessee and also opportunity of cross examination was not given to the assessee, then additions made on the basis of third party information amounts to gross violation of principles of natural justice, as held by the Hon’ble Supreme Court in the case of Kishanchand Chellaram vs CIT 1980 125 ITR 713 (SC). Therefore, we are of the considered view that the Ld.AO was erred making additions towards share capital received from three companies, even though the assesee has discharged, its onus cast upon u/s 68 of the Act, on the basis of third party information without providing such information to the assessee and also to provide cross-examination of the person, who gave statement. Further, as regards, the additions towards share capital, once the assessee has discharged its onus by filing various documents, then the onus shifts to the AO to prove otherwise. Unless, the AO has discharges its onus, by conducting necessary enquiries, he cannot proceed to make additions only on the basis of information received from third party
Coming to the case laws, relied upon by the assessee. The assessee has relied upon plethora of judicial precedents, including decision of the Hon’ble Supreme Court in the case of M/s Lovely exports Pvt.Ltd. (2008) 2016 CTR 195. We found that the Hon’ble Supreme Court in the case of CIT Vs. Lovely exports Pvt.Ltd.
(supra) had considered an identical issue and held that if, the share application money is received by the assesse company from alleged bogus shareholders, whose name are given to the AO, then the department is free to proceed to reopen their individual assessments, in accordance with law, but it cannot be regarded as undisclosed income of the assessee . The Hon’ble Bombay High Court in the case of CIT vs. Gagandeep Infrastructure Pvt.Ltd.
(2017) 394 ITR 680, had considered an identical issue and held that proviso to section 68 inserted by the Finance Act, 2012 with effect from 01/04/2013 is applicable from AY 2013-14 onwards, as per which before insertion of provision to 68 of the Act, the assesee need not to prove source of source of an investment. Once, he proved credit worthiness of the parties, it is sufficient enough to come out of provision of section 68 of the I.T. Act, 1961.
The assessee has relied upon the decision of ITAT, Mumbai in the case of ACIT vs Sridham Builders in where the Tribunal has considered an identical issue of additions made u/s 68, in respect of share capital received from companies controlled and operated by shri Praveen Kumar Jain, and after considering relevant facts and also by relied upon various judicial precedents held that once, assessee filed necessary evidences to prove identity, genuineness of transactions and also filed necessary documents to prove capacity of the investers, then the AO cannot make additions only on the basis of information received from third parties. The relevant findings of the Tribunal are as under:-
2.17. Statement of Shri Atul Rupapara, salesman was also recorded. The statement of Shri Ajay Maheshwari, partner of the firm was also recorded, wherein, he tendered that they received accommodation entries in the form of unsecured loans in lieu of cash from Shri Pravin Kumar Jain. The statement of Shri Ajay Maheshwari has been reproduced in the assessment order which was heavily relied upon by the Assessing Officer for making the addition. It is noted that on 11/11/2014, Shri Ajay Maheshwari filed an affidavit retracting the statement recorded during survey after 23 days, wherein, he sworn (in the affidavit) that the loans were genuine and there were no corroborative evidence was found at the business premises during survey and the entire Shreedham Builders 46 transactions were conducted through banking channel/account payee cheque. As per this retraction, the survey party put mental pressure and the statement was recorded under high BP/hyper diabetic conditions. It is noted that the loan confirmations and copy of ITRs of the concerned parties were filed along with the address of the broker Shri Jitu Bhai. Summons were also issued to Shri Ajay Maheshwari. The addresses of the concerned persons were also filed by the assessee. The Ld. Assessing Officer issued summons under section 131 of the Act to all the lenders and other necessary details were collected from the bank. In response to the summons all the lenders filed their replies on 03/02/2005. The Ld. Assessing Officer observed that most of the lender companies opened their new bank accounts in Induslnd Bank, Opera house Branch on the same date/month, therefore, it was presumed that these are companies floated by Shri Pravin Jain. Undisputedly, even the Ld. Assessing Officer mentioned that the assessee repaid the loans taken from these companies in Financial Year 2014-15 out of the funds introduced by partners as capital. The statement of brokers has been reproduced in the assessment order. The Ld. Commissioner of Income Tax (Appeal) has mentioned the observations made by Ld. Assessing Officer in the assessment order with respect to various parties/brokers. The Ld. Assessing Officer treated Rs.4.70 crores, introduced by the assessee in its books as unsecured loans/unexplained credit and added under section 68 of the Act and some unexplained expenditure under section 69C of the Act and also disallowed interest of Rs.5,73,193/-, paid on unsecured loan and disallowed the same under section 37 of the Act. It is noted that at the conclusion of the survey, the assessee vide letter dated 28/10/2014 requested for copy of statement. As per the assessee, the Assessing Officer did not provide the copy. As per the assessee, the cross examination of Shri Pravin Jain was also not provided. The assessee filed loan confirmation, acknowledgments of ITRs, relevant bank statement of lenders, proof of re-payment of such loans and on the summons issued to all the creditors and the brokers all of them furnished requisite details. It is noted that the financial statements and other loan creditors were never disclosed by the Ld. Assessing Officer and by implication accepted that the assessee in fact received loans. This has been observed even by the First Appellate Authority at page-10(para- 4.13 of the impugned order). It is further noted that on 21/10/2014, the assessee requested the Assessing Officer to provide the copy of statement recorded during survey, evidence of filing retraction on 11/11/2014, evidence of filing of loan confirmations, acknowledgment of ITRs and bank statement of parties vide letter dated 28/12/2014, copy of its submission on unsecured loans dated 16/02/2015, retraction affidavit of Shri Pravin Kumar Jain, dated 15/05/2014, repayment details of unsecured loans and its submissions dated 16/02/2015, wherein, present address, details of directors and shareholding patterns of lenders companies were filed by the assessee before the Ld. Assessing Officer. It is noted that before the First Appellate Authority, the assessee challenged the validity of assessment by raising an additional ground as the assessee was not allowed opportunity to cross examine Shri Pravin Kumar Jain and other material used against the assessee, which was not confronted to it. The Ld. Commissioner of Income Tax (Appeal) vide letter dated 05/07/2016 asked the Ld. Assessing Officer to handover the statements pertaining to Shri Pravin Kumar Jain or its staff members or dummy directors to allow the assessee an opportunity to cross examine Shri Pravin Kumar Jain. The Ld. Assessing Officer was also asked to provide the evidences found during the course of survey action or any evidence that payment was made for obtaining unsecured loans and also efforts so made to examine the loan creditors. The Assessing Officer was asked to conduct necessary enquiries with respect to genuineness of the unsecured loans. The Ld. Assessing Officer vide letter dated 07/01/2017, submitted the remand report as has been reproduced at page-10 onwards of the impugned order. It has been mentioned in para 6.3 of the impugned order that Shri Pravin Jain produced the ledger accounts of Shreedham Builders in the books of his companies alongwith bank statement reflecting all the transactions and also audited balance sheet of last four year along with the copy of the retraction of statement filed before CBDT. Nothing objectionable was found in the documents or statements. All the loan creditors were summoned and the statements of the directors were recorded, wherein, they have accepted of giving loan to the assessee. The Ledger copies of those companies reflecting loans given to the assessee were also produced. The Ld. Assessing Officer also provided the copy of statement recorded from Shri Pravin Kumar Jain under section 131 of the Act on 21/11/2006. In para 6.6 of the impugned order, there is an observation that the nature and source of business/amount was explained and the details of loan were also confirmed. All corroborative details were duly filed. From the record, we also note that the assessee also filed acknowledgment of filing of IT returns together with computation of total income (pages 1 & 2 of the paper book), audited annual accounts along with tax audit report for the year ending 31/03/2012 (pages 3 to 31 of the paper book), retraction of statement by Shri Ajay Maheshwari, partner, dated 10/11/2014 for the statement on oath recorded on 17/ & 18th October, 2014 (pages 32 to 37 of the paper book), remand report of the Assessing Officer dated 17/12/2016 filed before the Ld. Commissioner of Income Tax (Appeal) (pages 38 to 56 of the paper book), remand report of the Assessing Officer 04/01/2017 before the CIT(A) (pages 57 of the paper book), acknowledgment evidencing for filing of return for Assessment Year 2012-13, audited annual account for the year ending 31/03/2012, ledger confirmation, ledger account of the assessee in the books of the lender and bank statement of the lender (in the case of Athrav Business Pvt. Ltd. (page 58 to 72 of the paper book). Identically similar documents as a proof of evidence were filed from Casper Enterprises Ltd. (pages 71 to 83 of the paper book), Duke Business Pvt. Ltd. (J.P. K. Trading I. Pvt. Ltd.) (pages 84 to 96 of the paper book), Olive Overseas Pvt. Ltd. (pages 97 to 110 of the paper book), Viraj Mercantile Pvt. Ltd. (pages 111 to 119 of the paper book) and Nakshatra Business Pvt. Ltd. (Pages 120 to 131 of the paper book). All these documents neither disproved by the Ld. Assessing Officer nor any evidence was brought on record to falsify the claim of the assessee or the authenticity of these documents. Thus, it can be said that the assessee discharged its onus as provided under section 68 of the Act. The interest was paid through banking channel by the assessee on such loans. It is also noted that so far as the disallowance of interest portion is concerned, the same was deleted by the ld. FAA and has not been challenged before this Tribunal by the Revenue further fortifies the case of the assessee. The loans were repaid along with interest before the date of survey i.e. 17/10/2014 and no cash was found during survey further fortifies the claim of the assessee. All the concerned parties appeared before the Ld. Assessing Officer during remand proceedings, the Ld. Assessing Officer recorded their statement and nothing adverse was pointed out even Shri Pravin Jain himself appeared before the Ld. Assessing Officer and even during remand proceedings enquiries were carried out and no adverse remark was made by the ld. Assessing Officer. The assessee as well as the other parties furnished all possible documents evidencing that the loans are not bogus. No cash was found deposited in the accounts of alleged six parties, thus, keeping in view, the totality of facts, attendant circumstances, human probabilities, and in the presence of plausible explanation by the assessee, relevant material, and requirement of fulfillment of ingredients, enshrined in section 68 of the Act, we find that onus cast upon the assessee has been duly discharged, therefore, the addition made u/s 68 of the Act, which is purely based upon presumption or the statement recorded and later on retracted by the concerned parties, therefore, we find infirmity in the conclusion of the Ld. Commissioner of Income Tax (Appeal), resultantly, the appeal of the Revenue is dismissed.
Coming to the case laws relied upon by the Ld. DR. The Ld. DR has relied upon the decision of Hon’ble Gujarat High Court in the case of Pawan Kumar M.Sanghvi vs ITO (supra). We find that the Hon’ble Gujarat high Court, while affirming, the findings of the ITAT, came to the conclusion that when, the AO was specifically asked the assessee to produce the parties for verification, the assessee has failed to produce said parties for verification.
Therefore, impugned amount was rightly brought to tax u/s 68 of the Act. We further noted that the Ld. DR has relied upon the decision of Hon’ble Delhi High Court in the case of DCIT vs Bikaram singh (supra), where the High Court has held that when, the assessee has failed to prove that those creditors had financial strength to lend such huge sums of money to assessee, that to without any security without interest and without a loan agreement, impugned additions deserves to be confirmed. We find that in both the case facts are different and under those facts the Hon’ble High Court came to the conclusion that the assesse has failed to prove genuineness of transactions and creditworthiness of the parties. In this case, on perusal of facts available on record, we find that Ld. CIT(A) had recorded categorical findings in light of various evidences filed by the assessee to come to conclusion that the assessee has discharged its onus, but the Ld.AO has not reached to a logical conclusion by carry out, further verification in light evidences filed by the assessee.
Therefore, we are of the considered view that, the case laws relied upon by the Ld. DR are not applicable to the facts of present case.
In this view of the matter and considering the case laws discussed hereinabove, we are of the considered view that the Ld. CIT(A) has rightly deleted additions made by the AO towards share capital received from three companies, on the basis of various evidences filed by the assessee, including confirmation letter from the shareholders. We do not find any error or informative in the findings of Ld. CIT(A) and hence, we are inclined to uphold order of the Ld.CIT(A) and dismissed appeal filed by the revenue.
In the result, appeal filed by the revenue is dismissed.
Order pronounced in the open court on this 23 /08/2019