DEPUTY COMMISSIONER OF INCOME TAX 12(2)(1), MUMBAI vs. M/S.D.N.H.SPINNERS PRIVATE LIMITED, MUMBAI

Per Rajesh Kumar, Accountant Member:

2 & 6316/M/2017 M/s. D.N.H. Spinners Pvt. Ltd. 3. The facts in brief are that the AO on the basis of information collected during the course of survey under section 133A of the Act conducted on the assessee and on the basis of admission of one of the directors of the assessee company Shri Dinesh Jain observed that the loans of Rs.2,68,00,000/- unsecured loans raised by the assessee from following parties are bogus:

Name of the Party PAN F.Y. Sr Amount (Rs.) No 1 AAACF9430A 2012-2013 25,00,000 Atharv Business Private Limited Casper Enterprises P Ltd 2 AAACO7955M 2012-2013 35,00,000 Duke Business P Ltd 3 VAABCJ6245N 2012-2013 23,00,000 4 Duke Business P Ltd AABCJ6245N 2012-2013 25,00,000 Nakshatra Business P Ltd AABCH4279G 2012-2013 5 10,00,000 Nakshatra Business P Ltd AABCH4279G 2012-2013 6 20,00,000 7 Nakshatra Business P Ltd AABCH4279G 2012-2013 30,00,000 8 Olive Overseas P Ltd AACCR4512K 2012-2013 15,00,000 Olive Overseas P Ltd AACCR4512K 2012-2013 30,00,000 9 Sumukh Commercial Pvt Ltd AACCC7400M 2012-2013 10 25,00,000 11 Sumukh Commercial Pvt Ltd AACCC7400M 2012-2013 20,00,000 Sumukh Commercial Pvt Ltd AACCC7400M 2012-2013 12 10,00,000 TOTAL 2,68,00,000

Accordingly, the AO issued show cause notice to the assessee to prove the identity and creditworthiness of the creditors and genuineness of the transactions failing which why the same should not be added to the income of the assessee

3 & 6316/M/2017 M/s. D.N.H. Spinners Pvt. Ltd. which was replied by the assessee vide written submission dated 22.03.2016 wherein the assessee controverted the allegation of the AO by submitting that the statement given by Shri Pravin Kumar Jain during search stood retracted. The assessee submitted that statement of Shri Dinesh Kumar Jain a director of the assessee company recorded during survey on the assessee was also retracted. Therefore such an admissions by the director of the assessee company and Shri Pravin Kumar Jain could not be a basis for addition in the hands of the assessee as the same stood retracted. The assessee also stated that during survey as well as in the assessment proceedings the assessee was not provided any cross examination of Shri Pravin Kumar Jain. The assessee filed copy of ITRs, bank statements, balance sheets and confirmations of the lenders to prove the identity and creditworthiness of the creditors and genuineness of the transactions. It was also contended by the assessee that Shri Pravin Kumar Jain has nowhere stated the name of the assessee in his statement recorded under section 132(4) of the Act which in any case has no legal sanctity and therefore any addition based upon the retracted statement is wrong and against the provisions of the law as no corroborating or incriminating materials was found during survey on the assessee. However, the AO rejected the contentions raised by the assessee and treated the unsecured loans raised of Rs.2,68,00,000/- as unexplained credit under section 68 of the Act and made addition to the income of the assessee in the assessment framed.

4 & 6316/M/2017 M/s. D.N.H. Spinners Pvt. Ltd. all the three ingredients as contemplated by section 68 of the Act as the assessee has filed before the AO bank statements , ITRs, ledger confirmations, PAN numbers of the lenders, bank statement of the assessee and form 16 as regards TDS deducted from interest payments. The Ld. CIT(A) also observed that the AO without carrying out any investigation or proof merely relied on the statement of Shri Pravin Kumar Jain given during the course of search which was retracted later on and also the statement of the director of the assessee company who also retracted the said statement and thus deleted the entire addition.

7. After hearing both the parties and perusing the material on record and particularly the decision of the co-ordinate bench of the Tribunal as referred to above, we observe that the identical issue was decided by the co-ordinate bench of the Tribunal in 5 & 6316/M/2017 M/s. D.N.H. Spinners Pvt. Ltd. assessee’s own case by deciding the issue in favour of the assessee. The operative part is reproduced as under: “8. We have heard the rival submissions of both the parties and perused the material on record including the written submissions filed by the Ld. A.R. and the Ld. D.R. along with various case laws referred and relied by both the parties. The undisputed facts are that the assessee company was formed and constituted on 15.09.2010 and it has taken over business of M/s. D.N.H Spinners a partnership firm on going concern basis. There was a survey action under section 133A of the Act on the assessee on 25.03.2014. During the course of survey a statement under section 131 of the Act was recorded of Shri Dinesh Jain on 26.03.2014 who is director of the assessee company wherein the survey team informed him that various unsecured loans taken by the assessee from seven entities controlled by Shri Pravin Kumar Jain who has admitted before the Investigation wing in the course of search proceedings that he and his associated concerns were providing accommodation entries. Shri Dinesh Jain, director of the assessee company admitted that they have taken these entries from Shri Pravin Kumar Jain and associates. According to the assessee the statement of Shri Dinesh Jain was recorded under pressure. However, later on Shri Pravin Kumar Jain retracted his statement and likewise Shri Dinesh Jain also retracted his statement on 29.03.2014 within three days from the date of recording the same. In this case during the course of assessment proceedings the assessee has filed copies of bank statement, ITRs, confirmations, PAN numbers of the lenders etc. and thus the assessee has fully discharged the onus cast upon it and thus the addition under section 68 can not be made in the said circumstances qua the unsecured loans raised by the assessee. The AO has merely relied on the statement of Shri Dinesh Jain who is director in the assessee company by ignoring the fact that the statement given by the said director stands retracted after three days from the recording of the same. After perusing the order of Ld. CIT(A) who has dealt with the facts in great detail and also discussed the various decisions wherein it has been held that no such addition can be made under section 68 where the assessee has filed all the necessary evidences before the AO when AO has not made any further enquiry to to prove otherwise. The allegation of the AO that assessee has not proved identity and creditworthiness of the lenders and genuineness of the transactions is without any basis as stated above. The assessee filed the necessary evidences in the form of loan confirmations, balance sheets and profit and loss accounts, ITRs, bank statements and PAN cards of the lenders. The lenders companies were filing their ITR and ROC returns regularly and have duly shown the amount lent to the assessee in their respective balance sheets. Entire transactions were routed through the banking channels and thus the assessee has discharged the primary onus of proving the identity, creditworthiness and genuineness of the transactions. Another allegation of the AO is that assessee has failed to produce the parties and hence question of providing cross examination does not arise which is without merit as the assessee has discharged its onus by providing all the basic documentary evidences before the AO who just relying on the statement of Shri Pravin Kumar Jain treated the loan transactions as unexplained credit in the books of the assessee. On the issue that these lenders are showing low income or losses in the return of income filed, we observe that in the balance sheets the said loan advanced by the lender were duly reflected and thus there is no income in the particular year has no relevance and there were 6 & 6316/M/2017 M/s. D.N.H. Spinners Pvt. Ltd. sufficient sources. Under these circumstances, we, after taking into consideration contentions m, submissions and written submissions of both the parties and after analyzing the various case laws relied upon by the rival parties , are of the view that order passed by the Ld. CIT(A) is well reasoned and there is no reasons to deviate from the findings of the ld CIT(A) and therefore same is being upheld by dismissing the appeal of the revenue.”

8. Since the facts of the case before us are identical to the facts of the case as decided by the co-ordinate bench of the Tribunal in assessee’s own case in which the co-ordinate bench of the Tribunal has held that the assessee has filed all the necessary evidences before the AO and AO has not carried out any further investigation to find out the truth. The bench further held that the assessee has proved the identity and creditworthiness of the creditors and genuineness of the transactions. We, therefore, respectfully following the same uphold the order of Ld. CIT(A) and ground raised by the revenue is dismissed.

10. The issue raised in ground No.1 is against the deletion of addition of Rs.9,84,00,000/- by Ld. CIT(A) as made by the AO against unsecured cash credit under section 68 of the Act on the

Sr. Name of Party No. of Share Total . Amount No Allotted Received 1 Alken Management and 5,80,000 3,48,00,000 Finance Services Pvt. Ltd 2 7,25,000 4,35,00,000 Signora Finance Pvt. Ltd 3 3,35,000 2,01,00,000 Smirk Finance Pvt. Ltd 16,40,000 9,84,00,000 Total

5.6 On an analysis of the facts on records, it is seen that the loans of Rs.9,84,00,000/- have come from different companies. It is noted that the loan creditors are existing companies and have confirmed that they had given the loans to the assessee company. The next aspect is creditworthiness. The assessee has filed copy of PAN card, bank statement, Balance sheet and P&L account etc. of loan creditors. It emerges out from the record that the loan creditors have duly recorded the investments in their books of accounts. Thus, the loan creditors had demonstrated these balance in their balance sheets in the shape of investment as well loan and advances. The next issue is about the genuineness of the transaction. The assessee has produced the details of bank account. The unsecured loan money has been received through banking channel. There is no cash transaction which could compel oneself to assume that the transactions were not genuine. The onus cast upon the assessee under Section 68 of the Act is to satisfy the department about the true identity of an investor, its creditworthiness and genuineness of a transaction was explained by the Supreme Court in CIT Vs. Lovely Exports (P) Ltd., 216 CTR 295. Whilst, the A.O. acted legitimately in enquiring into the matter, the inferences drawn by him were not justified at all in the circumstances of the case. The objective of Section 68 is to avoid inclusion of amount which are suspect. Therefore, the emphasis is on genuineness of all the three aspects, identity, creditworthiness and the transaction. What is peculiar in the present case is when the assessment was being completed the A.O. has not made much investigation, which would have established that the identity of the loan creditors, the genuineness, of the transaction and the creditworthiness of the creditors were not apparent. It has been submitted that these details called for by the A.O. were duly

10 & 6316/M/2017 M/s. D.N.H. Spinners Pvt. Ltd. filled by the appellant. Even otherwise, the details of loan creditors particulars were available with the A.O. in the form of balance sheets income tax returns, PAN details etc. While arriving at the conclusion that he did, the A.O. did not consider it worthwhile to make any further enquiry. There is no finding to the effect as to how the alleged unaccounted cash/money of the assessee company was routed through various levels and it finally reached to the assessee. There is no evidence or material on record to show that the said amount representing unsecured loans moved from the assessee and reached to the assessee. The assessee company has received the money through banking channels and the applicants had shown the said amount as investment in their books of account. The money routed through banking channels and through account payee cheques/bank draft, undisputed given by the party. Even, the source of the loans was found in the bank account of the loan creditors not by any cash deposit; but through account payee cheques. Therefore, when all these documentary evidence are considered there appears not much basis for any addition.

5.7 The Bombay High Court in the case of CIT v. Creative World Telefilms Ltd. (in I. T. A. No. 2182 of 2009 decided on October 12, 2009) [2011] 333 ITR 100 has held that :-

The relevant portion of this order is reproduced below:

"In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their PA/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the Assessing Officer to make proper investigation and reach the shareholders. The Assessing Officer did nothing except issuing summons which were ultimately returned back with an endorsement 'not traceable'. In our considered view, the Assessing Officer ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assessee to the Assessing ' Officer. In the above circumstances, the view taken by the Tribunal cannot be faulted. No substantial question of law is involved in the appeal. In the result, the appeal is dismissed in limine with no order as to costs."

The Hon'ble Bombay High court thus clearly held that once documents like PAN card, bank account details or details from the bankers were given by the assessee, onus shifts upon the Assessing Officer and it is on him to reach the shareholders to ascertain the true facts. It is, thus, for the Assessing Officer to make further inquiries with regard to the status of these parties to bring on record any adverse findings regarding their creditworthiness. This would be more so where the assessee is a public limited company and has issued the share capital to the public at large, as in such cases the company cannot be expected to know every detail pertaining to the identity and the financial worth of the subscribers. Further the initial burden on the assessee would be somewhat heavy in case the assessee is a private limited company where the shareholders are family friends/close acquaintances, etc. It is because of the reason that in such circumstance, the assessee cannot feign ignorance about the status of these parties.

5.8 The judgment of the Supreme Court in the case of CIT v. P. Mohanakala [2007] 291 ITR 278 is also relevant on the facts of the case. In that case, the assessee had received foreign gifts from one common donor. The payments were made to them by instruments issued by foreign banks and credited to the respective accounts of the assessees by negotiations through bank in India. The evidence indicated that the donor was to receive suitable compensation from the assessees. The Assessing Officer held that the gifts though apparent were not real and accordingly treated all those amounts which were credited in the books of account of the assessee, as their income applying section 68 of the Act. The assessee did not contend that even if their explanation was not satisfactory the amounts were not of the nature of income. The Commissioner of Income-tax (Appeals) confirmed the assessment. On further appeal, there was a difference of opinion between the two Members of the Appellate Tribunal and the matter was referred to the Vice President who concurred with the findings and conclusions of the Assessing Officer and the Commissioner of Income-tax (Appeals). On appeal, the High Court re-appreciated the evidence and substituted its own findings and came to the conclusion that the reasons assigned by the Tribunal were in the realm of surmises, conjecture and suspicion. On appeal to the Supreme Court, the court while reversing the decision of the High Court held that the findings of the Assessing Officer, Commissioner of Income-tax (Appeals) and the Tribunal were based on the material on record and not on any conjectures and surmises. That the money came by way of bank cheques and was paid through the process of banking transaction as not by itself of any consequence. The High Court misdirected itself and erred in disturbing the concurrent findings of fact. While doing so, the legal position contained in section 68 of the Act was explained by the Supreme Court by assessing that a bare reading of section 68 of the Act suggests that (i) there has to be credit of amounts in the books Ltd. maintained by the assessee; (ii) such credit has to be a sum of money during the previous year ; and (iii) either (a) the assessee offers no explanation about the nature and source of such credits found in the books, or (b) the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory. It is only then that the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The expression "the assessee offers no explanation" means the assessee offers no proper reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on the record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material on record. Application of mind is the sine qua non for forming the opinion. In cases where the explanation offered by the assessee about the nature and source of the sums found credited in the books is not satisfactory there is, prima facie, evidence against the assessee, viz,, the receipt of money. The burden is on the assessee to rebut the same, and, if he fails to rebut it, it can be held against the assessee that it was a receipt of an income nature. The burden is on the assessee to take the plea that even if the explanation is not acceptable, the material and attending circumstances available on record do not justify the sum found credited -in the books being treated as a receipt of income nature.

5.9 It is clear from the decision of the Hon'ble Delhi High Court in the case of Oasis Hospitalities P Ltd. 2011 333 ITR 119 (Del.), that once the assessee filed copy of PAN, Acknowledgement copy of the return of income of the investing company, their bank accounts statements for the relevant period; then even if the parties were not produced in spite of the specific directions of the Assessing Officer, the addition could not be sustained as the primary onus was discharged by the assessee by producing the PAN, balance sheet, copy of the acknowledgement copy of return of the applicants etc.. In the instant case, there is no dispute about the identity of the creditor companies, who had given the Loan money and the source of the loan was also found in the respective bank accounts of the investing companies and there was no trace of cash deposit in the bank accounts of the investing companies, then, the action of the Assessing Officer without making further detailed enquiry to establish that the provisions of section 68 of the Income Tax Act were attracted in the present case is difficult to sustain in appeal. The Assessing Officer has made addition on some doubts and suspicion but has not established any direct or indirect link of assessee's own money flowing out and then again received by the assessee in the form of loans. During the course of assessment proceedings, following details were filed by the assessee before the Ld. A.O.:- i) Bank statement of the lender companies ii) ITR, acknowledgement of the lender companies iii) Ledger Confirmation iv) PAN number of the lender companies v) Bank statement of the assessee company vi) Form 16A being the TDS certificate

5.10 In view of the legal position emanating from legal precedents as discussed above and having regard to the facts of the case, it is noted that when requisite documents such as PAN, Bank accounts, Balance Sheet etc. were available with the A.O., to establish that no cash transactions were involved in the bank accounts of the investing companies then without further probe to prove the contrary the addition u/s 68 in the hand of the assessee cannot be made. There is no adverse finding given, by the AO for any other lenders. Thus, in my opinion, the AO has not done anything to controvert the evidences filed by the assessee in this regard, whereas the appellant had discharged the primary onus of proving the genuineness of the loan transactions by providing the various documentary evidences as discussed above. In view of the this discussion on the facts of the case and having regard to the decisions of courts and judicial precedents as noted above, the addition made by the A.O. of the unexplained cash credit of Rs. 9,84,00,000/- under section 68 of The Income Act 1961 cannot be sustained in appeal and is directed to be deleted. Accordingly this ground of appeal is allowed.”

14 & 6316/M/2017 M/s. D.N.H. Spinners Pvt. Ltd.

17 & 6316/M/2017 M/s. D.N.H. Spinners Pvt. Ltd. is also undisputed that the corresponding investment entries were duly appearing in the respective balance sheets of these investors and were examined by the respective AOs during assessment proceedings and were accepted in the assessment framed u.s 143(3) of the Act. The AO has relied on the statement of Shri Pravin Kumar Jain recorded under section 132(4) of the Act, copy whereof is filed at page No.127 to 131 which contained an exhaustive list of concerns/companies/entities in which Shri Pravin Kumar Jain was either shareholder/director or connected with the management and control of the said concerns. We find that none of these three investors who bought share capital in the assessee company were appearing in the said statement of Shri Pravin Kumar Jain and therefore we do not find any merit in the conclusion drawn by the AO that all these three entries were related to Shri Pravin Kumar Jain. Further, we note that the AO has not made any investigation or enquiry despite the assessee having filed all the necessary evidences before the AO to prove the identities and creditworthiness of the investors and genuineness of the transactions. We also observe that the Ld. CIT(A) has examined the issue in great depth and has relied on a series of decisions of Apex Court of M/s. Andman Timber Industries civil appeal No.4228 of 2006 and the CIT vs. Lovely Exports Pvt. Ltd. 216 ITR 295 (SC). The ld CIT(A) also relied upon the decisions of the Hon’ble Bombay High Court in the case of CIT vs. creative World Telefilms Ltd (2011) 333 ITR 100 and decision of Hon’ble Delhi High Court in Osis Hospitality Pvt. Ltd. 333 ITR 119( Delhi) while deciding the appeal of the assessee.

18 & 6316/M/2017 M/s. D.N.H. Spinners Pvt. Ltd.

Order pronounced in the open court on 08.08.2019.