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Income Tax Appellate Tribunal, “D” Bench, Mumbai
Before: Shri Ravish Sood & Shri N.K. Pradhan
PER RAVISH SOOD, JM
The present appeal filed by the revenue is directed against the order passed by the CIT(A)-37, Mumbai, dated 21.11.2017, which in turn arises from the order passed by the A.O under Sec.143(3) r.w.s.147 of the Income Tax Act, 1961 (for short „Act‟), dated 22.03.2016. Also, the assessee has filed a cross objection before us. The revenue has assailed the order of the CIT(A) by raising before us 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 to appreciate the findings of the Assessing Officer in the assessment order wherein he has examined the financial statement of the lender and mentioned that the assessee has failed to establish the credit worthiness of the lender (entry provider).
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate the fact that the assessee failed to produce the lender party before the AO in spite of the AO giving the assessee the opportunity to produce the lending party before the Assessing Officer for verification of creditworthiness of the lender and the genuineness of transaction.
3. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.
The appellant craves leave to amend or to alter any ground, which may be necessary.”
Briefly stated, the assessee firm which is engaged in the business of a builder and developer had filed its return of income for A.Y. 2008-09 on 24.09.2008, declaring its total income atRs.nil. Subsequently, on the basis of information received from the office of the DIT(Inv.)-II, Mumbai, that search and seizure proceedings conducted on Shri Praveen Kumar Jain and its group entities revealed P a g e | C.O. No.72/Mum/2019 (Arising out of AY. 2008-09) Income Tax Officer-25(3)(1) Vs. M.M. Corporation that the assessee as a beneficiary had obtained accommodation entries in the form of loans from M/s Mohit International and M/s Natasha Enterprises, the case of the assessee was reopened under Sec.147 of the Act.
During the course of the assessment proceedings, it was observed by the A.O that the assessee had during the year under consideration claimed to have received loans aggregating to Rs.1,40,00,000/- from the following parties:
Sr. No. Hawala Name PAN Amount 1. Mohit International AIXPP8680Q 55,00,000/- 2. Natasha Enterprises AIPPP6372H 85,00,000/- Total 1,40,00,000/- In order to verify the genuineness and veracity of the aforesaid loan transactions, the A.O called upon the assessee to furnish supporting documentary evidence. In reply, the assessee placed on record the confirmations of the aforesaid parties. Further, the A.O also directed the assessee to produce the aforesaid parties so that the authenticity of the transactions under consideration may be verified. However, the assessee failed to produce the aforementioned parties. The assessee in order to substantiate the creditworthiness of the aforementioned lenders placed on record of the A.O their bank statements and also the financial statements for the year under consideration. On a perusal of the financial statements of the lenders firms, it was observed by the A.O that the same did not inspire any confidence as regards their creditworthiness. In fact, it was noticed by the A.O that the loans were advanced by the respective lenders by overdrawing their bank accounts. Apart there from, it was noticed by him that both of the aforesaid concerns had miniscule assets and had huge current P a g e | C.O. No.72/Mum/2019 (Arising out of AY. 2008-09) Income Tax Officer-25(3)(1) Vs. M.M. Corporation liabilities in the form of sundry creditors. Also, the A.O had serious doubts as regards the authenticity of their financial results, for the reason that as per him no creditor would allow holding of outstanding balances for a substantial time. Adverting to the bank accounts of the lender firms, it was observed by the A.O that there was no substantial balance in the said accounts. On the basis of the aforesaid observations, the A.O was of the view that the there was only rotation of funds in the bank accounts. As regards the respective confirmations which were filed by the lender firms, it was observed by the A.O that as the assessee despite specific directions had failed to produce the aforementioned parties for necessary verification before him, therefore, the authenticity of the loan transactions under consideration could not be verified from the confirmations of the respective parties as were placed on his record. As regards the reliance placed by the assessee on the fact that the respective payments were received from the aforesaid lenders through account payee cheques, the same too did not find favour with the A.O. It was observed by the A.O that the fact that a transaction had taken place through banking channels cannot be taken as sacrosanct for concluding that a genuine transaction was undertaken between the parties. Also, the A.O was not inspired by the claim of the assessee that Shri Praveen Kumar Jain had on the basis of an “affidavit”, dated 15.05.2014 retracted from his statement recorded before the income tax authorities. It was observed by the A.O that the said retraction was nothing but a knitty gritty between the assessee and the lenders in their attempt to color the bogus loan transactions as genuine transactions. The A.O after deliberating at length on the information that was unearthed during the course of the search proceedings conducted on Shri Praveen Kumar Jain, and also the modus operandi that was adopted by him for providing entries to P a g e | C.O. No.72/Mum/2019 (Arising out of AY. 2008-09) Income Tax Officer-25(3)(1) Vs. M.M. Corporation third parties, therein concluded that the assessee had availed accommodation entries in the form of unsecured loans from the aforementioned parties, viz. (i) M/s Mohit International: Rs.55,00,000/-; and (ii) M/s Natasha Enterprises: Rs.85,00,000/-. Accordingly, the A.O after making the aforesaid additions assessed the income of the assessee at Rs.1,40,00,000/-.
4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the facts of the case observed, that the assessee in the course of the assessment proceedings had in order to substantiate the authenticity of the loan transactions under consideration placed on record supporting documentary evidence viz. (i) confirmations of the lenders: (ii) copies of the acknowledgment of the returns of income of the aforesaid lender parties; and (iii) copies of the bank statements and also the financial statements of the aforesaid parties. It was observed by the CIT(A) that the assessee by placing on record the PAN and the copies of the acknowledgments of the returns of income of the aforementioned parties had duly established their respective identities. As regards the creditworthiness of the parties was concerned, it was observed by the CIT(A) that the same was duly evidenced on the basis of their bank statements which were filed by the assessee with the A.O in the course of the assessment proceedings. It was observed by the CIT(A) that the A.O had at no stage raised any doubts as regards the creditworthiness of the respective lenders as was discernible from their respective bank statements that were placed on his record. Apart there from, the CIT(A) was of the view that as the loans were received by the assessee from the aforementioned parties through banking channels, therefore, the genuineness of the transactions was also established. In sum and substance, it was observed by the CIT(A) that the assessee by placing P a g e | C.O. No.72/Mum/2019 (Arising out of AY. 2008-09) Income Tax Officer-25(3)(1) Vs. M.M. Corporation on record substantial evidence had established the identity and creditworthiness of the parties, and also the genuineness of the transaction under consideration. It was observed by the CIT(A) that the A.O had not placed on record any documentary evidence which would disprove the authenticity of the loan transactions under consideration. In fact, it was observed by the CIT(A) that the A.O except for harping on the facts as had emerged in the course of the search proceedings conducted on Shri Praveen Kumar Jain and the modus operandi that was adopted by him for providing accommodation entries, had however, failed to carry out any worthwhile independent inquiries in respect of the transactions under consideration. On the basis of his aforesaid observations, the CIT(A) was of the view that now when the assessee had duly discharged the onus as regards proving the authenticity of the loan transactions under consideration, therefore, the addition made by the A.O under Sec. 68 by characterising the said loan transactions as an unexplained cash credit could not be sustained and was liable to be vacated. Accordingly, on the basis of his aforesaid observations the CIT(A) deleted the addition of Rs.1,40,00,000/-.
The revenue being aggrieved with the order passed by the CIT(A) has carried the matter in appeal beforeus.The ld. Departmental Representative (for short „D.R‟)took us through the facts of the case.It was submitted by the ld. D.R that as the assessee despite specific directions by the A.O had failed to produce the lenders for necessary verification, therefore, the authenticity of the loan transactions had remained unverified. Apart there from, it was submitted by the ld. D.R that the assessee had also failed to substantiate the creditworthiness of the parties as well as the genuineness of the transactions under consideration. The ld. D.R relied on the order passed by the A.O and P a g e | C.O. No.72/Mum/2019 (Arising out of AY. 2008-09) Income Tax Officer-25(3)(1) Vs. M.M. Corporation submitted that the CIT(A) was in error in vacating the addition of Rs.1,40,00,000/- made by him.
Per contra, the ld. Authorized Representative (for short „A.R‟) relied on the order passed by the CIT(A). It was submitted by the ld. A.R that the assessee had duly substantiated the identity and creditworthiness of the lenders, as well as the genuineness of the transaction under consideration by placing on record sufficient supporting documentary evidence. It was averred by the ld. A.R that the authenticity of the documents filed by the assessee had not been doubted on the basis of any concrete material by the A.O. It was submitted by the ld. A.R that the assessee had submitted the confirmations of the lenders, copies of the income-tax returns of the lenders parties, and also the copies of the bank accounts of the lenders from which loans were advanced to the assessee. It was further submitted by the ld. A.R, that the notices issued u/s 133(6) to the aforesaid lender parties were duly replied by them and the information called for by the A.O was placed on his record. In order to fortify his aforesaid contention, the ld. A.R took us through the relevant pages of the assesses „Paper Book‟ (for short „APB‟). Further, the ld. A.R also took us through the respective financial statements of the aforesaid lender parties. Apart there from, it was submitted by the ld. A.R that the loans received from the aforementioned parties had been repaid vide account payee cheques. In order to fortify his aforesaid contention the ld. A.R took us through the confirmation of M/s Natasha Enterprises and the bank account of the assessee with DCB Bank, Branch: Bandra, which revealed that the principal amount of loan along with interest was repaid way back during the period that was spread over 26.11.2008 to 02.12.2008 by the assessee to the said lender party. Also, the ld. A.R took us through the copy of the ledger P a g e | C.O. No.72/Mum/2019 (Arising out of AY. 2008-09) Income Tax Officer-25(3)(1) Vs. M.M. Corporation account of M/s Mohit International and the relevant extract of the copy of the bank account of the assessee with DCB Bank, Branch: Bandra, which revealed that the entire principal amount of loan along with interest was also repaid by the assessee to the said lender party on 20/21.11.2008. Further, in order to fortify the authenticity of the loan transactions, it was submitted by the ld. A.R that the interest paid to the aforesaid parties was subjected to deduction of tax at source as per the mandate of law. The ld. A.R in order to support his claim that now when the assessee had duly placed on record supporting documentary evidence to substantiate the authenticity of the loan transactions which had not been disproved or dislodged by the A.O, therefore, there was no justification for characterising the said loan transactions as an unexplained cash credit. In support of his aforesaid contention the ld. A.R relied on the order of the ITAT “C” bench, Mumbai in the case of ITO-20(2)(5), Mumbai Vs. Smt. Pratima Ashar (ITA No. 105/Mum/2018), dated 06.06.2019. It was submitted by the ld. A.R, that now when the assessee had established the identity of the lender parties by placing on record their respective income tax credentials viz. PAN No., copies of their returns of income along with the bank statements from which the respective loans were advanced by them to the assessee, therefore, merely for the reason that the said respective parties could not be produced before the A.O would not justify treating the amounts received from them as an unexplained cash credit under Sec.68 of the Act. In support of his aforesaid contention the ld. A.R relied on the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Orchid Industries (P) ltd. (2017) 397 ITR 136 (Bom). On the basis of his aforesaid contentions, it was submitted by the ld. A.R that the CIT(A) after correctly appreciating the facts of the case in the backdrop of the P a g e | C.O. No.72/Mum/2019 (Arising out of AY. 2008-09) Income Tax Officer-25(3)(1) Vs. M.M. Corporation settled position of law had rightly vacated the addition of Rs.1,40,00,000/- that was made by the A.O under Sec.68 of the Act.
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Admittedly, the assessee during the year under consideration had claimed to have received loans aggregating to Rs.1,40,00,000/- from two parties viz.(i) M/s Mohit International: Rs.55,00,000/-; and (ii) M/s Natasha Enterprises: Rs.85,00,000/-. As observed by us hereinabove, on the basis of information received from the office of the DIT(Inv.)-II, Mumbai, that the search proceedings conducted on Shri Praveen Kumar Jain, an infamous entry provider,had revealed that the assessee as a beneficiary had obtained accommodation entries from the aforesaid two concerns which were allegedly managed and controlled by the said accommodation entry provider, the case of the assessee was reopened under Sec.147 of the Act.
We find that in the course of the assessment proceedings, the assessee on being called upon by the A.O to substantiate the authenticity of the aforesaid loan transactions had placed on recordcertain documentary evidence viz. (i) confirmations of the lender parties; (ii) copies of the returns of income of the lenders; (iii). copies of the financial statements of the lenders; and (iv) copies of the bank statements of the lenders. As is discernible from the records, we find that the loans raised by the assessee from the aforementioned lenders were repaid to them (alongwith interest) way back in November/December, 2008 i.e much prior to the search proceedings conducted in the case Shri Praveen Kumar Jain. Admittedly, the fact that the assessee had paid interest on the loans raised from the P a g e | C.O. No.72/Mum/2019 (Arising out of AY. 2008-09) Income Tax Officer-25(3)(1) Vs. M.M. Corporation aforementioned parties after deduction of tax at source, and had also repaid the said respective loans to the said respective lenders much prior to the search proceedings conducted on Shri. Pravin Kumar Jain, at the first blush inspires confidence as regards the authenticity of the loan transactions under consideration. Also, the documentary evidence viz. (i) confirmations of the lender parties; (ii) copies of the returns of income of the lenders; and (iv) copies of the bank statements of the lenders parties, also prima facie supports the authenticity of the loan transactions under consideration. Insofar the fact that the aforesaid lenders were not produced by the assessee before the A.O is concerned, we are of the considered view that now when the respective lenders had in compliance to notices issued u/s 133(6) confirmed the loan transactions under consideration, therefore, the fact as regards non-production of the aforesaid lenders on a standalone basis would not justify characterisation of the said loan transactions as sham transactions. Our aforesaid view is fortified by the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Orchid Industries (P) ltd. (2017) 397 ITR 136 (Bom).
However, at the same time, we also cannot remain oblivious of the fact that the financial statements of the lender parties does not lend any credence to the authenticity of the loan transactions under consideration, facts as regards which are briefly culled out as under:
(A). M/s Natasha Enterprises :As is discernible from the confirmation of the loan transaction filed by the said lender, the impugned loan was advanced to the assesee, as under:
Date Particulars Amount 28.06.2007 Bank- Ch. No, 015191/27.06.2007 UTI Bank Ltd., New Marine 25,00,000/- Lines Bank- Ch. No, 331551/29.06.2007 Opera House 29.07.2007 15,00,000/- Bank- Ch. No, 331550/29.06.2007 Opera House 30.06.2007 20,00,000/- P a g e | C.O. No.72/Mum/2019 (Arising out of AY. 2008-09) Income Tax Officer-25(3)(1) Vs. M.M. Corporation Bank- Ch. No, 093501/04.07.2007 UTI Bank Ltd., Mumbai. 04.07.2007 25,00,000/- Total 85,00,000/- Further, a perusal of the „balance sheet‟ of M/s Natasha Enterprises, Prop. Shri. Rose Padbidri, which is stated to be a concern engaged in the business of trading in goods (with no specification of the nature of goods traded), reveals that it had as on the close of the year under consideration i.e on 31.03.2008 a meagre „Capital balance‟ of Rs. 10,01,321/-(cr) and a substantial amount of „Loan funds‟ (liability)of Rs. 2,46,66,645/- viz. (i). Secured bank loans: Rs. 29,65,392/-; and (ii). Unsecured loans (third parties) : Rs. 2,15,01,253. The aforesaid lender had during the year shown a „Net profit‟ of Rs. 9,82,985/-. Interestingly, a perusal of the Bank account No. 0067009300085583 with PNB from which part of the amount of Rs. 35 lac (out of the impugned loan of Rs. 85 lac)was advanced by the aforesaid lender to the assessee reveals that the same was given by him by from his overdraft account. A perusal of the transactions in the said bank account of the lender, reveals as under:
Sr. Date Particulars Cheque Debit Credit Balance No. No. 118 30.06.2007 Trf. 9385662 35,50,000/- -8,80,237.16 119 30.06.2007 Intt. 26,398/- -9,06,635.16 120 03.07.3007 Trf. From 2108001632 1,25,000/- -7,81,635.16 121 03.07.2007 Tr. To M.VAT 331552 1,28,250/- -9,09,885.16 122 03.07.2007 Tr. To 2108001483 331553 30,000/- -9,39,885.16 123 03.07.2007 M.M Corporation 331550 20,00,000/- -29,39,885.16 124 03.07.2007 M.M Corporation 331551 15,00,000/- -44,39,885.16 125 05.07.2007 By. Inst 244853 : MICR-1 25,00,000/- -19,39,885.16 Day Latency 126 05.07.2007 By Inst 244851-MICR-1 25,00,000/- -5,00,114.84 Day Latency 127 06.07.2007 Trf. To 2108001623 331555 40,00,000/- -34,39,885.16 128 06.07.2007 Tr. To 2108001915 331556 8,60,000/- - 42,99,885.16 As regards the balance amount of the impugned loan of Rs. 50,00,000/- advanced by the aforesaid lender to the assessee, we find P a g e | C.O. No.72/Mum/2019 (Arising out of AY. 2008-09) Income Tax Officer-25(3)(1) Vs. M.M. Corporation that the copy of the Bank account of the assessee with UTI Bank Ltd., New Marine Lines, Mumbai, from which an amount of Rs. 25,00,000/- is stated to have been given to the assessee on 28/06/2007, vide Ch. No. 01191, dated 27.06.2007, had not been filed before us. As regards the source of the balance amount of Rs.25,00,000/- of the impugned loan transaction, we find that the same was received by the assessee from the said lender from his Current Account No. 246010200005593, vide Ch. No. 093501, dated 04.07.2007. A perusal of the transactions in the said bank a/c of the lender to the extent relevant to the loan transaction under consideration are as under :
Date Particulars Cheeque No. Debit Credit Balance 04.07.2007 Alliance Intermidiatries 91178 9,10,000/- 21,23,543.30 05.07.2007 Manan Trading 20,24,115 41,47,658.30 05.07.2007 Asha D. Choudhary 91179 3,00,000/- 38,47,658.30 05.07.2007 Mohit International 91182 13,40,000/- 25,07,658.30 05.07.2007 M.M Corpn 93501 25,00,000/- 7,658.30 06.07.2007 P.R Diamond 9,85,000/- 9,92,658.30 06.07.2007 Mohit International 8,25,000/- 18,17,658.30 (B). M/s Mohit International: As is discernible from the confirmation of the loan transaction of the said lender, the impugned loan was advanced by it to the assessee, as under:
Date Particulars Amount 06.07.2007 Bank- Ch. No, 015191/27.06.2007 UTI Bank Ltd., New Marine 20,00,000/- Lines Bank- Ch. No, 331551/29.06.2007 Opera House 06.07.2007 15,00,000/- Bank- Ch. No, 331550/29.06.2007 Opera House 09.07.2007 20,00,000/- Total 55,00,000/- Further, a perusal of the „balance sheet‟ of M/s Mohit International, which is stated to be a concern engaged in the business of trading of diamonds, reveals that it had as on the close of the year under P a g e | C.O. No.72/Mum/2019 (Arising out of AY. 2008-09) Income Tax Officer-25(3)(1) Vs. M.M. Corporation consideration i.e on 31.03.2008 a meagre „Capital balance‟ of Rs. 13,11,777/- (cr) and a substantial amount of „Loans‟(liability) of Rs. 4,50,42,905/- viz. (i). Secured bank loan: Rs. 1,95,684/-; and (ii). Unsecured loans (third party liabilities): Rs. 4,37,31,126/-. The aforesaid lender had during the year shown a „Net profit‟ of Rs. 12,90,861/-. A perusal of the Bank account No. 0067002108001483 with PNB, from which the impugned loan of Rs. 55 lac was advanced to the assessee reveals as under :
Sr. Date Particulars Cheque Debit Credit Balance No. No. 241 06/07/2007 Tr. From 218001465 30,00,000/- 242 06/07/2007 TrTr/0000006712 58662 2,266/- 06/07/2007 243 M.M Corporation 58660 20,00,000/- 244 06/07/2007 M.M Corporation 58659 15,00,000/- 245 07/07/2007 TR from 1,25,000/- 3044008700002417 07/07/2007 246 Tr from 210801535 5,00,000/- 247 07/07/2007 Tr from 2108001571 2,50,000/- 248 09/07/2007 By Tra A/c 9385583 12,40,000/- 249 09/07/2007 Sharekhan Ltd. 58664 2,79,250/- 09/07/2007 250 M.M Corpration 58665 20,00,000/-
As observed by us hereinabove, the case of the assessee before us was reopened on the basis of information received by the A.O from the DIT(Inv)-II, Mumbai, that the search proceedings conducted on Shri. Pravin Kumar Jain, an infamous accommodation entry provider, had revealed that the assessee as a beneficiary had obtained accommodation entries from two concerns viz. (i) M/s Mohit International; and (ii). M/s Natasha Enterprises, which were stated to be managed by the aforesaid person. As is discernible from the assessment order, Shri. Nilesh Parmar, a commerce graduate, who had been rendering his services as an accountant to Shri. Praveen Kumar Jain, had in his statement recorded u/s 131 on 02.10.2013 P a g e | C.O. No.72/Mum/2019 (Arising out of AY. 2008-09) Income Tax Officer-25(3)(1) Vs. M.M. Corporation admitted that no genuine business was being carried out in the 33 concerns which were floated by Shri. Praveen Kumar Jain. It was further stated by him that except for in 4 to 5 concerns, in all the remaining concerns Shri. Praveen Kumar Jain had projected his employees as the dummy directors of the said concerns. In reply to Question No. 8, it was stated by Shri Nilesh Parmar that Shri. Praveen Kumar Jain had opened a proprietary concern in his name viz. M/s Mohit International, whose affairs were though managed by Shri. Praveen Kumar Jain himself. The relevant extract of the statement of Shri. Nilesh Parmar is reproduced as under :
“He also opened a proprietary concerns in my name namely Mohit International, though the affairs of the said concern was managed by Praveen K. Jain himself.” Also, Shri. Nilesh Parmar, accountant, on being called upon to furnish details of the concerns of Shri. Praveen Kumar Jain whose accounts were looked after by him, had in reply to Question No. 10specifically referred to the names of the aforesaid two concerns viz. (i). M/s Mohit International; and (ii). M/s Natasha Enterprises. The relevant extract of his statement reads as under:
Q.10. Please give the names of all the concerns whose accounts are looked after by you? Ans. The names of the said concerns are as under: 1…………………………………………………………… 28. Mohit international 29. Nathasha Enterprises. ………………………………………………………………
We have given a thoughtful consideration to the issue under consideration in the backdrop of the material available on record and the contentions advanced by the authorised representatives for both the parties. As observed by us hereinabove, the material available on P a g e | C.O. No.72/Mum/2019 (Arising out of AY. 2008-09) Income Tax Officer-25(3)(1) Vs. M.M. Corporation record raises serious doubts as regards the genuineness of the loan transactions under consideration. Admittedly, as observed by us hereinabove, the documentary evidence placed on record by the assessee in the course of the assessment proceedings viz. (i) confirmations of the lender parties; (ii) copies of returns of income of the lenders; and (iii) copies of the bank statements of the lenders parties, at the first glance inspired confidence as regards the authenticity of the loan transactions under consideration. Also, it is a matter of fact, that the A.O while framing the assessment had brought on record sufficient material which would support his case, but then instead of analysing the said material for dislodging and disproving the authenticity of the loan transactions under consideration,he had focussed more on the facts as had emerged in the course of the search proceedings conducted on Shr. Praveen Kumar Jain. In other words, though the A.O had collected sufficient material for proving that no genuine loans were raised by the assessee from the aforesaid concerns but thereafter he had failed to analyse the said material for proving his claim.
We shall now briefly deliberate on the loose ends in the claim of the assessee that it had raised genuine loans from the aforesaid two concerns viz. (i). M/s Mohit International; and (ii). M/s Natasha Enterprises, which in our considered view would require thorough verification on the part of the A.O. As observed by us hereinabove, the financial statements of both the lenders do not inspire much of confidence as regards their creditworthiness to advance huge amounts by way of loans to the assessee firm. A perusal of the „balance sheets‟ of the said concerns reveals that both of them had meagre self-owned funds and were working with huge amount of unsecured loans running into crores of rupees. In our considered view, it is difficult for P a g e | C.O. No.72/Mum/2019 (Arising out of AY. 2008-09) Income Tax Officer-25(3)(1) Vs. M.M. Corporation us to comprehend that as to how the lenders who were themselves indebted by crores of rupees towards third parties could have advanced the huge amount of loans for a substantial period to the assessee. In fact, we find from a perusal of the records that M/s Natasha Enterprise had allowed the amount of Rs. 85 lac that was advanced by it to the assessee during the period spread over 28/6/2007 to 04/07/2007 to remain with the assessee upto November/December, 2008 i.e for a period of more than one year. Similarly, the other lender viz. M/s Mohit International had allowed the amount of Rs. 55 lac that was advanced by it to the assessee during the period spread over 06/07/2007 till 09/07/2007 to remain with it upto 20/21.11.2008 i.e for a period of more than one year. Although, we are not oblivious of the fact that the amounts were advanced by the said respective lenders on interest to the assessee firm and the business prudence of the said lenders is not subject to any check or approval of the department, but when the said fact is considered in the backdrop of the fact that the said lenders are tainted parties which arealleged to be involved in providing accommodation entries, therein serious doubts as regards the authenticity of the aforesaid transactions are bound to arise. Apart there from, the fact that Shri Nilesh Parmar, accountant of Shri. Praveen Kumar Jain in his statement recorded u/s 131 on 02.10.2013, had in reply to Question No. 10 of his statement categorically admitted that both the aforesaid lenders viz. (i). M/s Mohit International; and (ii). M/s Natasha Enterprises were the concerns managed and controlled by Sh. Praveen Kumar Jain, further fortifies the doubts as regards the authenticity of the transactions of the assessee with the said respective concerns. In fact, Sh. Nilesh Parmar, accountant, had further in reply to Question No. 8 of his statement recorded under Sec.
P a g e | C.O. No.72/Mum/2019 (Arising out of AY. 2008-09) Income Tax Officer-25(3)(1) Vs. M.M. Corporation 131 also admitted that Shri. Praveen Kumar Jain had projected him as a dummy proprietor of M/s Mohit Enterprises. In our considered view, the aforesaid facts deposed by Shri. Nilesh Parmar substantially adds to the already tainted image of the aforementioned lender parties. Now, in the backdrop of the aforesaid facts, we shall deliberate on the authenticity of the loan transactions under consideration in the backdrop of the documentary evidence placed on record by the assessee in its attempt to substantiate the same.We find from a perusal of the assessment order that the A.O had observed at Page 9 – Para 5.6 that the loan transactions under consideration were in fact only a rotation of funds and not genuine transactions. A perusal of the bank accounts of the lenders prima facie supports the said view of the A.O. As observed by us hereinabove, the fact that part of the loan amount of Rs. 35 lac was advanced by one of the lender viz. M/s Natasha Enterprises from its Overdraft account No. 0067009300085583 with PNB, in itself, in the totality of the facts of the case as observed by us hereinabove, raises serious doubts as regards the authenticity of the loan transaction under consideration. Further, a perusal of the aforesaid bank account of the lender reveals that in immediate proximity of advancing of the impugned loan of Rs. 35 lac which was cleared from the bank account of the lender on 03.07.2007, a transfer of an amount of Rs. 35,50,000/- had taken place to the credit of the said bank account of the lender on 30.06.2007. Also, thereafter, within a short span of two days i.e on 05.07.2007 an amount aggregating to Rs. 50 lac was credited in the said bank account of the assessee. In our considered view, in the totality of the facts of the case, the aforesaid transactions in the bank account of the aforesaid lender are required to be verified on the part of the A.O in order to arrive at the authenticity of the said loan P a g e | C.O. No.72/Mum/2019 (Arising out of AY. 2008-09) Income Tax Officer-25(3)(1) Vs. M.M. Corporation transactions under consideration.As regards the source of the amount of Rs.25,00,000/- of the impugned loan, we find that the same was received by the assessee from the Current Account No. 246010200005593, vide Ch. No. 093501, dated 04.07.2007 from the aforesaid lender. A perusal of the transactions in the said bank a/c of the lender reveals that the amount of Rs. 25 lac advanced by it to the assessee was sourced out of an amount of Rs. 20,24,115/- that was credited in the said bank account of the lender on the same date i.e on 05.07.2007. Accordingly, in the totality of the facts of the case as observed by us hereinabove, the A.O is directed to verify the aforesaid transactions in the bank account of the lender party for verifying to the hilt the authenticity of the loan transaction under consideration. Before parting, we may herein observe that as is discernible from the aforesaid bank account of the lender party, there are certain transactions which the said lender had entered into with certain other concerns viz. (i). Alliance Intermediaries; and (ii). Mohit International (i.e the other lender party in the case of the assessee). The A.O while verifying the authenticity of the loan transactions under consideration shall also enquire about the said transactions from the aforesaid lender viz. M/s Natasha Enterprises, as the same in our view may have a bearing on the adjudication of the fact that as to whether the said lender was carrying out genuine business or was merely a part of a well knit chain of entities which were into the business of providing accommodation entries. Lastly, as regards the balance amount of the impugned loan of Rs. 25,00,000/- advanced by the aforesaid lender to the assessee, we find that as is discernible from the confirmation filed by the lender, the said amount is stated to have been advanced to the assessee from a bank account of the lender with UTI Bank Ltd., New Marine Lines, Mumbai. However, as the copy of the said bank account P a g e | C.O. No.72/Mum/2019 (Arising out of AY. 2008-09) Income Tax Officer-25(3)(1) Vs. M.M. Corporation has not been filed before us, therefore, we direct the A.O to call for the statement of the said bank account and therein verify the source of the said loan in order to rule out any rotation of funds in the garb of the said loan transaction.
We shall now advert to the source from where a loan of Rs. 55 lac was advanced by the other lender viz. M/s Mohit International to the assessee firm. As per the records, the said loan had been advanced by the said lender from its Bank account No. 0067002108001483 with PNB. A perusal of the said bank account reveals that on the date on which the loan was cleared from the said bank account i.e on 06.07.2007, an amount of Rs. 30 lac was transferred towards credit of the said account. In the totality of the facts of the case, we are of the considered view that the aforesaid credit of Rs. 30 lac in the said bank account of the lender requires to be verified in order to rule out any rotation of funds. Also, on a similar footing the A.O shall verify the nature of credit on 09.07.2007 of Rs. 12,40,000/- in the aforesaid bank account of the lender, which we find had preceded the advance of the balance amount of impugned loan of Rs. 20 lac on the same date to the assessee. Accordingly, the matter is restored to the file of the A.O for making necessary verification in terms of our aforesaid directions. Before parting, we may herein observe that it is in the backdrop of the tainted image of the aforesaid lenders viz. (i). M/s Mohit International; and (ii). M/s Natasha Enterprise, that the A.O has been directed by us to verify the source of the impugned loan transactions so that rotation of funds of the assessee may be ruled out. As regards the reliance placed by the ld. A.R on the order of the ITAT “C” bench, Mumbai in the case of ITO-20(2)(5), Mumbai Vs. Smt, Pratima Ashar (ITA No. 105/Mum/2018), dated 06.06.2019, we find that as the same is distinguishable on facts, therefore, the same would P a g e | C.O. No.72/Mum/2019 (Arising out of AY. 2008-09) Income Tax Officer-25(3)(1) Vs. M.M. Corporation not assist the case of the assessee before us. In the aforementioned case, the A.O had not brought on record any such documentary evidence which raised serious doubts as regards the authenticity of the transactions therein involved. Accordingly, we set aside the matter to the file of the A.O for readjudication in terms of our aforesaid observations. Needless to say, the A.O shall in the course of the „set aside‟ proceedings afford a reasonable opportunity of being heard to the assessee, who shall remain at a liberty to substantiate the genuineness of the loan transactions on the basis of additional documentary evidence.
The appeal filed by the revenue is allowed for statistical purposes. C.O No. 72/Mum/2019 (Arising out of ITA No.626/Mum/2018) A.Y. 2008-09 15. The ld. Authorized Representative (for short „A.R‟) for the assessee at the very outset of the hearing of the appeal submitted that as instructed the cross objection filed by the assessee is not being pressed. Accordingly, in the backdrop of the aforesaid concession of the ld. A.R, the cross-objection filed by the assessee is dismissed as not pressed.
Resultantly, the appeal of the revenue is allowed for statistical purposes and the cross-objection filed by the assessee is dismissed.