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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI RAJESH KUMAR
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the Revenue against the order dated 29.04.2015 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2012-13.
The various grounds raised by the Revenue are as under: “1. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.14,32,00,000/- & Rs.2,50,00,000/- on account of unexplained cash credit u/s 68 of the IT Act. 2. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in disallowance of interest of Rs.2,90,96,145/- u/s 36(l)(iii). 3. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in disallowance of interest of Rs.46,90,257/- as same relates to unsecured loan. 4. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in disallowance of Rs.4,87,52,408/- u/s14A. 5.The appellant prays that for these and other reasons it is submitted that the order of the Ld. CIT(A) on the above grounds be set aside and that of the A.O. be restored.
2 ITA No.6330/M/2017 M/s. Businessmatch Services (I) Pvt. Ltd. 6. The appellant craves leave to amend add, amend or alter all or any of the grounds of appeal"
The issue raised in 1st ground of appeal is against the deletion of addition of Rs.14,32,00,000/- & Rs.2,50,00,000/- by Ld. CIT(A) as made by the AO on account of the unexplained cash credits under section 68 of the Act.
The facts in brief are that the assessee filed the return of income on 29.09.2012 declaring loss of Rs.7,13,30,776/- under the normal provision of the Act while a book profit of Rs.23,79,302/- was declared under section 115JB of the Act. The assessee e-filed its revised return of income on 31.03.2014 declaring loss of Rs.8,52,55,660/- which was processed under section 143(1) of the Act. Thereafter, the case of the assessee was selected for scrutiny after issuing statutory notices which were duly served upon the assessee. The AO, during the course of assessment proceedings, found from the perusal of the tax audit report that assessee has taken loans from various parties aggregating to Rs.102,25,15,584/-. The AO in order to verify the genuineness of the loans issued notice under section 133(6) of the Act to 19 parties calling upon the lenders to file various details such as copies of ITRs for three years, ledger accounts, bank statements, TDS deducted on the interest, collateral security if any, source of funds and funds flow statement for three years etc. Since the lenders to whom the notices were issued have responded partially, the AO issued notice again under section 133(6) of the Act to 12 parties as mentioned in para 3.4 as some of the parties failed to respond. Thereafter the AO categorized the total loans raised in three categories;
3 ITA No.6330/M/2017 M/s. Businessmatch Services (I) Pvt. Ltd. a) Persons to whom the notices under section 133(6) of the Act were issued and replies were received wherein the financial statements did not prove the creditworthiness of the lenders or genuineness of the transactions. b) Persons to whom the notices under section 133(6) of the Act remained unserved and c) Accommodation entries
The AO made addition to the income of the assessee to the tune of Rs.9,97,00,000/- in respect of 7 parties whose credentials according to the AO were not satisfactory by holding them non genuine transactions as the financial statements furnished by the said parties did not prove the genuineness of the transactions and creditworthiness of the parties details whereof are as under. SI No. Name of the Party Amount in (Rs) 1 14200000 Creative Diamond Pvt. Ltd 2 4300000 Aakruti Stone 26500000 3 Padmavati Corporation 26500000 4 Rajgiri Exports Pvt. Ltd 4700000 5 R. Rishab a Co 6 18500000 Samrat Merchandise Pvt. Ltd 7 5000000 Shree Bhairav Star Jewels Pvt. Ltd 9,97,00,000 Total
The AO also added Rs.4,35,00,000/- in respect of 4 parties to whom the notices remained unserved as per the detail as under:
4 ITA No.6330/M/2017 M/s. Businessmatch Services (I) Pvt. Ltd.
Name of the party Loan taken Sr.No . 1 Lakshika Diamond Pvt. Ltd. 35,00,000
2 Raikhabh Trading Pvt, Ltd. 2,00,00,000
3 Shree Bhairav Diamond Pvt. Ltd. 75,00,000
4 Shree Bhairav Gems 1,25,00,000
Total 4,35,00,000
The above transactions totaling to Rs.4,35,00,000/- remained unconfirmed. Moreover , the assessee could not prove the creditworthiness of the lenders and genuineness of the transactions as required under section 68 of the Act. The addition of Rs.4,35,00,000 was made u/s.68 of the Act by the AO by treating the loans of Rs.4,35,00,000 as unexplained credit in the hands of the assessee.
The AO also added Rs.2,50,00,000/- raised by the assessee from Daksh Diamond Rs.1,00,00,000/- and Naman Exports Rs.1,50,00,000/- on the ground that these concerns were group concerns of M/s. Bhanwarlal Jain group and represented hawala entries in view of the fact that Shri Bhanwarlal Jain during the course of search admitted that he and his associates were engaged in providing the accommodation entries of purchases, unsecured loans and bogus share capital. According to the AO, the said entries were obtained by the assessee in lieu of undeclared cash and thus fall within the ambit of section 68 of the Act as unexplained credit and accordingly these two loans were added to the income of the assessee.
5 ITA No.6330/M/2017 M/s. Businessmatch Services (I) Pvt. Ltd. 9. In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee after taking into consideration the contentions and submissions of the assessee. The Ld. CIT(A) has deleted the addition of Rs.Rs.14,32,000/- in respect of 11 parties by observing that the assessee has discharged its onus to prove the identity and creditworthiness of the lenders as well as the genuineness of the loan transactions. The Ld. CIT(A) also noticed that the lenders have confirmed the transaction by filing reply to the notices issued under section 133(6) of the Act by the AO accepting the loans given to the assessee, furnishing financial statements, copies of ledger accounts, bank statements and TDS certificates issued by the assessee to the lenders besides ITRs. The Ld. CIT(A) observed that all these lenders were existing and they have given loans to the assessee and thus the identity of the lenders is very much proved. As regards creditworthiness of the lenders the Ld. CIT(A) observed that assessee has filed ITRs, PANs, bank statements, financial statements, confirmation from the lenders and thus proved that the lenders have sufficient money to lend to the assessee. Even the said loans were duly recorded in their respective books of accounts and thus the creditworthiness of the lenders was duly proved. In respect of genuineness of the transactions, Ld. CIT(A) noted that the same were done through banking channel and there was no movement of cash. Even the lenders have demonstrated that they have balances in their bank accounts in the shape of sundry debtors as well as loans and advances and thus proved the genuineness of the transactions. The Ld. CIT(A) observed that when the notices issued by the AO under section 133(6) of the Act were duly complied by the parties accepting the
6 ITA No.6330/M/2017 M/s. Businessmatch Services (I) Pvt. Ltd. loan transactions with the assessee, there is no justification in making the addition in the hands of the assessee.
In respect of the loans raised from two concerns aggregating to Rs.2,50,00,000/- comprising Rs.1,00,00,000/- from Daksh Diamond and Rs.1,50,00,000/- from Naman Export, the Ld. CIT(A) observed that the assessee has filed all the necessary documents with AO and thus discharged the onus cast upon it by the statute and thus held that identities and creditworthiness of the lenders and genuineness of the transactions were duly proved. The Ld. CIT(A) also noted that the AO has only relied on the statement of Shri Bhanwarlal Jain recorded during the course of search which was subsequently retracted. The ld CIT(A) held that the case of the assessee was also supported by the CBDT circular No.14/1955 dated 11.04.1995 and instruction dated 10.03.2003 F.No.286/2/2003-IT (INV investigation). The Ld. CIT(A) further observed that no addition can be made solely on the basis of statement under section 132(4) of the Act which was subsequently retracted as it has no evidentiary value as there was no corroborating evidences found. The Ld. CIT(A) also noted that AO was specifically requested vide letter dated 26.03.2015 to provide copy of statement recorded of Shri Bhanwarlal Jain whose statement was made the basis for the addition of Rs.2,50,00,000/-. However, no such copy of the statement was either supplied or cross examination was allowed. The Ld. CIT(A) held that the non allowing of cross examination to the assessee is sufficient reason to delete the addition in view of the ratio laid down in the case of Andaman Timber Industries (Civil Appeal No.4228/2006 SC).
7 ITA No.6330/M/2017 M/s. Businessmatch Services (I) Pvt. Ltd. 11. The Ld. D.R. vehemently argued before us that the Ld. CIT(A) has not appreciated the facts as brought out by the AO to the effect that assessee has failed to prove the genuineness of the transactions and creditworthiness of the lenders in respect of first addition qua which notices were issued under section 133(6) of the Act comprising 7 parties. The Ld. D.R. submitted that though the assessee has filed papers comprising financial statements of the lenders, PANs, bank statements, ROC master data, ITRs, TDS certificates along with names and addresses of the lenders and the lenders responded to the notices issue du/s 133(6) of the Act, however, the said records did not prove the creditworthiness of the lenders and genuineness of the lenders and therefore the order of Ld. CIT(A) needs to be reversed.
So far as the addition of Rs.4,35,00,000/- is concerned, the notices under section 133(6) could not be served. However during the appellate proceedings, the Ld. CIT(A) called for a remand report from the AO on the additional evidences pertaining to these parties filed by the assessee. The AO filed the remand report vide letter dated 21.06.2017 accepting therein that the said parties have filed various documents in the remand proceedings. However, in para 2 of the remand report the AO has stated that additional evidences submitted by the assessee should not be admitted during the course of appellate proceedings as same were not given in the assessment proceedings. The Ld. D.R. therefore prayed that the addition of Rs.4,35,00,000/- also needs to be confirmed by reversing order of Ld. CIT(A). As regards the addition of Rs.2,50,00,000/- from two parties connected to M/s. Bhanwarlal Jain group, the Ld. D.R. submitted that it was admitted by the Shri Bhanwarlal Jain
8 ITA No.6330/M/2017 M/s. Businessmatch Services (I) Pvt. Ltd. during the course of search that he and his associates were primarily engaged in the business of providing accommodation entries and therefore, the same should be sufficient basis for making the addition. The subsequent retraction of the said statement is immaterial and addition needs to be affirmed on this score only.
The Ld. A.R. vehemently opposed the arguments of the Ld. D.R. by submitting that the assessee has genuinely raised loans from various parties as stated hereinabove. Out of the total loans, Rs.14,32,00,000/- were raised from 11 parties qua which the AO made addition on two grounds. As regards 7 parties from whom the loans to the tune of Rs.9,97,00,000/- were taken, the AO made the addition on the ground that the financial documents filed by the lenders in response to notices issued under section 133(6) revealed that the lenders did not have any creditworthiness and thus the transactions were not genuine. In respect of remaining four parties from whom Rs.4,35,00,000/- were borrowed, the AO had made the addition by holding that the notices issued under section 133(6) of the Act remained unserved and thus the loans remained unexplained. The Ld. A.R. submitted that the conclusion drawn by the AO on the basis of documents submitted by the lenders is fallacious and wrong in view of the fact that the lenders have sufficient resources in their balance sheets. The ld AR submitted that these transactions were duly reflected in their books of accounts of the lenders. The ld. A.R. submitted that the said 7 parties from whom Rs.9,97,00,000/- were borrowed have confirmed the transactions and therefore the addition made by the AO is wrong and has rightly been deleted by the Ld. CIT(A)
9 ITA No.6330/M/2017 M/s. Businessmatch Services (I) Pvt. Ltd. by holding that the creditworthiness of the lenders and genuineness were proved. In respect of the remaining four parties who did not respond to the notice issued under section 133(6) from whom the assessee has borrowed Rs.4,35,00,000/-, the assessee filed additional evidences in the course of appellate proceedings. These additional evidences were forwarded to the AO for verification and AO submitted the remand report vide letter dated 21.06.2017 which was confronted to the assessee and assessee filed detailed reply thereto. In the remand report the AO instead of carrying out the verification of the additional evidences stated in para 2 that additional evidences should not be admitted as these were not filed during the course of assessment proceedings. The Ld. A.R. submitted that in the assessment proceedings the assessee was confronted with the fact that some parties have not responded to the notices issued under section 133(6) but the time given was so short that assessee could not file all these evidences before the AO and therefore were produced before the Ld. CIT(A). The Ld. A.R. thus submitted that the order of Ld. CIT(A) needs to be affirmed so far as the addition of Rs.14,32,00,000/- is concerned. In respect of Rs.2,50,00,000/- raised by the assessee from two parties M/s. Daksh Diamonds and Naman Exports, which was stated to be accommodation entries by the AO as these entities were related to Bhanwarlal Jain, the Ld. A.R. submitted that the AO has made the addition on hypothetical basis that Bhanwrlal Jain has given a statement on oath during search that he and his related concerns were engaged in providing accommodation entries and thus made the addition under section 68 as unexplained cash credit. The Ld. A.R. submitted that the Ld.
10 ITA No.6330/M/2017 M/s. Businessmatch Services (I) Pvt. Ltd. CIT(A) has rightly deleted the addition by observing that no addition can be sustained which is made on the statement recorded during the course of search which is even retracted later on as this is against the instruction of CBDT circular No.14/1955 and instruction dated 10.03.2003 bearing No.F.No.286/2/2003-IT(INV) and various judicial pronouncements. The Ld. A.R. submitted that even the request of the assessee as made vide letter dated 26.03.2015 to the AO to provide copy of statement recorded of Shri Bhanwarlal Jain was rejected and also denied opportunity to cross examination. The ld AR contended that the assessee was denied opportunities to defend himself through lawful means. The Ld. AR contended that it is settled position that if the third party material is to be used against the assessee which was collected behind the back of the assessee, it is essential that assessee must be confronted with those materials otherwise it would cause grave violation of principles of natural justice. This view is fortified by the decision of Hon’ble Supreme Court in the case of CIT vs. Kishan Chand Challaram 125 ITR 713 (SC) wherein it was categorically held that unless materials are confronted to the assessee, no adverse inference could be drawn. The Ld. A.R. also relied on the decision of co-ordinate Bench in the case of ACIT vs. M/s. Gujarat Estates ITA No.3184/M/2017 A.Y. 2008-09 vide order dated 15.02.2019 wherein the co-ordinate bench has decided the issue in favour of the assessee by holding that where the assessee has filed all evidences qua the lenders and lenders have duly responded to the notices under section 133(6), then no addition can be made under section 68 of the Act in respect of loans taken from Shri Bhanwarlal Jain and related entities.
11 ITA No.6330/M/2017 M/s. Businessmatch Services (I) Pvt. Ltd. The Ld. A.R. also filed a statement showing repayment of loans raised from various parties and thus submitted that all these loans stand repaid.Finally, the Ld. A.R. prayed before the Bench that the order of the Ld. CIT(A) has been passed after taking into consideration the legal as well as factual aspects of the matter and therefore deserved to be affirmed on this issue.
After hearing both the parties and perusing the material on record including the impugned order passed by the first appellate authority, we find that the AO has made addition by categorizing the lenders under three heads; 1) parties to whom parties under section 133(6) were served and replies were filed during the course of assessment proceedings in respect of 7 parties aggregating to Rs.9,97,00,000/-. 2) The persons to whom notices under section 133(6) remained unserved amounting to Rs.4,35,00,000/- consisting of 4 parties and (3) Rs.2,50,00,000/- on account of accommodation entries from 2 parties related to M/s. Bhanwarlal group namely Daksh Diamond Rs.1,00,00,000/- and Naman Export Rs.1,50,00,000/-.
After perusing the order of Ld. CIT(A), we observe that so far as the addition of Rs.9,97,00,000/- is concerned, it was clearly observed by the Ld. CIT(A) that all the details comprising financial statements, PAN, ITRs, bank statements and confirmation of loan transactions were duly filed and even responses were received to the notices issued under section 133(6) of the Act by the AO. In our opinion, the Ld. CIT(A) has correctly passed the order deleting the said addition by taking into account various decisions of various judicial forums. So far as the addition of Rs.4,35,00,000/- is concerned, though the notices could not be served under section 133(6) of the Act but
12 ITA No.6330/M/2017 M/s. Businessmatch Services (I) Pvt. Ltd. assessee has filed the additional evidences pertaining to these parties during the course of appellate proceedings which were forwarded to the AO for verification and the AO filed remand report dated 21.06.2017. In the remand report, the AO only stated that these evidences should not be accepted primarily on the ground that these were not filed during the original assessment proceedings. However, Ld. CIT(A) has taken a very reasoned view after taking into account of the evidences on record and reply of the assessee filed in response to the remand report. Therefore, we do not find any reason to disturb the order of the Ld. CIT(A) on this issue. So far as the addition of Rs.2,50,00,000/- is concerned representing the loans raised from two parties Daksh Diamond and Naman Export who were related to M/s. Bhanwarlal group, we observe that the assessee has filed all the evidences before the AO and the transactions were duly confirmed. The AO has only relied on the statement recorded during the course of search of Shri Bhanwarlal Jain under section 132(4) of the Act which also stood retracted by the said person and has no evidentiary value. In our opinion the Ld. CIT(A) has passed a very reasoned order citing various justifications and reasons for deleting the addition. Therefore we are inclined to uphold the order of ld CIT(A) by dismissing the ground no. 1 raised by the revenue.
The issue raised in 2nd ground of appeal is against the disallowance of interest of Rs.2,90,96,145/- by Ld. CIT(A) as made by the AO under section 36(1)(iii) of the Act.
The facts in brief are that during the course of assessment proceedings no addition of Rs.2,90,96,145/- was made under
13 ITA No.6330/M/2017 M/s. Businessmatch Services (I) Pvt. Ltd. section 36(1)(iii) of the Act by the AO to the income of the assessee and therefore this ground is not arising out of the assessment order as pointed out by the Ld. A.R. and candidly admitted by the Ld. A.R. and therefore the same is dismissed.
The issue raised in round No.3 is against the deletion of disallowance of interest of Rs.46,50,257/- as made by the AO on the unsecured loans.
The facts in brief are that the assessee has claimed deduction of interest of Rs.2,70,77,377/-. The AO treated part of the borrowings during the year as non genuine and made addition under section 68 of the Act and the corresponding interest paid on these loans to 13 parties aggregating to Rs.46,50,257/- was also disallowed and added to the income of the assessee.
The Ld. CIT(A) deleted the disallowance by holding that since the loans raised by the assessee on which the said interest was paid have been held to be genuine and consequently the interest on the said loan was admissible as expense.
Since we have already upheld the order of Ld. CIT(A) deleting the additions on account of loans raised to which this interest pertained to and therefore we dismiss the ground raised by the Revenue challenging the allowance of interest on these loans as this ground is consequential to ground No.1.
The issue raised in ground No.4 is against the deletion of disallowance of Rs.4,87,52,408/- by Ld. CIT(A) as made by the AO under section 14A of the Act.
14 ITA No.6330/M/2017 M/s. Businessmatch Services (I) Pvt. Ltd. 22. The facts in brief are that AO during the course of assessment proceedings observed that assessee has earned dividend income of Rs.10,36,465/- and long term capital gain of Rs.14,67,169/- which were claimed as exempt under section 10(34) and under section 10(38) of the Act respectively while disallowance made suo-moto was only Rs.9,24,800/-. According to the AO, the disallowance has to be computed in terms of section 14A read with rule 8D and accordingly after issuing a show cause notice, the AO calculated the disallowance at Rs.4,87,52,408/- comprising disallowance under rule 8D(2)(iii) only and after making the allowance for suo-moto disallowance of expenses of Rs.9,24,800/-, a net addition of Rs.4,78,27,608/- was made to the income of the assessee.
In the appellate proceedings, the Ld. CIT(A) partly allowed the appeal of the assessee on this ground by directing the AO to restrict the disallowance only on those investments in shares and securities which yielded exempt income during the year by following the decision of special bench in the case of ACIT vs. Vireet Investment (P.) Ltd. (2017) 82 taxmann.com 415 (Delhi- Trib.) (SB).
After hearing both the parties and perusing the material on record, we observe that Ld. CIT(A) has passed a very reasoned order by following the special bench decision in the case of ACIT vs. Vireet Investment (P.) Ltd. (supra) wherein special bench held that while calculating the disallowance under rule 8D only those investments which yielded exempt income during the year ought to be considered for the purpose of average investments.
15 ITA No.6330/M/2017 M/s. Businessmatch Services (I) Pvt. Ltd. Accordingly, we are inclined to uphold the order of Ld. CIT(A) by dismissing the ground raised by the Revenue.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 11.07.2019.
Sd/- Sd/- (Mahavir Singh) (Rajesh Kumar) JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dated: 11.07.2019. * Kishore, Sr. P.S.
Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// [ By Order
Dy/Asstt. Registrar, ITAT, Mumbai.