ASSISTANT COMMISSIONER OF INCOME TAX 23(1), MUMBAI vs. CALVIN PROPERTIES, MUMBAI

M/s Calvin Properties, ACIT Cir 23(1) R. No. 113, 1st floor, 14, Gitanjali, Plot No. 234, बिधम/ Patkarwadi, S. V. Road, Matru Mandit, Tardeo Vs. Bandra (west), Road, Mumbai-400 007 Mumbai-400 050 स्थायीलेखासं./जीआइआरसं./ PAN No. AAGFC2218L (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant : Shri Abi Rama Karthikeyan, DR by प्रत्यथीकीओरसे/Respondentby : Shri Rajiv Khandelwal, AR सुनवाईकीतारीख/ : 21.02.2019 Date of Hearing घोषणाकीतारीख / : 03.04.2019 Date of Pronouncement आदेश / O R D E R

Per Sandeep Gosain, Judicial Member:

2 6562 & 6564/Mum/2017 M/s Calvin Properties 2. Since the issues raised in all these appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed of by this consolidated order.

(AY 2011-12) 3. First of all we take up revenue’s appeal in (AY 2011-12) on the grounds mentioned herein below:- (i) "Whether on the facts and in the circumstances of the case and in law, the ld.CIT(A) has erred in deleting the addition made u/s 68 of the Income-tax Act, 1961 without appreciating the facts that as per enquiry & investigation made by this office as well as Investigation Wing, Mumbai, the alleged parties are mere accommodation entry providers who provide accommodation entry in the form of purchase and loans as per the requirements of the beneficiary.

(ii) "Whether on the facts and in the circumstances of the case and in law, the ld.CIT(A) has erred in deleting the addition made u/s 68 of the Income-tax Act, 1961 without appreciating the facts that the alleged parties have no real worth/capability/credit from where they can lend such huge loan to the assessee?

3 6562 & 6564/Mum/2017 M/s Calvin Properties (iii) "Whether on the facts and in the circumstances of the case and in law, the ld.CIT(A) has erred in deleting the addition made u/s 68 of the Income-tax Act, 1961 without appreciating the facts that the assessee failed to dischargne his onus to prove identity, creditworthiness and genuineness of the transactions"

(iv) "The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the A.O. be restored."

(v) "The Appellant craves leave to add, delete, alter, amend and modify any or all grounds of appeal"

4. As per the facts of the present case, the assessee is a partnership firm engaged in the business of development / re- development of properties. The return of income for the year under consideration was initially filed on 28.09.2011 declaring total income at Rs.NIL. The return of income was processed u/s 143(1) of the Act Subsequently, on the receipt of certain information from DIT(lnv), Mumbai-ll,-the assessment was reopened by issuance of notice u/s 148 on 18.12.2015 and subsequently after providing opportunity of hearing to the assessee, it was held by the AO that the unsecured loan taken by 4 6562 & 6564/Mum/2017 M/s Calvin Properties the assessee from M/s Duke Business P Ltd. (JPK Trading Pvt Ltd.), M/s Casper Enterprises Private Limited (Oswal Trading Pvt. Ltd.) and M/s. Nakshatra Business P Ltd. (Hema Trading P Ltd) was nothing but an accommodation entries taken by the assessee. Thus, AO made additions u/s 68 of the Act by treating the amount of Rs. 1,50,00,000/- as unexplained cash credit and accordingly treated it as income and added to the total income of the assessee.

5. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties partly allowed the appeal of the assessee and deleted the additions made u/s 68 of the Act.

6. Aggrieved by the order of Ld. CIT(A), the revenue has filed the present appeal before us on the grounds mentioned herein above.

5 6562 & 6564/Mum/2017 M/s Calvin Properties Ground No. (i) to (iii) 7. These ground raised by the revenue are inter connected and inter related and relates to challenging the order of Ld. CIT(A) in deleting the addition made by AO u/s 68 of the Act, therefore we thought it fit to dispose of the same by this common order.

2.4.3 I have carefully considered the facts of the case and the submissions of the Ld.AR. 1 have also gone through the decisions relied on by the AO and the Ld.AR. With regard to the validity of notice issued under section 148 and the reassessment done, I am of 6 6562 & 6564/Mum/2017 M/s Calvin Properties the opinion that the notice u/s 148 was issued validly based on the valid information received from the Investigation Wing of Income Tax Department and the reopening was done within four years from the end of the relevant A.Y. The reopening of assessment on the basis of bogus purchases is held valid by the Hon'ble Bombay Court in the case of Hitesh R. Shah (2013) 35 taxmann.com 474 even though the original assessment was concluded u/s 143(3) and even beyond four years. The AO also followed due procedure of recording of reasons and supplying such reasons to the appellant on request. In view of the above the reassessment made is held invalid. The reassessment is also held valid in view of the following decisions- (i) Hon'ble Gujarat High Court in the case of Rhythm Chemicals P Ltd v. ACIT, 33 taxman.com 426 has held that since intimation u/s 143(1) is not an assessment order there is no change of opinion and reopening is valid beyond four years.

(ii) The Hon'ble Delhi High Court in the case of OPG Metals and Finsec Ltd v. CIT, 358 ITR 144 has held that re-assessment is valid if the issue, is not a subject matter of earlier assessment. Same view was also taken by High Court of Bombay in the case of Export Credit Guarantee Corporation of India Ltd v. Addl.CIT (30 taxmann.com 211) (2013) that reopening of an 7 6562 & 6564/Mum/2017 M/s Calvin Properties assessment is permissible even in the case of scrutiny u/s 143(3) originally when the original assessment order passed is silent in respect of the issue/point on which re-assesment notice is issued. Further, no query with regard to the above issue having been made during the assessment proceedings would also indicate absence of application of mind to the tangible material, and reopening is valid.

(iii) It was held in the following cases that when there is no discussion on this issue and no details are called for by the AO or filed by the appellant and no findings either positive or negative in the original assessment proceedings, reopening cannot be construed as change of opinion.

1. ALA Firm vs. CIT (102 ITR 622) (Mad HC)

4. EMA India Ltd vs. ACIT (30 DTR 82) (AIL HC)

(iv) The Hon'ble Supreme Court in the case of Kalyanji Mavji & Company v. CIT (102 ITR 287) (SC) (1976) has held that there is no change of opinion if the assessment is reopened on new facts which came to (v) The Hon'ble Gujarat High Court in the case of Praful Chunilal Patel and Vasanth Chunilal Patel v. ACIT (236 ITR 832) (1999) has hold that where the AO had overlooked some thing at the first assessment, there can be no question of any change of opinion, when the income which was chargeable to tax is actually taxed as it ought to have been under the Law but was not taxed due to an error committed at the first assessment, the reopening was held valid.

(vi) ITAT, Chennai in the case of Chonnsi Petroleum Corpn. Ltd A.Y. 2006-07 (ITA No.66/11-12/LTU(A) dated 08.01.2013 relying on the High Court of Delhi in the case of Consolidated Photo and Finvest Ltd v. ACIT (281 ITR 394) (2006) and.High Court of Mumbai in the case of Dr.Amir's Pathological Laboratory v. JCIT (252 ITR 673) has held that mere production of books of account, balance-sheet^nd profit and loss account will not necessarily amount to disclosure necessary for Explanation 1 of Sec 147.

(vii) High Court of Delhi in the case of Honda Siel Power Products Ltd v. DCIT (197 taxman 415) (2011) has held that merely because the material lies embedded in the material evidence which the AO could (viii) The Hon'ble High Court of Mumbai in the case of Export Credit Guarantee Corporation of India Lid v. Addl.CIT (30 laxrnann.com 211) (2013) has held that there is no failure on the part of assessee to disclose material facts but there is complete failure on the part of the AO to apply his mind during original assessment to points on which assessment is reopened, reopening was treated as valid. It is further to be understood that when it is the question of non application of mind whether it is for four years or more makes no difference.

(ix) Notwithstanding anything stated above, it is the prerogative of the AO / Revenue to reopen the assessment if the AO has round in the course of time that certain amounts which should have been brought to tax have escaped assessment. The powers were clearly enacted u/s 149 r.w.s. 151 of the Act. As per these provisions what the AO is supposed to see is whether there is an escapement of income and whether it is within four years or beyond four years and whether it is a case of 1-43(1) or 143(3) so as to take approval from competent authorities as per tnu provisions Once the AO ensures these requirements then he can reopen the assessment by recording the 10 6562 & 6564/Mum/2017 M/s Calvin Properties reasons. The AO will be within his jurisdiction to reopen the assessment and his jurisdiction cannot be challenged per se Further it is to be understood that mere reopening does not mean that the AO has come to the conclusion that income has escaped' (x) The Hon'ble High Court of Bombay in the case of Eleganza Jewellery Ltd.(2014) 52 taxmann.com 46 has neid mat it is a true law that at this stage only a prima facie view of the AO is necessary to issue notices and not a cast iron case of escapement of income. Similar views were also expressed in the following cases,

3..Naresh K. Pahuja. (2015) 54 taxmann.com 258- held that mere payments routing through bank channels would not by itself establish the genuineness of the gifts.

2.4.4. In view of the above discussion the reopening of assessment is held valid since there was "tangible material" available with the AO at the time of reopening the assessment in the form of information received from the DIT investigation. Further, as the assessment is reopened based on the evidence collected and statements recorded during the course of search proceedings u/s 132 by the Investigation wing of Mumbai IT office, the AO has a "reason to believe that income has escaped assessment and there is "no change of opinion". The reopening proceedings are, therefore, upheld and the ground is dismissed.

12 6562 & 6564/Mum/2017 M/s Calvin Properties Ground No.1 is raised against the addition made of Rs. 1,50,00,0007- as unexplained cash credit u/s 68 of I T Act, 1961. The Ld AO has noticed that the appellant has during the year under consideration received unsecured loans of aggregated amount of Rs. 1,50,00,000/- as under Amount of sales to assessee inF.Y.2010-11 (in Rs.) Sr. No. Name PAN 20,00,000 1. Casper Enterprises (Oswal Trading P Ltd.) : AAACO7955M 30,00,000 2. Duke Business P. Ltd (JPK Trad.ng I Pvl : AABCJ6245N Nakshatra Business P. Ltd. (Hema Trading P. Ltd). AABCH4279G 1,00,00,000 3. 1,50,00,000/- Total During the appellate proceedings, the Id AR has filed detailed submissions and other relevant documents in a paper book. He has also referred to several case laws on which they rely in support of the ground of appeal. I have carefully considered the facts of the case and submissions of the Id AR. I have also gone through the decisions relied on by the AO and Id AR It is observed that during the assessment proceedings the appellant has filed relevant details required to prove the identity and creditworthiness of the investing companies and the genuineness of the transactions in the form of PAN, incorporation certificate, memorandum of associate, IT return copies, confirmations, bank statements audited accounts etc as evident from the record. The Id AR has further argued that the transaction has taken place through banking channels, therefore the genuineness of 13 6562 & 6564/Mum/2017 M/s Calvin Properties the investment can not be doubted. Hence the AR argued that appellant has discharged its onus and the identity, genuineness and creditworthiness of the four companies were proved beyond doubt The excessive reliance on the statements given by the third-party i.e, key persons of Pravin Kumar Jam group, whom the appellant does not know is considered to be not proper even without giving the appellant a chance to cross- examine the persons who had given such adverse statements. He further argued that addition was made without providing the appellant the corroborative evidence in the possession of the AO to prove that the appellant has paid the cash, as alleged, against the receipt of cheques On the other hand the Id AO has believed the evidence(support:ng documents) submitted before him was engineered to explain bogus investment saying that the tnose were involved in accommodation entries in an organized way are meticulous in arranging the make-believe documents. He further believed that the said key-persons of Pravin Kumar Jain group have given categorical statements stating that they have involved only in bogus transactions by giving accommodation entries by giving cheques in exchange of cash through their group entities. The Id AR on the other hand argued that the AO has ignored the fact that all the statements were retracted by Pravin Kumar Jam ana all his associates. It is alleged

14 6562 & 6564/Mum/2017 M/s Calvin Properties that the AO failed to collect further information and not made any efforts to disprove the genuineness of the transactions of unsecured loans received, it is also the contention of the Id AR that the AO has failed to discuss the merits of the cases cited .by the appellant firm during the course of assessment proceedings 2.4.7 In the present case before me, as seen from the details filed before the AO, as evident from the paper book, I do not. find any inconsistency or incoherence in respect of the receipt of the unsecured loan received from the said three companies. Primarily, as regards the transaction, the same has routed through the banking channel and the source cannot be doubted. It was held in several cases that, whatever may be the strength of presumption it cannot substitute the evidence. Even though the transaction is from a tainted group, the AO has not made any efforts to show that the transaction with the appellant firm was sham, fictitious or artificial except believing the statements given by the accommodation entry providers. He has failed to gather any evidence to show that the unaccounted cash of the appellant hap, changed hands consequently replacing the cheque payments. Further he has not provided the corroborative evidence or document which he relied on to the appellant and also 15 6562 & 6564/Mum/2017 M/s Calvin Properties failed to prove how the details like PAN, IT returns, audited financials, incorporation certificates, bank statements etc can not be taken note of in this regard. The Hon’ble Mumbai ITAT in the case of Anant shelters P ltd 20 Taxmann corn 153(2012}.has laid down certain principles with regard to section 68 which the AO is bound to follow. It has observed as under:

"(i) section 68 can be invoked when following three conditions are satisfied - (a) when there is credit of amounts in the books maintained by the assessee (b) such credit has to be a sum of money during the previous year (c) either the assessee offers no explanation about the nature and source of such credits found m the books or the explanation offered by the assesses, 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.

(ii) 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 Hie- 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 16 6562 & 6564/Mum/2017 M/s Calvin Properties maternal 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 file. Once the explanation of the assessee is unbelievable or false the Assessing Officer is not required to bring positive evidence on record to treat amount in question as income of the assesses 'Mule- considering the explanation of the assessee, the Assessing Officer has 10 act reasonably - application of mind is the sine qua non for forming the opinion.

(iii) Phrase appearing in the section - nature and sources of such credits - should be understood in right perspective, so that genuineness of the transaction can be decided on merits ana not on prejudices. Courts are of the firm view that the evidence produced by (he assessee cannot be brushed aside in a casual manner. Assessee cannot be asked to prove impossible. Explanation about 'source of source' or 'origins of the origin' cannot and should not be called for while making inquiry under section (iv) In the matters related to section 68 burden of proof cannot be discharged to the hilt - such matters are decided on the particular facts of the case as well as on the basis of preponderance of probabilities. Credibility of the explanation, not the materiality of evidences, is (v) Though confirmatory letters or account payee cheques do not prove that the amount in question -s properly explained for the purpose of section 68 and assessee has to establish identity and creditworthiness of the creditor as well as the genuineness of the transaction,, it is also true that money received through foreign remittance with RBl approval is a strong indicator of bona fide of the cash credit that has to be disapproved o/;/y vv-m positive evidence.

(vi) In matters regarding cash credits, the onus of proof is not a static one. As per the provisions of the section the initial burden of proof lies on the assessee. Amount appearing in the books of account of the assessee is considered a proof against him. He can prove the identity of the creditors by either furnishing their PANs or assessment orders. Similarly, genuineness of the transaction can be proved by showing that the money WOK received by an account payee cheque or by draft. "Creditworthiness of [lie lender can be established by attending circumstances. Once the assessee produces evidences about identity, genuineness and creditworthiness of the tender onus of proof shifts to the revenue."

18 6562 & 6564/Mum/2017 M/s Calvin Properties 2.4.8 The Honble Apex Court in the case of Lovely Exports Pvt Ltd. 216 CTR 195(SC) 2008 held that the AO is at liberty to bring to tax the amounts in their respective hands of the investors if their identity, genuineness and creditworthiness is not proved. The AO should have made efforts to assess the amounts in the hands of the investors at least on protective basis. Even in case, the creditworthiness of the investors Js not proved it will not automatically give license to the assessing authority to make additions in the hands of the recipient u/s 68 unless it is proved that it is the unexplained and unaccounted money of the appellant which has been introduced in its books of account in the name of bogus/non-existent entities. As it is observed that, in the instant ca.se, the AO has not made any dent on these lines. On the other hand the appellant has filed all the details and supporting documentary evidence to prove the identity, genuineness and creditworthiness of these three unsecured loan parties.

2.4.9 As seen from the above, the appellant has furnished all the documents and details proving conclusively-the-three ingredients o?, identity, creditworthiness of the share-applicants and the genuineness of the transaction. The amounts were paid by investors from, their running bank accounts were 19 6562 & 6564/Mum/2017 M/s Calvin Properties duly accounted in the books of the appellant as well as the investors as evident, from the aud'led financial statements filed. These three unsecured loan lender companies have confirmed the transaction. In view of the above discussion, I hold that the unsecured loan received from these two companies can not be doubted and addition made by the AO u/s 68 of the Act cannot survive the test of appeal. I therefore direct the AO to withdraw the addition. This ground s allowed.

20 6562 & 6564/Mum/2017 M/s Calvin Properties identity, creditworthiness and genuineness of the transactions, therefore in such circumstances, Ld. CIT(A) ought to have upheld the additions.

23 6562 & 6564/Mum/2017 M/s Calvin Properties given a chance to cross-examine the persons, who had given such adverse statements. Even the corroborative evidence with regard to payment of cash as against the receipt of cheques has also not been proved. The AO had only believed the solitary statement of the key-persons of Pravin Kumar Jain group by holding that they were involved only in bogus transactions by giving accommodation entries by giving cheques in exchange of cash through their group entities. At the same time, it was ignored that all the statements were retracted by Pravin Kumar Jain and all his associates. In the present scenario, the AO had failed to disprove the genuineness of the transactions of unsecured loans received. We have gone through the paper book filed by the assessee and noticed that the transactions were routed through the banking channels and thus the source cannot be doubted. It is a settled law that suspicious howsoever strong may be, but cannot take place of prove. The AO had not made any efforts to show that the transaction with the assessee were sham, fictitious or artificial. Simultaneously, the AO failed to gather any evidence to show that the unaccounted cash of the assessee had changed hands consequently replacing the cheque payments. We have gone

24 6562 & 6564/Mum/2017 M/s Calvin Properties through the orders of the Coordinate Bench of ITAT in the case of Anant shelters P ltd 20 Taxmann corn 153(2012}, wherein the principles with regard to section 68 of the Act has been laid down as under:

"(i) section 68 can be invoked when following three conditions are satisfied - (a) when there is credit of amounts in the books maintained by the assessee (b) such credit has to be a sum of money during the previous year (c) either the assessee offers no explanation about the nature and source of such credits found m the books or the explanation offered by the assesses, 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.

(ii) 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 Hie- 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 maternal and other attending circumstances available on the record. The opinion of the Assessing Officer is 25 6562 & 6564/Mum/2017 M/s Calvin Properties required to be formed objectively with reference to the material on record file. Once the explanation of the assessee is unbelievable or false the Assessing Officer is not required to bring positive evidence on record to treat amount in question as income of the assesses 'Mule- considering the explanation of the assessee, the Assessing Officer has 10 act reasonably - application of mind is the sine qua non for forming the opinion.

(iii) Phrase appearing in the section - nature and sources of such credits - should be understood in right perspective, so that genuineness of the transaction can be decided on merits ana not on prejudices. Courts are of the firm view that the evidence produced by (he assessee cannot be brushed aside in a casual manner. Assessee cannot be asked to prove impossible. Explanation about 'source of source' or 'origins of the origin' cannot and should not be called for while making inquiry under section (iv) In the matters related to section 68 burden of proof cannot be discharged to the hilt - such matters are decided on the particular facts of the case as well as on the basis of preponderance of probabilities. Credibility of the explanation, not the materiality of evidences, is the basis for deciding the cases falling under section 68.

26 6562 & 6564/Mum/2017 M/s Calvin Properties (v) Though confirmatory letters or account payee cheques do not prove that the amount in question -s properly explained for the purpose of section 68 and assessee has to establish identity and creditworthiness of the creditor as well as the genuineness of the transaction,, it is also true that money received through foreign remittance with RBl approval is a strong indicator of bona fide of the cash credit that has to be disapproved o/;/y vv-m positive evidence.

(vi) In matters regarding cash credits, the onus of proof is not a static one. As per the provisions of the section the initial burden of proof lies on the assessee. Amount appearing in the books of account of the assessee is considered a proof against him. He can prove the identity of the creditors by either furnishing their PANs or assessment orders. Similarly, genuineness of the transaction can be proved by showing that the money WOK received by an account payee cheque or by draft. "Creditworthiness of [lie lender can be established by attending circumstances. Once the assessee produces evidences about identity, genuineness and creditworthiness of the tender onus of proof shifts to the revenue."

27 6562 & 6564/Mum/2017 M/s Calvin Properties 13. We have also considered the order of Coordinate Bench of Shree Sachdanand Developers vrs. ACIT ITA No. 3292/Mum/15, ITO Vrs. Shree Dham Construction Pvt. Lt.d, ITA No. 3754, 3755, 3756. 2948/Mum/17, wherein under the identical circumstances, the additions made on account of statement given by Pravin Kumar Jain group were deleted.

Ground No. (iv) & (v) 17. These grounds raised by the revenue are general in nature, thus requires no specific adjudication.

ITA No. 6562 & 6564/Mum/2017 (AY 2012-13 & 2013-14) 19. Now we take up revenue’s appeals in & 6564/Mum/2017 (AY 2012-13 & 2013-14). Since we have already decided the similar grounds of appeal in AY 2011-12 on merits. Therefore, following our own decision in ITA No. 6561/Mum/17, we apply the same findings in these appeals in order to maintain judicial consistency which is applicable mutatis mutandis.

Order pronounced in the open court on 3rd April, 2019.

(N. K. Pradhan) (Sandeep Gosain) लेखासदस्य / Accountant Member न्याययकसदस्य / Judicial Member मुंबई Mumbai;यदनांकDated : 03.04.2019 Sr.PS. Dhananjay