ITO-4(3)(1), MUMBAI vs. PERFECT YARNS LIMITED, MUMBAI

The present appeal has been preferred by the Revenue against the order dated 31.03.2016 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2013-14.

The only issue raised by the Revenue is against the deletion of addition of Rs.3,29,00,000/- by Ld. CIT(A) as made by the AO under section 68 of the Act without appreciating the fact that assessee has failed to prove the genuineness of the transactions.

The facts in brief are that assessee filed return of income on 28.09.2013 declaring loss of Rs.41,936/-. The case was selected for scrutiny and statutory notices were duly issued and served upon the assessee. The assessee is engaged in the business of manufacturing and trading in textile fabrics. During the course of assessment proceedings, the AO noticed that assessee has availed unsecured loans from six parties aggregating to Rs.3,29,00,000/-. The AO noted that a search action under section 132 of the Act was carried out in the case of Pravin Kumar Jain & Group and a statement was recorded on oath under section 132(4) in which he admitted that he and his associated concerns were engaged in the business of providing accommodation entries in the form of bogus unsecured loans and long term capital gain etc. Accordingly, the assessee was issued show cause notice to the assessee as to why the said loans should not be disallowed and added back to the income of the assessee as the said transactions were made with the entities providing accommodation entries. The Ld. A.R. in response filed copies of the ITR acknowledgments, balance sheets, confirmations and bank statements etc. on 23.02.2016 from the said six parties by submitting that the unsecured loans availed from these entities are genuine transactions done in the 3 M/s. Perfect Yarns Ltd. normal course of business. The Ld. A.R. also submitted that Shri Pravin Kumar Jain has also retracted his statement given during the course of search. However, the AO ,not accepting the submissions of the assessee, added a sum of Rs.3,29,00,000/- under section 68 of the Act to the income of the assessee by framing assessment under section 143(3) vide order dated 04.03.2016.

In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee by observing and holding as under: “5.3.4. Thus, it has to be said that the appellant had done everything in its power to prove the 3 ingredients required to prove the satisfactory nature of the loan transactions. In these circumstances, the onus had shifted to the AO. If the AO was still not satisfied, he had the option of making inquiries from the alleged lenders by summoning them. However, as seen from the assessment order, he did not any such thing. Further, if the AO was not satisfied with what had been given to him by the appellant, he was duty bound to specify what more material he wanted the appellant to furnish. The AO never asked for any further material, though time and again the appellant asked in their submissions. This leads to the inescapable conclusion that the AO could not think of any further material to ask for and proceeded to reject the appellant's claims, relying upon the information/material, which he never even brought to the notice of the appellant for any rebuttal. The unequivocal conclusion is that all the 3 ingredients having been satisfied, the impugned loans have to be treated as explained satisfactorily and the AO was not justified in having disregarded overwhelmingly supportive evidence. No cogent material was adduced by him to show that loans were unexplained. Therefore, the impugned additions, made in the assessment order, has to fail on several counts - (1) reliance on evidence that is totally inadequate; (2) failure to make available any incriminating material (reports, statements etc.) forming basis for action by the AO; (3) failure to give due opportunity to the appellant to cross examine witnesses, whose statement might have been relief upon; and (4) failure to recognize the satisfactory nature of the explanation /evidence tendered by the appellant to explain identity of creditors, creditworthiness of the creditors and the genuineness of the loan transactions. 5.3.5 In view of the facts narrated above as well as judicial pronouncements referred by me and the case laws relied upon by the appellant which has been reproduced above addition of Rs.3,29,00,000/- as non genuine loans cannot be upheld. Accordingly, AO is directed to delete the addition of Rs.3,29,00,000/-. In the result, the grounds related to addition of loans is to be treated as Allowed.”

The Ld. D.R., vehemently submitted before us that the Ld. CIT(A) has passed the order by ignoring the facts on record and also the facts which were revealed during the course of search action on Shri Pravin Kumar Jain and group entities. The Ld. D.R. submitted that during the course of search action it was admitted by Shri Pravin Kumar Jain that he and his associate concerns were engaged in the business of accommodation entries by providing bogus share application money, bogus unsecured loans and various other transactions. The assessee has taken unsecured loan from the said entities which are only accommodation entries. The mere filing of the balance sheets, ITRs, confirmations of the lenders and the bank statements would not automatically prove the three ingredients as envisaged in section 68 of the Act. The statement of Shri Pravin Kumar Jain is the corroborative evidence that the unsecured loans accepted by the assessee from six parties were not genuine and their creditworthiness were in doubt.

The Ld. A.R., on the other hand, submitted before the Bench that assessee has filed all the necessary details /information called for by the AO during the course of assessment proceedings. But instead of taking any action to verify the veracity of the transactions, the AO has just relied on the statement given under section 132(4) of the Act by Shri Pravin Kumar Jain that he and his associate group were engaged in the business of hawala entries. On enquiry put to the Ld. A.R. on the latest decision of Hon’ble Supreme Court in the case of Pr. CIT vs. NRA Iron & Steel Pvt. Ltd. Civil Appeal No._____ of 2019 arising out of SLP (Civil) No.29855 of 2018 dated 05.03.2019, the Ld. A.R. submitted that the facts of the 5 M/s. Perfect Yarns Ltd. said case are totally different than the facts of the assessee’s case. In that case the AO issued summons under section 131 of the Act and also notices under section 133(6) but those summons were not responded and parties were not found on the given addresses. Therefore, the AO could not investigate as the addresses given by the assessee were wrong and parties were not traceable. But in the present case, the assessee has filed confirmations, addresses, bank statements, ITRs and parties are very much on their addresses but the AO has not bothered to carry out any investigation and not even issued summons u/s 131 or letters u/s 133(6) of the Act. The Ld. A.R. also referred to the decision of the co-ordinate bench of the Tribunal in the case of ACIT vs. Shri Ganesh Developers in ITA No.1477/M/2017 A.Y. 2008-09 wherein the issue was decided in favour of the assessee and parties involved at Sl. No.3, 5 & 6 were same and accepted by the co-ordinate bench of the Tribunal. The Ld. A.R. also relied on the decision of Jurisdictional High Court in the case of Pr. CIT vs. Veedhata Tower Pvt. Ltd. wherein Hon’ble Bombay High Court has dismissed the appeal of the Revenue wherein the Tribunal has held that the assessee is not required to explain the source of source in A.Y. 2010-11 and the requirement of explaining the source of source of receipt came on the statute book by amendment to section 68 of the Act on 01.04.2013 effective from A.Y. 2013-14. Therefore during the subject assessment year there is no requirement to explain the source of source. The Tribunal also held that respondent- assessee has discharged the onus placed upon under section 68 of the Act by filing confirmations of letters, affidavit, PAN numbers of the traders and therefore the Revenue had all the 6 M/s. Perfect Yarns Ltd. details available with it to proceed against the person whose funds were alleged to be non genuine as held by the Apex Court in the case of CIT vs. W. Export Pvt. Ltd. (2009) 319 ITR ST 5 (SC) and thus the Hon’ble High Court held that the question as proposed by the Revenue as to whether the Tribunal is correct in interpreting section 68 to hold that AO was not entitled to enquire into the source of source to give a finding that particular credit was not genuine in terms of section 68 ‘does not give rise to any substantial question of law and was not entitled and thus the appeal of the Revenue was dismissed’.

We have heard the rival submissions of both the parties and perused the material on record including various case laws referred and relied by both the parties. We notice that the AO during the course of assessment proceedings found that the assessee has taken unsecured loans from entities connected to Shri Pravin Kumar Jain who ,during the course of search on him and his connected companies/entities, admitted in the statement recorded u/s 13294) of the Act that they were doing only hawala business of giving accommodation entries in the form of share capital, unsecured loans and long term capital gains. We also note that Shri Pravin Kumar Jain later retracted his statement. 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 of the Act 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 Pravin Kumar Jain without conducting any further enquiry on 7 M/s. Perfect Yarns Ltd. the details/information filed by the assessee. 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 of the Act where the assessee has filed all the necessary evidences before the AO when AO has not made any further enquiry to verify the transactions. 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. Under these circumstances, we, after taking into consideration contentions and 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) which has been passed after following the jurisdictional and other high courts and coordinate benches. Accordingly, the appeal of the revenue is dismissed by upholding the order of the ld CIT(A).