ASST CIT 19(3), MUMBAI vs. RAJESH M SHAH(HUF), MUMBAI

Rajesh M Shah (HUF) ACIT- 19 (3), R. No. 203, 2nd floor, CC-2082, Bharat बनाम/ Diamond Bourse, BKC Matru Mandir, Tardeo Vs. Bandra (east) Road, Mumbai-400 007 Mumbai-400051. �थायीलेखासं./जीआइआरसं./PAN No. AADHR6852G (अपीलाथ�/Appellant) (��थ� / Respondent) : अपीलाथ�कीओरसे/ Appellant by : Shri Chaitanya Anjaria, DR ��थ�कीओरसे/Respondentby : Shri Suchek Anchaliya, AR सुनवाईकीतारीख/ : 09.08.2018 Date of Hearing घोषणाकीतारीख / : 30.08.2018 Date of Pronouncement आदेश / O R D E R

Per Sandeep Gosain, Judicial Member:

1. "Whether on the facts and circumstances of the case and in Law, the Ld. CIT(A) erred in holding that the accommodation entries in the names of Marvin Enterprises, Meenakshi Exports, Meenakshi Diamonds Pvt. Ltd. and Mukti Exports were genuine when in the search by the Investigation Wing and later it was conclusively proved that these are accommodation entries only."

2. "Whether on the facts and circumstances of the case and in Law, the Ld. CIT(A) erred in holding that the interest on the loan taken through accommodation entries was genuine."

3. "Whether on the facts and circumstances of the case and in Law, the Ld. CIT(A) erred in not considering the following decisions of the Hon'ble Supreme Court in Roshan Di Hatti vs. CIT(SC) 107 ITR 938, Kale Khan Mohammed Hanif vs. CIT(SC) 50 ITR 1 and Sreelekha Banerjee & Ors vs. CIT(SC) 49 ITR 112."

4. The appellant prays that the order of the Learned CIT(A) on the above grounds be set side and that of the AO be restored.

Rajesh M Shah (HUF) 5. The Appellant craves leave to amend or alter or delete any ground or add a new ground which may be necessary.

Assessment u/s 143(3) of the Act, was finalized by the Ld. AO on 24-03-2015, determining the total income at 1,28,86,260/-, after setting off the loss.

During the course of the search operation, it was found that the Rajesh M Shah (HUF) activities of the group were operated through several name lending dummy directors, partners/ proprietors of various concerns belonging to the native place of Shri Bhanwarlal Jain & family, and are engaged in providing accommodation entries of bogus purchases/ unsecured loans to various beneficiaries. The concerns were literally controlled, operated and managed by Shri Bhanwarlal Jain and his family. Those persons admitted this fact in the sworn statements recorded from them during the course of search operation and they have also admitted that Shri Bhanwarlal Jain made them to the position. On verification of the documents forwarded by the investigation wing, AO found that the appellant has taken accommodation entries for unsecured loans from six group concerns of Shri Bhanwarlal Jain, during the financial year relevant to the assessment year under consideration. The amount of loans taken from those six dummy concerns is to the tune of 3,83,10,000/- for the year under consideration. In response to the show cause notice issued by the AO, the assessee furnished details of loans received and the interest paid on the loans and copies of the affidavits of the loan lenders etc., through their letters dated 07-01-2015 & 19-03-

Rajesh M Shah (HUF) 2015. AO considered the submissions and stated that in the search conducted by the investigation wing it was conclusively proved that the group concerns are providing accommodation entries and the unsecured loans in the books of account of the appellant remained unverifiable. AO, arrived at the conclusion that the appellant has taken unsecured loan entries from certain parties to introduce unaccounted cash in its books of account and the creditworthiness and genuineness of the loan creditors/ lender was not established and corroborated by relevant supporting documents. AO also stated that mere filing of evidences such as copies of bank statement showing payment through account payee cheque cannot be conclusive proof or sacrosanct, where genuineness of transaction is in doubt. AO not accepted the unsecured loan from the six parties totaling to 3,83,10,000/- as genuine borrowings, by stating that the appellant failed to cumulatively prove the three essential ingredients such as identity, creditworthiness and genuineness of the loan lenders, there by the loans are squarely covered by the provisions of section 68 of the Act and added to the total income of the appellant. Since the loans were treated as accommodation entries,

Rajesh M Shah (HUF) the interest debited to the P & L account, claimed to have been paid towards such loans to the tune of 21,30,894/- was also disallowed and added to the total income, u/s 37 of the Act.

Penalty proceedings are initiated u/s 271(1)(c) of the Act, for filing inaccurate particulars of income.

Ground No. 1 to 4 6. Since all the grounds raised by the revenue are inter connected and inter related and relates to challenging the order of Ld. CIT(A) in holding that the accommodation entries in the names of Marvin Enterprises, Meenakshi Exports, Meenakshi Diamonds Pvt. Ltd. and Mukti Exports were genuine when in the search by the Investigation Wing and later it was conclusively proved that these are accommodation entries only, therefore we thought it fit to dispose of the same by this common order.

Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in para no. 5 to 10 of its order. The operative portion of the order of Ld. CIT(A) is contained in para no. 6(6.3.27-6.3.30) to 10 of its order and the same is reproduced below:-

6.3.27 Hence, it is to be inferred from the above discussed decisions of the different judicial forums, that in a case where the assessee has supplied all possible information to the Assessing Officer to explain the credit transaction, he has satisfactorily discharged the burden cast on him and it would be for the revenue to prove that the transaction is not satisfactorily explained and provisions of section 68 of the Act are applicable.

6.3.28 In the case before me, the record also shows that to prove the genuineness of the impugned loan entries from the 6 creditors, the appellant has Rajesh M Shah (HUF) furnished to the Assessing Officer the following details copies of which were also furnished in the present proceedings:

I. PAN details of creditors

II. Constitution and address of the creditors

III Particulars of income-tax returns filed by the creditors [These show that the creditors are legitimate business entities, having the ability to advance the impugned loans to the appellant.]

IV. Confirmatory letters given by the creditors

V. Audited financial accounts (including balance sheets) of the creditors [These show that the loans are duly reflected in the books of account of the creditors.]

VI. Relevant bank statements of the creditors [These show that the loan amounts were paid through legitimate banking channels. Further these bank statements do not reflect any movement of cash, essential to hawala transactions.]

VII. Details of interest paid to the creditors

VIII. Details of TDS deducted and paid.

6.3.29 As such, in so far as the appellant is concerned, it has provided all possible documentary evidence to Rajesh M Shah (HUF) prove identity of the creditors from whom the impugned loans of Rs. 3,83,10,000 were obtained. The evidence also reasonably proves creditworthiness of the creditors and the genuineness of the transactions. Moreover, how all the loans were obtained and repaid through the bank accounts, in the same-year or in the subsequent year were also furnished in the notarised affidavits before the AO(copies of which are furnished in the present proceedings) which is discussed in Para 6.3.12 above.

6.3.30 Thus, it has to be said that the appellant had done everything in its power to prove the three ingredients required to prove the satisfactory nature of the loan transactions. In these circumstances, the onus had shifted to the Assessing Officer. If the Assessing Officer 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 do any such thing. Further, if the Assessing Officer 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 Assessing Officer never asked for any further material, this leads to the inescapable conclusion that the Assessing Officer could not think of any further material to ask for and Rajesh M Shah (HUF) 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 three ingredients having been satisfied, the impugned loans of Z 3.83 crore have to be treated as explained satisfactorily and the Assessing Officer was wrong in having disregarded the evidences brought before the AO. Further, no cogent material was adduced by him, to show that loans were unexplained. Therefore, the impugned addition of Rs. 3,83,10,000/-, made in the Assessment Order, fails on several counts - (1) reliance on evidence that is totally inadequate; (2) failure to make available incriminating material (reports, statements etc.) forming basis for action by the Assessing Officer; (3) failure to give due opportunity to the appellant to cross-examine witnesses, whose statement might have been relied upon; and, (4) failure to recognise 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. Hence, the impugned addition of Rs. 3,83,10,000/- is hereby deleted.

7. In the later part of Ground No. 1, the appellant raised the issue of addition made towards the Rajesh M Shah (HUF) disallowance of interest payment of Rs. 21,30,894/- on the said non-genuine loans. The appellant also submitted the details of the TDS made on the loans wherever it is applicable and the details of amount of TDS paid into the Government account. In the appellant case the addition made towards the said loans is deleted after discussing the issue in detail in the above paragraphs. In view of the reasons stated above, since the loans are treated as genuine and the interest is debited to the profit and loss account on the said loans, the disallowance of interest is also deleted on the same facts and legal position as discussed above.

Ground No. 2 is with regard to initiation of penalty proceedings u/s 271(1)(c) of the Act, by the Assessing Officer. As far as challenging the initiation of proceedings are concerned, this ground of appeal is premature, as the Assessing Officer has imposed no penalty. There is no remedy against mere initiation of penalty proceedings u/s. 246A of the I.T. Act. However, the appellant shall be at liberty to approach this office in case such penalty is imposed by the AO in future. For the statistical purpose, this should be taken to be dismissed grounds of appeal.

9. In Ground No. 3 of the appeal it is stated that, 'The appellant craves leave to add, alter, vary, omit,

Rajesh M Shah (HUF) substitute or amend, the above grounds of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable to learn Commissioner (Appeals) to decide the appeals according to law.

The appellant also craves leave to submit additional documents and facts as may be necessary for the purpose of disposal of this appeal'. No such option has been exercised by the appellant during the appellate proceedings. Therefore, it is clear that this ground of appeal is academic in nature and no decision is required in respect of this ground of appeal. For the statistical purpose, this should be taken to be dismissed grounds of appeal.

After having gone through the facts of the present case as well as considering the orders passed by revenue authorities, judgments cited and submissions made by both the parties, we find that Ld. CIT(A) considered the records, which the assessee had placed on record to prove the genuineness of the loan entries from the six creditors in the shape of i) PAN details of Rajesh M Shah (HUF) creditors, ii) Constitution and address of the creditors, iii)

Particulars of income-tax returns filed by the creditors [These show that the creditors are legitimate business entities, having the ability to advance the impugned loans to the appellant.], iv)

Confirmatory letters given by the creditors, v) Audited financial accounts (including balance sheets) of the creditors [These show that the loans are duly reflected in the books of account of the creditors.], vi) Relevant bank statements of the creditors [These show that the loan amounts were paid through legitimate banking channels. Further these bank statements do not reflect any movement of cash, essential to hawala transactions.], vii) Details of interest paid to the creditors and viii) Details of TDS deducted and paid.

Rajesh M Shah (HUF) channel regarding this, a duly notorised affidavit was filed by the assessee and the details of which are already contained in para no. 6.3.12 of the order of Ld. CIT(A). Even otherwise, it is a settled law that once the assessee discharges its onus by proving the satisfactory nature of the loan transactions, then the onus shift upon the AO and in his wisdom, the AO has option of making inquiries from the alleged lenders.

10. Even the Coordinate Benches of ITAT in series of decisions have deleted the additions under the similar circumstances. In this respect, we refer case tiled ITO Vrs. M/s Vikram Muktilal Vora in ITO Vrs. Gujrat Construction in ITA No. 7040/Mum/2016, ACIT Vrs.

Shri Dilip Chimanlal Gandhi in Shri Naresh Hiran Vrs. ITO in ITA No. 1236/Mum/2017, ACIT Vrs. Shri Vashu Bhagnani in ITA No. 5648/Mum/2016 and ACIT Vrs. Shri Sumit J. Jain in ITA No. 145/Mum/2017.

by the revenue stands dismissed.

12. In the net result, the appeal filed by the revenue stands dismissed with no order as to cost. Order pronounced in the open court on 30th August, 2018 Sd/- Sd/- (R. C. Sharma) (Sandeep Gosain) लेखासद� / Accountant Member �ाियकसद� / Judicial Member मुंबई Mumbai;िदनांकDated :30.08.2018 Sr.PS. Dhananjay