AJAY MALSHI DEDHIA,MUMBAI vs. JCIT 31(1), MUMBAI

This appeal, filed by the assessee, being 13.09.2016 passed by learned Commissioner of Income Tax (Appeals)-42, Mumbai (hereinafter called “the CIT(A)”), for assessment year 2012-13, the appellate proceedings had arisen before learned CIT(A) from assessment order dated 27.03.2015 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 143 (3) of the Income-tax Act, 1961 (hereinafter called “the Act”) for AY 2012-13.

The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:-

Rejection of retraction statement of Shri Bhanwarlal Jain a) The hon. CIT(A) erred in law and on facts in rejecting the retraction statement of Shri Bhanwarlal Jain. b) Your appellant strongly submits that the retraction statement was available with the ld. A.O. at the time of scrutiny proceedings and therefore no additional evidence application u/s. 46A was required from your appellant. c) Your appellant prays that the retraction statement of Shri Bhanwarlal Jain be admitted as evidence in favour of your appellant.

The brief facts of the case are that the assessee is builder & developer and is mainly engaged in the business of constructing and developing commercial and residential buildings. The assessee is proprietor of various concerns viz. M/s. Asmi Realtors, M/s. Asmi Developers, M/s. Esha Construction, M/s Kajal Developers and M/s Asmi Development Construction. During course of assessment proceedings u/s 143(2) r.w.s. 143(3) of the 1961 Act, the AO observed from the Balance Sheet of the assessee that the assessee had substantial amount of loans appearing in liability side of the Balance Sheet. The assessee was asked by the AO to submit the details and also to prove with evidences satisfaction of ingredients of Section 68 of the 1961 Act. The AO observed from the details submitted by the assessee that the assessee had , inter-alia, received loans amounting 4 to Rs. 90,00,000/- from three parties namely M/s. Ankita Exports, M/s. Roshan Gems Private Ltd. and M/s. Prime Star and these three parties are appearing in the list of bogus entry providers as per list provided by DGIT(Inv.) in the case of Bhanwarlal Jain Group. A search & seizure action u/s. 132 of the Income Tax Act, 1961 was conducted on 03.10.2014 by Investigation Wing, Mumbai on Bhanwarlal Jain Group of cases wherein it was found that Shri Bhanwarlal Jain along with his sons were operating and managing more than 70 benami concerns in the names of their employees through which they were providing accommodation entries of bogus un-secured loans and purchases to various beneficiaries and the assessee was listed as one of the beneficiaries of the bogus accommodation entries by way of unsecured loans of Rs. 90 lacs in the list provided to the AO by DGIT(Inv) received by assessee from these three lenders namely M/s. Ankita Exports, M/s. Roshan Gems Private Ltd. and M/s. Prime Star. Several incriminating material was stated to be found and seized during searches u/s 132(1) of the 1961 Act conducted on Mr Bhanwarlal Jain Group by Revenue and statements were stated to be recorded u/s 132(4) of the 1961 Act of Sh. Bhanwarlal Jain and his sons wherein they admitted to bogus nature of these accommodation entries. The modus operandi of these accommodation bogus entries were furnished by DGIT(Inv) to AO . It was observed by Revenue that various Directors / Partners/ Proprietors of these various benami concerns belonging to Bhanwarlal Jain Group were from the native place of Shri Bhanwarlal Jain and/or his family in Rajasthan and they were in fact dummy Directors/Partners /Proprietors. In their statement recorded u/s. 132(4) of the 1961 Act these alleged benami Partners/Proprietors /Directors of these banami concerns of Mr Bhanwarlal Jain and his family members admitted that they were Benami Partners/Directors/Proprietor of various concerns at the direction of Shri. Bhanwarlal Jain and/or his family members and they were merely employees of Shri Bhanwarlal Jain and/or his family members receiving meagre salary. They admitted to have no knowledge of diamond business in which they were shown as Director/Partners/Proprietor for name sake as benami’s of Sh. Bhanwarlal Jain and/or his family . All these Benami concerns were found by Revenue to be operating from premises located in Opera House which are in the name of Bhanwarlal Jain and his family. These concerns were found indulging in import and export of diamond wherein no stock of diamond was found at any of their premises , no books of accounts were maintained at their registered addresses and the statements under oath were given by these dummy/benami Directors/Partners/Proprietor of these concerns that these concerns were engaged in the providing bogus accommodation entries only. The entire modus operandi of these benami concerns belonging to Bhanwarlal Jain Group in providing bogus accommodation entries was found discussed by the AO in the assessment order and the same is not repeated here. The codes were used to record these accommodation entries which were decoded by Revenue from the incriminating material found and seized during searches conducted by Revenue. The Ld. AO also observed that the assessee has obtained accommodation entries by way of un-secured loans from these three benami concerns namely M/s. Ankita Exports, M/s. Roshan Gems Private Ltd. and M/s. Prime Star aggregating to Rs. 90,00,000/-. The AO issued notices u/ 133(6) of the 1961 Act to all these three parties who lent Rs. 90 lacs to the assessee. Two of the parties namely M/s Roshan Gems Private Limited and M/s Prime Star replied to notices issued u/s 133(6) issued by the AO while in the case of M/s. Ankita Exports , notices u/s 133(6) of the 1961 Act could not be served to M/s Ankita Exports on the given address. The AO on perusal of replies filed by both the parties from whom notices u/s 133(6) of the 1961 Act were served , observed that both the parties were engaged in business of trading and polishing of diamonds. It was also observed , inter-alia, by the AO that Balance Sheet of both the parties revealed that they have high turnover, have major component in their Balance Sheet as Loans and Advances , Debtors and Investments and large amount of creditors. It was also observed by the AO that own capital was very low. The AO observed that analysis of their financial statements proved that creditworthiness of these parties from whom the assessee availed bogus loans could not be proved. The AO observed that the assesse could not produce these parties before the AO. The assessee submitted before the AO that the inquiries have been initiated at fag end when the assessment was getting time barred . The AO denied these allegation of the assessee by holding that the assessee was asked vide questionnaire dated 11.08.2014 to substantiate that conditions as stipulated u/s 68 of the 1961 Act wrt these loans of Rs. 90 lacs were fulfilled as vide SCN dated 16.03.2015 as is referred to by the assessee is the final opportunity given by the AO to the assessee. The assessee also contended that the AO did not furnish complete details with respect to allegations made in context of searches conducted by Revenue on Bhanwarlal Jain Group such as copies of statement recorded and evidences collected during searches were not supplied to assessee nor appraisal report prepared in the case of Sh Bhanwarlal Jain group by Investigation department was supplied to the assessee.The assessee also submitted that copies of income-tax returns filed by entities in the case of Bhanwarlal Jain group were not furnished to the assessee nor replies submitted by these entities before Revenue were furnished to the assessee. The AO observed that hundreds of entities were beneficiaries of accommodation entries provided by Bhanwarlal Jain and investigation wing did not shared all information/evidences with the AO. The AO observed that the copies of statement recorded in the case of Bhanwarlal Jain case were furnished to the assessee for rebuttal along with notices u/s 133(6) issued to these three lenders who lent assessee Rs. 90 lacs as unsecured loans along with their replies during assessment proceedings. The AO observed that additions with respect to these three lenders to the tune of Rs. 90 lacs with respect to loan granted by them to assessee are not proposed just because of incriminating report of the investigation wing but because that despite opportunity granted to the assessee, the assessee had failed to satisfy the conditions stipulated u/s 68 of the 1961 Act. The AO observed that genuineness of these loans and creditworthiness of these lenders could not be proved by the assessee. The assessee on its part submitted before the AO , the annual accounts, ITR acknowledgement, confirmation and bank statements of these three lending entities but the AO observed that cumulative effect of all these material on records prove these tthree lending entities are shell concerns wherein the assessee failed to prove identity and creditworthiness of these lending concerns and also the AO held that the assessee could not prove genuineness of these loan transactions amounting to Rs. 90 lacs. The AO relied upon following case laws to come to the aforesaid conclusion:- a) Sumati Dayal v. CIT (SC) 214 ITR 801 b) Vasntibai N Shah v. CIT (Bom) 213 ITR 805 c) Sreelekha Banerjee & Oths. v. CIT (SC) 49 ITR 112 d) Cit v. Biju Patnaik (SC) 160 ITR 674 e) Roshan De Hatti v. CIT (SC) 107 ITR 938 Hence additions were made by the AO in the hands of the assessee to the tune of Rs. 90,00,000/- being unexplained cash credit u/s 68 of the 1961 Act. Similarly interest paid to these three lending parties to the tune of Rs. 7,55,411/- was also disallowed by the AO as un- secured loans transactions with these three parties were already held by AO to be bogus. The AO passed assessment order dated 27.03.2015 u/s 143(3) of the 1961 Act.

The assessee carried the matter in appeal before Ld. CIT(A). The assessee submitted that these three loans were received through account payee cheque and loan creditors were credible . It was submitted that the AO relied upon the information which was collected at the back of the assessee . It was submitted that complete information collected by the AO was not submitted to the assessee which prevented assessee to present its case . The assessee submitted that the AO did not arrive at decision independently and full inquiries were not made by the AO before making additions to the tune of Rs. 90,00,000/-. The learned CIT(A) observed that the assessee did submit loan confirmations , bank statement , final accounts of loan creditors but incriminating information was received by the AO that these three lenders were benami’s of Sh Bhanwarlal Jain Group and these entities were merely engaged in providing bogus accommodation entries . It was observed by learned CIT(A) that there was a search and seizure operations carried on by the Revenue against said Sh. Bhanwarlal Jain Group u/s 132(1) of 30.10.2013 wherein it was found that the said Sh Bhanwarlal Jain along with his sons were engaged in providing bogus accommodation entries towards purchases and loans through benami concerns opened in the name of employees who were getting meagre salaries. The said benami concerns also included these three lending companies who lent Rs. 90 lacs to the assessee. There were seizure of several incriminating material during search operations and the AO did extracted entire modus operandi of the said Sh Bhanwarlal Jain in providing these accommodation entries. The learned CIT(A) observed that the AO had extracted contents from appraisal report prepared by investigation wing about the activities and modus operandi of these benami concerns controlled by Sh Bhanwarlal Jain and his family members. It was claimed by the assessee before learned CIT(A) that AO had not supplied copy of the appraisal report of Bhanwarlal Jain Group and cross examination was not allowed. The Ld. CIT(A) observed that the AO handed over to the assessee copy of statement given by Shri Bhanwarlal Jain to the search team . It was observed by learned CIT(A) that assessee is asking for extraneous details such as Income Tax Returns of the loan creditor and a copy of its search report which is secured u/s. 138 of the Act. The learned CIT(A) observed that the AO shared all the information available with him with the assessee. The loan creditors are witnesses of the assessee and it is for the assessee to adduce the documents or to produce his witnesses. The Ld. CIT(A) observed that the assessee is seeking to file copy of an affidavit of Sh. Bhanwarlal Jain dated 15.5.2014 during appellate proceedings wherein Sh Bhanwarlal Jain is ostensibly resiling from the statements given by him in the course of search operations from 03.10.2013 to 12.10.2013 . The learned CIT(A) observed that this reflects closeness of the assessee with his loan creditors and puts a question mark on the assessee’s insistence of documents of the loan creditors from the AO. The learned CIT(A) observed that this affidavit of Shri Bhanwarlal Jain was not produced by the assessee before the AO and is fresh evidence which is introduced for the first time by the assessee in appellate proceedings. The Ld. CIT(A) observed that assessee has not filed any application under Rule 46A of the Income- tax Rules, 1962 prior to introducing this fresh evidence and hence learned CIT(A) refused to admit this piece of evidence on the grounds of being fresh evidences which was introduced for the first time before him . The learned CIT(A) also observed that the said Sh. Bhanwarlal Jain was not produced by the assessee before the AO and a retraction made after several months does not satisfy the requirement of law . The learned CIT(A) relied upon following case laws to come to above conclusions :-

We have considered rival contentions and perused the material on record including cited case laws. We have observed that the assessee is builder & developer and is mainly engaged in the business of constructing and developing commercial and residential buildings. The case of the assessee for impugned assessment year was selected by Revenue for undertaking scrutiny assessment u/s 143(3) r.w.s. 143(2) of the 1961 Act. The AO on perusal of the assessee’s Balance Sheet during the course of assessment proceedings u/s 143(3) r.w.s. 143(2) of the 1961 Act observed that it had huge liability outstanding to be payable in its balance sheet. The AO asked assessee to submit complete details of loans raised and to satisfy the mandate and ingredients of Section 68 of the 1961 Act w.r.t. the loans raised by the assessee.The assessee , inter-alia, had received un-secured loans of Rs. 90,00,000/- from three parties namely M/s. Ankita Exports, M/s. Roshan Gems P. Ltd. and M/s. Prime Star during the previous year relevant to the impugned assessment year . During assessment proceedings conducted by the AO u/s 143(3) r.w.s. 143(2) of the 1961 Act , the AO got information from DGIT(Inv.),Mumbai that the said three lenders were concerns belonging to Sh. Bhanwarlal Jain Group which were unearthed by revenue during the course of search and seizure operations carried out by revenue u/s. 132(1) of the Act on 03.10.2014 against said Sh. Bhanwarlal Jain group. It was found during the course of search and seizure operations conducted by Revenue u/s 132(1) of the 1961 Act against said Bhanwarlal Jain group that said Sh. Bhanwarlal Jain and his sons had floated several benami concerns more than seventy in numbers who were engaged in providing bogus accommodation entries by way of un-secured loans and bogus purchases/sale bills . Several persons who were known to said Shri Bhanwarlal Jain and his family belonging to Rajasthan were employed by said Shri Bhanwarlal Jain and his family at a meagre salary and they were shown as Director/Partners/Proprietors of these bogus concerns. Statements u/s. 132(4) of the 1961 Act were recorded by Revenue of said Shri Bhanwarlal Jain , his sons and their employees who on oath admitted to be providers of bogus accommodation entries by way of unsecured loans and / or bogus purchases etc.. These persons who were in-fact employees getting meagre salary were shown as proprietor/partners/directors of benami concern belonging to Shri Bhanwarlal Jain admitted that they have no knowledge of the businesses of which they were shown as partners/proprietors or Directors by Sh. Bhanwarlal Jain and family . All these concerns were operating from the premises belonging to said Sh. Bhanwarlal Jain and family at Opera House. The assessee was confronted with the statements recorded u/s 132(4) of the 1961 Act wherein it was admitted by these persons that these benami concerns were providing bogus accommodation entries by way of bogus loans and purchases . The assessee on its part produced loan confirmations from these three parties, bank statement , final accounts etc. but assessee could not produce the parties before the authorities below. The AO on perusal of the financial statements of these three concerns came to conclusion that these are shell companies. It is the say of the learned counsel for the assessee that complete details were not provided by Revenue with respect to the statements given by Shri Bhanwarlal Jain and his sons and employees levelling allegation against the assessee that it has obtained bogus accommodation entries by way of unsecured loans. We have observed that these entries with respect to un-secured loans are appearing in the books of accounts of the assessee and the onus is on the assessee to establish identity and creditworthiness of the lenders and also to prove genuineness of the loan transaction which is the mandate of section 68 of the Act . The assessee had failed to produce these parties before the AO . We have observed at the same time that Revenue is also relying upon statement of Shri Bhanwarlal Jain and his sons and their employees levelling allegation that its concerns were engaged in providing bogus accommodation entries towards unsecured loans wherein the assessee was stated to be beneficiary of these alleged accommodation entries. If the revenue wants to rely on incriminating material to fasten liability on the assessee then the assessee has to be given copies of all those incriminating material relied upon by the revenue and opportunity to cross examination has to be given to the assessee of the persons who have given statements incriminating assessee or from whose possession the seized material was seized , before fastening any liability on the assessee. Reliance is placed on the decision of Hon’ble Supreme Court in the case of Andaman Timber Industries v. Commissioner of Central Excise in Civil Appeal No. 4228 of 2006, judgment dated 2nd September 2015 . The assessee on its part is required to prove identity and creditworthiness of these three lending concerns as well prove genuineness of the loan transactions from these three parties as the said loans are appearing in the books of the assessee including production of these parties before the AO so as to satisfy the ingredients and mandate of Section 68 of the 1961 Act. The assessee has filed paper book containing 358 documents which are claimed to be evidences in its support. The assessee has also filed retraction affidavit executed by Mr Bhanwarlal Jain which the learned CIT(A) refused to admit on the grounds that this is an additional evidence filed for the first time before learned CIT(A) while the assessee has stated that this affidavit was filed before the AO and is not an additional evidence. The paper book filed before the tribunal contained declaration to that effect signed by the assessee that this affidavit was filed before the AO. This affidavit is required to be considered and dealt with on merits if the Revenue wants to rely on the statements u/s 132(4) of the 1961 Act obtained during the course of searches in the case of Bhanwarlal Jain group cases . The assessee however, could not produce these three parties who have extended loans to the assessee before the authorities below but now the learned CA of the assessee has prayed that if an opportunity is given by the tribunal, it will submit all necessary evidences to satisfy mandate and ingredients of Section 68 of the 1961 Act including producing these parties before the AO. Under these circumstances we are of the considered view that all the isssues arising of this appeal need to be set aside and restored to the file of the AO for fresh adjudication wherein the assessee shall be allowed by the AO to file all the necessary evidences/explanations in its defence which shall be admitted by the AO in the interest of justice and dealt with on merits in accordance with law. The onus is on the assessee to prove creditworthiness and identity of these three lenders and also to prove genuineness of these loan transactions aggregating to Rs. 90 lacs, including producing these three parties before the AO as the said loans are appearing in the books of the assessee in order to satisfy ingredients and mandate of section 68 of the Act . The AO shall admit all such evidences filed by the assessee and adjudicate the same on merits in accordance with law . Needless to say that the assessee shall be provided with proper and adequate opportunity of being heard by the AO in set aside denovo proceedings for framing assessment denovo in accordance with law on merits. In case revenue wants to rely on any incriminating material seized during searches or statements of Shri Bhanwarlal Jain , his sons or other persons obtained u/s 132(4) of the 1961 Act during searches and on any other incriminating material in possession of Revenue, the copies of such incriminating material shall be provided by AO to assessee for rebuttal before prejudicing and fastening liability on the assessee . The AO shall make available these persons giving statements against the assessee or from whose possession incriminating material was seized for cross examination by the assessee . The onus of producing these three lenders before the AO is on the assessee as these loans are appearing in the books of the assessee. We reiterate that in case the assessee fails to discharge primary onus cast on it to satisfy mandate and ingredients of Section 68 of the 1961 Act, the liability can still be fastened on the assessee but once the assessee discharges its primary onus as is cast u/s 68 of the 1961 Act, the onus shifts to revenue to bring on record incriminating material to discredit the version of the assessee. In case any incriminating material is brought on record by Revenue to discredit version of the assessee , it is incumbent on revenue to confront assessee with said incriminating material for rebuttal before fastening liability on the assessee including allowing cross examination of the persons whose statements incriminating assessee are recorded by Revenue at the back of the assessee or from whose possession the said incriminating material was seized by Revenue. The appeal of the assessee is , thus, allowed for statistical purposes as all the issues arising in this appeal are set aside and restored to the file of the AO for denovo framing of assessment on merits in accordance with law. We order accordingly.

In the result, the appeal of the assessee is allowed for statistical purposes.