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Income Tax Appellate Tribunal, “C” Bench, Mumbai
Before: Shri B.R. Baskaran (AM) & Shri Ramlal Negi (JM)
O R D E R Per B.R. Baskaran (AM) : Both the appeals filed by the assessee are directed against a common order dated 7.8.2017 passed by the learned CIT(A)-41, Mumbai and it relates to A.Y. 2011-12 & 2012-13. The assessee is aggrieved by the decision of the learned CIT(A) rendered in both years in sustaining addition made by the Assessing Officer u/s. 68 of the Act and also in confirming the disallowance of interest expenditure relating to loans added u/s. 68 of the Act.
The facts relating to the issues are stated in brief. The revenue conducted search in the hands of Bhanwarlal Jain group and noticed that this group was indulging in providing accommodation entries, inter alia, by way of unsecured loans. It was noticed that the assessee has taken a loan of ` 75 lakhs in the year relevant to A.Y. 2011-12 from a concern named M/s. Prime Star belonging to Shri Bhanwarlal Jain group. Accordingly the assessment of the assessment year 2011-12 was reopened by the Assessing Officer by issuing notice u/s.148 of the Act. The assessment of AY 2012-13 was pending before
2 Chandraprakash Paharia the AO and it was noticed that the assessee has taken a loan of ` 25 lakhs in the year relevant to AY 2012-13 also from a concern named M/s. Sonam Gems Pvt. Ltd., belonging to Shri Bhanwarlal Jain group. Hence the AO took up the return filed for AY 2012-13 for scrutiny.
In the assessment order, the Assessing Officer has narrated report given by search officials in respect of search undertaken in the Shri Bhanwarlal Jain group at length. During the course of search proceedings, a statement from Mr. Sheyans L. Jain, Managing partner of M/s. Prime Star was taken. It was found that he was wholly under the control of Shri Bhanwarlal Jain and was acting on his behalf. Accordingly, the Assessing Officer took the view that the loan of ` 75 lakhs taken by the assessee in A.Y. 2011-12 from M/s. Prime Star is an accommodation entry. Accordingly, the Assessing Officer asked the assessee to produce managing partner of M/s. Prime Star for examination along with evidences, bank statement, books of account, annual account and income tax return etc. The assessee produced Mr. Shreyans L. Jain, managing partner of M/s. Prime Star and he was examined by the Assessing Officer on oath on 22.1.2016. During the course of examination of Shri Shreyansh L Jain, he confirmed the loan transaction between M/s. Prime Star and the assessee. Before the AO, Shri Shreyans L. Jain also disputed his earlier statement given before the search officials. The Assessing Officer, however, held that the statement given by Shri Shreyans L. Jain before him cannot be relied upon, since he was acting on behalf of Shri Bhanwarlal Jain. The Assessing Officer, by placing reliance on the decision rendered by Hon’ble Supreme Court in the case of Kachwala Gems Vs. JCIT (2006) 288 ITR 10, took the view that receipt of loan amount by way of account payee cheque in itself is not sufficient to establish genuineness of transaction. Accordingly, the Assessing Officer took the view that M/s. Prime Star is benami concern of Shri Bhanwarlal Jain, who utilised the said concern to give accommodation entries to various parties. Accordingly, the AO took the view that the assessee has failed to prove the genuineness of loan of Rs.75 lakhs taken by him from M/s Prime Star. Accordingly he added the same as income of the assessee in A.Y.
3 Chandraprakash Paharia 2011-12 u/s. 68 of the Act. The AO also disallowed interest claimed on the above said loan.
In A.Y. 2012-13, as observed earlier, the assessee had taken a loan of ` 25 lakhs from M/s. Sonam Gems Pvt. Limited. Following his decision taken in A.Y. 2011-12 in respect of M/s. Prime Star, the Assessing Officer held that the loan amount of ` 25 lakhs received from M/s. Sonam Gems P. Ltd. is also unexplained and accordingly assessed the same in A.Y. 2012-13 as income of the assessee u/s. 68 of the Act. The assessing officer also disallowed interest expenditure claimed in respect of both the loans, referred above in 2012-13.
The Ld CIT(A) also confirmed the orders passed by the AO in both the years. Hence the assessee has filed these appeals.
The Ld A.R submitted that the assessing officer has made the impugned additions in both the years by placing reliance on the statement given by third parties during the course of search proceedings conducted in the hands of Bhanwarlal Jain Group. The Ld A.R submitted that the assessee has requested for copies of statements and also requested for cross examination of those parties before the AO. However, the AO did not provide copies of statements and also did not afford opportunity to cross examine them. The Ld A.R submitted that the AO is not entitled to make additions on the basis of statements which were not provided to the assessee and also without providing opportunity for cross examination. In this regard, he placed reliance on the decision rendered by Hon’ble Supreme Court in the case of Andaman Timber Industries vs. CCE (2015)(281 CTR 0241).
The Ld A.R further submitted that the assessee has furnished all the details relating to the loans taken from M/s Prime Star and M/s Sonam Gems P Ltd before the AO in order to discharge the initial onus placed upon the assessee u/s 68 of the Act. He submitted that the assessee has also produced both the parties before the AO and the AO has also examined them by taking statements from them. In the statements, both the parties have confirmed the 4 Chandraprakash Paharia loan transactions. The Ld A.R further submitted that the AO has himself observed that the Customs authorities have confirmed the transaction of import of diamonds by both these concerns and they have paid customs duty also. Accordingly the Ld A.R submitted that the AO was not justified in doubting the business transactions of the lenders, when one wing of Central Government is confirming the transactions carried on by the lenders. The Ld A.R submitted that both the loans have already been repaid by the assessee and the payment details were also furnished before the AO. Accordingly he submitted that the assessee has discharged its liability to prove the genuineness of loans.
The Ld A.R further submitted that the tax authorities have placed reliance on the decision rendered by Hon’ble Supreme Court in the case of Kachwala Gems (supra) in order to hold that the transactions through banking channels alone will not prove the genuineness of transactions. The Ld A.R submitted that the Hon’ble Supreme Court has no where stated so in the above said decision and hence the tax authorities are not justified in placing reliance on the above said decision. The Ld A.R further submitted that the onus to disprove the documents has been shifted to the shoulders of the assessing officer, but he has not discharged the onus shifted upon its shoulders. He submitted that the AO is not entitled to make addition u/s 68 of the Act without making further enquiries to disprove the case of the assessee. In support of this proposition, he placed reliance on the following case laws:- CIT Vs. Varinder Rawlley (2014) 366 ITR 232 (P&H) CIT Vs. Jai Kumar Bakliwal (2014) 366 ITR 217 (Raj) CIT Vs. Gangeshwari Metal P. Ltd. (2014) 361 ITR 10 (Del) DCIT Vs. Rohini Builders (2002) 256 ITR 360 9. The Ld A.R submitted that the assessee has furnished the financial statements and proved the source of the cash credits. He submitted that in the following cases, it has been held that the source of sources need not be proved by the assessee:-
5 Chandraprakash Paharia
Nemi Chand Kothari Vs. CIT and Ors. (2003) 264 ITR 254 CIT Vs. Smt. Sanghamitra Bharali (2014) 361 ITR 481
The Ld A.R further submitted that identical additions relating to loans taken from Bhanwarlal Jain group of companies have been deleted by the co- ordinate benches of Tribunal in the following cases:- ACIT Vs. Shri Vashu Bhagnani (ITA No. 5648/Mum/2016) Jitendra Kitawat Vs. ITO (ITA No. 7049 & 7050/Mum/2016)
Accordingly he contended that the impugned additions made in both the years and the consequential disallowances of interest are liable to be deleted.
On the contrary, the Ld D.R submitted that the investigation wing of the department has given a detailed report explaining the modus operandi followed by the Bhanwarlal Jain group, which clearly proved that they have provided only accommodation entries. He further submitted that the AO as well as Ld CIT(A) has come to the conclusion that the directors of both the lender companies are dummy directors and these concerns were providing only accommodation entries. He further submitted that the Hon’ble Supreme Court has held in the case of Kachwala gems (supra) that there is necessarily some amount of guess work involved in the best judgement assessment. Accordingly he contended that the orders passed by Ld CIT(A) do not call for any interference.
In the rejoinder, the Ld A.R submitted that the observations of Hon’ble Supreme Court relied upon by Ld D.R relate to the best judgement assessments, which is not the case here. He further submitted that the tax authorities had placed reliance on the decision of Hon’ble Supreme court to make observations on the genuineness of loan, which do not find place in the decision rendered by Hon’ble Supreme court. He further submitted that the assessee has otherwise proved the loans taken from both the parties and the AO has made the additions without making further enquiries.
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We have heard rival contentions and perused the record. We notice that the AO has made the additions in both the years u/s 68 of the Act. The AO has primarily formed the view that these loans are not genuine mainly on the basis of report given by the Investigation department of the revenue. There should not be any dispute that the provisions of sec. 68 of the Act place the initial onus upon the shoulders of the assessee to prove the cash credits. In order to discharge the onus, the assessee is required to prove three main ingredients, viz., the identity of the creditor, the credit worthiness of the creditor and the genuineness of transactions. In the instant cases, there is no dispute that the assessee has furnished all the documents and evidences to prove the above said three ingredients. Once the assessee discharges the initial onus, then the onus to disprove them is shifted to the shoulders of the assessing officer.
We notice that the assessing officer, in the process of discharging the onus placed upon its shoulders, has asked the assessee to produce the creditors. The assessee has also produced the creditors before the AO and the AO has also taken statements from them. In the statement, both the creditors have confirmed the loan transactions. When the AO confronted the statements given by them earlier, they have disputed the original statements. In any case, on the basis of original statements, the investigation wing has only come to the conclusion that the directors/partners of the above said concerns are under the control of Bhanwarlal Jain. Thus, we notice that the AO, through the process of examining the lenders, did not disprove the evidences furnished by the assessee.
The Hon’ble Punjab & Haryana High Court considered an identical issue in the case of CIT vs. Varinder Rawlley (2014)(366 ITR 232). The head notes of the above said case is extracted below:- “Section 68 of the Income-tax Act, 1961, provides for charging of income of the assessee to tax, if, in the opinion of the Assessing Officer, the assessee failed to render any explanation or the explanation offered by the assessee about the nature and source of any sum found credited in 7 Chandraprakash Paharia
the books of the assessee maintained for the previous year, is unsatisfactory. In other words, it is for the assessee to prove the genuineness of the transaction by identifying the creditor and his capacity to advance money. The onus lies upon the asses-see to explain the credit entry but it shifts upon the Assessing Officer under certain circumstances. Where the assessee shows that the entries regarding credit in a third party's account were in fact received from the third party and are genuine, he discharges the onus. In that case the sum cannot be charged as the assessee's income in the absence of any material to indicate that it belongs to the assessee. The assessee was engaged in the business of supply of LPG stoves, pipes, burners, etc. For the financial year 2002-03, he filed a return showing the total sales of Rs. 22,62,814 having a credit entry of Rs. 86,737. The assessing authority doubted the veracity of the entry and called for an explanation. The explanation was not accepted by the assessing authority who treated the entry of Rs. 86,737 as an unexplained credit and ordered addition thereof to the income of the assessee. The Tribunal deleted the addition. On appeal to the High Court: Held, dismissing the appeal, that the assessee received the amount by way of an account payee cheque. The amount was returned by way of an account payee cheque. The transactions were reflected in the bank accounts of the assessee as well as of the creditor. The creditor was an income-tax assessee. Its permanent account number card was placed on record. The assessee had sufficiently discharged the burden which lay upon it to explain the nature and source of the credit entry appearing in its accounts and the burden clearly shifted to the Department to prove to the contrary to hold that in spite of the assessee's explanation, the entries could still be held to represent the assessee's income. The Assessing Officer failed to invoke the provisions under section 131 of the Act, the Tribunal had rightly concluded that it was sufficient to delete the addition.
Identical view has been expressed by Hon’ble Rajasthan High Court in the case of CIT vs. Jai Kumar Bakliwal (366 ITR 217). The Hon’ble Delhi High Court has also taken the view that the AO is required to make further enquiry if the assessee has furnished all the materials to prove the cash credits. If the AO fails to do so, he is not entitled to make addition u/s 68 of the Act. It was further held that the mere rejection of evidence without giving reasons is not justified.
In the instant case also, the AO did not make further enquiries on the evidences furnished by the assessee. The AO has simply rejected them without assigning any reasons. In fact, the assessee has produced the lenders
8 Chandraprakash Paharia before the AO, who have also confirmed the loan transactions. Instead the AO has placed reliance on the report given by search officials, brushing aside the confirmation given by the lenders and also brushing aside the various documents furnished by the assessee to prove the cash credits. Even though the AO has stated that the assessee has failed to prove the three basic tenets of a legal loan transaction, yet he has not substantiated the same with any credible reasons. Hence, it is a case of mere rejection of various evidences furnished by the assessee. We notice that the AO had asked the assessee to produce books of accounts from one of the lenders, which were not produced. In this regard, the Ld A.R submitted that the Customs officials have confirmed the trade transactions and further the assessee has furnished the financial statements relating to both the lenders, which documents have not been found fault with. The AO has further stated that the genuineness of loans have not been proved, since they are mere accommodation entries. Here also, the AO has made this statement despite the fact that the lenders have confirmed the loan transactions and their financial statements have also been furnished before the AO. Under these set of facts, various decisions relied upon by Ld A.R, which are mentioned in the preceding paragraphs, support the case of the assessee. Hence the AO was not justified in making addition of Rs.75.00 lakhs and Rs.25.00 lakhs respectively in AY 2011-12 and 2012-13 u/s 68 of the Act. Consequently the disallowance of interest expenses relating to the above said loans is also liable to be deleted in both the years.
We have noticed in the earlier paragraph that the AO has placed reliance on the report given by search officials, which inter alia, includes Statements given by the partner/director of lenders. The search officials had also placed reliance on the statements given by Shri Bhanwarlal Jain, hi son Shri Rajesh Jain etc. Since the AO had fully placed reliance on the statements so given, the assessee has requested the AO to supply copies of those statements and also asked for cross examination of those persons. It is stated that the AO neither supplied the copies of statements nor afforded opportunity of cross examination. The Hon’ble Supreme Court has held in the case of Kishanchand
9 Chandraprakash Paharia Chellaram vs. CIT (1980(125 ITR 713) that the materials, which were not supplied to the assessee, could not be used against the assessee. The Hon’ble Supreme Court in the case of Andaman Timber Industries (supra) has held that, if the statements of the witnesses were the basis for passing the orders, then not allowing assessee to cross examine witnesses by Adjudicating Authority amounted in serious flaw which make impugned order nullity as it amounted to violation of principles of natural justice. Hence, for these reasons also, the impugned additions cannot be sustained.
Accordingly, we set aside the orders passed by Ld CIT(A) on these issues in both the years under consideration and direct the AO to delete the additions made u/s 68 of the Act in both the years and also delete the disallowance of interest expenses relating to the impugned loans in both the years.
In assessment year 2011-12, the assessee has raised a ground challenging the rejection of deduction claimed u/s 80C of the Act. The AO rejected the same for want of evidences. We notice that the Ld CIT(A) did not adjudicate this ground. Hence, in the interest of natural justice, we restore this issue to the file of the AO for examining it afresh.
In the result, both the appeals of the assessee are allowed. Order has been pronounced in the Court on 12.9.2018.