ACIT 32(3), MUMBAI vs. VIVEK R. SHETTY, MUMBAI

आदेश / O R D E R

Per Manoj Kumar Aggarwal (Accountant Member)

Vivek R. Shetty Assessment Year-2012-13 2.1 Briefly stated, the assessee being resident individual engaged as commission agent and dealer in shares under proprietorship concern namely V.R. Tours & Travels was saddled with impugned additions of Rs.106.48 Lacs u/s 68. Pursuant to receipt of certain information from DGIT (Investigation), Mumbai, it was found that the assessee obtained loans aggregating to Rs.106.48 Lacs from 6 entities, the names of which were appearing in the list of beneficiaries of accommodation entries given by entry provider group of Bhanwarlal Jain. The detail of alleged bogus loans taken by the assessee was as follows:-

No. Name Amount (Rs.) 1 Abhiman Gems Pvt.Ltd Rs.3,08,590/- 2 Mohit Enterprises Rs.10,80,730/- 3 Mayur Exports Rs.34,58,336/- 4 Navkar Diamond Rs.13,91,043/- 5 Mukti Exports Rs.16,21,095/- 6 Meenakshi Exports Rs, 27,88,370/- Total Rs.1,06,48,164/- The search operation u/s 132 on Bhanwarlal Jain group revealed that the aforesaid group, through web of numerous bogus entities, provided bogus unsecured loans. 2.2 The assessee defended the loans on the strength of the confirmation of the parties and relevant bank statements which could not find favor with Ld. AO. Accordingly, the aforesaid loans were added to the income of the assessee as cash credit u/s 68.

3. Aggrieved, the assessee contested the same with success before Ld. CIT(A) vide impugned order dated 22/09/2016 wherein the matter was concluded in the following manner:-

Vivek R. Shetty Assessment Year-2012-13 3.3 I have carefully gone through the assessment order as well as the written submission of the AR. I have also perused the details filed by the AR. The AO has made addition u/s 68 of the IT Act 1961. It is therefore important to understand the position of law which has evolved from a catena of judgments delivered by High Courts and Tribunals on this issue. For applying the provision of section 68 one of the fundamental condition is that a sum is found credited in the books of an assessee maintained for the previous year. The section further says that if the explanation offered by the assessee regarding the nature and source of such credit entry is not found to be satisfactory by the AO then the sum so credited may be charged to income tax as the income of the assessee of that previous year. From a plain reading of section 68 it is absolutely clear that addition u/s 68 can be made for that previous year in which such sum is found credited in the books of the assessee. This view also derives support from the judgment given by the Hon'ble Delhi High Court in the case of CIT Vs Usha Stud Agricultural Farms Ltd. 301 ITS 384 (DEL). In this case also the CIT(A)s had deleted addition on ground that the said cash credit was appearing in books of assessee over past 4 to 5 years and thus it was not fresh credit entry pertaining to relevant assessment year. The order of the CIT(A) was both by the ITAT Delhi and the Delhi High Court. 3.4. During the course of assessment proceedings, the following details were filed before the AO. • Audited books of accounts of assessee • Bank statements reflecting receipt of loan and interest payments. •Loan confirmations statements • Profit & loss of parties from whom the loan is obtained • Balance sheet of parties from whom the loan is obtained. 3.5 It is the contention of the appellant that during the relevant previous year i.e. FY 2011-12 pertaining to AY 2012-13 only an amount of Rs 20,50,000/- has been taken as loan. The balance amount of loan totaling up to Rs 79,00,000/- has been taken in various previous years before the FY 2011-12. The same explanation was given by the appellant before the AO about which the AO has not mentioned anything in the assessment order. The AO has himself mentioned in the assessment order that the assessee has submitted copies of confirmation as well as bank statements. If the AO had examined the details filed by the appellant he could have been that there is an opening balance of loan shown by N/s Mayur Exports, MIs Mohit Enterprises, M/s Minakshi Exports & M/s Mukti Exports. The fresh loan accepted during the financial year 2011-12 was Rs.4,00,000/- from M/s Minakshi Exports, Rs. 13,50,000/- from M/s Navkar Diamonds and Rs.3,00,000/- from M/s Abhinav Gems. Thus the closing balance of loan totaling up to Rs 1,06,48,133/ consisted of an amount of Rs 79,00,000/- of old loans, Rs 20,50,000/- of fresh loans and interest accrued on loans. AO, however, did not even check whether the sums of Loan have been credited in the books of the appellant during the concerned previous year and added the entire closing balance of loan together with interest u/s 68 of the IT Act. As mentioned earlier there is a legal requirement for section 68 to be applicable in a concerned assessment year that the credit of sum in question has to be made in the concerned previous year of that particulars assessment year. Since it is a matter of fact and record that loans totaling up to Rs 79,50,000/- were not credited in the books of the appellant during the concerned previous year 2011- 12 the same cannot be added u/s 68 in the assessment of the AY 2012-13.

Vivek R. Shetty Assessment Year-2012-13 3.6 As far as the fresh loan totaling up to Rs 20,50,000/- is concerned it is seen that in the assessment order, the AO did not at all discuss the merits of submissions by the appellant and casually brushed aside the details filed by the appellant. Further, from a careful perusal of assessment order it is seen that no enquiry whatsoever has been conducted by the AO. AO did not make any independent verification which would bring in evidences against the identity and creditworthiness of the creditors and genuineness of the loan transactions. Instead the entire focus of the AO was to discuss the modus operandi adopted by Bhanwarlal Jain to provide bogus accommodation entry of loan. However, the moot point before the AO was to examine the application of section 68 in the case of the appellant. Instead of establishing that the explanation offered regarding the nature and source of credit in the books of the appellant is not satisfactory the AO went to discuss in detail the facts related with Bhanwarlal Jain group of cases. The AO has not appreciated the fact that he was not making assessment of Bhanwarlal Jain group of cases. On the other hand, the appellant was able to establish the identity and the creditworthiness of the creditors as well as the genuineness of transactions. 3.7 The Hon'ble ITAT Mumbai in the case of ITO vs Anant Shelters Pvt. Ltd. (2012) 20 Taxrnann.com 153 has enumerated certain principles which would be extremely useful in understanding the issue in hand. It has been stated in the said judgment that over the years, law regarding cash credits have evolved and has taken a definite shape. A few aspects of law U/s 68 can be enumerated 1. Sec. 68 can be invoked when there is a credit of amounts in the books maintained by the assessee, such credit is a sum of money during the previous year and either the assessee offers no explanation about the nature and source of such credits or the explanation by the assessee in the opinion of the AO is not satisfactory.

•Audited books of accounts of assessee • Bank statements reflecting receipt of loan and interest payments. • Loan confirmations statements • Profit & loss of parties from whom the loan is obtained • Balance sheet of parties from whom the loan is obtained Vivek R. Shetty Assessment Year-2012-13 3.9 If the above referred principles are applied to the facts of the case under consideration it can be seen that the identity of the creditors has been established as they are having PAN and they are filing return of income. The genuineness of the transaction is established from the fact that the acceptance of loan has been through banking channels. Further interest has been paid against such loans and such interest payments have been subject to TDS. The creditworthiness of the lenders can be established from the financial statements of the lenders which were filed before the AO. 3.10 Recently the Hon’ble Bombay High Court has passed an order in WP NO.167 of 2015 dated 15.04.2015 in the case of M/s Rushabh Enterprises Vs. ACIT 24(3) and Ors. In this case also the assessee had taken loan from concerns related with Bhanwarlal Jain Group of cases. In its order the Hon’ble Bombay High Court in addition to deciding the legal validity of reopening of assessment also discussed the facts of the case. The Hon’ble Bombay High Court in para 8 of its order stated “…. according to her (AO) the revenue has received information from the DGIT (Inv) that the assessee has taken unsecured loans from the above parties by way of unaccounted cash/accommodation entries. We are unable to agree since the petitioner has clearly stated that all the payments were made by a/c payee cheques which were encashed in the bank account of the petitioner in the regular course of business. We find that the petitioner has also paid interest on this loans after deduction of tax at source and TDS returns are also accordingly filed. There is no dispute in regard to the above. We find nothing to support the said contentions of the revenue. The revenue’s contention in the affidavit in reply has no merit. On the other hand, the loans appear to be taken in the regular course of business….” 3.11 After considering the totality of facts, the rival submissions, applicable law and on the basis of discussions mentioned above I have come to a conclusion that nature and source of credit in the books of accounts of the appellant stands explained. Consequently, addition u/s 68 cannot be sustained even for the fresh loan totaling up to Rs 20,50,000/-. As mentioned in para 3.5 the old Loans which were taken earlier cannot be added u/s 68 in the assessment of AY 2012-13. The grounds of appeal no. 1 is accordingly allowed and addition of Rs 1,06,48,164/- is deleted. Aggrieved, the revenue is in further appeal before us.

4. The Ld. Departmental Representative [DR], Ms. Pooja Swaroop, submitted that Ld. CIT(A) erred in providing relief to the assessee in view of the fact that search operations on the tainted group clearly revealed that the said group was engaged only in providing accommodation / bogus entries. Reliance has been placed on the judgment of Hon;ble Delhi High Court rendered in CIT Vs. Jansampark Advertising & Marketing P. Ltd. [56 Taxmann.com 286]. Per contra, Ld. Auhtorized