DCIT 25(1), MUMBAI vs. YRV INTERNATIONAL, MUMBAI

The facts relating to the issue are discussed in brief. The assessee is engaged in the business of purchase and sale of film rights, financing and investment activities. The original assessment was completed u/s 143(3) of the Act for the year under consideration determining total income at Rs.7,07,384/-. The AO received information that M/s Bhanwarlal Jain Group was carrying activities of providing accommodation entries in the form of bogus loans and advances and it was noticed that the assessee has also taken loans from the above said group. Hence the AO reopened the assessment of the year under consideration by issuing notice u/s 148 of the Act. It was 2 M/s. YRV International noticed that the assessee has received loan of Rs.100.00 lakhs and Rs.150.00 lakhs respectively from M/s A2 Jewels and M/s Daksh Diamonds aggregating to Rs.250.00 lakhs respectively.

The AO, in order to verify the genuineness of loans, issued notice u/s 133(6) of the Act to the above said two parties. Both the parties responded to the notice, apparently, confirming the transactions. The assessee also contended that it has not taken any loan directly from M/s Bhanvarlal Jain. However, the AO did not accept the contentions of the assessee, since he noticed that a person named Shri Ritesh Siroya, who was a common partner in the above said two concerns, had admitted in the statement during the course of search that his group is providing accommodation sales bills in diamonds. Accordingly the AO took the view that the loan of Rs.250 lakhs obtained from the above said two parties are unexplained cash credits and accordingly assessed the same as income of the assessee u/s 68 of the Act.

In the appellate proceedings, the Ld CIT(A) noticed that the loan transactions cited above were through banking channels. He further noticed that the assessee has discharged its initial onus placed upon it under section 68 of the Act by proving the three main ingredients. It has proved the identity of creditors by giving their complete addresses, GIR nos/PAN Nos. It has also proved the capacity of the creditors by giving their assessment orders and other statements. It has also proved the genuineness of the transactions by furnishing bank statements. The Ld CIT(A) took support of the following decisions to observe that the onus placed upon the assessee is discharged, if he proves the three main ingredients viz., (i) identity of the creditor; (ii) the genuineness of the transaction and (iii) genuineness of transactions.

The Ld CIT(A) also took support of decision rendered by Hon’ble Bombay High Court in the case of Rushabh Enterprises vs. ACIT (W.P No.167 of 2015), wherein the Hon’ble High Court had dismissed the reopening of assessment on the basis of information received from Investigation wing in respect of loans taken from 45 parties, including from four parties belonging to Bhanwarlal Jain group.

The Ld CIT(A) also noticed that the statement given by Mr. Ritesh Siroya nowhere implicates the assessee and accordingly the Ld CIT(A) observed that the AO has reopened the assessment only on suspicion. He further noticed that the AO has completely ignored the documentary evidences furnished by the assessee and further did not carry out any worthwhile independent enquiry in the matter. Further the AO has not pointed out any defect in the documents filed by the assessee. Accordingly the Ld CIT(A) observed that the onus to disprove the evidences furnished by the assessee has shifted to the AO, but the AO has failed to discharge the same. Accordingly the Ld CIT(A) expressed the view that merely based on statement of a third person and without any corroborative evidence, the transaction cannot be treated as accommodation entries.

The Ld CIT(A) also observed that only certain transactions carried out by M/s A2 Jewels and M/s Daksh Diamonds were found to be bogus and not all other transactions. He observed that the AO did not bring any material to support his conclusions except relying on the report and statement.

The Ld CIT(A) observed that the case of the assessee is covered by the decisions rendered by Mumbai bench of ITAT in the case of Satish N Doshi HUF vs. ITO in and in the case of Shaf Broadcast P Ltd vs. ACIT (ITA No.1819/Mum/2012), wherein the Tribunal has quashed the reopening of assessment, since the reopening was based on statements of Mr.

Finally, the Ld CIT(A) has given a finding that the assessee has proved all the three main ingredients. Further he relied upon the decision rendered by Hon’ble Supreme Court in the case of CIT Vs. Smt. P.K.Noorjahan (1999)(237 ITR 570) to observe that the unsatisfactoriness of the explanation does not and need not automatically result in deeming the amount as income of the assessee. Accordingly, the ld CIT(A) deleted the addition made the by the AO. The revenue is aggrieved by the decision so rendered by Ld CIT(A).

The Ld D.R submitted that both the concerns, from which the assessee had taken loans, are having meager capital and further they are declaring meager profits. The Ld D.R took us through the financial statements furnished by these parties to support his contentions. He submitted that these aspects clearly show that these two parties did not have capacity to lend the loans to the assessee. He further submitted that the partner of these two firms has accepted that they are into the business of providing accommodation entries. The Ld D.R submitted that the Ld CIT(A) has ignored these aspects and accordingly contended that the order passed by Ld CIT(A) should be reversed.

The Ld A.R, on the contrary, submitted that the assessee has discharged the initial onus placed upon it u/s 68 of the Act by proving the identity of the 5 M/s. YRV International creditors, credit worthiness of the creditors and genuineness of transactions. He submitted that these creditors have also got loans from others, which were used to advance loans to the assessee. He submitted that the financial statements of these parties prove the availability of funds with both the creditors. He further submitted that these loans have been repaid in the subsequent years through banking channels. The Ld A.R submitted that the AO has issued notices u/s 133(6) of the Act to these two creditors and they have duly responded to the notices and have confirmed the loan transactions entered with the assessee. The Ld A.R further submitted that the AO has not found fault with any of the documents furnished by the assessee. He submitted that Shri Ritesh Siroya has also furnished affidavits confirming the loan transactions. Accordingly he submitted that the Ld CIT(A) was justified in holding that the AO has made the impugned addition on surmises and conjectures.

We have heard rival contentions and perused the record. We notice that the AO has made the impugned addition u/s 68 of the Act. It is a well settled principle of law that the initial onus to prove the genuineness of the cash credit is placed upon the assessee and in order to discharge the initial onus, the assessee is required to prove three main ingredients, viz., the identity of the creditor, the creditworthiness of the creditor and the genuineness of transactions. Once the assessee discharges the initial onus, then the onus to disprove the same is shifted upon the shoulders of the assessing officer.

In the instant case, the assessee has taken loans from M/s A2 Jewels and M/s Daksh Diamonds. All the loan transactions have taken place through the banking channels and hence the genuineness of transactions is not in doubt. Both the above said creditors are assessed to Income tax and further the notices issued by the AO u/s 133(6) of the Act were duly served upon them and further they have also replied to the same. Hence the identity of the creditors is also stand proved. In order to prove the creditworthiness, the 6 M/s. YRV International assessee has furnished the financial statements of these two creditors. The contention of the revenue is that the capital balance and the profit disclosed by them are low. Accordingly it was contended that these two concerns could not have given such kind of huge amounts as loan. However, in our view, both of them are not determinative factors. What is required to be seen is whether the creditor could prove the availability of funds with it or not. A perusal of the financial statements furnished by both the creditors would show that the loans given to the assessee have been duly disclosed and further these creditors were having sources by way of loans taken by them from others. Further both the concerns were carrying of business having huge turnover. Hence the movement of funds in their accounts and also the availability of funds with them cannot be doubted. Hence, we are of the view that the Ld CIT(A) was justified in holding that the creditworthiness of these two creditors also stand proved.

We also notice that the assessing officer has also made independent enquiry with these two creditors by issuing notices u/s 133(6) of the Act and in response to the same, both these creditors have confirmed the loan transactions. We also notice that the AO did not find fault with the financial statements of these two creditors. We also notice that the AO has proceeded to make the addition u/s 68 of the Act only for the reason that Shri Ritesh Siroya has admitted that his group has provided bogus sales bills. As observed by Ld CIT(A), Shri Ritesh Siroya has not implicated the assessee nor did not he mention that the loans given to the assessee were bogus. On the contrary, the very same Shri Ritesh Siroya has furnished affidavits, during the course of assessment proceedings, confirming the loan transactions. We notice that the AO could not prove that these financial statements, confirmation letters and affidavits filed by Shri Ritesh Siroya are wrong. Thus the Ld CIT(A) has rightly pointed out that the AO has ignored the documentary evidences furnished by the assessee. Thus the assessee has discharged the initial onus placed upon it u/s 68 of the Act. On the contrary, it is seen that the AO has failed to discharge the onus shifted upon its shoulders.

We notice that the Ld CIT(A) has followed the principles laid down in various case laws extracted above. Before us, none of the case laws was controverted. The foregoing discussions also show that the AO has brushed aside various documents furnished by the assessee and proceeded to make the addition only on the basis of information received from the investigation wing and the statement given by Shri Ritesh Siroya. The Ld CIT(A) has rightly pointed out these facts and accordingly concluded that the addition made by the AO was not justified. In view of the foregoing discussions, we are of the view that the decision rendered by Ld CIT(A) does not call for any interference, since the first appellate authority has rendered his decision by considering the legal principles enunciated in various case laws relied upon by him and further applying the same to the facts of the present case. Thus we notice that the Ld CIT(A) has reached his decision in a systematic manner. Accordingly we affirm the decision rendered by Ld CIT(A).

In the result, the appeal filed by the Revenue is dismissed. Order has been pronounced in the Court on 4.7.2018.