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Income Tax Appellate Tribunal, MUMBAI BENCHES “G”, MUMBAI
Before: Shri Mahavir Singh & Shri G Manjunatha
O R D E R Per G Manjunatha, Accountant Member
This appeal filed by the Revenue is directed against order of the CIT(A)-44, Mumbai, dated 09.09.2016, and it pertains to assessment year 2007-08. The Revenue has raised following grounds of appeal :-
On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs. 44,13,984/- made on account of unsecured loans and interest as the assessee has filed to prove the identify, creditworthiness and genuineness of the said loan.
2. "On the fact and in the circumstances of the case and in law, the LD. CIT(A) has erred in deleting the addition of Rs. 44,13,984/- made on account of unsecured loans and interest deposit the fact that the party from whom the alleged loan was received by the -assessee was listed as hawala entry provider who indulged in providing accommodation entry of unsecured loans and related to Bhanwarlal Jain and his group."
3. "On the fact and in the circumstances of the case the finding of the Ld.CIT(A) that the AO has only discussed the facts of Bhanwarlal Jain group and the AO has not appreciated the fact he was not making the assessment of Bhanwarlal Jain. This finding is perverse on facts as the assessee has introduced the accommodation entries of loan from the group concerns controlled by Bhanwarlal Jain as such the AO's finding and reliance placed on the investigation made by the Investigation Wing was right."
4. "On the fact and in the circumstances of the case the finding of the Ld. CIT(A) that the assessee has proved identify, creditworthiness and genuineness of loan is perverse on facts as the assessee has not furnished any evidence to justify the creditworthiness and genuineness of the loan."
5. "The appellant pray that the order of the Ld. CIT(A) on the above ground be set aside and that of the AO be restored."
6. "The appellant craves leaves to amend or alter any ground or add a new ground.”
The facts of the case are that the assessee, a partnership firm engaged in the business of builders and developers, filed its return of income for A.Y. 2007-08 on 23.10.2007, declaring total income of ` 52,96,840/-. The case has been re- opened u/s. 147 of the Income tax Act, 1961, on the ground that income chargeable to tax had escaped assessment within the meaning of section 147. The reasons recorded for re-opening was based on specific information received from DGIT (Inv), Mumbai, which suggested that the assessee has taken accommodation entries of unsecured loans from Bhanwarlal Jain Group of companies, which in turn gathered during the course of search operation u/s. 132 in the case of said group. Accordingly, notice u/s. 148 was issued calling for return of income. In response to notice u/s. 148, the assessee filed a letter dated 08.04.2014, stating that the return of income filed on 23.10.2007 be treated as return filed in response to notice u/s. 148 of the Act. The case has been selected for scrutiny and notices u/s. 143(2) and 142(1) of the Act was issued. In response to the said notices, the learned Authorized Representative (AR) for the assessee appeared from time to time and filed necessary details as called for. During the course of assessment proceedings, the Assessing Officer observed that the assessee has taken bogus accommodation unsecured loan entries from M/s. A2 Jewels and Jewel Diam to the tune of ` 42,47,661/-. Therefore, he called upon the assessee to furnish necessary evidence to prove identity, genuineness of transactions and creditworthiness of the parties. In response to notice, the assessee has filed necessary details along with confirmation from parties to prove their identity. The assessee also filed bank statements and other details to prove the genuineness of the transactions and creditworthiness of the parties. In order to verify the genuineness of the lenders, the Assessing Officer issued notice u/s. 133(6) of the Income-tax Act 1961, and were asked to produce their financial statements along with Income Tax Return. However, the parties did not respond to the notice issued u/s. 133(6) of the Act. Thereafter, the Assessing Officer called upon the assessee to show cause as to why the loans from two parties should not be treated as unexplained cash credits especially in the light of the information received from DGIT (Inv), Mumbai. In response to show cause notice, the assessee, vide letter dated 10.03.2015, submitted that it has loan taken from M/s. A2 Jewels and Jewel Diam and said loans have been taken by cheque. The assessee further submitted that the loans were repaid in subsequent financial year along with interest and also deducted TDS on interest paid on loans. Therefore, merely on the basis of statement of third party, the loans taken from above two parties cannot be considered as accommodation entries. The Assessing Officer after considering relevant submissions of the assessee observed that the assessee has failed to prove the identity of the parties, genuineness of the transactions and creditworthiness of the lenders with necessary evidences in the backdrop of clear findings from the Investigation Wing, wherein Shri Bhanwarlal Jain had categorically admitted before the authorities that he was involved in providing accommodating entries through his companies operated by his employees. The Assessing Officer further submitted that mere production of ledger account and bank statements would not be sufficient compliance of proving the identity, genuineness of transactions and creditworthiness of the parties. Therefore, opined that the assessee has failed to prove the loans taken from above two parties and, accordingly, made additions u/s. 68 of the Income tax Act 1961.
3. Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A) the assessee has reiterated the submissions made before the Assessing Officer. The assessee further submitted that it has furnished necessary evidences to prove loans taken from M/s. A2 Jewels and Jewel Diam by filing loan confirmation letter from lenders, PAN of lenders, copy of Income Tax Return, copy of bank statements and quarterly TDS filed with the department, therefore, merely on the basis of third party statement, the Assessing Officer was incorrect in making the additions towards loans taken from above two companies u/s. 68 of the Income tax Act, 1961.
4. The CIT(A) after considering the relevant submissions of the assessee and relied upon certain judicial precedents including the decision in the case of ITO vs. Anant Shelters Pvt Ltd.(2012) 20 taxmann.com 153 and decision of Hon’ble Bombay High Court in the case of M/s. Rushabh Enterprises vs. ACIT in W.P. 167 of 2015 dated 15.04.2015, observed that the assessee has filed necessary evidences to prove the identity, genuineness of transactions and creditworthiness of the parties, which is evident from the fact that the Assessing Officer has not disputed the identity of the parties. The Assessing Officer made additions merely on the basis of the admission of Shri Bhanwarlal Jain in the statement recorded u/s. 132(4), however, such admission has been retracted by Shri Bhanwarlal Jain. Therefore, there is no reason for the Assessing Officer to make additions only on the basis of statements of third party when the assessee has submitted enormous details to prove the loans taken from the above two parties. The relevant portion of the order of CIT(A) is extracted below:
“4.3 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. (The Hon'ble ITAT Mumbai in the case of ITO vs Anant Shelters Pvt. Ltd. (2012) 20 Taxmann.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.
2. The opinion of the AO for not accepting the explanation offered by the assessee as not satisfactory is required to be formed objectively with reference to the material on record.
Courts are of the firm view that the evidence produced by the assessee cannot be brushed aside in a casual manner.
The onus of proof is not static. The initial burden lies on the assessee to establish the identity and the credit worthiness of the creditor as well as the genuineness of transaction.
The identity of creditors can be established by either furnishing their PANs or assessment orders. The genuineness of the transaction can be proved if it was shown that the money was received by a/c payee cheque. Creditworthiness of the lender can be established by attending circumstances.
4.4 During the course of assessment proceedings, the following details were filed before the AO.
Loan Confirmation from the lenders.
2. PAN No. of the lenders. 3. Ledger extract. 4. Copy of the Return of Income of the Firm/Company which advanced the loan. 5. Copy of Bank account of the Lender. 6. Copy ofBankA/c of the Assessee. 7. Quarterly Returns for T.D.S. filed with the Department.
4.5 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 both the acceptance and repayment of loan has been through banking channels. Further tine interest paid against such loans have been subject to TDS, the details of which have been filed before the AO. The creditworthiness of the lenders can be established from the ledger a/c, bank statements and balance sheet of the lenders which were filed before the AO.
In the assessment order, the AO mentioned that merely filing copies of account, bills, bank statements, does not establish that the "transactions are genuine. The AO also stated that the assessee failed to produce the parties. (From a careful perusal of assessment order it is seen that the AO had issued notice u/s 133(6) to the lenders to verify the genuineness of the loans. The AO has not mentioned the outcome of the enquiry made u/s 133(6). However, AO has reproduced the reply of the assessee filed in response to the show cause wherein the assessee has mentioned that the parties have confirmed the genuineness of loans in response to notice u/s 133(6). The AO has not disputed this fact in the assessment order. As far as the issue of producing the lenders before the AO is concerned, the assessee cannot be reasonably expected to force the lenders to appear before the AO specially when the lenders have already submitted their confirmation and affidavits. The entire focus of the AO was on the modus operandi adopted by Bhanwarlal Jain to provide bogus accommodation entry of loan. The main reason for making addition u/s 68 was on the basis of information provided by the Investigation Wing. While the information provided by the Investigation Wing can be the starting point of an enquiry it cannot be a conclusion reached by the AO, 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 she 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.
4.7 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 related with Bhanwarlal Jain group of cases. In fact, one such namely M/s Jewel Diam also features in the case of the appellant. 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… 4.8 After considering the totality of facts, the rival submissions, applicable 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. The grounds of appeal nos. 2 & 3 are accordingly allowed and addition of Rs 44,13,984/- is deleted.”
5. The learned DR submitted that the learned CIT(A) erred in deleting the additions made by the Assessing Officer towards unsecured loans and interest received from Bhanwarlal Jain Group companies without appreciating the fact that Shri Bhanwarlal Jain had categorically admitted in statement before Investigation Wing that he was involved in providing accommodation entries. The learned DR further submitted that the CIT(A) failed to appreciate the fact that mere filing of confirmation letters along with bank statements would not be sufficient compliance to prove the credits found in the books of account. The Assessing Officer has brought out clear facts in the light of the information received from Investigation Wing that the assessee is beneficiary of the accommodation entries provided by Bhanwarlal Jain Group companies and, therefore, the additions made by the Assessing Officer should be upheld. On the other hand, learned AR relied upon the CIT(A) order
We have heard both the parties, perused the material available on record and have gone through the orders of the authorities below. The Assessing Officer made addition towards unsecured loans from M/s. A2 Jewels and Jewel Diam, on the ground that these parties were engaged in providing accommodation entries of unsecured loans through companies maintained by Shri Bhanwarlal Jain. According to the Assessing Officer Shri Bhanwarlal Jain has admitted in the statement recorded u/s. 132(4) that he is involved in providing accommodation entries through these companies The Assessing Officer further admitted that though the assessee filed certain evidences to prove the identity, he failed to prove the genuineness of the transactions and the creditworthiness of the lenders in the backdrop of the clear findings from DGIT (Investigation), where the fact of providing accommodation entries has been brought out with evidences. The Assessing Officer further observed that although the assessee has filed certain evidences to prove the identity of the parties, the parties failed to appear in response to notice u/s. 133(6).
Therefore, mere furnishing of ledger extract and bank statements would not be sufficient compliance to prove the identity and genuineness of the transactions.
The assessee has filed confirmation letter from the loan creditors along with PAN and Income Tax Return. Assessee also filed bank statements of the loan creditors. The learned CIT(A) has recorded a categorical finding that the assessee has filed various details to prove the identity and genuineness of transactions. Although the parties did not appear before the Assessing Officer in response to notices u/s. 133(6), the assessee has filed all evidences before the Assessing Officer to prove the loan taken from the above two parties. The Assessing Officer has never disputed the identity of the parties. The Assessing Officer also has also not disputed that the assessee has filed confirmation letters from the parties but made addition on the basis of information received from DGIT (Investigation) and statement of Shri Bhanwarlal Jain. But the fact remains that later Shri Bhanwarlal Jain has retracted his statement made u/s. 132(4) by filing an affidavit. Therefore, we are of the considered opinion that the Assessing Officer was incorrect in making the additions towards unsecured loans only on the basis of statement of Shri Bhanwarlal Jain when such statement has been retracted by the party. The CIT(A) after considering relevant facts has rightly deleted the additions made by the Assessing Officer. We do not find any error or infirmity in the order of the CIT(A). Hence, we are inclined to uphold the order of the CIT(A) and dismiss the appeal filed by the Revenue.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on this day of 18th May 2018.