INCOME TAX OFFICER-32(2)(5), MUMBAI vs. PAYAL NITESH HEDPARA, MUMBAI

सुनवाई क� तार�ख / : 06.03.2018 Date of Hearing घोषणा क� तार�ख / : 17.05.2018 Date of Pronouncement आदेश / O R D E R Per Shamim Yahya, A. M.: This appeal by the Revenue is directed against order of the ld. Commissioner of Income Tax (Appeals) dated 17.04.2017 and pertains to the assessment year 2011-12.

2. The grounds of appeal read as under: 1. "On the facts and in the circumstances of the case and in the law, the Ld CIT(A) erred in deleting the addition of Rs.37,75,0147- made u/s 68 of the I.T. Act, on account of unexplained cash credit as the assessee filed to prove the identity and creditworthiness of the lender,"

Payal Nitesh Hedpara 2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition u/s 68 of the I.T. Act on account of unexplained cash credit despite 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 the unsecured loans and related to Bhawarlal Jain." 3. "On the facts and in the circumstances of the case the finding of Ld CIT(A) that the A.O. has only discussed the facts of Bhanwarlal Jain group and the A.O. has not appreciated the fact that he was not making the assessment of Bhanwarlal Jain. This finding is perverse on the facts as the assessee has introduced the accommodation entries of loan from the group concerns controlled by Bhanwarlal Jain as such A.O.'s finding and reliance placed on the investigation made by the Investigation wing was right." 4. "On the facts and in the circumstances of the case and the finding of the Ld. CIT(A) that the assessee has not furnished any evidence to justify the creditworthiness and genuineness of the lender." 5. "The appelant prays that the order of the Ld. CIT(A) on the grounds to be set aside that of the A.O. be restored."

The return of income was filed on 11.10.2011 declaring total income of Rs.NIL.

The assessee is an individual deriving her income from business, house property & other sources. A search & seizure action was conducted in the Bhanwarlal Jain group of cases by Investigation Wing, Mumbai. As a result of search, it was found by the Investigation Wing that this group is a leading entry provider of Mumbai. There are many concerns floated by the group who provide accommodation entries of bogus loan. The Assessing Officer received an information that the assessee has also taken loan of Rs.35,00,000/- from a concern found in the list of entry providers related with Bhanwarlal Jain group of cases namely M/s Ankita Exports. The Assessing Officer asked the assessee to show cause as to why loan taken from M/s Ankita Exports should not be disallowed and added to the total income. As per the assessment order the assessee filed his reply along with the bank statement, ITR and confirmation of the loan provider. The Assessing Officer

Payal Nitesh Hedpara however, discussed in detail the modus operandi of giving accommodation entries employed by the Bhanwarlal Group of cases. The Assessing Officer also recorded statement of Mr. Nitesh Hedpara, husband of the assessee u/s 131 of the Act. On the basis of the report of the Investigation Wing regarding the modus operandi employed by Bhanwarlal Jain Group of cases and on the basis of statement of the husband of the assessee the Assessing Officer came to a conclusion that the assessee had taken accommodation entry of unsecured loan. The Assessing Officer added the amount of loan to the total income of the assessee u/s 68 of the Act. The Assessing Officer also disallowed and added interest payment of Rs.2,75,014/- on such loan.

3.4 During the course of assessment proceedings, the following details were filed before the AO.

3.5 If the above referred principles are applied to the facts of the case under consideration it can be seen that the identity of the creditor 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, the fact that interest has been paid against the loan also strengthens the genuineness of transaction. The creditworthiness of the lender can be established from bank statements and balance sheet of the lender which were, filed before the AO.

Payal Nitesh Hedpara 3.6 From the assessment order, it is seen that the AO had issued summons 131 of the Act to the husband of the appellant who was authorized to be sent before the AO. It is seen from the assessment order that the husband of the appellant has clearly confirmed in the statement recorded u/s 131 of the Act that the appellant had taken loan from M/s Ankita Exports. It was also clearly stated in the statement that interest has been paid against the loan. The AO had asked the appellant to produce the person who had arranged this loan as well as the partners of M/s Ankita Exports. It is the contention of the AO that the appellant failed to produce the parties before him. But the appellant cannot be reasonably expected to force the creditor to appear before the AO. In this case, the lender is accepting that it had advanced loan. The appellant is also accepting that it has accepted loan. Thus, both ends of the transactions are verified In order to make addition u/s 68 AO had to establish that either the transaction was not genuine or the lender did not have credit worthiness or his identity was not established. As mentioned para 3.5 above, the genuineness of transaction and the identity as well as the creditworthiness of the lender have been established. It can be seen from the assessment order that the entire focus of the AO was on the modus operand! adopted by Bhanwarlal Jain Group of cases 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 BhanwarlaS 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 litor as well as the genuineness of transaction.

3.7 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 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 Payal Nitesh Hedpara also accordingly filed. There is no dispute in regard to the above. We find nothing 10 support the said contentions of the revenue. The revenue's contention in the affidavit in reply has no merit, other hand, the loans appear to be taken in the regular course of business .......... " 3.8 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. The addition of Rs 35,00,000/- is therefore deleted. Further, since the transaction of loan is held to be genuine, the interest paid on such loan is also allowed. Consequently, the addition of Rs 2,75,014/- is also deleted. /The grounds of appeal no. l &2 are accordingly allowed.