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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI G. MANJUNATHA
Aforesaid appeal at the instance of the assessee is against order dated 24th September 2012, passed by the learned Commissioner (Appeals)–26, Mumbai, for assessment year 2009–10.
In ground no.(A), the assessee has challenged addition of ` 1.23 crore under section 68 of the Act whereas in ground no.(B), the 2 M/s. Swastik Realtors assessee has challenged the disallowance of interest amounting to ` 9,96,157, claimed to have been paid on cash credit.
Brief facts are, the assessee a partnership firm is engaged in the business of development of real estate. For the assessment year under dispute, the assessee filed its return of income on 30th June 2009, declaring total income of ` 1,37,52,167. During the assessment proceedings, the Assessing Officer while verifying the Profit & Loss Account found that the assessee has debited huge interest cost of ` 2,36,35,902 as against the unsecured loan amounting to ` 14,27,70,515, shown as outstanding in the Balance Sheet as on 31st March 2009. On verification of record, he found that the interest cost debited to the Profit & Loss Account included an amount of ` 5,61,313, in respect of loan availed of ` 1 crore from M/s. Moxdiam in the assessment year 2007–08. He found that while completing the assessment in the assessee’s own case for the assessment year 2007– 08, the Assessing Officer has added back loan of ` 1 crore taken from Moxdiam by treating it as unexplained cash credit under section 68 of the Act. On the basis of material found during a survey conducted under section 133A of the Act in the business premises of Moxdiam, Basant Dia Jewels and Morewel Impex Pvt. Ltd. and other materials on record, he found that during the survey and post–survey proceeding the partner of Moxdiam in a statement recorded under section 131 of 3 M/s. Swastik Realtors the Act on 9th July 2008, had admitted of providing accommodation bills and hawala entries to various parties. The admission made by the partner of Moxdiam was also endorsed by one of the directors of Morewel and another partner of Moxdiam. They also admitted that the only income generated by Moxdiam and the other two entities is by way of commission for providing accommodation entries. On further verification of the Balance Sheet of Moxdiam and its partners, the Assessing Officer found that the total capital of the firm is ` 1 lakh and the aggregate of current account of the partners stood at negative figure. Whereas, the amount payable to creditors was shown at ` 16,29,83,032 and amount receivable by debtors was shown at ` 10,40,12,587. Considering the aforesaid facts and also the fact that Moxdiam has no bank loan or any other loan, the Assessing Officer while completing the assessment for assessment year 2007–08 treated the loan as ` 1 crore claimed to have been availed from Moxdiam as non–genuine and added back the same to the income of the assessee, which was also confirmed by the learned Commissioner (Appeals). From the details furnished in the course of assessment proceedings, the Assessing Officer found that in the previous year relevant to the impugned assessment year, the assessee claimed to have taken loan of ` 63 lakh from Rising Star and ` 60 lakh from Seven Star Jewels. On verifying the bank statement of the assessee obtained from ICICI Bank, the Assessing Officer found that on the date assessee claimed to 4 M/s. Swastik Realtors have re–paid the loan of ` 1 crore to Moxdiam, there are credit transfer entries of the same amount through RTGS transfer and it was further revealed that RTGS transfer of ` 38 lakh on 18th September 2008 was made by Rising Star and transfer of ` 60 lakh on 17th December 2008, was made by Seven Star Jewels through their account held with ING Vysya Bank Ltd. The aforesaid facts were cross verified by the Assessing Officer by issuing notice under section 133(6) to ING Vysya Bank Ltd. To get to the root of the matter, the Assessing Officer issued summons under section 131 of the Act to Rising Star and Seven Star Jewels calling upon them to furnish details relating to loan transactions with the assessee along with the Books of Account, copies of returns of income and financial statements for the assessment year 2007–08 and 2009–10. On verifying the details furnished by the concerned parties, the Assessing Officer found that in case of Rising Star, the capital of its proprietor was ` 2,33,402 as on 31st September 2009, whereas, sundry creditors and sundry debtors are shown at ` 17,36,42,925 and ` 6,96,55,789 respectively. While it has not taken any loan, but, it has advanced loan of ` 4,43,29,747, including the loan of ` 1.35 lakh advances to the assessee. Similarly, in case of Seven Star Jewels, the proprietor’s capital stood at ` 3,70,874, whereas, sundry creditors and sundry debtors are shown at ` 53,18,93,628 and ` 38,06,99,297 respectively. It is further revealed, though, the firm has not taken any loan but it has advanced loan of `
5 M/s. Swastik Realtors 8,90,32,200 including the loan of ` 60 lakh to the assessee. On verification of the bank statement, the Assessing Officer found that both these concerns have regular transactions with Moxdiam and Morewel Impex. From the aforesaid facts emanating from record, the Assessing Officer concluded that there is circular movement of fund between Moxdiam, Morewel, Rising Star and Seven Star Jewels. The Assessing Officer held that, though, the identity of the creditors were established, however, neither the creditworthiness of the creditors nor the genuineness of the transactions could be established by the assessee. He observed, with a meager capital the firms cannot have the capacity of advance loans to the assessee. Therefore, he held the loan claimed to have been availed of ` 63 lakh and ` 60 lakh from Rising Star and Seven Star Jewels respectively as unexplained cash credit under section 68 of the Act and added back to the income of the assessee. Consequently, he held the interest claimed to have been paid on the loan availed from Moxdiam, Rising Star and Seven Star Jewels as not genuine and accordingly disallowed interest expenditure of ` 9,96,157. Being aggrieved of the additions so made, assessee preferred appeal before the learned Commissioner (Appeals).
The learned Commissioner (Appeals) after considering the submissions of the assessee vis–a–vis the facts and material on record found that just to give a colour of genuineness to the loan availed from 6 M/s. Swastik Realtors Moxdiam in assessment year 2007–08, the assessee has arranged similar loan from Rising Star and Seven Star Jewels to show re– payment of loan to Moxdiam. From the decision of the first appellate authority in assessee’s own case for assessment year 2007–08, he found that the assessee’s decision of treating the loan availed from Moxdiam as unexplained cash credit was upheld by him. The learned Commissioner (Appeals) on the basis of material available on record concurred with the finding of the Assessing Officer that neither Rising Star nor Seven Star Jewels had the creditworthiness to advance loans to the assessee. He observed, all these entities have indulged in providing accommodation entries only and accordingly upheld the addition made by the Assessing Officer.
The learned Authorised Representative contesting the addition under section 68 of the Act submitted that in the course of assessment proceedings, the assessee has not only established the identity of the creditors but has also brought on record sufficient evidence to prove the creditworthiness of the creditors and genuineness of transactions. He submitted, in the course of assessment proceedings, the creditors have confirmed of advancing loans to the assessee. He submitted, if the Assessing Officer had any doubt with regard to the creditworthiness of the creditors or genuineness of the transactions he should have examined the creditors. He submitted, the Assessing
7 M/s. Swastik Realtors Officer’s allegation regarding the lake of creditworthiness of the two creditors is without any basis and contrary to materials on record. Drawing our attention to the copy of the MVAT audit report for the year ended 31st March 2009, he submitted that the turnover of Rising Star during the year was ` 4,30,91,987. Learned Authorised Representative referring to the assessment order passed under section 143(3) of the Act in case of Tarachand Paldheeha (HUF) for assessment year 2009–10 which is the proprietor of Seven Star Jewels submitted that the firm is engaged in trading activity. Therefore, the allegation of the Assessing Officer that it is only providing accommodation entries is not correct. Referring to the audit report of Seven Star Jewels as at 31st March 2009, the learned Authorised Representative submitted that it has turnover of ` 3,35,44,755. To explain the source of loan advanced to the assessee by Seven Star Jewels, he referred to Page–163 of the paper book. He submitted, Rising Star is also engaged in import export and trading of raw and polished diamond, gold, etc. Therefore, it cannot be said that the creditors were engaged in providing accommodation entries only. The learned Authorised Representative submitted, the Assessing Officer without making proper enquiry has doubted the creditworthiness and genuineness of the loan transactions. He submitted, without bringing any material on record, the Assessing Officer has tried to draw an inference that the creditors have dealings with Moxdiam. He
8 M/s. Swastik Realtors submitted, when the creditors are income tax assessees and have confirmed the loan transaction, the Assessing Officer was not justified in treating the loan transactions as unexplained cash credit and the learned Commissioner (Appeals) was equally unjustified in confirming the addition. To buttress the contention that the loan transactions with the two entities are above board, the learned Authorised Representative sought indulgence of the Bench to rely upon certain additional evidences furnished in paper book no.II. Learned Authorised Representative submitted, the additional evidences now sought to be produced by the assessee, since, are crucial for deciding the issue they have to be admitted in terms of rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963.
Learned Departmental Representative strongly supporting the orders passed by the Departmental Authorities submitted that in assessment year 2007–08, the loan transaction with Moxdiam was treated as unexplained cash credit and added to the income of the assessee in view of lack of creditworthiness and lack of evidence regarding genuineness of transaction. The Tribunal while deciding assessee’s appeal for assessment year 2007–08 has upheld the addition made by the Assessing Officer. He submitted, the material on record clearly reveal the fact that both Rising Star and Seven Star Jewels did not have adequate creditworthiness to advance loan to the 9 M/s. Swastik Realtors assessee. He submitted that the very purpose of obtaining the loan in the impugned assessment year was to show re–payment of loan taken from Moxdiam. He submitted, when the loan taken by the assessee from Moxdiam has been held as non–genuine and treated as unexplained cash credit under section 68 of the Act, the laon taken for making re–payment of loan to Moxdiam cannot be treated as genuine. The learned Departmental Representative submitted, the evidence found during the survey operation in case of Moxdiam and other entities clearly reveal that they are only indulging in providing accommodation entries and earning commission. Therefore, the assessee’s claim that the loan transactions are genuine or the creditors have creditworthiness cannot be accepted in the absence of proper evidence. He, therefore, submitted that the orders of the Departmental Authorities should be upheld. Finally, the learned Departmental Representative opposed admission of additional evidence.
We have heard rival submissions and perused material available on record. At the outset, we will deal with the admission of addition evidence filed by the assessee. After considering the contention of both the parties on the issue of admission of additional evidence, we are of the view that the additional evidence submitted by the assessee at this stage is required to be admitted in the interest of justice and 10 M/s. Swastik Realtors fairplay in terms of rule–29 of the Income Tax (Appellate Tribunal) Rules, 1963, considering the fact that non–submission of these evidences before the Departmental Authorities is not due to any willful or deliberate act of negligence. Accordingly, we admit the additional evidences submitted by the assessee and proceed to decide the appeal with due regard to them. Adverting back to the issue in dispute in the appeal, it is a fact that in the relevant previous year, assessee claimed to have availed loan of ` 63 lakh from Rising Star and ` 60 lakh from Seven Star Jewels. In the course of assessment proceedings, for ascertaining the genuineness of the aforesaid loan transaction, the assessee after calling for necessary details from the assessee conducted independent enquiry on his own. He found from record that in the previous year relevant to assessment year 2007–08, the assessee had obtained loan of ` 1 crore from a party viz. M/s. Moxdiam. While enquiring into the loan transaction with Moxdiam in assessment year 2007–08, the Assessing Officer conducted necessary enquiry to verify the creditworthiness of the party and genuineness of the transaction. In the course of such enquiry, the Assessing Officer found that a seizure operation was conducted in case of Moxdiam and some other entities and in the course of said survey operation and post–survey proceedings, the partners / directors of Moxdiam and other entities categorically admitted that they are providing accommodation entries on commission basis. Notably, in the course of 11 M/s. Swastik Realtors assessment proceedings for assessment year 2007–08, the assessee to prove the genuineness of loan transaction of Moxdiam pleaded before the Assessing Officer that the loan availed of ` 1 crore has also been repaid. To verify the authenticity of assessee’s claim, the Assessing Officer conducted necessary enquiry with the concerned banks viz. ICICI Bank and ING Vysya Bank and on the basis of information obtained from concerned bank found that on the dates the assessee had re–paid loan of ` 1 crore to Moxdiam through RTGS transfer, it had received substantial amount from Rising Star and Seven Star Jewels through RTGS transfer. Thus, while completing the assessment year for assessment year 2007–08, it was concluded by the Assessing Officer that the loan availed from Rising Star and Seven Star Jewels were for the purpose of re–paying the loan to Moxdiam to give a colour of genuineness to the said loan transaction. In the course of the said assessment proceedings, to verify the creditworthiness of Rising Star and Seven Star Jewels, the Assessing Officer also issued summons to the concerned entities for furnishing their books of account, financial statements, etc. On examining these documents, along with that of Moxdiam, it was found by the Assessing Officer that none of the parties had the creditworthiness to advance loan to the assessee. Accordingly, he treated the loan transaction with Moxdiam as non–genuine, hence, as unexplained cash credit under section 68 of the Act. It is evident, the assessee had challenged the finding of the 12 M/s. Swastik Realtors Assessing Officer as well as the addition made before the learned Commissioner (Appeals) and being unsuccessful there went in further appeal before the Tribunal. The Tribunal, while deciding assessee’s appeal for assessment year 2007–08, after going through the entire gamut of facts and material available on record found that the loan transaction with Moxdiam is not genuine as the said party does not have the creditworthiness to advance ` 1 crore to the assessee. On appreciating the evidence found during the survey and post–survey proceedings of Moxdeiam the Tribunal found that as per the statement recorded from the partners / directors of Moxdiam and some other entities, they were involved in the circular transaction by creating a maze of Bank entries for facilitating transfer of fund vide hawal entries to various interested parties in the market. While dealing with the alibi of the assessee of loan re–payment to Moxdiam, the Tribunal has gone through the material available on record and has found that such re– payment of loan from Moxdiam was by way of loans from Rising Star and Seven Star Jewels. In this context, the Tribunal after carefully going through the enquiry conducted by the Assessing Officer and materials brought on record found that to prove the genuineness of loan transaction with Moxdiam, the assessee hit upon the idea of obtaining loan from Rising Star and Seven Star Jewels whose creditworthiness were equally doubtful.
13 M/s. Swastik Realtors 8. The relevant observation of the Tribunal in this regard are reproduced herein below for better appreciation and clarity:–
“Further, while making repayment of loan to Moxdiam during September 2008 to March 2009, the assessee raised loans from Rising Star and Seven Star Jewels to repay loans to Moxdiam . The financial statements of the said concerns for the year ended 31-03- 2009 also reveal similar pattern as of Moxdiam that the said concerns also have meager financial investment by their proprietors’ and there are huge sundry debtors and creditors reflected in their accounts, no loans raised and huge loans being raised out of recoveries from Debtors(page 243,268/pb) and did not prove their financial capacity to lend to the assessee and also genuineness of the loan granted to the assessee by these concerns did not stood proved. We have gone through all the evidences submitted w.r.t. these two concerns including additional evidences filed before the Tribunal but in our considered view these two concerns who are also incidentally based in Surat does not have financial capacity to grant these loans nor genuineness of the loans stood proved. Moxdiam was surveyed u/s 133A of the Act by Revenue on 07th July 2008 wherein admissions were made by partners of Moxdiam as to Moxdiam being an entity engaged in providing accommodation bills and accommodation entries , while repayment of loan from the assessee to Moxdiam started from September 2008 and ended on March 2009. The assessee was issued notices u/s 143(2) of the Act by Revenue for the first time on 06-08-2008 for the impugned assessment year in which the assessee raised the loan of Rs. 1.0 crore from Moxdiam and hence it is quite obvious that once Moxdiam is surveyed on 07-07-2008 and the assessee case was opened for scrutiny assessment by Revenue on 06-08-2008 , then the assessee would like to quickly square and close the loan raised from Moxdiam to avoid any additions by Revenue u/s 68 of the Act , which loan of Rs. 1.0 crores raised from Moxdiam on being repaid from September 2008 to March 2009 by the assessee was not paid out of its own resources but in-fact got replenished from fresh loan raised from Rising Star and Seven Star Jewels to repay Moxdiam. These three entities i.e.Moxdiam, Rising Star and Seven Star Jewels are incidentally engaged in diamond trade and are incidentally based in Surat and as stated by Revenue has inter-se dealing among themselves. x x x x x x x x x x x x x x The assessee has stated to have repaid the loans to Moxdiam during the period of September 2008 to March 2009 where in it is observed that for repayment of loan to Moxdiam, the assessee made borrowings from two proprietary concerns based in Surat namely Rising Star and Seven Star Jewels whose financial positions is on 14 M/s. Swastik Realtors similar pattern to Moxdiam as they were also having low capital base investment by properietor and huge debtor/creditors, fixed assets were negligible, loans raised were Nil and the loans advanced were from sundry creditors/ recoveries from Sundry debtors which clearly reflect lack of financial capacity to grant loans as are reflected in their financial statements which are placed in paper book filed by the assessee before the Tribunal(pb/page 243 and 268). The said concerns are also stated to be in business of diamonds. It is the say of the assessee counsel that the loans are repaid to Moxdiam prior to issue of notice to the assessee u/s 142(1) of the Act by the Revenue which was issued on 24/06/2009 , while the loans were repaid during September 2008 to March 2009 . This arguments with due respect cannot be accepted as the said firm Moxdiam was surveyed on 07/07/2008 i.e. prior to start of repayment of loan to Moxdiam in September 2008 and secondly as per the assessment order passed in the case of the assessee by the AO u/s 143(3) of the Act dated 26.11.2009, the first notice u/s 143(2) of the Act was issued to the assessee on 06.08.2008 commencing scrutiny proceedings prior to start of repayment of loan to Moxdiam in September 2008 and hence argument of the assessee are rejected. Even otherwise , if we eschew the statements of the partners of Moxdiam, then also after considering the entire background of the said firm Moxdiam and based on their financial parameters as emerging from Moxdiam financial statements as discussed above in details, we are of considered view that the capacity of lender M/s Moxdiam to grant loan and genuineness of the said loan transaction of Rs 1.0 crore is not proved by the assessee , as in our considered view based on the financial statements of Moxdiam as at 31-03- 2007 it does not have the financial capabilities to grant loans of the magnitude of Rs.1.0 crore to the assessee( the total loan advanced by Moxdiam as at 31-03-2007 stood at Rs.5.14 crores).”
While coming to such conclusion, the Tribunal also took note of the fact that in the own assessment proceedings of Moxdiam, on its own admission that it is engaged in providing clandestine accommodation bills and accommodation entries assessment was completed under section 143(3) r/w section 147 of the Act assessing commission income which was accepted by Moxdiam.
15 M/s. Swastik Realtors 10. Thus, as could be seen, while deciding assessee’s appeal for assessment year 2007–08, the Tribunal not only examined the factum of genuineness of loan availed of ` 1 crore from Moxdiam in financial year 2006–07, but, in the context of assessee’s plea that the loan availed from Moxdiam was also re–paid it also examined the creditworthiness of Rising Star and Seven Star Jewels. In fact, to verify assessee’s claim of loan repayment to Moxdiam the Assessing Officer in course of assessment proceedings for assessment year 2007–08 enquired into the source of such re–payment and the creditworthiness of Rising Star and Seven Star Jewels as well as the genuineness of the corresponding loan transactions with them. Thus, as could be seen from the aforesaid facts emanating from record, in assessment year 2007–08, the genuineness of loan transaction with Rising Star and Seven Star Jewels was factually verified by the Assessing Officer in view of assessee’s claim of loan re–payment by Moxdiam and ultimately while treating the loan transaction with Moxdiam as non–genuine a factual finding was also recorded regarding lack of creditworthiness of Rising Star and Seven Star Jewels and illegitimacy of such loan transaction which was also upheld by the Tribunal with its own reasoning. Notably, in the course of assessment proceedings, for the impugned assessment year the very same evidences which were brought on record in assessment year 2007–08 not only with regard to loan transaction of Moxdiam but also the loan
16 M/s. Swastik Realtors transaction with Rising Star and Seven Star Jewels were again relied upon. It is further relevant to note, the additional evidence produced before us by the assessee are identical to the additional evidences produced before the Tribunal in the course of appeal hearing for assessment year 2007–08. In fact, assessee’s application dated 16th January 2018, seeking permission to adduce additional evidence bears testimony to this fact. While deciding assessee’s appeal for assessment year 2007–08, the Tribunal has held that such additional evidence does not prove the genuineness of the loan transaction. Thus, in view of the factual finding of the Co–ordinate Bench, while deciding assessee’s appeal for assessment year 2007–08, there is very little scope for us to deviate from the view expressed therein. Moreover, when the availing of loan from Moxdiam has not been accepted, the loan taken by the assessee for repayment to Moxdiam is equally unacceptable. Accordingly, we do not find merit in the submissions of the assessee for deleting the addition made under section 68 of the Act. In the aforesaid view of the matter, we uphold the decision of the learned Commissioner (Appeals) on this issue by dismissing the ground raised.
In ground no.(B), the assessee has challenged disallowance of interest payment of ` 9,96,157, on the loan availed from Moxdiam, Rising Star and Seven Star Jewels.
17 M/s. Swastik Realtors
In the preceding paragraphs, on the basis of detailed reasoning, we have concluded that the loan transactions with Rising Star and Seven Star Jewels are not genuine. Further, while deciding assessee’s appeal for the assessment year 2007–08, the Tribunal has upheld the decision of the Departmental Authorities in treating the loan availed from Moxdiam as unexplained cash credit. That being the case, the interest payment related to such loan transactions cannot be allowed. Accordingly, these grounds are also dismissed.
In the result, assessee’s appeal is dismissed. Order pronounced in the open Court on 13.04.2018