MANJI KANJI PATEL,MUMBAI vs. ITO 22(1)(3), MUMBAI

2 ITA No, 290 & 1872/Mum/2013 Manji Kanji Patel आदेश / O R D E R Per Shri Sandeep Gosain, Judicial Member: These two cross appeals filed by the assesses as well as revenue are against the order of Ld. Commissioner of Income Tax (Appeals)-33, Mumbai dated 04.12.12forAY 2009-10.

Since both the appeals arising out of the same order and 2. issues involved are common, therefore, they have been clubbed, heard together and a consolidated order is being passed for the sake of convenience and brevity.

(AY 2009-10) 3. First of all we take up assessee’s appeal in for AY 2009-10 for decision. The grounds of appeal are mentioned herein below:-

3 ITA No, 290 & 1872/Mum/2013 Manji Kanji Patel 2. The learned CIT (A)-33 has erred in law and in fact by confirming addition of Rs.23,934/- out of total interest of Rs.] 1,15,927/- on unsecured loan creditor for Rs.3,50,000/- as per 1 above.

4. As per the facts of the present case, the assessee is engaged in the business of builders and developers. The return of income for the year under consideration was filed on 09.09.09disclosing total income at Rs. 6,14,097 /- . Late on the case was selected for scrutiny and after serving statutory notice, the order of assessment was completed u/s 143(3) of the I.T. Act thereby making additions of Rs. 1,48,23,725 u/s 68 of the I.T. Act by treating loan creditors to the tune of Rs. 1,48,23,725/- as ‘income from other sources’ u/s 68 of the I. T. Act. Apart from this, addition on account of interest paid to the loan creditors to the tune of Rs. 11,15,927/- was also disallowed.

4 ITA No, 290 & 1872/Mum/2013 Manji Kanji Patel 5. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties partly allowed the appeal of the assessee and sustain the additions to the extent of Rs. 3,50,000/- on account of loan creditor and to the tune of Rs. 23934/- on account of interest u/s 68 of the IT. Act. The remaining additions u/s 68 and interest were deleted. Now before us, the revenue as well as assessee have preferred their respective appeals. At present we are dealing with assessee’s appeal on the grounds raised herein above.

Ground No. 1 6. This ground raised by the assessee relates to challenging the order of Ld. CIT(A) in confirming addition of Rs.3,50,000/- out of total unsecured loans of Rs. 1,48,23,725/- u/s.68 of the Income Tax Act, 1961.

5 ITA No, 290 & 1872/Mum/2013 Manji Kanji Patel As per the facts of the present case, the assessee is a proprietor and has been engaged in the business of construction. The assessee had borrowed funds from 44 persons during the year. However, the AO has taken amount of borrowed funds, which was not matching with the audit report and loan confirmation and thus had held and add the loan amount of Rs. 1,48,23,725/- u/s 68 of the I.T. Act. While framing the order of assessment, AO relied upon the statement of 7 loan creditors whom notices u/s 142(2) were issued by ignoring the documentary evidence in the shape of confirmation, PAN, bank detail, I.T. Return, etc. therefore Ld. CIT(A), in appeal, deleted the additions in respect of 6 persons and sustained the additions in respect of Shri Morarji V. Nagda amounting to Rs. 3, 50,000/- by holding that the same remain unexplained. Now before us, the assessee has challenged the additions made in the case of creditor i.e. Morarji V. Nagda. As per record, on the spot enquiry was conducted by the AO in respect of seven parties including creditor Shri Morarji V. Nagda. Since the said creditor had given unsatisfactory answer,

6 ITA No, 290 & 1872/Mum/2013 Manji Kanji Patel therefore the additions were made by the AO and sustained by Ld. CIT(A). In our view, the revenue authorities had lost sight of the fact that subsequently, the reasons for giving unsatisfactory reply has duly been explained by the assessee before the AO and even Shri Morarji V. Nagda was ready to get the elaborate statements before the revenue authorities and moreover, the PAN No. and also complete address of the said loan creditor was before the AO. In such a situation, the AO could have verified the genuineness from the departmental records and by not doing so, the AO had not discharged its onus. In addition to the above, our attention was also drawn towards paper book, which reflects that the loan taken by the assessee from Shri Morarji V. Nagda has already been repaid on 22.02.11 whereas the inquiry u/s 142(2) of the I.T. Act from Shri Morarji V. Nagda was conducted on 01.12.11 which clearly reflects that the amount of loan has already been repaid before the date of recording statement of the said loan creditor. Therefore, in such a circumstance when all the required information and details were before the AO, but even then, the 7 ITA No, 290 & 1872/Mum/2013 Manji Kanji Patel AO has not initiated any proceedings u/s 131 of the I.T. Act. Therefore, in such a situation, the AO has failed to discharge its onus. Hence in such circumstances, no addition u/s 68 of the I.T. Act was sustainable in the eyes of law. Therefore, AO is directed to delete the additions of Rs. 3,50,000/- u/s 68 of the I.T. Act in respect of loan taken from Shri Morarji V. Nagda. Resultantly, this ground of appeal is allowed.

Ground No.2. 8. This ground raised by assessee is against challenging the order of Ld. CIT(A) in confirming addition of Rs.23,934/- out of total interest of Rs. 11,15,927/- on unsecured loan creditor for Rs.3,50,000/-.

1) "On the facts and circumstances of the case and in law the Ld. CIT(A) erred in deleting the additions made by the A.O. u/s. 68 of the I.T. Act in the case of sundry creditors viz. Shri Bhimji R. Pindhora - Rs. 5,00,000/-, Shri Deepak M. Gantra - Rs. 3,50,000/- ,Hansa R. Kothari - Rs. 1,00,000/- ,Shri Hitesh M. Gori - Rs. 1,00,000, Maghiben N. Patel - Rs.1,50,000/- &Ravindra V. Hewalkar - Rs. 4,00,000/- totaling to Rs.16,00,000/- inspite of the fact that discreet enquiries u/s. 142(2) of the I.T. Act were conducted by the A.O. in these cases and discrepancies which were found could not be explained by the asses see."

2) "On the facts and circumstances of the case and in law the Ld.CIT(A) has erred in deleting the said

9 ITA No, 290 & 1872/Mum/2013 Manji Kanji Patel additions though identity of the creditor, the genuineness of the transactions, creditworthiness of the creditors were not established by the assessee."

3) "On the facts and circumstances of the case and in law the Ld. CIT(A) has also erred in deleting the proportionate interest attributable to the above referred six loans.".

4) "The appellant prays that the order of the CIT(A) on the above grounds be reversed and that of the Assessing Officer be restored."

5) "The appellant craves leave to amend or alter any ground or add a new ground which may be necessary".

Ground No. 1 to 3. 13. These grounds raised by the revenue are inter connected and inter related and relates to challenging the order of Ld. CIT(A) in deleting the additions made by AO u/s 68 of the I.T. Act in the case of sundry creditors viz. Shri Bhimji R. Pindhora - Rs. 5,00,000/-, Shri Deepak M. Gantra - Rs. 3,50,000/-, Hansa R. Kothari - Rs. 1,00,000/-,Shri Hitesh M. Gori - Rs. 1,00,000, Maghiben N. Patel - Rs.1,50,000/- & Ravindra V.

3.2 I have gone through the facts and duly considered the submission made by the appellant. It is noted that the Assessing Officer conducted on the spot enquiryin total 7 cases of unsecured loan creditors on test check basis, when it was noted that except one part 'all other six parties confirmed having given loans. The observation made by the AO on the outcome of enquiry has already been reproduced by him in Para 5(2.1) in the assessment order reproduced above already. In 11 ITA No, 290 & 1872/Mum/2013 Manji Kanji Patel reply, the appellant submitted that Shri.Morarji B. Banda has given unsatisfactory answer due to fear. However, he is now ready to give the statement stating the fact in the matter. As regards their unsecured creditors, the assessee simply replied that as the loan creditors have alreadyconfirmed earlier by their confirmation letter and again during the enquiry conducted u/s. 142(2), there is nothing adverse against him. The A.O however opined that assessee has not been able to prove genuineness of the loans for the reason that he has not produced the witness for examination as their witness have been cross examined by the A.O. As is evident from reading of Para 4.4 of the showcause letter dated 09.12.2011, which is also reproduced in the assessment order itself.

3.3 I have duly considered the facts and submissions made. The undisputed fact remains that the A.O has conducted enquiries u/s. 142(2) of the Act in case of 7 parties but has uniformly stressed it to the case of all 54 unsecured loan creditors in order to add total unsecured loan introduced during the year amounting to Rs.1,48,23,725/- from 44 parties. As it will come up later while 4ealing with ground no.4,5 that for the same reason A.O has allowed interest claimed on these loan of Rs.1,48,23,7725/-, an amount of Rs.11,15,927/- also. After going through the facts in the case of 44

12 ITA No, 290 & 1872/Mum/2013 Manji Kanji Patel less 7 i.e.37 cases where no enquiries were conducted by the A.O. subsequent to confirmation letter filed by the 4ssessee during the assessment proceedings, I am of the view that primary onus having been discharged, no addition could be made as the onus has shifted to revenue to contradict the same by any adverse filing. As this has not been done by the A.O in the case of 37 parties, the addition made is not sustainable.

3.4 Now coming to party name Shri Morarji V Nagda, it was found that the person denied having given any loan to the appellant, this outcome of the enquiry was duly communicated to the assessee by the A.O and assessee in reply simply stated that out of fear he has given such a statement, I have considered the same and I am of the view that as the primary onus itself has not been discharged by the appellant for the reason that credit has himself denied having given any such loan, the onus shifted back to the appellant which he failed to discharge as he neither filed the statement confirming the loan nor he asked opportunity to cross examine the person. Having failed on this account, the loan reflected in the case of Shri Morarji V Nagda, amount of Rs.3,50,000/- remained unexplained and hence addition made u/s.68 for the amount of Rs.3,50,000/- is upheld.

13 ITA No, 290 & 1872/Mum/2013 Manji Kanji Patel 3.5 As regards loan shown in the name of other 6 parties who are Shri BhimjiRamjiPindhora, Shri Deepak M Gantra, Shri Hansa R Kothari, Shri Hitesh M Gori, ShirMoghiben N Patel and Shri Ravindra V Hewalkar amounting toRs.5,00,000/-, Rs.3,50,000/- ,Rs.1,00,000/-, Rs.1,00,000/.-, Rs.1,50,000/- andRs. 4,00,000/- respectively. The AO has treated them unexplained for the only reason that the assessee did not produce them for cross examination by the AO. Here, in this case, as these persons have already confirmed the loans and have not changed their stand also as they filed confirmation letter earlier that remain appellant’s witness only. The appellant having discharged primary onus in all these cases and AO having not found anything adverse,could not have made addition merely because they were not produced before A.0 by the appellant. The appellant has cited case law of Anis Ahmad and Sons Vs. CIT(A)297 ITR 441 as decided by Hon'ble Supreme Court also for the same. After going through the same, I am in agreement with the appellant that for non- production of the persons that were very much found in existence, at the addresses given in the confirmation letters, identities were not doubted and have confirmed loans as given to the appellant, no addition could have been made by treating loans reflected in their names as unexplained

14 ITA No, 290 & 1872/Mum/2013 Manji Kanji Patel loan u/s.68 of the Act. Thus, I have decided in appeal no. CIT (A)-33/IT/304/11-12 dated 27.08.2012 in the case of Niranjan D Parekh, the Honble High Court of Delhi in CIT Vs. Oasis Hospitalities (P) Ltd. also formulated the proportion as follows "The assessed has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber. (4) If relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Shared Application Forms, Share Transfer Register etc. it would constitute acceptable proof or acceptable Explanation by the assessed. (5) The Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessed nor should the AO take such repudiation at face value and construe it, wIt1out more, against the assessed. (7) The Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the 3.6 Since, the facts are similar in the case in the instant appeal, following thesame I am of the view that additions made for Rs. 16,00,00G./- being notsustainable are deleted herewith.

3.7 In the result, addition made for Rs.3,50,000/- in the name of Shri MorarjiV Nagda only is sustained against the addition made by the A.0 ofRs.1,48,23,725/-. Ground nos.1,2&3 are partly allowed.

After having gone through the facts of the present case as well as considering the orders passed by revenue authorities and submissions made by both the parties, we find that Ld. CIT(A) has considered the facts of the present case and deleted the additions in respect of 6 parties i.e. Shri BhimjiRamjiPindhora, Shri Deepak M Gantra, Shri Hansa R Kothari, Shri Hitesh M Gori, ShirMoghiben N Patel and Shri Ravindra V Hewalkar amounting to Rs.5,00,000/-, Rs.3,50,000/-,Rs.1,00,000/-, Rs.1,00,000/.-, Rs.1,50,000/- and Rs. 4,00,000/- respectively. The Ld. CIT (A) has rightly appreciated the fact that the AO has 16 ITA No, 290 & 1872/Mum/2013 Manji Kanji Patel treated them unexplained for the only reason that the assessee did not produce them for cross examination by the AO. We have also noticed that once all the above six persons have already confirmed the loans by submitting their respective confirmation letters, then in such a situation, the assessee has already discharged its primary onus and in case,if AO found anything adverse, then in that eventuality, AO could have issued summons u/s 131 of the I.T. Act for compelling the witnesses to appear before him for evidence. We are also of the view that when once the transactions of loan were conducted to banking channel, then no addition can be made, more particularly when the AO has not brought on record any evidence to prove that the loan paid by the creditors was in fact the money rotated by the assessee. We also notice from the record that all the loan confirmation letters have duly mentioned their complete address and PAN no, therefore in such a situation, merely non-production of creditors cannot be a sole ground for making additions u/s 68 of the I.T. Act. On this aspect, we draw strength from the judgment of Hon’ble Supreme Court in the case of Anis Ahmad

17 ITA No, 290 & 1872/Mum/2013 Manji Kanji Patel and Sons Vs. CIT(A)297 ITR 441.The Ld. CIT(A) rightly concluded that since all the creditors have duly mentioned their respective PAN Nos., therefore in such situation, the AO could have verified the genuineness from the departmental records and by not doing so, the AO had not discharged its onus. Hence considering the totality of the facts and circumstances of the present case, we find that Ld. CIT(A) has correctly deleted the additions made u/s 68 of the I.T. Act in respect of above mentioned six parties particularly when all the six parties have discharged their primary onus by submitting all the required information. To this an extent, the order passed by Ld. CIT(A)are judicious and are well reasoned and there are no reasons for us to interfere or to deviate from the findings so recorded by the Ld. CIT (A). Accordingly, we uphold the same and thus these grounds raised by the revenue stands dismissed.

Ground No. 4 & 5 15. These grounds raised by the revenue are general in nature, thus requires no specific adjudication.

Order pronounced in the open court on 2nd April, 2018. Sd/- Sd/- (G. S. Pannu) (Sandeep Gosain) लेखासदस्य / Accountant Member न्याययकसदस्य / Judicial Member मुंबई Mumbai;यदनांकDated : 02.04.2018 Sr.PS. Dhananjay आदेशकीप्रनिनलनपअग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी/ The Appellant प्रत्यथी/ The Respondent 2. 3. आयकरआयुक्त(अपील) / The CIT(A) 4. आयकरआयुक्त/ CIT- concerned यवभागीयप्रयतयनयि, आयकरअपीलीयअयिकरण, मुंबई/ DR, ITAT, 5. Mumbai 6. गार्डफाईल / Guard File आदेशधिुसधर/ BY ORDER,