MAHAN INDUSTRIES LTD,AHEMEDABAD vs. DCIT CEN CIR 12, MUMBAI

The assessee is engaged in the business of trading in shares and building materials. The original assessment in the hands of the assessee was completed u/s 143(3) of the Act on 19-12-2008 determining total income at NIL amount. Subsequently, the AO received information that the assessee has received accommodation entries in the form loans and advances from M/s Basant Marketing P Ltd. Hence the AO re-opened the assessment by issuing notice on 26-03-2013. According to the assessee, the notice was served on it only on 01- 04-2013. The assessee sought the reasons for reopening, filed its objections to the same and the AO also disposed of those objections.

The assessee had received loan of Rs.100 lakhs from M/s Basant Marketing P Ltd during the year under consideration and the AO assessed the same u/s 68 of the Act. The reasons given by the AO for assessing the same u/s 68 of the Act has been summarized below:- (a) The CBI (ACB) conducted search at the premises of S/Shri Arun Dalmia and Harsh Dalmia. During the course of search, evidences were unearthed to show that the loans and advances given by M/s Basant Marketing P Ltd were nothing but accommodation entries. The assessee is one of the beneficiaries of accommodation entries.

Before Ld CIT(A), the assessee contended that the loan transactions have been accepted in the hands of M/s Basant Marketing upto AY 2009-10. The assessee also took support of affidavit given by Shri Rishab Dalmia and the financial statements of M/s Basant Marketing. The Ld CIT(A) took the view that the affidavit does not mention anything about generation of funds/income and thus does not clarify the sources of funds. He further observed that the bank account of M/s Basant Marketing shows that deposits and withdrawals have been made by way of demand drafts. Further such deposits and withdrawals have been made on the same day. He also observed that the details of payment of interest were not available and it is not believable that a prudent businessman will not charge interest for about six years. He also observed that the bank transactions alone will not prove credit worthiness. Accordingly the Ld CIT(A) held that the transactions defies human probabilities and accordingly confirmed the addition. The Ld CIT(A) took support of decisions rendered by Hon’ble Supreme Court in the case of CIT Vs. Durga Prasad More (82 ITR 540) and other decisions in support of the above said proposition. Aggrieved, the assessee has filed this appeal before us.

We heard the parties and perused the record. The Ld A.R submitted that the assessing officer has reopened the assessment and made the impugned addition in consequence to the search conducted in the hands of Shri Arun Dalmia and others. He submitted that M/s Basant Marketing P Ltd is assessed to income tax and the assessments have been completed u/s 143(3) after the search proceedings for AY 2009-10, wherein all the transactions of M/s Basant Marketing have been accepted as genuine business transactions. However, it was declared as a fictitious entity in AY 2010-11 by the AO, which was challenged by M/s Basant Marketing P Ltd by filing appeal before ld CIT(A), Kolkatta. The Ld CIT(A), Kolkatta has passed the order on 04-02-2015 for AY 2010-11, wherein he has held that M/s Basant Marketing P Ltd is not a bogus entity and further there is no material on record to support the finding given by AO. Accordingly the Ld CIT(A), Kolkatta has held the business carried on by M/s Basant Marketing cannot considered to be bogus in nature.

The Ld A.R further submitted that the Ld CIT(A) called for a remand report from the AO and the AO has reported that though the Ld CIT(A), Kolkatta has held it to be a genuine company, yet the assessee has failed to prove the genuineness of transactions. The Ld A.R submitted that the order passed by Ld CIT(A), Kolkatta in the hands of M/s Basant Marketing P Ltd has since been accepted by the department by not filing appeal before ITAT. He submitted that the letter dated 23-02-2016 in No.ITO, Wd-8(1)/Kol/Basant Marketing/15-16 written by the ITO, Ward 8(1), Kolkatta to the Deputy Commissioner of Income tax -3(3)(2), Mumbai clarifies this fact. The Ld A.R submitted that the whole premise of the AO in making the impugned addition is that the transactions of M/s Basant Marketing are bogus, while it has been accepted as genuine in its hands.

The Ld A.R further submitted that M/s Basant Marketing P Ltd is regular in filing income tax returns and is registered under Companies Act. Hence its identity is proved. He submitted that the transactions have been routed through banking channels and hence genuineness is proved. He submitted

The Ld D.R, on the contrary, strongly supported the order passed by Ld CIT(A). He submitted that the surrounding circumstances in the instant case prove that the transactions are not genuine. He further submitted that the Hon’ble Delhi High Court has held in the case of Pr. CIT Vs. Bikram Singh that the mere facts that the identity of the lenders is established and the payments have been made through banking channels by themselves do not mean that the transactions are genuine. It further held that if the lenders do not have financial strength to lend such huge sums and if there is no explanation as to their relationship with the assessee, no collateral security and no agreement, the transactions have to be treated as bogus unexplained credits.

In the instant case, we notice that the assessing officer has made the impugned addition on the basis of search conducted by CBI in the hands of Arun Dalmia, wherein it was stated that the transactions of M/s Basant Marketing P Ltd are not genuine. However, it is noticed that, after the search action, the assessments of M/s Basant Marketing P Ltd have been completed for AY 2009-10 accepting the transactions as genuine. Though the AO of M/s Basant Marketing P Ltd has taken a different view and held the transactions to be bogus in AY 2010-11, yet the said view of the AO has been set aside by Ld CIT(A), Kolkatta in the appellate proceedings by observing that the view so taken by the AO is not supported by evidences. It is pertinent to note that the order so passed by Ld CIT(A) has been accepted by the revenue and thus has 5 M/s. Mahan Industries Ltd.

The AO has also observed that the assessee has failed to discharge the onus placed upon it u/s 68 of the Act. From the arguments of the Ld A.R, we notice that the assessee has discharged the onus by proving the identity of the creditor, genuineness of transactions and credit worthiness of the creditor. The financial statements of M/s Basant Marketing P Ltd show that it was having sufficient sources to lend money to the assessee. The financial statements also show that M/s Basant Marketing P Ltd was carrying on certain trading activities and it has invested funds in Investments, inventories and in giving loans and advances. On the contrary, we notice that the AO did not disprove the contentions and submissions of the assessee, i.e., the AO has failed to discharge the burden of proof shifted to his shoulder. When the assessee is proving the transactions and further when the transactions have been accepted as genuine in the hands of lender, in our view, the theory of human probabilities could not be applied here.

The Ld D.R placed his reliance on the decision rendered by Hon’ble Delhi High Court in the case of Bikram Singh (supra). However, in the above said case, the credit worthiness of the creditors was not established by the assessee, which makes this case distinguishable.

In view of the foregoing, we are of the view that the Ld CIT(A) was not justified in confirming the addition of Rs.100 lakhs made u/s 68 of the Act. Accordingly We set aside the order of the Ld CIT(A) passed on this issue and direct the AO to delete the same.

The assessee has also challenged the validity of reopening of assessment. We do not find it necessary to adjudicate the same as we have deleted the addition on merits.

In the result, the appeal filed by the assessee is treated as allowed.