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Facts
The assessee, a share trader, was subjected to assessment proceedings after a group survey, leading to additions for a bogus unsecured loan of INR 73,06,000/- and undisclosed interest income of INR 2,22,055/- for AY 2008-09. The Ld. CIT(A) confirmed these additions, prompting the assessee's appeal to the Tribunal.
Held
The Tribunal directed the AO to delete the addition of INR 73,06,000/- relating to the unsecured loan and remitted the protective addition of INR 73,06,000/- to the AO for deletion to the extent it was confirmed substantively in a related party's case. The addition for alleged interest income of INR 2,22,055/- was also directed to be deleted, as the Tribunal found statements recorded under Section 133A lacked evidentiary value without corroboration.
Key Issues
Key legal issues included the sustainability of the unsecured loan addition under Section 68 and the addition of alleged interest income, particularly challenging the evidentiary value of statements recorded during survey proceedings under Section 133A. Also, whether a protective addition could be treated as substantive.
Sections Cited
133A, 153C, 143(2), 142(1), 143(3), 68, 133(6), 131, 271(1)c
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Income Tax Appellate Tribunal, MUMBAI “B” BENCH, MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI RAJ KUMAR CHAUHAN
PER RAJ KUMAR CHAUHAN, J.M. The present appeal has been filed by the assessee against the order dated 24.05.2021 passed by Ld. CIT(A)-47, Mumbai pertaining to Assessment Year 2008-09. The assessee has raised following grounds of appeal: - 1. “On the facts and circumstances of the case and in laws the Ld. CIT(A) erred in confirming the assessed income at Rs. 84,59,245/- as against the returned income of Rs. 9,31,190/-.
1. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not holding the assumption of jurisdiction by the Ld. Assessing Officer as bad in law as the conditions laid down for initiating assessment proceedings u/s 153C of the Act have not been fulfilled.
3. On the facts and circumstances of the case and in law, the learned CIT(A) erred in removing the protective addition of Rs. 73,06,000/- made by the Ld. A.O. and treating it as a substantive addition, resulting in double addition of the same income.
4. On the facts and circumstances of the case and in law, the learned CIT(A) erred in not holding that the Learned Assessing Officer erred in not providing an opportunity to cross examine to the appellant while relying on a third party statement as the same was also in violation of the principles of natural justice.
5. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in confirming the addition made by the Ld. A.O. of Rs 73.06,000/- by treating a genuine loan as accommodation entry without appreciating the fact that the appellant had fulfilled all conditions required u/s 68 of the Act.
6. On the facts and in the circumstances of the case and in law the Td. CIT(A) erred in confirming the addition of interest of Rs. 2,22,055/- on account of interest allegedly received in cash by the appellant, without providing any corroborative evidence to substantiate the same and without appreciating the fact that the appellant has not earned any interest income, other than mentioned in the return of income.
7. The appellant craves to add, alter, classify, reclassify, delete or modify any of the above grounds of appeal
and requests to consider each of the above grounds without prejudice to one another.”
2. Brief facts of the case are that the assessee is an individual and engaged in the trading of shares and securities, filed his return of income, declaring total income of INR 9,31,190/- on 25.10.2008. A survey action u/s 133A of the Income Tax Act, 1961 (“the Act”) was carried in the case of the Bhanwar Lal Jain Group of cases on 04.10.2013 by the Investigation Wing, Mumbai and the case has been centralized and notices u/s 153C, 143(2) and 142(1) of the Act, were issued to the assessee. In response to the said notices, the assessee has filed return of income u/s 153C of the Act. The Assessing Officer (“AO”) while solely relying on the information received from Investigation Wing, asked the assessee vide show cause notice dated 11.03.2016 as to why amount of loan received from M/s. Millennium Star of INR 73,06,000/- and undisclosed interest income amounting to INR 2,22,055/- [i.e. 18% - 12%] should not be added to the total income of the assessee. Thereafter, the AO completed the assessment u/s 153C r.w.s. 143(3) of the Act, assessing total income at INR 84,59,250/- as against returned income of INR 9,31,190/-, holding a sum of INR 73,06,000/- as bogus unsecured loan and further addition of INR 2,22,055/-.
3. The said order of the AO was challenged in appeal before Ld.CIT(A) who passed the impugned order, challenged herein this appeal.
4. Vide impugned order, Ld.CIT(A) hold the addition of INR 73,06,000/- made by the AO into substantive addition which according to the assessee resulted into double addition of the same.
5. On the basis of facts as culled out from the proceedings of the lower authorities, the points to be determined before us by the Tribunal relating to Ground No.3, 5 & 6 only which can be concluded as under:- [1]. Whether Ld.CIT(A) was justified in treating the protective addition of INR 73,06,000/- made by the AO as substantive addition. [2]. Whether the addition of INR 73,06,000/- confirmed by the Ld.CIT(A) was sustainable or not u/s 68 of the Act; and [3]. Whether the addition on account of interest income of INR 2,22,055/- allegedly received by the assessee was sustainable or not.
We have heard Ld. Authorized Representative of the assessee and Ld. Sr. DR for the Revenue and perused the material available on record. It is argued on behalf of the assessee that all the additions made by the AO and confirmed by the Ld.CIT(A) are not legally sustainable because all necessary details and Page | 3 documents were supplied during the time of assessment proceedings with respect to the identification, genuineness and creditworthiness of the transactions made by the parties which has not been duly considered by the lower authorities. It is further submitted that all three grounds subject matter of the appeal for adjudication are duly covered by the decision of the Co-ordinate Bench of the Tribunal with regard to the removal of the protective addition of INR 73,06,000/- by Ld.CIT(A) to substantive addition. Ld.AR for the assessee has relied on the decision of Tribunal in assessee’s own case in for the Assessment Year 2007-08 vide order dated 11.12.2023 wherein the Tribunal has decided the issue by observing as under:- 9. “At the outset, advancing arguments in relation to Ground No. 3 to 5 directed against protective addition of INR 49,83,000/- made by the Assessing Officer and confirmed by the CIT(A) in respect of bogus loan transactions, the Ld. Authorised Representative for the Appellant appearing before us submitted that the Appellant was son in-law of Mr. Bhanwarlal Jain. Inviting our attention to paragraph 5 v). of the Assessment Order, the Ld. Authorised Representative for the Appellant submitted that the Assessing Officer had noted that the commission amount in respect of bogus loan transactions added in the hands of Mr. Bhanwarlal Jain, who had admitted that the concerns in the name of his son-in-law were also managed by him, for the assessment year under consideration was more than the loan amount of INR 49,83,000/-, and therefore, addition was made in the hands of the Appellant on protective basis. The substantive additions made in the hands of Mr. Bhanwarlal Jain have since been confirmed by the Tribunal and therefore, the protective addition made in the hands of the Appellant should be deleted. 9.1. Per contra, the Ld. Departmental Representative submitted that while it is correct that the substantive addition made in the hands of Mr. Bhanwarlal Jain have been confirmed by the Tribunal. It was not clear whether the additions made in the hands of the Appellant pertaining to the loan transaction under consideration has been confirmed on substantive basis in the hands of Mr. Bhanwarlal Jain. According to the Ld. Departmental Representative, this aspect Page | 4 requires consideration and therefore, he submitted that the Assessing Officer be granted an opportunity to verify the aforesaid facts before deleting the additions made in the hands of the Appellant on protective basis. 9.2. Keeping in view, the submissions advanced by both the sides, we remit the issue to the file of the Assessing Officer with the directions to delete the protection addition made in the hands of the Appellant to the extent the same has been confirmed in the hands of Mr. Bhanwarlal Jain. The Assessing Officer shall grant reasonable opportunity of being heard to the Appellant. The Appellant is directed to furnish all the necessary documents and details in support of the contention that the entire protective addition made in hands of the Appellant stands confirmed on substantive basis in the hands of Mr. Bhanwarlal Jain. In terms of the aforesaid, Ground No. 3 to 5 raised by the Appellant is allowed for statistical purposes.”
Even before us, nothing has been brought on record either by the assessee or by the Revenue with regard to disposal of the issue which was remitted by the Co-ordinate Bench of the Tribunal to the AO as noted above. Accordingly, the decision of Tribunal in assessee’s own case in is applicable Mutatis Mutandis in this case also. Therefore, respectfully following the decision of the Tribunal in the above-mentioned case, we remit the issue to the file of AO with the direction to delete the protective addition made in the hands of the assessee to the extent, the same has been confirmed on substantive basis in the hands of Mr. Bhanwarlal Jain. Ground No.3 raised by the assessee is accordingly, allowed in above terms.
Regarding addition made by the AO and confirmed by the Ld.CIT(A) of INR 73,06,000/- as accommodation entry u/s 68 of the Act, Ld.AR has submitted that the said issue has already been decided in favour of the assessee in [Assessment Year 2009-10] vide order dated 10.07.2023.
We have heard Ld. Authorized Representative of the assessee and Ld. Sr. DR for the Revenue and perused the material available on record. Ld.AR for the assessee has relied on the decision of Tribunal in assessee’s own case in for the Assessment Year 2009-10 vide order dated 10.07.2023 wherein the Tribunal has decided the issue by observing as under:- 7. “At the time of hearing, the Ld.AR submitted that the CIT(A) has erred in confirming the addition u/s 68 of the Act irrespective of the fact that the assessee has filed the details in respect of the loan and submitted the confirmation of the loan creditor along with other details. Further, the Ld. AR submitted that the assessee maintains the regular books of accounts and has obtained unsecured loan from genuine loan creditor. Whereas, the asssesee has furnished before the CIT(A), the confirmation of loan, bank statement of both the assessee and loan creditor, audited financial statements to substantiate the genuineness, identity and creditworthiness of the loan creditors and the assessee has paid interest on loan and claimed in the financial statements. Further the Ld. AR submitted that the assessee has not received the interest from other parties as alleged by the revenue. The Ld.AR supported the submissions on the disputed issues with the evidences in the factual paper book and judicial decisions on the similar cases and prayed for allowing the appeal. Contra, the Ld. DR supported the order of the CIT(A).
8. Heard the rival submissions and perused the material on record. The Ld. AR submitted that the CIT(A) has erred in sustaining the addition u/s 68 of the Act of unsecured loan though the assesses has filed the requisite details before the lower authorities. On perusal of the assessment order, the assessee has submitted the documentary evidences but the A.O has over looked the vital documents in respect of the sources filed by the assessee. The assessee has submitted the written submissions before the CIT(A) and the confirmation of loan creditor, PAN, Bank account details and the Income Tax returns. The assessee has to satisfy the 3 ingredients with respect to identity, creditworthiness and genuineness of the loan transaction. The CIT(A) has discussed on the provisions of the Act but has confirmed the action of the A.O. Whereas the assessee has discharged the burden of proof in filling the documents but the A.O and the CIT(A) has taken a different view and over looked the explanations of the assessee. The judicial decisions relied by the Ld.AR are as under:
ACIT Vs Shri Sumit J Jain in ITA.No.145/Mum/2017.
Naresh Hiran Mumbai Vs ITO in ITA no 1236/Mum/2017.
DCIT 25(1) Vs M/s YRV International in ITA No.1414/Mum/2017. 4. ITO Vs Vikram Muktilal Vora in ITA.no.842/Mum/2017. 5. DCIT Vs M/s Jainam Investments in ITA.NO.6999/Mum/2016. 6. DCIT Vs Manish Flour Mills Pvt Ltd. ITA.No.6729/Mum/2016. 9. “Further the assessee has cooperated in submitting the information in the assessment proceedings, whereas the A.O has ignored the information, evidences and audited financial statements and unilaterally made addition u/sec 68 of the Act. The Ld. AR emphasized that the assessee has discharged the burden by submitting the financial statements of the lender where the payment is made through banking channel and identity, creditworthiness and genuineness of the lender was proved in the assessment proceedings. Further the assessee has submitted the audited financial statements, confirmations, Bank statements, copy of the income tax returns and the repayment details to substantiate the genuineness and credit worthiness of loan creditors, which are placed at page 7 to 38 of paper book and chart. The Ld.AR demonstrated the copy of bank statements reflecting the repayment of unsecured loans in the paper book which is not disputed by the revenue. Further, the A.O has failed to make further enquiries and relied on the statement recorded which was subsequently retracted and further the A.O has overlooked the factual aspects that the assessee has discharged the initial burden placed by furnishing the details. The information submitted by the assessee satisfied the three ingredients of provisions of Sec. 68 of the Act and the unsecured loan was repaid through account payee cheque / banking channels in the current financial year and subsequent year which is not disputed. The Ld.AR submitted that the assessee has substantiated the stand by submitting the details before the A.O. and CIT(A) and discharged the burden. Hence considering the facts, circumstances and judicial decisions set-aside the order of the CIT(A) on this disputed issue and direct the assessing officer to delete the addition of unsecured loan and allow this ground of appeal
in favour of the assessee.”
10. The Ld. AR on behalf of the assessee has submitted that even for the A.Y. 2008-09 (under consideration) the assessee has discharged the onus of establishing the identity, creditworthiness and genuineness of the lender and has satisfied the requirement of the Section 68 of the Act. The Ld. AR has taken us to the assessment order at para 4 page 3 and referred the response to the show cause notice of the Ld. AO and the submissions of the assessee dated 21.03.2016 and relevant extracts of the same has been reproduced by the Ld. AO. Para 3 of the response as find mentioned in the assessment order is as under: “3. The assessee has taken the unsecured loan from Bajrang Singh Jain through his proprietorship concerns M/s Millenium Star. The loan was genuine and obtained from the legitimate sources.
The loan was taken through banking channel without any cash involvement.
5. Further, the concern M/s Millenium Star is assessed to Income Tax and regular in filing the IT return.
I have already submitted the following documents in support of our claim of genuineness of loan from above Party. a. Copy of account confirmation of M/s Millenium Star b. Bank statement duly marked showing the payment received and repaid c. ITR Ack of M/s Millenium Star d. Financial Statement of M/s Millenium Star 17. Therefore, considering the facts of the case and details submitted by us, it is dear that the loan taken from M/s Millenium Star is genuine.”
The Ld. AR further argued that the genuineness of the alleged loan could have been verified by issuing notice u/s. 133(6) or permitting the assessee to cross examine the lender party. As is evident from the assessment order, nothing contrary has been mentioned in the order with respect to the claim of the assessee regarding the genuineness of the loan and the document submitted by the assessee as find mentioned in point no. 16 extracted above. The reasons given by the Ld. AO and upheld by the Ld. CIT(A) in the impugned order are not convincing with respect to the claim of the assessee for not giving opportunity to cross examine the witnesses/lending party and bringing nothing contrary to the genuineness of the documents produced by the assessee in support of his claim of the genuineness of the loan from Bajrang Singh Jain through his proprietorship concerns M/s Millenium Star. These facts and circumstances show that the factual and legal position for the current financial year under consideration are same and similar to the fact and circumstances existing for the financial year 2009-10, wherein the Ld. Coordinate bench in order dated 10.07.2023 has directed the Ld. AO to delete the addition on account of unsecured loan. Therefore, respectfully following the decision of the Ld. Coordinate Bench in the above-mentioned case, the AO is directed to delete the addition of Rs. 73,06,000/- on account of unsecured loan. Ground No.5 raised by the assessee is accordingly, allowed.
Regarding addition made by the AO and confirmed by the Ld.CIT(A) of INR 2,22,055/- on account of interest allegedly received in cash by the assessee, Ld.AR for the assessee has submitted that the said issue has already been decided in favour of the assessee in assessee’s own case in & 1201/Mum/2021 [Assessment Year 2013-14 & 2014-15] vide order dated 05.07.2022.
We have heard Ld. Authorized Representative of the assessee and Ld. Sr. DR for the Revenue and perused the material available on record. Ld.AR for the assessee has relied on the decision of Tribunal in assessee’s own case in & 1201/Mum/2021 [Assessment Year 2013-14 & 2014-15] vide order dated 05.07.2022 wherein the Tribunal has decided the issue in favour of the assessee by observing as under:- Page | 9
“We have heard rival submission of the parties on the issue in dispute and perused relevant material on record. As far as merit of the addition is concerned, the brief facts are that during survey proceedings at the premises of the assessee a person namely ‘Sh Mahendra Kumar R Patel’ came to deliver an envelope on which name of ‘Ms. Meenakshi N Shah’ was written in pencil. The authorised Officer at the survey premises, recorded statement of Sh Mahendra Kumar R Patel, wherein the stated that said envelope contained quarterly interest in cash and cheque on loan, which had been taken by one Sh Kantilal A Shah, partner of M/s Hirok Construction. The survey team further gathered that said envelope contains cheque of ₹55,200/-, which was the interest on the loan amount of ₹20 lakh for 92 days at the rate of 12% per annum (after deducting TDS) and cash of ₹30,666/- towards interest payment at the rate of 6% on ₹20 lakh. A statement of assessee was also recorded during survey proceeding. In said statement, the assessee admitted that he was also engaged in advancing loan at the rate of 18% out of which 12% was received in cheque and remaining 6% was received in cash, whereas only 12% interest was recorded in books of accounts. In view of the statement in survey proceedings, during assessment proceedings the Assessing Officer asked the assessee as why the interest at the rate of 6% might not be assessed as received in cash on the loans outstanding at the year end. The assessee retracted from the statement and said that statement during the survey was involuntary and under coercion. The Ld. Assessing Officer rejected the retraction of statement by the assessee holding that it was after a lapse of such a long time and in attempt to thwart efforts of the Department. According to him the statement was recorded under section 131 of the Act and therefore it was one of the admissible evidence. According to the Ld. Assessing Officer retraction was not corroborated by any other evidences and therefore it was liable for the rejection. The Ld. Assessing Officer finally concluded as under: “6. As discussed above that during the course of survey at 210 A Panchratna, Opera House, on 04.10.2013, the assessee when confronted with the clinching evidences, has very categorically admitted in his statement that he does advance loan @ 18 % interest out of which 12 % interest is recived in cheque and the remaining 6 % is received in cash, but only 12 % Is recorded in the books of account. The above admission conclusively prove that assessee in his individual capacity advances unsecured loans to various parties wherein the rate of interest charged is 18 % pa. However, only 12% interest income is received in cheque and the same is accounted for in the regular books of accounts and remaining 6% interest is received in cash and is not accounted for in the regular books of accounts which requires no further validation. Accordingly the difference of Interest @ 6% (18%-12%) of the interest amounting to Rs. 62000/- being cash component of the interest received as discussed above is brought to tax and is added back to the total income. Accordingly it is also held that inaccurate particulars of income has been filed to conceal income chargeable to tax and penalty u/s. 271(1)c) of the IT act is separately initiated for the same.” 5.1 On further appeal, the Ld. CIT(A) on the issue of merit upheld the finding of the Assessing Officer in view of the statement of the assessee during survey proceedings. The relevant finding of the Ld. CIT(A) is reproduced as under: “14. I have considered the arguments of the assessce and facts of the case. It is relevant to mention over here that in his statement on oath u/s.133A on 3/10/13, when the assessee was asked about interest charged on loan given, the very clearly and categorically mentioned that he was receiving quarterly interest @ 18%; 12% by cheque and 6% by cash. After that statement, there was left no doubts as to the assessee was receiving interest @GX in cash over and above interest @ 12% through cheque. Further, cash portion of interest was no where disclosed by the assessee in the books of accounts or the return. Therefore, the Assessing Officer was justified in adding a sum of Rs.62,000/- additional interest income in the hands of the assessee being cash component of interest @ 6% on loan amount.
15. During the appellate proceedings, the assessee has produced no evidence or explanation as to why the addition made by the Assessing Officer was unfair or unreasonable. I am therefore, not in a position to deviate from the position taken by the Assessing Officer and therefore, addition taken by the Assessing Officer as undisclosed interest is upheld”. 5.2. “In our opinion, the only basis for making addition for cash component of interest is the statement of 'Sh Mahendra Kumar R Patel', which was not in respect of loan given by the assessee. The said envelope was in respect of the loan given by 'Ms. Meenakshi N Shah'. On the basis of said statement of 'Sri Mahendra R Patel', statement of the assessee was recorded in survey proceedings under section 133A of the Act. The contention of the Ld. Assessing Officer that said statement was recorded under section 131 of the Act is incorrect. On perusal of the copy of statement of Sh Nitin A shah i.e. the assessee on 06/10/2013, it is clear that said was recorded under section 133A proceedings. The Hon'ble Supreme Court in the case of CIT Vs S Khader Khan Son reported in (2012) 25v taxmann.com 413 (SC) has held that section 133A does not empower any ITO to examine any person on oath and so statement recorded under section 133A does not have any evidencing of value and any admission made during such a statement cannot be made basis for addition. The relevant part of the decision of the Hon’ble Supreme Court is reproduced as under:- “In the instant case, there was a survey operation conducted under Section 133A of the Act in the assessee's premises and a statement was recorded from one of the partner. Assuming there were discrepancies and irregularities in the books of accounts maintained by the assessee, an offer of additional income for the respective assessment years was made by the partner of the firm. But, such statement, in view of the scope and ambit of the materials collected during the course of survey action under section1 33A shall not have any evidentiary value, as rightly held by the Commission and the Tribunal, since such statement was not attached to the provisions of section1 33A o the Act. It could not be said solely on the basis of the statement given by one of the partner of the assessee-firm that the disclosed income was assessable as lawful income of the assessee. Since there was no material on record to prove the existence of such disclosed income or earning of such income in the hands of the assessee, it could not be said that the Revenue had lost lawful tax payable by the assessee.” 5.3 We find that there is no other evidence on record except the statement of the assessee recorded during survey proceedings, which has already been retracted by the assessee. 5.4 In view of above facts and circumstances, the action of the Ld. CIT(A) in sustaining the addition made by the Assessing Officer is not justified and we accordingly set aside the said finding of the Ld. CIT(A). The ground No. 4 of the appeal is accordingly allowed.”
The Ld. AR has submitted that the factual and legal position with respect to the alleged addition on account of interest is same and similar to the A.Y. 2013-14 and 2014-15 already decided in favour of the assessee by the Ld. Coordinate Bench. The Ld. AR has referred para no. 18 of the response by assessee to the AO’s notice as under: “18. Regarding the allegation that I have not disclosed the interest Income to the extent of 6% 1.e. difference of (18%-12%) as stated in my statement as per your good self-view, I say that I have disclosed all the income in my return of income. The statement taken by Investigation wing of mine was forcefully and without my consent. I have not earned any Interest Income, which I have not shown in my return of Income. I am not aware what is written in the statement, because till date I have not received the copy of my statement. Upon receipt of copy of statement, I will be able to comment on that. However, the fact remained same that whatever Interest I have earned in reflected in my books of accounts.”
15. It is therefore submitted that there is no justification for the Ld. AO for making addition of Rs. 2,22,055/- on account of interest allegedly received in cash by the assessee and the Ld. CIT(A) has also completed illegality in confirming the same and as such has prayed for the deletion of the same for this assessment year (A.Y. 2008-09) also. The Ld. DR on the other hand relied upon the judgment of the Ld. AO as well as the Ld. CIT(A) in that regard but brought on record nothing to challenge the claim of the Ld. AR in that regard. In these facts and circumstances, we are of the considered opinion that the pronouncements of the Ld. Coordinate Bench in and 1201/MUM/2021 referred supra in which one of us, Shri. Om Prakash Kant, Hon’ble Accountant Member was also a member of the Bench squarely covers the facts of this assessment year (A.Y. 2008-09) also. Therefore, respectfully following the decision of the Tribunal in that case, the AO is directed to delete the addition of Rs. 2,22,055/-. Ground No.6 raised by the assessee is accordingly, allowed.
14. Ground No.1, 2, 4 raised by the assessee are not pressed hence, dismissed.
Ground No.7 raised by the assessee is general in nature hence, dismissed.
16. In the result, the appeal by the assessee is partly allowed.
Order pronounced in the open Court on 26.08.2024.