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Facts
The assessee, a partnership firm engaged in construction, received loans from concerns belonging to Bhanwarlal Jain Group, which was later found to be involved in providing accommodation entries. The Assessing Officer treated these loans as unexplained cash credits under Section 68, and also made additions for estimated commission expenses and disallowed interest expenses.
Held
The Tribunal held that the assessee had discharged the initial onus under Section 68 by providing necessary documents to establish the identity, creditworthiness, and genuineness of the creditors. The AO's reliance on investigation wing reports and statements without independent inquiry was not sustainable. The additions for commission and interest were consequential and thus also set aside.
Key Issues
Whether additions made under Section 68 for cash credits, commission expenses, and interest disallowance were justified when the assessee provided sufficient documentation and the AO relied on investigation reports without independent inquiry?
Sections Cited
68
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Income Tax Appellate Tribunal, Mumbai “D” Bench, Mumbai.
Before: Shri B.R. Baskaran (AM) & Shri Sandeep Singh Karhail (JM)
Per B.R. Baskaran (AM) :-
The assessee has filed these appeals challenging the orders passed by the learned CIT(A)-Pune-11, Mumbai and they relate to A.Y. 2011-12, 2013- 14 & 2014-15. Since the issues urged in these appeals are identical in nature, they were heard together and are being disposed of by this common order, for the sake of convenience.
The assessee is aggrieved by the decision of the learned CIT(A) in confirming the additions made by the Assessing Officer, viz., the additions relating to the cash credits, estimated commission expenses and interest disallowance in all the three years under consideration.
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The facts relating to the case are stated in brief. The assessee is a partnership firm engaged in the business of construction of buildings. Of the three years, the assessment relating to A.Y. 2011-12 was reopened by issuing notice under section 147 of the Act. The assessments of other two years are original assessment proceedings. In all these three years, the Assessing Officer noticed that the assessee has taken loans from the concerns belonging to M/s Bhanwarlal Jain Group. The above said group was subjected to search on 3.10.2013 and it was noticed that the said group was involved in the business of providing accommodation entries by way of bogus purchases, sales, unsecured loans, share capital etc. It was noticed by the AO that the search officials have recorded sworn statement taken from Bhanwarlal Jain and other persons. In the said statements, they had admitted that they are providing accommodation entries only and also explained the modus operandi of providing accommodation entries.
During the years under consideration, the assessee has taken loans of Rs. 1.21 crroes, Rs. 1.50 crores and Rs. 1.10 crores respectively from the concerns belonging to Bhanwarlal Jain group as detailed below:-
Name of Concern AY 2011-12 AY 2013-14 AY 2014-15 Rajan Diamonds 55,00,000 Parvati Exports 50,00,000 15,00,000 20,00,000 Megha Gems 6,00,000 25,00,000 30,00,000 Navkar Diamonds 10,00,000 15,00,000 Maan Diamond 95,00,000 Ankita Exports 60,00,000 Total 1,21,00,000 1,50,00,000 1,10,00,000
The Assessing Officer treated these loans as bogus in nature and accordingly assessed them in the respective assessment years as unexplained cash credits under section 68 of the Act. The Assessing Officer has also taken the
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view that the assessee would have paid commission for procuring bogus accommodation entries and he estimated the commission expenses at 3% of the loan amounts and added the same in all the three years. The Assessing Officer also disallowed the interest expenditure claimed on the above said loans. In the appellate proceedings, the learned CIT(A) estimated the commission expenses to 1% of the loan in all the three years and confirmed the remaining two additions. The details of disallowances confirmed by Ld CIT(A) are tabulated below:- Asst. Year Addition u/s 68 Commission Interest Expenses disallowed 2011-12 1,21,00,000 1,21,000 31,24,570 2013-14 1,50,00,000 1,50,000 38,79,330 2014-15 1,10,00,000 1,10,000 57,74,000
Aggrieved, the assessee has filed these appeals before the Tribunal.
The Learned AR submitted that the assessee has discharged the onus placed on its shoulders under section 68 of the Act by submitting all the documents in order to prove the identity of the creditors, creditworthiness of the creditors and genuineness of the transactions. The Assessing Officer did not find any defect or deficiency in the documents so filed by the assessee. The Assessing Officer, in all the three years under consideration, did not make any independent inquiry with regard to the loans taken by the assessee. He has mainly relied upon the report given by the Investigation Wing and also the statement taken from the assessee in A.Y. 2013-14. He submitted that the Assessing Officer had made identical addition by taking identical view in AY 2008-09. The AO has simply copied the observations made by him in A.Y. 2008-09 in these three years under consideration without making any independent enquiry. The Learned AR submitted that the Assessing Officer has referred to the case of another alleged beneficiary
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named M/s. Amba Corporation and simply applied the view taken therein to the facts of the present case, which is not justified.
He submitted that the Assessing Officer had made identical additions made in A.Y. 2008-09 to 2010-11 & 2012-13. Those additions have since been deleted by the Tribunal vide its order dated 12.4.2017 passed in (ITA No. 1069 to 1071/Mum/2017 and ITA No. 4946/Mum/2016). Accordingly learned AR submitted that, facts being identical in the current three years also, the decision rendered by the Coordinate Bench in the earlier years should be followed.
The Learned AR also submitted that it has come to the notice of the assessee that Bhanwarlal Jain has retracted the statement and in that case, the AO could not have placed reliance on those statements. In any case, the statement given by Bhanwarlal Jain and his employees will not bind the assessee, since the AO did not provide opportunity of cross examination to the assessee. The Learned AR submitted that the assessee had stated that the impugned loans were availed by him through a person named Shri Rajesh Jain. The learned CIT(A) has observed that Shri Rajesh Jain did not appear before the Assessing Officer. He submitted that the above said observations of the learned CIT(A) is contrary to the facts available in the assessment order. He submitted that Shri Rajesh Jain had appeared before the Assessing Officer and a statement was also taken from him. He submitted that the said fact has been noted down by the Assessing Officer in paragraph 4.6.1 of the assessment order relating to AY 2014-15. Accordingly he submitted that the learned CIT(A) has misdirected himself in confirming the additions made by the Assessing Officer and accordingly contended that the orders passed by Ld CIT(A) are liable to be set aside. In support of his arguments, the learned AR placed his reliance on the following decisions :
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(i) Sky Gem Vs. DCIT (ITA No. 787 to 79/Mum/2023 dated 23.8.2023) (ii) Vedartha Entertainment Ltd. (ITA No. 4233/Mum/2018 dated 28.11.2022) (iii) Gaurav Triyugi Singh Vs. ITO (423 ITR 531)(Bom)
The Learned DR, however support the orders passed by the learned CIT(A). He submitted that the assessee has stated in his Statement that he has not met any of the creditors from whom it has taken loans. The assessee has also admitted that it does not have any acquaintance with any of the directors/partners/ proprietors/concerned from which loans were taken. The assessee has claimed that the loans were taken through a person named Rajesh Jain. He submitted that the above said admission is beyond the scope of human probabilities. The Learned DR further submitted that the creditworthiness of these concerns have not been proved, since all the creditors have declared lower income and further in some cases capital was shown in negative figure. Accordingly he submitted that the orders passed by the learned CIT(A) does not call for any interference.
We heard the parties and perused the record. In the instant case, the primary addition has been made u/s 68 of the Act in all the three years. U/s 68 of the Act, the cash credits, which are essentially capital receipts, are deemed to be revenue receipts by legal fiction, if the assessee fails to prove the nature and source of cash credits. “Nature of cash credit” would mean that the assessee is required to show that it is not of revenue nature. In order to prove the sources, the assessee should discharge initial burden placed upon his shoulders of the assessee u/s 68 of the Act, i.e., the assessee is required to prove three main ingredients, viz., the identity of the creditor, the genuineness of the transactions and the credit worthiness of the creditor. If the assessee discharges the initial burden, then the burden would shift to the shoulders of the assessing officer, i.e., it is the responsibility of the AO to disprove the claim of the assessee by bringing evidences on record.
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We shall now examine the facts prevailing in the instant case. It is noticed that it is not the case of the AO that the assessee did not discharge the initial burden placed upon it with regard to the loans availed by it in all the three years under consideration. It is an admitted fact that the assessee has furnished all the details relating to the creditors in order to discharge the burden placed upon it u/s 68 of the Act. In fact, the AO has examined the assessee and also statement was taken from it. The assessee has claimed to have taken loans from the above said companies through a person named Shri Rajesh Jain. We notice that the AO has examined Rajesh Jain also and recorded a statement from him. We notice that nothing turned against the assessee from these examinations. However, the AO has refused to admit those loans as proved, only for the reason that these companies have been categorized by the investigation wing as bogus companies. We also notice that the AO has not pointed out any defect in the documents furnished by the assessee in order to prove the cash credits.
The AO has heavily relied upon the report given by the Investigation wing wherein reference has been made to the statement given by Shri Bhanwarlal Jain. However, it is the submission of the assessee that above said person has retracted his statement. It was also brought to our notice that the AO has simply followed his order passed for AY 2008-09 in all the three years under consideration. We notice that the identical addition made in AY 2008-09 has since been deleted by the co-ordinate bench, vide its order referred supra. In the instant cases, the fact would remain that the assessee has furnished the relevant details before the AO and discharged its onus. When all the relevant details are available with the AO, it is the requirement that the AO should examine those documents and could reject them, only if he finds fault with those documents. We notice that the AO did not find any deficiency or fault with the evidences produced by the assessee.
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The question that arises is whether the Assessing Officer could have made addition under section 68 of the Act by relying upon report of investigation wing or the statement given by the alleged accommodation entry providers. It is opposite to refer to the decision rendered by the Coordinate Bench in the case of M/s. Moraj Realty Pvt. Ltd. (ITA No.708 & 709/Mum/2019 dated 08-12-2020), wherein the decision was rendered by following the decisions rendered by Hon’ble Bombay High Court. It was held by the co-ordinate bench as under :- “17. Moreover, except for relying on the statement of VVB the Assessing Officer has not done any inquiry himself except for referring to a notice issued under section 133(6) in A.Y. 2009-10 only. The learned counsel of the assessee has challenged the very veracity of this observation. He has submitted that assessee has asked for the copy of the said notice issued under RTI Act. In response it was replied that copies thereof are not available. Hence, this shows that even the so called inquiry by the Assessing Officer was done in case of only one party for A.Y. 2009-10 and the veracity of which is itself in doubt.
We find ourselves in agreement with the submissions of the assessee’s counsel. We note that except for the statement of the entry operator which was also retracted the addition made by the authorities below is devoid of cogent material. In this regard we note that in similar circumstances honourable Bombay High Court in the case of CIT Vs. Orchid Industries Pvt. Ltd. (ITA No. 1433 of 2014 dated 5.7.2017)(397 ITR 136) held as under :-
“The Assessing Officer added Rs.95 lakhs as income under Section 68 of the Income Tax Act only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account.
The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding
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issuance of shares i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee. The judgment in case of Gagandeep Infrastructure (P.) Ltd. (supra) would be applicable in the facts and circumstances of the present case.”
Similarly honourable Bombay High Court in the case of Gagandeep Infrastructure Pvt. Ltd. (394 ITR 680) has held as under:- …………. (ii) Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in CIT v/s. Lovely Exports (P)Ltd. 317 ITR 218 in the context to the preamended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee’s income as unexplained cash credit.”…………… 21. Accordingly in the background of aforesaid discussion and precedent in our considered opinion assessee has given all the necessary details required for establishment of identity creditworthiness and genuineness under extant provisions of section 68 of the IT Act. The onus cast upon the assessee stands discharged. The addition by invoking amended provisions of section 68 of the Act which are not applicable for the assessment year is not sustainable.”
The Hon’ble Bombay High Court has held in the case of CIT vs. Orchid Industries (P) Ltd (397 ITR 136)(Bom) that the addition u/s 68 could not be made once the assessee had produced the documents to prove the cash credits. It was further held that non-appearance of the share subscriber before the AO will not change this position.
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The Ld A.R also relied upon the decision rendered by Hon’ble jurisdictional High Court in the case of Gaurav Tyagi Singh (supra). The relevant observations made by the Hon’ble jurisdictional High Court are extracted below:-
“12 At this stage, it would be apposite to advert to section 68 of the Act, relevant portion of which reads as under:
“68. Where any sum is found credited in the books of an assessee maintained from any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income –tax as the income of the assessee of that previous year. ………….”
12.1. From a reading of section 68, as extracted above, it is seen that if an amount is credited in the books of an assessee maintained from any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax, as the income of the assessee of the relevant previous year.
13 Section 68 of the Act has received considerable attention of the courts. It has been held that it is necessary for an assessee to prove prima facie the transaction which results in a cash credit in his books of account. Such proof would include proof of identity of the creditor, capacity of such creditor to advance the money and lastly, genuineness of the transaction. Thus, in order to establish receipt of credit in cash, as per requirement of section 68, the assessee has to explain or satisfy three conditions, namely : (i) identity of the creditor; (ii) genuineness of the transaction; and (iii) credit-worthiness of the creditor.
14 In Principal Commissioner of Income Tax vs. Veedhata Tower Pvt. Ltd., (2018) 403 ITR 415 (Bom), this court has held that assessee is only required to explain the source of the credit. There is no requirement under the law to explain the source of the source. In the instant case, there is no dispute as to the identity of the creditor. There is also no dispute about the genuineness of the transaction. That apart the creditor has explained as to how the credit was given to the assessee. Thus assessee had discharged the onus which was on him as per the requirement of section 68 of the Act. What the Assessing Officer held was that sources of the source were suspect i.e., he suspected the two sources Shri Rajendra Bahadur Singh and Smt. Sarojini Thakur of the source Smt. Savitri Thakur
15 In view of discharge of burden by the assessee, burden shifted to the revenue; but revenue could not prove or bring any material to impeach the source of the credit. Though Mr. Walve, learned standing counsel, has pointed
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out that the creditor had no regular source of income to justify the advancement of the credit to the assessee, we are of the view that the assessee had discharged the onus which was on him to explain the three requirements, as noted above. It was not required for the assessee to explain the sources of the source. In other words, he was not required to explain the sources of the money provided by the creditor Smt. Savitri Thakur i.e. Shri Rajendra Bahadur Singh and Smt. Sarojini Thakur. 16 Considering the above, we are of the view that the Tribunal was not justified in sustaining the addition of Rs. 14 lakhs to the total income of the assessee as undisclosed cash credit under section 68 of the Act.
In our view, the above said decisions rendered by the jurisdictional Hon’ble High Court and the co-ordinate bench supports the case of the assessee. Accordingly, following the above said decisions, we hold that the addition made by the Assessing Officer under section 68 of the Act in all the three years under consideration, in the facts and circumstances of the case, was not justified.
The AO has also made addition of estimated commission expenses and also disallowed interest expenses. Since we have held that the addition made u/s 68 was not correct, the above said two additions, being consequential in nature, are liable to be set aside.
Accordingly we set aside the orders passed by the learned CIT(A) in all the three years under consideration and direct the AO to delete the three types of additions (referred above) in all the three years.
In the result, all the three appeals of the assessee are allowed.
Order pronounced on 20.2.2024.
Sd/- Sd/- (Sandeep Singh Karhail) (B.R. Baskaran) Judicial Member Accountant Member Mumbai.; Dated : 20/02/2024
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Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai. 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai