RELIANCE CORPORATION,MUMBAI vs. DY. CIT CENTRAL CIRCLE - 1, THANE

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.

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:-

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

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 :

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.

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.

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.

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:-

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.