ITO 25(3)(5), MUMBAI vs. VIKRAM MUKTILAL VORA, MUMBAI

By the impugned order, CIT(A) deleted the addition after observing as under:- 6. Ground No.2, 3 are pertains to disaIlowance of Rs 4O,OO,OOO/- and Rs.1,88,273/-. For the sake of convenience, all the grounds are disposed together. 6.1 The AO received an information from the Investigation Wing that a search and seizure operation was carried out in Bhanwatlal Jain Group of cases wherein it was found that Shri.Bhanwarlal Jain along with his associates have provided that accommodation entries in form of unsecured loans/deposlts/purchases entries to a large number of parties through various benami concerns controlled by the appellant. The assessee was one of the beneficiary of accommodation entries of Rs 4O,OO,OOO/- from M/s.Laxmi Trading Co. and M/s.Daksh Diamond, operated by Shr L Bhanwarlal Jain and Group. During the appellate proceedings the appellant has stated that appellant had taken loan of Rs 4O,OO,OOO/- from them. The appellant took genuine loans from the two parties M/s Daksh Diamonds of Rs 25 lakhs and Laxmi Trading Co Rs 15 lakhs. Out of this Rs 5 lakhs was repaid to M/s Daksh Diamonds in the year itself and the balance was carried forward. The appellant has stated that he had made payment through accounts payee cheques and also produced sufficient evidence before the A.O. "he A.O. has not accepted the transactions as genuine and considered income of Rs 4O,OO,OOO/- from undisclosed receipt for the A.Y 2007-08.

6.2 Further stated that addition u/s 68 of the Act, the assessee must satisfy three important conditions, namely, (i) the identity of the creditor; (ii) the genuineness of the transaction; and (iii) the financial capacity of the of the person giving cash credit to the assessee, i.e. the credit worthiness of the creditor, However, the onus of the assessee is limited to the extent of proving the source from which he received the cash credit. The credit worthiness of the creditor has to be judged vis- a-vis the transaction which had taken place between the assessee and the creditor, and it is not the burden of the assessee to find out the source of creditworthiness of the lender to prove the genuineness of the transaction. This is held by the Gauhati High Court in the case of cn v Srlt. Sanghamitra Bharali (2014) 361 ITR 481 (Gau) at page 482.(Copy enclosed) The aforesaid points were also affirmed in the past by the Appex Court in the use of CIT v. Orissa Corporation P. Ltd reported in (1986) 159 ITR 78 (Se). In tl-e case of CIT v. Varinder Rawley (2014) 366 ITR 232 (P & H) the court held that "where the assessee shows that the entries regarding credit in a third party's account were in fact received from the third party and are genuine, he discharges the onus. In that case, the sum cannot be charged as the assessee's income in the absence of any material to indicate that it belongs to assessee", particularly in a case where no summons u/s 131 is issued against the third party. 6.3 The expression "nature and source" has to be understood together as a requirement of identification of the source and the nature of the source, so that the genuineness or otherwise could be inferred. The Hon.ble Supreme Court, in Kale Khan Mohd.Hanif vs. CIT, pointed out that the onus on the assessee has to be understood with reference to the facts of each case and proper inference drawn from the facts. If the prima facie inference on the fact is that the assessee's explanation is probable, the onus will shift to the Revenue. As far as the creditworthiness or financial strength of the creditor/subscriber is concerned, that can be proved by producing the bank statement of the creditors/subscribers showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital. Once these documents are produced, the assessee would have satisfactorily discharged the onus cast upon him. Thereafter, it is for the Assessing Officer to scrutinize the same and in case he nurtures any doubt about the veracity of these documents, to prove the matter further. 6.4 Element of credit worthiness and satisfaction of AO thereafter is subjective and requires more efforts/inquiry on t e part r f the Aa to give a finding in the order that lender is not credit worthy. The Aa must make proper enquiry before making any addition. In Khandelwal Constructions v. cn 227 ITR 900 (Gau.), it has been held that empowers the Assessing officer to make enquiry. If he is satisfied that these entries are not genuine he has every right to add these as Shri Vikram Muktilal Vora income from other sources. But before rejecting assessee's explanation, A.O. must make proper enquiries and in the absence of proper enquiries, addition cannot be sustained. 6.5 ' It is clear from the above discussion that all the transactions were through account payee cheques and appellant has submitted sufficient details before the AO during the assessment proceedings. The source of receipt through banking channel clearly establish the genuineness of the credit which is reflected in the books of accounts.' The decision of the Hon'ble Gujarat High Court in the case of Dy. CIT vs Rohini Builders - [256 ITR 360] is held that ell the loans were received by the assessee by account payee cheques and the repayment of loans have also been made by account payee cheques along with interest in relation to those loans and that the assessing officer having allowed the interest claimed/paid by the assessee in relation to the cash credits cannot treat the cash credits as not genuine. It held that the assessee had discharged the initial onus which lay on it in terms of Section 68 by proving the identity of the creditors by giving their complete addresses, GIR nos./PAN nos. and copies of assess me I orders wherever readily available and that it has also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from the bank accounts of the creditors. It held that the assessee is not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of accounts but not the source of the source. 6.6 Further, in the case of Namichand Kothari vs CIT - [264 ITR 254] [Gau], the Hon'ble High Court had held that: ,"A harmonious construction of section 1 06 of the Evidence Act and section 68 of the Income-tax Act will be that though apart from establishing the identity of the creditor, the assessment establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub-creditor nor is it the burden of the assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been, eventually, received by the assessee. It is not the business of the assessee to find out the source of money of his creditor or of the genuineness of the transaction, which took place between the creditor Shri Vikram Muktilal Vora and sub-creditor and/or creditworthiness of the sub-creditors, since, these aspects may not be within the special knowledge of the assessee. 6.7. The assessee must satisfy three important conditions, namely (i) the identity of the creditor (ii) the genuineness of the transaction; and (iii) the financial capacity of the person, i.e., the credit worthiness of the creditor. However, the onus of the assessee is limited to the extent of proving the source from which he received the cash credit. The credit worthiness of the creditor has to be judged vis-a-vis the transaction which had taken place between the assessee and the creditor, and it is not the burden of the assessee to find out the source of creditworthiness of the lender to prove the genuineness of the transaction. This issue is dealt by the Gauhati High Court in the case of CIT v. Smt. Sanghamitra Bharali (2014) 361 ITR 481 (Gau). The aforesaid points were also affirmed in the past by the Appex Court in the case of CIT v. Orissa Corporation P. Ltd reported in (1986) 159 ITR 78 (SC). In the case of CIT v. Varinder Rawley (2014) 366 ITR 232 (P & H) the court held that "where the assessee shows that the entries regarding credit in a third party's account were in fact received from the third party and are genuine,-he discharges the onus. In t at case, the sum cannot be charged as the assessee's income in the absence of any material to indicate that it belongs to assessee", particularly in a case 'where no surroundings u/s 131 is issued against the third party. 6.8 From the assessment order, it transpires that the AO has solely relied upon the' statements of Bhawarlal Jain and did not carry out any worthwhile independent inquiry in the matter. He has totally ignored the documentary evidences submitted by the appellant. The AO in the assessment order has admitted existence of these details. The AO has not pointed out any defect in the above mentioned documentary evidences submitted during assessment proceedings. Without pointing out any lacuna ir the evidences submitted by the appellant, the sources and the genuineness cannot be doubted. Once evidences related to a transaction is submitted before the A.O., the onus shifts on him to prove these as non-genuine or accommodation. The A.O. has not discharged the onus casted on him. In my opinion, merely based on the statement of a third person without any corroborative evidence will not make the transactions" in question, as non-genuine or bogus transaction. As such, in the absence of any contrary evidence placed on record, the transaction cannot be treated as bogus or paper transaction. 6.9 As far as the question of validity of tile transaction, even if some of the transactions entered into by the above parties are found to be not genuine, it does not lead to the conclusion that all the transactions entered into by these parties were bogus or non-genuine including the Shri Vikram Muktilal Vora transactions related to the appellant. There is no evidence brought in the assessment order to prove the above conclusion, by the AO. The reassessment proceedings were wide open and the AO could have carried out independent investigation to prove his argument regarding the bogus or non-genuine transactions. No such investigation has been carried out by the AO. The outcome of investigation carried out in the case of Bhanwarilal Jain, the conclusions drawn therein cannot be applied ipso facto to all other cases who have dealt in the transactions during that period. Simply relying on the report of the inv. Wing, Mumbai and statement the AO cannot conclude that all transactions are bogus or have no credential value. 6.10 The. case of the appellant is covered by the decision of ITAT, 'I' Bench, Mumbai, in the case of Satish N. Doshi HUF Vs. ITA, Ward 21(2)(4), Mumbai in ITA No-2329/Mum/2009 and the decision of ITAT, .~' Bench, Mumbai in the case of Shaf Broadcast Pvt. Ltd Vs. ACIT, Cir-9(3), Murnbai in ITA No.1819/Mum/2012. Both the cases relate to re-opening of assessment on the basis of statements. The Hon'ble ITAT on the analysis of the findings me de in the assessment orders has reached to the conclusion that the re-opening Itself is bad in law and quashed the orders accordingly. The ratio of these judgment is applicable to the facts of the instant case. This is confirmed by the Delhi Bench of the Income Tax Appellate Tribunal in the case of DCIT v. Nipun Builders & Developers P. Ltd. (ITA No.557/DEL/2010) wherein the Tribunal dismissed the Revenue appeal by holding that the Assessing Officer has primarily relied upon the Report of the Investigation Wing which cannot conclusively prove that assessee's own money was invested in the form of share application money. 6.11 Further, in the recent judgment of Smt.Jefferali K Rattonsey V. DCIT reported in 5068/Mum/209, the Mu bai Bench of the Income Tax Appellate Tribunal has also held that the mere statement of a person cannot be a deciding factor for rejecting the genuineness of the purchase of shares by the assesseee specially when all other supporting evidences filed by the assessee were neither proved to be false or untrue. 6.12 I In view of the facts and circumstances mentioned above, in my opinion, the appellant has submitted sufficient evidences during the assessment before the A.O. The assessment was reopened on the basis of Investigation report that appellant has taken accommodation entry of loan from Bhawarlal Jain Group and solely relied upon the statements of Bhawarlal Jain. The A.O. did not carry out any worthwhile independent inquiry in the matter. He has totally ignored the documentary evidences submitted by the appellant. Without pointing out any lacuna in the evidences submitted by the appellant, Shri Vikram Muktilal Vora the sources and the genuineness cannot be doubted. Therefore, the decision of the A.O. treating the same as bogus or non-genuine transactions is not in order and cannot be justified. The AO is accordingly directed to delete the addition of Rs 4O,OO,OOO/-. 7. . Ground No.4 relates to disallowance of interest expenditure of Rs 1,88,273/- on account of bogus accommodation entry. It is already discussed in the above grounds that the loan transactions are genuine. Therefore, the disallowance made by the A.O. on account of accommodation expenses is not sustainable. The A.O. is directed to delete the addition of Rs.1,88,273/- 8. Ground No.5 and 6 are general in nature and hence do not require any adjudication, hence dismissed.