DEVILAL KESAJI MALI,MUMBAI vs. ITO 18(1)(3), MUMBAI

The assessee is engaged in the business of manufacture and sale of textiles. The AO noticed that the assessee has taken loan from various parties and hence asked the assessee to prove the same. The AO noticed that the assessee has taken loan from a person named Shri Vijay Kumar Lumbaramji Parmar during the year under consideration in various instalments aggregating to Rs.6.00 lakhs. The assessee has filed loan confirmation letter, copy of income tax return acknowledgement and the bank statement of the lender. The assessee did not furnish copy of financial statements of the lender. The AO noticed that the lender Shri Vijay Kumar L Parmar has declared an income of Rs.1,68,390/- only during the assessment year 2012-13. He further noticed that 2 Devilal Kesaji Mali the lender has deposited cash into his bank account before issuing cheques to the assessee. The AO noticed that the lender was not filing his Balance sheet along with the return of income. The inspector, who made field enquiries, reported that the lender was not available in the address given. Hence the AO asked the assessee as to why the loan amount of Rs.6.00 lakhs should not be treated as income of the assessee.

In response thereto, the assessee furnished new address of the lender and also his mobile number. The AO accordingly issued summons to Shri Vijay Kumar L Parmar u/s 131 of the Act and recorded a sworn statement from him. In the sworn statement he admitted that he had received cash from the assessee and the same was deposited into his bank account before issuing cheques to the assessee. The AO also noticed that the cash deposits have been made only in the month of August 2011, i.e., at the time of issuing cheques to the assessee. Accordingly he took the view that the lender has given accommodation entry only to the assessee. Accordingly the AO assessed the loan amount of Rs.6.00 lakhs as income of the assessee. The Ld CIT(A) also confirmed the same and hence the assessee has filed this appeal before us.

The Ld A.R contended that the assessee has discharged the initial burden placed upon him by furnishing the confirmation letter, bank account copies and the IT return acknowledgement. He further submitted that the AO has taken the statement of the lender behind the back of the assessee and hence the same could not be relied upon. He submitted that the assessing officer did not provide opportunity to cross examine the lender. Accordingly he submitted that the Ld CIT(A) was not justified in confirming the addition.

The Ld D.R, on the contrary, submitted that the lender has admitted that he has given only accommodation entries by receiving cash from the assessee. He

In the rejoinder, the Ld A.R submitted that the lender’s statement was not confronted with the assessee and further the assessee has furnished confirmation letters obtained from the lender.

I heard the parties and perused the record. Even though the assessee contends that he has discharged the burden placed upon him u/s 68 of the Act, I notice that the documents furnished by the assessee may not be sufficient to prove the credit worthiness of the lender. However, it is the contention of the Ld A.R that the assessee has furnished the copy of IT acknowledgement of the return filed by the lender and the same would prove the credit worthiness. However, we notice that the AO has examined the return of income filed by the lender and has given a finding that the lender has not filed the Balance Sheet. Further the AO has also taken sworn statement from the lender, wherein the lender has confessed that he has provided only accommodation entries.

However, the main grievance of the assessee is that the AO did not confront the statement of the lender during the course of assessment proceeding. The Ld A.R submitted that the failure to provide opportunity to cross examine the witness would vitiate the proceedings and in that regard he placed reliance on the decision rendered by Hon’ble Supreme Court in the case of Andaman Timber Industries (Civil Appeal No.4228 of 2006). Even though there is failure on the 4 Devilal Kesaji Mali part of the AO to confront the statement with the assessee, yet, in the instant case, the assessee also did not furnish sufficient documents to prove credit worthiness of the lender. Thus, there is failure on the part of both the assessee as well as the AO. Hence I am of the view that this issue requires fresh examination at the end of AO. Accordingly I set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to examine this issue afresh by duly providing opportunity of cross examination to the assessee. The assessee is also directed to furnish further evidences to prove the credit worthiness of the lender.

In the result, the appeal filed by the assessee is treated as allowed for statistical purposes. Order has been pronounced in the Court on 1.5.2017.