SWASTIK REALTORS,MUMBAI vs. ASST CIT 15(3), MUMBAI

आयकर अपील"य अ"धकरण “E” "यायपीठ मुंबई म"। IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No.800/Mum/2012 & 6314/Mum/2012 ("नधा"रण वष" / Assessment Year : 2007-08 & 2008-09) Swastik Realtors The Assistant बनाम/ 312, Swastik Disha Commissioner of Income v. Corporate Park , Kohinoor Tax – 15(3), Textile Printing Compound Matru Mandir I T Office Opp. Shreyas Cinema, LBS Nana Chowk Marg, Ghatkopar(W) Grant Road Mumbai-400 086 Mumbai. "थायी लेखा सं./PAN : ABAFS2576A (अपीलाथ" /Appellant) .. (""यथ" / Respondent)

Assessee by Dr. K. Shivaram Revenue by : Shri Sanjeev Kashyap

सुनवाई क" तार"ख /Date of Hearing : 01-08-2016 घोषणा क" तार"ख /Date of Pronouncement : 27-10-2016 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member

These two appeal, filed by the assessee firm, being ITA No. 800/Mum/2012 and 6314/Mum/2012 are for the assessment year 2007-08 and 2008-09 respectively . Since identical questions are involved, these two appeals were heard together and are disposed of by this common order for the sake of convenience.

First , we shall take up the appeal for the assessment year 2007-08 in ITA no. 800/Mum/2012 which is directed against the appellate order dated 30th November, 2011 passed by learned Commissioner of Income Tax (Appeals)-

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28, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2007- 08, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 26th November 2009 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income-tax Act,1961 (Hereinafter called “the Act”).

“ 1) On the facts and in the circumstances of the case the Learned Commissioner of Income (Appeals) [CIT(A)] erred in fact and in law in confirming the addition of Rs.1.00 crore made by the Learned Assessing Officer alleging the loan taken by the appellant from one M/s Moxdiam, during the previous year relevant to A.Y.2007-08 , as fictitious.

2) On the facts and in the circumstances of the case the learned CIT(A) erred in fact and in law in confirming the disallowance of interest of Rs.93,000/- made by the Learned Assessing Officer on the alleged unproved/fictitious loan.

3) On the facts and in the circumstances of the case the learned CIT(A) erred in fact and in law in not adjudicating the disallowance of Rs.25,000/- made out of sundry expenses by the Learned Assessing Officer.

4) On the facts and in the circumstances of the case the Learned CIT(A) erred in fact and in law in confirming the additions & disallowances totaling to Rs.1,01,18,000/- without appreciating the fact that the appellant had filed adequate evidences, confirmation to prove the identity sources and capacity of the lender and details of the expenses.

5) The Learned CIT(A)’s order and Assessing Officer’s order being contrary to law, evidence and facts of the case, the appellant prays to annul, set aside , amended or modified the same in the light of the grounds deduced herein above. 6. All the above grounds of appeal are independent and without prejudice to each other. ”

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genuine businesses. The only remuneration which the business generated for these entities was by way of commission income which was received when the transactions of providing Hawala bills/ entries were effected with the parties. With respect to two parties who were beneficiaries of these accommodation transactions against whom survey action u/s 133A of the Act was also carried out namely M/s Combined Diamonds Limited and Stargems confessed to having entered into fictitious transactions with the above entities including Moxdiam and offered income of Rs.1.80 crores and Rs.2.25 crores for the assessment year 2007-08 to 2009-10 respectively.

The partner of the firm M/s Moxdiam, Mr. Nitesh Jain vide letter dated 10- 07-2008 expressed that during the course of survey carried out u/s 133A of the Act on Moxdiam , certain books of accounts and loose sheets were impounded on 09-07-2008 . It was submitted by said Mr. Nitesh Jain that statement of Mr. Basant D. Jain was recorded u/s 131 of the Act dated 09- 07-2008 which was duly acknowledged and endorsed by Mr Nitesh Jain whereby among other things , the modus operandi of the business of giving accommodation bills and accommodation entries was elaborately revealed and explained along-with involvement of various interested parties from the market. The said Mr. Nitesh Jain reiterated that the business of M/s Moxdiam is providing accommodation bills and accommodation entries to the interested parties in the market.

The assessee had during the previous year relevant to the impugned assessment year borrowed Rs. 1.00 crores from Moxdiam and provided for interest of Rs.93,000/- on the said loan. The assessee submitted the following documents / explanations before the AO during assessment proceedings u/s. 143(3) read with Section 143(2) of the Act :-

a. Loan Confirmation from Moxdiam

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b. Copy of bank statement of the lender, Moxdiam reflecting the payment made to the assessee of Rs.1,00,00,000/- during March 2007. c. Copy of Acknowledgment of Return of Income filed by Moxdiam for the assessment year 2007-08 together with Balance Sheet as at 31-03-2007 and schedule thereto of Moxdiam. In the Schedule to the Balance Sheet under the heading ‘Loans and Advances’ , a sum of Rs.1,00,00,000/- was outstanding in the name of the assessee.

d. It was submitted that the amount was received through crossed account payee cheques’.

e. It was submitted that the said loan was repaid by the assessee to M/s Moxdiam during September 2008 to March 2009 through cheques including interest. The assessee also enclosed its bank statement before the AO reflecting the payments made to Moxdiam.

f. It was submitted that interest is paid and tax was deducted at source. The TDS returns were also filed in time.

g. The assessee submitted that it entered into transactions with Moxdiam which is genuine transaction.

h. It was submitted that the assessee tried to contact the said party Moxdiam who has shifted to Surat at 403, Ghanshaym Building, Hatfalia, Madharpura, Surat 395003 and the partner of the said firm was not available to be present before the AO presently due to their family and personal problem but will be available before the AO after their personal and family problems are over. It was submitted that the said party Moxdiam has sent fresh confirmation of account for the year ended 31-03- 2009 reconfirming dealing with the assessee together with copy of their

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bank statement of ING Vysya Bank for the period September 2008 to March 2009 to show the repayment made by the assessee which was duly credited in their bank account along with acknowledgment for filing of Return of Income by Moxdiam for assessment year 2008-09 and 2009-10. The AO issued detailed show cause notice to the assessee which was replied by the assessee wherein the afore-said contentions were reiterated by the assessee. The AO rejected the contentions of the assessee by holding that Moxdiam creditworthiness is not proved. , its financial capacity and its business background is dubious. It was observed by the AO that the M/s Moxdiam is not carrying out any genuine business but was established to earn mere commission on its hawala dealings. The AO relied upon decision of Hon’ble Supreme Court in the case of CIT v. Durga Prasad More 82 ITR 540(SC), Hon’ble Calcutta High Court in the case of CIT v. Emerald Commercial Limited (2001) 250 ITR 539(Cal.) and ITAT, Delhi decision in the case of DCIT v. Smt. Phoolwati Devi(2009) 314 ITR AT 1(Delhi) . Hence , the AO made addition of sum of Rs.1,00,00,000/- found credited in the books of accounts of the assessee which was not satisfactorily explained in regard to nature and source thereof thereby enabling the said sum of Rs. 1.0 crore so credited to be charged to tax as income of the assessee of the previous year under assessment and further the amount of Rs.93,000/- being interest purportedly paid by the assessee was also disallowed by the AO as fictitious expenditure , vide assessment order dated 26.11.2009 passed by the AO u/s 143(3) of the Act.

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and 18.02.2011 retracting the statements made before the survey and enquiries pursuant to the survey. The said affidavits of the partners dated 22.08.2008 and 18.02.2011 were submitted as an additional evidences u/r. 46A of the Income-tax Rules, 1962. It was claimed by the assessee that the loan transactions with M/s Moxdiam was genuine transaction and confirmation letter from the lender along with evidence for repayment of loan to Moxdiam in support of the claim that transaction with Moxdiam was genuine transaction were submitted by the assessee.. These documents were forwarded by learned CIT(A) to AO for verification and necessary enquiry for submitting Remand Report.

Remand Report was received by learned CIT(A) from the AO which was forwarded to the assessee for his comments. In the Remand Report it was held by the AO that the survey action u/s 133A of the Act was conducted by the Revenue on the premises of M/s Moxdiam , M/s. Basant Dia Jewels and M/s Morewell Impex Private Limited on 07-07-2008. It was revealed during survey action u/s. 133A of the Act that the afore-said entities have created a maze of bank entries for facilitating transfer of funds vide hawala entries to various interested parties in the market. Further investigations have revealed that certain interested parties in Diamond and Real Estate Market had availed of accommodation entries for possible adjustments in their project/loan accounts with the purpose of covertly introducing their unaccounted income earned from undisclosed sources into their business, through accommodation entries from the aforesaid parties. Statement of Sh. Basant D. Jain , partner of Moxdiam , was recorded u/s 131 of the Act on 09- 07-2008 , wherein he admitted that the aforesaid entities are providing hawala entries to various parties. This statement was further endorsed by Sh. Nitesh Jain , Partner of Moxdiam and Mr Ramesh Jain , Director of Morewel Impex Private Limited , wherein they admitted that the only income generated by them through this activity is by way of commission income. Consequent to ITA 800/Mum/2012 & 6314/Mum/2012 8

survey action on these entities , two parties viz. M/s Combine Diamonds Private Limited and M/s Star Gems Private Limited admitted to fictitious transactions with M/s Moxdiam and offered for taxation unaccounted income of Rs.1.80 crores and Rs.2.25 crores for the assessment year 2007-08 to 2009-10. The assessee was asked to produce the partners of M/s Moxdiam for examination which the assessee could not produce before the AO during the assessment proceedings. However, the assessee submitted details of receipt and repayment of loan from Moxdiam, including copies of return of income filed by Moxdiam, bank statement, present address of lender etc. . Since the assessee could not produce the partners of Moxdiam and could not produce evidence to negate the findings of survey action , the alleged loan of Rs.1.0 crore along with interest payment of Rs.93,000/- was disallowed by the AO vide assessment order dated 26.11.2009. It was observed by the AO during the remand report proceedings that the assessee has requested for admission of following two evidences before the learned CIT(A) :-

i) Affidavit dated 22.08.2008 of Sh. Nitesh Jain, partner of M/s Moxdiam ii) Affidavit dated 18.02.2011 of Sh. Basant D. Jain , partner of M/s Moxdiam

It was submitted by the assessee that these evidences could not be submitted before the AO since the partner of M/s Moxdiam were out of station. The AO observed that survey action u/s 133A of the Act was conducted on 07-07- 2008 , during the course of which partners of Moxdiam admitted that they were engaged in providing accommodation entries. It was observed by the AO that the assessment was made after a span on 15 months on 26/11/2009 and the retractions were afterthought and also the assessee’s explanation of ITA 800/Mum/2012 & 6314/Mum/2012 9

not producing the evidence during assessment proceedings is not acceptable. It was observed by the AO during remand report proceedings that the repayments of the loan were made between September 2008 to March 2009 which were prior to completion of assessment in the case of the assessee and yet the assessee is claiming that it had no contact with the partners of Moxdiam. Proper opportunity of being heard was provided to the assessee during assessment proceedings and hence it was submitted by the AO in Remand Report that additional evidences be not admitted. The AO without prejudice , examined the matter afresh and observed that profit of M/s Moxdiam by way of providing accommodation bills was computed as under:

F.Y. 2006-07 Rs.2,49,530/- F.Y.2007-08 Rs.1,64,596/- F.Y.2008-09 (-)Rs.9,936/- (upto the date of survey)

On perusal of Balance Sheet of M/s Moxdiam as at 31-03-2007 , it was observed that total capital of the firm was Rs.1,00,000/- whereas aggregate of current account was deficit (-) Rs.12,02,375/- . The amount payable to creditors was shown at Rs.16,29,83,032/- and an amount of Rs.10,40,12,58/- was shown as receivable from debtors. There is no bank loan or any other loan taken by Moxdiam which indicates that the loans have been paid by Moxdiam out of alleged creditors appearing in Balance Sheet.

In response, the assessee submitted before the AO in Remand Report proceedings that the above loans were not an accommodation entries but genuine loan transactions duly reflected in bank accounts of both the parties and also recorded in books of accounts. The notices u/s 133(6) of the Act and summons u/s 131 of the Act were issued by the AO in remand report proceedings and in response Mr. Basant D. Jain, partner of Moxdiam appeared before the AO on 23/06/2011 and filed letter dated 22/06/2011

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enclosing details of transaction of Moxdiam with the assessee, copy of ledger, bank statement and copy of acknowledgment of return of income filed for assessment year 2007-08, 2008-09 and 2009-10. The statement u/s 131 of the Act was recorded of Mr Basant D. Jain, partner of Moxdiam was asked to explain the source of loan wherein he replied that the monies were advanced to the assessee out of receivable i.e. debtors. It was observed by the AO that the loans were availed by the assessee in March 2007 which were repaid in September 2008 to March 2009. The AO in remand proceedings issued notices u/s 133(6) of the Act to ICICI Bank to furnish copies of bank statement of the assesseee to verify repayments of loan made by the assessee to Moxdiam. From the perusal of bank statements so obtained it was observed by the AO that on the same dates when the assessee repaid the loan, there are credit transfer entries of the same amount through RTGS transfers in the assessee’s bank account with ICICI Bank. The AO asked ICICI Bank to furnish details of RTGS transfers to the assessee bank account which revealed that the transfers have come from Rising Star and Seven Star Jewels, through ING Vysya Bank. The notices u/s 133(6) of the Act was issued by the AO to ING Vysya Bank Limited to furnish bank statements of these two parties for the period during which RTGS transfers were made by them. Summons u/s 131 of the Act were issued to M/s Rising Star and Seven Star Jewels asking for details such as nature of transaction with and ledger account of the assessee in their books of accounts and their copies of return of income along with copies of Profit and Loss Accounts , Balance Sheets, Audit Reports etc. for assessment years 2007-08, 2008-09 and 2009-10 . On perusal of details submitted by the said entities, it was observed by the AO that M/s Rising Star is a proprietary concern situated at Surat . The capital of the concern is meager Rs.2,33,404.89. The sundry creditors are Rs.17,36,42,925/- and sundry debtors are at Rs.6,96,55,789/-. No loans have been taken by the concern, but it has advanced loans of Rs.4,43,29,747/- which included loan of Rs.1,35,00,000/- advanced to the ITA 800/Mum/2012 & 6314/Mum/2012 11

assessee. The concern Seven Star Jewels is also a proprietary concern with a meager capital of Rs.3,70,874/- , sundry creditors are Rs.53,18,93,628 and sundry debtors are at Rs.38,06,99,297/- as at 31/3/2009. The concern had not taken any loan but has advanced loan of Rs.8,90,32,200/- which is inclusive of loan of Rs.60,00,000/- advanced to the assessee. Both these parties are located at Surat and had dealing with Moxdiam and Morewel Impex Private Limited was the observations of the AO during remand report proceedings. The AO observed that in both the cases, loans are advanced out of sundry creditors. . The proprietor’s capital is meager of both these entities and there are no secured or unsecured loans taken by these entities which indicated that these entities were also engaged in providing accommodation entries and their bank accounts form a part of chain of movement of funds from one concern to another which is indicative of the circular movement of hawala entries through bank accounts of various entities, including the entries referred to above.

The AO in remand report proceedings observed that the loan of Rs.1.0 crores advanced by Moxdiam to the assessee is accommodation entry. The AO observed that :

a) The affidavit of Sh Basant D. Jain retracting the earlier statement is dated 18/02/2011 , which is about 2 years and 8 months after the survey action conducted on 07/07/2008. The averments in affidavit are clearly an afterthought and contradictory to facts and material on record and the facts that have emerged as a result of survey conducted by the Investigation wing. It was observed by the AO that the affidavit of Mr. Nitish Jain was not filed before the AO and hence the AO observed that no comments can be offered in this respect.

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b) The enquiries conducted during remand proceedings revealed that there is circular movement of funds between entities such as Moxdiam , Morwel Impex Private Limited , M/s Rising Star and M/s Seven Star Jewels. These entities are situated at Surat , have meager capital and had no borrowed funds while sundry debtors and creditors are huge. This indicated that the respective bank accounts are used only for movement of funds.

c) In respect of loans, the onus was on the assessee to prove the identity , creditworthiness of the lender and the genuineness of the transaction. It was observed by the AO that merely because the assessee arranged paper work, the loan could not be held to be genuine. The AO relied upon decision of DCIT v. Smt. Phoolwati Devi (2009) 314 ITR AT 1(Delhi) and decision of Hon’ble Supreme Court in the case of Sumati Dayal v. CIT(1995) 214 ITR 801(SC).

d) The finding arrived at during Survey action dated 07/07/2008 and the statement recorded u/s. 131 of the Act of Sh Basant D. Jain on 09/07/2008 was duly confirmed by Sh. Nitesh Jain, partner of Moxdiam and Sh Ramesh Jain, Director of Morewel Impex Private Limited. After the survey action, statements of Sh. Nitesh Jain, Sh Basant D. Jain and Sh. Ramesh Jain was recorded u/s 131 of the Act on 07.08.2008 and 18.07.2008 , wherein they have confirmed that they had indulged in the activity of giving hawala bills to various parties in the market.

e) Consequent to Survey action , two parties namely M/s Combine Diamonds Private Limited and M/s Star Gems Private Limited admitted to their fictitious transactions with M/s Moxdiam and offered the income so derived to tax which conclusively proves that ITA 800/Mum/2012 & 6314/Mum/2012 13

M/s Moxdiam has provided accommodation entries to various entities.

f) It was observed by the AO that it is not sufficient that the funds moved through banking channel and the entities concerned have arranged the paperwork, the transaction cannot be held as genuine as the matter is to be viewed in its entirety and various facts concerning the same as detailed above.

The learned CIT(A) observed that the assessee has failed to discharge the burden of proving creditworthiness of the alleged lender. The assessed income of the alleged lender M/s Moxdiam is as under:

AY 2007-08 Rs.2,49,530/- AY 2008-09 Rs.1,64,596/- AY 2009-10 upto the date of survey (-) Rs.9,936/-

The capital of the partner was Rs.1,00,000/- and the aggregate current account of the partner was to the tune of deficit/debit (-) Rs12,02,374/- and learned CIT(A) disbelieve the assertion/contention of the assessee that the loan of Rs.1.0 crore was given by M/s Moxdiam to the assessee as the alleged lender did not had capacity to advance the loan of Rs.1.0 crore to the assessee ( the total loan advanced being Rs. 5.14 crores as at 31-03-2007) as the said Moxdiam is not having genuine business and also the only source of income is commission income for arranging accommodation entries as the said Moxdiam does not have resources to advance loan of Rs.1.0 crore to the assessee ( the total loan advanced being Rs. 5.14 crores as at 31-03-2007). The learned CIT(A) observed that the retraction has not been filed by the partners of M/s Moxdiam at the earliest which is filed after 2 years and 8 months which confirms that Moxdiam is engaged in business of arranging

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accommodation entries for commission for its clients.The admission made by Mr. Basant D. Jain on 09-07-2008 was confirmed by Sh. Nitesh T.Jain on 09-07-2008. The admission was also confirmed by Director of associate company M/s Morewel Impex Private Limited, Sh Ramesh Jain on 09-07- 2008.Thereafter, Sh. Nitesh Jain, Sh Basant D. Jain and Sh. Ramesh Jain again confirmed in their statement recorded on 18.07.2008 and 07.08.2008 that the firm M/s Moxdiam and the M/s Morewel Impex Private Limited had indulged in the activity of giving Hawala bills (accommodation entries) to various parties in the market. Sh. Nitesh Jain, Partner Moxdiam also gave letter dated 10-07-2008 whereby he again confirmed that the firm is engaged in giving accommodation entries. It was observed by learned CIT(A) that Moxdiam has shown in its books debtors of Rs. 10.40 crores and creditors of Rs. 16.29 crores. The retraction by Sh. Basant D. Jain was after 2 years and 8 months and such retraction has no evidentiary value which needs to be rejected. The learned CIT(A) observed that the partners of the firm had admitted that they indulged in hawala activities and that no genuine purchase and sale of diamonds was carried out by them , therefore the natural corollary is that all the transactions shown in books of accounts of M/s Moxdiam and its associate company M/s Morewel Impex Private Limited are not genuine transactions but only a make belief and are fictitious transactions . The learned CIT(A) further observed that two parties namely M/s. Combine Diamonds Private Limited and M/s. Star Gems Private Limited who were beneficiaries of accommodation entries given by Moxdiam admitted voluntarily that transactions with Moxdiam were not genuine and were only accommodation entries and both these companies offered for tax the fictitious transactions with Moxdiam. Thus, the learned CIT(A) held that the transactions of the assessee with Moxdiam are not genuine transactions and are found to be fictitious. Similarly, with respect to repayment of loan to Moxdiam in the form of cheques of Rs. 38 lacs on 18.09.2008 and Rs. 60 lacs on 17.12.2008, it was observed that these repayments are not from genuine

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resources of the assessee firm but through alleged loans taken by it from Rising Star and Seven Star Jewels. It was observed by learned CIT(A) that enquiries with these two concerns namely Seven Star Jewels and Rising Star have also brought out that these two entities do not have financial standing to give the alleged loan to Moxdiam. It was observed by the learned CIT(A) that web of entries/ credit has been created by these two entities in their books of accounts to justify the availability of funds whereas capital of these two proprietary concerns/ entities is only a meager sum of Rs. 2,83,409/- of Rising Star and Rs. 3,70,874/- of Seven Star Jewels. These entities have shown huge credits in their books to the tune of Rs.17.36 crores and Rs. 53.19 crores respectively to create an illusion that these entities have the necessary funds from which it give loan to the assessee which was utilized by the assessee for repaying the loan to Moxdiam. Thus, it was held by the learned CIT(A) that the loan of Rs. 1.0 crore given by Moxdiam to the assessee is not a genuine transaction. The learned CIT(A) further observed that admission of the partners of Moxdiam during survey can be relied upon to fasten liability on the assessee and nothing further need to be proved by the Revenue relying on several case laws as mentioned in his appellate orders. The assessee having failed to prove that the admission made by the partners of M/s Moxdiam was not true and was not made voluntarily . The retraction was after a gap of 2 years 8 months which has no evidentiary value and deserves to be rejected out-rightly. Thus, the learned CIT(A) confirmed the action of the AO and dismissed the appeal of the assessee vide appellate orders dated 30.11.2011. 8. Aggrieved by the appellate orders dated 30.11.2011 of the learned CIT(A), the assessee filed second appeal before the Tribunal.

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submissions which are placed in file. It was submitted that the assessee raised loan of Rs 1.0 crore from firm M/s Moxdiam during the previous year relevant to the assessment year. He drew our attention to the orders of the authorities below. The learned counsel submitted that the AO has alleged that the assessee has raised Rs. 1.0 crore through Moxdiam who is alleged by Revenue to be an accommodation bill and accommodation entry provider. The AO directed the assessee to produce the partners of Moxdiam during the assessment proceedings but the assessee could not produce the partners during assessment proceedings , but the partner of Moxdiam , Mr. Basant D Jain appeared before the AO during remand report proceedings conducted by AO. It was submitted by learned counsel for the assessee that affidavits have been produced before the learned CIT(A) as an additional evidences u/r 46A of Income-tax Rules, 1962 vide letter dated 23-02-2011 filed before learned CIT(A) on 24-02-2011(page 92-102/pb) duly executed by partners of Moxdiam confirming that the said firm is not engaged in providing accommodation bills and accommodation entries. The partner of the firm M/s Moxdiam Mr Basant D. Jain has given statement on oath during remand report proceedings before the AO whereby he has stated that Moxdiam is not engaged in providing accommodation entries. It was submitted that the assessee has discharged burden cast upon it . There was retraction from the partners of Moxdiam of the statements recorded during survey proceedings whereby they retracted and denied that the firm M/s. Moxdiam is engaged in providing accommodation bills and accommodation entries. The learned counsel submitted that additions have been made based on the statement of third party which also was retracted. The affidavit of the partners of Moxdiam retracting their statements recorded during survey proceedings and post survey enquiries whereby vide affidavit dated 22-08-2008 , Mr Nitish Jain retracted from his statement that Moxdiam was engaged in accommodation entries were brought to our attention which is placed at page 95-98/paper book. The assessee also brought to our attention Affidavit of Mr. Basant D.

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Jain dated 18-02-2011 whereby he retracted from his statements given to the department that Moxdiam was engaged in giving accommodation entries, the said affidavit is placed in paper book page 99-102. The learned counsel for the assessee drew our attention to page 392/pb whereby vide question no 9 vide statement recorded of Mr. Nitesh Jain under oath u/s 131 on 07-07- 2008, he was asked to produce the books of accounts of Moxdiam and he stated that the books of accounts were with accountant of the firm who has not come. It was submitted that loan of Rs.1.0 crore raised by assessee from Moxdiam was duly paid back to Moxdiam by the assessee from September 2008 to March 2009 and confirmation is placed on record at page 79/Pb from Moxdiam along with bank statement of the assessee at page 80-82/Pb. Our attention was also drawn to statement of Sh. Basant D Jain, partner Moxdiam dated 23-06-2011 which was recorded during the course of assessment proceedings of the assessee whereby in reply to question no 8, it was answered that money was advanced by Moxdiam from the receivables i.e. from debtors. Our attention was also drawn to question no 9 whereby he answered that he confessed under pressure that the firm was doing accommodation entries which he retracted afterwards (page 441-442/pb). Our attention was also drawn to Remand Report prepared by the AO which is placed at page 275-280/pb. Our attention was also drawn to written submissions submitted by the assessee before the learned CIT(A) which is placed at paper book page 281-286. It was submitted that when the original statements were recorded during survey operations of the partners of Moxdiam , then the assessee name did not figure in the said statements. The reliance was placed by the learned counsel on the decision of the Tribunal in the case of Kataria Ketan Ishwarlal v. ITO in ITA no. 4304/Mum/2007 vide orders dated 30.04.2010.It was submitted that the partners of the firm Moxdiam did not take the name of the assessee that the loan given by them to the assessee was an accommodation entry.It was submitted that the transaction of the assessee with Moxdiam was genuine transaction which is ITA 800/Mum/2012 & 6314/Mum/2012 18

supported by affidavits/statements on oath recorded u/s 131 of the Act of partners of Moxdiam. Our attention was drawn to the audited Balance Sheet of Moxdiam as at 31-03-2008 which is placed at page 188/pb.It was submitted that repayment of the loan was made by the assessee prior to the issue of notices u/s 142(1) of the Act which was issued on 24-06-2009. It was submitted that there is no material on record to show that cash has changed hands. The attention was drawn to tax audit report of Moxdiam whereby there is no such adverse audit remark that cash has changed hands/placed at page 178/pb. The learned counsel for the assessee drew our attention to the assessment orders passed u/s 143(3) read with Section 147 of the Act in the case of M/s Moxdiam for the assessment year 2007-08 which is placed at page 213-217/paper book, assessment order for assessment year 2008-09 of Moxdiam is paced at page 219-221/paper book.The audited accounts and acknowledgement of income tax return of Moxdiam are also placed in paper book/page 146-212 for the assessment year 2007-08 to 2009-10.It was submitted that the assessee raised loans from Rising Star and Seven Star Jewel to repay Moxdiam and copies of their ledger accounts, confirmations , income tax return acknowledgement , bank statements are placed in paper book page 223-274. The attention was drawn to page 6- 7/written submission and it was submitted that the said Moxdiam was allegedly engaged in alleged accommodation entries related to sale and purchase of material and not of loans as were granted to the assessee .The assessee relied on decision of Mumbai Tribunal in ACIT v. G V Sons, ITA No. 2239-40/Mum/2012 dated 05-12-2014 and our attention was drawn to para 17 whereby transaction of the tax-payer G V Sons with Moxdiam was held not to be sham transaction and the Tribunal upheld decision of the learned CIT(A) in deleting the addition made by the AO. It was submitted that bald statement has been made by the AO and loan transactions were held to be not genuine. Our attention was drawn to page 8-9/written submissions whereby it was submitted that learned CIT(A) ignored that M/s Moxdiam has debtors of Rs.

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10 crores from which as stated by Mr. Basant D. Jain , partner of Moxdiam loan of Rs. 1.0 crore had been given to the assessee. It was submitted that there is no requirement to prove source of source of loan. The assessee relied upon decision of Orient Trading Company Limited v. CIT (1963) 49 ITR 723(Bom. HC) that the tax-payer has not to prove the source of source of loan. The assessee also relied upon decision of CIT v. Orissa Corporation Private Limited (1986) 159 ITR 78(SC) and submitted that once loan confirmations are filed , the burden of the assessee is discharged. The assessee submitted that the sources of loan stood explained. The assessee relied upon decision of DCIT v. Rohini Builders (2002) 256 ITR 360(Guj. HC), CIT v. ABT Limited (2015) 370 ITR 159(Mad.HC), CIT v. Kapoor Chand Magnesh Chand(2003) 218 Taxman 157(Mag.)(All. HC) , CIT v. Chandela Trading Company Private Limited (2015) 372 ITR 232(Cal. HC), CIT v. Smt Sanghamita Bharali (2014) 361 ITR 481(Gau. HC), CIT v. Jai Kumar Bakliwal (2014) 366 ITR 217(Raj. HC), CIT v. Nemichand Kothari (2003) 264 ITR 254(Gau. HC), CIT v. Shiv Dhooti Pearls and Investment Limited(2016) 237 Taxman 104(Del HC), CIT v. Khader Khan Sons (2013) 352 ITR 480(SC) . Our attention was also drawn to instruction no. F.No. 286/2/2003-IT(Inv.) dated 10-03-2003 issued by CBDT with respect to confessions of additional income during search and survey operations wherein CBDT instructed the officers conducting search and surveys not to extract forcible confessions and rather focus on collecting evidences. The learned counsel also submitted that the assessee has duly paid interest on these loans and tax has been deducted at source under Chapter XVII-B of the Act. The learned counsel submitted that the case law relied upon by the authorities below are not applicable. He submitted that in case of Sumati Dayal v. CIT (1998) 214 ITR 801(SC) , the tax-payer won horse race every year. In the instant case the assessee has produced the party, affidavits were filed , statements were taken on oath and hence ratio of Sumati Dayal (supra) is not applicable. Further the learned counsel distinguished the case of DCIT v. Smt Phoolan Devi(2009) 314 ITR

ITA 800/Mum/2012 & 6314/Mum/2012 20

1(trib) and submitted that in the said case cash was deposited in the bank, no interest was paid, not assessed to tax while in the instant case, interest was paid, TDS was deducted , huge transaction of purchase and sale and assessments were completed. Thus, the judgment of Phoolwati Devi(supra) cannot be applied. Similarly it was submitted that the decision of CIT v. Durga Prasad More(1971) 82 ITR 540(SC) and CIT v. Emarald Commercial Limited(2001) 250 ITR 539(Cal.HC) are distinguishable and not applicable.

The learned counsel for the assessee moved an application under Rule 29 of Income-Tax (Appellate Tribunal) Rules, 1963 wherein additional evidences are submitted before the Tribunal and prayer is made for admission of these additional evidences which are mainly in the form of MVAT audit report of Moxdiam , Rising Star and Seven Star Jewels , income-tax assessment orders of lenders, and also details of sources to advance loans by these entities, page 291-356 of paper book.The assessee has prayed that these additional evidences are produced before the Tribunal for the first time as the same has got direct bearing on the issues involved in the present appeal as the same are important to establish and substantiate the merits and genuineness of the case . It was submitted that the same were called upon to substantiate arguments put forward in remand proceedings , which had been rejected without any explanation sought for. The learned counsel submitted that certain documents viz. assessment orders , IT returns of the lenders for the relevant assessment years were already available with Income-tax department. It was submitted that these additional evidences filed for the first time before the Tribunal goes to the root of the matter in establishing the merits of the case and genuineness of the case of the assessee and the same may be admitted in the interest of justice and fair play. The assessee relied upon the decision of Hon’ble Bombay High Court in the case of Smt Prabhavati Shah v. CIT 231 ITR 1 (Bom. HC) and decision of Patna ITAT in the case of Abhay Kumar 63 ITD 144(Pat)(TM).

ITA 800/Mum/2012 & 6314/Mum/2012 21

The learned DR on the other hand submitted that survey was conducted u/s. 133A of the Act in the case of Moxdiam on 07-07-2008 wherein statements were recorded on oath u/s 131 of the Act of the partners wherein they admitted that Moxdiam is engaged in providing accommodation entries. The Ld DR drew our attention to the statement on oath recorded of Mr. Nitesh T. Jain u/s 131 of the Act on 18.07.2008 which is placed at page 407/pb wherein in reply to question no 4, he re-confirmed and re-affirmed as true and correct the statements of Sh. Basant D. Jain recorded on oath u/s 131 of the Act on 09.07.2008 and of Mr Ramesh Siroya , Director of M/s Morewel Impex Private Limited wherein the modus operandi adopted by Moxdiam was explained to provide accommodation bills to various interested parties in market. It was submitted that there is an admission of accommodation entries being given by Moxdiam to various parties by the partners of Moxdiam, as well two beneficiaries of the accommodation entries namely M/s Combined Diamonds Limited and Stargems Private Limited had admitted that Moxdiam is engaged in providing accommodation entries and offered for taxation the amount of accommodation entries received by them. The learned DR also drew our attention to the statement of Mr. Basant D. Jain recorded on oath u/s 131 of the Act on 07.08.2008 wherein he furnished consolidated list of beneficiaries of accommodation entries. The parties admitted of having engaged in the business of providing accommodation entries and there is a retraction after a gap of more than two years. The genuineness and creditworthiness of transactions is not proved and ingredients of Section 68 of the Act are not fulfilled. There is a meager capital of partners invested in Moxdiam which is rather deficit/debit after considering current account of partners, and returned income of Moxdiam does not justify the grant of huge loans to the tune of Rs. 5.14 crore in aggregate as at 31-03-2007 advanced by Moxdiam which did not stood proved to be genuine and creditworthiness did not stood proved. The learned DR relied upon the decision of Hon’ble Delhi

ITA 800/Mum/2012 & 6314/Mum/2012 22

High Court in the case of CIT v. N R Portfolio Private Limited (2014) 42 taxmann.com 339(Delhi). The ld DR relied upon the orders of the authorities below and also opposed the admission of additional evidences filed by the assessee.

The learned counsel for the assessee on the other hand submitted in rejoinder that there was retraction within a month by Nitish T. Jain, whereby he drew our attention to an affidavit dated 22.08.2008 executed by Mr. Nitesh T. Jain wherein he confirmed and affirmed that they are not involved in providing accommodation entries and other mal practices albeit the same was filed for the first time before learned CIT(A) as additional evidence u/r 46A of the Income-tax Rules, 1962 on 24-02-2011. It was submitted that partners of Moxdiam has provided list of beneficiaries of accommodation entries granted by them and name of the assessee did not figure in the said list. The source of the loan of Rs. 1.0 crores stood explained by the assessee. It was submitted that the partner of the said firm Moxdiam appeared before the AO in remand proceedings while in the case of N R Portfolio(supra) none appeared before the AO.

We have observed that the assessee has filed an additional evidences under Rule 29 of Income-tax(Appellate Tribunal) Rules, 1963 for the first time before the Tribunal and prayed for admission of the same as it has bearing on the substantiating the case of the assessee(Pb/page 291-356). We direct

ITA 800/Mum/2012 & 6314/Mum/2012 23

admission of these additional evidences in the interest of justice and fair play as the assessee has submitted that the omission to submit these additional evidences was neither willful nor malafide and it could not produce these documents before lower authorities since same are called upon to substantiate arguments put forward in remand proceedings which has been rejected without any explanation sought for and these additional evidences has got direct bearing on the issue involved in the instant appeals.

After observing as above , we are now proceedings to adjudicate this appeal after also duly considering the additional evidences filed by the learned counsel for the assessee and after duly weighing its relevance to the merits of the case.

We have observed that the assessee has raised a loan of Rs.1.0 crores from the firm M/s Moxdiam during previous year relevant to the impugned assessment year and the additions have been made by the AO u/s 68 of the Act which was sustained by learned CIT(A) in the first appeal as the assessee failed to prove genuineness of the loan transaction as well could not prove creditworthiness of the lender .

It will be profitable at this stage to reproduce Section 68 of the Act as applicable for the relevant assessment year under consideration reads as under:-

“Cash credits. 68. Where any sum is found credited in the books of an assessee maintained for 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.”

ITA 800/Mum/2012 & 6314/Mum/2012 24

Section 68 of the Act cast obligation on the tax-payer where any sum is found credited in the books of an tax-payer maintained for any previous year, and the tax-payer offers no explanation about the nature and source of credit thereof or the explanation offered by the tax-payer is found not satisfactory in the opinion of the AO, the sum so credited may be treated as income and charged to income-tax as income of the tax-payer of that previous year. The burden/onus is cast on the tax-payer and the tax-payer is required to explain to the satisfaction of the AO cumulatively about the identity , creditworthiness of the creditors along with the genuineness of the transaction to the satisfaction of the AO. All the constituents are required to be cumulatively satisfied. If one or more of them is absent, then the AO can make the additions u/s 68 of the Act as an income. The burden is very heavy on the assessee to satisfy cumulatively the ingredients of Section 68 of the Act as to identity and establish the credit worthiness of the creditors and genuineness of the transaction to the satisfaction of the AO , otherwise the AO shall be free to proceed against the assessee company and make additions u/s 68 of the Act as unexplained cash credit. The use of the word ‘any sum found credited in the books ’ in Section 68 indicates that it is widely worded and the AO can make enquiries as to the nature and source thereof . The AO can go to enquire/investigate into truthfulness of the assertion of the assessee regarding the nature and the source of the credit in its books of accounts and in case the AO is not satisfied with the explanation of the assessee with respect to establishing identity and credit worthiness of the creditor and the genuineness of the transactions, the AO is empowered to make additions to the income of the assessee u/s 68 of the Act as an unexplained credit in the hands of the assessee company raising the loan/share capital because the AO is both an investigator and adjudicator. Once tax-payer files the basic details such as name and address of creditor, PAN, income tax return, confirmation and bank statement , the initial onus

ITA 800/Mum/2012 & 6314/Mum/2012 25

gets discharged and if the Revenue doubts the identity and/or creditworthiness of the lender and/or genuineness of the transaction, the onus shifts back to the tax-payer to offer an explanation to the satisfaction of the AO as contemplated u/s 68 of the Act so that truth behind the smokescreen could have been unraveled by the AO. In the absence of the same, the AO has the powers to make additions to the income as unexplained cash credit u/s. 68 of the Act because the AO is both an investigator and adjudicator. Thus merely submission of the name and address of the lender, income tax returns, Balance Sheet/statement of affairs, bank statement of the lender is not sufficient as the AO is to be satisfied as to the identity and creditworthiness of creditor as well as to the genuineness of the transaction entered into with the creditor.

We have observed that the assessee has raised a loan of Rs.1.0 crores from the firm M/s Moxdiam during the previous year relevant to the impugned assessment year which was raised through crossed account payee cheques’. The said firm Moxdiam was stated to be in the business of diamond trade. The said firm Moxdiam was subject to survey action u/s. 133A of the Act on 07-07-2008 wherein the partners of the said firm , Moxdiam has confessed/admitted in the statement recorded on oath u/s 131 of the Act during survey operations and also during post survey enquiries conducted by Revenue that the said firm M/s Moxdiam is engaged in the business of providing accommodation bills and accommodation entries on commission basis. It is also confessed / admitted by the partners of M/s Moxdiam in the statement recorded on oath u/s 131 of the Act that they are persons of meager financial means/resources and several bank accounts were opened by Moxdiam to provide accommodation bills and accommodation entries to various parties in lieu of commission income. The learned counsel for the assessee had stated before us that the admission of the partners of the firm M/s Moxdiam is restricted to providing of accommodation bills for purchase

ITA 800/Mum/2012 & 6314/Mum/2012 26

and sale invoices of diamonds and it cannot be extended towards accommodation entries of the nature of loans’ as are extended by Moxdiam to the assessee. We are afraid that this contention of the assessee cannot be accepted as it is admitted by partners of Moxdiam that the firm is engaged in providing accommodation entries and accommodation bills in lieu of commission income and we cannot give a hyper technical restricted meaning to the words of the partners recorded in the statement as the partners clearly stated and meant that the firm M/s Moxdiam is engaged in activities of providing accommodation entries and accommodation bills to various parties and hair splitting by giving hyper technical restrictive meanings to the words recorded in the statement cannot be allowed as is referred to by the learned counsel for the assessee rather it is to be seen from the perspective of the admission of partners of Moxdiam wherein they have admitted/confessed that the firm Moxdiam is not doing any regular and genuine commercial and business dealings but is engaged in providing accommodation entries and accommodation bills in lieu of commission income , which also stood corroborated by the financial statements of Moxdiam which on perusal clearly reveals that there are no own funds invested by partners in Moxdiam as the capital invested by partners in Moxdiam seen along with their current account will reveal a deficit / debit figure of (-) Rs.11,02,375.90(pb / page 58). Further during recording of statement during the course of survey operations and post survey enquiries, the partners have confessed/admitted that they are persons of meager means. Further, it also came out during the recording of statements of partners of Moxdiam that the partners do not have adequate and sufficient knowledge of trade/business of diamonds as they faltered and failed to give proper replies to the questions put by the officers of Revenue while recording statement during survey and post survey enquiries w.r.t. to diamond trade including nature , qualities, physical traits and varieties of diamond available which is a strong indication that the partners of Moxdiam were not aware of the traits of diamond perse and also of tarde/business of ITA 800/Mum/2012 & 6314/Mum/2012 27

diamond industry which knowledge is a minimum pre-requisite expected from the owners for carrying on any business . Perusal of Balance Sheets of Moxdiam as at 31-03-2007 will reveal that there is no capital assets such as plant, machineries , equipments, tools , furniture, fixture and other infrastructure held by Moxdiam as per Balance Sheet of Moxdiam as at 31- 03-2008 which are bare necessary for carrying on diamond trade. The only fixed asset appearing in Balance Sheet of Moxdiam as at 31-03-2007 is ‘Computer’ of value Rs. 23,800 and no other plant, machinery, equipment, tools, furniture, fixture and other infrastructure as are necessary for carrying on business of diamond trade are appearing in Balance Sheet of Moxdiam as at 31-03-2007. On being asked by the Revenue officers of survey team , no proper explanation was submitted by the partners of Moxdiam and rather evasive replies were given by them. It was confessed/admitted by the partners of the Moxdiam that import of diamond were made at the behest of importers and the said importers take the imported diamond immediately on the date of import itself against cash payments without any bills / invoices in a clandestine manner ,and thereafter bogus accommodation bills are issued to fictitious buyers to square the imported quantities of diamond over a period of next 7-8 days and in this process circuitous and circular cash transactions took place in lieu of cheques from the persons to fictitious buyers to whom accommodation sale invoices are issued wherein actual importer gives cash for diamonds without invoices and the beneficiaries of accommodation invoices for sales give cheques in lieu of receipt of cash from the Moxdiam etc which cheque remittances are utilized by Moxdiam for making remittance for imports and so on , wherein the interest of Moxdiam is limited to the commission income on these accommodation entries as Moxdiam was merely name lender to this fictitious and clandestine trade in diamonds . The assessment in the case of Moxdiam was finalized by Revenue post survey for assessment year 2007-08 u/s 143(3) read with Section 147 of the Act vide assessment order dated 12.03.2010 wherein commission income earned by ITA 800/Mum/2012 & 6314/Mum/2012 28

Moxdiam on account of these clandestine accommodation entries and accommodation bills were brought to tax by Revenue and the afore-stated order of assessment dated 12-03-2010 passed by Revenue u/s 143(3) read with Section 147 of the Act attained finality as Moxdiam did not file any further appeal with the appellate authorities against the said assessment order dated 12-03-2010 as per records and explanations furnished before us. Thus, in nut shell Moxdiam accepted itself to be an clandestine accommodation entry provider wherein the assessment so framed by bringing to tax commission income on clandestine accommodation entries in the hands of Moxdiam was tacitly accepted by Moxdiam by not going into further appeals against the afore-stated assessment order dated 12-03-2010 passed by Revenue u/s 143(3) read with Section 147 of the Act in the case of Moxdiam. While on the other hand the partners of Moxdiam have turned around after 2 years and 8 months of Survey action and retracted their admission of Moxdiam being accommodation entry and accommodation bill provider. The affidavit dated 22-08-2008 of Mr Nitesh Jain and affidavit dated 18.02.2011 of Mr Basant D Jain , both partners of Moxdiam retracting the admissions made during survey action on 07-07-2008 and post survey enquiries by Revenue that Moxdiam was engaged in business of providing accommodation bills and accommodation entries were filed as an additional evidences under Rule 46A of Income-tax Rules, 1962 before learned CIT(A) vide letter dated 23-02-2011 filed on 24-02-2011 which is almost after 2 years and 8 months from the date of survey u/s 133A of the Act on Moxdiam on 07-07-2008 (page 92-102/pb). The affidavit dated 22.08.2008 executed by Mr Nitish T. Jain retracting the admission of Moxdiam being accommodation entry provider was denied by the Revenue to be before them at that stage of its execution in August 2008 , which in-fact was brought before Revenue for the first time vide letter dated 23-02-2011 filed on 24-02-2011 before learned CIT(A) and in any case in the finalized and accepted assessment of Moxdiam u/s 143(3) read with Section 147 of the Act vide assessment orders dated 12-

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03-2010 for assessment year 2007-08 (page 213-217/pb) , the afore-stated retractions of the partners were rejected by Revenue and assessment was framed in the hands of Moxdiam by bringing to tax commission income on these accommodation entries and accommodation bills provided by Moxdiam to various clients which attained finality in the hands of Moxdiam as it did not chose to file any appeal against said assessment order dated 12-03-2010 passed u/s 143(3) read with Section 147 of the Act(page 213-217/pb) . The perusal of Balance Sheet of Moxdiam as at 31-03-2007(page 58/pb) also reveals that there is a meager capital contribution by the partners of Rs.1,00,000/- while partner current account is deficit being (-) 12,02,376/- (rather the capital contribution by partners in Moxdiam keeping in view current account deficit is negative/deficit ) and the major outstanding amounts in Balance Sheet is sundry debtors of Rs. 10,40,12,857/- , sundry creditors are to the tune of Rs.16,29,83,032/- and loans and advances are to the tune of Rs.5,14,54,247/- while loans raised by Moxdiam are Nil , stock of diamond held is nil , fixed assets held being only Computer of Rs.23,800 , which is backed by admission of the partners of Moxdiam vide statement on oath recorded u/s 131 of the Act that the firm Moxdiam is engaged in business of providing clandestine accommodation bills and accommodation entries. The partners have gone on to say that the investments in Moxdiam belonged to others and if the identity of investors is revealed then their lives will be in danger. The statements of the partners as recorded by Revenue are placed in paper book page 357-408. The assessee has provided loan confirmations, PAN, income tax returns , bank statements , copies of audited financial statements of Moxdiam before the authorities below and also before us but the creditworthiness of Moxdiam and genuineness of the loan transaction could not be proved keeping in view our observations as above and discussions carried in the orders of the authorities below , albeit identity of Moxdiam got established. We have also gone through additional evidences submitted by the assessee wherein MVAT audit report is submitted of ITA 800/Mum/2012 & 6314/Mum/2012 30

Moxdiam as also sources for advancing loans to the assessee by Moxdiam are furnished(pb/page 291-309). We have gone through the same and are afraid that these are of no help to the assessee as it is obvious that the Survey was conducted under the Income-tax Act,1961 wherein there is an admission of partners of Moxdiam that Moxdiam is an accommodation entry provider , and survey/search was not conducted under the MVAT Act and obviously the assessee will not get MVAT Audit done incriminating itself and secondly sources for loan were stated to be receipts from Debtors but the perusal of Balance Sheet reveals that there is no investments by partner in the firm neither any loans were raised by Moxdiam and the sale and purchase of diamonds were admitted to be accommodation bills and in our considered view keeping in view the financial position of Moxdiam as indicated above and admission of partners to be of meager resources, it is highly improbable that the Moxdiam had capacity to advance genuine and bonafide loans of Rs.5,14,54,247/- which included loan of Rs.1.0 crore to the assessee(page58/pb). Further, while making repayment of loan to Moxdiam during September 2008 to March 2009, the assessee raised loans from Rising Star and Seven Star Jewels to repay loans to Moxdiam . The financial statements of the said concerns for the year ended 31-03-2009 also reveal similar pattern as of Moxdiam that the said concerns also have meager financial investment by their proprietors’ and there are huge sundry debtors and creditors reflected in their accounts, no loans raised and huge loans being raised out of recoveries from Debtors(page 243,268/pb) and did not prove their financial capacity to lend to the assessee and also genuineness of the loan granted to the assessee by these concerns did not stood proved. We have gone through all the evidences submitted w.r.t. these two concerns including additional evidences filed before the Tribunal but in our considered view these two concerns who are also incidentally based in Surat does not have financial capacity to grant these loans nor genuineness of the loans stood proved. Moxdiam was surveyed u/s 133A of the Act by Revenue on 07th

ITA 800/Mum/2012 & 6314/Mum/2012 31

July 2008 wherein admissions were made by partners of Moxdiam as to Moxdiam being an entity engaged in providing accommodation bills and accommodation entries , while repayment of loan from the assessee to Moxdiam started from September 2008 and ended on March 2009. The assessee was issued notices u/s 143(2) of the Act by Revenue for the first time on 06-08-2008 for the impugned assessment year in which the assessee raised the loan of Rs. 1.0 crore from Moxdiam and hence it is quite obvious that once Moxdiam is surveyed on 07-07-2008 and the assessee case was opened for scrutiny assessment by Revenue on 06-08-2008 , then the assessee would like to quickly square and close the loan raised from Moxdiam to avoid any additions by Revenue u/s 68 of the Act , which loan of Rs. 1.0 crores raised from Moxdiam on being repaid from September 2008 to March 2009 by the assessee was not paid out of its own resources but in-fact got replenished from fresh loan raised from Rising Star and Seven Star Jewels to repay Moxdiam. These three entities i.e.Moxdiam, Rising Star and Seven Star Jewels are incidentally engaged in diamond trade and are incidentally based in Surat and as stated by Revenue has inter-se dealing among themselves. Section 68 of the Act cast obligation on the assessee where any sum is found credited in the books of an assessee maintained for any previous year , and the assessee offers no explanation about the nature and source of credit thereof or the explanation offered by the assessee is found not satisfactory in the opinion of the AO, the sum so credited may treated as income and charged to income-tax as income of the assessee of that previous year. The burden/onus is cast on the assessee and the assessee is required to explain to the satisfaction of the AO cumulatively about the identity and creditworthiness of the creditors along with the genuineness of the transaction to the satisfaction of the AO. All the constituents are required to be cumulatively satisfied. If one or more of them is absent, then the AO can make the additions u/s 68 of the Act as an income. The burden is very heavy on the assessee to satisfy cumulatively the ingredients of Section 68 of the Act

ITA 800/Mum/2012 & 6314/Mum/2012 32

as to identity and establish the credit worthiness of the creditors and genuineness of the transaction to the satisfaction of the AO , otherwise the AO shall be free to proceed against the assessee company and make additions u/s 68 of the Act as unexplained cash credit. The use of the word ‘any sum found credited in the books ’ in Section 68 indicates that it is widely worded and the AO can make enquiries as to the nature and source thereof . The AO can go to enquire/investigate into truthfulness of the assertion of the assessee regarding the nature and the source of the credit in its books of accounts and in case the AO is not satisfied with the explanation of the assessee with respect to establishing identity and credit worthiness of the creditor and the genuineness of the transactions, the AO is empowered to make additions to the income of the assessee u/s 68 of the Act as an unexplained credit in the hands of the assessee company raising the share capital because the AO is both an investigator and adjudicator. The said statements so recorded of the partners of Moxdiam were retracted by the partners later on after almost 2 years and 8 months ( as the retraction of Mr Nitesh T Jain dated 22.08.2008 is not on record with Revenue at that stage ) which in our considered view keeping in view the entire background of Moxdiam and preponderance of human probabilities , the retraction of partners appears to be an afterthought which is for an obvious reasons is to safeguard the assessee , while on the other hand in its own assessment framed by the Revenue , the Moxdiam accepted to be assessed with an commission income based on the contention of the Revenue that Moxdiam is engaged in providing clandestine accommodation bills and accommodation entries which order of assessment dated 12-03-2010 passed by Revenue u/s 143(3) read with Section 147 of the Act in the case of Moxdiam for assessment year 2007-08 had attained finality. The assessment order so framed by Revenue against the Moxdiam had attained finality as the same was not challenged before the higher appellate authorities by Moxdiam and was accepted by Moxdiam. The assessee has stated to have repaid the loans

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to Moxdiam during the period of September 2008 to March 2009 where in it is observed that for repayment of loan to Moxdiam, the assessee made borrowings from two proprietary concerns based in Surat namely Rising Star and Seven Star Jewels whose financial positions is on similar pattern to Moxdiam as they were also having low capital base investment by properietor and huge debtor/creditors, fixed assets were negligible, loans raised were Nil and the loans advanced were from sundry creditors/ recoveries from Sundry debtors which clearly reflect lack of financial capacity to grant loans as are reflected in their financial statements which are placed in paper book filed by the assessee before the Tribunal(pb/page 243 and 268). The said concerns are also stated to be in business of diamonds. It is the say of the assessee counsel that the loans are repaid to Moxdiam prior to issue of notice to the assessee u/s 142(1) of the Act by the Revenue which was issued on 24/06/2009 , while the loans were repaid during September 2008 to March 2009 . This arguments with due respect cannot be accepted as the said firm Moxdiam was surveyed on 07/07/2008 i.e. prior to start of repayment of loan to Moxdiam in September 2008 and secondly as per the assessment order passed in the case of the assessee by the AO u/s 143(3) of the Act dated 26.11.2009, the first notice u/s 143(2) of the Act was issued to the assessee on 06.08.2008 commencing scrutiny proceedings prior to start of repayment of loan to Moxdiam in September 2008 and hence argument of the assessee are rejected. Even otherwise , if we eschew the statements of the partners of Moxdiam, then also after considering the entire background of the said firm Moxdiam and based on their financial parameters as emerging from Moxdiam financial statements as discussed above in details, we are of considered view that the capacity of lender M/s Moxdiam to grant loan and genuineness of the said loan transaction of Rs 1.0 crore is not proved by the assessee , as in our considered view based on the financial statements of Moxdiam as at 31-03- 2007 it does not have the financial capabilities to grant loans of the ITA 800/Mum/2012 & 6314/Mum/2012 34

magnitude of Rs.1.0 crore to the assessee( the total loan advanced by Moxdiam as at 31-03-2007 stood at Rs.5.14 crores) .

Now, we shall deal with the case laws referred to by the assessee as under:

a) Kataria Ketan Ishwarlal v. ITO (ITA no. 4304/Mum/2007)- Mumbai ITAT- This case was decided on its own facts wherein it was observed that Mr Mukesh Choksi facilitated number of parties by issuing bogus capital gain bills but in his statement recorded on 26- 04-2002 , Mr Mukesh Choksi confirmed to have issued bogus bills of share transactions and charged commission but it was contended that Mr Mukesh Choksi did not mention the name of the assessee being beneficiary of accommodation entries. The tax-payer in the said case duly furnished all other relevant evidentiary material before the AO to substantiate that sale of share undertaken by him is genuine. The said case was decided in favour of the tax-payer, but in the instant case before us however, the assessee is not able to prove the capacity of lender M/s Moxdiam to grant loan of Rs. 1.0 crore to the assessee and also genuineness of the transaction of loan granted by Moxdiam is not proved.

b) ACIT v. G V Sons and others ITA No. 2239/Mum/2012, 2240/Mum/2012 and 2238/Mum/2012- Mumbai Tribunal. In this case the tax-payer, GV Sons was engaged in business of trading in gold, diamond , silver, precious stones etc. since 2006, while parent firm M/s G V Zaveri Rajpara was in trade since 1949. The tax-payer had dealing with one of the concern of Moxdiam group whereby there were purchases on physical delivery basis were made from concerns of Moxdiam group. The tax-payer were duly able to submit complete stock details and was able to reconcile the purchases and ITA 800/Mum/2012 & 6314/Mum/2012 35

sale made of diamond and no discrepancies were found , thus this case was decided on its own facts wherein the additions were deleted by the Tribunal.

c) Orient Trading Company Limited v. CIT , (1963) 49 ITR 723(Bom. HC) – The hon’ble Bombay High Court in this case has held that once the tax-payer satisfies the AO as to the identity of the third party and also supplies such other evidence which will show, prima facie, that the entry is not fictitious, the initial burden which lies on the tax-payer can be said to have been discharged by him. It will not, thereafter, be for the tax-payer to explain further how or in what circumstances the third party obtained money and how or why he came to make a deposit of the same with the tax-payer. The burden will then shift on to the department to show why the tax-payer's case cannot be accepted and why it must be held that the entry, though purporting to be in the name of a third party, still represents the income of the assessee from a suppressed source. In order to arrive at such a conclusion, however, the department has to be in possession of sufficient and adequate material. While in the instant case before us support the proposition of Revenue as they have doubted the capacity of lender Moxdiam to lend loan of Rs. 1.0 crore to the assessee as well genuineness of the transaction was doubted by Revenue owing to statements of partners of Moxdiam admitting indulging in clandestine accommodation entries and accommodation bills as well the financial statements of Moxdiam does not support the capacity of Moxdiam to lend such a huge sum of money as loan to the assessee, and under these circumstances then the burden got shifted to assessee to prove vide cogent evidences that the apparent is real and is not merely smoke screen to introduce assessees’ own money by this apparent loan transaction.

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d) CIT v. Orissa Corporation Private Limited, (1986) 159 ITR 78(SC)-In this case the tax-payer had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were the income-tax assessees. Their index number was in the file of the revenue. The revenue, apart from issuing notices under section 131 of the Act at the instance of the assessee, did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the tax-payer could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such could arise was the decision of Hon’ble Court. While in the instant case before us support the proposition of Revenue as they have doubted the capacity of lender Moxdiam to lend loan of Rs. 1.0 crore to the assessee as well genuineness of the transaction was doubted by Revenue owing to statements of partners of Moxdiam admitting indulging in clandestine accommodation entries and accommodation bills as well the financial statements of Moxdiam does not support the capacity of Moxdiam to lend such a huge sum of money as loan to the assessee, and under these circumstances then the burden got shifted to assessee to prove vide cogent evidences that the apparent is real and is not merely smoke screen to introduce assessees’ own money by this apparent loan transaction.

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e) DCIT v. Rohini Builders (2002) 256 ITR 360(Guj.)-In this case the tax-payer was able to prove the identity and capacity of the lenders and the only issue was the explanation of cash deposited in the bank account of lender , whereby the court held that the tax-payer is not required to prove source of source. While in the instant case before us support the proposition of Revenue as they have doubted the capacity of lender Moxdiam to lend loan of Rs. 1.0 crore to the assessee as well genuineness of the transaction was doubted by Revenue owing to statements of partners of Moxdiam admitting indulging in clandestine accommodation entries and accommodation bills as well the financial statements of Moxdiam does not support the capacity of Moxdiam to lend such a huge sum of money as loan to the assessee , and under these circumstances then the burden got shifted to assessee to prove vide cogent evidences that the apparent is real and is not merely smoke screen to introduce assessees’ own money by this apparent loan transaction.

f) CIT v. ABT Limited (2015) 370 ITR 159(Mad.)- In this case , the tax- payer was able to produce documents and the details of repayment made through cheque. Even the bank confirmations were filed by the tax-payer showing that the cheques issued by the tax-payer were encashed by the respective parties. The tax-payer had also furnished identity of persons with complete details of addresses and the FD applications showing details. While in the instant case before us support the proposition of Revenue as they have doubted the capacity of lender Moxdiam to lend loan of Rs. 1.0 crore to the assessee as well genuineness of the transaction was doubted by Revenue owing to statements of partners of Moxdiam admitting indulging in accommodation entries and accommodation bills as well

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the financial statements of Moxdiam does not support the capacity of Moxdiam to lend such a huge sum of money as loan to the assessee , and under these circumstances then the burden got shifted to assessee to prove vide evidences that the apparent is real and is not merely smoke screen to introduce assessees’ own money by this apparent loan transaction.

g) CIT v. Kapoor Chand Mangesh Chand (2013) 218 Taxman 157 (All.) (Mag.)- In this case , there was no admission by the tax-payer therein that they were involved giving bogus/accommodation entries. From the facts found by the authorities, it was clear that the amount of loan was advanced through the account payee cheques and PANs were also furnished. The amount has been repaid through account payee cheques and the lenders has sufficient funds in their bank accounts not by cash deposited on the preceding date or when the cheques were issued by the money lenders. While in the instant case before us support the proposition of Revenue as they have doubted the capacity of lender Moxdiam to lend loan of Rs. 1.0 crore to the assessee as well genuineness of the transaction was doubted by Revenue owing to statements of partners of Moxdiam admitting indulging in clandestine accommodation entries and accommodation bills as well the financial statements of Moxdiam does not support the capacity of Moxdiam to lend such a huge sum of money as loan to the assessee , and under these circumstances then the burden got shifted to assessee to prove vide cogent evidences that the apparent is real and is not merely smoke screen to introduce assessees’ own money by this apparent loan transaction.

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h) CIT v. Chandela Trading Company Private Limited (2015) 372 ITR 232(Calcutta) – In this case the tax-payer gave proper explanation of every transaction of loan which was made through bank, particulars of the creditors' income tax file furnished and as such the tax-payer had done everything in its power to do in offering such explanation. The revenue could not contradict such explanation while in the instant case before us support the proposition of Revenue as they have doubted the capacity of lender Moxdiam to lend loan of Rs. 1.0 crore to the assessee as well genuineness of the transaction was doubted by Revenue owing to statements of partners of Moxdiam admitting indulging in accommodation entries and accommodation bills as well the financial statements of Moxdiam does not support the capacity of Moxdiam to lend such a huge sum of money as loan to the assessee , and under these circumstances then the burden got shifted to assessee to prove vide cogent evidences that the apparent is real and is not merely smoke screen to introduce assessees’ own money by this apparent loan transaction.

i) CIT v. Smt Sanghamitra Bharali (2014) 361 ITR 481(Gauhati HC) – In this case the tax-payer discharged its primary burden as cast u/s. 68 of the Act whereby identity, creditworthiness and genuineness of the transaction stood proved. Now, the burden shifted to Revenue to prove the contrary. While in the instant case before us support the proposition of Revenue as they have doubted the capacity of lender Moxdiam to lend loan of Rs. 1.0 crore to the assessee as well genuineness of the transaction was doubted by Revenue owing to statements of partners of Moxdiam admitting indulging in clandestine accommodation entries and accommodation bills as well the financial statements of Moxdiam does not support the capacity of Moxdiam to lend such a huge sum of money as loan

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to the assessee , and under these circumstances then the burden got shifted to assessee to prove vide cogent evidences that the apparent is real and is not merely smoke screen to introduce assessees’ own money by this apparent loan transaction.

j) CIT v. Jai Kumar Bakliwal (2014) 366 ITR 217(Raj. HC) –In this case also the tax-payer discharged its primary burden as cast u/s. 68 of the Act whereby identity, creditworthiness and genuineness of the transaction stood proved. Now, the burden shifted to Revenue to prove the contrary and the tax-payer cannot be asked to prove source of source of the creditor. While in the instant case before us support the proposition of Revenue as they have doubted the capacity of lender Moxdiam to lend loan of Rs. 1.0 crore to the assessee as well genuineness of the transaction was doubted by Revenue owing to statements of partners of Moxdiam admitting indulging in accommodation entries and accommodation bills as well the financial statements of Moxdiam does not support the capacity of Moxdiam to lend such a huge sum of money as loan to the assessee , and under these circumstances then the burden got shifted to assessee to prove vide cogent evidences that the apparent is real and is not merely smoke screen to introduce assessees’ own money by this apparent loan transaction.

k) Nemi Chand Kothari v. CIT (2003) 264 ITR 254(Gau. HC)- In this case also it was held that the assessee is not required to prove source of source and once primary onus is discharged by the assessee as to establishing identity and creditworthiness of the creditor and genuineness of the loan transaction, then it is for Revenue to disprove the same. While in the instant case before us support the proposition of Revenue as they have doubted the ITA 800/Mum/2012 & 6314/Mum/2012 41

capacity of lender Moxdiam to lend loan of Rs. 1.0 crore to the assessee as well genuineness of the transaction was doubted by Revenue owing to statements of partners of Moxdiam admitting indulging in accommodation entries and accommodation bills as well the financial statements of Moxdiam does not support the capacity of Moxdiam to lend such a huge sum of money as loan to the assessee, and under these circumstances then the burden got shifted to assessee to prove vide cogent evidences that the apparent is real and is not merely smoke screen to introduce assessees’ own money by this apparent loan transaction

l) CIT v. Shiv Dhooti Pearls and Investment Limited (2016) 237 Taxman 104(Delhi) - In this case also it was held that the assessee is not required to prove source of source and once primary onus is discharged by the assessee as to establishing identity and creditworthiness of the creditor and genuineness of the loan transaction, then it is for Revenue to disprove the same. While in the instant case before us support the proposition of Revenue as they have doubted the capacity of lender Moxdiam to lend loan of Rs. 1.0 crore to the assessee as well genuineness of the transaction was doubted by Revenue owing to statements of partners of Moxdiam admitting indulging in accommodation entries and accommodation bills as well the financial statements of Moxdiam does not support the capacity of Moxdiam to lend such a huge sum of money as loan to the assessee, and under these circumstances then the burden got shifted to assessee to prove vide cogent evidences that the apparent is real and is not merely smoke screen to introduce assessees’ own money by this apparent loan transaction

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m) CIT v. S.Khader Khan Son-(2012) 352 ITR 480(SC)- In this case, the Hon’ble Supreme Court held that Section 133A of the Act does not empower Revenue officers to examine any person on oath and hence statement recorded u/s 133A of the Act has no evidentiary value and any admission made during such statement cannot be the basis of addition . While in the instant case before us support the proposition of Revenue as they have doubted the capacity of lender Moxdiam to lend loan of Rs. 1.0 crore to the assessee as well genuineness of the transaction was doubted by Revenue owing not only to statements of partners of Moxdiam admitting indulging in accommodation entries and accommodation bills but the financial statements of Moxdiam also does not support the capacity of Moxdiam to lend such a huge sum of money as loan to the assessee, and under these circumstances then the burden got shifted to assessee to prove vide coget evidences that the apparent is real and is not merely smoke screen to introduce assessees’ own money by this apparent loan transaction

Now, we will analyze the case laws relied upon by Revenue/ Ld. DR a) CIT v. Durga Prasad More (1971) 82 ITR 540(SC) – In this case the Hon’ble Supreme Court has held as under:-

“8. Now we shall proceed to examine the validity of those grounds that appealed to the learned judges, it is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real party who relies on a recital in a deed has to establish the truth of those recitals, other wise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made

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in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents.

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the case from a wrong angle. There is no dispute that the consideration for the sale was in fact paid by the assessee. He says that he paid it on behalf of the trust orally created by his wife. Therefore, the question is whether he has satisfactorily proved that case. If he has failed to prove that case, as we think it to be so and in the absence of any other alternative case pleaded by him, it follows as a matter of course that the consideration for the sale passed from him. Science has not yet invented any instrument to test the reliability of the evidence placed before a court or tribunal. Therefore, the courts and Tribunals have to judge the evidence before them by applying the test of human probabilities. Human minds may differ as to the reliability of a piece of evidence. But in that sphere the decision of the final fact finding authority is made conclusive by law.

unsustainable. We, accordingly, discharge that answer and answer that question in the affirmative and in favour of the department. The assessee shall pay the costs of the department both in this court as well as in the High Court—hearing fee one set.”

Thus it is for the assessee to prove that apparent is real by bringing on record cogent material as the Revenue has brought on record that Moxdiam is engaged in the business of providing accommodation entries and accommodation bills and Moxdiam is assessed as an accommodation entry/bill provider whereby the firm Moxdiam was smoke screen for providing fictitious entries and also its financial capabilities to grant the loan to the tune of Rs. 1.0 crore to the assessee the total loans being advance to the tune of Rs. 5.14 crores existing as at 31-03-2007 is under clout and transactions are dubious in nature. The assessee having failed to discharge its burden as once revenue doubts the transactions with incriminating material on record, the onus shifts back to prove that apparent is real. While in the instant case before us support the proposition of Revenue as they have doubted the capacity of lender Moxdiam to lend loan of Rs. 1.0 crore to the assessee as well genuineness of the transaction was doubted by Revenue owing not only to statements of partners of Moxdiam admitting indulging in accommodation entries and accommodation bills but the financial statements of Moxdiam does not support the capacity of Moxdiam to lend such a huge sum of money as loan to the assessee, and under these circumstances then the burden got shifted to assessee to prove vide cogent evidences that the apparent is real and is not merely smoke screen to introduce assessees’ own money by this apparent loan transaction, which the assessee in this case fail to prove the ITA 800/Mum/2012 & 6314/Mum/2012 47

creditworthiness of the lender and genuineness of the loan transaction.

b) Sumati Dayal v. CIT (1995) 214 ITR 801(SC) – In this case , Hon’ble Supreme Court held as under:

“These appeals filed by the assessee against the order dated 24-2-1977 passed by the Income Tax Settlement Commission relate to the assessment years 1971-72 and 1972-73. The appellant carries on business as a dealer in art pieces, antiques and curios at Bangalore. During the assessment year 1971-72, the appellant received a total amount of Rs. 3,11,831 by way of race winnings in Jackpots and Treble events in races at Turf Clubs in Bangalore, Madras and Hyderabad. The said amount was shown by the appellant in the capital account in the books. The appellant filed a return on 27-3-1972 declaring an income of Rs. 27,829. The appellant also made a sworn statement on 6- 1-1973 before the ITO and on the basis of the said statement the ITO made an assessment order dated 27-3-1974 wherein he held that the sum of Rs. 3,11,831 is not winnings in races and he treated the said receipts as income from undisclosed sources and assessed the same as income from other sources. For the assessment year 1972-73, the appellant showed receipts of Rs. 93,500 as race winnings in two Jackpots at Bangalore and Madras and the said amount was credited in the capital account in the books. The appellant filed a return declaring an income of Rs. 3,827 on 3-2-1973. In his assessment order dated 31-8-1974 the ITO included the amount of Rs. 93,500 - as income from other sources and assessed the income of the appellant on that basis. The appeals filed by the ITA 800/Mum/2012 & 6314/Mum/2012 48

appellant against the assessment orders were disposed of by the AAC by order dated 12-12-1975 whereby the assessment of Rs. 3,11,831 as income under the head 'Income from other sources' for the assessment year 1971-72 and Rs. 93,500 for the assessment year 1972-73 was confirmed. The appeals filed against the said order before the Tribunal were withdrawn by the appellant under section 245M(2) of the Income-tax Act, 1961 ('the Act'), and on 6-8-1976 she moved the application giving rise to this appeal, before the Settlement Commission wherein the appellant stated that she was agreeable to a reasonable addition on a reasonable basis should the Commission hold that the drawings of 1970-71 and 1971-72 were not adequate for purchase of Jackpot tickets, other expenses in connection with the races and losses, if any, estimated by the Settlement Commission to have been sustained by the appellant. On the said application, the Commissioner submitted his report dated 29-1-1977 wherein he urged that the action of the department in taxing the entire winnings as income from undisclosed sources should be upheld inasmuch the appellant lacked any knowledge of race techniques and the theory of probabilities precluded any systematic and continuous winnings at races on as many as 16 occasions during a period of less than two years. In his report, the Commissioner also submitted that the books of account did not indicate the expenditure, on travel and other incidental expenses which had been incurred by the appellant for attending the races at Bangalore and Hyderabad. The Commissioner also asked for reopening of the assessment year 1970-71 where the appellant had won a sum of Rs. 74,681 and which was not brought to tax by the ITO.

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Settlement Commission, in his dissenting opinion, has correctly applied the law. Shri Mehta has placed reliance on the decisions of this Court in Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532 ; Sreelekha Banerjee v. CIT [1963] 49 ITR 112; and CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78 . Shri J. Ramamurthy, the learned senior counsel appearing for the revenue, has supported the majority view and has submitted that having regard to the facts and circumstances of the case the receipts claimed to be winnings from races were income from other sources and that no case is made out for interference by this Court in appeal under article 136 of the Constitution.

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considering the explanation of the assessee the department cannot, however, act unreasonably - Sreelekha Banerjee's case (supra) at p. 120. 5. In the instant cases the amount is credited in capital account in the books of the appellant. The appellant has offered her explanation about the said receipts being her winnings from races. The said explanation has been considered in the light of the sworn statement of the appellant dated 6-1-1973 and other material on record. The ITO and the AAC have not accepted the explanation offered by the appellant. The two members constituting the majority in the Settlement Commission have also taken the same view.

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Committee (under the Chairmanship of Justice K.N. Wanchoo, retired Chief Justice of India) the definition of 'income' in section 2(24) of the Act was amended with effect from 1-4-1972 by the Finance Act, 1972 so as to include within its ambit, winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever. The reason underlying the said amendment was that exemption from tax that was enjoyed in respect of such winnings had provided scope for conversion of 'black' money into 'white' income. The said exemption from tax available in respect of such winnings during the assessment years 1971-72 and 1972-73. 8. During the year 1970-71 (pertaining to the assessment year 1971-72) between 6-4-1970 to 20-3-1971, the appellant claims to have won in horse races a total amount of Rs. 3,11,831 on 13 occasions out of which 10 winnings were from Jackpots and 3 were from Treble events. Similarly, in the year 1971-72 the appellant won races on 2 occasions and both the times winnings were from Jackpot. In her sworn statement dated 6-1- 1973, the appellant had stated that she started going for races from the end of 1969 and that she first won Jackpot on 12-12- 1969 on the first day she went to races. The appellant also stated that she worked out the combination on the basis of what her husband advised her but she used to add a few horses of her own although she admitted that she did not know anything about the performance of these horses before December 1969. As regards her husband, the appellant stated that he won once in Calcutta and once in Madras and he had ITA 800/Mum/2012 & 6314/Mum/2012 53

similar wins also. The appellant had also stated that she had not gone to races in 1972. The appellant admitted that she had been buying Jackpot tickets of the value of Rs. 2,000, Rs. 1,400 and even tickets for Rs. 3,000 have been bought and that on the first day she won the Jackpot she purchased a Jackpot combination ticket for approximately Rs. 2,500 and that on 8- 11-1970 she had bought two combinations, each for about Rs. 2,000. The appellant also admitted that she had not claimed any loss in races and only winnings were shown and stated that she won similar amounts which were not accounted and the losses were met out of the said amounts. The appellant further stated that she had no record of her expenditure at the race course as against her claim of winnings.

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(iii)The appellant's books do not show any drawings on race days or on the immediately preceding days for the purchase of Jackpot combination tickets, which entailed sizable amounts varying generally between Rs. 2,000 and Rs. 3,000. The drawings recorded in the books cannot be co- related to the various racing events at which the appellant made the alleged winnings.

(iv)While the appellant's capital account was credited with the gross amounts of race winnings, there were no debits either for expenses and purchases of tickets or for losses.

(v)In view of the exceptional luck claimed to have been enjoyed by the appellant, her loss of interest in races from 1972 assumes significance. Winnings in racing became liable to income-tax from 1-4-1972 but one would not give up an activity yielding or likely to yield a large income merely because the income would suffer tax. The position would be different, however, if the claim of winnings in races was false and what were passed off as such winnings really represented the appellant's taxable income from some undisclosed sources.

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Chairman that if it is alleged that these tickets were obtained through fraudulent means, it is upon the alleger to prove that it is so, ignores the reality. The transaction about purchase of winning ticket takes place in secret and direct evidence about such purchase would be rarely available. An inference about such a purchase has to be drawn on the basis of the circumstances available on the record. Having regard to the conduct of the appellant as disclosed in her sworn statement as well as other material on the record an inference could reasonably be drawn that the winning tickets were purchased by the appellant after the event. We are, therefore, unable to agree with the view of the Chairman in his dissenting opinion. In our opinion, the majority opinion after considering surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winning from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amounts has been rejected unreasonably and that the finding that the said amounts are income of the appellant from other sources is not based on evidence. 13. In the circumstances, no case is made out for interference with the order passed by the Settlement Commission. The appeals, therefore, fail and arc accordingly dismissed with costs.” Thus it is for the assessee to prove that apparent is real by bringing on record cogent material as the Revenue has brought on record that Moxdiam is engaged in the business of providing accommodation entries and accommodation bills and Moxdiam is assessed as an accommodation entry/bill provider whereby the firm Moxdiam was smoke screen for providing fictitious entries and also its financial

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capabilities to grant the loan to the tune of Rs. 1.0 crore to the assessee the total loans being advance to the tune of Rs. 5.14 crores existing as at 31-03-2007 is under clout and transactions are dubious in nature and also conduct is not supported on the touchstone of human probabilities that men of meager means having deficit/debit capital contribution of their own in Moxdiam can grant huge loans to the tune of Rs.5.14 crores and that too without any security/guarantees as nothing is brought on record by the assessee that these loans so raised were secured loans. The assessee having failed to discharge its burden as once revenue doubts the transactions with incriminating material on record, the onus shifts back to prove that apparent is real. While in the instant case before us support the proposition of Revenue as they have doubted the capacity of lender Moxdiam to lend loan of Rs. 1.0 crore to the assessee as well genuineness of the transaction was doubted by Revenue owing not only to statements of partners of Moxdiam admitting indulging in accommodation entries and accommodation bills but the financial statements of Moxdiam does not support the capacity of Moxdiam to lend such a huge sum of money as loan to the assessee, and under these circumstances then the burden got shifted to assessee to prove vide cogent evidences that the apparent is real and is not merely smoke screen to introduce assessees’ own money by this apparent loan transaction, which the assessee in this case fail to prove the creditworthiness of the lender and genuineness of the loan transaction.

c) CIT v. N.R.Portfolio Private Limited (2014) 42 taxmann.com 339(Delhi)- The Hon’ble Delhi High court held as under:

“These two appeals by the Revenue relate to a common assessee i.e., N.R. Portfolio Pvt. Ltd. and the questions raised

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relating to assessment years 2002-03 and 2003-04 are similar. They pertain to the additions made by the Assessing Officer under Section 68 of the Income Tax Act, 1961 (Act, for short) of Rs.1,2,34,100/- and Rs.75,60,200/- for the assessment years 2002-03 and 2003-04 on account of share application money. 2. The contention of the Revenue is that the Income Tax Appellate Tribunal (tribunal) has dealt with the issue superficially and has failed to notice the money laundering indulged into and the clandestine manner in which unaccounted and black money had been brought into books by this dubious method. It is contended that the decision in the case of CIT v. Lovely Exports Ltd. [2008] 299 ITR 268/[2007] 158 Taxman 440 (Delhi) is being misunderstood and misinterpreted resulting in a spate of matters wherein assessees have adopted this surreptitious method to convert unaccounted for money into share application money. 3. Revenue has relied upon the decision of this Court in the case of CIT v. Nova Promoters & Finlease (P.) Ltd. [2012] 342 ITR 169/206 Taxman 207/18 taxmann.com 217. 4. By order dated 13th August, 2013, the following substantial question of law was framed in the two appeals:—

"Whether the Income Tax Appellate Tribunal was right in deleting the additions of Rs.63,80,100/- and Rs.75,60,200/- in respect of Assessment Years 2002-03 and 2003-04 under Section 68 of the Income Tax Act, 1961 and whether the decision of the Tribunal is perverse?" 5. The respondent-assessee is a private limited company and for the assessment years 2002-03 and 2003-04 had filed

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returns declaring income of Rs.11,566/- and 18,720/-, respectively. These returns were processed under Section 143(1) of the Act. Subsequently, reassessment proceedings were initiated under Section 147/148 of the Act on the basis of information received from the Investigation Wing that the assessee was one of the beneficiaries, who had procured share application money from entry providers. Assessment proceedings under Section 147/148 of the Act in the two years were initiated by issue of notices on 28th November, 2006. The notices were received back unserved and subsequently were served by affixture at the last known address i.e., the address given in the returns. The assessee, however, did not appear in response to the said notices. The Assessing Officer thereupon on 8th October, 2007 issued show cause notice under Section 144 read with Section 147 of the Act, which was sent through Speed Post, but was returned unserved with the remark "no such firm". Respondent-assessee again was served through affixture on 25th October, 2007. On examining the return for the assessment year 2004-05, it was noticed that M/s Prakash K. Prakash Chartered Accountants had certified the accounts of the respondent-assessee. Office of M/s Prakash K. Prakash Chartered Accountants was contacted and thereupon they filed their power of attorney on 1st November, 2007. The said Chartered Accountants also filed a letter that the respondent company had not received any notice and had been regularly filing their returns mentioning the correct address and after that there was change in address, the same was informed. Along with this letter, no detail of new address was filed. They had not mentioned the present/current address.

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reopening under Section 147/148 of the Act or on the question of service of notice. 9. Two cross appeals were preferred before the tribunal by the Revenue and the respondent-assessee for the two assessment years but the same have been dismissed by the impugned order dated 29th October, 2010. The reasoning given by the tribunal is that the respondent-assessee had furnished Permanent Account Number (PAN) of the share applicants except with regard to the share capital of Rs.4,50,000/- and before the Commissioner (Appeals), the assessee had also submitted various details and documents to establish identity of the investors/share applicants. The impugned order in paragraph 6 refers to and quotes several paragraphs from the order passed by the Commissioner (Appeals) and in paragraph 7 refers to the observations made by the Commissioner (Appeals). Thereafter, in paragraph 8 it is recorded that the tribunal had gone through various reasons and principles on which Commissioner (Appeals) had deleted the addition. Commissioner (Appeals) had given a finding that verification of PAN was made and found to be correct except with regard to the share application money of Rs.4,50,000/- and, therefore, in the light of the judgments of Delhi High Court in Lovely Exports (P.) (supra), CIT v. Winstral Petrochemicals (P.) Ltd. [2011] 330 ITR 603/199 Taxman 135 (Mag.)/10 taxmann.com 137 (Delhi) and CIT v. Dwarkadhish Investment (P.) Ltd. [2011] 330 ITR 298/[2010] 194 Taxman 43 (Delhi) and other cases, addition was not justified and not in accordance with law.

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"3.6.2 Similar is the position with regard to service of show- cause notice for completing the impugned assessment u/s 144 of the Act as it is an established fact that in absence of any intimation with regard to change of registered office address from the appellant company, the assessing officer has left with very little option except getting the same served through affixture. It is beyond doubt that the assessing officer took pains to locate the authorized representative M/s Prakash K. Prakash, CAs and served show- cause notice on them meaning thereby that the appellant was fully in known of the things that the assessment proceedings are going on and it is required to file information with regard to the various points on the basis which the case was reopened u/s 147/148 of the Act. It is matter of record that after the authorized AR could be located by the assessing officer, the AR filed a letter dated „nil' along with POA dated 1-11-2007 but still the appellant chose not to intimate the address to the assessing officer except vaguely stating that the Department have been informed about the change of address from time to time. In these circumstances, I do not ITA 800/Mum/2012 & 6314/Mum/2012 63

see any justification on the part of the appellant to either raise the issue of non- service of notices or improper procedure of substituted service and accordingly, I hold that the impugned assessment is in order.

The contentions of the appellant company that the impugned assessment has been framed without looking into the contentions of the appellant has also not found favour with me as despite knowing fully well that the assessment shall be time barred as on 31-12-2007, the AR chose to sent the details through post which were received by the assessing officer on 18-12-2007 whereas the impugned order us passed on 17-12-2008. Otherwise too, during the present proceedings, the assessing officer submitted a remand report wherein the appellant has not been given an opportunity to put forth its view points and on which rejoinder has also been filed which means that the principle of natural justice has been adhered to and hence contention of the Ld. AR needs rejection." 11. Other findings recorded by the Commissioner (Appeals) refers to the remand report which was called from the Assessing Officer stating that notice under Section 148 was sent at the last known address i.e., F-280, New Rajinder Nagar, New Delhi, which was also mentioned in the return of income, but was received unserved with the remark "no such assessee", but subsequently served through affixture at A-46, Mohan Co- op. Industrial Estate, Mathura Road, New Delhi, the address which was shown in the return of income for the assessment year 2004-05. The Assessing Officer in the remand report has mentioned that the assessee's registered office was located at A-46, Mohan Co-op. Industrial Estate, Mathura Road, New Delhi on the date of affixture of notice. Subsequently,

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on 18th April, 2007, they shifted their registered office to A-15, B-1 Extension, Mohan Co-op. Industrial Estate, Mathura Road, New Delhi. We have already quoted the observation of the Assessing Officer after M/s Prakash K. Prakash Chartered Accountants were served and they in their letter dated 1st November, 2007 had not furnished the new address, though the respondent-assessee have stated that they had shifted their registered office address from A-46, Mohan Co-op. Industrial Estate, Mathura Road, New Delhi to A-15, B-1 Extension, Mohan Co-op. Industrial Estate, Mathura Road, New Delhi. The respondent-assessee had also stated that they had "misplaced" the intimation filed with the department on change of address. The Commissioner (Appeals) has recorded a finding that the respondent-assessee had wrongly claimed that they had informed the department about change of their registered office address, as not even a single intimation was presented before the Assessing Officer or him. 12. The contention of the Ld. AR for the appellant, that they had intimated change of address to