TaxTMI 
TaxTMI 
TaxTMI 
2019 (2) TMI 101
X X X X Extracts X X X X
X X X X Extracts X X X X
....loans: A.Y. 2013-14 Rs.9,00,00,000/- A.Y. 2011-12 Rs.85,00,000/- A.Y. 2010-11 Rs.50,00,000/- 4. Since the facts are identical, we are referred to facts and figures from A.Y. 2013-14, wherein the other years are also referred. 5. The assessee in this case is engaged in the business of financing two wheelers loans in Mumbai and three wheeler loans. 6. Brief facts of the case are as under: In this case, a survey action u/s 133A of the IT Act was conducted by DDIT(Inv), Unit III(2), Mumbai on 25.03.2014 based on the information that the assessee had taken accommodation entries of bogus unsecured loans and share application money from various dummy concerns, who engaged in the business of providing accommodation entries. During the course of the survey action, the books of accounts of the assessee were examined. The assessee was asked to furnish the details of the various parties from whom unsecured loans and share application money had been taken. The perusal of the details submitted by the assessee revealed that the assessee had received unsecured loans and share application money from the concerns/companies operated and controlled by Praveen Kumar Jain, who was one of the le....
X X X X Extracts X X X X
X X X X Extracts X X X X
....entity and creditworthiness of the persons of advancing the loans and genuineness of the transactions were not proved. With regard to the loans taken from the Pravin Kumar Jain controlled group of companies, the assessee company has stated that they have submitted the loan confirmations, copies of the acknowledgment of returns of income for A.Y. 2013-14 filed by the companies advancing the loans, copies of their annual audited accounts for the A.Y.2013-14 and copy of bank statements highlighting the loans advanced by the companies to the assessee company. The assessee has requested that cross examination of Praveen Jain may be allowed to them as the statement of Pravin Jain has been taken behind their back. The assessee has further submitted that Shri Pravin Kumar Jain had retracted his statement that he was in the business of providing accommodation entries of loans, purchases and share capital and as such the reason for doubting the genuineness of the loans no longer existed. It has also been stated that all the loans had been repaid in the F.Y. 2013-14. The assessee has requested that no addition should be made on account of the unsecured loans amounting to Rs. 7,75,00,000/-. W....
X X X X Extracts X X X X
X X X X Extracts X X X X
....03.2014 based on the information that the assessee company had taken accommodation entries of bogus unsecured loans and share application money from various dummy concerns, who were engaged in the business of providing accommodation entries. He also noted that the statements of Director of the assessee company was also recorded during the survey in which he has accepted that bogus transaction relating to the share capital and share premium and unsecured loan. The A.O. further observed that for assessment year 2012-13, the assessee has revised the return of income and offered the share capital and share premium for taxation. However, the assessee did not offered unsecured loans for taxation. The A.O. observed that in view of the survey on persons including the director of the assessee, the assessee has taken bogus unsecured loans. 6. The A.O. observed that loans confirmation, copy of annual accounts, acknowledgement of return of income and the bank statements of the persons advancing the loans of the following persons were examined from these following parties: 1. Atharv Business P. Ltd. 2. Duke Business P. Ltd. 3. Nakshtra Business P. Ltd. 4. Olive Overseas P. Ltd. 5. Viraj M....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Praveen Kumar Jain, it was seen that the assessee has taken loans from the following parties: Sr. No. Particulars Amount of Loan 1 Aarya Global Shares & Securities Ltd. 20,00,000 2 Ellora Electricals Ltd. 25,00,000 3 Pacheli Enterprises Ltd. 40,00,000 4 Venus Portfolio & Finance Pvt. Ltd. 40,00,000 Total 1,25,00,000 9. The A.O. noted that the facts in this regard are that the survey action was taken u/s 133A in the case of Shri Rakesh Doshi broker, who had arranged loans for the assessee from the above mentioned concerns/entitles. The statement of Shri Rakesh Doshi was recorded wherein he has submitted that he is a accommodation entry facilitator. He also stated that these companies are mere shell companies. 10. Thereafter, the A.O. noted that the assessee has submitted balance sheet of all the four companies which showed that the companies had enough reserves and share capital and as such had the resources, ability and financial capacity to lend the money/loans. The A.O. noted that mere submissions and confirmation is not enough to justify the creditworthiness of the companies advancing the loan. He referred to the statement of Shri Rakesh Doshi. He furt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....parties from whom unsecured loan and share application money had been taken, it was revealed that the assessee had received unsecured loans and share application money from concerns/companies operated and controlled by Pravin Kumar Jain who was one of the leading entry operator, controlling and operating various dummy concerns engaged in the business of providing accommodation entries of purchases, loans, shares, capital etc. The assessment proceeding was reopened u/s.147 of the Act and notice u/s.148 dated 21.1.2015 was issued and served. In response to notice u/s.148, the assessee company requested that the return of income filed on 30.9.2011 may be treated as return in response to notice u/s.148 of the Act. During the year the assessee has shown unsecured loans of Rs. 65,00,000/- Jrom M/s. Kuvam International Fashion Ltd and Rs. 20,00,000/- from M/s. Aaraya Equity India Pvt Ltd. The A.O. found that the said amounts were accommodation entries arranged by Shri Rakesh Doshi and has treated the same as unexplained cash credit u/s.68 of the I.T. Act as in A.Y.2013-14. Accordingly, addition of Rs. 85,00,000/- has been made as unexplained cash credit u/s.68 of the Act. 15. Similarly b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... case laws have been referred that there is violation of the principle of natural justice. The ld. CIT(A) found considerable cogency in these submissions. He noted that a copy of the statement of Shri Praveen Kumar Jain as well his cross examination was not provided to the assessee during the course of assessment proceedings, although the assessee had specifically asked for the same vide their submissions dated 26.02.3016. That the copy of the statement of Shri Rakesh Doshi has been provided on 01.03.2016 to which the assessee has submitted a rebuttal on 04.03.2016. That the A.O. had not provided cross examination of the Shri Rakesh Doshi. Hence, the ld. CIT(A) held that it was clear violation of principle of natural justice and in this regard he placed reliance on several case laws as under: Thus, there is a clear violation of principle of natural justice in so far as the reliance has been placed on the statement of Shri Praveen Kumar Jain and other material emanating from search in his case in 2013 without providing a copy of the statement and cross examination to the appellant. In this regard, reliance is placed on the decisions cited by the appellant in para 7 above, in the ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... there is some material evidence to corroborate the allegation that the loan transactions represents an accommodation entry given against cash paid by the assessee company. 20. Further, he referred to the statement of Shri Rakesh Doshi, and it was noted that there were oral averments and no documentary or other evidence regarding cash payments made by the assessee company to get the loans was brought on record by the A.O in the assessment proceedings. 21. Further, as regards the statement of Shri Manish K. Shah, Director of the assessee company is concerned, the ld. CIT(A) noted that so far as the admission regarding share application money received in Manba Finance Ltd. and other group companies was concerned, it was admitted that they had taken accommodation entry in the nature of share application money to the tune of Rs. 7,50,00,000/- from various concerns of Shri P K Jain in F.Y. 2011-12. That it was admitted that the same was not genuine and in the nature of accommodation entry in which equal amount of unaccounted cash was given against the cheque received and therefore he offered the same to tax in F.Y. 2011-12. Accordingly, the revised return was filed for A.Y.2012-13 to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are having business of investment and financing and the loans have been advanced to the appellant in their normal course of business. The concerns had sufficient bank balance before advancing the loan which has been subsequently repaid in F.Y.2013-14. 23. For other companies, the ld. CIT(A) further noted that the base addition in this case is only the statement given by Shri Rakesh Doshi and that the assessee did not produce the directors of the above said companies to verify the said loans. He noted that the A.O. has observed that the surplus shown in the balance sheet of the four companies pertains to share premium, the genuineness of which has not been proved by the assessee. That the A.O. has also cited and relied upon proviso to section 68 wherein it has been provided that the explanation offered by an assessee company in respect of credits received by way of share application money, share capital, share premium etc shall be deemed not to be satisfactory unless the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum, so credited. Thereafter, the ld. CIT(A) referred to t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....this addition also. 27. As regards the disallowance of interest since he had deleted the disallowance of unsecured loan, he deleted the disallowance on interest on this ground also. 28. The addition with respect to disallowance u/s. 14A was deleted by the ld. CIT(A) on the ground that no addition u/s. 14A is permissible when no exempt income is shown. For this proposition, he referred to the Hon'ble Delhi High Court decision in the case of Cheminvest Ltd vs CIT [2015] 378 ITR 33 (Del). 29. Against the above order, the assessee is in appeal before us. 30. We have heard both the counsel and perused the records. We find that in the grounds of appeal in this regard the Revenue has urged as under: 1. 1. ""In the facts and circumstances of the case and in law, the CIT(A) erred in deleting the addition of Rs. 9,00,00,000/~, made by the AO as unexplained cash credit u/s.68 of the Act without considering the fact that the director / promoter of the lending companies Shri Prauin Kumar Jain / Rakesh Doshi has already admitted during the survey action that the lender companies controlled by Flavin Jain and companies not controlled by Pravin Jain are bogus companies who are engaged in pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y Business Services India Pvt. Ltd. ITA No. 512/2017 dated 23/07/2018 (a copy of the Hon'ble High Court Karnataka is enclosed) for kind perusal. It is some lack of investigation but the Hon'ble ITAT is competent to set aside these three years cases. On the above decisions to direction for fresh enquiries and investigation in the matters involved. 32. Per contra, the ld ld. Counsel of the assessee submitted his submissions as under: The brief facts are that the Learned A.O. made addition to total income which is of Unsecured Loans, Interest on Unsecured Loans and disallowance u/s. 14A of the I. T. Act, 1961. The additions out of Unsecured loans and interest on such loans were made on the basis of Third Party Statements. Even though specific requests were made by the assessee for supply of Copy of Statements and Cross examinations of the Deponents, the same were not granted to the assessee. By not granting Cross examination and supply of Copy of Statements made by third parties, the Principles of Natural Justice is violated, and hence the assessment is vitiated and hence the assessment is bad in law and requires to be quashed in view of the following decisions. 1. Andaman Timber ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ges in the assessment order at p. 4 para 6.1, no enquiries of whatsoever nature has been conducted by the Learned A.O. The Learned A.O. was only guided by the statements given by the third party at the time of Search/ Survey in their premises. It is submitted that conducting no enquiry by the Assessing Officer u/s. 131, when the assessee has discharged his burden of proving the genuineness of the transaction and Credit worthiness of the Depositor, no addition can be made u/s. 68 as held by: The Hon'ble Delhi High Court in the case of CIT v. Gangeshwari Metal Pvt. Ltd. (2013) 96 DTR (Del) 299 wherein it was held that there was a clear lack of enquiry on the part of the A.O. Once the assessee had furnished all the materials including PAN, loan confirmations and Bank Statements, in such an eventuality, no addition can be made u/s. 68 of the Act. The A.O. merely stated in the assessment order that the explanation of the assessee is not acceptable and went on to make addition of these loans and interest paid to the income of the assessee. In CIT v. Varinder Rawley (2014) 366 ITR 232 (P&H), the Court held that "where the assessee shows that the entries regarding credit in a third....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s not justified. The Learned A.O. did not give any valid reasons for not considering the evidences produced but only extensively relied on the statement alleged to have been given by some third party without permitting cross examination of them to rebut the Dept. conclusions. It is further submitted that the assessee is not to prove the sources of the source as held by the following Courts, (1)Nemichand Kothari v. CIT (2003) 264 ITR 254 (Gauh.) (2)Dy. CIT v. Rohini Builders 256 ITR 360 (Guj) (3) CIT v. Smt. Sanghamitra Bharali (2014) 361 ITR 481 (Gauhati) In the case of NEMI CHAND KOTHARI v. C.LT. (2003) 264 ITR 254 (Gauhati) it was held by the Gauhati High Court as under: "A person may have funds from any source and an assessee, on such information received, may take a loan from such a person. It is not the business of the assessee to find out whether the source or sources from which the creditor had agreed to advance the amounts were genuine or not. If a creditor has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the assessee to obtain such amount of money or part thereof from the Creditor, by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rtunity of cross examination merely on the basis of oral statement additions cannot be made u/s. 68. It is further held that: "The oral statement of a third party recorded by Search authorities which was never placed to be confronted by assessee and no documentary evidence was supplied to assessee, could not be considered in making addition u/s. 68 on account of alleged accommodation entries." Besides, on identical situations on identical fact cases, the Hon. ITAT, and even the Bombay High Court have deleted the additions made by the A.O. Agrotech P. Ltd. v. I.T.O. (Hyderabad) ITA/437/HYD/2016 In this case, the issue was regarding loan given by Pravin Jain Group. One of the loanees of assessee M/s. Olive Overseas Pvt. Ltd. was also a Party in this case where the Hon. ITAT deleted the total addition. (2)Rushabh Enterprises v. A.C.I.T. W.P. No. 167 of 2015 In this case, the Hon. Bombay High Court held that no addition is warranted. (3) Reliance Corporation v. I.T.O. ITA/1069 to 1071/MUM/2017 (Mum ITAT) (4) ACIT v. Shri. Vashu Bhagnani ITA/5648/MUM/2016 (Mum ITAT) (5) Jitendra M. Kitawat ITA/7049 & 7050/MUM/2016 (Mum ITAT) In all the above cases, the Learned Tribunal have de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee has claimed Shri Pravin Kumar Jain has duly retracted and the assessee had requested to cross examine him that the same has been denied by the A.O. 35. As regards the statement of Shri Rakesh Doshi, the assessee's claim was that the assessee was never provided with the detail of statements given by Shri Rakesh Doshi despite request. On this issue of retraction of Shri Pravin Kumar Jain's and request by the assessee for cross examination of Shri Pravin Kumar Jain and Shri Rakesh Doshi, the ld. CIT(A) observed that there is a clear violation of natural justice. He noted that the copy of the statement of Shri Pravin Kumar Jain as well as his cross examination was not provided to the assessee during the course of assessment proceedings, although the assessee has specifically asked for the same. He noted that the copy of statement of Shri Rakesh Doshi was provided to which the assessee has submitted its rebuttal. He noted that the A.O. has not provided cross examination of Shri Rakesh Doshi. The ld. CIT(A) has placed reliance upon the several case laws in this regard for the proposition that where oral evidence of any party is sought to be used against an assessee, it is necessary....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gards the unsecured loan, upon reference to the materials, the assessee has found that the same was in order and, therefore, the assessee has furnished the necessary materials to support the genuineness of the loan. In this regard, the ld. CIT(A) has rightly referred to the decision of the Hon'ble Apex Court in the case of Pullangode Rubber Produce Co. Ltd. (supra) that "an admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the person who made admission to show that it is incorrect." Similar observations were made by the Hon'ble Apex Court in the case of S. Kadar Khan 352 ITR 480 (SC) that the statements obtained in the course of survey de hors corroborative evidence cannot be conclusively proof for making the additions. Furthermore, the ld. CIT(A) by referring to the statements of Shri Rakesh Doshi has given a finding that his admission was not with relation to unsecured loans obtained by the assessee from the concerned companies. In this regard, we are of the considered opinion that these circumstances can give rise to a suspicion but they are not conclusive proof for addition without any proper enquiry by the A.O. reb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l and share premium. Further, we find that the above said proviso to section 68 was inserted by Finance Income Tax Act, 1961, 2012 w.e.f. 01.04.2013. The Hon'ble jurisdictional High Court in the case of CIT vs. Gagandeep Infrastructure (P.) Ltd. [2017] 394 ITR 680 has held that the said proviso is prospective and cannot be applied to assessment years preceding the same. We may gainfully refer to the decision of Hon'ble jurisdictional High Court which is also relevant in this case: During the previous relevant to the subject Assessment Year the assessee had increased its share capital from Rs. 2,50,000/to Rs. 83.75 lakhs. During the assessment proceedings, the Assessing Officer noticed that the respondent had collected share premium to the extent of Rs. 6.69 crores. Consequently he called upon the respondent to justify the charging of share premium at Rs. 190/per share. The respondent furnished the list of its shareholders, copy of the share application form, copy of share certificate and Form no.2 filed with the Registrar of Companies. The justification for charging share premium was on the basis of the future prospects of the business of the assessee. The Assessing Offic....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit. As noted in the ratio emanating from the decision of Hon'ble Jurisdictional High Court above, even if the source of funds of this corporate entities who have advanced loan to the company are considered suspicious in the context of pre-amended section 68, the addition can be considered in the hands of these companies and cannot be made in the hands of the assessee. Even otherwise (as the proviso is applicable for A.Y. 2013-14) as rightly noted by the ld. CIT(A), the said proviso provides for an adverse inference if the assessee company providing those sums does not offer any explanation about the nature and source of sums. In this regard, it is noted that the A.O. has not made any enquiry from these corporate entities who have provided the loan, not even notice u/s. 133(6) has been issued. In these circumstances, without making any enquiry, the A.O. cannot....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essary details of the loan creditors, including the identity, creditworthiness and genuineness of the transaction, the onus upon the assessee is discharged. In these circumstances, in our considered opinion, the assessee has discharged its onus. The Assessing Officer has not rebutted any of the submission of the assessee and the documentary evidence in this regard. Hence, in our considered opinion, there is no infirmity in the order of the ld. Commissioner of Income Tax (Appeals). The various case laws referred by the ld. Commissioner of Income Tax (Appeals) are germane and duly supports the case of the assessee. In the background of the aforesaid discussion and precedent, we uphold the order of the ld. Commissioner of Income Tax (Appeals)." 40. The above case law duly supports the proposition that no adverse inference can be drawn by the A.O. without making any enquiry in this regard. Even the ld. DR has tacitly acknowledged this proposition when he submits that the ld. Counsel of the assessee has mentioned that the A.O. has not issued notice u/s. 133(6) and summons u/s. 131 and has quoted the Hon'ble Delhi High Court decision in the case of CIT v/s Gangeshwari Metal Pvt. Ltd. (....