TaxTMI 
TaxTMI 
2019 (2) TMI 101
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.... of the addition u/s. 68 for following unsecured 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 o....
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....e why the unsecured loans taken from the parties mentioned in para 4 and para 5 should not be treated as unexplained cash credit u/s 68 of the I.T. Act as the identity 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....
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....e addition u/s 68 of the IT. Act may not be made. 5. The A.O. considered the submissions of the assessee. However, he referred to the survey action conducted by DDIT (Inv), Mumbai on 25.03.2014 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 ....
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....n the assessee to prove that the said declaration was made under any misconception of facts, etc. 8. The A.O. further noted that with regard to the loan advance by the parties other than those controlled by Shri 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 resourc....
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....sed 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. On perusal of the details submitted regarding the 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....
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.... the statement of the said two persons were recorded at the back of the assessee and the A.O. should have provided the copies of their statements and their cross examination to rebut the inference that could not be drawn from their statements. The ld. CIT(A) noted that the several 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 th....
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....nquiry in his case in the course of search has established that the concerns under his control were involved in providing accommodation entries, it does not follow that the unsecured loans provided by these seven companies to the assessee company are bogus transactions or unexplained unless 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-....
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....ve been carried out by way of cheque/RTGS and there is no immediate deposit of cash before advancing the loans. Further, the loans have been returned in subsequent year by cheque, interest has been paid on such loans on which TDS has been made. It is also observed that the above said four concerns 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 ....
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....his discussion, the ld. CIT(A) deleted the addition in this regard also. For A.Y. 2011-12 and 2010-11, the ld. CIT(A) noted that the unsecured loans in this case were added by the A.O. on the ground that these were accommodation entries arranged by Shri Rakesh Doshi. On the same reasoning as above, he deleted 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 ....
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....ices u/s. 133(6) and summon u/s 131 and quoting-. the Hon'ble Delhi High Court Judgement in the case of CIT v/s Gangeshwari Metal Pvt. Ltd. (2013) 96 DTR (Del) 200 and other various decisions. In this connection, your honour, the department is also relying on the recent Order of the Hon'ble Karnataka High Court in the case of Fidelity 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 Deponent....
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....as because, the Creditors were of Pravin Jain Group who were name lenders and were giving accommodation entries. There is no indication that loan related to Loans taken by the assessee. Besides, in the case of the assessee, No Notice u/s. 133(6) was issued and no summons u/s. 131 issued. Even though all these details were submitted before the Learned A.O. which he acknowledges 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, ....
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....at the assessee was operating their bank accounts. Most of the cash creditors appeared before the Assessing Officer and their statements under Section 131 of the Income-tax Act, 1961, were also recorded on oath. There was no clinching evidence nor had the Assessing Officer been able to prove that the money actually belonged to none but the assessee. The addition of Rs. 17,27,2507- under section 68 was 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 informa....
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....of law because it went to the very root of the assessment made. The aforesaid view has been also considered and fortified and favourably referred to by the Allahabad High Court in the case of C.I.T. v. Shalimar Buildwell Pvt. Ltd. (2014) 220 Taxman 138 (AH.) The Hon. Rajas than High Court in the case of C.I.T. v. A. Lalpuria Construction P. Ltd. (2013) 215 Taxman 12 (Mag)(Raj) have held that in the case of Accommodation entry - without giving an opportunity 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 Pv....
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....ccommodation entries. These findings have come out as a result of survey against the assessee's premises. As regards Shri Pravin Kumar Jain, it was noted by the A.O. that in the Revenue's action against Shri Pravin Kumar Jain, he has admitted to have been arranged bogus accommodation entries. The A.O. has noted in detail his modus operandi. As regards Shri Rakesh Doshi, it was noted that survey action u/s. 133A was conducted in his case and he was found to have arranged the accommodation entries. The assessee 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 pro....
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....found the issues of non submissions of the details obtained from Shri Pravin Kumar Jain and Shri Rakesh Doshi to the assessee, and not given an opportunity to cross examine them to be gross violation of principles of natural justice. Furthermore, the A.O. has also drawn adverse inference on the statement from the Director of the assessee company obtained during survey. In this regard, the ld. CIT(A) has given a finding that the assessee had duly honored the admission on survey regarding the share capital and share premium and that as regards 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....
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....k statement, the assessee has duly discharged its onus. The A.O. has not found default in these documents. It is also not the case that cash has been deposited in the bank statement before granting of loans by these companies as pointed out by the ld. CIT(A). The A.O.'s grouse is that the assessee has not produced the directors of these companies, and these corporate entities have acquired resources by getting share capital and share premium from other corporate entities. First of all, we note that this is a case of unsecured loan and not share capital 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. ....
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....t laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. (ii) Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in CIT v/s. Lovely Exports (P)Ltd. 317 ITR 218 in the context to the preamended Section 68 of the Act has held that where the Revenue urges that the 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 ....
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....total lack of application of mind by not even issuing a notice to the loan creditors. 24. We find that it is settled law that while making any disallowance/addition, the Assessing Officer needs to make due enquiry. In this case, the Assessing Officer has not made any enquiry whatsoever. As noted hereinabove, the assessee has given all the documentary evidences including confirmatory letters, bank statements and financial statements of the creditors. The Assessing Officer has not found any error therein. It has been held in number of cases that when the assessee has given all the necessary 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 t....