TaxTMI 
TaxTMI 
2019 (2) TMI 835
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....C of the Act towards the commission payment for obtaining the loan entries at the rate of 0.2% of such amount." 4. The appellant prays that the order of the CIT(Appeals) on the above grounds be set aside and that of the AO be restored. 5. The appellant craves leave to amend or alter any ground or to submit additional new ground which may be necessary. 2. The brief facts of the case are that the assessee is a firm engaged in the share trading business. The assessee e-filed its return of income on 21.08.13 showing total income at Rs. NIL. The case was selected under CASS on the ground that there were large value squared up loans and unsecured loans during the year. Accordingly, notice u/s. 143(2) of the Act dated 04.09.2014 was issued and served on the assessee. Assessment order u/s. 143(3) of the Act was passed by the AO on 29.02.2016 determining total income of the assessee at Rs. 36,78,25,297/- after making certain additions/ disallowances u/s 68, 69C, etc of the I.T. Act. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties, partly allowed the appeal of the assessee. Now ....
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.... 5000000 12. Mohit Enterprises 37500000 13. Navakar Diamonds 5000000 14. Prime Star 5000000 15. Roshan Gems Pvt Ltd 20000000 16. Sonam Gems Pvt Ltd 50000000 Hence the revenue carried out Survey operation in the hands of the assessee on 16-10-2014. Subsequently, the return of income filed by the assessee was taken up for scrutiny. Since Bhanwarlal Jain had admitted that he and his group of companies are providing only accommodation entries, the AO took the view that the assessee has introduced its unaccounted cash through the bogus loans stated above. 3. Before the AO, the assessee furnished all the details that were called for including details of loans received, details of interest paid, copies of affidavits given by the lenders, financial statement of lenders etc., in order to prove the genuineness of loans in terms of sec. 68 of the Act. Thereafter, the assessee asked the Assessing Officer to give copies of documents relied upon by him and also copies of statements given by Shri Bhanwarlal Jain and others. The assessee also sought an opportunity to cross examine them. The AO did not furnish the details re....
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....di adopted by this group has been clearly established by the revenue and the same methodology has been adopted by all the lenders. It was also proved that the directors of various companies are only employees of Shri Bhanwarlal Jain. This group ensured that the transactions are arranged in a perfect manner in order to avoid even slightest of doubt. He submitted that the search team has, however, unearthed the bogus nature of all transactions, which has also been confirmed by Shri Bhanwarlal Jain and other persons. 6. The Ld D.R submitted that the appellate authorities are also duty bound to conduct necessary enquiries, if there is any deficiency in the enquiry conducted by the AO, as held by Hon'ble Delhi High Court in the case of Jansampark Advertising & Marketing (P) Ltd (ITA 525/2014 dated 11-03-2015). He further submitted that the Hon'ble Delhi High Court has highlighted in the case of Pr. CIT Vs. Bikram Singh (ITA 55/2017 dated 25-08-2017) there is constant use of deception of loan entries to bring unaccounted money into banking channels and the device of loan entries continues to plague the legitimate economy of our Country. The Hon'ble Delhi High Court found in the ....
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....made by Shri Bhanwarlal Jain that he and his group of companies are engaged in providing accommodation entries only. 9. Accordingly the Ld D.R submitted that the order passed by Ld CIT(A) should be reversed. Alternatively he suggested that the matter may be restored to the file of the AO for examining it afresh by conducting further enquiries. 10. The Ld A.R submitted that the assessing officer has made the addition u/s 68 of the Act. He submitted that the assessee is required to discharge the initial onus placed upon it u/s 68 of the Act. He submitted that the assessee has furnished all the documents in order to prove the identity and creditworthiness of the creditors. All the transactions have been routed through the banking channels and hence genuineness of the creditors is also proved. The ld A.R submitted that the revenue did not find any incriminating material during the course of survey operations conducted in the hands of the assessee. He submitted that the assessee, vide its letter dated 03-03-2015, has submitted all the documents relating to the loan creditors, viz., copy of their ITR, their financial statements and bank statements, loan confirmation let....
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....that the assessing officer has mainly placed reliance on the report given by the search officials, who conducted the search in the hands of Shri Bhanwarlal Jain, which consisted of certain documents and sworn statements recorded from him and other employees. The assessing officer, however, did not confront those materials and sworn statements with the assessee. He submitted that the assessee, vide its letter dated 13-03-2015 (copy placed at page 89 of the paper book), has requested the AO to furnish copies of information, statements, reports or any document on which the AO has placed reliance. Further the assessee has also requested the AO to allow reasonable opportunity to give submissions and explanations on those materials. The assessee has also specifically asked for an opportunity to confront and cross examine the parties who gave the Statements. The assessee again made similar request in its letter dated 19-03-2015. The Ld A.R submitted that the AO, however, did not furnish the copies of documents and also did not allow the opportunity to cross examine the parties who gave adverse statements. 13. The Ld A.R submitted that the assessing officer is not entitled to rely....
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....he Act under these facts as held by Hon'ble Supreme Court in the case of Orissa Corporation (P) Ltd (159 ITR 78)(SC). 15. The Ld A.R submitted that the assessee has repaid most of the loans and the same has been noted down by the Ld CIT(A) in paragraph 6.3.32 of his order. The Ld A.R further submitted the statements given by Shri Bhanwarlal Jain has been claimed to have been retracted. He submitted that the co-ordinate bench of the Tribunal has rendered its decision in the case of M/s Vama International (ITA No.7315, 7316 & 7317/Mum/2016 dated 15-02-2018), wherein the issue was related to the disallowance of purchases made from M/s Bhanwarlal Jain Group. In the said decision, the Tribunal has recorded that the statements have been retracted by them subsequently. The co-ordinate bench has further held that the purchases could not be treated as bogus simply relying on the statements given in the case of Bhanwarlal Group. Accordingly the Ld A.R submitted that the AO could not have placed reliance on the statements given by Shri Bhanwarlal Jain and others. 16. We have heard rival contentions and perused the record. We also notice that the Ld CIT(A) has deleted the add....
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....ination leads to the following questions: a. What is the nature of evidence that has been brought on record to show that the lender parties, who advanced the impugned loans to the appellant, were benamis of Shri Bhanwarlal Jain? b. Is there any material that has been brought out by the Assessing Officer to show that the loans in question are paper entries purchased against payment of unaccounted cash? c. Has the Assessing Officer brought any material on record to show that commission was paid to Shri Bhanwarlal Jain? 6.3.2 First of all, it would be worthwhile to examine the impugned assessment order with regard to material that shows that the hawala racket was run through benami entities of Shri Bhanwarlai Jain, In this regard it may be mentioned that: a. In sub-paragraph 4.18 of the assessment order, the Assessing Officer claims that in their respective statements, recorded u/s 132(4) all Directors/ Proprietors/Partners of the alleged benami entities run by Shri Bhanwarlal Jain have admitted to being dummies, business in whose names was actually being run by Shri Bhanwarlal Jain. b. In the very next sub-paragraph 4.19, the Asse....
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....s in question have actually been obtained against payments made by the appellant in cash outside regular books of account. There is no evidence brought on record for payment of any commission or fee having been made by the appellant to the alleged hawala givers. All this goes to support the contentions of the appellant that Assessing Officer has passed the order on the basis of mere conjectures and surmises, without bothering to bring any concrete material on record. 6.3.5 Survey Action u/s 133A of the Act at the appellant premises: Material, brought on record by the appellant before the Assessing Officer in the course of assessment proceedings clearly shows that about a year after search action of 2013 in the case of Shri Bhanwarlal Jain, the appellant was surveyed by the Investigation Wing on 16-10-2014. The survey party found that the impugned loans of Rs. 24.75 crore from the aforesaid 17 entities were incorporated in the books of account of the appellant. Statement on oath of Shri Hemal Jhaveri, Key Person, was recorded on the 16th, the 17th and the 18th of October, 2014. Shri Hemal Jhaveri maintained that these loans were genuine and were not part of any haw....
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....ain should not be treated as merely accommodation entry. Ans. As stated by me in reply to earlier question, there is no base for that presumption to treat loans received by M/s. Jainam Investment as merely accommodation entry. Q.30 As it has been stated by Shri. Bhanwar Lal Jain that all trading activity done by his concerns are nothing but only accommodation entries. It simply clarifies the fact that there is no real trading activity going on in these concerns. It simply explains that balance sheet which explains source of loan doesn't prove credit worthiness of concerns. In view of this please explain why the unsecured loan taken by the M/s Jainam Investments from the group concerns of Shri Bhanwarlal Jain should not be treated as just accommodation entry? Ans. In view of my reply to earlier question I can't comment on this. Q.31 Please go through the Q. No 29 to 34 of Shri. Bhanwar Lal Jain. In this statement Shri. Bhanwar Lal Jain has admitted that concerns operated by him has certain transactions which are not recorded in regular books of accounts. These transactions had not been routed through banks but through angdiya account in cash. ....
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....accommodation entries. 6.3.6 As is obvious, Shri Hemal Jhaveri stuck to his contention that even from the statement of Shri Bhanwarlal Jain, it was not possible to draw an adverse inference of hawala regarding the Impugned loans. The appellant, subsequently furnished to the Investigation Wing various details regarding the lenders - their names, PAN, constitution, names of Proprietor/Partner/Director. Further, the appellant provided confirmatory letters issued by the lenders, copies of acknowledgement of respective income tax returns, Balance Sheets, and relevant Bank Statements of all the lenders. Obviously, other than a general statement of Shri Bhanwarlal Jain that had reportedly retracted subsequently, no specific material to suggest the loans are hawala entries. There was nothing to show that there was any actual exchange of cash between the appellant and the alleged hawala givers before the impugned loans were incorporated in the books of account of the appellant. Also, there was no material to show that any commission for arranging the hawala had been paid by the appellant to the said Shri Bhanwarlal Jain. The situation remained unaltered in the course of t....
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....de to H R Mehta a copy of the appraisal report& third party statement etc. and proceeded to treat the loan as unexplained. The Hon'ble High Court struck down the order of reassessment by observing that revenue was not justified in making the addition without having first given the assessee an opportunity to cross examine the deponents on the statements relied upon by the ACIT. The relevant discussion, contained in paragraphs 16 and 17 of the High Court's order, is reproduced below: "16. In the instant case although the appellant assessee has called upon us to draw an inference that the burden shifted to the revenue in the present case once it was established that the payments were made and repaid by cheque we need not hasten and adopt that view after having given our thought to various Issues raised and the decisions cited by Mr. Tralshawalla and finding that on a very fundamental aspect, the revenue was not justified in making addition at the time of reassessment without having first given the assessee an opportunity to cross examine the deponent on the statements relied upon by the A CIT. Quite apart from denial of an opportunity of cross examination, the revenue....
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....hey were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross examine the manager of the bank with reference to the statements made by him. 6.3.12 On Principles of Natural Justice it has been held by the Apex Court in the case of Swadeshi Cotton Mills vs Union of India in 1981 AIR 818 that phrase "Natural justice" is not capable of a static and precise definition." "Two fundamental maxims of natural justice have now become deeply and indelibly ingrained in the common consciousness of mankind as preeminently necessary to ensure that law is applied impartially objectively and fairly. These twin Principles are (i) audi alterm pattern and (ii) nemo judex in re sua. Audi alterm partem is a highly effective rule devised by the Courts to ensure that a statutory authority arrives at a just decision and it is calculated to act as a healthy check on the abuse or misuse of power." "The maxim audi alterm partem has many facets. Two of there are (a) notice of case to be met and (b) opportunity to explain. "In facts and circumstances of a particular case when non-liance with the implied require....
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.... whether the transaction evidenced by the said computer printout are comparable GBPo the transaction of the appellant, The appellant will have to be given reasonable opportunity to establish (if he can) that the transactions are not comparable." 6.3.15 Going by the discussion contained above, it is obvious that the inference drawn by the Assessing Officer against the appellant is not sustainable for the simple reason that the principles of natural justice have not been followed. First and foremost, the appellant has not been given any access to the material (reports, intimations, statements etc.) used against it. Secondly, by withholding the said material, the Assessing Officer has denied to the appellant an opportunity to rebut the evidence by cross-examining the witnesses, statements, if any made by whom, incriminated the appellant. On both counts, the impugned assessment order fails squarely. 6.3.16 The case law relied by the assessee of Rushabh Enterprises vs. Asst CIT WRIT Petition No. 167 of 2015 is not applicable to the present case as in that case the assessee filed petition against the reopening u/s 148 of the Act and in present the assessment is made u/s....
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....e AO is entitled to draw inference that the receipts are of an assessable nature [Govindarajulu Mudaliar vs. CIT[1958]34 ITR 807 (SC)]. 6.3.21 In the case of Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78 /2S Taxman 80F (SC), the assessee gave the names and addresses of the creditors. It was in the knowledge of the Revenue that the creditors were income-tax assessees. The revenue apart from issuing notices under section 131 did not pursue the matter further. It did not examine the source of income of the alleged creditors to find out whether they were creditworthy. Therefore, it was held that in these circumstances, assessee could not do any further and it had discharged the burden laid on it. 6.3.22 In the case of Rohini Builders [2002] 256 ITR 360 /[2003] 127 Taxman 523 (Guj.) it was held that if the identity of the creditors is proved and the amounts are received by account-payee cheques, the initial burden of proving credit is discharged and the source of credits need not be proved. 6.3.23 In the case of CIT vs. Smt. Sushiladevi Khadaria [2009] 319 ITR (Bom), Hon. Bombay HC held that when loans were taken 'by account payee cheques and the record indica....
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....gs to the assessee. It was further held by the Hon'ble Court that when assessee sufficiently discharged the burden and when burden clearly shifted to the Department to prove to the contrary and when AO failed to invoke the provisions of section 131 of the Act to prove the contrary, it was sufficient reason to delete the addition. 6.3.26 In the case of CIT v. Jal Kumar Bakliwal [2014] 366 ITR 217 (Raj), it was held by the Rajasthan High Court that all the cash creditors were assessed to Income-tax and they provided a confirmation as well as their permanent account number. They had their own respective bank accounts which they had been operating and it was not the claim of the Assessing Officer that 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 non but the assessee. The addition of Rs. 17,27,250 under section 68 was not justified. 6.3.27 In the case of CIT v. Kinetic Capital Finance Ltd.....
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....es, having the ability to advance the impugned loans to the appellant.] IV. Confirmatory letters given by the creditors " V. Audited financial accounts (including balance sheets) of the creditors [These show that the loans are duly reflected in the books of account of the creditors.] VI. Relevant bank statements of the creditors [These show that the loan amounts were paid through legitimate banking channels. Further these bank statements do not reflect any movement of cash, essential to hawala transactions.] VII. Details of interest paid to the creditors VIII. Details of TDS deducted and paid 6.3.32 As such, in so far as the appellant is concerned, it has provided all possible documentary evidence to prove identity of the creditors from whom the impugned loans of Rs. 24,75,00,000 were obtained. This evidence also proves creditworthiness of the creditors and the genuineness of the transactions. Moreover all the loans were repaid through its bank, in the same year or in the subsequent year and those details were also furnished in a tabular form in the present proceedings which was reproduced as under: Party Name Date MODE LOAN RECIVED LOAN REPAID AASTHA IMP....
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....-2012 RTGS 40,00,000 MOHIT ENTERPRISES 27-06-2011 RTGS 2,75,00,000 MOHIT ENTERPRISES 20-03-2012 RTGS 1,00,00,000 MOHIT ENTERPRISES 21-10-2011 RTGS 80,00,000 MOHIT ENTERPRISES 22-10-2011 RTGS 20,00,000 MOHIT ENTERPRISES 09-11-2012 RTGS 1,75,00,000 MOHIT ENTERPRISES 10-11-2012 RTGS 1,00,00,000 NAVKAR DIAMOND 27-06-2011 RTGS 50,00,000 NAVKAR DIAMOND 04-12-2012 RTGS 50,00,000 NAVKAR DIAMONDS. 20-03-2012 RTGS 1,00,00,000 NAVKAR DIAMONDS. 22-11-2012 RTGS 1,00,00,000 PRIME STAR 18-05-2011 RTGS 50,00,000 PRIME STAR 06-12-2012 RTGS 50,00,000 ROSHAN GEMS PVT. LTD. 29-02-2012 RTGS 2,00,00,000 ROSHAN GEMS PVT. LTD. 08-11-2012 RTGS 2,00,00,000 SONAM GEMS PVT. LTD. 29-02-2012 RTGS 1,50,00,000 SONAM GEMS PVT. LTD. 2....
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....the impugned addition of Rs. 24,75,00,000/-, made in the Assessment Order, fails on several counts - (1) reliance on evidence that is totally inadequate; (2) failure to make available incriminating material (reports, statements etc.) forming basis for action by the Assessing Officer; (3) failure to give due opportunity to the appellant to cross-examine witnesses, whose statement might have been relied upon; and, (4) failure to recognise the satisfactory nature of the explanation/evidence tendered by the appellant to explain identity of creditors, creditworthiness of the creditors and the genuineness of the loan transactions. Hence, the impugned addition of Rs. 24.75 crore is hereby deleted." 17. There should not be any dispute that the initial burden to prove the cash credits is placed upon the shoulders of the assessee. It has been held by Honourable Courts that the initial burden shall be discharged, if the assessee proves three main ingredients, viz., the identity of the creditor, the creditworthiness of the creditor and genuineness of the transactions. If the assessee has discharged the initial onus, then the onus to disprove the same is shifted to the shoulders of the....
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.... been retracted. The question whether the revenue is entitled to place reliance on the retracted statements remains unanswered. Further, the assessing officer has placed reliance on the various observations made by the search officials like, sharing of common address by various concerns, inducting employees as directors etc., to come to the conclusion that these transactions are bogus in nature. We notice that the search officials have only drawn adverse inferences on the basis of information gathered by them and it is the duty of the assessing officer to substantiate those inferences by bringing corroborative materials. The Ld CIT-DR has reiterated these inferences as surrounding circumstances. However the moot point that remains is whether the assessing officer could disprove the material evidences furnished by the assessee to prove the cash credits? The various evidences furnished by the assessee, in fact, disprove the inferences drawn by the search officials. When the assessing officer could not disprove the material evidences furnished by the assessee, in our view, he is not entitled to place full reliance on the inferences drawn by the search officials, particularly the asses....
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.... for copies of sworn statements given by Shri Bhanwarlal Jain and others. The assessee also asked for an opportunity to cross examine them. However, the AO has failed to furnish copies of sworn statements and also did not afford opportunity to cross examine the deponents. Hence the decision rendered by Hon'ble Supreme Court in the case of Andaman Timer Industries (supra) goes in favour of the assessee and accordingly the Ld CIT(A) was justified in placing reliance on the same and holding that the impugned additions are not justified. 23. We notice that the assessee has specifically asked the AO to issue summons to the loan creditors, but the assessing officer has failed to do the same. It is pertinent to note that the assessee has so requested the AO, even after discharging the initial burden of proof by furnishing all the relevant details available with it. In the case of Orissa Corporation P Ltd (supra), the assessee furnished available details and then requested the AO to issue summons to the creditors, since it could not collect further details from them. The AO failed to do so and hence the Hon'ble Supreme Court held that the addition made u/s 68 is not justified. The....
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.... the AO, the Ld CIT(A) has found the same to be inadequate to warrant the additions made u/s 68 of the Act. Hence, we are of the view that the Ld CIT(A) has passed a reasoned order by considering the facts of the case, applicable case laws and has taken a justifiable view in this matter. Hence we do not find any infirmity in the order passed by Ld CIT(A). Accordingly we confirm the order passed by Ld CIT(A) in deleting the addition of Rs. 24.75 crores made u/s 68 of the Act. 25. Since we have confirmed the order of Ld CIT(A) in deleting the addition made u/s 68 of the Act, the interest disallowance is also liable to be deleted. Accordingly we confirm the order passed by Ld CIT(A) in respect of interest disallowance also. 26. The addition made towards commission expenses is also offshoot of the addition made u/s 68 of the Act. For the reasons stated in the preceding paragraph, we confirm the order passed by Ld CIT(A) on this issue also. 27. In the result, the appeal filed by the revenue is dismissed. 7. After having heard the counsels at length and after having gone through the facts of the present case as well as considering the orders passed by revenu....