TaxTMI 
TaxTMI 
2018 (8) TMI 1766
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....ommodation entries in the form of unsecured loans, bogus sale bills etc., to the interested parties. It was noticed that the assessee has taken the above said loan of Rs. 24.75 crores from the following persons belonging to Mr. Bhanwarlal Jain group. Sr.No. Name of the hawala parties Bill amount 1. Aastha Impex 30000000 2. Balaji Impex 10000000 3. Impex Gems 5000000 4. Mayur Exports 15000000 5. Malhar Exports 5000000 6. Marvin Enterprises 10000000 7. Mehul Gems Pvt Ltd 20000000 8. Minal Gems 5000000 9. Manas Gems Pvt Ltd 10000000 10. Mother Exports 5000000 11. Mouli Gems 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 17. Navkar Diamond 10000000 Total 247500000 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 ....
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....ition made u/s 68 of the Act. The Ld CIT(A) also deleted the consequent disallowance of interest expenditure and addition of Commission expenses. Aggrieved by the order passed by Ld CIT(A), the revenue has filed this appeal. 5. The Ld CIT-DR, took us through the assessment order and the appellate order to explain the view point of both the tax authorities. He submitted that the lender companies belonged to Bhanwarlal Jain Group and the directors themselves have confirmed that the transactions entered by their group are bogus. These concerns have adopted Circulatory method to transfer funds through many layers with the objective to give colour of genuineness to the transactions. He submitted that the modus operandi 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....
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.... they shared common addresses. He also took us through the copies of bank statements relating to the lenders in order to show to us that the moneys were transferred to the bank account of the lenders from some other account immediately before lending the same to the assessee. He submitted that all the lenders have followed same methodology of getting funds from some other accounts and then lending the same to the assessee. All the lenders have shared common addresses. The search officials have also shown that the directors of various companies are employees of Shri Bhanwarlal Jain, meaning thereby all the lender companies are filled with dummy directors. All these factors strengthen the admission 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 dis....
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....ri Bhanwarlal Jain do not indicate that the loans taken by the assessee are not genuine. The Ld A.R further submitted that Shri Bhanwarlal Jain and his group of companies are engaged in diamond trading business and existence of common address in diamond trade is not uncommon and hence adverse inference should not have been drawn on those facts. He submitted that it is quite common to induct trusted employees as directors of the company and the said fact should not militate against the assessee. Accordingly he submitted that the Ld CIT(A) was justified in deleting the addition made by the AO u/s 68 of the Act and also the consequential additions. 12. The Ld A.R submitted 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 inf....
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....een examined by the Investigation wing of the Income tax department and they have confirmed the transactions with our client. Ideally the appearance of the creditors before the Investigation wing and confirming the transactions should conclude the matter beyond anyone's doubt. If, however, you wish to make independent inquiries, we request you to issue summons to the loan creditors and call for their confirmations so as to once again establish the case of our client." However, the AO did not make any further enquiries at all nor did he issue summons to the loan creditors. Accordingly he submitted that the AO was not entitled to make addition u/s 68 of the 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 & 731....
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....stigation Wing, therefore, these loans, the appellant had shown in its books of account, were suspect. h. Though the appellant had provided confirmations and other supporting evidence in respect of the impugned credits; in view of the findings of the Investigation Wing, the impugned loans were treated as non-genuine and the loan amounts were added u/s 68 to the computation of total income of the appellant 6.3.1 The above being the basic thrust of the case against the appellant, the impugned assessment order needs to be examined to figure out the quality of appellant-specific evidence if any available. A search for such an examination 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....
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....f the Investigation Wing and alleged confessional statements of Shri Bhanwarlal Jain and others) have never been brought on record by making them available to the appellant From the impugned assessment order it is seen that though the Assessing Officer appears to have taken the view that the impugned loan creditors are mere entry providers and that the impugned loan entries have been obtained by the appellant against payments made to the said entry providers in cash, no specific material has been brought on record to show that creditors, from whom the impugned loans of Rs. 24.75 crore were taken are entry providers and that entries for the loans 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: ....
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....e loans are not considered to be accommodation entries. There is no base for any adverse inference for treating loans received by M/s. Jainam Investments as not genuine. Q.29 It is important to emphasise that in his statement he has explained how entries are given to parties in addition to diamond traders and how the whole chain of transaction is completed. Further it has been accepted by him that all the transactions done by his concerns follow the same modus operandi which amounts to only accommodation entries. In view of same, please explain as to why transaction between M/s Jainam Investments and these concerns of Sh. Bhanwar Lal Jain 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 ....
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....nbsp; 2011-12 25,75,00,000 2012-13 55,51,00,000 2013-14 12,55,00,000 Total 116,16,00,000 Ans. Loan received by M/ s. Jainam Investments are not accommodation entries and it is also not so admitted by Shri Bhanwar Lal Jain. Hence no adverse inference should be drawn as suggested by you. Q.37 In view of the discussion in Q.No. 25 to 33 above why the unsecured loans taken from parties mentioned in your reply to Q.No.35 above should not be considered as only accommodation entries. Ans. There is nothing to suggest even from the statement of Shri Bhanwarlal Jain that loans transactions by the above parties are accommodation entries. As such, no inference should be drawn in absence of any evidence, that these loans are acc....
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.... facts, it is obvious that the Assessing Officer, while supposedly acting on a report of the Investigation Wing and some alleged third party evidence, never made the said report and evidence available to the appellant. Thus, the appellant was denied a chance to rebut the evidence by cross-examining those, who had allegedly given statements that could incriminate the appellant. All this is a clear violation of the principles of natural justice, a fundamental point to the validity of the proceedings, before the Assessing Officer. 6.3.9 The facts of the appellant's case are identical to those of in the case of Mehta, decided by the Bombay High Court through an order dated 30.06.2016 in INCOME TAX APPEAL NO.58 OF 2001. In that case, the assessee had adduced evidence by way of bank record to show that loan had been received from a creditor through banking channels. The creditor was not physically traceable, as much time had elapsed and his address had changed. The assessment had been reopened on the basis of third party evidence collected in a search action in the case of a charitable trust. Despite specific request in this regard, the Assessing Officer concerned did not pr....
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....unity of cross-examination of witnesses is an essential ingredient of the principle of natural justice. This has been affirmed by the Hon'ble Supreme Court in the case of Andaman Timber Industries [Civil Appeal No. 4228 of 2006, Date of Pronouncement- September 02, 2015]. In that case, the Hon'ble Supreme Court held that not allowing assessee the opportunity to cross-examine witnesses, whose statements were made the basis of a demand, is a serious flaw which makes order a nullity, as it amounts to violation of principles of natural justice. 6.3.11 In the case of Kishinchand Chellaram Vs. Commissioner Of Income-Tax, Bombay City-II [1980] 125 ITR 713 (SC) It has been held by the Apex Court that in Income Tax proceedings when an evidence is to be used against the assessee and if it is not shown to the assessee and if no opportunity to controvert is given to the assessee, that evidence is not admissible. It further held the department ought to have called upon the manager to produce the documents and papers on the basis of which he made the statements and confronted the assessee with those documents and papers. Before the Income tax authorities could rely upon the evidence....
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....set aside the order with below extracted observations: "22. ....... the respondent (revenue) did not supply the information (alleged computer printout} which formed the basis of the conclusion that the appellants herein undervalued the goods imported. In such a situation, the appellants obviously cannot and did not have any opportunity of establishing that the claim of the revenue is unsustainable in law. If the information, which formed the basis for the Revenue to reject the appellant's valuation is supplied to the appellants, the appellants perhaps will have the opportunity to dispute the comparability of the import transactions allegedly contained in the computer printout on various counts may not be possible to catalogue. 23. In the absence of any material produced by the Revenue in proof of the alleged comparable imports at a higher value, the impugned order which eventually confirmed the original order of assessment ......... cannot be sustained for two reasons - (1) the mere existence of an alleged computer printout is not proof of the existence of comparable imports; (2) assuming such a printout exists and the contents thereof are true, the question s....
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....ble explanation as regards the sum found credited in the books maintained by the assessee. It further held that the opinion of the AO for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material & other attending circumstances available on record. The opinion of the AO is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion. 6.3.19. The law Is well-settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him and where the nature and source of a receipt, whether it be of money or other property, cannot be satisfactorily explained by the assessee, it is open to the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that the income is from any particular source [Roshan Di Haiti v. CIT[1977] 107 ITR 938 (SC)]. 6.3.20 The initial burden to prove the genuineness of cash credit lies on the taxpayer. If the assessee fails to prove satisfactorily the source and nature of amounts of cash received an....
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.... his burden of proof. AO did not make any attempt to discharge his burden of proof to rebut the evidences produced by assessee. No addition u/s.68 can be sustained. 6.3.25 In the case of CIT v, Varinder Rawlley [2014] 366 ITR 232 (P&H), it was held by the Punjab & Haryana High Court that Section 68 of the Income-tax Act, 1961, provides for charging of income of the assessee to tax, if, in the opinion of the Assessing Officer, the assessee failed to render any explanation or the explanation offered by the assessee about the nature and source of any sum found credited in the books of the assessee maintained for the previous year, is unsatisfactory. In other words, it is for the assessee to prove the genuineness of the transaction by identifying creditor and his capacity to advance money. The onus lies upon the assessee to the explain the credit entry but it shifts upon the Assessing Officer under certain circumstances. Where the assessee shows that the entries regarding credit in a third party's account were in fact received from the third party and are genuine, he discharges the onus. In that case the sum cannot be charged as the assessee's income in the absence of ....
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....Court held that the assessee's burden is confined to proving the creditworthiness of creditor with reference to transaction between assessee and creditor and it is not the business of the assessee to find out the source of money of his creditor or of genuineness of transaction which took place between the creditor and sub-creditor and/or the creditworthiness of the sub-creditors. 6.3.30 Hence, it is to be inferred that in a case where the assesse has supplied all possible information to the Assessing Officer to explain the credit transaction, he has satisfactorily discharged the burden cast on him and it would be for the revenue to prove that the transaction is not satisfactorily explained and provisions of section 68 of the Act are applicable. 6.3.31 In the case before me, the record also shows that to prove the genuineness of the impugned loan entries from the 17 creditors, the appellant has furnished to the Assessing Officer the following details copies of which were also furnished in the present proceedings: I. PAN details of creditors II. Constitution and address of the creditors III. Particulars of income-tax returns filed by t....
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....sp; 50,00,000 AASTHA IMPEX 24-11-2012 RTGS 50,00,000 BALAJI IMPEX 04-05-2011 RTGS 1,00,00,000 BALAJI IMPEX 13-06-2012 RTGS 1,00,00,000 IMPEX GEMS 23-06-2011 RTGS 50,00,000 IMPEX GEMS 17-03-2012 RTGS 50,00,000 MAYUR EXPORTS 16-05-2011 RTGS 50,00,000 MAYUR EXPORTS 25-06-2011 RTGS 1,00,00,000 MAYUR EXPORTS 22-11-2012 RTGS 1,50,00,000 MALHAR EXPORTS 22-07-2011 RTGS 50,00,000 MALHAR EXPORTS 06-02-2012 RTGS 50,00,000 ....
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.... 2,00,00,000 SONAM GEMS PVT. LTD. 29-02-2012 RTGS 1,50,00,000 SONAM GEMS PVT. LTD. 29-02-2012 RTGS 1,50,00,000 SONAM GEMS PVT. LTD. 01-03-2012 RTGS 2,00,00,000 SONAM GEMS PVT. LTD. 09-11-2012 RTGS 5,00,00,000 24,75,00,000 24,75,00,000 6.3.33 Thus, it has to be said that the appellant had done everything in its power to prove the three ingredients required to prove the satisfactory nature of the loan transactions. In these circumstances, the onus had shifted to the Assessing Officer. If the Assessing Officer was still not satisfied, he had the option of making inquiries from the alleged lenders by summoning them. However, as seen from the assessment order, he did not do any such thing. Further, if the Assessing Officer was not satisfied with what had been given to him by the appellant, he was duty bound to specify what more material he wanted the appellant to furnish. The Assessing Officer never asked for any further material, though time and again the appellant asked in their submissions. This leads to the inescapable conclusion that the Asse....
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.... to discharge the burden shifted upon his shoulders. Instead, we notice that the assessing officer has simply placed reliance on the alleged incriminating materials found in the course of search conducted in the hands of Shri Bhanwarlal Jain and his group and also upon the sworn statements given by them. 18. The Ld CIT-DR, by placing reliance on the decision rendered by Hon'ble Delhi High Courts in the cases of Jansampark Advertisement and marketing (supra) and Bikram singh (supra), contended that the appellate authorities are duty bound to conduct further enquiries, if there is deficiency in the enquiry conducted by the AO. However, in the instant case, we notice that the addition has been made u/s 68 of the Act and the assessee has discharged the onus placed upon him under that section. On the contrary, the assessing officer did not bring any material on record to show that the various evidences furnished by the assessee are not reliable and instead rested fully upon the Sworn Statements and the alleged incriminating materials. Hence, in our view, the question of deficiency in the enquiry of the AO does not arise in the instant case. 19. The Ld DR also placed reliance on th....
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....ated in his statement taken from him during the course of survey that the loan transactions are genuine. When it was pointed out that Shri Bhanwarlal Jain has admitted the bogus nature of transactions, the key person has specifically stated that the said admission related to the sale of diamonds and further specifically stated that the loan transactions are not covered in the statement. Hence the Ld CIT(A) was right in observing that the impugned loan transactions have not been specifically covered by the statement given by Shri Bhanwarlal Jain. Hence in our view, the theory of human probabilities and surrounding circumstances need not be applied in this case. 20. It is a fact that the revenue has conducted survey operations in the hands of the assessee and they did not find any incriminating material concerning these loan transactions at the time of survey. There is also no evidence to show that the cash equivalent to the loan transactions has been given by the assessee to various lenders. 21. The Ld A.R placed his reliance on the decision rendered by Hon'ble Supreme Court in the case of Kishinchand Chellaram (supra) in order to contend that the AO could not have used the ma....
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....he creditors are legitimate business entities, 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". Even though the assessing officer did not find any fault with these documents, still the assessee has requested the AO to issue summons to these parties. As stated earlier, the assessing officer did not issue summons and instead relied upon the inferences drawn by the search officials. Hence, in our view, the decision rendered by Hon'ble Supreme Court in the case of Orissa Corporation (P) Ltd (supra) will also come to the support of the assessee. 24. We notice from the operative portion of the order....