TaxTMI 
TaxTMI 
2019 (2) TMI 895
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....her on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 7,15,000/- made under section 69C of the Income Tax Act towards the commission payment for obtaining the loan entries at the rate of 0.2% of such amount, which being the prevalent business practice." 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 business of share trading. For the assessment year under consideration, the assessee had e-filed Return of Income on 27.09.2014 declaring Rs. Nil Taxable income. The case was selected under CASS for scrutiny. During the year in due course of business assessee had received unsecured loans from different parties, which included parties belonging to Bhanwarlal Jain Group. It was reported by DDI(Inv.), Mumbai that a Search action was carried out on the Bhanwarlal Jam Group on 3-10 2013, and it was admitted by Shri Bhanwarlal Jain that all the loans ....
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....al Jain and his group concerns on 3.10.2013 and the said search revealed that they are engaged in providing accommodation 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 file....
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....unt of loan of Rs. 24.75 crores cannot be assessed as income of the assessee and accordingly deleted the addition 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 t....
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.... The Ld CIT-DR then took us through the financial statements relating to various lenders in order to show that 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 th....
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....sion made by Shri Bhanwarlal Jain. However, Shri Hemal Jhaveri has specifically stated that the admission made by Shri 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 i....
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....missions made by the assessee are extracted below:- "11. As informed earlier, all the loan creditors have been 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-ord....
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.... shown to have been obtained by the appellant, figured in the data base of entities and entries compiled by the Investigation 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? ....
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....llant is but poor and not fully relied upon. This flaw is further magnified as the adverse material if any (report of 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....
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....me earlier statement of Shri. Bhanwarlal Jain wherein he has admitted that he has given loans to some builders. These 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 ....
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.... 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 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 conf....
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....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 provide 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 Cour....
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....hich 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, they 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 d....
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....e 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 still remains 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 pr....
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.... 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 and creditworthiness of the creditor, the 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 fro....
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....cer, 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 any material to indicate that it belongs 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 Bak....
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....erred 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 the creditors [These show that the 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 cre....
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.... GEMS PVT. LTD. 29-02-2012 RTGS 1,00,00,000 MEHUL GEMS PVT. LTD. 13-07-2012 RTGS 1,50,00,000 MEHUL GEMS PVT. LTD. 08-11-2012 RTGS 50,00,000 MINAL GEMS 23-06-2011 RTGS 50,00,000 MINAL GEMS 17-03-2012 RTGS 50,00,000 MANAS GEMS PVT. LTD. 29-02-2012 RTGS 1,00,00,000 MANAS GEMS PVT. LTD. 08-11-2012 RTGS 1,00,00,000 MOTHER EXPORTS 25-06-2011 RTGS 50,00,000 MOTHER EXPORTS 17-03-2012 RTGS 50,00,000 MOULI GEMS 25-06-2011 RTGS 50,00,000 MOULI GEMS 19-10-2011 RTGS 10,00,000 MOULI GEMS 17-03-2012 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 ....
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....re, 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 a....
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....cted. 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 assessee could r....
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....ts 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 assessee herein, in our view, stan....
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.... 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. The above order passed in ITA NO. 6099/Mum/2016 for AY 2012-13 was also followed by the Coordinate Bench in assessee's own case in ITA No. 5637/Mum/17 for AY 2013-14 wherein the operative portion is also reproduced be....
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....on the repeated request made by the assessee to furnish copies of print outs of date of transactions pertaining to the assessee and relevant to A.Ys.2012-13 and 2013-14. Apart from that the AO was also asked to furnish any other evidence in his possession in regard to the unsecured loans procured by the assessee from various entities of Shri Bhanwarlal Jain Group. But the AO did not supply the same. 9. Apart from that the AO had also failed to provide copy of "party-wise ledger account" of the assessee containing details of corresponding cash received against loans on various dates and commission charged by Bhanwarlal Jain thereon. Therefore in such circumstances, the AO had no valid basis for treating the 'unsecured loans' as 'accommodation entries'. There is nothing on the record to show that the assessee admitted at any point of time to have procured accommodation entries of loans. 10. We also found that the Hon'ble ITAT as mentioned above in assessee's own case, we find that the identical issue has already been decided by the Hon'ble ITAT in ITA No. 6099/Mum/16 for AY 2012-13 in assessee's own case. Therefore on the basis of our above findings and also respectfully fol....