TaxTMI 
TaxTMI 
2019 (6) TMI 584
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....ve memorandum of appeal. For the sake of brevity, grounds of appeal taken in ITA No.2688/Mum/2018 for Assessment Year 2013-14 of M/s Pabal Housing Pvt. Ltd. is reproduced hereunder:- " 1. On the facts and circumstances of the appellant's case and in law the Ld. Commissioner of Income Tax (Appeals) 47 (CITA) erred in not holding that the Ld. Assessing Officer (AO) has not followed the principles of natural justice by granting effective opportunity of being heard and providing material/record gathered during search/survey proceeding in the third party's case, if any intended to be used against the appellant. 2. On the facts and circumstances of the appellant's case and in law the Ld. CITA erred in not holding that the Ld. AO erred in making the various additions disallowance merely relying on the averments made by Shri Bhanwarlal Jain. 3. On the facts and circumstances of the appellant's case and in law the Ld. CITA erred in confirming the addition of sum of Rs. 10,45,00,000/- made by the Ld. AO in respect of unsecured loans taken from the persons mentioned herein below as alleged accommodation entries and treating the same as alleged unexpl....
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....es. During the course of search, copious incriminating material/ documents/papers/data were found and seized. During search operation, a statement u/s 132(4) was recorded from Shri Bhanwarlal Jain and several other persons, wherein, it has been admitted by them that they were providing accommodation entries for bogus sales/purchases/import for others, through various benami concerns. The documents/seized materials, were analyzed in detail by Mumbai Investigating Wing, where, it was further noticed that the assessee was also one of the beneficiaries of such accommodation entries for loans provided by Benami Concerns of Bhanwarlal Jain Group. 4. Thereafter, survey operation u/s 133A was carried out on 16/10/2014 on M/s Poonam group of cases to which the assessee belongs, on the basis of information gathered during the course of search in cases of M/s Bhanwarlal Jain Group. During the course of survey on Poonam Group, Shri Ashwin Mehta, who look after the financial matters of the group including raising of funds had accepted in his statement recorded u/s 131 that various concerns belonging to Poonam Group have indeed obtained loans and advances in different year from various concer....
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....essee and also after thoroughly discussing the modus operandi explained by DGIT(Inv.) during the course of search and survey operations came to the conclusion that the assessee has failed to prove the primary onus by establishing the identity, genuineness of transactions and creditworthiness of the parties. The AO, further observed that information gathered during the course of search in cases of Shri Bhanwarlal Jain and also survey in group cases of M/s Poonam Group clearly established the fact that the transactions between the parties are mere book entries without there being any commercial aspect, therefore, merely for furnishing certain documents to prove the identity and payments by said loans through proper banking channels would not discharge initial onus cast upon the assessee u/s 68 of the Act. Although, the assessee has filed enormous details in respect of said loans but fact remains that the information gathered during the course of search clearly proves the fact that Mr. Bhanwarlal Jain and its associates are controlled 70 odd companies for providing bogus unsecured loans for various beneficiaries. Mr. Bhanwarlal Jain, himself in his statement admitted this fact before ....
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....the loans taken by it in which it has miserably failed. It is evident that on perusal of the books of accounts of the assessee company, the information received from the Investigation wing of the department ,Mumbai, regarding the billers name and amounts are matched in-tote and verbatim. Hence the assessee's argument on this lacks any merit and deserves to be rejected. There is a specific finding the above mentioned parties had issued false bills without delivery of goods unearthed by the independent enquiries conducted by the office of the DGIT (mV), Mumbai. Such crucial findings based on corroborative evidences unearthed during search negate the contention of the assessee. Thus, undisputed fact is that the purchases claimed to have been made from these parties remained unverified. In fact, Self- interest talks in all sorts of tongues and ploys all sorts of roles. The indifference of not producing the party which issued the bill is indicative of the truth. The Revenue is not doubting all the purchases but doubting only those purchases for which the genuineness could not be proved. The assessee in its reply has not been able to give a satisfactory reply to the....
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....cordingly it is also held that inaccurate particulars of income has been filed to conceal income chargeable to tax and penalty u/s.271(1)(c) is separately initiated. Since the unsecured loans in question have been held to be mere accommodation entries i.e. bogus in view of the categorical findings discussed above, the interest paid on the same is also not an allowable expenses under the provisions of Income Tax Act. Accordingly the interest debited on this account amounting to Rs. 98,30,414/- paid to parties belonging to Shri Bhanwarlal Jain group (Which includes interest paid to M/s. Maridian Jewellery Pvt. Ltd, M/s Rose Gems, M/s Sankhala Exports, M/s Little Diam, M/s Mouli Gems M/s Rose Impex for the loan taken during the F.Y.2012-13 and old loans from M/s Mahalaxmi Gems Pvt. Ltd,M/s Look at me real Pvt. Ltd, M/s A- 2 Jewels) is also disallowed and added back to the total income. Further, the commission element for procuring the accommodation bills is also to be considered and the same need to be worked out and added back. It is known practice that accommodation bills for bogus loans are obtained by giving a commission. As discussed above in the preceding Para ....
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....hat said loans have been taken under normal business circumstances and also these loans are taken on normal rate of interest. The assessee has paid interest after deducting necessary TDS applicable as per law. These loans were repaid in next Financial Year. All these evidences were part of assessment record. During the course of survey, in group cases of M/s Poonam Group, no contrary evidence was found to link evidences gathered during the course of search in case of Bhanwarlal Jain to the credits found in the books of accounts of the assessee except stating that Mr. Bhanwarlal Jain has admitted in his statement that he is involved in providing bogus entries and the assessee is one of the beneficiary of such bogus entries. Similarly, the AO has made addition towards purchase without considering the explanation furnished by the assessee to justify those purchases in light of various evidences. 8. The Ld. CIT(A), after considering the submissions of the assessee and also by relied upon plethora of judicial precedents, including the decision of the Hon'ble Supreme Court in the case of Sumati Dayal (1995) 214 ITR 801(SC) held that the assessee has failed to prove the identity, credi....
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....n of the Hon'ble Supreme Court in the case of N. K. Proteins Ltd. in SLP 759 of 2017, dated 16/01/2017 affirmed the findings of the Ld. AO in confirming alleged bogus purchases on the ground that when notices u/s 133(6) were issued to those parties, all notices were returned back with remark "not known". Further, when the AO deputed Inspector attached to the office for verification, the Inspector gave report that none of the parties were available in the given address. When the evidences gathered during the course of assessment proceedings, clearly proved the fact that those parties are not available in the given address, then whatever documents were furnished by the assessee are self-serving documents which cannot be given much importance, therefore, there is no error in the findings of the AO in making addition towards bogus purchases. The relevant findings of the Ld. CIT(A) are as under:- 12.116 The Appellant has relied on various judicial pronouncements, during the course of the appellate proceedings. However, most of the case laws relied upon by the appellant doesn't relate to entry operator and hence are distinguishable on facts, which have been discussed above i....
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.... operation on the Bhanwarlal Jain Group has revealed that even the interest portion paid through cheque and duly recorded in the books of account at both the ends, has also been settled in cash. Thus, against the amount of interest paid by the borrower by cheque / RTGS, an equivalent amount of unaccounted cash is received back by the borrower from the respective Bhanwarlal Jain Group concern. 13.3 Accordingly, it is held that the interest debited in the P&L Account amounting to Rs. 98,30,414/- in the name of various parties belonging to the Bhanwarlal Jain Group, on the accommodation entries of loans has been rightly disallowed by the A.O. and is upheld. Hence, the Ground No. 4 of the present appeal is hereby dismissed. 14.13 Thus, the application of a rate of 20 paisa per Rs. 100 per month, as commission on accommodation entries of loans / advances by the Assessing Officer is duly corroborated by the seized material found in the case of Shri Bhanwarlal Jain. It is clear from the material on record that Shri Bhanwarlal Jain has charged commission @ 0.2% per month in cash on the outstanding amount of the accommodation entries, for the entire period for which such e....
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....terial supplied by me. In fact, I am a commission agent and not involved in any supply of any material to any company. I just received the RTGS amounts in my accounts and remit the same to the accounts which the above mentioned agents direct me to do so. There has been no supply of any material or services to the Poonam group by me whatsoever. Q.11. Do you have a TIN no? Have you been registered in the Service tax Department? Ans: I do not have any TIN No. nor have I been registered in the Service Tax Department. Q.14. Please explain the transactions which you have carried out with M/s. Poonam Group of companies. Ans: I only do the transactions in the Poonam group as directed by my broker, Kanakbhai. I do not carry out any genuine business transaction with the Poonam group of companies. I only give accommodation entries to the Poonam group and various other groups which are reflected in my bank accounts. Q.16: Please state when you are doing the business of bill/cheque discounting for M/s Poonam Group? Ans: I am doing the business of cheque discounting for M/s Poonam Group for the last 5-6 years. 18.2 In the above state....
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....rprises of Rs. 63.17.640/- & M/s. Akash International of Rs. 27,63,372/-totaling to Rs. 90,81,012/- has been rightly disallowed by the A.O. and are accordingly confirmed. Accordingly, this Ground of Appeal No. 6 of the Appellant is dismissed." 9. The first issue that came up for our consideration from assessee's appeal is additions towards unsecured loans of Rs. 10,45,00,000/- taken from companies controlled and operated by Shri Bhanwarlal Jain and his associates. The Ld. AR for the assessee submitted that ld. CIT(A) was erred in confirming additions made by the AO towards unsecured loan taken from companies belonging to Bhanwarlal Jain without appreciating the fact that the assessee has proved all ingredients provided u/s 68 of the Act. The Ld. AR further submitted that the assessee has filed enormous documents in order to prove the identity, creditworthiness of the parties and genuineness of transactions. In fact, the AO never disputed identity of loan creditors. The AO has categorically admitted that assessee has filed various documents including confirmation letter, PAN, ITR acknowledgment along with financial statement, bank statement of loan creditors and also affidavit fr....
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....) iv. CIT vs. Steller Investment Ltd (2001) 251 ITR 263 (SC) (civil appeal) v. CIT vs. Nav Bharat Duolex Ltd (2013) 35 Taxmann.com289 (All-High Court) vi. CIT vs. JayDee Securities & Finance Ltd (2013) 32 Taxmann.com91 (All-High Court) vii. ACIT vs. Venkateshwarlspat Pvt Ltd (2009) 319 ITR 393 (Chhatisgarh-High Court) viii. Mod Creations Pvt Ltd vs. /TO (2013) 354 ITR 282 (Del- High Court) ix. CIT vs. Al Anam Agro Foods (P.) Ltd (2013) 38 Taxmann.corn 375 (All-High Court) x. CIT vs. Dwarkadhish Investment (P) Ltd (2011) 330 ITR 298 (Del-High Court) xi. CIT vs. Namastey Chemicals Pvt Ltd (2013) 33 Taxmann.com271 (Guj-High Court) xii. CIT vs. Peoples General Hospital Ltd (2013) 356 ITR 65 (MP-High Court) xiii. CIT vs. Shree Rama Multi Tech Ltd (2013) 34 Taxmann.com177 (Guj-HC) xiv. CIT vs. Nikunj Eximp Enterprises (P.) Ltd (2013) 35 Taxrnann.com384 (Bom) xv. CIT vs. Samir Bio- Tech Pvt Ltd (2010) 325 ITR 294 (Del- High Court) 10. The Ld. DR on the other hand strongly supported the order of the Ld. CIT(A) and submitted that the AO as well as the Ld. CIT(A) brought out clear f....
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.... these shell companies/hawala operators would keep necessary paper document in order to give colour of genuineness to their transactions. Therefore, he opined that the transactions between the parties are failed to pass the test of genuineness and accordingly made additions u/s 68 of the Act. 12. The provisions of section 68 of the Act deals with the cases, where any sum found credited in the books of account of the assessee in any Financial Year, and the assessee offers no explanation about the nature and source thereof or explanation offered by the assessee is not in the opinion of the AO satisfactory, then the sum so credited may be charged to income tax as the income of the assessee of that previous year. A plain reading of section 68 makes it very clear that in order to fix any credit within the ambit of section 68 of the Act, the AO needs to examine three ingredients i.e. identity, genuineness of transactions and creditworthiness of the parties. If the assessee proves all ingredients provided u/s 68 of the Act, then the onus shifts to the AO to prove otherwise. In this legal background, if you examine the identity of the assessee in light of findings recorded by the AO in ....
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....clusion that the transactions between the parties are not genuine and which are hit by the provisions of section 68 of the Act. The AO never brought out any further facts to link credits found in the books of accounts of the assessee to the evidences found during the course of search in the case of Shri Bhanwaral Jain except statement of Shri Bhanwaral Jain. Even during the course of survey in group cases of assessee, no incriminating material was found which can be linked to evidences collected during the course of search in case of Shri Bhanwarlal Jain. Further, during the course of survey in assessee's group cases, the directors and employees have categorically admitted that they have personally visited office of Shri Bhanwarlal Jain Group Companies for arranging loans. The AO did not controvert this fact by bringing any other evidences. On the other hand, the assessee has filed complete details including confirmations from loan creditors, their PAN details, master data, affidavit from the directors/partners/ proprietors of those companies, income tax acknowledgments receipts along with financial statements, bank statements of loan creditors in order to prove the identity, genui....
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....not be termed as "bogus". The controversy is covered by the judgements rendered b y the Hon'ble Supreme Court in the case of Lovely Exports Pvt Ltd, vs. CIT, (2008) 216 CTR (SC) 195, as also by this Court in CIT vs. Creative World Tele films Ltd, (2011) 333 ITR 100 (Bom). In such circumstances, we are of the view that the Tribunal's finding that there is no justification in the addition made under Section 68 of the Income Tax Act,, 1961 neither suffers from any perversity nor gives rise to any substantial question of law." CIT vs. Creative World Tele films Ltd (2011) 333 ITR 100 (Born-High Court) "The question sought to be raised in the appeal was also raised before the Tribunal and the Tribunal was pleased to follow the judgment of the apex Court in the case of CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195. wherein the apex Court observed that if the share application money is received by the assessee-company from alleged bogus shareholders, w hose names are given to the AO, then the Department can always proceed against them and if necessary reopen their individual assessments. In the case in hand, it is not disputed that the assessee had given....
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....by the shareholders. Accordingly CIT(A) and the Tribunal has not committed any illegality in allowing the appeal of the assessee. We do not find any illegality in the judgment of the CIT(A) and the Tribunal." CIT vs. JayDee Securities & Finance Ltd (2013) 32 Taxmann.com91 (All- High Court) "The Tribunal recorded findings that the assessee had produced the return of income filed by the relevant shareholders who had paid share application money. The assessee had also produced the confirmation of share holders indicating the details of addresses, PAN and particulars of cheques through which the amount was paid towards the share application money. The Tribunal thereafter relied upon the judgment of the Supreme Court in CIT V. Lovely Exports (P.) Ltd wherein it was held that if the assessee produces the names, addresses, PAN details of the share holders then the onus on the assessee to prove the source o f share application money stands discharged. If the Assessing Authority was not satisfied with the creditworthiness of the shareholders, it was open to the Assessing Authority to verify the same in the hands of the shareholders concerned, The Tribunal has relied upon a....
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....uestion to tax in the hands of the creditors or sub- creditors." CIT vs. Al Anam Agro Foods (P.) Ltd (2013) 38 Taxmann.corn 375 (All- High Court) Tribunal, however , held that since identity of share holders stood proved on record, amount of share application money could not be added to income of assessee. According to Tribunal, in such a case amount could be taxed in hands of persons who had invested" CIT vs. Dwarkadhish Investment (P) Ltd (2011) 330 ITR 298 (Del-High Court) "Just because the creditors/share applicants could not be found at the address given, it would not give the Revenue the right to invoke s. 68- Revenue has all the power and wherewithal to trace any person-Moreover, it is settled law that the assessee need not to prove the 'source of source'- In the instant case, the Tribunal has confirmed the order of the CIT(A) deleting the impugned addition holding t hat the assessee has been able to prove the identity of the share applicants and the share application money has been received by way of account payee cheques." CIT vs. Namastey Chemicals Pvt Ltd (2013) 33 Taxmann.com271 (Guj- High Court) "In the pres....
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....lity much less any perversity too to interfere with the order of the both these authorities, who had concurrently held the due details having been proved. The assessee company had presented the necessary worth proof before both the authorities and it was not expected by the assessee company to further prove the source of the deceased." CIT vs. Nikunj Eximp Enterprises (P.) Ltd (2013) 35 Taxrnann.com384 (Bom) "Whether merely because suppliers had not appeared before Assessing Officer or Commissioner (Appeals), it cou ld not be concluded that purchases were not made by assessee - Held, Yes.... Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were in fact made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the CIT(A), one cannot conclude that the purchases were not made by the respondent- assessee" CIT vs. Samir Bio- Tech Pvt Ltd (2010) 325 ITR 294 (Del-High Court) "Identities of the subscribers are not in doubt. The transactions have also been undertaken through banking cha....
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....ns towards u/s 68 of the Act only on the basis of statement of Shri Bhanwarlal Jain. The relevant findings of the Tribunal are as under:- "3. I have considered the rival submissions and perused the material available on record. The facts in brief are that the assessee an individual engaged in the business of builder and developer declared loss of Rs. 1,29,68,736 in his return on 15.09.2009. The assessment was completed u/s 143(3) of the Act on 30.11.2011 assessing the loss at Rs. 1,13,73,448. The assessee carried the matter in appeal before the learned CIT(A) wherein vide order dated 03.02.2014, part relief was granted to the assessee. Later on, the case of the assessee was reopened u/s 147 on the basis of information that the assessee has received accommodation entry of unsecured loan from M/s. Laxmi Trading Company, M/s. Mouli Gems, M/s. Minal Gems, M/s. Naman Exports and M/s. Prime Star, pertaining to Bhawarlal Jain Group. As per the assessee, during the assessment proceedings, documentary evidences pertaining to loan from aforementioned parties like confirmation, bank statement and acknowledgment of return of income of loan, bank statement of the assessee reflecting th....
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....ccount of interest expenditure on alleged bogus loans. The learned D.R. defended the addition, whereas, the learned Counsel for the assessee invited my attention to the finding recorded in Para-6.1 of the impugned order. On a perusal of record and the assertions made by the respective Counsels. There is a finding in the impugned order that the assessee duly produced the bank statement from where interests were paid also copies of form no.16A evidencing the TDS made and deposited into the Government account with respect to payment of interest. Since in earlier paras of this order since I have upheld the order of the learned CIT(A), therefore, the issue of interest is consequential in nature, therefore, the conclusion drawn in the impugned order is upheld." 17. Coming to the cases relied upon by the Ld. DR in light of various case laws discussed by the AO as well as the Ld. CIT(A). We have considered the cases relied upon by the Ld. DR as well as the Ld. CIT(A) in light of facts of present case and we found that the case laws considered by lower authorities were rendered under different set of facts which cannot be applied to the facts of the present case. Accordingly, the cases r....
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....filed basic evidences including confirmations from the parties, but when notice u/s 133(6) were issued, such notices were returned unserved with a remark "address not known". The AO further observed that when notices were returned unserved, Inspector attached to the office was deputed to make further local enquiries with regard to the above mentioned parties. The enquiries conducted by the Inspector have also revealed that no such parties/firm/companies are in existence at the address given by the assessee. It is a contention of the assessee that it has filed entire documentary evidences of the vendor such as invoices, ledger confirmations, bank statements, delivery challans to prove genuineness of the purchases. The AO neither pointed out any discrepancy in the books of accounts or evidences filed by the assessee nor made out a case of sales outside the books of accounts. The sole basis of alleging the purchase transaction to be accommodation entries is statement of various parties. But, in spite of specific request, the AO declined to provide the statement and evidences relied upon and also denied opportunity to cross examines those parties. The assessee further contended that in....
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....dure is provided under the Act to deal with those parties. For this purpose, the assessee cannot be blamed or made responsible for non-appearance of parties and also purchase from the parties cannot be considered as bogus when the assessee has filed all other evidences to prove the purchases from the parties. In this case, the assessee filed complete details including confirmations from the parties. The AO never disputed this fact. The AO also accepted sale declared by the assessee. Therefore, we are of the considered view that it is difficult to accept the arguments of the AO that purchases from above parties are bogus in nature. 22. Having said so, let us examine what is the amount of additions required to be made when both parties failed to conclusively prove the purchases in their favour. We find that this issue is recurring issue which is subject matter of deliberations by the Co-ordinate Bench of ITAT, Mumbai, in number of cases. The Tribunal, after considering the relevant facts and also taking note of nature of business carried out by the parties came to the conclusion that when both parties are failed to prove their contention, then only profit element embedded in those....