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TaxTMI 
TaxTMI 
TaxTMI 
2019 (6) TMI 584
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....evity, 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 unexplained credits: Name of the party Amount Meridian Jeweller....
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....g 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 concerns managed and controlled by Bhanwarlal Jain and his son Shri Rajesh B. Jain. Further, during the survey u/s 133A of....
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....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 the search party. Although, the assessee has denied any wrong doing by accepting accommodation entries during the cour....
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....ee 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 stand taken by the Department. The assessee has not commented on the entire modus operandi admitted by the parties concerned. The parti....
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.... 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 and admitted by Shri. Bhanwarlal Jain, in his statement , the commission received by him on bogus loan entry is 0.2% per month i.e. 20 paise per Rs. 100/-. In this....
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....ary 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, creditworthiness and genuineness of unsecured loans taken from concerns of Bhanwarlal Jain and thus, the AO has rightly made additions towards unsecured loans u/s 68 of the Act. The Ld.....
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....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 in an elaborate manner. On the other hand, there are various binding precedents of the Hon'ble Supreme Court and High Courts in favour of the Revenue, which have been discussed above,....
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....id 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 entry has remained outstanding. It needs to be emphasized here that it is not the case that Shri Bhanwarlal Jain has charged commission only at the time of giving of the accommodation entry of loan. The fact is that Shri Bhanwarlal Jain has charge....
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....aterial 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 statement, Shri Jitendra Champalal Jain has clearly admitted that he is just a commission agent and no material has been supplied to the concerns of Poonam Group. It has been further stated by him that he has only given accommodation entries to the Poonam Group. Further, Shri Jitendra Champalal Jain has stated that all the entries re....
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....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 from director/partner/proprietor of those companies/firms to prove the identity, genuineness of transactions and creditworthiness of the parties. The Ld. AR further submitted that the assessee also filed various details in order to prove genuineness of transactions in the backdrop of admission of Shri Bhanwarlal Jain in his statement recorded u/s 132(4) of the ....
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....54 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 facts to the effect that the assessee is one of the beneficiaries of accommodation entries provided by Bhanwarlal Jain group companies. The assessee neither controverted findings of the AO as well as the Ld. CIT(A) nor filed any valid evidence to prove that unsecured loans taken from the above companies are genuineness transactions. Mere furnishing certain paper documents including bank statements would not sufficient enough to come out of shadow of....
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.... 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 his assessment order, one has to examine whether the assessee has discharged burden caste upon it u/s 68 of the Act in respect of unsecured loan received from certain companies controlled and managed by Shri Bhanwarlal Jain. The AO never disputed the fact that the assessee furnished various evidences to prove identity of the loan creditors. The AO has categorically admitted that the assessee has filed various details including PAN Card, ITR acknowled....
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....nd 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, genuineness of transaction and creditworthiness of the parties.. We, further, noted that all these loans have been taken through proper banking channels. The assessee has paid interest after deducting applicable TDS as per the law. These loans have been repaid during next financial year. All these documents are part of assessment proceedings. The AO has never disputed these factual aspects. Therefore, once the assessee has discharged its initial burden by ....
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....m 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 the details of name and address of the shareholder, their PAN/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the AO to make proper investigation and reach the shareholders. The AO did nothing except issuing summons which were ultimately returned back with an endorsement "not traceable In our considered view, the AO ought to have found out their details through PAN cards, bank account details or from their bankers so as to re....
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....rs 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 an order of the Supreme Court in case o f CIT v. Divine Leasing & Finance Ltd. In view of the decision 'of the Supreme Court, we dismiss the appeals with observations that the department is free to proceed to reopen their individual assessments of the shareholders whose names and details were given to the Assessing Officer." ACIT vs. Venkateshwarlspat Pvt Ltd (2009) 319 ITR 393 (Chhatisgarh- High Court) "If the share applications are received by the assessee from alleged bogus shareholders, whose names are given t....
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....ound 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 present case also, the respondent assessee has received share application money from different sub scribers. It was found that large number of subscribers had responded to the letters issued by the Assessing Officer or summons issued by him and submitted their affidavits. In so me cases such replies were not received through posts. Rs. 9 lacs represented those assessees who denied having made any investment altogether. The issue thus would fall squarely within the ambit of the judgment of the Supreme court in the case of Lovely Exports (supra). No error of law can be stated to have bee....
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...., 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 channels inasmuch as the application money for the shares was given through account payee cheques. The creditworthiness has also been established, as indicated by the Tribunal. The subscribers have given their complete details with regard to their tax returns and assessments. In these circumstances, the Department could not draw an adverse inference against the assessee only because the sub scribers did not initially respond to the summons. The subscribers, however, subsequently gave their confirmation letters as would be apparent from the impugned order. The identity of the subscribers stands established and it is also a fact that....
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....ssessee. 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 the amounts and genuineness of transactions were filed. However, the learned Assessing Officer treated the loan as unexplained cash credit on the plea that the assessee could not produce the parties. Thereafter, the learned Assessing Officer computed the peak of unsecure loan amounting to Rs. 1,91,00,000 and made addition of Rs. 40,00,000 u/s 68 of the Act. On appeal, before the learned CIT(A), the addition so made was directed to be deleted. The assessee is in appeal before the Tribunal. 4. If the observations made in the assessment order leading to the addition and the conclusion arrived at in the impugned order, if kept in juxtaposi....
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....sue 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 relied upon by the Ld. DR are rejected. 18. In this view of the matter and considering the ratio of case laws discussed hereinabove, we are of the considered view that the assessee has discharged initial burden by filing various documents to prove identity, genuineness of transactions and creditworthiness of the parties. Therefore, we are of the considered view that the AO was erred in making additions towards unsecured loan u/s 68 of the Act. The Ld. CIT(A) without appreciating these facts simply confirmed the addition made by the AO. Hence, we reverse the findings of the Ld. CIT(A) and direct the AO to delete the additions made towards unsecured ....
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....ents, 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 absence of any incorrectness in the books of accounts and sales made outside the books of account, no adverse inference could be drawn so as to treat the purchases from certain parties are bogus when assessee has furnished complete details including confirmations from the parties. 21. We have heard both parties, perused the materials available on record and gone through orders of the authorities below. It is an admitted fact that the assessee has filed complete information including purchase bills, payment proof, against such purchases through proper banking channels and also confirmations from the parties. It is also an admitted fact that when the ....
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....et 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 purchases needs to be taxed in order to settle the dispute between the parties. The Hon'ble Gujarat High Court in the case of Ld. Vijay Proteins vs CIT (2015) 58 taxmann.com 44(Guj.) had taken similar view in light of facts brought by the parties and held that where purchases are considered to be bogus, then only profit element embedded need to be taxed. In these cases, the assessee is in the business of real estate development. The profit element of real estate business is in the range of 8 to 15% depending upon the type of projects and places where project is executed by the parties. Therefore, considering the facts and circumstances of this case and a....