TaxTMI 
TaxTMI 
2019 (8) TMI 1113
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....of this issue are that the assessee is a partnership firm engaged in the business of builders and developers. The assessee is engaged in construction of both residential and commercial projects in suburb area of Mumbai. The return of income for the A.Y.2013-14 was filed by the assessee on 29/09/2013 declaring total income of Rs. 2,98,06,730/-. During the course of assessment proceedings, details of unsecured loans and advances were furnished by the assessee along with confirmation from the parties who had advanced loans and advances. 3.1. The Ld. AO observed in his order that during the appellate proceedings before this Tribunal in assessee's own case for the A.Y.2008-09, the then CIT (DR) ITAT wrote a letter to the Investigation Wing of Income Tax Department, Pune, for obtaining a statement of one Shri Jagdish Prasad Purohit u/s.131 of the Act in the course of search action conducted by DDIT (Inv)Unit-I(3), Pune in the case of Pride Group, Pune. Accordingly, the statement was recorded and in the said statement, Shri Jagdish Prasad Purohit had admitted that he is involved in the business of giving loans and advances and that various companies were incorporated by his employees a....
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....n affidavit, Shri Jagdish Prasad Purohit, has stated that his Statement u/s 131 was taken under threat of search & seizure of his premises and reopening of the assessment proceedings of his companies. To get rid off of any such actions from the Income Tax Department, he signed the statement prepared by the DDIT Unit 1(3). Under the circumstances, Where i) There is a forceful recording of a Statement u/s 131, ii) There is a Retraction from such Statement by the person, and iii) Where no opportunity is given to the assessee for cross examination and interrogation of such third party in the presence of the Assessing Officer, We request you not to make addition of the loan received from M/s Grafton Marketing Pvt. Ltd. to the returned income of the assessee. 2) Further, we submit herewith the explanation why the loan received from M/s Grafton Merchant Pvt. Ltd. should not be income u/s 68 as Unexplained Cash Credit. Section 68 of the Income Tax Act, 1961 reads as under: "Where any sum is found credited in the books of an nssessee maintained for any previous year, and the assessee offers no explanation about the natu....
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....d Reserves & Surplus. This clearly indicates the CREDITWORTHINESS and Capacity of M/s Grafton Merchant Pvt. Ltd. to lend the money on loans. The Loan money is transferred through Banking Channels. The Interest on loan is also paid. There is part repayment of loan during the year. Also by the end of March 2015, the complete loan has been repaid to M/s Grafton Merchant Pvt. Ltd. All these are sufficient to prove the GENUINITY of the Loan. Tliere are no immediate cash deposit or cash withdrawals from the bank on tlie execution of the loan transaction. Interest is paid on loan; TDS is made on interest and duly deposited to the Revenue Department. Tlie Grafton Merchant Pvt. Ltd has offered the same as their income in the Return of Income filed by them. Tax is paid on the interest income. The Identity, Credit worthiness of the loan parties are established by the assessee and the genuinity of the loan transaction is also proved by the assessee. However, the onus lies on the AO to substantiate his opinion, with evidence, why he believes that the explanation submitted by the assessee is not satisfactory. To substantiate our claim of the Loan as g....
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....Pvt. Ltd., as on 31/03/2013, there was nil stock of shares as on 01/04/2012 as against 2800 under closing stock of shares as on 31/03/2013. The said company had trade payables of Rs. 78,39,729/- as on 31/03/2013 and trade receivables of Rs. 75,76,520/-. The loans and advances given by that company as on 31/03/2012 was Rs. 54,76,35,136/- and the same was reduced to Rs. 43,78,49,069/- as on 31/03/2013. The Ld. AO observed from the bank statement of Kotak Mahindra Bank of M/s. Grafton Merchant Pvt. Ltd., that the transactions for inflow and outflow of funds were practically carried out on the same day in support of which he quoted certain instances of certain transactions in the said bank statement. 3.4. The Ld. AO also observed that in the earlier years i.e., A.Yrs. 2008-09, 2009-10, 2010-11 and 2011-12, the Assessing Officer had made additions u/s.68 of the Act on account of unsecured loans received from M/s.Albright Consultants Pvt. Ltd., and M/s. Nataraj Vinimay Pvt. Ltd., which are comparables controlled by Shri Jagdish Prasad Purohit. The Ld. AO also recorded a fact that Shri Jagdish Prasad Purohit subsequently retracted his original statement on oath u/s.131 of the Act by wa....
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....st of Rs. 2,28,92,766/- on the loans taken from M/s. Grafton Merchant Pvt. Ltd., and claimed the same as deduction under the head 'income from business'. Since the loan was treated as bogus u/s.68 of the Act, the entire interest of Rs. 2,28,92,766/- was also disallowed by the Ld. AO in the assessment. 4. Before the Ld. CIT(A), the assessee stated that it had taken loans from M/s. Grafton Merchant Pvt. Ltd., in the earlier years also and the same were duly accepted as genuine by the Ld. AO. The interest in the sum of Rs. 2,28,92,766/- was paid to M/s. Grafton Merchant Pvt. Ltd., after due deduction of tax at source on the loans borrowed from them in earlier years. The assessee also furnished the ledger account for the relevant parties of M/s. Grafton Merchant Pvt. Ltd., and actual payment of interest together with the repayment of loans made thereon. It was pleaded that the entire details were duly submitted before the Ld. AO and that the Ld. AO could not find any flaw with the submission and could not rebut the documentary evidences submitted explaining the nature and source of money received from M/s. Grafton Merchant Pvt. Ltd. It was argued before the Ld. CIT(A) that in the st....
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....in its return of income. The assessee had deducted tax at source on interest payment made to M/s. Grafton Merchant Pvt. Ltd.,. The TDS claim was duly made thereon by M/s. Grafton Merchant Pvt. Ltd., in its return of income. These documents stood unrebutted by the Ld. AO. 4.2. With regard to the observations made by the Ld. AO that for the A.Yrs. 2008-09, 2009-10, 2010-11 and 2011-12, the concerned Assessing Officer had made additions u/s.68 of the Act. In respect of loans taken by the assessee from companies managed by Shri Jagdish Prasad Purohit is concerned, the assessee submitted as under:- 1. For A.Y.2008-09, there was no addition u/s.68 of the Act. 2. For A.Y. 2009-10, the additions made u/s.68 of the Act by the Ld. AO were deleted by the Ld. CIT(A) and thereafter, the revenue appeal was dismissed by ITAT, Mumbai 3. For A.Y.2010-11, the Ld. CIT(A) had deleted the addition made by the Ld. AO. 4. For A.Y.2011-12, the Ld. CIT(A) deleted the addition made by the Ld. AO. The relevant order copies were given to the Ld. CIT(A). 4.3. With regard to the disallowance of interest of loans paid to M/s. Grafton Merchant Pvt. Ltd., in the sum of ....
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....ce of the source." 4.5. The Ld. CIT(A) further observed that the Ld. AO had solely relied on the statement of Shri Jagdish Prasad Purohit and did not carry out any worthwhile independent enquiry in the matter. He had totally ignored the documentary evidences submitted by the assessee despite the fact that the Ld. AO had admitted existence of these details. No defect whatsoever had been pointed out in the said documentary evidences submitted during the assessment proceedings. He observed that once evidences reflecting the genuinity of transaction are submitted before the Ld. AO, the onus shifts on him to prove that those were not genuine, which had not been discharged by the Ld. AO in the instant case. He observed that merely based on the statement of a third person without any corroborative evidence will not make the loan transaction in question as accommodation entries. He further observed that Shri Jagdish Prasad Purohit was the witness of the department and it is the duty of the department to produce the said person for cross examination and not the assessee. When the opportunity to cross examine such person was denied by the Ld. AO to the assessee, then no reliance whatsoeve....
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....d by the Ld. CIT(A). 5. Aggrieved, the revenue is in appeal before us. 6. The Ld. AR at the outset stated that this issue is covered by the order of the Tribunal in assessee's own case for A.Y.2009-10, 2010-11 dated 09/05/2016 and 27/12/2016 respectively but fairly submitted that in case if the Ld. DR would like to argue further, he may be given an opportunity to putforth his evidences against the arguments advanced by the Ld. DR. In response there to, the Ld. DR stated that the issue under dispute is not covered by this order of the Tribunal in view of the fact that the loan creditor during this year is different from that adjudicated by this Tribunal in earlier years. The Ld. DR started explaining the documents of the entire case by arguing as to how the assessee firm in connivance with an entry operator Shri Jagdish Prasad Purohit and through his companies had managed to obtain unsecured loans in lieu of cash. She argued that merely because the said loan received from M/s. Grafton Merchant Pvt. Ltd., by the assessee by account payee cheques through regular banking channels, repayment of loans made thereon together with interest duly subjected to deduction of tax at source,....
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....in any manner in his statement. He also drew our attention to the Co-ordinate Bench decision of this Tribunal in A.Y.2011-12 in assessee's own case in ITA No.1056/Mum/2016 dated 24/01/2018 wherein the revenue itself had raised the ground before this Tribunal by stating that Shri Jagdish Prasad Purohit in his reply to Question No.11 stated that the Pride Group, Pune had approached them to invest into group concerns of Pride Group in the form of share capital as an accommodation entry and all the book entries were made against the cash payments made by the Pride Group. This goes to prove that Shri Jagdish Prasad Purohit had allowed himself to be treated as an entry operator only with regard to providing accommodation entry in the form of share capital to Pride Group against cash received from Pride Group. Admittedly, the assessee herein does not belong to Pride Group, Pune. He argued that similar loans received from M/s. Grafton Merchant Pvt. Ltd., in the earlier years were accepted as genuine by the Ld. AO and accordingly, when subsequent loan has been received from the very same party, the same cannot be disturbed by the Ld. AO. Reliance in this regard was placed on the decision of....
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....icated or any adverse inference could be drawn on the assessee for the same. It is for the Ld. AO of Shri Jagdish Prasad Purohit to take necessary action for filing retraction beyond a period of 29 months. Absolutely, there was no evidence found during the search to prove that loan received by the assessee from M/s. Grafton Merchant Pvt. Ltd., is ingenuine. Source of source even though proved in the instant case is only suspected by the Ld. AO and assessee cannot be penalised for the mere suspicion on the part of the Ld. AO. In any case, Shri Jagdish Prasad Purohit is a witness of the revenue and hence, it is the revenue who has to bring Shri Jagdish Prasad Purohit for the purpose of cross examination because the Ld. AO had placed heavy reliance on the statement recorded from Shri Jagdish Prasad Purohit. 7.2. In response, the Ld. DR clarified a point that cash entry in one point and later went to multiple layers through series of companies and finally exited in the form of unsecured loans to various parties, hence, to this extent, the arguments of the Ld. AR is incorrect. She argued that earlier year genuinity of the transaction does not make the current year transaction genuine....
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....e was purchased by my group companies along with 90 Rupees premium. These all were merely accommodation entries. All these book entries were introduced against the cash payments made by the Pride Group. The requisite amount of the cash was paid by Pride Group at Mumbai against which we have given them accommodation entries in the share capital. Q. 12 As stated by you in answer to Q. No. 11, please state how was the cash introduced into the share capital in the case of Pride Group? Ans: In this case cash was taken from the Pride Group. Then we sold the old existing shares of my group concerns to various other groups. As the shares were sold, the cheques were obtained from those parties. These parties to whom we have sold old existing shares took the cash and gave the cheque. These amounts which came through the cheques in our capital account were further forwarded to the Pride Group of concerns as share capital. In this way we have given accommodation entries in the share capital against which we have taken cash." 8.1. The aforesaid replies given by Shri Jagdish Prasad Purohit clearly proves that he was in receipt of cash from Pride Group and same were utilised ....
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....ime to time from the said party and the entire loan account together with interest thereon [duly subjected to TDS] has been completely squared off on 20/03/2015. The entire transactions i.e., the receipt of loans, repayment of loans and payment of interest thereon have been made through regular banking channels from account payee cheques. There is no case of any cash deposits made either at the time of receipt of loan in the account of M/s. Grafton Merchant Pvt. Ltd., or in the account of assessee while making repayment of loan or payment of interest. Hence, there is no need to suspect the entire gamut of transactions before us. We find that the entire addition of principal amount of loans of Rs. 3.75 Crores and disallowance of interest of Rs. 2,28,92,766/- on loans has been made by the Ld. AO with surmise and conjecture and without any basis. No deficiencies whatsoever were found in the documentary evidences submitted by the assessee before the Ld. AO which admittedly included copy of PAN, ITR acknowledgement, audited financial statements, computation of income, confirmation from lender, bank statements evidencing the immediate source of credit of the lender etc. All these documen....