TaxTMI 
TaxTMI 
2020 (1) TMI 1239
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....as genuine, ignoring the decision of the Hon'ble ITAT in the case of Pavankumar M Sanghvi vs ITO I.T,A, No.2447/Ahd/2016, wherein the Hon'ble ITAT has held that genuineness of the transactions cannot be established merely on the basis of documentation filed by the assessee and further probe is required to ascertain whether what was apparent was real". (iii) "Whether on the facts and circumstances of the case and in law, the Ld.CIT(A] has erred in allowing the interest expenses of Rs. 26,45,096/- on the loan of Rs. 1,40,00,000/- which has been held to be in the nature of the accommodation entry and sham in the assessment order." 3. The brief facts of the case are that the assessee has filed its return of income for AY 2013-14 on 28/09/2013, declaring total income at Rs. 57,12,110/-. In this case, a survey u/s 133A of the Income Tax Act, 1961 was conducted by DDIT(Inv.),Unit-III(2), Mumbai on 25/03/2014 based on the information that the assessee had taken accommodation entries of bogus unsecured loans from various dummy concerns, who are engaged in the business of providing accommodation entries. During the course of survey action, the books of accounts of the assesse wer....
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....es are paper companies controlled and operated by Praveen Kumar Jain to give accommodation entries of unsecured loans to various persons. Therefore, he finally came to the conclusion that unsecured loans taken from the companies operated and controlled by the Praveen Kumar Jain are not explained and accordingly, made additions u/s 68 of the I.T.Act, 1961. Similarly, the Ld. AO has made additions towards interest paid on said loans amounting to Rs. 26,45,096/-, on the ground that when loan borrowed from those parties itself is not proved, consequent interest payment on said loans cannot be accepted as genuine transactions. 5. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assesee has reiterated its submissions made before the Ld.AO. The assessee has filed elaborate written submissions on this issue, which has been reproduced at para 6.3 on pages 8 to 13 of Ld. CIT(A) order. The sum and substance of arguments of the assessee before the ld.CIT(A) are that the Ld. AO has never disputed the identity of the creditors, which is evident from the fact that the assessee has filed complete details, including name and addr....
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....s not brought on records any evidence to prove that the loans taken from creditors are non genuine transactions. Accordingly, he has deleted additions made by the Ld. AO towards unsecured loans taken from those parties. Similarly, the Ld.CIT(A) has deleted consequent interest disallowances made by the Ld. AO on the said loans, on the ground that once loans have been accepted as genuine transactions, consequent interest paid on said loans cannot be disallowed. The relevant findings of the Ld.CIT(A) are as under;- 6.4.9 From the assessment order it is observed that the Ld. AO has given a factual he bank accounts of the creditors there is only RTGS/Trf entries which no cash was introduced prior to advancing the loans lo the Ld. AO had not brought on record any evidence suggesting that the appellant had paid cash to the loan creditors in lieu of loans received from Them. It is also admitted fact that the unsecured loans under consideration have been repaid over a period of time and on same the appellant has paid interest and TDS thereupon, as per provisions of the Act, The Ld, AO has relied ion of Hon'ble Supreme Court in the case of Navodaya Castle P ltd and that of '....
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....e details and evidences submitted by the appellant in respect of above referred creditors, I am of the considered opinion that the Ld. AO was not justify in treating the loan received from above referred five creditors as unexplained cash credit u/s 68 of the Act. Hence, the impugned addition of Rs. 1,40,00,000/- is deleted. Accordingly Ground NO.2 is allowed. 6.4.11. The appellant has also challenged disallowance of interest expense of Rs. 26,45,096/-. The Ld. AO has disallowed the said interest expense in view of his action of treating unsecured loan of Rs. 1,40,00,000/- as unexplained credit u/s 68 of the Act. As discussed above, said addition of Rs. 1,40,00,000/- has been deleted and hence the consequential disallowance of interest pertaining to the same at Rs. 26,45,096/- is also deleted. Accordingly, the ground No. 3 raised in appeal is allowed." 7. The Ld. DR submitted that the Ld.CIT(A) was erred in deleting additions made by the Ld. AO towards unsecured loans of Rs. 1,40,00,000/- taken from companies/associates controlled and operated by Praveen Kumar Jain, who is a entry provider without appreciating the fact that the assesee had admitted during the course of ....
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....in ITA No.5783/Mum/2017 dated 28/08/2019. The assessee has also relied upon the following case laws. 1. Decision of Hon. Mumbai ITAT in the case of Dy. CITvs. M/s. Marathon Fiscal Pvt Ltd., 1TA No. 5783/Mum/2017, dated 28,08,2019 2 Decision of Hon. Mumbai ITAT in the case of Dy. CIT vs. M/s. Manba Finance Ltd,, ITA Nos. 1448, 1449 & 1467 / Mum/ 2017, dated 05.10.2018 3. Decision of Hon. Mumbai ITAT in the case of ACIT v. Shreedham Builders, ITA No, 5589/Mum/20l7 dated 22.06.2018,?53 CCH 0212 4. Decision of Hon'ble Mumbai ITAT in the case of DCIT v. M/s Jainam Investments, ITA No.s.6099/Mum/20l6 dated 10.08,2018, 2019-TIOL-213-ITAT-MUM 5. Decision of Hon. Mumbai ITAT in the case of DCIT v. Bairagra Builders P Ltd., ITA Nos. 4691 & 4692/Mum/2015 dated 14.09.2017 6. Decision of Hon. Mumbai ITAT in the case of AClT v A. S Motiwala dated 22.02. 2019, 2019-TIOL-676-1TAT-MUM 7 Decision of Hon, Mumbai ITAT in the case of ITO v. Anant Shelters (R) Ltd., 51 SOT 234(Mumbai) 8. Decision of Hon'ble Mumbai ITAT in the case of ITO vs. M/s ayuresh Logistics Pvt Ltd. dated 24/06/2019, 2019-TIOL-1421-ITAT-MUM 9. Decisio....
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....ng with PAN number of the lenders, their income tax returns with financial statements for relevant financial year, copies of bank statement of lenders and also confirmations letters from the parties. The assessee further contended that it has paid interest on said loans after deducting necessary TDS applicable as per law. Further, these loans have been subsequently repaid over a period of time through proper banking channels. The assessee has also placed on record the retraction statement filed by Praveen Kumar Jain before the investigation wing and argued that once, the statement on which the additions was made was no longer in existence or retracted, then the same cannot be considered as reliable evidence to draw an adverse inference against the assessee, more particularly, when the assesee has discharged its onus by filing necessary evidences. 10. In this factual background, if you examine the case of the assesee, in light of provision of section 68 of the I.T.Act, 1961, we have to decide, whether the transactions between the assesse have passed the test laid down u/s 68 of the Act or not. The provisions of section 68 deals with a cases, where any sum found credited in the bo....
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.... of the Ld. AO that the assessee has not proved capacity of the lenders, because the Ld. AO himself in his assessment order accepted the fact that in the bank accounts of the creditor, there is only RTGS/transfer entries, which itself proves that no cash was introduced prior to advancing loans to the assessee. We, further, observed that the Ld. AO has not brought on record any evidence to suggest that the assessee had paid cash to the loan creditors in lieu of loans received from them. It is also admitted fact that the unsecured loans under consideration have been repaid over a period of a time and also, the assessee has paid interest after deducting necessary TDS applicable as per law. 12. We, further, noted that the assessee has filed enormous details in respect of companies including their PAN details, CIN master data and other details to prove existence of those companies. The assessee also filed details of active status of the company in the website of Ministry of Corporate Affairs. On going through various detailed filed by the assessee, we find that there is no reason for the AO to doubt the genuineness of transactions and creditworthiness of the parties. We further notic....
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....ceived accommodation entries from the following 9 concerns: Sr. No. Particulars Amount of loan 1. Atharva Business P. Ltd. 1,00,00,000 2. Josh Trading P. Ltd. 1,00,00,000 3. Casper Enterprises P. Ltd. 1,07,50,000 4. Olive Overseas P. Ltd. 1,77,00,000 5. Pragati Gems P. Ltd. 2,25,00,000 6. Sumukh Commercial P. Ltd. 1,15,00,000 7. Viraj Mercantile P. Ltd. 2,00,00,000 8. Lunkad Textile P. Ltd. 50,00,000 9. Falak Trading Co. P. Ltd. 17,00,000 Total 10,91,50,000 On a perusal of the assessment orders, we find, that the A.O had drawn adverse inferences as regards the authenticity of the loans raised by the assessee from the aforementioned parties, for the reason, that the said parties were allegedly operated and controlled by Shri. Praveen K. Jain, an infamous accommodation entry provider. Apart there from, it was observed by him, that in the course of the survey action conducted on the assessee company, its director viz. Shri Chetan R. Shah was unable to divulge the details about the lenders from whom the aforesaid loans had been raised and had admitted that the same were ....
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....ced on record the aforesaid documentary evidence. It has been the claim of the assessee before the CIT(A) that as all the necessary requisite details in order to establish the identity and creditworthiness of the lenders and also the genuineness of the loan transactions were placed on record, therefore, the A.O without rebutting the said documentary evidence and placing on record any material proving to the contrary was not justified in summarily dislodging the claim of the assessee as regards the authenticity of the loans that were raised by it from the aforementioned parties. 8. We shall in the backdrop of the aforesaid facts deliberate on the observations of the lower authorities. We shall first advert to the statement of Shri Chetan R. Shah, director of the assessee company, which had been heavily relied upon by the A.O for driving home his claim that no genuine loans were raised by the assessee company from the aforementioned lenders. As is discernible from the order of the CIT(A), Shri Chetan R. Shah had during the course of the survey proceedings conducted on the assessee company under Sec.133A, vide his statement dated 25.03.2014, had in his reply to Question no.29....
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....ccordingly, it is evident that an Income Tax Authority in the course of the survey proceedings conducted under Sec.133A can record the statement of any person which could be useful or relevant to any proceeding under the Act. However, we find that the phraseology of Sec.133A(3)(iii) is entirely different as in comparison to provisions of Sec.132(4) of the Act, wherein the authorized officer can examine anybody on "Oath‟, and such statement may be used as evidence in any proceedings under the Act. As the statement recorded under Sec. 133A(3)(iii) of the Act is not recorded on oath, therefore, as had consistently been held by various courts the same has no evidentiary value in absence of any corroborative evidence. In sum and substance, the statement recorded under Sec. 133A can be used to corroborate a state of fact, however, the same on a standalone basis cannot justifiably lead to drawing of any inferences. To sum up, a statement recorded under Sec.133A is simply an information which can be used for corroborative purpose for deciding any issue in favour or against the assessee. In fact, we find that the evidentiary value of a statement recorded under Sec. 133A of th....
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....y person oath. Thus , in contrad is tinction to the power und er section 133 A, section 132 (4 ) of the Income - tax Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income -tax Act. On the other hand, whatever statement is recorded under section 133A of the Income- tax Act it is not given any evidentiary value obviously for the reason that the officer is not authorised to admin is teroath and to take any sworn statement which a lone has evidentiary value as con temp la ted under law. Therefore, there is much farce in the argument of learned counsel for the appellant that the statemente licited during the survey operation has no evidentiary value and the Income-tax Officer was well aware of this." 9. Similarly, the Hon'ble Madras High Court has also concluded that statement recorded during the course of survey has no evidentiary value. The special leave petition against the decision of the Hon'ble Madras High Court has also been dismissed by the Hon'ble Supreme Court on September 20, 2012. We have examined the record and we do not find any other material colle....
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....n the case of CIT Vs. Dhingra Metal Works (2010) 328 ITR 384 (Del). In the aforementioned case, it was observed by the Hon'ble High Court that a statement of an assessee to have evidentiary value should have been recorded on oath. It was observed by the High Court that though an admission was an extremely important piece of evidence, it could not be said to be conclusive and it was open to the person who made the admission to show that it was incorrect. In the backdrop of the aforesaid judicial pronouncements, it can safely be concluded that the statement recorded during the course of the survey proceedings has no evidentiary value and the same can only be used for corroborative purposes for deciding an issue in the course of the assessment proceedings. Now in the case before us, we find that the assessee in the course of the assessment proceedings had placed on record sufficient documentary evidence to substantiate the authenticity of the loan transactions viz. (i) confirmations of the lenders; (ii) copies of the returns of income for A.Y. 2013-14 of the lender parties; (iii) copies of the annual audited accounts for A.Y. 2013-14 of the lenders parties; and (iv) copy of the bank s....
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....otice that in certain cases the assesses were forced to confess undisclosed income in the course of the search & seizure and survey operations. It was noticed by the Board that as such baseless disclosures would be divorced from the actual facts and would not be backed by any credible evidence, therefore, the assesses at the time of filing their returns of income would retract from the same. Accordingly, the Board taking cognizance of the said ground realities had in its aforesaid circular emphasised that the officials in the course of the search & seizure proceedings and survey operations should focus and concentrate on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed by the assessee before the department, and no attempt should be made to obtain confession as regards the undisclosed income. The said CBDT Circular reads as under: "Instances have come to the notice of the Board where asses see have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retrac....
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....r Sec.132(4) admitted before the investigation wing that he was controlling and operating various dummy concerns/companies through which he had provided accommodation entries to various persons. As observed by us hereinabove, it is a fact borne from the orders of the lower authorities that Shri Praveen Kumar Jain had retracted from his aforesaid statement by filing an "affidavit‟ alleging that as the search operations had continued at length for 9 days, therefore, it had taken a toll on his mental faculties. Be that as it may, we find that it is not the case of the revenue before us that the aforesaid person had at any stage in his statement recorded during course of the search proceedings ever alleged that he had provided accommodation entries to the assessee company. We shall in the backdrop of the aforesaid facts emerging from the statement of Shri Praveen Kumar Jain recorded under Sec.132(4) of the Act, which thereafter is stated to have been retracted by him, therein deliberate on the evidentiary value of the same insofar the case of the assessee before us is concerned. As observed by us hereinabove, one of the material aspect which had weighed in the mind of the A.O whi....
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....on to use a statement recorded under Sec.132(4) as an evidence in the course of any proceedings under the Income Tax Act. In our considered view, the CIT(A) has rightly concluded that the word "may" clearly suggests that the statement recorded under Sec. 132(4) may therein be rebutted subsequently if the assessee is able to prove with documentary evidence that the facts earlier stated were not correct. In fact, we are persuaded to subscribe to the view of the CIT(A) that though a statement recorded under "oath‟ is an important piece of evidence however, addition/disallowance cannot be made solely on the basis of such statement in the absence of any corroborative evidence supporting the same. As a matter of fact, in a case where a statement had been retracted by the assessee, it becomes all the more onerous on the part of the A.O to corroborate the statement recorded in the course of the search proceedings on the basis of supporting evidence. As had been observed by various courts, a statement recorded under Sec.132(4) is treated as a piece of evidence in the proceedings under the Act, as long as the same is not retracted. However, in case the assessee retracts the statement, ....
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.... the aforementioned case, it was observed by the Hon'ble High Court that a retracted statement under Sec.132(4) of the Act would require some corroborative material for the A.O to proceed to make additions on the basis of such statement. We find that the Hon'ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. Vs. State of Kerala& Anr. (1973) 91 ITR 18 (SC), had observed, that an admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It was observed by the Hon'ble Apex Court that it was open to the person who made the admission to show that it was incorrect. Relying on the aforesaid judgment of the Hon'ble Apex Court, we find, that a coordinate bench of the Tribunal viz. ITAT, Mumbai in the case of Tribhuvandas Bhimji Zaveri, ITA No. 2250 & 2251/Mum/2013, dated 04.11.2015, had drawn an analogy and had observed that though an admission made in a statement recorded under Sec.132(4) is an extremely important piece of evidence but it cannot be said that it is conclusive as it is open to the person who made the admission to show that it is incorrect. We further find that the Hon'ble High Court of Gujarat in DCIT (Investi....
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....discernible from the orders of the lower authorities which would reveal that any "material‟ evidencing that the assessee as a beneficiary had obtained accommodation entries from the said person had surfaced or was unearthed during the course of the said proceedings. Also as observed by us hereinabove, there is nothing discernible from the records which would reveal that the aforesaid person had ever alleged that he had provided any accommodation entries to the assessee company. We also cannot remain oblivious of the fact that in the absence of any corroborative evidence the statement of the aforementioned "third party‟ viz. Shri Praveen K. Jain could not be used in isolation for drawing of adverse inferences in the hands of the assessee. Apart therefrom, we find that as is discernible from the assessment order, though the assessee had sought a "cross- examination‟ of Shri Praveen Kumar Jain, whose statement was being heavily relied upon by the A.O for drawing of adverse inferences in its hands, however, the same was not allowed to him. In our considered view, the aforesaid failure on the part of the A.O to allow a cross- examination of the aforementioned party viz....
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....cluded that in the absence of any corroborative material the A.O could not have proceeded with and made additions on the basis of the retracted statement of Shri Praveen Kumar Jain. 11. We shall now advert to the material which had been placed on record by the assessee in the course of the assessment proceedings to substantiate the authenticity of the loan transactions under consideration. Also, we shall deliberate upon the observations of the A.O on the basis of which he had declined to accept his aforesaid claim. As is discernible from the orders of the lower authorities, the assessee in order to drive home its claim that it had raised genuine loans from the aforementioned 9 parties had placed on record supporting documentary evidence viz. (i) confirmations of the lenders; (ii) copies of the returns of income for A.Y. 2013-14 of the lender parties; (iii) copies of the annual audited accounts for A.Y. 2013-14 of the lenders parties; and (iv) copy of the bank statements of the lenders from where the loans were advanced to the assessee company. As a matter of fact, the CIT(A) had specifically referred to the documentary evidence placed on record by the assessee on a party w....
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....that the transactions were carried out through proper banking channel. g. M/s Viraj Mercantile P. Ltd. The appellant has submitted the copy of confirmation letter for relevant assessment year, copy of acknowledgement of return of income of relevant assessment year , copy of annual audited accounts of relevant assessment year, copy of relevant pages of bank statement of them and itself to establish that the transactions were carried out through proper banking channel. h. M/s Lunkad Textile P Ltd- The appellant has submitted the c o p y o f confirmation letter for relevant assessment year, copy of acknowledgement of. ret urn of income of relevant assessment year , copy of annual audited account so frelevant assessment year, copy of relevant pages of bank statement of them and itself to establish that the transactions were carried out through proper banking channel. i. M/s Falak Trading P Ltd- The appellant has submitted the copy of confirmation letter for relevant assessment year, copy of acknowledgement of return of income of relevant assessment year , copy of annua l audited accounts of relevant assessment year, copy of relevant page so bank stateme....
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.... aforesaid loan transactions by issuing any notices under Sec.133(6) of the Act. In our considered view, in case the A.O would had any doubts as regards either the identity and creditworthiness of the aforesaid lenders or the genuineness of the loan transactions, then he would have made necessary verifications by either summoning the details in exercise of the powers vested with him under Sec.133(6) or directing the assessee to furnish further documentary evidence. However, we find that the A.O neither carried out any verifications on his own nor directed the assessee to clarify any further aspects pertaining to the authenticity of the loan transactions under consideration. As regards the observation of the A.O that the assessee had not produced the parties, we find, that there is nothing discernible from the records from where it could be gathered that he had ever directed the assessee for doing the needful. In fact, in our considered view, now when the assessee in discharge of the primary "onus‟ that was cast upon it to substantiate the authenticity of the loan transactions had placed on record sufficient documentary evidence which had not been rebutted by the A.O, therefor....
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....aforementioned case had concluded that genuineness of loan transactions cannot be established merely on the basis of documents filed by the assessee and further probe is required to be carried out for arriving at the actual facts. We have perused the aforesaid order of the ITAT, Ahmedabad, and are unable to persuade ourselves to subscribe to the aforesaid claim of the revenue. A perusal of the aforesaid order reveals that the same is distinguishable on facts. As is discernible from the said order, it was observed by the Tribunal that a perusal of the Bank account of the lender party viz. M/s Natasha Enterprises revealed that after the loan of Rs. 10,00,000/- was advanced to the assessee the balance in the bank account remained at a meagre figure of Rs. 13,717/- only. On a similar footing, it was noticed by the Tribunal that on various other dates also after the amounts were advanced from the bank account of the lender the closing balance of the respective days would remain between few thousands of rupees. Further, it was observed, that though the lender had shown a substantial turnover of 122.92 crores, but there was no closing stock. Also, certain peculiar facts as regards the mea....
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....the material placed on record by the assessee, we are afraid that he by so doing had absolutely failed to discharge the "onus‟ as was shifted upon him to disprove the authenticity of the loan transactions under consideration. In fact, we find that the A.O instead of placing on record any documentary evidence which would disprove the authenticity of the loan transactions under consideration, had focussed primarily on the facts and the modus operandi of functioning of Shri. Praveen Kumar Jain as had emerged in the course of the search proceedings conducted on him. We are afraid that the adverse inferences drawn by the A.O as regards the authenticity of the loan transactions under consideration without any attempt to dislodge the documentary evidence placed on record by the assessee to support its claim, cannot be sustained and is liable to be vacated. Our aforesaid view is fortified by the order of the ITAT "C" Bench, Mumbai, in the case of ITO 20(2)(5), Mumbai Vs. Smt. Pratima Ashar (2019) 107 taxmann.com 135 (Mum), wherein a similar view was taken. At this stage, we may herein observe that similar adverse inferences as regards the authenticity of the loan transactions that we....
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....ssee company in his statement recorded in the course of the survey proceedings, it was observed by the Tribunal that a disclosure obtained in the course of survey de hors corroborative evidence cannot be a conclusive proof for making an addition in the hands of the assessee. Accordingly, the Tribunal on the basis of his aforesaid observations had in the case of the aforementioned "sister concern‟ of the assessee company wherein identical facts were involved, had upheld the order of the CIT(A) and therein concluded that the A.O in the absence of the corroborative evidence was not justified in treating the loans received by the assessee before them as unexplained cash credit under Sec. 68 of the Act. 13. We have given a thoughtful consideration and are of the considered view, that the CIT(A) after deliberating at length on the issue under consideration had rightly concluded that as the assessee had discharged the "onus‟ that was cast upon it under Sec.68 of the Act, therefore, the A.O was not justified in treating the loans received from the aforementioned parties as unexplained cash credits under Sec.68 of the Act. We thus not finding any infirmity in the well r....