TaxTMI 
TaxTMI 
2022 (6) TMI 830
X X X X Extracts X X X X
X X X X Extracts X X X X
....determining the total income of Rs..1,01,15,791/- which was then rectified by order u/s.154 of the Act dated 27.03.2014 determining revised total income at Rs..2,02,49,317/-. Subsequently, information received from the DGIT (Investigation), Mumbai [in short "the DGIT (Inv.)"] that a search and seizure action u/s. 132 of the Act was carried out in the case of Shri Bhanwarlal Jain and group concerns on 03.10.2013 where it was found that Shri Bhanwarlal Jain and his associates have floated various entities, which are engaged in the business of providing accommodation entries in the form of bogus unsecured loans, bogus purchases, bogus capital gain etc., and the Assessing Officer observed that assessee is one of the beneficiaries of bogus concerns operated and controlled by Shri Bhanwarlal Jain and associates. He observed that during the relevant previous year, assessee has taken unsecured loans of Rs..25 Lakhs from M/s. Navkar Diamonds which is one of the concerns controlled by Shri Bhanwarlal Jain. Accordingly, notice u/s. 148 was issued and served on the assessee. In response assessee filed letter dated 21.04.2015 and submitted that return filed original u/s. 139 of the Act may be t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... loans and advances is from the funds due to sundry creditors. Advancing loans worth crores of Rupees for years together and that too, without any security, from the source of funds payable to creditors is very unlikely in normal course of business. Thus, from the returns of income and balance sheets of these parties, the creditworthiness of the parties is not proved." 5. Accordingly, Assessing Officer came to the conclusion that assessee has taken accommodation entries of unsecured loan and assessee has failed to establish the identity, genuineness and creditworthiness of the party. Accordingly, he invoked provisions of section 68 of the Act and disallowed Rs..25 Lakhs. Further, Assessing Officer observed that assessee has debited interest expenditure of Rs..64,932/- towards the above unsecured loan and accordingly, he disallowed the same. 6. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and filed detailed submissions wherein assessee has raised grounds of appeal objecting reopening of assessment u/s. 148 of the Act, addition made u/s.68 of the Act and disallowance of interest expenditure. 7. Ld.CIT(A) considered the submissions of grounds of appeal raised by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a fort-like case for making addition to the assessee's income; all that he is required at that stage is to form a prima facie opinion or, belief that income has escaped assessment. The word 'reason" in the phrase "reason to believe' would mean cause or justification and the expression cannot be read to mean that the AC should have finally ascertained the fact by legal evidence or conclusion, as held by the Hon'ble jurisdictional High Court of Bombay in the judgement dated 18' June 2014 in the case or Nickunj Eximp Enterprises Pvt. Ltd. \/5. CIT in Writ Petition No. 2860 of 2012. The relevant extract of the decision is as under: As stated earlier that at the time of issuing a notice u/s 148 of the Act, it is not necessary for the Assessing Officer to conclusively arrive at a finding that there has been escapement of income. At the stage of issue of the notice the only requirement is to examine whether on the available material a reasonable person could form a reasonable view to believe that income chargeable to tax has escaped assessment. This satisfaction has necessarily to be the subjective satisfaction of the Assessing Officer and unless it is shown by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... facie doubt about the truthfulness and/or completeness of the disclosure at the time of original assessment in view of information obtained later the provisions cannot aid the petitioner at the stage of notice u/s148 of the Act. It is likely that during the assessment proceedings the assessee may be able to satisfy the Assessing Officer that there was a true and full disclosure. Once the Assessing Officer has received information that invoices issued by A/1/s. Rahul Industries are bogus then the same is necessarily to be the subject matter of engulf)/ during the reassessment proceedings. The information that bills produced were not genuine does give rise to a reasonable belief in the Mind of the Assessing Officer that income chargeable to tax has escaped assessment." 6.3.8 Further also, the reopening of assessment has been held to be permissible even when scrutiny u/s 143(3) was concluded earlier, where original assessment order passed is silent in respect of the issue/point on which re-assessment notice is issued, in the case of OPG Metals & Finsec Ltd. vs. CIT & Anr. (2013) 358 ITR 144 (Delhi) by the Hon'ble Delhi High Court and the Hon'ble Bombay High Court in the cas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rns which are not carrying out any genuine business activities but are engaged in providing accommodation entries through all the concerns managed by the group. The Hon'ble High Court of Delhi in the case of Seems Jain vs. Assistant Commissioner of Income Tax (2018) 406 1TR 0411 (Delhi) wherein it was claimed that name of the petitioner is not appearing in the statement of the person who would control and manage several companies which were paper and shell companies. - has upheld the order of the Hon'ble ITAT as quoted below: "28. When a final show cause notice was issued requiring the assessee to explain as to why a sum of Rs.1 crore received from PTU be not added to the income as it was a bogus loan received from a paper company, the assessee required cross-examination of Sh. Rajendra Bubna and stated that name of PTU was not appearing in the statement of Sh. Rajendra Bubna. In our considered opinion. the Assessing Officer has rightly rejected the assessee's contentions on the ground that Sh. Rajendra Bubna was confronted with only a sample of companies and was asked to confirm if he used these companies to provide accommodation entries, which was answered by him in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red to the materials available with him which prima facie suggested that the assessee company had received share capital and share premium from various companies which were proved to be bogus companies engaged in providing mere accommodation entries and after analysing such materials, he came to the conclusion that share capital/share premium received by the assessee during the financial year was bogus, following the judgement of the Hon'ble Supreme Court in case of Rajesh Jhayeri Stock Brokers P. Ltd. (supra) has held that, the sufficiency of reasons cannot be gone into at this stage Thus, the Hon'ble Court ruled that It cannot be stated that the Assessing Officer did not have tangible materials at his command to form such a belief. It was held in this case as under: 26. His reference to "materials on record" must be understood in the context of facts on record. The Assessing Officer was not writing a statute. His expression therefore, cannot be seen with such rigidity. If therefore, he referred to the returns filed by the assessee and the accompanying documents as also materials received by him post acceptance of return, of course without scrutiny as "materials on recor....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the case and in law the Hon'ble CIT(A) erred in upholding the interest u/s. 234B levied by the Ld AO and the reasons assigned for doing so are wrong and contrary to the provision of the Income Tax Act and rules made there under. 6. Your appellant craves leave to add to, amend alter or delete any of the above grounds of appeal on or before the date of hearing." 10. At the time of hearing, Ld. AR of the assessee submitted that assessee has filed all the relevant information in the original assessment itself which was completed u/s. 143(3) of the Act and duly accepted by the Assessing Officer. He submitted that the Assessing Officer reopened the assessment u/s. 147 of the Act based on the information received from DGIT (Investigation) and relying on the statement given by the Shri Bhanwarlal Jain. He submitted that in order to verify the transactions Assessing Officer issued notice u/s. 133(6) of the Act and all the informations were submitted by M/s. Navkar Diamonds before the Assessing Officer and he submitted that the transaction of unsecured loans taken by the assessee is genuine. In this regard he submitted that on similar facts and situation, in assessee's brother case in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g that retraction of statement recorded during the course under section 132(4) of the Act can not be sole basis to treat the transaction as genuine. Undisputedly, the assessee during the course of assessment proceedings filed copy of ITRs, balance sheet, profit and loss account, confirmations and proof of receipt of payment through banking channel along with the evidence of payment of interest at the rate of 12% after deduction of TDS at source. We observe from the records before us that AO has not carried out any further verification and relied on the report of the DGIT(Inv.), Mumbai that assessee is beneficiary of accommodation entries without carrying on any further investigation. We note that the statement taken during the course of search has been retracted in which it has been admitted that Bhanwarlal Jain and related entities were engaged in accommodation entries in the form of unsecured loans of short term and long term capital gain and share capital etc. We also observe from the facts before us that the assessee has filed various evidences before the lower authorities however no further enquiries have been conducted by the AO or ld CIT(A) to dig out the truth or t disappro....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 his assessment order, one has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etween 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, genuineness of transaction and credit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vered 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 the details of name and address of the shareholder, their PA....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 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 (AllHigh 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 an order of the Supreme Court in case o f CIT v. Divine Leasing & Finance Ltd. In view of the decision 'of the Supre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 that 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 (GujHigh 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 A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 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 return....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 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 uns....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pective 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 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 trans....
X X X X Extracts X X X X
X X X X Extracts X X X X
....z., the identity of the creditor, the creditworthiness of the creditor and genuineness of the transactions. If the assessee has discharged the initial onus, then the onus to disprove the same is shifted to the shoulders of the assessing officer. These legal principles have been reiterated in the cases of Bhan & sons (supra) and M/s Precision Finance P Ltd (supra), which were referred to by Ld CIT-DR. In the instant case, there is no dispute that the assessee has discharged the initial burden of proof placed upon it by furnishing all the materials to prove the three main ingredients, referred above. Hence the burden has shifted to the shoulders of the assessing officer to disprove the evidences furnished by the assessee. We notice that the assessing officer, in the instant case, did not conduct further enquiries or bring any material on record to discharge the burden shifted upon his shoulders. Instead, we notice that the assessing officer has simply placed reliance on the alleged incriminating materials found in the course of search conducted in the hands of Shri Bhanwarlal Jain and his group and also upon the sworn statements given by them. 18. The Ld CIT-DR, by placing reliance....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessing officer could not disprove the material evidences furnished by the assessee, in our view, he is not entitled to place full reliance on the inferences drawn by the search officials, particularly the assessee could rebut those presumptions drawn by the search officials. Though the sworn statement given by Shri Bhanwarlal Jain may be a relevant piece of evidence, yet it is stated that the said statement has been retracted. Further the AO has not shown that the transactions entered by the assessee with the group of Shri Bhanwarlal Jain were examined by the search officials and he has deposed against the transactions entered between him and the assessee. On the contrary, the Ld CIT(A) has given a finding that the impugned loan transactions have not been specifically stated to be bogus in nature. The key person of the assessee has reiterated in his statement taken from him during the course of survey that the loan transactions are genuine. When it was pointed out that Shri Bhanwarlal Jain has admitted the bogus nature of transactions, the key person has specifically stated that the said admission related to the sale of diamonds and further specifically stated that the loan trans....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the creditors, since it could not collect further details from them. The AO failed to do so and hence the Hon'ble Supreme Court held that the addition made u/s 68 is not justified. The assessee herein, in our view, stand on a stronger footing. The assessee has furnished all the relevant details, which has been summarized by the Ld CIT(A) in paragraph 6.3.31 of his order as under:- "6.3.31 In the case before me, the record also shows that to prove the genuineness of the impugned loan entries from the 17 creditors, the appellant has furnished to the Assessing Officer the following details copies of which were also furnished in the present proceedings: I. PAN details of creditors II. Constitution and address of the creditors III. Particulars of income-tax returns filed by the creditors [These show that the creditors are legitimate business entities, having the ability to advance the impugned loans to the appellant.] IV. Confirmatory letters given by the creditors " V. Audited financial accounts (including balance sheets) of the creditors [These show that the loans are duly reflected in the books of account of the creditors.] VI. Relevant bank statements of the creditors ....