TaxTMI 
TaxTMI 
2024 (3) TMI 710
X X X X Extracts X X X X
X X X X Extracts X X X X
....e shelter of exempt LTCG under section 10(38) of the act and accordingly Treated the same as unexplained credits and added the same to the income of assessee under section 68 R.W.S. 115BBE of The act. 2) On the facts & circumstances of the case the Ld CIT erred in making an addition of Rs. 1,25,00,000 an treated as unsecured loan u/s 68 of the income tax act 1961 3) On the facts & circumstances of the case the Ld CIT erred in making an addition of Rs. 62,81,903 an treated as interest expenditure u/s 57 of the income tax act 1961 3. We proceed to adjudicate the issues raised by the assessee ground wise. 4. Brief facts of the case are, assessee is an individual earns income from salary, income from business, income from capital gain arising out of investment in securities and income from other sources. Assessee has filed his return of income for A.Y. 2015-16 on 27.08.2015 declaring total income at Rs..93,31,370/-. The return of income was selected under scrutiny and accordingly statutory notices under section 143(2) and 142(1) of the Income-tax Act, 1961 (in short "Act") were issued and served on the assessee. 5. The case has been brought under scrutiny ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ngs made by the SEBI, Investigation Wing, Kolkata and with regard to the information gathered u/s 133(6) of the I.T. Act. The assessee's contention that the evidence cited by the revenue could not be cross examined lacks force. The assessee has not brought out any facts which are different from the findings narrated in the show cause notice dated 16.12.2016. Reliance in this regard is placed on the decision of ITAT Mumbai in the case of M/s. Golden Tobacco Ltd. V/s CIT(65 ITD 380) wherein it had held as under: "we have taken a view that adverse evidence and material, relied upon in the order, to reach the finality should be disclosed to the assessee. But this rule is not applicable where the material or evidence used is of collateral nature. We have also taken a view that right to cross-examine the witness, who made adverse reports is not an invariable attribute of the requirement of the dictum, "audi alterant partem". More ever, all the exit providers and operators are Kolkata based and the assessee has raised issue of cross examination only at the fag end, in the submission filled on 15.12.2017. The assessee in his reply dated 15.1....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... A. The Hon'ble Bombay High Court in the latest judgment dated 10th April, 2017 [ITA No.18/2017] in the case of Sanjay Bimalchand Jain Vs. PCIT-1, Nagpur on the issue of Bogus LTCG from Penny stocks had held as under "The assessee has not tendered cogent evidence to explain how the shares in an unknown company worth Rs. 5 had jumped to Rs. 485 in no time. The fantastic sale price was not at all possible as there was no economic or financial basis to justify the price rise, the assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain. The gain has accordingly to be assessed as undisclosed credit u/s 68. The assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain." The Income Tax Appellate Tribunal had earlier dismissed the appeal file by Sanjay Bimalchand Jain. B. In the case of Sumati Dayal reported in 214 ITR 801 the Hon'ble Supreme Court had held that matter had to be considered by applying the test of human probabilities. Having regard to the facts and circumstances as elaborately discusse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by the assessee for any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the assessing officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. The plain and simple reading of the section 68 unambiguously demonstrate that the section is applicable only in the circumstances where the assessee maintains books of accounts, amount is credited in such accounts and either the explanation about the source and nature of income is not given by the assessee or the explanation is not satisfactory. It is submitted that the assessee is under no legal obligation to maintain books of accounts and nothing has been brought on record by the AO to establish that the assessee had maintained books and the credit was found in the books maintained by the assessee. However, the assessee submits that the assessee not only explained that the sum credited in his bank account was out of sale consideration received on account of sale of shares but also identified the parties from who the amounts were received and the entire trail of transfer ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f pronouncement) Capital gains from penny stocks cannot be assessed as unexplained cash credit u/s 68 if the assessee has produced documentary evidence to prove the source, identify and genuineness of the transaction and the AO has not found any fault with it. The fact that the Investigation Dept has alleged that there is a modus operandi of bogus LTCG scheme is not relevant if the same is not substantiated. Smt. Nirmala Yadav vs Ito (2017)183TTJ 769 (Jodh) Held before invoking section 68, maintenance of the accounts by the assessee itself and finding credit of the subjected amount therein are the conditions precedents and without satisfying them, the Assessing Officer cannot invoke section68. No addition could be made under sec.68 where the assessee did not maintain any books of accounts and the subject amount was not found in her books of accounts which was precondition and amount was found deposited in assessee's bank account. Submissions of merits The assessee had purchased two lakhs equity shares of M/s. Marigold Glass Industries Ltd under a preferential allotment for a price of Rs. 24,00,000/- having face value of Rs. 10 with premi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g to AO the long term capital gains earned by assessee is in nature of an accommodation entry and pre-arranged affair and as both the assessing officer had held that transaction in question are not genuine. The assessee submits that the issues involved in these appeals have already been decided in favour of the assessee by the plethora of decisions passed by the Hon'ble Supreme Court & Hon'ble High Courts and ITAT wherein, similar views of lower authorities on basis of probabilities and stated investigation wing information, have been consistently overruled and exemption claimed u/s 10(38) of the Act has been restored once basic documents relating to transaction are put in place and same remained thoroughly undoubted by any direct enquiry on part of AO. Reliance is placed on the following judicial pronouncement amongst others 1. PREM PAL GANDHI (2018)401 ITR 253 (P&H) 2. Principal CIT vs Rungta Properties in ITA No.105 of 2016 dated 08 May, 2017 (Calcutta High Court) 3. M/s. Alipine Investments in ITA No.620 of 2008 dated 26th August, 2008 4. M/s. GTC Industries 164 ITD Page 1(ITA No.5996/Mum/1993) "E", BENCH MUMBAI (SPECIAL BEN....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ence and cannot be ignored .None of the statement of the assessee has been controverted or proved false and hence the contents remained unchallenged and therefore has evidential value (2)`It has been held in 212 ITR 199 (Orissa), that where the assessee has established the source of credits, , the assessee can be said to have discharged the onus cast on him and the onus now shift on the Department. (3) The Calcutta High Court in case of CIT vs. Kamdhenu Vyapar Co 263 ITR 692 held that there is an inbuilt duty of the I.T.O.to help the assessee by issuing Summons to the depositors to justify or otherwise confirm the creditworthiness of depositors. (4) It is the duty of the Assessing Officer and the authorities up to and including the hon'ble Tribunal to consider all the facts and record which is before them and which is in its command (which can be made available by him by exercising his authority) and then record its findings on all contentions. The enquiry too must be conducted in accordance with the rules of natural justice. (5) As held in Jalan Timbers vs. CIT (1997) 223 ITR 11 (Gauhati)- cogent reasons are necessary for rejection of eviden....
X X X X Extracts X X X X
X X X X Extracts X X X X
....paid on the loans was subjected to TDS provisions and other applicable sections of the Income Tax Act. The assessee submits that the AO did not disprove the bank transactions between the parties , did not dispute their existence and also did not dispute the genuineness of the transaction and it is therefore submitted that the learned AO failed in controverting the evidences furnished by the assessee or at least disprove them by bringing some cogent evidence on record . The assessee finally submits that no addition can be made on surmises or conjecture and hence the addition deserves to be deleted. With regard to the disallowance of the interest of Rs. 62,81,903/- the learned AO has stated that the interest paid to those parties who have been charged with alleged fraudulent and manipulative activities and hence the loans were treated as unexplained cash credits. Therefore the interest, according to the AO was not allowable. It is submitted that the total loans were not restricted to Rs. 1,25,00,000/- but the assessee had obtained a total loan of Rs. 11,47,00,000/- and had earned an income of Rs. 1,42,59,612/- and paid interest of Rs. 1,08,59,003/- on the loans taken and therefore a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ritten submissions and documentary evidence filed by the assessee and examined the same in the light of evidence brought on record by the AO in support of treating the tax exempt LTCG as sham transaction. In this regard, it is a known fact that transactions such as purchase and sale of shares of penny stock companies are being used for the purpose of money laundering activities wherein shares of no value or negligible value are purchased and held for more than twelve months and transferred thereafter at an exorbitant price to convert the same into tax exempt LTCG u/s. 10(38) of the Act. 7.6 In the instant case, the assessee has selected the shares of M/s.Greencrest Financial Services Ltd. (earlier known as M/s. Marigold Glass Industries Ltd.)for the purpose of converting his unaccounted income into tax exempt LTCG. This particular modus operandi adopted by the assessee has been subject matter of investigation by various authorities, including Income Tax Department, SEBI etc., In respect of income tax cases, various Courts have held in favour of the Department observing that penny stock transactions should be judged by applying the theory of preponderance of probabilities i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s, on an objective analysis and appreciation of all the facts and surrounding circumstances of the case, I would like to apply the 'Theory of Human Probabilities' and 'Theory of Preponderance of Probabilities' in precedence over unreliable and inconsistent direct evidence filed by the assessee. Thus, I am of the considered opinion that assessee has created bogus LTCG to the extent of Rs. 4,49,74,987/- by using the penny stock company as aconduit. 7.11 At this juncture, it may be noted that merely because transactions were made through recognized stock exchange & demat account, funds were routed through banking channels and strictly followed the legally required paper work/documentation, the assessee cannot hide the real intention behind indulging in such transactions. Judicial Precedents on penny stocks: 7.12 In this regard, I would like to rely upon various case laws on the subject, wherein Hon'ble ITAT and various High Courts/ Supreme Court have consistently held that transactions in penny stock companies wherein the assessees have claimed exemption of LTCG u/s. 10(38) of the Act, cannot be considered as genuine transactions. A list of such cases is giv....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 5 Malvika Atul Shah Vs. ITO (2023) 147 taxman.com 381 (Guj.) 6. PCIT Vs. Nandkishore Agarwala (2022)143 taxmann.com 402 (Cal.) 7. Dinesh Kumar or Tulsyan (HUF) Vs. ITO (2023) 149 taxmann.com 98 (ITAT Pune) 8. Abhishek Gupta Vs. ITO (2023) 147 taxmann.com 21 (ITAT Indore) 9. Suman Poddar Vs. ITO (2019) 112 taxmann.com 330 (SC) 10. DCIT Vs. Pawan Kumar Malhotra (2010) 2 ITR (T) 250 (Delhi ITAT): 11. CIT Vs. Smt. SanghamitraBharali (2014) 361 ITR 481 (Gauhati (Cal.) 12. Success Tours & Travels Pvt. Ltd. [2017] 80 Taxmann.com 262 (Cal.) 13. Ratnakar M. Pujari, Mumbai vs ITO, Ward 25(3)(3), I.T.A. No.995/Mum/2012 Date of Order 03.08.2016 7.16 As such, a detailed analysis of the facts brought out on record would reveal the fact that the explanation offered by the assessee and corresponding evidence produced to support the same are not reliable and, therefore, devoid of merits. Thus, the same cannot be considered as admissible evidence in the eye of the law. Under the circumstances, on an objective analysis and appreciation of all the facts and surrounding circumstances of the case, I would like to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....had also obtained such accommodation entries in the form of bogus LTCG of Rs. 4,59,10,500/- during the FY 2014-15 relevant to AY 2015-16 and for availing such accommodation entries. ii. The Ld. AO on the basis of irrelevant materials and statement statements of operator of M/s Marigold Glass Industries Limited wherein he has admitted of being a bogus entry provider and has provided bogus LTCG entry. The LTCG shown by the assessee from share transactions is treated as bogus and added as unexplained cash credit of Rs. 4,59,10,500/- A. WHY ADDITION MADE BY AO. IS NOT SUSTAINABLE In Assessment year i.e. AY 2015-16 Assessee sold shares and booked the Long Term capital gain. Summary is given as under. The brief facts of transaction are as under: Name of scrip: Marigold Glass Industries Limited now known as Greencrest Financial Services Limited) Date of Purchase No. of shares Purchased Date of split of shares Ratio of split of shares No. of shares after split 07.09.2012 2,00,000 05.06.2014 1:10 20,00,000 Particulars Amount / Value / Dates Date of Sale 21.08.2014 to 18.12.2014 Sale ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... account with brokers & purchase the shares in huge quantities from beneficiaries so that safe exit can be provided. It is also seen that most of the beneficiaries are big businessmen & require tax free funds in form of LTCG in huge quantity. Due to this reason the sizeable amount required to be maintained as balance in the exit provider's account with broker. It is seen that Investigation Wing, Kolkata & others have recorded the statements of brokers/persons related with the brokers. The confession by Shri Devesh Upadhyay as mentioned above, is also a circumstantial I evidence against assessee that assessee's LTCG is arranged one. ..... Para 17 of the Assessment Order states that - Para 17. Findings of the Investigation Wing. 17.1 Kolkata Investigation Directorate had undertaken investigation into 84 penny stocks (Sunrise Asian being one of it) and has given detailed findings indicating bogus LTCG/STCL entries claimed by large number of beneficiaries. The modus operandi involving operators, intermediaries and the beneficiarles has been detailed in the investigation report prepared and disseminated by the Kolkata Directorate. Similar inve....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is scrip in share market and financial analysis of this scrip was undertaken.. The finding that transactions in shares of M/s. Greencrest Financial Services Ltd shown by the assessee are non-genuine is further cemented in consequence to the inquiries conducted u/s. 133(6) of the Act in respect of the Exit-Providers and in the light of action taken by SEBI against them. Also as stated in the preceding paragraph, the investigation wing, Kolkata had also given specific findings in respect of the exit providers involved in this case. The analysis has been discussed in detail in the aforesaid paras. The analysis has been discussed in detail in the aforesaid paragraphs. Upon reading the above, we are unable to understand what the Ld. Assessing Officer is trying to say. The Ld. Assessing Officer is unclear about who the operator / exit provider is. The Companies mentioned in the Para 15 of the Assessment Order under 'Share Brokers' as reproduced above, are not the same Companies in which the assessee has invested. Further the operators / exit providers named in the list in Para 9 of the Assessment Order 'Exit Providers' as reproduced above, do not match with the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The appellant is an investor in securities for last several years. ii. The assessee received a letter from M/s. Marigold Glass Industries Ltd. (now known as Greencrest Financial Services Limited) to Udayan Grover informing about their Preferential Equity Shares Issue of Rs. 10/- each at a premium of Rs. 2/- per share on 1.11.2012. (Pg No. 12-13 of Paper Book) iii. The said issue of Preferential Equity Shares have been approved by the SEBI. iv. On 07.08.2012, the assessee received a letter of approval from M/s. Marigold Glass Industries Ltd. for the proposed allotment of Preferential Equity Shares along with bank details for making payment on or before 18 September 2012. (Pg No. 14-15 of Paper Book) v. The Appellant has made investment in the Preferential Equity Shares in M/s. Marigold Glass Industries Ltd., a Profit making company. The Appellant had applied for 2,00,000 Preferential Equity Shares in the FY. 2012-13 of Rs. 10/- each fully paid up at a Premium of Rs. 2/- per share, thus paid Rs. 12/- per share as cost of acquisition aggregating to Rs. 24,00,000/-. vi. The Appellant has paid the full consideration on 07.09.2012 by account p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....when the shares are sold at online platform the stock exchange, the seller of the shares does not know as to whom the shares are being sold. The shares are transferred in DMAT form to the stock exchange clearing house and the seller only receives sales consideration from the stock exchange through the share broker. Therefore, neither the seller knew the purchasers, nor the purchasers knew the seller. In absence of any corroborative evidence that both Seller and Purchaser have indulged into some clandestine transactions, there is not even a remote possibility of hobnobbing. Therefore, the appellant cannot be said to be a part of the group indulging into rigging of share prices of the script as alleged by the Ld AO. xix. During the course of assessment proceedings the appellant submitted following documents to substantiate his claim of long term capital gain which is exempted under section 10(38) of the Act:- * Copy of share allotment * Copies of sale bills * Copy of bank statement * Copy of demat account * Copy of contract notes xx. At the Bombay Stock Exchange, the price of the shares of M/s Greencrest Financial Service....
X X X X Extracts X X X X
X X X X Extracts X X X X
....been routed and addition of sale proceeds needs to be deleted. RELIANCE IS ALSO PLACED ON FOLLOWING CASE LAWS:- SN CITATION OBSERVATION 1. [2015] 54 taxmann.com 108 (Bombay) HIGH COURT OF BOMBAY Commissioner of Income-tax-13 v. Shyam R. Pawar* DECEMBER 10, 2014 Section 68 of the Income-tax Act, 1961 - Cash credit (Share dealings) - Assessment years 2003-04 to 2006- 07 - Assesse declared capital gain on sale of shares of two companies - Assessing Officer, observing that transaction was done through brokers at Calcutta and performance of concerned companies was not such as would justify increase in share prices, held said transaction as bogus and having been done to convert unaccounted money of assesse to accounted income and, therefore, made addition under section 68 - On appeal, Tribunal deleted addition observing that DMAT account and contract note showed credit/details of share transactions; and that revenue had stopped inquiry at particular point and did not carry forward it to discharge basic onus - Whether on facts, transactions in shares were rightly held to be genuine and addition made by Assessing Officer was rightly deleted - Held, yes [Para 7] [....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e or sales of shares and securities commission from beneficiary parties and that assesse was one of beneficiary of such accommodation entries - Assessing authorities reopened assessment of assesse - Whether since shares of said company was listed in BSE/NSE and these were also transferred to demat account of assesse, assesses claim of exemptions of long-term capital gain on sale of shares could not be denied on basis of submission of said broker - Held, yes [Paras 17 and 18] [In favor of assesse] 4. ACIT vs. Vineet Sureshchandra Agarwal (ITAT Ahmedabad) ITA No. 1442/Ahd/2013 & CO No. 209/Ahd/2013 Assessment Year: 2005-06 Bogus capital gains from penny stocks: The fact that the Stock Exchanges disclaimed the transaction is irrelevant because purchase and sale of shares outside the floor of Stock Exchange is not an unlawful activity. Off-market transactions are not illegal. It is always possible for the parties to enter into transactions even without the help of brokers. Therefore, it is not possible to hold that the transactions reported by the assesse were sham or bogus 5. Surya Prakash Toshniwal HUF vs. ITO (ITAT Kolkata) ITA No.1213/Kol/2016 Assessment Year :2005-0....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsaction value through banking channels, transfer of shares in and from the Dmat account, etc cannot be treated as a bogus transaction so as to attract s. 68 11. Pramod Kumar Lodha vs. ITO (ITAT Jaipur) S. 10(38) Bogus long-term gains from penny stocks: The transaction cannot be treated as bogus until and unless a finding is given that the shares were acquired by the assesse from the person other than the broker claimed by the assesse. The enquiry conducted by the Investigation Indore is not a conclusive finding of fact in view of the fact that the shares were duly materialized & held in the d-mat account. Merely supplying of statement to the assesse at the fag end of the assessment proceedings is not sufficient to meet the requirement of giving an opportunity to cross examine. The AO cannot proceed on suspicion without any material evidence to controvert or disprove the evidence produced by the assesse 12. Navneet Agarwal vs. ITO (ITAT Kolkata) Bogus Capital Gains From Penny Stocks: In order to treat the capital gains from penny stocks as bogus, the Dept has to show that there is a scam and that the assesse is part of the scam. The chain of events and the live li....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reme Court - 2015 (9) TMI 854 - SUPREME COURT 17. The Commissioner of Income Tax-16. Vs. Mrs. Kesar A. Gada 2015 (1) TMI 1220 - BOMBAY HIGH COURT 18. Ramprasad Agarwal vs ITO2(3)(2), Mumbai[2018] 100 taxmann.com 172 (Mumbai - Trib.) 19. Shri Amar Nath Goenka Vs. The ACIT, Circle-20(1), New Delhi. ITA.No.5882/Del./2018 20. Mukta Gupta vs. ITO, Ward-1(4), Ghaziabad .I.T.A. No.2766/DEL/2018 21. AJAY GOEL vs .I.T.O, WARD 39(5)ITA No. 4481/DEL/2018 22. Principal Commissioner of Income-tax,(Central), Ludhiana v. Prem Pal Gandhi (P&H HC) 23. CIT VS Bhagwati Prasad Agarwal ITA No.22/Kol/2009 Calcutta High Court 24. Mr. Shyam R Pawar vs DCIT Central Circle 24 & 26 ITAT Mumbai (ITA No.5585/M/11 , 5620,5621 & 5622/M/11) 25. CIT (Jamshedpur) vs Arun Kumar Agarwal (HUF) Jharkhand HC 26. PCIT (Ludhiana) vs Sh. Hitesh Gandhi P &H HC 27. ACIT Central Circle-II, Jalandhar vs Hitesh Gandhi ITAT Amritsar [I.T.A. No.129(Asr)/2014] 28. Manish Kumar Baid and Mahendra Kumar Baid vs ACIT,Cir-35, ITA No.1236,1237/Kol/2017[ Kolkata-Tribunal] 29. Shri Jignesh Desai vs Income Tax Officer 35(2),....
X X X X Extracts X X X X
X X X X Extracts X X X X
....023 to relevant Appeal No. CIT (A) 13, Mumbai/10189/2017-18 B. LEGAL POSITION ON GENERAL STATEMENT OF OPERATORS:- ADDITION MADE ON BASIS OF STATEMENT OF THIRD PARTY i.e. OPERATORS 1. The Ld. Assessing Officer has been very imprecise about the statements provided by the operators basis which the scrutiny assessment has been conducted. 2. Since has mentioned name of the operators in the Assessment Order but none of those are related to the Company in which the assessee has invested. The Ld. Assessing Officer has been very unclear about the statements of the operators which are the key evidences on which Ld. Assessing Officer has relied and based on which the entire assessment is conducted. 3. Since there is no clarity about the key evidences, the assessment order should be squashed. WITHOUT PREJUDICE TO ABOVE RELIANCE IS PLACED ON VARIOUS JUDGMENT WHERE ADDITION MADE ON THE BASIS OF THIRD PARTY STATEMENTS HAVE BEEN DELETED:- A. The Hon'ble Supreme Court in the case of Omar Salav Mohamed Sait reported in (1959) 37 ITR 151 (SC) had held that no addition can be made on the basis of surmises, suspicion and conjec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsactions. i. The shares are purchased from the company directly through allotment. ii. In assessee's case the shares were sold through M/s Harjivandas Nemidas Securities Pvt. Ltd on BSE and how the assesse will know about the exit provider when he only gives direction of sale to his broker to sell, on what basis will assesse know that the shares have been purchased by whom and where and when and in which quantity. iii. What arrangement is the Assessing Officer speaking about, he cannot just by mentioning that some arrangement was made and say prices were rigged and cash was routed back without any proof or any tangible material on record. iv. The evidences discussed in the order give rise to suspicion only and does not indicate and support the finding arrived at by the learned Assessing Officer. The learned Assessing Officer is working on probability which has no legs and not supported by any cogent material in his possession suspicion howsoever may be strong cannot take place of evidence. No doubt this may lead to some kind of suspicion in the mind of the Assessing Officer but the Assessing Officer should have made proper enquiry and bring coge....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y of said statement and list of beneficiaries of accommodation entries to verify whether name of the appellant is included in said list or not. In absence of copy of statement and list of beneficiaries the appellant could not verify the correctness of said observation of Assessing Officer and the appellant could not rebut his allegation. x. The appellant submit that without providing copies of statement and list of beneficiaries on which assessment is based upon is against the principle of natural justice and said assessment kindly be annulled. RELIANCE IS PLACED ON THE FOLLOWING CASE LAWS / JUDICIAL PRONOUNCEMENTS FOR ADDITIONS DELETED WHICH WERE MERELY BASED ON INFORMATION NOT DISCLOSED TO THE ASSESSE IS IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE The Ld. AO have relied on statement made by operators. However, this statement has not been supplied to the appellant and hence this is in violation of fundamental rules of justice. This has also been upheld by various judicial pronouncements. Reliance is placed on following: SN Case Citation Observation/ Held 1. M/S ANDAMAN TIMBER INDUSTRIES V/s CCE CIVIL APPEAL NO. 4228 OF 2006 Not allowi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bank manager, not shown to assesse, treated amount so remitted as income from undisclosed sources-Tribunal, relying on letters of bank manager, upheld ITO's action-Whether tribunal justified-Held, on facts, no. 8. C Vasantlal & Co. vs. CIT [1962] 45 ITR 206 (SC) It was open to an income tax officer to collect materials to facilitate assessment even by private enquiry. But if he desires to use materials so collected, the assesse must be informed of the materials and must be given an adequate opportunity of explaining it. Suspicious cannot take place the evidence 1. DCIT v. Shri Rajeev G. Kalathil, (Mum) (Trib) (ITA No. 6727/M/2012 dt.20/8/2014 2. K.P. Varghese v. ITO, (1981) 131 ITR 579 (SC); 3. CIT v. Roman & Co., (1968) : 67 ITR 11 (SC); 4. CIT v. Calcutta Discount Co. Ltd.', (1973) 91 ITR 8 (SC); 5. Umacharan Shaw & Bros v. CIT', (1959) 37 ITR 271 (SC) Income assessed without evidence is bad-in-law. Income assessed by revenue without supporting material is not justified. 1. CIT V. BHUVANENDRA 303 ITR 235 (MAD.) 2. VINOD SOLANKI VS. UOI (233) ELT 157 (S.C.) 3. CIT V. KASH....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Capital Services (P) Ltd. 307 ITR 334 (Delhi)(2008). Thus, the addition made on the basis of bad-assessment order is also bad-in-law and requires to be deleted. C. CASE LAWS RELIED BY LD. AO DISTINGUISHED 1. The Ld. AO in the assessment order has laid reliance on following case laws as under and the same has been distinguished: - SN Various case laws relied by Ld. AO Case of Assessee 1. In front of the Hon'ble Delhi Bench of the ITAT in the case of Haresh Win Chaddha v. DDIT (2011) 43 SOT 544 (Delhi) .... that there is no presumption in law that the AO is supposed to discharge an impossible burden to assess the tax liability by direct evidence only and to establish the evasion beyond doubt as in criminal proceedings. Further it was held that the AO can assess on consideration of material available on record, surrounding circumstances, human conduct, preponderance of probabilities and nature of incriminating information /evidence available on record. 2. In the case of Sumati Dayal v. CIT (1995) 214 ITR 801 which had come up before the Hon'ble Supreme Court .....the assessee had shown certain amounts in the capital accou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le ITAT Delhi, the Hon'ble ITAT Mumbai rendered the decision in favour of the revenue. None of these factors are present in the facts of the assessee. Hence it could be safely concluded that the decision of Hon'ble Courts is factually distinguishable with the assessee's case." 12. Further, Ld.AR of the assessee has submitted various documentary evidences in support of the above said transaction and he brought to our notice contract notes of sales of shares, details of cheque issued by stock broker of the assessee towards sales, bank statements in support of the realisation of the sale proceeds and he submitted that the Long Term Capital Gain earned by the assessee is genuine and not an arranged one as alleged by the tax authorities. 13. Further, he submitted that Assessing Officer and Ld. CIT(A) have not pointed out any discrepancies in the documentary evidences submitted by the assessee. Ld.AR of the assessee submitted that without pointing out any discrepancies in the documentary evidences submitted by the assessee the Assessing Officer has heavily relied on the investigations carried out by the Directorate of Investigation. The predetermined action with specific intention ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... addition of Rs. 1,03,33,925/- made by AO u/s 68 of the I.T. Act, 1961, ignoring the fact that the shares were bought/acquired from off market sources and thereafter the same was demated and registered in stock exchange and increase in share price of Ramkrishna Fincap Ltd. is not supported by the financials and, therefore, the amount of LTCG of Rs. 1,03,33,925/- claimed by the assessee is nothing but unaccounted income which was rightly added u/s 68 of the I. T. Act, 1961?" 2. We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of the shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd. ("RFL") is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax ("STT") has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rig....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he AO. As a matter of fact, the demat account statement of the Respondent was called for from the broker M/s SMC Global Securities Ltd under Section 133(6) of the Act, on perusal whereof it was found that the Respondent was not a regular investor in penny scrips. 10. We have heard Mr. Hossain at length and given our thoughtful consideration to his contentions, but are not convinced with the same for the reasons stated hereinafter. 11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n received through banking channels." The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained. 12. Mr. Hossain's submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ubmitted that he was a regular investor in shares like M/s. Power Grid, M/s. Adani Port, M/s. Coal India and M/s. Reliance Power etc. (supra). The assessee's statement has been recorded by the AO which has been reproduced by the AO from page 8 to 14 of the assessment order; and that he was allotted preferential shares of M/s. Greencrest Financial Services Ltd. (earlier known as Marigold Glass Industries Ltd.) and to support the same had filed allotment advice from M/s. Marigold Glass Industries Ltd which is found placed at page no. 1 of the PB; and the bank account shows payment of Rs. 18,00,000/towards purchase of shares of the above company on 06.09.2012 (refer page no. 2 & 3 of the PB). The Ld. AR also brought to my notice that the Demat statement (CDSL statement for the period 01.12.2013 to 31.12.2013) shows holding of 150,000 equity shares of M/s. Marigold Glass Industries Ltd in Demat Format (refer page no. 4 to 5 of the PB). And the Ld. AR also brought to my notice CDSL statement for the period 01.03.2015 to 31.03.2015 showing holding of 14,64,000/- equity shares of M/s. Greencrest Financial Services Ltd. in Demat Format after sale of 36000 equity shares on 11.12.2014 (refer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....action depicting trade time. This Tribunal noted that at no point of time, the department had been able to pin point that there was an accommodation of cash getting converted into regular payment. The revenue, in that case, had heavily relied on the discrepancy pointed out by CSE, regarding client code misuse, but at no point of time the revenue was able to prove that the sale of the impugned shares was bogus/sham. Even the details received from CSE did not mention that on the specified dates, the transaction as asserted by assessee did not take place. The Tribunal observed, that department failed to show that the payee brokers did not have funds to make payments to the assessee or that their existence was suspect or that the transaction was not genuine. It was noted by the Tribunal that although investigation was conducted by the department on brokers, M/s Prakash Nahata & Co. and Bubna Stock B. S. Ltd., and even found that cash was deposited in the account of Prakash Nahata & Co. in the bank and gave full summary of the details, nowhere did the name of that assessee figured in that list. The Tribunal therefore, noted that the burden was on the department to nail the assessee thro....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and with a view to discharge the initial or basic onus, then such conclusion of the Tribunal cannot be termed as perverse. The conclusions as recorded in para 12 of the Tribunal's order are not 'vitiated by any error of law apparent on the fact of the record either." 7. In an identical case, the addition on account of long term capital gain on sale of shares was deleted by holding it to be a genuine transaction in the case of Mukesh Marolia v. Addl. CIT-6 SOT 247 (Mum). Even in the said case, the AO had held that the long term capital gain shown by the assessee was unexplained since in the said case broker had confirmed in a statement before the AO that he never sold any shares to the assessee. However, taking note of the evidence as available on record, the Tribunal held that the AO had not disproved the genuineness of the transactions. The said decision of the Tribunal was later upheld by the Hon'ble Bombay High Court in the case of CIT v. Mukesh Marolia - ITA 456 of 2007 dated 07.09.2011. And the SLP against the said decision filed by the Department has also been dismissed by the Hon'ble Supreme Court in SLP (Civil) No. 20146/2012 dated 27.01.2014. 8. Reliance....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... bench wherein on similar facts and circumstances issue was decided in favour of the assessee came to the conclusion that transaction entered by the assessee was genuine. Detailed finding recorded by CIT (A) at para 3 to 5 has not been controverted by the department by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the findings of CIT(A). Moreover, issue is also covered by the decision of jurisdictional High Court in the case of Shyam R. Pawar (supra), wherein under similar facts and circumstances, transactions in shares were held to be genuine and addition made by AO was deleted. Respectfully following the same vis-a-vis findings recorded by CIT(A) which are as per material on record, we do not find any reason to interfere in the order of CIT(A)." 9. In similar case, the issue was decided in favour of the assessee in the case of Commissioner of Income-tax, Jamshedpur vs. Arun Kumar Agarwal (HUF) 210 Taxman 205 (Jharkhand High Court). In this case, the AO on the basis of finding in the SEBI enquiry, consequent to which eleven stock brokers & their trading were suspended by the Kolkata Stock Exchange from buying & selling th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h was duly proved by the bank statement." 11. I find that in the case at hand before me, relevant evidence were produced to suggest that the transactions (purchase and sale of shares) were undertaken and thereafter the same was reflected in the Demat Account; and the transactions have taken place through banking channel and through registered broker of Stock Exchange; and there is no evidence to disprove these relevant documents which support the claim of assessee (LTCG). Therefore, the claim of LTCG on the scrip under question cannot be disallowed based on general enquiry conducted by department unless the involvement of assessee is shown in the illegal activities, without which, the impugned action to disallow the claim of assessee cannot be sustained. 12. Further, I agree with the submission of the assessee that the assessee's case is distinguishable from the case of Sanjay Bimalchand Jain L/h Shantidevi B Jain v CIT of Mumbai High Court, Nagpur Bench in Income tax Appeal No. 18/2017. 13. Therefore, in view of the decisions of the jurisdictional High Court and other decisions of Tribunal, and in the factual back ground discussed (supra), I find that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Global Infratech & Finance Ltd.(PAN: AAABCA4255H) 1,12,16,297 --- 9,33,827 4 Unisys Software Ltd (PAN: AABCC1191Q) 3,59,50,410 -- 48,79,740 5 JMD Sounds Ltd (PAN: AABCJ1907H) - 30,00,000 87,377 1,25,00,000 62,81,903 It was also found that two of the above parties, M/s. Blue Circle Services Ltd & M/s Global Infratech Finance have been identified as penny stocks by the department wherein mass manipulations in terms of obtaining bogus capital gain have been unearthed. Hence, a Show-cause notice dated 21.12.2017 was issued to the assessee u/s 142(1) of the IT Act, 1961, asking him to explain as to why unsecured loans taken from exit providers/dubious entities should not be added to the total income as "unexplained cash credit" and that the interest paid thereon should not be disallowed u/s 37(1)/57 of the Act and was asked to submit the detailed reply. The assessee was asked to justify his claim with, facts, figures & supporting documentary evidences. 22. B The reply filed by the assessee in response to the above notice is received in this office on 28.12.2017. The assessee has accepted that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urther lended to M/s Grover Metal Alloys Ltd does not in any way give it a color of genuineness. Along with submission made on 11.12.2017, copies of confirmation of these parties, a relevant part of their bank statements and acknowledgment of their return of income filed for A.Y. 2015-16 were also submitted. It is seen that M/s Blue Circle Services Ltd. (Shown to have given a loan of Rs. 30,00,000/-) had shown a loss of Rs. 16,16,48,120/- for the A.Y. 2015-16. M/s JMD Sounds Ltd (loan advanced Rs. 30,00,000/-) had shown a meager income of Rs. 6,98,528/- for the A.Y. 2015-16. In the case of M/s. Global Infratech & Finance Ltd, neither copy of the acknowledgement of return of income was filed nor copy of bank statement submitted. In none of the cases, copies of balance sheet, profit & loss a/c etc have been filed. A perusal of bank statements of these parties indicates huge and frequent transactions, a trademark characteristic of the accommodation entry providers. In order to discharge the onus cast in terms of provisions of section 68 of the I.T. Act, the assessee has to establish the identity of the said parties, genuineness of the transactions and financial....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g three unsecured loan transactions: Sr. No. Name of the Party Loan taken during the year (In Rs. ) 1 Blue Circle Services Ltd. 30,00,000/- 2 JMD Telefilms Industries Ltd. 65,00,000/- 3 JMD Sounds Ltd. 30,00,000/- Total 1,25,00,000/- ......... DECISION-II: 8.5 I have given my thoughtful consideration to the submissions made by the assessee and examined the same in the light of the documentary evidence placed on record. At the outset, it is an admitted fact that, as per the enquires conducted by the Investigation Wing, Kolkata, it was unearthed that Jagdish Purohit Group had provided accommodation entries through paper/shell companies to various beneficiaries in the guise of share capital, share application money, unsecured loans, purchases/sales, etc. This fact was confessed by Sri Jagdish Purohit in his statement recorded on oath on 21.01.2015. Further, as per the enquiry report received from the Investigation Wing, the above mentioned three parties were found to be part of Jagdish Purohit Group. As such, basedon investigation already conducted by the Investigation Wing, prima facie, the transactions th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lysis of the facts brought out on record would reveal the fact that the explanation offered by the assessee and corresponding evidence produced to support the same are not reliable and, therefore, devoid of merit. Thus, the same cannot be considered as admissible evidence in the eyes of the law. Under the circumstances, on an objective analysis and appreciation of all the facts and surrounding circumstances of the case, I would like to apply the 'Theory of Human Probabilities' and 'Theory of Preponderance of Probabilities' in precedence over unreliable and inconsistent direct evidence filed by the assessee. 8.18 `In this regard, reliance is placed on the following decisions of Hon'ble Supreme Court and Hon'ble Delhi High Court wherein it was held that apparent was not real in all the cases and emphasized the importance of the surrounding circumstances and application of the test of 'Human Probabilities' to prove that the apparent was not real. 1. Sumati Dayal Vs. CIT [1995] 214 ITR 801(SC) 2. CIT Vs. Durga Prasad More[1971] 82 ITR 540 (SC) 3. CIT Vs. P. Mohana Kala & others [2007] 291 ITR 278 (SC) 4. CIT Vs. Ms. Mayawati [2011] 338 ITR 5....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... order, the assessee preferred an appeal before us. At the time of hearing, Ld.AR of the assessee brought to our notice relevant facts relating to the above grounds of appeal and filed its written submissions. For the sake of clarity, it is reproduced below: - "Why the addition is not sustainable 1. Assessee took genuine loan for business. 2. The appellant requested the assessing officer to give the statement recorded u/s. 132(4) and further requested for cross examination. The assessing officer without considering any evidences and submissions made, treated the loan of Rs. 1,25,00,000/-, as unexplained cash credit. 3. During the course of assessment proceedings, all credible evidences were furnished before the Ld. AO establishing the case of the appellant on merits. However, till the conclusion of the assessment proceedings the Ld AO has not been able to discredit any of the evidences brought on record. 4. Addition was made only on the basis of statement provided by third party without any iota of evidences discrediting the evidence furnished by the appellant. 5. Statement of Shri Jagdish Purohit has been retreated which cannot....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ad no business in past with Jagdish Purohit, whose statement has been made the basis of re-opening of completed assessment of Assessee u/s. 143(3). c. Interest was paid by the assessee to the said lenders and TDS was duly deducted. It was alleged that Mr. Jagdish Purohit has admitted before the I T authorities that he had been indulged in the Business of providing accommodation entries in the form of capital gain, loans, sale and purchases etc. d. Shri Jagdish Purohit has retracted the statement made. Copy of Re-traction statement filed by Shri Jagdish Purohit to the officer of Hon'ble CBDT, Delhi. e. The Respondent Company's books of Accounts are Audited and were submitted to the learned Assessing officer and there were no adverse remarks of the Auditors in the said Report. Therefore, the transaction entered into by the assessee company cannot be doubted. 2. The Learned Assessing Officer had heavily relied on the statement of Mr. Jagdish Purohit. These statements were recorded at the back of the Respondent. Further the learned assessing officer has not provided the statement of Shri Jagdish Purohit, this same statement has been made the basis of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uch amount. 8. Section 68 of the Act reads as under: - "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year :" It is settled position that to prove the genuineness of the transaction, the burden lies on the assessee and to discharge the onus, the assessee must prove the following - I. Identity of the Creditor II. Capacity of the Creditor III. Genuineness of the Transaction Once the above conditions are proved prima facie by the assessee and the assessee has adduced evidence to establish prima facie the aforesaid, the onus shifts on the department. Three conditions enshrined in section 68 are clearly proved by the documents submitted during the assessment proceedings as under :- I. To prove the identity a) Name, Address, PAN, Income-tax Jurisdiction, etc. of the lender companies; ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of section 68 of the Act. By submitting the above details, the Respondent has discharged his primary onus of proving the unsecured loan as Genuine Transaction. However, the Ld. Assessing Officer without considering the facts and circumstances of the case erred in making addition of Rs. 1,25,00,000/- being the amount received towards loan u/s. 68 as Unexplained Cash Credit without having any jurisdiction. Thus all the ingredients of S.68 of the Act were fully proved and established before the learned Assessing Officer. However, the onus of the appellant is limited to the extent of proving the source from which he received the cash credit. The creditworthiness of the creditor has to be judged vis-à-vis the transaction which had taken place between the appellant and the creditor, and it is not the burden of the appellant to find out the source of creditworthy capacity in order to prove the genuineness of the transaction. As held by the Hon. Gauhati High Court in the case of C.I.T. v. Smt. Sanghamitra Bharali (2014) 361 ITR 481 (Gau). The aforesaid points were also affirmed in the past by the Apex Court in the case of C.I.T. v. Orissa Corpo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion entries. It is incumbent on the AO to act judiciously in appreciating the explanation and evidence placed before him by the appellant. An approach of not considering the material and evidence would vitiate assessment proceedings. Any rejection of an explanation by an AO is an inference drawn basically from the facts and does not involve any legal principle. The appellant submits that the AO is cast upon with great deal of accountability while rejecting the explanations offered by the assessee and deciding to make additions of cash credits. He is duty bound to bring in outweighing evidence and material to the contrary to substantiate an addition. No arbitrary approach of rejecting appellant's explanation is allowed under the law. As per the rule of evidence the burden of showing that the apparent was not real is on the person who claims it to be so. Accordingly, it is for the revenue to disprove explanation offered by an appellant which is apparently consistent with the facts of the case. No easy going would be available for the Ld. AO in rejecting appellant's explanation, unless contrary evidence that can outweigh the material and evidence supplied b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o invoke the provisions under Section 131 of the Act, the Tribunals had rightly concluded that it was sufficient to delete the addition. Besides, the Hon'ble Bombay High Court in the case of Orient Trading Co. Ltd. v. C.I.T. (1963) 49 ITR 723 (Bom) (Para 9) which has been referred by the P&H High Court in the aforesaid decision, had held so. Besides in the case of C.I.T. v. Kamalaben Sureshchandra (2014) 367 ITR 692 (Guj), the Hon'ble Gujurat High Court held that deletion by the CIT (A) was based on appreciation of evidence on record, and hence such decision has to be upheld by the Court. Besides, the Gujurat High court in the case of C.I.T.v Sachitel Communication Pvt. Ltd. (2014) 227 Taxman 219 (Mag) (Guj) held that - "Where the assessee proved the identity of the Creditor and capacity to pay and that payment was made through the Banking Channel, no addition could be made as unexplained Cash Credits." The Hon'ble Gujurat High Court in the case of C.I.T. v. Patel Ramniklal Hirji (204) 222 Taxman 15 (Mag) held as under: "The addition on the basis that four depositors furnished requisite details to prove their identity and showed the place of thei....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the identity of the creditors. The assessee had also shown, in accordance with the burden, which rested on him under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors which was not in dispute. Once the assessee had established these, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter, the burden had shifted to the Assessing Office to prove the contrary. The failure on the part of the creditors to show that their Sub-creditors had creditworthiness to advance the said loan amounts to the assessee, could not, under the law be treated as the income from undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or where owned by, the assessee. The Assessing Officer failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee. Therefore, the Assessing Officer could not have treated the said amounts as income derived by the assessee fr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f statement of third party recorded at the back of the assessee, opportunity of cross examination has to be offered to the assessee, failing which the said material/statement etc. will be rendered unreliable and additions made on the basis of such material/statement etc. shall be rendered illegal. Reference in this regard can be made from the decisions made in the following judiciary ruling:- * R.B. ShreeramDurga Prasad 176 ITR 169 (SC), * KishanChandChellaram Vs. C.I.T. (1980) 125 ITR 713 (SC) * Jindal Vegetable (order of Hon'ble Delhi High Court in ITA no. 428 of 2007, 174 Taxmann 440 (Raj.) * LaxmanBhai Patel (order of Hon'ble Gujarat High Court dated 22.07.2008 in ITR no. 41/1997). 11. Shri Jagdish Purohit was never a DIRECTOR as well as SHAREHOLDER of lender companies. from whom the respondent company has received the unsecured loan amounting to Rs. 1,25,00,000/- during the said Assessment Year. 12. A person (Jagdish Purohit), who is neither holding managerial berth in the lender Company nor holding any ownership rights, cannot control the affairs of the lender Company. 13. Further, following legal position....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Assessee must be given a fair and reasonable hearing to discharge the burden cast on him u/s 68 of the Act. Further, it is settled law that in the matter of cash credit, the initial onus lies on the Assessee to prove the genuineness of the transaction along with the identity of the lender/investor and his creditworthiness. Having done so, the Respondent in the instant case has discharged the onus cast upon it. Beyond this, for the charge of unexplained cash credit to stick, the onus lies on the AO to disprove the claim of the Assessee by establishing that the evidence filed by the assessee was false and by bringing new material on record and failure to do so would vitiate the addition made on this count. g. It was also held in the case of CIT v. Bedi & Co. P. Ltd. (1998) 230 ITR 580 (SC) that where prima-facie the inference on facts is that the assessee's explanation is probable, the onus will shift to the revenue to disprove it and the assessee's explanation in such case cannot be rejected on mere surmises. Other similar judiciary ruling are as under:- * Khandelwal Constructions v. CIT (1997) 227 ITR 900 (Gau.) * CIT v. Orissa Corporation Pv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....paid along with interest before the date of survey i.e. 17/10/2014 and no cash was found during survey further fortifies the claim of the assessee. All the concerned parties appeared before the Ld. Assessing Officer during remand proceedings, the Ld. Assessing Officer recorded their statement and nothing adverse was pointed out even Shri Pravin Jain himself appeared before the Ld. Assessing Officer and even during remand proceedings enquiries were carried out and no adverse remark was made by the ld. Assessing Officer. The assessee as well as the other parties furnished all possible documents evidencing that the loans are not bogus. No cash was found deposited in the accounts of alleged six parties, thus, keeping in view, the totality of facts, attendant circumstances, human probabilities, and in the presence of plausible explanation by the assessee, relevant material, and requirement of fulfillment of ingredients, enshrined in section 68 of the Act, we find that onus cast upon the assessee has been duly discharged, therefore, the addition made u/s 68 of the Act, which is purely based upon presumption or the statement recorded and later on retracted by the concerned parties, theref....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nquiries or investigation was carried out. No evidence to controvert the claims of the Assessee was brought on the record by the AO. Even the statement of Shri Praveen Kumar was supplied. Nothing is on record about the result if investigations done by DGIT (lnv), Mumbai. The papers filed by the assessee do demonstrate the identity, creditworthiness and genuineness of the transaction. The addition is made merely on surmises and conjectures. In view of the above, we hold that the addition made under section 68 of the Act is bad in law." We noted that in the said case also loan had been received from M/s Javda India Impex Ltd., M/s Kush Hindustan Entertainment Ltd. and M/s Olive Overseas Pvt. Ltd Para 12. Being consistent with the view taken by this co-ordinate Bench in case of Komal Agro tech pvt. Ltd. (supra), and in view of the facts and circumstances, we do not find any illegality or infirmity in the orders of the CIT(A). It is accordingly, confirmed for both the years under appeal." k. It was held in case of Ito 4(3)(4), Mumbai vs Suchitra Fabtex P.Ltd, [ITA No. 2979 & 2980/Mum/2017]- "Ansh Merchandise Pvt .Ltd. (earlier known as New Planet Tra....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of reliable evidences brought on record by assessee to substantiate identity, genuineness and creditworthiness of shareholders/ lenders, which have not been controverter by the Revenue, the additions made solely on the basis of general statement of Shri Mukesh Chokshi cannot be held to be justified and the same are accordingly ordered to be deleted. In the result, appeal of the assessee is allowed in part, in terms indicated hereinabove." Further ITAT-"D" Bench has decided the following cases in favour of the assessee on similar issues. a) ITO - 10(2)(1) vs. M/s. Deep Darshan Properties Pvt Ltd in ITA No. 2117/Mum/2014 : AY 2006-07 and ITA No.2118/Mum/2014 : AY 2007-08 b) ITO -10(2)(3) vs. Aajivan Computers Pvt Ltd in ITA No.2160/Mum/2014 : AY 2006-07 c) ITO -10(2)(3) vs. Dignity Securities Trading Pvt Ltd in ITA No.2157/Mum/2014 :AY 2006-07 d) ITO -10(2)(1) vs. M/s. Blue Hill Properties Pvt Ltd in ITA No.2119/Mum/2014 :AY 2006-07 With the facts and various Judicial rulings as discussed above, it is crystal clear that the Unsecured Loan Received by the Respondent was genuine and cannot be treated as Accommodation entry. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ding & Properties Ltd. In view of the above discussion we do not find any infirmity and illegality and we have already confirmed the order passed by ld CIT(A) for AY 2008-09 and 2009-10, hence, the appeal for the year consideration is also dismissed with similar observation." o. The Judgment delivered by Jurisdictional Hon'ble ITAT, Mumbai for an identical case i.e., M/s Shree Laxmi Estate Pvt. Ltd. V/s. Income Tax Officer 15(3)(3) On 29.12.2017 ITA-5954/Mum/2016, the summary of the case is outlined as under:- "We have heard both the parties, perused the material available on record and gone through the orders of authorities below. The AO made addition towards unsecured loans received from Josh Trading Company Pvt. Ltd. and Viraj Mercantile Pvt. Ltd on the basis of information received from Investigation Wing which revealed that the assessee is beneficiary of bogus accommodation entries provided by Shri Praveen kumar Jain through his bogus companies.................. The AO has brought out facts in the light of statement of Shri Pravin kumar Jain deposed before the Investigation Wing to make addition. Except this there is no contrary evidence in the posse....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... upon it u/s 68 of the Act by submitting the number of documentary evidences during the course of assessment proceedings. The Ld. AO has failed to demonstrate and establish that how the impugned addition of Rs. 1,25,00,000/- was treated as Unexplained Cash Credit. Hence, statement of a third party cannot be relied upon without any corroborative documentary evidence on record. 15. The learned Assessing Officer has erred in making the further addition by disallowing the expenses u/s. 57 of the I.T. Act., 1961 amounting Rs. 62,18,903/- as unexplained expenditure paid in cash. This addition is hypothetical and imaginary in nature and Appellant had not paid any sort of commission for the said genuine borrowings. 16. The learned Assessing Officer further has disallowed the legitimate Interest expense paid on Borrowed fund/ Short Term Loan amounting to Rs. 62,18,903 /- without any proper base. The disallowance was made, alleging that loan was paper entry hence there was no liability to pay interest on the said Loan. Further also Reliance Place on following case Laws: THE INCOME TAX APPELLATE TRIBUNAL "H", BENCH MUMBAI The ACIT 25(2) vs. M/s. H.K. Pujara Build....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The addition made towards commission expenses is also offshoot of the addition made u/s 68 of the Act. For the reasons stated in the preceding paragraph, we confirm the order passed by Ld CIT(A) on this issue also. In the result, the appeal filed by the revenue is dismissed. DCIT 25(1) vs. M/s. YRV International ITA No. 1414/Mum/2017 The Ld CIT(A) has rightly pointed out these facts and accordingly concluded that the addition made by the AO was not justified. In view of the foregoing discussions, we are of the view that the decision rendered by Ld CIT(A) does not call for any interference, since the first appellate authority has rendered his decision by considering the legal principles enunciated in various case laws relied upon by him and further applying the same to the facts of the present case. Thus we notice that the Ld CIT(A) has reached his decision in a systematic manner. Accordingly we affirm the decision rendered by Ld CIT(A). In the result, the appeal filed by the Revenue is dismissed. Shri Ashok Nagraj Mehta vs. ACIT Circle 19(1) ITA No. 2100/Mum/2016, and ITA No. 1645/Mum/2017 A perusal of the order passed by Ld CIT(A) would show that the Ld CIT(A) has....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ness of the said loan creditor, the assessee has brought on record, the audited balance Sheet of the said company, relevant bank statement and as per this balance sheet, the net worth of this company is Rs. 83.34 lacs and the loan amount in question is only Rs. 20 lacs. In the light of the same, it has to be accepted that the creditworthiness of the said loan creditor is also established at least prima facie. Regarding genuineness of the transaction in question, the assessee has brought on record bank statement and loan confirmation to establish that the loan was received by account payee cheque and it was returned in the next year by account payee cheque. Hence, genuineness of the transaction in question is also established at least prima facie. The AO has come to a different conclusion mainly on the basis of the statement of Shri Bhanwarlal Jain Group without providing to the assessee an opportunity of cross examination. Hence, it is seen that except the statement of Shri Bhanwarlal Jain Group, there is no adverse material brought on record by the AO. No shortcoming is pointed out in various documents brought on record by the assessee to establish the identity and credit worthine....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e furnished through cheques and loan account were duly reflected in balance sheet, Assessing Officer was not justified in making addition - Held, yes [2013] 36 taxmann.com 429 (Madhya Pradesh) HIGH COURT OF MADHYA PRADESH Commissioner of Income-tax-II, Indore v. Vaibhav Cotton (P.) Ltd.* Section 68 of the Income-tax Act, 1961 - Cash credits [Loans] - Assessment year 2007-08 - Tribunal on its own independent analysis of matter had reached to factual conclusion about genuineness of unsecured loan transaction and in this process Tribunal had taken note of fact that detailed account of concerned parties were filed by assessee and entries in account were through account payee cheques, source of deposit in bank was not in dispute and identity of parties was established and also creditworthiness of creditors was established - Whether since finding which had been recorded by Tribunal was essentially a finding of fact and since revenue had failed to point out any error or perversity in said finding of fact, order of Tribunal was to be upheld - Held, yes [2014] 45 taxmann.com 203 (Rajasthan) HIGH COURT OF RAJASTHAN Commissioner of Income-tax, Ajmer v. Jai Kumar Bakliwal Sec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....editworthiness of creditors by producing their respective bank accounts - Assessing Officer did not examine creditors and made addition on assumption that they would not have saved any money to advance loans - Whether it was not a fit case to make addition under section 68 - Held, yes [2014] 50 taxmann.com 419 (Gujarat) HIGH COURT OF GUJARAT Commissioner of Income-tax-III v. Manoj Indravadan Chokshi* Section 68 of the Income-tax Act, 1961 - Cash credits (Bank deposits) - AY 2009-10 - Whether once source of cash deposit in bank account is explained, subsequent withdrawal is not required to be explained - Held, yes - Assessee explained cash deposit in bank account by submitting names of persons from whom unsecured loans were taken - Whether merely because assessee withdrew cash instead of sufficient cash balance available with him and subsequently re-deposited same in bank account for his own use, no addition could be made - Held, yes [2015] 61 taxmann.com 28 (Mumbai - Trib.) IN THE ITAT MUMBAI BENCH 'E' ACIT v. Sanjay M. Jhaveri* Where assessee had taken unsecured loan and duly filed confirmation letters of creditors, copies of their bank accounts and acknowledge....
X X X X Extracts X X X X
X X X X Extracts X X X X
....td and JMD Telefilms Industries Ltd., in the Paper Book and it is brought to our notice that assessee has repaid the unsecured loans taken by it along with interest. It is brought to our notice that the assessee has repaid to JMD Sounds Ltd current financial year itself, the same is placed on record at Page No. 128 and 129 of the paper book. Similarly, the payment of JMD Telefilms Ltd in the same financial year, the same is place on record at Page 123 and 124 of the paper book. The payment of Blue Circle Service Ltd are paid in the subsequent assessment year along with interest. Therefore, assessee has demonstrated that assessee has taken unsecured loans and repaid the same along with interest. Normally accommodation entries are taken and the unsecured loans remain unsettled for a long period of time. However, in this case, the assessee has taken the loan and repaid the same along with interest, it clearly indicate that the loan transaction is genuine. 24. Further, it is brought to our notice that the assessment was reopened mainly on the basis of statement of Shri Jagdish Purohit and Shri Jagdish has subsequently retracted the statement given. Therefore, the genuineness has to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....curate particulars of income. (Add: Rs. 62,81,903/-)" 26. Aggrieved assessee is in appeal before Ld. CIT(A) and filed detailed submissions. After considering the detailed submissions of the assessee, Ld. CIT(A) dismissed the ground raised by the assessee observing as under: - "9.0 GROUND NO. 3: DISALLOWANCE OF INTEREST EXPENSES OF Rs. 62,81,903/-: 9.1 During the course of assessment proceedings, while perusing the details furnished by the assessee, the AO observed that the assessee claimed to have paid interest of Rs. 62,81,903/- to five parties identified as paper/shell companies indulged in providing accommodation entries in the guise of unsecured loans, which included the above mentioned three paper/shell companies. The details of the same are given below for ready reference. Sr. No. Name of the Party Interest paid(In Rs. ) 1 Blue Circle Services Ltd. 2,12,301/- 2 JMD Telefilms Industries Ltd., 1,68,658/- 3 JMD Sounds Ltd. 87,377/- 4 Global Infratech & Finance Ltd. 9,33,827/- 5 Unisys Software Ltd. 48,79,740/- Total 62,81,903/- 9.2 In view of the above, the AO disallowed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er/shell companies, are also indulged in providing accommodation entries in the guise of unsecured loans, share capital, share application money, etc. 9.8 Accordingly, I am of the considered opinion that the unsecured loan transactions claimed to have received by the assessee from the above mentioned two companies on which interest expenditure was claimed to the extent of Rs. 58,13,567/- (9,33,827 + 48,79,740) are also bogus in nature. As a natural corollary, the assessee is not entitled to claim interest on such bogus unsecured loans as allowable deduction either u/s. 57 or u/s. 37(1) of the Act. Accordingly, the entire amount of interest expenses claimed by the assessee of Rs. 62,81,903/- cannot be allowed as deduction as per the provisions of the Act. Thus, the ground of appeal raised by the assessee on this issue is dismissed. 10.0 In the result, the appeal filed by the assessee against the order u/s. 143(3) of the Act for the AY 2015-16 is dismissed." 27. At the time of hearing, Ld.AR of the assessee brought to our notice relevant facts of the ground and submitted as under: - "Why the Ld. A.O. made disallowances The Ld. A.O., considered t....