JUGRAJ DHANRAJ RATHOD, MUMBAI V. INCOME TAX OFFICER -21 (1) (5), MUMBAI

ITA 103/MUM/2022

AI Insights

The case involves Mr. Jugraj Dhanraj Rathod, the appellant, who contested the addition of Rs. 40,00,000 as unexplained cash credits under section 68 of the Income Tax Act, 1961, by the Income Tax Officer (ITO) and upheld by the CIT(A). The addition was based on information from the Directorate of Income Tax (Investigation) indicating that the assessee was a beneficiary of accommodation entries from various concerns linked to Gautam Jain. The assessee argued that the loan from M/s. Rajan Gems was genuine, supported by documents such as loan confirmations and bank statements. However, both the ITO and CIT(A) dismissed these documents, relying instead on the findings of the Investigation Wing. The Tribunal criticized this approach, emphasizing the need for a detailed examination of the documents and the credibility of the loan provider.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 301292 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 23-03-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 18-01-2022
• Other Referred Cases: Smt. Shanta Devi vs. CIT, Agrawal Coal Corp. (P.) Ltd. vs. Asstt. CIT, CIT vs. Frostair (P.) Ltd., CIT vs. Hindon Forge (P.) Ltd., Commissioner of Income Tax vs. Nova Promoters & Finlease (P) Ltd., CIT vs. NR Portfolios Pvt. Ltd., Lovely Exports vs. CIT, Divine Leasing vs. CIT, Vaibhav Cotton (P.) Ltd. vs. Income Tax Officer, 4(4), Indore, CIT vs. Durga Prasad More, Sumati Dayal vs. CIT, Som Nath Maini vs. CIT, ITO Wd 25(1)(5), Mumbai vs. United Metal & Wire Industries
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Unexplained cash credit; Search and seizure; Accommodation entries; Retraction; Bogus loan
• Section: 131; 68; 132; 143(3); 142(1); 133(6); 195; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “SMC”, MUMBAI BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI GAGAN GOYAL, ACCOUNTANT MEMBER ITA No.103/M/2022 Assessment Year: 2014-15 Mr. Jugraj Dhanraj Rathod, B-703, Dadar Manish Market, Senapati Bapat Marg, Dadar (W), Mumbai – 400 028 PAN: AABPR8721Q Vs. Income Tax Officer-21(1)(5), Piramal Chamber, Parel, Mumbai – 400016 (Appellant) (Respondent) Present for: Assessee by : Shri Bhavesh Prafulbhai Shah, A.R. Revenue by : Shri Anoop Hiwase, D.R. Date of Hearing : 24 . 03 . 2023 Date of Pronouncement : 30 . 03 . 2023 O R D E R Per : Kuldip Singh, Judicial Member: The appellant, Mr. Jugraj Dhanraj Rathod (hereinafter referred to as ‘the assessee’) by filing the present appeal, sought to set aside the impugned order dated 25.11.2021 passed by the National Faceless Appeal Centre(NFAC) [Commissioner of Income Tax (Appeals), Delhi] (hereinafter referred to as CIT(A)] qua the assessment year 2014-15 on the grounds inter-alia that :- “1. The Ld. CIT(A) erred in confirming the order passed by the ITO u/s 143(3). ITA No.103/M/2022 Mr. Jugraj Dhanraj Rathod 22. The Ld. CIT(A) and the ITO erred on facts and in law by making addition of unsecured loan from M/s. Rajan Gems of Rs.40,00,000/- as unexplained cash credits u/s 68 of the Income Tax Act. 3. The Ld. CIT(A) and the ITO failed to appreciate the fact that the appellant had submitted all the documents relating to loan taken i.e. Loan confirmation, copy of bank statement & ITR-V of the loan party and has fulfilled all the conditions requisite for proving the genuineness of the transactions u/s 68 during the course assessment proceedings. The said documents were also submitted by the loan party independently against notice u/s 133(6) issued by the ITO. 4. The Ld. CIT(A) and the ITO failed to appreciate the fact the said loan was taken for purchasing the property and the same has been repaid in the subsequent year which were submitted to ITO during the Assessment proceedings. 5. The Ld. ITO has rejected the submissions made by the appellant and has carried out the assessment u/s 143(3) only on the basis of the information received form the DIT (Inv)-I, Mumbai upon the search conducted at the premises of Gautam Jain. The Ld. CIT(A) and the ITO erred in considering the fact the search was conducted at the premises of third party who is not the loan party of the appellant. 6. The Ld. ITO has not carried out his independent investigation upon the documents submitted during the assessment proceedings and has completed the assessment proceedings merely on the basis of information received from Investigation Wing. 7. The Ld. ITO has failed to exercise to examine the loan party u/s 131 competting attendance in person and grant an opportunity to the appellant to cross examine. 8. The Ld. CIT(A) and the ITO failed to accept the fact that the loan party has given his statement u/s 131(1A) under the pressure of Income Tax Authorities and has filed an affidavit for the same. The said statement given under pressure stands Void. A) General 9. The appellant prays that pending disposal of this appeal by your honor, the demand of Rs.15,69,990/- raised by the AO on the appellant may kindly be stayed. 10. The above grounds of appeal are without prejudice to one another and the appellant craves leave to add, alter, amend, delete or modify any one of the above grounds of appeal. 11. Each grounds of appeal are separate.” ITA No.103/M/2022 Mr. Jugraj Dhanraj Rathod 32. Briefly stated facts necessary for consideration and adjudication of the issues at hand are : From the information received from Directorate of Income Tax (Investigation)-1, [DIT(Inv.)] Mumbai it was noticed that the assessee is the beneficiary of accommodation entries from various benami concerns of Gautam Jain and others. Notices under section 143(2) and 142(1) of the Income Tax Act, 1961 (for short 'the Act') were issued. The assessee has shown his income from commission and interest. From the balance sheet it is noticed that the assessee has taken unsecured loan of Rs.40,00,000/- from M/s. Rajan Gems. A search and seizure action was carried out in Surat based non genuine diamond concerns on 3.10.2013 and group cases of Gautam Jain and others were covered, involving in providing non genuine bills and unsecured loan accommodation entries to various interested parties. The assessee filed reply to the show cause notice that he has taken the loan from M/s. Rajan Gems through banking channel and brought on record necessary documents. However, the Assessing Officer (AO) after declining the explanation given by the assessee that the same is not acceptable, proceeded to make addition of Rs.40,00,000/- under section 68 of the Act and thereby assessed the income of the assessee for the year under consideration at Rs.44,93,950/-. 3. The assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has confirmed the addition by dismissing the appeal. Feeling aggrieved with the impugned order passed by the Ld. CIT(A) the assessee has come up before the Tribunal by way of filing present appeal. ITA No.103/M/2022 Mr. Jugraj Dhanraj Rathod 44. We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto. 5. Undisputedly the AO has proceeded to make the scrutiny of return of income filed by the assessee on the basis of information received from DIT(Inv.) Mumbai that the assessee is the beneficiary of accommodation entries from various benami concerns of Gautam Jain and others. It is also not in dispute that the assessee has shown to have taken unsecured loan of Rs.40,00,000/- from M/s. Rajan Gems. It is also not in dispute that show cause notice dated 17/11/2016 issued to the assessee again bears reference of the information received from DIT(Inv.)-1, Mumbai which is as under: “5. Assessee was asked to show cause vide notice dated 17.11.2016 as under: "Information was received from DIT (Inv.)-I Mumbal vide letter No.Pr.DIT(Inv.)-I/Information/GJ & Others/2015-16 has communicated that a search and seizure action under section 132 of the Income Tax Act, 1961 In the case of 'Gautam Jain & Others' was conducted on 03.10.2013. In the search, It was established that Gautam Jain and others are operating and managing benami concerns in the names of their employees through which they provide accommodation entries of unsecured laons and bogus purchase to various beneficiaries. A list of beneficiaries who have taken accommodation entries of unsecured loans from benaml concerns of Gautam Jain & Others has been communicated to this office. From the list of beneficiaries of accommodation entries, It is seen that you have taken accommodation entries from the benami concerns totalling to Rs.40,00,000/- In the form of unsecured loan from M/s Rajan Gems.” And the assessee was show caused as to why the amount of Rs.40,00,000/- and interest on loan claimed to have been paid to ITA No.103/M/2022 Mr. Jugraj Dhanraj Rathod 5M/s. Rajan Gems should not be treated as non gems and added back to the assessee's total income. 6. It is also not in dispute that during the assessment proceedings the assessee has given comprehensive explanations which are as under: "Assessee has taken loan from the above party and this amount utilized in purchase of residential flat for that we have submitted following documents for genuineness of the loans- -Loan confirmation duly signed by the party is confirmed. - Photo copy of the Bank Statement of the sald party in which said transactions reflected. - Copy of E acknowledgment of return of Income. Assessee has taken loan from the said party and repaid in subsequently year. You have stated in above show cause notice that above party provided accommodation entries of unsecured loans to various beneficiaries. The statement recorded u/s.131(1A) of the Income Tax, 1961 was signed by the above party under pressure from Income Tax Department. The above fact has been filed with Income Tax Department and copy of affidavit is enclosed herewith for your verification in which the said party has disclosed his view above of such entries, as per clause no.6 of the affidavit clearly mentioned that whatever in my statement recorded The Income Tax Department u/s 131(1A) in not true and I declare the same as void." 7. It is also not in dispute that the AO has brushed aside all these documents by holding that mere production of documents and confirmation by the parties to prove the genuineness is only a one sided evidence and it is not sufficient to disbelieve the findings of the Investigation departments. 8. In the backdrop of the aforesaid facts and circumstances of the case when we examine the impugned order passed by the Ld. CIT(A) he has primarily relied upon findings returned by the AO, made general discussion on the modus operandi of bogus entry ITA No.103/M/2022 Mr. Jugraj Dhanraj Rathod 6operators referred to in the bare act provision of section 68 and discussed the plethora of case laws viz. Smt. Shanta Devi vs. CIT (1988) 171 ITR 532 (Punj. & Har.), Agrawal Coal Corp. (P.) Ltd. vs. Asstt. CIT 63 DTR 201, CIT vs. Frostair (P.) Ltd. (2012) 26 taxmann.com 11 (Delhi), CIT vs. Hindon Forge (P.) Ltd. (2012) 25 taxmann.com 239 (All.), judgment of Hon’ble Delhi High Court in case of Commissioner of Income Tax vs. Nova Promoters & Finlease (P) Ltd. dated 15.02.2012, CIT vs. NR Portfolios Pvt. Ltd. in ITA Nos.134/2012, Lovely Exports 216 CTR 195 (Del) & Divine Leasing 299 ITR 268 (SC), Vaibhav Cotton (P.) Ltd. vs. Income Tax Officer, 4(4), Indore (2012) 26 taxmann.com 352 (Indore), CIT vs. Durga Prasad More (1971) 82 ITR 540, Sumati Dayal vs. CIT (1995) 80 taxman 89/214 ITR 801 (SC), Som Nath Maini vs. CIT (2008) 306 ITR 414 (Punj. & Har.) & ITO Wd 25(1)(5), Mumbai vs. United Metal & Wire Industries dated 01.03.2019 and made extraction of operative part of the judgment cited. 9. But strangely enough documents relied upon by the assessee viz. loan confirmation made by the lenders, copies of the bank statements of the lenders, copy of acknowledgement of the return of income of the lenders, copy of the statement allegedly got recorded by the said party under section 131(1A) of the Act and retraction of the same thereafter etc. as referred to in the preceding para number 6. But none of the aforesaid documents have been discussed or verified neither by the AO nor by the Ld. CIT(A). Rather the AO as well as Ld. CIT(A) have straightway jumped to the principle of human probabilities to examine the transaction in question. Unless direct evidence brought on record by the parties is ITA No.103/M/2022 Mr. Jugraj Dhanraj Rathod 7not dealt with in accordance with law, concept of principle of human probabilities cannot be invoked. 10. Furthermore, the AO as well as the Ld. CIT(A) have not recorded a single word as to how the M/s. Rajan Gems from whom the assessee alleged to have taken a loan of Rs.40,00,000/- was related to Gautam Jain and others in whose group cases search was conducted on 3.10.2013 and as to whether M/s. Rajan Gems is also owned by Gautam Jain. All these questions remained unanswered and the AO as well as Ld. CIT(A) harped upon case law cited in the impuned order to jump to the conclusion that the assessee has taken bogus loan accommodation entries from M/s. Rajan Gems. 11. Paras 7.7 and 8 of the assessment order further go to prove that generic findings have been returned that transaction was not genuine and accommodation entry of bogus loan from Gautam Jain group of binami entities has not been explained. For facility of reference, para 7.7 and 8 are extracted as under: “7.7 Even though the assessee filed documents to substantiate his claim, the Involvement and dealings of the assessee with the hawala/ accommodation entry racket was not ruled out. Obviously, such dealings might have caused a loss to the revenue at any state or it is possible that certain sales and purchase/ loans and advances etc. were not booked or over booked. The revenue officers are duty bound to discourage such practices in the society and committed to penalize the erring tax payers within the purview of the Tax Laws. 8. In view of the above and the In the absence of any credible evidence to prove the genuineness of the loans transaction and the credibility of the loan giver and their creditworthiness of the loan giver. It is concluded beyond doubt that the assessee who did not have sufficient funds for the purpose of investment has entered Into to colorable device through accommodation entries of bogus loans from Gautam Jain group of benami entities, as established by the Investigation Wing of the department. Therefore, the amount of Rs. 40,00,000/- is assessed as income from unexplained cash credits u/s.68 of the IT Act, 1961 and added to the income of the assessee. Penalty proceedings u/s.271(1)(c) ITA No.103/M/2022 Mr. Jugraj Dhanraj Rathod 8read with Explanation 1A & B are initiated for concealment of income.” 12. When the AO as well as the Ld. CIT(A) have failed to bring on record any fact if M/s. Rajan Gems from whom the assessee admitted to have taken the loan of Rs.40,00,000/- and assessee has brought on record all the necessary documents and claimed to have returned the same was one of the bogus entities run by Gautam Jain group, all the findings given in the impugned orders are based on the conjectures and surmises. We are of the considered view that the AO as well as the Ld. CIT(A) were required to examine all the documents brought on record by the assessee mandatorily and were not required to decide the issue just by taking the shelter in the facts gathered from the Gautam Jain group that he has been dealing in providing bogus loans to different persons on commission basis. So all these facts are required to be thoroughly investigated. In these circumstances impugned order passed by the Ld. CIT(A) is set aside and file is remitted back to the AO to examine all the documents in accordance with the law and evidence and then to pass order afresh after providing opportunity of being heard to the assessee. 13. In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open court on 30.03.2023. Sd/- Sd/- (GAGAN GOYAL) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 30.03.2023. * Kishore, Sr. P.S. ITA No.103/M/2022 Mr. Jugraj Dhanraj Rathod 9Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The DR Concerned Bench //True Copy// By Order Dy/Asstt. Registrar, ITAT, Mumbai.