M/S. SHARDA LAB P. LTD., MUMBAI V. ITO-8(2)(1), MUMBAI

ITA 1680/MUM/2020

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 9062 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Appeal Filed On: 19-07-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Principle of natural justice; Reason to believe
• Section: 147; 148; 142(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (VIRTUAL COURT) “E” BENCH, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, HON'BLE JUDICIAL MEMBER ITA.NO. 1680/MUM/2020 (A.Y: 2012-13) M/s. Sharda Lab Pvt. Ltd., 2 nd Floor, 86, Mirza Street Zaveri Bazar, Mumbai - 400003 PAN: AADCS4437P v. Income Tax Officer – 8(2)(1) Aayakar Bhavan, M.K. Road Mumbai - 400020 (Appellant) (Respondent) Assessee by : Shri Akash Kumar Department by : Shri S.N. Kabra Date of Hearing : 28.01.2022 Date of Pronouncement : 10.02.2022 O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the assessee against order of the Learned Commissioner of Income Tax (Appeals)-15, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 14.02.2020 for the A.Y. 2012-13. 2. The brief facts of the case are that assessee filed its return of income for assessment year 2012-13 declaring business loss of ₹.6,09,269/- on 27.07.2012. Subsequently, Assessing Officer received information from DGIT(Inv), Mumbai in respect of beneficiaries of 2 ITA.NO. 1680/MUM/2020 (A.Y: 2012-13) M/s. Sharda Lab Pvt. Ltd., accommodation entries of bogus unsecured loan obtained from the concerns operated by one Shri Praveen Kumar Jain. Based on the information, the assessment of the assessee was reopened u/s 147 of the Act by issuing notice u/s 148 duly served on the assessee. Accordingly, notice u/s 143(2) and 142(1) were issued and served on the assessee. In response, Ld. AR of the assessee submitted the relevant information as called for b e f o r e the Assessing Officer. 3. During the course of assessment, Assessing Officer noticed that assessee has received unsecured loans from the following parties – Atharv Business Pvt Ltd 43,50,000 Duke Business Pvt Ltd 51,50,000 Nakshatra Business Pvt Ltd 30,00,000 1,25,00,000 4. The AO observed that the abovementioned parties are the concerns controlled by Shri Praveen Kumar Jain. In this regard, Assessee has submitted the relevant documents relating to these transactions, which were submitted before Assessing Officer and submitted that these transactions were genuine and the loan was also repaid in the same assessment year as well as in subsequent assessment year. As far as balance outstanding is concerned, assessee has already cleared the unsecured loans in subsequent years and balance outstanding are NIL and all the transactions were made through the bank only. Since these 3 ITA.NO. 1680/MUM/2020 (A.Y: 2012-13) M/s. Sharda Lab Pvt. Ltd., transactions were transacted with concerns in which Shri Praveen Kumar Jain is involved, Assessing Officer has not convinced with the submission of the assessee and accordingly, he proceeded to make the addition u/s.68 of the Act. 5. Aggrieved with the above order, assessee preferred an appeal before Ld. CIT(A) and Ld. CIT(A) also sustained the addition based on the reasons given by Assessing Officer and the findings of DGIT (Inv) in the case of Shri Praveen Kumar Jain and therefore, he sustained the addition made by Assessing Officer. 6. Aggrieved with the above order, assessee is in appeal before us raising for following grounds of appeal: “I. The learned Commissioner of Income Tax (Appeal) failed to note that the learned Assessing Officer merely relied on the information received from DGIT (Investigations), Mumbai to reopen the assessment and neither the assessment order nor the reasons communicated indicate that the Assessing officer had applied his mind to the issue and therefore the entire reassessment proceedings are invalid, without jurisdiction, has no legs to stand and hence must be quashed. II. On the facts and in the circumstances of the case, The learned Commissioner of Income Tax (Appeal) has erred in confirming the addition of Rs. 1,25,00,000/u/s. 68 of the Income tax Act 1961 as accommodation entry. III. The learned Commissioner of Income Tax (Appeal) failed to note that the entire evidences do prove the identity, creditworthiness and genuineness of the loan transaction amounting Rs. 1,25,00,000/and therefore the CIT(A) fell into error in confirming the addition of Rs. 1,25,00,000/-. IV. The learned Commissioner of Income Tax (Appeal) failed to note while confirming the addition of Rs.125 lakhs that the entire 4 ITA.NO. 1680/MUM/2020 (A.Y: 2012-13) M/s. Sharda Lab Pvt. Ltd., enquiry by DGIT (inv.), Mumbai and the information received by the Assessing Officer about Mr. Praveen Kumar Jain was used against the appellant without giving a copy of the evidence/statement received from the DGIT (Inv.), Mumbai, thus violating the principles of natural justice and on this ground alone, the entire assessment must be quashed and more so allowability of that addition of Rs.125 lakhs by the learned CIT(A). V. The Learned Commissioner of Income Tax (Appeal) erred in ignoring the Fact that it is mandatory for the Assessing Officer to confront the assessee with any material collected by the Assessing Officer at the back of the assessee, and in case of 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, thus violating the principles of natural justice and on this ground alone, the entire assessment must be quashed. VI. On the facts and in the circumstances of the case, The learned Commissioner of Income Tax (Appeal) has erred in an addition of Rs. 6,68,988/on account of interest paid on borrowed fund / Short Term Loans considered now as unexplained cash credit u/s. 68 taken from loaner i.e. Atharv Business pvt. Ltd, Duke Business Pvt. Ltd and Nakshtra Business Pvt. Ltd based on information received from investigation. VII. The appellant craves to add, amend or alter the grounds of appeal at the time of or before the hearing of appeal.” 7. At the time of hearing, the Learned Counsel for the Assessee submitted that reasons are based on information and findings of the Investigation Wing. The A.O. did not apply his mind to the same. The A.O. merely concluded without verifying the facts that it is a case of reopening of the assessment. The A.O. without verifying anything concluded that assessee has taken accommodation entry. The A.O. has not brought any material on record on the basis of which any nexus could have been established between material and the escapement of income. The reasons do not show any application of mind or any belief independently arrived 5 ITA.NO. 1680/MUM/2020 (A.Y: 2012-13) M/s. Sharda Lab Pvt. Ltd., at by the A.O. which is the basic pre-requisite for issue of notice under section 148 of the Act. Ld AR for the Assessee, therefore, submitted that reopening of the assessment is illegal and bad in law and liable to be quashed. He relied upon the various decisions in support of his contention. 8. On the other hand, Ld. D.R. relied upon the Orders of the authorities below and submitted that information was received by the A.O. from DGIT (Inv.), Mumbai which is material for recording the reasons for reopening of the assessment. The Ld. D.R. submitted that enquiries were conducted by the Investigation Wing, therefore, no fresh enquiry is required to be conducted by the A.O. 9. The Ld. D.R. submitted that at the time of commencement of re- assessment proceedings, the A.O. has to see whether there was prima facie some material on the basis of which the department could reopen the case. Sufficiency or correctness of the material is not a thing to be considered at this stage – Raymond Woolen Mills Ltd., vs. ITO [236 ITR 34 (SC)] 10. We have considered the rival submissions and perused the material available on record. It is well settled Law that validity of the reopening of the assessment shall have to be determined with reference to the reasons 6 ITA.NO. 1680/MUM/2020 (A.Y: 2012-13) M/s. Sharda Lab Pvt. Ltd., recorded for reopening of the assessment. The reasons contained in the report of enquiries made by DGIT (Inv.), Mumbai, about accommodation entries given by entry operators. The A.O. reproduced the same facts in the reasons and straightaway concluded that the findings of the report of Investigation Wing shows the creditworthiness of the lender has not been established, therefore, these transactions seem to be non-genuine. The A.O. has not gone through the details of these information and has not even applied his mind and merely concluded that the transactions seems not to be genuine. Then, he has merely further concluded that he has reason to believe that amount of ₹.1.25 crores represents income of the assessee chargeable to tax which has escaped assessment. These reasons to believe are, therefore, not in fact reasons but, only conclusion of the A.O. The A.O. has not stated in the reason that he has gone through the reports of the Investigation Wing. The A.O. merely repeated the report of the Investigation Wing in the reasons and formed his belief that income chargeable to tax has escaped assessment, without arriving at his satisfaction. The reasons to believe contain no reason, but, conclusion of the A.O. without any basis. Thus, there is no independent application of mind by the A.O. to the report of the Investigation Wing which formed the basis for reasons to believe that income chargeable to tax has escaped assessment. The conclusion of the A.O. in the reasons is at the best 7 ITA.NO. 1680/MUM/2020 (A.Y: 2012-13) M/s. Sharda Lab Pvt. Ltd., reproduction of conclusion of the Investigation Report. The A.O. has not brought anything on record on the basis of which any nexus could have been established between the material and the escapement of income. The reasons fail to demonstrate the link between the alleged tangible material and formation of the reason to believe that income has escaped assessment. 11. Considering the above discussion, it is clear that there is a total non- application of mind on the part of the A.O. while recording the reasons for reopening of the assessment. The conclusion was merely based on observations and information received from DGIT (Inv.), Mumbai, which is not brought on record. Since, there is a total lack of mind while recording the reasons for reopening of the assessment; therefore, assumption of jurisdiction under section 147/148 of the I.T. Act, 1961, is bad in law. The A.O. was not justified in assuming jurisdiction under section 147/148 of the I.T. Act, 1961. We, therefore, hold that reopening of the assessment in the matter is bad in law, as such, same cannot be sustained in law. 12. On merits, Ld. AR submitted that assessee has taken unsecure loans from the parties mentioned above and repaid the same either within the assessment year or in subsequent assessment year and he brought to our 8 ITA.NO. 1680/MUM/2020 (A.Y: 2012-13) M/s. Sharda Lab Pvt. Ltd., notice the bank statements evidencing the receipt of unsecured loans and repayment thereon and bank statement, confirming the above transaction, which was made through bank only. All these informations are part of paper book filed by the assessee which are also submitted before Ld. CIT(A). He submitted that Coordinate bench of ITAT has held in favour of the assessee in various cases in which Shri Praveen Kumar Jain has involved and relied upon the decision of Hon’ble Tribunal in the case of Deepak Shah – ITA No 4206/Mum/2017. 13. On the other hand, Ld DR submitted that Shri Praveen Kumar Jain is a hawala operator and he is indulged in various transactions involving hawala as well as accommodation entry and assessee has not proved the genuineness of the transactions and he relied upon the orders passed by the lower authorities. 14. Considering the rival submissions and material placed on record, we notice that assessee has taken unsecured loans from the various parties mentioned above through bank and the same was settled by the assessee within the same assessment year or subsequent assessment year again through the bank only. Assessee has filed before tax authorities, the confirmation of all the parties, ledger copy in the books of parties and bank statement of assessee as well as lender parties. These documents 9 ITA.NO. 1680/MUM/2020 (A.Y: 2012-13) M/s. Sharda Lab Pvt. Ltd., indicate that assessee has received loans from the lenders and settled the same before end of the year or subsequent year. The AO has only considered the accounting entry in the books of accounts and considered the same as accommodation entry without considering the receipt of payment through bank and settlement of the loan by the assessee through bank. Just because these companies are controlled by Shri Praveen Kumar Jain, all the transactions cannot be termed as accommodation entry unless it is proved. But, in the given case, assessee has taken unsecured loan through bank and repaid the same within the same year or subsequent year. By taking loan and repaying the same through bank, what is the benefit assessee would have got, the tax authorities failed to appreciate that the salient features of accommodation entries are, they remain in the books of account and will be carried forward to several years. In this case, that is not the case, the assessee had settled the unsecured loans within the same year or in subsequent year. Further, Assessing Officer has made addition only relying on the report from DGIT(Inv), Mumbai. 15. Therefore, respectfully following the above discussions, we are inclined to accept the contentions of Ld. AR that the reopening of the assessment is bad in law as well as assessee has merit in the unsecured 10 ITA.NO. 1680/MUM/2020 (A.Y: 2012-13) M/s. Sharda Lab Pvt. Ltd., loan transactions and accordingly, grounds raised by the assessee are allowed. 16. In the result, appeal filed by the assessee is allowed. Order pronounced on 10.02.2022 as per Rule 34(4) of ITAT Rules by placing the pronouncement list in the notice board. Sd/- Sd/- (PAVAN KUMAR GADALE) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 10/02/2022 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum