MANISH KUMUDCHANDRA MEHTA, MUMBAI V. ACIT, CIRCLE -19(2), MUMBAI

ITA 2411/MUM/2022

AI Insights

The case involves Manish Kumudchandra Mehta, who appealed against the addition of an unsecured loan of Rs. 1 crore to his income, which was treated as non-genuine under section 68 of the Income Tax Act, 1961. The loan was purportedly from Moulimani Impex Pvt. Ltd. The AO and CIT(A) had rejected the assessee's explanations and evidence, citing a lack of genuine business activity and connections to a group involved in providing accommodation entries. The Tribunal found procedural lapses in not allowing the assessee to cross-examine and not providing necessary documents, leading to the decision to remand the case for a fresh assessment.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125858 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 11-01-2023
• Assessment Year: 2007-2008
• Appeal Filed On: 20-09-2022
• Other Referred Cases: Andaman Timber Industries vs. Commissioner of Central Excise, I.C.D.S. Ltd. vs CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MRUGAKASHI JOSHI
• Keywords: Principle of natural justice; Accommodation entries; Reassessment proceedings
• Section: 147; 68; 148; 143(3); 133(6); 250; 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA no.2411/Mum./2022 (Assessment Year : 2007–08) Manish Kumudchandra Mehta 7, Sudha, 2 nd Floor, Patel Compound, Napeansea Road, Mumbai 400 006 PAN – AADPM9184G ................ Appellant v/s Asstt. Commissioner of Income Tax Circle–19(2), Mumbai ................Respondent Assessee by : Ms. Mrugakashi Joshi Revenue by : Smt. Mahita Nair Date of Hearing – 12/01/2023 Date of Order – 17/01/2023 O R D E R PER SANDEEP SINGH KARHAIL, J.M. The present appeal has been filed by the assessee challenging the impugned order dated 26/07/2022 passed under section 250 of the Income Tax Act, 1961 (‘the Act’) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [‘learned CIT(A)’], for the assessment year 2007-08. 2. In this appeal, the assessee has raised the following grounds: “On the facts and circumstances of the case and in law :- Manish Kumudchandra Mehta ITA no.2411/Mum./2022 Page | 2 Ground No. 1: Addition of Unsecured Loan of Rs. 1,00,00,000/- from Moulimani Impex Pvt. Ltd. 1. The learned CIT(A) failed to take into consideration the facts of the case and the detailed submissions filed along with the all evidences supporting the claim of the Assessee and has made an addition purely on the basis of baseless presumption of nexus between Bhanwarlal Jain Group and impugned Loan Creditors. 2. The learned AO and CIT(A) erred in making an addition on the basis of information relating to the search conducted on the premises of Bhanwarlal Jain group, without explaining the nexus of any nature whatsoever, between the said Bhanwarlal Jain and the Loan Creditors to whom the interest payment has been made. 3. The learned AO has not provided any material and neither demonstrated directly with incriminating evidence, to prove that the Appellant had engaged itself in any accommodation entries of whatsoever nature. Ground No. 3: Identity, genuineness and creditworthiness The learned AO and CIT(A) erred in making an addition of the Unsecured Loans taken from the following parties along with Interest paid and failed to take into consideration that the Assessee had discharged its onus and proved the identity, genuineness and the creditworthiness of loans taken by submitting the following documents :- (i) Ledger account (ii) Bank statement to show that the receipts of the loan and the repayment thereof; (iii) Confirmation of Accounts (iv) Affidavit dated 18.12.2014, signed by (Director of Moulimani Impex Pvt. Ltd.), (v) Return of Income of Moulimani Impex Pvt. Ltd. (vi) Bank A/c. (of Moulimani Impex Pvt. Ltd.); Ground No. 4: Opportunity for Cross Examination The learned AO and CIT(A) erred in not granting an opportunity to the Assessee to cross examine the Third Party, on the basis of whose statement, the Department alleged that the Assessee has made accommodation entries. Appellant craves leave to add, alter, delete or modify all or any the above ground at the time of hearing.” Manish Kumudchandra Mehta ITA no.2411/Mum./2022 Page | 3 3. The only grievance of the assessee is against the addition on account of the unsecured loan of Rs. 1 crore under section 68 of the Act. 4. The brief facts of the case pertaining to this issue are: The assessee is engaged in the business of diamonds as a partner of the firm. For the year under consideration, the assessee filed its return of income on 11/09/2007 declaring a total income of Rs.41,46,350. On the basis of information received from DGIT (Investigation), Mumbai that the assessee is a beneficiary of accommodation entries for unsecured loans from the concern of Mr. Rajendra Jain, who runs various concerns which are paper companies/firms/proprietary concerns with no real business activities, proceedings under section 147 of the Act were initiated and notice under section 148 of the Act was issued in the case of the assessee. During the reassessment proceedings, the assessee was asked to explain as to why the accommodation entry obtained by the assessee for the unsecured loan should not be treated as bogus/non-genuine and added to the total income of the assessee. In response thereto, the assessee furnished the details of loans received and the interest paid on the said loan, copies of affidavit of the loan lenders, etc. The Assessing Officer (‘AO’) vide order dated 27/03/2015 passed under section 143(3) r/w section 147 of the Act did not agree with the submissions of the assessee and referred to the information received from the Investigation Wing regarding Mr. Rajendra Jain and his group concerns who manage, control and operate numerous concerns in the name of various persons, who were shown as namesake directors, partners, and proprietors through which they provided accommodation entries of loan and advances and sale to various parties/beneficiaries against Manish Kumudchandra Mehta ITA no.2411/Mum./2022 Page | 4 commission charged. The AO also referred to the statement of Mr. Rajendra Jain recorded under section 132(4) of the Act during the search and seizure operation conducted on him and his group concerns. Accordingly, based on the findings of the Investigation Wing, the AO, vide assessment order, came to the conclusion that the transaction entered into by the assessee is bogus in nature. Since the loans taken by the assessee remains unverified, the books of accounts of the assessee were rejected as per section 145(3) of the Act. The AO further held that the assessee has failed to prove the identity, creditworthiness, and genuineness of the loan lender. The AO also held that mere filing of evidence such as copies of bank statements showing payment through an account pay cheque cannot be conclusive in a case where the genuineness of the transaction is in doubt. Accordingly, the AO treated the entire unsecured loan of Rs.1 crore as non-genuine borrowing under section 68 of the Act and added the same to the total income of the assessee. 5. The learned CIT(A) vide impugned order dismissed the appeal filed by the assessee both in respect of challenge to jurisdiction under section 147 of the Act as well as the merits of the case. Being aggrieved, the assessee is in appeal before us only in respect of addition under section 68 of the Act on merits. 6. During the hearing, the learned Authorised Representative (‘learned AR’) submitted that the assessee specifically requested the AO to furnish copies of the information, statements, reports, or any other document on which reliance has been placed in the assessment order. The learned AR further submitted that the assessee also specifically asked for the cross-examination of the Manish Kumudchandra Mehta ITA no.2411/Mum./2022 Page | 5 parties on whose statement reliance was placed by the AO. However, the AO failed to provide the information relied on as well as the cross-examination sought by the assessee. The learned AR also submitted that the assessee had furnished the income tax return along with a copy of the PAN of the loan lender. The assessee also provided the financial statement, bank statement, and loan confirmation obtained from the loan lender. However, the AO rejected the documents furnished by the assessee without even issuing notice under section 133(6) of the Act to the Director of the loan lender. 7. On the contrary, the learned Departmental Representative by vehemently relying upon the orders passed by the lower authorities submitted that the assessment was concluded on the basis of information received from DGIT (Investigation), Mumbai and the assessee had failed to prove the identity and creditworthiness of the loan lender and genuineness of the transaction. 8. We have considered the rival submissions and perused the material available on record. In the present case, Moulimani Impex Private Limited granted an unsecured loan of Rs.1 crore to M/s Kumudchandra D. Mehta, where the assessee is a partner. Through, the journal entry the loans were transferred to the assessee’s capital account. On the basis of information received from DGIT (Investigation), Mumbai that the assessee is a beneficiary of accommodation entries for unsecured loans from the concerns of Mr. Rajendra Jain, proceedings under section 147 of the Act were initiated in the case of the assessee. During the reassessment proceedings, the assessee was asked to show cause as to why the unsecured loan received by the assessee be not treated as bogus/non-genuine and added to the total income of the Manish Kumudchandra Mehta ITA no.2411/Mum./2022 Page | 6 assessee. In response thereto, as per the assessee, it provided a copy of the income tax return, financial statement, bank statement of the loan lender, and also provided the loan confirmation letter to prove the identity and creditworthiness of the loan lender and genuineness of the transaction. The assessee also filed the affidavit of the Director of the loan lender. The AO vide assessment order did not agree with the submissions of the assessee. We find that the AO proceeded on the basis of information received from the Investigation Wing, Mumbai regarding Mr. Rajendra Jain and his group concerns. The AO also placed reliance upon the statement of Mr. Rajendra Jain recorded under section 132(4) of the Act. From the assessee’s letter dated 18/03/2015, forming part of the paper book on page 44, we find that the assessee specifically sought the statement and information relied upon by the AO. Further, vide aforesaid letter, the assessee also requested to be granted an opportunity to cross-examine the person on whose statement reliance was placed by the AO. However, it is evident from the record that neither the documents as sought by the assessee nor the cross-examination was granted to the assessee, which in our considered opinion has led to a violation of principles of natural justice. We further find that the AO also neither conducted any independent enquiry to examine the veracity of evidence furnished by the assessee nor issued any notice under section 133 (6) of the Act to the Director of the loan lender, whose affidavit was filed by the assessee in support of its claim. Manish Kumudchandra Mehta ITA no.2411/Mum./2022 Page | 7 9. We find that the Hon’ble Supreme Court in Andaman Timber Industries vs. Commissioner of Central Excise, [2015] 314 ELT 641 (SC), has observed as under: “6. According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected.” 10. We further find that the Hon’ble Supreme Court in I.C.D.S. Ltd. vs CIT, [2020] 273 Taxman 12 (SC) held that where the issue involved was about not extending an opportunity to the appellant to cross-examine witnesses relied upon by Assessing Officer, the entire matter would be considered by First Appellate Authority afresh by giving fair opportunity to both sides to espouse their claim. Accordingly, in view of the above, we deem it appropriate to restore the matter to the file of AO for de novo adjudication after providing the assessee all the documents, which were relied upon in support of the show cause notice. Further, the AO is directed to grant the opportunity to cross- examine the party on whose statement reliance was placed. Since the matter is remanded to the AO for de novo adjudication, we also deem it appropriate to direct the AO to properly examine evidence filed by the assessee in support of its claim and if required, to issue necessary notices/summons to adjudicate the issue involved. Further, the assessee is also directed to fully cooperate with the AO in completing the assessment by furnishing all the details that may be called for. Accordingly, the sole ground raised by the assessee is allowed for statistical purposes. Manish Kumudchandra Mehta ITA no.2411/Mum./2022 Page | 8 11. In the result, the appeal by the assessee is allowed for statistical purposes. Order pronounced in the open Court on 17/01/2023 Ss Sd/- Sd/- OM PRAKASH KANT ACCOUNTANT MEMBER Sd/- Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 17/01/2023 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai