THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) I.T.A. NO. 3018 /MUM/ 2017 (ASSESSMENT YEAR 20 0 8 - 0 9 ) I.T.A. NO. 3019/MUM/2017 (ASSESSMENT YEAR 2010 - 11) I.T.A. NO. 3020/MUM/2017 (ASSESSMENT YEAR 2011 - 12) M/S. SANG HVI REALTY PVT. LTD. OFFICE NO.1, FIRST FLOOR C - WING, PURUSHOTTAM BUILDING TRIBHUVAN ROAD MUMBAI - 400 004. VS. DY.CIT CIRCLE 5(3)(1) MUMBAI ( APPELLANT ) ( RESPONDENT ) PAN NO . AAGCS0178J ASSESSEE BY DR. P. DANIEL DEPARTMENT BY MS. N. HEMALATHA DA TE OF HEARING 23 . 8 . 201 7 DATE OF PRONOUNCEMENT 12 . 9 . 201 7 O R D E R ALL THE THREE APPEALS HAVE BEEN FILED BY THE ASSESSEE CHALLENGING THE ORDERS PASSED BY LD CIT(A) - 10, MUMBAI AND THEY RELATE TO THE ASSESSMENT YEARS 2008 - 09, 2010 - 11 AND 2011 - 12. ALL THE THREE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. IN ASSESSMENT YEAR 2008 - 09, THE ASSESSEE IS CHALLENGING THE ADDITION OF RS.25.00 LAKHS MADE U/S 68 OF THE ACT AND ALSO THE DISA LLOWANCE OF INTEREST EXPENDITURE OF RS.6.31 LAKHS RELATING TO THE LOANS ADDED U/S 68 OF THE ACT DURING THE CURRENT YEAR AND ALSO IN THE PRECEDING YEAR. IN AY 2010 - 11 AND 2011 - 12, THE ASSESSEE IS CHALLENGING THE DISALLOWANCE OF INTEREST EXPENDITURE RELATIN G TO LOANS ADDED U/S 68 OF THE ACT IN AY 2007 - 08 AND 2008 - 09 . 3. I HEARD THE PARTIES AND PERUSED THE RECORD. I SHALL FIRST NARRATE THE FACTS RELATING TO THE APPEAL FILED FOR AY 2008 - 09. THE AO NOTICED THAT THE ASSESSEE M/S. SANGHVI REALTY PVT. LTD. 2 HAS RECEIVED LOAN OF RS.25.00 LAKHS FROM M/S SANKHALA EXPORTS P LTD DURING THE YEAR RELEVANT TO AY 2008 - 09. THE SAID CONCERN BELONGED TO BHANWARLAL JAIN GROUP, WHICH WAS SEARCHED ON 03 - 10 - 2013. DURING THE COURSE OF SEARCH, SHRI BHANWARLAL JAIN HAD ADMITTED THAT HIS GROUP CONCERNS WER E PROVIDING ONLY ACCOMMODATION BILLS TOWARDS UNSECURED LOANS ETC. BASED ON THIS INFORMATION, THE AO REOPENED THE ASSESSMENT OF THE YEAR UNDER CONSIDERATION. THE AO NOTICED THAT THE ASSESSEE HAD TAKEN LOAN OF RS.25.00 LAKHS EACH FROM M/S SANKHALA PROPERTI ES P LTD AND M/S SANKHALA EXPORTS P LTD DURING THE YEAR RELEVANT TO AY 2007 - 08 AND THE SAME WAS ADDED IN THAT YEAR U/S 68 OF THE ACT. ACCORDINGLY THE AO ADDED THE AMOUNT OF RS.25.00 LAKHS RECEIVED BY THE ASSESSEE AS LOAN FROM M/S SANKHALA EXPORTS P LTD DU RING THE YEAR UNDER CONSIDERATION BY INVOKING THE PROVISIONS OF SEC. 68 OF THE ACT. THE AO ALSO NOTICED THAT THE ASSESSEE HAS PAID INTEREST OF RS.4.02 LAKHS ON THE LOANS TAKEN IN THE PRECEDING YEAR AND INTEREST OF RS.2.28 LAKHS ON THE LOAN TAKEN DURING TH E YEAR UNDER CONSIDERATION. THE AO DISALLOWED INTEREST EXPENSES AGGREGATING TO RS.6.31 LAKHS, SINCE THE LOAN AMOUNTS WERE CONSIDERED TO BE BOGUS. 4. IN AY 2010 - 11 AND 2011 - 12, THE AO DISALLOWED THE INTEREST RELATING TO THE LOANS ADDED U/S 68 OF THE AC T IN AY 2007 - 08 AND 2008 - 09. 5 . THE L D CIT(A) ALSO CONFIRMED THE ADDITIONS IN ALL THE THREE YEARS AND HENCE THE ASSESSEE HAS FILED TH E S E APPEAL S . 6 . THE LD A.R SUBMITTED THAT THE ASSESSEE HAS DISCHARGED THE BURDEN PLACED UPON IT U/S 68 OF THE ACT BY PR OVING THE IDENTITY OF THE CREDITOR, THE CREDIT WORTHINESS OF THE CREDITOR AND GENUINENESS OF TRANSACTIONS. IN ADDITION THERETO, THE CREDITOR HAS APPEARED BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND CONFIRMED THE LOAN TRANSACTIONS. HOWEV ER, THE AO HAS SIMPLY PLACED RELIANCE ON THE STATEMENT GIVEN BY M/S BHANWARLAL JAIN DURING THE COURSE OF SEARCH PROCEEDINGS. HE SUBMITTED THAT THE AO DID NOT ALLOW OPPORTUNITY OF CROSS EXAMINATION TO THE ASSESSEE. HE SUBMITTED THAT THE AO DID NOT DISCHAR GE THE BURDEN SHIFTED TO HIS SHOULDERS AND HENCE THE LD M/S. SANGHVI REALTY PVT. LTD. 3 CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION MADE BY THE AO U/S 68 OF THE ACT. HE SUBMITTED THAT IDENTICAL ADDITION WAS MADE BY THE AO IN THE CASE OF M/S RELIANCE CORPORATION AND THE DIVISION BENCH OF TRIBUNAL HAS DELETED THE ADDITION IN ITS ORDER DATED 12 - 04 - 2017 PASSED IN ITA NO.1069 TO 1071/MUM/2017. 7 . THE LD A.R FURTHER SUBMITTED THE ASSESSEE CHALLENGED THE ADDITION OF RS.50.00 LAKHS MADE IN AY 2007 - 08 BY FILING APPEAL BEFORE LD CIT (A). THE ASSESSEE, INTER ALIA, RAISED A LEGAL ISSUE ON VALIDITY OF ASSESSMENT PROCEEDINGS , AS THE AO DID NOT ISSUE NOTICE U/S 143(2) OF THE ACT. THE LD CIT(A) WAS CONVINCED WITH THE LEGAL ISSUE AND ACCORDINGLY QUASHED THE ASSESSMENT ORDER PASSED FOR AY 2 007 - 08. HE SUBMITTED THAT THE REVENUE APPEARS TO HAVE ACCEPTED THE ORDER PASSED BY LD CIT(A). ACCORDINGLY HE SUBMITTED THAT THE ADDITION OF RS.50.00 LAKHS MADE IN AY 2007 - 08 NO LONGER SURVIVES AND HENCE THE DISALLOWANCE OF INTEREST RELATING THERETO NEEDS T O BE DELETED. 8 . ON THE CONTRARY, THE LD D.R STRONGLY SUPPORTED THE ORDER PASSED BY LD CIT(A) AND SUBMITTED THAT THE CREDITOR HAS DEPOSITED MONEY BEFORE ISSUING CHEQUE TO THE ASSESSEE. 9 . IN THE REJOINDER, THE LD A.R SUBMITTED THAT THE DEPOSIT MADE INTO THE BANK ACCOUNT OF THE CREDITOR WAS BY WAY OF CHEQUE AND NOT BY WAY OF CASH. 10 . HAVING HEARD THE RIVAL SUBMISSIONS AND UPON PERUSAL OF THE RECORD, I NOTICE THAT THE ASSESSEE HAS DISCHARGED THE INITIAL BURDEN OF PROOF PLACED UPON IT BY FURNIS HING THE REQUIRED DOCUMENTS TO PROVE THE THREE MAIN INGREDIENTS, VIZ., THE IDENTITY OF THE CREDITOR, THE CREDIT WORTHINESS OF THE CREDITOR AND THE GENUINENESS OF TRANSACTIONS. I ALSO NOTICE THAT THE AO HAS SUMMONED THE CREDITOR AND THE CREDITOR ALSO HAS A PPEARED BEFORE THE ASSESSING OFFICER AND CONFIRMED THE LOAN TRANSACTIONS. DESPITE THESE FACTS, I NOTICE THAT THE AO CHOSE TO PLACE RELIANCE ON THE GENERAL STATEMENT GIVEN BY SHRI BHANWARL AL JAIN, MEANING THEREBY, THERE IS MERIT IN THE CONTENTIONS OF LD A. R THAT THE AO HAS FAILED TO DISCHARGE THE BURDEN SHIFTED UPON HIS SHOULDERS. M/S. SANGHVI REALTY PVT. LTD. 4 1 1 . I NOTICE THAT IDENTICAL ADDITION WAS MADE IN THE CASE OF M/S RELIANCE CORPORATION (SUPRA) AND THE ASSESSEE THEREIN ALSO FURNISHED ALL THE RELEVANT DETAILS IN ORDER TO DIS CHARGE THE BURDEN OF PROOF PLACED UPON IT U/S 68 OF THE ACT. THE CREDITOR ALSO APPEARED BEFORE THE AO AND CONFIRMED THE TRANSACTIONS. THE AO, HOWEVER, MADE THE ADDITION BY PLACING RELIANCE ON THE STATEMENT GIVEN BY SHRI BHANWARLAL JAIN. WHEN THE MATTER REACHED THE TRIBUNAL, THE DIVISION BENCH DELETED THE ADDITION. SINCE THE FACTS OF THE PRESENT CASE ARE IDENTICAL, I PREFER TO EXTRACT BELOW THE OPERATIVE PORTION OF THE ORDER PASSED BY THE DIVISION BENCH IN THE CASE OF RELIANCE CORPORATION (SUPRA): - 8. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF AUTHORITIES BELOW AND ORDERS RELIED UPON BY THE PARTIES. WE FIND THAT UNDISPUTEDLY THE ASSESSEE HAS BORROWED MONEY BY WAY OF LOAN FROM THREE AFORESAID THREE P ARTIES I.E M/S LAXMI TRADING COMPANY, M/S ROSE IMPEX AND MEGHA GEMS FROM WHOM THE ASSESSEE BORROWED THE MONEY AND TOTAL OUTSTANDING INCLUDING THE INTEREST AS ON 31.3.2010 WERE AMOUNTING TO RS.1,29,04,231/ - . THE CASE OF THE ASSESSEE WAS RE - OPENED UPON RECEI VING THE INFORMATION FROM DGIT(INV), MUMBAI THAT THE ASSESSEE WAS ONE OF THE BENEFICIARY OF THE SAID ACCOMMODATION ENTRIES PROVIDED BY MR.BHANWARLAL JAIN AND GROUP. WE FIND FROM THE RECORD THAT THE ASSESSEE FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS ALL THE DETAILS LIKE LOAN CONFIRMATION LETTERS FROM THE CREDITORS, PAN OF THE CREDITORS, BANK STATEMENTS O F THE CREDITORS AND THE ASSESSEE, FORM NO.16 QUA TDS ON INTEREST ,PROFIT AND LOSS ACCOUNT AND BALANCE SHEET INCLUDING THE LEDGER ACCOUNT OF THE CREDI TORS, AND ITR ETC. MOREOVER, THE LOAN CREDITORS ALSO APPEARED BEFORE THE AO IN COMPLIANCE TO THE NOTICE ISSUED UNDER SECTION 133(6) OF THE ACT AND FILED CONFIRMATIONS BEFORE THE AO THAT LOANS WERE ACTUALLY GIVEN TO THE ASSESSEE. FROM ALL THESE DETAILS AND FACTS ON RECORD, WE FIND THAT THE ASSESSEE HAS DISCHARGED ITS ONUS CAST UPON IT BY FILING ALL THE NECESSARY DETAILS AS CALLED FOR BY THE AO TO CORROBORATE THE TRANSACTIONS OF BORROWING THE MONEY AND THEREBY SATISFIED ALL THE THREE MAIN INGREDIENTS I.E. CRE DITWORTHINESS OF THE CREDITORS, GENUINENESS OF THE TRANSACTIONS AND IDENTITY OF THE CREDITORS BY FILING ALL THE DETAILS AS DISCUSSED ABOVE WHICH PROVED THAT THE IDENTITY OF THE CREDITORS, GENUINENESS OF THE TRANSACTIONS AND CREDITWORTHINESS OF THE CREDITOR S HAVE BEEN ESTABLISHED BY THE ASSESSEE. SO MUCH SO THAT THE LOAN CREDITORS IN RESPONSE TO THE NOTICE ISSUED UNDER SECTION 133(6) APPEARED BEFORE THE AO AND CONFIRMED THE THAT THEY HAVE GIVEN INTEREST BEARING LOANS TO THE ASSESSEE ON WHICH TDS HAVE BEEN DE DUCTED AND PAID AND FORM NO.16A ISSUED TO THE LOAN CREDITORS ALSO FILED BEFORE THE AO. ONCE THE ASSESSEE HAS FILED ALL THE NECESSARY DOCUMENTS BEFORE THE AO THEN THE ONUS IS SHIFTED TO THE M/S. SANGHVI REALTY PVT. LTD. 5 DEPARTMENT TO DISPROVE THE STAND OF THE ASSESSEE, WHICH DEPARTMENT HAS FAILED TO DO SO IN THE PRESENT CASE. THE AO HAS MERELY PROCEEDED AND RELIED ON THE INFORMATION RECEIVED FROM THE DGIT(INV), MUMBAI THAT THE ASSESSEE IS ONE OF THE BENEFICIARY OF THE ACCOMMODATION ENTRIES WITHOUT BRINGING ANY MATERIAL AGAINST THE ASSESS EE ON RECORD BY CONTRARY TO THE DEFENSE PUT UP BY THE ASSESSEE DURING THE COURSE OF APPELLANT PROCEEDINGS. NO CROSS EXAMINATION WAS ALLOWED TO THE ASSESSEE AND INFORMATION WAS USED AGAINST THE ASSESSEE CAUSING VIOLATION OF NATURAL JUSTICE. THE FAA DISMISSE D THE APPEAL OF THE ASSESSEE EXPARTE FOR NON ATTENDANCE OF THE LD.AR. IN THE CASE OF LAKHMANI MEWAL (SUPRA) THE HONBLE SUPREME COURT HAS HELD AS UNDER : SECTION 147 OF THE INCOME - TAX ACT, 1961 [CORRESPONDING TO SECTION 34(1) OF INDIAN INCOME - TAX ACT, 1922] INCOME ESCAPING ASSESSMENT ILLUSTRATIONS ASSESSMENT YEAR 1958 - 59 WHETHER REASONS FOR FORMATION OF BELIEF CONTEMPLATED BY SECTION 147(A) FOR REOPENING OF ASSESSMENT MUST HAVE RATIONAL CONNECTION WITH OR RELEVANT BEARING ON FORMATION OF BELIEF, AND RATIONAL CONNECTION POSTULATES THAT THERE MUST BE DIRECT NEXUS OR LIVE LINK BETWEEN MATERIAL COMING TO INCOME - TAX OFFICERS NOTICE AND FORMATION OF HIS BELIEF THAT THERE HAS BEEN ESCAPEMENT OF ASSESSEES INCOME FROM ASSESSMENT IN PARTICULAR YEAR BECAU SE OF HIS FAILURE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS HELD, YES WHETHER DUTY CAST UPON ASSESSEE IS TO MAKE TRUE AND FULL DISCLOSURE OF PRIMARY FACTS AT TIME ORIGINAL ASSESSMENT, AND IT IS FOR INCOME - TAX OFFICER TO DRAW CORRECT INFERENCE FROM PRIMARY FACTS HELD, YES WHETHER IF INCOME - TAX OFFICER DRAWS INFERENCE WHICH APPEARS SUBSEQUENTLY TO BE ERRONEOUS, MERE CHANGE OF OPINION WITH REGARD TO THAT INFERENCE WOULD NOT JUSTIFY INITIATION OF ACTION FOR REOPENING ASSESSMENT HELD, YES ITO CO MPLETED ORIGINAL ASSESSMENT BY ALLOWING DEDUCTION OF INTEREST PAID TO CERTAIN CREDITORS SUBSEQUENTLY, HE REOPENED ASSESSMENT FOR REASONS RECORDED IN REPORT SUBMITTED TO COMMISSIONER FOR OBTAINING SANCTION UNDER SECTION 147(A) THAT ONE CREDITORS HAD CONFE SSED THAT HE WAS DOING ONLY NAME LENDING AND THAT OTHER CREDITORS WERE ONLY NAME LENDERS THERE WAS NO MATERIAL TO SHOW THAT CONFESSION MADE BY SAID CREDITOR RELATED TO LOAN TO ASSESSEE AND NOT TO SOMEONE ELSE AND ALSO THAT SAID CONFESSION RELATED TO PERI OD WHICH WAS SUBJECT MATTER OF ASSESSMENT THERE WAS ALSO NO MATERIAL TO SHOW THAT OTHER CREDITORS WERE NAME LENDERS WHETHER LIVE LINK OR CLOSE NEXUS WHICH SHOULD BE THERE BETWEEN MATERIAL BEFORE INCOME - TAX OFFICER AND BELIEF WHICH HE WAS TO FORM REGARD ING ESCAPEMENT OF INCOME OF ASSESSEE FROM ASSESSMENT BECAUSE OF LATTERS FAILURE OR OMISSION TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS WAS MISSING IN CASE HELD, YES WHETHER, THUS, HIGH COURT WAS NOT IN ERROR IN HOLDING THAT SAID MATERIAL COULD NOT HAVE LED TO FORMATION OF BELIEF THAT M/S. SANGHVI REALTY PVT. LTD. 6 INCOME OF ASSESSEE HAD ASSESSMENT BECAUSE OF HIS FAILURE OR OMISSION TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS HELD, YES IN THE CASE OF SMT. SANGMITRA BHARALI (UPRA) THE HONBLE GAUHATI HIGH COURT HELD AS UNDE R : I. SECTION 68, READ WITH SEC TIONS 45 AND 54F, OF THE INCOME TAX ACT, 1961 - CASH CREDITS (UNDISCLOSED INCOME V. LTCG) - ASSESSMENT YEAR 2001 - 02 - ASSESSEE HELD SHARES OF COMPANY BPAL JUST FOR A PERIOD OVER 12 MONTHS AND DECLARED SALE VALUE 25 TIMES MORE THAN PURCHASE PRICE - COMPANY BPAL WAS NOT FOUND AT GIVEN ADDRESS NOR WERE ITS DIRECTORS TRACEABLE - PURCHASE WAS NOT MADE THROUGH BANKING CHANNEL NOR PURCHASE PRICE WAS VERIFIABLE IN ANY WAY - WHETHER IT WAS SIMPLY A SORT OF MODUS OPERANDI TO CONVERT UNDISCLOSED INCOME INTO A LONG - TERM 'CAPITAL GAIN' CLAIMING SAME TO BE EXEMPTED INVOKING SECTION 54F - HELD, YES [PARA 44] [IN FAVOUR OF REVENUE] II. SECTION 68 OF THE INCOME - TAX ACT, 1961 - CASH CREDITS (ADVANCE BY PURCHASER) - ASSESSMENT YEAR 2001 - 02 - ONE VHPL ALLEGEDLY ADVANCED ASSESSEE CASH AGAINST BOOKING OF FLAT - ASSESSEE PROVED THAT AMOUNT SO RECEIVED WAS DULY RECORDED IN BOOKS OF ACCOUNT OF VHPL - IDENTITY OF VHPL WAS ALSO ESTABLISHED BY FILING ITS IT RETURNS, BALANCE SHEETS, ETC. - WHETHER NO AD DITION COULD BE MADE IN HANDS OF ASSESSEE - HELD, YES [PARA 59] [IN FAVOUR OF ASSESSEE] III. SECTION 68 OF THE INCOME - TAX ACT, 1961 - CASH CREDITS (ADVANCE BY PURCHASER) - PURCHASER OF CAR ADVANCED CERTAIN SUM TO ASSESSEE - IDENTITY OF PURCHASER AND GENUIN ENESS OF TRANSACTION WAS ESTABLISHED - WHETHER TRANSACTION COULD NOT BE TREATED AS BOGUS AND IMPUGNED AMOUNT COULD NOT BE TREATED AS AN UNDISCLOSED INCOME OF ASSESSEE - HELD, YES [PARA 64] [IN FAVOUR OF ASSESSEE] IN THE CASE OF GANGESHWARI METAL (P) LT D (SUPRA), THE HONBLE DELHI HIGH COURT HAS HELD AS UNDER : THERE ARE TWO TYPES OF CA SES, ONE IN WHICH THE ASSESSING OFFICER CARRIES OUT THE EXERCISE WHICH IS REQUIRED IN LAW AND THE OTHER IN WHICH THE ASSESSING OFFICER 'SITS BACK WITH FOLDED HANDS' TI LL THE ASSESSEE EXHAUSTS ALL THE EVIDENCE OR MATERIAL IN HIS POSSESSION AND THEN COMES FORWARD TO MERELY REJECT THE SAME ON THE PRESUMPTIONS. THE PRESENT CASE FALLS IN THE LATTER CATEGORY. HERE THE ASSESSING OFFICER, AFTER NOTING THE FACTS, MERELY REJECTED THE SAME. [PARA 9] THERE WAS A CLEAR LACK OF INQUIRY ON THE PART OF THE ASSESSING OFFICER ONCE THE ASSESSEE HAD FURNISHED ALL THE RELEVANT MATERIAL. IN SUCH AN EVENTUALITY NO ADDITION CAN BE MADE UNDER SECTION 68. [PARA 10] IN VIEW OF ABOVE, IMPUGNED ORDER PASSED BY THE TRIBUNAL WAS TO BE UPHELD. [PARA 11] M/S. SANGHVI REALTY PVT. LTD. 7 IN THE CASE OF VARINDER RAWLEY (SUPRA), THE HONBLE PUNJAB AND HARYANA HIGH COURT HAS HELD AS UNDER : WHERE THE ASSESSEE SHOWS THAT THE ENTRIES REGARDING CREDIT IN A THIRD PARTYS ACCOUNT WERE IN FACT RECEIVED FROM THIRD PARTY AND ARE GENUINE, HE DISCHARGES THE ONUS. IN THAT CASE, THE SUM CANNOT BE CHARGED AS THE ASSESSEES INCOME IN THE ABSENCE OF ANY MATERIAL TO INDICATE THAT IT BELONGS TO THE ASSESSEE, PARTICULARLY IN A CASE WHERE NO SUMMONS U/S 131 IS ISSUED AGAINST THE THIRD PARTY IN THE CASE OF SACHITEL COMMUNICATIONS P.LTD (SUPRA), THE HONBLE GUJARAT HIGH COURT HAS HELD AS UNDER : II. SECTION 68 OF THE INCOME - TAX ACT, 1961 - CASH CREDIT (LOANS) - ASSESSMENT YEAR 2006 - 07 - COMMISS IONER (APPEALS) AND TRIBUNAL CONCURRENTLY FOUND THAT ASSESSEE PROVED IDENTITY OF CREDITOR AND CAPACITY TO PAY AND THAT PAYMENT WAS MADE THROUGH BANKING CHANNEL - WHETHER NO ADDITION COULD BE MADE ON ACCOUNT OF UNSECURED LOAN - HELD, YES [PARA 3] [IN FAVOUR OF ASSESSEE] IN THE CASE OF PATEL RAMNIKLAL HIRJI, THE HONBLE GUJRAT HIGH COURT HAS HELD AS UNDER : 'THE ADDITION ON THE BASIS THAT FOUR DEPOSITORS FURNISHED REQUISITE DETAILS TO PROVE THEIR IDENTITY AND SHOWED THE PLACE OF THEIR RESIDENCE. THE LOA N WAS RECEIVED THROUGH ACCOUNT PAYEE CHEQUES. COPIES OF BANK STATEMENTS WAS GIVEN AND THE DETAILS OF PAN WERE AVAILABLE. ALL THE MATERIALS DULY PROVED THE GENUINENESS OF THE TRANSACTION OF LOAN AS WELL AS CREDITWORTHINESS OF THE DEPOSITORS. HENCE, THE ADDI TION U/S. 68 IN THE CASE OF JAIKUMAR BAKLIWAL (SUPRA), THE HONBLE RAJASTHAN HIGH COURT HAS HELD AS UNDER: THREE THINGS ARE REQUIRED TO BE PROVED BY RECIPIENT OF MONEY I.E. (1) IDENTITY OF THE CREDITOR (2) CAPACITY OF THE CREDITOR TO ADVANCE MONEY A ND (3) GENUINENESS OF THE TRANSACTION. HELD, DISMISSING THE APPEAL, THAT ALL CASH CREDITORS WERE ASSESSED TO INCOME - TAX AND THEY PROVED A CONFIRMATION AS WELL AS THEIR PERMANENT ACCOUNT NUMBER. THEY HAD THEIR OWN RESPECTIVE BANK ACCOUNTS WHICH THEY HAD B EEN OPERATING AND IT WAS NOT THE CLAIM OF THE ASSESSING OFFICER THAT THE ASSESSEE WAS OPERATING THEIR BANK ACCOUNTS. MOST OF THE CASH CREDITORS APPEARED BEFORE THE ASSESSING OFFICER AND THEIR STATEMENTS UNDER SECTION 131 OF THE INCOME - TAX M/S. SANGHVI REALTY PVT. LTD. 8 ACT, 1961, WERE A LSO RECORDED ON OATH. THERE WAS NO CLINCHING EVIDENCE NOR HAD THE ASSESSING OFFICER BEEN ABLE TO PROVE THAT THE MONEY ACTUALLY BELONGED TO NONE BUT THE ASSESSEE. THE ADDITION OF RS.17,27,2501 - UNDER SECTION 68 WAS NOT JUSTIFIED. IN THE CASE OF NEMI CHAN D KOTHARI (SUPRA), THE HONBLE HIGH COURT HAS HELD AS UNDER : 16. A PERSON MAY HAVE FUNDS FROM ANY SOURCE AND AN ASSESSEE, ON SUCH INFORMATION RECEIVED, MAY TAKE LOAN FROM SUCH A PERSON. IT IS NOT THE BUSINESS OF THE ASSESSEE TO FIND OUT WHETHER THE SOU RCE OR SOURCES FROM WHICH THE CREDITOR HAD AGREED TO ADVANCE THE AMOUNTS WERE GENUINE OR NOT. IF A CREDITOR HAS, BY ANY UNDISCLOSED SOURCE, A PARTICULAR AMOUNT OF MONEY IN THE BANK, THERE IS NO LIMITATION UNDER THE LAW ON THE PART OF THE ASSESSEE TO OBTAIN SUCH AMOUNT OF MONEY OR PART THEREOF FROM THE CREDITOR, BY WAY OF CHEQUE IN THE FORM OF LOAN AND IN SUCH A CASE, IF THE CREDITOR FAILS TO SATISFY AS TO HOW HE HAD ACTUALLY RECEIVED THE SAID AMOUNT AND HAPPENED TO KEEP THE SAME IN THE BANK, THE SAID AMOUNT CANNOT BE TREATED AS INCOME OF THE ASSESSEE FROM UNDISCLOSED SOURCE. IN OTHER WORDS, THE GENUINENESS AS WELL AS THE CREDITWORTHINESS OF CREDITOR HAVE TO BE ADJUDGED VIS - A - VIS THE TRANSACTIONS, WHICH HE HAS WITH THE ASSESSEE. THE REASON WHY WE HAVE FORMED THE OPINION THAT IT IS NOT THE BUSINESS OF THE ASSESSEE TO FIND OUT THE ACTUAL SOURCE OR SOURCES FROM WHERE THE CREDITOR HAS ACCUMULATED THE AMOUNT, WHICH HE ADVANCES, AS LOAN, TO THE ASSESSEE IS THAT SO FAR AS AN ASSESSEE IS CONCERNED, HE HAS TO PROVE THE GENUINENESS OF THE TRANSACTION AND THE CREDITWORTHINESS OF THE CREDITOR VIS - A - VIS THE TRANSACTIONS, WHICH HAD TAKEN PLACE BETWEEN THE ASSESSEE AND THE CREDITOR AND NOT BETWEEN THE CREDITOR AND THE SUB - CREDITORS, FOR, IT IS NOT EVEN REQUIRED UNDER THE LAW FOR THE ASSESSEE TO TRY TO FIND OUT AS TO WHAT SOURCE OR SOURCES FROM WHERE THE CREDITOR HAD RECEIVED THE AMOUNT, HIS SPECIAL KNOWLEDGE UNDER SECTION 106 OF THE EVIDENCE ACT MAY VERY WELL REMAIN CONFINED ONLY TO THE TRANSACTIONS, WHICH HE HAD WITH THE CRED ITOR AND HE MAY NOT KNOW WHAT TRANSACTION(S) HAD TAKEN PLACE BETWEEN HIS CREDITOR AND THE SUB - CREDITOR. NO SUCH ADDITIONAL BURDEN CAN BE PLACED ON AN ASSESSEE, WHICH IS NOT ENVISAGED BY SECTION 106 OF THE EVIDENCE ACT. THE REVENUE/ASSESSING OFFICER, HOWEVE R, REMAINS FREE TO SHOW THAT THE AMOUNT, WHICH HAS COME TO THE HANDS OF THE ASSESSEE BY WAY OF LOAN FROM THE CREDITOR ACTUALLY BELONGED TO THE ASSESSEE, BUT THIS CONCLUSION CANNOT BE REACHED BY MERE FAILURE ON THE PART OF THE SUB - CREDITOR TO SHOW HIS CREDI TWORTHINESS AND/OR THE GENUINENESS OF THE TRANSACTION BETWEEN THE CREDITOR AND SUB - CREDITOR, FOR, THE CREDITOR MAY RECEIVE ANY AMOUNT FROM SOURCES KNOWN TO THE CREDITOR ONLY AND IF HE FAILS TO SHOW HOW HE HAS RECEIVED THE AMOUNT, IN QUESTION, OR IF HE FAIL S TO SHOW THE CREDITWORTHINESS OF HIS SUB - CREDITOR, SUCH M/S. SANGHVI REALTY PVT. LTD. 9 AN AMOUNT MAY BE TREATED AS THE INCOME FROM UNDISCLOSED SOURCE OF THE CREDITOR OR OF THE SUB - CREDITOR, AS THE CASE MAY BE, BUT SUCH FAILURE, ON THE PART OF THE CREDITOR CANNOT, IN THE ABSENCE OF ANY CLINCHING EVIDENCE, BE TREATED AS THE INCOME OF THE ASSESSEE DERIVED FROM UNDISCLOSED SOURCE. :HELD (I) THAT THE ASSESSEE HAD ESTABLISHED THE IDENTITY OF THE CREDITORS. THE ASSESSEE HAD ALSO SHOWN, IN ACCORDANCE WITH THE BURDEN, WHICH RESTED ON HIM, UNDE R 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 CR EDITWORTHINESS 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 AS SESSEE, COULD NOT, UNDER THE LAW BE TREATED AS THE INCOME BY THE APPELLANT FROM UNDISCLOSED SOURCES MERELY ON THE FAILURE OF THE SUB - CREDITORS TO PROVE THEIR CREDITWORTHINESS FROM UNDISCLOSED SOURCES OF THE ASSESSEE HIMSELF, WHEN THERE WAS NEITHER DIRECT N OR 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 FROM UNDISCLOSED SOURCES.' (II) THAT NO ASSESSMENT COULD BE MADE CONTRARY TO THE PROVISIONS OF LAW. IN THE INSTANT CASE, THE VERY BASIS FOR MAKING THE ASSESSMENT WAS UNDER CHALLENGE. IF THE ASSESSMENT WAS BASED ON A COMPLETELY ERRONEOUS VIEW OF LAW, SUCH FINDINGS COULD NOT BE REGARDED AS MERE FINDINGS OF FACTS, BUT MUST BE TREATED AS SUBSTANTIAL QUESTIONS OF LAW. THEREFORE, THE QUESTION RAISED IN THE APPEAL WAS A SUBSTANTIAL QUESTION OF LAW BECAUSE IT WENT TO THE VERY ROOT OF THE ASSESSMENT MADE. THE AFORESAID VIEW HAS BEEN ALSO CONSIDERED AND FORTIFIED AND FAVOURABLY REFERRED TO BY TH E ALLAHABAD HIGH COURT IN THE CASE OF C.I.T. V. SHALIMAR BUILDWELL PVT. LTD. (2014) 220 TAXMAN 138 (ALL.) IN THE CASE OF LALPURIA CONSTRUCTION P. LTD (SUPRA) THE HON. RAJASTHAN HIGH COURT HAS HELD THAT THAT IN THE CASE OF ACCOMMODATION ENTRY - WITHO UT GIVING AN OPPORTUNITY OF CROSS EXAMINATION MERELY ON THE BASIS OF ORAL STATEMENT ADDITIONS CANNOT BE MADE U/S. 68. IT IS FURTHER HELD THAT: M/S. SANGHVI REALTY PVT. LTD. 10 'THE ORAL STATEMENT OF A THIRD PARTY RECORDED BY SEARCH AUTHORITIES WHICH WAS NEVER PLACED TO BE CONFRONTED BY ASSESSEE AND NO DOCUMENTARY EVIDENCE WAS SUPPLIED TO ASSESSEE, COULD NOT BE CONSIDERED IN MAKING ADDITION U/S. 68 ON ACCOUNT OF ALLEGED ACCOMMODATION ENTRIES. ' BESIDES, IT IS FURTHER SUBMITTED THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF M/S. RUSHAB H ENTERPRISE V. ACIT HAD OCCASION TO GO THROUGH THE IDENTICAL ISSUE AND TWO OF THE CREDITORS IN THAT CASE, I.E. M/S. LAXMI TRADING CO. AND M/S. ROSE IMPEX WERE ALSO PARTIES IN THE CASE OF THE ASSESSEE. IN THE CASE OF ANDAMAN TIMBER INDUSTRIES (SUPRA), T HE HONBLE SUPREME HELD AS UNDER : 'NOT ALLOWING THE ASSESSEE TO CROSS EXAMINES 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 NULLIF Y IN AS MUCH AS IT AMOUNTED TO VIOLATION OF PRINCIPLES OF NATURAL JUSTICE BECAUSE OF WHICH THE ASSESSEE WAS ADVERSELY AFFECTED.' THE ORDER WAS VACATED. THE AFORESAID VIEW WAS EARLIER CONSIDERED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. ASHISH INTERNATIONAL. IN OUR CONSIDERED VIEW THE FACTS OF THE ASSESSEE CASE ARE SQUARELY COVERED BY THE RATIO LAID DOWN IN THE DECISIONS REFERRED TO ABOVE. WE ,THEREFORE , IN VIEW OF OUR OBSERVATIONS AND THE RATIO LAID DOWN BY THE VARIOUS DECISIONS ARE INCLINED TO SET ASIDE THE ORDER OF CIT(A) AND DIRECT HE AO TO DELETE THE ADDITIONS OF RS. 1,29,04,231/ - . SINCE WE HAVE DECIDED THE ISSUE OF ADDITION U/S 68 IN FAVOUR OF THE ASSESSEE, THE ADDITION AS SUSTAINED BY THE LD CIT(A) U/S 69C OF THE ACT OF RS. 3,45,000/ - I S ALSO ORDERED TO BE DELETED. IN RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. 1 2 . SINCE THE FACTS ARE IDENTICAL, FOLLOWING THE DECISION RENDERED BY THE DIVISION BENCH IN THE CASE OF RELIANCE CORPORATION (SUPRA) , I HOLD THAT THE LD CIT(A) WAS NOT JUS TIFIED IN CONFIRMING THE ADDITION OF RS.25.00 LAKHS MADE IN AY 2008 - 09. ACCORDINGLY I SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION OF RS.25.00 LAKHS MADE IN AY 2008 - 09. 1 3 . I NOTICE THAT THE ADDITION OF RS.50.00 LAKHS MADE IN AY 2007 - 08 DOES NOT SURVIVE, SINCE THE LD CIT(A), VIDE HIS ORDER DATED 16 - 02 - 2016 PASSED IN M/S. SANGHVI REALTY PVT. LTD. 11 NO.CIT(A) - 10/DCIT - 5(3)(1)/306/2014 - 15, HAS QUASHED THE ASSESSMENT ORDER ON LEGAL ISSUE. THE LD A.R SUBMITTED THAT THE REVENUE DOES NOT AP PEAR TO HAVE CHALLENGED THE ORDER PASSED BY LD CIT(A) BY FILING APPEAL BEFORE THE TRIBUNAL. UNDER THESE SET OF FACTS, THERE IS MERIT IN THE SUBMISSION OF LD A.R THAT THE DISALLOWANCE OF INTEREST RELATING TO THE LOAN OF RS.50.00 LAKHS, REFERRED ABOVE, IS N OT JUSTIFIED. SINCE I HAVE DELETED THE ADDITION OF RS.25.00 LAKHS MADE DURING THE YEAR RELEVANT TO AY 2008 - 09 ALSO, THE DISALLOWANCE OF INTEREST RELATING THERETO IS LIABLE TO BE DELETED. ACCORDINGLY I SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THE ISSUE OF DISALLOWANCE OF INTEREST AND DIRECT THE AO TO DELETE THE SAID DISALLOWANCE. 1 4 . IN AY 2010 - 11 AND 2011 - 12, THE AO HAS DISALLOWED INTEREST EXPENSES. SINCE THE ADDITION MADE U/S 68 OF THE ACT IN AY 2007 - 08 DOES NOT SURVIVE AND THE ADDITION MADE IN AY 2008 - 09 HAS BEEN DELETED, THE DISALLOWANCE OF INTEREST EXPENSES MADE IN BOTH THE YEARS IS LIABLE TO BE DELETED. ACCORDINGLY I SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THE ISSUE OF DISALLOWANCE OF INTEREST IN AY 2010 - 11 AND 2011 - 12 AND DIRECT THE AO TO DELETE THE SAME IN BOTH THE YEARS. 1 5 . IN THE RESULT, ALL THE THREE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 12 . 9 . 201 7. SD/ - (B.R.BASKARAN) ACCOUNTANT MEMBER MUMBAI ; DATED : 12 / 9 / 20 1 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT . REGISTRAR) PS ITAT, MUMB AI