M/s. White Willow, Surat V. Income Tax Officer, Ward-1(3)(5), Surat

ITA 370/SRT/2022

AI Insights

The case involves M/s White Willow Vishram Apartment, a partnership firm engaged in construction, which appealed against the order of the National Faceless Appeal Centre (NFAC), Delhi, sustaining additions made by the Income Tax Officer (ITO) under section 143(3) of the Income Tax Act, 1961. The additions were made on account of unsecured loans amounting to Rs. 1,50,00,000 and interest expenditure of Rs. 7,18,581, which were treated as bogus by the ITO based on information from the Investigation Wing that the lenders were involved in providing accommodation entries. The Tribunal, after considering the submissions and evidence, including the repayment of loans and the lack of concrete evidence against the genuineness of the loans, allowed the appeal of the assessee.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134666 (ITAT-SURAT)
• Duration Of Justice: 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 02-07-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 05-12-2022
• Other Referred Cases: DCIT vs. Rohini Builders, Murlidhar Lahorimal vs. CIT, CIT vs. Pragati Co.Op. Bank Ltd., CIT vs. Orissa Corporation Pvt. Ltd., Kishnchand Chellaram vs. CIT, Heirs and Legal Representative of Late Laxmanbhai S. Patel vs. CIT, H.R. Mehta vs. ACIT, Pr. CIT vs Chartered Speed Private Limited, Andaman Timber Industries vs. CCE, CIT Vs. Ayachi Chandrasekhar Narsangji
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: TUSHAR P HEMANI
• Keywords: Principle of natural justice; Bogus loan
• Section: 131; 68; 143(3); 133(6)

Judgement Text

आयकर अपीलीय अिधकरण, सुरत Ɋायपीठ, सुरत IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND Dr ARJUN LAL SAINI, ACCOUNTANT MEMBER आ.अ.सं./ITA No.370/SRT/2022 (AY 2014-15) (Hearing in Virtual Court) M/s White Willow Vishram Apartment, Opp. Sawlani Estate Bungalows, Beside Trinidhi Apartment, Ghod Dod Road, Regent Mall, Surat-395007 PAN No. AABFW 4804 F Vs Income Tax Officer, Ward-1(3)(5), Surat, Anavil Business Centre, Pal Hazira Road, Adajan, Surat-395007 अपीलाथŎ/Appellant ŮȑथŎ /Respondent िनधाŊįरती की ओर से /Assessee by Sh Tushar P. Hemani, Senior Advocate, with Sh Parimalsinh B. Parmar Advocate राजˢ की ओर से /Revenue by Shri Vinod Kumar, Sr-DR सुनवाई की तारीख/Date of hearing 03.07.2023 उद्घोषणा की तारीख/Date of pronouncement 14.08.2023 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee is directed against the order of National Faceless Appeal Centre, Delhi [for short to as “NFAC)/Ld. CIT(A)”] dated 11.10.2022 for the assessment year 2014-15, which in turn arises out of assessment order passed by Income Tax Officer, Ward-1(3)(5) Surat / Assessing Officer under section 143(3) of Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) on 26.12.2016. The assessee has raised the following grounds of appeal: ITA No.370/SRT/2022 (A.Y 14-15) M/s White Willow 2 “(I) Addition on account of unsecured loan of Rs.1,50,00,000/- (1) The Commissioner of Income Tax (Appeals) erred in sustaining the addition amounting to Rs.1,50,00,000/- on account of unsecured loans, merely on the basis of the statement of Rajendra Jain. (2) The appellant submits that the CIT(A) erred in sustaining addition as there was no justification whatsoever for making the aforementioned addition, for which complete particulars and evidence were furnished by those party and in fact the loan taken was also repaid back and the transaction cannot be considered as bogus loan and the said addition is required to be deleted. (3) The appellant further submits that, the statement based on which the addition was sustained by the CIT(A), was already been retracted by Rajendra Jain, even no cross examination was given, which is denial of natural justice, hence the addition is required to be deleted. (4) Under the facts and circumstances of the case, CIT(A) erred in confirming the addition amounting to Rs.1,50,00,000/- on account of unsecured loan and is required to be deleted. (II) Addition on account of interest expenditure on loan of Rs.7,18,581/- (1) The CIT(A) erred in sustaining the addition on account of interest expenses paid to loan parties of Rs.7,18,281/- (2) The Appellant further submits that, the CIT(A) erred in sustaining addition as there was no justification whatsoever for making the aforementioned addition, for which complete particulars and evidence were furnished by those party which cannot be considered as interest paid to bogus loan parties and the said addition is required to be deleted. ITA No.370/SRT/2022 (A.Y 14-15) M/s White Willow 3 (3) Under ethe facts and circumstances of the case, CIT(A) erred in confirming the addition amounting to Rs.7,18,581/- on account of interest on unsecured loan and is required to be deleted. (III) Miscellaneous: (1) The appellant craves leave to add, alter or vary any of the grounds of appeal.” 2. Brief facts are that assessee is a partnership firm engaged in the business of construction and filed its return of income for assessment year 2014-15 on 27.11.2014 declaring “nil income”. The case was selected for scrutiny. During the assessment, Assessing Officer noted that assessee has shown unsecured loan from Kangan Jewels Private Ltd of Rs.70.00 lakh and Maniprabha Impex Private Limited for Rs.80.00 lakh respectively. The Assessing Officer further recorded that in this case, he was having information from Investigation Wing that during the relevant financial year 2015-16, the assessee has obtained accommodation entry of unsecured loan from entry operators Rajendra Jain Group, Sanjay Chaudhary Group and Dharmichand Jain Group of Mumbai. A search was carried out by Investigation Wing on 03.10.2013, which resulting collecting various evidence disclosing that Rajendra Jain group was indulging and providing bogus entry of sale, purchase and of unsecured ITA No.370/SRT/2022 (A.Y 14-15) M/s White Willow 4 loan. The assessing officer noted that Kangan Jewels Private Ltd and Maniprabha Impex Private Limited are managed and operated by Rajender Jain and his associates. The Assessing Officer after recording the modus operandi of business operation of Rajendra Jain Group & company, issued show cause notice to the assessee as to why the transaction of impugned loans from Kangan Jewels Private Limited and Maniprabha Impex Private Limited should not be treated as bogus loan from such entities and the interest paid on such loan should not be treated as bogus. The Assessing Officer recorded that assessee filed its reply dated 23.12.2016. The summery of reply of assessee is recorded in para-5 of assessment order. The assessee in its reply submitted that they have received loans from both the entities through account payee cheque in regular banking transaction. The assessee furnished copy of PANs of lenders, account confirmation, bank statements, copy of income tax returns and submitted that the lenders have creditworthiness and loan were taken from genuine business purposes. The assessee further submitted that interest was duly paid to the ITA No.370/SRT/2022 (A.Y 14-15) M/s White Willow 5 parties through account payee cheque or RTGS complying with the provision by deducted tax at source. 3. The reply of assessee was not accepted by Assessing Officer by taking view that lenders were not creditworthiness and had shown very meagre source of income. The Assessing Officer further recorded that notice under section 133(6) was issued to the lenders and they had filed part detailed. The Assessing Officer recorded that mere filing of confirmation, bank statement and copy of acknowledgment of return are not sufficient to cover the surrounding circumstances as the lenders were part of Rajendra Jain group. The Assessing Officer by referring the modus operandi of Rajendra Jain group, treated the transaction of loan as accommodation entry. The Assessing Officer also disallowed the interest payment as unexplained expenditure, while passing the assessment order on 26.12.2016 under section 143(3) of the Act. 4. Aggrieved by the additions in the assessment order, the assessee filed appeal before ld CIT(A). Before Ld. CIT(A), the assessee challenged the validity of addition as well as disallowance of interest expenses. The assessee filed detailed ITA No.370/SRT/2022 (A.Y 14-15) M/s White Willow 6 written submission before ld. CIT(A) and made similar submissions as made before assessing officer. In addition to, the assessee submitted that addition was made on the basis of statement of Rajendra Jain recorded during search action upon him, which later on retracted. The assessee also submitted that loan has been repaid in financial year 2015- 16 i.e., during assessment year 2016-17, copy of confirmation along with required details were also furnished. The assessee also relied on various case law including the decision of Hon'ble jurisdictional High Court in the case of Ranchhod Jivabhai Nakhava Appeal No.50 of 2011, on the ratio of that once the assessee has discharged initial onus by furnishing copy of PAN, confirmation of lenders, it was the duty of Assessing Officer to investigate or verify about the lenders, Rohini Builders [2002] 256 ITR 360 [2003] 127 Taxman 523 (Guj). 5. The ld. CIT(A) after considering the submission of assessee upheld the addition of unsecured loan as well as disallowance of interest expense by holding that to prove the genuineness of unsecured loan it is the duty of assessee as mandated under section 68 to prove the identity, creditworthiness and ITA No.370/SRT/2022 (A.Y 14-15) M/s White Willow 7 genuineness of such transactions. Further aggrieved, the assessee has filed present appeal before the Tribunal. 6. We have heard the submission of Shri Tushar P. Hemani, learned Senior Advocate assisted by Shri Parimalsinh B Parmar advocate for the assessee (learned Senior Counsel) and Shri Vinod Kumar, Ld. Senior Departmental Representative (Ld. Sr-DR) for the Revenue and have gone through the orders of lower authorities carefully. The leaned Senior Counsel submits that assessing officer made addition of Rs.1.50 crores, under section 68 of the Act by treating the unsecured loan as accommodation entry and also disallowed consequential interest payment against such loans. The addition was confirmed by ld. CIT(A). The Ld. Senior Counsel for the assessee submits that assessee furnished complete details of lenders which consists of details PAN, their acknowledgement of ITR, confirmation of lender, bank statement of lender as well as balance-sheet of lenders. The Ld. Senior counsel submits that assessee has discharged its initial burden to prove the identity, genuineness and creditworthiness of such lenders. Once the assessee satisfactorily discharged its initial onus, the onus shifted to Revenue. The assessee was not required to prove source of source. To support such submission, Ld. Senior counsel for the assessee relied upon the following case law:  DCIT vs. Rohini Builders 256 ITR 360 (Guj) ITA No.370/SRT/2022 (A.Y 14-15) M/s White Willow 8  Murlidhar Lahorimal vs. CIT 280 ITR 512 (Guj)  CIT vs. Pragati Co.Op. Bank Ltd. 278 ITR 170 (Guj)  CIT vs. Orissa Corporation Pvt. Lt. 159 ITR 78 (SC) 7. The learned Senior Counsel for the assessee further submits that assessing officer issued notice under section 133(6) to the lenders. Such notice was duly served upon lenders and lenders responded and furnished their reply. The Assessing Officer simply brushed aside such reply by holding only part details were furnished by lenders. The assessing officer failed to appreciate that once the factum of loans was confirmed by lenders, which is proved by documentary evidence, thereby the assessee discharged its onus properly. The assessing officer could very well issue summons under section 131 to the lenders for recording their statements. The Assessing Officer has not taken any step to carry out any independent investigation so as to bring on record any cogent material on the basis of which the disallowance of loan could be justified. The learned Senior Counsel for the assessee submits that entire addition was made on suspicious, there was no specific material to prove that loan in question were not genuine. The Assessing Officer made addition on general material that lenders were engaged in the providing of accommodation entry. The suspicious how much strong it may be, can never take place of evidence and cannot be made the basis for making addition. ITA No.370/SRT/2022 (A.Y 14-15) M/s White Willow 9 8. The Ld. Senior Counsel for the assessee further submits that loan in question has been repaid in subsequent years, as evident from the evidences placed on record at page 66 of paper book, filed by assessee. The repayment of loan is not doubted by Department in subsequent assessment year. The Ld. Senior Counsel for the assessee invited our attention on page 66 of the paper book, which is copy of bank statement of assessee, which clearly shows the repayment of loan on 22.03.2016 to both the lenders along with corresponding interest payment. The Ld. senior counsel for the assessee submits that this fact was categorically brought to the notice of Ld. CIT(A), however, he has not given any specific finding and ignored it. The Ld. Senior Counsel for the assessee submits that once the department has accepted repayment of loan in subsequent assessment year, no addition is to be made in current year on account of cash credit. To support such view, Ld. senior counsel relied on the decision of Hon'ble jurisdictional High Court in the case of CIT Vs. Ayachi Chandrasekhar Narsangji (2014) 221 Taxman 146 (Guj). 9. In other alternative submissions, the learned Senior Counsel for the assessee further submits that assessing officer never confronted the assessee, with the material provided by the Investigation Wing to Assessing Officer, including statements of Rajendra Jain and others recorded during the course of search ITA No.370/SRT/2022 (A.Y 14-15) M/s White Willow 10 carried out on 03.10.2013. Neither such materials were provided nor any material was confronted with the assessee that such materials were not admissible evidence against the assessee. To support such view, Ld. senior counsel for the assessee relied in the following case las:  Kishnchand Chellaram 125 IDTR 713 (SC)  Heirs and Legal Representative of Late Laxmanbhai S. Patel vs. CIT (2008) 327 ITR 290 (Guj)  H.R. Mehta vs. ACIT 387 ITR 561 (Bom) 10. The learned Senior Counsel for the assessee submits that neither the statement referred and relied by assessing officer were provided to the assessee nor the assessee was offered any opportunity for cross-examination of such persons, whose statement was made basis for making addition. It is a settled law that in absence of cross-examination, no addition could be made. To support his submission, learned Senior counsel for the assessee relied on the decision of Hon’ble Gujarat High Court in Pr. CIT Vs Chartered Speed Private Limited in Tax Appeal No.126 of 2015 and on the judgment of Hon'ble Apex Court in the case of Andaman Timber Industries vs. CCE (2015) 62 taxmann.com 3 (SC). The Ld. Senior Counsel further submits that once in case of assessee succeeds on merit of the addition, the addition on account of ITA No.370/SRT/2022 (A.Y 14-15) M/s White Willow 11 unexplained expenditure of interest payment would not survive. Otherwise, the Ld. Senior Counsel for the assessee submits that on payment of interest, the assessee deducted tax at source and such interest was paid through banking channel and was paid for genuine loan transaction which cannot be disallowed. 11. On the other hand, Ld. Sr-DR for the Revenue supported the orders of lower authorities and submits that Investigation Wing Mumbai made full-fledged enquiry against Rajendra Jain and his associate and found sufficient evidences that Rajendra Jain group indulging in providing accommodation entries without actual business. The assessee was one of the beneficiary who was availed accommodation entry against the payment of commission. The Assessing Officer as well as CIT(A) considered all the factual and legal objection raised by the assessee while confirming the additions. The Ld. Sr-DR for the Revenue prayed that addition made by Assessing Officer may be affirmed. On the submissions of repayment of loan, the Ld. Sr DR for the Revenue submits that repayment of loan was nothing but chain of event of accommodation entry which cannot accepted as genuine loan transaction. ITA No.370/SRT/2022 (A.Y 14-15) M/s White Willow 12 12. We have considered the rival submission of both the parties and have gone through the order of lower authorities carefully. We have also deliberated on various case law relied by Ld. Senior Counsel for the assessee. We find that assessing officer has made addition of loan transactions as bogus entry from Kangan Jewels Private Limited Maniprabha Impex Private Limited by taking view that both the entities are managed by Rajendra Jain and his associates, who were involved in providing accommodation entries. We find that in response to the show cause notice, the assessee furnished loan confirmation, PAN, bank statement along with ITR of lenders. We further find that assessing officer in order to verify the genuineness of such loan transactions issued notice under section 133(6), such notice was duly served upon both the lenders. Both the lenders filed their respective reply. However, the Assessing Officer recorded that complete details as desired by him was not furnished. The Assessing Officer by referring the modus operandi alleged entry provider treated the loan transaction as accommodation entry and also disallowed the interest ITA No.370/SRT/2022 (A.Y 14-15) M/s White Willow 13 expenses. We find that before Ld. CIT(A) the assessee made similar submissions as argued before us. 13. We further find that before Ld. CIT(A) the assessee also contended that both the loan has been repaid in assessment year 2015-16 and assessee also furnished the evidence of repayment of loan. The Ld. CIT(A) neither verified the repayment of loan nor sought any remand report from Assessing Officer. Such evidence is self-sufficient to prove the facts that the loan amount alongwith interest was repaid. We find that assessee placed on record copy of their bank statements, reflecting the repayment of loans on 22.03.2016. 14. We find that Hon'ble jurisdictional High Court in the case of CIT Vs Ayachi Chandershekhar Narsangi (supra) held that when the department has accepted repayment of loan in subsequent year and no addition was to be made on account of loan. We find that such plea of repayment of loan was not raised for the first time before Tribunal, rather categorically contended before ld CIT(A) as well. We find that repayment of loan was made much before passing of assessment order. The assessing officer passed assessment order on ITA No.370/SRT/2022 (A.Y 14-15) M/s White Willow 14 26.12.2016, however, the loan with current year interest was repaid on 22.03.2016. No evidence was brought on record if receipt of loan was circulated transaction. Thus, following judicial precedents of Hon'ble jurisdictional High Court in Ayachi Chandershekhar Narsangji (supra), the assessee succeeds on this contention alone. In the result, the grounds of appeal raised by the assessee is allowed. 15. Considering the fact that we have allowed the appeal of assessee on one of the primary contention of Ld. Senior Counsel for assessee. Therefore, adjudicating on other submission have become academic. 16. In the result, appeal of the assessee is allowed Order pronounced in the open court on 14/08/2023. Sd/- Sd/- (Dr ARJUN LAL SAINI) (PAWAN SINGH) [लेखा सद˟/ACCOUNTANT MEMBER] [Ɋाियक सद˟ JUDICIAL MEMBER] Surat, Dated: 14/08/2023 Dkp. Out Sourcing Sr.P.S Copy to: 1. Appellant- 2. Respondent- 3. CIT(A)- 4. CIT 5. DR By order 6. Guard File True copy/ // True Copy // Sr. Private Secretary /Private Secretary /Assistant Registrar, ITAT, Surat