OM SHANTI RELTORS, MUMBAI V. INCOME TAX OFFICER WARD-20(2)(3), MUMBAI

ITA 4113/MUM/2023

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 6642 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 16-04-2024
• Assessment Year: 2015-2016
• Appeal Filed On: 15-11-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bonafide belief; Additional evidence; Accommodation entries; Onus to prove; TDS
• Section: 68; 271(1)(c); 143(3); 142(1); 133(6); 143(1); 250; 143(2); 208; 13

Judgement Text

Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “C”, MUMBAI BEFORE SHRI. PRASHANT MAHARSHI, ACCOUNTANT MEMBER AND SHRI. RAJ KUMAR CHAUHAN, JUDICIAL MEMBER ITA NO. 4113/MUM/2023 (A.Y: 2015-16) Om Shanti Realtors Omkar House, Off Eastern Highway, Opp. Sion Chunnabhatti Signal, Sion East, Mumbai – 400 022. PAN: AABFO1844K Vs. Income Tax Officer Ward- 20(2)(3) 2 nd Floor, 210, Piramal Chambers, Parel, Mumbai – 400 012. (Appellant) (Respondent) Assessee Represented by : Shri. Ajay R. Singh/Akshay Pawar, Adv. Department Represented by : Shri. H. M. Bhatt (Sr. D.R.) Date of conclusion of Hearing : 17.04.2024 Date of Pronouncement : 05.06.2024 O R D E R PER RAJ KUMAR CHAUHAN (J.M.): 1. The assessee has instituted the present appeal for the A. Y. 2015-16 wherein the Appellant has challenged the order dated 19.10.2023 of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the “CIT(A)”], passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] has been challenged. ITA NO. 4113/MUM/2023 (A.Y: 2015-16) Om Shanti Realtors Page | 2 2. The brief facts giving rise to the present appeal are as under: - 3. The assessee e-filed the return of income for A.Y. 2015-16 on 30.09.2015 declaring total income at Rs. Nil/-. The return was processed under section 143(1) of "the Act" and the case was selected for scrutiny under CASS and statutory notices u/s. 143(2) and 142(1) of "the Act" were issued and served upon the assessee. In response to the notices issued, Shri. Anish Shah, Chartered Accountant and Authorized Representative attended the proceedings. The assessee is a partnership firm engaged in the business of property development. During the relevant year, the assessee has borrowed new loans and paid interest to the various unsecured loan parties as under: Sr. No. Name of the Party PAN Amount as on 31.03.2014 Loan taken during the year Interest paid during the year Amount as on 31.03.2015 1. M/S. Divyanshi Gems Pvt. Ltd. Cabin No. A, Off No. 404, Pramukh Darshan Apartment, Near Charkhana Chakala, Rampura Main Road, Surat – 395003. AADCD8741R 3,58,82,840 32,74,309 3,88,29,717 2. M/s. Manbhawan Exim Pvt. Ltd. Cabin No. A, Off No. 404, Pramukh Darshan Apartment, Near Charkhana Chakala, Rampura Main Road, Surat – 395003. AAGCM9487J 2,32,20,847 21,18,902 2,51,27,859 3. M/S. Siddham Gems Pvt. Ltd. Room No. 202, 2 nd Floor, Veer AAQCS2578G 42,97,546 2,25,00,000 17,02,651 2,83,29,932 ITA NO. 4113/MUM/2023 (A.Y: 2015-16) Om Shanti Realtors Page | 3 Park Apartment, Ghachi Sheri Taratiya Hunuman Haripura, Surat – 395003. 4. M/s. Radhey Krishna Gems Pvt. Ltd. 6/1766, Sainath Bldg., Ground Floor, Off No. 02, Gundhisheri Mahidharpura, Surat – 395003. AAECR8034J 1,48,76,376 13,57,469 1,60,98,098 5. M/s. Shri Brahm Shakti Gems Pvt. Ltd. 6/2497, Mazennine Floor, Office No. M-3, Balaji Sadan, Limbu Sheri, Mahidharpura, Surat AAPCS8782B 1,74,18,831 15,89,468 1,88,49,352 6. M/s. Shankeshwar Diamonds Pvt. Ltd. 6/1362, Parth Ground Floor Hall, Cabin No. 9, Jadakhadi, Mahidharpura, Surat – 395003. AAOCS4348G 2,62,40,803 23,94,473 2,83,95,829 7. M/s. Shree Charbuja Diamonds Pvt. Ltd. 5/1932, 402, 4 th Floor, Maruti Charkhana, Chakala Haripura Main Road, Surat-395003. AAPCS2758H 2,43,81,250 9,14,289 27,04,110 8. M/s. Shri Jagdamba Shakti Gems Pvt. Ltd. 6/2497, Mazennine Floor, Office No. M-3, Balaji Sadan, Limbu Sheri, Mahidharpura, Surat. AAPCS8781C 1,95,03,247 17,79,671 2,11,04,951 Total 2,25,00,000 1,51,31,232 4. During the course of assessment proceedings, the assessee filed confirmation of the above loan parties alongwith copy of ITR and relevant page of the Bank Statement. In order to verify the identity, ITA NO. 4113/MUM/2023 (A.Y: 2015-16) Om Shanti Realtors Page | 4 genuineness, creditworthiness and modes of operandi of the lenders, notice under section 133(6) was issued to the above-mentioned unsecured loan parties. 5. The matter was referred to the DIT (Investigation) Unit-1, Surat, vide letter dated 11.12.2017 stated that lenders parties are not available on the given address and no business activity was undergoing on the address of the unsecured loan parties. Hence, genuineness of the interest expenditure and identity of the unsecured loan parties remained unexplained. 6. Accordingly, a show cause notice dated 13.12.2017 was issued to the assessee. In response to the show cause notice, the assessee filed submissions vide letter dated 13.12.2017. In the said response, the assessee has given details of the financial documents and property of the unsecured loan creditors. The assessee has taken loan from the parties to utilize the same for business purposes. TDS has been deducted and interest paid Rs. 1,51,31,232/- has been debited to profit and loss account and was carried over as work in progress (WIP). The assessee had taken the loans by account payee cheque/RTGS/ and also interest payment was made by account payee cheque/RTGS. TDS on the same has been deducted and deposited. ITA NO. 4113/MUM/2023 (A.Y: 2015-16) Om Shanti Realtors Page | 5 7. During the assessment proceedings, the Learned Assessing Officer i.e., Ward 20(2)(3), Mumbai (hereinafter referred to as the “AO”) vide his order dated 27.12.2017 issued under section 143(3) of "the Act", observed that from the data reported in the audited accounts, it became clear that the lenders were indulging not in real diamond trading business but simply acting as an accommodation entry provider because the share capital of all lenders’ private limited companies were hardly Rs. 1,00,000/- with which it is not even imaginable to have a turnover running into crores and further none of the lenders had borrowed either on short term or long-term basis even a single rupee to report such a huge turnover and further these companies were showing very low and negligible profit despite showing huge turnover. 8. The Ld. AO therefore observed that the assessee failed to prove the genuineness of the interest expenditure to let it to be interest paid on the unsecured loans. Hence, the interest expenditure of Rs. 1,51,31,232/- was disallowed. Accordingly, the said amount is reduced from the closing work in progress and the closing WIP was considered as Rs. 27,67,18,200/- instead of Rs. 29,18,49,432/-. Regarding the unsecured loan of Rs. 2,25,00,000/- from M/s. Siddham Gems Pvt. Ltd., it is noticed that there was no business activity and even the said party was not found available at the address given during the ITA NO. 4113/MUM/2023 (A.Y: 2015-16) Om Shanti Realtors Page | 6 investigation conducted by Deputy Director of Income Tax (Investigation) and it was observed that the loan creditors appearing in the books of assessee is a paper company which is used for providing accommodation entries. 9. It was therefore concluded by the Ld. AO that the assessee has failed to prove the genuineness of the transactions and identity and creditworthiness of the unsecured loan providing party, therefore, an amount of Rs. 2,25,00,000/- was disallowed and added to the total income of the assessee under section 68 of "the Act" as unexplained cash credit. 10. The notice for penalty proceedings under section 271(1)(c) was also initiated against the assessee. The said observation contained in the assessment order dated 27.12.2017 has been challenged under section 250 of "the Act" before the Ld. CIT(A). The First Appellate Authority i.e., the Ld. CIT(A) has dismissed the appeal vide impugned order dated 19.10.2023. Hence, the present appeal has been instituted on the following grounds: - “Addition/disallowance of Rs. 3,76,31,232/-: a. The learned CIT (A) erred in upholding the addition/disallowance aggregate of Rs. 3,76,31,232/-, being loan taken of Rs. 2,25,00,000/- during the year and Rs. 1,51,31,232/- being interest paid to 8 parties on loans of previous ITA NO. 4113/MUM/2023 (A.Y: 2015-16) Om Shanti Realtors Page | 7 years (reduced from closing WIP by AO), without appreciating that assessee had duly discharged the burden of proof by producing all the primary evidence namely loan confirmation, ITR & audited financial, copies of bank statement of lenders, repayment details etc. in support of the loan parties, therefore the addition/disallowance sustained by the Id. CIT(A) is not justified. b. The learned CIT (A) failed to appreciate that loan parties are assessed to tax, transaction is by A/c payee cheques and all primary evidence were duly filed by the assessee, loans are repaid back by A/c payee cheques, thus assessee has proved identity of parties, genuineness of transaction and creditworthiness of parties beyond doubt because parties have not personally appeared before DDIT(Inv), no adverse inference can be drawn against assessee.” 11. We have heard the Ld. AR on behalf of the assessee/appellant who has argued that: i. The Ld. AO has erred in disallowing the interest expenditure and unsecured loans taken by the assessee without any legal basis despite the fact that the Hon’ble ITAT has allowed those loans as genuine for the previous assessment year. ii. There is sufficient evidence and the material available with the assessee to show that the parties from whom the unsecured loans were taken and interest was paid are genuine and creditworthy and the addition under section 68 of "the Act" was not warranted in the absence of ITA NO. 4113/MUM/2023 (A.Y: 2015-16) Om Shanti Realtors Page | 8 contrary material having not brought on record by the revenue. iii. If the parties are not available or not responding as is observed by the Ld. AO and said fact has been made basis of addition under section 68 of "the Act" which has no legal basis. iv. Two paper books have been submitted during arguments by the assessee/appellant and the Ld. AR has taken us to page 208 of paper book no. II stating that the statement of accounts shows how the loan amount was given. Similarly, he has referred to page no. 24 and 38 of the paper book no. II in support of these arguments. He has also referred the page no. 42 of the paper book no. I regarding the repayment of the loan amount and the interest expenditure shown therein. v. Since the interest of Rs. 1,51,31,232/- was paid to the parties which lendered loan and the work in progress (WIP) has been wrongly reduced by the Ld. AO. ITA NO. 4113/MUM/2023 (A.Y: 2015-16) Om Shanti Realtors Page | 9 vi. The Ld. AO has not mentioned as to under which section he has made addition and has increased the income of the assessee whereas the income of the assessee was required to be reduced. vii. The Ld. AO can increase opening stock or adjust the losses in next year under the provisions of section 155(4) of "the Act" and after following the procedure mentioned therein and the addition made under section 68 is illegal and unwarranted. viii. Reliance upon the report of the Deputy Director of Income Tax (Investigation) submitted under section 131(d) regarding nonexistence of the parties is illegal because the Hon’ble ITAT has already found those parties are genuine and the order of the Hon’ble Tribunal was available before the Ld. CIT(A) and for that reasons the findings of the Ld. CIT(A) are perverse. ix. The documents which are necessary to prove the genuineness and creditworthiness of the parties from whom the unsecured loans were taken can be permitted under Rule 29 of the Appellate Tribunal Rule, 1963 and for ITA NO. 4113/MUM/2023 (A.Y: 2015-16) Om Shanti Realtors Page | 10 that reasons, the application for additional evidence has been made by the assessee/appellant which may be considered by the Hon’ble Tribunal as there was justified reasons for non-production of said additional evidence before the Ld. AO by the assessee/appellant. 12. The Ld. AR on behalf of assessee has relied upon the following citations: - a. PCIT Vs. Ambe Tradecorp (P.) Ltd. [2023] 290 Taxman 471 (Gujrat) [05-07-2022]. b. DCIT Vs. Shri Jayesh R. Thakkar, ITA No. 3407/AHD/2015, A.Y. 2011-12, dated 16.10.2023, (Ahmd-Trib). c. H.R. Mehta Vs. ACIT, (Bombay)[2016] 387 ITR 561 (Bombay) [30.06.2016] d. CIT Vs. Kapoor Chand Mangesh Chand, [2013] 218 Taxman 157 (Allahabad) (Mag.) e. Pr. CIT Vs. M/s. Skylark Build ITXA No. 616 of 2016, dated 24.10.2018, (Bom-HC). f. ACIT-24(3) Vs. Shri. Ramesh Ramswarupdas Jindal, ITA No. 3091 to 3096/M/2017, dated 15/11/2017, (Mum-Trib). 13. In addition, the assessee/appellant has also relied the judgment of the Ld. Coordinate Bench in ITA No. 5615/Mum/2017, dated 01.03.2019, for A.Y. 2014-15, to show that the identity of the same creditors and their creditworthiness as well as genuineness of the ITA NO. 4113/MUM/2023 (A.Y: 2015-16) Om Shanti Realtors Page | 11 transaction was accepted by the Hon’ble Tribunal for the previous A.Y. 2013-14 and the present appeal pertains for A.Y. 2015-16. 14. It is therefore argued that the additional evidence be permitted to be filed to establish the identity of the creditors and their creditworthiness as well as genuineness of the transaction. The Ld. DR on behalf of the revenue has argued that no reason has been assigned as to why the documents which are sought to be submitted through additional evidence were not produced before the Ld. AO or the Ld. CIT(A) and as such there is no justification for non-filing the same at appropriate time and therefore vehemently argued that the application of additional evidence does not have any merit and liable to be dismissed. 15. We have considered the rival submissions and gave our thoughtful consideration. On perusal of the judgment of the Ld. Coordinate Bench, ITA No. 5615/Mum/2017 referred (supra), it is noticed that in para no. 12 it has been observed that “on the contrary, the assessee has filed the entire documents, required to establish the identity of the creditors and their creditworthiness, as well as genuineness of the transaction”. ITA NO. 4113/MUM/2023 (A.Y: 2015-16) Om Shanti Realtors Page | 12 16. Para 12 of the judgment of the Ld. Coordinate Bench, ITA No. 5615/Mum/2017 referred (supra) is relevant and reproduced as under: - “12. In the present case, Ld. CIT(A) apart from appreciating that all the documents had been placed on record by the assessee, which is specifically mentioned in para no. 5.4 of its order had also categorically mentioned that the audited accounts and return of income of all the parties, show that the loans given by them to the assessee were reflected in their audited accounts and these parties had not borrowed any funds and thus had utilized their own funds for giving loans to the assessee on which they had earned interest. It is also important to mention here that the A.O himself stated that the turnover of these parties was in hundreds of crores and at the same time, AO stated these parties were not credit worthy. In this respect, the A.O had not placed on record any corroborative evidence to show that cash had been paid by the assessee to these parties for availing the loans and had not been able to establish the cash trail at all. On the contrary, the assessee had filed the entire documents, required to establish the identity of the creditors and their creditworthiness, as well as the genuineness of the transaction.” 17. Thus, it is clear that in the case before the Ld. Coordinate Bench, the assessee has filed all the documents before the Ld. AO who had failed to consider the same, therefore, the same were duly considered by the Ld. CIT(A) and for that reasons, the Ld. Tribunal dismissed the appeal of the revenue against the order of the CIT(A). 18. Now the question before us is whether the assessee/appellant can be permitted to file additional evidence in order to establish the ITA NO. 4113/MUM/2023 (A.Y: 2015-16) Om Shanti Realtors Page | 13 identity of the creditors and their creditworthiness as well as genuineness of the transaction. 19. The assessee/appellant has sought permission of the additional evidence under Rule 29 of Appellate Tribunal Rules, 1963. Therefore, let us examine the Rule 29 of the Appellate Tribunal Rules, 1963. “Production of additional evidence before the Tribunal: - 29. The parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal, but if the Tribunal requires any documents to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or, if the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced.” 20. In support of their application, the assessee/appellant has relied the judgment of the Hon’ble Bombay High Court reported as Smt. Prabhavati S. Shah Vs. Commissioner of Income Tax, (1998) 231 ITR 1. Para 9 of the judgment of the Hon’ble Bombay High Court referred (supra) is relevant and reproduced as under: “9. We are also of the opinion that in the facts and circumstances of this case, even under rule 46A of the Rules the assessee should have been allowed to produce ITA NO. 4113/MUM/2023 (A.Y: 2015-16) Om Shanti Realtors Page | 14 the additional evidence. The Appellate Assistant Commissioner, in our view, was not correct in holding that the case of the assessee did not fall in any of the four exceptions set out in sub-rule (1) of rule 46A. In fact, the present case would fall under clause (c) of subrule (1) of rule 46A because the assessee had no occasion to collect this evidence earlier. He could have reasonably expected that the creditors will appear before the Income-tax Officer in compliance with the summons issued by him. He was never informed by the Income-tax Officer that the creditors were not available or unidentifiable. If he had been informed by the Income-tax Officer in the course of assessment proceedings that he was not inclined to accept the loans as genuine because of the nonavailability of the creditors, he could have tried to satisfy him about the genuineness of the loan by producing other evidence. At the time of hearing of the appeal, the appellant tried to satisfy the Appellate Assistant Commissioner about the genuineness of one of the loans by producing material which he could collect in the meantime. This case, therefore, will fall under clause (c) of sub-rule (1) of rule 46A of the Rules. In any view of the matter, we are of the opinion that in the instant case, the Appellate Assistant Commissioner should have considered the evidence produced by the assessee in regard to the loan of Rs. 40,000 from Champaklal Dalpatrai. In view of the above, we answer question No. 3 in the negative and in favour of the assessee. In view of the above answer to question No. 3, questions Nos. 1 and 2 need not be answered.” 21. The Hon’ble High Court of Karnataka in ITA No. 506 of 2018, M/s. Google India Private Ltd. Vs. The Commissioner of Income Tax, order dated 17.04.2021 has been pleased to hold that if additional evidence is to be considered and allowed by the Tribunal, the parties to the proceedings or the affected party should be well aware of the ITA NO. 4113/MUM/2023 (A.Y: 2015-16) Om Shanti Realtors Page | 15 said material/additional evidence, before the same is considered by the Hon’ble Tribunal. Para 19 of the judgement of the Hon’ble High Court of Karnataka in ITA No. 506 of 2018 referred (supra) is relevant and reproduced as under: “19. In the considered opinion of this Court, keeping in view Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 and also keeping in view the fact that the material on the basis of which the order has been passed was not furnished to the appellant at any point time, the order passed by the Tribunal is certainly violative of principles of natural justice and fair play as the appellant was not afforded an opportunity to rebut fresh evidence especially when such evidence was based on Google study.” 22. We have examined the contents of the application for additional evidence to find out the reasons for not producing the said evidence before the Lower Authorities. It is stated in the application is as under: - “2. The issue involved in the present appeal relates to the addition u/s 68 of the Act of Rs. 3,76,31,232/- being loan from 1 party and interest payment to 8 parties without appreciating that assessee had duly discharged the burden of proof by producing all the primary evidence namely loan confirmation, ITR & audited financial, copies of bank statement of lenders, repayment details in support of the loan parties. Further the earlier period (AY 2013-14) loans were subjected to assessment and appellate proceeding before ITAT wherein the very same loans were accepted to be genuine. However during the relevant year under consideration the AO as well as CIT(A) refused to follow the AY: 2013-14 CIT(A) as well as ITAT orders. The CIT(A) relied on inspector report ITA NO. 4113/MUM/2023 (A.Y: 2015-16) Om Shanti Realtors Page | 16 which stated that parties are not in existence and therefore verification could not be carried out. 3. In view of the above, the appellant is now filing the additional evidence to substantiate the case of the Appellant and prove the existence of the parties by gathering and producing relevant material evidence as listed herein above. On perusal of the same your Honour will appreciate that maximum documents are in public domain which proves parties" existence. The same was not produced before the CIT(A) and A.O. as the same was not gathered nor available with assessee. The assessee was under bonafide belief that Appellate order other documentary evidence produce were sufficient enough to substantiate the case of the assessee.” 23. It is thus evident from the contents of the application that the assessee/appellant could not produce these documents thinking that the order of the Ld. Coordinate Bench in ITA No. 5615/Mum/2017 referred (supra) was sufficient for consideration of the Ld. AO or the documents were within the public domain and that the evidence already produced was sufficient to substantiate the case of the assessee. In the absence of any contrary material brought on record by the revenue to oppose the allowing of the additional evidence, at this stage, we have no reason to disbelieve the contents of the application and genuineness of the claim of the assessee/appellant for producing additional evidence. ITA NO. 4113/MUM/2023 (A.Y: 2015-16) Om Shanti Realtors Page | 17 24. For the above reasons, we find reasons to allow the additional evidence to be filed by the assessee/appellant in order to establish the genuineness of the transactions. It is so because in case the judgment of the Ld. Coordinate Bench is to be considered wherein the identity of the parties, there creditworthiness and genuineness of the transactions were considered because the documents have already been filed before the Ld. AO, hence, the genuineness of the transaction needs to be established independently by the assessee for the relevant A.Y. 2015-16. For that reasons, the end of justice requires that assessee/appellant be given opportunity to file additional evidence in support of his claim of identity of the parties who advanced loans and their creditworthiness alongwith genuineness of the transactions. 25. Rule 30 of the Appellate Tribunal Rules, 1963 provides as under: “Mode of taking additional evidence: - 30. Such document may be produced or such witness examined or such evidence adduced either before the Tribunal or before such income-tax authority as the Tribunal may direct.” 26. In view of the provisions of the Rule 30 of the Appellate Tribunal Rules, 1963 and in the given facts and circumstances, the case is restored to the file of the Ld. AO who shall consider the ITA NO. 4113/MUM/2023 (A.Y: 2015-16) Om Shanti Realtors Page | 18 additional evidence to be filed by the assessee/appellant before the Ld. AO within the period of 60 days from this order. 27. For the above reasons, the grounds of the appeal are allowed for statistical purposes. 28. The appeal is accordingly disposed off in above terms for statistical purposes. 29. In the result, appeal filed by the assessee is allowed with above directions for statistical purposes. Order pronounced in the open court on 05.06.2024 Sd/-/- Sd/-/- (PRASHANT M AHARISHI) (RAJ KUMAR CHAUHAN) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) Mumbai / Dated 05.06.2024 Karishma J. Pawar, (Stenographer) Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mumbai