ITO-4(3)(1), MUMBAI V. PERFECT YARNS LIMITED, MUMBAI

ITA 4279/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 9182 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 09-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABI RAMA KARTIKEYAN
• Keywords: Bogus Share capital; Question of law; Accommodation entries
• Section: 133(6); 131; 68; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI AMARJEET SINGH, JUDICIAL MEMBER ITA NO.4279/M/2017 ASSESSMENT YEAR: 2013-14 ITO-4(3)(1), ROOM NO.648, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. M/S. PERFECT YARNS LTD., E-23, COMMERCE CENTRE, TARDEO ROAD, MUMBAI 400 034 PAN: AAFCP 3642K (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI RAKESH JOSHI, A.R. REVENUE BY : SHRI ABI RAMA KARTIKEYAN, D.R. DATE OF HEARING : 07.03.2019 DATE OF PRONOUNCEMENT : 26.03.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 31.03.2016 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2013-14. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING TO AO TO DELETE THE ADDITION MAD E TOWARDS UNEXPLAINED UNSECURED LOAN OF RS.3,29,00,0007- U/S 68 OF THE I. T. ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACTS OF THE CASE THA T THE ASSESSEE HAS FAILED TO PROVE THE GENUINENESS OF TRANSACTIONS AS INVESTED AS SHAR E APPLICATION MONEY IN THE ASSESSEE COMPANY. WHEREAS THE CONTRARY EVIDENCES BY WAY OF STATEMENT OF TRANSACTING PARTY HAS NOT BEEN APPRECIATED. ITA NO.4279/M/2017 M/S. PERFECT YARNS LTD. 2 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY.' 3. THE ONLY ISSUE RAISED BY THE REVENUE IS AGAINST THE DELETION OF ADDITION OF RS.3,29,00,000/- BY LD. CIT (A) AS MADE BY THE AO UNDER SECTION 68 OF THE ACT WITHOUT APPRE CIATING THE FACT THAT ASSESSEE HAS FAILED TO PROVE THE GENUINEN ESS OF THE TRANSACTIONS. 4. THE FACTS IN BRIEF ARE THAT ASSESSEE FILED RETUR N OF INCOME ON 28.09.2013 DECLARING LOSS OF RS.41,936/-. THE C ASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WERE D ULY ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING IN TEXTILE FA BRICS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICE D THAT ASSESSEE HAS AVAILED UNSECURED LOANS FROM SIX PARTI ES AGGREGATING TO RS.3,29,00,000/-. THE AO NOTED THAT A SEARCH ACTION UNDER SECTION 132 OF THE ACT WAS CARRIED OUT IN THE CASE OF PRAVIN KUMAR JAIN & GROUP AND A STATEMENT WAS RE CORDED ON OATH UNDER SECTION 132(4) IN WHICH HE ADMITTED THAT HE AND HIS ASSOCIATED CONCERNS WERE ENGAGED IN THE BUSINESS OF PROVIDING ACCOMMODATION ENTRIES IN THE FORM OF BOGUS UNSECURE D LOANS AND LONG TERM CAPITAL GAIN ETC. ACCORDINGLY, THE A SSESSEE WAS ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY THE SAID LOANS SHOULD NOT BE DISALLOWED AND ADDED BACK TO TH E INCOME OF THE ASSESSEE AS THE SAID TRANSACTIONS WERE MADE WIT H THE ENTITIES PROVIDING ACCOMMODATION ENTRIES. THE LD. A.R. IN RESPONSE FILED COPIES OF THE ITR ACKNOWLEDGMENTS, BALANCE SHEETS, CONFIRMATIONS AND BANK STATEMENTS ETC. ON 2 3.02.2016 FROM THE SAID SIX PARTIES BY SUBMITTING THAT THE UN SECURED LOANS AVAILED FROM THESE ENTITIES ARE GENUINE TRANSACTION S DONE IN THE ITA NO.4279/M/2017 M/S. PERFECT YARNS LTD. 3 NORMAL COURSE OF BUSINESS. THE LD. A.R. ALSO SUBMI TTED THAT SHRI PRAVIN KUMAR JAIN HAS ALSO RETRACTED HIS STATE MENT GIVEN DURING THE COURSE OF SEARCH. HOWEVER, THE AO ,NOT ACCEPTING THE SUBMISSIONS OF THE ASSESSEE, ADDED A SUM OF RS.3,29,00,000/- UNDER SECTION 68 OF THE ACT TO THE INCOME OF THE ASSESSEE BY FRAMING ASSESSMENT UNDER SECTION 14 3(3) VIDE ORDER DATED 04.03.2016. 5. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) ALL OWED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER: 5.3.4. THUS, IT HAS TO BE SAID THAT THE APPELLANT HAD DONE EVERYTHING IN ITS POWER TO PROVE THE 3 INGREDIENTS REQUIRED TO PROVE THE SATIS FACTORY NATURE OF THE LOAN TRANSACTIONS. IN THESE CIRCUMSTANCES, THE ONUS HAD SHIFTED TO THE AO. IF THE AO WAS STILL NOT SATISFIED, HE HAD THE OPTION OF MAKING IN QUIRIES FROM THE ALLEGED LENDERS BY SUMMONING THEM. HOWEVER, AS SEEN FROM THE ASSESSMEN T ORDER, HE DID NOT ANY SUCH THING. FURTHER, IF THE AO WAS NOT SATISFIED WI TH WHAT HAD BEEN GIVEN TO HIM BY THE APPELLANT, HE WAS DUTY BOUND TO SPECIFY WHAT MO RE MATERIAL HE WANTED THE APPELLANT TO FURNISH. THE AO NEVER ASKED FOR ANY FU RTHER MATERIAL, THOUGH TIME AND AGAIN THE APPELLANT ASKED IN THEIR SUBMISSIONS. TH IS LEADS TO THE INESCAPABLE CONCLUSION THAT THE AO COULD NOT THINK OF ANY FURTH ER MATERIAL TO ASK FOR AND PROCEEDED TO REJECT THE APPELLANT'S CLAIMS, RELYING UPON THE INFORMATION/MATERIAL, WHICH HE NEVER EVEN BROUGHT TO THE NOTICE OF THE AP PELLANT FOR ANY REBUTTAL. THE UNEQUIVOCAL CONCLUSION IS THAT ALL THE 3 INGREDIENTS HAVING BEEN SATISFIED, T HE IMPUGNED LOANS HAVE TO BE TREATED AS EXPLAINED SATI SFACTORILY AND THE AO WAS NOT JUSTIFIED IN HAVING DISREGARDED OVERWHELMINGLY SUPP ORTIVE EVIDENCE. NO COGENT MATERIAL WAS ADDUCED BY HIM TO SHOW THAT LOANS WERE UNEXPLAINED. THEREFORE, THE IMPUGNED ADDITIONS, MADE IN THE ASSESSMENT ORDER, H AS TO FAIL ON SEVERAL COUNTS - (1) RELIANCE ON EVIDENCE THAT IS TOTALLY INADEQUATE ; (2) FAILURE TO MAKE AVAILABLE ANY INCRIMINATING MATERIAL (REPORTS, STATEMENTS ETC .) FORMING BASIS FOR ACTION BY THE AO; (3) FAILURE TO GIVE DUE OPPORTUNITY TO THE APPELLANT TO CROSS EXAMINE WITNESSES, WHOSE STATEMENT MIGHT HAVE BEEN RELIEF U PON; AND (4) FAILURE TO RECOGNIZE THE SATISFACTORY NATURE OF THE EXPLANATIO N /EVIDENCE TENDERED BY THE APPELLANT TO EXPLAIN IDENTITY OF CREDITORS, CREDITW ORTHINESS OF THE CREDITORS AND THE GENUINENESS OF THE LOAN TRANSACTIONS. 5.3.5 IN VIEW OF THE FACTS NARRATED ABOVE AS WELL A S JUDICIAL PRONOUNCEMENTS REFERRED BY ME AND THE CASE LAWS RELIED UPON BY THE APPELLANT WHICH HAS BEEN REPRODUCED ABOVE ADDITION OF RS.3,29,00,000/- AS NO N GENUINE LOANS CANNOT BE UPHELD. ACCORDINGLY, AO IS DIRECTED TO DELETE THE A DDITION OF RS.3,29,00,000/-. IN THE RESULT, THE GROUNDS RELATED TO ADDITION OF L OANS IS TO BE TREATED AS ALLOWED. ITA NO.4279/M/2017 M/S. PERFECT YARNS LTD. 4 6. THE LD. D.R., VEHEMENTLY SUBMITTED BEFORE US THA T THE LD. CIT(A) HAS PASSED THE ORDER BY IGNORING THE FACTS ON RECORD AND ALSO THE FACTS WHICH WERE REVEALED DURING THE COURS E OF SEARCH ACTION ON SHRI PRAVIN KUMAR JAIN AND GROUP ENTITIES . THE LD. D.R. SUBMITTED THAT DURING THE COURSE OF SEARCH ACT ION IT WAS ADMITTED BY SHRI PRAVIN KUMAR JAIN THAT HE AND HIS ASSOCIATE CONCERNS WERE ENGAGED IN THE BUSINESS OF ACCOMMODAT ION ENTRIES BY PROVIDING BOGUS SHARE APPLICATION MONEY, BOGUS UNSECURED LOANS AND VARIOUS OTHER TRANSACTIONS. THE ASSESSEE HAS TAKEN UNSECURED LOAN FROM THE SAID ENTITIES WHI CH ARE ONLY ACCOMMODATION ENTRIES. THE MERE FILING OF THE BALA NCE SHEETS, ITRS, CONFIRMATIONS OF THE LENDERS AND THE BANK STA TEMENTS WOULD NOT AUTOMATICALLY PROVE THE THREE INGREDIENTS AS ENVISAGED IN SECTION 68 OF THE ACT. THE STATEMENT OF SHRI PRAVIN KUMAR JAIN IS THE CORROBORATIVE EVIDENCE THAT THE U NSECURED LOANS ACCEPTED BY THE ASSESSEE FROM SIX PARTIES WER E NOT GENUINE AND THEIR CREDITWORTHINESS WERE IN DOUBT. 7. THE LD. A.R., ON THE OTHER HAND, SUBMITTED BEFOR E THE BENCH THAT ASSESSEE HAS FILED ALL THE NECESSARY DET AILS /INFORMATION CALLED FOR BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. BUT INSTEAD OF TAKING ANY A CTION TO VERIFY THE VERACITY OF THE TRANSACTIONS, THE AO HAS JUST RELIED ON THE STATEMENT GIVEN UNDER SECTION 132(4) OF THE ACT BY SHRI PRAVIN KUMAR JAIN THAT HE AND HIS ASSOCIATE GROUP W ERE ENGAGED IN THE BUSINESS OF HAWALA ENTRIES. ON ENQU IRY PUT TO THE LD. A.R. ON THE LATEST DECISION OF HONBLE SUPR EME COURT IN THE CASE OF PR. CIT VS. NRA IRON & STEEL PVT. LTD. CIVIL APPEAL NO._____ OF 2019 ARISING OUT OF SLP (CIVIL) NO.2985 5 OF 2018 DATED 05.03.2019, THE LD. A.R. SUBMITTED THAT THE F ACTS OF THE ITA NO.4279/M/2017 M/S. PERFECT YARNS LTD. 5 SAID CASE ARE TOTALLY DIFFERENT THAN THE FACTS OF T HE ASSESSEES CASE. IN THAT CASE THE AO ISSUED SUMMONS UNDER SEC TION 131 OF THE ACT AND ALSO NOTICES UNDER SECTION 133(6) BUT T HOSE SUMMONS WERE NOT RESPONDED AND PARTIES WERE NOT FOU ND ON THE GIVEN ADDRESSES. THEREFORE, THE AO COULD NOT INVES TIGATE AS THE ADDRESSES GIVEN BY THE ASSESSEE WERE WRONG AND PART IES WERE NOT TRACEABLE. BUT IN THE PRESENT CASE, THE ASSESS EE HAS FILED CONFIRMATIONS, ADDRESSES, BANK STATEMENTS, ITRS AND PARTIES ARE VERY MUCH ON THEIR ADDRESSES BUT THE AO HAS NOT BOT HERED TO CARRY OUT ANY INVESTIGATION AND NOT EVEN ISSUED SUM MONS U/S 131 OR LETTERS U/S 133(6) OF THE ACT. THE LD. A.R. ALSO REFERRED TO THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUN AL IN THE CASE OF ACIT VS. SHRI GANESH DEVELOPERS IN ITA NO.1477/M /2017 A.Y. 2008-09 WHEREIN THE ISSUE WAS DECIDED IN FAVOU R OF THE ASSESSEE AND PARTIES INVOLVED AT SL. NO.3, 5 & 6 WE RE SAME AND ACCEPTED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL. THE LD. A.R. ALSO RELIED ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF PR. CIT VS. VEEDHATA TOWER PVT. LTD. WHEREIN HONBLE BOMBAY HIGH COURT HAS DISMISSED THE APPEAL OF THE R EVENUE WHEREIN THE TRIBUNAL HAS HELD THAT THE ASSESSEE IS NOT REQUIRED TO EXPLAIN THE SOURCE OF SOURCE IN A.Y. 2010-11 AND THE REQUIREMENT OF EXPLAINING THE SOURCE OF SOURCE OF R ECEIPT CAME ON THE STATUTE BOOK BY AMENDMENT TO SECTION 68 OF T HE ACT ON 01.04.2013 EFFECTIVE FROM A.Y. 2013-14. THEREFORE D URING THE SUBJECT ASSESSMENT YEAR THERE IS NO REQUIREMENT TO EXPLAIN THE SOURCE OF SOURCE. THE TRIBUNAL ALSO HELD THAT RESPO NDENT- ASSESSEE HAS DISCHARGED THE ONUS PLACED UPON UNDER SECTION 68 OF THE ACT BY FILING CONFIRMATIONS OF LETTERS, AFFI DAVIT, PAN NUMBERS OF THE TRADERS AND THEREFORE THE REVENUE HA D ALL THE ITA NO.4279/M/2017 M/S. PERFECT YARNS LTD. 6 DETAILS AVAILABLE WITH IT TO PROCEED AGAINST THE PE RSON WHOSE FUNDS WERE ALLEGED TO BE NON GENUINE AS HELD BY THE APEX COURT IN THE CASE OF CIT VS. W. EXPORT PVT. LTD. (2009) 3 19 ITR ST 5 (SC) AND THUS THE HONBLE HIGH COURT HELD THAT THE QUESTION AS PROPOSED BY THE REVENUE AS TO WHETHER THE TRIBUNAL IS CORRECT IN INTERPRETING SECTION 68 TO HOLD THAT AO WAS NOT ENT ITLED TO ENQUIRE INTO THE SOURCE OF SOURCE TO GIVE A FINDING THAT PARTICULAR CREDIT WAS NOT GENUINE IN TERMS OF SECTION 68 DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW AND WAS NOT ENTI TLED AND THUS THE APPEAL OF THE REVENUE WAS DISMISSED. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD INCLUDING VARIO US CASE LAWS REFERRED AND RELIED BY BOTH THE PARTIES. WE NOTICE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE HAS TAKEN UNSECURED LOANS FROM ENTITIES CO NNECTED TO SHRI PRAVIN KUMAR JAIN WHO ,DURING THE COURSE OF SE ARCH ON HIM AND HIS CONNECTED COMPANIES/ENTITIES, ADMITTED IN T HE STATEMENT RECORDED U/S 13294) OF THE ACT THAT THEY WERE DOING ONLY HAWALA BUSINESS OF GIVING ACCOMMODATION ENTRIE S IN THE FORM OF SHARE CAPITAL, UNSECURED LOANS AND LONG TER M CAPITAL GAINS. WE ALSO NOTE THAT SHRI PRAVIN KUMAR JAIN LA TER RETRACTED HIS STATEMENT. IN THIS CASE DURING THE COURSE OF A SSESSMENT PROCEEDINGS THE ASSESSEE HAS FILED COPIES OF BANK S TATEMENT, ITRS, CONFIRMATIONS, PAN NUMBERS OF THE LENDERS ETC . AND THUS THE ASSESSEE HAS FULLY DISCHARGED THE ONUS CAST UP ON IT AND THUS THE ADDITION UNDER SECTION 68 OF THE ACT CAN N OT BE MADE IN THE SAID CIRCUMSTANCES QUA THE UNSECURED LOANS RAIS ED BY THE ASSESSEE. THE AO HAS MERELY RELIED ON THE STATEMEN T OF SHRI PRAVIN KUMAR JAIN WITHOUT CONDUCTING ANY FURTHER EN QUIRY ON ITA NO.4279/M/2017 M/S. PERFECT YARNS LTD. 7 THE DETAILS/INFORMATION FILED BY THE ASSESSEE. AFT ER PERUSING THE ORDER OF LD. CIT(A) WHO HAS DEALT WITH THE FACTS I N GREAT DETAIL AND ALSO DISCUSSED THE VARIOUS DECISIONS WHEREIN IT HAS BEEN HELD THAT NO SUCH ADDITION CAN BE MADE UNDER SECTIO N 68 OF THE ACT WHERE THE ASSESSEE HAS FILED ALL THE NECESSARY EVIDENCES BEFORE THE AO WHEN AO HAS NOT MADE ANY FURTHER ENQ UIRY TO VERIFY THE TRANSACTIONS. THE ALLEGATION OF THE AO T HAT ASSESSEE HAS NOT PROVED IDENTITY AND CREDITWORTHINESS OF TH E LENDERS AND GENUINENESS OF THE TRANSACTIONS IS WITHOUT ANY BASI S AS STATED ABOVE. THE ASSESSEE FILED THE NECESSARY EVIDENCES IN THE FORM OF LOAN CONFIRMATIONS, BALANCE SHEETS AND PROFIT AND L OSS ACCOUNTS, ITRS, BANK STATEMENTS AND PAN CARDS OF THE LENDERS. THE LENDERS COMPANIES WERE FILING THEIR ITR AND ROC RET URNS REGULARLY AND HAVE DULY SHOWN THE AMOUNT LENT TO TH E ASSESSEE IN THEIR RESPECTIVE BALANCE SHEETS. ENTIRE TRANSAC TIONS WERE ROUTED THROUGH THE BANKING CHANNELS AND THUS THE AS SESSEE HAS DISCHARGED THE PRIMARY ONUS OF PROVING THE IDENTITY , CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION S. UNDER THESE CIRCUMSTANCES, WE, AFTER TAKING INTO CONSIDER ATION CONTENTIONS AND SUBMISSIONS OF BOTH THE PARTIES AN D AFTER ANALYZING THE VARIOUS CASE LAWS RELIED UPON BY THE RIVAL PARTIES , ARE OF THE VIEW THAT ORDER PASSED BY THE LD. CIT(A) IS WELL REASONED AND THERE IS NO REASONS TO DEVIATE FROM TH E FINDINGS OF THE LD CIT(A) WHICH HAS BEEN PASSED AFTER FOLLOWING THE JURISDICTIONAL AND OTHER HIGH COURTS AND COORDINATE BENCHES. ACCORDINGLY, THE APPEAL OF THE REVENUE IS DISMISSED BY UPHOLDING THE ORDER OF THE LD CIT(A). ITA NO.4279/M/2017 M/S. PERFECT YARNS LTD. 8 11. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26.03.2019. SD/- SD/- ( AMARJEET SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 26.03.2019. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.