ITO 32(1)(5), MUMBAI V. GUJARAT CONSTRUCTION, MUMBAI

ITA 7040/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0548 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2017
• Appeal Filed By: Department
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 02-12-2016
• Court: TRIBUNAL
• Department Lawyers: A K KARDA M
• Assessee Lawyers: DR P DANIEL
• Keywords: Accommodation entries; Bogus loan
• Section: 133(6); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM ITA NO. 7040 / MUM/20 1 6 ( ASSESSMENT YEAR : 2007 - 08 ) ITO 32(1)(5) VS. GUJARAT CONSTRUCTION, SHOP NO.6, RACHANA SOCIETY, EKSAR ROAD, BORIVALI (E), MUMB AI - 400066 PAN/GIR NO. AAVFS8191B APPELLANT ) .. RESPONDENT ) REVENUE BY SHRI A.K. KARDAM ASSESSEE BY DR. P. DANIEL DATE OF HEARING 08 / 05 /201 7 DATE OF PRONOUNCEME NT 24 / 05 / 201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - 44, MUMBAI DATED - 29/09/2016 FOR THE A.Y.2007 - 08 IN THE MATTER OF ORDER PASSED U/S.143(3) R.W.S. 147 OF THE IT ACT. 2. THE ONLY GRIEVAN CE OF REVENUE RELATES TO DELETION OF ADDITION OF RS.45,41,168/ - MADE ON ACCOUNT OF UNSECURED LOANS. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 4. THE RELEVANT FACTS ARE THAT T HE RETURN OF INCOME WAS FILED ON 16.10.2 007 DECLARING TOTAL INCOME OF NI L. THE ASSESSEE IS A FIRM ENGAGED IN BUSINESS OF BUILDING AND CONSTRUCTION. A SEARCH & SEIZURE ACTION WAS CONDUCTED IN THE BHANWARLAL JAIN GROUP OF CASES BY INVESTIGATION WING, MUMBAI. AS A RESULT OF SEARCH IT WAS FOUND BY THE INVESTIGATION WING THAT ITA NO. 7040/MUM/2016 GUJARAT CONSTRUCTION 2 HIS GROUP IS A LEADING ENTRY PROVIDER OF MUMBAI. THERE ARE MANY CONCERNS FLOATED BY THE GROUP WHO PROVIDE ACCOM MODATION ENTRIES OF BOGUS LOAN. THE AO RECEIVED AN INFORMATION THAT THE APPELLANT HAS ALSO TAKEN LOAN F ROM THREE C ONCERNS FOUND IN THE LIST OF ENTRY PROVIDERS RELATED WITH B HANWARLAL JAIN G ROUP OF CASES NAMELY M / S . AMIT DIAMONDS, M/ S A2 JEWELS & M/ S WHITE STONE . T HE AO ASKED THE A SS E SSEE TO SHOW CAUSE AS TO WHY LOAN TAKEN FROM M/S AM IT DIAMONDS, M/S A2 JEWELS & M/S WHITE STONE SHOULD NOT BE DISAL LOWED AND ADDED TO THE TOTAL INCOME. AS PER THE ASSESSMENT ORDER THE ASSESSEE FI LED HIS REPLY ALONGWITH THE BANK STATEMENTS AND CONFIRMATIONS OF THE LOAN PROVIDERS. THE AO HOWEVER, DISCUSSED IN DETAIL THE MODUS OPERANDI OF GIVING ACCOMMODATION ENTRIES EMPL OYED BY THE BHANWARLAL GROUP OF CASES. THE A O THEREAFTER MENTIONED THAT IT HAS BEEN CONCLUSIVELY ESTABLISHED THAT THE ASSESSEE HAD TAKEN ACCOMMODATION ENTRY OF LOANS. THE A O ADDED THE AMOUNT OF LOANS TO THE TOTAL INCOME OF THE APPELLANT U/S 68 OF THE IT AC T, 1961. IN THIS WAY, ADDITION OF RS 45,41,168/ - WAS MADE TO THE TOTAL INCOME OF THE ASSESSEE. 5. BY THE IMPUGNED ORDER CIT(A) DELETED THE ADDITION AFTER OBSERVING AS UNDER: - 4.3 I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AS WELL AS THE WRITTEN SU BMISSION OF THE AR. I HAVE ALSO PERUSED THE DETAILS FILED BY THE AR. THE AO HAS MADE ADDITION U/S 68 OF THE IT ACT 1961. IT IS THEREFORE IMPORTANT TO UNDERSTAND THE POSITION OF LAW WHICH HAS EVOLVED FROM A CATENA OF JUDGMENTS DELIVERED BY HIGH COURTS AND T RIBUNALS ON THIS ISSUE. THE HONBLE ITAT MUMBAI IN THE CASE OF ITO VS ANANT SHELTERS PVT. LTD. (2012) 20 TAXMANN.COM 153 HAS ENUMERATED CERTAIN PRINCIPLES WHICH WOULD BE EXTREME LY USEFUL IN UNDERSTANDING THE ISSUE IN HAND. IT HAS BEEN STATED IN SAID JUDGM ENT ITA NO. 7040/MUM/2016 GUJARAT CONSTRUCTION 3 THAT OVER THE YEARS, LAW REGARDING CASH CREDITS HAVE EVOLVED AND HAS TAKEN A DEFINITE SHAPE. A FEW ASPECTS OF LAW U/S 68 CAN BE ENUMERATED . 1. SEC. 68 CAN BE INVOKED WHEN THERE IS A CREDIT OF AMOUNTS IN THE BOOKS MAINTAINED BY THE ASSESSEE, SUCH CRED IT IS A SUM OF MONEY DURING THE PREVIOUS YEAR AND EITHER THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE ARID SOURCE OF SUCH CREDITS OR THE EXPLANATION BY THE ASSESSEE IN THE OPINION OF THE AO IS NOT SATISFACTORY. 2. THE OPINION OF THE AO FOR NOT ACC EPTING THE EXPLANATION OFFERED BY THE ASSESSEE AS NOT SATISFACTORY IS REQUIRED TO BE FORMED OBJECTIVELY WITH REFERENCE TO THE MATERIAL ON RECORD. 3. COURTS ARE OF THE FIRM VIEW THAT THE EVIDENCE PRODUCED BY THE ASSESSEE CANNOT BE BRUSHED ASIDE IN A CASUA L MANNER. 4. THE ONUS OF PROOF IS NOT STATIC. THE I N ITI AL BURDEN LIES ON THE ASSESSEE TO ESTABL I SH THE IDENTITY AND THE CREDIT - WORTHINESS OF THE CREDITOR AS WELL AS THE GENUINENESS OF TRANSACTION. 5. THE IDENTITY OF CREDITORS CAN BE ESTABLISHED BY EITH ER FURNISHING THEIR PANS OR ASSESSMENT ORDERS. THE GENUINENESS OF THE TRANSACTION CAN BE PROVED IF IT WAS SHOWN THAT THE MONEY WAS RECEIVED BY ETC: PAYEE CHEQUE. CREDITWORTHINESS OF THE LENDER CAN BE ESTABLISHED - BY ATTENDING CIRCUMSTANCES. 4.4 DURING THE COURSE OF ASSESSMENT PROCEED ING S, THE FOLLOWING DETAILS WERE FILED BEFORE THE AO. 1. LOAN CONFIRMATION FROM THE LENDERS 2. PAN NO. OF THE LENDERS 3. LEDGER EXTRACT. 4. COPY OF THE RETURN OF INCOME OF THE FIRM/COMPANY WHICH ADVANCED THE LOAN. 5. COPY OF BANK ACC OUNT OF THE LENDER. 6. COPY OF BANK ALE OF THE ASSESSEE. 4.5 IF THE ABOVE REFERRED PRINCIPLES ARE APPLIED TO THE FACTS OF THE CASE UNDER CONSIDERATION IT CAN BE SEEN THAT THE IDENTITY OF THE CREDITORS HAS BEEN ESTABLISHED AS THEY ARE HAVING PAN AND THEY ARE FILING RETURN OF INCOME. THE GENUINENESS OF THE TRANSACTION IS ESTABLISHED FROM THE FACT THAT BOTH THE ACCEPTANCE AND REPAYMENT OF LOAN HAS BEEN THROUGH BANKING CHANNELS. FURTHER THE INTEREST PAID AGAINST SUCH LOANS HAVE BEEN SUBJECT TO TDS, THE DETAI LS OF WHICH HAVE BEEN FILED BEFORE THE AO. THE CREDITWORTHINESS OF THE LENDERS ITA NO. 7040/MUM/2016 GUJARAT CONSTRUCTION 4 CAN BE ESTABLISHED FROM THE LEDGER ETC, BANK STATEMENTS AND BALANCE SHEET OF THE LENDERS WHICH WERE FILED BEFORE THE AO. 4.6 IN THE ASSESSMENT ORDER, THE AO MENTIONED THAT MER ELY BECAUSE THE FUNDS HAVE MOVED THROUGH BANKING CHANNEL AND THE ENTITIES CONCERNED HAVE ARRANGED THE PAPER WORK THE TRANSACTION CANNOT BE HELD AS GENUINE. FROM THE ASSESSMENT ORDER IT IS SEEN THAT THE AO HAD ISSUED NOTICE U/S 133(6) TO THE LENDERS TO VERI FY THE GENUINENESS OF THE LOANS. FROM A PERUSAL OF A SSESSMENT ORDER IT APPEARS THAT THE LENDERS HAVE FILED CONFIRMATION AS WELL AS THEIR BALANCE SHEET AND P&L A/E. THE AO HAS MENTIONED THAT THE' CHARACTERISTIC FEATURES OF THE LENDERS FINANCIAL STATEMENTS P OINT TO THE FACT THAT THESE CONCERNS ARE BOGUS. HOWEVER, IN ORDER TO MAKE ADDITION U/S 68 AO HAD TO ESTABLISH THAT EITHER THE TRANSACTIONS WERE NOT GENUINE OR THE LENDERS DID NOT HAVE CREDIT WORTHINESS OR THEIR IDENTITY WAS NOT ESTABLISHED. AS MENTIONED IN PARA 4.5 ABOVE, THE GENUINENESS OF TRANSACTION AND THE IDENTITY AS WELL AS THE CREDITWORTHINESS OF THE LENDERS HAVE BEEN ESTABLISHED. IT CAN BE SEEN FROM THE ASSESSMENT ORDER THAT THE ENTIRE FOCUS OF THE AO WAS ON THE MODUS OPERANDI ADOPTED BY BHANWARLAL JAIN GROUP OF CASES TO PROVIDE BOGUS ACCOM MODATION ENTRY OF LOAN. THE MAIN REASO N FOR MAKING ADDITION U/S 68 WAS O N THE BASIS OF INFORMATION PROVIDED BY THE INVESTIGATION WING. WHILE TH E INFORMATION PROVIDED BY THE INVESTIGATION WING CAN BE THE STARTING P OINT OF AN ENQUIRY IT CANNOT BE A CONC LUSION REACHED BY THE AO. THE M OOT POI NT BEFORE THE AO WAS TO EXAMINE THE APPLICATION OF SECTION 68 IN THE CASE OF THE APPELLANT. INSTEAD OF ESTABLISHING THAT THE EXPLANATION OFFERED REGARDING THE NATURE AND SOURCE OF CREDIT IN THE BOOKS OF THE APPELLANT IS NOT SATISFACTORY THE AO WENT TO DISCUSS IN DETAIL THE FACTS RELATED WITH BHANWARLAL JAIN GROUP OF CASES. THE AO HAS NOT APPRECIATED THE FACT THAT HE WAS NOT MAKING ASSESSMENT OF BHANWARLAL JAIN GROUP OF CASES. ON THE OTHER HAND, THE APPELLANT WAS ABLE TO ESTABLISH THE IDENTITY AND THE CREDITWORTHINESS OF THE CREDITORS AS WELL AS THE GENUINENESS OF TRANSACTIONS. 4.7 RECENTLY THE HON'BLE BOMBAY HIGH COURT HAS PASSED AN ORDER IN WP NO. 16 7 OF 2015 DATED 15.04.2015 IN T HE CASE OF M / S RUSHABH ENTERPRISES VS ACIT 24(3) AND ORS. IN THIS CASE ALSO THE ASSESSEE HAD TAKEN LOAN FROM CONCERNS RELATED WITH BHANWARLAL JAIN GROUP OF CASES. IN ITS ORDER THE HON'BLE BOMBAY HIGH COURT IN ADDITION TO DECIDING THE LEGAL VALIDITY OF REOP ENING OF ASSESSMENT ALSO DISCUSSED THE FACTS OF THE CASE. THE HON'BLE BOMBAY HIGH COURT IN PARA 8 OF ITS ORD - ER STATED ' .. .ACCORDING TO HER (AO) THE REVENUE HAS RECEIVED INFORMATION FROM THE DGIT (LNV) THAT THE ASSESSEE HAS TAKEN UNSECURED LOANS FROM - T HE ABOVE PARTIES BY WAY OF UNACCOUNTED CASH/ACCOMMODATION ENTRIES. WE ARE UNABLE TO AGREE SINCE THE PETITIONER HAS CLEARLY STATED THAT ALL THE PAYMENTS WERE MADE BY A/C PAYEE CHEQUES WHICH WERE ENCASHED IN THE BANK ACCOUNT OF THE ITA NO. 7040/MUM/2016 GUJARAT CONSTRUCTION 5 P ETITIONER IN THE REGULAR COURSE OF BUSINESS. WE FIND THAT THE PETITIONER HAS ALSO PAID INTEREST ON THIS LOANS AFTER DEDUCTION OF TAX AT SOURCE AND TDS RETURNS ARE ALSO ACCORDINGLY FILED. THERE IS NO DISPUTE IN REGARD TO THE ABOVE. WE FIND NOTHING TO SUPPORT THE SAID CONTENTIONS OF THE REVENUE. THE REVENUE 'S CONTENTION IN THE AFFIDAVIT IN REPLY HAS NO MERIT. ON THE OTHER HAND, THE LOANS APPEAR TO BE TAKEN IN THE REGULAR COURSE OF BUSINESS '' 4.8. AFTER CONSIDERING THE TOTALITY OF FACTS, THE RIVAL SUBMISSIONS, APPLICABLE LAW AND O N THE BASIS OF DISCUSSIONS MENTIONED ABOVE I HAVE COME TO A CONCLUSION THAT NATURE AND SOURCE OF CREDIT IN THE BOOKS OF ACCOUNTS OF THE APPELLANT STANDS EXPLAINED. CONSEQUENTLY, ADDITION U/S.68 CANNOT BE SUSTAINED. THE GROUNDS OF APPEAL NO.3 IS ACCORDINGLY ALLOWED AND ADDITION OF RS.45,41,168/ - IS DELETED. 6. AGAINST THE ABOVE ORDER OF CIT(A), REVENUE IS IN FURTHER APPEAL BEFORE US. 7. IT WAS ARGUED BY LEARNED DR THAT THE ALLEGED CREDITORS WERE RELATING TO GROUP OF MOHAN JAIN WHEREIN SEARCH WAS CONDUCTED AND IT WAS FOUND THAT THIS GROUP IS ENGAGED IN PROVIDING ACCOMMODATION ENTRY WITHOUT HAVING REAL TRANSACTION. ACCORDINGLY, IT WAS PLEADED THAT THE ORDER OF THE AO SHOULD BE CONFIRMED BY REVERSING THE ORDER OF CIT(A). 8. ON THE OTHER HAND, LEARNED AR PLACED ON RECORD THE ORDER OF THE CO - ORDINATE BENCH IN CASE OF RELIANCE CORPORATION IN ITA NO. 1069 TO 1071/MUM/2017 DATED 12/04/2017, WHEREIN UNDER SIMILAR FACTS AND CIRCUMSTANCES, ADDITION MADE ON ACCOUNT OF LOAN CREDITORS FROM THE VERY SAME GROUP WAS DELETED AFTER HAVING DETAILED OBSERVATION AT PAGE 8 TO 18. 9. WE HAVE CONSIDERED RIVAL CONTENTIONS AND ALSO DELIBERATED ON THE JUDICIAL PRONOUNCEMENTS REFERRED BY LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS AS WELL AS CITED BY LEARNED AR AND DR DURING THE COURSE OF ITA NO. 7040/MUM/2016 GUJARAT CONSTRUCTION 6 HEARING BEFORE US. IT IS CLEAR FROM THE FINDINGS RECORDED BY CIT(A) THAT ASSESSEE HAS NOT ONLY ESTABLISHED IDENTITY OF THE LOAN CREDITOR BUT ALSO GENUINENESS OF THE LOAN TRANSACTION AS WELL AS CREDIT WORTHINESS OF LOAN CREDITORS. DETAILED FINDING SO REC ORDED BY CIT(A) AND AS PER MATERIAL ON RECORD WHICH DO NOT REQUIRE ANY INTERFERENCE ON OUR PART. 10. THERE IS NO DISPUTE TO THE WELL SETTLED LEGAL PROPOSITION THAT IN CASE OF LOAN CREDITORS ASSESSEE IS NOT ONLY REQUIRED TO PROVE THE IDENTITY BUT ALSO GENUI NENESS OF TRANSACTION AND CREDITWORTHINESS OF LOAN CREDITOR. SINCE IN THE INSTANT CASE OF THE THREE CONDITIONS DULY FULFILLED BY THE ASSESSEE IN TERMS OF FINDING RECORDED BY CIT(A), THERE IS NO REASON TO INTERFERE IN THE ORDER OF CIT(A). 11. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 24 / 05 /2017 S D/ - ( R.C.SHARMA ) ACCOUNTANT MEMBER MUMBAI ; DATED 24 / 05 /201 7 KARUNA SR. PS COPY OF THE ORD ER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//