MS. SHANTI ENTERPRISES,VASHI V. ACIT-CC-1(3), NEW MARINE LINES, CHURCHGATE

CO 110/MUM/2024

AI Insights

The case involves a series of appeals and cross objections related to the income tax assessments of Bhagwati Developers and Shanti Enterprises for the assessment years 2012-13 and 2015-16. The primary legal issue was the validity of the notices issued under section 153A of the Income Tax Act, 1961, following a search and seizure operation. The Tribunal examined whether the conditions for issuing notices beyond the normal six-year period were satisfied, particularly focusing on the definition of 'assets' under the fourth proviso to section 153A. The Tribunal found that the cash receipts and expenditures noted did not constitute 'assets' as defined, leading to the quashing of the assessment orders.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 473092 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 16 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 08-10-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 02-09-2024
• Assessment Year: 2012-2013
• Appeal Filed On: 22-06-2024
• Other Referred Cases: ACIT versus Guru Prerna enterprises, Hilton housing private limited, Sumer builders versus DCIT, Om constructions, Bhalchanda trading private limited, Tulip land and developers private limited, Fortune Vanijya private limited, Hilton infrastructure, Follow well engineering Limited, ITO versus Anand builders
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S. SRINIVASU
• Assessee Lawyers: MANI JAIN; PRATEEK JAIN
• Keywords: Unexplained expenditure; Document seized; Documents seized; TDS; Bogus loan; Bogus
• Section: 153; 132; 153A; 68; 22; 69C; 13; 72; 20

Judgement Text

" Page | 1 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRIRAJ KUMAR CHAUHAN, JM ITA No. 1346/MUM/2024 ITA No. 1490/MUM/2024 Vs. A.Y.2012-13 A.Y.2015-16 ACIT-Central Circle-1(3), Mumbai Bhagwati Developers, 1306, 13th Floor, Real Tech Park, Plot No.39/2, Sector-30A, Vashi Navi Mumbai CO No. 80/MUM/2024 [ITA No. 1346/Mum/2024] A.Y. 2012-13 Bhagwati Developers, 1306, 13th Floor, Real Tech Park, Plot No.39/2, Sector-30A, Vashi Navi Mumbai ACIT-Central Circle-1(3), Mumbai PAN AALFB 5272C ITA No. 1349/MUM/2024 A.Y. 2012-13 ACIT-Central Circle-1(3), Mumbai Ms. Shanti Enterprises, Office No. 1306, Real Tech Park, Plot No.39/2, Sector-30A Vashi CO No. 110/Mum/2024 [ITA No. 1349/Mum/2024] A.Y. 2012-13 Ms. Shanti Enterprises, Office No. 1306, Real Tech Park, Plot No.39/2, Sector-30A Vashi ACIT-Central Circle-1(3), Mumbai (Appellant) (Respondent) Assessee by Shri Mani Jain & Shri Prateek Jain Page | 2 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others Revenue by Shri S. Srinivasu, CIT (DR), Date of hearing 02nd September, 2024 Date of pronouncement 08th October 2024 O R D E R PER PRASHANT MAHARISHI, AM: 1. This is the bunch of three appeals filed by The Assistant Commissioner of Income tax , central Circle -1 (3) , Mumbai [The learned AO] and 2 cross objections filed by the assessee in case of 2 entities namely M/s Bhagwati developers and Shanti enterprises [ Assessee] for two assessment years i.e. assessment year 2012 – 13 and 2015 – 16, involving similar issues arising out of same search, similar arguments of the party contesting similar assessment and appellate orders , therefore, disposed of by this common order. Bhagwati Developers A Y 2012-13 ITA No 1346/MUM/2024 & CO No 80/MUM/2024 2. First we take up the appeal in case of BHAGWATI DEVELOPERS (the assessee) for assessment year 2012 – 13 wherein ITA number 1346/M/2024 is filed by The Assistant Commissioner Of Income Tax – Central Circle – Page | 3 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others 1 (3), Mumbai (the learned AO) against the appellate order passed by The Commissioner Of Income Tax (Appeals) – 47, Mumbai (the learned CIT – A) dated 22 January 2024 wherein the appeal filed by the learned assessing officer was partly allowed. 3. The learned assessing officer has raised the following grounds of appeal: – i. whether on the facts and in the circumstances of the case and in law, the learned CIT (A) is justified in restricting the addition to 12.25% of money of ₹ 64,322,169/– received by the assessee without appreciating the fact that the assessee has failed to submit any detail in respect of the cash receipts and profit element arising cannot be asserted as such. ii. Whether on the facts and in the circumstances of the case and in law, the learned CIT (A) is justified in deleting the addition of unexplained cash expenditure under section 69C of the income tax act, 1961 amounting to ₹ 64,832,240/– without going into the merits of the case discussed in the assessment order. 4. Assessee is aggrieved and has filed cross objection in CO number 80/M/2024 raising the following grounds of cross objections: – i. on the facts and circumstances of the cross objector's case and in law, the learned CIT A Page | 4 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others order in confirming the action of the learned assessing officer in issuing the notice under section 153A of the income tax act, 1961 and thereby passing the order under section 143 (3) read with section 153A which is barred by the limitation of time provided under section 153A of the act, for the reason stated in the impugned order or otherwise. ii. On the facts and circumstances of the cross- objector’s case and in law the learned CIT (A order in restricting the addition to ₹ 7,879,466/– being 12.25% of ₹ 64,322,169/back for reason stated in the impugned order or otherwise. 5. Brief facts of the case shows that the assessee is a partnership firm engaged in the business of real estate development. A search and seizure action were conducted in the case of group of concerns, assessee one of the concerns, on 15/10/2018. The notice under section 153A was issued on 7/9/2020 which was responded to by filing of return on 2/12/2020 at Rs. Nil. 6. During search action, documents related to receipt of ‘on money’ and unexplained expenditure was found. Based on this, show cause notice was issued to the assessee that why ‘on money’ cash receipt amounting to Rs. 64,322,169/– and cash expenditure amounting to Rs. 64,832,240/– should not be added to the total income of the assessee as same hasbeen accepted by the key Page | 5 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others person of the group in his statement under section 132 (4) of Mr Kevin Vora which is reproduced at question number 23 – question number 55, same was also confirmed by the statement of the partner of the firm Mr Manji Patel. 7. The assessee objected to notice under section 153A of the act stating that it is barred by limitation for the reason that for assessment year 2013 – 14 to assessment year 2018 – 19 assessment proceedings for these assessment years has already been taken up and notice for assessment year 2012 – 13 is beyond the six assessment years and it does not satisfy the requisite condition of finding of undisclosed income representing an asset and therefore invalid. 8. With respect to the other addition, it was submitted that during the year the assessee partnership firm was formed, it did not have any project, therefore there cannot be any receipt of income or payment of an expenditure in cash.it was further stated that source of income and application of income both cannot be taxed.Therefore, both these additions cannot be made. 9. The learned assessing officer referred to annexure A – 54 – page number 4 and page number 17 of annexure A 57 and held that the assessee has received an amount of Rs. 14 lakhs in respect of flat number A – 2102 on 28/3/2012 and assessee has also given loan and cancellation charges in cash. It was further stated that the return of income did not disclose receipt of the cash as well as the Page | 6 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others amount of expenditure incurred. He referred to explanation 2 of the definition of ‘asset’ holding it to be inclusive and therefore the notice issued by the assessee is in time and proper. With respect to the on money received and cash expenditure he relied upon the statements and therefore made an addition of Rs. 64,322,169/– as on money received and Rs. 6 48,32,240/– as cash expenditure. 10. Accordingly, assessment order under section 143 (3) read with section 153A the act was passed on 31/3/2021 determining total income of the assessee at Rs. 129,154,010/–. 11. The assessee aggrieved with the assessment order preferred an appeal before the learned CIT – A challenging the validity of notice under section 153A of the act. It was submitted that that no such notice for thisyear would be issued unless the assessing officer is in possession of any books of accounts or documents indicating escapement of income represented in the form of an “asset’’. Further the asset is also defined as an immovable property being land or building of both, says and securities, loans and advances and deposits in bank account. It was further stated that the learned assessing officer has wrongly mentioned that assessee has given any loans or advances. Assessee further stated that in absence of such asset found, the notice is barred by limitation. The learned CIT – A on this ground has considered the provisions of section 153A of the act and Page | 7 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others held that the definition of the term ‘asset’ is a comprehensive term which may include the additions mentioned in the show cause notice. So, it cannot be denied that the assessee was in receipt of on money and cash loan. Therefore, he dismissed this ground of appeal and held that the notice is not barred by limitation. 12. With respect to the addition of on money of Rs. 64,322,169/– and unexplained expenditure of Rs. 64,832,240/– the assessee contested the same arguments before him and made further written submissions on 24/11/2023 wherein it was submitted that assessee has filed a petition before Income Tax Settlement Commission for the block period 2013 – 14 to 2019 – 20 wherein on 21/9/2023 after considering the details and explanation of the assessee,, assessee has been taxed @ gross profit at the rate of 12.25% on the on money received as income. The learned CIT – A found that the learned settlement commission has accepted the fact that assessee has received cash receipt and has also made an expenditure in cash wherein the gross profit at the rate of 12.25% of money received is held to be income of the assessee. Therefore, he deleted the addition made under section 69C of the act holding that unexplained expenditure can be added only when the source for the same is not explained that in the present case the source of the expenditure is in the same seized material which is already been taxed by the assessing Page | 8 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others officer. Therefore, the addition under section 69C of Rs. 64,832,040/– does not survive. 13. With respect to the addition of on money, he held that the entire on money received by the assessee builder, cannot be regarded as income where evidence of expenditure has also been found. He relied upon the decision of ACIT versus Guru Prerna enterprises affirmed by the honourable Bombay High Court in ITA number 1849 of 2011 and further decision of the coordinate bench in Hilton housing private limited ITA number 1732/M/2019 dated 24/5/2021, Sumer builders versus DCIT ITA number 4915/M/2016 dated 91 2021. He further held that in the case of the assessee the interim board for settlement has already accepted the chargeability of the profit at the rate of 12.25% of the gross receipt therefore when the seized material is the same and issues also related to the same search, there is no reason to take any different view. He further relied upon the decision of ACIT versus Om constructions ITA number 6234/M/2012 dated 9/1/2015, Bhalchanda trading private limited in ITA number 2977 and 2978/M/2019 dated 25/2/2021, Tulip land and developers private limited in ITA number 2980/M/2019 and several other decisions of the coordinate bench and directed the learned assessing officer to restrict the addition to 12.25% of on money received of Rs. 64,322,169/–. Page | 9 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others 14. The appellate order passed on 22/1/2024 allowed the appeal of the assessee partly and therefore both the party are aggrieved and are in appeal before us. 15. First, we take up the cross objection filed by the assessee which goes to the root of the matter about the validity of notice under section 153A of the act. It was the argument of the learned authorised representative that the learned AO has issued notice under section 153A of the act for the assessment year which fell beyond the period of six assessment years relying upon the fourth proviso to section 153A of the act holding that the definition of asset is inclusive and the cash received in the form of (on money) and cash loans would fall under the definition of the asset. It was submitted that no notice could have been issued beyond six years unless the AO is in the possession of any books of accounts or documents indicating escapement of income which is represented in form of an ‘asset’ which is also defined as an immovable property being land or building both, shares and securities, loans and advances, deposits in bank account. He submits that that such condition of representation of the undisclosed income by an ‘asset’ is not satisfied. It was submitted that the cash receipts amounting to Rs. 6.43 crores and cash payment of Rs. 6.48 crores shows that the entire sum is spent on the project and no actual asset corresponding to such receipt can be found. He relied upon the decision of the coordinate bench in case of fortune Vanijya private limited in ITA number Page | 10 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others 21/Gau/2021 dated 10/12/2021 and further 49 ITR 72 wherein the honourable High Court has confirmed that decision. Thus, the issue was squarely covered in favour of the assessee. He further relied upon the decision of the coordinate bench in Hilton infrastructure in ITA number 3456/M/2023 dated 7/6/2024, Follow well engineering Limited ITA number 25/KOL/2023 dated 19/6/2023. Thus, it was submitted that the income of on money which has been added by the learned assessing officer is not represented by any asset provided under the fourth proviso to section 153A and therefore notice issued under section 153A is without jurisdiction. 16. It was further submitted that ld. AO has not made any allegation that the assessee has made undisclosed investment in any asset which clearly shows that there does not exist any such asset. In absence of any such finding the notice issued under section 153A for the current year is not correct. He further relied upon the decision of the Fortune Vanijya private limited para number 30 of that decision to support his contention. 17. It was also the claim that for this year the firm was formed and there is no project during the year, therefore even otherwise there cannot be any ‘Assets”. 18. There is no cash loan received by the assessee at all as seized documents does not indicate any such assets. 19. Accordingly, it was submitted that the notice issued under section 153A is barred by the limitation and liable to be quashed. Page | 11 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others 20. The learned departmental representative vehemently supported the orders of the learned lower authorities it was submitted that the learned CIT – A has categorically held that the on money and cash loan receipts are ‘assets’as required under the fourth proviso to section 153A Number 5.5 - 5.7 of his order. Therefore, it was submitted that there is no infirmity in the issue of notice under section 153A for this assessment year. 21. On specific query by the bench about the existence of assets, or any cash loan, ld. DR relied up on the orders of the ld. AO. 22. We have carefully considered the rival contention and perused the orders of the learned lower authorities. Facts shows that search action was conducted in case of the assessee and its group concern on 15/10/2018. During search, diaries containing cash books and sales register was found and seized. Certain entries were found pertaining to the year under consideration. Based on this the learned assessing officer issued notice under section 153A of the act for the assessment year 2012 – 13 which is beyond the period of six years as prescribed under section 153A of the act. The learned assessing officer was banking heavily on the fourth proviso to section 153A of the act wherein the asset is defined in an inclusive manner and the cash received in the form of on money and cash loans was also considered to be covered under the definition of ‘’asset’. The contention of the assessee is that the definition of asset as per the fourth proviso read Page | 12 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others with explanation 2 ‘assets’ include only immovable property being land or building are both, shares and securities, loans and advances, deposits in bank account. It was found that except the receipt of on money and cash expenditure on the project, no other document was found which suggested that there is any asset representing any undisclosed income. In fact, the nature of noting is found in the seized material are related to the business of the assessee of construction of real estate development which is a cash flow statement. The seized document shows that cash received is shown as income and expenditure is shown as expenditure in the above cash flow statement. Further it was found that the on money received is Rs. 6.43 crores and cash expenditure of 6.48 crores thus, no cash on hand in the form of asset was available with the assessee. 23. If tangible evidenceis found during the search which is represented in the form of undisclosed investment in any asset, notice under section 153A can be issued for an assessment year beyond the six-assessment year. The asset is specifically defined to include immovable property being land or building are both, shares and securities, loans and advances, deposits in bank account. Thus, no doubt the intention of the power granted to the assessing officer for issuing the notice under section 153A beyond six assessment years is subject to finding tangible evidence of undisclosed investment in specified asset. The issue arose in case of fortune Vanijya Page | 13 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others privatelimited in ITA number 21/GAU/2021 dated 10/12/2021 wherein identical issue is discussed and further honourable Guwahati High Court in 459 ITR 72 has upheld the decision. Further in case of Hilton infrastructure in ITA number 3456/M/2023 dated 7/6/2020 for it was held that on money used for the purpose of expenditure on the project cannot be regarded as being represented by an asset and therefore notice under section 153A beyond sixth assessment year was quashed. 24. A plain reading of section 153A (1)(b) of the Act shows that ld. AO having jurisdiction under the said section is empowered to assess or re-assess the total income of six years immediately preceding the assessment year relevant to the previous year in which the search was conducted and for the relevant assessment year or years. 25. Explanation 1 below section 153A of the Act defines the expression relevant assessment years as \" ……. shall mean an assessment year preceding the assessment year relevant to the previous year in which search is conducted or requisition is made which falls beyond six assessment years but not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made\". 26. In order to make an assessment for assessment year which falls beyond six assessment years but not later Page | 14 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others than ten assessment years from the end of the assessment year relevant to the previous year, in which the search was conducted, the 4th proviso to section 153(A)(1) of the Act sets out certain further conditions which are required to be fulfilled before a notice can be issued for the relevant assessment years. Clause - (a) of the 4th proviso requires that the Assessing Officer must have in his possession books, documents or evidence which reveal that income represented in the form of an asset which has escaped assessment amounts to or is likely to amount to Rs. fifty lakhs or more. Explanation 2 to section 153A (1) of the Act sets out an expanded definition of the word \"asset\" for the purposes of the 4th proviso. 27. Explanation 2. —For the purposes of the fourth proviso, \"asset\" shall include immovable property being land or building or both, shares and securities, loans and advances, deposits in bank account. 28. In this case there is some seized documents are available with the ld. AO, Therefore the condition of the documents is satisfied. Now the second condition is finding of the “assets” representing undisclosed income. 29. In this case it is also an accepted fact that there is neither a loan or advance or deposit in bank account or shares and securities which represented the undisclosed income. However, it is true that assessee is a developer of immovable property and real estate developer therefore there must be an immovable property being Page | 15 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others land or building or both. Thus, in case of such a person, if there is a project during the year, there would be an inventory of land and building or both, naturally. But assessee claims which is not disputed before us and by the lower authorities that there is no project undertaken by the assessee during the year. However, in the present case it is an undisputed fact stated by assessee and not controverted by the learned departmental representative that there is no project commencing during the year as assessee is formed in this year itself. Therefore, in absence of any real estate project, the asset also could not be any immovable property being land or building or both. 30. In view of the above facts and specific circumstances of the case, the undisclosed income does not represent any asset as defined in explanation 2 which gives power to the assessing officer by virtue of fourth proviso to section 153A to assess the income of the assessee for assessment year which falls beyond sixth assessment year. 31. All the judicial precedents cited before us also supports the arguments canvassed by assessee. 32. Thus, ground no 1 of cross objection of the assessee is allowed as a notice could not have been issued to the assessee under section 153A of the act, impugned assessment order passed u/s 143 (3) rws 153 A stands quashed. Thus, ground number 1 of the cross objection of the assessee is allowed. Page | 16 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others 33. For completeness of the appeal, the ground number 2 of the cross objection of the assessee and appeal of the learned assessing officer are interconnected on the number of additions are also decided.As the cross objection of the assessee is decided holding validity of section 153A quashing the assessment order, the appeal filed by the learned assessing officer does not survive. 34. Even otherwise, the learned AO is aggrieved with the finding of the learned CIT – A that the income of the assessee should be estimated at the profit rate of 12.25% as held by the interim settlement board for this year also. Further the amount of income as well as the expenditure both cannot be added as one is a source of income and another is an application of income. We do not find any infirmity in the order of the learned CIT – A in following the decision of the settlement commission where it is arising out of the same search and addition is also based on the same document. The learned CIT – A has relied upon the decision of the honourable Supreme Court in case of ITO versus Anand builders 265 ITR 37 wherein it has been held that entire on money received in case of a builder cannot be taxed as income. It is not the case of the learned AO that the percentage of profit determined by the settlement commission based on same seized documents is incorrect. Further no reasons are shown to us that the profit ratio of the assessee is much higher than what is estimated by the learned settlement commission. Therefore, we confirm the order of the Page | 17 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others learned CIT – A estimating the gross profit of the assessee at the rate of 12.25% of onmoney received and deleting the addition on account of cash expenditure under section 69C of the act. The assessee is aggrieved by estimates and of profit at the rate of 12.25% of all money which is interconnected to the grounds of appeal of the learned AO. Therefore, even on the merits, the order of the learned CIT – A cannot be found fault with. 35. Accordingly ground number 2 of the cross objection of the assessee and all the grounds of appeal of the learned assessing officer in ITA number 1346/M/2024 are dismissed. 36. Accordingly, ground number one of the cross objections quashing the assessment order is allowed, ground number two of the cross objection and appeal of the learned assessing officer is dismissed. Shanti Developers ITA number 1349/M/2024 and CO number 110/M/2024 (Assessment Year 2012 – 13) 37. The facts in the case of M/S Shanti enterprises in ITA number 1349/M/2024 filed by the learned assessing officer for assessment year 2012 – 13 and cross objection filed by the assessee in CO number 110/M/2024 are identical to the ITA number 1346/M/2024 and CO 80/MUL/2024 for assessment year 2012 – 13 in case of Bhagwati developers. Page | 18 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others 38. Both the parties confirmed that facts and circumstances of the case, being the case of group entity, identical arguments, reliance on same judicial precedents and identical orders of the learned lower authorities. Thus, both the parties confirmed that decision taken in case of Bhagwati developers in the above appeal and cross objection for the same assessment year also applies to the case of the assessee. 39. We have decided ground number 1 of the cross objection of the assessee wherein the validity of notice under section 153A is challenged in favour of the assessee holding that no such notice could have been issued by the learned assessing officer invoking the fourth proviso to section 153A of the act as there is no asset defined in explanation 2 of that section represents the undisclosed income.Therefore, reversing the order of the learned CIT – A on this point, the assessment order was quashed, and ground number 1 was allowed. 40. For completeness of the appeal, ground number 2 of cross objection and solitary ground of appeal of the learned AO which was found to be interconnected was also decided. It was held that the learned CIT – A has relied upon the decision of the interim settlement board wherein the income of the assessee is estimated at 12.25% of the on money received following the decision of Honourable Supreme court. Therefore, the order of the learned CIT – A on this aspect was upheld. Thus, for the Page | 19 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others same reasons we also dismiss ground number 2 of the cross objection and appeal of the learned AO. 41. Accordingly ground number 1 of the cross objection is allowed quashing the assessment order. For completeness of the appeal, appeal of the learned assessing officer and ground number 2 of the cross objection are dismissed. Accordingly, the cross objection is partly allowed, and appeal of the learned AO is dismissed. Bhagwati Developers A Y 2015-16 ITA No 1490/MUM/2024 42. Assessee being a partnership firm engaged in the business of builders and developers. During the year under consideration assessee was engaged in construction of plot number 09 situated at Ulwe, plot number 06 kharghar, plot number 127 Ulwe and plot number 12 Ghansoli. For this assessment year assessee filed its return of income on 29/9/2015 declaring total income of Rs. 78,550,000/–. The assessee revised it on 31/3/2017 at total income of Rs. 80,073,600/–. Return of income was taken up for scrutiny by issue of notice under section 143 (2) of the act on 28/7/2016. 43. A survey was conducted on the assessee on 11/3/2017 based on the information received from the office of the ACIT – unit – 2 Mumbai as per letter dated 13/10/2017 regarding bogus unsecured loan taken by the assessee Page | 20 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others from 6 parties. The assessee was asked to furnish confirmation from these parties. Inquiries were also conducted by issuing notices under section 133 (6) of the act to the above parties. Based on this the assessee was issued a show cause notice on 18/12/2017 as to why an amount of Rs. 102,308,051 shall not be added to the total income of the assessee as bogus loan. In response to the reply filed by the assessee out of 6 parties the explanation with respect to 4 parties were accepted and the issue was only with respect to 2 parties Dhan Kuber Exports private limited and Chanchal exports private limited. And thereafter the addition to the extent of Rs. 100,784,456/– was made to the total income of the assessee with respect to the amount of loan from Chanchal exports of Rs. 97,150,000 and interest payment of Rs. 2,731,826 and only the interest payment made to the Dhankuber Exports private Limited of Rs. 902,630/–. Thus, the assessment order under section 143 (3) of the act was passed on 28/12/2017 determining the total income of the assessee at Rs. 180,858,060. 44. Assessee aggrieved bythe assessment order preferred an appeal before the learned CIT – A. Assessee submitted that assessee is engaged in the business of real estate development, and it is infrequent need of funds for its project. Therefore, it has taken loan from various parties. The assessee has submitted all the evidence with respect to the identity and creditworthiness of the depositors as Page | 21 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others well as the genuineness of the transaction showing the documents like ITR acknowledgement, bank statement, TDS certificates, annual accounts of the depositors along with the confirmation. It was further submitted that the enquiry made by the learned assessing officer do not show that those two parties are not existing. It was further stated that assessee has filed a petition before the income tax settlement commission for assessment year 2013 – 14 to 2019 – 20 wherein issue related to unsecured loan from several parties including these two parties were also considered. Further in the report under rule 9 dated 16/3/2022 the allegations of the learned CIT before the settlement commission are also similar that the loan taken by the assessee from these parties is not genuine. It was submitted that the settlement commission has also accepted that assessee has satisfied the requirement of section 68 and therefore no addition was made. Based on this the learned CIT – A based on the documentary evidence submitted by the assessee accepted that assessee has given enough evidence for the identity and creditworthiness of the parties as well as the genuineness of the transaction. Accordingly, he deleted the addition ofRs 97,150,000 in respect of unsecured loan taken by the assessee from Chanchal exports along with the interest payment thereon of Rs. 2,731,826 and interest paid to M/s Dhankuber exports private limited. Accordingly, the addition was deleted. Page | 22 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others 45. The learned AO is aggrieved with the order of the learned CIT – A and is in appeal before us. It was submitted that information was received from the Ld. CIT, unit – 2, Mumbai that assessee has obtained loan from parties based in Surat which are not genuine. The assessee was asked to explain the creditworthiness of the parties and to satisfy the ingredients of section 68 of the income tax act. Though the assessee has given documentary evidence to prove, however, the genuineness of the transaction and creditworthiness of the parties are not satisfied. He therefore submitted that the addition made by the learned assessing officer deserves to be sustained. 46. The learned authorised representative vehemently supported the order of the learned CIT – A. It was submitted that during settlement proceedings, this issue was also there with respect to the same parties wherein the settlement commission has categorically held that assessee has discharged its onus under section 68 of the income tax act of proving the identity and creditworthiness of the party as well as the genuineness of the transaction. He submitted that the assessee has furnished overwhelming evidence such as income tax returns, confirmation, annual accounts, bank statement of the depositors. The enquiry made by the learned assessing officer under section 133 (6) was also responded. Further the learned that assessing officer did not bring on any material to show that the transaction is not genuine either in the settlement commission or in Page | 23 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others these proceedings. Therefore, the learned – A is correct in deleting the addition. 47. We have carefully considered the rival contention and perused the orders of the learned lower authorities. In this case of the assessee the issue is with respect to addition of loan from M/s Chanchal exports being a proprietary concern of Mr Sachin Jain at 305, green diamonds, Mahendra para, Surat 395003 which is carrying on the trading activities having an annual turnover of Rs 112 crores for assessment year 2014 – 15 and Rs 29.77 crores for assessment year 2015 – 16. The assessee has submitted income tax returns, annual accounts, bank statements, confirmation of the lender. On appreciation of the evidence, the learned AO analysed that the entity has filed its return of income of onlyRs 821,851/- which is not commensurating with the loan amount. further based on the balance sheet the capital of the proprietor is meagre and trade payable are very high. Further the profit and loss account though have a turnover but has wherenetprofit of 0.67% which is only on account of interest income of Rs. 33,727,919. Thus, the above party could not have any capacity to lend to the assessee. It was also noted that when the survey was conducted, on inquiry he could not trace the party and the address mentioned was found to be empty without having any nameplate. Even the door was locked from outside and it was found that no activity has taken place at that premises for a long time. Considering the above Page | 24 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others fact, the learned assessing officer held that amount of loan of Rs 97,150,000 is bogus. Therefore, interest paid to that party was also found to be paid to the bogus party and hence disallowed. 48. Naturally loan received from this party could not have been in the order of the settlement commission and therefore reliance by assessee on that order is devoid of any merit. The credit received during the year is to be tested, acceptance of the above party as genuine in the earlier years does not necessarily also shows the genuineness of that party in subsequent years. This is so because there is a change in the amount of loan, the sources of the loan of the loan are required to be examined and those were not existing in the earlier year as the loan was received during this year. The provisions of section 68 also speak about the sum credited in the books of the assessee for the rear. Existence of the loan in earlier year also of the same party merely proves the existence of the party i.e., identity of the lender. Even in the earlier years the existence of these parties is not in doubt. Therefore, these transactions need to be tested independently on its parameters as laid down u/s 68 of the Act. 49. The evidence submitted by the assessee are: - i. Ledger Confirmation ii. Bank statements of the lender iii. Income tax return of lender Page | 25 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others iv. Annual audited accounts of the lender for relevant years v. Affidavits of the lenders vi. Tax deduction at sources of the Interest payments 50. Inquiry by the survey team was conducted and not by the ld. AO when all these documents are placed before him. He relied only on the survey findings. The inquiry was also conducted at the dormant address as the lender had already shifted long back from that address. This was evident from the confirmation provided to the ld. AO during assessment. Ld. AO despite perusing confirmation but did not make any inquiry at the new address. 51. Mere analysis of financial statements, income of the lender does not prove or disprove the creditworthiness and genuineness of the loan in absence of any meaningful inquiry. From the same financial statements, lender has got the sources of funds and offered interest income. Ld. AO did not prove that loan given by the lender is without having any sources of funds so advanced. Ld. AO himself his recording amount of turnover, profit,creditors, and income of the lender, which is merely a tabulation of data,but it can never be said to be ‘any inquiry’. There is much difference between enquiry for examination of the creditworthiness of the party and genuineness of the transaction and merely financial analysis of the financial statement of the lender. One cannot substitute such financial analysis for Page | 26 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others an enquiry, especially when, the learned AO is confronted with report of investigation by a survey party. 52. If the enquiry made by the investigation wing is to be relied upon for making an addition, there would not have been any requirement of mentioning under section 68 of the act that it has to be the satisfaction of the learned assessing officer for the nature and source of the funds. 53. The assessee has given complete address in the confirmation statement 6/2067, office number 402, fourth floor, Gemstone, Haripur Main Road, Mahindrapura, Surat. Despite the above address available with the AO, the enquiry was made at the old address. Naturally the officers would be closed if somebody goes to the new address. No reason was given that why the enquiry was not made at the new address which were there in the confirmation letter.it is also not the case that lender is not file the return of income and is not on the record of the income tax department with the new address. Thus, the nonexistence of party does not merit disallowance because in the earlier years despite a has been examined in rule nine report of the learned CIT. So far as identity of the party is concerned it has already been established. 54. In case of another party no loan was taken during the year, but it is carried forward from earlier years and in the earlier years this loan is not disputed as bogus. Only the interest paid is disallowed. When the earlier years this loan amount has not held to be bogus, the amount of Page | 27 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others interest paid to that party during the year cannot be considered that such interest is also bogus. Thus, the addition of Rs. 902630/– on account of interest paid to Dhankuber exports private limited has been correctly deleted by the learned CIT – A. 55. Thus, we do not find any infirmity in the order of the learned CIT – A the lead to the addition under section 68 of the loan of Rs. 97,150,000/– in respect of Chanchal exports (proprietary concern) received during the year and a sum of interest paid of Rs. 2,731,826/– to that party. Further the amount of interest paid of Rs. 902,630/– to Dhankuber exports private limited is also correctly deleted as the loan amount was accepted as satisfying the ingredients of section 68 of the act in earlier years. In the result ground number 1 and 2 of the appeal for assessment year 2015 – 16 of the learned assessing officer are dismissed. 56. Accordingly, ITA number 1490/M/2024 for assessment year 2015 – 16 filed by the learned assessing officer is dismissed. 57. Accordingly, all the three appeals and two cross objections are disposed of as above. Order pronounced in the open court on 08/10/2024. Sd/- Sd/- (RAJ KUMAR CHAUHAN) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 08.10.2024 Dragon Page | 28 ITA No.1346,1349 & 1490/M/2024 CO 80, 110/Mum/2024 A Y : 2012–13, 2015-16 Bhagwati Developers & others Copy of the Order forwarded to : The Appellant, The Respondent, The CIT, The DR ITAT & Guard File BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai "