PARESH DAYASHANKAR MADEKA,RAJKOT V. THE INCOME TAX OFFICER, WARD-2(2)(3), RAJKOT

ITA 343/RJT/2024

AI Insights

The case involves an appeal by Paresh Dayashankar Madeka against the order of the National Faceless Appeal Centre (NFAC) which upheld the additions made by the Assessing Officer under sections 68 and 69C of the Income Tax Act, 1961. The additions were made on the grounds that a loan of Rs. 18,67,000 received by the assessee from M/s. Bhumidev Credit Corporation Ltd. was a bogus loan, and a commission of Rs. 28,005 paid on this loan was unexplained expenditure. The Tribunal examined the evidence presented, including the books of accounts and bank statements of the lending company, and found that the assessee had discharged the burden of proving the genuineness of the loan and the transaction.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 706056 (ITAT-RAJKOT)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2011-2012
• Other Referred Cases: Deputy Commissioner of Income Tax Vs. Rohini Builders, Commissioner of Income Tax Vs. Ujala Dyeing & Printings Mills (P.) Ltd., Commissioner of Income Tax Vs. Orissa Corporation (P) Ltd., Commissioner of Income Tax Vs. Pragati Co-operative Bank Ltd., CIT Vs. Patel Ramniklal Hirji
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHIMANYU SINGH YADAV; LD.
• Assessee Lawyers: R.D. LALCHANDANI; LD
• Keywords: Question of law; Unexplained cash credit; Unexplained expenditure; Income from undisclosed sources; Reopening of assessment; Principle of natural justice; Accommodation entries; Bogus loan; Bogus
• Section: 148; 143(3); 32; 68; 131; 69C; 37

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT BEFORE DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER. & DINESH MOHAN SINHA, JUDICIAL MEMBER आयकरअपीलसं./ITA No.343/RJT/2024 (Ǔनधा[रणवष[ / Assessment Year: (2011-12) (Hybrid Hearing) Paresh Dayashankar Madeka Gondal Road, Village – Kotharia, Rajkot – 360004, Gujarat Vs. The Income Tax Office, Race Course Ring Road, Rajkot – 360001, Gujarat èथायीलेखासं./जीआइआरसं./PAN/GIR No.: ACXPM6013G (Appellant) (Respondent) Appellant by : Shri R. D. Lalchandani, Ld. AR Respondent by : Shri Abhimanyu Singh Yadav, Ld. Sr. DR सुनवाईकȧतारȣख/ Date of Hearing : 03/06/2025 घोषणाकȧतारȣख/Date of Pronouncement : 03/07/2025 आदेश / O R D E R PER DINESH MOHAN SINHA, JM: Captioned appeal filed by the assessee is directed against the order passed by the National Faceless Appeal Centre [(in short “NFAC/Ld.CIT(A)”] vide order dated 01.04.2024, which in turn assessment order passed by Assessment Unit, Income Tax Department / Assessing Officer under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short “the Act”). 2. Grounds of appeal raised by the assessee are as follows: 1) The CIT(A) erred in upholding the reopening of the assessment. The reopening is not justified. 2) without prejudice to ground no. 1 The CIT(A) erred in upholding the addition of Rs. 18,67,000/- as bogus loan. Page | 2 ITA No.343/RJT/2024--AY.2011-12 Paresh Dayashankar Madeka v. ITO 3) Without prejudice to ground no. 1 and 2 The CIT(A) erred in upholding the addition of Rs. 28,005/- as commission on bogus loan. 3. Brief facts of the case that during the year, the assessee earned from salary and interest income. Appellant has filed income tax Return on 01.02.2012 declaring net income of Rs. 4,80,040/- that case was processed u/s. 143(1) of the Act. The case was reopened u/s. 148 was on 25.03.2012 that the assessee on the basis of report that the investigation wing and recorded statement of one Shri Prakasjh Bagrecha wherein director admitted that company in engaged in the business of invest in share and finance activity and involved in providing the accommodation entries to various business establishment, the assessee has filed return in response to notice u/s. 148 of the Act. During the assessment proceeding, the assessee has submitted the objection for reasons recorded by the Assessing Officer on 17.07.2017. Further, submitted that the assessment has been reopened on account of information received from the investigation wing. That during the course of assessment proceeding, the assessee has also submitted: 1. Acknowledgment of return of income of M/s. Bhumidev Credit Corporation Ltd. for the A.Y. 2011-12. Bank passbook of corporation bank of Paresh D. Madeka account of M/s. Bhumidev Credit Corporation Ltd. of Paresh D. Madeka 2. Account of Paresh D. Madeka of M/s. Bhumidev Credit Corporation Ltd. 3. Acknowledgement of return of income, computation of Income and audit report of the M/s. Bhumidev Credit Corporation Ltd. Bank Account statement of corporation Bank, ledger account of interest expenses, profit & loss account, balance sheet for Paresh D. Madeka for A.Y. 2011-12. 4. That the assessee for A.Y. 2011-12 was completed with following observation. I believe that the assessee Shri Paresh D. Madeka has obtained accommodation loan against cash payment along with commission of 1.5% to M/s. Bhumidev Credit Corporation Ltd., hence the amount of accommodation loan of Rs. 18,67,000 + Commission at the rate of 1.5% i.e., Rs. 28,005/- is added to the return income of assessee. Page | 3 ITA No.343/RJT/2024--AY.2011-12 Paresh Dayashankar Madeka v. ITO “Subject to the above the assessed income is determined as under:- Total income as per return of income Rs. 4,80,040/- Add: on account of accommodation loan from Bhumidev credit Corporation Rs. 18,67,000/- Add: un explained expenditure by way of commission 1.5% Rs. 28,005/- Total assessed income Rs. 23,75,045/- 5.The assessee filed an appeal before the Commissioner of Income Tax(Appeals), NFAC against the order of the Ld. AO dated 19.12.2017. That the Ld. CIT(A) has disposed of an appeal on dated 01.04.2024 with remarks: “The loan amount of Rs. 18,67,000/- which is said to be received by the appellant is a bogus loan and hence addition is confirmed. Secondly the commission payment of Rs. 28,005/- is to be treated as unexplained expenditure. Therefore, the addition of Rs. 28,005/- is confirmed.” 6. The assessee feeling aggrieved by the order dated 01.04.2024 of the Ld. CIT(A) and NFAC filed an appeal before us. 7.During the course of assessment, the Ld. AR of the appellant has submitted that the reopening of Assessment for AY 2011-12 was bad in law. 7.1. That the Ld. AR submitted that the assessee has taken a loan of Rs. 18,67,000/- and submitted evidences in support of loan, that Ld. AO consider the loan as an accomplished entry and added in the Income and also a confirm of accommodation entry addition of Rs. 28,005/- was also added in the Income.There is nothing on record to justify the action of the Ld. AO. 8. Ld. DR has submitted that reopening of assessment was according to law. That the Ld. DR has relied on the order of the Ld. CIT(A). Ld. DR has also filed written statement: 2. in the context of Section 143(3) of the IT Act, 1961, the word “evidence” ahs been intentionally used, indicating the while income tax proceedings are not bound by the strict technical ruled of the Indian Evidence Act, 1872, the Page | 4 ITA No.343/RJT/2024--AY.2011-12 Paresh Dayashankar Madeka v. ITO application of such ruled is not entirely excluded. The judicial precedents consistently establish that the rigors of the law of evidence may not strictly apply to income tax proceedings, but whatever necessary, the principles of the Evidence Act can and should be applied to ensure fairness and justice in the process. 3. courts have repeatedly observed that although income tax authorities are not courts and are not bound by the strict ruled of evidence, they must follow the principles of natural justice. Therefore, the law of evidence is applicable in situations where it serves to elucidate facts or establish the veracity of material submitted before the tax authorities. Case law has supported this application of the Evidence Act in income tax proceedings to ensure that the decisions are based on concrete and reliable facts. 4. For instance, when statements are recorded under section 131 of the IT Act, which grants the income tax authorities powers similar to those of a civil court, such proceedings constitute judicial proceedings. This was clearly established by the supreme court in the land mark case of Suraj Mall Mohta and Co. v. A. V. Visanatha Sastri and another (1954 AIR 545). In this judgement, the court held that statements recorded under section 37 of 1922 Income tax act are judicial proceedings, the same powers come in Income tax act section 131 in 1961 act, and a result, the law of evidence is fully applicable to those proceedings which are held judicia; by Supreme Court because the section 1 of the Indian evidence act clearly mention Extent. It extend to the whole of India and applies to all judicial proceedings in or before any court, including courts – martial. [ other than courts – martial conveyed under the army act ( 44 $ 45 Vict. C. 580)] [ the Naval Discipline Act [ 29 & 30 Vict. 109]; or the Indian Navy (Discipline) Act, 1934 ( 34 of 1934).] [ or the Air Force Act ( 7 Geo. 5, c. 51)] but not to affidavit presented to any court or officer, nor to proceedings before an arbitrator; The Supreme Court decisively settled in 1954 that proceedings under section 37 of the IT Act become judicial proceedings, therefore by the power of article 141 of the Indian Constitution it become mandatory to held that statement recording work under section 131 of the IT Act are judicial proceedings and therefore Evidences act become fully applicable on the. 5. Thus, in cases where statements are recorded under section 131, as judicial proceedings, the full application of the law of evidence is required. Any evidence or material gathered through these proceedings must be evaluated with the same scrutiny as in a judicial forum, ensuring that the principles of justice and fairness are maintained. 6. In this immediate case of today revenue had relied upon the provision of section 32 of the Indian evidence act 1872 which is reproduced for ready reference:- “ 32. Cases in which statements of relevant fact by person who is dead or cannot be found, etc. is relevant – statements, writer or verbal, of relevant facts made by a person who is dead, or who cannot be procured without an amount of delay or expense which under the circumstances of the case appears to the court unreasonable, are themselves relevant facts in the following cases:- 1) When it related to cause of death – when the statements is made by a person as to the cause of his death, or as to any the circumstances of the transaction which resulted in his death, in cases in which the case of that person’s death comes into question. Such statements are relevant whether the person who made them was or was not, at the time when they were Page | 5 ITA No.343/RJT/2024--AY.2011-12 Paresh Dayashankar Madeka v. ITO made, under expectation of death, and whatever may be the nature of the proceeding in which the cause of his death comes into question. 2) Or is made in course of business – when the statement was made by such person in the ordinary course of business, and in particular when it consists of any entry or memorandum made by him in books kept in the ordinary course of business, or in the discharge of professional duty; or of an acknowledgment written or singed by him of the receipt of money, goods, securities or property of any kind; or of a documents used in commerce written or signed by him; or, of the date of a letter or other documents usually dated, written or singed by him 3) Or against interest of maker – when the statement against the pecuniary or proprietary interest of the person making it, or when, if true, it would expose him or would have exposed him to a criminal prosecution or to a suit for damages.” 7. the statement given by Mr. Prakash Bagrecha was squarely covered by sub section 2 and 3 of section 32 of the Indian evidences act, 1872. 8. furthermore the evidence act section 106 comes for recue of revenue; the facts mentioned in statement of Mr. Prakash Bagrecha was facts which come to his specific knowledge only as he was operating the business at that them, statement given by later director based on books of account would not have the same force as of Mr. Prakash Bagrecha. 9. therefore, the argument given by the learned Authorized representative need to be rejected and the order of the Ld. Additional/joint Commissioner of Appeal need to be upheld. 9.We have heard both the parties and perused the material available on record. We note that the order of assessment framed by Ld. AO is silent on the issue of reasons recorded for reopening assessment. We note that reopening of assessment, the proceedings initiated on the basis of the information from investigation wing. That the investigation wing had recorded the statement of the Shri Prakash Bagrecha, Director of the company M/s. Bhumidev Credit Corporation Ltd., Ahmedabad company is engaged in the business of investment in share and finance activity. It was further admitted that the company was providing accommodation entries to various business establishments and charged commission ranging from 1.5% to 2% of the transaction. Reasons recorded by Ld. AO on the basis of that department received an information: (a) Subsequently, there is an information in possession with this office that during the F.Y. 2010-11, the assessee has accepted loan/ advances of Rs. 18,67,000/- from M/s. Bhumidev Credit Corporation Ltd., (BCCL) Ahmedabad. Further, department inquiry conducted and material available on record point to that the loan/advances given to the assessee are bogus and therefore ought to be examined and brought to logical conclusion. Page | 6 ITA No.343/RJT/2024--AY.2011-12 Paresh Dayashankar Madeka v. ITO 10. That the Ld. AR argued on the basis of documents already submitted by the Ld. AO & Ld. CIT(A). 11. We submit that the statement of Mr. Marshal Kotadia is more reliable as he had produced books of accounts etc. when his statement was recorded. The evidence provided while recording statement is: i. Ledger Accounts ii. Cash Book iii. Bank Statements 12. It is proposed to enhance my assessment. The appeal is against the addition of 12.1. Rs. 18,67,000/- as unexplained cash credit u/s. 68 12.2. Rs. 28,005/- as unexplained expenditure u/s. 69C 13 The appellant vide letter dated 07.12.2017 again requested the Assessing Officer to allow him to cross examine the Directors of M s Bhumidev Credit Corporation Ltd. The Appellant was allowed to cross examine the Directors of M s Bhumidev Credit Corporation Ltd. A copy of the statement recorded is enclosed. The Director confirmed that they have given a loan to me and also produced their accounts and bank statements to support the same. This fact has been ignored by the Assessing Officer while framing the assessment. Reference is invited to the following question that were specifically put to the Directors of M s Bhumidev Credit Corporation Ltd. The assessee has produced the following details of Bhumidev Corporation Ltd. Ma] Copy of account [b] Copy of contra account [c] Bank statement of Bhumidev Corporation Ltd. [d] Books of accounts of Bhumidev Corporation Ltd. He has therefore proved [a] identity of Bhumidev Corporation Ltd. [b] Capacity of Bhumidev Corporation Ltd. [c] genuineness of loan from Bhumidev Corporation Ltd. Page | 7 ITA No.343/RJT/2024--AY.2011-12 Paresh Dayashankar Madeka v. ITO 14. We further note that the appellant has obtained copy of statement recorded by the department, in the case of Bhumidev Credit Corporation Ltd. and also cross examined the director of the company Mr. Prakash S. Bagrecha. According to the statement recorded and directed the books of account and bank statement. In the statement recorded in reply to Question No. 3. and in cross examined the Question No. 6 the director has accepted that interest of Rs. 96285, in the respective loan has issued and shown in Income Tax Return as income, statement of the director is placed on record. 15. The reply to Question No. 08 the director submitted the according to the books of account. I have not received any commission from Prakash D. Madeka and transaction have taken place with through account payee cheques. The same is reflected in our company’s book of account. 16. We further note that the assessee has submitted Balance-Sheet and Audit Report of the company, showing schedule 6 of the Balance Sheet, wherein loan was given to Paresh D. Madekha was shown at S. No. 24. 17. The AO has not brought any material or other evidence on record on the basis of which inference can be drawn that the transactions are not genuine. None of the evidences furnished by the appellant company have been disproved. In any case, the appellant having established the identity creditworthiness and genuineness of the transactions and this transaction being prior to A.Y.2013-14, the appellant is under no obligation to explain the source of source and origin of origin all these deposits. Reliance is placed in the case of recent decision in the case of CIT v Gagandeep Infrastructure Pvt. Ltd. ITA No.1613 of 2014. wherein the Mumbai High Court held that the proviso to section 68 is effective from A.Y.2013-14 and not earlier years. Furthermore, the 3 essential tests confirming the pre proviso section 68 of Page | 8 ITA No.343/RJT/2024--AY.2011-12 Paresh Dayashankar Madeka v. ITO the Act laid down by the various Courts namely the genuineness of the transaction, identity and capacity of the investor have been examined and no defect have been pointed therein. It further held that even if the amounts have been received from bogus share holders then it was for the income tax officer to proceed by reopening the assessment of such share holders and that the ratio laid down by the Supreme Court in the case of CIT v Lovely Exports (P) Ltd. 317 ITR 218 is a good law with respect to pre proviso section 68. Copy of the order is also enclosed for your Honours reference 18. It has been notices from the ledger account of copy of M/s. BCCL in the books of account of the appellant. The appellant has given the inter- corporate loans to M/s. BCCL and subsequently those loans were repaid by m/s. BCCL to the appellant with the same amount or with some excessive amounts. Further, the interest of Rs. 481/- has also been paid by the appellant on the excessive inter corporate deposits taken from M/s. BCCL. the assessee has submitted various details to support the identity, genuineness and creditworthiness of the aforesaid party which clearly establish the discharging of onus by the appellant. The Ld. AR also relied on the below judgements; i. Deputy Commissioner of Income Tax Vs. Rohini Builders [2003] 127 Taxman 523 (GUJ.) (High Court of Gujarat) - (2002) 256 ITR 360 (GUJ) Section 68 of the Income-tax Act, 1961 - Cash credits - Assessing Officer made addition of Rs. 12,85,000 as unexplained cash credits in respect of loans taken by assessee from 21 parties Assessee had discharged initial onus by providing identity of all creditors by giving their complete addresses. GIR numbers /permanent account numbers and copies of assessment orders wherever readily available - Assessee had also proved capacity of creditors by showing that amounts were received by account payee cheques drawn from bank accounts of creditors - Repayment of loans and interest thereon was also made by account payee cheques by assessee and tax also had been deducted at source on interest payments and remitted Whether assessee was not expected to prove genuineness of cash deposited in bank accounts of creditors. because under law, assessee can be asked to prove source of credits in its books of account but not source of source Held, yes Whether merely because summons issued to some of creditors Page | 9 ITA No.343/RJT/2024--AY.2011-12 Paresh Dayashankar Madeka v. ITO could not be served or they failed to appear before Assessing Officer, could not be ground to treat those credits as non-genuine Held, yes Whether considering totality of facts and circumstances of case, especially fact that Assessing Officer had not disallowed interest claimed/paid in relation to those credits in assessment year under consideration or even in subsequent assessment years, and tax at source had been deducted out of interest paid/credited to creditors. Tribunal was justified in deleting addition made Held, yes Whether as there was no substance in appeal and no substantial question of law arise, appeal was liable to be dismissed - Held, yes ii. Commissioner of Income Tax Vs. Ujala Dyeing & Printings Mills (P.) Ltd. [2010] 328 ITR 437 (Gujarat) Section 68 of the Income-tax Act, 1961 - Cash credits - Assessment year 2002-03- For relevant assessment year assessee-company filed its return declaring certain income - During course of assessment proceedings it was noticed by Assessing Officer that company had received a sum of Rs. 50 lakhs from five parties on account of share application money Assessing Officer did not find creditworthiness of five companies to advance amount in question and on that count, additions were made - On second appeal, Tribunal came to a finding that assessee had clearly discharged its onus of proving identity of parties, genuineness of transactions and creditworthiness of share applicants inasmuch as evidently their returns of income, assessment orders, balance-sheets showing investment, explanation regarding how they raised funds had been submitted before lower authorities - Accordingly, Tribunal deleted impugned additions Whether since Tribunal had recorded its findings of fact only after appreciation of evidence, no substantial question of law arose from order of Tribunal - Held, yes. iii. Commissioner of Income Tax Vs. Orissa Corporation (P) Ltd. [1986] 26 Taxman 80F (SC) [1986] (159 ITR 0078) (SC) Section 256. read with sections 68 and 271(1)(c), of the Income-tax Act, 1961- Reference to High Court Question of fact ITO treated certain cash credits shown to have been received by assessee from outside parties as unproved and added same to Income of assessee under section 68 and imposed penalty on it under section 271 (1) (c) Tribunal deleted the impugned addition as well as the penalty imposed on the grounds that (1) assessee have given the names and addresses of the creditors, (il) it had also produced before ITO letters of confirmation, the discharged hundis and particulars of the different creditors including their general index numbers with the Income-tax Department, and (iii) the revenue, apart from issuing notices under section 131 to creditors at instance of assessee. did not pursue the matter further, nor it examine the source of Income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans - Whether any question of law arose from Tribunal's order - Held, on facts, no. Page | 10 ITA No.343/RJT/2024--AY.2011-12 Paresh Dayashankar Madeka v. ITO iv. Commissioner of Income Tax Vs. Pragati Co-operative Bank Ltd. [278 ITR 170 (Gu])] [2005] 149 Taxman 149 (GUJ.) Section 68 of the Income-tax Act, 1961-Cash credits - Assessment year 1983-84- Assessee-co-operative society was engaged in business of banking - Assessing Officer made addition in assessee's hand as income from undisclosed sources on ground that there were various discrepancies in records maintained by assessee. regarding issuance of various fixed deposit receipts - Whether since assessee had discharged primary onus which was on it by offering explanation that deposits were made by third parties, viz., customers of bank, and said explanation had not been found to be incorrect or false in any manner, addition was to be deleted. Held, yes. v. CIT Vs. Patel Ramniklal Hirji [2014] 41 taxmann.com 493/222 Taxman 15 (Mag.) (Guj.) Where assessee received loan through account payee cheques and, in support of loan transaction he also brought on record copy of books of account, bank statement and income-tax return of lender, transaction in question was to be regarded as genuine and, thus, loan amount could not be added to assessee's taxable income under section 68 [Assessment Year 2005-06] [In favour of assessee). 19. In view of the above, that in addition in the income of the assessee are stand deleted. We are not adjudicating the other grounds for reopening of the case by Ld. AO. In the result, the appeal of the assessee allowed for statistical purposes. Order pronounced in the open court on 03-07-2025 Sd/- Sd/- (A. L. SAINI) (DINESH MOHAN SINHA) ACCOUNTANT MEMBER JUDICIAL MEMBER Rajkot Ǒदनांक/ Date: 03/07/2025 Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) Page | 11 ITA No.343/RJT/2024--AY.2011-12 Paresh Dayashankar Madeka v. ITO 4. Pr. CIT 5. DR/AR, ITAT, Rajkot 6. Guard File By Order Assistant Registrar/Sr. PS/PS ITAT, Rajkot "