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TMI Blog2016 (6) TMI 974X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007, the said amount of ₹ 16,50,650/- was transferred back to the debit of the assessee as being receivable by said San Finance Corporation by passing a journal entry on 31-03-2007 of the amount of ₹ 16,50,650/-. No clarification and explanation has been given by the assessee with respect to above entries. Revenue also has not made any enquiry and examination to understand the reason and purpose of transferring the entry by San Finance Corporation by debiting to the account of ‘Sanson Developers Properties’ as on 31-03-2006 with ₹ 16,50,650/- and removing the name of the assessee as borrower of the said loans from San Finance Corporation from its books of accounts as on 31-03-2006 and bringing the loan receivable from assessee to ‘Nil’ as on 31-03-2006 , before fastening liability on the assessee. Thus, in the interest of justice, this matter need to be set aside to file of the AO for de-novo enquiries and examination to bring on record the pith and substance of the nature of entire loan transactions undertaken by the assessee with the said San Finance Corporation to evaluate its genuineness. For reopening , it cannot be held that the A.O. has formed any opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proved the source of investment made in the flat. 3. The Learned Commissioner of Income Tax (Appeals) has erred in confirming the addition on irrelevant considerations. 3. The brief facts of the case are that the assessee filed his return of income on 20th June, 2007 which was processed u/s 143(1) of the Income Tax Act, 1961 on 6th July, 2007. The case was reopened u/s 147 of the Act after recording the reasons and with prior approval of the CIT dated 20th July, 2011. Statutory notice u/s 148 and 142(1) of the Act dated 21st July, 2011 along with questionnaire was issued and duly served on the assessee. The assessee in response submitted vide his letter dated 19th July, 2012 that the original return of income filed may be treated to have been filed in response to the notice u/s. 148 of the Act. During the course of re-assessment proceedings u/s 147/148 of the Act, the A.O. observed that the assessee is a retired Section Officer of the Defense Estate Office, Colaba, Mumbai. The information called for as per the questionnaire issued by the AO, was submitted by the assessee to the AO. On perusal of the statement of accounts of the assessee, it was observed by the A.O. t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to explain the source of the investment. Statement of the assessee was recorded u/s 131 of the Act on 29th July, 2011 wherein the assessee stated that he has invested total amount of ₹ 66,08,512/- for the said flat and out of which an amount of ₹ 65,58,500/- was borrowed from M/s San Finance Corporation, Nagpur for purchasing the said flat. It was observed by the AO that the said loan amount was not routed through the assessee and the amount was directly paid by the said San Finance Corporation to Adarsh Co-operative Housing Society Limited and during the year an amount of ₹ 15,65,000/- was directly paid by the San Finance Corporation, Nagpur to the said society. Since in the opinion of the AO the assessee had not given proper evidence in support of his claim that the assessee has received the above amount as loan from San Finance Corporation , Nagpur and the same was invested in the above mentioned flat/property , the assessee was asked by the AO to explain as to why an amount of ₹ 15,65,000/- should not be added to the total income of the assessee as investment from unexplained sources u/s. 69B of the Act. The assessee in response submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the identity , capacity and genuineness of the lender is proved beyond doubt who had given the funds out of their account and the assessee has discharged the onus, hence, no addition should be made of the said loan given by the said San Finance Corporation to the assessee. The A.O. after considering the reply of the assessee held that the case laws relied upon by the assessee related to the unexplained cash credit u/s 68 of the Act while in this case, the assessee did not reflect any cash credits entries in the books of accounts of the assessee and the issue is regarding the partly recorded unexplained investment by the assessee which is covered u/s 69B of the Act whereby the investment has never been fully disclosed by the assessee. The assessee disclosed only ₹ 50,000/- investment in the Adarsh Co-Operative Housing Society Limited in the Balance Sheet and the loan from San Finance Corporation, Nagpur is also not reflected by the assessee as liability in the Balance Sheet filed along with the return of income with the Revenue, hence, the transaction cannot be accepted as genuine loan transaction due to the following reasons:- i) There is no proper structured loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary of the Adarsh Co-operative Housing Society Limited. The assessee submitted that it was orally agreed between the assessee and M/s San Finance Corporation that the San Finance Corporation, Nagpur will directly pay the amount to the said society on behalf of the assessee. The written agreement containing all the terms will be signed in due course and in process a draft agreement was prepared to be approved jointly. But before it could be signed , then at the instance of Hon ble Bombay High Court some enquiries were started and all the records of the society were seized by the CBI and since the issue has become sub-judice , no further action on the draft agreement was taken. The copy of draft agreement was submitted before the CIT(A). The photo-copy of confirmation letter from San Finance Corporation, Nagpur showing amount of loan, date, cheque/DD, name of the bank etc. were submitted before the CIT(A). The ledger extract of the assessee s account in the books of San Finance Corporation, Nagpur for the financial years from 2005-06 to financial year 2010-11 were also submitted before the CIT(A). The loan confirmation letter from San Finance Corporation, Nagpur for the period 01-04- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng drafting of documents etc. and the assessee was not well conversant with the maintenance of books of account that is why the investment is not shown in the books of accounts. The assessee submitted that Section 69B of the Act is not applicable to the case of the assessee as there is no requirement cast under law on the assessee for maintenance of books of accounts keeping in view the affairs of the assessee and also it was not an intentional and purposeful default on the part of the assessee to have not reflected the said investment in the flat at Adarsh Co-operative Housing Society Limited and of the corresponding borrowings made from San Finance Corporation . The assessee submitted before the CIT(A) that in any case the assessee during re-assessment proceedings has come forward and has given sufficient documentary evidences to substantiate the raising of loan by the assessee. The assessee submitted the copy of loan confirmation letter of M/s San Finance Corporation, Nagpur dated 8-12-2010 along with copy of accounts for different years and the draft loan agreement have been furnished before the CIT(A) along with written submissions , which were forwarded by the CIT(A) to the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and genuineness of the transaction is proved. Cheque payment have been made directly by San Finance Corporation to the society for disbursing this loan and hence it proves the source of investment in the flat and there being no loan agreement or non-payment of interest etc. will have no bearing on the matter involved in this case. The assessee again reiterated its submissions as were made earlier which are not repeated for sake of brevity. The CIT(A) after considering the facts on records, submissions of the assessee and the remand report of the A.O. , held that the assessee has invested an amount of ₹ 66,08,512/- for purchase of a flat in the said Adarsh Co-op Group Housing Society Limited, but the assessee has only disclosed ₹ 50,000/- in his Balance Sheet. As such the A.O. had strong reasons to believe that the income of the assessee has escaped assessment. The reasons of the re-opening were duly recorded after specific information. The original assessment was completed u/s 143(1) of the Act. There is no change of opinion. The CIT(A) held there is no infirmity in reopening of the assessment by the AO and the AO has validly initiated the proceedings u/s 147 and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectly made by said San Finance Corporation to Adarsh Co- operative Group Housing Society is not reflected in the Balance Sheet of the assessee. The A.O. has objected that there was no structured loan agreement between the assessee and the said lender San Finance Corporation , no collateral securities have been taken by the said San Finance Corporation to secure the lending and no interest is charged on the said loans , thus this transaction is an unusual transaction , hence addition u/s 69-B of the Act is attracted as genuineness of the loan transactions is not proved. The CIT(A) directed AO to make verification and called for the remand report from the A.O. . The A.O. issued notice u/s 133(6) of the Act to the lender San Finance Corporation, Nagpur who has confirmed the transaction of having made direct payment to the society towards the purchase of the said flat by the assessee. The CIT(A) after considering the submission and remand report held that this is not a normal transaction and confirmed the orders of the A.O. . No action has been taken by the Revenue against the lender. The ld. counsel for the assessee stated that the finance company has given the loan directly to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere later deployed to give advances and loans to various parties including the assessee. The ld. Counsel drew our attention to P.B. page No. 31 which is the audited accounts of the San Finance Corporation, Nagpur as on 31st March, 2007 wherein it is reflected that it has given deposit and advance of ₹ 32,37,432/- to the assessee as at 31.03.2007. 9. We have considered the rival contentions and also perused the material on record including the case laws relied upon by the rival parties. The Revenue has not filed any written submissions as was indicated during the course of hearing as set-out above , thus we are proceeding to adjudicate the instant appeal based on material and facts as are available presently on record. We have observed that the assessee has booked a flat in Adarsh Co- operative Housing Society Limited in the previous year relevant to the assessment year 2005-06 and payment of ₹ 50,000/- was made by the assessee towards membership fee which has been duly reflected in the Balance Sheet s filed by the assessee with Revenue . The assessee has stated to have raised loan from San Finance Corporation, Nagpur of ₹ 65,58,500/- as on 31st March 2011 which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed with the Revenue. The assessee has brought on record afore- stated material and evidences to prove its contentions to substantiate the identity , creditworthiness of the lender and genuineness of the loan transaction. The Revenue on the other hand has doubted the genuineness of the loan transactions on the ground that no structured loan agreement has been entered into between the assessee and the lender, no interest has been charged by the lender on the loans so disbursed, no collateral securities have been taken by the lender from the assessee to secure loan amount disbursed and no effort has been made by San Finance Corporation to recover the said loan and interest on these loans from the assessee and the assessee has also not made any re-payment of loan to San Finance Corporation till date. The assessee has also not declared these loans and investment in the afore- stated flat to the tune of ₹ 65,58,500/- in his Balance Sheet filed with the Revenue over the years and only initial payment of ₹ 50,000/- made by the assessee towards membership fee has been disclosed. The Revenue has thus doubted the genuineness of the loan transaction and it was incumbent on the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,50,650.00 24 Nov, 2005 MBP M24112005 1 To Ch No. 158541 Paid Adarsh Co Op Housing 5,00,000.00 11,50,650.00 Society Ltd Colaba Mumbai 16,50,650.00 25 Mar, 2006 MBP M25032006 1 To Ch No. 158544 Paid Adarsh Co Op Housing 5,00,000.00 31 Mar, 2006 JV 31032006 77 Society Ltd Colaba Mumbai To advance paid transfer to Sanson Developers Properties A/c Total/Closing Balance 10,00,000.00 16,50,650.00 16,50,650.00 0.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JV 31032007 104 Being bal. trf. From Sanson Developers as per instruction by SHri Anand Sir Mayur Sir Total/Closing Balance 16,50,650.00 32,37,432.00 32,37,432.00 32,37,432.00 The assessee relied upon the above ledger extracts of the account of the assessee in the books of accounts of San Finance Corporation to contend that the loans granted by San Finance Corporation to the assessee were duly recorded in the books of accounts of San Finance Corporation and hence the loans are genuine. The perusal of the above ledger extract of San Finance Corporation for the financial year 2005-06 (paper book, page 23) reveals that the closing balance outstanding being receivable from assessee in the books of accounts of San Finance Corporation as at 31-03-2006 with respect to the said loans were reduced to Nil by passing a journal entry by the said San Finance Corporation on 31-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks of San Finance Corporation on 31-03-2007 as set out above. The reason and purpose for transferring the loan receivable from assessee to Sanson Developers Properties by the lender San Finance Corporation as on 31-03-2006 is very important to come to conclusion and adjudicate this appeal to understand the entire factual matrix and pith and substance of the nature and substance of entire loan transaction which the assessee has not clarified .The assessee has merely stated that the loans are outstanding in the books of lender M/s San Finance Corporation while the fact of the matter is that the said San Finance Corporation by passing journal entry on 31-03-2006 has removed/erased the loan outstanding of ₹ 16,50,650/-- due from the assessee from its books of account and the amount of ₹ 16,50,650/- stood transferred to being receivable from Sanson Developers Properties as on 31- 03-2006 and the receivable from assessee in books of San Finance Corporation was reduced to Nil as on 31-03-2006. It is almost after one year on 31-03-2007, the said amount of ₹ 16,50,650/- was transferred back to the debit of the assessee as being receivable by said San Finance Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, it cannot be held that the A.O. has formed any opinion with respect to the investment made by the assessee in the flat in the Adarsh Co-operative Housing Society Limited. Information has been received by the Revenue that the assessee has invested an amount of ₹ 66,08,512/- and based upon that the Revenue has reopened the case and the notices has been issued within four years from the end of the assessment year by issuing notice u/s 148 and 142(1) of the Act dated 21st July, 2011 and since the Revenue has received cogent tangible material having live link/nexus with the reasons to believe that the income has escaped assessment , the return of income was originally processed and accepted u/s 143(1) and not u/s 143(3) r.w.s. 143(2) of the Act and the Revenue has re-opened the assessment within four years of the end of the assessment year, we hold that the Revenue has rightly invoked the provisions of section 147/148 of the Act and we uphold the reopening of the assessment. We order accordingly. 10. In the result, the appeal filed by the assessee in ITA N0. 1049/Mum/2014 for the assessment year 2007-08 is partly allowed for statistical purposes. Order pronounced i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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