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TMI Blog2019 (2) TMI 835X X X X Extracts X X X X X X X X Extracts X X X X ..... ove the identity, creditworthiness and genuineness of transactions. CIT(A) had discussed in detail that the documents submitted by the assessee and their co-relation with the onus, which stands discharged by the assessee. But on the contrary, the AO had not brought on record any evidence to controvert or rebut the claim of the assessee and even no findings were recorded by the AO to the effect that the evidences produced by the assessee were untrustworthy or lack credibility. Although it was claimed by the AO that during the course of search at the residence of Shri Bhanwarlal Jam, a pen drive (Sony 4 GB) was seized and as stated in para-5.1 on page-8 of the impugned order. Also claimed that after decryption of the data stored in the said pen drive, a database containing details of loans advanced by all 70 benami concerns of Shri Bhanwarlal Jain and Shri Rajesh Bhanwarlal Jain from F.Y.2006-07 and onwards was prepared by the Investigation Wing, Mumbai. Whereas on the repeated request made by the assessee to furnish copies of print outs of date of transactions pertaining to the assessee and relevant to A.Ys.2012-13 and 2013-14. Apart from that the AO was also asked to furnis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loans during the year. Accordingly, notice u/s. 143(2) of the Act dated 04.09.2014 was issued and served on the assessee. Assessment order u/s. 143(3) of the Act was passed by the AO on 29.02.2016 determining total income of the assessee at ₹ 36,78,25,297/- after making certain additions/ disallowances u/s 68, 69C, etc of the I.T. Act. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties, partly allowed the appeal of the assessee. Now before us, the revenue has preferred the present appeal by raising the above grounds. Ground No. 1 to 3. 3. These grounds raised by the revenue are inter connected and inter related and relates to challenging the order of Ld. CIT(A) in deleting the additions made by AO u/s 68, 69C, etc of the I.T. Act as well as deleting the additions claimed by the assessee as interest payments on the loans, therefore we thought it fit to dispose of the same by this common order. 4. At the very outset, Ld. AR appearing on behalf of the assessee submitted before us that these grounds are covered by the order of Hon ble ITAT in ITA No. 6099/Mum/16 for AY 2012-13 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. Mohit Enterprises 37500000 13. Navakar Diamonds 5000000 14. Prime Star 5000000 15. Roshan Gems Pvt Ltd 20000000 16. Sonam Gems Pvt Ltd 50000000 Hence the revenue carried out Survey operation in the hands of the assessee on 16-10-2014. Subsequently, the return of income filed by the assessee was taken up for scrutiny. Since Bhanwarlal Jain had admitted that he and his group of companies are providing only accommodation entries, the AO took the view that the assessee has introduced its unaccounted cash through the bogus loans stated above. 3. Before the AO, the assessee furnished all the details that were called for including details of loans received, details of interest paid, copies of affidavits given by the lenders, financial statement of lenders etc., in order to prove the genuineness of loans in terms of sec. 68 of the Act. Thereafter, the assessee asked the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansactions entered by their group are bogus. These concerns have adopted Circulatory method to transfer funds through many layers with the objective to give colour of genuineness to the transactions. He submitted that the modus operandi adopted by this group has been clearly established by the revenue and the same methodology has been adopted by all the lenders. It was also proved that the directors of various companies are only employees of Shri Bhanwarlal Jain. This group ensured that the transactions are arranged in a perfect manner in order to avoid even slightest of doubt. He submitted that the search team has, however, unearthed the bogus nature of all transactions, which has also been confirmed by Shri Bhanwarlal Jain and other persons. 6. The Ld D.R submitted that the appellate authorities are also duty bound to conduct necessary enquiries, if there is any deficiency in the enquiry conducted by the AO, as held by Hon ble Delhi High Court in the case of Jansampark Advertising Marketing (P) Ltd (ITA 525/2014 dated 11-03-2015). He further submitted that the Hon ble Delhi High Court has highlighted in the case of Pr. CIT Vs. Bikram Singh (ITA 55/2017 dated 25-08-2017) ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als have also shown that the directors of various companies are employees of Shri Bhanwarlal Jain, meaning thereby all the lender companies are filled with dummy directors. All these factors strengthen the admission made by Shri Bhanwarlal Jain that he and his group of companies are engaged in providing accommodation entries only. 9. Accordingly the Ld D.R submitted that the order passed by Ld CIT(A) should be reversed. Alternatively he suggested that the matter may be restored to the file of the AO for examining it afresh by conducting further enquiries. 10. The Ld A.R submitted that the assessing officer has made the addition u/s 68 of the Act. He submitted that the assessee is required to discharge the initial onus placed upon it u/s 68 of the Act. He submitted that the assessee has furnished all the documents in order to prove the identity and creditworthiness of the creditors. All the transactions have been routed through the banking channels and hence genuineness of the creditors is also proved. The ld A.R submitted that the revenue did not find any incriminating material during the course of survey operations conducted in the hands of the assessee. He submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. Accordingly he submitted that the Ld CIT(A) was justified in deleting the addition made by the AO u/s 68 of the Act and also the consequential additions. 12. The Ld A.R submitted that the assessing officer has mainly placed reliance on the report given by the search officials, who conducted the search in the hands of Shri Bhanwarlal Jain, which consisted of certain documents and sworn statements recorded from him and other employees. The assessing officer, however, did not confront those materials and sworn statements with the assessee. He submitted that the assessee, vide its letter dated 13-03-2015 (copy placed at page 89 of the paper book), has requested the AO to furnish copies of information, statements, reports or any document on which the AO has placed reliance. Further the assessee has also requested the AO to allow reasonable opportunity to give submissions and explanations on those materials. The assessee has also specifically asked for an opportunity to confront and cross examine the parties who gave the Statements. The assessee again made similar request in its letter dated 19-03-2015. The Ld A.R submitted that the AO, however, did not furnish the copies of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any further enquiries at all nor did he issue summons to the loan creditors. Accordingly he submitted that the AO was not entitled to make addition u/s 68 of the Act under these facts as held by Hon ble Supreme Court in the case of Orissa Corporation (P) Ltd (159 ITR 78)(SC). 15. The Ld A.R submitted that the assessee has repaid most of the loans and the same has been noted down by the Ld CIT(A) in paragraph 6.3.32 of his order. The Ld A.R further submitted the statements given by Shri Bhanwarlal Jain has been claimed to have been retracted. He submitted that the co-ordinate bench of the Tribunal has rendered its decision in the case of M/s Vama International (ITA No.7315, 7316 7317/Mum/2016 dated 15-02-2018), wherein the issue was related to the disallowance of purchases made from M/s Bhanwarlal Jain Group. In the said decision, the Tribunal has recorded that the statements have been retracted by them subsequently. The co-ordinate bench has further held that the purchases could not be treated as bogus simply relying on the statements given in the case of Bhanwarlal Group. Accordingly the Ld A.R submitted that the AO could not have placed reliance on the statements given by S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e out the quality of appellant-specific evidence if any available. A search for such an examination leads to the following questions: a. What is the nature of evidence that has been brought on record to show that the lender parties, who advanced the impugned loans to the appellant, were benamis of Shri Bhanwarlal Jain? b. Is there any material that has been brought out by the Assessing Officer to show that the loans in question are paper entries purchased against payment of unaccounted cash? c. Has the Assessing Officer brought any material on record to show that commission was paid to Shri Bhanwarlal Jain? 6.3.2 First of all, it would be worthwhile to examine the impugned assessment order with regard to material that shows that the hawala racket was run through benami entities of Shri Bhanwarlai Jain, In this regard it may be mentioned that: a. In sub-paragraph 4.18 of the assessment order, the Assessing Officer claims that in their respective statements, recorded u/s 132(4) all Directors/ Proprietors/Partners of the alleged benami entities run by Shri Bhanwarlal Jain have admitted to being dummies, business in whose names was actually being run by Shri Bhanwarlal J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry providers and that entries for the loans in question have actually been obtained against payments made by the appellant in cash outside regular books of account. There is no evidence brought on record for payment of any commission or fee having been made by the appellant to the alleged hawala givers. All this goes to support the contentions of the appellant that Assessing Officer has passed the order on the basis of mere conjectures and surmises, without bothering to bring any concrete material on record. 6.3.5 Survey Action u/s 133A of the Act at the appellant premises: Material, brought on record by the appellant before the Assessing Officer in the course of assessment proceedings clearly shows that about a year after search action of 2013 in the case of Shri Bhanwarlal Jain, the appellant was surveyed by the Investigation Wing on 16-10-2014. The survey party found that the impugned loans of ₹ 24.75 crore from the aforesaid 17 entities were incorporated in the books of account of the appellant. Statement on oath of Shri Hemal Jhaveri, Key Person, was recorded on the 16th, the 17th and the 18th of October, 2014. Shri Hemal Jhaveri maintained that these loans were ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. Bhanwar Lal Jain should not be treated as merely accommodation entry. Ans. As stated by me in reply to earlier question, there is no base for that presumption to treat loans received by M/s. Jainam Investment as merely accommodation entry. Q.30 As it has been stated by Shri. Bhanwar Lal Jain that all trading activity done by his concerns are nothing but only accommodation entries. It simply clarifies the fact that there is no real trading activity going on in these concerns. It simply explains that balance sheet which explains source of loan doesn t prove credit worthiness of concerns. In view of this please explain why the unsecured loan taken by the M/s Jainam Investments from the group concerns of Shri Bhanwarlal Jain should not be treated as just accommodation entry? Ans. In view of my reply to earlier question I can't comment on this. Q.31 Please go through the Q. No 29 to 34 of Shri. Bhanwar Lal Jain. In this statement Shri. Bhanwar Lal Jain has admitted that concerns operated by him has certain transactions which are not recorded in regular books of accounts. These transactions had not been routed through banks but through angdiya account in cash. Shri. Bh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be drawn as suggested by you. Q.37 In view of the discussion in Q.No. 25 to 33 above why the unsecured loans taken from parties mentioned in your reply to Q.No.35 above should not be considered as only accommodation entries. Ans. There is nothing to suggest even from the statement of Shri Bhanwarlal Jain that loans transactions by the above parties are accommodation entries. As such, no inference should be drawn in absence of any evidence, that these loans are accommodation entries. 6.3.6 As is obvious, Shri Hemal Jhaveri stuck to his contention that even from the statement of Shri Bhanwarlal Jain, it was not possible to draw an adverse inference of hawala regarding the Impugned loans. The appellant, subsequently furnished to the Investigation Wing various details regarding the lenders - their names, PAN, constitution, names of Proprietor/Partner/Director. Further, the appellant provided confirmatory letters issued by the lenders, copies of acknowledgement of respective income tax returns, Balance Sheets, and relevant Bank Statements of all the lenders. Obviously, other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through an order dated 30.06.2016 in INCOME TAX APPEAL NO.58 OF 2001. In that case, the assessee had adduced evidence by way of bank record to show that loan had been received from a creditor through banking channels. The creditor was not physically traceable, as much time had elapsed and his address had changed. The assessment had been reopened on the basis of third party evidence collected in a search action in the case of a charitable trust. Despite specific request in this regard, the Assessing Officer concerned did not provide to H R Mehta a copy of the appraisal report third party statement etc. and proceeded to treat the loan as unexplained. The Hon'ble High Court struck down the order of reassessment by observing that revenue was not justified in making the addition without having first given the assessee an opportunity to cross examine the deponents on the statements relied upon by the ACIT. The relevant discussion, contained in paragraphs 16 and 17 of the High Court's order, is reproduced below: 16. In the instant case although the appellant assessee has called upon us to draw an inference that the burden shifted to the revenue in the present case once it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Apex Court that in Income Tax proceedings when an evidence is to be used against the assessee and if it is not shown to the assessee and if no opportunity to controvert is given to the assessee, that evidence is not admissible. It further held the department ought to have called upon the manager to produce the documents and papers on the basis of which he made the statements and confronted the assessee with those documents and papers. Before the Income tax authorities could rely upon the evidence, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross examine the manager of the bank with reference to the statements made by him. 6.3.12 On Principles of Natural Justice it has been held by the Apex Court in the case of Swadeshi Cotton Mills vs Union of India in 1981 AIR 818 that phrase Natural justice is not capable of a static and precise definition. Two fundamental maxims of natural justice have now become deeply and indelibly ingrained in the common consciousness of mankind as preeminently necessary to ensure that law is applied impartially objectively and fairly. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may not be possible to catalogue. 23. In the absence of any material produced by the Revenue in proof of the alleged comparable imports at a higher value, the impugned order which eventually confirmed the original order of assessment ......... cannot be sustained for two reasons - (1) the mere existence of an alleged computer printout is not proof of the existence of comparable imports; (2) assuming such a printout exists and the contents thereof are true, the question still remains whether the transaction evidenced by the said computer printout are comparable o the transaction of the appellant, The appellant will have to be given reasonable opportunity to establish (if he can) that the transactions are not comparable. 6.3.15 Going by the discussion contained above, it is obvious that the inference drawn by the Assessing Officer against the appellant is not sustainable for the simple reason that the principles of natural justice have not been followed. First and foremost, the appellant has not been given any access to the material (reports, intimations, statements etc.) used against it. Secondly, by withholding the said material, the Assessing Officer has denied to the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is open to the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that the income is from any particular source [Roshan Di Haiti v. CIT[1977] 107 ITR 938 (SC)]. 6.3.20 The initial burden to prove the genuineness of cash credit lies on the taxpayer. If the assessee fails to prove satisfactorily the source and nature of amounts of cash received and creditworthiness of the creditor, the AO is entitled to draw inference that the receipts are of an assessable nature [Govindarajulu Mudaliar vs. CIT[1958]34 ITR 807 (SC)]. 6.3.21 In the case of Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78 /2S Taxman 80F (SC), the assessee gave the names and addresses of the creditors. It was in the knowledge of the Revenue that the creditors were income-tax assessees. The revenue apart from issuing notices under section 131 did not pursue the matter further. It did not examine the source of income of the alleged creditors to find out whether they were creditworthy. Therefore, it was held that in these circumstances, assessee could not do any further and it had discharged the burden laid on it. 6.3.22 In the case of Rohini Builders [2002] 256 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to the explain the credit entry but it shifts upon the Assessing Officer under certain circumstances. Where the assessee shows that the entries regarding credit in a third party's account were in fact received from the third party and are genuine, he discharges the onus. In that case the sum cannot be charged as the assessee's income in the absence of any material to indicate that it belongs to the assessee. It was further held by the Hon'ble Court that when assessee sufficiently discharged the burden and when burden clearly shifted to the Department to prove to the contrary and when AO failed to invoke the provisions of section 131 of the Act to prove the contrary, it was sufficient reason to delete the addition. 6.3.26 In the case of CIT v. Jal Kumar Bakliwal [2014] 366 ITR 217 (Raj), it was held by the Rajasthan High Court that all the cash creditors were assessed to Income-tax and they provided a confirmation as well as their permanent account number. They had their own respective bank accounts which they had been operating and it was not the claim of the Assessing Officer that the assessee was operating their bank accounts. Most of the cash credito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the impugned loan entries from the 17 creditors, the appellant has furnished to the Assessing Officer the following details copies of which were also furnished in the present proceedings: I. PAN details of creditors II. Constitution and address of the creditors III. Particulars of income-tax returns filed by the creditors [These show that the creditors are legitimate business entities, having the ability to advance the impugned loans to the appellant.] IV. Confirmatory letters given by the creditors V. Audited financial accounts (including balance sheets) of the creditors [These show that the loans are duly reflected in the books of account of the creditors.] VI. Relevant bank statements of the creditors [These show that the loan amounts were paid through legitimate banking channels. Further these bank statements do not reflect any movement of cash, essential to hawala transactions.] VII. Details of interest paid to the creditors VIII. Details of TDS deducted and paid 6.3.32 As such, in so far as the appellant is concerned, it has provided all possible documentary evidence to prove identity of the creditors from whom the impugned loans of ₹ 24,75,00,000 were obtained. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000 MALHAR EXPORTS 22-07-2011 RTGS 50,00,000 MALHAR EXPORTS 06-02-2012 RTGS 50,00,000 MARVIN ENTERPRISES 20-03-2012 RTGS 1,00,00,000 MARVIN ENTERPRISES 09-10-2012 RTGS 1,00,00,000 MEHUL GEMS PVT. LTD. 29-02-2012 RTGS 1,00,00,000 MEHUL GEMS PVT. LTD. 29-02-2012 RTGS 1,00,00,000 MEHUL GEMS PVT. LTD. 13-07-2012 RTGS 1,50,00,000 MEHUL GEMS PVT. LTD. 08-11-2012 RTGS 50,00,000 MINAL GEMS 23-06-2011 RTGS 50,00,000 MINAL GEMS 17-03-2012 RTGS 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ROSHAN GEMS PVT. LTD. 08-11-2012 RTGS 2,00,00,000 SONAM GEMS PVT. LTD. 29-02-2012 RTGS 1,50,00,000 SONAM GEMS PVT. LTD. 29-02-2012 RTGS 1,50,00,000 SONAM GEMS PVT. LTD. 01-03-2012 RTGS 2,00,00,000 SONAM GEMS PVT. LTD. 09-11-2012 RTGS 5,00,00,000 24,75,00,000 24,75,00,000 6.3.33 Thus, it has to be said that the appellant had done everything in its power to prove the three ingredients required to prove the satisfactory nature of the loan transactions. In these circumstances, the onus had shifted to the Assessing Officer. If the Assessing Officer was still not satisfied, he had the option of making inquiries from the alleged lenders by summoning them. However, as seen from the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute that the assessee has discharged the initial burden of proof placed upon it by furnishing all the materials to prove the three main ingredients, referred above. Hence the burden has shifted to the shoulders of the assessing officer to disprove the evidences furnished by the assessee. We notice that the assessing officer, in the instant case, did not conduct further enquiries or bring any material on record to discharge the burden shifted upon his shoulders. Instead, we notice that the assessing officer has simply placed reliance on the alleged incriminating materials found in the course of search conducted in the hands of Shri Bhanwarlal Jain and his group and also upon the sworn statements given by them. 18. The Ld CIT-DR, by placing reliance on the decision rendered by Hon ble Delhi High Courts in the cases of Jansampark Advertisement and marketing (supra) and Bikram singh (supra), contended that the appellate authorities are duty bound to conduct further enquiries, if there is deficiency in the enquiry conducted by the AO. However, in the instant case, we notice that the addition has been made u/s 68 of the Act and the assessee has discharged the onus placed upon him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther the AO has not shown that the transactions entered by the assessee with the group of Shri Bhanwarlal Jain were examined by the search officials and he has deposed against the transactions entered between him and the assessee. On the contrary, the Ld CIT(A) has given a finding that the impugned loan transactions have not been specifically stated to be bogus in nature. The key person of the assessee has reiterated in his statement taken from him during the course of survey that the loan transactions are genuine. When it was pointed out that Shri Bhanwarlal Jain has admitted the bogus nature of transactions, the key person has specifically stated that the said admission related to the sale of diamonds and further specifically stated that the loan transactions are not covered in the statement. Hence the Ld CIT(A) was right in observing that the impugned loan transactions have not been specifically covered by the statement given by Shri Bhanwarlal Jain. Hence in our view, the theory of human probabilities and surrounding circumstances need not be applied in this case. 20. It is a fact that the revenue has conducted survey operations in the hands of the assessee and they did no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso shows that to prove the genuineness of the impugned loan entries from the 17 creditors, the appellant has furnished to the Assessing Officer the following details copies of which were also furnished in the present proceedings: I. PAN details of creditors II. Constitution and address of the creditors III. Particulars of income-tax returns filed by the creditors [These show that the creditors are legitimate business entities, having the ability to advance the impugned loans to the appellant.] IV. Confirmatory letters given by the creditors V. Audited financial accounts (including balance sheets) of the creditors [These show that the loans are duly reflected in the books of account of the creditors.] VI. Relevant bank statements of the creditors [These show that the loan amounts were paid through legitimate banking channels. Further these bank statements do not reflect any movement of cash, essential to hawala transactions.] VII. Details of interest paid to the creditors VIII. Details of TDS deducted and paid . Even though the assessing officer did not find any fault with these documents, still the assessee has requested the AO to issue summons to these p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue from the DDIT(Inv) Mumbai to the effect that assessee was one of the beneficiaries of accommodation entries for loan from various concerns/ entities which were benami concerns, managed and controlled by Bhawarlal Jain Group. 8. The Investigating Wing of the department had examined all the loan creditors wherein all the creditors had appeared and confirmed the transactions of loans advanced to the assessee. The AO had primarily made the additions by believing and relying upon the admission of Bhawarlal Jain by ignoring the fact that nowhere in the statement of Bhawarlal Jain or any of his associates recorded u/s 132(4) of the Act had admitted that any of their concerns had ever given accommodation entries by way of unsecured loans to the assessee. From the documentary records, we also noticed that actually, the assessee had already discharged the onus caste upon him to prove the identity, creditworthiness and genuineness of transactions. Even Ld. CIT(A) had discussed in detail in para no. 4.3.3 of its order, the documents submitted by the assessee and their co-relation with the onus, which stands discharged by the assessee. But on the contrary, the AO had not brought ..... 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