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TMI Blog2018 (8) TMI 1766X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the AO and non-providing of opportunity to cross examine the Shri Bhanwarlal Jain and others would make the addition to fail. Even in respect of documents relied upon by the AO, the Ld CIT(A) has found the same to be inadequate to warrant the additions made u/s 68 of the Act. Hence, we are of the view that the Ld CIT(A) has passed a reasoned order by considering the facts of the case, applicable case laws and has taken a justifiable view in this matter - thus confirm the order passed by Ld CIT(A) in deleting the addition of 24.75 crores made u/s 68 of the Act. Since we have confirmed the order of Ld CIT(A) in deleting the addition made u/s 68 of the Act, the interest disallowance is also liable to be deleted. - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... AO, however, proceed to place reliance on the observations made by search team in respect of Bhanwarlal Jain and accordingly concluded that the above said borrowings aggregating to ₹ 24.75 crores is unexplained and creditworthiness of the same was not established. Accordingly the AO assessed the above said amount as income of the assessee u/s 68 of the Act. He also disallowed interest expenditure claimed against the above said loan. The AO also took the view that the assessee should have paid commission for availing accommodation entries and estimated such commission expenses at ₹ 59.40 lakhs, which was also added to the total income. 4. The Ld CIT(A), however, took the view that the assessee has discharged the initial burden placed upon it u/s 68 of the Act by proving the identity of the creditors, creditworthiness of the creditors and genuineness of transactions. The Ld CIT(A) also expressed the view that the assessing officer has not discharged the burden shifted upon his shoulders and has totally relied upon inadequate evidences. He also observed that the AO has failed to give incriminating materials to the assessee and also did not give due opportunity to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n mystery and accordingly confirmed the addition made by the AO u/s 68 of the Act. 7. The Ld D.R further submitted that the discharge of initial onus by the assessee alone will not disentitle the AO to make additions u/s 68 of the Act. He can make further verification to satisfy himself that the transactions are genuine. For this proposition, the Ld DR placed reliance on the decision rendered by Hon'ble Punjab & Haryana High Court in the case of CIT vs. Bhan and sons (2005)(273 ITR 206). The Ld D.R submitted that the findings of search officials conclusively prove that the loan transactions are bogus. Accordingly he submitted that mere furnishing of particulars is not enough in the peculiar facts of the present case. Accordingly he submitted that the Ld CIT(A) should not have brushed aside the findings of search officials. In this regard, the Ld D.R placed reliance on the decision rendered by Hon'ble Calcutta High Court in the case of CIT vs. Precision Finance P Ltd (1994)(208 ITR 465). He submitted that the tax authorities are entitled to look into the surrounding circumstances and human probabilities in order to ascertain the genuineness of transactions. He further submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to disprove the claim of the assessee was accordingly shifted to the assessing officer in view of furnishing of all the details. However, the assessing officer has failed to conduct any further enquiries to disprove the claim of the assessee. 11. He submitted that the legal principles settled by various Courts have been reiterated in the decisions rendered in the case of Bhan & sons (supra) and Precision finance Company (supra), which were relied upon by the Ld CIT-DR. However the facts prevailing in those cases are different and hence those decisions are not applicable to the facts of the present case. He submitted that, in those cases, either the assessee did not discharge initial onus placed upon him or the assessing officer has not disproved the claim of the assessee. The Ld A.R submitted that, in the instant case, the assessee has discharged the initial onus by proving the three main ingredients, viz., the identity of the creditor, the creditworthiness of the creditor and genuineness of transactions by furnishing all the materials. He submitted that the assessing officer has not found fault with these materials and further did not conduct any further enquiries to disprove t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Kishinchand Chellaram vs. CIT (1980)(125 ITR 713). He further submitted that the assessing officer has not provided opportunity to cross examine the parties who gave adverse statements. He submitted that the Hon'ble Supreme Court has held in the case of Andaman Timber Industries vs. CIT (Civil Appeal No.4228 of 2006 dated 02-09-2015) that, not allowing cross examination of witnesses by the adjudicating authority will result in violation of natural justice, when the said authority is placing reliance on those statement of the witnesses. Accordingly the Hon'ble Supreme court held that the order passed by the authority is a nullity. The relevant observations made by Hon'ble Supreme Court are extracted below:- "According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the Statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity in as much as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the AO in the impugned assessment order and also the submissions made by the AR on behalf of the appellant. From the material, the AO has brought out in the body of the assessment order, his case against the appellant which is summarised as under: a. Shri Bhanwarlal Jain, in whose case a search action was conducted in 2013 by the Investigation Wing, had been found to be running a hawala racket through a clutch of benami concerns, run with the help of dummy Directors / Partners /Proprietors, who were simply employees of the said Shri Jain and were paid nominal salaries. b. Through the said benami concerns, hawala of two types were being given - (1) hawala for purchase of diamonds; and (2) hawala for unsecured loans. c. Hawala entries were provided against unaccounted cash provided by the beneficiaries. d. For the hawala services, so rendered by him, Shri Bhanwarlal Jain used to charge from the beneficiaries a certain percentage as commission. e. In his statement, made under section 132(4), Shri Bhanwarlal Jain had admitted to the said hawala racket and also the existence of dummy/benami entities, through which the said racket was being run. f. Dummy Directors / Partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these persons were dummy Directors/Partners/Proprietors, used by Shri Bhanwarlal Jain in running his hawala racket. However, no details of the evidence, if any collected from these persons regarding their role in the alleged hawala racket, has been mentioned. c. When it comes to detailing the adverse material, if any, the Assessing Officer, in sub-paragraph 4.23 of the impugned assessment order, refers to statements made by only three individuals (Lunkaran Parasmal Kothari, Anil Khicha and Ritesh Siroya), who had reportedly admitted to being dummy Proprietors/Partners/Directors in alleged benami concerns of the said Shri Bhanwarlal Jain. However, AO not mentioned anywhere in the assessment order whether these three names are there in the 17 parties from whom the appellant has taken the loans, which are treated as non-genuine borrowings by the AO. 6.3.3 Certain conclusions are obvious. One, the Assessing Officer himself is not so clear about facts and has referred to mostly the material facts which are not relevant to the case. Two, the Assessing Officer has not referred to any adverse material in the cases of loan creditors that are being dubbed by him to be benamis of Shri Bh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Jain, admitting hawala operations through benami entities. Shri Hemal Jhaveri did not dispute the said statement of a third party but he asserted that the statement in question had been retracted by Shri Bhanwarlal Jain; and, the same could not be used against him. Relevant portions from the statement of Shri Hemal Jhaveri are reproduced as below: Q. No. 28 In answer to Q No. 16 Shri. Bhanwar Lal Jain has accepted and reaffirmed the modus operandi of activities of all the concerns managed and controlled by him. From his reply it is apparent that all the concerns operated and managed by him are indulged in providing accommodation entries. It has further been accepted by you that unsecured loans in M/s Jainam Investment has also come from same concerns of M/s Bhanwar Lal Jain. In view of same please explain as to why transaction between M/s Jainam Investments and these concerns of Shri. Bhanwar Lal Jain should not be treated as merely accommodation entry. Ans. I cannot comment on modus operandi as stated by Mr. Bhanwarlal Jain in answer to question .16 in the said statement. But, it is observed from the question and answer that the issue covered therein is about goods and payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gation, these accounts were deciphered wherein your name against transactions through angadiya channel were also recorded. During the course of survey in your premise in the books of accounts of M/s Jainam Investments same entries have been found. In view of above, please, explain as to why transaction between M/ s Jainam Investments and these Ans. I have gone through the content. I reaffirm that my loan transactions with various entities of Shri Bhanwar Lal Jain are not accommodation entries. Q.32 Please furnish logical argument to contravene the statement of Shri. Bhanwar Lal Jain who is operator of the loan giving concerns and who himself has accepted that all transactions done by his concerns are merely accommodation entries. Ans. In view of my reply to earlier questions I can't comment on this. Q.34 In view of the above questions and your reply to the same, why the amount of ₹ 116,16,00,000/ -should not be treated as your undisclosed income In various financial years as below? F.Yr. Amount 2010-11 22,35,00,000 2011-12 25,75,00,000 2012-13 55,51,00,000 2013-14 12,55,00,000 Total 116,16,00,000 Ans. Loan received by M/ s. Jainam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious letters filed before the Assessing Officer in the course of assessment proceedings, the appellant had on more than one occasion specifically asked the Assessing Officer to make available to it the adverse material, if there was any in the possession of the Assessing Officer (The letters addressed to the AO by the appellant are discussed in detail in para- 6.2 above). Still, at no point of time in the course of assessment proceedings, did the Assessing Officer make available to the appellant any of the details sought by the appellant. 6.3.8 On the above facts, it is obvious that the Assessing Officer, while supposedly acting on a report of the Investigation Wing and some alleged third party evidence, never made the said report and evidence available to the appellant. Thus, the appellant was denied a chance to rebut the evidence by cross-examining those, who had allegedly given statements that could incriminate the appellant. All this is a clear violation of the principles of natural justice, a fundamental point to the validity of the proceedings, before the Assessing Officer. 6.3.9 The facts of the appellant's case are identical to those of in the case of Mehta, decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reassessment and therefore renders the orders passed by the CTT(A) and the Tribunal vulnerable. In our view the assessee was bound to be provided with the material used against him apart from being permitting him to cross examine the deponents. Despite the request dated 15th February, 1996 seeking an opportunity to cross examine the deponent and furnish the assessee with copies of statement and disclose material, these were denied to him. In this view of the matter we are inclined to allow the appeal on this very issue." 6.3.10 Opportunity of cross-examination of witnesses is an essential ingredient of the principle of natural justice. This has been affirmed by the Hon'ble Supreme Court in the case of Andaman Timber Industries [Civil Appeal No. 4228 of 2006, Date of Pronouncement- September 02, 2015]. In that case, the Hon'ble Supreme Court held that not allowing assessee the opportunity to cross-examine witnesses, whose statements were made the basis of a demand, is a serious flaw which makes order a nullity, as it amounts to violation of principles of natural justice. 6.3.11 In the case of Kishinchand Chellaram Vs. Commissioner Of Income-Tax, Bombay City-II [1980] 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rises & Another (Civil Appeal Nos. 433-434 of 2006); Dated: 21-08-2014. In that case, it was alleged that prices declared for import purposes had been suppressed. The case was based on evidence contained in a computer printout, reportedly prepared on the basis of import data, allegedly collected from Mumbai Port. This print out showed import prices, higher than those declared by the assessee. This printout was not made available to the assessee in the course of adjudication proceedings. After hearing the matter, the Hon'ble Supreme Court went on to set aside the order with below extracted observations: "22. ....... the respondent (revenue) did not supply the information (alleged computer printout} which formed the basis of the conclusion that the appellants herein undervalued the goods imported. In such a situation, the appellants obviously cannot and did not have any opportunity of establishing that the claim of the revenue is unsustainable in law. If the information, which formed the basis for the Revenue to reject the appellant's valuation is supplied to the appellants, the appellants perhaps will have the opportunity to dispute the comparability of the import tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a catena of decisions the Courts have laid down the following three fundamental tests which have to be established to discharge the burden under section 68 of the Act: • Identity of the creditor • Creditworthiness of the creditor, and • Genuineness of the transaction. 6.3.18 The Hon'ble Supreme Court in case of CIT v. P. Mohanakala [2007] 291 ITR 278/161 Taxman 169 held that the expression "assessee offers no explanation" means where the assessee offers no proper, reasonable and acceptable explanation as regards the sum found credited in the books maintained by the assessee. It further held that the opinion of the AO for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material & other attending circumstances available on record. The opinion of the AO is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion. 6.3.19. The law Is well-settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him and where the nature and source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment orders. Similarly, genuineness of transaction could be proved by showing that money was received by an account payee cheque or by draft. Credit worthiness of the lender could be established by attending circumstances. Once assessee produces evidences about identity, genuineness and credit worthiness of the lender, onus of proof shifts to revenue. Therefore, it was held that assessee had furnished all the details regarding genuineness of cash credit, i.e., he had discharged his burden of proof. AO did not make any attempt to discharge his burden of proof to rebut the evidences produced by assessee. No addition u/s.68 can be sustained. 6.3.25 In the case of CIT v, Varinder Rawlley [2014] 366 ITR 232 (P&H), it was held by the Punjab & Haryana High Court that Section 68 of the Income-tax Act, 1961, provides for charging of income of the assessee to tax, if, in the opinion of the Assessing Officer, the assessee failed to render any explanation or the explanation offered by the assessee about the nature and source of any sum found credited in the books of the assessee maintained for the previous year, is unsatisfactory. In other words, it is for the assessee to prove the genui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposits with the assessee, if any, assessee had discharged the initial onus laid on it under section 68 and addition could not be made merely for the reason that no confirmation letters were filed in respect of some of the depositors. 6.3.29 The question whether an assessee is required to prove the source of source also has been answered by the Hon'ble Gauhati High' Court in case of Nemi Chand Kothari v. CIT [2004] 136 Taxman 213. The High Court held that the assessee's burden is confined to proving the creditworthiness of creditor with reference to transaction between assessee and creditor and it is not the business of the assessee to find out the source of money of his creditor or of genuineness of transaction which took place between the creditor and sub-creditor and/or the creditworthiness of the sub-creditors. 6.3.30 Hence, it is to be inferred that in a case where the assesse has supplied all possible information to the Assessing Officer to explain the credit transaction, he has satisfactorily discharged the burden cast on him and it would be for the revenue to prove that the transaction is not satisfactorily explained and provisions of section 68 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MAYUR EXPORTS 25-06-2011 RTGS 1,00,00,000 MAYUR EXPORTS 22-11-2012 RTGS 1,50,00,000 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 50,00,000 MANAS GEMS PVT. LTD. 29-02-2012 RTGS 1,00,00,000 MANAS GEMS PVT. LTD. 08-11-2012 RTGS 1,00,00,000 MOTHER EXPORTS 25-06-2011 RTGS 50,00,000 MOTHER EXPORTS 17-03-2012 RTGS 50,00,000 MOULI GEMS 25-06-2011 RTGS 50,00,000 MOULI GEMS 19-10-2011 RTGS 10,00,000 MOULI GEMS 17-03-2012 RTGS 40,00,000 MOHIT ENTERPRISES 27-06-2011 RTGS 2,75,00,000 MOHIT ENTERPRISES 20-03-2012 RTGS 1,00,00,000 MOHIT ENTERPRISES 21-10-2011 RTGS 80,00,000 MOHIT ENTERPRISES 22-10-2011 RTGS 20,00,000 MOHIT ENTERPRISES 09-11-2012 RTGS 1,75,00,000 MOHIT ENTERPRISES ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss-examine witnesses, whose statement might have been relied upon; and, (4) failure to recognise the satisfactory nature of the explanation/evidence tendered by the appellant to explain identity of creditors, creditworthiness of the creditors and the genuineness of the loan transactions. Hence, the impugned addition of ₹ 24.75 crore is hereby deleted." 17. There should not be any dispute that the initial burden to prove the cash credits is placed upon the shoulders of the assessee. It has been held by Honourable Courts that the initial burden shall be discharged, if the assessee proves three main ingredients, viz., the identity of the creditor, the creditworthiness of the creditor and genuineness of the transactions. If the assessee has discharged the initial onus, then the onus to disprove the same is shifted to the shoulders of the assessing officer. These legal principles have been reiterated in the cases of Bhan & sons (supra) and M/s Precision Finance P Ltd (supra), which were referred to by Ld CIT-DR. In the instant case, there is no dispute that the assessee has discharged the initial burden of proof placed upon it by furnishing all the materials to prove the three ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions are bogus in nature. We notice that the search officials have only drawn adverse inferences on the basis of information gathered by them and it is the duty of the assessing officer to substantiate those inferences by bringing corroborative materials. The Ld CIT-DR has reiterated these inferences as surrounding circumstances. However the moot point that remains is whether the assessing officer could disprove the material evidences furnished by the assessee to prove the cash credits? The various evidences furnished by the assessee, in fact, disprove the inferences drawn by the search officials. When the assessing officer could not disprove the material evidences furnished by the assessee, in our view, he is not entitled to place full reliance on the inferences drawn by the search officials, particularly the assessee could rebut those presumptions drawn by the search officials. Though the sworn statement given by Shri Bhanwarlal Jain may be a relevant piece of evidence, yet it is stated that the said statement has been retracted. Further the AO has not shown that the transactions entered by the assessee with the group of Shri Bhanwarlal Jain were examined by the search o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee and accordingly the Ld CIT(A) was justified in placing reliance on the same and holding that the impugned additions are not justified. 23. We notice that the assessee has specifically asked the AO to issue summons to the loan creditors, but the assessing officer has failed to do the same. It is pertinent to note that the assessee has so requested the AO, even after discharging the initial burden of proof by furnishing all the relevant details available with it. In the case of Orissa Corporation P Ltd (supra), the assessee furnished available details and then requested the AO to issue summons to the creditors, since it could not collect further details from them. The AO failed to do so and hence the Hon'ble Supreme Court held that the addition made u/s 68 is not justified. The assessee herein, in our view, stand on a stronger footing. The assessee has furnished all the relevant details, which has been summarized by the Ld CIT(A) in paragraph 6.3.31 of his order as under:- "6.3.31 In the case before me, the record also shows that to prove the genuineness of the impugned loan entries from the 17 creditors, the appellant has furnished to the Assessing Officer the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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