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TMI Blog2019 (6) TMI 584X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 0.2% commission on total unsecured loans - HELD THAT:- As the issue of unsecured loans has been decided in preceding paragraphs, where we held that the transactions between the parties are genuine which cannot be considered as unexplained cash credit u/s 68 of the Act, consequently, additions made towards disallowance of interest and estimation of commission on such unsecured loans is also needs to be considered in the light of discussions in the preceding paragraphs. Therefore, we are of the considered view that the AO as well as the Ld. CIT(A) was erred in making additions towards interest on unsecured loans and commission on such unsecured loans. Accordingly, we direct the AO to delete the additions made towards disallowance of interest and estimation of commission. Bogus purchases - assessee has filed basic evidences including confirmations from the parties - notice u/s 133(6) were issued, such notices were returned unserved with a remark address not known - HELD THAT:- When the AO has not pointed out any discrepancies in the books of accounts or stock details filed by the assessee merely for the reason that notices issued u/s 133(6) were returned unserved, no adverse infere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te, but identical orders of the Ld. CIT(A), 47, Mumbai, all dated 28/02/2012 and they pertains to Assessment Years 2007-08, 2008-09, 2009-10 & 2012-13, 2013-14 and 2014-15. Since, facts, are identical and issues are common, for the sake of convenience, these appeals were heard together and are disposed of by this consolidated order. ITA NO.2688/Mum/2018 2. All assessee's have more or less filed common grounds of appeal in respective memorandum of appeal. For the sake of brevity, grounds of appeal taken in ITA No.2688/Mum/2018 for Assessment Year 2013-14 of M/s Pabal Housing Pvt. Ltd. is reproduced hereunder:- " 1. On the facts and circumstances of the appellant's case and in law the Ld. Commissioner of Income Tax (Appeals) 47 (CITA) erred in not holding that the Ld. Assessing Officer (AO) has not followed the principles of natural justice by granting effective opportunity of being heard and providing material/record gathered during search/survey proceeding in the third party's case, if any intended to be used against the appellant. 2. On the facts and circumstances of the appellant's case and in law the Ld. CITA erred in not holding that the Ld. AO erred in ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t DDIT(Inv.), Unit-9(2), Mumbai, had intimated vide letter dated 10/03/2014 that the assessee is one of the beneficiary of accommodation entries for loans from various companies controlled and managed by Mr. Bhanwarlal Jain. The said information was further based on search and seizure action conducted by the office of the DGIT(Inv.), Mumbai, on 03/10/2013 in Bhanwarlal Jain Group of cases. During the course of search, copious incriminating material/ documents/papers/data were found and seized. During search operation, a statement u/s 132(4) was recorded from Shri Bhanwarlal Jain and several other persons, wherein, it has been admitted by them that they were providing accommodation entries for bogus sales/purchases/import for others, through various benami concerns. The documents/seized materials, were analyzed in detail by Mumbai Investigating Wing, where, it was further noticed that the assessee was also one of the beneficiaries of such accommodation entries for loans provided by Benami Concerns of Bhanwarlal Jain Group. 4. Thereafter, survey operation u/s 133A was carried out on 16/10/2014 on M/s Poonam group of cases to which the assessee belongs, on the basis of information g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essary TDS applicable as per the provisions of the act. The assessee also repaid said loans in the next financial year, therefore, merely on the basis of information received from some third party source, genuine loans taken from certain parties, cannot be considered as bogus entries, which can be taxed u/s 68 of the Act. 6. The AO, after considering relevant submissions of the assessee and also after thoroughly discussing the modus operandi explained by DGIT(Inv.) during the course of search and survey operations came to the conclusion that the assessee has failed to prove the primary onus by establishing the identity, genuineness of transactions and creditworthiness of the parties. The AO, further observed that information gathered during the course of search in cases of Shri Bhanwarlal Jain and also survey in group cases of M/s Poonam Group clearly established the fact that the transactions between the parties are mere book entries without there being any commercial aspect, therefore, merely for furnishing certain documents to prove the identity and payments by said loans through proper banking channels would not discharge initial onus cast upon the assessee u/s 68 of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s treated as bogus and accordingly, made additions towards purchases from above entities to the total income of the assessee. The relevant findings of the AO is reproduced as under:- "From the case laws cited above and the discussion on evidences / findings of the investigation wing in the preceding paras , the primary onus was and is on the assessee to establish the genuineness of the loans taken by it in which it has miserably failed. It is evident that on perusal of the books of accounts of the assessee company, the information received from the Investigation wing of the department ,Mumbai, regarding the billers name and amounts are matched in-tote and verbatim. Hence the assessee's argument on this lacks any merit and deserves to be rejected. There is a specific finding the above mentioned parties had issued false bills without delivery of goods unearthed by the independent enquiries conducted by the office of the DGIT (mV), Mumbai. Such crucial findings based on corroborative evidences unearthed during search negate the contention of the assessee. Thus, undisputed fact is that the purchases claimed to have been made from these parties remained unverified. In fact, Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wellery Pvt. Ltd ₹ 1,50,00,000/-, M/s Rose Gems ₹ 2,45,00,000h M/s Sankhala Exports ₹ 70,00,000/-, M/s Little Diam ₹ 40,00,000/-, M/s Mouli Gems ₹ 2,00,00,000/-, M/s Rose Impex ₹ 3,00,00,000/-,M/s Nice Diamonds ₹ 40,00,0000/- ) taken during the year in respect of which assessee has sought accommodation entries is disallowed and brought to tax. Accordingly it is also held that inaccurate particulars of income has been filed to conceal income chargeable to tax and penalty u/s.271(1)(c) is separately initiated. Since the unsecured loans in question have been held to be mere accommodation entries i.e. bogus in view of the categorical findings discussed above, the interest paid on the same is also not an allowable expenses under the provisions of Income Tax Act. Accordingly the interest debited on this account amounting to ₹ 98,30,414/- paid to parties belonging to Shri Bhanwarlal Jain group (Which includes interest paid to M/s. Maridian Jewellery Pvt. Ltd, M/s Rose Gems, M/s Sankhala Exports, M/s Little Diam, M/s Mouli Gems M/s Rose Impex for the loan taken during the F.Y.2012-13 and old loans from M/s Mahalaxmi Gems Pvt. Ltd,M/s Look ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idences to unsecured loans entries found in the books of account of the assessee so as to treat the said loans are accommodation entries. The assessee further submitted that the AO completely went wrong to reach to the conclusion that the assessee is one of the beneficiaries of accommodation entries of unsecured loans provided by various companies of Bhanwarlal Jain, without appreciating the fact that said loans have been taken under normal business circumstances and also these loans are taken on normal rate of interest. The assessee has paid interest after deducting necessary TDS applicable as per law. These loans were repaid in next Financial Year. All these evidences were part of assessment record. During the course of survey, in group cases of M/s Poonam Group, no contrary evidence was found to link evidences gathered during the course of search in case of Bhanwarlal Jain to the credits found in the books of accounts of the assessee except stating that Mr. Bhanwarlal Jain has admitted in his statement that he is involved in providing bogus entries and the assessee is one of the beneficiary of such bogus entries. Similarly, the AO has made addition towards purchase without consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bhanwarlal Jain on the ground that Shri Bhanwarlal Jain has consistently stated in his statement, during the course of search that he had charged commission at two paise for ₹ 100 per transaction on loan amount and this commission has not been recorded in the books of accounts of the concerns. Insofar as, purchases from firms controlled by Bhanwarlal Jain, the Ld. CIT(A) by following the decision of the Hon'ble Supreme Court in the case of N. K. Proteins Ltd. in SLP 759 of 2017, dated 16/01/2017 affirmed the findings of the Ld. AO in confirming alleged bogus purchases on the ground that when notices u/s 133(6) were issued to those parties, all notices were returned back with remark "not known". Further, when the AO deputed Inspector attached to the office for verification, the Inspector gave report that none of the parties were available in the given address. When the evidences gathered during the course of assessment proceedings, clearly proved the fact that those parties are not available in the given address, then whatever documents were furnished by the assessee are self-serving documents which cannot be given much importance, therefore, there is no error in the findings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion made by the A.O. on account of unsecured loans, which have been held to be bogus and mere accommodation entries. Since, the principal amount of loan has been held to be bogus in nature, the interest paid / payable on the same also needs to be disallowed. 13.2 It is also brought on record that a detailed analysis of the seized material found during the course of the search operation on the Bhanwarlal Jain Group has revealed that even the interest portion paid through cheque and duly recorded in the books of account at both the ends, has also been settled in cash. Thus, against the amount of interest paid by the borrower by cheque / RTGS, an equivalent amount of unaccounted cash is received back by the borrower from the respective Bhanwarlal Jain Group concern. 13.3 Accordingly, it is held that the interest debited in the P&L Account amounting to ₹ 98,30,414/- in the name of various parties belonging to the Bhanwarlal Jain Group, on the accommodation entries of loans has been rightly disallowed by the A.O. and is upheld. Hence, the Ground No. 4 of the present appeal is hereby dismissed. 14.13 Thus, the application of a rate of 20 paisa per ₹ 100 per month, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the persons managing the entry operating concerns. The relevant extracts of statement of Shri Jitendra Champalal Jain recorded on 16lh October 2014 are reproduced hereunder:- "Q10. Were the above RTGS payments made to you for any material supplied by you to the Poonam Group of companies? Ans: The RTGS was done against any material supplied by me. In fact, I am a commission agent and not involved in any supply of any material to any company. I just received the RTGS amounts in my accounts and remit the same to the accounts which the above mentioned agents direct me to do so. There has been no supply of any material or services to the Poonam group by me whatsoever. Q.11. Do you have a TIN no? Have you been registered in the Service tax Department? Ans: I do not have any TIN No. nor have I been registered in the Service Tax Department. Q.14. Please explain the transactions which you have carried out with M/s. Poonam Group of companies. Ans: I only do the transactions in the Poonam group as directed by my broker, Kanakbhai. I do not carry out any genuine business transaction with the Poonam group of companies. I only give accommodation entries to the Poonam group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial pronouncements in relation to the entry operator have already been discussed in details in the earlier part of this appellate order and are not repeated here again for the sake of brevity. 18.7 Thus, the accommodation entries of purchases from M/s. Aniket Enterprises of ₹ 63.17.640/- & M/s. Akash International of ₹ 27,63,372/-totaling to ₹ 90,81,012/- has been rightly disallowed by the A.O. and are accordingly confirmed. Accordingly, this Ground of Appeal No. 6 of the Appellant is dismissed." 9. The first issue that came up for our consideration from assessee's appeal is additions towards unsecured loans of ₹ 10,45,00,000/- taken from companies controlled and operated by Shri Bhanwarlal Jain and his associates. The Ld. AR for the assessee submitted that ld. CIT(A) was erred in confirming additions made by the AO towards unsecured loan taken from companies belonging to Bhanwarlal Jain without appreciating the fact that the assessee has proved all ingredients provided u/s 68 of the Act. The Ld. AR further submitted that the assessee has filed enormous documents in order to prove the identity, creditworthiness of the parties and genuineness of tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are reproduced hereunder:- i. CIT vs. Goa Sponge and Power Ltd (13/02/2012) Tax Appeal No. 16 of 2012 (High Court-Bombay) ii. CIT vs. Creative World Tele films Ltd (2011) 333 ITR 100 (Born-High Court) iii. CIT vs. Lovely Exports (P) Ltd (2008) 216 CTR 195 (SC) iv. CIT vs. Steller Investment Ltd (2001) 251 ITR 263 (SC) (civil appeal) v. CIT vs. Nav Bharat Duolex Ltd (2013) 35 Taxmann.com289 (All-High Court) vi. CIT vs. JayDee Securities & Finance Ltd (2013) 32 Taxmann.com91 (All-High Court) vii. ACIT vs. Venkateshwarlspat Pvt Ltd (2009) 319 ITR 393 (Chhatisgarh-High Court) viii. Mod Creations Pvt Ltd vs. /TO (2013) 354 ITR 282 (Del- High Court) ix. CIT vs. Al Anam Agro Foods (P.) Ltd (2013) 38 Taxmann.corn 375 (All-High Court) x. CIT vs. Dwarkadhish Investment (P) Ltd (2011) 330 ITR 298 (Del-High Court) xi. CIT vs. Namastey Chemicals Pvt Ltd (2013) 33 Taxmann.com271 (Guj-High Court) xii. CIT vs. Peoples General Hospital Ltd (2013) 356 ITR 65 (MP-High Court) xiii. CIT vs. Shree Rama Multi Tech Ltd (2013) 34 Taxmann.com177 (Guj-HC) xiv. CIT vs. Nikunj Eximp Enterprises (P.) Ltd (2013) 35 Taxrnann.com384 (Bom) xv. CIT vs. Samir Bio- Tech Pv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the department during the course of search. The AO further was of the opinion that payment through proper banking channel and interest payment to those unsecured loans is not sacrosanct because all these shell companies/hawala operators would keep necessary paper document in order to give colour of genuineness to their transactions. Therefore, he opined that the transactions between the parties are failed to pass the test of genuineness and accordingly made additions u/s 68 of the Act. 12. The provisions of section 68 of the Act deals with the cases, where any sum found credited in the books of account of the assessee in any Financial Year, and the assessee offers no explanation about the nature and source thereof or explanation offered by the assessee is not in the opinion of the AO satisfactory, then the sum so credited may be charged to income tax as the income of the assessee of that previous year. A plain reading of section 68 makes it very clear that in order to fix any credit within the ambit of section 68 of the Act, the AO needs to examine three ingredients i.e. identity, genuineness of transactions and creditworthiness of the parties. If the assessee proves all ingred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken by the assessee from the firm and companies controlled and managed by Shri Bhanwarlal Jain and his associates. 13. Having said so, let us examine what is the basis for the AO to arrive at conclusion that the transactions between the parties are not genuine and which are hit by the provisions of section 68 of the Act. The AO never brought out any further facts to link credits found in the books of accounts of the assessee to the evidences found during the course of search in the case of Shri Bhanwaral Jain except statement of Shri Bhanwaral Jain. Even during the course of survey in group cases of assessee, no incriminating material was found which can be linked to evidences collected during the course of search in case of Shri Bhanwarlal Jain. Further, during the course of survey in assessee's group cases, the directors and employees have categorically admitted that they have personally visited office of Shri Bhanwarlal Jain Group Companies for arranging loans. The AO did not controvert this fact by bringing any other evidences. On the other hand, the assessee has filed complete details including confirmations from loan creditors, their PAN details, master data, affidavit from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding the name and addresses of the shareholders, their PAN/GIR number, so also the name of the Bank from which the alleged investors received money as share application, then, it cannot be termed as "bogus". The controversy is covered by the judgements rendered b y the Hon'ble Supreme Court in the case of Lovely Exports Pvt Ltd, vs. CIT, (2008) 216 CTR (SC) 195, as also by this Court in CIT vs. Creative World Tele films Ltd, (2011) 333 ITR 100 (Bom). In such circumstances, we are of the view that the Tribunal's finding that there is no justification in the addition made under Section 68 of the Income Tax Act,, 1961 neither suffers from any perversity nor gives rise to any substantial question of law." CIT vs. Creative World Tele films Ltd (2011) 333 ITR 100 (Born-High Court) "The question sought to be raised in the appeal was also raised before the Tribunal and the Tribunal was pleased to follow the judgment of the apex Court in the case of CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195. wherein the apex Court observed that if the share application money is received by the assessee-company from alleged bogus shareholders, w hose names are given to the AO, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vely Exports case (supra), has held that the identity of the shareholder alone is required to be proved, in case of the capital contributed by the shareholders. Accordingly CIT(A) and the Tribunal has not committed any illegality in allowing the appeal of the assessee. We do not find any illegality in the judgment of the CIT(A) and the Tribunal." CIT vs. JayDee Securities & Finance Ltd (2013) 32 Taxmann.com91 (All- High Court) "The Tribunal recorded findings that the assessee had produced the return of income filed by the relevant shareholders who had paid share application money. The assessee had also produced the confirmation of share holders indicating the details of addresses, PAN and particulars of cheques through which the amount was paid towards the share application money. The Tribunal thereafter relied upon the judgment of the Supreme Court in CIT V. Lovely Exports (P.) Ltd wherein it was held that if the assessee produces the names, addresses, PAN details of the share holders then the onus on the assessee to prove the source o f share application money stands discharged. If the Assessing Authority was not satisfied with the creditworthiness of the shareholders, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .If it had any doubts with regard to their creditworthiness, the Revenue could always bring the sum in question to tax in the hands of the creditors or sub- creditors." CIT vs. Al Anam Agro Foods (P.) Ltd (2013) 38 Taxmann.corn 375 (All- High Court) Tribunal, however , held that since identity of share holders stood proved on record, amount of share application money could not be added to income of assessee. According to Tribunal, in such a case amount could be taxed in hands of persons who had invested" CIT vs. Dwarkadhish Investment (P) Ltd (2011) 330 ITR 298 (Del-High Court) "Just because the creditors/share applicants could not be found at the address given, it would not give the Revenue the right to invoke s. 68- Revenue has all the power and wherewithal to trace any person-Moreover, it is settled law that the assessee need not to prove the 'source of source'- In the instant case, the Tribunal has confirmed the order of the CIT(A) deleting the impugned addition holding t hat the assessee has been able to prove the identity of the share applicants and the share application money has been received by way of account payee cheques." CIT vs. Namastey Chemical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, no reason was found in absence of any illegality much less any perversity too to interfere with the order of the both these authorities, who had concurrently held the due details having been proved. The assessee company had presented the necessary worth proof before both the authorities and it was not expected by the assessee company to further prove the source of the deceased." CIT vs. Nikunj Eximp Enterprises (P.) Ltd (2013) 35 Taxrnann.com384 (Bom) "Whether merely because suppliers had not appeared before Assessing Officer or Commissioner (Appeals), it cou ld not be concluded that purchases were not made by assessee - Held, Yes.... Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were in fact made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the CIT(A), one cannot conclude that the purchases were not made by the respondent- assessee" CIT vs. Samir Bio- Tech Pvt Ltd (2010) 325 ITR 294 (Del-High Court) "Identities of the subscribers are not in doubt. The transactions have also been undert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO to make additions towards u/s 68 of the Act only on the basis of statement of Shri Bhanwarlal Jain. The relevant findings of the Tribunal are as under:- "3. I have considered the rival submissions and perused the material available on record. The facts in brief are that the assessee an individual engaged in the business of builder and developer declared loss of ₹ 1,29,68,736 in his return on 15.09.2009. The assessment was completed u/s 143(3) of the Act on 30.11.2011 assessing the loss at ₹ 1,13,73,448. The assessee carried the matter in appeal before the learned CIT(A) wherein vide order dated 03.02.2014, part relief was granted to the assessee. Later on, the case of the assessee was reopened u/s 147 on the basis of information that the assessee has received accommodation entry of unsecured loan from M/s. Laxmi Trading Company, M/s. Mouli Gems, M/s. Minal Gems, M/s. Naman Exports and M/s. Prime Star, pertaining to Bhawarlal Jain Group. As per the assessee, during the assessment proceedings, documentary evidences pertaining to loan from aforementioned parties like confirmation, bank statement and acknowledgment of return of income of loan, bank statement of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 5,78,278, made on account of interest expenditure on alleged bogus loans. The learned D.R. defended the addition, whereas, the learned Counsel for the assessee invited my attention to the finding recorded in Para-6.1 of the impugned order. On a perusal of record and the assertions made by the respective Counsels. There is a finding in the impugned order that the assessee duly produced the bank statement from where interests were paid also copies of form no.16A evidencing the TDS made and deposited into the Government account with respect to payment of interest. Since in earlier paras of this order since I have upheld the order of the learned CIT(A), therefore, the issue of interest is consequential in nature, therefore, the conclusion drawn in the impugned order is upheld." 17. Coming to the cases relied upon by the Ld. DR in light of various case laws discussed by the AO as well as the Ld. CIT(A). We have considered the cases relied upon by the Ld. DR as well as the Ld. CIT(A) in light of facts of present case and we found that the case laws considered by lower authorities were rendered under different set of facts which cannot be applied to the facts of the present case. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh the assessee has filed basic evidences including confirmations from the parties, but when notice u/s 133(6) were issued, such notices were returned unserved with a remark "address not known". The AO further observed that when notices were returned unserved, Inspector attached to the office was deputed to make further local enquiries with regard to the above mentioned parties. The enquiries conducted by the Inspector have also revealed that no such parties/firm/companies are in existence at the address given by the assessee. It is a contention of the assessee that it has filed entire documentary evidences of the vendor such as invoices, ledger confirmations, bank statements, delivery challans to prove genuineness of the purchases. The AO neither pointed out any discrepancy in the books of accounts or evidences filed by the assessee nor made out a case of sales outside the books of accounts. The sole basis of alleging the purchase transaction to be accommodation entries is statement of various parties. But, in spite of specific request, the AO declined to provide the statement and evidences relied upon and also denied opportunity to cross examines those parties. The assessee furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen separate procedure is provided under the Act to deal with those parties. For this purpose, the assessee cannot be blamed or made responsible for non-appearance of parties and also purchase from the parties cannot be considered as bogus when the assessee has filed all other evidences to prove the purchases from the parties. In this case, the assessee filed complete details including confirmations from the parties. The AO never disputed this fact. The AO also accepted sale declared by the assessee. Therefore, we are of the considered view that it is difficult to accept the arguments of the AO that purchases from above parties are bogus in nature. 22. Having said so, let us examine what is the amount of additions required to be made when both parties failed to conclusively prove the purchases in their favour. We find that this issue is recurring issue which is subject matter of deliberations by the Co-ordinate Bench of ITAT, Mumbai, in number of cases. The Tribunal, after considering the relevant facts and also taking note of nature of business carried out by the parties came to the conclusion that when both parties are failed to prove their contention, then only profit element ..... X X X X Extracts X X X X X X X X Extracts X X X X
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