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TMI Blog2021 (1) TMI 941X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee could not bring them to AO in person - HELD THAT:- We notice that these are trade creditors and also two directors accounts are involved. We considered the findings of the Ld CIT(A) carefully and found that trade creditors M/s Divya Jewels, M/s Jewel Diamond and M/s Kingstar has no business transaction during this assessment year and these are outstanding balances of previous assessment year. Since these are transactions of earlier AY and its settlements were made in the subsequent AY, in our view there is no scope for disallowance u/s 68. Therefore, we are inclined to accept the findings of Ld CIT(A). With regard to M/s Renisha Impex and Varun Gems, it is noticed that these parties are having regular business transactions and without any findings on transactions with them as bogus or accommodation entries, there is no scope for AO to disallow these transactions. Therefore, we are inclined to accept the findings of Ld CIT(A). With regard Mr Girish Agarwal and Poonam Agarwal, these are directors and their accounts shows regular salary payments and tax deductions. Since these are directors, there is issue of identity and genuineness issues. Accordingly, we are inclined to acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these creditors. Since most of the parties are not traceable, he issued notice 131 to the assessee to produce the parties. No parties were produced before him, he treated these transactions as not genuine and he made addition u/s 68 of the Act as the genuineness and identity of the creditors are not established. He made addition to the extent of ₹ 3,86,58,127/-. 3. AO observed that Kalash Enterprises is part of Rajendra Jain group concern and he observed that the investigation wing, Mumbai, has investigated thoroughly on this group and found that this group involves in providing accommodation entries. Since, Kalash Enterprises is part of this group, assessee must have received accommodation entries. As the assessee receives the sales bills from Rajendra Jain group, assessee must have arranged or purchased from grey market. Considering the fact that assessee must have earned benefit by booking higher value by taking accommodation entries, AO disallowed the GP embedded in this transaction. Accordingly, he disallowed 5% of the purchase value of the diamonds purchased from Kalash Enterprises. 4. After considering the submission of assessee, AO made the assessment u/s 143(3) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d assessment year and here again it was re-paid in AY 2015-16. As far as Renisha Impex P Ltd. is concerned, it was stated that during the year, regular business transaction with the said entity for purchase and payments were also made and the outstanding balance was re-paid in AY 2015-16. As far as Varun Gems is concerned, it was again stated that there were regular business transactions with the appellant during the AYs 2014-15 and 2015-16 for purchase and payments thereof and hence, it could not be the case of a ceased liability. In respect of Kingstar, it was stated that no business transaction was undertaken during the AY 2014-15 and entire amount was re-paid in AY 2015-16. It was thus stated that Ld.AO had failed to discharge his duty to prove that the transactions were bogus or that it was the case of cessation of liability. In this regard, Ld.AR has relied on the decisions which are cited by him in the submissions made and it was stated that in view of the facts and confirmations submitted before the Ld.AO, no addition should have been made in respect of purchase made in regular course of business. 2.4.9. Having weighed the pros and cons, whereas I find that Ld.AO had himsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Pravin S. in ITR 5246/M/2013 to substantiate that even in case of Hawala Dealers in the Sales Tax Department, no addition could be made only on the grounds of suspicion, if payments were duly recorded by account payee cheques and no evidence was available that cash had been received back. 2.4.12. Having considered the pros and cons, I find that the issue at hand is squarely covered by the decisions cited at hand and Ld.AO had not brought anything on record to show that Rajendra Jain had made any statement regarding the payments by stating that he had provided accommodation entries to the appellant. It is also an un-controverted fact that the payment was made for the purchase by account payee cheque and was recorded in regular books of account and Ld.AO had not rejected appellant's books of accounts. In above view of the matter, addition made merely on suspicion cannot be sustained. Accordingly grounds raised is Allowed. 6. Aggrieved with the above order, revenue has preferred the appeal before us on the ground mentioned herein below:- 1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of unexplained cash cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, which is reproduced below:- • Submission on ground no. 1: Unexplained Cash Credit on account of outstanding loan balance of Director - Mr. Vivek Surana amounting to ₹ 79,50,000/-. 3. During the year under an appeal, the appellant company has regular loan transactions with one of its director named Mr. Vivek Surana. There was a opening credit balance of ₹ 60,00,000/- and appellant company has received an amount of ₹ 79,50,000/-, made payment of ₹ 57,50,000/- and final closing credit balance of ₹ 82,00,000/-. Copy of ledger account along with bank statements are attached at page no. 63 to 72 of the paper book. 4. While making addition, the Ld. Assessing officer noted; I. That the appellant filed only the copy of bank statement and ITR. II. That copy of confirmation of transaction and balance sheet was not furnished by the appellant and hence, the appellant failed to discharge its onus as laid down u/s 68 of the Act. 5. Assessee's contentions of making addition:- Section 68 of the Act reads as under: - "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it without having any jurisdiction. 9. In para 2.4.7 of CIT(A) order, the CIT(A) had clearly stated that the assessee had satisfied all the 3 ingredients of section 68 of the Act and hence, the addition made cannot be sustained. > Further, following legal position/ judicial rulings on the subject under consideration must be considered before arriving at any conclusion:- i. As held by Andhra Pradesh High Court in the case of R.B. Mittal v/s. CIT 246 ITR 283 (AP) in an enquiry u/s 68, the rule of audi alteram parterm has to be observed and the assessee must be given a fair and reasonable hearing to discharge the burden cast on him u/s 68 of the Act. Further, it is settled law that in the matter of cash credit, the initial onus lies on the assessee to prove the genuineness of the transaction along with the identity of the lender/investor and his creditworthiness. Having done so, the appellant in the instant case has discharged the onus cast upon it. Beyond this, for the charge of unexplained cash credit to stick, the onus lies on the Assessing Officer to disprove the claim of the assessee by establishing that the evidence filed by the assessee was false and by bringing new materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial or evidence to discredit the evidences and the explanation given by the assessee company and cannot rely only on statement of third parties recorded by the investigation wing. Thus it is settled law that in the matter of cash credit, assessee needs to prove the genuineness of the transaction along with the identity of the lender/investor and his creditworthiness. By submitting the following documents, Identity as well as the creditworthiness have been proved and hence the addition would not be justifiable and would be against the law. viii. In another landmark judgment of Hon'ble Gujarat High Court in the case of Varshaben S Patel vs. ITO,[2O15] 64 taxmann.com 179 (Gujarat) has also held in notice u/s 148 that the issue of notice u/s 148 pursuant to direction by DG Investigation is bad in law as the satisfaction has to be on your own and not a borrowed satisfaction. ix. Similar to above referred judgment, The Appellant would like to humbly submit to learned assessing officer a recent landmark decision given by Jurisdictional Hon'ble ITAT Mumbai in an identical case of ITO -10 (2) (4) Vs. M/s. Superline Construction P. Ltd. (and many others in this consolidated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on assumption basis which does not have any stand in law and requires to be deleted. Therefore, we request your honor to kindly rely on CIT(A) order. • Submission on ground no. 2 and 3: Unexplained Cash Credit on account of outstanding loan balance of various creditors and under the head of cessation of liability amounting to ₹ 3,86,58,127/- & bogus purchase of ₹ 1,26,587.[U/s. 68 and u/s. 41(1) and estimation of profit on bogus purchase u/s 69C] 10. During the year under an appeal, the Ld. AO has made an addition of closing credit balances of following parties Sr. No. Additions Amount Remark 1. M/s. Divya Jewels 45,00,0007- Creditor 2. Mr. Girish Agarwal 16,08,440/- Director Remuneration 3. M/s. Jewel Diamond 1,22,73,273/- Creditor 4. Ms. Poonam Agarwal 5,50,810/- Salary A/c. 5. M/s. Renisha Impex Pvt. Ltd. 1,45,77,298/- Creditor 6. M/s. Varun Gems 36,48,306/- Creditor 7. M/s. Kingstar 15,00,000/- Creditor 8. M/s. Kalash Enterprise 1,26,587/- Estimation of Profit @5% on Bogus Purchase 11. While making addition, the Ld. Assessing officer noted; I. That the appellant failed to prove identity and genuineness of the liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sor in business" means,-i.where there has been an amalgamation of a company with another company, the amalgamated company; ii. where the first-mentioned person is succeeded by any other person in that business or profession, the other person; iii. where a firm carrying on a business or profession is succeeded by another firm, the other firm; iv. where there has been a demerger, the resulting company. > The section 41(1) applies where a trading liability was allowed as a deduction in an earlier year in computing the business income of the appellant and the appellant has obtained a benefit in respect of such trading liability in a later year by way of remission or cessation of the liability. > In such a case the section says that whatever benefit has arisen to the appellant in the later year by way of remission or cessation of the liability will be brought to tax in that year. > The principle behind the section is that the provision is intended to ensure that the appellant does not get away with a double benefit, once by way of deduction in an earlier assessment year and again by not being taxed on the benefit received by him in a later year with reference to the lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount was repaid in A.Y.2015-16 [paper book - page 60&61] M/s. Kalash Enterprise 1,26,587/- Estimation of Profit @5% on Bogus Purchase: • Copy of Ledger Account, Invoice and payment for purchase, all the documentary evidences were furnished. • No defects found in Sales. • No defects found in stock records. • Addtion was merely on assumption that this enterprise is engaged with Rajendra Jain who was engaged in providing accommodation entry. Without furnishing any evidences. . After going through the above repayment details, the fact is very clear that the contention of Ld. AO that outstanding liabilities were no more payable is not tenable. Hence, the addition made u/s. 41(1) and 68 stands dismissed after going through the factual scenario. Reliance is placed on: > In the case of CIT Vs. Smt. Sitadevi Juneia (2010) 325 ITR 593 (P&H1. It was held that assessee having shown the impugned liabilities in its balance sheet and filed copies of account of sundry creditors signed by the concerned creditor, such liabilities cannot be treated to have ceased merely because they are outstanding for six years and therefore, the addition made by invoking Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icion of highest degree cannot take place of evidence - DCIT v. Shri Rajeev G. Kalathil, (Mum) (Trib) (ITA No. 6727/M/2012 dt.20/8/2014. Additions cannot be made merely on assumptions or presumptions or surmises or conjectures (i) K.P. Varghese v. ITO, (1981) 131 ITR 579 (SC); (ii) CIT v. Roman & Co., (1968) : 67 ITR 11 (SC); (iii) CIT v. Calcutta Discount Co. Ltd.1, (1973) 91 ITR 8 (SC); (iv) Umacharan Shaw & Bros v. CIT, (1959) 37 ITR 271 (SC) Mere suspicion, no matter howsoever strong, is not sufficient to treat the purchases as bogus. Case Laws for Reference DY. CIT v. ADINATH INDUSTRIES (2001) 252 ITR 476 (2002) 120 TAXMAN 822 (GUJ) The Assessing Officer observed that purchases made by assessee from XGT' were fake and latter was only a billing agent, its S.T. Registration had been cancelled and payments made by bearer cheques were withdrawn on same day- Assessee, however, submitted all details like bills, gate pass, receipt note, weight note, laboratory report, sample report, truck number etc. Assessing Officer had himself accepted existence of XGI' in another case for assessment year 1985 -86 - Whether since assessee had produced all relevant materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince purchases were recorded in books of accounts of assessee and were also shown in its stock, in such circumstances merely because those purchases did not carry full addresses of vendors, could not be a reason to treat the said purchases as unexplained. Therefore, impugned addition made by assessing officer was to be deleted. CIT vs. LEADERS VALVES (P) Ltd (285ITR 435 (P&H- High court) 'The assessee is engaged in the manufacture of valves, cocks, boilers fittings, etc.The A.O observed that assessee had made purchased gun metal scraps in collusion with certain suppliers and thereafter invoking sec. 145 made addition of bogus purchase. The Ld. CIT(A) deleted the entire dis-allowance of purchase. The Hon'ble ITAT upheld the order of Ld. CIT(A) on holding that addition is not sustainable." The Hon'ble High court dismissed revenue's appeal and decided that the addition on account of bogus purchases cannot be sustained for the reasons that: a) In case the purchase of goods are treated as bogus, then it is impossible to manufacture the goods as shown to have been manufactured by it out of purchases; b) Further, the supplier of the assessee are in existing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I (233) ELT 157 (SC) CIT v KASHIRAM TEXTILE MILLS (P) LTD (2006) 284ITR 61 (GUJ) SARASWATHI OIL TRADERS v. CIT (2000) 254 ITR 259 (SC) HUMBLE PRAYER The transactions are genuine and duly supported by documentary evidence. Hence, the addition made by the Ld. AO requires to be deleted as the same was on assumption basis which does not have any stand in law and requires to be deleted. Therefore, we request your honor to kindly rely on CIT(A) order. Thus, in view of the above facts, circumstances and the referred judicial pronouncements, the appellant humbly requests your goodself to consider the above submission and extend a sympathetic consideration. 9. Considered the rival submissions and material placed on record, we notice from the record that revenue is in appeal against the relief given by Ld. CIT(A) to the assessee and revenue has raised before us mainly 3 grounds. In the first ground, AO observed that the assessee has taken unsecured loan from the Director. Since the assessee has only submitted bank statement and return of income of the Director. AO came to conclusion that assessee has not proved identity, credit worthiness and genuineness of the transaction. After ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is only presumption made by the AO simply because Kalash Enterprises is associated with the Rajendra Jain Group. Unless there is specific finding that these are bogus entries, AO cannot presume and disallow the same. Accordingly, we are inclined to accept the findings of Ld CIT(A). Accordingly, Ground raised by the revenue is dismissed. 15. In the net result, appeal filed by the revenue is dismissed. 16. It is pertinent to mention here that this order is pronounced after a period of 90 days from the date of conclusion of the hearing. In this regard, we place reliance on the decision of co-ordinate bench of this Tribunal in the case of JSW Ltd in ITA Nos. 6264 & 6103/Mum/2018 dated 14.5.2020, wherein this issue has been addressed in detail allowing time to pronounce the order beyond 90 days from the date of conclusion of hearing by excluding the days for which the lockdown announced by the Government was in force. The relevant observations of this tribunal in the said binding precedent are as under:- 7. However, before we part with the matter, we must deal with one procedural issue as well. While hearing of these appeals was concluded on 7th January 2020, this order thereon is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as a result of these directions, the expression "ordinarily" has been inserted in the requirement to pronounce the order within a period of 90 days. The question then arises whether the passing of this order, beyond ninety days, was necessitated by any "extraordinary" circumstances. 9. Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, Hon'ble Prime Minister of India took the bold step of imposing a nationwide lockdown, for 21 days, to prevent the spread of Covid 19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the functioning of the Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid 19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial wok all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only in consonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon'ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon'ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that directed "while calculating the time for disposal of matters made time- bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly". The extraordinary steps taken suomotu by Hon'ble jurisdictional High Court and Hon'ble Supreme Court also indicate that this period of lockdown cann ..... X X X X Extracts X X X X X X X X Extracts X X X X
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