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TMI Blog2024 (1) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid three borrowers, the assessee has also taken loans from other parties which has not been doubted by the AO. CIT(A) thereafter held that the sole basis of the Assessing Officer to make addition was on the basis of an earlier recorded statement of Shri Devesh Upadhyaya, which was neither recorded in the presence of the assessee nor the assessee was every confronted about the same. Even no incriminating material was found during the course of search action. Even all the creditors have duly confirmed the transactions and also established the source of the credits and the loan being also repaid in a short span of time. CIT(A), therefore, has rightly held that the addition made by the AO was not justified. No reason to interfere with the order of the ld. CIT(A) and there is no merit in the appeal of the revenue and the same is accordingly dismissed. Appeal of the revenue stands dismissed. - Shri Sanjay Garg, Judicial Member and Rajesh Kumar, Accountant Member For the Appellant : Shri S. Dutta, CIT-DR For the Respondent : Shri A.K. Tibrewal, FCA Amit Agrawal, Advocate ORDER PER SANJAY GARG, JUDICIAL MEMBER: The present appeal has been preferr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the creditors, nature of the transaction and the source of money received. However, the Assessing Officer was not satisfied with the explanation submitted by the assessee. The Assessing Officer also issued notices u/s 133(6) of the Act and called for confirmations and related documents from the creditors, which were duly complied with by the creditors. Even the director of the assessee company namely Shri Ajay Prakash Jhunjhunwala was also summoned u/s 131 of the Act and his statement was also recorded by the Assessing Officer. However, the Assessing Officer noticed that earlier (prior to search action in the case of the assessee) statement one Shri Devesh Upadhyaya in some other case was recorded by the investigation wing on 01.05.2015, who was an alleged entry operator and who during his statement had admitted that he was an entry operator and he had further stated that the main source of his income was commission earned by providing accommodation entries. He had also provided a list of companies managed and controlled by him. In the said list, the name of the three creditor companies of the assessee was also mentioned. The Assessing Officer, therefore, held that the alleged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies. In reply to Question No. 8 of the said statement he provided a list of companies managed and controlled by him. In the said list the names of the above mentioned three companies from whom the assesse company had taken loans during the F.Y: 2014-15 were reflected in Si. No(s) 401, 541 and 589. The AO therefore held that the assesse brought back its undisclosed income in its books of accounts in the guise of loans by way of accommodation entries through the above mentioned three companies managed by Shri Devesh Upadhyaya. 3. The AO has recorded that the assessee was unable to establish the genuineness of the transaction and creditworthiness of the lenders even after giving various opportunities. The AO had even recorded the statement of the director of the assesse company Shri Ajay Prakash Jhunjhunwala during the course of assessment proceedings on 22.12.2017 and as per the AO the director also failed to establish the creditworthiness of the lenders and the genuineness of the transaction. Now that these three issues raised by the AO on the basis of which the AO has made the said addition, have been identified, it is important to have a look at the enquiries made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... What is your annual income? Ans: My average income is approximately Rs. 15 lakh 1. Please state the nature of work carried out by M/s AlomExtrusion Ltd, M/s AlomPoly extrusion Ltd M/s Rajbhat Tea Company Ltd ? Ans. M/s. Alom Extrusions Limited is into manufacturing of Aluminum Extruded Products, M/s Atom Poly Extrusions Limited is into manufacturing of HDPE Double Wall corrugated pipes M/s Rajbhat Tea Company Ltd is engaged in business of growing processing of tea. 1 am showing the balance sheet of above named companies for the period F.Y 2009-10 to 2015-16, please go through it? Ans: I have seen it. As per balance sheet, it is seen that you have taken unsecured loan in above named companies during the period F.Y 2009-10 to 2015-16, I am showing the list of companies from where you have received unsecured loan, please go though the list ( Annexure A- attached). Ans: 1 have seen it and the names appearing in the list are the names of companies from where unsecured loan was taken. 1. It is seen from the list of unsecured loan taken by M/s Alom Extrusion Ltd, M/s Alom Poly extrusion Ltd M/s Rajbhat Tea Company Ltd that unsecured loan taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the list of data base of shell companies, who have provided accommodation entry in the form of loan/share capital. Please offer your comment. Ans: It is not for us to comment on their records. From the replies furnished by them, it is clear that they have provided unsecured loan in our companies, which are duly reflected in our records. 1. It is seen from the data available with the department that the lender companies mentioned in the above list (Annexure 13) are shell/paper companies and these companies are/were being managed and controlled by known entry operators using various identities dummy/front directors. The shell companies were floated only for the purpose of giving accommodation entry to the various interested beneficiaries parties in lieu of a certain percentage of commission. Hence considering the facts it is evident that the group concerns of Ajay Prakash Jhunjhunwala have received unsecured loan to accumulate their unaccounted income with the help of entry operators. Ans. On our part we cannot comment on any data available with the department. We have already been searched by the department and no evidence in support of the above allegation was fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d time and again requested the AO to provide the statement of Shri Devesh Upadhyaya, the alleged entry operator. There is nothing on record to suggest that this statement was provided by the AO to the appellant. It is again clear from the above statement of the Director of the appellant company that the AO was only relying upon the statement of Shri Devesh Upadhyaya and the list of companies mentioned by him as being controlled by him. The Director also raised the issue that no incriminating material was found during the search regarding the said unsecured loans. The AO in his assessment order has referred to a bank statement as incriminating material. The statement is that of a bank account of the assessee vide 01471600000312 maintained with Punjab Sind Bank, Old Court House Street, Kolkata 1. I find that this bank account was duly declared by the assessee in the return filed u/s 139(1) for A.Y: 2015-16 in Page No. 13 of the ITR and it is not the case that this was an undisclosed bank account of the assessee. Again, in the instant case, I find that the said unsecured loans to the tune of the Rs. 3,00,00,000/- were part of the books of account of the assessee company before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Estate Pvt Ltd 19.02.2015 50,00,000 09.06.2016 1,00,00,000 31.03.2016 9,00,000 90,000 50,00,000 07.07.2016 1,70,137 17,014 3,00,00,000 3,00,00,000 25,46,039 254604 This aspect of loan repayment was forwarded to the AO for his comments along with the documentary evidence adduced by the appellant. The AO in his Remand Report confirmed the repayment of the said loans by the appellant. However in the report, after confirming the repayment of loans, the remand report has r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn from the decision of the Hon'ble Apex Court in Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 wherein the Hon ble Court although held that while the ITO is not fettered by technical rules of evidence and pleadings, and he is entitled to act on material which may not be accepted as evidence in a Court of law, but he is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. It has repeatedly been held by various judicial authorities that there must be something more than mere suspicion to support any assessment. In the present case, I find that the financials of the lender entities have been held to be unsound. However, no basis for this has been spelt out. From the records it is nowhere apparent that any of these financials were analyzed by the AO to point out as to how these financials were unsound or were shown to Ajay Prakash Jhunjhunwala at the time of recording his statement in order to elicit his comments. Records before me do not shed any light upon the nature of the unsoundness of these financials of the lender companies. During the course of assessment proceedings in response to notices u/s 133 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctually relied upon such statements to make the impugned additions. Since this has evidently not been done, it becomes difficult in law to offer support to either the person taking the statement of Shri Ajay Prakash Jhunjhunwala, the Director or the AO s action of using such third party statements to draw adverse inferences against the appellant. It has to be kept in mind that certain rules of Natural Justice cannot be given a complete go-bye. One such rule is that no material shall be used against an assessee without giving him an opportunity to meet it. No assessment can be made while keeping the assessee in the dark as to the materials to be used against him. In fact even if the material/statement proposed to be used against him is furnished to the assessee, the latter can contest it at the time of assessment and the AO would be legally bound to give an opportunity to the assessee to test the veracity of the statement on the touch stone of cross examination and thereafter only the AO can rely on such a statement. Upon the principles discussed above in relation to the present factual matrix, I find merit in the claim of the appellant that, without providing the purported third pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allegedly claimed to be paper companies. He thus made addition of amount of unsecured loans in the assessee's total income. The Commissioner noted that the assessee had furnished various documents to prove genuineness and creditworthiness of alleged paper companies however same was rejected by the Assessing Officer. He thus held that it was not enough for the Assessing Officer to dismiss documents furnished by the assessee without consideration but rather should have recorded reasons in writing as to why these documents filed by the assessee did not go to establish the identity of the lender or prove the genuineness of the transaction. In the absence of any such finding, order passed by the Assessing Officer was held to be utterly perverse. The Hon. High Court of Calcutta gave the following judgement: This provision of section 68 deals with cash credits. It states that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer, satisfactory, the sum so credited may be cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ablish the identity of the lender, to prove the genuineness of the transactions and to establish the creditworthiness of the lender. The Assessing Officer has brushed aside these documents and in a very casual manner has stated that mere filing PAN details, balance sheet does not absolve the assessee from his responsibility of proving the nature of transaction. There is no discussion by the Assessing Officer on the correctness of the stand taken by the assessee. Thus, going by the records placed by the assessee, it could be safely held that the assessee has discharged his initial burden and the burden shifts on the Assessing Officer to enquire further into the matter which he failed to do. In more than one place the Assessing Officer used the expression 'money laundering.' Such usage is uncalled for as the allegations of money laundering is a very serious allegations and the effect of a case of money laundering under the relevant Act is markedly different. Therefore, the Assessing Officer should have desisted from using such expression when it was never the case that there was any allegations of money laundering. Much reliance was placed on the statement of AKA which statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entity of the lender or prove the genuineness of the transaction or establish the creditworthiness of the lender. In the absence of any such finding, it is held that the order passed by the Assessing Officer was utterly perverse and rightly interfered by the Commissioner (Appeals). The Tribunal re-appreciated the factual position and agreed with the Commissioner (Appeals). The tribunal apart from taking into consideration, the legal effect of the statement of AKA also took note of the fact that the notices which were issued by the Assessing Officer under section 133(6) to the lenders where duly acknowledged and all the lenders confirmed the loan transactions by filing the documents which were placed before the tribunal in the form of a paper book. These materials were available on the file of the Assessing Officer and there is no discussion on this aspect. Thus, the tribunal rightly dismissed the appeal filed by the revenue. [Para 5] In the instant appeal also, the AO inspite of having all the requisite documents at his disposal failed to bring on record any reasons to justify his conclusion that the documents which were filed by the assessee along with the reply did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income in the hands of the assessee. However, on appeal preferred before the Commissioner (Appeals) by the assessee U/s 143(3) r/w 147 of the Act, 1961 all the factual statements were examined at length and the Commissioner (Appeals), after due appreciation of material which came on record, observed that from independent enquiry the copies of bank account were obtained by the assessing officer and found that for clearing of the cheques issued by these companies either cash was deposited in the same account or in another account of the group company in fact was M/s. B.C. Purohit of which the present assessee was considered to be one of the group member. However, it was further observed that summons issued U/s 131 of the Act were served upon all such applicant/creditors and their confirmation letters were filed and the companies were assessed to tax being the private limited companies, the existence of their separate legal entity ordinarily could not have been doubted. However on the basis of statement of Kripa Shanker Sharma which was recorded by the search authorities as regards accommodation entries, a sum of Rs. 5 Lacs was assessed in the hands of present assessee alone and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d parties. One important aspect that is clear in this case is that the Director of the appellant company, in the course of his statement u/s 131 has stated that he used to take short term loans from the said entities, which were repaid upon availability of money with the appellant company. In two cases the loans were returned about seven months after the search. These facts, though ignored completely by the AO, have nevertheless been commented upon in the remand report, wherein the AO has put forth the suspicion that the appellant, upon realizing that his loans were bogus, repaid them after the search. Though, this is merely at the level of suspicion, it is nevertheless part of the facts and circumstances as they exist in this case. Therefore this proposition needs discussion at this stage, because this proposition attacks the appellant`s defence repelling the AO`s initial proposition that the lender companies were bogus/shell companies providing only accommodation entries. For this, first of all, it must be noted that the AO has made similar additions in the case of unsecured loans taken by the appellant`s group concerns from various companies, holding them to be paper c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30,00,000 Leisure Devcon Pvt Ltd 20.02.2015 50,00,000 12.01.2016 50,00,000 20.02.2015 50,00,000 12.01.2016 50,00,000 Progress Infra Estate Pvt Ltd 20.02.2015 50,00,000 04.07.2016 1,00,00,000 20.02.2015 50,00,000 Unity Prodev Ventures Pvt Ltd 04.03.2015 50,00,000 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 50,00,000 18.07.2016 50,00,000 2,50,00,000 2,50,00,000 The Ld. A/R has explained that the rationale of these loans have not at all been appreciated by the AO. He has said that these loans were taken on account of the expansion plans of the appellant group in terms of manufacturing activities. It was on this account that the companies including the present appellant had undertaken massive loan raising exercise in the F.`s: 2014-15 2015-16. These loans were taken, not only from private companies, but also from banks. The A/R has given the amounts in relation to his companies, in appeal before me as below: Company Name FY Loan from Private Parties Loan from Banks Total Alom Extrusion Ltd 2013-14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion been made at all. Shri Ajay Prakash Jhunjhunwala, the Director of the appellant company and the main person of this group was admittedly examined under oath on two occasions, first during the search and then u/s 131 of the Act, during assessment. Nowhere is it apparent from an examination of both these statements that the appellant had been confronted with the issue during search. I find that it is only during assessment proceedings, that the AO mentions, in the statement recorded at that time, that the said loan transactions were being shown to Shri Jhunjhunwala from the regular books. It is no one`s case that these transactions were confronted to Shri Jhunjhunwala or anyone else during the search. The mention of entry operator statements, is also not apparent in the earlier statement. It is reasonable to assume that if such an issue had indeed arisen during the search, some such reference would at least have been framed in the second statement or at least in the assessment order where the duly disclosed bank account had been termed by the AO as incriminating material. I find no reference at all to any such issues before the recording of the second statement, dated 22.12.2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bank statement from where the payment was made to the aforesaid loan creditors. The ld. counsel has further submitted that all the documents relating to the creditors were also furnished e.g. covering letter of reply submitted in response to notice u/s 133(6), ITR acknowledgement, audited accounts, ledger for A.Y 2015-16, ledger for entire period till repayment made, account confirmation, bank statements. The ld. counsel has further brought our attention to the relevant paras of the order of the CIT(A) to submit that even all the loans stood repaid. He has referred to the chart reproduced at page 61 of the order of the CIT(A) to show that the loan from three creditors were received namely Saffaron Devcon Pvt Ltd, Progress Infra Estate Pvt Ltd Leisure Devcon Pvt Ltd in the month of February 2015, whereas, the loan of Rs. 1,00,00,000/- from fourth creditor namely Decorum Developers Pvt Ltd was received on 17.06.2015. The loan amount of Rs. 1,00,00,000/- each was repaid to the three creditors namely Saffaron Devcon Pvt Ltd, Decorum Developers Pvt. Ltd. and Progress Infra Estate Pvt. Ltd. in the month of September 2015, whereas, the remaining loan of Rs. 1,00,00,000/- was repaid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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