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TMI Blog2024 (3) TMI 710X X X X Extracts X X X X X X X X Extracts X X X X ..... to loan to others. In our view what is needed to be seen is the funds available with the lenders to make the loan to form an opinion on the capacity of the lenders not the earning capacity. These are financial entities, has to be judged on the basis of funds available in the business. With regard to genuineness of the transaction, we observe that assessee has taken unsecured loans from Blue Circle Services Ltd., JMD Sounds Ltd and JMD Telefilms Industries Ltd., and submitted the confirmations letters from them which are placed on record. At the same time, assessee also submitted bank statements and financial statements of Blue Circle Services Ltd., JMD Sounds Ltd and JMD Telefilms Industries Ltd., in the Paper Book and it is brought to our notice that assessee has repaid the unsecured loans taken by it along with interest. As brought to our notice that the assessee has repaid to JMD Sounds Ltd current financial year itself, the same is placed on record at Page No. 128 and 129 of the paper book. Similarly, the payment of JMD Telefilms Ltd in the same financial year, the same is place on record at Page 123 and 124 of the paper book. The payment of Blue Circle Service Ltd are paid in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king an addition of Rs. 62,81,903 an treated as interest expenditure u/s 57 of the income tax act 1961 3. We proceed to adjudicate the issues raised by the assessee ground wise. 4. Brief facts of the case are, assessee is an individual earns income from salary, income from business, income from capital gain arising out of investment in securities and income from other sources. Assessee has filed his return of income for A.Y. 2015-16 on 27.08.2015 declaring total income at ₹.93,31,370/-. The return of income was selected under scrutiny and accordingly statutory notices under section 143(2) and 142(1) of the Income-tax Act, 1961 (in short Act ) were issued and served on the assessee. 5. The case has been brought under scrutiny assessment based the on the information received from DDIT (Inv.) Unit Kolkata in respect of bogus LTCG claimed by the assessee on sale of penny stock script. The assessee had submitted before the Assessing Officer all the documents pertaining to sale and purchase of shares of M/s. Marigold Glass Industries Limited like demat account statement, copy of share application form, Allotment letter, Copy of Share certificate, demat statement of dematerializatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s CIT(65 ITD 380) wherein it had held as under: we have taken a view that adverse evidence and material, relied upon in the order, to reach the finality should be disclosed to the assessee. But this rule is not applicable where the material or evidence used is of collateral nature. We have also taken a view that right to cross-examine the witness, who made adverse reports is not an invariable attribute of the requirement of the dictum, audi alterant partem . More ever, all the exit providers and operators are Kolkata based and the assessee has raised issue of cross examination only at the fag end, in the submission filled on 15.12.2017. The assessee in his reply dated 15.12.2017 stuck to his point regarding the genuineness of trade and long term capital gain. However, in the facts circumstances, the contention of the assessee regarding the genuineness the trade and the long term capital gain are not tenable. 8. After considering the submissions of the assessee, Assessing Officer observed that the transaction of LTCG is a manipulated transaction done by assessee in connivance with the operators to evade taxes on his unaccounted income and relying on statement made by operators treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e undisclosed income in the garb of long term capital gain. The gain has accordingly to be assessed as undisclosed credit u/s 68. The assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain. The Income Tax Appellate Tribunal had earlier dismissed the appeal file by Sanjay Bimalchand Jain. B. In the case of Sumati Dayal reported in 214 ITR 801 the Hon ble Supreme Court had held that matter had to be considered by applying the test of human probabilities. Having regard to the facts and circumstances as elaborately discussed in this order and inference could reasonably drawn that by all human probabilities, it is very difficult to accept that the assessee has done a genuine transaction with respect to his claim of capital gain. Therefore, after the application of the test of human probabilities, it is very difficult to conclude that the long term capital gain earned by him is genuine one. C. Further, reliance is also placed on the judgment in the case of CIT Vs Independent Media Pvt Ltd. {2012 24 Taxmann 276 Delhi, wherein it was held that addition u/s 68 id inevitable on unearthing of sham transactions. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfactory. It is submitted that the assessee is under no legal obligation to maintain books of accounts and nothing has been brought on record by the AO to establish that the assessee had maintained books and the credit was found in the books maintained by the assessee. However, the assessee submits that the assessee not only explained that the sum credited in his bank account was out of sale consideration received on account of sale of shares but also identified the parties from who the amounts were received and the entire trail of transfer of funds and transfer of share through the Demat Account. The assessee also explained the acquisition of shares and the source of payment towards their purchase. None of these facts have been controverted or proved false. The purchase of shares has been accepted and so as their split on account of revised face value. The genuinity/existence of the companies of which shares were acquired/sold was also not doubted as they were all traded on recognized stock exchange. In nut shell the source of credit of amounts and the nature of transaction was well established with documentary evidences which have not been controverted or proved false. The only o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. No addition could be made under sec.68 where the assessee did not maintain any books of accounts and the subject amount was not found in her books of accounts which was precondition and amount was found deposited in assessee s bank account. Submissions of merits The assessee had purchased two lakhs equity shares of M/s. Marigold Glass Industries Ltd under a preferential allotment for a price of Rs. 24,00,000/- having face value of Rs. 10 with premium of Rs. 2 per equity shares. The purchase consideration was paid by account payee cheques drawn on HDFC bank. There is no dispute with regard to purchase of the said shares. Later on due to split inface value 2,00,000 shares were converted into twenty lakhs shares. The name of the company was also changed and now known as Greencrest Financial Services Ltd. There is no dispute on these issues too. During the financial year related to the assessment year in question, the assessee sold 6,92,500 shares of total holding for a price of Rs. 4,59,10,500/- and received the sale consideration through proper banking channel on various dates. The shares were also transferred to the buyers through Demat Account. There is no dispute either to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of AO. Reliance is placed on the following judicial pronouncement amongst others 1. PREM PAL GANDHI (2018)401 ITR 253 (P H) 2. Principal CIT vs Rungta Properties in ITA No.105 of 2016 dated 08 May, 2017 (Calcutta High Court) 3. M/s. Alipine Investments in ITA No.620 of 2008 dated 26th August, 2008 4. M/s. GTC Industries 164 ITD Page 1(ITA No.5996/Mum/1993) E , BENCH MUMBAI (SPECIAL BENCH) 5. Navneet Agarwal, Legal Heir of Late Kiran Agarwal(I.T.A No. 2281/Kol/2017) C BENCH : KOLKATA 6. Jagmohan Agarwal I.T.A. No. 604/Kol/2018 D BENCH , KOLKATA 7. CIT V. Bhagwati Prasad Agarwal [2009- TMI-34738 (Cal HC) in ITA No. 22 of 2009 dated 29.4.2009 8. CIT vs. Vishal Holding and Capital Pvt. Ltd vide order dated 9th August, 2010 (Del) 9. CIT vs. Pooia Agarwal (Rajasthan High Court) September 11, 2017 (Date of pronouncement) 10. Arun Kumar vs. ACIT (ITAT Delhi) November 5, 2018 (Date of pronouncement) 11. DCIT vs. Saurabh Mittal (ITAT Jaipur) August 29, 2018 (Date of pronouncement) 12. Prakash Chand Bhutoria vs. ITO (ITAT Kolkata) 13. Pr CIT vs. Paradise Inland Shipping Pvt. Ltd (Bombay High Court) 14. ITO vs. Arvind Kumar Jain HUF (ITAT Mumbai) 15. In CIT vs. Shyam R. Pawar (2015) 54 taxman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7) 223 ITR 11 (Gauhati)- cogent reasons are necessary for rejection of evidence. (6) Even if assessee requests for confrontation of back material and AO do not provide so, said back material will become unreliable and consequential addition will be not tenable at law. Submission on the addition of Rs. 1,25,00,000 under section 68 and disallowance on interest of Rs. 62,81,903 under section 57. The assessee had taken various loans totally amounting to Rs. 11,47,54,556/- out of the total loans , loans amounting to Rs. 1,25,00,000/- were taken from three companies namely JMD Telefilms Industries, Blue circles services Ltd and JMD Sounds Ltd. All the parties are companies registered under the companies act and also having permanent account no. The entire loan of Rs. 1,25,00,000/- was taken by account payee cross cheques and in support of that the assessee has already filed the copies of the bank statements showing the amount credited to assessee's bank account with HDFC Bank ( pl refer to page no. 58 and 59 of the paper book attached). On receiving these loans the assessee gave loans to other parties namely Grover Metal Alloys Ltd. and IPPL and earned a sizeable amount on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,08,59,003/- on the loans taken and therefore a net income of Rs. 34,00,609/- was offered for taxation. At the cost of repetition it is once again submitted that the TDS provisions were applicable on the interest transactions whether received or paid and hence there is no chance to question or guess or make suspicions on these transactions and therefore the disallowance of interest is totally arbitrary , unjustified and without any basis and hence the addition made under this head also deserves to be deleted. In view of above submissions, evidences and various judicial pronouncement relied upon by the assessee it is prayed that the impugned assessment order be declared a nullity as being without jurisdiction and the addition of Rs. 4,59,10,500/- made on account of treating capital gain as unexplained cash credit, Rs. 1,25,00,000/- made on account of treating unsecured loans as unexplained cash credit and Rs. 62,81,000/- disallowed under section 57 totally amounting to Rs. 6,46,91,500/- may kindly be deleted and the income declared by the assessee may be accepted. 10. After considering detailed submissions of the assessee and findings of the Assessing Officer, Ld. CIT(A) dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence furnished by the assessee. 7.7 In the instant case also, the assessee has tried to put across his view point by way of producing paper evidence which cannot be accepted on face of it without considering the exact nature of transactions and the purpose for which the assessee indulged in such transactions. In view of this, it is imperative to analyze whether the assessee has adduced adequate evidence to prove the genuineness of the transactions with regard to trading in shares of penny stock company which resulted in conversion of unaccounted income of the assessee into tax exempt LTCG. 7.8 At the outset, it is an admitted fact that, as explained elsewhere in this order, during the course of assessment proceedings, the AO came to know that the assessee had transacted in shares of penny stock company wherein the share price of the company was manipulated in such a way that within a period of less than 23 months, the assessee had ended up in creating huge amount of tax exempt LTCG of Rs. 4,49,74,987/-, the details of the same are tabulated below for ready reference Sr. No. Name of the stock Purchase price (in Rs. ) STT paid (in Rs. ) Sale price (in Rs. ) Profit (in Rs. ) 1 M/s. Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et of facts and circumstances involving transactions in penny stocks, the Hon ble Jurisdictional ITAT Mumbai made an observation that the share which was traded in the range of Rs. 21/- to Rs. 22/- in May 2005 witnessed a sudden spurt and rose to Rs. 465/- and registered a peak of Rs. 490/-, all this within a couple of months. The assessee sold the shares at Rs. 487/- per share on 22.07.2005. In view of this, the Hon ble ITAT observed that there are serious doubts about the genuineness of the sale price and the resultant gain. Further, the Tribunal held that mere documentary evidence in the face of unusual events surrounding the case cannot be accepted as conclusive evidence. It was further observed by the Tribunal that the case should have been judged by applying the theory of preponderance of probabilities instead of relying only on one kind of evidence. Accordingly, the addition made by the AO u/s. 68 of the Act was sustained. 7.13 In the instant case also, the share price of M/s. Greencrest Financial Services Ltd. was jacked up from Rs. 8.92/- per share in the month of January 2012 to Rs. 260/- per share in the month of June 2014. As such, the market price of the share has rise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that apparent was not real in all the cases and emphasized the importance of the surrounding circumstances and application of the test of Human Probabilities to prove that the apparent was not real. Sumati Dayal Vs CIT [1995] 214 ITR 801(SC) CIT Vs. Durga Prasad More [1971] 82 ITR 540 (SC) CIT Vs. P. Mohana Kala others [2007] 291 ITR 278 (SC) CIT Vs. Ms. Mayawati [2011] 338 ITR 563 (Del.) Sarita Aggarwal Vs. ITO [2015] 373 ITR 586 (Del.) 7.17 Further, in support of circumstantial evidence taking precedence over direct evidence, I would like to place reliance on the decision of Hon ble Supreme court in the case of Collector of Customs Vs. Bhoormul [1974] SCC (2) 544 7.18 Accordingly, after applying the Theory of Human Probabilities and placing reliance on the above mentioned case laws, I treat the transactions made by the assessee through penny stock as sham transactions and, therefore, the resultant LTCG claimed as exempt u/s. 10(38) of the Act is not allowable. Hence, I hold that the entire amount of sale proceeds said to be received from sale of shares of penny stock company of Rs. 4,59,10,500/- should be treated as undisclosed income of the assessee. Therefore, the AO has r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stigation of LTCG Scam, the investigation wing, Kolkata has covered more than 25 Entry operators. These operators have formed a group of Jamakharchi companies, for facilitating bogus LTCG/STCG. Many entry operators have been covered U/S 133A and 132 of the Income Tax Act. One of the operator Shri Devesh Upadhayay whose statement was recorded on oath u/s 131 of the I.T. Act on 01.05.2015. As per the statement the following companies are controlled and managed by Devesh Upadhyay to facilitate bogus LTCG/STCG which are also the exit providers in this case: SL No. PAN EXIT PROVIDERS 1 AADCH4164L HEADFIRST VINTRADE PRIVATE LIMITED 2 AADCI5139E INDRAWATI NIRMAN PRIVATE LIMITED 3 AAECC9285A CHEROOT VANUYA PRIVATE LIMITED 4 AAECDB010E DHYANESHWAR DEALERS PVT LTD 5 AAFCG47731 GOLDENSIGHT TRADERS PRIVATE LIMITED 6 AAHCP3861E PHAGUN BROKING CONSULTANCY PRIVATE LIMITED 7 AAHCPS209Q PADMAWATI TRADEVIN PRIVATE LIMITED Further, Shri Devesh Upadhyay has also mentioned the names of the companies which were used for routing and providing accommodation entries to beneficiaries which are also the exit providers in the case of the assessee. SL No. PAN EXIT PROVIDERS AADCD7140G DEVATMA DISTRIBUTORS PRIV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares is not made by the public but by the bogus entities managed and controlled by the promoter of the penny stock company or the operator which are referred to as Exit Providers . The unaccounted money of the beneficiaries is routed to these bogus entities Exit Providers and the shares held by the beneficiaries are bought by these bogus entities from the money which is the unaccounted money of the beneficiaries. Sometimes, the shares of the LTCG beneficiaries are purchased by the beneficiaries of LOSS who later sell their shares when the price falls and hence book bogus LOSS in their books. All these transactions are done on the stock exchange and as the sale of shares are done after a holding of one year they fall into the category of Long Term Capital Gain which is an exempt income as per the IT Act, 1961. Para 18 of the Assessment Order states that 18. Findings in the case of Assessee. 18.1 Data obtained from various sources was thoroughly verified and analysis was done as per share market fundamentals. After analysis and due examination of records, it was found that long term capital gain of Rs. 4,49,74,987/- shown in the return as the sale of shares of 'Greencrest Financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. Assessing Officer is uncertain about the proofs that are relied upon. If the basis of the Assessment Order itself are not true or baseless the addition and the rejection of exemption are bad in law. As addition do not stand then there shall not be any demand. SUMMARY a) The revenue relied on the findings of the Directorate of Investigation of Kolkata and transaction details of the shares done by assesse from stock exchange and on responses of companies who were exit providers to beneficiaries in the scrip of M/s Greencrest Financial Services Limited which established that M/s Greencrest Financial Services Limited is a mere bogus company / paper company and individuals named above are the operator of the Company, their statements were recorded. b) It was noticed that these companies were engaged in issuing bogus bills for providing long term capital gain/loss, speculation loss/profit etc. It was noticed by the Ld. AO that the assessee has purchased shares of M/s Greencrest Financial Services Limited. c) On this basis the assessee s case was brought under assessment without any tangible material on record and on basis of information and statement of third party. THE SUMMARY T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ker, sold the Shares after holding for 22 months at the Bombay Stock Exchange and delivered the shares in demat form to the stock exchange clearing house and also received the sale consideration from the recognized stock exchange during the FY. 2014-15 relevant for AY. 2015-16. xiii. The shares were sold through India Advantage Securities Ltd. who were registered share brokers of Bombay Stock Exchange and Copies of sale bills / contract notes issued by India Advantage Securities Ltd. is part of paper book (Pg No. 28-82 of Paper Book) xiv. The said sales consideration duly came in Banking Channel and reflected in Bank Statement. (Pg No. 84-92 of Paper Book) xv. There are no evidences that assessee given cash to any entry operators. xvi. The assessee also submitted copy of Demat Account where the said share inwards and outwards clearly reflected in Transaction statement issued by India Advantage Securities Ltd. xvii. The Ld. AO is silent on the Shares DEMAT Account and has not considered important evidences. xviii. The shares were sold through recognised stock exchange on which the appellant has paid Security Transaction Tax (STT) and other statutory taxes. The same were paid through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 68. The shares had been directly allotted by the company and the payment had been made through account payee cheques duly disclosed by assessee in the earlier year and said purchase of shares was evidenced not only from the bank statement but also by the allotment of shares. Thus, possession of the shares was not in doubt at all because same was also reflected in Demat account. xxv. Not only that, the sale of shares was also evidenced from transaction undertaken through registered stock at a specific trade time in BSE and after the sale of shares, the net receipts had been credited to the assessee s bank account. Hence, the nature of the transaction was clearly purchase and sale of shares and the source of the credit, from the material facts on record were quite evident that it was from the sale of shares. As there was no tangible material brought on record to convert these transactions then it is very difficult to treat the sale proceeds of the shares as unexplained cash credit to be added under deeming provisions of section 68. There was no evidence or any whisper that some unaccounted money had been routed and addition of sale proceeds needs to be deleted. RELIANCE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oor of a recognized stock exchange did not arise - It was also apparent that assesse having purchased shares in question, converted them in D-mat form and thereupon sale of those shares was carried out through CSE after paying Securities Transaction Tax - Whether on facts, transactions of purchase and sale of shares were to be regarded as genuine in nature and, therefore, assesses claim was rightly allowed - Held, yes [Para 23] [In favor of assesse] 3. [2017] 77 taxmann.com 260 (Ahmedabad - Trib.) IN THE ITAT AHMEDABAD BENCH 'B' Pratik Suryakant Shah v. Income-tax Officer, Ward- 10 (3), Ahmedabad* OCTOBER 21, 2016 Section 10(38), read with section 147, of the Income tax Act, 1961 - Capital gains - Income arising from transfer of long-term securities (Bogus transactions) - AY 2006-07 - Assesse purchased 3000 shares of company 'T' through a stock broker - These shares were transferred to assesses demat account - However, said stock broker submitted before authorities that he was providing accommodation entries for taking profit or loss by showing purchase or sales of shares and securities commission from beneficiary parties and that assesse was one of beneficiary of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect, merely because share broker was tainted violating SEBI regulations, would not make assesses share transactions bogus. 9. Kamla Devi S. Doshi V/s. The Income Tax Officer Ward 16(3)(1), I.T.A. No.1957/Mum/2015 Assessment Year: 2006-07 Bogus penny stocks capital gain: The s. 131 statement implicating the assesse is not sufficient to draw an adverse inference against the assesse when the documentary evidence in the form of contract notes, bank statements, STT payments etc prove genuine purchase and sale of the penny stock. Failure to provide cross-examination is a fatal error 10. Shri Sunil Prakash V/s. ACIT 15(2) I.T.A./6494/Mum/2014, Assessment Year: 2005-06 S. 68 bogus gains from penny stocks: If the AO relies upon the statement of a third party to make the addition, he is duty bound to provide a copy of the statement to the assesse and afford the opportunity of cross-examination. Failure to do so vitiates the assessment proceedings. A transaction evidenced by payment/receipt of share transaction value through banking channels, transfer of shares in and from the Dmat account, etc cannot be treated as a bogus transaction so as to attract s. 68 11. Pramod Kumar Lodha vs. ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mrs. Rasila N Gala ITA No.1773/Mum/2010 4. CIT V/s Kan Singh Rathore ITA 192of 2014 (Rajasthan HC) 5. M/s SBD Estate Private Limited V/s. ITO 584/Mum/2015 6. Ms Farrah Marker V/s ITO ITA No.3801/Mum/2015 order dated 27/04/2016 7. Mr.Arvind Asmal Mehta V/s ITO ITA No.2799/Mum/2015 order dated 29/02/2016 8. Smt Jyoti D Shah V/s ITO ITA No.1843/Mum/2012 9. ITO V/s Deep Darshan Properties Pvt Ltd.2117 2118/Mum/2014 10. CIT-13 V/s Shyam R.Pawar (2015) -54 Taxmaan.com108- Bombay High Court 11. Jafferali K.Rattonsey vs DCIT ITA No.5068 Mum 2009 12. Kamla Devi S. Doshi ITA No. 1957/Mum/2015 13. Pratik Suryakant Shah (2017)-77 Taxmann.com 260 Ahemdabad Tribunal 14. Aarti Mittal (2014) 41 Taxmann.com 118(Hyderabad Tribunal) 15. CIT Appeal order in case of Umang D Soni 16. C.I.T Mumbai Vs. Mukesh Ratilal Marolia Supreme Court - 2015 (9) TMI 854 - SUPREME COURT 17. The Commissioner of Income Tax-16. Vs. Mrs. Kesar A. Gada 2015 (1) TMI 1220 - BOMBAY HIGH COURT 18. Ramprasad Agarwal vs ITO2(3)(2), Mumbai[2018] 100 taxmann.com 172 (Mumbai - Trib.) 19. Shri Amar Nath Goenka Vs. The ACIT, Circle-20(1), New Delhi. ITA.No.5882/Del./2018 20. Mukta Gupta vs. ITO, Ward-1(4), Ghaziabad .I.T.A. No.2766/DE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Mittal Vs DCIT ITA No. 3427, 3428, 3429/Mum/2019 49. Amit Mafatlal Shah vs ACIT ITA No. 5793/MUM/2019 50. Dipesh Ramesh Vardhan and others vs DCIT CC 2(2) ITA No.7648, 7662, 7651, 7650 and 7649/MUM/2019 51. Nishant Kantilal Patel and Others vs. ITO ITA No 05,06,07 and 10/SRT/2019 52. Ld. Commissioner of Income Tax (Appeals) at National Faceless Appeal Center and deleted all the additions made by the Ld. AO vide Order No. ITBA/NFAC/S/250/202324/1053055362(1) dated 22.05.2023 to relevant Appeal No. CIT (A) 13, Mumbai/10189/2017-18 B. LEGAL POSITION ON GENERAL STATEMENT OF OPERATORS:- ADDITION MADE ON BASIS OF STATEMENT OF THIRD PARTY i.e. OPERATORS 1. The Ld. Assessing Officer has been very imprecise about the statements provided by the operators basis which the scrutiny assessment has been conducted. 2. Since has mentioned name of the operators in the Assessment Order but none of those are related to the Company in which the assessee has invested. The Ld. Assessing Officer has been very unclear about the statements of the operators which are the key evidences on which Ld. Assessing Officer has relied and based on which the entire assessment is conducted. 3. Since there is no clar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rise in the price, Findings of Investigation wing, Analysis of transactions, Failure of Assessee to discharge her onus, Financial analysis of the penny stock companies, Order of the SEBI, Cash trail in the accounts of the entry providers and arranged transactions. i. The shares are purchased from the company directly through allotment. ii. In assessee s case the shares were sold through M/s Harjivandas Nemidas Securities Pvt. Ltd on BSE and how the assesse will know about the exit provider when he only gives direction of sale to his broker to sell, on what basis will assesse know that the shares have been purchased by whom and where and when and in which quantity. iii. What arrangement is the Assessing Officer speaking about, he cannot just by mentioning that some arrangement was made and say prices were rigged and cash was routed back without any proof or any tangible material on record. iv. The evidences discussed in the order give rise to suspicion only and does not indicate and support the finding arrived at by the learned Assessing Officer. The learned Assessing Officer is working on probability which has no legs and not supported by any cogent material in his possession suspi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in providing accommodation entries but has not mentioned names of persons to whom he has provided the said entries. ix. The learned Assessing Officer failed to provide copy of said statement and list of beneficiaries of accommodation entries to verify whether name of the appellant is included in said list or not. In absence of copy of statement and list of beneficiaries the appellant could not verify the correctness of said observation of Assessing Officer and the appellant could not rebut his allegation. x. The appellant submit that without providing copies of statement and list of beneficiaries on which assessment is based upon is against the principle of natural justice and said assessment kindly be annulled. RELIANCE IS PLACED ON THE FOLLOWING CASE LAWS / JUDICIAL PRONOUNCEMENTS FOR ADDITIONS DELETED WHICH WERE MERELY BASED ON INFORMATION NOT DISCLOSED TO THE ASSESSE IS IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE The Ld. AO have relied on statement made by operators. However, this statement has not been supplied to the appellant and hence this is in violation of fundamental rules of justice. This has also been upheld by various judicial pronouncements. Reliance is placed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llaram v/s CIT [1980] 4 Taxman 29 (SC)- ITO, on the basis of letters from bank manager, not shown to assesse, treated amount so remitted as income from undisclosed sources Tribunal, relying on letters of bank manager, upheld ITO's action Whether tribunal justified Held, on facts, no. 8. C Vasantlal Co. vs. CIT [1962] 45 ITR 206 (SC) It was open to an income tax officer to collect materials to facilitate assessment even by private enquiry. But if he desires to use materials so collected, the assesse must be informed of the materials and must be given an adequate opportunity of explaining it. Suspicious cannot take place the evidence 1. DCIT v. Shri Rajeev G. Kalathil, (Mum) (Trib) (ITA No. 6727/M/2012 dt.20/8/2014 2. K.P. Varghese v. ITO, (1981) 131 ITR 579 (SC); 3. CIT v. Roman Co., (1968) : 67 ITR 11 (SC); 4. CIT v. Calcutta Discount Co. Ltd.', (1973) 91 ITR 8 (SC); 5. Umacharan Shaw Bros v. CIT', (1959) 37 ITR 271 (SC) Income assessed without evidence is bad-in-law. Income assessed by revenue without supporting material is not justified. 1. CIT V. BHUVANENDRA 303 ITR 235 (MAD.) 2. VINOD SOLANKI VS. UOI (233) ELT 157 (S.C.) 3. CIT V. KASHIRAM TEXTILE MILLS (P) LTD [200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on following case laws as under and the same has been distinguished: - SN Various case laws relied by Ld. AO Case of Assessee 1. In front of the Hon'ble Delhi Bench of the ITAT in the case of Haresh Win Chaddha v. DDIT (2011) 43 SOT 544 (Delhi) . that there is no presumption in law that the AO is supposed to discharge an impossible burden to assess the tax liability by direct evidence only and to establish the evasion beyond doubt as in criminal proceedings. Further it was held that the AO can assess on consideration of material available on record, surrounding circumstances, human conduct, preponderance of probabilities and nature of incriminating information /evidence available on record. 2. In the case of Sumati Dayal v. CIT (1995) 214 ITR 801 which had come up before the Hon'ble Supreme Court ..the assessee had shown certain amounts in the capital accounts in books claiming same to be winnings from horse races. She filed Sworn statement to effect that she started going for races only towards end of year 1969 and had no experience in races but she purchased jackpot tickets on combination worked out by her on basis of advice given by her husband. She had allegedly won 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in support of the above said transaction and he brought to our notice contract notes of sales of shares, details of cheque issued by stock broker of the assessee towards sales, bank statements in support of the realisation of the sale proceeds and he submitted that the Long Term Capital Gain earned by the assessee is genuine and not an arranged one as alleged by the tax authorities. 13. Further, he submitted that Assessing Officer and Ld. CIT(A) have not pointed out any discrepancies in the documentary evidences submitted by the assessee. Ld.AR of the assessee submitted that without pointing out any discrepancies in the documentary evidences submitted by the assessee the Assessing Officer has heavily relied on the investigations carried out by the Directorate of Investigation. The predetermined action with specific intention is one of the circumstances evidences leading to the conclusion that the Long Term Capital Gain earned is not genuine. Further, assessee has not declared any Short Term Capital Gain or business income or exempt income of share transactions in the previous assessment years. 14. On the other hand, Ld. DR objected to the submissions of the Ld.AR of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is nothing but unaccounted income which was rightly added u/s 68 of the I. T. Act, 1961? 2. We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of the shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd. ( RFL ) is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax ( STT ) has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rigging in the market on the shares of RFL. 3. Therefore we find nothing perverse in the order of the Tribunal. 4. Mr. Walve placed reliance on a judgment of the Apex Court in Principal Commissioner of Income-tax (Central)-1 vs. NRA Iron Steel (P.) Ltd. but that does not help the revenue in as much as the facts in that case were entirely different. 5. In our view, the Tribunal has not committed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre-planned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmeda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained. 12. Mr. Hossain s submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t page no. 1 of the PB; and the bank account shows payment of Rs. 18,00,000/towards purchase of shares of the above company on 06.09.2012 (refer page no. 2 3 of the PB). The Ld. AR also brought to my notice that the Demat statement (CDSL statement for the period 01.12.2013 to 31.12.2013) shows holding of 150,000 equity shares of M/s. Marigold Glass Industries Ltd in Demat Format (refer page no. 4 to 5 of the PB). And the Ld. AR also brought to my notice CDSL statement for the period 01.03.2015 to 31.03.2015 showing holding of 14,64,000/- equity shares of M/s. Greencrest Financial Services Ltd. in Demat Format after sale of 36000 equity shares on 11.12.2014 (refer page no. 6 to 7 of the PB). The Ld. AR also brought to my notice contract note from Broker M/s. Ashika Stock Broking Ltd. for sale of 36,000 equity shares of M/s. Greencrest Financial Services Ltd. out of 15,00,000/- equity shares (refer page no. 8 to 9 of the PB). The Ld. AR also brought to my notice the Bank statement showing receipt of Rs. 25,65,533/- on 17.12.2014 against the sale of 36000/- equity shares (refer page no. 10 of the PB). Thus, the assessee has brought to my notice that the assessee has purchased for Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee did not take place. The Tribunal observed, that department failed to show that the payee brokers did not have funds to make payments to the assessee or that their existence was suspect or that the transaction was not genuine. It was noted by the Tribunal that although investigation was conducted by the department on brokers, M/s Prakash Nahata Co. and Bubna Stock B. S. Ltd., and even found that cash was deposited in the account of Prakash Nahata Co. in the bank and gave full summary of the details, nowhere did the name of that assessee figured in that list. The Tribunal therefore, noted that the burden was on the department to nail the assessee through proper evidence, that there was some cash transaction with these suspected brokers, on whom there was an investigation being conducted by the department. Based on these observations the addition made on account of bogus long-term capital gain was deleted by the Tribunal. Subsequently, this decision of the Tribunal was challenged by the revenue before the Hon'ble Bombay High Court in the case of CIT v. Shyam Pawar - 54 taxmann.com 108 (Bom.). The appeal of the Department was dismissed with the following observations of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n shown by the assessee was unexplained since in the said case broker had confirmed in a statement before the AO that he never sold any shares to the assessee. However, taking note of the evidence as available on record, the Tribunal held that the AO had not disproved the genuineness of the transactions. The said decision of the Tribunal was later upheld by the Hon ble Bombay High Court in the case of CIT v. Mukesh Marolia - ITA 456 of 2007 dated 07.09.2011. And the SLP against the said decision filed by the Department has also been dismissed by the Hon ble Supreme Court in SLP (Civil) No. 20146/2012 dated 27.01.2014. 8. Reliance was also placed on the decision of this Mumbai Tribunal in the case of ITO v. Indravadan Jain (HUF) (ITA No, 4861/Mum/2014) dated 27.05.2016 wherein an identical issue was involved, and in the said case, the long term capital gains claimed by the assessee was denied by the AO and treated as unexplained cash credit u/s 68 of the Act on the basis of action taken by SEBI against the broker through whom the assessee had sold shares. The Tribunal after taking into consideration the facts involved held that action taken against the broker by SEBI cannot be a gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es were held to be genuine and addition made by AO was deleted. Respectfully following the same vis-a-vis findings recorded by CIT(A) which are as per material on record, we do not find any reason to interfere in the order of CIT(A). 9. In similar case, the issue was decided in favour of the assessee in the case of Commissioner of Income-tax, Jamshedpur vs. Arun Kumar Agarwal (HUF) 210 Taxman 205 (Jharkhand High Court). In this case, the AO on the basis of finding in the SEBI enquiry, consequent to which eleven stock brokers their trading were suspended by the Kolkata Stock Exchange from buying selling the securities ii) investigation by the CIT (Inv.) in the case where modus operandi adopted by the brokers of the assessee was also identical with one adopted by M/s Ahilya Commecial Pvt. Ltd., held that transaction of the purchase of the share and sale thereof is not genuine and is a sham transaction. Hon ble Jharkhand High Court while dismissing the appeal of revenue held as under: Even in a case where the share broker was found involved in unfair trade practice and was involved in lowering an rising of share price, and any person, who himself is not involved in that type of transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is shown in the illegal activities, without which, the impugned action to disallow the claim of assessee cannot be sustained. 12. Further, I agree with the submission of the assessee that the assessee s case is distinguishable from the case of Sanjay Bimalchand Jain L/h Shantidevi B Jain v CIT of Mumbai High Court, Nagpur Bench in Income tax Appeal No. 18/2017. 13. Therefore, in view of the decisions of the jurisdictional High Court and other decisions of Tribunal, and in the factual back ground discussed (supra), I find that the addition of Rs. 24,66,000/- under section 68 of the Act made by the AO is unsustainable and therefore direct the AO to delete the same and allow the LTCG income of Rs. 24,58,602/- as exempt under section 10(38) of the Act. Assessee gets relief as afore-stated. And consequently the brokerage charge added of Rs 12,730/- is also deleted. Ground nos.1 is allowed. 18. Therefore, we respectfully follow the ratio of the above decisions. In this case also, the Assessing Officer and Ld.CIT(A) has applied the concept of Human probabilities and held the above said scrip to be a penny stock without bring on record how the assessee is involved in any of the sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit and that the interest paid thereon should not be disallowed u/s 37(1)/57 of the Act and was asked to submit the detailed reply. The assessee was asked to justify his claim with, facts, figures supporting documentary evidences. 22. B The reply filed by the assessee in response to the above notice is received in this office on 28.12.2017. The assessee has accepted that loan amounting to Rs. 1,25,00,000/- was taken from the three aforesaid parites. Further, the assessee has pointed out that the loans have been accepted by crossed account payee cheques. The amount was in turn lended to M/s. Grover Metal Allloys Ltd as advances which were again paid through account payee cheques. Further, the assessee has also stated that he has earned gross interest income of Rs. 1,42,59,612/- and has incurred interest cost amounting to Rs. 10859003/- and offered the net interest income of Rs. 3400609/- for taxation. The assessee has requested that such interest income as mentioned in the aforesaid table should not be disallowed u/s 57. The submissions made by the assessee have been carefully examined and not found tenable. It is seen from the records and the investigation report prepared by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es indicates huge and frequent transactions, a trademark characteristic of the accommodation entry providers. In order to discharge the onus cast in terms of provisions of section 68 of the I.T. Act, the assessee has to establish the identity of the said parties, genuineness of the transactions and financial capacity of the said lenders. In the particular case of assessee, in the light of adverse findings made regarding the said lenders, the assessee was bound to give irrefutable evidences to substantiate the genuineness of the said loan transactions. However, in the facts and circumstances of the case, it clearly emerges that the assessee had failed to discharge this onus. It is seen that the assessee has taken loans during the year, amounting to Rs. 30,00,000/- from M/s Blue Circle Services ltd., Rs. 65,00,000/- from JMD Telefilms Ltd and Rs. 30,00,000/- from JMD Sounds Ltd. The total amount of loan shown to have received by the assessee during the year is worked out at Rs. 1,25,00,000/-. The cumulative conclusion, in the light of the facts of the case discussed above, when distilled through the judicial rulings referred to above, is that the assessee s claim of receipt of unsecu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of Jagdish Purohit Group. As such, basedon investigation already conducted by the Investigation Wing, prima facie, the transactions the assessee had with the above mentioned three parties i.e., unsecured loans, are found to be bogus and non genuine. Burden of Proof: 8.6 At this juncture, it is important to note that, it is trite law that, whenever there is an amount outstanding in the liabilities side of the balance sheet towards unsecured loans, the burden of proof lies on the assessee to prove the genuineness of the transactions by way of fulfilling the following conditions: Identity of the creditors Creditworthiness of the creditors; and Genuineness of the transactions. 8.7 However, in the instant case, out of the three basic ingredients which are required to be proved in order to demonstrate the genuineness of the transactions, the assessee could fulfill only one i.e., identity of the creditors but failed to fulfill the balance two most important conditions stated above i.e., (1)creditworthiness of the loan creditors; and (2) genuineness of the transactions. Under the circumstances, I am of the considered opinion that the assessee has failed to prove the genuineness of unsec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, by virtue of the ratio laid down by the Hon ble Supreme Court (supra), the Income Tax Authorities are entitled to look into surrounding circumstances in order to find out the real intention behind the apparent transactions. While doing so, test of Human Probabilities would assume a vital significance. 8.20 Also, I would like to place reliance on the ratio laid down by the Hon ble Supreme Court in the following cases wherein it has been held that the essence and substance of a transaction should prevail over its form: 1. Karanpura Development Co. Ltd vs. CIT [1962] 44 ITR 362 (SC) 2. CIT vs. Panipat Woollen General Mills Co. Ltd. [1976] 103 ITR 66 (SC) 8.21 Reliance is also placed on the decision of the Hon ble Bombay High Court in the case of Smt. Nayantara G. Agrawal vs.CIT [1994] 207 ITR 639 (Bom.) . 8.22 Further, reliance is placed on the following decisions of the Hon ble Supreme Court wherein it is held that when the assessee is indulged in evasion of taxes by employing colourable devices, court can remove the veil to find out the real nature of the transaction: 1. McDowell and Co. Ltd. vs. CTO [1985] 154 ITR 148 (SC) 2. CIT vs. B.M. Kharwar [1969] 72 ITR 603 (SC). 8.23 In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is existing with established identity, have capacity and creditworthiness to provide loans and the loans given by the lender was genuine. The identity of the lender is undisputed and cannot be questioned since the lender is having valid PAN and have submitted its financial statement regularly and is regularly assessed to tax. Hence, all the details as required by the Ld AO for establishing the identity/existence of the lender, creditworthiness and financial capacity of the lenders, genuineness of the transactions were duly filed. By filing all these documents, the appellant has satisfactorily discharged the onus cast upon him. We further wish to state that the amount received as loan was duly supported by documents, and the Ld AO has not doubted the identity and existence of the lenders. The acceptance of loans and the repayment of loans are through account payee cheques. Interests have been paid regularly after deducting TDS and have also filed quarterly TDS returns. 7. Addition made without confronting with the statement mentioned, referred and relied in the Assessment Order and without allowing opportunity of cross examination. During the relevant assessment year, the respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re duly registered under the provision of Companies Act and the lender companies are filing return of income regularly. 5. The Respondent had received unsecured loan during the said assessment year and had repaid the total dues, further the entire transactions of receipts and payments were made by account payee cheques. 6. The Respondent had also filed confirmation of the said lender companies and submitted the copy of Acknowledgment of Income Tax return of the lender companies, where the said lenders had offered income by way of interest paid by the Respondent to the lenders with TDS claim. It is clear that the said lenders had shown interest income received in its entirety and it is not wrong to assume that the department has already accepted such income in the hands of the said lenders as total interest received by the lenders and has not assessed income by way of so called entry commission as has been alleged. Thus on one hand when it comes to charge of income the amount is assessed as total income treating the income as genuine whereas when it comes to allowance of same expenditure the same is treated as been disallowed treating it as non-genuine. 7. The learned assessing offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies. a) Copy of Audited Balance Sheet of the Lender Company b) Relevant Bank Statement c) Copy of Ledger Account 1. Further, the Respondent submit that the Company s Income-tax Jurisdiction details and financials of the lender s companies proved the identity as well as financial capacity i.e. creditworthiness of the lender s companies. 2. The AO treated unsecured loan as unexplained cash credit under section 68 of the Act on the alleged ground that the Respondent has not brought on record to prove the identity, genuineness of the transactions and creditworthiness of the investors without appreciating that the Respondent has submitted the copies of director report, balance sheet, bank statements, etc. clearly brought out the nature of the transactions, amount involved and scope of the transaction. 3. The Respondent submit that the Respondent has discharged its onus of proving the identity of the parties, genuineness of the transactions and the creditworthiness of the lender. Therefore, the Respondent humbly submit that the addition made under section 68 of the Act be deleted. III. To prove the Genuineness The Respondent has submitted the Extract of Bank Statement of all above mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t had discharged the burden that lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such arose. The High Court was right in refusing to state a case. In view of all these facts, what is required is to prove 3 things as held by the Courts in case of Cash Credits u/s. 68 of the I.T.Act, 1961. In the case of appellant, Identity of the person is proved beyond doubt as the loanee have been borne on the Register of Income Tax Department as its permanent account number is filed before the Assessing Officer and is regularly filing its Return of Income. Capacity of the person is also proved beyond doubt as the loanee had given the loans through Banking Channel and the repayment is also made through Banking Channel. Besides, Copy of Bank Pass Books of both the parties also available as it has been produced by the appellant before the A.O. The appellant also repaid the loan by banking channel. Also, the creditors have confirmed having paid the loans in response to notice u/s. 133(6) of the I.T.Act,1961. The Genuineness of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the final conclusion. In this case what the A.O. has done is only making an addition on the basis of information received without making any further enquiries. Even the A.O. himself does not appear to have been satisfied with the issue of addition to be made to the income disclosed. In the case of C.I.T.v. Varinder Rawley (2014) 366 ITR 232 (P H), the Court held that where the assessee shows that the entries regarding credit in a third party s account were in fact received from third and are genuine, 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 , particularly in a case where no summons u/s. 131 is issued against the third party. The Court further held as under: Held, dismissing the appeal, that the assessee received the amount by way of an account payee cheque. The amount was returned by way of an account payee cheque. The transactions were reflected in the bank accounts of the assessee as well as of the Creditor. The Creditor was an income-tax assessee. Its permanent account number card was placed on record. The assessee had sufficiently discharged the burden which lay upon it to expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditors were assessed to income-tax and they proved 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 and their statements under Section 131 of the Income-tax Act, 1961, were also recorded on oath. There was no clinching evidence and the AO has further failed to prove that the loans are nothing but income in the hands of appellant. In the case of NEMI CHAND KOTHARI v. C.I.T. (2003) 264 ITR 254 (Gauhati) it was held by the Gauhati High Court as under: A person may have funds from any source and an assessee, on such information received, may take a loan from such a person. It is not the business of the assessee to find out whether the source or sources from which the creditor had agreed to advance the amounts were genuine or not. If a creditor has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the assessee to obtain such amount of money or part thereof from the Creditor, by way of cheque in the form of loan and in such a case, if the creditors fails to satisfy as to how he had a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of C.I.T. v. A. Lalpuria Construction P. Ltd. (2013) 215 Taxman 12 (Mag) (Raj) have held that in the case of Accommodation entry without giving an opportunity of cross examination merely on the basis of oral statement additions cannot be made u/s. 68. It is further held that: The oral statement of a third party recorded by Search authorities which was never placed to be confronted by assessee and no documentary evidence was supplied to assessee, could not be considered in making addition u/s. 68 on account of alleged accommodation entries. Besides, in the case of C.I.T. v Kamalaben Sureshchandra Bhatti (2014) 367 ITR 692 (Guj) also, the High Court s held that addition u/s. 68 is unwarranted. 9. It was alleged that the said Mr. Jagdish Purohit had deposed before the Income Tax Authorities that he was only an entry provider and he did not do any actual business, as far from the fact since the same Mr. Jagdish Purohit has retracted his statement made before the I T Authorities and therefore his statement made before the Income Tax Authorities loses sanctity and it could not be relied upon. 10. It is a settled law that it is mandatory for the Assessing Officer to confront the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Hastimal (S) v. CIT (1963) 49 ITR 273 that after a lapse of decade, the assessee should not be placed upon the rack and called upon to explain not merely the origin and source of a capital contribution, but also the origin of origin and source of the source. d. Recently in a similar/ identical case that of the Assessee, The honorable ITAT Delhi in the case of ITO, Ward 15 (2) vs. M/s. Rakam Money Matters P. Ltd. has held that AO has to bring on record any valid material 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. e. In another landmark judgment of Hon ble Gujarat High Court in the case of Varshaben S Patel vs. ITO,[2015] 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. Head note is as under: f. As held in the case of R.B. Mittal v. 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 reasonabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e paper book). Identically similar documents as a proof of evidence were filed from Casper Enterprises Ltd. (pages 71 to 83 of the paper book), Duke Business Pvt. Ltd. (J.P. K. Trading I. Pvt. Ltd.) (pages 84 to 96 of the paper book), Olive Overseas Pvt. Ltd. (pages 97 to 110 of the paper book), Viraj Mercantile Pvt. Ltd. (pages 111 to 119 of the paper book) and Nakshatra Business Pvt. Ltd. (Pages 120 to 131 of the paper book). All these documents neither disproved by the Ld. Assessing Officer nor any evidence was brought on record to falsify the claim of the assessee or the authenticity of these documents. Thus, it can be said that the assessee discharged its onus as provided under section 68 of the Act. The interest was paid through banking channel by the assessee on such loans. It is also noted that so far as the disallowance of interest portion is concerned, the same was deleted by the ld. FAA and has not been challenged before this Tribunal by the Revenue further fortifies the case of the assessee. The loans were repaid along with interest before the date of survey i.e. 17/10/2014 and no cash was found during survey further fortifies the claim of the assessee. All the concerne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not given confirmations rather they have duly confirmed to giving loan to the assessee, the loans were received and returned through banking channels. The assessee has also submitted copies of bank accounts. The lender has not deposited cash into bank account. The assessee has duly discharged the onus with regard to identity of the lender, credit worthiness of the party and all supporting evidences as required u/s. 68 of the I.T.Act. Therefore, in our opinion the decisions relied upon by the DR does not assist the Revenue to the facts of the present case. Para 11. We have also gone through the decisions relied upon by the learned AR. We noted that this Tribunal in similar circumstances in the case of Komal Agrotech Pvt. Ltd. vs. ITO in ITA No. 437/Hyd/2016 vide its order dated 25.11.2016 has held as under : A plain reading of the assessment order demonstrates that the AO merely went by the Investigation done by the office of D.G.I(Investigation), Mumbai. No enquiries or investigation was carried out. No evidence to controvert the claims of the Assessee was brought on the record by the AO. Even the statement of Shri Praveen Kumar was supplied. Nothing is on record about the result i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany to support impugned additions made solely on the basis of statement of Shri Mukesh Chokshi. The Assessing Officer failed to appreciate that as against the statements of any person recorded u/s 143(3) r.w.s. 147, the Assessee Company has fully discharged the burden of proof, onus of proof and established the identity, creditworthiness and genuineness of transaction by banking instruments with documentary evidences. The facts of the above case are very similar to the case under consideration and ratio decided in the case is requested to be applied. Further with the similar facts, similar judgments were pronounced and are hereby outlined as under :- ITAT E Bench in M/s. SDB Estate Pvt Ltd vs. ITO-(5)(3)(2) in ITA No. 584/Mum/2015: AY 2008-09 has decided similar issue by observing as under:- In view of the above stated legal position and in the light of reliable evidences brought on record by assessee to substantiate identity, genuineness and creditworthiness of shareholders/ lenders, which have not been controverter by the Revenue, the additions made solely on the basis of general statement of Shri Mukesh Chokshi cannot be held to be justified and the same are accordingly order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer passed the assessment order on the similar lines as made for earlier year. The assessing officer has not given specific finding on the documentary evidences furnished by the assessee. The assessing officer while passing the assessment order has not given different finding though the facts for the year under consideration were at variance. The assessee specifically contented that they have paid interest on the loan availed and deducted TDS. The ld Commissioner (Appeals) while considering the facts noted that the assessing officer has not correctly appreciated the loan amount from Raghuveer Sales nor its share capital and reserve funds. Similar, other discrepancies were pointed out about VirajMerchantile P. Ltd, Park Tools Ltd and Utakantha Trading Properties Ltd. In view of the above discussion we do not find any infirmity and illegality and we have already confirmed the order passed by ld CIT(A) for AY 2008-09 and 2009-10, hence, the appeal for the year consideration is also dismissed with similar observation. o. The Judgment delivered by Jurisdictional Hon ble ITAT, Mumbai for an identical case i.e., M/s Shree Laxmi Estate Pvt. Ltd. V/s. Income Tax Officer 15(3)(3) On 29.12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P) Ltd. (supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit. 14. It is not out of place to bring under your Hon ble members kind notice, that the Respondent has discharged the onus cast upon it u/s 68 of the Act by submitting the number of documentary evidences during the course of assessment proceedings. The Ld. AO has failed to demonstrate and establish that how the impugned addition of Rs. 1,25,00,000/- was treated as Unexplained Cash Credit. Hence, statement of a third party cannot be relied upon without any corroborative documentary evidence on record. 15. The learned Assessing Officer has erred in making the further addition by disallowing the expenses u/s. 57 of the I.T. Act., 1961 amounting Rs. 62,18,903/- as unexplained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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. Hence we do not find any infirmity in the order passed by Ld CIT(A). Accordingly we confirm the order passed by Ld CIT(A) in deleting the addition of Rs. 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. Accordingly we confirm the order passed by Ld CIT(A) in respect of interest disallowance also. The addition made towards commission expenses is also offshoot of the addition made u/s 68 of the Act. For the reasons stated in the preceding paragraph, we confirm the order passed by Ld CIT(A) on this issue also. In the result, the appeal filed by the revenue is dismissed. DCIT 25(1) vs. M/s. YRV International ITA No. 1414/Mum/2017 The Ld CIT(A) has rightly pointed out these facts and accordingly concluded that the addition made by the AO was not justified. In view of the foregoing discussions, we are of the view that the decision rendered by Ld CIT(A) does not call for any interference, since the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 7049 7050 / Mum/2016 Jitendra M Kitawat vs. ITO 18(1)(5) Appeals filed by the AO are rejected and the appeals of the assessee stand partly allowed. Smt. Ritu Kamal Singhal vs. ITO- 24(3)(4), MUMBAI ..the assessee has brought on record, PAN of the loan creditor and evidence of filing of Income Tax return. The AO has also noted that notice u/s 133(6) was issued to the lender company and reply is also received. Hence, in my considered opinion, the assessee has established the identity of the loan creditor in question. In respect of creditworthiness of the said loan creditor, the assessee has brought on record, the audited balance Sheet of the said company, relevant bank statement and as per this balance sheet, the net worth of this company is Rs. 83.34 lacs and the loan amount in question is only Rs. 20 lacs. In the light of the same, it has to be accepted that the creditworthiness of the said loan creditor is also established at least prima facie. Regarding genuineness of the transaction in question, the assessee has brought on record bank statement and loan confirmation to establish that the loan was received by account payee cheque and it was returned in the next year by accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, on facts, no addition could be made - Held, yes [2014] 42 taxmann.com 473 (Gujarat) HIGH COURT OF GUJARAT CIT -1 v. Apex Therm Packaging (P) Ltd. Section 68 of the Income-tax Act, 1961 - Cash credit (Unsecured loan) - Assessment year 2007-08 - Whether when full particulars, inclusive of confirmation with name, address and PAN Number, copy of income tax returns, balance sheet, profit and loss account and computation of total income in respect of all creditors/lenders were furnished and when it had been found that loans were furnished through cheques and loan account were duly reflected in balance sheet, Assessing Officer was not justified in making addition - Held, yes [2013] 36 taxmann.com 429 (Madhya Pradesh) HIGH COURT OF MADHYA PRADESH Commissioner of Income-tax-II, Indore v. Vaibhav Cotton (P.) Ltd.* Section 68 of the Income-tax Act, 1961 - Cash credits [Loans] - Assessment year 2007-08 - Tribunal on its own independent analysis of matter had reached to factual conclusion about genuineness of unsecured loan transaction and in this process Tribunal had taken note of fact that detailed account of concerned parties were filed by assessee and entries in account were through acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns were received by assessee, were furnished along with their permanent account numbers, copy of acknowledgement of income-tax returns, etc., and no enquiry was made by Assessing Officer, no addition could be made under sec 68 in respect of said unsecured loans Section 68 of the Income-tax Act, 1961 - Cash credits - Assessment year 2006-07 - Assessee received unsecured loans from three parties through account payee cheques - Assessee proved identity, genuineness of transactions and also creditworthiness of creditors by producing their respective bank accounts - Assessing Officer did not examine creditors and made addition on assumption that they would not have saved any money to advance loans - Whether it was not a fit case to make addition under section 68 - Held, yes [2014] 50 taxmann.com 419 (Gujarat) HIGH COURT OF GUJARAT Commissioner of Income-tax-III v. Manoj Indravadan Chokshi* Section 68 of the Income-tax Act, 1961 - Cash credits (Bank deposits) - AY 2009-10 - Whether once source of cash deposit in bank account is explained, subsequent withdrawal is not required to be explained - Held, yes - Assessee explained cash deposit in bank account by submitting names of persons from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entities, has to be judged on the basis of funds available in the business. With regard to genuineness of the transaction, we observe that assessee has taken unsecured loans from Blue Circle Services Ltd., JMD Sounds Ltd and JMD Telefilms Industries Ltd., and submitted the confirmations letters from them which are placed on record. At the same time, assessee also submitted bank statements and financial statements of Blue Circle Services Ltd., JMD Sounds Ltd and JMD Telefilms Industries Ltd., in the Paper Book and it is brought to our notice that assessee has repaid the unsecured loans taken by it along with interest. It is brought to our notice that the assessee has repaid to JMD Sounds Ltd current financial year itself, the same is placed on record at Page No. 128 and 129 of the paper book. Similarly, the payment of JMD Telefilms Ltd in the same financial year, the same is place on record at Page 123 and 124 of the paper book. The payment of Blue Circle Service Ltd are paid in the subsequent assessment year along with interest. Therefore, assessee has demonstrated that assessee has taken unsecured loans and repaid the same along with interest. Normally accommodation entries are t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ish the facts necessary to support his claim of claiming deduction u/s .37(1) of the I.T. Act. Hence, the interest claimed to have paid to the above parties as mentioned in the aforesaid table, during the F.Y. 2014-15 amounting to Rs. 62,81,903/- is hereby disallowed and added to the total income. Penalty proceedings u/s. 271(1)(c) r.w.s. 274 of the I.T. Act, 1961 are also initiated on this issue for furnishing inaccurate particulars of income. (Add: Rs. 62,81,903/-) 26. Aggrieved assessee is in appeal before Ld. CIT(A) and filed detailed submissions. After considering the detailed submissions of the assessee, Ld. CIT(A) dismissed the ground raised by the assessee observing as under: - 9.0 GROUND NO. 3: DISALLOWANCE OF INTEREST EXPENSES OF Rs. 62,81,903/-: 9.1 During the course of assessment proceedings, while perusing the details furnished by the assessee, the AO observed that the assessee claimed to have paid interest of Rs. 62,81,903/- to five parties identified as paper/shell companies indulged in providing accommodation entries in the guise of unsecured loans, which included the above mentioned three paper/shell companies. The details of the same are given below for ready refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of unsecured loans. 9.7. As far as two more parties i.e., Global Infratech Finance Ltd. and Unisys Software Ltd., I have perused the impugned assessment order and the findings of Investigation Wing and I am satisfied that these two parties, being paper/shell companies, are also indulged in providing accommodation entries in the guise of unsecured loans, share capital, share application money, etc. 9.8 Accordingly, I am of the considered opinion that the unsecured loan transactions claimed to have received by the assessee from the above mentioned two companies on which interest expenditure was claimed to the extent of Rs. 58,13,567/- (9,33,827 + 48,79,740) are also bogus in nature. As a natural corollary, the assessee is not entitled to claim interest on such bogus unsecured loans as allowable deduction either u/s. 57 or u/s. 37(1) of the Act. Accordingly, the entire amount of interest expenses claimed by the assessee of Rs. 62,81,903/- cannot be allowed as deduction as per the provisions of the Act. Thus, the ground of appeal raised by the assessee on this issue is dismissed. 10.0 In the result, the appeal filed by the assessee against the order u/s. 143(3) of the Act for the AY 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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