Income Tax Appellate Tribunal - Jodhpur
Dcit, Circle-1,, Bikaner. vs M/S. Jain Carrying Corporation, ... on 26 April, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
JODHPUR BENCH, JODHPUR
BEFORE: DR. S. SEETHALAKSHMI, JJUDICIAL MEMBER &
SHRI RATHOD KAMLESH JAYANTBHAI, ACCOUNTANT MEMBER
I.T.A. No. 369/Jodh/2018
Assessment Year: 2014-15
The Dy. Commissioner of Vs M/s Jain Carrying Corporation
Income Tax, . Jain House, Ind. Area,
Circle-1, Rani Bazar, Bikaner.
Bikaner. [PAN:AAAFJ9388G]
(Appellant) (Respondent)
Appellant by Sh. Rajendra Jain, Adv. &
Sh. Smt. Raksha Birla, C.A.
Respondent by Ms. Nidhi Nair, Sr. DR
Date of Hearing 30.01.2024
Date of Pronouncement 26.04.2024
ORDER
Per:DR. S. Seethalakshmi, JM:
This appeal filed by Revenue is arising out of the order of the Learned Commissioner of Income Tax(Appeals),Bikaner [here in after " CIT(A)" ] dated 10.04.2018 for assessment year 2014-15, which in turn arise from the order dated 20.12.2016 passed under section 143(3) of the Income Tax Act, 1961 (here in after " Act"), by the AO.
2. In this appeal, the assessee has raised following grounds: -
I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 2 "(i) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting addition of Rs. 1,17,00,000/- made u/s 68 and Rs. 97,30,208/- being consequent interest paid on the loan in view of the finding of fact that the lending company was a shell company, and consequently the genuineness and creditworthiness of the transaction could not be sustained."
3. Brief fact of the case are that the return in this case was filed on 25.09.2014 declaring an income of Rs. 87,54,230/-. The case was selected under scrutiny though CASS. Accordingly, notice u/s 143(2) was issued on 31.08.2015 which was duly served upon the assessee as per record. Notice u/s 142(1) was issued on 24.05.2016 for providing ITR, computation of income and audit report. The assessee derives his income from transportation under the name & style of M/s Jain Carrying Corporation. After submission, verification and discussion observed that the assessee has issued unsecured loan on which interest has been paid by the assessee to the entity of M/s MagapodeVyaapar P. Ltd. The assessee was produced the confirmation from the above party but when the ld. AO issued notice u/s 133(6) of the Act, the notice was returned with the remark "not know".Thereafter, a summons u/s 131 was issued to the directors of the above company Mr. Shanti lal Baid and Mr. Rajkaran Daga. The ld. AO noted that both these directors reside in Bikaner even though notices were served by the personal server who is submitted the report as under:-
mijksDr fo'k; esa ys[k gS fd eq>s Jh "kkafr yky cSn] iqjkuh ysu xaxk"kgj o~ Jh jkt dj.kMkxk ikoj gkml ds ihBs xaxk "kgj dks lEeurkehy djus gsr qfn, x, Fks] eS aJh jkt dj.k Mkxk ds fuokl ij x;k] ogka muds yM+ds us uksfVl ysus ls euk dj fn;k vkSj jd gk dh eSa- tSu dSfjax I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 3 dkjiksjs"ku ds vkWfQl esa pys tkvks ogka uksfVl rkehy gks tk,xkA eS atSu dSfjax ds vkWafQl esa x;k ogk aequhe dks gh eSus Jh jkt dj.k Mkxk o Jh "kakfr yky cSn dk uksfVl rkehy djk fn;kA 3.1 The ld. AO noted that both the directors are related to M/s Jain Carrying Corporation. The ld. AO further noted that M/s S.L. Baid received salary from M/s Jain Carrying Corporation is an employee therein and so was Mr. Raj Karan Daga even show cause notice u/s 127(1) was sent to both the directors of the said company but there is no respond to receive from any of them on 10.11.2016. A letter was received from M/s Daga stating that 'he is stranded on account of demonetization and unable to appear.' There after 3rd and 4th and 5th opportunities were granted but none was appeared from the said company in this case information was received from Investigation Wing, Kolkata regarding the company M/s Megapode Vyaapar P. Ltd., its former director Mr. Amit Agarwal and an entry operator Mr. Deepak Patwari and the statement of Mr. Deepak Patwari was recorded u/s 131 on four different dates were recorded wherein he stated that he was engaged in the business of providing accommodation entries to various entities by operating a recket of bogus entities in which he appointed certain dummy directors. He also admitted the names of entities which were controlled by him and which were used a bogus shell companies. It was further admitted by them that he has used a host of bogus company operated by him to manage the business of providing the accommodation entries to various entities, the said statement of Mr. Deepak I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 4 Patwari thereafter was also accepted by the former director of the company Mr. Amit Agarwal vide his suo moto admission which is placed on record. The ld.
AO also noted that there is no credential of M/s Megapode Vyaapar P. Ltd. and therefore, the ld. AO hold view that considering the total income offered by these entities that there is no justification about the creditworthiness creditors in spite of the fact that the assessee has furnished the confirmation, ITR of the ld. AR of the assessee based on these observations the amount of interest paid to the entity of Rs. 97,30,208/- was disallowed and the sum of Rs. 1,17,00,000/- due the principal amount was considered as unexplained to cash credit u/s 68 and added back to the income of the assessee.
4. Aggrieved from the order of the assessing officer, assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds of the appeal so raised by the assessee, the relevant finding of the ld. CIT(A) is reiterated here in below:-
"3.3. I have considered the facts of the case, assessment order and the appellant's submissions and I find that the AO noted that the assessee had paid interest amounting to Rs. 97,30,208/- on loans taken obtained from the entity M/s Megapode Vyaapar (P) Ltd. The interest was paid on old loans as well as on fresh loan of Rs. 1,17,00,000/-. The AO doubted the genuineness of these loans and interest paid thereon by observing that M/s Megapode Vyaapar (P) Ltd was a bogus dummy company, controlled and managed by Sh. Deepak Patwari, who was a bogus accommodation entry provider. The AO quoted the statements of Sh. Sh. Deepak Patwari and Sh. Amit Agarwal, Director of M/s Megapode Vyaapar (P) where both these persons accepted that they controlled and managed the dummy companies for providing bogus accommodation entries. The AO was also influenced by the fact that income declared by M/s Megapode Vyaapar (P) for various assessment years were quite meager. She also referred to the observations of the AO's made in the assessment order u/s. 143(3) for AY 2013-14 & 2014-15 to emphasize that this entity was a bogus entity and had indulged in sham transactions to reduce its income. The AO's suspicion was more so because both the Directors Sh. Rajkaran Daga and Sh. S. L. Baid, were related to the I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 5 assessee did not turn up during the course of assessment proceeding to confirm the fact of lending money to the assessee. The appellant has vehemently contested this action of the AO by submitting that the AO merely on the basis of statement of third parties and without giving proper opportunity of cross-examination treated the old loan as well as fresh loan of Rs. 1,17,00,000/- as unexplained cash credits and disallowed the interest paid thereon. It was claimed by the appellant that it had duly produced all the relevant evidences so as to discharge the burden as laid down in sec. 68 of the Act. The appellant therefore, requested that the addition made by the AO may be directed to be deleted. At this juncture, it would be imperative to reproduce the section 68 of the Act, which reads as under-
"Cash Credits.
Where any sum is found credited in the books of an assessee maintained for any previous year, and 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 charged to income-tax as the income of the assessee of that previous year. Provided that where the assessee is a company, (not being a company in which the public are substantially interested) and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless-
(a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and
(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:
Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10." 3.3.1. Section 68 provides that where any sum is found credited in the books of the assessee for any previous year it may be charged to income tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the AO, not satisfactory. In such a case there is, prima facie evidence against the assessee, viz., the receipt of money, and if he fails to rebut the said evidence, it can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee, the Department cannot, however, act unreasonably. The Hon'ble Supreme Court in the case of Sreelekha Banerjee V/s CIT (1963) 49 ITR 112 (SC) held that the assessee has a legal obligation to explain the nature and sources of credit. In case, assessee offers an explanation but fails to tender evidence, then the AO is justified in rejecting the explanation and holding that income is from an undisclosed source. The Hon'ble Supreme Court in the case of Kale Khan Mohammad Hanif V/s CIT (1963) 50 ITR 1 (SC) held that the AO is not required to specify or prove what that source is, which from the nature of the case must be known only to the assessee.
3.3.2. The three essential ingredients which the assessee must establish to the satisfaction of the AO in respect of any sum found credited in its books of accounts are-
1) proof of identity of creditor,
2) capacity and creditworthiness of creditor to advance the money and I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 6
3) genuineness of the transaction 3.3.3. This information must be provided prima facie by the assessee and only when the assessee adduces evidence to establish the aforesaid, the onus shifts to the revenue to prove that what assessee has furnished is not correct.
Now, coming to the facts of the instant case, let us examine whether the above three essential ingredients for treating a cash credit as genuine were established to the satisfaction of the AO by the appellant.
Identity of the creditors: The appellant furnished the name, PAN and addresses of M/s Megapode Vyaapar (P) Ltd, the statement of Director, namely Sh. Amit Agarwal was recorded on oath. Thus, the identity of the creditors stood clearly established. Capacity of the creditors to advance/deposit the money: The appellant has filed copy of balance sheet and profit and loss account of the both the companies. The appellant has also filed copy of bank statement of the company which shows huge number of high value transactions The appellant furnished copy of financial statements of M/s Megapode Vyaapar (P) Ltd wherein name of assessee duly appeared. There is no onus on the assessee to prove source of source Once the assessee is able to establish that it has in fact received money from third party, it cannot be burdened with a further onus of establishing the source from which such third party had been able to obtain the money. Therefore, the appellant has sufficiently produced documents to establish the capacity of both the parties to advance the amounts to the appellant. Genuineness of the transactions - The AO doubted the genuineness of the transaction as one of Directors of this company and Sh. Deepak Patawari admitted in their statements recorded by Investigating Wing. Kolkata that he had indulged in providing bogus accommodation entries. thus, the AO linked transactions entered by this company with the assessee and considered them as bogus transactions. Regarding this, the appellant submitted they never admitted that transactions entered with the assessee company were bogus transactions. The company M/s Megapode Vyaapar (P) Ltd filed its confirmation regarding advances deposited with the assessee company as loan. Thus, in view of the categorical confirmation of the transaction being made by the creditor, the genuineness of this transaction is established beyond doubt. 3.4. It is an established proposition of law that onus is never static but goes on shifting as and when the two contesting parties lay down evidence in support of their stand. The law in section 68 puts burden of proof, which is fixed on the assessee, to prove nature and source of credit appearing in its books. The Courts have explained the nature and source as identity of the creditor, his creditworthiness and genuineness of the transaction. If assessee is able to discharge the initial onus by submitting evidence to prove the identity of the creditor, and his creditworthiness and genuineness of the transaction then onus will shift to the AO to put material on record to the effect that in spite of identity of the creditor and its creditworthiness being proved the transaction is still not genuine If the AO does so then the onus will again shift back on the assessee to prove the genuineness of the transaction by rebutting the material brought on record by the AO. If assessee fails to do so, then the burden placed by section 68 cannot be said to be discharged by the assessee and it could not be held that the assessee had explained the credits satisfactorily. Under these circumstances, the AO can make addition of the amount credited under section 68. However, neither the nature and extent of material required to be brought on record by a party, nor the circumstances under which it should be brought are fixed, they will vary according to the issue involved. the nature of the evidence required to be produced, the time period elapsed I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 7 since the event generating evidence took place, and the position and competence of the parties required to produce the evidence. Looking to this aspect of vulnerability of discharge of onus the law has given enough discretion to the AO by putting the word "May" and not "shall" before he draws any adverse inference against the assessee. Merely because an assessee is not able to discharge the onus shifted back on him should not make the AO to jump to the conclusion that addition is required to be made. He has to give weightage to the underlying circumstances under which the assessee is not able to discharge the onus. Hon'ble Supreme Court in CIT v. Smt. P.K Noorjahan [1999] 103 Taxman 382 held that word "shall" was substituted by the word 'may on the recommendation of the Select Committee. "This clearly indicates that the intention of the Parliament in enacting section 69 was to confer a discretion on the ITO in the matter of treating the source of investment which has not been satisfactorily explained by the assessee as the income of the assessee and the ITO is not obliged to treat such source of investment as income in every case where the explanation offered by the assessee is found to be not satisfactory". Same principle applies to section 68. For taxing loan creditors u/s 68, the assessee is required to prove: (a) Identity of creditor (b) Genuineness of transaction; and (c) Creditworthiness of creditor. Once an assessee has submitted the documents such as (i) PAN, (ii) income-tax returns of creditors, (iii) the details of bank accounts through and to which the loan amount has passed, (vi) confirmations of creditors etc., then initial onus lying on the assessee- company would stand discharged. It is so held in several judgments such as CIT v. Dwarkadhish Investment (P.) Ltd. [2010] 194 Taxman 43 (Delhi), CIT v. Sophia Finance Ltd. [1994] 205 ITR 98 /[1993] 70 Taxman 69 (Delhi), CIT v. Kundan Investment Ltd. [2003] 263 ITR 626/ 130 Taxman 689 (Cal.) and CIT v Rathi Finlease Ltd. [2008] 215 CTR 429 (M.P.). The creditworthiness or financial strength of the creditor can be proved by producing the bank statement of the creditor showing that it had sufficient balance in its accounts to enable it to advance money to the assessee. Genuineness of the transaction is to be demonstrated by showing that the assessee had, in fact, received money from the said creditor and it came from the coffers of that very creditor. The Division Bench of Delhi High Court in the case of CIT vs. Kamdhenu Steels and Alloys Ltd. 361 ITR 220 (Del.) held that when the money is received by cheque and is transmitted through banking or other indisputable channels, genuineness of transaction would be proved. Once these documents are produced, the onus cast on the assessee can be said to have been satisfactorily discharged. Thereafter, it is for the AO to scrutinize the same and in case he nurtures any doubt about the veracity of these documents, to probe the matter further. However, to discredit the documents produced by the assessee on the aforesaid aspects, there has to be some cogent reasons and materials for the AO and he cannot go into the realm of suspicion. The AO cannot burden the assessee with tax liability merely on the ground that summons issued to the creditors were returned back with the endorsement 'not traceable'. 3.4.1. In the instant case, once the appellant had produced all documents establishing the identity and capacity of M/s Megapode Vyaapar (P) Ltd and genuineness of transaction, the initial onus cast upon the appellant was discharged and the onus shifted to the AO to bring material on record to the effect that in spite of identity and creditworthiness of the creditor being proved, the transaction was still not genuine. However, the AO has not made any further inquiries and has not brought any material on record to controvert the documentary evidences submitted by the appellant. She was only influenced by the statements recorded by the Investigation, Kolkata wherein I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 8 Sh. Deepak Patawari discussed about their modus operandi in providing bogus accommodation entries.
3.5. At this juncture, I may refer to certain case laws where similar issues regarding receipt of loans/gifts were decided by various courts.
(1) CIT v. Orissa Corpn (P) Ltd [1986] 159 ITR 78/25 Taxman 80F (SC): In this case assessee gave the names and addresses of the creditors. It was in the knowledge of the Revenue that the creditors were income-tax assessees. The revenue apart from issuing notices under section 131 did not pursue the matter further. It did not examine the source of income of the alleged creditors to find out whether they were creditworthy.
Therefore, it was held that in these circumstances, assessee could not do anything further and it had discharged the burden that laid on it. The Hon'ble Supreme Court in para 13 & 15 held as below:-
"The assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index number was in the file of the Revenue. The Revenue, apart from issuing notices under s. 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the allowed loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises. It cannot, therefore, be said that any question of law arose in these cases. The High Court was, therefore, right in refusing to refer the questions sought for (Paras 13 & 15)"
(2) Dy. CIT v. Rohini Builders [2002] 256 ITR 360/[2003] 127 Taxman 523 (Guj.):
the Hon'ble Gujarat High Court in this case held that if the identity of the creditors is proved and the amounts are received by account-payee cheques, the initial burden of proving credit is discharged and the source of credits need not be proved. The head note is reproduced as under:-
"Section 68 of the Income-tax Act, 1961- Cash credits Assessing Officer made addition of Rs. 12.85,000 as unexplained cash credits in respect of loans taken by assessee from 21 parties Assessee had discharged initial onus by providing identity of all creditors by giving their complete addresses, GIR numbers/permanent account numbers and copies of assessment orders wherever readily available Assessee had also proved capacity of creditors by showing that amounts were received by account payee cheques drawn from bank accounts of creditors Repayment of loans and interest thereon was also made by account payee cheques by assessee and tax also had been deducted at source on interest payments and remitted Whether assessee was not expected to prove genuineness of cash deposited in bank accounts of creditors, because under law, assessee can be asked to prove source of credits in its books of account but not source of source Held, yes Whether merely because summons issued to some of creditors could not be served or they failed to appear before Assessing Officer, could not be ground to treat those credits as non-genuine Held, yes Whether I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 9 considering totality of facts and circumstances of case, especially fact that Assessing Officer had not disallowed interest claimed/paid in relation to those credits in assessment year under consideration or even in subsequent assessment years, and tax at source had been deducted out of interest paid/credited to creditors, Tribunal was justified in deleting addition made Held, yes Whether as there was no substance in appeal and no substantial question of law arose, appeal was liable to be dismissed - Held, yes."
(3) Nemi Chand Kothari v. CIT [2004] 136 Taxman 213 (Guj)- The Hon'ble Gujarat High Court in this case held that the assessee's burden is confined to proving the creditworthiness of creditor with reference to transaction between assessee and creditor and it is not the business of the assessee to find out the source of money of his creditor or of genuineness of transaction which took place between the creditor and sub-creditor and/or the creditworthiness of the sub-creditors. (4) Kamdhenu Steel & Alloys Ltd [248 CTR 33 (Delhi)]. The head note is reproduced as below:
"Income-Cash credit-Share application money-Burden of proof and genuineness- Though initial burden is upon the assessee, once he proves the identity of credits/share applications by either furnishing permanent account numbers or copies of bank accounts and shows the genuineness of the transaction by showing money in the banks is by account payee cheques or by draft, etc., then the onus to prove the same would shift to the Revenue-Question which assumes importance at this stage is to what the Revenue is supposed to do to dislodge the initial burden discharged by the assessee and to throw the ball again in the assessee's court demanding the assessee to give some more proofs, as the documents produced earlier by the assessee either become suspect or are rendered insufficient in view of the material produced by the Department rebutting the assessee's documentary evidence-When registered letters addressed to companies returned undelivered AO presumed that these companies did not exist at the given address-But, it has to be conclusively established that the company is non- existence-AO did not bother to find out from the office of the Registrar of Companies the address of those companies from where the registered letter received back undelivered-No effort was made to examine as to whether these companies were filing the IT return and if they were filing the same, then what kind of returns these companies were filing-If there was no return, this could be another factor leading towards the suspicion nurtured by the AO-Likewise, when the bank statements were filed, the AO could find out the address given by those applicant companies in the bank, who opened the bank accounts and are the signatories, who introduced those bank accounts and the manner in which transactions were carried out and the bank accounts operated-This kind of inquiry would have given some more material to the AO to find out as to whether the assessee can be convicted with the transactions which were allegedly bogus and/or companies were also bogus and were created for namesake-Mere failure of the creditors to respond to Department's notices could not be a basis to conclude that the assessee has invested its undisclosed income and invoke provisions of s. 68 against assessee-AO failed to carry his suspicion to logical conclusion by further investigation-More steps which should have been taken by the Revenue in order to find out causal connection between the cash deposited in the bank I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 10 accounts of the applicant companies and the assessee were not taken-It is necessary to link the assessee with the source when that link is missing, it is difficult to fasten the assessee with such a liability-Additions rightly deleted-In the peculiar facts and circumstances of the case, order of remand was not called for."
The facts of the instant case are quite similar to the case of M/s Kamdhenu Steel & Alloys Ltd (supra) as the initial burden has been discharged by the appellant and the AO has not conducted any further enquiry.
3.6. The appellant also contended that in view of the above submissions placed on record, position of law explained herein above, in the absence of opportunity of cross- examination allowed to it, no addition of cash credit u/s 68 of the Act can be made While not considering the veracity of statement of Sh. Deepak Patawari and Sh. Amit Agarwal, as of now, I am inclined to agree with the first and foremost contention of the appellant that the statements of Sh. Deepak Patawari and Sh. Amit Agarwal cannot be used against it without affording it an opportunity of cross-examination. Next coming to the authenticity or truthfulness of Sh. Deepak Patawari and Sh. Amit Agarwal, it is clear that both of them, while generally describing their modus operandi of providing accommodation entries, did not name the appellant specifically at any stage of their statement. In fact, the AO herself mentioned that the statements specifically mentioned only M/s Abex Infocom (dummy company). Therefore, any adverse conclusion drawn against the appellant on the basis of such general statement recorded during the course of search stands on a weak footing and needs to be weighed upon the evidence produced by the appellant in support of his case. The appellant, by way of copies of its bank statement and other details, has been able to establish that the appellant had received money from M/s. Megapode Vyaapar P. Ltd. as loan and not in the manner as stated by Sh. Deepak Patawari in his statement regarding accommodation entries.
3.7. Entire controversy arises due to the fact Sh. Deepak Patawari and Sh. Amit Agarwal had accepted that they indulged in managing dummy companies for providing accommodation entries. However, on going through the statements recorded during the search operation, relevant portion of which has also been reproduced in the assessment order, I find that nowhere in these statements either a question regarding advance, more particularly advance given to the assessee has been asked or that the deponent has stated that advance given was accommodation entry against receipt of cash from the recipient of advance, as has been rightly pointed out by the appellant in his written submission. Thus, I find that as has been rightly pointed out by the appellant, Sh. Deepak Patawari and Sh. Amit Agarwal were neither asked to explain the real nature of money advanced by company nor they divulged any particular modusoperendi with regard to such advance. The statement recorded during the search is the sole basis for the conclusion of the AO that the advance / credit was assessee's own unaccounted income does not contain any material at all to justify such a conclusion. There is no evidence or indication that either the assessee had given cash in lieu of such advance or the creditor had received such cash. It is indeed true, as has been pointed out by the appellant that the AO had failed to make any inquiry to ascertain the source of cash deposited in the account from which the advances were given or the capacity of the creditor or the availability of fund with the creditor at the time when the money was advanced to the assessee, which he was duty bound to do in I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 11 view of his allegation that the loan reflected in the books of the assessee was nothing but an accommodation entry representing the assessee's own unaccounted income. I further find that the AO has also failed to effectively rebut the contention of the appellant regarding genuineness of the transactions by producing before the AO the confirmation, copy of accounts and bank account, as has been mentioned in the assessment order From the assessment order, I find that although the AO has repeatedly insisted that it was a case of accommodation entry but has not satisfactorily explained as to how, in the facts and circumstances of the case, such an inference can legitimately be drawn. What is significant is that both the persons in their statements recorded discussed only modus operandi of providing bogus entries without mentioning assessee's name in particular. More particularly, in absence of any specific reference to the assessee or transactions undertaken by him, these statements cannot be used for drawing any conclusion regarding advance deposit with the assessee. This view finds support from the decision of the Calcutta High Court in the case of S. P. Agarwala vs ITO (140 ITR 1010 Cal) in which it has been held that a mere confessional statement by a third party (who is a lender of the assessee) that he was mere name lender and that all his transaction of loans were bogus, without naming the assessee as one who had obtained bogus loan would not be sufficient to hold that assessee's income had escaped assessment.
3.8. The AO had not brought on record any documentary evidences to suggest that name of the appellant is appearing in the documents seized from premises of Sh. Deepak Patawari. The AO has just reproduced an observation which may be true in respect of some of the cases who actually indulged in getting bogus accommodation entries. It is not necessary that every person transacted with these bogus companies indulged in getting bogus entries. There is no iota of evidence, whether direct or indirect, to prove that any cash or unaccounted money had flown from the assessee to these companies, 3.9. It is further observed that onus is on the Department to prove with the documentary evidence that the transactions entered into by the appellant are not genuine and what is apparent is not substantial. Except narrating a modus operandi which may be true in some cases in the assessment order of the appellant's case, without substantiating by documentary evidences. the Assessing Officer was not correct in holding that transaction entered by the assessee with M/s. Megapode Vyaapar P. Ltd. were sham or bogus and in treating the same as unexplained cash credit u/s, 68 of the Act.
3.10. The Assessing Officer has referred decision of Hon'ble Supreme Corut in the case of Sumati Dayal vs. CIT, reported in 214 ITR 801 and ITO vs. Durga Prasad More 82 ITR 540 for the proposition that apparent must be considered real only if it is shown that there are the reasons to believe that the apparent is not real and that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities There is no denial of proposition laid down by the Hon'ble Supreme Court but in every case it has to be judged on the basis of evidences available on record. Not a single documentary evidence is brought on record by the AO to suggest that apparent is not real, whereas, the appellant has produced number of documents such as confirmation account, bank statement, PAN and name addresses of companies, I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 12 affidavit of company, bank statements of both the companies etc. The appellant duly explained the source of the deposits as under-
Received by JCC Source for Megapode
S. No. Date Amount Date Particulars Bank Amount
1. 14.06.2013 1200000 21.05.2013 I.T. Refund Axis Bank Ltd. 1220070.00
2. 18.03.2014 2000000.00 12.03.2014 Dimensional Axis Bank Ltd. 2015434.00
securities Ltd.
3. 19.03.2014 3000000.00 18.03.2014 Dimensional Canara Bank 3069526.63
securities Ltd.
4. 31.03.2014 5500000.00 29.03.2014 Sanjay Jain & Co. Canara Bank 5553991.00
11700000.00 11859021.63
a)The assessee received amount of Rs. 1200000/- on 14.06.2013 from M/s Megapode Vyapaar Pvt Ltd., the immediate source of that cash credit is the Income Tax refund of Rs. 1220070/- credited in the Axis bank account on 21.05.2013.
b) The assessee received amount of Rs. 2000000/- on 18.03.2014 from M/s Megapode Vyapaar Pvt Ltd., the immediate source of that cash credit is the amount received from M/s Dimensional Securities Ltd. of Rs. 2015434/- credited in the Axis bank account on 12.03.2014. It may be noted that M/s Dimensional Securities Ltd. is duly registered with SEBI and having membership of National Stock Exchange and Bombay Stock Exchange Ltd.
c) The assessee received amount of Rs. 3000000/- on 19.03.2014 from M/s Megapode Vyapaar Pvt Ltd., the immediate source of that cash credit is the amount received from M/s Dimensional Securities Ltd. of Rs. 3069526/- credited in the Canara bank account on 18.03.2014
d) The assessee received amount of Rs. 5500000/- on 31.03.2014 from M/s Megapode Vyapaar Pvt Ltd., the immediate source of that cash credit is the amount received from M/s Sanjay Jain & Co. of Rs. 5553991/- credited in the Canara bank account on 29.03.2014. The concern M/s Sanjay Jain & Co. is a regular assessee of Income Tax. 3.11. It is observed that no comment was made by the AO on the one to one correlation established by the appellant. In relation to M/s Dimensional Securities Ltd, it was stated by the AO that the broker company was penalized by the SEBI Ltd on the matter involving technical defaults during financial year 2007-08 to 2009-10. However in my view such penalty cannot have any implication on the creditworthiness of the concern in the year under review. The technical defaults are the offshoot of human follies and they do not narrate any story of the financial health unless expressly stated. Further, the appellant submitted that the concern M/s Dimensional Securities Ltd has been exonerated by the appellate body at the SEBI and penalties imposed were quashed vide order no.93/2009 dated 20.02.09 and ISD 09 dated 20.02.09, which gets duly proved from the details available at the same portal. The AO I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 13 has to apply his mind to each and every individual entry when an explanation is offered by the assessee as observed by in CIT v. R.S. Rathore (RHC) 212 ITR 390. The income alone cannot be the source of deposit. The funds received from the varied sources can be channelized for making advances. Therefore, the endeavor of AO to judge the creditworthiness of cash credit on the touchstone of returned income is an exercise in futility. Here I may refer to decision in the case of CIT v. Metachem Industries [2000] 245 ITR 160 (MP) in which it was held that the assessee cannot be asked to explain whether credit has suffered tax. Where the assessee firm satisfactorily explained the credits standing in the name of its partners, the responsibility of the assessee stands discharged. Once it is established that the amount has been invested by a particular person, be he a partner or an individual, then the responsibility of the assessee firm is over. The assessee firm cannot ask that person who makes investment whether the money invested is properly taxed or not. If that person owns the entry, then the burden of the assessee firm is discharged. It is open to the Assessing Officer to undertake further investigation with regard to that individual who has deposited the amount. By proving each source, the initial burden has duly been discharged by the appellant. Now burden of proof lies on the department that apparent is not real and such a burden has to be discharged by bringing on record positive material and evidence and not on the basis of suspicion and surmises. The above view gets support from the decision reported in CIT V/s. Daulat Ram (1973) 87 ITR 349 (SC) as below:-
"That, the onus of proving that the apparent was not the real was on the party who claimed it do be so. As it was the department which claimed that the amount of fixed deposit receipt belonged to the respondent-firm even though the receipt had been issued in the name of B, the burden lay on the department to prove that the respondent was the owner of the amount despite the fact that the receipt was in the name of B."
The question which arose for determination in this case was not whether the amount of Rs.5,00,000 belonged to Biswanath, but whether it belonged to the respondent-firm. The fact that Biswanath has not been able to give a satisfactory explanation regarding the source of Rs.5,00,000 would not be decisive even of the matter as to whether Biswanath was or was not the owner of that amount. A person can still be held to be the owner of a sum of money even though the explanation furnished by him regarding the source of that money is found to be not correct. From the simple fact that the explanation regarding the source of money furnished by A, in whose name the money is lying in deposit, has been found to be false, it would be a remote and far-fetched conclusion to hold that the money belongs to B There would be in such a case no direct nexus between the facts found and the conclusion drawn therefrom. The onus to prove that the apparent is not the real is on the party who claims it to be so. As it was the department which claimed that the amount of fixed deposit receipt belonged to the respondent firm even though the receipt had been issued in the name of Biswanath, the burden lay on the department to prove that the respondnet was the owner of the amount despite the fact that the receipt was in the name of Biswanath.
I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 14 3.11.1. The Hon'ble Apex Court in the case of KishanchandChellaram Vs. CIT reported in 125 ITR 713 observed as below:-
"...........But before the income-tax authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross-examine the manager of the bank with reference to the statements made by him.
..............The burden was on the department to show that the money belonged to the assessee by bringing proper evidence on record and the assessee could not be expected to call T and N in evidence to help the department to discharge the burden that lay upon it."
3.11.2. The Hon'ble Apex Court in the decision in the case of State of Kerala Vs. MM. Mathew and Another reported in 42 STC 348 observedas below: -
"Strong suspicion strange coincidences and grave doubts cannot take the place of legal proof. To establish the charges against the respondents, it was essential for the prosecution to establish that the secret books of account related to the business transactions carried on by the respondents and none else. The prosecution could have established it in a variety of ways, viz.......The connection of the respondents with the entries in the books could also have been established by producing some of the customers whose names were found in the books to testify that the deals evidenced by the entries were transacted by them with the respondents"
3.11.3. In the decision in the case of CIT Vs. R.Y. Durlabhji reported in 211 ITR 178, the Hon'ble Rajasthan High Court observed as below:-
"in Dhakeswari Cotton Mills Ltd. v. CIT (1954) 26 ITR 775 (SC), Omar Salay Mohamed Sait v. CIT (1959) 37 ITR 151 (SC) and Lalchand Bhagat Ambica Ram v. CIT (1959) 37 ITR 288 (SC), it has clearly been held by the apex court that there must be something more than mere suspicion in support of an assessment and mere suspicion cannot take the place of proof for the purpose of passing an order of assessment. Having taken an overall view of the matter, we are fully satisfied that the Tribunal has not committed any error in allowing the appeals filed by the assessee and no question of law arises for consideration by this court"
3.11.4. In the decision in the case of CIT v. Gujarat Heavy Chemicals Ltd. reported in 256 ITR 795, the Hon'ble Apex Court observed as below-
"The assessee was a joint sector company in which public sector corporations held 40 per cent of the shareholding. A private company of Sikkim held shares of the value of Rs. 22,50,000, which amount was sought by the Assessing Officer to be added to the income of the assessee- company on the ground that the private company was not I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 15 genuine. The Commissioner (Appeals) deleted the addition on the ground that the material indicated that big business houses and industrialists were using Sikkim as a base for rerouting their unaccounted money and a search revealed that SD was controlling a few Sikkim companies for laundering such black money. On appeal, the Appellate Tribunal affirmed the finding of the Commissioner (Appeals) on the ground that the departmental enquiries pointed to a person to whom such unaccounted money might belong and yet it was attempting to tax the income in the hands of the assessee- company. The Appellate Tribunal rejected the Department's applications for reference on the ground that the finding of the Tribunal was one of fact, and the High Court dismissed the Department's applications under s.256(2) of the Income-tax Act, 1961, for orders directing the Tribunal to state a case. The Department preferred appeals to the Supreme Court, and the Supreme Court dismissed the appeals".
3.11.5. In the decision in the case of Heirs of Vrajlal J. Ganatra Vs.. Heirs of Parshottam S. Shah reported in 222 ITR 391, the Hon'ble Apex Court observed as below-
"The question whether a particular sale is benami or not is largely one of fact. Though there is no formula or acid test uniformly applicable it is well nigh settled that the question depends predominantly upon the intention of the person who paid the purchase money. For this, the burden of proof is on the person who asserts that it is a benami transaction. However, if it is proved that the purchase money came from a person other than the recorded owner (ostensible owner) there can be a factual presumption at least in certain cases, depending on the facts, that the purchase was for the benefit of the person who supplied the purchase money. This is, of course, a rebuttable presumption (Bhim Singh v. Kan Singh, AIR 1980 SC 727; CED v. Aloke Mitra (1980) 126 ITR 599 (SC) and His Highness Maharaja Pratap Singh v. Her Highness Maharani Sarojini Devi (1994) Supp. 1 SCC 734)."
3.12. In the absence of any direct nexus, live link or specific material brought on record in accordance with the provisions of law and in absence of such finding, it cannot be presumed that the transactions made with above clients are bogus transactions. The assessee firm has adequately explained with documentary evidence that the transactions made by it with M/s Megapode Vyaapar (P) Ltd are genuine. The Hon'ble ITAT Jodhpur Bench in the case of Sh. Vinod Singhvi, vide ITA NO. 116/Jodh/2013 dated 27/09/2013 had held when the assessee has provided the confirmation of account of the clients, Particulars of income tax of the clients, Bank statements of the clients, etc., in such situation, no adverse view can be taken. In the instant case also, the appellant by furnishing all such necessary, details was satisfactorily able to prove that transactions with M/s. Megapode VyapaarPvt. Ltd. were genuine. 3.14. It is observed that the company has been assessed by the tax authorities u/s 143(3) of the IT Act in the AY 2005-06 and 2006-07 besides being for the AY: 2013-14 & 2014-15. There is no finding by the authorities in any of the assessment orders which could vitiate the creditworthiness of the company in any manner whatsoever. Thus, it can not be stated that the I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 16 share capital and premium received more than 7 years ago, has not been the point of investigation. The share capital was subscribed at premium in the case of M/s Megapode VyapaarPvt. Ltd in the AY and the assessment for that year was completed under section 143(3) of the Act without there being any adverse finding.
3.15. Further, non compliance of the notices issued by the AO u/s 133(6), cannot lead to conclusion that the transactions entered with M/s Megapode Vyaapar (P) Ltd by the appellant firm were bogus. Had the AO harboured any doubt regarding creditworthiness of this company, he could have made enquiry from the respective AO's of the above company as all the income tax particulars in respect of above company are placed on record. As regards the AO's observation that M/s. Megapode VyapaarPvt. Ltd. had shown meager income in the returns of income filed for AY 2011-12 to 2014-15, hence, its capacity of giving loan could not be established, I find that these observations have no relevance as far as giving loan of Rs. 1,17,00,000/- is concerned for the reason that loan of Rs. 1,17,00,000/- was not given out of the income, but was actually given out of the fund/amount received by it from IT refund and Dimensional Securities Ltd and Sanjay Jain & Co. through proper banking channel. It is settled that the appellant is not supposed to explain the source of source. Most importantly, the AO has failed to record any adverse findings that interest paid by the assessee to M/s Megapode VyaaparPvt. Ltd did not get credited in its books of accounts or the interest paid by the assessee had flown back to the assessee in the shape of unaccounted money meaning thereby that the appellant was the ultimate beneficiary. On the contrary, the appellant has adduced sufficient evidences to establish that it had paid interest on the loan as per the terms of the agreement and was not excessive.
3.16. The Hon'ble Rajasthan High Court in the case of CIT v/s Rajendra Soni reported in 54 DTR 0349 held". ".... Thus the assessee has proved its onus by proving the identity of the seller and if the post office registry for confirmation by AO has been returned with the narration shop closed still the assessee has discharged it onus. Further when copy of bill available, recorded in impounded books before survey and on later date payments made through demand draft the transaction cannot be said unexplained because shop closed does not make the transaction invalid or unexplained."
3.17. The Hon'ble ITAT Delhi Bech 'F' in the case of Prinkulandfin (P.) Ltd. vs. ITO [2018] 91 taxmann.com 120 (Delhi - Trib.) held that where assessee company had received share application money from several shareholders and discharged its initial onus to prove identity of investor companies, their creditworthiness and genuineness of transaction by producing sufficient evidences, revenue could not make addition under section 68. The head note is reproduced as under-
"Section 68 of the Income-tax Act, 1961 Cash credits (Share application money) Assessment year 2008-09 During search conducted upon premises of one, STG, it was found that assessee- company had received share application money from several shareholders - To prove identity and creditworthiness of applicants and genuineness of I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 17 transactions, assessee furnished copies of their certificates of incorporation, copy of ITR, bank statements, balance sheet and payment details - However, Assessing Officer added amount of share application money to income of assessee on grounds that share applicants had never appeared before Assessing Officer - It was noted that assessee produced all replies filed by these investors in response to inquiry notice issued to them under section 133(6) before Assessing Officer in which these investors had confirmed making investments in assessee company A request of assessee to Assessing Officer to issue summons against said investors under section 131 for their production at assessment stage was not considered and Assessing Officer passed assessment order on next day Whether since assessee at assessment stage had produced sufficient evidences before Assessing Officer so as to discharge its initial onus to prove identity of investor companies, their creditworthiness and genuineness of transactions, Impugned additions under section 68 were unjustified-Held, yes [Paras 5,5.2,5.9] [In favour of assessee] Though the above judgment relates to issue of share premium, however, the ratio specifically applicable to the facts of the present case, where the assessee had brought on sufficient evidence to discharge its initial onus to prove identity of investor companies, their creditworthiness and genuineness of transactions.
3.18. The Hon'ble Bombay High Court in the case of CIT vs. Haresh D. Mehta [2017] 86 taxmann.com 22 (Bombay) held that where assessee proved loan transactions from various parties by producing details like copy of PAN card, copy of return of income, balance sheet and copy of bank accounts of creditors, Tribunal was justified in deleting addition made by AO under sec. 68 in respect of said transactions. The head note is reproduced as under"-
"I. Section 68 of the Income-tax Act, 1961- Cash credits (Burden of proof) Assessment year 2007-08 During relevant year, assessee obtained unsecured loans from various parties Assessing Officer took a view that assessee had not proved capacity or genuineness of parties to undertake such huge loan transactions - He thus added said amount to assessee's income under section 68- Tribunal found that assessee had produced details like copy of PAN card, copy of return of income, balance sheet and copy of bank accounts before Assessing Officer - Tribunal thus opined that once initial burden was discharged, Assessing Officer had then to find out that despite production of record in relation to those parties, why version of assessee could not be accepted In view of failure of Assessing Officer to carry out said exercise, Tribunal set aside addition made by him Whether since finding recorded by Tribunal was based on material available on record, same did not require any interference. Held, yes [Paras 15 and 16] [In favour of assessee]"
3.19. The Hon'ble ITAT Delhi Bench 'H' in the case of ACIT vs. Vikrant Puri [2017] 82 taxmann.com 48 (Delhi Trib.) held that where assessee had furnished name, address and PAN of creditor and genuineness of the transaction and creditworthiness I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 18 of the creditor was also fully established, the addition made on account of loan taken from the said creditor was to be deleted. In the instant case, the assessee has furnished name, address and PAN of creditor and genuineness of the transaction and creditworthiness of the creditor was also fully established. 5.15. To sum up, the conspectus of the facts and circumstances discussed in the preceding paras, clearly illustrate that transactions of loan entered by the appellant firm with M/s Megapode VyapaarPvt. Ltd. (PAN AACCM0727D) were genuine transaction and there was no material before the AO to conclude that the transaction was a device to camouflage activities and to defraud the Revenue. There was sufficient material to show that the transactions were genuine and not bogus. There is no corroborative evidence brought on record by the AO on the basis of which it can be concluded that assessee firm brought its unaccounted money in the shape of bogus accommodation entries and subsequently any money/profit ever returned back or received by the appellant company. Thus, it is wrong to allege that the appellant firm was the real beneficiary of the amount received from this company. 3.20. Considering the facts and circumstances of the case and various judicial pronouncements as discussed above, it is held that the appellant has fully discharged the onus of establishing the identity, creditworthiness and genuineness of transaction in the instant case and therefore, the AO was not justified in holding that the loans obtained by the appellant from M/s. Megapode VyaaparPvt. Ltd. were not genuine and therefore, further not justified in disallowing the interest paid thereon. Under these facts and circumstances, the addition Rs. 97,30,208/- being the interest paid on loan and addition of Rs. 1,17,00,000/- treating is bogus cash credit u/s. 68, are hereby deleted. The ground nos. 1 and 2 regarding these issue are allowed."
5. Feeling dissatisfied from the above order of the ld. CIT(A). The revenue has preferred the present appeal on the ground as stated hereinabove in para 2. Apropos to the grounds so raised, the ld. DR relied upon the detailed findings of the Assessing Officer recorded in his order. The ld. DR submitted that the unsecured loan taken by the assessee is from the bogus shell company and therefore, the principal and interest due there upon has already been added by the detailed findings recorded in the order of the Assessing Officer. The assessee though identity established but the genuineness of the transactions isnot established. Therefore, the addition was made on account of principal amount I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 19 and interest made by the Assessing Officer which should have been sustained by the ld. CIT(A). Relying on the decision of in the case of Swati Bajaj case of Hon'ble Kolkatta High Court the DR. submitted that the issue of cross examination sought by the assessee is not required to be given. It is proved beyond the doubt that there is accommodation entry of the company and therefore, when the assessee did not represent even though a letter issued u/s 133(6) of the Act and summons issued u/a 131 were remained unattended and therefore, the addition be deleted by the ld. CIT(A) is required to be sustained and the order of the ld. CIT(A) is required to be quashed.
6. Per contra, the ld. AR appearing on behalf of the assessee has relied upon the order of the ld. CIT(A) who has after considering the facts and circumstances of the case deleted the addition and ld. DR did not find any error in the findings of the ld. CIT(A). Therefore, he submitted that the order of the ld. CIT(A) should be sustained and ld. AR of the assessee in support of the order of the ld. CIT(A) has relied upon the written submission filed before the ld. CIT(A) and vehemently submitted that the assessee has proved the source of source and therefore, making the addition of interest and principal amount is not correct and therefore, the same has rightly been deleted by the ld. CIT(A). The ld. AR of the assessee has also relied upon the following decisions in support of the contentions raised :-
I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 20 PCIT vs. Shri Prattek Kothari in DB ITA No. 156/2017 dated 17.01.2018 (Raj. H.C.). PCIT vs. Shri Prattek Kothari in DB ITA No. 118/2018 dated 10.04.2018 (Raj. H.C.). DCIT vs. Shri Prateek Kothari in ITA No. 552/Jaipur/2017 dated 10.11.2017. PCIT vs. M/s Shreeleathers in ITAT No. 18/2022 dated 14.07/2022 ( Calcutta H.C.).
7. We have heard the rival contentions, perused the material placed on record. During the assessment proceeding the ld. AO noted that the assessee has unsecured loan on which interest has been paid by the assessee to the entity named M/s MagapodeVyaapar P. Ltd. The assessee was produced the confirmation from the above party but when the ld. AO issued notice u/s 133(6) of the Act, the notice was returned with the remark "not know". Thereafter, a summons u/s 131 was issued to the directors of the above company Mr. Shanti lal Baid and Mr. Rajkaran Daga. The ld. AO noted that both these directors reside in Bikaner even though notices were served by the personal service wherein both the directors refused to take the notices and the notice server was informed to serve the same to Jain Carrying Corporation. Thus, the ld. AO noted that both the directors are related to M/s Jain Carrying Corporation. The ld. AO further noted that M/s S.L. Baid received salary from M/s Jain Carrying Corporation is an employee therein and so was Mr. Raj Karan Daga even show cause notice u/s 127(1) was sent to both the directors of the said company but there is no response to receive from any of them on 10.11.2016. A letter was received from M/s Daga stating that 'he is stranded on account of demonetization and unable to appear.' There after 3rd and 4th and 5th I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 21 opportunities were granted but none was appeared from the said company in this case information was received from Investigation Wing, Kolkata regarding the company M/s Megapode Vyaapar P. Ltd., its former director Mr. Amit Agarwal and an entry operator Mr. Deepak Patwari and the statement of Mr. Deepak Patwari was recorded u/s 131 on four different dates were recorded wherein he stated that he was engaged in the business of providing accommodation entries to various entities by operating a racket of bogus entities in which he appointed certain dummy directors. He also admitted the names of entities which were controlled by him, and which were used a bogus shell companies. It was further admitted by them that he has used a host of bogus company operated by him to manage the business of providing the accommodation entries to various entities, the said statement of Mr. Deepak Patwari thereafter was also accepted by the former director of the company Mr. Amit Agarwal vide his suo moto admission which is placed on record. The ld. AO also noted that there is no credential of M/s Megapode Vyaapar P. Ltd. and therefore, the ld. AO hold a view that considering the total income offered by these entities that there is no justification about the creditworthiness creditors in spite of the fact that the assessee has furnished the confirmation, ITR of the ld. AR of the assessee based on these observations the amount of interest paid to the entity of Rs. 97,30,208/- was disallowed and the sum of Rs. 1,17,00,000/- due the principal amount was considered as unexplained to cash credit u/s 68 I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 22 and added back to the income of the assessee.The assessee challenged the finding of the ld. AO before the ld. CIT(A) who has deleted the addition giving detailed finding on the issue. The revenue challenged the order of the ld. CIT(A) deleting those two addition of interest and principal amount made by the assessee. The revenue in support of the ground has not filed any other written submission or the paper book but heavily relied upon the finding recorded in the order of the assessing officer. Thus, the bench has perused th finding of the ld. CIT(A) and the same is discussion herein subsequent paras. 7.1 In the year under consideration the assessee paid interest amounting to Rs. 97,30,208/- on loans taken obtained from the entity M/s Megapode Vyaapar (P) Ltd. The interest was paid on old loans as well as on fresh loan of Rs. 1,17,00,000/-. The AO doubted the genuineness of these loans and interest paid thereon by observing that M/s Megapode Vyaapar (P) Ltd was a bogus dummy company, controlled and managed by Shri Deepak Patwari, who was a bogus accommodation entry operator. The ld. AO quoted the statements of Shri Deepak Patwari and Shri Amit Agarwal, Director of M/s Megapode Vyaapar(P) where both these persons accepted that they controlled and managed the dummy companies for providing bogus accommodation entries. The ld. AO noted that the income declared by M/s Megapode Vyaapar (P) for the years surrounded with the year under consideration were quite meagre. The ld. AO's suspicion I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 23 was more so because both the Directors Shri Rajkaran Daga and Shri S. L. Baid, were related to the assessee did not turn up during assessment proceeding to confirm the fact of lending money to the assessee. The ld. AR of the assessee contested this action of the ld. AO by submitting that the ld. AO merely based onthe statement of third parties and without giving proper opportunity of cross- examination treated the old loan as well as fresh loan of Rs. 1,17,00,000/- as unexplained cash credits and disallowed the interest paid thereon. It was claimed by the assessee that it had duly produced all the relevant evidences so as to discharge the burden as laid down in sec. 68 of the Act. Therefore, requested that the addition made by the ld. AO may be directed to be deleted. 7.2 The provision of section 68 states that in respect of the sum found credited in the books shall be charged to income as unexplained credit, if the assessee offer the explanation about the nature and the source thereof and the if the ld. AO found it not satisfactory then in a such a situation the sum so credit can be considered as income of the assessee. On this issue the apex court in the case of Sreelekha Banerjee V/s CIT (1963) 49 ITR 112 (SC) held that the assessee has a legal obligation to explain the nature and sources of credit. In case, assessee offers an explanation but fails to tender evidence, then the AO is justified in rejecting the explanation and holding that income is from an undisclosed source. The apex court also in the case of Kale Khan Mohammad I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 24 Hanif V/s CIT (1963) 50 ITR 1 (SC) held that the ld. AO is not required to specify or prove what that source is, which from the nature of the case must be known only to the assessee. Thus, now the three essential ingredients which the assessee must establish to the satisfaction of the AO in respect of any sum found credited in its books of accounts areproof of identity of creditor,capacity and creditworthiness of creditor to advance the money andgenuineness of the transaction.
7.3 As regards the identity of the creditor, the assessee furnished the name, PAN and addresses of M/s Megapode Vyaapar (P) Ltd, the statement of Director, namely Sh. Amit Agarwal was recorded on oath. Thus, the identity of the creditors stands established.Another aspect is of the capacity of the creditors to advance/deposit the money, on this aspect of the matter the assessee filed copy of balance sheet and profit and loss account of the both the companies. The assessee also filed copy of bank statement of the company which the source of the source. The assessee furnished copy of financial statements of M/s Megapode Vyaapar (P) Ltd wherein name of assessee duly reflected. There are number of judicial precedence that the assessee is not supposed to prove the source of the source. Once the assessee is able to establish that it has in fact received money from third party, it cannot be burdened with a further onus of establishing the source from which such third party had been able to obtain the I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 25 money. Therefore, the assessee discharged the capacity to advance the amounts to the assessee. Now the third requirement is about the genuineness of the transaction as one of Directors of this company and Shri Deepak Patawari admitted in their statements recorded by Investigating Wing, Kolkata that he had indulged in providing bogus accommodation entries. thus, the AO linked transactions entered by this company with the assessee and considered them as bogus transactions. Regarding this, the assessee submitted they never admitted that transactions entered with the assessee company were bogus transactions. The company M/s Megapode Vyaapar (P) Ltd filed its confirmation regarding advances deposited with the assessee company as loan. Thus, in view of the categorical confirmation of the transaction being made by the creditor, the genuineness of this transaction is established. The pendulum burden of onus shifts when the two contesting parties lay down evidence in support of their stand. The law in section 68 puts burden of proof, which is fixed on the assessee, to prove nature and source of credit appearing in its books. The Courts have explained the nature and source as identity of the creditor, his creditworthiness and genuineness of the transaction. If assessee is able to discharge the initial onus by submitting evidence to prove the identity of the creditor, and his creditworthiness and genuineness of the transaction then onus will shift to the ld. AO to put material on record to the effect that in spite of identity of the creditor and its creditworthiness being proved the transaction is I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 26 still not genuine. The finding on these issue has not been controverted by the revenue before us by brining anything further in the matter and thus the onus shifted back by rebutting the material placed before the ld. CIT(A). Thus, when the assessee discharged his burden casted as per provision of section 68, itis the revenue has to place on record the contrary material to rebut the finding of the ld. CIT(A). Thus, when the assessee has discharged his burden by placing relevant material on record the ld. AO cannot make addition under section 68, as the provision of section carries the word "may" and not "Shall" so there is complete the discretion available with the ld. AO and this discretion should be applied based on the set of evidence and not merely the statement of third party and that too without any evidence. Thus, the ld. AO should have exercised his discretion judiciously.
7.4 Here in this case we note that the primary onus has been established by the assessee by bringing on the record(a) Identity of creditor (b) Genuineness of transaction; and (c) Creditworthiness of creditor. Once an assessee has submitted these documents such as (i) PAN, (ii) income-tax returns of creditors,
(iii) the details of bank accounts through and to which the loan amount has passed, (vi) confirmations of creditors etc., then initial onus lying on the assessee-company would stand discharged. It is so held in several judgments such as CIT v. Dwarkadhish Investment (P.) Ltd. [2010] 194 Taxman 43 I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 27 (Delhi), CIT v. Sophia Finance Ltd. [1994] 205 ITR 98 /[1993] 70 Taxman 69 (Delhi), CIT v. Kundan Investment Ltd. [2003] 263 ITR 626/ 130 Taxman 689 (Cal.) and CIT v Rathi Finlease Ltd. [2008] 215 CTR 429 (M.P.). The creditworthiness or financial strength of the creditor can be proved by producing the bank statement of the creditor showing that it had sufficient balance in its accounts to enable it to advance money to the assessee. Genuineness of the transaction is to be demonstrated by showing that the assessee had, in fact, received money from the said creditor and it came from the coffers of that very creditor. The Division Bench of Delhi High Court in the case of CIT vs. Kamdhenu Steels and Alloys Ltd. 361 ITR 220 (Del.) held that when the money is received by cheque and is transmitted through banking or other indisputable channels, genuineness of transaction would be proved. Once these documents are produced, the onus cast on the assessee can be said to have been satisfactorily discharged. Then it is the ld. AO who has to bring the contrary evidence on the record to counter the records of the assessee, no such records evidence produced to counter the finding of the ld. CIT(A). In the order of the ld. CIT(A) he has discussed all these aspect of the matter and also noted that merely on the ground that summons issued to the creditors were returned back with the endorsement 'not traceable'. In support of the claim the assessee has produced the required documentsestablishing the identity and capacity of M/s Megapode Vyaapar (P) Ltd and genuineness of transaction, the initial onus I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 28 cast upon the appellant was discharged and the onus shifted to the AO to bring material on record to the effect that in spite of identity and creditworthiness of the creditor being proved, the transaction was still not genuine. However, the AO has not made any further inquiries and has not brought any material on record to controvert the documentary evidences submitted by the assessee. The ld. AO simply relied upon the statement recorded by the Investigation, Kolkata wherein Shri Deepak Patawari discussed about their modus operandi in providing bogus accommodation entries. The controversy arose on account of the fact that Shri Deepak Patawari and Shri Amit Agarwal had accepted that they indulged in managing dummy companies for providing accommodation entries. However, ongoing through the statements recorded during the search operation, relevant portion of which has also been reproduced in the assessment order from the statement it is seen that these statements either a question regarding advance, more particularly advance given to the assessee has been asked or that the deponent has stated that advance given was accommodation entry against receipt of cash from the recipient of advance, as has been rightly pointed out by the assessee in his written submission. Thus, I find that as has been rightly pointed out by the assessee, Shri Deepak Patawari and Shri Amit Agarwal were neither asked to explain the real nature of money advanced by company nor they divulged any particular modusoperendi with regard to such advance. The statement recorded during the search is the sole basis for the I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 29 conclusion of the AO that the advance / credit was assessee's own unaccounted income does not contain any material at all to justify such a conclusion. There is no evidence or indication that either the assessee had given cash in lieu of such advance or the creditor had received such cash. It is indeed true, as has been pointed out by the assessee that the ld. AO had failed to make any inquiry to ascertain the source of cash deposited in the account from which the advances were given or the capacity of the creditor or the availability of fund with the creditor at the time when the money was advanced to the assessee, which he was duty bound to do in view of his allegation that the loan reflected in the books of the assessee was nothing but an accommodation entry representing the assessee's own unaccounted income. We also noted that the ld. AO failed to effectively rebut the contention of the assessee regarding genuineness of the transactions by producing before the AO the confirmation, copy of accounts and bank account, as has been mentioned in the assessment order. Both the person whose statement recorded merely discussed modus operandi of providing bogus entries without mentioning assessee's name in particular. More particularly, in absence of any specific reference to the assessee or transactions undertaken by him, these statements cannot be used for drawing any conclusion regarding advance deposit with the assessee. This view finds support from the decision of the Calcutta High Court in the case of S. P. Agarwala vs ITO (140 ITR 1010 Cal) in which it has been held that a mere confessional statement by a third I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 30 party (who is a lender of the assessee) that he was mere name lender and that all his transaction of loans were bogus, without naming the assessee as one who had obtained bogus loan would not be sufficient to hold that assessee's income had escaped assessment.It is further noted that onus is on the Department to prove with the documentary evidence that the transactions entered into by the assessee are not genuine and what is apparent is not real. Based on these observations we noted that the ld. Assessing Officer was not correct in holding that transaction entered by the assessee with M/s. Megapode Vyaapar P. Ltd. were sham or bogus and in treating the same as unexplained cash credit u/s, 68 of the Act.
7.5 The ld. AO referred decision of Hon'ble Supreme Corut in the case of Sumati Dayal vs. CIT, reported in 214 ITR 801 and ITO vs. Durga Prasad More 82 ITR 540 for the proposition that apparent must be considered real only if it is shown that there are the reasons to believe that the apparent is not real and that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities There is no denial of proposition laid down by the Hon'ble Supreme Court but in every case it has to be judged on the basis of evidences available on record. Not a single documentary evidence is brought on record by the AO to suggest that apparent is not real, whereas, the appellant has produced I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 31 number of documents such as confirmation account, bank statement, PAN and name addresses of companies, affidavit of company, bank statements of both the companies etc. The appellant duly explained the source of the deposits as under-
Received by JCC Source for Megapode
S. No. Date Amount Date Particulars Bank Amount
1. 14.06.2013 1200000 21.05.2013 I.T. Refund Axis Bank Ltd. 1220070.00
2. 18.03.2014 2000000.00 12.03.2014 Dimensional Axis Bank Ltd. 2015434.00
securities Ltd.
3. 19.03.2014 3000000.00 18.03.2014 Dimensional Canara Bank 3069526.63
securities Ltd.
4. 31.03.2014 5500000.00 29.03.2014 Sanjay Jain & Co. Canara Bank 5553991.00
11700000.00 11859021.63
As it is evidence that the assessee received amount of Rs. 1200000/- on 14.06.2013 from M/s Megapode Vyapaar Pvt Ltd., the immediate source of that cash credit is the Income Tax refund of Rs. 1220070/- credited in the Axis bank account on 21.05.2013.The assessee received amount of Rs. 2000000/- on 18.03.2014 from M/s Megapode Vyapaar Pvt Ltd., the immediate source of that cash credit is the amount received from M/s Dimensional Securities Ltd. of Rs. 2015434/- credited in the Axis bank account on 12.03.2014. It may be noted that M/s Dimensional Securities Ltd. is duly registered with SEBI and having membership of National Stock Exchange and Bombay Stock Exchange Ltd.The assessee received amount of Rs. 3000000/- on 19.03.2014 from M/s Megapode Vyapaar Pvt Ltd., the immediate source of that cash credit is the amount received from M/s Dimensional Securities Ltd. of Rs. 3069526/- credited in the I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 32 Canara bank account on 18.03.2014. The assessee received amount of Rs. 5500000/- on 31.03.2014 from M/s Megapode Vyapaar Pvt Ltd., the immediate source of that cash credit is the amount received from M/s Sanjay Jain & Co. of Rs. 5553991/- credited in the Canara bank account on 29.03.2014. The concern M/s Sanjay Jain & Co. is a regular assessee of Income Tax.
7.6 There is no observation on these each entry-to-entry explanation correlation established by the assessee before the lower authority. The ld. AO has to apply his mind to each and every individual entry when an explanation is offered by the assessee as observed by in CIT v. R.S. Rathore (RHC) 212 ITR
390. The income alone cannot be the source of deposit. The funds received from the varied sources can be channelized for making advances. Therefore, the endeavour of ld. AO to judge the creditworthiness of cash credit on the touchstone of returned income is an exercise in futility. It has been held in the case of CIT v. Metachem Industries [2000] 245 ITR 160 (MP) where in the court the court held that the assessee cannot be asked to explain whether credit has suffered tax. Where the assessee firm satisfactorily explained the credits standing in the name of its partners, the responsibility of the assessee stands discharged. Once it is established that the amount has been invested by a particular person, be he a partner or an individual, then the responsibility of the assessee firm is over. The assessee firm cannot ask that person who makes I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 33 investment whether the money invested is properly taxed or not. If that person owns the entry, then the burden of the assessee firm is discharged. It is open to the Assessing Officer to undertake further investigation with regard to that individual who has deposited the amount. By proving each source, the initial burden has duly been discharged by the appellant. Now burden of proof lies on the department that apparent is not real and such a burden has to be discharged by bringing on record positive material and evidence and not on the basis of suspicion and surmises when there is no live link or specific material brought on record in accordance with the provisions of law and in absence of such finding, it cannot be presumed that the transactions are bogus transactions. The assessee firm has adequately explained with documentary evidence that the transactions made by it with M/s Megapode Vyaapar (P) Ltd are genuine. The coordinate bench of Jodhpur in the case of Sh. Vinod Singhvi, vide ITA NO. 116/Jodh/2013 dated 27/09/2013 had held when the assessee has provided the confirmation of account of the clients, Particulars of income tax of the clients, Bank statements of the clients, etc., in such situation, no adverse view can be taken. In the instant case also, the appellant by furnishing all such necessary, details was satisfactorily able to prove that transactions with M/s. Megapode VyapaarPvt. Ltd. were genuine. To support this contention reliance was also placed on the assessment order passed u/s 143(3) of the IT Act in the AY 2005- 06 and 2006-07 besides being for the AY: 2013-14 & 2014-15. There is no I.T.A. No.369/Jodh/2018 M/s Jain Carrying Corporation 34 finding by the authorities in any of the assessment orders which could vitiate the creditworthiness of the company in any manner whatsoever.
7.7 The noncompliance of the notices issued by the AO u/s 133(6), cannot lead to conclusion that the transactions entered with M/s Megapode Vyaapar (P) Ltd by the assessee were bogus, the ld. AO would have made cross enquiry with the jurisdictional AO of that company whose details were already on record. As regards the AO's observation that M/s. Megapode VyapaarPvt. Ltd. had shown meagre income in the returns of income filed for AY 2011-12 to 2014-15, these observations have no relevance as far as giving loan of Rs. 1,17,00,000/- is concerned for the reason that loan of Rs. 1,17,00,000/- was not given out of the income, but was actually given out of the fund/amount received by it from IT refund and Dimensional Securities Ltd and Sanjay Jain & Co. through proper banking channel. It is settled that the assessee is not supposed to explain the source of source. Most importantly, the AO has failed to record any adverse findings that interest paid by the assessee to M/s Megapode VyaaparPvt. Ltd did not get credited in its books of accounts or the interest paid by the assessee had flown back to the assessee in the shape of unaccounted money meaning thereby that the appellant was the ultimate beneficiary. On the contrary, the appellant has adduced sufficient evidence to establish that it had paid interest on the loan as per the terms of the agreement and was not excessive.
I.T.A. No.369/Jodh/2018
M/s Jain Carrying Corporation 35
7.8 Based on these observations we do not find any infirmity in the order of the ld. CIT(A) considering loan as genuine and once the loan is considered as genuine the resultant interest cannot be disallowed. In the light of these observations the appeal of the revenue stands dismissed.
Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 by placing the details on the notice board.
Sd/- Sd/-
(Rathod Kamlesh Jayantbhai) (DR. S. Seethalakshmi)
Accountant Member Judicial Member
Dated 26/04/2024
Santosh
Copy of the order forwarded to:
(1)The Appellant
(2) The Respondent
(3) The CIT
(4) The CIT (Appeals)
(5) The DR, I.T.A.T.
True Copy
By order