Income Tax Appellate Tribunal - Mumbai
Asst Cit 19(1), Mumbai vs Ashok N. Mehta, Mumbai on 14 December, 2018
'B ', मुंबई ।
आयकर अपील य अ धकरण, मुंबई यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES "B", MUMBAI Before Shri B.R.Baskaran, AM and Shri Sandeep Gosain, JM ITA No.2100/Mum/2016 : Asst.Year 2011-2012 ITA No.1645/Mum/2017 : Asst.Year 2012-2013 Shri Ashok Nagraj Mehta The Asst.Commissioner of Income 28/30 C.P.Tank Road, 1st Floor बनाम/ tax, Circle 19(1) Mumbai - 400 004. Vs. Mumbai.
PAN : AADPM8885E.
(अपीलाथ /Appellant) ( यथ /Respondent) ITA No.2775/Mum/2016 : Asst.Year 2011-2012 ITA No.2554/Mum/2017 : Asst.Year 2012-2013 The Asst.Commissioner of Income tax, Shri Ashok Nagraj Mehta Circle 19(1) बनाम/ 28/30 C.P.Tank Road, 1st Floor Mumbai. Vs. Mumbai - 400 004. (अपीलाथ /Appellant) ( यथ /Respondent)
Revenue by : S/Shri R.Manjunatha Swamy, CIT-DR & D.G.Pansari, Sr.AR Assessee by : Shri Sanjiv M.Shah ु वाई क तार ख / सन घोषणा क तार ख / Date of Hearing : 14.11.2018 Date of Pronouncement : 14.12.2018 आदे श / O R D E R Per B.R.Baskaran (AM) :
These cross appeals are directed against the orders passed by Ld CIT(A)-30, Mumbai and they relate to the assessment years 2011-12 and 2012-13. Since common issues are urged in these appeals, they were heard together and are being disposed of by this common order, for the sake of convenience.2 ITA No.2100/Mum/2016 & Ors.
Shri Ashok Nagraj Mehta.
2. In both the years, the Ld CIT(A) has granted partial relief to the assessee in respect of addition relating to bogus purchases. The revenue is aggrieved by the relief granted, while the assessee is seeking further relief. In AY 2012-13, the revenue is also aggrieved by the decision of Ld CIT(A) in deleting the addition made u/s 68 of the Act.
3. We shall first take up the issue of addition relating to bogus purchases. The facts as discussed by the AO in AY 2011-12 are discussed here. The assessee is engaged in the business of trading in ferrous and non-ferrous metals through his proprietary concern named M/s M.M. Metals. During the course of assessment proceedings, the AO issued notices u/s 133(6) of the Act to the suppliers of materials to the assessee, in order to verify the genuineness of purchases. The notices were returned back unserved by the postal department with the remark "Not known", "left" etc. The AO also noticed that six of the suppliers were identified as hawala parties by the Sales tax department of Government of Maharashtra, i.e., they were providing only accommodation bills without actually supplying the materials. Accordingly, the AO proposed to disallow the purchases.
4. The assessee furnished following documentary evidences to prove the genuineness of purchases:-
(a) Ledger account of purchase parties
(b) Copies of purchase bills and delivery challans
(c) Copies of bank statements evidencing payments made through proper banking channels by issuing account payee cheques.
(d) Statement showing quantitative details of purchase from the above parties and their corresponding sales, i.e., stock records.3 ITA No.2100/Mum/2016 & Ors.
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The assessee submitted that he is also not aware of the present address of the suppliers. He submitted that the sales tax department website still shows that these suppliers as active dealers. The assessee also submitted that it could not have sold the goods without purchasing it and accordingly it was contended that the AO was not right in proposing to disallow the entire amount of purchases. The assessee reiterated its contentions that the purchases are genuine and merely because the notices were returned unserved, they cannot be considered as non-genuine. Without prejudice to the above said contentions, the assessee submitted that the AO can assess only the profit element embedded in such purchases, since the assessee has reconciled the purchases with sales and further entire sales amount has been offered to tax.
5. The AO was not convinced with the contentions of the assessee. He took the view that the peak amount of purchases should be assessed to tax, since the assessee has failed to produce the suppliers for examination nor could he furnish their correct address. Further the assessee has also failed to furnish copies of lorry receipts/transport details. The AO accordingly took the view that the entire purchases are bogus and accordingly rejected the alternative contention of the assessee for assessing the profit element embedded in purchases. The AO also took support of the decision rendered by Hon'ble Supreme Court in the case of Kachwala Gems vs. JCIT (288 ITR
10)(SC) to observe that the question whether there were bogus purchases or not is a finding of fact. He also took support of the decision rendered in the case of Attar Singh Gurmukh Singh (1991)(191 ITR 667)(SC), wherein it was held that the purchases would also covered by the word "expenditure".
4 ITA No.2100/Mum/2016 & Ors.Shri Ashok Nagraj Mehta.
Accordingly he held that the entire bogus purchases are unexplained expenditure in terms of sec.69C of the Act. However, the AO assessed the peak credit of purchases amounting to Rs.3165.79 lakhs as income of the assessee.
6. Before Ld CIT(A), the assessee reiterated the contentions urged before the AO. It was also submitted that the suppliers have been classified as suspicious dealers only for the reason that they have failed to deposit the VAT tax collected by them. It was contended that the assessee could not have sold the goods without purchasing it. It was further submitted that the AO has made addition of peak credit of purchases u/s 69C presuming that the assessee would have paid cash for purchases to some undisclosed parties. It was submitted that the same is only presumption not supported by any facts, as the assessee has made payment through banking channels by way of account payee cheques. It was submitted that the AO has not showed that there was flow back of cash against payments made by cheque. Accordingly it was submitted that the addition made u/s 69C of the Act is not correct. The assessee placed his reliance on the following case laws to support his various contentions:-
(a) M/s Balaji Textile Industries P Ltd vs. ITO (49 ITD 177)
(b) CIT vs. M/s S.M. Omer (201 ITR 608)(Cal)
(c) M/s Vijay Proteins Ltd (58 ITD 428)
(d) ITO vs. Premanand (ITAT, Jodhpur)
(e) Jagdamba Trading Co. Vs. ITO (ITAT, Jodhpur)
(f) CIT vs. Leaders Valves (P) Ltd (P & H)(285 ITR 435)
(g) Nikunj Eximp Enterprises P Ltd (Bom)(216 Taxmann 171)
(h) Ganpatraj A Sanghavi vs. ACIT (ITA No.2826/Mum/2013) 5 ITA No.2100/Mum/2016 & Ors. Shri Ashok Nagraj Mehta.
7. The assessee also submitted that he could not produce the parties, since the purchases were made through brokers. It was also submitted that the suppliers could not be produced due to passage of time and absence of contacts. It was contended that the statement given by them before Sales tax authorities is self serving statement and hence the same cannot be relied upon for making the addition.
8. The learned CIT(A) taking support of the decision rendered by the Hon'ble Gujarat High Court in the case of Bholanath Poly Fab Pvt. Ltd. [355 ITR 290 (Guj.)] and CIT v. Simit Sheth [(2013) 38Taxmann.com 385 (Guj.)], took the view that the profit element embedded in the bogus purchases alone should be assessed to tax as the assessee has reconciled the purchases with sales. He noticed that the Hon'ble Gujarat High Court in the case of Simit Sheth (supra) has estimated the profit element embedded in the alleged bogus purchases at 12.5%. Accordingly, the learned CIT(A) sustained the addition to the extent of 12.5% of the value of bogus purchases. Both parties are aggrieved by the decision so rendered by the learned CIT(A).
9. The learned Departmental Representative submitted that the learned CIT(A), in para 6.3 of his order, has observed that it is the responsibility of the assessee to prove as to how the materials were purchased by it. Further he has observed that though the assessee has tried to reconcile the purchases with the sales but the same has not been done properly. The learned CIT(A) has also observed that the suppliers are witnesses of the assessee and hence the Assessing Officer was not required to force their attendance. The learned DR said that the learned CIT(A), having observed 6 ITA No.2100/Mum/2016 & Ors. Shri Ashok Nagraj Mehta.
so, however proceeded to estimate the profit element embedded in such purchases at the rate of 12.5% instead of sustaining the entire addition made by the Assessing Officer. The learned DR submitted that the Hon'ble Delhi High Court in the case of Jansampark Advertising & Marketing Ltd (ITA 525/2014) has held that the appellate authorities are duty bound to correct the mistakes made by the Assessing Officer. The learned DR also placed reliance on the decision rendered by the Mumbai Bench of the Tribunal in the case of Shoreline Hotel (P) Ltd. v. CIT [ITA No.964/Mum/2015 dated 19.06.2015] wherein the co-ordinate Bench has upheld the revision order passed by the learned CIT directing the Assessing Officer to make addition of 100% of value of bogus purchases. He further submitted that the order so passed by the Tribunal has since been upheld by the Hon'ble Bombay High Court in the case of Shoreline Hotel (P) Ltd. v. CIT [(2018) 98 taxmann.com 234 (Bombay)]. Accordingly the learned DR submitted that the order passed by the learned CIT(A) on this issue should be reversed and the addition made by the Assessing Officer should be sustained.
10. The Ld A.R, on the contrary, submitted that the assessee has reconciled the purchases and sales, meaning thereby, the assessee could not have sold the goods without purchasing them. He submitted that the assessee has furnished all the documents available with it in order to prove the genuineness of purchases. He submitted that the assessee did not have direct contact with the suppliers, since the goods were purchased through the brokers. Hence the assessee was not aware of present address of the suppliers and also could not produce them before the AO. He further submitted that the impugned suppliers have failed to pay VAT tax collected 7 ITA No.2100/Mum/2016 & Ors. Shri Ashok Nagraj Mehta.
by them to the sales tax authorities and hence they have been classified as hawala dealers. He further submitted that the suppliers cannot be considered as witness of assessee and they are actually witness of the AO, since it is the AO who has attempted to disprove the evidences furnished by the assessee by placing reliance on the statement given by the suppliers before the Sales tax department. In this regard, the Ld A.R placed reliance on the decision reported in 49 ITR 561 (All).
11. The Ld A.R further submitted that the AO has invoked the provisions of sec.69C of the Act for making the impugned addition. He submitted that the provisions of sec.69C are not applicable in this case, since the alleged bogus purchases cannot be considered to be expenditure not recorded in the books of accounts. The Ld A.R further submitted that the assessing officer has also not confronted the statements given by the suppliers before the sales tax authorities with the assessee. Accordingly he submitted that the AO was not justified in disbelieving purchases, particularly when he has accepted the sales. Accordingly he submitted that the addition confirmed by Ld CIT(A) is also not justified. The Ld A.R submitted that the co-ordinate benches of Tribunal has deleted entire additions in the cases of Hiralal Chunilal Jain vs. ITO (ITA No.4547/Mum/2014 & others dated 01-01-2016); ACIT vs. Shri Ramila Pravin Shah (ITA No.5246/Mum/2013 dated 5-3-2015) and Shri Ganpatraj A Sanghavi vs. ACIT (ITA No.2826/Mum/2013 dated 5.11.2014). The Ld A.R also placed his reliance on the decisions rendered by Hon'ble Bombay High Court in the case of CIT vs. Hariram Bhambhani (2015)(92 CCH 0046) and CIT vs. Nikunj Eximp Enterprises (P) Ltd (372 ITR 619).
8 ITA No.2100/Mum/2016 & Ors.Shri Ashok Nagraj Mehta.
12. The Ld A.R further submitted that the decision rendered in the case of Shoreline Hotels was related to validity of proceedings u/s 263 of the Act and the prameters considered for determining validity of revision proceedings u/s 263 of the Act is different from normal assessment proceedings. He submitted that the revision proceedings are in the nature of supervisory jurisdiction and the criteria taken into consideration is whether the assessment order is erroneous and prejudicial to the interests of revenue. The Ld A.R submitted that the decision rendered by Hon'ble Delhi High Court in the case of Jansampark advertising (supra) is not applicable to the facts of the present case, as there is no gap to be filled in.
13. The Ld A.R further submitted that the Gross profit rate and net profit rate declared by the assessee over the years is consistent, i.e., the average rate of G.P declared by the assessee was 1.97% and the average rate of N.P declared by the assessee was 0.76%. Accordingly the Ld A.R submitted the G.P rate and N.P rate would have gone down, had the assessee accounted for bogus purchases, as alleged by the AO. Accordingly, the Ld A.R submitted that the entire addition should be deleted.
14. In the rejoinder, the Ld D.R submitted that the Ld CIT(A) has recorded a finding that the assessee has not done one to one reconciliation of purchases and sales, i.e., the assessee has only shown that the aggregate quantity of purchases made from the hawala dealers have been sold. In the absence of one to one reconciliation, it cannot be said that the assessee has sold the very same goods. The Ld D.R submitted that the Tribunal has confirmed additions at higher rates also in many cases. Accordingly he 9 ITA No.2100/Mum/2016 & Ors. Shri Ashok Nagraj Mehta.
submitted that the decision rendered by the Tribunal would depend upon the facts prevailing in that case and hence no standard parameter can be prescribed in the matter.
15. We have heard rival contentions and perused the record. We notice that the assessing officer has made the impugned addition in both the years, mainly for the reason that the assessee has failed to produce the suppliers before him and further the notices issued to the suppliers have been returned back unserved. Further these parties were also identified as hawala dealers by the Sales tax department of Government of Maharashtra. Though the assessee could furnish the copies of invoices, delivery challans and payment details, yet the assessee also could not furnish evidences for transportation of materials from the suppliers to it. Though the assessee claims that it has reconciled purchases with sales, as pointed by Ld CIT(A), the assessee has not correlated the purchases with sales on bill to bill basis, i.e., the assessee could tally the quantity of purchases with the quantity of sales on over all basis.
16. In any case, the tax authorities have accepted that the assessee has correlated the quantity of purchases with the quantity of sales. Even though the Ld CIT(A) has observed that there was no one to one reconciliation, yet the fact remains that the aggregate quantity of purchases has been correlated with the aggregate quantity of sales. We have also noticed that the AO has accepted the sales. Hence there is merit in the contentions of the assessee that he could not have sold the goods without purchasing the materials. Under these facts, as per the decision rendered by Hon'ble 10 ITA No.2100/Mum/2016 & Ors. Shri Ashok Nagraj Mehta.
Gujarat High Court in the case of Simit P Sheth (supra), the profit element embedded in such purchases may be assessed to tax. Since the suppliers have been branded as hawala dealers providing only accommodation bills without actually supplying materials, it is for the assessee to prove that the purchases were actually made from those suppliers only. In the instant case, the assessee has failed to prove the same, as he has taken the stand that he has purchased goods through brokers. In these set of facts, one of the possibilities is that the assessee could have purchased materials from one source and could have obtained accommodation bills from these hawala dealers. In these kind of situations, there is also a possibility that the assessee could have made profit on purchases in the form of savings by way of VAT tax and also by way of discounts. We have noticed that the Ld CIT(A) has followed the decision rendered by Hon'ble Gujarat High Court in the case of Simit P sheth (supra), wherein the profit rate was determined at 12.50% and the hence the Ld CIT(A) has also sustained addition to the extent of 12.50% in the instant cases also. For the reasons discussed in the ensuing paragraphs, we are of the view that the profit rate of 12.50% determined by the Ld CIT(A) is on the higher side.
17. Before addressing the issue relating to rate of profit, we prefer to address the view taken by the AO. We have noticed that the assessing officer has assessed peak amount of purchases. We have earlier noticed that the assessing officer has accepted the sales and the assessee could not have sold the goods without purchasing them. Hence the Hon'ble Gujarat High Court has held that the profit element embedded in such purchases alone should be brought to tax. Hence the approach of the assessing officer 11 ITA No.2100/Mum/2016 & Ors. Shri Ashok Nagraj Mehta.
to assess the peak credit of purchases cannot be sustained for the above said reason and also for the reason that the AO himself has accepted that the assessee has reconciled the quantity of purchases with quantity of sales.
18. Further, we have noticed that the AO has also invoked the provisions of sec.69C of the Act. A perusal of provisions of sec.69C would show that the said section shall apply only in the cases, where the assessee could not explain the source of expenditure incurred by him to the satisfaction of the AO. There should not be any dispute that, when the purchases have been accounted in the books of accounts, the sources of expenses would stand explained by the entries recorded in the books of accounts. Hence, in our view, the AO was not right in law in invoking the provisions of sec.69C in the instant case.
19. We have earlier noticed that the assessee has not correlated quantity of purchases with the quantity of sales on bill to bill basis. Further the assessee has also not produced evidences to show that the materials were actually transported from the impugned suppliers to the assessee. The AO could not trace the suppliers and the assessee also could not obtain confirmation letters from them and the assessee also could not produce them before the AO. Under these set of facts, it cannot be said that the assessee has conclusively proved the purchases. Hence we are of the opinion that the Ld CIT(A) was justified in holding that the profit element embedded in such purchases alone could be assessed to tax. We have earlier observed that the profit rate of 12.50% estimated by Ld CIT(A) is on 12 ITA No.2100/Mum/2016 & Ors. Shri Ashok Nagraj Mehta.
the higher side. This is for the reason that the VAT rate applicable to the products dealt in by the assessee was only 4%. We have earlier observed that the assessee, at the most, could have made savings by way of VAT tax and obtained discount. The assessee could have also incurred expenses in getting the accommodation bills. Considering these facts, the profit that could have made by the assessee in the impugned purchases, in our view, may be determined @ 5%. Hence, we have held that the estimate of 12.50% made by the AO is on the higher side. Accordingly we modify the order passed by Ld CIT(A) on this issue and direct the AO to restrict the addition to 5% of the value of alleged bogus purchases.
20. The facts relating to the issue of bogus purchases is identical in AY 2012-13 also. Following the decision taken by us in the preceding paragraphs for AY 2011-12, we modify the order passed by Ld CIT(A) and direct the AO to restrict the addition to 5% of the value of alleged bogus purchases.
21. The revenue has taken one more ground in AY 2012-13 regarding the addition of cash credits made u/s 68 of the Act., i.e., the revenue is aggrieved by the decision of Ld CIT(A) in deleting the cash credit addition of Rs.75.00 lakhs. The facts relating to the said issue are discussed in brief. The AO noticed that the assessee has taken loan from following two companies during the year relevant to AY 2012-13:-
Sankhala Properties P Ltd - Rs.45.00 lakhs
Sonam Gems P Ltd - Rs.30.00 lakhs
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Rs.75.00 lakhs
13 ITA No.2100/Mum/2016 & Ors.
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The AO further noticed that both the above said companies belong to Bhanwarlal Jain Group, which had been subjected to search and seizure operations. During the course of search operations, Shri Bhanwarlal Jain had admitted that his group consisting of about 70 concerns were only providing accommodation entries in the form of unsecured loans and purchase bills. The directors of various concerns were found to be employees of Bhanwarlal Jain and they have also admitted the same in their statement. Hence the AO proposed to assess the above said loans u/s 68 of the Act.
22. The assessee submitted that he has submitted all the documents to prove the identity and credit worthiness of the creditors and genuineness of transactions. Accordingly the assessee objected to the proposal of the AO. However, the assessing officer took the view that the investigation wing of the department has proved that this group has provided only accommodation entries. Accordingly he assessed the above said two loans aggregating to Rs.75.00 lakhs as income of the assessee u/s 68 of the Act.
23. The Ld CIT(A) deleted the addition with the following observations:-
7.3 I have carefully considered the issues brought out by the AO in the impugned assessment order and also the submissions made by the AR on behalf of the appellant. From the material, the AO has brought out in the body of the assessment order, his case against the appellant which is summarised as under:
a. "Shri Bhanwarlal Jain Group, in whose cases a search action was conducted in 2013 by the Investigation Wing, had been found to be running a hawala racket through a clutch of benami concerns, run with the help of dummy Directors / Partners / Proprietors, who were simply employees of the said Shri Jain &others and were paid nominal salaries.14 ITA No.2100/Mum/2016 & Ors.
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b. Through the said benami concerns, hawala of two types were being given - (1) hawala for purchase of diamonds; and (2) hawala for unsecured loans. c. In his statement, made under section 132(4), Shri Bhanwarlal Jain have admitted to the said hawala racket and also the existence of dummy / benami entities, through which the said racket was being run.
d. Dummy Directors / Partners / Proprietors had also admitted to being part of the hawala racket run by Shri Bhanwarlal Jain Group.
e. M/s Sankhala Properties Pvt. Ltd. And M/s. Sonam Gems Pvt. Ltd. , from whom the impugned loan of ` 40,00,000/- and 35,00,000/-was shown to have been obtained by the appellant, figured in the data base of entities and entries compiled by the Investigation Wing, therefore, this loan, the appellant had shown in its books of account, was suspect.
f. Though the appellant*had provided confirmations and other supporting evidence in respect of the impugned credits, in view of the findings of, the Investigation Wing, the impugned loan was treated as non-genuine and the loan amount was added u/s 68 to the computation of total income of the appellant."
7.3.1 The above being the basic thrust of the case against the appellant, the impugned assessment order needs to be examined to figure out the quality of appellant-specific evidence if any available. A search for such an examination leads to the following questions:
a. "What is the nature of evidence that has been brought on record to show that the lender parties, who advanced the impugned loans to the appellant, were benamis of Shri BhanwarlalJain Group?
b. Is there any material that has been brought out by the Assessing Officer to show that the loans in question are paper entries purchased against payment of unaccounted cash?"
7.3.2 First of all, it would be worthwhile to examine the impugned assessment order with regard to material that shows that the hawala racket was run through benami entities of Shri Bhanwarlal Jain. In this regard it is mentioned in the assessment order, the Assessing Officer claims that in their respective statements, recorded u/s 132(4) all Directors / Proprietors / Partners of the alleged benami entities run by Shri Bhanwarlal Jain have admitted to being dummies, business in whose names was actually being run by Shri Bhanwarlal Jain. However no mention of any particular statement from any particular person was reproduced in the order. It is also mentioned that books of accounts, were found at one place. However, the AO has not mentioned anything about the incriminating evidences found, pertaining to the appellant to come to the conclusion that the loans obtained by the appellant are accommodation entries.15 ITA No.2100/Mum/2016 & Ors.
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7.3.3 Certain conclusions are obvious. One, the Assessing Officer himself is not so clear about facts and has referred to mostly the material facts what has happened in the search on Bhanwarlal Jain group, which are not relevant to the case. Two, the Assessing Officer has not referred to any adverse material in the cases of loan creditors that are being dubbed by him to be benamis of Shri Bhanwarlal Jain. Hence, it is to be inferred that the quality of evidence, specific to the appellant is but poor and not fully relied upon. From the impugned assessment order it is seen that though the Assessing Officer appears to have taken the view that the impugned loan creditors are mere entry provider and that the impugned loan entries have been obtained to introduce the unaccounted cash in its books of account, no specific material has been brought on record to show that creditor is entry provider ^nd that entries for the loan in question has actually been obtained against payment made by the appellant in cash outside regular books of account. All this goes to support the contentions of the appellant that Assessing Officer has passed the order on the basis of mere conjectures and surmises, without bothering to bring any concrete material on record.
7.3.4 Absence of material to show that the Loan Entry is Unexplained: From the forgoing, it is obvious that there is no scope for arriving at a conclusion that the appellant had taken hawala entry in the form of loan, to introduce the unaccounted cash in its books of account. Hence, the only issue that remains to be seen is whether on the basis of facts brought on record the impugned loan could be treated as unexplained within the fore-corners of section 68 of the Act. At the outset, it will necessary to look at some legal precedents with regard to the intent and application of section 68 of the Act. It needs no elaboration that through a catena of decisions the Courts have laid down the following three fundamental tests which have to be established to discharge the burden under section 68 of the Act:
• Identity of the creditor • Creditworthiness of the creditor, and • Genuineness of the transaction.
7.3.5 The Hon'ble Supreme Court in case of CIT v. P. Mohanakala [2007] 291 JTR 278 / 161 Taxman 169 held that the expression "assessee offers no explanation" means where the assessee offers no proper, reasonable and acceptable explanation as regards the sum found credited in the books maintained by the assessee. It further held that the opinion of the AO for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material & other attending circumstances available on record. The opinion of the AO is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion.16 ITA No.2100/Mum/2016 & Ors.
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7.3.6 The law is well-settled that the onus of proving the source of a sum of money found to have been received by an assessee is, on him and where the nature and source of a receipt, whether it be of money or other property, cannot be satisfactorily explained by the assessee, it is open to the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that the income is from any particular source [Roshan Di Hatti v. CIT[1977] 107ITR 938 (SC)].
7.3.7 The initial burden to prove the genuineness of cash credit lies on the taxpayer. If the assessee fails to prove satisfactorily the source and nature of amounts of cash received and creditworthiness of the creditor, the AO is entitled to draw inference that the receipts are of an assessable nature [A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807(SC)].
7.3.8 In the case of Rohini Builders [2002] 256 ITR 360 /[2003] 127 Taxman 523 (Guj.) it was 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.
7.3.9 In the case of CIT vs. Smt Sushiladevi Khadaria [2009] 319 ITR (Bom) the Hon. Bombay HC held that when loans were taken by account payee cheques and the record indicated that there was no cash payment in the account of the borrower prior to the issuance of such cheques, the loans and interest paid on such loans were not includible in the total income of the assessee u/s.68 of the Act.
7.3.10 In the case of ITO v. Anant Shelters (P) Ltd. [2012] 051 SOT 0234, the Hon'ble 1TAT (Mumbai) held that in matters regarding cash credit the onus of proof was not a static one. As per the provisions of the section 68, the initial burden of proof lies on assessee. Amount appearing in books of accounts of the assessee was considered a proof against him. He can prove the identity of the creditors by either furnishing their PANs or assessment orders. Similarly, genuineness of transaction could be proved by showing that money was received by an account payee cheque or by draft. Credit worthiness of the lender could be established by attending circumstances. Once • assessee produces evidences about identity, genuineness and credit worthiness of the lender, onus of proof shifts to revenue. Therefore, it was held that assessee had furnished all the details regarding genuineness of cash credit, i.e., he had discharged his burden of proof. AO did not make any attempt to discharge his burden of proof to rebut the evidences produced by assessee. No addition u/s.68 can be sustained.
7.3.11 In the case of CIT v. Jai Kumar Bakliwal [2014] 366 ITR 217 (Raj) it was held by the Rajasthan High Court that all the cash by the Rajasthan High Court that all the cash creditors were assessed to Income-tax and they provided 17 ITA No.2100/Mum/2016 & Ors. Shri Ashok Nagraj Mehta.
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 that the assessee was operating their bank accounts. Most of the cash creditors appeared before 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 nor had the Assessing Officer been able to prove that the money actually belonged to non but the assessee. The addition under section 68 was not justified.
7.3.12 The question whether an assessee is required to prove the source of source also has been answered by the Hon'ble Gauhati High Court in case of Nemi Chand Kothari v. CIT[2004] 136 Taxman 213. The High Court 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.
7.3.13 Hence, it is to be inferred that in a case where the assessee has supplied all possible information to the Assessing Officer to explain the credit transaction, he has* satisfactorily discharged the burden cast on him and it would be for the revenue to prove that the transaction is not satisfactorily explained and provisions of section 68 of the Act are applicable.
7.3.14 In the case before me, the record also shows that to prove the genuineness of the impugned loan entry from M/s Sankhala Properties Pvt. Ltd. And M/s. Sonam Gems Pvt. Ltd, the appellant has furnished to the Assessing Officer the following details copies of which were also furnished present proceedings:
/. Copy of Ledger Account Confirmation II. Bank Statements of the parties III. Income Tax Acknowledgement of the parties IV. Balance Sheet and Profit and Loss Account of parties V. Affidavits given by the Directors of both the companies confirming the loans given to appellant and explaining the source of giving loan VI. Copy of affidavit filed by Bhanwarlal Jain to the Deputy Director of Income Tax, Unit IX, Mumbai retracting the statements given by him at the time of search conducted on his premises.
7.3.15 As such, in so far as the appellant is concerned, they have provided all possible documentary evidence to prove identity of the creditors from whom the impugned loan of Rs 75,00,000/- was obtained. The evidences also proves creditworthiness of the creditors and the genuineness of the transactions. From 18 ITA No.2100/Mum/2016 & Ors. Shri Ashok Nagraj Mehta.
this it has to be said that the appellant had done everything in its power to prove the three ingredients required to prove the satisfactory nature of the loan transactions. In these circumstances, the onus had shifted to the Assessing Officer. Further, if the Assessing Officer was not satisfied with what had been given to him by the appellant, he was duty bound to specify what more material he wanted the appellant to furnish. The Assessing Officer never asked for any further material, which leads to the inescapable conclusion that the Assessing Officer could not think of any further material to ask for and proceeded to reject the appellant's claim. The unequivocal conclusion is that all the three ingredients having been satisfied, the impugned loan of Rs 75,00,000/- have to be treated as explained satisfactorily and the Assessing Officer was wrong in having disregarded overwhelmingly supportive evidence. No cogent material was adduced by him, to show that loans were unexplained. Therefore, the impugned addition of Rs 75,00,000/-, made in the Assessment Order, fails on the count that evidence that is relied upon is totally inadequate and failure to recognise the satisfactory nature of the explanation/evidence tendered by the appellant to explain identity of creditors, creditworthiness of the creditors and the genuineness of the loan transactions. Hence, the impugned addition of Rs 75,00,000/- is hereby deleted. Ground No. 2 is treated as 'Allowed'.
24. We heard the parties on this issue. The Ld D.R submitted that the lenders belong to Bhanwarlal Jain Group and it has admitted that they have provided only accommodation entries. Accordingly he submitted that the Ld CIT(A) was not justified in deleting the addition made u/s 68 of the Act. On the contrary, the Ld A.R submitted that the assessing officer has made the impugned addition u/s 68 of the Act. He submitted that the initial burden placed upon the assessee under the provisions of sec.68 of the Act is to prove the identity and credit worthiness of lender and genuineness of transactions. He submitted that the assessee has furnished all the documents to prove the above said three ingredients and the AO has not found fault with the same. He further submitted that the AO has placed his reliance on the statement given by Shri Bhanwarlal Jain and it is stated that he has retracted the statement. He further submitted that an identical issue was considered in the case of M/s Reliance Corporation vs. ITO (ITA 19 ITA No.2100/Mum/2016 & Ors. Shri Ashok Nagraj Mehta.
No.1069 to 1071/Mum/2017 dated 12.04.2017) by the co-ordinate bench and the identical addition made in the above said case has been deleted.
25. A perusal of the order passed by Ld CIT(A) would show that the Ld CIT(A) has examined the documents furnished by the assessee and has come to the conclusion that the assessee has discharged the initial burden of proof placed upon his shoulders u/s 68 of the Act, i.e., he has proved the identity of the creditor, creditworthiness of creditor and genuineness of transactions. Once the assessee discharges the initial burden placed upon him, then the onus shifts to the shoulder of the assessing officer to prove otherwise. In the instant case, we notice that the AO has failed to prove that the documents furnished by the assessee are wrong. The above view is supported by the decision rendered by the co-ordinate bench in the case of Reliance Corporation (supra). Hence we do not find any infirmity in the order passed by Ld CIT(A) on this issue and accordingly uphold the same.
26. In the result, both the appeals filed by the revenue are dismissed and both the appeals of the assessee are partly allowed.
Order has been pronounced in the Court on 14.12.2018 Sd/- Sd/-
(Sandeep Gosain) (B.R.Baskaran)
या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मुंबई Mumbai; दनांक Dated :14th December, 2018.
SA
20 ITA No.2100/Mum/2016 & Ors.
Shri Ashok Nagraj Mehta.
आदे श क! " त$ल%प अ&े%षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आय"
ु त(अपील) / The CIT, Mumbai.
4. आयकर आय"
ु त / CIT(A)-30, Mumbai
5. %वभागीय (त(न)ध, आयकर अपील य अ)धकरण, मुंबई / DR, ITAT, Mumbai
6. गाड- फाईल / Guard file.
आदे शानस
ु ार/ BY ORDER,
स या%पत (त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt. Registrar)
आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai