Income Tax Appellate Tribunal - Lucknow
Shri Mehendipur Balaji Enterprises ... vs Deputy Commissioner Of Income Tax, ... on 14 September, 2021
I.T.(SS)A. Nos.105 to 108, 110 to 112
and 114, 116 & 117/Lkw/2019 1
IN THE INCOME TAX APPELLATE TRIBUNAL
LUCKNOW BENCH 'B', LUCKNOW
(THROUGH VIRTUAL HEARING)
BEFORE SHRI A. D. JAIN, VICE PRESIDENT AND
SHRI T. S. KAPOOR, ACCOUNTANT MEMBER
I.T.(SS)A. Nos.105 to 108/Lkw/2019
Assessment Years:2013-14 to 2016-17
Shri Balaji Betal Nuts Pvt. Ltd., Vs. Dy.C.I.T.,
2/40 Gali No. 2nd Floor Ansari Central Circle-II,
Daryaganj, New Delhi. Kanpur.
PAN:AACPS1393A
(Appellant) (Respondent)
I.T.(SS)A. Nos.110 to 112/Lkw/2019
Assessment Years:2014-15 to 2016-17
M/s Ghata Mehendipur Balaji Vs. Dy.C.I.T.,
Agri Extraction Pvt. Ltd., Central Circle-II,
4743/23, Ansari Road, Kanpur.
Dariyaganj, New Delhi.
PAN:AAECG3438K
(Appellant) (Respondent)
I.T.(SS)A. No.114/Lkw/2019
Assessment Year:2013-14
&
I.T.(SS)A. Nos.116 & 117/Lkw/2019
Assessment Years:2015-16 & 2016-17
Shri Mehendipur Balaji Enterprises Vs. Dy.C.I.T.,
Pvt. Ltd., Central Circle-II,
4743/23, Ansari Road, Kanpur.
Darya Ganj, New Delhi.
PAN:AANCS6462Q
(Appellant) (Respondent)
I.T.(SS)A. Nos.105 to 108, 110 to 112
and 114, 116 & 117/Lkw/2019 2
Appellant by Shri P. K. Kapoor, C. A.
Respondent by Smt. Abha Kala Chanda, CIT, (DR)
Date of hearing 12/08/2021
Date of pronouncement 14/09/2021
ORDER
PER T. S. KAPOOR, A.M.
These are ten appeals filed by different assessees against the separate orders of learned CIT(A), all dated 29/11/2018. These appeals were earlier physically heard on 18/03/2021 but due to long gap between the date of hearing and dictation, the cases were refixed for hearing and were finally heard through virtual hearing on 12/08/2021. Common issues are involved in these appeals which were heard together and therefore, for the sake of convenience a common and consolidated order is being passed. The grounds of appeal taken by the assessee in all the appeals are similar therefore, for the sake of completeness, the grounds of appeal in I.T.A. No.114/Lkw/2019 are reproduced below:
"1. BECAUSE the Learned CIT(A) was wrong in law & on facts in confirming the assessment order passed by AO u/s 153A of the Act as the same was not in consonance with the settled position of law vis-a-vis search cases.
2. BECAUSE the learned CIT(A) has erred in law and on facts in upholding the assessment ignoring the settled position of law that provisions of section 153A, in case where proceedings are not pending, could not be applied in absence of any incriminating material.
3. BECAUSE the reliance on 'reports of investigation wing' etc. did not constitute 'material' relevant for the purpose of I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 3 assessment in this case, as the 'appellant' had never been confronted with the same in right perspective and as such the addition made on the basis of such an ex-parte information and reports etc. is wholly vitiated.
4. BECAUSE the computation of income was not even relevant for the purpose of assessment and the same is vitiated, as during the course of search (even in pursuance of joint warrant of Authorisation), no incriminating material was found which could impinge upon the genuineness of the unsecured loan.
5. BECAUSE the learned CIT(A) has erred in law and on facts in confirming the following additions made by the AO u/s 68/69 of the Act.
S Name of the Amount of Amount of Commission Total
No lenders loan Interest @5% of addition
such loan
amount
1 M/s Success 1500000 4272539 75000 5847539
Vyapar Ltd.
2 M/s Neil 7000000 1114500 350000 8814500
Industries
Ltd.
without appreciating the supporting documentary evidences & explanation of the appellant placed on record and ignoring the information obtained u/s 133(6) of the Act from the loan creditor.
6. BECAUSE the learned CIT(A) failed to appreciate that the assessee had duly discharged the onus of proving all the three vital ingredients of section 68 of the IT Act, namely identity of the lenders of unsecured loan, genuineness of the transactions and credit worthiness of the lenders and that such loans in the case of various family members and their business associates had been accepted in the orders passed earlier u/s 143(3)/153A/153C of the Act.
7. BECAUSE the learned CIT(A) has erred in law and on facts in holding that the Assessing Officer had tried his best to provide cross examination of concerned persons whereas virtually required efforts were not made by the AO in enforcing I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 4 the presence of such persons for their cross examination and even no penal action and no coersive measure as provided under the Act was initiated against such persons.
8. BECAUSE in the absence of opportunity of cross examination of the persons giving statement of culpable nature, as had been sought by the appellant, the assessment stood wholly vitiated and consequently the addition made deserved to be deleted as held by the Apex Court in umpteen number of cases.
9. BECAUSE the addition for sum of Rs.14662039/- made by AO and upheld by CIT(A) is based on whims, surmises and conjectures and the cases relied upon by the authorities below are distinguishable from the facts of the present case, which resulted in high pitched assessment.
10. BECAUSE the lower authorities have failed to consider various case laws relied upon by the appellant & also the guidelines issued by CBDT relating to the procedure to be adopted by AO in respect of addition under section 68 of the Act and the case laws relied upon by the authorities below are distinguishable from the facts of the present case.
11. BECAUSE various adverse observations and allegations made by the lower authorities are contrary to the facts, material & evidences available on record.
12. BECAUSE in relation to the Grounds of Appeal, the appellant relies upon the averments made in the facts of the case.
13. BECAUSE the order of the CIT(A) is against the principle of natural justice erroneous and not tenable in law and on facts."
2. The brief facts, as noted in the assessment order, are that a search & seizure operation u/s 132(1) was carried out in Chaurasia Group on 27/11/2015 and the assessees of the group were required to file returns of income u/s 153A of the Act. The Assessing Officer, during the assessment I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 5 proceedings, issued similar notices u/s 142(1) to the assessees wherein besides other issues he required the assessees to file satisfactory reply and explanation regarding unsecured loans taken from M/s Success Vyapar Ltd. and M/s Neil Industries Ltd. The Assessing Officer had the information on the basis of an investigation report that these two companies were providing accommodation entries to various assessees and since assessees had also taken unsecured loans from these companies therefore, the Assessing Officer required the assessees to file complete details and explanations. While requiring the assessees to comply with the requirement, the Assessing Officer also enclosed alongwith the notices u/s 142(1), copies of statements of certain persons who were directors in the two companies and who had admitted that these companies were engaged in the business of providing accommodation entries. The Assessing Officer has also made part of the assessment order the copies of statements of such persons wherein they had admitted that the companies were engaged in the business of providing accommodation entries and they were acting as dummy directors and one Shri Subodh Aggarwal was the controller of these companies. The Assessing Officer, from the statement of said persons, observed that since all the directors were dummy directors and the details were found at the office premises of one Shri Subodh Agrawal and therefore, he held that these companies were controlled by Shri Subodh Agrawal who was an entry provider. He therefore, concluded that the funds and entries provided by Shri Subodh Agrawal, through these companies, in various years were accommodation entries only. However, in order to fulfill the requirement of natural justice, the Assessing Officer noted in the order that he has issued summons u/s 131 of the Act to the persons who had given such statements. Such summons were issued to provide an opportunity for cross examination to the assessees. The Assessing Officer observed that despite of the fact that the I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 6 Department was to incur expenses for their fooding, lodging and travelling, no one had appeared. Therefore, Assessing Officer held that non appearance of the above persons may be construed in the light of the fact that the above persons may be getting 100 of summons per day for such cross examination. The Assessing Officer held that in a plethora of court judgments, the Hon'ble courts have held that the Assessing Officer should make all efforts to give an opportunity for cross examination as part of natural justice but Evidence Act was not applicable to Income Tax cases even then the Department had tried its level best to fulfill such requirements. The Assessing Officer held that assessees had also not made any effort to produce such persons as these witnesses are interested parties in the cases and it does not serve any purpose of the assessees if they appear before the Assessing Officer for cross examination. The Assessing Officer held that they being part and parcel of whole racket of providing accommodation entries, they will try to protect the person, to whom they had given entries, from being exposed. However, the Assessing Officer obtained the information about the granting of unsecured loans to assessees from these two companies by issuing notices u/s 133(6) of the Act.
3. In reply to all these observations of Assessing Officer, the assessees filed relevant documentary evidences in support of their claim that assessees had obtained unsecured loans in regular course of business. It was also submitted that the loans were carrying interest and assessees had deducted TDS on such interest payments. It was also submitted to the Assessing Officer that a major part of the unsecured loans was repaid back even before the search took place. However, the Assessing Officer held that so many direct/indirect circumstantial evidences prove that the unsecured loans taken from Success Vyapar Ltd. and Neil Industries Ltd. were bogus and further held that each time the reply of the assessee was general in I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 7 nature and no concrete reply was given. In view of the above, the Assessing Officer added back the unsecured loans taken from these companies and also disallowed the interest paid on such loans and further made an addition of 5% on the basis of assumed commission which he assumed that the assessees must have paid in lieu of accommodation entries. The matters were taken to learned CIT(A) who also confirmed the findings of the Assessing Officer and upheld the additions.
4. Learned counsel for the assessee, at the outset, submitted that facts in all these appeals are identical and he will be arguing appeal in I.T.A. No.114 and also will be referring to paper book pages relating to I.T.A. No.114 and it was submitted that relevant paper book pages in all appeals including in I.T.A. No.114 have been mentioned in a consolidated paper book wherein under the category 'D' against each appeal number, reference to the paper book pages of the main paper book has been made. It was submitted that assessees had taken certain unsecured loans from two unsecured loan creditors on which interest was being regularly paid and tax was being duly deducted and was being deposited in the Government account. During the course of assessment proceedings the Assessing Officer required the assessees to explain the unsecured loan creditors and also asked the assessees to file documentary evidences. It was submitted that assessees filed detailed replies and filed documentary evidences regarding receipt of these unsecured loans. It was submitted that along with replies the assessees also filed confirmed copy of account, copy of bank statement of loan creditor, copy of ITR and in this respect our attention was invited to paper book pages 70 to 78. Learned counsel for the assessees further invited our attention to the copy of notices issued u/s 133(6) by the Assessing Officer to the loan creditors placed in paper book pages 272, 366- 367, 259, 340, 341, 250, 331, 332, 230, 12 & 16 and it was submitted that I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 8 in view of notices u/s 133(6), the loan creditors had directly replied to Assessing Officer and had filed the documents required by the Assessing Officer and in this respect our attention was invited to paper book pages 368, 418 and paper book pages 273 to 418 where copies of direct replies by the loan creditors along with confirmed copy of account, copy of ITR, copy of bank account and copies of audited accounts was placed. It was submitted that the assessees have obtained from Assessing Officer certified copies of replies by the loan creditors and have made part of these documents in the paper book where the Assessing Officer has certified these documents. It was further submitted that Assessing Officer has taken note of the receipt of replies from the loan creditors and in this respect our attention was invited to paper book page 451 where vide order sheet entry dated 11/12/2017 the Assessing Officer has taken on record the reply in view of notice u/s 133(6) received through Dak. Our attention was invited to similar documents placed in paper book pages 259, 340-341 and from 360 to 391 in I.T.A. No.116 and a reference of which was made in the consolidated paper book. Similar references were made from the consolidated paper book for I.T.A. Nos. 105, 106, 107, 108, 111 and 112. It was submitted that in the assessment order the Assessing Officer has not commented on all such evidences filed by assessee as well as by loan creditors directly. Learned counsel for the assessees submitted that assessees had taken the unsecured loans in the usual course of business and had paid interest on these loans and tax was deducted on interest and was duly deposited in the Government account. It was submitted that in the assessments of loan creditors no such addition on account of accommodation entries has been made and rather interest income received by them from assessees has been accepted as such and in this respect our attention was invited to copies of assessment orders of these loan creditors I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 9 placed in paper book pages 101 to 157. Learned counsel for the assessees argued that the only reason for making additions in the case of assessees is certain statements of Directors of these companies whereby they have admitted that these companies were engaged in providing accommodation entries. It was submitted that it may be a fact that these companies were partly engaged in providing accommodation entries but they did not mention that the entries provided to the assessees were accommodation entries. It was submitted that most of the unsecured loans have already been repaid even before the search took place and even before the date of recording their statements and in this respect our attention was invited to a chart wherein the year-wise receipt and repayments of loan was mentioned. Further it was argued that these statements recorded at the back of the assessees cannot be relied by the Revenue as the assessees were not provided sufficient opportunity of cross examination.
4.1 Learned counsel for the assessees submitted that ground No. 3,7 & 8 are for the proposition that where the Assessing Officer relies on the statements of certain persons for making addition to the income of the assessee and those persons on whose statement the additions have been made are not made available to the assessee for its cross examination, the addition is not sustainable and reliance in this respect was placed on the following judgments:
(i) Andman Timber Industries vs. Commissioner of Central Excise (2015) 281 CTR 0241 (SC)
(ii) Morning Glory Infra Ltd. vs. DCIT, IT(SS)A No.72/Lkw/2018
(iii) Sigma Castings Ltd. vs. DCIT & other appeals in I.T.A. No.510/Lkw/2019 and others
(iv) Pr. CIT vs. Best Infrastructure (India) (P.) Ltd. [2017] 397 ITR 82 (Delhi) I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 10 Learned counsel for the assessee submitted that in these cases though in the assessment order the Assessing Officer has mentioned that summons u/s 131 of the Act, were issued to various persons and assessees was also directed to attend his office on 26/12/2017 whereas on going through the copy of entries in order sheet, there is no mention about the fact of having issued notice u/s 131 of the Act. It was submitted that the assessment order itself is not clear as to when summons u/s 131 of the Act were issued to the party and on which date such summons were served to the parties and it has also not been mentioned as to whether any reply has been filed by these persons in response to summons u/s 131 of the Act. Learned counsel for the assessees submitted that on the appointed date of 26/12/2017, the counsel of the assessee was present for cross examination however, nobody appeared for cross examination and Assessing Officer instead of further taking actions for making their presence has held that such persons must be receiving hundreds of notices on a daily basis and thereby he shifted the onus of providing its own witnesses to the assessees by saying that assessees can also produce such persons. In this respect Learned counsel for the assessees submitted that it is not the duty of the assessee to produce the witnesses of the Department and Department cannot brush aside its responsibility and cannot shift the onus on to the assessee. Reliance in this respect was placed on a judgment in the case of Nathuram Premchand vs. CIT [1963] 49 ITR 561 (Alld) and further reliance was placed on a judgment of Hon'ble Delhi High Court in the case of Best Infrastructure (India) (P.) Ltd. [2017] 397 ITR 82 (Delhi).
4.2 Without prejudice to the above, Learned counsel for the assessees submitted that the statements of Abhishek Basu cannot be relied as that statement annexed at pages 8 to 12 of the assessment order is unsigned statement and therefore, this statement has no evidentiary value. As I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 11 regards the statement of Pradeep Dey, it was submitted that in reply to question No. 5, he has stated that he was employee of Subodh Agarwal and in reply to question No. 6 he stated that he was dummy director of the company. It was submitted that no question was asked by the authorized officer from Pradeep Dey in respect of any transactions of Success Vyapar Limited. As regards the statement of Shri Anil Kumar Khemka, it was submitted that only part statement of Shri Anil Kumar Khemka was provided and from perusal of the statement it is not known that in whose presence and at what place statement of Shri Anil Kumar Khemka was recorded and which officer had recorded his statement. It was further argued that Shri Anil Kumar Khemka was not director in Success Vyapar Limited and Neil Industries Ltd. and therefore, his statement has no relevance. As regards statement of Shri Raj Kumar Tharad, it was submitted that the assessees had no transactions with him or with companies in which he is a director. Similarly, it was argued that there was no transaction of assessee with Sunil Kaya and therefore, the statement of Shri Sunil Kaya is also not relevant and therefore, also it was argued that the statements cannot be relied against the entire evidence which the assessees had filed before the Assessing Officer.
4.3 Coming to the merits of the additions, Learned counsel for the assessee submitted that the assessees had completed its part of onus which is required to be fulfilled by the assessee as the identity of the lender company is not in doubt, creditworthiness of the company is not in doubt as these companies had sufficient funds to advance the loans. As regards the genuineness of the transactions, it was submitted that all the loans were taken through banking channels and interest was also paid after deducting TDS and a part of loans were also returned back with interest and this proves the genuineness of the transactions. Learned counsel for the assessees submitted that the assessment orders of such companies also proved the genuineness of the transactions as nothing adverse has been commented on such loans transactions in the assessment order and the interest paid by the assessees has been accepted as income of the loan creditors. Learned counsel for the assessee submitted that in a number of judgments it has been held I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 12 that when the assessee had fulfilled its part of proving the three ingredients to the Assessing Officer, the addition u/s 68 of the Act cannot be made unless the submissions in this regard made by the assessee are proved wrong. Learned counsel for the assessees submitted that the only reason for making such additions was a report of the investigation wing wherein it has been held that the loan creditors were engaged in providing accommodation entries only. Learned counsel for the assessees submitted that the Assessing Officer himself did not carry out any investigation and only relied on the material provided by the investigation wing and therefore, the additions sustained by the learned CIT(A) only on the basis of statements of third parties and not cross examined by assessees are not maintainable. Reliance in this respect was placed on the following judgments:
(i) CIT vs. Vijay Kumar Jain [2014] 221 Taxman 180 (Alld)
(ii) CIT vs. Ranchod Jivabhai Nakhava [2001] 208 Taxmann.com 159 (Guj)
(iii) CIT vs. Shiv Dhooti Pearls & Investments Ltd. [2016] 237 Taxman 104
(iv) CIT vs. Jay Enterprise [2012] 209 Taxman 17 (Guj)
(v) CIT vs. Lalit Kumar Poddar [2015] 23 Taxman 816 (Del)
(vi) CIT vs. Shalimar Buildwell Pvt. Ltd. [2014] 220 Taxman 138 (Alld)
(vii) CIT vs. Apex Therm Packing (P) Ltd. [2014] 222 Taxman 125 (Guj)
(viii) CIT vs. Avant Grade Carpets Ltd. [2015] 230 Taxman 165 (Alld)
(ix) I.T.A.T. Kolkata in the case of Radheshyam Agarwal vs. Department of Income Tax, I.T.A. No.254 of 2011
(x) DCIT vs. Rohini Builders 256 ITR 360 (Guj)
(xi) CIT vs. Kamdhenu Steel & Alloys Ltd. SLP (CC) no. 15640 of 2012 dated 17/09/2012 (Supreme Court) 4.4 Learned CIT, D.R., on the other hand, submitted that the loan creditors were clear cut entry providers from whom the assessees had taken accommodation entries. The fact of these companies, being engaged in accommodation entries, is apparent from the fact that Director of these companies himself has admitted that they were engaged in providing accommodation entries and therefore, the learned CIT(A) has rightly sustained the addition. As regards the cross examination, the learned CIT, D.R. stated that the Assessing Officer took I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 13 sufficient steps to make the presence of witnesses for cross examination by the assessees but despite of giving notices u/s 131 of the Act, nobody appeared as the entry providers were hand in gloove with the assessees. It was submitted that the assessees themselves could have arranged their presence and therefore, it was argued that only because the witnesses could not be cross examined by the assessees, the additions sustained by learned CIT(A) cannot be deleted and it was prayed that the appeals may be dismissed.
5. We have heard the rival parties and have gone through the material placed on record. We find that a search was conducted on the group on 27/11/2015 and in view of that search various assessees were required to file returns u/s 153A of the Act and Assessing Officer completed the assessments u/s 153A of the Act except in the year of search where the assessment order has been passed u/s 143(3) of the Act. It is undisputed fact that additions in these cases are not based upon any incriminating material found during the search and rather have been made on the basis of transactions which were already recorded in the books of account of assessees. The facts in brief are that assessees had obtained certain unsecured loans from two loan creditors namely Success Vyapar Limited and Neil Industries Ltd. The Assessing Officer added back such unsecured loans holding them to be accommodation entries and disallowed the interest paid on these loans and also made a further addition of 5% as assumed commission on such transactions. The Assessing Officer held (on the basis of statements of Directors of such lender companies) that these lender companies were engaged in providing accommodation entries. The statements of Directors of these lender companies have been made part of the assessment order itself. The assessees had filed complete information and explanation with respect to the unsecured loans taken from these companies. The evidences filed by the assessees include the confirmed copy of account, copy of ITR of lenders and final accounts of the lenders. Such confirmations and evidences have been taken on record by the Assessing Officer and a copy of such confirmations and evidences is placed at pages 61 to 65, 73, and 45 to 53 relating to first assessee and at paper book pages 19 to 22 in respect of second assessee and at paper book pages I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 14 74 to 77, 60 to 62 and 64 and 55 of the paper book in the case of third assessee. The Assessing Officer, during the course of assessment proceedings, also issued notices u/s 133(6) of the Act to the above lenders and in response to the notices, the Assessing Officer received replies from the lenders with evidences of having advanced the loans to the assessees.
Along with the reply, the lender companies also filed their copy of ITRs and final accounts etc. with the Assessing Officer and the Assessing Officer did not find any difference between the documents filed by the assessees and those filed by the lenders directly. Learned counsel for the assessee has also filed before us in paper book the certified copies (certified by the Assessing Officer) of such evidences which had been filed by the lender companies directly with the Assessing Officer and a copy of which is placed at pages 235 to 237, 246 to 257, 234, 238 to 245, 232, 233, 115, 120 to 128, 116 and 117 of the paper book. We further find that assessees had duly deducted TDS on the interest payments and which have been duly deposited in the Government account. The interest income of the payees has been accepted to be their incomes in their respective assessment orders and no addition has been made in their cases. The copy of assessment orders of lender companies is placed at pages 101 to 127 and 128 to 157 of the paper book. The Assessing Officer, while making additions on account of unsecured loans and on account of interest paid on such unsecured loans, has relied only on the statements of Directors of such companies which were recorded by the Investigation Wing. While making such additions, the Assessing Officer himself did not carry out any enquiry and straightforward relying on the statements recorded by some different officer, has made the additions. While making the additions he has also ignored the documentary evidences filed by the assessees and has also ignored a vital evidence that a substantial part of unsecured loans was I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 15 already repaid even before the date of search. This fact of having repaid a part of unsecured loans before the date of search is apparent from the year- wise copy of account of such lenders, which for the sake of completeness has been made part of this order and is reproduced below:
I.T.(SS)A. Nos.105 to 108, 110 to 112and 114, 116 & 117/Lkw/2019 16 I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 17 I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 18 I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 19
5.1 While making the additions on the basis of statements of such persons, the Assessing Officer also noted in the assessment order that notices u/s 131 of the Act were issued to the persons who had given the statements for cross examination by the assessees but the fact of having issued notices u/s 131 of the Act is not coming out from the copy of order sheets placed at pages 262 to 264, 260 to 262, 218 to 220, 449 to 451, 423 to 425 and 414 to 416 of the paper book and neither the assessment orders state as to when these notices were served. We further find that in reply to various notices by the Assessing Officer, the assessee has been filing replies and was also filing various evidences from time to time, the copies of various replies, filed by the assessees, have been summarized and made part of this order in the form of a chart, as reproduced below and wherein various documents indicating the pages of paper books are mentioned:
I.T.(SS)A. Nos.105 to 108, 110 to 112and 114, 116 & 117/Lkw/2019 20 I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 21 I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 22 I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 23 I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 24 5.2 Therefore, the findings of the Assessing Officer that assessees have not filed complete information is contrary to the facts on record. The Assessing Officer noted that despite giving notices u/s 131, nobody had appeared for cross examination and therefore, he held that assessees was also responsible for bringing them before him for cross examination and therefore, he shifted the onus to assessees for bringing the Departmental witnesses for their cross examination. The Assessing Officer started the assessment proceedings at the fag end of time barring date as the first query letter was issued in September, 2017. These assessees were required to explain the unsecured loans from these creditors for the first time in December only by issuing show cause notice dated 14/12/2017 and through this notice dated 14/12/2017, the Assessing Officer sent to the assessees the statement of its witnesses. The assessment orders have been passed on 31/12/2017. In this brief period of sixteen days, the assessments have been completed and that too without putting full efforts to make available the witnesses for cross examination by assessees.I.T.(SS)A. Nos.105 to 108, 110 to 112
and 114, 116 & 117/Lkw/2019 25 5.3 From the above facts and circumstances where the assessees have filed complete evidences of the transactions and the Assessing Officer has also directly obtained such evidences from the lenders u/s 133(6) and did not find any discrepancy in such evidences, the reliance placed by the Assessing Officer on the statements of Directors of the lender companies, without making the said statements available for cross examination by the assessees, is not sustainable in view of the judgment of Hon'ble Supreme Court in the case of Andman Timber Industries vs. Commissioner of Central Excise (2015) 281 CTR 0241 (SC). The Lucknow Bench of the Tribunal in the case of Morning Glory Infra Ltd. vs. DCIT, IT(SS)A No.72/Lkw/2018 has also held that additions, on the basis of statements of certain persons, cannot be sustained in the absence of cross examination by the assessee. Similar findings have been made by Lucknow Bench of the Tribunal in the case of Sigma Castings Ltd. vs. DCIT & other appeals in I.T.A. No.510/Lkw/2019 and others.
5.4 The findings in the case of Morning Glory incorporating the findings of Hon'ble Supreme Court in the case of Andman Timber Industries are reproduced below:
2. The brief facts of the case are that a search and seizure operation under section 132(1) of the Income-tax Act, 1961 was carried out at the residential and business premises of Dolphin Developers/Anand/Rotomac Group of cases on 25/6/2014 at Kanpur. Simultaneously, a survey under section 133A of the Act was also conducted at the registered office and the office of M/s Morning Glory Infra Ltd., situated at plot No.2, Block-I, Gotaiya Scheme No.VII, 7/102, Swaroop Nagar, Kanpur and 17/K/13, Sarvodaya Nagar, Kanpur. Shri Anoop Asthana, Prop. M/s Anoop Asthana Properties, main broker for Anand/Dolphin Group and Morning glory Infra Ltd. was also I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 26 covered under section 133A of the Act. During the course of survey operation at the premises of M/s Anoop Asthana Properties, situated at Ratan Bhawan, 7/108, Swaroop Nagar, Kanpur, a diary was found and impounded as Annexure A-14 Page No.163 to 165, which, as per the authorities below, contained the details related to Emerald Garden Project being carried out by M/s Morning Glory Infra Ltd. The Assessing Officer completed the assessment by making the addition of Rs.64,00,00,000/- on account of unaccounted income.
3. The ld. CIT(A) confirmed the addition.
4. Apropos ground No.2.2, the ld. A.R. of the assessee has contended that the ld. CIT(A)/Assessing Officer erred on facts and in law in making the aforesaid addition on the basis of ex-
parte material, in gross violation of the principles of natural justice.
5. The ld. D.R., on the other hand, has placed strong reliance on the impugned order, whereby the ld. CIT(A) has held that it cannot be said that the assessee was not provided any opportunity of cross-examination of Shri Anoop Asthana.
6. The following grounds, in this regard, were raised by the assessee before the ld. CIT(A):-
"2. That the assessing officer erred on facts and in law in making addition of Rs.64 crores alleging the same to have been received by the appellant as on-money in cash, not accounted for in the regular books, against sale/ booking of flats in Emerald Garden Project. 2.1 That the assessing officer erred on facts and in law in making the aforesaid addition by merely relying upon ex- parte statement of one Mr. Anoop Asthana, a property broker and contents of diary purportedly impounded from his premises, without any reliable/ credible material/evidence to substantiate/corroborate the same. 2.2 That the assessing officer erred on facts and in law in not appreciating that no incriminating material was found during the course of simultaneous survey at the premises of the appellant and the managing director of the appellant-company who repeatedly denied having received any on-money.I.T.(SS)A. Nos.105 to 108, 110 to 112
and 114, 116 & 117/Lkw/2019 27 2.3 That the assessing officer erred on facts and in law in making the aforesaid addition on the basis of ex-parte material, in gross violation of principles of natural justice."
7. In its written submissions, the assessee, inter alia, submitted before the ld. CIT(A) that:-
"It is, at the outset, emphatically submitted that the aforesaid huge addition of Rs.64 crores made by the Assessing Officer is patently illegal and bad in law since the same has been made merely on the basis of presumptions, conjectures and surmises, without any credible material/corroborative evidence to establish receipt of any income/cash, outside the books of account, as explained hereunder:
The Assessing Officer, as stated above, has simply primarily relied upon the contents of a diary purportedly impounded from the premises of one property broker, Mr. Anoop Ashthana, and his ex-parte statement recorded during the course of survey at his premises. Re: diary impounded from premises of Mr. Anoop Asthana It is respectfully submitted that the contents of the aforesaid diary found during survey in the case of Mr. Anoop Asthana marked as Annexure A-14, pages 163-165 whereof have been relied upon by the Assessing Officer, could not have been the basis for making such huge addition in the hands of the appellant for the following reasons:
............................................................................................. .............
(f) Pertinently, even the names of the individual parties appearing in the diary alongside the amounts, are completely alien to the appellant. The appellant had not sold any flat in the Emerald Garden project to the persons named in the sold diary. Therefore, the very contents of the diary are matter of great suspect and are totally unreliable/unauthentic.
(g) No adverse inference can be drawn from certain payment receipts (3 in number) in respect of flats in I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 28 Emerald Garden project found from the premises of Mr. Anoop Asthana, particularly when nothing adverse has been stated by Mr. Asthana in this regard.
On perusal of the aforesaid, it will kindly be appreciated that the contents of the diary found at the premises of a third party are totally unreliable and unauthentic, which could not have been the basis of drawing any adverse inference against the appellant, much less for the purpose of making any addition.
Re: Statement of Mr. Anoop Asthana recorded during the course of survey proceedings. Coming to the statement of Mr. Anoop Asthana, recorded during the course of survey proceedings at his premises, which has been heavily relied upon by the Assessing Officer to infer that the appellant took on money in cash from the customers on sale/booking of flats, it is respectfully submitted as under:
It is submitted that the aforesaid statement could not have been relied upon by the Assessing Officer for the following reasons:
(a) Copy of statement of Mr. Anoop Asthana to allege that the appellant had received cash on sale/booking of flats outside its regular books of account, was not even provided to the appellant during the course of assessment proceedings.
Therefore, the appellant was denied any effective opportunity to rebut the contents of the statement so made.
(b) Further, no opportunity to cross-examine Mr. Anoop Asthana was ever accorded to the appellant. In absence of copy of statement being provided to the appellant and/or opportunity to cross-examine Mr Anoop Asthana, his statement could not have been taken into consideration to draw any negative inference against the appellant."
8. The ld. CIT(A) has held, inter alia, as follows:-
"5.6 The incriminating document at page 163, 164 and 165 contains the details related to the Emerald Garden I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 29 project being developed by the appellant company. Page No.163 of the Annexure A-4 mentions certain figures which establishes that the money was receiving sale consideration in white and black for example for a 3 BHK flats 2080 square feet, the quantum of while and black mentioned are Rs.1,20,57,600/- and Rs.42,12,000/- respectively. Further, another entry is made for the 3 BHK flat admeasuring 2325 sq. ft. area, wherein amount of white and black mentioned is 1,34,81,400/- and Rs.47,08,125/- respectively. Thus, Assessing Officer has calculated the quantum of black amount at 25% of the total consideration. During survey proceedings the statement of Shri Anoop Asthana, proprietor of AAP was recorded. For answer to question No.22, in the statement recorded on 25/6/2014 Shri Anoop Asthana has categorically stated that page 163 of the annexure A- 4 are the entries relating to Emerald Garden and the amount of white and black represents the amount of cheque and cash. It is also stated that the black amount which is invariably in cash is directly paid to the appellant company by the investor to the Director of the appellant company. Shri Anoop Asthana also states that he only gets the commission income at the time of registration of the property. He is continuing to state in the same answer that this process has been followed in minimum 12 flats of the Emerald Garden which is booked through him. Thus, it is crystal clear that the appellant company is receiving 25% consideration in cash which is not reflecting in the regular books of account.
5.7 During the post survey proceedings the incriminating document mentioned here-in-above and the statement of Shri Anoop Asthana was specifically confronted to the Managing Director of the appellant company Shri Sanjeev Kumar Jhunjhunwala (SKJ) on 27/6/2014 which is reproduced at page 6 and 9 of the assessment order by the Assessing Officer. In the statement Shri SKJ accepted the statement of Shri Anoop Asthana that the entries are related to the appellant companies. However, he surrendered Rs.9 crore as an unaccounted income for the F.Y. 2014-15 relating to A.Y. 2015-16 as the undisclosed income in his individual capacity. This is interesting to note that undisclosed income of Rs.9 crore I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 30 offered by Shri SKJ is on very flimsy ground that he earned the undisclosed income from commodity trading. It is also interesting to note that Shri SKJ has not disclosed any profits from the commodity trading in any of the immediate previous year or subsequent year. Thus, the contention of SKJ that surrendered amount of Rs.9 crore is on account of commodity trading remains unsubstantiated obviously because it represents on money received in the Emerald project.
5.10. During this appeal proceedings ld. A.R. of the appellant has vehemently argued that the incriminating document found and impounded from the premises of the AAP does not belong to the appellant company and since no opportunity of cross examination of Shri Anoop Asthana was ever accorded to the appellant. The contention of the appellant is hollow and are not based on the proper appreciation of the facts. it is admitted fact that Shri Anoop Asthana proprietor of AAP was acting as a property broker for the appellant company. This fact is also evident from the commission paid to Shri Anoop Asthana, wherein TDS was also deducted by appellant company. It is not denied by the ld. AR that no commission whatsoever was paid to AAP. Thus the relation between the appellant company and Shri Anoop Asthana proprietor of AAP is established as property developer and the property broker. The incriminating document found from premises of AAP establishes the fact that appellant company is engaged in receiving 25% of the sale consideration in cash, which is unaccounted in the books of the appellant. Assessing Officer has correctly extrapolated the modus operandi for calculating unaccounted income of appellant.
5.11. The contention of the ld. AR that no opportunity of cross examination to Shri Anoop Asthana was ever accorded to the appellant is far away from truth and reality of the case. The incriminating document found and impounded in the business premises of the Anoop Asthana and the incriminating statements of Shri Anoop Asthana was specifically confronted to the Managing Director of the appellant company Shri Sanjeev Kumar Jhunjhunwala on 27/1/2014. This statement is part and parcel fo the assessment order page 6 to 9, therefore, I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 31 the plethora of the case laws cited by the ld. AR of the appellant does not apply to the facts and circumstances of the present case."
9. Thus, the assessee specifically contended before the ld. CIT(A), that any cross-examination of Shri Anoop Asthana was not allowed to it. The ld. CIT(A) has held that the statement of Shri Anoop Asthana was specifically confronted to the Managing Director of the assessee company. However, he does not deny that the assessee was not allowed to cross-examine Shri Anoop Asthana, whose statement was used by the Assessing Officer against the assessee, though the said statement was recorded at the back of the assessee. He merely states that during survey proceedings the statement of Shri Anoop Asthana proprietor of AAP was recorded; that in answer to question No.22, in the statement recorded on 25/6/2014, Shri Anoop Asthana has categorically stated that page 163 of the annexure A-4 are the entries relating to Emerald Garden and the amount of white and black represents the amount of cheque and cash; that it is also stated that the black amount, which is invariably in cash, is directly paid to the appellant company by the investor, to the Director of the appellant company; that Shri Anoop Asthana also states that he only gets the commission income at the time of registration of the property; that he continues to state in the same answer that this process has been followed in minimum 12 flats of Emerald Garden, which is booked through him; that thus, it is crystal clear that the appellant company is receiving 25% consideration in cash which is not reflecting in the regular books of account; that further, as per material LP-32, 33 and 51, impounded from the premises of AAP, it is noted that these documents are the receipts of payments made by Shri Arun Kumar (LP-32), Shri Saraj Katiyar (LP-3) and Shri Himanshu Chug (LP-51); that when confronted with the fact that some of the receipts issued by the appellant company were found in the premises of (AAP), Shri SKJ has shown his ignorance; and that this is mainly due to the fact that incriminating material was found from the premises of AAP and SKJ wished to distance the appellant company from AAP.
10. Thus, the position obtaining is that a diary was recovered from the premises of Shri Anoop Asthana during the survey.
I.T.(SS)A. Nos.105 to 108, 110 to 112and 114, 116 & 117/Lkw/2019 32 Pages 163, 164 and 165 of the diary, Annexure A-14, have been taken to go against the assessee. These three documents, firstly, were not recovered from the possession of the assessee. Then, page 163 is undated, whereas pages 164 and 165 do not pertain to the year under consideration. It is only in the statement of Shri Anoop Asthana, that he attributed account of these documents to the assessee.
11. First and foremost, the subject diary/pages were found and impounded from the premises of Shri Anoop Asthana, a third party, and not from the appellant. Further, Shri Anoop Asthana, in his statement, had stated that entries in the said diary were made by staff member of Shri Anoop Asthana, without providing details of the so-called staff member. Thus, the author of the so-called diary in question is not even known till date. Shri Anoop Asthana nowhere stated that the diary was written by someone on his behalf and/or on his instructions. Therefore, the entire case is fundamentally based on a mere inference drawn about the nature of the contents of the diary written by someone unknown, more particularly, only on the statement of Shri Anoop Asthana about the contents of the diary written by someone else. Since the diary was undisputedly found from the possession of Shri Anoop Asthana and not from the appellant, the contents of the said diary, simplicitor, without any corroborative material/evidence could not have been, in the absence of any corroborative material / evidence, made the basis of drawing any adverse inference against the appellant, much less making any addition in the case of the appellant. In the diary, name of the project 'Emerald Garden Project' being constructed by the appellant along with certain names of individuals and amounts was stated to be mentioned. As to why and for what purpose the author had made such noting is not known, nor brought on record. The appellant has, all through, denied any knowledge of the contents of the diary. It also could not be expected to be aware of the contents recorded in the diary found at the time of survey at the premises of Shri Anoop Asthana, a third party. It is undisputed that the contents of the diary had no signature and/or any other authentication on behalf of the appellant. This being so, the diary impounded from the premises of Shri Anoop Asthana cannot be used to draw any adverse inference against the appellant, in any manner. The assessee/appellant maintains as follows. Shri Anoop Asthana was one of the I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 33 property brokers who dealt with in the project of the appellant and acted as broker for sale of certain plots in the Emerald Garden project, during preceding years. The appellant had not sold any flat through Shri Anoop Asthana during the year under consideration (i.e. F.Y. 2014-15). Pertinently, Shri Anoop Asthana, earlier in January 2014 (31/1/2014), had booked two flats with the appellant in his own wife's name in the Emerald Garden project, but since he could not make necessary payments as per the payment schedule, the appellant was constrained to cancel his booking on 8/12/2014. On account of the aforesaid, there had been differences/disputes between the appellant and Shri Anoop Asthana and accordingly, the appellant had not sold any flat through Shri Anoop Asthana during the relevant year and had not paid any commission to him during the relevant year. On account of the ongoing dispute between the appellant and Shri Anoop Asthana, any averment made by Shri Anoop Asthana against the appellant could not be taken at its face value. Further, the dates mentioned in the diary impounded relate back to January, 2014 (18/1/2014, 23/1/2014), which is the period when Shri Anoop Asthana booked two flats with the appellant in his personal capacity. Therefore, the recordings in the diary could not be held to be related to the other sale of flats undertaken by the appellant, without any involvement of Shri Anoop Asthana. Even the names of the individual parties appearing in the diary alongside the amounts are, statedly, completely alien to the appellant. The appellant had not sold any flat in the Emerald Garden project to the persons named in the said diary. Therefore, the very contents of the diary are suspect and are totally unreliable/unauthentic. No adverse inference can be drawn from the payment receipts (3 in number) in respect of flats in Emerald Garden project found from the premises of Shri. Anoop Asthana, particularly when nothing adverse has been stated by Shri. Asthana in this regard.
12. These facts, as specifically contended by the assessee before the ld. CIT(A) have not been rebutted and the ld. CIT(A) has gone merely by the uncorroborated unilateral statement of Shri Anoop Asthana, qua which, no opportunity of cross- examination of the deponent, Shri Anoop Asthana, was afforded to the assessee at any stage whatsoever. It is not sufficient to observe, as has been done by the ld. CIT(A), that ".........the incriminating document found and impounded in the business I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 34 premises of Shri Anoop Asthana and the incriminating statements of Shri Anoop Asthana was specifically confronted to the Managing Director of the appellant company Shri Sanjeev Kumar Jhunjhunwala on 27/1/2014........". It is trite law that merely confronting the statement recorded at the back of the assessee, to the assessee, in the absence of providing a cross- examination of the maker of the statement, is in complete violation of the natural justice principle of audi alteram partem. The following judgments, inter alia, are eloquent in this regard:-
1. Kishinchand Chellaram vs. CIT, 125 ITR 713 (SC).
2. Saraswati Industrial Syndicate Ltd. vs. CIT, 237 ITR 1 (SC).
3. State of Punjab vs. Bhagat Ram, AIR 1974 SC 2335.
4. Kalra Glue Factory vs. Sales Tax Tribunal, 167 ITR 498 (SC).
5. CIT vs. Pradeep Kumar Gupta, 207 CTR 115 (Del).
6. Sona Electric Company vs. CIT, 152 ITR 507 (Del).
7. CIT vs. Eastern Commercial, 210 ITR 103, 110 (Cal).
8. P.S. Abdul Majeed vs. STO, 209 ITR 821, 823 (Ker).
9. CIT vs. Sham Lal, 127 ITR 816 (P&H).
10. Mukund Singh and Sons vs. Presiding Officer, 107 STC 300 (P&H).
11. Anupam Agencies vs. State of Punjab, 98 STC 338 (P&H).
12. Prakash Chand Mehta vs. CIT, 220 ITR 277, 279 (MP)
13. CIT vs. D.M. Doshi, 229 ITR 315 (Guj)
14. Amarjit Singh Bakshi (HUF) vs. ACIT, 263 ITR (AT) 75 (Del) (TM)
15. Mahes Gulabrai Joshi vs. CIT, 95 ITD 300 (Mum).
16. Monga Metals (O) Ltd., 67 TTJ 247 (All)
17. Verma Roadways vs. ACIT, 75 ITD 183 (All)
18. Sarita Devi Kajaria vs. ITO, 89 ITD 109 (Kol) (TM).
19. ITO vs. Pukhraj N. Jain, 95 ITD 281 (Mum)
20. Obulapuram Mining Company (P) Ltd. vs. DCIT, 160 ITD 224 (Bang.).
21. CIT vs. SMC Share Brokers Ltd., 288 ITR 345 (Del).
22. CIT vs. Dharam Pal Prem Chand Ltd., 295 ITR 105 (Del).
23. Andaman Timber Industries vs. CCE 281 CTR 241 (SC).
I.T.(SS)A. Nos.105 to 108, 110 to 112and 114, 116 & 117/Lkw/2019 35
13. Some decisions in this regard are discussed thus.
14. In 'Kishinchand Chellaram vs. CIT' (supra), it has been held by the Hon'ble Supreme Court that the assessment made by relying upon the statement of a third party, without giving the effected person a chance to cross-examine such third party, is liable to be held as based on no evidence and, therefore, liable to be deleted.
15. In 'Sona Electric Company vs. CIT' (supra), it has been held that the statement of a witness recorded at the back of the assessee has to be excluded, as the same was relied on without giving any opportunity to cross-examine the person giving statement; and that the assessment based on such a statement is a statement rendered as based on no evidence and, accordingly, liable to be annulled.
16. In 'Amarjit Singh Bakshi (HUF) vs. ACIT' (supra), it has been held that opportunity to cross-examine the person giving a statement of culpable nature has to be given; and that in the absence of such an opportunity being given to the affected person, the statement ceases to be material for the purposes of assessment.
17. In CIT vs. SMC Share Brokers Ltd. (supra), it was held that a statement given by a broker at the back of the assessee could not be used to the detriment of an assessee and dismissal of Revenue's appeal was held to be justified.
18. In the case of 'Andaman Timber Industries vs. Commissioner of Central Excise', 281 CTR 241(SC), it has been held that "the assessee was manufacturing ply-woods and related products in its factory. Some of those products were sold from factory premises only to certain buyers. However, major portion of products manufactured were sold to other dealers from their numerous depots situated at different places in country. Assessee filed its declaration u/s. 173C of Central Excise Rules showing price of goods at which they were sold ex-factory and delivery basis. Revenue found that there was lot of price difference between goods sold at ex-factory and delivery basis in comparison with goods which were sold to buyers from depots. Investigation was carried out and statements of two buyers were recorded, on basis of which Show Cause Notice was served upon Assessee. Adjudicating Authority passed order confirming demand in Show Cause Notice on ground that price at which goods were sold to customers from depots may not be basis for determining value for purpose of excise duty-Adjudicating Authority also took into I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 36 consideration price list of Assessee maintained at its depots that was treated as price for purposes of levying excise duty. Assessee filed Appeal against order of Adjudicating Authority that was dismissed by CESTAT. Assessee submitted that it was not allowed to cross-examine dealers whose statements were relied upon by Adjudicating Authority in passing impugned orders. Held, not allowing Assessee to cross-examine witnesses by Adjudicating Authority though statements of those witnesses were made as basis of impugned order, amounted in serious flaw which make impugned order nullity as it amounted to violation of principles of natural justice. It was to be borne in mind that order of Commissioner was based upon statements given by two witnesses. Even when Assessee disputed correctness of statements and wanted to cross-examine witnesses, Adjudicating Authority did not grant opportunity to Assessee. In impugned order passed by Adjudicating Authority it was specifically mentioned that such opportunity was sought by Assessee, however, no such opportunity was granted. Assessee contested truthfulness of statements of two witnesses and wanted to discredit their testimony for which purpose opportunity of cross-examination was sought. It was not for Adjudicating Authority to presuppose as to what could be subject matter of cross-examination and deny prayer of Assessee. In case testimony of two witnesses was discredited, there would be no material with Department to justify its action, as statement of two witnesses was only basis of issuing Show Cause Notice. Impugned order as passed by CESTAT was set aside. Appeal allowed."
19. Evidently, the three documents found during survey from the possession of Shri Anoop Asthana, in the absence of the statement of Shri Anoop Asthana, do not have any value, particularly in the face of the fact that they are not corroborated by any independent evidence. Page No. 163:
This is un-dated, but name of the project 'Emerald Garden' launched by the appellant was mentioned there. With reference to this, Shri Anoop Aathana who had been examined by the Authorised Officers, stated categorically that he had been working as a broker for last 30 years and all the prominent Developers of Kanpur were his clients. In his subsequent statement which appears at page 31 to 36 of the synopsis dated 10.12.2018, and in response to question no.7, he stated that 'cash money' as mentioned there was subject to I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 37 negotiation between the Customer and the Developer. He further stated in his reply that he was not concerned with the 'incoming' and 'out-going' 'len-den' payments. Page Nos. 164 and 165: These were dated 18.01.2014 and 13.01.2013, falling in the assessment years 2014-15 & 2013-14 respectively, i.e., the earlier two years. No such addition had been made m the A.Y. 2013-14 & A.Y. 2014-15, from which it follows that all such enquiries, as were called for, had duly been made by the Assessing Officer and nothing contrary to the appellant was found, although assessments for the assessment years 2013-14 & 2014-15 were made under section 153C on the same date, as on which the assessment for A.Y. 2015-16 was made, i.e., on 9.12.2016. Strikingly, the material forming the basis of the addition presently under consideration is the very same as that on which the completed assessments under section 153C for those earlier years were reopened, but no addition was made.
15. As regards receipts bearing no.1030 dated 31.05.2013, no.1396 dated 05.04.2014 and No.1418 dated 28.04.2014, the same had been found from the possession of Shri Anoop Asthana, the broker. So far as regards the two receipts dated 05.04.2014 and 28.04.2014, the related sale deeds were executed and final registration in favour of the customers was executed on 19.06.2018 and 31.05.2018, respectively. The receipt no.1030 dated 31.05.2013 related to assessment year 2014-15, but no addition was made in the said assessment year. In relation to the said receipts, Shri Sanjeev Kumar Jhunjhunwala had been extensively examined by the Authorised Officer during the course of survey and he had given name-
wise details of the persons to whom the receipts in question had been issued by the appellant company. His statement was recorded on 27.06.2014, in continuation to the statement recorded on 26.06.2014. In such statement, he had declared an income of Rs.9 crores stated to have been earned by him from commodity trading till that date. During the course of regular assessment proceedings, he was extensively examined on 01.09.2016 by issue of summons under section 131(1). In response to Question Nos.14, 15 and 16, he stated that he had done trading in commodity, and looking to the market conditions prevailing at that time, it was not improbable to have earned income of this volume. Further, in response to Question No.18, he was required to submit documentary evidences in I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 38 support of income declared by him. In response to Question No.21, he gave complete details supported by documentary evidences relating to commodity trading. Further, in response to Question No.22, he gave complete information about income declared and income tax, wealth tax payments made by him on such income/wealth. In response to Question No.23, he gave complete information, name-wise, of the booking receipts as had been impounded during the course of survey at the office premises of Shri Anoop Asthana, and in the end, he categorically stated that it would not be proper to draw adverse inference in relation to income from commodity trading.
16. Thus, one cannot but come to the inexorable conclusion that the order under appeal suffers from the vice of not taking into consideration the assessee's contention, which contention also does not stand rebutted, that it was not provided with any opportunity of cross-examining Shri Anoop Asthana.
17. In view of the above, we hold that:
(i) the case of the assessee has been prejudiced for want of providing him opportunity of cross-
examination of Shri Anoop Asthana, whose unilateral statement recorded ex-parte qua the assessee has been made the sole basis of the addition, thereby violating the principles of natural justice; and
(ii) the other material, i.e., three pages of the diary found in the search do not establish any case for addition in the hands of the assessee in the year under consideration, as none of these documents relate to the year under consideration, one of them does not contain any date/year and the other two pertain to earlier years, in which, no addition based on these documents was made.
18. Therefore, the grievance sought to be raised by the assessee is justified. It is accepted as such. Accordingly, the addition made is deleted. Nothing further survives for adjudication, nor was anything else argued.
19. In the result, the appeal is allowed.
I.T.(SS)A. Nos.105 to 108, 110 to 112and 114, 116 & 117/Lkw/2019 39 5.5 In the above noted case, decided by Lucknow Bench of the Tribunal, the Bench has taken into account all the relevant case laws and has decided the issue in favour of the assessee.
6. In the present cases also the opportunity to cross examination has not been given to the assessees. The Assessing Officer, at the fag end of time barring dates, had issued the alleged notices u/s 131 of the Act, the fact of which is also not coming out from the records as in the order sheets, the Assessing Officer has not mentioned about the fact of having issued notices u/s 131 of the Act. The Assessing Officer straight forward shifted the onus of producing witnesses to the assessees by observing that assessees were also responsible for producing the witnesses but it is not a valid argument for not giving opportunity to the assessees for cross examination as the Department is all powerful to make sure that these witnesses are present for the cross examination by the assessee. Under similar circumstances, the Hon'ble Delhi High Court in the case of Pr. CIT vs. Best Infrastructure (India) (P.) Ltd. [2017] 397 ITR 82 (Delhi) has held that Revenue cannot shift the onus of producing its witnesses to the assessee. The relevant findings of Hon'ble Delhi High Court are reproduced below:
"37. Fourthly, a copy of the statement of Mr. Tarun Goyal, recorded under Section 132 (4) of the Act, was not provided to the Assessees. Mr. Tarun Goyal was also not offered for the cross-examination. The remand report of the AO before the CIT(A) unmistakably showed that the attempts by the AO, in ensuring the presence of Mr. Tarun Goyal for cross-examination by the Assessees, did not succeed. The onus of ensuring the presence of Mr. Tarun Goyal, whom the Assessees clearly stated that they did not know, could not have been shifted to the Assessees. The onus was on the Revenue to ensure his presence. Apart from the fact that Mr. Tarun Goyal has retracted his statement, the fact that he was I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 40 not produced for cross- examination is sufficient to discard his statement."
6.1 Similarly, Hon'ble Allahabad High Court in the case of Nathuram Premchand 49 ITR 561 (All) has clearly laid down the procedure for making the presence of witnesses. The relevant findings of Hon'ble court are reproduced below:
"The facts, as they emerge from the statement of the case, are as follows: The assessee is a Hindu undivided family and carries on sarrafa business, purchase and sale of gold and silver bullion, purchase and sale of silver ornaments in the name and style of Nathu Ram Premchand.
For the accounting year ending November 11, 1947, the relevant assessment year being 1948-49, the assessee submitted a return showing an income of Rs.4,824 in the sarrafa business, and Rs.1,030 as income from truck business. In the books of accounts there was a credit entry of Rs.10,000 in the name of one Banarasidas, the brother-in-law of Premchand, who is the son of Nathu Ram, the karta of the Hindu undivided family. The Income-tax Officer treated this sum of Rs.10,000 as income from other sources on the alleged ground that neither Banarasidas had been produced before him nor had the assessee offered an explanation with regard to this matter. The appeal of the assessee before the Appellate Assistant Commissioner challenging the inclusion of this sum of Rs.10,000 was dismissed, so was his second appeal to the Tribunal. The assessee then made an application under section 66(1) of the Income-tax Act of 1922, inter alia, on the ground that no summons were issued for the appearance of Banarasidas. In the manner prescribed by Order XVI of the Civil Procedure Code and that the statement of Banarasidas was recorded behind the back of the assessee who had no opportunity of testing his veracity by cross-examining him and in any case, the material brought on the record by the statement of Banarasidas was never put to the assessee who did not know till long after the conclusion of the proceedings before the Income-tax Officer that Banarasidas had been examined. As already mentioned above, this court thought that a question of law did arise and, consequently, directed the I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 41 Tribunal to frame an appropriate question and submit it along with the statement of the case. This Tribunal, in the appeal filed before it under section 33 of the Income-tax Act of 1922 (hereinafter referred to as the Act), while dealing with the objection of the assessee with regard to the inclusion of this sum of Rs. 10,000 observed as follows :
"The grounds relate to the addition of Rs.10,000 credited to the name of Banarasidas, brother-in-law of Premchand, s/o Nathuram, the head o, the family, as income of the assessee from undisclosed sources. In spite of the assessee having taken dasti summons for production of Banarasidas, he was not produced. In the absence of any proof the department, had but to assess the assessee on this item. We, therefore, refuse to interfere on this ground."
It appears that Banarasidas was examined not in the assessment proceedings giving rise to this reference but in those relating to the assessment of Banarasidas. Section 37(1) of the Act confers on the Income-tax Officer, the Appellate Assistant Commissioner, the Commissioner and the Appellate- Tribunal the powers vested in a court under the Code of Civil Procedure when trying a suit in respect of the following matters, viz.:
"(a) Enforcing the attendance of any person including any officer of a banking company and examining him on oath."
The provisions of Order XVI of the Civil Procedure Code deal with the examination and attendance of witnesses. Rule 1 of Order XVI provides that by making an application any party to a suit may summon in court a witness whose attendance is required either to give evidence or to produce documents. In the present case the assessee was given dasti summons for the production of Banarasidas but his case was that Banarasidas refused to accept the same. In a situation like this, the provisions of Order XVI, rule 10, are attracted, which read as follows :
I.T.(SS)A. Nos.105 to 108, 110 to 112and 114, 116 & 117/Lkw/2019 42 "10.(1) Where a person to whom a summons has been issued either to attend, to give evidence or to produce a document fails to attend or to produce the document in compliance with such summons, the court shall, if the certificate of the serving officer has not been verified by affidavit, and may, if it has been so verified, examine the serving officer on oath, or cause him to be so examined by another court, touching the service or non-service of the summons.
(2) Where the court sees reason to believe that such evidence or production is material, and that such person has. without lawful excuse, failed to attend or to produce the document in compliance with such summons or has intentionally avoided service, it may issue a proclamation requiring him to attend to give evidence or to produce the document at a time and place to be named therein; and a copy of such proclamation shall be affixed on the outer door or other conspicuous part of the house in which he ordinarily resides.
(3) In lieu of or at the time of issuing such proclamation, or at any time afterwards, the court may, in its discretion, issue a warrant, either with or without bail, for the arrest of such person, and may make an order for the attachment of his property lo such amount as it thinks fit, not exceeding the amount of the costs of attachment and of any fine which may be imposed under rule 12:
Provided that no Court of Small Causes shall make an order for the attachment of immovable property."
Admittedly, no such steps as are provided for by this statutory provision for the appearance of the witnesses were taken by the Income-tax Officer for the appearance of Banarasidas.
We are of the opinion that under these circumstances neither the Income-tax Officer nor the Income-tax Appellate Commissioner nor the Tribunal were justified in fastening the blame al the door of the assessee and disbelieving his version that the amount of Rs. 10.000 entered in his account books was the deposit made by Banarasidas on the ground that the former I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 43 has failed to produce the latter. The assessee look all the steps that lay in his power to secure the presence of Banarasidas before the Income-tax Officer. In these circumstances it appears lo us that the Tribunal wrongly look into consideration the circumstances that Banarasidas had not been produced. On the material on the record there is nothing to refute the allegation of the appellant that this sum of Rs. 10,000 is the deposit of Banarasidas with the assessee firm. The Tribunal had before it no legal material on which it could come to a contrary conclusion.
Consequently, we are of opinion that the question of law referred to us by the Tribunal should be answered in favour of the assessee and against the department with costs."
7. In view of the above judgment of Hon'ble Delhi High Court and Hon'ble Allahabad High Court and in view of the fact that the Assessing Officer did not make sufficient efforts to produce its witnesses before the assessees for cross examination therefore, such statements taken behind the back of the assessees and not confronted to the assessees do not have any evidentiary value and therefore, if we ignore such statements, taken behind the back of the assessees and not confronted to the assessee and take into account all other evidences filed by the assessees which are in favour of the assessees and wherein the Assessing Officer has also not found any discrepancy, the additions sustained by learned CIT(A) are liable to be deleted.
8. Further we note that the statement of Abhiset Basu forming part of assessment order does not carry signature of the officer who had recorded his statement. Moreover, nowhere in the statement, he has mentioned the name of assessees as beneficiaries and neither any question has been asked to him regarding loans to these assessees. Therefore, such statement do not carry any evidentiary value. As regards the statement of Pradeep Dey, we find that in the questions put to him, he has not mentioned anything I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 44 about Success Vyapar Ltd. or Niel Industries Ltd. and neither any question has been put to him regarding any loans by these companies to the assessee companies and therefore, his statement also cannot be said to be against the assessee companies and hence Department cannot rely on this statement also for making additions.
9. As regards statement of Shri Anil Khemka and Raj Kumar Tharod, placed at pages 30 and 41 of the paper book in I.T.A. No.110, we find that nowhere they have mentioned that they had lent the money to these assessees through any of their group companies, what to talk of accommodation entries they have not even talked about any loan entry. In the statements, though they have admitted that these companies are controlled by them, neither any question was asked to them specifically regarding loans to these companies nor any thing has been said by them regarding such loans to these assessees. The statements are too general to be used against the assessees.
10. In view of these facts and circumstances, these statements can not be relied against the assessees specifically in view of the fact that these statements were not subjected to cross examination.
11. We further find that Jaipur Bench of the Tribunal, in the case of Kota Dal Mill in I.T.A. No.997 to 1002 and others in a consolidated order dated 31/12/2018, under similar circumstances, has deleted similar additions. In this case also, the assessee had taken unsecured loan from an alleged entry provider, whose statement was also recorded by Investigation Wing and the learned CIT(A) had confirmed the addition by holding as under:
i. It is undisputed fact that the Income Tax Department has made tremendous investigations in such shell companies of I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 45 Kolkata, Mumbai and Delhi providing accommodation entry and statements made by several accommodation entry providers have become virtually in public domain. It is no argument that the AO did not provide such statement before the assessment or in any of the notices. These facts were well known to the appellant group and ignorance is mere pretence.
ii. Moreover, such statements are so vocal and undeniable that as mentioned in some of the case laws above, cross- examination of such accommodation entry provides by thousands of beneficiaries across India is neither practicable nor viable and therefore uncalled for.
iii. It is undisputed fact that in the statement dated 06.02.2014 Shri Anand Sharma had admitted to be one of such accommodation entry providers. The sum and substance of the said statement is that the concern M/s Jalsagar Commerce Pvt. Ltd. was engaged in the activities of providing accommodation entries and the appellant happened to be one of such beneficiary of such concern. It is also admitted fact that Shri Anand Sharma had been running the affair of the said company.
iv. The statement of Shri Anand Sharma in which name of M/s Jalsagar Commerce Pvt. Ltd. cannot be completely ignored solely on the legal grounds raised by the Appellant.
11.1 Against the order of learned CIT(A), the Tribunal allowed relief to the assessee by holding as under:
5.12 In view of above discussion, it is clear that the incriminating material had been found during the course of search of accommodation entry provider. Further incriminating material had been gathered by issuing commission to DDIT (Inv.) Kolkata, during the assessment proceedings and all such material have been shared with the appellant at least during the remand report proceeding. In view of nation-wide known scam by the accommodation entry providers of Kolkata and elsewhere burst by the Income Tax Department, there was no need to provide opportunity for cross-
examination of same accommodation entry providers. Any way in the rejoinder submission to remand report the appellant is absolutely silent on cross-examination and by such conduct he has forgone his right to cross-examine. Therefore, the principles of natural justice have been followed. As discussed in preceding paras, under the facts and circumstance of the case, it could not be said that AO did not followed the binding decision of the Hon'ble Supreme Court and the Hon'ble jurisdiction Court. Therefore, in view of above facts discussed in Para 4.1 & 4.4.7, 5.1 to 5.3 and legal position apprised I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 46 in Para 5.5 to 5.11 above, it is held that the addition made by the AO on account of unsecured loans amounting to Rs. 12,36,49,999/- from M/s Jalsagar Commerce Pvt. Ltd. sustainable and the same is confirmed."
Thus the addition was confirmed based on the report of the DDIT (Inv.) Kolkata. We find that the report of the DDIT (Inv.) Kolkata is also based on the statements of various persons recorded during their investigation and the statement of Shri Anand Sharma was also sent along with the report of the AO. The ld. CIT (A) has confirmed the addition because of the reason that the statement of Shri Anand Sharma was very much in the possession of the AO who has admitted in his statement that M/s. Jalsagar Commerce Pvt. Ltd. was engaged in the activity of providing accommodation entry. However, we find that M/s. Jalsagar Commerce Pvt. Ltd is not managed or controlled by Shri Anand Sharma, rather the company M/s. Royal Crystal Dealers Pvt. Ltd. was stated to have been owned by Shri Anand Sharma and in his statement dated 6th February, 2014 Shri Anand Sharma has stated to have been providing entries from M/s. Royal Crystal Dealers Pvt. Ltd. to M/s. Jalsagar Commerce Pvt. Ltd. Therefore, there is no allegation or any admission in the statement of Shri Anand Sharma that he has provided bogus loan entry to the assessee or any group concerns of the assessee. Since the name of M/s. Jalsagar Commerce was crepted in his statement, the AO has presumed that the loan provided by M/s. Jalsagar Commerce Pvt Ltd is nothing but the bogus accommodation entry provided by Shri Anand Sharma through M/s. Royal Crystal Dealers Pvt. Ltd. The AO has tried to establish the nexus of the loan received by the assessee through the statement of Shri Anand Sharma where he has purported to have provided the alleged entry. Since there is no direct allegation or admission of providing loan by Shri Anand Sharma to the assessee through M/s.Royal Crystal Dealers Pvt. Ltd., then even if there is a possibility of bogus accommodation entry routed through another intermediary company M/s.Jalsagar Commerce Pvt. Ltd., it requires a definite link of the transactions from M/s.Royal Crystal Dealers Pvt. Ltd. to M/s.Jalsagar Commerce Pvt. Ltd. and then the loan to the assessee. Once the chain of transactions and flow of money from one entity to another entity and finally to the assessee has not been established, then the addition made merely on suspicion, how so strong it may be, is not sustainable. On the contrary, when the assessee produced all the relevant record which contains their financial statements, bank accounts statement of loan creditor, return of income, assessment orders framed under section 143(3), confirmation of the loan creditor, then a proper examination could have very well established the link, if any, in providing the accommodation entry from one entity to another and finally to the assessee. However, no such link was found in the documents and financial statements of these companies, rather in the bank account statement of loan creditor M/s. Jalsagar Commerce Pvt. Ltd. there was no suspicious transaction of receiving any entry or any deposit of an equal amount prior to giving the loan to the assessee. The assessee has paid interest to the creditor, which was duly accepted by the AO as business I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 47 expenditure. Undisputedly, the assessee has produced the income-tax record of the loan creditor, bank statement, financial statements including Balance Sheet, copy of ROC master data showing the status of loan creditor company as "active", confirmation of loan given to the assessee. Further, the AO issued summons and also got the summons served through DDIT Kolkata under section 131 of the IT Act which were duly responded by the loan creditor. Except the statement of Shri Anand Sharma and the report of the Investigation Wing Kolkata, the AO has not brought on record any other material to controvert or disprove the documentary evidence produced by the assessee. It is pertinent to note that the loan creditor was assessed to tax and the AO completed the assessment under section 143 (3) for various assessment years which are relevant for the assessment year under consideration. The AO in case of loan creditor has not disturbed the transactions of loan given by this company to the assessee. From the financial statements of the loan creditor it is apparent that the loan creditor was having sufficient funds to advance the loan amount to the assessee and once the said financial statements were not disturbed, then the creditworthiness of the loan creditor cannot be doubted when it was accepted in the assessment order passed under section 143(3) of the IT Act. We further note that the AO insisted the assessee to produce the directors of the loan provider company. The assessee produced the affidavit, and the notices issued by the AO under section 131 and 133(6) of the Act were duly complied with by the creditor. The statement of the Director of M/s. Royal Crystal Dealers Pvt. Ltd. was also recorded by the AO wherein the Director has confirmed the transaction of loan. There are various reports of the DDIT Kolkata which are placed at pages 406 to 422 of the paper book. We find that all these reports are based on the statements recorded during the investigation but no documentary evidence was either gathered or has been referred in these reports. Therefore, even if these reports are to be taken into consideration, these are nothing but narration of the statements of various persons taken during the investigation. It is well settled principle as well as the directions of the CBDT issued under the Circulars that during the course of investigation, the department should concentrate and focus on collecting documentary evidence disclosing undisclosed income instead of obtaining the statement and then support of their claim merely on the basis of the statement. Therefore, the statements recorded by the DDIT Kolkata are also not based on any documentary evidence so as to have an evidentiary value for sustaining the additions made by the AO. The entire report of the Investigation Wing is based on statements recorded during survey and search. Once the assessee has produced the documentary evidence and particularly the financial statements of the loan creditors, their bank account statement, then in the absence of any discrepancy or fault in these financial statements or in the bank account statement to reflect that the transactions in question are nothing but bogus accommodation entries, the addition made by the AO is not sustainable as it is merely on the basis of surmises and conjectures and not on any tangible material disclosing the non-genuineness of the transactions. The AO has not disputed the transactions routed through banking channel having sufficient funds I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 48 which is also supported by the financial statements and further the assessments of the loan creditor were completed under section 143(3). The details of loans taken from M/s. Jalsagar Commerce Pvt. Ltd., interests credited/paid and repayment of loan amount as well as closing balance are as under :
All these details were before the AO as all these assessment years were passed by the AO pursuant to the search and seizure action under section 132 of the IT Act. Thus it is clear that for the assessment year 2015-16 there was Nil balance on account of loan taken from M/s. Jalsagar Commerce Pvt. Ltd. and the entire loan was already repaid by the assessee. We further note that it is not the case of repayment of loan after the search action on 2nd July, 2015 but there is a regular repayment of loan for each year as it is evident from the details reproduced above. Therefore, the transactions of taking loan and repayment cannot be treated as bogus once the assessee has been regularly repaying the loan amount and small balance was there at the end of the year. Once there was no balance at the end of the year on the loan account, then the addition cannot be made by treating the loan taken and repaid as bogus transaction. Apart from these facts, the assessee has also made the payment of interest which was also subjected to TDS. This shows the genuineness of the transactions and all these transactions have taken place prior to the date of search and duly recorded in the books of accounts and also subjected to assessment under section 143(3) for some of the assessment years. Therefore, even as per the evidence produced by the assessee, the alleged suspicion of the AO was got dispelled and in the absence of any contrary evidence except the statement which is not even a conclusive proof of transaction of bogus entry to the assessee, the additions made by the AO are not sustainable.I.T.(SS)A. Nos.105 to 108, 110 to 112
and 114, 116 & 117/Lkw/2019 49 11.1. Even otherwise, the assessment order is solely based on the report of the Investigation Wing Kolkata which in turn is nothing but the narration of the statements recorded during the investigation and the AO was having in possession the statement of only Shri Anand Sharma. Therefore, all these proceedings conducted by the Investigation Wing Kolkata were at the back of the assessee and hence the statement which is the foundation of the report of the Investigation Wing Kolkata as well as the assessment order cannot be accepted in the absence of giving an opportunity of cross examination to the assessee. We find that the assessee has insisted for cross examination during the assessment proceedings and further during the appellate proceedings. The ld.CIT(A) even called for a remand report and directed the AO to allow cross examination to the assessee. However, the AO has expressed his inability to allow the assessee cross examination of the witnesses due to the reason that the witnesses belong to Kolkata and it is not possible for AO to make such arrangement. The ld. CIT(A) has finally denied the cross examination to the assessee by giving his finding in para 5.11 at page 188 already reproduced in the earlier part of this order and, therefore, the only reason for denial of cross examination by the ld.CIT(A) is that the statements are so vocal and undeniable that cross examination of such accommodation entry provided by thousands of beneficiaries across India is neither practicable nor viable and therefore uncalled for. We find that the assessee has demanded the cross examination only in respect of the alleged transactions of loans and not for the entire business of the entry providers providing the bogus entries. Undisputedly, the statement of Shri Anand Sharma was recorded by the Investigation Wing Kolkata at the back of the assessee, even the proceedings by the Investigation were conducted at the back of the assessee, therefore, the said statement of Shri Anand Sharma cannot be the sole basis of assessment without giving an opportunity of cross examination to the assessee. The Hon'ble Supreme Court in the case of Andaman Timber Industries vs. CCE (supra) while dealing with the issue of violation of principles of natural justice for not providing the opportunity of cross examination of the witnesses whose statements were relied on by the AO has held in para 6 to 9 as under :-
6. "According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee.
It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 50 with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross- examine those dealers and what extraction the appellant wanted from them".
7. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the adjudicating authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers witnesses at the price which is mentioned in the price list itself could be the subject-matter of cross- examination. Therefore, it was not for the adjudicating authority to presuppose as to what could be the subject-matter of the cross- examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came up before this court in CCE v. Andaman Timber Industries Ltd., order dated 17.3.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions.
8. In view of the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the show-cause notice.
9. We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal. No costs."
Once the assessee has disputed the correctness of the statement and wanted to cross examine the witness which was not given by the AO as well as ld. CIT (A), then the orders passed based on such statement are not sustainable in law. The Hon'ble Delhi High Court in case of CIT vs. Ashwani Gupta, 322 ITR 396 (Delhi) while dealing with the issue of not providing the opportunity to cross examine the witnesses has held in para 5 to 7 as under :-
"5. Secondly, in fact, a rectification application being MA 264/Delhi/2008 under section 254(2) of the Income-tax Act, 1961 had been filed by the revenue before the said Tribunal.I.T.(SS)A. Nos.105 to 108, 110 to 112
and 114, 116 & 117/Lkw/2019 51 In that also, in paragraph (g) of the Miscellaneous Application, the revenue had submitted as under:--
"(g )Because, although findings of the Tribunal are factually correct but the decision of the Tribunal is not acceptable because violation of the canons of natural justice in itself is not fatal enough so as to jeopardize the entire proceedings. In the interest of justice, the Tribunal could have set aside the assessment order with the limited purpose of offering assessee an opportunity to cross-examine Shri Manoj Aggarwal before completing the proceedings."
[Emphasis supplied]
6. A reading of the said paragraph (g) makes it clear that the revenue had accepted the findings of the Tribunal on facts as also the position that there had been a violation of principles of natural justice. However, the revenue's plea was that the violation of principles of natural justice was not fatal so as to jeopardize the entire proceedings. The said miscellaneous application was also rejected by the Tribunal by its order dated 28-11-2008.
7. In view of the foregoing circumstances, we feel that no interference with the impugned order is called for. The Tribunal has correctly understood the law and applied it to the facts of the case. Once there is a violation of the principles of natural justice inasmuch as seized material is not provided to an assessee nor is cross-examination of the person on whose statement the Assessing Officer relies upon, granted, then, such deficiencies would amount to a denial of opportunity and, consequently, would be fatal to the proceedings. Following approach adopted by us in SMC Share Brokers Ltd.'s case (supra), we see no reason to interfere with the impugned order. No substantial question of law arises for our consideration."
Thus the Hon'ble High Court has held that once there is a violation of principles of natural justice inasmuch as seized material is not provided to the assessee nor is cross examination of the person on whose statement the AO relied upon, granted, then, such deficiencies would amount to denial of opportunity and consequently would be fatal to the proceedings. The Hon'ble Bombay High Court in the case of H.R. Mehta vs. ACIT, 387 ITR 561 (Bombay) has also considered the issue of not providing opportunity of cross examination in para 11 to 17 as under :-
"11. We have therefore proceeded to hear and decide the matter unassisted by the revenue. In the course of his submissions Mr. I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 52 Tralshawala had pressed into service inter alia the decision of the Calcutta High Court in Mather & Platt (India) Ltd.(supra) and submitted that merely because a person is not found at an address after several years it cannot be held that he is non existent and that the assessee had discharged his primary onus by identifying the source of the amount paid. The Court observed that once the primary onus is discharged, the onus shifted to the revenue to verify genuineness of the transaction. In the present case no such effort was made by the revenue. We find that in S. Hastimal (supra) the Madras High Court observed that after a lapse of several years the assessee should not be placed upon the rack and called upon to explain not only merely, the origin and source of his capital contribution but the origin of origin and the source of source as well. In yet another case of Bahri Brothers (P) Ltd. (supra) the Division Bench of Patna High Court observed that where the assessee upon whom the initial burden lies, produces bank certificate to establish that the transaction was carried out through account payee cheques thus disclosing the identity of the creditors as also the source of income, the burden shifts on to the department and the department cannot add the cash credits to his income from undisclosed source.
12. The Hon'ble Supreme Court in Nemi Chand Kothari (supra) observed that in order to establish the receipt of a cash credit, the assessee must satisfy three conditions i.e. identity of the creditor, genuineness of the transaction and creditworthiness of the creditor. In the instant case by virtue of the fact that the transaction was completed by cheque payments, the appellant has contended that it had satisfied all the three tests.
13. In Kishanchand Chellaram (supra) wherein the Supreme Court observed that the revenue authorities had not recorded the statement of the Manager of the bank and it was difficult to appreciate as to why it was not done and why the matter was not probed further by the revenue.
14. The Delhi High Court in Ashwani Gupta (supra)held that once there is a violation of the principles of natural justice inasmuch as when its seized material was not provided to an assessee nor was he permitted to cross examine a person on whose statement the Assessing Officer relied, it would amount to deficiency, amounting to a denial of opportunity and therefore violation of principles of natural justice. In that case CIT (A) had deleted addition made by the Assessing Officer since the Assessing Officer had failed to provide copies of seized material to the assessee nor had he allowed the assessee to cross-examine the party concerned. The Division Bench held that once there is violation of the principles of natural justice inasmuch as seized material was not provided to the assessee nor was given opportunity of cross examining the person whose I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 53 statement was being used against the assessee the order could not be sustained.
15. In Andaman Timber Industries (supra) the Supreme Court found that the Adjudicating Authority had not granted an opportunity to the assessee to cross examine the witnesses and the tribunal merely observed that the cross examination of the dealers in that case, could not have brought out any material which would not otherwise be in possession of the appellant-assessee. The Supreme Court set aside the impugned order and observed that it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross examination and make the remarks such as was done in that case.
16. In the instant case although the appellant assessee has called upon us to draw an inference that the burden shifted to the revenue in the present case once it was established that the payments were made and repaid by cheque we need not hasten and adopt that view after having given our thought to various issues raised and the decisions cited by Mr.Tralshawalla and finding that on a very fundamental aspect, the revenue was not justified in making addition at the time of reassessment without having first given the assessee an opportunity to cross examine the deponent on the statements relied upon by the ACIT. Quite apart from denial of an opportunity of cross examination, the revenue did not even provide the material on the basis of which the department sought to conclude that the loan was a bogus transaction.
17. In our view in the light of the fact that the monies were advanced apparently by the account payee cheque and was repaid vide account payee cheque the least that the revenue should have done was to grant an opportunity to the assessee to meet the case against him by providing the material sought to be used against assessee in arriving before passing the order of reassessment. This not having been done, the denial of such opportunity goes to root of the matter and strikes at the very foundation of the reassessment and therefore renders the orders passed by the CIT (A) and the Tribunal vulnerable. In our view the assessee was bound to be provided with the material used against him apart from being permitting him to cross examine the deponents. Despite the request dated 15th February, 1996 seeking an opportunity to cross examine the deponent and furnish the assessee with copies of statement and disclose material, these were denied to him. In this view of the matter we are inclined to allow the appeal on this very issue."
Thus the denial of opportunity to cross examine was considered by the Hon'ble High Court which goes to the root of the matter and strikes at the very foundation of the assessment and, therefore, renders the assessment I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 54 order passed by the AO not sustainable. The ld. A/R has submitted that Coordinate Bench of this Tribunal in the case of DCIT vs. Shri Prateek Kothari vide order dated 16th December, 2012 in ITA No. 159/JP/2016 has considered this issue in para 2.8 to 2.11 as under :-
"2.8 We have heard the rival contentions and perused the material available on record. The transaction under question relates to unsecured loans taken by the assessee amounting to Rs 1 Crores from M/s Mehul Gems Pvt Ltd during the impugned assessment year and not accepting the said loan transaction as a genuine transaction by the Assessing officer and the resultant addition made under section 68 of the Act. Undisputedly, the primary onus to establish genuineness of the loan transaction is on the assessee. In the instant case, the assessee has provided the necessary explanation, furnished documentary evidence in terms of tax filings, affidavits and confirmation of the Directors, bank statements of the lender, balance sheet of the lender company, and an independent confirmation has also been obtained by the Assessing officer to satisfy the cardinal test of identity, creditworthiness and genuineness of the loan transaction. However, the Assessing officer has not given any finding in respect of such explanation, documentary evidence as well as independent confirmation. Apparently, the reason for not accepting the same is that the Assessing officer was in receipt of certain information from the investigation wing of the tax department as per which the transaction under consideration is a bogus loan transaction. The said information received from the investigation wing thus overweighed the mind of the Assessing officer. The Assessing officer stated that the primary onus is on the assessee to establish the genuineness of the transaction claimed by it and if the investigation done by the department leads to doubt regarding the genuineness of the transactions, it is incumbent on the assessee to produce the parties alongwith necessary documents to establish the genuineness of the transaction. In response, the assessee submitted that Shri Bhanwarlal Jain is not known to him and regarding various incriminating documentary evidences seized during the course of search and statements recorded of Shri Bhanwarlal Jain and other persons, he specifically requested the AO to provide copies of such incriminating documents and statement of all various persons recorded in this regard and provide an opportunity to the assessee to cross examine such persons. However, the AO didn't provide to the assessee copies of such incriminating documents and statements of various persons recorded and allow the cross- examination of any of these persons. While doing so, the AO stated that "in his statements, Bhanwarlal Jain had described that they are indulged in providing accommodation entries of bogus unsecured loans and advances through various Benami concerns (70) operated and managed by them. This admission automatically makes all the transactions done by them as mere paper transactions and in these I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 55 circumstances, further as per the information name and address of assessee and the Benami Concern through which accommodation entry of unsecured loans was provided is appearing in the list of beneficiaries to whom the said Group has provided. This admission is sufficient to reject the contentions of the assessee." Further, regarding cross examination, the AO stated that "the right of cross examination is not an absolute right and it depends upon the circumstances of each case and also on the statute concerned. In the present case, no such circumstances are warranted as in the list of beneficiaries to whom accommodation entries were provided by the said group categorically contains the name and address of the assessee. Further the group has categorically admitted to providing of accommodation entries of unsecured loans through various benami concerns." The AO further relied upon the decision of Hon'ble Supreme Court in the case of C. Vasantlal & Co. Vs. CIT 45 ITR 206(SC) and Hon'ble Rajasthan High Court in case of Rameshwarlal Mali vs. CIT 256 ITR 536(Raj.) among others. In this regard, it was submitted by the assessee that if the entries and material are 84 ITA Nos. 997 to 1002 & 1119/JP/2018 and ITA Nos. 1057 to 1062 & 1210/JP/2018. M/s. Kota Dall Mill, Kota. gathered behind the back of the assessee and if the AO proposes to act on such material as he might have gathered as a result of his private enquiries, he must disclose all such material to the assessee and also allow the cross examination and if this is not done, the principles of natural justice stand violated.
2.9 In light of above discussions, in our view, the crux of the issue at hand is that whether the principle of natural justice stand violated in the instant case. In other words, where the AO doesn't want to accept the explanation of the assessee and the documentation furnished regarding the genuineness of the loan transaction and instead wants to rely upon the information independently received from the investigation wing of the department in respect of investigation carried out at a third party, can the said information be used against the assessee without sharing such information with the assessee and allowing an opportunity to the assessee to examine such information and explain its position especially when the assessee has requested the same to the Assessing officer.
2.10 In this regard, the Hon'ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. v. CIT (1954) 26 ITR 775 (SC) (Copy at Case Law PB 812-818) has held that "The rule of law on this subject has been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Sinqh where it was stated that while proceeding under sub-section (3) of section 23, the Income-tax Officer, though not bound to rely on evidence produced by the assessee as he considers to be false, yet if he proposes to make an estimate in disregard of that evidence, he should in fairness disclose I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 56 to the assessee the material on which he is going to find that estimate; and that in case he proposes to use against the assessee the result of any private inquiries made by him, he must communicate to the assessee the substance of the information so proposed to be utilized to such an extent as to put the assessee in possession of full particulars of the case he is expected to meet and that he should further give him ample opportunity to meet it." It was held in that case that "In this case we are of the opinion that the Tribunal violated certain fundamental rules of justice in reaching its conclusions. Firstly, it did not disclose to the assessee what information had been supplied to it by the departmental representative. Next, it did not give any opportunity to the company to rebut the material furnished to it by him, and lastly, it declined to take all the material that the assessee wanted to produce in support of its case. The result is that the assessee had not had a fair hearing."
The Hon'ble Supreme Court in case of C. Vasantlal & Co. Vs. CIT 45 ITR 206 (SC) has held that "the ITO is not bound by any technical rules of the law of evidence. It is open to him to collect material to facilitate assessment even by private enquiry. But, if he desires to use the material so collected, the assessee must be informed about the material and given adequate opportunity to explain it. The statements made by Praveen Jain and group were material on which the IT authorities could act provided the material was disclosed and the assessee had an opportunity to render their explanation in that regard."
The Hon'ble Supreme Court in case of Kishinchand Chellaram v. CIT (1980) 125 ITR 713 (SC) (Copy at Case Law PB 585- 591) has held that "whether there was any material evidence to justify the findings of the Tribunal that the amount of Rs. 1,07,350 said to have been remitted by Tilokchand from Madras represented the undisclosed income of the assessee. The only evidence on which the Tribunal could rely for the purpose of arriving at this finding was the letter, dated 18-2- 1955 said to have been addressed by the manager of the bank to the ITO. Now it is difficult to see how this letter could at all be relied upon by the Tribunal as a material piece of evidence supportive of its finding. In the first place, this letter was not disclosed to the assessee by the ITO and even though the AAC reproduced an extract from it in his order, he did not care to produce it before the assessee or give a copy of it to the assessee. The same position obtained also before the Tribunal and the High Court and it was only when a supplemental statement of the case was called for by this Court by its order, dated 16-8-1979 that, according to the ITO, this letter was traced by him and even then it was not shown by him to the assessee but it was forwarded to the Tribunal and it was for the first time at the hearing before the I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 57 Tribunal in regard to the preparation of the supplemental statement of the case that this letter was shown to the assessee. It will, therefore, be seen that, even if we assume that this letter was in fact addressed by the manager of the bank to the ITO, no reliance could be placed upon it, since it was not shown to the assessee until at the stage of preparation of the supplemental statement of the case and no opportunity to cross examine the manager of the bank could in the circumstances be sought or availed of by the assessee. It is true that the proceedings under the income-tax law are not governed by the strict rules of evidence and, therefore, it might be said that even without calling the manager of the bank in evidence to prove this letter, it could be taken into account as evidence. 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."
2.11 In light of above proposition in law and especially taking into consideration the decision of the Hon'ble Supreme Court in case of C. Vasantlal & Co. (supra) relied upon by the Revenue and which actually supports the case of the assessee, in the instant case, the assessment was completed by the AO relying solely on the information received from the investigation wing, statement recorded u/s 132(4) of Shri Bhanwarlal Jain and others, and various incriminating documentary evidence found from the search and seizure carried out by Investigation Wing, Mumbai on the Shri Bhanwarlal Jain group on 03.10.2013. It remains undisputed that the assessee was never provided copies of such incriminating documents and statements of Shri Bhanwarlal Jain and various persons and an opportunity to cross examine such persons though he specifically asked for such documents and cross examination. On the other hand, the burden was sought to be shifted on the ITA No. 159/JP/16 The ACIT, Central -2, Jaipur vs. M/s Prateek Kothari, Jaipur 21 assessee by the A.O. It is clear case where the principle of natural justice stand violated and the additions made under section 68 therefore are unsustainable in the eye of law and we hereby delete the same. The order of the ld CIT(A) is accordingly confirmed and the ground of the Revenue is dismissed."
Thus when the assessee has specifically asked for cross examination of the witnesses whose statements were relied upon by the AO, then the denial of the opportunity to cross examine would certainly in violation of principles of natural justice and consequently renders the assessment order based on such statement as not sustainable in law. Hence in view of the facts and circumstances of the case where the assessee has repeatedly requested and demanded the cross examination of the witnesses whose statements were relied upon by the AO in the assessment order and further the report of the I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 58 DDIT Investigation Kolkata is also based on the statement of such person then the denial of cross examination by the AO as well as ld. CIT (A) despite the fact that the assessee was ready to bear the cost of the cross examination of the witnesses is a gross violation of principles of natural justice. Thus the additions made by the AO on the basis of such statement without any tangible material is not sustainable in law and liable to be deleted. Accordingly the addition made by the AO is also deleted on merits apart from the legal issue decided in favour of the assessee."
12. In the above noted case law, the additions were made on the basis of statements of witnesses, recorded by Investigation Wing, and the witnesses were not cross examined by assessee. In the cases before us also, the additions have been made on the basis of statements of witness and the witnesses have not been cross examined by assessees. The Assessing Officer though in the assessment order has noted that summons u/s 131 of the Act were issued to the witnesses but no steps, as required by law, have been taken by the Assessing Officer as the witnesses did not appear and the Assessing Officer did not enforce their presence by taking further steps. Merely writing in the assessment order that notices u/s 131 has been issued, without recording any order in the order sheet regarding this fact nor having any evidence of service of such notices, does not serve the purpose of giving opportunity to the assessee of cross examination.
13. On merits also, we find that assessees had fulfilled its part of onus which is required to be fulfilled by the assessee as the identity of the lender companies is not in doubt, creditworthiness of the companies is not in doubt as these companies had sufficient funds to advance the loans which is apparent from the amount of share capital and the reserves they are carrying in their balance sheets. The year-wise amount of share capital, reserves and loans out of which these creditors had advanced loans to the assessees, has been tabulated in a chart, which, for the sake of completeness, has been made part of this order and is reproduced below:
I.T.(SS)A. Nos.105 to 108, 110 to 112and 114, 116 & 117/Lkw/2019 59 I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 60 I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 61
14. In view of these figures, the creditworthiness of the lender companies is not in doubt. As regards the genuineness of the transactions, we find that loans were taken through banking channels and interest was also paid I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 62 after deducting TDS and a part of loans were also returned back with interest even before the date of search and this proves that the transactions were genuine. The authorities, during the search on the assessees, did not find any incriminating material and any money trail to establish that cash had exchanged in lieu of transactions of loans received and repayments thereof. The assessments of these companies, wherein the interest paid by the assessees, has been accepted to be their income, also proves that the transactions were genuine. Therefore, all the three ingredients of section 68 are fulfilled and therefore, also the additions confirmed by learned CIT(A) cannot be sustained. The Learned counsel for the assessee has relied on a number of case laws for the proposition that once the assessee fulfilled its part of onus, the addition u/s 68 cannot be made unless proved otherwise by the Assessing Officer. In the present cases, other than the statements recorded by another officer (which we have already held to be of no evidentiary value) there is no material before the Assessing Officer to disapprove the evidences filed by assessees.
15. The Hon'ble Delhi High Court in the case of CIT vs. Kamdhenu Steel & Alloys Ltd. [2012] 19 taxmann.com 26 (Delhi) has held as under:
"5. With this discourse on the legal position, we advert to the cases at hand. In these appeals, there is a common thread which runs through all these cases insofar as nature of transaction is concerned. As would be seen when we discuss the facts of this case, the share applicants are all companies incorporated under the Indian Companies Act, either public limited or private limited companies. Since these companies are incorporated under the provisions of Indian Companies Act, their identity, at least on papers, is established. Here, they are assessed to income tax as well. These companies have PAN numbers and are filing regular income tax returns. The assessee companies which have received share applicant I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 63 money from such applicants have produced documents in the form of PAN, income tax returns, copies of the bank accounts through which the funds were transferred by way of credit entries, deposits in the accounts of such applicants, etc. by furnishing such kinds of proofs/documents, the assessees have been able to discharge their initial burden. Notwithstanding the same, as per the AO(s), the applicants were bogus companies which were only paper companies and there is no real existence. In certain cases, it was also found that just before issuing the cheques by the applicants towards share applicant money, cash was deposited in their bank accounts. Except in ITA No.726/2011, in other cases, the AOs also relied upon the investigation report of Director of Income Tax (Investigation), the details whereof would be mentioned at the appropriate stage. From the aforesaid and some other aspects peculiar to each case, the AO(s) was of the opinion that the assessees had not discharged the burden.
6. With this background, we now pick up one of the appeals, the outcome whereof would determine the fate of all these appeals.
7. In the case of this assessee, we are concerned with the Assessment Year 2004-05. While scrutinizing this case, the AO found that the balance-sheet revealed that during the period relevant to the year under assessment, the assessee had received share application money of Rs.2.74 Crores from various applicants. The assessee filed details of all the share applicants and the amounts received along with their confirmation and copies of the bank accounts of such investors from as many as 32 share applicants. All these applicants were private limited companies. The AO was of the opinion that the creditors were not genuine parties and were only entry providers. He referred to the report dated 02.3.2006 of the Directorate of Income Tax (Investigation), Unit-V, New Delhi in this behalf. He issued detailed questionnaire on 09.11.2006 wherein he also gave specific reasons in respect of each of the applicant which was of the following nature:
(i) In the bank account of the various share applicants, they had deposited cash for specific purpose for applying for share in I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 64 addition to providing entry to the assessee, the same modus was adopted in the other cases as well.
(ii) Many companies did not exist at the addresses furnished.
The registered letters sent to them had been received back undelivered.
(iii) There were reports of the Inspectors (Income Tax) that many parties were not genuine assessees and were not in existence.
8. The assessee had given reply to the said questionnaire in which it had summed the position as under:
"1. All the share applicants are existing assessees.
2. These companies are registered with the Registrar of Companies.
3. The share applicants have filed their respective confirmations.
4. The companies are genuine existing share holder.
5. The investments have been made by them by account payee cheques.
6. AOs remarks that the share applicants are "entry providers"
have not basis.
7. The assessee company is not accountable for the share applicants depositing cash in their accounts before investing by cheques.
8. AOs remarks "not a genuine tax payer" is the Department and the share applicant in which the assessee has not role to play.
9. The assessee has not means to produce the shareholders physically.
10. The postal remarks on the communications to the share applicants were not made available to the assessee company.
11. The report of the Directorate is one sided.
12. The proposal of the AO to treat the credits received as share application money runs contrary in law to the judgment of the Hon'ble Supreme Court in the case of M/s. Steller Investments Ltd. (115 Taxman Page 99)."
I.T.(SS)A. Nos.105 to 108, 110 to 112and 114, 116 & 117/Lkw/2019 65
9. The AO was not convinced with this explanation. He was of the view that though contentions appeared good theoretically, but the assessee had miserably failed to discharge burden, in the background of the facts on record, in totality. He maintained that the companies were bogus, as they were not found at the existing address and the cash was also deposited by these companies just before issuing the cheques. The fact that the assessee had showed its inability to produce them was also viewed against the assessee. The AO relied upon the report of the Directorate of the Income Tax (Investigation) which had concluded that all these companies were bogus companies floated by one Mr. Mahesh Garg, who was master behind it, with intent to provide entries. He inter alia observed:
"The assessee company has complied with elementary requirements by filing confirmations from the share applicants with their Permanent Account Numbers and copies of bank accounts through which the funds were transferred by way of credit entries. In most of the cases in which the assessee company filed bank statements of the share applicants, the deposits in the accounts of such applicants were shown to have been received by way of transfer of funds to them but when such statements were requisitioned directly from the banks under Section 133(6) of the Income Tax Act, it was discovered that cash had been deposited in the accounts of the share applicants before being transferred to the account of the assessee company. This anomaly is almost universal except in a few cases where transfer entries have been rotated. In certain other cases both cash has been deposited and entries rotated. The claim of the assessee that he was unaware of this state of affairs is much too difficult to digest. In the light of this fact, other contentions of the assessee company in its representation dated 17.11.2006 become redundant. The claim of the assessee company of its inability to produce the shareholders physically is hollow because no such shareholder exists to be physically present for any deposition.
10. We have taken note of the aforesaid assessment order in detail as the entire argument of the learned Counsel for the I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 66 Revenue was backed by and based upon the reasons given by the learned AO(s). In support thereof, Mr. N.P. Sahni, learned counsel for the Revenue, also furnished Brief Note on Accommodation Entries as prepared by the Directorate of Income Tax (Investigation), the gist whereof is noted above as recorded in the orders of the AO. In the light of the aforesaid, Mr. Sahni referred to the judgments on onus which have also been taken note of above by us.
11. Before we deal with the same, let us find out the raison d'eter behind the orders of the Tribunal in deleting the addition, as CIT (A) had confirmed the orders of the AO agreeing with his reasons. The order of the Tribunal is very brief and appeal was allowed following the judgment of the Apex Court in the case of Commissioner of Income Tax Vs. Lovely Exports (P) Ltd. [216 CTR 195 (SC)] and Commissioner of Income Tax Vs. Divine Leasing and Finance Ltd. [299 ITR 268] of this Court. The entire discussion can be traced in para 3 of the impugned order:
"3. We have considered the rival submission. A perusal of the order of the Hon'ble Supreme Court in the case of Divine Leasing and Finance Ltd. referred to supra is in regard to SLP filed by the Revenue against the order of Hon'ble Jurisdictional High Court and the Hon'ble Supreme Court has specifically with a speaking order dismissed the SLP. The Hon'ble Supreme Court in the various decisions referred to by the Ld. AR has categorically held that the addition in regard to the share capital cannot be treated as the undisclosed income of the assessee if the share application money is received by the assessee company from alleged bogus shareholders whose names are given to the AO. Further, the Hon'ble Supreme Court has categorically held that the Revenue is free to proceed to re-open the individual assessment of such alleged bogus shareholders. The decision of the Hon'ble Jurisdictional High Court in the case of Value Capital Services Ld. Has also categorically held that there is additional burden on the Revenue to show that even if the applicant does not have the means to investment but the investment made by the appellant should be shown t have emanated from the coffers of the assessee so as to I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 67 enable it to be treated as undisclosed income of the assessee. It is noticed that the Revenue has not been able to specifically show that the investments had emanated from the coffers of the assessee in this case. In these circumstances, respectfully following the decision of the Hon'ble Jurisdictional High Court as also Hon'ble Supreme Court referred to supra the addition made by the AO and has confirmed by the Ld. CIT(A) in regard to the alleged bogus shareholders represented by the increase in share capital of the assessee cannot be treated as unexplained cash credits in the hands of the assessee. However, respectfully following the decision of the Hon'ble Court referred to supra, it is directed that the Department is free to proceed to re-open the individual assessments of such alleged bogus shareholders. The direction is being given under Section 151(i) read with section 153(3) of the Income Tax Act."
12. What does follow from the aforesaid? It is not in doubt that the assessee had given the particulars of registration of the investing/applicant companies; confirmation from the share applicants; bank accounts details; shown payment through account payee cheques, etc. As stated by us in the beginning, with these documents, it can be said that the assessee has discharged its initial onus. With the registration of the companies, its identity stands established, the applicant companies were having bank accounts, it had made the payment through account payee cheques.
13. No doubt, what the AO observed may make him suspicious about such companies, either their existence, which may be only on papers and/or genuineness of the transactions. When he found that investing companies are not available at given addresses or that the issuance of the cheque representing share application money or preceded by the deposit of cash in the bank account of these investment companies.
14. The important question which arises at this stage is as to whether on the basis of these facts, could it be said that it is the assessee which has not been able to explain the source and receipt of money. According to the assessee, he had given the required information to explain the source and was not I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 68 obligated to prove source of the money. It is the submission of the assessee that even in case there is some doubt about the source of money in giving into coffers of the share applicants which they invested with the assessee, it would not automatically follow that the said money belongs to the assessee and becomes unaccounted money. According to us, the assessee appears to be correct on this aspect. We feel that something more which was necessary and required to be done by the Assessing Officer was not done. The AO failed to carry his suspicious to logical conclusion by further investigation. After the registered letters sent to the investing company had been received back undelivered, the AO presumed that these companies did not exist at the given address. No doubt, if the companies are not existing, i.e., they have only paper existence, one can draw the conclusion that the assessee had not been able to disclose the source of amount received and presumption under Section 68 of the Act for the purpose of addition of amount at the hands of the assessee. But, it has to be conclusively established that the company is non-existence.
15. The 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. If the address was same at which the letter was sent or the Inspector visited and no change in address was communicated, perhaps it may have been one factor. In support of the conclusion which the AO wanted to arrive at, that by itself cannot be treated as the conclusive factor. As pointed out above, these applicant companies have PAN and assessed income tax. No effort was made to examine as to whether these companies were filing the income tax 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. Further, if the returns were filed and scrutiny thereof reveals that such returns were for namesake, this could yet another be contributing factor in the direction AO wanted to go. 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 I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 69 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 treated for namesake. We say so with more emphasis because of the reason that normally such kind of presumption against the assessee cannot be made as per the law laid down in various judgments noted above. Just because of the creditors/share applicants could not be found at the address given it would not give the Revenue a right to invoke Section 68 of the Act without any additional material to support such a move. We are reminding ourselves of the following remarks of a Division Bench of this Court in its decision dated 02.8.2010 in the case of Commissioner of Income Tax - IV Vs. M/s. Dwarkadhish Investment (P) Ltd. (ITA No.911 of 2010) in the following words:
"Just because the creditors/share applicants could not be found at the address given, it would not give the Revenue the right to invoke Section 68. Once must not lose sight of the fact that it is the Revenue which has all the power and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the "source of source".
16. We are conscious of the malice of such kind of pernicious practice which is prevalent. In Divine Leasing and Finance Ltd. (supra), this Court had eloquently highlighted the same in the following manner:
"There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should not be harassed by the Revenues insistence that it should prove the negative. In the case of a public issue, the company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The company must, however, maintain and made available to the Assessing Officer for his perusal, all I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 70 the information contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of Sections 68 and 69 of the Income Tax Act. The burden of proof can seldom be discharged to the hilt by the assessee; if the Assessing Officer harbours doubts of the legitimacy of any subscription he is empowered, nay duty bound. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company." (Emphasis supplied)
17. Even in the instant case, it is projected by the Revenue that the Directorate of Income Tax (Investigation) had purportedly found such a racket of floating bogus companies with sole purpose of landing entries. But, it is unfortunate that all this exercise is going in vain as few more steps which should have been taken by the Revenue in order to find out causal connection between the cash deposited in the bank accounts of the applicant banks 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.
18. We may repeat what is often said, that a delicate balance has to be maintained while walking on the tight rope of Sections 68 and 69 of the Act. On the on hand, no doubt, such kind of dubious practices are rampant, on the other hand, merely because there is an acknowledgement of such practices would not mean that in any of such cases coming before the Court, the Court has to presume that the assessee in questions as indulged in that practice. To make the assessee responsible, there has to be proper evidence. It is equally important that an innocent person cannot be fastened with liability without cogent evidence. One has to see the matter from the point of view of such companies (like the assessees herein) who invite the share application money from different sources or even public at large. It would be asking for a moon if such companies are asked to find out from each and every share applicant/subscribers to first satisfy the assessee companies about the source of their funds before investing. It is for this I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 71 reason the balance is struck by catena of judgments in laying down that the Department is not remediless and is free to proceed to reopen the individual assessment of such alleged bogus shareholders in accordance with the law. That was precisely the observation of the Supreme Court in Lovely Export (supra) which holds the fields and is binding.
19. In conclusion, we are of the opinion that once adequate evidence/material is given, as stated by us above, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter in case such evidence is to be discarded or it is proved that it has "created" evidence, the Revenue is supposed to make thorough probe of the nature indicated above before it could nail the assessee and fasten the assessee with such a liability under Section 68 and 69 of the Act.
20. During the arguments, we had posed these queries. Learned counsel appearing for the Revenue understood the limitation of their case. For this reason, a fervent plea was made that this case be remitted back to the AOs to enable him to make further investigation.
21. However, in the facts and circumstances of these cases, it would be difficult to give such an opportunity to the Revenue. There are number of reasons for denying this course of action which are mentioned below:
(i) It is not a case where some procedural defect or irregularity had crept in the order of the AO. Had that been the situation, and the additions made by the AO were deleted because of such infirmity, viz., violation of principle of natural justice, the Court could have given a chance to the AO to proceed afresh curing such procedural irregularity. One example of such a case would be when statement of a witness is relied upon, but opportunity to cross-examine is not afforded to the assessee.
(ii) On the contrary, it is a case where the AO(s) did not collect the required evidence which they were supposed to do. To put it otherwise, once the assessee had discharged their onus and the burden shifted on the AO(s), they could not come out with I.T.(SS)A. Nos.105 to 108, 110 to 112 and 114, 116 & 117/Lkw/2019 72 any cogent evidence to make the additions. No doubt, as indicate by us above, the AO(s) could have embark upon further inquiry. If that is not done and the AO(s) did not care to discharge the onus which was laid down, for this "negligence"
on the part of the AO(s), he cannot be provided with "fresh innings".
(iii) The order of the AO(s) had merged in the order of the CIT(A) and in some of the cases before us and before the CIT(A), the assessees had succeeded.
(iv) This Court is acting as appellate Court and has to act within the limitations provided under Section 26A of the Act. The appeals can be entertained only on substantial questions of law. In the process, this Court is to examine as to whether the order of the Tribunal is correct and any substantial question of law arises therefrom. The Tribunal has passed the impugned orders, sitting as appellate authority, on the basis of available record. When the matter is to be examined from this angle, there is no reason or scope to remit the case back to the AO(s) once it is found that on the basis of material on record, the order of the Tribunal is justified. Even the Tribunal acts purely as an appellate authority. In that capacity, the Tribunal has to see whether the assessment framed by the AO, all for that matter, orders of the CIT(A) were according to law and purportedly framed on facts and whether there was sufficient material to support it. It is not for the Tribunal to start investigation. The Tribunal is only to see as to whether the additions are sustainable and there is adequate material to support the same if not the addition has to be deleted. At that stage, the tribunal would not order further inquiry. It is to be kept in mind that the AO is prosecutor as well as adjudicator and it is for the AO to collect sufficient material to make addition. There may be exceptional circumstances in which such an inquiry can be ordered, but normally this course is not resorted to.
22. In the facts of these cases, where the appeals relate to the assessment years, which are of 7-8 years old or even more and going by the nature of evidence which is required, it may not be apposite to make such an order."
I.T.(SS)A. Nos.105 to 108, 110 to 112and 114, 116 & 117/Lkw/2019 73
16. The above order of Hon'ble Delhi High Court has been upheld by Hon'ble Supreme Court which, vide order dated 17/09/2012 has dismissed the SLP filed by the Department.
17. In view of the above facts and circumstances, ground Nos. 3,5,6,7,8 & 9 are allowed in all the appeals. As we have allowed relief to the assessee, rest of the grounds have become infructuous.
18. In the result, the appeals filed by assessees are partly allowed.
(Order pronounced in the open court on 14/09/2021) Sd/. Sd/.
( A. D. JAIN ) ( T. S. KAPOOR ) Vice President Accountant Member Dated:14/09/2021 *Singh Copy of the order forwarded to : 1. The Appellant 2. The Respondent. 3. Concerned CIT 4. The CIT(A) 5. D.R., I.T.A.T., Lucknow