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2016 (6) TMI 974 - ITAT MUMBAI

2016 (6) TMI 974 - ITAT MUMBAI - TMI - Reopening of assessment - investment from unexplained sources u/s. 69B - genuity of loan - Held that:- The reason and purpose for transferring the loan receivable from assessee to ‘Sanson Developers Properties’ by the lender San Finance Corporation as on 31-03-2006 is very important to come to conclusion and adjudicate this appeal to understand the entire factual matrix and pith and substance of the nature and substance of entire loan transaction which the .....

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the receivable from assessee in books of San Finance Corporation was reduced to Nil as on 31-03-2006. It is almost after one year on 31-03-2007, the said amount of ₹ 16,50,650/- was transferred back to the debit of the assessee as being receivable by said San Finance Corporation by passing a journal entry on 31-03-2007 of the amount of ₹ 16,50,650/-. No clarification and explanation has been given by the assessee with respect to above entries. Revenue also has not made any enquiry a .....

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, this matter need to be set aside to file of the AO for de-novo enquiries and examination to bring on record the pith and substance of the nature of entire loan transactions undertaken by the assessee with the said San Finance Corporation to evaluate its genuineness. - For reopening , it cannot be held that the A.O. has formed any opinion with respect to the investment made by the assessee in the flat in the Adarsh Co-operative Housing Society Limited. Information has been received by the .....

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(1) and not u/s 143(3) r.w.s. 143(2) of the Act and the Revenue has re-opened the assessment within four years of the end of the assessment year, we hold that the Revenue has rightly invoked the provisions of section 147/148 of the Act and we uphold the reopening of the assessment. - Decided partly in favour of assessee for statistical purposes. - I. T. A. No. 1049/ Mum/ 2014 - Dated:- 27-4-2016 - Shri Amit Shukla, Judicial Member And Shri Ramit Kochar, Accountant Member For the Assessee : S .....

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ficer(hereinafter called the AO ) u/s 143(3) r.w.s. 147 of the Income Tax Act,1961(Hereinafter called the Act ). 2. The grounds raised by the assessee in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai(Hereinafter called the Tribunal ) read as under:- On the Facts and Circumstances of the Case and in Law 1. The Learned Commissioner of Income Tax (Appeals) has erred in confirming the action of learned assessing officer in re-opening validly completed assessment of the asse .....

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(1) of the Income Tax Act, 1961 on 6th July, 2007. The case was reopened u/s 147 of the Act after recording the reasons and with prior approval of the CIT dated 20th July, 2011. Statutory notice u/s 148 and 142(1) of the Act dated 21st July, 2011 along with questionnaire was issued and duly served on the assessee. The assessee in response submitted vide his letter dated 19th July, 2012 that the original return of income filed may be treated to have been filed in response to the notice u/s. 148 o .....

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rakash Pethe Marg, Colaba, Mumbai, the assessee was allotted a flat No. 1103 admeasuring area of 650 sq. ft. for which the assessee has paid an amount of ₹ 66,08,512/-. The payment details are as under:- Sr. No. Amount paid by assessee to the Adarsh CHSL, Mumbai in Rs. Date of payment A.Y. 1 700000 Upto 05.01.2005 2005-06 2 500000 26.11.2005 2006-07 3 500000 28.03.2006 2006-07 4 265000 30.08.2006 2007-08 5 300000 26.02.2007 2007-08 6 350000 01.03.2007 2007-08 7 650000 20.03.2007 2007-08 8 .....

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the assessee in his Balance Sheet. During the instant assessment year 2007-08, the assessee has invested an amount of ₹ 15,65,000/- on the said flat, hence, the A.O. asked the assessee to explain the source of the investment. Statement of the assessee was recorded u/s 131 of the Act on 29th July, 2011 wherein the assessee stated that he has invested total amount of ₹ 66,08,512/- for the said flat and out of which an amount of ₹ 65,58,500/- was borrowed from M/s San Finance Cor .....

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s received the above amount as loan from San Finance Corporation , Nagpur and the same was invested in the above mentioned flat/property , the assessee was asked by the AO to explain as to why an amount of ₹ 15,65,000/- should not be added to the total income of the assessee as investment from unexplained sources u/s. 69B of the Act. The assessee in response submitted that the said amount was given by San Finance Corporation, Nagpur out of their funds directly to Adarsh Co- operative Housi .....

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the allotment of flat in the said society on merits. The assessee submitted that he approached the said San Finance Corporation for taking loan and the said San Finance Corporation has also financed other flats in the same society. The amount was directly paid by San Finance Corporation to the society and the transaction is genuine and proper as per the requirement of section 68 of the Act. The assessee relied on the following judicial pronouncements:- i) Orient Trading Co. Ltd. v. CIT, 49 ITR .....

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289 (Mum) xi) J.S. Hastimal v. CIT, 49 ITR 273 (Madras) xii) Rohini Builders v. DCIT 256 ITR 360 xiii) Dimco Silk Mills v. ITO, ITAT Ahd. Bench xiv) Micro land v. ACIT 67 ITD 446 (Bangalore) xv) CIT v. Daulatram Rawatmull, 87 ITR 349 (SC) xvi) Kalwa Devadettam v. Union of India, 49 ITR 165 (SC) xvii) ACIT v. Anima Investment Ltd. 73 ITD 125 (Delhi) xviii) CIT v. Bedi & Company Pvt. Ltd. 230 ITR 580 (SC) xix) Kirloskar Investment and Finance Ltd. v. ACIT, 67 ITD 504 xx) ACIT v. Govindram Aga .....

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r considering the reply of the assessee held that the case laws relied upon by the assessee related to the unexplained cash credit u/s 68 of the Act while in this case, the assessee did not reflect any cash credits entries in the books of accounts of the assessee and the issue is regarding the partly recorded unexplained investment by the assessee which is covered u/s 69B of the Act whereby the investment has never been fully disclosed by the assessee. The assessee disclosed only ₹ 50,000/ .....

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ssee for the collateral security; iii) The lender has not charged any interest from the assessee and; iv) The assessee s statement u/s 131 shows that the Secretary of the Society introduced the assessee to the director of the loan creditor and the loan creditor released the loan by flouting the norms related to normal business transactions/prudence; v) The transaction is not a prudent business transaction. The AO held that these loan transaction claimed by the assessee is not genuine and hence i .....

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house property vide assessment orders dated 28-09-2012 passed by the AO u/s. 143(3) read with Section 147 of the Act. 4. Aggrieved by the assessment orders dated 28-09-2012 of the A.O. passed u/s. 143(3) read with Section 147 of the Act, the assessee preferred first appeal before the CIT(A). 5. Before the CIT(A), the assessee reiterated the submissions what were made before the A.O. . The assessee submitted that Adarsh Co-operative Housing Society Limited was formed by the people from defense b .....

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h ₹ 50,000/- was paid by the assessee and the balance amount of ₹ 65,58,500/- was invested in the said flat by raising a loan from M/s San Finance Corporation, Nagpur at the introduction of his old colleague working with defense department and who is presently Secretary of the Adarsh Co-operative Housing Society Limited. The assessee submitted that it was orally agreed between the assessee and M/s San Finance Corporation that the San Finance Corporation, Nagpur will directly pay the .....

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itted before the CIT(A). The photo-copy of confirmation letter from San Finance Corporation, Nagpur showing amount of loan, date, cheque/DD, name of the bank etc. were submitted before the CIT(A). The ledger extract of the assessee s account in the books of San Finance Corporation, Nagpur for the financial years from 2005-06 to financial year 2010-11 were also submitted before the CIT(A). The loan confirmation letter from San Finance Corporation, Nagpur for the period 01-04-2004 to 21-05-2012 co .....

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charged on these loans but for some initial period no interest was charged by the San Finance Corporation, Nagpur, but thereafter it was to be charged which can be seen from the said loan confirmation letter. The assessee submitted that when the lender has confirmed of having given the loan on behalf of the borrower directly to the builder and borrower admits of having raised the loan for acquiring the said flat, the transaction cannot be held as non-genuine. Thus, it does not matter when the lo .....

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is not permitted in law as the suspicion howsoever strong cannot take the place of the proof. The assessee submitted that the Revenue has also conducted enquiries of San Finance Corporation, Nagpur directly about the identity, creditworthiness and genuineness of the loan transaction. The assessee submitted that the AO erred in rejecting the contention of the assesse that the assessee has borrowed the funds from San Finance Corporation , Nagpur for making investment in the said flat in Adarsh Co- .....

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is why the investment is not shown in the books of accounts. The assessee submitted that Section 69B of the Act is not applicable to the case of the assessee as there is no requirement cast under law on the assessee for maintenance of books of accounts keeping in view the affairs of the assessee and also it was not an intentional and purposeful default on the part of the assessee to have not reflected the said investment in the flat at Adarsh Co-operative Housing Society Limited and of the corre .....

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CIT(A) along with written submissions , which were forwarded by the CIT(A) to the A.O. for necessary verifications and investigations about the sources of funds and for submission of remand report. The A.O. submitted the remand report dated 1st July, 2013 to CIT(A) in which it was stated by the A.O. that notice u/s 133(6) of the Act was issued on 27th May, 2013 to San Finance Corporation, Nagpur , calling for the details of the loan given to the assessee and the mode of payment, source of paymen .....

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s been entered into for advancement of loans to the assessee. Further, no loan agreement has been signed, no interest has been charged and there is also not any collateral security given by the assessee to said M/s San Finance Corporation, Nagpur and the AO stated in the remand report submitted to the CIT(A) that matter may be decided on merits. The copy of above remand report of AO dated 01/07/2013 was forwarded by the CIT(A) to the assessee for furnishing of comments . The assessee submitted t .....

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tment in purchase of the flat No. 1103 on 11th floor in Adarsh Co-Operative Housing Society Limited and hence the addition becomes untenable in the eyes of law. The assessee submitted that it is immaterial whether loan agreement was entered into or not , or collateral security was taken by the lender or not and whether interest was charged or not charged , so long the lender has confirmed the loan transaction and the identity, creditworthiness of the lender is not in doubt and genuineness of the .....

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and the remand report of the A.O. , held that the assessee has invested an amount of ₹ 66,08,512/- for purchase of a flat in the said Adarsh Co-op Group Housing Society Limited, but the assessee has only disclosed ₹ 50,000/- in his Balance Sheet. As such the A.O. had strong reasons to believe that the income of the assessee has escaped assessment. The reasons of the re-opening were duly recorded after specific information. The original assessment was completed u/s 143(1) of the Act. .....

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payment to the society from assessment year 2005-06 to the assessment year 2011-12, without any collateral security and without charging any interest as well after such a long period of time having elapsed since the loans were first disbursed, no repayment/recovery of loan and interest is called by the said San Finance Corporation from the assessee which is not possible in the common parlance. The said San Finance Corporation had no intention of recovering said loan from the assessee. The CIT(A .....

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A) vide orders dated 30.12.2013. 5. Aggrieved by the orders dated 30.12.2013 passed by the CIT(A), the assessee is in appeal before the Tribunal. 6. The ld. Counsel for the assessee submitted that the instant appeal is filed by the assessee. The stay petition was rejected by the Tribunal but early hearing was allowed. The assessee was Section Officer with defense department and now is a retired defense officer. The assessee had booked a flat in Adarsh Co-operative Housing Society Ltd. and had pa .....

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58,512/- raised from San Finance Corporation and the payment so directly made by said San Finance Corporation to Adarsh Co- operative Group Housing Society is not reflected in the Balance Sheet of the assessee. The A.O. has objected that there was no structured loan agreement between the assessee and the said lender San Finance Corporation , no collateral securities have been taken by the said San Finance Corporation to secure the lending and no interest is charged on the said loans , thus this .....

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sion and remand report held that this is not a normal transaction and confirmed the orders of the A.O. . No action has been taken by the Revenue against the lender. The ld. counsel for the assessee stated that the finance company has given the loan directly to the Adarsh Co-operative Housing Society Limited. The assessee has only declared ₹ 50,000/- which is the initial payment made by the assessee in his Balance Sheet while the loan raised from San Finance Corporation is not reflected in .....

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o-operative Housing Society Limited , which are monitored by Hon ble Bombay High Court. There has been no attempt made by the said Finance company to recover the loan from the assessee since assessment year 2005-06 till date. No loan agreement is entered into by the assessee with the lender and no interest has been charged by the said lender on the loan granted to the assessee.The assessee has also not given any collateral security to the lender. The assessee has made no attempt to prove that th .....

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ven to the ld. Counsel for the assessee simultaneously . 8. The ld. Counsel for the assessee, in the rejoinder, drew our attention to the re-assessment order (paper book,page No. 44-45) with respect to the San Finance Corporation, Nagpur, re-assessment orders dated 30.12.2011 passed by the Revenue u/s 143(3) r.w.s. 147 of the Act whereby only addition has been made by the Revenue with respect to the disallowance of interest on the grounds that interest bearing funds are diverted to advance inter .....

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31.03.2007. 9. We have considered the rival contentions and also perused the material on record including the case laws relied upon by the rival parties. The Revenue has not filed any written submissions as was indicated during the course of hearing as set-out above , thus we are proceeding to adjudicate the instant appeal based on material and facts as are available presently on record. We have observed that the assessee has booked a flat in Adarsh Co- operative Housing Society Limited in the p .....

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payment to Adarsh Co-operative Housing Society Limited . The assessee has produced the loan confirmation letter dated 08-12-2010 from San Finance Corporation which is placed at paper book page 19 - 21 along with details of disbursement of loans to the assessee. The assessee has produced the ledger extracts of the said San Finance Corporation representing assessee s account in the books of accounts of San Finance Corporation for the period from the assessment year 2005-06 to assessment year 2011- .....

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orporation, Nagpur shows that the deposit and advance of ₹ 32,37,432/- to the assessee was disbursed as on 31-03-2007. From perusal of the said assessment order dated 30-12-2011 , it is revealed that no addition has been made by the Revenue in the hands of the San Finance Corporation for the loans so made to the assesssee or source thereof while additions have been made vide disallowance of interest on borrowed funds which were deployed for granting interest free loans. It is stated by the .....

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the payment directly made from time to time by the San Finance Corporation, Nagpur to Adarsh Co- operative Housing Society Limited of ₹ 65,58,500/- made over a period from assessment year 2005-06 to assessment year 2011-12, in the return of income filed with the Revenue. The assessee has brought on record afore- stated material and evidences to prove its contentions to substantiate the identity , creditworthiness of the lender and genuineness of the loan transaction. The Revenue on the oth .....

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ade any re-payment of loan to San Finance Corporation till date. The assessee has also not declared these loans and investment in the afore- stated flat to the tune of ₹ 65,58,500/- in his Balance Sheet filed with the Revenue over the years and only initial payment of ₹ 50,000/- made by the assessee towards membership fee has been disclosed. The Revenue has thus doubted the genuineness of the loan transaction and it was incumbent on the assessee to give explanation not only to prove .....

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Court, this agreement could not be signed as the documents of the society were seized and matter became sub-judice. The assessee has also termed the other concerns of the revenue as set-out above such as no structured loan agreements has been entered into between the assessee and the lender , no interest has been charged by the said lender, no collateral security has been taken by the lender, no repayment of loan and interest has been made till date, being immaterial and irrelevant as the assess .....

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tries. Before discussing the same , we are re-producing the said relevant ledger extracts which are placed in paper book filed with the Tribunal by the assessee at page 23-24 as under:- San Finance 05-06 01 Apr 2006 Ledger for the period 01 Apr, 2005 to 31 Mar,2006 Group : Assets Account selection:Selected transacted Accounts (All amounts in Rs.) Document Narration Debit Credit Running Balance Date Number Hinduja Parmanand Opening Balance 6,50,650.00 24 Nov, 2005 MBP M24112005 1 To Ch No. 158541 .....

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unts (All amounts in Rs.) Document Narration Debit Credit Running Balance Date Number Hinduja Parmanand Opening Balance 0.00 25 Aug, 2006 MBP M25082006 1 To Ch No. 158545 of 2,65,000.00 2,65,000.00 ICICI Bank Ltd Paid on Account 22 Feb, 2007 MBP M22022007 1 To Ch No. 243051 of 3,00,000.00 5,65,000.00 ICICI Bank Ltd Paid on Account 26 Feb, 2007 MBP M26022007 1 To Ch No. 158546 of 3,50,000.00 9,15,000.00 PNB D Peth Paid on A/c 15 Mar, 2007 MBP M15032007 1 To Ch No. 243052 of 6,50,000.00 15,65,000. .....

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to the assessee were duly recorded in the books of accounts of San Finance Corporation and hence the loans are genuine. The perusal of the above ledger extract of San Finance Corporation for the financial year 2005-06 (paper book, page 23) reveals that the closing balance outstanding being receivable from assessee in the books of accounts of San Finance Corporation as at 31-03-2006 with respect to the said loans were reduced to Nil by passing a journal entry by the said San Finance Corporation .....

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the loan confirmation submitted by San Finance Corporation for the entire period 13-09-2004 to 21-05-2012 whereby this journal voucher entry is not reflected (PB,page 21). Similarly ,the perusal of the above ledger extract of San Finance Corporation for the financial year 2006-07 (paper book, page 24) reveals that the opening balance outstanding to be receivable from the assessee in the books of accounts of San Finance Corporation as at 01-04-2006 with respect to the said loans was Nil . The sa .....

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6,50,650/- which was earlier on 31-03-2006 transferred to Sanson Developers Properties and the balance receivable from the assessee as at 31-03-2007 in the books of San Finance Corporation now stood at ₹ 32,37,432.00 which is matching now with loan balance confirmation submitted by the assessee but again this journal entry of 31-03-2007 is not appearing in the said loan confirmation submitted by the San Finance Corporation for the entire period 13-09-2004 to 21-05-2012 (PB,page 21) . This .....

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receivable from assessee to Sanson Developers Properties by the lender San Finance Corporation as on 31-03-2006 is very important to come to conclusion and adjudicate this appeal to understand the entire factual matrix and pith and substance of the nature and substance of entire loan transaction which the assessee has not clarified .The assessee has merely stated that the loans are outstanding in the books of lender M/s San Finance Corporation while the fact of the matter is that the said San F .....

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back to the debit of the assessee as being receivable by said San Finance Corporation by passing a journal entry on 31-03-2007 of the amount of ₹ 16,50,650/-. No clarification and explanation has been given by the assessee with respect to above entries. Revenue also has not made any enquiry and examination to understand the reason and purpose of transferring the entry by San Finance Corporation by debiting to the account of Sanson Developers Properties as on 31-03-2006 with ₹ 16,50, .....

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7; 16,50,650/- from the assessee to the debit of said Sanson Developers Properties on 31-03-2006 as set out above and again why the said amount was brought back as receivable from the assessee on 31-03-2007. In our considered view and in the interest of justice, this matter need to be set aside to file of the AO for de-novo enquiries and examination to bring on record the pith and substance of the nature of entire loan transactions undertaken by the assessee with the said San Finance Corporation .....

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