TMI Blog2019 (6) TMI 584X X X X Extracts X X X X X X X X Extracts X X X X ..... dered as unexplained cash credit u/s 68 of the Act, consequently, additions made towards disallowance of interest and estimation of commission on such unsecured loans is also needs to be considered in the light of discussions in the preceding paragraphs. Therefore, we are of the considered view that the AO as well as the Ld. CIT(A) was erred in making additions towards interest on unsecured loans and commission on such unsecured loans. Accordingly, we direct the AO to delete the additions made towards disallowance of interest and estimation of commission. Bogus purchases - assessee has filed basic evidences including confirmations from the parties - notice u/s 133(6) were issued, such notices were returned unserved with a remark address not known - HELD THAT:- When the AO has not pointed out any discrepancies in the books of accounts or stock details filed by the assessee merely for the reason that notices issued u/s 133(6) were returned unserved, no adverse inference could not be drawn against the assessee, when assessee has filed sufficient material in order to prove the purchases from the above parties, no doubt, it is an admitted fact that the parties were never responded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by different assessee s and are directed against separate, but identical orders of the Ld. CIT(A), 47, Mumbai, all dated 28/02/2012 and they pertains to Assessment Years 2007-08, 2008-09, 2009-10 2012-13, 2013-14 and 2014-15. Since, facts, are identical and issues are common, for the sake of convenience, these appeals were heard together and are disposed of by this consolidated order. ITA NO.2688/Mum/2018 2. All assessee s have more or less filed common grounds of appeal in respective memorandum of appeal. For the sake of brevity, grounds of appeal taken in ITA No.2688/Mum/2018 for Assessment Year 2013-14 of M/s Pabal Housing Pvt. Ltd. is reproduced hereunder:- 1. On the facts and circumstances of the appellant's case and in law the Ld. Commissioner of Income Tax (Appeals) 47 (CITA) erred in not holding that the Ld. Assessing Officer (AO) has not followed the principles of natural justice by granting effective opportunity of being heard and providing material/record gathered during search/survey proceeding in the third party's case, if any intended to be used against the appellant. 2. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd circumstances of the appellant's case and in law the Ld. CITA erred in confirming the action of the AO in not granting the set-off of loss incurred during the year against the additions/disallowances amounting to ₹ 18,13,250/-. 3. Briefly, stated the facts of the case are that the assessee is engaged in the business of real estate development, filed its return of income for Assessment Year 2013-14, on dated 30/09/2013, declaring total income at Rs.Nil. The case was selected for scrutiny and notice u/s 143(2) and 142(1) Income Tax Act, 1961 (hereinafter the Act ) were issued. In response to notices, the Authorized Representative of the assessee appeared from time to time and filed various details as called for. During the course of assessment proceedings, the AO noticed that DDIT(Inv.), Unit-9(2), Mumbai, had intimated vide letter dated 10/03/2014 that the assessee is one of the beneficiary of accommodation entries for loans from various companies controlled and managed by Mr. Bhanwarlal Jain. The said information was further based on search and seizure action conducted by the office of the DGIT(Inv.), Mumbai, on 03/10/2013 in Bhanwarlal Jain Group of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken from M/s Meridian Jewellery Pvt. Ltd., M/s Rose Gems Pvt. Ltd., M/s Sankhala Exports, M/s Little Diam, M/s Mouli Gems, M/s Rose Impex and M/s Nice Diamond appearing in the books of the assessee. In response to notice, the assessee has filed complete details of loans and advances taken from above said concerns including confirmations from the loan creditors, their ITR acknowledgment copies filed for AY 2013-14, Profit loss account and balance sheet along with bank statements. The assessee has also filed affidavit from the director of the company to support their contentions to claim that unsecured loans taken from above companies are genuine loans which are taken under normal commercial purposes. It was further contended that loans were taken through proper banking channel and also interest has been paid after deducting necessary TDS applicable as per the provisions of the act. The assessee also repaid said loans in the next financial year, therefore, merely on the basis of information received from some third party source, genuine loans taken from certain parties, cannot be considered as bogus entries, which can be taxed u/s 68 of the Act. 6. The AO, after c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, made additions towards unsecured loans taken from above companies u/s 68 of the Act. Similarly, the AO has made additions towards interest paid on unsecured loans taken from above concerns on the ground that since, transaction between the parties are proved as bogus accommodation entries, any interest paid on such loans is also bogus in nature. Therefore, the same is disallowed and added back to the total income of the assessee. Likewise, the ld. AO has made addition of ₹ 20,20,000/- towards possible commission paid by the assessee to obtain unsecured loans entries obtained from Shri Bhanwarlal Jain. As regards purchases from M/s Ankit Enteprises and M/s Akash International totalling to ₹ 90,81,012/-, the AO observed that since the primary onus was not established by the assessee, the total purchases from above parties is treated as bogus and accordingly, made additions towards purchases from above entities to the total income of the assessee. The relevant findings of the AO is reproduced as under:- From the case laws cited above and the discussion on evidences / findings of the investigation wing in the preceding paras , the primar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tigation wing of the deportment ,Mumbai, regarding the billers name and amounts are matched in-toto and verbatim. Hence the assessee's argument on this lacks any merit and deserves to be rejected. Further, reckoning the modus operandi enunciated above, details available on record and findings on record, it is not difficult to understand the manner in which the whole transaction of bogus loans have taken place. The logical corollary the above fact leads to the conclusion that accommodation entry for loans are taken by investing the assessee's own unaccounted cash for which the assessee has not offered any explanation regarding its nature and source. In view of the assessee's failure to furnish plausible explanation with cogent evidences, unexplained loans amounting to to furnish plausible explanation with cogent evidences, unexplained loans amounting to ₹ 10,45,00,000/- (M/s. Meridian Jewellery Pvt. Ltd ₹ 1,50,00,000/-, M/s Rose Gems ₹ 2,45,00,000h M/s Sankhala Exports ₹ 70,00,000/-, M/s Little Diam ₹ 40,00,000/-, M/s Mouli Gems ₹ 2,00,00,000/-, M/s Rose Impex ₹ 3,00,00,000/-,M/s Nice Diamonds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17,640/- from M/ S. Akash International of ₹ 27,63,372/- totalling to ₹ 90,81,012/-, is held to be bogus.The same therefore, is brought to Tax and added to the total Income declared. Accordingly it is also held that inaccurate particulars of income has been flied to conceal income chargeable to tax and penalty u/s. 271(1)(c) of the I.T. Act is separately. 7. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee has filed elaborate written submission on the issue, which has been reproduced at para-11 on pages 11 to 17 of the Ld. CIT(A) s order. The sum and substance of arguments of the assessee before the Ld. CIT(A) are that the AO has made addition towards unsecured loans taken from various companies belonging to Mr. Bhanwarlal Jain only on the basis of information gathered during the course of search in case of Bhanwarlal Jain Group of companies without bringing on record any further evidences to link those evidences to unsecured loans entries found in the books of account of the assessee so as to treat the said loans are accommodation entries. The assessee further submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e which are only self serving documents to circumvent the findings of the fact recorded by the AO during the course of assessment proceedings, therefore, the same cannot be admitted as evidences in order to give clean chit to the assessee. Accordingly, the Ld. CIT(A) has confirmed additions made by the AO towards unsecured loan taken from companies controlled and operated by Shri Bhanwarlal Jain. Similarly, the Ld. CIT(A) has confirmed additions made by the AO towards interest debited in the profit loss account in the name of various parties belonging to the Bhanwarlal Jain Group on the ground that once unsecured loans have been treated as bogus entries, corresponding interest payment on such loan also needs to be treated as bogus, accordingly there is no error in the findings of the AO while making additions towards interest. Likewise, the Ld. CIT(A) confirmed the additions made by the AO towards 0.2% commission expenditure incurred by the assessee to obtain unsecured loans from the companies controlled and managed by Shri Bhanwarlal Jain on the ground that Shri Bhanwarlal Jain has consistently stated in his statement, during the course of search that he had charged commission a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Jain and thus, has rightly been added back u/s 68 of the Act, being accommodation entries taken from the Bhanwarlal Jain Group. Accordingly, it is held that the unexplained loans amounting to ₹ 10,45,00,0007- (M/s. Meridian Jewellery Pvt. Ltd ₹ 1,50,00,0007- M/s. Rose Gems ₹ 2,45,00,000/-, M/s Sankhala Exports ₹ 70,00,000/-, M/s. Little Diam ₹ 40,00,000/-, M/s. Mouli Gems ₹ 2,00,00,000/-, M/s Rose Impex ₹ 3,00,00,000/-, M/s. Nice Diamonds ₹ 40,00,000/-) taken during the year under consideration has been rightly taxed by the A.O. u/s 68 of the Act, being proven accommodation entries. 12.119 I n view of the above facts and circumstances of the case, as also the various judicial pronouncements, the Ground No. 3 of the present appeal is hereby dismissed. Decision on Ground No. 4 13.0 I have considered the facts of the case, submissions of the appellant, the observations of the AO contained in the assessment order and the other materials on record on this issue. 13.1 On this issue, it may be noted that I have confirmed the addition made by the A.O. on accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and every party has been recorded in the parallel books of account found on the pen-drive. Such commission accounts have already been discussed in details above and hence the same discussion is not repeated here again. 14.15 In these facts and circumstances, there is no reason to interfere with the addition made by the A.O. in the assessment order on account of unaccounted commission expenses incurred in cash by the Appellant on the accommodation entries of loans and the same stands confirmed in entirety. Decision on Ground No. 6: 18.0 I have considered the facts of the case, submissions of the appellant, the observations of the AO contained in the assessment order and the other materials on record on this issue. 18.1 During the course of survey action on the Poonam Group it was found that eleven concerns engaged in the business of providing fictitious purchase bills, have in fact provided bogus purchase entries to the various concerns of Poonam Group. These 11 entry operating concerns were found to be managed and controlled by four persons namely, Shri Trilok Jain, Shri Kanakraj Pareekh, Shri Jitendra C. J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have noted that the Investigation Wing, Mumbai has unambiguously stated that the impugned purchases are just entries provided by bogus billers. Further, the A.O. has issued notices u/s. 133(6) of the Act to the various parties to verify their genuineness. These notices have been returned back unserved by the postal authorities with remarks NOT KNOWN . In these circumstances, an inspector attached to the A.O. was deputed to make further local enquiries with regard to the above-mentioned parties. The local enquiries conducted by the Inspector have also revealed that no such party / firm / companyis in existence at the address given by the appellant. 18.5 During the course of the appellate proceedings, no details of the stock register were filed. Further, there is no record evidencing utilization of the so called bogus purchases. In these circumstances, it is clear that such bogus purchases have gone to reduce the profits of the appellant by that amount. In view of these facts and circumstances of the case, the entire 100% of the bogus purchases disallowed by the A.O. needs to be confirmed .In this regard, reliance is placed on the decision of Hon'ble Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as retracted his statement with an affidavit, then the statement recorded during the course of search does not have any evidentiary value. Therefore, the same cannot be considered as sacrosanct to come to the conclusion that the transactions were bogus in nature. The Ld. AR further submitted that the sole basis for the AO to make additions towards unsecured loans is a statement of Shri Bhanwarlal Jain, which was subsequently retracted by him. Further, in spite of specific request, the AO declined to provide the statements or evidence relied upon and also declined to give opportunity to cross examine the parties. The Ld. AR further submitted that during the course of survey in the group cases of assessee, no incriminating material was found to link credits found in the books of account of the assessee and also to evidences collected from Shri Bhanwarlal Jain group cases during the search. The AO as well as the Ld. CIT(A) were given much importance to the modus operandi and evidence collected during the search in the case Shri Bhanwarlal Jain ignoring the evidences filed by the assessee during the assessment proceedings. Therefore, when the assessee discharged initial burden by filin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 68 of the Act, when the evidences collected during the search as well as survey clearly shows that transactions between the parties are not genuine transactions, therefore, there is no error in the findings recorded by the lower authorities. Accordingly, additions made by the AO should be upheld. 11. We have heard both the parties, perused the material available on record and gone ground through the orders of authorities below. The solitary issue that needs to be resolved under given facts and circumstances of this case is whether unsecured loans taken from certain companies controlled and managed by Shri Bhanwarlal Jain is unexplained cash credit, which comes under the provisions of section 68 of the Act or not. The AO has made additions of ₹ 10,45,00,000/- towards unsecured loans taken from certain companies controlled and managed by Shri Bhanwarlal Jain u/s 68 of the Act, on the ground that the assessee has failed to file necessary documents in order to prove identity, genuineness of transactions and creditworthiness of the parties. The AO has extensively discussed the issue in his assessment order in light of facts gather during the course of search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , ITR acknowledgment, financial statements, bank statements, confirmation letters and affidavit from the parties from whom loan has been taken. The AO has disputed the genuineness of transactions and creditworthiness of the parties. The sole basis for the AO to doubt the genuineness of transaction is search conducted in the cases of Bhanwarlal Jain by the DGIT(Inv.), Mumbai unit, where certain incriminating material found and seized as per which Bhanwarlal Jain and his associates were involved in providing accommodation entries and the assessee is one of the beneficiaries of such accommodation entries. The AO has taken note of statement recorded by the department from Shri Bhanwarlal Jain and his associates. The AO has taken note to survey proceedings conducted in the group cases of assessee and statement recorded from directors and employees of the assessee group cases. Except this, no contrary evidences has been brought on record by the AO to disprove the claim of the assessee that these are genuine transactions and unsecured loan taken under normal business circumstances. Therefore, under these factual matrix, we have to examine whether the credits found in the books of accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harged its initial burden by filing necessary evidences in order to prove identity, genuineness of transactions and creditworthiness of the parties, then there is no reason for AO to suspect the transactions between the parties only on the ground that the person who gave unsecured loan had admitted in his statement u/s 132(4) of the Act that these transactions are accommodation entries, more particularly when the person who gave the statement retracted his statement by filing affidavit. Further, the AO failed to carry out further enquiries in light of evidences gathered during the course of search and survey to establish the fact that in fact these transactions are non-genuine, but merely relied upon the statement of Shri Bhanwarlal Jain to make additions u/s 68 of the Act. No doubt, the AO is having every right to suspect the transactions but, that by itself would not give rise an occasion for the AO to make additions u/s 68 of the Act, when the evidences filed by the assessee clearly proves the facts that these transactions were genuine transactions which are undertaken under normal commercial business circumstances. Therefore, we are of the considered view that the AO was erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assessee to the AO. In the above circumstances, the view taken by the Tribunal cannot be faulted. CIT vs. Lovely Exports (P) Ltd (2008) 216 CTR 195 (SC) If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company. CIT vs. Steller Investment Ltd (2001) 251 ITR 263 (SC) (civil appeal) That the increase in subscribed capital of the respondent company could not be a device of converting black money into white with the help of formation of an investment company, on the round that, even if it be assumed that the subscribers to the increased capital were not genuine, tinder no circumstances could the amount of share capital be regarded as un disclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholders whose names and details were given to the Assessing Officer. ACIT vs. Venkateshwarlspat Pvt Ltd (2009) 319 ITR 393 (Chhatisgarh- High Court) If the share applications are received by the assessee from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as the undisclosed income of the assessee. Mod Creations Pvt Ltd vs. /TO (2013) 354 ITR 282 (Del-High Court) Held, allowing the appeal, (i) that the assessee had discharged the initial onus placed on it. In the event the Revenue still had a doubt with regard to the genuineness of the transactions in issue or as regards the creditworthiness of the creditors, it would have had to discharge the onus which had shifted on to it. A bald assertion by the Assessing Officer that the credits were a circular route adopted by the assessee to plough back its own undisclosed income into its accounts, could be of n o avail. The Revenue was required to prove this allegation. An allegation by itse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber of subscribers had responded to the letters issued by the Assessing Officer or summons issued by him and submitted their affidavits. In so me cases such replies were not received through posts. ₹ 9 lacs represented those assessees who denied having made any investment altogether. The issue thus would fall squarely within the ambit of the judgment of the Supreme court in the case of Lovely Exports (supra). No error of law can be stated to have been committed by the Tribunal. Tax Appeal is therefore dismissed. CIT vs. Peoples General Hospital Ltd (2013) 356 ITR 65 (MP-High Court) Held , dismissing the appeals , that it the assessee had received subscriptions to the public or rights issue through banking channels and furnished complete details of the shareholders, no addition could be made tinder section 68 of the Income-tax Act, 1961, in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part o f the share capital represented the company's own income from undisclosed sources. It was nobody's case that the non-resident Indian company was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication money for the shares was given through account payee cheques. The creditworthiness has also been established, as indicated by the Tribunal. The subscribers have given their complete details with regard to their tax returns and assessments. In these circumstances, the Department could not draw an adverse inference against the assessee only because the sub scribers did not initially respond to the summons. The subscribers, however, subsequently gave their confirmation letters as would be apparent from the impugned order. The identity of the subscribers stands established and it is also a fact that they have shown the said amounts in their audited balance sheets and have also filed returns before the IT authorities. The decision of the Tribunal deleting the addition cannot befaulted. 15. The assessee has also relied upon various decision of the Co-ordinate Bench of ITAT, Mumbai. We find that the coordinate Bench of ITAT Mumbai, in number of cases has considered an identical issue in light of search and seizure operations as well as survey conducted by the department in light of statement of Shri Bhanwarlal Jain recorded during the course of search u/s 132(4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee reflecting the amounts and genuineness of transactions were filed. However, the learned Assessing Officer treated the loan as unexplained cash credit on the plea that the assessee could not produce the parties. Thereafter, the learned Assessing Officer computed the peak of unsecure loan amounting to ₹ 1,91,00,000 and made addition of ₹ 40,00,000 u/s 68 of the Act. On appeal, before the learned CIT(A), the addition so made was directed to be deleted. The assessee is in appeal before the Tribunal. 4. If the observations made in the assessment order leading to the addition and the conclusion arrived at in the impugned order, if kept in juxtaposition, and analysed there is a factual finding in Para-5.3 that the assessee discharged the primary onus as the lender had responded to notices issued u/s 133(6) of the Act confirming the transaction. The learned Assessing Officer did not controvert the claim of the assessee. The loans were taken through banking channel and the receipt of taking the loan has been duly examined in Para-5.3 (Page-13) of the impugned order. The loans were duly reflected in the loans and advances column in the Balance Shee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be applied to the facts of the present case. Accordingly, the cases relied upon by the Ld. DR are rejected. 18. In this view of the matter and considering the ratio of case laws discussed hereinabove, we are of the considered view that the assessee has discharged initial burden by filing various documents to prove identity, genuineness of transactions and creditworthiness of the parties. Therefore, we are of the considered view that the AO was erred in making additions towards unsecured loan u/s 68 of the Act. The Ld. CIT(A) without appreciating these facts simply confirmed the addition made by the AO. Hence, we reverse the findings of the Ld. CIT(A) and direct the AO to delete the additions made towards unsecured loans u/s 68 of the Act. 19. The next issue came up for our consideration is disallowance of interest and estimation of commission on unsecured loans obtained from companies controlled and operated by Shri Bhanwarlal Jain. The AO has disallowed interest paid on unsecured loans on the ground that once loans have been treated as bogus accommodation entries, then any interest paid on such unsecured loans also needs to be treated as bogus and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elied upon and also denied opportunity to cross examines those parties. The assessee further contended that in absence of any incorrectness in the books of accounts and sales made outside the books of account, no adverse inference could be drawn so as to treat the purchases from certain parties are bogus when assessee has furnished complete details including confirmations from the parties. 21. We have heard both parties, perused the materials available on record and gone through orders of the authorities below. It is an admitted fact that the assessee has filed complete information including purchase bills, payment proof, against such purchases through proper banking channels and also confirmations from the parties. It is also an admitted fact that when the AO issued notice u/s 133(6), such notices were returned unserved by the postal authorities. The AO observed that the report of Inspector attached to the office of the AO also confirmed the fact that parties were not available at the given addresses. Under these factual backgrounds, the issue needs to be examined whether the purchases from above two parties can be considered as bogus and if at all purchases are bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied out by the parties came to the conclusion that when both parties are failed to prove their contention, then only profit element embedded in those purchases needs to be taxed in order to settle the dispute between the parties. The Hon ble Gujarat High Court in the case of Ld. Vijay Proteins vs CIT (2015) 58 taxmann.com 44(Guj.) had taken similar view in light of facts brought by the parties and held that where purchases are considered to be bogus, then only profit element embedded need to be taxed. In these cases, the assessee is in the business of real estate development. The profit element of real estate business is in the range of 8 to 15% depending upon the type of projects and places where project is executed by the parties. Therefore, considering the facts and circumstances of this case and also consistent with view taken by the coordinate Bench in the number of cases in order to resolve the dispute, we deem it appropriate to direct the AO to estimate 12.5% profit on alleged bogus purchases. Accordingly, we direct the AO to estimate 12.5% profit on total alleged bogus purchases. 23. In the result, appeal filed by the assessee for AY 2013-14 is partly allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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