TMI Blog2019 (8) TMI 1113X X X X Extracts X X X X X X X X Extracts X X X X ..... be safely concluded that assessee had indeed complied with all the three necessary ingredients of Section 68. With regard to non-production of Shri Jagdish Prasad Purohit by the assessee before the Ld. AO for the purpose of cross examination of him by the assessee, we hold that it is the revenue which had placed reliance on the statement of Shri Jagdish Prasad Purohit. Hence, Shri Jagdish Prasad Purohit becomes the witness of the revenue. Hence, it is the duty of the revenue to produce the party as their witness in order to enable the assessee to cross examine the said party, if it so desires. This responsibility cannot be shifted to the assessee by the AO. CIT(A) had rightly deleted the addition made u/s.68 of the Act and disallowance of interest on loans, which in our considered opinion, does not call for any interference. Accordingly, the grounds raised by the revenue are dismissed. - ITA No.3127/Mum/2017 - - - Dated:- 22-2-2019 - SHRI M. BALAGANESH, AM AND SHRI RAM LAL NEGI, JM For The Revenue : Ms. Jyothilakshmi Nayak For The Assessee : Shri Prakash K Jotwani ORDER PER M. BALAG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O observed that M/s. Grafton Merchant Pvt. Ltd had advanced loan of ₹ 3,75,00,000/- to the assessee during the year. M/s. Grafton Merchant Pvt. Ltd had furnished ledger account for the period 01/04/2012 to 31/03/2013, bank statement and acknowledgement of return of income for A.Y.2013-14 together with their audited financial statements in response to notice u/s.133(6) of the Act issued by the Ld. AO. Vide order sheet entry dated 23/03/2016, the Ld. AO handed over a copy of this statement of Shri Jagdish Prasad Purohit recorded u/s.131 of the IT Act on 19/10/2011 by Pune Investigation Wing of Income Tax department to the authorised representative of the assessee. The Ld. AO showcaused the assessee as to why the alleged loan received from M/s. Grafton Merchant Pvt. Ltd be not treated as unexplained cash credit u/s.68 of the Act in the hands of the assessee. In response to the same, the assessee filed a detailed submission dated 29/03/2016 which is reproduced as under:- 1) As informed by you that you are in possession of a recorded statement given u/s.131 by one Shri Jagdish Prasad Purohit, in which he has claimed that the loan given to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income-tax as the income of the assessee of that previous year. Thus, to tax any receipt u/s 68, the assessee should fail to offer any explanation about the nature and source of such receipt, or, the explanation so offered by the assessee is not satisfactory in the opinion of the AO. We submit the explanation that the amount of ₹ 375,00,000/-received from Grafton Merchant Pvt. Ltd is a loan. The loan has been received through banking channels. The Source of the loan is out of the loans received back by M/s Grafton Merchant Pvt. Ltd., from the other parties to whom it had given loans earlier. The source of loan is not out of the Cash deposited in the bank. Also on receipt of loan, there are no cash withdrawals from the bank by the assessee. This proves the Genuinity of the Loan. The assessee has paid Interest on the said loan and M/s Grafton Merchant Pvt. Ltd has duly offered the same as income in its Return of Income for the asst year 2013-14. To prove the IDENTITY of M/s Grafton Marketing Pvt. Ltd. we submit i) copy of the ITR filed by M/s Grafton Marketing Pvt. Ltd., ii) c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Loan as genuine loan, we enclose herewith the following: i. Copy of the RETRACTION STATEMENT by Shri Jagdish Prasad Purohit. ii) Loan Confirmation for the year ending 31-03-2013, 31-03-2014 and 31-03-2015. iii) Copy of lTR and Computation of Income of M/s Grafton Merchant Pvt. the Asst. Year 2013-14. iv) Copy of the Audited Financial Statement as on 31.03.2013. v) Copy of Ledger Account of M/s H.K. Pujara Builders in the books of M/s Grafton Merchant Pvt. Ltd for the year ending 31-03-2013, 31-03-2014 and 31-03-2015. vi) Copy of Interest on loans account in the books of M/s Grafton Merchant Pvt. Ltd for the year ending 31-03-2013,31-03-2014 and 31-03-2015. vii) Copy of FORM 26AS of M/s Grafton Merchant Pvt. Ltd. for the f.y. 2012-13 which shows Tax Deducted at Source on Interest given by M/s H.K. Pujara Builders to M/s Grafton Merchant Pvt. Ltd. viii) Copy of Bank Statements of M/s Grafton Merchant Pvt. Ltd. showing Loans transaction and the SOURCE of the loan. ix) Copy of the Ledger Account of M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... controlled by Shri Jagdish Prasad Purohit. The Ld. AO also recorded a fact that Shri Jagdish Prasad Purohit subsequently retracted his original statement on oath u/s.131 of the Act by way of filing an affidavit to that extent and the copy of the said affidavit was also reproduced by the Ld. AO in pages 15 16 of his order. The Ld. AO however, disregarded the same on the ground that Shri Jagdish Prasad Purohit is an Advocate by profession and that he is fully aware of the consequences of giving false statements before the Investigation Wing of the Income Tax department. He had also given a declaration at the time of original statement that no coercion or mental pressure was imposed on him for giving a statement. The Ld. AO also observed that the affidavit retracting the original statement was made only on 31/03/2014 at Pune which is almost 29 months after the original statement was recorded. The affidavit has not been signed by the Panchas i.e., witnesses in whose presence the original statement was recorded. Accordingly, the Ld. AO observed that there is no merit in the affidavit retracting the statement filed by Shri Jagdish Prasad Purohit. 3.5. With regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . AO and that the Ld. AO could not find any flaw with the submission and could not rebut the documentary evidences submitted explaining the nature and source of money received from M/s. Grafton Merchant Pvt. Ltd. It was argued before the Ld. CIT(A) that in the statement of Shri Jagdish Prasad Purohit which had been heavily relied upon by the Ld. AO, he had not implicated the assessee at all. Moreover, the said statement had been subsequently retracted by him. Hence, his statement does not carry any weightage or evidentiary value. The assessee pleaded that how can a statement given by a third person in connection with the transactions pertaining to some Pride group at Pune be made applicable to the transactions pertaining to the assessee. The assessee pleaded before the Ld. CIT(A) that in order to substantiate the addition u/s.68 of the Act, the Ld. AO ignored the documentary evidences submitted by the assessee. He must investigate the matter and must bring on record his own findings to justify the decision to make addition u/s.68 of the Act. The Ld. AO had not done any investigation to find out the facts. He has failed to bring any evidences to prove the loan transaction as an acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y.2010-11, the Ld. CIT(A) had deleted the addition made by the Ld. AO. 4. For A.Y.2011-12, the Ld. CIT(A) deleted the addition made by the Ld. AO. The relevant order copies were given to the Ld. CIT(A). 4.3. With regard to the disallowance of interest of loans paid to M/s. Grafton Merchant Pvt. Ltd., in the sum of ₹ 2,28,92,766/-, the assessee stated that the same pertains to prorata interest on the gross loan amount of ₹ 22,42,12,986/-. It was pleaded that the opening balance of loan from M/s. Grafton Merchant Pvt. Ltd. was ₹ 30,36,09,497/- payable by the assessee. The loan of ₹ 13,75,00,000/- was repaid and loan of ₹ 3,75,00,000/- was received by the assessee during the year under consideration. Balance loan of ₹ 22,41,21,986/- was outstanding as on 31/03/2013. The assessee pleaded that the payment on interest of loan itself is an evidence of loan being a genuine loan. The assessee also pleaded that in the A.Y.2012-13, the interest of ₹ 1,67,88,330/- was paid to M/s. Grafton Merchant Pvt. Ltd., and the same was allowed by the Ld. AO in the assessment framed u/s.143(3) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statement of a third person without any corroborative evidence will not make the loan transaction in question as accommodation entries. He further observed that Shri Jagdish Prasad Purohit was the witness of the department and it is the duty of the department to produce the said person for cross examination and not the assessee. When the opportunity to cross examine such person was denied by the Ld. AO to the assessee, then no reliance whatsoever could be placed on the statement recorded from such person. In this regard, he placed reliance on the decision of Hon ble Apex Court in the case of Andaman Timber Industries in Civil Appeal No.4228/2006, which was subsequently followed by the Hon ble Jurisdictional High Court in the case of H.R. Mehta vs. ACIT in ITA No.58/2001 dated 30/06/2016. The Ld. CIT(A) further observed that as far as the question of validity of the transactions done through Shri Jagdish Prasad Purohit are concerned, even if some of the transactions entered into by him are found to be not genuine, it does not lead to the conclusion that all the transactions entered into by him were not genuine including the transactions related to the assessee. There is no evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the documents of the entire case by arguing as to how the assessee firm in connivance with an entry operator Shri Jagdish Prasad Purohit and through his companies had managed to obtain unsecured loans in lieu of cash. She argued that merely because the said loan received from M/s. Grafton Merchant Pvt. Ltd., by the assessee by account payee cheques through regular banking channels, repayment of loans made thereon together with interest duly subjected to deduction of tax at source, would not make the transactions genuine. In this regard, she placed reliance on the statement accorded u/s.131 of the Act by the Investigation Wing of Income Tax department Pune from Shri Jagdish Prasad Purohit in connection with the search conducted in the case of Pride Group at Pune. In the said statement, Shri Jagdish Prasad Purohit had admitted that M/s. Grafton Merchant Pvt. Ltd., is one of the companies controlled and managed by him and that the said entity also is involved in giving unsecured loans to various persons against cash. With regard to retraction statement made by Shri Jagdish Prasad Purohit, the Ld. DR argued that the said retraction happened after 29 months from the month of issuing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to providing accommodation entry in the form of share capital to Pride Group against cash received from Pride Group. Admittedly, the assessee herein does not belong to Pride Group, Pune. He argued that similar loans received from M/s. Grafton Merchant Pvt. Ltd., in the earlier years were accepted as genuine by the Ld. AO and accordingly, when subsequent loan has been received from the very same party, the same cannot be disturbed by the Ld. AO. Reliance in this regard was placed on the decision of Hon ble Karnataka High Court in the case of Sridev Enterprises reported in 192 ITR 165 [Kar]. The interest paid on loans received in earlier years to the tune of ₹ 2,06,03,489/- cannot be disallowed in any case by the Ld. AO during the year under consideration. He also drew our attention to the page No.107 of the paper book containing the ledger account of M/s. Grafton Merchant Pvt. Ltd., as appearing in the books of assessee firm for the period 01/04/2012 to 31/03/2013 wherein there is an opening loan balance received from M/s. Grafton Merchant Pvt. Ltd., to the tune of ₹ 30,36,09,497/-. During the year under consideration, the assessee firm had received a sum of ₹ 3,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sad Purohit for the purpose of cross examination because the Ld. AO had placed heavy reliance on the statement recorded from Shri Jagdish Prasad Purohit. 7.2. In response, the Ld. DR clarified a point that cash entry in one point and later went to multiple layers through series of companies and finally exited in the form of unsecured loans to various parties, hence, to this extent, the arguments of the Ld. AR is incorrect. She argued that earlier year genuinity of the transaction does not make the current year transaction genuine. Nature and source of source during the year is to be proved by the assessee. The Ld. DR also submitted that in earlier years, the Ld. AO had committed a mistake by allowing the interest on loan and accepting the loans as genuine that does not give sanctity to the loans received during the year. 8. We have heard the rival submissions. At the outset, it is not in dispute that the entire addition has been made disbelieving the entire documentary evidences submitted by the assessee by placing predominant reliance on the statement recorded from Shri Jagdish Prasad Purohit on 19/10/2011 by Investigation Wing of Income Tax dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n from the Pride Group. Then we sold the old existing shares of my group concerns to various other groups. As the shares were sold, the cheques were obtained from those parties. These parties to whom we have sold old existing shares took the cash and gave the cheque. These amounts which came through the cheques in our capital account were further forwarded to the Pride Group of concerns as share capital. In this way we have given accommodation entries in the share capital against which we have taken cash. 8.1. The aforesaid replies given by Shri Jagdish Prasad Purohit clearly proves that he was in receipt of cash from Pride Group and same were utilised to give back in the form of accommodation entry in the form of share capital at an agreed premium of ₹ 90/- per share through various entities to Pride Group. In any of these questions referred to Shri Jagdish Prasad Purohit at the time of recording the statement, there was absolutely no reference either by the Officer regarding the statement or by Shri Jagdish Prasad Purohit implicating the assessee before us. Though this statement from Shri Jagdish Prasad Purohit was recorded by the Pune Investigation Wing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e making repayment of loan or payment of interest. Hence, there is no need to suspect the entire gamut of transactions before us. We find that the entire addition of principal amount of loans of ₹ 3.75 Crores and disallowance of interest of ₹ 2,28,92,766/- on loans has been made by the Ld. AO with surmise and conjecture and without any basis. No deficiencies whatsoever were found in the documentary evidences submitted by the assessee before the Ld. AO which admittedly included copy of PAN, ITR acknowledgement, audited financial statements, computation of income, confirmation from lender, bank statements evidencing the immediate source of credit of the lender etc. All these documents clearly prove the identity, creditworthiness of the lender and genuineness of the transaction in the peculiar facts of the instant case. Hence, it could be safely concluded that assessee had indeed complied with all the three necessary ingredients of Section 68 of the Act. 8.2. With regard to non-production of Shri Jagdish Prasad Purohit by the assessee before the Ld. AO for the purpose of cross examination of him by the assessee, we hold that it is the revenue which had pl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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