TMI Blog2020 (8) TMI 169X X X X Extracts X X X X X X X X Extracts X X X X ..... olding that the assessee has proved the genuineness of the transactions, identity and creditworthiness of the creditors and in deleting the addition made u/s. 68 of the Act. Thus, the order of the Ld.CIT(A) is sustained. Grounds raised by the revenue are rejected. - ITA NO. 6429/MUM/2017 - - - Dated:- 20-7-2020 - Shri Shamim Yahya, Hon'ble Accountant Member And Shri C.N. Prasad, Hon'ble Judicial Member For the Assessee : Shri Rushabh Mehta For the Department : Shri Michael Jerald ORDER PER C.N. PRASAD (JM) 1. This appeal is filed by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals) 37, Mumbai [hereinafter in short Ld.CIT(A) ] dated 08.08.2017 for the Assessment Year 2013-14. 2. The only issue in the appeal of the Revenue is Ld.CIT(A) erred in deleting the addition of ₹.3,67,00,000/- made u/s. 68 of the Act in respect of unsecured loans. 3. Briefly stated the facts are that, the assessee is an individual filed return of income on 28.03.2014 declaring income of ₹.2,73,940/-. The assessment was reopened by issue of notice u/s. 148 of the Act based on the information received from Pr.DIT(Inv.)-I, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents of Hon'ble Supreme Court, High Court and the Tribunals the Ld.CIT(A) deleted the addition made u/s. 68 of the Act. 5. Before us, Ld. DR vehemently supported the order of the Assessing Officer. Ld. DR submitted that it is the finding of the Assessing Officer that the notices issued u/s. 133(6) of the Act to the creditors were returned unserved or were not complied with by the creditors. Ld. DR submitted that the statements recorded from Shri Gautam Jain clearly shows that the transactions are only accommodation entries and therefore the Assessing Officer rightly treated them as unaccounted money of the assessee. Reliance was placed on the decisions in the case of CIT v. Navodaya Castles (P.) Ltd., [367 ITR 306 (Del)], PCIT v. Bikram Singh [399 ITR 407 (Del)] and PCIT v. NRA Iron Steel (P.) Ltd., [103 taxmann.com 48 (SC)]. 6. Learned Counsel for the assessee submitted that during the assessment year under consideration assessee has obtained unsecured loans of ₹.36,40,000/-, ₹.1,17,00,000/- ₹.2,13,60,000/- from M/s.Marine Gems Pvt. Ltd., M/s Parshwanath Gems Pvt Ltd. M/s.Nikhil Gems Pvt. Ltd. respectively. Learned Counsel for the assessee submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly shows the identity and genuineness of the creditors and its active status in their records. In respect of M/s. Nikhil Gems Pvt. Ltd., it is submitted that it is a private limited company and has been regularly filing its annual returns with the Ministry of Company Affairs and our attention was also drawn to the extract of Company Master Data from the ROC website and submitted that this shows the identity and genuineness of the said company and its active status in their records. Therefore, Learned Counsel for the assessee submitted that in view of this position there is no reason as to why the notice could not be served on the creditors. Ld. Counsel for the assessee further submitted that non-compliance to the notice served on the creditor is beyond the control of the assessee whereas relevant confirmations and evidences in support of loans were already submitted in which no short comings were pointed out by the Assessing Officer. Learned Counsel for the assessee further submitted that even otherwise, it is a settled position that mere non-compliance of notice u/s. 133(6) of the Act could not be viewed adversely against the assessee in view of the decision of the Apex Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny opportunity to cross examine the party in spite of repeated requests which has also been acknowledged by the Ld.CIT(A). Learned Counsel for the assessee submitted that as there was no opportunity provided to cross examine the parties in spite of requests, the assessment framed based solely on the statements of third parties is bad in law. For this proposition Ld. Counsel for the assessee placed reliance on the following decisions: - (a) M/s. Andaman Timber Industries v. CCE (Civil Appeal No. 4228 of 2006) (SC). (b) Tin Box Company v. CIT [249 ITR 216 (SC)] (c) Kishinchand Chellaram V. CIT [1980] 4 Taxman 29 (SC) (d) CIT v. Ashish International in ITA No. 4299 of 2009 (Bom HC) (e) H.R. Mehta v. ACIT 387 ITR 561 (Bom HC) 11. Ld. Counsel for the assessee further submits that what has been received by the assessee is not share application money but unsecured loans and therefore even the 2nd proviso to section 68 of the Act is not applicable to the present case to prove the source of source of funds obtained. Reliance was placed on the following decisions: - (a) S. Hastimal v. CIT [49 ITR 273(Mad HC)] (b) Tolaram Daga v. CIT [59 ITR 632 (Gauhati H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by cash deposits. 15. In so far as the decision of the Hon'ble Supreme Court in the case of PCIT v. NRA Iron Steel (P.) Ltd. (supra) is concerned Ld. Counsel for the assessee submitted that the same is distinguishable in view of peculiar facts involved since nature of transaction is in the form of share application money. The Assessing Officer made an independent and detailed field enquiry including survey on the investor companies at various places and found that shareholders were non traceable and addresses were incorrect and premises were owned by some other person and lacked creditworthiness and it was in that context the Hon'ble Apex Court held that the identity of the investor companies was not discharged by the assessee. Ld. Counsel for the assessee further submits that none of the investor companies could establish the source of funds from which unjustified high premium was invested. Adequate documentary evidences including their bank statements were also not furnished explaining the source of funds invested. Ld. Counsel for the assessee further submits that this decision of the Hon'ble Supreme Court in the case of PCIT v. NRA Iron Steel (P.) Ltd. (supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act and furnished the information as required by the Assessing Officer. M/s.Marine Gems Pvt. Ltd., and M/s. Parshwanath Gems Pvt. Ltd., have furnished copy of ledger account, copy of acknowledgement of return, Copy of PAN, copy of Profit and Loss Account and balance sheet and copy of bank statement highlighting the transactions. Even though the Assessing Officer stated that statement of Shri Gautam Jain recorded u/s. 131 of the Act was provided to the assessee it is the contention of the assessee that no such copy of statement was provided. 18. On a perusal of the Assessment Order we find that the Assessing Officer has not made any sort of enquiries with respect to the evidences furnished by the assessee with the creditors. The Assessing Officer neither gave a finding in the Assessment Order which creditor has not responded nor he has made any independent enquiry with the creditors except relying on the statement of third party and whose statement was also not provided to the assessee in spite of request for cross examination. The Assessing Officer not provided an opportunity to the assessee for cross examination and this fact was also recorded by the Ld.CIT(A). Ld.CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enquiries, addition cannot be sustained. 7.4. It is clear from the submission of appellant that the transactions were through account payee cheques and appellant has submitted sufficient details before the AO during the assessment proceedings. The source of receipt through banking channel clearly establish the genuineness of the credit which is reflected in the books of accounts. The decision of the Hon'ble Gujarat High Court in the case of Dy. CIT vs Rohini Builders - [256 ITR 360] is held that ail the loans were received by the assessee by account payee cheques and the repayment of loans have also been made by account payee cheques along with interest in relation to those loans and that the Assessing Officer having allowed the interest claimed/paid by the assessee in relation to the cash credits cannot treat the cash credits as not genuine. It held that the administrative expenses had dischared the initial onus which lay on it in terms of Section 68 by proving the identity of the creditors by giving their complete addresses, GIR nos. PAN Nos. and copies of Assessment Orders wherever readily available and that it has also proved the capacity of the creditors by showing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of CIT v. Smt. Sanghamitra Bharali (2014) 361 ITR 481 (Gau). The aforesaid points were also affirmed in the past by the Apex Court in the case of CIT v. Orissa Corporation P. Ltd reported in (1986) 159 ITR 78 (SC). In the case of CIT v. Varinder Rawley (2014) 366 ITR 232 (P H) the court held that where the assessee shows that the entries regarding credit in a third party's account were in fact received from the third party and are genuine, he discharges the onus. In that case, the sum cannot be charged as the assessee's income in the absence of any material to indicate that it belongs to assessee , particularly in a case where no summons u/s 131 is issued against the third party. 7.7 From the assessment order, it transpires that the AO has solely relied upon the statement of Shri Gautam Jain and did not carry out any worthwhile independent inquiry in the matter. He has totally ignored the documentary evidences submitted by the appellant. The AO, in the assessment order, has admitted existence of these details. The AO has not pointed out any defect in the above mentioned documentary evidences submitted during assessment proceedings. Without pointing out any la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment was based on a completely erroneous view of law, such findings could not be regarded as mere findings of facts, but must be treated as substantial questions of law. Therefore, the question raised in the appeal was a substantial question of law because it went to the very root of the assessment made. The aforesaid view has been also considered and fortified and favourably referred to by the Allahabad High Court in the case of C.I.T. v. Shalimar Buildwell Pvt. Ltd. (2014) 220 Taxman 138 (All.) ln the case of Lalpuria Construction P. Ltd (supra) the Hon. Rajasthan High Court has held that that in the case of Accommodation entry without giving an opportunity of cross examination merely on the basis of oral statement additions cannot be made u/s. 68. It is further held that: The oral statement of a third party recorded by Search authorities which was never placed to be confronted by assessee and no documentary evidence was supplied to assessee, could not be considered in making addition u/s. 68 on account of alleged accommodation entries. Besides, it is further submitted that the Hon'ble Bombay High Court in the case of Ms. Rushabh Enterprise v. ACIT had occ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity 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 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee an opportunity to cross examine the deponent on the statements relied uon by the ACIT. Quite apart from denial of Mn opportunity of cross examination, the revenue did not even prove the material on the basis of which he department sought to conclude that the loan was a bogus transaction. 7.9 As far as the question of validity of the transaction done through are concerned, even if some of the transactions entered into by Gautam Jain are found to be not genuine, it does not lead to the conclusion that all the transactions were non-genuine including the transactions related to the appellant. There is no evidence brought in the assessment order to prove the above conclusion, by the AO. The outcome of investigation carried out in the case of Shri. Gautam Jain and the conclusions drawn therein cannot be applied ipso facto to all other cases. Simply relying on the report and statement, the AO cannot conclude that all transactions are accommodation entries. 7.10 The case of the appellant is covered by the decision of ITAT, I Bench, Mumbai in the case of Satish N. Doshi, HUF vs. ITO , Ward 21(2)(4), Mumbai in ITA.No. 2329/Mum/2009 and the decision of ITAT, E Bench, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated certain principles which would be extremely useful in understanding the issue in hand. It has been stated in the said judgment that over the years, law regarding cash credits have evolved and has taken a definite shape. A few aspects of law u/s.68 can be enumerated. 1. Sec. 68 can be invoked when there is a credit of amounts in the books maintained by the assessee, such credit is a sum of money during the previous year and either the assessee offers no explanation about the nature and source of such credits or the explanation by the assessee in the opinion of the Assessing Officer is not satisfactory. 2. The opinion of the AO for not accepting the explanation offered by the assessee as not satisfactory is required to be formed objectively with reference to the material on record. 3. Courts are of the firm view that the evidence produced by the assessee cannot be brushed aside in a casual manner. 4. The onus of proof is not static. The initial burden lies on the assessee to establish the identity and the credit worthiness of the creditor as well as the genuineness of transaction. 5. The identity of creditors can be established by either furnishing their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of their own and that the companies had not responded to the letters written to them which could have established their credit worthiness. In that view of the matter, Assessing Officer took the view that funds aggregating ₹ 34 Crores introduced in the return of income in the garb of share application money was money from unexplained source and added the same to the income of the assessee as unexplained cash credit under Section 68 of the Act. 18. In the first appellate proceedings, it was held that assessee had produced sufficient evidence in support of proof of identity of the creditors and confirmation of transactions by many documents, such as, share application form etc. First appellate authority also noted that there was no requirement under Section 68 of the Act to explain source of source. It was not necessary that share application money should be invested out of taxable income only. It may be brought out of borrowed funds. It was further held that nonresponding to notice would not ipso facto mean that the creditors had no credit worthiness. In such circumstances, the first appellate authority held that where all material evidence in support of explanation of cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty, it has been proved from the bank account of these three companies that they had the funds to make payment for share application money and copy of resolution passed in the meeting of their Board of Directors. (iv) Regarding source of the source, Assessing Officer has already made enquiries through the DDI (Investigation), Kolkata and collected all the materials required which proved the source of the source, though as per settled legal position on this issue, assessee need not to prove the source of the source. (v) Assessing Officer has not brought any cogent material or evidence on record to indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represent company s own income from undisclosed sources. Accordingly, no addition can be made u/s.68 of the Act. In view of above reasoned factual finding of CIT(A) needs no interference from our side. We uphold the same. 21. From the above, it is seen that identity of the creditors were not in doubt. Assessee had furnished PAN, copies of the income tax returns of the creditors as well as copy of bank accounts of the three creditors in which the share application m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, the Assessing Officer except relying on the statement of third party and whose statements were also not provided to the assessee treated the creditors as non-genuine without making any sort of enquiries. Therefore, in the facts and circumstances we do not find any infirmity in the order passed by the Ld.CIT(A) in deleting the addition and holding that the assessee has proved the genuineness of the transactions, identity and creditworthiness of the creditors and in deleting the addition made u/s. 68 of the Act. Thus, the order of the Ld.CIT(A) is sustained. Grounds raised by the revenue are rejected. 22. In the result, appeal of the Revenue is dismissed. 23. Before parting we noticed that this appeal was heard on 14.02.2020 and the pronouncement is delayed due to lockdown in view of COVID-19 pandemic. The pronouncement is as per Rule 34(5) of Income Tax Appellate Tribunal Rules, 1963 and Hon'ble Bombay High Court decision vide orders dated 15.04.2020 and 15.06.2020 extending the time bound periods specified by Hon'ble High Court by removing the period under lockdown. This aspect was also dealt with in detail by the Mumbai Bench of the Tribunal in case of DCIT ..... 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