TMI Blog2020 (1) TMI 1239X X X X Extracts X X X X X X X X Extracts X X X X ..... led by the assessee before reaching to the conclusion that unsecured loans taken from those parties are genuine transactions, which are supported by the necessary evidences. There is no error in findings recorded by the Ld.CIT(A) and hence, we are inclined to uphold the findings of the Ld.CIT(A) and direct the Ld. AO to delete additions made towards unsecured loans taken from those parties and consequent additions made towards interest paid on said loans. - Decided against revenue. - ITA No.5781/Mum/2017 - - - Dated:- 10-1-2020 - Shri C.N.Prasad, Judicial Member And Shri G. Manjunatha, Accountant Member Revenue by: Shri Kumar Padmapani Bora, DR Assessee by: Shri. J.P.Bairagra, AR ORDER G.Manjunatha (A.M): This appeal filed by the revenue is directed against, the order of the Ld. Commissioner of Income Tax (Appeals) 54, Mumbai, dated 28/06/2017 and it pertains to Assessment Year 2013-14 2. The revenue has raised the following grounds of appeal:- (i) Whether on the facts and circumstances of the case and in law, the Ld.ClT(A) has erred in treating the loan of ₹ 1,40,00,000/-as genuine, when such loan was received from dummy company/entiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statements to prove that loans have been taken through proper banking channels either in form of cheques or RTGS forms. The Ld. AO after considering relevant submissions of the assesee and also taken note of material gathered during the course of survey u/s 133A coupled with information collected during the course of search in the case of Praveen Kumar Jain and his associates, came to the conclusion that although, the assesee has filed various details including confirmation letters from the person from whom he had taken loan, but, on perusal of details filed by the assesee, including financial statements of the lenders, it was noticed that all those companies are paper companies which does not have enough financial capacity to explain loans given to assessee company. The Ld. AO, further observed that on perusal of returns filed by those companies it was noticed that although, the companies are reporting high turnover, but when it comes to profit, they have declared meagre profit, which does not support the financial strength to explain unsecured loans given to the assessee. Further, all those companies have reported high sundry creditors on the liabilities side of the balance shee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering relevant submission of the assessee and also by relied upon various judicial precedents observed that the assessee has discharged initial burden cast upon u/s 68 of the Act, 1961 by filing enormous details, including confirmation letters from the each lender. The assessee has also proved the genuineness of transactions by filing bank statements of the lenders, as well as the assessee to prove that the loans have been taken through proper banking channel. The assessee has filed further evidences in form of TDS certificate issued to the parties to prove that interest has been paid on said loans after deducting necessary TDS applicable as per law. The Ld.CIT(A), further observed that it was not a case of the Ld. AO that the assessee has not proved capacity of the lenders, because the Ld. AO himself in his assessment order accepted the fact that in the bank accounts of the creditor, there is only RTGS/transfer entries, which itself proves that no cash was introduced prior to advancing loans to the assessee. He, further, observed that the Ld. AO has not brought on record any evidence to suggest that the assessee had paid cash to the loan creditors in lieu of loans received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income of relevant assessment year, copy of relevant pages of bank statement of them and itself to establish that the transactions were carried out through proper banking channel. c. M/s. P.Saji Textiles Ltd. The appellant has submitted the copy of confirmation letter for relevant assessment year, copy of acknowledgement of return of income of relevant assessment year, copy of Form 23AC filed with ROC, copy of relevant pages of bank statement of them and itself to establish that the transactions were carried out through proper banking channel, d. Sagar Girish Bhatt- The appellant has submitted the copy of confirmation^ letter for relevant assessment year, copy of acknowledgement of return of income of relevant assessment year, copy of relevant pages of bank statement of him and itself to establish that the transactions were carried out through proper banking channel. e. Shirish Bhat HUF-The appellant has submitted the copy of confirmation letter for relevant assessment year copy of acknowledgement of return of income of relevant assessment year, copy of relevant pages of bank statement of them and itself establish that the transactions were carried out through proper b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ongly supporting order of the Ld.CIT(A) submitted that the assessee has filed complete details, including confirmation letters from loan creditors to discharge the onus cast upon him u/s 68 of the I.T.Act, 1961. The Ld. AR further submitted that the Ld. AO has never disputed the fact that the assessee has discharged identity of the parties. Insofar as, genuineness of transactions and creditworthiness of the parties although, the assessee has filed enormous details including copies of the return of income filed by the parties along with their financial statements and bank statements, but the Ld. AO has disbelieved all evidences filed by the assessee only for the reasons that Praveen Kumar Jain had admitted in his statement recorded during the course of search that he is involved in providing accommodation entries of unsecured loans to various beneficiaries. But, fact remains that statement of Praveen Kumar Jain has been subsequently retracted by filing an affidavit before the investigation wing and this fact has been brought to the notice of the Ld. AO. Once, statement relied upon by the Ld. AO was no longer was in existence, then the same cannot be considered as an evidence to draw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. AO has made additions towards unsecured loans taken from certain companies/associates of Praveen Kumar Jain, on the ground that those companies are paper entries operated and controlled by Praveen Kumar Jain and his associates to give accommodation entries of unsecured loans to various beneficiaries. The Ld. AO has arrived at such conclusion on the basis of search conducted in the case of Praveen Kumar Jain and his associates and also, survey operation u/s 133A of the Act, conducted in the case of the assessee, where the assessee had given a confession statement and admitted that loans received from Praveen Kumar Jain group of companies are accomadation entries. The Ld. AO has also taken support from the statement recorded from Praveen Kumar Jain during the course of search in his case u/s 132(4) of the I.T.Act, 1961. The Ld. AO had also taken support from the statement of Shri Chetan R.Shah, recorded during the course of survey in the case of the assessee and his associates to come to the conclusion that transactions between the parties are not passed the test laid down u/s 68 of the I.T.Act, 1961. It is the contention of the assessee before the lower authorities that transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors. The AO has not disputed the fact that the assessee has furnished various evidences to prove identity of the creditors. The AO categorically admitted in his assessment order that the assessee has filed various details including PAN and IT acknowledgement receipt of loan creditors to prove the identity. The AO has disputed genuineness of transactions and creditworthiness of the parties. According to the AO, the loan creditors are not having capacity to prove creditworthiness and also transaction with the assessee are not genuine. The AO has various reasons to come to the conclusion that the assessee has failed to discharge genuineness of transaction and creditworthiness of the parties. According to the AO, mere furnishing of income-tax returns and balance-sheets of creditors would not be sufficient compliance of discharging genuineness of transactions, that too, in a case where notice issued u/s 133(6) to the creditors to their given addresses were remain unserved. But, fact remains that the assessee has proved the genuineness of transactions by filing bank statements of the lenders to prove that the loans have been taken through proper banking channel. The assessee has filed fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /Mum/2017 had considered an identical issue and after considering relevant facts, including search operations conducted in the case of Praveen Kumar Jain and his associates and survey operations conducted in the case of the assessee u/s 133A, came to the conclusion that merely on the basis of admission during the course of survey additions cannot be made towards loan taken from the parties, more particularly, when the assesee has discharged its onus by filing enormous details, including confirmation letters from the loan creditors. The relevant findings of the Tribunal are as under:- 7. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Our indulgence in the present appeal has been sought by the revenue for adjudicating two issues, viz. (i) that, as to whether the CIT(A) is right in law and facts of the case in concluding that the unsecured loans of ₹ 10,91,50,000/- received by the assessee during the year could not be treated as unexplained cash credits under Sec.68 of the Act; and (ii) that, as to whether the CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; and (ii) that, Shri Chetan R. Shah, director of the assessee company in the course of the survey proceedings was unaware about the basic details of the lenders who had advanced unsecured loans to Marathan Group , and had admitted that the unsecured loans raised from Shri Praveen K. Jain were in the nature of accommodation entries. However, as the assessee had not offered the aforesaid unsecured loans disclosed during the course of the survey proceedings amounting to ₹ 10,91,50,000/- as its income in its return of income for the year under consideration, therefore, the A.O had called for an explanation as regards the same. In reply, it was submitted by the assessee that Shri Chetan R. Shah, director of the assessee company, had due to lack of information available with him at the time of survey proceedings stated that the various unsecured loans raised by Marathan Group were in the nature of accommodation entries. It was the claim of the assessee before the CIT(A) that Shri Chetan R. Shah had therafter retracted from his aforesaid statement which in itself was recorded in the absence of the requisite details before him. Accordingly, it was the claim of the assessee in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors, address, PAN and creditworthiness of the lender companies from whom unsecured loans were taken, had submitted, that he was readily not in a position to give the details sought for. Accordingly, we are in agreement with the view taken by the CIT(A) that the aforesaid admission of Shri Chetan R. Shah has to be read along with the fact that he had categorically stated that he was not in a position to furnish the details that were sought by the survey officials in respect of the lender parties. However, we find that the assessee had not offered the aforesaid amount for tax in its return of income and had in the course of the assessment proceedings furnished with the A.O the requisite details supporting the authenticity of the loan transactions viz. copy of confirmations from lenders, copies of the returns of income filed by the lender parties, copies of the annual audited accounts of the lender parties, and also the copies of the bank accounts of the lenders from where the respective loans had been advanced to the assessee company. Also, Shri Chetan R. Shah had vide his letter dated 01.01.2016 submitted during the course of the assessment proceedings that the surrender made durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... simply an information which can be used for corroborative purpose for deciding any issue in favour or against the assessee. It was observed by the Tribunal as under : Apart from this statement , the Revenue has not brought anything on record in support of its conclusion that the assessee has undisclosed income. During the course of survey, the officer could record this statement of a person under sub-section (3) (iii) of section 133A of the Income-tax Act, 1961. This clause authorise the authority to record the statement of any person which may be useful for or relevant to any proceedings under the Act. However, the officer is not authorised to record the statement on oath and hence the statement taken during the course of search has no evidentiary value. It is simply an information which can be used for corroboration purpose for deciding any issue in favour or against the assessee. This issue has come up before the Hon ble Kerala High Court in the case of Paul Mathews and Sons (supra) and the court has made the following observations (page 108): Section 133 A (3 ) (iii) enables the authority to record the statement of any person which may be useful for, or relevant to, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorities while taking statement during the course of survey. The Board has also issued guidelines advising the survey team not to take voluntary disclosure unless incriminating material was collected. In the case of T.P. Indrakumar (supra), the Assessing Officer specifically lay his hands on unexplained gifts, in that situation the assessee had mode voluntary disclosure and filed a revised return. In the present case, the Department failed to collect any material during the course of survey and the Assessing Officer is simply harping upon the statement of the assessee, extracted supra. According to the authoritative pronouncement of the Hon ble Supreme Court in the case of S. Khader Khan Son (supra) as well as the Hon ble Kerala High Court this statement does not carry any evidentiary value and , therefore, no addition is sustainable on the strength of this statement. In view of the above discussion, we find force in the first ground of appeal raised by the assessee and delete the addition of ₹ 2 crores. Also, a similar view had been taken by the Hon'ble High Court of Kerala in the case of Paul Mathews Sons Vs. CIT (2003) 263 ITR 101 (Ker). In the aforesaid case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n R. Shah, director of the assessee company had withdrawn his statement that was recorded in the course of the survey proceedings, and had in the course of the assessment proceedings placed on record supporting documentary evidence to substantiate the authenticity of the loan transactions under consideration, therefore it was incumbent upon the A.O to conclusively prove on the basis of corroborative material that the assessee had as a matter of fact obtained accommodation entries in the garb of the aforesaid loan transactions and he could not have simply drawn adverse inferences on the basis of the aforesaid statement recorded in the course of the survey proceedings. As observed by us hereinabove, a statement recorded in the course of the survey proceedings can only be used for corroborative purposes for deciding any issue in favour or against the assessee. However, in the case before us, we find that the A.O had simply harped on the admission made by Shri Chetan R. Shah, director of the assessee company in his statement recorded under Sec.133A and had absolutely failed to place on record any documentary evidence which despite withdrawal of the aforesaid statement would have corrob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion as to the undisclosed income. Any action on the contrary shall be viewed adversely. Further, in respect of pending assessment proceedings also, Assessing Officers should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders. On the basis of our aforesaid observations, we are of a strong conviction that in the case before us, the mere admission of undisclosed income by the assessee in the course of the survey proceedings, which we are afraid is in itself not free from doubts and debate and in fact had been withdrawn, thus could not have been acted upon by the revenue in isolation for drawing of adverse inferences and making exorbitant additions in the hands of the assessee de hors any corroborative material. In sum and substance, we are of a considered view that the heavy reliance placed by the A.O on the retracted statement of Shri Chetan R. Shah, director of the assessee company that was recorded in the course of the survey proceedings conducted on 25.03.2014, in the absence of any corroborative material could not have been acted upon by the revenue for drawing adverse inferenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orded during the course of the search proceedings, hence no cognizance of the same could thereafter be drawn. In fact, the assessee in order to fortify its claim that it had raised genuine loans from the aforementioned companies had in the course of the assessment proceedings placed on the record of the A.O sufficient documentary evidence to support the same. We have given a thoughtful consideration to the facts of the case in the backdrop of the settled position of law, and before proceeding any further may herein observe that in the case before us the statement of Shri Praveen Kumar Jain, which had thereafter been retracted by him (though not accepted by the revenue) had been heavily relied upon by the A.O for arriving at a conclusion that the assessee had in the garb of unsecured loans raised accommodation entries from the aforementioned 9 parties. In sum and substance, we are confronted with a situation where a statement of a third party‟ which had been retracted is being acted upon by the revenue for drawing of adverse inferences and characterising the loan transactions under consideration as bogus/sham. On a perusal of sub-section (4) of Sec.132 of the Act, an authoris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceed and make additions on the basis of the facts stated in such statements. Now, in the case before us, we are seized with a situation where the revenue has sought to draw adverse inferences in the hands of the assessee by acting upon a statement recorded under Sec.132(4) of a third party‟, which as observed by us hereinabove in itself is found to have been retracted. We cannot remain oblivious of the fact that now when a statement recorded under Sec.132(4) of the Act, which had thereafter been retracted, (though not accepted by the department) would require some corroborative material for the A.O to make additions on the basis of such statement in the hands of the person whose statement it is, therefore, obviously, a much higher burden would be cast upon the revenue at the time of using such statement for drawing of adverse inferences in the hands of a third party‟. Admittedly, an admission recorded in a statement under Sec.132(4) is a vital piece of evidence, but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect. Our aforesaid view is fortified by the judgment of the Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act and there must be something more than bare suspicion to support the assessment or addition. We find that the Hon ble High Court in the aforementioned case had observed that even in a case where the retraction of the disclosure made by the assessee in his statement recorded under Sec.132(4) is not accepted by the revenue, even then, the addition/disallowance has to be based by the revenue on the basis of evidence collected during the course of the search proceedings. Accordingly, on the basis of our aforesaid deliberations, we are of the considered view that merely on the basis of admission an assessee cannot be saddled with additions unless and until some corroborative evidence is found in support of such admission. 10. We shall now advert to the facts of the case before us in the backdrop of the aforesaid settled position of law. Admittedly, as observed by us hereinabove, the A.O had drawn adverse inferences in the hands of the assessee on the basis of the statement of Shri Praveen Kumar Jain, that was recorded under Sec. 132(4) of the Act, despite the fact that the said person had thereafter retracted from his aforesaid statement on the basis of an affidavit‟ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of natural justice rendered the said order as nullity.We find that the CIT(A) while disposing off the objection of the assessee that the A.O had erred in not allowing cross-examination of Shri. Pravin Kumar Jain, had inter alia observed, that now when it was held by him that the A.O without bringing any corroborative material on record was in error in relying on the statement of the aforementioned person, therefore, the assessee was not prejudiced in any manner by the action of the A.O in not affording an opportunity to him in cross- examining the said person. Apart therefrom, we find that the CIT(A) had observed that neither the assessee had in the course of the appellate proceedings requested that the A.O be directed to grant cross-examination of Shri. Praveen Kumar Jain, nor the failure to provide such cross-examination would render the assessment order as void. As the assessee has not assailed before us the aforesaid observations of the CIT(A), therefore, we refrain from adverting to the same. We thus in terms of our aforesaid observations are of the considered view that the CIT(A) had rightly concluded that the reliance placed by the A.O on the statement of Shri Praveen K. Jai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant assessment year, copy of annual audited account s of relevant assessment year, copy of relevant pages of bank statement of them and itself to establish that the transactions were carried out through proper banking channel. c. M/s Casper Enterprises P. Ltd. The appellant has submitted the copy of confirmation letter for relevant assessment year, copy of acknowledgement of return of income of relevant assessment year , copy of annual audited accounts of relevant assessment year, copy of relevant pages of bank statement of them and itself to establish that the transactions were carried out through proper banking channel. d. M/s Olive Overseas P.Ltd. The appellant has submitted the copy of confirmation letter for relevant assessment year, copy of acknowledgement of return of income of relevant assessment year , copy of annual audited accounts of relevant assessment year, copy of relevant pages of bank statement of them and itself to establish that the transactions were carried out through proper banking channel. e. M/s Pragati Gems P Ltd- The appellant has submitted the copy of confirmation letter for relevant assessment year, copy of acknowledgement of return of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and there were high amount of sundry creditors, loans and advances, debtors and investments. On the basis of his aforesaid generalized observations, we find that the A.O had drawn adverse inferences as regards the creditworthiness of the aforementioned parties. In our considered view, the aforesaid casual approach adopted by the A.O, without even putting up any effort to refer to the specific financials of the said concerns/entities as was placed on record by the assessee cannot be accepted. In fact, we find that the A.O had failed to put up any effort to dislodge the authenticity of the loan transactions by placing on record any material which could prove to the contrary. As is discernible from the assessment order, the A.O had as a matter of fact dedicated his entire efforts for demonstrating the facts which had emerged in the course of the search proceedings conducted on Shri Praveen Kumar Jain, and also the modus operandi that was adopted by him for providing accommodation entries. We are afraid that the general observations of the A.O that the creditworthiness of the lenders and the genuineness of the transaction are not found to be satisfactory is not backed by any supporti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of adverse inferences as regards the authenticity of the said transactions. As regards the observation of the A.O that a perusal of the bank accounts of the lenders revealed that the same only contained RTGS/TRF entries, we find ourselves to be in agreement with the view taken by the CIT(A) that the said fact in itself proves that no cash was introduced in bank accounts of the said lenders prior to advancing of the loans to the assessee. We are persuaded to subscribe to the view taken by the CIT(A) that the A.O had also not brought on record any evidence which would suggest that the assessee had paid cash to the lenders in lieu of loans received from them. Apart therefrom, we are also of the considered view that the fact that the assessee company had paid interest on the loans raised from the aforementioned parties after deduction of tax at source also substantiates the authenticity of the loan transactions. Also, the fact that the said loans had been repaid by the assessee to the aforementioned lenders fortifies the veracity of the said loan transactions. Our aforesaid view is fortified by the judgment of the Hon'ble High Court of Bombay in the case of PCIT Vs. M/s Skylark Bui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .R to establish that the lenders in the case before us also had a similar state of affairs. We are of the considered view that as the facts involved in the case of the assessee before us are not shown to be similar as against those which were there in the case before the ITAT, Ahmedabad, in the case of Pavankumar M. Sanghvi Vs. ITO (2017) 165 ITD 260 (Ahd), therefore, the same being distinguishable on facts would not assist the case of the revenue before us. On the basis of our aforesaid observations, we are of the considered view that the assessee by placing on record sufficient documentary evidence had discharged the primary onus‟ that was cast upon it to prove the identity and the creditworthiness of the parties, and also the genuineness of the transaction under consideration. As observed by us hereinabove, the A.O had failed to dislodge the documentary evidence that was placed on record by the assessee in the course of the assessment proceedings to substantiate the authenticity of the loan transactions under consideration. We are of the considered view that as the assessee by placing on record the aforesaid supporting documentary evidence had discharged the primary onus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain concerns which were managed and controlled by the Shri Praveen Kumar Jain, survey action was conducted on the said concern on 25.03.2014. In the course of the survey action, the director of the said concern had in his statement recorded under Sec. 133A during the course of the survey proceedings had admitted that the assessee company had received accommodation entries. However, the aforesaid concern did not offer the amount of the aforesaid unsecured loans for tax in its return of income. Accordingly, the A.O relying upon two aspects viz. (i) that, the director of the assessee company in its statement recorded in the course of the survey proceedings had admitted that it had raised bogus unsecured loans; and (ii) that, the lender concerns were managed and controlled by Shri Praveen Kumar Jain, an infamous accommodation entry provider, held the loans as unexplained cash credits u/s. 68 of the Act. We find that the Tribunal while upholding the order of the CIT(A), had observed, that the A.O had not brought on record any adverse material to rebut the credibility of the corporate entities from which loans were raised by the assessee. Also, it was observed by the Tribunal that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, the consequential disallowance by the A.O of the interest paid to the said lenders by treating the loan transactions as bogus shall accordingly stand vacated. Accordingly the order of the CIT(A), deleting the disallowance of interest expense of ₹ 70,49,112/- is upheld. The Ground of appeal No. (iii) raised by the revenue is dismissed. 14. In this case, the Ld.CIT(A) has recorded categorical findings in light of various evidences filed by the assessee, including confirmation letters from the creditors and observed that the assesee has filed necessary details, in respect of each and every loan creditors to establish the fact that transactions between the parties are genuine, which are carried out through proper banking channel. The Ld. CIT(A) has also recorded the fact that the assessee has paid interest on said loans after deducting necessary TDS applicable as per law. He, further, stated that the Ld. AO was never brought on record any evidences to prove that the assesee had paid cash to the loan creditors in lieu of loans received from them. It is also not in dispute that the assesse has repaid said loans in subsequent financial years through proper banking ch ..... X X X X Extracts X X X X X X X X Extracts X X X X
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