ACIT-25(3) Vs Shri Vashu Bhagnani (ITAT Mumbai)
Summary: The Income Tax Appellate Tribunal, Mumbai Bench “F”, comprising Judicial Member Shri C.N. Prasad and Accountant Member Shri N.K. Pradhan, dismissed the Revenue’s appeal for Assessment Year 2007-08 against the deletion of additions of Rs.50,00,000 towards allegedly bogus unsecured loans and Rs.4,50,000 towards interest expenditure. The assessee, Shri Vashu Bhagnani, proprietor of M/s Pooja Construction, had received an unsecured loan of Rs.50 lakh from M/s Daksh Diamonds during financial year 2006-07. Following a search conducted on the Bhanwarlal Jain Group on 3 October 2013, the Assessing Officer reopened the assessment and treated the loan as an accommodation entry, relying principally on statements recorded during the search proceedings. The Commissioner of Income Tax (Appeals) deleted the additions after finding that the Assessing Officer had neither conducted meaningful independent enquiries nor properly considered the documentary evidence submitted by the assessee.
The assessee maintained that the loan was genuine and supported by ledger confirmations, bank statements, the lender’s income-tax return and financial statements, and the assessee’s own financial records. The money had been received through banking channels in July 2006, interest at 9% had been paid after deduction of TDS, and the principal had been repaid through cheques in May and June 2010. The assessee also contended that an adverse conclusion based on third-party statements, without granting the requested opportunity of cross-examination, was unjustified. The Revenue argued that the CIT(A) had incorrectly disregarded statements made by alleged accommodation-entry operators during the investigation.
The Tribunal examined the ledger and banking records and found that the assessee had received Rs.30 lakh and Rs.20 lakh through two cheques dated 3 July 2006 and had repaid the amounts through cheques of Rs.20 lakh and Rs.30 lakh dated 6 May 2010 and 22 June 2010 respectively. The lender’s ledger confirmation supported these transactions. Importantly, both receipt and repayment preceded the October 2013 search by more than three years. The Tribunal concluded that the Assessing Officer’s addition was unsupported by documentary evidence capable of discrediting these transactions. Accordingly, it upheld the CIT(A)’s order deleting the loan and interest additions and dismissed the Revenue’s appeal. The decision was expressly based on the documentary facts, and the Tribunal did not separately adjudicate the precedents cited by the assessee’s counsel. The order illustrates the importance of corroborative evidence when challenging documented loan transactions.
Cases Discussed
- Shri Jafferali K. Tattonsy Vs DCIT (ITAT Mumbai) — ITA No. 5068/Mum/2009; reported at 53 SOT 220 (Mumbai). Cited by the assessee’s counsel and referred to in the Revenue’s fifth ground of appeal.
- M/s Andaman Timber Industries Vs Commissioner of Central Excise, Kolkata-II (Supreme Court of India) — Civil Appeal No. 4228 of 2006. Cited by the assessee’s counsel concerning denial of cross-examination of witnesses whose statements were relied upon. Read the Supreme Court judgment on TaxGuru.
- Reliance Corporation Vs ITO (ITAT Mumbai) — ITA No. 1069/Mum/2017. Relied upon by the assessee’s counsel in relation to the Revenue’s first four grounds.
- ITO Vs Gujarat Construction (ITAT Mumbai) — ITA No. 7040/Mum/2016. Cited by the assessee’s counsel.
- ITO Vs Vikram Muktilal Vora (ITAT Mumbai) — ITA No. 842/Mum/2017. Cited by the assessee’s counsel.
- Satish N. Doshi HUF (ITAT Mumbai) — Cited by the assessee’s counsel in respect of the Revenue’s fifth ground. The supplied judgment does not specify the appeal number or reported citation.
- Shaf Broadcast Pvt. Ltd. (ITAT Mumbai) — Cited by the assessee’s counsel in respect of the Revenue’s fifth ground. The supplied judgment does not specify the appeal number or reported citation.
FULL TEXT OF THE ORIGINAL JUDGMENT/ORDER
This is an appeal filed by the Revenue. The relevant assessment year is 2007-08. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-37, Mumbai [in short ‘CIT(A)’]and arises out of the assessment completed u/s 143(3) r.w.s. 147 of the Income Tax Act 1961, (the ‘Act’).
2. The grounds of appeal filed by the Revenue read as under:
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting addition of Rs.50,00,000/- on account of bogus loans.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not considering that the addition was made on the basis of information received from DIT(Inv.) with regard to bogus loans taken by the assesses from Shri Bhanvarlal Jain Group.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not considering that hawala operators have admitted on oath before the DIT(Inv.) Authorities.
4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not considering that the assessee could not prove the genuineness and credit worthiness of the loan transaction parties during the course of assessment proceedings.
5. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in relying upon the decision in the case of Shri Jafferali K. Tattonsy vs. DCIT 5068/Mum/2009, As the decision of the case doesn’t squarely apply to instant case as this case deals with bogus/accommodation entries of unsecured loans.
3. Briefly stated, the facts of the case are that the Assessing Officer (AO) received information from the Investigation Wing of the Income Tax Department, that a search and seizure operation was carried out in Shri Bhanwarlal Jain Group on 03.10.2013, wherein it was found that Shri Jain along with his associates had provided accommodation entries in the form of unsecured loans/deposits/purchase entries to a large number of parties through various benami concerns controlled by them, by taking equivalent amount of cash. The assessee, proprietor of Pooja Construction, was one of the beneficiaries of accommodation entries from M/s Daksh Diamonds operated by Shri Jain and Group. Based on the said information, the AO reopened the assessment by issuing notice u/s 148 on 28.03.2014. On the basis of the statement recorded u/s 132(4)/131 during the course of search, the AO made an addition of Rs.50,00,000/- of unsecured loans shown by the assessee during the impugned assessment year and an amount of Rs. 4,50,000/- towards interest payment.
4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) held that (i) the AO has solely relied upon the statement of Shri Bhawarlal Jain and did not carry out any worthwhile independent inquiry in the matter, (ii) the AO has totally ignored the documentary evidence submitted by the assessee, (iii) even if some of the transactions entered into by the above parties are found to be not genuine, it does not lead to the conclusion that all the transactions entered into by these parties were bogus or non-genuine including the transactions related to the assessee.
With the above reasons, the Ld. CIT(A) held that merely based on the statement of a third person without any corroborative evidence will not make the transactions, in question, non-genuine or bogus transaction. As such, in the absence of any contrary evidence placed on record, the transaction cannot be treated as bogus or paper transaction.
Thus the Ld. CIT(A) deleted the addition of Rs.50,00,000/- and Rs. 4,50,000/- made by the AO.
5. Before us, the Ld. DR relies on the order passed by the AO and submits that the Ld. CIT(A) should not have ignored the statement given by the hawala operators on oath before the Director of Income Tax (Investigation) during the course of search and seizure operation conducted by the Department on 03.10.2013.
6. On the other hand, the Ld. counsel of the assessee submits that the assessee had received an amount of Rs.50,00,000/- from M/s Daksh Diamonds during the AY 2007-08. Also the assessee had paid interest @ 9% on such borrowed money and TDS has been deducted on the same. It is stated that the assessee is into the business of movie making and construction which requires re-financing. The above party had financed the assessee for which it had paid interest to them after deducting applicable TDS. Further it is stated that the assessee’s own capital is of Rs.15.93 crores and has a bank loan of Rs.4.19 crores. Hence the assessee will not enter into such accommodation transaction of Rs.50,00,000/-. The assessee has paid tax of Rs.45.80 lacs in AY 2007-08. It is stated that the assessee had submitted the copies of ITR and loan confirmation of the above party. Also the bank statements were provided to the AO which were reflecting the receipt of funds from the parties and payment of interest by the assessee. It is finally stated that the AO has made the addition based on the ground that the lender belonged to so-called Shri Bhanwarlal Jain and Group and the transaction was a bogus one, without giving any opportunity to the assessee to cross-examine the party in spite of repeated requests made. Also the assessee provided to the AO all the documents which can prove that the transaction was genuine which was ignored.
The Ld. counsel of the assessee files a Paper Book (P/B) containing (i) Ledger Confirmation, (ii) Bank Statement of Daksh Diamonds, (iii) Income Tax Return copy of Mr. Ritesh Siraya (Prop. Daksh Diamonds) for AY 2007-08, (iv) Financial of M/s Daksh Diamonds for AY 2007-08 (v) Ledger account of M/s Daksh Diamonds for the period 03.07.06 to 06.09.10 and (vi) Profit and Loss account, Balance sheet and Income Tax Return of the appellant for AY 2007-08.
It is clarified by him that the above documents were filed before the AO and CIT(A).
Reliance is placed by him on the decision in M/s Andaman Timber Industries (Civil Appeal No. 4228 of 2006) SC, Reliance Corporation v. ITO (ITA No.1069/Mum/2017), ITO v. Gujarat Construction (ITA No. 7040/Mum/2016) and ITO v. Vikram Muktilal Vora (ITA No. 842/Mum/2017) in respect of the 1st, 2nd, 3rd and 4th ground of appeal.
In respect of the 5th ground of appeal, reliance is placed by him on the decision in Shri Jafferali K Tattonsy [53 SOT 220 (Mumbai)], Satish N. Doshi HUF [Mum ITAT] and Shaf Broadcast Pvt. Ltd. [Mum ITAT].
Finally, the Ld. counsel supports the order passed by the Ld. CIT(A).
7. We have heard the rival submissions and perused the relevant materials on record. Here is a case, clearly defined by the accounts. The ledger account of Daksh Diamonds appearing in the books of accounts of the assessee shows that on 03.07.2006, the assessee received Rs.30,00,000/- vide cheque No. 812561 and Rs.20,00,000/- vide cheque No. 812562 – being amounts received towards loan from Daksh Diamonds (Indusland Bank Ltd., Opera House Branch, Indusland House, 425 Mumbai-04).
On 06.05.2010 the assessee issued cheque No. 265949 amounting to Rs.20,00,000/- being cheque to Daksh Diamonds towards refund of loans. Further, on 22.06.2010 the assessee issued cheque No. 263943 amounting to Rs.30,00,000/- being cheque to Daksh Diamonds towards refund of loans.
The transactions were routed through Vijay Bank. The ledger confirmation by Daksh Diamonds tell the same facts.
The search and seizure action conducted by the Department in Bhanwarlal Jain Group took place on 03.10.2013. The loans taken by the assessee from Daksh Diamonds in the year 2006 was refunded in the year 2010. One has to respect the transactions which occurred more than three years before the search and seizure action by the Department.
Thus the addition made by the AO without any documents is devoid of merit. Accordingly, we uphold the order of the Ld. CIT(A). As we have decided the case on facts, we are not adverting to the case-laws relied on by the Ld. counsel.
8. In the result, the appeal is dismissed.
Order pronounced in the open Court on 30/05/2018.
