Case Law Details
Arjun Manoj Purohit Vs ITO (ITAT Mumbai)
In the case of Arjun Manoj Purohit vs. Income Tax Officer (ITAT Mumbai), the dispute revolves around the addition of Rs. 1.17 crore under Section 68 of the Income Tax Act, 1961, concerning alleged accommodation entries. This summary will delve into the facts, legal arguments, and the decision rendered by the Income Tax Appellate Tribunal (ITAT) Mumbai.
Arjun Manoj Purohit, engaged in construction activities, filed his income tax return for the assessment year 2014-15, declaring a total income of Rs. 1,12,28,840/-. Subsequently, based on information from the Directorate of Investigation, Mumbai, the Assessing Officer (AO) reopened Purohit’s assessment under Section 148 of the Income Tax Act. This action was prompted by a search conducted on Shri Vipul Vidur Bhatt and related entities, revealing that Bhatt was involved in providing accommodation entries through numerous paper companies.
The AO alleged that Purohit had received loans amounting to Rs. 77 lakhs from M/s. Shipra Fabrics Pvt. Ltd. and Rs. 40 lakhs from M/s. Lunkad Textile Pvt. Ltd., both of which were allegedly controlled by Bhatt. The AO treated these transactions as accommodation entries and issued a show cause notice to Purohit, seeking justification for these credits under Section 68 of the Act.
Purohit responded by submitting various documents, including audited financial statements, bank statements, and confirmations of the loans. Despite these submissions, the AO remained unconvinced and added Rs. 1.17 crore to Purohit’s income under Section 68, arguing that Purohit had failed to prove the genuineness of the transactions, the identity of the creditors, and their creditworthiness.
Purohit appealed before the Commissioner of Income Tax (Appeals) [CIT(A)], who upheld the AO’s decision. Dissatisfied, Purohit approached the ITAT Mumbai.
Before the ITAT, Purohit reiterated that he had provided ample evidence to substantiate the loans from M/s. Shipra and M/s. Lunkad, including their financial statements, bank statements reflecting the transactions, and confirmations of loans. Purohit also highlighted that Bhatt, the alleged mastermind behind the paper companies, had retracted his statement about providing accommodation entries under duress, which was not acknowledged by the AO.
The ITAT examined the submissions and noted that Purohit had discharged his initial burden of proving the “nature and source” of the credits under Section 68. The tribunal emphasized that once the assessee provides prima facie evidence, the burden shifts to the AO to disprove the genuineness of the transactions with cogent evidence.
The ITAT referred to various legal precedents, including the decision of the Bombay High Court in PCIT v. Paradise Inland Shipping (P.) Ltd., which underscored that once the assessee produces documentary evidence establishing the transactions, the burden shifts to the revenue authorities to disprove them. The tribunal observed that the AO had relied solely on Bhatt’s statement without verifying the retraction affidavit filed by Bhatt or conducting a thorough investigation into the credibility of M/s. Shipra and M/s. Lunkad.
The tribunal concluded that the AO’s rejection of Purohit’s evidence solely based on Bhatt’s untested statement was unjustified. It criticized the AO for not summoning Bhatt for cross-examination and for disregarding crucial documents provided by Purohit to prove the transactions’ authenticity.
Therefore, the ITAT Mumbai allowed Purohit’s appeals for both assessment years (2014-15 and 2015-16), directing the deletion of the addition of Rs. 1.17 crore under Section 68 and also allowed the interest expenditures claimed. The tribunal emphasized that the additions made by the AO lacked sufficient basis and were not substantiated by credible evidence.
In essence, the ITAT Mumbai’s decision in Arjun Manoj Purohit vs. ITO highlights the critical importance of documentary evidence in tax assessments. It underscores that once an assessee provides prima facie evidence of transactions, the burden shifts to the revenue authorities to disprove their genuineness with substantive evidence
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These are appeals preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), [hereinafter “Ld. CIT(A)]-11, Pune for AY. 2014-15 dated 18.08.2023 and for AY. 2015-16 dated 21.08 .2023 respectively.
2. Since issues are identical, we first take up the appeal for AY 2014-15 and result of which shall be followed mutatis mutandis for AY 2015-16.
3. The main grievance of the assessee is against the action of the CIT(A) confirming the addition of Rs.1,17,00,000/- made u/s 68 of the Income Tax Act, 1961 (hereinafter “the Act”); and against the action of the Ld.CIT(A) upholding disallowance of interest expenditure of Rs.4,80,000/-.
4. Brief facts are that the assessee is engaged in construction activities, and had filed his return of income for AY. 2014-15 on 11.2014 declaring total income of Rs.1,12,28,840/-. Later, on based on information from the DDIT (Inv.) Unit 7(4), Mumbai, the case of the assessee was re-opened by issuance of notice u/s 148 of the Act (after recording reasons for reopening). The AO noted in the reasons recorded for re-opening the assessment that on 05.02.2016, search operation was conducted in the case of Shri Vipul Vidur Bhatt and other related entities; and in that event, Shri Vipul Vidur Bhatt’ s statement was recorded on 09.02.20 16, wherein he accepted that he was providing accommodation entry to beneficiaries through more than 300 paper companies; and Assessing Officer further noted that in the relevant assessment year the assessee had shown to have transaction with two entities namely (i) M/s. Shipra Fabrics Pvt. Ltd (hereinafter “M/s. Shipra”) and (ii) M/s. Lunkad Textile Pvt. Ltd (hereinafter “M/s. Lunkad”) which were paper companies operated by Shri Vipul Vidur Bhatt. According to the AO, the assessee had shown to have taken loan amounting to Rs.77 Lakhs from M/s. Shipra and Rs.40 Lakhs from M/s. Lunkad (total of Rs.1,17,00,000/-) which loan according to the AO were mere accommodation entry. And therefore, he recorded his satisfaction that there was escapement of income and he reopened the assessment. The assessee participated in the reassessment proceedings wherein he was directed by the AO to prove the “nature and source” of Rs.77 Lakhs and Rs.40 Lakhs credited in his books of accounts in the relevant assessment year (AY. 2014-15). Pursuant thereto, the assessee filed copy of return of income along with computation of income, Balance-Sheet, P & L Account, Audit Report, details of bank accounts, details of short term capital gains on sale of land/DRC, copy of confirmation from M/s. Shipra Fabrics Pvt Ltd and M/s. Lunkad Textile Pvt. Ltd. After acknowledging receipt of the aforesaid documents, the AO expressed his dissatisfaction with regard to genuineness by the cash credit in the books of account to the tune of Rs. 1,17,00,000/-. (Rs.77 Lakhs & Rs.40 Lakhs) According to the AO, he had issued notice u/s 133(6) of the Act to both the parties which did not elicit any response though it was served upon them. Therefore, he issued Show Cause Notice (SCN) to the assessee as to why Rs.1.17 Crs should not be added as income in the hands of assessee [refer para no. 8 of assessment order where he reproduced the SCN]. And thereafter, the AO reproduced asses see’s reply at para no. 9 of the assessment order and expressed his dissatisfaction with the reply of the assessee by taking note that the retraction of Shri Vipul Vidur Bhatt could not be accepted, since there was no mention about such retraction mentioned in the information provided by DDIT (Inv.), Mumbai. According to AO, the assessee failed to prove the genuineness of the transaction, creditworthiness of the creditors and identity of the creditors. And since, the assessee did not discharge the burden to prove the “nature and source” of the credits to the tune of Rs. 1.17 cr., he was pleased to make the addition of Rs. 1.17 cr u/s 68 of the Act. Further, he noted that the assessee has claimed deduction of Rs.4,80,000/- as interest paid which also was disallowed and added to the total income of the assessee. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to confirm the same [For AY. 2015-16, the assessee is challenging the action of the AO/Ld. CIT(A) confirming the interest expenditure disallowed to the tune of Rs.10,53,000/- on alleged bogus loan]. Aggrieved by the aforesaid action of the Ld. CIT(A), the assessee is before us.
5. We have heard both the parties and perused the records. Since the assessee has not challenged the re-opening of the assessment u/s 147 of the Act, ground no. 1 in both the appeals stands dismissed.
6. Coming to the merit of the additions sustained by the Ld. CIT(A), we note that the assessee is an individual, who is engaged in construction business, and has shown income from construction as well as rental income, commission/brokerage and short term capital gain from sale of land. The assessee had filed return of income showing total income of Rs. 1,12,28,840/- which was processed u/s 143(1) of the Act. Later, on receipt of information from DDIT (Inv.), Mumbai, the case of the assessee was re-opened. The information was that during search conducted in the case of Shri Vipul Vidur Bhatt [and other related entities] in Feb, 2016, books pertaining to 347 paper companies were discovered; and he admitted that he was controlling these entities either as a Director or through his dummy Directors. And that he was mainly engaged in providing accommodation entries to beneficiaries. And since the assessee had shown to have transaction with two of the paper companies of Shri Vipul Bhat to the tune of Rs. 1.17 cr., the AO asked the assessee to prove the “nature and source” of Rs. 1.17 cr. Pursuant to which, the assessee replied that he had taken loan of Rs.77 Lakhs from M/s. Shipra and Rs.40 Lakhs from M/s. Lunkad; and in order to prove the “nature and source” of the same, the assessee filed copy of return of income along with computation of income, Balance-Sheet, P & L Account, Audit Report, details of bank accounts, details of short term capital gains on sale of land/DRC, copy of confirmation from M/s. Shipra Fabrics Pvt Ltd and M/s. Lunkad Textile Pvt. Ltd. The AO issued notice u/s 133(6) of the Act to M/s. Shipra as well as M/s. Lunkad, which according to the AO did not elicit any reply from them though it was served upon them. Therefore, the AO was not satisfied with the aforesaid documents submitted by assessee to prove the nature & source of credit entries; and he conveyed to the assessee his desire to add the same u/s 68 of the Act by issuing show cause notice to the assessee wherein he pointed out that M/s. Shipra as well as M/s. Lunkad were entry providers controlled by Shri Vipul Vidur Bhatt who had admitted it u/s 132(4) of the Act and therefore, he did not accept the genuineness of the loan, which according to him, was nothing but bogus accommodation entry. However, the assessee brought to the notice of the AO that as per his information Shri Vipul Vidur Bhatt has retracted the statement given during search by filing an affidavit on 2nd Sep, 2016 wherein he has alleged duress/coercion by the search team for extracting the admission (of providing accommodation entry through his entities). And therefore, the assessee pleaded before AO that such statement of Shri Vipul Vidur Bhatt should not be used against him to draw adverse view regarding loan taken from two entities. However, according to Assessing Officer, the DDIT(Inv.) report did not mention about any retraction affidavit filed by Shri Vipul Vidur Bhatt, therefore, the AO did not accept such a contention of the assessee. Moreover, the AO also noted that Shri Vipul Vidur Bhatt was a director of M/s. Shipra and his own dummy director Shri Deepak Raval was director of both the lender companies. Therefore, according to the AO, the assessee has not discharged the burden to prove the genuineness of the transaction, creditworthiness of the creditors and identity of the creditors in respect of credit entry to the tune of Rs. 1.17 cr credited in his books. Therefore, he disbelieved the contention of the assessee that the nature of the amount in question was loan taken from these two entities and therefore, added the same (Rs. 1.17 cr) u/s.68 of the Act, and also disallowed the interest paid to the tune of Rs.4.80 Lakhs. On appeal, the Ld. CIT(A) dismissed the appeal of the assessee. The main issue is regarding the nature and source of Rs.1.17 Crs. which the AO noted to have been credited in the books of the assessee and when called upon by the AO to prove the “nature and source” of the same, the assessee brought to his notice that nature of the amount was loan taken from two entities (i) M/s. Shipra (Rs.77 Lakhs) and (ii) M/s. Lunkad (Rs.40 Lakhs). In order to prove the identity of M/s. Shipra Fabrics Pvt. Ltd, the assessee filed the return of income of M/s. Shipra which is found placed at page no. 1 to 12 of PB, which reveals that the PAN of M/s. Shipra is AAACS5527M and that it is a Pvt. Ltd Company which falls in the jurisdiction of Central Circle-39, Mumbai and has shown gross total income of Rs.22,66,889/- in AY 2014-15. The Paper Book (PB) filed before us, reveals that loan amount of Rs.77 Lakhs has been received by assessee on 08.07.2013 through banking channel which is discerned from perusal of page no. 10 & 11 of PB. The bank statement of Bank of Baroda of the assessee company A/c 12460200000447 shows that on 08.07.2013 an amount of Rs.77 Lakhs has been credited in the account of the assessee. The assessee has also filed the confirmation of the loan transaction from M/s. Shipra which is found placed at page no. 9 of the PB. And in order to prove the creditworthiness of the M/s. Shipra, the Ld. AR drew our attention to the balance-sheet of the ibid company as on 3 1.03.2014 which is found placed at page no. 13 of PB which reveals that it has share capital and reserves & surplus to the tune of Rs.3.42cr and it has given assessee loan of only Rs.77 Lakhs. Thus, according to the assessee, the creditworthiness of M/s. Shipra cannot be doubted; and according to assessee, by producing these material he has discharged the burden to prove nature & source of Rs 77 lakhs. Likewise, the assessee in order to prove the identity of the M/s. Lunkad Textile Pvt. Ltd filed the ITR acknowledgment of M/s. Lunkad which is found placed at page no. 26 of PB. We note that the PAN of that lender company is AAACL0757A; and this company is assessed under the jurisdiction of Central Circle-39, Mumbai; and has shown gross total income of Rs. 10.26 Lakhs. And Rs.40 Lakhs has been given as loan to the assessee by M/s. Lunkad on 21.09.2023 through banking channel which fact is discernable from page no. 24 & 25 of PB wherein the bank statement of Bank of Baroda of M/s. Lunkad Textiles Pvt. Ltd is found placed in PB. The confirmation of lending money to the assessee is found from the confirmation given by M/s. Lunkad which is found placed at page no. 23 of PB. The Ld. AR drew our attention to the balance-sheet of the company as on 31.03.2014 which is found placed at page no. 27 of PB which reveals that M/s. Lunkad has own funds (Share Capital and Reserves and Surplus) to the tune of Rs.2.32 cr (and has lended Rs.40 Lakhs to the assessee). Thus, according to the Ld. AR M/s. Lunkad had sufficient creditworthiness to lend Rs.40 Lakhs to assessee. Thus, according to the Ld. AR, the assessee has discharged the burden to prove the identity, creditworthiness and genuineness of the transaction to the tune of Rs 1.17 Cr. Moreover, it was also pointed out to the Ld. CIT(A)/AO that the TDS on the interest paid by assessee been duly deducted; and the loan has been repaid to M/s. Shipra on 24.10.2016 which fact is revealed from page no. 40 & 41 of PB. And M/s. Lunkad was re-paid the loan on 24.10.2016 which fact is revealed from perusal of page no. 37 & 38 of PB. Thus, according to the Ld. AR, the assessee has discharged the burden to prove the “nature and source” of the loan taken from M/s. Shipra as well as M/s. Lunkad. However, the AO was not satisfied with the documents filed by the assessee. According to the AO, Shri Vipul Vidur Bhatt had admitted during search that M/s. Shipra as well as M/s. Lunkad were his paper companies and were indulging providing accommodation entries. Even though, the assessee brought to the notice of the AO that Shri Vipul Vidur Bhatt has retracted the admission alleging duress and coercion on the part of the search team, the AO brushed it aside by pointing out that the DDIT (Inv.) report did not mention anything about the purported retraction. According to the AO, therefore loan shown by the assessee from these two concerns of Shri Vipul Vidur Bhatt were bogus transaction and therefore, he added the entire amount of Rs. 1.17 cr u/s 68 of the Act and the interest expenditure to these entities to the tune of Rs.4.80 cr was disallowed/added, which action of the AO was confirmed by the Ld.CIT(A). We do not countenance the impugned action of the Ld.CIT(A) for the simple reason that the assessee has discharged the burden to prove the “nature and source”” of the credit entries of Rs. 1.17 Crs. (from M/s. Shipra Fabrics Pvt. Ltd., Rs.77 lakhs and Rs.40 lakhs from M/s. Lunkad Textile Pvt. Ltd.) by adducing primary/relevant documents/material as discussed supra; and the AO has not been able to find fault with the primary/relevant documents filed by the assessee to prove the “nature and source’’ of the credit entries. Once, the assessee has discharged the burden to prove prima- facie “nature and source”” of the credit entries, onus shifted to the AO to rebut it with cogent evidence. In this case, the AO based on the statement of Shri Vipul Vidur Bhatt has disbelieved the transaction of loan taken from M/s. Shipra Fabrics Pvt. Ltd., and M/s. Lunkad Textile Pvt. Ltd., because, Shri Vipul Vidur Bhatt had admitted before the search team that these two entities were his paper companies. However, the assessee has brought to the notice of the AO as well as the Ld.CIT(A) that Shri Vipul Vidur Bhatt has retracted his statement by filing Affidavit alleging coercion and duress for eliciting such a statement. In such a scenario, the AO ought to have summoned Shri Vipul Vidur Bhatt and cross-examined him; and in that process ought to have elicited from him about the genuineness of the lenders viz M/s. Shipra Fabrics Pvt. Ltd. and M/s. Lunkad Textile Pvt. Ltd. i.e, whether these companies actually conducted any business or were only his paper companies engaged in providing accommodation entries. The AO, however, has not endeavored to take such a course of action and instead has brushed aside the Affidavit of retraction on the specious plea that the DDIT Investigation Report is silent about it. Such action of the AO cannot be accepted and since, the assessee has discharged his burden to prove the identity, creditworthiness and genuineness of the loan creditors, and the assessee has shown to have re-paid loan the loan in question (supra), the addition made u/s 68 of the Act cannot be sustained. Moreover, the only material on the basis of which Assessing Officer has taken adverse view against assessee was the untested statement of Shri Vipul Bhat, who admittedly has not been allowed to be cross-examined by assessee, so in view of retracted statement (Affidavit), it would be unsafe to draw adverse view against assessee. Therefore, the additions made deserves to be deleted. For taking such a view, we rely on the decision of the jurisdictional High Court in the case of PCIT v. Paradise Inland Shipping (P.) Ltd., reported in [2017] 84 taxmann.com 58 (Bom.), and direct deletion of the addition to the tune of Rs 1.17 Cr. and it would be gainful to refer to the decision of the Hon’ble High Court in the case of PCIT v. Paradise Inland Shipping (P.) Ltd., as reproduced under:
“5. We have given our thoughtful considerations to the rival contentions of the learned Counsel and we have also gone through the records. The basic contention of the learned Counsel appearing for the Appellants revolves upon the stand taken by the Appellants whether the shareholders who have invested in the shares of the Respondents are fictitious or not. In this connection, the Respondents in support of their stand about the genuineness of the transaction entered into with such Companies has produced voluminous documents which, inter alia, have been noted at Para 3 of the Judgment of the CIT Appeals which reads thus: –
“The assessment is completed without rebutting the 550 page documents which are unflinching records of the companies. The list of documents submitted on 09.03.2015 are as follows: –
1. Sony Financial Services Ltd- CIN U74899DL1995PLC068362- Date of Registration 09.05.1 995
(a) Memorandum of Association and Article of Association
(b) Certificate of Incorporation
(c) Certificate of Commencement of Business
(d) Acknowledgement of the Return of Income AY. 2008-09
(e) Affidavit of the Director confirming the investment
(f) Application for allotment of shares
(g) Photocopy of the share certificate
(h) Audited account and Directors report thereon including balance-sheet, Profit and Loss Account and Schedules for the year ended 31.03.2009.
(i) audited account and Directors reports thereon including balance-sheet, Profit and Loss Account and schedules for the year ended 31.03.2010.
(j) The Bank statement highlighting receipt of the amount by way of RTGS.
(k) Banks certificate certifying the receipt of the amount through Banking channels.”
6. On going through the documents which have been produced which are basically from the public offices, which maintain the records of the Companies. The documents also include assessment Orders for last three preceding years of such Companies.
7. The Appellants have failed to explain as to how such Companies have been assessed though according to them such Companies are not existing and are fictitious companies. Besides the documents also included the registration of the Company which discloses the registered address of such Companies. There is no material on record produced by the Appellants which could rebut the documents produced by the Respondents herein. In such circumstances, the finding of fact arrived at by the authorities below which are based on documentary evidence on record cannot be said to be perverse. Learned Counsel appearing for the Appellants was unable to point out that any of such findings arrived at by the authorities below were on the basis of misleading of evidence or failure to examine any material documents whilst coming to such conclusions. Under the guise of the substantial question of law, this Court in an Appeal under Section 260A of the Income Tax Act cannot re-appreciate the evidence to come to any contrary evidence. Considering that the authorities have rendered the findings of facts based on documents which have not been disputed, we find that there are no substantial question of law which arises in the present Appeal for consideration.
8. The Apex Court in the case of Orissa Corpn. (P.) Ltd. (supra), has observed at Para 13 thus: –
“13. In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were income- tax assessees. Their index number was in the file of the revenue. The revenue, apart from issuing notices under S. 131 at the instance of the assessee, did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so called alleged creditors. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises.”
9. This Court in the Judgments relied upon by the learned Counsel appearing for the Respondents, have come to the conclusion that once the Assessee has produced documentary evidence to establish the existence of such Companies, the burden would shift on the Revenue-Appellants herein to establish their case. In the present case, the Appellants are seeking to rely upon the statements recorded of two persons who have admittedly not been subjected to cross In such circumstances, the question of remanding the matter for reexamination of such persons, would not at all be justified. The Assessing Officer, if he so desired, ought to have allowed the Assessee to cross examine such persons in case the statements were to be relied upon in such proceedings. Apart from that, the voluminous documents produced by the Respondents cannot be discarded merely on the basis of two individuals who have given their statements contrary to such public documents.
10. We find no infirmity in the findings arrived at by the ITAT as well as CIT Appeals on the contentions raised by the Appellants-Revenue in the present case and, as such, the question of interference by this Court in the present proceedings under Section 260A of the Income Tax Act would not at all be justified. Apart from that, as rightly pointed out by the learned Counsel appearing for the Respondents, the CIT Appeals had also noted that proceedings under Section 147 of the Income Tax Act cannot lead to re- verification of the records. These findings of the CIT Appeals have not been assailed before the Income Tax Appellate Court.
11. In such circumstances, we find that there is no case made out by the Appellants-Revenue for any interference in the impugned Orders passed by the Courts below.
12. Hence, the Appeal stands rejected.”
7. In the light of the discussion (supra), we direct deletion of the addition made by the AO to the tune of Rs. 1.17 Crs; and the interest expenditure claimed by assessee to the tune of Rs 4.80 Lakhs given to the two entities in AY 2014-15 & Rs 10.53 Lakhs for AY 2015-16 after duly deducting TDS, need to be allowed; and thus, appeals of assessee deserves to be allowed, and we direct deletion of the additions/disallowances.
8. In the result, both the appeals of the assesse are allowed. Order pronounced in the open court on this 02/05/2024.
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