Case Law Details
Yashika Jewels Private Limited Vs ITO (ITAT Surat)
ITAT Surat held that addition on account of cash credit in current year untenable since loan is received back in subsequent year and the same is accepted by the department. Accordingly, addition deleted.
Facts- During the search action, it was discovered that Rajesh Lifespace Group has taken on-money on sale of flats. On money received in cash was brought back to their book in the form of loan or advances from various concerned. On the basis of such information, the Assessing Officer recorded reasons for escapement of income of Rs. 15.00 lacs for AY 2012-13. The case was accordingly reopened u/s. 147 of the Act. AO held that Rajesh Patel is the main person who was controlling all the affairs of Rajesh Lifespace Group and in his statement he has confirmed about accommodation entry from assessee. On the basis of such statement of Rajesh Patel, AO made addition of Rs. 15.00 lacs in the income of assessee while passing assessment order on 28/11/2019 passed u/s. 143(3) r.w.s. 147 of the Act.
CIT(A) dismissed the appeal. Being aggrieved, the present appeal is filed.
Conclusion- Once the loan is repaid/received, no addition can be made as has been held by the Hon’ble Jurisdictional High Court in CIT Vs. Ayachi Chandrashekhar Narsangji 42 taxmann.com 251 (Guj) and in PCIT Vs Ambe Tradecorp (P) Ltd. 145 taxmann.com 27 (Guj).
Hon’ble Jurisdictional High Court in CIT Vs. Ayachi Chandrashekhar Narsangji held that where the department has accepted repayment of loan in subsequent year, no addition was to be made in the current year on account of cash credit.
Held that despite bringing all the facts in the notice of Assessing Officer that alleged payment of loan was received back in the subsequent year, the assessee also earned interest on such loan which was also offered for tax when all such facts is not disputed, therefore, the Assessing Officer was not justified in making addition, when the assessee has proved genuineness of loan transaction. Therefore, the addition made by the Assessing Officer is not justified and the same is deleted. Considering the fact that we have deleted the addition on merit, therefore, specific adjudication on other contention on validity of reopening and issuance of notice under Section 148 of the Act have become academic. In the result, grounds of appeal raised by the assessee are allowed.
FULL TEXT OF THE ORDER OF ITAT SURAT
This appeal by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi (NFAC)/learned Commissioner of Income Tax (Appeals), [in short, the ld. CIT(A)] dated 31/01/2024 for the Assessment Year (AY) 2012-13, wherein the assessee has raised following grounds of appeal:
“1. On the facts and circumstances of the case as well as law on the subject, the ld. CIT(A) has erred in confirming the action of Assessing Officer in reopening assessment u/s 147 by issuing notice u/s 148 of the I.T. Act, 1961.
2. On the facts and circumstances of the case as well as law on the subject, the ld. CIT(A) has erred in confirming the action of Assessing Officer in making addition of Rs. 15,00,000/- on account of alleged accommodation entries being loan given by the assessee.
3. It is therefore prayed that assessment framed u/s 143(3) r.w.s. 147 may kindly be quashed and/or the addition made by assessing officer and confirmed by the CIT(A) may please be deleted.
4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”
2. Brief facts of the case are that the assessee is a private limited company, engaged in the business of trading of diamonds, filed its return of income for A.Y. 2012-13 on 08/09/2012 declaring income of Rs. 2,24,140/-. The return of assessee was selected for scrutiny and assessment was completed under Section 143(3) of the Income Tax Act, 1961 (in short, the Act) on 19/03/2016 assessing total income of Rs. 3,04,290/-. Subsequently, the Assessing Officer received information that a search action was carried out in case of Rajesh Lifespace Group on 30/10/2016. During the search action, it was discovered that Rajesh Lifespace Group has taken on-money on sale of flats. On money received in cash was brought back to their book in the form of loan or advances from various concerned. Statement of Rajesh Patel, who is main person of said group was recorded under Section 132(4) of the Act. In his statement, Rajesh Patel accepted that interest was paid on unsecured loan @ 12% to 21%. In the application filed before the Settlement Commission, Rajesh Lifespace Group has admitted that a loan was received from Yashika Jewels Pvt. Ltd. (assessee) of Rs. 15.00 lacs in lieu of cash. On the basis of such information, the Assessing Officer recorded reasons for escapement of income of Rs. 15.00 lacs for AY 2012-13. The case was accordingly reopened under Section 147 of the Act. Notice under Section 148 of the Act was issued on 30/03/2019. The Assessing Officer recorded that despite service of notice under Section 148 and other notices, the assessee has not made any compliance, nor return of income is filed in response to notice under section 148. The assessee vide letter dated 30/09/2019 requested for reasons recorded. Reasons recorded were supplied to assessee on 01/10/2019. The Assessing Officer further noted that notice under Section 143(2) of the Act was issued to the assessee on 10/10/2019. The assessee was again served notice under Section 142(1) dated 11/10/2019 for compliance of earlier notices, in response to which the assessee furnished required details. The Assessing Officer also obtained information from Rajesh Estate & Nirman Pvt. Ltd. by issuing notice under Section 133(6) of the Act. Rajesh Estate & Nirman Pvt. Ltd. provided details called from them. The assessee filed their objection against reopening which was disposed of by speaking order on 30/10/2019. The assessee filed their reply to the show cause notices issued earlier, contents of which are recorded on page No. 10 of assessment order. The assessee in its reply, opposed the contents of show cause notice that they provided accommodation entry to Rajesh Estate & Nirman Pvt. Limited. The assessee stated that they have provided genuine loan to the said firm which was received back in the next year. To support such contention, the assessee provided confirmation of account from Rajesh Estate & Nirman Pvt. Ltd., confirmation of receipt of loan copy of statement substantiated in the source of fund and copy of bank statement of Rajesh Estate & Nirman Pvt. Ltd. showing the transaction. The assessee requested that the amount mentioned in the show cause notice should not be added. Statement given by Rajesh Patel cannot be used against the assessee without bringing cogent or material evidence. Use of third party statement in absence of supporting material is unjustified. To support their contention, the assessee relied on certain case laws. The contention of assessee was not accepted by Assessing Officer. The Assessing Officer held that Rajesh Patel is the main person who was controlling all the affairs of Rajesh Lifespace Group and in his statement he has confirmed about accommodation entry from assessee. On the basis of such statement of Rajesh Patel, the Assessing Officer made addition of Rs. 15.00 lacs in the income of assessee while passing assessment order on 28/11/2019 passed under Section 143(3) r.w.s. 147 of the Act.
3. Aggrieved by the additions in the assessment order as well as against the reopening, the assessee filed appeal before the ld. CIT(A). The ld. CIT(A) in his order, recorded that notice of hearing for fixing the date of hearing on 11/02/2021 as well as on 19/01/2024 was issued, the assessee filed reply which was considered. The ld. CIT(A) has not recorded the contents of reply/submission of assessee. The ld. CIT(A) on the issue of reopening, held that objection raised against reopening has no substance. The assessee was provided reasons recorded. The assessee filed objection which was rejected by the Assessing Officer, thus, the Assessing Officer was justified in reopening. Against the addition of Rs. 15.00 lacs, the ld. CIT(A) by referring the contents of assessment order, held that he has duly considered the facts of the case and found that there is no need to interfere with the addition made by the Assessing Officer. It was also held that during the assessment proceedings, statement was given by Rajesh Patel that payment of Rs. 15.00 lacs was made in the garb of unsecured loan and upheld the addition made by the Assessing Officer. Further aggrieved, the assessee has filed present appeal before the Tribunal.
4. We have heard the submissions of the learned Authorised Representative (ld. AR) of the assessee and the learned Senior Departmental Representative (ld. Sr. DR) for the revenue. Ground No. 1 of appeal relates to validity of reopening under Section 147 and issuance of notice under Section 148 of the Act. The ld. AR of the assessee submits that the case of assessee was reopened on the basis of general information received from Central Circle-6(4), Mumbai about the search and seized action carried out in case of Rajesh Lifespace Group wherein the main person of group allegedly stated that they have obtained accommodation entry under the garb of loan and advances. The Assessing Officer reopened the case of assessee on the information of third party. The Assessing Officer initiated action under Section 147 on the basis of borrowed satisfaction, which is not permissible. The information in the possession of Assessing Officer has no nexus with escapement of income. There must be satisfaction of Assessing Officer himself and he should not act upon on the borrowed satisfaction. The reasons recorded on borrowed satisfaction is invalid. Notice issued on borrowed satisfaction is illegal and bad in law. The provisions of Section 147/148 of the Act specified that for taking action under Section 147, the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment. The Assessing Officer must himself satisfied regrading escapement of income. He should not act mechanically on the information of third party. The Assessing Officer has not applied his mind independently and initiated action on the basis of information of Investigation Wing. Against the objection raised by the assessee, the Assessing Officer passed order on 03/10/2019. In the rejection of objection, the Assessing Officer held that he need not to draw final conclusion while recording the reasons. The loan given by the assessee was doubted which cannot be reasons for escapement of income. The assessee has not received the loan rather advanced the loan which was treated as accommodation entry by the Assessing Officer. The Assessing Officer not specified any undisclosed source of income or deemed income under Section 68 to 69D of the Act. So the information is not relevant for forming belief that income has escaped assessment. The ld. AR of the assessee submits that the Hon’ble Supreme Court in the case of Ganga Saran & Sons (P) Ltd. Vs ITO 130 ITR 1 held that the words under Section 147(a) are “has reason to believe” and these words are stronger than the words “is satisfied”. The belief entertained by the ITO must not be arbitrary or irrational. It must be reasonable or in other words, it must be based on reasons which are relevant and material.” To support his submission, the ld. AR of the assessee relied upon the decision of Hon’ble Supreme Court in the case of Sheo Nath Singh Vs ACIT 82 ITR 147, Bharatkumar Nihalchand Shah Vs ACIT 128 taxmann.com 228 (Guj) and PCIT Vs Ganesh Plantation Ltd. 441 ITR 123 (Guj).
5. In alternative submission, the ld. AR of the assessee submits that the notice under Section 148 of the Act was issued after four years from the end of the relevant assessment year. The assessee has made full and true disclosure. There was no failure on the part of assessee in disclosing material fact fully and truly. To support such view, the ld. AR of the assessee relied upon the following decisions:
> CIT Vs Foramer France 129 Taxman 72 (SC)
> New Delhi Television Ltd. Vs. DCIT 116 taxmann.com 151 (SC)
> Vareli Weavers Pvt. Ltd. Vs DCIT 66 CCH 1182 (Guj)
> Sheth Bros Vs JCIT 130 Taxman 367 (Guj)
> Hynoup Food & Oil Industries Ltd. Vs ACIT 175 Taxman 331 (Guj)
The ld. AR of the assessee submits that during the assessment, the assessee repeatedly requested for supply of document/information on the basis of which reopening was made. No such document, statement of Rajesh Patel or report of Investigation Wing was provided to the assessee. In absence of non-supply of document, reassessment proceeding based on such information, the addition is not justified. To support such view, the ld. AR of the assessee relied on the following case laws:
> Sabh Infrastructure Ltd. Vs ACIT 398 ITR 198 (Del)
> Micro Marbles (P) Ltd. Vs ITO 149 taxmann.com 387 (Raj)
> Sri Laxmi Narayan Agency Vs ITO 148 taxmann.com 373 (Orissa)
6. In other alternative submission, the ld. AR of the assessee submits that initially, assessment was completed under Section 143(3) on 06/03/2013 which was passed after due verification of all the details. The Assessing Officer accepted return of income on all the issue on the basis of document furnished by the assessee. Thus, reopening on the basis of material which was already available on record is nothing but a change of opinion and no reopening is permissible on mere change of opinion. To support such view, the ld. AR of the assessee relied upon the decision of Hon’ble Apex Court in CIT Vs Kelvinator of India Limited 320 ITR 561 (SC). The ld. AR of the assessee while referring the reasons recorded, copy of which was provided to the assessee, which is filed on page No. 44 to 47 of the paper book, would submit that while recording reasons, the Assessing Officer invoked Explanation-2 (c) of Section 147 of the Act. Explanation-2(c) of Section 147 of the Act is not applicable by virtue of proviso to Section 147, there must be application of explanation of the said Section. To support such view, the ld. AR of the assessee has relied on the following decisions:
> Surat City Gymkhana Vs DCIT 254 ITR 733 (Guj)
> Ipca Laboratories Ltd. Vs DCIT 251 ITR 416 (Bom)
> Bhor Industries Ltd. Vs ACIT 267 ITR 161 (Bom)
> CIT Vs Kelvinator of India Ltd. 187 Taxman 312 (SC)
> DCIT Vs Financial Software and Systems Pvt. Ltd. 447 ITR 370 (SC)
> CEAT Ltd. Vs ACIT 146 taxmann.com 107 (Bom)
7. On merit, the ld. AR of the assessee submits that during the year under consideration, the assessee made advance/loan of Rs. 15.00 lacs to Rajesh Estate & Nirman Pvt. Ltd. through banking channel. The assessee charged interest and TDS was deducted by the borrower. The said loan was received back by the assessee in succeeding assessment year i.e. in A.Y. 2013-14 through banking channel. During the assessment, the Assessing Officer issued notice under Section 142(1) of the Act on 11/10/2019 calling certain details. In response to such notice, the assessee specifically vide their reply filed on 18/10/2019, submitted required details in support of loan given to Rajesh Estate & Nirman Pvt. Ltd. which was received back in next year. The assessee filed confirmation of account including confirmation of repayment of loan. The assessee also furnished bank statement showing the source of fund and disbursement of loan. Audit report showing financial statement of Rajesh Estate & Nirman Pvt. Ltd. was also filed. The Assessing Officer neither given any finding of such evidences nor made any further investigation of fact during the assessment, the assessee was asked for cross examination of Rajesh Patel, which was not allowed. The addition made without allowing cross examination is not valid. To support such submission, the ld. AR of the assessee relied upon following case laws:
> CIT Vs Andaman Timber Industries Ltd. 109 Taxman 135 (SC)
> PCIT Vs Dhwani Mahendra Shah Tax Appeal No. 674 of 2017 (Guj)
> PCIT Vs Chartered Speed Pvt. Ltd. Tax Appeal No. 126 and 127 of 2015 (Guj).
- The ld. AR of the assessee submits that loan was received back in subsequent
year. The search action was carried out on Rajesh Lifespace Group on 10/03/2016, before that date, the loan was received back. Once the loan is repaid/received, no addition can be made as has been held by the Hon’ble Jurisdictional High Court in CIT Vs. Ayachi Chandrashekhar Narsangji 42 taxmann.com 251 (Guj) and in PCIT Vs Ambe Tradecorp (P) Ltd. 145 taxmann.com 27 (Guj). The ld. AR of the assessee submits that the assessee has shown interest income earned from Rajesh Estate & Nirman Pvt. Ltd. of Rs. 1,09,973/-. No contrary evidence was brought by the Assessing officer on record despite bringing such fact in his notice. The ld. AR of the assessee in her without prejudice and alternative submission, submits that even if for remote possibility, if it is assumed that the assessee has given accommodation entry of loan, no addition of entire amount can be made and only a commission income as has been held in a series of decisions by the Tribunal and Hon’ble High Court that only commission of 0.5% could be taxed and not the entire transaction. In the case of entry provider of accommodation entry of loan, commission of less than 0.5% was added by the revenue authorities. The ld. AR of the assessee also carried out through various documentary evidences showing transaction of loan through banking channel highlighting the bank statement as well as receipt/repayment of loan on 08/10/2012.
9. On the other hand, the ld. Sr. DR for the revenue supported the orders of lower authorities. On the issue of reopening, the ld. Sr. DR for the revenue by referring the quoted portion reflected in para 3 at page No. 4, 5 and 6 of assessment order, would submit that during the search action on Rajesh Patel and his group, various incriminating evidences were found. Statement of Rajesh Patel was recorded under Section 132(4) wherein he has disclosed that his group was involved in taking accommodation entry from various persons. Name of assessee was also disclosed in the statement. The incriminating material coupled with the statement of Rajesh Patel was sufficient information for reopening of the case. At the time of reopening in a prima facie material is sufficient which was gathered in the search action carried out by the Investigation Wing in Rajesh Lifespace in Mumbai. Thus, the information and the evidence gathered during the search action, was a fresh tangible material for reopening of the case and no fault can be found in the action of Assessing Officer, which is based on information received from the Investigation Wing. On merit, the ld. Sr. DR for the revenue submits that the Assessing Officer as well as ld. CIT(A) considered all the contention of assessee before passing the assessment order as well as appellate order.
10. We have considered the rival submissions of both the parties and have gone through the orders of the lower authorities carefully. First we are considering the ground No. 2 of appeal which is against the addition of Rs. 15.00 lacs on account of alleged accommodation entry. The facts of the case and the finding of Assessing Officer as well as ld. CIT(A) has already been recorded by us in earlier paragraphs. The main contention of ld. AR of the assessee is that the assessee has not availed any accommodation entry rather as per allegation of Assessing Officer, the assessee has provided accommodation entry. The ld. AR of the assessee vehemently opposed the finding of Assessing Officer and contended that the assessee has given genuine loan against which the assessee has received interest of Rs. 1,09,973/-. Receipt of interest on which TDS was made by borrower, is not disputed by the Assessing Officer. The ld. AR of the assessee also contended that before the search action, loan was returned back through banking channel. To substantiate such contention, the ld. AR of the assessee has placed on record the bank statement of assessee wherein the loan amount was received back on 08/10/2012, copy of such bank statement is available at page No. 88 of the paper book. We find that during the assessment, the assessee vide reply dated 18/10/2019, filed in response to notice dated 11/10/2019, specifically stated that the loan given to Rajesh Estate & Nirman Pvt. Ltd. is received back. No finding on such fact was given by the Assessing Officer despite brining such fact in his notice.
11. Before us, the ld. AR of the assessee has proved that before search action, the loan was received back. The Hon’ble Jurisdictional High Court in CIT Vs. Ayachi Chandrashekhar Narsangji (supra) held that where the department has accepted repayment of loan in subsequent year, no addition was to be made in the current year on account of cash credit. We are conscious of the fact that the facts of the case in hand is just reverse to the fact of that case in CIT Vs. Ayachi Chandrashekhar Narsangji (supra). However, in our considered view, the ratio of said decision is squarely applicable on the facts of the present case. Similar view was taken in the case of PCIT Vs. Ambe Tradecorp (P) Ltd. (supra). Considering the fact that despite bringing all the facts in the notice of Assessing Officer that alleged payment of loan was received back in the subsequent year, the assessee also earned interest on such loan which was also offered for tax when all such facts is not disputed, therefore, the Assessing Officer was not justified in making addition, when the assessee has proved genuineness of loan transaction. Therefore, the addition made by the Assessing Officer is not justified and the same is deleted. Considering the fact that we have deleted the addition on merit, therefore, specific adjudication on other contention on validity of reopening and issuance of notice under Section 148 of the Act have become academic. In the result, grounds of appeal raised by the assessee are allowed.
12. In the result, this appeal of assessee is allowed.
Order announced in open court on 13th September, 2024.
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