No addition for unsecured loan received if Source & Nature explained

ITO Vs Sandeep S. Dagaria (ITAT Mumbai)

ITAT notices that Assessing Officer has merely proceeded to make addition of Rs.7,00,000/- unsecured loans merely because the Rajat Group of Companies involved in the transaction of bogus purchases and rejected the evidences submitted before him i.e. assessee has submitted the confirmation balance and the transactions were only routed through bank and there is nothing on record brought by the Assessing Officer to believe that these transactions were non-genuine and except relying on the fact that the assessee is taken some accommodation entries from Gautam Jain Group and they were subjected to search proceedings. Therefore, we inclined to accept the findings of the Ld. CIT(A).

Bogus Purchase: Only additional benefit acquired by assessee can be brought to tax  and not the entire value of alleged bogus purchase

With regard to bogus purchases, we noticed that Ld. CIT(A) has agreed with the findings of the Assessing Officer that certain transactions entered by the assessee with Frontline Diamonds Pvt. Ltd. and Rajat Diamond Pvt. Ltd are non-genuine. We are of the opinion that the purchases are no doubt bogus at the same time, the Revenue has accepted the sales/stock declared by the assessee. Therefore, we are in agreement with the findings of the Ld. CIT(A) that as decided by various Hon’ble High Courts including jurisdictional High Court which held that the additional benefit acquired by the assessee in this transaction can be brought to tax not the entire value of alleged bogus purchases are not disputing the declared sales. Therefore, in the given case, the Ld. CIT(A) after analyzing the nature of business of the assessee and the transactions, he has confirmed addition of 3% of the alleged non-genuine transactions. We do not see any reason to interfere with that. Accordingly, the grounds of appeal raised by the Revenue are dismissed.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The present appeal is filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-37, Mumbai [in short ‘CIT(A)’] for the assessment year 2012-13 dated 14.09.2018 and arises out of assessment completed u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short the Act).

2. At the outset, it is noticed that none appeared on behalf of assessee in spite of calls and even no application for adjournment was moved. On the other hand, Ld. DR is present in the court and is ready with arguments. Therefore, we have decided to proceed with the hearing of the case ex-parte with the assistance of the Ld. DR and the material placed on record.

3. Brief facts of the case are, the assessee filed its return of income on 10.09.2013 declaring total income at Rs.7,51,860/-. The return was processed u/s 143(1) of the Income Tax Act, 1961 (in short the Act) and subsequently, the case was selected for scrutiny under CASS. The assessment was completed on 19.03.2015 u/s 144 of the Act and assessing total income of Rs.9,26,64,120/-. Subsequently, the case was reopened u/s 148 by recording reasons and AO issued notice u/s 148 of the Act dated 23.03.2016 and served on the assessee. In response, the Ld. AR of the assessee filed the relevant information as called for.

During the course of assessment proceedings, the Assessing Officer observed that in the original assessment, the entire amount of Rs.9,17,59,464/-shown as sundry creditors were added as total income of the assessee. Even in re-assessment proceedings, the assessee failed to prove the genuineness of the purchases as given by M/s Frontline Diamond Pvt. Ltd. and M/s Rajat Diamond Pvt. Ltd. are not in a proper documentation and appear to be non-genuine and manipulated. He also observed that many of the parties through whom the assessee made purchases are part of the Gautam Jain Group who were involved in giving accommodation entries.

Accordingly, he sustained the addition made in original assessment completed u/s 144 of the Act to the extent of Rs.9,26,64,120/-. Further, he observed that assessee has shown in this regard, secured loan received from Rajat Diamond to the extent of Rs.7,00,000/-. When the assessee was asked to justify the transaction, in response, the assessee submitted copy of ITR, confirmation and bank statements from the above parties. Further, the assessee submitted that assessee has taken unsecured loans from several parties by taking account payee cheques only. Assessing Officer rejected the submissions of the assessee and made the addition of Rs.7,00,000/- with the observations that the concerned Rajat Diamonds is involved in the accommodation entries which belongs to Gautam Jain Group.

4. Aggrieved with the above order, the assessee preferred appeal before the Ld. CIT(A), the assessee filed the detailed submission objecting to the addition of unsecured loan and addition of sundry creditors relating to accommodation entries and filed the detailed submission along with loan confirmation and balance confirmation from all the sundry creditors. The Ld. CIT(A) remanded the matter to Assessing Officer and Assessing Officer has filed the remand report dated 01.03.2018. After considering the remand report and submission from the assessee, the Ld. CIT(A) deleted the unsecured loan received from Rajat Diamonds. After considering the detailed submission and remand report of the Assessing Officer he observed that the nature and source of loan transaction of Rs.7,00,000/- was properly explained by the assessee with the help of various judicial decisions.

5. With regard to addition of unsecured loans by treating the same as accommodation entry relating to bogus purchases, the Ld. CIT(A) reduce the quantum of addition made by the Assessing Officer from Rs.9,26,64,120/- to Rs.3,67,37,842/- by emanating the parties with whom assessee has produced the documentation and proper confirmation. Aggrieved with the Assessing Officer that these are bogus purchases and however, he observed that the correct way of dealing with bogus purchase issue is to estimate the profit margin of such bogus purchases. After adding the entire amount of such purchases and after analyzing the nature of business of the assessee, he restricted the addition @ 3% of the purchases made from Frontline Diamond Pvt. Ltd. and M/s Rajat Diamond Pvt. Ltd. to the extent of purchase value of Rs.3,67,37,842/-.

6. Aggrieved with the above order, the Revenue in appeal before raising following grounds of appeal as under :

1. On the facts and circumstances of the case in law, the Ld. CIT(A) has erred in restricting addition to 3% of the total addition of Rs.3,67,842/- made on account of bogus purchase made by the assessee from Frontline Diamond Pvt. Ltd. and M/s Rajat Diamond Exim Pvt. Ltd. which are the entities operated by Shri Gautam Jain group.

2. On the facts and in the circumstances of the and in law, the Id. CIT(A) has failed to appreciate the fact that the addition of Rs.7,00,000/- was made on account of unsecured loan taken by the assessee from M/s Rajat Diamond Pvt. Ltd. which is a concern operated by Shri Gautam Jain group of companies.

3. On the facts and in the circumstances of the and in law, the Id. CIT(A) failed to appreciate the fact that the addition is made on the basis of information received from DIT (Inv)-I, Mumbai that the assessee has taken accommodation entries from concerns operated by Shri Gautam Jain group of companies.

4. On the facts and in the circumstances of the and in law, the Id. CIT(A) has failed to upheld the decision of the Hon’ble Supreme Court in the case of N.K. Proteins Ltd. v. DCIT in SLP (Civil) No. 769/2017 dt. 16.01.2017 where 100% addition was confirmed by the Apex Court.

7. Considered the submissions of the Ld. DR and material on record. We notice that Assessing Officer has merely proceeded to make addition of Rs.7,00,000/- unsecured loans merely because the Rajat Group of Companies involved in the transaction of bogus purchases and rejected the evidences submitted before him i.e. assessee has submitted the confirmation balance and the transactions were only routed through bank and there is nothing on record brought by the Assessing Officer to believe that these transactions were non-genuine and except relying on the fact that the assessee is taken some accommodation entries from Gautam Jain Group and they were subjected to search proceedings. Therefore, we inclined to accept the findings of the Ld. CIT(A).

With regard to bogus purchases, we noticed that Ld. CIT(A) has agreed with the findings of the Assessing Officer that certain transactions entered by the assessee with Frontline Diamonds Pvt. Ltd. and Rajat Diamond Pvt. Ltd are non-genuine. We are of the opinion that the purchases are no doubt bogus at the same time, the Revenue has accepted the sales/stock declared by the assessee. Therefore, we are in agreement with the findings of the Ld. CIT(A) that as decided by various Hon’ble High Courts including jurisdictional High Court which held that the additional benefit acquired by the assessee in this transaction can be brought to tax not the entire value of alleged bogus purchases are not disputing the declared sales. Therefore, in the given case, the Ld. CIT(A) after analyzing the nature of business of the assessee and the transactions, he has confirmed addition of 3% of the alleged non-genuine transactions. We do not see any reason to interfere with that. Accordingly, the grounds of appeal raised by the Revenue are dismissed.

8. In the result, the appeal filed by the Revenue is dismissed.

Order pronounced in the open Court on 20/08/2021.