Green Valley Homes Developers Pvt Ltd. Vs DCIT (ITAT Mumbai)
Summary: The assessee, engaged in construction and development of complexes including malls, challenged the order of the CIT(A)-48, Mumbai confirming an addition of Rs.5,99,00,000 under section 68 of the Income-tax Act, 1961 on peak-credit basis and disallowance of interest of Rs.1,25,43,806. The Assessing Officer had treated loans received from entities allegedly connected with Shri Praveen Kumar Jain and his group as accommodation entries, principally relying upon the Investigation Wing report and a statement of Shri Praveen Kumar Jain. The assessee contended that the loans were genuine and furnished extensive documentary evidence, including loan confirmations, PAN cards, income-tax return acknowledgements, audited financial statements, bank statements, ledger accounts, repayment details and evidence of TDS on interest.
It was also pointed out that the assessee’s name was not correctly reflected in the statement relied upon by the Assessing Officer, where the relevant entry appeared as “Green Valley Deve”, and that Shri Praveen Kumar Jain had subsequently retracted his statement. The Tribunal noted that the loans had been received through banking channels, that the lender companies were active on the MCA records, and that the loans and interest were subsequently repaid. It further observed that the Assessing Officer did not independently verify the transactions, issue notices to the creditors under sections 131 or 133(6), identify any defect in the voluminous documentary evidence, or provide an opportunity for cross-examination concerning the third-party statement.
Relying upon the principle that suspicion cannot substitute evidence, and considering the decision of the Bombay High Court in PCIT-27 v. Parth Enterprises and other Tribunal decisions involving the relevant lender companies, the Tribunal held that the assessee had discharged its onus under section 68 by establishing identity, creditworthiness and genuineness. The adverse investigation material and retracted statement, without taxpayer-specific verification or corroborative evidence, were insufficient to sustain the addition. The Tribunal accordingly deleted the Rs.5,99,00,000 section 68 addition and Rs.1,25,43,806 interest disallowance and allowed the appeal.
Cases Discussed
- PCIT-27 v. Parth Enterprises, ITA No.786 of 2016, dated 11.12.2018.
- ITO v. Central Finance Co., [1982] 13 TTJ 248 (Mad).
- ACIT v. Abani Sarbeshwardas, ITA Nos.193/Mum/2018 & 232/Mum/2018, dated 15.05.2019.
- ITO v. M/s Manav Finance Ltd., ITAs 1448, 1449 & 1467/Mum/2017, dated 05.10.2018.
- DCIT v. M/s Trinity Infra Tech Pvt. Ltd., ITA No.2721/Mum/2017, dated 06.02.2019.
- Diwali Capital & Finance Pvt. Ltd. v. DCIT, ITA No.2091/Mum/2018, dated 10.01.2019.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
Instant appeal of the assessee was filed against the order of the Learned Commissioner of Income-tax (Appeals)-48, Mumbai *in short, ‘Ld.CIT(A) passed under section 250 of the Income Tax Act, 1961 (in short, ‘the Act’) date of order 22/09/2020 for A.Y. 2012-13. The impugned order emanated from the order of the Learned Deputy Commissioner of Income-tax, Central Circle 2(3), Mumbai (for brevity the “Ld. AO”), passed under section 143(3) of the Act, date of order 31/03/2015.
2. The assessee has taken the following grounds of appeal:-
“1. (a) The Id. CIT (A) erred in facts and law in confirming the addition of Rs.5,99,00,000/-on account of loan received u/s. 68 made by the Id. Assessing Officer following peak theory as unexplained cash credit and confirming the disallowance of interest paid of Rs.1,25,43,806/- on his surmises and conjectures that loans taken were sham transactions.
(b) The Id. CIT (A) erred in facts and law in not appreciating the fact that the identity of the payer, genuineness of the transaction and capacity of the payer were duly established.
(c) The Id. CIT (A) and Id. Assessing Officer erred in facts and law in making the addition solely relying on the statement of a third party and not granting any opportunity of cross examination.
(d) The Id. CIT(A) erred in facts and law in not appreciating that name of the appellant company is not appearing in the statement on oath recorded of the third party, which is the basis on which addition made.
2. Your appellant prays that-
(a) Addition of Rs.5,99,00,000- u/s.68 as unexplained cash credit, be deleted,
(b) Disallowance of Rs. 1,25,43,806/- of interest paid on alleged loans taken; be deleted,
(c) Such other relief, as may be deemed fit in the matter, be granted.
3. Each of the above Grounds of Appeals an independent and without prejudice to one another.
4. Your appellant craves leave to add, amend, alter or drop all or any of the above grounds of appeal.”
3. The brief facts of the case are that the assessee is engaged in construction and development of complexes including malls. A return of income filed was filed under section 139(1) of the Act by declaring loss of Rs.5,63,16,308/-. The return was processed under section 143(1) of the Act. Subsequently, the assessee’s case was taken for scrutiny and notices under section 143(2) / 142(1) of the Act were served upon the assessee. During the assessment proceedings, the Ld.AO issued show cause notice related to receiving of loan from bogus entities by observing that the assessee has taken loan from 15 companies, which are related to Shri Praveen Kumar Jain and his group. In case of following companies, the assessee has taken loan as has been mentioned in the notice issued under section 142(1) of the Act:-
[table retained as supplied]
Finally, the assessee submitted all relevant documents, but without any issuance of notice under section 131 or 133(6) of the Act, the Ld.AO added back the loan transaction on peak credit basis amount to Rs.5,99,00,000/- and also the interest amount of Rs.1,25,43,806/- to the total income of the assessee. Considering this, the assessee filed an appeal before the Ld. CIT(A). But the Ld.CIT(A) upheld the impugned assessment order. Being aggrieved on the impugned appellate order, the assessee filed this appeal before us.
4. The Ld.AR argued and filed a paper book spanning pages 1 to 743, which is kept on the record. The Ld.AR argued that the assessee has taken loan of Rs.7,90,00,000/- during the impugned assessment year. The Ld.AO has considered the repayment of loan and accordingly, the addition is worked out amount to Rs.5,99,00,000/-. The assessment was completed on the basis of the report of DGIT(Inv), Mumbai and on the statement of “Shri Praveen Kumar Jain” which was taken on 06/10/2013.
[remaining tables and extracted statement retained as supplied]
It is mentioned that the name of party is showing ‘Green Valley Deve’ where there is no matching with the assessee’s name. Further, no cross verification was allowed by the Ld.AO during the assessment proceedings. It is further noted that the said “Shri Praveen Kumar Jain” has retracted the recorded statement dated 06/10/2010 by an affidavit dated 15/05/2014, which is enclosed in paper book pages 334(a) to 334(d). So, the Ld.AO entirely relied on the recorded statement of “Shri Praveen Kumar Jain”, which was retracted later. The Ld.AR further stated that during the assessment proceedings, the assessee submitted all the relevant documents by a letter dated 25/03/2015 which is annexed in APB pages 329 to 334. The said documents are also annexed in the paper book filed before the ITAT. All the relevant documents in compliance of section 68 were duly submitted which are also annexed in paper book filed before the ITAT.
6. In argument, he further mentioned that all the loans are duly paid in later years and the TDS are deducted related to payment of interest to the parties and all the companies are active in the MCA portal. The confirmations of repayment of loan and interest with supporting bank statements are duly submitted before the ITAT which are annexed in APB page nos. 337 – 374. The details of repayment of loan & interest and deduction of tax on interest are enclosed in APB page 337 to 374 which is reproduced as below: –
7. The Ld.DR vehemently argued and relied on the orders of the revenue authorities. The relevant para of the assessment order, para 5 is reproduced as below:-
“5. I have considered the facts, material and submission made by the assessee. The submission ofthe assessee that its loans from aforesaid partiesare genuine is not acceptable for the following reasons:-
[quoted assessment-order extract retained as supplied]
8. We have heard the rival submissions and perused the material available on record. The addition made by the Ld. AO comprises a principal sum of Rs.5,99,00,000/- and interest thereon amounting to Rs.1,25,43,806/-. It is an undisputed fact that all the loans were availed through banking channels. The assessee duly submitted loan confirmations, copies of PAN cards, income tax returns, and audited financial statements before both the revenue authorities and this Tribunal. The loans were obtained from nine companies, and the assessment was framed solely on the basis of a report from the Investigation Wing of the Income-tax Department, wherein the assessee was alleged to be a beneficiary of accommodation entries purportedly provided by “Shri Praveen Kumar Jain” and his group. However, we find that the assessee had furnished all requisite documentary evidence in compliance with Section 68 of the Act, including Form 16, quarterly TDS statements on interest, profit and loss account, balance sheet, ledger accounts of creditors, and income tax returns. Despite the availability of such documentation, the Ld. AO did not undertake any independent verification or issue notices to the loan creditors to ascertain the genuineness of the transactions. The Ld. AR placed reliance on the judgment of the Hon’ble Bombay High Court in PCIT-27 v. Parth Enterprises, ITA No. 786 of 2016, dated 11.12.2018. The relevant portion of paragraph 7 of the said judgment reads as under:
“7. We find that there are concurrent finding on facts rendered by the CIT(A) and the Tribunal holding that only Rs.36 lakhs can be added to the declared income and the balance amount of Rs.2.99 crores was not hit by section 68 of the Act. This finding is premised on the fact that no enquiry was made in respect of 76 creditors out of 77 creditors and the respondent had provided required documentary evidence in respect of the 76 creditors. Thus, these are essentially finding of fact and the view taken by the Tribunal is a possible view on these facts. In view of the above, the question as proposed does not give rise to any substantial question of law. Thus, not entertained.
8. Accordingly, appeal is dismissed. No order as to costs.”
We observe that the Hon’ble jurisdictional High Court has clearly held that in the absence of any verification undertaken by the Assessing Officer, such an addition under Section 68 is unsustainable in law. Further reliance was placed on the decision of the Co-ordinate Bench of the ITAT, Chennai Bench-D, in ITO v. Central Finance Co [1982] 13 TTJ 248 (Mad), which held that mere general statements by hundi bankers regarding their engagement in hawala transactions, without any specific statement linking the assessee’s transactions to such hawala activities, cannot justify the reopening of assessments. In the present case, the assessee’s name was not even correctly mentioned in the recorded statement, appearing merely as “Green Valley Deve.” The assessee had obtained loans from nine companies, which were subsequently repaid along with interest in the succeeding years. It is also pertinent to note that these very companies have been adjudicated upon in other matters before the Tribunal, and the transactions involving them have been held to be genuine. The Ld. AR placed reliance on several orders of the Co-ordinate Benches of the ITAT, Mumbai, where the genuineness of transactions with these companies has been upheld.
In our considered opinion, the assessee has duly discharged the onus cast upon him under Section 68 of the Act by submitting all relevant documentary evidence, which has neither been discredited nor rejected by the revenue. The Ld. AO, instead of conducting any independent enquiry or verification, merely relied upon the report of the DGIT (Investigation), Mumbai, and the statement of “Shri Praveen Kumar Jain”, which was subsequently retracted. No opportunity for cross-examination was granted to the assessee, and such adverse material was used without adhering to the principles of natural justice. The Ld. DR has also not brought any material on record to controvert the submissions made by the Ld. AR. In view of the above, we find no merit in the impugned appellate order. Accordingly, the addition made by the Ld. AO towards the loan amount of Rs.5,99,00,000/- and interest of rs.1,25,43,806/- stands deleted.
9. In the result, appeal of the assesseebearing ITA No.57/Mum/2021 is allowed.
Order pronounced in the open court on 22nd day of May, 2025.
