If appellant explained source of loans received by it and duly discharges the onus cast on him under section 68 of Income Tax Act 1961 than despite the fact that lender may have raised bogus share capital to advance funds to appellant does not mean that loan received by appellant can be treated as unexplained income under section 68 of Income Tax Act, 1961.
If the Ld. Assessing Officer was apprehensive about the genuineness of the amount, he was duty bound to examine in the hands of the M/s Encee Securities Pvt. Ltd. or its share holders. At least, the money was germinated from the hands of the share holders, who contributed to M/s Encee Securities Pvt. Ltd. but in the hands of the present assessee, it is merely a loan and this fact has not been denied by any of the party. Even till this date, M/s Encee Securities Pvt. Ltd. has never denied that loan was given to the present assessee, therefore, the assessee is not expected to prove the source of source. In reply to notices, issued u/s 133(6) of the Act dated 19/10/2015 to few unsecured loan parties including M/s Encee Securities Pvt. Ltd., the confirmation was received by the Assessing Officer on 05/11/2015 in tapal. This fact has been mentioned in para 4.4 of the assessment order itself. In para 4.5 of the assessment order, the broad allegation has been thrust upon the business of Shri Shirish Chandrakant Shah, who was described to be receiving unaccounted cash by using 212 companies, owned by him, which includes 16 listed companies. In such a situation, whether the responsibility/addition can be fastened upon the assessee. The obvious reply is no. It is noted that addition has been made in the case of assessee broadly on the basis of statement of Shri Harish Sharma, which was retracted by him, supported by an affidavit. However, the assessee has fulfilled the conditions required u/s 68 of the Act.
We have also perused the reply dated 25/02/2016 (filed with the ACIT on 26/02/2016 page-48 of the paper book), wherein, it has been specifically mentioned that copy of statement tendered by Shri Harish Sharma was not provided to the assessee. In this reply, the assessee has duly emphasize that no addition can be made on the basis of statement of Shri Harish Sharma as the assessee has discharged the onus caste upon him and the assessee has duly complied with the requirement of section 68 of the Act by proving the identity, capacity and genuineness of the transaction. The reply contained in para-2 (page-48) clearly explains the position of the assessee. The identity of the lender, capacity and genuineness of the loan is not in doubt. Therefore, in our opinion, the addition made by the Assessing Officer in the hands of the present assessee is not justified. As mentioned earlier, if any, foul play is found then addition can be made in the hands of M/s Encee Securities Pvt. Ltd. and not in the hands of the present assessee.
ORDER
Per Joginder Singh (Judicial Member)
These two appeals are by the different assessee against the impugned orders both dated 05/12/2016 of the Ld. First Appellate Authority, Mumbai. First, we shall take up appeal in ITA No. 369/Mum/2017, wherein, ground raised pertains to confirming the addition made u//s 68 of the Income Tax Act, 1961 (hereinafter the Act), of Rs., 1,77,00,000/-, being loan received from Encee Securities Pvt. Ltd.
2. During hearing, the ld. counsel for the assessee, Shri Prakash Jotwani, advanced arguments which is identical to the ground raised. It was contended that the assessee received unsecured loan of the impugned amount from Encee Securities Pvt. Ltd. The Assessing Officer asked the assessee to submit the loan confirmation, bank statement and return of Encee Securities Pvt. Ltd. to prove the genuineness of the loan, which as per the assessee were duly filed before the Assessing Officer. It was pleaded that the assessee is not expected to prove the source of source of the loan amount but duly discharged the onus caste upon the assessee. It was asserted that confirmation of loan, creditworthiness of the party and genuineness of the loan was duly explained before the Assessing Officer. It was empathetically explained/claimed that the impugned amount was not a share application money rather it was a simplicitor a loan. On a query from the Bench with respect to any addition, if any, has been made in the case of Encee Securities Pvt. Ltd.. It was explained that addition has been made in the case of Encee Securities Pvt. Ltd. and the appeal is pending before the Ld. Commissioner of Income Tax (Appeal) by further adding that it is a case of double addition of the same amount. It was claimed that it is up to the Department to choose as in whose hands addition has to be made. The ld. counsel further asserted that no question was put to the assessee with respect to Encee Securities Pvt. Ltd. as the assessee was neither confronted with the alleged statement of the Director of Encee Securities Pvt. Ltd.. It was pleaded that share application money has nothing to do with the assessee. The crux of the argument is that Encee Securities Pvt. Ltd. never denied of giving loan to the assessee and the loans are still live and the concerned parties duly confirmed that the loans are genuine and the assessee is not prove the source of source of the impugned amount. Our attention was invited to various paras of the assessment order as well as the impugned order along with the contents of the statement. It was also asserted that in reply to the show cause notice, the assessee explained its position and the alleged statement, which was recorded under duress and threat was retracted within a reasonable time by Shri Harish Sharma. Plea was also raised that the assessee was never examined/confronted with respect to the statement of Shri Shirish Shah. Plea was also raised that the statement of Shri Shirish Shah was never provided to the assessee in spite of request of the assessee. A strongly plea was raised even it is presumed that Encee Securities Pvt. Ltd. got the money through share application from some persons, how it can be added u/s 68 of the Act in the hands of the present assessee.
2.1. On the other hand, the ld. DR, Shri Rajesh Kumar Yadav, strongly defended the addition made in the hands of the present assessee by claiming that the whole issue is arranged transaction given in the form of loan to the assessee, therefore, the addition was argued to be rightly made. Our attention was invited to para 3.2, 5.1 and 7.1 of the impugned order. It was pleaded that it was a colourable device and the loan was nothing but the money of the assessee itself.
2.2. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee, an individual declared total income of Rs.40,05,590/- in his return on 05/09/2013. During scrutiny proceedings, it was noticed by the Assessing Officer that the assessee has taken unsecured loan of Rs. 1,77,00,000/- from M/s. Encee Securities Pvt. Ltd. The assessee was asked to file loan confirmation, bank statements and return of income of M/s. Encee Securities Pvt. Ltd. to prove the genuineness of the loan. As per the Revenue, at the same time, the Assessing Officer received information from the Ahmadabad Investigation wing, wherein, a search and seizure operation was conducted on Amrapali Group, Ahmadabad. In post search investigation, it was found that the group was involved in arranging accommodation entries of share capital and bogus long term capital gain through a Mumbai based operator i.e. Shri Shirish Shah, who was also subsequently searched. The statement of Shri Shirish Shah was recorded, wherein, he admitted that he provides accommodation entries through companies controlled and managed by him. Some of the companies of Shri Shirish Shah includes M/s Parinita Industries Ltd., Shri Ganesh Spinners Ltd. , M/s Vishesh Infotech Ltd., M/s Channel Guide Ltd., M/s Mohan Industries Ltd, M/s Empower India Ltd., M/s Emporish Projects Ltd., M/s Sanguine Media Ltd., M/s Yantra Naturals Ltd. etc. The Ld. Assessing Officer further observed that the share premium has been paid to M/s. Encee Securities Pvt. Ltd. by few share holders, which are summarized as under:-
