Itxa/635/2017 Of Swastik Realtors v. Asst. Commissioner Of Income Tax 15(3) Mumbai

JPP IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 634 OF 2017AND INCOME TAX APPEAL NO. 635 OF 2017 Swastik Realtors 312, Swastik Disha Corporate Park,Kohinoor Textile Printing CompoundOpp. Shreyas Cinema, LBS Marg,Ghatkopar (West), Mumbai – 86. … Appellant V/s. Assistant Commissioner of Income Tax15(3), Mumbai, Matru Mandir, I.T. Office,Nana Chowk, Grant Road, Mumbai. ... Respondent. Mr. Firoz Andhyarujina, Senior Advocate a/w. Manek Andhyarujina& Sameer Dalal for the Appellant. Mr. A.R. Malhotra a/w. N.A. Kazi for the Respondent. CORAM : M.S. SANKLECHA & NITIN JAMDAR, JJ. P.C. :- DATE : 13 AUGUST 2019. Swastik Realtors, the Assessee, has filed these twoIncome Tax Appeals challenging the common order passed by theIncome Tax Appellate Tribunal, Mumbai dated 27 October 2016. The Income Tax Appellate Tribunal, by the impugned order hasdismissed the appeals filed by the Appellant- Assessee. 2.Appeal No. 634 of 2017 relates to Assessment Year2007-08 and Appeal No.635 of 2017 relates to Assessment Year2008-09. The Appellant urges the same questions of law in thesetwo Appeals, and the Appeals are disposed of by this common order. 3.The Appellant – Assessee, is engaged in the business ofconstruction and development of real estate. The Appellant filed itsreturn of income on 26 October 2007 declaring total income ofRs.11,23,490/-. A notice was issued under Section 143(2) of theIncome Tax Act, 1961 to the Appellant, calling for various details,and the information was supplied. On perusal of the balance-sheetof the Appellant, the Assessing Officer observed that the Appellant –had shown to have borrowed a sum of Rupees One crore from anentity by name M/s. Moxdiam. The investigation wing of theIncome Tax Department initiated action under Section 133(A) ofthe Income Tax Act at the premises of Moxdiam. Inquiries weremade and it was noticed by the Department that Moxdiam wasindulging into a network of several bank accounts and conducting inthe activity of accommodation entries, in popular parlance known ashawala entries. The statements of the persons concerned withMoxdiam were recorded under Section 131 of the Income Tax Act,who admitted that we are in business of providing hawala entries. The Appellant was called upon to explain why Rupees One croreshould not to be treated as unexplained cash credit. The Appellanttook a stand that the amount was a loan from Moxdiam. TheAssessing Officer disbelieved the version of the Appellant and heldthat the loan was fictitious and a sum of Rupees One crore needs tobe credited as it is not satisfactorily explained. Further, the interestof Rs.93,000/- purportedly paid by the Appellant was not genuineand was disallowed being a fictitious expenditure. The AssessingOfficer passed the order regarding the Assessment Year 2007-08 on26 November 2009. 4.The Appellant filed an Appeal before the Commissionerof Income Tax Appeal. In the proceedings before the Commissioner(Appeals), the Appellant filed an affidavit of the partners ofMoxdiam retracting the statement made before the InvestigatingOfficer. The Appellant claimed that the loan transaction withMoxdiam was genuine and produced a confirmation letter. TheAppellant also filed two affidavits of partners of Moxdiam dated 22August 2008 and 18 February 2011. The Commissioner (Appeals)called for a report from the Assessing Officer. 5.Upon the remand report received from the AssessingOfficer, the Commissioner (Appeals) considered the case of theAppellant regarding the theory of loan. The Commissioner(Appeals) noted the financial position of Moxdiam and held that 4.The Appellant filed an Appeal before the Commissionerof Income Tax Appeal. In the proceedings before the Commissioner(Appeals), the Appellant filed an affidavit of the partners ofMoxdiam retracting the statement made before the InvestigatingOfficer. The Appellant claimed that the loan transaction withMoxdiam was genuine and produced a confirmation letter. TheAppellant also filed two affidavits of partners of Moxdiam dated 22August 2008 and 18 February 2011. The Commissioner (Appeals)called for a report from the Assessing Officer. 5.Upon the remand report received from the AssessingOfficer, the Commissioner (Appeals) considered the case of theAppellant regarding the theory of loan. The Commissioner(Appeals) noted the financial position of Moxdiam and held that looking at the financial condition of Moxdiam it is not believablethat M/s. Moxdiam could give a loan of Rupees One crore to theAppellant. The Commissioner (Appeals) also referred to theactivities of accommodation entries (Hawala Entries) regularlyindulged by Moxdiam and concluded there was nothing wrongwith the finding of the Assessment Officer that the loan of Rs.1.00.crore was not genuine. The commissioner dismissed the appeal 6.In respect of the Assessment Year 2008-09, theAssessing Officer had passed an order on 16 December 2010. Inrespect of the Rs.9,00,000/- claimed as interest on Rupees Onecrore was also considered as fictitious by the Assessing Officer TheAppellant filed an Appeal against this assessment. TheCommissioner (Appeals) dismissed the Appeal relying on the orderpassed regarding the Assessment Year 2007-08. The Commissioner(Appeals) held that the claim of deduction interest on the loan foundto be fictitious could not be allowed as a deductible expenditure anddisallowances by the Assessing Officer was justified. 7.The Appellant challenged these orders before theIncome Tax Appellate Tribunal. The Tribunal assessed the evidenceon record and concurred with the finding of fact rendered by boththe authorities that the loan stated to be availed by the Appellantfrom Moxdiam was not a genuine loan. The Tribunal also relied onthe statement made by the partners of Moxdiam, overall circumstances and the financial position and dismissed the appealsby the impugned order. 8.We have heard Mr. Firoz Andhyarujina, learned SeniorAdvocate for the Appellant -Assessee and Mr. Malhotra, learnedCounsel for the Respondents-Revenue. We have heard Mr. Firoz Andhyarujina, learned Senior 9.Mr. Andhyarujina contended that the Appellant hadsatisfactorily explained the loan of balance amount for M/s.Moxdiam in its Books of Account. This substantiated all theingredients of Section 68 of the Income Tax Act could not beincluded in the present facts. He submitted that though there isevidence on record that Moxdiam was indulging intoaccommodation entries it cannot ipso facto mean that the loan givenby Moxdiam to the Appellant was not genuine. He submitted thatthe Appellant had produced the loan confirmation from Moxdiam,copy of the bank statement of Moxdiam reflecting the payment,copy of the acknowledgment of Return of Income filed by Moxdiam.He further submitted that the amount was received through crossedcheques and was repaid by the Appellant by crossed cheques. Hesubmitted that tax was deducted at source which all will show thatthe loan was genuine. He submitted that the Appellant haddischarged a burden and onus had shifted on the Revenue to showthat the transaction was not genuine, which the Revenue has failed to discharge. He submitted that the Tribunal has not consideredvarious decisions relied upon by them. The learned Counselsubmitted that the following questions of law as framed in thememo, therefore, arise for consideration in these Appeals:- to discharge. He submitted that the Tribunal has not consideredvarious decisions relied upon by them. The learned Counselsubmitted that the following questions of law as framed in thememo, therefore, arise for consideration in these Appeals:- (1)Whether on the facts and circumstances of the caseand in law the order of the Tribunal was justified inconfirming the addition of Rs. 1.00 crore u/s. 68 of theIncome Tax Act, 1961, when the Appellant hasdischarged its burden by producing the lender, bankstatements showing the impugned transactions andfinancial statements, returns of income of the lender,payment of interest with tax deducted thereon ? (2)Whether on the facts and circumstances of the caseand in law the order of the Tribunal was right in notappreciating that when the Assessee satisfies the ITO asto the identity of the third party and also supplies suchother evidence which will show, prima facie, that theentry is not fictitious the initial burden which lies uponhim can be said to be discharged by him and that theburden shall then shift to the revenue to prove thecontrary with sufficient and adequate material ? (3)Whether on the facts and circumstances of the caseand in law the order of the Tribunal was perverse in asmuch it dealt with the judgments relied upon by theAppellant without discussing the applicability of theratios laid down in each case to the facts of theAppellants case in a summery fashion using a commonreasoning for different propositions of law put forth bythe Appellant ? (4) Whether on the facts and circumstances of the case,action of addition on account of providingaccommodation entries should have been made in thehands of the lender and not the Appellant in the light ofthe Appellant discharging the initial onus placed uponit ? (5)Whether on the facts and circumstances of thecase, the Interest expenditure of Rs.93,000/- on loanstaken for the purpose of business on the aforementionedloan cannot be held to be genuine interest when it wasactually paid after deducting TDS via banking channelsand duly accounted for in the books of the lender ? 10.The questions as raised can be summarized into two:findings of the genuineness of the loan i.e. questions (1), (2), (4) and(5) and second, the case-law cited by the Appellant before theTribunal, i.e. question (3). Re : questions (1), (2), (4) and (5) 11.Section 68 of the Income Tax Act 1961 governs the factsituation. It reads at the relevant time as under : 68. Where any sum is found credited in the books of anassessee maintained for any previous year, and theassessee offers no explanation about the nature andsource thereof or the explanation offered by him is not,in the opinion of the Assessing Officer, satisfactory, thesum so credited may be charged to income-tax as theincome of the assessee of that previous year. Thus where any sum is found credited in the books of an assessee;for which the assessee offers no explanation about nature and source,or the explanation is not satisfactory, the sum so credited may becharged to Income tax as the income of the assessee. The questionbefore the authorities and the Tribunal was whether the explanationoffered by the Appellant was satisfactory. 12.A statement of the partner of Moxdiam, Mr. Basant Jainwas recorded under Section 131 of the Income Tax Act. To thequestion regarding the financial position, Mr. Jain stated under:- Due to my unsound financial conditions and toearn bread and butter I used to issue accommodationbills, and therefore, I do not have equipment andapparatus used in diamond trade and under thesecircumstances, there is no stock or place for stock foundin this premises, I have also no capacity to invest suchhuge sum or huge amount in purchase/import ofdiamonds. In real sense all the investment made belongto other, and I am not in a position to tell you theirnames and address as I disclose their identity there willbe danger to my life. 12.A statement of the partner of Moxdiam, Mr. Basant Jainwas recorded under Section 131 of the Income Tax Act. To thequestion regarding the financial position, Mr. Jain stated under:- Due to my unsound financial conditions and toearn bread and butter I used to issue accommodationbills, and therefore, I do not have equipment andapparatus used in diamond trade and under thesecircumstances, there is no stock or place for stock foundin this premises, I have also no capacity to invest suchhuge sum or huge amount in purchase/import ofdiamonds. In real sense all the investment made belongto other, and I am not in a position to tell you theirnames and address as I disclose their identity there willbe danger to my life. Thus, Mr. Jain has admitted that he cannot invest any considerablesum, and due to his unsound financial condition and to earn breadand butter, accommodation bills had to be issued. Though soughtto be retracted, this admission before the officers is a significantcircumstance. Further, Mr. Jain retracted his statement after two years and eight months. Such retraction was rightly held as notbonafide. An admission made during a survey of such proceedingscan be relied upon by the Assessing Officer. 13.Further, the assessed income of Moxdiam for the year2007-08 was Rs. 2,49,530/- and for the year 2008-09 it wasRs.1,64,596/-.Capital of the partners was Rs.1,00,000/-. as againstthe stated loan of Rs. 1 crore. This is another circumstance reliedupon by the Tribunal and the authorities. 14.The Appellant had relied upon a decision of the Co-ordinate Bench of the Tribunal wherein one transaction of anotherperson with Moxdiam was held to be a genuine transaction. Thelearned Counsel for the Appellant has sought to justify the financialposition of Moxdiam trying to explain the nature of its activities.The learned Counsel submitted that once the genuineness of thelender and transaction is proved, then that should accrue to thebenefit of the assessee. 15. It is now an admitted position that Moxdiam wasindulging in accommodation entries. Majority of the activities ofMoxdiam are of accommodation entries. It is the Appellant whichseeks to assert a deviation from Moxdiam's regular activity ofaccommodation entry to contend that in Appellant’s case it was not an accommodation entry, but a genuine loan. The burden on theAppellant to show the genuineness of the entry was thus heavierthan situation where no such established evidence regards the lenderindulging into accommodation entries exists. Such a burden cannotbe casually shifted as contended. Merely because certain entries havebeen shown in the books of accounts of Moxdiam, they cannot beheld to be conclusive and must be construed in light of allsurrounding circumstances. The genuineness of the loan transaction,financial capacity, and the surrounding circumstances are somecriteria for determination in such matters. 16. It is in this background that the claim of the Appellant itis dealing with Moxdiam was not for accommodation entry, but agenuine loan transaction, had to be tested by the authorities. Twoauthorities and the Tribunal have evaluated each piece of evidenceto conclude that this transaction was not a genuine loan transaction.If the Tribunal has given more weight to some pieces of evidencevis-a-vis others, the conclusion is in the realm of assessment of theevidence. It cannot be said that the pieces of evidence relied uponby the Tribunal are irrelevant. The view taken by the Tribunal isthus on the assessment of evidence is not perverse, and merelybecause another view by re-appreciating the evidence is possible, itcannot give rise to a question of law as envisaged under Section260A of the Income Tax Act. 16. It is in this background that the claim of the Appellant itis dealing with Moxdiam was not for accommodation entry, but agenuine loan transaction, had to be tested by the authorities. Twoauthorities and the Tribunal have evaluated each piece of evidenceto conclude that this transaction was not a genuine loan transaction.If the Tribunal has given more weight to some pieces of evidencevis-a-vis others, the conclusion is in the realm of assessment of theevidence. It cannot be said that the pieces of evidence relied uponby the Tribunal are irrelevant. The view taken by the Tribunal isthus on the assessment of evidence is not perverse, and merelybecause another view by re-appreciating the evidence is possible, itcannot give rise to a question of law as envisaged under Section260A of the Income Tax Act. 17.The Tribunal has noted the decisions referred to by theAppellant and also by the Revenue. Following the principles laiddown in the decisions in the case of CIT v. Durga Prasad More[1]and Sumati Dayal v. CIT [2], that the nature of the transaction willdepend on facts and circumstances, the Tribunal rightly did not getweighed down by multiplication of decisions dealing with separatesets of fact. This approach adopted by the Tribunal would not leadto a substantial question of law as proposed by the Appellant. 18.Thus none of the questions raised by the appellant can inthe present facts be called substantial questions of law for theconsideration of the appeal. 19. The Appeals are dismissed. NITIN JAMDAR, J. M.S. SANKLECHA, J. 1(1971) 82 ITR 540 (SC) 2(1995) 214 ITR 801(SC)