Gautam Jain, Adv for the Assessee. Saras Kumar, Sr. DR for the Revenue

This appeal by the assessee is directed towards the order of the CIT(A) - 8, New Delhi dated 19.11.2019 pertaining to assessment year 2010-11.

2. The assessee is aggrieved by the following additions:

(i) Rs. 2 crores as unexplained cash credits u/s 68 (of Income Tax Act, 1961) [hereinafter referred to as 'The Act' for short];

ii) Rs. 5,40,000/- as unexplained expenditure u/s 69C (of Income Tax Act, 1961); and

iii) Rs. 1,55,16,090/- as unexplained expenditure u/s 69C (of Income Tax Act, 1961).

3. In addition to the above, the assessee has also challenged the validity of the assessment order framed u/s 143(3) (of Income Tax Act, 1961) r.w.s 147 (of Income Tax Act, 1961) alleging that the appropriate section is 153 of the Act.

4. The representatives of both the sides were heard at length, the case records carefully perused and with the assistance of the ld. Counsel, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) (of Income Tax Rules, 1962) of ITAT Rules and have also perused the judicial decisions relied upon by both the sides

5. Briefly stated, the facts of the case are that a search was conducted at Ahmedabad and New Delhi in which certain documents were found and seized by the search party. From the documents found, unaccounted money lending business of Shri Asharam Bapu and his associates came into light. It also came to the knowledge of the Revenue that there were several beneficiaries. Statement of one Shri Devi Das Tikamdas was recorded u/s 131A (of Income Tax Act, 1961) r.w.s 131 (of Income Tax Act, 1961) on 25th and 26th September, 2015.

6. In his statement, Shri Devi Das Tikamdas Chattani stated that whole of the loan account was maintained by one Shri Popat Lal Vani. Shri Devi Das Tikamdas Chattani also stated that one Shri Sant Lal Aggarwal was handler of Rs. 200 crores at Delhi from where the loan was disbursed to around 100 parties, out of which 60 such parties were transacted through Shri Sant Lal Aggarwal.

7. The Assessing Officer of the assessee was informed by the Investigation Wing of the department that from verification of documents seized, it clearly appears that Shri Sant Lal Aggarwal received cash loans from Shri Asharam and further disbursed to other parties and the assessee is one of the beneficiaries. According to the Assessing Officer, the following cash loans were given to the assessee:

Date Beneficiary Name Debit Credit Group Contra

01.07.2009 Shagun Jewellers 0 72,00,090 Govind Delhi

01.07.2009 Shagun Jewellers Pvt. Ltd. 72,00,090 0 Govind Interest received

01.07.2009 Shagun Jewellers 75,00,000 0 Govind Delhi

29.03.2010 Shagun Jewellers 0 83,16,000 Govind Delhi

29.03.2010 Shagun Jewellers Pvt. Ltd.83,16,000 0 Govind Interest received

29.03.2010 Shagun Jewellers 83,00,000 0 Govind Delhi

Total 3,13,16,090 1,55,16,090

8. On the strength of the information received from the ADIT, INV, the Assessing Officer assumed jurisdiction u/s 148 (of Income Tax Act, 1961) and accordingly, statutory notices were issued and served upon the assessee.

9. Since the documents were found at the premises of the searched person, they did not belong to the assessee and the transactions recorded in the seized documents were in the books of the searched person and, therefore, information received from the Investigation Wing was a tangible material evidence which prompted the Assessing Officer to initiate proceedings u/s 148 (of Income Tax Act, 1961).

10. In our considered opinion, provisions of section 153C (of Income Tax Act, 1961) do not apply on the facts of the case in hand, and therefore, jurisdictional issue challenged by the assessee does not hold any water. Accordingly, Ground No. 2 with all its sub grounds is dismissed.

11. Coming to the merits of the additions, during the course of assessment proceedings, the Assessing Officer found that the assessee has taken loan from M/s Index Securities and Research Pvt Ltd amounting to Rs. 2 crores. The assessee was asked to explain the credit in light of provisions of section 68 (of Income Tax Act, 1961). The assessee furnished confirmations from M/s Index Securities and Research Pvt Ltd along with its tax returns and bank statement. The direct evidences furnished by the assessee did not find any favour with the Assessing Officer who concluded by making addition of Rs. 2 crores as unexplained cash credit u/s 68 (of Income Tax Act, 1961).

12. The entire addition is based upon the statement of Shri Devi Das Tikamdas Chattani. The Assessing Officer was of the firm belief that the assessee is one of the entities who has received credits amounting to Rs. 2 crores and is one of the beneficiaries of accommodation entries from M/s Index Securities and Research Pvt Ltd. According to the Assessing Officer, the assessee has routed its unexplained income through M/s Index Securities and Research Pvt Ltd. While making additions, the Assessing Officer drew support from the statement of Shri Vinod Kumar Taneja and Shri Chanchal Taneja who are directors of M/s Index Securities and Research Pvt Ltd.

13. According to the Assessing Officer, both the directors did not have any knowledge about the financials of M/s Index Securities and Research Pvt Ltd. The Assessing Officer observed that M/s Index Securities and Research Pvt Ltd is not doing any business activity in reality and is merely a paper entity.

14. As mentioned elsewhere, the assessee has furnished complete details of M/s Index Securities and Research Pvt Ltd. Copy of confirmation of accounts is placed at page 105 of the paper book which is as under:

15. On a perusal of the bank statement of the assessee exhibited at pages 132 to 135 of the paper book, it can be seen that Rs. 2 crores were credit through RTGS on 11.09.2009. Rs. 1.80 crores was repaid on 10.12.2009 and Rs. 20 lakhs was repaid on 12.12.2009 and interest of Rs. 4,80,000/- was paid on 22.12.2009 after deducting TDS.

16. Coming to the financial of M/s Index Securities and Research Pvt Ltd., the balance sheet reads as under:

17. It can be seen from the afore extracted balance sheet that M/s Index Securities and Research Pvt Ltd. was having available funds amounting to Rs. 1,556 lakhs.

18. The returned income of M/s Index Securities and Research Pvt Ltd. as per ITR at page 104 of the paper book was Rs. 67.79 lakhs on which it has paid Rs. 20.94 lakhs as tax, which was adjusted against TDS amount of Rs. 59.74 lakhs.

19. These clinching evidences demolish the allegation of the Assessing Officer that M/s Index Securities and Research Pvt Ltd is merely a paper company. Further, the directors of the company appeared before the Assessing Officer alongwith Shri Sant Lal Aggarwal who happens to be a share holder of the company. It would not be out of place to mention that Shri Sant Lal Aggarwal and Shri Chanchal Taneja also appeared during the remand proceedings and were subjected to cross examination by Shri Subhash Aggarwal, director of the appellant company.

20. A perusal of the statement of Shri Sant Lal Aggarwal shows that he has categorically stated that M/s Index Securities and Research Pvt Ltd is a group company in which he is a share holder and the said company is NBFC company, which is engaged in the business of giving and taking loans. In his statement, Shri Sant Lal also affirmed the loan transaction with the appellant company which was reaffirmed by him during the cross examination. While affirming the loan transaction, Shri Sant Lal Aggarwal categorically denied any cash transaction with the appellant company.

21. There is no dispute that u/s 68 (of Income Tax Act, 1961), the initial onus is upon the assessee to explain the identity, genuineness of the transaction and the capacity of the lender. Evidences discussed hereinabove clearly show that the assessee has successfully established the identity, genuineness of the transaction and capacity of the company M/s Index Securities and Research Pvt Ltd.

22. These direct and clinching evidences cannot be brushed aside lightly. The entire additions have been made on surmises and assumptions revolving around the statement of one Shri Devi Das Tikamdas Chattani ignoring the fact that the director of M/s Index Securities and Research Pvt Ltd alongwith major share holder Shri Sant Lal Aggarwal appeared before the Assessing Officer. Financials were available with the Assessing Officer. The Assessing Officer/CIT(A) should not have discarded the evidences. In our considered opinion, the assessee has successfully discharged the onus cast upon it u/s 68 (of Income Tax Act, 1961). We, accordingly, do not find any merit in the addition of Rs. 2 crores and the same is hereby deleted.

23. Addition of Rs. 5,40,000/- u/s 69C (of Income Tax Act, 1961) is directly related to the loan amount of Rs. 2 crores as the same is interest paid by the assessee to the company and the same is also directed to be deleted.

24. Before closing, it can be seen from the confirmation exhibited elsewhere that the loan was taken on 11.09.2009 and within three months, the loan was repaid. All the transactions have been done through banking channel. Accordingly, Ground No 3 with all its sub grounds and ground No. 4 are allowed.

25. Coming to the merits of addition of Rs. 1,55,16,090/-, once again, the entire addition revolves around the statement of Shri Devi Das Tikamdas Chattani. In his statement, Shri Devi Das Tikamdas Chattani stated that Shri Sant Lal Aggarwal is handler and is the main person for disbursing cash loan to 60 parties. The alleged cash loans given to the assessee is already exhibited elsewhere at para 7 hereinabove.

26. As mentioned elsewhere, the foundation of the impugned addition is the statement of Shri Devi Das Tikamdas Chattani. Except for that, there is no direct evidence brought on record to show that any cash transactions took place between the assessee and the said person.

27. On the contrary, the statement of Shri Sant Lal Aggarwal which is part of the assessment order and is extracted at pages 17 to 24 of the assessment order shows that Shri Sant Lal Aggarwal, answering to question No. 13, emphatically stated that he does not know who Shri Devi Das Tikamdas Chattani is. Once again, answering to question No. 18, Shri Sant Lal Aggarwal stated that he does not know who is Shri Devi Das Tikamdas Chattani. Answering to question No. 19, Shri Sant Lal Aggarwal stated that he does not know Shri Devi Das Tikamdas Chattani and never handled Rs. 200 crores and no such transaction was done by him except selling rice to the Ashram. In the very same statement, Shri Sant Lal Aggarwal accepted the transaction of M/s Index Securities and Research Pvt Ltd and the appellant company.

28. The Assessing Officer never confronted Shri Devi Das Tikamdas Chattani to Shri Sant Lal Aggarwal. If the statement of Shri Devi Das Tikamdas Chattani is to be believed, then on the same facts, statement of Shri Sant Lal Aggarwal cannot be ignored or brushed aside lightly. Merely because the statement of Shri Sant Lal goes in favour of the assessee, cannot be a reason to disbelieve the same. As mentioned elsewhere, there is no direct evidence brought on record which could suggest that some cash transactions took place between the assessee and the searched person. The observations made by the Assessing Officer at page 25 of the assessment order clearly show that the entire addition has been made on surmises and conjectures. The relevant para of the assessment order reads as under:

“From above it is clear that M/s. Shagun Jewellers has had transactions with M/s Index Securities & Research Put Ltd which was a conduit company managed by Mr.Santlal Aggarwal who has further acted on behalf of Sh. Asharam Bapu. Hence, it cannot be ruled out that cash loan were received by the assessee from Santlal Aggarwal. Moreover, the seized material retrieved , clearly indicates that the assessee company has paid Rs. 1,55,16,090/- in cash on account of interest on such cash loan.”

29. Considering the facts of the case in hand, in the light of statement of Shri Sant Lal Aggarwal, we do not find any merit in the impugned addition and the same is directed to be deleted. Accordingly, Ground Nos. 4 and 5 are allowed.

30. Ground No. 7 relates to levy of interest u/s 234B (of Income Tax Act, 1961). Levy of interest is mandatory, though consequential. The Assessing Officer is directed to recompute interest as per provisions of law.

31. In the result, the appeal of the assessee in ITA No. 9890/DEL/2019 is partly allowed.

The order is pronounced in the open court on 16.06.2020.