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Dhanraj Mills Pvt. Limited, C/o Ramgopal Ganpatrai & Sons P. Ltd., Laxminarayan Mandir Chawl, Bapubhai Vashi Road, Vile Parle (West), Mumbai 400 056. Vs. Asstt. C.I.T.,Central -3, I.T. Office, Queens Road, Mumbai 400 001.`
November, 03rd 2014
                        "C"                            

    IN THE INCOME TAX APPELLATE TRIBUNAL "C"                  BENCH,    MUMBAI
       BEFORE S/SHRI VIJAY PAL RAO, JM AND N.K. BILLAIYA, AM

          ,                                     .  .  ,                          

                ./I.T.A. No.2204 to 2207 /Mum/96
(     /      Assessment Years: 1987-88, 1988-89, 1989-90 & 1990-91)

    Dhanraj Mills Pvt. Limited,        /            Asstt. C.I.T.,
    C/o Ramgopal Ganpatrai &           Vs.          Central -3,
    Sons P. Ltd.,                                   I.T. Office,
    Laxminarayan Mandir                             Queens Road,
    Chawl, Bapubhai                                 Mumbai ­ 400 001.`
    Vashi Road,
    Vile Parle (West),
    Mumbai ­ 400 056.

         ( /Appellant)                ..              (     / Respondent)


         Appellant by                  Shri Sanjiv M. Shah
         Respondent by :               Dr. Daniel
             / Date of Hearing                            : 29-9-2014
            /Date of Pronouncement :                       29-10-2014
                                           [

                                 / O R D E R
    PER N.K. BILLAIYA, A.M.                     :
    .    .  ,   

          These four appeals were heard pursuant to the directions of the Hon'ble
    Bombay High Court. In the first round of litigation, the matter travelled up to
    the Hon'ble Bombay High Court and the Hon'ble Bombay High Court was
    pleased to restore the contentious issues to the file of the Tribunal to
    reexamine and re-adjudicate afresh the nature and the character of the
    transactions involved in the appeal revolving around the subject questions.
                                    2    ITA Nos. 2204 to 2207/Mum/96




Respectfully following the directions of the Hon'ble Bombay High Court, these
appeals were heard.


First, we shall take up the appeal for A.Y. 1987-88.

2.    The contentious issues are:
      (i)    Addition u/s 68 of the Income Tax Act, 1961 amounting to Rs.
             6,69,35,505/-

      (ii)   Disallowance of interest of Rs. 33,96,194/- payable to M/s
             Champaklal Devidas.

3.    While scrutinizing the return of income for the A.Y. 1987-88, the A.O.
noticed that the balance has been drawn by the assessee in the Andhra Bank,
Fort branch account amounting to Rs. 6,69,35,305/-. The assessee was
asked to furnish full details of sale and purchase transactions of securities
and units. The assessee filed a statement of Andhra Bank account along with
copy of some bank advices. The A.O. observed that the details were
incomplete as there was no mention about the counter parties nor any
confirmation was furnished in this respect. The assessee was asked to explain
why liabilities of Rs. 6,69,35,305/- shown in the Andhra Bank, Fort branch
should not be treated as bogus liability. Vide letter dtd. 5-1-1995, the
assessee took a stand that it has not entered into any security transactions.
The broker has arranged the fund by entering into certain transactions with
Andhra Bank and further stated that the details of these transactions can be
obtained from Andhra Bank. The A.O. did not accept this explanation of the
assessee and proceeded by making addition of Rs. 6,69,35,305/- u/s 68 of
the Act holding that the assessee was not able to explain nature, source and
genuineness of the credits.

4.    Proceeding further, the A.O. noticed that in the sundry creditors list,
interest of Rs. 33,90,164/- is claimed by the assessee in respect of loan
                                     3      ITA Nos. 2204 to 2207/Mum/96




received from M/s Champaklal Devidas. The interest was charged to P&L
account. The assessee was asked to file complete details. The A.O. further
proceeded by verification from M/s Champaklal Devidas independently.            It
was found that in the account of M/s Champaklal Devidas that there is no
mention of the interest amount. The A.O. was of the opinion that such claim
of interest is not confirmed and not fully explained by the assessee. He
accordingly disallowed the interest of Rs. 33,96,164/-. The assessee carried
both these issues before the ld. CIT(A) but without any success.

5.     Before us, the ld. Counsel for the assessee vehemently submitted that
the transactions with Andhra Bank, Fort branch are akin to the transactions
involved in the securities scam for which Janaki Raman Committee was
constituted by the Reserve Bank of India. Referring to the Janaki Raman
Committee report, the ld. Counsel for the assessee stated that the
transactions were no more than an unsecured loan of fund. It is the say of
the ld. Counsel for the assessee that the transactions were supported by debit
and credit notes issued by the bank. The nature of the transactions being
unsecured loan has been confirmed by the Janaki Raman Committee in its
report, capacity of Andhra Bank cannot be doubted. Thus, the assessee had
discharged the onus cast upon it by virtue of section 68 of the Act. To
substantiate its claim, the ld. Counsel for the assessee relied on various
judicial pronouncements namely (i) Kamal Kumar Saharia vs. CIT, 216 ITR
217 (Gau), (ii) Shreelekha Bannerjee vs. CIT, 49 ITR 112, (iii) Addl. CIT vs.
Bahri Bros, 154 ITR 151 (Pat.) and (iv) CIT vs. Daulat Ram Rawatmull, 87 ITR
359.   The ld. Counsel for the assessee continued to argue that once the
nature of transaction has been accepted as that of unsecured loan, the
Revenue    Authorities   have   grossly   failed   in   confirming/examining   the
transaction from Andhra Bank, Fort branch and the broker M/s Champaklal
Devidas. The ld. Counsel for the assessee time and again repeated that the
                                        4      ITA Nos. 2204 to 2207/Mum/96




assessee has discharged the onus and the onus shifted on to the Department
and the Revenue Authorities have failed in discharging the onus.


6.     Rebutting strongly to the submissions made by the ld. Counsel for the
assessee, the ld. D.R. strongly submitted that the assessee was notified as a
notified person on 8-6-1992 and the Janaki Raman Committee was
constituted to examine the large scale transaction in Government securities
through the medium of brokers Post 1-4-1991. it is the say of the ld. D.R.
that the transactions involved in the year under consideration pertained to
the period 1-10-1985 to 30-9-1986, therefore, the same cannot be considered
akin to the securities scam transaction. The ld. D.R. further stated that the
additions have been made only on the basis of books of account of the
assessee and the assessee has not furnished any confirmation either from
Andhra Bank, Fort branch or from the broker M/s Champaklal Devidas. The
ld. D.R. concluded by saying that the assessee is not able to explain the
source of deposit in the bank therefore the addition deserved to be confirmed.




7.     We have heard the rival submissions and carefully perused the orders
of the lower authorities. We have also considered the relevant document
referred to and relied upon by the ld. Counsel for the assessee. The issue
before us is whether the addition of Rs. 6,69,35,305/- made u/s 68 of the Act
is justified ? At this juncture, let us see the provisions of section 68 of the Act.

             "Where any sum is found credited in the books of an assessee
             maintained for any previous year, and the assessee offers no
             explanation about the nature and source thereof or the explanation
             offered by him is not, in the opinion of the assessing Officer, satisfactory,
             the sum so credited may be charged to income-tax as the income of the
             assessee of that previous year."

Now, let us examine the claim of the assessee. Following chart explains the
claim of the assessee:-
     DATE                 PARTICULARS                       DEBIT            CREDIT
                                       5    ITA Nos. 2204 to 2207/Mum/96




22.7.1986      By sale 3,75,000 Govt. loan bonds                       3,72,00,000
               of year 2015 of 11.5%
16.9.1986      By sale of 25 lac units                                 3,22,75,000
16.9.1986      By sale 78,12,500 units                                10,00,00,000
16.9.1986      Purchase of 3 lac GOI 2015 bonds        3,00,00,000
               @ 100/-
16.9.1986      Purchase of 32 lacs units               4,09,00,000
16.9.1986      Purchase of 25 lacs units               3,21,89,250
16.9.1986      Loss on sale of GOI 2015 units                             2,40,000
30.9.1986      Interest on GOI bonds                                      3,09,555
30.9.1986      Balance c/f                             6,69,35,305
                                                       1,00,24,555 17,00,24,555


8.    The claim of the assessee is that it has indulged into sale and purchase
of Government securities and units which has resulted into a credit of Rs.
6,69,35,305/- in Andhra Bank, Fort branch account. In support, the assessee
has filed some credit and debit note of Andhra Bank. However, the assessee
has taken a stand that such transactions have a colour of security scam
transactions for which Janakiraman Committee was constituted and the
Committee has reported that such transactions are nothing but unsecured
loan provided by the Bank.

9.    Now this fact is especially within the knowledge of the assessee because
the books of account only show the transaction as purchase and sale of
securities.

10.    Section 106 of the Evidence Act clearly lay down as upon whom the
burden of proof lies.

11.   Section 106 of the Evidence Act read as under;-

              "Burden of proving fact especially within knowledge- When any fact is
              especially within the knowledge of any person, the burden of proving
              that fact is upon him."
                                    6     ITA Nos. 2204 to 2207/Mum/96




12.   A perusal of section 106 of the Evidence Act shows that when a fact to
be proved is especially within the knowledge of a party, it is for him to prove
it. All that is required is some prime facie evidence given to the person in
order to cast the burden in the case in hand. We find that the books of
account of the assessee show the transaction as purchase and sale of
securities and the assessee was asked to explain the same. Now the ld.
Counsel for the assessee time and again constantly took a stand that the
transactions are akin to the security scam transaction. Thus this fact is
within the special knowledge of the assessee itself, therefore, the burden of
proving this fact squarely lies upon the assessee.

13.   The Hon'ble Madras High Court in the case of CIT vs. Krishnaveni
Ammal, 158 ITR 826 has observed:-

             "But when, even according to the assessee, there is other
      documentary evidence of corroborative value and the same is within the
      reach of the assessee, the judicial body cannot act on the interested
      testimony of the assessee alone. The Law of Evidence mandates that if
      the best evidence is not placed before the court, an adverse inference can
      be drawn as against the person who ought to have produced it".

14.   Even before us, the assessee could not adduce any conclusive evidence
in support of its contention that the impugned transaction is akin to the
security scam transaction. The ld. Counsel for the assessee has repeatedly
said that the Revenue Authorities has failed to discharge the burden of proof.
As mentioned elsewhere section 106 clearly lay down that the burden of
proving fact specially within the knowledge of any person is upon that person.
Even today in the year 2014, no such conclusive confirmation has been
brought before us either from Andhra Bank or from the broker M/s
Champaklal Devidas. After carefully perusing the order and the evidences
                                    7     ITA Nos. 2204 to 2207/Mum/96




brought on record, we have to hold that the assessee has miserably failed in
discharging the burden of proof cast upon it by virtue of section 68 r.w.s. 106
of the Evidence Act. The explanations of the assessee are full of discrepancies
and contradictions and above all unsubstantiated. Considering the facts in
totality, the decision of the first appellate authority cannot be faulted with.
The findings of the ld. CIT(A) are confirmed. The first contentious issue is
dismissed.

15.   Before parting, we have to say that all the decisions relied upon by the
assessee are misplaced and therefore not considered for the simple fact that
the assessee has failed to discharge the burden of proof cast upon it by
section 106 of the Evidence Act.

16.   The second issue relates to the disallowance of interest payable to M/s
Champaklal Devidas amounting to Rs. 33,96,194/-.


17.   The ld. Counsel for the assessee drew our attention to the copy of the
accounts of M/s Champaklal Devidas to show that the amount was borrowed
and therefore the interest deserve to be allowed.

18.   The ld. D.R. relied upon the findings of the A.O.

19.   We have carefully perused the orders of the authorities below and the
relevant documentary evidences brought to our notice. A perusal of the copy
of the accounts of M/s Champaklal Devidas shows that there is no entry of
interest payable to him by the assessee. It is the claim of the assessee that
interest has been charged to the P&L account and the corresponding credit
entry is reflected under the head "sundry creditors" in the balance sheet.
This is not understandable. If the interest liability is towards Champaklal
Devidas then his account should have been credited. Further on investigation
made by the A.O., M/s Champaklal Devidas never confirmed of having
                                     8     ITA Nos. 2204 to 2207/Mum/96




received any interest from the assessee. Considering these facts, the claim of
interest by the assessee is dismissed. The findings of the ld. CIT(A) is
confirmed. The second contentious issue is also dismissed.

Now, we shall take up the appeal for A.Y. 1988-89.




20.   The only issue relates to the disallowance of Rs. 1,06,27,875/- being
amount of finance charges payable.

21.   The assessee has claimed to have paid finance charges on borrowings
from Andhra Bank and M/s Champaklal Devidas. The assessee was asked to
furnish full details of such transaction. The A.O. observed that no such
details have been furnished. The A.O. further observed that the assessee's
claim of borrowing from Andhra Bank as well as Champaklal Devidas is not
supported by assessee's own books. According to the A.O., the onus was on
the assessee to show that the borrowing was actually made and the same
were utilized for business purposes. The assessee has utterly failed in its
responsibility, the A.O. disallowed the claim of Rs. 1,06,27,875/-. Aggrieved
by this, the assessee carried the matter before the ld. CIT(A) but without any
success.

22.   Before us, the ld. Counsel for the assessee referred to the debit and
credit not in support of his contention that the claim of finance charges is
genuine and well supported by documentary evidences. It is the say of the ld.
Counsel for the assessee that finance from Andhra Bank and M/s
Champaklal Devidas was used by the assessee as the assessee is carrying out
investment business and finance work and the borrowings were utilized for
the purpose of business.

23.   The ld. D.R. strongly relied upon the findings of the lower authorities.
                                    9     ITA Nos. 2204 to 2207/Mum/96






24.   We have carefully perused the orders of the authorities below and the
relevant documentary evidences brought on record before us. Page 228 of the
paper book brought to our notice show that finance charges are Rs.
26,67,875/-. There is a mention of sale of units of Rs. 132,275,000/- from
which is deducted purchase of units amounting to Rs. 134,942,875/-. The
difference is claimed as finance charges. A perusal of these transactions
clearly show that there was a loss on purchase and sale of units. By any
stretch of imagination, this cannot be considered as equivalent to finance
charges. Interest is paid whenever money is borrowed or some debt is
incurred. Both elements are missing in these transactions. Therefore, the
finance charges claimed by the assessee is rightly denied by the A.O. and
confirmed by the ld. CIT(A). Findings of the ld. CIT(A) are accordingly
confirmed. This ground is dismissed.

Now, we shall take up the appeals for assessment years 1989-90 & 1990-91


25.   The only issue involved in both these years relate to the claim of finance
charges. The facts involved in both the years are identical to the facts of
earlier year. The documentary evidences referred and relied upon by the ld.
Counsel for the assessee show that there was a loss on the purchase and sale
of securities. As mentioned elsewhere, such losses cannot be allowed as
finance charges and as discussed at length elsewhere relating to the claim of
the assessee that such transactions are similar to the transactions involved in
the security scam, we have categorically held that the assessee has miserably
failed to discharge the burden of proof, therefore, the claim of the assessee
that the transactions involved are was nothing but unsecured loans have not
been accepted. Therefore, the claim of interest/finance charges on the said
transactions also cannot be accepted.
                                            10    ITA Nos. 2204 to 2207/Mum/96




      26.    In the result, appeals filed by the assessee for assessment years 1987-
      88, 1988-89, 1989-90 and 1990-91 which were heard pursuant to the
      directions of the Hon'ble Bombay High Court are dismissed.

             Order pronounced in the open court on 29th October, 2014.



                    Sd/-                                            sd/-
            (VIJAY PAL RAO)                                   (N.K. BILLAIYA)
            JUDICIAL MEMBER                                 ACCOUNTANT MEMBER

        Mumbai;
                            Dated 29-10-2014
      . ../ R.K., Sr. PS


              /Copy of the Order forwarded to :
1.    / The Appellant
2.     / The Respondent.
3.     () / The CIT(A) Concerned, Mumbai
4.      / CIT- Concerned, Mumbai
5.            ,     ,  / DR, ITAT, Mumbai C Bench

6.     / Guard file.
                                                                         / BY ORDER,

                            //True Copy//
                                                        /  (Dy./Asstt.       Registrar)
                                                            ,  / ITAT, Mumbai

 
 
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