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TaxTMI 
TaxTMI 
TaxTMI 
2018 (12) TMI 1052
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.... was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. On scrutiny of the accounts it revealed to the AO that the assessee has received unsecured loans from three concerns. Therefore, he made an inquiry under section 68 of the Income Tax Act and ultimately made an addition of Rs. 5.50 crores to the total income of the assessee on the ground that the assessee failed to explain ingredients of section 68. In this way, an assessment order was passed on 29.3.2014 whereby the income of the assessee was determined at Rs. 5,86,06,904/-. Though the Revenue has not specified amount, whose deletion it is challenging in the grounds of appeal, but it is in respect of addition made by the AO with the aid of section 68 of the Act. This addition has been deleted by the CIT(A). Therefore, it is assumed that Revenue is challenging deletion of Rs. 5.50 crores in the present appeal. 3. As facts emerge out from the record, the assessee has received a sum of Rs. 2 crores from M/s.Shashvat Infracon Private Ltd. ("SIPL" for short) on 3.1.2011. This loan was repaid back to SIPL on 4.1.2011 i.e. next day. The second amount considered by the AO is of....
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....eral Capital A closely held company called M/s General -Capital and Holdings Private Limited was incorporated on 01.04.2008 with total paidup share capital of One lakh rupees. -As on date paid-up share capital of M/s General Capital and Holdings Private Limited is One lakh Nineteen Thousand Nine Hundred rupees only. As per the web-site of Ministry of Corporate Affairs, Government of India, Shri Zankarsinh Kishorsinh Solanki and Gitaben Kishorsinh Solanki are the two promoters of M/s General Capital and Holdings Private Limited. and Holdings Pvt. Ltd. as on 31.03.2011 is Rs. 13,97,51,202/-. The working of net worth as under: Total assets Rs. 42,66,51,416/- Less: Total Liabilities Rs. 28,69,00,214/- Net worth Rs. 13,97,51,202/- Details of Returned income of the present directors of M/s. General Capital and Holdings Private Limited for Assessment Years 2010-11, 2011-12 and 2012-13 are provided. Your appellant has not taken any loans from such directors and such the reference made by Id. AO is misleading and not relevant. As a matter of fact Id. AO should have concentrated on the funds brought in by M/s General Capital and Holdings P.Ltd., because the promoters/ directors a....
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....med to have been taken by M/s. Shashavat Infracon Pvt. Ltd. as on 31.03.2011 is Rs. 37,79,00,387/- and the loan given by the said lender to your appellant against such loans is Rs. 2,00,00,000/- which is less than l/10th of the said amount of unsecured loans of the Lender Firm. In view of above, financial capability of all the three depositors to give loans to your appellant is squarely proved. For asserting financial capability it is not necessary that the lender should have handsome income and only from such income lender can lend the money. On the contrary all the three lenders have more than sufficient borrowed funds from which a very small part has been landed to your appellant. It seems that Id. AO wanted to make addition by hook or crook and without even going through the requirements of provisions of section 68 of the Act. The Id. AO also argued that the details of returned income of the promoters/present of M/s. Associated Infracon Pvt. Ltd, M/s. General Capital and Holdings Co. Pvt. Ltd. and M/s. Shashvat Infracon Pvt. Ltd. prove that they all are financially very weak in terms of the prevalent inflation and cost of living and most of them are man of no means. Furtherm....
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....pellant wishes to submit that loan obtained from Shashavat Infracon Pvt. Ltd. has been repaid in the same month. Similarly, loans obtained from M/s. Associated Tradecom Pvt. Ltd., M/s. General Capital & Holding Company Pvt. Ltd. and M/s. Kuviic Realty Pvt. Ltd. (which is now known as Proper-t Home & Estates IIP) are invested in the capital of M/s. Tectone Motors Pvt. Ltd. In view of said facts, how the sums received through banking channels which are either repaid or invested in the share capital of a Company, showing the clear flow of funds received and deployed, be treated as accommodation entries. The Id. AO with suspicious mind argued that the flow of funds is just an accommodation entry which is far from Your appellant has already furnished copy of Balance sheet of M/s Tectone Motors-Pvt.-Ltd. vide its letter dated 24.2.2014 wherein it is apparent that it has made investment as share capital and your appellant is one of the major shareholder in that Company. Your appellant also wishes to draw your Honour's kind attention to the fact that said Company has made investment in various business assets worth Rs.lQ.34 crores and it is in business of dealing in Honda cars. This fa....
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....ion entries, it would neither affect your appellant's source nor nature of transaction as your appellant is nowhere proved to have been part of any such accommodation entries. So far as creditworthiness of depositors is concerned, it can be easily judged from huge funds those depositors have in form of capital or reserves or loan funds. Your appellant cannot ask for the source of source from depositors when those depositors are undoubtedly tax assessees. Even this has been held by various Courts in favour of assessee. Fundings of the ld.CIT(A): "3.3.6. In the light of aforementioned judicial decisions and with these materials on record and under these circumstances, it was not material that some of the directors had business interest in some of the creditors and that in the wake of the material before the Assessing Officer the onus had shifted on to the revenue to prove, if it disputed, as it did, the genuineness of the loans extended to the assessee. The other observation of the Assessing Officer that since the creditors had paid small amounts as tax against their individual assessments, it would demonstrate that the loans advanced to the assessee were not genuine, is also....
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....and addresses of the third parties were also available. (vi) From the assessment order, it transpires that the AO has presumed adversely about the creditworthiness of the loan creditors on the basis of erroneous and incorrect appreciation of facts. He has commented adversely on the basis of bank of the creditors at the end of the month and not at the time of issue of cheques to the assessee. With this material on record in my view as far as the assessee was concerned, it had discharged initial onus placed on it. In the event the AO still had a doubt with regard to the genuineness of the transactions in issue, or as regards the creditworthiness of the creditors, he had to discharge the onus which had shifted on to it. A bald assertion by the Assessing Officer that the credits were a circular route adopted by the assessee to plough back its own undisclosed income into its accounts, can be of no avail. The Assessing Officer was required to prove this allegation. An allegation by itself which is based on assumption will not pass muster in law. The revenue would be required to bridge the gap between the suspicions and proof in order to bring home this allegation. In my considered ....
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....he loans are not genuine and in fact assessee has obtained "accommodation entries". This approach of the Assessing Officer is clearly against the spirit of aforementioned judicial decisions. 3.3.8. Considering the detailed facts of the case, written submissions of the AR and ratio of the judicial decisions cited above, it is held that the assessee had proved beyond any doubt the identity, creditworthiness and genuineness of the loans amounting to Rs. 5,50,00,000/- and addition made by the Assessing Officer under section 68 was not justified, therefore, the same is directed to be deleted. This Ground of appeal is allowed accordingly." 5. With the assistance of the ld.representatives, we have gone through the record carefully. Before we embark upon an inquiry on the facts of the present case, it imperative upon us to take note of section 68 of the Act which reads as under: 68. 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 inc....
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....ank statement, PAN data, ledger accounts, audited financial results of all these concerns. As far as case of GCHPL is concerned, this concern had received funds from SIPL and the SIPL received the funds from TAPL. The assessee has not only produced the source of funds in the hands of its creditors, rather it has proved the source from where its creditors got the money. Similarly, as far as Kuvic Reality P.Ltd. is concerned, it has received funds from GCHPL and the GCHPL in turn received funds from SIPL. Thus, main source of funds to these concerns is TAPL. Shri Kuren M. Amin is the director of TAPL and also partner in the assessee-firm. From the cash credit account with bank of TAPL, these funds were transmitted to three creditors, and thereafter they reached to the assessee. Before us, the annual report of TAPL for the financial year 2010-11 has been placed on record. This company is authorized dealer of Skoka Auto India Pvt. Ltd. Apart from that it has been doing host of activities. It has achieved a turnover of Rs. 2220.02 million during this year. Its earnings before depreciation, interest and taxation stood at Rs. 103.50 million. This is not a concern which is just on a paper.....