TaxTMI 
TaxTMI 
2019 (8) TMI 704
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....f Silver Cross Marketing Pvt. Ltd. before the AO and merely resorted to evasive tactics like submitting paper submissions. 3. The Ld. CIT(A) has erred in deleting the disallowance of Rs. 54,66,393/- on account of interest paid on the loan of Rs. 9 crore." 3. Ground No. 1, 2 and 3 is against the action of the Ld. CIT(A) in deleting the addition of Rs. 9 crores as unexplained credit u/s 68 of the Income Tax Act (herein after referred to as the 'Act'). 4. Brief facts of the case is that the assessee-company has filed its return of income reflecting Rs. 3,04,83,860/-. Later the case was taken for scrutiny. The AO noted that the assessee has shown credit entry of Rs. 7 crores on 04.08.2011 and Rs. 2 crores on 09.09.2011 in its books of account and the assessee claimed the said total amount of Rs. 9 crores as loan received during this year from M/s. Silver Cross Marketing Pvt. Ltd. (herein after referred to M/s. SCMPL) and the interest of Rs. 54,66,393/- has been credited by the assessee to them and the assessee has shown to have deducted tax at source (TDS) of Rs. 5,43,639/- on the interest expense. The AO acknowledges that the deposits or credits have been made through banking chan....
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.... concluded that the assessee has used M/s. Silver Cross Marketing Pvt. Ltd. as a mask for introducing its own undisclosed income without paying any tax in the guise of loan. Therefore, he added Rs. 9 crores as unexplained credit and added back u/s 68 of the Act, thereafter, disallowed the interest expenditure of Rs. 54,66,393/-. Aggrieved the assessee preferred an appeal before the Ld. CIT(A) who was pleased to allow the appeal of the assessee. Aggrieved the Revenue is before us. 5. The Ld. CIT, DR assailing the decision of the Ld. CIT(A) contended that though the assessee-company claims to have taken this loan from a sister concern of M/s. SCMPL, the assessee failed to produce the Pr. Officer of that lender company. It was pointed out by the Ld. CIT, DR that even though the assessee itself has undertaken vide letter dated 03.03.2015 to produce the Pr. Officer of M/s. SCMPL it did not do so which clearly goes on to show that M/s. SCMPL exist only on paper and therefore, the AO rightly added the bogus loan u/s 68 and disallowed the interest expenditure because the assessee had introduced its own money as loan without paying tax and has rightly disallowed the interest expenditure cl....
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....ngs, it was brought to the notice of the Ld. CIT(A) that the aforesaid document were duly filed before the AO i.e. the annual return, IT return of the creditor company, voter ID card and PAN card of its directors which establishes the identity of the lender; and the fact that AO himself has accepted that the entire loan amount has come through banking channel which fact establishes genuineness of the loan transaction between M/s. SCMPL and the assessee. In order to prove the genuineness of the lender company M/s. SCMPL, the ld. AR drew our attention to the audited accounts of M/s. Silver Cross Marketing Pvt. Ltd. for the relevant FY. A perusal of the same shows that the net worth of the company as on 31.03.2011 was Rs. 40.55 crores which increased to Rs. 42.63 by 31.03.2012. Our attention was drawn to Note No. 27 in which is the related party disclosure shows the fact of loan of Rs. 9 crores advanced to the assessee-company. Our attention was also drawn to the fact that the loan creditor / M/s. SCMPL has a strong asset base. We note that it has investments in tangible assets are listed below: Particulars Amount(Rs.) Flat at Silver Spring 49,06,261/- Immovable properties 1,....
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....are placed in the Paper Book including copy of board resolution passed by the Board of Directors of M/s. Silver Cross Marketing Pvt. Ltd. are found placed from page 13 to 77 of the Paper Book. 10. Taking note of the aforesaid documents, the Ld. CIT(A) was of the opinion that the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the loan creditor (M/s. SCMPL) and deleted the addition made u/s 68 of the Act. Before we adjudicate as to whether the Ld. CIT(A)'s action is right or erroneous, let us look at section 68 of the Act and the judicial precedents on the issue at hand. 11. Section 68 under which the addition has been made by the Assessing Officer 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 income-tax as the income of the assessee of that previous year. " The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfact....
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....alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue's case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw and adverse inference against the assessee. in the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by' treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69. 13. In the case of Nemi Chand Kothari 136 Taxman 213, (supra), the Hon'ble Guahati High Court has thrown light on another aspect touching the issue of onus on assessee under section 68, by holding that the same should be decided ....
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....in knowledge.-When any fact is especially within the knowledge of any person, the burden) of proving that fact is upon him. " ******** What, thus, transpires from the above discussion is that white section 106 of the Evidence Act limits the onus of the assessee to the extent of his proving the source from which he has received the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s)of the creditor but also of his (creditor's) sub-creditors and prove, as a result, of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the Assessing Officer to enquire into the source/source from where the creditor has received the money, section 106 makes the assessee liable to disclose only the source(s) from where he has himself received the credit and IT is not the burden of the assessee to prove the creditworthiness of the source(s) of the sub-creditors. If section 106 and section 68 are to stand together, which they must, then, the interpret....
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....h he advances, as loan, to the assessee is that so far as an assessee is concerned, he has to prove the genuineness of the transaction and the creditworthiness of the creditor vis-a-vis the transactions which had taken place between the assessee and the creditor and not between the creditor and the sub-creditors, for, it is not even required under the law for the assessee to try to find out as to what sources from where the creditor had received the amount, his special knowledge under section 106 of the Evidence Act may very well remain confined only to the transactions, which he had' with the creditor and he may not know what transaction(s) had taken place between his creditor and the sub-creditor... " ********** "In other words, though under section 68 an Assessing Officer is free to show, with the help of the inquiry conducted by him into the transactions, which have taken place between the creditor and the sub-creditor, that the transaction between the two were not genuine and that the sub-creditor had no creditworthiness, it will not necessarily mean that the loan advanced by the sub-creditor to the creditor was income of the assessee from undisclosed source unless the....
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....;s onus in relation to a cash credit appearing in his books of account, has observed and held as under:- "4. The Tribunal has recorded a finding that the assessee has discharged the onus which was on him to explain the nature and source of cash credit in question. The assessee discharged the onus by placing (i) confirmation letters of the cash creditors; (ii) their affidavits; (iii) their full addresses and GIR numbers and permanent account numbers. It has found that the assessee's burden stood discharged and so, no addition to his total income on account of cash credit was called for. In view of this finding, we find that the Tribunal was right in reversing the order of the AA C, setting aside the assessment order." 15. We also take note of the decision of the Hon'ble High Court, Calcutta in the case of S.K. Bothra & Sons, HUF v. Income-tax Officer, Ward- 46(3), Kolkata 347 ITR 347 wherein the Court held as follows: "15. It is now a settled law that while considering the question whether the alleged loan taken by the assessee was a genuine transaction, the initial onus is always upon the assessee and if no explanation is given or the explanation given by the appellant....
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....t when the Tribunal has relied on the entire judgment of the Commissioner of Income-tax (Appeals), therefore, it was not proper to take up some portion of the judgment of the Commissioner of Income-tax (Appeals) and to ignore the other portion of the same. The judicial propriety and fairness demands that the entire judgment both favourable and unfavourable should have been considered. By not doing so the Tribunal committed grave error in law in upsetting the judgment in the order of the Commissioner of Income-tax (Appeals). 9. In this connection he has drawn our attention to a decision of the Supreme Court in the case of Udhavdas Kewalram v. CIT [19671 66 ITR 462. In this judgment it is noticed that the Supreme Court as proposition of law held that the Tribunal must In deciding an appeal, consider with due care, all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner in the light of the evidence and the relevant law. 10. We find considerable force of the submissions of the learned counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one cam....
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....as been spared to up set the fact finding of the Commissioner of Income-tax (Appeals) that there are materials to show the cash credit was received from various persons and supply as against cash credit also made. 13. Hence, the judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. We restore the judgment and order of the Commissioner of Income-tax (Appeals). The appeal is allowed. 17. When a question as to the creditworthiness of a creditor is to be adjudicated and if the creditor is an Income Tax assessee, it is now well settled by the decision of the Calcutta High Court that the creditworthiness of the creditor cannot be disputed by the AO of the assessee but the AO of the creditor. In this regards our attention was drawn to the decision of the Hon'ble High Court, Calcutta in the COMMISSIONER OF INCOME TAX, KOLKA TA-Ill Versus DATAWARE PRIVATE LIMITED ITAT No. 263 of 2011 Date: 21st September, 2011 wherein the Court held as follows: "In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an i....
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....oan is seen from the entries passed in the respective balance sheets of the companies as loan. In respect of source of credit, the assessee has to prove the three necessary ingredients i.e. identity of lender / creditor, genuineness of transactions and creditworthiness of lender / creditor. For proving the identity of lender / creditor of loan, the assessee has duly furnished the name, address, PAN of lender / creditor together with the copies of balance sheets and Income Tax Returns. With regard to the creditworthiness of lender / creditor, as we noted supra, this company was having capital in several crores of rupees and the investment made in the assessee company is only a small part of their capital. These transactions are also duly reflected in the balance sheets of the lender / creditor, so creditworthiness is proved. Even if there was any doubt if any regarding the creditworthiness of the lender / loan creditor was still subsisting, then AO should have made enquiries from the AO of the lender / loan creditor as held by Hon'ble jurisdictional High Court in CIT vs DATAWARE (supra) which has not been done, so no adverse view could have been drawn. Third ingredient is genuinene....