AI Drafter 
TaxTMI 
TaxTMI 
2019 (9) TMI 756
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....ring. The same was reckoned as a statement made from the Bar and accordingly the Ground No. 1 for both the assessment years is dismissed as not pressed. 3. Addition made towards estimation of Profits - Rs. 92,34,017/- Ground Nos. 2 to 5 of Asst Year 2013-14 Ground No. 5 of Asst Year 2014-15 The brief facts of this issue are that the assessee is a partnership firm engaged in the business of construction of residential flats at Kamothe. The return of income for the Asst Year 2013-14 was filed by the assessee firm on 30.9.2013 declaring total income of Rs. 28,20,200/-. During the year, the assessee was engaged into construction of residential units in the project named 'Shree Shankar Heights'. The ld AO observed from the submissions made by the assessee and from the Notes on accounts of audited financial stateemnets, the assessee was offering 10% of construction expenses every year which was neither as per percentage of completion method nor as per project completion method. The assessee was asked to file workings of cost of project and the income offered from the projects year wise since inception of the project. The ld AO did not heed to the contentions of the assessee a....
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....d taken place upto 31.3.2013. It was pleaded that profit cannot be worked out on the flats which have not been sold. It was pleaded that the work in progress is to be worked out on the basis of cost or realizable value whichever is lower. We find that the assessee had pleaded before the ld AO that even profit is taken at 15% on receipt basis (i.e monies received from prospective flat buyers), then also the profit declared by the assessee was more. We find that the assessee had pleaded before the lower authorities that even if the working of profit is to be based on percentage of completion method as per AS -7 issued by ICAI, then the same fails the crucial tests laid down in AS 9 issued by ICAI on 'Revenue Recognition' as there is neither any sale nor any transfer of risks and rewards in favour of the prospective flat buyers. Further, going by the method as per AS 7 of ICAI, the assessee had pleaded that it had offered more profit than actually taxable. 4.3. We find that the ld CITA had rejected the books of accounts of the assessee u/s 145(3) of the Act and upheld the action of the ld AO in estimation of profits. We find that the ld AR argued that it is open for an assessee to ....
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....axed ultimately is the real income of the assessee. In the instant case, both the ld AO and ld CITA had categorically admitted that what is being added by them is a mere estimate which would only lead to bringing to tax hypothetical income which is not permissible in the eyes of law. Reliance in this regard has been rightly made by the ld AR on the decision of Hon'ble Apex Court in the case of CIT vs Shoorji Vallabhdas & Co reported in 46 ITR 144 (SC). 4.5. We find lot of force in the final argument made by the ld AR before us that the entire exercise is revenue neutral since the assessee has ultimately offered its entire profit on actual basis from the project to tax in the year of completion of project which is far higher than the originally estimated profit and that this profit has been accepted by the ld AO in the scrutiny assessment completed u/s 143(3) of the Act for the Asst Year 2014-15 and the workings of profit of assessee was also accepted by the ld AO. The addition made by the ld AO in Asst Year 2013-14 would only result in double taxation in Asst Year 2014-15 of the same income, which is not sustainable in the eyes of law. 4.6. In view of the aforesaid observatio....
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....ed the main business activities of the aforesaid loan creditors individually and explained the immediate source of funds for them to advance loan to the assessee. The assessee also pleaded that all the aforesaid loan creditors had substantial creditworthiness and funds at their kitty to advance loans to the assessee and also pleaded that all the loan creditors are regular income tax assessee and had paid substantial amounts towards income tax. The submission of these details were acknowledged by the ld AO in his order. The ld AO did not heed to these contentions of the assessee and observed that the loan creditors are engaged in merely providing accommodation entries and do not have any net worth to advance loans to the assessee . The ld AO further observed that the loan transactions with aforesaid parties were not genuine and assessee did not produce the directors / promoters of the lending companies for recording statement on oath from them despite giving several opportunities to the assessee. Accordingly, he concluded that the assessee had not discharged its burden of proof of establishing identity of creditors, genuineness of transactions and creditworthiness of creditors which....
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....rodue parties before AO even though asked to. v) The parties are found to be part of accommodation entry scam. vi) Unsigned bank account copies, balance sheet etc downloaded from M.C.A. website and directors‟ affidavit submitted by assessee. vii) Financials of parties deep analysed by AO (para 5.4.2), All have negative net worth. Loans given to assessee prima facie sourced from "borrowed‟ funds. They are not into loan financing. viii) All are diamond traders holding huge trade payables. ix) All parties incurring "losses‟. x) Creditworthiness woefully unestablished. 5.5. Aggrieved, the assessee is in appeal before us. 6. We have heard the rival submissions and perused the materials available on record including the paper book of the assessee comprising of pages 1 to 317. We find that the assessee had borrowed loans from the following parties during the Asst Year 2013-14 :- Casper Enterprises P Ltd - Rs. 10,00,000/- Falak Trading P Ltd - Rs. 70,00,000/- Duke Business P Ltd - Rs. 90,00,000/- Nakshatra Business P Ltd - Rs. 20,00,000/- Pragati Gems P Ltd - Rs. 20,00,000/- Sumuk....
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....veral times more than the loans advanced to the assessee as is evident from the following table:- Name of the Party Gross Revenue from Loan Amount Operations to assessee (Rs in crores) (Rs in crores) Casper Enterprises P Ltd 196.49 0.10 Falak Trading P Ltd 192.36 0.70 Duke Business P Ltd 158.99 0.90 Nakshatra Business P Ltd 163.13 0.20 Pragati Gems P Ltd 168.96 0.20 Sumukh Commercial P Ltd 97.01 0.12 Hence the gross revenue from operations for the year ended 31.3.2013 itself proves the creditworthiness of all the loan creditors beyond doubt. Hence all the allegations leveled by the lower authorities with regard to creditworthiness is devoid of any merits and deserves to be dismissed. 6.4. We find that all the parties are duly assessed to income tax and assessments are framed on them by the income tax department. Hence the identity of the loan creditors stood clearly established. All the transactions are routed through regular banking channels without having any cash deposits in their respective bank accounts. Infact the ld AO himself had stated in his order that the sale proceeds of....
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....sses. The business transactions carried out by the loan creditors have not been doubted by the assessing officers of the loan creditors. Hence the reliance placed by the ld DR on the aforesaid decision is distinguishable on facts and would not advance the case of the revenue. 6.8. With regard to yet another decision relied upon by the ld DR in the case of PCIT vs Bikram Singh reported in 85 taxmann.com 104 (Del HC), the facts and decision thereon are as under:- In this case, the loans were received from 8 persons whose identities were not established. There was a clear finding that the lenders did not have sufficient financial strength to advance the loans to the assessee therein, that too without any collateral security, without any interest and without a loan agreement. The relevant observations of the assessing officer in that case on facts were as under:- 9. A brief summary of each of the eight transactions and creditors thereof, as per the AO's order is as under: (i) Shri Amar Singh - Only a letter of confirmation was filed. Name of the father and address was not given. PAN number was not given. The information requested from Gurgaon Gramin Bank,....
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....of Smt. Sunita, the ITAT held that additional evidence was submitted by the Assessee and the same was taken on record. The ITAT observed that Smt. Sunita, being the wife of the Assessee and her financial affairs having been handled by the Assessee himself, the identity and creditworthiness of Smt. Sunita was established. Her PAN Card has been filed. By assessing the bank accounts of Smt. Sunita, the ITAT concluded that the genuineness and creditworthiness was also established. (ii) In respect of Shri Virender Yadav, the ITAT observed that since his PAN card had been submitted by the Assessee, the matter deserved to be remanded to the AO to pass a speaking order. (iii) In respect of Shri Shiv Tej, the ITAT after relying upon the documents, produced by the Assessee, restored the matter to the file of the AO as he had not been produced before the AO. (iv) In respect of Shri Om Prakash, the Assessee relied upon the letter of confirmation, the PAN card and Voter Identity Card to establish the identity and also submitted that the AO did not record the statement of Shri Om Prakash despite his appearance before the AO. Thus, the ITAT concluded that the matter des....
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....ls have the financial strength to lend such huge sums of money to the Assessee, that too without any collateral security, without interest and without a loan agreement. The mere establishing of their identity and the fact that the amounts have been transferred through cheque payments, does not by itself mean that the transactions are genuine. The AO and the CIT (A) have rightly held that the identity, creditworthiness and the genuineness are all in doubt. Moreover, the Court notes that that these amounts have been advanced to the Assessee without any explanation as to their relationship with the Assessee, the reason for the payment of such huge amounts, as also whether any repayments have, in fact, been made. There are contradictions in the explanation given by the Assessee and the statements recorded by these four individuals, which are irreconcilable. For example, in the case of Shri Ram Chander/Ram Charan, he had initially stated that he had given Rs. 10,00,000/- out of the proceeds of sale of the land but thereafter it was claimed by him that the money had come from her sister Vidya. Such contradictions clearly render all these transactions dubious. The ITAT could not have, mer....
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....reditors before the ld AO and the directors of lending companies had also filed an affidavit confirming the loan transactions with the assessee. In the instant case before us, after the relevant details were furnished by the assessee before the ld AO , no enquiries were further made by the ld AO with the loan creditors at their new addresses. The ld AO merely relied on the statement of Shri Praveen Kumar Jain and proceeded to make the addition. Hence the decision relied upon by the ld DR is factually distinguishable and does not advance the case of the revenue. 6.10. We find that as per the mandate of section 68 of the Act, the nature and source of credit in the books of the assessee has been duly explained by the assessee. The credit is in the form of receipt of unsecured loan from loan creditors. The nature of receipt towards unsecured loan is well established from the entries passed in the balance sheet of the assessee by crediting unsecured loan account. This is also cross-verifiable from the balance sheets of respective loan creditor companies, wherein they had reflected under 'Loans and Advances' in the asset side of their balance sheet. Hence the nature of receipt is prov....
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....ount was duly signed by the agent of the bank and implicit in its was a certificate that it was a true copy of an entry contained in one of the ordinary books of the bank and was made in the usual and ordinary course of business and that such book was in the custody of the bank, it was held admissible in evidence. Radheshyam v. Safiyabai Ibrahim AIR 1988 Bom. 361 : 1987 Mah. 725: 1987 Bank J 552." In view of the position of law as discussed above, it is always open for a borrower to contend, that even the "creditworthiness" of the lender stands proved to the extent of credits appearing in his Bank Account and he should be held to be successful in this contention." 6.12. We find that the Hon'ble Calcutta High Court in the case of S.K. Bothra & Sons, HUF v. Income-tax Officer, Ward- 46(3), Kolkata reported in 347 ITR 347(Cal) had 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 is not satisfactory, the Assessing Officer can disbelieve the all....
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....icer in respect of capital contributed by the partner of the firm. The Hon'ble High Court noted that when the concerned partner had confirmed before the Assessing Officer about his fact of making capital contribution in the firm and that the said investment is also reflected in his individual books of accounts, then no addition could be made u/s 68 of the Act. The decision of Hon'ble Gujarat High Court is reported in (2018) 89 taxmann.com 80 (Guj HC). The SLP of the revenue against this judgement was dismissed by the Hon'ble Supreme Court. 6.15. We also find that the Hon'ble Jurisdictional High Court in the case of CIT vs Orchid Industries Pvt Ltd reported in 397 ITR 136 (Bom) had held as under:- 5. The Assessing Officer added Rs. 95 lakhs as income under Section 68 of the Income Tax Act only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their acco....
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.... 83,430/- (TDS Rs. 8,343/-) Athrva Business Pvt Ltd - Rs. 88,670/- (TDS Rs. 8,867/-) Out of the aforesaid parties, we find that the assessee had also borrowed loans in earlier year from Falak Trading P Ltd, Pragati Gems P Ltd which has already been held by us as genuine loan in Asst Year 2013-14 supra. 7.2. It is not in dispute that the ld AO had allowed the aforesaid interest paid on loans as a deduction while completing the assessment. The ld AR also submitted that the assessing officers of the aforesaid parties had inturn duly assessed the interest income on loans given to the assessee and had also given credit for TDS in their respective assessments. The ld AR submitted that the assessee had given the latest address of the loan creditors before the ld AO. The ld AO had not issued any notices u/s 133(6) of the Act on the latest address. 7.3. It would be pertinent to understand the following facts from the financial statements of the loan creditors for the year ended 31.3.2014, that their income from operations during the year ended 31.3.2014 itself was several times more than the loans advanced to the assessee as is evident from the following table:- Name of th....