AI Drafter 
TaxTMI 
TaxTMI 
2020 (3) TMI 417
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....se and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 12,75,987/- on account of interest payment to bogus loan creditors. 3* That on the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in accepting the Appeal of the assessee, whereas the assessee company had not deposited the deducted amount of Rs. 8,46,634/- on account of employees' contribution to PF and ESI within the time of due date. 4 That on the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the amount of Rs. 3,15,107/- being the interest on late payment of TDS. 5 That on the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in concluding that the identity of the loan creditors was proved relying solely on the basis of paper documentation whereas in reality the loan creditors were non-existent at the addresses given as found out after physical verification and decided the appeal without calling for any report from the A.O on the submission made by assessee before him. 6 That the appellant craves leave to add to and/or alter, amend, modify or rescind the grounds hereinabov....
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.... 189,247 2,500,000 Do- 8 MEMARI COLD STORAGE PRIVATE LIMITED 12 MAYFAIR ROAD, KOLKATA, WEST BENGAL- 700 019. 72,329 2,000,000 Do- 9 ORIENTATION ACADEMICS (P) LIMITED 12 MANGOE LANE, 1ST FLOOR, KOLKATA, WEST BENGAL- 700 001 48,658 2,000,000 Returned back Do- 10 RAJSHREE ENTERPRISES 53,753 2,000,000 No address given by the assessee - 11 RAJSHREE SERVICES & SALES PRIVATE LIMITED, GREEN VIEW, FLAT NO. K- 001,27/1 B.T ROAD, WEST BENGAL-700 058 27,370 1,000,000 Do- 12 RANBHUMI MARKETING PVT. LTD 3 EZRA STREET, 4TH FLOOR, ROOM NO. 412, KOLKATA, WEST BENGAL- 700001 46,233 2,500,000 Do- TOTAL 12,75,987/- 2,85,67,315 6. After reproducing the aforesaid chart at pages 2 & 3 of the assessment order, the AO asked the ld.AR of the assessee company to explain the identity, creditworthiness and genuineness of the loan creditors for the loan received during the year under consideration. 7. The AO acknowledges that pursuant to the same, the Ld. AR of the assessee company filed the reply, balance sheets, bank statements and ITRs of....
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....made by the assessee and should not have simply believed the submissions of the assessee and thus erred in deleting the impugned addition, which action is perverse and need to be interfered with and therefore, the ld. DR prays that the impugned order of the ld. CIT(A) be reversed and AO's order be upheld. 10. Per contra, the Learned Authorised Representative ( in short, the 'ld.AR') of the assessee submitted that from perusal of the grounds raised by the revenue [i.e ground nos. 1 & 5], it is clear that the revenue has not challenged the categorical findings of the ld. CIT(A) in respect of the identity, creditworthiness and genuineness of all the loan creditors and their transaction with the assessee. According to the ld.AR the only grievance of the revenue is that the ld. CIT(A) has believed whatever the assessee has stated before him, and without calling for remand report has given relief to the assessee. So, firstly the Ld. AR taking on the Revenue's challenge as to the CIT(A) passing the impugned order without calling for the remand report, submitted that the assessee had filed the entire documents before the Ld. CIT(A) as well as the AO and drew our attention to the 2(two) ....
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....oan creditors except one creditor i.e. of M/s. Rajshree Enterprises. That too (i.e. M/s. Rajshree Enterprises) according to ld. AR, is a proprietary concern; and the proprietor of the said company is the director of corporate creditor M/s. Rajashree Services & Sales Pvt. Ltd. which had duly replied to the AO's notice u/s. 133(6) of the Act. So, the ground of appeal regarding the non-traceability of creditors is a figment of imagination of AO, and that too when his conclusion is not based on any Inspector's report after physical verification of address etc. Thus, according to ld. AR, the grounds of appeal raised by the revenue are bereft of merits. The Ld. AR also drew our attention to the documents produced by the loan creditors pursuant to notices issued by the AO u/s. 133(6) of the Act to substantiate their identity, creditworthiness and genuineness of each and every transaction, which will be discussed in details below. Therefore, according to the ld. AR, the ld. CIT(A) has rightly deleted the addition, which decision need not be interfered by this Tribunal. In his rejoinder the Ld. DR could not controvert the factual assertions made by Ld. AR. 11. Having heard both the parti....
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.... creditor which did not respond to notice u/s. 133(6) was M/s. Rajashree Enterprises ( in short, M/s. Rajashree Enterprises' ). It was brought to our notice that this is a proprietary concern and the proprietor of this concern was Shri Akhilesh Agarwal, who is also the director of M/s. Rajesh Services & Sales P.Ltd, which is also a loan creditor and has duly replied to the notice of AO issued u/s. 133(6) of the Act. We note that AO in the chart in respect of M/s. Ayush (loan creditor), has stated that the notice u/s. 133(6) has been returned back to him, which we find it to be wrong assertion. On the contrary, we find that pursuant to the notice of AO u/s. 133(6), M/s. Ayush replied and same have been found filed at pages 113 of the PB-I. We also note from perusal of page-113 of the PB- I, the AO himself has endorsed by Office Seal to have received the letter dt. 8-2-2016 sent by M/s. Ayush i.e. the Office of AO/ DCIT, C-11(1) Kolkata, which is officially stamped having been received on 15-02-2016. Along with the said reply, we note that M/s. Ayush has filed Company Master Data/chart, which is found at page-114 of the PB-I, loan confirmation found at page-124 of the PB-I, bank stat....
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....und in the addresses, the AO has not spelt out in his assessment order as to how he came to such a conclusion when the evidence on record with the official stamp of his office having received it (the replies). The said event conveys that these loan creditors have received through postal authorities the notice sent by AO u/s. 133(6) of the Act and they in turn duly replied it back to AO which has been received by the AO. So, in such a scenario, the AO's assertion that they could not be traced in the address is misplaced and cannot be accepted. Moreover, in this aforesaid back-drop we wonder as to how the AO made this wrong factual assertion and further it cannot be discerned from the assessment order as to whether the AO carried out any physical verification about the addresses of the loan creditors and the AO has not spelt out whether he himself has physically verified or he has deputed any inspector to verify the address of the loan creditors. He has not referred to any inspector's report about any inspection carried out by any of the authorities of the department to draw an adverse conclusion that loan creditors were not traceable/found in the addresses. On the other hand, we not....
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....n and we find that they all have enough creditworthiness to give loan of respective sums to the assessee. And the genuineness of the transaction has been established by the fact that the entire loan given by the said loan creditors to the assessee was through banking channel. Further, the TDS has been deducted by assessee while paying the interest to the loan creditors and moreover, we note that the assessee had squared up few loan in this AY as well as in the subsequent AYs. In such scenario and taking note of facts and circumstances of the case, we find that the ld. CIT(A) after examining the documents has given factual finding that the identity, creditworthiness and genuineness of the loan transaction has been clearly discharged by the assessee. We note that the ld. CIT(A) has given clear finding about the identity of the loan creditors [found at page-11, para 6.3 of the impugned order of the ld. CIT(A)] and [at para 6.4 page-12], the ld. CIT(A) has given a specific finding in respect of creditworthiness of the loan creditors and [at page 18 para 6.5], the ld. CIT(A) has given a clear finding about the genuineness of the loan creditors. Since the assessee has been able to discha....
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....d 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. 18. 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 by taking into consideration the provision of section 106 of the Evidence Act which says that a person can be required to prove only such facts which are in his knowledge. The Hon'ble Court in the said case held that, once it is found that an assessee has actually taken money from depositor/lender who has been fully identified, the assessee/borrower cannot be called upon to explain, much less prove the affairs of such third party, which he is not even supposed to know or about which he cannot be held to be accredited with any knowledge. In this view, the ....
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....ult, 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 interpretation of section 68 are to stand together, which they must, then the interpretation of section 68 has to be in such a way that it does not make section 106 redundant. Hence, the harmonious construction of section 106 of the Evidence Act and section 68 of the Income- tax Act will be that though apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transaction....
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.... 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 there is evidence, direct or circumstantial, to show that the amount which has been advanced by the sub-creditor to the creditor, had actually been received by the sub-creditor from the assessee ...." ********** "Keeping in view the above position of law, when we turn to the factual matrix of the present case, we find that so far as the appellant is concerned, he has established the identity of the creditors, namely, Nemichand Nahata and Sons (HUF) and Pawan Kumar Agarwalla. The appe....
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....sessee'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." 20. 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 is not satisfactory, the Assessing Officer can disbelieve the alleged transaction of loan. But the law is equally settled that if the initial burden is discharged by the assessee by producing sufficient materials in support of the loan transaction, the onus shifts upon the Assessing Officer and after verification, he can call for further explanation from the assessee and in the process, the onus may again shift from the Assessing Officer to assessee. 16. In....
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....ing 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 came forward to prove. Therefore, it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter the creditworthiness. As rightly pointed out by the learned counsel that the Commissioner of Income-tax (Appeals) has taken the trouble of examining of all other materials and documents, viz., confirmatory statements, invoices, challans and vouchers showing supply of bidis as against the advance. Therefor....
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..... The appeal is allowed. 22. 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 income tax assessee. After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness" of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing ....
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....sed on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 of the Act. Therefore, we do not want to interfere in the impugned order of Ld. CIT(A) which is confirmed and consequently the appeal of Revenue is dismissed. 25. Ground no. 2 of revenue is against the action of the ld. CIT(A) in deleting the addition of Rs. 12,75,987/- on account of interest payment to bogus loan creditors. 26. We note that the AO disallowed the interest expenditure which were paid by the assessee to the aforesaid twelve (12) loan creditors, on the reason that the loan creditors were bogus entities/companies. However, while adjudicating ground nos. 1 & 5 we have found that loan creditors are not bogus companies and that the interest were paid through banking channel and TDS have been duly deducted by the assessee. We find that the ld. CIT(A) has rightly deleted the impugned addition. We confirm the action of the ld. CIT(A) and dismiss this ground of appeal of Revenue. 27. Ground no. 3 of the revenue is against the action of the ld. CIT(A) in deleting the addition made by the AO on the reason o....
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....x is compensat01Y in nature and not penal. This question has also been considered by mis Court in Civil Appeal No. 830 of 1979 titled Sarraya Sugar Mills (P.) Ltd. v. CfT decided on 29-2-1996. In that view of the matter, the appeal is allowed and question Nos. 1 and 2 are answered in favour of the assessee and against the revenue ... In view of the above judgment, there remains no doubt that the interest expense on the delayed payment of service tax is allowable deduction. The above principles can be applied to the interest expenses levied on account of delayed payment of TDS as it relates to the expenses claimed by the assessee which "are - subject' to the -TDS provisions. The assessee claims the specified expenses of certain amount in its profit & loss account and thereafter the assessee from the payment to the party deducts certain percentage as specified under the Act as TDS and pays to the Government Exchequer. The amount of TDS represents the amount of income tax of the party on whose behalf the payment was deducted & paid to the Government Exchequer. Thus the TDS amount does not represent the tax of the assessee but it is the tax of the party which has ....