TaxTMI 
TaxTMI 
2019 (7) TMI 1598
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....he assessee-company is engaged in hand processing and printing of textiles on job basis. During the course of assessment proceedings, the Assessing Officer (AO) sent a commission to the Deputy Director of Income Tax (Inv.), Unit 1(2), Kolkata (in short 'DDIT') for verification of 11 loan parties. The details are as under: Sr. No. Name and Address of the company PAN Loan Amount Interest Amount 1. Aachman Marketing Pvt. Ltd. AD-319, Rabindra Pally Kestopur, Kolkata. AAECA5341B 10,00,000/- 13,907/- 2. Cyndrella Tie-Up Pvt. Ltd. 8, Ganesh Chandra Avenue Kolkata AABCC8703A 39,00,000/- 2,68,668/- 3. JagannathBanwarilal Textiles Pvt. Ltd. 201/BMG Road, Sadasukh Karta Kolkata AAACJ7969E 1,40,00,000/- 16,88,647/- 4. JPC Estate Pvt. Ltd. 201/BMG Road, Sadasukh Karta Kolkata AABCJ6631Q 0/- 1,08,000/- 5. Meghna Saree Emporium Pvt. Ltd., 63, Bentrick Street, Kolkata AACCM0261E 70,00,000/- 6,33,353/- 6. Onkarmal Consultancy Pvt. Ltd. 12, Ganesh Chandra Avenue Kolkata AAACO5854B 46,00,000/- 2,94,854/- 7. Oracle Marketing Pvt. Ltd. 2 B Grant Lane, Room No. 56, Kolkata AAACO4062H 0/- 5,40,000/- 8. Samyak Sales Pvt. Ltd., 63, Bentick Street Kolkata AARCS178....
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....onsultancy Pvt. Ltd. 7,64,44,349/- 7,64,70,500/- (-) 26,151 & 0/- 7. Oracle Marketing Pvt. Ltd. 3,26,14,166/- 3,15,00,000/- 8,73,792/- & 3,090/- 8. Samyak Sales Pvt. Ltd. 4,59,52,844/- 4,59,46,000/- 6,844/- & 9,320/- 9. Shree ShyamMarchants Pvt. Ltd. 18,47,835/- 18,44,100/- 3,735/- & 4,380/- 10. Starlite Pharmaceutical Pvt. Ltd. 2,77,91,364/- 2,79,80,000/- (-)1,98,801/- & 20,300/- 11. Trishala Vyapar Pvt. Ltd. 46,90,99,264/- 46,97,18,400/- (-) 7,35,487/- & 1,50,450/- During the course of assessment proceedings, the assessee had submitted banks statements along with confirmation of the above companies. The AO observed that the mere receipt of loan through electronic means is not enough to prove the genuineness of transaction. Thus taking into account the above facts and the findings of the commission sent u/s 131, the AO made an addition of Rs. 4,54,62,081/- which includes interest of Rs. 49,62,081/- u/s 68 of the Act. 4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). In the order dated 27.06.2017, the Ld. CIT(A) observed that (i) it is settled position that the source of source cannot be questioned and the AO has....
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....of interest on such loans of Rs. 49,62,081/- made by the AO made u/s 68 of the Act. 5. Before us, the Ld. DR submits that the assessee filed reply dated 26.12.2016 to the show cause notice dated 23.12.2016 issued by the AO incorporating therein (i) letter of loan creditor, (ii) proof of filing of Income Tax Return by the loan creditor, (iii) audited accounts of loan creditor and bank statement of the loan creditor. The AO passed the assessment order u/s 143(3) on 30.12.2016. It is submitted by him that as per the investigation report given by the DDIT, 9 out of 11 companies are not found at the given address and the balance 2 companies are just entry providers. Referring to the income of the said 11 companies, the Ld. DR submits that those companies were having very low income in their profit and loss account so as to justify having given such huge loans to the assessee. Referring to the judgment of the Hon'ble Supreme Court in Pr. CIT v. NRA Iron & Steel (P.) Ltd. (2019) 103 taxmann.com 48 (SC), the Ld. DR submits that where assessee received share capital/premium, however, there was failure of assessee to establish creditworthiness of investor companies, the AO was justified i....
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.... even a director in the said two companies, which were mentioned in the report of DDIT and this was based on list of directorships held by Shri Khemka which was also provided by the DCIT to the assessee, and (iii) the CIT(A) also further stated that no addition can be made by the AO on the basis of statement of third parties and hence no addition is called for. In respect of the above two parties, the Ld. counsel submits that the observation made by the AO is erroneous because although Mr. Raj Kumar Bajaj and Prabhat Goyl (Onkarmal) and Mr. Amit Khemka and Mr. Anurag Lakkar (Cyndrella) are directors in these companies, the statement recorded was of Mr. Arun Kumar Khemka who is a third party, having no concern with the company and moreover para no. 3.5 is contradicting para 3.1 so far as payment of interest to these two companies is concerned. Regarding the observation of the AO in respect of analysis of ITR of loan creditors and that the net worth of the loan creditors were very high due to share premium, the Ld. counsel submits that (i) the CIT(A) has stated that the AO relied upon the commission sent to the ADIT the copy of which was not provided to the assessee and (ii) the CI....
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....rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. It is well settled that in order to discharge the onus u/s 68 of the Act, the assessee must prove the following: (i) the identity of the creditor, (ii) the capacity of the creditor to advance money; and (iii) the genuineness of transaction. After the assessee has adduced evidence to establish prima facie the aforesaid, the onus shifts to the Department as held in Shankar Ind v. CIT 114 ITR 689; Prakash Textile v. CIT 121 ITR 890; CIT v. United 187 ITR 596; Rajshree v. CIT 256 ITR 331; Ashokpal v. CIT 220 ITR 452, 454; CIT v. Metachem 245 ITR 160; CIT v. Shree Gopal 204 ITR 285; MOD Creations P. Ltd. v. ITO 354 ITR 282. In the instant case, in response to the show cause notice dated 23.12.2016, the AR of the assessee filed a written submission dated 26.12.2016 before the AO stating the following : "With reference to the Report of DDIT (Inv.) Unit 1(2), Kolkata we have been directed by the assessee to inform you that the accountant of the assessee while preparing loan confirmation had not stated PIN Code no. of the loan creditors and in some case the name of build....
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....rged by the assessee." 7.2 A proper hearing must always include a fair opportunity to those who are parties in the controversy for correcting or contradicting anything prejudicial to their view. Cross-examination is allowed by procedural rules and evidently also by the rules of natural justice. Any witness who has been sworn on behalf of any party is liable to be cross-examined on behalf of the other party to the proceedings. The Hon'ble Supreme Court in State of Kerala vs. K.T. Shaduli Grocery Dealer AIR 1977 SC 1627, recognised the importance of oral evidence by holding that the opportunity to prove the correctness or completeness of the return necessarily carry with it the right to examine witnesses and that includes equally the right to cross-examine witnesses. In ITO vs. M. Pirai Choodi (2012) 20 taxmann.com 733 (SC), the Hon'ble Supreme Court has held that "Order of assessment passed without granting an opportunity to assessee to cross-examine, should not have been set aside by High Court; at most, High Court should have directed Assessing Officer to grant an opportunity to assessee to cross-examine concerned witness." 7.3 In the case of CIT v. Jansampark Advertis....