TaxTMI 
TaxTMI 
2019 (7) TMI 1598
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.... 29.11.2014 declaring total loss of Rs. 57,20,251/-. The 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....
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....al Textiles Pvt. Ltd. Return not filed 4. JPC Estate Pvt. Ltd. Return not filed 5. Meghna Saree Emporium Pvt. Ltd. 3,24,72,274/- 3,25,05,000/- (-) 41,974/- & 4,290/- 6. Onkarmal Consultancy 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,....
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....ellant in the present case." Thus observing, the Ld. CIT(A) held that the assessee, during the course of assessment proceedings has proved identity of each loan creditor, genuineness of each loan and creditworthiness of each loan creditor. Therefore, the Ld. CIT(A) deleted the addition of Rs. 4,05,00,000/- and the disallowance 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 l....
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....ancy Pvt. Ltd. and Cyndrella that they are merely companies providing entries and no interest is paid to them, the Ld. counsel submits that (i) the CIT(A) has in his order stated that the statements recorded were in case of third parties and not of the assessee (ii) the CIT(A) has also further stated that the said Shri Arun Kumar Khemka was not 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 concern....
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....rly prove the identity, genuineness and creditworthiness of the loan creditors, (iv) therefore, the conclusion of the AO was based on wrong interpretation of the replies as well as omission to verify details provided in reply to the show cause notice. Thus the Ld. counsel submits that the order passes by the Ld. CIT(A) be confirmed. 7. We have heard the 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 ....
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..... Clearly the onus to establish the credit worthiness of the investor companies was not discharged. The entire transaction seemed bogus, and lacked credibility. The Court/Authorities below did not even advert to the field enquiry conducted by the AO which revealed that in several cases the investor companies were found to be non-existent, and the onus to establish the identity of the investor companies, was not discharged 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-exa....