TaxTMI 
TaxTMI 
2020 (7) TMI 619
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....the IT Act. 3. On the facts and circumstances of the case, the income Tax Officer, Circle 15(1)(2), Mumbai ('the AO.") erred in disallowing Rs. 13,83,200/- being the interest expense claimed by the assessee in respect of the loans taken from certain parties. 4. Without prejudice to the above, The AO erred in disallowing all the interest paid considering the same as interest on Loans disallowed u/s 68, ignoring the fact that only Rs. 7,00,000/- is the interest on such loans. The Appellant therefore prays that the disallowance if made should be restricted to Rs. 7,00,00/- only. 3. The brief facts of the case are that the assessee company is engaged in the business of manufacturing of Nylon monofilaments, Nylon Bristles, Nylon rods, Nylon tubes etc., has filed its return of income for AY 2016-17 on 27/03/2018, declaring total income at Rs. 23,65,050/-. The case has been selected for scrutiny and during the course of assessment proceedings, the Ld. AO noticed that the assessee has taken unsecured loans from four parties as listed in his assessment order at para 5.5 amounting to Rs. 2.58 crores and accordingly, he has called upon the assessee to furnish nec....
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....s u/s 68 of the Act. Similarly, the Ld. AO has made additions of Rs. 13,83,200/- being corresponding interest payment claim to have made to above parties by the assessee, on the ground that when, the loan itself is non genuine, corresponding interest payment cannot be considered as genuine expenditure and accordingly, made additions towards interest expenses u/s 68 of the I.T.Act, 1961. The relevant findings of the Ld. AO are as under:- 5.2 During the course of assessment proceedings, the assessee vide this office letter dated 24-19-2018 was asked to submit the details of above said loans taken during the year along with the bank statement. In response to the same, the assessee has filed the name, address PAN, amount, etc in the form of statement. 5.3 To verify the genuineness and credit worthiness of the above said loans, information u/s 133(6) of the IT Act dated 22-11-2018 was called from the above parties. However, notices issued to the following parties were either returned unserved or not replied by the parties concerned, the details of which are as under:- Sr.No. Name of the party Amount Remarks 1 Arya Global Shares & securities Pvt.Ltd. ....
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....alleged lenders and genuineness of the transaction. Precisely for this, assessee was repeatedly asked to furnish documents like loan confirmations, copies of returns of income and other financial documents and produce the parties. It was only after several reminders, adjournments and a lapse of sufficient time that the assessee furnished only detail of unsecured loans received in a chart form and single confirmation letter. Assessee has not put forth any plausible reasons as to why ledger confirmation of these three parties were not filed, nor it sought any further opportunity to file these details. It is therefore concluded that the assessee has no confirmation from the said parties against the credits appearing in its books of account. 5.8 In all the above cases, assessee has not filed any ledger confirmations, copies of the ITRs, or the bank statement. The primary onus to establish the identity creditworthiness and genuineness of the transactions in respect of the alleged unsecured loans, appearing as credits in the books of account of the assesee is on the assessee. However, since assessee has not filed any evidence whatsoever, in support of its claim, the said credits....
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....ggregating to Rs. 1,38,00,000/- from 3 parties are held as unexplained cash credit, the corresponding interest claimed by the assessee of Rs. 13,83,200/- is also hereby disallowed as bogus claim and added back to the total income of the assessee. Penalty proceedings u/s 271(1)(c) of the Income tax At, 1961 are initiated simultaneously for concealment of particulars of income. 5. Being aggrieved by the assessment order, the assessee has preferred an appeal before the Ld.CIT(A). Before, the Ld. CIT(A), the assessee has filed detailed written submissions along with certain judicial precedents, which has been reproduced at para 4.1 on pages 6 to 8 of Ld.CIT(A) order. The sum and substance of arguments of the assessee before the Ld.CIT(A) are that unsecured loans taken from above parties are genuine, which are supported by necessary evidences, including confirmation from the parties. It was further submitted that merely for the reasons that parties did not respond to 133(6) notices issued by the Ld. AO, no adverse interference could be drawn against the assessee, when the assessee has discharged primary onus cast upon u/s 68 of the I.T.Act, 1961. The Ld.CIT(A) after considering relev....
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....the Act. This view is fortified by the ratio laid down in Hon'ble Apex Court in P. Mohankala (2007) (291 ITR 278 (SC). The law is well settled, the onus of proving the source of a sum, found to be received/transacted, it is open to the Revenue to hold that it is income of the appellant and no further burden lies on the revenue to show that income is from any other particular source. It is necessary for the appellant to prove not only identity of the creditor but also the capacity of the creditor and genuineness of the transactions. The onus lies on the appellant, under the facts available on record. A harmonious construction of section 106 of the Evidence Act and section 68 of the Income Tax Act will be that apart from establishing the identity of the creditor, the appellant must establish the genuineness of the transaction as well as the creditworthiness of the creditors. In this case, the appellant was required to explain the unsecured loans and prove the genuineness and creditworthiness of the lender party. However, the appellant has failed to furnished all the requisite documents to prove the same except for submitting the loan confirmation. On the contrary, the AO iss....
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.... not genuine, simply because some, out of many, of the transactions are by cheque. Where certain sum of money claimed by the assessee to prove, by cogent and proper evidence, that they are the genuine borrowings for the reason that the facts are exclusively within the assessee knowledge. In CIT vs. Oasis Hospitalities Pvt.Ltd. 333 ITR 119(Delhi) it was held by the Hon. Court that "The initial onus is upon the assessee to establish three things necessary to obviate the mischief of Section 68. Those are (i) identity of the investor; (ii) their creditworthiness /investments; and (iii) genuineness of the transaction. Only when these three ingredients are established prima facie, the department is required to undertake furher exercise. The appellant has nto been able to prove the genuineness and creditworthiness of the transaction of the transaction. Moreover, it could nto produce the party for veififcaiton. In this case of CIT vs Jansampark Advertisisng & Marketing Pvt.Ltd. (ITA 525/2014) (Del.), the additions have been made u/s 68 in respect of the share capital received by the assessee from various companies and during the course of investigation, it was found that ....
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.... implied that the interest thereon also takes the colour of the accommodation entry and hence, the same is rightly disallowed by the Ld. AO. I find no infirmity in this addition and accordingly, uphold the same. This ground of appeal is dismissed. 6. The Ld. AR for the assessee submitted that the Ld.CIT(A) has erred in confirmed additions made by the Ld. AO towards unsecured loans and consequent interest u/s 68 of the I.T.Act,1961, ignoring all evidences filed by the assessee, including confirmation letters from the creditors only for the reasons that certain parties were not responded to notices issued by the Ld. AO u/s 133(6) of the I.T.Act, 1961. The Ld. AR, further, submitted that the assessee has discharged its onus by the filing necessary evidences, including confirmation letters from the parties to prove identity of the parties. The assessee has also filed details of loans taken through proper banking channels along with interest payment. The Ld.CIT(A) has disbelieved all evidences filed by the assessee, only on the ground that the parties have not responded to the notices, ignoring legal position that non appearance of the parties cannot be attributed to the assessee ....
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.... and gone through orders of the authorities below. We have also carefully considered case laws relied upon by both the parties. The Ld. AO has made additions towards unsecured loans taken from four parties amounting to Rs. 1.38 crores, on the ground that purported loans have failed the test of genuineness as enumerated under the provisions of section 68 of the I.T.Act, 1961. The Ld. AO had also added consequent interest payment amounting to Rs. 13,83,200/- to above four parties, on the ground that when, loan itself is bogus in nature, then consequent interest payment cannot be considered as genuine expenditure. The Ld. AO has invoked provisions of section 68 of the I.T.Act, 1961 to draw an adverse inference against the assessee to make additions towards said unsecured loans. As per provisions of section 68 of the I.T.Act, 1961, where any sum found credited in the books of accounts of the assessee in any financial year, for which the assessee offers no explanation or explanation offered by the assessee, in the opinion of the Ld. AO is not satisfactory, then sum found credited may be treated as income of that previous year. As per provisions of section 68 of the Act, the initial o....
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....ind that as per confirmation letter of the creditor, the loan has been paid by cheque on 23/10/2015. Similarly, the assesee has obtained confirmation letter from M/s Kyra Landscapes Ltd., as per which the loan has been taken through cheques starting from 26/10/2015 to 08/12/2015. Likewise, loan taken from M/s Venus Portfolio & Finance Pvt. Ltd, the assessee has taken loan in the previous financial year and during the current financial year, the loan has been repaid through cheques along with interest payment of Rs. 7 Lacs. All these evidences are part of documents filed before the Ld. AO, as well as the Ld.CIT(A). The assessee has also filed other details, including company master data downloaded from Ministry of Corporate Affairs, as per which all the companies are having active status, and companies have filed their financial statements up to 31/03/2017. From the above, it is very clear that the assessee has filed necessary evidences, in order to prove the identity of the creditors, the genuineness of transactions and creditworthiness of the parties. 10. In light of above legal and factual back ground, if you see the facts of present case, it is undoubtedly clear that the asse....
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....loans cannot be made, where the assessee has discharged its primary onus of providing complete details, in respect of loan transactions. The ITAT, Mumbai in the case of DCIT vs Bairagra Builders Pvt.Ltd.(2017) 51 CCH 107 has held that the Ld. AO has proceeded to make additions, merely on the basis of investigation done by the office of DG Investigation, without conducting any independent enquiries to ascertain nature of transaction and also without challenging the claims of the assessee that loans taken from above parties were genuine, in contraventions of settled legal position of law. From the ratios of above cases, it is very clear that once, the initial burden was discharged by filing necessary evidences, then the additions cannot be made u/s 68 of the Act, merely for the reasons that the parties have not responded to notices issued by the Ld. AO u/s 133(6) of the I.T.Act, 1961. If the Ld. AO is not satisfied with details filed by the assessee, then he is free to proceed against creditors in accordance with law, but sum so found credited in the books of accounts of the assessee cannot be recorded as unexplained cash credit u/s 68 of the I.T.Act, 1961. 11. In this view of the....