TaxTMI 
TaxTMI 
2020 (11) TMI 937
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....curity personals consisting of security guards, supervisor, gunman, detectives etc., to various companies, industries, individuals etc. During the assessment proceedings, AO observed from the Balance Sheet and audit report submitted by the assessee that assessee has taken unsecured loans of Rs. 6,12,20,147/- under the head unsecured loans from the corporates. The details of unsecured loan are given below: Name Address PAN Amount of loan or deposit Maximum balance o/s Squared up APRATEEM GEMS PVT LTD M-4, Floor mazz, New AnantBhavan, Masjid,Chinchbunder Mumbai AAKCA7424R 25,57,144 25,00,000 NO BABA BHOOTHNATH NIRMAN PVT LTD Martin Burn house, 3rd floor ,room no 326, 1RN Mukherjee Rd, Kolkata 700001 AALCS8277P 97,93,057 50,00,000 NO DAFFODIL TRADERS PVT LTD 31/1H Beadon Row Kolkata -700001 AAECD3872E 50,45,863 50,00,000 NO INDIAN INFOTECH AND SOFTWARE PVT. LTD., D-207, Crystal Plaza, New Link Road, Opposite Infinity mall, Andheri(W),Mumbai AAACI0350E 1,02,63,342 50,00,000 NO POKHRANA IMPEX PVT LTD Mehta Mansion, 1st floor, Jagannath Shankar sheth road, Mumbai-400004 AABCP7359P 25,54,....
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....l appear before the Department but directors will not appear since these are not genuine directors but bogus directors. Accordingly, he made the addition under section 68 of the Act. b) M/s Vallabh Diamonds Private Limited: The AO came to the conclusion that there are no business activities carried out by this company in the premises for which the address was given in the audit report, he came to the above conclusion based on the report from inspector of Surat wing. He observed that assessee has taken unsecured loans of Rs. 2.5 crores from this company and assessee has filed confirmation and bank statement for the period AY 2015-16 and assessee also filed Balance Sheet and other financial of the company on 16.12.2016 from the MCA website. AO observed that on going through the Balance Sheet it was found that the liability is mainly on account of creditors of Rs. 71 crores and assets is on account of Debtors of Rs. 61 crores and loans of Rs. 8 crores. The company has declared profit of Rs. 1.6 lakhs. He further observed that the company is incorporated in 2013 and carrying out manufacturing and other commercial activities, this company does not own any fixed assets ....
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....he treated the loan taken by the assessee as disallowable under section 68 of the Act e) M/s Indian Infotech and Software Ltd: A show cause notice was issue to the party and none appeared or responded to the show cause notice. When assessee was summoned specifically to produce the party and the party failed to appear therefore, AO came to the conclusion that assessee has not fulfilled the onus to prove the genuineness. Accordingly, he treated the loan taken by the assessee as disallowable under section 68 of the Act. f) M/s Daffodil Traders Private Limited: A commission under section 131 (d) was sent to the investigation wing Kolkata on 17.11.2016 to verify the party and the address was as per the audit report submitted by the assessee. The investigation wing found that the address is not correct. When they issued show cause notice to the assessee and assessee submitted that the party has moved to new address and gave the new address. Based on the report from investigation wing Kolkata that the party has declared returned income of Rs. 8172/- and the turnover is Rs. 19 lakhs. The company has only reserves and surplus on the liability side and on ....
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....editworthiness. By relying on the report from the investigation wing, he came to the conclusion that this company is a shell company, accordingly AO treated the loan taken from this company as disallowable under section 68 of the Act. 6. By relying on the decision of Hon'ble Apex Court in the case of CIT versus Durga Prasad More (82 ITR 540) and Sumati Dayal versus CIT (214 ITR 801), AO observed that the revenue authorities are also supposed to consider the surrounding circumstances and apply the test of human probabilities. He observed that loan transactions from paper companies though apparent but not to be real one. Further he observed that merely producing PAN, computerized confirmation or assessment particulars do not establish the identity of the person. The actual and true identity of the person or a company is the business undertaken by them. According to him is the correct and true legal position. PAN numbers are allotted on the basis of applications without actual de facto verification of the identity or ascertaining active nature of business activity. PAN is a number, which is allotted and held the revenue to keep track of the financial transactions. He further obs....
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....nsaction as genuine, does not establish the identity of persons. Identification of person includes the place of work, staff and the fact that it was actually carrying on a business and further recognition of the said company in the eyes of public. All the bank accounts of the lender company have common pattern where investment from those bank accounts in the form of loans is not out of accumulated reserves but equivalent amounts have been deposited on the same day. 4.2.3 Thus, from the facts analysed, decisions / judgments as enumerated above of various Hon'ble High Courts, Hon'ble Supreme Courts, all the three ingredients of section 68 remains un-established and the A.O. has rightly assessed the Unsecured Loan of Rs. 6,00,00,000/-received from shell companies as cash credit u/s 68 of the Act. As the unsecured loan has been held to be bogus and non-genuine, therefore, the interest expenditure of Rs. 13,85,475/- has also been rightly disallowed by the A.O. The additions made by the A.O. is therefore, upheld and the grounds of appeal on this issue are dismissed," 10. Aggrieved with the above order assessee is in appeal before us raising following grounds of appeal....
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....there is no information from investigation department. a. The Appellant Company's books of Accounts are Audited and were submitted to the learned Assessing officer and there were no adverse remarks of the Auditors in the said Report. Therefore, the transaction entered into by the assessee company cannot be doubted. 13. The Learned Assessing Officer had heavily relied on the statement of Mr. Praveen Kumar Agarwal. These statements were recorded at the back of the Appellant. 14. The Appellant had received loan from the said lender Companies which are duly registered under the provision of Companies Act and the lender companies are filing return of income regularly. 15. The Appellant had received unsecured loan during the said assessment year and had repaid the total dues, further the entire transactions of receipts and payments were made by account payee cheques. 16. The Appellant had also filed confirmation of the said lender companies and submitted the copy of Acknowledgment of Income Tax return of the lender companies, where the said lenders had offered income by way of interest paid by the Appellant to the lenders with TDS claim. I....
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.... I To prove the identity a) Name, Address, PAN, Income-tax Jurisdiction, etc. of the lender companies; b) Copy of Audit Report and Balance Sheet of the lender companies. The Company's Income-tax Jurisdiction details and financials of the lender's companies proved the identity as well as financial capacity i.e. creditworthiness of the lender's companies. Hence, the aforesaid documents has proved the identity of the lenders. II. To prove the creditworthiness The Appellant has submitted the Balance Sheet, Profit & Loss a/c and Return of Income for lenders. The financials of the lenders companies proved the identity as well as financial capacity i.e. creditworthiness of the lender's companies. a) Copy of Audited Balance Sheet of the Lender Company b) Relevant Bank Statement c) Copy of Ledger Account 1. Further, the Appellant submit that the Company's Income-tax Jurisdiction details and financials of the lender's companies proved the identity as well as financial capacity i.e. creditworthiness of the lenderr's companies. 2. The CIT(A) treated unsecured loan a....
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..... The learned assessing officer has sent summon wrongly to Surakha products Pvt Ltd, instead of Suraksha projects limited, where that party has replied that there is no transaction with this company which was later on informed to appellant who in turn given proper new address where summons u/s 133 (6) was issued and a commission was also sent. The learned officer has given copy of Summon to Appeallant who in turn asked c reditor loan company to provide all the required details. The Company Suraksha Project limited has submitted all the details on 26th December 2016 which were required. These details have been received by him as acknowledged by Assessing Officer in the Assessment Order but not accepted the reply by narrating unrelated story in the Assessment Order and added Rs..53,00,000/- and interest of Rs..93,924/-. He has mentioned irrelevant modes operandi of shell Company how it work and also statement given by one Mr. Pravin Kumar Agarwal in course of his search. Nowhere in search had proceeding and other document annexed by assessing officer to this related assessment order mentioned that the appellant has done any bogus transaction and there was cash involvement in....
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....re is no proof at all against the appellant that these loans are concealment of the income than such loan & interest amount cannot be added. This loan has been already repaid in financial year 2017-18. 4. In case of APRATEEM GEMS PVT.LTD:- In this case also Aprateem Gems Pvt. Ltd. has submitted loan confirmation, ledger account, income tax return, bank statement, audited balance sheet on 12th December, 2016 in response to notice dated 4th December, 2016 the learned assessing officer rejected all the proof without giving any proper reasons and added Rs. 25,00,000/- being unsecured loan and Rs. 57,144/- interest payment. Financial details are as under :- Turnover (Rs.) 83,66,93,733 Capital (Rs.) 1,00,000 Reserves (Rs.) 1,66,91,028 Trade Payable (Rs.) 45,06,58,875 Loan to NISA (Rs.) 25,00,000 There is no proof at all against the appellant that these loans are concealment of the income than such loan & interest amount cannot be added. This loan has been already repaid in financial year 2018-19. 5. In case of INDIAN INFOTECH & SOFTWARE LTD :- In this case also party has submitted loan confirmation, ledger account, income tax retur....
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....secured loan and Rs. 1,03,397/- interest on these loan to income. Financial details are as under:- Turnover (Rs.) 1,52,38,817; Capital (Rs.) 41,50,000 Reserves (Rs.) 7,31, 10,510 Loan to NISA (Rs.) 97,00,000 There is no proof at all against the appellant that these loans are concealment of the income than such loan & interest amount cannot be added. This loan has been already repaid in financial year 2017-18. Out of the above seven parties learned assessing officer during assessment proceedings he has received information from Calcutta DDI statement of one Pravin Kumar Agarwal and others who are directly or indirectly involved in affairs of one Dafofodil Traders Pvt.Ltd. and another Surakha products Pvt Ltd. Based on the information received from Investigation Wing, the AO opined that though the assessee has furnished various details to prove identity, the loan transactions are not genuine and accordingly made addition u/s 68 of the Income tax Act, 1961. Besides, the AO also disallowed interest paid against the said bogus loans. Other companies such as Aprateem Gems pvt ltd. Pokharana Impex pvt. Ltd. and Vallabh Diamonds Pvt Ltd., he is no ....
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.... no reason for the AO to doubt the genuineness of transactions despite furnishing necessary evidences including their financial statements, bank statements and IT returns. The assessee has also relied upon the decision of the Hon'ble Bombay High Court in the case of CIT v. Archid Industries Pvt. Ltd., in ITA.No. 1433/Mum/2014 dated 5th July 2017. The Hon'ble Bombay High Court, after considering relevant facts held that the Tribunal has considered that the assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee. Sir, we just draw your attention on recent judgment where our client relied (1) ITO vs Neelkanth finbuild LTD (2009) ITA No 2821/ DEL honorable tribunal has h....
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.... index numbers were in the file of the Revenue. The Revenue, apart from issuing notice under section 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they are creditworthy. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, If the tribunal came to the conclusion that the Respondent had discharged the burden that lay on it, then it could not be said that such conclusion was unreasonable or perverse or based on no evidence". (7) RAJASTHAN HIGH COURT in case of Shree Barkha Synthetics Ltd. [2006] 155 TAXMAN 289 (RAJ.)where assessee-company had received share application money from a company and from an individual investor through banking channels and had furnished confirmation of investment in share capital by said company and had also proved existence of said individual investor, it could be said that assessee had proved genuineness of said transaction and, therefore, it is held, assessing officer cannot make any addition to income of assessee in resp....
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....mar Agarwal), who is neither holding managerial berth in the lender Company nor holding any ownership rights, cannot control the affairs of the lender Company. 22. Further, following legal position/ judicial rulings on the subject under consideration must be considered before arriving at any conclusion:- a. It is also settled law that where the assessee provides identity and details pertaining to the lenders/ creditors/ investor of share application money and is unable to produce them and requests the CIT(A) to issue summons u/s 131 for their attendance, it is the duty of the CIT(A) to issue such summons, failing which the addition would get deleted. Reference in this regard can be made from the decisions made in the following judiciary ruling:- * N.P. Garodia (order dated 13.01.2009 of Hon'ble P & H High Court in ITA no. 808 of 2008) * Brij Pal Sharma (order datedl7.02.2009 in ITA no. 685 of 2008 of Hon'ble P & H High Court) b. Similarly as held in the case of CIT v. Metachem Industries (2000) 245 ITR 160 (MP) where a credit is shown to have come from a person other than the assessee, there is no further responsibility of the as....
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....ee1 s explanation in such case cannot be rejected on mere surmises. Other similar judiciary ruling are as under :- * Khandelwal Constructions v. CIT (1997) 227 ITR 900 (Gau.) * CIT v. Orissa Corporation Pvt. Ltd. 158 ITR 78 (SC) * CIT v. Rohini Builders 256 ITR 360 (Guj.). h. It is also settled law that it is mandatory for the CIT(A) to confront the assessee with any material collected by the CIT (A) at the back of the assessee, and in case of statement of third party recorded at the back of the assessee, opportunity of cross examination has to be offered to the assessee, failing which the said material/statement etc. will be rendered unreliable and additions made on the basis of such material/statement etc. shall be rendered illegal. Reference in this regard can be made from the decisions made in the following judiciary ruling:- R.B. ShreeramDurga Prasad 176 ITR 169 (SC), KishanChandChellaram Vs. C.I.T. (1980) 125 ITR 713 (SC) Jindal Vegetable (order of Hon'ble Delhi High Court in ITA no. 428 of 2007, 174 Taxmann 440 (Raj.) LaxmanBhai Patel (order of Hon'ble Gujarat High Court dated 22.07.2008 in ITR n....
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....find that onus cast upon the assessee has been duly discharged, therefore, the addition made u/s 68 of the Act, which is purely based upon presumption or the statement recorded and later on retracted by the concerned parties, therefore, we find infirmity in the conclusion of the Ld. Commissioner of Income Tax (Appeal), resultantly, the appeal of the Revenue is dismissed." j. It was held in case of DCIT 12(1)(2) vs. Bairagra Builders P Ltd. [ITA No. 4691 & 4692/Mum/2015] "We have gone through the orders relied upon by the learned DR. We noted that the decision of the Delhi High Court in the case of Bikram Singh, the assessee could not discharge the onus as laid down by section 68 of the Act. Similarly, in the case of CIT vs. Jansampark Advertising & Marketing Pvt Ltd. (supra), 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 the share capital has been received from three entry operators, who are allegedly in the business of providing accommodation entries. Notices issued u/s. 131 to these parties were returned undelivered by the postal autho....
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.... Pvt .Ltd. (earlier known as New Planet Trading Co. Pvt. Ltd.) Thus, after careful considerations of the entire material on record, which may also be evident from the above given chart, it is found that the appellant has indeed proven the genuineness of the loans taken from all the parties referred above. Accordingly the addition made by the CIT(A) under section 68 of the Act on that count to the tune of Rs. 40,00,000/- under the heading loan as cash credit cannot be sustained. Consequently, the addition of Rs. 1,51,694/-made under section 37(1) of the Act on account of disallowance of interest on the said amount also cannot be sustained. 5.1 notice that the Ld CIT(A) has passed a detailed order by examining the facts relating to the issues under consideration and also applying the law settled by Hon'ble Courts in this regard. I notice that the revenue could not furnish any material on record to rebut the reasoning given by Ld CIT(A). Under these set of facts, I am of the view that the orders passed by Ld CIT(A) do not call for any interference. Accordingly I uphold the same in both the years under consideration." I In a landmark decision by Hon'ble ITAT M....
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.... entry. m. Jurisdictional Hon'ble ITAT, Mumbai for an identical case i.e. Arceli Realty Limited Vs. The Income Tax Officer 15(1) (1), Mumbai pronounced on 21.04.2017 ITA-6492/Mum/2016-17, the summary of the case is outlined as under: - "........A.O. merely relied upon the information provided bythe office of DGIT (lnv.), Mumbai and did not made any independent enquiry. The papers filed by the assesse do demonstrate the identity, credit worthiness, genuineness, Source of Source of the transaction. CIT(A) did not provide Opportunity to Cross Examine the concerned person and also the department has not provided authenticity of the information to the person against whom such information is used. The addition is made merely on surmises and conjectures. The statement recorded at the back of the Appellant cannot be utilized ignoring other verifiable evidences. The Id. Assessing officer has made the addition of Rs. 20,00,000/- disregarding the evidences on record and without discharging her onus and without establishing anything contrary to the agreement of the Appellant and without verifying the Bank Account, existence of Investor and without making fruitful investig....
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....ion. Except this there is no contrary evidence in the possession of the CIT(A) to disprove the loan transaction from Josh Trading Company Pvt. Ltd. and Viraj Mercantile Pvt. Ltd. On the other hand, the assessee has furnished various details including confirmation letters from the parties, their bank statements along with their financial statements to prove identity, genuineness of transactions and creditworthiness of the parties. The assessee also furnished evidences to prove that the parties have responded to the notices issued u/s 133(6) by CIT(A) by filing various details" "............It is well settled legal position that the assessee has to discharge 3 main ingredients in order to discharge the initial burden of proof, i.e. the identity of the creditor9 the genuineness of transaction and creditworthiness of the creditors. Once the assessee discharges initial burden placed upon him, then the burden to disprove the said claim shifts upon the CIT(A)" "Coming to the case laws relied upon the assessee, the assessee has relied upon the decision of Hon'ble Bombay High Court in the case of CIT vs Gagandeep Infrastructure Pvt. Ltd (2017) 394 ITR680 (Bom). We have gone thr....
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....red the rival submissions and material placed on record. We notice that assessee is engaged in the business of providing security personals consisting of security guards to provide security to various industries, individuals etc. During this year, Assessee has taken unsecured loans from 7 parties to the extent of Rs. 6 crores and the details are already placed on record. All these companies gave the unsecured loans through the banking channel and the assessee has already declared the details of the parties in its tax audit report with the details like address, PAN and details of loan taken. In order to verify, the assessing officer issued the show cause notice and summons to all the parties. Subsequently, it is came to the knowledge of the AO that some of the addresses declared by the assessee are not correct when the assessee was contacted, assessee was able to provide proper addresses and further, assessee also submitted the financial statements, audit report, return of income filed by them, the details as disclosed in MCA portals and more importantly confirmation letters from all the parties. We noticed that assessing officer has made detailed verification by issue of show ca....
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....re premium in order to invoke provisions of section 68 of the Act. The nature of transaction, we are dealing with is different to the transaction of issue of share capital. Here, assessee has taken unsecured loan for its business purpose and paid the relevant interest. The criteria to invoke provisions of section 68 for unsecured loan transaction is slightly different compared to issue of share capital. In the present case, there is no dispute as far as identity is concerned since all the parties were traceable, it is only credit worthiness and genuineness has to be verified. 17. With regard to credit worthiness, it is fact on record that all these companies are having huge reserves and bank balances to make unsecured loans to assessee. As long as they demonstrate that they have means and resources to make unsecured loans, they fulfil the criteria of creditworthiness as per section 68 of the Act. Importantly, AO does not dispute the fact that the funds were received from these companies and assessee has paid the due interest to the respective parties during this assessment year or paid interest before repaying the loan. Therefore, in our considered view these parties have pro....