TaxTMI 
TaxTMI 
2021 (3) TMI 717
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.... creditworthiness for advancing of such huge amount of loan and the genuineness of transaction of loan creditors remain unexplained. As the entire loan was disallowed, the interest on such loan was also disallowed by the AO". 3. "That the appellant craves for leave to add, delete and modify any of the grounds of appeal before or at the time of hearing." 2. From a perusal of the aforesaid grounds of appeal raised by the Revenue, it is discerned that the sole issue on which the Revenue is aggrieved is against the action of the Ld.CIT(A) in deleting the addition of Rs. 4,51,00,000/- which amount the assessee company has shown as unsecured loan. 3. Brief facts of the case as noted by the Assessing Officer are that during the course of assessment proceedings, he noted that the assessee company has taken unsecured loan from the following parties which according to him were shell companies: Name loan as at 31/03/2015(Rs.) Interest paid (Rs.) BHIKSU BARTER PVT LTD 3,00,000 1,726 DIVYA ELECTRONICS PVT.LTD. 1,35,00,000 9,20,959 PARITOSH ELECTRICALS PVT LTD 41,50,000 3,84,123 POTENTIAL ELECTRICALS & ELECTRONICS PVT. LTD. 40,00,000 4,....
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...., in doing so it leads to tax evasion which is not allowable and through various case laws the Hon'ble courts have opined that it is important to examine the surrounding circumstances to determine the nature of transaction. 6. Thereafter he discussed the case of McDowell & Co. Ltd. v. CIT [1985] 154 ITR 148 and Sumati Dayal v. CIT (1995) 214 ITR 801 (SC) and other case laws and he held as under: "4.11 Thus, it is clear from the discussion made above that the various companies from whom loan/advances was received during the financial year 2014-15 and the corresponding transactions made with them by the assessee company are lacking identity (As all the lender companies as mentioned above are not present on their addresses as per report of Inspector), Genuineness (as clear from the transaction being made from the identified paper/ bogus/ shell company which is neither doing any real business nor exist on the given address) and creditworthiness (as seen from the frequent debit and corresponding credit entries in the bank statement of all the layering companies with balance amount being negligible). It is also important to note here that while the GIC test (i.e. est....
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....e assessee company, there are credit entries of various amounts in its bank statement coming from different companies lacking any financial creditworthiness which could not be explained by the assessee. Further, as mentioned earlier, it can be seen from the analysis of balance sheet of these companies that there is a peculiar pattern of transaction in all the cases where the source as appearing on the liability side of the balance sheet is Security premium whereas on the asset side it is non-current investments or loans or advances. From the facts available on the records and the verification conducted by this office, it is early evident that these companies are shell companies who do not have any real existence. 4.13 Hence, on the basis of verification, analysis of balance sheet, PIL a/c. Return of income, bank statement and the statements recorded of various Entry Operator and the related persons earlier over the period of time it is evident that the amount received by the assessee company M/s RDB Insurance Service Broking Pvt. Ltd. from and through the companies controlled and managed by Entry Operator as discussed above are nothing but pre-arranged accommodation entrie....
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....of the Act. On the first count, the Ld.A.O has made the addition based on his contention that the character of lender companies are of shelf companies by relying upon statements of few persons. The Ld.AO has made the addition by relying on the statements of Mr. Rajkumar Kothari and Mr. Vinay Kumar Dokania before the DDIT (Inv) in relation to some other assessee. The Ld.A.O did not offer any opportunity of cross examination the said persons to the assessee and thereby grossly violating the principles of natural justice. The Ld.AO has also not provided the copy of inspectors report which were relied for making the addition u/s 68 of the Act. Thus, the additions made without providing proper opportunity of being heard to the assessee is gross violation of natural justice and needs to be deleted. Further, the alleged entry operators whose statements has been relied by the AO have no locus standi as, the name of the assessee is nowhere mentioned in the statement of the so called entry operators. The statement of Shri Raj Kumar Kothari was recorded with respect to one "Banktesh Group" and not relating to the assessee. The assessee is nowhere related to the said group or any pers....
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....t is pertinent to mention that the lender companies filed all the details and documents as required by the AO. List of details and documents submitted by lender companies in response to notice u/s. 133(6) are produced hereunder for your honor's ready reference: M/s. Bhiksu Barter Pvt Ltd. Vide its letter filed on 20.03.2015 submitted Copy of Income Tax Acknowledgement for the A.Y 2015-16, Copy of Audited Accounts for the F.Y 2014-15, Copy of Loan Confirmation and Copy of Bank Statement highlighting the loan transaction. M/s. Divya Electronics Pvt Ltd Vide its letter filed on 20.03.2015 submitted. Copy of Income Tax Acknowledgement for the A.Y 2015-16, Copy of Audited Accounts for the F.Y 2014-15, Copy of Loan Confirmation and Copy of Ban Statement highlighting the loan transaction. M/S. Paritosh Electricals Pvt Ltd vide its letter filed on 20.03.2015 submitted Copy of Income Tax Acknowledgement for the AY 2015-16, Copy of Audited Accounts for the F.Y 2014-15, Copy of Loan Confirmation and Copy of Bank Statement highlighting the loan transaction. M/s. Potential Electricals & Electronics Pvt Ltd. vide its letter filed on 20.03.2015 submitted Co....
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....e, it is dear from the discussions made in the preceding paras that the A.O had all the documents available with him to verify the genuineness of the transaction. But the A.O without taking into cognizance the documents submitted, made the addition alleging that the lender companies are shell companies on the basis of statements given by entry operators. The A.O having a biased intention added the entire amount to the income of the assessee. The Ld.A.O has grossly erred in performing his statutory duties and shifted the entire onus on the assessee. Further, the A.O in the assessment order has shown the extracts the Balance sheet of the order and concluded that all the companies are shell companies without analysing the Balance sheet properly. The A.O heavily relied on the statements of entry operators for concluding the lender companies to be shell/ paper company. The creditworthiness of lender companies is analysed as supra in the submission of the appellate company. From the chart it can be seen that all the above companies are having high turnover as well as sufficient amount of reserves & surplus. AH the companies are having turnover in crores and in no way be called as shell/ ....
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....ssment proceedings. The documents submitted were good enough to satisfy all the three precedents as laid down u/s 68 of the Act with regard to the identity and credit worthiness of the loan applicant, and genuineness of the transactions. As regards to Identity, the loan applicants are body corporate, registered with the ROC and they were available at the given address. All the loan applicants have filed its reply against the notice issued u/s 133(6) of the Act. The loan applicants have furnished copy of ITR Acknowledgement, Audited Accounts and they are registered with ROC having CIN. AH the data's of such companies are available with Income Tax Department and ROC. They are also assessed to Income Tax regularly. Therefore, the identity should not be under the scanner in the instant case, As regards to genuineness & creditworthiness, the loan was received through proper banking channels, the loan applicants had sufficient fund for the purpose of investment & the investments are reflected in their books of account, Bank A/c and Loan confirmation of the lenders confirms the transactions and all are regularly assessed to income tax. Hence, there should not be any doubt on the ident....
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....622/- has been capitalised by the assessee and not claimed as expenditure in the profit and loss account. Thus, only an amount of Rs. 13,42,592/- has been claimed as an expense by the assessee in the profit & loss account as against the disallowance of Rs. 53,70,163/- made by the A.O. Further, as discussed in the Ground 1 above, the loans taken by the assessee are from the genuine parties and for the purpose of the business of the assessee, the interest paid on the same can in no way be treated as bogus as alleged by the AO. The addition is consequential in nature to ground No- 1. Therefore, the disallowance made by the AO on account of interest payment made by the assessee is unjustified and needs to be deleted. As regards to addition on account of alleged Commission of Rs. 2,255/-, the AR has submitted that the Ground is directed against addition of Rs. 2,255/- to the total income on account of cash commission on loan paid by the assessee. The A.O made the addition on the presumption that assessee have paid commission @ 5 paise per Rs. 1,000 for arranging loan funds. As explained above that the loan received by the assessee are genuine. Therefore, the addition of commiss....
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....not even supposed to know or about which he cannot be held to be accredited with any knowledge. In this view, the Hon'ble Court has laid down that section 68 of Income-tax Act, should be read along with section 106 of Evidence Act. The relevant observations at page 260 to 262, 264 and265 of the report are reproduced herein below: - "While interpreting the meaning and scope of section 68, one has to bear in mind that normally, interpretation of a statute shall be general, in nature, subject only to such exceptions as may be logically permitted by the statute itself or by some other law connected therewith or relevant thereto. Keeping in view these fundamentals of interpretation of statutes, when we read carefully the provisions of section 68, we notice nothing in section 68 to show that the scope of the inquiry under section 68 by the Revenue Department shall remain confined to the transactions, which have taken place between the assessee and the creditor nor does the wording of section 68 indicate that section 68 does not authorize the Revenue Department to make inquiry into the source(s) of the credit and/or sub-creditor. The language employed by section 68 c....
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....orthiness of his creditor, the burden of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the assessee to prove that the sub- creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been, eventually, received by the assessee. It, therefore, further logically follows that the creditor's creditworthiness has to be Judged vis-a-vis the transactions, which have taken place between the assessee and the creditor, and it is not the business of the assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub- creditor and/or creditworthiness of the sub-creditors, for, these aspects may not be within the special knowledge of the assessee. " If a creditor has, by any undisclosed source, a particular amoun....
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....rdance with the burden, which rested on him under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors aforementioned. In fact the fact that the assessee had received the said amounts by way of cheques was not in dispute. Once the assessee had established that he had received the said amounts from the creditors aforementioned by way of cheques, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter the burden had shifted to the Assessing Officer to prove the contrary. On mere failure on the part of the creditors to show that their sub-creditors had creditworthiness to advance the said loan amounts to the assessee, such failure, as a corollary, could not have been and ought not to have been, under the law, treated as the income from the undisclosed sources of the assessee himself when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee. Viewed from this angle, we have no hesitation in holding that in the case at hand, the Assessing Officer had failed to show t....
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....rs and address and further indicating that the loan was taken by account payee cheques, no doubt, prima facie, discharged the initial burden and those materials disclosed by the assessee prompted the Assessing Officer to enquire through the Inspector to verify the statements." In a case where the issue was whether the assessee availed cash credit as against future sale of product, the A.O issued summons to the creditors who did not turn up before him, so, A.O disbelieved the existence of creditors and saddled the addition, which was overturned by Ld.CTT(A). However, the Tribunal reversed the decision of the Ld.CIT(A) and upheld the AO's decision, which action of Tribunal was challenged by the Hon'bie High Court, Calcutta in the case of Crystal Networks (P.) Ltd, v. Commissioner of Income- tax 353 ITR 171 wherein the Tribunal's decision was overturned and decision of Ld.CIT(A} upheld and the Hon'bie High Court has held that when the basic evidences are on record the mere failure of the creditor to appear cannot be basis to make addition. The court held as follows: 8. Assailing the said judgment of the learned Tribunal learned counsel for th....
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....as to whether the said cash credit was received as against the future sale of the product of the assessee or not. When it was found by the Commissioner of Income- tax (Appeals) on facts having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this fact finding. Indeed, the Tribunal did not really touch the aforesaid fact finding of the Commissioner of income-tax (Appeals) as rightly pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 464, the Supreme Court has observed as follows: "The Income-tax Appellate Tribunal performs a judicial function under the Indian Income-tax Act: it is invested with authority to determine finally all questions of fact. 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." 11. The Tribunal must, in deciding an appeal, consider with due care....
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....turn submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness" of transaction through account payee cheque has been established. We find that both the Commissioner of Income Tax (Appeal) and the Tribunal below followed the well- accepted principle which are required to be followed in considering the effect of Section 68 of the Act and we thus find no reason 'to interfere with the concurrent findings of fact recorded by both the authorities." As noted from the judicial precedents cited above, where any sum is found credited in the books of an assessee then there is a duty casted upon the assessee to explain the nature and source of credit found in his books. The nature of receipt towards loan is seen from the entries passed in the respective balance sheets of the companies as loan and investments. In respect of source of credit, the assessee has to prove the three necessary ingredients i.e., identity, genuineness of transactions and creditworthiness of loan applicants. For proving the identity, the assessee furnished th....
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....ences were found to be bogus or manipulated. The explanations submitted by the assessee and the judgments of Hon'ble Supreme Court and various judgements of Hon'ble High Courts and Income Tax Appellate Tribunal including Jurisdictional High Court and Jurisdictional Tribunal were not distinguished nor found to be inapplicable to the facts of this case. The assessee has furnished legal documentary evidence which the Assessing Officer has chosen to ignore/not dealt with. The Assessing Officer disregarded the submissions of the assessee and all legal documentary evidences produced / furnished by it in relation to the loans. The Assessing Officer did not bring on record any legal evidence or material on record to hold that the assessee's transactions relating to loans were bogus. The appellant had fully and truly discharged the burden. This proposition is supported by the judgement of the Patna High Court in the case of Additional CIT v. Bahri Brothers Pvt Ltd (1985)154 IT244 and the judgement of the Supreme Court of India in case of CIT v, Orissa Corporation Pvt Ltd. (1986) 159 TTR 78 (SC). Thus, the assessee having discharged the burden, it is the A. O which had to verify the ....
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....nst the assessee, hence in my view under these circumstances nothing can be implicated against the assessee. / find that there is absolutely no adverse material to implicate the assessee to the entire gamut of unfounded/unwarranted allegations leveled by the A.O against the assessee, which in my considered opinion has no legs to stand and therefore has to fall. The A. O could not controvert the facts which are supported with material evidences furnished by the assessee which are on record. Therefore, on analyzing of the facts as well as the evidence produced by the assessee, I find that the Assessing Officer has not brought any material on record to controvert the fact duly established by the supporting evidences. In absence of any contrary fact, the mere reliance by the Assessing Officer on the report of Investigation Wing is not sufficient to establish the fact that the transaction is bogus. The finding of the Assessing Officer is based merely on the suspicion and surmises without any tangible material to show that the assessee has introduced his own unaccounted income in the loans. Therefore, in absence of any evidence, it cannot be held that the assessee has introduced his own ....
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....ought u/s. 133(6) of the Act and vindicated the stance of the appellant. However, the A.O was not impressed by such evidences adduced on record. The Assessing Officer deliberately ignored the submission made by the appellant and loan applicants. The A.O, with the intention known to him, did not give cognizance to any of the replies; where in all details sought by him from the assessee company as well as from the allottee companies were submitted. These facts borne on record by the loan applicants, in my opinion, clearly prove their source of funds, and their capacity for making such payments and accordingly, the criteria of their creditworthiness is proved. It is observed that the burden which lay on the appellant, in relation to s. 68 of the Act, has been duly discharged by it and nothing further remains to be proved by it on the issue. The A. O has not found any defect and/or deficiency in the source of funds explained by the loan applicants through their replies to the statutory notices issued u/s. 133(6) of the Act to them. It is also observed that every loan applicant in their respective replies to the statutory notices issued u/s. 133(6) of the Act, furnished copies of their ....
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....he assessee own undisclosed money. It is settled law that, no addition can be made on the basis of surmises, suspicion and conjectures. Reliance is also placed on the decision of the Hon'ble Supreme Court of India in the case of C. 1. T. (Central) Calcutta vs. -Daulat Ram Rawatmull (87 ITR 349) wherein it had held that "The onus to prove that the apparent is not the real is on the party who claims it to be so. ". In fact, any suspicion, however so ever strong, cannot take place of proof as clearly laid down by the Hon'ble Supreme Court in the case of Umacharan Shaw & Bros, vs. CIT [19597 37 ITR 271. In this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the loans, thereafter the onus shifted to A.O to disprove the documents furnished by assessee cannot be brushed aside by the A.O to draw adverse view cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the Assessing Officer, I hold that an addition cannot be sustained merely based on inferences drawn by circumstance. To sum up section 68 of the Act provides that if any sum found credited in th....
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....tion were credited through banking channels. The names, PANs and loan amounts and the interests paid for which TDS has been deducted are as under: Sl. Name PAN Loan as on 31.03.2015 Interest Paid 1 M/s. Bhiksu Barter Pvt Ltd. AABCB1315M 3,00,000 1,726/ 2 M/s. Divya Electronics Pvt Ltd. AAACD9721C 1,35,00,000/- 9,20,959/ 3 M/s. Paritosh Electricals Pvt Ltd. AABCP5013E 41,50,000/- 3,84,123/ 4 M/s. Potential Electricals & Electronics Pvt Ltd. AABCP5014D 40,00,000/- 4,65,205/- 5 M/s. Ranbhumi Marketing Pvt Ltd. AAECR5842G 20,00,000 1,44,247/- 6 M/s. Shresth Builders Pvt Ltd. AADCS7759J NIL 5,33,425/- 7 Vivek Barter Pvt Ltd. AAACV8952B 73,50,000/- 6,79,911/- 8 Vivek Tracom Pvt. Ltd. AAACV8670J 80,00,000/- 27,08,014/- 9 Rajshree Developer Enterprises Pvt Ltd. AABCR2000D 58,00,000/ 1,32,553/- Total 4,51,00,000/- 53,70,163/- 12. Despite the assessee filing all these documents from which it can be noted that the lender companies are regular income-tax assessee's, still the A.O had branded them as shell/paper....
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....te that within 10 days (after giving the statement to Investigation Wing), he has retracted the statement by swearing the affidavit which is placed at page 45 to 48. Therefore, according to the Ld. AR, the statement of Shri Raj Kumar Kothari which was the only basis of which the A.O branded the lender companies as shell/paper companies could not have been used against the assessee and in any case does not have any evidentiary value, since retracted and could not have been acted upon against the assessee. Moreover, according to Ld.AR both Shri Raj Kumar Kothari as well as Shri Bijay Kumar Dokania has not been summoned by the A.O and their statements were not recorded directly by the A.O before drawing adverse inference against the lender companies. According to the Ld. AR, neither the A.O gave the full statement of both these persons nor gave an opportunity to the assessee to cross-examine them (Shri Raj Kumar Kothari as well as Shri Bijay Kumar Dokania). So, according to Ld. AR, in any case their statement cannot be the basis for drawing adverse inference against the assessee as for that Ld. AR relied on the decision of the Hon'ble Supreme Court in Andaman Timber v. CCE (2015) 62 t....
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.... the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness" of transaction through account payee cheque has been established. We find that both the Commissioner of Income Tax (Appeal) and the Tribunal below followed the well-accepted principle which are required to be followed in considering the effect of Section 68 of the Act and we thus find no reason to interfere with the concurrent findings of fact recorded by both the authorities." 14. Further the Ld. CIT(A) has noted that pursuant to the notice u/s 133(6) of the Act, the lender companies have directly filed before the A.O., the balance sheet, relevant bank statement etc. We note from a perusal of the balance sheet of the lending companies the following facts which are noted as under: Sl. Name Reserves & Surplus Turnover assessee as on 31.03.2015 Interest Paid 1 M/s.Bhiksu Barter Pvt. Ltd. 7,93,23,661 78,72,546 3,00,000 1,726/- 2 M/s. Divya Electronics Pvt. Ltd. 13,18,87,700 1,84,39,149 1,35,00,000/- ....
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....tatement given by both Shri Raj Kumar Kothari as well as Shri Bijay Kumar Dokania recorded in third party proceedings to take an adverse view against the assessee. In such a situation, the AO ought to have confronted the assessee with the entire statement of both Shri Raj Kumar Kothari as well as Shri Bijay Kumar Dokania or material against the assessee if any with him rather than giving only selective question and answer; and if the AO felt that these two persons, oral testimony is incriminating against the assessee, then in all seriousness he should have summoned them before him and elicited the direct oral evidence against the assessee and thereafter gave a copy of the recorded statement and then afforded an opportunity to assessee to cross-examine the makers of the incriminating oral testimony and thereafter the AO would be justified in using against the assessee, which in this case AO has not done, for reason best known to him; and so the selective questions and answers of the two persons with the legal infirmities discussed supra cannot be used against the assessee. Moreover the AO has not found any infirmity with the documents filed by the assessee to prove the loan transact....