TaxTMI 
TaxTMI 
2021 (11) TMI 807
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on which the Revenue is aggrieved is against the action of the Ld. CIT(A) in deleting the addition of Rs. 1,50,10,000/- U/s. 68 of the Income Tax Act, 1961 (hereinafter referred to as the Act) and Rs. 13,34,669/- U/s. 69C of the Act which amount the assessee company has shown as unsecured loan from ten (10) parties and the interest paid by the assessee on it to the lenders respectively. 4. Brief facts of the case as noted by the Assessing Officer are that the assessee firm filed its original return of income of Rs. 22,78,400/- and filed revised return on 22.07.2015 showing total income of Rs. 22,78,400/-. Thereafter the case of the assessee was selected for scrutiny. In the course of assessment proceedings the AO noted that the assessee firm has taken unsecured loan from the following parties which according to him were shell companies: Sl. No. Name Unsecured loans received during FY 2013-14 Interest Paid 1 A.K. Construction Pvt. Ltd. 45000001 126477 2 Bhiksu Barter Pvt. Ltd. - 120000 3 Divya Electronics Pvt. Ltd. 10000 119974 4 Maheswari Merchants (P) Ltd. 1000000 8877 5 Paritosh Electricals (P) Ltd. 1000000 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d behind the assessee's back, it cannot be used against it unless the assessee has been given an opportunity to cross examine. Moreover, it was pointed out by the assessee that from the statement recorded by AO during the assessment proceeding of the assessee, Shri Kothari has denied that he was giving accommodation entry to the assessee and even categorically confirmed about the loan transaction with assessee and also able to show the source of loan to assessee which was from refund of loan. The reply of assessee which has been reproduced by the AO is as under: "During the course of hearing your honour has provided us with the copy of statement of Shri Raj Kumar Kothari recorded before the DDIT (Inv), Unit-2(2), Kolkata and before your honour in response to notice U/s. 131 of the Income-tax Act, 1961. In this regard we would like to submit before your honour that in the statement recorded before the DDIT (Inv) Shri Raj Kumar Kothari has stated that he provides accommodation entries to various beneficiaries. Also it is further clarified from response to query No. 11 and 12 that he has provided accommodation entries to one Banktesh Group and not the assessee firm. It ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsecured loan amounting Rs. 1,50,10,000/- as discussed above and hence added back to the total income U/s. 68 of Act as unexplained cash credit. The interest amounting Rs. 13,34,669/- is also disallowed as bogus expenditure U/s. 69C and added back to the total income." 6. Aggrieved by the actions of the AO the assessee preferred an appeal before the Ld. CIT(A) who was pleased to delete the same by holding as under: "Findings & Decision 1. I have examined the submissions filed by the Ld. A.Rs. for the appellant and the various evidences placed on record, I have also carefully perused the observations and findings recorded by the Ld. AO. I have also examined the assessment records as sent by the Ld. A.O. From the facts as recorded by the Ld. A.O. I find that that during the Financial Year 2013-14, relevant for the subject A.Y. 2014-15, the appellant-assessee had taken loans from 6 parties - namely M/s. A. K Construction Pvt. Ltd. (Rs. 45,00,000), M/s. Divya Electronics (Pvt) Ltd. (Rs. 10,000/-) M/s. Maheshwari Merchants Pvt. Ltd. (Rs. 10,00,000/-) M/s. Paritosh Electricals Pvt. Ltd. (Rs. 10,00,000/-) M/s. Potential Electricals & Electronics Pvt. Ltd. (Rs. 10,00,0....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecorded by him but merely observed that the replies given by him before another Officer, the ACIT, Circle-34 were not satisfactory. Therefore, I find that even when the Ld. A.O. has summoned Shri Raj Kumar Kothari, the alleged loan operator and examined him, he appears to be relying more on the statement given by Shri Kothari before another Assessing Officer or before the Investigation Wing. 4. On the contrary, however I find that when called upon to explain the identity, creditworthiness and genuineness of the transaction, the appellant had furnished before the Ld. AO numerous documentary evidences to establish the three limbs of Section 68 of the Act. From the documents placed before me, and as available from the Assessment Record, it was found that the appellant had furnished confirmation of accounts from both the loan creditors together with copies of their financial statements, IT Acknowledgments and the bank statements from which the loan amounts were paid. A summary of the position regarding compliance to the notices of the Ld. A.O. to the various Loan creditors as available in the assessment record is as under: Sl. No. Name of Loan Creditor Loan Received d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....efore appeared that the transaction between the appellant and the lender companies was conducted through banking channels. I also find that the entries in the bank statement of the lender clearly explained the immediate source for making payment of the loan amount. Even though these material evidences was brought on ld. AO's record, he did not bring any adverse material to prove that the explanation furnished by the appellant was false or there was any material infirmity therein. Since the appellant had proved that the loan transaction was carried out through proper banking channel and the immediate source for payment of loan was explained and there being no contrary material brought on record by the Ld. AO, in my opinion in terms of Section 106 of the Indian Evidence Act, the appellant could be said to have discharged the onus cast on him to establish identity, creditworthiness and genuineness of the loan transaction. The foregoing conclusion finds support in the judgment of the Hon'ble Gauhati High Court in the case of Shri Nemi Chand Kothari vs. CIT (264 ITR 254) wherein the Hon'ble High Court held as follows: When one reads carefully the provisions of secti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 106 of the Indian Evidence Act limits the onus of the assessee to extent to his proving the source from where he has received the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s) of the creditor, but also of his (creditor's) sub-creditors and prove, as a result of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the Assessing Officer to enquire into the source/sources from where the creditor has received the money, section 106 makes the assessee liable to disclose only the source(s) from where he has himself received the credit and it is not the duty of the assessee to show the source(s) of his creditor nor is it the burden of the assessee to prove the creditworthiness of the source(s) of the sub-creditors. If section 106 and section 68 are to stand together, which they must, then the interpretation of section 68 has to be in such a way that it does not make section 106 redundant. Hence, the harmonious construction of sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ced by the sub-creditor to the creditor, had actually been received by the sub-creditor from the assessee. [Para 19] In the instant case, the assessee had established the identity of creditors, namely, N and 'P'. The assessee had also shown, in accordance with the burden, which rested on him under section 106 of the Indian 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 'W' and 'P' by way of cheques, the assessee must be taken to have proved that the creditors had the creditworthiness to advance the loans. Thereafter, the burden had shifted to the Assessing Officer to prove the contrary. On failure on the part of the creditors to show that their sub-creditors had creditworthiness to advance the said amounts to the assessee, these amounts as a corollary, could not have been and ought not to have been, under the law, treated as the assessee's income from the undisclosed sources, when there was neither dir....
X X X X Extracts X X X X
X X X X Extracts X X X X
....missions and perused the material on record. It is an undisputed fact that during the year the assessee had received loan from 17 parties aggregating to 33,35,011/-. The details of which are listed at page 2 of Assessing Officer order. CIT(A) while deleting the addition has given a finding that the assessee had filed before Assessing Officer the confirmations with name, address, PAN Number, copy of ledger account, copy of balance sheet and profit and loss account, copy of Income Tax returns and computation of total income in respect of all the parties except two depositors. With respect to the two depositors, the assessee had filed confirmation, address and PAN Numbers and hence the assessee had also discharged the initial onus cast upon the assessee with respect to the two creditors. He has further noted that the loans were received through cheques and the loan account were duly reflected in the balance sheet of lenders CIT(A) has further held once the onus was fulfilled by the assessee, it was for the Assessing Officer to examine and bring any material on record which may help in rebutting the onus of assessee. The Assessing Officer has not brought any material on record in its s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he same as unworthy of credence. So long it is not established that 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. 8. Respectfully following the ratio laid down in these judgments and having regard to the facts discussed in the foregoing, I therefore hold that the addition of Rs. 1,50,10,000/- made U/s. 68 was not tenable on facts and in law and the same is deleted. Similar is the treatment to be given to the amounts of interest paid by the appellant to the Loan Creditors, being an amount of Rs. 13,34,669/-. This impugned amount is also directed to be deleted. In effect, the substantial grounds 1 to 4 stand allowed." 7. Aggrieved by the aforesaid action of the Ld. CIT(A) deleting the addition of Rs. 1.50 crores U/s. 68 of the Act and Rs. 13,34,669/- added U/s. 69 of the Act, the Revenue has preferred this appeal before us. 8. Assailing the action of the Ld. CIT(A), Shri Supriyo Paul, Ld. DR submitted that based on information from the Inves....
X X X X Extracts X X X X
X X X X Extracts X X X X
....found that these are nothing but a bogus shell companies. The Ld. D.R. has pointed out that as per the request of the assessee opportunity was granted to the assessee for cross-examining Shri Raj Kumar Kothari however the assessee did not avail it and therefore the AO has rightly made the addition U/s. 68 and 69 of the Act to the tune of Rs. 1,50,10,000/- and Rs. 13,34,669/- therefore according to Ld. D.R., the Ld. CIT(A) erred in deleting the addition which decision needs to be reversed and the AO's order be upheld. 9. Per contra, the Ld. A.R. of the assessee Shri Miraj D Shah at the outset pointed out that the case of the assessee is squarely covered by the decision of this Tribunal in the case of M/s. Overtop Marketing Pvt. Ltd. in ITA No. 686/Kol/2019 for AY 2015-16 dated 15.03.2021. Further, coming to the merits of the addition made by the AO, Ld. A.R. contended that the statement of Shri Raj Kumar Kothari dated 02.03.2016 before the Investigation Wing cannot be relied upon because he has retracted the same within ten (10) days of giving the purported confession/admission. The Ld. A.R. drew our attention to page 38 of the PB wherein the Shri Raj Kumar Kothari has filed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gus; and that the Ld. CIT(A) while giving relief to the assessee has rightly taken note of the decision of Hon'ble Calcutta High Court in the case of Dataware Pvt. Ltd. (supra) wherein the Hon'ble Calcutta High Court has held that when the identity of the lender company are clear, then if the AO still doubts the creditworthiness of the lender companies, then he should enquire from the AO of the lender companies and thereafter only draw any adverse inference against the lender companies in respect of the creditworthiness. The Ld. A.R. submitted that no such exercise/enquiry was conducted by the assessee's AO, therefore, the Ld. CIT(A) rightly deleted the addition after referring to catena of judicial precedent. Therefore, he does not want us to interfere with the well reasoned order of the Ld. CIT(A). 10. We have heard both the parties and perused the records. It is noted that the assessee company has availed for loan this year from six (6) entities to the tune of Rs. 1,50,10,000/- and it is noted that all the loans taken are interest bearing; and the interest have been paid by the assessee to these six (6) lenders of Rs. 1,50,10,000/- as well as that of carry forward....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n third party proceedings and of course behind the back of assessee. Further, it was brought to our notice by the Ld. AR that AO on the basis of confirmation/admission of Shri Raj Kumar Kothari that he is an entry provider was the basis of branding the lender companies as shell companies, however it was brought to our notice that Shri Kothari had retracted the same within ten (10) days by swearing an affidavit before the First Class Magistrate of Kolkatta which is found placed at pages 38 to 41 of the PB-II. From a perusal of the contents of the affidavit, it is noted that Shri Raj Kumar Kothary has alleged that he was whisked away by the officers of the Department along with policemen on 02.03.2016 and they kept him confined in their Office till late night; and by exerting threat and coercion has extracted some statements/confession/admission. Elaborating further he says that officers threatened to conduct search and survey in his companies and kept on reminding him that they will ruin him and his family. In the back-drop of the aforesaid threat and coercion, he made the statement in accordance to their wishes, and which was not the truth of the contents recorded. In this context,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... companies have accepted the transactions shown by them with the assessee company, then the A.O. of the assessee company cannot impute un-creditworthiness of the lender company and referred to the decision of the Hon'ble Calcutta High Court in CIT vs. M/s. Dataware Private Limited in ITAT No. 263 of 2011 Date: 21st September, 2011 GA No. 2856 of 2011 held as under: "In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assessee. After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness" of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s as discussed supra and has alleged threat and coercion on the part of officers who elicited the statement as they wished, so the statement/truth of the contents of the statement cannot be relied upon by the A.O. and doing so is bad in law; and therefore according to us, it could not have been the basis to draw adverse inference against the assessee company in respect of loan taken by it. Moreover, we note that the A.O. had summoned Shri Raj Kumar Kothari and his statement has been recorded by him from which he could not elicit any incriminating material/statement against the assessee/loan transaction or can term the assessee as a beneficiary. And neither the AO has carried out any enquiry regarding creditworthiness of the lenders from their respective AO's, without which AO of the assessee could not have drawn adverse view of un-worthiness of credit in respect of lenders as held by the Hon'ble Calcutta High Court in the case of M/s. Dataware Private Limited (supra), so the A.O. of the assessee erred in branding the lender companies as lacking in creditworthiness. 17. Therefore, when the assessee as well as the lenders had discharged the onus upon them to prove the iden....
X X X X Extracts X X X X
X X X X Extracts X X X X
....C) Diary No. 22394 of 2019 in Civil Appeal Nos. 9604 & 9605 of 2018 dated 21.08.2019 wherein the Hon'ble Supreme court has held as under: "We have perused the review petition and find that the tax effect in this case is above Rs. 1 crore, that is, Rs. 6,59,27,298/-. Ordinarily, therefore, we would have recalled our order dated 17th September, 2018, since the order was passed only on the basis that the tax effect in this case is less than Rs. 1 crore. However, on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of Rs. 19,39,60,866/- was based solely on third party information, which was not subjected to any further scrutiny. Thus, the CIT (Appeals) allowed the appeal of the assessee stating: "Thus, the entire disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO who has not provided the copy of such statements to the appellant, thus denying opportunity of cross examination to the appellant, who has prima facie discharged the initial burden of substantiating the ....