TaxTMI 
TaxTMI 
2021 (11) TMI 807
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....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 123616 6 Potential Electricals & Electronics (P) Ltd. 1000000 121808 7 Rajshree Develop....
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....reover, 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 has also not been mentioned in the said statement as to whether we were one of the beneficiary of such accommodation entries. From the state....
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....ting 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. 10,00,000/-) and M/s. Vivek Tracom Pvt. Ltd. (Rs. 75,00,000), all totalling Rs. 1,50,10,000/-. The appellant has also paid interest to these six parties as well as four other parties, wh....
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....ri 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 during F.Y. 13-14 Mode of Payment of Loan PAN Amount Repaid During the Year Interest Accrued During the Year Mode of Payment of Interest and whether TDS made Whether Return Filed Whether AO Verified....
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....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 section 68, one finds nothing in section 68 to show that the scope of 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 authorise the revenue department to make inquiry into the source(s) of the creditor and/or sub-creditor. The language employed by section 68 cannot be r....
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....ditors, 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 section 106 of the Evidence Act and section 68 of the Income-tax Act will be that though apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the creditworthiness 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 t....
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....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 direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee. Therefore, the Assessing Officer had failed to show that the amounts, which had come to the hands of the creditors from the hands of sub-creditors, had actually been received by the sub-creditors from the assessee. In the absence of any such evidence on record, the Assessing Officer could not have treated the said amounts as income derived by the assessee fr....
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....f 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 support CIT(A) while deleting the addition has also relied on the decision of the Hon'ble Gujarat High Court in the case of Dy. CIT v. Rohini Builders [2002] 256 ITR 360 and the decision of Hon'ble Supreme Court, in the case of Orissa Corpn. Ltd. 153 ITR 78. Before us, nothing has been brought on record by the revenue to controvert the findings of CIT(A). Revenue has relied on the decision of Hon'ble Delhi High Court in the case of N.R. Portfolio (supra) We however find that the ratio of the afore....
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..../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 Investigation Wing that the assessee had taken unsecured loan to the tune of Rs. 1.50 crores from ten (10) shell companies controlled and operated by Shri Raj Kumar Kothari who have accepted before the Investigation Wing that he through his legal entities (Private Limited companies) is indulging in providing bogus share capital and unsecured loan in lieu of commission, the AO had drawn adverse inference and made addition against the assessee. The Ld. DR referred to the submission given by Shri Raj Kumar Kothari which has been reproduced by the ....
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....e 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 an Affidavit which was sworn before the First Class Magistrate, Kolkata which is found placed in pages 38 to 41 of PB wherein he specifically stated that due to threat and coercion from the Officer of the Investigation Wing that if he does not oblige the department by stating what they want to be recorded, they would ruin him by conducting multiples raids at his house/office premises and ultimately his family will be on the street and that the statement was recorded in the night at 10.30 PM and that he was treated as criminal; and since the ....
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.... 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 loan from four (4) other companies [refer to list at page 2] (supra) regularly after deducting TDS on the said payment of interest of Rs. 13,34,669/-. 11. It is noted that pursuant to the notice issued by the A.O. U/s. 133(6) of the Act, the ten (10) lender companies (which includes six (6) lender companies of this year and the carry forward loan from earlier year to which interest have been paid) have directly replied to the AO by filing the following documents of them: (a) copy of income-tax acknowledgment, (b) copy of audited accounts for....
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....isked 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, we note that within ten (10) days (after giving the statement to Investigation Wing), he has retracted the statement by swearing the affidavit. 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, Shri Raj Kumar Kothari when summoned by the A.O. of the assessee on 06.12.2016 has denied to be providing ac....
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....tting 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, 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." 15. 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 ....
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.... 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 identity, creditworthiness and genuineness of the loan transaction, the AO could have disbelieved the transaction only on the basis of reliable material to disprove the same. In this case the AO took the support of the statement given by Shri Raj Kumar Kothari 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 Shri Raj Kumar Kothari or material against the assessee if any with him rather than giving only selective question and answer; and if the AO felt that this person, oral testimony is incriminating against the assessee, then in all seriousness he should have after summoning him before him ought to have elicite....
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.... 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 purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, & VAT Registration of the sellers & their Income Tax Return. In view of the above discussion in totality, the purchases made by the appellant from M/s. Padmesh Realtors Pvt. Ltd. is found to be acceptable and the consequent disallowance resulting in addition to income made for Rs. 19,39,60,866/-, is directed to be deleted." The ITAT by its judgment dated 16th May, 2014 relied on the self same reasoning and dismissed the appeal of the revenue. Likewise, the High court by the impugned judgment dated 5th July, 2017, affirmed the judgments of the CIT and ITAT as concurrent factual findings, which have n....