TaxTMI 
TaxTMI 
2011 (10) TMI 759
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....ited Company incorporated on 12.9.2006. In the course of scrutiny assessment for the assessment year 2007-08, the AO observed that the assessee has shown share capital of Rs. 3,80,000/- and reserve and surplus of Rs. 25,40,998/-. In addition to above assessee has also shown unsecured loans of Rs. 3,33,09,596/- Unsecured loans were stated to be taken from the following parties :- S. No. Name of the Party Amount of Unsecured Loan 1 M/s. Shradha Agencies Rs. 3,02,40,000/- 2 M/s Sourabh Cotton Rs. 28,15,000/- 3 Smt. Kiran Choudhary Rs. 2,50,000/- Total" Rs. 3,33,05,000/- 13.2. The information u/s 133(6) of the Income Tax Act was called for and person wise position emerged as under:- 1. M/s Shardha Agencies, Prop. Shri Rajendra Chhajed, 125, Ramchandra Nagar, Indore Dispatch through Speed Post/AD First notice was received un served with postal comment "Diye pat per nahi hone se vapas" and 111 the second attempt on providing latest address the information complied but after due dates 2. M/s Sourabh Cotton, Prop Hastimal Jain, 62, Swami Vivekanand Nagar, Kanadi Road, Indore Dispatch through Speed Post/AD Info....
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....assessment proceeding related details were procured from Shri Hashtimal Jain. A brief description of the same is as under:- A.Y. Returned income ( in Rs.) 2005-06 85,121/- 2006-07 83,520/- 2007-08 2,22,848/- The AO stated that perusal of the above clearly shows that the claimed lender has no creditworthiness to advance Rs. 28.15 lacs that to a company (the assessee company) who have just started their business in the assessment year concerned ( for few days of March 2007) with its date of incorporation only on 12/09/2006. On the basis of above discussion, the AO held that the creditworthiness of the claimed lender i.e Shri Hastimal Jain is not proved. Shri Rajendra Kumar Chhajed Prop. Shradha Agencies unsecured loans taken Rs. 3,02,40,000/- With regard to the genuineness of the transactions, the AO observed that the assessee has also shown loan taken in its balance sheet from Shri Rajendra Kumar Chhajed Prop. M/s. Shradha Agencies amounting to Rs. 3,02,40,000/--. The copy of account was furnished during assessment proceedings. Confirmation letter was also filed. Statement of Shri Rajendra Kumar Chhajed was recorded u/s.131 of the Income....
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....ing Company only and no interest is to be paid to the other parties being interest free. He also stated that he has advanced a loan of Rs. 3,02,40,000/- to assessee M/s. Vaibhav Cotton Pvt. Ltd. this is also interest free loan. The explanation given was that he has business relations with these parties, therefore neither interest paid nor taken. He also denied about any contract/agreement made in respect of loan taken/given. In further question he replied that he has only one bank account with M/s. Union Bank of India which is O.D. current account. He further stated that he forgot to tell that interest of RS.7428/- was paid to M/s. Rai Enterprises also and no interest has been paid to Shri Vardhman Traders Prop. Shri Suresh Kumar Mehta who is my near relative ( wife's brother). On-asking that how he could get a loan of Rs. 2.81 crores from M/s. Kartik Trading Co. on what basis loan was taken. It was explained that the proprietor of M/s. Kartik Trading Company Shri Rarnesh Agrawal of Mahawar Nagar Annapurna Road, Indore is also doing the business of cotton and he is a broker, therefore the relations are professional/business relations. The loan was given to him on his personal r....
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.... sale of bales by Rai Enterprises was actually not a business transaction but it was shown in the books just to release the money of the assessee company to get back same again as a loan and same money was routed again and again among these three parties. It means these shown transactions are not real and genuine transactions but only circulation of money which was managed by the assessee i.e. M/s. Vaibhav Cotton Company Pvt. Ltd. Therefore, the genuineness of transaction of the claimed lender i.e Shri Hastimal Jain is not proved. " 7. In view of the above, discussion, entire amount of unsecured loans were treated by the Assessing Officer as nongenuine and the creditworthiness of loan creditors were held to be not proved. Thus, the amount of loan taken was added by the Assessing Officer in assessee's income. 8. By the impugned order, the ld. CIT(A) deleted the addition after having the following observations :- "Now, coming to ground no.2, resulting in addition of Rs. 28.15 lakh and Rs. 302.46 lakh from M/s. Saurabh Cotton & Sarda Agencies, it is to be seen that AO has not doubted the identity of both these parties. All he has doubted is the genuineness of such trans....
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.... resorted to such circular transactions to square off the balance appearing in two savings account namely Rai Enterprises and Karthik Trading co. The contention so advanced are not found to be very convincing as how a person could hold such a wrong notion but then nothing turns out of it. This could have been at best a point of investigation for inquiring into the affairs of the appellant company in the matter of transactions, but based on such findings and observation, the amount of funds which are amply explained cannot be treated as unexplained so as to be added in the hands of the appellant. Thus, the addition made by the AO at Rs. 28.15 lakh for the outstanding amount standing in the name of M/s. Saurabh Cotton of Rs. 302.40 lakhs standing in the name of Shraddha Agencies cannot be sustained, both in facts and in law and are accordingly directed to be deleted." 9. Aggrieved by the above order of the ld. CIT(A), the Revenue is in further appeal before us. It was argued by the ld. CIT DR that creditworthiness of loan creditor was not proved in so far as they were having very low income returned during the last three years as noted by the Assessing Officer. He further contende....
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.... the assessee company. The source of each of these entries were fully proved. The statement of the creditors was also recorded by the Assessing Officer by calling them u/s 131 wherein they have owned the funds given to the assessee company, their relation with the Director of the assessee company and the source of fund in their respective Bank account. The AO in its order itself has observed inflow of funds in respective dates in the Bank account and out flow of the same out of the sufficient balance in their Bank account. Proprietor of both the concerns Shri Hashtimal Jain and Shri Rajendra Kumar Chhajed in their statement accepted the amount of advances given by them to the assessee. There is no dispute to the well settled legal proposition that in case of cash credit not only identity and genuineness of the loan transaction is required to be proved but at the very same time, creditworthiness of loan creditor is equally important to be proved. With regard to the identity of the creditors, we found that both the creditors are income tax payers and copies of their assessment orders for the past three years have been filed to prove their identity and they also personally appeared be....