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TaxTMI 
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2023 (3) TMI 907
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...., "CIT(A)"] dated 28.02.2019 for A.Y. 2008-09 raising following grounds of appeal :- ITA No.3039/MUM/2019 (Assessment Year 2008-09) "1. On the facts and circumstances of the case, the Learned CIT(A) has erred in deleting the addition of Rs. 3,00,00,000/- made by the AO on account of unsecured loan u/s. 68 of the I.T. Act, 1961 without appreciating the fact that the assessee failed to prove the genuineness of the transaction and creditworthiness of the M/s. Divine Tradecom Pvt Ltd and M/s. Rowland Trexim Pvt Ltd. 2. On the fact and circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 3,17,213/- made by the AO on account of interest expenditure on unsecured loan without appreciating the fact that the assessee failed to prove the genuineness of transactions during assessment proceedings. 3. On the fact and circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of business loss of Rs. 30,93,410/- made by the AO on account of interest expenditure u/s. 57(iii) of the Act on unsecured loan without appreciating the fact that the assessee failed to explain the interest expenditure." 03. Brief facts of the case are that ....
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.... Ltd. 05. The ld. Departmental Representative submitted that i. These lender companies are operated by one Shri Pradeep Poddar who is an accommodation entry provider and that in his statement-recorded u/s. 131 of the Act on 02.12.2014, he himself had stated that he was just acting as a Dummy Director in these two companies. In this regard, primary analysis of money received by these companies was made and it was found that these companies have in turn received share capital from various other Kolkata based companies, which belonged to identified entry operators. In fact, in past, these entry operators have accepted before the department that they are in the business of providing accommodation entries and for that purpose, they have created shell companies. These entry providers provided accommodation entries in lieu of cash and rotated these cash in numerous self-controlled shell entities. ii. Merely because the assessee furnished the confirmation, ITR acknowledgement, financial statements and bank statement of these lenders that, itself is not sufficient to say that the assessee has discharged his onus u/s. 68 of the Act. iii. companies do not have their own fund and accumu....
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....198 taxman 247 (Delhi) wherein it is held that adequate bank balance establishes the creditworthiness of the parties. v. Nothing adverse is also found in the course of inquiry by the Assessing Officer. In fact, both these lenders viz. M/s. Divine Tradecom Pvt. Ltd. and M/s. Rowland Trexim Pvt. Ltd. are reassessed u/s. 143(3) r.w.s. 147 of the Act post search conducted in Kamdhenu Group on 09.10.2014 and the concerned Assessing Officer has accepted the share capital along with premium raised by these lenders and no adverse view has been formed in the said reassessment orders of both these lenders which are placed on page nos. 13 to 15 and 28 to 30 of Paper Book. vi. Even source of source of loan stands established. vii. Merely because Kamdhenu Group acquired the shares of these lender companies at a very low rate does not have any relevance in regard to the transaction of interest bearing loan taken by the assessee. Accordingly, ld. Counsel submitted that the ld. CIT(A) has rightly deleted the addition of Rs. 3,00,00,000/- made u/s. 68 of the Act and also the consequential addition of interest of Rs. 3,17,213/- thereon. 07. We have considered the rival submissions of the par....
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....nt documents in support of the transactions entered with M/s. Divine Tradecom Pvt. Ltd. & M/s. Rowland Trexim Pvt. Ltd. to establish the identity, genuineness and creditworthiness of the lenders. During the course of hearing, the appellant stated that the unsecured loans taken from M/s Divine Tradecom Pvt Ltd through personal capacity as well as through proprietary concern M/s. Trishul Developers along-with interest were repaid back in the months of September and October 2011. On the contrary, it is seen that the AO has not pointed out any discrepancies or deficiencies in the evidences so filed except that the accumulated profits of the said entities are negative or just a meagre amount and that statements of certain parties reveal the nature of said transactions in the form of accommodation entry. 7.6 In its rebuttal, the assessee submits that mere low income cannot be the criteria to dislodge the creditworthiness of the lenders and that due consideration should be given to the net worth of the companies which is Rs. 24,29,03,235/- in case of M/s. Divine Tradecom Pvt. Ltd and Rs.27,94,00,737/- in case of M/s. Rowland Trexim Pvt. Ltd. for the year under consideration. I find meri....
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.... the order that lender is not credit worthy. The AO must make proper enquiry before making any addition. In Khandelwal Constructions v. CIT 227 ITR 900 (Gau.), it has been held that section 68 empowers the Assessing officer to make enquiry. If he is satisfied that these entries are not genuine he has every right to add these as income from other sources. But before rejecting the assessee's explanation, A.O. must make proper enquiries and in the absence of proper enquiries, addition cannot be sustained. 7.9 Further, in the case of Nemichand Kothari vs. CIT - [264 ITR 254] [Gau], the Hon'ble High Court had held that: ".....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 the creditor. What follows, as a corollary, is that it is not th....
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....blishes the genuineness of the credit which is reflected in the books of accounts. The present case is on a much better footing in view of the fact that source of source of loan is explained by the assessee on one side whereas the AO has not brought on record any cogent evidence to disbelieve the evidences submitted by the assessee. 7.12 In the light of the above, it is now important to examine the validity of addition based on the statement of Shri Pradeep Poddar and Shri Anand Sharma. * Statement of Shri Pradeep Poddar The AO has referred to the statement of Shri Pradeep Poddar dated 02.12.2014 in the reasons recorded wherein it is alleged that loan taken from M/s Divine Tradecom Pvt Ltd M/s. Rowland Exim Pvt. Ltd. are in the nature of accommodation entries. The assessee submits that the statement of Shri Pradeep Poddar was recorded under duress and coercion and he was subjected to tremendous mental torture and trauma by the Investigation Officer which is quite evident from the fact that Shri Pradeep Poddar had also filed a police compliant against the Investigation Officer immediately on the very next day of the statement on oath i.e on 03.12.2014. Moreover, it is observed....
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....ought on record, the AO has failed to discharge his onus in alleging the genuineness of transaction with M/s Divine Tradecom Pvt. Ltd. and M/s. Rowand Trexim Pvt. Ltd. 7.13 Section 68 is not a charging section but a deeming fiction dealing with the burden of proof. The section casts initial onus u/s. 68 of the Act on the assessee to prove identity, genuineness and creditworthiness of the transaction to the satisfaction of the AO. If the assessee fails to do so or the explanation offered by him is not satisfactory to the AO, the AO is empowered to add the same to the total income of the assessee. The said power is to be exercised judiciously by the AO. Thus, once the initial onus is discharged by the assessee, the onus shifts on the AO to bring out fallacies in evidence brought by the assessee or by bringing new evidence that indicate the transactions undertaken by the assessee are non-genuine. Thus, the section deals with an equilibrium of onus of proof and must be viewed to evaluate as to whether the evidences brought by the assessee or AO weigh more and accordingly in whose favour the equilibrium bends. In the present case, on one hand, the assessee has placed evidence in the f....
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....ground that the assessee has filed enormous details in respect of 9 companies including their PAN details, CIN master data, affidavits sworn before Executive Magistrate, reply to the notices issued u/s 133(6). The assessee also filed copies of assessment order passed u/s 143(3) by the department in respect of 4 companies. The assessee also filed a certificate from a Chartered Accountant certifying the active status of the company in the website of Ministry of Corporate Affairs. On going through various detailed filed by the assessee, we find that there is no reason for the AO to doubt the genuineness of transactions of creditworthiness of the parties. We further notice that all 9 companies are active in the website of ROC and also they have filed their balance-sheet upto 31-03-2016 and in some cases upto 31-03-2017. We further notice that the AO has furnished a report accepting the fact that all these companies are active in the website of MCA and none of the companies' name is struck off from the list published by the MCA as shell company. We further notice that the assessee has filed balance-sheet of all 9 subscribers wherein they have huge share capital and reserves and surplus ....
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.... companies. The list of documents submitted on 09.03.2015 are as follows : 1. Sony Financial Services Ltd. - CIN U74899DL1995PLC068362- Date of Registration 09/05/1995 Memorandum of Association and Article of Association Certificate of Incorporation Certificate of Commencement of Business Acknowledgment of the Return of Income AY 08-09 Affidavit of the Director confirming the investment Application for allotment of shares Photocopy of the share certificate Audited account and Directors report thereon including balance sheet, Profit and Loss Account and schedules for the year ended 31.03.2009. Audited account and Directors report thereon including balance sheet, Profit and Loss Account and schedules for the year ended 31.03.2010 The Bank Statement highlighting receipt of the amount by way of RTGS. Banks certificate certifying the receipt of the amount through Banking channels." 6. On going through the documents which have been produced which are basically from the public offices, which maintain the records of the Companies. The documents also include assessment Orders for last three preceding years of such Companies. 7. The Appellants have failed to expla....
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....the Respondents, have come to the conclusion that once the Assessee has produced documentary evidence to establish the existence of such Companies, the burden would shift on the Revenue-Appellants herein to establish their case. In the present case, the Appellants are seeking to rely upon the statements recorded of two persons who have admittedly not been subjected to cross examination. In such circumstances, the question of remanding the matter for re-examination of such persons, would not at all be justified. The Assessing Officer, if he so desired, ought to have allowed the Assessee to cross examine such persons in case the statements were to be relied upon in such proceedings. Apart from that, the voluminous documents produced by the Respondents cannot be discarded merely on the basis of two individuals who have given their statements contrary to such public documents. 10. We find no infirmity in the findings arrived at by the ITAT as well as CIT Appeals on the contentions raised by the Appellants-Revenue in the present case and, as such, the question of interference by this Court in the present proceedings under Section 260A of the Income Tax Act would not at all be justifie....
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....s operated by some unscrupulous persons, then money received by assessee cannot be held to non-genuine. In fact, that is the only allegation of LD AO, which is demolished by the reassessment orders of the lender companies. We therefore do not incline to interfere with the findings and reasoning of the ld. CIT(A) and uphold the order of ld. CIT(A). 09. Accordingly, ground no.1 and 2 of the revenue is dismissed. 010. The ground no. 3 relates to disallowance of business loss of Rs. 30,93,410/-. 011. Briefly, facts of this issue are that during the year under consideration, the assessee incurred interest expenditure of Rs. 37,66,487/- and also received interest income of Rs. 6,73,077/- resulting into a loss of Rs. 30,93,410/-. Ld AO held that assessee had not brought on record any evidence to show direct nexus of utilization of fund whereas in fact, he had used the funds for the purpose of investments in other concerns in which he is a partner and also for other assets. Thus, as the assessee was unable to explain the commercial reason, Assessing Officer disallowed the business loss of Rs. 30,93,410/- and added the same to the total income of the assessee. In appeal before the ld. CI....
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....d loans borrowed and the investments made in these concerns as envisaged u/s. 36(1)(iii) of the Act. Therefore, proportionate amount of the interest expenditure in the ratio of the interest free non business investments made needs to be disallowed...." 015. Since out of the overall interest bearing funds, certain funds were utilized for the purpose of business of the proprietorship concern of the assessee, to that extent, interest ought to be allowed u/s. 36(1)(iii) of the Act. We therefore do incline to interfere with the order of the ld. CIT(A) and the Corrigendum Order passed thereafter in granting relief to the assessee to the extent of Rs. 3,86,176/- on this issue u/s. 36(1)(iii) of the Act. Hence, the ground no. 3 of the revenue is dismissed. 016. In the result, the appeal of the revenue in ITA no. 3039/Mum/2019 for A.Y. 2008-09 is dismissed. ITA no. 4038/Mum/2019 & CO no. 46/Mum/2021 AY 2014-15 017. The revenue is in appeal in ITA no. 4038/Mum/2019 before us against the order of Commissioner of Income Tax (Appeals) - 49, Mumbai [for short, "CIT(A)"] dated 28.03.2019 for A.Y. 2014-15 raising following grounds of appeal:- ITA No.4038/MUM/2019 (Assessment Year 2014....
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....ific incriminating material. (d) The ld. CIT(A) erred in facts and law in not appreciating that mere loan books disclosing duly recorded loan transactions in books of account cannot be construed as incriminating material. (e) Without prejudice to (d), the ld. CIT(A) erred in facts and law in not appreciating that the ld. Assessing Officer made the addition of Rs.2,63,00,000/- in respect of loans taken from M/s.Everlink Investment Advisory Pvt. Ltd. and M/s.Konark Commerce Pvt. Ltd. wherein no reference about the said alleged parties was made in the satisfaction note recorded thereby there being no existence of any incriminating material in relation to the said loans. 019. Brief facts of the case are that the assessee filed his original return of income for A.Y. 2014-15 on 19.11.2014 declaring total income at Rs. 1,87,20,000/- and same was processed u/s. 143(1) of the Act. Later, a search action u/s. 132 of the Act was carried out in the appellant‟s group concerns on 09.10.2014. In this case, the satisfaction note is recorded on 18.03.2016 and due date of issuing notice u/s. 143(2) for A.Y. 2014-15 was 30.09.2015 thereby making A.Y. 2014-15 as unabated year. Consequently,....
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....one through the assessment order and appellate order along with the material placed on record. The core issue involved here is the validity of additions in light of the satisfaction note recorded before issuing the notice u/s. 153C of the Act for A.Y. 2014-15 and the additions made in the assessment order having any basis to incriminating material, if any. It would be relevant to reproduce here the satisfaction note recorded on 18.03.2016 by the Assessing Officer prior to issue of notice u/s. 153C of the Act for A.Y. 2014-15 dated 22.03.2016: "A Search action was carried out u/s 132 of the Income Tax Act, 1961 on 09.10.2014 at the offices of Lotus/Kamdhenu / Green Valley group & their Associates and at the residences of their Directors As a part of the search a Survey was conducted at the office premises of M/s Nishrin Trading and Investment Pvt. Ltd. Situated at Sir Navroji Bldg, Shankar Sneth Lane, Grant Road West, Mumbai 400 007 on 09.10.2014 which was later converted into search and seizure action u/s 132(1) on 10.10.2014. During the course of search action certain loan books were also found and seized which were marked as Sr no 1 to 13 of Annexure A to Panchanama at 11.10.....
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....o in satisfaction note. Moreover, satisfaction note is prepared for all the years together from A.Ys. 2009-10 to 2014-15 without pointing out any assessment year specific incriminating material for the year under consideration. It is observed that as per first proviso to section 153C of the Act, A.Y. 2014-15 is an unabated year and have attained finality as the due date of issuing notice u/s. 143(2) for the said year was 30.09.2015 whereas the satisfaction note is recorded on 18.03.2016 and notice u/s. 153C of the Act is issued on 22.03.2016. Further, it is noted that the addition of Rs. 2,00,00,000/- being unsecured loans from M/s. Everlink Investment Advisory Pvt. Ltd. and Rs. 63,00,000/- being unsecured loans from M/s. Konarch Commerce Pvt. Ltd. has no relevance to any incriminating material found in the course of search in Kamdhenu Group on 09.10.2014. In fact, the said additions of Rs. 3,00,00,000/- u/s. 68 and the consequential interest of Rs. 11,78,742/- are based on some statements of third parties viz. Shri Anand Sharma and Shri Pravin Agarwal recorded not in the course of search in Kamdhenu Group on 09.10.2014 as referred in the satisfaction note. Thus, it is clear that t....
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....s of transactions during assessment proceedings. 3. On the fact and circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 4,07,492/- made by the AO on account of interest expenditure u/s. 36(1)(iii) of the Act on unsecured loan without appreciating the fact that the assessee failed to explain the interest expenditure." 030. Assessee has filed cross objection in CO No. 72/MUM/2020rasiing following ground of appeal :- "(a) On the facts and circumstances of the case, the assessment order passed u/s. 153C r.w.s. 143(3) of the Act is invalid and bad in law. (b) The ld. CIT(A) erred in facts and law in not appreciating the fact that there was no satisfaction note recorded by the Assessing Officer before invoking the provisions of section 153C of the Act in view of the CBDT Circular No.24/2015 dated 31.12.2015. (c) The ld. CIT(A) erred in facts and law in note quashing the order passed by the ld. Assessing Officer u/s. 153C r.w.s. 143(3) of the Act despite the undisputed fact that no incriminating material was found in the course of searched person which belonged to the assessee and thereby failing to appreciate that the very existence of incrimi....
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....d 22.03.2016: "A Search action was carried out u/s 132 of the Income Tax Act, 1961 on 09.10.2014 at the offices of Lotus/Kamdhenu / Green Valley group & their Associates and at the residences of their Directors As a part of the search a Survey was conducted at the office premises of M/s Nishrin Trading and Investment Pvt. Ltd. Situated at Sir Navroji Bldg, Shankar Sneth Lane, Grant Road West, Mumbai 400 007 on 09.10.2014 which was later converted into search and seizure action u/s 132(1) on 10.10.2014. During the course of search action certain loan books were also found and seized which were marked as Sr no 1 to 13 of Annexure A to Panchanama at 11.10.2014 Page 8 and 9 of the loan book Sr no 8 seized reflects loan transactions of by M/s Trishul Developers (prop Khimji Karamshi Patel) of Rs 2,52,28,964 /-and Rs 1.21,42,032/- with M/s Divine Tradecom Pvt Ltd and M/s Rowland Trexim Pvt Ltd. During the acourse of search in the said group it was found that the entities with whom the loans transactions are entered, namely M/s Divine Tradecom Pvt Ltd and M/s Rowland Trexim Pvt Ltd are Paper companies giving accommodation entries. The operator of the said companies, namely Shri Pradee....