TaxTMI 
TaxTMI 
2023 (3) TMI 907
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....ner of Income Tax (Appeals)-49, Mumbai [for short, "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 e....
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....ained unsecured loan of Rs. 2,50,00,000/- from M/s. Divine Tradecom Pvt. Ltd. and Rs. 50,00,000/- from M/s. Rowland Trexim Pvt. 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, itsel....
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....nce on the decision of Hon‟ble Jurisdictional High Court in the case of PCIT v. Ami Industries (India) P. Ltd. (ITA no. 1231 of 2017) and CIT v. Oasis Hospitalities (P.) Ltd. (2011)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)....
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.... made u/s. 68 of the Act and the consequential interest thereon of Rs. 3,17,213/- for the reasons as under:- "7.5. I have perused the aforesaid documents and found that the assessee has furnished all the relevant 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 s....
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....doubt about the veracity of these documents, to probe the matter further. 7.8 Element of credit worthiness and satisfaction of AO thereafter is subjective and requires more efforts/inquiry on the part of the AO to give a finding in 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 as....
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.... 7.11 It is clear from the submission of appellant that the transactions were through account payee cheques and appellant has submitted sufficient details before the AO during the re-assessment proceedings. The source of receipt through banking channel clearly establishes 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 trem....
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....ion in this regard have been made in hands of M/s Divine Tradecom Pvt. Ltd. and M/s. Rowand Trexim Pvt. Ltd. Further, the AO has not made any further enquiry in the assessment proceedings to establish such allegations. Merely on the basis of statement of Shri Anand Sharma without any corroborative evidences brought 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....
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....ved before the Hon'ble ITAT and it was observed as under: 11. Having considered arguments of both the sides and materials available on record, we do not find any merit in the reasons given by the AO to come to the conclusion that the assessee has failed to prove the genuineness of transaction and creditworthiness of the parties on the 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....
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....n, the Respondents in support of their stand about the genuineness of the transaction entered into with such Companies has produced voluminous documents which, inter alia, have been noted at Para 3 of the Judgment of the CIT Appeals which reads thus : "The assessment is completed without rebutting the 550 page documents which are unflinching records of the 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 ....
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....umstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises." 9. This Court in the Judgments relied upon by the learned Counsel appearing for 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 vol....
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....etailed reasoning for deleting the addition and further more clinching issue is reassessment of the lender companies where the monies received by them are accepted as genuine. When the source of money is accepted as compliant with provision of section 68 of the Act, in absence of any further inquiry and findings , the amount received by assessee form those companies cannot be held to be taxable in the hands of the assessee u/s 68 of the Act. Thus, reassessment orders in lender companies accepting the money if at all received from companies 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....
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.... of Rs. 43,24,954/- are loans and advances on which the appellant has earned interest income of Rs. 6,73,077/- which has been duly offered to tax. The investment of Rs. 15,67,499/- in the proprietary concerns of the appellant have been utilized for the finance requirements of the respective business expenses u/s. 36(1)(iii). However, the investment made in M/s. Nishrin Investment & Trading Pvt. Ltd., the partnership firms and other assets itself is not the direct business of the appellant and hence there is no direct nexus of the utilization of the unsecured 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....
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....cts and law in not 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 incriminating material is a sine-qua-non to assume jurisdiction u/s.153C of the Act. (c) The ld. CIT(A) erred in facts and law in not appreciating that the ld. Assessing Officer recorded his general satisfaction note for A.Y.2009-10 to A.Y.2014-15 and therefore the assessment u/s.153C for the year under consideration is not based on any year specific 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 ....
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....of initiation of search begins from the date of handing over of the seized incriminating material to the Assessing Officer having jurisdiction over the assessee. 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. Hence, none of the additions and disallowances ought to have been made by the Assessing Officer devoid of any incriminating material, which is absent in this case for the year under consideration. 023. The ld. DR for the revenue relied on the order of the lower authorities. 024. We have heard the rival submissions of the parties and have gone 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 th....
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....it is noted that it refers to certain loan books of the proprietorship concern of the assessee namely M/s. Trishul Developers were found and seized which reflects loan transactions 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. respectively. It is clarified that these transactions with the parties are duly recorded in the books of accounts of the assessee. The satisfaction note nowhere points out as to what incriminating material was found or discovered in the course of search carried out in the case of Kamdhenu group. Even the additions and disallowances, which are made by the Assessing Officer, are not in connection to the issue referred to 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 18.0....
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....2011-12. 029. LD AO has raised following grounds of appeal:- "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 transactions and creditworthiness of the M/s. Jeenmata Suppliers Pvt Ltd and M/s. Chandra Ghanta Commodities Pvt Ltd." 2. On the fact and circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 18,60,244/- 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 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 ....
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....d of any incriminating material found in the course of search of third party. Hence, none of the additions and disallowances ought to have been made by the Assessing Officer. 034. We have heard the rival submissions of the parties and have gone through the assessment record and CIT(A)‟s 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. 2011-12 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. 2011-12 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....
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.... note nowhere points out as to what incriminating material was found or discovered in the course of search carried out in the case of Lotus group. Even the additions and disallowances that are made by the Assessing Officer are not in connection to the issue referred to 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 by the ld. CIT (A) that A.Y. 2011-12 is an unabated year and has attained finality, as the due date of issuing notice u/s. 143(2) for the said year was 30.09.2012 whereas the notice u/s. 153C of the Act is issued on 22.03.2016. Further, the ld. CIT(A) also observed that the addition of Rs. 50,00,000/- being unsecured loans from M/s. Chandra Ghanta Commodities Pvt. Ltd. and Rs. 2,50,00,000/- being unsecured loans from M/s. Jeenmata Suppliers Pvt. Ltd. has no relevance to any incriminating material found in the course of search in Lotus 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. 18,60,244/- are based on some st....