AI Drafter 
TaxTMI 
TaxTMI 
2024 (1) TMI 267
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....nd in law, the Ld. CIT(A) has erred in deleting the addition of the interest amounting to Rs. 4,50,000/- on such unsecured loan. 3. The Ld. CIT(A) cited the case law in the order u/s 250 of the Income Tax Act, 1961 cannot be accepted as the facts in this case does not falls to the grounds of appeal filed by the assessee. 4. That the Department craves leave to add, modify or alter any of the ground(s) of appeal and/or adduce additional evidence at the time of hearing of the case." 3. A perusal of the aforesaid grounds of appeal would reveal that the issue raised by the revenue is regarding the action of the CIT(A) in deleting the addition of Rs. 3,00,00,000/- made by the Assessing Officer in respect of unsecured loans treating the same as unexplained income of the assessee. 4. The brief facts are that a search and seizure operation was carried out u/s 132 of the Act on 26.11.2015 by the Income Tax Department in the case of the assessee. However, no incriminating material relating to the assessment year under consideration was found during the course of the said search action. Thereafter, the assessment was carried out u/s 153A of the Act. During the assessmen....
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....ted the addition so made by the Assessing Officer, observing as under: "In his assessment order, the AO made the addition of Rs. 3,00,00,000/- u/s 68 by treating the said unsecured loans as bogus. On perusal of the assessment order, it is observed that the AO has raised the following issues while making the said addition and treating the said unsecured loans as bogus: 1. The AO has referred to a bank statement of the assessee company vide A/c No. 01471600000312 with Punjab & Sind Bank, Old Court House Street, Kolkata -1 as incriminating material. Against such observation the AO has mentioned in his assessment order in Page 3 that " receipt of Rs. 3,00,00,000/- is further evidenced by the inventoried material being the bank statement of A/c No. 01471600000312 with Punjab & Sind Bank, Old Court House Street, Kolkata -1 maintained by the assesse. It is seen that the amount of Rs. 3,00,00,000/- received from the below mentioned company were deposited in this account. This transaction is found from the incriminating documents being the transaction in the bank account, found during the course of search." 2. The AO while making the said addition heavily relied o....
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.... to notice u/s 133(6), all the lender companies duly submitted copies of audited accounts, bank statements, ITR filed for the relevant F.Y, loan confirmation statements and source of funds. The AO therefore was in possession of the said documents, which has also been affirmed by him while recording the statement of Shri Ajay Prakash Jhunjhunwala on 22.12.2017 in Question No. 13. The AO has however not elaborated upon as to in which particular case the source remained unexplained and as to why even after being in possession of all the requisite documents the creditworthiness of the lenders and genuineness of the transactions were not established. It is observed from the assessment order, that although the Director of the appellant company was summoned u/s 131, in response to which the Director Shri Ajay Prakash Jhunjhunwala appeared and recorded his statement on 22.12.2017, no summons u/s 131 were issued by the AO to the lender companies. The statement of Shri Ajay Prakash Jhunjhunwala recorded on 22.12.2017 therefore becomes very important and the relevant part is reproduced below: What is your educational qualification? Ans. I am B. Com. 4. Plea....
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....athered after conducting search and seizure operation on our group, we request you to provide us such evidence. Also in case you intend to rely on any one's statement for using the same against us, we request you to give us copies of such statements and give us opportunity of cross examining them. 1. I am showing you statements of the entry operators who have provided accommodation entry in the form of share capital/unsecured loan to your group companies as per (annexure B) referred above. Please go through the same and comment. Ans. Sir, in relation to the query raised by your good self regarding the genuineness/financial credentials/ physical existence of the loan taken from the respective companies. I would like to state that we have taken loan from genuine companies and having financial credential as they have given loan for short term period to meet up our short term finance requirement and we have repaid the same as and when the funds were available with our companies. Say for example Mr. Vivek Agarwal one of the director of M/s Kathleen Vyapaar Private Limited who is brother of my son-in-law. Moreover all the loan creditors are regular income tax assess....
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....unsecured loans taken from the three companies tabulated above were actually his own unaccounted money and were brought back into the books of the assessee company. On the contrary the Director has submitted the assessee company was already searched by the department and no evidence in support of the above allegation was found. The AO in his Question No. 13 put before the assessee, discussed the various replies received from the lender companies in response to notice u/s 133(6) wherein the AO has himself mentioned that the lender companies had made submission in respect of loan & advances given to the assessee company in form of unsecured loan enclosing copy of audited books of accounts, copy of bank statement etc. The AO however has not recorded in his assessment order as to whether any further enquiries were made by him to establish that the financial credentials of the lender companies were inadequate to provide the said unsecured loans or as to how and in what manner the AO considered that the said lender companies were not creditworthy enough to advance the said loans. The only reliance that the AO seems to be making is upon the acceptance of "the directors/controlling persons....
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....ance requirement of the assessee company and that the said loans were repaid by them as and when the funds were available. During the course of appeal proceedings, the appellant produced the evidences of loan repayment in respect of all the three concerns which are tabulated below: Name of Loan Creditor Loan taken Loan repaid Interest TDS Date Amount (Rs Date Amount (Rs) Date Amount (Rs) Amount (Rs) Saffaron Devcon Pvt Ltd 20.02.2015 50,00,000 04.09.2015 50,00,000 31.03.2016 3,95,902 39,590 20.02.2015 50,00,000 14.09.2015 50,00,000 Leisure Devcon Pvt Ltd 20.02.2015 50,00,000 13.06.2016 1,00,00,000 31.03.2016 9,00,000 90,000 20.02.2015 50,00,000 07.07.2016 1,80,000 18,000 Progress Infra Estate Pvt Ltd 19.02.2015 50,00,000 09.06.2016 1,00,00,000 31.03.2016 9,00,000 90,000 50,00,000 ....
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....er companies not being examined either during the present search or during assessment proceedings and as has been discussed above no incriminating material (an account statement of a disclosed bank statement of the appellant can never be termed as incriminating) was obtained during the search, which is the ultimate weapon in the hands of the Department to unearth evidence. Nothing at all in relation to the so-called jamakharchi companies has been brought on record at any stage either during the search, at the time of recording the said statement or afterwards or even during assessment. In this connection, gainful guidance may be drawn from the decision of the Hon'ble Apex Court in Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 wherein the Hon'ble Court although held that while the ITO is not fettered by technical rules of evidence and pleadings, and he is entitled to act on material which may not be accepted as evidence in a Court of law, but he is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. It has repeatedly been held by various judicial authorities that there must be something more than mere suspici....
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....pellant, then they were legally bound to furnish a copy of the third party statement to the appellant and then summon the third parties and examine them themselves and thereafter allow the appellant an opportunity to cross examine them. It is only thereafter, and after they were satisfied as to the veracity of the statements proposed to be relied upon, that they could have actually relied upon such statements to make the impugned additions. Since this has evidently not been done, it becomes difficult in law to offer support to either the person taking the statement of Shri Ajay Prakash Jhunjhunwala, the Director or the AO's action of using such third party statements to draw adverse inferences against the appellant. It has to be kept in mind that certain rules of Natural Justice cannot be given a complete go-bye. One such rule is that no material shall be used against an assessee without giving him an opportunity to meet it. No assessment can be made while keeping the assessee in the dark as to the materials to be used against him. In fact even if the material/statement proposed to be used against him is furnished to the assessee, the latter can contest it at the time of assessment....
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....rm was engaged in business of trading/retailing of footwear and leather and non-leather accessories. It had filed its return of income and same was selected for scrutiny. Subsequently, notices under sections 143(2) and 142(2) were issued on it. * The Assessing Officer noted that the assessee had received certain amount of unsecured loans from various companies out of which 13 companies were allegedly claimed to be paper companies. He thus made addition of amount of unsecured loans in the assessee's total income. * The Commissioner noted that the assessee had furnished various documents to prove genuineness and creditworthiness of alleged paper companies however same was rejected by the Assessing Officer. He thus held that it was not enough for the Assessing Officer to dismiss documents furnished by the assessee without consideration but rather should have recorded reasons in writing as to why these documents filed by the assessee did not go to establish the identity of the lender or prove the genuineness of the transaction. In the absence of any such finding, order passed by the Assessing Officer was held to be utterly perverse. The Hon. High Court of....
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.... of proving that the appellant was not the real was on the party who claims it to be so. Bearing the above legal principles in mind, in the instant case, it is clear that the Assessing Officer issued show cause notice only in respect of one of the lender FGD. The assessee responded to the show cause notice and submitted the reply. The documents annexed to the reply were classified under 3 categories namely: to establish the identity of the lender, to prove the genuineness of the transactions and to establish the creditworthiness of the lender. The Assessing Officer has brushed aside these documents and in a very casual manner has stated that mere filing PAN details, balance sheet does not absolve the assessee from his responsibility of proving the nature of transaction. There is no discussion by the Assessing Officer on the correctness of the stand taken by the assessee. Thus, going by the records placed by the assessee, it could be safely held that the assessee has discharged his initial burden and the burden shifts on the Assessing Officer to enquire further into the matter which he failed to do. In more than one place the Assessing Officer used the expression 'money launderi....
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....sing Officer brushed aside the explanation offered by the assessee by stating that merely filing PAN details, balance sheet does not absolve the assessee from his responsibilities of proving the nature of transactions. It is not enough for the Assessing Officer to say so but he should record reasons in writing as to why the documents which were filed by the assessee along with the reply does not go to establish the identity of the lender or prove the genuineness of the transaction or establish the creditworthiness of the lender. In the absence of any such finding, it is held that the order passed by the Assessing Officer was utterly perverse and rightly interfered by the Commissioner (Appeals). The Tribunal re-appreciated the factual position and agreed with the Commissioner (Appeals). The tribunal apart from taking into consideration, the legal effect of the statement of AKA also took note of the fact that the notices which were issued by the Assessing Officer under section 133(6) to the lenders where duly acknowledged and all the lenders confirmed the loan transactions by filing the documents which were placed before the tribunal in the form of a paper book. These materi....
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....mpany and a member of the group and has drawn inference regarding providing accommodation entries and the assessing officer was of the view that details made available by the assessee as regards unsecured loans and share application money, reference of which has been made in para-4 of its order, appears to be the accommodation entries and the present assessee was middle man and invoking Sec.68 of the Act, it was considered to be part of the income in the hands of the assessee. However, on appeal preferred before the Commissioner (Appeals) by the assessee U/s 143(3) r/w 147 of the Act, 1961 all the factual statements were examined at length and the Commissioner (Appeals), after due appreciation of material which came on record, observed that from independent enquiry the copies of bank account were obtained by the assessing officer and found that for clearing of the cheques issued by these companies either cash was deposited in the same account or in another account of the group company in fact was M/s. B.C. Purohit of which the present assessee was considered to be one of the group member. However, it was further observed that summons issued U/s 131 of the Act were served upon all s....
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....ot by itself constitute material which could be used for making the impugned additions. Further, as noted earlier, these third party information/database comprised uncorroborated statements that have not been subjected to cross-examination, or even any independent enquiry of their own; and therefore an addition of the kind made by the AO cannot be sustained on the basis of standalone, unconfronted, unconfirmed and uncorroborated statement(s) of third parties. One important aspect that is clear in this case is that the Director of the appellant company, in the course of his statement u/s 131 has stated that he used to take short term loans from the said entities, which were repaid upon availability of money with the appellant company. In two cases the loans were returned about seven months after the search. These facts, though ignored completely by the AO, have nevertheless been commented upon in the remand report, wherein the AO has put forth the suspicion that the appellant, upon realizing that his loans were bogus, repaid them after the search. Though, this is merely at the level of suspicion, it is nevertheless part of the facts and circumstances as they exist in this c....
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.... 50,00,000 28.02.2017 50,00,000 16.06.2015 50,00,000 06.03.2017 50,00,000 16.06.2015 50,00,000 08.03.2017 50,00,000 Incredible Nirman Pvt Ltd 15.06.2015 50,00,000 12.07.2016 1,00,00,000 17.06.2015 65,00,000 13.02.2017 15,00,000 5,45,00,000 5,45,00,000 Name of Loan Creditor Loan taken Loan repaid Date Amount (Rs Date Amount (Rs) Continental Fiscal Management Ltd 17.04.2014 50,00,000 01.09.2016 50,00,000 Leisure Devcon Pvt Ltd 19.02.2015 50,00,000 02.08.2016 50,00,000 Saffron Devcon (P) Ltd. 18.06.2015 75,00,000 20.01.2017 50,00,000 19.06.2015 25,00,000 20.03.2017 50,00,000 Unity Prodev Ventures Pvt Ltd 18.06.2015 50,00,000 18.07.2016 50,00,000 ....
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....he date of search. In the case of Saffron Devcon Pvt. Ltd, for instance, the entire loan of Rs. 1 Crore forming part of the total loan of Rs. 3 crores added by the AO, has been repaid before the date of search. The remand report has made no comment upon this obvious anomaly in its proposition. Further, it is not clear, upon which fact has this proposition been made at all. Shri Ajay Prakash Jhunjhunwala, the Director of the appellant company and the main person of this group was admittedly examined under oath on two occasions, first during the search and then u/s 131 of the Act, during assessment. Nowhere is it apparent from an examination of both these statements that the appellant had been confronted with the issue during search. I find that it is only during assessment proceedings, that the AO mentions, in the statement recorded at that time, that the said loan transactions were being shown to Shri Jhunjhunwala from the regular books. It is no one`s case that these transactions were confronted to Shri Jhunjhunwala or anyone else during the search. The mention of entry operator statements, is also not apparent in the earlier statement. It is reasonable to assume that if such an i....
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....financials of the creditors were duly provided. The ld. counsel in this respect has referred to the various documents on record, copies of which have been placed in the paper-book and has submitted that the assessee has duly furnished the ITR acknowledgement of the assessee, computation of income of the assessee, audited accounts of the assessee, relevant portion of the bank statement from where the payment was made to the aforesaid loan creditors. The ld. counsel has further submitted that all the documents relating to the creditors were also furnished e.g. covering letter of reply submitted in response to notice u/s 133(6), ITR acknowledgement, audited accounts, ledger for A.Y 2015-16, ledger for entire period till repayment made, account confirmation, bank statements. The ld. counsel has further brought our attention to the relevant paras of the order of the CIT(A) to submit that even all the loans stood repaid. He has referred to the chart reproduced at page 61 of the order of the CIT(A) to show that the loan from three creditors were received namely Saffaron Devcon Pvt Ltd, Progress Infra Estate Pvt Ltd & Leisure Devcon Pvt Ltd in the month of February 2015, whereas, the loan ....