TaxTMI 
TaxTMI 
2023 (4) TMI 1352
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.... of investors during the assessment proceedings as well as at time remand report though he was requested to do so? (ii) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made on account of unexplained unsecured loan amounting to Rs. 8,10,13,188/- without appreciating the fact that the assessee failed to prove genuineness of transactions and creditworthiness of investors during the assessment proceedings as well as at time remand report though he was requested to do so? (iii) On the facts and circumstances of case and in law, the Ld. CIT(A) has erred in deleting the total additions of Rs. .8,78,28,138/- on account of unexplained cash credit u/s 68 of the Act for unexplained Share capital + Share Premium and unsecured loan as the decision of the Hon'ble 1TAT, Surat in assessee's own case on similar issue for the A.Y 2012-13 has not been accepted by the department and further appeal have been filed before the Hon'ble High Court where decision is pending: (iv) On the facts and circumstances of case and in law, the Ld. CIT(A) failed to appreciate the fact reported by AO in his remand report dated 18-7-2018 that all....
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....m following persons/concerns: Sl. No. Name & Address Unsecured Loan (Rs.) Share Capital/Premium (Rs) Total 1 Arya Marketing, Prop. Vipulbhai M Savaliya, C-401, City Corner Complex, Nandanvan Society, Mota Varachha, Surat 20775238 0 20775238 2 Ashvini Fibres, Prop. Sangita Rajesh Vekharia 8-C, Ashwini Apptt, Anmol Compound, Sumul Dairy Road, Surat 27,70,000 0 2770000 3 Creative Fashions, Prop Haresh Vekaria 3-D, Ashwini Apptt., Sumul Dairy Road Director in R. J. Squarelink Pvt. Ltd., 3465000 2023500 54,88,500 4 Master Corporation, Prop. Haresh Vekharia HUF, 39, Kamla Estate, Kohinoor Road, Varachha, Surat 5631100 0 56,31,100 5 Metro Fibres, Prop. Jitendra Vekharia HUF 109, Sachi Complex, Runghnathpura, Nain Road, Lal Darwaja, Surat 5095850 "To" 50,95,850 6 Shilp International, Prop. Shilpa Prakash Dhanani C-1/101, Krishna Township, Satellite Road, Mota Varachha, Surat 14000000 591150 1,45,91,150 7 Sunflower Enterprise, Prop. Bhavikaben A. Vekharia, (i) 3-C/D, Ashvini Apartment, Opp. Sardar Nagar Soc, Sumul Dairy Road, katargam, Surat 9940850 1000050 1,09,40,900 8 Sunrise Fibre, Prop, Ushaben J Vekharia 109 & 208, Sachi Complex, Rughnathpura,....
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....unts which were paid to purchase parties returned back to assessee as unsecured loan or share capital. Further the persons who have invested have obtained unsecured loans or sale proceeds from creditors of assessee. All those concerns are not doing any real business. The Inspector was deputed by assessing officer to conduct a spot enquiry of business premises shown by the investors/creditors of assessee. As per his report as on date none of the concern from whom assessee has received unsecured loan/share capital are running from that premises. Neighbors of addresses given were unaware of any business running from those places. In few cases even proprietor herself stated that she was not aware of any concern running from that place. The Inspector's report is reproduced below: Date: 17-3-2016. To The Income-tax Officer Ward-l(1)(4), Surat. Sir, As per your direction I have visited the below mentioned premises for spot verification purpose. Enquiry report in respect of each of the below mentioned premises are as under: Sl. No. Name & address Inquiry Report 1. Arya Marketing, Prop Vipulbhai M Savaliya C-401, City Corner Complex, Nandanvan Society, Mota Varachha, Su....
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....ng carried out from this premise. 8 Sunrise Fibre, Prop. Ushaben J Vekharia, 109 & 208, Sachi Complex, Rughnathpura, Main Road, Lal Darwaza, Surat. I visit this premise on 17-3-2016. I met there Shri. Bhagirath S Narigara (Mobile No. 8460666039) who informed me that the firm Metro Fibres is closed two years ago. Now at present, Ankur Pharma is running from this premise. 9. Sunstar Creations, Prop Manishaben Vekharia, 38, Kamla Estate, Kohinoor Road, Varachha Road, Surat. (ii) 3/C, Ashwini Apptt. Sumul Dairy Road, Surat. (i) I visit this premise on 15-3-2016. I met there Shri. Himatbhai Kababhai (Mobile No. 9824199706) informed me the firm Sunstar Creation, is closed two years ago. (ii) I visit this premise on 15-3-2016. Its residential premises and no business activities are being carried out from this premise. 10. Wilson Enterprise, Prop Ashwin Vekharia (HUF) (i) 108, Sanchi Complex, Raghunathpura Main Road, Lal Darwaja, Surat. (ii) 3/C, Ashwini Apptt. Sumul Dairy Road, Surat. (i) I visit this premise on 17-3-2016. I met there Shri. Bhagirath S Narigara (Mobile No. 8460666039) who informed me that the firm Metro Fibres is closed two years ago. Now at present, Ankur Pharm....
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....u/s. 133(6) could not be served Purchase 392576953 27340160 7375854 164247852 51398989 5030459 Administration & Selling Expenses 351685 18468 112024 232918 473419 258858 Profit 616001 285134 121762 252234 402358 452726 Capital 229103 2049142 1857066 703821 1487907 1177499 USL 30820167 397257 12253804 0 0 Cr 181483869 199955719 69302309 112405061 63774900 141888497 Fixed Assets 25198 0 0 6054 0 0 Loans, Advances 8971913 47574982 9971109 27536078 43802091 69989008 VI-A 110000 35060 70677 59601 j 97289 101490 Total Income 1353320 372680 51150 192730 308630 352730 Withdraw 1 Not Furnished 180930 338190 197830 194090 1383320 Transportation exp 0 0 0 0 0 0 Stationery Exp 102 0 0 0 0 0 Electricity 0 00 0 0 0 0 Interest exp 0 571644 0 0 0 0 Salary 289000 0 89500 189400 436000 226000 Rent 0 0 0 0 0 0 Sunstar Creation, Prop. Manishaben Vekharia Wilson Enterprise, Prop. Ashwin Vekharia HUF Prisha Fashion, Prop Poonam Ketanbhai Dhanani Arya Marketing, Prop....
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....ate. Almost all have opened their bank accounts with one bank and one branch with Bank of India, Varachha Road Branch. All these facts clearly explains that all these concerns have been created not to run any business but to provide entries of sale/purchase, share capital, unsecured loans to each other. 9. It has also been proved on record that the financial/economic position of assessee is far stronger than those of the depositors. It is a socially accepted phenomenon that a weaker may be supported by the stronger. In the present case it is reverse. Mere conformation by the depositors without proving their capabilities to part with such sums can't make the transaction to be accepted to be true. The genuineness of the transaction is not proved. A person's creditworthiness can be judged from his balance sheet. In none of the lender's balance sheet there is any significant movable/immovable property. If the person is earning but instead of using the same capital for personal use or business purpose, he is advancing the same interest free to someone else that means his source of earning is not genuine and is controlled by someone else. Investment was many times more than ....
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....tar Creations has shown yearly withdrawals of Rs. 86,000/- but her investments/advances to company is of Rs. 1,10,14,250/-. All the involved persons have invested after obtaining unsecured loans or invested sale proceeds which were to be paid to their purchase creditors. However surprisingly no one is charging any amount of interest. Majority of the concerned persons have in last year too made investments with this company and they were treated as unexplained in assessment order of assessment year (A.Y.) 2012-13. In view of facts and findings narrated above, the assessing officer observed that out of 14 investors/creditors, transactions of 2 persons, Shri Ashvin Vekaria and Shri Jitendra Vekaria (total Rs. 74,53,950) are treated as genuine and amounts received from them is treated as explained. In case of amounts received from remaining 12 concerns/persons are treated as unexplained. The unsecured loan and share capital/premium of Rs. 8,78,28,138/-(95282088 - 7453950) has been found credited in the books of the assessee company maintained for previous year 2012-13, and the explanation offered by the assessee company has not only been found unsatisfactory but also incorrect as revea....
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....ts in respect of source of loans/share capital subscribed. It is further submitted that the statement was recorded in the end of January, 2018 and in the beginning of February, 2018. There was a gap of almost five years from the transaction being examined by the AO during the remand proceedings and therefore, the creditors might not have recalled all the details of business conducted or transactions enters into in the year of FY.2012-13 after a gap of almost five years. 4.14 There is overwhelming evidence and facts furnished by the appellant. It is also pertinent to note that all the creditors were from the families of the promoters or the relatives of the promoters. The AO could have informed the concerned AO to make any verification he wanted to. The appellant has relied upon the decision of the jurisdictional High Court in the case of Ranchhod Jiva Bhai Nakhawa (2008 Taxman 35(Gujarat) the appellant has also relied upon the decision of the Hon'ble Supreme Court in the case of CIT v. Lovely Exports Pvt. Ltd. (216 CTR 195). The appellant has also relied upon the following decisions - 1. CIT v. Namastey Chemicals Pvt. Ltd. (217 Taxman 25) Guj. 2. Earth Metal Electrical Pv....
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....nting of Rs. 8,10,13,188/- from various Parties. During the scrutiny proceedings, a proper examination and verification in respect of credit amount of Share Capital/Share Premium and unsecured loans was made by the AO. After scrutinizing the details submitted by the assessee company and spot inquiry etc. made, the AO has treated genuine transaction in respect of two (2) parties only for total amounting of Rs. 74,53,950/- and remaining amount of unsecured loan of Rs. 8,10,13,188/- and amount of share capital/Share Premium of Rs. 68,14,950/- was added to the total income of the assessee being unexplained cash credit u/s 68 of the Act. The ld DR stated that during the assessment proceedings, summons were issued to all persons/shareholders/cash creditors to examine their creditworthiness as well as identity and transactions made by them, but no one attended. A show cause notice was issued to assessee on 18-3-2016 asking assessee to furnish evidence for the identity of all the so called creditors/investors, after the A.O. was having in possession of valid documentary evidences which prima facie proved that claim made by assessee in respect of credit amount of Share Capital/Share Premium....
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....r to hold further inquiry and, therefore, it is requested to admit/allow the present Tax Appeal. 6. Having heard Shri Pranav Desai, learned Counsel appearing on behalf of the revenue and on perusal of the order passed by the CIT(A) confirmed by the ITAT, it appears that CIT(A) was satisfied with respect to the genuineness of the transaction and creditworthiness of Shri Ishwar Adwani and, therefore, deleted the addition of Rs. 1,45,00,000/- made by the Assessing Officer. It is required to be noted that as such an amount of Rs. 1,00,00,000/- vide cheque no. 102110 and an amount of Rs. 60 lakh vide cheque no. 102111 was given to the assessee and out of the total loan of Rs. 1.60 crore, Rs. 15 lakh vide cheque no. 196107 was repaid and, therefore, an amount of Rs. 1,45,00,000/- remained outstanding to be paid to Shri Ishwar Adwani. It has also come on record that the said loan amounts been repaid by the assessee to Shri Ishwar Adwani in the immediate next financial year and the Department has accepted the repayment of loan without probing into it. In the aforesaid facts and circumstances of the case, when the ITAT has held that the matter is not required to be remanded as no other vi....
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....n their bank accounts, the proper course would have been to make assessments in the cases of those creditors by' treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69." 18. When a question as to the creditworthiness of a creditor is to be adjudicated and if the creditor is an Income-tax assessee, it is now well settled by the decision of the Calcutta High Court that the creditworthiness of the creditor cannot be disputed by the AO of the assessee but the AO of the creditor. In this regard reliance can be placed on the decision of the Hon'ble High Court, Calcutta in the CIT v. Dataware (P.) Ltd. [ITAT No. 263 of 2011, dated 21-9-2011] wherein the Court held as follows: "In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assessee. After getting the PAN number and getting 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 whet....
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.... or erroneous, let us look at section 68 of the Act and the judicial precedents on the issue at hand. Section 68 under which, the addition has been made by the AO reads as under: "68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. 22. The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this case the legislative mandate is not in terms of the words 'shall' be charged to income-tax as the income of the assessee of that previous year. The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word "may" and not "shall". Thus the un-satisfactoriness of the explanation does not and need not auto....
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....tified in setting aside the addition as the Assessing Officer, without taking step for verification of the income tax return of the creditors, took unnecessary steps of further examining those creditors. If the Assessing Officers of those creditors are satisfied with the explanation given by the creditors as regards those transactions, the Assessing Officer in question has no justification to disbelieve the transactions reflected in the account of the creditors. In other words, the Assessing Officer had no authority to dispute the correctness of assessments of the creditors of the assessee when a co-ordinate Assessing Officer is satisfied with the transaction. [Para 17] Thus, the Tribunal rightly set aside the addition made by the Assessing Officer, based on erroneous approach by wrongly shifting the burden again upon the assessee without verifying the income tax returns of the creditors. The position, however, would have been different if those creditors were not income tax assessees or if they had not disclosed those transactions in their income tax returns or if such returns were not accepted by their Assessing Officer. [Para 18] There was no merit in the appeal and same was t....