TaxTMI 
TaxTMI 
2024 (11) TMI 312
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....crore made as unexplained cash credit u/s 68 of the Act merely by relying on the fact that four (4) out of the six (6) loans were repaid by the assessee during the relevant year and the other two loans were repaid by the assessee during the subsequent financial years. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance made u/s 14A to Rs. 15,89,749/- instead of Rs. 25,99,737/- without considering the fact that the entire expenditure was incurred in relation to income not forming part of the total income and hence the entire amount should have been disallowed. 4. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 5,37,962/- made by the AO by disallowing the same out of the interest of Rs. 18,38,643/- debited as interest payment on borrowed funds. The Ld. CIT(A) has failed to appreciate the fact that the assessee has not substantiated its claim that the amount of Rs. 17,85,24,650/- was advanced to different parties out of its non interest bearing funds. 5. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 9....
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....e issued to all the parties on 15/11/2016, and such parties were asked to furnish loan confirmation, copies of their return of income and bank statement by 25/11/2016. It has been noted that five parties responded and furnished the requisite details. In respect to others, no reply was received. The Assessing Officer at Para-5.1.5 has noted the issue of show cause notice dated 06/12/2016, in respect to seven parties as detailed at Para-5.1.4 of assessment order. At Para-5.1.6, the Assessing Officer has noted that after the show cause notice, reply has been received from M/s. Kredence Multi Trading Ltd., pursuance to notice under section 133(6) of the Act, therefore, the loan transaction from such party is considered as explained. In respect to loan transactions from balance six parties, it has been held that the same is liable to be assessed to tax as unexplained credit under section 68 of the Act. 5. The learned CIT(A) has discussed the subject matter of addition challenged before him under section 68 of the Act at Rs. 850 lakh at Para-3 and Para-4.1 of the appellate order. At Para-3, the learned CIT(A) has noted the submission made before him by the assessee on 12/07/2021, and th....
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....re us, the learned Departmental Representative, Shri Sandipkumar Salunke, ("the learned D.R.") submitted that the deletion of addition made by the learned CIT(A) is unjustified as addition is deleted by picking and choosing part of remand report. Entire remand report of the Assessing Officer is not considered while granting relief in the case of assessee. It is further submitted by Shri Salunke, that on loan transactions interest has not been paid by assessee and this fact is given in the remand report which justifies the action of the Assessing Officer to make addition under the provisions of section 68 of the Act. The learned D.R. thus argued that addition deleted by the learned CIT(A) is improper and unjustified. He, therefore, prayed to restore the order of the Assessing Officer by allowing the grounds of appeal raised by the Revenue. 7. The learned Counsel, Shri Kishore P. Dewani, appearing for the assessee, on the other hand, submitted that the addition deleted by learned CIT(A) is fair and proper. It is submitted that the addition has been correctly deleted by the learned CIT(A). He invited attention to Paper Books submitted in Vol. I & II, wherein evidence in respect to al....
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....e course of assessment proceedings/remand proceedings corroborate the transaction of loan received. Assessee has discharged its onus to explain identity, creditworthiness and genuineness of transaction of loan. Addition made by A.O. u/s 68 of I.T. Act 1961 is unjustified. C) A.O. in remand report reproduced at Page 14 to 20 of order of CIT(A) has made no adverse observation as to receipt of loan from such parties to justify addition u/s 68. No shred of evidence is brought on record or any adverse finding is recorded to discredit legal evidence on record. D) Onus to explain the credits has been satisfactorily discharged. No adverse evidence is available on record for which addition can be made u/s 68 of I.T. Act 1961. E) In the case of M/s. Vibrant Global Trading Pvt. Ltd. PAN AACCG5841J for same assessment year addition was made for loan obtained by associate company from M/s. Hindustan Chemical Industries and M/s. Lok Chemicals Pvt. Ltd. which are also lenders to assessee company. Addition made by A.O. was deleted by CIT(A) vide order dated 27/11/2019 by CIT(A)-14, Mumbai (P- 71 to 90) [Vol. - IV] (82, 83). Department has accepted the decision and appellate order has achieve....
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....j) CIT v/s Ambe Tradecorp Pvt.Ltd. (P- 60 to 62) [Vol. - V] (61) xi) (1999) 237 ITR 0570 (SC) CIT v/s SMT.PK.Noorjahan. (P- 63 to 66) [Vol. - V] (65, 66) xii) (2007) 291 ITR 0278 (SC) CIT v/s P. Mohankala & Ors (P- 67 to 75) [Vol. - V] (73, 74) xiii) (2023) 152 Taxmann 663 (Del) PCIT v/s Wel Intertrade (P.) Ltd. (P- 76 to 84) [Vol. - V] (82, 82)" 8. We have perused the orders of lower authorities in particular remand report furnished by the Assessing Officer on the evidence submitted by the assessee. It is clear that the Assessing Officer has been provided with confirmation of loan creditors indicating address and PAN details. The aforesaid documentary evidence was substantiated by submitting bank statements and financial statements of loan creditors. Transaction of loan is through proper banking channel. Evidence placed on record was verified by the Assessing Officer by issuance of notice under section 133(6) of the Act during the remand proceedings. Response submitted by loan creditors affirmed the transaction of giving loan and receiving back the amount given along with documentary evidence. Independent evidence obtained on record by the Assessing Officer corroborated the....
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....nancial Account 89 - 97 6. Tax Audit Report 98 - 107 7. Response submitted in respect to notice u/s 133(6) of I.T. Act 1961 108 - 123 F. Brahmachari ni Vyapaar Pvt. Ltd. Sr. no. Particulars Page no. 1. Ledger Confirmation 124 2. Relevant Period Bank Statement 125 - 126 3. Form 3CA Acknowledgment 127 4. Computation of Income 128 - 130 5. Annual Report 131 - 155 5. Tax Audited Report 156 - 172 9. It is seen from the record that the learned CIT(A) has considered the entire remand report and appreciated the observation of the Assessing Officer correctly and no fault could be found with the order of the learned CIT(A) while deleting the addition made by the Assessing Officer. The learned Counsel for the assessee has correctly pointed out that the Assessing Officer has made addition of Rs. 850 lakh out of total loan of Rs. 45.53 crore in the case of the assessee. In respect to loans on receipt of information under section 133(6) of the Act the Assessing Officer has considered it to be sufficient compliance to explain the credits by accepting the transaction of loan creditors. Similar evidence having come on record in remand proceedings, it is not a....
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....ee u/s 68 of the Act stand discharged to prove identity and creditworthiness of the loan creditors as well as genuineness of the transactions. Except raising the issue of non-filing of balance sheet and in two cases deposited of cash in the bank account the AO has not disputed the evidence produced by the assessee. Even if it is considered as a serious aspect where the cash is found deposited in the bank account the AO ought to have conducted inquiry to find out the correct facts. In the absence of any inquiry the cash deposit in bank account of two creditors would not epso facto lead to the conclusion that the transactions of all the unsecured loans are not genuine or the creditworthiness of the creditors in all cases is not proved. The evidence produced by the assessee prima facie satisfied the conditions u/s 68 to explain the source, identity and genuineness of the transactions. The Hon'ble jurisdictional High Court in case of CIT vs. Metachem Industries (supra) has considered the issue of addition made u/s 68 in para 4 to 7 as under: "4. We have heard learned counsel for the parties. Section 68 of the Act of 1961 says that where any sum is found credited in the books of an as....
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....the burden of the firm is discharged and in that case that credit entry cannot be treated to be the income of the firm for the purposes of income-tax. It is open to the Assessing Officer to take appropriate action under Section 69 of the Act, against the person who has not been able to explain the investment. In the present case, there is the concurrent finding of both the Commissioner of Income-tax (Appeals) as well as of the Tribunal that the firm has satisfactorily explained the aforesaid entries, 7. We are, therefore, of the opinion that the view taken by the Tribunal is correct and the aforesaid question is answered against the Revenue and in favour of the assessee." 5.4 Thus, the Hon'ble High Court has observed that once it is established that the amount has been invested by a particular person then the responsibility of the assessee is over. The assessee cannot be asked that person who made investment whether the money invested is properly taxed or not. The assessee is under the obligation only to explain that this investment has been made by the particular individual and it is the responsibility of the individual to account for the investment made by him. Similarly,....
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....tisfy the authorities as to the identity of the third party and also supply the relevant evidences to show prima facie that the entries were not fictitious the initial burden is said to be discharged by the assessee. The burden then shifted on the Department to show as to why the assessee's case cannot be accepted and why it must be held that entry, though purporting in the name of the third party still represent income of the assessee from suppressed source. The Hon'ble Gujarat High Court in CIT v/s Dharamdev Finance P. Ltd. (supra) has considered the issue of addition made under section 68 of the Act in Para-5 to 9 as under:- "5. Question (B) and (C) require consideration together. On account of certain cash credits, the Assessing Officer had made addition of Rs. 3,54,70,163/-. Out of this total amount, aggregate amount of cash credit in respect of 10 persons of Rs. 1,76,83,518/-, according to the Assessing Officer had remained unexplained. This amount included a sum of Rs. 17,0,11,830/- from Hari builders, where one Shri Raju Vaghela was the proprietor of Hari builders. When this addition was made, challenge was taken to the CIT(Appeals) and CIT(Appeals) had called for a r....
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....ers of both the CIT(Appeals) and the Tribunal, in this entire addition of 's.3.55 crore(rounded off), the names of 52 persons were reflected in the books of assessee respondent. The authorities having found the material on record, confirmed the names and addresses as well as the details of the accounts as also in the most of the Cases PAN numbers, coupled with the fact that amounts were received by wy o account payee cheque, chose not to question the said amount. Question essentially based on factual natrix presented before the authority and as they have rightly appreciated both these aspects, no question of law crises. 8. With respect to questions (D) and (E), addition of Rs. 1.45 crore (rounded off) on the basis of some newspapers found where the (rounded of hat Dharamdev Finance Pvt. Ltd received total sum of Rs. 1.44 crore and cash transaction as per this noting had taken place between the proprietary concern Satya Developers and the present respondents. The Assessing Officer when added the entire amount, CIT(Appeals) deleted the addition by noting this: "8.2 I have considered the assessment order and the above submissions. From the submissions made before the A.O. and ....
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....orded in the books of Satya developers the same cannot be taxed twice. Thus, no question of law arises." 5.6 Once the assessee has produced the PAN and confirmation of the creditor as well as bank account statement, the assessee discharged its initial onus to prove identity and creditworthiness of the loan creditors. When the transactions are verified from the bank account of the creditors as well as of the assessee, then the genuineness of the transactions are also established in the absence of any contrary material having brought on record by the Assessing Officer. The Hon'ble Gujarat High Court has taken a consistent view in CIT v/s Sanjay J. Thakkar (supra) in Para-2 to 3 as under:- "2.Mr Tanvish U. Bhatt, the learned standing counsel for the appellant revenue has submitted that the two parties in whose case deposits are found in the books of each of the respondent assessee's do not appear to be genuine. The said parties have filed returns for a couple of years and thereafter, no returns of income have been filed, the genuineness of the transactions are not found to be satisfactory by the assessing officer. That the assessee failed to present the creditors. He, therefor....
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......." 12.1. From a reading of section 68, as extracted above, it is that if an amount is credited in the books of an assessee maintained from 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 the relevant previous year. 13. Section 68 of the Act has received considerable attention of the courts. It has been held that it is necessary for an assessee to prove prima facie the transaction which results in a cash credit in his bocks of account. Such proof would include proof of identity of the creditor, capacity of such creditor to advance the money and lastly, genuineness of the transaction. Thus, in order to establish receipt of credit in cash, as per requirement of section 68, the assessee has to explain or satisfy three conditions, namely: (i) identity of the creditor; (ii) genuineness of the transaction; and (iii) credit-worthiness of the creditor. 14. In Principal Commissioner of Income Tax vs. Veedhata Tower Pvt. Ltd., (2018) 403 ITR Borey 7/9 spb/ 15itxa1....
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....or the assessment year under consideration. 5.9 In the grounds of appeal, the Revenue has relied upon the judgment of Hon'ble Supreme court in CIT v/s P. Mohankala (supra). It is pertinent to note that the Hon'ble Supreme Court in CIT v/s P. Mohankala (supra), has not disputed the ratio of the judgment rendered in CIT v/s Orissa Corporation P. Ltd. (supra) as well as in CIT v/s P.K. Noorjahan (supra) vide Para-14 & 17 as under:- "14. In CIT vs. Smt. P.K. Noorjahan (1999) 155.CTR (SC) 509 : (1999) 237 ITR 570 (SC) this Court while construing s. 69 of the Act observed that the intention of Parliamente in enacting s. 69 was to confer a discretion on the ITO in the matter of treating the source of investment which has not been satisfactorily explained by the assessee as the income of the assessee and the ITO is not obliged to as at such source of investment as income in every case where the explanation offered by the assessee is found to be not satisfactory The question whether the source of the investment should be treated as income or not under s. 69 has to be considered in the light of the facts of each case. The contention of Shri Iyer was that the ratio of the decision wou....
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....en its concluding finding in Para-7.8 which is reproduced below:- "7.8 In the case of appellant loan creditors are all assessed to tax of loan received is through proper banking channel. Amount Confirmation of loans are submitted. Loan creditors have owned up the transaction of loan given by giving confirmation. No shred of evidence is brought on record to discredit legal evidence. Loan creditors are properly recorded in regular books of account maintained on day to day basis. Books of account are not rejected and income from business as shown in the return has been accepted without inviting any adverse observation. It has not been alleged that assessee has earned income over and above from any activity and such money is brought in the name of loan creditors. Considering evidence on record no addition u/s 68 can be made in the case of appellant. Onus to explain cash credits in terms of decision of Hon'ble Apex Court in the case of Orissa Corporation (P) Ltd. is discharged by placing legal evidence on record. Provisions of section 68 are not mandatory. Ratio laid down by Hon'ble Jurisdictional High Court and Supreme Court reproduced hereinabove fully supports the case of a....
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....ay be charged to income tax as the income of the assessee of that previous year..." 12.1. From a reading of section 68, as extracted above, it is seen that if an amount is credited in the books of an assessee maintained from 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 the relevant previous year. 13. Section 68 of the Act has received considerable attention of the courts. It has been held that it is necessary for an assessee to prove prima facie the transaction which results in a cash credit in his books of account. Such proof would include proof of identity of the creditor, capacity of such creditor to advance the money and lastly, genuineness of the transaction. Thus, in order to establish receipt of credit in cash, as per requirement of section 68, the assessee has to explain or satisfy three conditions, namely: (i) identity of the creditor; (ii) genuineness of the transaction; and (iii) credit- worthiness of the creditor. 14. In Principal Commissio....
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....he source of its income. Pursuant thereto, the assessee disclosed that the amount was borrowed from TIL. The acknowledgement of the return filed by TIL showed that it had returned an income of Rs. 2,904 in the assessment year in question and a loss of Rs. 18,677 in the assessment year 1996 97 which created doubts about the TIL's creditworthiness. Accordingly, TIL was asked to furnish the source of its lending. The TIL intimated that the amount lent to the assessee had in turn been borrowed from 'TCL', the address of which was the same as TIL. The letter containing the summons sent by registered post (speed post) to TCL was received back unserved with the remarks 'not available.' The AO then concluded that TCL was not a genuine party which could have lent the money to TIL, which in turn lent the said amount to the assessee. It was, therefore, concluded that 'the entire chain of lending and borrowing was bogus.' Accordingly, amount of unsecured loan was treated as unexplained income of the assessee under section 68. The Commissioner (Appeals) allowed the assessee's appeal and held that as long as TIL had confirmed the loan advanced by it to the....
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....tisfied the three ingredients of provisions of Sec. 68 of the Act. Further the A.O. dealt on the loan transactions and alleged as non genuine and treated as unexplained cash credit U/sec68 of the Act. Whereas the unsecured loan was repaid through account payee / banking channels in the subsequent financial year which is not disputed by the revenue and in the year of repayment of loan, the revenue has accepted returned income of the asssessee and passed the order u/sec143(1)of the Act on 17-10 2016. The Ld.AR submitted that the assessee has substantiated the stand by submitting the details before the A.O. and CIT(A) and discharged the burden. We considering the facts, circumstances, evidences and the ratio of the judicial decisions referred in the above paragraphs set-aside the order of the CIT(A) and direct the Assessing officer to delete the addition of unsecured loan and allow the grounds of appeal in favour of the assessee." 13. The decision referred to hereinabove fully supports the case of assessee. It is settled position of law that the assessee is not required to explain the source of source. The assessee has reasonably explained the credits by adducing sufficient legal evi....
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.....2 to 5.2.7 at Page-6 to 9 of the assessment order. The Assessing Officer has computed disallowance to be made under section 14A of the Act at Rs. 25,99,737. The aforesaid sum comprising of two amounts being Rs. 10,09,988, on account of interest in terms of Rule 8D(2)(ii) of Income Tax Rules, 1962, and further sum of Rs. 15,89,749, under Rule 8D(2)(iii) of Income Tax Rules, 1962. The average amount of investment to make disallowance under section 14A has been computed by the Assessing Officer at Rs. 31.79 crore. The Assessing Officer while making another addition at Rs. 5,37,962, at Para-5.3.3 has noted and accepted that own funds/non-interest borrowed funds with the assessee at Rs. 62.55 crore. The learned CIT(A) has deleted the addition pertaining to interest under section 14A of the Act by following the decision of the Hon'ble Jurisdictional High Court rendered in HDFC Bank Ltd. v/s DCIT, [2016] 383 ITR 529 (Bom.) and discussed the subject matter at Para-4.2 at Pages-63 to 68. 18. The learned D.R. has relied upon order of Assessing Officer and submitted that the deletion of addition by learned CIT(A) is unjustified and, therefore, the ground of appeal of Revenue be allowed. 19....
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.... down by the Hon'ble Apex Court in its judgment and the decision of the Hon'ble Jurisdictional High Court in HDFC Bank Ltd. v/s DCIT [2016] 383 ITR 529 (Bom.) is squarely applicable to the case of the assessee. The learned CIT(A) has correctly deleted the addition made. Respectfully following the same, we find no merit in the ground no.3, raised by the Revenue. 22. In ground no.4, the Revenue has challenged the deletion of addition made by the Assessing Officer at Rs. 5,37,962, out of claim of interest at Rs. 18,38,643, paid on borrowed funds. 23. The Assessing Officer has discussed the addition at Para-5.3.3 of assessment order. In ground of appeal, it has been observed that Rs. 17.85 crore has not been substantiated to be out of non-interest bearing fund. The Assessing Officer has noted that the assessee has paid interest at Rs. 18,38,643. The Assessing Officer, by computing ratio of borrowed fund as against own fund/non-interest bearing funds @1.42% has computed that Rs. 25.35 lakh has been used for advancing interest free loan. After noting this, the disallowance has been computed at Rs. 5,37,962. The availability of own funds/non-interest bearing funds at Rs. 62.55 crore is ....
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....from the interest free funds available with the assessee. The Tribunal has also followed its own order for Assessment Year 2002-03. 8. In view of the above findings, we find no reason to interfere with the judgment of the High Court in regard to the first question. Accordingly, the appeals are dismissed in regard to the first question." 27. The ratio laid down by the Hon'ble Apex Court and decision of Hon'ble Jurisdictional High Court rendered in CIT v/s Reliance Utilities & Power Ltd. [2009] 313 ITR 240 (Bom.) is squarely applicable to the facts in the case of the assessee. In our opinion, the learned CIT(A) has correctly deleted the addition made by the Assessing Officer. Respectfully following the aforesaid judicial pronouncements, we find no merit in the ground no.4, raised by the Revenue and accordingly the same is dismissed. 28. In ground no.5, Revenue has challenged the deletion of addition made by the Assessing Officer at Rs. 9,99,999, being sundry balances written-of. 29. The Assessing Officer has discussed the addition at Para-5.5 of assessment order. The Assessing Officer has observed that assessee has neither explained the business transaction with the said party n....
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....ready reference:- "4.5 The ground of appeal no.14 is that the AO has made a mistake by making a disallowance of Rs. 9,99,999/- which is sundry balance written off. During the assessment proceedings, the O noticed that the appellant has claimed Rs. 9,99,999/- towards sundry balances written off. When asked by the AO to explain further, the appellant replied that an amount of Rs. 10 lakhs was paid to M/s Cold Cargo & Express Logistics Ltd earlier which has been written off during the relevant FY 2013-14. The AO was not satisfied with the appellant's reply and held that said amount was not incurred for the purpose of business and accordingly disallowed the same and added it to the appellant's income. During the appellate proceedings, the appellant's AR has explained that in FY 2010-11, the appellant entered into a Shareholders Agreement with M/s Cold Cargo Express Logistics Ltd with the intention to invest in the business of cold storage of frozen foods and items and managing logistics. However, subsequently the two parties did not agree on certain terms propose by the appellant and the business proposal was finally cancelled. The fact is that the payment, i.e., the advance paid....
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....ised land. Its liability also became ascertained only at that point of time. It cannot be disputed that the respondent in incurring the expenditure had acted in the interest of and for the purpose of its business. The expenditure was not laid out for any purpose other than that of carrying on the business. The deduction was properly admissible under section 10 (2)(xv) of the Act and the matter being self-evident the High Court was fully justified in declining to accede to the prayer made under section 66 (2) of the Income-tax Act, 1922." Section 10(2)(xv) of the old Act corresponds to section 37(1) of the present Act. Our above conclusion is fortified by the view expressed by the Supreme Court in the said decision. For the aforesaid reasons the question is answered in the affirmative in favour of the assessee. The appeal is thus allowed." The facts in the instant case are similar to those in the cited case and therefore the appellant gets support from the above cited judgement. The proposed investment in M/s Cold Cargo Express Logistics Ltd was abandoned due to various unreconciable differences between the appellant and the aforesaid party. The expenditure has arisen in the yea....