TaxTMI 
TaxTMI 
2024 (7) TMI 1553
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....come in respect of unsecured loan as unexplained cash credit u/s 68 of the IT Act 1961 and the reasons assigned for doing so are wrong and contrary to the Provisions of Income Tax Act and rules made there under. 3. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in not appreciating the fact that assessee has discharged its onus u/s 68 of the Act by submitting the evidences proving the creditworthiness, identity and genuineness of the loan parties and the reasons assigned for doing so are wrong and contrary to the Provisions of Income Tax Act and rules made there under. 4. Without prejudice to above, the Hon'ble CIT(A) erred in upholding the addition on the basis of statement of Vipul Vidur Bhatt without appreciating that Vipul Vidur Bhatt has retracted his statement and hence, addition u/s 68 of the Act may be deleted. 5. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding the penalty initiated by the Ld. AO u/s. 271(1)(c) of the IT Act 1961 and the reason assigned for doing so are wrong and contrary to the provision of Income Tax Act and rules made there un....
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....ger accounts. The AO has dealt on the details filed by the loan creditors in lieu of notice issued u/sec 133(6) of the Act. Whereas the AO is of the opinion that the genuineness of the transactions could not be established and the assessee has not discharged its obligation of proving the identity, creditworthiness and genuineness of the loan creditors. Whereas the assessee has filed the details vide letter dated 23.11.2017 and reply to the show cause notice issued by the A.O dated 8.12.2017. The assessee has submitted the details i.e confirmation of lenders, bank account statements and financial statements etc to substantiate genuineness, identity and creditworthiness of the loan creditors. The assessee has repaid the unsecured loans obtained from four lenders in the subsequent years and was confirmed by the parties. But the AO was not satisfied with the information and explanations and observed that the assessee has not satisfied the ingredients required u/sec 68 of the Act and made an addition of Rs. 1,03,95,000/- and assessed the total income of Rs. 1,04,04,880/- and passed the order u/s 143(3) r.w.s. 147 of the Act dated 29.12.2017. 4. Aggrieved by the order, the assessee ha....
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....irst discuss the provision of said section which reads as under: (1)³] Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, not being less than thirty days, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139.] (2)^4 The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.] We now discuss the provisions of said section alongwith our reply in support of validity of issue of notice as under: 1. "The expression "has reason to believe" used in section 147 is very significant and important. The belief formed by the AO must not be arbi....
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.... schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief." In view of the above facts and legal position the notice issued by the AO is invalid and bad at law. "The Hon'ble Delhi High C....
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....assessment relating to assessment year under consideration viz Assessment Year 2013-14 is based only on the statement of Shri Vipul Vidur Bhatt which is a general statement and no reference of any transaction with assessee is mentioned therein nor any material has been brought on record in the assessment order that there was any material which came to the notice of the department due to which the income chargeable to tax escaped assessment at the time of making assessment u/s 143(3) of the Act, on account of failure to disclose fully and truly all material facts by the assessee. The live link or close nexus, which should be there between the material and the belief which the AO was to form regarding the escapement of the income of the assessee from assessment because of assessee's failure or omission to disclose fully and truly all material facts is missing. Since the Ld AO has not brought on record any valid reason initiation of reassessment proceedings is not valid. Support is taken from the following judgments: Hon'ble Delhi High Court In following cases Sarthak Securities Co (P) Ltd v ITO 195 Taxmann, 262 V S Capital Services (P) Ltd V ITO Delhi ITAT 3....
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....cknowledgment of ROI filed 3. Copy of profit & loss a/c & balance sheet 4. Copy of bank statement of bath i.e. the payee & payer party The above details were submitted to the Ld AO during the assessment proceedings which have been accepted by the Ld AO as stated in para 4.2 of the assessment order which reads as below: 4.2 In response to the notices issued, the representative of the assessee company filed written submissions on 23.11.2017. The assessee has furnished various details including copy of ledger account of the party, confirmation of accounts, bank statement and statement accounts of the assessee company for A.Y. 2013-14. During the course of the assessment proceedings, the assessee company vide letter dtd. 08.12.2017 was asked to show cause why accommodation entries from different parties totaling to Rs. 1,03,95,000/- should not be treated as unexplained cash credit in books of account of assessee company u/s. 68 of the Act and be added back to total income of the assessee company. The details of accommodation entries is as ................. 5. Further it was stated that Shri Vipul Vidur Bhatt who has stated that he has provid....
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....ed that your reliance merely on the statement without considering the evidence is against the principles of natural justice and the genuine loans should not be treated as accommodation entry. We lastly submit as under: 2.1. Here it is pertinent to bring to your honour's notice that for making disallowance the Ld AO is heavily banking on the statement of Shri Vipul Bhatt who made the same during the course of search proceedings. The Ld AO without bringing on record any corroborative evidence to prove that these loans are mere accommodation entries, doubted the genuine loan as non-genuine. Further the Ld AO for the reason best known to her has not discussed the retraction statement made by Shri Vipul Bhatt on behalf of all the companies inspite of having in possession of the same. 2.2. Apart from retraction statement of Shri Vipul Bhatt on whose statement Ld AO is banking could not rebut the number of evidences provided to demonstrate that all these loans are genuine. 2.3. Here it is pertinent to mention that the Ld AO should not have banked upon mere statement which is not sufficient to doubt the genuine loan in the back drop of all the evidences submi....
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....;ble Tribunal's have deleted the additions made by the department on identical facts wherein department had relied on the statement of Vipul Vidhur Bhatt and made additions in case of the assessee. The assessee's case herein is covered by number of judgements of Jurisdictional and non-jurisdictional Courts as under: a. The Hon'ble Mumbai ITAT in the case of Shri Darshan K Vakharia Mumbai. Vs Income Tax Officer Ward 2(1), Mumbai has held as under: 9.1 However, the Assessing Officer doubted and rejected the same while relying upon the statement of Mr. Vipul Vidur Bhatt, without providing copy of the his statement to the Assessee and even without affording any opportunity of cross examination of Mr. Bhat. The Assessee in this case, has not only discharged its primary onus by establishing the identity of the parties etc. providing confirmation of loans, acknowledgment of return of income filed by the parties who have duly shown the amount of loan in their returns of income and banks statement of loan parties and the Assessee showing the transactions held, but also shown to have deducted TDS on the interest payment made to the parties, which also strengthen....
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....ies. Thus the AO added unaccounted money of Rs. 80 lacs to the total income of the assessee company for the year under consideration and the ld. CIT(A) has confirmed the action of the AO. The Bench noted that if any sum is found credited in the books of account of the assessee then the assessee has to prove the identity and creditworthiness of the party from whom the amount is received and the genuineness of the transaction. From the record, it is noted that identity of the creditor is established from the company master data downloaded from MCA Portal. The genuineness of the transaction is established from the confirmation of accounts, affidavit of Director of loan creditor companies and bank statement from where it can be seen that the transaction had been carried out through banking channel and the loan amount is repaid during the year itself. It is also noted from the records that the creditworthiness of the creditor is established from the balance sheet from where it can be seen that the net worth of of M/s Lukand Textiles Pvt. Ltd. is Rs. 2.08 crores (PB 49), M/s P Saji Textiles Ltd. Is Rs. 3.09 crores (PB 79), M/s Sampada Chemicals Ltd. is Rs. 10.20 crores (PB 114) and M/s S....
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....bove, we find that disallowance made of Rs. 80 lacs u/s 68 of the Act by the lower authorities has no merit and we do not concur with the findings of the ld. CIT(A) as the assessee has proved the identity and creditworthiness of the party from whom the amount was 21 received and genuineness of the transaction. In this view of the matter, the ground Nos. 2.1 to 2.4 of the assessee are allowed." and Also, in the case of M/s. Noble Tradelink Pvt Ltd. v/s. ITO, Ward 1(5), Jaipur (ITA No. 303/JP/2021 for the AY 2013-14) the Hon'ble ITAT Bench of Jaipur has held that, "In view of the above deliberations, the decisions relied on above, we find that disallowance made of Rs. 80 lacs. u/s 68 of the Act by the lower authorities has no merit and we do not concur with the findings of the ld. CIT(A) as the assessee has proved the identity and creditworthiness of the party from whom the amount was received and genuineness of the transaction. Thus, the decision taken by us in Ground No. 2 to 2.4 of the assessee in ITA No.302/JP/2021 for the assessment year 2012-13 shall apply mutatis mutandis in Ground No. 2 to 2.4 of the assessee for the assessment year 2013-14 also. Thus Gr....
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....d view, the assessee has discharged his onus of establishing the identity and creditworthiness of the entities from whom, it had obtained the loans in question. The assessee has also established the genuineness of the transaction by adducing necessary evidence. On the other hand the AO has not brought any material on record to rebut the contention of the assessee. In our considered opinion, the findings of the Ld. CIT (A) are based on the established principles of law and in accordance with the decision of the coordinate Bench rendered in the case of DCIT vs. M/s Manba Finance Ltd. (group concern of the appellant) discussed above. The order passed by the Ld. CIT (A) is well reasoned and supported by the law laid down by the Hon'ble Bombay High Court and the decisions of the coordinate Benches including the decision in the case of DCIT vs. M/s Manba Finance Ltd. (supra) relied upon by the assessee. We therefore, uphold the decision of the Ld. CIT (A) and dismiss the appeal filed by the revenue. Accordingly, we direct the AO to delete the addition made by the AO on account of alleged bogus unsecured loans." h. In the case of Harivardhan Steel & Alloys Private Li....
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.... on record. The Ld. AR submitted that the CIT(A) has erred in sustaining the addition u/sec 68 of the Act of unsecured loans though the assesses has filed the requisite details before the assessing authorities and first appellate authority. We find that before the Assessing Officer, the assessee has submitted information in respect of unsecured loan creditors and the A.O. has issued notice u/sec 133(6) of the Act and it was responded with the requisite details. On perusal of the assessment order, the assessee has submitted the documentary evidences but the A.O has over looked the vital documents in respect of the sources filed by the assessee. The assessee has submitted the written submissions before the CIT(A) and the confirmation of loan creditors, PAN, Bank account details and the Income Tax returns. We find that the assessee has to satisfy the 3 ingredients with respect to identity, creditworthiness and genuineness of the transaction. The CIT(A) has discussed on the provisions of the Act but has confirmed the action of the A.O. We are of the opinion that the assessee has discharged its burden of proof in filling the documents. Whereas the CIT(A) has taken a different view and o....
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.... (ii) The Honble Tribunal in the case of Shri Darshan K Vakharia Mumubai Vs. ITO in ITA No. 1540 & 1539/Mum/2023 dated 28.07.2023 for A.Y.2012-13 & 201314 has considered the provisions and facts on the submissions of the assessee on the unsecured loans and granted relief observing at Page 9 Para 9 of the order read as under: "9. Heard the parties and perused the material available on record. As per balance sheet, as on 31st March, 2012 the Assessee has shown the amount of Rs. 20,00,000/- and Rs. 50,000/- as liability towards M/s. Santoshima and M/s. Vasudev respectively and also shown to have paid the interest amount of Rs. 2,40,000/- and Rs. 60,000/- respectively to M/s. Santoshima and M/s. Vasudev. It is not in controversy that the Assessee had taken the said loans in the financial year 2010-11 (AY: 2011-12) which continued in the assessment year under consideration as well. During the course of assessment proceedings, the Assessee also submitted the following documents in order to substantiate its claim. (i) The confirmation of loans. (ii) Acknowledgment of returns of income of loan parties. (iii) Copies of relevant pages of bank statements of....
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....nt appeal is allowed." (iii) The coordinate bench of Honble Tribunal in the case of ITO Vs. M/s MJD Financial Services Pvt Ltd in ITA No. 6051/Mum/2018 dated 10-09-2020 for A.Y.2012-13 has considered the provisions and facts on the submissions of the assessee and has upheld the order of the CIT(A) dismissing the revenue appeal observing at Page 5 Para 9 &10 of the order read as under: "8. We have heard the rival submissions of the parties and perused the material on record including the cases relied upon by the parties. The Ld. CIT (A) has deleted the addition made by the AO holding that the AO has not brought any fact on record to established that cash was introduced prior to advancing the loan to the assessee and there is no evidence on record to show that the assessee had paid cash to the loan creditors in lieu of loan received from them. It is an admitted fact that the unsecured loans under consideration have been repaid over a period of time and the appellant has paid interest and deducted TDS thereon as per the provisions of the Act. Relying on the various decisions of the Courts and the Tribunal, the Ld. CIT (A) has held that the assessee has disch....
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....on of the assessee made addition of the said amount to the income of the assessee. In the first appeal, the Ld. CIT (A) deleted the addition on legal ground as well as on merits. The revenue challenged the action of the Ld. CIT (A) before the ITAT. The coordinate Bench of the Tribunal upheld the findings of the Ld. CIT (A) holding as under:- "33. We have carefully considered the submissions and perused the records. We find that the first issue in this case relates to the addition of unsecured loan taken from corporate entities u/s. 68 of the Act. In this regard, it is noted that it is the claim of the assessee which has been found correct by the ld. CIT(A) that the assessee has duly paid interest on these loans, deducted TDS, filed the TDS return. The Id. CIT(A) has also found that this loans have been duly repaid. 34. The addition in this case has been made on the ground that some of the corporate entities were found to have been controlled and operated by Shri Pravin Kumar Jain, who was one of the leading entry operator. For the other corporate entities, it was found that the assessee has obtained loan from these companies which was arranged by Shri Rakesh Doshi, who on ....
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....witnesses were made the basis of the impugned order is a serious flaw which makes the order nullify in as much as it amounted to violation of principles of Natural Justice because of which the assessee was adversely affected. The order was vacated. 2. Kishinchand Chellaram v. C.Ι.Τ. (1980) 1251TR 0713 (SC) 3. Ponkunnam Traders υ. Addl. Ι.Τ.Ο. & Anr. (1972) 83 ITR 508(Ker) 4. ACIT υ. Tristar Jewellery Exports Put. Ltd. ITA/7593/MUM/2011 (Mumbai ITAT) 36. As regards the merits of the addition, it is noted that the assessee had supplied the following in this regard: (i) Confirmation of the party who gave the loan. (ii) Copy of Return of Income filed by them alongwith PAN No. of the loanees. (iii) Copy of Balance Sheet, P/L Account alongwith all Schedules, (iv) Copy of Certificate of incorporation, original and the latest one. (v) Copy of Bank Statement of the loanee from which the loan have been given to the assessee, as well as Repayment made if any by the assessee. 37. The A.O. has disregarded the evidences submitted by the assessee on the ground of a s....
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....edited 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 soO credited may be charged to income-tax as the income of the assessee of that previous year: Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture....
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.... that the proviso to Section 68 of the Act which was introduced with effect from 1st April, 2013 would apply in the facts of the present case even for Α.Υ. 2008-09. The basis of the above submission was that the de hors the proviso also the requirements as set out therein would have to be satisfied. HELD by the High Court dismissing the appeal: (i) We find that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced "for removal of doubts" or that it is "declaratory". Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the ....
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....ote that in support of the explanation of the unsecured loans, the assessee has submitted following details before the assessing officer: I. PAN details of creditors II. Constitution and address of the creditors Particulars of income-tax returns filed by the creditors. These show that the creditors are legitimate business entities, having the ability to advance the impugned loans to the appellant,] IV. Confirmatory letters given by the creditors V. Audited financial accounts (including balance sheets) of the creditors [These show that the loans are duly reflected in the books of account of the creditors.] VI. Relevant bank statements of the creditors [These show that the loan amounts were paid through legitimate banking channels. Further these bank statements do not reflect any movement of cash, essential to hawala transactions.] 23. The assessing officer has made no enquiry with reference to the above. He did not seek any further explanation or detail from the assessee. He solely relied upon the investigation wing enquiry regarding the Bhanwarilal group. The Id. Commissioner of Income Tax (Appeals) in this regard has c....
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.... is competent to set aside the matters. 41. We have carefully considered this proposition. We note that the ld. Counsel of the assessee has referred to several case laws in this regard that when the assessee has supplied all the documents the onus is discharged. In this regard, the ld. Counsel of the assessee has placed reliance upon the several case laws including that from Hon'ble Delhi High Court in the case of Gangeshwari Metal Pvt. Ltd. (supra), CIT v. Varinder Rawley (2014) 366 ITR 232 (P&H), Hon'ble Gujarat High Court decision in the case of CIT v. Sachitel Communications P. Ltd. (2014) 227 Taxman 219 (Mag) and others. 42. In our considered opinion, these case laws duly support the proposition canvassed by the assessee. In our considered opinion, the A.O. has not brought on record any cogent, adverse material to rebut the credibility of the corporate entity from whom loan has been taken. As already pointed out by us as above, that these corporate entities were found by the A.O. to have acquired funds by borrowals and acceptance of share capital and share premium. This by itself cannot lead to presumption that these sources are bogus without any enqu....
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....) discussed above. The order passed by the Ld. CIT (A) is well reasoned and supported by the law laid down by the Hon'ble Bombay High Court and the decisions of the coordinate Benches including the decision in the case of DCIT vs. M/s Manba Finance Ltd. (supra) relied upon by the assessee. We therefore, uphold the decision of the Ld. CIT (A) and dismiss the appeal filed by the revenue. Accordingly, we direct the AO to delete the addition made by the AO on account of alleged bogus unsecured loans. In the result, appeal filed by the revenue for assessment year 2012- 2013 is dismissed" (iv). The Honble Tribunal Jaipur Bench in the case of M/s. Noble Tradelink Pvt Ltd Vs. ITO. In ITA No.302 & 303/JP/2021 A.Y. 2012-13 & A.Y.2013-14 order dated 10.10.2022 has considered the provisions and facts on the submissions of the assessee on the unsecured loans and granted relief observing at Page 25 Para 7.3 of the order read as under: "7.3 We have heard both the parties and perused the materials available on record. In this case, the AO made an addition of Rs. 54.50 lacs holding it as unaccounted money relating to Shri Vipul Vidur Bhatt for providing accommodation ....
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....n that the net worth of of M/s Lukand Textiles Pvt. Ltd. is Rs. 2.08 crores (PB 49), M/s P Saji Textiles Ltd. is Rs. 3.09 crores (PB 79), M/s Sampada Chemicals Ltd. is Rs. 10.20 crores (PB 114) and M/s Santoshima Tradelink Ltd. is Rs. 45.78 crores (PB 139-140). Further the Directors of these companies in their affidavits have stated that source of funds for loan given to assessee is out of repayment of loan given to other parties. Thus, assessee has discharged its onus to establish the identity of creditors, genuineness of the transaction and creditworthiness of the creditors. The ld. AR of the assessee further submitted that having discharged its onus, it is the duty of the AO to disprove the evidence filed by the assessee. The AO except referring to the report of Investigation Wing has not brought any material on record to rebut the evidences filed by the assessee. It is not the case of lower authorities that in search of Mr. Vipul Vidur Bhatt any evidence is found that assessee has given any cash for taking the alleged accommodation entry. Had these loans were accommodation entries, the same would not have been repaid within such short duration. The Ld. CIT(A) has incorrectly he....
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.... AO ignored the fact that the lenders had substantial 29 ITA NO.302/JP/2021 M/S. NOBLE TRADELINK PVT LTD. VS ITO, WARD 1(5), JAIPUR turnover and had a very large basis of assets as is reflected in the respective balance sheet.'' 2. Pr. CIT, Udaipur vs Shubh Mines Pvt. Ltd. (DBITA No. 96/15 order dated 03-05-2016 (Raj. H.C.) wherein the Hon'ble Court observed at para 7. "7. A bare perusal of the assessment order reveals that the AO has made the addition on suspicion which is based on the statements of third party Shri Aseem Kumar Gupta, admittedly, recorded in the back of the assessee. It has come on record that the share application money of Rs. 50,00,000/- was received from Moderate Credit Corporation Ltd., a listed company. It is not disputed before this court that the investment made was received by account payee cheque and the same was refunded by an account payee cheque when the company dropped its project. In the considered opinion of this court, in absence of any cogent evidence on record establishing that the money shown to have received as share application money, was as a matter of fact, unaccounted money belonging to the assessee company, the finding ar....
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....ss it can be shown by the department that the source of such moneys come from the assessee himself or such source could be traced to the assessee itself. In the present case, while the existence of the creditor is not in doubt & he has admitted to have advance the loan to the assessee, the fact that the explanation furnished by the creditor about his source of such advancement has not been accepted by the revenue authority cannot lead to any presumption that the source of such advancement by creditor emanated from the assessee. Therefore, the addition in the income of the assessee as cash credit cannot be sustained.'' 5. Labchand Bohra vs ITO (2008) 219 CYR 571 (Raj) wherein the Hon'ble Court observed that - Identity of the creditors having been established who have confirmed the credits by making statements on oath and the amounts having been advanced by account payee cheques, impugned addition in respect of the entries in the names of said creditors cannot be sustained. Capacity of the lender to advance money to the assessee is not a matter which could be required to be established by the assessee, as that would amount to calling upon him to establish source of the sourc....