TaxTMI 
TaxTMI 
2025 (8) TMI 346
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....plained unsecured loan u/s 68 of the Income Tax Act by disregarding the evidence indicating that the loan was channeled through shell companies M/s Wellworth Tradelink Pvt. Ltd. and Desire Vincom Pvt. Ltd. to introduce unaccounted money into the assessee's books of accounts. 2. The applicant craves leave to add, amend or withdraw any of the ground of appeal during the course of appeal proceedings." 3. Succinctly, the fact as culled out from the records are that the assessee has filed income tax return on 29.09.2011 declaring total income of Rs. 40/-. Information has been received from the ADIT (Inv.)(OSD), Unit-4, Kolkata vide letter no. ADIT (Inv.)/Unit-4/Kol/S-110/STR No. 1000039118/2017-18 dated 09.03.2018, that the assessee company had taken credit entry of Rs. 2,00,00,000/- through M/s Wellworth Tradelink Pvt. Ltd. (New Name Xylo Infrastructure Pvt. Ltd.) and Rs. 1,08,00,000/- from Desire Vincom Pvt. Ltd, which are paper companies. The bank statements of these companies it is reveals that these accounts got credited by cash as well as transfers, and the same is transferred to various intermediary companies and ultimately to the beneficiaries who are having real bus....
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....company before the Registrar of the Companies along with its annual return. Thus, it is quite evident that the identity of the said creditor company was duly established. As regards the creditworthiness of these parties, copy of financial statements of the lender in the shape of audited Balance Sheet, Profit and Loss account, ITR and bank statement through which the loan was given etc. were submitted The copy of bank statements of the relevant period of both the parties were placed on record in support of the source of fund in the hands of lenders. It was claimed that no cash was deposited in bank accounts before making such advances to the assessee. Based on that contention the assessee claimed that they have duly proved the genuineness, identity and creditworthiness of the lender and therefore no adverse inference may be taken in the matter. Ld. AO noted that the primary onus is on the assessee to establish the genuineness of the transaction claimed by it. The assessee has never objected the reasons of the reopening. Further, if the investigation done by the department leads to doubt regarding the genuineness of the transactions, it is incumbent on the assessee to produce the ....
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....trading. The appellant has contended that Id.AO has formed belief regarding escapement of income on the ground that assessee has received sum of the Rs. 3,08,00,000/- through rotation of its own money by means of capital gains and on this satisfaction, reassessment proceedings were initiated by issue of notice u/s 148. Whereas, eventually assessment has been completed after making addition on allegation that unsecured loans received by the appellant were unexplained though the same were repaid in the year itself. There is no addition in the assessment order on alleged capital gain / penny stock trading, which was recorded in the satisfaction. The appellant has also contended that it is a settled law that when no addition is made in respect to the reason for which the satisfaction is reached in the reasons recorded before issue of notice u/s 148, then the Ld. AO had no jurisdiction to make addition/ disallowance of any other income/expenditure/ loss i.e. to go beyond the jurisdiction assumed by issue of notice u/s 148 of the Income Tax Act, 1961. At para 3 of the reasons recorded under the head 'analysis of information collected / received it is stated that amo....
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....-tax v. Shri Ram Singh [2008] 306 ITR 343 (Rajasthan)/[2008] 217 CTR 345 (Rajasthan)[20-05-2008] as under:- "28. If considered on that principle, leaving apart for the moment, the aspect of interpretation of the word "and" as "or", the existence of the word "also" is of a great significance, being of conjunctive nature, and leaves no manner of doubt in our opinion, that it is only when, in proceedings under section 147 the AO, assesses or reassesses any income chargeable to tax, which has escaped assessment for any assessment year, with respect to which he had "reason to believe" to be so, then only, in addition, he can also put to tax, the other income, chargeable to tax, which has escaped assessment, and which has come to his notice subsequently, in the course of proceedings under section 147. 29. To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under section 147, the AO were to come to conclusion, that any income chargeable to tax, Which, according to his "reason to believe", had escaped assessment for any assessment year, did not escape assessment, then, the mere fact, that the AO entertained a reason to belie....
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.... was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance Act (No. 2) of 2009. However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assess or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which, comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, h....
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.... etc., proceeded to make deductions under sections 80HH and 80-1 and accordingly reduced the claim on these accounts. 20. The very basis of initiation of proceedings for which reasons to believe were recorded were income escaping assessment in respect of items of club fees, gifts and presents, etc., but the same having not been done, the Assessing Officer proceeded to reduce the claim of deduction under sections 80HH and 80-1 which as per our discussion was not permissible. Had the Assessing Officer proceeded not to make disallowance in respect of the items of club fees, gifts and presents, etc., then in view of our discussion as above, he would have been justified as per Explanation 3 to reduce the claim of deduction under sections 80HH and 80-1 as well. 21. In view of our above discussions, the Tribunal was right in holding that the Assessing Officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings are initiated but he was not so justified when the reasons for the initiation of those proceedings ceased to survive. Consequently, we answer the first part of question in affirmative in favour of revenue and the second par....
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....as satisfied with the justifications given by the assessee regarding the items of club fees, gifts and presents and provision for leave encashment, but during the assessment proceedings, he found the deduction under sections 80HH and 80-1 as claimed by the assessee to be not admissible. He consequently proceeded to make deductions under sections 80HH and 80-I and accordingly reduced the claim on these accounts. The very basis of initiation of proceedings for which reasons to believe were recorded was income escaping assessment in respect of items of club fees, gifts and presents, etc., but while these items were not disturbed, the Assessing Officer proceeded to reduce the claim of deduction under sections 80HH and 80-1 which was not permissible. The Tribunal was right in holding that the Assessing Officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings were initiated but he was not justified when the reasons for the initiation of those proceedings ceased to survive." The Hon'ble Bombay High Court in the case of Jet Airways (1) Ltd. Has held as under:- "Explanation 3 does not and cannot override the necessity of ful....
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....pening is required, but in final out come both the additions have to be made by the AO in assessment order which has not been the case of AO during the year under consideration as he has not made any additions on the basis of total turnover. Accordingly we confirm the order of Id. CIT (A) and dismiss the revenue's appeal". In view of the above discussion, the reasons of reopening are recorded or the case was reopened on the issue of rotation of own money through capital gains/ penny stock trading and the addition has been done in the assessment order only on account of unsecured loan. Thus no addition was found during assessment proceedings on the issue of rotation of own money through capital gains / penny stock trading which was the reason of reopening. In such a scenario as held by the Hon'ble Rajasthan High Court in the case of Shri Ram Singh (supra) "29. clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under section 147, the AO were to come to conclusion, that any income chargeable to tax, Which, according to his "reason to believe", had escaped assessment for any assessment year, did not escape assessment, then,....
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....ld. CIT(A) and against the ground of appeal raised by the revenue the ld. AR of the assessee has filed the following written submission; "Brief facts of the case are that the appellant is a company engaged in the business of share trading. The assessee company filed its return of income for the year under appeal on 29.09.2011 declaring total income at Rs. 40/- (APB 1). Assessment proceedings u/s 147 of the Act was initiated against the assessee by issuance of notice u/s 148 of the Act on 26.03.2018. In response to notice so issued, assessee filed Return of Income on 15.11.2018 declaring total income at Rs. 40/- (APB 2-4) and reasons recorded were sought, which were supplied to assessee. On perusal of reason so recorded (APB 27-32), it is observed that the sole reason for re-opening the assessment of assessee is some information received from Asst. Director of Income Tax (Inv.) (OSD), Kolkata, according to which it was alleged that assessee company has rotated his own money through intermediary shell companies through penny stock trading and eventually concluded that money was received by assessee by means of capital gains in the year under appeal. Various details/informati....
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....ason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax, which the AO may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under section 147.". Thus the ld. AO could not have made addition on the other issue. Accordingly the addition on account of unsecured loan is not sustainable and the same is hereby directed to be deleted. Accordingly, this ground of appeal is allowed in above terms. Other contentions raised by the appellant are not required to be adjudicated as those are rendered academic. At this juncture, kind attention of your goodself is also invited to the para 3 of reasons recorded, i.e. "Analysis of information collected/received" and para 4, i.e. "Enquiries made by AO as sequel to information collected/received", which read as under: 3. Analysis of information collected/ received: From the perusal of the information it is found that the assessee had received Rs. 2,00,00,000/- from M/s Wellworth Tradelink Pvt. Ltd.(New Name- Xylo Infrastructure Pvt. Ltd.) through Axis Bank A/c No. 41101000008129, Branch H.B....
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....d from ADIT (Inv.) Kolkata [information received from which was used for reopening assessment], and were used as intermediaries to rotate money of beneficiaries, however, name of M/s Worthwhile Tradelink Pvt. Ltd. was not mentioned in such list. Also, no other basis whatsoever, was mentioned in reasons so as to arrive at conclusion regarding M/s Worthwhile Tradelink Pvt. Ltd. being treated as shell company. In view of above, it is submitted that so far as reasons were recorded regarding escapement of income by rotating its own money through capital gains, on which no addition was made eventually, addition made by alleging unsecured loans taken by assessee (for which no satisfaction was recorded) as unexplained, is contrary to the law laid down by Hon'ble Rajasthan High Court in the case of CIT v. Shri Ram Singh [2008] 306 ITR 343, wherein it was held as under- Reassessment - Income escaping assessment - Income believed to have escaped investment explained by assessee - Tribunal rightly holding reassessment proceedings initiated on non-existing facts and invalid - Income Tax Act, 1961, ss. 147, 148. Hon'ble Court in this case has inter alia held that: ....
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....earing in the confirmations furnished by assessee are as under: M/s Desire Vincom Pvt. Ltd. M/s Desire Date Vincom Pvt. Ltd. Particulars Amount Balance 01.04.2010 Opening Balance 24,00,000/- 24,00,000/- 02.07.2010 Loan taken 33,00,000/- 57,00,000/- 09.09.2010 Loan repaid 57,00,000/- NIL 26.11.2010 Loan taken 75,00,000/- 75,00,000/- 02.02.2011 Loan repaid 50,00,000/- 25,00,000/- 03.02.2011 Loan repaid 25,00,000/- NIL Wellworth Tradelink Pvt. Ltd.: Date Particulars Amount Balance 14.07.2010 Loan Taken 10,00,000/- 10,00,000/- 30.07.2010 Loan taken 50,00,000/- 60,00,000/- 04.09.2010 RTGS made for repayment of Loan 60,00,000/- NIL 04.09.2010 RTGS Returned 60,00,000/- 60,00,000/- 06.09.2010 Loan repaid 60,00,000/- NIL 01.12.2010 Loan taken 2,00,00,000/- 2,00,00,000/- 22.02.2011 Loan repaid 2,00,00,000/- NIL From perusal of above, it is evident that: 1. Firstly, assessee had taken gross loan of Rs. 1,08,00,000/- from Desire Vincom Pvt. Ltd. and Rs. 2,60,00,000/- from Wellworth....
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....h Tradelink P Ltd. was Rs. 75,00,000/- and Rs. 2,00,00,000/- respectively and therefore going by the Ld AO's own presumption of money getting rotated maximum addition if at all could be made would have been to tune of Rs. 2,75,00,000/-. Though not admitted at alleged. However, ld.AO has made addition of Rs. 4,28,00,000/- which shows absolutely arbitrary and illogical approach of the ld.AO. It is thus submitted that ld.AO was absolutely unjustified in making addition over and above the peak balance and addition in excess of the same deserves to be deleted outrightly. It is further submitted that addition was made by ld.AO solely on the basis of some information received from ADIT (Inv.) (OCD), Kolkata vide letter no. ADIT (Inv.)/Unit-4/Kol/S110/STR No. 1000039118/2017-18 dated 09.03.2018 whereby it was alleged that the appellant has taken unsecured loans amounting to Rs 1,08,00,000/-from M/s Vincom Pvt Ltd and Rs 2,00,00,000/- from M/s Wellworth Tradelink Pvt Ltd. which are in alleged as paper companies. However, on the basis of confirmations furnished by assessee during the course of assessment proceedings, ld.AO made addition of Rs. 4,28,00,000/- u/s 68 of the Income Tax ....
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.... sum is found credited in the books^78 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 ^79[Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year" On perusal of above, it is evident that assessing officer can make addition u/s 68 only under two circumstances, i.e.: * appellant does not offer any explanation about nature and source of such credit or * explanation offered by appellant is not upto the satisfaction of Ld. AO. * In other words, whenever appellant provides explanation, before rejecting the same Ld. AO has to record dissatisfaction as to why the explanation furnished by appellant is not acceptable. In the instant case, appellant has not only offered explanation regarding nature and source of credits but also substantiated the same with documentary evidences in the shape of ITRs, Confirmations, Balance Sheet, Bank Statement of lender which were brushed aside by Ld. AO without pointing out any defects or withou....
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....s Tarmake Pvt. Ltd. In R/Tax Appeal No. 533 of 2023 upheld the decision of Hon'ble ITAT, Ahmedabad Bench wherein it was held that since the ITAT found on facts that amount of loan received by the assesse were repaid during the year itself and all transactions were made through banking channels, no error of law was made by ITAT in deleting addition made under section 68 of the Act. It is further submitted that the ld.AO completed assessment without providing assessee with opportunity for cross examination of third parties, whose statements recorded in some other case and behind the back of assessee, are solely relied upon for making the additions in the hands of the assessee despite of specific request made by assessee vide reply dated 27.12.2018 (APB 37-38). Ld. AO simply denied cross examination by observing that opportunity to cross examination is not absolute right and has then cited certain case laws. Ld. AO has relied upon one judgement of Hon'ble Rajasthan High Court in case of Rameshwar Lal Mali vs CIT reported 256 ITR 536. It is submitted that facts of said case are distinguishable as in that case, information was obtained in the course of survey conducted in the c....
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....t their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above." CIT vs Odeon Builders (P.) Ltd [2019] 110 taxmann.com 64 (SC) Hon'ble Supreme Court held that if the addition was based on third party information gathered by Investigation wing then addition cannot be made unless such information is provided to the assessee and opportunity of cross examination is provided more so when assessee placed on record all the evidences. The relevant findings are as under: Headnote: Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Bogus purchase) - Certain portion of purchases made by assessee was disal....
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....and consequently it is a serious flaw which renders the order a nullity. Hon'ble Ahmedabad bench of ITAT also in the case of Smt. Sunita Jain vs ITO quashed the assessment order by placing reliance on Apex Court judgment in the case of Andaman Timber (cited supra) as entire assessment was based upon the statements of Sh. Mukesh Choksi, which were neither supplied to assessee nor was the opportunity of cross examination provided. In view of above, it is submitted that addition made by ld.AO without providing opportunity of cross examination is against the principle of natural justice and order so passed deserves to be quashed and addition so made be deleted. It is further submitted that ld.AO has also drawn adverse conclusion by observing that the assessee never objected the reasons of the reopening, and that the primary onus is on the assessee to establish the genuineness of the transaction and assessee failed in discharging this onus. So far as first allegation of ld.AO regarding assessee not objecting to the reasons of the reopening, it is submitted that assessee vide his reply dated 27.12.2018 (APB 37-38) demanded Ld. AO to provide the necessa....
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....uring the A.Y. 2014-15, .........................................................." The basis of this finding has been on subsequent pages namely page 3 and 4 of the order. On perusing the details it is seen that letter u/s 133(6) so sent by the AO was returned unserved and considering this alongwith two more points, the AO has observed the company to be 'shell company'. The other two things are namely that there are no tangible or intangible assets of the company and profit of the company as seen from the profit & loss account (submitted by the ld. AR of the appellant) is very meager, though AO has herself mentioned in same para 6.6 of the order that company has got reserves and surplus to the extent of Rs. 36,36,90,414/-. It is thus seen that only on the basis of aforesaid observations the AO tried to infer that the lender company is 'shell company'. As against it, ld. AR has furnished the details and evidences firstly by way of PAN details and confirmation of the account from the lender company in order to prove the genuineness of the loan taken from the lender company. Moreover as notice u/s 133(6) sent by AO was returned unserved and AO wanted the director of lender c....
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....onstruction (P) Ltd. v. ACIT (2022) 216 TTJ 59 (UO) / 140 taxmann.com 370 (Surat)((Trib) Section 68 of the Income-tax Act, 1961 - Cash credit (Unsecured loan) - Assessment year 2007-08 - Assessee availed unsecured loan from one 'A' in month of October, 2006 and repaid same in February, 2007 along with interest and deducted tax at source on interest amount - Assessing Officer held that loan was not genuine and made addition of same to income of assessee under section 68 - Whether when unsecured loan had been repaid within a short span of time for which assessee had paid interest and deducted tax thereon, Assessing Officer was not justified in making addition under section 68 - Held, yes [Para 18] [In favour of assessee] 159 ITR 78 (SC) Orissa Corpn. (P) Ltd When the assessee furnishes names and addresses of the alleged creditors, the burden shifts to the department to establish the Revenue's case and in order to sustain the addition the Revenue has to pursue the inquiry and to establish the lack of creditworthiness and the mere issue of notice u/s 131 is not sufficient. Thus, the Appellant has discharged the primary burden of establishing the ident....
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....ly not been subject to cross examination. In such circumstances, the question of remanding the matter for re-examination of such persons would not at all be justified. The Assessing officer, if he so desired, ought to have allowed the Assessee to cross examine such persons in case the statements were to be relied upon in such proceedings. Apart from that, the voluminous documents produced by the Respondents cannot be discarded merely on the basis of two individuals who have given their statements contrary to such public documents." 187 Taxman 338 Aravali Trading Co. Vs. ITO (Raj.) Assessment year 1993-94 - Whether once existence of persons in whose names credits are found in books of assessee is proved and such persons own such credits with assessee, assessee is not required to prove sources from which creditors could have acquired money to be deposited with it - Held, yes - Whether merely because depositors' explanation about sources wherefrom they acquired money is not acceptable to Assessing Officer, it cannot be presumed that deposits made by such creditors are moneys of assessee itself - Held, yes - Whether in order to fasten liability on assessee by includin....
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....tity of the creditor, (b) the genuineness of the transaction, and (c) creditworthiness of the creditor. 43 DTR 449 Tulip Hotels (P) Ltd. Vs. Dy. CIT (Mumbai 'E') (TM) Burden of proof and genuineness - Assessee having duly established the identity of the creditor, his creditworthiness and also genuineness of the transaction, the addition under s. 68 towards unexplained credit is liable to be deleted. It is also pertinent to state that the none of the lender companies i.e. that M/s Desire Vincom Pvt Ltd. and M/s Wellworth Tradelink Pvt Ltd. are related to assessee company in any manner nor assessee has any control over the management of the said companies. Moreover, in view of the above submission, it is clear that: - the assessee has discharged onus caste upon it by section 68 by furnishing all the documentary evidences in the shape of ITR of lender, confirmations of parties, Financial statements of lenders and copies of bank statements of lender; - unsecured loans taken by the assessee stood repaid in the year itself and; - ld.AO failed to establish as to how assessee has rotated his own money more particularly through penny sto....
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....or's report & Balance sheet set for the period ending 31.03.2011 99-108 12. Copy of Written Submission dated 12.03.2024 filed before Id. CIT(A) - 4 Jaipur 109-134 13. Copy of Written Submission dated 24.05.2024 filed before Id. CIT(A) - 4 Jaipur 135-136 14. Copy of Written Submission dated 03.06.2024 filed before Id. CIT(A) - 4 Jaipur 137-139 15 Copy of order by Hon'ble Court of Gujarat at Ahmedabad dated 22.08.2023 in the case of The Principal Commissioner of Income Tax 1 Vadodara v/s M/S Ojas Tarmake Pvt. Ltd. 140-151 8. The ld. AR of the assessee in addition to the above written submission so filed vehemently argued that the revenue has challenged the order of the ld. CIT(A) on merits considering the facts of the case whereas the ld. CIT(A) has allowed the appeal of the assessee on re-opening of the case and therefore, when the finding of the merits is not given by the ld. CIT(A) and revenue has not challenged the finding of the ld. CIT(A) on technical ground the appeal filed by the revenue is required to be dismissed. Even on merits revenue did not prove that the assessee found to have any cash trail. The ld. AR of the assessee ....
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.... interest amount, during the year under consideration. As regards the identity of the creditor M/s Desire Vincom Pvt. Ltd and M/s Wellworth Tradelink Pvt Ltd both are private limited company incorporated under Companies Act, 1956. Both the companies have valid PAN under the Income Tax Act and financial statements are duly audited by the independent chartered accountant, which have already been furnished. Such financial statements were also submitted by the said company before the Registrar of the Companies along with its annual return. Thus, it is quite evident that the identity of the said creditor company was duly established. As regards the creditworthiness of these parties, copy of financial statements of the lender in the shape of audited Balance Sheet, Profit and Loss account, ITR and bank statement through which the loan was given etc. were submitted. Copy of bank statements of the relevant period of both the parties were placed on record in support of the source of fund in the hands of lenders. It was claimed that no cash was deposited in bank accounts before making such advances to the assessee. Based on that contention the assessee claimed that they have duly proved the g....
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.... any assessment year, did not escape assessment, then, the mere fact, that the AO entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax, which the AO may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under section 147.". Thus the Id. AO could not have made addition on the other issue. Accordingly, the addition on account of unsecured loan is not sustainable and the same is hereby directed to be deleted. Accordingly, this ground of appeal is allowed in above terms. Other contentions raised by the appellant are not required to be adjudicated as those are rendered academic." 9.2 As is evident from the above finding of the ld. CIT(A) the he has followed the decision of our jurisdictional high Court in the case of Shri Ram Singh (Supra) and the revenue has not challenged that finding of the ld. CIT(A). So far as merits of the case of the assessee ld. AR of the assessee submitted that the assessee has repaid those loans and that factual aspect of the case has not been denied before us by....
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....e loans were received by the assessee by account payee cheques and the repayments of loans have also been made by account payee cheques along with the interest in relation to those loans. It is rather strange that although the Assessing Officer has treated the cash credits as non-genuine, he has not made any addition on account of interest claimed/paid by the assessee in relation to those cash credits, which has been claimed as business expenditure and has been allowed by the Assessing Officer. It is also pertinent to note that in respect of some of the creditors the interest was credited to their accounts/paid to them after deduction of tax at source and information to this effect was given in the loan confirmation statements by those creditors filed by the assessee before the Assessing Officer. Thus it is clear that the assessee had discharged the initial onus which lays on it in terms of section 68 by proving the identity of the creditors by giving their complete addresses, GIR numbers/permanent accounts numbers and the copies of assessment orders wherever readily available. It has also proved the capacity of the creditors by showing that the amounts were received by the assesse....