TaxTMI 
TaxTMI 
2023 (4) TMI 1434
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....ort of the identity, genuineness and creditworthiness of the concern from whom the appellant has taken the loan of Rs. 4,18,48,000/-, thus the addition so confirmed deserves to be deleted. 1.2 That, the Ld. CIT(A) further erred in ignoring the fact that the assessee has by producing complete details and evidences, has fully established the creditworthiness of the lender. Therefore, the addition of Rs. 4,18,48,000/- deserves to be deleted. 1.3 That, the ld. CIT(A) has further erred in confirming the addition relying upon the allegations of ld.AO and without controverting / pin pointing any discrepancies in the documentary evidences submitted by assessee. 2. That the appellant craves the right to add, delete, amend or abandon any of the grounds of appeal either before or at the time of hearing of appeal. 2. The brief facts of the case are that the assessee is an Individual and earning income from Salaries and Business. The assessee e-filed his return of income for the assessment year under consideration declaring total income of Rs. 7,60,000/- on 31.07.2014. The case of the assessee was selected for scrutiny under CASS and statutory notice under se....
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....t supplied. Even, it was not stated as to how such investigation revealed that M/s Inner Mercantile (P) Ltd. was a shell company. Your honours would appreciate that the very basis of making addition (if at all there was any basis) was neither referred in assessment order nor was disclosed to the assessee, thus assessee was deprived from adequate opportunity to prove his case. During the course of assessment proceedings, show cause notice was issued by the ld. AO to the appellant considering that letter sent by the ld. AO to the company returned un-served and assessee was asked to establish the genuineness of credit in the name of company M/s Inner Mercantile Pvt. Ltd. and to also produce the director of the said company. In response to that the appellant furnished all the plausible evidences to prove (a) identity of the creditor (PAN: APB 13), (b) creditworthiness of the creditor : Balance Sheet and ITR (APB 14-21) and (c) genuineness of the transaction : Bank statements of the lender company (APB 11-12) and thus has established the transaction to be valid and genuine. The assessee further furnished duly signed confirmations obtained from the said party (APB 7). A....
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....ufficient funds as Reserve & Surplus amounting to Rs. 36,36,90,414/- as on 1.4.2013 i.e. the first day of the previous year during which the loan was granted to the appellant (APB 18). It would be worthwhile to mention here that ld.AO herself at page 4 para 6.6 of assessment order had observed that the said company had Reserves amounting to Rs. 36,36,39,628/-, which by itself implied that sufficient funds were available with lender company, out of which the said company has advanced only a sum of Rs. 4,18,48,000/- to the assessee. Thus, the creditworthiness of the said creditor company is clearly established beyond doubt from the financial statements produced before the AO. Now coming to the genuineness of the transaction, from perusal of financial statement of the said company, it is seen that Schedule 9 contained "Short Term Loans & Advances" totalling Rs. 21,39,99,802/- as on 31.03.2014. From further perusal of the details of Short Term Loans & Advances at Schedule 9, it is seen that name of assessee is appearing, wherein debit balance of Rs. 4,47,43,000/- has been shown against the assessee (APB 19). Further, loan was given through banking channels and from perusal of ....
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.... deviation about period more particularly when he had to speak before a Govt. Authority, that too without any pre-information and rather suddenly and that too on a matter which is about 5 years old. The inspector had visited in 2018 whereas the transaction pertained to F.Y. 2013-14 which is falling about 5 years (+/- 1 year) back and is broadly similar period. Thus even as per the version of Shri Ratanlal Garhwal the company existed in F.Y. 2013-14 on the said address and inference drawn by Inspector is not correct. With respect to the observations of Inspector that the two other shopkeepers denied witnessing any business activity in the said company, it is submitted that on receipt of such enquiry report appellant contacted with the lender company and has supplied the copy of the report submitted by the Income Tax Inspector and asked the company about the real state of affairs. In turn the officials of Inner Mercantile Pvt. Ltd. approached to these shopkeepers who both denied giving any such statement and stated that they had told Income Tax officers that company M/s Inner Mercantile Pvt. Ltd. existed in the said building, however, it appears that officers did not record ....
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....in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to crossexamine those dealers and what extraction the appellant wanted from them. 7. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit 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....
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....and relevant details are tabulated as under: Name of assessee A.Y. Date of assessment order Amount of loan Paper book Pages Remarks Harsh Stock Portfolio Pvt. Ltd. 2014-15 31.12.2016 3,71,00,275.00 42, 43, 46-49 Treated genuine Ratan Lal Agarwal 2014-15 31.12.2016 4,18,48,000.00 Order under appeal Treated as non-genuine Harsh Agarwal 2014-15 28.12.2016 3,25,60,000.00 44, 45, 50-51 Treated genuine It is thus submitted that once the existence of the lender company is accepted in other cases of the same group where substantial loan amount of around Rs. 7 crores were accepted as genuine and no doubts were raised either about the identity or creditworthiness of the lender company by the same incumbent officer in the same time frame where assessments were completed u/s 143(3) then under identical circumstances contrary view taken in the case of the appellant is not only surprising but raised serious doubts about the manner in which addition have been made in the present case that too on the very same day and such addition in the case of appellant being contrary to ld. AO's own finding of rightly treating the....
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....s established that the money paid by such company was that of appellant. Reliance is placed on: Phool Singh Vs. ACIT (ITAT Delhi) in ITA No. 2901/Del/2014, wherein it has been held by Hon'ble ITAT that: "Merely because 133(6) notices issued to the party returned un-served though it was the same address, which was supplied by supplier while filing its income tax return, no fault can be put on the shoulder of assessee." Further, so far as non production of director of the said company for verification is concerned, as submitted above, the lender company is located outside Jaipur and due to the fact that the borrower is always in subdued capacity and vis-à-vis the lender and borrower cannot compel the lender to appear, therefore, it was beyond our control to produce the director before Ld. AO, which fact was not appreciated by Ld. AO nor by ld. CIT(A). In this regard, kind attention of your goodself is invited to the judgement delivered by Hon'ble jurisdictional High Court in the case of CIT vs M/s Bhawani Oil Mills P. Ltd., wherein it has been observed that : "On perusal of the order passed by the ITAT, we find that mere no....
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....y discharged his onus by furnishing all the details and in fact ld. AO has not pointed out a single discrepancy in details so filed and has not rebutted the evidences so furnished before her. The AO has referred to the case of CIT Vs. Durga Prasad More 82 ITR 540 (SC) and also the case of Sumati Dayal Vs. CIT 214 ITR 801 (SC). The facts of both the cases are quite different and distinguishable from the case of the assessee. More over in the case of Durga Prasad More, the taxing authority proved that the documents furnished were self serving statement and were not reliable. In the case of Sumati Dayal, as per the AO true nature of the transactions have to be ascertained in the light of surrounding circumstances. In the instant case of the assessee appellant, the true nature of the transaction of loan has been duly established by the assessee before the Ld. AO. The facts of other case relied upon by the AO namely CIT Vs. Independent Media Pvt. Ltd. 210 Taxmann 14 (Delhi), as mentioned by the AO are that persons in whose name share capital was introduced in the company, had given statement before the Investigation Wing that they were giving accommodation entry. However the fa....
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....sessee with aid of any direct material especially when various rounds of investigation have been carried out, then nothing can be implicated against the assessee." The aforesaid judgement of Hon'ble Special Bench was followed by Hon'ble Kolkatta ITAT in the case of Mahendra Kumar Baid Vs. ACIT dated 18.08.2017. In case of Dhakeswari Cotton Mills Ltd. Vs. CIT 26 ITR 775 Hon'ble Supreme Court held that there must be something more than bare suspicion to support the assessment u/s 23(3). It is once again submitted that at page 10 of assessment order, ld.AO has observed that "Thus, in case of private limited companies higher onus is cast upon them to explain even source of source of the share application money/ share premium." In this regard, it is submitted that ld.AO has again misconstrued the facts of the case as assessee is an individual and has taken a loan and therefore requirement of proving source of source as per proviso to section 68 is not applicable on the assessee. Your honours would appreciate that by furnishing all the documentary evidences in the shape of ITR of lender, confirmation of party, Financial statements of lender and copies ....
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.... of the creditor, proving the genuineness of the transaction and the source of the credit appearing in the books of creditor is sufficient to discharge the onus for explaining the genuineness of the cash credit. 27 TW 393 Pradeep Kumar Himmatramka Vs ITO (ITAT, Jaipur) Whether filing of confirmations and disclosure of the amounts of advance in the income tax returns by the depositors can be treated as sufficient compliance of the provisions of section 68 for explaining the genuineness of cash credits? Held yes. 128 TTJ 708 Shanti Kumar Chordia Vs. Asstt. CIT (JP 'A') Income - Cash credit - Genuineness - Amounts having been received through account payee cheques, creditors being assessed to tax and their confirmations also having been filed through belatedly, no addition under section 68 was called for. [2010] 5 taxmann.com 60 CIT Vs. Kishori Lal Construction Ltd. (Delhi) The onus cast on the assessee stands discharged where the assessee is able to establish the three ingredients of section 68 i.e. (a) the identity of the creditor, (b) the genuineness of the transaction, and (c) creditworthiness of the creditor. 43 DTR 4....
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....nce in relation to any loan, namely, duly signed confirmation from the said party. As regards identity of the creditor, it was submitted by ld. AR that the company is a private limited company incorporated on 07.02.2012 under Companies Act and is having a valid PAN issued by Income Tax Department. Moreover the lender company is not a defunct company as it has been filing its financial statements regularly on the portal of Ministry of Corporate Affairs (MCA) and moreover it has never been declared as 'shell company' by the MCA. The financial statements are duly audited by the chartered accountant and these are also submitted before the Registrar of Companies along with its annual return. Thus it was submitted that identity of the said lender company is duly established and merely because notice u/s 133(6) issued by the AO was returned unserved, cannot be made as a basis to not to accept the identity of the said company as against the plethora of evidences furnished before the AO. There may be a number of reasons for the notice returning unserved which includes shifting of office to other place or office being closed for that time or incomplete address mentioned on the letter. It was....
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....ng rebutted by AO and addition so made by considering the part loan as unexplained only on presumption and surmises is uncalled for and deserves to be deleted. 5.3 It was submitted by ld. A/R that ld. CIT(A) has also not appreciated these overwhelming evidences presumably considering that on enquiry made through Investigation Wing, Calcutta about the existence of the lender company at the given address, the Inspector making spot enquiry had reported to have asked from one Shri Ratan Lal Garwal who was residing in the building for last 35 years. As per the Inspector report, Shri Ratan Lal has stated that M/s Inner Mercantile (P) Ltd. was in existence at ground floor till 5 - 7 years back however, he has supposedly not witnessed any business activity afterwards. Inspector has further stated in his report that he has also made enquiries from two other shopkeepers namely Shri Gopal Choudhary Prop. M/s Sanjay Trading Co. and Shri Lalit Sharma Prop. M/s Lalit Sharma & Sons, who also gave the same version. 5.4 It was submitted by ld. A/R that Shri Ratan Lal Garwal did accept that M/s Inner Mercantile (P) Ltd. existed in the said building few years back. The Inspector drew adverse in....
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....ress and the Inspector deputed for making spot enquiry has not recorded the correct version orated by these shopkeepers, remained uncontroverted. It was submitted by ld. AR that considering the affidavits of these two shopkeepers and also considering the enquiry from Shri Ratan Lal Garwal the existence of the company at the given address for the given year cannot be denied and thus adverse view so taken by the ld. CIT(A) deserves to be rejected. 5.5 The ld. A/R has also mentioned two important aspects on the issue under consideration. Firstly, that the same AO has passed the assessment orders, one on the same day (i.e. on 31.12.2016) and other three days prior (i.e. 28.12.2016) to the date of order of Ratan Lal Agarwal (31.12.2016), wherein loan from the same lender company namely M/s Inner Mercantile (P) Ltd. has been taken and these loans have been considered as genuine, without any adverse view being taken on these loans received from same M/s Inner Mercantile (P) Ltd. It was submitted by ld. AR that once the existence of lender company is accepted in other cases of the same group where substantial loan amounting to around Rs. 7 crores were taken from the same company and acc....
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....) Ltd. as 'shell company' and ld. A/R has argued that AO without any basis and without any material being brought on record, has just presumed the company to be 'shell company'. For considering this issue the order of AO was perused carefully and it was noticed that at para 5.2 (Page 2 of the assessment order), the AO has observed about this company being 'shell company'. For the sake of clarity the same para is reproduced below:- "5.2 During the A.Y. 2014-15, the assessee has received unsecured loan from the following company in his proprietorship concern M/s Harsh Trade:- Sl.No. Name & Address Amount (Rs.) 1 M/s Inner Mercantile Pvt. Ltd. 4,18,48,000/- Investigation revealed that that this investor or lender was a company of no means and had been filing income on very low or negligible income. The high value banking transactions could not be co-related with any actual or tangible business activity. It was found to be merely completing the paper formalities and using the banking channels to route the money which does not make these transaction ipso facto genuine. At best it qualifies them to be a paper/shell companies attempting to cloak the acc....
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....t. Thus it is clear that the finding of the AO of the lender company namely M/s Inner Mercantile (P) Ltd. as 'shell company' on the basis of the aforesaid observations does not stand to merit in view of the discussion made as above regarding the observations of the AO and accordingly this finding of the AO of treating the company as 'shell company' is rejected and deserves to be ignored. It is seen that AR has brought to our notice that as on today no amount is outstanding and the loan was gradually repaid in various years and was completely repaid as of 31.03.2020. This also supports the aforesaid finding of existence of the company not being in doubt. 5.9 Now coming to the issue as to whether the loan so taken from the lender company M/s Inner Mercantile (P) Ltd. fulfils the parameters of genuineness as generally prescribed by the decisions of various courts. It is seen that the appellant has to prove (i) identity of creditor, (ii) creditworthiness of the creditor and (iii) genuineness of the transaction. In the instant case the appellant has proved the identity of creditor by not only furnishing the PAN details but also submitting that company is not defunct and has been regu....