TaxTMI 
TaxTMI 
TaxTMI 
2023 (4) TMI 1434
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....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 section 143(2) of the Act dated 31.08.2015 was issued on the assessee. Information....
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.... 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). As regards, identity of the creditor is concerned, your honours would appreciate that M/s Inner Mercantile (P) Ltd. is....
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....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 the copy of bank statement of the said concern furnished before the ld. AO, it is seen that this amount has been duly debited in the bank ....
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....tter 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 the statements as orated by them. In support of the same, the lender company has been able to collect the affidavit of both the shopkeepers which were submitted to the ld. C....
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....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 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 pre....
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.... 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 lender company as genuine in other two assessees of same group to which the appellant belongs, deserves to be deleted. At this juncture, kind attention of your honours is invited to provisions of section 68, which read as under: 68. Where any sum is found cr....
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.... 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 non appearance of eight other persona in response to the notice given of the Assessing officer, by itself cannot be a reason to discard their version particularly when one of them had appeared and admitted advancement of loan. Even if others have subsequently filed their confirmations supported by their affidavits, it cannot be assumed that they would not have made same statements, if the....
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....se 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 facts of the instant case of the appellant are quite different as there is no investigation or enquiry proving the said creditor company allegedly providing accommodation entry. Further almost all the remaining cases relied upon by Ld. AO were of private limited company where the said company had received share application or share capital and the company took the plea that being a company, it cannot produce more ....
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....e 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 of bank statements of lender appellant has discharged the onus casted upon him and further by filing the affidavits of the shopkeepers to prove the spot inquiry made by income tax inspector as not proper which affidavits remained uncontroverted therefore, under these circumstances it is humbly prayed that the addition of Rs. 4,18,48,000/- deserves to be deleted. Reliance is also placed on the following: 187 Taxman 338 Aravali Trading Co. Vs. ITO (Raj.) Assessment....
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....(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 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." 4. On the other hand, the ld. D/R supported the orders of the revenue authorities. 5. We have heard rival contentions of both the sides, perused the material available on record and gone through the orders of lower authorities and also the case laws relied on by both the pasties before us. The facts related to the issue un....
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.... 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 submitted that in view of overwhelming evidences identity of the creditor is not at all doubtful. 5.1 As regards, creditworthiness is concerned, it was submitted by the ld. A/R that in normal course, the assessee is required to submit PAN details and Ward / Circle where the creditor is assessed along with a confirmation from the creditor. All these details were duly submitted before the AO. However, in the present case as there were some doubt in the mind of AO due to non-service of notice u/s 133(6) and her requirement to produce the director which could not be materialized as directors were located outside Jaipur and ha....
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....) 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 inference from the part of the statement of Shri Ratan Lal Garwal that company existed here till 5 - 7 years back without realizing that person may tend to make marginal deviation about the period more particularly when he had to speak before a Government Authority and that too without pre-information; rather suddenly and that too on a matter which is about 5 years old. The Inspector had visited in 2018, whereas the transactions pertained to FY 2013-14 which is falling about 5 years (+ / - 1 year) back and is broadly the similar period. Thus even as per the version of Shri Ratan Lal Garwal, the company existed in FY 2013-14 on the sa....
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....16) 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 accepted as genuine without raising any doubts about the identity or creditworthiness of the same lender company by the same assessing officer in the same timeframe then under identical circumstances contrary view taken in the case of appellant is not only surprising but raised serious doubts about the manner in which addition has been made in the instant case of appellant. Therefore, such contrary view taken by AO in instant case of appellant as against the view taken in other two cases deserves to be rejected and consequent addition so made deserves to be deleted. Another important point raised by the ld. AR is that the loan taken by ....
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....vt. 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 accommodation entries as genuine business transaction." 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....
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....ng 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 regularly filing its financial statement on online portal of MCA. The ld. AR has rightly pointed out that the non-service of notice u/s 133(6) may be due to shifting of office to other place or office being closed for that time. Thus identity and existence of lender company cannot be said to be nongenuine. The ld. CIT(A) on the basis of adverse inspector report about existence of the company has given its observation about company not being in existence. We are of the opinion that ld. CIT(A) has not properly appreciated the facts and report of the inspector alongwith the affidavits of the two shopkeepers filed by the ld. AR before the ld. CIT(A). As regards statement of Sh....