TaxTMI 
TaxTMI 
2026 (8) TMI 1729
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....wing Rs. 1,00,268/- in respect of Provident fund and ESI which was duly paid by the assessee before the due date for filing the return of income under section 139 of the Act. 3. The Ld. CIT (A) ought to have considered that all payments in relation to PF/ESI payment were made within the time limits prescribed in the Act. 4. The Ld. CIT(A) erred in making the additions not considering section 36(1)(va) r.w.s 43B of the Act, the expenditure is allowable if paid within due date of filing of return. 5. The Ld. CIT(A) erred in upholding the addition of Rs. 2,38,48,000/- u/s 68 as unsecured loans. 6. The Ld. CIT(A) failed to consider the details submitted by the assessee regarding addition of Rs. 2,38,48,000/- u/s 68 of the Act. 7. The Ld. CIT(A) erred in considering the fact that the assessee furnished required details i.e PAN, ITR returns along with confirmation letters etc. 8. The Ld. CIT (A) ought to have considered that the assessee proved the identity, genuineness & Creditworthiness of the transaction entered as unsecured loans for Rs. 2,38,48,000/-. 9. The appellant may add or alter or amend or modify or substitute or ....
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....t as well as the addition made under section 68 of the Act. 6. The assessee company, aggrieved with the order of the CIT(A), has carried the matter in appeal before us. 7. We have heard the Ld. Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record, as well as considered the judicial pronouncements pressed into service by them to drive home their respective contentions. 8. Shri P. Murli Mohan, CA, Ld. Authorized Representative (for short, "AR") for the assessee company, at the threshold of hearing of the appeal submitted that both the authorities below had grossly erred in law and facts of the case in making/sustaining the addition under Section 68 of the Act. Elaborating on his contention, the Ld. AR submitted that the assessee company had discharged the primary onus that was cast upon it by placing on record confirmations from the lenders, Permanent Account Numbers, copies of their income-tax returns, bank statements and ledger accounts reflecting the subject transactions. It was further submitted that the unsecured loans were not isolated one-time transactions but formed part of running accounts maint....
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....uhati), the Hon'ble High Court of Gujarat in Deputy CIT v. Rohini Builders (2002) 256 ITR 360 (Guj), and the Hon'ble High Court of Bombay in Gaurav Triyugi Singh v. ITO (2020) 121 taxmann.com 86 (Bom.). Elaborating on his contention, the Ld. AR submitted that in the aforesaid judicial pronouncements it was held that once the assessee produces the primary evidence establishing the identity of the creditors and the genuineness of the transactions, the Revenue cannot make an addition merely because the creditors possess comparatively modest financial means or because the AO has suspicion regarding the source from which the creditors themselves obtained the funds. 10. Per contra, Ms Uppaluri Meena, the learned Senior Departmental Representative (for short, "Sr. DR"), strongly supported the orders of the lower authorities. It was submitted that the assessee company had failed to satisfactorily establish the lenders' creditworthiness. The Ld. Sr. DR emphasized that several lenders had disclosed comparatively insignificant income in their respective returns of income, while substantial sums had been advanced to the assessee company during the subject year. It was further su....
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....on 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 capital company as referred to in clause (23FB) of section 10." 13. As per Section 68 of the Act, as it stood during the previous year relevant to the AY 2013-14, where any sum is found credited in the books of an assessee maintained for any previous year and the assessee either offers no explanation about the nature and source thereof or the explanation offered is not, in the opinion of the AO, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. In our view, the provision merely casts an initial burden upon an assessee to offer a satisfactory ....
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....ertake the necessary inquiry could not be converted into a ground for making an addition under section 68 of the Act. We find that the ratio of the said judgment clearly establishes that where the assessee has produced primary evidence and the Revenue chooses not to verify the same by exercising the statutory powers available to it, the addition cannot be sustained merely because the AO has certain doubts regarding the explanation furnished by the assessee. Also, we find that a significant exposition of the law can be traced in the judgment of the Hon'ble High Court of Gauhati in Nemi Chand Kothari v. CIT (2003) 264 ITR 254 (Gauhati). The Hon'ble High Court observed that the burden cast upon the assessee under Section 68 cannot be stretched to an unreasonable extent. It was observed that, once the assessee establishes the identity of the creditor, the genuineness of the transaction and places on record prima facie material indicating the financial capacity of the creditor, he cannot ordinarily be called upon to prove the source from which the creditor himself obtained the money. It was emphasized that Section 68 does not authorize the Revenue to require the assessee to prov....
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.... channels is a relevant piece of evidence while appreciating the overall genuineness of the loan transactions. 17. We find that the Ld. AR has also drawn our attention to the decision of the Hon'ble High Court of Bombay High Court in Gaurav Triyugi Singh v. ITO (2020) 121 taxmann.com 86 (Bom.), wherein the it was reiterated that once the assessee places on record the primary documentary evidence establishing the identity of the creditor and the genuineness of the transaction, the Revenue cannot reject the explanation without making meaningful enquiries. The Hon'ble High Court emphasized that suspicion, however strong, cannot substitute legal proof. 18. We are of the view that having regard to the aforesaid judicial pronouncements, it becomes evident that, as per the law applicable to the subject year under consideration, the assessee company was required to discharge only the initial burden contemplated under Section 68 of the Act. In our view, once such burden stood discharged by producing primary evidence, the statutory obligation shifted upon the Revenue to examine the correctness of the explanation by carrying out appropriate investigation. 19. Coming back to the f....
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....missions advanced before us. We find on a careful reading of the assessment order that the addition of Rs. 2,38,48,000/- under Section 68 has substantially been founded on three circumstances, viz, (i) that certain lenders had disclosed comparatively meagre income in their respective returns of income; (ii) that in some cases there were cash deposits or credits in the bank accounts of the lenders before the issuance of cheques to the assessee company; and (iii) that according to the AO, some of the lenders had not furnished all the particulars called for by him. In our view, the question that arises for our consideration is whether these circumstances, individually or collectively, are sufficient in law to sustain the addition under section 68. 22. We shall first examine the addition in respect of each of the lenders separately before considering the cumulative effect of the evidence available on record, as under: (A). Shri G. Surya Chandra Rao: Rs. 27,38,000/- (i). We find that the assessee company had received an aggregate amount of Rs. 27,38,000/- from the aforesaid lender during the subject year. Out of the said amount, the AO has treated Rs. 17,51,000/- as....
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....view, the conclusion that the lender lacked creditworthiness is thus founded upon assumptions rather than evidence. (D). Smt. G. Sumalatha: Rs. 1,59,69,665/- (i). We find on a perusal of the record that the assessee company during the subject year claimed to have received an amount aggregating to Rs 1,59,69665/- as loan from the above-mentioned lender. The AO has accepted a small portion of the credit and treated Rs. 1,51,00,000/- as unexplained, on the ground that the lender had disclosed income of Rs. 8,70,900/- and therefore could not have advanced such substantial sums. (ii). We are unable to approve the reasoning adopted by the AO for treating the amount received from the aforementioned lender as an unexplained cash credit under Section 68 of the Act. In our view, the taxable income disclosed by a person during a particular assessment year cannot be equated with her total financial resources. We find that the AO has not undertaken any investigation into the source of the funds available with the lender, nor has he examined the lender regarding the large credits appearing in her bank account. As the impugned addition has been made/sustained by both th....
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....the AO under Section 131 of the Act. We, thus, are of the view that as the impugned addition is based entirely upon suspicion arising from the returned income and the pattern of bank deposits of the lender, the same cannot be sustained. (H). Shri B. Ravinder Reddy: Rs. 10,00,000/-. (i). We find on a perusal of the record that the AO had observed that only a confirmation letter was furnished and no bank statement or return of income was produced. We are of the view that even assuming that the evidence produced by the assessee company was incomplete, the AO could not have stopped the inquiry at that stage. As the identity of the lender was established, it was always open to the AO to summon him under Section 131 of the Act or to verify the relevant particulars through independent inquiry. Having failed to undertake either course, the AO proceeded to draw an adverse inference solely because the assessee company had not produced further documents. We are of firm conviction that such an approach of the AO does not satisfy the standard of inquiry contemplated under section 68 of the Act. 23. We find that a common aspect emerging from the observations recorded by the ....
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....tions. We further find that the Revenue has not brought any material on record to demonstrate that these ledger accounts are either manipulated or that the subsequent repayments therein reflected are fictitious. 26. We further find substance in the Ld. AR's contention that the AO has proceeded on the premise that as certain lenders had disclosed comparatively modest taxable income, they lacked the financial capacity to advance the impugned loans. In our considered view, the income returned by a lender, though undoubtedly a relevant circumstance, cannot be treated as the sole or determinative test of his creditworthiness. We are of firm conviction that a person's capacity to advance money cannot always be measured exclusively with reference to the taxable income disclosed in a particular assessment year. We say so, for the reason that a lender may possess accumulated capital, past savings, sale proceeds of assets, borrowings, agricultural receipts, family funds or other financial resources not necessarily reflected in the income returned during the relevant previous year. Therefore, merely because a lender has disclosed comparatively low income, it will not conclusively estab....
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....e assessee company itself. We thus are of the view that in the absence of any such material, the inference drawn by the AO remains essentially conjectural and based on presumptions rather than evidence. 30. The AO has also observed that in certain cases the assessee company had not furnished all the documents called for during the assessment proceedings. We are of the view that even assuming that some deficiency remained in the documentation produced before the AO, such deficiency by itself could not justify the addition without examining the evidence that was admittedly available on record. As observed by us hereinabove, the assessment order itself acknowledges that confirmations, bank statements and income-tax particulars had been furnished in respect of several lenders. We are of the view that the bare minimum that was expected on the part of the AO was to examine the evidentiary value of those documents objectively and, if not satisfied, to make further inquiry. However, the AO in the present case sustained the additions merely because not every document desired by him was produced, which view taken by him cannot be sustained, particularly when the material already available....
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....the basis of suspicion arising from the perceived inadequacy of the lender's financial resources rather than on the basis of any material which would irrefutably evidence that the impugned credits actually represented the undisclosed income of the assessee company. 34. We shall now deal with the judicial precedents relied upon by the learned Sr. DR. In our considered view, none of the said decisions advances the case of the Revenue in the backdrop of the peculiar facts involved in the present appeal. 35. The reliance placed upon the decision of the Hon'ble Supreme Court in A. Govindarajulu Mudaliar v. CIT (1958) 34 ITR 807 (SC) is, in our opinion, misplaced. The said judgment undoubtedly lays down that where an assessee fails to offer a satisfactory explanation regarding a cash credit, the Revenue is entitled to treat the amount as income of the assessee. However, in our view, the decision cannot be understood to mean that an addition under Section 68 can be sustained notwithstanding the production of primary documentary evidence merely because the AO entertains doubts regarding the financial capacity of the creditors. We find that the aforesaid judgment was rendered on i....
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....it was in those peculiar facts that the Hon'ble High Court held that the mere production of incorporation documents, PAN details and bank statements could not be treated as conclusive evidence in discharge of the onus cast upon the assessee company. However, the facts before us stand on an entirely different footing. The Revenue has not brought on record any material to establish that the subject lenders were accommodation entry operators or that they formed part of any organized network engaged in providing bogus loans. There is no report from the Investigation Wing, no statement from any alleged entry operator, no evidence of circular movement of funds, and no material suggesting that the monies advanced to the assessee company had actually originated from its coffers. We are afraid that in the backdrop of the aforesaid peculiar facts, the ratio of the aforesaid judgment in CIT Vs. Nova Promoters (supra) cannot be mechanically extended to every case involving unsecured loans. 38. Coming to the judgment of the Hon'ble High Court of Delhi in CIT v. N.R. Portfolio (P.) Ltd. (2014) 42 taxmann.com 339 (Delhi), we find that the said order was also rendered in the context of ....
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....;ble Supreme Court in CIT v. Orissa Corporation (P.) Ltd. (1986) 159 ITR 78 (SC) and by the Hon'ble High Court of Gauhati in Nemi Chand Kothari v. CIT (2003) 264 ITR 254 (Gauhati). In the present case as well, the assessee company furnished primary documentary evidence, disclosed the identity of the lenders, and produced material evidencing the movement of funds through banking channels. In our view, if the AO was still not satisfied, it was incumbent upon him to carry the investigation further instead of drawing adverse inferences solely on the basis of suspicion arising from low returned income or cash deposits in the lender's bank accounts. 42. We may also observe another significant feature of the present case, i.e., the assessee company has specifically pointed out that the ledger accounts of the respective creditors disclose continuing transactions involving not merely receipts but also repayments over a period of time. In our view, the aforesaid fact has not been controverted by the Revenue by bringing any contrary material on record. In our view, the existence of running accounts is important because it materially distinguishes transactions from isolated accommodatio....
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....btain information from the AOs of the lenders and not to pursue the enquiry beyond the issuance of notices under Section 133(6) of the Act, the matter cannot now be restored merely to afford the Revenue a fresh opportunity to undertake the investigation which it ought to have completed in the first instance. 45. We, thus, having considered the totality of the facts and circumstances of the case in the light of the legal principles discussed hereinabove, are of the considered view that the assessee company had discharged the initial burden cast upon it under Section 68 of the Act by placing on record requisite documentary evidences, viz. confirmations from the respective creditors, Permanent Account Numbers, copies of income-tax returns wherever available, bank statements, ledger accounts maintained in the regular course of business and other supporting documents evidencing the receipt of the loans through normal banking channels. As observed by us hereinabove, the identity of the lenders has not been disputed by the Revenue and the loan transactions have not been shown to be sham or fictitious. Also, the Revenue has not brought on record any material to establish that the money ....
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....rm conviction that the same considerably fortifies the explanation furnished by the assessee company regarding the genuineness of the loans received from the aforesaid parties. 47. Also, as observed by us hereinabove, we find that the approach adopted by the AO proceeds substantially on presumptions regarding the financial capacity of the lenders rather than on evidence gathered during the assessment proceedings. We are of firm conviction that the law does not authorize an addition under Section 68 merely because the AO entertains suspicion regarding the source from which the lenders themselves obtained the money. We find that during the subject year, i.e., AY 2013-14, the assessee company was required to establish the identity of the lenders, the genuineness of the transactions and prima facie material regarding their financial capacity. As observed by us hereinabove, the material placed before us shows that the assessee company has discharged the initial burden cast upon it to prove the authenticity of the subject loan transactions. Thereafter, the burden shifted upon the Revenue to rebut the evidence so produced, which we are of the view it had miserably failed to discharge a....