TaxTMI 
TaxTMI 
2026 (9) TMI 1630
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....g the assessment in the case of the appellant for the above assessment year. 2. The appellant respectfully submits that both the assessing officer and the CIT (A) has failed to appreciate the fact that the appellant has explained the genuineness of the loans aggregating to Rs. 11,00,00,000/- and further substantiated the same by explaining (a) source of the source and also (b) application of the impugned funds. 3. The CIT (A) has erred in confirming the addition on the basis of extraneous factors which are not relevant for section 68 of the Act and also on the basis of the judicial pronouncement which is not relevant on the facts of the case. 4. The CIT (A) has erred in confirming the addition contrary to its own finding of fact that the appellant had borrowed the loans from the creditors and the same has been duly explained. 5. Both the authorities have failed to appreciate that the appellant firm has been incorporated on 22-1-2013 and accordingly by no stretch of imagination it could have had any unaccounted money which is alleged to have been introduced by way of bogus cash credits." 3. Brief facts of the case are that the assessee has file....
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....ed as unexplained cash credit u/s 68 of the Act. In response, the assessee did not produce the unsecured loan parties, instead submitted the detailed note on source and utilization of unsecured loan proceeds. 7. It is submitted that the initial loan of Rs. 30 crores were taken by the 'A' set of farmers (119 farmers) from M/s. Ratnakar Bank Ltd. on a corporate guarantee given by M/s. Bhadresh Trading Corporation Ltd. (BTCL). These 'A' set of farmers advanced loan to 'B' set of farmers. Further 'B' set of farmers invested a sum of Rs. 25 crores out of the loan of 30 crores in the shares of BTCL. Now, the BTCL has advanced a sum of Rs. 37 crores (Rs.11 crores + Rs. 26 crores) to Mandali Bank giving instructions to advance to 'C' set of farmers. In turn, 'C' set of farmers given direction to Mandali Bank to advance these amounts to 'D' set of farmers. Further, 'D' set of farmers (i.e., unsecured loan parties) given direction to Mandali Bank to advance Rs. 11 crores to M/s. Prakash Cotton, assessee-firm. Further, 'D' set of farmers (i.e. unsecured loan parties) given direction to Mandali Bank to advance Rs. 11-crores to ....
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....loan parties even after being asked specifically to do so. Further, the assessee failed to prove the identity,genuineness and creditworthiness of the loan parties. The assessee has totally failed to prove the transactions recorded in its books of accounts relating to unsecured loans of Rs. 11,00,00,000/- taken during the year as genuine. 6.14 After careful consideration of the case, the claim of unsecured loans totalling Rs. 11,00,00,000/- is hereby rejected and accordingly, addition of Rs. 11,00,00,000/- are made u/s. 68 of the I. T. Act being unexplained cash credits. Penalty proceedings u/s. 271(1)(c) of the L.T. Act, 1961 is initiated separately for furnishing inaccurate particulars of income and concealment of particulars of income." 11. Being aggrieved with the aforesaid addition made by the Ld. AO, assessee preferred an appeal before the Ld. CIT(A), wherein the assessee again placed its contentions and details similarly as were furnished before the Ld. AO, however was unable to convince the Ld. CIT(A), therefore the appeal of assessee stands dismissed by the Ld. CIT(A). 12. Being unsuccessful before the Ld. CIT(A), the assessee is in appeal before us. 13. A....
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.... of Rs. 4 Crores to Bhadresh Mehta Rs. 3 Crores to Parth Mehta and Rs. 3 Crores to Heena Mehta, thus aggregating to Rs. 10 Crores on the same day. Similarly, the appellant received loan of Rs. 1 Crore on 213-2013 and on the same day the appellant has given loan of this Rs. 1 Crore to Mr. Bhadresh Mehta. This fact can also be verified from the audited accounts of the appellant. Page No. 5 of the paper book contains the Balance Sheet of the appellant as on 31-3-2013. The unsecured loans as per the Balance Sheet (Schedule - 2) is Rs. 11 Crores. Against this, the loans & advances given is Rs. 11 Crores (Refer Schedule - 6 on page No. 7 of the paper book). 4. The appellant was exclusively selling goods to Bhadresh Trading Corporation Ltd. The details of sales made by the appellant can be seen on Page No. 3 of the assessment order. It can be seen that the sales made to Bhadresh Trading Corporation Ltd. (incl. tax) is Rs. 19,98,01,339/-. The total sales of the appellant for the year (exclusive of tax) is at Rs. 19,02,86,986/- (Refer Profit & Loss A/c. - Page 3 and Schedule 10 on Page No. 4 of the paper book). As such the appellant was absolutely dependent on Bhadresh Trading Corp....
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....ive bank namely Kutch District Co-operative Bank (KDCC). (b) Whenever the Mandali receives any money on behalf of its member, it is usually accompanied by an instruction letter from the payee to credit the said amount in favour of the recipient member. (c) On the basis of such instruction letters, the Mandali will credit the respective member's account. (d) Thereafter any member who wants to transfer the said amount to any other member of the Mandali can do so by using an instrument like an instruction letter directing the Mandali to credit the other member's account. (e) On receipt of such instruction letter from the member, the Mandali debits the account of such payer member and credits the payee member. (f) In case an amount has to be transferred to a non-member, then in that case, the payer member will instruct the Mandali to transfer the amount to a nonmember along with its bank account details. (g) On receipt of such instructions, the Mandali will issue a cheque from its own bank account with KDCC bank or will instruct KDCC bank to transfer funds through RTGS. (h) Since the KDCC bank is a co-operative bank....
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....ores in their accounts, the 'D' set of farmers i.e. the lenders, requested the Mandali to transfer the said funds to the appellant firm. Copies of instruction letters from these lenders to the Mandali are attached in the paper book. Please refer page Nos. 12, 17, 24, 28, 35 & 36 of the paper book. Copies of lenders' accounts in the books of the Mandali are also filed in the paper book. Please refer Page Nos. 11, 16, 23, 27 and 34 of the paper book. In this manner amount of Rs. 10 Crores (Rs. 2 Crores each for 5 lenders) was transferred by the Mandali through its bank account with Kutch District Central Co-Operative Bank (KDCC) on 20-3-2013. This amount of Rs. 10 Crores consists loans of Rs. 2 Crores each from (i) Jaysukh Purshotam Thacker; (ii) Mahamadsidhik Ishmail Juneja; (iii) Nasimbanu M. Juneja; (iv) Nayna Mukesh Thacker and (v) Sanjay Pratapbhai Soneta. 14. As regards the loan of Rs. 1 Crore, received from Razak A. Juneja, it is to be noted that on 21.03.2013, a sum of Rs. 25.99 crores was advanced by BTCL to one Mr. Jethalal U. Thakkar for trade advances. The said advance was received in his bank account with KDCC. Copy of bank statement of Mr Thakkar is....
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.... transferred to the accounts of Bhadresh Mehta, Parth Mehta and Heena Mehta. Accordingly, it is absolutely clear that the appellant was not a beneficiary of the said amount but the appellant has just been an intermediary in the chain of transactions. (v) The appellant, having been incorporated only on 22-1-2013, cannot have earned a huge sum of Rs. 11 Crores and therefore the apprehension that the appellant's own money has been introduced by way of loans is not correct. 17. The assessing officer completed the assessment vide order dated 31-3-2016 making addition of Rs. 11 Crores in respect of the unsecured loan from 6 lenders invoking provisions of section 68 of the Act. As per the assessment order, the addition has been made primarily for two reasons as under: (a) That the transaction portrays a systematic misuse of bank funds reserved for Agricultural activity. (Paragraph 6.10 of the assessment order) (b) That the appellant could not prove the genuineness of loan transactions and could not produce the parties. (Paragraph 6.12 of the assessment order) Appeal Filed before the Commissioner of Income-tax (Appeals) The appellan....
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....l loans i.e. for cultivating mangoes. However, the loan amounts have been given to the appellant following a very circuitous route. These loans were for agricultural purpose for use by farmers and are being given to third parties which are companies itself makes the genuineness of the transaction doubtful. Our Contentions before the Hon'ble Bench 1. The appellant respectfully submits it has proved the identity of lenders, capacity of the lenders and also the genuineness of the transactions as explained hereunder: * Identity: The identity of the lenders has been established by way of the response to notice u/s. 133(6), PAN numbers of the lenders etc. * Capacity: As regards the capacity, the appellant respectfully submits that the same gets established considering the fact that there were layered transactions which originated from Ratnakar Bank. There is no dispute about the fact that the movement of funds started from Ratnakar Bank and it travelled to the directors of Bhadresh Trading Corporation Ltd. through the appellant. The appellant has produced evidences establishing the source of source though the same is not mandatory. This has been do....
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....d in an objective manner and on the basis of the facts and circumstances of the case. Paragraph - 14 of the judgement is reproduced hereunder: "14. The question is what is the true nature and scope of section 68 of the Act? When and in what circumstances section 68 of the Act would come into play? That a bare reading of section 68 suggests that there has to be credit of amounts in the books maintained by an assessee's; such credit has to be of a sum during the previous year, and the assessee's offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessee's in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income-tax as the income of the assessee's of that previous year. The expression "the assessee's offer no explanation" means where the assessee's offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee's. It is true the opinion of the Assessing Officer for not accepting the explanation offered by the assessee's as not satisfactory is required to be based on proper appreci....
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....d that the order of Ld. CIT(A) was justified and deserves to be upheld. 16. We have considered the rival submissions, perused the material available on record and examined the case laws relied upon by both the parties. Admittedly, in the present case, the assessee received loans aggregating to Rs. 11 crores from various lenders. It is observed that the funds which ultimately reached the assessee had originated through a series of transactions. The first transaction in the chain was a loan of Rs. 30 crores sanctioned by Ratnakar Bank Ltd. to 119 farmers for cultivation of mango plants on their respective lands. These farmers were introduced by BTCL to Ratnakar Bank Ltd., as they were associated with BTCL, who regularly purchased cotton seeds from six farmers through its associate parties. The arrangement letter dated 22 January 2013 and the list of farmers, along with their respective account numbers and sanctioned limits, have been placed before us at pages 55 to 62 of the assessee's paper book. The loans sanctioned to the 119 farmers were disbursed into their bank accounts maintained with Abdasa Taluka Bachat and Dhirana Seva Sahakari Mandali Ltd. (hereinafter referred to as "t....
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.... by the assessee stood explained through the aforesaid chain of transactions. In respect of the remaining sum of Rs. 1 crore received from Mr. Razak A. Juneja, it was submitted that a request letter issued by Mr. Razak A. Juneja instructing Mr. Thakkar to transfer the funds to the assessee-firm was placed on record at page 45 of the paper book. Thus, according to the assessee, the relevant documentary evidence in support of the transaction was also furnished. 19. During the course of assessment proceedings and, subsequently, during the remand proceedings, the assessee furnished various documents in respect of the loans received from each of the lenders, including loan confirmations, PAN cards, bank statements, instruction letters issued by the lenders and affidavits confirming the amounts transferred to the assessee. These documents were compiled separately in respect of each lender. 20. On the basis of the aforesaid material, the Ld. AR submitted that the complete chain of transactions leading to the transfer of funds to the assessee had been duly explained and that the amounts were received through banking channels. It was further submitted that the identity of the lenders ....
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....133(6) had been returned unserved. 22. It is further noticed that the transactions routed through the different groups of farmers were considered non-genuine primarily because the initial loan granted by the bank to Set A farmers were allegedly not utilised in accordance with the purpose for which such loans had been sanctioned. In this regard, it is necessary to examine the scope of the assessee's burden under section 68 in the context of the credit recorded in its own books. The assessee had furnished documentary evidence in respect of the lenders from whom the amounts were directly received, including their confirmations, PAN details, bank statements and other supporting documents. The question, therefore, is whether the assessee would also be expected / liable to establish compliance by the first group of farmers, i.e. Set 'A', with the terms and conditions governing the loans originally sanctioned by Ratnakar Bank Ltd., when the funds had subsequently passed through different persons before being received by the assessee. In our considered view, the answer would depend upon the material establishing a nexus between the assessee's receipt and any alleged infirmity in....
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....rcumstances has to be considered along with the other documentary material available on record. 26. We further find that the reliance placed by the Ld. CIT(A) upon the decision in CIT v. Jansampark Advertising & Marketing (P.) Ltd. (supra) is distinguishable on the facts and law, as relied upon in the present case. The said decision emphasises that the material furnished by the assessee in support of a credit must be examined and that the initial burden under section 68 does not stand discharged merely by producing superficial documentation where the surrounding circumstances indicate that the transaction may not be genuine. In the present case, however, the assessee has placed on record documentary evidence concerning the lenders and the movement of funds through banking channels. The issue considered by the authorities was substantially founded upon the utilisation of the funds by the first group of farmers and the inability to produce certain persons before the Ld. AO, rather than upon any specific finding that the documents furnished by the assessee in respect of its own lenders were false, fabricated or otherwise incapable of supporting the explanation offered under section....
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....ev Bachani 2,00,00,000 1. Bank Statement of Jamandas V. Bachhani reflecting amount transferred to Jaysukh P. Thacker - Rs. 2 Crore and Nayana M. Thacker - Rs. 2 Crore (Page No. 19) 2. Instruction Letter by Jamandas V. Bachani to Mandali Bank Ltd. to transfer the amounts to Jaysukh P. Thacker and Nayana M. Thacker (Page No. 20) 2 Nayana Mukesh Thacker 2,00,00,000 1. Loan Confirmation (Page 14) 2. Copy of PAN Card (Page 15) 3. Bank Statement of lender with Mandali Bank (Page 16) 4. Instruction letter from lender to Mandali Bank to transfer the amount to appellant (Page 17) 5. Affidavit from lender (Page 18) Jamandas Vasudev Bachani 2,00,00,000 3 Mahamadsidhik Ishmail Juncja 2,00,00,000 1. Loan Confirmation (Page 21) 2. Copy of PAN Card (Page 22) 3. Bank Statement of lender with Mandali Bank (Page 23) 4. Instruction letter from lender to Mandali Bank to transfer the amount to appellant (Page 24) 5. Affidavit from lender (Page 25) Parsotam Vasudev Bachani 2,00,00,000 1. Bank Statement of Parsotam V. Bachhani reflecting amount transferred to Mahamadsidhik Ishmail Juneja - Rs. 2 Crore and Sanjay Pratapbhai Soneta - Rs. 2 Crore (Page No. 30) 2. Instruction Letter by Parsotam V. Bachan....