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TMI Blog2013 (4) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000 on account of unexplained cash credit u/s. 68 of the Act to Rs.2,00,000/-. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A)-I, Surat has erred in restricting the disallowance of interest made by the AO of Rs.1,82,648 claimed to have been paid by the assessee on account of unexplained cash credit to Rs.11,770." 3. The assessee has in its Cross Objections raised four grounds wherein ground No.4 is general in nature, hence does not survive for adjudication. Ground No.3 is relating to charging of interest u/s 234B of the Act which is consequential and the same is dismissed as such. The surviving grounds No.1 and 2 are in support of the order of the learned CIT(A) and aggrieved by the order of the learned AO; they are reproduced herein under for reference:- "1) That on the facts and in the circumstances of the case, the ld. A. O. has erred in making an addition of Rs.43,70,000/- by treating the Unsecured Loans received by the appellant company as Unexplained Cash credits u/s 68 of the Act. The addition made by the ld. A. O. is not only wrong and unjustified but is also contrary to well established law. 2) That the ld. A. O. has erred in disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee Company. On enquiry about the financial capacity of the creditors the learned AR of the assessee as well as the Managing Director of the assessee Company demanded enquiry of the creditors u/s 133(6) of the Act by the revenue. Accordingly the learned AO issued notice to the creditors u/s 133(6) of the Act on 01-08-2008 and served the same on the same day by registered A/D post. Subsequently, the learned AO observed the following discrepancies:- (i) On verifying the acknowledgement for service of notice at different addresses it revealed that in case of some assessees letters were received by the same person who was not the creditor. (ii) In the case of other assessees also it was apparent that the signatures were fabricated and the acknowledgments for receipt of the letters were signed by an individual who was not the creditor. (iii) On going through the reply filed in response to the letters issued by the AO u/s 133(6) of the Act, it was obvious that all the replies were prepared at one place. (iv) Dues to these reasons the learned representative and director of the company were asked to produce the alleged lenders for examination, however, the same was not com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red loans are held to be cash credits within the meaning of section 68 of the I. T. Act. As such, the said amount of Rs.43,70,000/- is added to the total income of the assessee company u/s 68 of the Act and taxed. 5. The assessee company has debited an amount of Rs.3,92,407/- in its P & L account towards 'interest paid', under the major head "Administrative & Finance Expenses". The said expense includes an amount of Rs.1,82,648/- as interest on above bogus loans. Since the loans in question are not genuine, the interest amount of Rs.1,82,648/- cannot be allowed. In the circumstances, the said amount of Rs.1,82,648/- is disallowed out of interest expenses and added to the total income of the assessee company." 6. The assessee carried the matter before the learned CIT(A). The learned CIT(A) restricted the disallowance to the extent of Rs.2 lacs with respect to the depositor Shri Om Prakash Sharma and thereby deleted an amount of Rs.41,70,000/-. In arriving at such conclusion the learned CIT(A) analyzed all the above referred 17 creditors individually and observed as under except in the case of Shri Om Prakash Sharma, wherein the addition was confirmed as stated above:- The deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, his only bank transaction is the alleged loan transaction and, therefore, it does not appear to be genuine. Moreover, the opening balance in the bank before this transaction was only Rs.1,066/-. Cash was deposited in the bank one day before the cheque for the loan was issued. (ii) Shri Surendrakumar Chaudhary:- He is a commission agent for computer stationery and his daily income is Rs.200/- to Rs.400/- and monthly expenditure is about Rs.3,000/- to Rs.3,500/-. He has filed the income tax return without maintaining any books of account. Therefore, his capacity to extend loan of Rs.1,60,000/- is doubtful. Further, his only bank transaction is the alleged loan transaction and, therefore, it does not appear to be genuine. Moreover, the opening balance in the bank before this transaction was not known. Cash was deposited in the bank one day before the cheque for the loan was issued. (iii) Shri Gopal Saini:- He is a commission agent of dress materials earning commission income of Rs.7,000/- to Rs.8,000/- per month. His monthly expenditure is about Rs.6,000/- to Rs.7,000/-. Therefore, his capacity to extend loan of Rs.2,60,000/- is doubtful. Further, his only bank transaction is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan was issued. 9. Considering the above finding of the learned AO and the facts of the case it is apparent that the loan extended by the depositors to the assessee company does not appear to be genuine. All the loan depositors are persons of meager resources and do not have any genuine reason to extend their lifetime savings as loan to the assessee company. In all these cases cash was deposited in the bank shortly before the cheques were issued to the assessee company. All the depositors do not appear to have genuine banking transactions because the only transaction pertains to the cheque issued to the assessee company for advancing loan. Further, the opening balances maintained in the bank by the depositors are meager which establishes that the depositors have maintained the bank account only to document the loan to give a color of genuineness to these transactions. Only by establishing the existence of the individuals purported to be the depositors and creating documentary evidence for extending loan will not make the transactions genuine. All factors have to be broadly seen in arriving at a conclusion that whether the transaction is genuine or bogus. In this given case, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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