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2016 (11) TMI 325 - ITAT MUMBAI

2016 (11) TMI 325 - ITAT MUMBAI - TMI - Addition u/s 68 - AO treated the transactions of loan by the assessee as sham transactions for the two reasons i.e. non establishment of the genuineness of transactions and secondly for not proving the creditworthiness of the creditors - Held that:- The parties have responded to the summons issued under section 133 of the Act by the AO, their PAN number and copy of income tax returns have also been submitted. The amount advanced to the assessee has also be .....

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gineering Pvt. Ltd. and Flair Engineering Pvt. Ltd. in its books of account. - So far as creditworthiness of the of the creditor companies is concerned, it has been explained that the creditor companies are legal entities and are already assessed to income tax. The assessee has also explained the source of the creditors also. He has invited our attention to a table to show that an amount of ₹ 10 crores had been advanced by Niranwal Credit and Holding Pvt. to the assessee. The said Nira .....

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oans as unexplained is not held to be justified. The same is accordingly ordered to be a deleted. - Decided in favour of assessee - ITA No. 6368/M/2014 - Dated:- 28-9-2016 - Shri G.S. Pannu, Accountant Member And Shri Sanjay Garg, Judicial Member Assessee by : Shri Sunil M. Lala, A.R. Revenue by : Shri Alok Johri, D.R. ORDER Per Sanjay Garg, Judicial Member The present appeal has been preferred by the assessee against the order dated 02.09.2014 of the Commissioner of Income Tax (Appeals) [herein .....

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and had invested the same with group concern M/s. Sterling Oil Reserves Ltd. The assessee was therefore asked to explain the genuineness of loan and also to establish the identity and creditworthiness of the creditors. The assessee explained that during the relevant year, the assessee received unsecured loans amounting to ₹ 26.02 crores. The assessee received funds from two companies, namely Ved Investments Ltd. and Niranwal Credit and Holding Pvt. Ltd. and that this fact was also evident .....

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earing in the name of Flair Engineering Pvt. Ltd. and Wisdom Engineering Pvt. Ltd., however, these two companies had been floated for rotating the accommodation entries in question. The directors of the said companies were men of meager means. Further, the claim of the assessee that such amount of ₹ 26.02 crore was received from Ved Investments and Trading Company Pvt. Ltd. and Niranwal Credit and Holding Pvt. Ltd. was found to be false because assessee had failed to establish the legal id .....

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ompany; that such loan of ₹ 26.02 crore shown to have been taken from Flair Engineering Pvt. Ltd. and Wisdom Engineering Pvt. Ltd. or in the name of Ved Investments and Trading Company Pvt. Ltd. or Niranwal Credit and Holding Pvt. Ltd. was not from any explained source nor was there any genuine transaction; that the proper identity of such parties had also not been established. The AO, therefore, found that all these companies had been floated in connivance with each other to channelize bl .....

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He, therefore, made addition of the above amount into the income of the assessee as unexplained credits under section 68 of the Act. 4. Being aggrieved by the above order, the assessee preferred appeal before the Ld. CIT(A). However, the Ld. CIT(A) held that the AO had made adequate enquiries to unearth the truth and that the assessee had failed to prove the genuineness of the transactions and creditworthiness of the creditors. He, therefore, confirmed the additions so made by the AO. Being agg .....

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/Wisdom amounting to ₹ 16.02 crores, the assessee explained that the name of the assessee was not reflected in the balance sheet of Ved in view of the letter received by the assessee from Ved, counter signed by Wisdom, wherein Ved requested the assessee to record the loan transaction in the name of Wisdom due to the impending amalgamation between Ved and Wisdom. Further, the paying party viz. Ved had received funds from 4 companies viz. Aim Infrastructure Pvt. Ltd., Powerlinks Projects &am .....

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it and Holding Pvt. Ltd. amounting to ₹ 10 crores, the Ld. A.R. explained that the name of the assessee was not reflected in the balance sheet of Niranwal in view of the letter received by the assessee from Niranwal, counter signed by Flair, wherein Niranwal requested the assessee to record the loan transaction in the name of Flair due to the impending amalgamation between Niranwal and Flair. Further, the paying party viz. Niranwal had received funds from Sulabhya Engineering Pvt. Ltd. Sin .....

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the assessee was not reflected on the face of the balance sheet of Niranwal, the genuineness of the loan taken by the assessee could not be doubted. He has further submitted that the assessment orders had been passed under section 143(3) of the Act in the case of Ved, Flair & Niranwal and a notice under section 148 of the Act has been issued in the case of Wisdom. Though as per settled law, the assessee is not obliged to explain the source of source, the assessee has submitted the bank state .....

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end. In support of the above, he has placed reliance on the following case laws: 1. CIT v Tania Investment P. Ltd. (2010) 322 ITR 394 (Bom) 2. Yamuna Synthetics Pvt. Ltd. (2004) 3 SOT 35 (Del) The Ld. Counsel, therefore, has submitted that as per settled law, the onus of the assessee under section 68 of the Act is discharged when the assessee proves the identity of creditors, creditworthiness/capacity of creditors and the genuineness of the transactions. He has further contended that courts have .....

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nts and balance sheets (wherein all corresponding transactions were recorded), he is considered to have successfully discharged his onus under section 68 of the Act and notwithstanding non-appearance of the creditors, no addition can be made under the said section. Further that where the books of accounts of the creditors recorded the corresponding entries of credits, the books of accounts itself would indicate capacity of the party to advance loan and there was no further need for the assessee .....

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7. GG Films v ITO (1993) 45 TTJ 0644 8. Subbiah Ramanathan and RM Janaki v ITO TS-352-ITAT-2015 (CHNY) 9. DCIT v Overseas Infrastructure Alliance (I) Pvt. Ltd. (ITA No.1470/Mum/2011) The ld. Counsel for the assessee has further submitted that in order to fasten liability on the assessee by including such credits as income from unexplained source, a nexus has to be established that the sources of creditors deposit flow from the assessee. In the absence of any such link, additions of cash credits .....

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respect, had relied upon the following case laws: 1. Aravali Trading Co. v ITO (2010) 187 Taxman 338 (Raj) 2. CIT v. Jai Kumar Bakliwal (2014) 45 taxmann.com 203 (Raj) 3. CIT v Metachem Industries (2001) 116 Taxman 572 (MP) 4. Jawahar Lal v ITO (2014) 35 ITR (Trib) 0071 (Chand) 6. The Ld. D.R., on the other hand, has relied upon the findings of the lower authorities and has vehemently stressed that the AO had made inquiries and had come to the conclusion that the creditors companies were paper e .....

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the two reasons i.e. non establishment of the genuineness of transactions and secondly for not proving the creditworthiness of the creditors. So far as the genuineness of the transactions is concerned, as submitted by the Ld. A.R., all the funds were transferred to the assessee through banking channel, confirmation from the respective parties have also been filed, the parties have responded to the summons issued under section 133 of the Act by the AO, their PAN number and copy of income tax retu .....

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re has explained the reasons for recording the name of creditors as Wisdom Engineering Pvt. Ltd. and Flair Engineering Pvt. Ltd. in its books of account. So far as creditworthiness of the of the creditor companies is concerned, it has been explained that the creditor companies are legal entities and are already assessed to income tax. The Ld. Counsel for the assessee has brought our attention to the assessment order dated 30.03.15 passed under section 143(3) of the Act in the case of Ved Investm .....

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f the Flair Engineering Pvt. Ltd. for A.Y. 2010-11. In the case of Niranwal Credit and Holding Pvt., the assessment had been completed under section 143(3) read with section 147 of the Act for A.Y. 2010-11 and addition of ₹ 20,00,00,000/- has been made by the AO. In the case of other party i.e. Wisdom Engineering Pvt. Ltd. the Ld. Counsel has invited our attention to the notice under section 147 of the Act dated 29.03.16 issued in the name of Wisdom Engineering Pvt. Ltd. and has stated tha .....

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n their hand but one thing is proved that the said creditors were having sufficient credit/finances in their accounts which fact has been proved from the fact that the additions have been made by their respective AOs in their hands. The said creditors have credited the impugned amounts to the assessee through banking channel. Moreover, the assessee has also explained the source of the creditors also. He has invited our attention to a table to show that an amount of ₹ 10 crores had been adv .....

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ccount of Ved Investments. Though the AO had made thorough investigations but the AO could not establish a link that the money had actually travelled from the assessee to the creditors or even to their source companies. Under such circumstances, so far as the creditworthiness of the creditors of the assessee was concerned, the same is established on the file. When the assessee has proved that the money has been credited to the account of assessee through banking channel, through legal entities w .....

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has failed to establish the link or the chain or route of funds from the assessee to the creditors or even to their source despite adequate investigations. The Hon ble Rajasthan High Court in the case of Aravali Trading Company (supra) has held that once the existence of persons in whose names credits are found in the books of the assessee is proved and such persons own such credits with assessee, assessee is not required to prove source from which creditors could have acquired money to be depo .....

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e hands of that assessee. Almost similar observations have been made by the different Hon ble High Courts in various decisions as relied upon by the Ld. A.R. of the assessee as mentioned above. Though the Ld. D.R. has relied upon the decision of the Hon ble Calcutta High Court in the case of Raj Mandir Estates Pvt. Ltd. vs. CIT GA No.509/2016 decided vide order dated 13.05.16 wherein the issue was regarding the source of share application money. The Hon ble Calcutta High Court has considered var .....

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ta High Court for holding that the genuineness of the transactions was not proved. However, the facts and circumstances of the case of the assessee as discussed above, are on different footing. Moreover, we, at this stage, are guided by the decision of the Hon ble Supreme Court in the case of Lovely Exports Pvt. Ltd. (2009) 319 ITR (st.) 5 wherein it has been held that once the assessee has given the complete details and information of the investors who have made investments in the share capital .....

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