TMI Blog2019 (8) TMI 704X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 68 of the Act. Therefore, we do not want to interfere in the impugned order of Ld. CIT(A) which is confirmed and consequently the appeal of Revenue is dismissed. Addition of interest on loan granted - Since we have found the loan amount given to the assessee to the tune by M/s. Silver Cross Marketing Pvt. Ltd. as genuine, the interest expenditure booked by the assessee is an allowable expenditure and we note that the interest received from assessee company on the loan has been offered by the lender [M/s. Silver Cross Marketing Pvt. Ltd]. in its return and offered to tax. Therefore, the addition made by AO disallowing the interest claim also has been rightly deleted by the Ld. CIT(A) which action of the Ld. CIT(A) does not deserve to be interfered with. Therefore we confirm the same. - Decided against revenue. - I.T.A. No. 54/Kol/2018 - - - Dated:- 9-8-2019 - Shri A. T. Varkey, JM And Dr. A. L. Saini, AM For the Appellant : Dr. P.K. Srihari, CIT, DR For the Respondent : Shri S.K. Tulsiyan, Advocate ORDER PER SHRI A.T.VARKEY, JM This is an appeal preferred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date given i.e. 28.01.2015 to give the statement so as to substantiate the creditworthiness of advancing the total amount of ₹ 9 crores. The AO noted that the common director of assessee-company and M/s. SCMPL is Shri Jaideep Halwasiya. Since none appeared on 28.01.2015 from M/s. SCMPL, a show cause notice was issued on 03.03.2015 to the assessee asking why the credit of ₹ 9 crores from M/s. SCMPL should not be treated as unexplained credit u/s 68 of the Act and interest debited against such loan to the extent of ₹ 54,66,393/- should not be disallowed u/s 37(1) of the Act. The AO acknowledges that the assessee, pursuant to the show cause notice had filed written submission dated 12.03.2015 before him. The AO reproduces the relevant portion of the letter of the assessee wherein the assessee had undertaken to produce the director of M/s. Silver Cross Marketing Pvt. Ltd. and also has stated that the ld. AR of M/s. SCMPL had appeared before the AO and had submitted various documents and evidences asked for by the AO vide earlier notice dated 15.01.2015. However the AO did not accept the submission of the assessee that the AR of M/s. Silver Cross Marketing Pvt. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of the Ld. CIT(A) and contended that the Ld. CIT(A) has rightly taken note that M/s. Silver Cross Marketing Pvt. Ltd. is a sister concern and the AO / CIT(A) has gone through the documents filed before them which clearly shows the identity, creditworthiness of the lender and genuineness of the transaction. Therefore, the Ld. CIT(A) has deleted the addition and he does not want us to interfere with the order of the Ld. CIT(A). 7. We have heard both the parties and perused the records. We note that the assessee-company is engaged in the business of development of residential and commercial complex. Its return of income for this assessment year is to the tune of ₹ 3,04,83,860/-. During scrutiny assessment, the AO issued notices u/s 142(1) wherein the details of the loan creditors were sought from the assessee; pursuant to which the details were furnished by the assessee before the AO. Thereafter, the AO issued notice u/s 131 to the loan creditors directing the Pr. Officer to be present before him. Since no one appeared on behalf of the lender company, a show cause notice was issued by the AO to the assessee pursuant to which the assessee rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Flat at Silver Spring 49,06,261/- Immovable properties 1,69,40,190/- Quoted investments 10,01,15,157/- Cash in hand 3,02,281/- Cash at bank 18,56,119/- Stock in trade 87,07,508/- Total 13,28,27,516/- 9. Thus it was pointed out to us that funds worth ₹ 13.28 crores was invested in tangible assets like real estate, quoted investment, cash etc. It was also pointed out to us that the lender company M/s. (SCMPL )has given Long Term Loans and Advances to the tune of ₹ 39,27,34,037/- on which it earned interest income of ₹ 3,92,79,888/- which has duly credited to its P L A/c. We also note from the perusal of the balance sheet which shows that the creditor company has own funds to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the issue at hand. 11. Section 68 under which the addition has been made by the Assessing Officer reads as under: 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this case the legislative mandate is not in terms of the words shall be charged to income-tax as the income of the assessee of that previous year . The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word may and not shall . Thus the un-satisfactoriness of the explanation does not and need not automatically result in de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by' treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69. 13. In the case of Nemi Chand Kothari 136 Taxman 213, (supra), the Hon'ble Guahati High Court has thrown light on another aspect touching the issue of onus on assessee under section 68, by holding that the same should be decided by taking into consideration the provision of section 106 of the Evidence Act which says that a person can be required to prove only such facts which are in his knowledge. The Hon'ble Court in the said case held that, once it is found that an assessee has actually taken money from depositor/lender who has been fully identified, the assessee/borrower cannot be called upon to explain, much less prove the affairs of such third party, which he is not even supposed to know or about which he cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uiry not only into the source(s)of the creditor but also of his (creditor's) sub-creditors and prove, as a result, of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the Assessing Officer to enquire into the source/source from where the creditor has received the money, section 106 makes the assessee liable to disclose only the source(s) from where he has himself received the credit and IT is not the burden of the assessee to prove the creditworthiness of the source(s) of the sub-creditors. If section 106 and section 68 are to stand together, which they must, then, the interpretation of section 68 are to stand together, which they must, then the interpretation of section 68 has to be in such a way that it does not make section 106 redundant. Hence, the harmonious construction of section 106 of the Evidence Act and section 68 of the Income- tax Act will be that though apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o find out as to what sources from where the creditor had received the amount, his special knowledge under section 106 of the Evidence Act may very well remain confined only to the transactions, which he had' with the creditor and he may not know what transaction(s) had taken place between his creditor and the sub-creditor ********** In other words, though under section 68 an Assessing Officer is free to show, with the help of the inquiry conducted by him into the transactions, which have taken place between the creditor and the sub-creditor, that the transaction between the two were not genuine and that the sub-creditor had no creditworthiness, it will not necessarily mean that the loan advanced by the sub-creditor to the creditor was income of the assessee from undisclosed source unless there is evidence, direct or circumstantial, to show that the amount which has been advanced by the sub-creditor to the creditor, had actually been received by the sub-creditor from the assessee . ********** Keeping in view the above position of law, when we turn to the factual matrix of the present case, we fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rged the onus by placing (i) confirmation letters of the cash creditors; (ii) their affidavits; (iii) their full addresses and GIR numbers and permanent account numbers. It has found that the assessee's burden stood discharged and so, no addition to his total income on account of cash credit was called for. In view of this finding, we find that the Tribunal was right in reversing the order of the AA C, setting aside the assessment order. 15. We also take note of the decision of the Hon'ble High Court, Calcutta in the case of S.K. Bothra Sons, HUF v. Income-tax Officer, Ward- 46(3), Kolkata 347 ITR 347 wherein the Court held as follows: 15. It is now a settled law that while considering the question whether the alleged loan taken by the assessee was a genuine transaction, the initial onus is always upon the assessee and if no explanation is given or the explanation given by the appellant is not satisfactory, the Assessing Officer can disbelieve the alleged transaction of loan. But the law is equally settled that if the initial burden is discharged by the assessee by producing sufficient materials in support of the loan transaction, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeals) and to ignore the other portion of the same. The judicial propriety and fairness demands that the entire judgment both favourable and unfavourable should have been considered. By not doing so the Tribunal committed grave error in law in upsetting the judgment in the order of the Commissioner of Income-tax (Appeals). 9. In this connection he has drawn our attention to a decision of the Supreme Court in the case of Udhavdas Kewalram v. CIT [19671 66 ITR 462. In this judgment it is noticed that the Supreme Court as proposition of law held that the Tribunal must In deciding an appeal, consider with due care, all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner in the light of the evidence and the relevant law. 10. We find considerable force of the submissions of the learned counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore, it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter the creditworthiness. As rightly p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) that there are materials to show the cash credit was received from various persons and supply as against cash credit also made. 13. Hence, the judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. We restore the judgment and order of the Commissioner of Income-tax (Appeals). The appeal is allowed. 17. When a question as to the creditworthiness of a creditor is to be adjudicated and if the creditor is an Income Tax assessee, it is now well settled by the decision of the Calcutta High Court that the creditworthiness of the creditor cannot be disputed by the AO of the assessee but the AO of the creditor. In this regards our attention was drawn to the decision of the Hon'ble High Court, Calcutta in the COMMISSIONER OF INCOME TAX, KOLKA TA-Ill Versus DATAWARE PRIVATE LIMITED ITAT No. 263 of 2011 Date: 21st September, 2011 wherein the Court held as follows: In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er company M/s. SCMPL. The nature of receipt towards loan is seen from the entries passed in the respective balance sheets of the companies as loan. In respect of source of credit, the assessee has to prove the three necessary ingredients i.e. identity of lender / creditor, genuineness of transactions and creditworthiness of lender / creditor. For proving the identity of lender / creditor of loan, the assessee has duly furnished the name, address, PAN of lender / creditor together with the copies of balance sheets and Income Tax Returns. With regard to the creditworthiness of lender / creditor, as we noted supra, this company was having capital in several crores of rupees and the investment made in the assessee company is only a small part of their capital. These transactions are also duly reflected in the balance sheets of the lender / creditor, so creditworthiness is proved. Even if there was any doubt if any regarding the creditworthiness of the lender / loan creditor was still subsisting, then AO should have made enquiries from the AO of the lender / loan creditor as held by Hon ble jurisdictional High Court in CIT vs DATAWARE (supra) which has not been done, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO's record. Accordingly all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials placed before him. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 of the Act. Therefore, we do not want to interfere in the impugned order of Ld. CIT(A) which is confirmed and consequently the appeal of Revenue is dismissed. 22. Since we have found the loan amount given to the assessee to the tune of ₹ 9 crores by M/s. Silver Cross Marketing Pvt. Ltd. as genuine, the interest expenditure booked by the assessee to the tune of ₹ 54,66,393/- is an allowable expenditure and we note that the interest received from assessee company on the loan has been offered by the lender [M/s. Silver Cross Marketing Pvt. Ltd]. in its return and offered to tax. There ..... X X X X Extracts X X X X X X X X Extracts X X X X
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