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2019 (8) TMI 704

..... nature and source shall be assessed as its undisclosed income. In the facts of the present case, both the nature & source of the loan received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the lender / loan creditor. 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. 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 .....

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..... Cross Marketing Pvt. Ltd. (herein after referred to M/s. SCMPL) and the interest of ₹ 54,66,393/- has been credited by the assessee to them and the assessee has shown to have deducted tax at source (TDS) of ₹ 5,43,639/- on the interest expense. The AO acknowledges that the deposits or credits have been made through banking channel and from a company which according to him exists only on paper. In order to verify the creditworthiness of the loan creditors, a notice u/s 131 was issued to the Pr. Officer to M/s. SCMPL on 15.01.2015 which was served upon it. According to the AO, no one appeared before him on 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 disallo .....

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..... 2015 to produce the Pr. Officer of M/s. SCMPL it did not do so which clearly goes on to show that M/s. SCMPL exist only on paper and therefore, the AO rightly added the bogus loan u/s 68 and disallowed the interest expenditure because the assessee had introduced its own money as loan without paying tax and has rightly disallowed the interest expenditure claimed to have been paid by the assessee-company to M/s. SCMPL. Therefore, he wants us to reverse the order of the Ld. CIT(A) and uphold the order of the AO. 6. Per contra the ld. AR of the assessee supported the order 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 .....

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..... ed party disclosure shows the fact of loan of ₹ 9 crores advanced to the assessee-company. Our attention was also drawn to the fact that the loan creditor / M/s. SCMPL has a strong asset base. We note that it has investments in tangible assets are listed below: Particulars Amount(Rs.) 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 the tune of ₹ 42.63 crores which includes accumulated profits to the tune of ₹ 37.64 crores and it was pointed out that even in this relevant AY 2012-13, the creditor has returned an income of .....

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..... ssee 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 deeming the amount credited in the books as the income of the assessee as held by the Supreme Court in the case of CIT v. Smt. P. K. Noorjahan [1999] 237 ITR 570. We note that against the said decision of Hon'ble Gujarat High Court the special leave .....

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..... 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 be held to be accredited with any knowledge. In this view, the Hon'ble Court has laid down that section 68 of Income-tax Act, should be read along with section 106 of Evidence Act. The relevant observations at page 260 to 262, 264 and 265 of the report are reproduced herein below:- &quo .....

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..... sessing 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 well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of .....

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..... 8 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 find that so far as the appellant is concerned, he has established the identity of the creditors, namely, Nemichand Nahata and Sons (HUF) and Pawan Kumar Agarwalla. The appellant had also shown, in accordance with the burden, which rested on him under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors aforementioned. In fact the fact that the assessee had received the said am .....

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..... e 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 onus shifts upon the Assessing Officer and after verification, he can call for further explanation from the assessee and in the process, the onus may again shift from the Assessing Officer to assessee. 16. In the case before us, the appellant by producing the loan-confirmation-certificates signed by the creditors, disclosing their permanent account numbers and address and further indicating that the loan was taken by account payee cheques, no doubt, prima facie, discharged the initial burden and those .....

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..... bunal 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 pointed out by the learned counsel that the Commissioner of Income-tax (Appeals) has taken the trouble of examining of all other materials and documents, viz., confirmatory statements, invoices, challans and vouchers showing supply of bidis as against the advance. Therefore, the attendance of the witnesses pursuant to the summons issued, in our view, is not important. The important is to prove as to whether the said cash credit was received as against the future sale of the product of the assessee or not. When it was found by the Commissioner of Incometax (Appeals) on facts having examined the d .....

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..... n 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 assessee. After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness" of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness" of transaction through accoun .....

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..... 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, so no adverse view could have been drawn. Third ingredient is genuineness of the transactions, for which we note that the monies have been directly paid to the assessee company by account payee cheques out of sufficient bank balances available in their bank accounts on behalf of the loan creditor. It will be evident from the paper book that the lender / creditor has even demonstrated the source of money deposited into their bank accounts which in turn has been used by them to lend money to the assessee company as loan. Hence the source of source of source is proved by the assessee in the instant case though the same is not required to be done by the assessee as per law as it stood/ applicable in this assessment year. The lender / creditor have confirmed the loan given to assessee company in response to the notice u/s 133(6) of the A .....

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