TMI Blog2019 (9) TMI 146X X X X Extracts X X X X X X X X Extracts X X X X ..... ee furnished the name, address, PAN of lender companies together with the copies of balance sheets and Income Tax Returns. With regard to the creditworthiness of share applicants, as we noted supra, these Companies are having capital in several crores of rupees and the investment made in the appellant company is only a small part of their capital. These transactions are also duly reflected in the balance sheets of the lenders, so creditworthiness is proved. It will be evident from the paper book that the appellant has even demonstrated the source of money deposited into their bank accounts which in turn has been used by them to lend it to the assessee firm 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 lending companies have confirmed about the loan in response to the notice u/s 133(6) of the Act and have also confirmed the payments which are duly corroborated with their respective bank statements and all the payments are by account payee cheques. Assessee had discharged its onus to prove the identity, credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. For that the Ld CIT(A) erred in partly ₹ 6,87,610/- confirming the addition of ₹ 22,25,276/- from out of the loan of ₹ 1,20,00,000/- taken from Mukherjee Capital Pvt Ltd., on surmises and conjectures, when all the evidences were filed, identity, creditworthiness and genuinity of transaction including the source of loan advanced by the sister concern was admittedly proved and the onus to prove the cash credit was duly discharged by the assessee. 5. For that the Ld CIT(A) erred in confirming part of the additions on presumptions when the capital and reserves were all old duly accepted in the respective assessment of the shareholders and thereafter routed through different investments and Fixed deposits kept for considerable long periods and when required by the assessee being sister concerns given as interest bearing loans. 6. For that the Ld. CIT(A) though impliedly accepted the submissions of the assessee that take provisions of section 2(22)(e) were not applicable, should have given a finding that section 2(22)(e ) was not applicable. 3. The first five grounds of appeal of the assessee are against the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irector (Shri Ashok Bajpaie) was not aware of the payment of loan to assessee and the AO concluded that the undisclosed money of the assessee firm was routed through the four lender companies in which the partners of assessee firm were directors in those companies. Thereafter, the AO observed that the lender companies were not in the business of money lending or NBFC. However, the AO acknowledged the fact that their (lender companies) only source of income is interest and after perusing the Balance Sheet of the lender companies it was observed by the AO that huge amount of loans have been given to different parties and the assessee firm is one of the parties and he concluded that these loan companies are merely entry providers and that the unaccounted money of the assessee firm was routed through the four lender companies in the guise of loan and thus he made an addition of ₹ 11.85 cr. as bogus cash credit and added to the income of the assessee. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to give partial relief to the assessee to the tune of ₹ 5,26,50,251/- out of the total addition on this issue to the tune of ₹ 11,85,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment can be noted from page 61 of the paper book and in respect of M/s. DCPL it can be noted from page 73 of the paper book. The Ld. AR drew our attention to the explanation given by the assessee before the Ld. CIT(A) regarding the source of cash credit which is noted from pages 22 to 25 of the order of Ld. CIT(A) which reads as under: 8. Even though the assessee had filed the aforesaid details the Ld. CIT(A) has given only part relief by holding as under: (i) In respect of M/s. DCPL , the Ld. CIT(A) has held as under: From the discussion made it can be said that the assessee has failed to prove the creditworthiness of the loan given and the genuineness of the transactions. In view of the above, the amount of loan given to the appellant company by M/s. Diamond Trading Pvt. Ltd., which were sourced from unexplained share capital and share premium received by M/s Diamond Carbon Pvt. Ltd. is held to be unexplained. Hence, out of total loan of ₹ 1,10,00,000/- received by the appellant from M/s Diamond Carbon Pvt. Ltd., an amount of ₹ 21,00,101/- is from the business reserves of the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Wimper Trading and Distributors Pvt. Ltd. As stated in the earlier paragraphs, the share capital of Wimper Trading and Distributors Pvt. Ltd. were held to be dubious, tainted and unexplained in nature and constitute the unaccounted money of the appellant which were routed through various name lenders. Further, during the course of the appeal proceedings, the appellant could not give the source of the funds introduced by Mr. Kallol Mukherjee and Ms Kalpana Mukherjee. Hence, the entire share capital and share premium raised by M/s Mukherjee Farms Pvt. Ltd. is held to be unexplained and dubious. In view of my arguments given in earlier paragraphs in respect of other loan giving entities, it is held that out of the total loan of ₹ 7,05,00,000/-, loans to the extent of ₹ 3,03,83,863/- is deemed to be explained as they are considered to be out of the accumulated reserves generated from the business operations of M/s. Mukherjee Firms Pvt. Ltd .. It was also submitted by the appellant that the appellant was having an opening balance of ₹ 60,00,000/- in respect of M/s Mukherjee Farms Pvt. Ltd. This amount of ₹ 60,09,000/- was paid to Ms M/s Mukherj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 22,25,276/- is not allowed and appeal to the extent of ₹ 97,94,724/- is allowed in respect of the loan of Rs.l,20,00,000/- received by the appellant from M/s Mukherjee Capital Pvt. Ltd. 9. In order to substantiate the identity, creditworthiness and genuineness of the transaction in respect of M/s. DCPL the Ld. AR brought to our attention that for AY 2014- 15, the said company was assessed u/s. 143(3) of the Act vide order dated 30.12.2016. We note that the assessee had filed the following documents to prove the identity, creditworthiness and genuineness of the transaction: Sl. No. Particulars Page Nos. 1. Datewise summary of the loans received from M/s. Mukherjee Farms Pvt Ltd along with source thereof 1 2. Copy of Audited accounts of M/s. Mukherjee farms Pvt Ltd for 31.3.2012 which is signed by the directors who are also partners of the assessee firm. 2-11 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. Date wise summary of the loans received from M/s. Diamond Carbon Pvt Ltd along with source thereof 73 14. Copy of Audited accounts of M/s. Diamond Carbon Pvt Ltd for 31.3.2012 which is signed by the directors who are also partners of the assessee firm. 74-82 15. Copy of the bank statement showing the amount given by way of loan along with the confirmation letters 83-85 16. Copy of assessment order of M/s. Diamond Carbon Pvt. Ltd. 86-89 17. Copy of Audited accounts of the assessee for 31.03.2012 which is signed by the directors who are also partners of the assessee firm. 90-110 10. We note that all the four lender companies have filed their copy of audited accounts, bank statement showing the amount given by way of loan, confirmation letters. Moreover, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mond Carbon Pvt. Ltd. the creditworthiness can be noted from its capital and reserve to the tune of ₹ 3,45,91,190/- (page 78 of paper book) and it had lent only ₹ 1,10,00,000/- and the source can be found from the investment made in the FD and bank balances is ₹ 72,20,673/- and ₹ 4,38,135/- page 81 of paper book. It was brought to our notice that the loan amount was required by the assessee which was made available by the sister concern since the investments were needed by the assessee for putting up the factory building and other assets. The total investment in the factory building and other fixed asset was to the tune of ₹ 11,04,13,530/- (page 108 of paper book); apart from advances for work-in-progress amounting to ₹ 1,46,85,278/- (page 109 of paper book). In the light of the aforesaid documents and the fact that the AO has accepted the interest outgoing to these four lender companies and the fact that the Ld. CIT(A) has accepted a part of the loan amount given by all the four lender companies, we are of the view that assessee s claim should be accepted and there was no necessity for addition u/s. 68 of the Act since the assessee has discharge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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:- While interpreting the meaning and scope of section 68, one has to bear in mind that normally, interpretation of a statute shall be general, in nature, subject only to such exceptions as may be logically permitted by the statute itself or by some other law connected therewith or relevant thereto. Keeping in view these fundamentals of interpretation of statutes, when we read carefully the provisions of section 68, we notice nothing in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, 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 the transactions between his creditor and sub-creditors nor is it the burden of the assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been. eventually, received by the assessee. It, therefore, further logically follows that the creditor's creditworthiness has to be Judged vis-a-vis the transactions, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 amounts by way of cheques was not in dispute. Once the assessee had established that he had received the said amounts from the creditors aforementioned by way of cheques, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter the burden had shifted to the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leged 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 materials disclosed by the assessee prompted the Assessing Officer to enquire through the Inspector to verify the statements. 16. In a case where the issue was whether the assessee availed cash credit as against future sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidence 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 Income-tax (Appeals) on facts having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this -fact finding. Indeed the Tribunal did not really touch the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OLKA 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 account payee cheque has been established. We find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r was unable to arrive at a finding that the particulars given by the assessee were false, there was no scope of adding those money under section 68 of the Income- tax Act and the Tribunal below rightly held that the onus was validly discharged. We, thus, find that both the authorities below, on consideration of the materials on record, rightly applied the correct law which are required to be applied in the facts of the present case and, thus, we do not find any reason to interfere with the concurrent findings of fact based on materials on record. The appeal is, thus, devoid of any substance and is dismissed summarily as it does not involve any substantial question of law. 19. From the details as aforesaid which emerges from the paper book filed before us as well as before the lower authorities, it is vivid that all the lender companies are (i) income tax assessee s, (ii) they are filing their return of income, (iii) confirmations available on record, (iv) the loan was made by account payee cheques, (v) the details of the bank accounts belonging to the lenders and their bank statements, (vi) in none of the transactions the AO fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and have also confirmed the payments which are duly corroborated with their respective bank statements and all the payments are by account payee cheques. 21. In this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the lender companies, thereafter the onus shifted to AO to disprove the documents furnished by assessee and it cannot be brushed aside by the AO to draw adverse view which action cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the Assessing Officer, we hold that an addition cannot be sustained merely based on inferences drawn by circumstance. Applying the propositions laid down in these case laws to the facts of this case, we are inclined to uphold the order of the Ld. Commissioner of Income Tax (Appeals) giving relief to the assessee to the tune of ₹ 5,26,50,251/-. However on the facts discussed supra we are of the view that Ld CIT(A) erred in confirming ₹ 6,58,49,749, so we are inclined to direct deletion of the ₹ 6,58,49,749/-. 22. To sum up section 68 of the Act provides that if any sum found credited in the ..... 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