TMI Blog2019 (9) TMI 756X X X X Extracts X X X X X X X X Extracts X X X X ..... uly established by the assessee in the instant case. Once the assessee has furnished the complete details about the loan creditors together with their latest addresses and affidavits from directors duly notarized and confirmation from them for the loans advanced to the assessee, the onus cast on the assessee u/s 68 had been duly discharged and no addition could be made in its hands merely because the lenders fail to appear before the AO or the assessee failing to produce them before the ld AO. We hold that no addition could be made on mere presumption that the assessee routed its own cash in the form of unsecured loans without any concrete evidence to this effect We find that the directors of the lending companies had filed affidavits confirming the loan transactions before the AO which had not been disputed. Once the averments made in an affidavit are not disputed or refuted, the same are to be construed as true and correct, as held by the Hon ble Supreme Court in the case of Mehta Parikh Co. vs CIT [ 1956 (5) TMI 4 - SUPREME COURT]. We hold that the ld CIT-A erred in confirming the addition made u/s 68 of the Act in the instant case. Gross revenue from operations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... project completion method. The assessee was asked to file workings of cost of project and the income offered from the projects year wise since inception of the project. The ld AO did not heed to the contentions of the assessee and proceeded to estimate the profit at ₹ 92,34,017/- for the year and made addition thereon in the assessment. This was upheld by the ld CITA. Aggrieved, the assessee is in appeal before us. 4. We have heard the rival submissions and perused the materials available on record including the paper book of the assessee. At the outset, we find from the audited financial statements of the assessee firm for the year ended 31.3.2012, the assessee had reflected as under:- Disclosure in Balance Sheet Under Other Current Assets (Schedule 8) 31.3.13 31.3.12 Shree Shankar Heights Project Work in Progress (WIP) ₹ 11,34,28,558/- ₹ 8,26,81,394/- Under Trade Payables (Schedule 4) 31.3.13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monies received from prospective flat buyers), then also the profit declared by the assessee was more. We find that the assessee had pleaded before the lower authorities that even if the working of profit is to be based on percentage of completion method as per AS -7 issued by ICAI, then the same fails the crucial tests laid down in AS 9 issued by ICAI on Revenue Recognition as there is neither any sale nor any transfer of risks and rewards in favour of the prospective flat buyers. Further, going by the method as per AS 7 of ICAI, the assessee had pleaded that it had offered more profit than actually taxable. 4.3. We find that the ld CITA had rejected the books of accounts of the assessee u/s 145(3) of the Act and upheld the action of the ld AO in estimation of profits. We find that the ld AR argued that it is open for an assessee to adopt project completion method or percentage of completion method and it is not open to the ld AO to thrust upon the assessee a specific method, unless it is shown that a different method reflects more accurate computation of income, which should be supported with facts and figures. It is not in dispute that the project was completed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eyes of law. Reliance in this regard has been rightly made by the ld AR on the decision of Hon ble Apex Court in the case of CIT vs Shoorji Vallabhdas Co reported in 46 ITR 144 (SC). 4.5. We find lot of force in the final argument made by the ld AR before us that the entire exercise is revenue neutral since the assessee has ultimately offered its entire profit on actual basis from the project to tax in the year of completion of project which is far higher than the originally estimated profit and that this profit has been accepted by the ld AO in the scrutiny assessment completed u/s 143(3) of the Act for the Asst Year 2014-15 and the workings of profit of assessee was also accepted by the ld AO. The addition made by the ld AO in Asst Year 2013-14 would only result in double taxation in Asst Year 2014-15 of the same income, which is not sustainable in the eyes of law. 4.6. In view of the aforesaid observations, we direct the ld AO to delete the addition made in the sum of ₹ 92,34,017/- towards estimation of profits for the residential project at Kamothe. Accordingly, the Grounds 2 to 5 raised by the assessee for the Asst Year 2013-14 are allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it from the directors of above loan creditors affirming that they are not engaged in providing accommodation entries and doing legal business with the assessee. The said affidavit also confirmed the fact of advancing loan to the assessee. The assessee also explained the main business activities of the aforesaid loan creditors individually and explained the immediate source of funds for them to advance loan to the assessee. The assessee also pleaded that all the aforesaid loan creditors had substantial creditworthiness and funds at their kitty to advance loans to the assessee and also pleaded that all the loan creditors are regular income tax assessee and had paid substantial amounts towards income tax. The submission of these details were acknowledged by the ld AO in his order. The ld AO did not heed to these contentions of the assessee and observed that the loan creditors are engaged in merely providing accommodation entries and do not have any net worth to advance loans to the assessee . The ld AO further observed that the loan transactions with aforesaid parties were not genuine and assessee did not produce the directors / promoters of the lending companies for recording stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.4. The ld CITA however confirmed the addition made by the ld AO by observing at page 31 and 32 of his order as under:- i) Loan creditors ostensibly provided total funds of ₹ 2.22 crores to assessee. ii) 133(6) verification notices returned back. iii) Old confirmations (predating query) filed on letter head of CA. iv) Assessee failed to produe parties before AO even though asked to. v) The parties are found to be part of accommodation entry scam. vi) Unsigned bank account copies, balance sheet etc downloaded from M.C.A. website and directors‟ affidavit submitted by assessee. vii) Financials of parties deep analysed by AO (para 5.4.2), All have negative net worth. Loans given to assessee prima facie sourced from borrowed‟ funds. They are not into loan financing. viii) All are diamond traders holding huge trade payables. ix) All parties incurring losses‟. x) Creditworthiness woefully unestablished. 5.5. Aggrieved, the assessee is in appeal before us. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - ₹ 1,72,610/- (TDS ₹ 17,261/-) Duke Business P Ltd - ₹ 3,55,900/- (TDS ₹ 35,590/-) Nakshatra Business P Ltd - ₹ 1,90,030/- (TDS ₹ 19,003/-) Pragati Gems P Ltd - ₹ 3,288/- (TDS Rs Nil) Sumukh Commercial P Ltd - ₹ 28,800/- (TDS ₹ 2,880/-) 6.2. It is not in dispute that the ld AO had allowed the aforesaid interest paid on loans as a deduction while completing the assessment. The ld AR also submitted that the assessing officers of the aforesaid parties had inturn duly assessed the interest income on loans given to the assessee and had also given credit for TDS in their respective assessments. The ld AR submitted that the assessee had given the latest address of the loan creditors before the ld AO. The ld AO had not issued any notices u/s 133(6) of the Act on the latest address. 6.3. It would be pertinent to understand the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed by the assessee in the instant case. 6.5. We hold that once the assessee has furnished the complete details about the loan creditors together with their latest addresses and affidavits from directors duly notarized and confirmation from them for the loans advanced to the assessee, the onus cast on the assessee u/s 68 of the Act had been duly discharged and no addition could be made in its hands merely because the lenders fail to appear before the ld AO or the assessee failing to produce them before the ld AO. Reliance in this regard is placed on the decision of Hon ble Jurisdictional High Court in the case of CIT vs Orchid Industries P Ltd reported in 397 ITR 136 (Bom). We hold that no addition could be made on mere presumption that the assessee routed its own cash in the form of unsecured loans without any concrete evidence to this effect. Reliance has been rightly placed on the decision of Hon ble Jurisdictional High Court in the case of PCIT vs Aquatic Remedies P Ltd in ITA No. 83 of 2016 affirming the tribunal decision in ITA No. 6356/Mum/2014. 6.6. We find that the directors of the lending companies had filed affidavits confirming the loan t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere not proved. (ii) Shri Chandan Singh - A confirmation letter of Shri Chandan Singh was filed along with the bank statement. The AO noticed that the bank account was opened with a cash deposit of ₹ 500/- and huge amounts of cash was deposited in this account before the cheques of ₹ 60, 00,000/- and ₹ 50, 00,000/- were issued. The AO concluded that since the source of cash was unverified and Shri Chandan Singh was also not produced, the identity, creditworthiness and genuineness of Shri Chandan Singh was not proved. (iii) Shri Harpreet Singh - No documents were filed by the Assessee to establish the identity, address etc. Even the PAN number or ID proof was not filed and he was also not even produced. (iv) Shri Om Prakash - No documents to establish the address, PAN number, source of deposit and ID proof, were filed. Neither was a confirmation letter filed nor was he produced. (v) Shri Shiv Tej - No documents to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee relied upon the letter of confirmation, the PAN card and Voter Identity Card to establish the identity and also submitted that the AO did not record the statement of Shri Om Prakash despite his appearance before the AO. Thus, the ITAT concluded that the matter deserved to be restored to the file of the AO. (v) In respect of Shri Ram Chander, the ITAT referred to the confirmation letter issued by him, Voter ID Card, the copy of bank statement and the cheque of ₹ 18.48 Lakhs, which was explained by him as having been received from his sister Vidya. Thus, the ITAT concluded that the identity, creditworthiness and genuineness was established and the addition of ₹ 10 lakhs in respect of Shri Ram Chander was deleted. (vi) In respect of Shri Chandan Singh, the ITAT referred to the copy of PAN Card, Voter ID Card and the bank statement, which was submitted by the Assessee. The ITAT held that the identity, genuineness and creditworthiness was established and the addition made to the tune of ₹ 1.10 Crores was deleted. (vii) In respect of Shri Amar Singh, the ITAT referred to the letter of confirmation and V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ements recorded by these four individuals, which are irreconcilable. For example, in the case of Shri Ram Chander/Ram Charan, he had initially stated that he had given ₹ 10,00,000/- out of the proceeds of sale of the land but thereafter it was claimed by him that the money had come from her sister Vidya. Such contradictions clearly render all these transactions dubious. The ITAT could not have, merely because the payments were through cheques, held that the transactions were genuine. The ITAT erred in simply accepting the explanation of the Assessee qua the four transactions. The ITAT, clearly, did not follow the binding precedent in Divine Leasing Finance Ltd. (supra), which in no uncertain terms requires that the authorities are duty bound to investigate the creditworthiness of the creditors, subscribers and the genuineness of the transactions. Thus the ITAT did not merely give findings of fact but misapplied the law. Hence the authorities CIT v. S. Nelliappan [1967] 66 ITR 722 (SC), Orissa Corpn. Pvt. Ltd. (supra), Gun Nidhi Dalmia (supra) do not support the Assessee's case. The Assessee has failed to discharge his initial burden as the explanation given by the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the form of receipt of unsecured loan from loan creditors. The nature of receipt towards unsecured loan is well established from the entries passed in the balance sheet of the assessee by crediting unsecured loan account. This is also cross-verifiable from the balance sheets of respective loan creditor companies, wherein they had reflected under Loans and Advances in the asset side of their balance sheet. Hence the nature of receipt is proved by the assessee beyond doubt. In respect of source of credit, the assessee has to prove the three necessary ingredients i.e identity of loan creditors, genuineness of transactions and creditworthiness of loan creditors. We have already held hereinabove that all the three necessary ingredients of section 68 of the Act had been duly proved by the assessee beyond doubt. 6.11. Undisputedly the loan creditors in this case are the bank account holders in their respective banks in their own name and are sole owner of the credits appearing in their bank account from where they issued cheques to the assessee. For the proposition that a Bank Account holder himself is the 'owner' of 'credits' appearing in his account (wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.12. We find that the Hon ble Calcutta High Court in the case of S.K. Bothra Sons, HUF v. Income-tax Officer, Ward- 46(3), Kolkata reported in 347 ITR 347(Cal) had 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.15. We also find that the Hon ble Jurisdictional High Court in the case of CIT vs Orchid Industries Pvt Ltd reported in 397 ITR 136 (Bom) had held as under:- 5. The Assessing Officer added ₹ 95 lakhs as income under Section 68 of the Income Tax Act only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account. 6. The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - ₹ 83,430/- (TDS ₹ 8,343/-) Athrva Business Pvt Ltd - ₹ 88,670/- (TDS ₹ 8,867/-) Out of the aforesaid parties, we find that the assessee had also borrowed loans in earlier year from Falak Trading P Ltd, Pragati Gems P Ltd which has already been held by us as genuine loan in Asst Year 2013-14 supra. 7.2. It is not in dispute that the ld AO had allowed the aforesaid interest paid on loans as a deduction while completing the assessment. The ld AR also submitted that the assessing officers of the aforesaid parties had inturn duly assessed the interest income on loans given to the assessee and had also given credit for TDS in their respective assessments. The ld AR submitted that the assessee had given the latest address of the loan creditors before the ld AO. The ld AO had not issued any notices u/s 133(6) of the Act on the latest address. 7.3. It would be pertinent to understand the following facts from the financial statements of the loan creditors for the year ended 31.3.2014, that their income from operations during the year ..... X X X X Extracts X X X X X X X X Extracts X X X X
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