TMI Blog2019 (12) TMI 988X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to prove the identity of the creditor, genuineness of the transaction and creditworthiness of the creditor. The Managing Director who was drawing a sum of ₹ 60,000/- p.a. as salary had advanced only a sum of ₹ 10,000/- out of the sum of ₹ 4,10,000/-. He has also stated in his Affidavit dated 05.09.2007 about the adverse legal consequences under Section 58A of the Companies Act, 1956, as the direct cash deposits will tantamount to the acceptance of Deposits, in violation of Section 58A of the Companies Act. Therefore, the Managing Director, for obtaining the required unsecured loan, had chosen the route of taking cash loans from his own relative and friend and had given the same to the Assessee Company without attracting Section 58A of the Companies Act. About the non- mentioning of the said fact in his own return of income, the said Managing Director has explained that since he was not maintaining the Books of Accounts and nor he furnished any Balance Sheet, he was not bound to give any note for the same in his Return of Income, as there was no statutory requirement for disclosing the personal cash loan taken by Managing Director in the Return of Income, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Commissioner of Income Tax (Appeals) dated 22.07.2008 with respect to addition of ₹ 4,10,000/-(Rupees four lakhs only) under Section 68 of the Income Tax Act 1961 (for brevity the Act ) in the hands of the Assessee Company. 2. This Appeal was admitted by the Co-ordinate Bench of this Court, on 03.11.2009 on the following Substantial Questions of Law: 1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the sum of ₹ 4,10,000/- being loan from its Managing Director, is 'unexplained cash credit' assessable to tax as income of the appellate company under Section 68 of the Income Tax Act 1961? 2.Whether on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in not accepting the evidence by way of confirmatory letters and sworn affidavits of its Managing Director and his creditors and treating the sum of ₹ 4,10,000/- as unexplained and as the appellant company's income? 3.The learned counsel for the Assessee, Mr.Kumar submitted that unsecured loan given by the Managing Director of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present Appeal filed by Assessee. 5. We have heard the learned counsels at length and perused the materials placed on record. 6.The findings of three authorites below are quoted below for ready reference: 7. From the Order dated 30.11.2007 of Assistant Commissioner of Income Tax, Company Circle-I, Tiruchirapalli. 7.0: Un-explained cash credit u/s 68 of the IT Act, 1961: 7.1: The MD of the company Mr. Balasubramanian has advanced an unsecured loan of ₹ 4,10,000/-, during the previous year relevant to the Assessment year 2005- 06. During the course of assessment proceedings it was stated that the MD Of the company has obtained loan from Mr. M. Rajagopalan (₹ 3,00,000) and Mr. S. Dhanam (₹ 1,00,000) and same was given to the company. To this affect the MD of the Company has given an affidavit dated 05.09.2007 and in that affidavit he stated that he has Introduced ₹ 4 lakhs as unsecured loan in his personal capacity but not as a loan from the above two people, in order to avoid a legal consequences u/s 58 A of the Companies Act. In other words, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditor. 7.5: In this connection, let us see the facts of the case. The Managing Director of the company Shri. M. Balasubramanian has introduced ₹ 4,10,000 in the books of the company during the previous year relevant to the assessment year 2005- 06. He is assessed to Income tax vide PAN AJYPM3282B with Income Tax Officer, Range- III, Chennai. The only source of Income for him as per his return of Income filed for assessment year 2005-06 is salary of ₹ 60000, received from the assessee company i.e., M/s. Adhithiya gears P Ltd. The return of Income filed by the assessee did not mention anything about loan given by him to the company. 7.6: During the course of assessment proceedings the assessee was asked to Indicate the mode of the loan given by the Managing Director to the company and prove his credit worthiness. No evidence is produced to prove that the loan of ₹ 4,10,000 of has been routed through the banking channel . If it is genuine transaction the Managing Director must have produced the evidence of bank account from which the amount have been paid. Even the relevant entry in the bank statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D. It is the creation of the assessee that the MD has obtained loan from the above two people and same has been introduced in the books of the company. 7.8: It Is very clear from the above discussion that the assessee has failed to prove the creditworthiness of the Managing Director and this is proved by the return income filed by the MD of the company where in no information is given about the loan taken by him from the above two persons and same was given to the company as a loan. Besides, all transactions are appears to be in cash as assessee failed to submit the bank details through which payments are received. The assessee has again has claimed that ₹ 10,000 has provided by the MD out of his personal savings, but failed to prove that how he has met his family expenses out or the salary of ₹ 60000 and ₹ 10000 out of salary income. 7.9: It is beyond doubt that the assessee has failed to prove the genuineness and creditworthiness of the creditor. Reliance is placed on the following case law and assess the unexplained cash credit in the hands of the company. Burden is on assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company. 5.1. During the appellate proceedings, it was argued by Shri K. Venkata Ramanan, Chartered Accountant that Shri N. Balasubramanian, Managing Director of the Company had given a loan of ₹ 4.10 lakh to the Appellant Company because the Appellant Company was prohibited u/s 58A of the Companies Act from accepting the deposit from the public. Therefore, the Managing Director had taken loan from other two persons in his individual capacity and then passed on the loan amount to the Appellant Company . Shri N. Balasubramanian did not maintain individual books of accounts and did not have adequate knowledge about the implication of these transactions. The identity of the creditor has been duly established . Therefore, addition made by the Assessing Officer may be deleted. 5.2. I have carefully gone through the speaking assessment order passed by the Assessing Officer on this issue and also the submissions made by the Authorized Representative of the Appellant Company. I am inclined to agree with the views of the Assessing Officer that the Appellant company has failed to prove the credit worthiness of the creditor and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worthiness of the transaction. In the facts and circumstances of this case, we find that the assessee has failed to prove the genuineness of the transaction when the entire transaction itself is doubtful as it is not through the banking channel and the route adopted by the assessee is not a convincing and normal practice in the ordinary course of business . Even otherwise, the loan could have been arranged by the Managing Director but in that case the creditors should have been the persons who have given the loan and not the Managing Director. In view of the above discussion, we find no error or illegality in the order of the lower authorities, qua this issue. The same are Upheld. 10 . A conjoint and combined reading of all the three orders of the Authorities below though on the face of it appear to be findings of facts and this Court may not be inclined to dispute the findings of facts in a casual manner, but if the findings of facts are perverse, it is not binding on the Court under Section 260 A of the Act, as this Court is not only concerned with the Substantial Questions of Law arising from the orders of the Tribunal, but if there are glaring defects in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from his own relative and friend and had given the same to the Assessee Company without attracting Section 58A of the Companies Act. About the non- mentioning of the said fact in his own return of income, the said Managing Director has explained that since he was not maintaining the Books of Accounts and nor he furnished any Balance Sheet, he was not bound to give any note for the same in his Return of Income, as there was no statutory requirement for disclosing the personal cash loan taken by Managing Director in the Return of Income, where only income earned during the year is required to be disclosed and not the loan taken during the year. In the absence of maintaining of the Books of accounts, there was no question of producing the Balance sheet with the Return of Income, which was a reasonable explanation and these explanations of the Managing Director at least required the consideration on the part of the Assessing Authority as the said Assessing Authority enjoyed the powers of a Civil Court but he has not undertaken the exercise of cross examination in respect of the Affidavits filed by the Managing Director and two other persons as aforesaid. Without undertaking this exerci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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