TMI Blog2020 (12) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... mpugned additions u/s 68 69C of the Act. It is noted from the show cause that the AO only made a passing reference to statements of alleged entry operators who had admitted to providing accommodation entries through these loan creditors. AO without giving the copy of entry operators to the assessee, could not have relied upon the same for drawing any adverse inference against the assessee and made the additions. So, the additions made by Assessing Officer itself is bad in law. We having examined the contents of the statements, it is noted that none of them were neither recorded in the course of the search conducted upon the appellant nor by the AO on his own during re-assessment proceedings. Moreover it is noted that, in none of these statements did these persons name the assessee nor in the sworn statements had the so-called entry operators admitted of providing accommodation entries to the appellant or issuing cheques in lieu of cash received from the appellant. Such third party statements could not be said to constitute incriminating material found in the course of search upon the assessee . , we hold that the material referred to by the lower authorities for justify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the order of Ld.CIT(A)-21, Kolkata dated 08.11.2019 for AY 2011-12 to 2014-15, AY 2016-17 and AY 2017-18. Since issues involved were common, all the appeals were heard together. Both the parties also argued them together raising similar arguments on these issues. Accordingly, for the sake of brevity, we dispose all the appeals by this consolidated order. 2. In all these appeals the common issue involved is, the addition made on account of receipt of unsecured loans treating it to be in the nature of unexplained cash credit u/s 68 of the Income Tax Act, 1961 (in short, the Act) and disallowance of the interest paid on such loans under Section 69C of the Act. Briefly stated the facts of the present case are that, search u/s 132 was conducted against the Mani Group, on 22-06-2016. The ld. Counsel for the assessee Shri S. K. Tulsiyan brought to our notice that prior to the date of search, the income-tax assessments u/s 143(3) for AYs2011-12, 2012-13 2013-14 stood completed and was not pending before the Assessing Officer on the date of search on 22.06.2016 and therefore by operation of law these assessment years were unabated assessments on the date of search. Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qua the assessee qua these unabated assessments, no addition could have made, so he pleaded that the addition may be deleted. Per contra, the ld. CIT, DR relying on the order of the ld. CIT(A) submitted that, the ld. CIT(A) had pointed out the relevant incriminating material based on which the AO made the impugned additions and therefore he urged that this ground taken by the appellant deserves to be dismissed. 4. With regard to the merits of the additions made u/s 68 69C of the Act in AYs 2011-12 to 2014-15, 2016-17 2017-18, the ld. counsel submitted that before the lower authorities, the appellant had submitted the following documents to prove the identity, genuineness and creditworthiness of the unsecured loans taken. a. The PAN No. Addresses and MCA details of ALL the creditors in question ( for identity) b. The financial statements of all the unsecured loan creditors ( for creditworthiness) c. The Ledger copies in the Assessee s books of accounts evidencing the receipt and the repayment of the loans and interest ( for genuineness) d. Bank statement evidencing that payment has been made via banking channels ( for genuineness) e. Confirmation of L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A). In support of its case, the ld. AR relied on the decision rendered by in the case of its sister concern, M/s Mani Square Ltd., in which this Tribunal deleted similar additions made by the AO on account of unsecured loans interest paid thereon u/s 68 69C of the Act. Per contra, the ld. CIT, DR fully supported the order of the lower authorities. 6. Having heard both the parties and after giving thoughtful consideration to the facts of the case and upon examining the material on record, we first deem it fit to decide the preliminary issue as to whether there was any incriminating material found in the course of search at the premises of the assessee/ appellant based on which the AO could have made the additions/disallowances as made in the assessments of AYs 2011-12 to 2013-14 which remained unabated on the date of search. We note that, in the case of M/s Mani Square Ltd (supra) (sister concern of the assessee), this Tribunal has held that in the case of unabated assessments, no addition is permissible in the order u/s 153A unless it is based on any relevant tangible cogent incriminating material found during the course of search. The relevant extracts of the decision a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having regard to the provisions of the Act. However, in relation to unabated assessments (AYs), which were not pending on the date of search, there is a restriction on the powers of the AO. In case of unabated assessments, the AO can reassess the income only to the extent and with reference to any incriminating material which the Revenue has unearthed in the course of search. Merely because an assessee is subjected to search, he cannot be placed on a different pedestal or put in a more disadvantageous position than an assessee who is not subjected to search unless in the course of search some incriminating documents or evidence or information or material is gathered by the Investigating authorities so as to vest the AO with the necessary powers to make additions to the total income in relation to assessments which did not abate on account of search. Considering these aspects the Hon'ble Delhi High Court in the case of CIT vs Kabul Chawla reported in (2016) 380 ITR 573 (Del) held as under:- 37. On a conspectus of section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy disclosed or made known in the course of original assessment. 38. The present appeals concern AYs 2002-03, 2005-06 and 2006-07, on the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed. 14. We find that the Hon'ble Delhi High Court while adjudicating the appeal in the case of CIT vs Kabul Chawla (2016) 380 ITR 573 had taken judicial note of host of the earlier decisions in the cases of CIT vs Anil Kumar Bhatia reported in (2013) 352 ITR 493 (Del) ; CIT vs Chetan Das Lachman Das reported in (2012) 211 Taxman 61 (Del HC) ; Madugula Venu vs DIT reported in (2013) 215 Taxman 298 (Del HC) ; Canara Housing Development Co. vs DCIT reported in (2014) 49 taxmann.com 98 (Kar HC) ; Filatex India Ltd vs CIT reported in (2014) 229 Taxman 555 (Del HC) ; Jai Steel (India) vs ACIT reported in (2013) 219 Taxman 223 (Del HC) ; CIT vs Murli Agro Products Ltd reported in (2014) 49 taxmann.com 172 (Bom HC) ; CIT vs Continental Warehousing Corporation (Nhava Sheva) Ltd reported in (2015) 374 ITR 645 (Bom HC) and All Cargo Global Logistics Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, therefore, dismissed. 16. Considering the judicial precedents (supra) on the subject, particularly the decision of the the Hon'ble jurisdictional Calcutta High Court in the case of PCIT vs Salasar Stock Broking Ltd. (supra) which is binding upon this Tribunal as well as the Hon ble Apex Court decision, we hold that in the case of unabated assessments of an assessee, no addition is permissible in the order u/s 153A of the Act unless it is based on any tangible, cogent and relevant incriminating material found during the course of search qua the assessee and qua the AY. 7. Here, in the instant case, we note that the above legal position is not in dispute. The ld. CIT(A) has himself observed that for making addition in the proceedings u/s 153A of the Act for unabated assessments, there has to be some incriminating material found in relation thereto. The ld. CIT(A) has however pointed out certain materials, which in his opinion, constituted incriminating material to aid the additions made by the AO. Hence, the limited issue for our consideration is, whether the additions, which the AO made in the assessment orders, were based on or made with reference to any inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Income Tax Department. They have also observed that most of these companies are controlled by entry operators whose statement was recorded by the department and they have admitted to be working as an entry operator. 8. The ld. A.R thereafter drew our attention to the following Para 4.1.2 of the ld. CIT(A) wherein he has set out his reasoning based on which he held that the above referred material constituted incriminating material found in the course of search. The incriminating material can be in any form such as evidence in the nature of i) a document, content of any document, ii) an entry in the books of account, iii) an asset, iv) a statement given on oath, v) absence of any fact claimed earlier but coming to notice during search, vi) absence of books being found during search, or vii) absence of the office / business premises as claimed during returns filed or any other documents, etc. In short, any fact / evidence which could suggest that the documents/ transactions claimed or submitted in any earlier proceedings were not genuine, being only a device / make belief on non-existent facts or suppressed misrepresented facts, would constitute incriminating material. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t none of them were neither recorded in the course of the search conducted upon the appellant nor by the AO on his own during re-assessment proceedings. Moreover it is noted that, in none of these statements did these persons name the assessee nor in the sworn statements had the so-called entry operators admitted of providing accommodation entries to the appellant or issuing cheques in lieu of cash received from the appellant. For such reasons therefore, we hold that such third party statements could not be said to constitute incriminating material found in the course of search upon the assessee . 10. We find that these same third party statements were also referred to as incriminating material for justifying similar additions made u/s 68 69C in the case of assessee s sister concern, M/s Mani Square Ltd (supra). In the decided case, this Tribunal held that the third party statements referred by the AO to justify additions made u/s 68 69C of the Act did not constitute incriminating material unearthed in the course of search conducted upon the assessee, by observing as under: 31.Coming next to the additions made u/s 68 69C in the hands of the assessee and M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne such rule is that he shall not use any material against the assessee without giving him an opportunity to meet it. In short, the AO cannot assess keeping the assessee in dark as to the materials against him. And even after the material/statement is furnished to the assessee, and the assessee contest the veracity of the statement against him, then the AO is bound to give an opportunity to the assessee to test the veracity of the statement on the touch stone of cross examination and thereafter only the AO can rely on the statement or else he cannot be allowed to rely on the statement of the third party against the assessee. (Refer Hon ble Supreme Court decision in Andaman Timber Industries in Civil Appeal No. 4228 of 2006). In the circumstances we find merit in the Ld. AR s claim that the third party statements relied upon by the AO without even recording their statement and allowing the assessee to cross examine, cannot justify the additions u/s 68 69C and the statements cannot be said to be incriminating material or documents found and/or collected in the course of search conducted against the assessee and so, cannot be used against the assessee. 32. For the above finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d principles of law, that is, in absence of any incriminating material, making additions to the assessee's income already assessed u/s 143(3)/153A/ 143(1) of the Act for unabated years, is not only without jurisdiction but also erroneous. Therefore, addition made by AO under section 68 of the Act, to the tune of ₹ 50,00,000/- is not sustainable in law and may be deleted. 8. On the other hand, ld DR for the Revenue, furnished before the Bench, a copy of written submissions and paper book. The written submissions of ld DR is reproduced below: 1.The assessee is a limited company engaged in textile business. It is one of the group companies of Banktesh Group. 2.A search and seizure operation was conducted in the case of Banktesh Group on 29/05/2012 and the assessee company was covered in the search warrant. 3.Thereafter again on 02/03/2016 a search and seizure operation was conducted in the case of Banktesh Group and the assessee company's name was covered in the search warrant. 4.Pursuant to the search operation a notice u/s 153A of the Act was issued to the assessee for A.Y. 2010-11 and in response the assessee filed the Return of Income on 10/1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to question no.8, Please state the name of companies managed / operated by you and also state who are the directors in these companies : Ans: as far as my knowledge is concerned, I am having control of few companies, such as West Well Tie up Pvt. Ltd, Well Plan Tie up Pvt. Ltd, Malinath Tradecon Pvt. Ltd, And also names Shantanu Bose (DIN 01116428), Dinesh Kumar Patwari (DIN 00511386), Loknath Sen (DIN 01363525). 9. We have heard both the parties and perused the material available on record, we note that the original return of income under section 139 (1) of the Act was submitted by the assessee company on 12.10.2010. The said Return of income of the assessee was processed under section 143(1) of the Income Tax Act, 1961, on 14.04.2011. Before us, the assessee is in appeal for assessment year 2010-11, which was completed on 14.04.2011. We note that after completion of original assessment dated 14.04.2011, for A.Y.2010- 11, a search and seizure operation was conducted in the case of Banktesh Group on 29.05.2012 (first search) and the assessee company was covered in the search warrant, therefore, A.Y.2010-11 is an unabated assessment. Consequent upon the said se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h upon the assessee andtherefore deleted the additions made u/s 68 of the Act by the AO. The relevant findings of the Tribunal are as follows: 8. We have heard the rival submissions. We find it would be necessary to address the preliminary issue of whether the addition could be framed u/s 153A of the Act in respect of a concluded proceeding without the existence of any incriminating materials found in the course of search. At the outset, it is evident from the categorical findings of the ld CITA that there is absolutely no incriminating materials found during the course of search regarding the share capital and share premium received by the assessee company during the year under appeal except the fact that the modus operandi of raising of such capital was discovered in the search action. We find that the ld CITA was only harping on the admission made by certain parties at the time of search without corroborating the same with material evidences found during the course of search. In this regard, the instructions issued by the Central Board of Direct Taxes (CBDT in short) in F.No.286/2/2003-IT(Inv) dated 10.3.2003 would be relevant to be looked into wherein it is mentioned that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20,13,463 + 25,76,219] made u/s 68 69C of the Act both in the case of IQCIPL and the appellant did not constitute incriminating material unearthed in the course of search conducted upon the appellant and in that view of the matter the aforesaid additions made by the AO were unsustainable in law and on facts. 11. For aforesaid reasons cited in assessee s sister concern by us, also applies mutatis-mutatis in assessee s case, so we hold that such third party statements could not be said to constitute incriminating material found in the course of search upon the assessee . Coming to the next incriminating material as per Ld CIT(A), we note that the ld. CIT(A) has referred to the post search investigation conducted by the Investigating authorities and their appraisal report, which according to him also constituted incriminating material to aid the impugned addition. The ld. CIT(A) observed that in the said reports it was stated that the Inspector deputed to verify the existence of the loan creditors did not find most of them. The ld. counsel of the appellant however pointed out that the ld. CIT(A) never brought on record the said appraisal report and wondered as to how he can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bringing it on record or without furnishing the relevant extracts, cannot be countenanced. The ld. CIT(A) took note of the inspector report mentioned in the appraisal report that number of lenders could not be found in the address, so he drew adverse inference against the lenders, which action of Ld CIT(A) cannot be accepted for the following reason;- 1) If the ld. CIT(A) had suspected the genuinity of any lender based on the Inspector s report (mentioned in Appraisal report) then he should have in all fairness confronted the assessee and should have found out the truth. 2) It is not that lenders or any person cannot change their address . And just because a person changes the address, does not mean that his/ its identity is lost. In such a case, it is a reason to suspect and can be the starting point of investigation, which the ld. CIT(A) who enjoys co-terminus power as that of Assessing Officer could have exercised, which he did not bother to do. So, the appraisal report cannot be termed as incriminating material qua the assessee. For the reasons aforesaid, and taking note that the AO never utilized the same as incriminating material for the purpose of making additions u/s 68 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the regular books of the assessee and therefore by no stretch of imagination the entries in the regular books of accounts, which was truly and fully disclosed at the time of original assessment as well, can be construed to be incriminating material unearthed in the course of search in nature. It was brought to our attention that complete details of the unsecured loans were disclosed in the tax audit report furnished along with the return of income and the scrutiny assessments for AYs 2011-12 to 2013-14 were also completed u/s 143(3) of the Act in which no adverse inference was drawn by the AO in relation to these loans. The facts on record thus demonstrate that the Revenue was aware of the unsecured loans raised by the appellant in the course of original assessment and all material facts in relation thereto were available on record prior to the search. The subsequent enquiries u/s 131 of the Act conducted by the AO in the course of assessment proceedings u/s 153A of the Act could not be said to be incriminating material found in the course of search upon the assessee . Moreover in Paras 16 to 22 (infra), we have discussed and held that the non-service of summons was not a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Ltd 75,00,000 10,27,377 9 Sreedev Computers Pvt Ltd - 2,03,780 10 Tista Nirman Pvt Ltd 98,50,000 21,17,205 11 Nishu Leasing Finance Ltd 1,75,00,000 18,49,560 12 Pragya Commodities Pvt Ltd 20,77,490 62,39,572 13 Samrat Finvestors Pvt Ltd 2,00,00,000 35,48,644 14 Vicky Fincon Pvt Ltd 1,00,00,000 26,88,748 15 Sharma Hire Purchase Ltd - 1,33,115 TOTAL 14,96,27,490 3,26,18,673 16. From the material on record, it is noted that the appellant had furnished name, complete address, PAN details, account confirmation, audited financial statements and MCA details of all the lenders. All the loans were transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuineness of the transaction should be proved by an assessee only by producing concerned creditors for personal examination by the AO. In the facts of the instant case, the appellant had furnished the requisite documentary evidences; to substantiate their identity creditworthiness and genuineness of transactions. Having received these documents the AO was not able to point out as to which other documentary proof was required or expected by him and which had not been submitted by the appellant. In the transactions under enquiry the appellant had debtor-creditor relationship with the parties and the appellant was a debtor. It is common knowledge that relationship between the debtor and creditor, the debtor always operates from the position of weakness. The loan creditor because of his superior financial strength and status dictates the terms of transaction. Moreover once the loan along with interest is re-paid, the borrower is not expected to maintain continued relationship with the loan creditor. In the circumstances it is not logical to expect the borrower to enforce compliance with the summons issued by the Department by the lenders or be informed about the whereabouts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich 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 Incometax 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 section 68 to show that the scope of the inquiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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, which have taken place between the assessee and the creditor, and it is not the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, NemichandNahata 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 Officer to prove the contrary. On mere failure on the part of the creditors to show that their sub-creditors had creditworthiness to advance the said loan amounts to the assessee, such failure, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. Commissioner of Income-tax (353 ITR 171), on the issue of unexplained cash credits, held that when the basic evidences are on record the mere failure of the creditor to appear cannotbe basis to make addition. The Court held as follows: 8. Assailing the said judgment of the learned Tribunal learned counsel for the appellant submits that Income-tax Officer did not consider the material evidence showing the creditworthiness and also other documents, viz., confirmatory statements of the persons, of having advanced cash amount as against the supply of bidis. These evidence were duly considered by the Commissioner of Income-tax (Appeals). Therefore, the failure of the person to turn up pursuant to the summons issued to any witness is immaterial when the material documents made available, should have been accepted and indeed in subsequent year the same explanation was accepted by the Income-tax Officer. He further contended that when the Tribunal has relied on the entire judgment of the Commissioner of Incometax (Appeals), therefore, it was not proper to take up some portion of the judgment of the Commissioner of Income-tax (Appeals) and to ignore the other portion of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact. 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. 11. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. It is also ruled in the said judgment at page 465 that if the Tribunal does not discharge the duty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest infirmity. 12. Taking inspiration from the Supreme Court observations we are constrained to hold in this matter that the Tribunal has not adjudicated upon the case of the assessee in the light of the evidence as found by the Commissioner of Income-tax (Appeals). We also found no single word has been spared to up set the fact finding of the Commissioner of Income-tax (Appeals) 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 ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the disallowance of ₹ 3,10,478/-, which was made with respect to interest and when the same has been confirmed by the ITAT, it cannot be said that ITAT has committed any error and/or illegality, which calls for the interference of this Court. In paragraph 11, ITAT has observed and held as under: We have heard the rival submissions and perused the material on record. It is an undisputed fact that during the year the assessee had received loan from 17 parties aggregating to 33,35,011/-. The details of which are listed at page 2 of Assessing Officer order. CIT(A) while deleting the addition has given a finding that the assessee had filed before Assessing Officer the confirmations with name, address, PAN Number, copy of ledger account, copy of balance sheet and profit and loss account, copy of Income Tax returns and computation of total income in respect of all the parties except two depositors. With respect to the two depositors, the assessee had filed confirmation, address and PAN Numbers and hence the assessee had also discharged the initial onus cast upon the assessee with respect to the two creditors. He has further noted that the loans were received through ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. The Hon ble High Court held that only on the ground that some of the creditors could not be served with notice u/s 131 or they failed to appear before Assessing Officer the loans could not be treated as non-genuine and therefore upheld the order of the Tribunal deleting the addition u/s 68 of the Act.The relevant findings of the Hon ble High Court are as follows: 7. We have considered the rival submissions and have also gone through the order passed by the Assessing Officer, the relevant portion of which we have also extracted in para. 2 above. The Commissioner of Income-tax (Appeals) more or less confirmed the addition on the reasoning given by the Assessing Officer in the assessment order. A perusal of the chart given by us in para. 3 above indicates that out of 21 creditors the Assessing Officer has recorded the statements of only six creditors, viz., creditors at serial Nos. 1, 2, 3, 4, 6, and 7. However, in respect of all the 21 creditors the assessee has furnished their complete addresses along with GIR numbers/permanent account numbers as well as confirmations along with the copies of assessment orders passed in the cases of creditors at serial Nos. 1, 2, 4, 5, 6, 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iples laid down by the Supreme Court in the case of Orissa Corporation [1986] 159 ITR 78. In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue's case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw an adverse inference against the assessee. In the case of six creditors who appeared before the Assessing Officer and whose statements were recorded 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. 8. Further, we may point out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. We further rely on the decision of the Hon ble Delhi High Court in the case of CIT Vs Shiv Dhooti Pearls Investment Ltd (64 taxmann.com 329). In the decided case the assessee had received unsecured loans in the year in question. In the course of assessment, the AO requisitioned the details of the loans received by the assessee. From the details furnished by the assessee, it was observed that few loan creditors had returned loss and their source of advancing loans were other bodies corporate who had also returned miniscule taxable income in their income-tax returns. The AO therefore doubted the creditworthiness of the lenders. The AO accordingly made addition u/s 68 of the Act. On appeal the Hon ble High Court held that the onus of the assessee is 'to the extent of his proving the source through which he has received the cash credit.' The Hon ble High Court held that the AO has ample 'freedom' to make inquiry 'not only into the source of the creditor, but also of its sub-creditors; but the assessee has indeed discharged its onus of proving the creditworthiness and genuineness of the lender by furnishing the documents details which it was required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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, which have taken place between the Assessee and the creditor, and it is not the business of the Assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub-creditors, for, these aspects may not be within the special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o have analyzed the material rather than be burdened by the fact that some of the creditors had chosen not to make a personal appearance before the A.O. If the A.O. had any doubt about the material placed on record, which was largely bank statements of the creditors and their income tax returns, it could gather the necessary information from the sources to which the said information was attributable to. No such exercise had been conducted by the A.O. In any event what both the A.O. and the ITAT lost track of was that it was dealing with the assessment of the company, i.e., the recipient of the loan and not that of its directors and shareholders or that of the sub-creditors. If it had any doubts with regard to their credit worthiness, the revenue could always bring it to tax in the hands of the creditors and/or sub-creditors. [See CIT v. Divine Leasing Finance Ltd. (2008) 299 ITR 268 (Delhi) and CIT v. Lovely Exports (P.) Ltd. (2008) 216 CTR 195 (SC)]. 15. In view of the legal position explained in the above decisions, the Court holds that as far as the present case is concerned, the Assessee has indeed discharged its onus of proving the creditworthiness and genuineness ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loan transactions being same, we do not see any reason to take contrary view. Therefore, the addition of ₹ 9,02,00,000/- made under Section 68 of the Act in respect of these loan creditors is hereby deleted. Consequent to our said finding, we also direct the AO to delete the disallowance u/s 69C of the Act amounting to ₹ 1,58,38,049/- and ₹ 2,03,780/- (Total ₹ 1,60,41,829/-) being interest paid by the appellant on these loans. 28. As regards remaining additions u/s 68 and 69C of the Act, sum of ₹ 8,69,27,490/- in relation to principal loan amount received from remaining six parties and interest of ₹ 1,65,76,844/- paid to them as also the above mentioned nine parties from whom loans were received in earlier years as well, it is noted that, the appellant had furnished before the AO the requisite documentary evidences substantiating the identity and creditworthiness of the loan creditors and genuineness of the transactions. Rejecting the explanations of the appellant, the ld. CIT(A) sought to justify the additions made u/s 68 69C by principally relying on the statements of alleged entry operators, Shri Pankaj Agarwal, Shri Ramesh Poddar, S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areholders or directors of the loan creditor companies. We also note that although the AO had heavily relied upon the statements of the entry operators, the AO had neither personally nor independently examined even a single entry operator in the capacity as the Assessing Officer to verify the correctness of the facts or to dig or probe and unearth the link if any with the appellant. Instead the unfortunate part is that the AO blindly relied on the bald statements of these operators recorded by someone else and in the process failed to bring out any link to connect them with the appellant. If the AO wanted to use the statements of the so-called entry operators, then the AO during the assessment proceedings ought to have summoned these entry operators and examined them thoroughly and should have unearthed the links, materials or relevant evidences, if any, against the appellant and if he intended to use any material adversely against the assessee, then in all fairness, the Assessing Officer should have called the appellant and confronted him with any materials or statement which he discovers and which material he wishes to rely against the assessee and after giving an opportunity to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hu Leasing Finance Ltd was controlled by him. We further note that in his answer to Q No. 15 though he identified the group to whom he provided accommodation entries but the parties identified by him was neither Shri Sanjay Jhunjhunwala or the appellant company. We find that the contents of the statement did not contain any material whatsoever on the basis of which any prudent person instructed in law would have reached the conclusion that the loans received by the appellant from M/s Nishu Leasing Finance Ltd had any connection with Shri Anuj Bhukediwala. Moreover, when the AO himself never examined the so-called entry operator, he could not have relied on such statement. (II) The assessee received loans aggregating to ₹ 10,00,50,000/- from M/s Damodar Niketan Pvt Ltd, M/s Lavanya Nirman Pvt. Ltd., M/s Kasturi Home Pvt. Ltd., M/s Himadri Enclave Pvt. Ltd., M/s Aradhana Plaza Pvt Ltd, M/s Jamuna Enclave Pvt Ltd, M/s Marigold Nirman Pvt Ltd, M/s Shital Plaza Pvt Ltd, M/s Sreedev Computers Pvt Ltd and M/s Tista Nirman Pvt. Ltd. According to AO all these loan creditors were allegedly controlled by Shri Pankaj Agarwal whose statement was recorded u/s 131 of the Act on 03-02 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 131 of the Act on 12-06-2014 at P-136, Bangur Avenue, 3rd Floor, Kolkata 700 055. It is noted that even this statement was not recorded in pursuance of any proceedings against the appellant/assessee in connection with search u/s 132 conducted upon the appellant on 22-06-2016. On combined reading of the past director details and the contents of the statement, it is noted that Shri Ramesh Poddar was neither a Director nor shareholder of M/s Vicky Fincon Pvt Ltd during FY 2012-13 in which it had advanced loan to the appellant. Moreover even the two persons named by Shri Ramesh Poddar, who were allegedly acting under his directions and control, were not the Directors of the loan creditor. In his entire statement, Shri Ramesh Poddar neither named the loan creditor nor suggested that the loan creditor was controlled by him. He has also not admitted to be providing accommodation entries to either Shri Sanjay Jhunjhunwala or Mani Square Hospitality Pvt. Limited. We are of the opinion that the statement of Shri Ramesh Poddar at best could have raised suspicion in the mind of the AO and it would have been the starting point of an enquiry to dig out facts which could have unraveled any w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he loan creditors to advance loans to the appellant on the ground the financial positions revealed by the audited accounts of the respective loan creditors did not prove their capacity and ability to advance such loans. We however find that before rejecting the financial ability of the loan creditors, the AO did not carry out the objective analysis of the financial strength and net worth of the loan creditors from their audited accounts. On scrutiny of audited accounts of each loan creditor, it is noted that each loan creditor had substantial resources of its own to advance loans to the appellant. The comparative financial position of each loan creditor and the loans advanced by them are noted as under: Sl No. Name of Loan Creditor Gross Investible Funds Amount of Loan Advanced 1 Aradhana Plaza Pvt Ltd 13,98,93,705 75,00,000 2 Shital Plaza Pvt Ltd 16,30,01,400 26,00,000 3 Himadri Enclave Pvt Ltd 16,20,11,412 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the case therefore, we do not find merit in the conclusion of the lower authorities that the loan creditors did not have financial credentials to advance loans and on that ground justify the addition u/s 68 69C of the Act. 33. As far as the decisions cited by the Ld. CIT(A) in his impugned appellate order for upholding the additions made u/s 68 69C of the Act are concerned, we have examined the facts involved in each of these judgments and found them to be materially different from the facts involved in the present case, for the following reasons: (A) As far as the decision of Hon ble Calcutta High Court in the case of CIT Vs Precision Finance Pvt Ltd reported in 208 ITR 465 is concerned, it is noted that in this decided case, the income tax file numbers of the creditors provided by the assessee were either found to be non-existent or did not tally with the Department s records. It is on this fact that the Hon ble High Court held that the appellant was unable to prove the identity and creditworthiness of the creditors and therefore upheld the addition made u/s 68 of the Act. In the facts of the present case however it is neither the AO s case that the loan credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circle and therefore the Court held that it was unnatural for the shareholders who continued to have stake in the company did not cooperate with the Department and provide the requisite evidences as called for. In the present case however, as noted earlier, the relationship was that of the debtor-creditor and which had ceased to exist when the loans were fully repaid. We therefore do not find merit in the reliance placed by the Ld. CIT(A) on these decisions for upholding the addition. (E) In the judgments rendered in the case of CIT Vs Maithan International reported in 375 ITR 123 and CIT Vs Active Traders Pvt Ltd in 214 ITR 583 relied upon by ld. CIT(A) , the question before the High Court was the validity of jurisdiction exercised by the CIT u/s 263 of the Act, which has no bearing whatsoever to the issue involved in the facts of the present case. Similarly, the decision rendered in the case of Mimec (India) Pvt Ltd reported in 353 ITR 284 involved the issue of validity of reopening of assessment u/s 147 of the Act having no link with the facts and issue involved in the instant case. 34. In view of the above facts and the reasons discussed in the foregoing therefore, we ho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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