9911796707
TMI Blog2021 (3) TMI 717X X X X Extracts X X X X X X X X Extracts X X X X ..... oan and the genuineness of transaction of loan creditors remain unexplained. As the entire loan was disallowed, the interest on such loan was also disallowed by the AO". 3. "That the appellant craves for leave to add, delete and modify any of the grounds of appeal before or at the time of hearing." 2. From a perusal of the aforesaid grounds of appeal raised by the Revenue, it is discerned that the sole issue on which the Revenue is aggrieved is against the action of the Ld.CIT(A) in deleting the addition of Rs. 4,51,00,000/- which amount the assessee company has shown as unsecured loan. 3. Brief facts of the case as noted by the Assessing Officer are that during the course of assessment proceedings, he noted that the assessee company has taken unsecured loan from the following parties which according to him were shell companies: Name loan as at 31/03/2015(Rs.) Interest paid (Rs.) BHIKSU BARTER PVT LTD 3,00,000 1,726 DIVYA ELECTRONICS PVT.LTD. 1,35,00,000 9,20,959 PARITOSH ELECTRICALS PVT LTD 41,50,000 3,84,123 POTENTIAL ELECTRICALS & ELECTRONICS PVT. LTD. 40,00,000 4,65,205 RANBHUMI MARKETING PRIVATE LIMITED 20,00,000 1,44,247 SHRESTH BUILDERS PVT.LTD. Nil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o examine the surrounding circumstances to determine the nature of transaction. 6. Thereafter he discussed the case of McDowell & Co. Ltd. v. CIT [1985] 154 ITR 148 and Sumati Dayal v. CIT (1995) 214 ITR 801 (SC) and other case laws and he held as under: "4.11 Thus, it is clear from the discussion made above that the various companies from whom loan/advances was received during the financial year 2014-15 and the corresponding transactions made with them by the assessee company are lacking identity (As all the lender companies as mentioned above are not present on their addresses as per report of Inspector), Genuineness (as clear from the transaction being made from the identified paper/ bogus/ shell company which is neither doing any real business nor exist on the given address) and creditworthiness (as seen from the frequent debit and corresponding credit entries in the bank statement of all the layering companies with balance amount being negligible). It is also important to note here that while the GIC test (i.e. establishment of genuineness of transactions and the identity along with Creditworthiness of the parties with whom said transactions are made) is the most importan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined by the assessee. Further, as mentioned earlier, it can be seen from the analysis of balance sheet of these companies that there is a peculiar pattern of transaction in all the cases where the source as appearing on the liability side of the balance sheet is Security premium whereas on the asset side it is non-current investments or loans or advances. From the facts available on the records and the verification conducted by this office, it is early evident that these companies are shell companies who do not have any real existence. 4.13 Hence, on the basis of verification, analysis of balance sheet, PIL a/c. Return of income, bank statement and the statements recorded of various Entry Operator and the related persons earlier over the period of time it is evident that the amount received by the assessee company M/s RDB Insurance Service Broking Pvt. Ltd. from and through the companies controlled and managed by Entry Operator as discussed above are nothing but pre-arranged accommodation entries. On the basis of discussion made above, the amount of Rs. 4,51,00,000/- being received by the assessee company as unsecured loan/advances during F.Y. 2014-15 is considered to be unexpl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition by relying on the statements of Mr. Rajkumar Kothari and Mr. Vinay Kumar Dokania before the DDIT (Inv) in relation to some other assessee. The Ld.A.O did not offer any opportunity of cross examination the said persons to the assessee and thereby grossly violating the principles of natural justice. The Ld.AO has also not provided the copy of inspectors report which were relied for making the addition u/s 68 of the Act. Thus, the additions made without providing proper opportunity of being heard to the assessee is gross violation of natural justice and needs to be deleted. Further, the alleged entry operators whose statements has been relied by the AO have no locus standi as, the name of the assessee is nowhere mentioned in the statement of the so called entry operators. The statement of Shri Raj Kumar Kothari was recorded with respect to one "Banktesh Group" and not relating to the assessee. The assessee is nowhere related to the said group or any person related to the group. Therefore, the reliance placed by the AO on the statement recorded is itself incorrect. Further, the assessee submits that in the entire order the Ld.AO has made general allegations based on his own a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onor's ready reference: M/s. Bhiksu Barter Pvt Ltd. Vide its letter filed on 20.03.2015 submitted Copy of Income Tax Acknowledgement for the A.Y 2015-16, Copy of Audited Accounts for the F.Y 2014-15, Copy of Loan Confirmation and Copy of Bank Statement highlighting the loan transaction. M/s. Divya Electronics Pvt Ltd Vide its letter filed on 20.03.2015 submitted. Copy of Income Tax Acknowledgement for the A.Y 2015-16, Copy of Audited Accounts for the F.Y 2014-15, Copy of Loan Confirmation and Copy of Ban Statement highlighting the loan transaction. M/S. Paritosh Electricals Pvt Ltd vide its letter filed on 20.03.2015 submitted Copy of Income Tax Acknowledgement for the AY 2015-16, Copy of Audited Accounts for the F.Y 2014-15, Copy of Loan Confirmation and Copy of Bank Statement highlighting the loan transaction. M/s. Potential Electricals & Electronics Pvt Ltd. vide its letter filed on 20.03.2015 submitted Copy of Income Tax Acknowledgement for the A.Y 2015-16, Copy of Audited Accounts for the F.Y 2014-15, Copy of Loan Confirmation and Copy of Bank Statement highlighting the loan transaction. M/s. Ranbhumi Marketing Pvt Ltd. Vide its letter filed on 20.03.2015 submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of statements given by entry operators. The A.O having a biased intention added the entire amount to the income of the assessee. The Ld.A.O has grossly erred in performing his statutory duties and shifted the entire onus on the assessee. Further, the A.O in the assessment order has shown the extracts the Balance sheet of the order and concluded that all the companies are shell companies without analysing the Balance sheet properly. The A.O heavily relied on the statements of entry operators for concluding the lender companies to be shell/ paper company. The creditworthiness of lender companies is analysed as supra in the submission of the appellate company. From the chart it can be seen that all the above companies are having high turnover as well as sufficient amount of reserves & surplus. AH the companies are having turnover in crores and in no way be called as shell/ paper companies. Hence, creditworthiness of the above party is beyond doubt and as apparent from the above chart, no doubt can be raised as regards creditworthiness of the above lender companies. Therefore, relying in the discussion made in the preceding paras, the contention of the AO while making the addition do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they were available at the given address. All the loan applicants have filed its reply against the notice issued u/s 133(6) of the Act. The loan applicants have furnished copy of ITR Acknowledgement, Audited Accounts and they are registered with ROC having CIN. AH the data's of such companies are available with Income Tax Department and ROC. They are also assessed to Income Tax regularly. Therefore, the identity should not be under the scanner in the instant case, As regards to genuineness & creditworthiness, the loan was received through proper banking channels, the loan applicants had sufficient fund for the purpose of investment & the investments are reflected in their books of account, Bank A/c and Loan confirmation of the lenders confirms the transactions and all are regularly assessed to income tax. Hence, there should not be any doubt on the identity of the lender companies have made on reply against notice issued u/s 133(6) and has filed relevant documents before the A.O such as ITR Acknowledgement, Audited Accounts, Bank Statements, company master data as per ROC record etc. are good enough to establish the identity of the loan applicant. Further, the loan is reflecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee are from the genuine parties and for the purpose of the business of the assessee, the interest paid on the same can in no way be treated as bogus as alleged by the AO. The addition is consequential in nature to ground No- 1. Therefore, the disallowance made by the AO on account of interest payment made by the assessee is unjustified and needs to be deleted. As regards to addition on account of alleged Commission of Rs. 2,255/-, the AR has submitted that the Ground is directed against addition of Rs. 2,255/- to the total income on account of cash commission on loan paid by the assessee. The A.O made the addition on the presumption that assessee have paid commission @ 5 paise per Rs. 1,000 for arranging loan funds. As explained above that the loan received by the assessee are genuine. Therefore, the addition of commission made on presumption is wrong. The addition is consequential in nature to ground No- 1. Therefore, the addition made needs to be deleted. In this regards it is better to understand the section 68 of the act. The Section 68 under which the addition has been made by the Assessing Officer reads as under: "68 Where any sum is found credited in the book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 under section 68 by the Revenue Department shall remain confined to the transactions, which have taken place between the assessee and the creditor nor does the wording of section 68 indicate that section 68 does not authorize the Revenue Department to make inquiry into the source(s) of the credit and/or sub-creditor. The language employed by section 68 cannot be read to impose such limitations on the powers of the Assessing Officer. The logical conclusion, therefore, has to be, and we hold that an inquiry under section 68 need not necessarily be kept confined by the Assessing Officer within the transactions, which took place between the assessee and his creditor, but that the same may be extended to the transactions, which have taken place betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 knowledge of the assessee. " If a creditor has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the assessee to obtain such amount of money or part thereof from the creditor, by way of cheque in the form of loan and in such a case, if the creditor fails to satisfy as to how he had actually received the said amount and happened to keep the same in the bank, the said amount cannot be treated as income of the assessee from undisclosed source. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, as a corollary, could not have been and ought not to have been, under the law, treated as the income from the undisclosed sources of the assessee himself when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee. Viewed from this angle, we have no hesitation in holding that in the case at hand, the Assessing Officer had failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub- creditors from the assessee such evidence on record, the Assessing Officer could not have treated the said amounts as income derived by the appellant from undisclosed sources. The learned Tribunal seriously fell into error in treating the said amounts us income derived by the appellant from, undisclosed Fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... believed the existence of creditors and saddled the addition, which was overturned by Ld.CTT(A). However, the Tribunal reversed the decision of the Ld.CIT(A) and upheld the AO's decision, which action of Tribunal was challenged by the Hon'bie High Court, Calcutta in the case of Crystal Networks (P.) Ltd, v. Commissioner of Income- tax 353 ITR 171 wherein the Tribunal's decision was overturned and decision of Ld.CIT(A} upheld and the Hon'bie High Court has held that when the basic evidences are on record the mere failure of the creditor to appear cannot be 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 464, the Supreme Court has observed as follows: "The Income-tax Appellate Tribunal performs a judicial function under the Indian Income-tax Act: it is invested with authority to determine finally all questions of 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-te- hoLd.in this matter that the Tribunal has not adjudicated upon the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndings of fact recorded by both the authorities." As noted from the judicial precedents cited above, where any sum is found credited in the books of an assessee then there is a duty casted upon the assessee to explain the nature and source of credit found in his books. The nature of receipt towards loan is seen from the entries passed in the respective balance sheets of the companies as loan and investments. In respect of source of credit, the assessee has to prove the three necessary ingredients i.e., identity, genuineness of transactions and creditworthiness of loan applicants. For proving the identity, the assessee furnished the name, address, PAN of loan applicants together with the copies of balance sheets and Income Tax Returns. With regard to the creditworthiness of loan applicants, as 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 loan applicants, so creditworthiness is proved. Third ingredient is genuineness of the transactions, for which it is noted that the monies have been directly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y evidences produced / furnished by it in relation to the loans. The Assessing Officer did not bring on record any legal evidence or material on record to hold that the assessee's transactions relating to loans were bogus. The appellant had fully and truly discharged the burden. This proposition is supported by the judgement of the Patna High Court in the case of Additional CIT v. Bahri Brothers Pvt Ltd (1985)154 IT244 and the judgement of the Supreme Court of India in case of CIT v, Orissa Corporation Pvt Ltd. (1986) 159 TTR 78 (SC). Thus, the assessee having discharged the burden, it is the A. O which had to verify the genuineness of the transaction. It is submitted that the Assessing officer did not discharge the burden which had shifted on him and just mechanically adhered to disallow the loans claimed by the assessee without rebutting any of the submission of the assessee. The allegations of the Assessing Officer were all based on mere surmise, conjectures and suspicions. The Assessing Officer had allowed his vision to be colored by extraneous circumstances and events which had no bearing and role in deciding the genuineness or otherwise of the transactions of loans. In fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, I find that the Assessing Officer has not brought any material on record to controvert the fact duly established by the supporting evidences. In absence of any contrary fact, the mere reliance by the Assessing Officer on the report of Investigation Wing is not sufficient to establish the fact that the transaction is bogus. The finding of the Assessing Officer is based merely on the suspicion and surmises without any tangible material to show that the assessee has introduced his own unaccounted income in the loans. Therefore, in absence of any evidence, it cannot be held that the assessee has introduced his own unaccounted money by way of bogus loans. I find that the none of the replies as received by the A.O were found irregular or incoherent with the submissions of the assessee and all the adverse inference drawn are basically figment of his mind and are not backed by material on record or facts of the 'case. The inability of the A. O to verify the explanation offered by the assessee is not a valid ground to reject the explanation. Reliance in this regard is placed on the decision of the Hon'ble Madras High Court in the case of S Hastimai vs CIT reported i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for making such payments and accordingly, the criteria of their creditworthiness is proved. It is observed that the burden which lay on the appellant, in relation to s. 68 of the Act, has been duly discharged by it and nothing further remains to be proved by it on the issue. The A. O has not found any defect and/or deficiency in the source of funds explained by the loan applicants through their replies to the statutory notices issued u/s. 133(6) of the Act to them. It is also observed that every loan applicant in their respective replies to the statutory notices issued u/s. 133(6) of the Act, furnished copies of their income tax acknowledgments evidencing filing of income tax returns by each of them, copies of their audited accounts including Balance Sheets wherein such investments made by each of them in the subscription of loan issued by the appellant are duly reflected as also copies of their bank statements for the relevant period from which such loan monies were paid by them respectively. It is further observed that the net worth of the each of the loan applicants, as disclosed in their audited Balance Sheets, far exceeded the amount of investments made by them in the loan o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , vs. CIT [19597 37 ITR 271. In this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the loans, thereafter the onus shifted to A.O to disprove the documents furnished by assessee cannot be brushed aside by the A.O to draw adverse view cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the Assessing Officer, I hold that an addition cannot be sustained merely based on inferences drawn by circumstance. To sum up section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. In the facts of the present case, both the nature & source of the loans received was fully explained by the assessee. The assessee had-discharged its onus to prove the identity, creditworthiness and genuineness of the loans. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on A. O's record. Accordingly, all the three conditions as required u/s. 68 of the Act i.e., the identity, creditworthiness and genuineness ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IL 5,33,425/- 7 Vivek Barter Pvt Ltd. AAACV8952B 73,50,000/- 6,79,911/- 8 Vivek Tracom Pvt. Ltd. AAACV8670J 80,00,000/- 27,08,014/- 9 Rajshree Developer Enterprises Pvt Ltd. AABCR2000D 58,00,000/ 1,32,553/- Total 4,51,00,000/- 53,70,163/- 12. Despite the assessee filing all these documents from which it can be noted that the lender companies are regular income-tax assessee's, still the A.O had branded them as shell/paper companies on the strength of the statement of Shri Raj Kumar Kothari and Shri Bijay Kumar Dokania whose statements were recorded u/s 131 of the Act on 02.03.2016 and 28.05.2014 by the Investigation Wing u/s 131 of the Act in third party proceedings and of course behind the back of assessee. The Ld. AR of the assessee brought to our notice that from a perusal of the statement of Shri Vijay Kumar Dokania it can be noted that the A.O has reproduced only selected questions and answers i.e. questions and answers no.4,6 & 12 and from the answers given it would be clear that his companies are engaged in giving bogus shares/LTCG and also he earns from Tax Consultancy and so, in the statement he [Shri Vijay Kumar Dokania] didnot say any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e lender companies. According to the Ld. AR, neither the A.O gave the full statement of both these persons nor gave an opportunity to the assessee to cross-examine them (Shri Raj Kumar Kothari as well as Shri Bijay Kumar Dokania). So, according to Ld. AR, in any case their statement cannot be the basis for drawing adverse inference against the assessee as for that Ld. AR relied on the decision of the Hon'ble Supreme Court in Andaman Timber v. CCE (2015) 62 taxmann.com 3 (SC). 13. We note that the Ld. CIT(A) has taken note of the fact that all the nine lender companies are income-tax assessees, and the interest paid by the assessee on the loan taken by it are duly subjected to TDS and the lender companies have shown the said interest income on which they have paid tax. The Ld. CIT(A) has noted that all the nine lender companies are corporate entities which are incorporated by the ROC and according to him the existence and status of them can be seen by the A.O from the master data available in the public domain/website of ROC; And that these companies are still 'active' companies which are discernable from ROC website. According to Ld. CIT(A), all the lender companies PAN and the ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sheet, relevant bank statement etc. We note from a perusal of the balance sheet of the lending companies the following facts which are noted as under: Sl. Name Reserves & Surplus Turnover assessee as on 31.03.2015 Interest Paid 1 M/s.Bhiksu Barter Pvt. Ltd. 7,93,23,661 78,72,546 3,00,000 1,726/- 2 M/s. Divya Electronics Pvt. Ltd. 13,18,87,700 1,84,39,149 1,35,00,000/- 9,20,959/- 3 M/s. Paritosh Electricals Pvt Ltd. 11,91,92,856 1,93,05,986 41,50,000/- 3,84,123/- 4 M/s. Potential Electricals & Electronics Pvt Ltd. 10,49,86,852 1,64,73,594 40,00,000 4,65,205/- 5 M/s. Ranbhumi Marketing Pvt Ltd. 3,01,62,434 1,24,73,183 20,00,000/- 1,44,247/- 6 M/s. Shresth Builders Pvt Ltd. 28,68,59,333 3,61,44,953 NIL 5,33,425/- 7 Vivek Barter Pvt Ltd. 10,90,00,950 1,69,32,938 73,50,000/- 6,79,911/- 8 Vivek Tracom Pvt Ltd. 15,82,29,903 3,46,69,711 80,00,000/ 27,08,014/- 9 Rajshree Developer Enterprises Pvt Ltd. 10,58,86,318 1,38,12,003 58,00,000/- 1,32,553/ Total 4,51,00,000/- 53,70,163/- 15. Thus from a perusal of the above details, it can be seen that the lender companies have sufficient creditworthi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r reason best known to him; and so the selective questions and answers of the two persons with the legal infirmities discussed supra cannot be used against the assessee. Moreover the AO has not found any infirmity with the documents filed by the assessee to prove the loan transactions as discussed supra. So, other than the third party statements, which was not even examined by the AO and without providing the entire statements to assessee and the statement not tested on the touch-stone of cross-examination, cannot be the basis to draw adverse inference against the assessee. Therefore, no addition was warranted. To come to my aforesaid decision, I rely on the ratio of the decision of the Hon'ble Supreme Court in the case of CIT Vs. M/s. Odeon Builders Pvt. Ltd. in Review Petition (C) Diary No. 22394 of 2019 in Civil Appeal Nos.9604 & 9605 of 2018 dated 21.08.2019 wherein the Hon'ble Supreme court has held as under: "We have perused the review petition and find that the tax effect in this case is above Rs.l crore, that is, Rs. 6,59,27,298/-. Ordinarily, therefore, we would have recalled our order dated 17th September, 2018, since the order was passed only on the basis that the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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