TMI Blog2021 (3) TMI 717X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. As statement of these two persons cannot be used against the assessee. And when we remove these two statements with the legal infirmities discussed supra, there is no material at all against the assessee and the AO having failed to find any infirmity with the documents filed by the assessee/lenders to prove the loan transactions as discussed supra, no adverse view was legally tenable. - Decided against revenue. - I.T.A. No. 686/Kol/2019 - - - Dated:- 15-3-2021 - Shri J. Sudhakar Reddy, AM And Shri A. T. Varkey, JM For the Appellant : Shri Supriyo Paul, Addl. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nil 5,33,425 VIVEK BARTER PVT.LTD 73,50,000 6,79,911 VIVEK TRACOM PVT LTD 80,00,000 27,08,014 RAJSHREE DEVELOPER ENTERPRENURES PVT.LTD 58,00,000 1,32,553 4,51,00,000 53,70,163 4. According to him, the Department had information that these companies are shell companies and the Director cum entry operator, Shri Raj Kumar Kothari has given statement u/s 131 of the Act on 02.03.2016 to the Investigation Wing of the Department that he is controlling certain numbers of companies which are engaged also in providing accommodation entries in the form of share subscribing and unsecured loan etc. According to the Assessing Officer, other than M/s Ranbhumi Marketing Pvt. Ltd. all the aforesaid companies are controlled by Shri Raj Kumar Kothari; and M/s Ranbhumi Marketing Pvt. Ltd. s director is Mrs. Sangeeta Devi Kothari; and M/s. Shresth Builders Pvt. Ltd. is controlled by Shri Bijay Kuman Dokania whose statement was also recorded u/s 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount 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 important litmus test, as per various Judicial pronouncements as discussed above, which needs to be passed in order to substantiate the transactions involved, it is important to note that these three pre-requisites should not be mutually exclusive to each other. The observation made by the Honorable Madras High Court in the case of M/s. B.R Petrochem Pvt. Ltd. Vs The Income Tax Officer (April 2017) is relevant to be quoted in this regard: Section 68 of the Income Tax Act is a provision that enables the assessment of any sum found credited in the books of an assessee where no satisfactory explanation is offered by the assessee to explain the same. Courts have consistently held that the three guiding principles in the con text of Section 68 would be the establishment of the identity and credit worthiness of the creditor and the genuineness of the transaction. In the present case, only the first of the three conditions has been establi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry Operator as discussed above are nothing but pre-arranged accommodation entries. On the basis of discussion made above, the amount of ₹ 4,51,00,000/- being received by the assessee company as unsecured loan/advances during F.Y. 2014-15 is considered to be unexplained cash credit u/s.68 of the Act and the same is disallowed and added to the total income of the assessee. 7. Aggrieved by the actions of the A.O to have made an addition of ₹ 4.51 crores, the assessee preferred an appeal before the before the Ld.CIT(A) who was pleased to delete the addition by holding as under: Findings on the grounds of appeal I have considered the grounds of appeal, statement of facts and submission of the authorized representative of the appellate company as well as the order of the assessing officer framed in the light of the materials available on record before the assessing officer during the assessment proceedings. The AR of the appellate has submitted that this ground is directed against the addition of unsecured loan of ₹ 4,51,00,000/- on the allegation that the same is unexplained cash credit u/s 68 of the Act. The addition was made on the allegation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assumptions. The impugned order seriously lacks specific findings on his part. He simply relied on a report which was neither prepared by him nor did he examine the same to know the whereabouts of such report. He has used serious adjectives like Shell/ Paper Companies to support his contentions but did not point out a single material that has been unearthed by the A.O except blindly relying on the statements of so called entry operators . In the order statement of entry operators is given where the entry operator (Vinay Kumar Dokania) have admitted that they have given entry only in the form of LTCG. Hence, the statement relied upon by the A.0 has no context with the assessee. The A.O has made the addition on account of unsecured loan by relying on the statements of the so called entry operators. There is even no link established by the AO on the basis of how the said statements are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. Shresth Builders 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. Vivek 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. Vivek Tracom 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 does not stand to be justified. Therefore, the addition made by the AO on this allegation is completely unjustified and needs to be deleted. On the third count, the judgments relied by the A.O are completely different on facts as compared to the case of the assessee and hence, their reference in the present case in completely irrelevant. The reliance placed by the Ld.AO on the decisions cited in the assessment order is unwarranted since none of them are identical to the facts as in the case of the assessee and hence, the reference cannot be taken in the instant case from those decisions. At the nutshell all the decision relied by the A.O are not applicable to the appellants case as the facts are completely different as explained in each judgment and their reference in the present case in completely irrelevant. Hence, relying on these judgments are m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 reflected in respective files, loan confirmation, source thereof and bank statement of both the parties suggest that they had the creditworthiness to lend and the transaction was genuine. The details regarding the applicant with their address as per ROC records and PAN etc. are given hereinabove. Further, the following documents of the loan applicants are submitted herewith to show their identity credit worthiness also the genuineness of the transactions, which were also submitted before the A.O, in the course of assessment proceedings u/s 143(3) and in response to the notice issued u/s. 133(6). In the instant case the A.O failed to appreciate the facts that the share applicants are body corporate, registered with the ROC. The share application money were received through proper banking channels. The details regarding the lenders with their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, 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 books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The phraseology of section 68 is dear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this case the legislative mandate is not in terms of the words 'shall' be charged to income-tax as the income of the assessee of that previous year . The Supreme Court while interpreting similar phraseology used in section 69 has held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 between the creditor and his sub-creditor. Thus, while the Assessing Officer is under section 68, free to look into the source(s) of the creditor and/or of the sub-creditor, the burden on the assessee under section 68 is definitely limited. This limit has been imposed by section 106 of the Evidence Act which reads as follows: Burden of proving fact especially within knowledge. -When any fact is especially within the knowledge of any person, the burden) of proving that fact is upon him. What, thus, transpires from the above discussion is that while section 106 of the Evidence Act limits the onus of the assessee to the extent of his proving the source from which he has received the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 other words, the genuineness as well as the creditworthiness of a creditor have to be adjudged vis-a-vis the transactions, which he has with the assessee. The reason why we have formed the opinion that it is not the business of the assessee to find out the actual source or sources from where the creditor has accumulated the amount, which he advances, as loan, to the assessee is that so far as an assessee is concerned, he has to prove the genuineness of the transaction and the creditworthiness of the creditor vis-a-vis the transactions which had taken place between the assessee and the creditor and not between the creditor and the sub-creditors, for, it is not even required under the law for the assessee to try to find out as to what sources from where the creditor had recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Further, in the case of CIT v. S. Kamaiieet Singh [2005] 147 Taxman 18(Aii.) their lordships, on the issue of discharge of assessee's onus in relation to a cash credit appearing in his books of account, has observed and held as under: - 4. The Tribunal has recorded a finding that the assessee has discharged the onus which was on him to explain the nature and source of cash credit in question. The assessee discharged the onus by placing (i)confirmation letters of the cash creditors; (ii) their affidavits; (Hi) their full addresses and GIR numbers and permanent account numbers. It has found that the assessee's burden stood discharged and so, no addition to his total income on account of cash credit was called for. In view of this finding, we find that the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Income-tax (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 same. The judicial propriety and fairness demands that the entire judgment both favourable and unfavourable should have been considered. By not doing so the Tribunal committed grave error in law in upsetting the judgment in the order of the Commissioner of Income-tax (Appeals). In this connection he has drawn our attention to a decision of the Supreme Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aised 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 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 upset 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 judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. We restore the judgment and order of the Commissioner of Income-tax (Appeals). The appeal is allowed When a question as to the creditworthiness of a creditor is to be adjudicated and if the creditor is an Income Tax assessee, it is now well settled by the decision of the Calcutta Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 paid to the assessee company by account payee cheques out of sufficient bank balances available in their bank accounts on behalf of the loan applicants. It will be evident from the paper book that the appellant has even demonstrated the source of money deposited into their bank accounts which in turn has been used by them to subscribe to the assessee company as loan application. The loan applicants have confirmed the - loans in response to the notice u/s 133(6) of the Act and have also confirmed the payments which are duly corroborated with their respective bank statements and all the payments are by account payee cheques. There is nothing on record to suggest that the assessee's aforesaid transactions were b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 fact, the Assessing Officer had not dealt with the specific facts of the case. I find that in the present case the assessee had furnished all the evidences and these evidences were neither found by the Ld.Assessing Officer to be false or fabricated. Rather, he believed on the information received from the Investigation wing to be more authentic. The facts of the case and the evidences in support of the assessee's case clearly support the claim of the assessee that the transaction of the assessee were bona fide and genuine and addition of the same just by mere suspicion is erred as per. law. / find that the assessing officer has been guided by the report of the investigation wing, However, I do not find that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 in 49 ITR 263 (Mad), he assessee is entitled to have evidence produced to be considered and an inference to be drawn therefrom. The rejection of an explanation of the assessee by ignoring to consider important pieces of evidence is an error of law. Reliance in this regard is placed on the decisions D Yasodamma, Gudur vs. CIT reported in 70 ITR 515 (AP) at 517 and Bhagwati Prasad Misra vs CIT reported in 35 ITR 97 (Orissa). / further find that the A.O was not justified in rejecting the claim of the assessee on the basis of theory of surrounding circumstances, human conduct, and preponderance of probability without bringing on record any legal evidence against the assessee. I rely on the judgement of Special Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir 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 of the appellant. It is accordingly observed that these facts adequately prove their credit worthiness to make investment in the loan of the appellant company. The aforesaid facts underlined by evidences clearly prove the identity of the loan applicants, their capacity and source of funds of the loan applicants, as well as the genuineness of the transactions in relation to the loan capital issued by the appellant, which was subscribed to by each of them. However, the A.O had not brought these indisputable facts on record but acted on her whims and fancies. It is observed that the burden which lay on the appellant, in relation to section 68 of the Act, has been duly discharged by it and nothing further rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the transaction was placed before the A.O and the onus shifted to A.O to disprove the materials placed before him. Without doing so, the addition made by the A.O is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 of the Act. Therefore, the A.O is directed to delete the addition. These grounds of appeal are allowed. 8. Aggrieved by the aforesaid action of the Ld. CIT(A) deleting the addition of ₹ 4.51 crores, the Revenue has preferred this appeal before us. 9. We have heard both the parties and perused the records. It is noted that the assessee has set up a manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted upon against the assessee. Moreover, according to Ld.AR both Shri Raj Kumar Kothari as well as Shri Bijay Kumar Dokania has not been summoned by the A.O and their statements were not recorded directly by the A.O before drawing adverse inference against the 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 sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and we thus find no reason to interfere with the concurrent findings of fact recorded by both the authorities. 14. Further the Ld. CIT(A) has noted that pursuant to the notice u/s 133(6) of the Act, the lender companies have directly filed before the A.O., the balance 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/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of M/s Dataware Private Limited, which the A.O of the assessee in the instant case has not cared to carry out, so the A.O of the assessee could not have branded the lender companies not to have creditworthiness. 16. Therefore, when the assessee as well as the lenders had discharged the onus upon them to prove the identity, creditworthiness and genuineness of the loan transaction, the AO could have disbelieved the transaction only on the basis of reliable material to disprove the same. In this case the AO took the support of the statement given by both Shri Raj Kumar Kothari as well as Shri Bijay Kumar Dokania recorded in third party proceedings to take an adverse view against the assessee. In such a situation, the AO ought to have confronted the assessee with the entire statement of both Shri Raj Kumar Kothari as well as Shri Bijay Kumar Dokania or material against the assessee if any with him rather than giving only selective question and answer; and if the AO felt that these two persons, oral testimony is incriminating against the assessee, then in all seriousness he should have summoned them before him and elicited the direct oral evidence against the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment through cheques, VAT Registration of the sellers their Income Tax Return. In view of the above discussion in totality, the purchases made by the appellant from M/s Padmesh Realtors Pvt. Ltd. is found to be acceptable and the consequent disallowance resulting in addition to income made for ₹ 19,39,60,866/-, is directed to be deleted. The ITAT by its judgment dated 16th May, 2014 relied on the self same reasoning and dismissed the appeal of the revenue. Likewise, the High court by the impugned judgment dated 5th July, 2017, affirmed the judgments of the CIT and ITAT as concurrent factual findings, which have not been shown to be perverse and, therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of the ITAT. 17. So, the A.O in this case, erred in relying on the statement of two persons who were not allowed to be cross-examined as held by the Hon ble Apex Court in Andaman Timber (supra) and Odeon Builders Pvt. Ltd. (supra). So from any angle, one looks, the statement of these two persons cannot be used against the assessee. And when we remove these two statements with the legal infirmities discussed supra, ..... 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