TMI Blog2021 (11) TMI 807X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction under whom they are assessed are available in the ITR filed by them directly to the A.O. pursuant to the section 133(6) notice issued by the A.O. and transactions have been made through account payee cheques thus A.O. of the assessee who borrows or is in receipt of credit/loan (like assessee in this case) cannot brand the lender company as lacking in creditworthiness, unless the A.O. undertakes the exercise of enquiring from the A.O. of the lender companies and in case if the A.O. of the lender companies have accepted the transactions shown by them with the assessee company, then the A.O. of the assessee company cannot impute un-creditworthiness of the lender company . The lender companies have sufficient creditworthiness to give loan to the assessee company and cannot be termed as shell companies by simply basing his (A.O) conclusion on the strength of selected questions and answers given by Shri Raj Kumar Kothari and that too recorded on third party proceedings and which were admittedly recorded behind the back of the assessee. Shri Raj Kumar Kothari has retracted the said statement recorded on 02.03.2016 within ten (10) days and has alleged threat and coercion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Kolkata dated 30.07.2018 for AY 2014-15. 2. The Grounds of appeal raised by the revenue are as under: 1. On the facts and circumstances of the case, the Ld. CIT(A) erred in disallowing the addition of ₹ 1,50,10,000/- made U/s. 68 of the I.T. Act. 2. On the facts and circumstances of the case, the Ld. CIT(A) erred in disallowing the addition ₹ 13,34,669/- made U/s. 69C of the I.T. Act, 1961. 3. The appellant craves leave to make any addition, alteration, modification of grounds at the appellate stage. 3. 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 ₹ 1,50,10,000/- U/s. 68 of the Income Tax Act, 1961 (hereinafter referred to as the Act) and ₹ 13,34,669/- U/s. 69C of the Act which amount the assessee company has shown as unsecured loan from ten (10) parties and the interest paid by the assessee on it to the lenders respectively. 4. Brief facts of the case as noted by the Assessing Officer are that the assessee firm filed its original return of income of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd. (lender companies) wherein he has noted the share capital issued, share premium, non-current investment, long-term loans and advances given and turnover. Thereafter the A.O. made the following observation about the lender companies in his own words all of these companies are involved in providing accommodation entry in the form of unsecured loan in lieu of commission. Their financial worth does not support their very high parties. These entities are mere paper company/bogus which have been established by the Investigation Directorate, Kolkata. Thereafter he issued notice to the assessee informing it about the information received from the Investigation Directorate that the loan obtained from the ten (10) lender companies are from bogus/paper companies and that they are all involved in giving accommodation entry in the form of unsecured loan in lieu of commission and to show cause as to why an amount of ₹ 1,50,00,000/- and interest amount of ₹ 14,42,669/- (interest amount) should not be added back to its total income. Pursuant to the show cause notice (SCN) dated 08.12.2016, the assessee replied vide letter dated 21.12.2016 wherein it was pointed out to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said information/details now. Hence, no adverse inference should be drawn from his statement. Sir, from the statement provided by your honour it is seen that Shri Raj Kumar Kothari has deposed that he was engaged in providing accommodation entries through various companies controlled and managed by him. In this regard we would again like to mention that the statement of Shri Raj Kumar Kothari was recorded at our back. So, we would request your honour to provide us an opportunity to cross examine him for the sake of Natural Justice. Pursuant to the request of the assessee for cross-examination of Shri Raj Kumar Kothari, the AO issued notice U/s. 131 of the Act on 21.12.2016 for his personal appearance on 26.12.2016. The AO noted that Shri Raj Kumar Kothari vide his letter dated 26.12.2016 brought to his notice that he will be out of Kolkata, and it will not be possible for him to attend summon U/s. 131 of the Act. However, the AO acknowledges that on 27.12.2016 the Ld. A.R. of the assessee was present before him for cross-examination. However since Shri Kothari did not turn up in spite of serving summons U/s. 131, the cross-examination could not be facilitated. Therea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by one Shri Raj Kumar Kothari in the course of survey conducted on 02.03.2016, by the Investigation wing, the Ld. AO claimed that the lender companies were under his control and engaged in providing accommodation entries. Based on such statement of Shri Raj Kumar Kothari, the Ld. AO rejected the documentary evidences furnished in support of the loan received and interest paid and made the addition of ₹ 1,50,10,000/- under Section 68 of the Act. Further, the Ld. A.O. also disallowed the interest paid of ₹ 13,34,669/- treating the same as bogus expenditure U/s. 69C of the Income Tax act, 1961. 3. After carefully examining the documents and evidences, I find that the only ground on which the Ld. AO made the addition U/s. 68 is apparently unsustainable. The Ld. AO principally relied on the statement of Shri Raj Kumar Kothari an alleged entry operator recorded in the course of survey conducted upon him wherein he had allegedly admitted that he was providing accommodation entries. In the impugned order the Ld, AO has extracted the statement of Shri Raj Kumar Kothari in support of his conclusion that the loan received from the lender companies was in the nature of bogus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92,096 1,20,000 Banking Channel ₹ 12,000 Tax Deducted Yes. As per reply to notice u/s 133(6) NO 3 Divya Electronics (P) Ltd 10,000 Banking Channel AAACD9721C 2,97,568 1,19,974 Banking Channel ₹ 11,99 Tax Deducted Yes, As per reply to notice u/s 133(6) NO 4 Maheswari Merchants (P) Ltd 10,00,000 Banking Channel AABCM6860C - 8,877 Banking Channel ₹ 888 Tax Deducted Yes. As per reply to notice u/s 133(6) NO 5 Paritosh Electricals (P) Ltd 10,00,000 Banking Channel AABCP5013E 24,97, 650 1,23,616 Banking Channel ₹ 12,352 Tax Deducted Yes. reply to notice u/s 133(6) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as brought on ld. AO's record, he did not bring any adverse material to prove that the explanation furnished by the appellant was false or there was any material infirmity therein. Since the appellant had proved that the loan transaction was carried out through proper banking channel and the immediate source for payment of loan was explained and there being no contrary material brought on record by the Ld. AO, in my opinion in terms of Section 106 of the Indian Evidence Act, the appellant could be said to have discharged the onus cast on him to establish identity, creditworthiness and genuineness of the loan transaction. The foregoing conclusion finds support in the judgment of the Hon'ble Gauhati High Court in the case of Shri Nemi Chand Kothari vs. CIT (264 ITR 254) wherein the Hon'ble High Court held as follows: When one reads carefully the provisions of section 68, one finds nothing in section 68 to show that the scope of 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 authorise the reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a result of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the Assessing Officer to enquire into the source/sources from where the creditor has received the money, section 106 makes the assessee liable to disclose only the source(s) from where he has himself received the credit and it is not the duty of the assessee to show the source(s) of his creditor nor is it the burden of the assessee to prove the creditworthiness of the source(s) of the sub-creditors. If section 106 and section 68 are to stand together, which they must, then the interpretation 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 transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Indian 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 'W' and 'P' by way of cheques, the assessee must be taken to have proved that the creditors had the creditworthiness to advance the loans. Thereafter, the burden had shifted to the Assessing Officer to prove the contrary. On failure on the part of the creditors to show that their sub-creditors had creditworthiness to advance the said amounts to the assessee, these amounts as a corollary, could not have been and ought not to have been, under the law, treated as the assessee's income from the undisclosed sources, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee. Therefore, the Assessing Officer had failed to show that the amounts, which had come to the hands of the creditors from the hands of sub-creditors, had actually been received by the sub-creditors from the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 cheques and the loan account were duly reflected in the balance sheet of lenders CIT(A) has further held once the onus was fulfilled by the assessee, it was for the Assessing Officer to examine and bring any material on record which may help in rebutting the onus of assessee. The Assessing Officer has not brought any material on record in its support CIT(A) while deleting the addition has also relied on the decision of the Hon'ble Gujarat High Court in the case of Dy. CIT v. Rohini Builders [2002] 256 ITR 360 and the decision of Hon'ble Supreme Court, in the case of Orissa Corpn. Ltd. 153 ITR 78. Before us, nothing has been brought on record by the revenue to cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 8. Respectfully following the ratio laid down in these judgments and having regard to the facts discussed in the foregoing, I therefore hold that the addition of ₹ 1,50,10,000/- made U/s. 68 was not tenable on facts and in law and the same is deleted. Similar is the treatment to be given to the amounts of interest paid by the appellant to the Loan Creditors, being an amount of ₹ 13,34,669/-. This impugned amount is also directed to be deleted. In effect, the substantial grounds 1 to 4 stand allowed. 7. Aggrieved by the aforesaid action of the Ld. CIT(A) deleting the addition of ₹ 1.50 crores U/s. 68 of the Act and ₹ 13,34,669/- added U/s. 69 of the Act, the Revenue has preferred this appeal before us. 8. Assailing the action of the Ld. CIT(A), Shri Supriyo Paul, Ld. DR submitted that based on information from the Investigation Wing that the assessee had taken unsecured loan to the tune of ₹ 1.50 crores from ten (10) shell companies controlled and operated by Shri Raj Kumar Kothari who have accepted before the Investigation Wing that he through his legal entities (Private Limited companies) is indulging in providing bogus share capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 69 of the Act to the tune of ₹ 1,50,10,000/- and ₹ 13,34,669/- therefore according to Ld. D.R., the Ld. CIT(A) erred in deleting the addition which decision needs to be reversed and the AO's order be upheld. 9. Per contra, the Ld. A.R. of the assessee Shri Miraj D Shah at the outset pointed out that the case of the assessee is squarely covered by the decision of this Tribunal in the case of M/s. Overtop Marketing Pvt. Ltd. in ITA No. 686/Kol/2019 for AY 2015-16 dated 15.03.2021. Further, coming to the merits of the addition made by the AO, Ld. A.R. contended that the statement of Shri Raj Kumar Kothari dated 02.03.2016 before the Investigation Wing cannot be relied upon because he has retracted the same within ten (10) days of giving the purported confession/admission. The Ld. A.R. drew our attention to page 38 of the PB wherein the Shri Raj Kumar Kothari has filed an Affidavit which was sworn before the First Class Magistrate, Kolkata which is found placed in pages 38 to 41 of PB wherein he specifically stated that due to threat and coercion from the Officer of the Investigation Wing that if he does not oblige the department by stating what they want to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the AO still doubts the creditworthiness of the lender companies, then he should enquire from the AO of the lender companies and thereafter only draw any adverse inference against the lender companies in respect of the creditworthiness. The Ld. A.R. submitted that no such exercise/enquiry was conducted by the assessee's AO, therefore, the Ld. CIT(A) rightly deleted the addition after referring to catena of judicial precedent. Therefore, he does not want us to interfere with the well reasoned order of the Ld. CIT(A). 10. We have heard both the parties and perused the records. It is noted that the assessee company has availed for loan this year from six (6) entities to the tune of ₹ 1,50,10,000/- and it is noted that all the loans taken are interest bearing; and the interest have been paid by the assessee to these six (6) lenders of ₹ 1,50,10,000/- as well as that of carry forward loan from four (4) other companies [refer to list at page 2] (supra) regularly after deducting TDS on the said payment of interest of ₹ 13,34,669/-. 11. It is noted that pursuant to the notice issued by the A.O. U/s. 133(6) of the Act, the ten (10) lender companies (which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 359342 AAACV8670J 10 Zigma Electricals Pvt. Ltd. - 48822 AAACZ0831B Total 15010000 1334669 13. 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 whose statement was recorded U/s. 131 of the Act on 02.03.2016 by the Investigation Wing U/s. 131 of the Act in third party proceedings and of course behind the back of assessee. Further, it was brought to our notice by the Ld. AR that AO on the basis of confirmation/admission of Shri Raj Kumar Kothari that he is an entry provider was the basis of branding the lender companies as shell companies, however it was brought to our notice that Shri Kothari had retracted the same within ten (10) days by swearing an affidavit before the First Class Magistrate of Kolkatta which is found placed at pages 38 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39; companies which are discernable from ROC website. Further, we note that all the lender companies have their respective PAN identity and the jurisdiction under whom they are assessed are available in the ITR filed by them directly to the A.O. pursuant to the section 133(6) notice issued by the A.O. and transactions have been made through account payee cheques and the Hon'ble Calcutta High Court has said that A.O. of the assessee who borrows or is in receipt of credit/loan (like assessee in this case) cannot brand the lender company as lacking in creditworthiness, unless the A.O. undertakes the exercise of enquiring from the A.O. of the lender companies and in case if the A.O. of the lender companies have accepted the transactions shown by them with the assessee company, then the A.O. of the assessee company cannot impute un-creditworthiness of the lender company and referred to the decision of the Hon'ble Calcutta High Court in CIT vs. M/s. Dataware Private Limited in ITAT No. 263 of 2011 Date: 21st September, 2011 GA No. 2856 of 2011 held as under: In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1000000 8,877 5 Paritosh Electronics Pvt Ltd 11,90,71,929 1,60,89,902 1000000 1,23,616 6 Potential Electricals Electronics. Pvt Ltd 10,47,32,610 1,11,19,141 1000000 1,21,808 7 Rajshree Developer Entrepreneurs Pvt Ltd 10,56,95,626 1,11,75,079 - 1,20,000 8 Ranbhumi Marketing Pvt Ltd 2,99,43,843 64,86,166 - 1,85,753 9 Vivek Tracom Pvt Ltd 15,71,97,394 15,12,38,564 7500000 3,59,342 10 Zigma Electricals Pvt Ltd 7,20,36,614 64,20,930 - 48,822 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er; and if the AO felt that this person, oral testimony is incriminating against the assessee, then in all seriousness he should have after summoning him before him ought to have elicited, if any, direct oral evidence against the assessee and after recording the same he (AO) should thereafter gave a copy of the recorded statement and then afforded an opportunity to assessee to cross-examine the makers of the incriminating oral testimony and thereafter the AO would have been justified in using the incriminating material/oral testimony against the assessee, which in this case, even though the AO had summoned Shri Raj Kumar Kothari and though he asked sixty (60) number of questions (refer 31-37PB) the AO could not successfully elicit incriminating evidence against the assessee and on the other hand, Shri Raj Kumar Kothari has confirmed that loan transaction with the assessee as genuine and the AO after having recorded directly the statement of Shri Raj Kumar Kothari should not have relied on the earlier statement recorded by the Investigation Wing in third party proceedings which has been retracted. Moreover the AO has not found any infirmity with the documents filed by the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. 18. So, the A.O. in this case, erred in relying on the statement of Shri Raj Kumar Kothari who had retracted the statement within ten (10) days alleging threat and coercion on the part of the Investigation Wing and moreover, in the statement recorded by the AO of assessee, Shri Raj Kumar Kothari has accepted the transaction with assessee as genuine and since the AO failed to elicit any incriminating material against the assessee, so the AO's reliance on third party statement of Shri Kothari does not have any evidentiary value and the AO erred in relying on it. So from any angle, one looks, the statement of Shri Raj Kumar Kothari cannot have been used against the assessee. Moreover, Shri Raj Kumar Kothari has corroborated the loan transaction with the assessee, and since there is no other material to c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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