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TMI Blog2019 (12) TMI 1633X X X X Extracts X X X X X X X X Extracts X X X X ..... ding and Distributors Pvt. Ltd. and M/s Mukherjee Farms Pvt. Ltd. involving respective sums of Rs.1,10,00,000/-, 1,20,00,000/-, 2,50,00,000/- & 7,05,00,000/-; respectively as unexplained cash credits. 3. Ms. Biswas invited our attention to the assessment order to this effect dated 30.03.2015 holding that the assessee's unaccounted income itself has been routed back as loans in question through the above four entities happened to be its related parties. 4. Learned authorised representative at this stage submitted that the assessee had filed its appeal ITA No.333/Kol/2019 against the CIT(A)'s action confirming the balance addition amount of Rs.6,58,49,749/-. He then files on record learned coordinate bench's order dated 21.08.2019 deleting this balance addition as well vide following detailed discussion: "7. We have heard rival submissions and gone through the facts and circumstances of the case. The Ld. AR assailing the decision of the Ld. CIT(A) in giving only partial relief to the assessee when the facts un-disputed was that the AO has accepted the interest outgoing to the four lender companies without a murmur. When the interest expenditure incurred by the assessee for the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the assessee has failed to prove the creditworthiness of the loan given and the genuineness of the transactions. In view of the above, the amount of loan given to the appellant company by M/s. Diamond Trading Pvt. Ltd., which were sourced from unexplained share capital and share premium received by M/s Diamond Carbon Pvt. Ltd. is held to be unexplained. Hence, out of total loan of Rs. 1,10,00,000/- received by the appellant from M/s Diamond Carbon Pvt. Ltd., an amount of Rs.21,00,101/- is from the business reserves of the appellant and is hence deemed to be explained. However the balance amount of Rs.88,99,899/- (i.e. Rs.l,10,00,000/- - Rs. 21,00,000/-) are treated to be received out of unexplained share capital and share premium received by M/s. Diamond Carbon Pvt. Ltd and to that extent the loan is treated to be unexplained. In view of this, in respect of the loan of Rs. 1,10,00,000/- received by the appellant, loans received to the extent of Rs.88,99,899/- is held to be unexplained. Hence, appeal to the extent of Rs. 21,00,101/- is allowed and appeal to the extent of Rs.88,99,899/- is not allowed." ii) In respect of M/s. WTDPL , the Ld. CIT(A) has held as under: "Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplained as they are considered to be out of the accumulated reserves generated from the business operations of M/s. Mukherjee Firms Pvt. Ltd .. It was also submitted by the appellant that the appellant was having an opening balance of Rs 60,00,000/- in respect of M/s Mukherjee Farms Pvt. Ltd. This amount of Rs 60,09,000/- was paid to Ms M/s Mukherjee Firms Pvt. Ltd by the appellant and was again received back by the appellant. Hence, this amount of Rs.60,00,000/- stands explained as the amount was paid by the appellant to the lender and was again given as a loan to the appellant. Thus the amount of loan of Rs 3,63,83,863 ( Rs 3,03,83,863/- + Rs. 60,00,000/- ) is from the explained sources. However, the remaining portion of the loans taken to the extent of Rs.3,41,16,137/- is deemed to be ,out of the dubious and unexplained share capital. and share premium of M/s Mukherjee Firms Pvt. Ltd. and thus loans received to ,.the extent of Rs. 3,41,16,137/- held to be unexplained. Thus appeal to the extent of Rs. 3,41,16,137 /- is not allowed and appeal to the extent of Rs;3,63,83,836/- is allowed." iv) In respect of M/s. MCPL, the Ld. CIT(A) has held as under: "The appellant had taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmation letters and the certificate from bank with regard to the maturity of the deposit account which was the source for giving the loan to the assessee company. 12-17 4. Copy of assessment order of M/s. Mukherjee Farms Pvt Ltd 18-23 5. Date wise summary of received from M/s. Mukherjee Capital Pvt. Ltd along with source Thereof 24-25 6. Copy of Audited accounts of M/s. Mukherjee Capital Pvt Ltd for 31.3.2012 which is signed by the directors who are also partners of the assessee firm. 26-35 7. Copy of the bank statement showing the amount given by way of loan along with the confirmation letters and the certificate from bank with regard to the maturity of the deposit account which was the source for giving the loan to the assessee company. 36-42 8. Copy of assessment order of M/s. Mukherjee Capital Pvt Ltd 43-47 9. Date wise summary of the loans received from M/s. Wimper Trading and Distributors Pvt Ltd along with source thereof 48 10. Copy of Audited accounts of M/s. Wimper Trading and Distributors Pvt Ltd for 31.3.2012 which is signed by the directors who are also partners of the assessee firm. 49-58 11. Copy of the bank statement showing the amount gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. and M/s. Diamond Carbon Pvt. Ltd. respectively. In respect of creditworthiness of M/s. Mukherjee Farms Pvt. Ltd. it had capital reserve and surplus of Rs.11,39,55,207 (page 5 of paper book) and had lent Rs.7,05,00,000/- only and its source of investment was from the FD and bank balance of Rs.7,96,86,759/- plus Rs.52,91,988/- (page 10 of paper book; in respect of creditworthiness of M/s. Mukherjee Capital Pvt. Ltd. it had capital reserve and surplus was to the tune of Rs.6,62,69,835/- (page 30 of paper book) and amount lent was only Rs.1,20,00,000/- and the source of investment in the form of FD and bank balances were to the tune of Rs.5,74,14,079/- and Rs.39,48,085/- (page 34 of paper book); in respect of M/s. Wimper Trading & Distributor Pvt. Ltd. creditworthiness can be seen from the capital reserve to the tune of Rs.6,04,55,860/- and it had lent only Rs.2,50,00,000/- and the source of fund lying in the FD and bank balances is to the tune of Rs.3,03,97,785/- (page 57 of paper book); in respect of Diamond Carbon Pvt. Ltd. the creditworthiness can be noted from its capital and reserve to the tune of Rs.3,45,91,190/- (page 78 of paper book) and it had lent only Rs.1,10,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee of that previous year". The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word "may" and not "shall". Thus the un-satisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the Supreme Court in the case of CIT v. Smt. P. K. Noorjahan [1999] 237 ITR 570. We note that against the said decision of Hon'ble Gujarat High Court the special leave petition filed by the Revenue has also been dismissed by the Hon'ble Apex Court. 13. In the case of Nemi Chand Kothari 136 Taxman 213, (supra), the Hon'ble Guahati High Court has thrown light on another aspect touching the issue of onus on assessee under section 68, by holding that the same should be decided by taking into consideration the provision of section 106 of the Evidence Act which 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s)of the creditor but also of his (creditor's) sub-creditors and prove, 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/source 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 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 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 ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t even required under the law for the assessee to try to find out as to what sources from where the creditor had received the amount, his special knowledge under section 106 of the Evidence Act may very well remain confined only to the transactions, which he had' with the creditor and he may not know what transaction(s) had taken place between his creditor and the subcreditor... " ********** "In other words, though under section 68 an Assessing Officer is free to show, with the help of the inquiry conducted by him into the transactions, which have taken place between the creditor and the sub-creditor, that the transaction between the two were not genuine and that the sub-creditor had no creditworthiness, it will not necessarily mean that the loan advanced by the sub-creditor to the creditor was income of the assessee from undisclosed source unless there is evidence, direct or circumstantial, to show that the amount which has been advanced by the subcreditor 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etters of the cash creditors; (ii) their affidavits; (iii) 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 Tribunal was right in reversing the order of the AA C, setting aside the assessment order." 15. We also take note of the decision of the Hon'ble High Court, Calcutta in the case of S.K. Bothra & Sons, HUF v. Income-tax Officer, Ward- 46(3), Kolkata 347 ITR 347 wherein the Court held as follows: "15. It is now a settled law that while considering the question whether the alleged loan taken by the assessee was a genuine transaction, the initial onus is always upon the assessee and if no explanation is given or the explanation given by the appellant is not satisfactory, the Assessing Officer can disbelieve the alleged transaction of loan. But the law is equally settled that if the initial burden is discharged by the assessee by producing sufficient materials in support of the loan transaction, the onus shifts upon the Assessing Officer and after verification, he can call ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth 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). 9. In this connection he has drawn our attention to a decision of the Supreme Court in the case of Udhavdas Kewalram v. CIT [19671 66 ITR 462. In this judgment it is noticed that the Supreme Court as proposition of law held that 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. 10. We find considerable force of the submissions of the learned counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore, it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter the creditworthiness. As rightly pointed out by the learned counsel that the Commissioner of Income-tax (Appeals) has taken the trouble of examining of all other materials and documents, viz., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the judgment and order of the Commissioner of Income-tax (Appeals). The appeal is allowed. 17. 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 High Court that the creditworthiness of the creditor cannot be disputed by the AO of the assessee but the AO of the creditor. In this regards our attention was drawn to the decision of the Hon'ble High Court, Calcutta in the COMMISSIONER OF INCOME TAX, KOLKA TA-Ill Versus DATAWARE PRIVATE LIMITED ITAT No. 263 of 2011 Date: 21st September, 2011 wherein the Court held as follows: "In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assessee. After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness" of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer was of the view that the particulars supplied were insufficient to detect the real share applicants, to ask for further particulars. The Assessing Officer has not adopted either of the aforesaid courses but has simply blamed the assessee for not producing those share applicants. In our view, in the case before us so long the Assessing Officer was unable to arrive at a finding that the particulars given by the assessee were false, there was no scope of adding those money under section 68 of the Income- tax Act and the Tribunal below rightly held that the onus was validly discharged. We, thus, find that both the authorities below, on consideration of the materials on record, rightly applied the correct law which are required to be applied in the facts of the present case and, thus, we do not find any reason to interfere with the concurrent findings of fact based on materials on record. The appeal is, thus, devoid of any substance and is dismissed summarily as it does not involve any substantial question of law. 19. From the details as aforesaid which emerges from the paper book filed before us as well as before the lower authorities, it is vivid that all the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Hence the source of source of source is proved by the assessee in the instant case though the same is not required to be done by the assessee as per law as it stood/ applicable in this assessment year. The lending companies have confirmed about the loan 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. 21. In this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the lender companies, thereafter the onus shifted to AO to disprove the documents furnished by assessee and it cannot be brushed aside by the AO to draw adverse view which action cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the Assessing Officer, we hold that an addition cannot be sustained merely based on inferences drawn by circumstance. Applying the propositions laid down in these case laws to the facts of this case, we are inclined to uphold the order of the Ld. Commissioner of Income Tax (Appeals) giving relief to the assessee to the tune of Rs 5,26,50,251 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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