TMI Blog2019 (12) TMI 1633X X X X Extracts X X X X X X X X Extracts X X X X ..... ng proceedings u/s 143(3) of the Income Tax Act, 1961; in short the Act . Heard both the parties. Case file perused. 2. The Revenue s sole substantive grievance seeks to revive Assessing Officer s action treating assessee s loans of Rs.11,85,00,000/- as unexplained cash credits u/s 68 which has been reversed to the extent of Rs.5,26,50,251/- in the CIT(A) s order. Its case accordingly is that the Assessing Officer had rightly added the assessee s total loan amount of Rs. 11,85,00,000/- raised from four entities M/s Diamond Carbon Pvt. Ltd., M/s Mukherjee Capital Pvt. Ltd., M/s Wimper Trading 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( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of M/s. WTDPL the source of investment can be noted from page 61 of the paper book and in respect of M/s. DCPL it can be noted from page 73 of the paper book. The Ld. AR drew our attention to the explanation given by the assessee before the Ld. CIT(A) regarding the source of cash credit which is noted from pages 22 to 25 of the order of Ld. CIT(A) which reads as under: 8. Even though the assessee had filed the aforesaid details the Ld. CIT(A) has given only part relief by holding as under: (i) In respect of M/s. DCPL , the Ld. CIT(A) has held as under: From the discussion made it can be said 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 explai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lained in nature and constitute the unaccounted money of the appellant which were routed through various name lenders. Further, during the course of the appeal proceedings, the appellant could not give the source of the funds introduced by Mr. Kallol Mukherjee and Ms Kalpana Mukherjee. Hence, the entire share capital and share premium raised by M/s Mukherjee Farms Pvt. Ltd. is held to be unexplained and dubious. In view of my arguments given in earlier paragraphs in respect of other loan giving entities, it is held that out of the total loan of Rs.7,05,00,000/-, loans to the extent of Rs.3,03,83,863/- is deemed to be explained 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion that for AY 2014-15, the said company was assessed u/s. 143(3) of the Act vide order dated 30.12.2016. We note that the assessee had filed the following documents to prove the identity, creditworthiness and genuineness of the transaction: Sl. No. Particulars Page Nos. 1. Datewise summary of the loans received from M/s. Mukherjee Farms Pvt Ltd along with source thereof 1 2. Copy of Audited accounts of M/s. Mukherjee farms Pvt Ltd for 31.3.2012 which is signed by the directors who are also partners of the assessee firm. 2-11 3. 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. 12-17 4. Copy of assessment order of M/s. Mukherjee Farms Pvt Ltd 18-23 5. Date wise summary of received fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see firm. 90-110 10. We note that all the four lender companies have filed their copy of audited accounts, bank statement showing the amount given by way of loan, confirmation letters. Moreover, the certificate from the bank with regard to the maturity of the deposit amount which was the source of giving the loan to the assessee company in the case of M/s. Mukherjee Farms Pvt. Ltd. is discernable from perusal of page 17 of the paper book which is the certificate from the Indian Overseas Bank. The source of giving loan in respect of M/s. Mukherjee Capital Pvt. Ltd. is discernable from perusal of pages 24 25 of paper book, which in turn is the source of giving loan to the assessee company. In respect of M/s. Mukherjee Capital Pvt. Ltd. the certificate from the bank with regard to the maturity of the deposit account is found placed at page 36 to 40 of the paper book. Certificate from the bank with regard to the maturity of the deposit account which was the source for giving loan to assessee company by M/s. Wimper Trading Distributors Pvt. Ltd. is found placed at page 61 of the paper book. The source of fund received by M/s. Diamond Carbon Pvt. Ltd. an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view that assessee s claim should be accepted and there was no necessity for addition u/s. 68 of the Act since the assessee has discharged the onus casted upon it u/s. 68 of the Act by proving the identity, creditworthiness and genuineness of the lender and the loan transactions. 11. Taking note of the aforesaid documents the Ld. CIT(A) was of the opinion that assessee had partly discharged its onus to prove the identity, creditworthiness and genuineness of the share subscribers and had partly deleted the addition made u/s. 68 of the Act. Before we adjudicate as to whether the Ld. CIT(A) s action is right or erroneous, let us look at section 68 of the Act and the judicial precedents on the issue at hand. 12. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 subcreditor, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions, 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 subcreditor 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. In the absence of any 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 as income derived by the appellant from. undisclosed sources merely on the failure of the sub-creditors to prove their creditworthiness. 14. Further, in the case of CIT v. S. Kamaljeet Singh [2005] 147 Taxman 18(All.) their lordships, on the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by Ld. CIT(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'ble 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 ble 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 have been accepted and indeed in subsequent year the same explanation was accepted by the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to hold in this matter that the Tribunal has not adjudicated upon the case of the assessee in the light of the evidence as found by the Commissioner of Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as drawn to the decision of the Hon'ble High Court, Calcutta in the case of Commissioner of Income Tax vs M/s. Leonard Commercial (P) Ltd on 13 June, 2011 in ITAT NO 114 of 2011 wherein the Court held as follows: The only question raised in this appeal is whether the Commissioner of Incometax (Appeals) and the Tribunal below erred in law in deleting the addition of Rs.8,52,000/-, Rs. 91,50,000/- and Rs. 13,00,000/- made by the Assessing Officer on account of share capital, share application money and investment in HTCCL respectively. After hearing Md. Nizamuddin, learned Advocate appearing on behalf of the appellant and after going through the materials on record, we find that all such application money were received by the assessee by way of account payee cheques and the assessee also disclosed the complete list of shareholders with their complete addresses and GIR Numbers for the relevant assessment years in which share application was contributed. It further appears that all the payments were made by the applicants by account payee cheques. It appears from the Assessing Officers order that his grievance was that the assessee was not willing to produce the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of receipt towards loan is seen from the entries passed in the respective balance sheets of the companies as loan to assessee firm. In respect of source of credit, the assessee has to prove the three necessary ingredients i.e. identity of lenders, genuineness of transactions and creditworthiness of lenders. For proving the identity of lenders, the assessee furnished the name, address, PAN of lender companies together with the copies of balance sheets and Income Tax Returns. With regard to the creditworthiness of share applicants, as we 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 lenders, so creditworthiness is proved. Even if there was any doubt if any regarding the creditworthiness of the lenders was still subsisting, then AO should have made enquiries from the AO of the lender companies as held by Hon ble jurisdictional High Court in CIT vs DATAWARE (supra) which has not been done, so no adverse view could have been drawn. Third ingredient is genuineness of the transactions, for which we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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