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2017 (6) TMI 441 - AT - Income TaxUnsecured loans - identity and creditworthiness of the creditors and genuineness of the transaction - non existence company - Held that - Merely because of the fact that the payment was received by cheque or that the lender company appears on the file of Registrar of Companies, registered with the stock exchange of the company, it is not proved that the transaction is genuine unless creditworthiness of the lender company is proved. Even during the assessment proceedings as well as first appellate proceedings before the ld. CIT (A), the assessee has not opted to get the physical existence of M/s. Khoobsurat Limited established by moving any application. So AO/CIT(A) have rightly reached at the conclusion that M/s. Khoobsurat Limited is a company existing on paper only and its physical existence has never been established and it also remained unexplained on the file as to why a company in Kolkata would advance unsecured loan of more than ₹ 40,00,000/- to a proprietorship concern of transport contract situated in Orissa. So, we find no illegality or perversity in the findings returned in the impugned order passed by the CIT (A) so far as addition of ₹ 40,06,198/- is concerned. So, the findings returned by the ld. CIT (A) in this regard are hereby affirmed. In view of above the addition made by AO/affirmed by ld. CIT (A) to the tune of ₹ 7,00,000/- (in case of Smt. Usha Agarwal, Ellora Mohanty, Ashutosh Mohapatra & Smt. Urmila Modi of ₹ 2,50,000/-, ₹ 1,50,000/-, ₹ 1,00,000/- & ₹ 2,00,000/- respectively) is hereby ordered to be deleted, however appeal of the assessee qua the remaining addition of ₹ 40,06,198/- made on account of unsecured loan from M/s. Khoobsurat Limited is hereby dismissed. Resultantly, the appeal of the assessee is partly allowed.
Issues Involved:
1. Legitimacy of the unsecured loans received by the assessee from various creditors. 2. Examination of the creditworthiness and genuineness of the transactions with specific creditors. 3. Validity of the assessment order passed under section 143(3) and subsequent revision under section 263 of the Income-tax Act, 1961. Detailed Analysis: 1. Legitimacy of the Unsecured Loans: The primary issue revolves around the unsecured loans amounting to ?47,06,198 received by the assessee from different creditors during the assessment year 2008-09. The assessment was initially completed under section 143(3) of the Income-tax Act, 1961, estimating the net profit at 3.75% of the gross transport charges received. However, the Commissioner invoked section 263, finding the assessment order erroneous and prejudicial to the interest of the Revenue, particularly due to inadequate examination of the unsecured loan creditors. 2. Examination of Creditworthiness and Genuineness: - Smt. Usha Agarwal (?2,50,000): The assessee provided PAN, return of income, and balance sheet showing sufficient balance to lend ?2,50,000. The Tribunal found that the identity, creditworthiness, and genuineness of the transaction were proven, thus deleting the addition made by the AO and CIT(A). - Ellora Mohanty (?1,50,000): Similar documentation was provided, proving a balance of ?4,78,834 as on 31.03.2008. The Tribunal concluded that the addition of ?1,50,000 was unwarranted and ordered its deletion. - Ashutosh Mohapatra (?1,00,000): The assessee submitted PAN, return of income, and balance sheet showing a balance of ?4,07,596.88. The Tribunal found the identity, creditworthiness, and genuineness of the transaction proven, ordering the deletion of the addition. - Smt. Urmila Modi (?2,00,000): The loan pertained to AY 2007-08, not the year under assessment. The Tribunal noted that the loan was given by cheque and had no concern with the current assessment year, thus deleting the addition. - M/s. Khoobsurat Limited (?40,06,198): The AO and CIT(A) questioned the genuineness of this loan due to the non-existence of the creditor as per the investigation report. Despite the assessee providing extensive documentation, the Tribunal upheld the addition, citing the inability to prove the physical existence and creditworthiness of M/s. Khoobsurat Limited. 3. Validity of the Assessment Order: The Tribunal reviewed the assessment order passed under section 143(3) and its subsequent revision under section 263. It found that while the initial assessment was erroneous due to inadequate examination of the creditors, the Commissioner’s revision under section 263 was justified for the unsecured loan from M/s. Khoobsurat Limited. However, the additions made for the other creditors were deemed incorrect and were ordered to be deleted. Conclusion: The Tribunal ordered the deletion of additions amounting to ?7,00,000 related to Smt. Usha Agarwal, Ellora Mohanty, Ashutosh Mohapatra, and Smt. Urmila Modi, finding their transactions genuine. However, it upheld the addition of ?40,06,198 from M/s. Khoobsurat Limited due to the inability to establish the creditor’s existence and creditworthiness. Thus, the appeal was partly allowed.
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