2019 (6) TMI 598 - AT - Income Tax

Addition u/s 68 - source of funds available with lender companies from which the loan lended by the lender companies - HELD THAT - The income may be a criteria for deciding the issue. But the income is not to be all and end all of everything. For example, a person having a salary of ₹ 12 lakhs per annum purchases a flat for ₹ 50 lakhs. Merely on the basis of his level of income, the addition of ₹ 50 lakhs cannot be made as unexplained investment without understanding the facts. It may be possible that the person might have taken a housing loan of ₹ 45 lakhs and that source would justify his investment. Similarly, income of the lender company cannot be the sole basis for making addition without going into the facts and without understanding the financial statements of the lender companies As discussed the source of funds available with lender companies from which the loan of ₹ 1.50 crores each would have been lended by the lender companies, as explained elsewhere. Bank statements are available at pages 120 of the paper book in respect of Glorious Holding Pvt Ltd, is the bank statement of Kalol Kutir Pvt Ltd and page 156 is the bank statement of New KMS Finance Pvt. Ltd. These bank statement clearly show that the transactions have been done through banking channel and no cash was found to be deposited prior to issue of cheques. Therefore, it cannot be said that the appellant company has purchased cheques by paying cash. The factual matrix with respect to documentary evidences clearly establish that not only the assessee has discharged the onus cast upon it, but has also demonstrated the source of source. Moreover, as mentioned elsewhere, the entire loan amount has been repaid by the appellant company alongwith interest. It would not be out of place to mention here that interest paid on loan for the year under consideration has been allowed as expenditure by the AO. Further, in so far as the addition in respect of loan from Kalol Kutir Pvt Ltd and New KMS Finance Ltd are concerned, the Assessing Officer has made additions simply on the basis of report of the DDIT, INV read with the statement of Shri Binod Agarwal. The appellant company has successfully discharged the onus cast upon it by virtue of provisions of section 68 alongwith the demonstrative evidences and hence, the additions sustained by the CIT(A) have to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of addition of ?4.50 crores under Section 68 of the Income-tax Act, 1961.
2. Assessment of identity, genuineness, and creditworthiness of the lender companies.
3. Evaluation of the evidentiary value of the DDIT (Inv) report and the statement of Shri Binod Agarwala.
4. Compliance with procedural requirements by the Assessing Officer in issuing and following up on notices and summons.

Issue-wise Detailed Analysis:

1. Confirmation of Addition under Section 68:
The primary grievance was the confirmation of an aggregate addition of ?4.50 crores made under Section 68 of the Income-tax Act, 1961. The assessee contended that it had provided sufficient evidence to establish the identity, genuineness, and creditworthiness of the three lender companies. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] had concluded that the assessee failed to discharge the onus cast upon it by Section 68, leading to the confirmation of the addition.

2. Assessment of Identity, Genuineness, and Creditworthiness:
The assessee provided confirmations from the lender companies, copies of income tax returns, relevant bank statements, balance sheets, and profit and loss accounts. The AO observed that the lender companies had negligible business activities and their balance sheets did not reflect any significant assets or liabilities. Despite the financial statements showing substantial non-current investments and liquidity, the AO concluded that the companies were involved in providing accommodation entries.

3. Evaluation of the Evidentiary Value of the DDIT (Inv) Report and the Statement of Shri Binod Agarwala:
The AO relied on a report from the DDIT (Inv) and the statement of Shri Binod Agarwala, which indicated that the lender companies were managed by a known entry operator and lacked substantial business operations. The assessee argued that the statement was general and did not specifically address the transactions in question. The Tribunal noted that the statement did not directly implicate the assessee and that the AO had not allowed cross-examination of Shri Binod Agarwala, thus questioning the evidentiary value of the statement.

4. Compliance with Procedural Requirements by the Assessing Officer:
The Tribunal observed that the AO had contradicted himself regarding the service of notices and summons. While notices issued under Section 133(6) were returned unserved, the AO claimed that summons under Section 131 were served but remained uncomplied with. The Tribunal noted that the AO did not exercise his powers to enforce attendance, which could have clarified the matter. Additionally, the Tribunal found that the financial statements of the lender companies provided sufficient evidence of their ability to lend the amounts in question.

Conclusion:
The Tribunal concluded that the assessee had successfully discharged the onus cast upon it by Section 68 by providing comprehensive documentary evidence. The Tribunal found that the AO and CIT(A) had not adequately considered the financial statements and other evidence provided by the assessee. The Tribunal also questioned the reliance on the DDIT (Inv) report and the statement of Shri Binod Agarwala without allowing cross-examination. Consequently, the Tribunal directed the deletion of the ?4.50 crores addition and allowed the appeal filed by the assessee.

Judgment:
The appeal filed by the assessee was allowed, and the addition of ?4.50 crores under Section 68 was deleted. The order was pronounced in the open court on 03.06.2019.