2021 (11) TMI 807 - AT - Income Tax

Addition u/s. 68 - unexplained cash credit - addition 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 - DR submitted that based on information from the Investigation Wing that the assessee had taken unsecured loan 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 capital and unsecured loan in lieu of commission - CIT-A deleted the addition - HELD THAT - All the ten (10) lender companies are corporate entities which are incorporated by the ROC and thus the existence and status of them can be taken note by the A.O. from the master data available in the public domain/website of ROC; And it was brought to our notice that these companies are still 'active' companies which are discernable from ROC website. 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 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 on the part of officers who elicited the statement as they wished, so the statement/truth of the contents of the statement cannot be relied upon by the A.O. and doing so is bad in law; and therefore according to us, it could not have been the basis to draw adverse inference against the assessee company in respect of loan taken by it. A.O. had summoned Shri Raj Kumar Kothari and his statement has been recorded by him from which he could not elicit any incriminating material/statement against the assessee/loan transaction or can term the assessee as a beneficiary. And neither the AO has carried out any enquiry regarding creditworthiness of the lenders from their respective AO's, without which AO of the assessee could not have drawn adverse view of un-worthiness of credit in respect of lenders as held by the Hon'ble Calcutta High Court in the case of M/s. Dataware Private Limited 2011 (9) TMI 175 - CALCUTTA HIGH COURT so the A.O. of the assessee erred in branding the lender companies as lacking in creditworthiness. 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 - AO has not found any infirmity with the documents filed by the assessee to prove the loan transactions as discussed supra. So, other than the third party statement, which did not incriminate the assessee, and which was retracted, and while giving statement to AO Shri Kothari having confirmed the loan transaction with assessee and since Shri Kothari has corroborated the transaction, the retracted statement should not have been used as the basis to draw adverse inference against the assessee. Therefore, no addition was warranted. - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition of ?1,50,10,000/- under Section 68 of the Income Tax Act.
2. Deletion of addition of ?13,34,669/- under Section 69C of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Deletion of Addition of ?1,50,10,000/- under Section 68 of the Income Tax Act:

The Assessing Officer (AO) added ?1,50,10,000/- to the assessee's income under Section 68, alleging that the unsecured loans from ten companies were from shell companies controlled by an entry operator, Shri Raj Kumar Kothari. The AO based this on Kothari's statement recorded under Section 131, where he admitted to providing accommodation entries. The AO also noted the financials of certain lender companies and concluded they lacked financial worth.

The assessee contested this, pointing out that Kothari's statement did not directly implicate them and was recorded behind their back. The assessee requested cross-examination of Kothari, which was not facilitated as Kothari did not appear despite summons. The AO maintained the addition, asserting the loans were the assessee's own money introduced as unsecured loans.

The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, noting that the assessee provided substantial documentary evidence, including confirmations, financial statements, IT acknowledgments, and bank statements of the lenders. The CIT(A) emphasized that the AO relied on Kothari's statement without independent verification and did not bring any adverse material to disprove the assessee's evidence. The CIT(A) cited judicial precedents, including the Hon'ble Gauhati High Court's decision in Shri Nemi Chand Kothari vs. CIT, which held that once the assessee proves the identity and creditworthiness of the creditor, the burden shifts to the AO to prove otherwise.

The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, agreeing that the assessee had discharged its onus to prove the identity, creditworthiness, and genuineness of the loan transactions. The ITAT noted that the AO's reliance on Kothari's retracted statement was misplaced, especially since Kothari confirmed the genuineness of the loan transactions in a subsequent statement to the AO. The ITAT also highlighted that the AO did not conduct any inquiry with the AO of the lender companies to verify their creditworthiness, as required by the Hon'ble Calcutta High Court in CIT vs. Dataware Pvt. Ltd.

2. Deletion of Addition of ?13,34,669/- under Section 69C of the Income Tax Act:

The AO disallowed ?13,34,669/- as bogus expenditure under Section 69C, corresponding to the interest paid on the alleged bogus loans. The CIT(A) deleted this addition, reasoning that the interest payments were genuine, supported by documentary evidence, and subjected to Tax Deducted at Source (TDS).

The ITAT affirmed the CIT(A)'s decision, noting that the interest payments were made through banking channels and the lenders had acknowledged the interest income in their tax returns. The ITAT reiterated that the AO failed to disprove the assessee's evidence and relied solely on Kothari's retracted statement, which lacked evidentiary value.

Conclusion:

The ITAT dismissed the revenue's appeal, confirming the CIT(A)'s deletion of the additions under Sections 68 and 69C. The ITAT emphasized the importance of independent verification and the need for the AO to provide concrete evidence when disputing the assessee's claims. The decision underscores the principle that once the assessee discharges its initial burden of proof, the onus shifts to the AO to disprove the evidence provided.