2004 (3) TMI 335 - AT - Income Tax

Cash credits - onus to prove - Nature and genuineness of the impugned loan - Whether the transaction of unsecured loan is a sham transaction - HELD THAT - Even if the statement of Shri Parveen Khurana is accepted, yet certain questions remain unanswered which arise out of the enquiries conducted by the AO. The circuitous route of repayment noticed by the AO leads to a definite conclusion that the transactions done through banking channels and that the parties existed and were identifiable as the bank accounts were maintained. Further, the furnishing of the balance sheet of the creditor by the assessee also lends credence to the existence and identification of the source of loans. It is a moot point to consider as to whether all these conclusions could be brought to nought by a mere statement made by the third party, that also, at the back of the assessee. In fact the averment in the statement of Shri Parveen Khurana that monies have been paid in cash on behalf of the assessee-company with respect to the impugned loan is not supported by any material or evidence and hence lacks factual support. Thus, we are of the considered view that the Revenue does not have enough material to justify the conclusion drawn to the effect that the impugned transaction was a sham transaction. In particular, there is no evidence or cogent material brought out by either of the lower authorities which suggests that the assessee had made any payment to the creditor company or to Shri Parveen Khurana outside the books of account. Hence, on account of lack of evidence and factual support, we do not sustain the conclusions drawn that the impugned transaction was a sham. Hence, on the first issue, we hold the issue in favour of assessee. Discharge of onus cast in terms of s. 68 - Admittedly, the impugned amount has been received from M/s Sumit Polymers Ltd. as is discernible from its balance sheet, a copy of which is placed at pp. 17-18 of the paper book filed by the assessee. The said balance sheet evidently reflects adequate sources for advancing of the impugned amount to the assessee. It is also an admitted position that the money has come through the banking channels. Thus, in view of the detailed facts noted by us in earlier paragraphs, the inferences that can be safely drawn are that the creditor is identified; that the creditor has necessary financial capacity to advance the impugned amount. Thus, the duty cast on the assessee u/s 68, is said to have been discharged. Hence, the assessee is liable to succeed on this issue also. In the result, we are of the considered opinion that the impugned additions are liable to be deleted. We hold so.

Summary

Issues Involved:
1. Whether the transaction of unsecured loan from M/s Sumit Polymers Ltd. was a sham transaction.
2. Whether the assessee discharged the onus u/s 68 to explain the nature and source of the impugned credits.
3. Validity of the assumption of jurisdiction u/s 148.

Summary:

Issue 1: Sham Transaction
The primary grievance of the assessee was against the lower authorities' stand that the transaction of unsecured loan from M/s Sumit Polymers Ltd. was a sham transaction. The assessee received loans of Rs. 89.35 lakh and Rs. 33.10 lakh in the assessment years 1995-96 and 1996-97, respectively. The AO held that the assessee had not discharged its onus u/s 68 and concluded that the loans were mere accommodation entries reflecting a sham transaction. This conclusion was based on a statement by Shri Praveen Khurana, director of M/s Sumit Polymers Ltd., during a search operation u/s 132, indicating that the loans were against cash received. The Tribunal found that the statement was not confronted to the assessee, violating principles of natural justice. The Tribunal concluded that the Revenue did not have enough material to justify the conclusion that the transaction was a sham and held the issue in favor of the assessee.

Issue 2: Onus u/s 68
The Tribunal examined whether the assessee discharged the onus u/s 68. The assessee provided the balance sheet of M/s Sumit Polymers Ltd., showing adequate sources for the loan and demonstrated that the transactions were through banking channels. The Tribunal noted that the creditor was identified, had the financial capacity, and the money was received through banking channels. Thus, the assessee was deemed to have discharged its onus u/s 68, and the Tribunal held this issue in favor of the assessee.

Issue 3: Jurisdiction u/s 148
The assessee also contested the AO's assumption of jurisdiction u/s 148, claiming no notice was received. However, since the Tribunal deleted the addition on merits, it refrained from adjudicating this technical objection, considering it a mere academic exercise.

Conclusion:
The Tribunal allowed both appeals of the assessee, deleting the impugned additions and holding that the transaction was not a sham and the onus u/s 68 was discharged.