2016 (5) TMI 238 - AT - Income Tax

Addition of unsecured loan received from 10 persons added u/s 68 - ingenuity - Held that - Regarding the identity of the creditors it has been proved by the assessee beyond doubt as all the lenders are having permanent account number bank account and have filed their return of income. While filing the computation of total income along with return of income only income from embroidery and knitting is mentioned. There is no detail of gross income or expenditure incurred by these assesses on their respective business is shown. All the computation of income statement of affairs and capital account has been prepared in similar fashion. Surprisingly all the 10 lenders have opened their bank account with the same branch of Dena bank i.e. Dena Bank Subash Bazar Meerut City. It is also surprising that the address of all the parties is 13 Ismail Nagar Meerut City. All these lenders have come together and deposited cash in their bank accounts with the same bank and then deposit these amounts with the assessee as well as its sister concern on the very next day proves more than what is saidby lower authorities. Therefore in the case of these 8 ladies wherein the identicalmodus operandi has been adopted for giving alleged loan to the assessee who are having their meager income and has meager cash in hand and have minimum bank balance with them. We are of the view that the assessee has miserably failed to prove the creditworthiness of these lenders. Coming to the issue of genuineness of these transaction because loan is through banking channel it cannot surpass the test of genuineness of the transaction on the facts narrated above in the case of the assessee. Similarly in the case of other two other assesses who have deposed before the AO regardingdeposit Rs. 5 lacs each are also dealt in a similar manner. In case of Mr. Ashique Elahi the income of Rs. 210, 000/- has been shown however there is no narration in the computation of total income about the activities of these persons. In the statement of affairs cash at hand of Rs. 170, 000/- has been shown further in his bank account only cash of Rs. 25, 000/- is available. In the case of Rehmat Elahi the facts are also identical. Therefore all these evidences in case of lenders lead that theidentity of these creditors have been proved and nothing else. In view of the above facts we confirm the order of the learned Commissioner of Income tax (Appeals) confirming addition of Rs. 6125000/- with respect to 10 lenders unsecured loan added u/s 68 - Decided against assessee Addition u/s 41(1) - Held that - It is apparent that Mr. Asraf Sohail appeared before the AO and confirmed that he is a broker and purchase of animals has happened through him. It is also submitted that it is modus operandi of the assessee to credit the name of broker instead of petty suppliers. However the name of those suppliers who supplied animals through this broker was not made available by the assessee before the lower authorities. Therefore in the interest of justice we set aside this ground to the file of the AO to enquire from whom the assessee has purchased animals and how payment have been made to the subsequent. If Asraf Sohail has received the payment then the statement of Asraf Sohail needs to be verified and reexamined and if the paymentsare made to the petty suppliers then definitely the assessee must be having detail about them. Regarding the claim of the modus operandi existing we are of the view that the assessee may be entering purchase transaction through various other brokers and whether similar modus operandi prevails or not. This fact has not been verified by AO therefore also we set aside this issue to the file of AO to make enquiry in accordance with law after affording proper opportunity to the assessee.

Summary

Issues Involved:
1. Addition of Rs. 61,25,000/- under Section 68 of the Income Tax Act, 1961.
2. Addition of Rs. 11,09,350/- under Section 41(1) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Addition of Rs. 61,25,000/- under Section 68 of the Income Tax Act, 1961

The assessee challenged the addition of Rs. 61,25,000/- made by the Income Tax Officer (ITO) under Section 68 of the Income Tax Act, 1961, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee argued that the loans were genuine, supported by documents, affidavits, and statements on oath. However, the CIT(A) found the loans not genuine, questioning the creditworthiness of the lenders and the genuineness of the transactions.

Facts and Findings:
- The assessee, a private limited company engaged in the business of processing and trading Frozen Foods, filed a return showing NIL income.
- During assessment, it was found that the assessee borrowed Rs. 61,25,000/- from 10 persons through unsecured loans.
- The Assessing Officer (AO) observed immediate cash deposits in the lenders' accounts, followed by cheque transfers to the assessee's account, raising doubts about the genuineness of the transactions.
- Eight of the lenders were women who claimed to be Pardanashin and exempt from personal attendance, submitting affidavits instead.
- The AO noted that the lenders' sources of income were from embroidery, knitting, and trading of sarees, and they should have appeared for verification.
- The CIT(A) found it improbable that individuals with such modest means would deposit large sums of cash on a single day and then issue cheques to the assessee, suggesting it was a facade for introducing the assessee's own money as loans.

Tribunal's Decision:
- The Tribunal examined the evidence, including bank statements, affidavits, and income tax returns of the lenders.
- It concluded that while the identity of the lenders was proven, the creditworthiness and genuineness of the transactions were not.
- The Tribunal noted that the lenders' income tax returns showed meager incomes, and their statements of affairs were prepared identically, raising further doubts.
- The Tribunal upheld the CIT(A)'s decision, confirming the addition of Rs. 61,25,000/- under Section 68.

Issue 2: Addition of Rs. 11,09,350/- under Section 41(1) of the Income Tax Act, 1961

The assessee also contested the addition of Rs. 11,09,350/- made under Section 41(1), arguing that the liability was genuine and related to purchases through a commission agent, Mr. Ashaf Sohail.

Facts and Findings:
- Mr. Ashaf Sohail, in response to summons, admitted he was a commission agent and not directly engaged in the business of selling animals.
- The AO concluded that Mr. Sohail was not a genuine creditor, as the assessee recorded his name instead of the actual suppliers.
- The CIT(A) upheld this addition, agreeing with the AO's findings.

Tribunal's Decision:
- The Tribunal acknowledged Mr. Sohail's statement and the assessee's claim of recording transactions in the broker's name.
- It noted that the assessee failed to provide details of the actual suppliers.
- In the interest of justice, the Tribunal set aside this issue, directing the AO to verify the actual suppliers and the payments made, and to re-examine Mr. Sohail's statement.
- The Tribunal allowed this ground, remanding the matter back to the AO for further inquiry.

Conclusion:
The appeal was partly allowed. The addition of Rs. 61,25,000/- under Section 68 was confirmed, while the addition of Rs. 11,09,350/- under Section 41(1) was set aside for further verification by the AO. The order was pronounced in the open court on 15.03.2016.