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TMI Blog2015 (8) TMI 330X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Only photocopies were available with no original signatures of the creditors. He therefore sent a letter of enquiry to the ADIT(Investigation) Mumbai in respect of those 9 creditors. Subsequently, the AO noted that confirmation letters had not been filed in respect of the following 5 parties from whom loans have been obtained : 1. Shri Anekant Shares & Securities Pvt. Ltd., Mumbai 2. Palasia Leasing & Investment Pvt. Ltd., Mumbai 3. Samyak Shares & Stock Broker Pvt. Ltd., Mumbai 4. Sky Touch Infrastructure Pvt. Ltd., Mumbai 5. Unno Industries Ltd., Mumbai Therefore, the AO issued another letter to the ADIT(Investigation) Mumbai seeking further enquiry in the case of 14 creditors which included the above 5 creditors. Thus, the AO requested enquiry in the case of 23 loan creditors. From the report of the ADIT(Investigation) Mumbai the AO noted that out of 23 cases referred to him only transactions in respect of 2 parties namely Cybertech Online Ltd., Mumbai and M/s. SAR Engineering Ltd., Mumbai could be confirmed. It was stated that the above 2 parties exist on the given addresses and as per their balance sheet and profit and loss account, the transactions with the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, asked the assessee to furnish bank account of these parties and their confirmations. 5. However, the assessee furnished its own bank account showing cheque payments to these parties. The AO observed that while the bank account reveals that the payments have been made in the names of the 7 parties, however, it does not reveal the end result of the money which has been credited to the account of those parties. According to the AO, it is not clear whether cash has been withdrawn after the cheque has been deposited in the absence of the bank accounts of those parties. The AO, therefore, treated the purchases from M/s. Ajay Enterprise, Amit Traders and Raja Traders as inflation of purchases and made addition of Rs. 1,93,66,348/- the details of which are as under : M/s. Raja Traders Rs.1,18,16,453/- M/s. Amit Traders Rs.27,13,144/- M/s. Ajay Enterprises Rs.48,36,751/- Total Rs.1,93,66,348/- Thus, the AO made addition of Rs. 7,09,38,357/- to the total income of the assessee. 6. Before CIT(A) the assessee filed detailed written submission along with certain new evidences. It was submitted that the AO asked the assessee to furnish confirmation letters from the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s.131 of the Act and confirmed to have given loan to the assessee. 9. However, the AO noted that although the creditors have furnished copies of their bank accounts, income-tax particulars and other documents substantiating their identity and have confirmed to have received the interest, however, the loan received from Khandar group of companies cannot be accepted since these companies were not maintaining the books of account and the last return filed by these companies was for A.Y. 2000- 01. The AO further noted that these assessees deposed before the AO that consequent to search action u/s.132 in their group of cases (Khandar group) conducted in the year 1992 at Mumbai, group had offered Rs. 2.10 Crores in the name of 108 entities which was accepted by the Hon'ble High Court of Bombay. After the search the entire financial affairs of the companies/entities of the group were in total mess as a result of which none of the companies of the group have filed their income-tax returns. Subsequently, it was deposed before the AO that there was a fire in the office at Masjid Bandar of Mumbai on 02-11-2001 which damaged all the books of account. In respect of this claim copy of the FIR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in absence of the purchases from these parties, it would not have been possible to attain the sales made and the inventory maintained which has not been controverted by the AO. In view of the above, the Ld.CIT(A) held that the main reason for disallowance of purchases, i.e. non service of notice u/s.133(6) no more survives. Since sufficient evidences were produced before the AO during remand proceedings in respect of the purchases made he held that the disallowance of purchases aggregating to Rs. 1,33,66,348/- cannot be sustained. He accordingly deleted the addition. 13. Aggrieved with such part relief given by the CIT(A) the Assessee as well as the Revenue are in appeal before us with the following grounds : Grounds by Assessee : "Wherever context so require, the following grounds of appeal & prayers are without prejudice to one another and in alternative - 1 . In view of the facts and circumstances of the case, evidences on record and the provisions of law, the learned CIT (Appeals) erred in confirming the addition u/s 68 of the IT. Act, 1961, of Rs. 2,40, 00,000/- on the ground of failure of the assessee to establish the credit worthiness of the concerned loan creditors an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, amend and or withdraw any grounds of appeal as and when the occasion demands." 14. The Ld. Counsel for the assessee while arguing the disallowance confirmed by the CIT(A) on account of loan taken amounting to Rs. 2,40,00,000/- from the Khandar group of companies submitted that the assessee has taken loan from 9 concerns of the Khandar group amounting to Rs. 2,40,00,000/-. All the 9 private limited companies have confirmed to have given loan to the assessee and their confirmation letters are placed at page 58 to 119 of the paper book. Referring to various pages of the paper book the Ld. Counsel for the assessee submitted that the certificate of incorporation of all these companies are placed in the paper book. He submitted that except in the case of Kapil Marketing Pvt. Ltd. and Kushal Dye-Chem Pvt. Ltd. the PAN Number of all the creditors are furnished in the paper book, copy of bank statements of all the creditors are also placed in the paper book. He submitted that the loan taken from these parties have been received through bank cheques. All the above parties have appeared before the AO and confirmed to have given the loans to the assessee company and this fact is also noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e directors of the creditor companies have appeared before the AO and have confirmed to have given the loan to the assessee company, therefore, addition, if any, has to be made in their hands and no addition can be made in the hands of the assessee since the assessee has discharged the burden cast on it. The assessee is not required to prove the source of the source. He accordingly submitted that the addition made by the AO and sustained by the CIT(A) is not justified since the assessee has proved the source of the cash credit and he is not required to prove the source of the source. 16. So far as the appeal of the Revenue is concerned he submitted that the AO disallowed the purchases from Ajay Enterprises amounting to Rs. 48,36,751/-, Amit Traders amounting to Rs. 27,13,144/- and M/s. Raja Traders amounting to Rs. 1,18,16,453/-. Although the CIT(A) has deleted the purchases made from the above 3 parties, the Revenue has filed the appeal in respect of deletion of purchases from M/s.Amit Traders and M/s.Ajay Enterprises amounting to Rs. 27,13,144/- and Rs. 48,36,751/- respectively. Referring to para 5.1 to 6.1 of the remand report, the Ld. Counsel for the assessee drew the attentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments like certificate of registration with ROC, Memorandum and Articles of Association, bank statements etc., the assessee cannot be absolved from the onus cast on it. The assessee in the instant case has failed miserably to substantiate the credit worthiness of the above companies especially when they have not filed their return of income after A.Y. 2000-01. He accordingly submitted that the order of the CIT(A) on this issue be upheld. 19. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. So far as the appeal filed by the assessee is concerned, we find the AO made addition of Rs. 4,72,15,000/- u.s.68 of the I.T. Act in respect of 21 creditors on the ground that the assessee failed to discharge the onus cast on it regarding the ingredients of section 68 such as the identity and capacity of the creditors and the genuineness of the transaction. We find the Ld.CIT(A) deleted the addition in respect of 12 creditors amounting to Rs. 2,32,15,000/- for which the Revenue is not in appeal. So far as the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... informed about the above proceedings vide this office letter dated 25/02/2011 and the presence of their representative was requested for, in case they would like to cross examine any of the above persons. The loans creditors were asked to attend this office with the following details/evidence. (i) Evidence with respect to their identity. (ii) Copy of the relevant income tax return along with the Balance sheet / schedule, reflecting the above loan. (iii) Copy of the bank account reflecting the above loans (iv) Books of accounts pertaining to the above period. (v) Details / evidence in respect of receipt of interest on the above loan and its reflection in the hooks of accounts/income tax return 3.1 The trade creditors were asked to attend this office with the following details/evidence. (i) Evidence with respect to their identity (ii) Copy of relevant income tax return along with the Balance sheet/schedule reflecting the above purchases. (iii) Details of receipts related to the purchases. (iv) Copy of bank account reflecting the receipts related to the above purchases (v) Books of accounts pertaining to the above period, (vi) Bills, Transport/octroi receipts pertaining to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company is regularly assessed to tax. The deponent has further furnished information of the loans advanced, interest received, repayments of the year under consideration which are given in the note(**) below Duratex India Pvt. Ltd., Masjid Bandar, Mumbai (AABCD3996N) -do- (**) Name of company Details of Loans Opening Addition Interest (Net) Repayment Total as on 31/3/2007 Roselin Plastics Pvt. Ltd., 4375961 1500000 459240 375961 5959240 Duratex India Pvt. Ltd., Mumbai 3115979 3000000 388989 215979 6288989 4.3 Name of company Details of filing of returns Shri Anekant Shares and Securities Private Ltd., Mumbai (AAKCS4932J) In compliance to the summon issued Shri Saniay A Choudhary, C.A authorized by the Director of the company attended. His statement was recorded u/s 131 of the I.T. Act 1961. The deponent confirmed that loan amount as mentioned in para 2 above was advanced to the BGTL In support of the identity and genuineness of the transactions. Memorandum and Article of association, certificate of incorporation, copies of bank accounts relating to advancing the loan, repayment, audited financial statements, copy of income tax r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jid Bandar, Mumbai on 02-11-2001 which damaged all the books of accounts. In support of this claim, copy of the Fire report is also submitted. Hence, after that incident, none of the group companies have finalised their accounts/not filed their IT returns. On a query in respect of the credits seen in the bank accounts prior to advancing loans, it is deposed that the same are through internal fund arrangements. The deponent has further furnished information of the loans advanced, interest received, repayments during the year under consideration which are given in the note (**) below Senior Marketing Pvt. Ltd., Mumbai (AAACS9166N) -do- Kapil Marketing Pvt. Ltd., Mumbai (AABCK6480C) -do- Kausal Dyechem Pvt. Ltd., Mumbai (AAACK2595F) -do- Mona Traders Pvt. Ltd., Mumbai (AAACM4652M) -do- (**) Name of company Details of Loans Opening Addition Interest (Net Repayment Total as on 31/3/2007 Amrut Marketing Private Ltd 3552762 5050000 605874 2060302 7148334 Senior Marketing Pvt. Ltd., 1755674 3100000 294018 2005674 3144018 Kapil Marketing Pvt. Ltd 2009052 2600000 346887 1509052 3446887 Kausal Dyechem Pvt. Ltd., 501275 900000 123645 1275 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4750000 699430 550740 8949430 4.6 Name of company Details of filing of returns Namra Exports Pvt. Ltd., 96, Kazi Sayyad Street, Masjid, Mumbai (AAACN2079F) In compliance to the summon issued Shri Amrut N. Khose, employee duly authorised by the Director of the company attended. His statement was recorded u/s.131 of the I.T. Act, 1961. The deponent confirmed that loan amount as mentioned in para 2 above was advanced to the BGTL and also confirmed receipt of interest. In support of the Identity and genuineness of the transactions, Memorandum and Article of Association, certificate of incorporation, copies of bank accounts relating to advancing the loan, repayment etc were submitted during the proceedings. The company has not maintained books of accounts and the last return filed by the company was of A.Y. 2000-01. In this regard, it is deposed that consequent to search action u/s.132 in their group of cases (Kandhar Group) conducted in the year 1992 at Mumbai, the group offered to tax an amount of Rs. 2.10 crores in 108 entities which was accepted by the Hon'ble High Court of Bombay. After the search, the entire financial affairs of the companies/entities of the group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the above mentioned adjournment letters and in the matter of the transactions with the said concerns, his statement was recorded on 08/03/2011. In support of the impugned transactions, Shri Ravindra Kumar Jain furnished copies of confirmation of the accounts of the said parties, copy of income tax return of the said persons obtained by him from them for the purpose of the submitting the same to the CIT(A)-II, Nashik. Copies of purchase bills along with debit/ credit (deduction advices, material receipt note of BGTL and copies of Weighment slips of each consignment. "After examination of the loan creditors as discussed in detail in Para 2, 3 & 4 above, it is submitted that the identity of all the 21 creditors stands fully established, as necessary evidence with regard to the same have been furnished by the creditors during the proceedings. With regard to the genuineness of the transactions and credit worthiness of the loan creditors as regard the creditors in paras 4.1 to 4.3, the books of accounts produced and copies of I.T returns/Balance sheet, etc,, submitted during the course of the proceedings, substantiate the above parameters. However, the loan credits discussed in para 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd out the capacity of those loan creditors. 19.3 It is the settled proposition of law that for accepting any cash credit as genuine the onus is always on the assessee. The assessee has to prove to the satisfaction of the AO regarding the identity and capacity of the loan creditor and the genuineness of the transaction. Although in the instant case by producing various documents such as ROC Incorporation Certificate, PAN No., bank statement of the lender company and producing the directors of the respective companies, the assessee has discharged the onus so far as identity of these companies are concerned, however, the capacity of the loan creditors and genuineness of the transactions remain unproved especially when these companies have not filed their return of income after A.Y. 2000-01, a fact admitted by the Ld. Counsel for the assessee himself. The fact that due to the complete mess of the financial affairs of the assessee companies, the accounts could not be prepared raises suspicion in mind so as to explain the capacity of these companies to extend such huge loans to the assessee company. Merely because they were searched in the past and had declared huge amount during long ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid subsequently through account payee cheque. Considering the entirety of the aforesaid circumstances, in our view, the assessee had duly discharged its burden cast under section 68 of the Act so as to prove the three ingredients, namely, identity, creditworthiness of the lenders as well as genuineness of the transactions. The Assessing Officer having regard to the material on record and in law proceeded on mere presumptions and surmises to disbelieve the explanation furnished by the assessee." 19.5 However, in the instant case, although the loan creditors are Private Limited Companies neither they have maintained accounts nor filed their return of income on the ground that the entire financial affairs of the companies/entities of the group were in the total mess, therefore, the genuineness of the transactions and capacity of the loan creditors are doubtful. Therefore, the various case decisions relied on by the Ld. Counsel for the assessee including the decision of the Pune Bench cited (Supra) are not applicable to the facts of the present case. In view of the above, we uphold the order of the CIT(A) on this issue and the grounds raised by the assessee on this issue are dismisse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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