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TMI Blog2017 (10) TMI 999X X X X Extracts X X X X X X X X Extracts X X X X ..... ission/entry charges. 3. The facts of the case are that assessee is an educational society which is duly registered under Societies Registration Act. The assessee-society has been granted registration under section 12AA of the I.T. Act vide Certificate dated 15th June, 1995 given by the then Commissioner of Income Tax, Meerut and Exemption Certificate under section 80G issued on 7th June, 2005 by Commissioner of Income Tax, Ghaziabad. The assessee-society is running 09 educational institutions. The return declaring -NILincome was filed. The case of the assessee-society was selected for scrutiny. From the perusal of the details furnished, it was observed that assessee has shown unsecured loans amounting to Rs. 4,52,13,816 in respect of which assessee submitted confirmations, ITRs and PAN of the lenders. To examine the identity, capacity and creditworthiness of the lenders, notice under section 133(6) of the Act, were sent to the following lenders on the given address on test check basis which were returned un-served with postal remarks "either refused or incomplete address". Sl.No. Name & Address of the lender PAN Amount (Rs.) 1. M/s. Genesis Cybernetics Pvt. Ltd., B-8/6018, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid during year Intt. Credited/ paid during year. 1. G S Holdings Pvt. Ltd., OP. Bal. 8,98,323 1,02,645 2. Genesis Bistro Pvt. Ltd., 18.01.2008 08.2.2008 10,00,000 20,00,000 48,493 3. Genesis Conbuild Pvt. Ltd., 15.2.2008 20.2.2008 28.2.2008 04.3.2008 04.3.2008 04.3.2008 07,00,000 02,00,000 20,00,000 15,00,000 16,00,000 09,00,000 57,945 4. Genesis Cybermetics Pvt. Ltd., 5.12.2007 5.12.2007 5.12.2007 20,00,000 15,00,000 15,00,000 15,00,000 20.2.2008 1,43,014 5. Genesis Medicare Pvt. Ltd., 02.2.2008 08.2.2008 10,00,000 10,00,000 30,137 6. Innovative Cybermetics Pvt. Ltd., 05.12.2007 05.12.2007 05.12.2007 26.03.2008 25,00,000 10,00,000 25,00,000 25,00,000 25,00,000 21.2.2008 1,69,041 Total 2,54,00,000 5,51,275 3.2. From the details furnished, it was found that following companies have introduced money towards share capital in the companies named with prefixed "Genesis" and Innovative Cybrenetics P. Ltd. The same was further advanced to the assessee in the form of loans and advances as mentioned above at Sl.No. 2 to 6. Name of Co. contributing towards alleged share application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .02.2008 06.02.2008 09.02.2008 Delphi International Business Consultants (P) Ltd., -do- 3,00,000 2,00,000 2,50,000 06.02.2008 06.02.2008 06.02.2008 Kore Knowledge Exchange India (P) Ltd., -do- 2,50,000 2,50,000 3,00,000 2,00,000 06.02.2008 06.02.2008 06.02.2008 06.02.2008 Mega Top Promoters P. Ltd., -do- 5,00,000 07.01.2008 Bimal Overseas Pvt. Ltd., Genesis Bistro Pvt. Ltd., 3,00,000 2,00,000 27.02.2008 27.02.2008 Neelkanth Travels (P) Ltd., -do- 2,50,000 2,50,000 06.02.2008 06.02.2008 Rex Pharma Lab Pvt. Ltd., -do- 3,00,000 2,00,000 2,50,000 2,50,000 06.02.2008 06.02.2008 26.02.2008 26.02.2008 Shiv Man Capital Management Pvt. Ltd., -do- 3,00,000 2,00,000 26.02.2008 26.02.2008 Mani Mala Delhi Properties Pvt. Ltd., -do- 4,00,000 2,00,000 04.02.2008 04.02.2008 Lotus Realcon Pvt. Ltd., -do- 3,00,000 04.02.2008 Hum Tum Marketing Pvt. Ltd., -do- 3,00,000 3,00,000 04.02.2008 FY.07-08 Total 2,20,00,000 3.3. Further it was noticed from the details furnished that assessee has claimed loans and advances from the same concerns in A.Y. 2007-2008, which were repaid during the year without any corresponding interest paid on these amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ediate preceding assessment years. The assessee-society, however, did not produce the lenders before A.O. The assessee society filed written reply stating therein that the assessee society has taken loans from the following 06 companies during the year under consideration. G.S. Holdings Pvt. Ltd., Rs. 1,02,645 Genesis Bistro Pvt. Ltd., Rs. 30,38,503 Genesis Conbuild Pvt. Ltd., Rs. 69,46,008 Genesis Cybernetics Pvt. Ltd., Rs. 36,13,553 Genesis Medicare Pvt. Ltd., Rs. 20,23,929 Innovative Cybernetics Pvt. Ltd., Rs. 61,34,218 Total Rs. 2,18,58,856 3.5. It was further submitted that in respect of 15 companies, assessee-society had also filed documentary evidence in the shape of Board Resolution, Affidavits of Directors, Memorandum of Association and Articles of Association as they have invested in above 06 companies to substantiate the investments by the said companies to satisfy the O/o. A.O. regarding 'the source of the investments of the companies who have given loans to the assesseesociety during the year under consideration. The names of these 15 companies are mentioned at page-10 of the assessment order which are same as reproduced above. It was also stated that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress but the same have not been served. It is also noted that assessee-society has raised loan from 09 companies out of these 15 companies in earlier years. Therefore, the assessee-society shall have to prove identity of the lender, their creditworthiness and genuineness of the transactions. But the assessee-society has not proved the same for these 15 companies who have made investments in lender companies. The A.O. also noted that statement of Shri S.K. Gupta, C.A. was recorded by Investigation Wing in which he has confirmed to have provided accommodation entries. Similar statement of Shri Deepak Jain was also recorded who have also provided accommodation entries. The assessee-society further filed reply and reiterated the same facts and it was submitted that the assessee-society has been granted registration under section 12A of the I.T. Act. Therefore, its income is exempt under section 11 of the I.T. Act. The assessee-society received loans from 06 companies only and filed complete documentary evidences of them which have not been doubted. The assessee-society has not been given right to cross-examine the statements of Shri S.K. Gupta and Shri Deepak Jain. Therefore, their sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nish necessary evidence about the source of alleged share application money with Genesis Medicare Pvt. Ltd., M/s. Genesis Conbuild Pvt. Ltd., and M/s. Genesis Bistro Pvt. Ltd., which was channelized by way of loans and advances by the assessee-society. Further, it was seen from the respective copies of the accounts that there are prior deposits of like amounts to the alleged transactions claimed as share application money by the assessee/Genesis group. Name of Co. contributing towards alleged share application money Name of the Co. with whom alleged share application money deposited. Amount Date Mega Top Promoters P. Ltd., Genesis Medicare Pvt. Ltd., 5,00,000 07.01.2008 Victory Software P. Ltd., Genesis Conbuild Pvt. Ltd., 3,00,000 01.03.2008 Virgin Capital Services Pvt. Ltd., -do- 3,00,000 01.03.2008 Finage Leasing & Finance (India) ltd., -do- 2,00,000 01.03.2008 Hum Tum Marketing P. Ltd., -do- 2,00,000 26.02.2008 Shalini Holdings Ltd., -do- 3,00,000 26.02.2008 Mani Mala Delhi Properties Pvt. Ltd., Genesis Bistro Pvt. Ltd., 4,00,000 2,00,000 04.02.2008 04.02.2008 Lotus Realcon Pvt. Ltd., -do- 3,00,000 04.02.2008 Hum Tum Marketing Pvt. Ltd., - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h their documents to justify the genuineness, capacity and credit worthiness. The assessee vide letter dated 28-10-2010 submitted copies of accounts along with confirmation letter, bank account, ITRs, balance sheets of the above parties........." There-after the A.O. has recorded the fact that loans worth Rs. 2 crore 54 Lacs were received from 5 companies belonging to one group as per details below : - Name of the lender Date of receiving loan/ advances Amount received during the year Amount repaid during the year Intt. Credited./ paid during year. 1. G.S. Holdings Pvt. Ltd., OP. Bal 8,98,323 - - 1,02,645 2. Genesis Bistro Pvt. Ltd., 18.1.2008 08.2.2008 10,00,000 20,00,000 - 48,493 3. Genesis Conbuild Pvt. Ltd., 15.02.2008 20.02.2008 28.02.2008 04.03.2008 04.03.2008 04.03.2008 07,00,000 02,00,000 20,00,000 15,00,000 16,00,000 09,00,000 - 4. Genesis Cybernetics Pvt. Ltd., 05.12.2007 06.12.2007 06.12.2007 20,00,000 15,00,000 15,00,000 15,00,000 20.2.2008 1,43,014 5. Genesis Medicare Pvt. Ltd., 02.02.2008 08.02.2008 10,00,000 10,00,000 - 30,137 6. Innovative Cyb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he source of funds raised by these five lender companies are suspicious; that is required to be investigated, in the hands of the five lender companies, and not in the hands of the assessee company!! It is on record that the A.O. has also given intimations to respective AOs of these five lender companies . So, as of now, the assessee cannot be penalized for the suspect, ( if at all), funds raised by the lender companies. Suspicion, however strong, can not partake the character of 'Proof required for making addition. 5.3. The A.O. has relied entirely on the statement of Shri S.K. Gupta and Shri Deepak Jain but it is important to note that these two persons never mentioned the name of the assessee company or even the names of the five lender companies specifically. This also shows that A.O. has carried his presumption too far. Even if a person is investigated for being a Havala Operator and he confesses his modus operandi; specific confession in respect of specific beneficiary should be on record, or else the A.O. of the beneficiary company shall have, after investigation and examination further, making the statement as the basis, been able to prove that the respective benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. 5.7. Even if the impugned fund is a tainted money and the assessee as well as five lender companies are taken to be the same set of group, as A.O. has alleged; still it would be more appropriate to tax such tainted money at the point of receipt. This is because although share capital is virtually for the benefit of share issuing company; loan will always remain a liability of the assessee to be returned back to loan giving companies. 5.8. Merely because Shri R.P. Chadha is a common person, present in the five companies as well in the assessee's society; the fact cannot be brushed aside that all these entities remain legally different and separate. Further A.O. has not even examined Shri Chadha so as to make him confess that these are only conduit companies. The A.O. has not brought any other concrete or supporting evidence for any such conclusion. 5.9. I also find substantial force in the legal contentions raised that A.O, has not given the assessee a chance to cross examine, Shri Deepak Jain and Shri S.K, Gupta, on whose statements the A.O. has so heavily relied. The A.O. himself concedes that this statement has not been recorded by him. Once A.O, is relying, for his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed squarely on the A.O. to prove that cash credit entry was actually assessee5s own money. But the A.O. has not been able to discharge that onus. 5.12. On the basis of the aforesaid discussion, I hold that the A.O. has not made out a sound case for his inference that the loans to the extent of Rs. 2 Crore 20 Lacs are unexplained cash credits. The addition of Rs. 2 Crores 20 Lacs is therefore, deleted." 4. Since the addition on merit has been deleted on account of cash credits, therefore, the proportionate disallowance of interest and commission have also been deleted. The Ld. CIT(A), therefore, deleted the addition of Rs. 5,51,275 and Rs. 6,60,000. Accordingly. the appeal of assessee was allowed. 5. The Revenue is in appeal before the Tribunal and the Ld. D.R. relied upon the order of the A.O. and submitted that the A.O. issued notice under section 133(6) of the I.T. Act to all the share applicants but the same have not been responded. Though the assessee-society filed confirmations, bank accounts and acknowledgment of income tax returns before A.O. but assesseesociety did not produce the 15 parties to get verify their identity, capacity and creditworthiness. The A.O. also is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ics P. Ltd. The statement of Shri S.K. Gupta and Shri Deepak Jain were not provided to the assessee-society which was not recorded by the A.O. and no opportunity was given to cross-examine their statements. There is no entry of further share applicants in the books of account of the assessee-society who made investments in Genesis group of cases and Innovative Cybrenetics Pvt. Ltd. The A.O. did not question the lenders but examined the issue of source of the source. Therefore, the Ld. CIT(A), correctly deleted the addition. The Learned Counsel for the Assessee relied upon several decisions in support of the above contention and mainly relied upon the following decisions. 6.1. In the case of CIT vs. Fine Division Promoters Pvt. Ltd., 380 ITR 289 in which it was held that if the relevant details of the addresses, PAN, identity of creditors/subscribers are furnished to the Department along with the copies of the share holder register, share application forms, share transfer register etc., it would constitute an acceptable proof or acceptable explanation by the assessee. 6.2. In the case of Pr. CIT vs. Softline Creations (P) Ltd., 387 ITR 636 it was held that "Where assessee had prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted fact that assesseesociety did not avail any loans from the 15 parties who have made investment in the lender companies. The A.O. made addition of Rs. 2.20 crores (Rs.1.87 crores + Rs. 33 lakhs) under section 68 of the I.T. Act, in respect of parties who have not given any loans and advances to the assessee-society. Section 68 of the I.T. Act reads as under : "Where any sum is found credited in the books an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the A.O. satisfactory, the sum so credited may be charged to income tax as the income of assessee of that previous year." 7.1. Therefore, before making the addition under section 68 of the I.T. Act, the A.O. shall have to prove that a sum is credited in the books of account of the assessee and that no explanation have been given about nature and source. In the case of the assessee-society, the A.O. made addition of Rs. 2.20 crores in respect of the share applicant companies who have invested in the lender companies. Therefore, Rs. 2.20 crores was not found credited in the books of account of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Court in the case of Lovely Exports Pvt.Ltd. (supra) and judgement of Delhi High Court in the case of CIT vs Divine Leasing & Finance Ltd. [2008] 299 ITR 268. The ITAT confirmed the opinion of the Ld.CIT(A). Hon'ble High Court in view of the above findings noted that the assessee had provided several documents that could have showed light into whether truly the transactions were genuine. The assessee provided details of share applicants i.e. copy of the PAN, Assessment particulars, mode of amount invested through banking channel, copy of resolution and copies of the balance sheet. The AO failed to conduct any scrutiny of the document, the departmental appeal was accordingly dismissed. 9.3. The Hon'ble Supreme Court in the case of M/s. Earthmetal Electrical Pvt. Ltd., vs. CIT dated 30th July, 2010 in SLP. No.21073/99 in which Hon'ble Apex Court held "we have examined the position, we find that the shareholders are genuine parties. They are not bogus and fictitious therefore, the impugned order is set aside." In this case, the Hon'ble Bombay High Court and the ITAT, Mumbai Bench, which was the subject matter in SLP before Hon'ble Supreme Court observed that assessee failed to prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lies on the assesses yet once he proves the identity of the creditors/share applicants by either furnishing their PAN number or income-tax assessment number and shows the genuineness of transaction by showing money in his books either by account payee cheque or by draft or by any other mode, then the onus of proof would shift to the Revenue. Just because the creditors/share applicants could not be found at the address given, it would not give the Revenue the right to invoke section 68. One must not lose sight of the fact that it is the Revenue which has all the power and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the "source of source". The assessee-company was engaged in the business of financing and trading of shares. For the assessment year 2001-02 on scrutiny of accounts, the Assessing Officer found an addition of Rs. 71,75,000 in the share capital of the assessee. The Assessing Officer sought an explanation of the assessee about this addition in the share capital. The assessee offered a detailed explanation. However, according to the Assessing Officer, the assessee failed to explain the addition of share application money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee--society. Assessee filed I.T. returns, PAN, Bank Statements of investor Companies to prove that they are existing assessees of Department and are genuine parties. No efforts are made by A.O. for production of lenders at assessment stage. Therefore, the assessee-society has been able to prove identity of the lenders, their creditworthiness and genuineness of the transactions in the matter. 11. The Ld. D.R. relied upon the decision of Hon'ble Delhi High Court referred to above. In these cases, the gist of the findings are that the assessee failed either to prove the identity or capacity of the subscriber companies or that the amount was received as accommodation entries. However, the assessee--society, in the present case, has been able to prove the identity of the investors, creditworthiness and genuineness of the transaction in the matter. 12. The issue of negligible/low income of the share application and that the share applicants did not appear before A.O. have been considered in the decisions relied upon by us and the additions deleted have been confirmed. Therefore, all these decisions would apply to the facts and circumstances of the case. The decisions relied upon by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lance sheet, ITRs and bank statements of all the creditors and also explained that no cross-examination have been allowed to the statements relied upon by Assessing Officer. Remand report from the Assessing Officer was called for in which A.O. admitted that on the date fixed for crossexamination on behalf of the assessee-society, neither the assesseesociety nor Shri S.K. Gupta appeared before him. It would show that no right for cross-examination have been given to the assesseesociety. The Ld. CIT(A) considering the issue in detail and on the basis of the material on record found that issue is same as have been considered in A.Y. 2008-09 in which he has deleted the addition. The Ld. CIT(A) reproduced his order for A.Y. 2008-09 for the purpose of deleting the addition. However, in the background of the facts, Ld. CIT(A) also examined independently the identity and the creditworthiness of all the creditors. The Ld. CIT(A) found that all the lender companies exists, had their Offices, registered with ROC and assessed to tax. They have filed their PAN which is also on record along with copy of the income tax return. The Ld. CIT(A) from the balance sheet and other material on record of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 008-2009, also examined the identity, creditworthiness and genuineness of the transaction in the matter. The Ld. CIT(A) on examination of the evidence and material on record, found that all the lender companies are registered with ROC and regularly assessed to income tax and filed their PAN and copy of the acknowledgment of filing their return. Therefore, the identity of the lender companies have been proved. The Ld. CIT(A) also examined their balance sheet and other material on record to show that all the lender companies have regular source of income and they have sufficient funds with them to give loans to assessee-society. Their source are coming from earlier years and all the loans and advances have been given through banking channel. Therefore, all the lenders have sufficient capacity to give loans and advances to the assessee-society. The Ld. CIT(A) found that the loans and advances have been repaid in same year or in the next year through banking channel which would support the findings of the Ld. CIT(A) that the lender companies were genuine companies and have given loans/advances to assessee-society. The findings of fact recorded by the Ld. CIT(A) have not been rebutted b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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