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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 ..... 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 by the Revenue department through any evidence or material on record. Since the statements relied on by Assessing Officer were not subjected to cross-examination on behalf of the assessee-society and both of them did not appear before A.O. at the assessment stage as well as at remand proceedings, therefore, even if assessee-society do not appear before Assessing Officer in the remand proceedings, the fact remains that their statements could not be subjected to crossexamination on behalf of the assessee-society. Therefore, their statements cannot be read in evidence against the assessee-society. Considering the totality of the facts and circumstances of the case in the light of finding of fact recorded in A.Y. 2008-2009 above, we are of the view that the Ld. CIT(A), on both appreciation of facts and material on record, correctly deleted the addition - Decided in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kunj, New Delhi AADCG0519J 36,00,000 2. M/s. Genesis Conebuild Pvt. Ltd., B-8/6018, Vasant Kunj, New Delhi AADCG1158K 69,46,000 3. M/s. Inovative Cybernetics Pvt. Ltd., B8/6018, Vasant Kunj, New Delhi AABCI8221M 60,00,000 4. M/s. Genesis Medicare Pvt. Ltd., B-8/6018, Vasant Kunj, New Delhi AADCG0517G 20,00,000 5. M/s. Genesis Bistro Pvt. Ltd., B-8/6018, Vasant Kunj, New Delhi AADCG0518K 30,00,000 6. M/s. Vishrut Marketing Pvt. Ltd., 60/39, New Rantak Road, Karol Bagh, Delhi. AAVCB4875C 5,00,000 7. M/s. Cubic Commercial Resources Ltd., 102, Subhash Gali, Sahadara, New Delhi. AACCC2416R 15,00,000 8. Ksa Chits Pvt. Lted., C- 32, Indra Prakash, 21, Barakhambha Road, New Delhi. AACCK5464R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -do- 3,00,000 2,00,000 27.02.2008 27.02.2008 Neelkanth Travels (P) Ltd., -do- 2,50,000 2,50,000 2,00,000 3,00,000 26.02.2008 26.02.2008 01.03.2008 01.03.2008 Delphi International Business Consultants (P) Ltd., -do- 3,00,000 2,00,000 2,00,000 3,00,000 01.03.2008 01.03.2008 26.02.2008 03.03.2008 Kore Knowledge Exchange India P. Ltd., -do- 2,00,000 2,00,000 2,50,000 2,50,000 27.02.2008 27.02.2008 01.03.2008 01.03.2008 Bimal Overseas P. Ltd., Innovative Cybermetics P. Ltd., 2,50,000 2,50,000 Nov. 2007 Nov. 2007 Kore Knowledge Exchange India (P) Ltd., -do- 2,50,000 2,50,000 26.12.2007 28.11.2007 Shiv Man Capital Management P. Ltd., -do- 2,50,000 2,50,000 2,50,000 26.11.2007 28.11.2007 28.11.2007 Delphi International Business Consult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal 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 amounts. However, the assessee has credited/paid substantial amount of interest to the company viz., Genesis which were owned by the Members of the assessee-society and in respect of which, return of income for A.Y. 2008-2009 were verified and signed by Ramprakash Chaddah, one of the Member/Secretary/Trustee of the assessee. It was also found that all the confirmations were filed by Shri Vipin Garg, C.A. on behalf of these 05 companies namely Genesis on 14th September, 2010 along with copies of the accounts. The A.O. however, found doubted about the genuineness of these loans and advances on the reasons that the notice issued under section 133(6) were returned unserved, the confirmations filed by one person i.e., Shri Vipin Garg and the return of income for all the 05 Genesis companies have been singed by Shri Ramprakash Cheddah. The pattern of the confirmation is same. The address of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is an established legal position that the assessee-society is not under legal obligation to prove the source. The assessee-society had denied having filed confirmation of lenders from the above 15 companies. It is stated that it has only filed documents relating to confirmation of investments in the above said 06 companies by the above 15 companies. Therefore, as the assessee-society has not availed any loan from them and hence they could not have issued any confirmatory certificates for loan in favour of the assessee-society. Regarding producing the Principal Officer s of the 15 companies, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eepak 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 statements cannot be read in evidence against the assessee. 3.6. The A.O. however, did not accept the contention of the assessee-society and noted that since the statements of any person have not been recorded by his office, therefore, there is no question of allowing cross-examination. These statements have been used as Information only. The A.O. noted that during the year, for construction of building, assessee-society required funds, which were introduced in the guise of loans and advances from 06 companies of Genesis group. In these, 05 companies of Genesis group, the funds amounting to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material on record, deleted the addition of ₹ 2.20 crores. The findings of the Ld. CIT(A) in paras 5 to 5.1.2 are reproduced as under: 5. After careful consideration of all the facts on record and rival submissions as contained in assessment order and in appellant's submission my various conclusions/observations are as under:- 5.1. In the very beginning of (para 2 3) of assessment order, the A.O. mentions the fact that the assessee has shown unsecured loans amounting to Rs, 4,52,13,816/- in respect of which the assessee submitted confirmations, ITRs for A, Y. 08- 09 and P AN of the lenders, Further A.O. mentions that the assessee was required either to produce the lenders for confirmations of loans or furnish 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 ₹ 2 crore 54 Lacs were received from 5 companies belonging to one group as per details below : - Name of the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital of the afore mentioned five companies to the extent of ₹ 2 Crore 20 Lacs and hence this money was tainted money in the hands of five companies, from whom assessee had received loans and consequently A.O. concluded that the loans raised by the assessee were unexplained cash credits u/s 68 of the Act. 5.2. In the back drop of the above facts, the first and foremost observation is that A.O. has not questioned the lenders , who have given loans to the assessee, but has questioned the genuineness of the companies/concerns who subscribed to share capital of these lenders! In my view, this is stretching the operation of section 68, too far to be correct. Section 68 empowers the A.O. to examine and question the identity and credit worthiness of the immediate lenders , but not the source of the source, except when the immediate source is proved to be a mere conduit having no status and standing of its own. In the present case, the five companies from whom the assessee has taken loans, are assessed to tax and have sufficient credit worthiness by way of share capital raised and they have confirmed that they have given loan to the assessee. It is true that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligation to produce all these companies. The assessee contends that as per provisions of section 68 it had obligation to produce the five lender companies and not the companies which give the funds to the lender companies! 5.5. I would go on to mention that even if we presume that the five lender companies are merely conduit i.e. paper companies having no standing and merely utilized for money laundering purpose; then also revenue is secured if addition is made in their hands ( rather than in assessee s hands) because, firstly, that would be legally appropriate and secondly, because their assets ( loans to the assessee company) can be attached to secure the recovery if the view of the A.O. (that these five companies are conduit companies) succeeds in test of appeals. 5.6. The A.O. makes out a case that the assesses had obtained loans from nine, out of fifteen bogus companies, run by Shri S.K. Gupta in earlier years, and re-paid these loans to them apparently because of survey action carried out by the department in that group; and that the same money has now been routed through these five lender companies, If that be so, again we come back to the basic issue as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been converted into an inference based on requisite evidence. The assessee was never under any legal obligation to produce the fifteen and odd companies, but still the assessee has produced various documents regarding their identity, IT records etc. Further A.O. has also relied on the fact that pattern and font of typing used in all confirmation letters are same. This is no evidence. It is usual that any assessee would obtain confirmation letters from several lenders in the same format, and, may be on pre -written forms. Further the fact that I.T. returns of five companies were verified and signed by Shri R.P. Chadha, one of the member/secretary /trustee of the assessee society, does not prove that the five companies are non genuine companies and are merely conduit, Further the A.O. has made a general allegation that educational societies are taking force fill donations and are then introducing the same in books through loans/share capital. The AOs perception regarding such a generally prevalent malady can, at the best, be a starting point for the investigation, but all the societies cannot be punished only on the basis of said suspicion. Furthermore, A.O. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person in all the group cases. 5.1. The Ld. D.R. submitted that interest and commission issue are consequential in nature which depend upon the genuineness of the credits. The Ld. D.R. submitted that since loans were taken from lender companies who in turn make investments in lender companies and they have failed to appear before A.O. at the assessment proceedings and that assessee-society failed to prove the identity and capacity of these subscriber companies, therefore, the addition was rightly made by the A.O. In support of this contention, Ld. D.R. relied upon the decision of Delhi High Court in the case of (i) CIT vs. Nova Promoters Finlease Pvt. Ltd., 342 ITR 169, (ii) CIT vs. N.R. Portfolio Pvt. Ltd., 263 CTR 456, (iii) CIT vs. Nippan Builders and Developers Pvt. Ltd., 350 ITR 407 and (iv) order of ITAT, Delhi bench in the case of KSA Chits Pvt. Ltd., vs. DCIT dated 20th March, 2015 in which it was noticed that Shri S.K. Gupta went to Settlement Commission for settlement of the issue. 6. On the other hand, the Learned Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that A.O. has referred to 14 parties from whom loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -society filed confirmation letters, copies of ITR, copies of PAN, copy of bank statements and balance sheets of all the lender companies i.e., Genesis group of cases and Innovative Cybrenetics Pvt. Ltd., before the A.O. The A.O. asked the assesseesociety either to produce lenders for confirmation of the loans or furnish their documents to justify the genuineness of the transaction in the matter. The assessee-society accordingly, filed the above documents before A.O. to prove identity of the lenders, their creditworthiness and genuineness of the transaction in the matter. The assessee-society also requested the A.O. that in case, there is any further requirement of the A.O. with respect to production of the party, he may summon them. The A.O. specifically noted details of all the loans and advances received by the assessee-society during the assessment order under appeal which are also reproduced above. However, the A.O. instead of making any enquiry from all these five lender companies who have given loans to the assesseesociety during assessment year under appeal in sum of ₹ 2.54 crores, has proceeded to make enquiries in case of 15 companies who have made investments in sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been examined and they were also not summoned by the A.O. The A.O. also admitted that the statement of Shri S.K. Gupta and Shri Deepak Jain, has not been recorded by his Office. Therefore, they were not allowed to cross-examine on behalf of the assesseesociety. Therefore, such statements which were not subject to crossexamination on behalf of the assessee-society, cannot be read in evidence against the assessee-society. We rely upon the decisions of Hon ble Supreme Court in the case of Kishan Chand Chelaram 125 ITR 713. Hon ble Supreme Court in the case of CIT vs. Lovely Exports Pvt. Ltd., 216 CTR 195 held that if the share application money is received by the assessee-company from alleged bogus share holders whose names are given to the A.O, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assesseecompany. 9.1. The Hon ble Delhi High Court in the case of CIT vs. Vrindavan Farms P. Ltd. Etc. in ITA.No.71/2015 dated 12.08.2015 in which the sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their return of income. It was observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of the documentary evidences have been able to establish that the share holders are genuine parties and they are not bogus and fictitious. The Hon ble Delhi High Court in the case of CIT vs. Divine Leasing Fin. Ltd., 299 ITR 268 held that no adverse inference should be drawn if shareholders failed to respond to the notice by AO. 9.4. The Hon ble M.P. High Court in the case of CIT vs. Peoples General Hospital Ltd., (2013) 356 ITR 65 held that dismissing the appeals, that if the assessee had received subscriptions to the public or rights issue through banking channels and furnished complete details of the shareholders, no addition could be made under section 68 of the Income-tax Act, 1961, in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented the company's own income from undisclosed sources. It was nobody's case that the non-resident Indian company was a bogus or nonexistent company or that the amount subscribed by the company by way of share subscription was in fact the money of the assessee. The assessee had established the identity of the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had been able to prove the identity of the share applicants and the share application money had been received by way of account payee cheques. On appeal to the High Court: Held, dismissing the appeals, that the deletion of addition was justified. 9.6. The Hon ble Delhi High Court in the case of CIT vs. Winstral Petrochemicals P. Ltd., 330 ITR 603 (Del.) held that dismissing the appeal, that it had not been disputed that the share application money was received by the assessee-company by way of account payee cheques, through normal banking channels. Admittedly, copies of application for allotment of shares were also provided to the Assessing Officer. Since the applicant companies were duly incorporated, were issued PAN cards and had bank accounts from which money was transferred to the assessee by way of account payee cheques, they could not be said to be non-existent, even if they, after submitting the share applications had changed their addresses or had stopped functioning. Therefore, the Commissioner (Appeals) and the Tribunal were justified in holding that the genuineness of the transactions had been duly established by the assessee. 9.7. Hon ble Delhi High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7-2008) : 14. In this appeal, the Revenue challenged the deletion of addition of ₹ 1.20 crores on account of unexplained cash credit. The facts are same as have been considered by us in A.Y. 2008-09. The assessee-society has been granted registration under section 12A and 80G of the I.T. Act. The assessee-society is running various educational institutions. During the assessment proceedings for A.Y. 2008-2009, it came to the notice of the A.O. that assessee-society has received bogus loans. Therefore, assessment was reopened under section 147/148 of the I.T. Act. The objections of the assessee-society for reopening of the assessment were rejected. The A.O. found that assessee-society has received loans of ₹ 1.20 crores from 11 parties as noted in para-6 of the assessment order. The assessee-society filed confirmations, bank statement, balance sheet, ITR etc., to prove genuineness of credits. The A.O. referred to assessment order for A.Y. 2008-2009 and his findings recorded therein. The assessee-society was asked to produce the creditors. In the absence of satisfactory explanation, the A.O. considered the loans and advances received from 11 parties as unexplained l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh banking channel which have been reflected and recorded in the books of account of the assessee-society and the lender companies, therefore, it was the suspicion of the A.O. only to make addition against the assessee-society. He has noted that suspicion cannot take place of proof. The assessee-society, therefore, proved genuineness of the transaction as well. The statements relied on by Assessing Officer were not considered as incriminating in nature because they were not allowed to cross-examine on behalf of the assessee-society and did not name assessee as beneficiary. The Ld. CIT(A) relied upon several decisions of the Hon ble Supreme Court and High Court for coming to the conclusion that assessee-society received genuine loans and advances from 11 parties. The Ld. CIT(A) accordingly, deleted the addition. 16. After considering the rival contentions, we do not find any merit in the Departmental appeal. The Ld. D.R. relied upon the order of the A.O. and also submitted that Ld. CIT(A) called for the remand report on examination of Shri S.K. Gupta and Shri Deepak Jain but they did not appear before A.O. at the remand proceedings. Therefore, addition was correctly made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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