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TMI Blog2020 (11) TMI 937X X X X Extracts X X X X X X X X Extracts X X X X ..... n enquiry assessee was able to bring on record the present address. On record that the parties are in existence as per the ROC records and they are traceable with the fact that they ve filed the PAN detail and letter of confirmation. As discussed above, as long as the assessee submits the PAN and other details to trace the parties from whom assessee has taken unsecured loans and as per the financial records, all the parties are in a position to lend money to the assessee and the transactions are routed thru banking channel and there are no findings on record of the revenue that there is no involvement of cash deposits in the immediate past to the unsecured loan transaction. There is no dispute with regard to utilization of funds in the business and applied for the business purpose. As long as it is utilized in the business and the assessee has demonstrated that it has repaid the same along with the relevant interest, it does demonstrate that the present transaction made by the assessee is proper and for the purpose of business, therefore the transaction can only be treated as genuine business transaction. The genuineness has to be seen in two aspects, one, whether it is so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or deposit Maximum balance o/s Squared up APRATEEM GEMS PVT LTD M-4, Floor mazz, New AnantBhavan, Masjid,Chinchbunder Mumbai AAKCA7424R 25,57,144 25,00,000 NO BABA BHOOTHNATH NIRMAN PVT LTD Martin Burn house, 3rd floor ,room no 326, 1RN Mukherjee Rd, Kolkata 700001 AALCS8277P 97,93,057 50,00,000 NO DAFFODIL TRADERS PVT LTD 31/1H Beadon Row Kolkata -700001 AAECD3872E 50,45,863 50,00,000 NO INDIAN INFOTECH AND SOFTWARE PVT. LTD., D-207, Crystal Plaza, New Link Road, Opposite Infinity mall, Andheri(W),Mumbai AAACI0350E 1,02,63,342 50,00,000 NO POKHRANA IMPEX PVT LTD Mehta Mansion, 1st floor, Jagannath Shankar sheth road, Mumbai-400004 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creation of shell companies and how it is created and run by the operators and finally came to the conclusion that mere filing of Balance Sheet and Profit and Loss account cannot be accepted as proof of creditworthiness. He came to the conclusion with the observation that it is accepted practice that A/R of the shell company will appear before the Department but directors will not appear since these are not genuine directors but bogus directors. Accordingly, he made the addition under section 68 of the Act. b) M/s Vallabh Diamonds Private Limited: The AO came to the conclusion that there are no business activities carried out by this company in the premises for which the address was given in the audit report, he came to the above conclusion based on the report from inspector of Surat wing. He observed that assessee has taken unsecured loans of ₹ 2.5 crores from this company and assessee has filed confirmation and bank statement for the period AY 2015 16 and assessee also filed Balance Sheet and other financial of the company on 16.12.2016 from the MCA website. AO observed that on going through the Balance Sheet it was found that the liability is mainly on account of cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter dated 12.12.2016 filed the details of loan confirmation, bank statement and copy of ITR acknowledgement. AO observed that there are multiple addresses mentioned in the various documents submitted by the party and he came to the conclusion that the onus is not proved on the creditworthiness of the party. Accordingly, he treated the loan taken by the assessee as disallowable under section 68 of the Act e) M/s Indian Infotech and Software Ltd: A show cause notice was issue to the party and none appeared or responded to the show cause notice. When assessee was summoned specifically to produce the party and the party failed to appear therefore, AO came to the conclusion that assessee has not fulfilled the onus to prove the genuineness. Accordingly, he treated the loan taken by the assessee as disallowable under section 68 of the Act. f) M/s Daffodil Traders Private Limited: A commission under section 131 (d) was sent to the investigation wing Kolkata on 17.11.2016 to verify the party and the address was as per the audit report submitted by the assessee. The investigation wing found that the address is not correct. When they issued show cause notice to the assessee an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lkata, ITA No. 1493/KOL/2013 in which it was explained the modus operandi in the case of shell companies. He observed that Baba Boothnath Nirman Private Limited is a shell company. He further observed that mere filing of Balance Sheet and Profit and Loss account cannot be accepted as proof of creditworthiness. By relying on the report from the investigation wing, he came to the conclusion that this company is a shell company, accordingly AO treated the loan taken from this company as disallowable under section 68 of the Act. 6. By relying on the decision of Hon ble Apex Court in the case of CIT versus Durga Prasad More (82 ITR 540) and Sumati Dayal versus CIT (214 ITR 801), AO observed that the revenue authorities are also supposed to consider the surrounding circumstances and apply the test of human probabilities. He observed that loan transactions from paper companies though apparent but not to be real one. Further he observed that merely producing PAN, computerized confirmation or assessment particulars do not establish the identity of the person. The actual and true identity of the person or a company is the business undertaken by them. According to him is the correct and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,03,397/- Total 13,85,475/- 9. Aggrieved with the above order, assessee preferred an appeal before CIT(A) 17 and submitted a detailed submission before him, after considering the submissions of the assessee, Ld CIT(A) rejected the contentions of the assessee and sustained the addition with the following observations: 4.2.2 The appellant company is a private limited company. The companies which have advanced loans are nothing but shell companies. Subsequently, the companies have also not bothered to ensured their investment as no such details have been brought. Merely submission of PAN and Income-tax details of the lender companies did not render the transaction as genuine, does not establish the identity of persons. Identification of person includes the place of work, staff and the fact that it was actually carrying on a business and further recognition of the said company in the eyes of public. All the bank accounts of the lender company have common pattern where investment from those bank accounts in the form of loans is not out of accumulated reserves but equivalent amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndian Infotech and Software Pvt. Ltd. 1,00,00,000 5. Pokhrana Impex Pvt. Ltd. 25,00,000 6. Surakhsha Projects Pvt. Ltd. 53,00,000 7. Vallabh Diamonds Pvt. Ltd. 2,50,00,000 TOTAL 6,00,00,000 11. At the outset it is submitted that, Learned Assessing Officer has ignored following vital facts outlined as under: a. The applicant had received short term loans during the F.Y 2014-15 for running its business activities. Interest was paid to the lender for the time interval between receipt and re-payment of loan. 12. Interest was paid by the assessee to the said lenders and TDS was duly deducted. It was alleged that Mr. Pravln Kumar Agarwal has admitted before the I T authorities that he had been indulged in the Business of providing accommodation entries in the form of capital gain, loans, sale and purchases etc in case of Daffodil Traders Pvt. Ltd., and Surakha products Pvt. Ltd., and in other 5 Companies he is no where r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is quite clear that even without receiving cash beforehand the said lender companies were capable of advancing such amount. 18. Section 68 of the Act reads as under:- Where any sum is found credited in the books of 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 assessing Officer, satisfactory, the sum so credited may be charged to income -tax as the income of the assessee of that previous year: It is settled position that to prove the genuineness of the transaction, the burden lies on the assessee and to discharge the onus, the assessee must prove the following - I. Identity of the Creditor II. Capacity of the Creditor III. Genuineness of the Transaction Once the above conditions are proved prima facie by the assessee and the assessee has adduced evidence to establish prima facie the aforesaid, the onus shifts on the department. Three conditions enshrined in section 68 are clearly proved by the documents submitted during the assessment proceedings as under I To prove the identity a) Name, Address ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) were in contradiction of section 68 of the Act. On perusal of the financial statements filed by the appellant to assessing officer your honour will note that all seven companies are active in the website of Ministry of Corporate Affairs. a copy enclosed herewith. This fact has been further supported by the letter of AO wherein the AO has accepted that these companies are active on MCA website. By submitting the above details, the Appellant has discharged his primary onus of proving the unsecured loan as Genuine Transaction. However, the Ld. Assessing Officer without considering the facts and circumstances of the case erred in making addition of ₹ 6,00,00,000/- being the amount received towards loan u/s. 68 as Unexplained Cash Credit without having any jurisdiction. Thus all the ingredients of S.68 of the Act were fully proved and established before the Ld. CIT(A). Further, we hereby provide details about each party whose loan amount is added to the return income. 1. In case of SURAKSHA PROJECTS LIMITED. The learned assessing officer has sent summon wrongly to Surakha products Pvt Ltd, instead of Suraksha projects limited, where that party h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acknowledged by assessing officer in the assessment order but not accepted the reply by narrating unrelated story in the assessment order and added ₹ 2,50,00,000/- interest of ₹ 7,50,257/-. Financial details are as under :- Turnover (Rs.) 205,14,72,103 Capital (Rs.) 1,00,000 Reserves (Rs.) 1,65,630 Loan to NISA (Rs.) 2,50,00,000 There is no proof at all against the appellant that these loans are concealment of the income than such loan interest amount cannot be added. This loan has been already repaid in financial year 2014-15 and 2015-16. 3. In case of POKHARNA IMPEX PVT, LTD. In this case a notice was issued to verify genuineness of unsecured loan of ₹ 25,00,000/- to party which in turn submitted details such as ledger account, confirmation, income tax return, bank statement, audited balance sheet on 21st November 2016, but without given any proper reason he has added ₹ 25,00,000/- and interest of ₹ 66,452/- to taxable income. Financial details are as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There is no proof at all against the appellant that these loans are concealment of the income than such loan interest amount cannot be added. This loan has been already repaid in financial year 2017-18. 6. In case of DAFFODIL TRADERS PVT, LTD,:- A Commission u/s 131 (d) was sent to ADIT Calcutta but there was change of address which has been informed to assessing officer by the appellant. The AR of the appellant has submitted all the required documents such as company profile from MCA, Audited accounts, bank statement, to prove identity creditworthiness of the party and genuineness of the transaction than also learned assessing officer giving reference of get way financial services prv.ltd. Without any basis has added ₹.50,00,000/- of unsecured loan and ₹.50,959/- interest on these loan to income. Financial details are as under: - Turnover (Rs.) 19,09,222 Capital (Rs.) 9,98,000 Reserves (Rs.) 44,80,79,901 Loan to NISA (Rs.) 50,00,000 There is no proof at all against the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The assessee further submitted that in response to notice issued u/s. 133(6), other parties filed their replies along with required documents before the Assessing Officer, therefore, the Assessing Officer was totally incorrect in coming to the conclusion that the loan transactions are bogus accommodation entries only on the basis of information received from Investigation Wing regarding about two companies only. The Ld. CIT(A) opined that unsecured loans stated to be received from those companies are unexplained credit and hence made addition u/s 68 of the same under the Act without considering that they are supported by valid documents. The assessee further submitted that it has furnished confirmation letters along with copies of their bank statement and acknowledgement of IT returns showing the above transactions. The assessee further contended that in response to notices u/s 133(6) issued by AO, the above parties replied along with documents mentioned in the notice, therefore, there is no reason for the AO to doubt the transactions only on the basis of information received from Investigation Wing that too, without providing any opportunity of cross examination of the parties. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te tribunal, bench C , Kolkata ITA No.l064/Kol/2011 :- for the Assessment Year 2007-08 in case of Nived Anoopkumar Dhandhania, v/s I.T.O. where it is held that C.I.T.(Appeals) erred and acted injudiciously in doubting the genuineness of and confirming the addition of unsecured loans from five parties to the appellant's total income though the transactions are entered through banking channels and the assessee has discharged its onus of identification of the creditors with PAN Nos., copies of balance sheet and bank statements (3) We as draw your attention to CBDT Circular No. F. No.286/2/2003/IT(inv) dated 11.03.2003 has directed its offices to focus on collection of evidence on undisclosed income and not on obtaining confession of undisclosed income and to make addition. (4) The Hon'ble Supreme Court in the case of CIT v/s Lovely Exports 6 DTR 308 it has held if there is bogus share holders and their name are appearing in books than department is free to reopen individual assessment in accordance with law but it cannot be regarded as undisclosed income of the assessee company. (5) The Hon'ble Bombay High Court in the case of CIT v/c Creative World Telefil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t held that even if it was argued that the subscribers to the increased capital were not genuine, under no circumstances could the amount of share capital be regarded as undisclosed income. Reliance is also placed on the following decisions: Hon'ble Delhi High Court in case of Commissioner of Income tax v/s value capital services p.ltd.(2008) 307 ITR 334 (Delhi). Hon'ble Punjab and Haryana High Court in the case of commissioner of income tax v/s GP International Ltd. (2010) 325 ITR 25 (P H) Hon'ble Madras High Court in the case of Commissioner of Income tax V/s Electro Polychem Ltd. (20047) 294 ITR 661 (Mad). Hon'b;e Rajasthan High Court in case of Commissioner of Income Tax v/s AKJ Granites P.Ltd.(2008) 301 ITR 298 (Raj.) Hon'ble Delhi High Court in case of Commissioner of Income tax v/s Oasis Hospitalities (Pvt.) Ltd. (2011) 51 DTR 74 (Delhi). 19. It is a settled law that it is mandatory for the Assessing Officer to confront the assessee with any material collected by the Assessing Officer at the back of the assessee, and in case of statement of third party recorded at the back of the assessee, opportunity of cross examinatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that after a lapse of decade, the assessee should not be placed upon the rack and called upon to explain not merely the origin and source of a capital contribution, but also the origin of origin and source of the source. d. Recently in a similar/ identical case that of the Assessee, The honorable ITAT Delhi in the case of ITO, Ward 15 (2) vs. M/s. Rakam Money Matters P. Ltd. has held that CIT(A) has to bring on record any valid material or evidence to discredit the evidences and the explanation given by the assessee company and cannot rely only on statement of third parties recorded by the investigation wing. e. In another landmark judgment of Hon'ble Gujarat High Court in the case of Varshaben S Patel vs. ITO,[2015] 64 taxmann.com 179 (Gujarat) has also held in notice u/s 148 that the issue of notice u/s 148 pursuant to direction by DG Investigation is bad in law as the satisfaction has to be on your own and not a borrowed satisfaction. Head note is as under: f. As held in the case of R.B. Mittal v. CIT 246 ITR 283 (AP) in an enquiry u/s 68, the rule of audi alterant parterm has to be observed and the Assessee must be given a fair and reasonable hearing to dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Athrav Business Pvt Ltd. (page 58 to 72 of the paper book). Identically similar documents as a proof of evidence were filed from Casper Enterprises Ltd. (pages 71 to 83 of the paper book), Duke Business Pvt. Ltd. (J.P. K. Trading I. Pvt. Ltd.) (pages 84 to 96 of the paper book), Olive Overseas Pvt. Ltd. (pages 97 to 110 of the paper book), Viraj Mercantile Pvt. Ltd. (pages 111 to 119 of the paper book) and Nakshatra Business Pvt. Ltd. (Pages 120 to 131 of the paper book). All these documents neither disproved by the Ld. Assessing Officer nor any evidence was brought on record to falsify the claim of the assessee or the authenticity of these documents. Thus, it can be said that the assessee discharged its onus as provided under section 68 of the Act. The interest was paid through banking channel by the assessee on such loans. It is also noted that so far as the disallowance of interest portion is concerned, the same was deleted by the Id. FAA and has not been challenged before this Tribunal by the Revenue further fortifies the case of the assessee. The loans were repaid along with interest before the date of survey i.e. 17/10/2014 and no cash was found during survey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the confirmation of the creditors. This is not a case where the creditors have not given confirmations rather they have duly confirmed to giving loan to the assessee, the loans were received and returned through banking channels. The assessee has also submitted copies of bank accounts. The lender has not deposited cash into bank account. The assessee has duly discharged the onus with regard to identity of the lender, credit worthiness of the party and all supporting evidences as required u/s. 68 of the I.T.Act. Therefore, in our opinion the decisions relied upon by the DR does not assist the Revenue to the facts of the present case. 11. We have also gone through the decisions relied upon by the learned AR. We noted that this Tribunal in similar circumstances in the case ofKomal Agrotech Pvt. Ltd. vs. ITO in ITA No. 437/Hyd/2016 vide its order dated 25.11.2016 has held as under A plain reading of the assessment order demonstrates that the CIT(A) merely went by the Investigation done by the office of D.G.I(Investigation), Mumbai. No enquiries or investigation was carried out. No evidence to controvert the claims of the Assessee was brought on the record by the CIT(A). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions made solely on the basis of statement of Shri Mukesh Chokshi. The Assessing Officer failed to appreciate that as against the statements of any person recorded u/s 143(3) r.w.s. 147, the Assessee Company has fully discharged the burden of proof, onus of proof and established the identity, creditworthiness and genuineness of transaction by banking instruments with documentary evidences. The facts of the above case are very similar to the case under consideration and ratio decided in the case is requested to be applied. Further with the similar facts, similar judgments were pronounced and are hereby outlined as under:- ITAT E Bench in M/s. SDB Estate Pvt Ltd vs. ITO-(5)(3)(2) in ITA No. 584/Mum/2015: AY 2008-09 has decided similar issue by observing as under:- In view of the above stated legal position and in the light of reliable evidences brought on record by assessee to substantiate identity, genuineness and creditworthiness of shareholders/ lenders, which have not been controverter by the Revenue, the additions made solely on the basis of general statement of Shri Mukesh Chokshi cannot be held to be justified and the same are accordingly ordered to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s below. We have noted that the assessing officer passed the assessment order on the similar lines as made for earlier year. The assessing officer has not given specific finding on the documentary evidences furnished by the assessee. The assessing officer while passing the assessment order has not given different finding though the facts for the year under consideration were at variance. The assessee specifically contented that they have paid interest on the loan availed and deducted TDS. The Id Commissioner (Appeals) while considering the facts noted that the assessing officer has not correctly appreciated the loan amount from Raghuveer Sales nor its share capital and reserve funds. Similar, other discrepancies were pointed out about VirajMerchantile P. Ltd, Park Tools Ltd and Utakantha Trading Properties Ltd. In view of the above discussion we do not find any infirmity and illegality and we have already confirmed the order passed by Id CIT(A) for AY 2008-09 and 2009-10, hence, the appeal for the year consideration is also dismissed with similar observation. o. Recent Judgment delivered by Jurisdictional Hon'ble ITAT, Mumbai for an identical case i.e., M/s Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P) Ltd. (supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit. It is not out of place to bring under your Hon'ble members kind notice, that the Appellant has discharged the onus cast upon it u/s 68 of the Act by submitting the number of documentary evidences during the course of assessment proceedings. The Ld. CIT(A) has failed to demonstrate and establish that how the impugned addition of ₹ 6,0000,000/- was treated as Unexplained Cash Credit. 23. The Ld. CIT(A) has erred in making the further addition u/s. 69C of the I.T. Act., 1961 amounting ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence on record against the current directors. Based on the statement of Shri Praveen Agarwal, he treated this company as shell company. It is mere assumption of the AO merely because there is some connection with Shri Praveen Agarwal with this company in the past and also it was contention of the AO, no company can give loan without having turnover or having profit from the activities carried on by the respective companies. On the other hand, it is brought on record by the assessee that this company has achieved turnover of ₹ 14,73,44,805/ and having capital of ₹ 33 lakhs and reserves of ₹ 13,73,50,459/ and it has given unsecured loan of ₹ 53 lakhs only. Against this, assessee has paid interest of ₹ 93,924/ during this year. 15. The above information is against the own conclusion of AO that the company can give loan only when they have proper business on record and profit. From the records submitted before us, all the parties having substantial turnover achieved by them during this year except the company M/s Daffodil Traders Private Limited and it has achieved only ₹ 19,09,222/ . At the same time, we noticed that all the companies who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surd that AO is completely rejecting the relevance of PAN and its utilisation. If the PAN is so irrelevant, how the revenue is completing the assessment and tracing the tax dues and their collection from the assessee including the above mentioned parties. Further we notice that AO disregarding the importance of MCA and existence of ROC. The existence of the company under the Companies act 1956 depends upon the compliance under the Companies act 1956 by complying with the required statutory formalities. As long as the companies are in existence under the Companies Act, AO cannot treat the companies as dummy or dead or no longer relevant. 19. We noticed from the record submitted before us that the assessee has submitted all the relevant information required to substantiate that the transactions are genuine. The assessee has received the funds through banking channel and recorded the same in its books of account and filed relevant information in order to prove the identity by filing PAN and address of the parties, in few cases the parties have moved their place of work and upon enquiry assessee was able to bring on record the present address. It is also facts on record that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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