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TMI Blog2021 (3) TMI 717X X X X Extracts X X X X X X X X Extracts X X X X ..... er the AO would be justified in using against the assessee, which in this case AO has not done, for reason best known to him; and so the selective questions and answers of the two persons with the legal infirmities discussed supra cannot be used against the assessee. Moreover the AO has not found any infirmity with the documents filed by the assessee to prove the loan transactions as discussed supra. So, other than the third party statements, which was not even examined by the AO and without providing the entire statements to assessee and the statement not tested on the touch-stone of cross-examination, cannot be the basis to draw adverse inference against the assessee. Therefore, no addition was warranted. As statement of these two persons cannot be used against the assessee. And when we remove these two statements with the legal infirmities discussed supra, there is no material at all against the assessee and the AO having failed to find any infirmity with the documents filed by the assessee/lenders to prove the loan transactions as discussed supra, no adverse view was legally tenable. - Decided against revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... tor cum entry operator, Shri Raj Kumar Kothari has given statement u/s 131 of the Act on 02.03.2016 to the Investigation Wing of the Department that he is controlling certain numbers of companies which are engaged also in providing accommodation entries in the form of share subscribing and unsecured loan etc. According to the Assessing Officer, other than M/s Ranbhumi Marketing Pvt. Ltd. all the aforesaid companies are controlled by Shri Raj Kumar Kothari; and M/s Ranbhumi Marketing Pvt. Ltd.'s director is Mrs. Sangeeta Devi Kothari; and M/s. Shresth Builders Pvt. Ltd. is controlled by Shri Bijay Kuman Dokania whose statement was also recorded u/s 131 of the Act by the Investigation Wing on 28.05.2014 who is also an entry provider of giving LTCG. Thereafter, the A.O has taken note of the financial of each lender company and has drawn a chart wherein he has noted that share capital issued, share premium, non-current investment, long-term loans and advances given, turnover. Thereafter the A.O made the following observation about the lender companies: Bank account of the above lender parties reflects that credit entry followed by almost similar amount of debit entry, low/minimum bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s High Court in the case of M/s. B.R Petrochem Pvt. Ltd. Vs The Income Tax Officer (April 2017) is relevant to be quoted in this regard: "Section 68 of the Income Tax Act is a provision that enables the assessment of any sum found credited in the books of an assessee where no satisfactory explanation is offered by the assessee to explain the same. Courts have consistently held that the three guiding principles in the con text of Section 68 would be the establishment of the identity and credit worthiness of the creditor and the genuineness of the transaction. In the present case, only the first of the three conditions has been established by the assessee. Neither the credit worthiness nor the genuineness stand explained. The stand of the assessee to the effect that any transaction styled as a contribution to share capital would stand excluded from the purview of Section 68 is too wide to be accepted. The language of Section 68 does not admit of such an interpretation. [In favour of revenue]" However, in the assessee's case not even a single essential pre-requisite out of the three namely, Genuineness, Identity and Creditworthiness has been fulfilled. 4.12 It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elete the addition by holding as under: "Findings on the grounds of appeal I have considered the grounds of appeal, statement of facts and submission of the authorized representative of the appellate company as well as the order of the assessing officer framed in the light of the materials available on record before the assessing officer during the assessment proceedings. The AR of the appellate has submitted that this ground is directed against the addition of unsecured loan of ₹ 4,51,00,000/- on the allegation that the same is unexplained cash credit u/s 68 of the Act. The addition was made on the allegation that the assessee was not able to prove the identity, genuineness and credit worthiness of the lender companies. The assessee has taken unsecured loan for setting up a manufacturing plant at NH-6, Mouza Chandrapur, PS bagman, Howrah-711303 for manufacturing of Fly Ash Blocks and Bricks. All the loans are interest bearing loans and interest have been paid regularly every year. The company has duly deducted TDS on the said payment of Interest. In order genuineness of the transaction, the Ld.AO issued notice u/s. 133(6) to all the loan companies. In response to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies" to support his contentions but did not point out a single material that has been unearthed by the A.O except blindly relying on the statements of so called "entry operators". In the order statement of entry operators is given where the entry operator (Vinay Kumar Dokania) have admitted that they have given entry only in the form of LTCG. Hence, the statement relied upon by the A.0 has no context with the assessee. The A.O has made the addition on account of unsecured loan by relying on the statements of the so called entry operators. There is even no link established by the AO on the basis of how the said statements are applicable to the assessee. Therefore, the allegation of the AO is baseless and merely on presumption only. Mr. Rajkumar Kothari have filed an affidavit retracting his statement relied by the AO. Copy of the affidavits are enclosed for your kind perusal. From the same you will find that almost all the said persons have said that their statement were recorded by force and they have not provided any accommodation entry to the company. Thus, the statement so made and retracted Subsequently does not contain any evidentiary value and in absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 20.03.2015 submitted Copy of Income Tax Acknowledgement for the A.Y 2015-16, Copy of Audited Accounts for the F.Y 2014-15, Copy of Loan Confirmation and Copy of Bank Statement highlighting the loan transaction. M/s. Vivek Barter Pvt Ltd. vide its letter filed on 20.03.2015 submitted Copy of Income Tax Acknowledgement for the A.Y 2015-16, Copy of Audited Accounts for the F.Y 2014-15, Copy of Loan Confirmation and Copy of Bank Statement highlighting the loan transaction. M/s. Vivek Tracom Pvt Ltd. vide its letter filed on 20.03.2015 submitted Copy of Income Tax Acknowledgement for the A.Y 2015-16, Copy of Audited Accounts for the F.Y 2014-15, Copy of Loan Confirmation and Copy of Bank Statement highlighting the loan transaction. M/s. Rajshree Developer Enterprenures Ltd. vide its letter filed on 20.03.2015 submitted. Copy of Income Tax Acknowledgement for the A. Y 2015-16, Copy of Audited Accounts for the F. Y 2014-15, Copy of Loan Confirmation and Copy of Bank Statement highlighting the loan transaction. The facts worth considering in this context, which the A. O. had disregarded, are that all the loan applicants have filed its reply against notice issued u/s 133(6) alon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the assessee and hence, their reference in the present case in completely irrelevant. The reliance placed by the Ld.AO on the decisions cited in the assessment order is unwarranted since none of them are identical to the facts as in the case of the assessee and hence, the reference cannot be taken in the instant case from those decisions. At the nutshell all the decision relied by the A.O are not applicable to the appellants case as the facts are completely different as explained in each judgment and their reference in the present case in completely irrelevant. Hence, relying on these judgments are misconception of the A.O and cannot be relied for adjudication. The AR of the appellate on merits of the case, submitted that the Ld A.O failed to appreciate the facts that the lender companies are body corporate, registered with the ROC. They are also assessed to Income Tax. The return filing acknowledgement, audited balance sheet, loan confirmation & source thereof and the bank particulars of all the loan applicants have been filed in the course of assessment proceedings. Despite all the above credential evidence produced before the Ld A.O, he relied on the statement of the so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... records and PAN etc. are given hereinabove. Further, the following documents of the loan applicants are submitted herewith to show their identity & credit worthiness & also the genuineness of the transactions, which were also submitted before the A.O, in the course of assessment proceedings u/s 143(3) and in response to the notice issued u/s. 133(6). In the instant case the A.O failed to appreciate the facts that the share applicants are body corporate, registered with the ROC. The share application money were received through proper banking channels. The details regarding the lenders with their address as per ROC records and other documents of the lender companies like Balance Sheet, relevant Bank statement, etc., are submitted herewith in Paper Book Vol-1 to show their identity & credit worthiness & also the genuineness of the transaction. All the lenders companies are Income tax assesses, having registered PAN and filing returns. Under the circumstances, the addition made by the A.O is arbitrary, illogical and totally unjustified. In view of the facts of the case and the judicial pronouncements as discussed above, it is apparent that'the assessee could establish the iden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. " The phraseology of section 68 is dear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this case the legislative mandate is not in terms of the words 'shall' be charged to income-tax as the income of the assessee of that previous year". The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word "may" and not "shall". Thus the un-satisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the Supreme Court in the case of CIT t/. Smt. P. K. Nooriahan [1999] 237ITR 570. It is noted that against the said decision of Hon'bie Gujarat High Court the special leave petition filed by the Revenue has also been dismissed by the Hon'ble Apex Court. In the case of Nemi Chand Kothari 136 Taxman 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urden on the assessee under section 68 is definitely limited. This limit has been imposed by section 106 of the Evidence Act which reads as follows: "Burden of proving fact especially within knowledge. -When any fact is especially within the knowledge of any person, the burden) of proving that fact is upon him." What, thus, transpires from the above discussion is that while section 106 of the Evidence Act limits the onus of the assessee to the extent of his proving the source from which he has received the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s)of the creditor but also of his (creditor's) sub-creditors and prove, as a result, of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the Assessing Officer to enquire into the source/source from where the creditor has received the money, section 106 makes the assessee liable to disclose only the source(s) from where he has himself received the credit and IT is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason why we have formed the opinion that it is not the business of the assessee to find out the actual source or sources from where the creditor has accumulated the amount, which he advances, as loan, to the assessee is that so far as an assessee is concerned, he has to prove the genuineness of the transaction and the creditworthiness of the creditor vis-a-vis the transactions which had taken place between the assessee and the creditor and not between the creditor and the sub-creditors, for, it is not even required under the law for the assessee to try to find out as to what sources from where the creditor had received the amount, his special knowledge under section 106 of the Evidence Act may very well remain confined only to the transactions, which he had' with the creditor and he may not know what transaction(s) had taken place between his creditor and the sub-creditor... " "In other words, though under section 68 an Assessing Officer is free to show, with the help of the inquiry conducted by him into the transactions, which have taken place between the creditor and the sub-creditor, that the transaction between the two were not genuine and that the sub-credito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relation to a cash credit appearing in his books of account, has observed and held as under: - "4. The Tribunal has recorded a finding that the assessee has discharged the onus which was on him to explain the nature and source of cash credit in question. The assessee discharged the onus by placing (i)confirmation letters of the cash creditors; (ii) their affidavits; (Hi) their full addresses and GIR numbers and permanent account numbers. It has found that the assessee's burden stood discharged and so, no addition to his total income on account of cash credit was called for. In view of this finding, we find that the Tribunal was right in reversing the order of the AAC, setting aside the assessment order." I also take note of the decision of the Hon'bie High Court, Calcutta in the case of S.K. Bothra & Sons, HUF v. Income-tax Officer, Ward- 4613). Koikata 347 ITR 347 wherein the Court held as follows: "15. It is now a settled law that while considering the question whether the alleged loan taken by the assessee was a genuine transaction, the initial onus is always upon the assessee and if no explanation is given or the explanation given by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended that when the Tribunal has relied on the entire judgment of the Commissioner of Income-tax (Appeals), therefore, it was not proper to take up some portion of the judgment of the Commissioner of Income-tax- (Appeals) and to ignore the other portion of the same. The judicial propriety and fairness demands that the entire judgment both favourable and unfavourable should have been considered. By not doing so the Tribunal committed grave error in law in upsetting the judgment in the order of the Commissioner of Income-tax (Appeals). In this connection he has drawn our attention to a decision of the Supreme Court in the case of Udhavdas Kewalram vs. CIT [1967] 66ITR 462. in this judgment it is noticed that the Supreme Court as proposition of law held that the Tribunal must in deciding an appeal, consider with due care, all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner in the light of the evidence and the relevant law. 10. We find considerable force of the submissions of the learned counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found no single word has been spared to upset the fact finding of the Commissioner of Income-tax (Appeals) that there are materials to show the cash credit was received from various persons and supply as against cash credit also made. 13. Hence, the judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. We restore the judgment and order of the Commissioner of Income-tax (Appeals). The appeal is allowed When a question as to the creditworthiness of a creditor is to be adjudicated and if the creditor is an Income Tax assessee, it is now well settled by the decision of the Calcutta High Court that the creditworthiness of the creditor cannot be disputed by the A.O of the assessee but the AO of the creditor. In this regards our attention was drawn to the decision of the Hon'ble High Court, Calcutta in the Commissioner of Income Tax, Koikata- III Versus Dataware Private Limited ITATNo. 263 of 2011 Date: 21st September, 2011 wherein the Court held as follows: "In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable in their bank accounts on behalf of the loan applicants. It will be evident from the paper book that the appellant has even demonstrated the source of money deposited into their bank accounts which in turn has been used by them to subscribe to the assessee company as loan application. The loan applicants have confirmed the - loans in response to the notice u/s 133(6) of the Act and have also confirmed the payments which are duly corroborated with their respective bank statements and all the payments are by account payee cheques. There is nothing on record to suggest that the assessee's aforesaid transactions were bogus. There is no evidence on record to suggest or to draw any adverse inference against the assessee. No direct or indirect relation of any nature whatsoever has been brought on record in this regard. The assessing officer's suspicion is basically based on the report of Directorate of Income Tax (Investigation). In the assessment order the assessing officer has referred to and relied upon report of Directorate of Income Tax (Investigation) to allege and hold that these companies to whom the appellate company has taken loans were aimed to provide accommod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present case the assessee had furnished all the evidences and these evidences were neither found by the Ld.Assessing Officer to be false or fabricated. Rather, he believed on the information received from the Investigation wing to be more authentic. The facts of the case and the evidences in support of the assessee's case clearly support the claim of the assessee that the transaction of the assessee were bona fide and genuine and addition of the same just by mere suspicion is erred as per. law. / find that the assessing officer has been guided by the report of the investigation wing, However, I do not find that the assessing officer have brought out any part of the investigation wing report in which the assessee has been investigated and /or found to be a part of any arrangement for the purpose of generating bogus loans. Nothing has been brought on record to show that the persons investigated, including entry operators have named that the assessee was in collusion with them. In absence of such finding how is it possible to link their wrong doings with the assessee. The Hon'ble Supreme Court way back in the case of Lalchand Bhagat Ambica Ram vs. CIT [1959] 37ITR 288 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d an inference to be drawn therefrom. The rejection of an explanation of the assessee by ignoring to consider important pieces of evidence is an error of law. Reliance in this regard is placed on the decisions D Yasodamma, Gudur vs. CIT reported in 70 ITR 515 (AP) at 517 and Bhagwati Prasad Misra vs CIT reported in 35 ITR 97 (Orissa). / further find that the A.O was not justified in rejecting the claim of the assessee on the basis of theory of surrounding circumstances, human conduct, and preponderance of probability without bringing on record any legal evidence against the assessee. I rely on the judgement of Special Bench of Mumbai Tribunal in the case of GTC Industries Ltd. (supra) for this proposition. The various facets of the arguments of the AR supra, with regard to impleading the assessee for drawing adverse inferences which remain unproved based on the evidences available on record, are not reiterated for the sake of brevity. The principles laid down in various case laws relied upon by the AR are also not reiterated for the sake of brevity. The AR of the appellate cited plethora of the case laws to bolster his claim which are not being repeated again since it has already b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t worthiness to make investment in the loan of the appellant company. The aforesaid facts underlined by evidences clearly prove the identity of the loan applicants, their capacity and source of funds of the loan applicants, as well as the genuineness of the transactions in relation to the loan capital issued by the appellant, which was subscribed to by each of them. However, the A.O had not brought these indisputable facts on record but acted on her whims and fancies. It is observed that the burden which lay on the appellant, in relation to section 68 of the Act, has been duly discharged by it and nothing further remains to be proved by it on the issue. There is no evidence on record to show that the identities of the loan applicants are not proved and/or that the introduction of loan by them was not genuine and/or the source of investment was not fully explained to the satisfaction of the A.O. The A.O had made a wild allegation that the loan applicants are merely paper companies without bringing any material on record. What enquiries were carried out by the A. O were not brought on record in the order. The entire details of the loan applicants duly proving their identity, credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prove the materials placed before him. Without doing so, the addition made by the A.O is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 of the Act. Therefore, the A.O is directed to delete the addition. These grounds of appeal are allowed." 8. Aggrieved by the aforesaid action of the Ld. CIT(A) deleting the addition of ₹ 4.51 crores, the Revenue has preferred this appeal before us. 9. We have heard both the parties and perused the records. It is noted that the assessee has set up a manufacturing plant at NH-6, Mouza Chandrapur, PS Bagman, Howrah-711303 for manufacturing of Fly Ash Blocks and bricks. And the assessee company has availed for loan from nine (9) entities to the tune of ₹ 4.51 crores and it is noted that all the loans taken are interest bearing; and the interest have been paid by the assessee regularly after duly deducting TDS on the said payment of interest every year. 10. It is noted that pursuant to the notice issued by the A.O u/s 133(6) of the Act, the nine (9) lender companies have directly replied to the AO by filing the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oans. It was pointed out by the Ld. AR that he has stated that his main source of income was from commission for providing accommodation entries by forming jama-kharchi companies and selling them in lieu of commission and he has elaborated his modus operandi by stating that he gives entry in the form of LTCG (long-term capital gain). Thus according to Ld. AR the statement of Shri Vijay Kumar Dokania cannot be used against the assessee company in respect of loan given by the entities controlled by him. Further, according to the Ld. AR, Shri Raj Kumar Kothari's confession that he is an entry provider was the basis of branding the lender companies as shell companies, however it has been brought to our notice that Shri Kothari had retracted the same within 10 days wherein he has sworn an affidavit before the First Class Magistrate of Kolkatta and for proving that, the Ld. AR drew our attention to the page 45 to 48 of the paper-book from where we note that he has in his sworn affidavit, has alleged that he was whisked away by the officers of the Department along with policemen on 02.03.2016 and they kept him in their Office till late night; and by exerting threat and coercion has extrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly to the A.O pursuant to the section 133(6) notice issued by the A.O and transactions have been made through account payee cheques and the Hon'ble Calcutta High Court has said that A.O of the assessee who borrows or is in receipt of credit/loan (like assessee in this case) cannot brand the lender company as lacking in creditworthiness, unless the A.O undertakes the exercise of enquiring from the A.O of the lender companies and in case if the A.O of the lender companies have accepted the transactions shown by them with the assessee company, then the A.O of the assessee company cannot impute un- creditworthiness of the lender company and referred to the decision of the Hon'ble Calcutta High Court in CIT vs. M/s Dataware Private Limited in ITAT No. 263 of 2011 Date: 21st September, 2011 GA No.2856 of 2011 held as under: "In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assessee. After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his (A.O) conclusion on the strength of selected questions and answers given by two persons and that too recorded on third party proceedings and which were admittedly recorded behind the back of the assessee. Moreover, Shri Raj Kumar Kothari has retracted the statement within ten (10) days as discussed supra and has alleged threat and coercion on the part of officers who elicited the statement as they wished, so the statement/truth of the contents of the statement cannot be relied upon by the A.O and doing so is bad in law; and therefore according to us, it could not have been the basis to draw adverse inference against the assessee company in respect of loan taken by it. Moreover, if the A.O still nursed any suspicion against the lender companies, he ought to have made enquiries as held by the Hon'ble Calcutta High Court in the case of M/s Dataware Private Limited, which the A.O of the assessee in the instant case has not cared to carry out, so the A.O of the assessee could not have branded the lender companies not to have creditworthiness. 16. Therefore, when the assessee as well as the lenders had discharged the onus upon them to prove the identity, creditworthiness and genuin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the CIT, ITAT and the High Court, we find that on merits a disallowance of ₹ 19,39,60,866/- was based solely on third party information, which was not subjected to any further scrutiny. Thus, the CIT (Appeals) allowed the appeal of the assessee stating: "Thus, the entire disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO who has not provided the copy of such statements to the appellant, thus denying opportunity of cross examination to the appellant, who has prima facie discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, & VAT Registration of the sellers & their Income Tax Return. In view of the above discussion in totality, the purchases made by the appellant from M/s Padmesh Realtors Pvt. Ltd. is found to be acceptable and the consequent disallowance resulting in addition to income made for ₹ 19,39,60,866/-, is directed to be deleted." The ITAT by its judgment ..... 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