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TMI Blog2021 (6) TMI 417X X X X Extracts X X X X X X X X Extracts X X X X ..... repaid said loans along with interest much before the date of initiation of search proceedings in the case of the assessee. As also an admitted fact that the assessee has obtained loans through Shri K.K. Parsuramka, a Chartered Accountant by profession and said loans are backed by equitable mortgage of immovable properties in favour of Shri K.K. Parsuramka, the person who arranged loans. From the above findings of the ld.CIT(A), it is very clear that the assessee had discharged its burden cast upon u/s.68 of the Act. In this case, the AO has made additions only on the basis of statement recorded from third party ignoring various evidences filed by the assessee to prove unsecured loans taken from said parties. Therefore, AO was erred in making addition towards unsecured loans and consequent interest paid on said loans u/s.68 - Appeal of revenue dismissed. - ITA No.: 1985/CHNY/2017, CO No.: 155/CHNY/2017 (in ITA No.1985/Chny/2017) - - - Dated:- 9-6-2021 - Shri V. Durga Rao, Judicial Member And Shri G. Manjunatha, Accountant Member For the Assessee : Shri T. Banusekar, Advocate For the Revenue : Shri S. Bharath, CIT ORDER PER G. MANJUNATHA, AM: Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surrounding and attending facts which were brought on record indicated a cover up and that the documents produced by the assessee at best reflect proper paper work and documentation but genuineness and credit worthiness are deeper and obtrusive aspects. 2.5 The ld.CIT(A) ought to have appreciated that the decision of Hon'ble High Court of Delhi in the in the case of M/s Navodaya Castle (P) Ltd. reported as (2014) 367 ITR 306, that certificate of incorporation, PAN etc., were not sufficient for the purpose of identification of subscriber company, when there was material to show that subscriber was a paper company and not a genuine investor was upheld by the Hon'ble Supreme Court in (2015) 56 taxmann.com 18 (SC) and since the facts are identical in the assessee's case, the ld,CIT(A) ought to have confirmed the addition. 2.6 Having regard to the documentary evidence gathered during search and assessment proceedings establishing that the alleged lenders were only paper companies whose credit worthiness and the genuineness of the transactions were not established, the ld.CIT(A) ought to have confirmed the addition made by the Assessing Officer u/s 68 of the IT Act, tow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to prove identity, genuineness of transactions and creditworthiness of the parties. The AO has discussed the issues in light of investigation carried out by the Investigation Wing of Income Tax Department, Kolkata, where it was noticed that certain companies were indulged in providing accommodation entries and assessee company being one of beneficiary of accommodation entries provided by various companies, loans said to have been received from said companies have been treated as unexplained credit under Section 68 of the Act and made additions to total income. Similarly, the AO has made addition towards interest paid on said loans u/s.37 of the Act. 6. Being aggrieved by the assessment order, assessee preferred an appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee has challenged assessment framed u/s.143(3) r.w.s. 153C of the Act, on the ground that the AO has made addition towards unsecured loans without reference to any incriminating material found as a result of search. The assessee has also challenged assessment order on the ground of satisfaction and argued that the AO of the search person have failed to record satisfaction as required u/s.153C of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee has also filed bank statements to prove the fact that loan transactions are routed through proper banking channels. The assessee has also paid interest on said loans. The ld.CIT(A) further observed that said loans have been backed by equitable mortgage of immovable properties in favour of the person who has been arranged loans. Further, the assessee has repaid loan along with interest well before initiation of search proceedings in the case of the assessee. All these evidences goes to prove an undoubted fact that loan taken from said parties are genuine in nature, which are supported by necessary evidences and accordingly, opined that the AO was erred in making addition towards unsecured loans u/s. 68 of the Act and consequent interest u/s.37 of the Act and accordingly, deleted additions made by the AO towards unsecured loans. The relevant findings of the ld.CIT(A) are as under:- 13. The assessee has pleaded that he was not in touch with Shri V.K.Keshari and he was in touch with Shri K.K. Parsuramka, a Chartered Accountant by profession. Assessee has further pleaded that the loans were backed by equitable mortgage of immovable properties in favour of Shri K.K. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rishna Kumar Parsuramka were used against us by the department; hence, in the interest of natural justice, it is duty of the department to provide us the opportunity to cross examine the deponents. In spite of our request for cross examination of the aforesaid deponents, no opportunity is provided by the assessing officer to cross examine said Shri V.K. Keshari and Shri Krishna Kumar Parsuramka. The addition made solely on the basis of statements of said Shri V.K. Keshari and Shri Krishna Kumar Parsuramka is unjustified and after ignoring their statements for the reason above, it has to be deleted on this ground. We request your honors to decide the appeal on merit of the case on the basis of our submissions before you. We have relied on the following judgments: 1. KishanchandChellaram Vs. CIT (125 ITR 713), Supreme Court : It was held that information collected at the back of assessee cannot be used against him for any proceedings. Further, adverse interference cannot be drawn against the assessee from the statements of third parties. ii. H.R. Mehta vs. AC1T (Bombay High_Court) : It was held that the assessee is bound to be provided with the material used again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deleted impugned additions- whether since tribunal had recorded its findings of fact only after appreciation of evidence, no substantial question of law arose from order of Tribunal - Held, Yes. The SLP against the order of the High Court is dismissed by Apex Court. 3. In the case of M/s.Kamadenu Steel and Alloys Ltd (361 ITR 220) the Delhi High Court has considered the issue whether once adequate evidence/material is given, which would pima fade discharge burden of assessee in providing identity of shareholders, genuineness of transaction and creditworthiness of shareholder, thereafter in case such evidence is to be discarded or it is proved that it is created evidence, revenue is supposed to make thorough investigation before it could nail assessee and fasten assessee with a liability u/s.68 and 69 - Held, Yes - Whether where assessee had given particulars of registration of investing/applicant companies; confirmation from share applicants; bank accounts details; and had shown payment through account payee cheques, etc., it could be said that assessee had discharged its initial onus and just because some of creditors/share applicants could not be found at address given, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as undisclosed income of assessee (in the favour of the assessee). 8. In the case of Shri Abhik Jam (18 ITR 497) the Hon ble ITAT Delhi bench has held that where the assessee had furnished relevant documents showing identity and creditworthiness of creditors in form of copies of permanent account number cards, ration cards, assessment orders of relevant year and wealth-tax assessment orders of creditors and transactions of receiving and returning of loan had been routed through bank accounts, amount of loan could not be added to assessee s income u/s.68 (In favour of the assessee). 9. In the case of M/s.Yamuna Synthetics (P) Ltd. (3 SOT 35) the Hon ble ITAT Delhi bench has held that in respect of two cash credits, assessee could not produce creditor to prove their nature and genuiness, but furnished creditor s balance sheet which reflected said loan transaction- Assessing Officer concluded that circuitous route carried out by assessee to repay said load depicted that it was a mere sham transactions and for extraneous considerations - Assessing Officer accordingly made additions-Whether whenever revenue proposes to rely on a material found from a third party, principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is for the Department to prove preponderance of probability that the lenders did not have the creditworthiness or that the lenders were mere entry providers. The department is not prevented from taxing the lending companies for amounts received by them from various other persons. In fact the lending companies have also been regularly assessed to tax. Considering the judicial decisions as above and the totality of the facts and circumstances of the case, it is viewed that the assessee has been able to explain and unburden the onus cast upon him to justify the source of loans taken and repaid. The loans of ₹ 3,24,00,050 and ₹ 73,00,000 stand explained. There is no justification any further for disallowing the interest on it for AY 2011-12 at ₹ 22,35,023 and for AY 2012-13 at ₹ 39,19,645 and for AY 2013-14 at ₹ 39,19,645. The additions are deleted. 8. Being aggrieved by the ld.CIT(A) order, the Revenue is in appeal before us. 9. The ld.AR submitted that the assessment framed u/s.143(3) r.w.s. 153C of the Act, is bad in law and liable to be set aside, because the AO has made additions towards unsecured loans taken from various parties in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 106 (Mum)(SB) 8. ACIT v M. Kiran Kumar in ITA No.1054 1055/Chny/2018 and CO No.89 90/Chny/2018 Chennai ITAT 9. DCIT v Saravana Stores (Tex) [2018] 61 ITR (Trib) 20 (Chennai) 10. ACIT v Lalithaa Jewellery Mart Pvt. Ltd. in ITA Nos. 3186 to 3188/Chny/2017 Chennai ITAT 11. G. Mohan v ACIT in ITA Nos.2869 2872/Chny/2017 Chennai ITAT 12. Vibhav Empire Pvt. Ltd. v DCIT [2017] 49 CCH 435 Vishakapatnam Trib 13. ACIT v M/s. S3H Builders Pvt. Ltd. [2018] 1 TMI 391 ITAT Delhi 10. The ld.DR on the other hand strongly supporting the case of the Department submitted that there is no merit in arguments taken by the ld.AR for the assessee that additions made towards unsecured loans is not supported by incriminating material found as a result of search, because the Department has found and seized certain materials in connection with loan transactions including confirmations from the parties which constitutes incriminating material as required under law. Therefore, addition made towards unsecured loans is supported by material found during the course of search. The ld.DR, further submitted that assuming for a moment there is no incriminating material found but f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have already been completed are treated as unabated as on the date of search and for those assessment years the scope of assessment u/s.153A / 153C of the Act is limited to assess income on the basis of incriminating material found as a result of search. This legal proposition is well supported by series of decisions of various High Courts and the Hon ble Supreme Court, where it was categorically held that no addition can be made in the assessment year earlier to the year of search in absence of any incriminating material found during the course of search qua each earlier assessment years. The Hon ble Supreme Court in the case of PCIT v Meeta Gutgutia supra, has clearly held that invocation of section 153A of the Act to re-open concluded assessment of assessment years earlier to year of search was not justified in absence of incriminating material found during search qua each such earlier assessment years. The Hon ble High Court of Bombay in the case of CIT v. Continental Warehousing Corporation [2015] 374 ITR 645 (Bom) has taken a similar view and held that in absence of any incriminating material found as a result of search, no addition could be made in the assessments framed u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s.37 of the Act on the ground that ld.CIT(A) has erred in deleting additions without appreciating the fact that enquiry conducted by Investigation wing of Income Tax Department, Kolkata reveals that certain parties were indulged in providing accommodation entries of unsecured loans to various parties and assessee being one of the beneficiary of such accommodation entries. We find that the AO has made additions towards unsecured loans on the basis of statement recorded from one Shri V.K. Keshari without providing copies of statement recorded from said person and also not provided opportunity of cross examination, even though the assessee has specifically requested for copies of evidence relied on to make said addition and opportunity for cross examination of said person. It is well settled principle of law by the decision of Hon ble Supreme Court in the case of Andaman Timber Industries v CCE, [2015] 281 CTR 214 that denial to the assessee of the right to cross examine the witness whose statement was made the basis of the impugned order is a serious flaw which renders the order a nullity in as much as it amounted to violation of the principles of natural justice because of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undisclosed income of the assessee. Further, it is a well settled principle of law by various decisions of High Courts that once the assessee has discharged its onus by proving identity of parties, genuineness of transactions, and creditworthiness of creditors by filing various documents, no addition can be made u/s.68 of the Act. The Hon ble Supreme Court in the case of CIT v Lovely Exports (P) Ltd [2008] 216 CTR 195 (SC) has clearly held that once documents like PAN card, bank account details were given by the assessee, onus shifts to the AO and it is on him to reach the shareholders and proceed in accordance with law to assess such shareholders. But, said sum received from creditors cannot be regarded as unexplained credit of the assessee. The Hon ble High Court of Delhi in the case of CIT vs. Kamdhenu Steel Alloys Ltd., [2014] 361 ITR 220 has taken a similar view. The Hon ble Supreme Court in the case of CIT v. Orissa Corporation (P) Ltd [1986] 52 CTR 138 had also taken similar view. The sum and substance of ratios laid by Hon ble Courts are that the assessee should discharge initial burden by filing necessary documents to prove the identity, genuineness and creditworthiness ..... X X X X Extracts X X X X X X X X Extracts X X X X
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