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TMI Blog2023 (3) TMI 907X X X X Extracts X X X X X X X X Extracts X X X X ..... t bearing funds for the purpose of business in order to claim the interest expenditure - AO held that assessee had not brought on record any evidence to show direct nexus of utilization of fund whereas in fact, he had used the funds for the purpose of investments in other concerns in which he is a partner and also for other assets - HELD THAT:- Since out of the overall interest bearing funds, certain funds were utilized for the purpose of business of the proprietorship concern of the assessee, to that extent, interest ought to be allowed u/s. 36(1)(iii) - We therefore do incline to interfere with the order of the ld. CIT(A) and the Corrigendum Order passed thereafter in granting relief to the assessee to the extent of Rs. 3,86,176/- on this issue u/s. 36(1)(iii) of the Act. Hence, the ground no. 3 of the revenue is dismissed. Assessment u/s 153C - additions made in the assessment order having any basis to incriminating material, if any - HELD THAT:- We find that the said issue is squarely covered by the decision of Sinhgad Technical Education Society Ltd. [ 2017 (8) TMI 1298 - SUPREME COURT ] wherein it is held that there has to be incriminating material pertaining to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) has erred in deleting the disallowance of business loss of ₹ 30,93,410/- made by the AO on account of interest expenditure u/s. 57(iii) of the Act on unsecured loan without appreciating the fact that the assessee failed to explain the interest expenditure. 03. Brief facts of the case are that i. Assessee is an individual , filed his original return of income on 26.09.2008 declaring total income of Rs. Nil and the return was processed u/s. 143(1) of the Income Tax Act, 1961 [for short, the Act ]. ii. Later on, information was received from the DDIT(Inv.) Unit-3(1) and 3(2), Mumbai vide letter dated 04.03.2015 that during search/survey action conducted on 09.10.2014 in the case of Kamdhenu/Green Valley Group, it was noticed that the assessee has received unsecured loans of Rs. 50,00,000/- from M/s. Divine Tradecom Pvt. Ltd., a Kolkata based company in the year under consideration. iii. Further, it is informed that statement of Shri Pradeep Poddar, Director of M/s. Divine Tradecom Pvt. Ltd., M/s. Bhawna Computers Pvt. Ltd., M/s. Rowland Trexim Pvt. Ltd. and many other Kolkata based companies‟ was recorded u/s. 131 of the Act on 02.12.2014 wherein h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erous self-controlled shell entities. ii. Merely because the assessee furnished the confirmation, ITR acknowledgement, financial statements and bank statement of these lenders that, itself is not sufficient to say that the assessee has discharged his onus u/s. 68 of the Act. iii. companies do not have their own fund and accumulated profits are negative or just meager and that in these entities, the funds are influxed through web of other entities by way of share premium or unsecured loans and then the same are transferred to other entities. iv. M/s. Divine Tradecom Pvt. Ltd. and M/s. Rowland Trexim Pvt. Ltd. were purchased by Kamdhenu Group at a very low price than the net worth of these companies, which also proves that the loan transaction with the assessee is not a genuine transaction and merely an accommodation entry. 06. The LD AR submitted that the observations made by the Assessing Officer and that addressed by the ld. DR are misplaced and not properly appreciated. The ld. Counsel submitted that i. All the three ingredients of section 68 of the Act viz. identity of the lender, genuineness of the transaction and creditworthiness of the lender have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot have any relevance in regard to the transaction of interest bearing loan taken by the assessee. Accordingly, ld. Counsel submitted that the ld. CIT(A) has rightly deleted the addition of Rs. 3,00,00,000/- made u/s. 68 of the Act and also the consequential addition of interest of Rs. 3,17,213/- thereon. 07. We have considered the rival submissions of the parties and have gone through the orders of lower authorities and the material placed on record. The issue under consideration is the addition of loan of Rs. 3,00,00,000/- from two lenders viz. M/s. Divine Tradecom Pvt. Ltd. (Rs. 2,50,00,000/-) and M/s. Rowland Trexim Pvt. Ltd. (Rs. 50,00,000/-) u/s. 68 of the Act made by the Assessing Officer but deleted by CIT(A). The case of the revenue is that the director, Shri Pradeep Poddar of both these lender companies had admitted in his statement recorded u/s. 131 of the Act on 02.12.2014 to have provided mere accommodation entries to the assessee in the form of loan. However, this statement cannot be seen in isolation more so when the same person had immediately on next day, i.e. 03.12.2014 had filed a Police Complaint about the statement given on 02.12.2014 to be under duress ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uttal, the assessee submits that mere low income cannot be the criteria to dislodge the creditworthiness of the lenders and that due consideration should be given to the net worth of the companies which is Rs. 24,29,03,235/- in case of M/s. Divine Tradecom Pvt. Ltd and Rs.27,94,00,737/- in case of M/s. Rowland Trexim Pvt. Ltd. for the year under consideration. I find merit in this contention of the assessee more so as the source of the lender companies have been examined by the revenue while reopening their case for the same year and accepting the genuineness of the investors therein. Thus, it is a case where the source of source of alleged loans cannot be doubted. In this very perspective, the allegation of the AO that the income of the lender companies in the year under consideration is very low without giving due consideration to the overall net worth of the companies which is already accepted by the revenue in the assessment is totally misplaced and unwarranted. Without prejudice, attention was also invited to the decision of the Hon ble Delhi High Court in the case of CIT vs Vrindavan Farms Pvt Ltd (ITA No. 71/2015) in which the sole basis for the revenue to doubt the creditwo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee must establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been, eventually, received by the assessee. It, therefore, further logically follows that the creditor s creditworthiness has to be judged, vis-a-vis, the transactions, which have taken place between the assessee and the creditor, and it is not the business of the assessee to find out the source of money of his creditor or of the genuineness of the transaction, which took place between the creditor and sub-creditor and/or creditworthiness of the sub-creditors, for, these aspects may not be within the special knowledge of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e statement of Shri Pradeep Poddar was recorded under duress and coercion and he was subjected to tremendous mental torture and trauma by the Investigation Officer which is quite evident from the fact that Shri Pradeep Poddar had also filed a police compliant against the Investigation Officer immediately on the very next day of the statement on oath i.e on 03.12.2014. Moreover, it is observed that Shri Pradeep Poddar has also retracted his statement so recorded vide his affidavit dated 09.12.2014 sworn before the learned Metropolitan Magistrate at Kolkata which is within a week from which the statement was recorded. Thus, the statement which has been retracted cannot be held as evidence in isolation without any corroborative evidence against the assessee. Reference in this regard can also be made to the CBDT Instruction F.No.286/98/2013IT (INV.II) dated 18/12/2014 and letter dated 10/03/2003 issued by the Ministry of Finance Company Affairs wherein it is stated that the search party must focus on collection of evidences and not merely admission/ confession of additional income. The Hon ble Gujarat High Court has relying on the aforesaid instructions upheld the view that addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee or by bringing new evidence that indicate the transactions undertaken by the assessee are non-genuine. Thus, the section deals with an equilibrium of onus of proof and must be viewed to evaluate as to whether the evidences brought by the assessee or AO weigh more and accordingly in whose favour the equilibrium bends. In the present case, on one hand, the assessee has placed evidence in the form of loan confirmation, bank statement, ITR acknowledgement, Computation of Income, and signed financials of the lender companies and the reassessment order of the lender companies. 7.14 It is the contention of the Assessing Officer that the on-money generated by the assessee group has been brought back as loans and share capital through Kolkata companies but inspite of the search undertaken in the appellant s group nothing incriminating was found during the search and no evidence of either receipt of on-money or generation of any other kind of unaccounted income was found. No evidence of any cash transaction has been brought out either by the Investigation wing or by the Assessing Officer. As the assessee proved the trail of money which is through banking transactions, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 31-03-2016 and in some cases upto 31-03-2017. We further notice that the AO has furnished a report accepting the fact that all these companies are active in the website of MCA and none of the companies name is struck off from the list published by the MCA as shell company. We further notice that the assessee has filed balance-sheet of all 9 subscribers wherein they have huge share capital and reserves and surplus to establish creditworthiness of the parties. On perusal of the balance-sheet filed by the assessee, we find that the aggregate of share capital and reserves of 9 companies is at Rs.333.67 crores, whereas investment in assessee company is only Rs.12 crores. We further notice that all companies are having regular business ranging from 2 to 3 crores. The assessee also furnished copies of sales-tax returns filed with Commercial Tax Department to prove the business activity of the assessee. All these evidences go to prove an undoubted fact that these companies are not paper companies and recognized with business activity. We further observe that the assessee also filed affidavit form the directors of subscriber companies, wherein thy have explained the reasons for not rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended 31.03.2010 The Bank Statement highlighting receipt of the amount by way of RTGS. Banks certificate certifying the receipt of the amount through Banking channels. 6. On going through the documents which have been produced which are basically from the public offices, which maintain the records of the Companies. The documents also include assessment Orders for last three preceding years of such Companies. 7. The Appellants have failed to explain as to how such Companies have been assessed though according to them such Companies are not existing and are fictitious companies. Besides the documents also included the registration of the Company which discloses the registered address of such Companies. There is no material on record produced by the Appellants which could rebut the documents produced by the Respondents herein. In such circumstances, the finding of fact arrived at by the authorities below which are based on documentary evidence on record cannot be said to be perverse. Learned Counsel appearing for the Appellants was unable to point out that any of such findings arrived at by the authorities below were on the basis of misleading of evidence or fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us documents produced by the Respondents cannot be discarded merely on the basis of two individuals who have given their statements contrary to such public documents. 10. We find no infirmity in the findings arrived at by the ITAT as well as CIT Appeals on the contentions raised by the Appellants-Revenue in the present case and, as such, the question of interference by this Court in the present proceedings under Section 260A of the Income Tax Act would not at all be justified. Apart from that, as rightly pointed out by the learned Counsel appearing for the Respondents, the CIT Appeals had also noted that proceedings under Section 147 of the Income Tax Act cannot lead to re- verification of the records. These findings of the CIT Appeals have not been assailed before the Income Tax Appellate Court. 11. In such circumstances, we find that there is no case made out by the Appellants-Revenue for any interference in the impugned Orders passed by the Courts below. 12. Hence, the Appeal stands rejected. The SLP filed against the said order of the High Court is also dismissed by the Hon ble Apex Court in [2018] 93 taxmann.com 84 (SC). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f utilization of fund whereas in fact, he had used the funds for the purpose of investments in other concerns in which he is a partner and also for other assets. Thus, as the assessee was unable to explain the commercial reason, Assessing Officer disallowed the business loss of Rs. 30,93,410/- and added the same to the total income of the assessee. In appeal before the ld. CIT (A), assessee was allowed to be granted allowance to the extent of proportionate interest for the funds utilized for investment made in the proprietorship concerns where funds were required for its business. However, later, a corrigendum order dated 17.06.2019 placed at page nos. 44 to 45 of Paper Book was passed to rectify the working of computation of relief available to the assessee which was then worked out to Rs. 3,86,176/-, thereby sustaining disallowance of Rs. 27,07,234/-. 012. In this regard, the ld. DR of the assessee relied on the order of the Assessing Officer and requested to confirm the disallowance of Rs. 30,93,410/- as interest bearing funds were not wholly and exclusively utilized for the purpose of business. 013. ld. AR requested that the ld. CIT (A) has only granted the relief to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA no. 3039/Mum/2019 for A.Y. 2008-09 is dismissed. ITA no. 4038/Mum/2019 CO no. 46/Mum/2021 AY 2014-15 017. The revenue is in appeal in ITA no. 4038/Mum/2019 before us against the order of Commissioner of Income Tax (Appeals) - 49, Mumbai [for short, CIT(A) ] dated 28.03.2019 for A.Y. 2014-15 raising following grounds of appeal:- ITA No.4038/MUM/2019 (Assessment Year 2014-15) 1. In the circumstances and facts of the case and in law, the CIT(A) has erred in deleting the addition of ₹2,63,00,000/- made by the AO as unexplained cash credit in the form of bogus loans u/s. 68 of the Act without considering the fact that the statements of Shri Anand Sharma and Shri Praveen Agarwal and other related concerns were recorded u/s. 131 of the Act wherein they had stated that the above mentioned companies were engaged in the business of providing accommodation entries. 2. Whether on facts and in law the Ld. CIT(A) was correct in allowing the appeal of the assessee, ignoring the facts of the case and placing reliance on the superficial documentation supporting the claim of the assessee. 3. On the fact and circumstances of the case and in law, the ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn of income for A.Y. 2014-15 on 19.11.2014 declaring total income at Rs. 1,87,20,000/- and same was processed u/s. 143(1) of the Act. Later, a search action u/s. 132 of the Act was carried out in the appellant‟s group concerns on 09.10.2014. In this case, the satisfaction note is recorded on 18.03.2016 and due date of issuing notice u/s. 143(2) for A.Y. 2014-15 was 30.09.2015 thereby making A.Y. 2014-15 as unabated year. Consequently, Assessing Officer issued notice u/s. 153C dated 22.03.2016 to the assessee requiring him to furnish the return of income for A.Y. 2014-15. Satisfaction note was also recorded by the Assessing Officer before issuing the notice u/s. 153C of the Act. In the assessment completed, the Assessing Officer made various additions u/s. 68 and interest disallowance aggregating to Rs. 3,05,59,335/-. Aggrieved by the additions so made, the assessee preferred appeal before the ld. CIT(A) who deleted all the additions / disallowances and allowed the appeal in favour of the assessee. Hence, the revenue is in appeal before us. 020. Since the Cross Objections deal with the issue of jurisdiction u/s. 153C for making the additions / disallowances, we take them f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectors As a part of the search a Survey was conducted at the office premises of M/s Nishrin Trading and Investment Pvt. Ltd. Situated at Sir Navroji Bldg, Shankar Sneth Lane, Grant Road West, Mumbai 400 007 on 09.10.2014 which was later converted into search and seizure action u/s 132(1) on 10.10.2014. During the course of search action certain loan books were also found and seized which were marked as Sr no 1 to 13 of Annexure A to Panchanama at 11.10.2014 Page 8 and 9 of the loan book Sr no 8 seized reflects loan transactions of by M/s Trishul Developers (prop Khimji Karamshi Patel) of Rs 2,52,28,964 /-and Rs 1.21,42,032/- with M/s Divine Tradecom Pvt Ltd and M/s Rowland Trexim Pvt Ltd. During the course of search in the said group it was found that the entities with whom the loans transactions are entered, namely M/s Divine Tradecom Pvt Ltd and M/s Rowland Trexim Pvt Ltd are Paper companies giving accommodation entries. The operator of the said companies, namely Shri Pradeep Poddar has given a statement u/s 131 that both the companies are shell companies and used for proving accommodation entries. The above document Identified at Loan book no 8 of Annexure A to pancha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Konarch Commerce Pvt. Ltd. has no relevance to any incriminating material found in the course of search in Kamdhenu Group on 09.10.2014. In fact, the said additions of Rs. 3,00,00,000/- u/s. 68 and the consequential interest of Rs. 11,78,742/- are based on some statements of third parties viz. Shri Anand Sharma and Shri Pravin Agarwal recorded not in the course of search in Kamdhenu Group on 09.10.2014 as referred in the satisfaction note. Thus, it is clear that the information relied upon by the Assessing Officer does not have any bearing to the search conducted and cannot be considered as incriminating material found during the search. Even the disallowance of Rs. 30,80,593/- made u/s. 36(1)(iii) for not utilising the interest bearing funds wholly and exclusively for business purposes is not connected to any incriminating material found during the search. 026. In this regard, we find that the said issue is squarely covered by the decision of the Hon‟ble Apex Court in the case of Sinhgad Technical Education Society Ltd. (2017) 84 Taxman.com 290 (SC), wherein it is held that there has to be incriminating material pertaining to the assessment year in question in order to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no satisfaction note recorded by the Assessing Officer before invoking the provisions of section 153C of the Act in view of the CBDT Circular No.24/2015 dated 31.12.2015. (c) The ld. CIT(A) erred in facts and law in note quashing the order passed by the ld. Assessing Officer u/s. 153C r.w.s. 143(3) of the Act despite the undisputed fact that no incriminating material was found in the course of searched person which belonged to the assessee and thereby failing to appreciate that the very existence of incriminating material is a sine-qua-non to assume jurisdiction u/s. 153C of the Act. 031. Brief facts of the case are that the assessee had filed his original return of income for A.Y. 2011-12 on 29.09.2011 declaring total income at Rs. 2,43,73,110/- and same was processed u/s. 143(1) of the Act. Later, a search action u/s. 132 of the Act was carried out in the appellant‟s group concerns on 09.10.2014. Consequently, Assessing Officer issued notice u/s. 153C dated 22.03.2016 to the assessee requiring him to furnish the return of income for A.Y. 2011-12. Satisfaction note was also recorded by the Assessing Officer before issuing the notice u/s. 153C of the Act. In the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 Page 8 and 9 of the loan book Sr no 8 seized reflects loan transactions of by M/s Trishul Developers (prop Khimji Karamshi Patel) of Rs 2,52,28,964 /-and Rs 1.21,42,032/- with M/s Divine Tradecom Pvt Ltd and M/s Rowland Trexim Pvt Ltd. During the acourse of search in the said group it was found that the entities with whom the loans transactions are entered, namely M/s Divine Tradecom Pvt Ltd and M/s Rowland Trexim Pvt Ltd are Paper companies giving accommodation entries. The operator of the said companies, namely Shri Pradeep Poddar has given a statement u/s 131 that both the companies are shell companies and used for proving accommodation entries. The above document Identified at Loan book no 8 of Annexure A to panchanama dt 11-10-2014 found and seized and the information contained therein pertains to M/s Trishul Developer prop Shri Khimj Karamshi Patel) and the same has a bearing on the determination of its total Income, In view of the above I am satisfied that the above seized document and the information contained therein found and seized at the premises of the assesse belong to M/s Trishul Developer (Prop Khimji K Patel) which is a person other than the person referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earch conducted and cannot be considered as incriminating material found during the search. Even the disallowance of Rs. 4,07,492/- made u/s. 36(1)(iii) for not utilizing the interest bearing funds wholly and exclusively for business purposes is not connected to any incriminating material found during the search. 036. In this regard, we find that the said issue is squarely covered by the decision of the Hon‟ble Apex Court in the case of Sinhgad Technical Education Society Ltd. (2017) 84 Taxman.com 290 (SC), wherein it is held that there has to be incriminating material pertaining to the assessment year in question in order to make any addition or disallowance in an assessment made u/s. 153C of the Act. In light of the above background of facts and settled judicial precedent, we are of the considered view that no additions or disallowances can be made devoid of any incriminating material found during the search on a third person. Accordingly, the ground nos. 1 to 3 of the revenue are dismissed. 037. Since the appeal of the revenue in ITA no. 3117/Mum/2019 is dismissed, CO of the assessee bearing CO 72/Mum/2019 stands infructuous and need not require any jurisdiction. Hen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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