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TMI Blog2024 (2) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure or disallowance u/s 14A of the Act. Thus it is an admitted fact that the AO exceeded his jurisdiction provided for limited scrutiny by disallowing the claim of scientific research expenditure u/s 35(1)(ii) and disallowance under section 14A of the Act. We are of the considered view that in absence of any prior permission from competent authority for enlarging the scope of limited scrutiny or changing the same to complete scrutiny, AO was not within his jurisdiction to make the disallowance u/s 35(1)(ii) and 14A. Addition u/s 68 - unexplained unsecured loans - HELD THAT:- Since the assessee has duly discharged its primary onus by filing all necessary evidence which in our considered view are sufficient enough to prove the identity and creditworthiness of the share subscriber and genuineness of the transaction to explain the nature and source of the alleged cash credit. We fail to find any infirmity in the finding of the CIT(A) holding that the assessee has established the identity and creditworthiness of the loan creditors and genuineness of the loan transactions received by the assessee as well as the amalgamated companies during the year. Thus, no interference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Experimental Research Education, Kolkata to grant approval u/s 35(l)(ii) of the Income Tax Act, 1961 as such the alleged donation is a fake one as the Donee has no authority to receive donation. 6. Whether on the facts and circumstances of the case, the ld. CIT(A) erred in law in restricting the addition by Rs. 2,81,903/- from Rs. 30,37,525/- u/s 14A of the I.T. Act. 1961 ignoring the facts that the A.O. has made the addition under the provision of Rule 8D of the Income Tax Rule, 1962. 7. That department carves leave to add, alter or modify any or all grounds of appeal either before or during course of Appellate Proceedings. 3. The assessee has raised the following grounds of appeal in the cross-objection:- 1. For that on the facts and in the circumstances of the case, the Ld. CIT(A) also ought to have held that the additions made u/s 35(1)00 14A of the Act amounting to Rs. 63,00,000/- Rs. 30,37,525/- respectively were legally untenable as the AO had acted in excess of jurisdiction by examining these issues which were outside the scope of the issues of 'limited scrutiny' for which the case of appellant was selected under the CASS guidelines. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan taken from promoters, shareholders and other parties. Leaving the fresh loans take from promoters and shareholders, other fresh loans received from other parties amounting to Rs. 10,07,00,000/-. Notice u/s 133(6) of the Act were sent to the alleged cash creditors. As per the postal department address were not known but due compliances were made by the assessee. Various documents in order to explain the nature and source of the alleged unsecured loan were filed but the same could not satisfy the Assessing Officer and he held the alleged cash creditors as paper /shell companies and made addition u/s 68 of the Act of Rs. 10,07,00,000/-. Apart from this, the ld. Assessing Officer also disallowed the claim of deduction u/s 35(1)(ii) of the Act made towards expenditure for scientific research. The ld. Assessing Officer also made disallowance u/s 14A of the Act at Rs. 30,37,525/-. Along with other minor disallowances, income assessed at Rs. 17,38,73,378/-. Aggrieved the assessee preferred appeal before the ld. CIT(A) but partly succeeded. 7. Now, the revenue is in appeal before this Tribunal and the assessee has filed cross-objections. 8. We notice that the assessee has raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. It is discernible from the fact that the two issues relating to scientific research expenditure and disallowance u/s 14A of the Act are not connected to the issue of unsecured loans. It is also not the case that while examining the issue of unsecured loans the ld. Assessing Officer found some connection with the issues of scientific research expenditure or disallowance u/s 14A of the Act. Thus it is an admitted fact that the ld. Assessing Officer exceeded his jurisdiction provided for limited scrutiny by disallowing the claim of scientific research expenditure u/s 35(1)(ii) and disallowance under section 14A of the Act. This Tribunal in the case of Tirumani Investment Private Limited (supra), has dealt with this issue and held as under:- 7. We have heard the rival submissions and gone through the record. A perusal of the assessment order reveals that the assessee has submitted the revised return revising total income to Rs. 1,31,03,060/-. However, the Assessing Officer has taken up the returned income as per the original return of income only on the ground that the case was selected for scrutiny of the original return of income. In our view, the above action of the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction filed by the assessee, and have already held that the ld. Assessing Officer exceeded his jurisdiction provided for limited scrutiny while making the addition/disallowance u/s 35(1)(ii) and 14A of the Act. Thus Ground Nos. 4, 5 6 raised by the revenue are dismissed. 16. As far as Ground Nos. 1 to 3 are concerned, there are against the finding of the ld. CIT(A) deleting the addition made u/s 68 of the Act for unexplained unsecured loans at Rs. 10,07,00,000/-. 17. The ld. D/R, vehemently argued supporting the orders of the ld. Assessing Officer and further stated that the notice u/s 133(6) of the Act, could not be served on any of the cash creditors and their financial statements indicates that they are paper/shell companies engaged in jamakharchi and the assessee has routed its unaccounted income by way of unsecured loans. Reliance further placed on the judgment of NRA. Iron Steel (P) Ltd (103 Taxmann.com 48) (2019) (SC). 17.1. On the other hand, the ld. Counsel for the assessee, apart from placing heavy reliance on the finding of the ld. CIT(A), further submitted that complete documents including ledger, loan confirmations, source of funds, audited financial state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting documents relating to each loan creditor company viz. respective ledger accounts, loan confirmations, explanation as to source of funds, ITR acknowledgement, audited financial statements, and banks statement of the loan creditors. On a careful perusal thereof, I find that the appellant has satisfactorily discharged the primary onus cast upon it to substantiate the unsecured loan transactions during the year, by furnishing all the relevant and material evidence. The identity of the loan creditor companies is established as these are having PAN, CIN and are regularly filing return of income. The creditworthiness of the loan creditors is established from the audited balance sheets and profit and loss accounts, which show that the lender companies have adequate own funds (share capital and reserves) and are also having substantial operating income during the relevant period, to advance the loans. The genuineness of the transaction is established from the fact that both the acceptance and repayment of loan has been through banking channel, as evidenced from the bank statements of the loan creditors and the appellant company, and interest has been paid by the appellant company (or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he onus lies on the assessee to adduce necessary documentary evidence so as to prove all the three ingredients of section 68 viz. identity and creditworthiness of the creditor, and genuineness of the transaction, as the relevant facts are within the special knowledge of the assessee. It has also been held that the evidence adduced by the assessee have to be examined not superficially but in depth and having regard to the test of the human probabilities and normal course of human conduct. 7.4. Hon'ble ITAT, Mumbai Bench, Mumbai in case of ITO v. Anant Shelters Pvt Ltd (20. taxmann.com 153) (2012) (Mum) has enumerated certain legal principles regarding taxation of cash credits under section 68 as under :- (i) Section 68 can be invoked when following three conditions are satisfied -(a) when there is credit of. amounts in the books maintained by the assessee, (b) such credit has to be a sum of money during the previous year, (c) either the assessee offers no explanation about the nature and source of such credits found in the books or the explanation offered by the assessee, in the opinion of the AO, is^not satisfactory. It is only then that the sum so credited may be ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prove the identity of the creditors by either furnishing their PANs or assessment orders. Similarly, genuineness of the transaction can be proved by showing that the money was received by an account payee cheque or by draft. Creditworthiness of the lender can be established by attending circumstances. Once the assessee produces evidences about identity, genuineness and credit worthiness of the lender onus of proof shifts to the Revenue.,; 7.5 In the light of the aforesaid legal principals, I find that in the instant ease the appellant has been able to discharge the primary onus placed on him under section 68 of the Act. The appellant has furnished name, address and PAN of loan creditors, loan confirmations duly signed, ledger accounts, copies of audited financial statements of lenders, relevant bank statements, etc. The loan transactions are duly reflected in the books of accounts and bank statements of the loan creditor companies. The appellant company is a registered NBFC and the loans have been taken (and later repaid in some Gases) in regular course of business. The appellant company (or the amalgamating company, as the case may be) has paid interest on the loans raised t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We are unable to agree since the Petitioner has clearly stated that all the payments were made by account payee cheques which were encashed in the bank account of the Petitioner in the regular course of business. We find that the Petitioner has also paid interest on this loans after deduction of tax at source and TDS returns are also accordingly filed. There is no dispute in regard to the above. We find nothing to support the said contentions of the revenue. The revenue's contention in the affidavit in reply has no merit. On the other hand, the loans appear to be taken in the regular course of business and were found amongst the 45 members in respect of which all particulars have already been furnished by the assessee to the Assessing Officer. The fact remains that the Assessing Officer had power to reopen the assessment provided there was some tangible material on the basis of which he has reason to believe that income chargeable to tax had escaped assessment. 7.7 The Hon'ble Supreme Court in the case of CIT Vs Lovely Exports (216 CTR 195) (2008) (SC) has held that If the share application money is received by the assessee company; from alleged bogus share holders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. 7.10 It is pertinent to mention that the facts of present case are completely distinguished from the facts in the case of NRA. Iron Steel (P) Ltd (103 Taxmann.com 48) (2019) (SC). In that case, AO had issued summons and also conducted independent field enquiries with respect to the investor companies, which revealed that identity of the investor companies and genuineness of the transaction was clearly not established. In the instant case, however, no such enquiry has been conducted by the AO, to bring on record any fact which could controvert the facts .contained in the documentary evidence adduced by the appellant to substantiate the loan transaction. Therefore, the ratio of Supreme Court judgement in case of NRA Iron Steel (P) Ltd (supra) is not applicable on the facts of present case. 7.11 In view of the facts and circumstances of the case, and the prevailing position of law applicable on such facts, I find that the appellant has, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the credit- worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act. 19.1. The Hon ble Supreme Court, thus, has held that once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness of the subscribers, then the AO is duty bound conduct to conduct an independent enquiry to verify the same. However, as noted above, the Assessing Officer in this case has not made any independent enquiry to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee submits the explanation concerning the cash credit, the Assessing Officer should consider it objectively before he decides to accept or reject it. Where the assessee furnishes full details regarding the creditors, it is up to the Department to pursue the matter further to locate those creditors and examine their creditworthiness. While drawing the inference, it cannot be assumed in the absence of any material that there have been some illegalities in the assessee s transaction. Held, dismissing the appeal, that the allegations against the assessee were in respect of thirteen transactions. The Assessing Officer issued a show-cause notice only in respect of one of the lenders. The assessee responded to the show-cause notice and submitted the reply. The documents annexed to the reply were classified under three categories namely: to establish the identity of the lender, to prove the genuineness of the transactions and to establish the creditworthiness of the lender. The Assessing Officer had brushed aside these documents and in a very casual manner had stated that merely filing the permanent account number details, and balance sheet did not absolve the assessee from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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