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TMI Blog2023 (4) TMI 1352X X X X Extracts X X X X X X X X Extracts X X X X ..... osited in the bank accounts of the creditors, the proper course would be to assess such credit in the hands of the creditor (after making due enquiries from such creditor). 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 Dataware (P.) Ltd [ 2011 (9) TMI 175 - CALCUTTA HIGH COURT] that the creditworthiness of the creditor cannot be disputed by the AO of the assessee but the AO of the creditor. We also noted that assessee has submitted essential evidences before assessing officer, such as PAN number, address, income tax returns and audited financial statements of creditors and all transactions were through banking channel. We have also gone through the detailed findings of ld CIT(A) and noted that conclusion reached by ld CIT(A) in deleting the addition is acceptable. Unexplained share capital - In the assessee s case there is no material that the assessee company had collected on money which could be routed back in the investment. The assessee had discharged primary onus of providing the identity, genuineness and creditworthiness of the said shareholders. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as at time remand report though he was requested to do so? (iii) On the facts and circumstances of case and in law, the Ld. CIT(A) has erred in deleting the total additions of Rs. .8,78,28,138/- on account of unexplained cash credit u/s 68 of the Act for unexplained Share capital + Share Premium and unsecured loan as the decision of the Hon'ble 1TAT, Surat in assessee's own case on similar issue for the A.Y 2012-13 has not been accepted by the department and further appeal have been filed before the Hon'ble High Court where decision is pending: (iv) On the facts and circumstances of case and in law, the Ld. CIT(A) failed to appreciate the fact reported by AO in his remand report dated 18-7-2018 that all the parties were merely entry providers and they hardly knew about the business shown by them in their Audited statement and they have failed to explain the sources out of which unsecured loan and investment in shares of assessee company were made. At the time statement recorded on oath during remand proceedings, they have failed to prove genuineness of transactions and their creditworthiness for investment in assessee-company as well for giving unsecured loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Road Director in R. J. Squarelink Pvt. Ltd., 3465000 2023500 54,88,500 4 Master Corporation, Prop. Haresh Vekharia HUF, 39, Kamla Estate, Kohinoor Road, Varachha, Surat 5631100 0 56,31,100 5 Metro Fibres, Prop. Jitendra Vekharia HUF 109, Sachi Complex, Runghnathpura, Nain Road, Lal Darwaja, Surat 5095850 "To" 50,95,850 6 Shilp International, Prop. Shilpa Prakash Dhanani C-1/101, Krishna Township, Satellite Road, Mota Varachha, Surat 14000000 591150 1,45,91,150 7 Sunflower Enterprise, Prop. Bhavikaben A. Vekharia, (i) 3-C/D, Ashvini Apartment, Opp. Sardar Nagar Soc, Sumul Dairy Road, katargam, Surat 9940850 1000050 1,09,40,900 8 Sunrise Fibre, Prop, Ushaben J Vekharia 109 & 208, Sachi Complex, Rughnathpura, Main Road, Laldarwaza, Surat 7094950 1000050 8095000 9 Sunstars Creations, Prop. Manishaben Vekharia 38, Kamla EstateKohinoor Road, Varachha Road, Surat 10014200 1000050 11014250 10 Wilson Enterprise, Prop. Ashwin Vekaria HUF. Trading of Textile fabrics, 108, Sanchi Complex, Raghunathpura Main Road, Laldarwaja, Surat 2226000 0 2226000 11 Vinubhai Ramani, A/6/203, Krishna Township, Satelite Road, Mota Varachha, Surat 0 800100 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from whom assessee has received unsecured loan/share capital are running from that premises. Neighbors of addresses given were unaware of any business running from those places. In few cases even proprietor herself stated that she was not aware of any concern running from that place. The Inspector's report is reproduced below: Date: 17-3-2016. To The Income-tax Officer Ward-l(1)(4), Surat. Sir, As per your direction I have visited the below mentioned premises for spot verification purpose. Enquiry report in respect of each of the below mentioned premises are as under: Sl. No. Name & address Inquiry Report 1. Arya Marketing, Prop Vipulbhai M Savaliya C-401, City Corner Complex, Nandanvan Society, Mota Varachha, Surat. I visit this premise on 15-3-2016. Its residential premises. I met there Smt. Vishwa Thaiseiya (mobile No. 9727142276). She told me that the firm Arya Marketing is not running from this premises. And she has no knowledge about the firm and the place from where it is running. 2 Ashvini Fibres, Prop Sangita Rajesh Vekharia, 8C, Ashwini Apptt, Anmol compound, Sumul Dairy Road, Surat. I visit this premise on 15-3-2016. Its residential premises and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Varachha Road, Surat. (ii) 3/C, Ashwini Apptt. Sumul Dairy Road, Surat. (i) I visit this premise on 15-3-2016. I met there Shri. Himatbhai Kababhai (Mobile No. 9824199706) informed me the firm Sunstar Creation, is closed two years ago. (ii) I visit this premise on 15-3-2016. Its residential premises and no business activities are being carried out from this premise. 10. Wilson Enterprise, Prop Ashwin Vekharia (HUF) (i) 108, Sanchi Complex, Raghunathpura Main Road, Lal Darwaja, Surat. (ii) 3/C, Ashwini Apptt. Sumul Dairy Road, Surat. (i) I visit this premise on 17-3-2016. I met there Shri. Bhagirath S Narigara (Mobile No. 8460666039) who informed me that the firm Metro Fibres is closed two years ago. Now at present, Ankur Pharma is running from this premise. (ii) I visit this premise on 15-3-2016. Its residential premises and no business activities are being carried out from this premise. 11. Shridhan Corporation, Prop. Ketan G Barvaliya, 45, Pramukh Park Soc. Near Patel Park Soc, Simadagam, Mota Varachha, Surat. I visit this premise on 15-3-2016. I met there Smt. Vaishali Barvaliya (Mobile No. 9624290351). Its residential premise and no business activities are being carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 47574982 9971109 27536078 43802091 69989008 VI-A 110000 35060 70677 59601 j 97289 101490 Total Income 1353320 372680 51150 192730 308630 352730 Withdraw 1 Not Furnished 180930 338190 197830 194090 1383320 Transportation exp 0 0 0 0 0 0 Stationery Exp 102 0 0 0 0 0 Electricity 0 00 0 0 0 0 Interest exp 0 571644 0 0 0 0 Salary 289000 0 89500 189400 436000 226000 Rent 0 0 0 0 0 0 Sunstar Creation, Prop. Manishaben Vekharia Wilson Enterprise, Prop. Ashwin Vekharia HUF Prisha Fashion, Prop Poonam Ketanbhai Dhanani Arya Marketing, Prop. Vipulbhai M Savaliya, Creative Fashions, Prop. Haresh Vekharia, Global Exim, Prop. Ashvin Vekaria, Mega Collection, Prop. Jitendra Vekharia 8 9 10 11 12 13 14 AMOUNT INVOLVED 1,10,14250 22,26,000 4,00,050 2,07,75,238 54,88,500 43,26,450 31,27,500 Turn Over 12180438 75896314 268715585 No details were furnished as summon as well as letter u/s 133(6) could not be served 12898914 0 1182280694 Purchase 11540737 70689173 272791120 12360077 o 1170126811 Administration & Selling Expenses 18720 342444 238708 19368 2400 1090847 Profit 261817 140742 32 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their capabilities to part with such sums can't make the transaction to be accepted to be true. The genuineness of the transaction is not proved. A person's creditworthiness can be judged from his balance sheet. In none of the lender's balance sheet there is any significant movable/immovable property. If the person is earning but instead of using the same capital for personal use or business purpose, he is advancing the same interest free to someone else that means his source of earning is not genuine and is controlled by someone else. Investment was many times more than the total capital of that person which clearly establishes that their creditworthiness is not enough to advance that much money with assessee company. The depositors are not capable of giving such loans since they have no investment or even provision for contingencies such day to, day livelihood, disease or even the demise of the bread winner of the family. It is a natural instinct in all living being that it will first be inclined to itself or its own family members. Though lenders are low income group persons and their yearly withdrawals is not that much, that they have advanced in multi lakhs to ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 investors/creditors, transactions of 2 persons, Shri Ashvin Vekaria and Shri Jitendra Vekaria (total Rs. 74,53,950) are treated as genuine and amounts received from them is treated as explained. In case of amounts received from remaining 12 concerns/persons are treated as unexplained. The unsecured loan and share capital/premium of Rs. 8,78,28,138/-(95282088 - 7453950) has been found credited in the books of the assessee company maintained for previous year 2012-13, and the explanation offered by the assessee company has not only been found unsatisfactory but also incorrect as revealed by inquiries conducted by the Department, therefore the sum of Rs. 8,78,28,138/- was, added under section 68 of the Income-tax Act, 1961. 12. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by the Assessing Officer observing as follows: "4.12 On perusal of facts, it is noticed that the identity of all the creditors was established as the creditors appeared before the A.O during remand proceedings. In the remand report the AO has only, mentioned that the creditworthiness of the creditors and ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere from the families of the promoters or the relatives of the promoters. The AO could have informed the concerned AO to make any verification he wanted to. The appellant has relied upon the decision of the jurisdictional High Court in the case of Ranchhod Jiva Bhai Nakhawa (2008 Taxman 35(Gujarat) the appellant has also relied upon the decision of the Hon'ble Supreme Court in the case of CIT v. Lovely Exports Pvt. Ltd. (216 CTR 195). The appellant has also relied upon the following decisions - 1. CIT v. Namastey Chemicals Pvt. Ltd. (217 Taxman 25) Guj. 2. Earth Metal Electrical Pvt. Ltd. (SLP 21073/2009)(SC) 4.15 The then Ld. CIT(Appeal), Surat-3 has discussed the case laws and decisions of jurisdictional Gujarat High Court, other High Courts, Hon'ble ITAT in his order in the case of the appellant itself for AY 2012-13. The then Ld. CIT(Appeal), Surat-3 held that -- "In view of the facts discussed above and the applicable binding decisions of the Hon'ble Supreme Court and Hon'ble High Court of Gujarat, and the jurisdictional ITAT, I hereby hold that the addition made u/s 68 of Rs. 5,21,31,100/- on account of 'share application money' in the insta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see being unexplained cash credit u/s 68 of the Act. The ld DR stated that during the assessment proceedings, summons were issued to all persons/shareholders/cash creditors to examine their creditworthiness as well as identity and transactions made by them, but no one attended. A show cause notice was issued to assessee on 18-3-2016 asking assessee to furnish evidence for the identity of all the so called creditors/investors, after the A.O. was having in possession of valid documentary evidences which prima facie proved that claim made by assessee in respect of credit amount of Share Capital/Share Premium and unsecured loans are non-genuine. The ld DR pointed out that during the remand proceedings also the AO came to the conclusion that neither the creditworthiness nor the genuineness of the transactions of share capital and unsecured loans could be proved. Based on these facts, the assessing officer concluded that addition made by the assessing officer may be upheld. 15. Shri Suresh K. Kabra, Learned Counsel for the assessee defended the order passed by the ld.CIT(A). The ld Counsel argued that cash creditors/share applicants are having PAN, have filed returns of income, their sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Rs. 60 lakh vide cheque no. 102111 was given to the assessee and out of the total loan of Rs. 1.60 crore, Rs. 15 lakh vide cheque no. 196107 was repaid and, therefore, an amount of Rs. 1,45,00,000/- remained outstanding to be paid to Shri Ishwar Adwani. It has also come on record that the said loan amounts been repaid by the assessee to Shri Ishwar Adwani in the immediate next financial year and the Department has accepted the repayment of loan without probing into it. In the aforesaid facts and circumstances of the case, when the ITAT has held that the matter is not required to be remanded as no other view would be possible, we see no reason to interfere with the impugned order passed by the ITAT. No question of law, much less substantial question of law arises in the present Tax Appeal." 17. We note that main plank on which the AO made the addition was because some of the creditors did not turn up before him. In such a case the Hon'ble Apex Court in the case of CIT v. Orissa Corpn. (P.) Ltd. [1986] 25 Taxman 80F/159 ITR 78 and the Hon'ble Gujarat High Court, in the case of Dy. CIT v. Rohini Builders [2003] 127 Taxman 523/[2002] 256 ITR 360, has held that onus o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance can be placed on the decision of the Hon'ble High Court, Calcutta in the CIT v. Dataware (P.) Ltd. [ITAT No. 263 of 2011, dated 21-9-2011] 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 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 the Assessing Officer of the creditor as to the genuineness of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness of transaction through account payee cheque has been established. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious year. 22. The phraseology of section 68 is clear. 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 also held by the Supreme Court in the case of CIT v. Smt. P.K. Noorjahan [1999] 103 Taxman 382/237 ITR 570." 23. In the assessee's case there is no material that the assessee company had collected on money which could be routed back in the investment. The assessee had discharged primary onus of providing the identity, genuineness and creditworthiness of the said shareholders. The assessee has also proved the source of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority to dispute the correctness of assessments of the creditors of the assessee when a co-ordinate Assessing Officer is satisfied with the transaction. [Para 17] Thus, the Tribunal rightly set aside the addition made by the Assessing Officer, based on erroneous approach by wrongly shifting the burden again upon the assessee without verifying the income tax returns of the creditors. The position, however, would have been different if those creditors were not income tax assessees or if they had not disclosed those transactions in their income tax returns or if such returns were not accepted by their Assessing Officer. [Para 18] There was no merit in the appeal and same was to be dismissed. [Para 19]" 24. From the details as aforesaid which emerges from the paper book filed before us as well as before the lower authorities, it is vivid that all the share applicants are (i) income tax assessee's, (ii) they are filing their return of income, (iii) the share application form and allotment letter is available on record, (iv) the share application money was made by account payee cheques, (v) the details of the bank accounts belonging to the share applicants and their bank s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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