Addition based on third person statement without giving any opportunity to cross examine is untenable

Acme Chem Limited Vs DCIT (ITAT Kolkata)

ITAT Kolkata held that addition based on such retracted statement of third person and that too without giving any opportunity of cross examination to the assessee deserves to be deleted.

Facts- The assessee is a limited company engaged in the business of manufacture and sale of rubber chemicals. Income of Rs. 8,22,97,170/- declared in the e-return filed on 28.09.2012 pertaining to AY 2012-13. Case selected for scrutiny through CASS followed by serving of notices u/s 143(2) & 142(1) of the Act. Assessment u/s 143(3) of the Act completed on 24.03.2015 after making various additions/disallowances and income assessed at Rs. 10,19,05,350/-. The additions made by ld. AO were challenged by the assessee but he failed to get any relief from ld. CIT(A). Aggrieved, the assessee is now in appeal before this Tribunal.

Conclusion- With regard to disallowance of bad debts claimed of Rs. 27,90,726/- for alleged non-submission of the proof, it is held that major amount of bad debts is on account of final account reconciliation and certain deductions/rebate given to the buyers of the assessee which mainly include MRF Ltd., CEAT Ltd. Birla Tyres Ltd. and various small amounts below Rs. 50,000/- amounting to Rs. 2,15,883/-. Since the sales have been duly accounted for and certain portions of the sundry debtors which could not be recovered have been claimed to be bad debts and this claim of the assessee is allowable. We are inclined to hold that the assessee has made a justified claim of bad debts u/s 36(1)(vii) of the Act and the same deserves to be allowed.

With regard to addition of unexplained income u/s 68, it is held that No opportunity of cross examination was provided to the assessee by ld. AO and also the said statement was retracted within ten days by Shri Rajkumar Kothari and therefore, making the addition based on such retracted statement and that too without giving any opportunity of cross examination to the assessee in whose case addition has been made on the basis of a statement of a third person deserves to be deleted and, thus, the legal issue raised by the assessee challenging the impugned addition is allowed.

With regard to disallowance of deduction u/s 80G, it is held that this Tribunal in the case of M/s. JMS Mining Pvt. Ltd. vs PCIT in ITA No. 146/KOL/2021 order dated 22.07.2021 has allowed the deduction u/s 80G of the Act on CSR expenses. We, therefore, respectfully following the decision referred herein above, are inclined to hold that the assessee is eligible for deduction u/s 80G of the Act at Rs. 17.50 lakh and thus, set aside the finding of ld. CIT(A).

FULL TEXT OF THE ORDER OF ITAT KOLKATA

The captioned appeals filed by the assessee pertaining to the Assessment Years (in short “AY”) 2012-13, 2017-18 & 2018-19 are directed against separate orders passed u/s 250 of the Income Tax Act, 1961 (in short the “Act”) by ld. Commissioner of Income Tax (Appeal), NFAC, Delhi [in short “ld. CIT(A)”] evenly dated 16.09.2022 arising out of the assessment order framed u/s 143(3) of the Act dated 24.03.2015 for AY 2012-13, 22.12.2019 for AY 2017-18 & 25.03.2021 for AY 2018-19.

2. The assessee is in appeal before the Tribunal raising the following grounds:

ITA No. 641/KOL/2022 for AY 2012-13:

“1. The impugned order passed by the Ld. CIT(A) is bad in law, illegal and arbitrary, the same deserves to be quashed/annulled and set aside.

2. On the facts and the circumstances of the case and in law, the Hon’ble CIT(A) erred in upholding the action of the Ld. AO in disallowing a sum of Rs. 33,86,993/- u/s 14A of the Act being the disallowance computed as per Rule 8D of the Income Tax Rules, 1962 (“the Rules”).

3. The Appellant prays that the AO be directed to delete the disallowance u/s 14A of the Act amounting to Rs. 33,86,993/- or the disallowance be appropriately reduced.

4. Without prejudice to the above, where the assessee has sufficient interest-free funds exceeding tax-free investments, it is presumed that investments are made out of such interest-free funds and therefore no disallowance u/s. 14A r.w.r. 8D(2)(ii) of the Rules is called for;

5. Without prejudice to the above, while computing average investments for Rule 8D of the Rules, only those investments from which exempt income has been earned during the year should be considered;

6. On the facts and in the circumstances of the case and law, the Ld. CIT(A) has erred in upholding the computation under clause (f) of Explanation to section 115JB(2) made by the AO without resorting to the computation as contemplated u/s 14A r.w. Rule 8D of the I.T. Rules, 1961.

7. That the ld. Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer in making the addition u/s 68 to the tune of Rs. 1,62,80,000/-, which is against the facts and circumstances of the case.

8. That the ld. CIT (A) has also erred in confirming the addition, especially when no cross-examination of Shri Raj Kumar Kothari was allowed to the assessee and, thus, the statement recorded at the back of the assessee has no evidentiary value.

9. That the confirmation of addition without allowing the cross-examination of the assessee is against the principles laid down by the Hon’ble Supreme Court in the case of Andaman Timber Industries v. CCE [2015] 62 com and, thus, the sustaining of addition, is against the facts and circumstances of the case.

10. That the confirmation of addition by the CIT (A) on human probabilities is not proper and is against the documentary evidence furnished before the authorities below, which has not been doubted at all.

ITA No. 650/KOL/2022 for AY 2017-18:

“1. The impugned order passed by the Ld. CIT(A) is bad in law, illegal and arbitrary, the same deserves to be quashed/annulled and set aside.

2. For that on the facts and in the circumstances of the case, the CIT (A) was unjustified in upholding the addition u/s 68 of the Act totalling Rs.8,61,00,000/-.

3. For that on the facts and in the circumstances of the case, the appellant having furnished relevant documentary evidences establishing the identity and creditworthiness of the share subscribers and proving the genuineness of transaction the authorities below were unjustified in making addition of Rs.8,61,00,000/- as income of the appellant chargeable u/s 68 of the Act.

4. For that on the facts and in the circumstances of the case, the CIT(A) was unjustified in upholding the action of the AO in making addition of Rs.8,61,00,000/- and taxing the same at special rate u/s 115BBE of the Act.

5. That the ld. CIT (A) has also erred in confirming the addition, especially when no cross-examination of Shri Raj Kumar Kothari was allowed to the assessee and, thus, the statement recorded at the back of the assessee has no evidentiary value.

6. That the confirmation of addition without allowing the cross-examination of the assessee is against the principles laid down by the Hon’ble Supreme Court in the case of Andaman Timber Industries v. CCE [2015] 62 com and, thus, the sustaining of addition, is against the facts and circumstances of the case.

7. That the confirmation of addition by the CIT (A) on human probabilities is not proper and is against the documentary evidence furnished before the authorities below, which has not been doubted at all.

8. The Ld. CIT (A) has erred in confirming the disallowance of Corporate Social Responsibility (CSR in short) expenses of Rs.17,50,000/- u/s 80G of the Income tax Act when the same was allowable according to the decision of the Hon’ble Kolkata Bench of the Tribunal in the case of M/s JMS Mining Pvt Ltd Vs PCIT, Kolkata-2 in I.T.A. No. 146/Kol/2021 in the A.Y. 2016-17 Order dated 22.07.2021.

9. The Ld. CIT (A) has erred in confirming the disallowance of CSR expenses on the ground that in spite of sufficient opportunity the assessee failed to produce receipt evidencing the sum was donated to the trust approved u/s 80G for the relevant assessment year.”

ITA No. 660/KOL/2022 for AY 2018-19:

“1. The impugned order passed by the Ld. CIT(A) is bad in law, illegal and arbitrary, the same deserves to be quashed/annulled and set aside.

2. For that on the facts and circumstances of the case, the CIT(A) was wholly unjustified in confirming the addition of Rs.2,03,823 made by the AO by way of unreconciled duty drawback and deserves to be deleted.

3. For that on the facts and circumstances of the case, the CIT(A) was wholly unjustified in confirming the disallowance of bad debts of Rs 27,90,726 for alleged non-submission of proof substantiating that the debts had become irrecoverable.

4. For that on the facts and circumstances of the case, the appellant has satisfied the conditions laid down in Section 36(2) had rightly claimed deduction of bad debts of Rs.27,90,726 and in that view of the matter the impugned disallowance being unsustainable on facts and in law deserves to be deleted.”

3. As the issues raised in these appeals are common and the facts are identical, therefore, as agreed by both the parties, they are heard together and disposed off by way of this common order for the sake of convenience and brevity.

First, we take up ITA No. 641/KOL/2022 for AY 2012-13:

4. Brief facts of the case as culled out from the records are that the assessee is a limited company engaged in the business of manufacture and sale of rubber chemicals. Income of Rs. 8,22,97,170/- declared in the e-return filed on 28.09.2012 pertaining to AY 2012-13. Case selected for scrutiny through CASS followed by serving of notices u/s 143(2) & 142(1) of the Act. Assessment u/s 143(3) of the Act completed on 24.03.2015 after making various additions/disallowances and income assessed at Rs. 10,19,05,350/-. The additions made by ld. AO were challenged by the assessee but he failed to get any relief from ld. CIT(A). Aggrieved, the assessee is now in appeal before this Tribunal raising following three issues:

i) Disallowance u/s 14A of the Act at Rs. 33,86,993/- (ground nos. 2 to 5)

ii) Disallowance u/s 14A of the Act added to the book profit for the purpose of computing the income u/s 115JB of the Act (ground no. 6)

iii) Addition u/s 68 of the Act for unexplained share capital at Rs. 1,62,80,000/- (ground nos. 7 to 9)

5. As regards the first issue for disallowance u/s 14A of the Act at Rs. 33,86,993/- facts in brief are that the assessee earned exempt income in the form of (i) dividend at Rs. 43,40,324/-, (ii) long term capital gain on venture capital fund at Rs. 2,43,893/-, (iii) long term capital gain on shares at Rs. 1,13,56,149/-.

6. AO on examining the details about the exempt income earned by the assessee during the year, and investments appearing in the balance sheet both current and non-current, quoted and unquoted resorted to apply Rule 8D of the Income Tax Rules, 1962 and made NIL disallowance under Rule 8D(i) of the Rules, disallowed interest expenditure at Rs. 14,74,087/- under Rule 8D(ii) of the Rules, disallowed Rs. 19,12,906/- under Rule 8D(2)(iii) of the Rules. The finding of ld. AO stands confirmed by ld. CIT(A). Before us ld. Counsel for the assessee has submitted that the assessee company has sufficient share capital and reserve to cover up the investments made in the equity shares and mutual funds. Therefore, in view of the judgment of Hon’ble Supreme Court of India in the case of CIT vs. Reliance Industries Ltd. (2019) 410 ITR 466 interest disallowance is uncalled for u/s 14A of the Act. As regards under Rule 8D(iii) at the rate of 0.5% of the average investments it was submitted that the same ought to have been computed only on the investments fetching exempt income and for this contention reliance was placed on the judgment of Hon’ble Jurisdictional High Court in the case of PCIT vs. REI Agro Ltd. (2022) 140 taxmann.com 71.

7. On the other hand, ld. D/R vehemently argued supporting the orders of both the lower authorities.

8. We have heard rival contentions and perused the records placed before us. The assessee is aggrieved with the disallowance u/s 14A of the Act at Rs. 33,86,993/- confirmed by both the lower authorities. We notice that the assessee earned exempt income to the tune of Rs. 1,59,40,366/- and average investments in equity shares and other mutual funds is Rs. 39.91 Cr approx. As far as the interest disallowance u/s 14A of the Act computed under Rule 8D(2)(ii) such disallowance is made towards use of borrowed funds for investing in investments and other funds giving rise to exempt income. On perusal of the audited balance sheet, we notice that as on the close of the year the share capital and reserve and surplus stood at Rs. 73.79 Cr. There is no specific finding of the lower authorities indicating that the interest bearing funds have been applied for investment purposes on the basis of entries appearing in the books of accounts. In other words, disallowance made by ld. AO is merely based on the average investments of the assessee. Hon’ble Supreme Court of India in the case of Reliance Industries Ltd. (supra) affirmed the view taken by the Tribunal that if interest free funds available with the assessee are sufficient to meet its investment then it could be presumed that investments were made from the interest free funds available to the assessee. Applying this ratio on the issue in the instant appeal we find that the assessee had interest free funds in the form of share capital and reserve and surplus as on 31.03.2012 at Rs. 73.79 Cr approx which is much more than investments in shares and mutual funds at Rs. 39.91 Cr. Therefore, it can be safely presumed that interest free funds have been applied for the purpose of making investments in shares and therefore, interest disallowance of Rs. 14,74,087/- is uncalled for and the same is deleted.

9. As regards the disallowance at the rate of 0.5% of the average investment made under Rule 8D(2)(iii) of the Rules the contention of the assessee taking shelter of the judgment of the Hon’ble Jurisdictional High Court in the case of REI Agro Ltd. (supra) is that such disallowance should be made only in relation to income which does not form part of total income and this can be done only taking into consideration the investment which has given rise to such income which does not form part of total income. In the instant case we notice that the exempt income is not only from dividend but also from long term capital gain from sale of equity shares. No specific details have been filed by the assessee in support of its contention and prayer is made to restore the issue to ld. AO which will keep the issue live. We, on perusal of the audited balance sheet placed at page 22 to 49 of the paperbook notice that the investments constitute investment in equity shares at Rs. 10.10 Cr, investment in mutual funds and venture capital funds at approx 6 Cr and other investments in quoted and unquoted investments. So far as the investments in mutual funds are concerned the assessee is charged by such mutual fund companies for maintaining the investments. So, no additional expenditure needs to be incurred to keep the investments in the mutual funds. We, therefore, in order to end the litigation and taking into consideration the investments of the assessee company, sustain the disallowance at Rs. 6 lakh under Rule 8D(2)(iii) of the Act. Therefore, the grounds raised by the assessee against the disallowance made u/s 14A of the Act in ground nos. 2, 3, 4 and 5 are partly allowed and disallowance is sustained at Rs. 6 lakh, and thus, the assessee gets a relief of Rs. 27,86,993/­.

10. Now, we take ground no. 6 for AY 2012-13 regarding adjustment of disallowance u/s 14A of the Act for the purpose of computing book profit u/s 115JB of the Act. Before us. Ld. Counsel for the assessee has referred to the decision of Coordinate Bench, Ahmedabad in the case of DCIT vs. Adani Wilmar Ltd. in ITA No. 1761/AHD/2016 dated 19.08.2020 wherein the Tribunal taking note of the judgment of the Hon’ble Jurisdictional High Court in the case of CIT vs. Jayshree Tea Industries Ltd. in ITAT No.47 of 2014 dated 19.11.14 dealt with the issue whether disallowance u/s 14A of the Act which should be considered for the purpose of computing book profit u/s 115JB of the Act held as follows:

“We have heard the rival contentions of both the parties and perused the materials available on record. The AO in the instant case has made the disallowance u/s 14A r.w.r. 8D of the Income Tax Rules for Rs. 2,11,98,182/- while determining the income under normal computation of income. Further, the AO while determining the income under Minimum Alternate Tax (MAT) as per the provisions of section

115JB of the Act, has added the disallowance made under the normal computation of Income under section 14A r.w.r. 8D of Income Tax Rule for Rs. 2,11,98,182/- in pursuance to the clause (f) of explanation 1 to section 115JB of the Act which was restricted to Rs. 11,37,500/-by the ld. CIT-A.

However, we note that in the recent judgment of Special Bench of Hon’ble Delhi Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 82 Taxmann.com 415 has held that the disallowances made u/s 14A r.w.r. 8D cannot be the subject matter of disallowances while determining the net profit u/s 115JB of the Act. The relevant portion of the said order is reproduced below:

“In view of above discussion, the computation under clause (f) of Explanation 1 to section 115JB(2), is to be made without resorting to the computation as contemplated under section 14A, read with rule 8D of the Income-tax Rules, 1962.”

The ratio laid down by the Hon’ble Tribunal is squarely applicable to the facts of the case on hand. Thus it can be concluded that the disallowance made under section 14A r.w.r. 8D cannot be resorted while determining the expenses as mentioned under clause (f) to explanation 1 to section 115JB of the Act.

However, it is also clear that the disallowance needs to be made with respect to the exempted income in terms of the provisions of clause (f) to section 115JB of the Act while determining the book profit. In holding so, we draw support from the judgment of Hon’ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. in GO No.1501 of 2014 (ITAT No.47 of 2014) dated 19.11.14 wherein it was held that the disallowance regarding the exempted income needs to be made as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. The relevant extract of the judgment is reproduced below:-

“We find computation of the amount of expenditure relatable to exempted income of the assessee must be made since the assessee has not claimed such expenditure to be Nil. Such computation must be made by applying clause (f) of Explanation 1 under section 115JB of the Act. We remand the matter for such computation to be made by

the learned Tribunal. We accept the submission of Mr. Khaitan, learned Senior Advocate that the provision of section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to section 14A of the Act.”

Given above, we hold that the disallowances made under the provisions of Sec. 14A r.w.r. 8D of the IT Rules, cannot be applied to the provision of Sec. 115JB of the Act as per the direction of the Hon’ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. (Supra).

Now the question arises to determine the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. In this regard, we note that there is no mechanism/ manner given under the clause (f) to Explanation-1 of Sec. 115JB of the Act to workout/ determine the expenses with respect to the exempted income. Therefore in the given facts & circumstances, we feel that adhoc disallowance will serve the justice to the Revenue and assessee to avoid the multiplicity of the proceedings and unnecessary litigation. Thus we direct the AO to make the disallowance of 1% of the exempted income as discussed above under clause (f) to Explanation-1 of Sec. 115JB of the Act. We also feel to bring this fact on record that we have restored other cases involving identical issues to the file of AO for making the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. But now we note that there is no mechanism provided under the clause (f) to Explanation-1 of Sec. 115JB of the Act to make the disallowance independently. Therefore our action for restoring back the issue to the file of AO would unnecessarily cause further litigation. Thus we limit the disallowance on an ad-hoc basis @ 1 % of the exempted income as per the clause (f) to Explanation-1 of Sec. 115JB of the Act. Thus the ground of appeal of the assessee is partly allowed.

In the result, the CO. of the assesse is partly allowed.”

11. Respectfully following the above decision, we are inclined to hold that so far as the disallowance u/s 14A of the Act which is to be considered for computing total income under the normal provision of Income Tax Act and it cannot be considered for the purpose of computing book profit u/s 115JB of the Act, however, taking note of Clause ‘f’ to Explanation ‘1’ of Section u/s 115JB of the Act which provides that for purpose of computing book profit the same should be increased by the amount or amounts of expenditure relatable to any income to which Section 10 (other than the provisions contained in clause (38) thereof) or Section 11 or Section 12 apply and therefore, for the purpose of Clause ‘f’ to Explanation ‘1’ of Section 115JB of the Act an ad-hoc disallowance is made at Rs. 3 lakh and the same should be added to the book profit for the purpose of Section 115JB of the Act. Therefore, ground no. 6 raised by the assessee is partly allowed.

12. Now, we take ground nos. 7, 8 & 9 of the assessee’s appeal for AY 2012-13 which leads to addition u/s 68 of the Act for unexplained share capital and share premium of Rs. 1,62,80,000/-. We notice that during the year under consideration the assessee company issued equity shares to the following companies at a face value of Rs. 10/- and charged premium of Rs. 990/- on each share.

Detail of Share Subscriber		Detail of Allotment of Shares
Name of the Party	PAN	No of Shares	Face Value @ 10	Share Premium @ 990	Share Capital & Premium
Vivek Tracom Pvt Ltd	AAACY8670J	6,200	62,000	61,38,000	62,00,000
Stardox Vinimay Pvt Ltd	AAECS0352C	4,000	40,000	39,60,000	40,00,000
Divya Electronics Pvt Ltd	AAACD9721C	3,050	30,500	30,19,500	30,50,000
Ranbhumi Marketing Pvt Ltd	AAECR5842G	2,000	20,000	19,80,000	20,00,000
Prativa Suppliers Pvt Ltd	AAFCP2862F	1,000	10,000	9,90,000	10,00,000
Potential Electrical & Electronics Pvt Ltd	AABCP5014D	30	300	29,700	30,000
TOTAL		16,280	1,62,800	1,61,17,200	1,62,80,000

13. During the course of assessment proceedings ld. AO in order to verify the genuineness, creditworthiness and identity of the share subscribers issued summons u/s 131 of the Act to which written compliance was made enclosing therewith all the necessary documents but there was no physical appearance of the managing persons of the alleged share subscribers. All the share subscriber companies are registered as non-banking finance companies (in short ‘NBFC’) but since the principal officers of the share subscriber companies failed to appear, ld. AO opined that the assessee has not discharged his onus to explain the alleged share capital and share premium and thus, fail to bring cogent material to substantiate the creditworthiness and made the addition u/s 68 of the Act at Rs. 1,62,80,000/-. When the matter was carried before ld. CIT(A) it was submitted by the assessee that out of the six share applicants two share applicants namely Vivek Tracom Pvt. Ltd. & Stardox Vinimay Pvt. Ltd. gave a sum of Rs. 35 lakh & 15 lakh respectively in the earlier year and shares are allotted during the year under consideration. Further, it was submitted that all the share subscriber companies have admitted to have made the investment in the equity shares of the assessee company. Mere non-appearance of the directors cannot justify the addition u/s 68 of the Act and for this contention reliance placed on the decision of the Coordinate Bench in the case of M/s. Cygnus Developers (I) Pvt. Ltd. in ITA No.282/Kol/2012 order dated 02.03.2016 and also the judgment of Hon’ble Allahabad High Court in the case of CIT vs. Raj Kumar Agarwal in ITA No 179/2008 order dated 17.11.2009. It was also submitted that if the share subscribers did not comply with the summons issued for their presence before ld. AO, he had the entire machinery at his disposal to enforce their attendance which he did not utilize and has blamed the assessee. However, submissions of the assessee could not satisfy ld. CIT(A) and he confirmed the view of ld. AO and confirmed the addition u/s 68 of the Act and the crux of the finding of ld. CIT(A) is in para 6.18 of the impugned order and the same reads as follows:

“6.18 Thus, clued into the above judgements, the ratio decidendi espoused in them and the facts of the case on record, the appellant’s contention that the AO did not conduct any independent enquiry and the assessee had successfully discharged its initial onus is hollow and without logic. Huge sums of money have been received as credits from parties which are very well known and close to the assessee. Yet it could not demonstrate any attenuating circumstances whereby it fails to produce these parties before the authorities or give them their current addresses. In fact, by not producing the parties the appellant has thwarted the natural investigations that the assessing officer could have embarked upon. The parties who were depositors are in the private knowledge of the assessee and therefore, the evidence with respect to their presence, identity (in flesh and bone) ought to have been put forward by the appellant. By mere filing of certain paper documents, the assessee did not discharge its primary onus especially when the assessing officer had a doubt that the whole paper evidences where a managed, contrived and planned one as part of a pernicious design. The natural presumption as per Indian Evidence Act thus goes against the assessee. The catena of case laws relied on by the appellant also are factually distinguishable and hence are not relevant to the case at hand. Thus, the grounds 6 & 7 cannot be sustained and accordingly dismissed. The order of the AO in this regard is therefore confirmed.”

14. Aggrieved, the assessee is now in appeal before this Tribunal. Ld. Counsel for the assessee referring to the statement of facts as well as brief notes stated that the assessee had filed necessary documents in the form of bank statement, income tax return, audited financial statement, PAN card, proof of registration as non-banking finance company which are sufficient enough to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction. It is also submitted that all the share subscribers replied to the notices issued by ld. AO and directly filed the details. It is also submitted that out of the six share subscribers two had given part of the share application money in the preceding year itself which has not been disputed by Revenue authorities. Except for not appearance of principal officers of the subscriber companies there is no default at the end of the share subscribers and of the assessee. It is also submitted that as regards the share premium is concerned the issue involved is for AY 2012-13 and the amendment in Section 68 of the Act inserting the proviso has come into effect from AY 2013-14. Reliance placed on plethora of decisions referred in the brief note which mainly includes the judgment of Hon’ble Bombay High Court in the case of CIT vs. Gagandeep Infrastructure (P) Ltd reported in [2017] 247 Taxman 245 (Bom), decision of this Tribunal in the case of M/s. Cygnus Developers (I) Pvt. Ltd. (supra), judgment of Hon’ble Bombay High Court in the case of Pr. CIT vs. Apeak Infotech & Others reported in [2017] 397 ITR 148 (Bom). It was also submitted that all the share subscribers have sufficient creditworthiness in the form of share capital and share premium to explain the investment and most of the share subscribers have huge turnover and are paying taxes. Further, reliance was placed on the decision of this Tribunal in the case of M/s. Eastern Trade Centre vs. ACIT in ITA No. 2427/KOL/2017 order dated 06/09/2019 wherein also the addition u/s 68 of the Act were made on account of unsecured loans received from some of the alleged share subscribers and the Revenue authorities also relied on the statement of Shri Rajkumar Kothari recorded on 02.03.2016 and this Tribunal held in favour of the assessee.

1. Decision of Hon’ble Supreme Court in the case of Commissioner of Income-tax (Large Taxpayer Unit) -Vs- Reliance Industries Ltd reported in [2019] 410 ITR 466 (SC) Order dated 02.01.2019.

2. Decision of Hon’ble Ahmedabad “D” Bench of the Tribunal in the case of DCIT, Circle-1 (1)(1), Ahmedabad -Vs-Adani Wilmer Ltd in ITA No. 1761/Ahd/2016 with C.O. No. 133/Ahd/2016 vide Order dated 19.08.2020.

3. Decision of Hon’ble Kolkata “C” Bench of the Tribunal in the case of M/s Urmila Properties Pvt. Ltd -Vs- ITO, Ward-6(4), Kolkata in I.T.A. No. 33/Kol/2020, Order dated 20.09.2022.

4. Decision of Hon’ble Kolkata “C” Bench of the Tribunal in the case of M/s Blue Lotus Designers Pvt. Ltd -Vs- ITO, Ward-7(4), Kolkata in ITA No, 941/Kol/2017, Order dated 08.01.2020.

5. Decision of Hon’ble Ahmedabad “C” Bench of the Tribunal in the case of DCIT, Central Circle-1(1), Ahmedabad -Vs-Adarsh Capital Finstock Ltd in I.T.A. No. 302/Ahd/2019 and DCIT, Central Circle-l(l), Ahmedabad -Vs- Aavas Infrastructure & Gruh Finance Ltd in I.T.A. No. 303/Ahd/2019 vide Order dated 23.11.2021.

6. Decision of Hon’ble Kolkata “C” Bench of the Tribunal in the case of ITO, Ward-6(1), Kolkata -Vs- M/s Coxis Finance & Investment Pvt. Ltd in I.T.A. No. 649/Kol/2020, Order dated 10.11.2022.

7. Decision of Hon’ble Kolkata “C” Bench of the Tribunal in the case of ITO, Ward-4(4), Kolkata -Vs- M/s KDG Projects Pvt. Ltd in I.T.A. No. 71l/Kol/2019, Order dated 02.11.2022.

8. Decision of Hon’ble Delhi High Court in the case of CIT Vs Nipun Builders & Developers (350 ITR 407 (Del.)

9. Decision of Hon’ble Kolkata Bench of the Tribunal in the case of M/s. Cygnus Developers (I) Pvt. Ltd in ITA No. 282/Kol/2012 Order dated 02.03.2016

10. Decision of Hon’ble Allahabad High Court in the case of CIT Vs. Raj Kumar Agarwal ITA No 179/2008 order dated 17.11.2009

11. Decision of Hon’ble Bombay High Court in the case of CIT-1 Vs Gagandeep Infrastructure (P) Ltd reported in [2017] 247 Taxman 245 (Bom)

12. Decision of Hon’ble Bombay High Court in the case of Pr CIT Vs Apeak Infotech & Others reported in [2017] 397 ITR 148 (Bom)

13. Decision of Delhi High Court in the case of Commissioner of Income Tax vs. Value Capital Services P. Ltd. reported inJ2008) 307 ITR 334 (Delhi)

14. Decision of Hon’ble Calcutta High Court in the case of Crystal Networks Pvt. Ltd Vs Commissioner of Income-tax [2013] 353 ITR 171 (Cal)

15. Decision of Hon’ble Supreme Court in the case of Andaman Timber Industries Vs CCE [2016] 38 GSTR 117 (SC).

14. On the other hand, ld. D/R vehemently argued supporting the orders of both the lower authorities.

15. We have heard rival contentions and perused the records placed before us. The assessee is aggrieved to the addition made u/s 68 of the Act at Rs. 1,62,80,000/- received from the following persons against the issue of equity shares at face value of Rs. 10/-and share premium of Rs. 990/- for each share:-

Detail of Share Subscriber		Detail of Allotment of Shares
Name of the Party	PAN	No of Shares	Face Value @ 10	Share Premium @ 990	Share Capital & Premium
Vivek Tracom Pvt Ltd	AAACY8670J	6,200	62,000	61,38,000	62,00,000
Stardox Vinimay Pvt Ltd	AAECS0352C	4,000	40,000	39,60,000	40,00,000
Divya Electronics Pvt Ltd	AAACD9721C	3,050	30,500	30,19,500	30,50,000
Ranbhumi Marketing Pvt Ltd	AAECR5842G	2,000	20,000	19,80,000	20,00,000
Prativa Suppliers Pvt Ltd	AAFCP2862F	1,000	10,000	9,90,000	10,00,000
Potential Electrical & Electronics Pvt Ltd	AABCP5014D	30	300	29,700	30,000
TOTAL		16,280	1,62,800	1,61,17,200	1,62,80,000

17. We notice that all the share subscribers are non-banking finance companies. Share subscribers namely Vivek Tracom Pvt. Ltd. & Stardox Vinimay Pvt. Ltd. gave a part of the share application money at Rs. 35 lakh & 15 lakh respectively in the preceding year itself. The assessee has discharged the primary onus casted upon him since all the share subscribers were asked by ld. AO to file the details and in compliance to the summons u/s 131 of the Act all the details including PAN card, certificate of incorporation, NBFC certificate, allotment advice, article of association, income tax return, information letters along with share application forms, bank statement of the share subscribers and audited financial statements were filed. A chart has been filed before us which is in consonance with the financial details of the share subscribers filed in the paperbook containing 232 pages for AY 2012-13 and this chart depicts the share capital net worth of the share subscribers, investment made in the share capital of the assessee company, turnover and profit before tax of the share subscribers and the same is reproduced below:

Detail of Share Subscriber							Detail of Creditwortiness of Share Subscriber
Name of the Party	PAN	No of Shar es		Share Capital	Net worth	Share Capital Subscrib ed & Premium		Turnover	PBT
Vivek Tracom Pvt Ltd	AAACY86 70J	6,200		1,12,04, 950	16,32,72, 626	62,00,00 0		4,22,68,6 17	1,26,8 12
Stardox Vinimay Pvt Ltd	AAECS03 52C	4,000		83,57,00 0	29,09,38, 545	40,00,00 0		29,91,84, 549	52,82 8
Divya Electronics Pvt Ltd	AAACD97 21C	3,050		56,34,50 0	13,08,63, 359	30,50,00 0		1,11,43,0 75	96,95 4
Ranbhumi Marketing Pvt Ltd	AAECR58 42G	2,000		7,65,400	3,06,48,6 39	20,00,00 0		23,40,70 4	8,595
Prativa Suppliers Pvt Ltd	AAFCP28 62F	1,000		16,35,00 0	1,04,53,1 72	10,00,00 0		1,60,634	3,515
Potential Electrical & Electronics Pvt Ltd	AABCP50 14D	30		60,85,00 0	10,80,50, 927	30,000		55,24,87 8	94,72 4
TOTAL		16,28 0				1,62,80,0 00

18. The above details clearly show that the share subscribers has sufficient creditworthiness to make the investment in the equity share capital of the assessee company. We also note that the assessee company is having a turnover of approx. 91.71 Cr and profit before tax is at Rs. 8.41 Cr and the assessee company also has fixed assets of approx. 13.17 Cr and various other investments in the nature of current and non-current long term loans and advances. It shows that the share subscriber companies had genuine reason to make investment in the assessee company. It is not the case that investment is being made in such company which has poor financials. This aspect has completely been ignored by the Revenue authorities. It is also pertinent to note that the share subscribers are non-banking finance companies and are regulated by the norms of the Reserve Bank of India. Ministry of Corporate Affairs also keeps regular watch on the companies registered with the Registrar of Companies. Annual returns are to be filed. Income tax returns have also been filed by the share subscribers. So, one cannot dispute the identity of the share subscribers and since genuineness of the transactions is proved with the good financials of the assessee company which seems to be a good investment for the share subscribers and creditworthiness is proved with the funds available with the share subscribers.

19. Therefore, under these given facts and circumstances invoking provisions of Section 68 of the Act was uncalled for. We find support from the recent decision of this Tribunal in the case of ITO vs. M/s. Kemex Engineering (P) Ltd. in ITA No.75/Kol/2021 order dated 01.02.2023 wherein also the identity, creditworthiness and genuineness of some of the share subscribers were doubted by the Revenue authorities and this Tribunal after examining the facts in detail held in favour of the assessee observing as follows:

“7. We have heard the rival contentions and perused the material available on record and have given our thoughtful consideration to the elaborate observations and findings given by the Ld. CIT(A) while giving relief to the assessee. At the outset, we note that notices u/s. 133(6) of the Act were issued by the Ld. AO to all the five subscribers, who had replied giving all the details and documents required by the Ld. AO along with confirming the transaction of they making investment in the share capital of the assessee. We also take note of the fact that the share subscribers had furnished copies of their ITR acknowledgments which showed that each of them were regular income tax assessees, testifying their identity.

7.1. From the perusal of the paper book and the documents placed therein, it is seen that all the share applicants are (i) income tax assessees, (ii) they are filing their income tax returns, (iii) share application form and allotment letter is available on record, (iv) share application money was made by account payee cheques, (v) details of the bank accounts belonging to share applicants and their bank statements, (vi) in none of the transactions there are any deposit of cash before issuing cheques to the assessee, (vii) all the share applicants are having substantial creditworthiness represented by their capital and reserves.

7.2. We also take note of the elaborate and well reasoned findings and decisions arrived at by the Ld. CIT(A) by taking into consideration all the details and documents placed on record. The relevant findings and decisions from the following paras are extracted as under:

“4.5. To sum up the foregoing, it is observed that all the notices u/s. 133(6) were served at the respective addresses of ach of the five shareholders by registered post. The share subscribers had furnished copies of income-tax Acknowledgments which showed that each of them were regular income-tax assessees who were assessed in their own rights with reference to their audited financial results. These facts established the identity of the share applicants. It is further noted that each of the share subscriber had furnished copies of the audited accounts for the FY 2011-12. Examination of these accounts revealed that each share subscribing company was having substantial own funds in the form of capital & reserves which were several times more than the share subscription amount paid to the appellant. In find that only a fraction of the net owned funds of the respective subscribing companies was invested in assessee’s equity shares. The investments made by each of the share subscribers were paid by way of account payee cheques and/or RTGS and there was no prior cash deposit in their bank accounts. In view of the aforesaid facts it can be safely inferred that the assessee had discharged its onus of substantiating the creditworthiness of the shareholders. The shareholders had also furnished copies of their share allotment advices. They had also explained the nature of their respective source of funds. All these facts considered cumulatively substantiate the genuineness of the transactions involving subscription of share capital.

4.6. It is noted that in the impugned order much emphasis was placed on the act that the shareholders did not respond to the notices u/s. 131. I however, find that although the share subscribing companies did not appear before the AO yet the material documents requisitioned by the AO in his notice u/s. 131 had already been furnished before the AO by the shareholders. From the perusal of the assessment order, I find that save & except making an assertion that the Directors of the share applicant companies failed to appear beore him, the AO did not bring on record any substantive material to disprove the documentary evidences which the appellant as well as the share subscribers had placed on AO’s record in support of the share subscription transactions. The material available on record shows that the AO had also made independent enquiries from the shareholders u/d. 133(6) of the Act. The facts and circumstances furnished by the shareholders in response thereto, supported the AR’s contention that the identity of all the five share subscribing companies stood established. Referring to the copies of the bank statements, the AR established that payment of subscription amounts were recorded in the bank statements of the respective companies. The entries in the bank statement proved that the share subscription amount was transferred through banking channel. Besides the entries in the bank statements also substantiated that before payment of share subscription mounts, no cash was deposited in the bank accounts of the subscribing companies. The AR further pointed out that appellant had furnished explanations before the AO with regard to immediate sources from which share subscription amounts were paid. On these facts therefore, I find that in terms of section 106 of the Evidence Act, the creditworthiness of the share subscribers and the genuineness of the transactions could not have been doubted by the AO merely on the ground that Directors of the share subscribers did not appear before the AO for verification. Gainful reference in this regard may be made to following observations made the Hon’ble Bombay High Court in the case of CIT Vs. Orchid Industries Limited (397 ITR 136).

“6. The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons disclosed that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the assessee. The judgment in case of Gagandeep Infrastructure (P) Ltd. (supra) would be applicable in the facts and circumstances of the present case.”

4.8. There is per se no quarrel with the proposition put forth by the AO that m tax proceedings the AO is not required to accept apparent as real. The AO has both duty as well as obligation to bring out the truth and present the real facts. For that purpose the AO is permitted to undertake investigation and enquiries so as to unearth the actual and real facts. The AO has been given power by the Legislature to prove that apparent is not real and thereafter make the assessment with reference to actual state of affairs. There is also no denial that the AO while assessing the income is permitted to take into consideration the human probabilities and if he proves that the conduct of the parties is not in conformity with the actions of prudent person then he may overlook the form of the transaction and find out the substance of the transaction and determine the tax consequences based on the real facts. In the impugned order the AO has doubted the genuineness of the entire transaction on the ground that it was against the human probability that the companies would invest in shares of the appellant company. The AO has also alleged that the unaccounted monies belonging to the assessee and ploughed back in the form of share capital by adopting the modus operandi where the unaccounted cash was rotated in four-five layers and thereafter the money was brought into the assessee’s bank account in the form of share capital. I however find that before these conclusions were recorded the AO himself did not bring on record sufficient tangible and cogent material to support his conclusion that the amount credited in the assessee’s books in the form of share capital and premium actually represented assessee’s undisclosed income.

4.15. Applying the judicial principles laid down in the above decisions to the appellant’s case. I find that the AO had made addition u/s. 68 without proper application of mine and incorrect appreciation of the relevant provisions of the Act. In the above judicial decisions, it has been held that before an addition u/s. 68 is made, it is necessary for the AO to bring on record irrefutable material or evidence which would prove that there was no valid issuance of the shares and for that reason the assessee had failed to prove identity & creditworthiness of the shareholders and also failed to substantiate genuineness. If these touchstones are applied to the appellant’s case then I find that the copies income tax acknowledgments and service of notices at their addresses established the identity of all the share subscribers. In the balance sheets of the respective share subscribers, the investments in assessee’s share were recorded and each subscriber in its balance sheet had disclosed sufficiently large investible funds. The assessee had also filed copies of the bank statements of the respective share subscribing companies which established that the share subscription amounts were received through banking channel. The sources of making payment were also furnished and the entries in bank statements indicated that there was no deposit of cash prior to clearance of the cheques in assessee’s favour. All these facts and documents considered cumulatively establish that the assessee had discharged the onus of proving creditworthiness of the share sub subscribers and the genuineness of the transactions. I therefore hold that the AO was not justified in making the impugned addition of Rs.,1,82,50,000/- u/s. 68 of the Act which is accordingly deleted. These grounds are therefore allowed.”

7.3. Before arriving at our finding, we refer to the following judicial precedents to buttress our observations and conclusions:

i) The decision of Hon’ble Jurisdictional High Court of Calcutta in the case of CIT v. Dataware Pvt. Ltd. in ITAT No. 263 of 2011 dated 21.09.2011 wherein Hon’ble jurisdictional High Court held that

“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.”

ii) Decision of Hon’ble Madras High Court in the case of CIT v. Creative World Telefilms P. Ltd. (2011) 333 ITR 100 (Mad) wherein it was held as under:

“In the case in hand, it was not disputed that the assessee had given the details of name and address of the shareholder, their PAN/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the Assessing Officer to make proper investigation and reach the shareholders. The Assessing Officer did nothing except issuing summons which were ultimately returned back with an endorsement “not traceable”. The Assessing Officer ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assessee to the Assessing Officer. In the above circumstances, the view taken by the Tribunal could not be faulted. No substantial question of law was involved in the appeal.”

iii) Judgment of Hon’ble Jurisdictional High Court in the case of Exoimp Resources (India) Ltd. vs. CIT (supra), wherein it was held as follows:

“It is incumbent upon the Assessing Authority to examine the explanation of the creditor and arrive at a conclusion as to whether the explanation was satisfactory. The conclusion arrived by the Assessing Authority is to be communicated to the assessee if such explanation is not considered satisfactory. If thereupon the assessee submits any comments or furnishes further information, in that event, the Assessing Authority has to examine the same and arrive at his own conclusion. The inbuilt safeguard provided in section 68 cannot be ignored by the Assessing Authority at his sweet will. The Assessing Authority can add the share capital as undisclosed income if no explanation is offered by the assessee. But since the details/explanations were offered, it was incumbent on the Assessing Authority to examine the same and arrive at a cogent conclusion. Assessing Officer having failed to discharge such obligation the addition is not sustainable in law.., case of CIT vs. Lovely Exports Ltd. (2008) 216 CTR 195 (SC) that where share application money.”

7.4. In the course of assessment proceeding, Ld. AO directed the assessee to produce the director of the assessee and also the directors of the subscriber companies along with relevant documentary evidence and details which was not complied with in full. Ld. Counsel submitted that mere non-appearance of directors is no basis for invoking provisions of section 68 of the act for which he placed reliance on the decision of Hon’ble Supreme Court in the case of CIT v. Orissa Corporation (P) Ltd. (1986) 159 ITR 78 (SC) wherein it was held as under:

“In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were the income-tax assessees. Their index number was in the file of the revenue. The revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such could arise.

The High Court was, therefore, right in refusing to refer the questions sought for. Decision of the High Court affirmed.”

8. We notice that all the details were very much placed before the Assessing Officer but while framing the assessment, no efforts have been made by the Assessing Officer to examine the correctness of various proof, filed by the assessee by carrying out any investigation. Merely for non-appearance of the directors, the ld. Assessing Officer disregarded all these documents which have been placed before various statutory authorities including Registrar Of Companies, Income Tax Department and Schedule Banks. The assessee by way of filing all these documents necessary to prove identity, creditworthiness and genuineness of the alleged transaction, has discharged the initial burden casted upon it under the provisions of section 68 of the Act. Unless and until, the assessing authority finds any lacuna or adversity or defect in the said documents, the burden to prove remains on the Revenue authorities. In the instant case, ld. Assessing Officer failed to discharge the burden and summarily disregarded the documents filed by the assessee by merely referring to some decisions and not going into the facts of the case except referring to the price per share.

9. We further observe that provision for examining the source of source under the provisions of section 68 of the Act has been brought in by Finance Act 2012 w.e.f. 01.04.2013 as per which “where an assessee is a company (not being a company in which public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee company shall be deemed to be not satisfactory unless: a) the person being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited and b) such explanation in the opinion of the Assessing Officer has been found to be satisfactory.” Since the instant appeal pertains to assessment year 2012-13, and the said amendment brought in by Finance Act 2012 is effective from 01.04.2013, it is not applicable on the case before us. Even otherwise, it is not in dispute that the assessee has filed all the relevant documents of the share subscriber companies and further, in order to prove the source of source, copies of bank statements, audited balance sheets of all the nine subscriber companies are placed on record.

10. As far as the decision of Coordinate bench of ITAT, Kolkata in the case of Bishakha Sales Pvt. Ltd. (supra) referred by the Assessing Officer in making the addition, in our view, it does not support the addition as the said decision is delivered in the context of proceedings u/s 263 of the Act on the issue of enquiry regarding huge premium received on share application.

11. Further, in respect of ground nos. 3, 4 and 5, reference to the judgment of Hon’ble Supreme Court in the case of NRA Iron & Steel Pvt. Ltd. (412 ITR 161) is found to be distinguishable on facts in as much as in the said decision, Ld. AO has made extensive enquiries and some of investors were found to be non-existent. Upon going through the facts involved in that judgment, it is noted that, in the decided case the AO had made extensive enquiries and from that he had found that some of the investor companies were non-existent, which is certainly not the case before the undersigned. In the decided case, certain investor companies also failed to produce their bank statements proving the source for making investments in assessee company. In the facts o f the present case however not only have the shareholders furnished their bank statements and investment schedules to establish the source of funds but they have also furnished their respective sources of funds in response to notices issued by the AO u/s. 133(6) of the Act.

12. We, therefore, respectfully following the judgment referred hereinabove by the Hon’ble Courts and also considering the facts and circumstances of the case, are of considered view that since the assessee has sufficiently explained the identity and creditworthiness of the share subscriber companies and the genuineness of the transaction of applying for the equity shares of the assessee company and since nothing contrary to the evidence filed by the assessee has been placed on record by the Revenue, except the reason that the directors failed to appear to the summons issued u/s. 131 of the Act, we find no reason to interfere with the meritorious finding of the Ld. CIT(A). We accordingly dismiss the grounds raised by the revenue in this respect.

13. In the result, appeal of the revenue is dismissed.”

20. The Delhi High Court in the case of CIT vs. Value Capital Services P. Ltd. reported in (2008) 307 ITR 334 (Delhi) held as under:

“The Court in that case held that the additional burden was on the Department to show that even if share application did not have the means to make investment, the investment made by them actually emanated from the coffers of the assessee so as to enable is to be treated as the undisclosed income of the assessee. In the absence of such findings, addition could not be made in the income of the assessee under Section 68 of the Act.”

21. The Hon’ble Calcutta High Court in the case of Crystal Networks Pvt. Ltd vs. CIT [2013] 353 ITR 171 (Cal) has held as under:

“The assessee was trading in bidis. In the assessment year 1994-95, it showed cash advances of Rs. 8,50,000. The Income-tax Officer held that the assessee under section 68 of the Income-tax Act, 1961, failed to establish the identity of the creditors of the cash advance. Initially, the assessee was asked to bring those creditors who were alleged to have advanced the amount of cash as against the supply of bidis. On failure of production of those creditors summons were issued under section 131 but none of the creditors appeared and in some cases summons were returned with the endorsement made by the postal authority “no such person concerned was found”. The Commissioner (Appeals) found that there were sufficient materials to hold that the cash -credits received by the assessee were genuine and these were received as against the supply of bidis. During the same assessment year or subsequent assessment year the necessary challans, vouchers, and other confirmatory letters were also considered by the Commissioner (Appeals). After analysing everything he accepted the explanation and also the evidence of the creditworthiness of the creditors and granted relief. The Tribunal found that the Commissioner (Appeals) had erroneously held that the summons were -issued after assessment was done. Only on that ground it was held that the assessee could not establish by producing evidence that the credit was -received from customers. The order of the Income-tax Officer was restored. On appeal to the High Court:

Held, allowing the appeal, that the Tribunal had not adjudicated upon the case of the assessee in the light of the evidence as found by the Commissioner (Appeals). The order of the Tribunal was not sustainable. The addition could not be made under section 68.”

22. Respectfully following the above judgments and decisions and also under the given facts and circumstances of the case and the financial details referred herein above in the preceding paras of the alleged share subscribers as well as the assessee company and the mode of making investment and written compliance by the share subscribers directly to ld. AO and the assessee having discharged the initial onus casted upon it and ld. AO having failed to point out any defect thereto, we are inclined to hold that ld. CIT(A) erred in sustaining the addition u/s 68 of the Act and thus, reverse the finding of ld. CIT(A) and delete the addition of Rs. 1,62,80,000/- and allow ground nos. 7 raised by the assessee.

23. Now, we take ground nos. 8 & 9 where it is mentions that the assessee was not provided the opportunity of cross examination of Shri Rajkumar Kothari because ld. AO has referred to the statement of Shri Rajkumar Kothari for making the addition. We, however, fail to find any merit in this ground because on perusal of the assessment order we notice that ld. AO has nowhere referred about the statement of Shri Rajkumar Kothari and the addition u/s 68 of the Act has been made only on the basis of the observation of ld. AO from the documents filed by the assessee as well as non-appearance of the principal officers of the share subscribers. Therefore, ground nos. 8 & 9 are dismissed being infructuous.

24. Ground nos. 1 & 10 are general in nature which need no adjudication.

25. In the result, the appeal filed by the assessee in ITA No. 641/KOL/2022 for AY 2012-13 is partly allowed.

Now, we take up ITA No. 660/KOL/2022 for AY 2018-19:

26. The first issue for our consideration in ground no. 2 is regarding the addition of Rs. 2,03,823/- made by ld. AO on account of unreconciled duty drawback.

27. We have heard rival contentions and perused the records placed before us. We notice that during the course of assessment proceedings carried out by NFAC, Delhi it was pointed out that the assessee has declared income from duty drawback at Rs. 4,59,081/- but as per Exim data received from CBEC the assessee has received duty drawback of Rs. 6,53,560/-. The difference of the two i.e. Rs. 2,03,823/- was added to the income of the assessee for unaccounted duty drawback. We, on perusal of the details filed by the assessee in the form of the paperbook containing 97 pages as well as details of duty drawback as on 31.03.2020 filed vide paperbook dated 30.01.2023 on examining the complete details of the duty drawback found that the alleged sum of Rs. 2,03,823/-was sanctioned by the appropriate authority in the subsequent year and has been offered to tax in the return of income for AY 2019-20. The details of income for AY 2019-20 have been filed before us and we, on perusal of the same find merit in the statement made by the assessee and are inclined to hold that the alleged sum of Rs. 2,03,823/- though was applied for duty drawback during AY 2018-19 but it was finally received by the assessee during AY 2019-20 after being sanctioned by the appropriate authority and the same has been duly offered to tax in the income for AY 2019-20. Therefore, no addition of Rs. 2,03,823/- is called for for unaccounted duty drawback. Therefore, ground no. 2 raised by the assessee is allowed.

28. As regards ground nos. 3, 4 & 5, they relate to disallowance of bad debts claimed of Rs. 27,90,726/- for alleged non-submission of the proof. We have heard rival contentions and perused the records placed before us. We have also gone through the details of disallowance of bad debts along with the statements filed in paperbook from page 76 to 97 and observe that the major amount of bad debts is on account of final account reconciliation and certain deductions/rebate given to the buyers of the assessee which mainly include MRF Ltd., CEAT Ltd. Birla Tyres Ltd. and various small amounts below Rs. 50,000/- amounting to Rs. 2,15,883/-. The print out of the ledger account of all these companies have been filed and it is a clear case of the normal bad debts claim made by the assessee on account of less realisation of the sales declared in the year under appeal or in the preceding year. Since the sales have been duly accounted for and certain portions of the sundry debtors which could not be recovered have been claimed to be bad debts and this claim of the assessee is allowable in view of the ratio laid down by the Hon’ble Apex Court in the case of TRF Limited (190 Taxman 391) which has been subsequently followed in various other decisions namely:

CIT Vs Krone Communication Limited (9 taxmann.com 145) (Mad HC)

CIT Vs Modi Xerox Limited (10 taxmann.com 73) (All HC)

CIT Vs Morgan Securities Limited (162 Taxman 124) (Del HC)

CIT Vs D.C.M. Limited (167 Taxmann 160) (Del HC)

CIT Vs Autometers Limited (292 ITR 345) (Del HC)

Suresh Gaggal Vs ITO (180 Taxman 90) (HP HC)

DCIT Vs Oman International Bank SAOG (100 ITD 285) (Mum SB)

29. Thus, respectfully following the ratio laid down in the decisions referred herein above, we are inclined to hold that the assessee has made a justified claim of bad debts u/s 36(1)(vii) of the Act and the same deserves to be allowed. Thus, ground nos. 2, 3 & 4 raised by the assessee are allowed.

30. Other grounds of appeal are general in nature which need no

31. In the result, the appeal filed by the assessee in ITA No. 660/KOL/2022 for AY 2018-19 is allowed.

Now, we take up ITA No. 650/KOL/2022 for AY 2017-18:

32. Ground No.2 to 7 of the appeal the grievance of the appellant is that the Ld. CIT (A) erred in confirming the order of the Assessing Officer making an addition of Rs.8,61,00,000/- u/s 68 of the Act.

33. The facts of the case are that the assessee has taken an unsecured loan from 7 body corporates for an amount of Rs.8,61,00,000/-, the details are as follows:

Sl No	Name of the party	PAN	Opening balance	Loan Taken (In Rs.)	Closing Balance (In Rs.)	Interest (In Rs.)
1	M/s Prativa Suppliers Pvt Ltd.	AAFCP2862F	NIL	18250000	500000	277644
2	M/s Divya Electronics Pvt Ltd	AAACD9721C	NIL	2000000	2000000	159781
3	Albright Viniyog and Nirman Pvt. Ltd	AAECA0590N	NIL	7800000	NIL	147551
4	Rajshree Developer Entrepreneurs Pvt Ltd	AABCR2000D	NIL	11200000	1000000	289134
5	Zigma Electricals Pvt Ltd	AAACZ0831B	NIL	3700000	NIL	153419
6	Paritosh Electricals Pvt Ltd.	AABCP5013E	NIL	34600000	NIL	1635066
7	Potential Electricals and Electronics Pvt Ltd	AABCP5014D	NIL	8550000	NIL	200268
			TOTAL	8,61,00,000		28,62,863

34. The Assessing Officer issued Summon u/s 131 of the Act to all the loan creditors for verification and to verify the address of the parties and to serve the notices a departmental inspector was deputed. The said inspector reported that notices u/s 131 of the Income Tax Act dated 12.12.2019 could not be served as there was no office of the above-stated 7 companies at the address 32, Ezra Street, 4^th Floor, Kolkata-700001.

35. The Assessing Officer further observed that from the database of the department, it is found that most of the companies are mere jama-karchi/shell companies controlled by Sri Raj Kumar Kothari a well-known entry operator. Sri Kothari vide his statement dated 02.03.2016 admitted on oath that all those companies are managed and controlled by him and that he was providing accommodation entries to the beneficiaries in the guise of share capital, share premium, unsecured advances/deposits, bogus billing, etc. The Assessing Officer accordingly issued a show cause notice on 18.12.2019 asking the assessee to explain why an unsecured loan of Rs. 8,61,00,000/- from the said companies should not be treated as unexplained cash credit and the interest paid thereon should not be disallowed and added to the income.

36. In response to the same the assessee submitted on 20.12.2019 that the amount was borrowed by the company for its business and out of the total sum borrowed during the year of Rs. 8.61 crore an amount of Rs. 7.81 crore was repaid during the year itself and balance sum of Rs. 80,00,000/- was repaid subsequently. It was also explained that TDS was deducted from the interest and deposited to the credit of the Central Government. The assessee also filed copies of loan confirmation.

37. The Assessing Officer observed that filing corroborative documentary evidence such as KYC Forms, loan confirmations, copy of bank statements does not make a sham transaction genuine. Thereafter he relied on several judgments of different High Courts wherein the addition of loans and share capital u/s 68 was held as justified. Ld. AO accordingly made the addition u/s 68 of the Act for unexplained unsecured loan of Rs. 8.61 Cr and also disallowed the interest paid on alleged loan at Rs. 28,62,863/­.

38. Aggrieved, the assessee preferred appeal before ld. CIT(A) and reiterated the submissions filed before ld. AO stating that the loans were taken for the immediate business needs from seven parties and major portion of the alleged loan was repaid during the year itself. Notices given by ld. AO u/s 133(6) of the Act to the alleged cash creditors were duly served and they all have responded to ld. AO enclosing all the relevant details to prove the identity and creditworthiness of the lenders and genuineness of the transaction. Further, with regard to the statement of Shri Rajkumar Kothari recorded on 02.03.2016 and heavily relied by ld. AO it is submitted that the stands retracted by Shri Rajkumar Kothari filing an affidavit and therefore, placing reliance on a retracted statement is not valid and further, no opportunity of cross examination was given to the assessee by ld. AO before making addition based on such statement. Reference was also made to the financials of the cash creditors stating that they were having sufficient funds to explain the alleged loans. Reliance placed on various judgments. However, ld. CIT(A) was not satisfied with these submissions and held against the assessee and the crux of the finding of ld. CIT(A) given in para 5.7 of the impugned order reads as under:

“5.7 Thus, clued into the above judgements, the ratio decidendi espoused in them and the facts of the case on record, the appellant’s contention that the AO did not conduct any independent enquiry and the assessee had successfully discharged its initial onus is hollow and without logic. Huge sums of money have been received as credits from parties which are very well known and close to the assessee. Yet it could not demonstrate any attenuating circumstances whereby it fails to produce these parties before the authorities or give them their current addresses. In fact, by not producing the parties the appellant has thwarted the natural investigations that the assessing officer could have embarked upon. The parties who were depositors are in the private knowledge of the assessee and therefore, the evidence with respect to their presence, identity (in flesh and bone) ought to have been put forward by the appellant. By mere filing of certain paper evidences, the assessee did not discharge its primary onus especially when the assessing officer has a doubt that the whole paper evidences were a managed, contrived and planned one as part of a pernicious design. The natural presumption as per Indian Evidence Act thus goes against the assessee. The catena of case laws relied on by the appellant also are factually distinguishable and hence are not relevant to the case at hand. As the appellant has failed to discharge its onus with respect to the identity, creditworthiness, genuineness of the transaction, no faults can be attributed to the addition of the impugned sum under section 68 of the IT Act 1961. Thus, the grounds 4-6 cannot be sustained and accordingly dismissed.”

39. Aggrieved, the assessee is now in appeal before this Tribunal. Ld. Counsel for the assessee firstly referred to the written submissions filed before ld. CIT(A) and the same reads as follows:

“For these grounds, it is submitted that the assessee took short terms loan of Rs. 8,61,00,000/- for immediate business needs from seven parties during the year as stated in the assessment order out of which loan of Rs. 8,36,00,000/- was repaid during the year itself as appears from para 5.2 of the assessment order. The balance payable as at the end of the year was Rs. 35,00,000/- which too was repaid in the next year.

In support of the said loans, the assessee filed loan confirmation letters from all the seven along with their PAN and address, duly signed by the director Sri Rajkumar Kothari or Smt. Sangeeta Kothari. The loan was received by account payee cheques so also the same was repaid by account payee cheques. The assessee paid interest on the loan on which tax was deducted at source, which tax was claimed by the creditors as tax credit in their returns and such tax credit was allowed, (the copy of loan confirmations attached) The Ld AO issued notice u/s 133(6) to all the seven parties. A sample copy of the notice u/s 133(6) is enclosed herewith. Such notices were duly served on the given address. Not only that all the parties responded to the notices and filed their reply on all the specific points raised by the Ld. AO. However, the Ld. AO at his own wisdom alleged to have deputed his inspector and obtained a report that the parties were not existing at the given address. The AO therefore concluded that the parties are accommodation entry providers. For this proposition he also relied on the statement of Sri Rajkumar Kothari carrying on business at 32 Ezra Street Kolkata observing that Sri Kothari in his statement recorded on 2.3.2016 admitted that he and the companies managed by his were mere accommodation entry providers. It is surprising that the inspector could not locate the companies at 32, Ezra Street, Kolkata when notices u/s 133(6) were duly served on the said address and further Sri Rajkumar Kothari also gave his address at 32 Ezra Street, Kolkata on whom also notice u/s 131 was served by the department when his statement was recorded and the AO was relying on his statement. Furthermore, his alleged statement was recorded 2.3.2016 when the loan to the assessee company was given much after the date of said statement. Therefore, the said statement cannot be relied on and no addition can be made on the basis of the said statement. The AO has also ignored the fact that Sri Rajkumar Kothari given the confirmation under his signature accepting having given the loan which event is much after the date of statement recorded in March 2016. Therefore, no addition can be made on the basis of the statement so recorded.

In this regard it is also submitted that the Ld. AO relied on a statement recorded u/s. 131 of the LT. Act, 1961 by Shri Raj Kumar Kothari on 02.03.2016 recorded by some other authority i.e. DDIT (Inv) wherein it is alleged that he had admitted on oath that all the companies from whom loan has been taken is merely shell companies whom he operate to provide accommodation entries in the guise of share capital, loan etc. However, the Ld. AO grossly failed to appreciate that Shri Raj Kumar Kothari had already filed an affidavit before the 1st class Magistrate retracting the statement given by him on 02.03.2016 before the DDIT(Inv), Unit-3(1) relying on which the Ld. AO has treated the genuine loan transactions as bogus. He had also informed the department about the same. For the aforesaid submissions the assessee invites the attention to the judgement of the Hon’ble ITAT “C” Bench Kolkata in the case of M/s. Eastern Trade Centre Vs. ACIT, Circle-34, Kolkata wherein the Hon’ble ITAT deleted the addition of loan amount and consequently the interest expense on the same allegation of the loan being bogus merely relying on the alleged statement given by Shri Raj Kumar Kothari before DDIT (Inv), Unit-3(1) on 02.03.2016 which were later retracted. The copy of the said order is enclosed herewith.

Further, the Ld. AO has alleged in its assessment order that for knowing the whereabouts as well as service of notice of summon u/s. 131 to be given to loan creditor companies, a departmental inspector was deputed but as per the Inspector’s report no such companies was found at the given address. However, it is strange that when notices u/s. 133(6) of the Act could be serviced on the loan creditors how can notice u/s. 131 of the Act could not. Also, all the documents needed to prove the genuineness of the transactions was submitted before the Ld. AO namely the copies of loan confirmations, bank statements audited accounts, ROC documents which showed that the loan creditors were active companies. The assessee also filed their own bank statement. Further none of these documents were controverted by the Ld. AO. The interest payments on loan were made through banking channels and as mentioned above the bank statements were already submitted to the Ld. AO. On one hand the AO relied on the statement of Raj Kumar Kothari recorded by some other authority, which is the sole basis of the addition, on the other hand no chance to cross examine Sri Kothari was allowed to us. It has been held by the Hon’ble Supreme Court in the case of Andaman Timber Industries v CCE dated 02.09.2015 that statement of third party should not be relied on unless opportunity to cross examine is allowed. Moreover, all the creditor companies are assessed to tax till to-day and are filing their returns and none of them have been treated as shell companies. Hence, the additions made by the Ld. AO is purely based on surmises and assumptions. Furthermore the Ld. AO did not provide the copy of inspector’s report to examine its contents and make submissions. It was surprising that only inspectors report was taken or he was asked to sever the notices when even if the inspector has reported otherwise, the notice should have been issued by speed post since all the notices are served by post or otherwise on the said parties. It was strange that the Inspector gave a report that the parties are not traceable at the given address.

As far as the identity of the creditors, the genuinity of the transaction and credit worthiness is concerned, it is submitted that the AO himself in the assessment has mentioned the PAN of the parties. Under the law no PAN can be issued unless some KYC is issued. All the parties had their bank accounts and no bank account can be opened unless KYC is given. It is submitted that all the parties are active on the site of ROC and the assessment of all the parties are being completed u/s 143(3) which means the notices issued by department are always served on them. Therefore, the identity of the parties cannot be doubted or disputed.

As far as the genuinity of the transaction is concerned, there is no dispute that the transaction took place by account payee cheques. Therefore, the genuinity of the transaction cannot be disputed.

As far as the creditworthiness is concerned, it is submitted that the AO has relied on the income declared by the loan creditors. From the balance sheet of the shareholders the following important points may be noted:

Name	Share capital and reserves	Any other feature of the company
Prativa Suppliers P Ltd.	1,59,86,136/-	Profit during the year 4,97,372/-
Divya Electronics P Ltd.	13,90,60,593/-	Profit during the year 16.52 lakhs
Albright Viniyog and NirmanPLtd.	20,59,621/-	profit during the year 3.66 lakhs
Rajshree Develo per Enterpre neours Pvt Ltd.	11,51,78,112/-	Profit during the yar 38,94,021/-
Zigma Electrics P Ltd.	7,62,16,792/-	includes bank balance of 54,63,682/-
Paritosh Electricals P Ltd.	12,97,09,739/-	Profit during the year 64,59,932/-
Potential Electricals and Electronics P Ltd.	11,38,23,116/-	Profit 30.99 lakhs.

Therefore, the capital and reserves of the loan creditors were more than sufficient to prove their creditworthiness. Moreover, all the loan creditors are NBFC companies duly registered with RBI and their registration still stands. Therefore, the identity, genuineness and creditworthiness is proved. The addition may please be deleted.”

40. Further, reliance was placed on the decisions of Hon’ble Jurisdictional High Court in the case of PCIT vs. Sreeleathers reported in [2022] 448 ITR 332 (Calcutta), CIT vs. Odeon Builders Pvt. Ltd. reported in [2019] 418 ITR 315 (SC), Andaman Timber Industries vs. CCE reported in [2016] 38 GSTR 117 (SC), PCIT vs. Oriental Power Cables Ltd. reported in [2022] 143 taxmann.com 371 (SC), Kishinchand Chellaram reported in AIR 1980 14 SC 2117, Eastern Commercial Enterprise reported in (1994) (Cal) [210 ITR 103], CIT vs. Smt. Sunita Dhadda reported in [2018] 406 ITR 220(Raj), PCIT vs. Ambe Tradecorp (P.) Ltd reported in [2022] 145 taxmann.com 27 (Guj), ACIT vs. M/s. Overtop Marketing Pvt. Ltd. in ITA No. 686/KOL/2019 order dated 15.03.2021.

41. On the other hand, ld. D/R vehemently argued supporting the detailed finding of both the lower authorities and stated that the alleged cash creditors are accommodation entry provider companies and do not have sufficient creditworthiness to give the loan of such a huge magnitude to the assessee company and also the genuineness of the transaction is not proved as to how the assessee came in contact with these companies for lending huge amount.

42. We have heard rival contentions and perused the records placed before us. The issue in dispute before us relates to addition u/s 68 of the Act made by ld. AO for unexplained unsecured loan of Rs. 8.61 Cr taken from 7 body corporates and also disallowing the interest paid on such loans. We observe that ld. AO on the strength of the statement of one Shri Rajkumar Kothari taken u/s 131 of the Act on 02.03.2016 who allegedly accepted to be engaged in providing accommodation entry to various beneficiaries on commission through various body corporates, managed and controlled by him. Ld. AO has also referred to the financial data of the alleged body corporates and came to a conclusion that they are accommodation entry providers and the alleged unsecured loan is not explained and thus, provisions of Section 68 of the Act invoked. Ld. CIT(A) has confirmed the addition made by ld. AO.

43. Before us, the assessee has made two-fold contentions; firstly, stating that the principle of natural justice has not been followed by the lower authorities and no opportunity to cross examine Shri Rajkumar Kothari was given by ld. AO whose statement has been recorded for making addition in the hands of the assessee and also ld. AO ignored the fact that Shri Rajkumar Kothari has retracted its statement dated 02.03.2016 by filing an affidavit before the Investigation Wing. Second-fold of the contention is on merit stating that the assessee company is carrying out regular business activities and the income for the year is declared at Rs. 39,59,66,130/-. For the business needs unsecured loan from body corporates was taken. Tax deducted at source on the interest paid to such body corporates and out of the unsecured loan of 8.61 Cr taken during the year, the assessee had repaid 7.81 Cr during the year itself and the balance sum of Rs. 80 lakh has been paid subsequently.

44. It is submitted before us by ld. Counsel for the assessee that the Assessing Officer has relied on the judgments by quoting from the head note of the judgments reported in various Tax Journal. It is submitted that each judgment is delivered on its peculiar facts. In the assessment order, the Assessing Officer has not explained how the facts on those judgments are identical to the facts in the case of the appellant. Therefore, the reliance on those judgments by the Assessing Officer is misplaced and the addition made u/s 68 of the Act and on account of the disallowance of interest payments cannot be sustained in law.

45. Further, we notice that the Assessing Officer has relied on the statement of one Sri Raj Kumar Kothari dated 02.03.2016 wherein he deposed before the department that he was providing accommodation entry to the beneficiaries in the guise of share capital, share premium, unsecured advances/deposits, bogus billing, etc. It is submitted by ld. Counsel for the assessee that the assessee was not supplied a copy of the statement. The Hon’ble Supreme Court in the case of CIT vs. Odeon Builders Private Limited [2019] 418 ITR 315 (SC) has held that Addition or disallowance cannot be made solely on third-party information without independently subjecting it to further verification by the Assessing Officer. We note that the compliance of provisions of Sec. 142(3) is a mandatory statutory requirement in completing the assessment proceedings failing which may vitiate the entire assessment itself since this sub-sec. uses the word “shall”. The AO has relied on the statement of Sri Raj Kumar Kothari dated 02.03.2016. Neither statement of Sri Raj Kumar Kothari dated 02.03.2016 was provided to the assessee nor it was allowed to cross-examine the deponent. The Hon’ble Supreme Court in the case of Andaman Timber Industries vs. commissioner of Central Excise reported in [2016] 38 GSTR 117 (SC) has held that the adjudicating authority’s denial of the assessee’s claim to cross-examine the witnesses though the statements of those witnesses were made the basis of the order, was a serious flaw which nullified the order since it was a violation of the principles of natural justice.

46. Also, in the case of Principal Commissioner of Income Tax (Central) vs Oriental Power Cables Ltd reported in [2022] 143 com 371 (SC) has held that failure to give the assessee the right to cross-examine witnesses whose statements are relied on, results in a breach of principles of natural justice. It is a serious flaw which renders the order a nullity.

47. In the case of Kishinchand Chellaram (AIR 1980 14 SC 2117), the Hon’ble Supreme Court of India on the aspect of cross-examination held as follows:

“It is true that the proceedings under the Income Tax law are not governed by the strict rules of evidence and therefore it might be said that even without calling the Manager of the Bank in evidence to prove this letter, it could be taken into account as evidence. But before the Income Tax Authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross examine the Manager of the Bank with reference to the statements made by him.”

48. The Hon’ble Calcutta High Court in Eastern Commercial Enterprise, (1994) (Cal) [210 ITR 103] at page-111: Held as under:

“Cross-examination is the sine qua non of due process of taking evidence and no adverse inference can be drawn against a party unless the party is put on notice of the case made out against him. He must be supplied with the contents of all such evidence, both oral and documentary so that he can prepare to meet the case against him. This necessarily also postulates that he should cross-examine the witness hostile to him.”

49. A similar view was also taken by the Hon’ble High Court of Rajasthan in the case of CIT vs. Smt. Sunita Dhadda reported in [2018] 406 ITR 220(Raj) wherein the Hon’ble Court has considered the judgment of the Hon’ble Supreme Court in the case of M/s Andaman timber Industries vs. CCE (supra) and confirmed the view taken by the Tribunal holding that “if the assessee is not provided any opportunity to cross-examine the person who stated to have received ‘on-money’ is a violation of principles of natural justice which, thus called for the deletion of addition so made by the Ld. Assessing Officer.”

50. Further, we observe that similar type of addition was made in the case of another assessee namely M/s. Overtop Marketing Pvt. Ltd. for AY 2015-16 based on the statement of Shri Rajkumar Kothari and this Tribunal in its order dated 15.03.2021 in ITA No. 686/KOL/2019 after observing that the assessee was not provided opportunity of cross examination Shri Rajkumar Kothari regarding his original statement given on 02.03.2016 accepting to be an accommodation entry provider (though the same was retracted subsequently by filing an affidavit) held in favour of the assessee observing as follows:

“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 Rs.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 documents of them: (a) copy of income-tax acknowledgment, (b) copy of audited accounts for FY 2014-15, (c) copy of long-term investment, (d) copy of bank statement ascertaining transaction.

11. It is noted that the lender companies have duly furnished their PAN and the registered addresses and also brought to the notice of the A.O that they are legal entities/corporate registered with the Registrar of Companies (ROC) and have their respective registered addresses in the public domain. The amounts in question were credited through banking channels. The names, PANs and loan amounts and the interests paid for which TDS has been deducted are as under:

Sl.	Name	PAN	Loan as on 31.03.2015	Interest Paid
1	M/s. Bhiksu Barter Pvt Ltd.	AABCB1315M	3,00,000	1,726/
2	M/s. Divya Electronics Pvt Ltd.	AAACD9721C	1,35,00.000/-	9,20,959/
3	M/s. Paritosh Electricals Pvt Ltd.	AABCP5013E	41,50,000/-	3,84,123/
4	M/s. Potential Electricals & Electronics Pvt Ltd.	AABCP5014D	40,00,000/-	4,65,205/-
5	M/s. Ranbhumi Marketing Pvt Ltd.	AAECR5842G	20,00,000	1,44,247/-
6	M/s. Shresth Builders Pvt Ltd.	AADCS7759J	NIL	5,33,425/-
7	Vivek Barter Pvt Ltd.	AAACV8952B	73,50,000/-	6,79,911/-
8	Vivek Tracom Pvt. Ltd.	AAACV8670J	80,00,000/-	27,08,014/-
9	Raj shree Developer Enterprises Pvt Ltd.	AABCR2000D	58,00,000/	1,32,553/-
		Total	4,51,00,000/-	53,70,163/-

12. Despite the assessee filing all these documents from which it can be noted that the lender companies are regular income-tax assessee’s, still the A.O had branded them as shell/paper companies on the strength of the statement of Shri Raj Kumar Kothari and Shri Bijay Kumar Dokania whose statements were recorded u/s 131 of the Act on 02.03.2016 and 28.05.2014 by the Investigation Wing u/s 131 of the Act in third party proceedings and of course behind the back of assessee. The Ld. AR of the assessee brought to our notice that from a perusal of the statement of Shri Vijay Kumar Dokania it can be noted that the A.O has reproduced only selected questions and answers i.e. questions and answers no.4,6 & 12 and from the answers given it would be clear that his companies are engaged in giving bogus shares/LTCG and also he earns from Tax Consultancy and so, in the statement he [Shri Vijay Kumar Dokania] didnot say anything about his companies involvement in giving accommodation entry in the form of loans. 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 extracted some statements/confession/admission. Elaborating further he says that officers threatened to conduct search and survey in his companies and kept on reminding him that they will ruin him and his family. In the back-drop of the aforesaid threat and coercion, he made the statement in accordance to their wishes, and which was not the truth of the contents recorded. And we note that within 10 days (after giving the statement to Investigation Wing), he has retracted the statement by swearing the affidavit which is placed at page 45 to 48. Therefore, according to the Ld. AR, the statement of Shri Raj Kumar Kothari which was the only basis of which the A.O branded the lender companies as shell/paper companies could not have been used against the assessee and in any case does not have any evidentiary value, since retracted and could not have been acted upon against the assessee. Moreover, according to Ld.AR both Shri Raj Kumar Kothari as well as Shri Bijay Kumar Dokania has not been summoned by the A.O and their statements were not recorded directly by the A.O before drawing adverse inference against the lender companies. According to the Ld. AR, neither the A.O gave the full statement of both these persons nor gave an opportunity to the assessee to cross-examine them (Shri Raj Kumar Kothari as well as Shri Bijay Kumar Dokania). So, according to Ld. AR, in any case their statement cannot be the basis for drawing adverse inference against the assessee as for that Ld. AR relied on the decision of the Hon’ble Supreme Court in Andaman Timber v. CCE (2015) 62 taxmann.com 3 (SC).

13. We note that the Ld. CIT(A) has taken note of the fact that all the nine lender companies are income-tax assessees, and the interest paid by the assessee on the loan taken by it are duly subjected to TDS and the lender companies have shown the said interest income on which they have paid tax. The Ld. CIT(A) has noted that all the nine lender companies are corporate entities which are incorporated by the ROC and according to him the existence and status of them can be seen by the A.O from the master data available in the public domain/website of ROC; And that these companies are still ‘active’ companies which are discernible from ROC website. According to Ld. CIT(A), all the lender companies PAN and the jurisdiction under whom they are assessed are available in the ITR filed by them directly 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 uncreditworthiness 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 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.

We find that both the Commissioner of Income Tax (Appeal) and the Tribunal below followed the well-accepted principle which are required to be followed in considering the effect of Section 68 of the Act and we thus find no reason to interfere with the concurrent findings of fact recorded by both the authorities.”

14. Further the Ld. CIT(A) has noted that pursuant to the notice u/s 133(6) of the Act, the lender companies have directly fded before the A.O., the balance sheet, relevant bank statement etc. We note from a perusal of the balance sheet of the lending companies the following facts which are noted as under:

Sl.	Name	Reserves & Surplus	Turnover	assessee as on 31.03.2015	Interest Paid
1	M/s.Bhiksu Barter Pvt. Ltd.	7,93,23,661	78,72,546	3,00,000	1,726/-
2	M/s. Divya Electronics Pvt. Ltd.	13,18,87,700	1,84,39,149	1,35,00,000′-	9,20,959/-
3	M/s. Paritosh Electricals Pvt Ltd.	11,91,92,856	1,93,05,986	41,50,000-	3,84,123/-
4	M/s. Potential Electricals & Electronics Pvt Ltd.	10,49,86,852	1,64,73,594	40,00,000	4,65,205/-
5	M/s. Ranbhumi Marketing Pvt Ltd.	3,01,62,434	1.24,73,183	20,00,000/-	1,44,247/-
6	M/s. Shresth Builders Pvt Ltd.	28,68,59,333	3.61,44,953	NIL	5,33,425/-
7	Vivek Barter Pvt Ltd.	10,90,00,950	1,69,32,938	73,50,000/-	6,79,911/-
8	Vivek Tracom Pvt Ltd.	15,82,29,903	3,46,69,711	80,00,000/	27,08,014/-
9	Rajshree Develo per Enterprises Pvt Ltd.	10,58,86,318	1,38,12,003	58,00,000/-	1,32,553/
		Total		4,51,00,000/-	53,70,163/-

15. Thus from a perusal of the above details, it can be seen that the lender companies have sufficient creditworthiness to give loan to the assessee company and cannot be termed as shell companies by simply basing 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 genuineness of the loan transaction, the AO could have disbelieved the transaction only on the basis of reliable material to disprove the same. In this case the AO took the support of the statement given by both Shri Raj Kumar Kothari as well as Shri Bijay Kumar Dokania recorded in third party proceedings to take an adverse view against the assessee. In such a situation, the AO ought to have confronted the assessee with the entire statement of both Shri Raj Kumar Kothari as well as Shri Bijay Kumar Dokania or material against the assessee if any with him rather than giving only selective question and answer; and if the AO felt that these two persons, oral testimony is incriminating against the assessee, then in all seriousness he should have summoned them before him and elicited the direct oral evidence against the assessee and thereafter gave a copy of the recorded statement and then afforded an opportunity to assessee to cross-examine the makers of the incriminating oral testimony and thereafter 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.

To come to my aforesaid decision, I rely on the ratio of the decision of the Hon’ble Supreme Com! in the case of CIT Vs. M/s. Odeon Builders Pvt. Ltd. in Review Petition (C) Diary No. 22394 of 2019 in Civil Appeal Nos.9604 & 9605 of 2018 dated 21.08.2019 wherein the Hon’ble Supreme court has held as under:

“We have perused the review petition and find that the tax effect in this case is above Rs. 1 crore, that is, Rs. 6,59,27,298 Ordinarily, therefore, we would have recalled our order dated 17th September, 2018, since the order was passed only on the basis that the tax effect in this case is less than Rs. 1 crore.

However, on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of Rs. 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 Ms Padmesh Realtors Pvt. Ltd. is found to be acceptable and the consequent disallowance resulting in addition to income made for Rs.19,39,60,866/-, is directed to be deleted. “

The ITAT by its judgment dated 16th May, 2014 relied on the self same reasoning and dismissed the appeal of the revenue. Likewise, the High court by the impugned judgment dated 5th July, 2017, affirmed the judgments of the CIT and ITAT as concurrent factual findings, which have not been shown to be perverse and, therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of the ITAT.”

17. So, the A.O in this case, erred in relying on the statement of two persons who were not allowed to be cross-examined as held by the Hon’ble Apex Court in Andaman Timber (supra) and Odeon Builders Pvt. Ltd. (supra). So from any angle, one looks, the 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. And having gone through the impugned order and the Paper Book filed before us, we fully concur with the finding of facts as rendered by Ld CIT(A) in respect of identity, creditworthiness and genuineness of the lenders/loan transaction and for the sake of brevity and to avoid repetition it is not again repeated. We agree with the judicial precedence relied upon by the Ld CIT(A) in support of his decision. And we don’t find any legal or factual infirmity in the impugned order of the Ld CIT(A), so we decline to interfere. So the impugned action of Ld. CIT(A) to delete the section 68 addition of Rs.4.51 crores and [the interest paid by assessee to lenders] Rs.53,70,163/- is confirmed. So, the Revenue’s appeal stands dismissed.

18. In the result, the appeal of the Revenue is dismissed.”

51. We, therefore, respectfully following the decision of this Tribunal referred herein above and other judgments of Hon’ble Courts referred (supra) are of the considered view that the legal issue raised by the assessee deserves to be allowed as the basis of the impugned addition is the statement of Shri Rajkumar Kothari u/s 131 of the Act dated 02.03.2016. No opportunity of cross examination was provided to the assessee by ld. AO and also the said statement was retracted within ten days by Shri Rajkumar Kothari and therefore, making the addition based on such retracted statement and that too without giving any opportunity of cross examination to the assessee in whose case addition has been made on the basis of a statement of a third person deserves to be deleted and, thus, the legal issue raised by the assessee challenging the impugned addition is allowed.

52. Now, we move on to deal with the merits of the case we notice that the unsecured loan was received from 7 body corporates which are regularly assessed to tax, registered on the portal of Ministry of Corporate Affairs, regularly filing income tax return and annual returns, carrying out business activity and possess sufficient paid up capital and reserve and surplus to explain the alleged loan and also all the 7 body corporates have replied to ld. AO to the notices duly served upon them and duly enclosed all the relevant documents including bank statement to explain the genuineness of the alleged transaction and identity and creditworthiness of the loan creditors. The following table of the financial data of the loan creditors for AY 2017-18 is reproduced below:

Sl. No.	Party Name	CIN No	Paid Up Capit al	Reserve & Surplus	Networth	Sale	PBT	Tax
1	Partiva Supplier s Pvt Ltd	U51909WB200 9PTC133490	16,35 ,000	1,43,51, 136	1,59,86, 136	1,14,5 8,637	4,97, 372	1,48, 564
2	Divya Electron ics Pvt Ltd	U32102WB199 5PTC072383	56,34 ,500	13,34,2 6,094	13,90,60 ,594	1,50,6 0,943	16,52 ,213	4,93, 515
3	Albright Viniyog & Nirman Pvt. Ltd.	U67120WB199 4PTC062329	25,00 ,000	(4,40,38 0)	20,59,62 0	88,75, 740	3,66, 536	1,01, 478
4	Rajshree Develop er Entrepre neurs Pvt. Ltd.	U51109WB199 5PTC075063	61,53 ,950	10,90,2 4,163	11,51,78 ,113	4,79,5 9,882	38,94 ,021	11,63 ,150
5	Zigma Electrica ls Pvt. Ltd.	U51909WB199 5PTC076038	28,17 ,000	7,33,99, 791	7,62,16, 791	1,86,8 4,307	13,91 ,129	4,15, 530
6	Paritosh Electrica ls Pvt. Ltd.	U27203WB199 5PTC076134	52,76 ,480	12,44,3 3,259	12,97,09 ,739	6,75,8 3,295	64,59 ,932	19,29 ,582
7	Potential Electrica ls And Electron ic Pvt. Ltd.	U27203WB199 5PTC073361	60,85 ,000	10,77,3 8,116	11,38,23 ,116	4,71,0 6,041	30,09 ,856	8,99, 050

53. Further, we notice that out of the alleged loan of Rs. 8.61 Cr major portion of the loan i.e. 7.81 Cr has been repaid during the year itself and the status of the loan repaid and closing balance of the alleged loan is tabulated below:

Sl. No.	Party Name	PAN	Address	Openi ng Balanc e	Loan taken Amt.	Loan repaid Amt.	Closing Balance
1	Partiva Suppliers Pvt Ltd	AAFCP28 62F	32 Ezra Street ,4th Floor, Kolkata: 700001	–	1,82,50,0 00	1,32,50,0 00	50,00,0 00
2	Divya Electroni cs Pvt Ltd	AAACD9 721C	32 Ezra Street ,4th Floor, Kolkata: 700001	–	20,00,000	–	20,00,0 00
3	Alright ViniyogAnd Nirman Pvt. Ltd.	AAECA05 90N	32 Ezra Street ,4th Floor, Kolkata: 700001	–	78,00,000	78,00,000	–
4	Rajshree Develope r Enterpre nuers Pvt. Ltd.	AABCR2 000D	34 Ezra Street ,4th Floor, Kolkata: 700001	–	1,12,00,0 00	1,02,00,0 00	10,00,0 00
5	Zigma Electrical s Pvt. Ltd.	AAACZ08 31B	34 Ezra Street ,4th Floor, Kolkata: 700001	–	37,00,000	37,00,000	–
6	Paritosh Electrical s Pvt. Ltd.	AABCP50 13E	34 Ezra Street ,4th Floor, Kolkata: 700001	–	3,46,00,0 00	3,46,00,0 00	–
7	Potential Electrical s And Electroni c Pvt. Ltd.	AABCP50 14D	32 Ezra Street ,4th Floor, Kolkata: 700001	–	85,50,000	85,50,000	–
				–	8,61,00,0 00	7,81,00,0 00	80,00,0 00

54. A perusal of the same shows that out of the total loan of Rs. 8,61,00,000/- taken, a sum of Rs. 7,81,00,000/- was repaid during the year itself and the remaining balance was a small amount of Rs. 80,00,000/-. It is the submission that as the loan was repaid during the year itself, the appellant not being a beneficiary to the said loan the addition made cannot be sustained and is liable to be deleted. The appellant relies on the judgment of the Hon’ble Gujarat High Court in the case of PCIT vs. Ambe Tradecorp (P.) Ltd reported in [2022] 145 taxmann.com 27 (Guj) where it has been held as follows:

“The Tribunal rightly recorded in para 29 of the judgment. Once repayment of the loan has been established based on the documentary evidence, the credit entries cannot be looked into isolation after ignoring the debit entries despite the debit entries being carried out in the later years. Thus, in the given facts and circumstances, were hold that there is no infirmity in the order of the Ld. CIT(A).”

55. Further, it is submitted by ld. Counsel for the assessee that section 68 of the Income-tax Act, 1961, deals with cash credits. It states that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to Income-tax as the income of the assessee of that previous year. The crucial words in the provision are “the assessee offers no explanation”. This would mean that the assessee offers no proper, reasonable and acceptable explanation as regards the amount credited in the books maintained by the assessee. No doubt the Act places the burden of proof on the taxpayer. However, this is only the initial burden. In cases where the assessee explains the credit by placing evidence regarding the identity of the investor or lender along with their confirmations, bank statements, audited financial statements the assessee has discharged the initial burden and, therefore, the burden shifts on the Assessing Officer to examine the source of the credit to be justified in referring to section 68 of the Act. After the Assessing Officer puts the assessee on notice and 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 ld. AO 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. For this purpose, ld. Counsel for the assessee draws support from the judgement of the Jurisdictional Calcutta High Court in the case of Principal CIT vs. Sreeleathers reported in [2022] 448 ITR 332 (Cal) where it is held as follows:

“Section 68 of the Income-tax Act, of 1961, deals with cash credits. It states that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to Income-tax as the income of the assessee of that previous year. The crucial words in the provision are “the assessee offers no explanation”. This would mean that the assessee offers no proper, reasonable and acceptable explanation as regards the amount credited in the books maintained by the assessee. No doubt the Act places the burden of proof on the taxpayer. However, this is only the initial burden. In cases where the assessee offers an explanation to the credit by placing evidence regarding the identity of the investor or lender along with their confirmations, the assessee has discharged the initial burden and, therefore, the burden shifts on the Assessing Officer to examine the source of the credit to be justified in referring to section 68 of the Act. After the Assessing Officer puts the assessee on notice and 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 his responsibility of proving the nature of the transaction. There was no discussion by the Assessing Officer on the correctness of the stand taken by the assessee. Thus, going by the records placed by the assessee, it could be safely held that the assessee had discharged his initial burden and the burden shifted onto the Assessing Officer to enquire further into the matter which he failed to do. In more than one place the Assessing Officer used the expression “money laundering”. Such usage was uncalled for as the allegation of money laundering is a very serious allegation and the effect of a case of money laundering under the relevant Act is markedly different. The order passed by the Assessing Officer was utterly perverse and had been rightly set aside by the Commissioner (Appeals). The Tribunal had rightly deleted the additions under section 68.”

56. Further, we notice that out of the alleged 7 body corporates, the issue regarding unexplained cash credit of 4 of such body corporates namely i) Divya Electronics Pvt. Ltd., ii) Paritosh Electricals Pvt. Ltd., iii) Potential Electricals and Electronic Pvt. Ltd. & iv) Rajshree Developer Entrepreneurs Pvt. Ltd. were the subject matter before this Tribunal in case of M/s. Overtop Marketing Pvt. Ltd. (supra) and the decision of this Tribunal stands extracted (supra) wherein the facts are almost identical and on merits of the case this Tribunal has given relief to the assessee accepting the identity and creditworthiness of the alleged loan creditors and genuineness of the alleged transaction.

57. Further, we notice that in another decision of this Tribunal in the case of M/s. Eastern Trade Centre vs ACIT in ITA No. 2427/Kol/2017 for AY 2014-15 dated 06.09.2019 similar issue of unexplained cash credit from some of the alleged cash creditors was adjudicated and there also the basis was the statement of Shri Rajkumar Kothari and this Tribunal dealt with the merits of the case and held in favour of the assessee observing as follows:

“7. We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that first of all, it is appropriate to go through the provision of Section 68 of the Income Tax Act,1961 which is reproduced as under:

“68. Cash Credits: Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.”

A bare reading of Section 68 of the Income Tax Act, 1961, suggests that for a sum so credited to be charged to income-tax, as the income of the assessee of the previous year by the A.O., the following have to be present:

i. there has to be an amount credited in the books maintained by the assessee ;

ii. such credit has to be a sum of money received during the previous year; and iii) either

a) the assessee offers no explanation about the nature and source of such credits found in the books or

b) the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory.

Thus, it is clear from above that in order to establish the receipt of the sum as unexplained cash credit, as required under Section 68 of the Income-tax Act, 1961, the assessee must satisfy three conditions, viz., (i) identity of the creditor, (ii) genuineness of the transaction, and (iii) creditworthiness of the creditor.

All these three conditions laid down as above are being discussed in the ensuing para of this order.

8. Identity: We note that regarding the identity of all the loan creditor companies, it was submitted by the ld Counsel that all the said companies are Private Limited companies duly incorporated under the Companies Act, 1956. Further, all the companies are Income Tax assessee having PAN Nos. as follows:

Sr.No.	Name of loan creditors (company)	PAN No.
1	M/s Paritosh Eleetricals Pvt Ltd	AABCP50l3E
2	M/s Ranbhumi Marketing Pvt Ltd	AAECR5842G
3	M/s vivek Tracom Pvt Ltd	AAACY8670J

Copies of the ITR Acknowledgment of the creditors for the relevant year are enclosed at Page no. 49, 70 and 91 of the Paper book. In view of the above, the identity of all the parties stands duly proven.

9. Genuineness and Creditworthiness of the Transaction: We note that regarding the genuineness of the transaction, it was stated by the ld Counsel that all the said loans received during the year were duly routed through the regular banking channels of all the companies and also of the assessee company. To substantiate the genuineness of the transactions and the identity and creditworthiness of the parties, following documents were submitted by the assessee:

i) ITR Acknowledgment, Relevant Bank statements of the loan creditors evidencing that loans given to the assessee were through normal banking channels.

ii) Audited Accounts of the loan creditors and parties from whom the creditors received fund (being source of source of funds)

iii) Copies of loan confirmations received from loan creditors

These documents clearly prove the genuineness of the transactions and the identity and creditworthiness of the parties.

Further, we discuss the genuineness of the transactions, identity and creditworthiness of these three parties one by one:

(1). Vivek Tracom Pvt Ltd

We note that the assessee had taken loan amounting to Rs. 20,00,000/- from M/s Vivek Tracom Pvt Ltd during the relevant year through proper banking channel (being cheque No. 0111348). In this regard a copy of the confirmation of loan given by Vivek Tracom Pvt Ltd to the assessee is enclosed at page113 of the paper book and and a copy of the bank statement of Vivek Tracom Pvt. Ltd and Eastern Trade Centre evidencing the loan given to the assessee and its receipt by the assessee is enclosed at page 114-116 the paper book. The company is a regular income tax assessee. A copy of the ITR Acknowledgement and Audited accounts of Vivek Tracom Pvt Ltd is being enclosed at pages 91 to 112 of the paper book. As regards the source of Rs. 20,00,000/- it is submitted that Vivek Tracom Pvt Ltd had received interest on loan from the following companies:

a.	Samridhhi Investments Co Pvt Ltd	Rs. 4,06,110/-
b.	Chandan Mal Raijada	Rs.90,247/-
c.	Vineet Enterprises	Rs. 19,971/-
d.	Ujjal Business and Investment Pvt Ltd	Rs. 1,80,493/-

Apart from the above-mentioned interest received by Vivek Tracom, it had also received an amount of Rs. 10,00,000/- from Amco Electrical Eng Co. on account of refund of loan given to them earlier. In support of the aforesaid, confirmation of accounts of all the said parties are enclosed at pages 117 to 122 of the paper book. Thus, with the submission of these documents showing the source of source of funds and the fact that all the transactions took place through proper banking channels, the genuineness, creditworthiness and identity of the transaction stands duly proven.

2. Paritosh Elcctricals Pvt Ltd

We note that the assessee had taken a loan of Rs.10,00,000/- from Paritosh Electricals Pvt Ltd during the relevant year through proper banking channel (being cheque No. 0038128). In this regard a copy of the confirmation of loan given by Paritosh Elcctricals Pvt Ltd to the assessee is enclosed at page 123 of the paper book and a copy of the bank statement of Paritosh Electrical Pvt Ltd evidencing the loan given to the assessee is enclosed at page 124-125 of the p/b. The company is a regular income tax assessee. A copy of the ITR Acknowledgement and Audited accounts of Paritosh Electricals Pvt Ltd is enclosed at pages 49 to 69 of the paper book.

As regards the source of Rs. 10,00,000/- it was submitted that Paritosh Electricals Pvt Ltd had received Rs. 20,00,000/- from Machinery Agencies (India) on account of refund of loan as shall be evident from the bank statement of Paritosh Electricals Pvt Ltd. A copy of confirmation of loan taken by Machinery Agencies (India) from Paritosh Electricals Pvt Ltd along with bank statement of Machinery Agencies showing the same is enclosed at page 123 to 125 of the paper book. Thus, the source of source of the fund also stands proven.

3. Ranbhurni Marketing Pvt Ltd

We note that the assessee had taken a loan of Rs.20,00,000/- from Ranbhumi Marketing Pvt Ltd during the relevant year through proper banking channel (vide cheque No. 0405125). In this regard a copy of the confirmation of loan given by Ranbhumi Marketing Pvt Ltd to the assessee is enclosed at page 130 of the paper book and a copy of the bank statement of Ranbhumi Marketing Pvt Ltd evidencing the loan of Rs. 20,00,000/- given to the assessee is enclosed at page 131 to 132 the paper book. The company is a regular income tax assessee. A copy of the ITR Acknowledgement and Audited accounts of Ranbhumi Marketing Pvt Ltd is enclosed at pages 70 to 90 of the paper book. As regards the source of Rs. 20,00,000/- it is submitted that Machinery Agencies (India) had taken a loan of Rs. 20,00,000/-from Ranbhumi Marketing Pvt Ltd. A copy of the confirmation of loan taken by Machinery Agencies (India) is enclosed at page 126 to 129paper book. The refund of loan of Rs.20,00,000/- from Machinery Agencies (India) is evident from the bank statement of Ranbhumi Marketing Pvt Ltd as is enclosed at page 131-132 of the paper book. Thus, all the transactions took place through proper banking channels and the documents submitted also duly prove the source of source of the funds. We note that Ld AO and CIT(A) ignored all of the said documents submitted before them and they merely relied upon the statement of Shri Raj Kumar Kothari without considering the fact that it was retracted by him before the 1st Class Magistrate ( a copy enclosed at pages 9 to 12 of thep/b) from which it is evident that the DDIT had acted against the principles of law by threatening and coercing the said Shri Raj Kumar Kothari to give false statements. The DDIT had also acted in violation of law by dictating the statements and making the witness (Shri Raj Kumar Kothari) sign on it forcefully without even letting him read the contents of the statement. When these facts were recorded in the retraction statement of Shri Raj Kumar Kothari and submitted before the Ld CIT(A), the Ld CIT(A) erred in completely ignoring all these facts mentioned. Furthermore, the facts as enumerated above clearly show that even otherwise the original statement without taking into account the retraction has no bearing on the present case since all the funds which formed the source of funds for giving the loan to the assessee were existing funds of the loan giving companies and were not new funds introduced to give any alleged accommodation entry.

10. We note that Ld AO had also made addition of Rs. 38,59,987/-on account of interest paid on loans taken in previous years which was confirmed by the Ld CIT(A).We note that assessee had filed the confirmations of loans in the case of parties to whom interest was paid to prove the genuineness of the transaction. Mr. Biswanath Basak, the director of M/s Stardox Vinimay Pvt Ltd and Raina Vyapar Pvt Ltd (being two of the companies to whom interest was paid) also appeared before the Ld AO) and confirmed the loan transaction. It is also pertinent to note that the Ld Assessing Officer had again pressurized the director namely Shri Biswanath Basak to depose that he was a dummy director in the said companies but Mr. Biswanath Basak had later filed retraction. The detailed chart showing the parties and amount of interest paid is as follows:

Sr No.	Name of the Company	Interest paid (in Rs.)
1.	M/s Divya Electronics Pvt Ltd	6,50,000
2.	M/s Mahcshwari Merchants Pvt ltd	2,50,000
3.	M/s Rajshree Developers Entcrprencurs Pvt Ltd	2,50,000
4.	M/s Vivek Barter Pvt Ltd	1,00,000
5.	M/s Stardox Vinimay Pvt Ltd	4,99,569
6.	M/s Raina VyaparPvt Ltd	1,86,344
7.	M/s Tanjore Vanijay Pvt Ltd	6,85,042
8.	A. K. Construction Pvt Ltd	3,00,000
9.	R.C Suppliers Pvt Ltd	1,85,026
	TOTAL	38,59,987

The Ld Counsel for the assessee submitted before us that with regard to the interest paid on outstanding loans taken in earlier year from the parties mentioned in the table above, the confirmations of loans from these parties and their bank statements showing the same are enclosed at pages 137 to 148 of the paper book. The Income Tax Return Acknowledgements and Audited accounts of the parties are also enclosed at pages 155 to 325 of the paper book.

It is also to be noted here that during the earlier years in which the loans were taken, the transactions were not disputed during the course of assessment of those years. Therefore with the submission of the said documents the assessee’s onus of proving the identity of the parties and genuineness of its transactions with the parties [which had been disputed by the Ld AO and CIT(A)] stands duly fulfilled. The department having accepted the transaction of loans in the past years cannot dispute the payment of interest in a subsequent year without doing anything to disturb the status of the assessment in the past years. The loans were not received during the year and therefore the A.O. could not have examined their genuineness during the year. Furthermore, the A.O. has nothing to examine their genuineness even otherwise and has simply relied on the retracted statement of Shri Rajkumar Kothari to draw his conclusion. Therefore addition made by Assessing Officer in respect of interest paid is hereby deleted.

At the cost of repetition, we state that the assessee had filed with the Ld CIT(A) the bank statements, audited accounts and loan confirmations of the entities concerned. Hence, the assessee has successfully proven the genuineness, identity and creditworthiness of the transactions. In such a scenario, when all the documents have been submitted and the facts of the case clearly explained, there is no room for any doubt with regard to the identity and creditworthiness of the parties and genuineness of the transactions, as noted above, for that we rely on judgment of the Hon’ble Delhi High Court in case of Commissioner of Income-tax v. Lovely Exports P. Ltd reported in [299 ITR 268] wherein it was held as follows: “In the case of a company the following are the propositions of law under section 68. The assessee has to prima facie prove (1) the identity of the

2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels ; (3) the creditworthiness or financial strength of the creditor/subscriber; (4) if relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the shareholders’ register, share application forms, share transfer register, etc., it would constitute acceptable proof or acceptable explanation by the assessee.”

The Hon’ble Delhi High Court in the case of CIT vs Oasis Hospitalities Pvt Ltd and others reported in [333 ITR 11] held as follows:

“The initial burden is upon the assessee to explain the nature and source of the share application money received by the assessee. In order to discharge this burden, the assessee is required to prove (i). the identity of the share-holder, (ii) thegenuineness of the transaction, and (c) the creditworthiness of the shareholders. Incase the investor/shareholder is an individual, some documents will have to be filed or the shareholder will have to be produced before the Assessing Officer to prove his identity. If the creditor/subscriber is a company, then the details in the form of registered address or PAN identity, etc., can be furnished. When the money is received by cheque and is transmitted through banking or other indisputable channels, the genuineness of the transaction would be proved. Other documents showing the genuineness of the transaction could be copies of the shareholders register, share application forms, share transfer register, etc. As far as the creditworthiness or financial strength of the creditor/subscriber is concerned, that can be proved by producing the bank statement of the creditors/subscribers showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital. Once these documents are produced, the assessee would have satisfactorily discharged the onus cast upon him. Thereafter, it is for the Assessing Officer to scrutinise the same and in case he nurtures any doubt about the veracity of these documents, to probe the matter further. However, to discredit the documents produced by the assessee on the aspects, there have to be some cogent reasons and materials for the Assessing Officer and he cannot go into the realm of suspicion.”

On appeal:

“Held, dismissing the appeal, that the assessee had filed copies of PAN, acknowledgment of filing Income-tax returns of the companies, their bank accounts statements for the relevant period but had not

produced the directors of the companies. The addition made by the Assessing Officer could not be sustained as the primary onus was discharged by the assessee. The Assessing Officer had not investigated whether the modus operandi by the entry operator discussed by the Investigation Wing existed in the case or not. Even the bank statements as claimed by the Assessing Officer revealed that the assessee had received cheques from the shareholders.”

12. We note that the onus of proof is not a static one. Though in section 68 of the Income-tax Act, 1961, the initial burden of proof lies on the assessee yet once he proves the identity of the creditors/share applicants by either furnishing their PAN number or income-tax assessment number and shows the genuineness of transaction by showing money in his books either by account payee cheque or by draft or by any other mode, then the onus of proof would shift to the Revenue. Therefore, once the assessee had discharged the primary onus, which was cast upon the assessee, it was incumbent upon the Assessing Officer to prove on the basis of cogent evidence that the transaction was not genuine. There was no such evidence in assessee’s case under consideration. The conclusions of the Assessing Officer and the Commissioner (Appeals) with regard to the genuineness of the transactions were merely based on surmises and assumptions. Thus after taking into consideration the totality of the facts discussed as above and in view of the case laws discussed above, it is well established that the assessee by producing necessary documents viz., ITR Acknowledgements, audited accounts, bank statement copy, PAN Number and confirmations etc has sufficiently established the identity, creditworthiness and genuineness of the loan creditors and interest paid. Therefore, we delete the addition of Rs.88,59,987/- (Rs.50,00,000 + Rs. 38,59,987).

13. In the result, the appeal of the assessee is allowed.”

58. We, therefore, under the given facts and circumstances of the case, are of the considered view since the assessee has successfully discharged its onus of proving the identity of the loan creditors which are body corporates in the instant case duly registered with Ministry of Corporate Affairs, having PAN and regularly filing the returns, further creditworthiness of the transaction is proved with the fact that they have been carried out through banking channel and sufficient funds in the form of share capital and reserve and surplus available with the loan creditors to explain the amount of loan given and the genuineness of the transaction is proved with the fact that the assessee company is carrying out regular business activity and huge turnover is achieved year by year and for business needs the said loan has been taken and the major portion of the unsecured loan has been repaid in the year itself and only a minor sum was paid in the subsequent year and all transactions were carried out through banking channel, interest paid on the loans and tax at source has been deducted and duly reflected by the alleged loan creditors in their income tax return and therefore, we fail to find any justification in the action of ld. AO invoking the provisions of Section 68 of the Act. We, thus, set aside the finding of ld. CIT(A) and delete the addition made u/s 68 of the Act at Rs. 8.61 Cr and further hold that invoking the provisions of Section 115BBE of the Act was not justified and further, since provisions of Section 68 of the Act are held to be wrongly invoked and the alleged transaction is held to be genuine, the interest expenditure incurred on alleged loans is also allowable to the assessee. Thus, ground nos. 2, 3, 4, 5, 6 & 7 of the assessee’s appeal are allowed.

59. Now, we take ground no. 8 for AY 2017-18 wherein deduction u/s 80G of the Act at Rs. 17.50 lakh was not provided. We notice that the assessee incurred CSR expenses of Rs. 35 lakh and the same was disallowed while computing the total income. The assessee gave donation of Rs. 20 lakh to Kisan Vikas Trust and Rs. 15 lakh to Howrah Maheswari Seva Trust, both are registered u/s 12A of the Act and also approved u/s 80G of the Act. On such donation of Rs. 35 lakh the assessee claimed deduction of Rs. 17.50 lakh u/s 80G of the Act. Ld. AO disallowed the said claim merely observing that no deduction is allowable for CSR expenses.

60. We fail to find any merit in this action of ld. AO which has been subsequently confirmed by ld. CIT(A) for the reason that CSR expenses incurred by the assessee already stands disallowed in the computation of income. Now, Section 80G of the Act comes into play if any of the donations is eligible for deduction u/s 80G of the Act. It is not in dispute before us that the organizations to which the alleged donation has been given are registered u/s 12A of the Act holds the approval of Section 80G of the Act. This Tribunal in the case of M/s. JMS Mining Pvt. Ltd. vs PCIT in ITA No. 146/KOL/2021 order dated 22.07.2021 has allowed the deduction u/s 80G of the Act on CSR expenses. The relevant finding of this Tribunal is reproduced below:

“23. As discussed supra, we concur with the contention of the assessee that since Parliament intended certain restrictions to only CSR expenditure in respect of two donations included by an assessee as CSR expenditure i.e. [Swachh Bharat Kosh and Clean Ganga Fund] has impliedly not made any prohibition/restriction in respect of claim of CSR expenses in other cases if it is otherwise eligible under Section 80G of the Act. In this context we find that the assessee has made donation of Rs. 1.25 crores on 20.01.2016 by RTGS dated 19.01.2016 through UCO Bank which is evident from page 18 of PB which is received by Shree Charity Trust which was 80G(5)(vi) certificate of the Department dated 15.01.2009 placed at page 17 of PB. The assessee has also made payment of Rs. 10 Lakhs to Pt. Jashraj Music Academy Trust which is found placed at page 22 & 23 and the approval u/s 80G (5)(vi) of the Act in respect of Pt. Jashraj Music Academy Trust is found placed at page 19 of PB dated 30.03.2012 given by Director of Income Tax (Exemption). Therefore, since the assessee satisfies the condition u/s. 80G of the Act of the donees, the assessee’s claim for deduction of CSR expenses/contribution u/s 80G of the Act was allowed after enquiry by the AO. Thus we are of the opinion that the action of the AO allowing the claim u/s. 80G of the Act is a plausible view and is in line with the ratio of the decision of Tribunal cited (supra). Therefore we find that the Ld. PCIT has not been able to make out a case that on this issue raised by him, the AO’s order is erroneous as well as prejudicial to the revenue. So the jurisdictional fact as well as law is absent for invoking revisional jurisdiction. Therefore, the usurpation of jurisdiction by Ld. PCIT u/s 263 of the Act is bad in law and therefore need to be quashed and we order accordingly. 24. In the result, the appeal of the assessee is allowed.”

61. We, therefore, respectfully following the decision referred herein above, are inclined to hold that the assessee is eligible for deduction u/s 80G of the Act at Rs. 17.50 lakh and thus, set aside the finding of ld. CIT(A) and allow ground nos. 8 & 9 raised by the assessee for AY 2017-18.

62. Ground nos. 1 & 10 are general in nature which need no adjudication.

63. Thus, the appeal filed by the assessee in ITA No. 650/KOL/2022 for AY 2017-18 is allowed.

64. In the result, the appeals filed by the assessee in ITA No. 641/KOL/2022 for AY 2012-13 is partly allowed and ITA Nos. 650 & 660/KOL/2022 for AY 2017-18 & AY 2018-19 are allowed.

Kolkata, the 31st March, 2023