Birla Transasia Carpets Ltd Vs DCIT (ITAT Delhi)
ITAT Delhi held that addition under section 68 of the Income Tax Act towards unexplained cash credit unsustainable as genuineness of transaction and creditworthiness of lender duly proved.
Facts- The only effective issue to be decided in this appeal is as to whether the addition u/s 68 of the Act in respect of unsecured loans received by the assessee could be made in the facts and circumstances of the instant case.
Notably, AO proceeded to treat the unsecured loan received from parties totaling to Rs.3,50,15,937/- as unexplained cash credit u/s 68 of the Act on the premise that genuineness of the transactions and creditworthiness of the lenders were not proved by the assessee.
Conclusion- Held that the assessee has furnished confirmation from the parties, apart from ITR and annual report of lender company. From the perusal of the annual report, the lender company has free reserves which itself goes to prove the sufficient creditworthiness of the lender company. The loan transactions are routed through regular banking channels and reflected duly in the annual accounts of the lender company. Hence the genuineness of the transactions is also proved beyond doubt. All the three necessary ingredients of section 68 of the Act has been proved in respect of this loan transaction.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. This appeal in ITA No.4329/Del/ 2016 of the assessee arises out of the order of the Learned Commissioner of Income Tax (Appeals)-2, New Delhi, [hereinafter referred to as ‘Ld. CIT(A)’] in Appeal No.312/2014-15 of CIT(A)-2 dated 31/03/2016 against the order passed by Ld. Dy. Commissioner of Income Tax, Circle-3(1), New Delhi (hereinafter referred to as the ‘Ld. AO’) u/s 143(3) of the Income Tax Act (hereinafter referred to as ‘the Act’) on 13/12/2010 for the Assessment Year 2008-09 as well as the Revenue has also filed Cross Appeal in ITA No.49 1 1/Del/2016 for AY 2008-09.
2. The following grounds raised by the assessee as well as Revenue.
ITA No.49 1 1/Del/2016
“1. learned AO has erred in treating the unsecured loans appearing in the books of the assessee as unexplained cash credit u/s 68, concluding that the assessee has not filed relevant information to proved genuineness of the loan taken by the assessee. The assessee company is a sick industrial company and the case of the assessee is with Board of Industrial & Financial Reconstruction (BIFR) Also, the Accounts & Finance Department (A&F) Deptt. of the assessee was located at Sikanderabad at Uttar Pradesh and subsequently due to financial problems and to have better control these functions of the assessee were centralized at it corporate office at Murnbai. Moreover, there were frequent changes in A&F Deptt. of the assessee company. Due to combined effects of these facts, the assessee has not been able to gather all the required information.
2. The assessee has preferred appeal against the assessment order u/s 143(3) before the Hon CIT(Appeals)-2 and pleaded to the CIT(Appeals) 2 to allow the assessee to submit additional evidence which the assessee could not submit at the time of scrutiny The said appeal was partially allowed by admitting the additional evidence in case of M/S Searson Investment & Trading Co. Pvt. Ltd. (Unsecured Loan Rs 1,68 25,236/-).
3. The assessee has preferred appeal against the assessment order u/s 143(3) before the Hon. CIT(Appeals)-2 and the said appeal was partially disallowed by not admitting the additional evidence in case of M/S Godavari Corporation Pvt. Ltd (Unsecured Loan Rs. 1,72,50,000/-) by stating that “as per copy of ITR acknowledgement for AY 2008-09 of M/S Godavari Corporation Pvt. Ltd. filed during appellate proceedings, gross total income of Rs. 12.23 lacs only and net total income of Rs. NIL has been declared. In these circumstances, the capacity of the party to advance loan of Rs. 1,72,50,000/- does not get proved. Also, in the absence of confirmation of the creditor the genuineness of the transaction is also in doubt” The learned CIT(A)-2 has not considered the bank statement of the assessee company( submitted on 16.03.2016)which reflects the inflow of money from the lender and the confirmation of the lender( submitted as per page no. 63 along with submission dated 12.2013) as well, which if read together clearly established the flow of funds from the lender to the assessee. Moreover, the capacity of the lender to lend Rs. 1,72,50,000/- can be established in view of the fact the total income of the lender was Rs. 3,05,25,201/- and not Rs. 12.23 lacs as is evident from page no. 89 of the submission dated 03.12.2013. The A.O has also failed to recognize as how can a company whose profit is Rs. 12.23 lacs is paying a tax of Rs. 33.55 lacs as is clearly evident from the copy of ITR submitted.
4. The appellant craves leave to add, alter, amend, and/or modify any of the aforesaid grounds before or at the time of hearing.”
ITA No.4329/Del/2016
“The DCIT, Circle -5(1), New Delhi is hereby filing appeal in the above mentioned case before the ITAT, New Delhi on the following grounds of appeal.
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition amounting to Rs. 1.68.25.236/- as unexplained cash credit u/s 68 of the LT. Act, 1961, without appreciating the fact that Ld. CIT(A) himself upheld part addition us 68 of the LT. Act, 1961 to the tune of Rs. 1,81,90,701/- with the same kind of facts, which proves that the AO had rightly made addition u/s 68 of the LT. Act, 1961.
2. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any grounds of appeal at any time before or during the hearing of this appeal.”
3. As identical issues are involved in both these appeals and hence, they are taken up together and disposed off by this common order for the sake of convenience.
4. The only effective issue to be decided in this appeal is as to whether the addition u/s 68 of the Act in respect of unsecured loans received by the assessee could be made in the facts and circumstances of the instant case.
5. We have heard the rival submissions and perused the materials available on record. The assessee company is engaged in the business of Manufacturing of Machine made Plain & Design Carpets & Woolen Yarn. The assessee company filed its return of income on 30/09/2008 declaring total income Nil. Later, the assessee filed its revised return of income on 24/12/2008 declaring a loss of Rs. 1,18,54,341/-. This revised return filed by the assessee was taken due cognizance by the Ld. AO while framing the assessment. The assessee has received unsecured loan from following parties:-
