ITO Vs Aashna Developers Pvt. Ltd. (ITAT Ahmedabad)
Introduction: The dispute between the Income Tax Officer (ITO) and Aashna Developers Pvt. Ltd. reached the ITAT Ahmedabad concerning the treatment of unsecured loans from shell companies. The core contention was whether the loans should be treated as unexplained cash credits under section 68 of the Income Tax Act.
Detailed Analysis: The ITO alleged that Aashna Developers Pvt. Ltd. had accepted unsecured loans from paper/shell companies managed by Shri Mukesh Banka, based on evidence found during search proceedings. The AO proposed to treat the loans as unexplained cash credits, totaling Rs. 6,74,81,741/-.
However, Aashna Developers Pvt. Ltd. provided evidence, including ledger copies, confirmation letters, bank statements, ITRs, and annual reports of the loan parties, to establish the genuineness of the transactions. The company contended that the loans were genuine intercorporate deposits, duly repaid with interest through banking channels.
The ITAT noted that the AO failed to provide the material used against the assessee for rebuttal or the opportunity for cross-examination of Shri Mukesh Banka, violating principles of natural justice. Moreover, the AO did not adequately consider the evidence provided by the assessee, treating the loans as unexplained cash credits solely based on Mukesh Banka’s statement.
The ITAT referred to relevant case laws and emphasized that once the assessee establishes the identity, creditworthiness, and genuineness of the transaction, the onus shifts to the AO to conduct independent inquiry or provide contrary evidence. Since Aashna Developers Pvt. Ltd. provided primary evidence and the interest on the loans was allowed by the AO, treating the loans as unexplained cash credits was unjustified.
Conclusion: The ITAT Ahmedabad dismissed the appeal of the Revenue, affirming the CIT(A)’s decision to delete the addition made by the AO. The case underscores the importance of adhering to principles of natural justice and conducting thorough assessments based on evidence rather than relying solely on statements obtained during search proceedings. It establishes that loans from shell companies cannot be deemed unexplained if the identity, creditworthiness, and genuineness of the transactions are established by the assessee.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The captioned appeal has been filed at the instance of the revenue against the order of the National Faceless Appeal Centre (NFAC), arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) relevant to the Assessment Year 2018-19.
2. The only issue raised by the revenue is that the learned CIT(A) erred in deleting the addition of unsecured loan taken from shell/paper companies managed by Shri Mukesh Banka for Rs. 6,74,81,741/- only.
3. The facts in brief are that the assessee, a private limited company, is engaged in the business of real estate development. The assessee company during the year has accepted unsecured loans from certain parties. It was alleged by the AO that the parties from whom unsecured loans were accepted by the assessee are paper/shell companies and managed by the entry provider Shri Mukesh Banka. The basis of such an allegation was the search proceedings carried out in the case of Shri Mukesh Banka group where certain evidence were found and statement of Shri Mukesh Banka was recorded under section 132(4) of the Act. Accordingly, it was unearthed that Shri Mukesh Banka is engaged in the activity of providing bogus accommodation entry in the form of unsecured loan, share capital or other forms through various paper/shell companies controlled and managed by him. As such, Shri Mukesh Banka has appointed dummy directors in those paper/shell companies. The paper/shell companies were not found on their given addresses after the search proceedings. On analysis of the bank statements of those companies, it was noticed that huge amounts of cash were withdrawn from their bank accounts. Further, based on analysis of bank statements, various beneficiaries of accommodation entries were identified, and the present assessee company was one of them.
3.1 Based on the above, the AO found that the assessee company has taken unsecured loan of Rs. 6,74,81,741/- from 6 companies which were controlled and managed by Shir Mukesh Banka. The details of date-wise transfer of the money from those companies are reproduced on pages 3 to 4 of the assessment order. Accordingly, the AO proposes to treat the impugned unsecured loans as unexplained cash credit under the provision of section 68 of the Act.
3.2 However, the assessee submitted that it has accepted genuine intercorporate deposits from those 6 parties during the year which have been duly repaid in the next year along with interest after deducting necessary tax at source. The tax deducted on payment of interest has been duly claimed by those parties in their respective ITRs.
3.3 The assessee in support of its claim has furnished ledger copies, confirmation letters, bank statements, ITRs and annual reports of the parties. It was also submitted that the correct amount of loan form those parties were of Rs. 6,24,81,741/- only. The assessee contended that once it is found that the loan credited through banking channel has been repaid through banking channel along with interest, then the nature and source of such credit cannot be doubted under section 68 of the Act.
3.4 The assessee further submitted that the entire basis of alleging the unsecured loan as bogus the material found during the search at the Mukesh Banka group and statement of Shir Mukesh Banka. However, no such material and opportunity of cross examination of Shri Mukesh Banka has been provided. Therefore, such material or statement cannot be relied against it. It was also submitted that one of the allegations that huge amount of cash was withdrawn from banks of the alleged paper companies whereas no such cash withdrawal in case of the parties from whom it has accepted intercorporate deposits.
3.5 However, the AO held that the contention of the assessee is not acceptable and case laws relied on were also not commensurate to the fact of the present case. The assessee has taken unsecured loans of Rs. 6,74,81,741/- from paper/shell companies of Banka group, therefore the same was treated as unexplained cash credit under section 68 of the Act and added to the total income.
4. The aggrieved assessee preferred an appeal before the learned CIT(A). The assessee before the learned CIT(A) besides reiterating the submission made during the assessment, filed copy of affidavit of Shri Mukesh Banka for retraction of his statement, copies of affidavit by the loans parties that they have no connection of whatsoever with Mukesh Banka.
5. The learned CIT(A) after considering the facts in totality deleted the addition made by the AO. The relevant finding of the Ld. CIT(A) is available on pages 22 to 36 of his order.
6. Being aggrieved by the order of the learned CIT(A) the revenue is in appeal before us.
7. The learned DR before us submitted that the loan companies were formed same day, at the same address and having same email ids. All the affidavits furnished by assessee were similarly worded and notarized from one person on the same date. Furthermore, only the Ledger copy was submitted by the assessee to justify the re-payment of the loan received by it. As such, there was no bank statement furnished by the assessee of the loan parties. As per the ld. DR, there was no need to furnish the opportunity of cross examination as there was sufficient collateral evidence against the assessee that the assessee had received bogus loans. The learned DR in support of his contentions has relied on the judgements discussed below:
