ACIT Vs Sreeleathers (ITAT Kolkata)
Firstly the survey statement has been recorded by DDIT(Inv) in some third party case and not that of assessee. Secondly the deponent has been administered oath before his statement was recorded, which is not in accordance to Section 133A of the Act and the Hon’ble Supreme Court in Khader Khan & Sons (surpa) has held that the statement recorded u/s 133A of the Act is not given evidentiary value for the reason that officer is not authorized to administer oath and to take any sworn statement in contra distinction to the power vested in authorities to record statement under oath during search u/s 132 of the Act. Therefore on the sole statement recorded u/s 133A of the Act of Shri Ashish Kumar Agarwal, no adverse view can be taken against the assessee since there is no evidentiary value to be given to it.
Moreover, if the AO still felt that he needs to use Shri Ashish Kumar Agarwal’s statement against the assessee, then in all fairness he should have given a copy of the statement well in advance and called for explanation from assessee and thereafter if the AO is not satisfied then he should have summoned and examined (Ashish Kumar) and thereafter given an opportunity to assessee to cross-examine Shri Ashish Kumar Agarwal. After doing these exercises, still if the AO finds that from the statement which has undergone cross-examination, a wrong-doing on the part of assessee, then he could have drawn adverse inference against the assessee.
However admittedly these actions were not taken by AO. So the statement of Shri Ashish Kumar cannot be relied upon against the assessee as held by Hon’ble Supreme Court in Andaman Timbers (supra). So when both foundation on which the AO drew adverse inference against the assessee goes, applying the legal maxim ‘sublato Fundaments credit opus” meaning in a case foundation is removed, the super-structure falls, the additions goes.
Therefore, in the light of the fact that all the eleven (11) lender companies from which the assessee had taken loan of Rs. 4,50 crore had replied directly to AO pursuant to section 133(6) notice of copy of which we have seen in the PB as discussed supra and the fact that all the lender companies are regular income tax assessee’s & having PAN as well as their ROC details were brought to the notice of AO & their respective balance sheet shows that all of them have enough creditworthiness to lend the amounts in question to assessee and the assessee had squared up the loan transaction with all these lenders (except 15 Lakhs) and all the payments/TDS were made & payments were made through banking channel, the addition made by AO was untenable and therefore the Ld. CIT(A) rightly deleted the addition which action is confirmed. And therefore Revenue appeal is dismissed.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This appeal preferred by the Revenue is against the order of Ld. CIT(A)-09, Kolkata dated 14.11.2019 for Assessment year 2015-16.
2. The main grievance of the revenue is against the action of the Ld. CIT(A) deleting the disallowance related to the unexplained cash credit of Rs.4,50,00,000/- and the unexplained interest expenditure on it to the tune of Rs.74,30,57 1/-.
3. Brief facts of the case as noted by the AO are that the assessee had filed return of income disclosing a total income of Rs.75,35,3 10/-. Thereafter, the case was selected for scrutiny through CASS under limited category. The AO notes that the assessee is a firm involved in the business of trading/retailing of foot-ware and other leather and non-leather The AO notes on perusal of the accounts and details submitted during the course of hearing that the assessee has received unsecured loans from various companies out of which according to AO, are paper companies (13 in numbers) the details of which he has given in a chart at page 2 and 3 of the assessment order ;and according to AO from these 13 companies assessee had received Rs.4.50 cr. and has shown to have made the payment of Rs.74,30,571/- as interest. In the chart after giving the Sl. No., name and address of the parties and the loan received and the interest paid, the AO notes that the physical verification done by the Income-tax Inspector could not find the said entity at the given address. According to AO, he brought this matter to the notice of the assessee by issuing notice and thereafter he reproduced the reply given by the assessee dated 22.12.2017 which is found at page 4 and 5 of the assessment order. Thereafter, the AO explained the modus operandi followed by paper companies for routing the black money in the guise of unsecured loans. According to him, these transactions are nothing but accommodation entries and these are not real transactions. According to him, merely by filing PAN details, Balance Sheet and receiving money through the banking channel cannot establish the identity, creditworthiness and genuinity of the transactions. Thereafter, he explained some modus operandi and also list out the characteristic of the paper companies at para 5.4 and 5.5 of the assessment order. Thereafter, the AO notes that in this year the assessee has received unsecured loan from one M/s. Fast Glow Distributors Pvt. Ltd. (M/s. FGDPL) from loan entry operator Shri Ashish Kr. Agarwal. And according to him, Shri Ashish Kr. Agarwal’s statement had been recorded by the Investigation Wing of the Department which is reproduced from page 8 to 12 of the assessment order which, according to him, proves beyond doubt that the assessee has received accommodation entries in the form of unsecured loans. Thereafter, the AO after referring to the reply of Shri Ashish Kr. Agarwal to question no. 9 and the statement recorded on 27.01.2015 by Shri Ashish Kr. Agarwal, the AO noted that Shri Ashish Kr. Agarwal has confessed that M/s. FGDPL is used to provide accommodation entries. Thereafter, he says that for the sake of Natural Justice he deputed an Inspector to verify the identity, creditworthiness and genuineness of the loan creditors. However, according to him, the Inspector failed to trace the loan creditors. Thus, according to him, the assessee has taken accommodation entries in the form of unsecured loans by routing these unaccounted monies, which fact has been proved beyond doubt. Thereafter, he referred to the decision of the Hon’ble Delhi High court in CIT Vs. Nippon Builders & Developers 350 ITR 407. Thereafter, he referred to the decision of the Hon’ble jurisdictional High Court in CIT Vs. Maithan International (2015) 56 taxman 283 (Kol), and he was of the opinion that the unsecured loan received from bogus companies as mentioned in the chart of Rs.4.50 cr. need to be added, since assessee could not discharge its burden of proof to substantiate the genuineness of introduction of unsecured loans. The AO held that the purported unsecured loans of Rs.4.50 cr. are nothing but the assessee’s own money introduced under the garb of fresh unsecured loans into the assessee’ s business. Therefore, he treated Rs.4.50 cr. as unexplained cash credit and added back to the total income of the assessee. Thereafter, he noted that the assessee has incurred expenses on account of interest payment of Rs.74,30,57 1/- on the loans. Therefore, the corresponding interest expenses of R.s74,30,571/- according to him, cannot be allowed as genuine expenditure. So, he disallowed the same and added to the total income of the assessee.
4 . Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who noted that the loans were squared off in the same year (i.e. AY 2015-16) and that all the loan creditors pursuant to the notice issued u/s. 13 3(6) of the Act by the AO have confirmed to have provided loan to the assessee. The Ld. CIT(A) after perusal of the loan confirmations and the loan schedule, gave a finding that the assessee during the year had ended up having zero balance credit, since the money which was received, had been repaid in the same year. Thus, according to him, it is difficult to assume that the loans in question are in the form of accommodation entry, since they effectively accommodate zero value at the end of the year and relied on the decision of the Hon’ble Gujarat High court in the case of CIT Vs. Chandra Shekhar . Thereafter, the Ld. CIT(A) notes that interest has been paid @ 12% per annum in most cases with proper TDS deduction. According to Ld. CIT(A), the business sense of extending such loan to a brand like Sreeleathers/assessee cannot be ignored. The Ld. CIT(A) notes that he has taken note of the replies given by the lender companies pursuant to the notice u/s 133(6) of the Act which were duly served upon them and from the replies it is established that these lender companies had enough net-worth which are in crores. The Ld. CIT(A) notes that some of the companies declared income to the tune of Rs. 45 Lakhs, 75 Lakhs etc. Thus, according to Ld. CIT(A), the assessee has satisfied the requirement of law insisted u/s 68 of the Act as laid down by the Hon’ble Jurisdictional High Court in the case of Precision Finance Pvt. Ltd. in respect of creditworthiness, identity and genuineness of the transaction. The Ld. CIT(A) has taken note of the fact that the statement relied on by the AO to take adverse view against the assessee i.e. Shri Ashish Kumar Agarwal’s in respect of lender M/s Fast Glow Distributors cannot be considered as per the ratio laid down in case of CIT vs. S. Khader Khan Son in 352 ITR 480 (SC). According to Ld. CIT(A), the statement since have been taken on oath under survey does not have any evidentiary value and moreover the statement has been recorded in third party case (not that of assessee) and without giving the full copy of the statement to the assessee and without the AO himself examining Shri Ashish Kumar and without giving an opportunity to the assessee to cross-examine the statement of Shri Ashish Kumar Agarwal cannot be used adversely against the assessee. For the said proposition, he referred to several decisions of the Hon’ble High Courts and Supreme Court. The Ld. CIT(A) also noted that the AO erred in giving the show cause notice referring to only one (1) lender i.e. M/s Fast Glow Distributors and not calling upon from any other lenders details thus limiting reply of the assessee and secondly the AO has not provided the inspector’s report on the basis of which the AO has inferred the non-existence of the lender companies at the address given ; and the Ld. CIT(A) took note of the fact that all the lender companies were served with notice issued by AO u/s 133(6) by the postal authorities and pursuant to which the Ld. CIT(A) notes that all of them have complied directly to the AO by furnishing their respective replies called for by the AO. Therefore, the Ld. CIT(A) was of the opinion that the assessment order is bad inter-alia, for violation of natural justice also and therefore according to him additions cannot be sustained. Therefore, he deleted the addition made against the loan of Rs. 4,50 crores and interest thereon of Rs. 74,30,571/-.
5. Aggrieved the revenue is before us.
6. We have heard both the parties and perused the records. The Ld. D.R Shri Dhrubajyoti Roy assailing the action of the Ld. CIT(A) contended that the AO has made detailed enquiries through Inspector whose physical verification could not trace out the lender companies in the addresses furnished. According to him, AO has given show cause notice to the assessee pointing out the adverse observations made by the Inspector and pursuant to which the reply was given which has been reproduced by the AO in the assessment order which shows that the assessee had replied only in respect of one (1) lender company M/s Fast Glow Distributors, when the fact remains that the assessee had taken loan from thirteen (13) lenders. According to Ld. D.R, the assessee has taken loan from the lender company called M/s Fast Glow Distributors which is a paper company operated by entry provider Shri Ashish Kumar Agarwal whose statement which the AO has reproduced from pages 8 to 12 would reveal that the assessee had taken accommodation entry from paper companies and therefore, the AO rightly taking note of these facts has given the modus-operandi of such entry provider and has rightly added the addition which has been erroneously deleted by the Ld. CIT(A) which he wants us to reverse. Per Contra, the Ld. A.R Shri Miraj D Shah supporting the order of the Ld. CIT(A) pointed out that all the eleven (11) lender companies from whom the assessee had taken loan of Rs. 4.50 crores in this assessment year has been given back (except Rs. 15 Lakhs). According to Ld. A.R, it is not 13 lender companies as noted by AO, but it is only 11 companies from which the assessee has taken loan of Rs. 4.50 crores in this relevant assessment year. According to Ld. A.R, the so-called Inspectors Report which adversely states about non-existence of lenders at their respective address is faulty on two accounts. Firstly copy of the Inspectors report was not given to assessee, so that assessee could have responded / explained the correct facts. Secondly, the so-called inspectors report cannot be believed because the AO had issued directly notices u/s 133(6) of the Act to all the lender companies to their respective addresses and pursuant to the same, all of them have confirmed the loan transaction with the assessee. In order to prove this fact, the Ld. A.R drew our attention to the notices u/s 133(6) of the Act issued by AO to each lender companies and the replies thereto by the respective lenders, wherein the lenders have given the following documents in support of loan transaction with the assessee (i) copy of the ledger FY 20 14-15 (AY 20 15-16) (ii) Detail of amount advanced to assessee by RTGS / cheque etc, amount, bank details (iii) Copy of bank statement (relevant extract) (iv) Lender companies PAN details (v) ITR details (vi) Audited balance sheet. These details are found at page 51,73,95,123,146,169,196,220,240,263,289,311,384 of the PB.
7. Thereafter the Ld. A.R drew our attention to voluminous paper book which contains 340 pages and drew our attention to the show cause notice (SCN) issued by the AO dated 20.12.2017 which is placed at page 2 of the PB which is reproduced as under:
Sir,
Sub: Show cause in the case of M/s Sreeleathers [PAN: AAKFS 2993 L] for the Assessment year 2015-1 6 – matter regarding
2. During the course of assessment proceedings, you have submitted a list of unsecured loans in respect of your claim of liability. Notices u/s 133(6) of the Income Tax Act, 1961 were issued to various parties calling for information for verification of the transactions claimed by you. Replies / confirmations were obtained from them and the same have placed in the assessment records.
3. On perusal of the accounts and details submitted during the course of hearing, it is noticed that during the year under consideration, that you have received unsecured loans from various companies out of which one (1) company have been found to be paper company having no worth as mentioned in table below:
