Case Law Details
PCIT And Another Vs Anshika Consultants Pvt. Ltd (Allahabad High Court)
The case of PCIT And Another vs. Anshika Consultants Pvt. Ltd before the Allahabad High Court deals with the treatment of deposits received by the assessee and whether they can be deemed as bogus solely due to common directors in two companies. Here’s a breakdown of the judgment:
The Income Tax Appellate Tribunal, Delhi Bench ‘A’, New Delhi, in its order dated 13.09.2023 in Income Tax Appeal No. 35/Del/2022 for A.Y. 2015-16, partially allowed the appeal, dismissing the appeal of the revenue regarding alleged unexplained credits under Section 68 of the Income Tax Act, 1961 (the Act).
The revenue filed the present appeal against the Tribunal’s order, raising several questions of law:
- Whether the Tribunal erred in law by deleting the addition made on account of bogus unsecured loans received by the assessee, despite the assessee’s failure to establish the sources of the receipts?
- Whether the Tribunal erred in law by failing to acknowledge the primary onus of proving the genuineness of transactions, as well as the identity and creditworthiness of the lender, lying on the assessee?
- Whether the Tribunal erred in law by deleting the additions made on account of bogus unsecured loans, despite the assessee’s failure to explain their sources?
- Whether the Tribunal erred in law by disregarding the amendments to Section 68 brought by the Finance Act, 2012, considering that most lender entities accrued the majority of their net worth in the form of shareholdings of related entities with common directors?
The Assessing Officer disallowed certain loan amounts received by the assessee from three corporate entities and added them to the assessee’s income as undisclosed investment. However, the CIT (Appeals) ruled in favor of the assessee, leading to the revenue’s appeal to the Tribunal.
The Tribunal, in its order, noted that the Assessing Officer had received confirmations from the creditor companies, examined their bank statements, and found that the loans were transferred to the assessee on the same dates they were received by the creditors. Additionally, the Tribunal found sufficient documentation provided by the assessee, including loan confirmations, incorporation certificates, PAN numbers, income tax returns, balance sheets, and profit & loss accounts of the creditors, as evidence of the transactions’ genuineness.
The Tribunal observed that there was no evidence of cash deposits in the creditors’ bank accounts before loan disbursement, no adverse findings on the identity and existence of the creditors, and no indication that the creditors were involved in any dubious activities. The Tribunal dismissed the revenue’s arguments that the creditors were shell companies due to common directors, finding such suspicions unfounded.
Considering the evidence provided by the assessee and the absence of proof indicating fraudulent activities, the Tribunal concluded that the loans were genuine transactions. Therefore, the Tribunal upheld the deletion of the additions made by the Assessing Officer.
The High Court, based on the Tribunal’s findings, affirmed that prima facie evidence existed of genuine transactions, and the Assessing Officer failed to prove that the money deposited by the creditors was not theirs but routed through the assessee. The Court agreed with the Tribunal’s conclusion that the transactions were genuine based on the evidence provided by the assessee.
In summary, the High Court dismissed the revenue’s appeal, as it lacked merit, and upheld the Tribunal’s decision. No costs were awarded in the matter.
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
1. Heard Sri Ashish Agrawal, learned counsel for the revenue and perused the record.
2. Present appeal has been filed against the order of the Income Tax Appellate Tribunal, Delhi Bench ‘A’, New Delhi dated 13.09.2023 in Income Tax Appeal No. 35/Del/2022 for A.Y. 2015-16. By that order, the Tribunal has partly allowed the appeal to the extent the Tribunal has dismissed the appeal of the revenue on the issue of alleged unexplained credits by applying Section 68 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).
3. The appeal has been filed raising following questions of law :
“1. Whether the Hon’ble Income Tax Appellate Tribunal has erred in law by deleting the addition made on account of bogus unsecured loans received by the assessee even though the assessee had failed to discharge its onus of establishing the sources of the impugned receipts ?
2. Whether the Hon’ble Income Tax Appellate Tribunal has erred in law by failing to appreciate that the primary onus to prove the genuineness of the transactions and the identity and creditworthiness of the lender lies on the assessee which the assessee has failed to discharge ?
3. Whether the Hon’ble Income Tax Appellate Tribunal has erred in law by acting in contravention to the established judicial precedents and deleting the additions made on account of bogus unsecured loans received by the assessee even though the assessee had fully failed to explain the sources of the same ?
4. Whether the Hon’ble Income Tax Appellate Tribunal has erred in law by acting in contravention to the letter and legislative spirit of amendments brought to section 68 of the Income Tax Act, 1961 by the Finance Act, 2012 since most of the so-called lender entities had accrued majority of their net worth only in the form of shareholdings of related entities with common directors ?”
4. Primarily, the assessee disclosed Closing Balance Investment Rs. 56,99,55,593/-. Upon queries raised during the assessment proceedings, it was disclosed to the Assessing Officer of the assessee that it had received unsecured interest bearing loans from three corporate entities namely – M/s Jellotic Supply Pvt. Ltd., M/s Paramic Goods Pvt. Ltd. and M/s Sankhuwala Commercial Pvt. Ltd. for Rs. 2,40,00,000/-; Rs. 4,90,00,000/-and Rs. 2,55,00,000/-. After considering the replies the Assessing Officer proceeded to disallow the above loan amounts and treated the same to be undisclosed investment and added the same to the income of the assessee.
5. Upon appeal, the assessee succeeded on that count before the CIT (Appeals). The matter was carried to the Tribunal at the instance of the revenue. By the impugned order, the Tribunal has recorded its findings to the following effect :
“9. It is found that the A.O. called for information u/s 136(6) of the Act from all 4 creditors and the A.O. received confirmation from M/s Paramic Goods Pvt. Ltd, M/s Jellotic Supply Pvt. Ltd. and M/s Sankhuwala Commercial Pvt. Ltd. The learned A.O. also examined the bank statement of the Investor Companies and noticed that the money received by it was transferred on the same date to the assessee. Apart from the same, necessary documentation such as loan confirmation, certificate of incorporation, PAN Number, Copy of ITR, Balance Sheet and P & L Accounts, Bank statement of creditors etc. were also provided as evidence of identity, creditworthiness and genuineness of the creditor. There is no finding of any cash deposited in the bank account of the creditors prior to disbursement of loan and no adverse finding recorded regarding the identity and existence of creditors and further no findings that the creditors were entry operators of any kind by the A.O. The loans were interest bearing loans and the related interest income is duly reflected in the ITR of the Creditor Companies. The A.O. without having any basis observed that the Creditor Companies are ‘shell’ Companies on the basis of common Directors among Group Companies and the rotation of funds/money in the Group Companies which is unfounded.
10. Insofar as Orbit Contractors and Financial Pvt. Ltd. is concerned, the notice issued u/s 133(6) was not responded by the creditor. The assessee had furnished the necessary acknowledgement of ITR for Assessment Year 2014-15 and 2015-16, balance sheet and P & L Account for the year ending 31.03.2015, the assessee had also provided copy of company master date, copy of Form 16A issued for interest paid on loan received as well as the source of the lending company. The assessee had provided loan confirmation, Certificate of incorporation and PAN Number, copy of the ITR, balance sheet and P & L Account, Bank Statement of Creditor etc. as evidence for identity, creditworthiness and genuineness of the creditor. The assessee is not required to prove the source of the investment. In this case, the assessee has proved the identity of parties and genuineness of the transaction, which are being transaction through bank. The capacity of the lender cannot be doubted since there was no allegation that the assessee has rooted its own money through the investors. Further in the absence of any finding regarding cash deposited in the banks account of the creditor prior to disbursement of loan and no adverse finding regarding the identity and existence of the creditor and since all the loans were interest bearing loans and related interest income is duly reflected in the ITR of the creditor companies, in our opinion, the CIT(A) has committed no error in deleting the addition. Accordingly, we find no merit in Ground No. 1 of the Revenue.”
6. Thus, the suspicion voiced by the Assessing Officer as to the source of deposit received by the assessee was gone into. On the strength of material and evidence that was brought on record, the Tribunal reached a finding that the loans obtained by the assessee were interest bearing. Interest was actually paid. Second, the Tribunal found that the Assessing Officer had not been able to doubt the identity and existence of the creditors. As to the source of money deposited by the creditors, adequate enquiry had not been conducted by the Assessing Officer to doubt the claim made by the assessee.
7. Once the deposits were credited in the bank account of the assessee through banking channel, prima facie evidence existed of genuine transactions. In any case, the Assessing Officer was not successful in establishing that the money deposited by the creditors was not theirs but that it had been routed through the creditors by the assessee. In that regard, the Tribunal has categorically observed that there was no proof to establish that such money had been received by the creditors through cash deposits made by the assessee. Merely because the Directors of the two companies were common may have given rise to suspicion that the deposits received by the assessee company from the other, was bogus. Yet, the Tribunal has found, there is no material or evidence on record to establish that the creditors were shell companies. The observation made by the Assessing Officer in that regard is described as unfounded.
8. Besides the above, the Tribunal has taken note of the loan confirmation, Certificate of Incorporation, PAN registration, copy of the ITR, balance sheet, profit & loss account, bank statement of the creditors, to reach a conclusion that the transactions of deposit received by the assessee company were genuine. In face of such findings recorded by the Tribunal based on material and evidence on record, no question of law arises, as proposed.
9. Accordingly, the present appeal lacks merit and is dismissed. No order as to cost.
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