PCIT Vs Ambe Tradecorp Private Limited (Gujarat High Court)
The Gujarat High Court considered the Revenue’s appeal challenging the Appellate Tribunal’s deletion of an addition of ₹32.20 crore made under Section 68 of the Income-tax Act on account of alleged unexplained cash credits. The Revenue proposed the question whether the Tribunal had committed a perverse error in deleting the addition.
The dispute related to Assessment Year 2012-13 and concerned two loan transactions of ₹8.50 crore and ₹23.70 crore received by the assessee from M/s. J.A. Infracon Private Limited and M/s. Satya Retail Private Limited. The Assessing Officer treated the loans as sham transactions on the ground that the lenders’ creditworthiness had not been established and accordingly made an addition under Section 68.
In appeal, the Commissioner of Income Tax (Appeals) examined the material on record and found that both lenders had established their identity, creditworthiness and the genuineness of the loan transactions. The appellate authority recorded that the assessee had furnished ledger accounts and confirmations of both lenders during the assessment proceedings. It also noted that the Assessing Officer had independently issued notices under Section 133(6) of the Act to both companies, which duly complied by furnishing the requisite information.
The appellate authority further found that the unsecured loans had been received through account payee cheques from the lenders’ bank accounts. It also recorded that the loan accounts were ultimately settled through repayment to the lender companies.
The Revenue carried the matter before the Appellate Tribunal. The Tribunal affirmed the findings of the Commissioner (Appeals). It referred to the decisions in Durga Prasad More and Sumati Dayal and observed that the assessee had produced copies of ledger accounts, bank statements, income tax returns and balance sheets. The Tribunal also noted that the notices issued under Section 133(6) had been duly responded to by the lenders, leaving no dispute regarding their identity. It further observed that the assessee was not the beneficiary of the loan transactions and that the loans had been repaid in the subsequent year. On that basis, the Tribunal concluded that the transactions were genuine business transactions and could not be doubted.
Before the High Court, the Revenue argued that the three essential requirements under Section 68—identity of the creditors, their creditworthiness and the genuineness of the transactions—had not been established.
The High Court rejected the Revenue’s contention. It held that the assessee had produced the requisite material establishing the identity of the lenders. Since the loans had been repaid in the subsequent year, the assessee was not the beneficiary of the transactions, and the requirements relating to creditworthiness and genuineness also stood satisfied. The Court observed that the Revenue’s allegation that the transactions were accommodation entries was merely presumptive and assumptive and was unsupported by factual material, whereas the authorities below had found the transactions to be genuine based on the evidence on record.
The High Court also endorsed the Tribunal’s observation that once repayment of the loans had been established through documentary evidence, the credit entries could not be examined in isolation by ignoring the corresponding debit entries made in later years.
Holding that no question of law, much less any substantial question of law, arose from the Tribunal’s order, the High Court dismissed the Revenue’s appeal.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
Heard learned senior advocate Mr.Manish Bhatt with learned advocate Mr.Karan Sanghani for M.R.Bhatt & Co. for the appellant.
2. The revenue seeks to raise grievance about deletion on part of the Appellate Tribunal of addition of Rs.32,20,00,000/-made under Section 68 of the Income Tax Act on the count of unexplained cash credit. It is in this respect that the substantial questions of law is proposed as to whether the Appellate Tribunal has committed an ex-facie perverse error in deleting the said addition.
2.1 Section 68 of the Act deals with the cash credits, it provides 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 assessee officer satisfactory, the sum so credited may be charged to the Income Tax.
3. The issue in this case arose in respect of the assessment year 2012-2013. It appears that the two loan transactions of Rs.8,50,00,000/- and Rs.23,70,00,000/- received by respondent assessee from one M/s. J.A Infracon Private Limited and M/s. Satya Retail Private Limited were treated by assessing officer to be sham in the sense that the creditworthiness etc. of the giver of the loan were not established. Accordingly, the assessing officer made addition under Section 68 of the Act.
3.1 While the assessing officer dealt with unexplained cash credit from the M/s. Satya Retail Private Limited and from M/s. J.A Infracon Private Limited in his order in paras 5.1 and 5.2 respectively, the Commissioner of Income Tax in the appeal preferred by assessee found on facts and the material before it that the said two cash creditors had been holding there identity, creditworthiness and genuineness in respect of the loan transactions.
3.2 The appellate authority observed that, “In this regard, it has been noticed that ledger accounts and confirmations of the aforesaid two parties have been provided by the appellant to the AO in the assessment proceedings. Thereafter, the AO also carried out the independent inquiries u/s. 133(6) of the I.T. Act and in compliance thereto both the companies have submitted the requisite information.”
3.3 The information supplied by assessee was duly noticed by appellate authority and facts in that regard were recorded also to arrive at a finding that the unsecured loans to the aforesaid parties have been paid by account payee cheques from the bank account of the assessee which was not in dispute, muchless in doubt. The accounts were finally settled with the repayment of the loan to the lender companies.
3.4 When the revenue preferred appeal before the Appellate Tribunal, the Tribunal confirmed the findings recorded by the Appellate Authority. The Tribunal referred to the decision of Durga Prasad More (82) ITR 540 and also in Sumati Dayal (214) ITR 801, to further record on the basis of the facts that the assessee had furnished the details such as copy of ledger account, bank statements, income tax returns, balance sheet etc. It was also recorded that notice under Section 133(6) of the Act was issued to the said parties which were duly responded by them. The identity of the parties could not be, therefore disputed, recorded the tribunal. The aspect was also noticed that the assessee was not beneficiary of the loan received by it and the loan was repaid by the assessee in the subsequent year. It led to unacceptable conclusion that the impugned transaction was a business transaction between the assessee and the loan parties and that they could not be doubted for their genuineness.
3.5 While the revenue has tried to put up a case that the transactions were in the nature of accommodation entries, this case has only presumptive and assumptive value not supported by any factual data. On the contrary, on the basis of the material before the authorities, the transactions were found to be genuine.
4. Learned advocate for the appellant attempted to emphasize that for the purpose of application of Section 68 of the Act, three ingredients were necessary. Firstly identity of the parties to the transaction of loan, second is the creditworthiness of such parties and thirdly the genuineness of the transaction. It was submitted in vain that neither of the ingredients were satisfied.
5. As discussed above, since the requisite material was furnished by assessee showing the identity and since the assessee was not beneficiary when the loan was repaid in the subsequent year, even the ingredients of creditworthiness and genuineness of transaction were well satisfied.
6. 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 were 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. “
7. For the reasons recorded above, no question of law muchless substantial questions arises in this appeal. It stands meritless and accordingly dismissed.
