DCIT Vs Alom Extrusions Ltd. (ITAT Kolkata)
The case of DCIT Vs Alom Extrusions Ltd. involves an appeal by the Department against the Commissioner of Income Tax (Appeals) – 27, Kolkata (CIT(A)). The appeal challenges the order dated 14th June 2023, passed under section 250 of the Income Tax Act, 1961. The primary issue revolves around the addition of Rs.3,00,00,000/- as unexplained cash credit on account of unsecured loans.
Background: A search and seizure operation conducted under section 132 of the Income Tax Act on 26th November 2015 revealed no incriminating material for the assessment year under consideration. Nevertheless, the assessment was conducted under section 153A of the Act.
The Assessing Officer noted the receipt of unsecured loans amounting to Rs.3,00,00,000/- from three creditors. Despite the assessee providing documents to establish the identity and creditworthiness of the creditors and the genuineness of the transaction, the Assessing Officer was unsatisfied, leading to the addition of the loan amount as undisclosed income.
CIT(A)’s Decision: The CIT(A), in a comprehensive order, annulled the addition made by the Assessing Officer. The CIT(A) highlighted that the assessee had diligently furnished all details related to the loan transactions, including documents verifying the identity and creditworthiness of the creditors. Moreover, the financials of the creditors were made available.
Crucially, the CIT(A) pointed out that the Assessing Officer failed to identify any defects or discrepancies in the provided documents and statements. The loans were duly reported in the books of account before the search action, and during the appellate proceedings, the repayment of the loan amount was unequivocally confirmed through banking channels.
The CIT(A) emphasized that the sole basis for the addition was an earlier recorded statement of Shri Devesh Upadhyaya, which was not conducted in the presence of the assessee, and the assessee was never confronted about it. No incriminating material surfaced during the search action, and all creditors unambiguously affirmed the legitimacy of the transactions.
ITAT’s Decision: The Income Tax Appellate Tribunal (ITAT) considered the arguments from both sides and upheld the CIT(A)’s decision. The ITAT concluded that there was no reason to interfere with the order of the CIT(A), and there was no merit in the appeal of the Revenue.
Conclusion: The case highlights the importance of providing comprehensive documentation and evidence to support transactions during income tax assessments. In this instance, the CIT(A) and ITAT emphasized the adequacy of the assessee’s submissions and found the addition by the Assessing Officer unjustified. The decision underscores the significance of a thorough and transparent presentation of facts and documents during tax assessments.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
The present appeal has been preferred by the department against the order dated 14.06.2023 of the Commissioner of Income Tax(Appeals)- 27, Kolkata (hereinafter referred to as the ‘CIT(A)’) passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’).
2. The revenue in this appeal has taken the following grounds of appeal:
“1. That in the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made u/s 68 on account of unsecured loan amounting to Rs.3,00,00,000/- as unexplained cash credit without appreciating the material brought on record and facts evaluated by the A. O in the assessment order.
2. That in the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of the interest amounting to 4,50,000/- on such unsecured loan.
3. The Ld. CIT(A) cited the case law in the order u/s 250 of the Income Tax Act, 1961 cannot be accepted as the facts in this case does not falls to the grounds of appeal filed by the assessee.
4. That the Department craves leave to add, modify or alter any of the ground(s) of appeal and/or adduce additional evidence at the time of hearing of the case.”
3. A perusal of the aforesaid grounds of appeal would reveal that the issue raised by the revenue is regarding the action of the CIT(A) in deleting the addition of Rs.3,00,00,000/- made by the Assessing Officer in respect of unsecured loans treating the same as unexplained income of the assessee.
4. The brief facts are that a search and seizure operation was carried out u/s 132 of the Act on 26.11.2015 by the Income Tax Department in the case of the assessee. However, no incriminating material relating to the assessment year under consideration was found during the course of the said search action. Thereafter, the assessment was carried out u/s 153A of the Act. During the assessment proceedings, the Assessing Officer noticed that the assessee inter alia had received unsecured loans during the year of Rs.3,00,00,000/- from three creditors namely M/s. Leisure Devcon Private Limited, Progress Infra Estate Private Limited and Saffron Devcon Private Limited. The Assessing Officer asked the assessee to prove the identity and creditworthiness of the creditors and genuineness of the transaction. In response, the assessee furnished the relevant documents to explain the identity and creditworthiness of the creditors, nature of the transaction and the source of money received. However, the Assessing Officer was not satisfied with the explanation submitted by the assessee. The Assessing Officer also issued notices u/s 133(6) of the Act and called for confirmations and related documents from the creditors, which were duly complied with by the creditors. Even the director of the assessee company namely Shri Ajay Prakash Jhunjhunwala was also summoned u/s 131 of the Act and his statement was also recorded by the Assessing Officer. However, the Assessing Officer noticed that earlier (prior to search action in the case of the assessee) statement one Shri Devesh Upadhyaya in some other case was recorded by the investigation wing on 01.05.2015, who was an alleged entry operator and who during his statement had admitted that he was an entry operator and he had further stated that the main source of his income was commission earned by providing accommodation entries. He had also provided a list of companies managed and controlled by him. In the said list, the name of the three creditor companies of the assessee was also mentioned. The Assessing Officer, therefore, held that the alleged loans were in fact undisclosed income of the assessee which was routed through the said companies managed by Shri Devesh Upadhyaya. He, therefore, held that the assessee had failed to establish the creditworthiness of the creditors and genuineness of the transaction. He accordingly treated the aforesaid loan amount of Rs.3,00,00,000/- as undisclosed income of the assessee. He further disallowed interest expenses of Rs.4,50,000/- shown to have been paid by the assessee on the said loan to the creditors. Being aggrieved by the said order of the Assessing Officer, the assessee preferred appeal before the CIT(A).
5. The ld. CIT(A) however, by way of a detailed order, deleted the addition so made by the Assessing Officer, observing as under:
“In his assessment order, the AO made the addition of Rs.3,00,00,000/- u/s 68 by treating the said unsecured loans as bogus. On perusal of the assessment order, it is observed that the AO has raised the following issues while making the said addition and treating the said unsecured loans as bogus:
1. The AO has referred to a bank statement of the assessee company vide A/c No. 01471600000312 with Punjab & Sind Bank, Old Court House Street, Kolkata –1 as incriminating material. Against such observation the AO has mentioned in his assessment order in Page 3 that “ receipt of Rs. 3,00,00,000/- is further evidenced by the inventoried material being the bank statement of A/c No. 01471600000312 with Punjab & Sind Bank, Old Court House Street, Kolkata –1 maintained by the assesse. It is seen that the amount of Rs. 3,00,00,000/- received from the below mentioned company were deposited in this account. This transaction is found from the incriminating documents being the transaction in the bank account, found during the course of search.”
2. The AO while making the said addition heavily relied on the statement of Shri Devesh Upadhyaya, an alleged entry operator who in his statement recorded on oath on 01.05.2015 admitted that he was an entry operator whose main source of income was from commission earned by providing accommodation entries through Jama Kharchi companies to various beneficiaries. Shri Devesh Upadhyaya in reply to Question No. 7 of his statement submitted that his main source of income from commission earned by providing accommodation entries, through Jama Kharchi /shell companies to various beneficiaries. In reply to Question No. 8 of the said statement he provided a list of companies managed and controlled by him. In the said list the names of the above mentioned three companies from whom the assesse company had taken loans during the F. Y: 2014-1 5 were reflected in Si. No(s) 401, 541 and 589. The AO therefore held that the assesse brought back its undisclosed income in its books of accounts in the guise of loans by way of accommodation entries through the above mentioned three companies managed by Shri Devesh Upadhyaya.
3. The AO has recorded that the assessee was unable to establish the genuineness of the transaction and creditworthiness of the lenders even after giving various opportunities. The AO had even recorded the statement of the director of the assesse company Shri Ajay Prakash Jhunjhunwala during the course of assessment proceedings on 22.12.2017 and as per the AO the director also failed to establish the creditworthiness of the lenders and the genuineness of the transaction.
Now that these three issues raised by the AO on the basis of which the AO has made the said addition, have been identified, it is important to have a look at the enquiries made by the AO. As per the recordings of the AO in his assessment order in Page No.3, the AO has stated that notices u/s 133(6) were issued to all the loan creditors and replies were received from them in most of the cases and that it was noted that in few of the replies the source of loan provided to the assessee company were not explained properly in terms of genuineness and creditworthiness. This statement of the AO, I find is a generalized statement without pointing out in exactly which company the source was not explained. The appellant company during the course of appeal proceedings also submitted evidences (which have been placed on record) that in response to notice u/s 133(6), all the lender companies duly submitted copies of audited accounts, bank statements, ITR filed for the relevant F. Y, loan confirmation statements and source of funds. The AO therefore was in possession of the said documents, which has also been affirmed by him while recording the statement of Shri Ajay Prakash Jhunjhunwala on 22.12.2017 in Question No. 13. The AO has however not elaborated upon as to in which particular case the source remained unexplained and as to why even after being in possession of all the requisite documents the creditworthiness of the lenders and genuineness of the transactions were not established.
It is observed from the assessment order, that although the Director of the appellant company was summoned u/s 131, in response to which the Director Shri Ajay Prakash Jhunjhunwala appeared and recorded his statement on 22.12.2017, no summons u/s 131 were issued by the AO to the lender companies. The statement of Shri Ajay Prakash Jhunjhunwala recorded on 22.12.2017 therefore becomes very important and the relevant part is reproduced below:
What is your educational qualification?
Ans. I am B. Com.
4. Please confirm that the oath has been taken by you and you are made aware of the consequences for giving false statement under oath under the provision of Cr.PC, IPC and I T Act, 1961.
Ans. Yes
1. Please state the language in which you feel comfortable to give your statement.
Ans. English and Hindi.
1. Please state your source of Income and if you are assessed to Tax give your PAN.
Ans: I derive my income from the Directors Remuneration, Rental Income, Income from Investment & Other Sources and my PAN is ACU P1441213.
1. What is your annual income?
Ans: My average income is approximately Rs. 15 lakh
1. Please state the nature of work carried out by M/s Alom Extrusion Ltd, M/s Alom Poly extrusion Ltd & M/s Rajbhat Tea Company Ltd ?
Ans. M/s. Alom Extrusions Limited is into manufacturing of Aluminum Extruded Products, M/s Atom Poly Extrusions Limited is into manufacturing of HDPE
Double Wall corrugated pipes M/s Rajbhat Tea Company Ltd is engaged in business of growing &processing of tea.
I am showing the balance sheet of above named companies for the period F. Y 2009-10 to 2015-1 6, please go through it?
Ans: I have seen it.
As per balance sheet, it is seen that you have taken unsecured loan in above named companies during the period F. Y 2009-10 to 2015-1 6, I am showing the list of companies from where you have received unsecured loan, please go though the list ( Annexure A- attached).
Ans: I have seen it and the names appearing in the list are the names of companies from where unsecured loan was taken.
1. It is seen from the list of unsecured loan taken by M/s Alom Extrusion Ltd, M/s Alom Poly extrusion Ltd & M/s Rajbhat Tea Company Ltd that unsecured loan taken in your companies, are from the Companies, whose names are appearing in the list (Annexure – B) and names of these companies are appearing in the list of data base of shell companies, who have provided accommodation entry in the form of loan/share capital. Please offer your comment.
Ans. I cannot comment on any data available with the department. We have already been searched by the department and no evidence in support of the above allegation was found, Also I do not understand the legal meaning of shell/paper companies. In case you have any evidence, which you may have gathered after conducting search and seizure operation on our group, we request you to provide us such evidence. Also in case you intend to rely on any one’s statement for using the same against us, we request you to give us copies of such statements and give us opportunity of cross examining them.
1. I am showing you statements of the entry operators who have provided accommodation entry in the form of share capital/unsecured loan to your group companies as per (annexure B) referred above. Please go through the same and comment.
Ans. Sir, in relation to the query raised by your good self regarding the genuineness/financial credentials/ physical existence of the loan taken from the respective companies. I would like to state that we have taken loan from genuine companies and having financial credential as they have given loan for short term period to meet up our short term finance requirement and we have repaid the same as and when the funds were available with our companies. Say for example Mr. Vivek Agarwal one of the director of M/s Kathleen Vyapaar Private Limited who is brother of my son-in-law. Moreover all the loan creditors are regular income tax assesses and have duly filed their income tax return regularly.
1. I am showing the replies received from the companies ( appeared in annexureB), although they had made submission in respect of loan & advances given to your companies in form of unsecured loan enclosing copy of audited books of accounts, copy of bank statement etc, however, it is accepted by the directors/controlling person/ persons related to these companies that they are involve in providing accommodation entries in form of share capital/unsecured loan/ Long Term capital gain/Short term Capital Gain/loss and names of these companies are appearing in the list of data base of shell companies, who have provided accommodation entry in the form of loan/share capital. Please offer your comment.
Ans: It is not for us to comment on their records. From the replies furnished by them, it is clear that they have provided unsecured loan in our companies, which are duly reflected in our records.
1. It is seen from the data available with the department that the lender companies mentioned in the above list (Annexure 13) are shell/paper companies and these companies are/were being managed and controlled by known entry operators using various identities dummy/front directors. The shell companies were floated only for the purpose of giving accommodation entry to the various interested beneficiaries parties in lieu of a certain percentage of commission. Hence considering the facts it is evident that the group concerns of Ajay Prakash Jhunjhunwala have received unsecured loan to accumulate their unaccounted income with the help of entry operators.
Ans. On our part we cannot comment on any data available with the department. We have already been searched by the department and no evidence in support of the above allegation was found. Further, we do not understand the legal meaning of shell/paper companies, In case you have any evidence, which you may have gathered after conducting search and seizure operation on our group, we request you to provide us such evidence. Also in case you intend to rely on any one’s statement for using the same against us, we request you to give us copies of such statements and give us an opportunity of cross examining them.
It is observed from the statement of Shri Ajay Prakash Jhunjhunwala, that the Director has nowhere admitted that the unsecured loans taken from the three companies tabulated above were actually his own unaccounted money and were brought back into the books of the assessee company. On the contrary the Director has submitted the assessee company was already searched by the department and no evidence in support of the above allegation was found. The AO in his Question No. 13 put before the assessee, discussed the various replies received from the lender companies in response to notice u/s 133(6) wherein the AO has himself mentioned that the lender companies had made submission in respect of loan & advances given to the assessee company in form of unsecured loan enclosing copy of audited books of accounts, copy of bank statement etc. The AO however has not recorded in his assessment order as to whether any further enquiries were made by him to establish that the financial credentials of the lender companies were inadequate to provide the said unsecured loans or as to how and in what manner the AO considered that the said lender companies were not creditworthy enough to advance the said loans. The only reliance that the AO seems to be making is upon the acceptance of “the directors/controlling persons/persons related to these companies that they are involved in providing accommodation entries in the form of share capital/unsecured loan/long term capital gain/short term capital gain/loss…”; as also the assertion by him that “the names of these (bogus) companies are appearing in the list of database of shell companies”.
This question itself indicates that the questions posed by the AO were more in the form of fishing expeditions, rather than confronting the Director of the appellant company with hard facts or evidence in the AO `s possession. The A/R of the appellant company has stated that the Director of the assessee company had time and again requested the AO to provide the statement of Shri Devesh Upadhyaya, the alleged entry operator. There is nothing on record to suggest that this statement was provided by the AO to the appellant.
It is again clear from the above statement of the Director of the appellant company that the AO was only relying upon the statement of Shri Devesh Upadhyaya and the list of companies mentioned by him as being controlled by him. The Director also raised the issue that no incriminating material was found during the search regarding the said unsecured loans. The AO in his assessment order has referred to a bank statement as incriminating material. The statement is that of a bank account of the assessee vide 01471600000312 maintained with Punjab & Sind Bank, Old Court House Street, Kolkata –1. I find that this bank account was duly declared by the assessee in the return filed u/s 139(1) for A. Y: 2015-16 in Page No. 13 of the ITR and it is not the case that this was an undisclosed bank account of the assessee. Again, in the instant case, I find that the said unsecured loans to the tune of the Rs. 3,00,00,000/- were part of the books of account of the assessee company before the search was conducted. On perusal of the audited balance sheet of the appellant company, I find that the said unsecured loans have been reported under Short Term Borrowings (Unsecured Loans from body Corporates) in Item 7 of the said Balance Sheet and it is not the case that the same was not reported while filing the return of income. The Director of the appellant company has also mentioned the same in his answer to Question No. 12 where he has stated that the lender companies gave loan for short term period to meet up the short term finance requirement of the assessee company and that the said loans were repaid by them as and when the funds were available.
During the course of appeal proceedings, the appellant produced the evidences of loan repayment in respect of all the three concerns which are tabulated below:
