No section 68 addition for Loan Received and repaid vide cheque

Manibhadra Securities Services P.Ltd Vs ITO (ITAT Ahmedabad)

he assessee in the present case is a private limited company and engaged in the business of trading of Shares and Securities. The assessee in the year under consideration has received the Loan to the tune of Rs. 4,08,01,000/-from M/s Ken Securities Limited. The assessee has repay the loan to the tune of Rs.3,02,96,000/- and in the books of account has shown the outstanding loans amounting to Rs. 1,05,05,000/- under the head unsecured loans. The assessee has adjusted the repayment of loan by earlier advance amounting to Rs.1,93,50,000/-given to M/s Ken Securities Limited and made payment amounting to Rs. 50,00,000/- on 17-04-2005, Rs. 55,00,000/- on 22-05-2012 and Rs. 4,46,000/- on 04-03-2013 respectively.

However, the AO observed that the assessee has not furnished the requisite details to substantiate the loan amount as Identity, Creditworthiness, ITR, confirmation of the lender. The AO also noted that the notice u/s 133(6) of the Act was issued to M/s Ken Securities Limited was returned back with the remark as “left”. The AO thus in the absence relevant details and documents made the addition of closing balance of Rs. 1,05,05,000/- u/s 68 of the Act to the total income of the assessee.

Aggrieved assessee preferred the appeal before the Ld. CIT-A. The assessee before the Ld. CIT-A submits the confirmation of ledger in the books of M/s Ken Securities Limited, accounts M/s Ken Securities Limited in the books of assessee, ITR. The assessee also stated that the reply of the notice issued to M/s Ken Securities Limited was forwarded by post to the AO.

On perusal of the aforesaid documents the Ld. CIT-A observed that M/s Ken Securities Limited had shown the loss in the return of income therefore credit worthiness of M/s Ken Securities Limited is not proved. Likewise, the notice issued under section 133(6) of the Act to M/s Ken Securities Limited was returned as unserved. The Ld. CIT-A thus confirmed the addition of Rs. 1,05,05,000/- made by the AO u/s 68 of the Act.

Being aggrieved by the order of the Ld. CIT-A the assessee is in appeal before us. The Ld. AR for the assessee submits the paper book running from pages 1 to 12 and contended that the assessee in support of the impugned loan has furnished all the method documents. As such the assessee has discharged the onus imposed under section 68 of the Act. Furthermore part of the transaction with the party has already been accepted by the revenue as genuine and therefore the remaining transaction reflecting at the end of the financial year in the balance sheet cannot be treated as bogus. Accordingly no addition of whatsoever is warranted in the given facts and circumstances.

the undisputed fact that the majority amount of loan received by the assessee was refunded to the loan parties. It implies that the assessee was not the beneficiary of the loan received by it as alleged by the AO. The majority amount of loan has been repaid by the assessee in the year under consideration itself except a sum of Rs. 1,05,05,000.00. Therefore, it is difficult to hold that the assessee was the ultimate beneficiary of the impugned amount. Thus, we can assume that the impugned transaction was the business transactions between the assessee and the loan parties. We also feel pertinent to refer the judgment of the Hon’ble Gujarat high court in case CIT vs. Ayachi Chandrashekhar Narsangji reported in 42 taxmann.com 251 where it was held as under:

It is required to note that as such an amount of Rs. 1,00,00,000 vide cheque No. 102110 and an amount of Rs. 60 lakhs vide cheque No. 102111 was given to the assessee and out of the total loan of Rs. 1.60 crores, Rs. 15 lakhs vide cheque no. 196107 was repaid and therefore, an amount of Rs. 1,45,00,000 remained outstanding to be paid to IA. It has also come on record that the said loan amount has been repaid by the assessee to ‘IA’ in the immediately next year and the Department had accepted the repayment of loan without probing into it. In the aforesaid facts and circumstances of the case, when the Tribunal has held that the matter is not required to be remanded as no other view would be possible, there was no reason to interfere with the impugned order passed by the Tribunal. [Para 6]

In this respect we also find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of the CIT Vs. Rohini builders reported in 256 ITR 360 wherein it was held as under:

“The genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques.”

In view of the above and after considering the facts in totality we hold that the amount of loan received by the assessee represents the unexplained cash credit in its books of accounts. Accordingly, we set aside the finding of the learned CIT-A and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

These two appeals are filed by the assessee against orders dated 31.10.2018 and 26.3.2018 passed by the Ld.Commissioner of Income-tax (Appeals)-2, Ahmedabad [for short “Ld.CIT(A)] relating to the assessment years 2013-14 and 2014-15. Both these appeals are disposed of by this common order. First we take up the assessee’s appeal for Asst.Year 2013-14.

2. Sole ground raised by the assessee as follows:

1. The ld.CIT(A) has erred in law and on facts in upholding addition of Rs.1,05,05,000/- made by the AO u/s.68 without properly appreciating the facts inasmuch as that the assessee has adduced the relevant evidence and also discharged the onus cast on it.”

3. The only issue raised by the assessee is that the Ld. CIT-A erred in upholding the order of the AO making addition to the tune of Rs. 1,05,05,000/- u/s 68 of the Act as unexplained cash credit.

4. The assessee in the present case is a private limited company and engaged in the business of trading of Shares and Securities. The assessee in the year under consideration has received the Loan to the tune of Rs. 4,08,01,000/-from M/s KenSecurities Limited. The assessee has repay the loan to the tune of Rs.3,02,96,000/- and in the books of account has shown the outstanding loans amounting to Rs. 1,05,05,000/- under the head unsecured loans. The assessee has adjusted the repayment of loan by earlier advance amounting to Rs.1,93,50,000/-given to M/s Ken Securities Limited and made payment amounting to Rs. 50,00,000/- on 17-04-2005, Rs. 55,00,000/- on 22-05-2012 and Rs. 4,46,000/- on 04-03-2013 respectively.

5. However, the AO observed that the assessee has not furnished the requisite details to substantiate the loan amount as Identity, Creditworthiness, ITR, confirmation of the lender. The AO also noted that the notice u/s 133(6) of the Act was issued to M/s Ken Securities Limited was returned back with the remark as “left”. The AO thus in the absence relevant details and documents made the addition of closing balance of Rs. 1,05,05,000/- u/s 68 of the Act to the total income of the assessee.

6. Aggrieved assessee preferred the appeal before the Ld. CIT-A. The assessee before the Ld. CIT-A submits the confirmation of ledger in the books of M/s Ken Securities Limited, accounts M/s Ken Securities Limited in the books of assessee, ITR. The assessee also stated that the reply of the notice issued to M/s Ken Securities Limited was forwarded by post to the AO.

7. On perusal of the aforesaid documents the Ld. CIT-A observed that M/s Ken Securities Limited had shown the loss in the return of income therefore credit worthiness of M/s Ken Securities Limited is not proved. Likewise, the notice issued under section 133 6 of the Act to M/s Ken Securities Limited was returned as unserved. The Ld. CIT-A thus confirmed the addition of Rs. 1,05,05,000/- made by the AO u/s 68 of the Act.

8. Being aggrieved by the order of the Ld. CIT-A the assessee is in appeal before us. The Ld. AR for the assessee submits the paper book running from pages 1 to 12 and contended that the assessee in support of the impugned loan has furnished all the method documents. As such the assessee has discharged the onus imposed under section 68 of the Act. Furthermore part of the transaction with the party has already been accepted by the revenue as genuine and therefore the remaining transaction reflecting at the end of the financial year in the balance sheet cannot be treated as bogus. Accordingly no addition of whatsoever is warranted in the given facts and circumstances.

9. On the other hand the Ld. DR support the order of the authorities below.

10. We have heard the rival contentions of both the parties and perused the materials available on record. The provision of Section 68 of the Act fastens the liability on the assessee to provide the identity of the lenders, establish the genuineness of the transactions and creditworthiness of the parties. These liabilities on the assessee were imposed to justify the cash credit entries under Section 68 of the Act by the Hon’ble Calcutta High Court in the case of CIT Vs. Precision Finance (P) Ltd. reported in 208 ITR 465 wherein it was held as under:

“It was for the assessee to prove the identity of the creditors, their creditworthiness and the genuineness of the transactions. On the facts of this case, the Tribunal did not take into account all these ingredients which had to be satisfied by the assessee. Mere furnishing of the particulars was not enough. “

11. From the preceding discussion, we note that amount of loan shown by the assessee in its books of accounts as on 31st of March 2013 from M/s Ken Securities Limited was treated as unexplained on account of 2 reasons. Firstly, there was a notice issued under section 133 6 of the Act to M/s Ken Securities Limited which was returned as unserved. Secondly, the company provided loan to the assessee i.e. M/s Ken Securities Limited has declared loss in the income tax return and thus the creditworthiness of the company was not proved.

11. On perusal of the facts of the case on hand, we note that the assessee has filed the confirmation from the party namely M/s Ken Securities Limited about the loan given to the assessee, copy of the income tax return along which are placed on pages 6 to 9 of the paper book. Likewise, the assessee has also filed the copy of the ledger of M/s Ken Securities Limited in its books of accounts containing the financial transactions which was supported by the bank statement. The details are placed on pages 5 and 10-12 of the paper book. No infirmity of whatsoever was pointed out by the authorities below. Furthermore on perusal of the ledger copy in the books of the assessee as well as in the books of the party, we find that the assessee has shown as an advance to such party as opening balance of Rs.1,93,50,000.00 and thereafter the assessee has received a sum of Rs.4,08,01,000.00 which was adjusted against such advances. Likewise, there were repayments as well by the assessee for an amount of Rs.1,09,46,000.00. All these entries were duly accepted by the revenue as genuine. What was doubted was the closing credit balance in the books of the assessee. As such the authorities below have treated the closing balance of Rs.1,05,05,000.00 as unexplained cash credit ignoring all other financial transactions carried out by the assessee. According to us the transactions shown by the assessee should either be treated as fake in its entirety or should be treated as genuine. In other words, the revenue cannot pick and choose certain transactions treating them as bogus/unexplained and treating other transactions as genuine. Thus, we are not convinced with the finding of the authorities below. The assessee to our understanding has discharged the onus imposed under section 68 of the Act. Non response of the notice issued to the party under section 133(6) of the Act cannot be a reason to draw any inference again the assessee, particularly in the circumstances, where there was no infirmity pointed out by the authorities below with respect to the documents filed by the assessee in support of the transactions which have been elaborated in the preceding paragraph.

12. Admittedly the loan party M/s Ken Securities Limited has filed the return of income declaring loss. However, the loss cannot be a parameter only to draw an inference that the loan party lacks creditworthiness. There can be multiple reason for the losses but that does not mean that the party does not have sufficient creditworthiness to advance the loan to the assessee. In nutshell we are not convinced with the finding of the learned CIT-A that the assessee failed to discharge onus imposed upon it with regard to the creditworthiness of the loan party.

13. Be that as it may be, the undisputed fact that the majority amount of loan received by the assessee was refunded to the loan parties. It implies that the assessee was not the beneficiary of the loan received by it as alleged by the AO. The majority amount of loan has been repaid by the assessee in the year under consideration itself except a sum of Rs. 1,05,05,000.00. Therefore, it is difficult to hold that the assessee was the ultimate beneficiary of the impugned amount. Thus, we can assume that the impugned transaction was the business transactions between the assessee and the loan parties. We also feel pertinent to refer the judgment of the Hon’ble Gujarat high court in case CIT vs. Ayachi Chandrashekhar Narsangji reported in 42 taxmann.com 251 where it was held as under:

It is required to note that as such an amount of Rs. 1,00,00,000 vide cheque No. 102110 and an amount of Rs. 60 lakhs vide cheque No. 102111 was given to the assessee and out of the total loan of Rs. 1.60 crores, Rs. 15 lakhs vide cheque no. 196107 was repaid and therefore, an amount of Rs. 1,45,00,000 remained outstanding to be paid to IA. It has also come on record that the said loan amount has been repaid by the assessee to ‘IA’ in the immediately next year and the Department had accepted the repayment of loan without probing into it. In the aforesaid facts and circumstances of the case, when the Tribunal has held that the matter is not required to be remanded as no other view would be possible, there was no reason to interfere with the impugned order passed by the Tribunal. [Para 6]

14. In this respect we also find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of the CIT Vs. Rohini builders reported in 256 ITR 360 wherein it was held as under:

“The genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques.”

15. In view of the above and after considering the facts in totality we hold that the amount of loan received by the assessee represents the unexplained cash credit in its books of accounts. Accordingly, we set aside the finding of the learned CIT-A and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed.

16. Now we take up the assessee’s appeal for Asst.Year 2014-15.

17. The interconnected issue raised by the assessee is that the learned CIT-A erred in confirming the addition made by the AO for Rs.53,22,075.00 and Rs.12,66,98,547.00 representing income from accommodation entries and disallowance of bogus loss.

18. The assessee during the assessment proceedings admitted to have been engaged in providing the accommodation entries by way of issuing of bogus purchase, sales bills to the beneficiaries. The assessee to this effect has submitted that all the transaction reflecting in the bank statements are representing the accommodation entries. Thus the assessee has calculated an income of Rs.53,22,075.00being .5% of the total deposits in the bank accounts amounting to Rs.106,44,14,927.00. The AO has accepted the same and made the addition for an amount of Rs. 53,22,075.00 to the total income of the assessee.

19. The AO besides the above also found that the assessee has shown certain transaction for the purchase and sale of the properties. As such the assessee has shown purchase of the property at Rs. 2 crores and sale of the properties at Rs.18 crores. The assessee further has set off of such profit on the sale purchase of the properties against the losses from the sale purchase of the securities amounting to Rs.12,66,98,547.00. However, the AO found that such losses are bogus in nature and therefore he disallowed the loss of Rs.12,66,98,547.00and added to the total income of the assessee.

20. Aggrieved assessee preferred an appeal to the learned CIT-A who has confirmed the addition made by the AO by observing as under:

“3.3 ………Appellant in the books of account has shown purchase of imrnovable property amounting to Rs.2,00,00,000/- and sale on the same date at Rs. 18,00,00,000/-. Appellant has set off the gain by claiming the loss on sale of security of Rs.12,66,98,547/-. Appellant has contended that ail entries including loss on sale of security are only accommodation entry, however, the AO has disallowed the loss while accepting the paper gain of Rs.16,00,000/- shown in the account. Though it has been established that appellant is a paper company, if appellant has claimed bogus loss, AO was perfectly justified to disallow the same. In view of the above, disallowance made by the AO is confirmed. The related grounds of appeal are accordingly dismissed.”

21. Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before us.

22. The learned AR before us filed a paper book running from pages 1 to 27 and contended that there was no income determined by the authorities on the sale purchase of property transaction. Accordingly, the question of setting off the losses against such income not arise.

23. On the other hand the learned DR submitted that the assessee was engaged in providing the accommodation entries and therefore the loss of Rs.12.66 crores which has been set off loss against the income from the purchase and sale of properties cannot be allowed. The learned DR vehemently supported the order of the authorities below We have heard the rival contentions of both the parties and perused the materials available on record. There is no dispute to the fact that the assessee was engaged in providing the accommodation entries and this fact was admitted by the authorities below. Accordingly, the assessee has offered an income on estimated basis for Rs.53,22,075.00 being .5% of the total bank deposits in the bank which was also accepted by the revenue. In other words, an addition of Rs.53,22,075.00 was made by the AO on the basis of the admission made by the assessee during the assessment proceedings. However, the assessee in the ground of appeal before us has challenged the impugned addition. To our understanding, the ground raised by the assessee is not sustainable for the reason that the addition was made on the concession of the assessee which is evident from the assessment order. Furthermore, the learned AR has not brought out anything based on the documentary evidence that the income offered during the assessment proceedings was wrong. Accordingly, we do not find any merit in the ground raised by the assessee. Thus we dismiss the same.

25. With respect to the disallowance of loss of Rs.12.66 crores, we note that it was alleged by the authorities below that such loss was set off of against the income derived by the assessee from the sale purchase of property whereas there was no income added by the authorities below on account of sale purchase of the property. In fact the discussion was made about the profit which the assessee has earned on the transaction of sale purchase of the property but no addition was made. Thus it is clear that such loss was not set off against the profit from the sale purchase of the property. Accordingly, we are of the view that no addition can be made holding that the impugned loss is a bogus loss. Besides the above, once it has been admitted by the authorities below that the assessee has been engaged in providing the accommodation entries and accordingly the profit has been estimated based on the bank deposits of the assessee, thus, the impugned transaction of purchase and sale of the property on the same day is nothing but a part of accommodation entry at this was also accepted by the revenue. Accordingly, the question of making the addition on account of impugned loss does not arise. Thus the ground of appeal of the assessee is allowed. In the result, the appeal filed by the assessee is partly allowed.

26. In the combined result, appeal of the assessee for Asst.Year 2013-14 is allowed, whereas appeal for Asst.Year 2014-15 is partly allowed.

Order pronounced in the Court on 24TH August, 2022 at Ahmedabad.