Case Law Details

Case Name : ACIT Vs Overtop Marketing Pvt. Ltd. (ITAT Kolkata)
Appeal Number : I.T.A. No. 686/Kol/2019
Date of Judgement/Order : 15/03/2021
Related Assessment Year : 2015-16

ACIT Vs Overtop Marketing Pvt. Ltd. (ITAT Kolkata)

when the assessee as well as the lenders had discharged the onus upon them to prove the identity, creditworthiness and genuineness of the loan transaction, the AO could have disbelieved the transaction only on the basis of reliable material to disprove the same. In this case the AO took the support of the statement given by both Shri Raj Kumar Kothari as well as Shri Bijay Kumar Dokania recorded in third party proceedings to take an adverse view against the assessee. In such a situation, the AO ought to have confronted the assessee with the entire statement of both Shri Raj Kumar Kothari as well as Shri Bijay Kumar Dokania or material against the assessee if any with him rather than giving only selective question and answer; and if the AO felt that these two persons, oral testimony is incriminating against the assessee, then in all seriousness he should have summoned them before him and elicited the direct oral evidence against the assessee and thereafter gave a copy of the recorded statement and then afforded an opportunity to assessee to cross-examine the makers of the incriminating oral testimony and thereafter the AO would be justified in using against the assessee, which in this case AO has not done, for reason best known to him; and so the selective questions and answers of the two persons with the legal infirmities discussed supra cannot be used against the assessee. Moreover the AO has not found any infirmity with the documents filed by the assessee to prove the loan transactions as discussed supra. So, other than the third party statements, which was not even examined by the AO and without providing the entire statements to assessee and the statement not tested on the touch-stone of cross-examination, cannot be the basis to draw adverse inference against the assessee. Therefore, no addition was warranted. To come to my aforesaid decision, I rely on the ratio of the decision of the Hon’ble Supreme Court in the case of CIT Vs. M/s. Odeon Builders Pvt. Ltd. in Review Petition (C) Diary No. 22394 of 2019 in Civil Appeal Nos.9604 & 9605 of 2018 dated 21.08.2019 wherein the Hon’ble Supreme court has held as under:

“We have perused the review petition and find that the tax effect in this case is above Rs.l crore, that is, Rs.6,59,27,298/-. Ordinarily, therefore, we would have recalled our order dated 17th September, 2018, since the order was passed only on the basis that the tax effect in this case is less than Rs.1 crore.

However, on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of Rs.19,39,60,866/- was based solely on third party information, which was not subjected to any further scrutiny. Thus, the CIT (Appeals) allowed the appeal of the assessee stating:

“Thus, the entire disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO who has not provided the copy of such statements to the appellant, thus denying opportunity of cross examination to the appellant, who has prima facie discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, & VAT Registration of the sellers & their Income Tax Return. In view of the above discussion in totality, the purchases made by the appellant from M/s Padmesh Realtors Pvt. Ltd. is found to be acceptable and the consequent disallowance resulting in addition to income made for Rs.19,39,60,866/-, is directed to be deleted.”

The ITAT by its judgment dated 16th May, 2014 relied on the self same reasoning and dismissed the appeal of the revenue. Likewise, the High court by the impugned judgment dated 5th July, 2017, affirmed the judgments of the CIT and ITAT as concurrent factual findings, which have not been shown to be perverse and, therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of the ITAT.”

So, the A.O in this case, erred in relying on the statement of two persons who were not allowed to be cross-examined as held by the Hon’ble Apex Court in Andaman Timber (supra) and Odeon Builders Pvt. Ltd. (supra). So from any angle, one looks, the statement of these two persons cannot be used against the assessee. And when we remove these two statements with the legal infirmities discussed supra, there is no material at all against the assessee and the AO having failed to find any infirmity with the documents filed by the assessee/lenders to prove the loan transactions as discussed supra, no adverse view was legally tenable. And having gone through the impugned order and the Paper Book filed before us, we fully concur with the finding of facts as rendered by Ld CIT(A) in respect of identity, creditworthiness and genuineness of the lenders/loan transaction and for the sake of brevity and to avoid repetition it is not again repeated. We agree with the judicial precedence relied upon by the Ld CIT(A) in support of his decision. And we don’t find any legal or factual infirmity in the impugned order of the Ld CIT(A), so we decline to interfere. So the impugned action of Ld. CIT(A) to delete the section 68 addition of Rs.4.51 crores and [the interest paid by assessee to lenders] Rs.53,70,163/- is confirmed.

FULL TEXT OF THE ITAT JUDGEMENT

This is an appeal preferred by the Revenue against the order of the Ld. Commissioner of Income Tax(Appeals)-2, Kolkata dated 28.01.2019 for assessment year 2015-16. The Grounds of appeal of the Revenue are as under:

1. “whether on the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in not appreciating the fact that the amount of Rs.4,51,00,000/- received by the assessee company as unsecured loan/advances during FY 2014-15 was considered to be unexplained cash credit u/s 68 of the Act.

2. “Whether on the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in not appreciating the fact that the loan creditors of Rs.4,51,00,000/- whose identity and their creditworthiness for advancing of such huge amount of loan and the genuineness of transaction of loan creditors remain unexplained. As the entire loan was disallowed, the interest on such loan was also disallowed by the AO”.

3. “That the appellant craves for leave to add, delete and modify any of the grounds of appeal before or at the time of hearing.”

2. From a perusal of the aforesaid grounds of appeal raised by the Revenue, it is discerned that the sole issue on which the Revenue is aggrieved is against the action of the Ld.CIT(A) in deleting the addition of Rs.4,51,00,000/- which amount the assessee company has shown as unsecured loan.

3. Brief facts of the case as noted by the Assessing Officer are that during the course of assessment proceedings, he noted that the assessee company has taken unsecured loan from the following parties which according to him were shell companies:

Name loan as at 31/03/2015(Rs.) Interest        paid (Rs.)
BHIKSU BARTER PVT LTD 3,00,000 1,726
DIVYA ELECTRONICS PVT.LTD. 1,35,00,000 9,20,959
PARITOSH ELECTRICALS PVT LTD 41,50,000 3,84,123
POTENTIAL ELECTRICALS & ELECTRONICS PVT. LTD. 40,00,000 4,65,205
RANBHUMI MARKETING PRIVATE LIMITED 20,00,000 1,44,247
SHRESTH BUILDERS PVT.LTD. Nil 5,33,425
VIVEK BARTER PVT.LTD 73,50,000 6,79,911
VIVEK TRACOM PVT LTD 80,00,000 27,08,014
RAJSHREE DEVELOPER ENTERPRENURES PVT.LTD 58,00,000 1,32,553
4,51,00,000 53,70,163

4. According to him, the Department had information that these companies are shell companies and the Director cum entry operator, Shri Raj Kumar Kothari has given statement u/s 131 of the Act on 02.03.2016 to the Investigation Wing of the Department that he is controlling certain numbers of companies which are engaged also in providing accommodation entries in the form of share subscribing and unsecured loan etc. According to the Assessing Officer, other than M/s Ranbhumi Marketing Pvt. Ltd. all the aforesaid companies are controlled by Shri Raj Kumar Kothari; and M/s Ranbhumi Marketing Pvt. Ltd.’s director is Mrs. Sangeeta Devi Kothari; and M/s. Shresth Builders Pvt. Ltd. is controlled by Shri Bijay Kuman Dokania whose statement was also recorded u/s 131 of the Act by the Investigation Wing on 28.05.2014 who is also an entry provider of giving LTCG. Thereafter, the A.O has taken note of the financial of each lender company and has drawn a chart wherein he has noted that share capital issued, share premium, non-current investment, long-term loans and advances given, turnover. Thereafter the A.O made the following observation about the lender companies:

Bank account of the above lender parties reflects that credit entry followed by almost similar amount of debit entry, low/minimum balance is maintained almost every time, High premium compensated by high loans and advances given, Investment schedule is also loaded with shell companies, low turnover followed by low profit before tax.

5. Thereafter, he (AO) extracts certain selected questions and answers of Shri Raj Kumar Kothari (e questions and answers nos.6 to 12) and then he extracts the question and answer no.4 & 6 and 12 in respect of the statement recorded by Shri Bijay Kuman Dokania and thereafter the A.O was of the opinion that the assessee has introduced its unaccounted income back to its books of accounts by creating various financial transactions. Thus, according to AO, subterfuges are created to give form to artificial transactions, so that they appear genuine. And, in doing so it leads to tax evasion which is not allowable and through various case laws the Hon’ble courts have opined that it is important to examine the surrounding circumstances to determine the nature of transaction.

6. Thereafter he discussed the case of McDowell & Co. Ltd. v. CIT [1985] 154 ITR 148 and Sumati Dayal v. CIT (1995) 214 ITR 801 (SC) and other case laws and he held as under:

“4.11 Thus, it is clear from the discussion made above that the various companies from whom loan/advances was received during the financial year 2014-15 and the corresponding transactions made with them by the assessee company are lacking identity (As all the lender companies as mentioned above are not present on their addresses as per report of Inspector), Genuineness (as clear from the transaction being made from the identified paper/ bogus/ shell company which is neither doing any real business nor exist on the given address) and creditworthiness (as seen from the frequent debit and corresponding credit entries in the bank statement of all the layering companies with balance amount being negligible).

It is also important to note here that while the GIC test (i.e. establishment of genuineness of transactions and the identity along with Creditworthiness of the parties with whom said transactions are made) is the most important litmus test, as per various Judicial pronouncements as discussed above, which needs to be passed in order to substantiate the transactions involved, it is important to note that these three pre-requisites should not be mutually exclusive to each other. The observation made by the Honorable Madras High Court in the case of M/s. B.R Petrochem Pvt. Ltd. Vs The Income Tax Officer (April 2017) is relevant to be quoted in this regard:

“Section 68 of the Income Tax Act is a provision that enables the assessment of any sum found credited in the books of an assessee where no satisfactory explanation is offered by the assessee to explain the same. Courts have consistently held that the three guiding principles in the con text of Section 68 would be the establishment of the identity and credit worthiness of the creditor and the genuineness of the transaction. In the present case, only the first of the three conditions has been established by the assessee. Neither the credit worthiness nor the genuineness stand explained. The stand of the assessee to the effect that any transaction styled as a contribution to share capital would stand excluded from the purview of Section 68 is too wide to be accepted. The language of Section 68 does not admit of such an interpretation. [In favour of revenue]”

However, in the assessee’s case not even a single essential pre-requisite out of the three namely, Genuineness, Identity and Creditworthiness has been fulfilled.

4.12 It was further seen on the analysis of bank a/c. statement, return of income and balance sheet, P&L a/c. of the various lender companies of assessee and Various layering companies that most of these companies are having very huge share capital, reserves and surpluS, Loans and Advances and investments as against very low revenue, which is solely attributed to interest income. The creditworthiness of all these companies to extend loan to M/s Overtop Marketing Pvt. Ltd. is also not seen from their financial statements. From the perusal of bank account of the various lender companies and their layering companies, it can be seen that there are regular credit and debit entries in their bank statement and prior to extending loans to the assessee company, there are credit entries of various amounts in its bank statement coming from different companies lacking any financial creditworthiness which could not be explained by the assessee. Further, as mentioned earlier, it can be seen from the analysis of balance sheet of these companies that there is a peculiar pattern of transaction in all the cases where the source as appearing on the liability side of the balance sheet is Security premium whereas on the asset side it is non-current investments or loans or advances. From the facts available on the records and the verification conducted by this office, it is early evident that these companies are shell companies who do not have any real existence.

4.13 Hence, on the basis of verification, analysis of balance sheet, PIL a/c. Return of income, bank statement and the statements recorded of various Entry Operator and the related persons earlier over the period of time it is evident that the amount received by the assessee company M/s RDB Insurance Service Broking Pvt. Ltd. from and through the companies controlled and managed by Entry Operator as discussed above are nothing but pre-arranged accommodation entries.

On the basis of discussion made above, the amount of Rs.4,51,00,000/- being received by the assessee company as unsecured loan/advances during F.Y. 2014-15 is considered to be unexplained cash credit u/s.68 of the Act and the same is disallowed and added to the total income of the assessee.

7. Aggrieved by the actions of the A.O to have made an addition of Rs.4.51 crores, the assessee preferred an appeal before the before the Ld.CIT(A) who was pleased to delete the addition by holding as under:

“Findings on the grounds of appeal

I have considered the grounds of appeal, statement of facts and submission of the authorized representative of the appellate company as well as the order of the assessing officer framed in the light of the materials available on record before the assessing officer during the assessment proceedings.

The AR of the appellate has submitted that this ground is directed against the addition of unsecured loan of Rs. 4,51,00,000/- on the allegation that the same is unexplained cash credit u/s 68 of the Act. The addition was made on the allegation that the assessee was not able to prove the identity, genuineness and credit worthiness of the lender companies. The assessee has taken unsecured loan for setting up a manufacturing plant at NH-6, Mouza Chandrapur, PS bagman, Howrah-711303 for manufacturing of Fly Ash Blocks and Bricks. All the loans are interest bearing loans and interest have been paid regularly every year. The company has duly deducted TDS on the said payment of Interest. In order genuineness of the transaction, the Ld.AO issued notice u/s. 133(6) to all the loan companies. In response to the said notice all the lender companies filed Its reply along with requisitioned details and documents as required by the AO thereby making compliance to notice us. 133(6) which the AO himself has mentioned in his assessment order (para 4.2 of Page 2). The AO made the addition in the hands of the assessee on the basis that some statements of alleged entry operators has been received against the assessee who have alleged to provide some accommodation entries to the assessee company, that the assessee failed to prove the identity and creditworthiness of the lenders and genuineness of the transaction and the Ld.AO has also relied on various decisions of judicial authority on the issue of addition u/s 68 of the Act.

On the first count, the Ld.A.O has made the addition based on his contention that the character of lender companies are of shelf companies by relying upon statements of few persons. The Ld.AO has made the addition by relying on the statements of Mr. Rajkumar Kothari and Mr. Vinay Kumar Dokania before the DDIT (Inv) in relation to some other assessee. The Ld.A.O did not offer any opportunity of cross examination the said persons to the assessee and thereby grossly violating the principles of natural justice. The Ld.AO has also not provided the copy of inspectors report which were relied for making the addition u/s 68 of the Act. Thus, the additions made without providing proper opportunity of being heard to the assessee is gross violation of natural justice and needs to be deleted. Further, the alleged entry operators whose statements has been relied by the AO have no locus standi as, the name of the assessee is nowhere mentioned in the statement of the so called entry operators. The statement of Shri Raj Kumar Kothari was recorded with respect to one “Banktesh Group” and not relating to the assessee. The assessee is nowhere related to the said group or any person related to the group. Therefore, the reliance placed by the AO on the statement recorded is itself incorrect. Further, the assessee submits that in the entire order the Ld.AO has made general allegations based on his own assumptions. The impugned order seriously lacks specific findings on his part. He simply relied on a report which was neither prepared by him nor did he examine the same to know the whereabouts of such report. He has used serious adjectives like “Shell/ Paper Companies” to support his contentions but did not point out a single material that has been unearthed by the A.O except blindly relying on the statements of so called “entry operators”. In the order statement of entry operators is given where the entry operator (Vinay Kumar Dokania) have admitted that they have given entry only in the form of LTCG. Hence, the statement relied upon by the A.0 has no context with the assessee. The A.O has made the addition on account of unsecured loan by relying on the statements of the so called entry operators.

There is even no link established by the AO on the basis of how the said statements are applicable to the assessee. Therefore, the allegation of the AO is baseless and merely on presumption only. Mr. Rajkumar Kothari have filed an affidavit retracting his statement relied by the AO. Copy of the affidavits are enclosed for your kind perusal. From the same you will find that almost all the said persons have said that their statement were recorded by force and they have not provided any accommodation entry to the company. Thus, the statement so made and retracted Subsequently does not contain any evidentiary value and in absence of any corroborative evidence cannot be used for the purpose of making the addition under any circumstances. Therefore, those statements do not have any evidentiary value to place reliance on them for the purpose of making the addition in the hands of the

On the second count the Ld.AO alleged that the assessee failed to prove the identity and creditworthiness of the lenders and genuineness of the transaction, During the course of assessment proceedings, notice u/s 133(6) was issued to the vender companies to which all of them made compliances by submitting all the documents asked for in the said notice and which the AO himself has mentioned in his assessment order (para 4.2 of Page 2). In this context it is pertinent to mention that the lender companies filed all the details and documents as required by the AO. List of details and documents submitted by lender companies in response to notice u/s. 133(6) are produced hereunder for your honor’s ready reference:

    • M/s. Bhiksu Barter Pvt Ltd. Vide its letter filed on 20.03.2015 submitted Copy of Income Tax Acknowledgement for the A.Y 2015-16, Copy of Audited Accounts for the F.Y 2014-15, Copy of Loan Confirmation and Copy of Bank Statement highlighting the loan transaction.
    • M/s. Divya Electronics Pvt Ltd Vide its letter filed on 20.03.2015 submitted. Copy of Income Tax Acknowledgement for the A.Y 2015-16, Copy of Audited Accounts for the F.Y 2014-15, Copy of Loan Confirmation and Copy of Ban Statement highlighting the loan transaction.
    • M/S. Paritosh Electricals Pvt Ltd vide its letter filed on 20.03.2015 submitted Copy of Income Tax Acknowledgement for the AY 2015-16, Copy of Audited Accounts for the F.Y 2014-15, Copy of Loan Confirmation and Copy of Bank Statement highlighting the loan transaction.
    • M/s. Potential Electricals & Electronics Pvt Ltd. vide its letter filed on 20.03.2015 submitted Copy of Income Tax Acknowledgement for the A.Y 2015-16, Copy of Audited Accounts for the F.Y 2014-15, Copy of Loan Confirmation and Copy of Bank Statement highlighting the loan transaction.
    • M/s. Ranbhumi Marketing Pvt Ltd. Vide its letter filed on 20.03.2015 submitted Copy of Income Tax Acknowledgement for the AY 2015-16, Copy of Audited Accounts for the F.Y 2014-15, Copy of Loan Confirmation and Copy of Bank Statement highlighting the loan transaction.
    • M/s. Shresth Builders Pvt Ltd. Vide its letter filed on 20.03.2015 submitted Copy of Income Tax Acknowledgement for the A.Y 2015-16, Copy of Audited Accounts for the F.Y 2014-15, Copy of Loan Confirmation and Copy of Bank Statement highlighting the loan transaction.
    • M/s. Vivek Barter Pvt Ltd. vide its letter filed on 20.03.2015 submitted Copy of Income Tax Acknowledgement for the A.Y 2015-16, Copy of Audited Accounts for the F.Y 2014-15, Copy of Loan Confirmation and Copy of Bank Statement highlighting the loan transaction.
    • M/s. Vivek Tracom Pvt Ltd. vide its letter filed on 20.03.2015 submitted Copy of Income Tax Acknowledgement for the A.Y 2015-16, Copy of Audited Accounts for the F.Y 2014-15, Copy of Loan Confirmation and Copy of Bank Statement highlighting the loan transaction.
    • M/s. Rajshree Developer Enterprenures Ltd. vide its letter filed on 20.03.2015 submitted. Copy of Income Tax Acknowledgement for the A. Y 2015-16, Copy of Audited Accounts for the F. Y 2014-15, Copy of Loan Confirmation and Copy of Bank Statement highlighting the loan transaction.

The facts worth considering in this context, which the A. O. had disregarded, are that all the loan applicants have filed its reply against notice issued u/s 133(6) along with requisitioned details and documents thereby making part compliance to notice u/s. 133(6). That the purported amount was credited adopting proper banking channel, i.e., through account-payee cheques. The same fact has been confirmed by the party through account confirmation statement. That the above parties are body corporate registered with Registrar of Companies and individual who are also assessed to income-tax under the Income-Tax Act, 1961.

Hence, the genuineness of the above party is beyond doubt and as loans are reflected in the respective files, no doubt can be raised as regards genuineness and credibility. Therefore, it is dear from the discussions made in the preceding paras that the A.O had all the documents available with him to verify the genuineness of the transaction. But the A.O without taking into cognizance the documents submitted, made the addition alleging that the lender companies are shell companies on the basis of statements given by entry operators. The A.O having a biased intention added the entire amount to the income of the assessee. The Ld.A.O has grossly erred in performing his statutory duties and shifted the entire onus on the assessee. Further, the A.O in the assessment order has shown the extracts the Balance sheet of the order and concluded that all the companies are shell companies without analysing the Balance sheet properly. The A.O heavily relied on the statements of entry operators for concluding the lender companies to be shell/ paper company. The creditworthiness of lender companies is analysed as supra in the submission of the appellate company. From the chart it can be seen that all the above companies are having high turnover as well as sufficient amount of reserves & surplus. AH the companies are having turnover in crores and in no way be called as shell/ paper companies. Hence, creditworthiness of the above party is beyond doubt and as apparent from the above chart, no doubt can be raised as regards creditworthiness of the above lender companies. Therefore, relying in the discussion made in the preceding paras, the contention of the AO while making the addition does not stand to be justified. Therefore, the addition made by the AO on this allegation is completely unjustified and needs to be deleted.

On the third count, the judgments relied by the A.O are completely different on facts as compared to the case of the assessee and hence, their reference in the present case in completely irrelevant. The reliance placed by the Ld.AO on the decisions cited in the assessment order is unwarranted since none of them are identical to the facts as in the case of the assessee and hence, the reference cannot be taken in the instant case from those decisions. At the nutshell all the decision relied by the A.O are not applicable to the appellants case as the facts are completely different as explained in each judgment and their reference in the present case in completely irrelevant. Hence, relying on these judgments are misconception of the A.O and cannot be relied for adjudication. The AR of the appellate on merits of the case, submitted that the Ld A.O failed to appreciate the facts that the lender companies are body corporate, registered with the ROC. They are also assessed to Income Tax. The return filing acknowledgement, audited balance sheet, loan confirmation & source thereof and the bank particulars of all the loan applicants have been filed in the course of assessment proceedings. Despite all the above credential evidence produced before the Ld A.O, he relied on the statement of the so called entry operators. It is the requirement of natural justice to examine the documents submitted in support of loan raised and if do not find any defect in the documents submitted, then merely based on the statement no addition is permissible in law.

The assessment of a particular year must be based on legitimate material from which a reasonable inference of income earned during the year could be drawn and that the initial burden of finding such material is on the Income-tax authorities not on the assessee. Further, the A.O, failed to take into, cognizance the details and documents submitted in the course of assessment proceedings. The documents submitted were good enough to satisfy all the three precedents as laid down u/s 68 of the Act with regard to the identity and credit worthiness of the loan applicant, and genuineness of the transactions. As regards to Identity, the loan applicants are body corporate, registered with the ROC and they were available at the given address. All the loan applicants have filed its reply against the notice issued u/s 133(6) of the Act. The loan applicants have furnished copy of ITR Acknowledgement, Audited Accounts and they are registered with ROC having CIN. AH the data’s of such companies are available with Income Tax Department and ROC. They are also assessed to Income Tax regularly. Therefore, the identity should not be under the scanner in the instant case, As regards to genuineness & creditworthiness, the loan was received through proper banking channels, the loan applicants had sufficient fund for the purpose of investment & the investments are reflected in their books of account, Bank A/c and Loan confirmation of the lenders confirms the transactions and all are regularly assessed to income tax. Hence, there should not be any doubt on the identity of the lender companies have made on reply against notice issued u/s 133(6) and has filed relevant documents before the A.O such as ITR Acknowledgement, Audited Accounts, Bank Statements, company master data as per ROC record etc. are good enough to establish the identity of the loan applicant. Further, the loan is reflected in respective files, loan confirmation, source thereof and bank statement of both the parties suggest that they had the creditworthiness to lend and the transaction was genuine. The details regarding the applicant with their address as per ROC records and PAN etc. are given hereinabove.

Further, the following documents of the loan applicants are submitted herewith to show their identity & credit worthiness & also the genuineness of the transactions, which were also submitted before the A.O, in the course of assessment proceedings u/s 143(3) and in response to the notice issued u/s. 133(6).

In the instant case the A.O failed to appreciate the facts that the share applicants are body corporate, registered with the ROC. The share application money were received through proper banking channels. The details regarding the lenders with their address as per ROC records and other documents of the lender companies like Balance Sheet, relevant Bank statement, etc., are submitted herewith in Paper Book Vol-1 to show their identity & credit worthiness & also the genuineness of the transaction. All the lenders companies are Income tax assesses, having registered PAN and filing returns. Under the circumstances, the addition made by the A.O is arbitrary, illogical and totally unjustified. In view of the facts of the case and the judicial pronouncements as discussed above, it is apparent that’the assessee could establish the identity & creditworthiness of the lender companies and also the genuineness of the transactions as the loan was paid/received through proper banking channels and the same is duly accounted for in the books of the lenders as _ well as the assessee company. The source of loan funds has also been disclosed by the lender companies.

As regards to disallowance of Rs. 53,70,163/- on account of interest paid by the assessee the AR of the appellate has submitted that the assessee has paid interest on Rs. 53,70,163/- on the loans taken by it Further, out of the above interest paid by the assessee, Rs. 40,27,622/- has been capitalised by the assessee and not claimed as expenditure in the profit and loss account. Thus, only an amount of Rs. 13,42,592/- has been claimed as an expense by the assessee in the profit & loss account as against the disallowance of Rs. 53,70,163/- made by the A.O. Further, as discussed in the Ground 1 above, the loans taken by the assessee are from the genuine parties and for the purpose of the business of the assessee, the interest paid on the same can in no way be treated as bogus as alleged by the AO. The addition is consequential in nature to ground No- 1. Therefore, the disallowance made by the AO on account of interest payment made by the assessee is unjustified and needs to be deleted. As regards to addition on account of alleged Commission of Rs. 2,255/-, the AR has submitted that the Ground is directed against addition of Rs. 2,255/- to the total income on account of cash commission on loan paid by the assessee.

The A.O made the addition on the presumption that assessee have paid commission @ 5 paise per Rs. 1,000 for arranging loan funds. As explained above that the loan received by the assessee are genuine. Therefore, the addition of commission made on presumption is wrong. The addition is consequential in nature to ground No- 1. Therefore, the addition made needs to be deleted.

In this regards it is better to understand the section 68 of the act. The Section 68 under which the addition has been made by the Assessing Officer reads as under:

“68 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 Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. “

The phraseology of section 68 is dear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this case the legislative mandate is not in terms of the words ‘shall’ be charged to income-tax as the income of the assessee of that previous year”. The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word

“may” and not “shall”. Thus the un-satisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the Supreme Court in the case of CIT t/. Smt. P. K. Nooriahan [1999] 237ITR 570. It is noted that against the said decision of Hon’bie Gujarat High Court the special leave petition filed by the Revenue has also been dismissed by the Hon’ble Apex Court. In the case of Nemi Chand Kothari 136 Taxman 213, (supra), the Hon’ble Guahati High Court has thrown light on another aspect touching the issue of onus on assessee under section 68. by holding that the same should be decided by taking into consideration the provision of section 106 of the Evidence Act which says that a person can be required to prove only such facts which are in his knowledge.

The Hon’ble Court in the said case held that, once it is found that an assessee has actually taken money from depositor/lender who has been fully identified, the assessee/borrower cannot be called upon to explain, much less prove the affairs of such third party, which he is not even supposed to know or about which he cannot be held to be accredited with any knowledge.

In this view, the Hon’ble Court has laid down that section 68 of Income-tax Act, should be read along with section 106 of Evidence Act. The relevant observations at page 260 to 262, 264 and265 of the report are reproduced herein below: –

“While interpreting the meaning and scope of section 68, one has to bear in mind that normally, interpretation of a statute shall be general, in nature, subject only to such exceptions as may be logically permitted by the statute itself or by some other law connected therewith or relevant thereto. Keeping in view these fundamentals of interpretation of statutes, when we read carefully the provisions of section 68, we notice nothing in section 68 to show that the scope of the inquiry under section 68 by the Revenue Department shall remain confined to the transactions, which have taken place between the assessee and the creditor nor does the wording of section 68 indicate that section 68 does not authorize the Revenue Department to make inquiry into the source(s) of the credit and/or sub-creditor. The language employed by section 68 cannot be read to impose such limitations on the powers of the Assessing Officer. The logical conclusion, therefore, has to be, and we hold that an inquiry under section 68 need not necessarily be kept confined by the Assessing Officer within the transactions, which took place between the assessee and his creditor, but that the same may be extended to the transactions, which have taken place between the creditor and his sub-creditor. Thus, while the Assessing Officer is under section 68, free to look into the source(s) of the creditor and/or of the sub-creditor, the burden on the assessee under section 68 is definitely limited.

This limit has been imposed by section 106 of the Evidence Act which reads as follows:

“Burden of proving fact especially within knowledge. -When any fact is especially within the knowledge of any person, the burden) of proving that fact is upon him.” What, thus, transpires from the above discussion is that while section 106 of the Evidence Act limits the onus of the assessee to the extent of his proving the source from which he has received the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s)of the creditor but also of his (creditor’s) sub-creditors and prove, as a result, of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the Assessing Officer to enquire into the source/source from where the creditor has received the money, section 106 makes the assessee liable to disclose only the source(s) from where he has himself received the credit and IT is not the burden of the assessee to prove the creditworthiness of the source(s) of the sub-creditors. If section 106 and section 68 are to stand together, which they must, then, the interpretation of section 68 are to stand together, which they must, then the interpretation of section 68 has to be in such a way that it does not make section 106 redundant. Hence, the harmonious construction of section 106 of the Evidence Act and section 68 of the Income- tax Act will be that though apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the assessee to prove that the sub- creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been, eventually, received by the assessee.

It, therefore, further logically follows that the creditor’s creditworthiness has to be Judged vis-a-vis the transactions, which have taken place between the assessee and the creditor, and it is not the business of the assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub-creditors, for, these aspects may not be within the special knowledge of the assessee. “

.. If a creditor has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the assessee to obtain such amount of money or part thereof from the creditor, by way of cheque in the form of loan and in such a case, if the creditor fails to satisfy as to how he had actually received the said amount and happened to keep the same in the bank, the said amount cannot be treated as income of the assessee from undisclosed source. In other words, the genuineness as well as the creditworthiness of a creditor have to be adjudged vis-a-vis the transactions, which he has with the assessee. The reason why we have formed the opinion that it is not the business of the assessee to find out the actual source or sources from where the creditor has accumulated the amount, which he advances, as loan, to the assessee is that so far as an assessee is concerned, he has to prove the genuineness of the transaction and the creditworthiness of the creditor vis-a-vis the transactions which had taken place between the assessee and the creditor and not between the creditor and the sub-creditors, for, it is not even required under the law for the assessee to try to find out as to what sources from where the creditor had received the amount, his special knowledge under section 106 of the Evidence Act may very well remain confined only to the transactions, which he had’ with the creditor and he may not know what transaction(s) had taken place between his creditor and the sub-creditor… “

“In other words, though under section 68 an Assessing Officer is free to show, with the help of the inquiry conducted by him into the transactions, which have taken place between the creditor and the sub-creditor, that the transaction between the two were not genuine and that the sub-creditor had no creditworthiness, it will not necessarily mean that the loan advanced by the sub-creditor to the creditor was income of the assessee from undisclosed source unless there is evidence, direct or circumstantial, to show that the amount which has been advanced by the sub-creditor to the creditor, had actually been received by the sub-creditor from the assessee….”

“Keeping in view the above position of law, when we turn to the factual matrix of the present case, we find that so far as the appellant is concerned, he has established the identity of the creditors. The appellant had also shown, in accordance with the burden, which rested on him under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors aforementioned. In fact the fact that the assessee had received the said amounts by way of cheques was not in dispute. Once the assessee had established that he had received the said amounts from the creditors aforementioned by way of cheques, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter the burden had shifted to the Assessing Officer to prove the contrary. On mere failure on the part of the creditors to show that their sub-creditors had creditworthiness to advance the said loan amounts to the assessee, such failure, as a corollary, could not have been and ought not to have been, under the law, treated as the income from the undisclosed sources of the assessee himself when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee.

Viewed from this angle, we have no hesitation in holding that in the case at hand, the Assessing Officer had failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee such evidence on record, the Assessing Officer could not have treated the said amounts as income derived by the appellant from undisclosed sources. The learned Tribunal seriously fell into error in treating the said amounts us income derived by the appellant from, undisclosed

Further, in the case of CIT v. S. Kamaiieet Singh [2005] 147 Taxman 18(Aii.) their lordships, on the issue of discharge of assessee’s onus in relation to a cash credit appearing in his books of account, has observed and held as under: – “4. The Tribunal has recorded a finding that the assessee has discharged the onus which was on him to explain the nature and source of cash credit in question. The assessee discharged the onus by placing (i)confirmation letters of the cash creditors; (ii) their affidavits; (Hi) their full addresses and GIR numbers and permanent account numbers. It has found that the assessee’s burden stood discharged and so, no addition to his total income on account of cash credit was called for. In view of this finding, we find that the Tribunal was right in reversing the order of the AAC, setting aside the assessment order.”

I also take note of the decision of the Hon’bie High Court, Calcutta in the case of S.K. Bothra & Sons, HUF v. Income-tax Officer, Ward- 4613). Koikata 347 ITR 347 wherein the Court held as follows:

“15. It is now a settled law that while considering the question whether the alleged loan taken by the assessee was a genuine transaction, the initial onus is always upon the assessee and if no explanation is given or the explanation given by the appellant is not satisfactory, the Assessing Officer can disbelieve the alleged transaction of loan. But the law is equally settled that if the initial burden is discharged by the assessee by producing sufficient materials in support of the loan transaction, the onus shifts upon the Assessing Officer and after verification, he can call for further explanation from the assessee and in the process, the onus may again shift from the Assessing Officer to assessee. In the case before us, the appellant by producing the loan -confirmation-certificates signed by the creditors, disclosing their permanent account numbers and address and further indicating that the loan was taken by account payee cheques, no doubt, prima facie, discharged the initial burden and those materials disclosed by the assessee prompted the Assessing Officer to enquire through the Inspector to verify the statements.”

In a case where the issue was whether the assessee availed cash credit as against future sale of product, the A.O issued summons to the creditors who did not turn up before him, so, A.O disbelieved the existence of creditors and saddled the addition, which was overturned by Ld.CTT(A). However, the Tribunal reversed the decision of the Ld.CIT(A) and upheld the AO’s decision, which action of Tribunal was challenged by the Hon’bie High Court, Calcutta in the case of Crystal Networks (P.) Ltd, v. Commissioner of Income- tax 353 ITR 171 wherein the Tribunal’s decision was overturned and decision of Ld.CIT(A} upheld and the Hon’bie High Court has held that when the basic evidences are on record the mere failure of the creditor to appear cannot be basis to make addition.

The court held as follows:

8. Assailing the said judgment of the learned Tribunal learned counsel for the appellant submits that Income-tax Officer did not consider the material evidence showing the creditworthiness and also other documents, viz, confirmatory statements of the persons, of having advanced cash amount as against the supply of – bidis. These evidence were duly considered by the Commissioner of income-tax (Appeals). Therefore, the failure of the person to turn up pursuant to the summons issued to any witness is immaterial when the material documents made available, should have been accepted and indeed in subsequent year the same explanation was accepted by the Income-tax Officer. He further contended that when the Tribunal has relied on the entire judgment of the Commissioner of Income-tax (Appeals), therefore, it was not proper to take up some portion of the judgment of the Commissioner of Income-tax- (Appeals) and to ignore the other portion of the same. The judicial propriety and fairness demands that the entire judgment both favourable and unfavourable should have been considered. By not doing so the Tribunal committed grave error in law in upsetting the judgment in the order of the Commissioner of Income-tax (Appeals).

9. In this connection he has drawn our attention to a decision of the Supreme Court in the case of Udhavdas Kewalram vs. CIT [1967] 66ITR 462. in this judgment it is noticed that the Supreme Court as proposition of law held that the Tribunal must in deciding an appeal, consider with due care, all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner in the light of the evidence and the relevant law.

10. We find considerable force of the submissions of the learned counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore, it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter the creditworthiness. As rightly pointed out by the learned counsel that the Commissioner of Income-tax (Appeals) has taken the trouble of examining of all other materials and documents, viz, confirmatory statements, invoices, chat Ians and vouchers showing supply of bid is as against the advance. Therefore, the attendance of the witnesses pursuant to the summons issued, in our view, is not important. The important is to prove as to whether the said cash credit was received as against the future sale of the product of the assessee or not. When it was found by the Commissioner of Income- tax (Appeals) on facts having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this fact finding. Indeed, the Tribunal did not really touch the aforesaid fact finding of the Commissioner of income-tax (Appeals) as rightly pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation.

In the said judgment noted by us at page 464, the Supreme Court has observed as follows:

“The Income-tax Appellate Tribunal performs a judicial function under the Indian Income-tax Act: it is invested with authority to determine finally all questions of fact. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law.”

11. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. It is also ruled in the said judgment at page 465 that if the Tribunal does not discharge the duty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest infirmity.

12. Taking inspiration from the Supreme Court observations we are constrained-te-hoLd.in this matter that the Tribunal has not adjudicated upon the case of the assessee in the light of the evidence as found by the Commissioner of Income-tax (Appeals), We also found no single word has been spared to upset the fact finding of the Commissioner of Income-tax (Appeals) that there are materials to show the cash credit was received from various persons and supply as against cash credit also made.

13. Hence, the judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. We restore the judgment and order of the Commissioner of Income-tax (Appeals). The appeal is allowed When a question as to the creditworthiness of a creditor is to be adjudicated and if the creditor is an Income Tax assessee, it is now well settled by the decision of the Calcutta High Court that the creditworthiness of the creditor cannot be disputed by the A.O of the assessee but the AO of the creditor. In this regards our attention was drawn to the decision of the Hon’ble High Court, Calcutta in the Commissioner of Income Tax, Koikata- III Versus Dataware Private Limited ITATNo. 263 of 2011 Date: 21st September, 2011 wherein the Court held as follows:

“In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assessee. After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness” of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness” of transaction through account payee cheque has been established.

We find that both the Commissioner of Income Tax (Appeal) and the Tribunal below followed the well- accepted principle which are required to be followed in considering the effect of Section 68 of the Act and we thus find no reason ‘to interfere with the concurrent findings of fact recorded by both the authorities.”

As noted from the judicial precedents cited above, where any sum is found credited in the books of an assessee then there is a duty casted upon the assessee to explain the nature and source of credit found in his books. The nature of receipt towards loan is seen from the entries passed in the respective balance sheets of the companies as loan and investments. In respect of source of credit, the assessee has to prove the three necessary ingredients i.e., identity, genuineness of transactions and creditworthiness of loan applicants. For proving the identity, the assessee furnished the name, address, PAN of loan applicants together with the copies of balance sheets and Income Tax Returns. With regard to the creditworthiness of loan applicants, as noted supra, these Companies are having capital in several crores of rupees and the investment made in the appellant company is only a small part of their capital. These transactions are also duly reflected in the balance sheets of the loan applicants, so creditworthiness is proved. Third ingredient is genuineness of the transactions, for which it is noted that the monies have been directly paid to the assessee company by account payee cheques out of sufficient bank balances available in their bank accounts on behalf of the loan applicants. It will be evident from the paper book that the appellant has even demonstrated the source of money deposited into their bank accounts which in turn has been used by them to subscribe to the assessee company as loan application. The loan applicants have confirmed the – loans in response to the notice u/s 133(6) of the Act and have also confirmed the payments which are duly corroborated with their respective bank statements and all the payments are by account payee cheques.

There is nothing on record to suggest that the assessee’s aforesaid transactions were bogus. There is no evidence on record to suggest or to draw any adverse inference against the assessee. No direct or indirect relation of any nature whatsoever has been brought on record in this regard. The assessing officer’s suspicion is basically based on the report of Directorate of Income Tax (Investigation). In the assessment order the assessing officer has referred to and relied upon report of Directorate of Income Tax (Investigation) to allege and hold that these companies to whom the appellate company has taken loans were aimed to provide accommodation entry of loan and share capital etc. There is no direct evidence or cogent material was brought on record by the assessing officer to implicate the assessee. There is no cogent material or any evidence to show that the loans taken by the assessee or any amount whatsoever was returned back by the assessee to any person in cash or in any other manner whatsoever. The Assessing Officer did not make any independent enquiry on various documents and evidences furnished in course of the assessment proceedings. None of the documents and evidences were found to be bogus or manipulated. The explanations submitted by the assessee and the judgments of Hon’ble Supreme Court and various judgements of Hon’ble High Courts and Income Tax Appellate Tribunal including Jurisdictional High Court and Jurisdictional Tribunal were not distinguished nor found to be inapplicable to the facts of this case. The assessee has furnished legal documentary evidence which the Assessing Officer has chosen to ignore/not dealt with. The Assessing Officer disregarded the submissions of the assessee and all legal documentary evidences produced / furnished by it in relation to the loans. The Assessing Officer did not bring on record any legal evidence or material on record to hold that the assessee’s transactions relating to loans were bogus. The appellant had fully and truly discharged the burden. This proposition is supported by the judgement of the Patna High Court in the case of Additional CIT v. Bahri Brothers Pvt Ltd (1985)154 IT244 and the judgement of the Supreme Court of India in case of CIT v, Orissa Corporation Pvt Ltd. (1986) 159 TTR 78 (SC). Thus, the assessee having discharged the burden, it is the A. O which had to verify the genuineness of the transaction. It is submitted that the Assessing officer did not discharge the burden which had shifted on him and just mechanically adhered to disallow the loans claimed by the assessee without rebutting any of the submission of the assessee. The allegations of the Assessing Officer were all based on mere surmise, conjectures and suspicions. The Assessing Officer had allowed his vision to be colored by extraneous circumstances and events which had no bearing and role in deciding the genuineness or otherwise of the transactions of loans. In fact, the Assessing Officer had not dealt with the specific facts of the case. I find that in the present case the assessee had furnished all the evidences and these evidences were neither found by the Ld.Assessing Officer to be false or fabricated. Rather, he believed on the information received from the Investigation wing to be more authentic. The facts of the case and the evidences in support of the assessee’s case clearly support the claim of the assessee that the transaction of the assessee were bona fide and genuine and addition of the same just by mere suspicion is erred as per. law. / find that the assessing officer has been guided by the report of the investigation wing, However, I do not find that the assessing officer have brought out any part of the investigation wing report in which the assessee has been investigated and /or found to be a part of any arrangement for the purpose of generating bogus loans. Nothing has been brought on record to show that the persons investigated, including entry operators have named that the assessee was in collusion with them. In absence of such finding how is it possible to link their wrong doings with the assessee. The Hon’ble Supreme Court way back in the case of Lalchand Bhagat Ambica Ram vs. CIT [1959] 37ITR 288 (SC) held that assessment could not be based on background of suspicion and in absence of any evidence to support the same. The observations of the Hon’ble Apex Court are equally applicable to the case of the assessee. The assessing officer having failed to bring on record any material to prove that the transaction of the assessee was a collusive transaction could not have rejected the evidences submitted by the assessee. In fact, in this case nothing has been found against the assessee with aid of any direct evidences or material against the assessee, hence in my view under these circumstances nothing can be implicated against the assessee. / find that there is absolutely no adverse material to implicate the assessee to the entire gamut of unfounded/unwarranted allegations leveled by the A.O against the assessee, which in my considered opinion has no legs to stand and therefore has to fall. The A. O could not controvert the facts which are supported with material evidences furnished by the assessee which are on record. Therefore, on analyzing of the facts as well as the evidence produced by the assessee, I find that the Assessing Officer has not brought any material on record to controvert the fact duly established by the supporting evidences. In absence of any contrary fact, the mere reliance by the Assessing Officer on the report of Investigation Wing is not sufficient to establish the fact that the transaction is bogus. The finding of the Assessing Officer is based merely on the suspicion and surmises without any tangible material to show that the assessee has introduced his own unaccounted income in the loans. Therefore, in absence of any evidence, it cannot be held that the assessee has introduced his own unaccounted money by way of bogus loans.

I find that the none of the replies as received by the A.O were found irregular or incoherent with the submissions of the assessee and all the adverse inference drawn are basically figment of his mind and are not backed by material on record or facts of the ‘case. The inability of the A. O to verify the explanation offered by the assessee is not a valid ground to reject the explanation. Reliance in this regard is placed on the decision of the Hon’ble Madras High Court in the case of S Hastimai vs CIT reported in 49 ITR 263 (Mad), he assessee is entitled to have evidence produced to be considered and an inference to be drawn therefrom. The rejection of an explanation of the assessee by ignoring to consider important pieces of evidence is an error of law. Reliance in this regard is placed on the decisions D Yasodamma, Gudur vs. CIT reported in 70 ITR 515 (AP) at 517 and Bhagwati Prasad Misra vs CIT reported in 35 ITR 97 (Orissa). / further find that the A.O was not justified in rejecting the claim of the assessee on the basis of theory of surrounding circumstances, human conduct, and preponderance of probability without bringing on record any legal evidence against the assessee. I rely on the judgement of Special Bench of Mumbai Tribunal in the case of GTC Industries Ltd. (supra) for this proposition. The various facets of the arguments of the AR supra, with regard to impleading the assessee for drawing adverse inferences which remain unproved based on the evidences available on record, are not reiterated for the sake of brevity. The principles laid down in various case laws relied upon by the AR are also not reiterated for the sake of brevity. The AR of the appellate cited plethora of the case laws to bolster his claim which are not being repeated again since it has already been incorporated in the submissions of the AR supra] and have been duly considered to arrive at conclusion. The assessee refers to the various judgements where it was found that transactions are supported by documentary evidences. The various courts held that the same could not be held to be bogus on the basis of general adverse reports of Investigation Wing and/or for other agencies of the government. The AO issued notices u/s. 133(6) of the Act to these companies. The loan applicant companies had duly replied to the information sought u/s. 133(6) of the Act and vindicated the stance of the appellant. However, the A.O was not impressed by such evidences adduced on record. The Assessing Officer deliberately ignored the submission made by the appellant and loan applicants. The A.O, with the intention known to him, did not give cognizance to any of the replies; where in all details sought by him from the assessee company as well as from the allottee companies were submitted. These facts borne on record by the loan applicants, in my opinion, clearly prove their source of funds, and their capacity for making such payments and accordingly, the criteria of their creditworthiness is proved. It is observed that the burden which lay on the appellant, in relation to s. 68 of the Act, has been duly discharged by it and nothing further remains to be proved by it on the issue. The A. O has not found any defect and/or deficiency in the source of funds explained by the loan applicants through their replies to the statutory notices issued u/s. 133(6) of the Act to them. It is also observed that every loan applicant in their respective replies to the statutory notices issued u/s. 133(6) of the Act, furnished copies of their income tax acknowledgments evidencing filing of income tax returns by each of them, copies of their audited accounts including Balance Sheets wherein such investments made by each of them in the subscription of loan issued by the appellant are duly reflected as also copies of their bank statements for the relevant period from which such loan monies were paid by them respectively.

It is further observed that the net worth of the each of the loan applicants, as disclosed in their audited Balance Sheets, far exceeded the amount of investments made by them in the loan of the appellant. It is accordingly observed that these facts adequately prove their credit worthiness to make investment in the loan of the appellant company. The aforesaid facts underlined by evidences clearly prove the identity of the loan applicants, their capacity and source of funds of the loan applicants, as well as the genuineness of the transactions in relation to the loan capital issued by the appellant, which was subscribed to by each of them. However, the A.O had not brought these indisputable facts on record but acted on her whims and fancies.

It is observed that the burden which lay on the appellant, in relation to section 68 of the Act, has been duly discharged by it and nothing further remains to be proved by it on the issue. There is no evidence on record to show that the identities of the loan applicants are not proved and/or that the introduction of loan by them was not genuine and/or the source of investment was not fully explained to the satisfaction of the A.O. The A.O had made a wild allegation that the loan applicants are merely paper companies without bringing any material on record. What enquiries were carried out by the A. O were not brought on record in the order. The entire details of the loan applicants duly proving their identity, creditworthiness and genuineness of transactions were duly proved by the assessee and the A.O had not made any enquiry regarding the same. The A.O had erroneously stated that identity creditworthiness and genuineness of transactions has not been proved by the assessee. The assessment order does not show any investigation have been carried out of any information collected to conclude that the payment recovered by the assessee was actually accommodation entries. No material was brought by the A.O to prove that the money was the assessee own undisclosed money.

It is settled law that, no addition can be made on the basis of surmises, suspicion and conjectures. Reliance is also placed on the decision of the Hon’ble Supreme Court of India in the case of C. 1. T. (Central) Calcutta vs. -Daulat Ram Rawatmull (87 ITR 349) wherein it had held that “The onus to prove that the apparent is not the real is on the party who claims it to be so. “. In fact, any suspicion, however so ever strong, cannot take place of proof as clearly laid down by the Hon’ble Supreme Court in the case of Umacharan Shaw & Bros, vs. CIT f19597 37ITR 271.

In this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the loans, thereafter the onus shifted to A.O to disprove the documents furnished by assessee cannot be brushed aside by the A.O to draw adverse view cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the Assessing Officer, I hold that an addition cannot be sustained merely based on inferences drawn by circumstance.

To sum up section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. In the facts of the present case, both the nature & source of the loans received was fully explained by the assessee. The assessee had-discharged its onus to prove the identity, creditworthiness and genuineness of the loans. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on A. O’s record.

Accordingly, all the three conditions as required u/s. 68 of the Act i.e., the identity, creditworthiness and genuineness of the transaction was placed before the A.O and the onus shifted to A.O to disprove the materials placed before him. Without doing so, the addition made by the A.O is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 of the Act. Therefore, the A.O is directed to delete the addition. These grounds of appeal are allowed.”

8. Aggrieved by the aforesaid action of the Ld. CIT(A) deleting the addition of Rs.4.51 crores, the Revenue has preferred this appeal before us.

9. We have heard both the parties and perused the records. It is noted that the assessee has set up a manufacturing plant at NH-6, Mouza Chandrapur, PS Bagman, Howrah-711303 for manufacturing of Fly Ash Blocks and bricks. And the assessee company has availed for loan from nine (9) entities to the tune of Rs.4.51 crores and it is noted that all the loans taken are interest bearing; and the interest have been paid by the assessee regularly after duly deducting TDS on the said payment of interest every year.

10. It is noted that pursuant to the notice issued by the A.O u/s 133(6) of the Act, the nine (9) lender companies have directly replied to the AO by filing the following documents of them: (a) copy of income-tax acknowledgment, (b) copy of audited accounts for FY 2014-15, (c) copy of long-term investment, (d) copy of bank statement ascertaining transaction.

11. It is noted that the lender companies have duly furnished their PAN and the registered addresses and also brought to the notice of the A.O that they are legal entities/corporate registered with the Registrar of Companies (ROC) and have their respective registered addresses in the public domain. The amounts in question were credited through banking channels. The names, PANs and loan amounts and the interests paid for which TDS has been deducted are as under:

Sl. Name PAN Loan as  on 31.03.2015 Interest
Paid
1 M/s. Bhiksu Barter Pvt Ltd. AABCB1315M 3,00,000 1,726/
2 M/s.                Divya Electronics Pvt Ltd. AAACD9721C 1,35,00,000/- 9,20,959/
3 M/s.             Paritosh Electricals Pvt Ltd. AABCP5013E 41,50,000/- 3,84,123/
4 M/s.           Potential

Electricals            &

Electronics Pvt Ltd.

AABCP5014D 40,00,000/- 4,65,205/-
5 M/s.        Ranbhumi

Marketing Pvt Ltd.

AAECR5842G 20,00,000 1,44,247/-
6 M/s.             Shresth

Builders Pvt Ltd.

AADCS7759J NIL 5,33,425/-
7 Vivek   Barter     Pvt

Ltd.

AAACV8952B 73,50,000/- 6,79,911/-
8 Vivek Tracom Pvt. Ltd. AAACV8670J 80,00,000/- 27,08,014/-
9 Rajshree Developer

Enterprises Pvt Ltd.

AABCR2000D 58,00,000/ 1,32,553/-
Total 4,51,00,000/- 53,70,163/-

12. Despite the assessee filing all these documents from which it can be noted that the lender companies are regular income-tax assessee’s, still the A.O had branded them as shell/paper companies on the strength of the statement of Shri Raj Kumar Kothari and Shri Bijay Kumar Dokania whose statements were recorded u/s 131 of the Act on 02.03.2016 and 28.05.2014 by the Investigation Wing u/s 131 of the Act in third party proceedings and of course behind the back of assessee. The Ld. AR of the assessee brought to our notice that from a perusal of the statement of Shri Vijay Kumar Dokania it can be noted that the A.O has reproduced only selected questions and answers i.e. questions and answers no.4,6 & 12 and from the answers given it would be clear that his companies are engaged in giving bogus shares/LTCG and also he earns from Tax Consultancy and so, in the statement he [Shri Vijay Kumar Dokania] didnot say anything about his companies involvement in giving accommodation entry in the form of loans. It was pointed out by the Ld. AR that he has stated that his main source of income was from commission for providing accommodation entries by forming jama-kharchi companies and selling them in lieu of commission and he has elaborated his modus operandi by stating that he gives entry in the form of LTCG (long-term capital gain). Thus according to Ld. AR the statement of Shri Vijay Kumar Dokania cannot be used against the assessee company in respect of loan given by the entities controlled by him. Further, according to the Ld. AR, Shri Raj Kumar Kothari’s confession that he is an entry provider was the basis of branding the lender companies as shell companies, however it has been brought to our notice that Shri Kothari had retracted the same within 10 days wherein he has sworn an affidavit before the First Class Magistrate of Kolkatta and for proving that, the Ld. AR drew our attention to the page 45 to 48 of the paper-book from where we note that he has in his sworn affidavit, has alleged that he was whisked away by the officers of the Department along with policemen on 02.03.2016 and they kept him in their Office till late night; and by exerting threat and coercion has extracted some statements/confession/admission. Elaborating further he says that officers threatened to conduct search and survey in his companies and kept on reminding him that they will ruin him and his family. In the back-drop of the aforesaid threat and coercion, he made the statement in accordance to their wishes, and which was not the truth of the contents recorded. And we note that within 10 days (after giving the statement to Investigation Wing), he has retracted the statement by swearing the affidavit which is placed at page 45 to 48. Therefore, according to the Ld. AR, the statement of Shri Raj Kumar Kothari which was the only basis of which the A.O branded the lender companies as shell/paper companies could not have been used against the assessee and in any case does not have any evidentiary value, since retracted and could not have been acted upon against the assessee. Moreover, according to Ld.AR both Shri Raj Kumar Kothari as well as Shri Bijay Kumar Dokania has not been summoned by the A.O and their statements were not recorded directly by the A.O before drawing adverse inference against the lender companies. According to the Ld. AR, neither the A.O gave the full statement of both these persons nor gave an opportunity to the assessee to cross-examine them (Shri Raj Kumar Kothari as well as Shri Bijay Kumar Dokania). So, according to Ld. AR, in any case their statement cannot be the basis for drawing adverse inference against the assessee as for that Ld. AR relied on the decision of the Hon’ble Supreme Court in Andaman Timber v. CCE (2015) 62 taxmann.com 3 (SC).

13. We note that the Ld. CIT(A) has taken note of the fact that all the nine lender companies are income-tax assessees, and the interest paid by the assessee on the loan taken by it are duly subjected to TDS and the lender companies have shown the said interest income on which they have paid tax. The Ld. CIT(A) has noted that all the nine lender companies are corporate entities which are incorporated by the ROC and according to him the existence and status of them can be seen by the A.O from the master data available in the public domain/website of ROC; And that these companies are still ‘active’ companies which are discernable from ROC website. According to Ld. CIT(A), all the lender companies PAN and the jurisdiction under whom they are assessed are available in the ITR filed by them directly to the A.O pursuant to the section 133(6) notice issued by the A.O and transactions have been made through account payee cheques and the Hon’ble Calcutta High Court has said that A.O of the assessee who borrows or is in receipt of credit/loan (like assessee in this case) cannot brand the lender company as lacking in creditworthiness, unless the A.O undertakes the exercise of enquiring from the A.O of the lender companies and in case if the A.O of the lender companies have accepted the transactions shown by them with the assessee company, then the A.O of the assessee company cannot impute un-creditworthiness of the lender company and referred to the decision of the Hon’ble Calcutta High Court in CIT vs. M/s Dataware Private Limited in ITAT No. 263 of 2011 Date: 21st September, 2011 GA No.2856 of 2011 held as under:

“In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assessee. After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness” of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence.

So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness” of transaction through account payee cheque has been established.

We find that both the Commissioner of Income Tax (Appeal) and the Tribunal below followed the well-accepted principle which are required to be followed in considering the effect of Section 68 of the Act and we thus find no reason to interfere with the concurrent findings of fact recorded by both the authorities.”

14. Further the Ld. CIT(A) has noted that pursuant to the notice u/s 133(6) of the Act, the lender companies have directly filed before the A.O., the balance sheet, relevant bank statement etc. We note from a perusal of the balance sheet of the lending companies the following facts which are noted as under:

Sl. Name Reserves           & Surplus Turnover assessee as on

31.03.2015

Interest Paid
1 M/s.Bhiksu   Barter     Pvt.

Ltd.

7,93,23,661 78,72,546 3,00,000 1,726/-
2 M/s.    Divya   Electronics

Pvt. Ltd.

13,18,87,700 1,84,39,149 1,35,00,000/- 9,20,959/-
3 M/s. Paritosh Electricals Pvt Ltd. 11,91,92,856 1,93,05,986 41,50,000/- 3,84,123/-
4 M/s. Potential Electricals & Electronics Pvt Ltd. 10,49,86,852 1,64,73,594 40,00,000 4,65,205/-
5 M/s. Ranbhumi Marketing Pvt Ltd. 3,01,62,434 1,24,73,183 20,00,000/- 1,44,247/-
6 M/s. Shresth Builders Pvt Ltd. 28,68,59,333 3,61,44,953 NIL 5,33,425/-
7 Vivek Barter Pvt Ltd. 10,90,00,950 1,69,32,938 73,50,000/- 6,79,911/-
8 Vivek Tracom Pvt
Ltd.
15,82,29,903 3,46,69,711 80,00,000/ 27,08,014/-
9 Rajshree           Developer

Enterprises Pvt Ltd.

10,58,86,318 1,38,12,003 58,00,000/- 1,32,553/
Total 4,51,00,000/- 53,70,163/-

15. Thus from a perusal of the above details, it can be seen that the lender companies have sufficient creditworthiness to give loan to the assessee company and cannot be termed as shell companies by simply basing his (A.O) conclusion on the strength of selected questions and answers given by two persons and that too recorded on third party proceedings and which were admittedly recorded behind the back of the assessee. Moreover, Shri Raj Kumar Kothari has retracted the statement within ten (10) days as discussed supra and has alleged threat and coercion on the part of officers who elicited the statement as they wished, so the statement/truth of the contents of the statement cannot be relied upon by the A.O and doing so is bad in law; and therefore according to us, it could not have been the basis to draw adverse inference against the assessee company in respect of loan taken by it. Moreover, if the A.O still nursed any suspicion against the lender companies, he ought to have made enquiries as held by the Hon’ble Calcutta High Court in the case of M/s Dataware Private Limited, which the A.O of the assessee in the instant case has not cared to carry out, so the A.O of the assessee could not have branded the lender companies not to have creditworthiness.

16. Therefore, when the assessee as well as the lenders had discharged the onus upon them to prove the identity, creditworthiness and genuineness of the loan transaction, the AO could have disbelieved the transaction only on the basis of reliable material to disprove the same. In this case the AO took the support of the statement given by both Shri Raj Kumar Kothari as well as Shri Bijay Kumar Dokania recorded in third party proceedings to take an adverse view against the assessee. In such a situation, the AO ought to have confronted the assessee with the entire statement of both Shri Raj Kumar Kothari as well as Shri Bijay Kumar Dokania or material against the assessee if any with him rather than giving only selective question and answer; and if the AO felt that these two persons, oral testimony is incriminating against the assessee, then in all seriousness he should have summoned them before him and elicited the direct oral evidence against the assessee and thereafter gave a copy of the recorded statement and then afforded an opportunity to assessee to cross-examine the makers of the incriminating oral testimony and thereafter the AO would be justified in using against the assessee, which in this case AO has not done, for reason best known to him; and so the selective questions and answers of the two persons with the legal infirmities discussed supra cannot be used against the assessee. Moreover the AO has not found any infirmity with the documents filed by the assessee to prove the loan transactions as discussed supra. So, other than the third party statements, which was not even examined by the AO and without providing the entire statements to assessee and the statement not tested on the touch-stone of cross-examination, cannot be the basis to draw adverse inference against the assessee. Therefore, no addition was warranted. To come to my aforesaid decision, I rely on the ratio of the decision of the Hon’ble Supreme Court in the case of CIT Vs. M/s. Odeon Builders Pvt. Ltd. in Review Petition (C) Diary No. 22394 of 2019 in Civil Appeal Nos.9604 & 9605 of 2018 dated 21.08.2019 wherein the Hon’ble Supreme court has held as under:

“We have perused the review petition and find that the tax effect in this case is above Rs.l crore, that is, Rs.6,59,27,298/-. Ordinarily, therefore, we would have recalled our order dated 17th September, 2018, since the order was passed only on the basis that the tax effect in this case is less than Rs.1 crore.

However, on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of Rs.19,39,60,866/- was based solely on third party information, which was not subjected to any further scrutiny. Thus, the CIT (Appeals) allowed the appeal of the assessee stating:

“Thus, the entire disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO who has not provided the copy of such statements to the appellant, thus denying opportunity of cross examination to the appellant, who has prima facie discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, & VAT Registration of the sellers & their Income Tax Return. In view of the above discussion in totality, the purchases made by the appellant from M/s Padmesh Realtors Pvt. Ltd. is found to be acceptable and the consequent disallowance resulting in addition to income made for Rs.19,39,60,866/-, is directed to be deleted.”

The ITAT by its judgment dated 16th May, 2014 relied on the self same reasoning and dismissed the appeal of the revenue. Likewise, the High court by the impugned judgment dated 5th July, 2017, affirmed the judgments of the CIT and ITAT as concurrent factual findings, which have not been shown to be perverse and, therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of the ITAT.”

17. So, the A.O in this case, erred in relying on the statement of two persons who were not allowed to be cross-examined as held by the Hon’ble Apex Court in Andaman Timber (supra) and Odeon Builders Pvt. Ltd. (supra). So from any angle, one looks, the statement of these two persons cannot be used against the assessee. And when we remove these two statements with the legal infirmities discussed supra, there is no material at all against the assessee and the AO having failed to find any infirmity with the documents filed by the assessee/lenders to prove the loan transactions as discussed supra, no adverse view was legally tenable. And having gone through the impugned order and the Paper Book filed before us, we fully concur with the finding of facts as rendered by Ld CIT(A) in respect of identity, creditworthiness and genuineness of the lenders/loan transaction and for the sake of brevity and to avoid repetition it is not again repeated. We agree with the judicial precedence relied upon by the Ld CIT(A) in support of his decision. And we don’t find any legal or factual infirmity in the impugned order of the Ld CIT(A), so we decline to interfere. So the impugned action of Ld. CIT(A) to delete the section 68 addition of Rs.4.51 crores and [the interest paid by assessee to lenders] Rs.53,70,163/- is confirmed. So, the Revenue’s appeal stands dismissed.

18. In the result, the appeal of the Revenue is dismissed.

Order is pronounced in the open court on 15th March, 2021.

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