Loading judgment…
Facts
The Revenue appealed against the Ld.CIT(A)'s order which deleted additions made by the AO. The additions were on account of unexplained cash credits of Rs. 18,00,10,170 and interest paid on such credit of Rs. 1,05,40,955 for AY 2012-13.
Held
The Tribunal held that the assessee had provided sufficient documentary evidence to establish the identity, creditworthiness, and genuineness of the loan transactions. The AO failed to produce contrary evidence to negate the genuineness of the transactions. Therefore, the additions made by the AO were deleted.
Key Issues
Whether the additions made by the AO on account of unexplained cash credits and interest thereon are sustainable when the assessee has provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the loan transactions.
Sections Cited
143(3), 250, 68, 133(6), 131
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI “E” BENCH: NEW DELHI
Before: MS.MADHUMITA ROY & SHRI MANISH AGARWAL
The present appeal is filed by the Revenue against order dated 29.01.2024 passed by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld.CIT(A)”] in Appeal No.CIT(A), Delhi-6/10464/2015-16 [Manual Appeal Register No.84/15-16] passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the order dated 16.03.2015 passed u/s 143(3) of the Act pertaining to Assessment Year 2012-13.
Brief facts of the case are that the assessee is a company and e-filed its return of income on 27.09.2012, declaring total income at INR 44,46,842/-, derived income from ‘house property’ and income from ‘other sources’. The case of the assessee was selected for scrutiny through CASS. Notice u/s 143(2) issued on 16.08.2013 and thereafter, another notice u/s 142(1) were issued from time to time. The assessee has filed the replies as called for and finally, the assessment was completed at an income of INR 18,61,04,283/- by making additions on account of unexplained cash credits of INR 18,00,10,170/- and interest paid on such cash credit of INR 1,05,40,955/-.
Against this order, the assessee preferred appeal before Ld.CIT(A) who vide order dt. 29.01.2024, deleted the additions / disallowance made by the AO.
4. Aggrieved by the said order, Revenue is in appeal before Tribunal on the basis of following grounds of appeal- 1) "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 18,00,10,170/- made by Assessing Officer u/s 68 of the Income Tax Act, 1961 in view of the fact that the assessee has failed to prove the creditworthiness of the Loan creditor for providing unsecured loan to the assessee and genuineness of the transactions"? 2) "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 1,05,40,955/- made by Assessing Officer on account of interest expenses incurred by the assessee to avail unsecured loan from loan creditor"? 3) "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has ignored the operative provisions of section 68 that onus to prove identity, creditworthiness and genuineness of the transaction u/s 68 is on the assessee as confirmed by the Hon'ble Supreme Court in the case of Rupal Jain vs. Commissioner of Income Tax(2023) 152 taxmann.com 346 (SC)".
5. Before us, Ld.CIT DR for the Revenue submits that during the course of assessment proceedings, AO has issued summons u/s 133(6) of the Act on 08.01.2015 to the lender to submit details of the loan given to the assessee. In response to which, proper details were not filed by the assessee thus, a notice u/s 131 of the Act was issued to the lender i.e. Shri Rohit Jindal, Proprietor of M/s. Shree Balaji Steels however, the lender had not appeared personally in response to the said notice and sought time. As lender had not appeared in person and the AO from the details found that the income declared by the lender was only of INR 10,89,220/- which is on the lower side and therefore, he was of the view that the creditworthiness of the lender is not established. Ld. CIT DR further submits that Ld. CIT(A) has erred in deleting the additions without appreciating the fact that the lender had failed to appear before the AO thus, his identity is also doubtful. Moreover, the creditworthiness is also doubtful looking to the lower income declaration. The assessee is a Private Limited Company and it cannot be accepted that such a huge loan is given by a person who has no acquaintance with the Directors of the assessee company and therefore, it is the duty of the Director of the assessee company to produce the lender before the AO for examination. Under these circumstances, Ld.CIT DR supports the order of the AO and requested for the confirmation of the order passed by the AO and restoration of the additions so made. Alternatively, ld. CIT DR placed reliance on the judgement of Hon’ble Delhi High Court in the case of CIT-II vs M/s. Jansampark Advertising & Marketing (P.) Ltd. in vide order dated 11.03.2015 wherein the Hon’ble High Court has held that “where the AO has failed to make proper inquiries, the matter should be remitted back to the AO for verification and accordingly, prayed for the remand to the file of AO.
6. On the other hand, Ld.AR for the assessee vehemently supported the orders of Ld. CIT(A) and submits that during the year under consideration, the assessee received total amount of INR 10,70,00,000/- out of which INR 6,17,00,000/- were repaid however, there was an opening balance of INR 12,52,23,311/- therefore, the closing balance was remained at INR 18,00,10,170/- for which the addition was made. He further submits that in terms of provision of section 68 of the Act, the credits received during the year could only be considered and as submitted above, the total loan of INR 10,70,00,000/- received during the year only as against which the addition was made of INR 18,00,10,170/-. Thus, the addition should not be made in excess of the amount received during the year. With regard to three ingredients of section 68 of the Act viz. identity, genuineness of transactions and creditworthiness of the lender, Ld.AR submits that all the evidences were filed to establish identity, creditworthiness and genuineness of the transactions by filing confirmation, ledger account of the lender, bank statement, ITR and Audit Report including financial statements of the lender. Ld.AR further submits that the lender is proprietor of M/s. Shree Balaji Steels who is a consignment agent of Jindal Stainless Ltd. and regularly receives substantial amounts from sales made on consignment basis which are duly credited in its regular bank account out of which funds were given to the assessee as loan. He further submits that lender in response to summons issued u/s 133(6) of the Act, had filed the relevant details and merely because he had not personally appeared before AO in response to summons issued u/s 131 of the Act, it cannot be held that person is non-existent or the transaction is not genuine. Ld.AR further submits that Ld.CIT(A) after considering these facts and also after making verification of the availability of the funds in the hands of the lender by examining the bank statement of lender, reached to the conclusion that the lender has creditworthiness and therefore, deleted the additions made. Under these circumstances, Ld.AR for the assessee submits that the order of Ld.CIT(A) deserves to be uphold. Ld.AR also filed the submission which reads as under:- 5. “During the year under consideration, the assessee had taken interest bearing unsecured loan of Rs.10,70,00,000 from Shri Rohit Jindal Prop. M/s Shree Balaji Steels ('the lender'). There was an opening balance of outstanding loan of Rs. 12,52,23,311. Further, the assessee had, during the year under consideration, repaid Rs.6,17,00,000 resulting in balance outstanding of Rs. 18,00,10,170.
6. It is respectfully submitted that Shri Rohit Jindal Prop. M/s Shree Balaji Steels is a consignment agent of Jindal Stainless Ltd., regularly receiving substantial amounts on account of sales made on consignment basis. The said commission income is duly disclosed by the lender in the return of income and is regularly assessed to tax over the years. Copy of the month-wise details of amounts received by the lender from Jindal Stainless Ltd on account of sale of goods aggregating to Rs.415.29 crores during the year under consideration is placed at pages 246-248 of the PB.
7. To substantiate the identity & creditworthiness of the lender and genuineness of the said transaction(s), the assessee duly placed on record the following documents before the assessing officer: Name, PAN and address of the lender- Refer pages 44 of PB; Ledger account of the lender for the period 01.04.2011 to 31.03.2012 in the books of the assessee wherein all the transaction stands recorded with opening balance of Rs.12,52,23,311 and closing balance of Rs.18,00,10,170 - Refer pages 46 of PB; Ledger account of the assessee in the books of Shri Rohit Jindal Prop. M/s Shree Balaji Steels alongwith confirmation wherein all the transaction stands recorded. On perusal of the same, it is clear that the assessee has in fact repaid outstanding loan to the extent of Rs.6.17 crores during the year, while has only received Rs.10.17 crore (not Rs.18,00,10,170 as alleged by the assessing officer) - Refer pages 47 of PB; Details of Interest on said loan booked in the books of the assessee alongwith the details of Tax deducted at source, challan of tax paid - Refer pages 48-49 of PB; Copy of acknowledgment of income tax return filed by the lender for the assessment year 2012-13 declaring total taxable income of about Rs.10.89 lakhs, audited financial statements of the lender for the year ending on 31.03.2012 - Refer page 53-58 of PB; Bank account statements of the lender for the period 01.01.2012 to 31.03.2012, clearly substantiating the loan entries - Refer pages 59-201 of PB; Tax Audit Report in Form 3CB-CD of the lender for the assessment year 2012-13-Refer pages 202-211 of PB; Bank account statements of the assessee for the period 01.04.2011 to 31.03.2012, clearly substantiating the loan entries - Refer pages 249-251 of PB.
8. The assessee duly received loan from the lender in earlier years as well; no adverse inference has ever been drawn by the Revenue qua the said transactions in completed scrutiny assessments. The assessee has duly placed on record assessment order passed in the case of the assessee for the immediately subsequent year i.e. assessment year 2013-14-Refer page 273 of PB.”
We have heard the rival contentions and perused the material available on record. In the instant case, the solitary issue is with regard to the addition of INR 18,00,10,170/- being an amount of loan outstanding at the end of the year received from Shri Rohit Jindal, Proprietor of M/s. Shree Balaji Steel. The AO further disallowed the amount of interest paid on such loan totaling to INR 1,05,40,955/-. From the facts of the case, it is seen that during the year under appeal assessee has received total sum of INR 10,70,00,000/-. It is settled law that sum credited/received during the year could only be questioned for the purpose of section 68 of the Act and thus no addition could be made for the balance amount which is the opening balance brought forward from earlier year.
8. With regard to the amount of loan of Rs. 10,70,00,000/- received during the year, the AO issued summons u/s 133(6) of the Act to the lender who in response, filed copy of ITR, Balance Sheet, Audit Report, ledger account of the assessee in its books of accounts, bank statements reflecting the payments made to the assessee. Solely for the reason that the lender had not appeared personally before the AO in response to summons issued u/s 131 of the Act, the AO doubted the identity of the lender. It is also seen that the lender had declared commission income from the consignment sales and for the year under appeal, total income declared by the lender was INR 10,89,220/- thus, the AO alleged that the lender has no creditworthiness to give such a huge amount of loan to the assessee. It is further seen that though there was a closing balance of INR 18,00,10,170/- of the unsecured loans taken from Shri Rohit Jindal however, the assessee had repaid a sum of INR 6,17,00,000/- to the lender. Since all the transactions were routed through banking channels therefore, genuineness of the transaction cannot be doubted. Ld. CIT(A) after considering the fact that the assessee has discharged the burden to prove the identity of the lender by filing its ITR and for establishing creditworthiness, the financial statement and bank statement submitted where the sufficient funds were available before making loan to the assessee.
Under these circumstances, Ld. CIT(A) has deleted the additions made by the AO. The observations made by Ld. CIT(A) in para 5.2.1 to 5.2.9 are as under:- 5.2.1. “I have considered the Assessment Order and the judgements relied upon by AO, the Grounds of Appeal, the submissions made by the assessee, the Paper Book filed during the proceedings along with the various judgements relied on by the assessee. 5.2.2. It is noticed that the assessee has availed the Unsecured Loan from one Shri Rohit Jindal Prop. Shree Balaji Steels during the regular course of business. The Ledger Account shows Unsecured Loan availed during the current Financial Year 2011-12 amounting to Rs. 10,70,00,000/- and repaid an amount of Rs.6,17,00,000/- during the same Financial Year 2011-12, upon including the Opening Outstanding Balance of Rs.12,52,23,311/- and the interest costs Rs.1,05,40,955/- [(-) 10,54,096 TDS] the Closing Balance of Unsecured Loan comes to Rs.18,00,10,170/-, which has been considered as unexplained cash credit u/s.68 of the Act by AO and added to the Returned Income of the Assessee. Apparently therefore, the entire sum of Rs. 18,00,10,170/- is not availed during the specified Financial Year 2011-12 relevant to Asst. Year 2012-13. The key tests to sustain additions as unexplained cash credits u/s. 68 of the Act lies in Three Parameters/Conditions comprising of Identity of Loan Creditor, Genuineness of transaction and the Creditworthiness of the Loan Creditor. Let us examine and test the transaction on each of the parameter/condition on the facts of the case. 5.2.3. The Assessee is an incorporated body corporate as a Private Limited engaged into the business of Securities, Shares and F&O Trading having earned Revenue of Rs.50,74,202/- (Previous Year: Rs.1,33,21,386/-). The Assessee has also earned Gross Rental Income of Rs.1,02,00,000/- which is accepted by the AO in the Assessment Order dated 16/03/2015 for the relevant Asst. Year 2012-13 passed u/s. 143(3) of the Act. The Funds of the impugned Loan account are received in the regular Bank Account No.02922000005615 maintained with HDFC Bank Ltd; Rajouri Garden, New Delhi through the proper Banking Channel. And as per Audited Financial Statements, these funds availed from Unsecured Loan have been utilized to Retire the earlier Debt availed from Ganga Ferro Alloys Private Limited, which is not disputed by the Ld. AO. Hence, all the business transactions and the trail of Unsecured Loan Funds are conducted through single Bank Account No.02922000005615 maintained with HDFC Bank Ltd; Rajouri Garden, New Delhi through the proper Banking Channel, which is disclosed to the Department. The entire unsecured loan has also been squared up and repaid in subsequent year(s), which is accepted by the department in assessee own case vide Assessment Order dated 25.02.2016 for the Asst. Year 2013-14 passed u/s. 143(3) of the Act. Therefore, considering the entirety of facts, the Genuineness of transactions on these counts in my considered view can be accepted. 5.2.4 Coming to the Identity of the Loan Creditor Shri Rohit Jindal Prop. Shree Balaji Steels is engaged into Consignment Sales and Commission Agent of Stainless Steel Flats stated to be part of the Established Industrial Group. The Notice(s) and Summons are duly served and acknowledged. The Loan Creditor is conducting business operations through principal Bank Account No.01422320005504 maintained with HDFC Bank Ltd; Sandoz House, Worli, Mumbai-400 018 which shows substantial business transactions, which is fully disclosed to the department, regularly assessed to Income Tax, which is not disputed by Ld. AO at any point of time. The Loan Creditor has submitted vide letter dated 19.01.2015 the requisite information like PAN, Copy of Return of Income, Computation of Total Income, Copy of Ledger Account of the Assessee in their Books of Accounts for the period from April, 2011 to March, 2012, Copy of P&L A/c. and Balance Sheet as on 31st March, 2012, Copy of Tax Audit Report for the Asst. Year:2012-13 and Copy of Bank Statement extracted as on relevant dates when the lender has advanced money to assessee. The substantial banking operations cannot be conducted without Banking Norms and KYC Compliances. Therefore, the Existence and Identity of Loan Creditor is also established and settled. 5.2.5. The Last Parameter of Creditworthiness for Loan Creditor is required to be gauged and tested on the nature of transaction on the facts of the case. The AO has suspected the impugned transactions on low income of Rs. 10,89,220/- offered by Loan Creditor Shri Rohit Jindal Prop. Shree Balaji Steels for the Asst. Year 2012-13. The AO suspicion grown further, when Loan Creditor although for a reason missed the date of personal appearance on 19.02.2015 pursuant to summons issued u/s. 131 of the Act. The Assessee Company was again asked to produce Loan Creditor Shri Rohit Jindal on 05.03.2015, this also failed. This resulted AO to conclude dubious nature of transaction having emanated from net-work of Entry Providers in the process applied various case laws (although distinguishable on the facts of case) in concluding unexplained cash credit u/s. 68 of the Act and added the sum of Rs. 18,00,10,170/- (Including Opening Outstanding Balance Rs.12,52,23,311/-) to the Returned Income/(Loss) of Rs.(44,46,842/-). No doubt that the Loan Creditor has failed to personally appear before the AO in the assessment proceedings and submit to the established procedures and process of law. But that itself cannot be open for Ld. AO to conclude the dubious nature of transactions without any further inquiry bring about any evidence on record contrary to information and material available on record. It may be noted suspicion howsoever strong cannot partake character of tangible proof or evidence beyond a reasonable doubt. There is absence of live link between the evidence available on record and conclusion drawn for additions made of the unexplained cash credit u/s. 68 of the Act. The Legal Maxim Audi alteram partem is amongst the fundamental requirement that the law and procedure must be of a fair, just and reasonable kind. The principle of natural justice comes into force when no prejudice is caused to anyone in any administrative action. The principle of Audi Alteram Partemis doctrine states the no one shall be condemned unheard. 5.2.6. The appellant has demonstrated the availability of sufficient bank balance(s) from the Bank Statements filed from Page No.13 to 155 of the Paper Book, on each of the transaction day for the period of 16/02/2012 to 29/03/2012 loan advanced during the Financial Year 2011-12, which is tabulated as under:
Date of Amount of Loan Bank balance on Page No. of paper book Receipt of Received date of payment showing the payment in Loan by lender the Bank Statement 16/2/12 2,00,00,000 7.48 crores 86 17/2/12 1,00,00,000 4.40 crores 88 18/2/12 75,00,000 3.41 crores 89 21/2/12 3,00,00,000 6.90 crores 93 22/2/12 1,00,00,000 4.58 crores 94 23/2/12 1,00,00,000 5.04 crores 96 24/2/12 1,25,00,000 5.89 crores 98 29/3/12 70,00,000 5.92 crores 148 Total 10,70,00,000
5.2.7. Therefore, the bank statement clearly establishes the creditworthiness of the Loan Creditor. The appellant on Page No.287 of Paper Book has further disclosed that the amount of Rs. 18,00,10,170/- the impugned cash credit assumed by AO, includes Opening Balance of Rs.12,52,23,311/- as on 01.04.2011 and during the Financial Year 2011-12 the appellant has had availed only Loans aggregating to Rs. 10,70,00,000/. The appellant has further stated on Page No.283 and 284 that the entire unsecured loan of Rs. 18,00,10,170/- is squared up and repaid much before the passing the current Assessment Order on 16.03.2015, for the Asst. Year 2012-13. The Loan Balance Outstanding as on 31.03.2013 is just
44,02,510/-which is assessed and accepted by AO (Page 201 of Paper Book)in the subsequent year vide Assessment Order u/s. 143(3) for the Asst. Year 2013-14 passed on 25/02/2016. Thus, the transactions with same Loan Creditor Shri Rohit Jindal Prop. Shree Balaji Steels were accepted in appellant own case in subsequent Asst. Year:2013-14 The Appellant has further stated on page no.284 the impugned Loan Balance is NIL as on 31.03.2014, thus entire Unsecured Loan of Rs. 18,00,10,170/- is squared up and repaid in subsequent years much before passing this Assessment Order for AY 2012-13. 5.2.8.The assessee has pleaded that The appellant has discharged his initial burden by filing all the relevant documents. The Lender has filed its response pursuant to notice u/s 136(6). Lender has also filed his reply in response to notice u/s 131 seeking further time. The appellant has again filed all the documents again vide its letter dated 02.03.2015. The AO has not rebutted any of the documents filed by us and rejected the same without any reason. The AO has also not proved that the money has moved from the appellant to the lender. 5.2.9. I concur with the appellant claim as there appears sufficient bank balance(s) to advance the loan on each occasion besides, the Loan Creditor has established business network with substantial business transactions, the AO has not produced any evidence neither any traces are found for Jamakharchi or Accommodation Entries, the unsecured loan was subsequently squared up and repaid, the transactions with the Loan Creditor are accepted in subsequent Asst. Year 2013-14 in Assessee's own case. The doubts cast on AO mind purely on two counts (i) Low Income base of Loan Creditor. (ii) Non-appearance for personal hearing raised the suspicion cannot be sole and sufficient ground for additions or disallowances as AO failed to produce any cogent and legally admissible evidence on record nor any inquiry or inspection conducted. The case laws relied upon by the AO purely relates to Share Capital which is non-refundable in its class and character. However, in the present case Unsecured Loan belongs to different class, repayable on demand in character, which has been squared up and repaid in the immediate succeeding year(s), which is accepted by the department. Therefore, the addition of Rs. 18,00,10,170/- on Unexplained Cash Credit u/s. 68 of Act is directed to be deleted on merits and case laws relied upon by the appellant. These Grounds Nos, 2 and 2.1 to 2.5of Appeal are allowed.”
The perusal of the order of ld. CIT(A) revealed that the appellant has proved creditworthiness of the creditor by submitting its audited annual accounts along with relevant bank statements of the lender. The Assessing Officer has not proved that any cash was deposited prior to giving cheque to appellant. Further even though appellant was not required to prove sources of source, the bank statement submitted by appellant clearly reflects such sources which is not doubted by A.O. nor any inquiry has been made by A.O. for concluding that loan received by appellant is accommodative loan. The A.O. has not doubted the utilisation of such loan taken by appellant and such loan has been used to repay other loans and finally the alleged loan was also repaid in subsequent Assessment Years after alongwith interest after deducting due TDS as per law. It is also relevant to state that during the year itself, repayment of INR 6.17 crores was made which has been ignored and also the fact that the loan was finally repaid in subsequent years was also ignored while holding the loans as bogus.
At this juncture, we first refer to the provision of section 68 of the Act:- Cash credits. 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 :
Provided that where the sum so credited consists of loan or borrowing or any such amount, by whatever name called, any explanation offered by such assessee shall be deemed to be not satisfactory, unless,— (a) the person in whose name such credit is recorded in the books of such assessee also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided also that nothing contained in the first proviso or second proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.”
A bare reading of Section 68 suggests that there has to be credit of amounts in the books maintained by an assessee; such credit has to be of a sum received during the previous year; and the assessee offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The expression "the assessee offer no explanation" means where the assessee offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. It is true that the opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion.
Coming to the facts of the present case in the line of the above proposition of law, from the perusal of details filed by the assessee, it is seen that the assessee filed the following documentary evidences:- (i) Confirmed Copy of account statement; (ii) Bank statement of the lender; (iii) Audited financial statement of the lender; (iv) Tax Audit report of the lender; (v) Copy of ITR acknowledgement of the lender; and 13. Further the compliance was made by the lender in response to notice u/s 133(6) of the Act issued by the AO however, due to ill health, personal attendance was not made before the AO in response to the summon issued u/s 131 of the Act and a request for adjournment of 15 days was made which not acceded to by the AO.
It is also relevant that an amendment is made vide Finance Act, 2022 wherein second proviso to section 68 of the Act is added so as to provide that the nature and source of any sum, whether in the form of loan or borrowing, or any other liability credited in the books of an assessee shall be treated as explained only if the source of funds is also explained in the hands of the creditor or loan provider. However, this additional onus to prove satisfactorily the source in the hands of the creditor, would not apply if the creditor is a well-regulated entity, i.e., it is a Venture Capital Fund, Venture Capital Company registered with SEBI. This amendment has taken effect from 1stApril, 2023 and accordingly applies in relation to the assessment year 2023-24 and subsequent assessment years. The year before us is AY 2012-13 thus, this amendment is not applicable.
As observed above, the requirement of explaining ‘Source’ of ‘Source’ in respect of loans is applicable from A.Y. 2023-24 and subsequent years. Reliance in this regard is placed on the judgement of co-ordinate Delhi bench of ITAT dated 31.05.2022 in the case of M/s Mall Hotels Ltd. Vs. CIT (ITA No. 2688/DEL/2014). The coordinate Delhi Bench of ITAT in the case of ACIT v Smt. Prem Anand (ITA No. 3514/Del/2014) vide its decision dated 13.04.2017 has held that amendment made in section 68 of the Act w.e.f. 01.04.2013 empowers the A.O. to examine source of source in case of share application money / share capital / share premium from 01.04.2013 and this amendment does not give power to the A.O. to examine source of source of non-share capital cases.
Regarding surrounding circumstances, it is observed that while making addition u/s 68 of the Act, the AO has doubted the financial capacity of loan creditor but such addition cannot be made on preponderance of probability and there has to be some evidence and substance in contention. The Assessing Officer has not brought anything on record to establish that the sources in the hands of loan creditor is non-genuine, rather the lender established that he is the consignment agents of Jindal Steel and always have large funds from the sale of consignment goods which were utilized for giving loan to the assessee. Merely because he has shown less income, loan taken by appellant from him cannot be held to be bogus or unexplained when the assessee has demonstrated that the lender has sufficient balance in the bank when the loan was given. It is well-settled position of law that no matter how strong suspicion is, it cannot take place of the evidence. Therefore, in the absence of any evidence showing that in fact, appellant has given cash in lieu of unsecured loan taken, merely on the basis of suspicion, no addition can be made for which reliance is placed on decision of Hon'ble Supreme court in the case of Daulatram Rawatmull (1964) 53 ITR 574 (SC).
The Co-ordinate Bench of ITAT, Delhi in the case of ITO Vs. Alpha Contech Pvt. Ltd. in vide order dated 28.07.2023 while deleting the additions made by AO by alleging the loan creditors as bogus, has held as under: 7. On careful consideration of above rival submission, first of all, we note that the Assessing Officer made addition u/s. 68 of the Act, by observing that despite several opportunity the assessee failed to prove creditworthiness of lender and genuineness of transaction and thus could not discharge onus as per requirement of sec 68 of the Act. The assessee carried the matter before ld. CIT(A) and filed additional evidence under rule 46A of the Rules on which remand report was called wherein the Assessing Officer did not made any adverse comment on the additional documentary evidence of assessee and also admitted that the lender company received amount of Rs. 7,30,62,000/- as share premium reserve during immediately preceding assessment year and amount of loan of Rs. 3.60 crore advanced to the assessee during present assessment year was from the said reserve amount. The remand report of the Assessing Officer supported the case of assessee which was based on the strength of additional evidence filed by the assessee without raising any doubt or discrepancy therein.
8. We also find and appropriate to reproduce the relevant operative part of first appellate order as follows:- The appellant company has received Rs.3,60,00,000/- from M/s Fennie Commercial Pvt. Ltd. as unsecured loan / share application money during the year. The same was added by the AO on the ground that appellant has failed to file confirmation as well as other supporting documents of the lender party before AO to prove identity, genuineness and creditworthiness of the party. During the course of appellate proceedings, appellant filed an application under Rule 46A and filed following documents to prove identity, genuineness and creditworthiness of the party: i. Copy of Acknowledgement of IT. Paper Book page no. 48. ii. Copy of Audited Financial Statements along with all the annexures. Paper Book page no. 49-60. iii. Copy of Confirmed ledger account. Paper Book page no. 61. iv. Copy of Bank Statements reflecting the amount given to the assessee company. Paper Book page no. 62-63. v. Copy of confirmation. Paper Book page no.
These documents were forwarded to the A for carrying out necessary enquiry with reference to the lender party. The Assessing Officer after conducting enquiries with reference to the lender party has submitted remand report vide his letter dated 2.03.2016 which was forwarded by the Addl. CIT, Range 2 vide his letter dated 08.03.2016. The relevant part of the remand report is submitted as under: "4. As per directions received, the submissions made by the assessee before your good self as well as additional evidence submitted by it for admission at the appellate stage have been carefully perused. Besides, the additional evidence furnished by the assessee has also been independently verified from this Office by way of issue of letter us 133(6) of the Income Tax Act, 1961, to the third party concerned, i.e., to Ms Fennie Commercial Private Limited, 96-AV9, Neelkanth Apartments, Kishan Ganj, Vasant Kunj, New Delhi - 110070.
The said party has furnished its detailed reply to the letter issued us 133(6) vide its letter dated 08.01.2016, which is placed on record. The said party has given the details of the share application money of Rs.3.60 crores advanced by it to the appellant company and also produced the ledger account of the assessee company in its books for the relevant period, apart from the copy of the ITR-V in its case, copy of the Audit Report, Balance sheet, P & L Account and annexures. It is also seen from the annexures to the Audit Report that under the head "Loans & Advances (totaling Rs. 7,41,00,000/-), the name of the appellant company is appearing the List of Share application money given details wherein the sum of Rs.3.60 crores has been shown against the name of the appellant company, amongst other entities to whom share application money had been advanced by this company. As regards the source of investment made by this company, it has been submitted that the same has been made out of its own sources. Further, the perusal of the Balance Sheet of this company shows that it has Share Premium Reserve of Rs.7,30,62,000/-, which is the same as in the immediately preceding previous year, out of which funds have been invested in the appellant company and others.
However, it is also seen from the P & L Account filed in this case that this company has no apparent business activity during the relevant period, i.e. during the FY 2010-11, and it has declared a nominal sum of Rs.35,600/- as Consultancy / Commission income. This company has also furnished a copy of the intimation us 143(1) in its case, issued by CPC, Bangalore, in response to the specific query regarding furnishing copy of assessment order passed in its case for AY 2011-12.
7. As regards the present position of the said money advanced by MIs Fennie Commercial Pvt. Ltd. to the appellant company, it has been stated that they have not received any shares from M/s Alfa Contech Private Limited till date and the said Sum is lying as Loans & Advances in their books. However, this company has not furnished copy of its latest IT filed as well as copy of Audit Report, Balance Sheet and P & L Account despite being specifically called for in the letter issued us 133(6) to it.
It is also submitted here that as per the Balance Sheet of the appellant company for the AY 2011-12, it has shown a sum of Rs.3.60 crores as "Loans from Body Corporate", as per Schedule 3 annexed to the Balance Sheet and not as Share Application Money. Also, as per details filed by the appellant vide its letter dated 03.02.2014 during the course of the assessment proceedings in its case for AY 2011-12, it has furnished the name of Ms Fennie Commercial Private Limited, PAN AAACF9549A, from whom it had allegedly received unsecured loan of Rs.3.60 crores whereas the said party is showing this Loan & Advance as "Share Application Money". It is seen from the remand report that Assessing Officer has carried out enquiry with the lender party us 133(6) of the I.T. Act. The said
party furnished the detailed reply vide its letter dated 08.01.2016. It has been reported by the AO that Ms Fennie Commercial Pvt. Ltd. has confirmed that it has given share application money of Rs.3.60 crore which has been accounted for by the appellant as unsecured loan in its balance sheet. The AO has also examined the ledger account of the appellant company from the lender party's books of accounts. The lender party has also filed copy of its return of income, audit report, balance sheet, profit & loss account and annexures. It has been observed by the AO from the annexures of the audit report that lender has shown loans and advances totalling Rs.7,41,00,000/- in its balance sheet. The appellant's name is also appearing in the loan and advances and has been shown as share application money of Rs.3.60 crore in the name of appellant. AO has also verified the balance sheet of the lender company and it is seen that said company has shown share premium reserve in its balance sheet in A.Y. 2010-11 out of which the amount has been given to the appellant. All these facts establish the identity, creditworthiness and genuineness of the transactions. It is seen that the said party has confirmed the transactions with the appellant and source of the money is also explained. M/s Fennie Commercial Pvt. Ltd. is assessed to tax with Ward 9(1). New Delhi and filing its return of income. The appellant company has filed copies of their bank statement, balance sheets and profit & loss a/c of the lender company before me to prove the identity, creditworthiness and genuineness of the transaction. These facts have been verified by the AO in the remand proceedings and has submitted report in this regard. It is seen that name of the appellant company is appearing in the balance sheet of the lender company. In view of the documents filed by the above named lender company before me as well as AO, it is established that the identity, source, creditworthiness of the lender company and genuineness of the transactions has been established. I find that the AO has not been able to bring on record any evidence to negate the genuineness of the transaction done by the appellant. Therefore, the addition cannot be sustained only on suspicion and surmises. Considering the fact that the identity, genuineness and creditworthiness of the lender company duly established, the addition made by the A cannot be upheld and hence the AO is directed to delete the addition of Rs.3,60,00,000/- made on account of unexplained income us 68 of the I.T. Act. In support of my above decision, reliance is placed on following judicial pronouncements: a. CIT Vs. Fair finvest Itd. [ 2014 ] 44 taxmann.com 356 (Delhi) HIGH COURT OF DELHI "Section 68 of the Income-tax Act, 1961 - Cash credit - Assessment year 2002-03 - Where assessee had filed documents including certified copies issued by Registrar of Companies in relation to share application and affidavits of directors, Assessing Officer could not make addition on account of share application money solely on basis of investigation report [In favour of assessee. Where assessee adduces evidence in support of share application monies, it is open to Assessing Officer to examine it and reject it on tenable grounds. In case he wishes to rely on report of investigation authorities, some meaningful enquiry ought to be conducted by him to establish a link between assessee and alleged hawala operators. Where assessee had filed documents including certified copies issued by Registrar of Companies in relation to share application, affidavits of directors, Form 2 filed with Registrar of Companies by such applicants, confirmations by applicants for company's shares, certificates by auditors, etc., Assessing Officer was not justified in making addition under section 68 on account of share application money merely on general inference to be drawn from the reading of the investigation report. The least that Assessing Officer ought to have done was to enquire into matter by, if necessary, invoking his powers under section 131 summoning the share applicants or directors. b. Commissioner of Income-tax v. Mark Hospitals (P.) Ltd. [ 2015 ] 58 taxmann.com 226 (Madras) HIGH COURT OF MADRAS "Section 68 of the Income-tax Act, 1961 - Cash credit (Burden of proof - Assessment year 2006-07 - Assessee had obtained unsecured loans from agriculturists and submitted their names and addresses, but did not provide their PAN cards - Assessing Officer made addition under section 68 - It was found that loans were given to assessee through cheques and all creditors had confirmed that they had advanced loans mentioned against their names to assessee and, thus, identity of creditors could not be disputed - Further, all creditors were agriculturists and therefore, they did not have PAN card - Whether, on facts, no addition could be made - Held, yes [Para 6] [In favour of assessee]" c. ITO Vs. Neelkanth Finbuild Ltd., [2015] 61 taxmann.com 132 (Delhi - Trib.), held that "6. Keeping in view the findings given so the Assessing Officer as well as the learned first appellate authority and the documentary finding by the assessee before us, we are of the considered view that the learned first appellate authority has deleted the addition in dispute on the basis of various documentary evidence filed by the assessee before the Assessing Officer as well as before him. The hon'ble Supreme Court of India (sic.) in the case of CIT v. Lovely Exports (P.) Ltd. [2008] 299 ITR 268 (Delhi) which has confirmed the order of the hon'ble Delhi High Court has held that once the identity of the shareholder have been established, even if there is a case of bogus share capital, it cannot be added in the hands of the company unless any adverse evidence is not on record. The learned first appellate authority has examined the documentary evidence filed by the assessee before the Assessing Officer as well as before him and held that the assessee has provided confirmations from all the parties as well as various evidences to establish the genuineness of the transaction, the assessee has also relied upon the judgment of Nemi Chand Kothari v. CIT [2003] 264 IT 254/[2004] 136 Taxman 213 (Gau.) wherein it has been held that it is a certain law that the assessee is to prove the genuineness of transaction as well as the creditworthiness of the creditor must remain confined to the transactions which have taken place between the assessee and the creditor. It is not the business of the assessee to find out the source of money of creditors. Similar observation has also been given in the case of S. Hastimal v. CIT [1963] 49 ITR 273 (Mad.) and CIT v. Daulat Ram Rawatmull [1973] 87 IT 349 (SC). The learned first appellate authority has cited various decisions rendered by the hon'ble Supreme Court of India as well as the hon'ble jurisdictional High Court in the impugned order and finally has held that the assessee has substantiated the transaction regarding share application money received by it was genuine transaction and the same were not accommodation entries. He did not find any evidence collected by the Assessing Officer which could prove otherwise and deleted the additions in dispute. As regard the addition of Rs. 12,500 made on account of commission which was presumed to have been allowed by the assessee for obtaining the hawala entry in dispute, the learned Commissioner of Income-tax (Appeals) observed that the Assessing Officer was not able to bring anything on record that it was the assessee's own money which was routed in the form of share application money and has rightly deleted the same.
7. Keeping in view all the facts and circumstances, we are of the considered view that the learned first appellate authority has passed the impugned order under the law and according to the facts of the present case and has rightly deleted the addition in dispute. We find no infirmity in the impugned order and uphold the impugned order by dismissing the appeal filed by the Revenue." d. Honorable Supreme Court of India in the case of CIT v. Kamdhenu Steel & Alloys Ltd., SLP (CC) no. 15640 of 2012, dated 17-09-2012 (Supreme Court), wherein the Hon'ble Supreme Court has dismissed the Special Leave Petition filed by the Revenue against the decision of Hon'ble Delhi High Court in the case CIT v. Kamdhenu Steel & Alloys Ltd. in which it has been held by Hon'ble Court that once adequate evidence/material given by the assessee, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter, in case such evidence is to be discarded or it is proved that the assessee has "created" evidence, the Revenue is supposed to make thorough probe before it could nail the assessee and fasten the assessee with such a liability under Section 68 and 69 of the Act." e. Commissioner of Income Tax -9 Erstwhile CIT-VI v. Vrindavan Farms (P) Ltd, ITA 71/2015, ITA 72/2015, ITA 84/2015, the High Court of Delhi held as under : "3. The ITAT has in the impugned order noticed that in the present case the Revenue has not doubted the identity of the share applicants. The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their Income Tax Returns. The entire details of the share applicants were made available to the A by the Assessee. This included their PAN numbers, confirmations, their bank statements, their balance sheets and profit and loss accounts and the certificates of incorporation etc. It was observed by the ITAT that the AO had not undertaken any investigation of the veracity of the above documents submitted to him. It has been righty commented by the ITAT that without doubting the documents, the AO completed the assessment only on the presumption that low return of income was sufficient to doubt the credit worthiness of the share holders.
The Court is of the view that the Assessee by produced sufficient documentation discharged its initial onus of showing the genuineness and creditworthiness of the share applicants. It was incumbent to the AO to have undertaken some inquiry and investigation before coming to a conclusion on the issue of creditworthiness. In para 39 of the decision in Nova Promoters (supra), the Court has taken note of a situation where the complete particulars of the share applicants are furnished to the AO and the AO fails to conduct an inquiry. The Court has observed that in that event no addition can be made in the hands of the Assessee under Section 68 of the Act and it will be open to the Revenue to move against the share applicants in accordance with law.
5. In the facts and circumstances of the present appeals, the Court is satisfied that no substantial question of law arises. The appeals are dismissed." The facts of the above cited judicial pronouncements are identical with the facts of the appellant case, therefore, the ratio of the above cited judicial pronouncements is squarely applicable to the facts of the appellant case, hence, unsecured loan received by the appellant from M/s Fennie Commercial Pvt. Ltd. cannot be termed as unexplained income of the appellant and cannot be added u/s 68 of the I.T. Act. Therefore, the unsecured loan received from the above mentioned party is treated as genuine transaction and cannot be added us 68 of the I.T. Act. Therefore, the addition of Rs.3,60,00,000/- is deleted.
Further on the issue of discharging of onus, the Hon'ble Jurisdictional High Court in the case of Mod. Creations (P.) Ltd. v. ITO reported in [2013] 354 ITR 282, has been held as under:
"It will have to be kept in mind that Section 68 of the I.T. Act only sets up a presumption against the Assessee whenever unexplained credits are found in the books of accounts of the Assessee. It cannot but be gainsaid that the presumption is rebuttable. In refuting the presumption raised, the initial burden is on the Assessee. This burden, which is placed on the Assessee, shifts as soon as the Assessee establishes the authenticity of transactions as executed between the Assessee and its creditors. It is no part of the Assessee's burden to prove either the genuineness of the transactions executed between the creditors and the sub-creditors nor is it the burden of the Assessee to prove the creditworthiness of the sub-creditors.
It was further observed by the Hon’ble Court as under: 14. With this material on record in our view as far as the Assessee was concerned, it had discharged initial onus placed on it. In the event the revenue still had a doubt with regard to the genuineness of the transactions in issue, or as regards the creditworthiness of the creditors, it would have had to discharge the onus which had shifted on to it. A bald assertion by the ASSESSING OFFICER that the credits were a circular route adopted by the Assessee to plough back its own undisclosed income into its accounts, can be of no avail. The revenue was required to prove this allegation. An allegation by itself which is based on assumption will not pass muster in law. The revenue would be required to bridge the gap between the suspicions and proof in order to bring home this allegation. The ITAT, in our view, without adverting to the aforementioned principle laid stress on the fact that despite opportunities, the Assessee and/or the creditors had not proved the genuineness of the transaction. Based on this the ITAT construed the intentions of the Assessee as being mala Ride. In our view the ITAT ought to have analyzed the material rather than be burdened by the fact that some of the creditors had chosen not to make a personal appearance before the A.O. If the A.0. had any doubt about the material placed on record, which was largely bank statements or the creditors and their income tax returns, it could gather the necessary information from the sources to which the said information was attributable to. No such exercise had been conducted by the A.O. In any event what both the A.O. and the ITAT lost track of was that it was dealing with the assessment of the company, i.e., the recipient of the loan and not that its directors and shareholders or that of the sub-creditors. If it had any doubts with regard to their credit worthiness, the revenue could always bring it to tax in the hands of the creditors and/or sub-creditors. [See CIT v. Divine Leasing & Finance Etd (20092-229-178.268 (Delhi) and CIT v. Lovely Exports (P.) Ltd. 2006) 215 CTR 495 (SC).* 20. Further, the Hon'ble Delhi High Court in the case of CIT vs. Vrindavan Farms Pvt. Ltd. etc. in of 2015 dated 12th August, 2015 held as under : "The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their return of income. lt was observed by the ITAT that the Assessing Officer had not undertaken any investigation of the veracity of the documents submitted by the assessee, the departmental appeal was dismissed by the Hon’ble High court.”
In the instant case the assessee has repaid a sum of Rs. 6.17 crores and further the entire loan was paid in subsequent years, under these circumstances no addition could be made u/s 68 of the Act. The Hon’ble Gujarat High Court in the case of PCIT vs Ojas Tarmake 150 taxmann.com 75 (Guj.) has observed as under:
where the appellant showed unsecured loans received during the relevant AY and AO made addition on the ground that appellant failed to discharge onus of liability as laid down u/s 68 of the Act since amount of loan received by the appellant was returned to the loan period during the year itself and all the transactions were carried out through banking channel, impugned addition was to be deleted.
In view of above facts and the circumstances of the case, we are of the considered view that the decision of the Ld. CIT(A) deleting the additions made is based on the appreciation of fact that all the relevant documentary evidences were produced by the Assessee to establish the identity and creditworthiness of the lender companies and genuineness of the transactions. Further based on the legal precedents and the fact that the loan was received and repaid through banking channel, ld. CIT(A) had deleted the additions under consideration. We further observed that Hon'ble Jurisdictional High Court in various cases has dealt the issue where assessee has discharged its burden by filing all the necessary evidences to prove the loans as genuine, provisions of section 68 cannot be invoked. Further Hon’ble Gujarat High Court in the case of PCIT Vs. Ojas Tarmake Pvt. Ltd. (supra) has held that where major portion of the credit has been repaid and also looking to the facts that in the instant case the AO had accepted the debit entries as genuine, the Hon'ble Court on the said facts ultimately affirmed the decision of the Tribunal in deleting the addition. Further the Hon’ble Gujarat High Court re-affirmed this view in the case of PCIT Vs. Merrygold Gems Pvt. Ltd. Similar view is also expressed by the Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Karaj Singh [2011] 15 taxmann.com 70 (P&H).
In view of the above discussion and further looking to the fact that when all the relevant details and documentary evidences were produced by the assessee and also by the lender to establish the identity, creditworthiness and genuineness of the transactions, the said evidences cannot be rejected without any contrary documentary evidence brought on record. It is seen that transactions have been done through banking channels and on the date of making of loans, there was sufficient balance available in the accounts of the lender, which proves the creditworthiness and genuineness of the transactions.
It is trite law that suspicion, howsoever strong, cannot take the place of proof as held in Umacharan Shaw & Bros. vs. CIT (1959) 37 ITR 271 (SC). The Hon'ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd v. Commissioner of Income Tax (1954) 26 ITR 775 (SC) has observed that powers given to the Revenue authority, howsoever, wide, do not entitle him to make the assessment on pure guess without reference to any evidence or material. The assessment cannot be framed only on bare suspicion. The assessment should rest on principles of law and one should avoid presumption of evasion in every matter. The assessee, in the instant case, has sufficiently demonstrated the genuineness of transaction and creditworthiness of the loan creditor. On a broader reckoning, the apprehension raised by the Revenue authorities militates against the tangible material and is thus extraneous. Accordingly, we find no infirmity in the order of ld. CIT(A) in deleting the additions made u/s 68 towards the unsecured loan of Rs.18,00,10,170/- taken from Shri Rohit Jindal by holding the same as bogus. Further, since we have already held the loans taken from Shri Rohit Jindal as genuine transaction, question of treating the interest paid to him as ingenuine does not arise and therefore, disallowance of interest has rightly been deleted by ld. CIT(A) which order is hereby confirmed. Accordingly, all the grounds of appeal of the revenue are dismissed.