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Income Tax Appellate Tribunal, ‘B’ BENCH, KOLKATA
Before: Shri Rajesh Kumar & Shri Sonjoy Sarma
Per Shri Rajesh Kumar, Accountant Member:- The Revenue is in appeals before the Tribunal against the orders of ld. Commissioner of Income Tax
ITA No. 485/KOL/2023 (A.Y. 2016-2017) & ITA No. 486/KOL/2023 (A.Y. 2017-2018) S.K. Agarwala & Co. (Appeals), National Faceless Appeal Centre (NFAC), Delhi even dated 16.03.2023 passed under section 250 of the Income Tax Act, 1961 for A.Y. 2016-17& 2017-18.
ITA No. 485/KOL/2023 (A.Y. 2016-17) 2. The only issue raised in the various grounds of appeal is against the deletion of addition of Rs.3,95,00,000/- by the ld. CIT(Appeals) as made by the ld. Assessing Officer under section 68 of the Act in respect of unsecured loans raised by the assessee from nine different entities.
The facts in brief are that the assessee filed its return of income on 15.10.2016 declaring total income of Rs.70,75,050/-, which was processed under section 143(1) of the Act. The case of the assessee was selected for compulsory scrutiny and accordingly statutory notices were duly issued and served upon the assessee. It is pertinent to state that survey under section 133A of the Act was conducted on the assessee on 20.11.2015. The ld. Assessing Officer accordingly called upon the assessee to furnish necessary evidences in support of unsecured loans taken by the assessee from different parties amounting to Rs.3,95,00,000/-. The ld. Assessing Officer also issued notices under section 133(6) of the Act to eight parties in order to verify the identity, genuineness and creditworthiness of the loan creditors. The ld.
ITA No. 485/KOL/2023 (A.Y. 2016-2017) & ITA No. 486/KOL/2023 (A.Y. 2017-2018) S.K. Agarwala & Co. Assessing Officer also issued summons under section 131 of the Act on 12.11.2018 to eight parties as mentioned on paras no. 4 to 7. A letter was also issued to the assessee on 13/12/2018 to produce the abovementioned parties in the office of Assessing Officer on 16/12/2018 for cross examination. However, none appeared in response to the summons issued. Thereafter again summons were issued but none of the parties or their Directors appeared for personal examination in response to the summons issued under section 131of the Act. Show-cause notices were issued on 07.12.2018 and 13.12.2018 to the assessee calling upon as to why the loan amounting to Rs.3,95,00,000/- should not be added back to the income of the assessee as the assessee could not prove their identity, genuineness and creditworthiness of the parties. The said notice was replied by the assessee vide letter dated 13.12.2018 and 17.12.2018 submitting that the parties had replied to the notice under section 133(6) of the Act. All loans and payments were made through banking channels and the loan creditors had replied to the summons under section 131 of the Act and failure of loan creditors to attend in response to summons under section 131 of the Act cannot be ground to hold that the transactions were not genuine and the creditworthiness of the loan creditors was not proved. Finally the ld. Assessing Officer after analysing the evidences filed added unsecured loans taken from nine parties
ITA No. 485/KOL/2023 (A.Y. 2016-2017) & ITA No. 486/KOL/2023 (A.Y. 2017-2018) S.K. Agarwala & Co. amounting to Rs.3,95,00,000/- to the income of the assessee under section 68 of the Income Tax Act.
In the appellate proceedings, ld. CIT(Appeals) after taking into account the contentions and submissions of the ld. Counsel for the assessee allowed the appeal by observing and holding as under:- “5. Decision of CIT(A) 5.1. Ground 1 to 4 pertains to invoking section 68 by treating loans as unexplained cash credits. During the year under consideration, the appellant had taken loan from eight parties amounting to Rs.3,95,000/-. The learned AO called for supporting documents to establish genuineness and creditworthiness of the lender. 5.2. In this regard, the appellant filed lenders copy of Income tax return, loan confirmation, bank statement, details of directors along with copy of their pan card, address, ledger extracts, financials of lenders. 5.3. The learned AO alleged that he could not serve the summon u/s 131 to 2 parties via his inspector and rest of 6 parties despite getting summon U/s 131, did not appear to record statement. Therefore, he treated the underlined loans as bogus and invoked section 68. 5.4. The appellant had submitted the documents required to establish the genuineness of the transaction and/ifi respect of the creditworthiness the appellant submitted the copies of Income Tax Return and their financial statements. The learned AO has not brought any finding of such documents filed by the appellant. Merely due to non-appearance of lenders the learned AO made addition to total income. 5.5. I have perused the records submitted by the appellant and find them in order. It is a settled position that due to non-appearance of third-party lender; the appellant cannot beresponsible and punished by enhancing total income. Inthis regard reliance is placed on judicial pronouncement of Hon’ble SC in case of DCIT.v. Rohini Builders (2002) - [SLP fe002] 254 ITR (St.)] wherein it is held that” ‘Failure of the loan creditors to make personal appearance is no ground to hold that the transactions were not genuine and/or the creditworthiness of the loan creditors is not proved”.
ITA No. 485/KOL/2023 (A.Y. 2016-2017) & ITA No. 486/KOL/2023 (A.Y. 2017-2018) S.K. Agarwala & Co. 5.6. In view of the above, it is reasonable to conclude that the amount credited by the way of loan from third parties is genuine and reliance can be placed on following judicial pronouncements- Nimbus (India) Ltd. Vs DCIT (ITAT Delhi) ITA Nos. 929 & 930/Del/2019 The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed before the Ld Assessing Officer. Accordingly, all the three conditions as required u/s. 68 of the Act i.e., the identity, creditworthiness and genuineness of the transaction were placed before the Ld Assessing Officer and the onus shifted to the Ld Assessing Officer to disprove the materials placed before him. Without doing so, the addition made by the Ld Assessing Officer based on conjectures and surmises cannot be justified. In the case of Shankar Industries v. CIT [1978] 114 ITR 689 (Cal.), the Calcutta High Court held that it is necessary for the assessee to prove prima facie the transaction which results in a cash credit in his books of account. Such proof includes proof of the identity of -; creditor, the capacity of such creditor to advance the money and lastly the genuineness the transaction. Only after the assessee has adduced evidence to establish prima facie the aforesaid, the onus shifts to the department. On the other hand, it was held in the case of CIT v. Metachem Industries [2000] 245 ITR 160 (MP) that where the assessee-firm had satisfactorily explained the credits standing in the name of its partners, the responsibility of the assessee stands discharged. Once it is established that the amount has been invested by a particular person, be he a partner or an individual, then the responsibility of the assessee-firm is over. The assessee-firm cannot ask that person who makes investment whether the money invested is properly taxed or not. If that person owns the entry, then the burden of the assessee-firm is discharged. It is open to the Assessing Officer to undertake further investigation with regard to that individual who has deposited the amount. 5.7. Having established the nature of amount credited (i.e on account of loan) Provisions of section 68 are evaluated and reproduced here under - “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 thereofor 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...” 5.8. In order to invoke section 68, the most essential aspect is that the tax payer do not offer any explanation towards source and nature of such cash credit.
ITA No. 485/KOL/2023 (A.Y. 2016-2017) & ITA No. 486/KOL/2023 (A.Y. 2017-2018) S.K. Agarwala & Co. 5.9. Any entry in books of account is regarded as genuine if the Identity, genuineness of transaction and Creditworthiness of the lender can be proven. The appellant has filed all the necessary documents of the lenders to prove the genuineness. 5.10. In view of the above findings and judicial pronouncements, I am of the considerate view that once the nature of transaction is established, provisions of section 68 shall not be invoked. In the underlined case the loans taken by appellant are repaid as well therefore, there is no net credit to the books of the appellant. Therefore, the addition made by the learned AO for Rs3,95,000/- is deleted. 5.11. Accordingly grounds 1 to 4 of appellant are allowed”.
The ld. D.R. contended before the Bench that the order passed by the ld. CIT(Appeals) is incorrect and has overruled the fact that the assessee has failed to produce these parties despite specifically called upon to do so by issuing various communications by the ld. Assessing Officer. The ld. D.R. submitted that the summons issued to the parties under section 131 of the Act to prove the genuineness of transactions, identity of parties and the parties too have responded to the notices and replied to the summons issued under section 131 of the Act without their personal appearance. The ld DR stated that all the three conditions as required under section 68 of the Act, i.e. identity, creditworthiness of the parties and genuineness of the transactions were not satisfied and further stated that the ld. Assessing Officer has even discussed the documents filed in the assessment order and only then has taken a view that the loans were not genuine. The ld DR submitted that these parties were 6
ITA No. 485/KOL/2023 (A.Y. 2016-2017) & ITA No. 486/KOL/2023 (A.Y. 2017-2018) S.K. Agarwala & Co. having the sources in the form of raising funds through issue of shares and then advancing to the assessee. According to the ld. Assessing Officer, these parties transferred the funds to various parties including the assessee without any any income from operation and, therefore, rightly treated them as doubtful. The ld. D.R. also submitted that all these were bogus and non genuine loansparticularly in view of the fact that no interest has been charged on the loans. The ld. D.R., therefore, prayed that the order of ld. CIT(Appeals) may be reversed and order of the AO may be restored.
On the other hand, ld. A.R., strongly rebutting the argument of ld. D.R., argued that the assessee has filed all the evidences/supporting documents comprising names, addresses, PANs, confirmations, bank statement of the assessee, Bank statement of the lenders, audited accounts, details of directors corroborating the money advanced by the parties to the assessee. The ld. A.R. also submitted that the notices issued under section 133(6) of the Act were duly responded by the parties confirming the transactions with necessary evidences and also confirming that money was lent to the assessee through banking channel. The ld. A.R., strongly refuting the arguments of ld. D.R. that no interest has
ITA No. 485/KOL/2023 (A.Y. 2016-2017) & ITA No. 486/KOL/2023 (A.Y. 2017-2018) S.K. Agarwala & Co. been charged, submitted that interest has been given on the interest paid /provided on these loans after deduction of tax at source. Ld. A.R. also contended that even the loans have been repaid in the subsequent years. Ld. A.R. stated that even the summons issued to the parties under section 131 of the Act were replied, though no personal attendance was made before the ld. Assessing Officer by the loan creditors but mere non-attendance of the third party lenders before the ld. Assessing Officer would not render the transactions as non-genuine. In defence of his arguments ,the Ld. Counsel relied on the following decisions:- (i) CIT –vs.- Dataware Private Limited [ITAT No. 263 of 2011, GA No. 2856 of 2011 dated 21.09.2011 (Calcutta High Court);
(ii) DCIT –vs.- Rohini Builders [2002] 256 ITR 360 (Guj.), order dated 19.03.2001;
(iii) CIT –vs.- Orissa Corporation Pvt. Limited [1986] 159 ITR 78 (SC), judgment dated 19.03.1986.
The ld. A.R., therefore, prayed that the order passed by the ld. CIT(Appeals) after taking into consideration the evidences filed by the assessee as well as by these
ITA No. 485/KOL/2023 (A.Y. 2016-2017) & ITA No. 486/KOL/2023 (A.Y. 2017-2018) S.K. Agarwala & Co. lenders is very reasoned and speaking one and, therefore, the same may kindly be affirmed by dismissing the appeal of the Revenue.
We have heard the rival contentions and perused the relevant material placed before us. Undisputedly the assessee has raised loans from eight parties aggregating to Rs.3,95,00,000/-. As per the direction of the ld. Assessing Officer, the assessee filed all the necessary evidences comprising addresses, names, PANs, Bank statements, loan confirmations, details of Directors, financials of the lenders etc. Besides we note that the notices issued under section 133(6) of the Act to all lenders were also responded by the parties confirming the transactions by filing the necessary evidences. In our opinion the failure of the loan creditors to make personal appearance is not a ground to hold that the transactions were not genuine and/or the creditworthiness of the loan creditors was not proved. We have also examined the documents filed before us and find that these companies had sources to advance the money to the assessee. We take note of the DR argument that no interest has been given on these loans, which has been controverted by the ld. A.R. by placing necessary evidences before the Bench, which showed that interest has been given and TDS has duly been deducted therefrom. We also
ITA No. 485/KOL/2023 (A.Y. 2016-2017) & ITA No. 486/KOL/2023 (A.Y. 2017-2018) S.K. Agarwala & Co. observe that these loans were repaid in the subsequent years. We observe that the assessee had submitted the documents required to establish the genuineness of the transactions and in respect of creditworthiness submitted the copies of income tax return and their financial statements etc. The ld. Assessing Officer has not brought any adverse finding based on such documents filed by the assessee. We are of the considered view that the order passed by the ld. CIT(Appeals) is well reasoned order which has been passed after taking into account all the aspects of the matter. Moreover, mere non-appearance by the lenders in response to summons would not make these transactions as non-genuine as has been held by the Hon’ble Apex Court in the case of CIT Vs Orissa Corporation Pvt. Limited (supra). Similarly view was taken by the Hon’ble Gujarat High Court in the case of DCIT –vs.- Rohini Builders (supra), wherein it has been held as under:-
“We have considered the rival submissions and have also gone through the order passed by the Assessing Officer, the relevant portion of which we have also extracted in para. 2 above. The Commissioner of Income-tax (Appeals) more or less confirmed the addition on the reasoning given by the Assessing Officer in the assessment order. A perusal of the chart given by us in para. 3 above indicates that out of 21 creditors the Assessing Officer has recorded the statements of only six creditors, viz., creditors at serial Nos. 1, 2, 3, 4, 6, and 7. However, in respect of all the 21 creditors the assessee has furnished their complete addresses along with GIR numbers/permanent account numbers as well as confirmations along with the copies of assessment orders passed in the cases of creditors at serial Nos. 1, 2, 4, 5, 6, 7, 9, 10, 11, 12 and 16. In the remaining cases where the assessment orders passed were not readily available, the assessee has furnished the copies of returns filed by the creditors with the Department along 10
ITA No. 485/KOL/2023 (A.Y. 2016-2017) & ITA No. 486/KOL/2023 (A.Y. 2017-2018) S.K. Agarwala & Co. with their statement of income. All the loans were received by the assessee by account payee cheques and the repayments of loans have also been made by account payee cheques along with the interest in relation to those loans. It is rather strange that although the Assessing Officer has treated the cash credits as non-genuine, he has not made any addition on account of interest claimed/paid by the assessee in relation to those cash credits, which has been claimed as business expenditure and has been allowed by the Assessing Officer. It is also pertinent to note that in respect of some of the creditors the interest was credited to their accounts/paid to them after deduction of tax at source and information to this effect was given in the loan confirmation statements by those creditors filed by the assessee before the Assessing Officer. Thus it is clear that the assessee had discharged the initial onus which lays on it in terms of section 68 by proving the identity of the creditors by giving their complete addresses, GIR numbers/permanent accounts numbers and the copies of assessment orders wherever readily available. It has also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee is not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source as held by the Bombay High Court in the case of Orient Trading Co. Ltd. v. CIT [1963] 49 ITR 723. The genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques. Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee -from those creditors as non-genuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation [1986] 159 ITR 78. In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue's case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw an adverse inference against the assessee. In the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69.
ITA No. 485/KOL/2023 (A.Y. 2016-2017) & ITA No. 486/KOL/2023 (A.Y. 2017-2018) S.K. Agarwala & Co. 8. Further, we may point out that 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." 9. The phraseology of section 68 is clear. 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 unsatisfactoriness 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 v. Smt. P. K. Noorjahan [1999] 237 ITR 570. 10. Thus taking into consideration the totality of the facts and circumstances of the case, and, in particular, the fact, that the Assessing Officer has not disallowed the interest claimed/paid in relation to these credits in the assessment year under consideration or even in the subsequent years, and tax deducted at source has been deducted out of the interest paid/credited to the creditors, we are of the opinion that the Departmental authorities were not justified in making the addition of Rs. 12,85,000 which is directed to be deleted. 11. In the result, the appeal is allowed. JUDGMENT 1. Considering the facts and circumstances of the case narrated by the Tribunal in para. 7 of the judgment (page 368 supra) and the law explained in paras. 8 and 8.1 (page 369 supra). We find no substance in the appeal. The appeal is, therefore, dismissed as no substantial question of law arises”. 8. Considering the totality of the facts and circumstances of the case in the light of the ratio laid down in th4e above decisions, we are inclined to
ITA No. 485/KOL/2023 (A.Y. 2016-2017) & ITA No. 486/KOL/2023 (A.Y. 2017-2018) S.K. Agarwala & Co. uphold the order of ld. CIT(Appeals) by dismissing the appeal of the Revenue.
ITA No. 486/KOL/2023 (A.Y. 2017-18) 9. The first issue by the revenue in ground no. 1 is against the deletion of addition of Rs.35,90,876/- by ld CIT(A) which has been added by the ld. Assessing Officer on account of cessation of liability under section 41(1) of the Act but the addition was made u/s 68 of the Act.
The facts in brief are that the AO during the assessment proceedings observed that M/S Knavsukh Trading Pvt. Ltd has given loan to the assessee. The AO also noted that the company has been struck off by MCA and therefore the lender is non-existent and the liability has also ceased u/s 41(1) of the Act. The AO however made the addition u/s 68 of the Act of Rs. 35,90,876/-.
The ld. CIT(A) allowed the appeal of the assessee on this issue by giving a finding of fact that no loan was raised during the year but it was coming over from the preceding financial year and therefore provisions of section 68 of the Act are not applicable. The ld CIT further held that mere sticking off the lender’s company name from MCA cannot be taken to mean
ITA No. 485/KOL/2023 (A.Y. 2016-2017) & ITA No. 486/KOL/2023 (A.Y. 2017-2018) S.K. Agarwala & Co. that loan would be ceased andis not recoverable and thus held that section 41(1) invoked by the AO is wrong and not sustainable.
After hearing the rival contentions and perusing the materials on records , we find that loan taken from M/S Knavsukh Trading Pvt. Ltd in the earlier year has been added u/s 68 of the Act which was rightly deleted by the ld CIT(A) on the ground that loan was not taken in the current year. We also note that the said lender’s name was struck off from MSC and AO simplicitor held that liability on account of loan has ceased but ld CIT(A) correctly adjudicated the issue by holding that mere removal of name of the lender from MCA would not absolve the assessee from the liability to repay the loan. It was also held by ld CIT(A) that provisions of section 41(1) were not applicable to the instant case. Considering these facts and circumstances we are inclined to uphold the order of ld CIT(A) by dismissing the appeal of the revenue.
The second issue raised by the revenue is against the deletion of addition of Rs.48,14,701/- by the ld. CIT(Appeals) as made by the ld. Assessing Officer by rejecting the interest paid on the unsecured loans of Rs.3,95,00,000/- raised in A.Y. 2016-17.Since we have already allowed the appeal of the assessee by holding
ITA No. 485/KOL/2023 (A.Y. 2016-2017) & ITA No. 486/KOL/2023 (A.Y. 2017-2018) S.K. Agarwala & Co. that the unsecured loans were genuine and therefore consequentially, the interest paid on the said unsecured loans during the year is also allowable. Accordingly, the grounds no.2 to 5 are dismissed by upholding appellate order.
In the result both the appeals of the Revenue are dismissed. Order pronounced in the open Court on 5th December, 2023. Sd/- Sd/- Sonjoy Sarma (Rajesh Kumar) Judicial Member Accountant Member Kolkata, the 5th day of December, 2023 Copies to : (1) Deputy Commissioner of Income Tax, Circle-43, Kolkata, 3, Government Place (West), Kolkata-700001 (2) S.K. Agarwala & Co., P-200, Shop No. A3 & A4, Jagannath Ghat Cross Road, Posta Bazaar,Kolkata-700007 (3) Commissioner of Income Tax(Appeals), National Faceless Appeal Centre (NFAC), Delhi; (4) Commissioner of Income Tax-; (5) The Departmental Representative (6) Guard File TRUE COPY By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.