SRS EDUCATIONAL SOCIETY,FARIDABAD vs. ITO(E), FARIDABAD
Income Tax Appellate Tribunal, DELHI “G” BENCH: NEW DELHI
Before: SHRI YOGESH KUMAR US & SHRI MANISH AGARWAL[Assessment Year : 2016-17] M/s. SRS Educational Society, Amolik Chowk, Sector-88, Near SRS Residency, Faridabad, Haryana-121002. PAN-AAHTS2494P vs ITO(Exemption), Faridabad.
PER MANISH AGARWAL, AM :
The present appeal has been filed by the assessee against the order dated 28.01.2020 passed by Ld. Commissioner of Income Tax
(A), Faridabad [“ld. CIT(A)”] in Appeal No.10566/2018-19 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the assessment order dated 21.12.2018 passed u/s 143(3) of the Act pertaining to assessment year 2016-17. 2. Ground Nos. 1 & 2 raised by the assessee are in relation to the addition of INR 1,57,64,915/- made u/s 68 of the Act by holding the loan taken from M/s. SRS Real Estate Pvt. Ltd. as unexplained and addition was made u/s 68 of the Act. In first appeal, Ld.CIT(A) has confirmed the findings of the AO therefore, the assessee is in appeal before us.
3. Before us, Ld. AR for the assessee submitted that the AO has made an addition of INR 1,57,64,915/- whereas during the year under appeal, the total amount received was 1,21,22,000/- only and the remaining amount is accumulation of interest (net of TDS) on the loan amount. He referred page 28 of the Paper Book which contained the details of short-term borrowing submitted during the course of assessment proceedings before the AO. As per this chart, the opening balance as on 01.04.2015 of outstanding loan taken from M/s. SRS Real Estate Pvt. Ltd. was of INR 1,61,32,332/- and during the year, a sum of INR 1,21,22,000/- was further received through banking channel, besides INR 12,28,234/- was credited through general entries and total repayment of INR 2,40,500/- was made during the year. Besides this, interest of INR 29,50,202/- was credited and TDS of INR 29,50,202/- was debited. After considering these amounts, closing balance of INR 3,18,97,247/- remained as on 31.03.2016 which was taken to the Balance Sheet.
Out of total credits of INR 1,57,64,915/-, a sum of INR 29,50,202/- represents the interest which was never doubted however, the AO as well as ld. CIT(A) considered this amount of interest as part of the loan received during the year and included in the total amount received and made the addition of the same. Ld.AR for the assessee further submits that the assessee has filed copy of ITR of the lender i.e. M/s. SRS Real Estate Pvt. Ltd. wherein though it had declared
NIL income based on which the AO as well as CIT(A) formed the opinion that the lender company is not having creditworthiness.
However, according to Ld.AR, the company M/s. SRS Real Estate
Pvt. Ltd. is engaged in the business of real estate and as per its financial statement submitted before the lower authorities, the company had declared total revenue of INR 65,68,91,123/- and though after claiming expenditures, it incurred the losses. This could be seen from the copy of the P&L Account available in Paper
Book at page 64. Ld. AR further argued that besides this, M/s. SRS
Real Estate Pvt. Ltd. had inventory of more than INR 362 crores as at 31.3.2016 and therefore, its creditworthiness cannot be doubted.
Ld.AR further submits that the confirmation of this transaction as given by lender company and filed by assessee, is available at page
48 to 51 of the Paper Book which was doubted by the AO for the sole reason that it was signed by a person other than who had signed the Balance Sheet. In this regard, it is submitted by Ld.AR that the Balance Sheet is signed by the management whereas the confirmation was signed by the authorized signatory. Ld. AR further submits that if the AO has any doubt about the genuineness of the transaction and creditworthiness of the lender, he could directly issue the summons u/s 131 or 133(6) of the Act to the lender and can inquire about the transaction as well as of the financial capacity. Ld.AR further submits that during the course of assessment proceedings besides confirmation, assessee has also filed the copy of bank statement of relevant period during which M/s. SRS Real Estate Pvt. Ltd. advanced the loan to the assessee on various dates. A perusal of which shows that there were sufficient balances available in the bank account of lender company whenever funds were advanced to the assessee thus it cannot be said that the lender company has no creditworthiness and there was deficit of the funds before the loan amounts transferred to the assessee. He further submits that the assessee society is registered u/s 12AA & 80G of the Act and therefore, the provision of section 68 of the Act are not applicable to it as admittedly all the funds received were utilized for the purpose of charitable activities. He further submits that the loans taken in preceding AYs were never doubted which is evident from the confirmation that there is an opening balance of INR 1,61,32,332/-. More so, the interest paid has already been allowed as application, therefore, again making the addition of the same amount is not sustainable in the eyes of law. In the last, he placed reliance on the following judicial pronouncements and prayed for the deletion of the additions so made:-
[i]
Mangilal Agarwal (Late) vs ACIT 300 ITR 372 (Raj.);
[ii]
Labh Chand Bohra vs ITO (Raj.HC) 219 CTR 571;
[iii] Aravali Trading Co. vs ITO 220 CTR 622 (Raj.);
[iv] CIT vs Metachem Industries 245 ITR 160 (MP);
[v]
Tolaram Daga vs CIT 59 ITR 632 (Assam);
[vi] CIT vs Shri Ram Narain Goel 224 ITR 180 (Pun. & Har.); and [vii] Nemi Chand Kothari vs CIT & another 264 ITR 254 (Gauhati).
On the other hand, Ld. Sr.DR for the Revenue vehemently supported the orders of the lower authorities and submits that the assessee has failed to discharge the burden casted upon it of proving the genuineness and creditworthiness of the transactions therefore, the addition has rightly been made and upheld by the lower authorities and he requested for the confirmation of the same. 5. We have heard the rival contentions and perused the material available on record. In the instant case, the assessee has filed the confirmation of the lender, copy of its ITR and the bank statement of the relevant period when the funds were transferred to the assessee. The assessee has also filed the financial statement of the lender company. The AO invoked the provision of section 68 of the Act which reads as under:- 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.” 6. 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, 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. 7. If we applied the above proposition of law to the facts of the present case, it is seen that by filing all the relevant details of the loan creditors before the AO, the assessee has discharged the onus lies upon it. Therefore, there is nothing left on the part of the assessee to prove further. If the AO was not satisfied with the explanation, he has powers u/s 131 or u/s 133(6) of the Act which he could have opted and verified whatever is submitted before him. The AO did not do so. This shows clearly the biased mind/approach of the AO. 8. The Hon’ble Supreme Court in the case of Orissa Corporation reported in [1986] 159 ITR 78 (SC) 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 alleging the creditors will not be sufficient to draw an adverse inference against the assessee. 9. In the present case as observed above, no such exercise was carried out by the AO. In case, the Assessing Officer was not satisfied with sources in the bank accounts of the lender company, the proper course would have been to make assessments in the cases of the lender company as unexplained investments under section 69 of the Act which also not done in the present case.
The Hon’ble Allahabad High Court in the case of Principal Commissioner of Income-tax v. Anshika Consultants (P.) Ltd. reported in [2024] 162 taxmann.com 792 (Allahabad) held as under INCOME TAX : Where assessee had received unsecured interest bearing loans from three corporate entities and had furnished necessary acknowledgement of return, balance sheet, profit and loss account, etc., to prove identity, creditworthiness and genuineness of transaction of unsecured loan taken by it, addition under section 68 was not warranted.
Similarly in the case of Deputy Commissioner of Income-tax v. Paswara Papers Ltd. reported in [2024] 159 taxmann.com 604 (Allahabad), the Hon’ble Court has held as under: INCOME TAX : Where assessee received loan from various creditors who sold their old jewellery and gave loan to assessee out of sale consideration, since assessee had disclosed name of jewellers to whom jewellery was sold and also established mode of payment through banking channel, and moreover existence of deposits made to assessee by creditors was not in dispute, impugned addition under section 68 with respect to loan could not be sustained.
The Co-ordinate Bench of ITAT, Delhi in the case of ITO Vs. Alpha Contech Pvt. Ltd. in ITA No.3351/Del/2016 vide order dt. 28.07.2023 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.
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. 64. 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. 5. 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