Loading judgment…
Facts
The assessee's appeal challenges the CIT(A)'s order which upheld additions made by the ITO regarding unexplained cash credits/loans, including an opening balance and fresh receipts. The primary dispute concerns the genuineness of a loan of Rs. 2.21 crores purportedly advanced by Virender Kumar Gupta (VKG) to M/s MPG Business Information Systems Pvt. Ltd.
Held
The Tribunal held that the transactions involving VKG were accommodation entries arranged through banking channels, not genuine loans. The assessee acted as a conduit, and the funds belonged to MPG Business Information Systems Pvt. Ltd. Consequently, the addition on this account was deleted. However, the addition related to a portion of the unexplained credit (Rs. 1,60,50,000) was confirmed.
Key Issues
Whether the impugned cash credits/loans were genuine or accommodation entries, and if not genuine, whether the addition was correctly made and sustained by the lower authorities.
Sections Cited
147, 143(3), 68, 271(1)(c), 250(6), 251
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “F” BENCH, DELHI
Before: MS. MADHUMITA ROY & SHRI KHETTRA MOHAN ROY
The instant appeal, preferred by the assessee is directed against the order dated 29.03.2019 passed by the Ld. CIT(A)-1, Gurgaon, arising out of the Assessment Order dated 30.10.2017 passed by ITO, Ward 4(5) Gurgaon, under Section 147/143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for the Assessment Year 2013-14.
“1. That the order u/s 250(6) dated 29-03-19 of the Learned CIT(A) Gurgaon-1 is erroneous, arbitrary, opposed to law and facts of the case.
2. That the Learned CIT(A) Gurgaon-1 has erred in law as well as on facts confirming the additions of Rs. 16050000/-. Further he has ignored that the said additions of Rs. 16050000/- with opening balance of Rs. 6100000/- totaling Rs. 22150000/- has also been confirmed of the same issue in the case of M/s MPG Business Information System (P) Ltd. Gurgaon vide order dated 29-03-19 in appeal no.-148/16-17 a/year 2013-14 by the same Learned CIT(A) Gurgaon-1, means double addition. Pray for the deletion of said additions of Rs. 16050000/-.
That the Learned CIT(A) Gurgaon-1 has erred in observing the receipts of Rs. 61,00,000/- the opening balance through bank channel as income from unaccounted sources us 68 of the Act by making an addition as enhanced income in appellant case.
4. That the total addition of Rs. 221,50,000/- including enhanced amount u/s 251 made by the Learned CIT(A) Gurgaon on the basis of suspicion, conjectures and surmises are not permitted under law and as such the order not discussing the appellant submissions during the assessment proceedings is not tanable.
That the initiating of penalty proceedings u/s 271(1)(c) by the Learned CIT(A) Gurgaon-1 is quite arbitrary, against facts & law of the case.
6. That the appellant craves leave to add and amend the grounds of appeal before or at the time of hearing when necessitated.”
At the very onset, the Ld. AR submitted that the impugned sum has already been taxable in the hands of the MPG Business Information Systems Pvt. Ltd. passed by the Coordinate Bench has considered as follows: para 32 to 35
“32. We also note that the CIT(A) has recorded in his order that he had perused the copy of bank account of the VKG, a part of which was available in the records. The CIT(A) gives a finding of fact that the bank statement of VKG reveals that there are huge amount of cash deposits in the bank account of the VKG. The CIT(A) further concludes that in these circumstances the creditworthiness of the VKG to advance the loan of Rs 2.21 crore is also not established. We are therefore of the considered view that the finding of the CIT(A) be endorsed that the transactions pertaining to loans from the VKG were not genuine and only logical explanation is that these were mere accommodation entries given by the VKG to the MPG which were arranged by paying cash to VKG who deposited the cash in his bank account and issued cheques to the MPG claiming it to be interest free loan. We find no hesitation in rejecting the argument of the assessee that since the transaction has been conducted through banking channel, the loan received should be considered as genuine.
In the above narrated circumstances, we are of the considered opinion that, notwithstanding the fact that the transactions with VKG are claimed to be through banking channels, the genuineness of the transactions are not satisfactorily explained and remains dubious. Perusal of the copy of the bank account of Sh. Virender Kumar Gupta, a part of which was available in the records reveals that there were huge amount of cash deposits in the bank account of VKG. In these circumstances, the creditworthiness of VKG to advance interest free loan amounting to Rs. 2.21 crores is also not established. The assessee’s argument that the fact that the said loan was repaid by the MPG in a period of 3 to 4 years, establishes its genuineness, also does not hold water when the transactions are tested on the principle of creditworthiness and genuineness of transaction. It is highly improbable that a person would give huge amount of loan amounting to Rs. 2.21 crores without any agreement, interest payment or security, and in the words of Hon’ble Delhi Court is 'fantastic' and 'incredible' to say the least. VKG not attending the summons, having huge cash deposits in his bank account, vehemently denying extending loan to MPG during his own assessment proceedings, fabricating his own audited balance sheet are vital and telltale evidence which showed that the transaction was far from being genuine. The Assessee had clearly failed to discharge the onus cast upon him qua this creditor.
The transactions in the instant case are yet another example of the constant use of the deception of loan entries to bring unaccounted money into banking channels. The Hon’ble Supreme Court and the High Courts have constantly held that such device of loan entries continues to plague the legitimate economy of our country. As seen from the facts narrated above, the transactions herein clearly do not inspire confidence as being genuine and are shrouded in mystery, as to why the creditor VKG, a grain merchant, would lend such huge unsecured, interest free loans - that too without any agreement to an assessee in the business of Information /Software technology. In the absence of the same, as also the fact that there were huge deposit of cash in the bank of VKG, VKG fail the test of creditworthiness and the transactions fail the test of genuineness. Ground No. 5 is accordingly dismissed.
Insofar as the quantum of addition in assessment year 2013-14 is concerned, we find that in the impugned year there was an opening balance of Rs 61,00,000/- as on 31.03.2012, and the assessee had received Rs 1,60,50,000/- during the year. We therefore agree with the argument of the assessee that additions on account of unexplained credit u/s 68 of the Act be limited to Rs 1,60,50,000/-. We direct accordingly. Ground No. 4 of the assessee are partly allowed.”
We have also referred the Hon’ble High Court of Calcutta judgment in the case of Narsingh Ispat Ltd. Vs. Pr.CIT (2024) 161 taxmann.com 483 (Calcutta):
“Section 68 of the Income-tax Act, 1961 - Cash credits (Share capital) - Assessment year 2012- 13 - Assessing Officer questioned legitimacy of share capital raised by assessee from two companies, H and S, suspecting it to be an attempt to introduce unaccounted income - Assessing Officer concluded it was a sham transaction and added entire share application/allotment money under section 68 as undisclosed cash credit - On appeal, Commissioner (Appeals) found transactions to be genuine - Regarding H, it was established that sums in question had been received in an earlier year and invested in form of loans, advances and investments - During year under consideration, some of these funds were received back by H and were utilised for investing in equity share capital of assessee - Thus, source had already been added in H's hands and therefore, making an addition again in hands of assessee would amount to double addition and hence, was not warranted - In case of S, it was proven that source of funds for investment was available with S from an earlier year - Despite scrutiny, no additional income was found except for specified unaccounted income, indicating availability and rotation of funds for investment - Moreover, decision of share applicants to invest in assessee, a profit-making company with promising future prospects, was deemed prudent - Tribunal held that assessee having successfully proved three necessary ingredients i.e., identity, creditworthiness of share applicants and genuineness of transactions as provided under section 68, no interference was called for in order of Commissioner (Appeals) in deleting addition made by Assessing Officer under section 68 - Whether thus, no question of law much less substantial question of law arose for consideration in this appeal, hence, appeal was to be dismissed - Held, yes [Para 7 to 9] [In favour of assessee].”
5. Accordingly, the assessee prayed that the addition of Rs.1,60,000/- and addition of Rs.2,21,50,000/- in the hands of the assessee is unwarranted.
Per contra, the ld. CIT(A) relied on the order passed by the lower authorities and prayed that the same could not be disturbed.
We have given our thoughtful consideration that the addition has already observed the sum of Rs.61,00,000/- was an opening balance as on 31.03.2022 and no addition is possible in the current financial year. As regards the balance of Rs.1,60,000/- the hon’ble Tribunal has come to the finding that the cheques were issued to MPG Business Information Systems Pvt. Ltd. by way of mere accommodation entry which were arranged in view of paying cash to the assessee who deposit the cash in his bank account. Thus, assessee is merely a conduit and the impugned sum do not belong to him and he has only acted as a mediator in the transaction. It has been established clearly that the cash belongs to MPG Business Information System Pvt. Ltd. It is nobodies case that the assessee has remained earned certain extra consideration to facilitate the transaction. Accordingly, we concur with the argument put forth by the Ld. AR and direct that the addition of Rs.2,21,50,000/- as sustained by the Ld. CIT(A) be deleted in full. The enhancement done by CIT(A) is fallacious.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 06.06.2025