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Facts
The revenue appealed against the CIT(A)'s order deleting additions made by the AO regarding unexplained unsecured loans and interest thereon, treating them as bogus accommodation entries. The AO's assessment was based on a third-party statement, while the assessee provided substantial documentary evidence.
Held
The Tribunal found that both the AO and CIT(A) failed to properly examine the documents. The CIT(A) merely commented on the AO's working instead of conducting necessary inquiries. Therefore, the matter was restored to the CIT(A) for fresh adjudication.
Key Issues
Whether the unsecured loans and interest thereon were genuine commercial transactions or bogus accommodation entries, and whether the authorities below properly examined the evidence.
Sections Cited
68, 69C, 250, 143(3), 153A, 131, 133(6), 106, 260A, 147
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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
The captioned appeal filed by therevenue is directed against the order of Commissioner of Income Tax (Appeals)-49, Mumbai(in short ‘Ld. CIT(A)’), passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act'), dated 19.03.2019, for the Assessment Year (in short ‘A.Y.’) 2014-15, which in turn arises from the assessment order u/s. 143(3)r.w.s. 153A of the Act, passed by
The grounds of appeal raised by the revenue are extracted as under: 1. “Whether, on the fact and in law, The Ld. CIT(A) was correct in allowing the interest payment of Rs.10,90,695/- on the unsecured loans received from M/s Satyam Projects Ltd as the said loan was nothing but bogus accommodation entries.”
2. “In the fact and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.3,00,00,000/- made by AO as unexplained cash credit received from M/s Muskan VyapaarPvt., M/s S K Stock Dealers Pvt. Ltd., M/s Fiscal Services Pvt. Ltd and M/s KoshishVyaapar Pvt Ltd in the form of unsecured loans u/s 68 of the Act without considering the fact that the statement of Shri Beni Prasad and other related concerns were recorded u/s 131 of the act wherein they had stated that the above mentioned companies were engaged in the business of providing accommodation entries”
3. “Whether on facts and in law the Ld. CIT(A) was correct in allowing the interest payment of Rs. 8,67,950/- on the unsecured loans received from the said four parties as the said loans were nothing but bogus accommodation entries.”
Brief facts: The assessee e-filed its return of income on 20.11.2014 declaring total income of Rs.9,05,480/-. The return of income was processed u/s 143(1) of the Income Tax Act, 1961. Subsequently, a search action u/s 132 was carried out on 09.10.2014 at the offices of Lotus/Kamdhenu/Green Valley/ Patel Patni Group and their associates as well as at the residences of their directors, it continued till 09.12.2014. Consequent to search, the case of the appellant was centralised to the office of the Ld. Assessing Officer-Dy. Commissioner of Income Tax- Central Circle 7(3), Mumbai. Notice u/s 153A(1)(a) dated 25.01.2016 was issued and served on the assessee. In compliance, the assessee e- DCIT-CC-7(3), Mumbai vs M/s Om Trilok Realty & Infrastructures filed return of income on 14.04.2016 declaring income of Rs. 29,62,428/-. Notice u/s 143(2) was issued on 24.08.2016 and served upon the assessee. Assessment order u/s 143(3) r.w.s. 153A of the I. T. Act, 1961 was passed on 30.12.2016 wherein the Ld. AO has assessed the total income at Rs. 3,49,21,120/-. While enhancing the income of assessee Ld. AO made the following additions: i. Disallowance u/s 69C: 10,90,695/- on account of unexplained expenditure ii. Disallowance u/s 68: 1,00,00,000/- on account of unsecured loans, taxed as income of the assessee for the year under consideration as per the provisions of section 68 of the Act. iii. Disallowance u/s 69C:2,89,315/- on account of the interest expenses claimed to have been paid/payable to M/s Muskaan Vyapaar P Ltd., considered as deemed income. iv. Disallowance u/s 68: 50,00,000/-on account of unexplained unsecured loans, taxed as the income of the assessee for the year under consideration. v. Disallowance u/s 69C :1,44,658/- on account of the interest expenses, claimed to have been paid/payable to M/s S K Dealers P Ltd., considered as deemed income. vi. Disallowance u/s 68 : 50,00,000/- on account of unsecured loans, taxed as the income of the assessee for the year under consideration. vii.Disallowance u/s 69C :1,44,658/- on account of the interest expenses claimed to have been paid/payable to M/s MSV Fiscal Services P Ltd. is considered as deemed income. viii. Disallowance u/s 68: 1,00,00,000/- on account of unsecured loans is taxed as the income of the assessee for the year under consideration.
DCIT-CC-7(3), Mumbai vs M/s Om Trilok Realty & Infrastructures ix. Disallowance u/s 69C: 2,89,315/- on account of the interest expenses claimed to have been paid/payable to M/s KoshishVyapaar P Ltd. is considered as deemed income.
Aggrieved with the aforesaid enhancement in taxable income, assessee preferred an appeal before the First Appellate Authority / Ld. CIT(A), wherein the quantum additions made by Ld. AO u/s 69C and /s 68 of the Act are deleted by the Ld. CIT(A).
5. Since relief of substantive additions made by the Ld. AO are granted by Ld. CIT(A) to the assessee, now the revenue, being aggrieved is in appeal before us.
At the outset Ld. CIT DR, representing the revenue submitted that the issues raised by the assessee before the Ld. CIT(A) are decided in favour of the assessee placing reliance on certain decisions by the Ld. CIT(A) himself in assessee’s case for earlier years or by relying on the decision of Hon’ble Courts. It is the submission that the facts of case are not discussed or interpreted as to how the relevant years issues are matching with the issues which were relied to reach at a conclusion. It was alleged that the Ld. CIT(A) had only tried to find fault in the working of Ld. AO instead of analysing the information with further enquiries by self or through a remand report for any doubts, instead of providing benefit of such doubts to the assessee, thereby attention to the findings by Ld. CIT(A), which are extracted here under for the sake of reference:
8.6. I have perused the aforesaid documents and found that the assessee has furnished all the relevant documents in support of the transactions entered with M/s. Muskan Vyapaar P. Ltd, M/s. S K Stock Dealers P Ltd, M/s. MSV Fiscal Services P Ltd & M/s. KoshishVyaapar P Ltd to establish the identity, genuineness and creditworthiness of the lenders. I find that the AO has not been able to point out any deficiencies therein. Further, the AO has also not provided the statement of Shri Beni Prasad Lahoti and therefore, such a sole statement without any corroborative evidence has no evidentiary value in the eyes of law. Further, even the AO has not brought on record any cogent evidence to doubt the transaction entered by the assessee with these lenders. Also, general confession/statements without corroborative evidences have no evidentiary value as emphasized by CBDT in its circular CBDT letter F No. 286/98/2013-IT (Inv II) dt. 09.01.2014 during the search and reliance is placed on the landmark judgement of Hon'ble Gujarat High Court in the case of CIT v. Ramanbhai Patel (TA no. 207 of 2008) and Chetnaben J Shah v. ITO [TA no. 1437 of 2007] wherein addition merely on the basis of the statements recorded is made without verifying the documents/details placed on record, collecting corroborative evidences and making sufficient enquiries in the matter. Thus, respectfully following the above decision, I find that the addition cannot be sustained merely on the basis of the statements taken devoid of any evidence/material to incriminate the assessee.
8.7 Section 68 is not a charging section but a deeming fiction dealing with the burden of proof. The section casts initial onus u/s. 68 of the Act on the assessee to prove identity, genuineness and creditworthiness of the transaction to the satisfaction of the AO. If the assessee fails to do so or the explanation offered by him is not satisfactory to the AO, the AO is empowered to add the same to the total income of the assessee. The said power is to be exercised judiciously by the AO. Thus, orice the initial onus is discharged by the assessee, the onus shifts on the AO to bring out fallacies in evidence brought by the assessee or by bringing new evidence that indicate the transactions undertaken by the assessee are non-genuine Thus, the section deals with an equilibrium of onus of proof and must be viewed to evaluate as to whether the evidences brought by the assessee or AO weigh more and accordingly in whose favour the equilibrium bends. In the present case, on one hand, the assessee has placed evidence in support of its transactions with these lenders, however, on the contrary, the AO has solely placed reliance on the statement of Shri Beni Prasad Lahoti. There is no material in the possession of the AO to summarily doubt the commercial transaction on his own surmises and conjectures.
8.8 The expression "nature and source has to be understood together as requirement of identification of the source and the nature of the source, so that the genuineness or DCIT-CC-7(3), Mumbai vs M/s Om Trilok Realty & Infrastructures otherwise could be inferred. The Hon'ble Supreme Court, in Kale Khan Mohd. Hanif vs. CIT, pointed out that the onus on the assessee has to be understood with reference to the facts of each case and proper inference drawn from the facts if the prima facie inference on the facts is that the assessee's explanation is probable, the onus will shift to the Revenue. As far as the creditworthiness or financial strength of the creditor/subscribers is concerned, that can be proved by producing the bank statement of the creditors/subscribers showing that it had sufficient balance in its accounts to enable it to subscriber to the share capital. Once these documents are produced, the assessee would have satisfactorily discharged the onus cast upon him. Thereafter, it is for the Assessing Officer to scrutinize the same and in case he nurtures any doubt about the veracity of these documents, to prove the matter further.
8.9 Element of credit worthiness and satisfaction of AO thereafter is subjective and requires more efforts/inquiry on the part of the AO to give a finding in the order that lender is not credit worthy. The AO must make proper enquiry before making any addition. In Khandelwal Constructions v. CIT 227 ITR 900 (Gau.), it has been held that the Assessing officer is empowered to make enquiry. If he is satisfied that these entries are not genuine he has every right to add these as income from other sources. But before rejecting the assessee's explanation, A.O. must make proper enquiries and in the absence of proper enquiries, addition cannot be sustained. In fact, in the present case, the lender parties have duly confirmed the transactions undertaken with the appellant company and made due compliance to the notice issued u/s. 133(6) of the Act 8.10 It is clear from the submission of the appellant that the transactions were through account payee cheques and appellant has submitted sufficient details before the AO during the assessment proceedings. The source of receipt was through the high net worth of the alleged lender companies which are capable of giving loans to other companies and sufficient bank balances in the bank statement of the lenders which clearly prove the creditworthiness of the said lenders. Interest is paid and TDS has been deducted by the appellant on such loans.
8.11 Further, in the case of Nemichand Kothari vs. CIT (264 ITR 254] [Gau), the Hon'ble High Court had held that "A harmonious construction of section 106 of the Evidence Act and section 68 of the Income-tax Act will be that though apart from establishing the identity of the creditor, the assessment establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub-creditor nor is it the burden of the assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been, eventually, received by the assessee. It is not the business of the assessee to find out the source of money of his creditor or of the DCIT-CC-7(3), Mumbai vs M/s Om Trilok Realty & Infrastructures genuineness of the transaction, which took place between the creditor and sub- creditor and for creditworthiness of the sub-creditors, since, these aspects may not be within the special knowledge of the assessee.
8.12 The assessee must satisfy three important conditions, namely, (i) the identity of the creditor; (ii) the genuineness of the transaction; and (iii) the financial capacity of the person, i.e. the credit worthiness of the creditor. However, the onus of the assessee is limited to the extent of proving the source from which he received the cash credit. The creditworthiness of the creditor has to be judged vis-à-vis the transaction which had taken place between the assessee and the creditor, and it is not the burden of the assessee to find out the source of creditworthiness of the lender to prove the genuineness of the transaction. This issue is dealt by the Gauhati High Court in the case of CIT v. Smt. Sanghamitra Bharali (2014) 361 ITR 481 (Gau). The aforesaid points were also affirmed in the past by the Apex Court in the case of CIT v. Orissa Corporation P. Ltd reported in (1986) 159 ITR 78 (SC). In the case of CIT v. Varinder Rawley (2014) 366 ITR 232 (P & H) the court held that "where the assessee shows that the entries regarding credit in a third party's account were in fact received from the third party and are genuine, he discharges the onus. In that case, the sum cannot be charged as the assessee's income in the absence of any material to indicate that it belongs to assessee"
8.13 In view of the overall discussion made above, it is clear that the nature and source of loan obtained by the assessee stands explained. The AO has not pointed out any defect in the above-mentioned documentary evidences submitted during the assessment proceedings. Without pointing out any lacuna in the evidences submitted by the appellant, the source and the genuineness of transaction cannot be doubted. It is trite law that once evidences related to a transaction are submitted before the AO, the onus shifts on him to prove these as non-genuine. The AO has not discharged the onus cast upon him. Further, merely the statement of a third person with no locus standi and that too without any corroborative evidence will not make the loan transactions, in question, as accommodation entries. Also, nothing incriminating was found in the search conducted on the appellant company. Also, due compliance is made by the lender parties in response to notice issued u/s. 133(6) of the Act. As such, in the absence of any contrary evidence or findings placed on record, the transactions cannot be treated as accommodation entries.
8.14. Further, I find that the decision of the Hon'ble jurisdictional High Court in the case of CIT v. Paradise Inland Shipping Pvt Ltd (TA No. 66 of 2016) (Bom HC) squarely applies to this case wherein it was observed as under:
We have given our thoughtful considerations to the rival contentions of the learned Counsel and we have also gone through the records. The basic contention of the learned Counsel appearing for the Appellants revolves upon the stand taken by the Appellants whether the DCIT-CC-7(3), Mumbai vs M/s Om Trilok Realty & Infrastructures shareholders who have invested in the shares of the Respondents are fictitious or not. in this connection, the Respondents in support of their stand about the genuineness of the transaction entered into with such Companies has produced voluminous documents which, inter alia, have been noted at Para 3 of the Judgment of the CIT Appeals which reads thus "The assessment is completed without rebutting the 550 page documents which are unflinching records of the companies. The list of documents submitted on 09.03.2015 are as follows: 1. Sony Financial Services Ltd. - CIN U74899OL 1995PLC068362- Date of Registration 09/05/1995 Memorandum of Association and Article of Association Certificate of Incorporation Certificate of Commencement of Business Acknowledgment of the Return of Income AY 08-09 Affidavit of the Director confirming the investment Application for allotment of shares Photocopy of the share certificate Audited account and Directors report thereon including balance sheet, Profit and Loss Account and schedules for the year ended 31.03.2009. Audited account and Directors report thereon including balance sheet, Profit and Loss Account and schedules for the year ended 31.03.2010 The Bank Statement highlighting receipt of the amount by way of RTGS. Banks certificate certifying the receipt of the amount through Banking channels." 6.On going through the documents which have been produced which are basically from the public offices, which maintain the records of the Companies. The documents also include assessment Orders for last three preceding years of such Companies 7. The Appellants have failed to explain as to how such Companies have been assessed though according to them such Companies are not existing and are fictitious companies Besides the documents also included the registration of the Company which discloses the registered address of such Companies. There is no maternal on record produced by the Appellants which could rebut the documents produced by the Respondents herein. In such circumstances, the finding of fact arrived at by the authorities below which are based on documentary evidence on record cannot be said to be perverse. Learned Counsel appearing for the Appellants was unable to point out that any of such findings arrived at by the authorities below were on the basis of misleading of evidence or failure to examine any material documents whilst coming to such conclusions. Under the guise of the substantial question of law, this Court in an Appeal under Section 260A of the Income Tax Act cannot re-appreciate the evidence to come to any contrary evidence. Considering that the authorities have rendered the findings of facts based on documents which have not been disputed, we find that there are no substantial question of law which arises in the present Appeal for consideration.
13. In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were income-tax assessees. Their index number was in the file of the revenue. The revenue, apart from issuing notices under S. 131 at the instance of the assessee, did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so called alleged creditors. In those circumstances, the assessee could not do anything further in the premises if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises
This Court in the Judgments relied upon by the learned Counsel appearing for the Respondents, have come to the conclusion that once the Assessee has produced documentary evidence to establish the existence of such Companies, the burden would shift on the Revenue Appellants herein to establish their case. In the present case, the Appellants are seeking to rely upon the statements recorded of two persons who have admittedly not been subjected to cross examination in such circumstances, the question of remanding the matter for re-examination of such persons, would not at all be justified. The Assessing Officer, if he so desired, ought to have allowed the Assessee to cross examine such persons in case the statements were to be relied upon in such proceedings. Apart from that, the voluminous documents produced by the Respondents cannot be discarded merely on the basis of two individuals who have given their statements contrary to such public documents.
We find no infirmity in the findings arrived at by the ITAT as well as CIT Appeals on the contentions raised by the Appellants-Revenue in the present case and, as such, the question of interference by this Court in the present proceedings under Section 260A of the Income Tax Act would not at all be justified. Apart from that, as rightly pointed out by the learned Counsel appearing for the Respondents, the CIT Appeals had also noted that proceedings under Section 147 of the Income Tax Act cannot lead to re-verification of the records. These findings of the CIT Appeals have not been assailed before the Income Tax Appellate Court
11. In such circumstances, we find that there is no case made out by the Appellants-Revenue for any interference in the impugned Orders passed by the Courts below:
Hence, the Appeal stands rejected The SLP filed against the said order of the High Court is also dismissed by the Hon'ble Apex Court in [2018] 93 taxmann.com 84 (SC).
8.15. I find that the addition u/s. 68 of the Act is uncalled for in the present facts and circumstances of the case in view of the discussion made above. Accordingly, the addition of Rs.3,00,00,000/- made by the AO deserves to be deleted. This ground of appeal is accordingly ALLOWED.
7. Ld. DR further submitted that in the instant case statements of Mr. Beni Prasad Lahoti are crucial and has substantial worth to be taken into cognizance, however, Ld. CIT(A) instead of analysing the same has only pointed out the mistakes in findings of the Ld. AO that it was a failure on his part to not point out any lacuna in the evidence or documents submitted. Even if the Ld. CIT(A) was the opinion that the Ld. AO was unable to prove the non-genuineness of the documents or evidence, it was his duty to find out the real fact, so as to arrive at a logical conclusion. Ld. CIT-DR further proposed that if the assessee was requesting for cross examination Ld. CIT(A) had the powers to restore the matter back to Ld. AO with directions to provide such opportunity but it was not done.
8. It was the prayer by revenue that the matter needs revisit, therefore shall be restore back to the file of Ld. CIT(A) for fresh adjudication for analysing the evidence and facts or records to check the ingredients like identity, genuineness and creditworthiness in terms of provisions of section 68 of the Act.
DCIT-CC-7(3), Mumbai vs M/s Om Trilok Realty & Infrastructures 9. On the contrary, Ld. Authorised Representative on behalf of assessee submitted that the claim qua the interest expenditure on a loan from M/s Satyam was already dealt with in the earlier years and was allowed to the assessee by the Ld. CIT(A), thus there in no point to disallow the same in relevant year under consideration. A short-written submission also has been furnished by the assessee which is extracted as under:
Assessee’s submission Ground No. 1: Disallowance of Interest ₹10,90,695 u/s 69C A.O.'s Contention:
The A O disallowed interest expenditure on a loan from M/s Satyam Projects Ltd, treating it as a bogus accommodation entry based on statements recorded during search/survey of third parties like Shri Hitesh Thakkar and others. Since the loan was treated as non-genuine in A.Y. 2012-13, interest thereon was held to be inadmissible CIT(A)'s Decision:
CIT(A) allowed the interest, observing that the principal loan had already been accepted as genuine in A Ys 2012-13 & 2013-14. Accordingly, the interest for A.Y. 2014-15 was consequential and allowable The disallowance of ₹10,90,695/- was directed to be deleted.
Assessee's Submission: i. The assessee had availed an unsecured loan of ₹1.5 crore from M/s Satyam Projects Ltd in A.Y 2012-13. ii. The lender is a registered NBFC with the RBI and had amalgamated 8 companies with significant net worth, as sanctioned by the Hon'ble Calcutta High Court iii. Extensive documentation was submitted: MOA/AOA, RBI certificate, ITRs, financials, confirmations, bank statements, High Court merger order, audit and compliance reports. iv. All requirements under Section 68 were satisfied DCIT-CC-7(3), Mumbai vs M/s Om Trilok Realty & Infrastructures Identity: MOA, RBI certificate, ROC documents, compliance reports Genuineness: Bank transactions, confirmations, ITR Acknowledgement Creditworthiness: Net worth of ₹102.90 crore, returned income of ₹1.61 crore, audited financials v. Statements of third parties relied upon by the AO were retracted: Shri Hitesh Thakkar, Shri Jignesh Mavadia, Shri Uday Mahawar, and Shri Parbat Gothi all retracted their statements, citing coercion and pressure. vi. No opportunity for cross-examination was granted, reliance solely on these statements violates natural justice (Vinod Solanki v. UOI, SC). vii. M/s Satyam Projects Ltd was assessed u/s 143(3) r.w.s. 147 with no adverse findings regarding accommodation entries. viii. Lender responded to notice u/s 133(6) and confirmed transactions. ix. There is no evidence of cash exchange, suspicion cannot substitute proof. x. Furthermore, we also wish to bring to Your Honour's attention that the issue under consideration w.r.t. loan taken from M/s Satyam Projects Ltd in earlier years was accepted as genuine by Ld. CIT(A) which is further upheld by Hon'ble Mumbai ITAT 'A' Bench in the case of Lotus Logistics and Developers Pvt Ltd v. DCIT, CC 7(3) bearing for A.Y. 2012-13 (Para 39 to 41 page no. 97 to 98) xi. As regards the decision of the Hon'ble Mumbai ITAT in the assessee's case for A.Y. 2012-13 (ITA No. 2163/Mum/2019) filed by the Revenue, it is respectfully submitted that the appeal was dismissed on account of low tax effect, as noted in Cross Objection No. 70/Mum/2020 xii. CIT(A)'s order for A.Y. 2012-13 was upheld by Hon'ble ITAT Mumbai in assessee's group concem Lotus Logistics and Developers Pvt Ltd v DCIT.
Ground No. 2 & 3: Addition of ₹3,00,00,000 u/s 68 and ₹8,67,946 u/s 69C Sr.No. Name of the party Amount Total Principle Interest 51,44,658 1 SK Stocks Dealers Pvt 50,00,000 1,44,658 1,02,89,315 Ltd 2 Muskan Vyapaar Pvt 1,00,00,000 2,89,315 51,44,658 Ltd 3 MSV Fiscal Services 50,00,000 1,44,658 Pvt Ltd. 4 KoshishVyapaar Pvt. 1,00,00,000 2,89,315 1,02,89,315 Ltd. Total 3.00,00,000 8,67,946 3,08,67,946 A.O.'s Contention: Based solely on the statement of Shri Beni Prasad Lahoti, the A.O. alleged that all four lenders provided accommodation entries. Accordingly, addition of Rs. 23 crore u/s 68 and interest of ₹8.67 lakh u/s 69C was made CIT(A)'s Decision:
DCIT-CC-7(3), Mumbai vs M/s Om Trilok Realty & Infrastructures The assessee had discharged its onus by submitting identity, creditworthiness, and genuineness No deficiency was pointed out by AO in any document. All lenders responded to notices u/s 133(6) confirming the transactions Interest was paid through banking channels with proper TDS deduction. Sole reliance on a third-party statement without corroboration or cross-examination lacks evidentiary value Additions under both Sections 68 and 69C were deleted.
Assessee's Submission: i. Comprehensive documentation was furnished PAN cards, ITR acknowledgments, financials, bank statements, confirmations from all lenders ii. Onus under Section 68 was discharged: Identity: PAN, ITR Acknowledgement Genuineness: Confirmations Creditworthiness: Audited financials, sufficient bank balances iii. No incriminating evidence was found during the search u/s 132. iv. Lenders had responded to notice u/s 133(6) with confirmation and details v. The statement of Shri Beni Prasad Lahoti was not provided to the assessee, nor was any opportunity for cross-examination given vi. He had no role in the affairs of these lenders and lacked standing to comment on the assessee's transactions. vii. The Hon'ble Delhi High Court in CIT v. Vrindavan Farms (P) Ltd. (ITA No. 71/2015) held that low income of the investor company alone cannot indicate lack of creditworthiness. The AO's failure to verify the documents led to dismissal of the Revenue's appeal. viii. The investor company had sufficient bank balance from which the loan was advanced, establishing its creditworthiness. Reliance is placed on Pr. CIT v. Ami Industries (India) P. Ltd. [2020] 116 taxmann.com 34 (Bom) and CIT v. Oasis Hospitalities (P.) Ltd. [2011] 198 taxman 247 (Del). ix. Reliance on third-party statements without evidence is not sustainable, especially when voluminous documentary proof supports the genuineness. x. Sole reliance on the statement of Shri Beni Prasad Lahoti is unjustified when the assessee has submitted substantial documentary evidence to prove the existence of the companies. As held in PCIT v. Paradise Inland Shipping (P.) Ltd. [2017] 84 taxmann.com 58 (Bom), upheld by the Hon'ble Supreme Court [2018] 93 taxmann.com 84, such evidence cannot be disregarded merely on third-party statements.
DCIT-CC-7(3), Mumbai vs M/s Om Trilok Realty & Infrastructures 10. Based on aforesaid submissions, Ld. AR requested that the Ld. CIT(A) had rightly decided the issues favouring assessee by deleting the additions made by the Ld. AO, thus the order of Ld. CIT(A) deserves to be upheld.
We have considered the rival submissions, perused the material available on records and jurisprudence relied upon by the parties. Factually, it is undisputed that the assessee had acquired unsecured loan from certain parties and have paid interest thereon through banking channel. The unsecured loans received by the assessee are treated as unexplained by the Ld. AO and interest thereon as bogus within the meaning of section 68/69C of the Act. Assessee contented that the Ld. AO’s stand was totally based on statement of Mr. Beni Prasad Lahoti, a third party, without any negative inference or deficiency being pointed out in the primary documents / evidence furnished by the assessee. Ld. CIT(A) found force in the contention of the assessee and had deleted the additions with the observation that Ld. AO failed to bring out fallacies in evidence brought on record by the assessee, there is no material in possession of the Ld. AO to summarily doubt the commercial transactions on his own surmise and conjectures.
12. On a thoughtful consideration of the aforesaid facts and observations of the revenue authorities, we find that both the authorities have DCIT-CC-7(3), Mumbai vs M/s Om Trilok Realty & Infrastructures failed in examining the documents furnished by the assessee, rather it was the duty of Ld. CIT(A) analyse and express his views about the evidence furnished by the assessee so as to satisfy about the identity and credit worthiness of the lenders and genuineness of the transactions, instead of merely mentioning that the Ld. AO had not discharged the onus cast upon him. It would be pertinent to mention that the Ld. CIT(A) also has powers and duties coterminous with that of the AO, thus such exercise was supposed to be undertaken by him or though AOin the interest of justice, however, Ld. CIT(A) made only comments on the working of AO and deleted the addition. Such decisionby the First Appellate authority found to be unjustifiable, bereft of necessary enquiries and without stating the points for determinations qua the limbs of section 68/69 of the Act and reasons for deleting the additions, thus we found it appropriate to restore this matter back to the file of Ld. CIT(A) for fresh adjudication of the issues after examination of the evidence / documents furnished by the assessee in light of the provisions of section 68/69 of the Act, taking into consideration the statement of third parties and to pass a speaking order to meet the mandate of section 250(4) and (6) of the Act.
Needless to say, that the assessee would be allowed with reasonable opportunity of being heard in the set aside appellate proceedings and Ld. AO to be consulted or directed for any assistance to arrive at a logical conclusion.
DCIT-CC-7(3), Mumbai vs M/s Om Trilok Realty & Infrastructures 14. In result the appeal of revenue is allowed for statistical purposes, in terms of our aforesaid observations.
Order pronounced in the open court on 10/12/2025.