Y2K FASHIONS PRIVATE LIMITED ,MUMBAI vs. DY, COMMISSIONER OF INCOME TAX -8(3)(2), MUMBAI

The appellant company submits that, The Ld. CIT (A) erred in law and on facts confirming addition made by AO of loan simplicitor as an accommodation entry to facilitate money laundering. Ld. CIT (A) ought to have held transaction as genuine when the loan was repaid with interest deducting tax at source during the year itself would establish that there were indeed real creditors; that they had indeed the funds available with them and that the transactions were genuine and not attract deeming fiction of Section 68 of ITA, 1961. 3. The appellant company submits that, The learned Commissioner of Income Tax Appeals erred in confirming the addition of Rs. 22,00,000/- made by the learned Assessing Officer by invoking the provisions of section 68 of the Act without appreciating the fact and circumstances of the case and position of law and AO failed to conduct proper enquiries before making any addition.

The appellant company submits that, The Ld. CIT (A) erred in law and on facts in confirming action of AO treating unsecured loan of Rs. 22,00,000/- received and returned with interest during the year as unexplained cash credit u/s 68 of the Act. Ld. CIT (A) ought to have deleted addition as appellant discharged primary onus filing complete details of Name/Address/PAN/Balance Sheet/ ROI of depositor.

The appellant company submits that, when the Assessing Officer has not disallowed the interest in relation to credit in the assessment year and the assessee as deducted tax at source for the interest paid to the creditors, the Department is not justified in making addition under section 68 of the Act.

The appellant company submits that, where the department has accepted repayment of loan in subsequent year, no addition was to be made in the current year for cash credit. Y2K Fashions Private Ltd.

The appellant company submits that, the learned Commissioner of Income- tax Appeals erred in confirming the addition despite that opportunity for cross examination as per law was not provided to the appellant, thus, not appreciating the facts and circumstances of the case and position of law,

The appellant company submits that, there is no independent evidence that Unsecured loans borrowed by your appellant is undisclosed own fund of the appellant.

That 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.

That the Ld. CIT (A) erred in law and on facts not following ratio laid down by the juri ictional High Court that appellant is not obliged to explain source of the source once primary onus cast u/s. 68 of the Act is discharged. Further actions if any should be taken in the hands of the depositor when PAN & IT details are on record.

Levy of interest u/s 234A/B/C&D of the Act is unjustified.”

The assessee is a private limited company engaged in the business of cloth trading. The assessee filed the return of income for AY 2011-12 on 30.09.2011 declaring a total income of Rs. 78,88,410/-. The assessment under section 143(3) was completed in assessee's case vide order dated 17.02.2014 assessing the income at Rs. 83,90,310/-. Subsequently the AO received information from DCIT, CC-2(2), Mumbai, that the assessee has received certain advances from companies controlled by Shri Sirish C. Shah as per details below:

The AO issued notice under section 148 reopening the assessment in this regard. The assessee in response filed the return of income on 22.06.2018 declaring a total income of Rs. 81,39,360/-. The assessee furnished the confirmations, bank Y2K Fashions Private Ltd.

3 It is pertinent to mention here that the corporate veil of these 3 entity i.e. Adila Traders Pvt. Ltd., Walton Construction Pvt. Ltd. & Grandview Properties Pvt. Ltd. has been lifted by the Income Tax Department vide assessment orders passed u/s 143(3) rws 153C for AY 2011-12 in their own assessments. The transactions of these companies have been proved as sham transactions by the Income Tax Department. The assessing officer of the said 3 companies had recorded a finding of fact that the said 3 companies were merely tools in the hands of Shri Shirish C. Shah who controlled not only these 3 companies but many other companies. Shri Shirish C. shah was found to be engaged in providing various sorts of accommodation entries to various parties through these entities. In view of this the loan transactions with the above entities, are held to be bogus and added to the total Income of the assessee u/s. 68 of the Income Tax Act, 1961. I am satisfied that assessee has furnished inaccurate particulars of his income and therefore penalty proceedings u/s. 271(1)(c) of the I.T. Act, 1961 are initiated separately.”

Aggrieved the assessee filed further appeals before the CIT(A). The assessee before the CIT(A) filed further documents substantiating the creditworthiness of the parties, however the CIT(A) rejected the submissions made by the assessee and upheld the addition made by the AO by relying on the decision of the Hon'ble 5. During the course of hearing the ld. AR submitted that the assessee has discharged the onus of proving the identity, genuineness and creditworthiness of the parties before the lower authorities. The ld. AR drew our attention to the findings of the CIT(A) where he has upheld the addition made by the AO on the ground that the creditworthiness of the parties are not established to submit that the said finding is based on the income returned which is not the right basis for deciding the creditworthiness. The ld. AR in this regard drew our attention to the financial statements filed in Form 23AC of the loan parties to substantiate that all the loan parties are having sufficient funds in the balance sheet. The ld. AR during the course of hearing also submitted the following table in support of the claim that the identity, genuineness and creditworthiness of the loan creditors are well substantiated before the lower authorities: Y2K Fashions Private Ltd.

The ld. DR on the other hand supported the order of the lower authorities.

We heard the parties and perused the material on record. The assessee during the year under consideration has borrowed and repaid the loan from three parties. Based on information received consequent to a search conducted in the case of Shri Sirish C. Shah, the AO reopened the assessment in assessee's case. The AO did not accept the submissions of the assessee that the loans were borrowed and repaid during the same financial year and the interest is also paid after deducting tax at source. The CIT(A) confirmed the addition on the ground that the creditworthiness of the parties are not substantiated, however from the perusal of the details submitted by the assessee before the lower authorities as tabulated above, we notice that the impugned loan creditors are having sufficient balances as below:

From the perusal of the above it becomes clear that the loan creditors are having sufficient balances and therefore, in our considered view the addition cannot be sustained on the ground of creditworthiness of the parties. We further notice from the perusal of the balance confirmations from the parties as submitted by the assessee, we notice that the assessee has borrowed the loan from these parties on 04.06.2010 and the same is repaid within the same financial year i.e. in December 2010. We also notice that the assessee has repaid the loan along with interest after deducting tax at source. It is relevant to mention here that the AO though held the loans to be non-genuine has not disallowed the interest paid by the assessee. In view of this discussion and considering the facts peculiar to the assessee's case, we are of the view that the addition made cannot be sustained for the reason that the assessee has discharged the onus by providing sufficient documentary evidences to prove the identity, creditworthiness and genuineness of the loan creditors and that the revenue has not recorded any adverse findings with regard to the various documentary evidences submitted by the assessee. Further the AO has doubted the genuineness of the loan based on search conducted subsequently where these companies were found to be controlled by Shri Sirish C Shah who is an alleged bogus entry operator. While holding so, the AO has not considered the fact that the assessee has no outstanding balance payable to these companies and that the loans have been repaid including interest on which tax was duly deducted at source. In our considered view the loan transactions carried out by the assessee cannot be held as non-genuine merely based on the finding as a result of a search conducted subsequently in the case of the third party holding that these companies are controlled by an alleged entry provider without recording any incriminating findings specific to the assessee to substantiate Y2K Fashions Private Ltd.

In result the appeal of the assessee is allowed.