M/S. KOPRAN LTD,MUMBAI vs. DCIT -7(1) , MUMBAI

“1.(a) On the facts and in the circumstances of the case and in law, the learned Ld. CIT(A) erred in confirming an addition of Rs. 2,00,00,000/- being unsecured short term loans taken from four parties by treating it as unexplained, unestablished, unsubstantiated cash credit under section 68 of Income-Tax Act, 1961 (the Act) and the reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, provisions of the Act and Income-tax Rules, 1962 (Rules) made there under;

1. (b) On the facts and in the circumstances of the case and in law, the learned Assessing Officer erred in confirming the addition without appreciating the facts that:

i) The unsecured loans have been received by the appellant through account payee cheques from M/s. Jitendra Quali Pharm Pvt Ltd, M/s. Desai Trading & Consultants P. Ltd, M/s. Laxmimanak Fin P. Ltd and M/s. Suresh Square Trading & Consultancy P. Ltd. ii) The appellant has submitted the Loan confirmations, Permanent AccountNumbers and addresses of the parties from whom the unsecured loans havebeen taken. iii) The lender companies have submitted copies of Audited Balance Sheet, their ITR returns and Ledger Accounts for the year ended 31.03.2014. v)Genuineness of transaction was proved by submission of Bank statements of lenders and the borrower reflecting the receipt and payment of loan. The appellant has paid interest and deducted TDS, which has been duly deposited with the Government. vi) Creditworthiness of lenders was proved by submission of Audited BalanceSheet, ITR returns and Bank statements of lenders reflecting the loantransaction. The source of the funds of the lenders have also been duly explained that the lenders had received the amounts from M/s Sanimo polymers Pvt ltd. vii) The appellant has fully discharged its burden of proof by establishing genuineness of transactions and identity and creditworthiness of the parties. The Id. AO had verified existence of the lender parties including their sources of funds for giving loans to the appellant.

2. On the facts and in the circumstances of the case and in law, CIT(A) erred innot providing the copy of remand report received from AO as claimed by him in the order, which is wrong & contrary to provisions of the Act and rules made there under

During the course of assessment proceedings it was seen that the assessee has received unsecured loan from following parties:

Sl. No. Name of the Parties/ PAN Amount (in Rs.) 1. JinendraAualipharm Pvt. Ltd. 50,00,000/- 2. Desai Trdg. & Consultants P. Ltd. 50,00,000/- 3. Laxmimanak Fin. P. Ltd. 50,00,000/- 4. SureshsquareTrdg. & Consultancy P. Ltd. 50,00,000/- “Assessee was asked to file the details of the loans taken during the year. Assessee did not file any details whatsoever with respect to the unsecured loans taken during the year. Again, the assessee was issued a letter on 15.11.2016 to furnish the details and show causing as to why, in absence of any detail, the same should be treated as unexplained cash credit and should not be disallowed u/s 68 of the Income Tax Act.

3.1 Notice u/s 133(6) was also issued to all the four concerned parties requiring them to furnish the details of the transaction entered with the assessee along-with the copies of their return of Income, 3.2 Assessee did not file any details in response to the show cause notice dated 15.11.2016. Therefore, for the sake of natural justice again, a show cause notice dated 21.11.2016 was issued to the assessee requiring the assessee to furnish the requisite details. Copy of the relevant portion of the show cause notice is reproduced for the sake of clarity:

"Scrutiny assessment proceedings u/s 143(3) of the I.T. Act, 1951 for A.Y. 2014-15 is in progress in your case During the course of assessment proceedings vide order sheet entry dated 24.10.2016, you were specifically asked to furnish the details of the parties of unsecured loans. Meanwhile notices u/s 133(6) of the I.T. Act were sent to the concerned parties. From the replies of the following parties it is gathered that creditworthiness of the parties are not beyond doubt. Following facts have emerged from their replies:

1) There are no actual business carried out by these parties during the year under consideration.

2) Reserve and surplus of the entities are barely enough for providing loans

3) it seems that the entries were manufactured in the Books so as to 4) It a noted that there is huge credit into their accounts before they have advanced the 5) Details of their bank accounts reveal that all the following parties have received huge amounts from the same entity sic M/s Sunimo Polymers Pvt. Ltd Details of the facts are given in Tabular form as below:-

Sl. Name of the Parties/ PAN Turn over/ Reserve & No. Sales (Rs.) Surplus 1. JinendraAualipharm Pvt. Ltd. 7,000 59,92,787 2. Desai Trdg. & Consultants P. 6,17,270 79,23,186 Ltd.

3. Laxmimanak Fin. P. Ltd. 10,34,626 34,90,128 4. SureshsquareTrdg. & 10,10,364 38,56,504 Consultancy P. Ltd.

3. in view of the above facts you are hereby show casued as to why the unsecured loans of Rs. 2,00,00,000/- Rs. 50,00,000/- from each parties) should not be treated as sham transaction and added to the total income as unexplained credit u/s 68 of the 1.T. Act 3.3 In response to the show cause notice the assessee vide its letter dated 29.12.2016 has submitted as under:-

This is with reference to your captioned show notice dated 21 11 2016 where by your goodself has asked the company to show cause as to why the unsecured loan of Rs. 2,00,00,000/- taken form 4 parties should not be treated as sham transaction and added to the total income as unexplained credit u/s 68 of the IT Act, In this regard, her to our earlier submissions, we have to submit as under:

The Company had during the previous year relevant to above assessment year taken unsecured loans form the following parties and also repaid the same during the year:

Regarding allegation that the creditworthiness of the lenders are doubtful, we have to state that, the lender companies in their course of business have given loans to the company. Further, we had asked the lender companies to share their audited balance sheet, ITR ledger account of company. It has been informed to us that all the lender companies have in response to your notice issued u/s 133/6), submitted

2. Further, regarding the allegation that no actual business is earned out by these lenders during the year under consideration, we have to submit that all the lender parties have earned profit during the year and have paid taxes on their income which is evident from their IT records also,

4. Further, your good self has asked the assessee company to submit the audit report, ITR of M/s Sanimo Polymers Pvt. Ltd. Thus, it is not possible for the assessee company to submit the same. However, if your good self desire to verify the same, summon/notice can

5. Further, as regards the report submitted by the Income Tax Inspector who went to visit to offices of the lender companies, we have to submit that the inspector in his report has mentioned that there was no loan transaction made with the assessee company in the books of account of the lender. The apparent reason for this is because the loan given to company was repaid during the same year itself and there was no amount outstanding as on the balance sheet date. The inspectors would have only seen the balance sheet, wherein no closing balance would have appeared. Ledger accounts duly confirming the loans have already been submitted to your good self form the lenders. Eve, the bank statements reflect these transactions. Thus, apparently, the inspector has not properly gone through the books of account of the lender companies and has formed his report. Further, the inspector has mentioned that no business activity is going on in the lender company is contrary to the fact that lender parties have earned profit during the year and have paid taxes on their income which is evident from their IT records also.

6. The details/documents submitted to your goodself and more particularly the confirmation letters and the financial statements received 3.4 Charge Inspectors were also deputed to verify the genuineness of the loan advancing entities as mentioned above All the entities are having same address 204, 2nd floor, Anand Estate, 189, Arther Road, Chinchpokli (W), Mumbai-11. Inspectors have reported that at the given address M/s Desai and associates, Chartered Accountants are having their office and the above said companies are not having their office at the given address. There was not signboard or any business going on at that premise. However, on further enquiry they were shown the books of accounts of the said companies which were lying with the office of the Chartered Accountants at the given address.

After verification of their accounts, Inspectors have reported that no entry whatsoever is there in the books of the said companies which could show that they have advanced loans to the assessee. The assessee was provided a copy of inspectors report Ms. JinendraQualipharma Pvt. Lad, M Laxmimanak Finance Per Lid, M/s Desal Trading and Consultants Pvt Ltd and M/s Suresquare Trading and Consultants Pet Ltd. I Manoj Kumar Tripathi, Inspector und Raushan Kumar. Inspector both were deployed for Inspection of Books of accounts us. 131 of the income tax let. 1961, in the case of above mentioned Companies Registered office being same in the case of all above companies. We both reached the registered office at 204.2 floor, Anand Estates, 189 Arther Road Chinchpokli (W), Mumbai-400011 at 17 15 hrs on 17.11.2016. But at this undress, we found only CA firm namely Desai and associate. The above mentioned companies named M's JinendraQualipliorma Pvt Ltd, MsLaxmimanak Finance Pvt Ltd. M's Desai Trading and Consultants Pvt Ltd and M Suresquare Trading and Consultants Pvt Ltd do not exist there physically. None of the employee of these companies were physically present there. The persons available there were either employee or trance of Desai and associate. They told that Sri Suresh Paharia CA is looking after the taxation matter of these companies, who had just left the office While talked to Sri Suresh Paharia on mobile (mobile no. 9967539057), he told that persons available there Thus, the inspectors have confirmed that there was no business going on w.r.t the above companies, there were no assets of these companies. Only a office was there, that too of a chartered accountant. In the books of accounts, there was no loan entry to M/s Kopran Ltd. Thus from the above enquiry, it is 3.5 Summons u/s 131 of the Income Tax Act, 1961 were also issued to all the directors of the lending entities. Summons were also issued to the concerned entities for production of their books of accounts and specifically provide the source of loan funds and also genuineness and creditworthiness of loan advancing party M/s Sanimo polymers Pvt. ltd.. However, the required details were not produced before the undersigned. Statement of Shri Suresh Paharia who is director in all the four said entities was recorded and is placed on record.

During the course of statement u/s 131, he was asked to provide creditworthiness of the parties who have given unsecured loan, but he didn't bring any proof of creditworthiness He also stated in his statement that these companies don't have any RBI license or any permission to solely carry out the money lending business. Moreover, he couldn't explain the source of funds of these four companies and the company. M/s Sanimo Polymers Pvt. Ltd who has advanced loan to these four paper companies. Except Mr. Suresh Paharia, CA, no other directors turned up in response to summons issued.

3.6 Further, the assessee's representative's submissions have been perused. It is submitted by the assessee that they had filed the copies of the ledger account, confirmations, bank statement, acknowledgement of Income tax return of all the 3.6.1 Moreover, the assessee was requested to produce the directors of the above companies, but he failed to do so. Hence, this also shows failure on the part of the assessee.

The explanation of the assessee is duly considered. Balance sheet and profit and loss account of the entities which have advanced loans to the assessee has been analysed. Comparative figures of the four entities which have advanced loans to the assessee is given below for the sake of clarity:

Sl. Name of the Parties/ PAN Turn over/ Reserve & No. Sales (Rs.) Surplus 5. JinendraAualipharm Pvt. Ltd. 7,000 59,92,787 6. Desai Trdg. & Consultants P. 6,17,270 79,23,186 Ltd. 7. Laxmimanak Fin. P. Ltd. 10,34,626 34,90,128 (a) High Turn Over (b) High Sundry Creditors (c) The major portion of entire assets in the balance sheet comprising of Loan & Advances, Debtors and Investments (in shares etc.). These assets will almost match the figures of their Business Creditors.

(d) The advance tax payments or self assessment tax payments are NIL despite their Turn Over running in to Several Crores.

It clearly reveals the companies are only shell/paper company which is engaged in the business of providing accommodation entries of loans.

"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 is 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:

3.10 Further reference is invited on the decision of the Supreme Court in the case of Union of India Vs. Gosalia Shipping P. Ltd., 113 ITR 307, which is relevant. The court held that, in the context of determining whether the transaction is a sham or illusory transaction or a device or a ruse, the income- tax authorities are entitled to penetrate the veil covering it and ascertaining the truth. In the still earlier decision of the Supreme Court in the case of CIT Vs. Durga Prasad More, 82 ITR 540, the court observed that the taxing authorities are not required Accordingly the learned assessing officer made an addition of ₹ 2 crores with respect to all these 4 entities u/s 68 of the income tax act as per assessment u/s 143 (3) of the act dated 30/12/2016 where the total income of the assessee was assessed at ₹ 2 crores chargeable to tax

10.4 As mentioned previously, the appellant in its detailed submission has put in a lot of emphasis on the form, i.e., the loans were paid through banking channels, it was repaid during the year with interest,

"In response to assessee's contention in the form of filing additional evidence, I would like to humbly submit before Ld. CIT(A) that during the course of assessment proceedings, the Assessee was asked to file the details of the loans taken during the year. Again, the assessee was issued a letter on 15.11.2016 to furnish the details and show caused as to why, in absence of any details, the same should not be treated as unexplained cash credit and should not be disallowed u/s. 68 of the Income- Tax Act. Assessee did not file any details in response to show cause notice dated 15.11.2016. Therefore, for the sake of natural justice again, a show cause notice dated 21.11.2016 was issued to the assessee asking to furnish the requisite details.

In response to the show cause notice the assessee vide its letter dated 29.12.2016 filed its submissions that, during the previous year relevant to A.Y. 2014-15, the assessee has taken unsecured loans of Rs.50,00,000/ each from the following four parties:

2. Desai Trdg. & Consultants P. Ltd.

4. Sureshsquare Trdg. & Consultancy P. Ltd.

Charge Inspectors were also deputed to verify the genuineness of the loan advancing entities as mentioned above. All the entities are having same address 204, 2nd Floor, Anand Estate, 189, Arther Road, Chinchpokli (W). Mumbai- 400 011. Inspectors have reported that at the given address M/s. Desai and associates, CA are having their office and the above said companies are not having their office at the given address. There was no signboard or any business going on at that premise. However, on further enquiry they were shown the books of accounts of the said companies which were lying with the office of Chartered Accountants at the given address.

After verification of their accounts, Inspectors have reported that no entry whatsoever is there in the books of the said companies which could show that they have advanced loans to the assessee. The assessee was also provided with the copy of the inspectors report and asked to comment on the same. However, the assessee chose not to reply on the Inspectors report.

Without prejudice I would like to state that during the course of assessment proceedings, the assessee was given many opportunities to substantiate his claim, but the evidence furnished by the assessee in this regard does not justify his claim. Apart from this assessee has not filed anything which can be treated as additional evidence. Further, during the remand proceedings, summons u/s. 131(1) of the Income Tax Act, 1961, dated 06.02.2019 were a issued to the assessee to produce the directors of M/s. Sanimo Polymers Private Limited, M/s. Desai Trading and consultants Pvt. Ltd., M/s. Jinendra Qualipharma Pvt. Ltd., M/s. Laxmimanak Finance Pvt. Ltd. and M/s. Sureshsquare Trading & Consultancy Pvt. Ltd. for examination on or before 18.02.2019. Assessee was also asked to produce Books of Accounts, Balance Sheet, ITR, Audit Report, Bank Statement etc. for examination in the presence of their respective directors. But, the 10.5 On perusal of the remand report, it is evident that even during the remand proceedings, summons u/s. 131 of the Act was issued to the appellant to produce the Directors of Sanimo Polymers Pvt. Ltd., Jitendra Qualipharma Pvt. Ltd.. Desai Trading & Consultants Pvt. Ltd., Laxmimanak Fin. Pvt. Ltd. and Sureshsquare Trading & Consultancy Pvt. Ltd. The appellant was also asked to produce the books of accounts, Balance Sheet, ITR, Audit Report, bank statement, etc. for examination) in the presence of their respective Directors, but the appellant did not comply with the summons issued to it. A copy of the remand report was provided to the appellant during the appellate proceedings, but I find that in the subsequent submissions filed before me as reproduced previously, the appellant did not offer any comments as to these observations of the learned AO in the remand report.

10.6. In the given facts of the case, it is not enough if there are documents evidencing an apparent situation, if such documents do not record a real transaction, but are made to cover up what could be "Considering the number of coincidences involved in the scheme, we are of the view that the entire scheme has been planned and coordinated by the firm. In the case of Homi Jehangir Gheesta v. CIT [1961] 41 ITR 135, the Apex Court held that while deciding an issue, the Tribunal can consider probabilities properly arising from the facts alleged or proved and by doing so the Tribunal does not indulge in conjectures, surmises or suspicions. The Apex Court expressed a similar view in the case of Sumati Dayal v. CIT [1995] 214 ITR 801 / 80 Taxman 89 (SC) and held that the decision of an adjudicating body based on surrounding circumstances and human probabilities is not bad in law and deserves to be upheld. In the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148 /22 Taxman 11. the Apex Court held that colourable devices not part of legitimate tax planning. are ME TAX DEPAR (emphasis added)

10.8. Since the assessee claimed that the loans were genuine, the onus was on the appellant under section 101 of the Evidence Act, 1972 to produce the directors/principal officers of these companies as its own witness for cross examination by the Revenue. The appellant should have discharged its duty as a taxpayer by producing the directors of these companies particularly in a scenario in which the companies had claimed to have given loans to the appellant. In this connection, the following observation of Hon'ble ITAT of Ahmedabad Bench in the case of Nakoda Fashion Pvt. Ltd. in Ahd./2012 dated 18.08.20 is relevant, wherein it has been held as under:

ii. Capacity of the cash creditor to advance money towards capital. iii. Genuineness of the transaction.

"Now we shall proceed to examine the validity of those grounds that appealed to the learned judges. It is true that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to Page 23 have some recitals made in a document either 10.10 Hence, what I perceive and regard as correct position of law is that the appellate authority should be convinced about the identity, creditworthiness and genuineness of the transaction. The onus to prove the three factum is with the assessee as the facts are within the assessee's knowledge. Mere production of incorporation details, PAN Nos. or the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, and identity are deeper and obtrusive. Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who run and manage the said companies. It is the persons behind the company who take the decisions, controls and manage them.

"The ratio of a decision is to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, Income-tax file numbers, their creditworthiness, share application forms and shareholders' register, share transfer register, etc, are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in the hands of the company under section 68 and the remedy open to the Revenue is to go after the share applicants in accordance with law. We are afraid that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self-confessed 'accommodation entry providers', whose business it is to help assessee bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee... The existence with the Assessing Officer of material 10.12. Section 102 of Indian Evidence Act makes it clear that initial onus is on person who substantially asserts a claim. If the onus is discharged by him and a case is made out, the onus shifts on to deponent. It is pertinent to mention here that the phrase "burden of proof is used in two distinct meanings in the law of evidence viz, the burden of establishing a case', and 'the burden of introducing evidence'. The burden of establishing a case remains throughout trial where it was originally placed, it never shifts: The burden of evidence may shift constantly as evidence is introduced by one side or the others. In this case, once the evidence that assessee has obtained accommodation entry was introduced by the Id.AO, the burden of evidence shifted to the assessee. During the assessment proceeding and even during the appellate proceeding, the assessee has failed to produce any evidence to prove that the money introduced in its books as loan was genuine transaction in the facts and circumstances of the case.

10.13. The legal principles laid down in a number of cases, a few of which have been quoted above, are squarely applicable to the facts and circumstances of the present case. When surrounding circumstances 10.14. Once the appellant was made aware of the result of investigation which proved that the said loan transactions were not genuine, the onus was on the assessee to prove the genuineness of transaction, as it is the assessee who is asserting a claim that it has received genuine loans. It is relevant to note here that Hon'ble Supreme Court in the case of Shri Charan Singh versus Chandra Bhan Singh AIR 1988 SC 637 has clarified that the burden of proof lies on the party who substantially asserts the affirmative of the issue and not upon the party who denies it. It has been further held that the party cannot, on failure to establish a prima facie case, take advantage of the weakness of his adversary's case. The party must succeed by the strength of his own right and the clearness of his own proof. He cannot be heard to say that it was too difficult or virtually impossible to prove the matter in question. Since in this case the appellant had made the claim that it had received genuine loans, all the facts were especially within its knowledge.

10.15. I find that in the present case, as discussed above, there is overwhelming evidence that the transaction on which adverse view has been taken was a pre arranged transaction undertaken with the 10.16. Hence, in the given facts of the case, I am of the considered view that there are enough evidences on record to believe that the said companies from whom the appellant has claimed to have received the impugned loans are mere paper companies and that the said loan transactions are not genuine, and, hence, I do not find any reason to interfere with the findings of the learned AO holding that the cash credits appearing as loan should be treated as income of the appellant within the meaning of Section 68 of the Act. Ground No.1 is, accordingly, DISMISSED.”

Order pronounced in the open court on 21.11.2022.