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Facts
The revenue filed an appeal against the order of the CIT(A) who deleted additions made by the AO under Section 68 of the Income Tax Act, 1961. The additions were for unsecured loans from various entities, some of which were struck off companies.
Held
The Tribunal held that the assessee had discharged its onus of proving the identity, creditworthiness, and genuineness of the loan transactions by providing necessary documentation and that the AO had failed to conduct proper verification. The Tribunal also noted that the loans were repaid and relied on judicial precedents.
Key Issues
Whether the assessee had discharged the onus under Section 68 for unsecured loans from entities, including struck off companies, and whether the AO properly verified the creditworthiness and genuineness of the transactions.
Sections Cited
250, 143(3), 144B, 68, 69C, 133(6)
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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI AMARJIT SINGH & SHRI ANIKESH BANERJEE
Instant appeal of the revenue was filed against the order of the National Faceless Appeal Centre (NFAC), Delhi *for brevity, ‘Ld.CIT(A)’) passed under section 250 of the Income-tax Act, 1961 (for brevity, ‘the Act’), date of order 17/01/2024 for A.Y. 2018-19. The impugned order was emanated from the order of the National e-Assessment Centre, Delhi (for brevity the “Ld.AO”), passed under section 143(3) read with section 144B of the Act, date of order 13/05/2021.
The revenue has taken the following grounds:
(i) Whether on the facts and circumstances of the case and in law the id. CIT(A) is justified in holding that the AO had ignored the details submitted by the lenders, namely Solari Home Textile Pvt Ltd and Spring Fab and Tex Pvt Ltd, as well as assesse without appreciating that the assessee has taken loan from such entities which have been struck off from the Registrar of Companies for being shell companies not complying with the regulatory requirements?
(ii) Whether on the facts and circumstances of the case and in law the id CIT(A) is justified in holding that the AO had ignored the details submitted by the lenders, namely Solari Home Textile Pvt Ltd and Spring Fab and Tee Pvt Ltd, as well as assessee without appreciating the facts that the ITRs of the above entity shows that they did not have any creditworthiness to lend loan to the assessee?
(iii) Whether on the facts and circumstances of the case and in law the Id. CITA) is justified in holding that the assessee had fully discharged the onus placed on it by the provisions of the Section 68 of the Act, ignoring the fact that the lender entity namely A.K Macro Lumbers Put Lid had no regular income from operation and the gross total income of the lender is aero as per the ITR for AY 2018-19 and the assessee has also failed to submitted bank statement reflecting the loan transaction with the above mentioned entity?
(iv) Whether on the facts and circumstances of the case and in law the id. CIT(A) justified holding that the assessee had fully discharged the anus placed of it by the provisions of the Section 68 of the Act, without appreciating the fact that during the year under consideration, the assessee company had token loan of Rs 2,90,00,000/- form Chandarana Intermediaries Broker Pvt Ltd and repaid the full amount during the year itself along with interest of Rs. 16,54,973/- however, the assessee failed to furnish documentary evidences to establish the creditworthiness and genuineness of the loan transaction and source of fund for interest payment to the lender?”
The assessee has regularly filed its return of income. For the impugned assessment year, the case was selected for complete scrutiny under the CASS for Krisha Share & Stock Brokers LLP – (i) unsecured loans; (ii) transactions with company whose registration has been cancelled by the MCA (iii) Investments in Unlisted Equities. The notice was issued and finally, the assessment was framed with the addition under section 68 and 69C of the Act. The addition under section 68 related to the companies whose registration was cancelled by MCA, M/s Solari Home Textile Pvt Ltd and M/s Spring Fab & Tex Pvt Ltd from where the assessee has taken loan during the financial year 2017-18 amount to Rs.50 lakhs each. The assessee has also taken the loan from M/s A.K. Micro Lumbers Pvt Ltd and M/s Chandrana Intermediaries Brokers Pvt Ltd, total amount Rs.20 lakhs and Rs.2,90 crores, respectively. All the loans amount from struck off companies and non struck off companies amount to Rs.4.10 crores was added back under section 68 of the Act. The matter is carried before the Ld.CIT(A). The Ld.CIT(A) considering the submission of the assessee deleted the addition under section 68 amount to Rs.4.10 crores. Being aggrieved on the appeal order, the revenue filed an appeal before us by challenging the addition under section 68 related to unsecured loan from the parties. The addition was also made under section 69C, but no appeal is preferred against the addition under section 69C of the Act.
The Ld.DR vehemently argued and stated that the Ld.CIT(A) without considering the creditworthiness of the parties allowed the appeal of the assessee. Even the struck off companies which have no entity currently, the loan transactions have also been allowed by the Ld.CIT(A). He fully relied on the impugned assessment order in his argument.
The Ld.AR filed a paper book which is kept in the record. The Ld.AR argued that the Ld.AO had issued notices under section 133(6) and the notices were duly complied with and all the relevant documents which were filed before the Ld.AO.
Krisha Share & Stock Brokers LLP The copy of the receipt for filing of the relevant documents before the Ld. AO is duly attached in APB-1 pages 24–60.
Ld. AR has submitted that during assessment / appellant proceedings assessee has filled following documents to establish identity, creditworthiness, and genuineness of the transaction: - a. Master data of the company from MCA website b. Confirmation of accounts from loan-creditors. c. Annual audited accounts along with notes to accounts of loan-creditors. d. Trial balance of loan-creditors e. Computation of income and income tax return f. Bank statement of loan-creditors and appellant showing details of transaction. g. Replies to summons issued u/s 133(6) of the act along with acknowledgement of online submissions.
The Ld.AR, related to creditworthiness of the parties, placed that related to loan from Solari Home Textile Pvt Ltd and Chandrana Intermediaries Brokers Pvt Ltd, the amounts are duly taken and repaid within six months. So, there is no due related to alleged loan creditors on the part of the assessee. Further, it is placed that in case of M/s Spring Fab & Tex Pvt Ltd, the party has share capital amount to Rs.2,91,47,868/-. Copy of the ITR 6 for impugned assessment year of said party is duly annexed in APB pages 14 –83. He explained that there is sufficient balance of share capital and the creditor had paid to assessee the loan of Rs.50 lakhs. The same evidence was placed for loan creditor, AK Macro Lumbers Pvt Ltd. He explained that there is capital balance for alleged financial year2017-18 was Rs.2,58,84,071/- and the party had issued loan to the assessee amount to Krisha Share & Stock Brokers LLP R.20lakh out of its capital balance. The Ld.AR fully relied on the impugned appeal order and the relevant paragraphs 9.2 to 9.4 are reproduced as below: - “9.2 Ground no.4 & 5 are relating to taxing of unsecured loans from M/s. AK Macro Lumbers Pvt. Ltd. Rs.20,00,000/- & M/s. Chandrana Intermediaries Brokers Pvt. Ltd. Rs.2,90,00,000/- u/s.68 of the Act as unexplained cash credits. The contention of the AO is taxing these amounts was that the said companies did not respond to the notices sent by the AO u/s.133(6) of the Act. The AO had issued notices u/s.133(6) of the Act to these two companies seeking details from them but according to the AO no details were filed. During appellate proceedings, it was submitted that both the companies had responded to the AO in response to the notices u/s.133(6) of the Act and date of submission being 15.04.2021 with acknowledgement no. 100000402243184 & (the no. is not clear from the submission but the fact remains that the details were filed as per the acknowledgement filed) with all the details sought by the AO. The appellant vide letter dated 07.05.2021 has resubmitted the same details again in response to the draft assessment order. However, the AO has not made any verification and made the addition.
9.3 The appellant had made the repayment of the amounts borrowed in the month of September 2020. Further, both the parties had responded to the notices u/s 133(6) of the Act issued by the AO and had filed all the details as sought by the AO. These details prove that the AO has totally ignored the replies filed by the companies to the notices issued u/s.133(6) of the Act. It is also found that the AO has even ignored the letter sent by the appellant alongwith the replies of these two companies dated 07.05.2021 giving all the required details.
9.4 Thus, the appellant had fully discharged the onus placed on it by the provisions of the Section 68 of the Act. i.e. the identity of the entities their confirmations, bank statements, ITR acknowledgments etc. The appellant had also deducted TDS on interest payments to the said companies and all the loans were received and repaid through banking channels. Thus, there was no reason for making this addition. The Hon'ble Supreme Court in the case of CIT v. Lovely Krisha Share & Stock Brokers LLP Exports (P.) Ltd. [2008] 216 CTR 195 has laid down the ratio that the loan creditor has to be merely identified as the share holder and the initial onus u/s 68 of the Act stands discharged on mere identification, The Hon'ble High Court of Delhi in the case of CIT v. Sophia Finance Ltd. [1993] 70 Taxman 69/[1994] 205 ITR 98 has laid down the ratio that if the share holders are identified and it is established that they have invested in the purchase of shares, then the amount received by the company would be regarded as capital received. The assessee has no further onus to prove. In view of the fact that the companies in question have filed the required details in response to the notice u/s. 133(6) of the Act, the identity and creditworthiness of the loan creditors is proved before the AO. Under these circumstances, the addition of Rs.20,00,000/- & Rs.2,90,00,000/- cannot be sustained u/s.68 of the Act and the same are deleted. Ground no.4 & 5 are allowed.”
We heard the rival submission and considered the documents available in the record. Related to loan creditors M/s. AK Macro Lumbers Pvt. Ltd. Rs.20,00,000/- & M/s. Chandrana Intermediaries Brokers Pvt. Ltd. Rs.2,90,00,000/- the addition was made u/s.68 of the Act as unexplained cash credits. The assessee had made the repayment of the amounts borrowed in the month of September 2020. Further, both the parties had responded to the notices u/s 133(6) of the Act issued by the AO and had filed all the details as sought by the Ld. AO. The transactions are substantiated by Copy of Bank Statement of loan creditors and assessee showing details of transactions and copy of bank statement of subsequent year for payment of outstanding balance. Respectfully relied upon judgment of Hon’ble Bombay High Court in the PCIT vs Bairaga Builders (P.) Ltd 164 taxmann.com 162 (Bom), wherein it was held that no addition u/s 68 can be made in case where amount credited is repaid back in subsequent year.