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Facts
The assessee declared a total income of Rs.23,48,56,350/- for AY 2020-21 and was selected for scrutiny. The Assessing Officer treated a loan of Rs.10,00,00,000/- from M/s Bonn Suppliers Pvt. Ltd. as an unexplained cash credit under Section 68 of the Act, alleging the creditor was a shell company.
Held
The Tribunal held that the assessee had discharged its initial onus by providing sufficient documents to establish the identity, creditworthiness, and genuineness of the transaction. The Assessing Officer failed to conduct an independent inquiry to verify the transaction, and the creditor was a registered NBFC, regularly assessed to tax. Therefore, the addition made by the Assessing Officer was deleted.
Key Issues
Whether the Assessing Officer arbitrarily treated the loan as an unexplained cash credit without proper inquiry, and whether the assessee discharged its onus under Section 68 by providing sufficient evidence of the loan's genuineness.
Sections Cited
250, 142(1), 14A, 8D, 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH KOLKATA
Before: Shri Sonjoy Sarma & Shri Sanjay Awasthi
order
: February 13, 2025 आदेश / ORDER
Per Sonjoy Sarma, Judicial Member:
The present appeal has been preferred by the revenue against the order dated 26.12.2023 of the National Faceless Appeal Centre [hereinafter referred to as ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’).
At the outset, the Registry has informed that there is a delay of 111 days in filing the present appeal. The revenue filed application for condonation of delay stating reasons for such delay. After considering the application, we find reasonable cause and condone the delay in filing the appeal and adjudicate the appeal on merits of the case.
Brief facts of the case are that the assessee filed his return of income for the assessment year 2020-21 by declaring total income of Rs.23,48,56,350/-. The case of the assessee was selected for scrutiny under CASS with specific reasons being substantial unexplained loans Assessment Year: 2020-21 Ugraya Foods And Feeds Pvt. Ltd received during the year. Accordingly, notice u/s 142(1) of the Act was issued during the assessment proceedings. The Assessing Officer raised several issued and made specific enquiries particularly regarding a loan of Rs.10,00,00,000/- received from M/s Bonn Suppliers Pvt. Ltd. alleged to be bogus company, loss of claim of sale of share and mutual funds, disallowance u/s 14A of the Act r.w.r. 8D, issue of bad debt claimed by the assessee. The Assessing Officer accepted assessee’s explanation on all issues except the loan of Rs.10,00,00,000/- received from M/s Bonn Suppliers Pvt. Ltd. The Assessing Officer while passing the assessment order treated the said loan as unexplained cash credit u/s 68 of the Act alleging that the creditor was shell company and had no capacity to advance the loan. While passing the assessment order, the Assessing Officer primary allegation was that the loan creditor namely M/s Bonn Suppliers Pvt. Ltd. was shell company, engaged in providing accommodation entries and the company lacked of financial capacity to provide loan of Rs.10,00,00,000/-. The Assessing Officer noticed that there were discrepancies in financial portfolio and operation of the creditor and its director has communication with other alleged shell companies. Accordingly, the Assessing Officer made an addition of Rs.10,00,00,000/- in the hands of the assessee u/s 68 of the Act by assessing a total income of Rs.33,48,56,350/-.
Aggrieved by the above order, the assessee went in appeal before the ld. CIT(A). However, the ld. CIT(A) deleted the addition made by the Assessing Officer after considering the detailed submissions and evidences provided by the assessee which included audited financial statement of M/s Bonn Suppliers Pvt. Ltd. for the relevant assessment year, ITR acknowledgement of the creditors, loan confirmation, bank statement reflecting the loan transaction, memorandum of association and articles of association of the creditors, proof of repayment of loan along with interest payment after deduction of TDS, details of net worth Assessment Year: 2020-21 Ugraya Foods And Feeds Pvt. Ltd of the creditor which included free reserves aggregating to Rs.13,33,98,038/-, substantial investment in mutual funds, long- term/short-term loan or advances of the creditor given to other parties. While passing the order, the ld. CIT(A) observed that the addition made by the Assessing Officer on the basis of conjecture, surmises and suspicions and without conducting any verification with the Assessing Officer of the creditor. It was also held that the assessee had satisfactorily discharged its initial onus u/s 68 of the Act by furnishing the documents/evidences to establish the identity and creditworthiness of the creditor and genuineness of the transaction. The ld. CIT(A) further noted that the Assessing Officer had ignored the fact that the creditor was registered as non-banking financial company (NBFC) and being a regularly assessed to Income Tax. He observed that the Assessing Officer also failed to address the repayment of loan which was supported by documents and accordingly, the ld. CIT(A) deleted the addition made by the Assessing Officer.
Dissatisfied, the revenue has come in appeal before this Tribunal raising multiple grounds but the primary contention is that the ld. CIT(A) erred in deleting the addition of Rs.10,00,00,000/- without properly appreciating the merits of the case as the creditor was a shell company engaged in providing accommodation entries and lacked of financial capacity to provide the loan. The ld. DR therefore stated that the impugned order needs to be set aside.
On the other hand, the ld. AR stated that the assessee has submitted all relevant evidences to substantiate the genuineness of the transaction. He argued that the Assessing Officer’s addition was arbitrary and based on mere suspicion. The ld. AR emphasised that the creditor was a Non-Banking Financial Companies (NBFCs) duly registered in RBI and regularly assessed to tax and the financial statement demonstrates that the creditor had substantial fund to 3 Assessment Year: 2020-21 Ugraya Foods And Feeds Pvt. Ltd advance the loan. Moreover, the loan was advanced through banking channel and the loan was repaid in subsequent years along with interest after deducting TDS. The ld. AR stated that while framing the assessment order, the Assessing Officer failed to make any enquiry with the Assessing Officer of the creditor in order to verify the transaction. The ld. relied on various judicial precedents including the judgment of the Hon’ble Jurisdictional High Court in the case of CIT vs. Dataware Pvt. Ltd. in ITAT No.263 of 2011 GA No.2856 of 2011, wherein, it was held that once the assessee furnished to discharge its onus u/s 68 of the Act, the Assessing Officer must take proper enquiry to rebut the assessee’s claim. The ld. AR, therefore, prayed before the Bench that the appeal of the assessee be dismissed.
We, after hearing the rival submissions of the parties and perusing the materials available on record, find that the assessee has furnished all necessary documents such as details of creditor M/s Bonn Suppliers Pvt. Ltd. registered as NBFC along with ITR acknowledgement, bank statement of the assessee as well as of loan creditor, details of sufficient own capital and free reserves aggregating to Rs.13,33,98,038/- in order to establish identity and creditworthiness of the loan providers and genuineness of the transaction during the assessment proceedings. Therefore, the creditworthiness of the creditor cannot be doubted. We note that in the present case, the assessee advanced the loan through account payee cheques and the assessee furnished loan confirmation, bank statement and proof of repayment along with interest after deducting TDS which was clearly stated by the ld. CIT(A) in his order. Therefore, the genuineness of the transaction cannot be doubted. On examination of the order of the ld. CIT(A), we find that the Assessing Officer did not make any independent enquiry with the Assessing Officer of the creditor in order to verify the transaction. We further note that it is well settled principle that the Assessment Year: 2020-21 Ugraya Foods And Feeds Pvt. Ltd Assessing Officer cannot arbitrarily brand a creditor as shell company without conducting any intendent and proper enquiry. Therefore, it cannot be said that the creditor was a shell company without proper enquiry on the part of the Assessing Officer. On perusal of records, we notice that the loan was repaid in the subsequent years and the repayment was duly reflected in the bank statements and ledger accounts of both the parties. Therefore, it cannot be doubted that the creditor was a non-existent company. To buttress our above discussions, we place reliance on the following decisions:
(i) Hon'ble jurisdictional High Court, Calcutta in the case of S.K. Bothra & Sons, HUF v. Income-tax Officer, Ward- 46(3), Kolkata 347 ITR 347 (Cal), wherein, it was held as follows:
“15. It is now a settled law that while considering the question whether the alleged loan taken by the assessee was a genuine transaction, the initial onus is always upon the assessee and if no explanation is given or the explanation given by the appellant is not satisfactory, the Assessing Officer can disbelieve the alleged transaction of loan. But the law is equally settled that if the initial burden is discharged by the assessee by producing sufficient materials in support of the loan transaction, the onus shifts upon the Assessing Officer and after verification, he can call for further explanation from the assessee and in the process, the onus may again shift from the Assessing Officer to assessee.
In the case before us, the appellant by producing the loan- confirmation-certificates signed by the creditors, disclosing their permanent account numbers and address and further indicating that the loan was taken by account payee cheques, no doubt, prima facie, discharged the initial burden and those materials disclosed by the assessee prompted the Assessing Officer to enquire through the Inspector to verify the statements." (ii) Hon'ble Jurisdictional Calcutta High Court in the case of CIT Vs. Dataware Pvt. Ltd. (supra), wherein, it was held as under:
“In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assessee. After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessment Year: 2020-21 Ugraya Foods And Feeds Pvt. Ltd Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness" of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness of transaction through account payee cheque has been established. We find that both the Commissioner of Income Tax (Appeal) and the Tribunal below followed the well-accepted principle which are required to be followed in considering the effect of Section 68 of the Act and we thus find no reason to interfere with the Concurrent findings of fact recorded by both the authorities." 7.1 We note that the creditor i.e. M/s Bonn Suppliers Pvt. Ltd was subjected to assessment or their returns were accepted by the Assessing Officer. We further note that it is well-settled law that once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness of the creditor, then the Assessing Officer is duty bound to conduct an independent enquiry to verify the same. However, in the instant case, the Assessing Officer has not made any independent enquiry to verify the genuineness of the transaction even if the assessee furnished all the relevant details before the Assessing Officer and the Assessing Officer has not pointed out any discrepancy in the given documents before him. We note that the assessee have discharged its initial burden to prove the identity and creditworthiness and genuineness of the transaction and the burden shifted upon the Assessing Officer to examine the evidences furnished by conducting an independent inquiry thereon which is absent in the case of the assessee. We also note that the ld. CIT(A) in this case has not only duly examined the facts and explanations submitted by the assessee but also has given a categorical finding that the identity and creditworthiness of the share subscribers and genuineness of the Assessment Year: 2020-21 Ugraya Foods And Feeds Pvt. Ltd transaction stood established. We, therefore, do not find any infirmity in the order of the ld. CIT(A) and the order of the CIT(A) is upheld. We accordingly delete the addition of Rs.10,00,00,000/- made by the Assessing Officer u/s 68 of the Act and the appeal of the revenue is dismissed.
In the result, the appeal of the revenue is dismissed. Kolkata, the 13th February, 2025.