KUNDAN LAL SACHDEV,NEW DELHI vs. ITO, WARD- 36(2), NEW DELHI

The facts in brief are that the assessee is an individual deriving income from business of trading of fruits and income from other sources. During the course of assessment proceedings, the ld. Assessing Officer observed that assessee has taken an interest free unsecured loan amounting to Rs.2,27,00,000/- from M/s. Sidheshwari Commotrade Pvt. Ltd. Kolkata in the financial year 2012-13. In order to verify the genuineness and identity creditworthiness of the loan transactions the notice u/s. 133(6) was issued to the lender company to provide necessary details. However, as per the Assessing Officer, the said notice was received back as unserved. When assessee was confronted with the this fact, the assessee vide letter dated 28.03.2016 filed a detailed reply and submitted the confirmation of account along with bank statement, balance sheet and the other documents of M/s. Sidheshwari Commotrade Pvt. Ltd. The ld. Assessing Officer observed that in the return of income the said company had declared loss of Rs.44,89,038/- and it had received huge share premium of Rs.59,93,33,470/-. He further examined the worth of the lender company by adopting the method of earning per share and observed that EPS of the lender company was Rs.0.39 in the financial year ending 31st March, 2013. He further observed that the major share holders of M/s. Sidheshwari Commotrade were as under: Name No. of share Share holding % Tirupati Plywood Pvt. Ltd., 6000000 46.68 House No.1829, Plot No. 12 & 13, Gali No.135, Shanti Nagar Extn., Tri Nagar, New Delhi Super Tradex Pvt. Ltd., 6000000 46.68 House No.1829, Plot No. 12 & 13, Gali No.135, Shanti Nagar Extn., Tri Nagar, New Delhi.

Assessing Officer also deputed his Income Tax Inspector to make inquiries on the address of these two shareholding companies, who reported that no such entity existed at the address mentioned and the said premise was vacant. On the basis of Income Tax Inspector’s report, Assessing Officer came to the conclusion that these two shareholding companies of M/s. Sidheshwari Commotrade Pvt. Ltd. are just paper companies. Thus, he held that; firstly, the existence of the lender company is not proved because notice u/s. 133(6) could not be served; secondly, the creditworthiness of the company is not established, because it has shown losses in the Assessment Years 2012-13 and 2013-14; thirdly, the perusal of the bank statement revealed that as on 01.03.2013 there was a meager balance of Rs.69,207/- and Rs.48,926/- as on 05.03.2013 and he further deduced that on the same date the company gets deposit from other parties and same was transferred to the assessee. Hence, genuineness of the transaction also could not be proved. Lastly, loans taken through banking channel is not sufficient to prove the genuineness of the transaction. Thus, in this case, all the three ingredients to discharge the burden u/s.68 have not been fulfilled. The ld. Assessing Officer also strongly relied upon the judgment of Hon’ble Delhi High Court in the case of NR Portfolio Pvt. Ltd. vs. CIT, order dated 22.11.2013 and Nova Promoters & finlease P. Ltd. vs. CIT, In ITA No.342/0211, order dated 5.2.2012. Accordingly, he made the addition of Rs.2,27,00,000/- u/s.

Thereafter, he made further addition of Rs.2,27,000/- on the presumption that assessee might have paid 1% commission for taking such loan.

Before the Ld. CIT (A), assessee gave para wise comment and rebuttal on the observation made by the Assessing Officer which has been dealt and incorporated in detail in the impugned appellate order. One important fact brought to the notice and on record of the Ld. CIT (A) was that lender company M/s. Sidheshwari Commotrade Pvt. Ltd. during the course of assessment proceedings itself has made due compliance of notice u/s. 133(6) and also through e-mail directly communicated to the Assessing Officer and assessee. Along with the said letter, the lender company has filed the desired details which included balance sheet, bank statement, profit and loss account, etc. Apart from that, it was also brought on record that the lender company had net worth of more than Rs.60 crores and it has turnover/revenue from operations was at Rs.95 crore which was entirely from trading, therefore, it cannot be held that the lender company was merely a paper company. This fact has been completely overlooked by the Assessing Officer and has simply gone by the return of income which cannot be the criteria for judging the creditworthiness of the lender company. The method adopted by the ld. Assessing Officer to work out the value of the shares as per the income is flawed. One of the observation of the ld. Assessing Officer that the said company has received huge share premium is not correct, because share premium had come in the earlier years which is evident from the copies of balance sheet itself. Thus, the entire premise and inference drawn by the ld. Assessing Officer is not correct. Lastly, it was submitted that the inquiry conducted by the Income Tax Inspector behind the back of the assessee on the shareholders of the company has no relevance at all, for the reason that firstly, creditworthiness and identity of lender company is to be seen; secondly, assessee was never confronted with this fact; and lastly, shareholders are distinguished and separate from the company.

However, the Ld. CIT (A) has confirmed the observations and the findings of the Assessing Officer and also cited certain decisions to draw the adverse inference, since no new finding has been given by the Ld. CIT (A), therefore, same is not discussed herewith.

Before us, ld. counsel for the assessee, Mr. Vinod Kumar Bindal submitted that both the authorities have failed to appreciate the correct facts and circumstances of the case. The facts of the case which is emerges from the record is that, assessee had purchased a flat in Akshardham Khelgaon for Rs.4 crores for which he has taken a loan from M/s. Sidheshwari Commotrade Pvt. Ltd. of Rs.2,27,00,000/-. The loan was taken between 1st March, 2013 to 5th March, 2013 and payment for purchase of flat was made between 27th February, 2013 to 19th March, 2013 for sum of Rs.4 crore. Agreement to sell was executed on 19th March, 2013.

Since, the loan was taken for a very short duration for purchase of flat and same was refunded within the period of 5 months out of sale proceed of property, therefore, the entire transaction has to be viewed from this prospective also. Here, in this case, Ld. Counsel submitted it is not a case of any accommodation entry by any entry provider or there is no report or inquiry from Investigation Wing where anything incriminating material has been found against the assessee or the lender company. The assessee has taken a loan from a company which has huge turnover of Rs.95 crores and had a net worth of more than Rs.60 crores. The assessee has duly adduced the bank statement of the lender company which clearly shows that the company had huge funds, out of which it has given a loan; and not only that, the lender company has duly confirmed the transaction by responding to the notice u/s.133(6) which has been conspicuously not discussed by the Assessing Officer. The copy of said reply sent by the lender company to the Assessing Officer directly in response to notice u/s.133(6) has been placed in the paper book at page 61 along with ledger account, bank statement, copy of return, balance sheet and P & L account for year ending 31st March, 2013 and year ending 13th March, 2014. Thereafter, no adverse material has been found either against the lender company or any inquiry has been done to find out that assessee’s transaction is bogus. Throughout the assessment proceedings and appellate proceedings, the assessee has highlighted the net worth of the lender company along with letter dated 22.03.2016 to the Assessing Officer wherein the lender company as well assessee company has confirmed the repayment of the loan. This fact has not even been discussed in the assessment order. Thus, not only the genuineness of the transaction but also the identity and creditworthiness of the lender company stands established. In support of various contentions, he has relied upon the catena of judgment which is separate compilation of the paper book has been filed are as under:-

On the other hand, ld. DR referring to the various observation of the Assessing Officer and Ld. CIT(A) submitted that the primary burden on the assessee has not been discharged because, firstly, the lender company did not initially responded to the notice u/s.133(6); secondly, on inquiry made on the shareholders of the lending company M/s. Sidheshwari Commotrade Pvt. Ltd., it was found that these shareholding companies do not exist at the given addresses which goes to show that these were mere a paper company; thirdly, before issuing the cheque, huge money was credited in the account of the lender company through banking channel, which has not been explained; and lastly, the said company was having losses, therefore, the creditworthiness does not stands established. Under these facts and circumstances of the case and in view of the judgment of Hon’ble Delhi High Court in the case of NR Portfolio and Nova Promoters (supra) are squarely applicable.

We have heard the rival submissions and also perused the relevant finding given in the impugned orders as well as material referred to before us. On going through the impugned orders as well as documents and evidences filed before the Assessing Officer and Ld. CIT (A), it is seen that most of the facts and issues which were time and again brought to the notice and record of the Assessing Officer have not been discussed in the assessment order. Here, in this case, the assessee had purchased a flat for sum of Rs.4 crores for which it has made payment on 27th February, 2013 and 19th March, 2013. For purchase of these flats, assessee has taken a loan from M/s. Sidheshwari Commotrade Pvt. Ltd. for Rs.2,27,00,000/- between 1st March, 2013 to 5th March, 2013. Within the few months of taking of the loan, the assessee has sold his property on 30th May, 2013, the copy of sale deed has been enclosed in the paper book which has also been filed before the Assessing Officer and Ld. CIT (A) to show that the same was sold and immediately thereafter the assessee has repaid the loan to M/s. Sidheshwari Commotrade Pvt. Ltd. This fact has been confirmed by the lender company and is also evident from the bank statement of the lender company as well as the assessee and also from the copy of ledger account and balance sheet. The entire case of the Revenue hinges upon the premise that; firstly, the notice u/s.133(6) sent to M/s. Sidheshwari Pvt. Ltd. returned back unserved, and therefore, the identity of the said company could not be established; secondly, inquiry was made by the Assessing Officer through Income Tax Inspector on the addresses of the shareholder companies of M/s. Sidheshwari Commotrade Pvt. Ltd. wherein it was reported that these shareholding companies did not exist at the given addresses; and lastly, the creditworthiness of the company was not proved by the fact that it has shown returned loss and the earning of the company per share is too negligible.

First of all, on the record, it is seen that on 22nd March, 2016, M/s. Sidheshwari Trade Pvt. Ltd. has responded to the Assessing Officer wherein in response to notice u/s 133(6) wherein they have stated as under: To, Date: 22-3-2016 The Income Tax Officer, Ward-36(2), Room No.810, Dr. S.P. Mukherjee, Civic Centre, JLN Marg, Block-E-2, New Delhi-110002 Subject: information u/s. 133(6) of Income tax Act, 1961, in case of Sh. Kundan Lal Sachdeva for AY 2013-14 Respected Sir, Since we have already filled reply of you notice u/s 133(6) vide speed post to the office of your goodself, on request of captioned party we are giving herewith: Please find Enclosed, 1. Ledger Account of the Sh. Kundan Lal Sachdeva in our books of Accounts for the AY. 2013-14, Nature of Amount Given; As Loan & Advances As party is in good relation for some future business. 2. Copy of Income tax Return for the AY. 2013-14, 3. Nature of Business: Trading. 4. Copy of Bank statement reflecting Transactions. Hope the above reach to you in satisfaction, Thanking you and regards Yours Faithfully, For Sidheshwari Commotrade Pvt. Ltd.”

Along with said letter, all these documents were filed. From the perusal of the bank statement, it is seen that it has a regular flow of funds and there are huge credits and debits and the balance sheet reflects that it has a reserve surplus of Rs.59.43 crore and share capital of Rs.1.29 crore aggregating to more than Rs.60.71 crore. The Revenue from operations has been reported at Rs.95.6 crore as it is a trading company. Thus, it cannot be held that this company is merely a paper company and does not have net worth. Income and loss declared in the return of income cannot be the parameter for judging the creditworthiness as over all availability of funds and its utilization has to be seen. The ld. Assessing Officer has tried to draw adverse inference by observing that it has received huge share application money in this year whereas the matter of fact is that share application money were received in the earlier years and not in this year. Further, any adverse inference regarding the existence or non existence of shareholder companies may not be relevant if the lender company was having substantial revenue operation and is regularly assessed to tax and no adverse inference ever has been drawn in the case of the lender company. Here there is no any inquiry or information either from the Investigation Wing or through any other sources, that this company is Paper Company or was indulged in some accommodation entry or was controlled by any entry provider. Hence it cannot be case of accommodation providing entity atleast nothing has been brought on record. The onus upon the assessee is to prove the nature of source of the credit u/s.68; and here the nature has been explained that assessee has taken a loan for purchase of property which has been actually purchased. The assessee has proven the source of the loan has given confirmation of the lender, copy of its bank statement, copy of audited balance sheet, Profit and Loss account, copy of ledger account, etc. If the nature of credit appearing in the bank account of the lender has been doubted, then it is a lending company which can explain the source. In case there was any serious doubts then assessee should have been confronted to prove the source of the entries in the bank account of the lender company which has not been done. The facts and circumstances clearly point out that assessee has taken a loan for purchasing a residential house and thereafter within the span of six months he has sold his property to repay back the loan. If these factors are taken into consideration, then genuineness of the loan cannot be doubted. When the factum of repayment of loan in the next financial year has not been doubted, no adverse inference has been drawn by the Assessing Officer nor any comment has been given in the subsequent assessment year nor has any adverse comment been given in the impugned assessment order, then all these factors proves the genuineness of the transaction. The onus cast upon the assessee in our opinion stands discharged because assessee has not only prove the nature of the credit but also the source wherein the lender company has directly confirmed to the Assessing Officer in response to notice u/s.133(6) along with all the details and thereafter no inquiry has been done to rebut those material. Simply drawing an adverse inference about the creditworthiness based on return of income and value of return of per share cannot be the parameter for examining the creditworthiness of the lender company. What needs to be seen whether the lender company had source of funds available to lend the money or not. The said company has duly disclosed the loan in its balance sheet and also acknowledged the repayment of loan in its balance sheet as on 31st March, 2014. Apart from that it had huge reserves and surplus available in its books, which proves the creditworthiness of the lender. Thus, the addition made u/s.68 under the facts and circumstances of the case cannot be sustained and same is directed to be deleted.

In so far as heavy reliance placed by the Department on the judgment of Hon’ble Delhi High Court in the case of NR Portfolio Pvt. Ltd. vs. CIT is clearly distinguishable, because in that case the subscriber of the share capital were found to be nonexistent as the address of the said company was found to be incorrect and was found to be in the business of entry operation belonging to Mr. Mahesh Garg who was handling 51 companies and having 100 bank accounts to provide accommodation entry, which here in this case there is no iota of evidence that lending company is entry operator. Further in that case summons issued were not complied with, whereas in the present case the lender company has made compliance and has filed the confirmation and entire details before the Assessing Officer subsequently. The Assessing Officer doubted the genuineness of the transaction of the company without rebutting all the documents and evidences filed. Assessing Officer should have carried out independent inquiry or direct the inquiry be conducted in the case of M/s. Sidheshwari Commotrade Pvt. Ltd., which has not been done. Thus, the judgment relied upon by the ld. DR cannot be said to be applicable in this case. Similarly, the judgment of Nova Promoters and other cases also, the facts and circumstances are clearly distinguishable. The judgments relied upon by the ld. counsel are not referred because on the facts and circumstances as discussed above, we find that the additions made u/s.68 cannot be sustained.

Since the transaction of loan has been found to be genuine by us on the facts and material discussed above, therefore, the addition on account of alleged commission to take loan is also deleted.

In the result, the appeal of the assessee is allowed.