ITO, NEW DELHI vs. M/S. JAY SHIVA EARTHMOVERS & CONSTRUCTION PVT. LTD,, NEW DELHI

ORDER PER H.S. SIDHU, JM Revenue has filed the present appeal against the impugned order dated 30.6.2010 passed by the Ld. CIT(A)-VII, New Delhi relating to assessment year 2006-07.

4. On the contrary, Ld. Counsel for the assessee relied upon the order of the Ld. CIT(A) and stated that Ld. CIT(A) has passed a well reasoned order on the basis of the facts and circumstances of the case and in accordance with provisions of law. Therefore, the appeal filed by the Revenue may be dismissed. In support of his contention, he filed a Paper Book containing pages 1-58, to substantiate its case.

“5.5 I have carefully gone through the assessment order, the written and oral submission(s) of the appellant, the remand report of the A.O and the facts on record. It is observed that the assessee company has raised fresh unsecured loans of Rs. 4,67,00,000/- from 22 creditors during the year under consideration, out of which the loans from 7 (seven) creditors amounting to Rs. 1,60,00,0001- were found to have satisfactorily explained by the Assessing Officer. The balance sum of Rs. 3,07,00,000/- from 15 creditors was treated as income from undisclosed sources.

5.6 Since the addition has been made as unexplained cash credit, it is considered necessary to examine the case in the light of the provisions of section 68 of the Act. Section 68 of the Act provides that where any sum is found credited in the books of accounts of the assessee for any previous year the same may be charged to income tax as the income of the assessee of the previous year if he offers no explanation about the nature & source thereof or the explanation offered by him is not satisfactory in the opinion of the Assessing Officer, the sum so credited may be charged to income tax as the income of the assessee of the relevant previous year. Therefore, what has to be enquired into by the Assessing Officer is the nature & source of the sum or deposit. Such opinion formed itself constitutes a prima facie evidence against the assessee relating to the receipt of money and if the assessee fails to rebut the said evidence the same can be used against him by holding that it was a receipt of income as held in the case of Sumati Dayal Vs. CIT (1995) 214lTR 801(SC). it was held by the Hon'ble Apex Court:

It is no doubt true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within the exemption provided by the Act lies upon the assessee .... But in view of section 68 of the Income-tax Act, 1961, where any sum is found credited in the books of the assessee for any previous year it may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such a case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut the said evidence, it can be used against him by holding that it was a receipt of an income nature.

5.7 In A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807, the Hon'ble Supreme Court has held that it is for the assessee to prove the sources and the nature' of the receipts appearing in its books of account. The department has to prove neither the source nor the nature of the receipts, as has been held by the Madhya Pradesh High Court in Seth Kalekhan Mahomed Hanif v. ClT [1958] 34 ITR 669 which decision has been affirmed by the Hon'ble Supreme Court in Kalekhan Mohammad Hanifv. CIT [1963] 50 ITR l. The same principle has been reiterated by the Hon'ble Supreme Court in CIT v. Devi Prasad Vishwanath Prasad [1969] 72 ITR 194, by Calcutta High Court in Shankar Industries Ltd. v. CIT [1978] 114 ITR 689, C. Kant & Co. v. CIT [1980] 126 ITR 63, Oriental Wire Industries (P.) Ltd. v. CIT [1981] 131 ITR 688, Prakash Textile Agency vs. CIT (1980) 121 ITR 890 & CIT vs. Korlay Trading Company Ltd. (1999) 232 ITR 820, by Orissa High Court in CIT Vs. B.C. Mohanty (1995) 212 ITR 199 and by Gauhati High Court in lalan Timbers Vs. CIT (1997) 223 ITR 11 (Gau.).In view of above, the entire burden is upon the assessee and the assessee has to prove the following three conditions:- 4

(i) identity of the creditor; (ii) capacity of such creditor to ,advance money & (iii) genuineness of the transaction.

If all the aforesaid three conditions are proved the burden shifts on the Revenue to prove that the amount belonged to the assessee. [CIT vs. United Commercial & Industrial Co. (P) Ltd. (1991) 187 ITR 596 (Cal.); M.A. Unneeri Kutty vs. CIT (1992)198 ITR 147 (Ker.); CIT Vs. Precision Finance P. Ltd. (1994) 208 ITR 495(Cal.).

5.8 Section 68 of the Act was also considered by the Supreme Court in the case of CIT Vs. P. Mohanakala (2007) 291 ITR 278 (SC). The Apex Court held as follows:-

"The question is what is the true nature and scope of section 68 of the Act? When and in what circumstances would section 68 of the Act come into play? A bare reading of section 68 suggests that there has to be credit of amounts in the books maintained by an assessee : such credit has to be of a sum during the previous year "and the assessees offer no explanation about the nature and source of such credit found in the books ; or the explanation offered by the assessees in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income-tax as the income of the assessees of that previous year. The expression "the assessees offer no explanation" means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. It is true the opinion of the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion.”

5.9 On these facts and circumstances of the case and in the light of the case laws mentioned above, it is observed that the assessee has duly discharged its onus of proving the identity and creditworthiness of the persons and genuineness of the transactions by furnishing the confirmation letters, assessment particulars including PAN and copy of I.T. return, balance-sheet & P&L account, Bank statement to show that the payments have been made through banking channels in respect of the following loan creditors:-

Amount (in Rupees) i) M/s Changia Steel Pvt Ltd 15,00,000/- ii) M/s Nishant Finvest Pvt Ltd 15,00,000/- iii) M/s Shree Dinanath Lohariwala 15,00,000/- Spinning Mills Pvt Ltd iv) M/s Shriniwas Leasing & 30,00,000/-

Finance Pvt Ltd v) M/s Sparrow Marketing Pvt Ltd 44,00,000/-- vi) M/s Shekhawati Finance Pvt. Ltd. 15,00,000/- vii) M/s Dreamland Solutions Pvt. Ltd. 30,00,000/- viii)M/s Ganga Infin Pvt. Ltd. 25,00,000/- ix)M/s Meghdoot Express Pvt. Ltd. 15,00,000/- x) M/s Garg Finvest Pvt. Ltd. 15,00,000/- xi)Sh. Surjeet Multanik alias Bawa 55,00,000/-

Total 2,74,00,000/- 5.10 It is noted that the identity of the aforementioned loan creditors has been established by submitting their permanent account number(PAN) and income tax returns; it is also observed that the loan creditors or lenders from serial nos. (i) to (x) in para 5.10 above are corporate assessees, incorporated under Indian Companies Act; genuineness has been proved by the fact that the transactions have taken place through banking channels which is reflected in the bank statements of the bank accounts of the respective loan creditors and the creditworthiness has been established through submission of their balance sheet and profit & loss account. Needless to mention that the creditworthiness is reflected through sources of funds in the balance sheet, the details of which were made available by the assessee during the assessment/ remand and appellate proceedings, on the basis of which it can be concluded that the lenders had sufficient funds to make the investment and to advance loans and those investments/ loans have been duly disclosed in its Balance Sheet.

5.11 It is also noted that that the directors of the five loan creditors companies, namely, M/s Shekhawati Finance Pvt Ltd, M/s Dreamland Solutions Pvt Ltd, M/s Ganga lnfin Pvt Ltd., M/s Meghdoot Express Pvt Ltd. and M/s Garg Finvest Pvt Ltd.( whose names are appearing at serial nos. vi, vii,viii, ix and x respectively in para 5.10 above) appeared before the assessing Officer in response to summons issued under section 131 of the Act during the remand proceedings and their statements were recorded and in their statements, they have confirmed having advanced loans to the assessee. In the case of Shri Surjeet Multani alias Bawa who has advanced loan of Rs.55,00,000/-, it is observed that he is a resident of Los Angeles, USA and he does not have Permanent Account umber which also implies that he is not assessed to income-tax. However, the perusal of copy of bank statement relating to the bank account maintained by him with State Bank of India, New Delhi reveals it is a Current on-resident account wherein there are sufficient funds/balances to the extent of Rs. 1,50,07,666/- available so as to enable the said loan creditor, Shri Surjeet Multani alias Bawa to advance a loan of Rs.55,00,000/- to the appellant. These details show that the lender was person of means with the financial capacity to advance the loans. Therefore, it is held that the primary onus of proof regarding the identity of the creditor, the "capacity" of such creditor to advance the said amount and the genuineness of the transaction has been discharged by the appellant in respect of loan advanced by Shri Surjeet Multani alias Bawa.

5.12 When the assessee had filed the confirmation letters giving the details such as permanent account number (PAN), copies of Income tax return, balance sheet and profit & loss account and copies of bank statements, the primary onus of proof has been discharged by it. However, the A.O. cannot be precluded from further investigation for the purpose of finding the genuineness of transaction and creditworthiness of the creditors. There is no indication in the assessment order or in the remand report that the A.O. has made any enquiry from (a) the banks from where the cheques (corresponding to the loans) were issued and cleared; (b) the Assessing Officers concerned of the loan creditors, for the verification of the loans before arriving at the conclusion that they remained unexplained. There is no evidence or material to even suggest, as pointed out on behalf of the assessee, that the money directly or indirectly emanated from the assessee so that it could be said that the assessee's own money was brought back in the guise of loan. The present case does not appear to be a case where the creditworthiness of the lenders and the genuineness of the loan transactions in respect of the aforementioned 11 loans could be called in question.

5.13 It has also been contended on behalf of the appellant that the Assessing Officer did not provide any opportunity to it for cross examination of the cash creditors in respect of whom the assessing officer was not satisfied with the explanation rendered. Despite oral and written requests the assessing officer refused to respond and did not allow this very vital opportunity of cross examination. It is settled proposition of law that the information gathered 9 behind the back of the assessee cannot be used against him unless until an opportunity of rebutting the same is given to the assessee. It is against the principle of natural justice. Reliance is placed on the decision of Hon'ble Supreme Court in case of Prakash Chand Nahta v. Union of India [2001] 247 ITR 274 in support of the proposition that cross-examination of the witness is must, before the A.O. relies on the statement of the witness for making addition. Reliance is also placed on the decision of the jurisdictional High Court i.e. Delhi High Court in Commissioner of Income-tax Vs. Pradeep Kumar Gupta and Vijay Gupta(2008) 303 ITR 95(Delhi) wherein it was held that reopening of assessment is not permissible on mere adverse statements from others. Such statement by itself does not constitute 'information, unless the Assessing Officer has made enquiries thereon and inferred understatement of income, I am therefore inclined to agree with the submissions made on behalf of the appellant to the effect that statement recorded behind back of the assessee without being subjected to cross-examination cannot be fully admitted as evidence against the assessee.

5.14 In view of the discussion made above, I am of the considered view that the A.O. was not justified in making addition on account of unsecured loans to the extent of Rs. 2,74,00,000/- from the eleven(11) loan creditors listed in para 5.1 0 above. Therefore, the addition of Rs. 2,74,00,000/- made on account of unsecured loans from the eleven(11) loan creditors is deleted.”

5.1 After hearing both the parties and perusing the orders passed by the revenue authorities, especially the impugned order dated 30.6.2019 of the Ld. CIT(A), as reproduced above, we are of the considered view that Ld. CIT(A) has decided the issue and deleted the addition, after elaborately discussing the detailed evidences and the provisions of law and the judgment/decisions of the Hon’ble Supreme Court, Hon’ble High Court and the Tribunal. Therefore, we are fully agree with the finding of the Ld. CIT(A) passed in his impugned order and we are of the view that no interference is called for in the well reasoned order passed by the Ld. CIT(A). Accordingly, we uphold the finding of the Ld. CIT(A) on the issue in dispute and accordingly reject the grounds raised by the Revenue.

Order pronounced on 11.02.2020.