ACIT, CIRCLE - 35, , KOLKATA vs. M/S. MACHINERY AGENCIES INDIA , KOLKATA

1 ITA No. 2100/Kol/2018, M/s Machinery Agencies India., AY 2014-15

आयकर अपील�य अधीकरण, �यायपीठ –“C” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH: KOLKATA [Before Shri P. M. Jagtap, Vice President (KZ) & Shri A. T. Varkey, Judicial Member] I.T.A. No. 2100/Kol/2018 Assessment Year: 2014-15

ACIT, Circle-35, Kolkata Vs M/s Machinery Agencies India . (PAN:AAEFM 7603 D) Appellant Respondent

Date of Hearing (Virtual) 02.09.2021 Date of Pronouncement 30.09.2021 For the Appellant Shri Supriyo Pal, Addl. CIT For the Respondent Shri Miraj D Shah, Advocate

ORDER Per Shri A. T. Varkey, JM: This is an appeal preferred by the revenue against the order of the Ld. CIT(A)- 10, Kolkata dated 30.07.2018 for AY 2014-15 .

2 ITA No. 2100/Kol/2018, M/s Machinery Agencies India., AY 2014-15

Sl. No. Name Unsecured loans received during Interest Paid FY 2013-14 1 A.K. Construction Pvt. Ltd. 45000001 126477 2 Bhiksu Barter Pvt. Ltd. - 120000 3 Divya Electronics Pvt. Ltd. 10000 119974 4 Maheswari Merchants (P) Ltd. 1000000 8877 5 Paritosh Electricals (P) Ltd. 1000000 123616 6 Potential Electricals & Electronics (P) Ltd. 1000000 121808 7 Rajshree Developer Entrepreneurs (P) Ltd. - 120000 8 Ranbhumi Marketing Pvt. Ltd. - 185753 9 Vivek Tracom Pvt. Ltd. 7500000 359342 10 Zigma Electricals Pvt. Ltd. - 48822 Total 15010000 1334669

3 ITA No. 2100/Kol/2018, M/s Machinery Agencies India., AY 2014-15

that they are all involved in giving accommodation entry in the form of unsecured loan in lieu of commission and to show cause as to why an amount of Rs. 1,50,00,000/- and interest amount of Rs.14,42,669/- (interest amount) should not be added back to its total income. Pursuant to the show cause notice (SCN) dated 08.12.2016, the assessee replied vide letter dated 21.12.2016 wherein it was pointed out to the AO that in the statement recorded of Shri Raj Kumar Kothari on 02.03.2016 that person has not stated anything from which it can be inferred that assessee was a beneficiary of any accommodation entries. And also it was pointed out that since the statement of Shri Raj Kumar Kothari has been recorded behind the assessee’s back, it cannot be used against it unless the assessee has been given an opportunity to cross examine. Moreover, it was pointed out by the assessee that from the statement recorded by AO during the assessment proceeding of the assessee, Shri Kothari has denied that he was giving accommodation entry to the assessee and even categorically confirmed about the loan transaction with assessee and also able to show the source of loan to assessee which was from refund of loan. The reply of assessee which has been reproduced by the AO is as under:

“During the course of hearing your honour has provided us with the copy of statement of Shri Raj Kumar Kothari recorded before the DDIT (Inv), Unit- 2(2), Kolkata and before your honour in response to notice u/s 131 of the Income-tax Act, 1961. In this regard we would like to submit before your honour that in the statement recorded before the DDIT (Inv) Shri Raj Kumar Kothari has stated that he provides accommodation entries to various beneficiaries. Also it is further clarified from response to query no. 11 and 12 that he has provided accommodation entries to one Banktesh Group and not the assessee firm. It has also not been mentioned in the said statement as to whether we were one of the beneficiary of such accommodation entries. From the statement recorded before your honour it seen that Shri Raj Kumar Kothari has never accepted that he has provided accommodation entry to the assessee firm. In response to query no. 10 it has been clearly mentioned that the source of loan provided to the assessee firm is refund of loan. Also in response to query no. 9 it has been stated that Shri Raj Kumar Kothari knew the partner of the assessee firm. Although for some of the queries he has stated that he does not remember. Sir it is not possible to remember all the information asked for during course of recording of statement. From plain reading of the statement of Shri Raj Kumar Kothari, it appears that the said details/information could be submitted at a later date. Your honour can also ask him to furnish the said information/details now. Hence, no adverse inference should be drawn from his statement. Sir, from the statement provided by your honour it is seen that Shri Raj Kumar Kothari has deposed that he was engaged in providing accommodation entries through various companies controlled and managed by him. In this regard we would again like to mention that the statement of Shri Raj Kumar Kothari was recorded at our back. So, we would request your honour to provide us an opportunity to cross examine him for the sake of Natural Justice. ”

4 ITA No. 2100/Kol/2018, M/s Machinery Agencies India., AY 2014-15

Pursuant to the request of the assessee for cross-examination of Shri Raj Kumar Kothari, the AO issued notice u/s 131 of the Act on 21.12.2016 for his personal appearance on 26.12.2016. The AO noted that Shri Raj Kumar Kothari vide his letter dated 26.12.2016 brought to his notice that he will be out of Kolkata, and it will not be possible for him to attend summon u/s 131 of the Act. However, the AO acknowledges that on 27.12.2016 the Ld. A.R of the assessee was present before him for cross- examination. However since Shri Kothari did not turn up in spite of serving summons u/s 131, the cross-examination could not be facilitated. Thereafter the AO held as under: “6. After going through the material on record and evidences found during the course of assessment and analyzing the statement recorded u/s 131, the undersigned is of firm opinion that it was firm’s own money which was introduced in the form of unsecured loan amounting Rs. 1,50,10,000/- as discussed above and hence added back to the total income u/s 68 of Act as unexplained cash credit. The interest amounting Rs. 13,34,669/- is also disallowed as bogus expenditure u/s 69C and added back to the total income.”

5 ITA No. ITA No. 2100/Kol/2018, M/s Machinery Agencies India., AY 2014 M/s Machinery Agencies India., AY 2014-15

6 ITA No. ITA No. 2100/Kol/2018, M/s Machinery Agencies India., AY 2014 M/s Machinery Agencies India., AY 2014-15

When one reads carefully the provisions of section 68, one finds nothing in section 68 When one reads carefully the provisions of section 68, one finds nothing in section 68 When one reads carefully the provisions of section 68, one finds nothing in section 68 to show that the scope of inquiry under section 68 by the revenue department shall to show that the scope of inquiry under section 68 by the revenue department shall to show that the scope of inquiry under section 68 by the revenue department shall remain confined to the transac remain confined to the transactions, which have taken place between the assessee and tions, which have taken place between the assessee and the creditor nor does the wording of section 68 indicate that section 68 does not the creditor nor does the wording of section 68 indicate that section 68 does not the creditor nor does the wording of section 68 indicate that section 68 does not authorise the revenue department to make inquiry into the source(s) of the creditor authorise the revenue department to make inquiry into the source(s) of the creditor authorise the revenue department to make inquiry into the source(s) of the creditor and/or sub-creditor. The language e creditor. The language employed by section 68 cannot be read to impose mployed by section 68 cannot be read to impose such limitations on the powers of the Assessing Officer, The logical conclusion, such limitations on the powers of the Assessing Officer, The logical conclusion, such limitations on the powers of the Assessing Officer, The logical conclusion, therefore, has to be that an inquiry under section 68 need not necessarily be kept therefore, has to be that an inquiry under section 68 need not necessarily be kept therefore, has to be that an inquiry under section 68 need not necessarily be kept confined by the Assessing Officer to the tran confined by the Assessing Officer to the transactions, which took place between the sactions, which took place between the assessee and his creditor but the same may be extended to the transactions, which have assessee and his creditor but the same may be extended to the transactions, which have assessee and his creditor but the same may be extended to the transactions, which have taken place between the creditor and his sub taken place between the creditor and his sub-creditor. Thus, while the Assessing Officer creditor. Thus, while the Assessing Officer is, under section 68, free to look into t is, under section 68, free to look into the source(s) of the creditor and/or of the sub he source(s) of the creditor and/or of the sub- creditor, the burden on the assessee under section 68 is definitely limited. This limit has creditor, the burden on the assessee under section 68 is definitely limited. This limit has creditor, the burden on the assessee under section 68 is definitely limited. This limit has been imposed by section 106 of the Indian Evidence Act. [Para 12] been imposed by section 106 of the Indian Evidence Act. [Para 12] been imposed by section 106 of the Indian Evidence Act. [Para 12]

On a careful reading of section 106 of the Indian On a careful reading of section 106 of the Indian Evidence Act, it is noticed that what is Evidence Act, it is noticed that what is the source from where an assessee has obtained the loan can be safely held to be a fact the source from where an assessee has obtained the loan can be safely held to be a fact the source from where an assessee has obtained the loan can be safely held to be a fact- situation, which is actually within the special knowledge of the assessee ; hence, it is situation, which is actually within the special knowledge of the assessee ; hence, it is situation, which is actually within the special knowledge of the assessee ; hence, it is the burden of the assessee to show the the burden of the assessee to show the source(s) from where he has received the loans. source(s) from where he has received the loans. Once the assessee discloses the source(s) from where he has received the loans, his Once the assessee discloses the source(s) from where he has received the loans, his Once the assessee discloses the source(s) from where he has received the loans, his burden under section 106 stands discharged and the onus then shifts to the Assessing burden under section 106 stands discharged and the onus then shifts to the Assessing burden under section 106 stands discharged and the onus then shifts to the Assessing Officer to show, if he wants to treat Officer to show, if he wants to treat the loans as an income of the assessee from the loans as an income of the assessee from undisclosed sources, that the transaction(s) between the assessee and the creditor is/are undisclosed sources, that the transaction(s) between the assessee and the creditor is/are undisclosed sources, that the transaction(s) between the assessee and the creditor is/are not genuine or that the creditor has no creditworthiness and/or that the money, which not genuine or that the creditor has no creditworthiness and/or that the money, which not genuine or that the creditor has no creditworthiness and/or that the money, which

7 ITA No. 2100/Kol/2018, M/s Machinery Agencies India., AY 2014-15

has been received by the assessee in the form of loans, actually belongs to the assessee himself. [Para 13] In order to establish the receipt of cash credit as required under section 68, the assessee must satisfy three important conditions, namely, (i) identity of the creditor, (ii) genuineness of the transaction, and (iii) financial capability of the person giving the cash credit to the assessee, i.e., the creditworthiness of the creditor. [Para 14] While section 106 of the Indian Evidence Act limits the onus of the assessee to extent to his proving the source from where he has received the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s) of the creditor, but also of his (creditor's) sub-creditors and prove, as a result of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the Assessing Officer to enquire into the source/sources from where the creditor has received the money, section 106 makes the assessee liable to disclose only the source(s) from where he has himself received the credit and it is not the duty of the assessee to show the source(s) of his creditor nor is it the burden of the assessee to prove the creditworthiness of the source(s) of the sub-creditors. If section 106 and section 68 are to stand together, which they must, then the interpretation of section 68 has to be in such a way that it does not make section 106 redundant. Hence, the harmonious construction of section 106 of the Evidence Act and section 68 of the Income-tax Act will be that though apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub- creditors nor is it the burden of the assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been eventually, received by the assessee. It, therefore, further logically follows that the creditor's creditworthiness has to be judged, vis-a-vis, the transactions, which have taken place between the assessee and the creditor, and it is not the business of the assessee to find out the source of money of his creditor or of the genuineness of the transaction, which took place between the creditor and sub-creditor and/or creditworthiness of the sub-creditors, for, these aspects may not be within the special knowledge of the assessee. [Para 15]

Since it is not the business of the assessee to find out the source(s) from where the creditor has accumulated the amount, which he has advanced in the form of loan to the assessee, section 68 cannot be read to show that in the case of failure of the sub creditors to prove their creditworthiness, the amount advanced as loan to the assessee by the creditor shall have to be treated, as a corollary, as the income from undisclosed source of the assessee himself. [Para 17] (See also para 18)

Though under section 68, an Assessing Officer is free to show, with the help of the inquiry conducted by him into the transactions, which have taken place between the creditor and the sub-creditor, that the transactions between the two were not genuine and the sub-creditor had no creditworthiness, it will not necessarily mean that the loan advanced by the sub-creditor to the creditor was income of the assessee from undisclosed sources unless there is evidence, direct or circumstantial, to show that the amount, which has been advanced by the sub-creditor to the creditor, had actually been received by the sub-creditor from the assessee. [Para 19]

8 ITA No. 2100/Kol/2018, M/s Machinery Agencies India., AY 2014-15

In the instant case, the assessee had established the identity of creditors, namely, N and 'P'. The assessee had also shown, in accordance with the burden, which rested on him under section 106 of the Indian Evidence Act, that the said amounts had been received by him by way of cheques from the creditors aforementioned, In fact, the fact that the assessee had received the said amounts by way of cheques was not in dispute. Once the assessee had established that he had received the said amounts from W' and 'P' by way of cheques, the assessee must be taken to have proved that the creditors had the creditworthiness to advance the loans. Thereafter, the burden had shifted to the Assessing Officer to prove the contrary. On failure on the part of the creditors to show that their sub-creditors had creditworthiness to advance the said amounts to the assessee, these amounts as a corollary, could not have been and ought not to have been, under the law, treated as the assessee's income from the undisclosed sources, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee. Therefore, the Assessing Officer had failed to show that the amounts, which had come to the hands of the creditors from the hands of sub-creditors, had actually been received by the. sub- creditors from the assessee. In the absence of any such evidence on record, the Assessing Officer could not have treated the said amounts as income derived by the assessee from undisclosed sources. The Tribunal seriously fell in error in treating the said amounts as income derived by the assessee from undisclosed sources merely on the failure of the sub-creditors to prove their creditworthiness. [Para 20]

Therefore, the order passed by the Tribunal was to be set aside and quashed." 6. I find that similar view was also taken by the Hon'ble Gujarat High Court in the case of CIT vs Apex Therm Packaging Pvt Ltd (P) Ltd (222 Taxman 125) wherein it was held as follows:

"5. Heard Shri Sudhir Mehta, learned advocate appearing on behalf of the revenue. At the outset, it is required to be noted that the Assessing Officer directed to make the addition of Rs. 33,55,011/- under Section 68 of the Income Tax Act with respect to 17 lenders. However, it has been found that with respect to most of the lenders, except two, necessary documents, inclusive of confirmation with name, address and PAN Numbers, copy of the IT return and acknowledgment, balance sheet and profit and loss account and computation of total income in respect of all the parties, except two parties, were furnished before the Assessing Officer. Even with respect to the remaining two depositors the assessee filed the confirmation, address and PAN Numbers. Under the circumstances, when it was found that the assessee already discharged the initial onus cast upon him with respect to all the creditors and accordingly when the CIT(A) has deleted the addition of Rs. 33,55,011/- made under Section 68 of the Income Tax Act and consequently deleted the disallowance of Rs. 3,10,478/-, which was made with respect to interest and when the same has been confirmed by the ITAT, it cannot be said that ITAT has committed any error and/or illegality, which calls for the interference of this Court.

In paragraph 11, ITAT has observed and held as under: "We have heard the rival submissions and perused the material on record. It is an undisputed fact that during the year the assessee had received loan from 17 parties aggregating to 33,35,011/-. The details of which are listed at page 2 of Assessing Officer order. CIT(A) while deleting the addition has given a finding that the assessee had filed before Assessing Officer the confirmations with name, address, PAN Number, copy of ledger account, copy of balance sheet and profit and loss account, copy of Income Tax returns and computation of total income in respect of all the parties except

9 ITA No. 2100/Kol/2018, M/s Machinery Agencies India., AY 2014-15

two depositors. With respect to the two depositors, the assessee had filed confirmation, address and PAN Numbers and hence the assessee had also discharged the initial onus cast upon the assessee with respect to the two creditors. He has further noted that the loans were received through cheques and the loan account were duly reflected in the balance sheet of lenders CIT(A) has further held once the onus was fulfilled by the assessee, it was for the Assessing Officer to examine and bring any material on record which may help in rebutting the onus of assessee. The Assessing Officer has not brought any material on record in its support CIT(A) while deleting the addition has also relied on the decision of the Hon'ble Gujarat High Court in the case of Dy. CIT v. Rohini Builders [2002] 256 ITR 360 and the decision of Hon'ble Supreme Court, in the case of Orissa Corpn. Ltd. 153 ITR 78. Before us, nothing has been brought on record by the revenue to controvert the findings of CIT(A). Revenue has relied on the decision of Hon'ble Delhi High Court in the case of N.R. Portfolio (supra) We however find that the ratio of the aforesaid Delhi High Court decision are distinguishable on facts and therefore cannot be applied to the facts of the present case. In view of the aforesaid facts, we find no reason to interfere with the order of CIT(A) and thus dismiss this ground of revenue." 6. We are in complete agreement with the reasoning given by the CIT(A) as well as the ITAT. When full particulars, inclusive of the confirmation with name, address and PAN Number, copy of the Income Tax Returns, balance sheet, profit and loss accounts and computation of the total income in respect of all the credltors/lender were furnished and when it has been found that the loans were received through cheques and the loan account were duly reflected in the balance sheet, the Assessing Officer was not justified in making the addition of Rs. 33,55,011/-, Under the circumstances, no question of law, much less substantial question of law arises in the present Tax Appeal. Accordingly, the present Tax Appeal deserves to be dismissed and is accordingly dismissed," 7. Further reliance is placed on the decision of Hon'ble Calcutta High Court in the case of CIT-III v Dataware Pvt. Ltd. ITA No. 263 of 2011 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 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. 8. Respectfully following the ratio laid down in these judgments and having regard to the facts discussed in the foregoing, I therefore hold that the addition of Rs.1,50,10,000/- made u/s 68 was not tenable on facts and in law and the same is deleted. Similar is the treatment to be given to the amounts of interest paid by the appellant to the Loan Creditors, being an amount of Rs. 13,34,669/-. This impugned amount is also directed to be deleted. In effect, the substantial grounds 1 to 4 stand allowed.”

10 ITA No. 2100/Kol/2018, M/s Machinery Agencies India., AY 2014-15

11 ITA No. 2100/Kol/2018, M/s Machinery Agencies India., AY 2014-15

and drew our attention to these facts stated in page 2 of his assessment order. According to Ld. D.R the AO has also looked into the finance of M/s Vivek Tracom Pvt. Ltd. and M/s Paritosh Electrical Pvt. Ltd. and has found that these are nothing but a bogus shell companies. The Ld. D.R has pointed out that as per the request of the assessee opportunity was granted to the assessee for cross-examining Shri Raj Kumar Kothari however the assessee did not avail it and therefore the AO has rightly made the addition u/s 68 and 69 of the Act to the tune of Rs. 1,50,10,000/- and Rs. 13,34,669/- therefore according to Ld. D.R, the Ld. CIT(A) erred in deleting the addition which decision needs to be reversed and the AO’s order be upheld.

12 ITA No. 2100/Kol/2018, M/s Machinery Agencies India., AY 2014-15

the AO questioned him, he has confirmed the genuineness of the loan transaction with the assessee and even he has shown the source of loan which was refund of another loan; and not only that the Ld AR brought to our notice that even in the statement recorded by DDIT(Inv) on 2.3.2016 Shri Kothari has only stated about providing certain wrong doings/ accommodation entry in respect of one Venktesh Group and has not named the assessee firm in any wrong doings. Further according to Ld. A.R, the Ld. D.R was wrong to assert that despite the AO giving opportunity to assessee to cross- examine Shri Raj Kumar Kothari, the A.R. of the assessee representing the assessee did not avail the opportunity is patently wrong because the AO himself acknowledges in the assessment order that the Ld. A.R. of the assessee appeared for cross-examination of Shri Raj Kumar Kothari on 27.2.2016, however since Shri Kothari did not turn up, it could not be done. Therefore, according to the Ld. AR, without an iota of evidence the lender companies were branded as bogus and since the assessee has furnished the lenders/legal entities PAN No. to show their identity and documents to substantiate that the assessee had given interest after deducting TDS, the AO erred in casting aspersions on the lender companies as bogus; and that the Ld. CIT(A) while giving relief to the assessee has rightly taken note of the decision of Hon’ble Calcutta High Court in the case of Dataware Pvt. Ltd. (supra) wherein the Hon’ble Calcutta High Court has held that when the identity of the lender company are clear, then if the AO still doubts the creditworthiness of the lender companies, then he should enquire from the AO of the lender companies and thereafter only draw any adverse inference against the lender companies in respect of the creditworthiness. The Ld. A.R. submitted that no such exercise/enquiry was conducted by the assessee’s AO, therefore, the Ld. CIT(A) rightly deleted the addition after referring to catena of judicial precedent. Therefore, he does not want us to interfere with the well reasoned order of the Ld. CIT(A).

13 ITA No. 2100/Kol/2018, M/s Machinery Agencies India., AY 2014-15

well as that of carry forward loan from four (4) other companies [refer to list at page 2] (supra) regularly after deducting TDS on the said payment of interest of Rs.13,34,669/-.

Sl. No. Name Unsecured loans received Interest Paid PAN No. during FY 2013-14 1 A.K. Construction Pvt. Ltd. 45000001 126477 AACCA2817L 2 Bhiksu Barter Pvt. Ltd. - 120000 AABCB1315M 3 Divya Electronics Pvt. Ltd. 10000 119974 AAACD9721C 4 Maheswari Merchants (P) Ltd. 1000000 8877 AABCM6860C 5 Paritosh Electricals (P) Ltd. 1000000 123616 AABCP5013E 6 Potential Electricals & Electronics (P) Ltd. 1000000 121808 AABCP5014D 7 Rajshree Developer Entrepreneurs (P) Ltd. - 120000 AABCR2000D 8 Ranbhumi Marketing Pvt. Ltd. - 185753 AAECR5842G 9 Vivek Tracom Pvt. Ltd. 7500000 359342 AAACV8670J 10 Zigma Electricals Pvt. Ltd. - 48822 AAACZ0831B Total 15010000 1334669

14 ITA No. 2100/Kol/2018, M/s Machinery Agencies India., AY 2014-15

confirmation/admission of Shri Raj Kumar Kothari that he is an entry provider was the basis of branding the lender companies as shell companies, however it was brought to our notice that Shri Kothari had retracted the same within ten (10) days by swearing an affidavit before the First Class Magistrate of Kolkatta which is found placed at pages 38 to 41 of the PB-II. From a perusal of the contents of the affidavit, it is noted that Shri Raj Kumar Kothary has alleged that he was whisked away by the officers of the Department along with policemen on 02.03.2016 and they kept him confined in their Office till late night; and by exerting threat and coercion has extracted some statements/confession/admission. Elaborating further he says that officers threatened to conduct search and survey in his companies and kept on reminding him that they will ruin him and his family. In the back-drop of the aforesaid threat and coercion, he made the statement in accordance to their wishes, and which was not the truth of the contents recorded. In this context, we note that within ten (10) days (after giving the statement to Investigation Wing), he has retracted the statement by swearing the affidavit. Therefore, according to the Ld. AR, the statement of Shri Raj Kumar Kothari which was the only basis of which the A.O branded the lender companies as shell/paper companies could not have been used against the assessee and in any case does not have any evidentiary value, since retracted and could not have been acted upon against the assessee. Moreover, according to Ld.AR, Shri Raj Kumar Kothari when summoned by the A.O of the assessee on 06.12.2016 has denied to be providing accommodation entry and has confirmed the loan transaction with the assessee and even stated that the source of loan was from refund of another loan (refer page 17-23 PB). So, in the light of direct evidence of Shri Raj Kumar Kothary, no adverse inference could have been drawn against the lender companies. So, according to Ld. AR, in any case the statement of Kothari cannot be the basis for drawing adverse inference against the assessee.

15 ITA No. 2100/Kol/2018, M/s Machinery Agencies India., AY 2014-15

existence and status of them can be taken note by the A.O from the master data available in the public domain/website of ROC; And it was brought to our notice that these companies are still ‘active’ companies which are discernable from ROC website. Further, we note that all the lender companies have their respective PAN identity and the jurisdiction under whom they are assessed are available in the ITR filed by them directly to the A.O pursuant to the section 133(6) notice issued by the A.O and transactions have been made through account payee cheques and the Hon’ble Calcutta High Court has said that A.O of the assessee who borrows or is in receipt of credit/loan (like assessee in this case) cannot brand the lender company as lacking in creditworthiness, unless the A.O undertakes the exercise of enquiring from the A.O of the lender companies and in case if the A.O of the lender companies have accepted the transactions shown by them with the assessee company, then the A.O of the assessee company cannot impute un-creditworthiness of the lender company and referred to the decision of the Hon’ble Calcutta High Court in CIT vs. M/s Dataware Private Limited in ITAT No. 263 of 2011 Date: 21st September, 2011 GA No.2856 of 2011 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 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.” 15. Further the Ld. CIT(A) has noted that pursuant to the notice u/s 133(6) of the Act, the lender companies have directly filed before the A.O., the balance sheet,

16 ITA No. 2100/Kol/2018, M/s Machinery Agencies India., AY 2014-15

relevant bank statement etc. We note from a perusal of the balance sheet of the lending companies the following facts which are noted in the chart as under:

RESERVE & UNSECURED INTERE S.NO NAME TURNOVER SURPLUS LOANS ST PAID 1 A.K Construction Pvt. Ltd 12,29,72,034 1,87,65,514 4500000 1,26,477

2 Bhiksu Barter Pvt Ltd 7,91,73,633 54,70,902 - 1,20,000

3 Divya Electronics Pvt Ltd 13,15,03,765 1,48,76,714 10000 1,19,974

4 Maheswari Merchants Pvt Ltd 8,11,11,229 63,16,023 1000000 8,877

5 Paritosh Electronics Pvt Ltd 11,90,71,929 1,60,89,902 1000000 1,23,616

6 Potential Electricals & Electronics. Pvt Ltd 10,47,32,610 1,11,19,141 1000000 1,21,808

7 Rajshree Developer Entrepreneurs Pvt Ltd 10,56,95,626 1,11,75,079 - 1,20,000

8 Ranbhumi Marketing Pvt Ltd 2,99,43,843 64,86,166 - 1,85,753

9 Vivek Tracom Pvt Ltd 15,71,97,394 15,12,38,564 7500000 3,59,342

10 Zigma Electricals Pvt Ltd 7,20,36,614 64,20,930 - 48,822

TOTAL 15010000 1334669

17 ITA No. 2100/Kol/2018, M/s Machinery Agencies India., AY 2014-15

statement has been recorded by him from which he could not elicit any incriminating material/statement against the assessee/loan transaction or can term the assessee as a beneficiary. And neither the AO has carried out any enquiry regarding creditworthiness of the lenders from their respective AO’s, without which AO of the assessee could not have drawn adverse view of un-worthiness of credit in respect of lenders as held by the Hon’ble Calcutta High Court in the case of M/s Dataware Private Limited (supra), so the A.O of the assessee erred in branding the lender companies as lacking in creditworthiness.

18 ITA No. 2100/Kol/2018, M/s Machinery Agencies India., AY 2014-15

transactions as discussed supra. So, other than the third party statement, which did not incriminate the assessee, and which was retracted, and while giving statement to AO Shri Kothari having confirmed the loan transaction with assessee and since Shri Kothari has corroborated the transaction, the retracted statement should not have been used as the basis to draw adverse inference against the assessee. Therefore, no addition was warranted. To come to my aforesaid decision, we also rely on the ratio of the decision of the Hon’ble Supreme Court in the case of CIT Vs. M/s. Odeon Builders Pvt. Ltd. in Review Petition (C) Diary No. 22394 of 2019 in Civil Appeal Nos. 9604 & 9605 of 2018 dated 21.08.2019 wherein the Hon’ble Supreme court has held as under: “We have perused the review petition and find that the tax effect in this case is above Rs.l crore, that is, Rs.6,59,27,298/-. Ordinarily, therefore, we would have recalled our order dated 17th September, 2018, since the order was passed only on the basis that the tax effect in this case is less than Rs.1 crore. However, on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of Rs.19,39,60,866/- was based solely on third party information, which was not subjected to any further scrutiny. Thus, the CIT (Appeals) allowed the appeal of the assessee stating: "Thus, the entire disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO who has not provided the copy of such statements to the appellant, thus denying opportunity of cross examination to the appellant, who has prima facie discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, & VAT Registration of the sellers & their Income Tax Return. In view of the above discussion in totality, the purchases made by the appellant from M/s Padmesh Realtors Pvt. Ltd. is found to be acceptable and the consequent disallowance resulting in addition to income made for Rs.19,39,60,866/-, is directed to be deleted."

The ITAT by its judgment dated 16th May, 2014 relied on the self same reasoning and dismissed the appeal of the revenue. Likewise, the High court by the impugned judgment dated 5th July, 2017, affirmed the judgments of the CIT and ITAT as concurrent factual findings, which have not been shown to be perverse and, therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of the ITAT.”

19 ITA No. 2100/Kol/2018, M/s Machinery Agencies India., AY 2014-15

assessee as genuine and since the AO failed to elicit any incriminating material against the assessee, so the AO’s reliance on third party statement of Shri Kothari does not have any evidentiary value and the AO erred in relying on it. So from any angle, one looks, the statement of Shri Raj Kumar Kothari cannot have been used against the assessee. Moreover, Shri Raj Kumar Kothari has corroborated the loan transaction with the assessee, and since there is no other material to controvert the genuineness of the loan transaction with the assessee and the AO having failed to find any infirmity with the documents filed by the assessee/lenders to prove the loan transactions as discussed supra, no adverse view was legally tenable. And having gone through the impugned order and the Paper Book filed before us, we fully concur with the finding of facts as rendered by Ld CIT(A) in respect of identity, creditworthiness and genuineness of the lenders/loan transaction and for the sake of brevity and to avoid repetition it is not again repeated. We agree with the judicial precedents relied upon by the Ld CIT(A) in support of his decision. And we don’t find any legal or factual infirmity in the impugned order of the Ld CIT(A), so we decline to interfere. So the impugned action of Ld. CIT(A) to delete the section 68 addition of Rs.1,50,10,000/- and Rs.13,34,669/- u/s. 69 of the Act [the interest paid by assessee to lenders] is confirmed. So, the Revenue’s appeal stands dismissed.

Order is pronounced in the open court on 30th September, 2021.

Sd/- Sd/- (P. M. Jagtap) (A. T. Varkey) Vice President Judicial Member Dated: 30th September, 2021

SB, Sr. PS

20 ITA No. 2100/Kol/2018, M/s Machinery Agencies India., AY 2014-15

Copy of the order forwarded to: