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Income Tax Appellate Tribunal, DELHI BENCHES ‘G’, NEW DELHI
Before: Sh. H. S. SidhuDr. B. R. R. Kumar
ORDER Per Dr. B. R. R. Kumar, Accountant Member:
The assessee has raised following grounds of appeal:
1. That under the facts and circumstances the addition of Rs.5,00,00,000/- u/s 68 for unsecured loan taken from M/s Kumar Buildtech Pvt. Ltd. is unsustainable in law as well as on merits. 1.1 That under the facts and circumstances both the lower authorities erred in law and! on merits in not understanding and appreciating and adjudicating the documents and evidences and informations furnished in support of the claim of genuineness of loan of Rs.5,00,00,000/-, hence the findings of both the lower authorities stands vitiated in law as well as on merits. 1.2 That under the facts and circumstances, even the source of the source stands proved, although it is not required, therefore, there is absolutely no justification in law as well as on merits in making addition of Rs.5,00,00,000/- u/s.68. 1.3 That without prejudice, the ITI report is not admissible in law for asstt. for various reasons including for not confronting during asstt. and as there is no evidence that 2 Sheetal Infoservices Pvt. Ltd. any independent witness participated to identify the business premises, visited by the ITI, hence the ITI report is not in conosense with Rule 17 of order V of code of civil procedure 1908, as per settled law in various authorities including in following cases:- Wg. CDR Sucha Singh order Dtd.11.04.17 (Delhi ITAT) Kohli Brothers Vs. ITO 44 SOT 33 (Luck.) (URO) CIT Vs. Dewan Kraft System Pvt. Ltd. 165 taxmann 139 (Delhi HC) CIT Vs. Naveen Chander 323 ITR 49 (P&H) 2. That under the facts and circumstances Ld. CIT(A) exceeded his jurisdiction in giving directions u/s.150(1) of the I.T. Act in Para-4.5 of the CIT(A) order for examining the case of assessed for A.Y.2014-15 and A.Y.2016-17 u/s.147/148 and in giving other related directions on this issue, which directions, needs to be ex-punched and deleted from the CIT(A) order.” The facts have been taken from the orders of the Assessing Officer and ld. CIT (A).
2. The only effective ground pertains to addition of Rs.5 crores received as loan from M/s Kumar Builder Pvt. Ltd. u/s 68 of the Income Tax Act, 1961. The Assessing Officer has seen that during the year under consideration, the assessed has shown the receipt of unsecured loan of Rs. 5 Cr. from one M/s Kumar Buildtech P Ltd. The AO after detailed inquiries and discussions made in the order at pages 2 to 19, found the genuineness of the same as doubtful and added the amount of Rs. 5 Cr. u/s. 68 of the Act. During the course of proceedings before the ld. CIT (A), it was submitted that the assessed has fully discharged his onus. It is submitted that the assessee filed following documents which are sufficient to prove the genuineness of transaction and identity and creditworthiness of the party:-
3 Sheetal Infoservices Pvt. Ltd. • Audited Financial Statement of assessed for A.Y, 15 - 16 • Bank Statement of assessed • Ledger A/c of Kumar Buiidtech p Ltd. in the books of assessed Bank Statement of Kumar Infoservices P Ltd. • ITR of Kumar Infoservices P Ltd. for A.Y. 2015-16 • Audited Financial Statement of Kumar Infoservices P Ltd. for A.Y. 15-16 • Ledger A/c of assessed in the books of Kumar Buiidtech p Ltd, • Asstt Order U/s 143(3) Kumar Infoservices P Ltd. for A.Y. 2012-13 and A.Y. 2013-14 3. It was further submitted that all these documents amply proves the genuineness, identity as well as the credit worthiness of the party. The ld. CIT (A) held that the AO had issued summons U/s 131 of the Income Tax Act, 1961 and based upon an exhausted inquiry made by him and based upon report of ITI came to conclusion that the identity and creditworthiness of the lenders are not proved. The findings of the AO are discussed from Page nos. 2 to 19 of his assessment order. The main findings of Assessing Officer are that the assessee not only failed to produce the directors of the lender companies but also the lender companies failed to respond the summon issued U/s 131 of the Income Tax Act, 1961. It was also held that in the bank account of M/s. Kumar Buildtech, there are credits of huge amounts on various dates and on the same day or in couple of days, the same amount is debiting through transfer or RTGS. The transactions in the bank statement of M/s. Kumar Buildtech is found mainly with the assessed company and with M/s. RtshiKesh Hire Purchase and with M/s. Ascent Durobuild Pvt. Ltd. and M/s. Sanjog Durobuild Pvt. Ltd. It was held that the bank statement of M/s. Kumar Buildtech was found by the AO to be of the nature of Typical Entry Operator. It was further held that the AO has sufficiently brought on record with, the assistance of the Independent inquiry that the lender 4 Sheetal Infoservices Pvt. Ltd. company was of the nature of Typical Entry Operator, merely acting as conduit of funds with no real business. It was held that the activities undertaken by the alleged company are not meeting commercial prudence and the working of the company appears to be providing accommodation entries. Finally, the authorities held that M/s. Kumar Buiidtech Pvt. Ltd. is a mere paper company. It was also hold no genuine transaction was carried out between M/s. Kumar Buildtech and M/s. Sheetal infoservices Pvt. Ltd. and this was the assessee's own unaccounted money which was routed through the paper company i.e. through M/s. Kumar Buildtech, through banking channel back to the assessed company. The burden to prove the genuineness of the transaction was upon the assessed company which it failed to do. Mere filing of ITR, balance-sheet, P&L a/c and bank statement could not prove the genuineness and credit worthiness of the transaction and also that M/s. Kumar Buildtech is not a paper company. Hence, unsecured loan of Rs. 5 Cr. Raised by the assessee from M/s. Kumar Buildtech is not a paper remained unexplained. The authorities have relied upon various judgments to support the addition. � Navodaya Castels Pvt. Ltd. Vs. CIT in � CIT Vs. Nova Promoters and Finlease Pvt. Ltd. (2012) 342 ITR 169 Delhi � CIT vs. N.R. Portfolio Pvt. Ltd. 206(2014) DLT 97 (DB)(DEL) � CIT Vs. Durga Prasad More (1971) 82 ITR 540 (SC) � Sreelekha Banerjee Vs. CIT (1963) 49 ITR 112 � Seth Kalekhan Md. Hanif Vs. CIT (1963) 50 ITR 1 � M.A. Unneerikutty Vs. CIT (1992) 198 ITR 147 (Ker.) � Sumati Dayal Vs. CIT (1995) 214 ITR 801 � CIT vs. P. Mohankaia (2007) 291 ITR 278 � Vijay Kumar Talwar Vs. CIT (2011) 330 ITR 1 � Shri Hersh W. Chadha, (Legal heir of Late Sh. W.N. Chadha) Vs. DDIT, Circle-1(1), ITA No. I.T.A. Nos. 3088 to 3098 & 3107/Dei/2005 � CIT Vs. N.R. Portfolio Pvt. Ltd. [2014] 2 ITR-OL 68 (Delhi); (2014 206 DLT 97 (DB) � Meenakshi Mills Ltd. [1967] 63 ITR 609 � Littlewoods Mail Order Stores [1970] 75 ITR 327 (CA) � Juggilalkamlapat [1969] 73 ITR 702, 710 (SC) � W.T. Ramsay Ltd. Vs. IRC [1981] 2 WLR 449 � McDowell and Co. Ltd. Vs. CTO [1985] 154 ITR 148 � Workmen Vs. Associated Rubber Industry [1986] 157 ITR 77 5 Sheetal Infoservices Pvt. Ltd.
The authorities specifically relied on the judgment of the Apex Court in the case of PCIT vs. NRA Iron & Steel (P.) Ltd. [2019] 103 taxmann.com 48 (SC) wherein it was held that, when there was failure of assessee to establish credit worthiness of investor companies, Assessing Officer was justified in passing assessment order making additions under section 68 for share capital / premium received by assessed company.
The Revenue authorities relied on the following principles. • The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. • The Assessing Officer is duty bound to investigate the credit- worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. • If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established.
6. The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee. The Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee 6 Sheetal Infoservices Pvt. Ltd. During the hearing, before us, the ld. AR reiterated the submissions filed before lower authorities and has taken us through various documents filed before the Revenue authorities. The ld. DR in addition to placing reliance on the orders of the Assessing Officer and the ld. CIT (A) has filed the written submissions which are as under:
“In the above case, it is humbly submitted that the following decisions may kindly be considered with regard to addition made u/s 68 of I.T. Act:
1.
PCIT Vs NRA Iron & Steel (P.) Ltd. [20191 103 taxmann.com 48 (SC) (Copy Enclosed) where Hon’ble Supreme Court reverse order of lower Authorities holding that where there was failure of assessee to establish credit worthiness of investor companies, Assessing Officer was justified in passing assessment order making additions under section 68 for share capital / premium received by assessee company. Merely because assessee company had filed all primary evidence, it could not be said that onus on assessee to establish credit worthiness of investor companies stood discharged 2. PCIT Vs NDR PROMOTERS PVT LTD (2019-TIQL-172-HC-DEL-IT) where Hon’ble Delhi High Court held that a case involving make-believe paperwork to camouflage the bogus nature of the transactions is to be treated as unexplained credit u/s 68 3. ITO Vs Synergy Finlease Pvt. Ltd (ITA No.4778/Del/2013) where Hon’ble ITAT Delhi held that where investor of share application money had nominal income and cheques had been received just before issue of cheques for share application money, creditworthiness was not proved and addition u/s 68 was sustained.
4. Prem Castings (P.) Ltd. Vs CIT r20171 88 taxmann.com 189 (Allahabad) (Copy Enclosed) where Hon’ble Allahabad High Court held that additions u/s 68 warrant being sustained where the identities & creditworthiness of investors in the assessee company are not established by the assessee & are also proved incorrect by the Department's Assessee Information System. In such circumstances, assessee cannot resist the additions on grounds that it did not have opportunity to cross- examine relevant witnesses. An assessee company cannot hide behind the shell of a corporate entity to feign ignorance regarding the identity of any person who invests in its share capital. Prem Castings (P.) Ltd. Vs CIT 2018-TIQL-274-SC-IT (Copy Enclosed) where Hon’ble Supreme Court held as follows: “We do not find any merit in this petition. The Special Leave Petition is accordingly dismissed.”
5. CIT Vs MAF Academy (P.) Ltd (361 ITR 258) (Copy Enclosed) where Hon’ble Delhi High Court held that where assessee, a private limited company, sold its shares to unrelated parties at a huge premium and thereupon within short span of time those shares were purchased back even at a loss, share transactions in question were to be regarded as bogus and, thus, amount received from said transactions was to be added to assesee's taxable income under section 68 It was held as follows:
7 Sheetal Infoservices Pvt. Ltd. “53. In contrast to the above judgments, in the present case, the Assessee is a private limited company and in the factual matrix, we have held that the Assessee has not been able to discharge the initial onus and has not been able to establish the identity, creditworthiness of the share applicants and the genuineness of the transaction. Though, in our considered opinion, none of the above judgments, referred to by the Assessee respondent, are applicable in the facts of the present case and in view of the findings recorded by us hereinabove.
In view of the above, we are of the view that the Assessee has not discharged the onus satisfactorily and the additions made by the Assessing Officer were justified and sustainable.”
CIT Vs Navodaya Castle Pvt. Ltd T20141 367 ITR 306 (Del) (Copy Enclosed) where Hon’ble Delhi High Court accepted that since the assessee was unable to produce the directors and the principal officers of the six shareholder companies and also that as per the information and details collected by the Assessing Officer from the concerned bank, the Assessing Officer had observed that there were genuine concerns about identity, creditworthiness of shareholders as well as genuineness of the transactions. "20. Now, when we go to the order of the Tribunal in the present case, we notice that the Tribunal has merely reproduced the order of the Commissioner of Income-tax (Appeals) and upheld the deletion of the addition. In fact, they substantially relied upon and quoted the decision of its co-ordinate Bench in the case of MAF Academy P. Ltd., a decision which has been overturned by the Delhi High Court, vide its judgment in CIT v. MAF Academy P. Ltd. [2014] 206 DLT 277 ; [2014] 361 HR 25S (Delhi)). In the impugned order it is accepted that the assessee was unable to produce directors and principal officers of the six shareholder companies and also the fact that as per the information and details collected by the Assessing Officer from the concerned bank, the Assessing Officer has observed that there were genuine concerns about identity, creditworthiness of shareholders as well as genuineness of the transactions.
In view of the aforesaid discussion, we feel that the matter requires an order of remit to the Tribunal for fresh adjudication keeping in view the aforesaid case law." Navodava Castle Pvt Ltd Vs CIT (T20151 56 taxmann.com 18 (SC)/r2015l 230 Taxman 268 (SC)) (Copy Enclosed) LP of assessee dismissed by Hon’ble Supreme Court 7. Konark Structural Engineering (P.) Ltd. Vs DCIT T20181 96 taxmann.com 255 (SC) (Copy Enclosed) where assessee-company received certain amount as share capital from various shareholders, in view of fact that summons to shareholders under section 131 could not be served as addresses were not available, and, moreover, those shareholders were first time assessees and were not earning enough income to make deposits in question, addition made by Assessing Officer under section 68 was to be confirmed; SLP dismissed Konark Structural Engineering (P.) Ltd. Vs DCIT T20181 90 taxmann.com 56 (Bombay) (Copy Enclosed) where Hon’ble Bombay High Court held that where assessee-company received certain amount as share capital from various shareholders, in view of fact that summons served to shareholders under section 131 were unserved with remark that addressees were not available, and, moreover, those shareholders were first time assessees and were not earning enough income to make deposits in question, impugned addition made by AO under sec. 68, was to be confirmed 8 Sheetal Infoservices Pvt. Ltd.
8. Pratham Telecom India Pvt Ltd Vs DCIT (2018-TIQL-1983-HC-MUM-IT) (Copy Enclosed) where Hon’ble Bombay High Court held that mere production of PAN numbers & bank statements is sufficient enough to discharge the burden on taxpayer to escape the realms of Section 68
9. PCIT Vs Bikram Singh [20171 85 taxmann.com 104 (Delhi)/r20171 250 Taxman 273 fDelhiVT20171 399 ITR 407 (Delhi) (Copy Enclosed) where Hon’ble Delhi High Court held that even if a transaction of loan is made through cheque, it cannot be presumed to be genuine in the absence of any agreement, security and interest payment. Mere submission of PAN Card of creditor does not establish the authenticity of a huge loan transaction particularly when the ITR does not inspire such confidence. Mere submission of ID proof and the fact that the loan transactions were through the banking channel, does not establish the genuineness of transactions. Loan entries are generally masked to pump in black money into banking channels and such practices continue to plague Indian economy. 7. The ld. DR also argued based on the judgment of Hon’ble Supreme Court / High Court of Allahabad in the case of Suman Gupta, ITA 680/2012 dated 07.08.2012 and also the judgment of the jurisdictional High Court in the case of Seema Jain Vs ACIT 96 Taxmann 307
Heard the arguments of both the parties and perused the material available on record.
We find that the Revenue authorities come to a conclusion that the lending entity M/s Kumar Buildtech. is a typical entry operator and merely acting as conduit of funds with no real business and treated it as a paper company based on i. The report of the Inspector after exhaustive enquiries ii. The assessee has failed to prove the Directors of the company iii. The lender company failed to respond the summons issued u/s 131 iv. There was credits in the bank account of the lender company before issue of the loan.
These allegations of the Revenue have been examined against the evidences on record. The assessee has filed the assessment order u/s 143(3) of the Act in the case of M/s Kumar Buildtech Pvt. Ltd. passed by 9 Sheetal Infoservices Pvt. Ltd. the DCIT-14(2) for the assessment year 2012-13 and by ITO, Ward-14(4) for the assessment year 2013-14. For the assessment year 2012-13, the return income was Rs.58,49,990/- and the assessee has paid taxes of Rs.17,98,408/-. For the assessment year 2013-14, the return income was Rs.1,74,720/-. These two year have been scrutinized u/s 143(3) of the Act. Keeping in view, the tax payment made by the lender company of Rs.17,98,408/- it cannot be said prima facie that the lender company is a paper entity or a conduit to pass the amounts. The observation of the Revenue authorities that the lending company is a typical entry operator cannot be accepted as no entry operator would pay tax to the tune of Rs.17 lakhs plus. For the assessment year 2015-16, the lender company has total income of Rs.19,28,270/- and tax paid of Rs.7,06,459/-. The long term advance given by the lender company was to the tune of Rs.27.24 crores which is quite substantial when compared to the amount given to the assessee. Further, we also find that the against the query of the Assessing Officer regarding the source to M/s Kumar Buildtech Pvt. Ltd., the assessee has filed relevant bank statements showing the receipt of the monies from M/s Rishikesh Hire Purchase and Leasing Company Pvt. Ltd. (RHPLC). The fact that the entity RHPLC is a registered NBFC was also filed before the Assessing Officer and the certificate of registration by the RBI has been duly filed which was not considered by the Revenue. Further, the NBFC has filed return with a total income of Rs.141,35,773/- and taxes paid of Rs.47,42,280/-. The total Long Term loans given by the NBFC is Rs.56.69 crores. Hence, the observation of the Revenue that the loans have been received from paper entities or a typical entry operator cannot be accepted as the source of the source has also been proved by the assessee before the Revenue authorities.
Regarding the allegation that there was no response to the summons issued u/s 131 of the Act, Inspector’s report, non-production of 10 Sheetal Infoservices Pvt. Ltd. Directors of the lending company, we find that the lending company has filed the details asked for u/s 133(6) of the Act vide letter dated 22.11.2017 before the Assessing Officer which was mentioned in the assessment order (page no. 2 last para) itself. Hence, the allegation that there was no response from the lending company to the notices cannot be accepted. Further, the Assessing Officer observation that the assessee could not produce the Directors of the company for recording of their statement onwards and prove the genuineness of the transaction and that the lending company is not just paper company (page 10/AO) cannot be accepted as the compliance/ non-compliance to notice u/s 131 of the Act cannot be attributable to the assessee. The field enquiries of the Inspector have reported in negative even about the existence of the assessee company at the given address which has been attending before the Revenue authorities on regular basis. The Revenue has relied on the order of the Hon’ble Apex Court in the case of NRA Iron and Steels Pvt. Ltd. wherein it was held as under:{as quoted by CIT(A)} “In a recent judgment, it has also been held by the Apex Court in the case of PCIT vs. NRA Iron & Steel (P.) Ltd. [2019] 103 taxmann.com 48 (SC) wherein there was failure of assessee to establish credit worthiness of investor companies, Assessing Officer was justified in passing assessment order making additions under section 68 for share capital / premium received by assessed company. The principles which emerge where sums of money are credited as Share Capital/Premium are: i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the credit- worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established.
11 Sheetal Infoservices Pvt. Ltd. The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee. The Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee.
From the facts on record, we find that the assessee has discharged the requirements to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the lending company. The lending company had taxable income of Rs.19.28 lakhs. The source of the source which is M/s Rishikesh Hire Purchase and Leasing Company Pvt. Ltd. had a taxable income of Rs.1.41 crores, thus, proving the financial capability of lending entity has also been examined. Both this company has been scrutinized u/s 143(3) of the Act for the assessment years 2012- 13, 2013-14 and in the case of RHPLC for the assessment year 2014-15. There is no evidence collected by the Revenue even to prima facie prove that the loan was bogus. Hence, it cannot be treated as a fictitious loan. Reliance is also placed on the judgment of Hon’ble High Court of Gujarat in the case of Apex Therm Packaging Pvt. Ltd. 222 Taxmann 125 wherein it was held that Section 68 of the Income-tax Act, 1961 - Cash credit (Unsecured loan) - Whether when full particulars, inclusive of confirmation with name, address and PAN Number, copy of income tax returns, balance sheet, profit and loss account and computation of total income in respect of all creditors/lenders were furnished and when it had been found that loans were furnished through cheques and loan account were duly reflected in balance sheet, Assessing Officer was not justified in making addition - Held, yes [Para 6].Further, in the case of Vaibhav Cotton Pvt. Ltd. 217 Taxmann 140, the Hon’ble Court of Madhya Pradesh held that where the Tribunal on its independent analysis of the matter had reached the factual conclusion about genuineness of unsecured loan transaction and in this process Tribunal has taken note of fact that detailed account of 12 Sheetal Infoservices Pvt. Ltd. concerned party were filed by the assessed and entries in account were through account payee cheques, source of deposit in the bank was not in dispute and identity of the parties was established and also creditworthiness of the creditors was established, it was right to hold that the loans taken cannot be assessed u/s 68 of the Act. Hence, keeping in view entire gamut of facts before us, and on going through the judgments of the Hon’ble Courts filed by both the parties, we hereby delete the addition made on account of loan received by the assessee.
In the result, the appeal of the assessee is allowed. (Order Pronounced in the Open Court on 22/07/2019).