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Income Tax Appellate Tribunal, DELHI BENCH ‘F’, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI B.R.R. KUMAR
PER H.S. SIDHU, JM
These cross appeals have been filed by the Revenue as well as Assessee against the impugned order of the Ld. CIT(A)-38, New Delhi relating to assessment year 2014-15. Since the issues involved in these appeals are identical, hence, the appeals were heard together and are being disposed of by this common order for the sake of convenience, by first dealing with Revenue’s Appeal i.e. ITA No. 5970/Del/2017 (AY 2014- 15).
REVENUE’S APPEAL
The brief facts of the case are that the assessee filed its return of income on 29.11.2014 declaring income at Rs. 9,95,10,311/-. The case was selected for limited scrutiny. Notice u/s. 143(2) of the Income Tax Act, 1961 (in short “Act”) dated 28.8.2015 were issued. Subsequent notice u/s. 142(1) of the Act dated 26.4.2016 alongwith questionnaire fixing the case on 5.5.2016. In response to notices, the AR of the assessee attended the proceedings from time to time and filed necessary details which were called for and the same were examined by the AO. Subsequently, the case was transferred to Special Range-7, New Delhi vide order u/s. 127(1) of the Act dated 09.08.2016. Notice u/s. 142(1) dated 29.8.2016 was issued. The assessee company is in the business of manufacturing of Color Master Batches (plastic granules). It is a manufacturers, and suppliers of roto foam masterbatch, color masterbatches, polymer processing aid masterbatches, carbon black masterbatches, additive masterbatches, prafil compound, pracol colour, black masterbatches, roto foam powder, white master batches. During the year under consideration, an examination of the balance sheet of the assessee company as on 31.3.2014 revealed that it had received unsecured loan of Rs. 47,59,50,000/- during the FY 2013-14 from various 45 parties/lenders, to all of whom AO issued notice u/s. 133(6) letter dated 18.10.2016. Replies were received from 32 persons, notices were returned unserved in 5 cases and AO issued fresh notices u/s. 133(6) dated 08.10.2016 to 13 persons from whom reply to notice u/s 133(6) dated 18.10.2016 were not received. After further investigations AO treated an amount of Rs. 9,46,00,000/- shown by the assessee as unsecured loan received during AY 2014-15 as undisclosed income of the assessee u/s. 68 of the Act. During appellate proceedings assessee submitted that the figure of disallowance u/s. 68 actually comes to RS. 10,46,00,000/-. In appeal filed by the Assessee, Ld. CIT(A) deleted the addition of RS. 1,10,00,000/- in respect of I World Business Solutions 2
Pvt. Ltd. and Rs. 15,00,000/- in respect of KG Embroidery Mills Ltd. vide order dated 28.6.2017. Aggrieved with the aforesaid action of the Ld. CIT(A) in deleting the additions, Revenue is in appeal before the Tribunal. 3. On the other hand, Ld. DR relied upon the order of the Assessing Officer. He submitted that Ld. CIT(A) has wrongly deleted the addition of Rs. 1,11,00,000/- u/s. 68 of the Act as unsecured loan from M/s I World Business Solutions Pvt. Ltd., and deleted the addition of Rs. 15,00,000/- u/s. 68 of the Act, despite the fact that identity, creditworthiness of lender and genuineness of transaction neither been established before the AO nor before the Ld. CIT(A). In view of above, he requested that order of the Ld. CIT(A) may be set aside by upholding the order of the Assessing Officer on the issues in dispute.
On the other hand, Ld. counsel for the assessee relied upon the order of the Ld. CIT(A) and stated that the lenders had sufficient income at their disposal to provide loans to the assessee which is substantiated by their return of income. He further submitted that the lenders are either Pvt. Ltd. Company or a Public Company whose details are available on public domain. The loans have been advanced by the companies through banking channels or from their own funds. There is no allegation of the AO that there was cash desoits in the bank accounts by these lenders before providing loans to the assessee and there was no adverse information with the AO in respect of the lenders. In view of above submissions, he submitted that Ld. CIT(A) has given the well- reasoned finding and thus rightly deleted the additions in dispute made by the AO, which does not need any interference.
We have heard both the parties and perused the records especially the impugned order. We find that Ld. CIT(A) has elaborately discussed the issues in dispute vide para no. 2.2.11 & 2.2.12 at page no. 25 & 26 of the impugned order. For the sake of clarity, we are reproducing the relevant finding of the Ld. CIT(A) as under:-
“2.2.11 I World Business Solutions Pvt. Ltd. 30/1 East Patel Nagar, New Delhi And 208, Vikram Tower, Rajendra Place New Delhi - 110008
Notice u/s 133(6) of the Income Tax Act, 1961 was issued by assessing officer on 18.10.2016 to this company regarding loan of Rs. 1,11,00,000/- to M/s Prayag Polytech Pvt Ltd for AY 2014-15 and reply was received. The returned income of M/s I World Business Solutions Pvt. Ltd, is Rs. 2,98,40,410/-. AO issued summon u/s 131 of the Income Tax Act, 1961 on 01.12.2016 in response to which there was no compliance on behalf of M/s I World Business Solutions Pvt. Ltd. as a result of which AO held that the identity is not established by the assessee creditworthiness is doubtful and the genuineness of the transaction is also suspicious. However, it is seen that M/s I World Business Solutions Pvt. Ltd. had reported income of Rs. 2,98,40,410/- for AY 2014-15, which was higher than the figure of loan to appellant. I hold that in this case the creditworthiness and identity of lender and the genuineness of transaction have been proved. Therefore, AO is directed to delete amount of Rs. 1.11 Cr. from the undisclosed income u/s 68 of the appellant computed by order u/s 143(3) for AY 2014-15 dated 24.12.2016.
2.2.12 M/s K G Embroidery Mills Ltd. , 3463 Gali Lallu Mishar, Sadar Bazar, Delhi- 110006
Notice u/s 133(6) of the Income Tax Act, 1961 was issued by assessing officer on 18.10.2016 to this company regarding loan of Rs. 15,00,000/- to M/s
Prayag Polytech Pvt Ltd for AY 2014-15 and reply was received. The returned income of M/s K G Embroidery Mills Ltd, is Rs. 1,06,15,973/-. Vide order sheet entry 01 10 2016 Ld. AR of appellant was accorded an opportunity by assessing officer to produce the Director of M/s K G Embroidery Mills Pvt. Ltd. and summon u/s 131 dated 01.12.2016 was also sent separately but neither the AR produced the Director of M/s K G Embroidery Mills Pvt. Ltd. nor anyone appeared in compliance to the summon as a result of which AO held that the identity of lender was not established by the assessee, creditworthiness is doubtful and the genuineness of the transaction is also suspicious. However, it is seen that M/s K G Embroidery Mills Ltd. had reported income of Rs. 1,06,15,973/- for AY 2014- 15, which was higher than the figure of loan to appellant. I hold that in this case the creditworthiness and identity of lender and the genuineness of transaction have been proved. Therefore, AO is directed to delete amount of Rs. 15,00,000/- from the undisclosed income u/s. 68 of the appellant computed by order u/s. 143(3) for AY 2014-15 dated 24.12.2016.”
After perusing the aforesaid findings of the Ld. CIT(A) and after perusal of the financial statement and the documents placed in respect of these two creditors, we find that each of these two creditors have sufficient funds and assessee has lead all the evidences to discharge its onus under section 68 of the Act in respect of identity, creditworthiness and genuineness of the loan obtained by it, because the lenders had sufficient income at their disposal to provide loans to the assessee which is substantiated by their return of income. It is also noted that the lenders are either Pvt. Ltd. Company or a Public Company whose details
are available on public domain and the loans have been advanced by the companies through banking channels or from their own funds. However, there is no allegation of the AO that there was cash deposits in the bank accounts by these lenders before providing loans to the assessee and there was no adverse information with the AO in respect of the lenders. In view of above, we are of the view that Ld. CIT(A) has rightly deleted the addition of Rs. 1,11,00,000/- and Rs. 15,00,000/- by giving a well reasoned findings, which does not suffer from any illegality or infirmity. Therefore, we uphold the action of the Ld. CIT(A) on the issues in dispute and reject the grounds raised by the Revenue. 7. In the result, the Appeal of the Revenue is dismissed.
ASSESSEE’S APPEAL- ITA No. 6015/DEL/2017 (AY : 2014-15)
The brief facts of the case are that the assessee company engaged in the business of manufacturing of colour master batches (plastic granules). It filed its return of income for assessment year under consideration on 29.11.2014 declaring an income of Rs.9,95,10,311/-. During the course of the assessment proceedings the AO noticed that the assessee company has received unsecured loans of Rs.47,59,50,000/- from 45 lenders. The assessee submitted necessary details in respect of each to these parties which included confirmation, audited balance sheet, ITR, bank statement etc. The AO also made independent enquiry by issue of notice under section 133(6) as well as under section 131. The AO, however, was not satisfied about the identity and creditworthiness of 14 parties out of the 45 parties and made an addition of Rs.9,46,00,000/- under section 68 of the Act. Aggrieved by the order of the AO the assessee filed appeal before the CIT(A), who vide his impugned order dated 28.06.2017 has deleted the addition in respect of the two parties but confirmed the addition in respect of the remaining twelve parties. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.
It was submitted by the Ld. AR that AO has made addition in respect of unsecured loans raised by the assessee during the year from the fourteen parties of Rs. 10,46,00,000/- (wrongly stated as Rs.9,46,00,000/- in the assessment order). In the course of assessment proceedings, the assessee has filed all the necessary evidences which included Confirmation, Copy of ledger Accounts, Income Tax returns, Audited balance sheets & copy of Bank statements in respect of all the 45 lenders whose unsecured loans outstanding as on 31.3.2014 including the above 14 parties. The AO initiated enquiries by issuing notices under section 133(6) against all the fourteen lenders from whom the unsecured loans of Rs. 10,46,00,000/- were raised during the year and all the notices were served upon all the 14 lenders as is evident from PB Pages 57-101. In compliance there to all the 14 lenders replied to the notices served along with the details asked for by the AO as is evident from PB Pages 102-584. The AO, after going through the information and documents received, made additions of Rs. 9,46,00,000/- on account of unsecured loans taken from the all the above 14 persons, making the vague allegations like the income of the lenders as per the ITR are less than the amount of loan given to the assessee company, the two lenders have common business premises etc. without pointing out any defect in the documents filed and ignoring the fact the all the amounts have been duly reflected in the bank statements and balance sheet of the lenders, lenders have confirmed that they have given the loans, all the notices were served upon the lenders and thus the assessee has duly discharged its onus to substantiate the loan transactions and hence no addition could be made in the hands of the assessee. The AO also made a totaling error and made addition of Rs. 9,46,00,000/- as against the amount of Rs. 10,46,00,000/- alleged by him.
The Ld. AR submitted that the Ld. CIT(A) has upheld the action of the AO by holding that out of the 14 lenders, 12 lenders have income during the year under consideration less than the amount advanced by these 12
lenders. The CIT(A) however deleted addition in respect of 2 lenders since, returned income of the assessment year under consideration of these two lenders i.e. M/s I World Business Solutions Pvt. Ltd. and K G Embroidery Mills Ltd. was more than the loan advanced by them to the assessee. It was submitted that both AO and CIT(A) have gone wrong in ignoring the fact that the income returned has no relation to the funds available to an entity to lend the same. It was submitted that the current year’s profit or loss of the lending companies alone is not the only relevant criteria to decide the source/credit worthiness or genuineness of the loan transactions. The Ld. AR in support of this contention placed reliance on the judgment of coordinate bench of ITAT in the case of ITO vs. Computer Home Information Plus Pvt. Ltd. ITA No.5680/Del/2016 dated 24.05.2019 and Sunil Gupta vs. ITO Ward -34(2) ITA No.701/Del/2018 dated 29.05.2019 and also judgment of jurisdictional Delhi High Court in the case of Pr. CIT (Central)-1 vs. M/s Goodview Trading Pvt. Ltd. ITA No.377/2016 dated 21.11.2016. 10.1 The Ld. AR further submitted that it is a case where assessee has taken loan and has been paying interest regularly after deduction of tax at source. Each of these parties have shown interest income in their return filed with the department and also claimed credit of the tax deducted as is evident from the return. It was submitted that there is no allegation of any accommodation entry or any adverse statement by any person in respect of the transactions entered into by the assessee. It was submitted that there is nothing on record to doubt or proved or support the contention or observations of the AO sustained by the Ld. CIT(A). That the loan received by the assessee company is nothing but unexplained money of the company brought into the business of the assessee in the guise of unsecured loan. The assessee has discharged its initial burden by establishing the identity of the loan creditors beyond any shadow of doubt. Thereafter, the department could not bring any positive material on record to show that the either the loan creditors have not actually advanced the money in question or they could not have advanced 8
the same. The Ld. AR further submitted that all the lenders are either Public Limited or Private Limited companies and are existing income tax assessee having PAN and have duly filed their returns. The loans have been advanced by the companies through the banking channels or from their own funds. There is no allegation of the AO that there were any cash deposits in the bank. As regards the case laws relied upon by the AO and the CIT(A), it was submitted that these case laws are not applicable because the same firstly are on the share capital issued at heavy premium without there being any economic significance in the invested company. Moreover, in these cases there were adverse statements given by the directors/operators of the company having engaged in accommodation entries. Further, in these case laws there were allegation that these companies are not existing. In the present case there is no such adverse material or statement. The Ld. AR submitted that, if the creditor does not appear in response to summons issued under section 131, no adverse inference can be drawn. A.O. having initiated the investigation, he has to take it to the logical end. In the present case Ld. AO initiated enquiries by issuing notices under section 133(6) against all the fourteen lenders from whom the unsecured loans of Rs. 10,46,00,000/- were raised during the year and all the notices were served upon all the 14 lenders. The Ld. AR placed reliance on the judgment of Supreme Court in the case of CIT VS. Orissa Corporation (P) Ltd. [1986] 159 ITR 78 (SC) wherein it was held that in case the creditor does not appear in response to summons issued under section 131, no adverse inference can be drawn. A.O. having initiated the investigation, himself has to take it to the logical end.
10.2 The Ld. AR submitted that the AO as well as Ld. CIT(A) have gone wrong in sustaining additions by observing that the assessee could not produce the directors of the company. It was argued that the assessee company is not bound to produce the Directors/ Principle Officers of the companies from whom it has taken loan. The Ld. AR submitted that in the
present case the assessee company has taken loan paid interest thereon and the loan stood repaid later on as is evident from the chart placed at paper book pages 597-599. The Ld. AR placed reliance on the judgment of the jurisdictional High Court of Delhi in the case of CIT vs. Victor Electrodes Ltd. in ITA No.586/2010, where the High Court has held that there is no legal obligation on the assessee to produce Director or other representative of the applicant companies before the Assessing Officer and failure of assessee to produce them could not by itself justify the additions. The Ld. AR also placed reliance on the judgment of Bombay High Court in the case of PCIT Vs. Chawla Interbild Construction Co. Pvt. Ltd., ITA No. 1103 of 2015, dated 28.02.2018 where a similar issue has come up. 10.3 The Ld. AR further placed reliance on following judgments: (i) Addl. CIT Bihar vs Hanuman Agarwal (1985) 151 ITR 150 (Patna High Court) (ii) Jalan Timber vs CIT (1997) 223 ITR 11 (Gauhati H.C.) (iii) Neeru Devi Kothari vs ITO (2001) 116 Taxman 224 (Jodhpur) (iv) Sarogi Credit Corporation vs CIT (1976) 103 ITR 344 (Patna HC) (v) Nemi Chand Kothari vs CIT [2004] 264 ITR 254(Gau) (vi) S. Hastimal vs CIT 49 ITR 272 (vii) CIT vs PithampurConzima (P) Ltd. (2000) 244 ITR 442 (MP High Court (viii) TolaramDaga's case [1966] 59 ITR 632 (Assam)
In reply the Ld. DR placed reliance on the order passed by the AO and the Ld. CIT(A). It was submitted that the assessee has failed to discharge its onus under section 68 of the Act and the AO and the CIT(A) were justified in making the additions. The Ld. DR submitted that AO and CIT(A) have examined each of the creditor and has recorded finding on the basis of the material. It was submitted though it is not a case of a share capital but the parameter for discharging the onus under section 68 is the same as in the case of share capital. The Ld. DR submitted that
though there is no adverse statement in respect of the loan taken by the assessee from the various lenders but the onus is upon assessee which he has failed to discharge. The Ld. DR place reliance on the order of the Supreme Court in the case of Pr. CIT vs. NRA Iron & Steel Pvt. Ltd. 103 taxmann.com 48 (SC) ( 2019) and order of the Delhi High Court in the case of Pr. CIT, New Delhi vs. NDR Promoters Pvt. Ltd. 102 taxmann.com 182 (Delhi) (2019) dated 17.01.2019. 12. We have heard the rival submissions and perused the order passed by the authorities below and the paper book filed by the assessee. It is a case where addition has been made in respect of the loan of Rs.10,46,00,000/- raised by the assessee during the year from the 14 parties. Before discussing each of the credit it will be relevant to examine the facts of the present case. The assessee is a company engaged in manufacturing of colour master batches (plastic granules). During the year under consideration its total turnover was Rs.308.26 Crore and it has filed its return of income declaring income of Rs.9.95 Crore. It has raised loans during the year from 45 lenders totaling Rs.47,59,50,000/-. The AO made detailed enquiry during the year as is evident from the assessment order and drew adverse inference in respect of the 14 lenders and made addition on the basis of such adverse inference. The CIT(A) has deleted addition in respect of two lenders and confirmed the addition in respect of the remaining 12 lenders. Now the issue to be adjudicated by us is whether the adverse inference drawn in respect of these 12 lenders is justified. 1.1 M/s AKB Trexim Pvt. Ltd. The assessee has taken a loan of Rs.50,00,000/- from this company which has been added by the AO. The AO has drawn adverse inference on the ground that the returned income of this company is Rs.3,19,807/- which is less than the loan given to the assessee. It has been further stated that office of this company is in the same premises as is of Luminant Distributors Pvt. Ltd. the another lender company. It has been further stated that the director in his statement has stated that his main 11
company is ANR International Pvt. Ltd. and he is also director in another 6 companies which includes above two companies. The AO has also drawn adverse inference on the ground that the amount has been credited in the bank account of assessee company from another company M/s ANR International Pvt. Ltd. on the same day. On this basis he has held that the genuineness of transaction is doubtful and also placed reliance on the judgment of Punjab & Haryana High Court in the case of Papneja Traders vs. Commissioner of Income Tax (2012) 20 taxmann.com 752 and CIT vs. Precision Finance Ltd. (1994) 208 ITR 465 (Cal.) and Shanker Industries vs. CIT (1978) 114 ITR 689 (Cal.). The CIT(A) after recording the above facts as stated in the assessment order has upheld the addition stating that none of the arguments submitted by the Ld. AR of the appellant have proved the capacity of the creditor and genuineness of the transaction. On going through the paper book we note that the assessee has taken a loan of Rs.50,00,000/- on 27.09.2013 as per the copy of account placed at paper book page 103. This loan has been paid by the lender from its bank account with Oriental Bank of Commerce, Preet Vihar vide cheque no.971255 debited in its bank account on 27.09.2013 placed at paper book page 214-215. The assessee company had paid interest of Rs.1,35,000/- on this loan vide cheque no.391171 after deducting tax at source of Rs.15,000/-. This interest is credited in the bank account of Lender Company with HDFC Bank placed at paper book page 106. Further, interest of Rs.74,250/- has been paid on 25.01.2014 after deducting tax at source of Rs.8,250/- which is credited in the bank account with HDFC bank the lender company placed at paper book page 107. This lender company has filed its income tax return on 22.08.2014 declaring an income of Rs.3,19,807/- placed at paper book page 176. Further, in the income tax return it has claimed credit of the tax deducted by the assessee as is evident from the details of the claim made in the ITR placed at paper book page 205. As per the audited balance sheet placed at paper book page 116 this company had revenue 12
from operation of Rs.63.90 lacs which includes Rs.40,28,544/- on account of interest income as per paper book page 126. It has its own funds of Rs.8,89,04,870/- which include beside share capital and premium and accumulated profit of Rs.47,92,353/-. It has also raised loan from Kotak Mahindra Ltd. as is evident from the balance sheet at page 124. The AO had issued notice under section 133(6) and in response thereto it has confirm the account and has also filed the necessary document in support of the loan advanced by it to assessee company vide letter dated 08.12.2016 placed at paper book page 102. In response to further query by the AO it has filed another letter dated 09.12.2016 with copy of bank statement for the whole year of HDFC Bank and Oriental Bank of Commerce placed at paper book page 208. From the above facts it is evident that this company has sufficient funds with it. Not only it has share capital but also accumulated profits. The AO has drawn adverse inference on the ground that the return of income is less than the loan advance by this company. We are of the view that there is no such condition in section 68 that loan can only be advanced out of the taxable income of the current year. The requirement of section 68 are 3 i.e. identity, creditworthiness and genuineness. In the present case admittedly there is no doubt about the identity. As regards the creditworthiness the AO has gone with the presumption that it is only the current year taxable income which can establish the creditworthiness. This presumption of the AO is incorrect. The creditworthiness can be established by showing the source from where the money has been paid. Such money can be paid out of its net worth, out of the loan raised by it or out of income earned by it. The source can be any of such means or mixed of these. In the present from the balance sheet of the lender company it is evident that it has net worth of more than Rs.8 crore which include accumulated profits also. Thus, it cannot be said that the lender company did not have creditworthiness. As regards the contention of the AO that the funds have been transferred from the another company ANR International Pvt. 13
Ld. on the same day, that can also be not a ground to hold that creditworthiness is not established or the transaction is doubtful. In this case the AO himself has stated that in the statement the director has stated on oath that his main company is ANR International Pvt. Ltd. Thus, transfer from the parent company to this lender company which happen to be within the same group cannot be a ground to draw adverse inference. Similarly, the adverse inference is being drawn by the AO that the two companies are carrying out business activities from the same premises is unjustified. From the facts quoted in the assessment order itself it is transpiring that these are group companies of Mr. Anup Kumar Chhawchharia. It is a normal practice that group companies are run from the same premises. From the above facts and analysis we are of the view that assessee has lead all evidences in support of its contention and the identity, creditworthiness and genuineness of the transaction stand established. 1.2 Luminant Distributors Pvt. Ltd. The assessee has taken a loan of Rs.25,00,000/- from this company which has been added by the AO. The AO has drawn adverse inference on the ground that the returned income of this company is Rs.2,44253/- which is less than the loan given to the assessee. Further, reasoning given by the AO for making the addition is the same as in the case of M/s AKB Trexim Pvt. Ltd. In fact the AO has dealt both these creditors in the same para. On going through the paper book we note that from the copy of account placed at paper book page 221 that there was opening credit balance of Rs.50,00,000/- in the name of this company. This loan was return on 31.07.2013 by the assessee company. The credit of this amount is appearing in the bank account of the lender company HDFC Bank at paper book page 320. From this bank account it has transferred this amount of Rs.50,00,000/- to its parent company ANR International Pvt. Ltd. Thereafter this company has paid a sum of Rs.25,00,000/- on 27.09.2013 to the lender company. The amount which has been paid 14
from the bank account maintained by the lender company with Oriental Bank of Commerce where again money has come back from its parent company ANR International Pvt. Ltd. Thus, the refund has gone to parent company ANR International Pvt. Ltd. and the further payment has also come from the parent company. The assessee company has paid interest on this loan of Rs.67,500/- after deducting tax at source of Rs.7,500/- and further interest of Rs.37,125/- after deducting TDS of Rs.4,125/-. Both these interest payments got credited to the lender companies bank account with HDFC Bank as is evident from the copy of bank statement at page 224 and 227. This lender company has filed its income tax return on 22.08.2014 declaring an income of Rs.2,44,253/- placed at paper book page 228. Further, in the income tax return it has claimed credit of the tax deducted by the assessee as is evident from the details of the claim made in the ITR placed at paper book page 257. As per the audited balance sheet placed at paper book page 260 this company had revenue from operation of Rs.16,59,110 which includes Rs.15,10,763/- on account of interest income as per paper book page 270. It has its own funds of Rs.6,47,51,771/- which include beside share capital and premium and accumulated profit of Rs.17,77,433/- The AO had issued notice under section 133(6) and in response thereto it has confirm the account and has also filed the necessary document in support of the loan advanced by it to assessee company vide letter dated 30.11.2016 placed at paper book page 217. In response to further query by the AO it has filed another letter dated 09.12.2016 with copy of bank statement for the whole year of HDFC Bank and Oriental Bank of Commerce placed at paper book page 318. From the above facts it is evident that this company has sufficient funds with it. Not only it has share capital but also accumulated profits. The AO has drawn adverse inference on the ground that the return of income is less than the loan advance by this company. As held hereinabove, that there is no such condition in section 68 that loan can only be advanced out of the taxable income of the 15
current year. The requirement of section 68 are 3 i.e. identity, creditworthiness and genuineness. In the present case admittedly there is no doubt about the identity. As regards the creditworthiness the AO has gone with the presumption that it is only the current year taxable income which can establish the creditworthiness. This presumption of the AO is incorrect. The creditworthiness can be established by showing the source from where the money has been paid. Such money can be paid out of its net worth, out of the loan raised by it or out of income earned by it. The source can be any of such means or mixed of these. In the present from the balance sheet of the lender company it is evident that it has net worth of more than Rs.6 crore which include accumulated profits also. Thus, it cannot be said that the lender company did not have creditworthiness. As regards the contention of the AO that the funds have been transferred from the another company ANR International Pvt. Ld. on the same day, that can also be not a ground to hold that creditworthiness is not established or the transaction is doubtful. In this case the AO himself has stated that in the statement the director has stated on oath that his main company is ANR International Pvt. Ltd. Thus, transfer from the parent company to this lender company which happen to be within the same group cannot be a ground to draw adverse inference. Infact in the present case as we notice from the copy of account at paper book page 221, the assessee company has returned a sum of Rs.50,00,000/- to this lender company on 31.07.2013 which in turn has given money to ANR International Pvt. Ltd. At the same time when money was advanced by this lender company it receive Rs.25,00,000/- from ANR International Pvt. Ltd. These are transaction between the group company and nothing adverse can be inferred. On the contrary these transactions confirmed that the source is from within the group. Similarly, the adverse inference is being drawn by the AO that the two companies are carrying out business activities from the same premises is unjustified. From the facts quoted in the assessment order itself it is transpiring that these are group companies of Mr. Anup Kumar 16
Chhawchharia. It is a normal practice that group companies are run from the same premises. From the above facts and analysis we are of the view that assessee has lead all evidences in support of its contention and the identity, creditworthiness and genuineness of the transaction stand established. 1.3 Fair Securities Pvt. Ltd. The assessee has taken a loan of Rs.50,00,000/- from this company which has been added by the AO. The AO has drawn adverse inference on the ground that the returned income of this company is loss of Rs.1,27,329/- which is less than the loan given to the assessee. The AO has also drawn adverse inference on the ground that this company has received Rs.1.35 Crore on 21.12.2013 and an amount of Rs.50,00,000/- has been transferred to the assessee company on 26.12.2013. The AO has further held that a summon under section 131 was issued on 18.11.2016 and in response thereto none attended. On this basis the AO has held identity of the person is not established. The CIT(A) after recording the above facts as stated in the assessment order has upheld the addition stating that none of the arguments submitted by the Ld. AR of the appellant have proved the capacity of the creditor and genuineness of the instant transaction. On going through the paper book we note that from the copy of account placed at paper book page 325 that there was opening credit balance of Rs.15,00,000/- in the name of this company. The assessee company paid interest of Rs.4,500/- after deducting tax at source of Rs.4,500/- on this outstanding loan of the last year. This payment of interest got credit to the bank account of the lender company on 10.04.2013 with Union Bank of India, Lajpat Nagar, Delhi placed at paper book page 343. This loan was returned on 31.07.2013 by the assessee company. This amount repaid by the assessee company got credited to the lender companies bank account with Union Bank of India on 31.07.2013 as is evident from the bank statement placed at paper book page 341. Thereafter the lender company has paid a sum of 17
Rs.50,00,000/- on 26.12.2013 to the assessee company. This amount has been paid by the lender company from its same bank account with Union Bank of India placed at paper book page 340. The assessee company has paid interest on this loan of Rs.1,44,000/- after deducting tax at source of Rs.16,000/- . The interest payment got credited to the lender companies on 08.04.2014 in the same bank account with Union Bank of India as is evident from the copy of bank statement at page 342.This lender company has filed its income tax return on 28.09.2014 declaring loss of Rs.1,27,239/- placed at paper book page 327. As per the audited balance sheet placed at paper book page 328 this company has its own funds of Rs.3,20,43,434/- . It has also raised loan from its promoters namely Mr. Virender Kumar Goel and Mrs. VarshaGoel of Rs.3.24 Crore as is evident from the schedule attached to the balance sheet at paper book page 329. Further on going through the schedule attached to the balance sheet we note that this advance of Rs.50 lacs has been shown in the name of the assessee company i.e. Prayag Polytech Pvt. Ltd. at paper book page 332. The AO had issued notice under section 133(6) and in response thereto it has confirmed the account and has also filed the necessary document in support of the loan advanced by it to Assessee Company. From the above facts it is evident that this company has sufficient funds with it. The AO has drawn adverse inference on the ground that the return of income is less than the loan advanced by this company. As held hereinabove, that there is no such condition in section 68 that loan can only be advanced out of the taxable income of the current year. The requirement of section 68 are 3 i.e. identity, creditworthiness and genuineness. In the present case admittedly there is no doubt about the identity. As regards the creditworthiness, the AO has gone with the presumption that it is only the current year taxable income which can establish the creditworthiness. This presumption of the AO is incorrect. The creditworthiness can be established by showing the source from where the money has been paid. Such money can be paid out of its net worth, out of the loan raised by it 18
or out of income earned by it. The source can be any of such means or mixed of these. In this case from the balance sheet of the lender company it is evident that it has net worth of more than Rs.3 crore and loan of Rs.3.24 Crore from the promoters of the company. Thus, it cannot be said that the lender company did not have creditworthiness. As regards the contention of the AO that it has received Rs.1.35 crore on 21.12.2013 and out of which it has transferred Rs.50 lacs to the assessee company on 26.12.2013 that can also be not a ground to hold that creditworthiness is not established or the transaction is doubtful. In this case as is evident from the balance sheet the lender company has received funds from the promoter namely Mr. Virender Kumar Goel and Mrs. VarshaGoel and there is nothing wrong in such transaction. Thus, transfer within the same group cannot be a ground to draw adverse inference. Infact in the present case as we notice from the copy of account at paper book page 325, the assessee company has returned a sum of Rs.15,00,000/- to this lender company on 31.07.2013 when there was no need of the funds, probably to save interest and later on received Rs.50,00,000/- on 26.12.2013 when it was again need of funds. Similarly, the adverse inference being drawn by the AO that no one appeared in response to the summon issued under section 131 cannot per se be a ground to make addition. The AO himself had stated that notice under section 133(6) was issued on 18.10.2016 and reply was also received along with necessary details. The AO has further stated that summon under section 131 was issued on 18.11.2016 but in response none attended till date. This means that summon has been served. In these circumstances, the AO cannot shift the burden on the assessee for non-appearance of the creditor in response to thesummon issued by him. It was for AO to take the issue of non-attendance in response to the summon to the logical end. He cannot ignored the material and evidences already brought on record merely on the ground that the lender has not appeared in response to the summon more so when it is an admitted fact in the assessment order that reply in 19
response to notice under section 133(6) was received along with the evidences confirming the loan advanced to the assessee company. In the present case the assessee has discharged its onus placed on it under section 68 by filing all the evidences. The AO has also received reply from the creditor..Further, the adverse inference drawn by the AO on the ground that this company and KPC Consultant Pvt. Ltd. are carrying out business activities from the same premises is unjustified. From the facts quoted in the assessment order itself it is transpiring that these are group companies. It is a normal practice that group companies are run from the same premises. From the above facts and analysis we are of the view that assessee has lead all evidences in support of its contention and the identity, creditworthiness and genuineness of the transaction stand established. 1.4 KPC Consultants Pvt. Ltd. The assessee has taken a loan of Rs.30,00,000/- from this company which has been added by the AO. The AO has drawn adverse inference on the ground that the returned income of this company is Nil which is less than the loan given to the assessee. Further, reasoning given by the AO for making the addition is the same as in the case of M/s Fair Securities Private Limited discussed hereinabove. In fact the AO has dealt both these creditors in the same para.The AO has further held that a summon under section 131 was issued on 18.11.2016 and in response thereto none attended. On this basis the AO has held identity of the person is not established. The CIT(A) after recording the above facts as stated in the assessment order has upheld the addition stating that how the OD limit could be utilised to give loan by the lender company and none of the arguments submitted by the Ld. AR of the appellant have proved the capacity of the creditor and genuineness of the instant transaction. On going through the paper book we note that the assessee has taken a loan of Rs.30,00,000/- on 26.12.2013 as per the copy of account placed at paper book page 344. This loan has been paid by the lender 20
from its bank account with Union Bank of India vide cheque no.32138628 debited in its bank account on 26.12.2013 placed at paper book page 356. The assessee company had paid interest of Rs.86,400/- on this loan of Rs.30,00,000/- after deducting tax at source of Rs.9,600/-. This interest is credited in the bank account of Lender Company with Union Bank of India placed at paper book page 357. This lender company has filed its income tax return on 28.09.2014 placed at paper book page 346. As per the audited balance sheet placed at paper book page 347 this company had interest income of Rs.12,40,650/- as per paper book page 351. It has its own funds of Rs.72,46,288/- as per paper book page 347. It has further loan of Rs.3,27,75,000/-from the promoters namely VarshaGoel and Virender Kumar Goel as is evident from the balance sheet at page 348. Further on going through the schedule attached to the balance sheet we note that this advance of Rs.30 lacs has been shown in the name of the assessee company i.e. Prayag Polytech Pvt. Ltd. at paper book page 350. The AO had issued notice under section 133(6) and in response thereto it has confirm the account and has also filed the necessary document in support of the loan advanced by it to assessee company. From the above facts it is evident that this company has sufficient funds with it. The AO has drawn adverse inference on the ground that the return of income is less than the loan advanced by this company. We are of the view that there is no such condition in section 68 that loan can only be advanced out of the taxable income of the current year. The requirement of section 68 are 3 i.e. identity, creditworthiness and genuineness. In the present case admittedly there is no doubt about the identity. As regards the creditworthiness the AO has gone with the presumption that it is only the current year taxable income which can establish the creditworthiness. This presumption of the AO is incorrect. The creditworthiness can be established by showing the source from where the money has been paid. Such money can be paid out of its net worth, out of the loan raised by it or out of income earned by it. The source can be any of such means or mixed of these. In the present from 21
the balance sheet of the lender company it is evident that it has net worth of more than Rs.72 lacs besides funds lent by the promoters to the extent of Rs.3.27 crore. Thus, it cannot be said that the lender company did not have creditworthiness.Further, the adverse inference drawn by the AO on the ground that this company and Fair Securities Pvt. Ltd. are carrying out business activities from the same premises is unjustified. From the facts quoted in the assessment order itself it is transpiring that these are group companies. It is a normal practice that group companies are run from the same premises.From the above facts and analysis we are of the view that assessee has lead all evidences in support of its contention and the identity, creditworthiness and genuineness of the transaction stand established. 1.5 Avail Financial Securities Pvt. Ltd. The assessee has taken a loan of Rs.1,00,00,000/- from this company on 07.01.2014 which has been added by the AO. The AO has drawn adverse inference on the ground that the returned income of this company is less than the loan given to the assessee. The AO has further held that a summon under section 131 was issued on 18.11.2016 and in response thereto none attended. The AO has further stated that on perusal of bank account, it is seen that it did not have any balance in its bank account with Dena Bank, Nehru Place and it received Rs.1 crore by way of transfer from SKPJA Investment and transferred the same to Prayag Polytech Pvt. Ltd. Further this company is having the same office as that of Lovely Securities Pvt. Ltd. which has given loan to the assessee company. On this basis the AO has held capacity of the creditor is not proved. The CIT(A) after recording the above facts as stated in the assessment order has upheld the addition stating none of the arguments submitted by the Ld. AR of the appellant have proved the capacity of the creditor and genuineness of the instant transaction. On going through the paper book we note that from the copy of account placed at paper book page 358 that the lender company has paid a sum of Rs.1,00,00,000/- on 07.01.2014 to the assessee company. This 22
amount has been paid by the lender company from its bank account with Dena Bank, Nehru Place out of the money received by it from SKPJ Investment as is evident from bank statement placed at paper book page 395. Theassessee company has paid interest on this loan of Rs.2,49,000/- after deducting tax at source of Rs.27,667/- . The interest payment got credited to the lender companies on 10.01.2014 in the same bank account with Dena Bank as is evident from the copy of bank statement at page 395.This lender company has filed its income tax return on 28.09.2014 declaring income of Rs.28,85,455/- and paid taxes thereon of Rs.6,40,880/- as per the ITR placed at paper book page 360. As per the audited balance sheet placed at paper book page 372 this company has its own funds of Rs.11.63 Crore. Further on going through the schedule attached to the balance sheet we note that this advance of Rs.1 Crore has been shown in the name of the assessee company i.e. Prayag Polytech Pvt. Ltd. at paper book page 375. The AO had issued notice under section 133(6) and in response thereto it has confirmed the account and has also filed the necessary document in support of the loan advanced by it to Assessee Company. From the above facts it is evident that this company has sufficient funds with it. The AO has drawn adverse inference on the ground that the return of income is less than the loan advanced by this company. As held hereinabove, that there is no such condition in section 68 that loan can only be advanced out of the taxable income of the current year. The requirement of section 68 are 3 i.e. identity, creditworthiness and genuineness. In the present case admittedly there is no doubt about the identity. As regards the creditworthiness, the AO has gone with the presumption that it is only the current year taxable income which can establish the creditworthiness. This presumption of the AO is incorrect. The creditworthiness can be established by showing the source from where the money has been paid. Such money can be paid out of its net worth, out of the loan raised by it or out of income earned by it. The source can be any of such means or mixed of these. In this case from the balance sheet of the lender 23
company it is evident that it has net worth of more than Rs.11 Crore. Thus, it cannot be said that the lender company did not have creditworthiness. As regards the contention of the AO that it has received Rs.1 crore on 10.12.2013 from SKPJ Investment and out of which it has transferred Rs.1 Crore to the assessee company on same date, that can also be not a ground to hold that creditworthiness is not established or the transaction is doubtful. It is normal in the case of a finance company to receive back the funds from one entity and to lend the money so received to the other entity. On going through the bank statement we note that there is no cash deposit and there are many transactions with SKPJ Investment. Nothing adverse has been brought on record by the AO about the lender company i.e. AVAIL Financial Services Pvt. Ltd. nor against the SKPJ Investment. The AO having got the bank statement of the lender company indicating the source of the money from SKPJ Investment, in case he was having any doubt he could have made further enquiry. He cannot draw adverse inference merely on the basis that the amount has been advanced out of the money received from SKPJ Investment. In fact this establishes the source of the credit. Further we note in this case this lender company has declared an income of Rs.28,85,455/- which itself establishes the credibility of lender company. Further, the adverse inference being drawn by the AO that no one appeared in response to the summon issued under section 131 cannot per se be a ground to make addition. The AO himself had stated that notice under section 133(6) was issued on 18.10.2016 and reply was also received along with necessary details. The AO has further stated that summon under section 131 was issued on 18.11.2016 but in response none attended till date. This means that summon has been served. In these circumstances, the AO cannot shift the burden on the assessee for non-appearance of the creditor in response to the summon issued by him. It was for AO to take the issue of non-attendance in response to the summon to the logical end. He cannot ignore the material and evidences already brought on record merely on the ground 24
that the lender has not appeared in response to the summon. In the present case the assessee has discharged its onus placed on it under section 68 by filing all the evidences. The AO has also received reply from the creditor..Further, the adverse inference drawn by the AO on the ground that this company and Lovely Securities Pvt. Ltd. are carrying out business activities from the same premises is unjustified. From the facts quoted in the assessment order itself it is transpiring that these are group companies. It is a normal practice that group companies are run from the same premises. From the above facts and analysis we are of the view that assessee has lead all evidences in support of its contention and the identity, creditworthiness and genuineness of the transaction stand established. 1.6 Lovely Securities Pvt. Ltd. The assessee has taken a loan of Rs.1,00,00,000/- from this company on 10.12.2013 which has been added by the AO. The AO has drawn adverse inference on the ground that the returned income of this company is less than the loan given to the assessee. The AO has further held that a summon under section 131 was issued on 18.11.2016 and in response thereto none attended. The AO has further stated that on perusal of bank account, it is seen that it did not have any balance in its bank account with Dena Bank, Nehru Place and it received Rs.1 crore by way of transfer from RKG Finvest Pvt. Ltd. and transferred the same to Prayag Polytech Pvt. Ltd. This company RKG Finvest Pvt. Ltd. has also independently given loan of Rs.50 lacs to the assessee company. The AO has also drawn adverse inference as this company is having the same office as that of AVAIL Financial Securities Pvt. Ltd. which has given loan to the assessee company. On this basis the AO has held capacity of the creditor is not proved. The CIT(A) after recording the above facts as stated in the assessment order has upheld the addition stating none of the arguments submitted by the Ld. AR of the appellant have proved the capacity of the creditor and genuineness of the instant transaction.
On going through the paper book we note that from the copy of account placed at paper book page 396 that the lender company has paid a sum of Rs.1,00,00,000/- on 10.12.2013 to the assessee company. This amount has been paid by the lender company from its bank account with Dena Bank, Nehru Place, New Delhi out of the money received by it from RKG Finvest as is evident from bank statement placed at paper book page 428. The assessee company has paid interest on this loan of Rs.2,70,000/- after deducting tax at source of Rs.30,000/-. The interest payment got credited to the lender company on 16.12.2013 in the same bank account with Dena Bank as is evident from the copy of bank statement at page 428. Further, interest of Rs.66,000/- has been paid on 10.03.2014 after deducting TDS of Rs.7,333/-.This lender company has filed its income tax return on 22.09.2014 declaring income of Rs.48,0000/- and paid taxes thereon of Rs.37,848/- and claimed a refund of Rs.4,560/- after taking credit of TDS of Rs.42,412/- as per the ITR placed at paper book page 398. As per the audited balance sheet placed at paper book page 411 this company has its own funds of Rs.11.26 Crore. Further on going through the schedule attached to the balance sheet we note that this advance of Rs.1 Crore has been shown in the name of the assessee company i.e. Prayag Polytech Pvt. Ltd. at paper book page 414. The AO had issued notice under section 133(6) and in response thereto it has confirmed the account and has also filed the necessary document in support of the loan advanced by it to Assessee Company. This fact has been stated by the AO in the assessment order itself. From the above facts it is evident that this company has sufficient funds with it. The AO has drawn adverse inference on the ground that the return of income is less than the loan advanced by this company. As held hereinabove, that there is no such condition in section 68 that loan can only be advanced out of the taxable income of the current year. The requirement of section 68 are 3 i.e. identity, creditworthiness and genuineness. In the present case admittedly there is no doubt about the identity. As regards the 26
creditworthiness, the AO has gone with the presumption that it is only the current year taxable income which can establish the creditworthiness. This presumption of the AO is incorrect. The creditworthiness can be established by showing the source from where the money has been paid. Such money can be paid out of its net worth, out of the loan raised by it or out of income earned by it. The source can be any of such means or mixed of these. In this case from the balance sheet of the lender company it is evident that it has net worth of more than Rs.11 Crore. Thus, it cannot be said that the lender company did not have creditworthiness. As regards the contention of the AO that it has received Rs.1 crore on 10.12.2013 from RKG Finvest Ltd. and out of which it has transferred Rs.1 Crore to the assessee company on same date, that can also be not a ground to hold that creditworthiness is not established or the transaction is doubtful. In fact it strengthens the case of the assessee as it establishes the source of source unless there is material to draw adverse inference against such source of source.It is normal in the case of a finance company to receive back the funds from one entity and to lend the money so received to the other entity. Further, on going through the bank statement of Lovely Securities Pvt. Ltd. we note that there is no cash deposit and there are many transactions with RKG Finvest Ltd. Nothing adverse has been brought on record by the AO about the lender company i.e. Lovely Securities Pvt. Ltd. nor against the RKG Finvest Ltd. The AO having got the bank statement of the lender company indicating the source of the money from RKG Finvest Ltd., in case he was having any doubt he could have made further enquiry. He cannot draw adverse inference merely on the basis that the amount has been advanced out of the money received from RKG Finvest Ltd. In fact this establishes the source of the source. Further, the adverse inference being drawn by the AO that no one appeared in response to the summon issued under section 131 cannot per se be a ground to make addition. The AO himself had stated that notice under section 133(6) was issued on 18.10.2016 and reply was also received along with necessary details. The AO has 27
further stated that summon under section 131 was issued on 18.11.2016 but in response none attended till date. This means that summon has been served. In these circumstances, the AO cannot shift the burden on the assessee for non-appearance of the creditor in response to the summon issued by him. It was for AO to take the issue of non- attendance in response to the summon to the logical end. He cannot ignore the material and evidences already brought on record merely on the ground that the lender has not appeared in response to the summon. In the present case the assessee has discharged its onus placed on it under section 68 by filing all the evidences. The AO has also received reply from the creditor. .Further, the adverse inference drawn by the AO on the ground that this company and AVAIL Financial Securities Pvt. Ltd. are carrying out business activities from the same premises is unjustified. From the facts quoted in the assessment order itself it is transpiring that these are group companies. It is a normal practice that group companies are run from the same premises. From the above facts and analysis we are of the view that assessee has lead all evidences in support of its contention and the identity, creditworthiness and genuineness of the transaction stand established. 1.7 Takmin Trading Pvt. Ltd. The assessee has taken a loan of Rs.50,00,000/- from this company on 03.12.2013 and a further loan of Rs.50,00,000/- on 06.12.2013 both of which have been added by the AO. The AO has drawn adverse inference on the ground that the returned income of this company is less than the loan given to the assessee. The AO has further held that a summon under section 131 was issued on 18.11.2016 and in response thereto none attended. The AO has also drawn adverse inference as this company is having the same office as that of Yashodham Merchants Pvt. Ltd. which has given loan to the assessee company. On this basis the AO has held that identity and creditworthiness and genuineness of the loan is not proved. The CIT(A) after recording the above facts as stated in the assessment order has upheld the addition stating none of the arguments 28
submitted by the Ld. AR of the appellant have proved the identity, creditworthiness and genuineness of the instant transaction. On going through the paper book we note that from the copy of account placed at paper book page 429 that the lender company has paid a sum of Rs.50,00,000/- on 03.12.2013 and a further sum of Rs.50,00,000/- on 06.12.2013 to the assessee company. These amounts have been paid by the lender company from its bank account with HDFC Bank, out of the money received by it from various entities as is evident from bank statement placed at paper book page 453-455. The assessee company has paid interest on this loan of Rs.1,35,000/- after deducting tax at source of Rs.15,000/-. Further, interest of Rs.1,35,000/- has been paid on 01.12.2013 after deducting TDS of Rs.15,000/-, interest of Rs.43,500/- on 03.03.2014 after deducting TDS of Rs.4,833/- and Rs.33,000/- after deducting TDS Rs.3,667/- on 03.03.2014.This lender company has filed its income tax return on 24.09.2014 declaring income of Rs.619/-. However, it has shown tax payable of Rs.2,94,294/- probably on the basis of book profit and claimed a refund of Rs.18,43,300/- after taking credit of TDS of Rs.21,37,593/- as per the ITR placed at paper book page 431. On going through the schedule annexed to the balance sheet we note that this company has earned interest income of Rs.6.09 Crore as is evident from details in the schedule “Revenue from operations” at page 444 and interest paid Rs.2.95 Crore as per paper book page 472. Further, as per the audited balance sheet placed at paper book page 437 this company has its own funds of Rs.6.30 Crore. This company has also issued optionally fully convertible debenture of Rs.24.90 Crore as per the schedule of long term borrowings at page 441. The AO had issued notice under section 133(6) and in response thereto it has confirmed the account and has also filed the necessary document in support of the loan advanced by it to Assessee Company. This fact has been stated by the AO in the assessment order itself. From the above facts it is evident that this company has sufficient funds with it. The AO has drawn adverse 29
inference on the ground that the return of income is less than the loan advanced by this company. As held hereinabove, that there is no such condition in section 68 that loan can only be advanced out of the taxable income of the current year. The requirement of section 68 are 3 i.e. identity, creditworthiness and genuineness. In the present case admittedly there is no doubt about the identity. As regards the creditworthiness, the AO has gone with the presumption that it is only the current year taxable income which can establish the creditworthiness. This presumption of the AO is incorrect. The creditworthiness can be established by showing the source from where the money has been paid. Such money can be paid out of its net worth, out of the loan raised by it or out of income earned by it. The source can be any of such means or mixed of these. In this case from the balance sheet of the lender company it is evident that it has net worth of more than Rs.6.30 Crore and has further source of Rs.24.90 Crore from optionally fully convertible debenture. Further, this company has earned an interest income of Rs.6.09 Crore though the taxable income may be less because of the payout on account of corresponding interest. Thus, it cannot be said that the lender company did not have creditworthiness. Further, on going through the bank statement of this company we note that there is no cash deposit and the immediate source is the transfer of money from various group entities the name of which is appearing in the bank statement itself. Nothing adverse has been brought on record by the AO about this company nor against any of the group entities. The AO having got the bank statement of the lender company indicating the source of the money, in case he was having any doubt about the source of source so as to doubt the genuineness, he could have made further enquiry. Further, the adverse inference being drawn by the AO that no one appeared in response to the summon issued under section 131 cannot per se be a ground to make addition. The AO himself had stated that notice under section 133(6) was issued on 18.10.2016 and reply was also received along with necessary details. The AO has further stated 30
that summon under section 131 was issued on 18.11.2016 but in response none attended till date. This means that summon has been served. In these circumstances, the AO cannot shift the burden on the assessee for non-appearance of the creditor in response to the summon issued by him. It was for AO to take the issue of non-attendance in response to the summon to the logical end. He cannot ignore the material and evidences already brought on record merely on the ground that the lender has not appeared in response to the summon more so when it is an admitted fact in the assessment order that reply in response to notice under section 133(6) was received along with the evidences confirming the loan advanced to the assessee company. In the present case the assessee has discharged its onus placed on it under section 68 by filing all the evidences. The AO has also received reply from the creditor. Further, the adverse inference drawn by the AO on the ground that this company and Yashodham Merchants. are carrying out business activities from the same premises is unjustified. From the facts quoted in the assessment order itself it is transpiring that these are group companies. It is a normal practice that group companies are run from the same premises. From the above facts and analysis we are of the view that assessee has lead all evidences in support of its contention and the identity, creditworthiness and genuineness of the transaction stand established. 1.8 Yashodham Merchants Pvt. Ltd. The assessee has taken a loan of Rs.50,00,000/- from this company on 04.12.2013 which has been added by the AO. The AO has drawn adverse inference on the ground that the returned income of this company is less than the loan given to the assessee and this loan has been paid out of the money received by it from Takmin Trading Pvt. Ltd. The AO has further held that a summon under section 131 was issued on 18.11.2016 and in response thereto none attended. The AO has also drawn adverse inference as this company is having the same office as that of Takmin Trading Pvt. Ltd. which has also given loan to the assessee company. On 31
this basis the AO has held that identity and creditworthiness and genuineness of the loan is not proved. The CIT(A) after recording the above facts as stated in the assessment order has upheld the addition stating none of the arguments submitted by the Ld. AR of the appellant have proved the identity, creditworthiness and genuineness of the instant transaction. On going through the paper book we note that from the copy of account placed at paper book page 456 that the lender company has paid a sum of Rs.50,00,000/- on 04.12.2013 to the assessee company. This amount has been paid by the lender company from its bank account with HDFC Bank, out of the money received by it from Takmin Trading Pvt. Ltd. another group company as is evident from bank statement placed at paper book page 480. The assessee company has paid interest on this loan of Rs.1,35,000/- after deducting tax at source of Rs.15,000/-. Further, interest of Rs.42,000/- has been paid on 01.03.2014 after deducting TDS of Rs.4,667/-. This lender company has filed its income tax return on 26.09.2014 declaring income of Rs.12,72,630/-. However, it has shown tax payable of Rs.1,96,622/-and claimed a refund of Rs.4,11,010/- after taking credit of TDS of Rs.6,07,631/- as per the ITR placed at paper book page 457. On going through the schedule annexed to the balance sheet we note that this company has earned interest income of Rs.4.92 Crore as is evident from details in the schedule “Revenue from operations” at page 471 and interest expenditure of Rs.2.95 Crore as per paper book page 472. It has profit after tax as per accounts of Rs.90,35,930/- as per paper book page 472. Further, as per the audited balance sheet placed at paper book page 463 this company has its own funds of Rs.17.55 Crore. This company has also issued optionally fully convertible debenture of Rs.18.10 Crore as per the schedule of long term borrowings at page 467. The AO had issued notice under section 133(6) and in response thereto it has confirmed the account and has also filed the necessary document in support of the loan advanced by it to Assessee Company. This fact has been stated by the 32
AO in the assessment order itself. From the above facts it is evident that this company has sufficient funds with it. The AO has drawn adverse inference on the ground that the return of income is less than the loan advanced by this company. As held hereinabove, that there is no such condition in section 68 that loan can only be advanced out of the taxable income of the current year. The requirement of section 68 are 3 i.e. identity, creditworthiness and genuineness. In the present case admittedly there is no doubt about the identity. As regards the creditworthiness, the AO has gone with the presumption that it is only the current year taxable income which can establish the creditworthiness. This presumption of the AO is incorrect. The creditworthiness can be established by showing the source from where the money has been paid. Such money can be paid out of its net worth, out of the loan raised by it or out of income earned by it. The source can be any of such means or mixed of these. In this case from the balance sheet of the lender company it is evident that it has net worth of more than Rs.17.57 Crore and has further source of Rs.18.10 Crore from optionally fully convertible debenture. Further, this company has earned an interest income of Rs.4.92 Crore though the taxable income may be less because of the payout on account of corresponding interest. Thus, it cannot be said that the lender company did not have creditworthiness.As regards the contention of the AO that it has received Rs.50,00,000/- on 04.12.2013 from Takmin Trading Pvt. Ltd. and the same amount has been transferred to the assessee company on same date, that can also be not a ground to hold that creditworthiness is not established or the transaction is doubtful. In fact it strengthens the case of the assessee as it establishes the source of source unless there is material to draw adverse inference against such source of source. It is normal in the case of a finance company to receive funds from one entity and to lend the money so received to the other entity. Further, ongoing through the bank statement of this company we note that there is no cash deposit and the immediate source is the transfer of money from another group company 33
namely Takmin Trading Pvt. Ltd. the name of which is appearing in the bank statement itself. Nothing adverse has been brought on record by the AO about this company nor against any of the group entities. The AO having got the bank statement of the lender company indicating the source of the money, in case he was having any doubt about the source of source so as to doubt the genuineness, he could have made further enquiry. Further, the adverse inference being drawn by the AO that no one appeared in response to the summon issued under section 131 cannot per se be a ground to make addition. The AO himself had stated that notice under section 133(6) was issued on 18.10.2016 and reply was also received along with necessary details. The AO has further stated that summon under section 131 was issued on 18.11.2016 but in response none attended till date. This means that summon has been served. In these circumstances, the AO cannot shift the burden on the assessee for non-appearance of the creditor in response to the summon issued by him. It was for AO to take the issue of non-attendance in response to the summon to the logical end. He cannot ignore the material and evidences already brought on record merely on the ground that the lender has not appeared in response to the summon more so when it is an admitted fact in the assessment order that reply in response to notice under section 133(6) was received along with the evidences confirming the loan advanced to the assessee company. In the present case the assessee has discharged its onus placed on it under section 68 by filing all the evidences. The AO has also received reply from the creditor.Further, the adverse inference drawn by the AO on the ground that this company and Takmin Trading Pvt. Ltd. are carrying out business activities from the same premises is unjustified. From the facts quoted in the assessment order itself it is transpiring that these are group companies. It is a normal practice that group companies are run from the same premises. From the above facts and analysis we are of the view that assessee has lead all evidences in support of its contention and
the identity, creditworthiness and genuineness of the transaction stand established. 1.9 Modern Credit Pvt. Ltd. The assessee has taken a loan of Rs.3,00,00,000/- from this company on various dates during the year which has been added by the AO. The AO has drawn adverse inference on the ground that the returned income of this company is less than the loan given to the assessee. The AO has further held that a summon under section 131 was issued on 18.11.2016 and in response thereto none attended. The AO has further held that this company was having negative balance in its bank which establishes that it did not have balance in its account and thus the creditworthiness is doubtful. On this basis the AO has held that identity and creditworthiness and genuineness of the loan is not proved. The CIT(A) after recording the above facts as stated in the assessment order has upheld the addition stating none of the arguments submitted by the Ld. AR of the appellant have proved the identity, creditworthiness and genuineness of the instant transaction. On going through the paper book we note that from the copy of account placed at paper book page 481 that the lender company has given loan of Rs.3,00,00,000/- on various dates to the assessee company. This amount has been paid by the lender company from its bank account with HDFC Bank, Kasturba Gandhi Marg, New Delhi as is evident from bank statement placed at paper book page 506 to 511. The assessee company has paid interest on this loan of Rs.9,01,496/- after deducting tax at source of Rs.1,00,166/-. This interest payment has also been credited in the bank account of the lender company with Indian Overseas Bank on 31.03.2014 as per bank statement at page 511.Lender company has filed its income tax return on 28.11.2014 declaring regular income of Rs. NIL, however, it has shown tax payable of Rs.6,27,799/- apparently on the basis of book profit and has claimed a refund of Rs.1,92,470/- after taking credit of TDS of Rs.8,20,271/- as per the ITR placed at paper book page 484. On going through the profit and loss 35
account of this company placed at paper book page 486 we note that this company has interest income of Rs.2.79 crore and other income of Rs.9.03 crore. The net profit as per the profit and loss account before exceptional item is Rs.8.99 Crore. It is only after set off of exceptional item being the loss on demerger of Rs.8.73 Crore, the net profit is Rs.26.17 lacs. Further, as per the audited balance sheet placed at paper book page 485 this company has its own funds of Rs.5.36 Crore besides loans of Rs.25.43 Crore from shareholders and corporate bodies.This company has also got overdraft facility from HDFC Bank. The AO had issued notice under section 133(6) and in response thereto it has confirmed the account and has also filed the necessary document in support of the loan advanced by it to Assessee Company. This fact has been stated by the AO in the assessment order itself. From the above facts it is evident that this company has sufficient funds with it. The AO has drawn adverse inference on the ground that the return of income is less than the loan advanced by this company. On going through the profit and loss account in this case as stated hereinabove this company was having its profit before exceptional item of Rs.8.99 Crore which got reduced because of the loss on account of demerger. Thus, that it can not be said that this company was not having sufficient income. Further, as held hereinabove, that there is no such condition in section 68 that loan can only be advanced out of the taxable income of the current year. The requirement of section 68 are 3 i.e. identity, creditworthiness and genuineness. In the present case admittedly there is no doubt about the identity. As regards the creditworthiness, the AO has gone with the presumption that it is only the current year taxable income which can establish the creditworthiness. This presumption of the AO is incorrect. The creditworthiness can be established by showing the source from where the money has been paid. Such money can be paid out of its net worth, out of the loan raised by it or out of income earned by it. The source can be any of such means or mixed of these. In this case from the balance sheet of the lender company it is evident that it has net worth of 36
more than Rs.5.36 Crore and has further source of Rs.25.43 Crore as loans from shareholder and corporate bodies. Further, this company has earned an interest income of Rs.2.79 Crore though the taxable income may be less because of the payout on account of corresponding interest. Thus, it cannot be said that the lender company did not have creditworthiness. As regards the contention of the AO that this company was having negative balance in bank that cannot be a ground to draw adverse inference against the assessee. It is an arrangement of the lender with the bank to raise money as and when it is required to carry on its financing business. The lender company is in the business of finance and the transaction entered into by it of advancing loan to the assessee company is in the ordinary course of its business. Thus, this cannot per se be a ground to hold that creditworthiness is not established or the transaction is doubtful. In fact it strengthens the case of the assessee as it establishes the source unless there is some other material to draw adverse inference against such source of source. It is normal in the case of a finance company to receive funds from one entity and to lend the money so received to the other entity. Further, ongoing through the bank statement of this company we note that there is no cash deposit. The AO having got the bank statement of the lender company indicating the source of the money, in case he was having any doubt about the source of source so as to doubt the genuineness, he could have made further enquiry. Further, the adverse inference being drawn by the AO that no one appeared in response to the summon issued under section 131 cannot per se be a ground to make addition. The AO himself had stated that notice under section 133(6) was issued on 18.10.2016 and reply was also received along with necessary details. The AO has further stated that summon under section 131 was issued on 18.11.2016 but in response none attended till date. This means that summon has been served. In these circumstances, the AO cannot shift the burden on the assessee for non-appearance of the creditor in response to the summon issued by him. It was for AO to take the issue of non- 37
attendance in response to the summon to the logical end. He cannot ignore the material and evidences already brought on record merely on the ground that the lender has not appeared in response to the summon more so when it is an admitted fact in the assessment order that reply in response to notice under section 133(6) was received along with the evidences confirming the loan advanced to the assessee company. In the present case the assessee has discharged its onus placed on it under section 68 by filing all the evidences. The AO has also received reply from the creditor. From the above facts and analysis we are of the view that assessee has lead all evidences in support of its contention and the identity, creditworthiness and genuineness of the transaction stand established. 1.10 YP Finance and Securities Pvt. Ltd. The assessee has taken a loan of Rs.50,00,000/- from this company on 07.10.2013 which has been added by the AO. The AO has drawn adverse inference on the ground that the returned income of this company is less than the loan given to the assessee and this loan has been paid out of the money received by it on the same day. The AO has further held that a summon under section 131 was issued on 18.11.2016 and in response thereto none attended. On this basis the AO has held that identity and creditworthiness and genuineness of the loan is not proved. The CIT(A) after recording the above facts as stated in the assessment order has upheld the addition stating none of the arguments submitted by the Ld. AR of the appellant have proved the identity, creditworthiness and genuineness of the instant transaction. On going through the paper book we note that from the copy of account placed at paper book page 512 that the lender company has paid a sum of Rs.50,00,000/- on 07.10.2013 to the assessee company. This amount has been paid by the lender company from its bank accountas is evident from bank statement placed at paper book page 528. The assessee company has paid interest on this loan of Rs.1,80,000/- after deducting tax at source of Rs.20,000/- on 07.10.2013. Further, interest 38
of Rs.84,000/- has been paid on 07.02.2014 after deducting TDS of Rs.9,333/-. These interest payment have got credited to the lenders company same bank account as is evident from page 528-529. This lender company has filed its income tax return on 29.09.2014 declaring income of Rs.6,23,193/- It has shown tax payable of Rs.1,92,566/-and claimed a refund of Rs.2,28,230/- after taking credit of TDS of Rs.4,20,800/- as per the ITR placed at paper book page 513 Further, as per the audited balance sheet placed at paper book page 514 this company has its own funds of Rs.47.31 lacs besides loan from directors and their relatives of Rs.4.83 Crore as is evident from the schedule at page 516. The AO had issued notice under section 133(6) and in response thereto it has confirmed the account and has also filed the necessary document in support of the loan advanced by it to Assessee Company. This fact has been stated by the AO in the assessment order itself. From the above facts it is evident that this company has sufficient funds with it. The AO has drawn adverse inference on the ground that the return of income is less than the loan advanced by this company. As held hereinabove, that there is no such condition in section 68 that loan can only be advanced out of the taxable income of the current year. The requirement of section 68 are 3 i.e. identity, creditworthiness and genuineness. In the present case admittedly there is no doubt about the identity. As regards the creditworthiness, the AO has gone with the presumption that it is only the current year taxable income which can establish the creditworthiness. This presumption of the AO is incorrect. The creditworthiness can be established by showing the source from where the money has been paid. Such money can be paid out of its net worth, out of the loan raised by it or out of income earned by it. The source can be any of such means or mixed of these. In this case from the balance sheet of the lender company it is evident that it has net worth of more than Rs.47.31 lacs and has further source of Rs.4.83 Crore as loans from directors and their relatives. Thus, it cannot be said that the lender company did not have creditworthiness.As regards the contention of the 39
AO that it has received Rs.50,00,000/- on 08.10.2013 and the same amount has been transferred to the assessee company on same date, that can also be not a ground to hold that creditworthiness is not established or the transaction is doubtful. It is normal in the case of a finance company to receive funds from one entity and to lend the money so received to the other entity. Further, ongoing through the bank statement of this company we note that there is no cash deposit. Nothing adverse has been brought on record by the AO about this company. The AO having got the bank statement of the lender company indicating the source of the money, in case he was having any doubt about the source of source so as to doubt the genuineness, he could have made further enquiry. Further, the adverse inference being drawn by the AO that no one appeared in response to the summon issued under section 131 cannot per se be a ground to make addition. The AO himself had stated that notice under section 133(6) was issued on 18.10.2016 and reply was also received along with necessary details. The AO has further stated that summon under section 131 was issued on 18.11.2016 but in response none attended till date. This means that summon has been served. In these circumstances, the AO cannot shift the burden on the assessee for non-appearance of the creditor in response to the summon issued by him. It was for AO to take the issue of non-attendance in response to the summon to the logical end. He cannot ignore the material and evidences already brought on record merely on the ground that the lender has not appeared in response to the summon more so when it is an admitted fact in the assessment order that reply in response to notice under section 133(6) was received along with the evidences confirming the loan advanced to the assessee company. In the present case the assessee has discharged its onus placed on it under section 68 by filing all the evidences. The AO has also received reply from the creditor.From the above facts and analysis we are of the view that assessee has lead all evidences in support of its contention and the
identity, creditworthiness and genuineness of the transaction stand established. 1.11 MudrakshInvestfin Pvt. Ltd. The assessee has taken a loan of Rs.15,00,000/- from this company on 24.02.2014 which has been added by the AO. The AO has drawn adverse inference on the ground that no reply was received in response to notice issued under section 133(6) and no one attended in response to summon issued under section 131. On this basis the AO has held that identity and creditworthiness and genuineness of the loan is not proved. The CIT(A) after recording the above facts as stated in the assessment order has upheld the addition stating none of the arguments submitted by the Ld. AR of the appellant have proved the identity, creditworthiness and genuineness of the instant transaction. As against this the contention of the assessee is that it has filed all the documents and evidences in support of the loan taken by it. Nothing adverse has been found in these documents. Further, both notices issued under section 133(6) and 131 have been duly served and it is not the case of the AO that these notices have come back. The service of the notice confirms that these creditors are existing. It was further contended that from the various documents filed by the assessee the identity, creditworthiness and genuineness stands established. The AO has not brought any material to discredit the evidences submitted by the assessee. On going through the paper book we note that from the copy of account placed at paper book page 530 that the lender company has paid a sum of Rs.15,00,000/- on 24.02.2014 to the assessee company. This amount has been paid by the lender company from its bank account with RBL Bankas is evident from bank statement placed at paper book page 548. The assessee company has paid interest on this loan of Rs.19,973/- after deducting tax at source of Rs.2,219/- on 31.03.2014. This interest payment has got credited to the lenders company same bank account with RBL Bank as is evident from page 550. This lender company has filed its income tax return on 31.03.2016 41
declaring nil income.Further, as per the audited profit and loss account placed at paper book page 514 it has “Revenue from operation” of Rs.1,96,26,251/- which include income from derivatives and interest on loan of Rs.16,96,041/-. Further, this company has its own funds of Rs.77.07 lacs besides loan from directors and their relatives of Rs.3.01 Crore as is evident from the schedule at page 540. The AO had issued notice under section 133(6) and section 131which have been duly served as there is no allegation that it has been received back unserved.The adverse inference being drawn by the AO that no one appeared in response to the notice issued under section 133(6) and summon issued under section 131 cannot per se be a ground to make addition. The AO has stated that notice under section 133(6) and summon under section 131 was issued but in response no reply received and none attended till date. This means that notice and summon have been served. In these circumstances, the AO cannot shift the burden on the assessee for no reply and non-appearance of the creditor in response to the notice/summon issued by him. It was for AO to take the issue of no reply and non-attendance in response to the notice and summon to the logical end. He cannot ignore the material and evidences already brought on record merely on the ground that the lender has not replied or has not appeared in response to the summon. In the present case the assessee has discharged its onus placed on it under section 68 by filing all the evidences. From the above facts it is evident that this company has sufficient funds with it. In this case from the balance sheet of the lender company it is evident that it has net worth of more than Rs.77.07 lacs and has further source of Rs.3.01 Crore as loans from directors and their relatives. Thus, it cannot be said that the lender company did not have creditworthiness. From the balance sheet of this company we note that this it is a registered NBFC and it has also having NBFC reserve fund in terms of section 45(1)(c) of the Reserve Bank of India 1934 and surplus of Rs.6.47 lacs. It is normal in the case of a finance company to receive funds from one entity and to lend the money so received to the other 42
entity. Further, ongoing through the bank statement of this company we note that there is no cash deposit. Nothing adverse has been brought on record by the AO about this company. The AO having got the bank statement, ITR, confirmation, balance sheet etc. of the lender company indicating the source of the money, in case he was having any doubt about the source of source so as to doubt the genuineness, he could have made further enquiry. From the above facts and analysis we are of the view that assessee has lead all evidences in support of its contention and the identity, creditworthiness and genuineness of the transaction stand established. 1.12 RKG Finvest Ltd. The assessee has taken a loan of Rs.50,00,000/- from this company on 29.03.2014 which has been added by the AO. The AO has drawn adverse inference on the ground that no reply was received in response to notice issued under section 133(6) and no one attended in response to summon issued under section 131. On this basis the AO has held that identity and creditworthiness and genuineness of the loan is not proved. The CIT(A) after recording the above facts as stated in the assessment order has upheld the addition stating none of the arguments submitted by the Ld. AR of the appellant have proved the identity, creditworthiness and genuineness of the instant transaction. As against this the contention of the assessee is that it has filed all the documents and evidences in support of the loan taken by it. Nothing adverse has been found in these documents. Further, both notices issued under section 133(6) and 131 have been duly served and it is not the case of the AO that these notices have come back. The service of the notice confirms that these creditors are existing. It was further contended that from the various documents filed by the assessee the identity, creditworthiness and genuineness stands established. The AO has not brought any material to discredit the evidences submitted by the assessee.
On going through the paper book we note that from the copy of account placed at paper book page 551 that the lender company has paid a sum of Rs.50,00,000/- on 29.03.2014 to the assessee company. This amount has been paid by the lender company from its bank account where it was having a balance of Rs.3,29,46,213/- as on 29.03.2014 the date when the loan was advanced. The assessee company has paid interest on this loan of Rs.4,500/- after deducting tax at source of Rs.500/- on 31.03.2014 for the period from 29.03.2014 to 31.03.2014. This interest payment has got credited to the lenders company same bank account. Further, as per the audited profit and loss account placed at paper book page 581 it has “Revenue from operation” of Rs.38.27 Crore. However, there was a loss during the year of Rs.89.44 lacs because of the bad debts of Rs.24.63 Crore written off during the year as is evident from the schedule to the profit and loss account placed at paper book page 582. Further, this company has its own funds of Rs.10.86 Crore as is evident from the schedule at page 564. The AO had issued notice under section 133(6) and section 131which have been duly served as there is no allegation that it has been received back unserved.The adverse inference being drawn by the AO that no one appeared in response to the notice issued under section 133(6) and summon issued under section 131 cannot per se be a ground to make addition. The AO has stated that notice under section 133(6) and summon under section 131 was issued but in response no reply received and none attended till date. This means that notice and summon have been served. In these circumstances, the AO cannot shift the burden on the assessee for no reply and non-appearance of the creditor in response to the notice/summon issued by him. It was for AO to take the issue of no reply and non-attendance in response to the notice and summon to the logical end. He cannot ignore the material and evidences already brought on record merely on the ground that the lender has not replied or has not appeared in response to the summon. In the present case the assessee has discharged its onus placed on it under section 68 by filing 44
all the evidences. From the above facts it is evident that this company has sufficient funds with it. In this case from the balance sheet of the lender company it is evident that it has net worth of more than Rs.10.86 Crore. The total revenue as per the profit and loss account is Rs.38.27 Crore which include interest income of Rs.26.64 Crore.Thus, it cannot be said that the lender company did not have creditworthiness. From the balance sheet of this company we note that this it is a registered NBFC and it has also having NBFC reserve fund in terms of section 45(1)(c) of the Reserve Bank of India 1934. It is normal in the case of a finance company to receive funds from one entity and to lend the money so received to the other entity. Further, ongoing through the bank statement of this company we note that there is no cash deposit. Nothing adverse has been brought on record by the AO about this company. The AO having got the bank statement, ITR, confirmation, balance sheet etc. of the lender company indicating the source of the money, in case he was having any doubt about the source of source so as to doubt the genuineness, he could have made further enquiry. From the above facts and analysis we are of the view that assessee has lead all evidences in support of its contention and the identity, creditworthiness and genuineness of the transaction stand established. 13. Now coming to the judgment of Punjab & Haryana High Court in the case of Papneja Traders (supra) relied upon by the AO, the same is on different facts. In that case there was inconsistency regarding the amount of the loan given by the creditor in his statement and the creditor has also denied having received any interest. It was in these circumstances the additions were confirmed. In the case of CIT vs. Precision Finance Pvt. Ltd. (supra), relied upon by the AO, the additions were confirmed as the creditors were not available and the income tax file number given by the assessee were found to be incorrect and in many cases the amount advanced was not reflected in the income tax return of the creditors. Thus, the facts of the said judgment are not applicable. Similarly, the facts of the judgment in the case of Shanker 45
Industries vs. CIT relied upon by the AO are distinguishable as in that case the creditor has confessed having not given any loan further such loan could not be established with the cash book produced by the creditor. 14. In the present case there is no such inconsistency in any of the documents on record. The assessee has received loan from the bank account of the creditor. The assessee had paid interest on such loan after deduction of tax at source and such interest has been shown as income by the creditor. Even the claim of the TDS is appearing in the income tax return of the creditor. The capacity of the creditor is established form the balance sheet on record. There is no adverse material what so ever to have any doubt about the loan obtained by the assessee. On going through the order of the CIT(A) we note that the CIT(A) has deleted addition in respect of the 2 creditors on the ground that returned income in these two cases is more than the amount of the loan advanced by such creditors. We are of the view that the income cannot be sole criteria to hold that creditworthiness or the source is not established. As stated hereinabove the creditworthiness or the source need not be out of the current year income. It can be out of the past capital, savings or from borrowed money. Our this view get support from the judgment of the coordinate bench of the ITAT in the case of ITO Ward 6(2) vs. Computer Home Information Plus Pvt. Ltd. ITA NO. 5680/Del/2016 dated 24.05.2019 where a similar issue has covered and the ITAT has held as under:- “18. We have also thoroughly examined the financial accounts of the five lender companies. At the very outset, we have to state that income may be a good reason for examining the source of a person but it is certainly not the “be all end all”. Let us take an example, if person is drawing salary of Rs.10 lacs p.a. and purchases a residential flat of Rs.50 lacs. Can merely on the basis of his income addition be made as unexplained investment? 46
The answer is evidently “No” because that person may have taken housing loan of Rs.40 lacs to purchase the residential flat.” 15. A similar issue has come up before the jurisdictional Delhi High Court in the case of Pr. CIT (Central)-1 vs. Goodview Trading Pvt. Ltd. ITA No.3777/2016 dated 21.11.2016 wherein addition were made under section 68 on the ground that the creditor had little or no income. The Hon’ble High Court after tabulating the chart of the net worth of each of the creditor held that the creditor had substantial means and the AO was not justified in making the adverse inference on the ground that the creditor had paid minimal or insubstantial amounts as taxed. The Hon’ble High Court approved the inference drawn by the CIT(A) in favour of the assessee on the basis of the net worth of each of the creditor. In the present case as analyzed hereinabove each of the creditor has substantial net worth in comparison to the amount advanced as loan to the assessee company. 16. The judgments relied upon by the CIT(A) in the case of N.R. Portfolio P. Ltd. ITA No.1018 and 1019 of 2011, Nova Promoters and Finlease ITA No.1018 and 1019 of 2011, CIT vs. Nipun Builders and Developers 350 ITR 407 (Delhi), M/s Focus Exports P. Ltd. 51 taxmann.com 46 (Delhi) (2014) and M/s Bisakha Sales P. Ltd. ITA No. 1493/Kol/2013 are not applicable to the present case and are distinguishable. In the case of Nova Promoters and Finlease (supra) as stated by the CIT(A) itself it was held that there was link between the entry providers and incriminating evidence and that is why addition under section 68 were confirmed. In the case of Nipun Builders and Developers (supra) the High Court has taken cognizance of the fact that summon send to the companies came back unserved with the remark that no such company which was also supported by the report of the Inspector who made a visit to the creditors. It was in these circumstances the adverse view was taken. In the case of NR Portfolio and other case law relied upon by the CIT(A), the facts were quite distinguishable. In the present case, the assessee has 47
fully cooperated and provided all the informations and nothing adverse has been found in respect of the evidences submitted in support of the loan availed by the assessee. These loans have been taken in the ordinary course of business and interest thereon has been paid and in fact these loans have been returned later on. 17. Coming to the arguments raised by the Ld. DR that the assessee has failed to discharge its onus under section 68, we are of the view that assessee has lead sufficient evidences to discharge the onus of establishing identity, creditworthiness as well as genuineness of the transaction. In the present case as per the facts the assessee has taken loan and paid interest thereon and in many cases the loans so obtained have been returned. The assessee company is engaged in manufacturing and having substantial turnover. Thus, there cannot be any doubt about its raising loan on interest and repaying such loan later on. The transaction of taking loan is thus in the normal course of business and addition cannot be made merely on the basis of doubt. It is pertinent to mention that the AO has not brought any adverse material against the assessee and simply made addition by stating that transaction is doubtful. It may also be pertinent to point out that assessee has submitted all the particulars about the tax return of the lender company. The AO has not made any enquiry with the AO of the lender company so as to bring any adverse material regarding the transaction entered into by the lender company with Assessee Company. In case he was having any doubt he could easily made such enquiry. In the absence of any such enquiry and without bringing any adverse material the explanation and evidences submitted by the assessee cannot be rejected. We note that CIT(A) has rejected the explanation and evidences arbitrarily without giving any cogent reasons. 18. As regards the reliance placed by the Ld. DR on the judgment of the Supreme Court in the case of NRA Iron and Steel Pvt. Ltd. (supra), the facts of the said case are different. The said case was a case of a share capital raised by the assessee company at a high premium. In the said 48
judgment the Hon’ble Supreme Court has taken note of the fact that the shares of face value of Rs.10/- per share were subscribed by the investor companies at premium of Rs.190/- per share. The Supreme Court also took note of the fact that none of the investor companies could justify making investment at such a high premium. During field enquiry the investor companies were found to be none existence and almost none of the companies produced the bank statement to establish the source of funds. 19. Similarly, the facts of the judgment in the case of Pr. CIT vs. NDR Promoters Pvt. Ltd. (supra) are distinguishable. It was a case where evidence and material of bogus transaction were found during the course of search on Mr. Tarun Goyal that the companies were providing accommodation entries. The statement of employees of Mr. Tarun Goyal were on record where they have stated that they do not know about the basic details of the companies which have made investment in the case of the assessee company. The adverse statement of Mr. Tarun Goyal was also on record. The court has also taken cognizance of the fact that the assessee company did not have any business so as to establish the justification for investment in the shares of assessee company at a premium. It was in these circumstances that the court has held that the transaction was sham and make- believe. 20. In the present case, the assessee company has taken loan and on which it is paying interest so there is a justification for the lender company to advance money to the assessee company. Such loan and interest has been duly reflected by the lender company. Nothing adverse has come against the lender company. Further, bank statement of lender company have been submitted to establish the source of the funds along with the balance sheet and the profit and loss account. 21. From the above facts and analysis we are of the view that the evidences and the explanation has been rejected by the AO merely on the basis of doubt without bringing any material to discredit the document and information on record. The CIT(A) has also arbitrarily 49
rejected the explanation of the assessee company ignoring the above facts. The assessee has lead all evidences in support of its contention and the identity, creditworthiness and genuineness of the transaction stand established and hence the addition made by the AO is directed to be deleted. In the result, the appeal of the assessee is allowed. 22. In the result, the appeal of the Revenue is dismissed and the Appeal of the Assessee is allowed. Order pronounced on 18-06-2019.
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[B.R.R. KUMAR] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER Dated:18/06/2019 *SR BHATNAGAR* Copy forwarded to: - 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY By Order,
ASSISTANT REGISTRAR