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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI B.M. BIYANI & SHRI UDAYAN DAS GUPTA
आदेश/ O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by order of first appeal dated 05.11.2024 passed by learned Commissioner of Income-Tax (Appeals)-NFAC, Delhi [“CIT(A)”] which in turn arises out of assessment-order dated 07.12.2019 passed by learned DCIT/ACIT-4(1), Indore [“AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2017-18, the assessee has filed this appeal on various grounds as mentioned in Form No. 36 (Appeal Memo).
The background facts leading to present appeal are such that the assessee-individual is engaged in the business of trading of PVC/CPVC/
Page 1 of 27 Syndicate Indore. For AY 2017-18, the assessee filed return declaring a total income of Rs. 37,75,400/-. The case of assessee was selected for scrutiny assessment and notices u/s 143(2)/142(1) were issued. Finally, the AO completed assessment vide order dated 07.12.2019 u/s 143(3) after making twin additions, namely (i) addition of Rs. 40,00,000/- u/s 68 on account of cash deposited in Bank A/c during demonetization period, and (ii) addition of Rs. 2,50,37,941/- u/s 68 on account of unexplained unsecured loans.
Aggrieved, the assessee carried matter in first-appeal before CIT(A) but did not get any success. Now, the assessee has come in next appeal before us.
Although the assessee has raised as many as four grounds with several sub-grounds in Form No. 36 (Appeal Memo), the Ld. AR for assessee made pleadings challenging the twin additions made by AO, narrated above, on merit and the Ld. DR for revenue made submissions in reply to same. We accordingly proceed to adjudicate the issued pleaded before us.
Addition of Rs. 40,00,000/- u/s 68 on account of cash deposited in Bank A/c during demonetization period:
Ld. AR for assessee carried us to Para 6 of assessment-order to show that the AO has made impugned addition with the reasoning that the assessee explained made cash-deposit of Rs. 40,00,000/- in bank account during demonetization period but failed to file any reply when asked to produce sale-bills/confirmation from debtors. Ld. AR submitted that the Page 2 of 27 40,00,000/- in SB A/c during demonetization period and the assessee’s reply dated 25.11.2019 before AO (copy at Page 18 of Paper-Book-I) explaining the “sale of business/receipt from debtors” as source was qua the deposit of Rs. 28,00,000/- and not qua the deposit of Rs. 40,00,000/-. Ld. AR submitted that the AO has not made any addition qua the deposit of Rs. 28,00,000/-. So far as the deposit of Rs. 40,00,000/- in SB A/c for which the AO has made addition is concerned, the AO has wrongly or mistakenly tagged it with the sale of business/receipt from debtors. In fact, the assessee declared a cash holding of Rs. 40,00,000/- in “The Income Declaration Scheme, 2016” (“IDS”) and paid applicable taxes under IDS on 29.09.2016 much prior to the declaration of demonetization; Copy of assessee’s declaration under IDS and the certificate issued by Income-tax Department in Form No. 4 are filed at Pages 254-255 of Paper-Book-I. This cash held by assessee and declared in IDS was the source of deposit of Rs. 40,00,000/- in SB A/c during demonetization. Ld. AR pointed out that the assessee filed copy of declaration to CIT(A) during first-appeal as an evidence under Rule 46A of Income-tax Rules, 1962 but the CIT(A) has, vide Para 4.3 of his order, rejected the same as additional evidence. Further, in next Para 4.3.1 of order, the CIT(A) went ahead to make a wrong/invalid observation that the assessee was not permitted to declare undisclosed income of past in current year i.e. AY 2017-18.
Page 3 of 27 issue for the wisdom of Bench.
We have considered rival submissions of both sides and perused the documents held on record including the orders of lower authorities. At first, we find that the assessee’s explanation as to source from “sale of business/receipts from debtors” was qua the deposit of Rs. 28,00,000/- in Current A/c and the AO has accepted this explanation and that is why not made any addition in regard to deposit of Rs. 28,00,000/-. The said explanation given by assessee was, however, not for another deposit of Rs. 40,00,000/- made by assessee in SB A/c. In so far as the source of deposit of Rs. 40,00,000/- is concerned, the assessee has declared a cash holding of Rs. 40,00,000/- in IDS and the department has issued a certificate in Form No. 4 which is placed in Paper-Book. The Column No. 5 of From No. 4 issued by department gives details of declaration and certifies description of asset as “CASH IN HAND”. Thus, the assessee’s cash holding is very much accepted by department. We note that the CIT(A) has rejected assessee’s documents of IDS terming the same as additional evidence but those documents are statutory documents forming part of record of Income-tax Department itself and the CIT(A) is neither justified in rejecting the same in Para 4.3 of order nor making a wrong/invalid conclusion in Para 4.3.1 of his order as discussed above when the assessee has declared cash of Rs. 40,00,000/- under IDS and paid tax thereon and the same has been accepted by department. Ld. DR for revenue, though dutifully relied upon
Page 4 of 27 AR. Being so, we agree that the source of cash deposit of Rs. 40,00,000/- stands explained by assessee from cash declared in IDS and hence the addition made by AO is not sustainable. We direct the AO to delete the addition. This issue of assessee is accepted.
Addition of Rs. 2,50,37,941/- u/s 68 on account of unexplained unsecured loans:
The AO has made this addition in Para 7 of assessment-order. The AO has made a tabular list of 26 lenders with a noting that the assessee has taken loans from those 26 lenders during the year. In the tabular list, the AO has also mentioned amount of loan taken from each lender and finally totalled the same to Rs. 2,50,37,941/-. The AO has noted that the assessee was asked to submit Bank Statements, ITRs and A/c Confirmations of lenders but failed to file the same. With these observations, the AO has treated the loans as unexplained credit u/s 68 and made addition.
During first-appeal, the CIT(A) has passed following order upholding the addition:
“5.3 I have gone through the grounds of appeal, submissions and the assessment order. As the assessee had not offered any explanation with regard to credit-worthiness and genuineness of transactions with the parties, the same remained un-established. It was submitted by the appellant that out of 25 loans, 12 loans are old and the remaining 13 are partly old balances with fresh deposits or totally fresh deposits. The AO held that giving multiple opportunities, the assessee had failed to discharge onus and also failed to establish the identity, genuineness and creditworthiness of the above unsecured loans taken. It appears the non-adherence to notices is deliberate. Section 114(g) of Indian Evidence Act, 1872 lays a presumption
Page 5 of 27 AY 2017-18 that evidence which could be and is not produced when, if produced, be unfavourable to the person who withholds it. Sometimes, if information provided would more damageable to the assessee, at that time, the appellant will not provide the information called for. In case the AO has not satisfied with the information provided, there is a possibility to issue notice u/s 133(6) to those parties to obtain the information, or possibility of issue of commission to JAO/suggest their cases to the concerned Jurisdictional Assessing officer, which the appellant does not want. Therefore, during the assessment proceedings, the appellant was silent on this issue. 5.3.1 The Hon'ble Supreme Court in the decision of PCIT vs M/s. NRA Iron and Steel Pvt. Ltd., dated 5th March, 2019 (103 taxmann.com 48) held as follows:- Identity, Creditworthiness and Genuineness have to be proved by the appellant to the satisfaction of the Assessing Officer. The mere mention of the income tax file number of an investor was not sufficient to discharge the onus u/s 68 of the Income Tax Act.
The investor companies which had filed income tax returns with meager or nil income had to explain how they had invested huge sums of money in the appellant company. Hence, the onus to establish the creditworthiness of the investor companies was not discharged and the entire transaction seem bogus and lacked credibility. The practice of conversion of unaccounted money though the cloak of share capital / premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares where a higher onus is required to be placed on the assessee since the information is within the personal knowledge of the assessee. The assessee is under a legal obligation to prove the receipt of share capital / premium to the satisfaction of the Assessing Officer, failure of which, would justify addition of the said amount to the income of the assessee. 5.3.2 It is a fact that the appellant company has not established Identity, Creditworthiness and Genuineness as per the rigors of Section 68 to the satisfaction of the Assessing Officer and subsequently also in the appellate proceedings. The mere mention the financials of the investor was not sufficient to discharge the onus u/s 68 of the Income Tax Act. Hence, the onus to establish the creditworthiness of the investor companies was not discharged and the entire transaction was bogus and lacked credibility. The practice of conversion of unaccounted money though unsecured loans has been duly noticed. In the case of unsecured loans onus is placed on the appellant company since the information is within its knowledge. The appellant is under a legal obligation to prove the receipt of unsecured loan to the satisfaction of the Assessing Officer and failure of this justifies addition of the said amount to the income of the appellant company. On the other hand, from the facts and surrounding circumstances, human conduct,
Page 6 of 27 AY 2017-18 preponderance of probabilities etc., the Assessing Officer in the assessment has clearly established that the impugned transactions were without any basis and clearly were arranged or manipulated transactions. 5.3.3 Respectfully following the judgment of the Hon'ble Supreme Court in the case of M/s. NRA Iron and Steel Private Limited and also after examining various facts and circumstances of the appellant's case is, it is held that the Assessing Officer has aptly held that the appellant failed in discharging its onus of proving the identity, genuineness of the transaction and creditworthiness of the investor-companies. In view of the facts of the case mentioned above and the judicial pronouncements discussed above, I agree with the AO that these are unexplained cash credits in the books of the appellant and the addition of Rs. 2,50,37,941/- is confirmed. Ground No. 2 and 3 of the appeal are dismissed.”
During hearing before us, Ld. AR referred various Pages in the Paper- Books-I and II and the orders of lower-authorities. He submitted that the AO has made impugned addition by alleging assessee’s failure in submitting Bank Statements, ITRs and A/c Confirmations of lenders. But the factual position is totally different. He submitted that during assessment- proceeding when the AO queried assessee to explain loans, the assessee filed a reply-letter dated 23.11.2019 (Copy at Pages 15-16 of Paper-Book-I) to AO informing that the assessee and accountant were out of station for a week and that they were trying to prepare all required details. Thereafter, on 25.11.2019, the assessee filed another reply-letter and vide point no. 3 of same (Copy filed at Pages 17-19 of Paper-Book-I), the assessee filed part of the evidences; supplied addresses of all lenders and requested the AO to get the loans confirmed from respective lenders as they were taking time to confirm their dues to their own reasons. The assessee also submitted that all loans were raised through a/c payee cheques and were genuine. The reply so filed by assessee is re-produced below for an immediate reference:
Page 7 of 27 AY 2017-18 “3. The assessee has raised fresh loans during the year plus their old loans existing as on 01/04/2016. Copy of accounts are attached. The assessee has raised fresh loans during the year from outsiders whose statements showing their name, PAN, address and amount are enclosed with their copy of accounts. We request to Your Honour to get these loans confirm from the respective creditors whose address has been given in the statement of loans (details of unsecured loan chart) as they are taking time to confirm due to their own reason. All the loans were raised through account payee cheques and these are genuine. Two of loans are from NBFC named Bajaj Finserv ltd. and Magma Fin Corp Ltd. reflected in the loan statement.” Ld. AR submitted that the AO, however, passed assessment-order on 07.12.2019 alleging assessee’s failure whereas the assessee made all since efforts to provide details/documents to AO and even provided PAN data and addresses of lenders to AO with a request to get confirmation directly from lenders.
Be that as it may, Ld. AR went ahead to submit, the AO has made a list of 26 lenders with amounts of loans against respective lenders and alleged that the assessee has taken a total loan of Rs. 2,50,37,941/- during the year but this observation is factually wrong because out of 26 lenders listed by AO, 1 lender named ‘Manisha Kalra HUF’ was doubly mentioned, loans from 12 lenders were purely old brought forward from earlier year and the remaining 13 lenders were those from whom loans were taken during the year. The assessee took new loans aggregating to Rs. 1,04,31,897/- from those 13 lenders. Ld. AR submitted that during first-appeal, the assessee filed a detailed submission to CIT(A) which is re-produced by CIT(A) in his order [Para 5.2 / Pages 6-10 of CIT(A)’s order]. The complete tabular charts of 26 lenders considered by AO with the details of only 13 lenders from whom new loans of Rs. 1,04,31,897/- were taken are mentioned therein
Page 8 of 27 the assessee filed all supporting evidences [including the part-evidences already filed to AO during assessment-proceeding] to CIT(A) under an application in terms of Rule 46A of Income-tax Rules, 1962 [copy of assessee’s application is filed at Page 29-30 of Paper-Book-I] and acting thereupon, the CIT(A) sought remand-report from AO pursuant to which the AO conducted remand-proceeding and issued letter dated 07.05.2024 bearing DIN & Letter No.: ITBA/COM/F/17/2024-25/1064701273(1) to assessee. In response to this letter of AO, the assessee submitted a detailed reply-letter dated 10.05.2024 to AO with all those supporting evidences marking them as “Annexures D-1 & D-2” which proved the identity, creditworthiness and genuineness of all new loans taken during the year.
This reply-letter to AO was submitted by assessee’s regular counsels CA Vijay Bansal and CA Nisha Lahoti., the same is placed at Pages 107-113 of Paper-Book-I which is scanned and re-produced below for an immediate reference:
Page 9 of 27 Page 10 of 27 Page 11 of 27 Page 12 of 27 Page 13 of 27 Page 14 of 27 Page 15 of 27
However, Ld. AR submitted, the CIT(A) has not made any comment in his order qua the remand-proceedings conducted by him. CA Vijay Bansal was present in the Court and immediately joined the Ld. AR, confirming that the AO conducted remand-proceeding and afterwards did not file any remand-report to CIT(A). Thus, Ld. AR contended, the AO was not having any objection against the documents submitted by assessee which Page 16 of 27 genuineness of loans taken.
Having explained thus, Ld. AR submitted that it is an accepted proposition that no addition can be made in respect of opening balances of loans. So far as new loans of Rs. 1,04,31,897/- taken during the year are concerned, the assessee has taken two loans of Rs. 15,31,897/- (+) Rs. 11,00,000/- = Rs. 26,31,897/- from Bajaj Finance Company which is a renowned NBFC and there cannot be any doubt regarding identity, creditworthiness and genuineness of loan taken from this NBFC. Further, the assessee has filed all required documents of new loans to AO/CIT(A), copies whereof are also filed in Paper-Book-II, the Index of Paper-Book-II gives a list of these documents as under:
Page 17 of 27 Page 18 of 27 Page 19 of 27 Page 20 of 27
Ld. AR then carried us to the above documents in an attempt to show that the assessee has taken all loans through a/c payee cheques; interest has been paid to lenders; the TDS had been deducted out of interest payment and remitted to Income-tax Department; the ITRs/PAN-datas of lenders are filed by asesesee; there are no cash deposits in the accounts of lenders prior to giving loans to assessee or if there was a cash deposit, the same was proved by declaration of cash-in-hand by the concerned lender in “IDS”. Thus, there is no adverse feature in any of the loans which could raise even slightest doubt qua the identity and creditworthiness of lender or the genuineness of loan taken. Ld. AR submitted that the AO has not given any adverse report to the CIT(A) even after conducting remand-proceeding.
Hence, the addition made by AO must be deleted.
Page 21 of 27 assessee that the details of opening balances of loans was available before CIT(A) and that no addition can be made in current year on account of opening balances. So far new loans of Rs. 1,04,31,897/- taken during the year are concerned, Ld. DR was fair enough in accepting that the loans of Rs.
15,31,897/- and Rs. 11,00,000/- = Rs. 26,31,897/- taken from Bajaj Finance Co. Ltd. does not have any room for doubting identity, creditworthiness and genuineness. For remaining new loans, Ld. DR though dutifully supported the orders of lower-authorities yet asserted that from the documents held on record, there appears no adverse feature. Ld. DR, however, submitted that he has no clue from the order of CIT(A) to make submission regarding remand-proceeding.
We have considered submissions of both sides and carefully perused the documents held in Paper-Books and the orders of lower-authorities. The assessee is aggrieved by an addition of Rs. 2,50,37,941/- made by AO u/s 68 on account of unexplained loans. In the assessment-order, the AO has made a list of 26 lenders with the amounts of loans alleged to have been taken by assessee during the year. The AO has made impugned addition by stating that the assessee did not file documents of those 26 lenders. Before us, the assessee has filed copies of letters submitted by him to AO according to which the assessee filed part-evidences of loans while filing addresses and PAN data of all lenders. It is also on record that the assessee requested the AO to get confirmations directly from the lenders because the lenders were Page 22 of 27 an application to CIT(A) under Rule 46A of Income-tax Rules, 1962 with required evidences. Then, the AO conducted remand-proceeding at the behest of CIT(A) and issued letter dated 07.05.2024 bearing DIN & Letter No.:
ITBA/COM/F/17/2024-25/1064701273(1) to assessee. In response, the assessee submitted a detailed reply-letter dated 10.05.2024 to AO with all required evidences marked as “Annexures D-1 & D-2” to establish the identity, creditworthiness and genuineness, copy of assessee’s letter is already re-produced in foregoing para. Although the CIT(A) has not mentioned anything in his order about the remand-proceeding, the assessee’s regular counsel CA Vijay Bansal who attended remand- proceeding and filed the abovesaid reply letter dated 10.05.2024 to AO has confirmed in open court that the AO conducted remand-proceeding and afterwards did not submit any report to CIT(A). These facts are also reflected in the letter dated 21.10.2024 filed by assessee to CIT(A), copy at Page 114 of Paper-Book-I, as under:
The above scanned letter is not readable. Therefore, the submission made therein by assessee to CIT(A) is re-produced below:
“Hon’ble Sir, as submitted in our previous reply a notice from the Ld. Jurisdictional Assessing Officer (JAO) – Ld. ACIT-4(1), Indore on 07.05.2024 was served to appellant with reference to remand report proceedings. This notice was duly complied by the assessee by submitting all relevant documents. The lenders are mostly the family members of the assessee. It has been informed by them that even they have duly complied with the notices received from the Ld. JAO by submitting all the relevant documentary evidences. Your appellant request that in case any adverse remand report is issued by JAO then appellant may be provided reasonable opportunity to submit rejoinder to that report. As submitted earlier, the AO is pressing very high for recovery of the demand. Hence, it is once again humbly submitted that the appeal may please be allowed as the assessee should not be punished or held liable for the mistake of the Tax Auditors in the reporting of details related to 269SS/T in Form 3CD. All the relevant documents have already been submitted in response to our grounds of appeal. Thanking you. Yours Truly.
Thus, in the above letter, the assessee has submitted to CIT(A) about the remand-proceeding conducted by AO. So far as the addition of Rs. 2,50,37,941/- made by AO qua the alleged loans having been taken during the year from 26 lenders is concerned, the assessee has sufficiently proved by documents that it has taken new loans of Rs. 1,04,31,897/- from 13 lenders only and the rest were opening balances brought forward from earlier year. In so far such opening balances are concerned, it is an accepted view that no addition can be made u/s 68 in current year and this view is also asserted by Ld. DR for revenue. Hence, we straightaway reach to a conclusion that no addition can be made in respect of opening balances.
Now, turning to the new loans of Rs. 1,04,31,897/- taken during the year, there are loans of Rs. 26,31,897/- taken from Bajaj Finance Company, a renowned NBFC, for which there can hardly be any dispute qua the identity,
Page 25 of 27 78,00,000/- taken from other lenders [Rs. 1,04,31,897 (-) Rs. 26,31,897].
The assessee has filed enough documents qua all new loans and as stated earlier, the AO has conducted remand-proceeding and has not made any adverse reporting to CIT(A) by way of filing remand-report. This shows that the AO was very much satisfied with the documents submitted by assessee and did not find any fallacy therein worth reporting to CIT(A). Even before us, Ld. AR for assessee has analysed those documents held in Paper-Book and successfully shown that the assessee has taken all loans through a/c payee cheques; interest has been paid to lenders; the TDS had been deducted out of interest payments and remitted to Income-tax Department; the ITRs/PAN- datas of lenders are filed by asesesee; there are no cash deposits in the accounts of lenders prior to giving loans to assessee or if there was a cash deposit, the same was proved by declaration of cash-in-hand by the concerned lender in “IDS”. These documents were deliberated during hearing and Ld. DR for revenue could not point out any adverse feature.
Thus, considering the fact that neither the AO has reported any adverse feature to CIT(A) despite having conducted remand-proceeding nor the revenue is now able to demonstrate any adverse feature in any of the new loans taken by assessee, no addition can be made even for the new loans of Rs. 1,04,31,897/- taken during the year. This brings us to conclude that the entire addition of Rs. 2,50,37,941/- made by AO is not sustainable.
Page 26 of 27 assessee is accepted.
Resultantly, this appeal is allowed.
Order pronounced by putting on notice board as per Rule 34 of ITAT Rules, 1963 on 27/02/2025