M/S SAMCO ALLOYS (INDIA) PVT. LTD.,,MEERUT vs. ACIT, MEERUT

ORDER PER SHRI BHAVNESH SAINI, J.M. This appeal by assessee has been directed against the order of Ld. CIT(Appeals)-Meerut dated 30/03/2016 for AY 2011-12, challenging the addition of Rs. 58,50,000/- u/s 68 of the I.T. Act on account of unsecured loans received from seven parties and disallowance of interest of Rs. 7,02,000/- on the aforesaid loan amount.

6. M/s C.S. Sethi 9,50,000/- Return Income- Rs. 9,31,000/- & Sons Source of credit entry dated 12.04.2010 of Rs. 4,00,000/- (before 2/3 days of cheque issued) was not explained. 7. M/s G.S. Sethi 10,00,000/- Return Income- Rs. 11,24,130/- & Sons Source of credit entry dated 03.06.2010 of Rs. 5,00,000/- (before 2/3 days of cheque issued) was not explained. Total 58,50,000 3. The AO, accordingly, noted that creditworthiness of the creditors and genuineness of the loan transaction have not been satisfactorily explained. The AO, therefore, added Rs. 58,50,000/- on account of unexplained cash credits u/s 68 of the Act. The interest paid on these loans @12% was also disallowed which worked out to Rs. 7,02,000/- which was also added.

4. The assessee challenged the addition before Ld. CIT(A). The written submission of the assessee is reproduced in the Appellate Order. The assessee as regards Smt. Shashi Lata Bhargav submitted that she is assessed to tax and confirmed the loan transaction, copy of acknowledgement of filing of the return of income was filed and copy of the bank statement was also filed. The credit amounts have been received in her bank account through her banking channel. In the case of Smt. Kamini Ahluwalia it was explained that she is assessed to tax and filed confirmation of the loan amount. Acknowledgement of filing of the return of income was also filed, copy of the bank statement was also filed. In the case of Prateek Ahluwalia it was submitted that he is assessed to tax and filed confirmation and acknowledgment of filing of the return of income. Fresh credit was received in his account through banking channel, copy of the bank statement is also filed. In the case of Shri Sarin Kumar, it was explained that he is assessed to tax and filed confirmation along with copy of acknowledgement of the ITR. Fresh credit is received in his account through account payee cheque which is supported by the bank statement. In the case of M/s T.S. Sethi & Sons, it was explained that it is assessed to tax and filed confirmation with copy of the account with acknowledgement of return. There is a fresh credit received through banking channel which is supported by bank statement. In the case of M/s C.S. Sethi & Sons, it was explained that it is assessed to tax and filed confirmation along with acknowledgement of return of income. The creditor has opening credit balance of Rs. 18,41,912/- and has sufficient balance in the account which is supported by bank statement. In the case of M/s G.S. Sethi & Sons, it was explained that it is assessed to tax and filed confirmation along with acknowledgement of return of income. The creditor has opening credit balance of Rs. 34,72,705/- and credit is received through banking channel which is supported by bank statement. Assessee, therefore, submitted that assessee proved identity of the creditors, their creditworthiness and genuineness of the transaction in the matter. Assessee relied upon several decisions to prove that genuine credits have been received. The assessee also relied upon decision of the Gujarat High Court in the case of DCIT vs. Rohini Builders 256 ITR 360 in which it was held that assessee cannot be asked to prove source of the source. As regards, the interest paid to the creditors it was submitted that addition is wholly unjustified.

5. The Ld. CIT(A) after considering the issue in detail similarly noted that in the cases of the creditors there is a low income declared and that except in the case of Smt. Kamini Ahluwalia there are clearance of cheques and thereafter, amounts have been transferred to assessee. In the case of Smt. Kamini Ahluwalia there is a deposit of the cash of Rs. 9 lakhs before giving loan to the assessee. In the cases of M/s T.S. Sethi & Sons, M/s G.S. Sethi & Sons & M/s C.S. Sethi & Sons, they have declared income from other sources for which there is no explanation. Ld. CIT(A) also noted that the creditors did not appear before AO, therefore, both the additions were confirmed.

9.1. ITAT Delhi ‘G’ Bench in the case of M/s Topline Buildtech Pvt. Ltd. vs. DCIT (supra) held in para 13 to 15 as under:

“13. We have considered the rival submissions. The A.O. found that there are fresh credits received by assessee-company from two creditors mentioned above. The assessee-company furnished copy of the ledger account, copies of their bank statements. The A.O. then issued notice under section 133(6) of the I.T. Act to both the creditors and both the creditors in their replies filed before A.O. confirmed giving of loans to the assessee- company which is supported by confirmed copies of their accounts, bank statements, ITR and balance-sheet. The A.O. however, noted that the creditors do not have any fixed assets or trade debtors/trade creditors and there were no revenue from the operation. The A.O. therefore, in order to verify the transactions, issued summons under section 131 to both the creditors and their common Director Shri Hitesh Garg who appeared before the A.O. in response to summon and confirmed the giving of loans to the assessee-company in his statement recorded under section 131 of the I.T. Act. The A.O. however, did not believe statement of this person because copy of the agreement was not filed. These facts and material on record clearly prove that identity of both the creditors are not in dispute because both the creditors are assessed to tax and have filed confirmation directly to the A.O. in response to notice issued under section 133(6) of the I.T. Act and also confirmed transaction with the assessee- company in the statement recorded under section 131 of the I.T. Act. The parties have been filed confirmed copies of theirledger account, bank statements, ITR and audited balance sheet in which the giving of loan to the assessee- company has been mentioned. All the transactions are routed through banking channel. Copies of the ledger account, income tax return, balance sheet and bank statement are filed on record. In the bank statements of the creditors, no cash was found deposited before giving loans to the assessee-company. If in the case of M/s. Maple Technologies Ltd., there were transactions conducted of Rs.10 crore would support the explanation of assessee-company that such creditor was having capacity to give loan of Rs.3.70 crores to the assessee-company. The assessee-company paid interest on these loans to the creditor, on which, TDS have been deducted. The A.O. accepted the claim of assessee-company and did not disallow interest paid on such loans. Both the creditors are unrelated and independent parties. In the case of M/s. Marry Gold Overseas Limited the amount have been returned in subsequent year and in the case of other creditor M/s. Maple Technologies Ltd., the assessee- companywritten back the amount in subsequent year and shown its income. Therefore, it would amount to double addition in assessment year under appeal. It is well settled law that assessee-company cannot be asked to prove source of the source. Even then the Director of both the companies in his statement confirmed that source of giving loans to the assessee-company was advanced return by M/s. Divine Infracon Pvt. Ltd.However, the A.O. did not believe the explanation of the creditor because copy of the Rent Agreement was not filed. The A.O. has summoned both the creditors under section 131 of the I.T. Act in order to verify the genuineness of the transaction in the matter. The A.O. may ask the creditor to explain the source but assessee-company cannot be asked to explain the source of the source. Since Shri Hitesh Garg was summoned as witness of the Department and in case, he did not produce the Rent Agreement subsequently, A.O. should explain as to what steps have been taken by the him against this witness of the Department for production of the Rent Agreement as per law. Therefore, if the A.O. has not taken any steps against his own witness, no adverse inference should be drawn against the assessee- company. Thus, the sole basis left for consideration is that Revenue doubted the creditworthiness of the creditors because of the low income reflected in their return of income and that they have no fixed assets or debtors or creditors. However, A.O. has not undertaken any investigation of the veracity of the documents submitted by the assessee-company. The bank statement of the creditors show that both creditors were having sufficient amounts in their bank accounts for giving loans to the assessee-company. The A.O. have not made any investigation and nothing has been brought on record if the amount of loan given by both the creditors actually received from the coffers of the assessee-company so as to enable it to be treated as undisclosed income of the assessee-company.

14.1. The Hon’ble Delhi High Court in the case of CIT vs. Vrindavan Farms Pvt. Ltd., ITA.No.71/2015 dated 12th August, 2015 (Del), in which it was held as under : “The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their return of income. It was observed by the ITAT that the AO had not undertaken any investigation of the veracity of the documents submitted by the assessee, the departmental appeal was dismissed by the Hon’ble High Court.” 14.2. The Hon’ble Gauhati High Court in the case of Nemi Chand Kothari vs. CIT and Another (2003) 264 ITR 254 (Gau.) in which it was held as under: Held, (i) that the assessee had established the identity of the creditors. The assessee had also shown, in accordance with the burden, which rested on him under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors which was not in dispute. Once the assessee had established these, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter, the burden had shifted to the Assessing Officer to prove the contrary. The failure on the part of the creditors to show that their sub-creditors had creditworthiness to advance the said loan amounts to the assessee, could not, under the law be treated as the income from undisclosed sources of the assessee himself when therewas neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee. The Assessing Officer failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub- creditors, had actually been received by the sub- creditors from the assessee. Therefore, the Assessing Officer have treated the said amounts as income derived by the assessee from undisclosed sources.” 14.3. The Hon’ble Delhi High Court in the case of CIT vs. Value Capital Services Pvt. Ltd., (2008) 307 ITR 334 (Del.) in which it was held as under: “Dismissing the appeal, that the additional burden was on the Department to show that even if the share applicants did not have the means to make the investment, the investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. No substantial question of law arose.” 14.4. The Hon’ble Gujarat High Court in the case of DCIT vs. Rohini Builders (2002) 256 ITR 360 (Guj.) held as under : “The assessee was a firm, engaged in the business of dealings in land. During the assessment year under consideration the assessee had taken loans from various parties and during the course of assessment proceedings, the assessee had furnished the loan confirmations giving full addresses, G1R numbers/permanent account numbers, etc., of all the depositors. The Assessing Officer however issued summons to some of the creditors and also conducted inquiries into the genuineness or otherwise of the loans taken by the assessee. After considering the evidence, the Assessing Officer made an addition of Rs.12,85,000 to the returned income of the assessee. This was confirmed by the Commissioner of Income-tax (Appeals). On further appeal to the Tribunal the Tribunal held that the phraseology of section 68 of the Income-tax Act, 1961, was clear, that the Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year, that the legislative mandate is not in terms of the words “shall be charged to income tax as the income of the assessee of that previous year", that the unsatisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as income of the assessee. The Tribunal found that the assessee had discharged the initial onus which lay on it in termsof section 68 by proving the identity of the creditors by giving their complete addresses, GIR numbers/permanent account numbers and the copies of assessment orders wherever readily available, that it had also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee was not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source. Thus taking into consideration the totality of the facts and circumstances of the case, and, in particular the fact that the Assessing Officer had not disallowed the interest claimed/paid in relation to these credits in theassessment year under consideration or even in the subsequent years and tax had been deducted at source out of the interest paid/credited to the creditors, the Tribunal held that the Departmental authorities were not making the addition of Rs.12,85,000. On appeal to the HighCourt : Held, that considering the facts and circumstances of the case narrated by the Tribunaland the law explained by it, the appeal was liable to be dismissed.” 14.5. The Hon’ble Supreme Court has dismissed the Special Leave Petition filed by the Revenue against this Judgment reported in (2002) 254 itr (St.) 275.

12.1 In view of the above, we confirm the addition of Rs. 9 lakhs on account of unexplained credit in case of Smt. Kamini Ahluwalia. The proportionate disallowance of interest in this case is also confirmed. AO is directed to pass the consequential order.

Order pronounced in the open court.