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Income Tax Appellate Tribunal, MUMBAI BENCHES “F”, MUMBAI
Before: Shri PAWAN SINGH & Shri G. MANJUNATHA
Date of Hearing : 04-04-2019 Date of Order: 12-04-2019 O R D E R Per G. Manjunatha (AM)
This appeal filed by the revenue is directed against the order of the CIT(A)-20, Mumbai dated 09-06-2017 and it pertains to AY 2013-14. The revenue has raised the following grounds of appeal:-
"1. Whether in the facts and circumstances of the case and in law, the Id.CIT(A) is erred in deleting the addition of Rs. 67.45,000/- which represents the amount of unexplained cash credit taxed u/s. 68 of the Act, 1961, without appreciating the fact that the assessee has not satisfactorily discharged the primary onus of proving the identity of the creditors, their creditworthiness and the genuineness of the transaction."
The brief facts of the case are that the assessee company is engaged in the business of contractor of civil engineering works, filed its return of income for AY 2013-14 on 29-09-2013 declaring total income at Rs. 94,04,750. The case has been selected for scrutiny and notices u/s 143(2) And 142(1) of the Act, was issued. In response to notice, the authorised representative of the assessee appeared from time to time and filed various details, as called for.
During the course of assessment proceedings, the AO noticed that the assessee had shown long term borrowings of Rs.19,71,44,126 as on 31-03- 2013. On perusal of the financial statements for FY 2011-12, it was seen that the assessee had shown long term borrowings at Nil. Therefore, in order to verify the discrepancy in opening balance, called upon the assessee to file necessary details for loans and advances. In response to notices, the assessee has submitted that the long term borrowings shown for the current year have been shown under the head 'trade payables'; however, while filing the balance-sheet for the current year, the same has been rearranged and regrouped in order to show correct financial figures. Therefore, there is no difference in the balances of long term borrowings when compared to the current year and immediately preceding year. In this regard, the assessee has filed a revised financial statement and also furnished confirmations from the parties. The AO, after considering relevant submissions of the assessee, observed that although the assessee claims to have taken loans from previous financial year, but when it comes to creditworthiness of the parties, the assessee has failed to file complete details including financial statement. The AO further observed that the assessee has nowhere justified the creditworthiness of the said persons. The AO further noted that it is the case of the assessee, where year on year basis books of account of the assessee were rejected thereby raising enough grounds to disbelieve the figures of unsecured loans as reported as on 31-03-2013 vis-a-vis 31-03-2012. Therefore, the AO came to the conclusion that the assessee has failed to file complete details about long term borrowings including creditworthiness of the parties and accordingly, made addition towards long term borrowings excluding bank overdraft taken from the commercial banks amounting to Rs.16,08,25,648 u/s 68 of the Income-tax Act, 1961.
Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A), assessee has filed detailed written submissions alongwith certain judicial precedents which have been reproduced at para 5.2 on pages 4 to 9 of order of CIT(A). The sum and substance of arguments of the assessee before CIT(A) was that the basic evidences like loan confirmations, bank statements and copies of ITR have been filed to substantiate identity, capacity and genuineness of the unsecured loans. The primary burden of discharging the onus of having taken the unsecured loans has been discharged.
Therefore, merely for the reason that there is a difference in opening balance of loans, that too, when the assessee has clarified such difference, no addition could be made u/s 68 of the Income-tax Act, 1961.
The Ld.CIT (A), after considering relevant submissions of the assessee and also by relying upon various judicial precedents including the decision of Hon'ble Supreme Court in the case of CIT vs Lovely Exports Pvt Ltd 216 CTR 295 (SC) deleted addition made by the AO on the ground that the assessee has discharged its onus by filing various documents including identity, genuineness of transactions and creditworthiness of the parties. Once the initial burden cast upon the assessee u/s 68 of the Act, has been discharged, then the onus shifts on the revenue to prove otherwise. In this case, the AO has made addition only for the reason that there is a difference in opening balance of long term borrowings when compared to amount shown in the balance-sheet for the year ending 31-03-2013. However, such difference has been clarified by the assessee by filing revised financial statements, as per which the long term borrowings has been classified under the head 'trade payables' for the year ending 31-03-2012. Therefore, the AO was erred in making addition towards long term borrowings u/s 68 of the Income-tax Act, 1961. Accordingly, he deleted addition made by the AO. The relevant findings of the Ld.CIT(A) are as under:-
"5.6 In view of this legal position, the present appeal is to be decided. It is clear from the above decision of the apex court that once the assessee filed copy of PAN, Acknowledgement copy of the return of income of the loan creditor, their bank accounts statements for the relevant period; then even if the parties were not produced in spite of the specific directions of the Assessing Officer, the addition could not _be sustained as the primary onus was discharged by the assessee by producing the PAN, balance sheet, copy of the acknowledgement copy of return of the creditors etc.. In the instant case, out of the total loans of Rs. 16,08,25,648/-appearing as outstanding as on 31/3/2013, loans of Rs. 124495,554I- had been obtained upto the previous year i.e. FY 2011-12 and balance difference of Rs. 3,63,30,094/- were taken during the F.Y. 2012-13 relevant to. A.Y. 2013- 14. It is noted that the appellant had furnished all the relevant evidences viz, loan confirmations with copy of ITR and bank statement etc during the course of Assessment proceedings to substantiate the identity, capacity and qenuineness of the additions of Rs. 3,63,30,094/- (details separately enclosed) during the financial year 2012-13. There is no dispute about the identity of the loan creditors for Rs.3,63,30,094/v who had given the loans during the year and the source of this money was also found in the respective bank accounts of the loan creditor and there was no trace of cash deposit in the bank accounts of the creditor, then, the action of the Assessing Officer without making further defiled enquiry to establish that the provisions of section 68 of the Income Tax Act were attracted in the present case is difficult to sustain in appeal. The Assessing Officer has made addition on some doubts and suspicion but has not established any direct indirect link of assessee's own money flowing out and then again received by the assessee in the form of share capital and premium. The assessee had placed on record the evidence as well as copy of income-tax returns of the loan creditors. Keeping in view all these evidence it cannot be held that the assessee did not establish the identity of the share applicants. 5.7 In view of the above discussion it is noted that when requisite documents such as PAN, Bank accounts, Balance Sheet etc. were available with the A.O., to establish that no cash transactions were involved in the bank accounts of the loan creditors then without further probe to prove contrary the addition u/s 68 in the hand of the assesses cannot be made. It is also seen that once the books of accounts of the appellant have been rejected by the Ld. A.O. u/s 145(3) of the IT Act.,1961 there is not much scope to make further addition. In view of the above discussion on the facts of the case and having regard to the decisions of courts and judicial precedents as noted above, the addition made by the A.O. of the unsecured loan of ? 16,08,25,0487- under section 68 of the Income Act 1961 cannot be sustained in appeal and is directed to be deleted. Accordingly this ground of appeal is allowed."
The Ld. DR submitted that the Ld.CIT(A) was erred in deleting the addition made by the AO towards unexplained cash credits u/s 68 of the Income-tax Act, 1961 without appreciating the fact that the assessee has not satisfactorily discharged the primary onus of proving the identity of the creditors, creditworthiness and genuineness of transactions. The Ld. DR primarily discussed the decision of Hon'ble Supreme Court in the case of CIT vs Lovely Exports Pvt Ltd (supra) without bringing on record how the decision rendered by the Hon'ble Supreme Court in the above case is applicable to the facts of assessee's case. The AO has brought out number of discrepancies including difference in opening balances. When the said discrepancy was questioned, the assessee has come out with an explanation that long term borrowings has been classified under the head 'trade payables' for the immediately preceding year without any corresponding evidence to prove that such long term borrowings was classified under the head 'trade payables'. In respect of other ingredients of section 68 of the Act, although the assessee has filed confirmations, but failed to prove creditworthiness of the parties; therefore, the AO was right in making addition u/s 68 of the Act, but the Ld.CIT(A) without apprising the facts, simply deleted addition made by the AO.
The Ld.AR for the assessee, on the other hand, strongly supporting the order of the Ld.CIT(A) submitted that the assessee has reconciled the difference noticed by the AO in the opening balance and explained such discrepancy by filing revised financial statements. The Ld.AR further submitted that the assessee had shown long term borrowings of Rs.19,71,44,126 as on 31-03-2013, out of which a sum of Rs.12,44,95,554 was opening balance of unsecured loans which were classified under the head 'trade payables'. During the year, assessee has taken loan of Rs.7,26,48,572 out of which a sum of Rs.3,63,18,478 had been taken from bank overdrafts. The remaining amount of unsecured loan has been taken through proper banking channels for which necessary confirmations alongwith financial statements have been filed in order to prove identity, genuineness of transaction and creditworthiness of the parties. Therefore, there is no error in the findings recorded by the Ld.CIT(A) while deleting addition towards unsecured loan and his order should be upheld.
We have heard both the parties, perused material available on record and gone through the orders of authorities below. The AO had made addition towards long term borrowings u/s 68 of the Act, primarily on the ground that there is enough grounds to disbelieve figures of unsecured loan reported as on 31-03-2013 vis- a-vis as on 31-03-2012, because the assessee's books of account were rejected year on year. The AO further observed that although, the assessee has filed confirmations from the party alongwith their ITR copies, but failed to prove the capacity of lenders to advance such a huge amount of unsecured loan. The AO further observed that the assessee has not satisfied conditions of genuineness, creditworthiness and capacity of the parties, thereby not fulfilled the conditions prescribed under the provisions of section 68 in respect of long term borrowings taken from various parties. Therefore, he made addition towards long term borrowings u/s 68 of the Income-tax Act, 1961. The Ld.CIT(A) has deleted addition made by the AO on the ground that the assessee has discharged its initial onus by filing identity of the parties and also proved their creditworthiness. The CIT(A) had extensively discussed the issue in para 5.4 of his order in light of evidences filed by the assessee.
According to the ld. CIT(A), the assessee had explained each and every observation of the AO right from discrepancy in opening balance and also proved identity, genuineness of transaction and credit worthiness of parties.
In this case, the primary objection of the AO is with regard to discrepancy in the opening balance of long term borrowings claimed by the assessee. The assessee has claimed long term borrowings as on 31-03-2013; however, no corresponding long term borrowings were shown in the immediately preceding year. When the AO has called for details of long term loan borrowings, the assessee filed revised financial statements and shown long term borrowings for earlier year and further explained that same has been classified under the head, 'trade payables'. The assessee had filed paper book which contains relevant financial statements. We, find that long term borrowings shown for the year ended 31-03-2013 were shown under the head trade payables for the year ended 31-03-2012. Further, out of total long term borrowings of Rs.19,71,44,126 as on 31-03-2013, a sum of Rs.12,44,95,554 was opening balance of unsecured loans which were classified under the head 'trade payables'. During the year, assessee has taken further long term loan of Rs.7,26,48,572 and out of which a sum of Rs.3,63,18,478 is bank overdraft taken from commercial bank. The remaining amount of unsecured loan has been taken from directors and their relatives through proper banking channels for which necessary confirmations along with financial statements have been filed in order to prove identity, genuineness of transaction and creditworthiness of the parties.
The next observation of the AO is with regard to credit worthiness of the parties. The AO never doubted identity of the parties. The dispute is with regard to genuineness and credit worthiness. According to the AO, the assessee could not prove credit worthiness of parties. We find that the CIT(A) has recorded categorical finding in so far as genuineness of transaction and credit worthiness of parties. According to the ld. CIT(A), long term borrowings has been taken from associate concerns and relatives if the assessee. The CIT(A) further stated that all parties are having enough source of income to explain loan given to assessee. We noted that the assessee has filed a paper book which contains confirmations from loan creditors alongwith their bank statements and ITR copies. We further noted that most of the loans have been taken from sister concerns and relatives for which necessary financial statements alongwith ITR copies have been filed. In respect of loan taken from M/s F A Construction, the assessee had filed their financial statements as per which the assessee had taken loan of Rs. 3,23,40,094/-, whereas the gross income of the creditor as per ITR was at Rs. 13.12 crores. Similarly, details have been filed for each loan creditor as per which all loan creditors are having sufficient income to explain source for loan given to assessee. Therefore, we are of the considered view that the assessee had discharged its onus by filing complete details of long term loans including identity, genuineness of transaction and credit worthiness of parties. Once, necessary details have been filed to prove identity, genuineness and credit worthiness, then onus shifts to the AO to prove otherwise. In this case, the AO has made additions purely on suspicious grounds for the simple reason that books of account of the assessee were rejected for earlier year, ignoring evidences filed by the assessee.
Further, the Ld.CIT(A) has relied upon the decision of Hon'ble Supreme Court in the case of CIT vs Lovely Exports Pvt Ltd (supra), where the Hon'ble Supreme Court observed that once assessee has filed necessary evidence to prove identity of the creditor and their creditworthiness and, then the department is free to proceed to reopen the assessment of individual creditors, but the sum received from the creditors cannot be regarded as income of the assessee. The case law relied upon by the ld. CIT(A) is squarely applicable to the facts of present case. We, therefore, considering facts and circumstances of this case and respectfully following the ratio of Hon’ble Supreme Court in case of CIT vs. Lovely Exports (P) Ltd(Supra), are of the opinion that the CIT(A) was right in deleting additions made by the AO towards long term loans u/s 68 of the Income Tax Act, 1961. Hence, we are inclined to uphold order of the ld. CIT(A) and dismissed appeal filed by the revenue.
In the result, appeal filed by the revenue is dismissed.
Order pronounced in the open court on 12-04-2019