M/S. RAJMAHAL QUARTZ SAND & KAOLIN CO.,KOLKATA vs. ACIT, CIRCLE - 36, KOLKATA, KOLKATA

The main grievance of the assessee is against the action of the Ld. CIT(A) in confirming the addition of unsecured loan of Rs. 14,00,000/- as alleged unexplained cash credit u/s. 68 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).

Brief facts of the case are that the AO noted that the assessee has taken unsecured loan during the year from M/s. A.B.M. Finlease Pvt. Ltd. (in short M/s. ABM) and from other three lenders which the AO noted that these unsecured loans were carried forward from previous years. Therefore, in order to verify the identity, creditworthiness and genuineness of the lenders, notices were issued u/s. 133(6) of the Act which was returned back with the remark ‘address not known’. Since the notices u/s. 133(6) of the Act and summons u/s. 131 of the Act could not be served, show cause notice was issued against the M/s. Rajmahal Quartz Sand & Kaolin Co. , AY-2014-15 assessee and the assessee was asked to produce the directors of the lender company before the AO. Thereafter, the AO acknowledges that the assessee could produce before him only one of the Directors Shri Jitendra Kumar Goyal of M/s. ABM and a statement was recorded u/s. 131 of the Act. The AO noted certain anomalies from the statement of this Director of M/s. ABM. Thereafter, in the assessment order the AO goes on to describe the modus operandi of paper companies like assessee to route their own money through jamakharchi/shell/paper companies which the AO reproduced from pages 3 to 6 of his order and, thereafter relying on few case laws added the amount of Rs.14 lacs which the assessee received in this assessment year u/s. 68 of the Act. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to confirm the order of the AO. Aggrieved, the assessee is before us.

We have heard rival submissions and gone through the facts and circumstances of the case. We note that the AO after taking note that assessee had received a loan of Rs. 14 lacs this year from M/s. ABM, added the amount finding certain discrepancy in the statement recorded by him u/s. 131 of the Act of its director Mr. Jitendra Kumar Goyal of M/s. ABM. It was brought to our notice that the assessee has received loan from the said loan creditor from FY 2009-10 and since then till FY 2014-15 it had continued to have business with it. It was also brought to our notice that though the AO says that the notice u/s. 133(6) of the Act was not served, the Ld. AR drew our attention to copy of notice and envelop duly annexed at pages 19 and 20 of the second paper book and also drew our attention to pages 10 and 11 of the first paper book to show that the said averment of AO was factually incorrect and the notices were infact duly served, which we find to be correct. The Ld. AR drew our attention to the extract from the deposition made before the AO and drew our attention to the fact that the AO has cherry-picked some answers to certain leading questions which were quite confusing and, thereafter, has found fault with few answers which, according to him, is not relevant to make any adverse inference against the lender M/s. ABM. The Ld. AR drew our attention to the loan confirmation which is placed at page

We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee had made payment of interest to (i) M/s. Mrinal Vinimay Pvt. Ltd. to the tune of Rs.4,84,274/-, (ii) M/s. Mrinal Nirmal Pvt. Ltd. to the tune of M/s. Rajmahal Quartz Sand & Kaolin Co. , AY-2014-15 Rs.22,500/-, (iii) M/s. Shrest Distributors Pvt. Ltd. to the tune of Rs.1,83,750/- and M/s. ABM to the tune of Rs.1,37,875/-, thus total amount of Rs.8,28,399/-. We note that since we have already found that M/s. ABM has proved its identity and genuineness and for the reasons given supra, and we have held that no adverse view be taken against the lender, so no addition was warranted, therefore, the interest component as expenditure for the loan taken by the assessee has to be allowed and, therefore, interest disallowed to the tune of Rs.1,37,875/- is directed to be deleted.

Coming to M/s. Mrinal Vinimay Pvt. Ltd., we note that the assessee has not taken any unsecured loan during this year and interest to this lender was to the tune of Rs.4,84,274/-. According to the AO, the notices u/s. 133(6) of the Act and 131 of the Act could not be served upon M/s. Mrinal Vinimay Pvt. Ltd., so he drew adverse view against the said lender company. However, the Ld. AR drew our attention to the affidavit given by the Director of this company that he had in fact appeared before the AO but the statement was not recorded and in order to prove this fact took us to page 14 of the paper book from which we note that the director of M/s. Mrinal Vinimay Pvt. Ltd. was present before the AO from 3 PM to 7.30 PM on 06.12.2016 before the ACIT, Circle-36, the AO in this case. Moreover, the assessee in order to prove the identity of the loan creditor had produced the ITR Acknowledgment, proof of service of notice u/s. 131, Voter ID of Director and also the bank statement showing that the loan was paid to the assessee through the banking channel, and the Loan confirmation has been submitted before the AO. These documents we found are placed at pages 60 to 64 of the second paper book. We also note that the intimation in respect of M/s. Mrinal Vinimay Pvt. Ltd. u/s. 143(1) is placed at pages 66 to 73 in the second paper book. Thus, we find that the assessee has discharged its onus casted on it to prove the identity and genuineness of the transaction, therefore, there was no necessity to disallow the interest expenditure on the loans the assessee took in the earlier years, so the disallowance of Rs.4,94,274/- was not warranted and so directed to be deleted.

Coming to M/s. Shrest Distributors Pvt. Ltd., we note that the assessee has not taken any unsecured loan during this year and interest to this lender was to the tune of Rs.1,83,750/-. According to AO, the notice u/s. 133(6) of the Act and 131 of the Act could not be served upon M/s. Shrest Distributors Pvt. Ltd. so he drew adverse view against the said lender company. However, the Ld. AR drew our attention to the affidavit given by the Director of this company that he had in fact appeared before the AO but the statement was not recorded and in order to prove this fact took us to page 15 of the paper book from which we note that the director of M/s. Shrest Distributors Pvt. Ltd. was present before the AO from 3 PM to 7.30 PM on 06.12.2016 before the ACIT, Circle-36, the AO in this case. In order to prove the identity of the loan creditor, the assessee produced ITR Acknowledgment, proof of service of notice u/s. 131, voter ID of Director and also the bank statement showing that the loan was paid through the banking channel and the loan confirmation has been submitted before the AO. These documents are found placed at pages 74 to 97 of the second paper book. We also note that the intimation u/s. 143(1) is placed at pages 99 to 107 in the second paper book. Thus, we find that the assessee has discharged its onus casted on it to prove the identity and genuineness of the transaction, therefore, there was no necessity to disallow the interest expenditure on the loan taken on earlier years and so the disallowance of interest of Rs.1,83,750/- was not warranted and so directed to be deleted.

Coming to M/s. Mrinal Nirman Pvt. Ltd., we note that the assessee has not taken any unsecured loan during this year and the interest to this lender company was to the tune of Rs.22,500/-. According to the AO, notice u/s. 133(6) of the Act and 131 of the Act could not be served upon M/s. Mrinal Nirman Pvt. Ltd., so he drew adverse view against the said lender company. However, the Ld. AR drew our attention to the affidavit given by the Director that he had in fact appeared before the AO but the statement was not recorded and in order to prove this fact took us to page 13 of the paper book from which we note that the director of M/s. Mrinal Nirmal Pvt. Ltd. was present before the AO from 3 PM to 7.30 PM on 06.12.2016 before the ACIT, Circle-36, the AO in this case. In order to prove the M/s. Rajmahal Quartz Sand & Kaolin Co. , AY-2014-15 identity of the loan creditor the assessee produced, ITR Acknowledgment, proof of service of notice u/s. 131, voter ID of Director and also the bank statement showing the loan was paid through the banking channel and the loan confirmation has been submitted before the AO. These documents are found placed at pages 108 to 134 of the second paper book. We also note that the intimation u/s. 143(1) is placed at pages 136 to 143 in the second paper book. Thus, we find that the assessee has discharged its onus casted on it to prove the identity and genuineness of the transaction, therefore, there was no necessity to disallow the interest expenditure of Rs.22,500/-, so we direct it to be deleted. Therefore, this ground of appeal of assessee is allowed.