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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI H.S.SIDHU & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. This appeal is filed by revenue against the order of the Ld. Commissioner of Income Tax (Appeals), New Delhi dated 21/06/2013 for assessment year 2008- 09 wherein an addition of Rs. 70 lakhs made by the Ld. Assessing Officer in the hands of the assessee under section 68 of the Income Tax Act was deleted. However, revenue has raised three grounds of appeal but all of them are contesting the deletion of the above addition of Rs. 70 lakhs received from one Smt. Sneh Pandey.
2. Brief facts of the case are that assessee is a charitable society engaged in providing quality and higher national education to the children. It filed its return of income on 24/9/2008 declaring Nil income in the status of Association of persons. The appellant is also claiming exemption under section 11 of the Income Tax Act. During reassessment proceedings it was found by the Ld. Assessing Officer that assessee has taken unsecured loan of Rs. 9660470/- from 2 parties and a sum of Rs. 7593660/– was shown to have taken from Mrs. Sneh Pandey. During the course of assessment proceedings assessee filed confirmation of the depositor along with her bank statement and copy of the return. The Assessing Officer found that the return of income filed by the lender shown Nil income. Therefore, according to him, the identity of the lender was established, but the creditworthiness and genuineness of the transaction was not established. Therefore, he further verified sources of amount of loan advanced by the lender to the assessee. It Page | 1 JCIT Vs. Sardar Patel Institute of Management Society & 5499/Del/2013 (Assessment Year: 2008-09) was found by him that three companies have deposited the sum with the lender and then in turn lender advanced the above sum to the assessee. On further verification about the three companies, they are having the same address and the inspector‟s enquiry conducted in this regard, it was found that these companies are located in one room, apparently without any major business. Further, the Ld. Assessing Officer called for the bank account of those companies and it was found by him that they have not given any major loan to other parties but has given huge loan to the lender to the assessee. It was further noted by the Assessing Officer that huge loan are given to the lender who does not have her own assets, property and creditworthiness and according to the Assessing Officer the companies who have given money to the lender to be deposited in the assessee's account are sham companies and are used for rotating the funds of the assessee society. Therefore, the addition of Rs. 7593660/– was made under section 68 of the Income Tax Act.
3. Aggrieved by the order of the Ld. Assessing Officer with respect to the above addition, Assessee preferred appeal before the Ld. CIT (A) who deleted the addition holding that the above loan has been repaid by the assessee to the lender and in turn, the lender has repaid to those companies. He further held that the assessee has submitted the confirmation and requisite details as well as the source of the deposit of the lender and therefore it has discharged its onus of proving the identity, creditworthiness, and genuineness of the transaction. He deleted the addition also for the reason that Rs. 593660/- pertains to operation balance.
4. Aggrieved by the order of the Ld. CIT (A), revenue is in appeal before us. Adverting to the facts of the case, the Ld. Departmental Representative vehemently stated that the loan received by the lender is from the conduit companies as stated by the Ld. Assessing Officer and they are not having any business but are located in a one-room. He further stated that without having any security from the lender the above companies have given loan to the lender to be in turn deposited with the assessee without any security or any guarantee. No interest is paid on this loan. He further stated that the lender is having nil income and therefore her creditworthiness is not proved to lend such a huge sum to the assessee. He therefore submitted that neither the creditworthiness of the lender nor the genuineness of the transaction has been established by the assessee. Therefore the addition has been rightly made by the Ld. Assessing Officer. The Ld. CIT (A) has deleted the addition simply based on the submission made by the assessee without looking to the fact that the lender companies to the depositors are not doing any Page | 2 JCIT Vs. Sardar Patel Institute of Management Society & 5499/Del/2013 (Assessment Year: 2008-09) business and does not have any source of funds available with them to lend to the lender to be in turn deposited with the assessee. He therefore submitted that the addition has been rightly made into the hands of the assessee under section 68 of the Income Tax Act and the Ld. CIT (A) has wrongly deleted the above addition without satisfying major conditions of section 68 of the act. He further stated that transactions through banking channel or subsequent repayment of loan. He further submitted that it is not the duty of AO to prove that the money has come from assessee to lender. The Ld. The DR in turn relied upon several decisions of the Hon‟ble Delhi High Court holding that addition under section 68 of the income tax act have been upheld in following cases:- a. Nova promoters private limited 342 ITR 169 b. CIT versus Empire buildtech private limited 366 ITR 110 c. CIT versus Focus Exports private limited 228 Taxmann 88 d. CIT versus Ultramodern Exports private limited 40 Taxmann.com 458 5. The Ld. authorized representative vehemently supported the order of the Ld. CIT (A) and stated that the assessee has submitted the confirmation, copy of the bank account, copy of the income tax return of the lender. The assessee has further shown the amount of money received by the lender to be deposited with the assessee. Merely because the loan was not given to the lender of the assessee with any security it cannot be held that amount of loan deposited with the assessee by the lender is not genuine. He further submitted that assessee is not supposed to show the” source of the source‟ of the deposit by the depositor. He therefore submitted that the Ld. CIT (A) has correctly deleted the addition made by the Ld. Assessing Officer. He relied on judicial precedent of 26 SOT 541 and 35 Taxmann.com 642.
6. We have carefully considered the rival contention and perused the orders of the lower authority. The brief facts of the case is that assessee has received a sum of Rs. 70 lakhs from one lady , Mrs. Sneh Pandey , she in turn has received money from 3 companies of Rs. 50 Lacs and further sum of Rs. 20 lakhs from two individuals. The sole issue in this appeal is with respect to the addition of above sum of Rs. 70 lakhs received from that lender as unexplained cash credit. As noted by the Ld. Assessing Officer the return of income filed by the lender shows that she does not have any income. On verification of the source of amount received by her, the Ld. Assessing Officer noted that she has taken loan from 3 financial companies and all these 3 companies had same address, but located in one-room apparently without any business. Though before the assessing officer, issue was with respect to only 3 companies from whom the money of Rs. 50 Lacs was received by the lender, however, before the Ld. CIT the complete source of Page | 3 JCIT Vs. Sardar Patel Institute of Management Society & 5499/Del/2013 (Assessment Year: 2008-09) loan was stated to be Rs. 50 Lacs received from these 3 companies and Rs. 10 Lacs each received from 2 different individuals making the total sum of Rs. 70 lakhs. The above sum was first deposited in her savings account and the later on issued cheques in the name of the society - Assessee . Though the assessee has proved the identity of the lender. However, with respect to the creditworthiness of the lender the assessee has stated that the sum as been deposited by 5 different persons with the lender and subsequently that money was deposited with the assessee as a loan. Subsequently, assessee repaid the money to the lender who in turn repaid the sum to the above 5 depositors. On enquiry with the 3 companies who deposited the sum with the lender are found to be not carrying on any business. Therefore, the source of money available with those companies was also held by the Ld. Assessing Officer as Sham companies and used for rotating the above fund. Further with respect to the 2 individual lenders no information is available before the Ld. Assessing Officer as well as in the order of the Ld. CIT (A). Admittedly, the return of income filed by the lender does not have any income, assets etc. Therefore it is conclusively proved by the Ld. Assessing Officer that money deposited with the assessee was not owned by the lender, but was borrowed in turn from other parties and subsequently when the assessee repaid the sum to the lender, those parties were also repaid by the lender. Therefore, in the above circumstances, it was not known that why a person will deposit money with the third-party by borrowing it from others without any purpose. Admittedly, in this year, no interest or any other form of remuneration was paid to the lender. Therefore, it is not clear that what was the purpose that the lender has deposited the above money with the assessee by borrowing it from 3rd parties when she does not have any source of income or any assets available with. Similarly why the company and individual will given such a loan to a lady who does not have any income or assets.
7. These are the facts on which the Ld. Assessing Officer has doubted the creditworthiness of the lender and genuineness of the transaction. All these facts do not get answered in the order of the Ld. CIT Appeal. Further, merely because the amount of money is received through banking channel and is also repaid through banking channel does not help the case of the assessee proving the creditworthiness as well as genuineness of the transaction. Further, in the present case as the assessee is enjoying exemption under section 11 and 12 of the income tax act, it does not help the case of the assessee that even if the addition is made it does not result in to any tax liability. Admittedly, the Assessing Officer has taken recourse to section 154 of the income tax act, which Page | 4 JCIT Vs. Sardar Patel Institute of Management Society & 5499/Del/2013 (Assessment Year: 2008-09) information is available at page No. 11 of the order of the Ld. CIT (A). Therefore, the Ld. Assessing Officer has taken necessary steps for rectifying his order. Admittedly, it may be the different procedure for addressing the mistake in the assessment order, but it neither helps the case of the revenue or the case of the assessee in coming out with the wriggle of the creditworthiness of lender and genuineness of the transaction of the loan of Rs. 70 lakhs from Mrs Sneh Pandey. The judicial precedent relied upon by the Ld. AR of of Hon‟ble Delhi High Court in case of Hansraj Samarak trust (35 Taxmann.com 642 ) (Delhi) does not help the case of the assessee as in that case, donation was already offered to income tax by the assessee which was taxed by revenue under section 68 of the income tax act and donation receipts etc were already in the custody of the Department. In the present case, the facts are quite different the income of the loan of Rs. 70 lakhs has not been offered by the assessee as income. Therefore the decision relied upon does not apply to the facts of the case. The assessee has also relied on the decision of coordinate bench in 26 SOT 541. We have carefully considered the facts of that particular case and noted that coordinate bench has recorded its findings as under:-
“15. With the assistance of learned representatives, we have gone through the record carefully. It is true that assessee has proved the identity of the payer and genuineness of the transaction but creditworthiness of the creditor is not proved. No evidence has been filed in that connection. On our query, whether this amount has been repaid or adjusted against any purchases made by the creditor during the year or in the subsequent period, the learned counsel for the assessee expressed his inability. If it is repaid subsequently, then it can show that this amount must have been taken from M/s. Anand Plastics. It will rule out the possibility of introduction of assessee's own money through M/s. Anand Plastics. Therefore, we set aside this issue to the file of the Assessing Officer for verification and re-adjudication. In the result, this ground of appeal is allowed for statistical purposes.”
8. In the present case, except the identity of the creditor other two ingredients namely creditworthiness of the assessee and genuineness of the transactions are not proved before the Assessing Officer according to the AO. Therefore the facts of that particular case and case before us are quite different. Further holding that the transactions have been entered through banking channel and the assessee is not required to prove “source of the source” of the deposit by the lender, we have recent decision of the Hon‟ble Delhi High Court in 85 Taxmann.com 104 wherein Hon‟ble high court has dealt with identical issue as under:- Page | 5 JCIT Vs. Sardar Patel Institute of Management Society & 5499/Del/2013 (Assessment Year: 2008-09) “41. An analysis of the above facts shows that none of these four individuals have the financial strength to lend such huge sums of money to the Assessee, that too without any collateral security, without interest and without a loan agreement. The mere establishing of their identity and the fact that the amounts have been transferred through cheque payments, does not by itself mean that the transactions are genuine. The AO and the CIT (A) have rightly held that the identity, creditworthiness and the genuineness are all in doubt. Moreover, the Court notes that that these amounts have been advanced to the Assessee without any explanation as to their relationship with the Assessee, the reason for the payment of such huge amounts, as also whether any repayments have, in fact, been made. There are contradictions in the explanation given by the Assessee and the statements recorded by these four individuals, which are irreconcilable. For example, in the case of Shri Ram Chander/Ram Charan, he had initially stated that he had given Rs.10,00,000/- out of the proceeds of sale of the land but thereafter it was claimed by him that the money had come from her sister Vidya. Such contradictions clearly render all these transactions dubious. The ITAT could not have, merely because the payments were through cheques, held that the transactions were genuine. The ITAT erred in simply accepting the explanation of the Assessee qua the four transactions. The ITAT, clearly, did not follow the binding precedent in Divine Leasing & Finance Ltd. (supra), which in no uncertain terms requires that the authorities are duty bound to investigate the creditworthiness of the creditors, subscribers and the genuineness of the transactions. Thus the ITAT did not merely give findings of fact but misapplied the law. Hence the authorities CIT v. S. Nelliappan [1967] 66 ITR 722 (SC), Orissa Corpn. Pvt. Ltd. (supra), Gun Nidhi Dalmia (supra) do not support the Assessee's case. The Assessee has failed to discharge his initial burden as the explanation given by the Assessee and the four individuals does not appear to be credible.
42. There is no dispute to the proposition that the source of the source need not be seen as held in Shiv Dhooti Pearls & Investment Ltd. (supra) and the other cases relied upon by the Assessee. The ITAT has erred in its approach towards dealing with the transactions and has incorrectly held that the Assessee has discharged his onus merely because the money was advanced through the banking channels. The ITAT has ignored all the contradictions and has ignored glaring circumstances such as Shri Amar Singh, not even being an Income- tax Assessee, in holding that the transactions are genuine and creditworthiness is established. The explanation for advancing the loans is Page | 6 JCIT Vs. Sardar Patel Institute of Management Society & 5499/Del/2013 (Assessment Year: 2008-09) clearly contradictory in respect of two of the creditors. To accept such explanations would in effect result in turning a blind eye as has been done by the ITAT, to transactions which clearly lacked bona fides. Thus, the ITAT's order is erroneous and contrary to law and is accordingly, set aside.
43. The transactions in the present appeal are yet another example of the constant use of the deception of loan entries to bring unaccounted money into banking channels. This device of loan entries continues to plague the legitimate economy of our country. As seen from the facts narrated above, the transactions herein clearly do not inspire confidence as being genuine and are shrouded in mystery, as to why the so-called creditors would lend such huge unsecured, interest free loans - that too without any agreement. In the absence of the same, the creditors fail the test of creditworthiness and the transactions fail the test of genuineness. The findings of the CIT (A) are upheld and the order of the ITAT dated 19th July, 2016 is set aside to the extent of the deletion of four entries. The deletions made in respect of the transactions of the Assessee with Shri Amar Singh, Shri Chandan Singh, Shri Ram Charan/Ram Chander and Smt. Sunita to the tune of Rs.50,00,000/-, Rs.1,10,00,000/-, Rs.10,00,000/- and Rs.98,00,000/-, respectively, are liable to be added back to the returned income of the Assessee for the relevant AY, under Section 68 of the Act.” (Underline supplied by us) 9. Further, in case before us, the above criteria laid down by the Hon‟ble Delhi High Court for establishing the creditworthiness of the lender and the genuineness of the transaction have not been fulfilled before the Assessing Officer but the Ld. CIT (A) has not dealt with these aspects. Furthermore before the Ld. Assessing Officer issue regarding deposit of money by 3 companies was available as verified by the Assessing Officer himself but examination of credit of other 2 individual parties was not available and no information was also given by the assessee before him. Furthermore, „Nil‟ return filed by the lender without any source of income does not have any creditability as such return is not required to be filed. Assessee is not obliged to file „Nil‟ return u/s 139 of the Act. Therefore, it is apparent that return of lender was filed to create a „layer‟. Therefore, in the interest of justice, we set aside the whole issue back to the file of the Ld. Assessing Officer with a direction to the assessee to submit the complete details about the source of the funds available with the lender to prove the creditworthiness of the lender. Further, the assessee is also directed to prove the genuineness of the transaction in the present circumstances where the lender does not have any source of Page | 7 JCIT Vs. Sardar Patel Institute of Management Society & 5499/Del/2013 (Assessment Year: 2008-09) income and she has borrowed such a huge money without having benefit to her such as interest etc. by depositing the above amount with the assessee. On submission of the above details, the Ld. AO may verify the same and carry out further examination in accordance with the law and decide the issue on merit, after giving due opportunity to the assessee of hearing. In the result all the grounds of the appeal of the revenue are allowed with above direction.
In the result appeal of the revenue is allowed for statistical purposes.