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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI SANDEEP GOSAIN, JM & SHRI G. MANJUNATHA, AM
This appeal filed by the Revenue, is directed against the order of the Commissioner of Income Tax (Appeals)-6, Mumbai [in short CIT(A)], dated 27.05.2016 for the A.Y. 2012-13.
The Revenue has raised following grounds of appeal.
“On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below:
On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in allowing the appeal of the assessee stating that the assessee has explained the nature and source of the impugned credit of Rs.1,17,00,000/- holding that the addition made by the AO u/s.68 of the I.T. Act, 1961 is not justified without M/15 A.Y.2010-11 calling for the remand report from the AO which is in violation of Rule 46A.
2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in holding that the onus was discharged even when nothing was establish; identity, creditworthiness and genuineness of transaction and relevant documents were not produced before the AO at the time of assessment proceedings u/s,143(3) of the I.T. Act, 1961.
For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the A.O. restored.” 3. The brief facts of the case are that the assessee is engaged in the business of fabrication of sugar machinery and other fabrication work filed its return of income for A.Y.2012-13 on 25.09.2012 declaring total loss of Rs.6,930/-. The case was selected for scrutiny and notices u/s143 (2) and 142(1) of the Income Tax Act, 1961 (in short “the Act”) were issued. In response to the notices, the Authorised Representative of the assessee appeared from time to time and filed various details, as called for. The assessment has been completed u/s.143 (3) of the Act, on 30.03.2015 determining total income at Rs.1,16,93,070/-, by making additions towards unexplained cash credits u/s 68 of the Act, on account of share capital received from certain companies. The relevant order of the AO is extracted below:
“4.10. All the details available on record have been carefully perused and from the same, the following points emerges: i. The assessee claimed to have received loans from Pushtar Trading & Holdings, Kolkata ii. For the year under consideration, the assessee has shown fresh loan from said party amounting to Rs. 1, 17,00,000/- iii. In support of such loan transaction, the assessee has not furnished any evidences as sought to prove genuineness of the transaction and creditworthiness of the lender. The assessee failed to submit copy of return of income of the loan creditor and its bank statement to prove the M/15 A.Y.2010-11 creditworthiness in spite of repeated show causes issued by the undersigned. iv. The assessee was asked to prove identity and creditworthiness of the person from whom it claimed to have taken substantial unsecured loan and genuineness of the transaction. The assessee neither filed any corroborative documentary evidences nor filed any explanation whatsoever in support of its claim for the reasons best known to it alone. v. Since the assessee has not submitted any corroborative documentary evidences like copies of return of income along with audited accounts or copies of respective bank statements of the said parties, the credit worthiness of the loan creditors is not proved. The onus of proving of the genuineness of the transaction and creditworthiness of the lenders was upon the assessee by filing relevant documents discussed supra which the assessee failed to do so. Therefore, the creditworthiness of the Pushtar Trading & Holdings, Kolkata, from which it has shown to have taken unsecured loans is not proved and the same remained as unexplained. vi. In this regard, reliance is placed on the decision of Hon'ble High Court of Andhra Pradesh in the case of Dr. D. Siva Sankara Rao vs. ITO, Ward-2, Eluru [2013] 29 taxmann.com 17 (AP) wherein it was held as under: "Section 68 of the Income-tax Act, 1961 - Cash credits - Burden of proof - Assessment year 2002-03 - Assessee HUF claimed to have received a loan of Rs. 2.15 lakhs in cash from karta's wife, who was a State Government employee - She claimed to have received gifts of Rs. 2 lakh from her parents who had supposedly earned amount by leasing agricultural land - However, no evidence about such source was submitted - Further, no evidence was filed taking State Government's permission as required before accepting gifts of such an amount by a government servant - Whether creditworthiness of creditor and genuineness of transaction was not proved in instant case, even though identity of creditor was established - Held yes - Whether, therefore, addition of impugned amount was appropriate - Held, yes [Paras 20 and 21] [In favour of revenue]" vii. Reliance is also placed on the decision of Hon'ble High Court of Delhi, in the case of CIT vs. Frostair Pvt. Ltd. [2012] 26 taxmann.com 11 (Delhi) wherein it was held as under: "Section 68, read with section 271(1)(c), of the Income-tax Act, 1961 - Cash credit - Whether assessee is under a burden to explain nature and source of share application money received in a given case and he has to establish shareholder's identity; genuineness of transaction; and creditworthiness of shareholders - Held, yes - On being informed that assessee had accepted share capital from some companies which were engaged in providing bogus entries, in form M/15 A.Y.2010-11 of loan and share application money, Assessing Officer asked for details under section 142 - Assessee submitted a list of 18 shareholders - Assessing Officer discerned that PAN/ GIR No. of shareholders was not correct, they were not found at addresses given and they were not filing their ITRs with concerned officers - Whether since Assessing Officer had examined all facts in exhaustive manner, addition under section 68 and, consequently initiation of penalty proceedings were justified - Held, yes [In favour of revenue]" viii. Further reliance is also placed on the decision of Hon'ble High Court of Delhi, in the case of Pratibha Finvest (F) Ltd. Vs. ITO [20131 29 taxmann.com 420 (Delhi) wherein it was held as under: 'Section 147, read with section 68, of the Income-tax Act, 1961 - Income escaping assessment - Non-disclosure of primary facts - Cash credits - Assessment year 2001-02 - Relying upon report of Investigation Wing pursuant to search on third parties characterized as 'accommodation entry providers' revealing that assessee-company had received accommodation entry of certain amount under grab of share application money, Assessing Officer reopened assessment for relevant assessment year - In reassessment, Assessing Officer made certain addition being 2 per cent of total unexplained balance in bank account treating same as assessee's income by way of commission on hawala entries - Whether reopening of assessment on basis of investigation report was justified - Held, yes - Whether addition made by Assessing Officer was justified even though same did not form part of 'reason to believe' to reopen assessment - Held, yes [Para 10] [In favour of revenue] Section 69A of the Income-tax Act, 1961 - Unexplained moneys - Bank deposits - Assessment year 2001-02 - During assessment proceedings, Assessing Officer noticed that assessee had a credit balance in his bank account which it could not substantiate with supporting documentary evidence - As assessee was an entry operator as per information received from Investigation Wing, an amount of 2 per cent of credit in bank account was treated as income towards providing accommodation entries and was added to assessee's income - On appeal, Commissioner (Appeals) and Tribunal upheld addition – Whether addition being based on a pure question of fact, Tribunal's order did not call any interference - Held, yes [Para 10] [In favour of revenue]" 4.11. In the instant case also, the assessee has failed to provide even a single piece of evidence to establish the identity of the lender and no iota of evidences in respect of creditworthiness of the lender and genuineness of the transactions has been filed. Since the assessee failed to establish the creditworthiness of the loan creditor and genuineness of the transaction, the fresh loan taken during the year amounting to Rs.1,17,00,000/- M/15 A.Y.2010-11 remained unexplained credit in the books of the assessee. By respectfully following the aforesaid judicial pronouncements, I consider fresh loans amounting to Rs. 1,17,00,000/ - as unexplained cash credit and 'income' of the assessee as per provisions of section 68 of the Act. Thus, an addition of Rs.1,17,00,000/- is made to the total income of the assessee as unexplained cash credit.”
The assessee carried the matter in appeal before the first appellate authority. Before the learned CIT (A), the assessee filed elaborate written submission. The assessee also filed various details to prove identity, genuineness of transaction and creditworthiness of parties including, share application form, bank details, PAN of subscribers, memorandum and Articles of association and other details. The ld. CIT (A) for detailed discussion recorded in its order dated 27.05.2016 deleted addition made by the AO towards share application money received from companies by holding that the assessee has filed enormous documents to prove identity, genuineness of transaction and creditworthiness of parties. The relevant order of the CIT(A) is extracted below:
4.2 I have carefully considered the facts of the case and the submission made by the Ld. AR. I have also gone through the decisions relied on by the Ld. AR and the AO. The Assessing Officer has added Rs. 1 ,17,00,000/- by stating that the fresh loan taken during the year remained unexplained in the books of the assessee. The said loan of Rs.1,17,00,000/- was stated to be received from Pushker Trading & Holding Pvt. Ltd. However, the assessee during the assessment proceedings had stated that the said amount was taken from three parties, namely, Kauvery Trading & Holding Pvt. Ltd. of Rs.60,00,000/-, Pushker Trading & Holding Pvt. Ltd. of Rs.40,00,000/- and Chanda Cast Iron Industries Pvt. Ltd. of Rs.17,00,000/-. It was stated that the same was wrongly shown as taken from Pushker Trading & Holding Pvt. Ltd. The AO did not accept the explanation of the assessee and stated that the assessee has not proved the genuineness of the transaction and the creditworthiness of the lender. He further stated that the assessee has not submitted any corroborative documentary evidence like copies of the return of income alongwith audited accounts or copies of respective bank statements of the said parties. The Ld. AR, on the other hand, has stated that the sum of Rs.1,17,00,000/- was received towards share application money during the year under consideration, i.e. Rs.60,00,000/- from Kauvery Trading & Holding Pvt. Ltd., Rs.40,00,000/- from Pushker Trading & Holding Pvt. Ltd. and Rs.17,00,000/- from Chanda Cast Iron Industries Pvt. Ltd. In support, the Ld. AR has filed copies of the share application form, Board resolution of the applicant companies, PANs, Memorandum and M/15 A.Y.2010-11 Articles of Association, director's report, profit and loss account, balance sheet, schedules, audit report, returns of income, ledger confirmations, bank statements etc. It was submitted that these details were submitted to the AO during the assessment proceedings which have been completely overlooked by the AO. Regarding the quantum of Rs.1,17,00,000/- appearing in the name of Pushker Trading & Holding Pvt. Ltd., it was stated that this was a typographical error and the correct amount received from the above company was Rs.40,00,000/-. The other sums were received from Kauvery Trading & Holding Pvt. Ltd. and Chanda Cast Iron Industries Ltd. through banking channels. 4.3 I have gone through the details submitted by the appellant and the submission made by it. The appellant has submitted the bank statements, balance-sheet, profit and loss account and other details mentioned above. It is seen from the bank statements that the appellant had received Rs.40,00,000/- from Kauvery Trading & Holding Pvt. Ltd. on 11.8.2011 and Rs.20,00,000/- on 9.9.2011. It has received Rs.40,00,000/- from Pushker Trading & Holding Pvt. Ltd. on 22.09.2011. It had also received Rs.17,00,000/- on 08.09.2011 from Chanda Cast Iron Industries Pvt. Ltd. These sums are reflected in the bank account of the appellant maintained with State Bank of India. It is further seen that these payments are also reflected in the bank statements of Kauvery Trading & Holding Pvt. Ltd., Pushker Trading & Holding Pvt. Ltd. and Chanda Cash Iron Industries Pvt. Ltd. These applicants have filed their respective returns of income for the subject assessment year. It is seen from the profit and loss accounts and balance-sheets of the above applicants that these companies are having capital and reserves and surplus of more than Rs.95 crores each. The turnovers were also substantial in all cases. The identity of the share applicants is supported by their PANs, certificates of incorporation, Memorandum and Articles of Association and MCA data downloaded from the website of Ministry of Company Affairs. The MCA data base shows that each of these companies have filed their respective balance sheet upto 31.03.2015 and also held their respective AGM in September 2015. Regarding the capacity of the share applicants, it has already been discussed that they had huge capital and reserves and their turnover was also substantial. Further, the amounts have been paid through banking channel and bank statements have been submitted in this regard. The genuineness of the transaction is also supported by the ledger confirmation of each of the applicants, Board Resolution passed in their respective Board meetings, share application forms and actual allotment of shares to the share applicants and return of allotment filed with ROC alongwith the board resolution etc. In view of these facts, the appellant has satisfactorily explained the credit reflected in its books of account. 4.4 It may be stated u/s.68 (i) there has to be credit of the amounts in the books maintained by the assessee; (ii) such credit has to be a sum of money during the previous year; and (iii) either (a) the assessee offers no explanation about the nature and source of such credit found in the books M/15 A.Y.2010-11 or (b) the explanation offered by the assessee, in the opinion of the AO, is not satisfactory. The expression that the assessee offers no explanation" means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the A.O. is required to be formed objectively with reference to the material on record. Application of mind is a sine qua non for forming the opinion. In this case, the appellant has given reasonable, proper and acceptable explanation with relevant supporting documents in respect of the said share application money of Rs.1,17,00000/- received from three parties. The decisions relied on by the Ld. AR in the case of Lovely Exports (F) Ltd. (supra), Divine Leasing & Finance (supra) and Stellar Investment Ltd. (supra) and other decisions relied upon by the Ld. AR support the case of the appellant. The Hon'ble Delhi High Court in, the case of CIT vs. Value Capital Services Pvt. Ltd. 307 ITR 334 has held that if the department wants to make addition on account of share application money, burden is on the department to show that even if the applicants do not have the means to make the investment, investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as undisclosed income of the assessee. It is clear from the facts discussed above that the conditions for applying the provisions of section 68 are not fulfilled in the instant case. In view of the above facts and respectfully following the decisions, I am of the considered opinion that the appellant has satisfactorily explained the nature and source of the impugned credit of Rs.1,17,00,000/-. Hence, the addition made by the AO u/s.68 is not justified. Accordingly, the same is deleted and the ground is allowed.”
None appeared for the assessee despite service of notices. We have heard ld. DR, perused materials on record and gone through the orders of authorities below. The only issue arises for our consideration from revenue appeal is addition towards unexplained credits being unsecured loans from certain creditors’ u/s 68 of the Act. The facts with regard to impugned dispute are that during course of assessment proceedings, the AO noticed that the assessee has received new loans from two companies, viz, Hospet Sugars Pvt Ltd for Rs. 45,00,000/- and Pushtar Trading and Holding Pvt Ltd, Kolkota for Rs. 1,17,00,000/-. In order to verify correctness of loans, the AO called upon the assessee to furnish necessary evidences including confirmation letters. In response, the assessee filed a letter and stated that unfortunately details called for are not available because the revenue authorities attached registered M/15 A.Y.2010-11 office of the company. Meantime, the AO issued 133(6) notices to address given by the assessee, but all notices returned un-served. The AO has confronted with details of non response from parties to the AR of the assessee and asked as to why total unsecured loans shall not be treated as unexplained credits u/s 68 of the Act. Later, the assessee has filed a letter dated 10.03.2015 and intimated that, in earlier financial statements loan amount was erroneously mentioned in the name of Pushtar Trading & Holding Pvt Ltd, but fact being that the said loan had been accepted from four parties and accordingly, filed revised financial statements, where said loan stated to have been accepted from five parties. The assessee could not file any details except, filing financial statements. The assessee even failed to furnish correct address of the parties. Therefore, the AO treated unsecured loans received from four parties as unexplained credits u/s 68 of the Act, and made additions of Rs. 1,17,00,000/- to total income.
The CIT(A) has deleted additions made by the AO towards unsecured loans of Rs. 1,17,00,000/- on the basis of additional evidences filed by the assessee. No doubt, the assessee has filed various details in respect of all four companies, including their PAN, financial statements, MOA/AOA, share certificates and company master data downloaded from MCA website to prove existence of these companies. The CIT(A) has accepted additional evidences filed by the assessee to deleted additions made by the AO. No doubt, the CIT(A) has coterminous powers with the AO and can continue the proceedings as if such proceedings are before the assessing officer. But, when there is categorical findings from the AO in his assessment order that the assessee failed to file any evidences to justify credit found in books of accounts and such finding is based assessee admission by way letter to the AO, it is incumbent upon the CIT(A) to take cognizance of observations of the AO, when assessee has filed documents first time before the CIT(A). In such cases, the CIT(A) shall provide an opportunity to the AO to comment upon additional M/15 A.Y.2010-11 evidences filed by the assessee by way of remand report, otherwise it would violates provisions of Rule 46A of Income Tax Rules, 1962. In this case, it is abundantly clear from order of the AO that the assessee has not filed any evidences to justify unsecured loans and expressed its inability to furnish any evidences. But, all of a sudden, it has filed various details before the CIT(A). The CIT(A) without providing an opportunity to the AO admitted additional evidences and deleted addition made towards unsecured loan. Therefore, we are of the considered view that it is a clear case of violation of rule 46A of I.T. Rules, 1962 and hence, we set aside order of the CIT(A) and restored matter back to the file of the AO to consider issue afresh in light of additional evidences filed by the assessee.
In the Result, the appeal filed by the Revenue in is allowed for statistical purpose.
Order pronounced in the open court on 23 -08-2018.