SRI C R S PILLAI,DURGAPUR vs. DCIT, CIR-2, DURGAPUR, DURGAPUR

This appeal preferred by the assessee is against the order of the Ld. CIT(A)-Durgapur dated 17.11.2016 for AY 2013-14.

of the assessee reveals that the main grievance of the assessee is against the action of the Ld. CIT(A) in confirming the action of AO treating Rs.54 lakhs which the assessee claimed to be the unsecured loan as undisclosed cash credit and added to the income of the assessee.

3. Brief facts of the case are that the assessee an individual is a contractor and during the year had received unsecured loan of Rs. 54 lakhs. The AO noted that the assessee had received the amount from seven persons/companies, so he issued notice u/s. 131 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) to the creditors to appear and produce documents necessary to prove their identity, creditworthiness and genuineness of the unsecured loan transaction with the assessee. However, the AO notes that out of seven creditors the notice could be served only to six persons except that of M/s. Metrocity

Shri C. R. S. Pillai, AY 2013-14 Supplier Pvt. Ltd. which notice has been received back. According to AO, none of the creditors appeared before him, therefore, he deputed an Inspector to conduct a field enquiry of the creditors [lenders of loan]. According to AO, the ITO found the addresses given for the three companies do not exist on the given addresses. According to AO, the documents provided by the assessee of the companies to prove the identity of the loan creditors like PAN, ITR, ROC documents etc. are those documents which a typical entry operator creates without dong any actual business (paper companies). So, he formed an opinion that the creditors who have given the loans were bogus and, therefore, he treated the entire sum of Rs. 54 lakhs which the assessee claimed as loan as bogus and added to the income of the assessee. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) wherein the assessee claimed that the aforesaid amount of Rs. 54 lakhs was received from seven persons which, inter alia, were three private limited companies and the other four were individual creditors. It was explained to the Ld. CIT(A) that the said amount was necessary for the assessee for providing bank guarantee to the contractee and that all the creditors were income tax assessees. However, the Ld. CIT(A) was not satisfied with the documents and explanation given by the assessee and was pleased to confirm the order of the AO. Aggrieved, the assessee is before us.

Shri C. R. S. Pillai, AY 2013-14 information about the creditworthiness from the AO of the creditors. Thus, after doing the said exercise and getting information from the AO of the creditors then only the AO can draw adverse inference against the creditworthiness of those creditors. The Hon’ble High Court has held as under:

“Both the CIT(A) and the Tribunal below have in details considered the fact that the share application money was paid by account payee cheque, the creditor appeared before AO, disclosed its PAN and also other details of the accounts but in spite of that the AO didn't enquire further from the AO of the Creditor but instead, himself proceeded to consider the P/L A/C of the creditor and opined that he had some doubt about the genuineness of such account. In our opinion, in such circumstances, the AO of the assessee can't take the burden of assessing the P/L A/C of the creditor when admittedly the creditor himself is an IT Assessee. After getting the PAN and getting the Information that the creditor is assessed under the Act, the AO should enquire from the AO of the creditor as to the genuineness of the transaction and whether such transaction has been accepted by the AO of the creditor, but instead of adopting such course, the AO himself could not enter into the return of the creditor and brand the same as unworthy of credence. So long it is not established that the return submitted by the creditor has been rejected by its AO, the AO of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness of the transaction through account payee cheque has been established. We find that both the CIT(A) and the Tribunal below followed the well accepted principle which are required to be followed in considering the effect of Section 68 of the Act and we thus find no reason to interfere with the concurrent findings of fact recorded by both the authorities. The appeal is thus devoid of any substance and is summarily dismissed.” (emphasis given by us)

We note that all the loan creditors were income tax assessee and all the details were furnished before the AO, however, the AO has not bothered to do any such exercise as needed to have been done as prescribed by the Hon’ble High Court (supra), so in the absence of any such exercise being carried out by the AO before drawing adverse inference against the creditworthiness of the creditors we are of the opinion that the AO erred in drawing adverse inference against the assessee.

Dated: 28th November, 2018 Jd.(Sr.P.S.)

Copy of the order forwarded to:

1 Appellant – Shri C. R. S. Pillai, Salarpuria Gardenia, Bidhan Nagar, Durgapur-7133212. 2 Respondent – DCIT, Circle-2, Durgapur 3 CIT(A)-Durgapur. (sent through e-mail) CIT , Durgapur. 4 DR, Kolkata Benches, Kolkata (sent through e-mail) 5