INCOME TAX OFFICER WARD 3(1)(1), MUMBAI vs. SHIVI IMPEX PVT. LTD, MITTAL COURT, MUMBAI

The Ld.CIT(A) noticed that the assessee has furnished all the documents to prove all the three ingredients in order to prove the loans in terms of sec.68 of the Act. He noticed that the AO has taken negative view mainly for the reason that the lender companies were not available at the given addresses. The Ld.CIT(A) noticed that the assessee has furnished various documents like, copy of lease agreement, electricity bill, photographs of offices, to prove its addresses, affidavit of common director etc. However, the AO rejected all of them, citing one reason or other. The assessee also contended that the officials of verification unit might not have visited the addresses. Accordingly, the assessee requested the AO to give details of the officials, so that it could file criminal complaint against them. However, the AO rejected the said request stating that it would not be possible to provide those details in faceless regime. The Ld.CIT(A) has summarized the observations made by the AO in this regard as under:- “6.6. The AO after considering the evidences filed by the appellant observed that these evidences are neither tenable nor authentic and proceeded to make the addition as unexplained income u/s 68 based on the following observations in the assessment order. 1. The address in the ITR of the assessee company is different from the address given by the assessee in case of the lender companies and this disproves the fact that they all are residing in the same address. 2. The lease agreement has only thumb impression of the SRO without the rubber stamp. 3. Reply received from Ashtabhuja ventures is from address 15 C wing, Mittal court whereas the lease agreement address is different. 4. Address mentioned in ITR of KBJ developers is different from the address assessee had provided during scrutiny proceedings. 5. Electricity bill address is different from ITR address of KBJ developers.

The photographs provided by the assessee company had names typed in paper and pasted in window instead of Boards.

The AO observed that too much reliance on documentary evidences cannot offset the condition of the company not existing physically at the given address.

The locals in the surrounding didn’t know anything about the alleged reputed company.

Falsification and fabrication of evidences of existence is done by the assessee company after the verification unit enquiry. 10. The assessee company’s request to disclose the name of the officer of verification unit to file a criminal case against him, indicates in proving the fact that the assessee is trying to pressurize the department through unfair means which implies that the assesses transactions are not genuine. 11. Affidavits filed by the lender companies were dated 24.08.2023 and 14.03.24 whereas the stamp paper was brought only in the year 2023 (date of purchase). 12. Verification unit has conducted enquires in both the ITR address and the address given by the assessee as per MCA and the concerns was not found existing. 13. The assessee company had not paid any interest to the lender companies and had not received any interest from the loans given by the assessee company. 14. Assessee company is incurring huge lose even though it is received enough funds. 15. Closing stock of the finished goods of lender company KBJ developers have become zero from 46.10 crores.”

This observation of the honourable tribunal is squarely applying to the instant case. The appellant has produced various evidences which one can possibly collect to prove the identity, genuineness and credit worthiness of the lenders. Providing a robust business or defending the business strategies of the lenders; proving that the physical existence of the lenders in confirmation with the verification unit/AOs expectation, that the lenders to be remain in the address given in ITR is beyond the reasonable capacity of the appellant…”

We heard rival contentions and perused the record. In the instant case, the addition has been made u/s 68 of the Act, wherein cash credits in the nature of loan received by the assessee, has been added. Sec. 68 enables assessment of such types of cash credits, if the assessee fails to prove the nature and source of cash credits. “Nature of cash credit” would mean that the assessee is required to show that it is not of revenue nature. In order to prove the sources, the assessee should discharge initial burden to prove the cash credits placed upon his shoulders of the assessee u/s 68 of the Act, i.e., the assessee is required to prove three main ingredients, viz., the identity of the creditor, the genuineness of the transactions and the credit worthiness of the creditor. If the assessee discharges the initial burden, then the burden would shift to the shoulders of the AO i.e., it is the responsibility of the AO to disprove the claim of the assessee by bringing evidences on record.

We shall now examine the facts prevailing in this case. We notice that both the lender companies are group companies of the assessee. Both the companies are registered under the Companies Act. Further, all the three companies have common directors.

We shall now examine as to whether the identity of the creditors has been proved or not? We notice that the assessee has furnished Name, Address, PAN number, Company registration details, GST registration details etc., in this regard. We notice that the AO himself has downloaded the lender companies‟ details from MCA website. Both the lender companies have been filing returns of income under the Income Tax Act. The AO has raised a lot of doubts about the very existence of the lender companies, since they were not available at their given addresses as per the report given by the verification unit. First of all, as contended by the assessee, it is not shown that the verification unit has verified correct address and given its report. We noticed that the assessee offered to take them along with it to their office, the AO did not provide that opportunity. When the AO proposes to place his reliance fully on the report given by the verification unit, then it is imperative for him to support the report with cogent evidences. Since it is a verification of fact, the AO could not have rested his case, when the assessee is challenging the report given by the verification unit. We notice that the assessee has furnished photographs of the offices, but the AO has simply rejected them citing some reasons. Most important of all, we notice that the assessee has furnished details of registration made by the lender companies with various Government authorities, viz., Income Tax Department itself, Ministry of Corporate Affairs, GST authorities etc. We are unable to understand as to how the AO could reject the registration certificates given by the above said Government authorities. Further, the assessee has furnished an affidavit given by one of the common directors and also copy of lease deed for taking the premises on rent. The AO has rejected them also on some flimsy grounds. We notice that the AO has also issued notices u/s 133(6) of the Act to both the lenders and they have duly replied to the same. Thus, we notice that the AO appears to have approached the issue in a predetermined manner. The fact that the provisions of sec.68 of the Act is a deeming provision, making the non-taxable receipt as taxable, appears to have escaped the mind of the AO. Accordingly, we are of the view that the assessee has proved the identity of the lenders.

With regard to the credit worthiness, the assessee has furnished the financial statements of both the lender companies. The assessee has also furnished ledger account copies of the lender companies. Though the AO has observed that the bank account copies of the lender companies were not furnished before him, we notice from the paper book that the assessee has furnished its own bank account copies and also the bank account of copies of lender companies. The AO has further observed that both the lender companies were incurring losses. However, in order to prove credit worthiness, it is required to be shown that the lenders were having enough funds with them before lending money to the assessee. The money available with the lenders need not always be its own funds. The lenders can use loan funds also to lend money to the assessee. It is pertinent to note that the banks and financial companies lend money mainly out of borrowings made by them by way of deposit collections. Hence, so long as, it is shown by the lenders that they had enough funds available with them, when they lend money to the assessee, the creditworthiness of the lenders would stand proved. In the instant case, we noticed that the assessee has furnished the financial statements of the lenders. It is not the case of the AO that the borrowers did not have enough funds available with them before lending money to the assessee. He has only observed that they were incurring losses. Further, he has also observed that the loans taken by the assessee have been advanced by the assessee to other related persons or entity. Both these observations are not relevant in the context of the provisions of sec.68 of the Act. Accordingly, we are of the view that the assessee has proved the creditworthiness of the creditors.

With regard to the genuineness of the transactions, we notice that the loan transactions have been transacted through banking channels only. Routing the loan transactions through the external bank route would prove that the transactions undertaken by the parties are genuine. In any case, in this matter, it is not the case of the AO that the transactions undertaken by the parties are not genuine.

We notice that the assessee has placed its reliance on various case laws before the Ld.CIT(A) in support of its contentions that it has discharged the onus placed upon its shoulders to prove the cash credits in terms of sec.68 of the Act. We extract some of those decisions below:- “1. Principal Commissioner of Income-tax vs. Hareshkumar Manilal Somaiya [2023] 154 taxmann.com 432 (Gujarat): Wherein Hon'ble Gujrat High Court has held that Where assessee received unsecured loans and produced confirmation of lenders and other relevant documents such as copy of PAN, ledger account, bank statement and audited books so as to establish creditworthiness, genuineness and identities of lenders in transactions, impugned addition made under section 68 on account of said unsecured loan by AO without considering such documents/details produced by assessee was unjustified.

K.P. Manish Global Ingredients (P.) Ltd vs. Assistant Commissioner of Incometax, Company Circle-II(4), Chennai[2021] 131 taxmann.com 158 (Chennai - Trib) Wherein Hon'ble Chennai ITAT has held that Where assessee-company received an unsecured loan from three parties, in view of facts that assessee had produced various details such as financial statements and bank statements of creditors and their confirmation letters to prove transactions and, further, all transactions were routed through proper banking channel, impugned addition made on account unsecured loan received by assessee was unjustified

Accordingly, following the ratio laid down in the above said decisions of the Hon‟ble Courts and Tribunals, we are of the view that the assessee, in the instant case, has discharged the initial onus placed upon it to prove the identity of the creditors, creditworthiness of the creditors and the genuineness of transactions in terms of sec.68 of the Act. Accordingly, we are of the view that the Ld.CIT(A) was justified in deleting the addition made by the AO u/s 68 of the Act. Accordingly, we uphold his order.

In the result, the appeal of the Revenue is dismissed.