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Assessee by : None Revenue by : Shri V.Vidhyadhar (DR) Date of hearing : 26.12.2017 Date of Pronouncement : 07.02.2018 Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. These two appeal by assessee under section 253 of Income Tax Act are directed against the combined order of ld. Commissioner of Income-Tax (Appeals)-2, [CIT(A)] Thane dated 30.11.2016 for Assessment Year 2010- 11 & 2011-12. In both the appeals the assessee has raised identical grounds of appeal except variation of figures of penalty, the ld. CIT(A) passes consolidated order for both the years. Hence, both the appeals were heard together and are decided by consolidated order. For appreciation of fact, we are referring the fact for AY 2010-11. The assessee has raised the following grounds of appeal:
On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the levy of penalty u/s. 271(1)(c) on the unsecured loan of Rs. 5,73,00,000/- disbelieved and included in total income u/s 68 of the I.T. Act and interest thereon of Rs. 38,37,603/- though there was no concealment and/or furnishing of inaccurate particulars of income which has been done without appropriately considering all facts, evidences, explanation and submissions.
Brief facts of the case are that assessee-firm is engaged in the business of Builders and Developers, filed return of income for relevant AY on 07.09.2010 declaring total income of Rs. 4,29,89,260/-. In this case a survey under section 133A was carried out on 04.03.2010. During the survey on 04.03.2010 when confronted incriminating material found during the course of survey admitted to have incurred expenses which were not recorded in the books of account. To cover up the discrepancy, the assessee admitted unaccounted expenditure of Rs.2,50,00,000/-. Further during the assessment the AO has found that assessee has shown unsecured loan of Rs. 573 Lakhs from various companies based in Calcutta, West Bengal. The perusal of income-tax return of those creditor companies reveals that they were not having enough income. The AO made the addition of Rs. 573 Lakhs under section 68 of the Act. The AO also disallowed the interest expenses of Rs.38,73,603/- paid on account of interest on such unsecured loan. The AO also disallowed Rs. 51,000/- on account of donation. The AO initiated penalty under section 271(1)(c) while passing the assessment order. the AO levied the penalty on disallowance of loan of Rs. 51,000/-, on addition under section 68 of Rs. 573 Lakhs and on disallowance of interest of Rs.38,73,306/-. On appeal before the ld. CIT(A), the penalty on account of disallowance of Rs. 51,000/- was deleted. However, the penalty on account of addition under section 68 and disallowance of interest expenses of Rs.38,37,603/- was upheld. Thus, further aggrieved by the order of ld. CIT (A), the assessee has filed the present appeal before us.
None, appeared on behalf of assessee despite service of notice. Perusal of record reveals that the hearing of this appeal was fixed out of turn on the application of the assessee vide application dated 15.11.2017. As none appeared on behalf of assessee, we left no option except to hear the ld. DR for the Revenue to proceed on the basis of material available on record. The ld. DSR of the assessee fairly conceded that in the appeal, on quantum assessment the co-ordinate bench of this Tribunal has deleted the addition under section 68 of Rs. 573 Lakhs and interest disallowance of Rs. 38,37,603/- in ITA No. 3767/M/2015. 4. We have considered the submission of ld. DR for the Revenue and perused the material available on record. The Perusal of record reveals that the copy of order of Tribunal in 3768/Mum/2015 for AY 2010-11 & 2011-12 dated 26.10.2017 is filed on record by the assessee. We have seen that the co-ordinate bench of this Tribunal has passed the following order:
We have heard the arguments of the parties and perused the record. The assessee company took unsecured loan from the above mentioned 12 companies to the tune of Rs. 5.73 crores. The Assessing Officer initiated inquiry and in view of the inquiry report dated 25.3.2013, companies from whom assessee took loan were reported as jamakharchi/paper companies. Hence, the M/s . Y ash De v e l o p e r s Assessing Officer treated the above said loan amount as unexplained cash credit u/s. 68 of the Act and added the same to the income of the assessee. Before going further, we deem it necessary to advert report on the file, which is hereby reproduced below :-
"A commission u/s 131 (1)(d) is received from you in the case of M/s. Yash Developers, Thane to verify, the loan transactions of your assessee with Kolkata based 12 companies, who have given loan to your assessee company.
In response to the commission summons were issued to the companies in Kolkata who have given loan to assessed companies. An ITI was deputed o serve the summons but ITI in his report submitted that there a no such companies at the given address and no books of accounts are maintained over there of these companies Further from the earlier search and survey action conducted by Invest/gat/on Wing, Kolkata it is gathered that the addresses mentioned are mostly established janakharchi/paper companies addresses of Kolkata which are used for providing accommodation entry in the form of share capital and loan in 11ev of cash.
So it can be concluded from above facts that prima facie it appears that the companies who have given loan to your assessee company are jamakharchi/paper/sham companies of Kolkata and none of them are existing at their physical address as submitted in the report of ITI. The transactions are non-verifiable in this case and appear to be accommodation entry. This is for your kind perusal and necessary action."
9. On perusal of the above mentioned report, we noticed that the summons were sent to these companies and no companies were found on the given address and information gathered by the official leads to a conclusion that these companies were jamakharchi/paper/sham companies. Based on this report, the claim of unsecured loan of the assessee company was rejected and the amount of Rs. 5.73 crores was added to the income of the assessee as unexplained cash credit u/s. 68 of the Act. Now, it is required to be seen what types of evidences were given by the assessee before the authorities in order to discharge the initial burden of proof placed upon it u/s 68 of the Act. The assessee has provided copies of loan confirmations as available both in the books of the companies and in the books
of the assessee firm, which lie in M/s . Y as h D e v e l o p e r s Compilation-3 of the paper book. The assessee has also provided copies of bank statement of the assessee firm, wherein cheques given by the creditors were deposited and from where the repayments of the said loans were made, which also lie in Compilation-3 of the paper book. Copies of returns of income for the AYs. 2010-11 & 2011-12 of the loan creditors were also filed which lie at page No. 1497 & 1498 in connection with Echolac Vinimay Pvt. Ltd.; page No. 190 in connection with Kalimata Timber Pvt. Ltd.; page No. 209 in connection with Linkpoint Infrastructure Pvt. Ltd.; page No. 1501 in connection with Mangal Mayee Hirise Pvt. Ltd.; page No. 362 & 1404 in connection with MSV Fiscal Services P. Ltd.; page No. 1510 & 1511 in connection with Oleander Manufactures Pvt. Ltd.; page No. 1516 & 1517 in connection with Shubhrekha Vyapaar Pvt. Ltd.; page No. 1522 & 1523 in connection with Subh Suppliers Pvt. Ltd.; page No. 1528 & 1529 in connection with S.K. Stock Dealers Pvt. Ltd.; page No. 1534 & 1595 in connection with Tristar Agencies Pvt. Ltd.; page No. 1539 & 1600 in connection with Slow & Sound Electronics and page No. 1476 in connection with Klapp Vyapaar Pvt. Ltd. The assessee also filed acknowledgment of returns of income for A.Y. 2010-11 to 2015-16 of the said companies which lie in Compilation-2 of the paper book. The assessee also filed copies of the bank statements of 5 parties out of 12 parties, who issued cheques in favour of the assessee and also received repayment of loan from the assessee along with interest. The assessee has also furnished copies of annual accounts containing financial statements of the loan creditors and they are also placed in the paper book. We notice that these documents have not been considered/examined by the Assessing Officer as well as the learned CIT(A). A perusal of these documents would show that the identity of the creditors, genuineness of the transactions and the creditworthiness of the creditors have been proved by the assessee, i.e., the assessee has discharged the initial burden of proof placed upon it u/s 68 of the Act. We also find support in law settled in the case of Rohini Builders (supra), wherein Hon'ble Gujarat High Court held as under :-
We have considered the rival submissions and have also gone through the order passed by the Assessing Officer, the relevant portion of which we have also extracted in para 2 above. The Commissioner of Income-tax (Appeals) more or less confirmed the addition on the reasoning given by the Assessing Officer in the assessment order. A perusal of the chart given by us in para 3 above indicates that out of 21 creditors the Assessing Officer has recorded the statements of only six creditors, viz., creditors at serial Nos. 1, 2, 3, 4, 6, and 7. However, in respect of all the 21 creditors the assessee has furnished their complete addresses along with GIR numbers/permanent account numbers as well as confirmations along with the copies of assessment orders passed in the cases of creditors at serial Nos. 1, 2, 4, 5, 6, 7, 9, 10, 11, 12 and 16. In the remaining cases where the assessment orders passed were not readily available, the assessee has furnished the copies of returns filed by the creditors with the Department along with their statement of income. All the loans were received by the assessee by account payee cheques and the repayments of loans have also been made by account payee cheques along with the interest in relation to those loans. It is rather strange that although the Assessing Officer has treated the cash credits as non- genuine, he has not made any addition on account of interest claimed/paid by the assessee in relation to those cash credits, which has been claimed as business expenditure and has been allowed by the Assessing Officer. It is also pertinent to note that in respect of some of the creditors the interest was credited to their accounts/paid to them after deduction of tax at source and information to this effect was given in the loan confirmation statements by those creditors filed by the assessee before the Assessing Officer. Thus it is clear that the assessee had discharged the initial onus which lays on it in terms of section 68 by proving the identity of the creditors by giving their complete addresses, GIR numbers/permanent accounts numbers and the copies of assessment orders wherever readily available. It has also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee is not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source as held by the Bombay High Court in the case of Orient Trading Co. Ltd. v. CIT [1963] 49 ITR 723. The genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques. Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee -from those creditors as non-genuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation [1986] 159 ITR 78. In the said decision the Supreme Court has observed that M /s . Y as h D e v e l o p e r s when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue's case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw an adverse inference against the assessee. In the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69.
8. Further, we may point out that section 68 under which the addition has been made by the Assessing Officer reads as under :
"68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year."
The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this, case the legislative mandate is not in terms of the words "shall be charged to income-tax as the income of the assessee of that previous year". The Supreme Court while interpreting similar phraseology used in section 69has held that in creating the legal fiction the phraseology employs the word "may" and not "shall". Thus the unsatisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the Supreme Court in the case of CIT v. Smt. P. K. Noorjahan [1999] 237 ITR 570.
10. Thus taking into consideration the totality of the facts and circumstances of the case, and, in particular, the fact, that the Assessing Officer has not disallowed the interest claimed/paid in relation to these credits in the assessment year under consideration or even in the subsequent years, and tax deducted at source has been deducted out of the interest paid/credited to the creditors, we are of the opinion that the Departmental authorities were not justified in making the addition of Rs. 12,85,000 which is directed to be deleted.
In the result, the appeal is allowed."
As discussed above, the claim of the assessee was declined on account of non-finding of the parties at the given address but, in our view, it is not a sufficient ground to decline the claim of the assessee, since it was only an inference drawn by the tax authorities and the said inference has been rebutted by the assessee by way of documents/evidence mentioned above. In this regard, we also find support of the law settled by Hon'ble Bombay High Court in the case of Orchid Industries Pvt. Ltd. (supra), in which following questions were considered :-
6.3 Whether on the facts and circumstances of the case and in law, orders of the Tribunal was perverse in deleting the addition of Rs. 95,00,000/- made u/s. 68 of the Act, relying only on the documentary evidence produced by the Respondent company while ignoring the key factor that these entities were not traceable at their given addresses.
6.4 Whether on the facts and circumstances of the case and in law, orders of the Tribunal erred in not appreciating the observations made by the Delhi High Court in Nova Promoters and Finlease Pvt. Ltd. 18 Taxaamnn.com 217 wherein the Court has observed that cases of this type cannot be decided only on the basis of documentary evidences above and there is need to take into account the surrounding circumstances.
6.5 The Tribunal ought to have taken note of the fact thatthe assessee was not able to produce even a single party before the Assessing Officer despite agreeing before the learned CIT(A) that will produce all parties before the Assessing Officer during remand proceedings."
We have considered the submissions.
The Assessing Officer added Rs.95 lakhs as income under Section 68 of the Income Tax Act only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account.
The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidences, only because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee. The judgment in case of Gagandeep Infrastructure (P.) Ltd. (supra) would be applicable in the facts and circumstances of the present case.
7. Considering the above, no substantial question of law arises. The appeal stands dismissed. However, there is no order as to costs."
11. Taking into account the totality of facts and circumstances of the case, we are of the view that the learned CIT(A) was not right in confirming the addition made by the Assessing Officer in respect of above said loan creditors. Therefore findings of the learned CIT(A) is hereby ordered to be set aside and the AO is directed to delete the above said addition of Rs.573 lakhs in view of the foregoing discussions.
The second issue relates to the disallowance of interest expenditure relating to the above said loans. Since we have deleted the addition made u/s 68 of the Act, consequently the interest expenditure claimed thereon is required to be allowed. Accordingly we set aside the order passed By Ld CIT(A) on this issue and direct the AO to delete the disallowance of interest. Accordingly, we decide issue No. 1&2 in favour of the assessee and against the Revenue.
5. Considering the fact that disallowance/addition on the basis of which the penalty was levied by AO and confirmed by ld CIT(A) has been deleted by the co-ordinate bench of this Tribunal in assessee’s own case. In our view once the additions on the basis of which the penalty was levied has been deleted, the penalty order would not survive. Thus, the consequent penalty order is also set-aside. The AO is directed accordingly. for AY 2011-12 6. The assessee has raised identical grounds of appeal as raised in appeal for AY 2010-11. We have noted that the co-ordinate bench of the Tribunal in assessee’s appeal against the quantum assessment has deleted the additions on the basis of which penalty was levied. We have already deleted the penalty levied under section 271(1)(c) for Ay 2010-11. The fact of the year under consideration is also identical except variation of figure. Thus, following the principle of consistency, the appeal for AY 2011-12 is also allowed with similar grounds.