ITO, WD-1(1), KOLKATA, KOLKATA vs. M/S ARTLINK VINTRADE PVT. LTD., MUMBAI

At the outset we note that the Cross Objection of the assessee is in respect to legal issue raised challenging the reopening u/s. 147/148 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) which is not pressed and, therefore, stands dismissed.

In this appeal, revenue has challenged the action of the Ld. CIT(A) in deleting the addition of Rs.5,76,16,000/-. Brief facts of the case are that the assessee is a private limited company which is engaged in the business of trading in shares and securities and filed the return of income for AY 2006-07 on 30.11.2006 declaring nil income. Thereafter, assessee received an intimation of assessment u/s. 143(1) of the Act accepting the declared income. Later on, AO issued notice u/s. 147 read with sec. 148 of the Act and the assessment was reopened. From the reasons recorded it is discerned that assessment has been reopened on the basis of the information received from the DCIT, CC-XXVIII, Kolkata that the assessee company has taken accommodation entries in the form of loans and advances from M/s. Basant Marketing Pvt. Ltd. (M/s. BMPL) to the extent of Rs.5,76,16,000/-. According to AO, since the assessee did not provide material to establish the identity, creditworthiness and genuineness of the transaction, the AO was pleased to add the said unsecured loan to the total income u/s. 68 of the Act. Aggrieved, the assessee preferred appeal before the Ld. CIT(A), who was pleased to delete the same. Aggrieved, revenue is before us.

We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee company had received unsecured loans from M/s. BMPL to the tune of Rs.5,76,16,000/- in the year under consideration which was treated by the AO to have been received as an accommodation entry from M/s. BMPL and since the assessee failed to produce evidence to prove the identity, creditworthiness and genuineness of the lender, the unsecured loan shown by the assessee in its books was treated as unexplained and added u/s. 68 of the Act. On appeal, the Ld. CIT(A) noted that the lender/creditor M/s. BMPL is a sister concern of the assessee company and substantial shares of both the companies are held by family/friends of Mr. Arun Dalmia who is the group Chairman. On a query from the bench as to why the assessee failed to produce the documents when called upon by the AO to prove the identity, creditworthiness and genuineness of the transaction

The Ld. AR further drew our attention to page nos. 95 to 97 of the paper book wherein the copy of the assessment order u/s. 143(3) of the Act dated 15.02.2018 framed against M/s. BMPL (lender who provided the unsecured loan to assessee for AY 2006-07) is attached from where we note that the AO has passed the scrutiny assessment in the case of the loan creditor M/s. BMPL vide order dated 15.12.2008 for AY 2006-07 and has framed the assessment, which is the relevant year of the assessee under consideration before us. Therefore, the question of identity of the loan creditor cannot be disputed. Moreover, it was brought to our notice by the Ld. AR that the impugned addition is in consequence to the search conducted in the case of Shri Arun Dalmia and others and that assessment had been completed u/s. 143(3) of the Act after the search proceedings for AY 2009-10 wherein all the transactions of M/s. BMPL have been accepted as genuine business transactions. However, it was declared as a fictitious entity in AY 2010-11 by the AO which was challenged by M/s. BMPL by filing an appeal before the Ld. CIT(A), Kolkata. The Ld. CIT(A) has passed the order on 04.02.2015 for AY 2010-11 wherein he has held that M/s. BMPL is not a bogus entity and further he observed that there is no material on record to support the adverse finding given by the AO. Accordingly, the Ld. CIT(A), has held that the business carried on by M/s. BMPL cannot be considered as bogus. It was also brought to our notice that the order passed by the Ld. CIT(A), Kolkata in respect of M/s. BMPL has been accepted by the Department by not preferring an appeal before the Tribunal. For CO No. 27/Kol/2018 Artlink Vintrade Pvt. Ltd., AY 2006-07 supporting the said contention, he drew our attention to the letter dated 23.02.2016 vide no. ITO,Wd-8(1),Kolkata/Basant Marketing 15-16 written by ITO, Wd-8(1), Kolkata to the Dy. CIT-3(3)(2), Mumbai which clarifies this fact and we note that the letter is placed at pages 139 to 141 of the paper book. We note from the perusal of page 47 of the paper book which is the letter written by the assessee wherein it replied to the AO vide letter dated 19.08.2013 which included confirmation of account with M/s. BMPL and copies of bank ledger with bank statement of assessee. From a perusal of pages 49 to 65 of the paper book it reveals the documents viz., copy of loan confirmation from M/s. BMPL along with copy of bank ledger and copies of bank statement of assessee showing loan received through account payee cheques. We note from perusal of pages 66 to 81 the assessee had filed the audited accounts of M/s. BMPL for AY 2006-07 before the AO/Ld. CIT(A). And pages 82 to 93 discloses the copy of ledger account of the assessee in the books of BMPL with bank statement of M/s. BMPL for AY 2006-07 wherein the loan transactions have been highlighted and brought to our notice which we have cross checked with the assistance of Ld. DR. Page No. 94 of the paper book is the confirmation of account filed before the AO and pages 95 to 97 is the copy of the assessment order u/s. 143(3) of the Act of M/s. BMPL for AY 2006-07. Thus, the assessee has been able to discharge the onus casted upon it to prove the identity, creditworthiness and genuineness of the loan creditor. For taking such a view we rely on the order of the Hon’ble Calcutta High Court in S. K. Bothra & Sons HUF Vs. ITO 347 ITR 347 (Cal). The Hon’ble Calcutta High Court in Crystal Network (P) Ltd. Vs. CIT 353 ITR 171 (Cal) has observed that the creditors cannot be disbelieved merely because they did not respond to summons when all other documents to substantiate the loan transaction has been filed before the assessing authority. The Hon’ble Calcutta High Court in CIT Vs. Dataware (P) Ltd. of 2011 dated 21.09.2011 has held that in case if the AO has doubt regarding the creditworthiness of the loan creditor, then the AO in turn had to seek report from the AO of the loan creditor and thereafter only draw adverse inference against the loan creditor. In this case, the AO has not made any exercise of this nature to discredit the loan creditor. The assessee has discharged the onus by placing all the documents before the AO/Ld. CIT(A); and the Ld. CIT(A) has taken note of all these facts to delete the addition which is supported by relevant material, so the impugned order

In the result, the appeal of the revenue and the cross objection of the assessee are dismissed.