ACIT 25(2), MUMBAI vs. H.K. PUJARA BUILDERS, MUMBAI

The only issue in this appeal of Revenue is against the order of CIT(A) deleting the addition made by AO by invoking the provisions of section 68 of the Act in respect of loan credit of Albright Consultant Pvt. Ltd. amounting to ₹ 1.50 crores. For this Revenue has raised following ground No. 1 and 2: - “'1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the additions mace u/s. 68 of the Act in respect of money received from MIS. Albright Consultant amounting to Rs. 1.50 crores without considering that – (a) The creditworthiness of the creditor is not proved as the creditor did not have sufficient income during the year to advance such huge amount to the assessee.

Brief facts are that the assessee has received a loan amount to ₹ 1.50 crores from Albright Consultant Pvt. Ltd and on query from the AO during the course of assessment proceedings, the assessee produced confirmation letters, copy of return of income of loan creditors. But according to AO, the assessee is unable to prove the genuineness of transaction and hence, he added the sum of ₹ 1.50 crores. Aggrieved, assessee preferred the appeal before CIT(A).

The CIT(A) deleted the disallowance after considering the submissions of the assessee by observing in Para 5.3 to 5.5 as under: - “5.3 The appellant is a partnership firm engaged in the business of Builders and Developers. During the year under appeal, the appellant has shown Rs.1,50,00,000/- towards unsecured loan from M/s. Albright Consultants P. Ltd. The AO in the assessment proceedings has questioned the genuineness of the creditor MIs. Albright Consultants P. Ltd. The AR of the appellant appeared and furnished the details such as confirmation letter, return of income of M/s. Albright Consultants P. Ltd. and other various documents to establish the identity and creditworthiness of the said company and genuineness of the loan. The appellant has also produced Pan Card, Income Tax Returns acknowledgement, Letters from the Reserve Bank of India, Bank statement, Auditor's report, Audited Financial Reports etc. and also submitted bank statement, the detail of the source of transaction. The AD has rejected the explanation of the appellant in respect of loan transaction with M/s. Albright Consultants P. Ltd. without making proper enquiry. Proper enquiry must be made by the AO before making any. addition under section 68. The AO must make proper enquiry before making any addition under section 68. In Khandelwal Constructions v. CIT 227 ITR 900 (Gau), it has been held that section 68 of the Income Tax Act, 1961 empowers the Assessing officer to make enquiry regarding cash credit. If he is satisfied that these entries are not genuine he has every right to add these as income from other sources. But before rejecting the assessee's explanation, A.O. must make proper enquiries and in the absence of proper enquiries, addition cannot be sustained.

We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee has produced copy of Pan Card, Income Tax returns acknowledgement, letter from RBI, Bank statements depicting this entry of loan of ₹ 1.50 crore, auditor report, financial statements etc. to prove the creditworthiness of the party, genuineness of transaction and sources of transaction. We find that in earlier years i.e. AY 2010-11 also, the assessee has obtained loan of ₹ 1.12 crores from the same party, wherein exactly on identical circumstances CIT(A) deleted and further, Tribunal has confirmed the order of CIT(A). Now, before us the learned Counsel for the assessee filed a copy of Tribunal order in assessee’s own case for AY 2010-11 in order dated 27-12-2016 confirmed the order of CIT(A) deleting the addition earlier year order in ITA No. 2034 & 2491/Mum/2014 for AY 2009-10 vide order dated 09-05-2016 at para 9 and reads as under: - “9. Learned AR placed on record the order of the tribunal in assessee’s own case wherein addition made in the immediate preceding year was deleted by Tribunal vide its order dated 09/05/2016 in ITA No.2034/Mum/2014, wherein Tribunal observed as under:-

We heard the rival contentions and perused the record. The dispute before us relates to the addition made u/s 68 of the Act. It is a well settled proposition that the primary onus is placed upon the assessee u/s 68 of the Act to prove the cash credits. In order to discharge the primary onus, the assessee has to prove the identity of the creditor, credit worthiness of the creditor and the genuineness of the transactions. If the assessee discharges the initial onus, then the burden shifts to the shoulder of the AO to disprove the claim made by the assessee. With these settled legal propositions, we shall now examine the facts prevailing in the instant case.

We have noticed that the AO did not consider various documents furnished by the assessee during the course of assessment proceedings in order to discharge the initial onus placed upon him u/s 68 of the Act. The AO gave importance to the report of the Inspector belonging to the investigation wing, who had stated that the loan creditors did not exist at the address given by them. However, it is pertinent to note that the said report of the Inspector was proved to be false during the course of subsequent enquiries. 13. The Ld CIT(A) also requested the DDIT, Kolkatta to carry out certain investigation. Even though all the companies were represented by a single authorised representative, yet the fact remains that all these companies have furnished necessary details. Further the assessee herein also furnished necessary documents to prove the M/s. H.K. Pujara Builders identity of the creditors and credit worthiness of the creditors. There is no dispute with regard to the fact that the funds have been routed through banking channels. Hence the Ld CIT(A) himself has observed that the identity of the creditors and credit worthiness of the creditors have been established by the assessee. 14. The Ld CIT(A) has accepted the genuineness of the transactions in respect of loan obtained from M/s ACPL. However with regard to the other. two loans, the Ld CIT(A) has gone a step further and expressed doubt as to how these companies, being NBFC, could have given loan interest free, as the same is not in accordance with their objectives. 15. We have earlier noticed that the provisions of sec. 68 places initial burden of proof upon the assessee. In the instant cases, there is no dispute between the parties that the identity of the loan creditors has been established. Even though the assessing officer has expressed doubt about the credit worthiness of the creditors on the basis of low income reported by them, yet the Ld CIT(A) has rightly appreciated the fact that these companies have used their own capital funds for advancing loan to the assessee company.

It is a well settled proposition that the genuineness of the transactions shall stand established if the transactions are routed through banking channels. In the instant case, the loan transactions have been routed through the banking channels. Hence the genuineness of the transactions also stand established. However, the Ld CIT(A) has expressed doubt about the genuineness in respect of loan taken from M/s NVPL and M/s SVPL, since he was of the view that a NBFC company shall not give interest free advances to unrelated parties. In our view, the doubt so expressed by the M/s. H.K. Pujara Builders Ld CIT(A) is beyond the scope of the provisions of sec. 68 of the Act. Since the provision of sec. 68 is a deeming provision, the same is required to be interpreted strictly. The Courts have held that the assessee is required to discharge the initial burden of proof placed on his shoulders. In the instant case, we are of the view that the assessee has discharged the initial onus placed upon it. Hence the burden of proof gets shifted to the assessing officer.

From the foregoing discussions, we notice that the tax authorities have not discharged the burden of proof shifted upon their shoulders by bringing any material on record to disprove the claim of the assessee. On the contrary, the tax authorities have merely suspected the genuineness by making certain adverse inferences. It is pertinent to note that they have not disputed the genuineness of various documents furnished by the assessee to prove the identity and credit worthiness of the creditors and genuineness of the transactions. Accordingly, we are of the view that the tax authorities have not discharged the burden of proof placed upon them.

We have noticed earlier that the Ld CIT(A) has deleted the addition pertaining to M/s ACPL, but confirmed the addition pertaining to M/s NVPL and M/s SVPL. Since we have held that the tax authorities have failed to discharge the burden of proof shifted upon them, we are of the view that they are not justified in making the addition in respect of all the three loans. Accordingly, we confirm the order of Ld CIT(A) in granting relief in respect of loan taken from M/s ACPL . Accordingly, we set aside the order passed by Ld CIT(A) in respect of loan taken from M/s NVPL and M/s SVPL and direct the AO to delete the additions relating to them.

We had carefully gone through the order of the Tribunal. The facts and circumstances during the year under consideration are exactly same, respectfully following the order of Tribunal in assessee’s own case for immediately preceding assessment year, we do not find any infirmity in the order of CIT(A).”

Even now, before us the learned Sr. Departmental Representative could not controvert how genuineness of transaction is not proved. In view of the above facts and circumstances and the issue is consistently allowed in favour of assessee, respectfully following Tribunal orders in earlier years, we confirm the order of CIT(A) deleting the addition. The appeal of Revenue is dismissed.

In the result, the appeal Revenue is dismissed.