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Income Tax Appellate Tribunal, DELHI BENCH “SMC”, NEW DELHI
Before: SHRI H.S. SIDHU
Assessee has filed this Appeal against the impugned Order dated 16.3.2016 passed by the Ld. CIT(A)-11, New Delhi relevant to assessment year 2013-14 on the following grounds:-
“1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of AO in making an aggregate addition of Rs. 30,00,000/- on account of unsecured loan by treating it as alleged unexplained cash credits u/s. 68 and that too without observing the principles of natural justice.
2. That in any case and in any view of the matter, action of the Ld. CIT(A) in confirming the action of AO in making an aggregate addition of Rs. 30,00,000/- on account of unsecured loan u/s. 68, is bad in law and against the facts and circumstances of the case.
That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of AO in charging interest u/s. 234A, 234B, 234C and 234D of the Income Tax Act, 1961.
4. That the appellant craves the leave to add, modify, amend or delete any of the ground of appeal at the time of hearing and all the grounds are without prejudice to each other.”
The brief facts of the case are that the assessee filed its return of income on 1.10.2013 declaring income of Rs. 12,06,530/-. The case was processed u/s. 143(1) of the I.T. Act, 1961. Subsequently, the case was selected under CASS. Statutory notices u/s. 143(2) of the I.T. Act dated 4.9.2014 was issued. The asessee is engaged in the business of export and works in the name of Grace Fashion Accessories during the year. AO observed that the assessee could not prove his relations/ any other business relation with M/s Lotus Corporation and also could not prove the reason of unsecured loan without any consideration / interest. AO also observed that it is proved that unsecured loan of Rs. 30 lacs taken by the assessee from M/s Lotus Corporation is bogus/ accommodation entry also not supported by the books of account maintained by the assessee.
Hence, he treated the said sum of Rs.30 lacs as unexplained cash credit and added to the income of the assessee u/s. 68 of the I.T.
Act, 1961 and completed the assessment at Rs. 42,06,530/- u/s. 143(3) of the I.T. Act, 1961.
3. Against the order of the Ld. AO, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 16.3.2016 has dismissed the appeal of the assessee and sustained the addition of Rs. 30,00,000/- by observing that the assessee has neither established the identity of M/s Lotus Corporation nor its creditworthiness and neither the genuineness of the transaction.
Aggrieved with the order of the Ld. CIT(A), Assessee is in appeal before the Tribunal.
Ld. Counsel of the assessee has filed the Paper Book containing pages 1 to 51 attaching therewith the copy of computation of income and acknowledgement of return for AY 2013- 14; copy of Audited balance sheet for AY 2013-14 together with profit and loss account and Tax Audit Report; copy of assessee’s reply dated 18.11.2015 filed before AO together with the copy of assessee’s bank statement of Vijaya Bank; copy of assessee’s reply dated 30.12.2015 filed before AO together with copy of confirmation of M/s Lotus Corporation; copy of assessee’s reply dated 11.1.2016 filed before AO giving the correct address of M/s Lotus Corporation; copy of assessee reply dated 9.2.2016 filed before AO together with PAN Number, Bank Statement, 2 RTGS details aggregating to Rs., 30 lacs received from M/s Lotus Corporation and copy of accounts and copy of written submission filed before the Ld. CIT(A). He further stated that assessee has raised loan of Rs.30 lacs from M/s Lotus Corporation vide two RTGS of Rs. 15 lacs each on 16.3.2013 and 22.3.2013. He draw my attention towards the copy of account of M/s Lotus Corporation duly confirmed by the Accountant Mr. Anil Batna at Page NO. 25 of the Paper Book. He further draw my attention towards the page no. 21-23 of the PB which is a copy of bank statement of assessee with Vijaya Bank showing the receipt of 2 RTGS dated 16.3.2013 and 22.3.2013 which proves the genuineness of the transaction. He further draw my attention towards the page no. 28-33 of the Paper Book which is copy of bank statement of M/s Lotus Corporation filed by the assessee as well as obtained by AO directly from the bank showing that the above said two RTGS having been made from this bank account; Page No. 34-35 of the Paper Book is the copy of RTGS Report showing the receipt of two RTGS from M/s Lotus Corporation and page no. 27 of the Paper Book which is a copy of assessee’s reply in which assessee provided PAN no. of proprietor Vikram Devasi of M/s Lotus Corporation which confirms the identity of the lender. Ld. Counsel of the assessee has stated that the assessee has established that the loan in the question has been received through banking channel and further that proprietor of M/s Lotus Corporation was assessed to tax as was evident from his PAN Number. Hence, he submitted that assessee has established all three ingredients of Section 68 of the I.T. Act, 1961 and requested to delete the addition in dispute by relying upon the following judicial precedents and stated that the issue in dispute stands squarely covered by the decisions and also requested to follow the decisions and addition in dispute may be deleted accordingly.
: CIT vs. Sh. Raj Kumar Agarwal: of 2008 dated 17.11.2009 (Allahabad High Court).
: CIT vs. Sh. Ram Narain Goel 224 ITR 180 (P&H HC)
: Nemi Chand Kothari vs. CIT & Anr. 264 ITR 254 (Gauhati)
: ITAT, SMC-3, Bench, Delhi decision dated 2.8.2016 in the case of Kailash Chander vs. ITO passed in (AY 2010-11).
On the other hand, Ld. Sr. DR relied upon the orders of the authorities below and stated that Ld. CIT(A) has passed a well reasoned order which does not need any interference on my part, hence, the appeal of the assessee may be dismissed.
I have heard both the parties and perused the records especially the impugned order and the Paper Book filed by the assessee containing pages 1 to 51 attaching therewith the copy of computation of income and acknowledgement of return for AY 2013- 14; copy of Audited balance sheet for AY 2013-14 together with profit and loss account and Tax Audit Report; copy of assessee’s reply dated 18.11.2015 filed before AO together with the copy of assessee’s bank statement of Vijaya Bank; copy of assessee’s reply dated 30.12.2015 filed before AO together with copy of confirmation of M/s Lotus Corporation; copy of assessee’s reply dated 11.1.2016 filed before AO giving the correct address of M/s Lotus Corporation; copy of assessee reply dated 9.2.2016 filed before AO together with PAN Number, Bank Statement, 2 RTGS details aggregating to Rs., 30 lacs received from M/s Lotus Corpopration and copy of accounts and copy of written submission filed before the Ld. CIT(A). He further stated that assessee has raised loan of Rs.30 lacs from M/s Lotus Corporation vide two RTGS of Rs. 15 lacs each on 16.3.2013 and 22.3.2013. On going through the Paper Book, I noticed that the page no. 25 of the PB is a copy of account of M/s Lotus Corporation duly confirmed by the Accountant Mr. Anil Batna; the pages 21-23 of the PB are the copy of bank statement of assessee with Vijaya Bank showing the receipt of 2 RTGS dated 16.3.2013 and 22.3.2013 which proves the genuineness of the transaction; the page nos. 28-33 of the Paper Book shows the Bank statement of M/s Lotus Corporation filed by the assessee as well as obtained by AO directly from the bank showing that the above said two RTGS having been made from this bank account and Page No. 34-35 of the Paper Book are the copies of RTGS Report showing the receipt of two RTGS from M/s Lotus Corporation and page no. 27 of the Paper Book is a copy of assessee’s reply in which assessee provided PAN No. of proprietor Vikram Devasi of M/s Lotus Corporation which confirms the identity of the lender. After perusing the aforesaid documents/ evidences, I am of the considered view that the assessee has established that the loan in the question has been received through banking channel and further that proprietor of M/s Lotus Corporation was assessed to tax as was evident from his PAN Number. These evidences established that all three ingredients of Section 68 of the I.T. Act, 1961 are fulfilled thus, the addition in dispute is not sustainable in the eyes of law and needs to be deleted. My aforesaid view is fully supported with the following decisions from which the present issue is squarely covered:- a) CIT vs. Sh. Raj Kumar Agarwal: of 2008 dated 17.11.2009 (Allahabad High Court) wherein, the Hon’ble High Court has held that “Once identity is proved, production of the creditor is not the obligation of the assesse and that assessee cannot be compelled to prove the source of the source.”
b) CIT vs. Sh. Ram Narain Goel 224 ITR 180 (P&H HC) wherein, the Hon’ble High Court has held that “the finding of fact given by the Tribunal is based on the material on record. The Tribunal correctly took the view that the assessee was not supposed to prove the source of the loans. Suspicion, howsoever strong, cannot take the place of evidence or proof.” c) Nemi Chand Kothari vs. CIT & Anr. 264 ITR 254 (Gauhati), wherein it has been held that “a person may have funds from any source and an assessee, on such information received, may take a loan from such a person. It is not the business of the assessee to find out whether the source or sources from which the creditor had agreed to advance that the amounts were genuine or not. If a creditors has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the assessee to obtain such amount of money or part thereof from the creditor, by way of cheque in the form of loan and in such a case, if the creditor fails to satisfy as to how he had actually received the said amount and happened to keep it in the bank, the said amount cannot be treated as income of the assessee from undisclosed sources.” d) ITAT, SMC-3, Bench, Delhi decision dated 2.8.2016 in the case of Kailash Chander vs. ITO passed in (AY 2010-11). The tribunal has held as under:-
“7.1 With regard to addition of Rs. 16 lacs is concerned, I find that in the instant case the Assessing officer and CIT(A) observed that "The Ikrarnama was made on 12.10.2009 whereas the conveyance deed, was to be executed on 12.07.2010 i.e. after a period of 10 months, which is abnormal in such transactions." It is submitted that, the amount involved in the instant transaction was high i.e. Rs. 1,05,00,000/- and it is an agreement between the buyer and the seller as per the terms suitable to them and the fixed period of such Agreement to sell (Ikrarnama) is nowhere laid down. Hence, both Assessing officer and CIT(A) are not justified in concluding that the period of 10 months is abnormal. Further, both the authorities below observed that Shri Balwant Singh Pannu had no means and source to advance Rs. 16 lacs for the purchase of property worth of Rs. 1 Crore which is a wrong presumption.
However, the person concerned was an Executive in the Land Mortgage Bank who retired in 2004 and was practicing in the Punjab and Haryana High Court since then.
Further he also owned 20 acres of Agricultural Land against which he has also availed Kisan Credit Card Limit of Rs. 5,00,000/- from nationalized bank. In my view, Shri Balwant Singh Pannu was a person was of sufficient creditworthiness and was in a position to advance an amount of Rs. 16,00,000/- as an advance for purchase of the property situated at Sector 51, Gurgaon. Hence, the finding of the learned CIT(A) is factually not correct. It is also noted that Rs. 16,00,000/- was received by the assessee as an advance against property situated at Sector 51, Gurgaon from Sh. Balwant Singh Pannu in pursuance of an Agreement to sell dated 12.10.2009 as is evident from cash flow statement of the assessee for financial year 2009-10. However, the Ld. CIT(A) has upheld the addition on the basis that no evidence has been furnished by Shri Balwant Singh Pannu regarding advance of Rs 5,00,000/- each from Sh. Maman and Sh. Udaivir and the source of availability of the cash lying at his home. I find considerable cogency in the assesee’s AR contention that Shri Balwant Singh Pannu was the source of cash deposited in the assessee's bank account. Also, it is evident from his statement recorded on 26.2.3013 that advance given to the tune of Rs. 16,00,000/-. Further, the copy of agreement to sell, statement of Sh. Balwant Singh Pannu and Copy of PAN card of Sh.
Balwant Singh Pannu were with the lower authorities. In the background of the aforesaid discussions, it is crystal clear that the amount of Rs. 16,00,000/- credited in the assessee's bank account was from Shri Balwant Singh Pannu. In my view, it is a well settled law that source of source cannot be a basis to make an addition uls 68 of the Act and, on facts burden of the assessee stand discharged and accordingly, the addition of Rs. 16 lacs is deleted. My aforesaid view is fortified by the following decisions:- a) 220 CTR 622 (Raj) Aravali Trading Co. vs. ITO "held that neither the provisions of section 68 nor on general principle it can be said that once the existence of person in whose name credits are found in the books of the assessee is proved and such person own such credit with the assessee, still the assessee is to further prove the source from which creditors could have acquired money to be deposited with him. The fact that depositor's explanation about the source where from they acquired the money is not acceptable to the Assessing Officer, it cannot be presumed that the deposit made by such creditor is the money of the assessee himself. There is no warrant for such presumption." b) 256 ITR 360 (Guj) DCIT vs. Rohini Builders "Thus it is clear that the assessee had discharged the initial onus which lays on it 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 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 .. " [Emphasis Supplied] c) 149 TTJ 401™ (Luck) Dwarikadhish Sugar Industries vs. ITO "held that onus of the assessee (in whose books of account credit appears) stands fully discharged if the identity of the creditor is established and actual receipt of money from such creditor is proved. In case, the AO is dissatisfied about the source of cash deposited in the bank accounts of the creditors', the proper course would be to assess such credit in the hands of the creditor (after making due enquiries from such creditor). " d) 361 ITR 220 (Del) CIT vs, Kamdhenu Steel & Alloys Ltd "12. What does follow from the aforesaid? It is not in doubt that the assessee had given the particulars of registration of the investing/applicant companies; confirmations from the share applicants; bank accounts details; shown payments through account payee cheques, etc. As stated by us in the beginning, with these documents, it can be said that the assessee has discharged its initial onus. With the registration of the companies, its identity stands established, the applicant companies were having bank accounts, it had made the payment through account payee cheques.
No doubt, what the AO observed may make him suspicious about such companies, either their existence, which may be only on papers and/or genuineness of the transactions, when he found that investing companies are not available at given addresses or that the issuance of the cheque representing share application money or preceded by the deposit of cash in the bank account of these investment companies.
The important question which arises at this stage is as to whether on the basis of these facts, could it be said that it is the assessee which has not been able to explain the source and receipt of money. According to the assessee, he had given the required information to explain the source and was not obligated to prove source of the money. It is the submission of the assessee that even in case there is some doubt about the source of money in giving into coffers of the share applicants which they invested with the assessee, it would not automatically follow that the said money belongs to the assessee and becomes unaccounted money. According to us, the assessee appears to be correct on this aspect. We feel that something more which was necessary and required to be done by the AO was not done. The AO failed to carry his suspicious to logical conclusion by further investigation. After the registered letters sent to the investing company had been received back undelivered, toe AO presumed that these companies did not exist at the given address. No doubt, if the companies are not existing, i.e., they have only paper existence, one can draw the conclusion that he assessee had not been able to disclose the source of amount received and presumption under s. 68 of the Act for the purpose of addition of amount at the hands of the assessee. But, it has to be conclusively established that the company is non- existence.
The AO did not bother to find out from the office of the Registrar of Companies the addresses of those companies from where the registered letter received back undelivered. If the address was same at which the letter was sent or the Inspector visited and no change in address was communicated, perhaps it may have been one factor. In support of the conclusion which the AO wanted to arrive at, that by itself cannot be treated as the conclusive factor. As pointed out above, these applicant companies have PANs and assessed income tax No effort was made to examine as to whether these companies were filing the IT returns and if they were filing the same, then what kind of returns these companies were filing. If there was no return, this could be another factor leading towards the suspicion nurtured by the AO. Further, if the returns were filed and scrutiny thereof reveals that such returns were for namesake, this could yet another be contributing factor in the direction AO wanted to go. Likewise, when the bank statements were filed, the AO could find out the address given by those applicant companies in the bank, who opened the bank accounts and are the signatories, who introduced those bank accounts and the manner in which transactions were carried out and the bank accounts operated. This kind of inquiry would have given some more material to the AO to find out as to whether the assessee can be convicted with the transactions which were allegedly bogus and/or companies were also bogus and were treated for namesake. We say so with more emphasis because of the reason that normally such kind of presumption against the assessee cannot be made as per the law laid down in various judgments noted above. Just because of the creditors/share applicants could not be found at the address given it would not give the Revenue a right to invoke s. 68 of the Act without any additional material to support such a move. We are reminding ourselves of the following remarks of a Division Bench of this Court in its decision dt. 2nd Aug., 2010 in the case of CIT vs. Dwarkadhish Investment (P) Ltd. (IT Appeal No. 911 of 2010) [reported at (2010) 45 DTR (Del) 281 : (2011) 239 CTR (Del) 478- Ed.] in the following words: "Just because the creditors/share applicants could not be found at the address given, it would not give the Revenue the right to invoke s. 68. One must not lose sight of the fact that it is the Revenue which has all the power and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the 'source of source'.
7.2 With regard to addition of Rs. 5,49,000/- representing loans received by the assessee is concerned, I find that the Ld. CIT(A) has observed that the mere fact that none of the persons were having enough credit to advance such loans to the assessee and cash of more or less equal amounts were deposited in their respective bank accounts before the issue of cheques to the assessee clearly establishes that the unsecured loans in the name of these persons is an arranged affair. But, I find that Ld. CIT(A) has failed to observed that unsecured loans aggregating to Rs. 5,49,000/- had been received by account payee cheques from identifiable parties who had duly confirmed that the loans had been advanced to the assessee and as such, addition so sustained is invalid and contrary to law. The assessee had raised the loan from five different persons who have filed their affidavits as well as statement of accounts through regular banking channel and by account payee cheques. In my considered view, the burden of the assessee in respect of the loans stand discharged and therefore, no addition is tenable. Once the amount has been received by account payee cheques and the creditors have duly confirmed the transactions no adverse inference can be drawn. Therefore, assessee shows his inability to explain the source of source, which cannot be a basis to confirm the addition u/s. 68 of the Act. Hence, I delete the addition of Rs. 5,49,000/-. This view is also fortified by the decisions as referred in para no. 7.1 of this order, because the facts and circumstances of the case are similar and identical to the addition of Rs. 16 lacs, as aforesaid.”
In the background of the aforesaid discussions and respectfully following the precedents, as aforesaid, the addition in dispute is hereby deleted and accordingly, the appeal of the assessee stands allowed.
In the result, the Appeal filed by the Assessee stands allowed.
Order pronounced in the Open Court on 02/02/2017.