ITO-28(1), CIVIC CENTER NEW DELHI vs. ARPITAM BUILDERS LLP, SOUTH DELHI

Against this order, assessee preferred an appeal before Ld. CIT(A), who after considering the submissions, vide impugned order dated 26.12.2024, allowed the appeal of the assessee.

Aggrieved by the order of Ld. CIT(A), revenue preferred appeal before the Tribunal by taking following grounds of appeal:-

Whether on facts and in circumstances of the case, the Ld. CIT(A), NFAC, Delhi has erred in law in deleting of the addition of Rs. 15,65,35,565/- as unexplained cash credit u/s 68 of the Income Tax Act, 1961 made by the Assessing Officer by ignoring the fact that the assessee has failed to discharge its primary onus to prove the identity and creditworthiness of the creditor and genuineness of the transactions by furnishing concrete documentary evidence.

Whether on facts and in circumstances of the case, Ld. CIT(A) has erred in not considering the facts that external verification of unsecured loan transactions and creditworthiness of loan creditor could not become possible for the AO during the assessment proceedings due to failure on the part of assessee in providing basic requisites for third party enquiry.

The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.

Ground of appeal No. 1 & 2 raised by the revenue are in respect to the deletion of addition of Rs. 15,65,35,565/- made by AO u/s 68 of the Act.

Before us, ld. CIT Dr submits that assessee has filed to establish the identity and creditworthiness of the lender company during the assessment proceedings before the AO. He drew out attention to para 4.4 of the assessment order and stated that in the said para the AO has made categorical observations that the assessee has failed to file any details to prove the identity of the loan creditor. He thus submits that ld. CIT(A) has deleted the addition by admitting the additional evidences without obtaining the remand report from the AO under Rule 46A of the IT Rules, 1962 and therefore, the order of the ld. CIT(A) deserves to be struck down and matter be remanded to the file of the AO for fresh consideration of the details filed by the assessee.

Per contra, Ld. AR for the assessee vehemently supported the order of the ld. CIT(A) and submits that assessee had filed all the relevant details before the AO who has failed to consider the same. He drew our attention to the written submission filed before the AO as available in paper book filed by the assessee. Ld. AR submits that assessee entered into an Inter Corporate Loan agreement for obtaining loan upto Rs. 30.0 crores @ 11% per annum rate of interest with M/s. Shining Infrabuildcon LLP on 08.11.2019, for business growth. Thereafter assessee received Rs.15,65,35,565/- from M/s Shining Infrabuildcon LLP and paid interest of Rs.86,89,435/-. It is submitted by ld. AR that to prove the identity and creditworthiness of lender and genuineness of the transaction assessee has filed Ledger account of M/s Shining Infrabuildcon LLP in the books of assessee, copy of Bank Statements of assessee highlighting the relevant transaction, Confirmation from M/s Shining Infrabuildcon LLP, Copy of Bank A/c of M/s Shining Infrabuildcon LLP and Copy of Financial statements of lender LLP for the period ending on 31.03.2022, wherein loan to assessee is duly appearing.

Ld. AR further submits that in addition to this assessee also submits the source of source i.e. the immediate source of funds in the hands of the lender by filing a details chart which is reproduced at pages 5-7 of the appellate order. Ld. AR submits that after considering these details which were also filed before the AO, the ld. CIT(A) has deleted the additions and requested for the confirmation of the said order of ld. CIT(A). 9. Heard the contentions of both the parties and perused the material available on record. From the fact it appears that AO has made the addition of loans received form M/s Shining Infrabuildcon LLP by observing that the assessee has filed to file any details to prove the identity and creditworthiness of the lender. From the perusal of the documents placed before us, we find that assessee had filed every possible detail to establish the identity, genuineness and creditworthiness of the loan transaction. However, the AO has failed to take cognizance of the same. It is further seen that assessee not only prove the creditworthiness but also established the source of source in the hands of the lender company which is evident from the chart reproduced in the order of ld. CIT(A). As per the said chart, majority of funds were by M/s Shining Infrabuildcon LLP form its sister concerns. It is also seen that M/s East India Udyog, from whom major amount was received by the lender, assessment in its cases was done for AY 2022-23 u/s 143(3) of the Act wherein all transactions related to the amounts transferred to the appellant were thoroughly examined and accepted by the assessing officer as genuine. Ld. CIT(A) after considering these facts has deleted the additions by making following observation:

4 “The submissions made by the appellant, along with the documentary evidences provided, have been thoroughly examined. The core issue raised by the AO was whether the appellant had satisfactorily established the genuineness, identity, creditworthiness of the unsecured loan amounting to Rs.15,65,35,565/-. Upon review of the appellant’s submission and supporting documentation, it is evident that the appellant has complied with the requirements to establish the nature and source of the loan before the AO. During the appellate proceedings, the appellant submitted detailed information such as loan agreement, bank statements, ledger extracts, confirmation letters, and financial statements of the lender, M/s Shining Infrabuildcon LLP. The appellant also submitted the ICD agreement between the two parties, providing clear evidence that the loan was obtained through proper banking channels and was fully documented. The appellant further clarified the purpose of the loan, demonstrating that it was utilized for acquiring properties related to its real estate business. The identity the lender has been established beyond all reasonable doubts. The genuineness of the transaction can also be safely concluded since the entire transaction has been done through the banking channels duly recorded in the books of account of the assessee and duly reflected in the financial statement of the lender i.e. M/s Shinning Infrabuildcon LLP. Upon verification of financial statement, it is noted that the financial credibility of M/s Shining Infrabuildcon LLP has been supported by its audited financial statements and income tax returns. Additionally, the appellant also placed on record source of unsecured loans in the tabular form to demonstrate that the funds received were sourced from inter- corporate loans from associated entities, particularly M/s East India Udyog Limited, which has also been assessed for assessment year 2022-23 and all such loan transactions were thoroughly examined and accepted as genuine by the Department. The AO's claim that the appellant failed to establish the genuineness of the transaction lacks substance, as the evidence submitted by the appellant sufficiently demonstrates the identity, creditworthiness, and genuineness of the loan. The funds were transferred through recognized banking channels, and all transactions were recorded in the bank statements and ledgers of both the appellant and the lender. Therefore, I find that the initial onus to prove the receipt of the unsecured loan capital u/s 68 was therefore discharged. The AO's claim that the appellant failed to establish the genuineness of the transaction lacks substance, as the evidence submitted sufficiently demonstrates the identity, creditworthiness, and genuineness of the creditors/lenders. The AO neither conducted independent inquiries nor provided any contrary evidence to dispute the appellant's claims which are evident from order. The AO’s observation that the appellant failed to establish the genuineness appears to be based on conjecture rather than any onus substantive findings. The initial onus to prove the receipt of the unsecured loan under Section 68 was therefore discharged by the appellant. It is evident that the appellant has provided sufficient evidence to establish the existence, identity, creditworthiness, and genuineness of the lender, M/s Shining lnfrabuildcon LLP, and the inter-corporate loan transaction. The AO has not been able to discharge the shifted onus to disprove the appellant’s submissions. The AO's acceptance of the factual position that the funds were received from M/s Shining Infrabuildcon LLP a sister concern of the appellant, is corroborated by the loan provider's confirmation and the signed agreement. In light of the above, I find that the appellant has satisfactorily discharged the onus of proving the identity of the lender, the creditworthiness of M/s Shining Infrabuildcon LLP, and the genuineness of the inter-corporate loan transaction. Thus. I find no merit in the A0's adverse view which appears to be based on presumptive factors rather than substantial evidence The appellant has all the evidence to show the existence, identity, creditworthiness and genuineness of transactions. I am therefore of the view that the addition d Rs. 15,65,35,565/- cannot stand on merits. I therefore delete the addition of Rs. 15,65,35,565/- on account of unexplained cash credit u/s 68 of the Act made by the AO. Accordingly, ground nos. 01 to 03 raised by the appellant is hereby allowed.”

Now coming to the issue of invocation of provisions of section 68 of the Act. The provisions, as contained in section 68 of the act, read as under:

“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 :

That a bare reading of Section 68 suggests that there has to be credit of amounts in the books maintained by an assessee; such credit has to be of a sum during the previous year; and the assessee offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The expression "the assessee offer no explanation" means where the assessee offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. It is true the opinion of the Assessing Officer of not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion.

During the appellate proceedings, our attention was drawn to the details filed before the AO containing the bank statement, confirmation and financial statements alongwith the loan agreements to establish the identity and creditworthiness which are placed in paper book filed by the assessee. It is further seen that all the loans were received through proper banking channel and were from the sister concerns thus genuineness of the transactions was also proved. As per appellant, the AO made addition on the basis of conjuncture and surmises. It is worthy to mention that the above- mentioned details were submitted during the appellate proceedings also and after appreciating the same ld. CIT(A) has deleted the additions made as is evident from the observations of ld. CIT(A) in para 5.4 of the appellate as reproduced above.

It is further noticed that the AO has not considered the appellant's submission and made addition with predetermined mind. As can be seen from the submission filed by the appellant before the AO that the appellant had furnished loan confirmation, bank statement, etc. however, ignoring all these, the AO had concluded that identity, creditworthiness of the loan creditor and genuineness of transaction has not been proved. By filing all the relevant details of the loan creditors before the AO, assessee has discharged the onus lies upon it. Therefore, there is nothing left on the part of the assessee to prove further. If the AO wanted to inquire further, he has powers under the provisions of section 131 and section 133(6) of the Act which he could have opted for and could have verified whatever is submitted before him. The AO did not do so. This shows clearly the biased mind of the AO. 14. The Hon’ble Supreme Court in the case of Orissa Corporation reported in [1986] 159 ITR 78 (SC) 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. In the present case as observed above, no such exercise was carried out by the AO.

The Hon’ble Juri ictional High Court in the case of Principal Commissioner of Income-tax v. Anshika Consultants (P.) Ltd. reported in [2024] 162 taxmann.com 792 (Allahabad) held as under “INCOME TAX : Where assessee had received unsecured interest bearing loans from three corporate entities and had furnished necessary acknowledgement of return, balance sheet, profit and loss account, etc., to prove identity, creditworthiness and genuineness of transaction of unsecured loan taken by it, addition under section 68 was not warranted. “

Similarly in the case of Deputy Commissioner of Income-tax v. Paswara Papers Ltd. reported in [2024] 159 taxmann.com 604 (Allahabad), the Hon’ble Court has held as under: “INCOME TAX : Where assessee received loan from various creditors who sold their old jewellery and gave loan to assessee out of sale consideration, since assessee had disclosed name of jewellers to whom jewellery was sold and also established mode of payment through banking channel, and moreover existence of deposits made to assessee by creditors was not in dispute, impugned addition under section 68 with respect to loan could not be sustained.”

The Co-ordinate Bench of ITAT Delhi in the case of ITO Vs. Alpha Contech Pvt. Ltd. in ITA No.3351/Del/2016 vide order dt. 28.07.2023 held as under:

“On careful consideration of above rival submission, first of all, we note that the Assessing Officer made addition u/s. 68 of the Act, by observing that despite several opportunity the assessee failed to prove creditworthiness of lender and genuineness of transaction and thus could not discharge onus as per requirement of sec 68 of the Act. The assessee carried the matter before ld. CIT(A) and filed additional evidence under rule 46A of the Rules on which remand report was called wherein the Assessing Officer did not made any adverse comment on the additional documentary evidence of assessee and also admitted that the lender company received amount of Rs. 7,30,62,000/- as share premium reserve during immediately preceding assessment year and amount of loan of Rs. 3.60 crore advanced to the assessee during present assessment year was from the said reserve amount. The remand report of the Assessing Officer supported the case of assessee which was based on the strength of additional evidence filed by the assessee without raising any doubt or discrepancy therein.

We also find and appropriate to reproduce the relevant operative part of first appellate order as follows:-

However, it is also seen from the P & L Account filed in this case that this company has no apparent business activity during the relevant period, i.e. during the FY 2010-11, and it has declared a nominal sum of Rs.35,600/- as Consultancy / Commission income. This company has also furnished a copy of the intimation us 143(1) in its case, issued by CPC, Bangalore, in response to the specific query regarding furnishing copy of assessment order passed in its case for AY 2011-12. 7. As regards the present position of the said money advanced by MIs Fennie Commercial Pvt. Ltd. to the appellant company, it has been stated that they have not received any shares from M/s Alfa Contech Private Limited till date and the said Sum is lying as Loans & Advances in their books. However, this company has not furnished copy of its latest IT filed as well as copy of Audit Report, Balance Sheet and P & L Account despite being specifically called for in the letter issued us 133(6) to it.

It is also submitted here that as per the Balance Sheet of the appellant company for the AY 2011-12, it has shown a sum of Rs.3.60 crores as "Loans from Body Corporate", as per Schedule 3 annexed to the Balance Sheet and not as Share Application Money. Also, as per details filed by the appellant vide its letter dated 03.02.2014 during the course of the assessment proceedings in its case for AY 2011-12, it has furnished the name of Ms Fennie Commercial Private Limited, PAN AAACF9549A, from whom it had allegedly received unsecured loan of Rs.3.60 crores whereas the said party is showing this Loan & Advance as "Share Application Money".