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Income Tax Appellate Tribunal, DELHI BENCHES, NEW DELHI
Before: SHRI.I.C. SUDHIR & SHRI PRASHANT MAHARISHI
The assessee against the order dated 26.11.2014 of the learned 1. Commissioner of Income tax (Appeals) Meerut prefers this appeal for the Assessment Year 2010-11. The following grounds of appeal have been raised by the assessee:-
Page 2 of 15 1. That the learned Commissioner of Income Tax (Appeals), Meerut (hereinafter referred to as 'Id. CIT (A)') has erred in law as well as on the facts of the case by confirming the order framed by the Income Tax Officer, Ward - 1(2), Meerut (Id. AO) and upholding the additions of Rs.72,34,350/- to the returned income and various observations and findings made are incorrect and untenable in law and the facts of the case and the submissions of the appellant have not been considered in the right perspective thereof.
2 That the Id. CIT-(A) has erred in law and in facts of the case by confirming the addition of Rs.61,25,000/- u/s 68 of the Income Tax Act, 1961, confirming that the loans received by the appellant during the relevant were not genuine and that the creditworthiness of the lenders is not proved, when the same was duly established by the documents placed on record and through affidavits and statements on oath. The facts of the case and the submissions of the assessee are not considered in the right perspective and various findings made by the Id. CIT(A) including that all the 10 unsecured lenders were apparently Page 3 of 15 unconnected persons are either factually incorrect or untenable in law.
3. That the Id. CIT(A) has grossly erred in law as well as on the fact of the case by confirming the addition of Rs.11,09,350 u/s 41(1) of the Income Tax Act, 1961, for various reasons including the following: a) The Id. CIT(A) ignored the fact that Mr. Ashaf Sohail, the alleged bogus creditor, has accepted in his statement of oath as recorded by the Id. A.O. during the assessment proceedings that the impugned amount of Rs.11,09,3507- was payable by the appellant for purchase of animals. b) The Id. CIT(A), has also ignored the modus operand! of the appellant that Mr. Ashaf Sohail, was the commission agent for the purchase of animals and was solely responsible to the actual suppliers for the payment of their dues and was the only link between the actual suppliers and the appellant and the same modus operand! is very much prevalent in the trade of the appellant. c) The Id. CIT(A), has also failed to appreciate that even if the liability is recorded in the books of the appellant in the Page 4 of 15 name of the agent then also by no stretch of imagination the same can be said to have ceased to exist or remitted.
The assessee has raised briefly two grounds wherein addition of 2. Rs.61,25,000/- being unsecured loan received from 10 persons added u/s 68 of the Act and second grounds against the confirmation of addition of Rs.11,09,350/- of a creditor holding it as not genuine.
The brief facts of the case are that the assessee is a private limited company engaged in the business of processing and trading of Frozen Foodsat Meerut. The return of income showing NIL income was filed on 14.10.2010. During the course of the assessment proceedings, it was found that the assessee has borrowed through unsecured loan of Rs.61,25,000/- from 10 persons. The brief trail of the amount deposited with the assessee company was immediate cash deposit in the account of these persons. Cash was deposited on 23.03.2010 and the same amount was immediately transferred to the account of the assessee company through cheque. Therefore, the AO was of the view that bank accounts of the above-mentioned persons were utilized to route money into the account of the assessee. Before the AO, it was submitted that above loan transaction are undertaken through banking channel, the copy of their Pan Cards proved the identity of the Page 5 of 15 persons giving unsecured loan, and for the creditworthiness of the depositors it was submitted that all the depositors are old assesses. Therefore, the AO not being satisfied with the explanation of the assessee issued summons on 18.03.2013 to all the persons as well as to all the sundry creditors. In response to these summonses, it was submitted that out of these 10 persons eight are women are Pardanashin as per section 132 of the Code of Civil Procedure, 1908 and therefore they are exempt from personal attendance. Assessee submitted duly sworn affidavit of these eight women in which they have confirmed thatthey have given the above-unsecured loan through their own income and savings of the previous year. The AO noted that the source of income of these 8 ladies were from embroidery and knitting, trading of sarees and handloom clothes and therefore the AO was of the view that as these ladies are engaged in the business they should have made themselves available for verification before the AO. Regarding the other two persons, both of them are male and are earning commission from the sale of animals to meat factories. Both of them have advanced Rs.Five lacs each to the assessee company. Both persons have stated that their savings of earlier years for AY 2009-10 and 2010-11 are put into bank account Page 6 of 15 in cash and then cheque for loan was given. On these facts, the AO made an addition of Rs.61,25,000/- u/s 68 of the Act. On appeal before the ld.CIT (A), the same arguments were reiterated.
The ld.CIT (A) was of the view that it is apparent that unconnectedpersons would deposit such huge amount of cash on one single day in their bank account who earned their livelihood from embroidery, stitching and petty business would have so much of disposable cash they have given advance loans in the range of Rs.3 lacs to Rs.8.75 lacs to the assessee.Furthermore,without depositing a single penny before or after the day of this transaction by personwho come altogether and deposit same amount in their bank accounton the same day and then issue cheque to the assessee creates serious doubts about the genuineness and creditworthiness of these loan transactions. He further stated that same loan creditors have also advanced loan of varying amount ranging Rs.3.5 lacs to 6.35 lacs to M/s. Al Hind exports, a related concern of the appellant company during the same assessment year. He was also of the opinion that transaction through cheque does not prove the sanctity of the transaction. The ld.CIT (A) further held that loan transactions of the appellant from the 10 unsecured loan creditors have all the classic signs of introduction of Page 7 of 15 one’s own money in the garb of loan. Ld. CIT(A) further rejected the case laws cited by ld. AR of the appellant as the transaction failed the test of genuineness and creditworthiness which is proved by preponderance of probabilities and therefore he confirmed addition of Rs.61,25000/-.
On appeal before us, the ld. AR submitted that the assessee has submitted Income Tax Return, Computation of total income, statement of affairs of the lenders and bank statement of the 10 unsecured lenders to the AO. It was further submitted that all the lenders are assessed to tax and they have advanced interest free unsecured loan to the assessee. Such loans are outstanding in the statement of affairs of these lenders, which is submitted before lower authorities, therefore the identity, creditworthiness, and the assessee proves genuineness of the transaction. He further submitted that when the summons were issued u/s 131 of the Act, an affidavit confirming the advance of loan were submitted by all ladies and two gentlemen appeared personally. All of them have confirmedtheir loan before the AO. He relied on 3 decisions reported in 147 Taxman 18 of jurisdictional High Court, 264 ITR 254 of Gauhati High Court, 356 ITR 316 of Gujrat High Court. He further submitted that the issue is Page 8 of 15 now squarely covered in favour of the assessee by the decision of the Hon’ble Madras High Court in the case of CIT vs. Mark Hospitals Pvt. Ltd. 373 ITR 115. He submitted that merely about the deposit of cash in the bank account of the lenders on previous day, issue of cheques on next day is a legal transaction, and it cannot be doubted. He further relied on the decision of Rajasthan High Court in the case of CIT Vs. Jai Kumar 267 CTR 396.
The ld. DR relied on the orders of the lower authorities and he submitted that addition u/s 68 has rightly been made as the assessee has failed to prove the creditworthiness and genuineness of the transaction.
We have carefully considered the rival contention.we have also perused the paper book containing 67 pages, wherein the assessee has submitted the copies of the confirmation, income tax return, computation of income, statement of affairs, and bank passbook statement of the 10 unsecured lenders. It also contains the affidavit of the 8 ladies and two persons submitted in response to this summons, where they have confirming advance given to the assessee and further copy of the statement of two unsecured lenders which are recorded by the AO during the assessment proceedings. The assessee also placed Page 9 of 15 before us the written submission made before the learned Commissioner of Income tax (Appeals). We have carefully gone through the submission and evidences placed before us. On perusal of all the evidence, we are of the view that for the purpose of section 68 of the Act following three conditions are required to be proved.
Identity of the lenders 2. Creditworthiness of the lenders 3. Genuineness of the transaction. Regarding the identity of the creditors, it has been proved by the 8. assessee beyond doubt as all the lenders are having permanent account number bank account and have filed their return of income. Regarding the creditworthiness of the parties assessee has submitted 9. copies of returns filed by these assesses. On verification of the return of income of all these persons, it is apparent that all these returns for AY 2010-11 have been filed on same day i.e. 31.03.2011. In all the computation of income, income shown by the lenders is a single lineentry wherein income from embroidery and knitting has been shown. There is no profit and loss account or income and expenditure statement. For all the returns, the income computed is approximately 2.15 to Rs. 3 lacs only and meagre tax of Rs.15 thousands to Page 10 of 15 Rs.2500 is paid in all these accounts. In an identical manner statement of affairs of all these eightwomen and two men is prepared wherein advances to the assessee and Al Hind Export (party referred to in the order of the ld.CIT (A)) are mentioned. The statement of affairs showed meager bank balance of approximate Rs.1500 to Rs. 2000 is shown and also meager cash in hand of Rs.7000/- approximately in all these accounts are disclosed. Further, while preparing the statement of affairs of all these persons having opening balance of their capital accounts i.e. sum of Rs.1632000/- in the name of Mrs. Farhanha Praveen Rs.10.94 lacs in the name of Mrs. Mehmooda Begum, Rs, 12.94 lacs in the name of Mrs. Naseem Bano and Rs. 10.66 lacs in the name of Sabana Praveen are shown. In past no loan is given to the assessee and other sister concern of the assessee. In same the statement of the affairs of some of the lenders sundry creditors are shown which are also cannot be identified. From the statement of affairs surprisingly there is no profit and loss account was available no income and expenditure statement has been prepared. While filing the computation of total income along with return of income only income from embroidery and knitting is mentioned. There is no detail of gross income or expenditure Page 11 of 15 incurred by these assesses on their respective business is shown. All the computation of income, statement of affairs and capital account has been prepared in similar fashion. Surprisingly all the 10 lenders have opened their bank account with the same branch of Dena bank i.e. Dena Bank, Subash Bazar, Meerut City. It is also surprising that the address of all the parties is 13 Ismail Nagar, Meerut City. All these lenders have come together and deposited cash in their bank accounts with the same bank and then deposit these amounts with the assessee as well as its sister concern on the very next day proves more than what is saidby lower authorities. Therefore in the case of these 8 ladies wherein the identicalmodus operandi has been adopted for giving alleged loan to the assessee who are having their meager income and has meager cash in hand and have minimum bank balance with them. We are of the view that the assessee has miserably failed to prove the creditworthiness of these lenders. Now coming to the issue of genuineness of these transactions. We 10. found that the assessee has failed to prove the genuineness of the transaction as all the bank accounts are with the same bank, in the same branch and on the same day, cash is deposited and on the next day loan was advancedto the assesseecompany andits sister concern.
Page 12 of 15 All the assessee have filed their return of income showing meager income and paying small amount of tax and further preparing and submitting their computation of total income, a statement of affairs, capital account in similar manner and showing opening capital of those assess to show the advance, it is a façade created to prove the genuineness of the transaction. All the decisions relied upon by the ld. AR cannot be come to the rescue of the assessee in view of façade created by the assessee in obtaining loan from lenders who does not have any creditworthiness by filing the return of income and entering in to transaction through banking channel . Any transaction entered in to cannot be held to be genuine or otherwise merely because it is through banking channel. It is merely a mode of entering into transaction. Because loan is through banking channel it cannot surpass the test of genuineness of the transaction on the facts narrated above in the case of the assessee. Similarly, in the case of other two other assesses who have deposed before the AO regardingdeposit Rs.5 lacs each are also dealt in a similar manner. In case of Mr. Ashique Elahi the income of Rs.210,000/- has been shown however, there is no narration in the computation of total income about the activities of these persons. In the statement of Page 13 of 15 affairs cash at hand of Rs.170,000/- has been shown, further in his bank account only cash of Rs.25,000/- is available. In the case of Rehmat Elahi, the facts are also identical. Therefore all these evidences in case of lenders lead that theidentity of these creditors have been proved and nothing else. In view of the above facts, we confirm the order of the learned Commissioner of Income tax (Appeals) confirming addition of Rs.6125000/- with respect to 10 lenders unsecured loan added u/s 68 of the Act. Accordingly, ground No.1 of the appeal is dismissed. Ground No.2 of the appeal is against confirmation of addition of 11. Rs.11,09,350/- u/s 41(1) of the Act. The brief facts of this addition is that this creditor in response to the summons appearedbefore AO for recording the statement and admitted that he is not engaged in the business of selling of the animals and he is only earning commission. The modus operandi of the assessee was to record his name as creditor in places of the traders who sale the animals. Therefore, AO held that Mr. Asraf Sohail is not a genuine creditor. Against this, the assessee preferred an appeal before the CIT (A), who confirmed the above addition. Before us, the ld. AR submitted that it is modus operandi of the business of the assessee to record the transaction of Page 14 of 15 purchase in the name of the broker and therefore the liabilities is genuine. He further stated that Mr. Asraf Sohail accepted this fact and therefore no addition u/s 41(1) of the Act can be made. Against this, the ld. DR relied on the orders of the AO. We have carefully considered the rival contention it is apparent that 12. Mr. Asraf Sohail appeared before the AO and confirmed that he is a broker and purchase of animals has happened through him. It is also submitted that it is modus operandi of the assessee to credit the name of broker instead of petty suppliers. However, the name of those suppliers who supplied animals through this broker was not made available by the assessee before the lower authorities. Therefore in the interest of justice we set aside this ground to the file of the AO to enquire from whom the assessee has purchased animals and how payment have been made to the subsequent. If Asraf Sohail has received the payment then the statement of Asraf Sohail needs to be verified and reexamined and if the paymentsare made to the petty suppliers then definitely the assessee must be having detail about them. Regarding the claim of the modus operandi existing we are of the view that the assessee may be entering purchase transaction through various other brokers and whether similar modus operandi Page 15 of 15 prevails or not. This fact has not been verified by AO therefore also we set aside this issue to the file of AO to make enquiry in accordance with law after affording proper opportunity to the assessee. Therefore, ground No.3 of the assessee is allowed accordingly. In the result, the appeal is partly allowed. 13.