ASSISTANT COMMISSIONER OF INCOME TAX , CENTAL CIRCLE -2(2) , NAGPUR vs. SHRI NARENDRA MAGANMAL KOTHARI , NAGPUR

per which, the Company was incorporated in year 1990 in Bijnor, Uttar Pradesh. Its business was of financing, leasing of vehicle & sale of vehicle, Hire Purchases, commission income. This business was continued till 31.3.2009. The company changed its registered office from Bijnor to Kolkata on 12.06.2010. The Company is Non-Banking Financial Corporation registered with Reserve Bank of India under Certificate of Registration No. B.05.06956. The company M/s HLFCPL being a NBFC has to comply with very strict norms under RBI Rules and Regulations. M/s HLFCPL has duly complied with the RBI rules and regulation during its entire existence from the date of securing the NBFC Status. Further sometime in June 2009 M/s HLFCPL initiated the process of shifting its registered Office from Bijnor in Uttar Pradesh to Kolkata in West Bengal. The company had to comply with very stringent requirement when it was time and again called to establish its business existence, genuinely of its operations, business working and genuinity of its management. Apart from above, the Company was required vide RBI letter dated 29/ 04/2013 (Copy enclosed) to explain the authenticity and veracity of the raising of share capital and share premium during FY 2009- 10. The company management complied with all the requirements of information and evidences and finally secured the order from RBI for shifting of the registered office from Uttar Pradesh to West Bengal. This order of RBI dated 26/02/2014 confirms it registration by the RBI which by no means any lesser in terms of compliance and due diligence with Income Tax Department. M/s HLFCPL had been assessed under sec 143(3) r.w.s. 147 vide order Date 30-12-2010 for A.Y. 2009-10, wherein the issue of share capital raised by M/s HLFCPL is dealt with to examine the Identity, genuineness and credit worthiness of the company M/s HLFCPL as well the subscribers to the Share capital . The AO had accepted the raising of share capital at a premium by conducting detailed enquiries that is why no adverse findings, observations were recorded by the AD. (Copy Enclosed). The ITO scrutinized process of issue of 18440 equity shares of Rs.100/- each at a premium of Rs.9900/- per share.ITO sent notice u/s 133(6) to major share applicants on test check basis. The ITO placed records of all replies received from applicant companies. The income of the company for Asst. Year 2009-10 was assessed u/s 143(3)/ 147 of the Income Tax Act, 1961 and demand raised u/s 156 for Rs.16790/-. The company had also been assessed u/s 143(3) for A.Y. 2010-11 vided ordered dated 31-03-2013 3 where no adverse facts as to the business model, business/operational existence and head of income has been observed and recorded. This Assessment order in subsequent years after assessment u/s 147 cements the factual position of company being operational and functioning. (Copy Enclosed) The said company was introduced by a friend Shri Prihar during March 2012, he informed that company has facing problems to comply with the norms of RBI, applicable for NBFC and struggling to get its investments liquidated which are blocked since long. He also informed us about required investment id efforts to make. 54. As regards the issue of notices to 18 Share Applicants, the AO has observed that the statement of Shri Pradeep Kothari, Director, HLFCPL, was recorded under Sec. 131 of the Act on 08/ 12/2016 and it was found from the information supplied that all the original investor-companies were Kolkata based. Notices u/s 133(6) were issued to them as per the addresses furnished by Shri Pradeep Kothari for making verifications regarding the source of their funds. Out of these in 16 cases, the Notices u/s 133(6) of the Act were not

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delivered and returned back and in 2 cases, though the Notices were received but no reply was furnished by the creditor (Para No. 10, Page No. 7 of A.Y. 2013- 14). The assesses was confronted and also asked to furnish the latest address of the creditors, which was not given Neither by the assessee nor the above said company i.e. HLFCPL have produced the investor companies to substantiate their identity and the creditworthiness and genuineness of the transactions. But, fact remains that letter was submitted to Department on Date 09/10/2017 seeking information regarding all the 18 parties to whom summons u/s 133(6) have been issued, out of which 16 were not delivered and returned back in 2 cases notice was received but no reply was furnished. Therefore, we are of the view that when addition is made on the basis of third party statements, the AO ought to have furnished such statements for the assessee for its rebuttal. In this case, the AO had made additions without confronting such statements in violations of principles of natural justice. In a recent judgement of Hon'ble Bombay High court, in the case of CIT vs Harish D. Mehta, the High court has dealt with this issue. In the above case, transportation charges were paid by the assessee by crossed cheques. A.O. doubted the transactions and issued notices u/s 133(6), which were unserved. A.O. treated the amounts paid as bogus entries and made the additions in this regard. It is held by the jurisdiction High court that nonattendance or non- service of notices without anything more could not be reason enough to sustain the addition. 55. We further noticed that the company has declared sufficient Income in its return of income right from A. Y. 2003-04 to A.Y. 2015- 16 as per which it declared income ranging between Rs. 7.43 lacs to Rs. 86.57 lacs. The assessee has established credit worthiness of the parties by filing details of source of source. The assessee has furnished complete details and said information is genuine (i.e. PAN CARD, ITR, Confirmation, Bank statement) and no efforts was made by A.O to determine the same. That Jewel India Pvt Ltd (Total 92 Lacs out of 132.87 Lacs) is a well know Kolkata based company involved in Jewellery business and it was lack of effort on the AO to enquire the same from the party through 133(6). The Identity of all the Company, was proved beyond doubt by the Evidence of the PAN card Copy, Copies of their Income Tax Returns and Copy of Order of RBI. The Genuineness of the Transaction was established from the Confirmation Letter and the Bank Statements of the Company that were filed. This established the fact that the loan was received by Cheque/ RTGS from the Bank Account of the said Company. The Full set of Audited Financial Statements of the said Company was submitted on the record of Ld. A.O. This alongwith the balance sheet clearly established the loan given by the said Company to Assessee Company and their year-wise Income Track record proved the capacity of the said Company. The assessee has also proved the Source of source, by bringing on record the source of amount received by the said company along with the nature of transaction. The AR has vehemently argued that proviso to Section 68 is not applicable to assessee's case as the applicability of proviso to Section 68 is for any such amount in the nature of Share Application Money, Share Premium and does not envisage the Loan Amount. Further, we find that just because the bank statement of M/ s. Halduar showed numerous transactions, it could not be held that the said company did not have credit worthiness especially when the said company was an NBFC company and would not like to keep its funds blocked in the

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current account, when it could easily utilize its funds for earning income as the companies are compulsorily required to keep funds in current account on which no interest is received. We further noted that just because the said company was taken over at much reduced price it cannot be said that the said company lacked credit worthiness especially when the company not only had proved the source of its fund but source of source also. There may be several reasons due to which the directors are forced to sale the companies and adhering to strict RBI guidelines in case of NBFC companies is one of them. 56. Considering facts and circumstances of this case and by following ratios of case laws discussed above, we are of the considered view that the said Joan amount could not be added under the first proviso to Section 68 as also that the identity, creditworthiness and genuineness of the transactions are proved. Hence, we direct the AO to delete the addition on account of loan received from M/s. HLFPL in both the years. 57. In the result, all appeals filed by the Revenue for A.Y. 2010-11 to 015-16 are dismissed and appeals filed by the assessee for A.Y. 2012-13, 2014-15 and 2015-16 are allowed. Order pronounced in the open court on 03rd December, 2018." In view of the above facts and circumstances, we are of the view that the Bank Statement, confirmations, and other relevant documents like source letter was available with AO, who has not controverted these facts, and nothing adverse was found during investigations by AO. These specific facts have been accepted by AO. Therefore, the source of the investment is also explained and the AO has not denied the facts represented by the assessee. The identity, creditworthiness of the investor and the source of the advance/ investment has been proved many times over and cannot be denied simply on the whim of the AO, more so since none of the documents and evidences submitted by the assessee have been disproved by the AO, or the department in any of proceedings so far whether in the case of the investor company, or in the assessee 's case. Merely holding the transactions as unexplained by ignoring the evidences produced does not make the transactions suspect or unexplained. The assessee has fulfilled her burden and onus of providing explanations, but it is apparent that the AO has not discharged his burden of proving the documents/materials wrong. 12. We further observed that the assessee has not only provided all necessary evidences to support the transaction but has also provided all evidences to show the identity, creditworthiness of the investor company, as well as the genuineness of the transaction, and if the AO still wanted to add the sum on account of his lack of satisfaction, then such lack of satisfaction should have been preceded with disproving all the facts on record. We find that such is not in the present case and the AO has merely rejected the explanations and evidences provided. However, a mere rejection of explanation does not make the impugned transaction non-genuine. The evidences provided by the assessee of the source of the advance in the investing company's books have been simply rejected without even an enquiry either with the third parties or even the Assessing Officer of the investing company. Even the amended provision of section 68 does require the Assessing Officer to disprove the evidences before rejecting them. Further, the term 'to the satisfaction of the AO' is

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a subjective term and cannot be summoned up for use without objective findings. If the assessee furnishes an explanation, the AO should examine whether the explanation so offered establishes the three ingredients i.e. identity of the creditor, creditworthiness of the creditor and genuineness of the transactions. If the explanation so offered by the assessee is not acceptable or reliable, the AO should give a detailed reasoning in the assessment order for not accepting the same. Here in this case, the order of the AO is replete with generalized views and comments, indicating suspicions and presumptions without any specific finding of anomalies. 13. Considering the totality of the facts and circumstances of the case we hold that the identical issue of the group concern i.e. M/s Karan Kothari Jewellers Pvt. Ltd. had already been decided the Coordinate Bench of this Tribunal in favour of the assessee and the Id. CIT(A) has passed the impugned order on the basis of detailed analysis of the facts and circumstances as well as merits of the case. The Id. CIT(A) has also given its findings on the basis of decision of the Coordinate Bench already decided in the case of M/s Karan Kothari Jewellers Pvt. Ltd. as mentioned (supra). No new facts and circumstances of the case have been put forth by the Id. CIT-DR. The Id. CIT(A) has passed a well speaking order discussing all the material facts and circumstances as well as legal proposition of law, therefore, considering the totality of the facts and circumstances, we do not find any reason to interfere or deviate from the findings so recorded by the Id. CIT(A), accordingly, we uphold the same.”

Sd/- Sd/- V. DURGA RAO K.M. ROY ACCOUNTANT MEMBER JUDICIAL MEMBER

NAGPUR, DATED: 30/10/2024 Copy of the order forwarded to: (1) The Assessee;

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(2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Nagpur; and (5) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Sr. Private Secretary ITAT, Nagpur