GODAWARI FIBRES PVT. LTD., SURAT,SURAT vs. INCOME TAX OFFICER, WARD - 1(1)(2), SURAT (NEW WARD - 1(1)(1), SURAT, SURAT

Assessee represented by Shri Ramesh Malpani, C.A. Department represented by Shri Vinod Kumar, Sr. DR Appeal instituted on 16/10/2023 Date of hearing 18/12/2023 Date of pronouncement 18/12/2023 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee is directed against the order of National Faceless Appeal Centre, Delhi (NFAC)/learned Commissioner of Income Tax (Appeals) [in short, the ld. CIT(A)] dated 28/08/2023 for the Assessment Year (AY) 2017-18. The assessee has raised following grounds of appeal: “(1) That on the facts and in the circumstances of the case as well as in law, the appeal order passed by ld. CIT(A) dismissing the appeal of the appellant is wrong, unjustified, invalid and bad in law. (2) That on the facts and in the circumstances of the case as well as in law, the ld. CIT(A) has erred in upholding the addition of Rs. 47,04,000/- made u/s 68 of the I.T. Act, 1961 (the Act). The addition so made ld. AO and sustained by ld. CIT(A) is contrary to the settled law. Appellant prays for deleting the same. (3) Without prejudice to above grounds of appeal, that the ld. CIT(A) has also erred in law in upholding the charging of tax on above addition u/s Godawari Fibres Pvt. Ltd. Vs ITO 68 of the Act at the higher tax rate of 60% plus surcharge as per substituted section 115BBE by the Taxation Laws (Second Amendment) Act, 2016 which was inserted on 15/12/2016 and made effective prospectively from 01/04/2017, whereas the loan amount was received by the appellant before even passing of the said amendment Act and, therefore, higher rate inserted by the amendment Act is not applicable to the transactions done before 15/12/2016. This ground is without prejudice to main ground that the addition u/s 68 itself is wrong and unjustified and must be deleted. (4) The appellant craves leave to add, amend, alter, delete or modify any grounds of appeal

.”

2. Brief facts of the case are that the assessee is a company, engaged in the business of textile, filed its return of income for A.Y. 2017-18 on 07/10/2017 declaring income of Rs. 1,11,540/-. The case was selected for scrutiny. During the assessment, the Assessing Officer noted that the assessee had shown transaction of loan with a company, whose registration has been cancelled by the Ministry of Corporate Affairs (MCA). The Assessing Officer noted the name of such company as M/s Namoshivani Trade Pvt. Ltd., the assessee has shown unsecured loan of Rs. 47,04,000/-. On the basis of such observation, the Assessing Officer issued show cause notice dated 12/12/2019 to the assessee. The contents of show cause notice is recorded in para 5 of assessment order. In the show cause notice, the Assessing Officer noted that the assessee has taken unsecured loan from M/s Namoshivani Trade Pvt. Ltd. The Assessing Officer issued notice under Section 133(6) of the Income Tax Act, 1961 (in short, the Act) to the said company, which was returned back unserved. The Assessing Officer also referred that the lender Godawari Fibres Pvt. Ltd. Vs ITO company failed on test of identity as its name is struck off by MCA. The assessee was show caused as to why unsecured loan should not be treated as cash credit. The Assessing Officer noted that the assessee filed its reply as recorded in para 6 of assessment order. The assessee in its reply, stated that they have availed unsecured loan of Rs. 47.04 lacs on 22/11/2016 from M/s Namoshivam Traders Private Limited. The said loan was received through RTGS. The assessee furnished account confirmation, income tax return, audited report, audited balance sheet, Profit & Loss Account of the said company. It was contended that unsecured loan is payable on call or as and when asked to refund, so the loan cannot be added as a cash credit. The assessee further explained that on verification of MCA Data, the name of said company was struck off due to non-filing of Registrar of Company (ROC) return. The said company is not a shell company and is a genuine company. They are in the process of restoration of their name in the MCA Portal. The assessee further stated that the name of lender company is M/s Namoshivam Traders Private Limited which has wrongly been mentioned as M/s Namoshivani Trade Pvt. Ltd. The said company is assessed to tax and filing return of income. Copy of return for the A.Y. 2017-18 was enclosed. The reply of assessee was not accepted by the Assessing Officer. The Assessing Officer recorded that the name of the lender company was struck off by MCA and notice under Section 133(6) of the Godawari Fibres Pvt. Ltd. Vs ITO Act was returned back. The Assessing Officer treated the said loan as non-genuine and added under Section 68 of the Act.

3. On appeal before the ld. CIT(A), the action of Assessing Officer was upheld. The ld. CIT(A) while upholding the action of Assessing Officer, held that the burden of proof was on the assessee and they were required to offer explanation to the satisfaction of Assessing Officer so as not to attract the mischief of Section 68 or that of Section 69A of the Act. The ld. CIT(A) by referring various case laws, held that the assessee was required to discharge the onus by producing evidences and explanation as comprehensive and accurate. No explanation is offered by assessee either during assessment or appellate stage. Notice under Section 133(6) of the Act, issued by assessing officer, was returned back unserved. The ld. CIT(A) also upheld the action of Assessing Officer in taxing the addition under Section 115BBE of the Act. Further aggrieved, the assessee has filed present appeal before this Tribunal.

4. I have heard the submissions of learned Authorised Representative (ld. AR) of the assessee and the learned Senior Departmental Representative (ld. Sr. DR) for the revenue. The ld. AR of the assessee submits that he does not want of press ground No. 1 of appeal. Considering the prayer of ld. AR of the assessee, ground No. 1 of appeal is dismissed being not pressed.

Godawari Fibres Pvt. Ltd. Vs ITO 5. Ground No. 2 relates to the addition under section 68. The ld. AR of the assessee submits that during the assessment, the assessee furnished complete details of the lender company to discharge its onus regarding identity, creditworthiness and genuineness of transactions. The assessee furnished complete details as recorded by Assessing Officer in para 6 of assessment order that the assessee furnished confirmation, income tax return, audit report, Profit and Loss Account, updated address and e-mail address. The Assessing Officer himself has sent notice on wrong name of the lender company, name of Lender Company is M/s Namoshivam Traders Private Limited. However, the Assessing Officer sent notice to M/s Namoshivani Trade Pvt. Ltd. The company was alive when the assessee alive when unsecured loan was availed on 22/11/2016. The name of lender company was struck off somewhere in August, 2018. The ld. AR of the assessee submits that it has filed copy of order of MCA showing the name of striking off certain companies. Copy of said notification is filed at page No. 35 of paper book. The assessee has duly filed copy of confirmation, copy of which is filed at page No. 4 of paper book, affidavit of Director of lender company, ITR, audit report, financial statement, the lender company was having sufficient funds with it at the time of lending the money. The cash and balance in the bank of lander company was more than Rs. 68.00 lacs as reflected on page No. 24 of paper book. The loan was received through banking channel, copy of bank statement is Godawari Fibres Pvt. Ltd. Vs ITO available at page No. 29 of paper book. The ld. AR of the assessee submits that once the assessee has discharged its primary onus by filing sufficient evidence of identity, creditworthiness and genuineness of transaction, the assessee has discharged his onus, the onus was shifted on the Assessing Officer to make further investigation, the Assessing Officer simply treated the said company as non-genuine on the basis that their name was struck off subsequently by the MCA. There is no allegation that the said company was indulging in providing accommodation entry. To support such submission, the ld. AR of the assessee relied upon the decision of Hon'ble Jurisdictional High Court in the case of CIT Vs Ranchhod Jivabhai Nakhava (2012) 21 taxmann.com 159 (Guj), Kolkata High Court in CIT Vs M/s Dataware Private Limited G.A. No. 2856 of 2011 dated 21/09/2011 and the decision of Hon'ble Apex Court in CIT Vs. Orissa Corporation (P) Ltd. (1986) 1986 taxmann.com 1163 (SC).

Godawari Fibres Pvt. Ltd. Vs ITO on 24/08/2018 and not in the impugned year. I find that the Hon'ble Jurisdictional High Court in the case of CIT Vs Ranchhod Jivabhai Nakhava (supra) held that where lenders of assessee are income tax assessees whose PAN have been disclosed, Assessing Officer cannot ask assessee to further prove genuineness of transactions without first verifying such fact from income tax returns of lenders. I find that the Hon'ble Kolkata High Court in the case of CIT Vs M/s Dataware Private Limted (supra) also held that when creditor is an income tax assessee, the Assessing Officer after getting the PAN and information of that creditor is assessed under the Income Tax Act, the Assessing Officer should enquire from Assessing Officer of creditor society, genuineness of transaction and whether such transaction has been accepted by the Assessing Officer of the creditor but instead of adopting such course, the Assessing Officer himself could not enter into return of creditor and grant the same as unworthy of credence. The Assessing Officer is bound to accept the same as genuine when identity of creditors and the genuineness of transactions through account payee cheque has been established. Further the Hon'ble Supreme Court in the case of CIT Vs Orissa Corporation (P) Ltd. (Supra) is also held that where assessee received loan from three individuals under hundis, since assessee had given names and addresses of alleged creditors and it was in knowledge of revenue that said creditors were income tax assessees, their index number was in file of revenue, impugned addition under Godawari Fibres Pvt. Ltd. Vs ITO Section 68 treating said loan amount as unexplained cash credit was unjustified. In view of the aforesaid factual and legal discussion, I do not find any justification in making addition under Section 68 of the Act without disputing or discarding or giving any adverse finding on the evidences furnished by the assessee against unsecured loan. Accordingly, I direct to delete the addition made by the Assessing Officer and confirmed by the ld. CIT(A). In the result, ground No. 2 of the appeal is allowed.