JALARAM ENTERPRISES CO. P.LTD,MUMBAI vs. DCIT CEN CIR 2, MUMBAI

The assessee in its appeal raised following grounds:

2. BECAUSE, Id. CIT(A) has erred in law and on facts in upholding the disallowance of interest expense claimed under the head Income from House Property to the tune of Rs.4,10,218/- paid on borrowed funds.

The Ld. Counsel for the assessee at the outset submits that ground No. 1 & 3 are not pressed and therefore they are dismissed as not pressed.

Coming to ground No. 2, 4 & 5, the Ld. Counsel for the assessee submits that Ld. CIT(A) did not admit additional evidences filed by the assessee and rejected the assessee’s contentions without considering the additional evidences. The Ld. Counsel submitted that the matter may be sent back to the Assessing Officer for considering the evidences and to decide afresh in the interest of justice.

The Ld. Departmental Representative submits that the finding of the Ld. CIT(A) is that the assessee has not filed a petition under Rule 46A and sought permission of the Ld. CIT(A) to file the additional evidences. Thus the additional evidences were rejected by the Ld. CIT(A).

On hearing both the parties, we are of the view that the Ld. CIT(A) should be admitted the additional evidences filed by the assessee. The additional evidences were rejected observing that they were not filed before the Assessing Officer and no petition under Rule 46A was filed. In our view since the powers of the CIT(A) are co- terminus of the Assessing Officer, it is not just and proper to reject the additional evidences on technical grounds. Thus, in our view these issues have to be examined afresh by the Assessing Officer by giving opportunity to the assessee. Therefore, in the interest of justice, we restore these issues to the file of the Assessing Officer who shall decide the same afresh in accordance with law after providing adequate opportunity to the assessee.

In the result, the appeal filed by the assessee is partly allowed for statistical purpose.

The only issue raised by the Revenue is that whether on the facts and circumstances of the case, the Ld. CIT(A) was right in deleting the addition of Rs. 2,66,05,000/- on account of unsecured loans u/s. 68 of the Act.

Brief facts of the case are that assessee is a Private Limited Company engaged in the business of trading in real estate & grains. The assessee filed its return of income on 14.10.2010 declaring NIL income. The assessment was completed u/s. 143(3) on 25.3.2013 determining total income of the assessee at Rs. 3,10,92,620/-. While completing the assessment, the Assessing Officer made addition of Rs. 3,00,76,825/- as unexplained cash credits u/s. 68 of the Act. The assessee during the proceedings before the Ld. CIT(A) contended that the total unsecured loans taken by it are only Rs. 2,66,05,000/- and not Rs. 3,00,76,825/- as alleged by the Assessing Officer. It was contended that out of Rs. 2,66,05,000/-, Rs. 2,05,00,00/- was received towards share capital. In the course of assessment proceedings, assessee provided certain details in respect of unsecured loans viz., copy of return, PAN card, copy of bank statement etc. The Assessing Officer examined all these details and observed that all these parties from whom the assessee had taken unsecured loans was small and meager parties with low incomes and several parties have written losses. Their bank statement show that they do not have any regular source of income. Huge funds are credited to bank accounts by way of clearing of cash deposits and these funds are subsequently advanced as loans to several parties including assessee. He also observed that funds remained in the bank accounts for a very short period of a day or two. The Assessing Officer issued summons to all the parties and required personal attendance of the creditors. The observation of the Assessing Officer was that in response to summons, the creditors did not appear but information like bank statement, PAN card, return of income were sent through post. The Assessing Officer concluded the assessment by treating these unsecured loan creditors as bogus transactions and made addition of Rs. 2,66,05,000/- u/s. 68 of the Act.

On appeal, the Ld. CIT(A) following the decision of the Hon’ble Bombay High Court in the case of CIT Vs Creative World Telefilms Ltd., (15 Taxmann.com 183) deleted the addition made u/s. 68 of the Act against which the Revenue is in appeal before us.

The Ld. Departmental Representative submits that in the course of assessment proceedings, the Assessing Officer issued summons to all the creditors. The creditors did not appear but details were submitted through post. The Ld. Departmental Representative submits that since the creditors were not responded to summons issued u/s. 131 of the Act by not appearing, the identity is not proved. Since the creditors deposited the amounts in their bank accounts just before issuing the cheque to the assessee, the credit worthiness is also not proved. He vehemently supports the order of the Assessing Officer in treating the creditors as not genuine thereby treating the said creditors as unexplained cash credit u/s. 68 of the Act.

The Ld. Counsel for the assessee referring to page-6 of the Ld. CIT(A) submits that there are 12 parties in all and amount involved is Rs. 2,66,05,000/- The Ld. Counsel submits that parties at S. No. 10 & 11 are sister concerns of the assessee company and they were assessed in the same circle and Assessing Officer with whom the assessee company is also assessed and had frequent transactions. The Ld. Counsel referring to page 7 of the Ld. CIT(A)’s order submits that Sl. Nos. 1 to 9 are infact not the lenders. They are all corporate who have deposited share application money against which shares have been allotted on 1.4.2010. It is submitted that Sl. No. 12 is also a lendor which is a corporate body and in this case assessee has partly repaid. The Ld. Counsel submits that the non appearance of the parties cannot be a ground for making addition u/s. 68 in the hands of the assessee. Placing reliance on the decision of the Jurisdictional High Court in the case of CIT Vs U.M. Shah (90 ITR 396), the Ld. Counsel submits that in this case the Hon’ble High Court held that creditors having received the summons did not present themselves before the Assessing Officer but had sent confirmatory letters. Thus it was held that the assessee could not be blamed. It was further submitted that where lenders are assessed to tax, the assessee can be said to have discharged its onus to prove the genuineness of the transaction by filing confirmation letters and PAN details. The Ld. Counsel also places reliance on the decision of Delhi Bench of the Tribunal in the case of ITO Vs Vartman Securities & Services Pvt. Ltd (2016) (67(2) ITCH 161) (Del). A copy of which is placed on record. Placing reliance on the said decision, the Ld. Counsel submits that the Delhi Tribunal on similar circumstances deleted the share application money received by the assessee following the decision of the Hon’ble Supreme Court in the case of Lovely Export (216 CTR 195) wherein the Apex Court held that when the share application is received by the assessee company from alleged share holders who names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessments of respective share holders in accordance with law. The amount of share application money cannot be regarded or considered as undisclosed income of the assessee u/s. 68 of the Act.

We have heard the rival contentions, perused the materials on record and the case laws relied on by the assessee. The Assessing Officer made addition u/s. 68 of the Act in respect of 12 parties holding that the creditors have not appeared in response to the summons issued u/s. 131 of the Act and he also held that the genuineness of the transaction and credit worthiness of the creditors is not established for the reason that according to the Assessing Officer the parties who gave the loans are deposited their amounts in the bank accounts just before issue of loans to the creditors and they have not appeared before him. The Ld. CIT(A) after considering the averments of the Assessing Officer and the details furnished before him by the assessee deleted the addition accepting the contentions of the assessee that share application money cannot be assessed in the hands of the assessee in view of the fact that assessee has allotted shares to 9 creditors out of 12 and the remaining 3 creditors, two are sister concerns and the assessee has repaid part of the loans taken from them and they are assessed in the same range where the assessee is also assessed and in respect of the other creditor all the details were furnished and part of the loan was also repaid by the assessee. It is the finding of the Ld. CIT(A) that the assessee has proved identity, genuineness of the transaction and the credit worthiness of the lenders by furnishing requisite details like confirmations, PAN details, return of income, bank statements etc. It is the finding of the Ld. CIT(A) that on perusal of the bank statements, all the lenders have advanced monies to the assessee out of funds obtaining the bank statements out of deposits through bank transfers into their accounts. It is the finding of the Ld. CIT(A) that first deposits are received through bank transfers from the lenders accounts and thereafter they were given to the assessee company by account payee cheque. It is the finding of the Ld. CIT(A) that Assessing Officer has not disputed the above facts nor has brought any material on record to suggest that the said transfers are not genuine transfers and the lenders also confirmed giving funds to the assessee through account payee cheque and shares were also allotted by the assessee company against such funds. Therefore, the Ld. CIT(A) concluded that assessee has established not only the credit worthiness and identity of the said creditors but also established the genuineness of the transaction. None of the finding of the Ld. CIT(A) has been dislodged by the revenue with evidences. In the circumstances, we uphold the order of the Ld. CIT(A) in deleting the addition made u/s. 68 of the Act. The ground raised by the Revenue is dismissed.

In the result, the appeal filed by the assessee is partly allowed for statistical purpose and the appeal filed by the Revenue is dismissed.