D V PROPERTIES PVT. LTD,SURAT vs. DY. COMMISSIONER OF INCOME TAX, CC-1(1)(1), SURAT, SURAT

Brief facts of the case are that assessee is a builder and developer of properties and film exhibition. The assessee filed its return of income for assessment year 2015-16 on 03.10.2015 showing current year loss of Rs.1.05 crores. The case was selected for scrutiny. During assessment, the Assessing Officer noted that assessee has shown loan from various parties and assessee was asked to furnish details for lenders. On furnishing such details, the Assessing Officer noted that assessee has accepted unsecured loan of Rs.25.00 lakh from M/s Pratham Infra Project Pvt. Ltd. having its address at 14C 4th Floor, Maharishi Devendra Road, Burra Bazar, Kolkata. To ascertain the genuineness of identity and creditworthiness of lender, the Assessing Office issued notice under section 133(6) at the given address of lender, provided by assessee. The Assessing Officer noted that no reply was received from lender till passing the assessment order in response to notice issued under section 133(6). The Assessing Officer further noted 2 (A.Y 15-16) D.V. Properties Pvt. Ltd. that the lender-company is appearing in the list of “shell company” as per information available with the Department. The Assessing Officer recorded the modus operandi of entry provider and the statement recorded by the Investigation Wing against such entry provider. The Assessing Office also extracted the statement of Shri Manohar Lal Nanglia, who was allegedly controlling lender and other companies. The Assessing Officer also recorded the name of various companies managed and controlled by said Manohar Lal Nanglia. The Assessing Officer after recording such modus operandi and part of investigation carried out by Investigation Wing issued detailed show cause notice as to why such unsecured loan should not be treated as accommodation entry and commission @ 2% of such entry be not added to the income of assessee. The assessee field its reply dated 27.12.2017, the reply of assessee is extracted in para-4.1 from pages 10 to 16 of assessment order. In the reply, assessee stated that they have received loan of Rs.25.00 lakh from Pratham Infra Project Pvt. Ltd. on 22.01.2015 through banking channel, the assessee furnished PAN, confirmation, bank statement, ITR and computation of income with audit report of lender. The assessee also stated that statement of Shri Manohar Lal Nanglia is a general statement that he is entry provider and he has not referred the name of assessee, his statement was recorded by Investigation Wing, such statement was not taken during assessment proceedings and complete statement of Manohar Lal Nanglia is not provided. The assessee requested to provide such complete statement and sought his cross-examination of such person. To support such 3 (A.Y 15-16) D.V. Properties Pvt. Ltd. contention, the assessee relied on various case law including in the case of Andaman Timber Industries vs. Commissioner of Central Excise (2015) 281 CTR 0241 (SC), Hon’ble jurisdictional High Court in the case of DCIT vs. Mahendra Ambalal Patel in Tax Appeal No.462 of 1999 dated 13.04.2010 [40 DTR 243] and other various decisions.

The assessee further submitted that they have provided complete details of lender and discharged their onus. The proposed action of Assessing Officer is based on suspicious and surmise. The transaction of assessee is genuine and received such loan through banking transaction. To support such contention, the assessee relied on decision of Hon’ble jurisdictional High Court in the case of DCIT vs. Rohini Builders (2003) 127 Taxman 523/256 ITR 360/182 CTR 373 (Guj); CIT vs. Orissa Corporation Pvt. Ltd. (1986) 25 Taxman 80F/159 ITR 78/52 CTR 138 (SC); CIT Vs. Ayachi Chandrashekhar Narsangji (2014) 42 taxmann.com 251 (Guj). For proposed interest disallowance, the assessee submitted that loan is genuine, therefore interest expenses incurred by it also genuine. On proposed addition of commission @ 2% of loan amount, the assessee stated that there is no evidence that assessee has given any commission for obtaining such unsecured loan. The assessee finally submitted that loan was genuine and no addition be made.

The reply of assessee was not accepted by Assessing Officer. The Assessing Officer was of the view that assessee has not brought any material to prove genuineness, creditworthiness and identity of lender party. The case law relied by assessee is not applicable as lender 4 (A.Y 15-16) D.V. Properties Pvt. Ltd. company is a shell company. The Assessing Officer further recorded that bank statement of lender company shows that before showing cheque, the investor company has received money on the same date and transferred to the bank account of assessee. The lender made investment in a distant and unrelated entity. The Assessing Officer treated the unsecured loan of Rs. 25.00 lakhs as unexplained credit and made addition under section 68 and also added @ 2% commission and further disallowed the interest expenses of Rs. 57,000/-.

Aggrieved by the addition made in the assessment order, assessee filed appeal before Ld. CIT(A). Before Ld. CIT(A) the assessee filed detailed statement of facts and written submission. The submission of assessee was recorded in para-4 of the order of Ld. CIT(A). Before Ld.CIT(A) assessee reiterated all its contention as submitted before Assessing Officer. In its reply dated 27.12.2017, thus all such submissions are not repeated here for the sake of brevity. In addition, the assessee submitted that the loan was repaid in subsequent year and evidence in the form of bank statement about repayment was filed. The assessee stated that once the loan was repaid in subsequent year, no addition is to be made under section 68 of the Act. To support such view, the assessee relied on the decision of Hon’ble jurisdictional High Court in the case of CIT vs. Ayachi Chandrashekhar Narsangji (2014) 42 taxmann.com 251 (Guj). For disallowance of commission @ 2%, the assessee submitted that there was no evidence that assessee made payment of commission for taking accommodation entry. For addition of interest expenses, the assessee submitted that Assessing Officer 5 (A.Y 15-16) D.V. Properties Pvt. Ltd. ignored the documentary evidence that interest was paid after making Tax Deducted at Sources was deposited in Central Government Account. The Assessing Officer has not made any investigation of fact and doubted the genuineness of transaction.

The Ld. CIT(A) after considering the submission of assessee and the assessment order confirmed the action of Assessing Officer by taking view that Manohar Lal Nanglia, in his statement recorded under section 131 has admitted that lender company is involved in providing accommodation entry and that he has controlled such companies also and provided accommodation entry by taking @ 2% commission. The assessee could not prove the identity, creditworthiness and genuineness of such transaction and that decision of Ahmedabad Tribunal in Soft Touch Fabrics Pvt. Ltd. Vs DCIT is directly applicable on the facts of present case. Once the addition of loan was upheld the disallowance of interest expenses and addition @ 2% commission was also upheld by Ld.CIT(A). Further aggrieved, the assessee has filed present appeal before the Tribunal.

We have heard the submission of Ld. Authorized Representative (Ld.AR) for the assessee and Ld. Senior Departmental Representative (Ld. Sr- DR) for the Revenue. The Ld. AR for the assessee submits that Assessing Officer made addition on the basis of third party information that some investigation was conducted by Investigation Wing or some statement of Shri Manohar Lal Nanglia was recorded. The Assessing Officer neither provided complete statement of said Manohar Lal Nanglia nor provided opportunity to cross-examine Shri Manohar Lal 6 (A.Y 15-16) D.V. Properties Pvt. Ltd. Nanglia despite making specific interest at the first available opportunity. The Assessing Officer merely acted on the basis of third party information on the allegation of entry provider. The Ld. AR for the assessee submits that even if the case of Assessing Officer is believed, the Assessing Officer has given the list of various companies allegedly controlled by Manohar Lal Nanglia and the name of lender company is no nowhere mentioned of such name. All such names who were allegedly disclosed by Manohar Lal Nanglia mentioned at page-8 of the assessment order, the name of lender company is missing in such list. The Ld.AR for the assessee submits that assessee furnished complete details of lender including PAN, address, ITR and bank statement confirmation of the lender. No investigation or fact was carried out by Assessing Officer. The assessee discharged its onus and once the assessee discharged its onus, the onus shifted to Assessing Officer to disprove the evidences furnished by the assessee. The Assessing Officer in the assessment order recorded that notice issued under section 133(6) was duly served. And it is not the case of Assessing Officer that the said party was not available on the given address. Filing of reply by the lender party is not under the control of assessee. The Ld. AR for the assessee submits that the loan was repaid in subsequent financial year and all such details were provided to Ld.CIT(A). The entire loan was repaid on 04.01.2018 through RTGS and repayment of loan was not doubted by revenue in subsequent year. The Ld. AR for the assessee submits that it is settled principle of law by Hon’ble jurisdictional High Court in the case of Ayachi Chandrashekhar Narsangji (supra) held that 7 (A.Y 15-16) D.V. Properties Pvt. Ltd. if department had accepted the repayment of loan in subsequent year, no addition is to be made in the current year on account of cash credit. The Ld. AR for the assessee submits that Assessing Officer acted on the basis of third party information. The Ld. AR for the assessee submits that lender company is registered with Registrar of Company, Ahmedabad and is still active company as per the latest information available in website of Ministry of Corporate Affairs, Govt. of India, the details of active compliant is filed at page-78 of the paper book. The Ld. AR for the assessee further submits that he has filed complete details of lender including copy of confirmation bank statement and repayment of loan. The Ld. AR for the assessee submits that in case the addition of loan addition is deleted the disallowance of interest payment and addition of commission are consequential in nature. To support his submission, Ld. AR for the assessee relied on following case law:  CIT vs. Orissa Corporation Pvt. Ltd. [1986] 25 Taxman 80F/159 ITR 78/52 CTR 138 (SC)  DCIT vs. Rohini Builders [2003] 127 Taxman 523/56 ITR 360/182 CTR 373 (Guj)  CIT vs. Ayachi Chandrashekhar Narsangji [2014] 42 taxmann.com 251 (Guj)  Auradha Anilkumar Agarwal vs. DCIT (A.Y. 2012-13) dated 14.11.2018  Rajhans Construction (P.) Ltd. vs. ACIT [2022] 140 taxmann.com 370 (Surat-Trib.)  ITO vs. Hi-Choice Processors Pvt. Ltd. [ITA No.98/SRT/2020 (A.Y.2012-13) dated 18.04.2023 8. On the other hand, Ld. Sr-DR for the Revenue supported the order of lower authorities and submits that Investigation Wing of department 8 (A.Y 15-16) D.V. Properties Pvt. Ltd. has carried out a thorough investigation in respect of various shell company managed and operated by Kolkata based entry provider and assessee is one of the beneficiary and it has shown unsecured loan from Kolkata based company. In the investigation, the statement of Manohar Lal Nanglia was recorded under section 131, wherein he has accepted that he was managing various entries who were entity and provided accommodation entry and assessee is being a beneficial of such accommodation entry, who has used lender as conceived to facilitate such accommodation entry. The accommodation was obtained on payment of commission and transaction of loan is not genuine. The ld DR for revenue prayed for dismissal of appeal.

We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on various case laws relied by assessee in his written submission. We find that Assessing Officer while passing the assessment order solely relied on the report of Investigation Wing and the statement of Manohar Lal Nanglia. We further find that in reply to show cause notice, the assessee while filing its reply dated 27.12.2017 prayed for supply of material relied by Assessing Officer including the statement of Manohar Lal Nanglia and report of investigation wing. Admittedly no such material was provided to assessee. There was no such finding of Assessing Officer that required details were provided to assessee. We find that assessee in response to show cause notice furnished confirmation of lender’s PAN, bank statement, ITR with computation of income and audited report with relevant schedules. The 9 (A.Y 15-16) D.V. Properties Pvt. Ltd. Assessing Officer has not made any adverse comment on such evidence and no investigation of fact was carried out by the Assessing Officer.

We further find that before Ld.CIT(A), the assessee in addition to objections raised before Assessing Officer, specifically stated that assessee has made the repayment of loan in subsequent year and furnished his bank statement and ledger account of lender. The Ld.CIT(A) instead of getting the fact verified either by himself or from Assessing Officer confirmed the addition without giving any finding of such submission made by assessee. We find that before us Ld. AR for the assessee filed copy of bank statement for evidence of repayment of Rs.25.00 lakh on 04.01.2018 through RTGS. We find that Hon’ble jurisdictional High Court in the case of Ayachi Chandrashekhar Narsangji (supra) held that where the Department has accepted the repayment of loan in subsequent year no addition was to be made under section 68 of the Act. We find that no adverse view, if taken by department in subsequent year on repayment of loan, is brought to our notice, therefore following the ratio of decision of Hon’ble jurisdictional High Court in the case of Ayachi Chandrashekhar Narsangji (supra) that once the repayment was made in subsequent year no addition under section 68 be made, against the assessee. Once, we have accepted the contention of ld AR for the assessee about repayment of loan, therefore all other submissions against this addition have become academic. Thus, in view of the aforesaid factual and judicial discussion, the ground No.2 raised by assessee is allowed.