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Income Tax Appellate Tribunal, DELHI BENCH “SMC-I”: NEW DELHI
Before: SHRI VIJAY PAL RAO
O R D E R These appeals of the assessee are directed against the separate orders dated 30.12.2013 and 31.12.2013 of ld. CIT(A)-IV, New Delhi for the Assessment Years 2006-07 and 2007-08. Common grounds are raised in these two appeals except the amount of addition made u/s 68 by the AO on account of unsecured loan. There was a survey u/s 133A conducted at the business premises of Mahagun Group of Companies on 26.08.2008. The assessee is one of the group companies of Mahagun Group of Companies. The survey was converted into search u/s 132 of the Act. During the course of search a number of incriminating documents were stated to be found and seized. The group made a disclosure of additional income of Rs.30 crores over and above the regular income in the hands of flagship company i.e. M/s. Mahagun (India) Pvt. Ltd. Subsequently the AO issued a notice u/s 153A of the Act to the assessee on 08.05.2009. In response to this notice the assessee filed return of income declaring NIL income on 03.07.2009. During the course of assessment proceeding, the AO noted that on perusal of the balance sheet and the statement of accounts furnished by the assessee company has raised unsecured loan from various persons, details of which are given by the AO at Pg. 2 of the assessment order in tabular form as under:-
Page No. 2 Addition in old loans S.No. Name Amount(Rs.) 1 Bharti Aggarwal 4,00,000/- 2 Kavita Sharma 50,000/- 3 Meenu Sarkar 50,000/- 4 Vandaria Jain 96,000/- New Loans raised S.No. Name Amoum(Rs.) 1 Abdul Hakeern 50,000/- 2 Mahesh Kumar 50,000/- 30,000/- ~3 Babu La! 4 50,000/- Gopi Nath Rout 5 Raju Yadav 50,000/- Salim 6 50,000/- 7 Midas Netcom Ltd. 14,00,000/-
The AO recorded in the assessment order that for the Assessment Year 2004-05, the loans received from these persons (old loans) have held to be undisclosed investment as per the provisions of section 68 of the Act and added to the income of the assessee. The AO asked the assessee to given complete details and confirmation in respect of addition to unsecured loans and new loans raised during the year, giving their bank account statement and the source of advances. In response the assessee filed information which included undated confirmation, copy of acknowledgement of income tax return, copy of bank accounts. The details furnished by the assessee are recorded by the AO in the assessment order. The AO noted that the new loans have been raised from 6 persons and all of them except one is maintaining their bank accounts with the Nainital Bank Ltd, Vaishali, Ghaziabad and the two bank accounts are in Seriatum. The AO noted that for all these bank accounts the introducer is the same person Sh. Dhiraj Jain, who is also the Director of the assessee company. The AO further noted that in all these accounts cash was deposited prior to the issuing the check for advancing loan to the assessee. Thus the AO was of the view that there is a cash deposit in the bank account has not been explained, therefore the assessee was required to produce these persons from whom loans were claimed to have been received. In response the assessee submitted that in support of the genuineness, entity and creditworthiness of these creditors, the assessee submitted various Page No. 3 documents like confirmation, ITR, bank statement of the relevant period. The transaction have taken place by A/c payee cheque, therefore genuineness of the transaction cannot be subject to any doubt. However, the AO observed that the assessee failed to produce these persons in order to prove the genuineness and creditworthiness of the creditors. Accordingly, the AO made the addition of Rs.8,76,000/- for the Assessment Year 2006-07 on account of bogus unexplained loan and interest on the said unsecured loan treated as bogus expenditure. For the Assessment Year 2007-08, the AO made an addition on account of unexplained investment of Rs.5 lac along with interest on the said unsecured loan of Rs.154014/-. The assessee challenged the action of the AO before the learned Commissioner of Income-tax (Appeals) but could not succeed.
Before the Tribunal the assessee has raised the following grounds for Assessment Year 2006-07:- “1. That the order passed by the Ld. Assessing Officer and confirmed by Ld. CIT (A) is not only bad in law but also against the facts of the case.
2. The Ld. CIT (A) is erred under the law while holding that A.O. has a valid jurisdiction u/s 153 A of the Act as the assessment proceeding has been completed as if normal scrutiny u/s 143(3) of the Act whereas these proceedings are qua-seized material only.
3. That the Ld. CIT(A) is erred under law while confirming the addition of Rs 8,76,0007-u/s 68 on account of unsecured loan in the absence of physical presence of the cash creditors ignoring the request made by the appellant to the A.O. to exercise his power under the Act.
4. That the Ld. CIT (A)is erred under law while confirming the addition on account of interest paid to above loan creditors amounting to Rs. 1,08,806/-.”
4. Before the Tribunal the assessee has raised the following grounds for Assessment Year 2007-08:- “1. That the order passed by the'Ld. Assessing Officer and confirmed by Ld. CIT (A) is not only bad in law but also against the facts of the case.
2. The Ld. CIT (A) is erred under the law while holding that A.O. has a valid jurisdiction u/s 153 A of the Act as the assessment proceeding has been completed as if normal scrutiny u/s 143(3) of the Act whereas these proceedings are qua-seized material only.
Page No. 4 3. That the Ld. CIT (A) is erred under law while confirming the addition of Rs 5,00,000/- u/s 68 on account of unsecured loan ignoring various documents filed by the appellant to establish three factums as prescribed under the Act and the request made to verify the transactions u/s 131/133 of the Act to the A.O.
That .the Ld. CIT (A)is erred under law while confirming the addition of Rs. 1,54,014/- u/s 41( 1) of the Act ignoring the debit balance of Rs. 5,18,569/- outstanding against the same creditor.”
The ld AR of the assessee has referred to the various documents produced before the AO and submitted that the assessee has produced copy of the confirmation of ITR, Bank accounts statement of the loan creditors in support of the claim to prove that the transaction is genuine as well as creditworthiness of the creditors. He as further pointed out that when the assessee has produced all the relevant documents along with copy of ITR, bank accounts have been filed then the identity of these loan creditors cannot be doubted. The AO has doubted the transaction only on the ground that the accounts of these creditors were opened on the introduction of one Sh. Dhiraj Jain, the director of the assessee company. He has further submitted that these accounts were not opened in the recent past during the year under consideration. These are existing accounts of these loan creditors. Therefore, only because the director of the assessee has introduced these loan creditors for the purpose of opening of bank account will not lead to the conclusion that the loan advanced by these creditors are bogus. However, the AO has not brought on record anything to show that the assessee’s own money has rooted through these account. Once, the assessee has discharged its primary onus then the burden is shifted to the AO to disapprove the evidence produced by the assessee. In support of his contention he has relied upon the decision of the Tribunal in the case of C.I.T. vs. GANGESHWARI METAL P. LTD. 361 ITR 10 (Del). The ld AR has referred the letter dated 22.11.2010 filed before the AO and submitted that the assessee was not having control over the loan creditors, therefore the assessee requested the AO to summon the loan creditors u/s 131. Further the AO did not choose to summon and examine the loan creditors. Once the assessee has established the case by producing the relevant evidence and if the AO was not satisfied with the evidence produce by the assessee then the loan creditors should have been summoned by the AO u/s Page No. 5 131. The ld AR has referred to the statement of affairs of the loan creditors and submitted that the loan in question were duly shown in the statement of affairs filed by these creditors along with return of income. He has further submitted that the assessee has already repaid these loans during the Financial Year 2013-14. When the loan creditors are old assessees of income tax then the creditworthiness of the loan creditors cannot be doubted.
On the other hand the ld DR has submitted that AO conducted an enquiry of obtaining bank Account opening form which revealed the fact that the directors of the assessee company has introduced all these creditors to open the bank accounts. Therefore the AO has come to the conclusion by considering all the relevant fact and conducting all necessary enquiry. It is well thought out strategy of the assessee to introduce its unaccounted money through loan creditor's accounts. She has relied upon the decision the Hon’ble jurisdictional High Court in the case of CIT Vs. Nova Promoters & Finlease (P) Ltd. 342 ITR 169 (Del). Thus the addition made by the AO is based on the material and information collected during the course of enquiry and investigation. She has further submitted that the assessee submitted income tax return of the loan creditors but all these tax return are zero tax returns. Further, cash was deposited in the bank account of the creditors and cheques were issued which caused doubt on the genuineness of the transaction. She has relied upon the order of the authorities below.
I have considered the relevant material on record, AO has suspected the transaction being non-genuine unsecured loan on the ground that loan creditors were introduced by the Directors of the assessee company to open the accounts and further the cash was deposited in each account before issuing the cheque to the assessee. Though this information is relevant to carry out verification and investigation to ascertain the genuineness of the transaction, however when the assessee has filed all the relevant record including PAN, ITR, Bank statement, statement of affairs as well as confirmation of the loan creditors, then the assessee has discharge its primary onus in support of its claim. There is no quarrel on the point that even if the AO was not satisfied with the evidences filed by the assessee, he could proceed further to conduct an enquiry and proper investigation in the matter to disapprove the evidences filed by the assessee. The AO asked the assessee to produce creditors for Page No. 6 examination, in reply the assessee requested the AO that the assessee is not having control over the loan creditors and therefore they may be summoned by the AO u/s 131 of the Act. The assessee has repeatedly urge the AO to summon the loan creditors for verification and examination, however the AO did not choose to summon the loan creditors u/s 131 despite repeated requests and plea made by the assessee including vide letter dated 22.10.2010. Once the assessee has expressed its inability to produce the loan creditors the assessee cannot force to do which is not in the control of the assessee. The AO is duly empowered within his jurisdiction to summon the loan creditors for examination and ascertain the genuineness of the transaction. Thus, it is clear case where the AO has failed to conduct a proper enquiry which he ought to have done in the assessment proceedings. There is no concrete finding by the AO in disapproving the documentary evidence produced by the assessee and claim of the assessee is rejected only on the suspicion. It is pertinent to note that unsecured loan to the assessee company is not accepted from any stranger but it is availed from the known parties who trust the debtors and therefore the introduction of the loan creditors by Dhiraj Jain and Rajesh Jain, Directors of the assessee company for opening of the bank account of the loan creditors itself would not goes to prove that loan transaction is not genuine and assessee’s own money is rooted through these account in the shape of loan. In the case of C.I.T. VS. Gangeshwari Metal P. LTD (supra), the Hon’ble jurisdictional High Court has observed and held in para 9 as under:- “9. As can be seen from the above extract, two types of cases have been indicated. One in which the assessing officer carries out the exercise which is required in law and the other in which the assessing officer 'its back with folded hands' till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The present case falls in the latter category. Here the assessing officer, after noting the facts, merely rejected the same. This would be apparent from the observations of the assessing officer in the assessment order to the following effect: - "Investigation made by the Investigation Wing of the Department clearly showed that this was nothing but a sham transaction of accommodation entry. The assessee was asked to explain as to why the said amount of Rs. 1,11,50,000/- may not be added to its income. In response, the assessee has submitted that there is no such credit in the books of the assessee. Rather, the assessee company has received the share application money for allotment of its share. It was stated that the actual amount received was Rs.
Page No. 7 55,50,000/- and not Rs. 1,11,50,000/- as mentioned in the notice. The assessee has furnished details of such receipts and the contention of the assessee in respect of the amount is found correct. As such the unexplained amount is to be taken at Rs. 55,50,000/-. The assessee has further tried to explain the source of this amount of Rs. 55,50,000/- by furnishing copies of share application money, balance sheet, etc. of the parties mentioned above and asserted that the question of addition in the income of the assessee does not arise. This explanation of the assessee has been duly considered and found not acceptable. This entry remains unexplained in the hands of the assessee as has been arrived by the Investigation wing of the Department. As such entries of Rs. 55,50,000/- received by the assessee are treated as an unexplained cash credit in the hands of the assessee and added to its income. Since I am satisfied that the assessee has furnished inaccurate particulars of its income, penalty proceedings under section 271(1)(c) are being initiated separately."
Thus, the AO cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same without carrying out any verification and enquiry on the material placed before him. In the case in hand the assessee produced all the relevant material which prima facie prove the genuineness of the loan creditors, creditworthiness of the creditors and identity of the creditors. The learned Commissioner of Income-tax (Appeals) has confirmed the action of the AO by observing that the assessee has failed to establish the identity of the creditor, creditworthiness of the creditor and genuineness of the transaction. As far as the identity of the creditor is concerned, there is no dispute that the assessee produce the all the relevant material including PAN and ITR, therefore the entity of creditors are no more in dispute when the ITR, PAN of the creditors are produced by the assessee. As regards the genuineness of the transaction is concerned, the assessee produced the relevant record to show that the transaction is done through banking channel and the creditors have disclosed this transaction in their return of income filed with the department. Therefore if any action regarding source of income of the creditors was required the same was to be taken in the assessment of the creditors. In view the above facts and circumstances as well as the judgment of the Hon’ble jurisdictional High Court in the case of C.I.T. vs. GANGESHWARI METAL P. LTD., (supra) when the AO has not conducted further enquiry to disapprove evidence filed by the assessee Page No. 8 then the addition made by the AO is not sustainable and the same is deleted. Since in both the appeal identical facts exists. Even common loan creditors who advanced the loan in these two years and the AO has also conducted proceeding in identical manner and therefore in view of the matter discussed in the Assessment Year 2006-07, the addition on the same issue for the Assessment Year 2007-08 is also not sustainable and the same is deleted.
The assessee has also raised the issue of validity jurisdiction u/s 153A of the Act. At the time of hearing the ld counsel for the assessee stated that the assessment proceedings were pending on the date of search u/s 132, therefore as per the provision of section 153A the opening assessment are bound to abate. Accordingly, the ground No.2 raised in these appeals is dismissed. 10. The appeals are allowed.