M/S. GHAZIABAD ISPAT UDYOG LTD.,,GHAZIABAD vs. DCIT, GHAZIABAD

Respective arguments advanced by the parties have been considered in view of the orders of the authorities below, material available on record and decisions relied upon.

Facts, in brief, are that the assessee is a Pvt. Ltd. Company engaged in the business of manufacturing and sale of Forged/Machined goods at C-98, Industrial Area, Bulandhshahar Road, Ghaziabad. The return of income was e-filed on 27.09.2010 declaring an income of Rs.4,27,16,400/-. Assessment u/s 143(3) of the Income-tax 1961 [in short, ‘the Act’] has been framed making several additions which have been upheld by the ld. CIT(A).

During the year, the assessee had taken unsecured loan of Rs. 2.92 lakhs from M/s Elina Developers Pvt. Ltd [hereinafter referred to as ‘Elina’] and Rs. 2.5 crores from M/s Skytech Infotech Pvt. Ltd. [hereinafter referred to as ‘Skytech’]. The AO asked the assessee to produce all the parties who had given the unsecured loans and share application money. However, the assessee was unable to produce them on the given date by the assessee. Instead, the assessee requested the AO to issue summons to the parties. The AO noted that none of the parties were found on the given addresses except for Elina. The AO noted that no details were filed except address of the lenders. The AO noted further that the principal officer of Skytech was only a 8th pass and during the course of recording his statement he could not explain the source through which loan amount of Rs. 2.5 crores was paid to the assessee. The AO thus came to the conclusion that Skytech failed to establish the credit worthiness to advance such a huge loan. He also noted at page 10 of the assessment order about the details of amount deposited in the account of Skytech immediately on the same date or one day before and then cheques were issued to the assessee. The AO noted further that the parties through whom money was received by the lenders were proved as bogus by the department in another case as well.

Regarding the other lender Elina, the AO noted that it was an associated concern of the assessee. Elina claimed that it had sold its shares at huge premiums to four companies and out of those four companies three companies were having same address and address of other directors were also common. The AO further noted that Investigation Wing of the department has also enquired and established that these companies were paper/dummy companies created by Shri Deepak Jain, a well known entrepreneur. Noting these facts, the AO came to the conclusion that Elina does not have the worth to advance loan to the tune of Rs. 2.91 crores to the assessee as no business activity was carried out by Elina. The ld. CIT(A) has upheld both the above additions of Rs. 2.50 crores claimed to have been received from Skytech and Rs. 2.92 crores claimed to have been received from Elina. The ld. CIT(A) has also upheld the addition of Rs. 16,43,766/- being disallowance on account of interest paid to Skytech and Elina.

In support of the above grounds, the ld. A.R submitted that the above mentioned two loans on interest were taken by the assessee through banking channel vide account payee cheques on which interest has been paid and tax has been deducted at source in accordance with the applicable provisions of law. He contended that substantial part of loan raised from Elina has been repaid back during the course of year through banking channel. During the course of assessment proceedings the assessee had submitted comprehensive factual pleadings and evidences to support the identity, capacity of both the lender companies and genuineness of the impugned loan by furnishing confirmations, disclosing the fact that the lenders are companies assessed to Income-tax, the amounts received through banking channel, amount also repaid through banking channel, interest having been paid and tax deducted at source. Thus, the assessee had discharged its burden against these two loans in terms of section 68 of the Act. The ld. A.R referred to page Nos. 25 and 26 of the Paper Book i.e. copy of assessee’s letter dated 10.10.2012 filed before the AO furnishing list of unsecured loans, copy of lenders account, copy of Income-tax and their bank statement. The ld. A.R also referred to page No. 54 of the Paper Book, being the details of unsecured loans filed before the AO showing that the sum of Rs. 2.50 crores were received from Skytech which was having PAN and further that an aggregate amount of Rs. 5.82 lakhs was received from Elina out of which a sum of Rs. 5.40 lakhs was repaid too. Elina was also having PAN. The AO had added a sum of Rs. 2.92 crores in relation to loan of Elina. The ld. A.R also referred to page No. 55C of the Paper Book which is copy of account of Elina showing credit amount of Rs. 5.82 crores received through banking channel and showing credit of Rs. 5.40 lakhs having been repaid through banking channel and giving their PAN.

The ld. A.R also referred to page Nos. 55A & 55B of the Paper Book being copy of computation of income and acknowledgement of return for A.Y 2010-11 of Elina showing that Elina is assessed to tax and has filed its return for the A.Y 2010-11. He submitted that if the AO had no issue against Elina, he could have very well enquired the same from his counter-part of Elina. The ld. A.R also referred to page No. 61 of the Paper Book which is copy of confirmed account from Skytech showing that aggregate amount of Rs. 2.50 crores has been received through banking channel and Skytech is assessed to tax. He also referred to page No. 61A of the Paper Book which is copy of account of Skytech for subsequent years to show that the loan in question was repaid through banking channel. The ld. A.R also referred to page Nos. 64 to 69 of the Paper Book which are copies of bank statement of Skytech showing the loan in question given from these bank accounts and the availability of funds with Skytech. The ld. A.R, thereafter, referred to page Nos. 56 to 60 of the Paper Book which is copy of balance sheet of Skytech relevant to A.Y 2010-11 showing at page 60 the name of the assessee appearing the list of sundry debtors in the balance sheet of Skytech. The ld. A.R also referred to page Nos. 62 and 63 of the Paper Book which is copy of Income-tax return of Skytech for the A.Y under consideration showing that Skytech exists even on the departmental assessment records. The AO could have verified all these facts from his counterpart. At page Nos. 77 to 81 of the Paper Book, have been placed copies of bank statements of Skytech filed with assessee’s letter dated 8.2.2013. Page 82 is the assessee’s letter addressed to AO on 14.2.2013 giving details of interest paid and tax deducted showing the genuineness of the impugned loans. The ld. A.R also referred to page Nos. 83 and 84 of the Paper Book showing details of interest of Rs. 9,82,360/- and Rs. 6,61,136/- paid to Skytech and Elina out of which TDS has been deducted. At page 85 has been made available letter dated 27.2.2013 of the assessee to the AO mentioning that Elina is the sister concern and giving their address. The ld. A.R also referred to page Nos. 87 to 96 of the Paper Book which is the balance sheet of Elina filed before the AO. The ld. A.R drew our attention to page Nos 103-140 of the paper book which is copy of letter dated 20.3.2013 sent by Elina to AO in response to his enquiry letter and giving copy of other PAN, balance sheet, profit and loss account for various years, copy of returns for 2009-10 and 2010-11, copy of account of assessee in their books of account, copies of bank statements. Reference to page Nos. 141 to 143 of the Paper Book has also been made which is copy of another letter from Elina to AO giving additional information asked by the AO on 20.3.2013 when the director of Elina appeared in person before the AO and details of loan and advances in which the name of the assessee was appearing and source of amount out of which loan in question was given.

The ld. A.R also referred to page Nos. 238 to 277 of the Paper Book, which is copy of letter from Skytech to the AO confirming the fact that they had given loan to the assessee and corresponding source in the hands of Skytech and furnishing their bank statement, Income- tax returns and audited balance sheet of three years and identity proof. The ld. A.R also referred to page Nos. 289 to 293 of the Paper Book which is copy of letter dated 26.3.2013 to the AO that Shri Yogesh Singhal, Director of Skytech appeared before the AO on 22.3.2013 and on that dated filed voluminous evidences to support the loan in question and further that few more details were asked from Shri Yogesh to be provided before 26.2.2013 but he was assaulted by some miscreants because of which he sustained severe injury and further submitted evidences in the form of police complaint, medical reports and newspaper cuttings. The ld. A.R also referred to page Nos. 295 to 298 of the Paper Book being copy of submissions dated 30.3.2013 filed before the AO giving explanation of the assessee in respect of the loans in question and page Nos. 299 to 305 of the paper book which are copies of web page of MCA showing the existence of various companies. The ld. A.R drew our attention to page Nos. 315 to 327 of the Paper Book which are copies of statements of Shri Nimesh Agarwal, Director of the assessee company and the Director of Elina in which he has confirmed and given detailed reply about the impugned loans. Copy of statement of Shri Sudhir Agarwal, Managing Director of the assessee in which Shri Agarwal has given detailed account of loan in question has also been made available. The ld. A.R accordingly submitted that the assessee had discharged its onus to establish the identity, credit worthiness of the creditors as well as genuineness of the transactions and in the absence of rebuttal thereof, the AO was not justified in making addition on claimed loan and interest paid thereupon u/s 68 of the Act on account of unexplained credit. The ld. A.R placed on reliance on the following decisions:

The ld. A.R further submitted that proviso to section 68 of the Act is not relevant in the matter of loan and source of source is not required to be established. The ld. A.R further submitted that the assessee has dealt with each and every objection raised by the AO and in this regard has referred to pages 346 to 359 of the paper book.

On the other hand, the ld. D.R tried to justify the orders of the authorities below. He contended that merely because the loans have been taken and repaid through banking channel he is not sacrosanct to establish the genuineness of the transaction. He submitted that the authorities below have discussed the issue in detail showing that the credit worthiness of the lenders was doubtful. The ld. D.R has thus 12 basically placed reliance on the orders of the authorities below and the decisions relied upon by them.

Having heard the rival submissions and gone through the orders of the authorities below, we find that the assessee had furnished all the possible evidences to establish the identity and credit worthiness of the creditors as well as the genuineness of the claimed transactions. We have already discussed hereinabove that the claimed loans were taken and repaid through banking channel by account payee cheques, interest thereupon was also paid and tax was also deducted at source. It is also an admitted fact that both the parties are assessed to tax, their returns of income for A.Y in question, balance sheet and bank statements were furnished and above all their directors had appeared before the AO and had confirmed the claimed transactions with them. In these circumstances, the AO was not justified in making the additions in question u/s 68 of the Act merely on the basis of his doubts on the credit worthiness of the creditors especially when they were assessed to tax and in their statements before the AO they had confirmed the claimed loans given by them to the assessee. The decisions relied upon by the ld. A.R also support the contention of the assessee that by furnishing above said possible evidences in support of claimed loans and payments of interest, the assessee had discharged its onus and thereafter the onus was shifted upon the AO to rebut the same to justify the additions in question made by the AO. The AO has thoroughly failed in discharging this onus in the present case on the issue. We, thus, while setting aside the orders of the authorities below in this regard direct the AO to delete the addition of Rs. 5.42 crores [2.50 crores + 2.92 crores] taken as loan from Skytech and Elina and the interest of Rs. 16,43,766/- paid to them. Accordingly, Ground Nos. 1 to 4 are allowed.

During the year the assessee had received share application money of Rs. 1 crore in total from the following parties:

The AO made the addition of Rs. 1 crore u/s 68 of the Act on the basis that the Directors of share holding companies were not produced and it was highly unlikely that the persons who have invested huge amount with the assessee company would not turn to say that ‘yes they have invested’. The Inspector’s report also suggested that these companies could not be traced. The ld. CIT(A) has upheld the addition.

In support of the grounds, the ld. A.R submitted that the assessee had discharged its onus by furnishing details of share capital, their confirmations, their Income-tax returns, copies of their respective bank statements, their complete address, PAN, their ledger account showing the amount received and thereafter transfer of allotment, their balance sheet etc. The ld. A.R in this regard referred to page Nos. 25,27,28, to 53, 144 to 166, and 173 to 237 of the paper book. He also referred to page Nos. 299 to 305 of the paper book which are copies of web extracts downloaded MCA showing the existence of 8 share holders companies showing their active status as on 1.3.2013 alongwith filing of balance sheet upto 31.3.2012. The ld. A.R submitted that vide letter dated 22.3.2013 [page Nos. 144 and 145 paper book] filed before the AO the assessee had submitted further evidences in respect of impugned share capital of Rs. 1 crore alongwith latest addresses of share holder companies. He contended that all the investors are companies and regular Income tax assessees. Thus merely because these companies were not found on the given address the AO was not justified in doubting the claimed investments without examining the documents filed by the assessee in support of the claim. He placed reliance on the following decisions:

The ld. D.R, on the other hand, tried to justify the orders of the authorities below on the issue. He submitted that the AO made his full efforts to locate the above named share holder on the given address and he directed the Inspector to visit the address but these share holders were not found on the given address. The assessee has thus failed to even establish the identity of the share holders.

Considering the above submissions, we find that the assessee had furnished all the necessary evidences before the AO as discussed hereinabove in the submissions of the ld. A.R supported with evidences in the shape of paper book filed on behalf of the assessee and thus the assessee had discharged its primary onus to establish the identity and credit worthiness of the share holders and genuineness of the transactions. These evidences were conformations of the share applicants, their income-tax returns, their bank statements, their complete addresses with PANs, their ledger accounts showing the amount receive and thereafter transfer of allotment, and their balance sheets, etc. The onus thereafter was shifted on the AO to examine those evidences but the AO has made the addition simply on the basis that the share holders were not found on the given address. The assessee had furnished substantial evidence to establish that these share holders were assessed to tax and on the website of MCA the existence of the share holder companies were shown as on 1.3.2013. The assessee had also furnished their balance sheet upto 31.3.2012. These facts of the case indicate that the AO has failed to discharge his onus in rebutting the evidences filed by the assessee in support of establishing the genuineness of the claimed receipt of share application money. The Hon’ble Supreme Court in the case of CIT Vs. Lovely Exports (P) Ltd [supra] has been pleased to hold that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of the assessee company. Again in the case of CIT Vs. Goel Sons Golden Estate (P) Ltd [supra] before the Hon’ble High Court of Delhi, the assessee had furnished confirmations, letters, their PANs, bank statements, affidavits and balance sheets of the share applicant, but had shown its inability to produce the share applicants. The AO consequent thereto, did not conduct any inquiry and closed the proceedings. The Hon’ble High Court was pleased to approve the order of the Tribunal deleting the addition. We thus respectfully the ratio laid down in the above cited decisions by the ld. A.R delete the addition. Accordingly the grounds are allowed.

Remaining ground No. 7 is general in nature and Ground No. 8 regarding the charging of interest u/s 234 B and 234D of the Act are consequential in nature.

In the result, the appeal of the assessee is allowed. The order is pronounced in the open court on 30th .10.2015.