INCOME TAX OFFICER WARD 52(1) NEW DELHI, NEW DELHI vs. M/S NOVEL INFRATECH, NEW DELHI

LOANS FROM SH PARMOD KHANNA/SMT REETA KHANNA/RAJEEV KHANNA/SMT NEERU KHANNA: (i) Copies of Form 26AS of the four Loanees for AY 2013-2014. (ii) Certificate from the four loanees that no summons u/s 131 dated 08.03.2016 were received. (iii) Copies of medical records of Parmod Khanna showing that he was suffering from throat cancer (iv) Documents in support of source of source of funds in the accounts of the lenders

LOAN FROM M/s CHITRAWALI BARTER PVT LIMITED. (i) Copy of Form 26AS of the Loanee coy for AY 2013-2014. (ii) Audited accounts of the loanee company for the year ended 31.03.2013. (iii) Certificate from the loanee company denying any Inspector from the Office of DDIT (Inv) visited their office in March 2016 to make any inquiries. (iv) Copy of Form 18 with challan, in evidence that the Loanee company is in existence at the address given. (v) Copy of assessment orders of the year in support that no cogence of the statements of Mr Anil Khemka or any other person as relied in case of assessee to make the addition of unsecured loan u/s 68 in case of assessee have pet beer considered relevant in the case of the loanee company.

Loan from Sh Chander Kishore Dhingra / Sunil Gupta Assessee firm filed evidence in support of "Source of source of funds" in the bank accounts of the lenders.

These additional evidences were duly admitted and remand report was sought from the ld AO by the ld CIT(A). The ld AO submitted the remand report on 17.08.2017. The assessee submitted the scrutiny assessment orders in respect of 4 parties, namely M/s. Chitravali Barter Pvt. Ltd, M/s. Twenty First Century India Ltd, M/s. Nitin Hire Purchase Pvt Ltd and M/s. Novell Constructions. The ld AO issued notice u/s 133(6) of Page | 11 the Act to all these 4 parties on 15.12.2022 and called for certain details. All the 4 parties responded directly before the ld AO in the remand proceedings by uploading details in the ITBA portal. This fact is also duly acknowledged by the ld AO in the remand report. Despite this fact and despite placing of scrutiny assessment orders for certain parties, the ld AO still stated that the findings of the earlier AO be considered by the ld CIT(A). The assessee filed rejoinder to the remand report, party wise giving the source of source of each lenders. This rejoinder is enclosed in pages 14 to 24 of the order of ld CIT(A). Another remand report was furnished by the ld AO on 19.10.2023 to which also, the assessee furnished rejoinder. The main conclusion drawn by the ld AO in the remand report are summarised as under:

The rejoinder to the remand report submitted by the assessee and all the rejoinders of the assessee were submitted to the ld AO for his Page | 13 comments. The ld AO merely reiterated the earlier contentions. The summary of the rejoinder filed by the assessee is as under :- A. There is no evidence that there was any cash deposit in any of the account of the lenders. B. Although the assessee was not required by law to prove the source of source (for the impugned year), the assessee in all the cases established the genuineness and creditworthiness of source of source also. C. The assessee has submitted bank accounts, confirmations and ITR of all the parties and all the transactions were carried out through banking accounts. D. In most of the cases, interest was also paid after deduction of TDS and TDS certificates were also provided. E. All the loans have been repaid during the year or in the subsequent years. As on date, no loan is pending for repayment. F. All the parties have furnished documentary evidences to the notice issued u/s 133(6) of the Act. G. Copy of assessment orders were also filed, wherever applicable.

The ld CIT(A) considered the various reports of the ld AO and after due consideration of the rejoinders to the remand report filed by the assessee and various evidences placed on record, proceeded to delete the addition made in the sum of ₹7.86 crores on account of unexplained cash credit u/s 68 by observing as under:-

On perusal of the case of the Assessing Officer, it is seen that the Assessing Officer had deep suspicion about the creditworthiness and genuineness of transaction in some cases. However, what is required is that such suspicion needs to be converted into evidence. The addition cannot be made on the basis of doubt / suspicion only. There has to be some positive evidence to establish the case of applicability of section 68.

Hon'ble Jurisdictional High Court in the case of N.C. Cables [2017] 391 ITR 11 (Delhi) and Hon'ble Punjab & Haryana High Court in the case of Shri Jawaharlal [2016] 382 ITR 453, has held that suspicion, no matter how strong, cannot take place of evidence. It was held that in order to prove the suspicion, the Assessing Officer should have brought on record, the conclusive and clinching evidence to prove that any unaccounted cash of assessee through multiple layers of unsecured loan from any lender was infused and that the same money came to the assessee in the form of unsecured loans. In absence of any such evidence, the impugned addition would be considered as made on mere suspicion, surmises and conjectures and without any evidence. Thus, assessee has argued that bereft of evidences, addition u/s. 68 of the Act cannot be made in its case.

One of the grounds for making addition is that the lenders did not have sufficient income of its own. In this regard, it is seen that addition u/s 68 of the Act cannot be based on criteria of lower taxable income of depositor more particularly when assessee has already explained sources of source in the hands of creditors and Assessing Officer has never established any cash trail against funds given to assessee. In this regard, various judicial pronouncements relied upon are as under:-

One of the allegations was that the assessee could not produce the persons before the Assessing Officer. This cannot be the ground for making addition u/s 68 of the Act. The Assessing Officer has the powers of the court given u/s 131 to enforce the attendance of any person. In this regard, the Assessing Officer has powers of - Page | 17

Thus, the powers which the Assessing Officer has for gathering evidence cannot be handed over to the assessee. Once the assessee has furnished the details and address, the Assessing Officer ought to have conducted his enquiries including enforcing attendance. Enforcing the attendance of any person is the work/power of the Assessing Officer. When the assessee has discharged his onus by furnishing the documents, in that case, the onus shifts on the Assessing Officer to gather and bring on record the evidence contrary to the claim of the assessee. Therefore, just because the assessee could not enforce the attendance of lenders, it cannot be the ground for invoking section 68.

One of the grounds of the Assessing Officer was that on the given addresses, the parties do not exist. In this regard, the assessee has furnished its reply that the verification was not actually done. Without getting into the controversy as to whether the person actually verified the premise of the lenders or not, it is pertinent to note that all the letters were actually received by the lenders and they furnished their reply to the Assessing Officer Therefore, the allegation that the lenders did not exist on the given addresses does not seem plausible. It is also a matter of record that Shri Nakul Agarwal, director of one company attended and in his statement he Page | 18 reiterated the existence of office of the company which was not found untrue by the Assessing Officer.

One of the allegations of the Assessing Officer was that all the replies in respect of lenders was made by same person. However, this allegation is not proved with any evidence. Further, there is no report of the forensic department to establish that the same person had prepared the reply. Even otherwise, it may have been that the same person or the same C.A may have prepared the reply. Such a fact can only be the starting point for making further investigation to gather evidences. However, this fact, even if true, does not qualify as evidence for invoking section 68. Even if such allegation of the Assessing Officer is true in that case also the identity, creditworthiness and genuineness do not get disproved.

It is seen that in the statements, the assessee’s name do not appear. Therefore, the presumption cannot be held against the Page | 19 assessee. Further, the assessee had requested for cross examination which was not granted. Thus, there was violation of fundamental principles of natural justice in so far as the cross examination of witness of the revenue was not granted. On this ground alone, the statement is liable to be not treated as admissible evidence.

The Assessing Officer has placed heavy reliance on the statement of the other persons made u/s 131 during the course of other proceedings before officer other than the Assessing Officer or the officer other than the one to whom commission was issued. The provisions of section 132(4) deals with using the statement in evidence. The same is reproduced as under:-

In the above-mentioned section, the word "used as evidence" is not there. Had the section used the word "used as evidence", in that case, the statement alone could have been the evidence for making addition or reaching a conclusion.

The section uses the word "used in evidence". The usage of the word "used in evidence" signifies that if there are any other corroborative evidence or documentary evidence, in that case the statement can be used as one of the evidences. Thus, the section presumes that the only statement cannot be the basis of reaching a conclusion and making addition.

While appreciating the evidences, the Assessing Officer has deciphered entire statement in such a way that all the transactions of loan are non-genuine transactions, However, the same is contrary to provisions of the Act. The statements need to be corroborated by the documentary evidences in order to invoke section 68. No addition can be made while computing taxable income of any assessee merely relying upon such statements when no documentary evidences suggest that assessee has obtained accommodative loan or cash is exchanged in such transaction.

The Assessing Officer was not justified in relying on the statement not corroborated by other documentary evidences in respect of the impugned transaction of the assessee. In this regard, reliance is placed in the following cases:-

It is relevant to refer to decision of Madhya Pradesh High Court in case of Principal Commissioner of Income-tax (1) Indore vs Chain House International (P.) Ltd. [2018] 98 taxmann.com 47 (Madhya Pradesh)/ [2019] 408 ITR 561, wherein, it was held that once genuineness, creditworthiness and identity of investors are established, no addition could be made as cash credit. The facts of Page | 22 the case are similar to that of the assessee’s case as in instant case the assessee has duly discharged his onus by proving the identity, genuineness and creditworthiness of the lender. The Hon'ble Court has held that merely on the basis of third-party statements without any evidence or material on record to prove that the assessee has received accommodation entry. In this case, the investigation wing, Delhi was having some information relating to statements of Shri Shrish Chandrakant Shah (SCS) and Shri Sawan Kumar Jajoo (Jajoo) and who have stated that they were engaged through the web of various companies including the five companies who had contributed to the share capital of M/s. Bharat Securities (P) Ltd, in providing accommodation entries to various entities and various statements were also referred in assessment order. The loan taken from companies managed by Shri Shrish Shah, entry operator according to department was treated as bogus loan by Assessing Officer. The Tribunal has concluded that assessee company having receipt of share application money through bank channel and furnished complete details of bank statements, copy of accounts, complied with notices issued which clearly prove identity and creditworthiness of depositor and genuineness of transaction of the share applicant was proved in the ratio laid down by Hon'ble Madhya Pradesh High Court, Delhi High Court and Supreme Court and on this basis, entire addition was deleted. This order was further confirmed by Hon'ble Madhya Pradesh High Court in 98 taxmann.com 47 and further SLP filed by Department was also dismissed by Hon'ble Supreme Court in 103 Taxmann.com 435.

It is also the presumption of law that the nature of the evidence or information gathered during the proceedings should be of such Page | 23 nature that it instead of only raising doubt, the evidence establishes some wrong doing. In some instances, the information, document or evidence gathered, may raise serious doubts or suspicion in relation to transaction reflected in regular books or documents maintained in the ordinary course of business. However, even in such event the Assessing Officer is not permitted to straightaway make addition unless he brings on record further corroborative material or evidence to transform his suspicion to belief and conclude that the transaction reflected in regular books or documents did not represent the true state of affairs.

Hon'ble ITAT Delhi in the case of Sambhav Buildwell (P) Ltd vs. ACIT vide in its order dated 30/10/2023 has held as under:

The issue of discharging of onus was decided by the Hon'ble Delhi High court in the case of Modi Creations (P.) Ltd. v. ITO [2013] 354 ITR 282 wherein it has held as under:-

It was observed as under:

The Hon'ble Delhi High Court in the case of CIT vs. Vrindavan Farms Pvt. Ltd., etc. of 2015 dated 12th August, 2015 held as under:

The Assessing Officer has further alleged that appellant had repaid a sum of Rs.1,75,00,000/- to M/s Nitin Hire Purchase and the same was transferred to another group firm Novel Buildwell LLP. One of the partners of the assessee is also partner of Novel Buildwell LLP. It is not the case of the Assessing Officer that in any account there was deposit of cash. The fact that loan was repaid in fact establishes that it was genuine. Had the loan been shown as outstanding in the accounts till date, then there may have been case of presumption against the assessee and in that case the credits may have been treated as non-genuine. Further, the Assessing Officer by stating the fact of rotation of fund, himself has inferred that the money belonged to the assessee group only. Therefore, the identity, creditworthiness and genuineness is established and the credits from these parties does not qualify for addition u/s 68 of the Act.

One of the allegation of the Assessing Officer was that the loan from Parnika Mercantile Pvt. Ltd. was not genuine because when the loan was repaid to Parnika Mercantile by the assessee, the same was transferred to an another firm controlled by the partners of the assessee. Since the partner of the assessee and his family members are also director of Parnika mercantile Pvt. Ltd. so the repayment of funds to one of the group companies and subsequent transfer to another firm of the group cannot be alleged as bogus transaction without any documentary evidence to the contrary. Such an allegation of the Assessing Officer infact proves that the loan were internally sourced and was genuine and therefore, there was requirement of repayment of loan. The repayment of loan actually indicates that the loan was genuine. That such loans were subsequently given to other entitles of the assessee group does not establish the invocation of section 68.

The Assessing Officer has noted that Mr. Nakul Agarwal had received funds from Novel Construction one of the group firms and the same were transferred to the assessee and the addition was made treating it as bogus transaction without bringing on record any material. Infact such an allegation of the Assessing Officer establishes the source of source of the loan taken by the assessee. It is not the case of the Assessing Officer that there was some cash deposit in the account and the same was transferred by the lender to the assessee. Further, the assessee has also submitted the assessment order of Novel Construction for A.Y 2012-13 wherein the returned income has been accepted by the Assessing Officer and no adverse finding as to the nature of the entity is there.

It is seen that the statement under oath of Shri Nakul Aggarwal was recorded on 17.01.2017. In his statement he has not stated that there was any accommodation entry given by him. Infact he confirmed the transaction and also confirmed the payment of interest by the assessee. He confirmed the address of the company in his statement under oath which was not found to be untrue by the Assessing Officer/investigating officer.

In the case of Sunil Kumar Gupta, the Assessing Officer has alleged that the source of fund are not substantiated by the assessee. The assessee has submitted that the immediate credit before advance the loan was received in the bank account of the lender from sale proceeds of land located in Vasant Kunj. During the remand proceedings, the assessee provided the Assessing Officer with the sale deed of land from which the creditor received money and lent to the assessee. The Assessing Officer has refused to accept the claim of the assessee without enquiring further into information. As the assessee was able to furnish even the source of fund, in that case the addition was not justified in the absence of evidence of any cash deposit in the account. Further, the Assessing Officer could have called for complete statement and pointed out any cash deposit in the account of the lender. However, that is not the case of the Assessing Officer.

In case of Chander Kishore Dhingra, the Assessing Officer has alleged that the complete bank statement was not provided but the assessee has provided the source of source of the loan transaction and there was no finding to the contrary was provide by the Assessing Officer. Further the complete bank statement for the Page | 29 relevant period was provided from the ITR of the lender filed by the assessee, it is seen that the lender is having gross total income of Rs.17,02,544/-. Therefore, the Assessing Officer could not have proceeded with the addition on the premise of non-availability of complete bank statement. In any way, the AO was empowered to call for the statement from the bank of the lender which was not done during the course of assessment proceedings.

The Assessing Officer has alleged that the loans transaction with members of Khanna family were having uniform pattern of debit and credit and every debit is immediately followed by credit to the appellant. The funds returned by the assessee to one family member were transferred to another family member who in turn paid the same as fresh loan to the assessee. Since, the assessee has provided the source of source of all the transactions and there was no observation by the Assessing Officer in respect the nature of funds. Merely because there were transactions having same pattern or immediate transfer of funds after receipt, it cannot be concluded that the identity, genuineness and creditworthiness of the transaction was not proved. Moreover, the Assessing Officer could not establish that there was some cash deposit in any of the account. Infact the allegation of the Assessing Officer establishes the genuineness of source of source also.” …………………….. 50. It is observed that while making addition u/s 68 of the Act, Assessing Officer has doubted the financial capacity of the creditors in some cases, but such addition cannot be made on preponderance of probability and there has to be substance in contention because the addition is made u/s 68 of the Act. The Assessing Officer has not Page | 30 brought anything on record to establish that the sources of creditors is non genuine. Merely because creditors have shown meagre income or no sufficient sources as presumed by Assessing Officer, loan taken by assessee from them cannot be held to be accommodative. It is well-settled position of law that no matter how strong suspicion is, it cannot take place of the evidence. Therefore, in the absence of any evidence showing that in fact, assessee has given cash in lieu of unsecured loan taken, merely on the basis of suspicion, no addition can be made for which reliance is placed on decision of Hon'ble Supreme court in the case of DaulatramRawatmull, (1964) 53 ITR 574.

The Assessing Officer has also alleged that the partner of the firm of the assessee was required to appear before him but he refused to appear by stating that there is no proceedings pending in respect of him. Thus, Assessing Officer contended that the assessee had made deliberate attempt to not cooperate in the proceedings. The mere non appearance of the partner would not entitle the Assessing Officer to conclude that all the credits are not explained u/s 68 when all the details relating to the transactions were provided by the assessee. Further, the Assessing Officer could have enforced attendance of such person by powers vested in him by the law.

The assessee has furnished the assessment order of M/s Nitin Hire Purchase Pvt. Ltd. for the A.Y 2013-14. On perusal of the same, it is seen that the company has not been treated as a shell company and regular assessment disallowing an estimated addition of Rs.1 Lakhs was made in the assessment order. If in the assessment Page | 31 order of M/s Nitin Hire Purchase, it is not held that it was shell company or that it was engaged in the business of giving accommodation entries, it is unjustified that the same entity is treated as accommodation entry providers in the case of the assessee.

Further, the assessment order for A.Y 2012-13 of Twenty First Century India Ltd. was passed u/s 147 r.w.s. 143(3) of the Act on 23.12.2019. On perusal of the same, it is seen that the company has not been treated as a shell company and returned income has been accepted in the assessment order. If in the assessment order of M/s Twenty First Century India Ltd, it is not held that it was shell company or that it was engaged in the business of giving accommodation entries, it is unjustified that the same entity is treated as accommodation entry providers in the case of the assessee.

The condition precedent for invoking the provision the section 68 is that the explanation of the assessee is not found satisfactory in the opinion of the Assessing Officer. However, on perusal of the assessment order, it is seen that the Assessing Officer has not taken pains to rebut the explanation offered by the assessee. The Assessing Officer has also failed to bring evidences contrary to the explanation of the assessee which is a fundamental requirement for invoking the provisions of section 68. On this ground also the addition made invoking the provisions of section 68 do not survive.

it is seen that most of the loans carried interest also on which TDS was duly deducted. It is further seen that the Assessing Officer has allowed the claim of deduction on account of payment of interest to the parties. By allowing the claim of interest to the lenders, the Assessing Officer has actually accepted the identity to be genuine and the transaction to be genuine transaction. The basic presumption in section 68 is that it is the assessee on unaccounted money which is coming back to him by way of loan being directly credited to the balance sheet bye passing the P & L account. As the interest payment to the parties mentioned above has not been disallowed, the Assessing Officer was not justified in invoking the provisions of section 68 in the instant case.

It is also a matter of record that the loans were repaid in subsequent years and the same was not doubted by the Assessing Officer. The Hon'ble Gujarat High Court in the case of CIT Rajkot-1 vs Ayachi Chandrashekhar Narsangji [2014] 42 taxmann.com 251 (Gujarat) had held that:-

Similar view was taken by Hon'ble Gujarat High Court in the case of DCIT vs Rohini Builders 2001(3) TMI 9. In various other decisions, the Hon'ble Courts have deleted the addition u/s 68 if it is found that the loan was subsequently repaid and the department has not objected to the same.

If the case of the assessee is analysed in terms of the discussion of fact in foregoing paragraphs and the various case laws on the issues, it is seen that the evidences brought on record by the assessee has strength of evidence. Further, such evidence goes on to disprove the claim of the Assessing Officer regarding the applicability of provisions of cash credits u/s 68 of the Act. Based on the evidences furnished during the course of assessment, remand and appellate proceedings, the identity of the creditor, the Page | 34 creditworthiness of the creditor and the genuineness of the transactions does not get disproved. Hence, it is held that the Assessing Officer was not justified in making addition u/s 68 of the Act. Therefore, the addition of Rs.7,86,00,000/- is deleted. Accordingly, Grounds 1 to 3 are allowed.”

None of the aforesaid factual findings could be controverted by the revenue by contrary evidences. We find that the ld CIT(A) had elaborately given an independent finding qua each lender. We do not find any infirmity in the order of the ld CIT(A). Accordingly, grounds raised by the revenue are dismissed.

In the result appeal of the revenue is dismissed.