The DCIT, Circle-1(1)(1), Surat V. M/s. Eagle Fibers Pvt.Ltd., Surat

ITA 118/SRT/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 4853 (ITAT-SURAT)
• Duration Of Justice: 4 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 08-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MRS ANUPAMA SINGLA
• Keywords: Unexplained cash credit; Unexplained investment; Source of fund; Accommodation entries; Onus to prove
• Section: 143(3); 143(2); 147; 131; 68; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRIPAWAN SINGH, JM &DR. A.L.SAINI, AM ./ ITA NO.118/SRT/2017 ( / ASSESSMENT YEAR: (2011-12) (VIRTUAL COURT HEARING) DY. COMMISSIONER OF INCOME- TAX,CIRCLE-1[1][1], ROOM NO. 108, AAYKAR BHAVAN, MAJURA GATE, SURAT 395001. V S. M/S EAGLE FIBRES PVT. LTD., 201, 2 ND FLOOR, ORLEANS BUILDING, NR. SOSYO CIRCLE, UDHNA MAGDALLA ROAD, SURA-395007 ./ ./PAN/GIR NO.: AAACE5085C (ASSESSEE) (RESPONDENT) ASSESSEE BY :SHRI RAMESH MALPANI, C.A RESPONDENT BY :MRS. ANUPAMASINGLA SR.DR / DATE OF HEARING : 02/09/2021 / DATE OF PRONOUNCEMENT : 27/09/2021 / O R D E R PER DR. A. L. SAINI, ACCOUNTANT MEMBER: CAPTIONED APPEAL FILED BY THE REVENUE PERTAINING TO THE ASSESSMENT YEAR 2011-12, IS DIRECTED AGAINST THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-1, SURAT DATED 28.06.2017, IN APPEAL NO.CAS/1/121/2014- 15, WHICH IN TURN ARISES OUT OF AN ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT), DATED 31.03.2014. GRIEVANCES RAISED BY THE REVENUE ARE AS FOLLOWS: 1.WHETHER ON THE FACT AND THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF UNEXPLAINED UNSECURED LOAN AMOUNTING TO RS.2,85,00,000/- WITHOUT APPRECIATING THE FACT THAT INVESTIGATION DONE IN THE CASE OF THE ASSESSEE REVEALED THAT ALL THE 11 COMPANIES WHO INVESTED IN THE COMPANY ARE BOGUS COMPANIES? 2. WHETHER ON THE FACT AND THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF UNEXPLAINED UNSECURED LOAN WITHOUT APPRECIATING THE FACTS THE DURING COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE COMPANY COULD NOT PRODUCE THE DIRECTORS OF THE INVESTORS COMPANIES BEFORE THE ASSESSING OFFICER? THEREFORE, IDENTITY, CAPACITY OF THE ALLEGED INVESTORS AND GENUINENESS OF TRANSACTION REMAINED UNEXPLAINED? PAGE | 2 ITA NO.118/SRT/2017 FOR A.Y. 11-1 2 M/S EAGLE FIBRES PVT. LTD. 3. WHETHER ON THE FACT AND THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE ON ACCOUNT OF VEHICLE EXPENSES AMOUNTING TO RS.3,77,374/- WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS NOT MAINTAINED ANY LOG REGISTER IN RESPECT OF VEHICLE EXPENSES TO DISTINGUISH THE BUSINESS AND PERSONAL NATURE OF THE EXPENSES? 4. WHETHER ON THE FACT AND THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE ON ACCOUNT OF TELEPHONE EXPENSES AMOUNTING TO RS.65,719/- WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS NOT MAINTAINED ANY CALL REGISTER IN RESPECT OF TELEPHONE EXPENSES TO DISTINGUISH THE BUSINESS AND PERSONAL NATURE OF THE EXPENSES? 3.THE RELEVANT MATERIAL FACTS, AS CULLED OUT FROM THE MATERIAL ON RECORD, ARE AS FOLLOWS. THE ASSESSEE BEFORE US IS A PRIVATE LIMITED COMPANY. THE ASSESSEE FILED ITS RETURN OF INCOME ON 27.09.2011 SHOWING LOSS AT RS.84,04,112/-.THE ASSESSEES RETURN OF INCOME WAS PROCESSED U/S 147 OF THE ACT. LATER ON ASSESSEES CASE WAS SELECTED FOR SCRUTINY U/S 143(2) OF THE ACT AND ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT ON 31.03.2014.DURING THE SCRUTINY PROCEEDING, THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS SHOWN RS.2,85,00,000./- AGAINST UNSECURED LOAN. ON FURTHER EXAMINATION OF THE DOCUMENTS FIELD, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE SAID AMOUNT OF RS.2,85,00,000/-HAS BEEN SHOWN UNDER THE NAMES OF THE FOLLOWING ALLEGED LENDERS: SL.NO. NAME AND ADDRESS OF THE SHARE APPLICANT UNSECURED LOAN 1 SAMKIT FINLEASE PVT. LTD. 25,00,000 2 HARSHRATNA FINANCE PVT. LTD. 25,00,000 3 SAMKIT FINANCE PVT LTD. 25,00,000 4 AMARAVANI EXIM PVT. LTD. 20,00,000 5 SILFIX TRADE LINK PVT. LTD. 25,00,000 6 WIPRO SUPPLIERS PVZT LTD. 25,00,000 7 ZENITH FISCAL SERVICES PVT. LTD. 15,00,000 8 ASHA APARTMENTS PVT. LTD. 35,00,000 9 GREWAL STEEL & HOLDINGS PVT LTD 40,00,000 10 PRIME VYAPAR PVT LTD. 25,00,000 11 VESHNAWY VYAPAR PVT LTD. 25,00,000 TOTAL 2,85,00,000 PAGE | 3 ITA NO.118/SRT/2017 FOR A.Y. 11-1 2 M/S EAGLE FIBRES PVT. LTD. IN ORDER TO EXAMINE THE VERACITY OF THE ALLEGED LENDERS AND THEIR ACTUAL EXISTENCE, THE ASSESSING OFFICER ISSUED A LETTER TO THE KOLKATA INVESTIGATION WING OF THE DEPARTMENT, USING THE POWERS CONFERRED BY SECTION 131(1)(D) OF THE ACT.THIS COMMISSION WAS ISSUED TO THE DDIT (INVESTMENT.), UNIT-II(1), KOLKATA ON 13.03.2014.IN RESPONSE TO THE SAID COMMISSION AN INQUIRY REPORT WAS RECEIVED FROM DDIT(INV.) UNIT-II(1), KOLKATA VIDE HIS LETTER DATED 26.03.2014. THE REPORT STATED THAT ON PHYSICAL VERIFICATION IT WAS FOUND THAT SUMMONS COULD BE SERVED ON ONE LENDER AND ON OTHER LANDERS SUMMONS COULD NOT BE SERVED.SINCE THE AFOREMENTIONED UNSECURED LOANS OF RS.2,85,00,000/- HAS BEEN FOUND CREDITED IN THE BOOKS OF THE ASSESSEE COMPANY MAINTAINED FOR PREVIOUS YEAR 2010-11, AND THE EXPLANATION OFFERED BY THE ASSESSEE-COMPANY HAS NOT BEEN FOUND SATISFACTORY, THEREFORE ASSESSING OFFICER MADE ADDITION OF RS.2,85,00,000/- UNDER SECTION 68 OF THE ACT. 4.AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS DELETED THE ADDITION MADE BY ASSESSING OFFICER. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 5.MRS. ANUPAMA SINGLA, LEARNED SENIOR DR FOR THE REVENUE VEHEMENTLY SUBMITTED BEFORE THE BENCH THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS TAKEN UNSECURED LOAN OF RS.2,85,00,000/- FROM 11 COMPANIES. THE AO ALSO OBSERVED THAT ALL THESE CONCERNS HAVING ADDRESS AT KOLKATA AND ALSO FOUND HIGH FREQUENCY OF COMMON ADDRESS OF COMPANIES AND DIRECTORS. IN ORDER TO VERIFY THE CORRECTNESS, THE AO ISSUED COMMISSION U/S 131(L)(D) TO THE DDIT( INV.), UNIT-II(L), KOLKATA ON 13.03.2014.IN HIS REPLY THE DDIT( INV.) SUBMITTED THAT SUMMONS U/S 131 OF THE IT ACT COULD BE SERVED UPON NONE OF THESE LENDERS BUT ONE. THE FINDINGS OF KOLKATA INVESTIGATION WING INDICATED THAT THE SAID COMPANIES ARE MERELY PAPER ENTITIES OPERATING MAINLY FOR PROVIDING ACCOMMODATION ENTRIES. THEREFORE, SHE STATED THAT ASSESSEE HAS FAILED TO ESTABLISH THE IDENTITY, GENUINENESS AND CREDITWORTHINESS OF THE TRANSACTIONS OF PAGE | 4 ITA NO.118/SRT/2017 FOR A.Y. 11-1 2 M/S EAGLE FIBRES PVT. LTD. THE ALLEGED UNSECURED LOANS. BASED ON THESE FACTS, SHE PRAYED THE BENCH THAT ORDER PASSED BY THE ASSESSING OFFICER SHOULD BE UPHELD. 6.PER CONTRA, SHRI RAMESH MALPANI, LEARNED COUNSEL FOR THE ASSESSEE BEGINS BY POINTING OUT THAT DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE FURNISHED ACCOUNT CONFIRMATIONS FROM ALL THE LENDERS ALONG WITH COPIES OF INCOME TAX RETURN ACKNOWLEDGMENTS, BANK STATEMENTS AND AUDITED FINANCIAL STATEMENTS OF ALL THE LENDERS. BY SUBMITTING THESE DOCUMENTS, THE ASSESSEE HAS PROVED THE THREE INGREDIENTS OF SECTION 68 OF THE ACT, VIZ: (I) IDENTITY OF THE DEPOSITOR; (II) GENUINENESS OF THE TRANSACTION; AND (III) CREDITWORTHINESS OF THE DEPOSITOR SHRI MALPANI, FURTHER ARGUED THAT FROM THE AUDITED FINANCIAL STATEMENTS, IT IS EVIDENT THAT ALL THE LENDERS ARE NBFCS (NON-BANKING FINANCE COMPANIES) REGISTERED WITH RESERVE BANK OF INDIA(RBI). THE AUDITOR'S REPORT AS WELL NOTES ON ACCOUNTS CONTAIN THE REPORTING AND INFORMATION APPLICABLE TO NBFCS. IT IS THE CONTENTION OF THE LD COUNSEL THAT THE LOANS WERE GRANTED BY THEM TO THE ASSESSEE AS A PART OF THEIR NBFC BUSINESS. PERUSAL OF THE DETAILS AND AUDIT REPORT WITH ANNEXURES FURNISHED ALSO REVEAL THAT ALL THE LENDERS ARE OLD COMPANIES AND OLD NBFCS COMPANIES, THEREFORE, THE GENUINENESS AND IDENTITY OF THESE COMPANIES SHOULD NOT BE DOUBTED. 7. SHRI MALPANI, FURTHER PLEADS THAT INQUIRY REPORT U/S 131 (I) (D) OF THE ACT FROM THE DDIT (INV), UNIT-IV(1), KOLKATA, WHICH IS THE MAIN REASON MENTIONED BY ID. AO FOR MAKING THIS ADDITION, SHOULD BE ANALYZED IN RIGHT PERSPECTIVE. HE STATES THAT THE COMMISSION UNDER SECTION 131 (1) (D) OF THE ACT WAS SENT BY THE AO ON 13/03/2014 AND THE REPORT OF THE DDIT CLAIMED TO HAVE BEEN RECEIVED ON 26/03/2014, I.E. WITHIN A SPAN OF 12 DAYS. IT IS ARGUED BY LD COUNSEL THAT PROPER INQUIRY OF 10 LENDER COMPANIES CANNOT BE MADE IN SUCH A SHORT SPAN OF TIME. IT IS FURTHER SUBMITTED BY LD COUNSEL THAT LENDERS HAVE INFORMED TO THE ASSESSEE THAT THEY HAVE SUBMITTED ALL THE REQUIRED DETAILS AND DOCUMENTS TO THE DDIT IN RESPONSE TO THIS INQUIRY AND THE REPORT OF 26/03/2014 MAY BE ONLY A PRELIMINARY REPORT. THIS IS IMPORTANT TO MENTION THAT FROM THE 'SAME ADDRESS' PROVIDED TO THE AO/DDIT, THOSE COMPANIES HAVE BEEN FILING THEIR RETURNS, RECEIVING INTIMATION PAGE | 5 ITA NO.118/SRT/2017 FOR A.Y. 11-1 2 M/S EAGLE FIBRES PVT. LTD. U/S.143(1) OF THE ACT AND REFUNDS AS WELL. THE AO SHOULD HAVE MADE MORE EFFORTS TO MAKE ENQUIRY THROUGH CONCERNED AO OF THOSE LENDER COMPANIES AND OBTAINED DETAILS ABOUT THEIR IDENTITY AND CREDITWORTHINESS FROM HIM, BUT HE TAILED TO DO SO. FINALLY, LD COUNSEL PRAYS THE BENCH THAT SINCE LEARNED CIT(A) HAS PASSED A REASONED ORDER, AND SPEAKING ORDER THEREFORE THE SAME ME BE UPHELD. 8.WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLUDING THE FINDINGS OF THE LD CIT(A) AND OTHER MATERIALS BROUGHT ON RECORD. WE FIND THAT KEY ISSUE ARISES FOR OUR APT ADJUDICATION IN THE INSTANT LIS, IS, WHETHER ASSESSEE COMPANY HAS SATISFIED THE THREE INGREDIENTS OF SECTION 68 OF THE ACT, NAMELY:(I) IDENTITY ; (II) GENUINENESS ; AND (III) CREDITWORTHINESS, IN RESPECT OF LENDERS/CREDITORS. LET US, FIRST OF ALL, WE SHOULD CONSULT THE PROVISIONS OF SECTION 68 OF THE ACT. SECTION 68 UNDER WHICH THE ADDITION HAS BEEN MADE BY THE ASSESSING OFFICER READS AS UNDER: '68. WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINION OF THE ASSESSING OFFICER, SATISFACTORY, THE SUM SO CREDITED MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR.' THE PHRASEOLOGY OF SECTION 68 IS CLEAR. THE LEGISLATURE HAS LAID DOWN THAT IN THE ABSENCE OF A SATISFACTORY EXPLANATION, THE UNEXPLAINED CASH CREDIT MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR. IN THIS CASE THE LEGISLATIVE MANDATE IS NOT IN TERMS OF THE WORDS SHALL BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR'. THE SUPREME COURT WHILE INTERPRETING SIMILAR PHRASEOLOGY USED IN SECTION 69 HAS HELD THAT IN CREATING THE LEGAL FICTION THE PHRASEOLOGY EMPLOYS THE WORD ' MAY ' AND NOT ' SHALL '. THUS THE UN-SATISFACTORINESS OF THE EXPLANATION DOES NOT AND NEED NOT AUTOMATICALLY RESULT IN DEEMING THE AMOUNT CREDITED IN THE BOOKS AS THE INCOME OF THE ASSESSEE AS HELD BY THE SUPREME COURT IN THE CASE OF CIT V. SMT. P. K. NOORJAHAN [1999] 237 ITR 570. PAGE | 6 ITA NO.118/SRT/2017 FOR A.Y. 11-1 2 M/S EAGLE FIBRES PVT. LTD. 9. WE NOTE THAT THE MAIN PLANK ON WHICH THE ASSESSING OFFICER MADE THE ADDITION WAS BECAUSE THE LENDERS DID NOT TURN UP BEFORE HIM. WE NOTE THAT LENDERS HAVE SUBMITTED ALL THE REQUIRED DETAILS AND DOCUMENTS, SUCH AS BALANCE SHEET, PROFIT AND LOSS ACCOUNT, INCOME TAX RETURN, PAN NUMBER, BANK STATEMENTS ETC, TO THE DDIT INVESTIGATION, IN RESPONSE TO THEIR INQUIRY. WE NOTE THAT ASSESSING OFFICER OUGHT TO HAVE VERIFIED WITH THE RESPECTIVE AOS OF THE LENDERS AS PER LAW AND PROCEDURE LAID DOWN IN THE CASE OF THE HON'BLE APEX COURT IN THE CASE OF ORISSA CORPN. (P) LTD. 159 ITR 78 AND THE HON'BLE GUJARAT HIGH COURT, IN THE CASE OF DY. CIT VS. ROHINI BUILDERS [2002] 256 ITR 360 [2003] 127 TAXMAN 523, WHEREIN IT HAS BEEN HELD THAT ONUS OF THE ASSESSEE (IN WHOSE BOOKS OF ACCOUNT CREDIT APPEARS) STANDS FULLY DISCHARGED IF THE IDENTITY OF THE CREDITOR IS ESTABLISHED AND ACTUAL RECEIPT OF MONEY FROM SUCH CREDITOR IS PROVED. IN CASE, THE ASSESSING OFFICER IS DISSATISFIED ABOUT THE SOURCE OF CASH DEPOSITED IN THE BANK ACCOUNTS OF THE CREDITORS, THE PROPER COURSE WOULD BE TO ASSESS SUCH CREDIT IN THE HANDS OF THE CREDITOR (AFTER MAKING DUE ENQUIRIES FROM SUCH CREDITOR). IN ARRIVING AT THIS CONCLUSION, THE HON'BLE COURT HAS FURTHER STRESSED THE PRESENCE OF WORD ' MAY ' IN SECTION 68. RELEVANT OBSERVATIONS AT PAGES 369 AND 370 OF THIS REPORT ARE REPRODUCED HEREUNDER:- 'MERELY BECAUSE SUMMONS ISSUED TO SOME OF THE CREDITORS COULD NOT BE SERVED OR THEY FAILED TO ATTEND BEFORE THE ASSESSING OFFICER, CANNOT BE A GROUND TO TREAT THE LOANS TAKEN BY THE ASSESSEE FROM THOSE CREDITORS AS NON-GENUINE IN VIEW OF THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN THE CASE OF ORISSA CORPORATION [1986] 159 ITR 78. IN THE SAID DECISION THE SUPREME COURT HAS OBSERVED THAT WHEN THE ASSESSEE FURNISHES NAMES AND ADDRESSES OF THE ALLEGED CREDITORS AND THE GIR NUMBERS, THE BURDEN SHIFTS TO THE DEPARTMENT TO ESTABLISH THE REVENUE'S CASE AND IN ORDER TO SUSTAIN THE ADDITION THE REVENUE HAS TO PURSUE THE ENQUIRY AND TO ESTABLISH THE LACK OF CREDITWORTHINESS AND MERE NON-COMPLIANCE OF SUMMONS ISSUED BY THE ASSESSING OFFICER UNDER SECTION 131, BY THE ALLEGED CREDITORS WILL NOT BE SUFFICIENT TO DRAW AND ADVERSE INFERENCE AGAINST THE ASSESSEE. IN THE CASE OF SIX CREDITORS WHO APPEARED BEFORE THE ASSESSING OFFICER AND WHOSE STATEMENTS WERE RECORDED BY THE ASSESSING OFFICER, THEY HAVE ADMITTED HAVING ADVANCED LOANS TO THE ASSESSEE BY ACCOUNT PAYEE CHEQUES AND IN CASE THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE CASH AMOUNT DEPOSITED BY THOSE CREDITORS IN THEIR BANK ACCOUNTS, THE PROPER COURSE WOULD HAVE BEEN TO MAKE ASSESSMENTS IN THE CASES OF THOSE CREDITORS BY' TREATING THE CASH DEPOSITS IN THEIR BANK ACCOUNTS AS UNEXPLAINED INVESTMENTS OF THOSE CREDITORS UNDER SECTION 69. PAGE | 7 ITA NO.118/SRT/2017 FOR A.Y. 11-1 2 M/S EAGLE FIBRES PVT. LTD. 10. WE NOTE THAT ASSESSEE HAS SUBMITTED FOLLOWING DOCUMENTS AND EVIDENCES BEFORE THE LOWER AUTHORITIES, IN RESPECT OF LOAN TRANSACTIONS WITH LENDERS: (I) CONFIRMATION OF LENDER COMPANIES EXPLAINING SOURCE OF FUND WITH LEDGER ACCOUNTS. (II) COPY OF INCOME TAX RETURN OF LENDER COMPANIES. (III) BALANCE SHEET AND PROFIT AND LOSS ACCOUNT OF LENDER COMPANIES. . (IV) BANK STATEMENTS OF ASSESSEE COMPANY. (V)BANK STATEMENTS OF LENDER COMPANIES SHOWING THAT TRANSACTIONS WERE THROUGH BANKING CHANNEL. (VI) PROOF SHOWING REPAYMENT OF LOAN BY ASSESSEE-COMPANY TO LENDER COMPANIES, SUCH AS, LEDGER ACCOUNT, BANK STATEMENTS. (VII) EVEN 'SOURCE OF SOURCE' HAS BEEN PROPERLY EXPLAINED BY ASSESSEE COMPANY AND NO CASH FOUND DEPOSITED IN LENDERS` BANK ACCOUNT. (VIII) TRANSACTIONS, BOTH RECEIPTS AND REPAYMENTS OF LOAN THROUGH BANK CHANNEL. ONCE LOANS HAVE BEEN REPAID , ADDITION U/S68 CANNOT BE SUSTAINED. (IX) CREDITWORTHINESS OF LENDER COMPANIES (NBFCS) HAVE BEEN PROVED. (X) LENDER COMPANIES REGULARLY ASSESSED TO TAX AND HAVING REGULAR FINANCE BUSINESS ACTIVITIES. (XI).THE ASSESSING OFFICER HAS MISQUOTED THE REPORT RECEIVED FROM DDIT, KOLKATA ABOUT IDENTITY. THE FACTUAL REPORT THAT SUMMONS COULD NOT BE SERVED DUE TO INCOMPLETE ADDRESS. REPORT FROM INSPECTOR NOT ON RECORD NOR PROVIDED TO ASSESSEE TO REBUT THE FINDINGS. PAGE | 8 ITA NO.118/SRT/2017 FOR A.Y. 11-1 2 M/S EAGLE FIBRES PVT. LTD. (XII).THERE IS NO ADVERSE INVESTIGATION REPORT OR FINDING OF ANY AGENCY ON AO'S RECORD TO HOLD THAT SUCH LENDER COMPANIES WERE PAPER COMPANIES OR INDULGED IN PROVIDING ACCOMMODATION ENTRIES. BY SUBMITTING ABOVE PLETHORA DOCUMENTS, THE LD COUNSEL CLAIMS THE ASSESSEE COMPANY HAS PROVED IDENTITY, CREDITWORTHINESS AND GENUINENESS OF ALL THE LENDERS/CREDITORS. 11.WE NOTE THAT ABOUT THE INQUIRY REPORT U/S 131 (I) (D) OF THE ACT FROM THE DDIT (INV), UNIT-IV(1), KOLKATA, WHICH IS THE MAIN REASON MENTIONED BY ID. AO FOR MAKING THIS ADDITION, THE LD CIT(A) OBSERVED THAT THE COMMISSION U/S 131 (1) (D) WAS SENT BY THE AO ON 13/03/2014 AND THE REPORT OF THE DDIT CLAIMED TO HAVE BEEN RECEIVED ON 26/03/2014, I.E. WITHIN A SPAN OF 12 DAYS. IT WAS ARGUED BY LEARNED COUNSEL THAT PROPER INQUIRY OF 10 LENDER COMPANIES CANNOT BE MADE IN SUCH A SHORT SPAN OF TIME. IT IS FURTHER SUBMITTED THAT THE LENDERS HAVE INFORMED TO THE ASSESSEE THAT THEY HAVE SUBMITTED ALL THE REQUIRED DETAILS AND DOCUMENTS TO THE DDIT IN RESPONSE TO THIS INQUIRY AND THE REPORT, DATED 26/03/2014, MAY BE ONLY A PRELIMINARY REPORT. TO VERIFY THE FACTS, THE CASE RECORDS WERE CALLED FOR BY LD CIT(A), DURING THE APPELLATE PROCEEDINGS AND EXAMINED THE SAME BY HIM. ON PERUSAL, IT IS NOTICED BY LD CIT(A) THAT IN THE CASE RECORDS, THERE IS ONLY ONE REPORT OF THE DDIT DATED 26/03/2014, IN WHICH IT HAS BEEN MENTIONED THAT THE INSPECTORS OF THE UNIT WERE DEPUTED TO SERVE THE SUMMONS TO THE LENDERS BUT EXCEPT FOR PRIME VYAPAAR (P) LTD., SUMMONS COULD NOT BE SERVED DUE TO INCOMPLETE ADDRESSES OF THE LENDERS. RELEVANT PART OF THE REPORT READS AS UNDER:- 'TO INVESTIGATE THE ABOVE COMMISSION, INSPECTORS ATTACHED WITH THIS UNIT WERE DEPUTED TO SERVE THE SUMMON U/S 131 OF THE IT ACT TO THE COMPANIES AS MENTIONED IN OUR COMMISSION. BUT THE INSPECTORS WERE NOT SUCCEEDED TO SUCCEED TO SERVE THE SUMMON TO THE COMPANIES MENTIONED IN YOUR COMMISSION DUE TO INSUFFICIENT ADDRESSES. NAME OF THE COMPANIES WHICH WERE UNABLE TO TRACE OUT BY THE INSPECTORS ARE LISTED BELOW WITH THE REMARKS OF THE INSPECTORS.' PER CONTRA, LD. AO HAS REPRODUCED THE ENQUIRY REPORT PURPORTEDLY RECEIVED FROM KOLKATA OFFICE IN PARA 8.2 OF ASSESSMENT ORDER AS UNDER:- 'TO INVESTIGATE THE ABOVE COMMISSION, INSPECTORS ATTACHED WITH THIS UNIT WERE DEPUTED TO SERVE SUMMONS U/S. 131 OF THE I.T. ACT TO THE COMPANIES AS MENTIONED IN YOUR COMMISSION. BUT THE INSPECTORS WERE NOT SUCCEEDED PAGE | 9 ITA NO.118/SRT/2017 FOR A.Y. 11-1 2 M/S EAGLE FIBRES PVT. LTD. TO SERVE THE SUMMON TO COMPANIES AS NONE OF THE COMPANIES WERE EXIST IN THE GIVEN ADDRESS. IN THE CASE OF PRIME VYAPAR PVT. LTD, WHEREIN SUMMONS U/S. 131 WAS SERVED, NONE ATTENDED ON THE GIVEN DATE NOR FURNISHED ANY SUBMISSION.' THUS, IN THE ASSESSMENT ORDER, THE AO HAS MENTIONED THAT THE SUMMONS COULD NOT BE SERVED BECAUSE THE LENDERS DID NOT EXIST AT THE GIVEN ADDRESSES WHICH IS CONTRARY TO THE REPORT OF THE DDIT WHEREIN IT WAS MENTIONED THAT DUE TO INCOMPLETE ADDRESSES THE SUMMONS COULD NOT BE SERVED. IN RESPECT OF THE PRIME VYAPAAR PVT. LTD., THE REPORT ONLY MENTIONS THAT THE SUMMONS WAS SERVED TO HIS LENDER. IN PARA 6.3 OF THE ASSESSMENT ORDER, THE ID. AO HAS MENTIONED THAT THE FINDINGS OF THE KOLKATA INVESTIGATION WING INDICATED THAT THE SAID COMPANIES ARE MERELY 'PAPER ENTITIES' OPERATING MAINLY FOR PROVIDING ACCOMMODATION ENTRIES. HOWEVER, FROM THE INQUIRY REPORT OF THE DDIT, LD CIT(A)HAS NOT FOUND ANY SUCH REPORTING. ONLY REPORT OF THE DDIT IS THAT THE SUMMONS COULD NOT BE SERVED TO THE LENDERS (EXCEPT FOR ONE) DUE TO INCOMPLETE ADDRESS. THIS IS IMPORTANT TO MENTION THAT FROM THE 'SAME ADDRESS' PROVIDED TO THE AO/DDIT, THOSE COMPANIES HAVE BEEN FILING THEIR RETURNS, RECEIVING INTIMATION U/S143(1) AND REFUNDS AS WELL. LD. AO SHOULD HAVE MADE MORE EFFORTS TO MAKE ENQUIRY THROUGH CONCERNED AO OF THOSE LENDER COMPANIES AND OBTAINED DETAILS ABOUT THEIR IDENTITY AND CREDITWORTHINESS FROM HIM, BUT HE TAILED TO DO SO. LD. AO DID NOT EVEN ASK THE ASSESSEE TO PRODUCE THESE LENDERS, IF HE WAS HAVING ANY DOUBT ABOUT THE EXISTENCE OF THESE COMPANIES NOR HE HIMSELF MADE ANY INDEPENDENT ENQUIRY ABOUT THESE COMPANIES. THUS, FINDINGS OF AO/DDIT THAT IMPUGNED COMPANIES WERE NOT FOUND EXISTING AT THEIR GIVEN ADDRESS SEEMS NOT CORRECT AND SIMPLY PRESUMPTIVE IN THE LIGHT OF FACTS AND EVIDENCES. ON THIS ISSUE THE LD COUNSEL OF THE ASSESSEE HAS ARGUED THAT THE LD. AO OUGHT TO HAVE VERIFIED WITH THE RESPECTIVE AOS OF THE LENDERS AS PER LAW AND PROCEDURE LAID DOWN IN THE CASE OF RANCHHOD JIVABHAI NAKHAVA (208 TAXMAN 35 (GUJ) . HE ALSO PLACED RELIANCE ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF ORRISSA CORPORATION LTD. 159 ITR 78 AND OF HON'BLE ITAT, AHMEDABAD IN THE CASE OF ROHINI PAGE | 10 ITA NO.118/SRT/2017 FOR A.Y. 11-1 2 M/S EAGLE FIBRES PVT. LTD. BUILDERS - 76 TTJ 521 (AHD). HON'BLE SUPREME COURT IN THE CASE OF ORRISSA CORPORATION LTD. 159 ITR 78 (SUPRA) HAS HELD AS UNDER:- 13. IN THIS CASE, THE ASSESSEE HAD GIVEN THE NAMES AND ADDRESSES OF THE ALLEGED CREDITORS. IT WAS IN THE KNOWLEDGE OF THE REVENUE THAT THE SAID CREDITORS WERE INCOME TAX ASSESSEES. THEIR INDEX NUMBERS WERE IN THE FILE OF THE REVENUE. THE REVENUE APART FROM ISSUING SUMMONS UNDER S. 131 AT THE INSTANCE OF ASSESSEE, DID NOT PURSUE THE MATTER FURTHER. THE REVENUE DID NOT EXAMINE THE SOURCE OF INCOME OF SAID ALLEGED CREDITORS TO FIND OUT THEY WERE CREDITWORTHY OR WERE SUCH WHO COULD ADVANCE THE ALLEGED LOANS. THERE WAS NO EFFORT MADE TO PURSUE SO-CALLED ALLEGED CREDITORS. IN THOSE CIRCUMSTANCES, THE ASSESSEE COULD NOT DO ANYTHING FURTHER..........' THE COORDINATE BENCH OF ITAT, AHMEDABAD, IN THE CASE OF ROHINI BUILDERS (SUPRA) HAS ALSO TAKEN THE VIEW THAT MERELY BECAUSE THE SUMMONS ISSUED TO THE CREDITORS COULD NOT BE SERVED OR THEY FAILED TO APPEAR BEFORE THE AO, LOANS TAKEN FROM THOSE CREDITORS COULD NOT BE TREATED TO BE NON-GENUINE. 12. WHEN A QUESTION AS TO THE CREDITWORTHINESS OF A CREDITOR IS TO BE ADJUDICATED AND IF THE CREDITOR IS AN INCOME TAX ASSESSEE, IT IS NOW WELL SETTLED BY THE DECISION OF THE CALCUTTA HIGH COURT THAT THE CREDITWORTHINESS OF THE CREDITOR CANNOT BE DISPUTED BY THE AO OF THE ASSESSEE BUT THE AO OF THE CREDITOR. IN THIS REGARDS OUR ATTENTION WAS DRAWN TO THE DECISION OF THE HON'BLE HIGH COURT, CALCUTTA IN THE COMMISSIONER OF INCOME TAX, KOLKA TA-ILL VERSUS DATAWARE PRIVATE LIMITED ITAT NO. 263 OF 2011 DATE: 21ST SEPTEMBER, 2011 WHEREIN THE COURT HELD AS FOLLOWS: IN OUR OPINION, IN SUCH CIRCUMSTANCES, THE ASSESSING OFFICER OF THE ASSESSEE CANNOT TAKE THE BURDEN OF ASSESSING THE PROFIT AND LOSS ACCOUNT OF THE CREDITOR WHEN ADMITTEDLY THE CREDITOR HIMSELF IS AN INCOME TAX ASSESSEE. AFTER GETTING THE PAN NUMBER AND GETTING THE INFORMATION THAT THE CREDITOR IS ASSESSED UNDER THE ACT, THE ASSESSING OFFICER SHOULD ENQUIRE FROM THE ASSESSING OFFICER OF THE CREDITOR AS TO THE GENUINENESS' OF THE TRANSACTION AND WHETHER SUCH TRANSACTION HAS BEEN ACCEPTED BY THE ASSESSING OFFICER OF THE CREDITOR BUT INSTEAD OF ADOPTING SUCH COURSE, THE ASSESSING OFFICER HIMSELF COULD NOT ENTER INTO THE RETURN OF THE CREDITOR AND BRAND THE SAME AS UNWORTHY OF CREDENCE. SO LONG IT IS NOT ESTABLISHED THAT THE RETURN SUBMITTED BY THE CREDITOR HAS BEEN REJECTED BY ITS ASSESSING OFFICER, THE ASSESSING OFFICER OF THE ASSESSEE PAGE | 11 ITA NO.118/SRT/2017 FOR A.Y. 11-1 2 M/S EAGLE FIBRES PVT. LTD. IS BOUND TO ACCEPT THE SAME AS GENUINE WHEN THE IDENTITY OF THE CREDITOR AND THE GENUINENESS' OF TRANSACTION THROUGH ACCOUNT PAYEE CHEQUE HAS BEEN ESTABLISHED. WE FIND THAT BOTH THE COMMISSIONER OF INCOME TAX (APPEAL) AND THE TRIBUNAL BELOW FOLLOWED THE WELL-ACCEPTED PRINCIPLE WHICH ARE REQUIRED TO BE FOLLOWED IN CONSIDERING THE EFFECT OF SECTION 68 OF THE ACT AND WE THUS FIND NO REASON TO INTERFERE WITH THE CONCURRENT FINDINGS OF FACT RECORDED BY BOTH THE AUTHORITIES. 13.CONCLUSION FROM THE DETAILS AS AFORESAID WHICH EMERGES FROM THE PAPER BOOK FILED BEFORE US AS WELL AS BEFORE THE LOWER AUTHORITIES, IT IS VIVID THAT CONSIDERING THE TOTALITY OF THE FACTS AND EVIDENCES FURNISHED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS, WE ARE OF THE CONSIDERED VIEW THAT MERELY BECAUSE THE SUMMONS COULD NOT BE SERVED ON THESE LENDERS FOR WANT OF COMPLETE ADDRESSES OR THAT THEY FAILED TO COMPLY WITH THE SUMMONS, THE LOANS TAKEN BY THE ASSESSEE FROM THEM CANNOT BE TREATED AS NON-GENUINE MERE PARTICULARLY WHEN FROM SUFFICIENT DOCUMENTARY EVIDENCES FURNISHED BY THE ASSESSEE. IT IS EVIDENT THAT ALL THE LENDERS ARE VERY OLD COMPANIES ASSESSED TO TAX AND ARE ALSO VERY OLD NBFCS REGISTERED WITH AND REGULATED BY THE RBI AND THE LOANS WERE RECEIVED THROUGH BANKING CHANNEL AND HAVE ALSO BEEN REPAID IN SUBSEQUENT YEARS THROUGH BANKING CHANNEL. THE FACTUM OF REPAYMENT HAS NOT BEEN DISPUTED BY THE LD. AO. THE LD. AO HAS NOT BROUGHT ON RECORD ANY FINDING OR REPORT OF INVESTIGATION AGENCY TO ESTABLISH HIS ALLEGATION THAT IMPUGNED LENDERS WERE 'PAPER COMPANIES' OR FOUND INDULGED IN RACKET OF PROVIDING 'ACCOMMODATION ENTRIES'. IN ABSENCE OF SUCH MATERIAL, WE CANNOT TAKE JUDICIAL NOTICE ABOUT UNFOUNDED ALLEGATION IN RESPECT OF THESE LENDER COMPANIES. HENCE, REASONS MENTIONED BY THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER, IS NOT SUFFICIENT FOR MAKING THE ADDITION UNDER SECTION 68 OF THE ACT. FROM THE DETAILS AND DOCUMENTARY EVIDENCES FURNISHED BY THE ASSESSEE, THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF ALL THE LENDERS ARE CLEARLY ESTABLISHED. SECTION 68 OF THE ACT PROVIDES THAT IF ANY SUM FOUND CREDITED IN THE YEAR IN RESPECT OF WHICH THE ASSESSEE FAILS TO EXPLAIN THE NATURE AND SOURCE SHALL BE ASSESSED AS ITS UNDISCLOSED INCOME. IN THE FACTS OF THE PRESENT CASE, BOTH THE NATURE AND SOURCE OF THE LENDERS WERE FULLY EXPLAINED BY THE ASSESSEE. THE ASSESSEE HAD DISCHARGED ITS PAGE | 12 ITA NO.118/SRT/2017 FOR A.Y. 11-1 2 M/S EAGLE FIBRES PVT. LTD. ONUS TO PROVE THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE LENDERS. THE PAN DETAILS, BANK ACCOUNT STATEMENTS, AUDITED FINANCIAL STATEMENTS AND INCOME TAX ACKNOWLEDGMENTS, SUBSEQUENT REPAYMENT THROUGH BANKING CHANNEL, WERE PLACED ON ASSESSING OFFICER'S RECORD. ACCORDINGLY ALL THE THREE CONDITIONS AS REQUIRED U/S 68 OF THE ACT I.E. THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTIONS WERE PLACED BEFORE THE ASSESSING OFFICER AND THE ONUS SHIFTED TO ASSESSING OFFICER TO DISPROVE THE MATERIALS PLACED BEFORE HIM. WITHOUT DOING SO, THE ADDITION MADE BY THE ASSESSING OFFICER IS BASED ON CONJECTURES AND SURMISES, HENCE CANNOT BE JUSTIFIED. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS DISCUSSED ABOVE, NO ADDITION IS WARRANTED UNDER SECTION 68 OF THE ACT. THEREFORE, WE DO NOT WANT TO INTERFERE IN THE IMPUGNED ORDER OF LD. CIT(A).THAT BEING SO, WE DECLINE TO INTERFERE WITH THE ORDER OF ID. CIT(A) IN DELETING THE AFORESAID ADDITIONS. HIS ORDER ON THIS ADDITION IS, THEREFORE, UPHELD AND THE GROUNDS OF APPEAL OF THE REVENUE IS DISMISSED. 13.IN THE RESULT, THE APPEAL OF THE REVENUE(ITA NO.118/SRT/2017 AY.2011-12) IS DISMISSED. ORDER IS PRONOUNCED ON 27/09/2021 BY PLACING RESULT ON THE NOTICE BOARD AS PER RULE 34(5)OF THE INCOME TAX (APPELLATE TRIBUNAL) RULE 1963. SD/- SD/- (PAWAN SINGH) (DR. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER / SURAT/ / DATE: 27/09/2021 DKP OUTSOURCING SR.P.S COPY OF THE ORDER FORWARDED TO 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A) 4. PR.CIT 5. DR/AR, ITAT, SURAT 6. GUARD FILE BY ORDER //TRUE COPY// ASSISTANT REGISTRAR/SR. PS/PS ITAT, SURAT