The DCIT, circle-1(2), Ahmedabad V. S R Buildcon, Ahmedabad

ITA 1664/AHD/2019

AI Insights

The case revolves around an appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals) which had deleted an addition made by the Assessing Officer under section 68 of the Income Tax Act, 1961. The addition pertained to an unsecured loan of Rs. 2,00,00,000 received by the assessee, S.R. Buildcon, from M/s. Rudra Enterprise. The Revenue contended that the creditworthiness of M/s. Rudra Enterprise was not proved and the loan was a result of entry providing activity. However, the assessee provided substantial evidence including income tax returns, bank statements, and confirmations which demonstrated the genuineness of the loan and the creditworthiness of the lender. The Tribunal, referencing various precedents, concluded that the primary onus had been discharged by the assessee and the addition made by the Assessing Officer was not justified.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 114174 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-12-2022
• Assessment Year: 2016-2017
• Appeal Filed On: 07-11-2019
• Other Referred Cases: Deem Roll Tech Ltd. V. DCIT [2018] 92 taxmann.com 72 (Ahd. Trib), CIT v Haresh D Mehta 86 taxmann.com 22(2017) (Bombay), ACIT v. Ravnet Solutions (P) Ltd. [2018] 93 taxmann.com 59 (Del Trib), Prinkulandfin (P.) Ltd v. Income Tax Officer, ward-14(4), New Delhi [2018] 91 taxmann.com 120 (Del Trib)/[2018] 170 ITD 139 (Delhi- Trib.), ACIT, Central Circle-13, New Delhi v Adamine Construction (P.) Ltd [2017] 87 taxmann.com216 (Delhi-Trib.), Sarjan Corporation v ACIT [2012] 14 ITR (Trib) 140 (Ahm), CIT v. Shalimar Buildwell Pvt. Ltd (2013) 40 taxmann.com 285 (Allhabad), CIT v Kamdhenu Vyapar Co. (2003)263 ITR 692 (Cal), CIT v Sanghamifra Bharali (2014) 361 ITR 481 (Gau), Khandelwal Constructions v CIT 227 ITR 900 (Gau), Smt Madhu Raitani v ACIT 10 ITR (Trib.) 91 (Gau), CIT V/s RANCHHOD JIVABHAI NAKHAVA reported at 208 Taxmann 35, DCIT v. Rohini Builders (2002) 256 ITR 360 (Guj), CIT vs. Dharamdev Finance Pvt. Ltd. 43 Taxmann 395 (Guj.), Murlidhar Lahorimal Vs. CIT 280 ITR 512 (Guj.), CIT Vs. Pragati Co-op. Bank Ltd. 278 ITR 170 (Guj.), CIT Vs. Orissa Corporation Pvt. Ltd, 159 ITR 78 (SC), CIT vs. Sanjay K. Thakkar Tax Appeal Nos.524 of 2004, 525 and 526 of 2004 and 579 to 583 of 2003 dated 12-9-2005 (Guj. HC), ITO Vs Kailpar Credit & Mercantile Pvt. Ltd. in ITA No.421/Ahd/2008 (ITAT, Ahd.)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; TDS; Set aside; Bogus
• Section: 68; 143(3); 208; 43; 72; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member The DCIT, Circle-1(2), Ahmedabad S. R. Buildcon 5, Ramkutir Bunglow, Nr. Vasant Vihar, Shahibaug, Ahmedabad-380004 PAN: ACUFS0074N (Appellant) Vs Vs S. R. Buildcon 5, Ramkutir Bunglow, Nr. Vasant Vihar, Shahibaug, Ahmedabad-380004 PAN: ACUFS0074N The DCIT, Circle-1(2), Ahmedabad (Respondent) Revenue Represented: Shri Rakesh Jha, Sr. D.R. Assessee Represented: Shri S.N. Divatia, A.R. & Shri Samir Vora, A.R. Date of hearing : 15-12-2022 Date of pronouncement : 04-01-2023 आदेश/ORDER ITA No. 1664/Ahd/2019 & C.O. No. 25/Ahd/2020 Assessment Year 2016-17 I.T.A No. 1664/Ahd/2019 & C.O. 25/Ahd/20 A.Y. 2016-17 Page No DCIT Vs. S.R. Buildcon 2 PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- This appeal is filed by the Revenue as against the Appellate order dated 04.09.2019 passed by the Commissioner of Income Tax (Appeals)-10, Ahmedabad arising out of the Assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2016-17. The Cross Objection is filed by the assessee as against the above Revenue appeal. 2. The brief facts of the case is that the assessee is a partnership firm engaged in the business of construction. For the Assessment Year 2016-17, the assessee filed its Return of Income on 19.09.2016 declaring total income at Rs. Nil. The return was selected for scrutiny assessment. 2.1. On verification, the assessee had received unsecured loan of Rs.25,00,000/- from Pravinchandra N. Patel and Rs. 2,00,00,000/- from M/s. Rudra Enterprise during the financial year. On further verification of the copy of the acknowledgement of Return of Income filed by M/s. Rudra Enterprise, it had showed Nil Income and how it could have given unsecured loan of Rs. 2 Crores to the assessee. Further on verification M/s. Rudra Enterprise had received Rs. 2 Crores through transfer from third party on 15.10.2015 and the same day this Rs. 2 Crores was transferred through RTGS to assessee’s account. The assessee has not paid interest on the unsecured loan provider. Thus the creditworthiness of M/s. Rudra Enterprise is not proved. Therefore the assessee was requested to I.T.A No. 1664/Ahd/2019 & C.O. 25/Ahd/20 A.Y. 2016-17 Page No DCIT Vs. S.R. Buildcon 3 show cause as to why the unsecured loans of Rs. 2 Crores received from M/s. Rudra Enterprise should not be treated as bogus and added to the total income of the assessee. 2.2. The assessee replied that though the interest was not paid to M/s. Rudra Enterprise during the financial year 2015-16 because of mutually agreed terms and condition between the parties. However interest of Rs. 17,51,153/- and TDS of Rs. 1,75,171- paid for the financial year 2016-17 and part of the loan amount of Rs. 1 Crore was repaid on different dates and interest of Rs. 6,69,771/- with TDS of Rs. 66,977/- was made during the financial year 2017- 18. Thus the A.O.’s observation that the creditworthiness of M/s. Rudra Enterprise was not proved and the loan transaction as bogus is totally incorrect and against the provisions of section 68 of the Act. Thus the assessee also produced copies of the Income-tax Returns filed by M/s. Rudra Enterprise for the Assessment Years 2016-17, 2017-18 & 2018-19. The assessee also produced bank statements of M/s. Rudra Enterprise, wherein the unsecured loan was received and also the bank statement wherein part repayment of loan made to the assessee. 2.3. Furthermore M/s. Rudra Enterprise received the sum of Rs. 2 Crores from Arya Tradex Pvt. Ltd. and its Return of Income for the assessment year 2016-17 wherein had declared a total income of Rs. 33,20,010/- and also enclosed copy of the company master details of Arya Tradex Pvt. Ltd. downloaded from the Ministry of Company Affairs (MCA) website, wherein the paid up share capital of the company is Rs.10 Crores. Thus the networth and I.T.A No. 1664/Ahd/2019 & C.O. 25/Ahd/20 A.Y. 2016-17 Page No DCIT Vs. S.R. Buildcon 4 creditworthiness of the lenders as well as source of the source is also proved by the assessee. Thus the proposed addition u/s. 68 is against the provisions of law. 2.4. The A.O. considered the above reply and held that the interest income offered by the assessee to M/s. Rudra Enterprise are much less than income shown by the Rudra Enterprise. This clearly proves that M/s. Rudra Enterprise is used for entry providing activity only. Therefore the sum of Rs. 2 Crores is added as the unexplained income of the assessee and demanded tax thereon. 3. Aggrieved against the same, the assessee filed an appeal before the Ld. Commissioner of Income Tax (Appeals). The Ld. CIT(A) deleted the addition made by the Assessing Officer as follows. 4. “....... I have carefully considered the assessment order, grounds of appeal raised and submissions of the appellant. The ground no. 2 relates to addition of Rs. 2,00,00,000/- u/s 68. The A.O. has added unsecured loan of Rs. 2,00,00,000/- received from M/s. Rudra Enterprise u/s 68 saying that the appellant could not prove creditworthiness of the creditor. The appellant has stated, that the source of source is not be proved and has filed a copy of return filed by M/s. Rudra Enterprise. The appellant has relied on the ratio of following case laws: Deem Roll Tech Ltd. V. DCIT [2018] 92 taxmann.com 72 (Ahd. Trib) CIT v Haresh D Mehta 86 taxmann.com 22(2017) (Bombay) ACIT v. Ravnet Solutions (P) Ltd. [2018] 93 taxmann.com 59 (Del Trib) Prinkulandfin (P.) Ltd v. Income Tax Officer, ward-14(4), New Delhi [2018] 91 taaxmann.com 120 (Del Trib)/[2018] 170 ITD 139 (Delhi- Trib.) ACIT, Central Circle-13, New Delhi v Adamine Construction (P.) Ltd [2017] 87 taxmann.com216 (Delhi-Trib.). Sarjan Corporation v ACIT [2012] 14 ITR (Trib) 140 (Ahm) I.T.A No. 1664/Ahd/2019 & C.O. 25/Ahd/20 A.Y. 2016-17 Page No DCIT Vs. S.R. Buildcon 5 CIT v. Shalimar Buildwell Pvt. Ltd (2013) 40 taxmann.com 285 (Allhabad) CIT v Kamdhenu Vyapar Co. (2003)263 ITR 692 (Cal). CIT v Sanghamifra Bharali (2014) 361 ITR 481 (Gau) Khandelwal Constructions v CIT 227 ITR 900 (Gau). Smt Madhu Raitani v ACIT 10 ITR (Trib.) 91 (Gau) The appellant has further submitted as under: "Further though Appellant not required to prove the source of the source of the unsecured loan received, in good faith and in order to satisfactorily prove the nature and source, appellant also submitted that the said Rs. 2,00,00,000/- received by M/s Rudra Enterprise was from Arya Tradex Pvt ltd which is evident from the bank statement of M/s Rudra Enterprise that was already submitted and appellant further submitted the copy of ITR of Arya Tradex Pvt. Ltd. for AY 2016-17 disclosing total income of Rs. 33,2Q,010/- and the copy of the company master details of Arya Tradex Pvt ltd downloaded from the Ministry of Company affairs (MCA) website wherein the paid up share capital of the company have been mentioned at Rs. 10,00,00,000/-. Hence the networth and creditworthiness of the source of the source is a/so proved by appellant." I have examined the case laws relied by the appellant and facts narrated by the AR who emphasized that the funds have been received and part: repaid through banking channel, I have gone through the para 3.3 of assessment order which is as under: "3.3. Further, the assessee has stated that interest of Rs. 17,51,573/- was paid and TDS was done at Rs. 1-,75,171/-for the F.Y. 2016-17. Also, during F.Y. 2017-18, out of total outstanding balance, a total amount of Rs. 1,00,00,000/- was re-paid back on different dates and interest of Rs. 6,69,777/- and TDS of Rs. 66,977/- was paid for the F.Y. 2017-18. However, on verification of the ROIs of M/s. Rudra Enterprise, it is seen that for A. Y. 2016-17, the firm has shown nil income, for AY. 2017-18, the firm has shown income of Rs. 6,84,390/- and for A.Y. 2018-19, the firm has shown income of Rs. 7,65,550/-. These income are much less than even the interest paid for the unsecured loan by the assessee. This proves that M/s. Rudra Enterprise is used for entry providing activity only. Therefore, the above statistics show that the firm M/s. Rudra Enterprise is a sham firm only working for entry providing and hence, further investigation is not required in this regard." The AO is aware about the facts of the case but negated whatever evidences were filed before him. The appellant has submitted name/address/PAN/acknowledgement of ITR/ Statement of Income and confirmation of ledger accounts. The appellant has repaid the part loan I.T.A No. 1664/Ahd/2019 & C.O. 25/Ahd/20 A.Y. 2016-17 Page No DCIT Vs. S.R. Buildcon 6 alongwith interest and also charged interest in next year. I am. aware about the ratio laid down by jurisdictional High Court in the case of CIT V/s RANCHHOD JIVABHAI NAKHAVA reported at 208 Taxmann 35 wherein it is held - "Once the Assessing Officer gets hold of the PAN of the lenders, it was his duty to ascertain from the Assessing Officer of those lenders, whether in their respective return they had shown existence of such amount of money and had further shown that those amounts of money had been lent to the assessee. If before verifying of such fact from the Assessing Officer of the lenders of the assessee, the Assessing Officer decides to examine the lenders and asks the assessee to further prove the genuineness and creditworthiness of the transaction, in our opinion, the Assessing Officer did not follow the principle laid down under Section 68 of the Income Tax Act. If on verification, it was found that those lenders did not disclose in their income tax return the transaction or that they had not disclosed the aforesaid amount, the Assessing Officer could call for further explanation from the assessee to prove the genuineness of the transaction or creditworthiness of the same. However, without verifying such fact from the income tax return of the creditors, the action taken by the Assessing Officer in examining the lenders of the assessee was a wrong approach. Moreover, we find that those lenders have made inconsistent statement as pointed out by the Commissioner of Income Tax (Appeals) and in such circumstances, we find that both the Commissioner of Income Tax (Appeals) and the Tribunal were justified in setting aside the deletion as the Assessing Officer, without taking step for verification of the Income Tax Return of the creditors, took unnecessary step of further examining those creditors. If the Assessing Officers of those creditors are satisfied with the explanation given by the creditors as regards those transactions, the Assessing Officer in question has no justification to disbelieve the transactions reflected in the account of the creditors. In other words, the Assessing Officer had no authority to dispute the correctness of assessments of the creditors of the assessee when a co-ordinate Assessing Officer is satisfied with the transaction. We, thus, find that in the case before us the Tribunal below rightly set-aside the deletion made by the Assessing Officer, based on erroneous approach by wrongly shifting the burden again upon the assessee without verifying the Income Tax return of the creditors, The position, however, would have been different if those creditors were not income tax assessees or if they had not disclosed those transactions in their income tax returns or if such returns were not accepted by their Assessing Officers." I.T.A No. 1664/Ahd/2019 & C.O. 25/Ahd/20 A.Y. 2016-17 Page No DCIT Vs. S.R. Buildcon 7 The primary onus has been discharged by the appellant. The creditworthiness of the creditor(s) cannot be decided by the AO of the appellant. In fact, the AO of appellant can get the matter investigated through the AO of the creditors. The AO of appellant cannot become AO of the creditors. It is not the case of AO that the impugned amount is appellant's own money generated out of books of account and the same is introduced in its books of accounts through bogus creditors. If that is so, what evidences AO has collected to place it on record. Once confirmations have been filed, further action, if any, is required to be taken in case of creditor and not in case of appellant. Explanation about 'source of source' or 'origins of origin' cannot be asked from the appellant while making inquiry under section 68 as per ratio laid down in the case of DCIT v. Rohini Builders (2002) 256 ITR 360 (Guj): "Mere identification of the source of the creditors even without evidence as to the nature of the income could justify acceptance, where the assesseee has given the GIR number / PAN of the creditor and also shows that the amounts were received by account payee cheques. It was further held that it is not necessary, that there should be an explanation as to the source of the money on the part of the creditors in every case." Reliance is also placed on another case i.e. CIT vs. Dharamdev Finance Pvt. Ltd. 43 Taxmann 395 (Guj.) wherein it is held, "No addition on account of cash credits could be made, where assessee had given PAN of creditors, their confirmations and their bank statements which established their creditability". There are other case laws supporting the case of the appellant as under: i) Murlidhar Lahorimal Vs. CIT 280 ITR 512 (Guj.) ii) CIT Vs. Pragati Co-op. Bank Ltd. 278 ITR 170 (Guj.) iii) CIT Vs. Orissa Corporation Pvt. Ltd, 159 ITR 78 (SC) iv) CIT vs. Sanjay K. Thakkar Tax Appeal Nos.524 of 2004, 525 and 526 of 2004 and 579 to 583 of 2003 dated 12-9-2005 (Guj. HC) v) ITO Vs Kailpar Credit & Mercantile Pvt. Ltd. in ITA No.421/Ahd/2008 (ITAT, Ahd.) I am not inclined to accept the findings of the A.O. the plethora of evidences on record cannot be ignored as much as there are comments on the same in assessment order itself. In view of facts of the case and the ratio laid down by case laws (Supra), the addition made by the A.O. of 2,00,00,000/- u/s. 68 of the I.T. Act, 1961 is hereby deleted. The ground no. 2 of appeal is accordingly allowed. I.T.A No. 1664/Ahd/2019 & C.O. 25/Ahd/20 A.Y. 2016-17 Page No DCIT Vs. S.R. Buildcon 8 4. Aggrieved against the same, the Revenue is in appeal before us raising the following Grounds of Appeal: (1) The Id. CIT(A) has erred in law by deleting the addition of Rs.2,00,00,000/-made on account of unexplained cash credit. (2) The Id. C1T(A) erred in law by not considering the facts mentioned by the AO. (3) It is, therefore, prayed that the order of Id. C1T(A) may be set aside and that of the Assessing Officer be restored. 5. The assessee in its Cross Objection raised the following Grounds of Appeal: 1. On facts and circumstances of case, the Honourable CIT(A) has not erred and was justified in deleting the addition of Rs. 2,00,00,000/-u/s 68 and allow the claim of the respondent that the unsecured loan of Rs. 2,00,00,000/- was not an unexplained cash credit. 2. Considering the facts and circumstances, it is further represented before Honourable ITAT that the respondent had submitted all the necessary documentary evidences during the course of assessment proceedings and appeal proceedings, such as Copy of Confirmation of Accounts, Copy of the ITR and Copy of the Bank statement of the said unsecured lender in order to prove the genuineness of the transaction and to prove the nature and source thereof and to prove the identity, capacity and creditworthiness and accordingly complied with the requirements of the provisions of section 68 and fulfilled the onus placed on it. Further, though respondent is not required to prove the source of the source of unsecured lender, in order to satisfactorily prove the nature and source, the respondent also submitted the documentary evidences related to source of source of the unsecured lender both during the course of assessment proceedings and appeal proceedings. Considering the said submissions and satisfactorily proving of the genuineness of the transaction, nature and source thereof and identity, capacity and creditworthiness of the lender, the Honourable CIT(A) allowed the appeal in favour of the respondent. 3. Considering all the above submissions it is prayed to Honorable ITAT that the order of the CIT (A) be upheld. I.T.A No. 1664/Ahd/2019 & C.O. 25/Ahd/20 A.Y. 2016-17 Page No DCIT Vs. S.R. Buildcon 9 5.1. The Ld. Sr. D.R. Shri Rakesh Jha appearing for the Revenue supported the order of the Assessing Officer and prayed that the departmental appeal should be allowed. 6. Per contra, Shri S.N. Divatia Ld. Counsel for the assessee submitted a Paper Book which contains the replies filed by the assessee before A.O. as well as ledger confirmations contra account of M/s. Rudra Enterprise, Income-tax Returns Acknowledgements for the Assessment Years 2016-17 to 2018-19 and HDFC Bank Statement for May and July, 2017 of M/s. Rudra Enterprise at page nos. 13 to 22 of the Paper Book as well as acknowledgement of the Income-tax Returns filed by Arya Tradex Pvt. Ltd. for the Assessment Year 2016-17 and company master data downloaded from Ministry of Company Affairs at page no. 23 & 24 of the Paper Book. Thus the Ld. A.R. pleaded that the assessee not only proved the source of the unsecured loan but submitted the details of “source of source” of the creditors, Income-tax Returns, Confirmation Letters, relevant and Bank Statement. Thus the provisions of Section 68 does not attracted and therefore the addition made by the A.O. is not sustainable. The ld. A.R. also produced before us regular assessment order passed u/s. 143(3) dated 28.12.2019 in assessee’s own case for the next assessment year 2017-18, wherein no addition was made on account of unsecured loan from M/s. Rudra Enterprise and also not disputed about the interest payment and partial repayment of loan to M/s. Rudra Enterprise. Therefore the Ld. CIT(A) has correctly deleted the addition made by the Assessing Officer which does not require any I.T.A No. 1664/Ahd/2019 & C.O. 25/Ahd/20 A.Y. 2016-17 Page No DCIT Vs. S.R. Buildcon 10 interference and departmental appeal should be dismissed and assessee’s C.O. is to be allowed. 7. We have given our thoughtful consideration and perused the materials available on record including the Paper Book filed by the assessee. It is an undisputed fact that the assessee during the assessment proceedings provided the copies of the Income Tax Returns, Confirmation Letters, Bank Statement of M/s. Rudra Enterprise and also produced copies of the interest payment on the unsecured loan with TDS for the subsequent Assessment Year 2017-18. The ld. CIT(A) has correctly followed the Jurisdictional High Court Judgment in the case of CIT vs. Ranchhod Jivabhai Nakhava reported at 208 Taxmann.com 35 wherein it was held that the primary onus had been discharged by the assessee by producing the copies of the Income Tax Returns, Bank Statements and Confirmation Letters of the creditors. The creditworthiness of the creditor(s) cannot be decided by the AO of the assessee. In fact, the AO of assessee can get the matter investigated through the AO of the creditors. The AO of assessee cannot become AO of the creditors. It is not the case of AO that the impugned amount is assessee's own money generated out of books of account and the same is introduced in its books of accounts through bogus creditors. If that is so, what evidences AO has collected to place it on record. Once confirmations have been filed, further action, if any, is required to be taken in case of creditor and not in case of assessee. Explanation about 'source of source' or 'origins of origin' cannot be asked from the assessee while making inquiry under I.T.A No. 1664/Ahd/2019 & C.O. 25/Ahd/20 A.Y. 2016-17 Page No DCIT Vs. S.R. Buildcon 11 section 68 as per ratio laid down in the case of DCIT v. Rohini Builders (2002) 256 ITR 360 (Guj): "Mere identification of the source of the creditors even without evidence as to the nature of the income could justify acceptance, where the assesseee has given the GIR number / PAN of the creditor and also shows that the amounts were received by account payee cheques. It was further held that it is not necessary, that there should be an explanation as to the source of the money on the part of the creditors in every case." 7.1. Respectfully following the Jurisdictional High Court judgment cited above, we have no hesitation in rejecting the grounds raised by the Revenue. Thus, we do not find any infirmity in the order passed by the Ld. CIT(A), therefore it does not require any interference. 8. In the result, the appeal filed by the Revenue is hereby dismissed. Consequently, the Cross Objection filed by the Assessee is hereby allowed. Order pronounced in the open court on 04-01-2023 Sd/- Sd/- (WASEEM AHMED) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 04/01/2023 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद