TYhe ITO-4(5), Indore V. M/s. Urvashi World Wide P. Ltd., Indore

ITA 569/Ind/2019

AI Insights

The case revolves around an appeal by the Revenue against the order of the CIT(A) which had deleted the additions made by the Assessing Officer under section 68 of the Income Tax Act. The additions pertained to unsecured loans amounting to Rs. 1167.50 lacs received by the assessee, M/s Urvashi World Wide Pvt. Ltd., from associate companies of the Ruchi Group. The Revenue contended that the assessee failed to prove the creditworthiness of these companies during the assessment and appellate proceedings. However, the CIT(A) found that the loans were part of a rotation of funds among the group companies and that the assessee had provided sufficient evidence to prove the genuineness and creditworthiness of the transactions. The Tribunal, after considering the submissions and evidence presented, upheld the CIT(A)'s decision and dismissed the Revenue's appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 122589 (ITAT-INDORE)
• Duration Of Justice: 3 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 17-11-2022
• Assessment Year: 2012-2013
• Appeal Filed On: 09-05-2019
• Other Referred Cases: CIT vs. Dwarkadhish Investment Pvt. Ltd, DCIT vs. Sanwerwala Jewellers Pvt. Ltd., CIT Vs. Metachem Industries, CIT vs. Vaibhav Cotton Pvt Ltd, M/s. Ariba Foods Pvt. Ltd. vs. ACIT, CIT vs. Orissa Corpn. Pvt. Ltd, CIT vs. Ranchod Jivabhai Nakhava, DCIT Vs. Rohini Builders, M/s. Life Care International vs. JCIT, Indore, Kohinoor Enterprises vs. ACIT, CIT vs. V.P. Singh, CIT vs. Usha Stud Agricultural Farms, CIT vs. Parmeshwar Bohara, ACIT vs. Landlord Infrastructure, Krishna Mohan Chourasiya, Rajgarh vs. ITO, Shri Gurumukhdas Saluja vs. ACIT, ACIT Vs. Dwekam Industries Ltd., M/s Tirupati Construction Company vs. ACIT, Girisha Kumar Sharda, Indore vs. ITO, CIT vs. Gangeshwari Metal P. Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Sale consideration of property below Jantri Value; Source of fund; Set aside
• Section: 131; 143(3); 13; 153; 119; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI C.M. GARG, JUDICIAL MEMBER AND SHRI BHAGIRATH MAL BIYANI, ACCOUNTANT MEMBER ITA No.569/Ind/2019 Assessment Year: 2012-13 ITO-4(5), Indore. Vs. M/s Urvashi World Wide Pvt. Ltd., 305, DS-3, Scheme No.78, Indore, MP - 452001. PAN: AAACU2067J (Appellant) (Respondent) Assessee by : Shri .P.D. Nagar, CA Revenue by : Shri P.K. Mishra, CIT, DR Date of Hearing : 18.11.2022 Date of Pronouncement : 30.01.2023 ORDER PER C.M. GARG, JM: This appeal filed by the Revenue is directed against the order dated 28.02.2019 of the CIT(A)-II, Indore, relating to Assessment Year 2012-13. 2. The grounds raised by the Revenue read as under:- “1. Whether on the facts and circumstances of the case, The Ld. CIT (A) is justified in deleting the addition of unexplained unsecured loan made u/s 68 of the I.T. Act in respect of loans of Rs.575 lacs from M/s. Ruchi Stock and Securities Pvt. Ltd., Rs. 562.50 Lacs from M/s. Ruchi Stock Corporation Ltd. And Rs. 30 lacs from M/s. Kandla Steels Ltd.. even though the assessee failed to prove creditworthiness of these companies during the course of assessment and appellate proceedings. 2. Whether on the facts and circumstances of the case Ld. CIT(A) is justified in deleting the addition of Rs. 695 Lacs made in respect of ceasation of liability in the case of M/s Kandla Steel Ltd. treating the same is unsecured loan received I earlier years. ITA No.569/Ind/2019 2 3. The appellant craves leave to add to or deduct from or otherwise amend the above grounds of appeal. 3. Briefly stated, the facts of the case are that the assessee derived income from trading of grains, share of profit from partnership firm, interest and dividend income. It had filed the return of income declaring the an income of Rs.1,83,160/-. However, vide order u/s 143(3) of the Act, the total income was assessed at Rs.20.06 cores by the A.O. On appeal Ld. Commissioner of Income Tax (A) vide order dt. 28.02.2019 granted substantial relief against which the Revenue has preferred appeal challenging the deletion of following additions made by A.O. u/s 68 of the Act: - a) Unsecured loan taken from associate companies viz. i) M/s Ruchi Stock & Securities Pvt. Ltd., ii) M/s Ruchi Corporation Ltd. & iii) M/s Kandla Steels Pvt. Ltd. at Rs. 1167.50 lacs in aggregate. b) Repayment of opening balance to M/s Kandla Steels Pvt. Ltd. at Rs. 695 lacs. Ground No.1 & 2 4. The ld. CIT-DR, drawing our attention to the relevant part of the assessment order, submitted that in spite of issuing a notice u/s 131(1) of the Act to the lender company M/s Kandla Steels Pvt. Ltd., to produce the books of account and balance sheet to clarify the position, but, there was no compliance by the lender company. The ld. CIT-DR further submitted that as the lender company in its books of account and balance sheet has not shown any unsecured loan being extended to the assessee, thus, the liability of the assessee company of the current receipt of Rs.30 lakhs and opening balance of Rs.695.00 lakhs ceases to exist. The ld. CIT-DR submitted that even if the misplaced entry into ‘advance to supplier’ in the balance sheet of the ITA No.569/Ind/2019 3 lender company is considered, then also, there is no synchronizing of the business deals, where the impugned amount can be considered. The ld. CIT-DR lastly submitted that the AO was right in making the addition in the hands of the assessee u/s 68 of the Act totaling to Rs.725.00 lakhs. 5. Further, drawing our attention to the relevant paras of assessment order, the ld. CIT-DR submitted that regarding other three creditors/lenders, the AO made a detailed enquiry and, thereafter, noted that M/s Ruchi Stock & Securities P. Ltd. has not shown any loan in its balance sheet in the name of the company, but, has shown the loans and advance to others. Therefore, the AO was right in invoking the provisions of section 68 of the Act for making the addition in this regard. Regarding M/s Ruchi Stock & Securities P. Ltd., the ld. CIT-DR further submitted that this company has not shown any loan to the assessee in its balance sheet, but, has shown other loans and advances and notice u/s 131(1) of the Act was also not complied. Therefore, the AO was right in making the addition u/s 68 of the Act. Regarding Swastik World-wide Pvt. Ltd., the ld.CIT-DR submitted that the assessee failed to establish the identity and credit worthiness of the lender company and despite notices u/s 131(1) of the Act, the lender company failed to produce the books of account and clarified the position, therefore, the AO was right in making the addition in this regard. The ld. CIT-DR also pointed out that regarding Ruchi Stock & Securities P. Ltd., the assessee could not prove the credit worthiness of the depositor and genuineness of the transaction. Therefore, the AO was also right in invoking the provisions of section 68 of the Act for making the addition in the hands of the assessee. The ld. CIT-DR vehemently pointed out that the ld.CIT(A) has granted ITA No.569/Ind/2019 4 relief to the assessee without any basis and justified reason. Therefore, the impugned first appellate order may kindly be set aside and the order of the AO may be restored. 6. Replying to the above, the ld. AR reiterated the written submissions filed on behalf of the assessee before this Bench which are as follows:- “Submissions A) Unsecured loans - Addition u/s 68 of the Act => The appellant had accepted unsecured loans during the year at Rs. 11.67 crores whereas the AO assessed an amount of Rs. 18.92 crores including opening balances as well by ignoring the repayment of loan and fresh receipt by rotation of funds through another company on same day. Details of loans from above three companies are summarized hereunder => As evident, from above table not only opening balances were assessed to tax but transfer of funds from one company to another company on the same date by A/c payee cheque was treated as unexplained u/s 68 of the Act by the AO. There was no new introduction of funds during the year under appeal. => The companies from whom loans were accepted during the year or in earlier years are associate companies of Ruchi Group and they are not outsiders. All companies are assessed to tax and their creditworthiness was also proved from audited accounts. Being associates companies, the genuineness of the transactions has not been doubted upon by the A.O. Identity, credit worthiness as well as genuineness of the loan transactions were proved beyond doubt by following documents of above three companies (Page No. 2 to 32 of P.B) (Rs. In lacs) (Page No 1 of P.B.) Name of the Co. Opening balance Loan Reed, during the year Repayment of Loan & date Closing balance Assessed by AO & deleted by CIT(A) Ruchi Stock & Securities P. Ltd Rs. 20.00 Rs.575.00 (on 16.07.11) Rs. 577.55 (on 01.03.12) Rs. 17.45 Rs.575.00 Ruchi Corporation Limited Rs. 575.00 Rs.562.50 (on 01.03.12) Rs. 575.00 (on 16.07.11) Rs.562.50 Rs.562.50 Kandla Steels Pvt Ltd Rs. 695.00 Rs. 30.00 NIL Rs.725.00 Rs.725.00 Total Rs. 1290.00 Rs. 1167.50 Rs. 1152.55 Rs. 1304.95 Rs. 1862.50 ITA No.569/Ind/2019 5 a) Copy of account of all the companies as appearing in the books of the appellant. b) Copy of account of the appellant as appearing in the books of lender Companies, c) Audited Balance sheets of lender companies, d) Bank statement of lender company, e) Copy of acknowledgment of return of Income filed by lender companies. According to Revenue the assessee failed to prove the credit worthiness of the lender companies, ignoring the vital fact that the funds were routed from one account to another on the same day through banking channel only. Related details of capital and reserves etc. as proved from their audited accounts are summarized as under:- (Rs. In lacs) Name of the Co. PAN Capital & reserves Turnover/ Revenue Loan to Respondent Co. Page No. of P.B. Ruchi Stock & Securities P. Ltd AADCR0307H Rs.1939.98 Rs. 1270.48 Rs. 575.00 2 to 13 Ruchi Corporation Limited AACCR5008C Rs. 467.20 Rs. 210.14 Rs.562.50 14 to 24 Kandla Steels Pvt Ltd AADCK1337N (-)Rs.430.01 Rs.85192.68 Rs.30.00 25 to 32 TOTAL Rs. 1167.50 => Inter Transfer of funds as evident from copies of accounts:- i) Opening balance due to M/s. Ruchi Corporation at Rs. 575 lacs was repaid by the assessee company on 16.07.2011, who in turn gave loan to M/s. Ruchi Stock & Securities Pvt. Ltd on same day and said company transferred same amount of Rs.575 lacs to assessee company as loan on 16.07.2011 itself. ii) The company repaid the amount of Loan received at Rs.575 lacs from M/s. Ruchi Stock & Security Pvt. Ltd on 01.03.2012 along with part of opening balance of Rs. 2.55 lacs i.e. Rs.577.55 lacs. Said company gave loan to M/s Ruchi Corporation Pvt. Limited who in turn had given loan of Rs.562.50 lacs back to the appellant company on the same day i.e. on 01.03.2012. Thus the loans received from associate concerns were just by way of rotation of funds from one company to another company and such ITA No.569/Ind/2019 6 amounts of Rs.575 lacs were in the nature of inter-transfer of funds between three companies. Burden cast upon the assessee : The company proved the source from copies of accounts as well bank statements of such companies & audited accounts of all three companies. It is a settled position of law that prior to AY 2013-14 the assessee was only required to established the identity, genuineness and credit worthiness of the lender and to explain the source of fund was outside the domain and purview of the provision of section 68 (kindly refer CIT vs. Dwarkadhish Investment Pvt. Ltd (2011) 330 ITR 298 (Del) and DCIT vs. Sanwerwala Jewellers Pvt. Ltd. (2021) 42 ITJ 298 (Trib. Indore). We submit that the respondent proved the source of the source besides the fact that all three lender companies had given unsecured loans had filed their Income tax return whereby identity was proved and genuineness of the transaction and credit worthiness was also proved from copies of Bank statement and audited accounts hence addition made u/s. 68 of the Act by the AO was wholly unjustified. Reliance is placed on following judgments:- a) CIT Vs. Metachem Industries 245 ITR 160 (MP). b) CIT vs. Vaibhav Cotton Pvt Ltd (2013) 22 ITJ 547 (MPHC) c) M/s. Ariba Foods Pvt. Ltd. vs. ACIT (2021) 40 ITJ 101 (Indore Bench) (ITA No. 736, 737 & 773 / IND/2019 order dt. 11.01.2021). Observation of A.O. in the Assessment Order The assessing authority while making addition u/s. 68 of the Act in relation to loans accepted from above three companies made common observations in para 6(i), (ii) & (iii) of the assessment order which are summarized as under:- The business of the assessee company and of lender company is different and is also not an group company who incurred huge losses but advanced the amount without interest to the assessee company. The lender company has shown the loans and advances to others in the balance sheet but name of the assessee company is not stated. The authorized officer of lender company was not produced to clarify the position. Therefore, unsecured loan taken from the company during the year under consideration is added to the total income u/s 68 of the Act. Nothing was proved by the Ld. AO. to the effect that amount shown as received from such companies by the assessee was its own money which has been received in the form of loan. Thus the department did not at all discharge its burden to prove that appellant's transaction is non-genuine. Just on the basis of conjecture, ITA No.569/Ind/2019 7 surmises and guess work, huge addition were made by the A.O. Contrary to this initial onus casted upon the assessee was discharged. Reliance is placed on following judgments:- a) CIT Vs.Orissa Corpn. Pvt. Ltd [19861 159 ITR 78 (SC). b) CIT Vs. Ranchod Jivabhai Nakhava 21 taxmann.com 159 (Gujrat HC) c) DCIT Vs. Rohini Builders 2561TR 360 (Guirat HC) d) Abhik Jain Vs. ITO [2013 133 taxmann.com 577 (Delhi Trib) e) M/s. Life Care International vs. JCIT, Indore (2021) 42 ITJ 183 (Trib. Indore) B) Opening Balances: It may please be appreciated that loan was accepted from M/s. Kandla Steel Limited on 04.09.2008 at Rs. 15 crores out of which Rs. 805 lacs were paid in Oct. 2010 i.e. in AY 2011-12 and balance amount of Rs. 695 lacs was opening balance of the year under appeal i.e. AY 2012-13 as evident from page 25 & 26 of PB. It is settled law that genuine loans taken in earlier year from identified persons appearing as opening balances in audited books of account cannot be taxed in subsequent year u/s 68 of the Act because such amount was not found credited in the books of the assessee during the year under consideration. Kind attention is invited to the following judgments :- CITATION EXTRACT OF JUDGEMENT Kohinoor Enterprises vs. ACIT (2019) 410 ITR 153 ( J&K) . Held “That the loan of Rs. 15 lacs had been continuously carried forward from AY 2001-02. The loan did not relate to AY 2007-08 and in no case it can be considered as an addition in AY 2007-08.” CIT vs. V.P. Singh (2013) 357 ITR 681 (P&H) Held “That the assesse had submitted the balance sheet before the Assessing Officer and in the balance sheet the closing balance or cash in hand was disclosed, therefore, the opening balance could not be regarded to be undisclosed income and the entries in the balance sheet had not be disputed by the CIT vs Usha Stud Agricultural Farms (2008) 301 ITR 384(Delhi). Held “That the credit balance in the accounts of the asseessee did not pertain to the year under consideration, the Assessing Officer was not justified in making the addition u/s. 68 of the Act.” CIT vs. Parmeshwar Bohara (2008) 301 ITR 404 (Raj). Held “That the carried forward amount of the previous year did not become an investment or cash credit generated during relevant year 1993-94. This alone was sufficient to sustain the order of the Tribunal in deleting the amount of Rs. 155316/- from the assessment for AY 1993-94.” ACIT vs. Landlord Infrastructure (2018) 33 ITJ 775 (Trib. Jabalpur) Held “That Rs.83.28 lacs in respect of 1 st person was the opening balance and no addition can be made during the impugned assessment year. “ ITA No.569/Ind/2019 8 Krishna Mohan Chourasiya, Rajgarh vs. ITO (2021)42 ITJ 726 (Trib. Indore) Page 739 Held “That the agriculture land under consideration was purchased during AY 2013-14 and not during AY 2014-15. Therefore, addition of Rs. 1286090/- is not sustainable on this count also.” Shri Gurumukhdas Saluja vs. ACIT (2013) 21 ITJ 168 (Trib. Indore) Assessee is correct in contending that no addition can be made in current year - Addition can be made in the year, to which credit pertains (copy annexed). We submit that the assessment order so passed was an high pitched assessment hence additions made u/s. 68 of the Act were validly quashed by Ld. CIT(A).” 7. The ld. AR, drawing our attention to relevant paras of the first appellate order, submitted that the assessee was not provided due opportunity of hearing and, thereafter, the assessee carried the matter before the Ld. CIT(A) and, vide order dated 02.03.2017, the ld. CIT(A) dismissed the appeal of the assessee by passing a cryptic order without adjudicating the grounds of the assessee. The Tribunal restored the matter to CIT(A) for proper adjudication. The ld. AR, further drawing our attention to relevant paras of the first appellate order of second round dated 22.02.2019, submitted that the AO made addition of Rs.695.00 lakhs pertaining to M/s Kandla Steels pvt. Ltd. which was the closing balance as on 31.03.2011 and brought forward on 01.04.2011 and during this period, the only amount of loan was taken of Rs.30 lakhs from this entity. The ld. AR, placing reliance on various judgements including the judgement of the Hon’ble High Court of Delhi in the case of CIT v. Usha Stud Agricultural Farms, 301 ITR 384 and the order of the Indore Bench in the case of Shri Gurmukhdas Saluja vs. ACIT (2013) 21 ITJ 168 (Trib. Indore), submitted that the lender companies are otherwise group companies of Ruchi group associated with each other and the amount of loan carried forward from earlier year cannot be taxed in the subsequent year u/s 68 of the Act. ITA No.569/Ind/2019 9 8. Regarding addition of Rs.11670.50 lakhs, the ld. AR submitted that all the companies who had given unsecured loans had filed income-tax returns, therefore, the identity was proved beyond doubt and from the copies of the bank statements and audited accounts placed on record, genuineness of the transaction and credit worthiness of the lender was also proved. Therefore, the onus case upon the assessee was discharged as per the judgement of the Hon’ble Supreme Court in the case of CIT vs. Orissa Corporation Pvt. Ltd., 159 ITR 78 (SC). The ld. AR also pointed out that the ld.CIT(A), after perusing the bank statement of the creditors clearly found that no cash was deposited in the bank account prior to the issuance of cheque to the assessee company and there was no cash transactions in the bank statement and all the amounts had been received and paid through account payee cheques. The ld. AR also pointed out that as per the requirement of section 68 of the Act, the sum credited in the books of account can be considered to be income of the assessee in a case where the assessee does not offer any explanation or the explanation offered by him in the opinion of the AO is not satisfactory. 9. He further explained that in the present case, the ld.CIT(A), after perusing the balance sheet of various lender companies as per the audited accounts found that all the parties from whom loan was taken were having substantial funds available with them to advance the amount to the assessee company. Drawing our attention to the table filed in the audited balance sheet and written submissions, the ld. AR submitted that the position of the share capital, reserves and surplus cash and balance clearly shows that all creditors were having capacity and credit worthiness to extend money to the assessee. The ld. AR, placing reliance on the order of the ITAT, Indore in the case of M/s Tirupati Construction Company vs. ACIT, in ITA No.522/Ind/2014, ITA No.569/Ind/2019 10 submitted that as per the factual matrix of the case, the ld.CIT(A) was right in deleting the addition made by wrongly invoking the provisions of section 68 of the Act and, therefore, the first appellate order may kindly be upheld by dismissing the appeal of the assessee. 10. On careful consideration of the above rival submissions, first of all, I note that the addition pertaining to ground No.1 of the Revenue has been deleted by the ld.CIT(A) with the following observations and findings:- “b) Loans taken during the year:- i) M/s. Kandla Steels Limited Rs. 30 lacs : The appellant company had accepted fresh loan of Rs. 30 lacs (other than Rs. 695 lacs appearing as opening balance and which has already been discussed above) from M/s. Kandla Steels Limited who has confirmed the amount of loan along with bank statement and copy of account. Total turnover of this company was around Rs.852 crores and it is claimed to be an associated company of Ruchi Group. The amount of loan given during the year was confirmed as per the copy of account appearing in the books of lender company submitted before AO as well in the paper book. ii) Ruchi Stock & Securities P. Ltd Rs.575 lacs The appellant had accepted loan of Rs. 575 lacs during the year whose total turnover was around Rs. 12.70 crores and it is also ar. associated company of Ruchi Group. Such loan amount was also confirmed as per the copy of account appearing in the books of lender company. Its capital and reserves are over Rs.19 crores. The appellant company had accepted deposits of Rs.575 lacs from another company viz. M/s. Ruchi Corporation Pvt Ltd (RCPL) appearing as opening balance in its books of accounts. Such amount is found to be repaid on 16.07.2011 to RCPL who in turn deposited the same with M/s. Ruchi Stock & Securities Pvt Ltd who deposited the same amount of Rs. 575 lacs with the appellant company on the same day. Thus, the appellant has claimed it to be rotation of funds from one company to another company. Copies of accounts so submitted along with the confirmation certificates and bank statements proves the rotation of funds on the same day through banking channel between three companies. iii) Ruchi Corporation Pvt Ltd Rs.562.50 lacs. ITA No.569/Ind/2019 11 The appellant had accepted loan of Rs. 562.50 lacs during the year from the above company which has been claimed to be the associated company of Ruchi Group. This transaction of accepting loan of Rs.562.5 lacs has been confirmed as per the copy of account appearing in the books of lender company submitted. The appellant company was having deposits of Rs.575 lacs as loan taken from this company appearing as opening balance in the which was repaid on 16.07.2011 who in turn deposited the same with M/s. Ruchi Stock & Securities ..Ltd on the same day. After-a-period-of—7—months, the appellant company repaid an amount of Rs.577.55 lacs on 01.03.2012 to M/s. Ruchi Stocks & Securities who in turn deposited the same with M/s. Ruchi Corporation Pvt Ltd. Thereafter, M/s. Ruchi Corporation re-deposited a sum of Rs.562.50 lacs with the appellant company on 01.03.2012 i.e. on same day. Thus, it has been claimed by the appellant that this was rotation of funds from one company to another company as per the requirement of business. Copies of accounts with confirmation certificates and bank statements proves the rotation of funds on the same day through banking channel from one company to another company. 4.4 Aforesaid transfer of funds foam one company to another company on the same date by A/c payee cheque received from associate concerns in the Nature of rotation of funds was taxed as unexplained u/s 68 of the Act. Such amounts over Rs 11.50 crores (Rs.575 lacs x 2) has been explained to be in the nature of transfer of funds depending on business exigencies source of which stands self-explained. It has been argued by the appellant company that as per settled position of law all that the assessee had to ¬prove was the sources of loan and it was not supposed to prove the source of source, as held in Dwarkadhish Investment Pvt. Ltd 330 ITR 298 (Del), whereas the appellant has proved even the source of source to the extent of Rs. 11.50crores. 4.5 The appellant has also relied on the decision of the Jurisdictional bench of ITAT, Indore in the case of ACIT Vs. Dwekam Industries Ltd. (2013) 21 ITJ 119 (Trib.-Indore) where it has been held as below: “Cash Credits- U/s 68 of the Income Tax Act. 1961-Assessee had given loans and advances to group companies-Amount was received back this year, and was invested in other companies in the form of share capital or loans AO made addition-HELD- There were no fresh cash credits during the year-The source of investment is also explained-No addition is called for.” 4.6 All the three companies who had given unsecured loans had filed Income tax return and hence, the identity was proved beyond doubt. From the copies of Bank statement and audited accounts placed on record genuineness of the transaction and credit worthiness was also proved. Thus, the onus as cast upon the appellant was discharged - CIT Vs. Orissa Corpn. Pvt. Ltd [19861 159 ITR 78 (SC). ITA No.569/Ind/2019 12 4.7 I have gone through the arguments of both the AO as well as the appellant. Since all the depositors have confirmed about giving such deposits, the amounts were given through account payee cheques, the depositors were all filing returns of income, proof of which has been furnished and even bank statements of depositors were furnished and in such bank accounts of depositors, no cash deposits were seen. 4.8 Contrary to this, the AO has not brought any evidence on record to prove that the appellant's transaction were non-genuine. 4.9 The documents placed on record with regard to the loans accepted during the year from three group companies by the appellant company clearly establishes identity, capacity, creditworthiness and genuineness following the plethora of judgments including that of jurisdictional High Court 245 ITR 160 (MP) & 22 ITJ 547 (MP) (2013) as well Indore Bench of ACIT vs. Mittal Appliances Ltd (2016) 27 ITJ 120. 4.10 It would be pertinent to reproduce the findings of the jurisdictional ITAT which was subsequently confirmed by the jurisdictional Hon’ble MP High Court in the case of 22 ITJ 547 (MP)(2013) “After going through all these accounts, we found that entries in the account of all these four panics and those in the books of the assessee were through account payee cheques, All these entries were clearly reflecting rotation of funds from one concern to another and that too by account payee cheques. Source of deposit in bank was not in doubt. All these concerns are regular income tax payers and have filed - confirmations in respect of their accounts with the assessee company. The source of each of these entries were fully proved. The statement of the creditors was also recorded by the Assessing Officer by calling them u/s 131 wherein they have owned the funds given to the assessee company, their relation with the Director of the assessee’ company and the source of funds in their respective bank account. The AO in its oder itself has observed inflow of funds in respective dates in the bank account and out flow of the same out of the sufficient balance in their bank account. Proprietor of both the concerns Shri Hashtimal Jain and Shri Rajendra Kumar Chhajed in their statement accepted the amount of advances given by them to the assessee. There is no dispute to the well settled legal proposition that in case of cash credit not only identity and genuineness' of the loan transaction is required to be proved but at the very same time, creditworthiness of loan creditor is equally important to be proved. With regard to the identity of the creditors, we found that both the creditors are income tax ITA No.569/Ind/2019 13 payers and copies of their assessment orders for the past three years have been filed to prove their identity and they also personally appeared before the AO and. their statement was also recorded. The genuineness of the transaction stand proved by the personal appearance of the creditor and their acceptance in respect of their credits appearing in the books of the assessee and the loan was given out of their Bank account. The creditworthiness of creditors are proved by their regular books of account which indicated that all entries in their accounts have travelled through bank account through account payee cheques. The respective deposit in the bank account was also verified by the Assessing Officer. By filing various details. these creditors have proved their capacity to advance these loans. The detailed findings recorded by the ld. CIT(A)- has not beer, controverted by the Department by bringing any positive material on record. which clearly establishes the fulfillment of all the three ingredients of cash credit. Accordingly, no interference is required in this part of the CIT(A’)s order.” 4.11 The identity, capacity as well as genuineness of the loan transactions have been proved by submission of following documents in case of all five companies (Page No. 10 to 54 of P.B) a) Confirmation certificates along with copy of account the appellant as appearing in the books of lender b) Copy of Income tax return, c) Bank statement of lender company, d) Audited Balance sheets of lender company and e) Copy of account of all the companies as appearing in the books of the appellant. 4.12 From aforesaid documents, it has been proved that all these companies were regularly assessed to tax and from audited accounts their creditworthiness was also proved. The details of financial worth including the turnover are summarized as under:- (Rs. In lacs) Name of the Co. PAN Capital & reserves Turnover/ Revenue Loan to appellant Kandla Steels Pvt Ltd AADCK1337N (-)Rs.430.01 Rs.85192.68 Rs.30.00 Ruchi Stock & Securities P. Ltd AADCR0307H Rs. 1939.98 Rs. 1270.48 Rs. 575.00 Ruchi Corporation Limited AACCR5008C Rs. 467.20 Rs. 210.14 Rs.562.50 ITA No.569/Ind/2019 14 4.13 From the above table, it can be seen that all the companies had not only reasonable turnover/ income but also had sufficient capital and reserve to advance loans to the appellant company. It is also evident from the perusal of the record that all the lender company are regularly assessed to tax thus the identity of the companies are duly established. Genuineness of the transactions made through account payee cheque have been proved by giving the necessary details including the bank statement/ financial statement confirmation of accounts and fund details. 4.14 On merit of the addition so made by the Assessing Officer, I do not find any substance in so far as the assessee has discharged the onus cast upon a cost upon him by filing a confirmation certificate of the creditors duly signed and specifying full name, address and PAN of the creditors. In addition to the confirmation certificate the assessee has also filed the acknowledgement for filing of return of income by the creditors along with their computation of income, audited accounts, bank statements and copies of account. . 4.15 After perusing bank statement of the creditors as placed on record, I find that no cash was deposited in the Bank prior to issuance of cheque moreover there is no cash transaction in the bank statement and I found that all the amounts are received and paid through account payee cheques. 4.16 As per requirement of Section 68 the sum credited in the books of accounts can be considered to be the income of the assessee in a case where the assessee does not offer any explanation or the explanation offered by him, in the opinion of Assessing Officer is not satisfactory. The explanation of the assessee in the present case is that all these creditors are income tax assessees and their PANs have given alongwith their copy of bank account as well as preceding years. By filing these evidences, it can be said that the assessee had discharged the initial burden laid upon him under Section 68. When the particulars regarding income tax assessment and bank account, audited balance sheet duly indicating advancing of loan to the assessee, have been filed then initial burden has to be held to be discharged and then the burden shifts on the Revenue to show that what is stated or explained by the assessee is not satisfactory. No material whatsoever, has been brought on record by the ld. Assessing Officer to show that what was explained by the assessee. was no a correct state of affairs. If any sum is found credited in the accounts of the creditors, then creditors may be examined so as to explain the credit so far as the source of deposit in the account of the assessee is concerned. The assessee can be considered to have explained by bringing the material on record in the shape of confirmations, bank account and income tax numbers of that person. Thus the assessee had filed ample evidence to discharge the burden cast upon him and the ld. Assessing Officer has not brought any material on record to show that the ITA No.569/Ind/2019 15 explanation filed by the assessee, was in any manner, unsatisfactory consequent thereto the evidence filed by the assessee remain unrebutted. 4.17 After perusing the balance sheet of various lender companies as per the audited accounts, I found that all the parties from whom loan was taken were having substantial funds available with them to advance the money. Position of share capital, reserves and surplus cash and balance per the audited balance sheet with various companies has already been highlighted in the table mentioned earlier. 4.18 Merely on the basis of returned income, the Assessing Officer jumped to the conclusion that these lenders were not having sufficient funds to advance the money to the assessee. The Id. Assessing Officer without going through the audited accounts has gone on the fact that these creditors were not having sufficient income to advance the money. It is settled law that the financial worth of a company could not be judged with its income but one has to see that how many funds was available with it in the bank account at the time of advancing loan. 4.19 This view is in accordance with the decision of the jurisdictional bench of ITAT, Indore in the case of Girish Kumar Sharda, Indore I.T.A. Nos. 30 to 33/Ind./2012 and C.O. Nos. 19 to 22/Ind/2012where it was clearly held that the financial worth of the company could not be judged with its income but the fund availability is to be seen at the time of giving the loan. The same view was taken by the Hon’ble jurisdictional bench of ITAT, Indore in the case of M/s Tirupati Construction in appeal no. ITA No.522/Ind./2014.It would be relevant hearto reproduced the findings of the Hon’ble Bench in this regard. " We find that learned C1T(A) also on the basis of suspicion while verifying the income tax returns of the companies having found that they have returned loss/ meager amount of profit, held a doubt that the loan creditors are not genuine. In our considered view, no suspicion howsoever grave, cannot take place of proof. After investigation, the Assessing Officer is required to bring material on record to show that the loan transactions are not genuine or that the credit worthiness of the loan creditors is doubtful. Merely from the return of income filed it cannot be deciphered whether the loan creditors had the credit worthiness to advance the sum of money to the assessee. The company may have received the amount by issue of share capital, debentures, preference shares which are all capital receipts not liable to tax and, therefore, will not find its place either in the profit and loss account or in the return of income. The assessee has filed, copies of balance sheet and after verifying the same, it is not the case of any of the lower authorities either the Assessing Officer or the learned C1T(A) that the loan advanced to the ITA No.569/Ind/2019 16 assessee is not appearing in the balance sheet of these companies. Further it is also not the case of the revenue that the amount advances to the assessee was not through banking channel or that before issue of cheque to the assessee company, the company has deposited the amount in cash for the sum advanced to the assessee. The assessee has filed copies of bank statement as noted in the order of the CIT(A) of three companies from whom the assessee has received the loans. The assessee has filed bank statements evidencing the fact of repayment a in the subsequent years. After considering the entire facts and cumstances, we are of the view that the addition as made by the Assessing Officer and confirmed by the learned CIT(A) by invoking the provisions of section 68 of the Act is unsustainable. Here we would like to cite the decision of the Hon'ble Delhi High Couri in the case of CIT vs. Gangeshwari Metal P. Ltd. (2014) wherein it was held - "Where amounts are shown as share application money it is a simple question of whether the assessee has discharged, the burden placed upon it under section 68 of the Income-tax Act, 1961, to prove and establish the identity and. creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in, its possession and. then merely reject it, without carrying out any verification or enquiry into the material placed before him. For the assessment year 2004-05, the Assessing Officer sought to include a sum of Rs, 55.5 lakhs in the total income of the assessee. In response to the query with regard to the sum of Rs.55.5 lakhs, the assessee had furnished various documents in support of the share application money received, by it. Those documents included: (i) complete names and addresses of the share applicants and PAN/GIR details; (ii) confirmatory letters of the share applicants ; (in) copies of bank statements of the . share applicants; (iii) copies of bank account of the appellant; (v) certificate of incorporation of the share applicants (vi) memorandum of association of the share applicants ; (vii)copies of the share application forms. The Assessing Officer rejected the explanation and added the sum of Rs. 55.5 lakhs to the total income of the assessee. The addition was deleted by the Commissioner (Appeals) and this was confirmed by the Tribunal. On appeal to the High Court: Held, dismissing the appeal, that there was a clear lack of inquiry on the part of the Assessing Officer once the assessee ITA No.569/Ind/2019 17 had furnished all the material. In such an eventuality no addition could be made under section 68 of the Act.”: Therefore, for the forth going reasons, we set aside the orders of the lower authorities and delete the addition of Rs. 2,30,00,000/- made u/s 68 of the Act. ” 4.20 Therefore, keeping in mind the above discussion : not only the factual matrix but also the relevant judicial decisions specially of the judicial bench of the Hon’ble ITAT, Indore addition made u/s 68 of the Act being the amount of loans accepted during the year from aforesaid three companies of Ruchi Group by the appellant company at Rs. 1167.50 lacs is deleted.” 11. On careful consideration of the rival submissions, first of all, we note that the assessee has filed written submissions before the ld.CIT(A) which were also reiterated before this Bench as has been reproduced hereinabove. From the first appellate order, we clearly note that regarding the amount of Rs.30 lakhs from M/s Kandla Steels Limited, the ld.CIT(A) observed that the total turnover of the said company was around Rs.852 crores and it was an associated company of Ruchi group and the amount of loan given during the year was confirmed as per copy of account appearing in the books of account of lender company submitted before the AO as well as in the paper book. Regarding the loan of Rs.575 lakhs from Ruchi Stock & Securities P. Ltd., the ld. CIT(A) further noted that it is also a company of Ruchi group and the amount was also confirmed as per copy of account appearing in the books of the lender company. He further noted that capital and reserves are over Rs.19 crores and the appellant company had accepted deposit of Rs.175 lakhs from another company M/s Ruchi Corporation Pvt. Ltd.(RCPL) appearing as opening balance in its books of account and such amount was found to be repaid on 16.07.2011, but, RCPL, who in turn deposited the same with Ruchi Stock & Securities P. Ltd. who deposited the same amount of Rs.575 lakhs with the appellant company on the same date. Thus, we are ITA No.569/Ind/2019 18 in agreement with the findings recorded by the ld.CIT(A) that the assessee has claimed it to be rotation of funds from one company to another company of the group. The ld.CIT(A) has also considered confirmation certificates and bank statements which proved the rotation of funds on the same day through banking channel between three companies of the same group. 12. Regarding loan of Rs.562.50 lakhs from M/s Ruchi Corporation Ltd., the ld.CIT(A) noted that the assessee company was having deposits of Rs.575 crores as lone taken from this company appearing as opening balance which was repaid on 16.07.2011, but, in turn, deposited the same with M/s Ruchi Stock & Securities Pvt. Ltd. on the same day. After this transaction, the assessee company repaid the an amount of Rs.577.55 lakhs on 01.03.2012 to M/s Ruchi Stock & Securities Pvt. Ltd., who, in turn, deposited the same with M/s Ruchi Corporation Ltd.. Thereafter, Ruchi Corporation Ltd., re-deposited a sum of Rs.562.50 lakhs with the assessee company on the very same date i.e., 01.03.2012. In view of the above factual matrix pertaining to the loan of Rs.562.50 lakhs from Ruchi Corporation Ltd., the ld. CIT(A) concluded that this was rotation of funds from one company to another company as per the requirement of business and copies of the accounts with confirmation certificate and bank statement proves the rotation of funds on the same day through banking channel from one company to another. The ld.CIT(A), after considering various judgements on the issue including the judgement of the Hon’ble Supreme Court in the case of CIT vs. Orissa Corporation Pvt. Ltd. (supra) and order of the ITAT Indore Bench in the case of CIT vs. Dwekam Industries Ltd. (supra) and order in the case of ACIT vs. Mittal Appliances (supra) held that the identity, capacity as well as genuineness of the loan transaction have been proved by submission of relevant ITA No.569/Ind/2019 19 documents by the assessee in the form of confirmation certificates along with copy of accounts appearing in the books of lenders, copy of income-tax returns, bank statements of lender company, audited balance sheet of lender company and copy of accounts of the companies as appearing in the books of account. 13. The ld. CIT-DR has not controverted the above facts and circumstances supported by documentary evidence as noted by the ld.CIT(A). We may also point out that in the later part of the first appellate order, the ld.CIT(A) noted in para 4.12 which shows that all the companies had not only reasonable turnover/income, but, also had sufficient capital and reserve to advance loans to the assessee company and the lender companies were regularly assessed to tax, thus, identity of the companies were duly established and the genuineness of the transactions made through account payee cheques had also been proved by giving necessary details including the bank statements/financial statements, confirmation of accounts and fund details. The ld. CIT-DR could not point out any defect or deficiency in the said findings arrived at by the ld.CIT(A) and could not controvert that no cash was deposited in the bank prior to issuance of cheque and there was no cash transaction in the bank statement of all lender companies and all transactions have been undertaken through account payee cheques by using banking channels. These facts have not been controverted by the ld.CIT-DR by way of any positive adverse material. 14. We are also in agreement with the conclusions drawn by the ld.CIT(A) that merely on the basis of returned income the AO jumped to a conclusion that many lenders were not having sufficient funds to give the money to the assessee and the AO, without considering the audited accounts and other relevant documents has invoked the provisions of section 68 of the Act. It is a settled proposition of tax ITA No.569/Ind/2019 20 jurisprudence that financial worth of a company could not be judged mainly on the basis of its returned income, but, entire financial statement has to be seen to consider that how much amounts/funds were available with the lending company in its bank account at the time of advancing the loan. Therefore, in view of the foregoing discussion, we are compelled to hold that the AO, invoking the provisions of section 68 of the Act keeping aside the documentary evidence and explanation of the assessee which were considered by the ld. CIT(A) on right perspective before deleting the addition of Rs.1167.50 lakhs. We are unable to see any defect or discrepancy in the findings recorded by the ld. First appellate authority. Thus, we uphold the same. Accordingly, ground No.1 of the Revenue being devoid of merits is dismissed. Ground No.2. 15. From the first appellate order, first of all, we observe that the ld.CIT(A) granted relief to the assessee with the following findings:- “Ground No. iii to vi, viii & ix: 4.0 All these grounds related to addition made under section 68 of the unsecured loan received from various group companies. 4.1 I have carefully gone through the assessment order as well as the submissions of the appellant in this regard. Details submitted by the appellant above relating to unsecured loans are repeated for clarity as under:- ITA No.569/Ind/2019 21 (Rs. In lacs) 4.2. To prove the identity, capacity, creditworthiness and genuineness of the loans accepted during the year, the appellant had submitted- various documents in case of above five companies viz. Confirmation certificates, copies of account of the appellant as appearing in the books of lender; Copies of Income tax return and Bank statement of lender company, Audited Balance sheets of lender company and Copies of account of all the companies in the books of the appellant both at the time of assessment to the AO and then in the appellate proceedings also. It has been claimed by the appellant that all the companies are associated companies and hence genuineness of the transactions cannot be doubted upon because the funds were routed from one account to another on the same day through banking channel only. 4.3 Loans taken from companies assessed to tax can be divided in two parts : (a) opening balances and (b) Loans taken during the year which are analyzed as under:- a ) Opening balances of loans:- As per these regular books of accounts and confirmation certificates so placed on record, it is clear that the appellant had accepted loans from three companies in the earlier year which are appearing as opening balances from (i) M/s. Kandla Steels Limited Rs.695 lacs (ii) M/s. Ruchi Corporation Limited Rs.15 lacs and (iii) M/s. Ruchi Equity Growth Pvt Ltd Rs. 15 lacs. It had accepted new loan of Rs.30 lacs on 26.12.2011 from Name of the Co. Opening balance Loan taken during the year Repayment of Loan Closing balance Assessed by AO Kandla Steels Pvt Ltd Rs. 695.00 Rs. 30.00 Rs. = Rs. 725.00 Rs. 725.00 Ruchi Stock & Securities P. Ltd Rs. 20.00 Rs. 575.00 Rs. 577.55 Rs. 17.45 Rs. 575,00 ------ Ruchi Corporation Limited Rs. 575.00 Rs.562.50 Rs. 575.00 Rs.562.50 Rs.562.50 Ruchi Equity Growth Pvt Ltd. Rs. 15.00 Rs. Rs. 15.00 Rs. = Rs. 15.00 Ruchi Portfolio Management Pvt Ltd Rs. 15.00 Rs. = Rs. 15.00 Rs. = Rs. 15.00 TOTAL Rs. 1320.00 Rs. 1167.50 Rs. 1182.55 Rs. 1304.95 Rs. 1892.50 ITA No.569/Ind/2019 22 M/s. Kandla Steels Limited during the year which has been claimed to have been utilized to repay the loans to remaining two companies of Rs. 15.00 lacs each on 26.12.2011 itself. The AO had assessed opening balances of these loans accepted from above three companies, without considering the fact that such opening balances not only appeared in the audited accounts of all the companies but were also duly confirmed as per the statement of accounts so submitted by the appellant. Although the identity, capacity, creditworthiness and genuineness of the loans have been proved by giving the copy of Income Tax Return, bank statement of the lender company, audited balance sheet of the lender company and copies of accounts of all the companies as appearing in the books of appellant; the facts remains that the opening balances of loans taken from aforesaid three companies cannot be assessed to tax u/s 68 of the Act for the year under appeal. It would be relevant hear to reproduce section 68 as provided in the Income Tax Act, 1961: Cash Credits "68. Where any sum is found credited in the books of an assessee maintained for arty 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 the previous year.” From the plain reading of the section itself, it is quite clear that only the sums found credited during the previous year relevant to the assessment year in question can be added u/s 68. Also, there are various judicial decisions which clearly state that the opening balances cannot be added u/s 68. It has now become a settled law that genuine loans taken in earlier year from identified persons appearing as opening balances inaudited books of account cannot be taxed in subsequent years u/s 68 of the Act as held in the case of CIT vs Usha Stud Agricultural Farms(2018) 301 ITR 384(Delhi), DCIT vs. Hotel Excelsior Ltd (2011) 141 TTJ 248 (Del), ITO vs Kumari Sumedha Karmahe (2015) 26 ITJ 648 (Trib. Raipur) & Shri Gurumukhdas Saluja vs. AC1T (2013) 21 ITJ 168 (Indore Trib.) The lender companies are otherwise also group companies of Ruchi Group and associated with each other. Under the circumstances, addition made u/s 68 of the Act being the amount of loans taken in earlier year from three companies aggregating to Rs. 725 lacs appearing as opening balances are deleted.” 16. The ld. CIT-DR, in all fairness, admitted that the amount of Rs.695 lakhs was brought forward from the preceding financial period as opening balance as on ITA No.569/Ind/2019 23 01.04.2011. In view of the various judgements of Hon’ble High Courts and coordinate Benches of the Tribunal including the judgement of the Hon’ble High Court of Delhi in the case of CIT vs. Usha Stud Agricultural Farms (supra) and order of the ITAT Indore Bench in the case of Shri Gurmukhdas Saluja (supra), the addition u/s 68 of the Act cannot be made being the amount of loan taken in the earlier years which were brought forward as opening balance in the current financial period. We may also point out that the AO in para 6(i) alleged that the liability ceases to exist which pertains to addition u/s 41(1) of the Act but the AO invoked the provisions of section 68 of the Act. Therefore, the AO himself might not be sure about the action to be taken against the assessee on this issue while dealing with the issue and making addition/disallowance. Therefore, we are unable to see any ambiguity, perversity or any other valid reason to interfere with the order of the ld.CIT(A). Accordingly, we uphold the same. Ground No.2 of the Revenue is also dismissed. 17. In the result, the appeal filed by the Revenue is dismissed. Order pronounced u/r 34(4) of the Income-tax (Appellate Tribunal) Rules, 1963 on 30.01.2023. Sd/- Sd/- (BHAGIRATH MAL BIYANI) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 30 th January, 2023. dk ITA No.569/Ind/2019 24 Copy forwarded to : 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi Date 1. Draft dictated on 17.01.2023 2. Draft placed before the author 18.01.2023 3. Draft placed before the other Member 4. Approved Draft comes to the Sr.PS/PS 5. Order uploaded on 6. File sent to the Bench Clerk 7. Date on which file goes to the Head Clerk. 8. Date on which file goes to the AR 9. Date of dispatch of Order.