DCIT, Central Circle, Samabalpur V. M/s. Union Merchants Pvt. Limited, Rourkela

ITSSA 26/CTK/2019

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 9183 (ITAT-CUTTACK)
• Duration Of Justice: 3 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 01-11-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 01-11-2022
• Assessment Year: 2013-2014
• Appeal Filed On: 08-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Source of fund; Question of law
• Section: 68; 260A

Judgement Text

आयकर अऩीऱीय अधधकरण, कटक न्यायऩीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK श्री जाजज माथन, न्याययक सदस्य एवं श्री अरुण खोड़पऩया ऱेखा सदस्य के समऺ । BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI ARUN KHODPIA, ACCOUNTANT MEMBER आयकर (तऱाशियाां और अशिग्रहण) अऩीऱ सं/IT(SS)A No.26/C TK/2 019 (ननधाारण वषा / Asses s m ent Year :2013-2 014) DCIT, Central Circle, Sambalpur Vs M/s Unicon Merchants Pvt. Ltd., P-25, 2 nd Floor, Civil Township, Rourkela, Dist:Sundargarh, Odisha PAN No. :AAACU 6553 H (अऩीऱाथी /Appellant) .. (प्रत्यथी / Respondent) ननधााररती की ओर से /Assessee by : Shri Firoze B. Andhyarujina, Sr. Advocate with Shri Shyam Sunder Jangid, CA and Shri Nikhil Jangid, Advocate राजस्व की ओर से /Revenue by : Shri M.K.Gautam, CIT-DR स ु नवाई की तारीख / Date of Hearing : 02/11/2022 घोषणा की तारीख/Date of Pronouncement : 02/11/2022 आदेश / O R D E R Per Bench : This an appeal filed by the revenue against the order of the ld. CIT(A)-2, Bhubaneswar, dated 19.02.2019, passed in I.T.Appeal No.0727/2016-17 for the assessment year 2013-2014. 2. It was submitted by the ld. CIT-DR that the assessee is a company. There was a search operation on the premises of Shivom Minerals Ltd. Consequent to the search, assessment had been done u/s.153C of the Act on the assessee herein. In the course of assessment, it was noticed that the assessee has shown two sundry creditors totalling to Rs.3,54,88,482/-. The assessee had not cooperated in the course of assessment and consequently the assessment came to be completed IT(SS)A No.26/CTK/2019 2 u/s.144 of the Act. It was the submission that the details of the sundry creditors were not furnished before the AO. It was the submission that on appeal before the CIT(A), remand report had been called for on 05.02.2018 and the remand report was sent by the AO on 24.05.2018. In the remand report the AO had categorically mentioned that the two sundry creditors being Bajrang Engineers Pvt. Ltd. for an amount of Rs.3,54,08,483/ and Samarth Commodities Merchants Pvt. Ltd. for an amount of Rs.80,000/- were liable to be disallowed, insofar as the creditworthiness of the two companies were in dispute. It was the submission that in respect of M/s Bajrang Engineers Pvt. Ltd., the said company had meagre income as has been shown in the remand report which has been extracted at page 10 of the order of the ld. CIT(A). It was the submission that the AO has recognized that the said Bajrang Engineers Pvt. Ltd. had not filed its return for the assessment year 2013- 2014 as it was under financial constraints and was unable to pay even the admitted tax of Rs.5,61,566/-. In regard to Samarth Commodities Merchants Pvt. Ltd. also the returned income were low and consequently it could not be said to be a company which has substantial creditworthiness. It was further submission that the ld. CIT(A) deleted the addition on the ground that two sundry creditors were also assessed to tax by the same Assessing Officer and the sundry creditors had filed the details called for by the AO and all the loans have been paid through banking channels and the source for advancing the loans to the assessee herein were from deposits made in the bank accounts. It was the IT(SS)A No.26/CTK/2019 3 submission that in the remand report the AO has not discussed anything about the bank accounts and it has to be presumed that the bank accounts have not been produced before the AO. It was the submission that the order of the ld. CIT(A) is very cryptic and the same is liable to be reversed. The ld. CIT-DR has also filed his written submission as follows:- i.) The first four grounds of Departmental appeal pertain to unexplained loans of Rs.3,54,88,482/- received by the assessee company from Bajrang Engineers Pvt. Ltd. and Samarth Commodities Merchants Pvt. Ltd. The findings of Id. CIT(A) are erroneous on the ground that the AO had specifically mentioned in the remand report that both the lenders did not have financial capacity and genuineness of said loan transactions remained unproved. The lenders failed to explain the source of advancing such loans of Rs.3,54,88,482/- to the assessee company. The A.O. asked the creditors to submit their bank statements and explain the sources of the funds. Instead the creditors submitted only the copies of returns of income and balance sheet/profit & loss account. ii.) In the remand report, the AO. has categorically mentioned that Bajrang Engineers Pvt. Ltd. was suffering from huge financial crisis and even could not pay taxes on declared income for AY 2013-14 and had not filed any ITR before due date. On the other hand, Samarth Commodities Merchants Pvt. Ltd. had declared nil income in the return of income for AY 2013-14. It was not explained as to why the lenders had given interest free loans to the assessee company even in absence of sound financial position. The loan agreement and details of securities pledged have also not been placed on record. iii.) The Hon'ble Delhi High Court held in the case of Pr. CIT vs. Bikram Singh (85 taxmann.com 104) (para-41) that none of the four individuals had financial strength to rend such huge sums of money to assessee, that too without any collateral security, without interest and without a loan agreement. Therefore in aforesaid circumstances, mere establishing their identity by submitting PAN and fact that amounts had been transferred through cheque payments, did not by itself mean that transactions were genuine. iv.) The Hon'ble Supreme Court in the case of Pr. CIT vs. N R A Steel & Iron (P.) Ltd. (103 taxmann.com 48) held that merely because assessee company had filed all primary evidence, it could not be said that onus on assessee to establish creditworthiness of investor companies stood discharged. In para-12(ii) of the decision, the Hon'ble Supreme Court held that the enquiries revealed that the investor companies had filed returns for a negligible taxable IT(SS)A No.26/CTK/2019 4 income, which would show that the investors did not have the financial capacity to invest funds ranging between Rs.90,00,000/- to Rs.95,00,000/- in the Assessment Year 2009-10, for purchase of shares at such a high premium. The present case is on a worst footing since the amount of loan involved is Rs.3.5 crores in the case of Bajrang Engineers Pvt. Ltd. and it had not filed even its return of income for AY 2013-14. v.) It was held by the Hon'ble Gujarat High Court in the case of Manoj Kumar Saraf vs. ITO (45 taxmann.com 63) that where even though assesseetook unsecured loan through cheques, yet he could not establish identity and creditworthiness of lenders, the amount of loan was rightly added by the Assessing Officer to assessee's taxable income under section 68. The Hon'ble High Court held in para-5 as under: "5. We are, however, of the opinion that the revenue authorities as well as the Tribunal have examined the evidence on record and come to the conclusions which do not give rise to question of law. It may that the transactions being through cheques, the genuineness thereof was established by the assessee. However, two additional requirements of the identity of the creditors and their creditworthiness yet remained to be established. The authorities found that the assessee did not provide sufficient evidence in this respect. In case of Sumati Dayalv. CIT[1995] 214 ITR 801/80 Taxman 89 (SC) the Apex Court held that regarding cash credit, burden is on the assessee to prove that the amounts credited did not represent his income. It was observed that in view of section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year, it may be charged to income tiX as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is not satisfactory". vi.) The Hon'ble Delhi High Court in the case of Siddharth Exports vs. ACIT (112 taxmann.com 193) held that where the assessee received unsecured loan from a person outside India but failed to produce relevant documents to prove identity and creditworthiness of creditor and genuineness of transaction either before Assessing Officer or before Commissioner (Appeals), certain documents produced by assessee during instant appeal before High Court under section 260A could not be accepted and therefore, impugned addition made under section 68 in respect of said loan was justified. The Hon'ble Delhi High Court held in paras-18 & 19 as under: "18. The next question that arises for consideration is whether the appellant has raised any substantial question of law. The transaction is sought to be proved by producing the bank statement of Ms. Jasmine Kochhar Kapoor. The assessee has strongly relied upon the fact that since the creditor has been identified by way of her copy of passport, PAN No. etc, the initial onus of proof has IT(SS)A No.26/CTK/2019 5 been discharged. The appellant strongly contends that since it had discharged the onus on production of the relevant documents, the onus shifted on the Respondent and if the Assessing Officer had any doubt, he could have carried out independent inquiry. Section 68 of the Income Tax Act, raises a presumption whenever unexplained credits are found in the books of account of the assessee. Indisputably, the credit entries stand in the name of the assessee himself. Thus the burden is undoubtedly on him to prove, satisfactorily, the nature and source of these entries and to show that they do not constitute a part of income liable to tax. There can also be no doubt that the onus is always shifting and oscillates and this burden on the assessee can shift on to the Revenue. However, such a situation can arise only if the initial or primary onus is discharged by the assessee. It is, therefore, first necessary to examine whether the assessee has been able to discharge the initial onus of proving the unexplained cash credit. 19. Law casts an obligation on the assessee to establish by cogent evidence the genuineness of the transaction, identity of the creditors and the credit- worthiness of the creditor, to the satisfaction of the Assessing officer, so as to discharge the initial onus under Section 68 of the Act. It is for the assessee to prove by credible evidence that the transactions are genuine, since the facts are exclusively in the assessee's knowledge. It is the assessee who has entered into the transaction and thus, the person with whom he has transacted is known to him. In this regard, it would be apposite to refer to the recent judgment of the Supreme Court in the case of Pr. CIT v. NRA Iron & Steel (P.) Ltd. [2019] 103 taxmann.com 48/262 Taxman 74/412 ITR 161 wherein it was held that the Assessing Officer is duty bound to investigate the credit-worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name- lenders. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act. 21. The plea of the Appellant that on filing of the bank statement and PAN details, the burden stood discharged or that it shifted on to the revenue is tenuous and is not correct. The credit worthiness of the transaction cannot be said to be proved merely on the strength of the bank statement or identity of the creditor. The assessee did not produce the income tax return of the lender or any confirmation. The purported confirmation has been found to be only a copy of unsigned account of the creditor. The source of funds has also not been explained. The judgment relied upon by the appellant - Mod Creations (P.) Ltd. (supra) is distinguishable on facts and circumstances, as in the said case, there was sufficient material on record including the tax returns, an affidavit stating the source of funds and an affidavit confirming that monies have been advanced IT(SS)A No.26/CTK/2019 6 to the assessee to prove the credit worthiness of the creditors and the genuineness of the transaction. In the current case, however, the assessee has failed to produce the tax returns of the creditor or any other material to show the creditworthiness. Thus, the credit worthiness and the genuineness of the transaction cannot be said to have been proved so as to shift the onus on the revenue. The stand of the appellant that since the alleged transaction is made through normal banking channels, it is sufficient to prove the genuineness of the transaction and the credit worthiness of the creditor, cannot be accepted. The identity as well as the credit worthiness of the creditor must be proved. The credit reflected in the bank account of Ms. Jasmine Kochhar Kapoor, is not explained, as a result her credit worthiness is not proved". vii.) The Hon'ble Delhi High Court in the case of Toby Consultants (P.) Ltd. vs. CIT(324 ITR 338) held that where assessee-company had shown in books unsecured loans of Rs. 2.68 crores and Rs. 2.45 crores from its two directors and it was explained that money belonged to its own entity and was routed through directors and Tribunal found that directors who advanced loan were admittedly not at all men of means for advancing such huge amount of loan amounting to about Rs. 5 crores and secondly that assessee even for taking such huge amount of loan did not want to pay any interest for which creditors also agreed, the Tribunal had rightly, arrived at a finding of fact, on analysis of all relevant material on record, that genuineness of transaction had not been established and assessee had failed to independently prove the same. The Hon'ble High Court held that the Tribunal had observed that it was humanly improbable that a person merely knowing another person for a long period, even though having very good relation, would advance such huge amount of loan free of interest for a indefinite period, merely for investing in a company, that too not in their name but in the name of that person, who could legally claim the recovery of the same from the assessee company, as undisputedly the debt still remained undischarged. It was further held that the assessee had not succeeded in proving the genuineness of the transaction as it was improbable when the test of human probabilities was applied to the surrounding circumstances of the case in entirety. Thus, the assessee, having failed to test of human probabilities, was unable to prove the genuineness of the loan transaction, so, in view of the ratio of the decisions (supra) relied upon the learned Departmental representative for the Revenue it is held that in view of the provisions of section 68, since the genuineness of the transaction has not been proved by the assessee, the impugned amount found credited in the name of 5hri P. N. Iain and Ms. Urvashi Iain in the books of the assessee in the year under consideration is to be charged to income-tax as the income of the assessee for that year and hence the impugned addition made/sustained by the tax authorities below under section 68 of the Income-tax Act are upheld. Hence, impugned addition was held to be justified. IT(SS)A No.26/CTK/2019 7 Considering the above facts and judgements, it is requested that the order of the A.O. be restored and appeal of the Department be allowed. 3. Ld. CIT-DR relied on various case laws mentioned in the written submissions to submit that just because the transactions have been done through banking channels does not mean that loan creditors are creditworthy. The ld. CIT-DR also placed reliance on the decision of Hon’ble Delhi High Court in the case of Seema Jain, reported in [2018] 96 taxamnn.com 307 (Delhi) to submit that the transaction just because it is through bank accounts cannot be accepted as genuine. It was submitted that the order of the ld. CIT(A) is liable to be reversed. 4. It was an alternative prayer of the ld. CIT-DR that the issues should be restored to the file of AO for readjudication so that the AO can examine the bank accounts of the assessee. 5. In reply, ld. Sr. Counsel submitted that the identity of the loan creditors are not in dispute insofar as they are assessed by the same Assessing Officer. The genuineness has also not been questioned by the AO. In respect of the creditworthiness it was submitted that for the relevant assessment year the return had not been filed by M/s Bajrang Engineers Pvt. Ltd. as it was only to pay the taxes on account of certain dispute between the management and suppliers which are also resulted in the freezing of the assessee’s bank account for some period of time. It was the submission that the networth of M/s Bajrang Engineers Pvt. Ltd. itself was more than Rs.4.5 crores and the funds available with M/s Bajrang Engineers Pvt. Ltd. was more than Rs.34 crores and this has IT(SS)A No.26/CTK/2019 8 been recognized by the ld. CIT(A) in the rejoinder filed before him and extracted in para 5.3 of his order. It was the further submission that the assessee having proved the identity, creditworthiness and genuineness of the transaction, the order of the ld. CIT(A) is liable to be upheld. 6. We have considered the rival submissions. A perusal of the facts of the present case clearly show that the same Assessing Officer has completed the search assessment in the case of M/s Bajrang Engineers Pvt. Ltd. and Samarth Commodities Merchants Pvt. Ltd.. and the assessee. Now, the same Assessing Officer is doing the assessment of all the three being assessee herein and the two loan creditors, obviously the identity of the loan creditors would stand proved. The AO in the remand proceedings has issued notice u/s.133(6) of the Act and the directors of the loan company have confirmed the transactions before the AO. A perusal of the remand report filed by the AO which has been extracted by the ld.CIT(A) also shows that the AO is aware of the various returns which have been filed by the two loan creditors for the various years including the impugned assessment year. A perusal of the order of the ld. CIT(A) more specifically the rejoinder which has been extracted at para 5.3, shows that the bank accounts of both M/s Bajrang Engineers Pvt. Ltd. and Samarth Commodities Merchants Pvt. Ltd has been produced before the AO. Even otherwise, being search assessment, the bank statements of all the three being the impugned assessee, M/s Bajrang Engineers Pvt. Ltd. and Samarth Commodities Merchants Pvt. Ltd, would be available before the AO. The AO has questioned the IT(SS)A No.26/CTK/2019 9 creditworthiness only on the ground that the income disclosed by the loan creditors are meagre and additionally in respect of M/s Bajrang Engineers Pvt. Ltd. that the admitted tax on the returned income had not been paid for the assessment year 2013-2014. In fact, the same Assessing Officer in the case of M/s Bajrang Engineers Pvt. Ltd. has made assessment making huge additions in the earlier assessment i.e. A.Y.2013-2014. Now, to say that M/s Bajrang Engineers Pvt. Ltd. is not creditworthy is in fact questioning the AO’s own action of making such huge additions in the assessment of M/s Bajrang Engineers Pvt. Ltd. and Samarth Commodities Merchants Pvt. Ltd. In any case, of M/s Bajrang Engineers Pvt. Ltd., the networth of the company has been recorded itself is more than Rs.4.5 crores and funds available is more than Rs.34.39 crores. Thus, it cannot be held that the two loan creditors are not creditworthy. This combined with the fact that the directors of the two loan creditors have responded to the notice issued u/s.133(6) of the Act and confirmed the transactions, goes to prove the genuineness of the transaction also. It must be mentioned here that it is not the case of the AO that the transactions are not reflected in the books of the loan creditors. Therefore, we are of the view that the assessee has proved the identity, creditworthiness and genuineness of the loan creditors. Further, the decision relied upon by the ld. CIT-DR are clearly on the facts of their own cases wherein in most cases, defects in the form either of identity of the person or of the available of the funds have to be sustained therein. These facts are completely different from the facts of the assessee’s case. IT(SS)A No.26/CTK/2019 10 In these circumstances, as the revenue has not been able to dislodge the findings of fact as established by the ld. CIT(A), we find no reason to interfere in the order of the ld. CIT(A) on this issue and the same is confirmed. 7. Coming to the issue of the addition of Rs.5,37,861/- deleted by the ld. CIT(A), it has fairly been agreed by both the sides that the addition had originally been made in the assessment u/s.143(3) of the Act and the said addition in the assessment framed u/s.153C of the Act is in fact a double addition which has been deleted by the ld.CIT(A). This being so, we do not find any reason to interfere in the order of the ld. CIT(A) and, therefore, we confirm the findings recorded by the ld. CIT(A) in this regard. 8. In the result, appeal of the revenue is dismissed. Order dictated and pronounced in the open court on 02/11/2022. Sd/- (अरुण खोड़पऩया) (ARUN KHODPIA) Sd/- (जाजज माथन) (GEORGE MATHAN) ऱेखा सदस्य/ ACCOUNTANT MEMBER न्यानयक सदस्य / JUDICIAL MEMBER कटक Cuttack; ददनाांक Dated 02/11/2022 Prakash Kumar Mishra, Sr.P.S. आदेश की प्रनतलऱपऩ अग्रेपषत/Copy of the Order forwarded to : 1. अऩीऱाथी / The Appellant- DCIT, Central Circle, Sambalpur 2. प्रत्यथी / The Respondent- M/s Bajrang Engineers Pvt. Ltd., J 4/3, Civil Township, Rourkela 3. आयकर आय ु क्त(अऩीऱ) / The CIT(A), 4. आयकर आय ु क्त / CIT 5. पविागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, कटक / DR, ITAT, Cuttack 6. गार्ज पाईऱ / Guard file. IT(SS)A No.26/CTK/2019 11 आदेशान ु सार/ BY ORDER, (Assistant Registrar) आयकर अऩीऱीय अधधकरण, कटक/ITAT, Cuttack सत्यापऩत प्रयत //True Copy//