Income Tax Appellate Tribunal - Mumbai
Yug Developers, Mumbai vs Acit-17(3), Mumbai on 17 July, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL "G", BENCH
MUMBAI
BEFORE SHRI PAWAN SINGH, JM
&
SHRI M.BALAGANESH, AM
ITA No.7130/Mum/2018 & 7222/Mum/2018
(Assessment Year : 2013-14 & 2014-15)
M/s. Yug Developers Vs. ACIT-17(3) & ACIT-
24, Sholapur Street 17(3)(2)
Dana Bunder Room No.114, 1 s t Floor
Mumbai - 400009 Aayakar Bhavan
M.K.Road,
Mumbai - 400 020
PAN/GIR No.AAAFY7448J
(Appellant) .. (Respondent)
Assessee by Shri Nishit Gandhi
Revenue by Shri Satish Rajore
Date of Hearing 10/07/2019
Date of Pronouncement 17/07/2019
आदे श / O R D E R
PER M. BALAGANESH (A.M):
These appeals in ITA No.7130/Mum/2018 & 7222/Mum/2018
for A.Y.2013-14 & 2014-15 arise out of the order by the ld. Commissioner
of Income Tax (Appeals)-28, Mumbai in appeal No.CIT(A)-28/iTBA-10215,
10862/ACIT-17(3) & ITO 17(3)(2)/2016-17 dated 9th October 2018 (ld.
CIT(A) in short) against the order of assessment passed u/s.143(3)of the
Income Tax Act, 1961 (hereinafter referred to as Act) dated 28/03/2016
by the ld. Assistant Commissioner of Income Tax - 17(3), Mumbai
(hereinafter referred to as ld. AO). Since identical issues are involved in
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these appeals, they were heard together and are being disposed off by
this consolidate order, for the sake of convenience.
2. The Ground No. 1 raised by the assessee in both the years was stated
to be not pressed by the ld AR at the time of hearing. The same was
reckoned as a statement made from the Bar and accordingly the Ground
No. 1 for both the assessment years is dismissed as not pressed.
3. Addition made towards estimation of Profits - Rs 92,34,017/-
Ground Nos. 2 to 5 of Asst Year 2013-14
Ground No. 5 of Asst Year 2014-15
The brief facts of this issue are that the assessee is a partnership firm
engaged in the business of construction of residential flats at Kamothe.
The return of income for the Asst Year 2013-14 was filed by the assessee
firm on 30.9.2013 declaring total income of Rs 28,20,200/-. During the
year, the assessee was engaged into construction of residential units in
the project named 'Shree Shankar Heights'. The ld AO observed from the
submissions made by the assessee and from the Notes on accounts of
audited financial stateemnets, the assessee was offering 10% of
construction expenses every year which was neither as per percentage of
completion method nor as per project completion method. The assessee
was asked to file workings of cost of project and the income offered from
the projects year wise since inception of the project. The ld AO did not
heed to the contentions of the assessee and proceeded to estimate the
profit at Rs 92,34,017/- for the year and made addition thereon in the
assessment. This was upheld by the ld CITA. Aggrieved, the assessee is
in appeal before us.
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4. We have heard the rival submissions and perused the materials
available on record including the paper book of the assessee. At the
outset, we find from the audited financial statements of the assessee firm
for the year ended 31.3.2012, the assessee had reflected as under:-
Disclosure in Balance Sheet
Under Other Current Assets (Schedule 8) 31.3.13 31.3.12
Shree Shankar Heights Project -
Work in Progress (WIP) Rs 11,34,28,558/- Rs 8,26,81,394/-
Under Trade Payables (Schedule 4) 31.3.13 31.3.12
Booking Received - Shree Shankar
Heights Project Rs 5,33,63,192/- Rs 1,82,00,045/-
Disclosure in Profit and Loss Account
Under Revenue from Operations (Schedule 9) 31.3.13 31.3.12
WIP income of Shree Shankar Heights
Projects Rs 27,95,197/- Rs 36,10,808/-
4.1. We find that the assessee had followed Work in Progress method of
accounting under which profit is estimated at 10% of work carried out
each year. The final profit is worked out on completion of phase of the
project and profit estimated in earlier years is reduced in the year in
which sales are accounted on completion of project. We find that this
fact has been clearly mentioned by the assessee in the Notes to Accounts
of audited financial statements. The ld AO however determined the profit
on the assumption that assessee is not following percentage of
completion method of accounting and determined the profit on estimated
basis by adducing the following reasons:-
a) The Institute of Chartered Accountants of India (ICAI) has issued
Accounting Standard 7 (AS-7) in respect of 'Contract Revenue' and
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'Contract Cost'. The ld AO applied AS 7 to the Builders/ Developers and
worked out the profit of the assessee.
b) As per notes on accounts, income is offered at the rate of 10% of total
construction expenses.
4.2. We find that the assessee had pleaded before the ld AO that AS-7 is
applicable only to a contractor and not for builders / developers. We
find that the assessee had duly brought on record before the ld CITA the
mathematical flaws committed by the ld AO in the estimation of profits of
the assessee by not considering the actual bookings that had taken place
upto 31.3.2013. It was pleaded that profit cannot be worked out on the
flats which have not been sold. It was pleaded that the work in progress
is to be worked out on the basis of cost or realizable value whichever is
lower. We find that the assessee had pleaded before the ld AO that even
profit is taken at 15% on receipt basis (i.e monies received from
prospective flat buyers), then also the profit declared by the assessee was
more. We find that the assessee had pleaded before the lower
authorities that even if the working of profit is to be based on percentage
of completion method as per AS -7 issued by ICAI, then the same fails the
crucial tests laid down in AS 9 issued by ICAI on 'Revenue Recognition' as
there is neither any sale nor any transfer of risks and rewards in favour of
the prospective flat buyers. Further, going by the method as per AS 7 of
ICAI, the assessee had pleaded that it had offered more profit than
actually taxable.
4.3. We find that the ld CITA had rejected the books of accounts of the
assessee u/s 145(3) of the Act and upheld the action of the ld AO in
estimation of profits. We find that the ld AR argued that it is open for an
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assessee to adopt project completion method or percentage of completion
method and it is not open to the ld AO to thrust upon the assessee a
specific method, unless it is shown that a different method reflects more
accurate computation of income, which should be supported with facts
and figures. It is not in dispute that the project was completed in Asst
Year 2014-15. It is not in dispute that the assessee had duly disclosed
the entire profits in the succeeding assessment year and had duly offered
to tax on project completion basis after reducing the amounts already
offered by it in earlier years, which has been accepted by the revenue as
no addition was made thereon by the ld AO. For the Asst Year 2014-15,
we find that the ld AO had not even bothered to reduce the income
already added in Asst Year 2013-14 by him over and above the profit
offered by the assessee in Asst Year 2013-14. Hence the entire exercise
of this estimation of profit for the Asst Year 2013-14 would get adjusted
in the year of completion of project i.e in Asst Year 2014-15 and becomes
revenue neutral. We find that the ld AR rightly placed reliance in this
regard on the decision of Hon'ble Supreme Court in the case of CIT vs
Realest Builders & Services Ltd reported in 307 ITR 202 (SC) . It is not
in dispute that the method of accounting followed by the assessee has
been consistently followed by it in the earlier years which has been
accepted by the revenue. We find that the whole exercise of this
addition becomes revenue neutral is approved by the following decisions
which had been placed on record by the ld AR before us :-
a) Mumbai Tribunal in the case of ACIT vs Guruprerna Enterprises in ITA
Nos. 255 to 257, 544 & 545/Mum/2010 and 4836/M/2009 which was
affirmed by the Hon'ble Bombay High Court in ITA No. 1849 of 2011
dated 4.3.2013.
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b) Kolkata Tribunal in the case of Fort Projects P Ltd vs DCIT reported in
145 TTJ 340
c) Pune Tribunal in the case of Dhanvarsha Builders and Developers P Ltd
vs DCIT reported in 102 ITD 375
d) Mumbai Tribunal in the case of Runwal Homes P Ltd in ITA No.
5621/Mum/2017
4.4. Moreover, we also find in the present case, the ld CITA had accepted
that during the relevant year, there has been no sale nor any transfer of
significant risks or rewards or even transfer of possession of the flats to
the prospective buyers had taken place. We hold that what is to be taxed
ultimately is the real income of the assessee. In the instant case, both
the ld AO and ld CITA had categorically admitted that what is being
added by them is a mere estimate which would only lead to bringing to
tax hypothetical income which is not permissible in the eyes of law.
Reliance in this regard has been rightly made by the ld AR on the decision
of Hon'ble Apex Court in the case of CIT vs Shoorji Vallabhdas & Co
reported in 46 ITR 144 (SC).
4.5. We find lot of force in the final argument made by the ld AR before
us that the entire exercise is revenue neutral since the assessee has
ultimately offered its entire profit on actual basis from the project to tax
in the year of completion of project which is far higher than the originally
estimated profit and that this profit has been accepted by the ld AO in the
scrutiny assessment completed u/s 143(3) of the Act for the Asst Year
2014-15 and the workings of profit of assessee was also accepted by the
ld AO. The addition made by the ld AO in Asst Year 2013-14 would only
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result in double taxation in Asst Year 2014-15 of the same income, which
is not sustainable in the eyes of law.
4.6. In view of the aforesaid observations, we direct the ld AO to delete
the addition made in the sum of Rs 92,34,017/- towards estimation of
profits for the residential project at Kamothe. Accordingly, the Grounds 2
to 5 raised by the assessee for the Asst Year 2013-14 are allowed. In
view of this decision, the adjudication of Ground No. 5 for Asst Year 2014-
15 becomes academic in nature.
5. Addition made towards unsecured loans u/s 68 of the Act
Ground Nos. 6 & 7 for Asst Year 2013-14
Ground Nos. 2 to 4 for Asst Year 2014-15
The ld AO observed that the assessee had taken loans from the following
parties during the financial year 2012-13 relevant to Asst Year 2013-14 :-
Casper Enterprises P Ltd - Rs 10,00,000/-
Falak Trading P Ltd - Rs 70,00,000/-
Duke Business P Ltd - Rs 90,00,000/-
Nakshatra Business P Ltd - Rs 20,00,000/-
Pragati Gems P Ltd - Rs 20,00,000/-
Sumukh Commercial P Ltd - Rs 12,00,000/-
-------------------------
Rs 2,22,00,000/-
5.1. The ld AO observed that the assessee had filed confirmation of
balances from all these parties in tapal . The ld AO resorted to cross verify
the same by sending notices to them which returned unserved. The
assessee submitted that the confirmation was filed in the letter head of a
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chartered accountant M/s Jayesh Seth & Co dated 1.4.2013 vide letter
dated 1.2.2016. The ld AO observed that the said confirmations were old
and doubted the genuineness of the same. The ld AO observed that the
notices were sent to the addreses mentioned by the assessee in the audit
report. The assessee was given opportunity to physically produce the
directors of the lending companies which was not availed by the
assessee. Moreover, the ld AO observed that some of the loan creditors
were engaged in merely providing accommodation entries as per the
information received from the investigation wing. The assessee
submitted confirmation of balances, ledger account of assessee as
appearing in the books of the loan creditors for the relevant period,
balance sheet of loan creditors and bank statements of loan creditors
together with an affidavit from the directors of above loan creditors
affirming that they are not engaged in providing accommodation entries
and doing legal business with the assessee. The said affidavit also
confirmed the fact of advancing loan to the assessee. The assessee also
explained the main business activities of the aforesaid loan creditors
individually and explained the immediate source of funds for them to
advance loan to the assessee. The assessee also pleaded that all the
aforesaid loan creditors had substantial creditworthiness and funds at
their kitty to advance loans to the assessee and also pleaded that all the
loan creditors are regular income tax assessee and had paid substantial
amounts towards income tax. The submission of these details were
acknowledged by the ld AO in his order. The ld AO did not heed to these
contentions of the assessee and observed that the loan creditors are
engaged in merely providing accommodation entries and do not have any
net worth to advance loans to the assessee . The ld AO further observed
that the loan transactions with aforesaid parties were not genuine and
assessee did not produce the directors / promoters of the lending
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companies for recording statement on oath from them despite giving
several opportunities to the assessee. Accordingly, he concluded that the
assessee had not discharged its burden of proof of establishing identity of
creditors, genuineness of transactions and creditworthiness of creditors
which are the three main ingredients of section 68 of the Act and
accordingly proceeded to make addition towards unsecured loans u/s 68
of the Act in the sum of Rs 2,22,00,000/- in the assessment.
5.2. The assessee pleaded before the ld CITA that it had filed the
following documents with supporting evidences before the ld AO which
were not considered by the ld AO :-
a) Confirmation of balance along with full name and address and PAN of
the loan creditors.
b) Copy of acknowledgement of Income Tax Return filed.
c) Copy of audited accounts as on 31.3.2013.
d) Copy of the bank statements showing the amounts paid by said loan
creditors to the assessee.
e) Affidavit of directors lending the amounts.
5.3. It was pleaded that the ld AO had merely relied on the findings given
by the investigation wing that some of the loan creditors are appearing in
the list which are engaged in providing accommodation entries. No
independent enquiries were carried out by the ld AO with the above
companies. It was pleaded that if the ld AO was relying on the findings of
the investigation wing, then the necessary documents and papers or
statements ought to have been provided to the assessee and cross
examination of the said parties to bring the truth before the assessing
officer should have been provided on the ground of principles of natural
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justice, which was not done by the ld AO. The assessee pleaded before
the ld CITA that the ld AO had commented in his order as under:-
"All the above loan creditors are engaged in the business of Diamond
trading and raising sales invoices to debtors and receiving sale price
quickly and using this amount to advance to different parties and at the
same time holding huge trade payables."
The assessee submitted before the ld CITA that this shows that each
company was having monies to lend funds to the assessee and further
stated that the assessee cannot keep control as to how the affairs of the
business were being conducted by the loan creditors.
5.4. The ld CITA however confirmed the addition made by the ld AO by
observing at page 31 and 32 of his order as under:-
i) Loan creditors ostensibly provided total funds of Rs 2.22 crores to assessee.
ii) 133(6) verification notices returned back.
iii) Old confirmations (predating query) filed on letter head of CA.
iv) Assessee failed to produe parties before AO even though asked to.
v) The parties are found to be part of accommodation entry scam.
vi) Unsigned bank account copies, balance sheet etc downloaded from M.C.A.
website and directors‟ affidavit submitted by assessee.
vii) Financials of parties deep analysed by AO (para 5.4.2), All have negative net
worth. Loans given to assessee prima facie sourced from „borrowed‟ funds. They
are not into loan financing.
viii) All are diamond traders holding huge trade payables.
ix) All parties incurring „losses‟.
x) Creditworthiness woefully unestablished.
5.5. Aggrieved, the assessee is in appeal before us.
6. We have heard the rival submissions and perused the materials
available on record including the paper book of the assessee comprising
of pages 1 to 317. We find that the assessee had borrowed loans from
the following parties during the Asst Year 2013-14 :-
Casper Enterprises P Ltd - Rs 10,00,000/-
Falak Trading P Ltd - Rs 70,00,000/-
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Duke Business P Ltd - Rs 90,00,000/-
Nakshatra Business P Ltd - Rs 20,00,000/-
Pragati Gems P Ltd - Rs 20,00,000/-
Sumukh Commercial P Ltd - Rs 12,00,000/-
-------------------------
Rs 2,22,00,000/-
6.1. We find that the assessee had submitted all the relevant details with
documentary evidences listed above before the ld AO. The ld AO sought
to examine the veracity of the same by issuing notices u/s 133(6) of the
Act to the loan creditors at the address mentioned in the tax audit report,
which returned unserved. We find that the assessee vide letter dated
19.2.2016 filed before the ld AO on 21.3.2016 had duly furnished the
latest address of 4 loan creditors viz, Falak Trading Co Pvt Ltd, Nakshatra
Business Pvt ltd , Sumukh Commercial Pvt Ltd and Pragati Gems Pvt Ltd.
We find that the assessee vide letter dated 22.3.2016 had objected to
reliance placed by the ld AO on the statements recorded from Shri
Praveen Kumar Jain and his associates by clearly stating that no specific
mention has been made by Shri Praveen Kumar Jain and his associates in
their statements recorded during the course of search stating that the
loan transactions with the assessee are accommodation entries. We find
that the assessee had paid interest on the aforesaid loans after subjecting
to deduction of tax at source, wherever applicable, as under:-
Casper Enterprises P Ltd - Rs 81,860/- (TDS Rs 8,186/-)
Falak Trading P Ltd - Rs 1,72,610/- (TDS Rs 17,261/-)
Duke Business P Ltd - Rs 3,55,900/- (TDS Rs 35,590/-)
Nakshatra Business P Ltd - Rs 1,90,030/- (TDS Rs 19,003/-)
Pragati Gems P Ltd - Rs 3,288/- (TDS Rs Nil)
Sumukh Commercial P Ltd - Rs 28,800/- (TDS Rs 2,880/-)
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6.2. It is not in dispute that the ld AO had allowed the aforesaid interest
paid on loans as a deduction while completing the assessment. The ld AR
also submitted that the assessing officers of the aforesaid parties had
inturn duly assessed the interest income on loans given to the assessee
and had also given credit for TDS in their respective assessments. The ld
AR submitted that the assessee had given the latest address of the loan
creditors before the ld AO. The ld AO had not issued any notices u/s
133(6) of the Act on the latest address.
6.3. It would be pertinent to understand the following facts from the
financial statements of the loan creditors for the year ended 31.3.2013,
that their income from operations during the year ended 31.3.2013 itself
was several times more than the loans advanced to the assessee as is
evident from the following table:-
Name of the Party Gross Revenue from Loan Amount
Operations to assessee
(Rs in crores) (Rs in crores)
Casper Enterprises P Ltd 196.49 0.10
Falak Trading P Ltd 192.36 0.70
Duke Business P Ltd 158.99 0.90
Nakshatra Business P Ltd 163.13 0.20
Pragati Gems P Ltd 168.96 0.20
Sumukh Commercial P Ltd 97.01 0.12
Hence the gross revenue from operations for the year ended 31.3.2013
itself proves the creditworthiness of all the loan creditors beyond doubt.
Hence all the allegations leveled by the lower authorities with regard to
creditworthiness is devoid of any merits and deserves to be dismissed.
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6.4. We find that all the parties are duly assessed to income tax and
assessments are framed on them by the income tax department. Hence
the identity of the loan creditors stood clearly established. All the
transactions are routed through regular banking channels without having
any cash deposits in their respective bank accounts. Infact the ld AO
himself had stated in his order that the sale proceeds of diamond
business were credited in the bank accounts of the loan creditors which
were utilized for advancing loan to the assessee. This itself goes to prove
the genuineness of transactions and creditworthiness of parties beyond
doubt. Hence we hold that all the three necessary ingredients of section
68 of the Act had been duly established by the assessee in the instant
case.
6.5. We hold that once the assessee has furnished the complete details
about the loan creditors together with their latest addresses and affidavits
from directors duly notarized and confirmation from them for the loans
advanced to the assessee, the onus cast on the assessee u/s 68 of the
Act had been duly discharged and no addition could be made in its hands
merely because the lenders fail to appear before the ld AO or the
assessee failing to produce them before the ld AO. Reliance in this regard
is placed on the decision of Hon'ble Jurisdictional High Court in the case
of CIT vs Orchid Industries P Ltd reported in 397 ITR 136 (Bom). We
hold that no addition could be made on mere presumption that the
assessee routed its own cash in the form of unsecured loans without any
concrete evidence to this effect. Reliance has been rightly placed on the
decision of Hon'ble Jurisdictional High Court in the case of PCIT vs
Aquatic Remedies P Ltd in ITA No. 83 of 2016 affirming the tribunal
decision in ITA No. 6356/Mum/2014.
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6.6. We find that the directors of the lending companies had filed
affidavits confirming the loan transactions before the ld AO which had not
been disputed. Once the averments made in an affidavit are not disputed
or refuted, the same are to be construed as true and correct, as held by
the Hon'ble Supreme Court in the case of Mehta Parikh & Co. vs CIT
reported in 30 ITR 181 (SC).
6.7. With regard to the reliance placed by the ld DR on the decision of
Hon'ble Gujarat High Court in the case of Pavankumar M Sanghvi vs ITO
reported in 404 ITR 601 (Guj) , we find that in that case , the assessee
received loans from two companies who were found to be shell
companies not doing any businesses and were maintaining minimum bank
balances. Whereas in the instant case, there is no finding by the lower
authorities, that the loan creditors are shell companies and all the loan
creditors are engaged in the business of diamond trading and were
having substantial turnover from their businesses. The business
transactions carried out by the loan creditors have not been doubted by
the assessing officers of the loan creditors. Hence the reliance placed by
the ld DR on the aforesaid decision is distinguishable on facts and would
not advance the case of the revenue.
6.8. With regard to yet another decision relied upon by the ld DR in the
case of PCIT vs Bikram Singh reported in 85 taxmann.com 104 (Del HC),
the facts and decision thereon are as under:-
In this case, the loans were received from 8 persons whose
identities were not established. There was a clear finding that the
lenders did not have sufficient financial strength to advance the
loans to the assessee therein, that too without any collateral
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security, without any interest and without a loan agreement. The
relevant observations of the assessing officer in that case on facts
were as under:-
9. A brief summary of each of the eight transactions and creditors thereof, as per
the AO's order is as under:
(i) Shri Amar Singh - Only a letter of confirmation was filed. Name of the father
and address was not given. PAN number was not given. The information
requested from Gurgaon Gramin Bank, from where the cheque was issued
with respect to the compensation from land acquisition, was also not
received. The person was not produced. Thus, the identity, creditworthiness
and genuineness of Shri Amar Singh were not proved.
(ii) Shri Chandan Singh - A confirmation letter of Shri Chandan Singh was filed
along with the bank statement. The AO noticed that the bank account was
opened with a cash deposit of Rs.500/- and huge amounts of cash was
deposited in this account before the cheques of Rs.60, 00,000/- and Rs.50,
00,000/- were issued. The AO concluded that since the source of cash was
unverified and Shri Chandan Singh was also not produced, the identity,
creditworthiness and genuineness of Shri Chandan Singh was not proved.
(iii) Shri Harpreet Singh - No documents were filed by the Assessee to establish
the identity, address etc. Even the PAN number or ID proof was not filed and
he was also not even produced.
(iv) Shri Om Prakash - No documents to establish the address, PAN number,
source of deposit and ID proof, were filed. Neither was a confirmation letter
filed nor was he produced.
(v) Shri Shiv Tej - No documents to establish the address, PAN number, source of
deposit and ID proof, were filed. Neither was a confirmation letter filed nor
was he produced.
(vi) Shri Ram Chander - Only a confirmation letter was filed. However, the AO
observed that the same was not supported by any evidence of identification,
cheque numbers, sources of income or sources of loan. The person was not
produced.
(vii) Smt. Sunita - Only a confirmation letter was filed. However, the AO observed
that the same was not supported by any evidence of identification, cheque
numbers, sources of income or sources of loan and even she was not
produced.
(viii) Shri Virender Yadav - A confirmation letter was produced but no PAN
number was mentioned. The AO observed that the bank statements reveal the
deposit of cash of Rs.13,00,000/- and Rs.7,00,000/- immediately before the
issuance of the cheque in favour of the Assessee. He was also not produced.
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15. The ITAT by order dated 19th July, 2016 partly allowed the Assessee's
appeal and deleted the additions in respect of four of the creditors. The summary
of the conclusions of the ITAT in respect of the eight creditors and the
transactions is set out below:
(i) In respect of Smt. Sunita, the ITAT held that additional evidence was
submitted by the Assessee and the same was taken on record. The ITAT
observed that Smt. Sunita, being the wife of the Assessee and her financial
affairs having been handled by the Assessee himself, the identity and
creditworthiness of Smt. Sunita was established. Her PAN Card has been
filed. By assessing the bank accounts of Smt. Sunita, the ITAT concluded that
the genuineness and creditworthiness was also established.
(ii) In respect of Shri Virender Yadav, the ITAT observed that since his PAN card
had been submitted by the Assessee, the matter deserved to be remanded to the
AO to pass a speaking order.
(iii) In respect of Shri Shiv Tej, the ITAT after relying upon the documents,
produced by the Assessee, restored the matter to the file of the AO as he had
not been produced before the AO.
(iv) In respect of Shri Om Prakash, the Assessee relied upon the letter of
confirmation, the PAN card and Voter Identity Card to establish the identity
and also submitted that the AO did not record the statement of Shri Om
Prakash despite his appearance before the AO. Thus, the ITAT concluded that
the matter deserved to be restored to the file of the AO.
(v) In respect of Shri Ram Chander, the ITAT referred to the confirmation letter
issued by him, Voter ID Card, the copy of bank statement and the cheque of
Rs. 18.48 Lakhs, which was explained by him as having been received from
his sister Vidya. Thus, the ITAT concluded that the identity, creditworthiness
and genuineness was established and the addition of Rs.10 lakhs in respect of
Shri Ram Chander was deleted.
(vi) In respect of Shri Chandan Singh, the ITAT referred to the copy of PAN Card,
Voter ID Card and the bank statement, which was submitted by the Assessee.
The ITAT held that the identity, genuineness and creditworthiness was
established and the addition made to the tune of Rs.1.10 Crores was deleted.
(vii) In respect of Shri Amar Singh, the ITAT referred to the letter of confirmation
and Voter ID Card to establish the identity of this creditor. He further referred
to the bank statement, which showed a deposit of Rs.84,44,762/- in his bank
account, just before the issuance of cheque of Rs.50 lakhs to the Assessee.
According to the Assessee, this amount was received from the Land
Acquisition Officer, Gurgaon in favour of Shri Amar Singh. The ITAT thus
deleted the addition of rupees Rs.50 lakhs in respect of Shri Amar Singh.
(viii) In respect of Shri Harpreet Singh, the ITAT referred to the letter issued by him
explaining that the loan was given by his son Mr. Dakshdeep Singh vide
cheque no. 58913 dated 18th June, 2010 drawn on HDFC Bank. He also
referred to the confirmation letter given by Mr. Dakshdeep Singh. The ITAT
noted that the creditworthiness of Mr. Dakshdeep Singh was not established
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and hence the matter was restored to the file of the AO to examine the identity,
genuineness and creditworthiness. However, for statistical purpose, addition
of Rs.3,50,000/- in respect of Shri Harpreet Singh was allowed.
16. Thus, the ITAT
• deleted the following additions qua Shri. Amar Singh, Shri. Chandan Singh,
Shri. Ram Chander, and Smt. Sunita.
• restored the additions with respect to Shri. Virender Yadav, Shri. Om
Prakash, Shri. Shiv Tej Singh, and Shri. Harpreet Singh, to the AO for
reconsideration.
It was held by Hon'ble Delhi High Court as under:-
41. An analysis of the above facts shows that none of these four
individuals have the financial strength to lend such huge sums of money
to the Assessee, that too without any collateral security, without interest
and without a loan agreement. The mere establishing of their identity
and the fact that the amounts have been transferred through cheque
payments, does not by itself mean that the transactions are genuine. The
AO and the CIT (A) have rightly held that the identity, creditworthiness
and the genuineness are all in doubt. Moreover, the Court notes that
that these amounts have been advanced to the Assessee without any
explanation as to their relationship with the Assessee, the reason for the
payment of such huge amounts, as also whether any repayments have,
in fact, been made. There are contradictions in the explanation given by
the Assessee and the statements recorded by these four individuals,
which are irreconcilable. For example, in the case of Shri Ram
Chander/Ram Charan, he had initially stated that he had given
Rs.10,00,000/- out of the proceeds of sale of the land but thereafter it
was claimed by him that the money had come from her sister Vidya.
Such contradictions clearly render all these transactions dubious. The
ITAT could not have, merely because the payments were through
cheques, held that the transactions were genuine. The ITAT erred in
simply accepting the explanation of the Assessee qua the four
transactions. The ITAT, clearly, did not follow the binding precedent
in Divine Leasing & Finance Ltd. (supra), which in no uncertain terms
requires that the authorities are duty bound to investigate the
creditworthiness of the creditors, subscribers and the genuineness of
the transactions. Thus the ITAT did not merely give findings of fact but
misapplied the law. Hence the authorities CIT v. S. Nelliappan [1967]
66 ITR 722 (SC), Orissa Corpn. Pvt. Ltd. (supra), Gun Nidhi
Dalmia (supra) do not support the Assessee's case. The Assessee has
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failed to discharge his initial burden as the explanation given by the
Assessee and the four individuals does not appear to be credible.
We find that in the aforesaid case, the details of creditworthiness of the
lenders were not available before the revenue authorities and there is a
specific finding to that effect. Whereas in the instant case, we have
already held that there is sufficient creditworthiness and moreover, the
creditworthiness of the loan creditors have been proved by the ld AO
himself in his assessment order, wherein he had stated that the sale
proceeds of diamond business were used by the loan creditors to advance
loans to the assessee. Hence the reliance placed on the aforesaid decision
by the ld DR is factually distinguishable and would not advance the case
of the revenue.
6.9. Finally the ld DR placed reliance on the recent decision of the Hon'ble
Apex Court in the case of Principal CIT vs NRA Iron & Steel (P) Ltd
reported in 412 ITR 161 (SC) wherein the decision on addition made
towards cash credit was rendered in favour of the revenue. We have
gone through the said judgement and we find in that case, the ld AO had
made extensive enquiries and from that he had found that some of the
investor companies were non-existent which is not the case before us.
Certain investor companies did not produce their bank statements proving
the source for making investments in assessee company, which is not the
case before us. Source of funds were never established by the investor
companies in the case before the Hon'ble Apex Court, whereas in the
instant case, the entire details of source of source were duly furnished by
all the respective loan creditors before the ld AO and the directors of
lending companies had also filed an affidavit confirming the loan
transactions with the assessee. In the instant case before us, after the
relevant details were furnished by the assessee before the ld AO , no
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enquiries were further made by the ld AO with the loan creditors at their
new addresses. The ld AO merely relied on the statement of Shri Praveen
Kumar Jain and proceeded to make the addition. Hence the decision
relied upon by the ld DR is factually distinguishable and does not advance
the case of the revenue.
6.10. We find that as per the mandate of section 68 of the Act, the nature
and source of credit in the books of the assessee has been duly explained
by the assessee. The credit is in the form of receipt of unsecured loan
from loan creditors. The nature of receipt towards unsecured loan is well
established from the entries passed in the balance sheet of the assessee
by crediting unsecured loan account. This is also cross-verifiable from the
balance sheets of respective loan creditor companies, wherein they had
reflected under 'Loans and Advances' in the asset side of their balance
sheet. Hence the nature of receipt is proved by the assessee beyond
doubt. In respect of source of credit, the assessee has to prove the three
necessary ingredients i.e identity of loan creditors, genuineness of
transactions and creditworthiness of loan creditors. We have already held
hereinabove that all the three necessary ingredients of section 68 of the
Act had been duly proved by the assessee beyond doubt.
6.11. Undisputedly the loan creditors in this case are the bank account
holders in their respective banks in their own name and are sole owner of
the credits appearing in their bank account from where they issued
cheques to the assessee. For the proposition that a Bank Account holder
himself is the 'owner' of 'credits' appearing in his account (with the result
that he himself is accountable to explain the source of such credits in
whatever way and form, the same have emerged) support can be derived
from section 4 of Bankers Book Evidence Act 1891 which reads as under:-
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"4. Mode of proof of entries in bankers' books: Subject to the provisions of this
Act, a certified copy of any entry in a bankers' book shall in all legal
proceedings be received as prima facie evidence of the existence of such entry,
and shall be admitted as evidence of the matters, transactions and accounts
therein recorded in every cases where, and to the same extent as, the original
entry itself is now by law admissible, but not further or otherwise."
6.11.1. Following the said provisions, the co-ordinate bench of Allahabad
Tribunal in the case of Anand Prakash Agarwal reported in 6 DTR (All-
Trib) 191 held as under:-
"The question that remains to be decided now is whether the subject matter of
transfer was the asset belonging to the transferor/donors themselves. There is
enough material on record which goes to show that there were various credits in
the bank accounts of the donors, prior to the transaction of gifts, which
undisputedly belonging to the respective donors themselves, in their own rights.
No part of the credits in the said bank' accounts was generated from the
appellant and/or from its associates, in any manner. The certificates issued by
the banks are construable as evidence about the ownership of the transferors or
their respective bank accounts, as per s.4 of the Bankers' Books evidence Act
1891, which read as under:
"4. Where an extract of account was duly signed by the agent of the bank and
implicit in its was a certificate that it was a true copy of an entry contained in
one of the ordinary books of the bank and was made in the usual and ordinary
course of business and that such book was in the custody of the bank, it was held
admissible in evidence. Radheshyam v. Safiyabai Ibrahim AIR 1988 Bom. 361 :
1987 Mah. 725: 1987 Bank J 552."
In view of the position of law as discussed above, it is always open for a
borrower to contend, that even the "creditworthiness" of the lender stands
proved to the extent of credits appearing in his Bank Account and he should be
held to be successful in this contention."
6.12. We find that the Hon'ble Calcutta High Court in the case of S.K.
Bothra & Sons, HUF v. Income-tax Officer, Ward- 46(3), Kolkata reported
in 347 ITR 347(Cal) had held as follows:
"15. It is now a settled law that while considering the question whether the
alleged loan taken by the assessee was a genuine transaction, the initial
onus is always upon the assessee and if no explanation is given or the
explanation given by the appellant is not satisfactory, the Assessing Officer
can disbelieve the alleged transaction of loan. But the law is equally
settled that if the initial burden is discharged by the assessee by producing
sufficient materials in support of the loan transaction, the onus shifts upon
the Assessing Officer and after verification, he can call for further
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explanation from the assessee and in the process, the onus may again shift
from the Assessing Officer to assessee.
16. In the case before us, the appellant by producing the loan-
confirmation-certificates signed by the creditors, disclosing their
permanent account numbers and address and further indicating that the
loan was taken by account payee cheques, no doubt, prima facie,
discharged the initial burden and those materials disclosed by the assessee
prompted the Assessing Officer to enquire through the Inspector to verify
the statements."
6.13. We find that the Hon'ble Supreme Court in the case of M/s
Earthmetal Electricals P Ltd vs CIT & Anr. reported in 2010 (7) TMI 1137
in Civil Appeal No. 21073 / 2009 dated 30.7.2010 arising from the order
of Hon'ble Bombay High Court had held as under:-
ORDER
Delay condoned.
Leave granted.
Heard learned counsel on both sides.
We have examined the position. We find that the shareholders are genuine parties. They are not bogus and fictitious. Therefore, the impugned order is set aside.
The appeal is allowed accordingly.
No order as to costs.
In the instant case before us, the loan creditors are private limited companies and are duly assessed to income tax. It is not in dispute that the loan creditors are in existence. It is not in dispute that the loan creditors are duly assessed to income tax and their income tax particulars together with the copies of respective income tax returns with their balance sheets are already on record . Hence it could be safely concluded that they are genuine lenders and not bogus and fictitious. Accordingly, the ratio laid down by the Hon'ble Apex Court in the case of M/s 22 ITA No.7130/Mum/2018 & 7222/Mum/2018 M/s. Yug Developers Earthmetal Electricals P Ltd supra would be squarely applicable to the facts of the instant case.
6.14. We find that the Hon'ble Apex Court recently in the case of Principal CIT vs Vaishnodevi Refoils & Solvex reported in (2018) 96 taxmann.com 469 (SC) had dismissed the SLP of the Revenue. The brief facts were that the addition u/s 68 of the Act was made by the Assessing Officer in respect of capital contributed by the partner of the firm. The Hon'ble High Court noted that when the concerned partner had confirmed before the Assessing Officer about his fact of making capital contribution in the firm and that the said investment is also reflected in his individual books of accounts, then no addition could be made u/s 68 of the Act. The decision of Hon'ble Gujarat High Court is reported in (2018) 89 taxmann.com 80 (Guj HC) . The SLP of the revenue against this judgement was dismissed by the Hon'ble Supreme Court.
6.15. We also find that the Hon'ble Jurisdictional High Court in the case of CIT vs Orchid Industries Pvt Ltd reported in 397 ITR 136 (Bom) had held as under:-
5. The Assessing Officer added Rs. 95 lakhs as income under Section 68 of the Income Tax Act only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account.
6. The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidence, only because those persons had not appeared 23 ITA No.7130/Mum/2018 & 7222/Mum/2018 M/s. Yug Developers before the Assessing Officer would not negate the case of the Assessee. The judgment in case of Gagandeep Infrastructure (P.) Ltd. (supra) would be applicable in the facts and circumstances of the present case.
6.16. In view of the aforesaid observations in the facts and circumstances of the case and respectfully following the various judicial precedents relied upon hereinabove including the decisions of Hon'ble Jurisdictional High Court among other High Courts, we hold that the ld CITA erred in confirming the addition made u/s 68 of the Act in the instant case.
Accordingly, the ground nos. 6 & 7 raised by the assessee for Asst Year 2013-14 are allowed.
7. We find that the ld CITA had merely placed reliance on the order passed by him for the Asst Year 2013-14 for confirming the addition towards unsecured loan u/s 68 of the Act made for Asst Year 2014-15 in the sum of Rs 1,43,00,000/-. During the Asst Year 2014-15, the assessee had borrowed funds from the following parties which are in dispute before us :-
Falak Trading P Ltd - Rs 90,00,000/-
Pragati Gems P Ltd - Rs 23,00,000/-
Olive Overseas Pvt Ltd - Rs 14,50,000/-
Athrva Business Pvt Ltd - Rs 15,50,000/-
-------------------------
- Rs 1,43,00,000/-
7.1. We find that the assessee had paid interest on the aforesaid loans after subjecting to deduction of tax at source, wherever applicable, as under:-
Falak Trading P Ltd - Rs 9,78,762/- (TDS Rs 97,896/-) Pragati Gems P Ltd - Rs 2,81,890/- (TDS Rs 28,189/-) 24 ITA No.7130/Mum/2018 & 7222/Mum/2018 M/s. Yug Developers Olive Overseas Pvt Ltd - Rs 83,430/- (TDS Rs 8,343/-) Athrva Business Pvt Ltd - Rs 88,670/- (TDS Rs 8,867/-) Out of the aforesaid parties, we find that the assessee had also borrowed loans in earlier year from Falak Trading P Ltd, Pragati Gems P Ltd which has already been held by us as genuine loan in Asst Year 2013-14 supra.
7.2. It is not in dispute that the ld AO had allowed the aforesaid interest paid on loans as a deduction while completing the assessment. The ld AR also submitted that the assessing officers of the aforesaid parties had inturn duly assessed the interest income on loans given to the assessee and had also given credit for TDS in their respective assessments. The ld AR submitted that the assessee had given the latest address of the loan creditors before the ld AO. The ld AO had not issued any notices u/s 133(6) of the Act on the latest address.
7.3. It would be pertinent to understand the following facts from the financial statements of the loan creditors for the year ended 31.3.2014, that their income from operations during the year ended 31.3.2014 itself was several times more than the loans advanced to the assessee as is evident from the following table:-
Name of the Party Gross Revenue from Loan Amount Operations to assessee (Rs in crores) (Rs in crores) Falak Trading P Ltd 39.37 0.90 Pragati Gems P Ltd 54.87 0.23 Olive Overseas Pvt Ltd 73.12 0.145 Athrva Business Pvt Ltd 73.05 0.155 25 ITA No.7130/Mum/2018 & 7222/Mum/2018 M/s. Yug Developers Hence the gross revenue from operations for the year ended 31.3.2014 itself proves the creditworthiness of all the loan creditors beyond doubt. Hence all the allegations leveled by the lower authorities with regard to creditworthiness is devoid of any merits and deserves to be dismissed.
7.4. We find that in Asst Year 2014-15 also, the assessee had furnished the same documents before the lower authorities which had not been properly appreciated by them.
7.5. We hold that the decision and factual and legal findings given hereinabove for Asst Year 2013-14 would apply mutatis mutandis for Asst Year 2014-15 also and accordingly the Grounds 2 to 4 raised by the assessee for Asst Year 2014-15 are allowed.
8. In the result, both the appeals of the assessee are partly allowed.
Order pronounced in the open court on this 17/07/2019 Sd/- Sd/-
(PAWAN SINGH) (M.BALAGANESH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai; Dated 17/07/2019
KARUNA, sr.ps
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Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
//True Copy//
BY ORDER,
(Asstt. Registrar)
ITAT, Mumbai