Income Tax Appellate Tribunal - Kolkata
M/S. Eastern Trade Centre, Kolkata vs Acit, Circle - 34, Kolkata , Kolkata on 6 September, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL "C", BENCH KOLKATA BEFORE SHRI A.T.VARKEY, JM &DR. A.L.SAINI, AM आयकरअपीलसं./ITA No.2427/Kol/2017 ( नधारणवष / Assessment Year:2014-15) M/s Eastern Trade Centre Vs. ACIT, Circle-34, Kolkata 5, Commercial Building, 1st Floor, 23, N.S. Road, Kolkata-
7000001
थायीले खासं . /जीआइआरसं . /PAN/GIR No.: AAAFE 7183 N
(Assessee) .. (Revenue)
Assessee by : Shri Ravi Tulsiyan, FCA
Respondent by : Shri C. J. Singh, Addl. CIT Sr. DR
सुनवाईक तार ख/ Date of Hearing : 26/06/2019
घोषणाक तार ख/Date of Pronouncement : 06/09/2019
आदे श / O R D E R
Per Dr. A. L. Saini:
The captioned appeal filed by the assessee, pertaining to assessment year 2014-15, is directed against an order passed by the learned Commissioner of Income Tax (Appeals)-10, Kolkata (in short the ld. 'CIT(A)'], which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 ( in short the 'Act') dated 22/12/2016.
2. However, in this appeal, the assessee has raised multiple grounds of appeal, but at the time of hearing, the main grievance of the assessee has been confined to the issue of addition to the tune of Rs. 88,59,987/-, ( Rs.50,00,000 +Rs.38,59,987) which included the loan taken amounting to Rs.50,00,000/- from the following loan creditors, namely:(i).Paritosh Electricals Pvt Ltd.Rs. 10,00,000/-, (ii). Ranbhumi Marketing Pvt Ltd,Rs.20,00,000/- and (iii). Vivek Tracom Pvt Ltd, Rs.20,00,000/- and interest paid on loan amounting to Rs. 38,59,987/- during the A.Y.2014-15. Since both the issues are interlinked therefore, we adjudicate them together.
M/s Eastern Trade Centre ITA No.2427/Kol/2017 Assessment Year:2014-15
3. Brief facts qua the issue are that the assessee is a partnership firm engaged in the business of wholesale dealing in electrical goods. The assessee had e-filed its return of income on 27.09.2014 declaring a total income of Rs. 42,95,100/-. Thereafter, the assessee's case was selected for scrutiny through CASS and notices u/s 143(2) and 142(1) of the Act were issued. During the course of assessment proceedings, for verification of the loans taken by the assessee, summons u/s 131 of the Act, 1961 dated 07.11.2016 were issued to the following parties:
The Ld AO then informed the assessee that information was received from DDlT (Inv), Unit -3( I), Investigation Wing, Kolkata which revealed that the companies mentioned at Serial Nos.1 to 7 of the table given above were run by an alleged entry operator Shri Rajkumar Kothari and those companies were allegedly involved in providing accommodation entries in the form of unsecured loan/share capital to various parties. The statement of Shri Rajkumar Kothari was recorded on 02.03.2016 wherein he had mentioned that he was the director of several companies and used to give accommodation entries to different beneficiaries through jamakharchi / shell companies in lieu of commission. A copy of Statement of Shri Rajkumar Kothari given under oath was provided to the assessee (a copy is being enclosed at pages 1 to 8 of the p/b). It was further mentioned that companies named in Serial no. 8 to 10 and 12 of the table were run by another entry operator named Shri Bhagwan Das Agarwal. On 14.11.2016 summons were issued to the Directors of the Companies mentioned in the above table for verification. Shri Pa g e | 2 M/s Eastern Trade Centre ITA No.2427/Kol/2017 Assessment Year:2014-15 Rajkumar Kothari and Biswanath Basak, the directors of these companies appeared before the Assessing Officer, and retracted of the statement given by them.
4. As regards the alleged statement of the said Shri Rajkumar Kothari it was submitted that the said Shri Rajkumar Kothari had filed an affidavit before the 1st class Magistrate retracting of the statement given by him on 02.03.2016 before the DDIT(Inv), Unit - 3(1), Kolkata (a copy is enclosed at pages 9 to 12 of the p/b) and had also informed the Department about the same. In his retraction he stated that two officers of the Income Tax Department had entered his office along with two police personnel on 02.03.2016 and caused him to appear before the DDIT (2)(2) after threatening him with dire consequences of survey being conducted at his office if he does not appear. When he appeared before the DDlT, he was told that his statements would be recorded. In the retraction he submitted that few questions which he replied to were not recorded in the statement as per his version and he was pressurized and forced to admit that he was involved in providing accommodation entries to Banktesh Group in spite of the fact that he specifically opposed the same. He also submitted that the persons sitting around him at the time of recording the statement continuously created pressure on him by passing various comments that search would be conducted against him, his professional career would be ruined, his family would be brought on the road. After all this he was forced to sign the statement without even reading the contents. He stated that he was also forced to write certain sentences in his own handwriting as dictated by the officer and he was also threatened with the fact that he would have to face dire consequences if he retracted his statements. Therefore he submitted that in this situation being mentally upset and confused about what to do he had filed the retraction of his statement after 10 days. Thereafter, it was brought to our notice that in compliance to the summons issued by Assessing Officer u/s 131 of the Act, 1961, Shri Rajkumar Kothari appeared before him on 25.11.2016 and explained that the source of loans given to the asessee were mainly refunds of loan from different persons to whom loans were given earlier. However, it was brought to our notice that a copy of the said statement recorded on 25.11.2016 was not Pa g e | 3 M/s Eastern Trade Centre ITA No.2427/Kol/2017 Assessment Year:2014-15 provided to the assessee. The Ld AO also relied upon the statement given by another alleged entry operator Shri Biswanath Basak which was also subsequently retracted (copy of the statement and letters of retraction are enclosed at pages 13 to16 of the p/b) . The Ld AO noted in his Assessment Order dated on 22.12.2016 that the retractions of these two persons were nothing but an afterthought and therefore Assessing Officer relying upon the original statements, came to the conclusion that the assessee had taken loans from bogus companies and had also given interest on loans taken from alleged bogus companies in previous years. Further in the assessment order, the Ld AO elaborately discussed the modus operandi carried out by paper companies and thereafter alleged and concluded that the assessee had given interest and had taken loans from bogus companies therefore, AO added back u/s 68 of the Act, a total sum of Rs. 88,59,987/-( on account of loans taken amounting to Rs.50,00,000/- and interest given being Rs. 38,59,987/-).
5. Aggrieved by the order of the AO, the assessee preferred an appeal before the Ld CIT (A), who has confirmed the addition made by AO. Aggrieved, the assessee is in appeal before us.
6. Before us, ld Counsel for the assessee reiterated the submissions made before the authorities below. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.
7. We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that first of all, it is appropriate to go through the provision of Section 68 of the Income Tax Act,1961 which is reproduced as under:
"68. Cash Credits: Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion Pa g e | 4 M/s Eastern Trade Centre ITA No.2427/Kol/2017 Assessment Year:2014-15 of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year."
A bare reading of Section 68 of the Income Tax Act, 1961, suggests that for a sum so credited to be charged to income-tax, as the income of the assessee of the previous year by the A.O., the following have to be present:
i) there has to be an amount credited in the books maintained by the assessee ;
ii) such credit has to be a sum of money received during the previous year; and
iii) either
a) the assessee offers no explanation about the nature and source of such credits found in the books or
b) the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory.
Thus, it is clear from above that in order to establish the receipt of the sum as unexplained cash credit, as required under Section 68 of the Income-tax Act, 1961, the assessee must satisfy three conditions, viz., (i)identity of the creditor, (ii) genuineness of the transaction, and (iii) creditworthiness of the creditor. All these three conditions laid down as above are being discussed in the ensuing para of this order.
8.Identity:We note that regarding the identity of all the loan creditor companies, it was submitted by the ld Counsel that all the said companies are Private Limited companies duly incorporated under the Companies Act, 1956. Further, all the companies are Income Tax assessee having PAN Nos. as follows:
Sr Name of loan creditors (company) PAN No. No. 1 M/s Paritosh Eleetricals Pvt Ltd AABCP50l3E 2 M/s Ranbhumi Marketing Pvt Ltd AAECR5842G 3 M/s vivek Tracom Pvt Ltd AAACY8670J
Copies of the ITR Acknowledgment of the creditors for the relevant year are enclosed at Page no. 49, 70 and 91 of the Paper book. In view of the above, the identity of all the parties stands duly proven.
Pa g e | 5 M/s Eastern Trade Centre ITA No.2427/Kol/2017 Assessment Year:2014-15
9. Genuineness and Creditworthiness of the Transaction: We note that regarding the genuineness of the transaction, it was stated by the ld Counsel that all the said loans received during the year were duly routed through the regular banking channels of all the companies and also of the assessee company. To substantiate the genuineness of the transactions and the identity and creditworthiness of the parties, following documents were submitted by the assessee:
i) ITR Acknowledgment, Relevant Bank statements of the loan creditors evidencing that loans given to the assessee were through normal banking channels.
ii) Audited Accounts of the loan creditors and parties from whom the creditors received fund (being source of source of funds)
iii) Copies of loan confirmations received from loan creditors These documents clearly prove the genuineness of the transactions and the identity and creditworthiness of the parties.
Further, we discuss the genuineness of the transactions, identity and creditworthiness of these three parties one by one:
(1). Vivek Tracom Pvt Ltd We note that the assessee had taken loan amounting to Rs. 20,00,000/- from M/s Vivek Tracom Pvt Ltd during the relevant year through proper banking channel (being cheque No. 0111348). In this regard a copy of the confirmation of loan given by Vivek Tracom Pvt Ltd to the assessee is enclosed at page113 of the paper book and and a copy of the bank statement of Vivek Tracom Pvt. Ltd and Eastern Trade Centre evidencing the loan given to the assessee and its receipt by the assessee is enclosed at page 114-116 the paper book. The company is a regular income tax assessee.A copy of the ITR Acknowledgement and Audited accounts of Vivek Tracom Pvt Ltd is being enclosed at pages 91 to 112 of the paper book.
Pa g e | 6 M/s Eastern Trade Centre ITA No.2427/Kol/2017 Assessment Year:2014-15 As regards the source of Rs. 20,00,000/- it is submitted that Vivek Tracom Pvt Ltd had received interest on loan from the following companies:
a. Samridhhi Investments Co Pvt Ltd Rs. 4,06,110/- b. Chandan Mal Raijada Rs.90,247/- c. Vineet Enterprises Rs. 19,971/- d. Ujjal Business and Investment Pvt Ltd Rs. 1,80,493/-
Apart from the above-mentioned interest received by Vivek Tracom, it had also received an amount of Rs. 10,00,000/- from Amco Electrical Eng Co. on account of refund of loan given to them earlier. In support of the aforesaid, confirmation of accounts of all the said parties are enclosed at pages 117 to 122 of the paper book. Thus, with the submission of these documents showing the source of source of funds and the fact that all the transactions took place through proper banking channels, the genuineness, creditworthiness and identity of the transaction stands duly proven.
2. Paritosh Elcctricals Pvt Ltd We note that the assessee had taken a loan of Rs.10,00,000/- from Paritosh Electricals Pvt Ltd during the relevant year through proper banking channel (being cheque No. 0038128). In this regard a copy of the confirmation of loan given by Paritosh Elcctricals Pvt Ltd to the assessee is enclosed at page 123 of the paper book and a copy of the bank statement of Paritosh Electrical Pvt Ltd evidencing the loan given to the assessee is enclosed at page 124-125 of the p/b. The company is a regular income tax assessee. A copy of the ITR Acknowledgement and Audited accounts of Paritosh Electricals Pvt Ltd is enclosed at pages 49 to 69 of the paper book.
As regards the source of Rs. 10,00,000/- it was submitted that Paritosh Electricals Pvt Ltd had received Rs. 20,00,000/- from Machinery Agencies (India) on account of refund of loan as shall be evident from the bank statement of Paritosh Electricals Pvt Ltd. A copy of confirmation of loan taken by Machinery Agencies (India) from Paritosh Electricals Pvt Ltd along with bank statement of Machinery Pa g e | 7 M/s Eastern Trade Centre ITA No.2427/Kol/2017 Assessment Year:2014-15 Agencies showing the same is enclosed at page 123 to 125 of the paper book. Thus, the source of source of the fund also stands proven.
3. Ranbhurni Marketing Pvt Ltd We note that the assessee had taken a loan of Rs.20,00,000/- from Ranbhumi Marketing Pvt Ltd during the relevant year through proper banking channel (vide cheque No. 0405125). In this regard a copy of the confirmation of loan given by Ranbhumi Marketing Pvt Ltd to the assessee is enclosed at page 130 of the paper book and a copy of the bank statement of Ranbhumi Marketing Pvt Ltd evidencing the loan of Rs. 20,00,000/- given to the assessee is enclosed at page 131 to 132 the paper book.The company is a regular income tax assessee. A copy of the ITR Acknowledgement and Audited accounts of Ranbhumi Marketing Pvt Ltd is enclosed at pages 70 to 90 of the paper book. As regards the source of Rs. 20,00,000/- it is submitted that Machinery Agencies (India) had taken a loan of Rs. 20,00,000/- from Ranbhumi Marketing Pvt Ltd. A copy of the confirmation of loan taken by Machinery Agencies (India) is enclosed at page 126 to 129paper book. The refund of loan of Rs.20,00,000/- from Machinery Agencies (India) is evident from the bank statement of Ranbhumi Marketing Pvt Ltd as is enclosed at page 131-132 of the paper book. Thus, all thetransactions took place through proper banking channels and the documents submitted also duly prove the source of source of the funds. We note that Ld AO and CIT(A) ignored all of the said documents submitted before them and they merely relied upon the statement of Shri Raj Kumar Kothari without considering the fact that it was retracted by him before the 1st Class Magistrate ( a copy enclosed at pages 9 to 12 of thep/b) from which it is evident that the DDIT had acted against the principles of law by threatening and coercing the said Shri Raj Kumar Kothari to give false statements. The DDIT had also acted in violation of law by dictating the statements and making the witness (Shri Raj Kumar Kothari) sign on it forcefully without even letting him read the contents of the statement. When these facts were recorded in the retraction statement of Shri Raj Kumar Kothari and submitted before the Ld CIT(A), the Ld CIT(A) erred in completely ignoring all these facts mentioned. Furthermore, the facts as enumerated above clearly show that even otherwise the Pa g e | 8 M/s Eastern Trade Centre ITA No.2427/Kol/2017 Assessment Year:2014-15 original statement without taking into account the retraction has no bearing on the present case since all the funds which formed the source of funds for giving the loan to the assessee were existing funds of the loan giving companies and were not new funds introduced to give any alleged accommodation entry.
10. We note that Ld AO had also made addition of Rs. 38,59,987/- on account of interest paid on loans taken in previous years which was confirmed by the Ld CIT(A).We note that assessee had filed the confirmations of loans in the case of parties to whom interest was paid to prove the genuineness of the transaction. Mr. Biswanath Basak, the director of M/s Stardox Vinimay Pvt Ltd and Raina Vyapar Pvt Ltd (being two of the companies to whom interest was paid) also appeared before the Ld AO) and confirmed the loan transaction. It is also pertinent to note that the Ld Assessing Officer had again pressurized the director namely Shri Biswanath Basak to depose that he was a dummy director in the said companies but Mr. Biswanath Basak had later filed retraction. The detailed chart showing the parties and amount of interest paid is as follows:
The Ld Counsel for the assessee submitted before us that with regard to the interest paid on outstanding loans taken in earlier year from the parties mentioned in the table above, the confirmations of loans from these parties and their bank statements showing the same are enclosed at pages 137 to 148 of the paper book. The Income Tax Return Acknowledgements and Audited accounts of the parties are also enclosed at pages 155 to 325 of the paper book.
It is also to be noted here that during the earlier years in which the loans were taken, the transactions were not disputed during the course of assessment of those Pa g e | 9 M/s Eastern Trade Centre ITA No.2427/Kol/2017 Assessment Year:2014-15 years. Therefore with the submission of the said documents the assessee's onus of proving the identity of the parties and genuineness of its transactions with the parties [which had been disputed by the Ld AO and CIT(A)] stands duly fulfilled. The department having accepted the transaction of loans in the past years cannot dispute the payment of interest in a subsequent year without doing anything to disturb the status of the assessment in the past years. The loans were not received during the year and therefore the A.O. could not have examined their genuineness during the year. Furthermore, the A.O. has nothing to examine their genuineness even otherwise and has simply relied on the retracted statement of Shri Rajkumar Kothari to draw his conclusion. Therefore addition made by Assessing Officer in respect of interest paid is hereby deleted.
11. At the cost of repetition, we state that the assessee had filed with the Ld CIT(A) the bank statements, audited accounts and loan confirmations of the entities concerned. Hence, the assessee has successfully proven the genuineness, identity and creditworthiness of the transactions. In such a scenario, when all the documents have been submitted and the facts of the case clearly explained, there is no room for any doubt with regard to the identity and creditworthiness of the parties and genuineness of the transactions, as noted above, for that we rely on judgment of the Hon'ble Delhi High Court in case of Commissioner of Income-tax v. Lovely Exports P. Ltd reported in [299 ITR 268] wherein it was held as follows:
"In the case of a company the following are the propositions of law under section
68. The assessee has to prima facie prove (1) the identity of the creditor/subscriber ; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels ; (3) the creditworthiness or financial strength of the creditor/subscriber; (4) if relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the shareholders' register, share application forms, share transfer register, etc., it would constitute acceptable proof or acceptable explanation by the assessee."
The Hon 'ble Delhi High Court in the case of CIT vs Oasis Hospitalities Pvt Ltd and others reported in [333 ITR 11)held as follows:
"The initial burden is upon the assessee to explain the nature and source of the share application money received by the assessee. In order to discharge this burden, the assessee is required to prove (i). the identity of the share-holder, (ii) Page | 10 M/s Eastern Trade Centre ITA No.2427/Kol/2017 Assessment Year:2014-15 thegenuineness of the transaction, and (c) the creditworthiness of the shareholders. Incase the investor/shareholder is an individual, some documents will have to be filed or the shareholder will have to be produced before the Assessing Officer to prove his identity. If the creditor/subscriber is a company, then the details in the form of registered address or PAN identity, etc., can be furnished. When the money is received by cheque and is transmitted through banking or other indisputable channels, the genuineness of the transaction would be proved. Other documents showing the genuineness of the transaction could be copies of the shareholders register, share application forms, share transfer register, etc. As far as the creditworthiness or financial strength of the creditor/subscriber is concerned, that can be proved by producing the bank statement of the creditors/subscribers showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital. Once these documents are produced, the assessee would have satisfactorily discharged the onus cast upon him. Thereafter, it is for the Assessing Officer to scrutinise the same and in case he nurtures any doubt about the veracity of these documents, to probe the matter further. However, to discredit the documents produced by the assessee on the aspects, there have to be some cogent reasons and materials for the Assessing Officer and he cannot go into the realm of suspicion. "
On appeal:
"Held, dismissing the appeal, that the assessee had filed copies of PAN, acknowledgment of filing Income-tax returns of the companies, their bank accounts statements for the relevant period but had not produced the directors of the companies. The addition made by the Assessing Officer could not be sustained as the primary onus was discharged by the assessee. The Assessing Officer had not investigated whether the modus operandi by the entry operator discussed by the Investigation Wing existed in the case or not. Even the bank statements as claimed by the Assessing Officer revealed that the assessee had received cheques from the shareholders. "
12. We note that the onus of proof is not a static one. Though in section 68 of the Income-tax Act, 1961, the initial burden of proof lies on the assessee yet once he proves the identity of the creditors/share applicants by either furnishing their PAN number or income-tax assessment number and shows the genuineness of transaction by showing money in his books either by account payee cheque or by draft or by any other mode, then the onus of proof would shift to the Revenue. Therefore, once the assessee had discharged the primary onus, which was cast upon the assessee, it was incumbent upon the Assessing Officer to prove on the basis of cogent evidence that the transaction was not genuine. There was no such evidence in assessee`s case under consideration. The conclusions of the Assessing Officer and the Commissioner (Appeals) with regard to the genuineness of the Page | 11 M/s Eastern Trade Centre ITA No.2427/Kol/2017 Assessment Year:2014-15 transactions were merely based on surmises and assumptions. Thus after taking into consideration the totality of the facts discussed as above and in view of the case laws discussed above, it is well established that the assessee by producing necessary documents viz., ITR Acknowledgements, audited accounts, bank statement copy, PAN Number and confirmations etc has sufficiently established the identity, creditworthiness and genuineness of the loan creditors and interest paid. Therefore, we delete the addition of Rs.88,59,987/- ( Rs.50,00,000 + Rs. 38,59,987).
13. In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 06.09.2019
Sd/- Sd/-
(A.T.VARKEY) (A.L.SAINI)
या यकसद य / JUDICIAL MEMBER लेखासद य / ACCOUNTANT MEMBER
दनांक/ Date: 06/09/2019
(SB, Sr.PS)
Copy of the order forwarded to:
1. M/s Eastern Trade Centre
2. ACIT, Circle-34, Kolkata
3. C.I.T(A)- 4. C.I.T.- Kolkata.
5. CIT(DR), Kolkata Benches, Kolkata.
6. Guard File.
True copy
By Order
Assistant Registrar
ITAT, Kolkata Benches
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