Income Tax Appellate Tribunal - Kolkata
M/S Mani Square Hospitality Pvt. Ltd., ... vs A.C.I.T.,Cc-3(2), Kolkata on 6 November, 2020
IT(SS)A Nos. 35 to 40/Kol/2020
M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18
आयकर अपील य अधीकरण, यायपीठ - "A" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH: KOLKATA
[Before Shri P. M. Jagtap, Vice-President and Shri A. T. Varkey, JM]
I.T.(S.S.)A. Nos. 35 to 38, 39 & 40/Kol/2020
Assessment Years: 2011-12 to 2014-15, 2016-17 & 2017-18
M/s. Mani Square Hospitality Pvt. Vs. Assistant Commissioner of Income
Ltd. Tax, Central Circle-3(2), Kolkata.
(PAN: AAACE 7516 J)
Appellant Respondent
Date of Hearing (Virtual) 20.10.2020
Date of Pronouncement 06.11.2020
For the Appellant Shri S. K. Tulsiyan, Advocate
For the Respondent Shri Ram Bilash Meena, CIT D.R
ORDER
Per Shri A.T. Varkey, JM:
These appeals are preferred by the appellant against the order of Ld.CIT(A)-21, Kolkata dated 08.11.2019 for AY 2011-12 to 2014-15, AY 2016-17 and AY 2017-18. Since issues involved were common, all the appeals were heard together. Both the parties also argued them together raising similar arguments on these issues. Accordingly, for the sake of brevity, we dispose all the appeals by this consolidated order.
2. In all these appeals the common issue involved is, the addition made on account of receipt of unsecured loans treating it to be in the nature of unexplained cash credit u/s 68 of the Income Tax Act, 1961 (in short, the Act) and disallowance of the interest paid on such loans under Section 69C of the Act. Briefly stated the facts of the present case are that, search u/s 132 was conducted against the Mani Group, on 22-06-2016. The ld. Counsel for the assessee Shri S. K. Tulsiyan brought to our notice that prior to the date of search, the income-tax assessments u/s 143(3) for AYs2011-
1|Page IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 12, 2012-13 & 2013-14 stood completed and was not pending before the Assessing Officer on the date of search on 22.06.2016 and therefore by operation of law these assessment years were unabated assessments on the date of search. According to him, the following facts are un-disputed . That the original return of income for AY 2014- 15 was filed on 29.11.2014 and the time limit for issuance of notice u/s 143(2) had not expired as on the date of search (22.02.2016) and therefore this was an abated assessment year. As regards AYs 2016-17 & 2017-18, it was pointed out that the returns of income for all these years were filed only after the date of search and hence were abated assessments. The summary of the additions/disallowances in dispute in the appeals for AYs 2011-12 to 2014-15, 2016-17 & 2017-18 are as follows:
Issue 2011-12 2012-13 2013-14 2014-15 2016-17 2017-18 Unexplained 96,00,000 2,96,00,000 5,93,50,000 4,90,00,000 - 20,77,490 cash credit u/s 68 Unexplained 20,63,166 7,85,066 75,08,451 1,08,20,449 80,70,492 31,32,216 interest expenditure u/s 69C TOTAL 1,16,63,166 3,03,85,066 6,68,58,451 5,98,20,449 80,70,492 52,09,706
3. According to the ld. counsel, in the unabated assessments for AYs2011-12, 2012-13 & 2013-14, no addition was permissible in absence of any incriminating materials found in the course of search. According to him the additions made in these years by the AO and sustained by ld. CIT(A) were not made with reference to any incriminating materials found in the course of search and therefore such additions were unsustainable on facts and in law. In this regard, he relied on the decision rendered by this Tribunal on similar facts & circumstances in the case of assessee's own sister concern, M/s Mani Square Ltd. vs. ACIT in IT(SS) A Nos. 58 to 62/2019 for AY 2013-14 to 2017-18 dated 06.08.2020 (hereinafter referred to as 'the case of M/s Mani Square Ltd.') which was also re-assessed u/s 153A after the simultaneous search on the same date, this Tribunal upheld this legal plea of sister concern. Therefore, the Ld AR submitted that since there was no incriminating material unearthed during search qua the assessee qua these unabated assessments, no addition could have made, so he pleaded that the addition may be deleted. Per contra, the ld. CIT, DR relying on the order of the ld. CIT(A) submitted that, the ld. CIT(A) had
2|Page IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 pointed out the relevant incriminating material based on which the AO made the impugned additions and therefore he urged that this ground taken by the appellant deserves to be dismissed.
4. With regard to the merits of the additions made u/s 68 & 69C of the Act in AYs 2011-12 to 2014-15, 2016-17 & 2017-18, the ld. counsel submitted that before the lower authorities, the appellant had submitted the following documents to prove the identity, genuineness and creditworthiness of the unsecured loans taken.
a. The PAN No. Addresses and MCA details of ALL the creditors in question ( for identity) b. The financial statements of all the unsecured loan creditors ( for creditworthiness) c. The Ledger copies in the Assessee's books of accounts evidencing the receipt and the repayment of the loans and interest ( for genuineness) d. Bank statement evidencing that payment has been made via banking channels ( for genuineness) e. Confirmation of Loans from all the parties from whom the said unsecured loans stood taken during the year ( for genuineness) f. TDS certificates showing such TDS deduction on the interest paid against such unsecured loan creditors by the Assessee ( for genuineness)
5. According to the ld. AR, the entire additions were made by the Assessing Officer in respect of unsecured loan taken from the loans creditors and the interest which assessee paid to these lenders. It was pointed out by the ld. A.R that in order to prove the identity of lender who gave the loan to the assessee, the assessee furnished the followings: (a) the identity of loan creditor stood established by the very fact that the names, addresses of the lenders, PAN numbers, bank details and confirmatory letters were filed before both the lower authorities, (b) the creditworthiness stood proved by the financial statements, bank details and payment by account payee
3|Page IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 cheques and (c) the genuineness of the transaction was established by the details of interest paid, TDS deducted there from, loan confirmations and also the MCA data evidencing that all the lenders were existing and active companies. The Ld. AR thus argued that the appellant had placed on AO's record sufficient material and evidences to discharge its onus for establishing the identity and creditworthiness of the loan creditors and the genuineness of the transaction. He pointed out that none of the documentary evidences filed by the appellant were found defective nor any falsity in the documents filed was proved by the AO. The Ld. AR submitted that the additions u/s 68 & 69C of the Act were made by the AO and sustained by the ld.CIT(A) primarily on the basis of the statements of alleged entry operators. The ld. AR pains stakingly took us through the statements of the entry operators (not provided to assessee before re-assessment u/s 153A was framed) and which were provided by the AO only in the course of remand proceedings by the ld. CIT(A). It was brought to our notice that the AO himself never personally examined these persons before framing the assessment order. And most importantly the Ld. AR pointed out to us that the contents of these statements had no relation or link with the assessee or anything to do with the facts of the appellant's case. The ld. AR submitted that the additions made by Assessing Officer was wrongly sustained by the ld. CIT(A). In support of its case, the ld. AR relied on the decision rendered by in the case of its sister concern, M/s Mani Square Ltd., in which this Tribunal deleted similar additions made by the AO on account of unsecured loans & interest paid thereon u/s 68 & 69C of the Act. Per contra, the ld. CIT, DR fully supported the order of the lower authorities.
6. Having heard both the parties and after giving thoughtful consideration to the facts of the case and upon examining the material on record, we first deem it fit to decide the preliminary issue as to whether there was any incriminating material found in the course of search at the premises of the assessee/ appellant based on which the AO could have made the additions/disallowances as made in the assessments of AYs 2011-12 to 2013-14 which remained unabated on the date of search. We note that, in the case of M/s Mani Square Ltd (supra) (sister concern of the assessee), this Tribunal
4|Page IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 has held that in the case of unabated assessments, no addition is permissible in the order u/s 153A unless it is based on any relevant tangible & cogent incriminating material found during the course of search. The relevant extracts of the decision are as follows:
"We note that the provisions of Section 153A of the Act, forms part of Chapter XIV of the Act contain special provisions for completing assessments in case of search conducted u/s 132 of the Act or requisition made u/s 132A of the Act. These provisions can be invoked only in cases where the Income-tax Department has exercised its extra ordinary powers of conducting search and seizure operations after complying with stringent pre-conditions prescribed in Section 132 of the Act. We do not deny the ld. CIT, DR's contention that once a search u/s 132 is conducted against a person, then irrespective whether any incriminating material is found, the AO is required to proceed against such person for completing the assessments u/s 153A of the Act for the specified six assessment years. To this extent, there is no quarrel. However we find that Section 153A itself creates the fine distinction/differentiation amongst specified six assessment years depending whether prior to the date of search, the assessment proceedings are pending or not before the AO. We note that the relevant section itself clarifies that where an assessment was already completed against an assessee and any appeals or further proceedings are pending, then such appeals or other proceedings do not abate. We should keep in mind that merely because an assessee is subjected to search u/s 132 of the Act, such action by itself does not give carte blanche to the Department to subject such an assessee to the rigors of the assessment afresh for all the six years. It is for this reason that the Parliament in its wisdom has categorically created two classes among the six years, (a) un-abated assessment and (b) abated assessments. Consequent to a search conducted u/s 132 of the Act, the AO is required to issue notices u/s 153A of the Act to assess the income of the assessee for six assessment years preceding the date of search.These six assessment years comprise of assessments which are not abated ( non-pending assessment before AO on the date of search ); and assessments which are pending before the AO on the date of search, which would be treated as abated. In the case of abated assessments, the AO is free to frame the assessment in regular manner and determine the correct taxable income for the relevant year inter alia including the undisclosed income un-earthed during search, having regard to the provisions of the Act. However, in relation to unabated assessments (AYs), which were not pending on the date of search, there is a restriction on the powers of the AO. In case of unabated assessments, the AO can re- assess the income only to the extent and with reference to any incriminating material which the Revenue has unearthed in the course of search. Merely because an assessee is subjected to search, he cannot be placed on a different pedestal or put in a more disadvantageous position than an assessee who is not subjected to search
5|Page IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 unless in the course of search some incriminating documents or evidence or information or material is gathered by the Investigating authorities so as to vest the AO with the necessary powers to make additions to the total income in relation to assessments which did not abate on account of search. Considering these aspects the Hon'ble Delhi High Court in the case of CIT vs Kabul Chawla reported in (2016) 380 ITR 573 (Del) held as under:-
"37. On a conspectus of section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:
Once a search takes place under section 132 of the Act, notice under section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the Ld AOs as a fresh exercise.
The Ld AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The Ld AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax".
Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the Ld AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material."
In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to complete assessment proceedings.
Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the Ld AO.
Completed assessments can be interfered with by the Ld AO while making the assessment under section 153A only on the basis of some incriminating material
6|Page IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment."
38. The present appeals concern AYs 2002-03, 2005-06 and 2006-07, on the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed."
14. We find that the Hon'ble Delhi High Court while adjudicating the appeal in the case of CIT vs Kabul Chawla (2016) 380 ITR 573 had taken judicial note of host of the earlier decisions in the cases of CIT vs Anil Kumar Bhatia reported in (2013) 352 ITR 493 (Del) ; CIT vs Chetan Das Lachman Das reported in (2012) 211 Taxman 61 (Del HC) ; Madugula Venu vs DIT reported in (2013) 215 Taxman 298 (Del HC) ; Canara Housing Development Co. vs DCIT reported in (2014) 49 taxmann.com 98 (Kar HC) ; Filatex India Ltd vs CIT reported in (2014) 229 Taxman 555 (Del HC) ; Jai Steel (India) vs ACIT reported in (2013) 219 Taxman 223 (Del HC) ; CIT vs Murli Agro Products Ltd reported in (2014) 49 taxmann.com 172 (Bom HC) ; CIT vs Continental Warehousing Corporation (Nhava Sheva) Ltd reported in (2015) 374 ITR 645 (Bom HC) and All Cargo Global Logistics Ltd vs DCIT reported in (2012) 137 ITD 287 (Mum ITAT) (SB). We also find that Revenue's SLP against the decision of the Hon'ble Delhi High Court in the case of Kabul Chawla (Supra) was dismissed by the Hon'ble Apex Court which is reported in 380 ITR (St.) 4 (SC).
15. We also find that the Hon'ble Jurisdictional High Court in the case of Principal CIT vs M/s Salasar Stock Broking Ltd in G.A.No. 1929 of 2016 ITAT No. 264 of 2016 dated 24.8.2016 endorsed the aforesaid view of Hon'ble Delhi High Court in Kabul Chawla's case. The Hon'ble High Court also placed reliance on their own decision in the case of CIT vs Veerprabhu Marketing Ltd reported in (2016) 73 taxmann.com 149 (Cal HC) and held as follows:
"Subject matter of challenge is a judgement and order dated 18th December, 2015 by which the learned Tribunal dismissed an appeal preferred by the Revenue registered as ITA No.1775/Kol/2012 and allowed a cross-objection registered as CO-30/Kol/2013 both pertaining to the assessment year 2005-06. The learned Tribunal was of the opinion that the Assessing Officer had no jurisdiction under Section 153A of the Income Tax Act to reopen the concluded cases when the search and seizure did not disclose any incriminating material. In taking the aforesaid view, the learned Tribunal relied upon a judgement of Delhi High Court in the case of CIT[A] vs. Kabul Chawla in ITA No.707/2014 dated 28th August, 2014. The aggrieved Revenue has come up in appeal.
7|Page IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 Mr. Bagaria, learned Advocate appearing for the assessee, submitted that more or less an identical view was taken by this Bench in ITA 661/2008 [CIT vs. Veerprabhu Marketing Ltd.] wherein the following views were expressed -
"We are in agreement with the views expressed by the Karnataka High Court that incriminating material is a pre- requisite before power could have been exercised under section153C read with section 153A.
In the case before us, the assessing officer has made disallowances of the expenditure, which were already disclosed, for one reason or the other. But such disallowances were not contemplated by the provisions contained under section 153C read with section 153A. The disallowances made by the assessing officer were upheld by the CIT(A) but the learned Tribunal deleted those disallowances."
In that view of the matter, we are unable to admit the appeal. The appeal is, therefore, dismissed."
16. Considering the judicial precedents (supra) on the subject, particularly the decision of the the Hon'ble jurisdictional Calcutta High Court in the case of PCIT vs Salasar Stock Broking Ltd. (supra) which is binding upon this Tribunal as well as the Hon'ble Apex Court decision, we hold that in the case of unabated assessments of an assessee, no addition is permissible in the order u/s 153A of the Act unless it is based on any tangible, cogent and relevant incriminating material found during the course of search qua the assessee and qua the AY."
7. Here, in the instant case, we note that the above legal position is not in dispute. The ld. CIT(A) has himself observed that for making addition in the proceedings u/s 153A of the Act for unabated assessments, there has to be some incriminating material found in relation thereto. The ld. CIT(A) has however pointed out certain materials, which in his opinion, constituted 'incriminating material' to aid the additions made by the AO. Hence, the limited issue for our consideration is, whether the additions, which the AO made in the assessment orders, were based on or made with reference to any incriminating document unearthed in the course of search. The ld. Counsel of the assessee drew our attention to Paras 4.1 & 4.2 of the order of the ld. CIT(A) wherein he has listed out the purported incriminating material on the basis of which the additions had been made by the AO. The relevant Para 4.1.1 of the order of the ld. CIT(A) is extracted herein below:
8|Page IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 "Para 4.1.1. It needs to be decided as to whether in the appellant's case there was any incriminating material present or not? On a perusal of the assessment order and the appraisal report, it is evident that the basis of the addition inter alia is that the DDIT has pointed out many incriminating materials on the basis of which the assessment order has been framed. Some of these materials are:
i) That the Mani Group has obtained unsecured loans from large number of corporate. Field enquired carried out by DDIT on test check basis. It was found that 95 such companies would not be located at their registered address. The DDIT has mentioned report of the Inspector related to more than 95 such companies from where the assessee has taken loan where the companies could not be found at the address given.
ii) Further, the DDITfound put that various companies from which unsecured loan was taken by Mani Group where found in the data base of entry operators maintained by Investigation Directorate.
iii) The DDIT has recorded the statement of, any entry operators and they have admitted to have provided accommodation entry to Mani Group through Jamakharchi companies.
iv) It also seen that Mr. Paras Mai Rakhahja, Rajat Banerjee, Sumit Goenka, Prakash Agarwal, Prabir Kr. Das, Deo Kr. Sam, Prithivi Raj Mukherjee, Pratik Khare, Sudarshan Ganguli, Binod Kr. Khandelwal, employee of the Mani Group have filed a declaration that they are dummy directors of many companies. The name of these companies are contained in the report of the DDIT.
v) Statement recorded Shri Sanjay Jhunjhunwala dt. 23.06.2016 discusses number of incriminating material seized as a result of search at assessee's premises.
vi) The Investigating Officer (AO/DDIT) has also stated at many places that the parties from whom loans have been taken did not respond to summons, the Investigating Officer has also mentioned that the companies from whom loans have been taken are in the data base of list of shell companies maintained by Income Tax Department. They have also observed that most of these companies are controlled by entry operators whose statement was recorded by the department and they have admitted to be working as an entry operator. "
8. The ld. A.R thereafter drew our attention to the following Para 4.1.2 of the ld. CIT(A) wherein he has set out his reasoning based on which he held that the above referred material constituted incriminating material found in the course of search.
"The incriminating material can be in any form such as evidence in the nature of i) a document, content of any document, ii) an entry in the books of account, iii) an asset,
iv) a statement given on oath, v) absence of any fact claimed earlier but coming to notice during search, vi) absence of books being found during search, or vii) absence
9|Page IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 of the office / business premises as claimed during returns filed or any other documents, etc. In short, any fact / evidence which could suggest that the documents/ transactions claimed or submitted in any earlier proceedings were not genuine, being only a device / make belief on non-existent facts or suppressed misrepresented facts, would constitute incriminating material."
9. Before we proceed to examine the relevant materials pointed out by the ld. CIT(A), it is first imperative to see as to on what basis did the AO justify the impugned additions u/s 68 & 69C of the Act. On perusal of the notices issued u/s 142(1) dated 23.08.2018, 14.09.2018 & 10.10.2018 [Pages 205 to 224 of paper book], we note that the AO had initially requisitioned several details & documents from the assessee, inter alia including the details of the unsecured loans raised during the relevant years. It is noted that in none of these notices issued u/s 142(1) the Assessing Officer did not mention of any 'incriminating material', which was found in the course of search, based on which such details of unsecured loans had been requisitioned. Upon obtaining the details of unsecured loans, it is noted that the AO made enquiries from the loan creditors u/s 131 of the Act, and some of the notices went un-served. The AO accordingly issued show cause notice dated 14.12.2018, which is available at Page 263 to 265 of the paper book, in which he informed the appellant regarding the non-service of summons to fifteen (15) loan creditors and required the appellant to produce the directors of such loan creditors along with relevant documents for verification of the loan transactions. From the contents of the show cause, it is nowhere discernible as to what was the 'incriminating material unearthed in the course of search', which led the AO to make the impugned additions u/s 68 & 69C of the Act. It is noted from the show cause that the AO only made a passing reference to statements of alleged entry operators who had admitted to providing accommodation entries through these loan creditors. The ld. counsel of the assessee pointed out that these so-called statements of entry operators were never provided to the appellant in the course of assessment but only later at the appellate stage. So, according to ld. A.R, the Assessing Officer without giving the copy of entry operators to the assessee, could not have relied upon the same for drawing any adverse inference against the assessee and made the additions. So, the additions made by 10 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 Assessing Officer itself is bad in law. According to him, even worse, the ld. CIT(A) has referred to these third party statements as 'incriminating material' qua the assessee. We having examined the contents of the statements, it is noted that none of them were neither recorded in the course of the search conducted upon the appellant nor by the AO on his own during re-assessment proceedings. Moreover it is noted that, in none of these statements did these persons name the assessee nor in the sworn statements had the so-called entry operators admitted of providing accommodation entries to the appellant or issuing cheques in lieu of cash received from the appellant. For such reasons therefore, we hold that such third party statements could not be said to constitute 'incriminating material found in the course of search upon the assessee'.
10. We find that these same third party statements were also referred to as 'incriminating material' for justifying similar additions made u/s 68 & 69C in the case of assessee's sister concern, M/s Mani Square Ltd (supra). In the decided case, this Tribunal held that the third party statements referred by the AO to justify additions made u/s 68 & 69C of the Act did not constitute 'incriminating material unearthed in the course of search' conducted upon the assessee, by observing as under:
"31.Coming next to the additions made u/s 68 & 69C in the hands of the assessee and M/s IQCIPL (since merged into the appellant company), the AO for justifying the addition had referred to the statements of so-called entry operators recorded by different officers of Income-tax Department between the years 2013 to 2015. The Ld. AR pointed out that none of the statements referred to by the AO, justifying the additions made in the assessment order were recorded in the course of search conducted against the assessee on 22.06.2016 or in any proceedings connected with the said search. It is noted from the assessment order that the AO has stated that these statements and data were obtained by him from departmental database and public domain on which he placed reliance to justify the additions made u/s 68 & 69C of the Act. These averments of the AO make it clear that the alleged statements and data from public domain was not collected or found in the course of search conducted on 22-06-2016. And neither the so-called entry operators were summoned by the AO nor examined by him independently in relation to theincome-tax assessment of the assessee. It also appeared from the discussion in the assessment order that except, making selective reference to part of the statements of few persons, recorded between year 2013 to 2015 by some other officers of the Department, the
11 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 AO himself never examined any of the so called entry operators independently during the assessment proceedings and elicited any answers so as to bring on record relevant facts which would prove that assessee was beneficiary of the accommodation entries allegedly provided by any of them and thus justify his adverse view. And moreover, if the AO wanted to still rely on the statements of third party to draw any adverse inference against the assessee/IQCIPL/Appellant, then he was duty bound to furnish a copy of the third party statement to assessee/IQCIPL/Appellant and then summon the third parties and examine them himself and thereafter allowed the assessee/IQCIPL/Appellant an opportunity to cross examine and thereafter if he is satisfied about the veracity of their statements then he can rely on such statement, which unfortunately the AO has not done, so the third party statement cannot be relied upon by the AO to draw adverse inference against the assessee/IQCIPL/Appellant. It has to be kept in mind that wide though his power, the AO must act in consonance with the rules of Natural Justice. One such rule is that he shall not use any material against the assessee without giving him an opportunity to meet it. In short, the AO cannot assess keeping the assessee in dark as to the materials against him. And even after the material/statement is furnished to the assessee, and the assessee contest the veracity of the statement against him, then the AO is bound to give an opportunity to the assessee to test the veracity of the statement on the touch stone of cross examination and thereafter only the AO can rely on the statement or else he cannot be allowed to rely on the statement of the third party against the assessee. (Refer Hon'ble Supreme Court decision in Andaman Timber Industries in Civil Appeal No. 4228 of 2006). In the circumstances we find merit in the Ld. AR's claim that the third party statements relied upon by the AO without even recording their statement and allowing the assessee to cross examine, cannot justify the additions u/s 68 & 69C and the statements cannot be said to be incriminating material or documents found and/or collected in the course of search conducted against the assessee and so, cannot be used against the assessee.
32. For the above finding of ours, we rely on the decision rendered by the coordinate Bench of this Tribunal in the case of Bankatesh Synthetic Pvt Ltd Vs ACIT in IT(SS) No. 142/Kol/2018 dated 24.04.2019. In this decided case also the AO had made additions by way of unexplained share capital in assessment framed u/s 153A of the Act. The basis of the addition was the third party statements of alleged entry operators who had purportedly admitted of providing accommodation entries to the assessee. On appeal the Ld. CIT(A) confirmed the order of the AO. Before this Tribunal the question which came up for consideration was whether addition made by the AO u/s 68 of the Act was tenable when no proceedings were pending before the Assessing officer on the date of search and no incriminating material was found/unearthed by the search team from the premises or possession of the assessee. The assessee had contended that the statements of entry operators referred to by the AO for making the addition/s u/s 68 did not constitute 'incriminating material found in course of assessee's search' and therefore the addition made in the assessment 12 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 framed u/s 153A was legally invalid. Answering the question in favour of the assessee, this Tribunal held that the statements of alleged entry operators recorded in the actions conducted u/s 132/133A in their respective searches cannot be said to constitute 'incriminating material found in the course of search upon the assessee' and accordingly deleted the additions made in the order u/s 153A since no incriminating material was unearthed in the course of search in relation to an unabated assessment. The relevant findings of this Tribunal are as follows:
"7. Before us, ld Counsel for the assessee begins by pointing out that during both the search operations conducted in the case of Banktesh Group, no document or incriminating material was found or seized pertaining to the assessee company. The assessee's assessment under section 143(3) of the Act also stood completed for the relevant assessment year and in absence of any incriminating material, found/ unearthed during the course of search u/s 132 of the Act, the ld AO had no jurisdiction to make such additions. The incriminating material is the sine qua non for making addition u/s l53A of the Act, which is absent in the assessee`s case under consideration. Therefore, according to the well settled principles of law, that is, in absence of any incriminating material, making additions to the assessee's income already assessed u/s 143(3)/153A/ 143(1) of the Act for unabated years, is not only without jurisdiction but also erroneous. Therefore, addition made by AO under section 68 of the Act, to the tune of Rs. 50,00,000/- is not sustainable in law and may be deleted.
8. On the other hand, ld DR for the Revenue, furnished before the Bench, a copy of written submissions and paper book. The written submissions of ld DR is reproduced below:
1.The assessee is a limited company engaged in textile business. It is one of the group companies of Banktesh Group.
2.A search and seizure operation was conducted in the case of Banktesh Group on 29/05/2012 and the assessee company was covered in the search warrant.
3.Thereafter again on 02/03/2016 a search and seizure operation was conducted in the case of Banktesh Group and the assessee company's name was covered in the search warrant.
4.Pursuant to the search operation a notice u/s 153A of the Act was issued to the assessee for A.Y. 2010-11 and in response the assessee filed the Return of Income on 10/12/2016 declaring a total income of Rs.5,98,550/-
5.Assessment u/s 153A/143(3) of the Act was completed on 31/12/2017 assessing the total income at Rs. 56,23,550/- and raised consequential demand of Rs.
28,25,940/-. In the assessment order the ld. ACIT, Central Circle--3(2), Kolkata (A.O.) made the following additions to the assessee's income.
13 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 a. Addition u/s 68 of the Act on account of share capital- Rs. 50,00,000/- b. Addition of alleged expenditure on commission paid - Rs. 25,000/-
For raising the share capital u/s 69C.
Total Rs. 50,25,000/-
6) Mr. Keshav Kumar Bubna, the Director of the assessee company (BSL) and is the prima donna of the Bubna Group. He had admitted on oath that the assessee company was not having any business, earlier they were into textiles. (7)Company had issued shares (F.V.10+30 Premium) to two shares subscribing companies (SSCO), thus the premium of Rs. 30 is not based on commercial expediency, in which no prudent person/ company would invest.
As on 31/03/2010 Banktesh Synthetic limited, the assessee co. had allotted shares to two (2) share subscribing companies with face value of Rs. 10 with Premium of Rs. 30 total Rs 40 each per share.
It is against the human probability that anyone will invest and Pay Rs 10/- along with share premium of Rs. 30/- per share without having any future prospect of the earning by the company. It would be pertinent that assessee company BSL had discontinued its earlier business as mentioned by the director of assessee company Mr. Keshav Kumar Bubna (KKB), The current directors haven't been able to justify, why the shares were priced at high premium of Rs. 30/- per share, without corresponding valuation of the company, which was already experiencing down turn in business prospect. In the normal circumstances it is not possible until unless all the two (2) companies are being controlled remotely by one person. All the circumstances manifests that these are all paper companies not having sufficient worth and created for providing entries of share application money or share capital or loans by way of accommodation entries.
(8) The accommodation entry provider (AEP) Mr. Bhagwan Das Agarwal in multiple statement recorded u/s 131, 133(1), 132(4) and 132(3) read with 132(4). On 10/012014 has replied to question no.8, "Please state the name of companies managed / operated by you and also state who are the directors in these companies" :
Ans: as far as my knowledge is concerned, I am having control of few companies, such as West Well Tie up Pvt. Ltd, Well Plan Tie up Pvt. Ltd, Malinath Tradecon Pvt. Ltd, And also names Shantanu Bose (DIN 01116428), Dinesh Kumar Patwari (DIN 00511386), Loknath Sen (DIN 01363525).
9. We have heard both the parties and perused the material available on record, we note that the original return of income under section 139 (1) of the Act was submitted by the assessee company on 12.10.2010. The said Return of income of
14 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 the assessee was processed under section 143(1) of the Income Tax Act, 1961, on 14.04.2011. Before us, the assessee is in appeal for assessment year 2010-11, which was completed on 14.04.2011.
We note that after completion of original assessment dated 14.04.2011, for A.Y.2010- 11, a search and seizure operation was conducted in the case of Banktesh Group on 29.05.2012 (first search) and the assessee company was covered in the search warrant, therefore, A.Y.2010-11 is an unabated assessment. Consequent upon the said search operation, assessment u/s 153A r/w 143(3) of the Act was completed on 30.03.2015 and no adverse inference was drawn in the said assessment order regarding the share capital raised during the previous year relevant to the A.Y. 2010-11.
Thereafter, again on 02.03.2016, a search and seizure operation (second search) was conducted in the case of Banktesh Group and the assessee company's name was covered in the search warrant. Pursuant to the search operation, a notice u/s 153A of the Act was issued to the assessee for A.Y. 2010-11 and in response, the assessee filed the Return of Income on 10.12.2016, declaring a total income of Rs. 5,98,550/-. Thereafter, an assessment u/s 153A/143(3) of the Act was completed on 31.12.2017 assessing the total income at Rs. 56,23,550/-. In the Assessment Order, the Ld ACIT, Central Circle-3(2), Kolkata (AO) made addition u/s 68 of the Act on account of share capital, to the tune of Rs. 50,00,000/-.
We note that on the basis of the search conducted on 29.05.2012, the assessee's assessment stood completed u/s 153A/ 143(3) of the Act, on 30.03.2015. We note that again, during the course of second search operation conducted on 02.03.2016, no documents pertaining to the assessee was found and/or seized, that is, there were no any incriminating material found or unearthed during the search. Therefore, in absence of any incriminating material being found in connection to the assessee, the addition of Rs. 50,00,000/- in garb of unexplained cash credit u/s 68 of the Act, made by the ld AO in the impugned assessment order is wholly untenable in law and on facts of the case. Thus, we note that in absence of any incriminating material or document found during the course of search, the Assessing Officer cannot make additions/disallowances in the assessments u/s 153A/143(3) of the Act for the unabated assessment years."
33. We also place reliance on the decision of this Tribunal in the case of Loyalka Farms Pvt Ltd Vs DCIT in ITA(SS) No. 67/Kol/2018 dated 14.11.2018.In the decided case also additions were made by the AO u/s 68 of the Act referring to statements of alleged entry operators in the unabated assessments which were completed u/s 153A of the Act. On appeal this Tribunal held that the third party statements by themselves do not constitute incriminating material found in the course of search upon the assessee andtherefore deleted the additions made u/s 68 of the Act by the AO. The relevant findings of the Tribunal are as follows:
15 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 "8. We have heard the rival submissions. We find it would be necessary to address the preliminary issue of whether the addition could be framed u/s 153A of the Act in respect of a concluded proceeding without the existence of any incriminating materials found in the course of search. At the outset, it is evident from the categorical findings of the ld CITA that there is absolutely no incriminating materials found during the course of search regarding the share capital and share premium received by the assessee company during the year under appeal except the fact that the modus operandi of raising of such capital was discovered in the search action. We find that the ld CITA was only harping on the admission made by certain parties at the time of search without corroborating the same with material evidences found during the course of search. In this regard, the instructions issued by the Central Board of Direct Taxes (CBDT in short) in F.No.286/2/2003-IT(Inv) dated 10.3.2003 would be relevant to be looked into wherein it is mentioned that while recording statement during the course of search and seizure and survey operations, no attempt should be made to obtain confession as to the undisclosed income. For the sake of convenience and clarity, the relevant instructions dated 10.3.2003 issued by CBDT is reproduced hereunder:-
To All Chief Commissioners of Income tax (Cadre Contra) & All Directors General of Income Tax Inv.
Sir, Sub:- Confession of additional Income during the course of search & seizureand survey operation - regarding Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, on confessions during the course of search& seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on' collection of evidence of income which leads to information on what has not been disclosed or is notlikely to be disclosed before the Income Tax Departments. Similarly, while recording statement during the course of search it seizures and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely.
Further, in respect of pending assessment proceedings also, assessing officers should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders 16 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 Yours faithfully, Sd/-
(S. R. Mahapatra] Under Secretary (Inv. II) We find that there is absolutely no corroborative evidence found in the course of search by the search team or material evidence brought on record by the ld AO or by the ld CITA in order to give credence to the statement recorded during search. Hence we hold that no addition could be made merely by placing reliance on the statement recorded during search."
34. Following the judicial view endorsed by the coordinate Benches of this Tribunal, we therefore hold that the third party statements referred by the AO to justify additions of Rs.41,88,50,000/- [ 39,73,50,000 + 2,15,00,000] & Rs.3,45,89,682/- [3,20,13,463 + 25,76,219] made u/s 68 & 69C of the Act both in the case of IQCIPL and the appellant did not constitute 'incriminating material' unearthed in the course of search conducted upon the appellant and in that view of the matter the aforesaid additions made by the AO were unsustainable in law and on facts.
11. For aforesaid reasons cited in assessee's sister concern by us, also applies mutatis-mutatis in assessee's case, so we hold that such third party statements could not be said to constitute 'incriminating material found in the course of search upon the assessee'. Coming to the next incriminating material as per Ld CIT(A), we note that the ld. CIT(A) has referred to the post search investigation conducted by the Investigating authorities and their appraisal report, which according to him also constituted 'incriminating material' to aid the impugned addition. The ld. CIT(A) observed that in the said reports it was stated that the Inspector deputed to verify the existence of the loan creditors did not find most of them. The ld. counsel of the appellant however pointed out that the ld. CIT(A) never brought on record the said appraisal report and wondered as to how he can say and introduce it as incriminating evidence and hence his reference to the same was impermissible. He further contended that the ld. CIT(A) had tried to make out a new case and introduce new evidence, which was never utilized by the AO to justify the impugned addition. Inviting our attention to the show cause issued in the case of sister concern, M/s Mani Square Ltd [Pages 321 to 413 of paper-book] where these reports had been selectively extracted, the ld. AR pointed out that there was nothing contained in these reports, 17 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 which could be said to constitute incriminating material found in the course of search qua the appellant. After carefully analyzing these facts, we find substance in the appellant's primary contention that the appraisal report was never brought on record and admitted as incriminating evidence by the AO and therefore the ld. CIT(A)'s reliance on such report and terming it as 'incriminating material' was unjustifiable and untenable in law, unless the Ld CIT(A) gives copy of Appraisal Report or the relevant extract which he used to draw inference that it was of incriminating nature against assessee qua these AY's. We are of the opinion that Ld CIT(A) should not have kept the assessee in the dark about the contents of the appraisal report which he relied to term it as incriminating material. Moreover the appraisal report prepared by the DDIT(Inv) are the views/findings of those officials based on the post-search investigations and hence, such report could not be said to constitute 'incriminating material unearthed in the course of search'. We also find substance in the ld. AR's argument that had the contents of the appraisal report incriminated the appellant assessee in any manner, the AO would have referred to it like he did in the case of assessee's sister concerns case of M/s Mani Square Ltd. We, while deciding the case of M/s Mani Square Ltd. after having perused the contents of the show cause issued in that case where the contents of the appraisal report had been selectively extracted by the AO, we did not find anything contained therein which could be said to constitute 'incriminating material' qua that assessee [M/s Mani Square Ltd.] and found that it cannot be considered as a basis for making any addition. Further according to us, the Ld CIT(A) erred in terming certain portion of appraisal report as incriminating material without bringing it on record or without furnishing the relevant extracts, cannot be countenanced. The ld. CIT(A) took note of the inspector report mentioned in the appraisal report that number of lenders could not be found in the address, so he drew adverse inference against the lenders, which action of Ld CIT(A) cannot be accepted for the following reason;- 1) If the ld. CIT(A) had suspected the genuinity of any lender based on the Inspector's report (mentioned in Appraisal report) then he should have in all fairness confronted the assessee and should have found out the truth. 2) It is not that lenders or any person cannot change their address . And just 18 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 because a person changes the address, does not mean that his/ its identity is lost. In such a case, it is a reason to suspect and can be the starting point of investigation, which the ld. CIT(A) who enjoys co-terminus power as that of Assessing Officer could have exercised, which he did not bother to do. So, the appraisal report cannot be termed as incriminating material qua the assessee. For the reasons aforesaid, and taking note that the AO never utilized the same as 'incriminating material' for the purpose of making additions u/s 68 & 69C of the Act, the observation of Ld CIT(A) in respect of contents of appraisal report cannot be termed as 'incriminating material' and Ld CIT(A) erred in terming it as 'incriminating material'.
12. The ld. CIT(A) has further referred to the statements of the key person of the Mani Group, Mr. Sanjay Jhunjhunwala and the declarations given by his employees in the course of search as 'incriminating material'. The order of the ld. CIT(A) is however conspicuously silent with regard to the contents of these statements recorded by the Investigating authority and as to what incriminating material was contained therein. The ld. counsel for the assessee pointed out that neither did Mr. Sanjay Jhunjhunwala nor his employees had either admitted in their statements that the unsecured loans received by the appellant was in the nature of accommodation entries or that the loan creditors had issued cheques in lieu of cash received from the appellant. We note that there was in fact nothing contained in their statements which could even remotely be construed as 'incriminating' to aid the additions made by the AO u/s 68 & 69C of the Act. We thus find that the ld. CIT(A) had factually erred in referring to the statements of Mr. Sanjay Jhunjhunwala and the employees of Mani Group as 'incriminating material' to justify the impugned additions.
13. Further according to ld. CIT(A), if on account of search, the entries appearing in the regular books of the assessee or which has been accepted in earlier assessments based on documents submitted at that point of time are now found to be camouflaged by the AO upon conducting further investigation in the course of proceedings u/s 153A of the Act, then the results of such investigation conducted in the course of 19 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 assessment that are now coming to the fore would constitute 'incriminating material'. According to ld. CIT(A), the non-service of summons u/s 131 threw fresh light on the entries appearing the books of accounts which was then linked by the AO to the poor financial data of loan creditors, which further led to the impugned additions. Thus, according to the ld. CIT(A) such detailed investigation conducted by the AO in the course of assessment was nothing but incriminating material. We however do not find any merit in these findings recorded by the ld. CIT(A). By ld. CIT(A)'s own admission, these loan entries formed part of the regular books of the assessee and therefore by no stretch of imagination the entries in the regular books of accounts, which was truly and fully disclosed at the time of original assessment as well, can be construed to be 'incriminating material unearthed in the course of search' in nature. It was brought to our attention that complete details of the unsecured loans were disclosed in the tax audit report furnished along with the return of income and the scrutiny assessments for AYs 2011-12 to 2013-14 were also completed u/s 143(3) of the Act in which no adverse inference was drawn by the AO in relation to these loans. The facts on record thus demonstrate that the Revenue was aware of the unsecured loans raised by the appellant in the course of original assessment and all material facts in relation thereto were available on record prior to the search. The subsequent enquiries u/s 131 of the Act conducted by the AO in the course of assessment proceedings u/s 153A of the Act could not be said to be 'incriminating material found in the course of search upon the assessee'. Moreover in Paras 16 to 22 (infra), we have discussed and held that the non-service of summons was not a decisive factor in the present case, as the assessee had brought on record sufficient evidences to substantiate the identity, genuineness and creditworthiness of the loan creditors. In our opinion in the facts of the present case in hand, therefore, the further investigation conducted by the AO in the proceedings u/s 153A of such unabated assessments to make the impugned additions, was nothing but a different opinion formed by the AO on the same set of facts which were already available on record and it did not constitute 'incriminating material found in the course of search upon the assessee'.
20 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18
14. For the reasons discussed in the preceding paragraphs, we hold that the material referred to by the lower authorities for justifying the additions made in the unabated assessments for AYs 2011-12 to 2013-14 did not constitute incriminating material and therefore no additions were legally permissible in the assessments framed u/s 153A for the AYs 2011-12 to 2013-14 for which the assessments did not abate when the search was conducted on 22-06-2016. Ground Nos. 1 & 2of the assessee's appeal for AYs 2011-12 to 2013-14 therefore stand allowed.
15. Now coming to the merits of the additions made u/s 68 & 69C in AYs 2011-12 to 2014-15, 2016-17 & 2017-18, we first deem it fit to set out the details of the loan creditors, whose principal sum and interest was added by the AO u/s 68 & 69C of the Act in all these years.
Sl
Name of Loan Creditor Loan Interest
No.
1 Aradhana Plaza Pvt Ltd 75,00,000 6,29,420
2 Shital Plaza Pvt Ltd 26,00,000 4,32,000
3 Himadri Enclave Pvt Ltd 2,27,50,000 53,65,374
4 Jamuna Enclave Pvt Ltd 79,50,000 5,46,077
5 Kasturi Home Pvt Ltd 1,74,50,000 39,02,181
6 Marigold Nirman Pvt Ltd 1,19,00,000 8,76,569
7 Damodar Niketan Pvt Ltd 1,25,50,000 30,59,051
8 Lavanya Nirman Pvt Ltd 75,00,000 10,27,377
9 Sreedev Computers Pvt Ltd - 2,03,780
10 Tista Nirman Pvt Ltd 98,50,000 21,17,205
11 Nishu Leasing & Finance Ltd 1,75,00,000 18,49,560
12 Pragya Commodities Pvt Ltd 20,77,490 62,39,572
13 Samrat Finvestors Pvt Ltd 2,00,00,000 35,48,644
14 Vicky Fincon Pvt Ltd 1,00,00,000 26,88,748
15 Sharma Hire Purchase Ltd - 1,33,115
TOTAL 14,96,27,490 3,26,18,673
16. From the material on record, it is noted that the appellant had furnished name, complete address, PAN details, account confirmation, audited financial statements and MCA details of all the lenders. All the loans were transacted through bank accounts of the creditors. Each of the loan creditor was regularly assessed to income-tax. The financial statements of each loan creditor revealed that the transaction with the 21 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 appellant was reflected therein. The appellant had paid interest to each loan creditor after deduction of tax u/s 194A of the Act. The appellant had also complied with provisions concerning filing of TDS returns. From the orders of the lower authorities, it is noted that the AO made enquiries from twenty-two (22) loan creditors from whom the appellant had raised unsecured loans in different years. According to AO summons were served on (7) seven parties and the summons on fifteen (15) parties remained un-served [mentioned in table above] against which adverse inference was drawn. At the outset, the ld. counsel for the appellant invited our attention to the details of the addresses of the fifteen (15) loan creditors set out in the assessment order and the addresses of their registered offices as available in the MCA records. The ld. counsel pointed out to us that the AO had issued notices to twelve (12) parties on the wrong addresses, which fact was brought to the notice of ld. CIT(A), still no action was taken at the end of ld. CIT(A) to fairly cross-check the veracity of this fact, therefore non-service of summons could not be viewed adversely against these twelve lenders whose address has changed and that cannot be a ground to adversely view against these lenders who are regular tax payers which we will discuss in detail infra. As regards the remaining three (3) parties to whom notices remained un-served, it was urged that where the assessee had brought on record sufficient evidences to substantiate the identity, genuineness and creditworthiness of the parties and they are all tax payers and it is like keeping your eyes closed and say it is dark. So when all the lenders are amenable to tax jurisdiction of the department and their identities and transactions are all through banking channel and TDS is deducted on interest payments, and all documents sought by the Assessing Officer was produced by the assessee, the assessee has discharged its onus, no addition was permissible u/s 68 & 69C on the sole premise that the summons remained un-served.
17. Moreover, it is noted that nowhere does Section 68 of the Act prescribes that the identity, creditworthiness and genuineness of the transaction should be proved by an assessee only by producing concerned creditors for personal examination by the AO. In the facts of the instant case, the appellant had furnished the requisite 22 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 documentary evidences; to substantiate their identity & creditworthiness and genuineness of transactions. Having received these documents the AO was not able to point out as to which other documentary proof was required or expected by him and which had not been submitted by the appellant. In the transactions under enquiry the appellant had debtor-creditor relationship with the parties and the appellant was a debtor. It is common knowledge that relationship between the debtor and creditor, the debtor always operates from the position of weakness. The loan creditor because of his superior financial strength and status dictates the terms of transaction. Moreover once the loan along with interest is re-paid, the borrower is not expected to maintain continued relationship with the loan creditor. In the circumstances it is not logical to expect the borrower to enforce compliance with the summons issued by the Department by the lenders or be informed about the whereabouts of the creditor. It is a case of two unrelated parties i.e. lender and borrower, brought together by a finance broker, and the loans were given and thereafter repaid along with interest. Accordingly when there was no continuing relationship with the loan creditors, thenpost the conclusion of such loan transactions and applying the tests of human probabilities, the non-service of summons by the loan creditors could not be viewed adversely by the AO. On these facts and in our considered view therefore the adverse inference drawn by the AO u/s 68 and 69C of the Act solely on the premise that the summons went un-served was not sustainable in the eyes of law, particularly when the appellant had furnished all the relevant documents which it was required to maintain in ordinary course to substantiate its loan transactions with independent third party loan providers.
18. At this juncture, we may gainfully refer to the observations made by the Hon'ble Apex Court in the case of CIT Vs Orissa Coprn (P.) Ltd reported in 159 ITR 78, which are reproduced hereunder as follows:
"In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were the income-tax assessees. Their index number was in the file of the revenue. The revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The revenue did not examine the 23 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such could arise."
19. In the case of Nemi Chand Kothari 136 Taxman 213, the Hon'bleGuahati High Court has thrown light on another aspect touching the issue of onus on assessee under section 68, by holding that the same should be decided by taking into consideration the provision of section 106 of the Evidence Act which says that a person can be required to prove only such facts which are in his knowledge. The Hon'ble Court in the said case held that, once it is found that an assessee has actually taken money from depositor/lender who has been fully identified, the assessee/borrower cannot be called upon to explain, much less prove the affairs of such third party, which he is not even supposed to know or about which he cannot be held to be accredited with any knowledge. In this view, the Hon'ble Court has laid down that section 68 of Income- tax Act, should be read along with section 106 of Evidence Act. The relevant observations at page 260 to 262, 264 and 265 of the report are reproduced herein below:-
"While interpreting the meaning and scope of section 68, one has to bear in mind that normally, interpretation of a statute shall be general, in nature, subject only to such exceptions as may be logically permitted by the statute itself or by some other law connected therewith or relevant thereto. Keeping in view these fundamentals of interpretation of statutes, when we read carefully the provisions of section 68, we notice nothing in section 68 to show that the scope of the inquiry under section 68 by the Revenue Department shall remain confined to the transactions, which have taken place between the assessee and the creditor nor does the wording of section 68 indicate that section 68 does not authorize the Revenue Department to make inquiry into the source(s) of the credit and/or sub- creditor. The language employed by section 68 cannot be read to impose such limitations on the powers of the Assessing Officer. The logical conclusion, therefore, has to be, and we hold that an inquiry under section 68 need not necessarily be kept confined by the Assessing Officer within the transactions, which took place between the assessee and his creditor, but that the same may be extended to the transactions, which have taken place between the creditor and his sub-creditor. Thus, while the Assessing Officer is under section 68, free to look into the source(s) of the creditor and/or of the sub-creditor, the burden on the 24 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 assessee under section 68 is definitely limited. This limit has been imposed by section 106 of the Evidence Act which reads as follows: "Burden of proving fact especially within knowledge.-When any fact is especially within the knowledge of any person, the burden) of proving that fact is upon him. " ******** What, thus, transpires from the above discussion is that white section 106 of the Evidence Act limits the onus of the assessee to the extent of his proving the source from which he has received the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s)of the creditor but also of his (creditor's) sub-creditors and prove, as a result, of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the Assessing Officer to enquire into the source/source from where the creditor has received the money, section 106 makes the assessee liable to disclose only the source(s) from where he has himself received the credit and IT is not the burden of the assessee to prove the creditworthiness of thesource(s) of the sub-creditors. If section 106 and section 68 are to stand together, which they must, then, the interpretation of section 68 are to stand together, which they must, then the interpretation of section 68 has to be in such a way that it does not make section 106 redundant. Hence, the harmonious construction of section 106 of the Evidence Act and section 68 of the Income- tax Act will be that though apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the assessee to prove that the sub- creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been. eventually, received by the assessee. It, therefore, further logically follows that the creditor's creditworthiness has to be Judged vis-a-vis the transactions, which have taken place between the assessee and the creditor, and it is not the business of the assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub- creditors, for, these aspects may not be within the special knowledge of the assessee. " ********** "
... If a creditor has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the assessee to obtain such amount of money or part thereof from the creditor, by way of cheque in the form of loan and in such a case, if the creditor fails to satisfy as to how he had actually received the said amount and happened to keep the same in the bank, the said amount cannot be treated as income of the assessee from undisclosed source. In other words, the genuineness as well as the creditworthiness of a creditor have to be adjudged vis-a-vis the transactions, which he has with the assessee. The reason why we have formed the opinion that it is not the business of the assessee to find out the actual source or sources from where the creditor has accumulated the amount, which he advances, as loan, to the assessee is that so far as an 25 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 assessee is concerned, he has to prove the genuineness of the transaction and the creditworthiness of the creditor vis-a-vis the transactions which had taken place between the assessee and the creditor and not between the creditor and the sub- creditors, for, it is not even required under the law for the assessee to try to find out as to what sources from where the creditor had received the amount, his special knowledge under section 106 of the Evidence Act may very well remain confined only to the transactions, which he had' with the creditor and he may not know what transaction(s) had taken place between his creditor and the sub- creditor... "
"In other words, though under section 68 an Assessing Officer is free to show, with the help of the inquiry conducted by him into the transactions, which have taken place between the creditor and the sub-creditor, that the transaction between the two were not genuine and that the sub-creditor had no creditworthiness, it will not necessarily mean that the loan advanced by the sub- creditor to the creditor was income of the assessee from undisclosed source unless there is evidence, direct or circumstantial, to show that the amount which has been advanced by the sub-creditor to the creditor, had actually been received by the sub-creditor from the assessee ...." ********** "Keeping in view the above position of law, when we turn to the factual matrix of the present case, we find that so far as the appellant is concerned, he has established the identity of the creditors, namely, NemichandNahata and Sons (HUF) and Pawan Kumar Agarwalla. The appellant had also shown, in accordance with the burden, which rested on him under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors aforementioned. In fact the fact that the assessee had received the said amounts by way of cheques was not in dispute. Once the assessee had established that he had received the said amounts from the creditors aforementioned by way of cheques, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter the burden had shifted to the Assessing Officer to prove the contrary. On mere failure on the part of the creditors to show that their sub-creditors had creditworthiness to advance the said loan amounts to the assessee, such failure, as a corollary, could not have been and ought not to have been, under the law, treated as the income from the undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee. Viewed from this angle, we have no hesitation in holding that in the case at hand, the Assessing Officer had failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-
creditors from the assessee. In the absence of any such evidence on record, the Assessing Officer could not have treated the said amounts as income derived by the appellant from undisclosed sources. The learned Tribunal seriously fell into error in treating the said amounts as income derived by the appellant from. undisclosed sources merely on the failure of the sub-creditors to prove their creditworthiness."
26 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18
20. Further the jurisdictional Calcutta High Court in the case of S.K. Bothra& Sons, HUF v. Income-tax Officer, Ward- 46(3), Kolkata (347 ITR 347)also 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 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."
21. Further, the Hon'ble High Court at Calcutta in the case of Crystal Networks (P.) Ltd. v. Commissioner of Income-tax (353 ITR 171), on the issue of unexplained cash credits, held that when the basic evidences are on record the mere failure of the creditor to appear cannotbe basis to make addition. The Court held as follows:
"8. Assailing the said judgment of the learned Tribunal learned counsel for the appellant submits that Income-tax Officer did not consider the material evidence showing the creditworthiness and also other documents, viz., confirmatory statements of the persons, of having advanced cash amount as against the supply of bidis. These evidence were duly considered by the Commissioner of Income-tax (Appeals). Therefore, the failure of the person to turn up pursuant to the summons issued to any witness is immaterial when the material documents made available, should have been accepted and indeed in subsequent year the same explanation was accepted by the Income-tax Officer. He further contended that when the Tribunal has relied on the entire judgment of the Commissioner of Incometax (Appeals), therefore, it was not proper to take up some portion of the judgment of the Commissioner of Income-tax (Appeals) and to ignore the other portion of the same. The judicial propriety and fairness demands that the entire judgment both favourable and unfavourable should have been considered. By not doing so the Tribunal committed grave error in law in upsetting the judgment in the order of the Commissioner of Income-tax (Appeals).
9. In this connection he has drawn our attention to a decision of the Supreme Court in the case of UdhavdasKewalram v. CIT [19671 66 ITR 462. In this judgment it is noticed that the Supreme Court as proposition of law held that the 27 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 Tribunal must In deciding an appeal, consider with due care, all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner in the light of the evidence and the relevant law.
10. We find considerable force of the submissions of the learned counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore, it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter the creditworthiness. As rightly pointed out by the learned counsel that the Commissioner of Income-tax (Appeals) has taken the trouble of examining of all other materials and documents, viz., confirmatory statements, invoices, challans and vouchers showing supply of bidis as against the advance. Therefore, the attendance of the witnesses pursuant to the summons issued, in our view, is not important. The important is to prove as to whether the said cash credit was received as against the future sale of the product of the assessee or not. When it was found by the Commissioner of Income- tax (Appeals) on facts having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this -fact finding. Indeed the Tribunal did not really touch the aforesaid fact finding of the Commissioner of Income-tax (Appeals) as rightly pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 464, the Supreme Court has observed as follows:
"The Income-tax Appellate Tribunal performs a judicial function under the Indian Income-tax Act; it is invested with authority to determine finally all questions of fact. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. "
11. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. It is also ruled in the said judgment at page 465 that if the Tribunal does not discharge the duty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest infirmity. 12. Taking inspiration from the Supreme Court observations we are constrained to hold in this matter that the Tribunal has not adjudicated upon the case of the assessee in the light of the evidence as found by the Commissioner of Income-tax (Appeals). We also found no single word has been spared to up set the fact finding of the Commissioner of Income-tax (Appeals) that there are materials to show the cash credit was received from various persons and supply as against cash credit also made.
13. Hence, the judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. We restore the judgment and order of the Commissioner of Income-tax (Appeals). The appeal is allowed."
22. The Ld. AR's reliance on the decision of the Hon'ble Gujarat High Court in the case of CIT Vs Apex Therm Packaging (P) Ltd reported in 42 taxmann.com 473 is 28 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 also found to be of much relevance. In the decided case in the course of proceedings u/s 143(3), the assessee had furnished complete details of loan creditors along with their PAN, financial statements, loan confirmations, bank statements etc. The AO however added the entire loan received u/s 68 of the Act and also disallowed the interest paid thereon. On appeal the Ld. CIT(A) allowed the assessee's appeal which was also affirmed by this Tribunal. On appeal by the Department u/s 260A, the Hon'ble High Court observed that when full particulars, inclusive of the confirmation with name, address, PAN, IT returns, balance sheet & profit and loss account in respect of all the lenders were furnished and that it has been found that the loans were received through cheques then the AO was not justified in making addition u/s 68 of the Act. Accordingly the Hon'ble High Court dismissed the appeal of the Department. The relevant findings of the Hon'ble High Court are as follows:
"5. Heard Shri Sudhir Mehta, learned advocate appearing on behalf of the revenue. At the outset, it is required to be noted that the Assessing Officer directed to make the addition of Rs. 33,55,011/- under Section 68 of the Income Tax Act with respect to 17 lenders. However, it has been found that with respect to most of the lenders, except two, necessary documents, inclusive of confirmation with name, address and PAN Numbers, copy of the IT return and acknowledgment, balance sheet and profit and loss account and computation of total income in respect of all the parties, except two parties, were furnished before the Assessing Officer. Even with respect to the remaining two depositors the assessee filed the confirmation, address and PAN Numbers. Under the circumstances, when it was found that the assessee already discharged the initial onus cast upon him with respect to all the creditors and accordingly when the CIT(A) has deleted the addition of Rs. 33,55,011/- made under Section 68 of the Income Tax Act and consequently deleted the disallowance of Rs. 3,10,478/-, which was made with respect to interest and when the same has been confirmed by the ITAT, it cannot be said that ITAT has committed any error and/or illegality, which calls for the interference of this Court.
In paragraph 11, ITAT has observed and held as under:
"We have heard the rival submissions and perused the material on record. It is an undisputed fact that during the year the assessee had received loan from 17 parties aggregating to 33,35,011/-. The details of which are listed at page 2 of Assessing Officer order. CIT(A) while deleting the addition has given a finding that the assessee had filed before Assessing Officer the confirmations with name, address, PAN Number, copy of ledger account, copy of balance sheet and profit and loss account, copy of Income Tax returns and computation of total income in respect of all the parties except two depositors. With respect to the two depositors, the assessee had filed confirmation, address and PAN Numbers and
29 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 hence the assessee had also discharged the initial onus cast upon the assessee with respect to the two creditors. He has further noted that the loans were received through cheques and the loan account were duly reflected in the balance sheet of lenders CIT(A) has further held once the onus was fulfilled by the assessee, it was for the Assessing Officer to examine and bring any material on record which may help in rebutting the onus of assessee. The Assessing Officer has not brought any material on record in its support CIT(A) while deleting the addition has also relied on the decision of the Hon'ble Gujarat High Court in the case of Dy. CIT v. Rohini Builders [2002] 256 ITR 360 and the decision of Hon'ble Supreme Court, in the case of Orissa Corpn. Ltd. 153 ITR 78. Before us, nothing has been brought on record by the revenue to controvert the findings of CIT(A). Revenue has relied on the decision of Hon'ble Delhi High Court in the case of N.R. Portfolio (supra). We however find that the ratio of the aforesaid Delhi High Court decision are distinguishable on facts and therefore cannot be applied to the facts of the present case. In view of the aforesaid facts, we find no reason to interfere with the order of CIT(A) and thus dismiss this ground of revenue."
6. We are in complete agreement with the reasoning given by the CIT(A) as well as the ITAT. When full particulars, inclusive of the confirmation with name, address and PAN Number, copy of the Income Tax Returns, balance sheet, profit and loss accounts and computation of the total income in respect of all the creditors/lender were furnished and when it has been found that the loans were received through cheques and the loan account were duly reflected in the balance sheet, the Assessing Officer was not justified in making the addition of Rs. 33,55,011/-. Under the circumstances, no question of law, much less substantial question of law arises in the present Tax Appeal. Accordingly, the present Tax Appeal deserves to be dismissed and is accordingly dismissed."
23.In the above judgment the Hon'ble High Court referred to its earlier decision in the case of DCIT Vs Rohini Builders (256 ITR 360). In the decided case the Hon'ble Court had observed that the assessee had discharged its onus of proving the identity of creditors by giving their complete addresses, permanent account numbers and copies of assessment orders. It was further observed that the assessee had also proved capacity of creditors by showing that amounts were received by account payee cheques. The Hon'ble High Court held that only on the ground that some of the creditors could not be served with notice u/s 131 or they failed to appear before Assessing Officer the loans could not be treated as non-genuine and therefore upheld the order of the Tribunal deleting the addition u/s 68 of the Act.The relevant findings of the Hon'ble High Court are as follows:
30 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 "7. We have considered the rival submissions and have also gone through the order passed by the Assessing Officer, the relevant portion of which we have also extracted in para. 2 above. The Commissioner of Income-tax (Appeals) more or less confirmed the addition on the reasoning given by the Assessing Officer in the assessment order. A perusal of the chart given by us in para. 3 above indicates that out of 21 creditors the Assessing Officer has recorded the statements of only six creditors, viz., creditors at serial Nos. 1, 2, 3, 4, 6, and 7. However, in respect of all the 21 creditors the assessee has furnished their complete addresses along with GIR numbers/permanent account numbers as well as confirmations along with the copies of assessment orders passed in the cases of creditors at serial Nos. 1, 2, 4, 5, 6, 7, 9, 10, 11, 12 and 16. In the remaining cases where the assessment orders passed were not readily available, the assessee has furnished the copies of returns filed by the creditors with the Department along with their statement of income. All the loans were received by the assessee by account payee cheques and the repayments of loans have also been made by account payee cheques along with the interest in relation to those loans. It is rather strange that although the Assessing Officer has treated the cash credits as non-genuine, he has not made any addition on account of interest claimed/paid by the assessee in relation to those cash credits, which has been claimed as business expenditure and has been allowed by the Assessing Officer. It is also pertinent to note that in respect of some of the creditors the interest was credited to their accounts/paid to them after deduction of tax at source and information to this effect was given in the loan confirmation statements by those creditors filed by the assessee before the Assessing Officer. Thus it is clear that the assessee had discharged the initial onus which lays on it in terms of section 68 by proving the identity of the creditors by giving their complete addresses, GIR numbers/permanent accounts numbers and the copies of assessment orders wherever readily available. It has also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee is not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source as held by the Bombay High Court in the case of Orient Trading Co. Ltd. v. CIT [1963] 49 ITR 723. The genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques. Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee -from those creditors as non-genuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation [1986] 159 ITR 78. In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue's case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw an adverse inference against the assessee. In the case of six creditors who appeared before the Assessing Officer and whose statements 31 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69.
8. Further, we may point out that section 68 under which the addition has been made by the Assessing Officer reads as under :
"68. 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 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."
9. The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this, case the legislative mandate is not in terms of the words "shall be charged to income-tax as the income of the assessee of that previous year". The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word "may" and not "shall". Thus the unsatisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the Supreme Court in the case of CIT v. Smt. P. K. Noorjahan [1999] 237 ITR 570.
10. Thus taking into consideration the totality of the facts and circumstances of the case, and, in particular, the fact, that the Assessing Officer has not disallowed the interest claimed/paid in relation to these credits in the assessment year under consideration or even in the subsequent years, and tax deducted at source has been deducted out of the interest paid/credited to the creditors, we are of the opinion that the Departmental authorities were not justified in making the addition of Rs. 12,85,000 which is directed to be deleted.
11. In the result, the appeal is allowed."
24. It is noted that similar view was also expressed by the Hon'ble Gujarat High Court in the case of CIT Vs Patel Ramanikal Hirji (41 taxmann.com 493) wherein on similar set of facts as involved in the appellant's case, the Court observed that when the assessee had furnished loan confirmations from lenders, copies of creditors' bank statements, IT returns etc., these materials duly proved the genuineness of the transaction of loan as well as the identity & creditworthiness of the lenders.
32 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18
25. We further rely on the decision of the Hon'ble Delhi High Court in the case of CIT Vs Shiv Dhooti Pearls & Investment Ltd (64 taxmann.com 329). In the decided case the assessee had received unsecured loans in the year in question. In the course of assessment, the AO requisitioned the details of the loans received by the assessee. From the details furnished by the assessee, it was observed that few loan creditors had returned loss and their source of advancing loans were other bodies corporate who had also returned miniscule taxable income in their income-tax returns. The AO therefore doubted the creditworthiness of the lenders. The AO accordingly made addition u/s 68 of the Act. On appeal the Hon'ble High Court held that the onus of the assessee is 'to the extent of his proving the source through which he has received the cash credit.' The Hon'ble High Court held that the AO has ample 'freedom' to make inquiry 'not only into the source of the creditor, but also of its sub-creditors; but the assessee has indeed discharged its onus of proving the creditworthiness and genuineness of the lender by furnishing the documents & details which it was required to maintain in the normal course and under law and therefore the addition made u/s 68 of the Act was deleted by the Hon'ble High Court. The relevant findings of the Hon'ble High Court are as follows:
"12. The Court has examined the decision of the Gauhati High Court in Nemi Chand Kothari (supra). Therein the Gauhati High Court referred to Section 68 of the Act and observed that the onus of the Assessee "to the extent of his proving the source whom which he has received the cash credit." The High Court held that the AO had ample 'freedom' to make inquiry "not only into the source(s) of the creditor, but also of his (creditor's) sub-creditors and prove, as a result, of such inquiry, that the money received by the Assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself." Thereafter, the High Court, on a harmonious construction of Section 106 of the Evidence Act and Section 68 of the Act, held as under:
"What, thus, transpires from the above discussion is that while Section 106 of the Evidence Act limits the onus of the Assessee to the extent of his proving the source from which he has received the cash credit, Section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s) of the creditor, but also of his (creditor's) sub-creditors and prove, as a result, of such inquiry, that the money received by the Assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the Assessee himself. In other words, while Section 68 gives the liberty to the Assessing Officer to enquire into the source/sources from where the creditor has 33 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 received the money, Section 106 makes the Assessee liable to disclose only the source(s) from where he has himself received the credit and it is not the burden of the Assessee to show the source(s) of his creditor nor is it the burden of the Assessee to prove the creditworthiness of the source(s) of the sub-creditors. If Section 106 and Section 68 are to stand together, which they must, then, the interpretation of Section 68 has to be in such a way that it does not make Section 106 redundant. Hence, the harmonious construction of Section 106 of the Evidence Act and Section 68 of the Income Tax Act will be that though apart from establishing the identity of the creditor, the Assessee must establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the Assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the Assessee and the creditor. What follows, as a corollary, is that it is not the burden of the Assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the Assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been, eventually, received by the Assessee. It, therefore, further logically follows that the creditor's creditworthiness has to be judged vis-a-vis the transactions, which have taken place between the Assessee and the creditor, and it is not the business of the Assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub-creditors, for, these aspects may not be within the special knowledge of the Assessee." (Emphasis Supplied)
13. The above observations, far from supporting the case of the Revenue, does the opposite. In the subsequent decision of this Court in Mod. Creations (P.) Ltd. v. ITO [2013] 354 ITR 282/[2011] 202 Taxman 10 (Mag.)/13 taxmann.com. 114 (Delhi), the position was clarified by the Court and it was held:
"It will have to be kept in mind that Section 68 of the I.T. Act only sets up a presumption against the Assessee whenever unexplained credits are found in the books of accounts of the Assessee. It cannot but be gainsaid that the presumption is rebuttable. In refuting the presumption raised, the initial burden is on the Assessee. This burden, which is placed on the Assessee, shifts as soon as the Assessee establishes the authenticity of transactions as executed between the Assessee and its creditors. It is no part of the Assessee's burden to prove either the genuineness of the transactions executed between the creditors and the sub- creditors nor is it the burden of the Assessee to prove the creditworthiness of the sub-creditors."
14. In Mod. Creations (P.) Ltd. (supra) this Court negatived the case of the Revenue that the onus was on the Assessee to prove the source of the sub- creditor. It was observed as under:
"14. With this material on record in our view as far as the Assessee was concerned, it had discharged initial onus placed on it. In the event the revenue still had a doubt with regard to the genuineness of the transactions in issue, or as regards the creditworthiness of the creditors, it would have had to discharge the 34 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 onus which had shifted on to it. A bald assertion by the A.O. that the credits were a circular route adopted by the Assessee to plough back its own undisclosed income into its accounts, can be of no avail. The revenue was required to prove this allegation. An allegation by itself which is based on assumption will not pass muster in law. The revenue would be required to bridge the gap between the suspicions and proof in order to bring home this allegation. The ITAT, in our view, without adverting to the aforementioned principle laid stress on the fact that despite opportunities, the Assessee and/or the creditors had not proved the genuineness of the transaction. Based on this the ITAT construed the intentions of the Assessee as being mala fide. In our view the ITAT ought to have analyzed the material rather than be burdened by the fact that some of the creditors had chosen not to make a personal appearance before the A.O. If the A.O. had any doubt about the material placed on record, which was largely bank statements of the creditors and their income tax returns, it could gather the necessary information from the sources to which the said information was attributable to. No such exercise had been conducted by the A.O. In any event what both the A.O. and the ITAT lost track of was that it was dealing with the assessment of the company, i.e., the recipient of the loan and not that of its directors and shareholders or that of the sub-creditors. If it had any doubts with regard to their credit worthiness, the revenue could always bring it to tax in the hands of the creditors and/or sub-creditors. [See CIT v. Divine Leasing & Finance Ltd. (2008) 299 ITR 268 (Delhi) and CIT v. Lovely Exports (P.) Ltd. (2008) 216 CTR 195 (SC)]."
15. In view of the legal position explained in the above decisions, the Court holds that as far as the present case is concerned, the Assessee has indeed discharged its onus of proving the creditworthiness and genuineness of the lender (TIL). There was no requirement in law for the Assessee to prove the genuineness and creditworthiness of the sub-creditor, which is in this case was TCL.
26. In the light of the aforesaid decisions of the Hon'ble Apex Court and jurisdictional and other High Courts, let us now examine the facts of the case. From the analysis of the loan creditors we note that, the appellant had received loans aggregating to Rs.9,02,00,000/- from eight parties set out at Serial Nos. 1 to 8 from whom the loans were received in the earlier years as well to whom interest of Rs.1,58,38,049/- was paid. Besides, the appellant had paid interest of Rs.2,03,780/- to one party mentioned at Serial No. 9 of the Table whose loan was brought forward from the earlier years. We note that no addition u/s 68 of the Act in respect of the loans brought forward from the earlier years was made in the past assessments. In the circumstances therefore we find that if in the past assessments, the Revenue did not draw adverse inference in respect of the principal loan amounts received from these 35 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 nine parties, then there was no apparent reason for the AO to dispute and disbelieve the genuineness of the transaction involving only the interest payment. We also note that in respect of interest paid during the relevant year, the appellant had complied with relevant provisions of Section 194A of the Act [TDS] and necessary evidence in respect thereof was also furnished. In the circumstances we find that inrespect of payment of interest to these nine parties, provisions of Section 69C of the Act had no application. Accordingly the addition made u/s 69C to the extent of Rs.1,60,41,829/- was not warranted.
27. As noted (supra) in respect of loans of Rs.9,02,00,000/- taken from eight parties listed at Serial Nos. 1 to 8 of the above Table, the loans were taken from these parties in the earlier years and in the income-tax assessments completed u/s 143(3) for the earlier years, the Revenue had accepted the genuineness of the appellant's loan transactions with the said loan creditors. When the Revenue did not draw adverse inference in respect of the principal loan amounts received from these eight parties in the scrutiny assessments in the earlier years, then without there being any change in the factual matrix and the nature of documentation produced in support of the loan transactions being same, we do not see any reason to take contrary view. Therefore, the addition of Rs.9,02,00,000/- made under Section 68 of the Act in respect of these loan creditors is hereby deleted. Consequent to our said finding, we also direct the AO to delete the disallowance u/s 69C of the Act amounting to Rs.1,58,38,049/- and Rs. 2,03,780/- (Total Rs. 1,60,41,829/-) being interest paid by the appellant on these loans.
28. As regards remaining additions u/s 68 and 69C of the Act, sum of Rs.8,69,27,490/- in relation to principal loan amount received from remaining six parties and interest of Rs.1,65,76,844/- paid to them as also the above mentioned nine parties from whom loans were received in earlier years as well, it is noted that, the appellant had furnished before the AO the requisite documentary evidences substantiating the identity and creditworthiness of the loan creditors and genuineness 36 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 of the transactions. Rejecting the explanations of the appellant, the ld. CIT(A) sought to justify the additions made u/s 68 & 69C by principally relying on the statements of alleged entry operators, Shri Pankaj Agarwal, Shri Ramesh Poddar, Shri Anuj Bukediwala & Shri Rakesh Agarwal in which they had admitted of being engaged in the business of providing accommodation entries to the various beneficiaries. In the appellate proceedings before the ld. CIT(A), the appellant had sought for copies of the statements which were not given to assessee before the framing of the assessment order and also sought cross examination of these persons. Acceding to appellant's request, the ld. CIT(A) directed the AO to provide the same. The ld. counsel for the assessee pointed out that vide letter dated 21.10.2019 the AO supplied the statements of alleged entry operators based on whose statements the impugned additions were being justified and also required the assessee to be present before him on 30.10.2019 to cross examine these persons. Upon examining the contents of the statements, the appellant had observed that none of them were either recorded in the course of its search nor by the AO on his own. And most important and the best part was that neither the name of the assessee was mentioned by any of these persons nor in these sworn statements had the so-called entry operators admitted of providing accommodation entries to the appellant. Since the appellant was not accused of any wrong-doing in these third party statements provided by the AO, it was contended before the AO by letter dated 30.10.2019 that the exercise of the cross-examination being conducted by the AO was a futile exercise however, according to the lower authorities this reply of the appellant suggested that it did not intend to cooperate during the cross examination and therefore the ld. CIT(A) held that the opportunity to cross-examine had been afforded to the appellant, which was not availed by it.
29. After careful analysis of the material placed before us and after examining the statements of the so-called entry operators, it is noted that neither in the sworn statements the so-called entry operators had admitted of providing accommodation entries to the appellant nor they had admitted of receiving any cash from the appellant in lieu of cheques. In none of the specific instances, the lower authorities were able to 37 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 show any credible link between the person whose statement was relied upon and the company from whom the loans were received by the appellant. The Ld. AR has pointed out to us that the so-called entry operators were not even shareholders or directors of the loan creditor companies. We also note that although the AO had heavily relied upon the statements of the entry operators, the AO had neither personally nor independently examined even a single entry operator in the capacity as the Assessing Officer to verify the correctness of the facts or to dig or probe and unearth the link if any with the appellant. Instead the unfortunate part is that the AO blindly relied on the bald statements of these operators recorded by someone else and in the process failed to bring out any link to connect them with the appellant. If the AO wanted to use the statements of the so-called entry operators, then the AO during the assessment proceedings ought to have summoned these entry operators and examined them thoroughly and should have unearthed the links, materials or relevant evidences, if any, against the appellant and if he intended to use any material adversely against the assessee, then in all fairness, the Assessing Officer should have called the appellant and confronted him with any materials or statement which he discovers and which material he wishes to rely against the assessee and after giving an opportunity to assessee to cross examine the maker of the statement etc. And in the event, the maker of the statement could pass the cross examination, then the statement of the entry provider could have been acted upon by the AO against the assessee or else he could not use it against the assessee. We thus find substance in the argument of ld. counsel of the assessee that the exercise of cross-examination afforded by the AO was a futile exercise, for the simple reason that in the statements these persons did not allege any wrong doing on the part of the assessee or its directors, so when the assessee had gone through the copies of the statement gives during remand proceedings, it realized that these statements did not contain any material incriminating the appellant so there was nothing to examine leave alone cross- examination them so, was termed as futile and nugatory. In the aforesaid facts we wonder as to how the ld. CIT(A) has said that assessee did not avail the opportunity of cross-examination. In the aforesaid circumstances, we are of the opinion that when the 38 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 maker of a statement does not allege any wrong doings or admits to have done anything wrong along with assessee, then question of cross-examination does not arise and so, the assessee rightly did not cross-examine them. Here the most important fact is that the statements relied on by lower authorities did not allege any wrong on the part of assessee, os in the first place those statements were wrongly relied upon by ld. CIT(A) and Assessing Officer. Next let us examine how the Assessing Officer erred in his omission to carry out proper enquiry by not even summoning these operators and how his erroneous reliance on their bald statements affected his action, can be seen from the following facts.
(I) The assessee received loan of Rs.1,75,00,000/- from M/s Nishu Leasing & Finance Ltd, which according to AO was allegedly controlled by Shri Anuj Bhukediwala whose statement was recorded u/s 131 of the Act on 16-05-2016 at 51/1 Bonehari Bose Road, Howrah - 711 101. Thus, it is noted that the statement of Shri Anuj Bhukediwala was not recorded in pursuance of any proceedings against the assessee in connection with search u/s 132 of the Act conducted upon the appellant/assessee on 22-06-2016. From the contents of the statement, we note that nowhere in his statement Shri Anuj Bhukediwala had admitted that M/s Nishu Leasing & Finance Ltd was controlled by him. We further note that in his answer to Q No. 15 though he identified the group to whom he provided accommodation entries but the parties identified by him was neither Shri Sanjay Jhunjhunwala or the appellant company. We find that the contents of the statement did not contain any material whatsoever on the basis of which any prudent person instructed in law would have reached the conclusion that the loans received by the appellant from M/s Nishu Leasing & Finance Ltd had any connection with Shri Anuj Bhukediwala. Moreover, when the AO himself never examined the so-called entry operator, he could not have relied on such statement.
(II) The assessee received loans aggregating to Rs.10,00,50,000/- from M/s Damodar Niketan Pvt Ltd, M/s Lavanya Nirman Pvt. Ltd., M/s Kasturi Home Pvt. Ltd., M/s 39 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 Himadri Enclave Pvt. Ltd., M/s Aradhana Plaza Pvt Ltd, M/s Jamuna Enclave Pvt Ltd, M/s Marigold Nirman Pvt Ltd, M/s Shital Plaza Pvt Ltd, M/s Sreedev Computers Pvt Ltd and M/s Tista Nirman Pvt. Ltd. According to AO all these loan creditors were allegedly controlled by Shri Pankaj Agarwal whose statement was recorded u/s 131 of the Act on 03-02-2015 at 138B Manicktala Main Road, Kolkata - 700 054. It is thus noted that the statement of Shri Pankaj Agarwal was not recorded in pursuance of any proceedings against the appellant in connection with search u/s 132 conducted upon the appellant on 22-06-2016. Further in his answer to Q No. 14, he had identified the names of six companies which he allegedly controlled but we find that none of five loan creditors which provided loan to assessee does figure in it. Thus, we find that nowhere in his statement Shri Pankaj Agarwal admitted that M/s Damodar Niketan Pvt Ltd, M/s Lavanya Nirman Pvt. Ltd., M/s Kasturi Home Pvt. Ltd., M/s Himadri Enclave Pvt. Ltd., M/s Aradhana Plaza Pvt Ltd, M/s Jamuna Enclave Pvt Ltd, M/s Marigold Nirman Pvt Ltd, M/s Shital Plaza Pvt Ltd, M/s Sreedev Computers Pvt Ltd and M/sTista Nirman Pvt. Ltd were controlled or managed by him. We also note that even though in his statement, he had admitted of being engaged in providing accommodation entries till the year 2011 yet nowhere in his statement Shri Pankaj Agarwal had identified either Shri Sanjay Jhunjhunwala or Mani Square Hospitality Pvt. Limited as beneficiary of accommodation entries provided by him. Further, we note that before the AO used the statement of Shri Pankaj Agarwal as evidence against the assessee, he himself never issued notice u/s 131 or 133(6) of the Act to Shri Pankaj Agarwal to ascertain the facts of the case, particularly when no information was appearing from his statement which connected the loan transactions between appellant and the loan creditors, M/s Damodar Niketan Pvt Ltd, M/s Lavanya Nirman Pvt. Ltd., M/s Kasturi Home Pvt. Ltd., M/s Himadri Enclave Pvt. Ltd., M/s Aradhana Plaza Pvt Ltd, M/s Jamuna Enclave Pvt Ltd, M/s Marigold Nirman Pvt Ltd, M/s Shital Plaza Pvt Ltd, M/s Sreedev Computers Pvt Ltd and M/sTista Nirman Pvt. Ltd We thus find that the statement of Shri Pankaj Agarwal on its own did not contain any assertion/admission whatsoever on the basis of which any prudent person instructed in 40 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 law would have reached the conclusion that the loans received by the appellant from five bodies corporate, admittedly have any connection with Shri Pankaj Agarwal.
(III) The assessee received loan of Rs.1,00,00,000/- from M/s Vicky Fincon Pvt Ltd, which according to AO was allegedly controlled by Shri Ramesh Poddar whose statement was allegedly recorded u/s 131 of the Act on 12-06-2014 at P-136, Bangur Avenue, 3rd Floor, Kolkata - 700 055. It is noted that even this statement was not recorded in pursuance of any proceedings against the appellant/assessee in connection with search u/s 132 conducted upon the appellant on 22-06-2016. On combined reading of the past director details and the contents of the statement, it is noted that Shri Ramesh Poddar was neither a Director nor shareholder of M/s Vicky Fincon Pvt Ltd during FY 2012-13 in which it had advanced loan to the appellant. Moreover even the two persons named by Shri Ramesh Poddar, who were allegedly acting under his directions and control, were not the Directors of the loan creditor. In his entire statement, Shri Ramesh Poddar neither named the loan creditor nor suggested that the loan creditor was controlled by him. He has also not admitted to be providing accommodation entries to either Shri Sanjay Jhunjhunwala or Mani Square Hospitality Pvt. Limited. We are of the opinion that the statement of Shri Ramesh Poddar at best could have raised suspicion in the mind of the AO and it would have been the starting point of an enquiry to dig out facts which could have unraveled any wrong doing connecting the assessee. However, the statement on its own did not contain any material whatsoever on the basis of which any prudent person instructed in law would have reached the conclusion that the loans received by the appellant/assessee from M/s Vicky Fincon Pvt Ltd was not genuine. Moreover the AO himself never examined the so-called entry operator. We therefore find that the addition made by the AO by relying on such statement was untenable on facts and in law.
30. The foregoing was the illustrative analysis of the statements of entry operators relied upon by the AO for justifying the additions made u/s 68 & 69C of the Act. On examination of each of these statements, we are satisfied that in none of the statements 41 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 any of them had admitted of having any transactions or providing accommodation entries to the appellant nor the AO has brought on record any material to link these entry operators with the bodies corporate from whom the loans were received by the appellant. We thus agree with the ld. counsel of the appellant that, if the AO intended to use these statements to draw adverse inference against the appellant, then he himself first of all ought to have examined these entry providers to ascertain the correct facts and it is only on such examination if it was revealed by these entry operators as to any role of the appellant or connection with the loan creditors as suspected by the AO, then he should have collected material to substantiate the facts and in all fairness thereafter give a copy of such admission / allegation against the assessee or material discovered in the process of enquiry and allowed the assessee an opportunity to cross examine the makers of the statement or provide an opportunity to assessee to rebut the material against it and after hearing the explanation or defense put up by the appellant, the AO should have fairly drawn his conclusion in a just manner or else, the action of AO will be held to be bad in the eyes of law for violation of natural justice. For the reasons as aforesaid therefore, we hold that the AO was unjustified in making additions u/s 68 & 69C of the Act based on the unsubstantiated and irrelevant statements of so-called entry operators wherein there is no imputation against it.
31. Apart from relying on the irrelevant statements of the entry operators, the AO also discredited the abilities of the loan creditors to advance loans to the appellant on the ground the financial positions revealed by the audited accounts of the respective loan creditors did not prove their capacity and ability to advance such loans. We however find that before rejecting the financial ability of the loan creditors, the AO did not carry out the objective analysis of the financial strength and net worth of the loan creditors from their audited accounts. On scrutiny of audited accounts of each loan creditor, it is noted that each loan creditor had substantial resources of its own to advance loans to the appellant. The comparative financial position of each loan creditor and the loans advanced by them are noted as under:
42 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 Gross Sl Amount of Name of Loan Creditor Investible No. Loan Advanced Funds 1 Aradhana Plaza Pvt Ltd 13,98,93,705 75,00,000 2 Shital Plaza Pvt Ltd 16,30,01,400 26,00,000 3 Himadri Enclave Pvt Ltd 16,20,11,412 2,27,50,000 4 Jamuna Enclave Pvt Ltd 14,23,06,025 79,50,000 5 Kasturi Home Pvt Ltd 17,18,06,029 1,74,50,000 6 Sreedev Computers Pvt Ltd 8,99,57,222 -
7 Marigold Nirman Pvt Ltd 14,53,93,893 1,19,00,000 8 Damodar Niketan Pvt Ltd 17,95,11,076 1,25,50,000 9 Lavanya Nirman Pvt Ltd 13,84,84,426 75,00,000 10 Tista Nirman Pvt Ltd 18,04,86,350 98,50,000 11 Nishu Leasing & Finance Ltd 24,27,70,290 1,75,00,000 12 Pragya Commodities Pvt Ltd 78,71,75,610 20,77,490 13 Samrat Finvestors Pvt Ltd 78,67,69,597 2,00,00,000 14 Vicky Fincon Pvt Ltd 55,04,33,819 1,00,00,000 15 Sharma Hire Purchase Ltd 81,75,78,705 -
32. Having regard to the above financial position of the loan creditors, we note that the lower authorities did not objectively take into consideration the financial net worth of the creditors and the facts and figures available in the audited accounts. On examination of the financial statements of the loan creditors, we find that each loan creditor possessed sufficient investible funds out of which the creditors had advanced the loans to the assessee. We also find that in each case, the loan creditor had reported substantial interest income and they are income taxpayees. Further, compared with the gross interest accounted in the books of the creditor, the amount of interest paid by the appellant was relatively lower. We also note that the interest paid by the appellant was 43 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 accounted in the books of the loan creditor and before payment of interest, the tax was duly deducted u/s 194A of the Act. Having regard to the totality of the facts and circumstances of the case therefore, we do not find merit in the conclusion of the lower authorities that the loan creditors did not have financial credentials to advance loans and on that ground justify the addition u/s 68 & 69C of the Act.
33. As far as the decisions cited by the Ld. CIT(A) in his impugned appellate order for upholding the additions made u/s 68 & 69C of the Act are concerned, we have examined the facts involved in each of these judgments and found them to be materially different from the facts involved in the present case, for the following reasons:
(A) As far as the decision of Hon'ble Calcutta High Court in the case of CIT Vs Precision Finance Pvt Ltd reported in 208 ITR 465 is concerned, it is noted that in this decided case, the income tax file numbers of the creditors provided by the assessee were either found to be non-existent or did not tally with the Department's records. It is on this fact that the Hon'ble High Court held that the appellant was unable to prove the identity and creditworthiness of the creditors and therefore upheld the addition made u/s 68 of the Act. In the facts of the present case however it is neither the AO's case that the loan creditors are not income-tax assessee's nor has he alleged that the documents and evidences furnished by the appellant in support of loan transactions were false or suffered from defects or do not tally with the Department's records.
Accordingly the judgment cited by the Ld. CIT(A) for upholding the addition is found to be factually distinguishable.
(B) From the facts as narrated by the Hon'ble Calcutta High Court in the case of Bharati Pvt Ltd Vs CIT reported in 111 ITR 372, it is noted that the assessee had claimed to have received Rs.20,000/- from two individuals. Apart from furnishing confirmatory letters, the assessee was unable to furnish any other document or evidence such as income tax file number, bank account details, their financials etc. 44 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 which would in any manner substantiate their identity. On these facts therefore the Hon'ble High Court upheld the addition. The facts of this case have no similarity with the appellant's case, so this case law is not applicable.
(C) In the decision rendered in the case of Bhola Shankar Cold Storage Pvt Ltd Vs JCIT reported in 270 ITR 487, the question before the Hon'ble Calcutta High Court was whether, in absence of any independent verification, the share application monies received in cash from several individuals, who were not income-tax assessees, but claimed to be farmers, was rightly assessed by the AO u/s 68 of the Act. We note that the facts as well as the question involved in this judgment are of no relevance in the appellant's case. The Ld. CIT(A)'s reliance on this judgment is therefore, incorrect.
(D) We have also gone through the decisions of the Hon'ble Delhi High Court in the case of Nova Promoters and Finlease Pvt Ltd reported in 342 ITR 169, Sophia Finance Ltd reported in 205 ITR 98, CIT Vs MAF Academy Pvt Ltd reported in 361 ITR 258, CIT Vs NR. Portfolio Pvt Ltd reported in 214 Taxman 408, CIT Vs Nivedan Vanijya Niyojan Ltd reported in 263 ITR 623 and Navodaya Castle Pvt Ltd reported in 367 ITR 306. In our opinion the ratio laid down in these decisions cannot be applied to the appellant's case because the sums in question are not share application monies. In the cases decided by the Hon'ble High Court, the private limited companies had received share application monies on private placement. By its very nature, the shares of private limited companies are transacted between the small circle and therefore the Court held that it was unnatural for the shareholders who continued to have stake in the company did not cooperate with the Department and provide the requisite evidences as called for. In the present case however, as noted earlier, the relationship was that of the debtor-creditor and which had ceased to exist when the loans were fully repaid. We therefore do not find merit in the reliance placed by the Ld. CIT(A) on these decisions for upholding the addition.
45 | P a g e IT(SS)A Nos. 35 to 40/Kol/2020 M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18 (E) In the judgments rendered in the case of CIT Vs Maithan International reported in 375 ITR 123 and CIT Vs Active Traders Pvt Ltd in 214 ITR 583 relied upon by ld. CIT(A) , the question before the High Court was the validity of jurisdiction exercised by the CIT u/s 263 of the Act, which has no bearing whatsoever to the issue involved in the facts of the present case. Similarly, the decision rendered in the case of Mimec (India) Pvt Ltd reported in 353 ITR 284 involved the issue of validity of reopening of assessment u/s 147 of the Act having no link with the facts and issue involved in the instant case.
34. In view of the above facts and the reasons discussed in the foregoing therefore, we hold that the aggregate additions of Rs.17,71,27,490/- being principal loan amount received by the appellant from the fifteen bodies corporate did not constitute its income chargeable u/s 68 of the Act. Consequently, for the same reason we also do not find any justification in sustaining the disallowance of Rs.3,26,18,673/- being the interest on such loans u/s 69C of the Act. Accordingly, Ground Nos. 3 to 8 of the appeals for AYs 2011-12 to 2013-14 and Ground Nos. 1 to 7 of the appeals for AYs 2014-15, 2016-17 & 2017-18 therefore stands allowed.
35. In the result, the appeals of the assessee are allowed.
Order is pronounced in the open court on 06.11.2020.
Sd/- Sd/-
(J(((P. M. Jagtap) (A. T. Varkey)
Vice President Judicial Member
Dated: 06.11.2020
SB, Sr. PS
46 | P a g e
IT(SS)A Nos. 35 to 40/Kol/2020
M/s Mani Square Hospitality Pvt. Ltd.
A.Ys. 2011-12 to 2014-15, 2016-17 & 2017-18
Copy of the order forwarded to:
1. Appellant- M/s Mani Square Hospitality Pvt. Ltd., 164/1, Maniktala Main Road, E. M. Bye Pass, Kolkata- 700054
2. Respondent- ACIT, Central Circle-3(2), Kolkata
3. The CIT(A)- , Kolkata (sent through e-mail)
4. CIT- , Kolkata
5. DR, Kolkata Benches, Kolkata (sent through e-mail) True Copy By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata 47 | P a g e