Referred Sections:
Section 68 of the Act
Section 133(6)
Section 131
Referred Cases / Judgments:
ITAT in the case of ITO vs. Computer Home Information Plus Pvt. Ltd.
Sunil Gupta vs. ITO Ward -34(2) ITA No.701/Del/2018 dated 29.05.2019
CIT (Central)-1 vs. M/s Goodview Trading Pvt. Ltd. ITA No.377/2016
CIT VS. Orissa Corporation (P)Ltd. [1986] 159 ITR 78 (SC)
CIT vs. Victor Electrodes Ltd. in ITA No.586/2010,
PCIT Vs. Chawla Interbild Construction Co. Pvt.
CIT Bihar vs Hanuman Agarwal (1985) 151 ITR 150 (Patna High Court)
Jalan Timber vs CIT (1997) 223 ITR 11 (Gauhati H.C.)
Neeru Devi Kothari vs ITO (2001) 116 Taxman 224 (Jodhpur)
Sarogi Credit Corporation vs CIT (1976) 103 ITR 344 (Patna HC)
Nemi Chand Kothari vs CIT [2004] 264 ITR 254(Gau)
S. Hastimal vs CIT 49 ITR 272
CIT vs PithampurConzima (P) Ltd. (2000) 244 ITR 442 (MP High Court
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `F', NEW DELHI
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER
AND
SHRI B.R.R. KUMAR, ACCOUNTANT MEMBER
ITA No. 5970/DEL/2017
Assessment Year: 2014-15
ADDL. CIT, SPECIAL VS. PRAYAG POLYTECH PVT. LTD.
RANGE-7, 1106-7, VIKRAM TOWERS,
NEW DELHI 16, RAJENDRA PLACE,
NEW DELHI 110 008
(PAN: AAACP1009R)
(APPELLANT) (RESPONDENT)
ITA No. 6015/DEL/2017
Assessment Year: 2014-15
PRAYAG POLYTECH PVT. LTD. VS. ADDL. CIT, SPECIAL
1106-7, VIKRAM TOWERS, RANGE-7,
16, RANJENDRA PLACE, NEW DELHI
NEW DELHI 110 008
(PAN: AAACP1009R)
(APPELLANT) (RESPONDENT)
Assessee by : Sh. Ved Jain, Adv. & Sh. Ashish Goel, Adv.
Department by : Sh. Surender Pal, Sr. DR.
ORDER
PER H.S. SIDHU, JM
These cross appeals have been filed by the Revenue as well as
Assessee against the impugned order of the Ld. CIT(A)-38, New Delhi
relating to assessment year 2014-15. Since the issues involved in these
appeals are identical, hence, the appeals were heard together and are
being disposed of by this common order for the sake of convenience, by
first dealing with Revenue's Appeal i.e. ITA No. 5970/Del/2017 (AY 2014-
15).
REVENUE'S APPEAL
2. The brief facts of the case are that the assessee filed its return of
income on 29.11.2014 declaring income at Rs. 9,95,10,311/-. The case
was selected for limited scrutiny. Notice u/s. 143(2) of the Income Tax
Act, 1961 (in short "Act") dated 28.8.2015 were issued. Subsequent
notice u/s. 142(1) of the Act dated 26.4.2016 alongwith questionnaire
fixing the case on 5.5.2016. In response to notices, the AR of the
assessee attended the proceedings from time to time and filed necessary
details which were called for and the same were examined by the AO.
Subsequently, the case was transferred to Special Range-7, New Delhi
vide order u/s. 127(1) of the Act dated 09.08.2016. Notice u/s. 142(1)
dated 29.8.2016 was issued. The assessee company is in the business of
manufacturing of Color Master Batches (plastic granules). It is a
manufacturers, and suppliers of roto foam masterbatch, color
masterbatches, polymer processing aid masterbatches, carbon black
masterbatches, additive masterbatches, prafil compound, pracol colour,
black masterbatches, roto foam powder, white master batches. During
the year under consideration, an examination of the balance sheet of the
assessee company as on 31.3.2014 revealed that it had received
unsecured loan of Rs. 47,59,50,000/- during the FY 2013-14 from various
45 parties/lenders, to all of whom AO issued notice u/s. 133(6) letter
dated 18.10.2016. Replies were received from 32 persons, notices were
returned unserved in 5 cases and AO issued fresh notices u/s. 133(6)
dated 08.10.2016 to 13 persons from whom reply to notice u/s 133(6)
dated 18.10.2016 were not received. After further investigations AO
treated an amount of Rs. 9,46,00,000/- shown by the assessee as
unsecured loan received during AY 2014-15 as undisclosed income of the
assessee u/s. 68 of the Act. During appellate proceedings assessee
submitted that the figure of disallowance u/s. 68 actually comes to RS.
10,46,00,000/-. In appeal filed by the Assessee, Ld. CIT(A) deleted the
addition of RS. 1,10,00,000/- in respect of I World Business Solutions
2
Pvt. Ltd. and Rs. 15,00,000/- in respect of KG Embroidery Mills Ltd. vide
order dated 28.6.2017. Aggrieved with the aforesaid action of the Ld.
CIT(A) in deleting the additions, Revenue is in appeal before the Tribunal.
3. On the other hand, Ld. DR relied upon the order of the Assessing
Officer. He submitted that Ld. CIT(A) has wrongly deleted the addition of
Rs. 1,11,00,000/- u/s. 68 of the Act as unsecured loan from M/s I World
Business Solutions Pvt. Ltd., and deleted the addition of Rs. 15,00,000/-
u/s. 68 of the Act, despite the fact that identity, creditworthiness of
lender and genuineness of transaction neither been established before
the AO nor before the Ld. CIT(A). In view of above, he requested that
order of the Ld. CIT(A) may be set aside by upholding the order of the
Assessing Officer on the issues in dispute.
4. On the other hand, Ld. counsel for the assessee relied upon the
order of the Ld. CIT(A) and stated that the lenders had sufficient income
at their disposal to provide loans to the assessee which is substantiated
by their return of income. He further submitted that the lenders are
either Pvt. Ltd. Company or a Public Company whose details are
available on public domain. The loans have been advanced by the
companies through banking channels or from their own funds. There is
no allegation of the AO that there was cash desoits in the bank accounts
by these lenders before providing loans to the assessee and there was no
adverse information with the AO in respect of the lenders. In view of
above submissions, he submitted that Ld. CIT(A) has given the well-
reasoned finding and thus rightly deleted the additions in dispute made
by the AO, which does not need any interference.
5. We have heard both the parties and perused the records especially
the impugned order. We find that Ld. CIT(A) has elaborately discussed
the issues in dispute vide para no. 2.2.11 & 2.2.12 at page no. 25 & 26
of the impugned order. For the sake of clarity, we are reproducing the
relevant finding of the Ld. CIT(A) as under:-
3
"2.2.11 I World Business Solutions Pvt. Ltd. 30/1 East
Patel Nagar, New Delhi And 208, Vikram Tower,
Rajendra Place New Delhi - 110008
Notice u/s 133(6) of the Income Tax Act, 1961
was issued by assessing officer on 18.10.2016 to this
company regarding loan of Rs. 1,11,00,000/- to M/s
Prayag Polytech Pvt Ltd for AY 2014-15 and reply was
received. The returned income of M/s I World Business
Solutions Pvt. Ltd, is Rs. 2,98,40,410/-. AO issued
summon u/s 131 of the Income Tax Act, 1961 on
01.12.2016 in response to which there was no
compliance on behalf of M/s I World Business Solutions
Pvt. Ltd. as a result of which AO held that the identity is
not established by the assessee creditworthiness is
doubtful and the genuineness of the transaction is also
suspicious. However, it is seen that M/s I World
Business Solutions Pvt. Ltd. had reported income of Rs.
2,98,40,410/- for AY 2014-15, which was higher than
the figure of loan to appellant. I hold that in this case
the creditworthiness and identity of lender and the
genuineness of transaction have been proved.
Therefore, AO is directed to delete amount of Rs. 1.11
Cr. from the undisclosed income u/s 68 of the appellant
computed by order u/s 143(3) for AY 2014-15 dated
24.12.2016.
2.2.12 M/s K G Embroidery Mills Ltd. , 3463 Gali Lallu
Mishar, Sadar Bazar, Delhi- 110006
Notice u/s 133(6) of the Income Tax Act, 1961
was issued by assessing officer on 18.10.2016 to this
company regarding loan of Rs. 15,00,000/- to M/s
4
Prayag Polytech Pvt Ltd for AY 2014-15 and reply was
received. The returned income of M/s K G Embroidery
Mills Ltd, is Rs. 1,06,15,973/-. Vide order sheet entry 01
10 2016 Ld. AR of appellant was accorded an
opportunity by assessing officer to produce the Director
of M/s K G Embroidery Mills Pvt. Ltd. and summon u/s
131 dated 01.12.2016 was also sent separately but
neither the AR produced the Director of M/s K G
Embroidery Mills Pvt. Ltd. nor anyone appeared in
compliance to the summon as a result of which AO held
that the identity of lender was not established by the
assessee, creditworthiness is doubtful and the
genuineness of the transaction is also suspicious.
However, it is seen that M/s K G Embroidery Mills Ltd.
had reported income of Rs. 1,06,15,973/- for AY 2014-
15, which was higher than the figure of loan to
appellant. I hold that in this case the creditworthiness
and identity of lender and the genuineness of
transaction have been proved. Therefore, AO is directed
to delete amount of Rs. 15,00,000/- from the
undisclosed income u/s. 68 of the appellant computed
by order u/s. 143(3) for AY 2014-15 dated 24.12.2016."
6. After perusing the aforesaid findings of the Ld. CIT(A) and after
perusal of the financial statement and the documents placed in respect of
these two creditors, we find that each of these two creditors have
sufficient funds and assessee has lead all the evidences to discharge its
onus under section 68 of the Act in respect of identity, creditworthiness
and genuineness of the loan obtained by it, because the lenders had
sufficient income at their disposal to provide loans to the assessee which
is substantiated by their return of income. It is also noted that the
lenders are either Pvt. Ltd. Company or a Public Company whose details
5
are available on public domain and the loans have been advanced by the
companies through banking channels or from their own funds. However,
there is no allegation of the AO that there was cash deposits in the bank
accounts by these lenders before providing loans to the assessee and
there was no adverse information with the AO in respect of the lenders.
In view of above, we are of the view that Ld. CIT(A) has rightly deleted
the addition of Rs. 1,11,00,000/- and Rs. 15,00,000/- by giving a well
reasoned findings, which does not suffer from any illegality or infirmity.
Therefore, we uphold the action of the Ld. CIT(A) on the issues in dispute
and reject the grounds raised by the Revenue.
7. In the result, the Appeal of the Revenue is dismissed.
ASSESSEE'S APPEAL- ITA No. 6015/DEL/2017 (AY : 2014-15)
8. The brief facts of the case are that the assessee company engaged
in the business of manufacturing of colour master batches (plastic
granules). It filed its return of income for assessment year under
consideration on 29.11.2014 declaring an income of Rs.9,95,10,311/-.
During the course of the assessment proceedings the AO noticed that the
assessee company has received unsecured loans of Rs.47,59,50,000/-
from 45 lenders. The assessee submitted necessary details in respect of
each to these parties which included confirmation, audited balance sheet,
ITR, bank statement etc. The AO also made independent enquiry by
issue of notice under section 133(6) as well as under section 131. The
AO, however, was not satisfied about the identity and creditworthiness
of 14 parties out of the 45 parties and made an addition of
Rs.9,46,00,000/- under section 68 of the Act. Aggrieved by the order of
the AO the assessee filed appeal before the CIT(A), who vide his
impugned order dated 28.06.2017 has deleted the addition in respect of
the two parties but confirmed the addition in respect of the remaining
twelve parties. Aggrieved by the order of the Ld. CIT(A), the assessee
is in appeal before us.
6
9. It was submitted by the Ld. AR that AO has made addition in
respect of unsecured loans raised by the assessee during the year from
the fourteen parties of Rs. 10,46,00,000/- (wrongly stated as
Rs.9,46,00,000/- in the assessment order). In the course of assessment
proceedings, the assessee has filed all the necessary evidences which
included Confirmation, Copy of ledger Accounts, Income Tax returns,
Audited balance sheets & copy of Bank statements in respect of all the
45 lenders whose unsecured loans outstanding as on 31.3.2014 including
the above 14 parties. The AO initiated enquiries by issuing notices under
section 133(6) against all the fourteen lenders from whom the unsecured
loans of Rs. 10,46,00,000/- were raised during the year and all the
notices were served upon all the 14 lenders as is evident from PB Pages
57-101. In compliance there to all the 14 lenders replied to the notices
served along with the details asked for by the AO as is evident from PB
Pages 102-584. The AO, after going through the information and
documents received, made additions of Rs. 9,46,00,000/- on account of
unsecured loans taken from the all the above 14 persons, making the
vague allegations like the income of the lenders as per the ITR are less
than the amount of loan given to the assessee company, the two lenders
have common business premises etc. without pointing out any defect in
the documents filed and ignoring the fact the all the amounts have been
duly reflected in the bank statements and balance sheet of the lenders,
lenders have confirmed that they have given the loans, all the notices
were served upon the lenders and thus the assessee has duly discharged
its onus to substantiate the loan transactions and hence no addition
could be made in the hands of the assessee. The AO also made a totaling
error and made addition of Rs. 9,46,00,000/- as against the amount of
Rs. 10,46,00,000/- alleged by him.
10. The Ld. AR submitted that the Ld. CIT(A) has upheld the action of the
AO by holding that out of the 14 lenders, 12 lenders have income during
the year under consideration less than the amount advanced by these 12
7
lenders. The CIT(A) however deleted addition in respect of 2 lenders
since, returned income of the assessment year under consideration of
these two lenders i.e. M/s I World Business Solutions Pvt. Ltd. and K G
Embroidery Mills Ltd. was more than the loan advanced by them to the
assessee. It was submitted that both AO and CIT(A) have gone wrong in
ignoring the fact that the income returned has no relation to the funds
available to an entity to lend the same. It was submitted that the current
year's profit or loss of the lending companies alone is not the only
relevant criteria to decide the source/credit worthiness or genuineness of
the loan transactions. The Ld. AR in support of this contention placed
reliance on the judgment of coordinate bench of ITAT in the case of ITO
vs. Computer Home Information Plus Pvt. Ltd. ITA No.5680/Del/2016
dated 24.05.2019 and Sunil Gupta vs. ITO Ward -34(2) ITA
No.701/Del/2018 dated 29.05.2019 and also judgment of jurisdictional
Delhi High Court in the case of Pr. CIT (Central)-1 vs. M/s Goodview
Trading Pvt. Ltd. ITA No.377/2016 dated 21.11.2016.
10.1 The Ld. AR further submitted that it is a case where assessee has
taken loan and has been paying interest regularly after deduction of tax
at source. Each of these parties have shown interest income in their
return filed with the department and also claimed credit of the tax
deducted as is evident from the return. It was submitted that there is no
allegation of any accommodation entry or any adverse statement by any
person in respect of the transactions entered into by the assessee. It was
submitted that there is nothing on record to doubt or proved or support
the contention or observations of the AO sustained by the Ld. CIT(A).
That the loan received by the assessee company is nothing but
unexplained money of the company brought into the business of the
assessee in the guise of unsecured loan. The assessee has discharged its
initial burden by establishing the identity of the loan creditors beyond any
shadow of doubt. Thereafter, the department could not bring any positive
material on record to show that the either the loan creditors have not
actually advanced the money in question or they could not have advanced
8
the same. The Ld. AR further submitted that all the lenders are either
Public Limited or Private Limited companies and are existing income tax
assessee having PAN and have duly filed their returns. The loans have
been advanced by the companies through the banking channels or from
their own funds. There is no allegation of the AO that there were any cash
deposits in the bank. As regards the case laws relied upon by the AO and
the CIT(A), it was submitted that these case laws are not applicable
because the same firstly are on the share capital issued at heavy
premium without there being any economic significance in the invested
company. Moreover, in these cases there were adverse statements given
by the directors/operators of the company having engaged in
accommodation entries. Further, in these case laws there were allegation
that these companies are not existing. In the present case there is no
such adverse material or statement. The Ld. AR submitted that, if the
creditor does not appear in response to summons issued under section
131, no adverse inference can be drawn. A.O. having initiated the
investigation, he has to take it to the logical end. In the present case Ld.
AO initiated enquiries by issuing notices under section 133(6) against all
the fourteen lenders from whom the unsecured loans of Rs.
10,46,00,000/- were raised during the year and all the notices were
served upon all the 14 lenders. The Ld. AR placed reliance on the
judgment of Supreme Court in the case of CIT VS. Orissa Corporation (P)
Ltd. [1986] 159 ITR 78 (SC) wherein it was held that in case the creditor
does not appear in response to summons issued under section 131, no
adverse inference can be drawn. A.O. having initiated the investigation,
himself has to take it to the logical end.
10.2 The Ld. AR submitted that the AO as well as Ld. CIT(A) have gone
wrong in sustaining additions by observing that the assessee could not
produce the directors of the company. It was argued that the assessee
company is not bound to produce the Directors/ Principle Officers of the
companies from whom it has taken loan. The Ld. AR submitted that in the
9
present case the assessee company has taken loan paid interest thereon
and the loan stood repaid later on as is evident from the chart placed at
paper book pages 597-599. The Ld. AR placed reliance on the judgment
of the jurisdictional High Court of Delhi in the case of CIT vs. Victor
Electrodes Ltd. in ITA No.586/2010, where the High Court has held that
there is no legal obligation on the assessee to produce Director or other
representative of the applicant companies before the Assessing Officer
and failure of assessee to produce them could not by itself justify the
additions. The Ld. AR also placed reliance on the judgment of Bombay
High Court in the case of PCIT Vs. Chawla Interbild Construction Co. Pvt.
Ltd., ITA No. 1103 of 2015, dated 28.02.2018 where a similar issue has
come up.
10.3 The Ld. AR further placed reliance on following judgments:
(i) Addl. CIT Bihar vs Hanuman Agarwal (1985) 151 ITR 150 (Patna
High Court)
(ii) Jalan Timber vs CIT (1997) 223 ITR 11 (Gauhati H.C.)
(iii) Neeru Devi Kothari vs ITO (2001) 116 Taxman 224 (Jodhpur)
(iv) Sarogi Credit Corporation vs CIT (1976) 103 ITR 344 (Patna HC)
(v) Nemi Chand Kothari vs CIT [2004] 264 ITR 254(Gau)
(vi) S. Hastimal vs CIT 49 ITR 272
(vii) CIT vs PithampurConzima (P) Ltd. (2000) 244 ITR 442 (MP High
Court
(viii) TolaramDaga's case [1966] 59 ITR 632 (Assam)
11. In reply the Ld. DR placed reliance on the order passed by the AO
and the Ld. CIT(A). It was submitted that the assessee has failed to
discharge its onus under section 68 of the Act and the AO and the CIT(A)
were justified in making the additions. The Ld. DR submitted that AO and
CIT(A) have examined each of the creditor and has recorded finding on
the basis of the material. It was submitted though it is not a case of a
share capital but the parameter for discharging the onus under section 68
is the same as in the case of share capital. The Ld. DR submitted that
10
though there is no adverse statement in respect of the loan taken by the
assessee from the various lenders but the onus is upon assessee which he
has failed to discharge. The Ld. DR place reliance on the order of the
Supreme Court in the case of Pr. CIT vs. NRA Iron & Steel Pvt. Ltd. 103
taxmann.com 48 (SC) ( 2019) and order of the Delhi High Court in the
case of Pr. CIT, New Delhi vs. NDR Promoters Pvt. Ltd. 102 taxmann.com
182 (Delhi) (2019) dated 17.01.2019.
12. We have heard the rival submissions and perused the order passed
by the authorities below and the paper book filed by the assessee. It is a
case where addition has been made in respect of the loan of
Rs.10,46,00,000/- raised by the assessee during the year from the 14
parties. Before discussing each of the credit it will be relevant to examine
the facts of the present case. The assessee is a company engaged in
manufacturing of colour master batches (plastic granules). During the
year under consideration its total turnover was Rs.308.26 Crore and it has
filed its return of income declaring income of Rs.9.95 Crore. It has raised
loans during the year from 45 lenders totaling Rs.47,59,50,000/-. The AO
made detailed enquiry during the year as is evident from the assessment
order and drew adverse inference in respect of the 14 lenders and made
addition on the basis of such adverse inference. The CIT(A) has deleted
addition in respect of two lenders and confirmed the addition in respect of
the remaining 12 lenders. Now the issue to be adjudicated by us is
whether the adverse inference drawn in respect of these 12 lenders is
justified.
1.1 M/s AKB Trexim Pvt. Ltd.
The assessee has taken a loan of Rs.50,00,000/- from this company
which has been added by the AO. The AO has drawn adverse inference
on the ground that the returned income of this company is Rs.3,19,807/-
which is less than the loan given to the assessee. It has been further
stated that office of this company is in the same premises as is of
Luminant Distributors Pvt. Ltd. the another lender company. It has been
further stated that the director in his statement has stated that his main
11
company is ANR International Pvt. Ltd. and he is also director in another
6 companies which includes above two companies. The AO has also
drawn adverse inference on the ground that the amount has been
credited in the bank account of assessee company from another company
M/s ANR International Pvt. Ltd. on the same day. On this basis he has
held that the genuineness of transaction is doubtful and also placed
reliance on the judgment of Punjab & Haryana High Court in the case of
Papneja Traders vs. Commissioner of Income Tax (2012) 20
taxmann.com 752 and CIT vs. Precision Finance Ltd. (1994) 208 ITR 465
(Cal.) and Shanker Industries vs. CIT (1978) 114 ITR 689 (Cal.). The
CIT(A) after recording the above facts as stated in the assessment order
has upheld the addition stating that none of the arguments submitted by
the Ld. AR of the appellant have proved the capacity of the creditor and
genuineness of the transaction.
On going through the paper book we note that the assessee has
taken a loan of Rs.50,00,000/- on 27.09.2013 as per the copy of account
placed at paper book page 103. This loan has been paid by the lender
from its bank account with Oriental Bank of Commerce, Preet Vihar vide
cheque no.971255 debited in its bank account on 27.09.2013 placed at
paper book page 214-215. The assessee company had paid interest of
Rs.1,35,000/- on this loan vide cheque no.391171 after deducting tax at
source of Rs.15,000/-. This interest is credited in the bank account of
Lender Company with HDFC Bank placed at paper book page 106.
Further, interest of Rs.74,250/- has been paid on 25.01.2014 after
deducting tax at source of Rs.8,250/- which is credited in the bank
account with HDFC bank the lender company placed at paper book page
107. This lender company has filed its income tax return on 22.08.2014
declaring an income of Rs.3,19,807/- placed at paper book page 176.
Further, in the income tax return it has claimed credit of the tax
deducted by the assessee as is evident from the details of the claim
made in the ITR placed at paper book page 205. As per the audited
balance sheet placed at paper book page 116 this company had revenue
12
from operation of Rs.63.90 lacs which includes Rs.40,28,544/- on
account of interest income as per paper book page 126. It has its own
funds of Rs.8,89,04,870/- which include beside share capital and
premium and accumulated profit of Rs.47,92,353/-. It has also raised
loan from Kotak Mahindra Ltd. as is evident from the balance sheet at
page 124. The AO had issued notice under section 133(6) and in
response thereto it has confirm the account and has also filed the
necessary document in support of the loan advanced by it to assessee
company vide letter dated 08.12.2016 placed at paper book page 102. In
response to further query by the AO it has filed another letter dated
09.12.2016 with copy of bank statement for the whole year of HDFC
Bank and Oriental Bank of Commerce placed at paper book page 208.
From the above facts it is evident that this company has sufficient funds
with it. Not only it has share capital but also accumulated profits. The AO
has drawn adverse inference on the ground that the return of income is
less than the loan advance by this company.
We are of the view that there is no such condition in section 68 that
loan can only be advanced out of the taxable income of the current year.
The requirement of section 68 are 3 i.e. identity, creditworthiness and
genuineness. In the present case admittedly there is no doubt about the
identity. As regards the creditworthiness the AO has gone with the
presumption that it is only the current year taxable income which can
establish the creditworthiness. This presumption of the AO is incorrect.
The creditworthiness can be established by showing the source from
where the money has been paid. Such money can be paid out of its net
worth, out of the loan raised by it or out of income earned by it. The
source can be any of such means or mixed of these. In the present from
the balance sheet of the lender company it is evident that it has net
worth of more than Rs.8 crore which include accumulated profits also.
Thus, it cannot be said that the lender company did not have
creditworthiness. As regards the contention of the AO that the funds
have been transferred from the another company ANR International Pvt.
13
Ld. on the same day, that can also be not a ground to hold that
creditworthiness is not established or the transaction is doubtful. In this
case the AO himself has stated that in the statement the director has
stated on oath that his main company is ANR International Pvt. Ltd.
Thus, transfer from the parent company to this lender company which
happen to be within the same group cannot be a ground to draw adverse
inference. Similarly, the adverse inference is being drawn by the AO that
the two companies are carrying out business activities from the same
premises is unjustified. From the facts quoted in the assessment order
itself it is transpiring that these are group companies of Mr. Anup Kumar
Chhawchharia. It is a normal practice that group companies are run from
the same premises. From the above facts and analysis we are of the view
that assessee has lead all evidences in support of its contention and the
identity, creditworthiness and genuineness of the transaction stand
established.
1.2 Luminant Distributors Pvt. Ltd.
The assessee has taken a loan of Rs.25,00,000/- from this company
which has been added by the AO. The AO has drawn adverse inference
on the ground that the returned income of this company is Rs.2,44253/-
which is less than the loan given to the assessee. Further, reasoning
given by the AO for making the addition is the same as in the case of M/s
AKB Trexim Pvt. Ltd. In fact the AO has dealt both these creditors in the
same para.
On going through the paper book we note that from the copy of
account placed at paper book page 221 that there was opening credit
balance of Rs.50,00,000/- in the name of this company. This loan was
return on 31.07.2013 by the assessee company. The credit of this
amount is appearing in the bank account of the lender company HDFC
Bank at paper book page 320. From this bank account it has transferred
this amount of Rs.50,00,000/- to its parent company ANR International
Pvt. Ltd. Thereafter this company has paid a sum of Rs.25,00,000/- on
27.09.2013 to the lender company. The amount which has been paid
14
from the bank account maintained by the lender company with Oriental
Bank of Commerce where again money has come back from its parent
company ANR International Pvt. Ltd. Thus, the refund has gone to parent
company ANR International Pvt. Ltd. and the further payment has also
come from the parent company. The assessee company has paid interest
on this loan of Rs.67,500/- after deducting tax at source of Rs.7,500/-
and further interest of Rs.37,125/- after deducting TDS of Rs.4,125/-.
Both these interest payments got credited to the lender companies bank
account with HDFC Bank as is evident from the copy of bank statement
at page 224 and 227.
This lender company has filed its income tax return on 22.08.2014
declaring an income of Rs.2,44,253/- placed at paper book page 228.
Further, in the income tax return it has claimed credit of the tax
deducted by the assessee as is evident from the details of the claim
made in the ITR placed at paper book page 257. As per the audited
balance sheet placed at paper book page 260 this company had revenue
from operation of Rs.16,59,110 which includes Rs.15,10,763/- on
account of interest income as per paper book page 270. It has its own
funds of Rs.6,47,51,771/- which include beside share capital and
premium and accumulated profit of Rs.17,77,433/- The AO had issued
notice under section 133(6) and in response thereto it has confirm the
account and has also filed the necessary document in support of the loan
advanced by it to assessee company vide letter dated 30.11.2016 placed
at paper book page 217. In response to further query by the AO it has
filed another letter dated 09.12.2016 with copy of bank statement for the
whole year of HDFC Bank and Oriental Bank of Commerce placed at
paper book page 318. From the above facts it is evident that this
company has sufficient funds with it. Not only it has share capital but
also accumulated profits. The AO has drawn adverse inference on the
ground that the return of income is less than the loan advance by this
company. As held hereinabove, that there is no such condition in section
68 that loan can only be advanced out of the taxable income of the
15
current year. The requirement of section 68 are 3 i.e. identity,
creditworthiness and genuineness. In the present case admittedly there
is no doubt about the identity. As regards the creditworthiness the AO
has gone with the presumption that it is only the current year taxable
income which can establish the creditworthiness. This presumption of the
AO is incorrect. The creditworthiness can be established by showing the
source from where the money has been paid. Such money can be paid
out of its net worth, out of the loan raised by it or out of income earned
by it. The source can be any of such means or mixed of these. In the
present from the balance sheet of the lender company it is evident that it
has net worth of more than Rs.6 crore which include accumulated profits
also. Thus, it cannot be said that the lender company did not have
creditworthiness. As regards the contention of the AO that the funds
have been transferred from the another company ANR International Pvt.
Ld. on the same day, that can also be not a ground to hold that
creditworthiness is not established or the transaction is doubtful. In this
case the AO himself has stated that in the statement the director has
stated on oath that his main company is ANR International Pvt. Ltd.
Thus, transfer from the parent company to this lender company which
happen to be within the same group cannot be a ground to draw adverse
inference. Infact in the present case as we notice from the copy of
account at paper book page 221, the assessee company has returned a
sum of Rs.50,00,000/- to this lender company on 31.07.2013 which in
turn has given money to ANR International Pvt. Ltd. At the same time
when money was advanced by this lender company it receive
Rs.25,00,000/- from ANR International Pvt. Ltd. These are transaction
between the group company and nothing adverse can be inferred. On the
contrary these transactions confirmed that the source is from within the
group. Similarly, the adverse inference is being drawn by the AO that the
two companies are carrying out business activities from the same
premises is unjustified. From the facts quoted in the assessment order
itself it is transpiring that these are group companies of Mr. Anup Kumar
16
Chhawchharia. It is a normal practice that group companies are run from
the same premises. From the above facts and analysis we are of the view
that assessee has lead all evidences in support of its contention and the
identity, creditworthiness and genuineness of the transaction stand
established.
1.3 Fair Securities Pvt. Ltd.
The assessee has taken a loan of Rs.50,00,000/- from this company
which has been added by the AO. The AO has drawn adverse inference
on the ground that the returned income of this company is loss of
Rs.1,27,329/- which is less than the loan given to the assessee. The AO
has also drawn adverse inference on the ground that this company has
received Rs.1.35 Crore on 21.12.2013 and an amount of Rs.50,00,000/-
has been transferred to the assessee company on 26.12.2013. The AO
has further held that a summon under section 131 was issued on
18.11.2016 and in response thereto none attended. On this basis the AO
has held identity of the person is not established. The CIT(A) after
recording the above facts as stated in the assessment order has upheld
the addition stating that none of the arguments submitted by the Ld. AR
of the appellant have proved the capacity of the creditor and
genuineness of the instant transaction.
On going through the paper book we note that from the copy of
account placed at paper book page 325 that there was opening credit
balance of Rs.15,00,000/- in the name of this company. The assessee
company paid interest of Rs.4,500/- after deducting tax at source of
Rs.4,500/- on this outstanding loan of the last year. This payment of
interest got credit to the bank account of the lender company on
10.04.2013 with Union Bank of India, Lajpat Nagar, Delhi placed at paper
book page 343. This loan was returned on 31.07.2013 by the assessee
company. This amount repaid by the assessee company got credited to
the lender companies bank account with Union Bank of India on
31.07.2013 as is evident from the bank statement placed at paper book
page 341. Thereafter the lender company has paid a sum of
17
Rs.50,00,000/- on 26.12.2013 to the assessee company. This amount
has been paid by the lender company from its same bank account with
Union Bank of India placed at paper book page 340. The assessee
company has paid interest on this loan of Rs.1,44,000/- after deducting
tax at source of Rs.16,000/- . The interest payment got credited to the
lender companies on 08.04.2014 in the same bank account with Union
Bank of India as is evident from the copy of bank statement at page
342.This lender company has filed its income tax return on 28.09.2014
declaring loss of Rs.1,27,239/- placed at paper book page 327. As per
the audited balance sheet placed at paper book page 328 this company
has its own funds of Rs.3,20,43,434/- . It has also raised loan from its
promoters namely Mr. Virender Kumar Goel and Mrs. VarshaGoel of
Rs.3.24 Crore as is evident from the schedule attached to the balance
sheet at paper book page 329. Further on going through the schedule
attached to the balance sheet we note that this advance of Rs.50 lacs
has been shown in the name of the assessee company i.e. Prayag
Polytech Pvt. Ltd. at paper book page 332. The AO had issued notice
under section 133(6) and in response thereto it has confirmed the
account and has also filed the necessary document in support of the loan
advanced by it to Assessee Company. From the above facts it is evident
that this company has sufficient funds with it. The AO has drawn adverse
inference on the ground that the return of income is less than the loan
advanced by this company. As held hereinabove, that there is no such
condition in section 68 that loan can only be advanced out of the taxable
income of the current year. The requirement of section 68 are 3 i.e.
identity, creditworthiness and genuineness. In the present case
admittedly there is no doubt about the identity. As regards the
creditworthiness, the AO has gone with the presumption that it is only
the current year taxable income which can establish the creditworthiness.
This presumption of the AO is incorrect. The creditworthiness can be
established by showing the source from where the money has been paid.
Such money can be paid out of its net worth, out of the loan raised by it
18
or out of income earned by it. The source can be any of such means or
mixed of these. In this case from the balance sheet of the lender
company it is evident that it has net worth of more than Rs.3 crore and
loan of Rs.3.24 Crore from the promoters of the company. Thus, it
cannot be said that the lender company did not have creditworthiness. As
regards the contention of the AO that it has received Rs.1.35 crore on
21.12.2013 and out of which it has transferred Rs.50 lacs to the assessee
company on 26.12.2013 that can also be not a ground to hold that
creditworthiness is not established or the transaction is doubtful. In this
case as is evident from the balance sheet the lender company has
received funds from the promoter namely Mr. Virender Kumar Goel and
Mrs. VarshaGoel and there is nothing wrong in such transaction. Thus,
transfer within the same group cannot be a ground to draw adverse
inference. Infact in the present case as we notice from the copy of
account at paper book page 325, the assessee company has returned a
sum of Rs.15,00,000/- to this lender company on 31.07.2013 when there
was no need of the funds, probably to save interest and later on received
Rs.50,00,000/- on 26.12.2013 when it was again need of funds.
Similarly, the adverse inference being drawn by the AO that no one
appeared in response to the summon issued under section 131 cannot
per se be a ground to make addition. The AO himself had stated that
notice under section 133(6) was issued on 18.10.2016 and reply was
also received along with necessary details. The AO has further stated
that summon under section 131 was issued on 18.11.2016 but in
response none attended till date. This means that summon has been
served. In these circumstances, the AO cannot shift the burden on the
assessee for non-appearance of the creditor in response to thesummon
issued by him. It was for AO to take the issue of non-attendance in
response to the summon to the logical end. He cannot ignored the
material and evidences already brought on record merely on the ground
that the lender has not appeared in response to the summon more so
when it is an admitted fact in the assessment order that reply in
19
response to notice under section 133(6) was received along with the
evidences confirming the loan advanced to the assessee company. In the
present case the assessee has discharged its onus placed on it under
section 68 by filing all the evidences. The AO has also received reply
from the creditor..Further, the adverse inference drawn by the AO on the
ground that this company and KPC Consultant Pvt. Ltd. are carrying out
business activities from the same premises is unjustified. From the facts
quoted in the assessment order itself it is transpiring that these are
group companies. It is a normal practice that group companies are run
from the same premises. From the above facts and analysis we are of the
view that assessee has lead all evidences in support of its contention and
the identity, creditworthiness and genuineness of the transaction stand
established.
1.4 KPC Consultants Pvt. Ltd.
The assessee has taken a loan of Rs.30,00,000/- from this company
which has been added by the AO. The AO has drawn adverse inference
on the ground that the returned income of this company is Nil which is
less than the loan given to the assessee. Further, reasoning given by the
AO for making the addition is the same as in the case of M/s Fair
Securities Private Limited discussed hereinabove. In fact the AO has dealt
both these creditors in the same para.The AO has further held that a
summon under section 131 was issued on 18.11.2016 and in response
thereto none attended. On this basis the AO has held identity of the
person is not established. The CIT(A) after recording the above facts as
stated in the assessment order has upheld the addition stating that how
the OD limit could be utilised to give loan by the lender company and
none of the arguments submitted by the Ld. AR of the appellant have
proved the capacity of the creditor and genuineness of the instant
transaction.
On going through the paper book we note that the assessee has taken
a loan of Rs.30,00,000/- on 26.12.2013 as per the copy of account
placed at paper book page 344. This loan has been paid by the lender
20
from its bank account with Union Bank of India vide cheque no.32138628
debited in its bank account on 26.12.2013 placed at paper book page
356. The assessee company had paid interest of Rs.86,400/- on this loan
of Rs.30,00,000/- after deducting tax at source of Rs.9,600/-. This
interest is credited in the bank account of Lender Company with Union
Bank of India placed at paper book page 357. This lender company has
filed its income tax return on 28.09.2014 placed at paper book page 346.
As per the audited balance sheet placed at paper book page 347 this
company had interest income of Rs.12,40,650/- as per paper book page
351. It has its own funds of Rs.72,46,288/- as per paper book page 347.
It has further loan of Rs.3,27,75,000/-from the promoters namely
VarshaGoel and Virender Kumar Goel as is evident from the balance
sheet at page 348. Further on going through the schedule attached to
the balance sheet we note that this advance of Rs.30 lacs has been
shown in the name of the assessee company i.e. Prayag Polytech Pvt.
Ltd. at paper book page 350. The AO had issued notice under section
133(6) and in response thereto it has confirm the account and has also
filed the necessary document in support of the loan advanced by it to
assessee company. From the above facts it is evident that this company
has sufficient funds with it. The AO has drawn adverse inference on the
ground that the return of income is less than the loan advanced by this
company. We are of the view that there is no such condition in section 68
that loan can only be advanced out of the taxable income of the current
year. The requirement of section 68 are 3 i.e. identity, creditworthiness
and genuineness. In the present case admittedly there is no doubt about
the identity. As regards the creditworthiness the AO has gone with the
presumption that it is only the current year taxable income which can
establish the creditworthiness. This presumption of the AO is incorrect.
The creditworthiness can be established by showing the source from
where the money has been paid. Such money can be paid out of its net
worth, out of the loan raised by it or out of income earned by it. The
source can be any of such means or mixed of these. In the present from
21
the balance sheet of the lender company it is evident that it has net
worth of more than Rs.72 lacs besides funds lent by the promoters to the
extent of Rs.3.27 crore. Thus, it cannot be said that the lender company
did not have creditworthiness.Further, the adverse inference drawn by
the AO on the ground that this company and Fair Securities Pvt. Ltd. are
carrying out business activities from the same premises is unjustified.
From the facts quoted in the assessment order itself it is transpiring that
these are group companies. It is a normal practice that group companies
are run from the same premises.From the above facts and analysis we
are of the view that assessee has lead all evidences in support of its
contention and the identity, creditworthiness and genuineness of the
transaction stand established.
1.5 Avail Financial Securities Pvt. Ltd.
The assessee has taken a loan of Rs.1,00,00,000/- from this company on
07.01.2014 which has been added by the AO. The AO has drawn adverse
inference on the ground that the returned income of this company is less
than the loan given to the assessee. The AO has further held that a
summon under section 131 was issued on 18.11.2016 and in response
thereto none attended. The AO has further stated that on perusal of bank
account, it is seen that it did not have any balance in its bank account
with Dena Bank, Nehru Place and it received Rs.1 crore by way of
transfer from SKPJA Investment and transferred the same to Prayag
Polytech Pvt. Ltd. Further this company is having the same office as that
of Lovely Securities Pvt. Ltd. which has given loan to the assessee
company. On this basis the AO has held capacity of the creditor is not
proved. The CIT(A) after recording the above facts as stated in the
assessment order has upheld the addition stating none of the arguments
submitted by the Ld. AR of the appellant have proved the capacity of the
creditor and genuineness of the instant transaction.
On going through the paper book we note that from the copy of
account placed at paper book page 358 that the lender company has paid
a sum of Rs.1,00,00,000/- on 07.01.2014 to the assessee company. This
22
amount has been paid by the lender company from its bank account with
Dena Bank, Nehru Place out of the money received by it from SKPJ
Investment as is evident from bank statement placed at paper book page
395. Theassessee company has paid interest on this loan of
Rs.2,49,000/- after deducting tax at source of Rs.27,667/- . The interest
payment got credited to the lender companies on 10.01.2014 in the
same bank account with Dena Bank as is evident from the copy of bank
statement at page 395.This lender company has filed its income tax
return on 28.09.2014 declaring income of Rs.28,85,455/- and paid taxes
thereon of Rs.6,40,880/- as per the ITR placed at paper book page 360.
As per the audited balance sheet placed at paper book page 372 this
company has its own funds of Rs.11.63 Crore. Further on going through
the schedule attached to the balance sheet we note that this advance of
Rs.1 Crore has been shown in the name of the assessee company i.e.
Prayag Polytech Pvt. Ltd. at paper book page 375. The AO had issued
notice under section 133(6) and in response thereto it has confirmed the
account and has also filed the necessary document in support of the loan
advanced by it to Assessee Company. From the above facts it is evident
that this company has sufficient funds with it. The AO has drawn adverse
inference on the ground that the return of income is less than the loan
advanced by this company. As held hereinabove, that there is no such
condition in section 68 that loan can only be advanced out of the taxable
income of the current year. The requirement of section 68 are 3 i.e.
identity, creditworthiness and genuineness. In the present case
admittedly there is no doubt about the identity. As regards the
creditworthiness, the AO has gone with the presumption that it is only
the current year taxable income which can establish the creditworthiness.
This presumption of the AO is incorrect. The creditworthiness can be
established by showing the source from where the money has been paid.
Such money can be paid out of its net worth, out of the loan raised by it
or out of income earned by it. The source can be any of such means or
mixed of these. In this case from the balance sheet of the lender
23
company it is evident that it has net worth of more than Rs.11 Crore.
Thus, it cannot be said that the lender company did not have
creditworthiness. As regards the contention of the AO that it has received
Rs.1 crore on 10.12.2013 from SKPJ Investment and out of which it has
transferred Rs.1 Crore to the assessee company on same date, that can
also be not a ground to hold that creditworthiness is not established or
the transaction is doubtful. It is normal in the case of a finance company
to receive back the funds from one entity and to lend the money so
received to the other entity. On going through the bank statement we
note that there is no cash deposit and there are many transactions with
SKPJ Investment. Nothing adverse has been brought on record by the AO
about the lender company i.e. AVAIL Financial Services Pvt. Ltd. nor
against the SKPJ Investment. The AO having got the bank statement of
the lender company indicating the source of the money from SKPJ
Investment, in case he was having any doubt he could have made
further enquiry. He cannot draw adverse inference merely on the basis
that the amount has been advanced out of the money received from
SKPJ Investment. In fact this establishes the source of the credit. Further
we note in this case this lender company has declared an income of
Rs.28,85,455/- which itself establishes the credibility of lender company.
Further, the adverse inference being drawn by the AO that no one
appeared in response to the summon issued under section 131 cannot
per se be a ground to make addition. The AO himself had stated that
notice under section 133(6) was issued on 18.10.2016 and reply was
also received along with necessary details. The AO has further stated
that summon under section 131 was issued on 18.11.2016 but in
response none attended till date. This means that summon has been
served. In these circumstances, the AO cannot shift the burden on the
assessee for non-appearance of the creditor in response to the summon
issued by him. It was for AO to take the issue of non-attendance in
response to the summon to the logical end. He cannot ignore the
material and evidences already brought on record merely on the ground
24
that the lender has not appeared in response to the summon. In the
present case the assessee has discharged its onus placed on it under
section 68 by filing all the evidences. The AO has also received reply
from the creditor..Further, the adverse inference drawn by the AO on the
ground that this company and Lovely Securities Pvt. Ltd. are carrying out
business activities from the same premises is unjustified. From the facts
quoted in the assessment order itself it is transpiring that these are
group companies. It is a normal practice that group companies are run
from the same premises. From the above facts and analysis we are of the
view that assessee has lead all evidences in support of its contention and
the identity, creditworthiness and genuineness of the transaction stand
established.
1.6 Lovely Securities Pvt. Ltd.
The assessee has taken a loan of Rs.1,00,00,000/- from this company on
10.12.2013 which has been added by the AO. The AO has drawn adverse
inference on the ground that the returned income of this company is less
than the loan given to the assessee. The AO has further held that a
summon under section 131 was issued on 18.11.2016 and in response
thereto none attended. The AO has further stated that on perusal of bank
account, it is seen that it did not have any balance in its bank account
with Dena Bank, Nehru Place and it received Rs.1 crore by way of
transfer from RKG Finvest Pvt. Ltd. and transferred the same to Prayag
Polytech Pvt. Ltd. This company RKG Finvest Pvt. Ltd. has also
independently given loan of Rs.50 lacs to the assessee company. The AO
has also drawn adverse inference as this company is having the same
office as that of AVAIL Financial Securities Pvt. Ltd. which has given loan
to the assessee company. On this basis the AO has held capacity of the
creditor is not proved. The CIT(A) after recording the above facts as
stated in the assessment order has upheld the addition stating none of
the arguments submitted by the Ld. AR of the appellant have proved the
capacity of the creditor and genuineness of the instant transaction.
25
On going through the paper book we note that from the copy of
account placed at paper book page 396 that the lender company has paid
a sum of Rs.1,00,00,000/- on 10.12.2013 to the assessee company. This
amount has been paid by the lender company from its bank account with
Dena Bank, Nehru Place, New Delhi out of the money received by it from
RKG Finvest as is evident from bank statement placed at paper book
page 428. The assessee company has paid interest on this loan of
Rs.2,70,000/- after deducting tax at source of Rs.30,000/-. The interest
payment got credited to the lender company on 16.12.2013 in the same
bank account with Dena Bank as is evident from the copy of bank
statement at page 428. Further, interest of Rs.66,000/- has been paid on
10.03.2014 after deducting TDS of Rs.7,333/-.This lender company has
filed its income tax return on 22.09.2014 declaring income of
Rs.48,0000/- and paid taxes thereon of Rs.37,848/- and claimed a
refund of Rs.4,560/- after taking credit of TDS of Rs.42,412/- as per the
ITR placed at paper book page 398. As per the audited balance sheet
placed at paper book page 411 this company has its own funds of
Rs.11.26 Crore. Further on going through the schedule attached to the
balance sheet we note that this advance of Rs.1 Crore has been shown in
the name of the assessee company i.e. Prayag Polytech Pvt. Ltd. at
paper book page 414. The AO had issued notice under section 133(6)
and in response thereto it has confirmed the account and has also filed
the necessary document in support of the loan advanced by it to
Assessee Company. This fact has been stated by the AO in the
assessment order itself. From the above facts it is evident that this
company has sufficient funds with it. The AO has drawn adverse
inference on the ground that the return of income is less than the loan
advanced by this company. As held hereinabove, that there is no such
condition in section 68 that loan can only be advanced out of the taxable
income of the current year. The requirement of section 68 are 3 i.e.
identity, creditworthiness and genuineness. In the present case
admittedly there is no doubt about the identity. As regards the
26
creditworthiness, the AO has gone with the presumption that it is only
the current year taxable income which can establish the creditworthiness.
This presumption of the AO is incorrect. The creditworthiness can be
established by showing the source from where the money has been paid.
Such money can be paid out of its net worth, out of the loan raised by it
or out of income earned by it. The source can be any of such means or
mixed of these. In this case from the balance sheet of the lender
company it is evident that it has net worth of more than Rs.11 Crore.
Thus, it cannot be said that the lender company did not have
creditworthiness. As regards the contention of the AO that it has received
Rs.1 crore on 10.12.2013 from RKG Finvest Ltd. and out of which it has
transferred Rs.1 Crore to the assessee company on same date, that can
also be not a ground to hold that creditworthiness is not established or
the transaction is doubtful. In fact it strengthens the case of the assessee
as it establishes the source of source unless there is material to draw
adverse inference against such source of source.It is normal in the case
of a finance company to receive back the funds from one entity and to
lend the money so received to the other entity. Further, on going through
the bank statement of Lovely Securities Pvt. Ltd. we note that there is no
cash deposit and there are many transactions with RKG Finvest Ltd.
Nothing adverse has been brought on record by the AO about the lender
company i.e. Lovely Securities Pvt. Ltd. nor against the RKG Finvest Ltd.
The AO having got the bank statement of the lender company indicating
the source of the money from RKG Finvest Ltd., in case he was having
any doubt he could have made further enquiry. He cannot draw adverse
inference merely on the basis that the amount has been advanced out of
the money received from RKG Finvest Ltd. In fact this establishes the
source of the source. Further, the adverse inference being drawn by the
AO that no one appeared in response to the summon issued under
section 131 cannot per se be a ground to make addition. The AO himself
had stated that notice under section 133(6) was issued on 18.10.2016
and reply was also received along with necessary details. The AO has
27
further stated that summon under section 131 was issued on 18.11.2016
but in response none attended till date. This means that summon has
been served. In these circumstances, the AO cannot shift the burden on
the assessee for non-appearance of the creditor in response to the
summon issued by him. It was for AO to take the issue of non-
attendance in response to the summon to the logical end. He cannot
ignore the material and evidences already brought on record merely on
the ground that the lender has not appeared in response to the summon.
In the present case the assessee has discharged its onus placed on it
under section 68 by filing all the evidences. The AO has also received
reply from the creditor. .Further, the adverse inference drawn by the AO
on the ground that this company and AVAIL Financial Securities Pvt. Ltd.
are carrying out business activities from the same premises is
unjustified. From the facts quoted in the assessment order itself it is
transpiring that these are group companies. It is a normal practice that
group companies are run from the same premises. From the above facts
and analysis we are of the view that assessee has lead all evidences in
support of its contention and the identity, creditworthiness and
genuineness of the transaction stand established.
1.7 Takmin Trading Pvt. Ltd.
The assessee has taken a loan of Rs.50,00,000/- from this company on
03.12.2013 and a further loan of Rs.50,00,000/- on 06.12.2013 both of
which have been added by the AO. The AO has drawn adverse inference
on the ground that the returned income of this company is less than the
loan given to the assessee. The AO has further held that a summon
under section 131 was issued on 18.11.2016 and in response thereto
none attended. The AO has also drawn adverse inference as this
company is having the same office as that of Yashodham Merchants Pvt.
Ltd. which has given loan to the assessee company. On this basis the AO
has held that identity and creditworthiness and genuineness of the loan
is not proved. The CIT(A) after recording the above facts as stated in the
assessment order has upheld the addition stating none of the arguments
28
submitted by the Ld. AR of the appellant have proved the identity,
creditworthiness and genuineness of the instant transaction.
On going through the paper book we note that from the copy of
account placed at paper book page 429 that the lender company has paid
a sum of Rs.50,00,000/- on 03.12.2013 and a further sum of
Rs.50,00,000/- on 06.12.2013 to the assessee company. These amounts
have been paid by the lender company from its bank account with HDFC
Bank, out of the money received by it from various entities as is evident
from bank statement placed at paper book page 453-455. The assessee
company has paid interest on this loan of Rs.1,35,000/- after deducting
tax at source of Rs.15,000/-. Further, interest of Rs.1,35,000/- has been
paid on 01.12.2013 after deducting TDS of Rs.15,000/-, interest of
Rs.43,500/- on 03.03.2014 after deducting TDS of Rs.4,833/- and
Rs.33,000/- after deducting TDS Rs.3,667/- on 03.03.2014.This lender
company has filed its income tax return on 24.09.2014 declaring income
of Rs.619/-. However, it has shown tax payable of Rs.2,94,294/-
probably on the basis of book profit and claimed a refund of
Rs.18,43,300/- after taking credit of TDS of Rs.21,37,593/- as per the
ITR placed at paper book page 431. On going through the schedule
annexed to the balance sheet we note that this company has earned
interest income of Rs.6.09 Crore as is evident from details in the
schedule "Revenue from operations" at page 444 and interest paid
Rs.2.95 Crore as per paper book page 472. Further, as per the audited
balance sheet placed at paper book page 437 this company has its own
funds of Rs.6.30 Crore. This company has also issued optionally fully
convertible debenture of Rs.24.90 Crore as per the schedule of long term
borrowings at page 441. The AO had issued notice under section 133(6)
and in response thereto it has confirmed the account and has also filed
the necessary document in support of the loan advanced by it to
Assessee Company. This fact has been stated by the AO in the
assessment order itself. From the above facts it is evident that this
company has sufficient funds with it. The AO has drawn adverse
29
inference on the ground that the return of income is less than the loan
advanced by this company. As held hereinabove, that there is no such
condition in section 68 that loan can only be advanced out of the taxable
income of the current year. The requirement of section 68 are 3 i.e.
identity, creditworthiness and genuineness. In the present case
admittedly there is no doubt about the identity. As regards the
creditworthiness, the AO has gone with the presumption that it is only
the current year taxable income which can establish the creditworthiness.
This presumption of the AO is incorrect. The creditworthiness can be
established by showing the source from where the money has been paid.
Such money can be paid out of its net worth, out of the loan raised by it
or out of income earned by it. The source can be any of such means or
mixed of these. In this case from the balance sheet of the lender
company it is evident that it has net worth of more than Rs.6.30 Crore
and has further source of Rs.24.90 Crore from optionally fully convertible
debenture. Further, this company has earned an interest income of
Rs.6.09 Crore though the taxable income may be less because of the
payout on account of corresponding interest. Thus, it cannot be said that
the lender company did not have creditworthiness. Further, on going
through the bank statement of this company we note that there is no
cash deposit and the immediate source is the transfer of money from
various group entities the name of which is appearing in the bank
statement itself. Nothing adverse has been brought on record by the AO
about this company nor against any of the group entities. The AO having
got the bank statement of the lender company indicating the source of
the money, in case he was having any doubt about the source of source
so as to doubt the genuineness, he could have made further enquiry.
Further, the adverse inference being drawn by the AO that no one
appeared in response to the summon issued under section 131 cannot
per se be a ground to make addition. The AO himself had stated that
notice under section 133(6) was issued on 18.10.2016 and reply was
also received along with necessary details. The AO has further stated
30
that summon under section 131 was issued on 18.11.2016 but in
response none attended till date. This means that summon has been
served. In these circumstances, the AO cannot shift the burden on the
assessee for non-appearance of the creditor in response to the summon
issued by him. It was for AO to take the issue of non-attendance in
response to the summon to the logical end. He cannot ignore the
material and evidences already brought on record merely on the ground
that the lender has not appeared in response to the summon more so
when it is an admitted fact in the assessment order that reply in
response to notice under section 133(6) was received along with the
evidences confirming the loan advanced to the assessee company. In the
present case the assessee has discharged its onus placed on it under
section 68 by filing all the evidences. The AO has also received reply
from the creditor. Further, the adverse inference drawn by the AO on the
ground that this company and Yashodham Merchants. are carrying out
business activities from the same premises is unjustified. From the facts
quoted in the assessment order itself it is transpiring that these are
group companies. It is a normal practice that group companies are run
from the same premises. From the above facts and analysis we are of the
view that assessee has lead all evidences in support of its contention and
the identity, creditworthiness and genuineness of the transaction stand
established.
1.8 Yashodham Merchants Pvt. Ltd.
The assessee has taken a loan of Rs.50,00,000/- from this company on
04.12.2013 which has been added by the AO. The AO has drawn adverse
inference on the ground that the returned income of this company is less
than the loan given to the assessee and this loan has been paid out of
the money received by it from Takmin Trading Pvt. Ltd. The AO has
further held that a summon under section 131 was issued on 18.11.2016
and in response thereto none attended. The AO has also drawn adverse
inference as this company is having the same office as that of Takmin
Trading Pvt. Ltd. which has also given loan to the assessee company. On
31
this basis the AO has held that identity and creditworthiness and
genuineness of the loan is not proved. The CIT(A) after recording the
above facts as stated in the assessment order has upheld the addition
stating none of the arguments submitted by the Ld. AR of the appellant
have proved the identity, creditworthiness and genuineness of the instant
transaction.
On going through the paper book we note that from the copy of
account placed at paper book page 456 that the lender company has paid
a sum of Rs.50,00,000/- on 04.12.2013 to the assessee company. This
amount has been paid by the lender company from its bank account with
HDFC Bank, out of the money received by it from Takmin Trading Pvt.
Ltd. another group company as is evident from bank statement placed at
paper book page 480. The assessee company has paid interest on this
loan of Rs.1,35,000/- after deducting tax at source of Rs.15,000/-.
Further, interest of Rs.42,000/- has been paid on 01.03.2014 after
deducting TDS of Rs.4,667/-. This lender company has filed its income
tax return on 26.09.2014 declaring income of Rs.12,72,630/-. However,
it has shown tax payable of Rs.1,96,622/-and claimed a refund of
Rs.4,11,010/- after taking credit of TDS of Rs.6,07,631/- as per the ITR
placed at paper book page 457. On going through the schedule annexed
to the balance sheet we note that this company has earned interest
income of Rs.4.92 Crore as is evident from details in the schedule
"Revenue from operations" at page 471 and interest expenditure of
Rs.2.95 Crore as per paper book page 472. It has profit after tax as per
accounts of Rs.90,35,930/- as per paper book page 472. Further, as per
the audited balance sheet placed at paper book page 463 this company
has its own funds of Rs.17.55 Crore. This company has also issued
optionally fully convertible debenture of Rs.18.10 Crore as per the
schedule of long term borrowings at page 467. The AO had issued notice
under section 133(6) and in response thereto it has confirmed the
account and has also filed the necessary document in support of the loan
advanced by it to Assessee Company. This fact has been stated by the
32
AO in the assessment order itself. From the above facts it is evident that
this company has sufficient funds with it. The AO has drawn adverse
inference on the ground that the return of income is less than the loan
advanced by this company. As held hereinabove, that there is no such
condition in section 68 that loan can only be advanced out of the taxable
income of the current year. The requirement of section 68 are 3 i.e.
identity, creditworthiness and genuineness. In the present case
admittedly there is no doubt about the identity. As regards the
creditworthiness, the AO has gone with the presumption that it is only
the current year taxable income which can establish the creditworthiness.
This presumption of the AO is incorrect. The creditworthiness can be
established by showing the source from where the money has been paid.
Such money can be paid out of its net worth, out of the loan raised by it
or out of income earned by it. The source can be any of such means or
mixed of these. In this case from the balance sheet of the lender
company it is evident that it has net worth of more than Rs.17.57 Crore
and has further source of Rs.18.10 Crore from optionally fully convertible
debenture. Further, this company has earned an interest income of
Rs.4.92 Crore though the taxable income may be less because of the
payout on account of corresponding interest. Thus, it cannot be said that
the lender company did not have creditworthiness.As regards the
contention of the AO that it has received Rs.50,00,000/- on 04.12.2013
from Takmin Trading Pvt. Ltd. and the same amount has been
transferred to the assessee company on same date, that can also be not
a ground to hold that creditworthiness is not established or the
transaction is doubtful. In fact it strengthens the case of the assessee as
it establishes the source of source unless there is material to draw
adverse inference against such source of source. It is normal in the case
of a finance company to receive funds from one entity and to lend the
money so received to the other entity. Further, ongoing through the bank
statement of this company we note that there is no cash deposit and the
immediate source is the transfer of money from another group company
33
namely Takmin Trading Pvt. Ltd. the name of which is appearing in the
bank statement itself. Nothing adverse has been brought on record by
the AO about this company nor against any of the group entities. The AO
having got the bank statement of the lender company indicating the
source of the money, in case he was having any doubt about the source
of source so as to doubt the genuineness, he could have made further
enquiry. Further, the adverse inference being drawn by the AO that no
one appeared in response to the summon issued under section 131
cannot per se be a ground to make addition. The AO himself had stated
that notice under section 133(6) was issued on 18.10.2016 and reply
was also received along with necessary details. The AO has further stated
that summon under section 131 was issued on 18.11.2016 but in
response none attended till date. This means that summon has been
served. In these circumstances, the AO cannot shift the burden on the
assessee for non-appearance of the creditor in response to the summon
issued by him. It was for AO to take the issue of non-attendance in
response to the summon to the logical end. He cannot ignore the
material and evidences already brought on record merely on the ground
that the lender has not appeared in response to the summon more so
when it is an admitted fact in the assessment order that reply in
response to notice under section 133(6) was received along with the
evidences confirming the loan advanced to the assessee company. In the
present case the assessee has discharged its onus placed on it under
section 68 by filing all the evidences. The AO has also received reply
from the creditor.Further, the adverse inference drawn by the AO on the
ground that this company and Takmin Trading Pvt. Ltd. are carrying out
business activities from the same premises is unjustified. From the facts
quoted in the assessment order itself it is transpiring that these are
group companies. It is a normal practice that group companies are run
from the same premises. From the above facts and analysis we are of the
view that assessee has lead all evidences in support of its contention and
34
the identity, creditworthiness and genuineness of the transaction stand
established.
1.9 Modern Credit Pvt. Ltd.
The assessee has taken a loan of Rs.3,00,00,000/- from this company on
various dates during the year which has been added by the AO. The AO
has drawn adverse inference on the ground that the returned income of
this company is less than the loan given to the assessee. The AO has
further held that a summon under section 131 was issued on 18.11.2016
and in response thereto none attended. The AO has further held that this
company was having negative balance in its bank which establishes that
it did not have balance in its account and thus the creditworthiness is
doubtful. On this basis the AO has held that identity and creditworthiness
and genuineness of the loan is not proved. The CIT(A) after recording the
above facts as stated in the assessment order has upheld the addition
stating none of the arguments submitted by the Ld. AR of the appellant
have proved the identity, creditworthiness and genuineness of the instant
transaction.
On going through the paper book we note that from the copy of
account placed at paper book page 481 that the lender company has
given loan of Rs.3,00,00,000/- on various dates to the assessee
company. This amount has been paid by the lender company from its
bank account with HDFC Bank, Kasturba Gandhi Marg, New Delhi as is
evident from bank statement placed at paper book page 506 to 511. The
assessee company has paid interest on this loan of Rs.9,01,496/- after
deducting tax at source of Rs.1,00,166/-. This interest payment has also
been credited in the bank account of the lender company with Indian
Overseas Bank on 31.03.2014 as per bank statement at page 511.Lender
company has filed its income tax return on 28.11.2014 declaring regular
income of Rs. NIL, however, it has shown tax payable of Rs.6,27,799/-
apparently on the basis of book profit and has claimed a refund of
Rs.1,92,470/- after taking credit of TDS of Rs.8,20,271/- as per the ITR
placed at paper book page 484. On going through the profit and loss
35
account of this company placed at paper book page 486 we note that this
company has interest income of Rs.2.79 crore and other income of
Rs.9.03 crore. The net profit as per the profit and loss account before
exceptional item is Rs.8.99 Crore. It is only after set off of exceptional
item being the loss on demerger of Rs.8.73 Crore, the net profit is
Rs.26.17 lacs. Further, as per the audited balance sheet placed at paper
book page 485 this company has its own funds of Rs.5.36 Crore besides
loans of Rs.25.43 Crore from shareholders and corporate bodies.This
company has also got overdraft facility from HDFC Bank. The AO had
issued notice under section 133(6) and in response thereto it has
confirmed the account and has also filed the necessary document in
support of the loan advanced by it to Assessee Company. This fact has
been stated by the AO in the assessment order itself. From the above
facts it is evident that this company has sufficient funds with it. The AO
has drawn adverse inference on the ground that the return of income is
less than the loan advanced by this company. On going through the
profit and loss account in this case as stated hereinabove this company
was having its profit before exceptional item of Rs.8.99 Crore which got
reduced because of the loss on account of demerger. Thus, that it can
not be said that this company was not having sufficient income. Further,
as held hereinabove, that there is no such condition in section 68 that
loan can only be advanced out of the taxable income of the current year.
The requirement of section 68 are 3 i.e. identity, creditworthiness and
genuineness. In the present case admittedly there is no doubt about the
identity. As regards the creditworthiness, the AO has gone with the
presumption that it is only the current year taxable income which can
establish the creditworthiness. This presumption of the AO is incorrect.
The creditworthiness can be established by showing the source from
where the money has been paid. Such money can be paid out of its net
worth, out of the loan raised by it or out of income earned by it. The
source can be any of such means or mixed of these. In this case from the
balance sheet of the lender company it is evident that it has net worth of
36
more than Rs.5.36 Crore and has further source of Rs.25.43 Crore as
loans from shareholder and corporate bodies. Further, this company has
earned an interest income of Rs.2.79 Crore though the taxable income
may be less because of the payout on account of corresponding interest.
Thus, it cannot be said that the lender company did not have
creditworthiness. As regards the contention of the AO that this company
was having negative balance in bank that cannot be a ground to draw
adverse inference against the assessee. It is an arrangement of the
lender with the bank to raise money as and when it is required to carry
on its financing business. The lender company is in the business of
finance and the transaction entered into by it of advancing loan to the
assessee company is in the ordinary course of its business. Thus, this
cannot per se be a ground to hold that creditworthiness is not established
or the transaction is doubtful. In fact it strengthens the case of the
assessee as it establishes the source unless there is some other material
to draw adverse inference against such source of source. It is normal in
the case of a finance company to receive funds from one entity and to
lend the money so received to the other entity. Further, ongoing through
the bank statement of this company we note that there is no cash
deposit. The AO having got the bank statement of the lender company
indicating the source of the money, in case he was having any doubt
about the source of source so as to doubt the genuineness, he could
have made further enquiry. Further, the adverse inference being drawn
by the AO that no one appeared in response to the summon issued under
section 131 cannot per se be a ground to make addition. The AO himself
had stated that notice under section 133(6) was issued on 18.10.2016
and reply was also received along with necessary details. The AO has
further stated that summon under section 131 was issued on 18.11.2016
but in response none attended till date. This means that summon has
been served. In these circumstances, the AO cannot shift the burden on
the assessee for non-appearance of the creditor in response to the
summon issued by him. It was for AO to take the issue of non-
37
attendance in response to the summon to the logical end. He cannot
ignore the material and evidences already brought on record merely on
the ground that the lender has not appeared in response to the summon
more so when it is an admitted fact in the assessment order that reply in
response to notice under section 133(6) was received along with the
evidences confirming the loan advanced to the assessee company. In the
present case the assessee has discharged its onus placed on it under
section 68 by filing all the evidences. The AO has also received reply
from the creditor. From the above facts and analysis we are of the view
that assessee has lead all evidences in support of its contention and the
identity, creditworthiness and genuineness of the transaction stand
established.
1.10 YP Finance and Securities Pvt. Ltd.
The assessee has taken a loan of Rs.50,00,000/- from this company
on 07.10.2013 which has been added by the AO. The AO has drawn
adverse inference on the ground that the returned income of this
company is less than the loan given to the assessee and this loan has
been paid out of the money received by it on the same day. The AO has
further held that a summon under section 131 was issued on 18.11.2016
and in response thereto none attended. On this basis the AO has held
that identity and creditworthiness and genuineness of the loan is not
proved. The CIT(A) after recording the above facts as stated in the
assessment order has upheld the addition stating none of the arguments
submitted by the Ld. AR of the appellant have proved the identity,
creditworthiness and genuineness of the instant transaction.
On going through the paper book we note that from the copy of
account placed at paper book page 512 that the lender company has paid
a sum of Rs.50,00,000/- on 07.10.2013 to the assessee company. This
amount has been paid by the lender company from its bank accountas is
evident from bank statement placed at paper book page 528. The
assessee company has paid interest on this loan of Rs.1,80,000/- after
deducting tax at source of Rs.20,000/- on 07.10.2013. Further, interest
38
of Rs.84,000/- has been paid on 07.02.2014 after deducting TDS of
Rs.9,333/-. These interest payment have got credited to the lenders
company same bank account as is evident from page 528-529. This
lender company has filed its income tax return on 29.09.2014 declaring
income of Rs.6,23,193/- It has shown tax payable of Rs.1,92,566/-and
claimed a refund of Rs.2,28,230/- after taking credit of TDS of
Rs.4,20,800/- as per the ITR placed at paper book page 513 Further, as
per the audited balance sheet placed at paper book page 514 this
company has its own funds of Rs.47.31 lacs besides loan from directors
and their relatives of Rs.4.83 Crore as is evident from the schedule at
page 516. The AO had issued notice under section 133(6) and in
response thereto it has confirmed the account and has also filed the
necessary document in support of the loan advanced by it to Assessee
Company. This fact has been stated by the AO in the assessment order
itself. From the above facts it is evident that this company has sufficient
funds with it. The AO has drawn adverse inference on the ground that
the return of income is less than the loan advanced by this company. As
held hereinabove, that there is no such condition in section 68 that loan
can only be advanced out of the taxable income of the current year. The
requirement of section 68 are 3 i.e. identity, creditworthiness and
genuineness. In the present case admittedly there is no doubt about the
identity. As regards the creditworthiness, the AO has gone with the
presumption that it is only the current year taxable income which can
establish the creditworthiness. This presumption of the AO is incorrect.
The creditworthiness can be established by showing the source from
where the money has been paid. Such money can be paid out of its net
worth, out of the loan raised by it or out of income earned by it. The
source can be any of such means or mixed of these. In this case from the
balance sheet of the lender company it is evident that it has net worth of
more than Rs.47.31 lacs and has further source of Rs.4.83 Crore as loans
from directors and their relatives. Thus, it cannot be said that the lender
company did not have creditworthiness.As regards the contention of the
39
AO that it has received Rs.50,00,000/- on 08.10.2013 and the same
amount has been transferred to the assessee company on same date,
that can also be not a ground to hold that creditworthiness is not
established or the transaction is doubtful. It is normal in the case of a
finance company to receive funds from one entity and to lend the money
so received to the other entity. Further, ongoing through the bank
statement of this company we note that there is no cash deposit. Nothing
adverse has been brought on record by the AO about this company. The
AO having got the bank statement of the lender company indicating the
source of the money, in case he was having any doubt about the source
of source so as to doubt the genuineness, he could have made further
enquiry. Further, the adverse inference being drawn by the AO that no
one appeared in response to the summon issued under section 131
cannot per se be a ground to make addition. The AO himself had stated
that notice under section 133(6) was issued on 18.10.2016 and reply
was also received along with necessary details. The AO has further stated
that summon under section 131 was issued on 18.11.2016 but in
response none attended till date. This means that summon has been
served. In these circumstances, the AO cannot shift the burden on the
assessee for non-appearance of the creditor in response to the summon
issued by him. It was for AO to take the issue of non-attendance in
response to the summon to the logical end. He cannot ignore the
material and evidences already brought on record merely on the ground
that the lender has not appeared in response to the summon more so
when it is an admitted fact in the assessment order that reply in
response to notice under section 133(6) was received along with the
evidences confirming the loan advanced to the assessee company. In the
present case the assessee has discharged its onus placed on it under
section 68 by filing all the evidences. The AO has also received reply
from the creditor.From the above facts and analysis we are of the view
that assessee has lead all evidences in support of its contention and the
40
identity, creditworthiness and genuineness of the transaction stand
established.
1.11 MudrakshInvestfin Pvt. Ltd.
The assessee has taken a loan of Rs.15,00,000/- from this company on
24.02.2014 which has been added by the AO. The AO has drawn adverse
inference on the ground that no reply was received in response to notice
issued under section 133(6) and no one attended in response to summon
issued under section 131. On this basis the AO has held that identity and
creditworthiness and genuineness of the loan is not proved. The CIT(A)
after recording the above facts as stated in the assessment order has
upheld the addition stating none of the arguments submitted by the Ld.
AR of the appellant have proved the identity, creditworthiness and
genuineness of the instant transaction.
As against this the contention of the assessee is that it has filed
all the documents and evidences in support of the loan taken by it.
Nothing adverse has been found in these documents. Further, both
notices issued under section 133(6) and 131 have been duly served and
it is not the case of the AO that these notices have come back. The
service of the notice confirms that these creditors are existing. It was
further contended that from the various documents filed by the assessee
the identity, creditworthiness and genuineness stands established. The
AO has not brought any material to discredit the evidences submitted by
the assessee. On going through the paper book we note that from the
copy of account placed at paper book page 530 that the lender company
has paid a sum of Rs.15,00,000/- on 24.02.2014 to the assessee
company. This amount has been paid by the lender company from its
bank account with RBL Bankas is evident from bank statement placed at
paper book page 548. The assessee company has paid interest on this
loan of Rs.19,973/- after deducting tax at source of Rs.2,219/- on
31.03.2014. This interest payment has got credited to the lenders
company same bank account with RBL Bank as is evident from page 550.
This lender company has filed its income tax return on 31.03.2016
41
declaring nil income.Further, as per the audited profit and loss account
placed at paper book page 514 it has "Revenue from operation" of
Rs.1,96,26,251/- which include income from derivatives and interest on
loan of Rs.16,96,041/-. Further, this company has its own funds of
Rs.77.07 lacs besides loan from directors and their relatives of Rs.3.01
Crore as is evident from the schedule at page 540. The AO had issued
notice under section 133(6) and section 131which have been duly served
as there is no allegation that it has been received back unserved.The
adverse inference being drawn by the AO that no one appeared in
response to the notice issued under section 133(6) and summon issued
under section 131 cannot per se be a ground to make addition. The AO
has stated that notice under section 133(6) and summon under section
131 was issued but in response no reply received and none attended till
date. This means that notice and summon have been served. In these
circumstances, the AO cannot shift the burden on the assessee for no
reply and non-appearance of the creditor in response to the
notice/summon issued by him. It was for AO to take the issue of no reply
and non-attendance in response to the notice and summon to the logical
end. He cannot ignore the material and evidences already brought on
record merely on the ground that the lender has not replied or has not
appeared in response to the summon. In the present case the assessee
has discharged its onus placed on it under section 68 by filing all the
evidences. From the above facts it is evident that this company has
sufficient funds with it. In this case from the balance sheet of the lender
company it is evident that it has net worth of more than Rs.77.07 lacs
and has further source of Rs.3.01 Crore as loans from directors and their
relatives. Thus, it cannot be said that the lender company did not have
creditworthiness. From the balance sheet of this company we note that
this it is a registered NBFC and it has also having NBFC reserve fund in
terms of section 45(1)(c) of the Reserve Bank of India 1934 and surplus
of Rs.6.47 lacs. It is normal in the case of a finance company to receive
funds from one entity and to lend the money so received to the other
42
entity. Further, ongoing through the bank statement of this company we
note that there is no cash deposit. Nothing adverse has been brought on
record by the AO about this company. The AO having got the bank
statement, ITR, confirmation, balance sheet etc. of the lender company
indicating the source of the money, in case he was having any doubt
about the source of source so as to doubt the genuineness, he could
have made further enquiry. From the above facts and analysis we are of
the view that assessee has lead all evidences in support of its contention
and the identity, creditworthiness and genuineness of the transaction
stand established.
1.12 RKG Finvest Ltd.
The assessee has taken a loan of Rs.50,00,000/- from this company on
29.03.2014 which has been added by the AO. The AO has drawn adverse
inference on the ground that no reply was received in response to notice
issued under section 133(6) and no one attended in response to summon
issued under section 131. On this basis the AO has held that identity and
creditworthiness and genuineness of the loan is not proved. The CIT(A)
after recording the above facts as stated in the assessment order has
upheld the addition stating none of the arguments submitted by the Ld.
AR of the appellant have proved the identity, creditworthiness and
genuineness of the instant transaction.
As against this the contention of the assessee is that it has filed all the
documents and evidences in support of the loan taken by it. Nothing
adverse has been found in these documents. Further, both notices issued
under section 133(6) and 131 have been duly served and it is not the
case of the AO that these notices have come back. The service of the
notice confirms that these creditors are existing. It was further
contended that from the various documents filed by the assessee the
identity, creditworthiness and genuineness stands established. The AO
has not brought any material to discredit the evidences submitted by the
assessee.
43
On going through the paper book we note that from the copy of
account placed at paper book page 551 that the lender company has paid
a sum of Rs.50,00,000/- on 29.03.2014 to the assessee company. This
amount has been paid by the lender company from its bank account
where it was having a balance of Rs.3,29,46,213/- as on 29.03.2014 the
date when the loan was advanced. The assessee company has paid
interest on this loan of Rs.4,500/- after deducting tax at source of
Rs.500/- on 31.03.2014 for the period from 29.03.2014 to 31.03.2014.
This interest payment has got credited to the lenders company same
bank account. Further, as per the audited profit and loss account placed
at paper book page 581 it has "Revenue from operation" of Rs.38.27
Crore. However, there was a loss during the year of Rs.89.44 lacs
because of the bad debts of Rs.24.63 Crore written off during the year as
is evident from the schedule to the profit and loss account placed at
paper book page 582. Further, this company has its own funds of
Rs.10.86 Crore as is evident from the schedule at page 564. The AO had
issued notice under section 133(6) and section 131which have been duly
served as there is no allegation that it has been received back
unserved.The adverse inference being drawn by the AO that no one
appeared in response to the notice issued under section 133(6) and
summon issued under section 131 cannot per se be a ground to make
addition. The AO has stated that notice under section 133(6) and
summon under section 131 was issued but in response no reply received
and none attended till date. This means that notice and summon have
been served. In these circumstances, the AO cannot shift the burden on
the assessee for no reply and non-appearance of the creditor in response
to the notice/summon issued by him. It was for AO to take the issue of
no reply and non-attendance in response to the notice and summon to
the logical end. He cannot ignore the material and evidences already
brought on record merely on the ground that the lender has not replied
or has not appeared in response to the summon. In the present case the
assessee has discharged its onus placed on it under section 68 by filing
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all the evidences. From the above facts it is evident that this company
has sufficient funds with it. In this case from the balance sheet of the
lender company it is evident that it has net worth of more than Rs.10.86
Crore. The total revenue as per the profit and loss account is Rs.38.27
Crore which include interest income of Rs.26.64 Crore.Thus, it cannot be
said that the lender company did not have creditworthiness. From the
balance sheet of this company we note that this it is a registered NBFC
and it has also having NBFC reserve fund in terms of section 45(1)(c) of
the Reserve Bank of India 1934. It is normal in the case of a finance
company to receive funds from one entity and to lend the money so
received to the other entity. Further, ongoing through the bank
statement of this company we note that there is no cash deposit. Nothing
adverse has been brought on record by the AO about this company. The
AO having got the bank statement, ITR, confirmation, balance sheet etc.
of the lender company indicating the source of the money, in case he
was having any doubt about the source of source so as to doubt the
genuineness, he could have made further enquiry. From the above facts
and analysis we are of the view that assessee has lead all evidences in
support of its contention and the identity, creditworthiness and
genuineness of the transaction stand established.
13. Now coming to the judgment of Punjab & Haryana High Court in the
case of Papneja Traders (supra) relied upon by the AO, the same is on
different facts. In that case there was inconsistency regarding the
amount of the loan given by the creditor in his statement and the
creditor has also denied having received any interest. It was in these
circumstances the additions were confirmed. In the case of CIT vs.
Precision Finance Pvt. Ltd. (supra), relied upon by the AO, the additions
were confirmed as the creditors were not available and the income tax
file number given by the assessee were found to be incorrect and in
many cases the amount advanced was not reflected in the income tax
return of the creditors. Thus, the facts of the said judgment are not
applicable. Similarly, the facts of the judgment in the case of Shanker
45
Industries vs. CIT relied upon by the AO are distinguishable as in that
case the creditor has confessed having not given any loan further such
loan could not be established with the cash book produced by the
creditor.
14. In the present case there is no such inconsistency in any of the
documents on record. The assessee has received loan from the bank
account of the creditor. The assessee had paid interest on such loan after
deduction of tax at source and such interest has been shown as income
by the creditor. Even the claim of the TDS is appearing in the income tax
return of the creditor. The capacity of the creditor is established form the
balance sheet on record. There is no adverse material what so ever to
have any doubt about the loan obtained by the assessee. On going
through the order of the CIT(A) we note that the CIT(A) has deleted
addition in respect of the 2 creditors on the ground that returned income
in these two cases is more than the amount of the loan advanced by
such creditors. We are of the view that the income cannot be sole criteria
to hold that creditworthiness or the source is not established. As stated
hereinabove the creditworthiness or the source need not be out of the
current year income. It can be out of the past capital, savings or from
borrowed money. Our this view get support from the judgment of the
coordinate bench of the ITAT in the case of ITO Ward 6(2) vs. Computer
Home Information Plus Pvt. Ltd. ITA NO. 5680/Del/2016 dated
24.05.2019 where a similar issue has covered and the ITAT has held as
under:-
"18. We have also thoroughly examined the financial
accounts of the five lender companies. At the very outset,
we have to state that income may be a good reason for
examining the source of a person but it is certainly not the
"be all end all". Let us take an example, if person is
drawing salary of Rs.10 lacs p.a. and purchases a
residential flat of Rs.50 lacs. Can merely on the basis of
his income addition be made as unexplained investment?
46
The answer is evidently "No" because that person may
have taken housing loan of Rs.40 lacs to purchase the
residential flat."
15. A similar issue has come up before the jurisdictional Delhi High
Court in the case of Pr. CIT (Central)-1 vs. Goodview Trading Pvt. Ltd.
ITA No.3777/2016 dated 21.11.2016 wherein addition were made under
section 68 on the ground that the creditor had little or no income. The
Hon'ble High Court after tabulating the chart of the net worth of each of
the creditor held that the creditor had substantial means and the AO was
not justified in making the adverse inference on the ground that the
creditor had paid minimal or insubstantial amounts as taxed. The Hon'ble
High Court approved the inference drawn by the CIT(A) in favour of the
assessee on the basis of the net worth of each of the creditor. In the
present case as analyzed hereinabove each of the creditor has
substantial net worth in comparison to the amount advanced as loan to
the assessee company.
16. The judgments relied upon by the CIT(A) in the case of N.R. Portfolio
P. Ltd. ITA No.1018 and 1019 of 2011, Nova Promoters and Finlease ITA
No.1018 and 1019 of 2011, CIT vs. Nipun Builders and Developers 350
ITR 407 (Delhi), M/s Focus Exports P. Ltd. 51 taxmann.com 46 (Delhi)
(2014) and M/s Bisakha Sales P. Ltd. ITA No. 1493/Kol/2013 are not
applicable to the present case and are distinguishable. In the case of
Nova Promoters and Finlease (supra) as stated by the CIT(A) itself it was
held that there was link between the entry providers and incriminating
evidence and that is why addition under section 68 were confirmed. In
the case of Nipun Builders and Developers (supra) the High Court has
taken cognizance of the fact that summon send to the companies came
back unserved with the remark that no such company which was also
supported by the report of the Inspector who made a visit to the
creditors. It was in these circumstances the adverse view was taken. In
the case of NR Portfolio and other case law relied upon by the CIT(A), the
facts were quite distinguishable. In the present case, the assessee has
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fully cooperated and provided all the informations and nothing adverse
has been found in respect of the evidences submitted in support of the
loan availed by the assessee. These loans have been taken in the
ordinary course of business and interest thereon has been paid and in
fact these loans have been returned later on.
17. Coming to the arguments raised by the Ld. DR that the assessee has
failed to discharge its onus under section 68, we are of the view that
assessee has lead sufficient evidences to discharge the onus of
establishing identity, creditworthiness as well as genuineness of the
transaction. In the present case as per the facts the assessee has taken
loan and paid interest thereon and in many cases the loans so obtained
have been returned. The assessee company is engaged in manufacturing
and having substantial turnover. Thus, there cannot be any doubt about
its raising loan on interest and repaying such loan later on. The
transaction of taking loan is thus in the normal course of business and
addition cannot be made merely on the basis of doubt. It is pertinent to
mention that the AO has not brought any adverse material against the
assessee and simply made addition by stating that transaction is
doubtful. It may also be pertinent to point out that assessee has
submitted all the particulars about the tax return of the lender company.
The AO has not made any enquiry with the AO of the lender company so
as to bring any adverse material regarding the transaction entered into
by the lender company with Assessee Company. In case he was having
any doubt he could easily made such enquiry. In the absence of any such
enquiry and without bringing any adverse material the explanation and
evidences submitted by the assessee cannot be rejected. We note that
CIT(A) has rejected the explanation and evidences arbitrarily without
giving any cogent reasons.
18. As regards the reliance placed by the Ld. DR on the judgment of the
Supreme Court in the case of NRA Iron and Steel Pvt. Ltd. (supra), the
facts of the said case are different. The said case was a case of a share
capital raised by the assessee company at a high premium. In the said
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judgment the Hon'ble Supreme Court has taken note of the fact that the
shares of face value of Rs.10/- per share were subscribed by the investor
companies at premium of Rs.190/- per share. The Supreme Court also
took note of the fact that none of the investor companies could justify
making investment at such a high premium. During field enquiry the
investor companies were found to be none existence and almost none of
the companies produced the bank statement to establish the source of
funds.
19. Similarly, the facts of the judgment in the case of Pr. CIT vs. NDR
Promoters Pvt. Ltd. (supra) are distinguishable. It was a case where
evidence and material of bogus transaction were found during the course
of search on Mr. Tarun Goyal that the companies were providing
accommodation entries. The statement of employees of Mr. Tarun Goyal
were on record where they have stated that they do not know about the
basic details of the companies which have made investment in the case
of the assessee company. The adverse statement of Mr. Tarun Goyal was
also on record. The court has also taken cognizance of the fact that the
assessee company did not have any business so as to establish the
justification for investment in the shares of assessee company at a
premium. It was in these circumstances that the court has held that the
transaction was sham and make- believe.
20. In the present case, the assessee company has taken loan and on
which it is paying interest so there is a justification for the lender
company to advance money to the assessee company. Such loan and
interest has been duly reflected by the lender company. Nothing adverse
has come against the lender company. Further, bank statement of lender
company have been submitted to establish the source of the funds along
with the balance sheet and the profit and loss account.
21. From the above facts and analysis we are of the view that the
evidences and the explanation has been rejected by the AO merely on
the basis of doubt without bringing any material to discredit the
document and information on record. The CIT(A) has also arbitrarily
49
rejected the explanation of the assessee company ignoring the above
facts. The assessee has lead all evidences in support of its contention
and the identity, creditworthiness and genuineness of the transaction
stand established and hence the addition made by the AO is directed to
be deleted. In the result, the appeal of the assessee is allowed.
22. In the result, the appeal of the Revenue is dismissed and the Appeal
of the Assessee is allowed.
Order pronounced on 18-06-2019.
Sd/- Sd/-
[B.R.R. KUMAR] [H.S. SIDHU]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated:18/06/2019
*SR BHATNAGAR*
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT TRUE COPY By Order,
ASSISTANT REGISTRAR
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