Citation Codes

Equivalent Citations

citation codes

Case Number

ITA 9254/DEL/2019

Disposition

in part

Advocates

Judges

Shamim Yahya, A.M.
Astha Chandra, J.M.

Acts

u/s 68 of the Income-tax Act, 1961 (for short the Act).

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Smart Summary

Case Summary — Shamim Yahya, A.M. (Tribunal Opinion)

Factual and Procedural Background

This appeal by the Revenue challenges the order of the learned Commissioner of Income Tax (Appeals)-4, New Delhi dated 27.09.2019 for Assessment Year 2016-2017. The assessee was a company in the process of setting up a plant for juices, beverages and water and had not carried on commercial business during the year under consideration.

In the audited balance sheet the assessee disclosed unsecured loans from three persons — Shri Virender Kumar Soni (Rs. 3,68,50,000), Shri Rajendra Kumar Soni (Rs. 4,50,10,000) and Shri Vikas Kumar Soni (Rs. 3,44,75,000) — totaling Rs. 11,63,35,000. The Assessing Officer (AO) invoked provisions of section 133(6) to seek information from these creditors to verify identity, genuineness and creditworthiness. Initially there was no response; subsequently copies of confirmations, ITRs, computations and bank statements were filed by those creditors.

The AO observed anomalies in the bank statements (noting that amounts were often credited to the creditors' accounts the same day or one day before being transferred to the assessee), lack of explanatory narrations requested in the section 133(6) notices, apparent mismatch between creditors' declared incomes and amounts advanced, and specific concealment/omission in one creditor's confirmation (cash loan entry of Rs. 4,10,000). On this basis the AO treated the amounts as unexplained credit and made an addition of Rs. 11,63,35,000 under section 68 of the Income-tax Act, 1961.

The assessee appealed to the CIT(A). The CIT(A) examined documents and recorded detailed factual findings for each lender, concluded that the three limbs of section 68 (identity, genuineness and creditworthiness of the creditors) were established and deleted the addition. The CIT(A) however observed that the admitted cash transaction of Rs. 4,10,000 contravened sections 269SS/269T and directed initiation of penalty proceedings under sections 271D/271E.

The Revenue challenged the CIT(A) order before the Tribunal. After hearing the parties and perusing the record, the Tribunal remitted the matter to the file of the AO for fresh decision in light of submissions and documents placed before the CIT(A), directing that the assessee be granted adequate opportunity of being heard. The appeal was disposed of "allowed for statistical purposes."

Legal Issues Presented

Whether the CIT(A) erred in deleting the addition of Rs. 11,63,35,000 made by the AO under section 68 of the Income-tax Act, 1961?

Arguments of the Parties

Revenue's Arguments (Ld. DR)

The CIT(A) accepted the assessee's submissions without proper verification.
Details and submissions on which the CIT(A) relied were not submitted to the AO during assessment proceedings.
No board resolution or loan documents evidencing the loans were available (or placed before the AO).
Submitted that the matter should be remitted to the AO for verification.

Assessee's Arguments (Ld. Counsel for the Assessee)

The AO did not give the assessee an opportunity to explain the additional details which were later submitted before the CIT(A).
Loan documents existed but were not available at the point in time when the AO was conducting enquiry.
The assessee's counsel did not explain compliance with the Companies Act regarding the loans but agreed that the matter may be referred back to the AO so the assessee could prove the veracity of documents submitted to the CIT(A).

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The Tribunal proceeded on the basis of the record, the findings of the CIT(A) and the submissions of both parties. Key elements of the analysis (drawn from the text) are:

The CIT(A) had performed a document-by-document examination for each lender and recorded findings supporting the three limbs of section 68 — identity, genuineness and creditworthiness — by referring to:
- ITR figures showing net income and substantial exempt income arising from sale of long-term capital assets;
- Statements of affairs reflecting capital balances, properties and investments;
- Bank statements showing credit entries, many of which were explained as "sweep in" credits from fixed deposits and credits from finance companies, wife/HUF and other identifiable sources;
- ITRs of related entities (wife and HUF) placed on record for corroboration.
The AO had relied on perceived anomalies: absence of narrated bank statements as requested under section 133(6), same-day/one-day credit-transfers into creditors' accounts before onward transfer to the assessee, mismatch in opening balances in confirmations (in one creditor's case) and a cash loan entry of Rs. 4,10,000 which was not reflected transparently.
The CIT(A) accepted the documentary explanations and deleted the addition while also recording that the admitted cash receipt/repayment of Rs. 4,10,000 contravened sections 269SS/269T and was fit for penalty under sections 271D/271E.
Before the Tribunal, the Revenue contested that the CIT(A) had accepted material not placed before the AO and that the acceptance lacked adequate verification. The assessee conceded that some documents were not made available to the AO at the time but offered to prove veracity if remitted. The Revenue's representative supported remand.
Having regard to these contentions and the agreement of both parties that a remand was appropriate, the Tribunal exercised its remedial power to remit the issue to the AO with directions to decide afresh in the light of the submissions and documents that had been placed before the CIT(A), while ensuring the assessee is given adequate opportunity of being heard.

The Tribunal's action was therefore driven by the procedural concern that documents and explanations relied upon by the CIT(A) had not been tested before the AO, and by the parties' joint request that the AO be given an opportunity to verify the materials and re-decide the matter.

Holding and Implications

CORE HOLDING: The matter is remitted to the Assessing Officer to decide afresh in the light of the submissions and documents that were placed before the CIT(A), with the assessee being granted adequate opportunity of being heard. The appeal of the Revenue is disposed of as allowed for statistical purposes.

Implications and immediate consequences:

The deletion of addition by the CIT(A) is not treated as finally conclusive by the Tribunal; the AO must reconsider the issue on receipt of the remand and in light of the materials cited before the CIT(A).
The assessee will have an opportunity to produce and prove the veracity of documents relied upon before the CIT(A) before the AO on remand.
The CIT(A)'s observation regarding the cash loan transaction (Rs. 4,10,000) and possible penalty under sections 271D/271E was noted but the Tribunal remitted the whole issue for fresh consideration; the AO may take appropriate action consistent with those observations.
No broader precedent or new legal principle was laid down by the Tribunal in this opinion; the decision effects a procedural remand and does not purport to settle the substantive question finally.

Note: This summary is prepared strictly from the contents of the provided opinion. No external facts, precedents or inferences beyond the text have been introduced.

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ACIT, Circle-11(2), New Delhi v. Hi Quality Food & Beverages Pvt. Ltd., New Delhi

Shamim Yahya, A.M.:— This appeal by the Revenue is directed against the order of ld. CIT (Appeals)-4, New Delhi dated 27.09.2019 pertaining to the Assessment Year 2016-2017.

2. The ground of appeal taken by the Revenue read as under:—

“Whether the CIT (A) has erred on facts and circumstances on deleting the addition of Rs. 11,63,35,000/- made by AO u/s 68 of the Income Tax Act, 1961?”

3. Brief facts of the case are that in this case, assessee company did not carry out any commercial business and was in the process of setting up its plant for juices, beverages and water. AO noted that in the audited balance sheet, assessee claimed to have received unsecured loans from Shri Virender Kumar Soni, Shri Rajendra Kumar Soni and Shri Vikas Kumar Soni as under:—

Shri Virender Kumar Soni Rs. 3,68,50,000/- Shri Rajendra Kumar Soni Rs. 4,50,10,000/- Shri Vikas Kumar Soni Rs. 3,44,75,000/- Total Rs. 11,63,35,000/-

4. AO further noted that from confirmation of loan account of Rajendra Kumar Soni, it was found that total unsecured loan amount was Rs. 3,44,75,000/- include cash loan transaction of Rs. 4,10,000/-. In order to verify the genuineness of the loan, creditworthiness and identity of the creditor, AO called information/s 133 (6) from these persons. These notices were sent through speed post to the assessee. The information sought from all these persons u/s 133 (6) was as under:—

1. Please explain as to how you are related to MIs High Street Food Services (P) Ltd. and as to why you have advance loan to the said company.

2. Please explain in detail about all types of transactions carried out with M/s High Street Food Services (P) Ltd, during the AY 2016-2017.

3. Explain in detail with supportive documents about the source of the amount for advancing as loan.

4. Furnish copy of bank statement for the FY 2015-2016 relevant to AY 16-17 with narration to each and every deposit and withdrawal entry.

5. No response was received from the creditors. AO issued show-cause notice to the assessee. In response thereof, copy of confirmation of loan account was filed at the dak counter by Shri Vikas Kumar Soni, Shri Virender Kumar Soni and Shri Rajendra Kumar Soni along with copy of ITR, computation of total income and copy of bank statement from which money was transferred to the assessee company. AO noted that from perusal of the bank statement, it is revealed that either on the same day or one day before amount through cheque or transfer has been deposited in the creditors account from where it was transferred to the assessee company in the form of loan. AO noted that in the notice u/s 133 (6), all the creditors were specifically requested to furnish copy of their bank statement with narration to each and every deposit and withdrawal entry. But all the creditors had simply filed copy of bank statement without any clarification to the source of funds deposits in their bank account. AO further noticed that these parties did not have matched the creditworthiness with the amount of loan advanced by them to the assessee. The gross total income declared by them is as under:—

Name of the creditor Gross total income Exempt income Shri Virender Kumar Soni Rs. 12,29,734/- Rs. 82,06,987/- Shri Rajendra Kumar Soni Rs. 12,43,352/- Rs. 98,32,022/- Shri Vikas Kumar Soni Rs. 11,54,108/- Rs. 82,75,065/-

6. Further, AO noted that from the confirmation of loan account submitted, Shri Rajendra Kumar Soni only submitted banking transaction entries, hiding the cash loan entries as mentioned above. He further noted that apart from this, opening balance in confirmation of loan account submitted by the assessee and furnished by Shri Rajendra Kumar Soni did not tally. From the aforesaid anomaly, AO noted that creditworthiness of all the creditors has not been established. Further, in absence of any detail regarding the source of amount credited in the bank account of the creditors either on the same day or day before, the genuineness of the transaction has also not been established. AO proceeded to refer to case laws and added the amount as unexplained credit in the hands of the assessee u/s 68 of the Income-tax Act, 1961 (for short ‘the Act’). Thus, addition of Rs. 11,63,35,000/- was made.

7. Upon assessee's appeal, ld. CIT (A) proceeded to examine the documents and with regard to each of the parties, he gave his findings as under:—

“Lender 1-Sh. Rajendra Kumar Soni - Rs. 4,50,10,000/-

During the year under consideration, the lender Sh. Rajendra Kumar Soni has granted a loan of Rs. 4,50,10,000/- to the assessee company. The lender has reported net income amounting to Rs. 1,10,66,564/- which includes an exempt income of Rs. 98,31,601/-. From the perusal of the exempt income transaction, it is noted that the same is on account of sale of long term capital asset, sale proceed on which are Rs. 1,20,42,497/-. Furthermore, the lender statement of affairs also reflect a capital balance 4,75,33,280/- and also reflects that he holds two properties and many investments. Further, the bank statement of the lender is also analysed in light of the finding of the AO from which it is noted that the credit entries appearing in the account of the lender's bank account, just before giving the loan to the assessee company, is mostly credit from sweep in from FD Account. Certain banks provide this facility of Sweep in and Sweep Out wherein, the excess balance in saving bank account is converted into FD and as soon as any fund requirement comes in, the same is sweeped into the saving bank account. Most of the entries just before the grant of loan represent sweep in entries. Furthermore, other credits are mostly from finance companies, wife/HUF of the lender as appearing in the bank statements and ledger accounts. The HUF and wife of the lender are filing their IT Returns. As regards source of cash totaling to Rs. 4,10,000/- received and repaid by the appellant company, the appellant has filed a copy of cash book and balance sheet of the lender showing availability of amount lent which is from cash in hand and part salary received from one of the companies he manages.

6.5.1 Thus, from the aforesaid, I am of the view that the assessee has sufficiently established the identity, genuineness and creditworthiness of the lender. The documents furnished on record clearly establish the three limbs of sec. 68 of the Act. Thus, the addition made by the AO is deleted.

6.5.2 However, having said so, it is noted that out of the above, the assessee company has received Rs. 4,10,000/- loan amount in cash and also repaid the same in cash, which is against the provisions of Section 269SS and Section 269T of the Act. This is an admitted fact that the appellant company has received and repaid loan of Rs. 4,10,000/- in cash. Therefore, the aforesaid transaction is fit for levy of penalty under Section 271D and Section 271E of the Act. The Jt. Commissioner of Income Tax is empowered to initiate and impose penalty proceedings under Section 2710 and Section 271E of the Act. The AO is directed to take necessary action in this regard.

6.6 Lender 2 - Sh. Virender Kumar Soni - Rs. 3,68,50,000.

During the year under consideration, one of the directors, Sh. Virender Kumar Soni has granted a loan of Rs. 3,68,50,000/- to the assessee company. The lender has reported a net income amounting to Rs. 92,81,962/- which includes an exempt income of Rs. 82,06,700/- under the head LTCG. From the perusal of the exempt income transaction, it is noted that the same is on account of sale of long term capital asset, sale proceed on which are Rs. 1,01,90,954/-. Furthermore, the lender's statement of affairs also reflect a capital balance 2,99,47,173/- and also reflects that he holds two properties and many investments. Further, the bank statement of the lender is also analysed in light of the finding of the AO. From the same it is noted that the credit entries appearing in the account of the lender bank account, just before giving the loan to the assessee company, is actually credit from sweep in from FD Account. Certain banks provide this facility of Sweep in and Sweep Out wherein, the excess balance in saving bank account is converted into FD and as soon as any fund requirement comes in the same is sweeped into the saving bank account. Most of the entries just before the grant of loan represents sweep in entries. Furthermore, other credits are from wife & HUF of the lender and financial company as appearing in the bank statements and ledger accounts. The wife of the lender and HUF are filing their returns of income.

6.6.1 Thus, from the aforesaid, I am of the view that the assessee has sufficiently established the identity, genuineness and creditworthiness and there is no scope for any doubt left. The documents furnished on record, clearly establish the three limbs of sec. 68 of the Act. Thus, the addition made by the AO is deleted.

6.7 Lender 3 - Sh. Vikas Kumar Soni - Rs. 3,44,75,000/- During the year under consideration, the lender Sh. Vikas Kumar Soni has given a loan of Rs. 3,44,75,000/- to the assessee company. The lender has reported a net income amounting to Rs. 10,41,153/- which includes an exempt income of Rs. 82,73,272/-. From the perusal of the exempt income transaction, it is noted that the same is on account of sale of long term capital asset, sale proceed on which are Rs. 1,01,90,954/-. Furthermore, the lender's statement of affairs also reflect a capital balance 2,51,19,913/- and also reflects that he holds two properties and many investments. Further, the bank statement of the lender is also analysed in light of the finding of the AO. From the same it is noted that the credit entries appearing in the account of the lender bank account, just before giving the loan to the assessee company, is in realty credit from sweep in from FD Account as is in the case of other two lenders as discussed above. Most of the entries just before the grant of loan represents sweep in entries. Furthermore, other credits are mostly from wife/HUF of the lender and a finance company as appearing in the bank statements and ledger accounts. The ITR's of wife and HUF of this lender have been placed on record.

6.7.1 Thus, from the aforesaid, I am of the view that the assessee has sufficiently established the identity, genuineness and creditworthiness and addition based on AO's doubt is not sustainable in the eyes of law. The documents furnished on record establish the three limbs of Sec. 68 of the Act. Thus, the addition made by the AO is deleted.”

8. Accordingly, ld. CIT (A) deleted the addition.

9. Against the above order, Revenue is in appeal before us. We have heard both the parties and perused the records.

10. Ld. DR submitted that ld. CIT (A) have accepted the submission of the assessee without proper verification. These submissions and details were not submitted to AO. Further, he submitted that there is no Board Resolution or copy of loan document under which loans were taken, is available.

11. Ld. Counsel for the assessee, on the other hand, submitted that AO did not ask the assessee to explain the same and there was no opportunity to the assessee to explain the details which were given to the ld. CIT (A). He further submitted that loan documents were there but not available at that point of time. Further, he did not explain as to why how loans taken by the assessee are within the parameter of Companies Act. Ld. Counsel of the assessee fairly agreed that the matter may be referred to AO and assessee shall prove the veracity of the documents which were submitted and explained before the ld. CIT (A).

12. Ld. DR for the Revenue supported the plea that the matter may be remitted to the file of AO.

13. Accordingly, in the interest of justice and as agreed by both the parties, we remit the issue to the file of AO. AO should decide the issue afresh in the light of the submissions and documents submitted before the ld. CIT (A). Needless to add, assessee should be granted adequate opportunity of being heard.

14. In the result, the appeal of the Revenue is allowed for statistical purposes.

ACIT, Circle-11(2), New Delhi v. Hi Quality Food & Beverages Pvt. Ltd., New Delhi

Case Summary — Shamim Yahya, A.M. (Tribunal Opinion)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Revenue's Arguments (Ld. DR)

Assessee's Arguments (Ld. Counsel for the Assessee)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

ACIT, Circle-11(2), New Delhi v. Hi Quality Food & Beverages Pvt. Ltd., New Delhi

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