Unsecured Loan Not Accommodation Entry Merely Because Operators Controlled Lenders; Addition Under Section 68 Deleted
Issue:
Whether an unsecured loan taken by an assessee from companies controlled by alleged accommodation entry providers can be automatically treated as an accommodation entry and added to the assessee’s income under Section 68 of the Income-tax Act, 1961, especially when the assessee provides supporting documentation and has repaid the loan with interest.
Facts:
For the assessment year 2016-17, the assessee-company had obtained unsecured loans from two companies. The Assessing Officer (AO) made an addition of the loan amount to the assessee’s income under Section 68 (cash credits), alleging that these loans were merely accommodation entries, implying that the assessee’s own unaccounted money was routed through these companies. However, the assessee had submitted various supporting documents to prove the genuineness of the loans, including audited balance sheets and bank statements of the lender companies. Furthermore, it was established that the assessee had repaid the loans along with interest.
Decision:
The court ruled in favor of the assessee. It held that merely because some operator had managed the affairs of the two lending companies, it could not be automatically concluded that the loan taken by the assessee from these companies was an accommodation entry. Therefore, the impugned additions made under Section 68 were to be deleted.
Key Takeaways:
- Onus Probandi under Section 68: While Section 68 places the initial onus on the assessee to explain the nature and source of any cash credit, this onus is discharged by providing satisfactory evidence regarding the identity, genuineness, and creditworthiness of the creditor.
- Identity, Genuineness, and Creditworthiness: The assessee successfully demonstrated these three pillars by submitting audited balance sheets and bank statements of the lending companies. The repayment of the loan with interest further solidifies the genuineness of the transaction.
- “Accommodation Entry” Not Assumed: The mere fact that the lending companies might be associated with “accommodation entry providers” or their affairs managed by “operators” does not automatically mean that every transaction with them is an accommodation entry, particularly when the assessee provides verifiable documentary evidence. The department needs to establish a direct link proving that the assessee’s own money was routed, not just that the lender might have a dubious background.
- Repayment of Loan as Evidence: The repayment of the principal amount along with interest is a strong piece of evidence supporting the genuineness of the loan transaction, as it indicates a real financial obligation and its fulfillment.
- No Presumption of Guilt: The department cannot make an addition under Section 68 based on suspicion or general information about a third party’s involvement in providing accommodation entries without specific evidence linking the assessee’s transaction to such an activity. The onus is on the AO to disprove the assessee’s explanation with material evidence, not just general allegations.
IN THE ITAT DELHI BENCH ‘F’
Real Innerspring Technologies (P.) Ltd.
v.
ACIT
S. Rifaur Rahman, Accountant member
and Ms. Madhumita Roy, Judicial member
and Ms. Madhumita Roy, Judicial member
IT Appeal No.647 (DEL) of 2023
[Assessment Year 2016-17]
[Assessment Year 2016-17]
MARCH 27, 2025
Mohit Chaudhary, Harish, CAs, Neetu Jain and Ms. Nitika Chaudhary, Advs. for the Appellant. Ms. Harpreet Kaur Hansra, Sr. DR for the Respondent.
ORDER
S. Rifaur Rahman, Accountant Member. – The assessee has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)-30, New Delhi (for short ‘ld. CIT (A)’) dated 13.01.2023 for Assessment Year 2016-17.
2. Brief facts of the case are, the assessee filed its return of income for the AY 2016-17 on 12.10.2016 declaring ‘Nil’ income and declared income u/s 115JB of the Income Tax Act, 1961 (in short ‘Act’) of Rs 82,37,911/-. The return was processed u/s 143(1) of the Act. During the course of assessment proceedings, the AO found that Shri Himanshu Verma was managing and controlling several companies/firms/concerns and provides mainly accommodation entries to various beneficiaries. It was observed that there was no actual business carried on by these companies and it is only paper companies. It was found that M/s Cityzy Infraheights Pvt Ltd was also controlled and managed by Shri Verma. AO observed that the assessee also taken entry of Rs. 50 lakhs dated 9/7/2015 and since the same was provided by the Shri Verma, based on the above the AO formed the opinion that the income escaped assessment to the extent of Rs.50 Lakhs in this assessment year within the meaning of section 147 of the Act. Accordingly, notice u/s 148 was issued and served on the assessee. In response, the assessee filed the return of income declaring the same income as original return of income. The notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee.
3. During the assessment proceedings, it was also noticed from the information received from DDIT (Inv), Ghaziabad that the assessee has also taken unsecured loan from CEA Consultants Pvt. Ltd of Rs. 50 lakhs. Notices were issued to submit the detail of these transactions. In response, the assessee submitted vide letter as under :-
“8. In response to the above Show Cause Notice dated 02/02/2022 issued to the assessee company, the assessee company had submitted its reply through letter. In this letter the assessee company had submitted as under :-
“….1. These companies are genuine companies and these companied are regularly filing their Audited Balance Sheet and doing Annual General Meeting as per MCA record. Copy of Extracts of MCA record is attached herewith as Annexure-1.
2. The assessee company has taken loan from mentioned NBFC’s and repaid the loan along with interest thereon and duly deducting the TDS on interest paid. Nature of loan is duly disclosed by the company in their audited accounts. Copy of TDS certificate issued for the FY 2015-16 to both companies are attached herewith as Annexure-2.
3. PAN of these companies are confirmed by the Ld. Assessing Officer also justify that these companies are genuine companies.
4. Further in respect of creditworthiness of these companies, I am pleased to submit the copy of Audited Balance Sheet of CEA Consultants Pvt Ltd as at 31st March 2016, which showing net worth of the company as at 31st March 2016 was Rs.89,81,78,4121-. Ld AO has nowhere commented on net worth of the company that whether the net worth shown in Audited Accounts is bogus or not. (Copy of Audited Balance Sheet attached herewith as Annexure-3 (P. S. page 8 of annexure)
5. Further, please find enclosed herewith copy of statement of accounts of CEA Consultants Pvt Ltd, where we have attached copy of account in our books, copy of our bank statement, where we have received money, copy of bank statement of M/s CEA Consultants Pvt Ltd from which account, CEA Consultants Pvt Ltd has paid money to assessee company as Annexure-4.
6. Further in respect of creditworthiness of these companies, I am pleased to submit the copy of Audited Balance Sheet of Citzy Infraheights Pvt Ltd as at 31st March 2016, which showing net worth of the company as at 31st March 2016 was Rs.8,55,14,543/-. Ld AO has nowhere commented on net worth of the company that whether the net worth shown in Audited Accounts is bogus or not. (Copy of Audited Balance Sheet attached herewith as Annexure-5 (P.S. page 8 of annexure)
7. Further, please find enclosed herewith copy of statement of accounts of Citzy Infra heights Pvt Ltd, where we have attached copy of account in our books, copy of our bank statement, where we have received money as well as repaid the money in the form of unsecured loan Citzy Infraheights Pvt Ltd as Annexure-6.
8. Further, please find enclosed herewith copy of statement of accounts of CEA Consultants Pvt Ltd, where we have attached copy of account in our books, copy of our bank statement, where we have received money, copy of bank statement of M/s CEA Consultants Pvt Ltd from which account, CEA Consultants Pvt Ltd has paid money to assessee company as Annexure-4.
9. Further, please find enclosed herewith copy of statement of accounts of Citzy Infra heights Pvt Ltd, where we have attached copy of account in our books, copy of our bank statement, where we have received money as well as repaid the money in the form of unsecured loan Citzy Infraheights Pvt Ltd as Annexure-5.
10. Further you have intimated to interest credited to the account amounting to RS.2,62,356, I am pleased to draw your attention that, this amount is not being received from the unsecured loan suppliers. We have credited the amount to these parties account on account of interest and deducted TOS on that interest…..”
The reply so furnished by the assessee company is duly considered but is found not tenable. The detailed analysis and findings aw as under:-
The submission so made have no merits. as it is the general modus operandi of the companies used for providing / accepting bogus accommodation credit entry operator companies that they prepares a cooked up story to accept / give the bogus credit in lieu of any bogus sale/purchase, unsecured loan, share application money or premium or advances and channelize the money from the banking channels as a. colorful arrangement. This whole arrangement is being made to convert the unexplained cash of the beneficiary company in the bank credit, which is never offered-to tax. But, in actual no actual transaction happens, only sham transactions are prepared by the operators to rotate money’ from the banking channels. The same is in the. case of the assessee company. Mere production of documents i.e. ITR and balance sheet of any creditor are not sufficient to explain its genuineness and creditworthiness as both the credit provider companies namely M/s Cityzy Infraheights Pvt. Ltd. and M/s CEA Consultants Pvt. Ltd. were not having any source of income and tangible or intangible business it was found to be solely in the business of providing accommodation entries i.e. it is a dummy or paper company with no genuine business other than giving accommodation entries. It was also established by the Assessing Officers of M/s Cityzy Infraheiqhts Pvt. Ltd. and M/s CEA Consultants Pvt. Ltd. that both these companies were engaged in providing bogus credit accommodation entries. The whole story to getting credit in the bank as unsecured loan on which interest had been paid and TDS deducted on such interest payment, is a pre planned story to load the unexplained cash by converting it to credit in the banks of the assessee company. The Balance Sheets of both the entry provider paper companies for the F:Y. 2015-16 are enclosed by the assessee, a precise analysis of which are as under :-
1. M/s CEA Consultants Pvt. Ltd.:-
Total Liabilities Rs.90,36,59,521/- out of which Reserve surplus are Rs.86,60,46,412/-.
Total Assets Rs.90,36,59,521/- out of which Long Term loans and advances are Rs.88,28,74,602/-.
1. M/s Cityzy Infraheights Pvt. Ltd.:-
Total Liabilities Rs.8,56,22,493/- out Of which Reserve surplus are Rs.8,45,59,543/-.
Total Assets Rs.8,56,22,493/- out of which Short Term loans and advances are Rs.6,84,59,404/- and Current investments in unquoted Shares at Rs.1,64,35,463/-.
It is crystal clear from these financials that both the creditor companies, do not have any tangible assets and not’ having any actual business as capital in shape of Reserves and Surpluses are loaded in both these companies and again which these companies have extended bogus accommodation credit entries in shape of long/short term loans or purchase of unquoted shares. Hence, the objections furnished by the assessee are found to have no merit and assessment is finalized as per assessment order.”
4. After considering the above submissions, AO rejected the same and based on the statements and findings of respective accommodation providers assessments, he came to conclusion that the assessee has taken accommodation entries from the dummy or paper companies controlled by the accommodation providers, Shri Verma and Shri Anil Agarwal. He analysed the financial statements submitted by the assessee of the above said two companies, both companies are having huge surplus in the form of reserves and observed that both the creditor companies do not have any tangible assets and not having any actual business as capital in shape of reserves and surpluses are loaded in both these companies. He held that the above advances are nothing but undisclosed income of the assessee u/s 68 of the Act and the assessee has not satisfied the criteria of credit worthiness and genuineness of the transactions. The onus on the assessee to prove the genuineness of the transaction, accordingly, he made the addition u/s 68 of the Act. Further, he disallowed the interest expenses of Rs.307,524/- on the above loan and also disallowed the commission @4% of Rs.400,000/- on availing the accommodation entries u/s 69C of the Act.
5. Aggrieved with the above order, the assessee preferred an appeal before Ld CIT(A)-30, New Delhi. The assessee raised the issues of reopening without their proper recording of satisfaction and on merit filed a detailed submission. He rejected the submissions and sustained the additions made by the AO.
6. Aggrieved, the assessee is in appeal before us raising following grounds of appeal :-
“1. On the facts and in the circumstances of the case Ld. CIT (A) has erred both on facts and in law in upholding the impugned order passed by the respondent illegally, violating the principles of natural justice, without fair and objective application of mind to the facts of the case and the law applicable and without being guided by the binding decisions of courts and tribunals and hence liable to be set aside and quashed and declared non est in law.
2. On the facts and circumstances of the case, the learned Ld. CIT (A) New Delhi has erred, both on facts and in law, in Sustaining the assessment that could not have been reopened u/s 147/148 as no valid reasons have been recorded by the Assessing Officer to establish any satisfaction on his part that any income belonging to the appellant has escaped assessment.
3. On the facts and in the circumstances of the case Ld. CIT (A) New Delhi has erred both on facts and in law, in sustaining the action of AO in reopening the assessment u/s 147 instead of section 153C.
4. On the facts and circumstances of the case, the learned Ld. CIT (A) New Delhi has erred, both on facts and in law, in sustaining the action of AO in initiation of proceedings u/s 147 of the IT Act, solely on the basis of borrowed satisfaction.
5. On the facts and circumstances of the case, the learned Ld. CIT (A) New Delhi has erred, both on facts and in law, in sustaining the assessment of the appellant at income of Rs.1,07,07,524/- as against the income of Nil declared by the appellant.
6. That the Ld. CIT(A) has erred, both on facts and in law, in sustaining the addition of Rs.1,00,00,000/- u/s 68 of the Act, considering the same as unexplained credit without appreciating the fact.
7. That the Ld. CIT(A) has erred, both on facts and in law, in sustaining the addition of Rs.3,07,524/- u/s 69C of the Act assuming that the interest expenses incurred is not genuine as it is on bogus accommodation credit entry without appreciating the fact.
8. That the Ld. CIT(A) has erred, both on facts and in law, in sustaining the addition of Rs.4,00,000/- u/s.69C of the Act assuming it as commission expenses @4% of Rs.7,00,00,000/-without appreciating the fact.
9. On the facts and circumstances of the case, the learned Ld. (A) New Delhi has erred, both on facts and in law, in sustaining the assessment order which Was passed without giving opportunity of cross examination.
10. That the provisions of section 234A, 234B and 234C of the Act are not at all applicable.
11. that the impugned appeal order is arbitrary, illegal, bad in law and in violation of rudimentary principles of contemporary jurisprudence.”
7. At the time of hearing, Ld AR brought to our notice the facts on record and brought to our notice the financial statements of both the companies from whom the assessee has taken the unsecured loans of Rs. 50 lakhs each. He submitted that the Ld CIT(A) has sustained the additions merely on the basis of findings of AO that these companies are dummy and accommodation providers which are controlled by the Shri Verma and Shri Anil Agarwal. He submitted that the above said loan was repaid by the assessee as under :-
| Name of the Lender | Amount of the Loan | Date on which loan taken | Date of interest payment | Date of repayment of loan |
| M/s. Citzy Infraheights Pvt. Ltd. | 50,00,000 | 09.07.2015 (Pg 38 of the PB) | 30.12.2017 (Pg 40 of the PB) | 06.12.2017 30.12.2017 (Pg 39 & 40 of the PB) |
| M/s. CEA Consultants Pvt. Ltd. | 50,00,000 | 18.03.2016 (Pg 81 of the PB) | 27.04.2016 28.03.2017 (Pg 81 of the PB) | 17.03.2017 18.03.2017 21.03.2017 (Pg 83 & 84 of the PB) |
8. He submitted that the reassessment was initiated by issue of notice only on 31.12.2020. He submitted by referring to the above chart as under :
“24. On perusal to the above chart following will be observed by your kind honor
| ■ | The loan in question whose addition has been made by the Ld AO by treating the same as unexplained has already been repaid by the appellant company |
| ■ | Appellant company has paid principal amount as well as interest @ 8% to the lenders |
| ■ | As required u/s 194A of the Income tax Act 1969, Tds has also been deducted by the appellant company on the payment of interest. (TDS Certificates at Pg 18 to 21 of paperbook) |
| ■ | Repayment of the loan has been done long before the issue of notice u/s148 i.e. notice has been issued on 31.12.2020 and loan has been repaid on 30.12.2017. (Pg 39/40 & 83/84 of Paperbook) |
25. Thus, from the review of the above your kind honor will observe that the loan whose addition has been made by the Ld AO by treating the same as unexplained has already been repaid by the appellant company with interest long before the issue of the notice u/s 148.
The appellant wishes to rely upon the following judicial pronouncements:
ITO v. Leena Haresh Harde 2020 TaxPub(DT) 3167 (Mum-Trib),
Assessing officer received information from investigation wing as to assessee being one of the beneficiaries to entries provided by Gautam Jain & Ors. as they had confessed in search proceedings. Accordingly, assessing officer treated loan amount received by assessee as unexplained credit under section 68 and made addition. Assessee by furnishing loan confirmations, financials, bank statements, copies of ITR of all the creditors discharged her onus to prove identity, and creditworthiness of loan creditors and genuineness of loan transactions. Assessing officer merely relying on statement of third party whose statement was not even provided to assessee treated creditors as non-genuine without making any sort of enquiries. In such situation, addition made under section 68 could not be upheld.
The same has been held in the below mentioned decisions :-
(a) CIT v. Shri Lekh Raj Educational & Charitable Trust 2020 TaxPub(DT) 1942 (Chd-Trib)
(b) Ram Dev Rice (P) Ltd. v. Asstt. CIT 2020 TaxPub(DT) 57 (Del-Trib).
Shagun Jewellers (P) Ltd. v. Asstt. CIT 2020 TaxPub(DT) 2544 (Del-Trib)
“While making additions, the Assessing Officer drew support from the statement of Shri Vinod Kumar Taneja and Shri Chanchal Taneja who are directors of M/ s Index Securities and Research Pvt Ltd.
13. According to the Assessing Officer, both the directors did not have any knowledge about the financials of M/ s Index Securities and Research Put Ltd. The Assessing Officer observed that M/ s Index Securities and Research Pvt Ltd is not doing any business activity in reality and is merely a paper entity.
14. As mentioned elsewhere, the assessee has furnished complete details of M/ s Index Securities and Research Put Ltd. Copy of confirmation of accounts is placed at page 105 of the paper book which is as under.
15. On a perusal of the bank statement of the assessee exhibited at pages 132 to 135 of the paper book, it can be seen that Rs. 2 crores were credit through RTGS on 11.09.2009. Rs. 1.80 crores was repaid on 10.12.2009 and Rs. 20 lakhs was repaid on 12.12.2009 and interest of Rs.4,80,000/- was paid on 22.12.2009 after deducting TDS.
16. Coming to the financial of M/ s Index Securities and Research Pvt Ltd., the balance sheet reads as under…..
17. It can be seen from the afore extracted balance sheet that M/s Index Securities and Research Pvt Ltd. was having available funds amounting to Rs.1,556 lakhs.
19. These clinching evidences demolish the allegation of the Assessing Officer that M/s Index Securities and Research Put Ltd is merely a paper company.
There is no dispute that u/s 68 of the Act, the initial onus is upon the assessee to explain the identity, genuineness of the transaction’ and the capacity of the lender. Evidences discussed hereinabove clearly show that the assessee has successfully established the identity, genuineness of the transaction and capacity of the company M/s Index Securities and Research Pvt Ltd.”
In the case of Mod Creations (P.)Ltd. v. Income-tax Officer ITA 1158 OF 2007 DELHI (HC) DATED AUGUST 292011 IT has been held that Section 68 of the Income-tax Act, 1961 – Cash credits -Assessment year 2002-03 – During relevant assessment year, assessee-company had raised unsecured loans from five persons who were its directors and shareholders – Payments were made through banking channels – During assessment proceedings, assessee furnished income-tax returns and bank statements of said creditors along with their affidavits stating therein source of funds which were used in lending amounts to assessee -Assessing Officer, however, held that both, genuineness of transactions as also creditworthiness of creditors remained unexplained and added amount of aforesaid credits to assessee’s income – Whether, on facts, assessee had discharged initial onus placed on it and if revenue still had a doubt with regard to genuineness of transactions in issue or as regards creditworthiness of creditors, it would have had to discharge onus which had shifted on to it – Held, yes-Whether no such exercise having been undertaken by revenue authorities, addition under section 68 in hands of assessee was unjustified – Held, yes [In favour of assessee].
In CIT v. Kamdhenusteel & alloys lt[2014] 361 ITR 220 (Delhi) DELHI hon’ble Delhi High Court has held that Section 68 of the Income-tax Act, 1961 – Cash credits -Assessment year 2004-05 – Whether once adequate
evidence/material is given, which would prima facie discharge burden of assessee in proving identity of shareholders, genuineness of transaction and creditworthiness of shareholder, thereafter in case such evidence is to be discarded or it is proved that it is ‘created’ evidence, revenue is supposed to make thorough investigation before it could nail assessee and fasten assessee with a liability under sections 68 and 69 – Held, yes – Whether where assessee had given particulars of registration of investing/applicant companies; confirmation from share applicants; bank accounts details; and had shown payment through account payee cheques, etc., it could be said that assessee had discharged its initial onus and just because some of creditors/ share applicants could not be found at address given, it would not give revenue a right to invoke section 68 without any additional material to support such a move -Held, yes[In favour of assessee]
26. The ratio of this judgement is applicable to the facts of the appellant’s case. In the assessment order the AO has not brought any of evidence to establish any link that money received by the appellant as loan or share application money belonged to the applicant company. There is no evidence to indicate that the lender companies have deposited cash. The appellant has placed adequate evidences before the AO as well as before me and discharged the burden placed on the appellant of proving identity genuineness and creditworthiness of lender companies.
In the case of CIT v. Gangeshwari Metals Pvt ltd 30 (Delhi) hon’ble Delhi High Court has held that Section 68 -cash credits -share application money -Asstt year 200405 whether where assessee in support of transaction of receipt of share application money brought on record various documents such as names and address of share applicants their confirmatory letters, copies of bank statements etc, said transaction was to be regarded as genuine and consequently no addition could be made in respect of same under section 68-Held yes (in favour of assessee)
In the case of CIT v. Oasis Hospitalities ITR 119 (Delhi) Delhi, hon’ble Delhi High Court has held that:
“Section 68- cash credits- whether if AO doubts genuineness of the investors,who had purportedly subscribed to share capital of the assessee company, he may ask the assessee to explain the source and nature of the those sums received by it on account of share capital and burden of proof would be on assessee to provide nature and source of these receipts- held yes -whether this burden of proof can be discharged by producing PAN card and bank statement of the creditor/subscriber showing that it had sufficient balance in its account to enable it to subscribe to share capital and thereafter it is for the AO to scrutinize the same and in case he nurtures any doubt about the veracity of those documents, to probe matter further-Held yes- whether opinion of AO for not accepting the assessee’s explanations not being satisfactory has to be based on proper appreciation of material and other attending circumstances available on record-Held Yes”
In CIT v. Makhni and Tyagi (P) Ltd.ITR 433 (Delhi) it was held by Hon’ble Jurisdictional High Court as under:
“If the AO felt that their examination was absolutely necessary then he could have enforced their attendance as pointed out by Allahabad High Court in Nathu Ram Premchand v. CIT(1963) 49ITR 561 (All) and E.M.C. (Works) (P) Ltd. v. ITO (1963) 49ITR 650 (All).
This Court is of the opinion that when documentary evidence was placed on record to prove the identity of all the shareholders including their PAN/ GIR numbers and filing of other documentary evidence in the form of ration card, etc. which had neither been controverter nor disapproved by the AO, then no interference is called for”.
“No inference can be drawn against the assessee merely because the assessee had taken a dasti summons for production of a witness and had not produced him It is the duty of the Income-tax Officer to enforce the attendance of the witness if his evidence is material, in exercise of his powers under section 37(1)of the Income-tax Act, read with Order XVI, rule 10, of the Civil Procedure Code.”
The Co-ordinate Bench of Tribunal in ITA No. 1834/Del/2015 for AY 2004-05 in the case of Espirit Finco Pvt. Ltd., has observed as under:
The fact remains that the notices have been served upon these parties. Thus, in a case where 4 out of 6 concerns admittedly reply the two who though do not reply but their evidences remain un assailed per se cannot be the reason for sustaining the addition in the facts and circumstances of the present case. In the facts where all details are available notice u/s 133(6) have been served, four have replied thus, if the department still had any further doubts about their existence or genuineness then their presence ITA Nos. 4991 & 4853/Del/2014 23 should have been enforced as the whereabouts of these two concerns were known to the department as notices were served upon these parties at the address given is a fact on record. In the afore-mentioned peculiar facts and circumstances, the request of the Revenue to direct yet another remand does not make any sense. It is seen that when the evidences on record are considered qua the stated business of the assessee, I find that the addition on merits cannot be sustained”.
The relevant observations of Hon’ble Jurisdictional High Court in the case of CIT v. Rakam Money Matters Pvt. Ltd ITA No. 2821/Del./2011 are reproduced below:
“It is not in dispute that extensive material was produced by the Assessee in the present case to prove the identity, genuineness and creditworthiness of the companies who had subscribed to its shares. Among the materials produced were the Income Tax Returns and the PAN card details of the eight companies. Even if the Directors of these companies did not respond to the summons issued by the AO, it was not impossible for the AO to make proper enquiries to ascertain the genuineness of these entities and satisfy himself of their creditworthiness. As pointed out by the CIT(A), the AO failed to make any effort in that direction. He did not take to the logical end the half-hearted attempt at getting the Directors to appear before him. He did not even seek the assistance of the AOs of the concerned companies whose ITRs and PAN card copies had been produced”.
In the case of M/S. Umbrella Projects Pvt. Ltd., v. Ito, New Delhi on 23 February, 2018, ITA No. 5955/DEL/2014, it is held that_
“De horse the non-receipt of the reply, even for the sake of argument we assume that the AO has not received the reply, still the fact remains that 133(6) notice were served on these four shareholders. On going through the assessment order we note that it is not the case of the AO that notices have come back unserved or these shareholders were not available at the address given by the assessee. If that be so, we are of the view that no adverse inference can be drawn against the assessee merely because reply has not been received by the AO in response to notice issued under Section 133(6).The AO having issue the notice and such notice having been served on the person concerned, the AO has to take the process to the logical end. He cannot draw adverse inference merely because reply has not been received. Submission of the reply in an independent enquiry being carried out by the AO by issue of notice under Section 133(6) from the person concerned directly is not in the hands of the assessee. The AO may be justified in certain circumstances when notice is not served or when an adverse reply is received in response to notice issued by him under Section 133(6),but merely non receipt of reply can be a justification for drawing adverse inference. Our this view is supported by the judgment of the Hon’ble Supreme Court in the case of CIT v. Orissa Corporation [1986] 59 ITR 78 (SC) where a similar issue has come up”.
Ito, New Delhi v. M/S. Randeep Investment Pvt. on 6 July, 2018, ITA No.4991/Del./20 14 In view of the above discussion, plethora of decision relied on by the assessee and having gone through the documentary evidences placed on record, we find that all the share application money have been received by account payee cheques; that it no case is made out by the Revenue that cash was deposited by the share subscriber companies before issuing cheques on account of share application money; that the AO has not brought any material on record to either controvert or disprove the documentary evidences as filed by the Assessee; that no adverse inference can be drawn against the assessee, even if replies were not received from the share subscribers Companies though the notices u/ s 133(6) were duly ‘served on them; that it is not the case of the AO that notices had come back unserved or share subscriber Companies were not available at the address given by the assessee Co.; that the decisions relied upon by the Ld. AR are squarely applicable to the facts of assessee’s case and go to support the case of the assessee; and that, therefore, we have no hesitation to conclude that the assessee Company produced sufficient documentary evidence including the confirmations, bank statements, balance sheets, ROC records, ITRs & PAN indicating Ward/ Circle of the share applicants where they were assessed to income tax and hence, the onus which ITA Nos. 4991 & 4853/Del/2014 26 lay on the assessee to prove the identity, genuineness and creditworthiness of the share subscriber Companies stood duly discharged.
The judgment of Jurisdictional Delhi High Court in the case of CIT v. Laxman Industrial Resources Pvt. Ltd.ITR 106 (Delhi) where the Hon’ble High court has held as under:
“This Court notices that the assessee had provided several documents that could have showed light into whether truly the transactions were genuine. It was not a case where the share applicants are merely provided confirmation letters. They had provided their particulars, PAN details, assessment particulars, mode of payment for share application money, i.e. through banks, bank statements, cheque numbers in question, copies of minutes of resolutions authorizing the applications, copies of balance sheets, profit and loss accounts for the year under consideration and even bank statements showing the source of payments made by the companies to the assessee as well as their master debt with ROC particulars. The AO strangely failed to conduct any scrutiny of documents and rested content by placing reliance merely on a report of the Investigation Wing. This reveals spectacular disregard to an AO’s duties in the remand proceedings which the Revenue seeks to inflict upon the assessee in this case. “
The Bombay High Court in the case of CIT v. Orchid Industries Pvt. Ltd. 397ITR 136expressed as under:
“6 The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee. The judgment in case of Gagandeep Infrastructure (P.) Ltd. (supra) would be applicable in the facts and circumstances of the present case. “
In the case of CIT v. Divine Leasing & Finance Ltd [2008] 299 ITR 268 (Delhi) it has been held :
“Thus, the question is whether in the present case, the AO had material to conclude that the share applicants in questions did not exist. It is seen that the assessee company has furnished the necessary details such as PAN No./Income- tax Ward No./ration card of the share applicants and some of them are assessed to tax. The share application money has been received through banking channel. In some case, the confirmations/ affidavits of share applicants containing the above detail were also filed. It is seen that the AO did not carry out any inquiry into the income tax record of the persons who have given the PAN No./Ward No. in order to ascertain the non- existence of the share applicants in question. The AO has neither controverted nor disapproved the material filed by the assessee”
Dy. CIT v. Krishna Marble & Vice-Versa 2019 TaxPub(DT) 4548 (Jod) (2019) 72 ITR (Trib) 418 (Jod).
Assessee by furnishing evidences such as PAN, balance-sheet, IT and bank statement of lenders and confirmation of accounts etc., had proved identity and creditworthiness of lenders and genuineness of impugned loan transactions, however, in the absence of any independent inquiry and any adverse findings recorded by assessing officer to rebut evidences filed by assessee, addition of loan amount made by assessing officer under section 68 could not be sustained.
CIT v. Minda Industries Ltd. 2012 TaxPub(DT) 3331 (Del-Trib).
“With the submission of details of net worth copy of income-tax returns and permanent account number of creditors, requirement of identity, genuineness and creditworthiness was fulfilled and therefore, addition made under section 68 was not Justified.”
27. It may kindly be appreciated that the assessee has furnished complete details about the transactions along with related documents. All the transactions have been carried out through regular banking channels. The identity and the capacity of the lender is clearly established through the documents already submitted. Therefore, the allegation that the assessee company received accommodation entries is false and is therefore submitted that provisions of section 68 are not applicable in the case of the assessee.
28. It is submitted that the principles laid down in the various rulings are that the assessee Company has to establish that the shareholders/creditor exist and they have invested in the share capital/borrowings of the assessee-company, The assessee had laid substantial evidence and established all these facts.
29. It is further submitted that from all the material placed on record by the assessee, there is no doubt that the assessee has fulfilled its onus of.
| ■ | Establishing the source of amount received, |
| ■ | Genuineness of the transaction and |
| ■ | Credit worthiness of the party. |
30. The above submission clearly establish that the addition made by the ld. A.O. is totally arbitrary, illegal, judicial pronouncements and not in line with facts and circumstances of the case and hence deserves to be deleted.”
9. On the other hand, Ld DR of the Revenue brought to our notice page 14 of the assessment order and submitted that the conditions of section 68 was not fulfilled in the transactions carried on by the assessee with the bogus and dummy companies. All these facts were found during the search conducted in the case of Shri Himanshu Verma. He relied on the findings of lower Authorities.
10. Considered the rival submissions and material placed on record. We observed that the AO has initiated reassessment proceedings on the basis of information received from the Investigation Wing and search proceedings in the case of Shri Verma. It is brought on record that these two companies were found to be controlled by the accommodation entry providers, Shri Verma and Shri Anil Agarwal. Merely because the assessee has taken the unsecured loan from the companies controlled by them, the addition was made rejecting the various supporting documents provided by the assessee relating to transactions.
11. In our considered view, the additions were made only on the basis of alleging that the loan taken by the assessee from the above said two companies are only accommodation entries and assessee’s own money was routed through these companies with the help of accommodation entry providers. On careful note, the accommodation entries are taken which will remain in the books of account and they will ultimately written off over the period of time. These loans were normally not repaid. In the given case, it is brought to our notice that the assessee has received the unsecured loan through the banking channel and repaid thru the
banking channel as under :-
| Name of the Lender | Amount of the Loan | Date on which loan taken | Date of interest payment | Date of repayment of loan |
| M/s. Citzy Infraheights Pvt. Ltd. | 50,00,000 | 09.07.2015 (Pg 38 of the PB) | 30.12.2017 (Pg 40 of the PB) | 06.12.2017 30.12.2017 (Pg 39 & 40 of the PB) |
| M/s. CEA Consultants Pvt. Ltd. | 50,00,000 | 18.03.2016 (Pg 81 of the PB) | 27.04.2016 28.03.2017 (Pg 81 of the PB) | 17.03.2017 18.03.2017 21.03.2017 (Pg 83 & 84 of the PB) |
12. From the above, it is clear that the assessee has repaid the loan even before the assessment was reopened. When the assessee takes the loan and repaid along with the interest clearly shows that the transactions are genuine. By returning the loan, the assessee has only utilised the loan for the purpose of business and repaid the same. Merely because some operator has managed the affairs and all the transactions cannot be labelled as non-genuine. Every transaction has to be evaluated on its merit rather than on the basis of suspicion. Therefore, in this case, the assessee has submitted all the documents in support of the transaction before the AO and he has merely rejected the same on the basis of information available with him as the same on the basis of suspicion. Therefore, we are inclined to allow the grounds raised by the assessee.
13. In the result, appeal filed by the assessee is allowed.