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Additions framed u/s 68 are sustainable if assessee fails to discharge burden of establishing identity & creditworthiness of creditor or genuineness of transactions: ITAT

2019-TIOL-1668-ITAT-PUNE

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH ‘B’ PUNE

ITA No.471/PUN/2017
Assessment Year: 2013-14

ASSITANT COMMISSIONER OF INCOME TAX
CIRCLE 2, KOLHAPUR

Vs

SHRI NITIN MOHAN WADIKAR PVT LTD
E-1328/20, PLOT NO.36, Y P POWAR NAGAR, KOLHAPUR-416012
PAN NO:AABPW5392A

Sushma Chowla, JM & Anil Chaturvedi, AM

Date of Hearing: July 03, 2019
Date of Decision: July 15, 2019

Appellant Rep by: Shri Pankaj Garg
Respondent Rep by:
 Shri Nikhil Pathak and Mayuresh Doshi

Income Tax – Section 68

Keywords – Creditworthiness of creditor – Genuineness of transactions – Unsecured loans

The assessee was engaged in the business of manufacturing of high quality machines. During the course of the assessment proceedings, the assessee had declared unsecured loan of Rs. 1.04 cr. The AO asked the assessee to explain the source of the loan. In reply, the assessee explained that it was received from Mr. Prafulla Anil Madiwale by cheque as advance but by mistake it was wrongly posted in the account of Mr. Ramesh Havele, since both the persons were from same group. The AO observed that the assessee never wanted to really reveal the identity from whom loan was taken. The AO was of the view that the assessee had failed to prove identity of the creditor. While in the books of account, the creditor was Mr. Ramesh Havelel but during scrutiny proceedings, the assessee claimed it was loan actually given by Mr. Prafulla Anil Madiwale. In order to ascertain identity of the actual person, Summons were given to Mr. Ramesh Havele to attend the office along with documents but he never appeared before the AO. The assessee submitted the bank documents of Mr. Prafulla Anil Madiwale to prove its case. Howver, the claim of assessee that unsecured loan was given by Mr. Prafulla Anil Madiwale was not accepted to be genuine. The assessee was also asked to prove the genuineness and creditworthiness of unsecured loan creditor . Howver, the AO did not accept the explanation of assessee on the ground that creditworthiness, genuineness of Mr. Ramesh Havele and Mr. Prafulla Anil Madiwale was not proved and hence, sum of Rs. 93 lakhs was added to the income of assessee. On appeal, the CIT(A) deleted the entire addition.

On appeal, the Tribunal held that,

Whether it is a fit case for remand when assessee fails to discharge its burden of providing basic details which were required to fulfill the conditions of section 68 viz, identity of the creditor, credit worthiness of the creditor and genuineness of transaction – YES: ITAT

++ there are three ingredients of section 68 first is identity of creditor, second is creditworthiness of creditor and third is genuineness of transaction. All these three ingredients need to be fulfilled by the assessee justifying the loan. The assessee in the books of account mentioned it had received loan of Rs. 93 lakhs from Mr. Ramesh Havele, but during assessment proceedings the assessee changed its stand and says it wrongly mentioned the name as Mr. Ramesh Havele instead of Mr. Prafulla Anil Madiwale. Before the CIT(A), the assessee files an affidavit which at best is self serving document. The AO had served Summons on Mr. Ramesh Havele, which remained not complied. In case the assessee has dealings with Mr. Ramesh Havele, then the said person should have been produced before the AO or the CIT(A). But that is not so and further the question of creditworthiness of creditors, wherein the CIT(A) has accepted that the transactions are through bank account of Mr. Prafulla Anil Madiwale to the bank account of assessee and hence, needs to be accepted;

++ this Tribunal find no merit in the stand of CIT(A) in this regard wherein initially the assessee has shown the transaction with Mr. Ramesh Havele and later had modified its case that the loan was received from Mr. Prafulla Anil Madiwale. The onus was on the assessee to establish and fulfill all the three conditions of section 68, which have not been fulfilled. In any case, the creditor is not person of means and the plea of receiving money and advancing it cannot be accepted at face value. Accordingly, Tribunal restore this issue back to the file of AO who shall carry out necessary verification and the assessee is directed to fulfill the conditions laid down in section 68 to establish its case. The assessee is also directed to produce Mr. Ramesh Havele, as Summons issued by AO had remained un-complied. Further, AO may summon Mr. Prafulla Anil Madiwale, as the facts of the present case are peculiar and require verification. Reasonable opportunity of hearing shall be given to the assessee and the AO is directed to decide the issue in accordance with law.

Case remanded

ORDER

Per: Sushma Chowla:

The appeal filed by Revenue is against order of CIT(A)-2, Kolhapur, dated 15.12.2016 relating to assessment year 2013-14 against order passed under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’).

2. The Revenue has raised the following ground of appeal:-

1. On the facts and in the circumstances of the case and in law, the CIT(A) was not justified in deleting the addition made by A.O. on account of unexplained cash credit u/s 68 of Act on the assessee’s affidavit when the assessee could not prove the basic condition i.e. identity of the actual loan creditor; genuineness of the source, and capacity / credit worthiness of the creditor.

2. On the facts and in the circumstances of the case and in law, the CIT(A) was not justified in deleting the addition made by the AO when the Assessing Officer could not get an opportunity to verify the source of the actual lender.

3. The appellant craves leave to add, alter, amend or delete any of the above grounds of the appeal at the time of proceedings before the Hon’ble Tribunal which may please be granted.

4. The appellant prays that the order of the Ld. CIT(A) be vacated and that of the Assessing Officer’s order may be restored.

3. The Revenue is in appeal against deletion of addition made under section 68 of the Act.

4. Briefly, in the facts of the case, the assessee was engaged in the business of manufacturing of high quality machines. The assessee had declared unsecured loan of Rs. 1,04,83,000/- from one Mr. Ramesh Havele. The Assessing Officer asked the assessee to explain the said loan. In reply, the assessee pointed out that there was opening balance of Rs. 11,83,000/- in the said account and during the year Rs. 93 lakhs was received by account payee cheques. The assessee further explained that actually it was money received from Mr. Prafulla Anil Madiwale by cheque as advance against proposed sale of shares but by mistake it was wrongly posted in the account of Mr. Ramesh Havele, since both the persons were from same group. The Assessing Officer notes that when enquiries were made, the assessee has changed its stand that loan was actually taken from Mr. Prafulla Anil Madiwale and not from Mr. Ramesh Havele. The assessee had filed audited Balance Sheet and Profit and Loss Account and it claimed that by mistake it had wrongly entered the name of Mr. Ramesh Havele. The Assessing Officer observed that the assessee never wanted to really reveal the identity from whom loan was taken. The Assessing Officer was of the view that the assessee had failed to prove identity of the creditor. While in the books of account, the creditor was Mr. Ramesh Havelel but during scrutiny proceedings, the assessee claimed it was loan actually given by Mr. Prafulla Anil Madiwale. In order to ascertain identity of the said person, Summons under section 131 of the Act were given to Mr. Ramesh Havele to attend the office along with documents but he never appeared before the Assessing Officer. No response was made to the Assessing Officer and the assessee submitted the bank documents of Mr. Prafulla Anil Madiwale to prove its case. The Assessing Officer from the perusal of bank account of Mr. Prafulla Anil Madiwale noted that money was actually received from Mr. Ramesh Havele and amount was transferred to assessee’s account. The Assessing Officer was of the view that transaction also failed on the front of genuineness. He pointed out that if the bank account entries were noted, there was pattern of credit and debit entries and he has scanned and reproduced bank entries at pages 4 to 6 of assessment order. The pattern of transaction was money deposited or transferred by Mr. Ramesh Havele a day before or so in the account of Mr. Prafulla Anil Madiwale and next day or on the same day Mr. Prafulla Anil Madiwale transferred it to the account of assessee. Thus, the claim of assessee that unsecured loan was given by Mr. Prafulla Anil Madiwale was not accepted to be genuine. Further, where the transaction was entered through bank accounts and taking into consideration the financial position of Mr. Prafulla Anil Madiwale, the Assessing Officer observed that there was lack of creditworthiness of Mr. Prafulla Anil Madiwale, who advanced the said sum of Rs. 93 lakhs as unsecured loan to the assessee and that too interest free. The return of income of Mr. Prafulla Anil Madiwale reflected income of Rs. 2,49,664/- only and he observed that the advancement of such huge sum of money was thus questionable. He placed reliance on the following decisions:-

i) Precision Finance Pvt. Ltd. (1994) 121 CTR (Cal) 20: (1994) 208 ITR 465 (Cal) = 2003-TIOL-1333-HC-KOL-IT

ii) Mangilal Jain Vs ITO (Mad) 315 ITR 105 = 2009-TIOL-348-HC-MAD-IT

5. The Assessing Officer further on 15.03.2016 issued Summons under section 131 of the Act to Mr. Ramesh Havele and asked him to produce copy of return of income, computation of income, bank pass book, etc. and he was also asked to establish source from which he had paid the said amount. However, he neither attended the office nor furnished any submissions. The assessee was also asked to prove the genuineness and creditworthiness of unsecured loan creditor and the reply is reproduced under para 6.7. The assessee explained that transactions were in fact with Madiwale group and entire amount was received through cheques. The cheques and amounts both were tallied and hence, it was stated that transactions were genuine. The Assessing Officer did not accept the explanation of assessee on the ground that creditworthiness, genuineness of Mr. Ramesh Havele and Mr. Prafulla Anil Madiwale was not proved and hence, sum of Rs. 93 lakhs was added to the income of assessee.

6. The CIT(A) on the other hand, refers to an affidavit filed by assessee that by an inadvertent mistake on the part of his accountant, the entries were posted in the wrong name. The CIT(A) further refers to confirmation of transaction from Mr. Prafulla Anil Madiwale and from the bank account of Mr. Prafulla Anil Madiwale, the CIT(A) holds that the person had received total sum of Rs. 2.33 crores from Mr. Ramesh Havele and only Rs. 93 lakhs was transferred to assessee. Relying on the bank statement of Mr. Prafulla Anil Madiwale, the CIT(A) accepts that the amount had been received by assessee in the form of loan. He further mentioned that route of transaction was that the money has actually flown from Mr. Ramesh Havele to Mr. Prafulla Anil Madiwale and then onwards to the assessee. The entire addition was deleted by the CIT(A).

7. The Revenue is in appeal against the order of CIT(A).

8. The learned Departmental Representative for the Revenue placed strong reliance on the order of Assessing Officer and pointed out that from the conduct of assessee, it is seen that in the books of account the amount was shown in the name of Mr. Ramesh Havele but before the Assessing Officer the assessee changed its stand that the name was mentioned wrongly, it was actually Mr. Prafulla Anil Madiwale. The learned Departmental Representative for the Revenue also pointed out that the CIT(A) accepted the affidavit filed by assessee, which is self serving document and since the ingredients of section 68 of the Act have not been fulfilled, the addition needs to be upheld in the hands of assessee.

9. The learned Authorized Representative for the assessee on the other hand, pointed out that the cheques have been received from bank account of Mr. Prafulla Anil Madiwale and by an error in the books of account of assessee the name of Mr. Ramesh Havele was posted by the accountant, which error was corrected before assessment proceedings. He further stressed that source of source cannot be asked.

10. We have heard the rival contentions and perused the record. The issue arising in the present appeal is against addition made under section 68 of the Act. There are three ingredients of said section 68 of the Act, which need to be fulfilled by the assessee. The first is identity of creditor, second is creditworthiness of creditor and third is genuineness of transaction. All the three ingredients need to be fulfilled by the assessee justifying the loan, if any raised during the year.

11. Now, coming to the facts of the case, first is identity; the assessee in the books of account mentioned that it had received loan of Rs. 93 lakhs from Mr. Ramesh Havele; but during assessment proceedings the assessee changed its stand and says it wrongly mentioned the name as Mr. Ramesh Havele instead of Mr. Prafulla Anil Madiwale. Before the CIT(A), the assessee files an affidavit which at best is self serving document. The Assessing Officer had served Summons on Mr. Ramesh Havele, which remained not complied. The claim of assessee in the written note filed before the Assessing Officer was that it was having dealings with Mr. Ramesh Havele and by mistake his name was written in the books of account and not the correct name of Mr. Prafulla Anil Madiwale. In case the assessee has dealings with Mr. Ramesh Havele, then the said person should have been produced before the Assessing Officer or the CIT(A). But that is not so and further the question of creditworthiness of creditors, wherein the CIT(A) has accepted that the transactions are through bank i.e. from bank account of Mr. Prafulla Anil Madiwale to the bank account of assessee and hence, needs to be accepted. We find no merit in the stand of CIT(A) in this regard especially in the peculiar facts of the present case, wherein initially the assessee has shown the transaction with Mr. Ramesh Havele and later had modified its case that the loan was received from Mr. Prafulla Anil Madiwale. The onus was on the assessee to establish and fulfill all the three conditions of section 68 of the Act, which have not been fulfilled. In any case, the creditor is not person of means and the plea of receiving money and advancing the same cannot be accepted at face value. Accordingly, we remit this issue back to the file of Assessing Officer, who shall carry out necessary verification and the assessee is directed to fulfill the conditions laid down in section 68 of the Act to establish its case. The assessee is also directed to produce Mr. Ramesh Havele, as Summons issued by Assessing Officer had remained un-complied. Further, Assessing Officer may summon Mr. Prafulla Anil Madiwale, as the facts of the present case are peculiar and require verification. Reasonable opportunity of hearing shall be given to the assessee and the Assessing Officer is directed to decide the issue in accordance with law. The grounds of appeal raised by Revenue are thus, allowed.

12. In the result, the appeal of Revenue is allowed.

(Order pronounced on this 15.07.2019)

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