PRINCIPAL COMMISSIONER OF INCOME TAX-9 Vs. SREELEATHERS

JUDGEMENT

(1.) This appeal filed by the revenue under Sec. 260A of the Income Tax Act, 1961 (the Act for brevity) is directed against the order dtd. 5/2/2021 passed by the Income Tax Appellate Tribunal, A Bench, Kolkata (Tribunal) in ITA No. 254/Kol/2020 for the Assessment Year 2015-16. The revenue has raised the following questions of law for consideration:

(2.) The assessee filed the return of income for the assessment under consideration, AY 2015-16 on 28/9/2015 declaring a total income of Rs.7,35,35,310.00. The case was selected for scrutiny and notice under Sec. 143 (2) was issued and thereafter notice under Sec. 142(2) was issued and the case was discussed with the authorized representative of the assessee. The assessee is a firm involved in the business of trading/ retailing of footwear and other leather and non-leather accessories. The Assessing Officer on examination of the assessment records noticed that during the year under consideration the assessee had received unsecured loans from various companies and the names of 13 such companies were furnished and it was alleged that those companies were the "paper companies" having no worth. The assessee was directed to show cause on the said issue in respect of one such company. By letter dtd. 22/12/2017, the assessee informed the Assessing Officer that all transactions with one of such company namely, M/s. Fast Glow Distributors Pvt. Ltd. were made through banking channels. To establish the identity of the lender the assessee enclosed the copy of their PAN card, the income tax acknowledgement, copy of bank statement, certificate of incorporation, master data from the register of companies and proof to show that the notice under Sec. 133(6) of the Act was duly served on the lender. As regards the creditworthiness, they enclosed the annual account of the lender and the audited balance-sheet as on 31/3/2015 to show the net worth of the lender as Rs.25.37 crores. Further the assessee pointed out that reply has been received from the lender to the notice issued by the Assessing Officer under Sec. 133(6) of the Act which is also valid proof of identity and genuinity of the lender company. The assessee further stated that they availed loans during peak season of their business activity and after the season is over, the loan is repaid along with interest after deducting taxes on source. Thus, the assessee contended that the identity of the lender has been established, genuineness of the transaction has been proved and the creditworthiness of the lender is not in doubt and therefore, no adverse inference should be drawn. The Assessing Officer while completing the assessment by order dtd. 26/12/2017 under Sec. 143(3) of the Act did not accept the explanation offered by the assessee. The Assessing Officer stated that the modus operandi adopted by the assessee is typical and prevalent in this part of the country where black-money is being routed under the guise of unsecured loan. He branded the transactions to be accommodation entries and held them to be not real. On the documents produced by the assessee, the Assessing Officer commented that mere filing of the PAN details, balance-sheet does not absolve the assessee from their responsibilities of proving the transaction and that the transactions are in the nature of tax evasion by money laundering. With regard to the lender companies which in the opinion of the Assessing Officer were "paper companies", the Assessing Officer stated that it has to be seen whether the identity and the creditworthiness of the companies are real whether the transactions were genuine and whether the transactions had been carried out at arm's length. The Assessing Officer proceeded to examine the documents produced by the assessee held that on perusal of the balance-sheet of the company it revealed that they hardly have any fixed assets and they are engaged in rotating money and further alleged that the operators of such bogus companies ensure that money is laundered through one Ashish Kumar Agarwal who was stated to be an entry operator from whom statement was rendered. After referring to the said statement, the Assessing Officer concludes that the assessee has received an unexplained loan by routing unaccounted money. The Assessing Officer placed reliance on the decision in the case of CIT Versus Nipun Builders and Developers (2013) 350 ITR 407 (Del), wherein it has been held that the Assessing Officer has to adopt a reasonable approach when the initial onus on the assessee stands discharged. Ultimately, the Assessing Officer concludes that those lender companies are artificial and the transactions are not genuine. Thus, the unsecured loans availed by the assessee, were considered to be the assessee's own funds and they being unsecured cash credit was added back to the assessee's income. Penalty proceedings were to be initiated separately. Aggrieved by such order, the assessee preferred appeal before the Commissioner of Income Tax (Appeals), 09, Kolkata [CIT (A)]. Before the Appellate Authority, the Assessee contended that the Assessing Officer failed to take note of the genuineness of the transactions and failed to consider the documents which were placed before him to establish the identity and the creditworthiness of the lenders and the genuineness of the transactions. Further, with regard to the statement of Mr. Ashish Kumar Agarwal, the assessee stated that the statement was not recorded in their presence and an opportunity of cross-examination ought to have been provided to the assessee. Further, it was contended that no addition could be made merely on the statement given by a third party without any additional evidence. Further, the Assessing Officer erred in treating all the 13 lenders as bogus when the findings which led to the issue of the show-cause notice dtd. 20/12/2018 is in the name of only one lender, M/s. Fast Glow Distributors Pvt. Ltd., alleged to be a paper company and the amount involved is Rs.62,79,268.00 and, therefore, the addition made either as unexplained cash credit or unexplained expenditure is not tenable. Further, it was submitted that the unsecured loans added had been squared off during the year itself and was non-existent in the year-end which does not call for any addition. The unsecured loan during the year is on the basis of pure assumption and surmises and the interest was paid at arm's length subjected to TDS and had all the characteristics of a working capital loan. Further, the Assessing Officer ignored the reply given to the notice issued under Sec. 133(6) of the Act. Further, the Assessing Officer failed to appreciate that there is no reason for entity with profit of more than Rs.20.00 crores to take a fictitious loan of Rs.4.5 crores and pay interest of Rs.74.00 lakhs thereon. Further the TDS which has been deducted by the assessee has not been disputed by the department which will go to indicate their statutory compliance. Further, reliance was placed on the decision in Nipun Builders and Developers by the Assessing Officer was unsustainable as it is an admitted fact that the notices under Sec. 133(6) were duly served on the companies and they have also sent their reply as called for in the said notices. By placing reliance on the decision of the Hon'ble Supreme Court in CIT Versus Khader Khan and Sons (2013) 352 ITR 480 (SC), it was contended that a statement recorded under Sec. 133A of the Act is not admissible in law. For the proposition that there has been violation of principles of natural justice, an opportunity of cross-examination was not given. Reliance was placed on the decision of the Hon'ble Supreme Court in Andaman Timbers Finance Versus CCE CA No. 4228 of 2006 (SC). Further, the assessee stated that nowhere the assessee has been referred to in the statement given by Shri Ashish Kumar Agarwal and, therefore, making an addition based on such statement is illegal. Further it was contended that no show-cause notice was issued before making the addition of the amounts received by the assessee as unsecured loan as the show-cause notice dtd. 20/12/2017 had called for explanation only in respect of the loan received from M/s. Fast Glow Distributors which was explained by submitting documents. Therefore, the Assessing Officer has travelled beyond the show-cause notice issued to the assessee. The CIT (A) perused the evidence in the nature of document and details produced by the assessee before the Assessing Officer and on examination of those documents held that the loan transactions have been squared off in the same year and therefore, it cannot be assumed and presumed that the loans are in the form of accommodation entry. Further, the CIT (A) notes that interest had been paid at 12% in most cases and tax has been deducted at source.

(3.) We have heard Mr. Vipul Kundalia, learned Senior Standing Counsel along with Mr. Anurag Roy, learned Advocate for the appellant and Mr. Avratosh Mazumder, learned Senior Advocate assisted by Mr. Avra Mazumder and Mr. Md. Bilwal Hossain, learned Advocates for the respondents.