ACIT vs Maan Softech Pvt. Ltd.

PER MAHAVIR SINGH, VP:

The appeal filed by the Revenue and Cross Objection by the Assessee are directed against the order passed by the Ld. Commissioner of Income Tax (Appeals-23), New Delhi dated 1.9.2024 for A.Y. 2016-17.Since appeal and Cross Objection both are inter-connected, hence, the same were heard together and disposed of by this common order for the sake of convenience.

First we deal with Revenue’s appeal No. 5880/Del/2024, wherein, the following grounds of appeal have been raised :-

Brief facts of the case are that the assessee filed its return of income for AY 2016-17 electronically on 12.10.2016 declaring a net loss of Rs. 54,08,313/-. The same was processed u/s. 143(1) of the act. A search and seizure action u/s. 132 of the Act was carried out in the case of Filatex Group and related entities on 1.9.2021. On analysis of the material seized u/s. 132 of the Act in the case of Filatex Group, it was noted by the AO that seized material contains books of account or documents, that pertains to or pertain to, or any information contained therein relate to, the assessee, which suggest that the income chargeable to tax has escaped assessment in the case of the assessee. Accordingly, after taking approval from the competent authority, satisfaction was recorded and notice u/s. 148 of the Act was issued on 31.3.2023 through e-filing portal and was duly served upon the assessee. Further, copies of books of account or documents, that pertains to or pertain to, or any information contained therein relate to the assessee, which suggest that the income chargeable to tax has escaped assessment in the case of the assessee found from the material seized during the course of search action have already been provided to the assessee during the course of assessment proceedings. In response to the notice, return has been filed by the assessee on 21.4.2023 at a loss of Rs. 54,08,313/-. Further, notice u/s. 143(2) of the Act was issued to the assessee on 22.6.2023 and was duly served upon the assessee. Thereafter, notice u/s. 142(1) of the Act alongwith questionnaire was issued on 21.8.2023. In response to the statutory notice issued above, the assessee has furnished the required details during the course of the assessment proceedings. The same has been duly examined and placed on record. As per the submissions made by the assessee, the assessee is engaged in the business of a real estates. In the return of income, the assessee has admitted loss under head from other sources and house property. AO observed that the explanation furnished by the assessee with regard to the creditworthiness of the entities from which unsecured loans have been taken by the assessee and the genuineness of transaction i.e., need for borrowing the funds in light of availability of funds with the assessee and application of such borrowed funds is not found to be satisfactory, the credits amounting to Rs. 63,61,000/- in the books of the account of the assessee in the form of unsecured loans remains unexplained. He further noted that as the assessee has failed to furnish any cogent and satisfactory explanation with regard to unsecured loans received from the following parties:-

Therefore, the amount of Rs. 63,61,000/- was added in the hands of the assessee u/s. 68 of the Act under the head Income from Other Sources treating the same as ‘unexplained cash credits’ in the books of the assessee and the income tax on the said amount was calculated by invoking the provisions of section 115BBE of the Act. Against the action of the AO, assessee appealed before the Ld. CIT(A), who vide his order dated 1.9.2024 has partly allowed the appeal of the assessee.

Aggrieved, Revenue is in appeal before us.

Ld. DR has submitted that Ld. CIT(A) erred in deleting the addition of Rs. 63,61,000/- made by the AO u/s. 68 of the Act, as he has failed to appreciate that the creditor is only shell company, created for abatement of and legitimize, illicit means and evade taxes, and its legal identity. It was further submitted that Ld. CIT(A) failed to appreciate the submissions of the audited accounts and bank statements of alleged entry operators are necessary perquisite to give such entities a semblance of a genuine business and filing of such documents does not mitigate lack of genuineness in its operations. He further submitted that Ld. CIT(A) failed to appreciate that accommodation entry operators have sufficient funds in the form of investments in other non-genuine companies. It was further stated that there is hardly substantial balance in the bank account of genuine investment. It was further submitted that Ld. CIT(A) not appreciated the fact that there is no information of conduct of any audit/investigation by SEBI/RBI, while the search conducted by the Investigation Wing brought out substantial evidence about actual financial conduct of these entry operators, masquerading in the guides of NBFC. It was further submitted that CIT(A) is wrong in holding that the AO should have conducted further enquiry to find about the source of fund of the entry operator, without appreciating that Ld. CIT(A) could have conducted such enquiry himself or directed the AO to conduct requisite enquiry so as to ascertain the true nature and source of the cash credit. It was further submitted that CIT(A) failed to appreciate that the evidence collected clearly reveals the cash trails and in reply to notice u/s. 133(6) of the Act the entry operators are not expected to accept that the loan transactions are not genuine. Hence, he requested to uphold the action of the AO and set aside the order of the Ld, CIT(A).

Per contra, Ld. AR for the assessee submitted that Ld. CIT(A) has passed a well-reasoned order, which does not need any interference on our part, which needs to be upheld.

We have heard the rival contentions and perused the records. We find that assessee has proved identity of the creditor which is not disputed by Assessing Officer in his order. It is noted that the assessee has also proved creditworthiness of the creditor by submitting its audited annual account along with relevant bank statement of depositors. The Assessing Officer has not proved that any cash has been deposited prior to giving cheque to assessee, the bank statement submitted by assessee clearly reflects such sources which is not doubted by A.O. nor any inquiry has been made by A.O. for concluding that loan received by assessee is accommodative loan from shell companies. During the appellate proceedings, when assessee was asked to further explain sources of source, the assessee has provided such details, availability of funds with depositors who have transferred funds to creditors who have in turn transferred funds to assessee and their sources are mainly from unsecured loan taken from group entities or third parties. It is noted that the assessee had also submitted relevant return of income of depositors of creditors to prove that they have disclosed income arising from such transactions in return of income. The AO has observed that relevant documents submitted by assessee prove creditworthiness of depositors. The assessee has taken loan from ANM and RMP who are having sufficient funds as on 31.3.2016 and 2017 and same is duly disclosed in audited annual accounts of such company. Thus, the capacity of depositor is proved by the assessee. We observed that the AO has not doubted the utilization of such loans by assessee and such loan has been repaid in subsequent assessment years after making payment of interest and deducting TDS on such interest payment. During the course of assessment proceedings, notice u/s. 133(6) was issued to ANM and RMP and in response to such notice they have filed relevant details. If the AO had any doubt about sources of funds either in balance sheet or sources of funds in their bank statement, he could have made further inquiries either under section 133(6) or 131 of the Act. While making the addition Assessing Officer has relied upon various WhatsApp chats but such chats nowhere prove that those cash has been exchanged against any specific loan taken by assessee. Though such evidences found during the course of search does give rise to suspicion but such suspicion alone cannot be the basis to reject all the documentary evidences filed by appellant in support of loans taken by it. Though according to Assessing Officer, Shri Arnkit Bhageria is an entry provider or he is operating shell companies, but what is. required to be seen is whether in the case of Assessee the documents found during the course of search at their premises or from the premises of Shri. Ankit Bhageria or otherwise show that Assessee was beneficiary of any accommodation entry or not. In the present case, the A.O. without any specific link about loan taken from ANM and RMP with any cash trail and on the contrary creditors in reply to notice u/s 133(6) has accepted that genuine loan was given to assessee. The A.O. has failed to prove any direct nexus linking the Assessee with the accommodation entries from ANM and RMP or Ankit Bhageria. Keeping in view the aforesaid peculiar facts and circumstances of the case, we are of the view that the Assessee has discharged its onus as required u/s. 68 of the Act, hence, we uphold the action of the CIT(A) in deleting the addition and accordingly, the ground no. 1 raised by the Revenue stands rejected.

As regards ground relating to sustaining the addition of Rs. 46,28,580/-towards disallowance of interest, we note that assessee had paid interest to ANM and RMP and has duly deducted TDS on the same and also the loan taken from ANM and RMP is already held to be genuine, hence, Ld. CIT(A) has rightly deleted this addition, which does not require any interference, therefore, we uphold the finding of the Ld. CIT(A) on this issue and reject the ground.

As regards ground relating to sustaining the addition of Rs. 1,65,000/-made u/s. 69C of the Act. Since, we have already upheld the findings of the Ld. CIT(A) in sustaining the additions made u/s. 68 and u/s. 69C as aforesaid, and held that there is no bogus entry taken, by upholding the order of the Ld. CIT(A) on the aforesaid two issues, hence, the issue in hand of sustaining the addition of Rs. 1,65,000/- towards commission do not survive, hence, the same is also rejected.

In the result, the revenue’s appeal is dismissed.

As regards Assessee’s cross objection is concerned, since we have already upheld the order of the Ld. CIT(A), as aforesaid by dismissing the appeal of the Revenue, hence, the cross objection of the assessee has become infructuous and dismissed as such.

12 In the result, the Revenue’s appeal as well as Assessee’s cross objection stand dismissed.