Gayatri Sewa Sansthan vs DCIT

1.

“That on the facts and circumstances of the case and in law, the impugned order dated 26.09.2024 passed by the National Faceless Appeal Centre [('NFAC')/('CIT(A)')] upholding the assessment order dated 30.03.2022 passed by the National Faceless Assessment Centre (in short the "FAO"/ "assessing officer") under section 143(3) r.w.s. 254 of the Income-tax Act, 1961 ('the Act'), is invalid and bad in law.

1.1.

That on the facts and circumstances of the case and in law, the impugned order dated 26.09.2024 passed by CIT(A) without allowing personal/ oral hearing is invalid.

1.2.

That the CIT(A) erred on facts and in law in not holding that the assessment order passed without allowing effective opportunity of personal hearing to the appellant is invalid, being in violation of provisions of the Act and principles of natural justice.

1.3.

That the CIT(A) erred on facts and in law in not appreciating that set aside assessment was completed by FAO by merely repeating the additions made in the original assessment without fresh examination and consideration of evidence filed, in violation of the directions issued by Hon'ble Tribunal vide order dated 18.08.2020 (first round) in ITA No.4332/Del/2015.

1.4.

That the CIT(A) erred on facts and in law in not appreciating that considering that assessment was completed in a faceless manner, the appellant could not have suo-motu, without specific directions of FAO, produced the representatives of the creditors.

Re: Addition u/s 68 of Rs.90,00,000/- qua loan from Baldev Promoters Pvt. Ltd.

2.

That the CIT(A) erred on facts and in law in confirming the addition of Rs.90,00,000/-made by the assessing officer, being unsecured loan received from Baldev Promoters Pvt. Ltd. ('lender'), as alleged unexplained cash credit under section 68 of the Act.

2.1.

That the assessing officer/ CIT(A) erred on facts and in law in holding that the appellant was not able to establish identity and creditworthiness of the lender and genuineness of the transaction, in total disregard of the contemporaneous evidence(s) filed.

2.2.

That the assessing officer/ CIT(A) erred in not appreciating the crucial fact that the entire loan amount was repaid by the appellant during financial year 2014-15.

Re: Addition u/s 68 of Rs.25,00,000/- qua loan from Shri Raju Khan

3.

That the CIT(A) erred on facts and in law in confirming the addition of Rs.25,00,000/-made by the assessing officer, being unsecured loan received from Shri Raju Khan ('Sh. Raju), as alleged unexplained cash credit under section 68 of the Act.

3.1.

That the assessing officer/ CIT(A) erred on facts and in law in holding that the appellant was not able to establish identity and creditworthiness of the lender and genuineness of the transaction, in total disregard of the contemporaneous evidence(s) filed.

3.2.

That the assessing officer/ CIT(A) erred in not appreciating the crucial fact that the entire loan amount was repaid by the appellant during financial year 2012-13.”

Re (a): Loan from Baldev Promoters Pvt. Ltd.

22.

During the relevant year, the appellant availed loan of Rs.90,00,000 from M/s Baldev Promoters Pvt. Ltd., a financing company, for business purposes, which was subsequently repaid in financial year 2014-15. The appellant also paid interest aggregating to Rs.6,75,000 (@15% p.a.) on such loan and TDS has regularly been deducted and deposited on the interest paid.

23.

The appellant placed on record the following documents in support of the loan taken from Baldev Promoters:

S. No.	Document	PB Reference
1.	Copy of acknowledgement of return of income of Baldev Promoters for the AYs 2008-09 to 2012-13	86 – 90
2.	Copy of audited accounts of Baldev Promoters for the FYs 2007-08 to 2011-12	91 – 101
3.	List of directors of Baldev Promoters	102
4.	Copy of loan confirmation from Baldev Promoters	103
5.	Relevant extracts of bank statement of Baldev Promoters	104 – 112
6.	Copy of Form 16A in support of tax deducted on interest paid on the loan	113
7.	Copy of reply dated 15.03.2012 filed by Axis Bank – bank of the lender in response to summon issued under section 131 of the Act during original assessment proceedings, wherein the following documents pertaining to Baldev Promoters were directly provided to the assessing officer: • Copy of bank account statements • Copy of bank account opening form • Copy of identity card of the then director, Sh. Gulab Chand Verma • Copy of PAN Card • Extracts of Minutes of the Board • Copy of Certificate of Incorporation	114 116 – 119 120 – 127 134 135 136 137

24.

The appellant, it is thus submitted, successfully discharged its initial onus in terms of section 68 of the Act, in so far as the identity, genuineness and creditworthiness of M/s Baldev Promoters Pvt. Ltd. stood duly established by way of furnishing the following documents before the assessing officer as under:

Identity	Genuineness of the party/ transaction	Creditworthiness
▪ Copy of PAN Card @ pg 135 of PB ▪ Copy of Certificate of Incorporation @ pg 137 of PB ▪ Copy of audited accounts for the financial year(s) 2007-08 to 2011-12 @ pg 91-101 of PB ▪ Copy of acknowledgment of return of income filed for the assessment year(s) 2008-09 to 2012-13 @ pg 86-90 of PB	▪ Copy of balance sheet along with schedules for the financial year 2009-10 @ pg 95-97 of PB ▪ Copy of audited accounts for the financial year(s) 2007-08 to 2011-12 @ pg 91-94 & 98-101 of PB ▪ Copy of loan confirmation @ pg 103 of PB ▪ Relevant extracts of bank statement @ pg 104-112 of PB ▪ Copy of Form 16A in support of tax deducted on interest payments on such loan @ pg 113 of PB ▪ List of directors @ pg 102 of PB ▪ Copy of PAN Card of Sh. Gulab Chand Verma, the then Director of the company @ pg 313 of PB	▪ Copy of audited accounts for the financial year(s) 2007-08 to 2011-12 – reflecting availability of sufficient reserves for advancing loan @ pg 91-101 of PB ▪ Relevant extracts of bank statement @ pg 104-112 of PB ▪ Copy of acknowledgment of return of income filed for the assessment year(s) 2008-09 to 2012-13 @ pg 86-90 of PB

Rebuttal to specific allegations of the Assessing officer

25.

The specific allegations of the assessing officer @ para 2 of the assessment order for treating the aforesaid amount of loan received from M/s Baldev Promoters Pvt. Ltd as unexplained cash credit in terms of section 68 of the Act and rebuttal thereof is submitted as under:

Allegation	Rebuttal
The inspector report purportedly states that the company was non-existent in the given address.	It is at the outset submitted that copy of such ex-parte inspector report has never been provided to the assessee till date, despite specific request made which is in gross violation of principles of natural justice as the assessee is unable to provide an effective rebuttal to the same [refer: Kishanchand Chellaram v. CIT [1980] 125 ITR 713 (SC)]

	Without prejudice, in the inspector report, the assessing officer himself has conceded occupancy of the premises two years prior to the date of inspection (i.e., AY 2010-11). Further, in case the assessing officer still had any doubt with regard to the existence of the lender, then, nothing prevented him from making enquiries at the current address, rather than relying upon the old ex-parte report to draw adverse inference, thereby, rendering the very purpose of set-aside itself totally redundant/ meaningless.
Mismatch in photograph of Mr.Gulab Chand Verma attached in the bank account opening form and election commission identity card.	It is submitted that mismatch, if any, in the photograph of Mr.Gulab Chand Verma has no correlation whatsoever with the loan transaction undertaken by the appellant. Mr. Gulab Chand Verma was the earlier/ initial director and was no longer associated with the company. Sh. Gulab Chand Verma resigned from the company with effect from 26.03.2010. Mr.Arvind Kumar Modi and Mr. Vikram Goenka were the directors of the company during the assessment proceedings. That apart, the photograph and copy of identity card of Mr.Gulab Chand Verma was duly accepted by the bank after due verification at the time of opening of bank account. Further, copy of PAN card of Mr.Gulab Chand was also filed by the appellant during the course of appellate proceedings. [Refer pg 313 of PB] It is further submitted that nothing prevented the assessing officer from undertaking enquiry with the current directors of the lender-company, rather than relying upon old information, which has repeatedly been explained by the assessee.
The Director who is maintaining the bank account is not signing the Income Tax Return of the company nor has signed the confirmation letter furnished in respect of the loan.	The bank account of M/s. Baldev Promoters Pvt. Ltd was opened with Axis Bank in February, 2005. At that time, Mr.Gulab Chand Verma, being the director of the said company signed the account opening form of the bank. Subsequently, another director Mr. Krishna Kumar Sharma was inducted on 08.11.2009. [Refer pg. 314-315 of PB]

	It is submitted that Sh. Gulab Chand Verma resigned from the company with effect from 26.03.2010 and Mr. Arvind Kumar Modi took over as director w.e.f. 01.11.2010 [Refer pg 316-318 of the PB]. The Income tax return form for AY 2010-11 was signed by Mr.Krishna Kumar Sharma, who was then one of the Directors of the said company and subsequent to his resignation on 10.12.2010, Mr. Arvind Kumar Modi has signed the ITR for AY 2011-12 and subsequent assessment year(s). [Refer pg 319 & 90 of PB] Further, the loan confirmation letter has also been signed by Mr. Arvind Kumar Modi who was the director of the appellant-company since 01.11.2010.[Refer pg 103 of PB]
In response to the summon, Mr. Pratap Singh Negi, employee of M/s. Baldev Promoters Pvt. Ltd, appeared. He stated that he is not aware of Sh. Gulab Chand Verma and is not aware whether Mr. Verma is assessed to tax or not.	In response to the summon issued, Mr. Chandra Mohan Negi (incorrectly stated as Mr.Pratap Singh Negi in the assessment order), employee of M/s. Baldev Promoters Pvt. Ltd duly appeared before the assessing officer and filed authorisation letter dated 18.03.2013 (@ pg 320 of PB) and also filed copy of registration cum Declaration Form filed with UTI Bank by M/s. Baldev Promoters Pvt. Ltd. - @ pg 321 of PB. The fact that the employee was not aware of Mr.Gulab Chand Verma is totally irrelevant since the employee clearly stated that he joined the company only recently whereas Mr. Gulab Chand Verma, as stated above, resigned much earlier in March, 2010. Further, as stated above, tax assessments of Mr.Gulab Chand Verma had no relevance to the transaction of loan received by the appellant from M/s. Baldev Promoters (P) Limited.
There are frequent transfers of money in the bank account of M/s. Baldev Promoters Pvt. Ltd.	The assessing officer has failed to pin-point any specific transaction and has merely made vague allegations without any basis. It is submitted that the credit entries in the bank account of M/s. Baldev Promoters Pvt. Ltd. only reflect regular business transactions undertaken by the company and are not in the nature of any cash deposit – refer pgs 115 to 117 of the PB.

The assessee failed to provide copy of loan agreement. Further, loan amounts got credited to the books of the assessee without any agreement or any security and even without requiring the assessee to repay its earlier loan, itself shows that the transaction, by nature, was not a loan but was a colourable device for channelising the unaccounted money of the assessee back into the books of the assessee in the garb of loan

It is submitted that the loans availed from M/s. Baldev Promoters Pvt. Ltd. were in the nature of short-term loans taken for business purposes. Since the loan was taken as a temporary arrangement for meeting working capital requirement of the assessee society, there was no formal loan agreement that was entered into with the said party. That apart, it is submitted that there is no requirement in law to have a formal loan agreement in order to avail loan. It is submitted that the assessee has availed loan(s) from M/s Baldev Promoters Pvt. Ltd. in the preceding as well as subsequent assessment year, which has also been duly repaid by the assessee, which in fact demonstrates that the two parties have an understanding of mutual trust, which is very common in business practice. The regular feature of availing and repaying loans, in our submission, only advances the case of the assessee and demonstrates that genuineness of the transaction. That apart, it is submitted that the assessee was paying interest @ 15% on the loan(s) availed from M/s Baldev Promoters Pvt. Ltd. and thus the lender was well compensated for the loan so advanced and thus considering the credibility and repayment history of the assessee, further loans were advanced to the assessee.

The company has reported meager income in its income tax returns.

It is submitted that a mere perusal of the balance sheet of M/s Baldev Promoters Pvt. Ltd. indicates that the company had more than sufficient reserves to advance loan to the appellant and mere fact that income declared for the year under consideration is not substantial cannot be the basis for drawing adverse inference. Reliance in this regard is placed on the following decisions wherein it has been held that having sufficient reserves is enough for proving credit worthiness even though the creditor has reported meagre income: - CIT v. Shri. Mahavir Crimpers: 95 taxmann.com 323 (Guj. HC) - Zion Promoters & Developers Pvt. Ltd. v. ACIT: ITA No. 679/Del/2015 (Del. Trib.) - Ajay Kumar Mamgain v. ITO (ITA No. 903/D/18) (31.10.2018) (ITAT, Delhi) – Low

income cannot be a ground for drawing adverse inference and net worth is to be seen ▪ Prabhatam Investment Pvt. Ltd. v. ACIT: I.T.A No. 2523 to 2525/Del/2015 (Del. Trib.)

26.

In view of the aforesaid, it is emphatically submitted that the amount received by the appellant as unsecured loan from M/s. Baldev Promoters Pvt. Ltd could not be regarded as unexplained cash credit under section 68 of the Act and consequently, addition of Rs.90,00,000 made under that section calls for being deleted.

Re (b): Loan from Sh. Raju Khan

27.

During the relevant year, the appellant availed loan of Rs.25,00,000 from one Mr.Raju Khan, for business purpose, which was subsequently repaid in financial year 2012-13.

S. No.	Document	PB Reference
1.	Copy of loan confirmation received from Sh. Raju	49
2.	Copy of affidavit of Sh. Raju confirming loan given to the appellant	50
3.	Copy of purchase deed executed by Sh. Raju, evidencing source of funds utilized for advancing loan to the appellant	51 – 74
4.	Copy of reply dated 21.03.2013 filed by Citizen Co-operative Bank – bank of the lender in response to summon issued under section 131 of the Act during original assessment proceedings, wherein the following documents pertaining to Sh. Raju were directly provided to the assessing officer: • Copy of bank account opening and closing form of Sh. Raju • Copy of PAN card of Sh. Raju • Relevant extracts of bank statement of Sh. Raju	75 76 – 78 79 80 – 85

28.

The appellant, it is submitted, successfully discharged its initial onus in terms of section 68 of the Act, in so far as the identity, genuineness and creditworthiness of Sh. Raju Khan stood duly established by way of furnishing the following documents before the assessing officer as under:

Identity	Genuineness of the party/ transaction	Creditworthiness
▪ Copy of PAN Card @ pg 79 of PB	▪ Copy of bank account opening and closing form of Mr. Raju Khan @ pg 76-78 of PB ▪ Relevant extracts of bank statement of Mr. Raju	▪ Copy of bank account opening and closing form of Mr. Raju Khan @ pg 76-78 of PB ▪ Relevant extracts of bank statement of Mr.

Khan @ pg 80-85 of PB ▪ Copy of affidavit of Mr. Raju Khan confirming loan given to the appellant @ pg 50 of PB

Raju Khan @ pg 80-85 of PB ▪ Copy of purchase deed executed by Mr. Raju Khan, evidencing the source of funds utilized for advancing loan to the appellant @ pg __ of PB

Rebuttal to specific allegations of the Assessing officer

29.

The specific allegations of the assessing officer for treating the aforesaid amount of loan received from Mr.Raju Khan as unexplained cash credit in terms of section 68 of the Act and rebuttal thereof is submitted as under:

Allegation	Rebuttal
Mr.Raju Khan was a non-filer of income tax returns	It is submitted that the appellant is not in possession of the income tax returns of Mr.Raju Khan and is thereby not in a position to confirm or deny the allegation. Nevertheless, it is submitted that the appellant has duly filed copy of confirmation and response from bank providing copy of PAN and bank statement which clearly establishes the identity and creditworthiness of Mr.Raju Khan. Infact copy of PAN of Mr.Raju Khan was directly provided by Citizen Co-operative Bank vide letter dated 21.03.2013, which proves its credibility. That apart, even copy of bank statement of Mr.Raju Khan was duly provided by Citizen Co-operative Bank vide letter dated 21.03.2013.
The bank account of Mr.Raju Khan was closed after undertaking loan transaction with the assessee.	No adverse inference can be drawn against the appellant merely because the account from which loan amount was disbursed was subsequently closed. It may be appreciated that the loan amount was subsequently repaid by the appellant in FY 2012-13 through normal banking channel.
Copy of loan agreement entered into with Mr.Raju Khan has not been provided.	It is submitted that the loan availed from Mr. Raju Khan was in the nature of short-term loan taken for business purposes. Since the loan was taken as a temporary arrangement for meeting working capital requirement of the assessee society, there was no formal loan agreement that was entered into with the

	said party. That apart, it is submitted that there is no requirement in law to have a formal loan agreement in order to avail loan.
Mr.Raju Khan advanced the amount of Rs.25,00,000 to the assessee society without any agreement, without any security, without any interest and without requiring the assessee to repay the principal amount of the loan for as long as three years. This fails the test of all human probabilities	In so far as reliance on the test of human probabilities for deciding genuineness or otherwise of a particular transaction for the purpose of making assessment, it is respectfully submitted that the onus of proving that the apparent is not real is on the person who alleges it to be so. It is not open to the Revenue to simply allege, that too on so-called probabilities, that apparent is not real, without bringing on record any tangible material to establish the same. It is also settled law that the apparent is the real unless contrary is proved and the onus to prove the contrary is on the person who alleges it to be so, as per the Supreme Court decision in the following cases: ▪ CIT v. Durga Prasad More: 82 ITR 540 ▪ CIT v. Daulat Ram Rawatmull : 87 ITR 349
Inquiry at address provided revealed Mr.Raju Khan not found at such address	Details of such inquiry not shared/provided to the assessee. In the absence of such details, the assessee is unable to provide an effective response.
Name of Mr.Raju Khan appears as purchaser in the agreement filed	It is submitted that the copy of purchase deed executed by Mr. Raju Khan was filed by the appellant as proof of source of funds utilized for advancing loan to the appellant. The aforesaid document demonstrates that Mr.Raju Khan was a man of means and the proceeds received from sale of property held in his name was utilized for making loan to the appellant.
Name of father of Mr.Raju Khan appears differently in different documents	It is submitted that abbreviations have been used in various documents referred in the purchase deed, affidavit etc. Thus, it cannot, in our submission, be alleged that the name of father of Mr.Raju Khan has been used differently. That apart, it is submitted that the name of the father of the lender cannot be the basis to doubt the genuineness of the loan transaction undertaken by the appellant.

30.

In view of the aforesaid, it is emphatically submitted that the amount received by the appellant as unsecured loan from Sh. Raju Khan could not be regarded as unexplained