Addition made u/s 68 on the basis of difference between the account of the assessee and information obtained through invoking section 133(6) without considering the reconciliation statement produced by the assessee in regard to TDS is not justified where the loans were obtained by assessee through account payee cheque, assessee had also deducted TDS on the interest amount and the creditor was also assessed to tax.

1. This is an appeal filed by the assessee against the order of the CIT(A),1, Bhubaneswar dated 20.9.2019 for the assessment year 2006-07.

2. The appeal is time barred by 19 days. The assessee has filed condonation petition dated 19.12.2019 supported by affidavit sworn by Sri Prasant Satpathy, Managing Director of the assessee company, stating the reasons that the A.R. of the assessee kept the appeal order and did not file the appeal within the stipulated period and, therefore, there was delay of 19 days, which is not intentional and deliberate.

3. After hearing the rival submissions and considering the condonation petition, we are satisfied that there was reasonable cause in filing the appeal late. Therefore, we condone the delay of 19 days and admit the appeal for adjudication.

4. The only issue involved in this appeal is that the ld CIT(A) erred in confirming the addition of Rs.48,36,421/-as unsecured loan & sundry creditors u/s.68 of the Act.

5. Brief facts of the case ae that the assessee company is engaged in the business of manufacturing of polymer products. The original assessment was completed on 30.12.2018, inter alia, making addition of Rs.48,36,421/-, against which the assessee had preferred an appeal before the CIT(A). The latter dismissed the assessee’s appeal. On a second appeal, the Tribunal, by its order dated 28.9.2012 in ITA No.107/CTK/2012 restored the matter to the file of the Assessing Officer to decide the issue of verification of the loan creditors in accordance with the provisions of the Income tax Act after affording reasonable opportunity of being heard to the assessee. Pursuant to the directions of the Tribunal, the present assessment order has been framed by the AO u/s.143(3)/254 of the Act on 3.2.2014 observing that the assessee failed to discharge the onus of proving the genuineness of the said liabilities of Rs.48,36,421/-and added the same u/s.68 of the Act. On further appeal, ld CIT(A) remanded the matter to the file of the AO to comment on the additional evidences which were filed before the ld CIT(A) for the first time. The Assessing Officer sent his remand report dated 26.8.2019, stating as under:

“Confirmations dated 23.12.2013 from M/s. Sinclair Builders Pvt Ltd., shows ledger account copy for the period from 1.4.2005 to 2.6.2012. On 1.4.2015, the opening balance was Rs.40,00,000/.-No other transactions have been reported in the intervening period from 1.4.2005 to 7.10.2010. No evidence of his income during the period of alleged loan, fund available with them on the date of loan or their creditworthiness was submitted. The ledger copy of M/s. Sinclair Builders Pvt Ltd submitted by the assessee vide reply dated 26.11.2012 is a complete mis-match with that obtained from M/s. Sinclair Builders Pvt Ltd. vide this office notice u/s.133(6) dated 13.12.2013. Further, the copies of bank accounts submitted by the assessee and confirmation from M/s. Sinclair Builders Pvt Ltd., depict a complete different set of transactions. Hence, cash credit of Rs.39,76,766/-claimed as loans from M/s. Sinclair Builders Pvt Ltd., remained unexplained.

2. In case of M/s. Suburban Ind. Ltd., M/s. MAKS International and Sri Pratap Chandra, no confirmations were received. Hence, the genuineness of loan transaction could not be verified. In other words, credits of Rs.8,60,655/-remained explained. Considering the above facts, the addition made by the then AO is justified. On this account, I am of the opinion that the sundry creditor of Rs.48,36,421/-are not genuine and hence not acceptable .”

5. The CIT(A) sent the remand report of the AO to the assessee for rejoinder and after considering the reply to remand report, the ld CIT(A) confirmed the action of the AO, inter alia, observing as under:

“5. I have considered the matter. In the remand report, the AO in order to examine the genuineness of the sundry creditors, called for information u/s. 133(6) from M/s. Sinclair Builders Pvt. Ltd., M/s. Suburban Industries Ltd., M/s. MAKS International and Sri Pratap Chandra requiring the parties to furnish the ledger account copy of the appellant for the FY 2005-06 with all particulars of transactions.

The AO found from the ledger copy of M/s. Sinclair Builders (P) Ltd. submitted by the appellant vide its reply dated 26.11.2012 was a complete mis-match with that obtained from M/s. Sinclair Builders (P) Ltd. vide AO’s notice u/s.133(6) dated 13.12.2013. Further, the copies of bank accounts submitted by the appellant and confirmation from M/s. Sinclair Builders (P) Ltd. depicted a completely different set of transactions. Hence, the AO held that the cash credit of Rs.39,76,766/-claimed as loans from M/s. Sinclair Builders (P) Ltd. remained unexplained. In the cases of M/s. Suburban Industries Limited, M/s.MAKS International and Sri Pratap Chandra, no confirmations were received by the AO.

Hence, the genuineness of loan transaction could not be verified by the AO. In other words, credits of Rs.8,60,655/-remained unexplained. The AO has further reported that sufficient opportunities of being heard were given to the appellant vide order sheet notings i.e. on 17.10.2012,5.11.2012, 26.11.2012,25.6.2013,18.7.2013 and 5.12.2013. The AO opined in view of the above facts that the sundry creditors of Rs.48,36,421/-(Rs.39,76,766 + Rs.8,60,655) are not genuine and hence not acceptable. In the rejoinder, the appellant has failed to explain and prove the identity, genuineness and creditworthiness of the sundry creditors. The appellant was unable to produce the loan confirmation letters from all the sundry creditors in the assessment stage, remand stage and appeal stage. Before me, the appellant has contended that the party being M/s. Sinclair Builders (P) Ltd. is an IMRI and hence the appellant was having difficulty in getting the loan confirmation. It is difficult to believe this contention of the appellant as not only in the case of M/s. Sinclair Builders (P) Ltd. but also in the case other parties M/s. MAKS International, M/s. Suburban Industries Ltd. and Sri Pratap Chandra, no loan confirmations have been filed by the appellant. The onus to prove the identity, genuineness and creditworthiness of the transactions lies on the appellant which the appellant has failed to discharge. Following the ratio of the decision in the case of Sumati Dayal vs CIT(1995) 214 ITR 801(SC) which held that:

“Assessment of cash credits on rejection of assessee’s explanation relating thereto as false. Cash credits appearing in the books of account of the assessee-Burden of proof that amounts credited in books did not constitute income, whether lies on the assessee-Held, yes-Assessee explaining amounts credited as race winnings-rejection of explanation furnished by assessee as false after consideration of surrounding circumstances and applying the test of human probabilities-amounts credited in the accounts, whether could be assessed under section 68 of the Income tax Act, 1961, as income of the assessee-Held yes .”

In view of the above, I am of the opinion that there is no infirmity in the action of the AO to add Rs.48,36,421/-on account of unsecured loan & sundry creditors u/s.68 of the Act. Hence, the addition of Rs.48,36,421/-is confirmed and the grounds of appeal are dismissed .”

7. At the time of hearing, ld A.R. of the assessee submitted the AO has grossly erred in making the addition and ld CIT(A) is also not justified in confirming the same without considering the details furnished before them. He submitted that in case of Sinclair Builders Pvt Ltd., the loan has been brought in cheque and same has been repaid after deduction of TDS. He referred to the confirmations placed at pages 9 & 10 of paper book obtained from Sinclair Builders Pvt Ltd., and also page 12 of PB regarding bank account copy of Sinclair Builders to substantiate that the loans were obtained from the loan creditor and subsequently repayment was made. He also referred to page 14 of paper book, which is copy of loan agreement between the assessee and Sinclair Builders Pvt Ltd. Ld A.R. submitted that the Assessing Officer found the difference between the account of the assessee and information obtained through invoking section 133(6) and straightaway added the entire loan without considering the reconciliation statement in regard to TDS debits. It is argued by learned counsel that the loan was obtained by account payee cheque. Confirmation from the creditor as well as copy of his accounts were furnished before the Assessing Officer.

It was also stated that the interest has also been paid by account payee cheque and the tax had also been deposited at source from such interest amount. It was further stated that the creditor was assessed to tax. It was also stated that the assessee maintains regular books of account. Copy of bank statement was also furnished in which there have been various deposits and withdrawal. As regards to the loan of Rs.5,84,510/-taken from M/s. Suburban Industries Ltd., ld A.R. submitted that this is against outstanding balance towards raw materials supplied and account information has been submitted before the AO during the assessment proceedings but no information was obtained by the AO u/s.133(6) of the Act and added the addition straightway to the income of the assessee. With regards to the loan taken from MAKS of Rs.1,30,000/-, ld A.R. submitted that the amount was brought in cheque and in support of same, bank statement is furnished before the authorities below. In case of loan of Rs.90,000/-taken from Pratap Chandra, Ld A.R. submitted that the loan was brought in cheques and in support of this, bank account was submitted before the lower authorities but the AO did not obtain information u/s.133(6) of the Act from the said lender. Ld A.R. produced a copy of decision of ITAT New Delhi in the case of Phool Singh vs ACIT in ITA No.2901/Del/2014 for A.Y. 2010-2011 and submitted that on similar facts, the addition made by the lower authorities was deleted by the Tribunal. While relying on the Supreme Court decision in the case of CIT v. Orissa Corporation P. Ltd . [1986] 159 ITR 78, learned counsel argued that the assessee has discharged its onus of proving the identity and credit worthiness of the creditor as well as genuineness of the transaction. By no piece of evidence, the Revenue has held that the loan was not genuine.

8. Replying to above, the learned Departmental Representative supported the orders of lower authorities and further argued that the onus was on the assessee to prove the identity and credit worthiness of the creditor as well as the genuineness of the transaction. As the assessee has failed to do so, the Commissioner of Income-tax (Appeals) was justified in sustaining the addition.

9. We have considered the rival submissions and perused the relevant materials placed on record before the Tribunal. We also find that the decision of ITAT New Deli in the case of Phool Singh (supra) support the case of the assessee, wherein, it has been held as under:

“We have carefully considered the rival contentions. The assessee is regularly purchasing material from the above party and in the past the assessment u/s 143(3) were made in case of the assessee wherein purchases from these parties are accepted. The purchases are made from the party through account payee cheques and the proper adequate bills supporting purchases were submitted. The assessee has submitted the confirmed copy of the account from the books of the supplier and also stated that he is assessed to income tax with ITO Ward 25/4 New Delhi. Further regarding the address supplied by the assessee on which notices u/s 133(6) remained unserved, assessee supplied the same address which is also shown in the income tax return of the supplier. Non compliance of summons u/s 131 by the suppliers cannot be the concern of the assessee. It is not the case of the revenue that assessee was asked to produce the supplier, in fact purchases material have been used at various sites. The material for Bill No. 1 was issued at Jaipur Site and similarly, bills with other material have gone to Mathura, Karuli, Rajgarh, Udaipur and other sites. As the suppliers are separately assessed to fax the issue of the low balance is required to be addressed by them and it cannot be a reason for disallowance of the purchases from that party, as many times purchases are also made from bank borrowers.

Furthermore, merely the assessee being the introducer for opening the bank account also do not support the contention of the AO, unless there is some connivance of the assessee is proved in withdrawal of cash from his bonk accounts. To verify this ld AO could have obtained these instruments foam the bank which he has failed to do. Further, during the course of assessment proceedings, the AO has verified the books of accounts, bills, vouchers master rolls, bed sheet and logbooks and on such verification, no defect in the books of the assessee was pointed out.

The Assessing Officer made. The whole addition by pointing out certain lacunas in the bank account of the suppliers of the assessee, which cannot be permitted. Merely because 133(6) notices issued to the party returned un-served though it was the same address, which was supplied by supplier while filing its income tax return, no fault can be put on the shoulder of assessee. Further, the ld.CIT(A) confirmed the finding of the ld.Assessing Officer without giving any reason but merely reiterating the findings of the Assessing Officer. In view of this the addition made by the ld.Assessing Officer of Rs.2657303/-from Suresh HYP Enterprises cannot be sustained and hence, deleted. In the result ground No. 2 of the appeal of the assessee is allowed.”

10. It is admitted position that the loan from Sinclair Builders Pvt Ltd., has been obtained by account payee cheque. Confirmation, copy of account as well as the bank statement of the creditor has also been furnished. The assessee has also deducted TDS on the interest amount and the tax has also been deducted at source. The creditor is also assessed to tax. The AO found the difference between the account of the assessee and information obtained through invoking section 133(6) of the Act without considering the reconciliation statement produced by the assessee in regard to TDS. Hence, the issue is squarely covered by the decision of the Supreme Court in the case of Orissa Corporation P. Ltd. (supra). Respectfully following the same, we hold that no addition of cash credit was called for.

11. As regards to the disputed amount of Rs.5,84,510/-showing in the name of Subarban Industries Ltd., it is argued by the assessee the said amount is against outstanding balance towards raw materials supplied and account information has been submitted before the AO during the assessment proceedings but the argument of the assessee is negated by the AO that no information was obtained u/s.133(6) of the Act. In this regard, the assessee relied on the confirmation received by the assessee from Subarban Industries Ltd., which is placed on record, wherein, it is stated that as on 31.3.2016, outstanding payable balance is Rs.86,13,611.11 which shows that raw material account balance is Rs.5,84,510/.-When this fact was brought to the knowledge of ld DR, he could not controvert the same.

Hence, we hold that since the confirmation from the said party is furnished, no addition is called for on this account.

12. In the case of loan from MAKs of Rs.1,30,000/-, from Pratap Chandra jena of Rs.90,000/-are concerned, we find that the loan has been brought in cheque and repayment was also made in cheque through banking channel. In this regard, bank statements were furnished but the AO has not issued notice to the creditor u/s.133(6) of the Act to know the truth and added the same to the income of the assessee. Hence, we also find no justification to confirm the said amount and delete the same.

13. In the result, appeal of the assessee is allowed.

Order pronounced on 18/1/2021.

Sd/- sd/-

(Laxmi Prasad Sahu) (Chandra Mohan Garg)

ACCOUNTANT MEMBER JUDICIAL MEMBER