Sanraj Engineering Pvt. Ltd v. Commissioner Of Income Tax, Delhi-Iii

$~1 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 79/2016 SANRAJ ENGINEERING PVT. LTD. ..... Appellant Through: Mr. Ajay Vohra, Senior Advocate with Ms. Kavita Jha and Mr. Vaibhav Kulkarni, Advocates. versus COMMISSIONER OF INCOME TAX, DELHI-III ..... Respondent Through: Mr. Ashok K. Manchanda, Senior Standing Counsel with Mr. Vibhooti Malhotra, Junior Standing Counsel and Mr. Aamir Aziz, Advocate. CORAM: JUSTICE S.MURALIDHAR JUSTICE VIBHU BAKHRU % O R D E R 17.02.2016 1. This appeal under Section 260A of the Income Tax Act, 1961 (‘the Act’) by the Assessee is directed against the impugned order dated 7[th] May, 2015 passed by the Income Tax Appellate Tribunal (‘ITAT’) in ITA No.2268/Del/2013 for the Assessment Year (AY) 2006-2007. 2. The question sought to be urged by the Assessee in the present appeal is whether the ITAT was justified in upholding the order of the Commissioner of Income Tax (Appeals) [‘CIT(A)’] dated 17[th] January 2013, sustaining an addition made by the Assessing Officer (‘AO’) by the order dated 29[th]December 2008, of a sum of Rs. 2.40 crore under Section 68 of the Act. 3. The Appellant/Assessee, which is a private company, states that during the relevant previous year, it had taken unsecured loans of Rs. 4,04,30,000/- from thirteen parties for business purposes. The Assessee filed its return on 30[th]November, 2006, declaring nil income. The return was picked up for scrutiny. The AO by the assessment order dated 29[th] December 2008, passed under Section 143(3) of the Act, made an addition of Rs. 2.40 crore on account of unsecured loans under Section 68 of the Act inter alia on the ground that the Assessee failed to prove the creditworthiness of the following six parties: 4. Aggrieved by the above order, the Assessee approached the CIT(A) and filed, in respect of the above six parties, the ledger accounts of the parties in the books of the Assessee, Income Tax Returns (ITRs) of the parties, photocopies of the cheques by which loans had been received by the Assessee, confirmation letters from all the six loan creditors, balance sheets of Nirvana India Pvt. Ltd. (‘NIPL’) and Cactus Menswear Fashion Pvt. Ltd. (‘CMFPL’) along with relevant annexures. The CIT(A) then called for a remand report from the AO. Thereafter the CIT(A) by the order dated 23[rd] October 2009, deleted the addition by holding that “the cash creditors have been identified and it has been established they have lent money to the Appellant company.” 5. The Revenue then went in appeal before the ITAT, which by the order dated 14[th] May 2010, held that the CIT(A) had not given any specific finding regarding the creditworthiness of the loan creditors. Accordingly while setting aside the order of the CIT(A), the ITAT remanded the matter to the CIT(A) for a fresh decision to give a specific finding regarding the creditworthiness of the loan creditors. 6. It is stated that in the assessment proceedings before the CIT(A), the Assessee again produced all the relevant evidence including confirmation letters from the parties, ITRs, bank statements, etc. 7. By the order dated 17[th] January 2013, the CIT(A) came to the following conclusions: a. In four of the cases of the loan creditors, the return of income was below Rs. 10 lakh even though the loan advanced was in the range of Rs. 5.75 lakh to Rs. 1.40 crore. There did not appear to be sufficient justification for the huge amount of loan given by these parties, which was several times their annual income. b. The bank account of Sonali Gupta showed that immediately prior to the giving of the loan to the Assessee, there was a deposit of Rs.35 lakh in her bank account. c. In the bank account of Gauri Gupta there were large deposits on 27[th] March, 2006 and 24[th] April, 2006, following which there was a loan of Rs. 27,25,000/- given to the Assessee. Further the ITR did not specify the nature of the income and the creditworthiness of the party could not be established. a. In four of the cases of the loan creditors, the return of income was below Rs. 10 lakh even though the loan advanced was in the range of Rs. 5.75 lakh to Rs. 1.40 crore. There did not appear to be sufficient justification for the huge amount of loan given by these parties, which was several times their annual income. b. The bank account of Sonali Gupta showed that immediately prior to the giving of the loan to the Assessee, there was a deposit of Rs.35 lakh in her bank account. c. In the bank account of Gauri Gupta there were large deposits on 27[th] March, 2006 and 24[th] April, 2006, following which there was a loan of Rs. 27,25,000/- given to the Assessee. Further the ITR did not specify the nature of the income and the creditworthiness of the party could not be established. d. The bank account of Navneet Gupta also showed that immediately preceding the advancing of the loan to the Assessee large amounts had been deposited in the account. e. Likewise only a few days prior to the advancing of the loan by Parul Gupta to the Assessee her bank account showed a deposit of Rs. 12.00 lakh. f. The bank account of NIPL showed that a sum of Rs.1.40 crore was advanced to the Assessee in January, 2006. A sum of Rs.2.00 crore was deposited in that account on 12[th] January, 2006. The income disclosed in the ITR of NIPL was only to the extent of Rs. 15,84,500/-. There was no evidence as regards regular source of income of NIPL, which could justify its creditworthiness. g. No interest was paid to CMFPL, NIPL and Parul Gupta on the loans stated to have been borrowed. It was difficult to imagine that the said unsecured loans could have been given on genuine grounds without the payment of interest. 8. The CIT(A), therefore, concluded that the Assessee was not in a position to establish the credit worthiness of the six parties to the extent that they had any regular source of income or capability for advancing the loans. Further the circumstances indicated that the bank accounts of these parties were utilised only to justify the loans advanced to the Assessee. It was accordingly concluded by the CIT (A) that the Assessee had not discharged the onus of establishing the creditworthiness of the lenders. 9. Aggrieved by the above order, the Assessee went before the ITAT by filing ITA No.2268/Del/2013. In the impugned order dismissing the said appeal, the ITAT recounted the history of the litigation and the findings of the AO and CIT(A) to conclude that the Assessee had not discharged the onus of establishing the credit worthiness of the above six parties. 9. Aggrieved by the above order, the Assessee went before the ITAT by filing ITA No.2268/Del/2013. In the impugned order dismissing the said appeal, the ITAT recounted the history of the litigation and the findings of the AO and CIT(A) to conclude that the Assessee had not discharged the onus of establishing the credit worthiness of the above six parties. 10. Mr. Ajay Vohra, learned Senior Advocate, appearing for the Assessee made an earnest attempt to demonstrate that the CIT(A) had committed an error of law in failing to appreciate that the Assessee had discharged its onus of proving the creditworthiness of the six lending parties once it produced the bank statements, ITRs and wherever applicable the balance sheet and the Profit & Loss accounts of the lending parties. Referring to the decision in Commissioner of Income Tax v. Divine Leasing & Finance Ltd. (2008) 299 ITR 268 (Delhi) (the Special Leave Petition against which was dismissed by the Supreme Court), he submitted that the AO was duty bound to investigate the creditworthiness of the creditors once relevant details had been provided by the Assessee. Reference was also made to the decision in Commissioner of Income Tax v. Value Capital Services (P.) Ltd. (2008) 307 ITR 334 (Delhi)where it was held that there was an additional burden on the Revenue to show that the investment made by the share subscriber “actually emanated from the coffers of the Assessee so as to enable it to be treated as the undisclosed income of the Assessee.” On this basis Mr. Vohra submitted that having disclosed the bank accounts of the lenders, the burden shifted to the Revenue to show that the amounts deposited in the accounts of the lenders, in fact, came from the Assessee. Reliance was also placed on the decision in Commissioner of Income Tax v. Shiv Dhooti Pearls & Investment Ltd. (2015) 64 taxmann.com 329 (Delhi). 11. Having considered the above submissions, the Court is not persuaded to disagree with the concurrent findings of the CIT(A) and the ITAT that, in the facts and circumstances of the present case, the Assessee has not been able to discharge the initial onus of proving the creditworthiness of the six lenders. The mere fact that the Assessee had produced the bank account statements of the six lending parties would not per se relieve it of the burden particularly if these bank accounts gave rise to further questions regarding the creditworthiness of the six lenders. For instance, at least three of the lenders were not paid any interest. Compared to the income disclosed in the returns, the amounts advanced as loan to the Assessee were disproportionately large. In particular one of the parties advanced a loan of Rs. 1.40 crore free of any interest. It is in these circumstances and upon a thorough analysis of the bank accounts of the six lenders that the CIT(A) came to the conclusion that their creditworthiness was not established. The question was not one of demonstrating the sources of the income of the lenders as much as establishing their financial capacity to advance the sums in question to the Assessee. 12. No substantial question of law arises. The appeal is dismissed. S.MURALIDHAR, J FEBRUARY 17, 2016/b’nesh VIBHU BAKHRU, J