Tax Case (Appeal) No.968 of 2014

R. Sudhakar And R. Karuppiah,JJ.

JUDGMENT

The judgment of the court was delivered by

R. Sudhakar,J.- This Tax Case (Appeal) is filed by the Revenue as against the order of the Income Tax Appellate Tribunal raising the following substantial questions of law:

“1. Whether in the facts and circumstances of the case, the Appellate Tribunal was right in having deleted the additions made towards unexplained credits under Section 68 of the Act after subjective satisfaction of the Assessing Officer contrary to the evidences available?

2. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in deleting the addition made under Section 68 especially when some of the creditors had denied to advance any loan made to the assessee and some were not credit worthy as the same was not proved satisfactorily?

3. Whether in the facts and circumstances of the case, the findings rendered by the Tribunal are perverse and illegal going by the test of human probabilities as applied by the Hon'ble Supreme Court in the decision rendered in Sumati dayal Vs. CIT 214 ITR 801?”

2. The assessment in this case relates to the assessment year 2006-07. The assessee is a company incorporated on 18.10.2004. During the financial year 2005-06, the assessee had obtained unsecured loans to the tune of Rs. 52,63,000/-. During the course of assessment, the Assessing Officer called for details of the creditors. The assessee submitted the names and addresses of the six creditors, but did not provide their PAN numbers. Following are the persons from whom the loan amounts were obtained by the assessee  company.

The Assessing Officer asked the assessee to prove the identity and creditworthiness of the creditors and also the genuineness of the transactions. The Assessing Officer issued commission under Section 131(d) of the Income Tax Act to the Assistant Director of Income-tax (Investigation), Tirunelveli to verify the veracity of the claim of the assessee. The Commission found that some of the creditors are not creditworthy. When further notice was issued, the assessee submitted a detailed reply in relation to each and every creditor. The evidence produced by the assessee in respect of each and every creditor reads as follows:

“(a) In the case of Mr.N.Chinna Nadar:
(i)Notarised affidavit of N.Chinna Nadar (original)
(ii)Agricultural cultivation income certificate for 2 lakhs per annum issued by the Village Administrative Officer, Kulasekarapuram

(iii)Copy of chitta & patta issued by VAO of Kulasekarapuram
(b) In the case of Smt. S.Lingam
(i) Notarised affidavit of Mrs. Lingam
(ii) Agricultural cultivation income certificate for Rs. 1,90,000 per annum issued by VAO, Radhapuram

(iii) Copy of chitta & patta issued by VAO, Radhapuram (13 Nos.)
(c)In the case of Mr.S.Murugesan:
(i) Notarised affidavit of Mr.S.Murugesan
(ii) copy of patta issued by Taluk Officer, Radhapuram
(iii) Copy of chitta & patta issued by VAP, Radhapuram
(iv) Copy of Post Office recurring deposit.
(v) Copy of Special Bench account statement.
(d)In the case of Mr.B.Ramamoorthy:
(i) Notarised affidavit of Mr.B.Ramamoorthy
(ii) Agricultural cultivation income certificate for Rs. 1,02,000 per annum issued by VAO, Pazhavoor

(iii) Copies of chitta & patta issued by Officer of Radhapuram taluk
(e) In the case of Mr.S.Esakkiappan

(i) Notarised affidavit of Mr.B.Ramamoorthy
(ii) Copy of lease agreement between Esakkiappan and Rajeswaran S/o Duraisamy Nadar and patta of Duraiswamy Nadar
(iii) Copy of patta of Esakkiappan
(f) In the case of Mr.M.Murugesan:
(i) Notarised affidavit of Mr.M.Murugesan
(ii) Copy of lease agreement between Mani (father of M.Murugesan and Jayaraj)

(iii) Agricultural cultivation income certificate for Rs. 2 lakhs per annum issued by VAO, Pazhavoor
(iv) Copy of chitta and patta in the name of Jayaraj issued by VAO, Pazhavoor.”

3. Not satisfied with the reply given by the assessee, the Assessing Officer made an addition of Rs. 37.00 lakhs under Section 68 of the Income Tax Act. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), who admitted the evidences produced by the assessee under Rule 46A of the Income Tax Rules and forwarded the same to the Assessing Officer for verification and for his comments vide letter dated 16.11.2009. The Assessing Officer sent his remand report on 7.4.2010. In response to the remand report, the assessee had filed a detailed rebuttal and after analysing the evidence produced by the assessee, the Commissioner of Income Tax (Appeals) held that all the three requirements of Section 68 of the Income Tax Act stand fulfilled and there is no reason to disbelieve the evidence filed to prove the credits in question. Aggrieved by the order of the Commissioner of Income Tax (Appeals), the Revenue has filed an appeal before the Income Tax Appellate Tribunal.

4. The Tribunal considering the rival submissions made came to the conclusion that the loans in this case were given to the assessee through cheques and all the creditors have confirmed by appearing before the Additional CIT (Investigation) stating that they had advanced loans mentioned against their names to the assessee-company. Therefore, the identity of the creditors could not be disputed. The only difficulty appears to be that some of them do not have PAN numbers, but that by itself should not be a reason to discredit their creditworthiness. The Tribunal was of the view that all the creditors are agriculturists and therefore, they do not require any filing of returns of income and that is the reason they did not have PAN number. The Tribunal considered the minute details that were gone into by the Commissioner of Income Tax (Appeals) and the explanation given by the assesseecompany that the entire loan amount of Rs. 37.00 lakhs was a genuine transaction. Hence, the Tribunal dismissed the appeal filed by the Revenue holding as follows:

“In the given facts and circumstances of the case, particularly when all the creditors are agriculturists and their identity, their creditworthiness and genuity of transaction stand proved on record what else is required to be produced to prove the factum of impugned loans. To ascertain creditworthiness, cumulative facts and evidence have to be taken into consideration. The ld. CIT(A) has discussed each and every creditor to arrive at their creditworthiness in his order in detail. We are in agreement with the ld. CIT(A) and conclude that no separate addition can be sustained in the hands of the assessee.

8. In so far as the application of Rule 46A is concerned, the ld.CIT has aptly considered the provisions in their letter and spirit. “

5. Heard learned Standing Counsel appearing for the Revenue and perused the materials placed before this Court.

6. Before us, learned Standing Counsel appearing for the Revenue tried to plead that the amount was credited on the previous day and cheques were issued on the next day. There appears to be no legal bar for such transaction. It is seen from the order of the Commissioner of Income Tax (Appeals) as well as from the order of the Tribunal that the assessee had given plausible explanation for having taken a loan for a sum of Rs. 37.00 lakhs, for which, the assessee had produced evidences to prove the creditworthiness and genuineness of the transaction. From the evidences produced it is clear the the assessee had fulfilled the requirements under Section 68 of the Income Tax Act.

7. We find that the issue raised is pure question of fact. Hence, we find no question of law much less any substantial question of law arises for consideration in this appeal. Accordingly, the order of the Tribunal stands confirmed and this Tax Case (Appeal) stands dismissed. No costs.