1. This is an appeal filed by the Revenue against the order of the CIT(A), dt. 31st Jan., 2003 for the asst. yr. 1998-99, in the matter of order passed under Section 143(3) of the IT Act, 1961 wherein following grounds have been raised by the Revenue: On the facts and in the circumstances of the case, the learned CIT(A) erred in deleting the addition of Rs. 42,30,000 made by the AO under Section 68 of the IT Act, 1961 in respect of unsecured loans by admitting additional evidence in contravention of r. 46A of IT Rules, 1962.
2. Rival contentions have been heard and record perused. In the course of assessment under Section 143(3) of the Act, the AO observed that during the relevant previous year the assessee company has raised fresh unsecured loans amounting to Rs. 1,68,57,250. The assessee was asked vide notice under Section 142(1), dt. 18th Aug., 2000 to give names and addresses of the persons from whom fresh loans were raised. In its reply filed on 12th Oct., 2000 the assessee furnished a list of 19 persons from whom fresh loans of Rs. 1,26,27,250 were raised. The balance amount of Rs. 42,30,000 was given under the head "Kashipur a/c". The names and addresses of the persons from whom this amount of Rs. 42,30,000 was raised were not given. Subsequently vide order sheet noting dt. 6th Dec, 2000, the assessee was asked to give confirmations from these parties. The confirmations in respect of the 19 persons mentioned above were furnished during the course of assessment proceedings, but in respect of "Kashipur a/c" no details were furnished.
3. Thereafter the AO discussed the provisions of Section 68 where the assessee fails to offer an explanation or renders an explanation which is found to be unsatisfactory as regard the sum credited in its books of account, the addition is to be made. He discussed the proposition laid down by the Calcutta High Court in the case of CIT v. Precision Finance (P) Ltd. and held that primary burden is on the assessee to establish the identity and genuineness of credit appearing in its books of account as well as creditworthiness of the persons advancing the money. The AO further discussed the decision of Supreme Court in the case of A. Govindarajulu Mudaliar v. CIT and Kale Khan Mohammad Hanif v. CIT (1963) 50 ITR 1 (SC) and Sreelekha Banerjee & Ors. v. CIT , and reached to the conclusion that in the instant case, the assessee has not discharged the primary onus with regard to all the three ingredients of Section 68 of the Act.
4. Before the CIT(A), it was contended by the assessee that the assessee company is an agricultural based small scale industry set up with the aim to provide help and benefit to local people as well as to promote the agro-based industry sector. As the loans were taken at the time of establishing this project with the understanding to help them, provide employment benefits etc. and also to give them interest but if the company is not able to pay the interest then the shares equal to that amount shall be allotted to them. Since the assessee suffered huge losses as such was not able to make payments to them as such the people from whom the above loans were taken were subsequently allotted shares.
That as regards to the above loans are concerned, the assessee company was prevented by the reasons beyond its control to procure necessary confirmation from the above persons, as the persons from whom loans were taken, were not available at that time or they were scattered here and there, as such it required sufficient time and exercise to procure above confirmations. The Authorised Representative along with the assessee under r. 46A of the IT Rules, filed copies of ration card, affidavits and papers of agricultural lands. According to him, in the confirmations, which contain affidavits and the paper of properties and documents and copy of ration cards also in order to establish the identity of the persons, creditworthiness of the persons and genuineness of the transactions, which explain the identity, creditworthiness and genuineness of the above transactions beyond doubt.
5. The CIT(A) further stated that copy of additional evidence in order to substantiate the credit of Rs. 42,30,000 was given to the AO for his examination and comments. However, in his remand report, the AO has given a general remark that additional evidence is not sufficient to prove the veracity of assessee's claim. After considering the submissions of the assessee as stated at pp. 3 and 4 of his appellate order, the CIT(A) deleted the addition after having the following observations: The additional evidence is being admitted under r. 46A because the appellant has made out a case for the same. The appellant has filed satisfactory evidence under r. 46A to prove the genuineness of the loans. The appellant has also pointed out that in subsequent year the same persons who had made the deposit, have been allotted shares of the company. All this shows that these transactions are genuine.
Having regard to all this, the addition made of Rs. 42,30,000 is deleted.
6. Aggrieved by the above order of the CIT(A) the Revenue is in further appeal before us wherein action of the CIT(A) in deleting the addition of Rs. 42,30,000 made by the AO under Section 68 in respect of unsecured loans by admitting additional evidence in contravention of r.
46A of IT Rules, 1962 was challenged. It was contended by the learned Departmental Representative that nothing was produced before the AO for discharging the initial burden cast on the assessee to establish the identity, genuineness and creditworthiness of the loan creditors. He further submitted that even in respect of documents accepted by the CIT(A) and which were sent to the AO for his comments, were received back by the CIT(A) after adverse comments. No finding was given by the CIT(A) with regard to essential ingredients of Section 68 of the Act before deleting the addition, except the genuineness of loan transaction. As per learned Departmental Representative, in addition to the genuineness, the identity of the person who has given the loan is required to be established and their capacity to pay the amount of loan.
7. On the other hand, it was submitted by the learned Authorised Representative that only technical ground has been raised by the Revenue with regard to contravention of r. 46A, whereas there is not any contravention of r. 46A insofar as the CIT(A) has given full opportunity to the AO to put his comments on the documents sent by the CIT(A) to the AO. He placed his reliance on the decision of the Hon'ble Supreme Court in case of CIT v. Kanpur Coal Syndicate , in support of the proposition that powers of the AAC are coterminus with that of the AO and he can do what the AO can do and direct him to do what he has failed to do. As per learned Departmental Representative, the documents furnished before the CIT(A) duly satisfied all the three ingredients of Section 68 with regard to the identity, genuineness and creditworthiness of the transactions. The assessee has filed 53 documents pertaining to the creditors inclusive of the ration card of each person having complete details of names and address, etc. and affidavit of each person and the papers of agricultural lands which goes to the root to clearly explain the identity of persons beyond doubt and that creditworthiness was also established beyond doubt and the affidavit and its contents clearly establish that amount was given to the assessee company and this transaction was more than genuine. He has drawn our attention to the submissions made by the assessee before the CIT(A) as narrated at para 4.2, p. 3 of his appellate order, wherein CIT(A) has described the documents furnished before him and the factum of these papers having been sent to the AO for his comments. Learned Authorised Representative further submitted that all the loans were subsequently converted into the capital of the company in the very next year and the shares were allotted by the assessee company to these persons, which clearly shows that these transactions were genuine and no fault can be found on the part of the CIT(A) for deleting the impugned addition especially with regard to any contravention of r. 46A of the Act.
8. We have considered the rival contentions carefully, gone through the orders of the authorities below and also deliberated on the case laws discussed by the AO with regard to the primary onus of the assessee where he accepts cash credits under Section 68 of the Act and the case laws cited by learned Authorised Representative with regard to the powers of the CIT(A) during appellate proceedings. There is no dispute to the well settled legal proposition that not only identity is required to be established, but also genuineness of the loan transaction and creditworthiness of the loan creditors, is equally important to be satisfied. In the instant case, undisputedly before the AO, the assessee has not furnished any evidence or details with regard to the loan credit of Rs. 42,30,000. Before the CIT(A), the assessee has alleged to having furnished copies of ration cards, affidavits and papers of agricultural lands of the alleged creditors. As these documents were furnished before the CIT(A) for the first time, as per provisions of r. 46A, the CIT(A) sent these documents to the AO for his comments. However, the AO has not given favourable report but in his remand report, he has stated that these documents were not sufficient to prove the veracity of assessee's claim under Section 68 of the Act.
So far as accepting the additional evidence by the CIT(A) are concerned, we do not find anything wrong in his action, since the same were sent by him to the AO for his comments. We also agree with the contentions of the learned Authorised Representative, Shri R.K. Sharma that powers of the CIT(A) are coterminus with that of the AO and what the AO has failed to do the CIT(A) is competent to do, and no fault can be found on the part of CIT(A) for accepting the additional evidences as per provisions of r. 46A. However, this power of the CIT(A) to accept the additional evidence and to delete the additions made due to failure of the assessee to furnish the same before AO are subject to obligation on his part that he will send all these documents for comments of the AO and if he gets the favourable comments, there is no hesitation in deleting the additions so made. However, even if the remand report of the AO conveys adverse reporting, the CIT(A) is still having powers to delete the addition so made, but only after giving his own positive and favourable finding with regard to identity, genuineness and creditworthiness of loan creditors, based on the documents furnished first time before him. Needless to say that he has to give reasons and justification for not accepting the adverse comments of AO in his remand report. Without giving any finding of his own and justification for rejecting the adverse comments of AO, the deletion of addition by CIT(A) is not at all justified. Plenary powers given to CIT(A) under Section 251 are enjoined with the responsibility to exercise the same judiciously and in the interest of justice. Powers given to the IT authorities by CBDT are always accompanied with the responsibilities. In the instant case, when the CIT(A) found that adverse comment has been sent by the AO in his remand report with regard to the assessee's claim under Section 68, he should have given his own finding with regard to the identity of the loan creditors, genuineness of the loan transaction as well as creditworthiness of the loan creditors before deleting the impugned addition. However, while deleting the addition, the CIT(A) has not given his finding with regard to the documents furnished before him so as to establish the identity of the loan creditors and their capacity to advance a particular amount of loan nor given any reasons or justification for rejecting the adverse comments of the AO. Without giving these findings, the deletion of the addition by the CIT(A) merely by stating that assessee has filed satisfactory evidence under r. 46A to prove the genuineness of the loans is not sufficient. The fact that alleged creditors were allotted shares by the assessee company in the next year, no doubt, strengthen the assessee's case to some extent, but it is equally important for the assessee to discharge the primary onus cast on him during the year of acceptance of loans itself with regard to identity of loan creditors, genuineness of loan transaction and creditworthiness of alleged creditors to advance the amount of loan.
9. In view of the above discussion, we are inclined to agree with learned senior Departmental Representative that in view of adverse remand report by the AO, the CIT(A) was not justified in deleting the addition of Rs. 42.30 lacs, without recording his finding/satisfaction on the identity of loan creditors and their capacity to advance the alleged amount of loan. We, therefore, set aside the order of the CIT(A) and restore the matter back to his file for deciding the issue afresh. CIT(A) is further directed to give his clear finding with regard to identity of the loan creditors and their creditworthiness, before deciding the issue afresh. Needless to say that assessee should be given full opportunity to explain its case.
10. In the result, the appeal of the Revenue is allowed for statistical purposes.