Faceless assessment u/s 144B invalid without show cause notice and draft order for prejudicial variations; order quashed.

आदेश/ORDER 

PER PRABHASH SHANKAR [A.M.] :-

The present appeal arising from the appellate order dated 11.10.2023 is filed by the assessee against the order passed by the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] pertaining to assessment order passed u/s. 143(3) r.w.s. 144B of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 23.09.2021 for the Assessment Year [A.Y.] 2018-19.

2. The grounds of appeal are as under:

1. On the facts and in the circumstances of the appellant’s case and in law, the Learned Commissioner of Income Tax (Appeal) erred in not quashing the assessment order passed by the AO u/s 143(3) r.w.s. 144B of the Income Tax Act, 1961.

2. On the facts and in the circumstances of the appellant’s case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in upholding the AO’s action of making addition of Rs 1,95,00,00,000/- u/s 68 of the Income Tax Act, 1961.

3. Brief facts of the case are that the assessee filed the return of income for the relevant year declaring ‘Nil’ income. Subsequently, its case was selected for scrutiny and the AO assessed the total income at Rs. 195 cr.by making entire addition of equivalent amount u/s 68 of the Act in respect to loan taken from M/s Reliance Commercial Finance Limited (RCFL), an NBFC during the relevant year. The assessee was asked by the AO to prove the identity and creditworthiness of the loan giver and the genuineness of this transaction. In response, it furnished loan sanction letter issued by RCFL and bank statements indicating the receipt of loan. The AO noted that the loan was apparently not genuine. It was noticed by him that the assessee company was non-functional, not doing any business and with no profit and having all the features of a paper-based entity only or a shell company since its incorporation in 19.12.2006. The loan sanction letter of the RCFL stated that the loan was given as working capital loan and it was secured against the Current Assets which however, were of only Rs. 205,88,26,860/-, out of which Rs 205,88,14,000/- was money advanced to and rest was bank/cash balance. Against such meagre Current Assets, the lender advanced such a huge sum of Rs. 195 cr. which was beyond any ordinary prudence and was shrouded in mystery. The case was examined in the light of the three ingredients for examining the bonafide of cash credit and it was found that the credit giver was a RBI registered NBFC, therefore the identity was not under question. Secondly, as the balance sheet of the said NBFC showed significant loan funds from various banks, it had some sort of creditworthiness even though as the source of this huge loan had not been explained by the NBFC, the creditworthiness had not been proved in entirety. However, the most important test i.e. the test of genuineness of the transaction had not been proved. He observed that in the instant case, from the facts narrated above, it was evident that the said loan given by the NBFC to the assessee was not a loan transaction but something else. The NBFC loaned over 5% of its owned funds to an obscure entity having no creditworthiness whatsoever to repay such huge amount.

3.1 The AO further observed that the onus was on the assessee to prove that the loan transaction was genuine and that the apparent was real. The NBFC to whom notice u/s 133(6) was served over email and through the e-filing portal also did not respond even after fresh notice sent as per new address provided by the assessee. He placed reliance on the landmark judgements of the hon’ble Apex Court in Sumati Dayal