Validity of addition by AO by simply saying that the loan creditor companies are paper companies and the assessee is involved in money laundering

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Validity of addition by AO by simply saying that the loan creditor companies are paper companies and the assessee is involved in money laundering

The issue before the Calcutta High court in the case of PCIT-9, Kolkata Vs Sreeleathers  was whether addition u/s 68 can be made casually by assessing officer by simply saying that the loan creditor companies are paper companies and the assessee is involved in money laundering?

The Division bench of Hon’ble Calcutta High Court in this case was considering appeal u/s 260A of the Income-tax Act,1961 when addition of Rs 7.35 crores was deleted by Hon’ble ITAT Kolkata Benches u/s 68 of the Income-tax Act,1961.

The department’s case was that the 13 companies from whom loan was taken were paper companies and the AO ignored the balance sheet etc and other evidences produced by the assessee by saying that the lending companies did not had any fixed assets etc and the money laundering was done through an entry operator Ashish Kumar Agarwal.

However, the Ld Court relying on the decisions in the case of Sreelekha Banerjee Vs CIT(1963) 49 ITR 112 and other landmark decisions held that where the assessee furnishes full details regarding the creditors, it is up to the department to pursue the matter further to locate those creditors and examine their creditworthiness.

The Court also came down heavily on the AO for using the word money laundering by observing that such usage to be uncalled for as the allegations of money laundering is very serious allegations and the effect of a case of money laundering under the relevant Act is markedly different.

Therefore, the assessing officer should have desisted from using such expression when it was never the case that there were any allegations of money laundering.

With this observation, the appeal of the department was dismissed.

This is a welcome decision and will be helpful in tackling cases u/s 68 of the Income-tax Act,1961.

 

The copy of the order is as under:

Validity of addition by AO by simply saying that the loan creditor companies are paper companies and the assessee is involved in money laundering

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