TaxTMI 
TaxTMI 
2008 (10) TMI 253
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.... the learned CIT(A) has erred in law in (i) deleting the addition of Rs. 51,65,820 being investment in purchases from Adbros Electro Tech, a division of Haryana Wool & Allied Industries (P) Ltd., in which four directors of the assessee company were members, without any supporting evidence. The source of investment was not disclosed by the assessee despite of opportunities provided to the assessee. (ii) deleting the addition of Rs. 1,00,04,855 made on account of bogus cash sale entries in its account books without appreciating the fact that the assessee failed not only to prove the genuineness of cash sales to various parties, it failed even to prove their existence and that the payments were all received in cash, through agents. 4. The facts concerning the transactions involved in ground Nos. 1 and 2, which have been reproduced above, are as under. 4.1 The assessee had shown addition to the capital to the tune of Rs. 52,17,190 [Rs. 57,17,000 as per CIT(A)]. During the course of assessment proceedings the AO required the assessee to explain the source of capital, identity and creditworthiness of the persons and genuineness of the transactions. 4.2 The asse....
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....to have been purchased from Haryana Wool & Allied Industries, although no evidence of actual purchase of books or delivery of the same was furnished. He also observed that not a single transaction of purchase and sale of books was through the bank. Thus he concluded that since the assessee had failed to explain the source of this cash, the transactions were sham. 4.8 On examination of the details of sale of books noted in ledger, the AO found that the assessee had shown sales to the tune of Rs. 1,00,04,855 whereas purchases from Adbros Electro Tech as per invoice Nos. 1 to 109 were only to the tune of Rs. 51,65,820. The assessee co-related the transactions of receipt of cash on the sales to the transfer of amount to the three concerns namely Hare Shree Finance Ltd.; M/s Gurshant Engineering Co. (P) Ltd. and Haryana Wool & Allied Industries (P) Ltd. 4.9 The explanation of the assessee before the AO was that it had invested Rs. 55,90,300 in the shares of Haryana Wool & Allied Industries; Rs. 21,80,000 in Hare Shree Finance Ltd.; and Rs. 98 lacs in Gurshant Engg. Co. (P) Ltd. against the debit balance recoverable from these companies. On going through the transactions recorded i....
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....cipation of dividend and capital appreciation and these investments were made for business expediency. So far as the cash is concerned, it was pointed out that the agents of the buyers had taken delivery of the goods on behalf of their clients and the payments were received in cash from them. 4.14 On behalf of the assessee reliance was also placed on the order of the Tribunal in the case of Racmann Springs (P) Ltd. v. Dy. CIT (1995) 52 TTJ (Del) 660 : (1995) 55 ITD 159 (Del); as also on the decision of Hon'ble Delhi High Court in the case of CIT v. Steller Investment Ltd. [1991] 192 ITR 287. 4.15 The learned CIT(A) after going through the entire material observed that the main thing to be examined was as to whether the shareholders existed and if the assessee is able to establish that shareholders existed and that they had made investment for purchase of shares, then the burden placed upon the assessee to prove the credit is discharged. It was pointed out that unlike cash credits, for investment in share capital, assessee was not required to prove the creditworthiness of the shareholders and was required only to prove the existence of the shareholders and the money having....
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....een no reasons to suspect, however, in a situation where there is no legal compulsion for the same and the transaction are entered into in cash no objection can be taken merely on suspicion. 12. As to the purchases of books from M/s Haryana Wool & Allied Industries (P) Ltd. the vouchers of purchases are very much with the appellant and are stated to be in Departmental custody. With that it would not have been difficult to prove that the transactions of purchases are spurious. There is no such proof brought on record. Evidence remains uncontroverted. There is investment of cash which are directly supported by book entries and cash generated in the account of the relevant companies. How could the entries in the books of account be rejected without proper proof or evidence. The appellant is right in pleading that investment in share capital to cash creditor and sundry debtor cannot be akin. The learned Counsel for the appellant has relied on the decision of Hon'ble Delhi High Court in CIT v. Steller Investment Ltd. for the proposition that it would be adequate proof to establish the existence of the shareholder and money having been received from them is well founded. In ....
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....had sold the goods at a higher price through agents and the sale consideration has been received by it in its books of account and has been duly credited as sale, hence it cannot be considered for addition under Section 68. In support of his argument he placed reliance on the order of Tribunal reported in (1995) 52 TTJ (Del) 660 : (1995) 55 ITD 159 (Del) (supra). The learned Counsel also submiitted that the assessee got price of its goods from the agents and credited money from them, hence it was not required to follow them or to trace out their addresses. According to him, the money received by the assessee on account of the purchases made by the assessee was invested in the shares. He further argued that if in the cases of purchasers the amounts of purchases have been accepted and there is no closing stock and further the accounts being audited then in the case of the assessee seller, same transactions cannot be doubted. The learned Counsel also pointed out that on account of similar transactions in the asst. yr. 1996-97 also additions were made under Sections 68 and 69 of the IT Act which were deleted by the learned CIT(A) and the deletion was upheld by the Tribunal by rejecting....
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....nce was placed on the ratio of decision of Hon'ble Delhi High Court in the case of CIT v. Sophia Finance Ltd. [1994] 205 ITR 98, wherein it was held that the onus of the assessee was limited to establish the identity of the shareholders. After considering the above arguments and after going through the entire material the Tribunal justified the deletion of addition by the learned CIT(A). The relevant observations of the Tribunal as given in para 6 of the order are as under: We have carefully considered the rival submissions. We find that the addition of Rs. 3,59,53,000 made by the AO under Section 68 does not tally with the findings of fact made by the AO himself. The entire case of the learned AO has been that the assessee has made mere books entries without any transaction having actually occurred or taken place. That being so there is no question of any addition under the provisions of Section 68. Even otherwise, the heading of Section 68 is 'Cash credits'. In the case of the assessee no cash has been received. Even if we assume that the provisions of Section 68 would apply in every case where any sum is found credited in the books of an assessee, the source....
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....s were made could not be produced for verification but the undisputed facts are that from the books of account of the seller of the goods i.e. M/s Haryana Wool & Allied Industries (P) Ltd., it was found that the sales made by that concern to the assessee were duly reflected in its books of account. Similarly sales made by the assessee to three concerns were also reflected in the books of account of the purchasers. The Department has not disputed these entries in the cases of these purchasers and has accepted the transactions as genuine in the cases of those who have purchased the same from the appellant. Furthermore, the appellant has not shown or taken credit for any closing stock. That meant that the entirety of the purchases has been expended in the sales as recorded in the books of accounts. Even the auditor has not questioned the veracity of the book version. It is futile to argue that in open bids carried out through auctions there will be no cash involvement. The vouchers for purchases and sales continue to be retained in Departmental custody after the seizure and no material has been produced to indicate any falsity and inaccuracy therein. Be that as it may, the law on the ....
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.... expression 'premises and building' in Sections 30 and 32 of the IT Act, 1961, and the expression 'residential accommodation including any accommodation in the nature of guest house' in Sub-sections (3), (4) and (5) of Section 37 can be similarly interpreted, a distinction has been sought to be introduced for the purpose of Section 37 by specifying the nature of the building to be a guesthouse. The intention of the legislature is clear and unambiguous : the intention was to exclude from deduction the expenses towards rents, repairs and also maintenance of premises/accommodation used for the purpose of a guesthouse of the nature indicated in Sub-section (4) of Section 37. If the legislature had intended that deduction would be allowable in respect of all types of buildings/accommodations used for the purpose of the business or profession, then the legislature would not have felt the need to amend the provisions of Section 37 so as to make a definite distinction with regard to buildings used as guest houses as defined in Section 37(5) and the provisions of Sections 31 and 32 would have been sufficient for that purpose. When the language of a statute is clear ....
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....annia Industries Ltd. (supra). Accordingly, ground is allowed for statistical purposes only. 18. Ground No. 4 : This ground is as under: On the facts and in the circumstances of the case the learned CIT(A) has erred in law in (iv) deleting the addition of Rs. 40,26,166 on account of goods in transit written off without appreciating the fact that the goods in transit were not lost/destroyed requiring write off but were in fact adjusted towards duty, penalty etc. 19. The assessee had claimed deduction of Rs. 40,26,166 on account of goods in transit earlier written off. In the note to the balance sheet the assessee had stated, "goods worth Rs. 40,26,166 lying with Bombay Port Trust, since 1922 were not cleared from the authorities as they have raised demand of Rs. 55,00,000 towards custom's duty and Rs. 8,50,000 as other charges", which was to be satisfied. Similar note was given in the preceding years. The AO has observed that the liability if any was unascertained but still the assessee had written off this amount which it had suo motu shown to be a contingent liability. It was found that in tax audit report also this liability has been shown to be contin....
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....investment in purchases of books and substantial cash introduced in the books of accounts. The AO during the assessment proceedings noted that the assessee had introduced cash in the books of accounts on different dates totalling Rs. 1,02,21,433. The AO also noted that out of the cash introduced, the assessee had transferred a sum of Rs. 18 lacs to M/s Hare Shri Finance Ltd.; Rs. 27.65 lacs to Gurshant Engg. Co. (P) Ltd. and Rs. 35 lacs to Haryana Wool & Industries (P) Ltd., all associate concerns of the assessee. The cash advanced was subsequently adjusted against the allotment of shares of those companies to the assessee as under: (i) Shares of Haryana Wool & Allied Industries (P) Ltd. Rs. 55,90,300 (ii) Shares of M/s Hare Shri Finance Ltd. Rs. 21,80,000 (iii) Shares of Gurshant Engg. Co. (P) Ltd. Rs. 98,00,000 2.1 The assessee explained to the AO that the cash introduced in the books had been received on sale of legal books, which the assessee had purchased for a sum of Rs. 51,65,820 from Adbros Electro Tech, a division of Haryana Wool & Allied Industries (P) Ltd. in which the four directors of the assessee company were members. The purchases ....
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....sing stock left. Therefore, the purchases and sales had to be accepted Alternatively, it was also argued that even if purchase and sale is not treated as genuine, only the peak value could be added which comes to Rs. 48,39,035 (Rs. 1,00,04,855 - Rs. 51,65,820). CIT(A) was satisfied by the explanation of the assessee. It was observed by him in para 11 of his order that availability of cash for investment in purchase of books was supported by entries in the books of accounts. There was no legal compulsion for making purchases and sales through bank account. In para 12 of his order, he further observed that purchases were supported by purchase vouchers and evidence was uncorroborated. The purchase therefore could not be taken as spurious. The entries in the books of accounts could not be rejected without proper evidence. It was also observed by him that existence of shareholders was established and money received from them was well founded. After making these observations, he deleted both the additions aggrieved by which the Revenue is in appeal. 3. Before the Tribunal, the learned Authorised Representative for the assessee reiterated the submissions made before the lower authoriti....
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....ster-concern and this finding is uncontroverted. The sister concern may have legal books in its books of accounts and the assessee may have cash in its books but that does not establish the purchase of books in the absence of any delivery. Even if for the sake of arguments, the purchases are taken as genuine, the burden still lies on the assessee to establish that the same had been sold at unusually high margin of about 100 per cent. There is no evidence to establish sale. Not only sale is not established, surrounding circumstances clearly support the view that these are not genuine transactions. In any case, the source of cash deposits is not substantiated by proper evidence and, therefore, the same has been rightly treated as income of the assessee under Section 68. 4.1 The order of CIT(A) is quite vague and deserves to be rejected. The CIT(A) seems to be of the view that the transactions entered in the books cannot be rejected without proper evidence. This, in our view is not correct. Transactions cannot be explained by mere entry in the books. Entries have to be substantiated by the assessee by proper supporting evidence. The burden is on the assessee to explain the entries ....
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....re, following the decision of the Tribunal (supra) if the allotment of shares is treated as genuine, then the availability of cash has to be treated as genuine. But in this case there is no doubt about the availability of cash. The real issue is, the source of cash, which has been explained as receipt from sale of books, which is not established. This is a case of cash credit not explained satisfactorily and, therefore the decision of the Tribunal in the earlier year, will be of no help to the assessee. In view of the foregoing discussion, the addition of Rs. 1,00,04,855 made by the AO on account of cash deposits is upheld and the order of CIT(A) on this point is reversed. 4.3 The decision of the Tribunal in asst. yr. 1996-97 (supra) may however, be relevant in relation to source of investment in purchase of books if the same is explained as cash received against allotment of shares to different parties because in case, the allotment is genuine, availability of cash on this account has to be accepted following the decision of the Tribunal (supra). However, the position in this regard is not clear whether the cash was received from the parties to whom the shares of assessee compa....
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.... assessee is justified ? 2. Whether, on the facts and in the circumstances of the case, investment in cash of Rs. 51,65,820 is explained satisfactorily on the basis of material placed on record ? 3. Whether, on the facts and circumstances of the case, the issue relating to source of investment in purchases should be restored back to the file of the AO for fresh decision as proposed by the learned AM ? 2. The facts of the case are that assessee described as 'a loss making company' again showed loss of Rs. 36,30,930 in return for the asst. yr. 1995-96 filed on 30th Nov., 1995. The AO took it as a scrutiny case and issued notice under Section 143(2) of the IT Act (hereinafter referred as Act) to the assessee which was served on 23rd July, 1996 for hearing on 14th Aug., 1996. This notice was not responded to. Thereafter about a dozen similar notices were issued to the assessee to explain various investments and also addition of cash in accounts. As per p. 1 of the assessment order, the assessee either did not appear on the date fixed or asked for an adjournment. Just four days before the assessment was getting time-barred, it submitted a written letter dt. ....
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....r goods in transit earlier year written off. 37,64,803 (1) Add: Purchase of books as discussed in para 3. 51,65,820 (2) 89,30,623 (3) Less : Sales of books as discussed above (-) 1,00,04,855 (4) (-) 10,74,232 (5) Deduct: Disallowance of depreciation on building as discussed in para 5. 1,52,008 Disallowance of rent of guest house, telephone expenses as discussed in para 8. 88,106 - 2,40,114 2,40,114 (-) 8,34,118 Add : (i) Depreciation as claimed 10,46,993 (ii) Foreign travelling as claimed 15,391 (iii) Expenses of earlier year as claimed 86,825 (iv) Collaboration fee as claimed 3,76,179 - 15,25,388 15,25,388 (-) 23,59,506 B. Income from capital gains as per para 9. 25,868 C. Income under the head other sources (i) Cash introduced as discussed in para 3.3 1,00,04,855 (6) (11) Cash credit as discussed in para 7. 1,90,710 1,02,21,433 1,02,21,433 78,61,927 R.O. 78,61,930. 3. The assessee impugned above additions in appeal before the CIT(A), who after consideration of facts and the circumstances of the case, held that cases cited by the AO had no application to the facts of the case. The learned CIT(A) did not see any device adopted by the assessee to avoid tax liabi....
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....oted. The learned JM observed that in the period relevant to asst. yr. 1996-97, purchases were made from two sister concerns which were not accepted by AO but on appeal the case was accepted by the learned CIT(A) and further by the Tribunal. He observed that undisputed facts were that from the books of accounts of the seller with the goods i.e. M/s Haryana Wool & Allied Industries (P) Ltd. it was found that sales made by that concern to the assessee were duly reflected. Similarly, sales made by the assessee to three concerns were also reflected in books of accounts of the purchasers. The Department had not disputed these entries in the cases of these purchasers and have accepted the transaction as genuine. The appellant has further not taken any credit for any closing stock. That showed that entire purchases were recorded as sales in the books of account. The learned JM further observed that even the auditor has not questioned the veracity of book version. It was futile to argue that in open bids carried out through auction, there would be no cash involved. He further observed that vouchers for purchase and sales continued to be retained in Departmental custody after seizure and no....
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.... was a case of one-time transaction of unusual nature, and, therefore, this has to be explained by the assessee with proper evidence. The introduction of substantial cash of Rs. 1,00,04,855 was required to be explained under Section 68 and the burden for which was entirely on the assessee. If the assessee had claimed that cash had been received out of sale of books, the assessee has to substantiate the explanation by proper evidence but the assessee has not been able to explain a single instance of sale. There is no evidence regarding delivery of books to buyers and this finding of AO remained uncontroverted. Adverse comments of the AO regarding purchase and sale of books have gone uncontroverted. He observed that sale of the books was not established. Therefore, source of cash deposit is not substantiated and rightly treated as income under Section 68. The learned AM further observed that order of CIT(A) was quite vague and deserved to be rejected. He disagreed with the CIT(A) that transaction could be explained by mere entry in books. Entries have to be substantiated by the assessee by proper supporting evidence. The learned AM did not rely upon purchase vouchers as according to ....
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....o emphasize that the assessee adopted a non-cooperative attitude and did not furnish any reply to the questionnaires served on it on 23rd July 1996. The assessee either did not attend on the date fixed or sought adjournments when the matter was fixed more than a dozen time subsequently. He also pointed out that the assessee was required to explain addition in the share capital. The assessee was further asked to explain source of capital, identity and creditworthiness of the persons and genuineness of transactions. The assessee was further asked to explain investment in shares amounting to Rs. 1,87,89,000. But right upto the completion of assessment, requisite information was not furnished. Only at the fag end on 26th March, 1998, one letter was filed on behalf of the assessee. In the said letter, the assessee stated that it had made sale of books in cash. The assessee was specifically asked to explain the source of cash introduced vide order sheet entries dt. 31st Oct., 1997, 10th Nov., 1997, 23rd March, 1998, 25th March, 1998 and 26th March, 1998. In its letter dt. 26th March, 1998, it was explained that cash sales were made and delivery of books were given to the agents of buyers....
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....lanation for abnormal profit. It is difficult to accept that there is no piece of corroborative evidence with the assessee to establish huge sale of books of more than a crore of rupees if transaction is genuine. All the above circumstances are required to be examined in the light of act and conduct of the assessee in avoiding date of hearings before the AO and refusal to file replies to the queries raised in the assessment proceedings, The learned Departmental Representative also read out proposed order of the learned AM. He supported the proposed order of learned AM. He also argued that facts recorded in the proposed order of learned JM are incorrect. It was further argued that decision of Tribunal in the case of the assessee for asst. yr. 1996-97 had no application. The said case related to the share capital whereas the present case relates to introduction of cash in books of accounts which the AO had asked the assessee to explain in terms of Section 68. In the absence of satisfactory explanation, the amount was treated as assessee's income from undisclosed sources and accordingly addition of Rs. 1,00,04,855 was justified. 12. As regards question Nos. 2 and 3, the learned....
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....or this purpose, he drew my attention to Section 34 of the Evidence Act. He also relied upon the observation made by learned authors Chaturvedi and Pithisaria in their commentary on income-tax at pp. 3141/3142. He submitted that cash was available for purchase of shares, which had come from sale of books. Therefore, introduction of cash was fully established. Shri Sampath further submitted that entries in the books of account were rejected without pointing out any defects in those entries and in spite of the fact that presumption of truth is attached to them. It was further contended that Section 68 of the IT Act had no application to cash sales. For this proposition, he placed reliance on the decision of Tribunal, Delhi Bench in the case of Racmann Springs (P) Ltd. v. Dy. CIT (1995) 52 TTJ (Del) 660 : (1995) 55 ITD 159 (Del). Shri Sampath further argued that it was not shown that 100 per cent profit on sale of books was extraordinary profit. The seller is further not obliged to prove the identity of the purchaser or his background as it is not his concern. The seller is interested only in his profits. Reverting to the proposed order of learned AM, Shri Sampath contended that learn....
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....s general rule. 17. A Full Bench of Delhi High Court in the case of CIT v. Sophia Finance Ltd. has sated as under on Section 68: It is neither necessary nor desirable to give examples to indicate under what circumstance Section 68 of the Act can or cannot be invoked. What is clear, however, is that Section 68 clearly permits an ITO to make enquiries with regard to the nature and source of any or all the sums credited in the books of account of the company irrespective of the nomenclature or the source indicated by the assessee. In other words, the truthfulness of the assertion of the assessee regarding the nature and the source of the credit in its books of account can be gone into by the ITO. 18. The AO while rejecting the claim relating to purchase and sale of books and introduction of Rs. 1,00,04,855 has taken into consideration the following circumstances: (i) That assessee did not co-operate during the course of assessment proceedings and rendered no plausible explanation relating to introduction of cash of Rs. 1,00,04,855 alleged to represent the sale of books. (ii) That assessee could not furnish details of the parties to whom books were sent....
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....sion of the Tribunal in the case of the assessee for asst. yr. 1996-97. In the proposed order, he has observed, "although the persons from whom the purchases were made could not be produced for verification but the undisputed facts are that from the books of account of the seller of the goods i.e. M/s Haryana Wool & Allied Industries (P) Ltd., the sales were duly reflected. Similarly sale made by the assessee to three concerns were also reflected in the books of account of the purchasers. The Department has not disputed these entries in the case of these purchasers and has accepted the transactions as genuine in the cases of those who have purchased the same from the appellant". The aforesaid observations have been strongly contested by the learned Departmental Representative. It has been pointed out that right from the very beginning the Revenue has been strongly contesting purchase and sale of books as claimed by the assessee. Entries relating to purchases and sales, particularly the introduction of cash, was to be proved by the assessee under Section 68. I agree with aforesaid objection of the Revenue. The Revenue as stated by the learned Departmental Representative, has all alo....
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....ital receipt" in the shape of loan or other credit which is not part of the profit. Only introduction of cash as a capital, if not satisfactorily explained, can be assessed as "deemed income" and can be charged to tax under Section 68 of the IT Act. But any amount which is already charged to Act cannot again be charged or disallowed as income. It is not possible to make a double addition. Therefore, there is no need to deduct the amount which is already added as income and then add it under Section 68 of the IT Act. Such action would have no effect to the income computed. The AO could have avoided above exercise by merely observing that the assessee has shown Rs. 1,00,04,855 as income but its claim that the same represent sale proceeds of books is not accepted and income will be treated as income from "undisclosed sources". In the present case, introduction of cash of Rs. 1,00,04,855 could be held to be income from "undisclosed sources". As the amount already stood credited to the books of account of the assessee as income, the matter was required to be left by recording an appropriate finding as indicated above. There is no addition of above amount in the computation of the income....