TaxTMI 
TaxTMI 
2013 (8) TMI 755
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....essee in the proceedings on remand but drawing an adverse inference. 4. Without prejudice to the aforesaid grounds the CIT(A) erred in not deciding the alternative claim of the appellant to the effect that the addition of Rs.56,35,000/- included opening balances aggregating Rs.2,12,000/- and which otherwise could not be added u/s 68 of the I.T. Act,. 5. The appellant reserves to itself, the right to add, alter, amend, substitute, withdraw and/or any Ground(s) of Appeal on or before the date of hearing." 3. The brief facts of the case are that during the assessment proceedings the A.O. noticed that the assessee has borrowed money through fixed deposits Rs.2,64,34,000/-. The A.O. asked the assessee to furnish the confirmation in all cases. Separate letters to each depositor on the addresses as informed by the assessee were issued but confirmations were received in few cases and FDRs to the extent of Rs.56,35,000/- were remained unconfirmed, list of which has been given by the A.O. in his order in paragraph no.2.3. The A.O., in absence of proof regarding creditworthiness of the creditors and genuineness of the transactions, made addition of Rs.56,35,000/- under section 68 of ....
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....been placed. Ld. Authorised Representative pointed out that the unsecured loan for the year ended 2005 was Rs.265.97 lacs which have been slightly reduced to Rs.264.34 lacs at the year ended 2006 i.e. the year under consideration. Ld. Authorised Representative submitted that these support to the fact that the amount was not received in the year under consideration. Ld. Authorised Representative drew our attention to page no.2 where copy of submission made before the CIT(A) vide letter dated 04.03.2010 has been placed. Ld. Authorised Representative submitted that it was explained before the CIT(A) that the assessee is a public limited company having in its books approximately 459 FDR accounts aggregating Rs.2,64,34,000/-. He further submitted that there was fixed deposit scheme which was open to public at large. The amounts were received through banking channel and assessee has to accept the particulars given in the application form as correct. It was further submitted that the address of the depositors were not doubted as per record of the assessee but case of the A.O is that he did not receive any response or letters sent came back un-served, he did not confront the assessee or ma....
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....r under appeal. In other words, this cannot be termed as fresh deposits inviting the applicability of section 68 of the Act. Ld. Authorised Representative, in this regard, drew our attention on a chart which has been placed on record. 7. The ld. Departmental Representative submitted that during the assessment proceedings the A.O. issued letters to depositors on the address given by the assessee, but confirmations were received only in few cases. He further submitted that the A.O. has given a complete list of the parties from whom confirmation was not received in paragraph no.2.3 of his order. The ld. Departmental Representative further submitted that in absence of proof regarding creditworthiness of the creditor and genuineness of the transaction, the A.O. made the addition invoking section 68 of the Act. The ld. Departmental Representative submitted that the assessee was not co-operating with the Department and every time seeking adjournment. Ld. Departmental Representative submitted that the A.O. in his order as well as in Remand Report before the CIT(A) submitted that the assessee was specifically asked to submit proof regarding creditworthiness of the creditors and genuinene....
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....., Amritsar Bench in the case of Devender Singh vs. ACIT, 104 ITD 325. Ld. Departmental Representative has also relied upon another decision of I.T.A.T., Hyderabad Bench in the case of Paras Collins Distillers vs. ITO, 130 ITD 114 (Hyd) and submitted that even if the credit is in capital account of the partner and the same is not satisfactorily explained, the deeming fiction created by section 68 is applicable. Ld. Departmental Representative submitted that thus there is no distinction between the capital contribution and fixed deposit. The substance is that there is a credit in the books of account of the assessee. Ld. Departmental Representative submitted that it is immaterial whether such credit is in the books of account of an individual, partnership firm. or company may be private or public limited. Ld. Departmental Representative submitted that section 68 is squarely covered for a company accepting fixed deposits. Ld. Departmental Representative submitted that the CIT(A) has fairly considered the confirmation received and accordingly relief of Rs.2,53,000/- was granted. Ld. Departmental Representative submitted that the order of CIT(A) is most reasonable order as he confirmed....
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.... to go through the relevant scheme of the Act. In this regard, we noticed that a widely prevalent method adopted by assessees to employ in their business their concealed profits while yet continuing to conceal their nature, was the introduction into the books of sums of money shown as having been lent to them or deposited with them by a third party, or sometimes as their own capital contribution from capital resources. Abstraction of profits from business could have been made earlier by inflating expenditure or by understating receipts or by a combination of both. When liquid resources as per books thus get crippled, and funds are needed for the business, the abstracted profit would be brought into the business in the shape of loan or capital by the device aforesaid. Sometimes, the credit entry introducing the money is cancelled by a corresponding debit entry--showing the alleged loan as repaid--either in the same accounting year or in a subsequent accounting year, when the need for the moneys has abated and the moneys can be withdrawn. Where the cancellation occurs in the same accounting year, the alleged liability will not appear in the balance sheet of the business and will esca....
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....ar. The settled law under the 1922 Act was that the only possible way in which income from undisclosed sources could be assessed or reassessed was to make the assessment on the basis that the previous year for such income was the ordinary financial year. Section 68 of the 1961 Act makes a departure on this point in respect of amounts found credited in the books of the assessee. The section provides that where any sum is found credited in the books of an assessee for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. This section has application where any sum is found credited in the books of an assessee maintained for any previous year. If the amount credited in the books of the assessee maintained for any previous year is not the business income of the assessee but is held to be income from undisclosed sources, the income so discovered will, under Section 68, be deemed to be the income of that previous year for which the accounts were maintained. The....
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....rd party to advance moneys; and (c) prima facie that the loan is a genuine one. 16. If the assessee establishes the aforesaid three pre-conditions, it would be for the Department to disprove the same. Where there are a number of creditors of similar nature, the assessee has to discharge his burden for all of them. The assessee by proving these facts discharges the onus upon him but does not prevent the authority concerned from probing further into the matter and unbiased finding as to the genuineness of the transaction. It is true that the assessing authority is not entitled to reject the assessee's case summarily or arbitrarily or without sufficient reason. It is also true that the duty of the assessing authority is to examine the materials available carefully and objectively. 17. To further appreciate the scheme of the Act, we would like to refer certain judicial pronouncements which are as under:- 17.1 Oriental Wire Industries (P.) Ltd. vs. Commissioner of Income tax[1981] 131 ITR 688 (CAL.). The court held that in a case like this where the alleged loan appeared in the books of account of the assessee, it is for him to prove that the transaction was genuine and that wo....
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....5-1965; (ii ) that the creditor could not produce his account books as they were seized by the Income-tax Department; and (iii ) that it had, thus, discharged its onus of proving the genuineness of the loan as also the existence of the creditor. The Tribunal examined the creditor and his account books requisitioned from the Income-tax Department. It found that, although several cash transactions were recorded in his books, neither the said loan nor its repayment by it were recorded therein. It disbelieved the creditor's explanation and evidence as to the source of the alleged loan and sustained the addition, holding (i) that the payment of interest by cheque was recorded in his books to give a colour of genuineness to the transaction; and (ii) that the creditor was not in a position to advance the loan. On reference, the assessee reiterated, inter alia, (i) that its only burden was to establish (a) identity of the creditor, and (b) the genuineness to the transaction represented by the entry; (ii) that it was not required to establish the source of the loan advanced by the creditor and even if the latter's explanation as to his income was not accepted, the same could not be held ....
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....e-tax file of the said party, it was found that the firm had been closed after the death of the proprietor 'B' and in the assessment year in question it had not filed profit and loss account or balance sheet and that its assessment had been completed under section 144. It was also found that a similar loan alleged to have been advanced by 'B' to another concern had been held to be spurious. No confirmation letter was furnished on behalf of 'C' and no one appeared for the firm before the ITO. On these facts, the ITO held that the source of the credit appearing in the name of 'A' was not proved. He also held that 'B' was not in a position to advance loan to the assessee. He brought the amounts alleged to have been advanced by 'A' 'B' and 'C', amongst others, to tax as the assessee's income from undisclosed sources. On appeal, the AAC confirmed the additions being the credits in the names of 'A', and 'B'. He, however, directed that 'C' should be examined by the ITO. Pursuant to such directions one 'E' appeared before the ITO and claimed to be the karta of 'C', a HUF. In his deposition given before the ITO, he stated that the said HUF had advanced the sum to the assessee and said amoun....
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....regards addition of Rs. 20,000 representing alleged loan taken by the "assessee from MK and MM, there was no reason to disturb the finding of the Tribunal that there was no material to show that the two persons had necessary resources to make an advance of Rs. 10,000 each to the assessee. Apart from the confirmatory letters, no other evidence was produced by the assessee on whom the burden lay to establish that these two persons were men of means or that they had sufficient resources with them to make advances to the assessee. Being essentially a question of fact on which the Tribunal had rendered a decision on the materials available, there was no way to interfere with the decision of the Tribunal Hence, the Tribunal was justified in restoring the addition deleted by the AAC. 17.6 Commissioner of Income-tax vs. Precision Finance (P.) Ltd.208 ITR 465 [1995] 82 TAXMAN 31 (CAL.). The facts of the case are that the assessee- company was doing the business of loan financing. In course of the assessment for the assessment year 1978-79, the Assessing Officer found several cash credits in the assessee's books of account for which the assessee gave the income-tax file numbers of the cre....
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....ion from the bank accounts unless the assessee proved the identity of the creditors and their creditworthiness. Mere payment by account payee cheque was not sacrosanct nor could it make a non-genuine transaction genuine. The court held that the Tribunal was not justified in deleting the additions of unexplained cash credits and interest thereon. 17.7 C. Kant & Co. vs. Commissioner of Income-tax, 126 ITR 63[1981] 5 Taxman 64 (Cal.). In this case during the course of assessment proceedings, the ITO noticed cash credits aggregating Rs. 77,500 in the assessee-firm's account books in the names of six parties. It attributed to these loans obtained from the said parties and produced letters of confirmation. The ITO, however, added the same as its income from undisclosed sources and also disallowed the interest of Rs. 1,996 thereon on the grounds, inter alia, (i) that the credits were not verifiable and that the letters of confirmation alone did not establish the genuineness of the loans; and (ii) that the capacity of the alleged creditors to advance the loans was not proved. The AAC and the Tribunal sustained the ITO's order. The Tribunal also negative assessee's contention that sectio....
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....at more could have been done by the ITO or the assessee. The Tribunal was left to decide the matter on the basis of the material on record. The Tribunal, thereafter, decided the question of the genuineness of this loan on the basis of that material and it rightly held that mere confirmation letter from the alleged creditor could not have been treated as sufficient evidence to prove the genuineness of the loan. Thus, the Tribunal was not swayed by any irrelevant consideration in arriving at this finding. It was further held that under section 68 where any sum is found credited in the books of an assessee, the assessee is required to offer an explanation about the nature and source thereof. If the explanation offered by him is not considered as satisfactory by the ITO, the sum so credited can be treated as the assessee's income from undisclosed sources. It is not necessary for the ITO to locate the exact source of the credits. The initial onus is on the assessee to offer an explanation and that explanation has to be to the satisfaction of the ITO. The assessee has to prove that the credit entry is genuine and that fact can be proved by establishing from some plausible evidence the id....
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.... is not a man of means. 17.13 CIT vs. Korlay Trading Co. Ltd (1998) 232 ITR 820 (Cal). In this judgement it was held that where, without filing confirmation letter from the creditor, the assessee merely mentioned the income-tax file number of creditor, the genuineness of the cash credit cannot be said to have been proved by the assessee. 17.14 Todar Mal vs. CIT, 106 ITR 619 (P&H). In this judgement it was held that in view of section 68 of the Income-tax Act, 1961, where any sum is found credited in the books of an assessee and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not satisfactory, the sum so credited may be charged to income-tax as the income of the assessee without further proof. 17.15 CIT vs. United Commercial and Industrial Co. (P) Ltd., 187 ITR 596 (Cal). The relevant head note is reproduced under :- "The primary onus lies on the assessee to prove the nature and source of credits in its accounts. It is necessary for the assessee to prove prima facie the identity of his creditors, the capacity of such creditors to advance the money and lastly the genuineness of the transactions. Only when these t....
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.... entries occurs in such books. In the case under consideration, the assessee satisfied both the conditions that assessee maintains books of account and credit entry occurs in the books of account. The Hon'ble Punjab & Haryana High Court in the case of Gumani Ram Siri Ram vs. CIT, 98 ITR 337 (P&H) wherein it has been held that provision of Section 68 applies to all credit entries in whomsoever name they may stand. Similar view is taken by Hon'ble Calcutta High Court in the case of C. Kant & Company vs. CIT (Supra) wherein it has been held that Section 68 of the Act does not make any distinction between commercial and non-commercial loan. The Hon'ble Apex Court in the case of Roshan Di Hatti vs. CIT (Supra) and in the case of Kale Khan Mohammad Hanif vs. CIT (Supra) held that where the nature and source of receipt cannot be satisfactorily explained by the assessee, it is open to the Revenue to hold that it is the income of the assessee and no further burden lies on the Revenue to show that the income is from any particular source. Thus, even before enactment of Section 68 that was the law. In the light of above discussion, the contention of the ld. Authorised Representative does not ....
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.... (supra) 21. Now we come to the alternate contention of the ld. Authorised Representative that the fixed deposits which were renewed during the year, he submitted that in fact these fixed deposits were taken in earlier year, therefore, to that extent addition is not warranted. The assessee has furnished a chart of such 244 depositors amounting to Rs.29,84,000/- which has been placed in the Paper Book. The ld. Departmental Representative submitted that this alternate contention of ld. Authorised Representative is subject to verification. The alternate contention of the ld. Authorised Representative is acceptable as section 68 requires that credit must be in the previous year and not of earlier year for the purpose of making addition in the income since renewal of fixed deposits are not credit of this year, therefore, addition cannot be made in the year under consideration. However, we also find force in the submission of the ld. Departmental Representative that Revenue Authorities did not get opportunity to verify the alternate contention of the ld. Authorised Representative. After considering the facts of the case, we think it proper to send back the matter, to the extent of Rs.....