TaxTMI 
TaxTMI 
2013 (9) TMI 433
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....sessee. During the course of assessment proceedings, it was noticed by the A.O. that the assessee has deposited a sum of Rs. 2,19,50,000/- by cheques on various dates in its bank account maintained with Indus Ind Bank, Nariman Point Branch, Mumbai -21. The assessee was called upon by the A.O. to prove the identity and creditworthiness of the concerned creditor mainly M/s Prahlad Trading Pvt. Ltd. as well as the genuineness of the relevant credit transaction. In reply, the assessee furnished confirmation letter issued by M/s Prahlad Trading Pvt. Ltd. and also pointed out that the said creditor was holding 50% of its shares. Since the said creditor was 50% share holder of the assessee company and not an outside party, the A.O. required the assessee company to file verifiable documentary evidence to prove the identity and creditworthiness of the creditor and the willingness of the relevant transactions. In reply, a letter issued by M/s Prahlad Trading Pvt. Ltd. was filed by the assessee confirming that the amount paid to the assessee company was from the funds received by it from one M/s Kenex Exports Pvt. Ltd. According to the A.O., the said letter filed by the creditor M/s Prahlad T....
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....tion from Ecstasy Realty Pvt. Ltd. (Formerly known as Ecstasy Investment & Finance Company Pvt. Ltd.) to Kenex Exports Pvt. Ltd. for the amount given of Rs. 3,40,00,000/-. 4. The ld. CIT(A) admitted the additional evidence filed by the assessee by passing a speaking order and forwarded the said additional evidence to the A.O. calling for a remand report. In the remand report submitted to the ld. CIT(A), the A.O. stated that the assessee's claim of linear flow of funds from different entities could not be accepted as the said entities did not have much of the activities except transactions of funds from the account of one entity to another which all were linked either through common directors or the shareholders. He noted that the bank statements were clearly showing the rotational transactions among different entities connected through common directors or shareholders. He observed that the verification of the sample entries in the relevant bank accounts revealed that the different group entities were making deposit and withdrawal transactions through web of accounts even without having the actual balance. He held that if the complete cycle of the entries was analysed, it could b....
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....s not in a position to explain as to how Prahlad Trading Pvt. Ltd., Kenex Exports Pvt. Ltd., Ecstasy Investment & Finance Company Pvt. Ltd. have no much activity except transfer of funds from account of one entity to another through common director, shareholder or authorized signatory. Further, as referred to in Para 8 of the remand report quoted above, the entities were making transfer of funds only without much activity. Further, balance sheet did not provide entity wise break up of' liabilities/assets for loans/advances/OFCDs which could not be produced by the appellant. On verification of the sample entries in bank account it was noted that the group entities are making deposits and withdraw through web of accounts creating the mirage of having funds, for example the entry of Rs. 1,15,00.000/- as on 28.03.2005 shows that movement is from Rubina Properties to Swehan Enterprises to Prahlad Trading and hack to Rubina Properties where first there is withdrawal in case of Rubina Properties and then receipt in Rubina Properties itself. The entry in the bank statement should show withdrawal in Rubina Properties first and then deposit in Rubina Properties while the bank statement shows....
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.... 8. The ld. counsel for the assessee submitted that in order to further support and substantiate its case on this issue, the assessee company filed the relevant documents as an additional evidence before the ld. CIT(A) showing the entire money flow in order to establish not only the source of funds but even the source of source. He contended that this documentary evidence filed by the assessee including the relevant bank statements clearly shows that all the transactions reflected therein were routed through banking channel by account payee cheques and there was neither any cash deposit or any overdraft taken from the bank. He submitted that the said evidence also clearly established that sufficient balance was available at the relevant time with the concerned parties to make the payments by cheque. He contended that not only the source of funds but even source of source was duly established by the assessee. He submitted that enquiry was also conducted by the A.O. directly from the concerned parties by issuing notices u/s 133(6) of the Act and the same were duly replied by the said parties giving all the information required by the A.O. He submitted that the A.O., however, brush....
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....available on record. It is observed that the amount of Rs. 2,28,50,000/- was received by the assessee from its shareholder M/s Prahlad Trading Pvt. Ltd. by cheques during the year under consideration and confirmation letter of the said creditor was filed by the assessee during the course of assessment proceeding as called for by the A.O. Copy of the said confirmation is placed on record before us at page No. 29 to 31 of the assessee's paper book and a perusal of the same shows that all the relevant details such as complete name and address of the creditor, its Permanent Account Number and the details of mode of payment including the cheque Nos. were given therein. Further a copy of letter issued by M/s Prahlad Trading Pvt. Ltd. was also filed by the assessee before the A.O. wherein the source of amount in question paid to the assessee was explained by the said creditor as the application money received from M/s Kenex Exports Pvt. Ltd. towards OFCD. A perusal of the copy of the said letter placed at page 80 and 81 of the assessee's paper book shows that the details of the amount received by the M/s Prahlad Trading Pvt. Ltd. from M/s Kenex Exports Pvt. Ltd. such as cheque Nos and dat....
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.... accepted and why it must be held that the entry though purporting to be in the name of a third party still represents the income of the assessee from a suppressed source. It was held that in order to arrive at such a conclusion, the department has to be in possession of sufficient and adequate material. It is observed that the A.O., in the present case, however, treated the cash credit as unexplained without bringing any adverse material on record by merely observing that there was no verifiable documentary evidence produced by the assessee without even pointing out the nature of such evidence required by him or without making any further enquiry whatsoever in the matter which, in our opinion, was totally unjustified and unwarranted. 12. The A.O. having made the addition u/s 68 of the Act treating the amount received from Prahlad Trading Pvt. Ltd. as unexplained cash credit u/s 68 of the Act, appeal was preferred by the assessee before the ld. CIT(A) disputing the said addition and additional evidence was filed by it before the ld. CIT(A) to further support and substantiate its case that the said addition made by the A.O. was not sustainable. The said additional evidence filed ....
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.... statement of M/s Kenex Exports Pvt. Ltd. wherein the amount paid by the said party to M/s Prahlad Trading Pvt. Ltd. by cheques towards application money for OFCD of Rs. 3,10,00,000/- was duly reflected. In our opinion, this evidence brought on record by the assessee was sufficient to establish not only the source of credit in question but even the source of source as rightly contended by the ld. counsel for the assessee. It appears that the A.O. as well as ld. CIT(A), however, brushed aside this overwhelming evidence which was relevant and material to decide the issue about the applicability of section 68 of the Act and treated the relevant cash credit as unexplained doubting the genuineness of the transaction and capacity of the creditor on the basis of rotational or circular transactions allegedly made by the group entities. We have gone through the analysis made by the A.O. in this regard in his remand report and find that the example given by the A.O. in this context mainly revolves around the assessee company, M/s Prahlad Trading Pvt. Ltd. and Swehan Enterprises. Although the ld. counsel for the assessee has tried to offer his explanation in this regard, we find that this asp....