TaxTMI 
TaxTMI 
2015 (4) TMI 479
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....x private parties credit worthiness of which are doubtful. These are as under. Name of the creditors Amount of loan Return income of the creditors Sumsung Estates (P) Ltd. Rs.10,00,000 Rs.5,560 Woodhat Distributors (P) Ltd. Rs.1,10,00,000 Rs.5,40,920 Rashraj Impact (P) Ltd. Rs.9,00,000 Nil Shagun Tie Up (P) Ltd. Rs.9,00,000 Rs.11,750 Unique Merchants (P) Ltd. Rs.15,00,000 Rs.5,910 Microsynth Vyapar (P) Ltd. Rs.7,00,000 Nil 10. From the details filed, it is seen that the creditors had either nil or negligible income to support such huge cash credits to the assessee. Moreover, from their bank account, it is seen that identical amount was deposited in the bank accounts just 2-3 days before advancing the loan. For example, M/s. Samsung Estate (P) Ltd. received Rs. 10 lakhs from M/s. Pushpak Trading Consultancy (P) Ltd. in December and advanced Rs. 10 lakhs to the assessee on 16th December. Similarly, M/s. Unique Merchant (P) Ltd. received Rs. 5 lakhs from Puspak Trading Co. on 16th December. From the nature of these credit and debit entries in the bank account of the parties, the loans appear to be in the nature of accommodation entries, which require further inve....
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....before dealing with the loan creditors and taking a possible view. It is a settled position that the proceedings u/s.263 of the Act cannot be initiated by the Ld. CIT merely in his supervisory capacity. Before invoking the powers u/s. 263 of the Act, it is necessary for the Ld. CIT to demonstrate that the A.O. had committed a patent error which resulted in prejudice to the revenue. On the contrary, where the Ld. AO has conducted enquiries and after due consideration of the facts and circumstances of the case, he comes to a conclusion, then it is not open to the Ld. CIT to invoke supervisory jurisdiction on the ground of lack of enquiry. Further, a bare reading of section 263 of the Act makes it clear that the pre-requisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the A.O. is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent, i.e. if the order of the AO is erroneous but is not prejudicial to the Revenue....
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....oper enquiries were made regarding genuineness of loan transactions". Mr. Sinha, learned Advocate appearing for the appellant submitted that the view taken by the learned Tribunal is palpably wrong in the facts and circumstances of the case. Mr. Khaitan, learned senior Advocate appearing for the Assessee-Respondent submitted that all the papers required by the Assessing Officer were duly furnished. The Assessing Officer also had the loan transactions enquired into by an inspector and being fully satisfied with the genuineness of the loan transactions, he passed the order of assessment. Simply because the CIT was of the opinion that some more enquiry should have been made, he could not have set aside the order passed by the Assessing Officer. Mr. Khaitan drew our attention to a judgment of this Court in the case of CIT -vs- Mulchand Bagri reported in (1993) 68 Taxman 215. He relied upon paragraphs 13 and 14 of the judgment, which read as follows: "13.There can be no doubt that if the ITO accepted the assessee's case without any enquiry about the sale of silver utensils, the Commissioner was entitled to come to the conclusion that the assessment order was erroneous and prejudic....
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...., the Assessing Officer had after making an enquiry and eliciting a response from the assessee come to the conclusion that the assessee was entitled to depreciation to the extent of Rs. 622.39 lakhs on the value of securities held on the trading account. In the absence of any tangible material to the contrary, the Commissioner of Income Tax could not have treated this finding to be erroneous or to be prejudicial to the interests of the Revenue. The observations of the Commissioner of Income Tax that the Assessing Officer had arrived at his finding without conducting an enquiry was erroneous, since an enquiry was specifically held with reference to which a disclosure of details was called for by the Assessing Officer and made by the assessee. We have adverted earlier to the directions which have been issued by the Commissioner of Income Tax to the Assessing Officer with regard to the holding of a fresh enquiry. Before us, it is common ground between counsel that the first and the second issues therein relating to the capital gain of Rs. 1.26 crores and depreciation of Rs. 622.39 lakhs constitute the basis of the view of the revisional authority and the others follow in consequence. ....
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....quiries were not sufficient and further inquiries or details should have been called. However, in such cases, as observed in the case of DG Housing Projects Ltd. (supra), the inquiry should have been conducted by the Commissioner or the Director himself to record the finding that the assessment order was erroneous. He should not have set aside the order and directed the Assessing Officer to conduct the said inquiry". The fifth and the last judgment referred to by Mr. Khaitan is in the case of J. L. Morrison to which one of us (G. C. Gupta, J.) was a party wherein this Court upheld the order of the Tribunal setting aside an order u/s 263 even though the assessing officer in that case had omitted to spell out any reason for the view taken by him. Mr. Khaitan has not disputed as a proposition of law that creditworthiness of the alleged lender is a relevant enquiry. This was also the view expressed by the Delhi High Court in the case of C.I.T. Vs. N. R. Portfolio Pvt. Ltd. in ITA No.1018 of 2011 reported in 2014 IAD (Delhi) 681: (2014) 264 CTR (Del) 258: 206 (2014) DLT 97 wherein the following views were expressed after analyzing a large number of authorities. "23. The contention th....
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....t has to be decided on factual matrix of each case and strict or stringent test may not be applied to arms length angel investors or normal public issues. Doctrine of 'source of source' or 'origin of origin' cannot be applied universally, without reference to the factual matrix and facts of each case. The said test in case of normal business transactions may be light and not vigorous. The said doctrine is applied when there is evidence to show that assessee may not be aware, could not have knowledge or was unconcerned as to the source of money paid or belonging to the third party. This may be due to the nature and character of the commercial/business transaction relationship between the parties, statutory postulates etc. However, when there is surrounding evidence and material manifesting and revealing involvement of the assessee in the "transaction " and that it was not entirely an arm's length transaction, resort or reliance to the said doctrine may be counter-productive and contrary to equity and justice. The doctrine is not an eldritch or a camouflage to circulate ill gotten and unrecorded money. Without being oblivious to the constraints of the assessee, an....
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....ey through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should not be harassed by the Revenue's insistence that it should prove the negative. In the case of a public issue, the Company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The Company must, however, maintain and make available to the Assessing Officer for his perusal, all the information contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of Section 68 and 69 of the Income Tax Act. The burden of proof can seldom be discharged to the hilt by the assessee; if the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and trea....
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....rs' register, share transfer register etc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in the hands of the company under sec. 68 and the remedy open to the revenue is to go after the share applicants in accordance with law. We are afraid that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self-confessed "accommodation entry providers", whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus operandi is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such "entry provider....
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....lders/subscribers were functioning or available at the addresses, but it would be incorrect to state that the assessing officer should get the addresses from Registrar of Companies' website or search for the addresses of shareholders and communicate with them. Similarly, creditworthiness was not proved by mere issue of a cheque or by furnishing a copy of statement of bank account. Circumstances might require that there should be some evidence of positive nature to show that the said subscribers had made a genuine investment, acted as angel investors, after due diligence or for personal reasons. Thus, finding or a conclusion must be practicable, pragmatic and might in a given case take into account that the assessee might find it difficult to unimpeachably establish creditworthiness of the shareholders. 30. What we perceive and regard as correct position of law is that the court or tribunal should be convinced about the identity, creditworthiness and genuineness of the transaction. The onus to prove the three factum is on the assessee as the facts are within the assessee's knowledge. Mere production of incorporation details, PAN Nos. or the fact that third persons or compan....
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....de, the order is bound to be erroneous and prejudicial to the interest of the revenue. The learned Tribunal proceeded on the theory that it was not a case of no enquiry; that no doubt is true, but that is not enough. If the relevant enquiry was not made it may in appropriate cases amount to no enquiry and may also be a case of non-application of mind. We are supported in our view by the following judgments:- (a) In the case of Gee Vee Enterprises Vs. Additional Commissioner of Income Tax, Delhi I & Others reported in (1975) 99 ITR 375 the Delhi High Court opined as follows:- "It is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any reb....
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....208 ITR 465 this court also took the following view:- "It is for the assessee to prove the identity of the creditors, their creditworthiness and the genuineness of the transactions. In our view, on the facts of this case, the Tribunal did not take into account all these ingredients which have to be satisfied by the assessee. Mere furnishing of the particulars is not enough. The enquiry of the Income-tax Officer revealed that either the assessee was not traceable or there was no such file and, accordingly, the first ingredient as to the identity of the creditors had not been established. If the identity of the creditors had not been established, consequently the question of establishment of the genuineness of the transactions or the creditworthiness of the creditors did not and could not arise. The Tribunal did not apply its mind to the facts of this particular case and proceeded on the footing that since the transactions were through the bank account, accordingly, it is to be presumed that the transactions were genuine. It was not for the Income-tax Officer to find out by making investigation from the bank accounts unless the assessee proves the identity of the creditors and their....
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.... the Commissioner of Income-tax was not justified in invoking Explanation 3 when the firm was reconstituted after a gap of more than three months with different partners. The gap of three months may or may not be relevant looking to the particular circumstances of a case. Simply because after the dissolution of the firm a new firm was reconstituted after three months, does not mean that the main purpose was not for transfer of assets to reduce the tax liability. The different partners are not outsiders, but family members of the same partner, who was a partner in the earlier firm. It is no doubt true that the burden is on the assessing authority to prove that the main purpose for transfer of the assets was to reduce the tax liability, but he can definitely take into consideration the relevant facts. If the view taken by the Tribunal is accepted as the correct view then the Explanation cannot be invoked in any case, and, therefore, in order to find out whether the Explanation is applicable or not, the entirety of the circumstances has to be taken into consideration and it could not be for one reason or the other. It was a case where the assessing authority has not applied his mind. ....
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....has been provided that " record" shall include and shall be deemed always to have included all records relating to any proceeding under the Act available at the time of examination by the Commissioner. It cannot be said that the correct and settled legal position, with respect to the meaning of the word "record " till June 1, 1988, is that it meant the record which was available to the Income-tax Officer at the time of passing of the assessment order. Such a narrow interpretation of the word "record" is not justified in view of the object of the provision and the nature and scope of the power conferred upon the Commissioner. The revisional power conferred on the Commissioner under Section 263 is of wide amplitude. It enables the Commissioner to call for and examine the record of any proceeding under the Act. It empowers the Commissioner to make or cause to be made such enquiry as he deems necessary in order to find out if any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. After examining the record and after making or causing to be made an enquiry, if he considers the order to be erroneous, then he can pass the ord....
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....esh assessment is thereafter ordered by the revisional authority, the only proper course for the revisional authority would be to desist from expressing any final opinion on controversial points. On the submission made on behalf of the assessee that more detailed reasoning should have been indicated by the Commissioner of Income-tax, we find that it is nobody's case that, the finding of the appraisal report of the Investigation team, following the search and seizure made, were not relevant for making the assessments. It is also seen that the Assessing Officer was very much aware about the appraisal report indicting the assessee. Yet the materials revealed through the appraisal report were not considered by the Assessing Officer, while finalizing the assessments, nor were the assessees confronted and given opportunity to rebut the findings of the appraisal report. The Assessing Officer merely stated that some loose sheets seized during the survey were not relevant for the period of assessment under consideration, without referring to the actual appraisal report or indicating any reason as to why the appraisal report ought not to be considered. Referring to the above circumsta....
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.... investments in the nature of stock in trade could not have been there. The Assessing Officer after enquiry was satisfied that those investments were in the nature of stock in trade and thereafter depreciation was allowed. The exercise of power by the CIT under section 263 of the Act in the circumstances was not allowed. In the case of Director of Income Tax -vs- Jyoti Foundation (supra), the views drawn to our attention by Mr. Khaitan, quoted above, are on the basis of explanation added to section 263 of the Act by the amendment of the Finance Act, 1988 which clarifies that the supervisory authority is entitled to hold an order erroneous on the basis of further enquiry made by the supervisory authority itself. Ordinarily, supervisory authority is expected to confine itself to the evidence which was before the Trial Court or the forum of the first instance. But Section 263 conferred wider powers which was clarified by the explanation. Reference in this regard may also be made to the judgment in the case of CIT Vs. Manjunathesware (supra). The fact that the Commissioner is entitled to make enquiries does not mean that he is powerless to ask the Assessing Officer to make a fresh ass....