TaxTMI 
TaxTMI 
2016 (4) TMI 354
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of ld. CIT(A), Revenue is now in appeal before us and has raised the following ground:- 1. The ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 3,25,85,682/- made u/s. 68 of the I.T. Act. 4. During the year, A.O noticed that Assessee has received loans/deposits from 27 persons (the details of which are listed at page 3 to 13 of the Assessment Order) and the aggregate amount received was Rs. 3,04,47,991/-. The Assessee was asked to prove the identity, genuineness and creditworthiness of the depositors. On analyzing the details furnished by the Assessee, A.O concluded that none of the depositors was financially capable to give loan to Assessee, most of the returned filed by the depositors was for claiming return of TDS, the depositors had interest income that too received from the Assessee and most of the returns of income of the depositors were prepared by one C.A. firm and further the submission of the Assessee of having obtained the loan through banking channels and the depositors being income tax payees was not found acceptable to the A.O. A.O was of the view that Assessee has not discharged the onus of proving the identity, genuineness and creditworthi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... year under consideration without taking into consideration the amount of withdrawals made from each of the accounts during the year under consideration. Even if credits received during the year are held to be unexplained, the addition u/s 68 can be made of the highest closing balance as reduced by the opening balance of the deposit in the accounts of each of the creditors in the books of the appellant so as to ensure that addition is made of only the peak credits received during the year. Further, the entire interest payment made by the appellant to each of the creditors has been added to the total income of the appellant apart from the deposits received during the year u/s 68 of the Act even though such interest amount relates to entire deposits including opening deposit with the appellant on day to day product basis and such interest is not relatable only to deposits received during the year. It is further noted that in the assessment order passed u/s 143(3) of the Act for assessment year i.e. AY 2007-08, the same depositors have been treated as genuine and no addition has been made u/s 68 of the Act. Majority of these depositors are maintaining their current accounts with the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....laced on the assessee. In order to discharge the initial onus u/s 68 of the IT Act, the assessee should prima facie prove; (i) The identity of the creditor; (ii) The capacity of the creditor to advance money; and (iii) The genuineness of the transactions The assessee is required to discharge this initial onus. The law is equally settled that if the initial burden is discharged by the assessee by producing sufficient material in support of the loan transactions, the onus shifts upon the AO. However, after making necessary inquiry and verification, the AO can call for further explanation from the assessee and in the process the onus may again shift from the AO to the assessee. 6.5 In the light of the above legal position, it is to be considered as to whether by submitting the necessary documents before the AO, the appellant has discharged its initial onus so far as section 68 of the Act is concerned. In the present case, the appellant has duly submitted the copy of ledger account with confirmation, full address, copy of P.A. No., / income tax acknowledgement receipt etc. and the details of Cheque No. name of banks etc. have also been indicated in the copies of accounts. It is a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g on him, the addition made u/s 68 cannot be justified. In order to substantiate the issue under consideration, it would be relevant to refer to a few judicial decisions in the matter: (i) In the case of CIT vs. Orissa Corpn (P) Ltd. [1986] 159 ITR 78 (SC), it has been held by the Hon'ble Supreme Court as under: "In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were the income-tax assessees. Their index number was in the file of the revenue. The revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidenc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icer decides to examine the lenders and asks the assessee to further prove the genuineness and creditworthiness of the transaction, in our opinion, the Assessing Officer did not follow the principle laid down under Section 68 of the Income Tax Act." 6.6 So far as the assertion of the AO that the creditors are not financially capable for making deposits with the appellant is concerned, it is to be noted that the opening balance / deposit in respect of the same creditors has already been accepted as genuine in earlier years. Further, the amount of income disclosed by the creditors as per their Income Tax Returns during the year under consideration is not the exhaustive yardstick to conclude that creditors have no financial capacity to make deposits since deposits can be made not necessarily out of the income of the year under consideration but out of the accumulated capital of the creditors or loan taken from sub-creditors. In respect of majority of the creditors, it is noted that they have received huge funds by account payee cheques from the firm M/s R. M. Tobacco Co. during the year under consideration. Once a creditor is a regular income-tax assessee since long, it cannot be sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction 68 was justified." (iv) The facts of the case in the case of CIT v. United Commerical and Industrial Co. (P.) Ltd. [1991] 187 ITR 596 (CAL.) are that on being called upon by the ITO to prove the genuineness of the said loans the assessee produced confirmatory letters and discharged hundis. He also filed copies of accounts to show that receipts and payments were made by cheques. The ITO, however, called upon the assessee to produce the parties but the assessee did not do that. The ITO issued notices under section 131 to the hundi creditors but the same were received back unserved. Even those on whom notices could be served did not appear in response to the said notices. The ITO held that all those parties being bogus hundiwallas, the said loans were not genuine. The ITO, accordingly, added certain sums to the assessee's income as income from undisclosed sources. The additions made by the ITO were justified by the Court. (v) It has been held in the case of Shankar Industries vs. CIT [1978] 114 ITR 689(CAL.) that where cash credits entries in name of third parties were appearing in books of account of assesses, and in respect of such entries assessees established only ident....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Jansampark Advertising & Marketing (P.) Ltd. (2015) 56 taxmann.com 286 (Del). In the alternate the ld. D.R. submitted that the matter may be set aside to the file of A.O to make the necessary inquiries. Ld. A.R on the other hand reiterated the submissions made before A.O and ld. CIT(A) and further submitted that in most of the cases the depositors had also given loans in earlier years and in those years the loans have been accepted to be genuine and no addition has been made while framing the assessments. As far as the loans received during the year are concerned Assessee has discharged the onus by furnishing the PAN number, the copy of return and the confirmation of their accounts. He further submitted that since the Assessee had discharged the primary onus and unless the explanation and evidences furnished by the Assessee are found to be untrue, no addition could be made u/s. 68. He thus supported the order of ld. CIT(A). 7. We have heard the rival submissions and perused the material on record. The issue in the present case is about addition made u/s. 68 of the Act. The primary reason for making the addition by the A.O u/s. 68 was that the depositors were not financially capab....