TaxTMI 
TaxTMI 
TaxTMI 
2017 (6) TMI 481
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessment proceedings assessee was asked to explain the cash credits of Rs. 1,45,77,661/- but assessee failed to provide proper explanation to the satisfaction of Ld.Assessing Officer (in short ''Ld.AO'') in order to prove the identity, genuineness and creditworthiness. As a result addition u/s.68 of the act for Rs. 1,45,77,661/- was made by the Ld.AO. Similarly with regards to the trade deposit assessee could not prove the genuineness of Rs. 3,20,000/- in the name of Shri Preyash M. Zaveri due to which addition u/s.68 of the Act for Rs. 3,20,000/- was made. Disallowance u/s.40(a)(ia) of the Act was made for Rs. 1,37,745/- for not deducting and depositing tax at source on interest paid to non banking finance company. Addition of Rs. 25,500/- was made u/s.40A(2)(b) of the act on the interest paid to the relatives being at the rate of 18% as against 12% paid to other parties. In all, after making addition of Rs. 1,50,60,906/- income was assessed at Rs. 1,51,92,757/- 3. Aggrievedassessee went in appeal before the Ld.CIT(A) against all the addition except disallowance u/s.40A(2)(b) of the Act and got partly succeeded as Ld.CIT confirmed the addition u/s.68A of the Act at Rs. 3,20,0....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wance of interest expenditure of Rs. 1,37,745 u/s.40(a)(ia) of the I.T. Act. 6. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal. 6. Revenue has raised following grounds of appeal: 1a). The Ld.Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs. 67,87,465/- out of total addition of Rs. 1,45,77,661/- made u/s.68 of the Act on the basis of peak credit in respect of depositors, whose, neither identity nor genuineness of transaction has been proved before Assessing or Appellate Authority. 1b). The Ld.Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has errer in law and facts in admitting additional evidence in violation of Rule 46A of the I.T. Rules and to ignore the fact that Assessee failed to submit the additional evidences before the AO, without any reasonable casue. 2). On the facts and in the circumstances of the case, the Ld.Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer. 3). It is therefore, prayed that the order of the Ld.Commissioner of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....V/s. ITO in ITA no.2429/Ahd/1999 pronounced on 20/07/2000 in respect of his contention of applying cumulative peak theory. 10. On the other hand Learned Departmental Representative vehemently argued supporting the order of Ld.AO and also challenged the action of Ld.CIT(A) for admission of additional evidences under Rule 46A of the Income Tax Rule and also against application of peak credit in respect of depositors for which assessee couldn't supply the basic details of identity, genuineness and creditworthiness before the Assessing authority. Ld.DR also submitted that peak credit should not be applied because at the paper book of page 133 and 134 showing working of peak credit of five depositors, there are various entries which are not bank/cash transfer but merely journal entries. 11. We have heard the rival contention and perused the records place before us and gone through the decision referred by Ld.Counsel. Issue raised by both the parties in various grounds as discussed above revolves round the issue of addition u/s.68 of the Act at Rs. 1,45,77,661/- made by the Ld.AO. It is a fact that during the assessment proceedings assessee couldn't satisfy the three limbs i.e identity....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rties containing the details of unsecured loan in the name of each parties and the peak credit confirmed by Ld.CIT(A). Sr.No. Name of Depositors Amount of Deposit Peak Credit confirmed 1. M/s.Swastik Corporation Rs.42,94,139/- Rs.18,38,139/- 2. M/s.Shankheswar Corporation Rs.17,39,294/- Rs.2,86,235/- 3. M/s.SunCoporation Rs.21,62,000/- Rs.8,83,294/- 4. M/s.Sun Shine Corporation Rs.32,40,000/- Rs.16,40,000/- 5. M/s.J.P. Corporation Rs.14,61,700/- Rs.14,61,700/- Total Rs.1,28,97,133/- Rs.61,09,368/- 13.1 We further observe that Ld.DR has pleaded about non application of peak theory in the case of assessee which we find not to be correct in the given facts and circumstances because the basic about opening balance of such cash credit, how much cash/fund had come from known and accept sources where the fund has flow are not on record. It is only the negative figure i.e shortage of fund which is unexplained needs to be added to the income of assessee. 13.2 We find it pertinent to reproduce the detailed findings of Ld.CIT(A) on this issue of application of peak theory which reads as under: 5.2 Now coming to ground wise adjudication : (A) Ground No. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... loan of Rs. 1,28,97,133/- was received during impunged previous year. (ii) The A.O. in the remand report examined and verify various transactions with these five parties including the transaction which were not reflected in appellant's bank account being Journal entry. It is therefore it will be in the fitness of facts to deal with each such party independently as follows: (a) (i) M/s. J.P. Corporation : As per the details of unsecured loans given in tabular form with opening balance, Addition /repayment and closing balance as filed by appellant with affidavit of Sh. Sanjay Shah, director of the appellant company dt. 09/02/2012 there is NIL opening balance, during the year Rs. 14,61,700/- were received from this party while Rs. 13,17,177/- were repaid leaving the closing balance of Rs. 1,44,523/-. The appellant in the paper book dt. 09/02/12 (page 1 to 103) as per index discussed at para 4B above has not submitted any ledger account, address or PAN for this party. The appellant submitted copy of his corporation bank account No. CC/01/990008 where on 05/02/08 a cheque form Bank of India (cheque No. 0924981) for an amount of Rs. 6,08,700/-received and cleared to say that the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....try in appellant's detail) (vii) On 11/07/2007 vide cheque no. 0756786 an amount of Rs. 5,07,000/- got cleared in the name of Shashank and not of J. P. Corporation. (viii) On 25/09/2007 vide cheque no. 197587 an amount of Rs. 2,92,761/- got cleared in the name of Radha swami and not of J. P. Corporation. (a)(v) It is therefore, the appellant neither given PAN, confirmation, address of this party nor submitted correct & credible details. The appellant failed to discharge its onus of establishing identity, genuinity and creditworthiness. It is undisputed that appellant admitted to receive Rs. 14,61,700/- from this party during previous year and failed to substantiate its contention that it received back loan given to this party. In the absence of any possibility of verification from this party, the A.O. is justified in arriving at conclusion to treat Rs. 14,61,700/- as unexplained. (a)(vi) Hon'ble Delhi High Court in the case of Commissioner of Income Tax Vs. Nipun Builders & Developers Pvt. Ltd. (2013) 350 ITR 407 even after considering Hon'ble Supreme Court judgment in the case of CIT Vs. Lovely Exports (P) Ltd. (2009) 319 ITR (St.) 5 and in the matter where app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....with a visit by the inspector who confirmed that no such companies functioned from the addresses furnished by the assessee. Let us see the attitude of the assessee towards discharging its onus in such circumstances. It says that the AO may get the addresses from the ROC's website. We do not think that an assessee can take such an unreasonable attitude towards his onus u/s. 68, little realizing that when the finding is that the subscribing companies have not been found existing at the addresses given by the assessee, it is open to the AO to even hold that the identity of the share-subscribers has not been proved, let alone their creditworthiness and the genuineness of the transactions. It was not open to the assessee, given the facts of this case, to direct the AO to go to the website of the company law department/ROC and search for the addresses of the share-subscribers and then communicate with them for proof of the genuineness of the share subscription. That is the onus of the assessee, not of the AO. assessee did not produce the principal officer of the companies who subscribed to the shares; it merely filed a letter at the "dak" counter of the AO, stating that the communi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to prove their creditworthiness. There must be, in our opinion, some positive evidence to show the nature and source of the resources of the share subscriber himself and therefore it is necessary for him to come before the AO and confirm his sources from which he subscribed to the capital." (a)(vii) The ratio of this judgment was followed by Delhi High Court in the case of CIT Vs. Titan Securities Ltd. (2013) 215 Taxman 164. It is therefore all the three ingredient viz. identify, genuinity and credit worthiness has to be proved by assessee independently. Here in the case of appellant all the three ingredients are unsubstantiated therefore, the addition so made of Rs. 16,61,700/- is upheld and confirmed. (b)(i) M/s Swastik Corporation and M/s Sun Shine Corporation: The A.O. in the remand report submitted that in reference to sum received of Rs. 42,94,139/- from M/s Swastik Corporation and of Rs. 32,40,000/- from M/s Sunshine Corporation, the confirmation submitted by appellant reflect one PAN i.e. AHYPP814A. On the address as submitted by appellant inquiries were conducted by A.O. but such parties were not found at given addresses. The A.O. failed to produce these parties for veri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....It is therefore, the contra account & confirmation so submitted by appellant are not proper and examination of such party becomes important & relevant. The A.O. in the remand report certified that loan receipt entry through Journal entry was claimed to be payment made by M/s Nandan Trading Co. for which appellant filed contra a/c, PAN, Confirmation and discharged the onus casted and hence not to be disbelieved. There is no discrepancy as far as receipt of loan except one as that of in M/s Swastik Corporation. It is therefore, I am inclined with the contention of A.O. that appellant by not producing these parties. By simply alleging the A.O. to find whereabouts of these parties the appellant has not discharged its burden as casted u/s 68 of the Act in view of ratio of case laws discussed earlier. However, considering both loan extending entries and loan received entries through banking channel, it is only the peak of such credit in individual account which can be legitimately said to be loan received / accepted from such party and the same can be held as undisclosed and deemed income u/s 68 of the Act. Such peak for M/s Swastikcorporation and M/s Sunshine corporation as computed and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s about journal entries, mismatch of name and assest bank statement entries and those reflected in the book. In this situation Ld.CIT(A) has rightly adopted peak credit theory. We confirm the action of Ld.CIT(A) of applying peak credit theory. 13.4 Further as regards to the issue as to whether the peak credit theory should have been applied to each party individually or cumulatively. We find it pertinent to reproduce findings of Co-ordinate Bench in the case of SR Enterprises V/s ITO(Supra) wherein fact are quite similar so much so that in this case assesse failed to file confirmation before Ld.AO and some of parties stated that cash was not given by them to the assesee. Ld.AO made an addition on each cash credit whereas Tribunal held peak of the credit should be applied. In deciding so Co-ordinate Bench observe as follows: 6. I have given careful thought to the rival submissions of the parties. In my considered view, the Assessing Officer was fully justified in asking the assessee to prove the credits introduced in the shape of sale receipts from the customers and when those were not proved, treating them as unexplained income of the assessee. The Assessing Officer was also just....
X X X X Extracts X X X X
X X X X Extracts X X X X
....explained". It is. therefore, necessary to work out the peak of the credits as also details of available funds with the assessee and then see how much unaccounted for cash has been introduced in the books of accounts. The peak of such amounts is to be added; in the hands of the assessee as "deemed income" and in accordance with law. To enable the Assessing Officer to carry out the above exercise, the impugned orders are set aside and matter is restored to the file of Assessing Officer for passing a fresh order after affording reasonable opportunity of being heard to the assessee. The matter is, accordingly, restored to the file of Assessing Officer for passing a fresh order in the light of above observations. 14. Respectfully following the decision of Co-ordinate Bench we observe in the case of assessee also cumulative peak credit theory should be applied because the movement of fund are intermingled as evident from going through the details provided in the order of Ld.CIT(A) as well as chart showing working of peak credit placed on page 133 and 134 of paper book. As per this chart peak credit is on 25/03/2008 at Rs. 45,22,452/- 14.1 Ld.DR during his arguments submitted that thi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee should not be treated in default u/s.40(a)(ia) of the Act as the Revenue has obtained due taxes on the interest income. 17. On the other hand Ld.DR raised no objection for setting aside to the file of Ld.AO. 18. We have heard the rival contention and perused the record placed before us and gone through the decision relied by Ld.Counsel. From perusal of the record we observe that assessee has not deducted income tax u/s. at source 194A of the Act on the interest paid at Rs. 87,508/- to Cholamandalam Finance and Rs. 50,245/- to GE Money. As a result Ld.AOdisallowed the expenditure of Rs. 1,37,745/- u/s.40(a)(ia) of the Act which was further confirmed by Ld.CIT(A). 18.1 We further observe that Hon'ble Hight Court of Delhi in the case of CIT V/s Ansal Land Mark Township (P) Ltd.(supra) dealt with similar issue for non deduction of tax u/s.194J and disallowance made u/s.40(a)(ia) of the Act. We observe that Hon'ble High Court confirmed the order of Tribunal by adopting the ratio of decision of Agra Bench in ITA no.337/Agra/2013 Rajiv Kumar Agarwal Vs ACIT by observing as follows: 8. It is seen that the issue in these AYs arises in the context of the disallowance by the Assessing....
X X X X Extracts X X X X
X X X X Extracts X X X X
....um paid to a resident or on the sum credited to the account of a resident such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under Section 139 of the Act. No doubt, there is a mandatory requirement under Section 201 to deduct tax at source under certain contingencies, but the intention of the legislature is not to treat the Assessee as a person in default subject to the fulfilment of the conditions as stipulated in the first proviso to Section 201(1). The insertion of the second proviso to Section 40(a)(ia) also requires to be viewed in the same manner. This again is a proviso intended to benefit the Assessee. The effect of the legal fiction created thereby is to treat the Assessee as a person not in default of deducting tax at source under certaincontingencies. 12. Relevant to the case in hand, what is common to both the provisos to Section 40(a)(ia) and Section 201(1) of the Act is that as long as the payee/resident (which in this case is ALIP) has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to tax withholding lapse. The penalty for tax withholding lapse per se is separately provided for in Section 271C, and, section 40(a)(ia) does not add to the same. The provisions of Section 40(a)(ia), as they existed prior to insertion of second proviso thereto, went much beyond the obvious intentions of the lawmakers and created undue hardships even in cases in which the assessee's tax withholding lapses did not result in any loss to the exchequer. Now that the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In view of these discussions, as also for the detailed reasons set out earlier, we cannot subscribe to the view that it could have been an "intended consequence" to punish the assessees for non-deduction of tax at source by declini....