TaxTMI 
TaxTMI 
2016 (7) TMI 1344
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....dition made by the learned Deputy Commissioner of Income Tax was wholly unwarranted. 2.1 That the learned Commissioner of Income Tax (Appeals) has erred in failing to appreciate that appellant had received loans aggregating to Rs. 3,25,50,000/- from the family members and close relatives and such persons has also duly appeared and deposed before the learned Deputy Commissioner of Income Tax to the factum of granting of loan as such, addition made by learned Deputy Commissioner of Income Tax and sustained by learned Commissioner of Income Tax (Appeals) is unsustainable in law. 2.2 The learned Authorities have failed to comprehend that the assessee had duly discharged his initial onus and in the absence of any adverse material brought on record in rebuttal, the addition made was untenable and unsustainable in law. 2.3 That the learned Commissioner of Income Tax (Appeals) has erred in failing to appreciate that all sums had been received as a loan by the assessee through account payee cheques as such, once the loan has been received through banking channels, creditworthiness of the creditor could not have either been doubted or could be held not to have been satisfied more pa....
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....r under consideration, the assessee was one of the directors of M/s Roma Hanny Security Services Private Limited and M/s Mahesh Sunny Enterprises Private Limited and shown annual salary of Rs. 1,44,000/- from each of the aforesaid two companies. Under the head 'profit and gains of business', the assessee shown income from proprietary concern 'M/s Lovelin Enterprises', which was engaged in the business of selling tea and coffee. The assessee also shown income under the head 'capital gains' and 'income from other sources'. The return of income filed by the assessee was selected for scrutiny and notices under section 143(2) and 142 (1) of the Incometax Act, 1961 (in short 'the Act') were issued and served within the stipulated period. In the course of scrutiny, the learned Assessing Officer observed that the assessee obtained fresh unsecured loan from following persons: S. No. Name of the Person Amount 1. Amar Singh Rs. 50,00,000/- 2. Chandan Smgh Rs. l,10,00,000/- 3. Harpreet Singh Rs. 3,50,000/- 4. Om Prakash Rs. 9,00,000/- 5. Ram Charan Rs. 10,00,000/- 6. Shiv Tej Rs. 25,00,000/- 7. Sunita Rs. 98,00,000/- 8. Virender Yadav Rs. 2....
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....nt advanced was from sale proceeds of land, however, no details of land holdings and copy of agreement etc. was given. He further observed that all the creditors advanced huge sums of money but details of their income, saving and expenditure was not available. In view of these observations, the Ld. Commissioner of Income-tax (Appeals), relying on the judgments cited in the impugned order, found that the identity, creditworthiness and the genuineness of the transaction in respect of the creditors was in doubt. The Ld. Commissioner of Income-tax (Appeals) concluded that the assessee could not establish the creditworthiness of the persons from whom the impugned credit was received nor had proved genuineness of the transaction of Rs. 3,25,50,000/-credited in the books of accounts and, thus, he confirmed the addition made by the Assessing Officer. Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above. 4. At the outset, the learned counsel of the assessee requested for admission of the additional evidences filed at serial No. 19 to 23 of the additional paper book and submitted that those documents have been obtained from the creditor Smt. Sun....
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....e made through cheques. The learned counsel relying on the judgment of the Hon'ble Delhi High Court in the case of CIT Vs. Divine Leasing and Finance Private Limited reported in 299 ITR 268 (Del), wherein it has been held that where the transactions were through cheque , the genuineness of the transaction is duly established. He also further relied on the judgement in the case of additional CIT Vs. Bahri Brothers Private Limited reported in (1985) 154 ITR 244 (Pat.) wherein it is held that very fact that all the transactions were entered into between the parties through the account payee cheques makes a question of identity of creditors for into oblivion and it becomes absolutely irrelevant. 8.2 The Ld. counsel further relying on the judgment of the Gujarat High Court in the case of DCIT Vs. Rohini Builders reported in 256 ITR 360, wherein it is held that burden under section 68 of the Act stands discharged by proving the identity of the creditors by giving complete address and permanent account number, submitted that in the case in hand entire money originated from the bank account of the creditor parties, who are fully identifiable and have also confirmed advancing loan to the....
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.... response to a question by the Assessing Officer, monthly earning was stated to be Rs. 2000/- to Rs. 2005/- and he could not explain how the loan of Rs. 50 lacs was given with such a small income. Similarly, she referred to the statement of Smt. Sunita available at pages 33 to 34 of Revenue's paper book, wherein she admitted that she was not doing any job and her husband was only available sources of income of the family and she could not confirm whether she advanced any money to the assessee. Further, it was submitted by the learned Senior Departmental Representative that the assessee was claiming on one side that the loans and advances were received from close relatives, whereas on the other side, the assessee failed to produce them before the Assessing Officer and the Assessing Officer was required to issue summons to the creditors and even out of eight creditors, only five creditors appeared and summons to the two creditors returned unserved. The ld. Senior Departmental Representative in support of contentions relied on the judgment of the Hon'ble Supreme Court in the case of Durga Prasad More reported in 82 ITR 540, judgment of the Madras High Court in the case of Mangilal Jai....
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....le or perverse or based on no evidence. In subsequent part of paragraph 6, the Hon'ble High Court has agreed that above reasoning must apply to cases of large scale subscription of shares of a public company and may not apply to the circumstances where shares were allotted directly to the share applicants. The relevant finding of the Hon'ble Court is reproduced as under: "This reasoning must apply a fortiori to large-scale subscriptions to the shares of a public company where the latter may have no material other than the application forms and bank transaction details to give some indication of the identity of these subscribers. It may not apply in circumstances where the shares are allotted directly by the company/assessee or to creditors of the assessee. This is why this Court has adopted a very strict approach to the burden being laid almost entirely on an assessee which receives a gift." 9.3 Thereafter, in paras - 7 to 10 of the judgment, Hon'ble High Court considered the decision of the Hon'ble of Supreme Court in the case of Sumati Dayal versus CIT (1995) 214 ITR 801 (SC), decision of the Hon'ble Delhi High Court in the case of Gee Vee Enterprises versus Additiona....
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....gredients are produced it is for the AO to find out as to whether, on these material, the assessee has succeeded in establishing the ingredients mentioned above and the AO can 'lift the veil' on enquiry into the real nature of transactions. 9.5 After considering the decisions available in the context of section 68 of the Act, the Hon'ble High Court concluded in para 16 of the judgment, the requirement of section 68 as under: "16. In this analysis, a distillation of the precedents yields the following propositions of law in the context of s. 68 of the IT Act. The assessee has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber; (4) if relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the shareholders register, share application forms, share transfer register, etc. it would constitute acceptable proof or acceptable explanation by the assessee; (5) the Department would not be justifie....
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.... and shows the genuineness of transaction by showing money in his books either by account payee cheque or by draft or by any other mode, then the onus of proof would shift to the Revenue. Just because the creditors/share applicants could not be found at the address given, it would not give the Revenue the right to invoke s. 68. One must not lose sight of the fact that it is the Revenue which has all the power and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the 'source of source'." 9.9 In view of the above judgments, it is clear that an assessee is not expected to explain the source of the source except the cases where the closely held company receives share application money, share capital or share premium or the like w.e.f. 01/4/2013, in view of two provisos inserted to section 68 of the Act through amendment to Finance Act, 2012. 9.10 The learned senior DR cited the case of CIT versus Durga Prasad More (supra) submitting that the human probabilities test should be considered while examining the transactions entered into the books of accounts by the assessee. In the said case, the Hon'ble Supreme Court has held as under: ....
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.... for not examining the wife and the father-in-law of the assessee for proving the Department's case. All that we can say is that the High Court has ignored the facts of life. It is unfortunate that the High Court has taken a superficial view of the onus that lay on the Department. It is true that neither the principle of res judicata nor the rule of estoppel is applicable to assessment proceedings. But the fact that the assessee included the income of the premises in his returns for several years, and that after objecting to the inclusion of that income in his total income in the asst. yr. 1942-43, in the absence of any satisfactory explanation, is undoubtedly a circumstance which the taxing authorities were entitled to take into consideration. Now, coming to the grounds that commended themselves to Mukharji, J. (the present Cheif Justice of the High Court of Calcutta), we are unable to find out how the learned judge was able to come to the conclusion that there was no proof or charge that the assessee had concealed any income of his. The orders of the ITO, AAC and the Tribunal proceeded on the basis that the assessee was attempting to conceal a portion of his income by p....
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....the subject held as under: 8. This court is conscious of a view taken in some of the previous decisions that the assessee cannot be faulted if the share applicants do not respond to summons, and that the state or revenue authorities have the wherewithal to compel anyone to attend legal proceedings. However, that is merely one aspect. An assessee's duty to establish that the amounts which the AO proposes to add back, under Section 68 are properly sourced, does not cease by merely furnishing the names, addresses and PAN particulars, or relying on entries in a Registrar of Companies website. One must remember that in all such cases, more often than not, the company is a private one, and share applicants are known to it, since they are issued on private placement, or even request basis. If the assessee has access to the share applicant's PAN particulars, or bank account statement, surely its relationship is closer than arm's length. Its request to such concerns to participate in income tax proceedings, would, viewed from a pragmatic perspective, be quite strong, because the next possible step for the tax administrators could well be re-opening of such investor's proceedings. T....
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....companies that by merely filing documents in respect of name, address and PAN particulars etc may not be sufficient to discharge the onus and the Assessing Officer may request their participation in income-tax proceedings. Thus, Individual like assessee, who accepts credit from friends and family members also fall in the category of cases requiring strict approach for discharging onus under section 68 of the Act. 9.15 In the light of the judicial pronouncements discussed above, now we advert to the facts of the instant case and examine whether the assessee has discharged its onus under section 68 of the Act in respect of the credit received from the 8 creditors. 1. Smt. Sunita Rs. 98,00,000/-. (i) In the remand report, the Assessing Officer reported that the statement of Smt. Sunita was recorded on 06/05/2015 , and she expressed ignorance about the loan given to the assessee and she was made to sign the documents by her husband , which were not understood by her, and, therefore, in view of the Assessing Officer, the genuineness and creditworthiness of loan given by Smt. Sunita was not established. (ii) The learned CIT(A) observed that no details about ....
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.... of Smt. Sunita. The ld Counsel submitted that there was opening balance of Rs. 1,80,000/- and Rs. 10,00,000/- was repaid leaving a balance at the close of the year at Rs. 89,80,000/-. We find that the source of money deposited in the account of Smt Sunita is also appearing in her bank statement as Rs. 36,00,000/- on 10/06/2010 from - 'Mahesh Sunny Enterprises private limited', Rs. 1,25,000/- as compensation from 'Land Acquisition Department' through instrument No. 58914 on 12/06/2010, Rs. 45,07,224/- compensation from 'Land Acquisition Department' through instrument No. 631430 on 02/07/2010, Rs. 39,04,027/- compensation from 'Land Acquisition Department' through instrument No. 635329 on 26/07/2010. We find that the assessee has also submitted photo copies of the instrument through which compensation was received from land acquisition Department which are available on page 133 and 134 of the assessee's paper book. In view of above facts , the contention of the learned Commissioner of Income-tax (Appeals) that there were huge deposits before withdrawal, is thus no longer a valid ground for making addition , because all the deposits are duly stands explained by the assessee. In our o....
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....icer. 3. Sh. Shiv Tej Singh Rs. 25,00,000/- (i) In remand report, the Assessing Officer reported that Sh. Shiv Tej Singh did not appear in response to the summon issued. (ii) The learned Commissioner of Income-tax(Appeals) noted that there was no copy of PAN Card or return of income filed by him and no details in respect of source of funds from compensation received against acquisition of land was provided and he also did not appear before the Assessing Officer therefore his identity was not proved. (iii) Before us, learned counsel of the assessee referred to the copy of confirmation filed by Sh Shiv Tej Singh ( page no. 108 of assessee's paper book), copy of bank statement ( page No. 109 of the assessee's paper book), copy of affidavit (Pages110-111 of the assessee paper book), and copy of ration card (pages 112 to 112A of the assessee's paper book) and submitted that all the ingredient of section 68 of the Act were duly satisfied in respect of loan from Sh Shiv Tej singh, however he did not object, if the issue is restored to the file of the Assessing Officer for fresh examination and recording of statement of Sh Shiv Tej Singh. (iv) W....
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....ination by the Assessing Officer. 5. Sh. Ramchander Rs. 10,00,000/- (i) In the remand report, the Assessing Officer reported that the creditworthiness of Sh. Ramchander was not proved in view of the annual earnings of Rs. 1.75 to 1.8 lakhs and no savings. Further he reported that in the statement recorded, Sh Ramchander stated that that he did not file any income tax return nor he had any PAN. Further the Assessing Officer reported that genuineness of the transaction was also not established in view of the statement of Sh. Ramchander in response to one question that source of money advanced to the assessee was out of sale of land and in response to another question the source of deposit of Rs. 18.48 Lacs and Rs. 5.86 in his bank accounts was stated as money received from sister 'Vidya'. (ii) The Ld. CIT (A) observed that no of return of income was furnished in respect of the creditor and copy of bank account showed huge deposits and withdrawals in short span of time and it was also noticed the deposits in the bank account were from sale of land but no further details had been furnished. (iii) Before us learned counsel of the assessee referred to ....
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....i) Before us, the learned counsel of the assessee, referred to the copy of PAN card and voter identity card available at page no. 87 and 88 of the assessee's paper book respectively establishing the identity of the creditor. He further referred to the bank statement indicating the entries through which money was advanced to the assessee , which is available at page No. 85 and 86 of the assessee's paper book. He further submitted that the conclusion of the learned Commissioner of Income-tax(Appeals) that said loan was not appearing in the return of income of Sh Chandan Singh was not correct as no balance sheet was enclosed with the copy of return of income filed so it was not possible to disclose the entry of impugned loan in the return of income. (iv) On perusal of the documents filed before the lower authorities and copy submitted in paper book before us, we find that the assessee has filed all the documents establishing identity, genuineness of the transaction and creditworthiness in respect of the Sh. Chandan Singh. The source of money advanced to the assessee is appearing as received through banking channel and no cash deposits as mentioned by the learned Commissioner ....
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....established." (ii) The learned Commissioner of Income-tax (Appeals), observed that there was no copy of return of income or PAN card and copy of bank account showed huge deposits which were not explained. He further observed that copy of a document issued by the Land Acquisition Officer, Gurgaon indicating grant of Rs. 84, 44, 762/- was furnished however no further supporting documents regarding acquisition of land for explanation of the entry in the bank account was furnished. (iii) Before us, the learned counsel of the assessee referred to copy of confirmation and voter identity card available at page No. 78 and 82 respectively establishing the identity of the creditor. He further referred to copy of bank statement available at page No. 80 of the paper book and entry of deposit of Rs. 84,44,762/- on 26/06/2010 just before issue of cheque of Rs. 50 Lacs to the assessee. He also referred to page No. 83 of the assessee's paper book, which is a letter issued by the land acquisition officer, Gurgaon in favour of Sh. Amar Singh mentioning the award of Rs. 84,44,762/-. (iv) In view of the above documents, which were furnished before the authorities below and c....
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....irmed by Mr Dakshdeep Singh according to confirmation available on page no. 123 of the assessee's paper book. The assessee also in an affidavit , a copy of which is available on page No. 127 and 128, submitted that said sum of Rs. 3.5 lakh was received as advance from Sh Dakshdeep Singh against sale of shares and name of his father sh Harpreet Singh was mentioned inadvertently by the accountant. All these documents were available before the lower authorities. (iv) In view of the above documents, we find that the identity of the Sh Harpreet Singh was though established, but identity of Sh Daksh singh and copy of bank statement of the creditor indicating the said loan or advance to the assessee has not been filed. Further, no documents in support of creditworthiness of Sh. Dakshsingh have been filed, therefore in the interest of justice, we restore the matter back to the file of the Assessing Officer to examine the identity, genuineness of the transaction and creditworthiness and decide the issue in accordance with law after affording sufficient opportunity of hearing to the assessee. The assessee is also directed to produce all the necessary documents in support as required....