TaxTMI 
TaxTMI 
2017 (10) TMI 999
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....ccount of addition in respect of premium/commission/entry charges. 3. The facts of the case are that assessee is an educational society which is duly registered under Societies Registration Act. The assessee-society has been granted registration under section 12AA of the I.T. Act vide Certificate dated 15th June, 1995 given by the then Commissioner of Income Tax, Meerut and Exemption Certificate under section 80G issued on 7th June, 2005 by Commissioner of Income Tax, Ghaziabad. The assessee-society is running 09 educational institutions. The return declaring -NILincome was filed. The case of the assessee-society was selected for scrutiny. From the perusal of the details furnished, it was observed that assessee has shown unsecured loans amounting to Rs. 4,52,13,816 in respect of which assessee submitted confirmations, ITRs and PAN of the lenders. To examine the identity, capacity and creditworthiness of the lenders, notice under section 133(6) of the Act, were sent to the following lenders on the given address on test check basis which were returned un-served with postal remarks "either refused or incomplete address". Sl.No. Name & Address of the lender PAN Amount (R....
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....s. 4,52,13,816 included loans from the following concerns/names Name of the lender Date receiving loan/ advances of Amount received during the year Amount repaid during year Intt. Credited/ paid during year. 1. G S Holdings Pvt. Ltd., OP. Bal. 8,98,323 1,02,645 2. Genesis Bistro Pvt. Ltd., 18.01.2008 08.2.2008 10,00,000 20,00,000 48,493 3. Genesis Conbuild Pvt. Ltd., 15.2.2008 20.2.2008 28.2.2008 04.3.2008 04.3.2008 04.3.2008 07,00,000 02,00,000 20,00,000 15,00,000 16,00,000 09,00,000 57,945 4. Genesis Cybermetics Pvt. Ltd., 5.12.2007 5.12.2007 5.12.2007 20,00,000 15,00,000 15,00,000 15,00,000 20.2.2008 1,43,014 5. Genesis Medicare Pvt. Ltd., 02.2.2008 08.2.2008 10,00,000 10,00,000 30,137 6. Innovative Cybermetics Pvt. Ltd., 05.12.2007 05.12.2007 05.12.2007 26.03.2008 25,00,000 10,00,000 25,00,000 25,00,000 25,00,000 21.2.2008 1,69,041 Total 2,54,00,000 5,51,275 3.2. From the details furnished, it was found that following companies have introduced money towards shar....
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.....11.2007 26.11.2007 28.11.2007 Rex Pharma Lab P. Ltd., -do- 2,50,000 2,50,000 2,50,000 26.11.2007 28.11.2007 28.11.2007 Neelkanth Travels P. Ltd., -do- 2,50,000 2,50,000 2,50,000 26.11.2007 28.11.2007 28.11.2007 Neelkanth Travels (P) Ltd., Genesis Medicare Pvt. Ltd., 3,00,000 2,00,000 3,00,000 2,00,000 31.01.2008 31.01.2008 31.01.2008 31.01.2008 Shiv Man Capital Management Pvt. Ltd., -do- 2,50,000 2,00,000 3,00,000 06.02.2008 06.02.2008 09.02.2008 Delphi International Business Consultants (P) Ltd., -do- 3,00,000 2,00,000 2,50,000 06.02.2008 06.02.2008 06.02.2008 Kore Knowledge Exchange India (P) Ltd., -do- 2,50,000 2,50,000 3,00,000 2,00,000 06.02.2008 06.02.2008 06.02.2008 06.02.2008 Mega Top Promoters P. Ltd., -do- 5,00,000 07.01.2008 Bimal Overseas Pvt. Ltd., Genesis Bistro Pvt. Ltd., 3,00,000 2,00,000 27.02.2008 27.02.2008 Neelkanth Travels (P) Ltd., -do- 2,50,000 2,50,000 06.02.2008 06.02.2008 Rex Pharma Lab Pvt. Ltd., -do- 3,00,000 2,00,000 2,50,000 2,50,000 06.02.2008 06.02.2008 26.02.2008 26.02.2008 Shiv Man Capital Management Pvt. Ltd., -do- 3,00....
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....cretary of the Society and Director of 'Genesis" Companies also. It was therefore, noted that assessee also violated the provisions of Section 13(3) of the I.T. Act, 1961. 3.4. The A.O. issued notices to the assessee-society requiring the assessee-society to produce all the above 15 persons in order to examine the identity, capacity and creditworthiness of the companies through their Managing/Working Directors from whom the alleged loans and advances have been claimed along with complete record for relevant assessment year under appeal and all the immediate preceding assessment years. The assessee-society, however, did not produce the lenders before A.O. The assessee society filed written reply stating therein that the assessee society has taken loans from the following 06 companies during the year under consideration. G.S. Holdings Pvt. Ltd., Rs. 1,02,645 Genesis Bistro Pvt. Ltd., Rs. 30,38,503 Genesis Conbuild Pvt. Ltd., Rs. 69,46,008 Genesis Cybernetics Pvt. Ltd., Rs. 36,13,553 Genesis Medicare Pvt. Ltd., Rs. 20,23,929 Innovative Cybernetics Pvt. Ltd., Rs. 61,34,218 Total Rs. 2,18,58,856 3.5. It was further submitted that in respec....
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....ong with the return of income which are correct addresses of the companies and requested that fresh notices may be issued under section 131. The assessee-society has filed copies of acknowledgment of return of income of some companies to show that they were having negligible income. The assessee-society reiterated that it had not received any loan and advance from the above 15 companies. Hence, requested that no adverse view may be taken against the assessee-society and no addition under section 68 could be made. The A.O. noted that notice to 15 companies were issued at the fresh address but the same have not been served. It is also noted that assessee-society has raised loan from 09 companies out of these 15 companies in earlier years. Therefore, the assessee-society shall have to prove identity of the lender, their creditworthiness and genuineness of the transactions. But the assessee-society has not proved the same for these 15 companies who have made investments in lender companies. The A.O. also noted that statement of Shri S.K. Gupta, C.A. was recorded by Investigation Wing in which he has confirmed to have provided accommodation entries. Similar statement of Shri Deepak Jain....
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....vice and violation of provisions of Section 13(3) of the I.T. Act since the assessee-society failed to prove the creditworthiness and genuineness of the transaction. Therefore, the deposits to the extent of Rs. 1.87 crores, out of total deposits during the assessment year under appeal at Rs. 2.54 crore through the concerns of Genesis group and Innovative Cybrenetics P. Ltd., channelized through the alleged share application money by the abovementioned 07 companies, were held as unexplained cash credit, in view of the provisions of Section 68 of the I.T. Act. 3.8. Similarly, in respect of the following companies also the assessee-society could not furnish necessary evidence about the source of alleged share application money with Genesis Medicare Pvt. Ltd., M/s. Genesis Conbuild Pvt. Ltd., and M/s. Genesis Bistro Pvt. Ltd., which was channelized by way of loans and advances by the assessee-society. Further, it was seen from the respective copies of the accounts that there are prior deposits of like amounts to the alleged transactions claimed as share application money by the assessee/Genesis group. Name of Co. contributing towards alleged share application money Name of the....
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....the assesseesociety and material on record, deleted the addition of Rs. 2.20 crores. The findings of the Ld. CIT(A) in paras 5 to 5.1.2 are reproduced as under: 5. After careful consideration of all the facts on record and rival submissions as contained in assessment order and in appellant's submission my various conclusions/observations are as under:- 5.1. In the very beginning of (para 2 & 3) of assessment order, the A.O. mentions the fact that " the assessee has shown unsecured loans amounting to Rs, 4,52,13,816/- in respect of which the assessee submitted confirmations, ITRs for A, Y. 08- 09 and P AN of the lenders," Further A.O. mentions that the assessee was required "either to produce the lenders for confirmations of loans or furnish their documents to justify the genuineness, capacity and credit worthiness. The assessee vide letter dated 28-10-2010 submitted copies of accounts along with confirmation letter, bank account, ITRs, balance sheets of the above parties........." There-after the A.O. has recorded the fact that loans worth Rs. 2 crore 54 Lacs were received from 5 companies belonging to one group as per details below : - Name of th....
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....t when the immediate source is "proved" to be a mere conduit having no status and standing of its own. In the present case, the five companies from whom the assessee has taken loans, are assessed to tax and have sufficient credit worthiness by way of share capital raised and they have confirmed that they have given loan to the assessee. It is true that the source in the hands of these five companies is a bit suspect because of the statement of Shri S.K. Gupta and Shri Deepak Jain on record, as frequently referred to by the A.O. and also because the share capital raised contains a substantial portion by way of share premium, which appears to be surprising and suspicious considering that these companies have not raised such reputation and standing that their shares would command such a hefty premium. But, the moot point is that even if at all the source of funds raised by these five lender companies are suspicious; that is required to be investigated, in the hands of the five lender companies, and not in the hands of the assessee company!! It is on record that the A.O. has also given intimations to respective AOs of these five lender companies . So....
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....s out a case that the assesses had obtained loans from nine, out of fifteen bogus companies, run by Shri S.K. Gupta in earlier years, and re-paid these loans to them apparently because of survey action carried out by the department in that group; and that the same money has now been routed through these five lender companies, If that be so, again we come back to the basic issue as to where and at what point such money would have to be taxed, Naturally the point of receipt is the share capital raised by the five lender companies and hence addition, if any, should be made in those hands. Secondly, I find that A.O. has re-opened the proceedings for the earlier years and has already taxed the loans received from those nine companies. This means that the tainted money, as alleged by A.O. as received by assessee in the earlier assessment year, can always be taxed by way of addition, if found suitable. 5.7. Even if the impugned fund is a tainted money and the assessee as well as five lender companies are taken to be the same set of group, as A.O. has alleged; still it would be more appropriate to tax such tainted money at the point of receipt. This is because although sh....
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....conduit, Further the A.O. has made a general allegation that educational societies are taking force fill donations and are then introducing the same in books through loans/share capital. The AOs perception regarding such a generally prevalent malady can, at the best, be a starting point for the investigation, but all the societies cannot be punished only on the basis of said suspicion. Furthermore, A.O. is wrong in mentioning that the assessee is ultimate beneficiary of the alleged unexplained money. This is because loan would have to be repaid and interest expense is being incurred. The AO's allegation, on page 29 of assessment order, that Section 13(3) is allowable, is also without any reasoning/basis. 5.11. Thus, overall the present case is a case of addition on the basis of suspicion. Once the confirmations along with I.T. particulars, bank statements etc. of these five lender companies had been given; the onus had actually shifted squarely on the A.O. to prove that cash credit entry was actually assessee5s own money. But the A.O. has not been able to discharge that onus. 5.12. On the basis of the aforesaid discussion, I hold that the A.O. ha....
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....50 ITR 407 and (iv) order of ITAT, Delhi bench in the case of KSA Chits Pvt. Ltd., vs. DCIT dated 20th March, 2015 in which it was noticed that Shri S.K. Gupta went to Settlement Commission for settlement of the issue. 6. On the other hand, the Learned Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that A.O. has referred to 14 parties from whom loan have been taken but the A.O. considering the issue in respect of 05 parties of Genesis group of cases and Innovative Cybrenetics Pvt. Ltd., no addition is made in respect of 05 parties. No action have been taken under section 13(3) of the I.T. Act against the assessee-society. No summons have been issued to Genesis group of lenders or Innovative Cybrenetics Pvt. Ltd., who have given loan to the assessee-society. The A.O. did not make any addition of the loan amount but made additions for the parties who have made investment in Genesis group of cases and Innovative Cybrenetics P. Ltd. The statement of Shri S.K. Gupta and Shri Deepak Jain were not provided to the assessee-society which was not recorded by the A.O. and no opportunity was given to cross-examine their statements. There ....
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....ans and advances received by the assessee-society during the assessment order under appeal which are also reproduced above. However, the A.O. instead of making any enquiry from all these five lender companies who have given loans to the assesseesociety during assessment year under appeal in sum of Rs. 2.54 crores, has proceeded to make enquiries in case of 15 companies who have made investments in share application money of the 05 lender companies. The assessee also filed their documents before A.O. to prove that those 15 companies have genuinely made investment in 05 lender companies. The A.O. therefore, has proceeded to enquire into the source of the source which is beyond the powers of the A.O. It is well settled law that A.O. cannot ask for the source of the source. We also rely upon the decision of the Delhi High Court in the case of CIT v. Dwarkadhish Investment (P) Ltd. 330 ITR 298 and decision of Allahabad High Court in the case of Zafa Ahmed & Co. cited (supra). It is an admitted fact that assesseesociety did not avail any loans from the 15 parties who have made investment in the lender companies. The A.O. made addition of Rs. 2.20 crores (Rs.1.87 crores + Rs. 33 lakhs) un....
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....r individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assesseecompany." 9.1. The Hon'ble Delhi High Court in the case of CIT vs. Vrindavan Farms P. Ltd. Etc. in ITA.No.71/2015 dated 12.08.2015 in which the sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their return of income. It was observed by the ITAT that the AO had not undertaken any investigation of the veracity of the documents submitted by the assessee, the departmental appeal was dismissed by the Hon'ble High Court. 9.2. The Hon'ble Delhi High Court in the case of CIT vs. Laxman Industrial Resources Pvt. Ltd., in ITA.No.169 of 2017 dated 14.03.2017 in which the CIT(A) took note of the material filed by the assessee and provided opportunity to the AO in Remand proceedings. The AO merely objected to the material furnished but did not undertake any verification. The CIT(A) deleted the addition by relying upon the decision of the Hon'ble Apex Court in the case of Lovely Exports Pvt.Ltd. (supra) and judgement of Delhi High Court in the case of CIT vs Divine Leasing & Finance Ltd. [2008] 299 ITR 268. The ITAT confirmed the opinion o....
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....or fictitious persons or that any part of the share capital represented the company's own income from undisclosed sources. It was nobody's case that the non-resident Indian company was a bogus or nonexistent company or that the amount subscribed by the company by way of share subscription was in fact the money of the assessee. The assessee had established the identity of the investor who had provided the share subscription and that the transaction was genuine. Though the assessee's contention was that the creditworthiness of the creditor was also established, in this case, the establishment of the identity of the investor alone was to be seen. Thus, the addition was rightly deleted. 9.5. The Hon'ble Delhi High Court in the case of CIT vs. Dwarkadhish Investment P. Ltd., (ITA.No.911 of 2010) and Dwarkadhish Capital P. Ltd., (2011) 330 ITR 298 (Del.) held "In any matter, the onus of proof is not a static one. Though in section 68 of the Income Tax Act, 1961, the initial burden of proof lies on the assesses yet once he proves the identity of the creditors/share applicants by either furnishing their PAN number or income-tax assessment number and shows the genuineness of ....
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....f account payee cheques, they could not be said to be non-existent, even if they, after submitting the share applications had changed their addresses or had stopped functioning. Therefore, the Commissioner (Appeals) and the Tribunal were justified in holding that the genuineness of the transactions had been duly established by the assessee." 9.7. Hon'ble Delhi High Court in the case of CIT vs. Value Capital Services P. Ltd., (2008) 307 ITR 334 (Del.) in which it was held that "dismissing the appeal, that the additional burden was on the Department to show that even if the share applicants did not have the means to make the investment, the investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. No substantial question of law arose." 10. It may be noted here that investor companies have confirmed giving loans and advances to assessee--society who were having sufficient net worth to give loans/advances to assessee--society. Assessee filed I.T. returns, PAN, Bank Statements of investor Companies to prove that they are existing assessees of Department and are genuine parties. No efforts ....
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....firmations, bank statement, balance sheet, ITR etc., to prove genuineness of credits. The A.O. referred to assessment order for A.Y. 2008-2009 and his findings recorded therein. The assessee-society was asked to produce the creditors. In the absence of satisfactory explanation, the A.O. considered the loans and advances received from 11 parties as unexplained loans and addition of Rs. 1.20 crores was made against the assessee-society. It may be noted here that in this year A.O. made additions of unexplained loans and advances in respect of 11 parties, most of them were the same parties who have made investment in lender companies in A.Y. 2008-2009. 15. The above order was challenged before Ld. CIT(A). The assessee-society reiterated the same facts and relied upon several decisions in support of the contention that assessee-society proved identity of the creditors, their creditworthiness and genuineness of the transaction. The assessee-society filed copies of their confirmations, confirmed copy of the account, balance sheet, ITRs and bank statements of all the creditors and also explained that no cross-examination have been allowed to the statements relied upon by Assessing Offic....
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....idering the rival contentions, we do not find any merit in the Departmental appeal. The Ld. D.R. relied upon the order of the A.O. and also submitted that Ld. CIT(A) called for the remand report on examination of Shri S.K. Gupta and Shri Deepak Jain but they did not appear before A.O. at the remand proceedings. Therefore, addition was correctly made by the A.O. Learned Counsel for the Assessee however, reiterated the submissions made before the authorities below and submitted that Shri S.K. Gupta did not appear before A.O. at remand proceedings which would prove that assesseesociety has not been given right to cross-examine to his statement on behalf of the assessee-society. 17. After considering the rival contentions, we do not find any merit in the Departmental appeal. The A.O. reopened the case on the basis of findings given in A.Y. 2008-2009. In A.Y. 2008-2009, the Ld. CIT(A) deleted the addition and the Tribunal has also dismissed the Departmental appeal. The Ld. CIT(A) apart from following his order for A.Y. 2008-2009, also examined the identity, creditworthiness and genuineness of the transaction in the matter. The Ld. CIT(A) on examination of the evidence and material on....