TaxTMI 
TaxTMI 
2016 (10) TMI 1274
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....assed by the learned Assessing Officer (hereinafter called "the AO") u/s 143(3) of the Income-tax Act,1961 (Hereinafter called "the Act"). 2. The grounds of appeal raised by the assessee firm in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called "the Tribunal") read as under:- "1) On the facts and in the circumstances of the case the Learned Commissioner of Income (Appeals) [CIT(A)] erred in fact and in law in confirming the addition of Rs. 1.00 crore made by the Learned Assessing Officer alleging the loan taken by the appellant from one M/s Moxdiam, during the previous year relevant to A.Y.2007-08, as fictitious. 2) On the facts and in the circumstances of the case the learned CIT(A) erred in fact and in law in confirming the disallowance of interest of Rs. 93,000/- made by the Learned Assessing Officer on the alleged unproved/fictitious loan. 3) On the facts and in the circumstances of the case the learned CIT(A) erred in fact and in law in not adjudicating the disallowance of Rs. 25,000/- made out of sundry expenses by the Learned Assessing Officer. 4) On the facts and in the circumstances of the cas....
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...., Partner of Moxdiam and Mr. Ramesh Jain, Director of M/s. Morewel Impex Private Limited also confessed to the same, wherein it was admitted that main business of these entities was to provide accommodation bills and hawala entries and these entities were never involved in regular and commercial genuine businesses. The only remuneration which the business generated for these entities was by way of commission income which was received when the transactions of providing Hawala bills/ entries were effected with the parties. With respect to two parties who were beneficiaries of these accommodation transactions against whom survey action u/s 133A of the Act was also carried out namely M/s Combined Diamonds Limited and Stargems confessed to having entered into fictitious transactions with the above entities including Moxdiam and offered income of Rs. 1.80 crores and Rs. 2.25 crores for the assessment year 2007-08 to 2009-10 respectively. The partner of the firm M/s Moxdiam, Mr. Nitesh Jain vide letter dated 10- 07-2008 expressed that during the course of survey carried out u/s 133A of the Act on Moxdiam, certain books of accounts and loose sheets were impounded on 09-07-2008. It was s....
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....ly problems are over. It was submitted that the said party Moxdiam has sent fresh confirmation of account for the year ended 31-03- 2009 reconfirming dealing with the assessee together with copy of their bank statement of ING Vysya Bank for the period September 2008 to March 2009 to show the repayment made by the assessee which was duly credited in their bank account along with acknowledgment for filing of Return of Income by Moxdiam for assessment year 2008-09 and 2009-10. The AO issued detailed show cause notice to the assessee which was replied by the assessee wherein the afore-said contentions were reiterated by the assessee. The AO rejected the contentions of the assessee by holding that Moxdiam creditworthiness is not proved., its financial capacity and its business background is dubious. It was observed by the AO that the M/s Moxdiam is not carrying out any genuine business but was established to earn mere commission on its hawala dealings. The AO relied upon decision of Hon'ble Supreme Court in the case of CIT v. Durga Prasad More 82 ITR 540(SC), Hon'ble Calcutta High Court in the case of CIT v. Emerald Commercial Limited (2001) 250 ITR 539(Cal.) and ITAT, Delhi decision....
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....tly introducing their unaccounted income earned from undisclosed sources into their business, through accommodation entries from the aforesaid parties. Statement of Sh. Basant D. Jain, partner of Moxdiam, was recorded u/s 131 of the Act on 09- 07-2008, wherein he admitted that the aforesaid entities are providing hawala entries to various parties. This statement was further endorsed by Sh. Nitesh Jain, Partner of Moxdiam and Mr Ramesh Jain, Director of Morewel Impex Private Limited, wherein they admitted that the only income generated by them through this activity is by way of commission income. Consequent to survey action on these entities, two parties viz. M/s Combine Diamonds Private Limited and M/s Star Gems Private Limited admitted to fictitious transactions with M/s Moxdiam and offered for taxation unaccounted income of Rs. 1.80 crores and Rs. 2.25 crores for the assessment year 2007-08 to 2009-10. The assessee was asked to produce the partners of M/s Moxdiam for examination which the assessee could not produce before the AO during the assessment proceedings. However, the assessee submitted details of receipt and repayment of loan from Moxdiam, including copies of return of i....
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.... no bank loan or any other loan taken by Moxdiam which indicates that the loans have been paid by Moxdiam out of alleged creditors appearing in Balance Sheet. In response, the assessee submitted before the AO in Remand Report proceedings that the above loans were not an accommodation entries but genuine loan transactions duly reflected in bank accounts of both the parties and also recorded in books of accounts. The notices u/s 133(6) of the Act and summons u/s 131 of the Act were issued by the AO in remand report proceedings and in response Mr. Basant D. Jain, partner of Moxdiam appeared before the AO on 23/06/2011 and filed letter dated 22/06/2011 enclosing details of transaction of Moxdiam with the assessee, copy of ledger, bank statement and copy of acknowledgment of return of income filed for assessment year 2007-08, 2008-09 and 2009-10. The statement u/s 131 of the Act was recorded of Mr Basant D. Jain, partner of Moxdiam was asked to explain the source of loan wherein he replied that the monies were advanced to the assessee out of receivable i.e. debtors. It was observed by the AO that the loans were availed by the assessee in March 2007 which were repaid in September 2008....
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.... indicated that these entities were also engaged in providing accommodation entries and their bank accounts form a part of chain of movement of funds from one concern to another which is indicative of the circular movement of hawala entries through bank accounts of various entities, including the entries referred to above. The AO in remand report proceedings observed that the loan of Rs. 1.0 crores advanced by Moxdiam to the assessee is accommodation entry. The AO observed that : a) The affidavit of Sh Basant D. Jain retracting the earlier statement is dated 18/02/2011, which is about 2 years and 8 months after the survey action conducted on 07/07/2008. The averments in affidavit are clearly an afterthought and contradictory to facts and material on record and the facts that have emerged as a result of survey conducted by the Investigation wing. It was observed by the AO that the affidavit of Mr. Nitish Jain was not filed before the AO and hence the AO observed that no comments can be offered in this respect. b) The enquiries conducted during remand proceedings revealed that there is circular movement of funds between entities such as Moxdiam, Morwel Impex Priv....
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....,374/- and learned CIT(A) disbelieve the assertion/contention of the assessee that the loan of Rs. 1.0 crore was given by M/s Moxdiam to the assessee as the alleged lender did not had capacity to advance the loan of Rs. 1.0 crore to the assessee ( the total loan advanced being Rs. 5.14 crores as at 31-03-2007) as the said Moxdiam is not having genuine business and also the only source of income is commission income for arranging accommodation entries as the said Moxdiam does not have resources to advance loan of Rs. 1.0 crore to the assessee ( the total loan advanced being Rs. 5.14 crores as at 31-03-2007). The learned CIT(A) observed that the retraction has not been filed by the partners of M/s Moxdiam at the earliest which is filed after 2 years and 8 months which confirms that Moxdiam is engaged in business of arranging accommodation entries for commission for its clients.The admission made by Mr. Basant D. Jain on 09-07-2008 was confirmed by Sh. Nitesh T.Jain on 09-07-2008. The admission was also confirmed by Director of associate company M/s Morewel Impex Private Limited, Sh Ramesh Jain on 09-07- 2008.Thereafter, Sh. Nitesh Jain, Sh Basant D. Jain and Sh. Ramesh Jain again con....
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....y a meager sum of Rs. 2,83,409/- of Rising Star and Rs. 3,70,874/- of Seven Star Jewels. These entities have shown huge credits in their books to the tune of Rs. 17.36 crores and Rs. 53.19 crores respectively to create an illusion that these entities have the necessary funds from which it give loan to the assessee which was utilized by the assessee for repaying the loan to Moxdiam. Thus, it was held by the learned CIT(A) that the loan of Rs. 1.0 crore given by Moxdiam to the assessee is not a genuine transaction. The learned CIT(A) further observed that admission of the partners of Moxdiam during survey can be relied upon to fasten liability on the assessee and nothing further need to be proved by the Revenue relying on several case laws as mentioned in his appellate orders. The assessee having failed to prove that the admission made by the partners of M/s Moxdiam was not true and was not made voluntarily. The retraction was after a gap of 2 years 8 months which has no evidentiary value and deserves to be rejected out-rightly. Thus, the learned CIT(A) confirmed the action of the AO and dismissed the appeal of the assessee vide appellate orders dated 30.11.2011. 8. Aggrieved by t....
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....ssee also brought to our attention Affidavit of Mr. Basant D. Jain dated 18-02-2011 whereby he retracted from his statements given to the department that Moxdiam was engaged in giving accommodation entries, the said affidavit is placed in paper book page 99-102. The learned counsel for the assessee drew our attention to page 392/pb whereby vide question no 9 vide statement recorded of Mr. Nitesh Jain under oath u/s 131 on 07-07- 2008, he was asked to produce the books of accounts of Moxdiam and he stated that the books of accounts were with accountant of the firm who has not come. It was submitted that loan of Rs. 1.0 crore raised by assessee from Moxdiam was duly paid back to Moxdiam by the assessee from September 2008 to March 2009 and confirmation is placed on record at page 79/Pb from Moxdiam along with bank statement of the assessee at page 80-82/Pb. Our attention was also drawn to statement of Sh. Basant D Jain, partner Moxdiam dated 23-06-2011 which was recorded during the course of assessment proceedings of the assessee whereby in reply to question no 8, it was answered that money was advanced by Moxdiam from the receivables i.e. from debtors. Our attention was also drawn t....
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.... 6- 7/written submission and it was submitted that the said Moxdiam was allegedly engaged in alleged accommodation entries related to sale and purchase of material and not of loans as were granted to the assessee.The assessee relied on decision of Mumbai Tribunal in ACIT v. G V Sons, ITA No. 2239-40/Mum/2012 dated 05-12-2014 and our attention was drawn to para 17 whereby transaction of the tax-payer G V Sons with Moxdiam was held not to be sham transaction and the Tribunal upheld decision of the learned CIT(A) in deleting the addition made by the AO. It was submitted that bald statement has been made by the AO and loan transactions were held to be not genuine. Our attention was drawn to page 8-9/written submissions whereby it was submitted that learned CIT(A) ignored that M/s Moxdiam has debtors of Rs. 10 crores from which as stated by Mr. Basant D. Jain, partner of Moxdiam loan of Rs. 1.0 crore had been given to the assessee. It was submitted that there is no requirement to prove source of source of loan. The assessee relied upon decision of Orient Trading Company Limited v. CIT (1963) 49 ITR 723(Bom. HC) that the tax-payer has not to prove the source of source of loan. The assess....
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....9 of Income-Tax (Appellate Tribunal) Rules, 1963 wherein additional evidences are submitted before the Tribunal and prayer is made for admission of these additional evidences which are mainly in the form of MVAT audit report of Moxdiam, Rising Star and Seven Star Jewels, income-tax assessment orders of lenders, and also details of sources to advance loans by these entities, page 291-356 of paper book.The assessee has prayed that these additional evidences are produced before the Tribunal for the first time as the same has got direct bearing on the issues involved in the present appeal as the same are important to establish and substantiate the merits and genuineness of the case. It was submitted that the same were called upon to substantiate arguments put forward in remand proceedings, which had been rejected without any explanation sought for. The learned counsel submitted that certain documents viz. assessment orders, IT returns of the lenders for the relevant assessment years were already available with Income-tax department. It was submitted that these additional evidences filed for the first time before the Tribunal goes to the root of the matter in establishing the merits of ....
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....tood proved. The learned DR relied upon the decision of Hon'ble Delhi High Court in the case of CIT v. N R Portfolio Private Limited (2014) 42 taxmann.com 339(Delhi). The ld DR relied upon the orders of the authorities below and also opposed the admission of additional evidences filed by the assessee. The learned counsel for the assessee on the other hand submitted in rejoinder that there was retraction within a month by Nitish T. Jain, whereby he drew our attention to an affidavit dated 22.08.2008 executed by Mr. Nitesh T. Jain wherein he confirmed and affirmed that they are not involved in providing accommodation entries and other mal practices albeit the same was filed for the first time before learned CIT(A) as additional evidence u/r 46A of the Income-tax Rules, 1962 on 24-02-2011. It was submitted that partners of Moxdiam has provided list of beneficiaries of accommodation entries granted by them and name of the assessee did not figure in the said list. The source of the loan of Rs. 1.0 crores stood explained by the assessee. It was submitted that the partner of the said firm Moxdiam appeared before the AO in remand proceedings while in the case of N R Portfolio(supra) non....
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....o credited may be charged to income-tax as the income of the assessee of that previous year." Section 68 of the Act cast obligation on the tax-payer where any sum is found credited in the books of an tax-payer maintained for any previous year, and the tax-payer offers no explanation about the nature and source of credit thereof or the explanation offered by the tax-payer is found not satisfactory in the opinion of the AO, the sum so credited may be treated as income and charged to income-tax as income of the tax-payer of that previous year. The burden/onus is cast on the tax-payer and the tax-payer is required to explain to the satisfaction of the AO cumulatively about the identity, creditworthiness of the creditors along with the genuineness of the transaction to the satisfaction of the AO. All the constituents are required to be cumulatively satisfied. If one or more of them is absent, then the AO can make the additions u/s 68 of the Act as an income. The burden is very heavy on the assessee to satisfy cumulatively the ingredients of Section 68 of the Act as to identity and establish the credit worthiness of the creditors and genuineness of the transaction to the satisfaction ....
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.... the Act during survey operations and also during post survey enquiries conducted by Revenue that the said firm M/s Moxdiam is engaged in the business of providing accommodation bills and accommodation entries on commission basis. It is also confessed / admitted by the partners of M/s Moxdiam in the statement recorded on oath u/s 131 of the Act that they are persons of meager financial means/resources and several bank accounts were opened by Moxdiam to provide accommodation bills and accommodation entries to various parties in lieu of commission income. The learned counsel for the assessee had stated before us that the admission of the partners of the firm M/s Moxdiam is restricted to providing of accommodation bills for purchase and sale invoices of diamonds and it cannot be extended towards accommodation entries of the nature of loans' as are extended by Moxdiam to the assessee. We are afraid that this contention of the assessee cannot be accepted as it is admitted by partners of Moxdiam that the firm is engaged in providing accommodation entries and accommodation bills in lieu of commission income and we cannot give a hyper technical restricted meaning to the words of the partne....
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....astructure as are necessary for carrying on business of diamond trade are appearing in Balance Sheet of Moxdiam as at 31-03-2007. On being asked by the Revenue officers of survey team, no proper explanation was submitted by the partners of Moxdiam and rather evasive replies were given by them. It was confessed/admitted by the partners of the Moxdiam that import of diamond were made at the behest of importers and the said importers take the imported diamond immediately on the date of import itself against cash payments without any bills / invoices in a clandestine manner,and thereafter bogus accommodation bills are issued to fictitious buyers to square the imported quantities of diamond over a period of next 7-8 days and in this process circuitous and circular cash transactions took place in lieu of cheques from the persons to fictitious buyers to whom accommodation sale invoices are issued wherein actual importer gives cash for diamonds without invoices and the beneficiaries of accommodation invoices for sales give cheques in lieu of receipt of cash from the Moxdiam etc which cheque remittances are utilized by Moxdiam for making remittance for imports and so on, wherein the interes....
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....-2011 before learned CIT(A) and in any case in the finalized and accepted assessment of Moxdiam u/s 143(3) read with Section 147 of the Act vide assessment orders dated 12- 03-2010 for assessment year 2007-08 (page 213-217/pb), the afore-stated retractions of the partners were rejected by Revenue and assessment was framed in the hands of Moxdiam by bringing to tax commission income on these accommodation entries and accommodation bills provided by Moxdiam to various clients which attained finality in the hands of Moxdiam as it did not chose to file any appeal against said assessment order dated 12-03-2010 passed u/s 143(3) read with Section 147 of the Act(page 213-217/pb). The perusal of Balance Sheet of Moxdiam as at 31-03-2007(page 58/pb) also reveals that there is a meager capital contribution by the partners of Rs. 1,00,000/- while partner current account is deficit being (-) 12,02,376/- (rather the capital contribution by partners in Moxdiam keeping in view current account deficit is negative/deficit ) and the major outstanding amounts in Balance Sheet is sundry debtors of Rs. 10,40,12,857/-, sundry creditors are to the tune of Rs. 16,29,83,032/- and loans and advances are to ....
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....oans from Rising Star and Seven Star Jewels to repay loans to Moxdiam. The financial statements of the said concerns for the year ended 31-03-2009 also reveal similar pattern as of Moxdiam that the said concerns also have meager financial investment by their proprietors' and there are huge sundry debtors and creditors reflected in their accounts, no loans raised and huge loans being raised out of recoveries from Debtors(page 243,268/pb) and did not prove their financial capacity to lend to the assessee and also genuineness of the loan granted to the assessee by these concerns did not stood proved. We have gone through all the evidences submitted w.r.t. these two concerns including additional evidences filed before the Tribunal but in our considered view these two concerns who are also incidentally based in Surat does not have financial capacity to grant these loans nor genuineness of the loans stood proved. Moxdiam was surveyed u/s 133A of the Act by Revenue on 07th July 2008 wherein admissions were made by partners of Moxdiam as to Moxdiam being an entity engaged in providing accommodation bills and accommodation entries, while repayment of loan from the assessee to Moxdiam starte....
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....the nature and source thereof. The AO can go to enquire/investigate into truthfulness of the assertion of the assessee regarding the nature and the source of the credit in its books of accounts and in case the AO is not satisfied with the explanation of the assessee with respect to establishing identity and credit worthiness of the creditor and the genuineness of the transactions, the AO is empowered to make additions to the income of the assessee u/s 68 of the Act as an unexplained credit in the hands of the assessee company raising the share capital because the AO is both an investigator and adjudicator. The said statements so recorded of the partners of Moxdiam were retracted by the partners later on after almost 2 years and 8 months ( as the retraction of Mr Nitesh T Jain dated 22.08.2008 is not on record with Revenue at that stage ) which in our considered view keeping in view the entire background of Moxdiam and preponderance of human probabilities, the retraction of partners appears to be an afterthought which is for an obvious reasons is to safeguard the assessee, while on the other hand in its own assessment framed by the Revenue, the Moxdiam accepted to be assessed with a....
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....e in details, we are of considered view that the capacity of lender M/s Moxdiam to grant loan and genuineness of the said loan transaction of Rs. 1.0 crore is not proved by the assessee, as in our considered view based on the financial statements of Moxdiam as at 31-03- 2007 it does not have the financial capabilities to grant loans of the magnitude of Rs. 1.0 crore to the assessee( the total loan advanced by Moxdiam as at 31-03-2007 stood at Rs. 5.14 crores). Now, we shall deal with the case laws referred to by the assessee as under: a) Kataria Ketan Ishwarlal v. ITO (ITA no. 4304/Mum/2007)- Mumbai ITAT- This case was decided on its own facts wherein it was observed that Mr Mukesh Choksi facilitated number of parties by issuing bogus capital gain bills but in his statement recorded on 26- 04-2002, Mr Mukesh Choksi confirmed to have issued bogus bills of share transactions and charged commission but it was contended that Mr Mukesh Choksi did not mention the name of the assessee being beneficiary of accommodation entries. The tax-payer in the said case duly furnished all other relevant evidentiary material before the AO to substantiate that sale of share undertaken by hi....
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....e financial statements of Moxdiam does not support the capacity of Moxdiam to lend such a huge sum of money as loan to the assessee, and under these circumstances then the burden got shifted to assessee to prove vide cogent evidences that the apparent is real and is not merely smoke screen to introduce assessees' own money by this apparent loan transaction. d) CIT v. Orissa Corporation Private Limited, (1986) 159 ITR 78(SC)-In this case the tax-payer 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 of the Act 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 tax-payer could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged ....
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....ished identity of persons with complete details of addresses and the FD applications showing details. While in the instant case before us support the proposition of Revenue as they have doubted the capacity of lender Moxdiam to lend loan of Rs. 1.0 crore to the assessee as well genuineness of the transaction was doubted by Revenue owing to statements of partners of Moxdiam admitting indulging in accommodation entries and accommodation bills as well the financial statements of Moxdiam does not support the capacity of Moxdiam to lend such a huge sum of money as loan to the assessee, and under these circumstances then the burden got shifted to assessee to prove vide evidences that the apparent is real and is not merely smoke screen to introduce assessees' own money by this apparent loan transaction. g) CIT v. Kapoor Chand Mangesh Chand (2013) 218 Taxman 157 (All.) (Mag.)- In this case, there was no admission by the tax-payer therein that they were involved giving bogus/accommodation entries. From the facts found by the authorities, it was clear that the amount of loan was advanced through the account payee cheques and PANs were also furnished. The amount has been repaid throu....
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....s they have doubted the capacity of lender Moxdiam to lend loan of Rs. 1.0 crore to the assessee as well genuineness of the transaction was doubted by Revenue owing to statements of partners of Moxdiam admitting indulging in clandestine accommodation entries and accommodation bills as well the financial statements of Moxdiam does not support the capacity of Moxdiam to lend such a huge sum of money as loan to the assessee, and under these circumstances then the burden got shifted to assessee to prove vide cogent evidences that the apparent is real and is not merely smoke screen to introduce assessees' own money by this apparent loan transaction. j) CIT v. Jai Kumar Bakliwal (2014) 366 ITR 217(Raj. HC) -In this case also the tax-payer discharged its primary burden as cast u/s. 68 of the Act whereby identity, creditworthiness and genuineness of the transaction stood proved. Now, the burden shifted to Revenue to prove the contrary and the tax-payer cannot be asked to prove source of source of the creditor. While in the instant case before us support the proposition of Revenue as they have doubted the capacity of lender Moxdiam to lend loan of Rs. 1.0 crore to the assessee as w....
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.... the capacity of Moxdiam to lend such a huge sum of money as loan to the assessee, and under these circumstances then the burden got shifted to assessee to prove vide cogent evidences that the apparent is real and is not merely smoke screen to introduce assessees' own money by this apparent loan transaction m) CIT v. S.Khader Khan Son-(2012) 352 ITR 480(SC)- In this case, the Hon'ble Supreme Court held that Section 133A of the Act does not empower Revenue officers to examine any person on oath and hence statement recorded u/s 133A of the Act has no evidentiary value and any admission made during such statement cannot be the basis of addition. While in the instant case before us support the proposition of Revenue as they have doubted the capacity of lender Moxdiam to lend loan of Rs. 1.0 crore to the assessee as well genuineness of the transaction was doubted by Revenue owing not only to statements of partners of Moxdiam admitting indulging in accommodation entries and accommodation bills but the financial statements of Moxdiam also does not support the capacity of Moxdiam to lend such a huge sum of money as loan to the assessee, and under these circumstances then the burde....
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.... for not swallowing that story. If that story is found to be unbelievable as the Tribunal has found, and in our opinion rightly, then the position remains that the consideration for the sale proceeded from the assessee and, therefore, it must be assumed to be his money. 10. It is surprising that the High Court has found fault with the Income-tax Officer 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. 11. 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 assessment year 1942-43, in the absence of any satisfactory explanation, is undoubtedly a circumstance which the taxing authorities were entitled to take into consideration. 12. Now, coming to the grounds that commended thems....
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....the order of the Tribunal and, therefore, the High Court was not justified in directing the Tribunal to state a case and we are further of opinion that the answer given by the High Court to the question referred to it is unsustainable. We, accordingly, discharge that answer and answer that question in the affirmative and in favour of the department. The assessee shall pay the costs of the department both in this court as well as in the High Court-hearing fee one set." Thus it is for the assessee to prove that apparent is real by bringing on record cogent material as the Revenue has brought on record that Moxdiam is engaged in the business of providing accommodation entries and accommodation bills and Moxdiam is assessed as an accommodation entry/bill provider whereby the firm Moxdiam was smoke screen for providing fictitious entries and also its financial capabilities to grant the loan to the tune of Rs. 1.0 crore to the assessee the total loans being advance to the tune of Rs. 5.14 crores existing as at 31-03-2007 is under clout and transactions are dubious in nature. The assessee having failed to discharge its burden as once revenue doubts the transactions with incrimina....
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....and assessed the income of the appellant on that basis. The appeals filed by the appellant against the assessment orders were disposed of by the AAC by order dated 12-12-1975 whereby the assessment of Rs. 3,11,831 as income under the head 'Income from other sources' for the assessment year 1971-72 and Rs. 93,500 for the assessment year 1972-73 was confirmed. The appeals filed against the said order before the Tribunal were withdrawn by the appellant under section 245M(2) of the Income-tax Act, 1961 ('the Act'), and on 6-8-1976 she moved the application giving rise to this appeal, before the Settlement Commission wherein the appellant stated that she was agreeable to a reasonable addition on a reasonable basis should the Commission hold that the drawings of 1970-71 and 1971-72 were not adequate for purchase of Jackpot tickets, other expenses in connection with the races and losses, if any, estimated by the Settlement Commission to have been sustained by the appellant. On the said application, the Commissioner submitted his report dated 29-1-1977 wherein he urged that the action of the department in taxing the entire winnings as income from undisclosed sources should ....
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.... of this Court in Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532 ; Sreelekha Banerjee v. CIT [1963] 49 ITR 112; and CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78. Shri J. Ramamurthy, the learned senior counsel appearing for the revenue, has supported the majority view and has submitted that having regard to the facts and circumstances of the case the receipts claimed to be winnings from races were income from other sources and that no case is made out for interference by this Court in appeal under article 136 of the Constitution. 4. It is no doubt true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee - Parimisetti Seetharamamma's case (supra) at p. 536. But, in view of section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year the same may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the as....
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....of such winnings had provided scope for conversion of 'black' money into 'white' income. The said exemption from tax available in respect of such winnings during the assessment years 1971-72 and 1972-73. 8. During the year 1970-71 (pertaining to the assessment year 1971-72) between 6-4-1970 to 20-3-1971, the appellant claims to have won in horse races a total amount of Rs. 3,11,831 on 13 occasions out of which 10 winnings were from Jackpots and 3 were from Treble events. Similarly, in the year 1971-72 the appellant won races on 2 occasions and both the times winnings were from Jackpot. In her sworn statement dated 6-1- 1973, the appellant had stated that she started going for races from the end of 1969 and that she first won Jackpot on 12-12- 1969 on the first day she went to races. The appellant also stated that she worked out the combination on the basis of what her husband advised her but she used to add a few horses of her own although she admitted that she did not know anything about the performance of these horses before December 1969. As regards her husband, the appellant stated that he won once in Calcutta and once in Madras and he had similar wins ....
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....uld not give up an activity yielding or likely to yield a large income merely because the income would suffer tax. The position would be different, however, if the claim of winnings in races was false and what were passed off as such winnings really represented the appellant's taxable income from some undisclosed sources. 10. The majority opinion concludes that it would not be unreasonable to infer that the appellant had not really participated in any of the races except to the extent of purchasing the winning tickets after the events presumably with unaccounted funds. 11. The Chairman of the Settlement Commission, in his dissenting opinion, has laid emphasis on the fact that the appellant had produced evidence in support of the credits in the form of certificates from the racing clubs giving particulars of the crossed cheques for payment of the amounts for winning of Jackpots, etc. The Chairman has rejected the contention regarding lack of expertise in respect of the appellant and has observed that the expertise is the last thing that is necessary for a game of chance and anybody has to go and call for five numbers in counter and obtain a Jackpot ticket and t....
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....stances, no case is made out for interference with the order passed by the Settlement Commission. The appeals, therefore, fail and arc accordingly dismissed with costs." Thus it is for the assessee to prove that apparent is real by bringing on record cogent material as the Revenue has brought on record that Moxdiam is engaged in the business of providing accommodation entries and accommodation bills and Moxdiam is assessed as an accommodation entry/bill provider whereby the firm Moxdiam was smoke screen for providing fictitious entries and also its financial capabilities to grant the loan to the tune of Rs. 1.0 crore to the assessee the total loans being advance to the tune of Rs. 5.14 crores existing as at 31-03-2007 is under clout and transactions are dubious in nature and also conduct is not supported on the touchstone of human probabilities that men of meager means having deficit/debit capital contribution of their own in Moxdiam can grant huge loans to the tune of Rs. 5.14 crores and that too without any security/guarantees as nothing is brought on record by the assessee that these loans so raised were secured loans. The assessee having failed to discharge its burden ....
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....bstantial question of law was framed in the two appeals:- "Whether the Income Tax Appellate Tribunal was right in deleting the additions of Rs. 63,80,100/- and Rs. 75,60,200/- in respect of Assessment Years 2002-03 and 2003-04 under Section 68 of the Income Tax Act, 1961 and whether the decision of the Tribunal is perverse?" 5. The respondent-assessee is a private limited company and for the assessment years 2002-03 and 2003-04 had filed returns declaring income of Rs. 11,566/- and 18,720/-, respectively. These returns were processed under Section 143(1) of the Act. Subsequently, reassessment proceedings were initiated under Section 147/148 of the Act on the basis of information received from the Investigation Wing that the assessee was one of the beneficiaries, who had procured share application money from entry providers. Assessment proceedings under Section 147/148 of the Act in the two years were initiated by issue of notices on 28th November, 2006. The notices were received back unserved and subsequently were served by affixture at the last known address i.e., the address given in the returns. The assessee, however, did not appear in response to the said noti....
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....ring to the details/contents of the assessment orders subsequently. 8. The respondent-assessee, however, preferred appeals and substantially succeeded on merits before the Commissioner of Income Tax (Appeals) but did not succeed in their challenge to reopening under Section 147/148 of the Act or on the question of service of notice. 9. Two cross appeals were preferred before the tribunal by the Revenue and the respondent-assessee for the two assessment years but the same have been dismissed by the impugned order dated 29th October, 2010. The reasoning given by the tribunal is that the respondent-assessee had furnished Permanent Account Number (PAN) of the share applicants except with regard to the share capital of Rs. 4,50,000/- and before the Commissioner (Appeals), the assessee had also submitted various details and documents to establish identity of the investors/share applicants. The impugned order in paragraph 6 refers to and quotes several paragraphs from the order passed by the Commissioner (Appeals) and in paragraph 7 refers to the observations made by the Commissioner (Appeals). Thereafter, in paragraph 8 it is recorded that the tribunal had gone through ....
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....ication on the part of the appellant to either raise the issue of non- service of notices or improper procedure of substituted service and accordingly, I hold that the impugned assessment is in order. The contentions of the appellant company that the impugned assessment has been framed without looking into the contentions of the appellant has also not found favour with me as despite knowing fully well that the assessment shall be time barred as on 31-12-2007, the AR chose to sent the details through post which were received by the assessing officer on 18-12-2007 whereas the impugned order us passed on 17-12-2008. Otherwise too, during the present proceedings, the assessing officer submitted a remand report wherein the appellant has not been given an opportunity to put forth its view points and on which rejoinder has also been filed which means that the principle of natural justice has been adhered to and hence contention of the Ld. AR needs rejection." 11. Other findings recorded by the Commissioner (Appeals) refers to the remand report which was called from the Assessing Officer stating that notice under Section 148 was sent at the last known address i.e., F-280,....
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.... not been disturbed by the tribunal. However, this fact and the conduct of the respondent before the Assessing Officer was not noticed and given adequate reference while dealing with the question of deletion of addition on merits. 13. The Assessing Officer is both an investigator and an adjudicator. When a fact is alleged and stated before the Assessing Officer by an assessee, he must and should examine and verify, when in doubt or when the assertion is debatable. Normally a factual assertion made should be accepted by the Assessing Officer unless for justification and reasons the assessing officer feels that he needs/requires a deeper and detailed verification of the facts alleged. The assessee in such circumstances should cooperate and furnish papers, details and particulars. This may entail issue of notices to third parties to furnish and supply information or confirm facts or even attend as witnesses. The Assessing Officer can also refer to incriminating material or evidence available with him and call upon the assessee to file their response. We cannot lay down or state a general or universal procedure or method which should be adopted by the assessing officer when ve....
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....erifying or referring to the facts. 15. In the present case, the undisputed position is that the respondent had received share application money of Rs. 68,30,100/- and Rs. 75,60,200/- in the Assessment Years 2002-03 and 2003-04 respectively. For the Assessment Year 2002-03, the Assessing Officer had taken the share application money received in the year as Rs. 1,20,34,100/-, which included Rs. 32,80,000/- and Rs. 19,24,000/- related to previous years or was the opening share capital. As noted above, addition of Rs. 4,50,000/- has been sustained in the Assessment Year 2002-03. Thus, the Commissioner (Appeals) and the tribunal have deleted additions of Rs. 63,80,100/- and Rs. 75,60,200/- in the two assessment years. Before the Commissioner (Appeals), the respondentassessee had furnished name of the share applicants which mostly consisted of companies. It was accordingly submitted that the respondent had been able to establish identity of the shareholders, their creditworthiness and also genuineness of the transaction as the payments were received through banking channels. Thus, the respondent had discharged the primary onus and there was no evidence or material to show that ....
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....at showed substantial deposit of cash in the bank accounts and subsequent issue of cheques to the beneficiaries. This was the only activity of these companies/persons. The said companies/persons were not carrying on any other business activity i.e., manufacturing or trading activity. The assessment order has quoted and referred to the bank account statements in support of the said assertion and finding. The Assessing Officer has mentioned that the respondent-assessee was a private limited company, closely held and there should be proximate relationship between the promoter directors and the shareholders. Closely held companies usually receive share capital subscriptions from friends, relatives and not from unrelated/ unknown third parties/ general public. There was no relationship or connection between the subscribers and the respondent-assessee, for subscribers to become investors. Assessment order records that to establish identity and availability of funds, it was necessary to have at least some idea if not complete details of the actual business undertaken and engaged in by the respondent-assessee and explained how and why these unrelated and unconnected third parties decided t....
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.... transactions. 20. Vicky Chaurasia, additional director of the respondent company was asked to appear before the Assessing Officer pursuant to the letter by the Commissioner (Appeals) directing the Assessing Officer to go through the submissions and submit a report after carrying out necessary inquiries. He was asked to produce books of accounts and evidence in support. By letter dated 12th October, 2009, the respondent-assessee was asked to furnish details/information. These included details of dividend paid to the shareholders and to show and establish creditworthiness of the parties. Statement of Vicky Chaurasia recorded under Section 131 of the Act dated 5th November, 2009 has been placed on record by the respondent in ITA No. 1019/2011. He has stated that he along with Sandeep Chaurasia had been directors of the company since June, 2003 and the company was engaged in investment and finance, but he could not give details of the subscribed share capital of Rs. 2 crores as it was stated that this was before he became the director. He could not also give details of how share capital got subscribed in a private limited company. Specific question was put to him regarding ve....
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....ut merit as we notice that the order of the Commissioner (Appeals) is dated 1st October, 2010, i.e., much after the date 17th November, 2009 and 7th November, 2009. A wrong year was mentioned in the earlier summons dated 23rd October, 2009. It was only a typographical error and a response or reply from the shareholder would have been sufficient. Further, in the case of 22 parties, the summons were received back undelivered/unserved. 23. The contention that the Revenue must have evidence to show circulation of money from the assessee to the third party is fallacious and has been repeatedly rejected, even when Section 68 of the Act was not in the statute. In A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807 (SC), Supreme Court observed that it was not the duty of the Revenue to adduce evidence to show from what source, income was derived and why it should be treated as concealed income. The assessee must prove satisfactorily the source and nature of cash received during the accounting year. Similarly observations were made in CIT v. M. Ganapathi Mudaliar [1964] 53 ITR 623 (SC), inter alia holding that it was not necessary for the Revenue to locate the exact source. This pri....
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.... 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 counterproductive 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 objective and fair approach/determination is required. Thus, no assessee should be harassed and harried but any dishonest façade and smokescreens which masquerade as pretence should be exposed and not accepted. 25. In Lovely Exports Ltd. (supra), a Division Bench examined two earlier decisions of this court in CIT v. Steller Investment Ltd. [1991] 192 ITR 287/59 Taxman 568 (Delhi) and CIT v. Sophia Finance Ltd. [1994] 205 ITR 98/[1993] 70 Taxman 69 (Delhi) (FB). The decision in Steller Investment's case (supra) was affirmed by the Supreme court but, by observing that the conclusion was on the facts and no interference was called for. Lovely Exports Ltd. (supra) was a case of publ....
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....atutory 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 treat the subscribed capital as the undisclosed income of the Company.... ** ** ** ....Once material to prove these ingredients are produced it is for the Assessing Officer to find out as to whether, on these materials, the assessed has succeeded in establishing the ingredients mentioned above. The Assessing Officer `lift the veil' and enquire into the real nature of the transaction. CIT v. Ruby Traders and Exporters Ltd. [2003] 263 ITR 300 (Cal.), CIT v. Nivedan Vanijya Niyojan Ltd. [2003] 263 ITR 623 (Cal.) and CIT v. Kundan Investment Ltd. [2003] 263 ITR 626 (Cal.) are the other three. In this analysis, a dis....
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.... 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 providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre-meditated plan - a smokescreen - conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec.68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded ha....
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.... 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 company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, identity are deeper and obtrusive. Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who run and manage the said companies. It is the persons behind the company who take the decisions, controls and manage them. 31.....
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....plain and writ large. 32. In view of the aforesaid discussion the substantial question of law framed in the two appeals is answered in favour of Appellant-Revenue and against the Respondent- assessee. The appeal is accordingly allowed to the extent indicated above. The Appellant is also entitled to costs which is assessed at Rs. 20,000/-." In the case of N R Portfolio Private Limited(supra) the Hon'ble Delhi High Court held that the Court is conscious of a view taken in some of the previous decisions that the tax-payer cannot be faulted if the share applicants do not respond to summons and that the revenue authorities have the wherewithal to compel anyone to attend legal proceedings. However the Court held that is merely one aspect. An tax-payer's duty to establish that the amounts which the Assessing Officer propose to add back under section 68 are properly sourced does not cease by merely furnishing the names, addresses, PAN particulars and entries in Registrar of Companies website. One must remember that in all such cases the company is a private one and share applicants are known to it, since they are issued on private placement or even on request basis. If th....