TaxTMI 
TaxTMI 
TaxTMI 
2016 (10) TMI 1274
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....inafter 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 case the Learned CIT(A) erred in fact and in law in confirming the addit....
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....ited 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 submitted by said Mr. Nitesh Jain that statement of Mr. Basant D. Jain was recorded u/....
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....09 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 in the case of DCIT v. Smt. Phoolwati Devi(2009) 314 ITR AT 1(Delhi). Hence, the AO made addition of sum of Rs. 1,00,00,000/- found cr....
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....said 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 income filed by Moxdiam, bank statement, present address of lender etc.. Since the assessee could not produce the partners of Moxdiam and c....
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....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 to March 2009. The AO in remand proceedings issued notices u/s 133(6) of the Act to ICICI Bank to furnish copies of bank statement of the assesseee to verify repaym....
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....n 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 Private Limited, M/s Rising Star and M/s Seven Star Jewels. These entities are situated at Surat, have meager capital and had no borrowed funds while sundry debtors and creditors are....
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.... 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 confirmed in their statement recorded on 18.07.2008 and 07.08.2008 that the firm M/s Moxdiam and the M/s Morewel Impex Private Limited had indulged in the activity of giving Hawala bills (accommodation entries) to vari....
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....ate 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 the appellate orders dated 30.11.2011 of the learned CIT(A), the assessee filed second appeal before the Tribunal. 9. The learned counsel for the assessee reiterated the submissions as were made before the authoriti....
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....ffidavit 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 to question no 9 whereby he answered that he confessed under pressure that the firm was doing accommodation entries which he retracted afterwards (page 441-442/pb). Our attention was also drawn to Remand Report prepare....
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....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 assessee also relied upon decision of CIT v. Orissa Corporation Private Limited (1986) 159 ITR 78(SC) and submitted that once loan confirmations are filed, the burden of the assessee is discharged. The assessee submitted th....
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....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 the case and genuineness of the case of the assessee and the same may be admitted in the interest of justice and fair play. The assessee relied upon the decision of Hon'ble Bombay High Court in the case of Smt Prabhava....
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....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) none appeared before the AO. 10. We have heard the rival contentions and perused the material on record including the orders of the authorities below, written submissions of the assessee, case laws relied upon by both the....
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....us 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 of the AO, otherwise the AO shall be free to proceed against the assessee company and make additions u/s 68 of the Act as unexplained cash credit. The use of the word 'any sum found credited in the books ' in Section 68 indicates that it ....
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....so 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 partners recorded in the statement as the partners clearly stated and meant that the firm M/s Moxdiam is engaged in activities of providing accommodation entries and accommodation bills to various parties and hair splitting by giving hyper techn....
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.... 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 interest of Moxdiam is limited to the commission income on these accommodation entries as Moxdiam was merely name lender to this fictitious and clandestine trade in diamonds. The assessment in the case of Moxdiam was finalized by Revenue post sur....
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....tated 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 the tune of Rs. 5,14,54,247/- while loans raised by Moxdiam are Nil, stock of diamond held is nil, fixed assets held being only Computer of Rs. 23,800, which is backed by admission of the partners of Moxdiam vide statement on oath recorded....
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....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 started from September 2008 and ended on March 2009. The assessee was issued notices u/s 143(2) of the Act by Revenue for the first time on 06-08-2008 for the impugned assessment year in which the assessee raised the loan of Rs. 1.0 crore from M....
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....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 an commission income based on the contention of the Revenue that Moxdiam is engaged in providing clandestine accommodation bills and accommodation entries which order of assessment dated 12-03-2010 passed by Revenue u/s 143(3) read with Sec....
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....tements 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 him is genuine. The said case was decided in favour of the tax-payer, but in the instant case before us however, the assessee is not able to prove the capacity of lender M/s Moxdiam to grant loan of Rs. 1.0 crore to the assessee and also genuinenes....
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....l 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 the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such could arise was th....
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....ll 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 through account payee cheques and the lenders has sufficient funds in their bank accounts not by cash deposited on the preceding date or when the cheques were issued by the money lenders. While in the instant case before us support the proposition of Revenue as they have doubted the cap....
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.... 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 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 t....
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....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 burden got shifted to assessee to prove vide coget evidences that the apparent is real and is not merely smoke screen to introduce assessees' own money by this apparent loan transaction Now, we will analyze the case laws relied upon by Revenue/ Ld. DR a) CIT v. Durga Prasad More (1971) 82 ITR 540(SC) - In this case t....
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....he 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 themselves to Mukharji J. (the present Chief 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 Income-tax Officer, Appellate Assistant Commissioner and the Tribunal proceeded on the ba....
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....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 incriminating material on record, the onus shifts back to prove that apparent is real. 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 a....
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....e 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 be upheld inasmuch the appellant lacked any knowledge of race techniques and the theory of probabilities precluded any systematic and continuous winnings at races on as many as 16 occasions during a period of less than two years. In his report, the Commissioner also submitted that the books of account did not indicate the expenditure, on travel and other incidental expenses which had been incur....
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....ncome 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 assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut, the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the department cannot, h....
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....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 also. The appellant had also stated that she had not gone to races in 1972. The appellant admitted that she had been buying Jackpot tickets of the value of Rs. 2,000, Rs. 1,400 and even tickets for Rs. 3,000 have been bought and that on the first day she won the Jackpot she purchased a Jackpot combination ticket for approximately Rs. 2,500 and that on 8- 11-1970 she had bought two combinations, each for about Rs. 2,000. The appellant a....
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.... 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 that books containing information are available which are quite cheap. 12. This, in our opinion, is a superficial approach to the problem. The matter has to be considered in the light of human probabilities. The Chairman of the Settlement Commission has emphasised that the appellant did possess the winning ticket which was surrendered to the Race Club and in return a crossed cheque was obtained. It is, in our view, a neutral circumstance, because if the appellant had purchased the....
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....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 as once revenue doubts the transactions with incriminating material on record, the onus shifts back to prove that apparent is real. 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 sta....
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.... 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 notices. The Assessing Officer thereupon on 8th October, 2007 issued show cause notice under Section 144 read with Section 147 of the Act, which was sent through Speed Post, but was returned unserved with the remark "no such firm". Respondent-assessee again was served through affixture on 25th October, 2007. On examining the return for the assessment year 2004-05, it was noticed that M/s Prakash K. Prakash Chartered Accountants had certified the accounts of the respondent-assessee. Office of M/s Prakash K. Prakash Chartered Accountants was conta....
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....ning 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 various reasons and principles on which Commissioner (Appeals) had deleted the addition. Commissioner (Appeals) had given a finding that verification of PAN was made and found to be correct except with regard to the share application money of Rs. 4,50,000/- and, therefore, in the light of the judgments of Delhi High Court in Lovely Exports (P.) (supra), CIT v. Winstral Petrochemicals (P.) Ltd. [2011] 330 ITR 603/199 Taxman 135 (Mag.)/10 taxmann.com 137 (Delhi) and CIT v. Dwarkadhish Investment (P.) Ltd. [2011] 330 ITR 298/[2010] 194 Taxman 43 (Delhi) and other case....
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.... 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, New Rajinder Nagar, New Delhi, which was also mentioned in the return of income, but was received unserved with the remark "no such assessee", but subsequently served through affixture at A-46, Mohan Coop. Industrial Estate, Mathura Road, New Delhi, the address which was shown in the return of income for the assessment year 2004-05. The Assessing Officer in the remand report has mentioned that the assessee's registered office was located at A-46, Mohan Co-op. Industrial Estate, Mathura Road, New Delhi on the date of affixture of notice. Subsequently, on 18th April, 2007, they shifted....
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....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 verification of facts is required. The manner and mode of conducting assessment proceedings has to be left to the discretion of the assessing officer, and the same should be just, fair and should not cause any harassment to the assessee or third persons from whom confirmation or verification is required. The verification and investigation should be done with the least amount of intrusion, inconvenience or harassment especially to third parties, who may have entered into transactions with the assessee. The ultimate finding of the assessing officer should reflect due application of mind on the relevant f....
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....eals) 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 unaccounted for money was recycled and introduced in the books as share application money. The Commissioner (Appeals) has recorded that verification of PAN numbers was done in the present case and was found to be correct except in the case of Technochem Associates Private Limited and M/s Yogesh Gupta from whom share application money of Rs. 1,50,000/-each was raised but no PAN details were furnished. Regarding Ganga Infin Private Limited, PAN number furnished was found to be incorrect and accordingly addition of Rs. 1,50,000/- was justified. With regard to others, the Commissioner (Appeals) has recorded that the....
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....ies 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 to become investors in the absence of public issue or advertisement. 18. In the remand report, the Assessing Officer referred to the provisions of Section 68 of the Act and their applicability. The word "identity" as defined, it was observed meant the condition or fact of a person or thing being that specified unique person or thing. The identification of the person would include the place of work, the staff, the fact that it was actually carrying on business and recognition of the said company in the eyes of public. Merely producing PAN number or assessment particulars did not establish the identity of the person. The ac....
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....ction 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 verification of the shareholders as the summons issued to them had by and large remained uncomplied for want of correct addresses. In response, he had stated that the company had supplied addresses of shareholders as per share application forms and in the absence of dividend or any form of return on the investment, the company was not in a position to call the subscribers for cross- examination. The company had not received any letter for change of address etc. Vicky Chaurasia stated that according to him the subscribers, who were allotted shares, continued and had not ceased to be shareholders. With regard to the past directors, he had stated....
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....te. 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 principle was reiterated in CIT v. Devi Prasad Vishwanath [1969] 72 ITR 194 (SC), wherein the contention that the Assessing Officer should indicate the source of income before it was taxable, was described as an incorrect legal position. Thus when there is an unexplained cash credit, it is open to the Assessing Officer to hold that it was income of the assessee and no further burden lies on him to show the source. In Yadu Hari Dalmia v. CIT [1980] 126 ITR 48/4 Taxman 525 (Delhi), a Division Bench of Delhi High Court has observed:- "It is well known that the whole catena of sections starting from s. 68 have been introduced into the taxing enactments step by st....
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....d 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 public limited company where shares were subscribed by public and it was accordingly observed:- "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." 26. Thereafter reference was made to Full Bench decision....
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.... 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 distillation of the precedents yields the following propositions of law in the context of Section 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 assessed. (5) The Department wo....
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....n - 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 hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary.' 28. In Nova Promoters & Finlease (supra), it was held that in view of the link between the entry providers and incriminating evidence, mere filing of PAN number, acknowledgement of income tax returns of the entry provider, bank account statements etc. was not sufficient to discharge the onus. 29. In CIT v. Nipun Builders & Developers (P.) Ltd. [2013] 350 ITR 407/214 ....
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....ounding 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. The respondent herein is a Private Limited Company. It is not the case of the respondent that the Directors or persons behind the companies making the investment in their shares were related or known to them. It is highly implausible that an unknown person had made substantial investment in a private limited company to the tune of Rs. 63,80,100/- and Rs. 75,60,200/- in two consecutive assessment years 2002-03 and 2003-04 respectively without adequately protecting the investment and ensuring appropriate returns. Other than the share application forms, no other agreement between the respondent and third companies had been placed on record. The persons behind these companies were not produced by the respondent. On the other hand respondent adopt....
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....ax-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 the tax-payer has access to the share applicant's PAN particulars or bank account statement, surely its relationship is closure 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 reopening of such investor's proceedings. That apart, the concept of 'shifting onus' does not mean that once certain facts are provided, the tax-payer's duties are over. If on verification or during proceedings the Assessing Officer cannot contact the share applicants or the information becomes unverifiable or there are further doubts in the pursuit of such details, the onus shifts back to the....