TaxTMI 
TaxTMI 
2019 (9) TMI 689
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....t considering the facts of the case." 3. The brief facts of the case are that the assessee company, engaged in the business of trading in minerals, filed its return of income for A.Y. 2012-13 on 29.09.2012 declaring total income of Rs. 1,08,14,510/-. The case was selected for scrutiny and notices u/s. 143(2) and u/s. 142(1) of the Act, were issued. In response to the notice, the AR for the assessee appeared from time to time and filed various details, as called for. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had received share application money from seven subscribers as listed in para 3 of his order and, accordingly, called upon the assessee to explain and furnish necessary details in respect of share application money and also justification for issue of shares at premium. In response, the assessee has filed details of share application money received from those seven companies along with application for allotment of equity shares, PAN, financial statements and the confirmations from the parties. The assessee has also filed valuation report for justifying issue of shares at premium. The Assessing Officer, in order to ascertain co....
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....rm No.2 (Return filed in ROC), bank statements of the share holder companies and confirmation from the investors. The assessee has also filed valuation report obtained from independent valuer, where the valuation has been made by following DCF method. Although, assessee has filed complete details of the share application money received from the above companies, the Assessing Officer without carrying out any further inquiries in order to ascertain the true nature of the transactions, simply made the additions on the basis of financial statements of the assessee to come to the conclusion that none of the share holders have the capacity to explain huge investments made in the assessee company. In this regard, he relied upon plethora of judicial decisions including the decision of Hon'ble Supreme Court in the case of CIT vs. Lovely Exports (P) Ltd. 216 CTR 195. 5. The CIT(A) after considering the submissions of the assessee and also on analyzing the facts brought out by the Assessing Officer in respect of each of the subscriber companies came to the conclusion that the assessee has failed to prove credit found in form of share capital with necessary evidence, more particularly on th....
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....sees. But the contention of the Assessing Officer was that the assessee did not respond to the requirements of the production of creditors before him for verification. The first appellate authority and the High Court felt that it was possible for the Assessing Officer to have accepted the same or make further enquiries with reference to the files of the creditors, since they were assessees. Even so, the High Court reversing the finding of the Tribunal observed as under: "the appellate authorities have failed to appreciate that in the present case the assessee had totally failed to respond to the notice of the Assessing Officer. Further, even if they were of the view that the Assessing Officer should have made cross verification with the records of the creditors available with him, they ought to have directed the Assessing Officer to do so instead of straight way accepting the assessee's version without affording any opportunity to the Assessing Officer to make the verification. In the alternative, the appellant authorities could have themselves verified the material placed before them with the records of the creditors. This has not been done. Accordingly, we are satisfied that ....
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.... application is not an unimpeachable document and does not on its own prove the genuineness or authenticity of the transaction. It can at best be treated as a corroborative document. Since the share application form is not an unimpeachable document, it cannot on its own be treated as sufficient for cross-verification of the transaction. We have already held that that mere production of PAN Number or assessment particulars does not establish the identity of a person. The identification of a person includes the place of work, the staff and the fact that it was actually carrying on business and further recognition of the said NEmpany/individual in the eyes of public. ii) It has further been argued that submissions of details showing identity, bank details and details related to ROC are sufficient compliance for ingredients of section 68 of the Act. Prima facie onus is always on the assessee to prove the cash credit entry found in the books of account of the assessee. In land mark cases like Kale Khan Mohammad Hanif v CIT[1963] 50 ITR 1 (SO. Roshan Di Hatti v CIT [1977] 107 ITR 107 (SC) it has been held that the law is well settled that the onus of proving the source ....
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.... investor company raises question on the creditworthiness. On the issue of examination of creditworthiness of investor, the question has been raised that source of source cannot be examined amended provision of section 68. Source of source can be examined even under unamended provision of section 68 of the Act. If it is a simple case, the detailed submitted like PAN, Bank statement, ITR etc can be accepted on face value. However, if it is associated with something more like accommodation entry, capital generation, entry from shell company, the AO is well within its right to examine source of source. a) Pragati Financial Management (P.) Ltd. v. Commissioner of Incometax- 11 [2017] 82 taxmann.com 12 (Calcutta) :- • "A coordinate bench of the Court in dealing with an almost identically worded over of the Commissioner in the case of Raimandir Estates (P.) Ltd, v. Pr, CIT [2016l 386 ITR 162/240 Taxman 306/70 taxmann.com 124. construed the provisions of section 68 as it was before the amendment being the law which prevailed in the relevant previous year in that proceeding, and held that 'the use of the words 'any sum found credited in the books'....
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....ource of a sum credited in the books of account of an assessee and it would be immaterial as to whether the amount so credited is given the colour of a loan or a sum representing the sale proceeds or even receipt of share application money. The use of the words "any sum found credited in the books" in Section 68 indicates that the said section is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money." 12. From the above discussion it is seen that the legislative intent was always to protect against benami transactions done with a view to evade identifying the real contributor of funds. However, such an interpretation, especially in the preamendment regime, has not been consistent. Any reliance on the dismissal of SLf by the Supreme Court in the case of CIT v. Lovely Exports (P) Ltd., [2008] 216 CTR 195, which is used as a tool to defend against the 'source of source' inquiry, is wrong. Therein the SC held: "We find no merit in this special leave petition for the simple reason that if the share application money is received by th....
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....e 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. d) The Hon'ble Delhi High Court in CIT v. Navodaya Castles (P.) Ltd. [2014] 367 ITR 306/50 taxmann.com 110/226 Taxman 190 (Mag) following the principle laid down in Nova Promoters &Finlease (P.) Ltd..(supra) has held that the share capital in case of a closely held company is required to be examined by the AO in terms of section 68 and the failure of the assessee to satisfy the AO, calls for addition u/s 68. It ....
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....irculate 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 facade and smokescreens which masquerade as pretence should be exposed and not It has further been argued that irrespective of the characteristics of investor company, it is the Board of Director, who passes resolution with respect to investment in a company and such decisions of Board of Directors cannot be challenged by the AO. There is no denial of the fact that the commercial decisions are to be made by the Board of Director of the company. However, these decisions can certainly be examined if the investments in the guise of share capital application money/premium are being recorded in the books of account from suspicious business entity. The business entities threadbare examined by the AO are characters of the shell company. 4.2.7 It has further been argued that the recent amended provision u/s.56 (2)(viib) and proviso to section 68 cannot have a retrospective application and thereby the share application money/premium , creditworthines....
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....ded from making an inquiry about true nature and source of sum found credited in books even if same was credited as receipt of share application money. 4.2.8 The reliance has also been placed upon the judgment of Hon'ble Supreme Court in case of Lovely Exports (Supra) and other judgments/decision based on lovely exports. Lot water has been flown in Ganges since the judgment of Hon'ble Supreme Court in case of Lovely Export was delivered. This judgment was given under a peculiars fact of the case which is not at all applicable in Private Company as specified by various High Courts. Reliance has been placed on the judgement of the Hon'ble Apex Court in case of Lovely Exports Ltd. (2008) 299 ITR 268, to claim that 'source of source' can't be asked to be proved. If the assessee is able to prove identity and genuineness of share investors, then revenue should examine share investor if there is any doubt, is its creditworthiness. Number of High Courts have examined the ratio of Lovely Exports Ltd. (supra) and has held inapplicable in private limited company. (a) Commissioner of Income-taxv. N.R. Portfolio (P.) Ltd. [2014] 42 tax....
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....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 operand! 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 premeditated 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 fo 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 forwa....
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....0,000/- u/s. 68 of the I.T. Act, 1961 without appreciating fact that the Assessing Officer never disputed identity of the subscribers and genuineness of the transactions. The AR further submitted that although the Assessing Officer has accepted identity of the subscribers, he disputed credit worthiness of the subscribers on the basis of financial statements without carrying out further enquiries either by issue of notice u/s. 133(6) or summons u/s 131 to ascertain true nature of transactions between the parties. On the other hand, the assessee has discharged its initial onus by filing enormous documents, including confirmation from the parties where they have categorically stated that investments in assessee company is genuine transaction and has been routed through banking channels. The assessee has also filed complete details about identity of the subscribers including their PAN, address etc. The assessee has also filed income tax acknowledgment of the subscribers along with financial statement and bank statements. The Assessing Officer never disputed the fact that the assessee has filed necessary documents in order to prove identity of the subscribers and genuineness of the tran....
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....(2010) 319 ITR 393 (Chhatisgarh-High Court) n) CIT vs. Nav Bharat Duplex Ltd (2013) 35 Taxmann.com 289 (All-High Court) o) CIT vs. Samir Bio-Tech Pvt Ltd (2010) 325 ITR 294 (Del-High Court) p) Mod Creations Pvt Ltd vs. ITO (2011) 354 ITR 282 (Del-High Court) q) CIT vs. Jay Dee Securities & Finance Ltd 32 Taxmann.com 91 (All-High Court) r) Jaya Securities Ltd vs. CIT (2008) 166 Taxman 7 (All-High Court) (SLP filed by dept dismissed) 7. The learned DR, on the other hand, strongly supporting order of the CIT(A) submitted that the Assessing Officer as well as the CIT(A) has brought out clear fact to the effect that although the assessee has filed number of documents to prove identity of the creditors, remaining two aspects of the issue i.e. genuineness of the transaction and creditworthiness of the subscribers are in doubt. The DR further submitted that mere furnishing of documents to prove identity is not enough to come out of the shadow of provisions of section 68 of the I.T.Act, 1961. But, what is relevant is to discharge the onus by filing necessary evidence to prove true identity of the creditors, genuineness of the transactions and ....
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....r. Therefore, he opined that mere furnishing of certain documents is not sufficient enough to prove identity of creditors, genuineness of transactions and creditworthiness of the parties. The AO has examined each of the seven subscribers and narrated facts in the light of financial statements filed by the assessee to come to the conclusion that the subscriber companies are in fact paper companies without any credible business activity. The AO has also questioned share premium charged by the assessee in light of business activity and financial strength. According to the AO, although the assessee has filed valuation report in support of share price, such report has been prepared on the basis of future earnings of the assessee without any support from existing business activity and asset base. 9. The AO has made additions towards share capital u/s. 68 of the I.T.Act, 1961, on the ground that the assessee has failed to offer any explanation with regard to credit found in the nature of share capital. The provisions of section 68 deals with a case where any sum found credited in the books of account of the assessee in any previous year, for which the assessee offers no explanation abo....
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....e there is no doubt of whatsoever with regard to payments made to the assessee company. In fact, the AO has never disputed the aspect of payment through banking channels. We further noted that the amount is paid through proper banking channels. In the bank statements of the subscriber companies there is no cash deposit either before the date of transfer of funds to the assessee or subsequent to the date of transfer. Further, the subscriber companies have enough reserves and surplus in their books of accounts. All these evidence go to prove beyond doubt that the assessee has discharged its onus of proving the genuineness of transactions and creditworthiness of the parties. Once the assessee has discharged its onus, then it is for the AO to ascertain correctness of claim of the assessee by carrying out further inquiries. In this case, the AO has failed to do so. Therefore, we are of the view that there is no merit in the findings recorded by the AO or the CIT(A) that the assessee has failed to discharge its onus of proving the three ingredients provided u/s. 68 of the I.T. Act, 1961. 11. Coming to the other aspect of the issue, the AO has invoked the provisions of section 56(2)(vi....
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....y sub clause (viib) inserted to section 56(2) is also considered to be prospective and cannot be applied to the assessment year in question. Even otherwise, assuming for a moment that above provisions are applicable for the year under consideration, in order to apply said amended provisions, the AO has to prove that the assessee has not proved capacity of the investors and also not offered any justification for issue of shares at premium. In this case, from the facts on record, it is clear that the assessee has proved identity and genuineness of the transactions by filing necessary evidences. The assessee has filed valuation report from registered valuer as per which the share price of the company is over and above premium charged by the assessee. Therefore, we are of the considered view that provisions of section 56(2)(viib) has no application. 12. Coming to the case laws relied upon by the assessee. The assessee has relied upon plethora of judgements, including the decision of Hon'ble Supreme Court in the case of CIT vs Lovely Exports Pvt Ltd (2008) 216 CTR 195 (SC). In the case laws relied upon by the assessee, the issue has been dealt as under:- CIT vs. Goa Sponge a....
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....the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company." CIT vs. Steller Investment Ltd (2001) 251 ITR 263 (SC) (civil appeal) "That the increase in subscribed capital of the respondent company could not be a device of converting black money into white with the help of formation of an investment company, on the round that, even if it be assumed that the subscribers to the increased capital were not genuine, tinder no circumstances could the amount of share capital be regarded as un disclosed income, an appeal was taken by the Department to th e Supreme Court. The Supreme Court dismissed the appeal holding that the Tribunal had come to a conclusion on facts and no interference was called for." CIT vs. Nav Bharat Duolex Ltd (2013) 35 Taxmann.com289 (All-High Court) "We have considered the arguments of the counsel for the parties. CIT(A) found that five companies subscribing the equity shares amounting to Rs. 25,00.000/- were identified and they had submitted their bank statements, cash extracts and returns filing receipts. As such identity ....
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....e initial onus placed on it. In the event the Revenue still had a doubt with regard to the genuineness of the transactions in issue or as regards the creditworthiness of the creditors, it would have had to discharge the onus which had shifted on to it. A bald assertion by the Assessing Officer that the credits were a circular route adopted by the assessee to plough back its own undisclosed income into its accounts, could be of n o avail. The Revenue was required to prove this allegation. An allegation by itself which is based on assumption will not pass muster in law. The Revenue would be required to bridge the gap between the suspicions and proof in order to bring home this allegation. The Tribunal without adverting to the principle laid stress on the fact that despite opportunities, the assessee and/or the creditors had not proved the genuineness of the transaction. Based on this it construed the intentions of the assessee as being mala fide. The Tribunal ought to have analysed the material rather than be burdened by the fact that some of the creditors had chosen not to make a personal appearance before the Assessing Officer. If the Assessing Officer had any doubt about the mater....
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....complete details of the shareholders, no addition could be made tinder section 68 of the Income-tax Act, 1961, in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part o f the share capital represented the company's own income from undisclosed sources. It was nobody's case that the non resident Indian company was a bogus or non-existent company or that the amount subscribed by the company by way of share subscription was in fact the money of the assessee. The assessee had established the identity of the investor who had provided the share subscription an d that the transaction was genuine. Though the assessee's contention was that the creditworthiness of the creditor was also established, in this case, the establishment of the identity of the investor alone was to be seen. Thus, the addition was rightly deleted." CIT vs. Shree Rama Multi Tech Ltd (2013) 34 Taxmann.com177 (Guj- HC) "It is noted that Commissioner (Appeals) as well as the Tribunal have duly considered issue and having found complete details of the receipts of share application money, along with the form na....
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....DR, has relied upon the decision of the Hon'ble Supreme Court in the case of DCIT vs. NRA Iron & Steel Pvt. Ltd. (supra). We find that co-ordinate Bench of ITAT vide its order dated 03.05.2019 in the case of Shree Laxmi Estate Pvt. Ltd. in ITA No. 6557/Mum2017 for A.Y. 2013-14 had considered the decision of Hon'ble Supreme Court in the case of NRA Iron & Steel P. Ltd. and held that the facts of the case before the Hon'ble Supreme Court are entirely different, where on the basis of facts of that case Hon'ble Supreme Court came to the conclusion that mere furnishing of certain documents is not sufficient enough and what is relevant is all three ingredients, i.e. identity, genuineness of transactions and creditworthiness of the parties should be proved beyond doubt. We find that in the case before the Hon'ble Supreme Court the parties never responded to 133(6) notices. The AO has carried out inquiries by issuing notices u/s. 133(6), for which none of the companies have replied. None of the companies produced bank statements to establish source of funds for making such huge investments in shares, even though they were declaring a very meagre income in the return. None of the investors ....
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....ditors, the same could have been confronted on the said loan creditors by issuing summons u/s 131 of the Act and examine them on oath or correspondingly verify the same through the Assessing Offficers of the concerned loan creditors through the internal source of the department. The ld AO did not do either of these in the instant case and merely disregarded the evidences submitted on record before him both by the assessee as well as by the loan creditors directly to him. The written submissions filed by the ld DR in this regard is repetition of various contentions already available on record by the lower authorities, apart from placing reliance on certain decisions. We find that both the aforesaid loan additions were confirmed by the ld CITA by placing reliance on the decision taken by his predecessor in Asst Year 2012-13. We find that this tribunal in assessee's own case for the Asst Year 2012-13 in ITA No. 5954/Mum/2016 dated 29.12.2017 in respect of loan transactions of entities controlled by Shri Pravin Kumar Jain and others had elaborately dealt this issue and held as under:- "5. We have heard both the parties, perused the material available on record and gone through....
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....t previous year. A plain reading M/s Shree Laxmi Developers of section 68 makes it clear that the initial burden of proof lies on the assessee. It is well settled legal position that the assessee has to discharge 3 main ingredients in order to discharge the initial burden of proof, i.e. the identity of the creditor, the genuineness of transaction and creditworthiness of the creditors. Once the assessee discharges initial burden placed upon him, then the burden todis prove the said claim shifts upon the AO. In this case, the assessee has discharged his onus cast u/s 68 by filing identity of the creditors, genuineness of transactions and creditworthiness of the parties which is evident from the fact that the assessee has furnished financial statements of the creditors wherein the said transaction has been disclosed in the relevant financial years. We further notice that the assessee also filed financial statements of the creditors which are enclosed in paper book filed. On perusal of the financial statements filed by the assessee, we find that both the companies are active in the website of Ministry of Corporate Affairs. This fact has been further supported by the letter of AO wherei....
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.... or that it is 'declaratory'. Therefore, it is not open to give it retrospective effect, by proceeding the basis that the addition of the proviso to section 68is M/s Shree Laxmi Developers immaterial and does not change the interpretation of section 68 both before and after the adding of the proviso. In view of the matter the three essential tests while confirming the section 68 laid down by the Court namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on fact it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders, i.e., they are bogus. The Apex Court in a case in this context to the pre- amended section 68 has held that where the revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income-tax Officer to proceed by reopening the assessment of such shareholder and assessing them to tax in accordance with law. It does not entitle the revenue to add the same to the assessee&....
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....lhi High Court are entirely different from facts of the present case. The Hon'ble Delhi High Court, has considered the fact that the individuals, who advanced loans had no financial strength to lend such huge sum of money to the assessee, that too, without any collateral security without interest and without a lender agreement. Under these facts, the Hon'ble Court held that mere establishing of their identity and the fact that the amounts have been transferred through cheque payment does not by itself mean that the transactions are genuine. In this case, the assessee has furnished all evidences and also the parties personally responded to the notices M/s Shree Laxmi Developers issued by the AO u/s 133(6) by filing various details, therefore, case law relied upon by the Ld.DR cannot be applicable to the facts of the present case. 11. In this view of the matter and considering the ratio of the case laws discussed above, we are of the considered view that the assessee has discharged identity, genuineness of transactions and creditworthiness of the parties. Therefore, there is no reason for the AO to make addition towards loan u/s 68 of the Act. Hence, we direct the AO....
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....ns which in turn resulted in doubting of creditworthiness ; e) Most of the investor companies though confirmed the fact of having made investment in share application money in NRA Iron & Steel Pvt Ltd, but had not filed their bank statements to prove the immediate source of credit available to them for making the said investment. 8.1.1. In the instant case before us, the ld AO did not issue any summons u/s 131 of the Act or make further enquiries to examine the veracity of the evidences filed on record before him by the assessee as well as by the loan creditors in response to notice u/s 133(6) of the Act. Moreover, all the loan creditors had duly furnished their respective bank statements proving the immediate source of credit for them to justify that they had sufficient creditworthiness to advance loan to the assessee company. From the perusal of the balance sheet of all investor companies, all the loan creditors had sufficient own funds in their kitty which prove their creditworthiness to advance loan to the assessee company. As has been stated hereinabove, the most excruciating point of difference in facts vis a vis the facts of the case before the Hon'ble Supr....
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.... Year 2012-13 in assessee's own case in similar set of facts. We find that this decision for Asst Year 2012-13 in assessee's own case has been reversed by this tribunal vide its order dated 29.12.2017 referred to supra. In view of our aforesaid findings in the facts and circumstances of the case and respectfully following the decision of this tribunal in assessee's own case for Asst Year 2012-13, we hold that the assessee company had duly proved the nature and source of credit in the form of unsecured loan and had duly satisfied the three necessary ingredients of section 68 of the Act viz, the identity of the loan creditors , creditworthiness of loan creditors and genuineness of loan transactions. Hence we direct the ld AO to delete the addition made in the sums of Rs. 50 lacs and Rs. 25 lacs towards unsecured loan u/s 68 of the Act. Accordingly, the Grounds 1 to 6 raised by the assessee are allowed." 14. In the case of PCIT vs. Hi-Tech Residency Pvt. Ltd. (2018) 257 Taxman 335, Hon'ble Supreme Court has considered identical issue and held that where an assessee company had discharged the onus of establishing identity, genuineness of transaction and creditworthiness of investors....
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....cts and circumstances of the case and in law, the learned CIT (A) erred in confirming the addition made by the learned Assessing officer on account of non-existing liability of Rs. 1,29,16,133/- u/s 41(1) of the Income Tax Act 1961, without considering the facts of the case. 18. The first issue that come up for consideration from Ground No.1 is addition towards share application money of Rs. 12,35,00,000/- u/s. 68 of the I.T. Act, 1961. Similar issue has been considered by us in the preceding paragraphs while disposing of the appeal in ITA No. 607/Mum/2019. The issue has been discussed in the light of facts brought out by the Assessing Officer and submissions of the assessee along with certain judicial precedents and held that the assessee has discharged its onus of proving identity, genuineness of transactions and creditworthiness of the parties. In this case facts are pari-materia with the facts which we have already considered in ITA No. 607/Mum/2019. The reasons given by us in preceding paragraphs shall apply mutatis mutandis. We, therefore, for the detailed reasons given by us in the preceding paragraphs, direct the AO to delete the addition of Rs . 12,35,00,000/- made u/s.....
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.... 1,76.72,533/-. Thus it is obvious that genuinellability does not exists in this case. Therefore Rs. 1,76,72,533/- is treated as income of the assessee. Therefore penal proceedings u/s. 271(1)(c) is seperately initiated. 5.1 Besides this there was a payable of Rs. 1,29,16,133/-- to M/s. B.C. Biyaril Projects Pvt Ltd. The assessee was also asked to give its say on these payabies. In response the AR vide letter dated. 27.03.2015 has admitted that the payment is outstanding since F. Y. 2007-08. The AR has contended that there is a dispute. However no documentary evidence relating to the dispute has been produced. Vide order sheet entry dated. 27.03.2015, the AR of the assessee has expressed his inability to furnish any documentary evidence in support of his claim relating to dispute. In this case payments have not been done for over 7 years. There Is no evidence in support of any litigation. Therefore the liability does not appear to be genuine. Therefore Rs. 1,29,16,133/- is held to be a liability which is not genuine and is treated as income of the assessee. Therefore penal proceedings u/s. 271(1)(c) is seperately initiated." 20 Aggrieved by the assessment order, assesse....
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.... the effect that liabilities are continuing in the books of account for more than two years without there being any business activity. Further, the assessee has neither paid the amount to the creditor nor written off in the books of account. Therefore, merely for the reason that liability is continued in the books of account, it cannot be considered as liability fastens on the assessee, unless the assessee proves that these are genuine creditors, who were paid in the subsequent financial years. 23. We have heard both the parties, considered their submissions and perused the orders of the authorities below. In order to bring any credits within the ambit of section 41(1) of the I.T. Act, 1961, the first condition should be an allowance or deduction has been made in respect of loss, expenditure or trading liability incurred by the assessee in earlier years. Secondly, the assessee should derive some benefit in respect of such loss or expenditure or such trading liability by way of remission or cessation thereof, then such amount or benefit obtained by assessee in a subsequent year may be treated as cessation or remission of liability. In this case, on perusal facts available on reco....
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....owing conditions must be fulfilled before section 41(1) of the Act could be held as applicable: (i) In the assessment of an assessee, an allowance or deduction has been made in respect of any loss, expenditure or trading liability incurred by him. (ii) (a)Any amount is obtained in respect of such loss or expenditure, or (b)Any benefit is obtained in respect of such trading liability by way of remission or cessation thereof. (iii) Such amount or benefit is obtained by the assessee, and (iv) Such amount or benefit is obtained in a subsequent year Provisions of section 41(1) of the Act has two effects, namely:- (i) That although ordinarily the amount of remission or cessation, etc., would not be profits and gains, it has to be regarded as such profits and gains, and (ii) Such an amount so forgiven by way of remission or cessation, etc., has to be regarded as profits and gains of business or profession accruing or arising in the previous year wherein it is obtained. In either of these events happened, the deeming provision enacted in the closing part of section 41(1) of the Act comes into play. Accordingly....