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2020 (1) TMI 462
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....ts and in law by making the addition of Rs. 15,50,000 under section 68 of the Act after hearing and on being satisfied with the submissions of appellant that addition of said amount can-not be made under section 41(1) qua the facts of the case and thereby erred in flip-flopping the addition from section 41(1) to section 68 of the Act. 2.1 That the CIT(A) erred on facts and in law by not appreciating the fact that the amount of Rs. 15,50,000 shown as unclaimed receipt during AY 2008-09 has been duly reconciled with the names of respective security depositor and the said amount was shifted from unclaimed receipts to outstanding liabilities in AY 2009-10. 3. That the CIT(A) has erred on facts and in law in upholding the order passed by Assessing Officer in treating the receipt of refundable security deposit as unexplained credited and charging it to tax under section 68 of the Act on the ground that the appellant had failed to prove the credit worthiness of depositors ignoring the fact that the appellant had abundantly proved (a) identity of agents and (b) genuineness of transaction and as far as "credit worthiness" of depositors is concerned, law does not require th....
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....tire set of deposits made as undisclosed income. Accordingly, security deposits received from 93 parties from whom confirmation were also provided by assessee, should not be considered for making addition under Section 68 of the Act. The appellant craves leave to add, alter, amend or vary the above grounds of appeal at or before the time of hearing." [B] Vide Assessment Order passed under Section 143(3) of the Income Tax Act, 1961 (in short "the I.T. Act"). The relevant portion of the Assessment Order is reproduced as under:- "2. The company is engaged in the business of Mutual Fund Distribution and Marketing Promotional Services. DISALLOWANCE OF UNCLAIMED RECEIPTS:- During the court of asstt. proceedings while examining the details as furnished by the assessee it was noticed that the assessee co. had claimed 'security deposits' under Schedule-G: Current Liabilities. Therefore, vide note sheet entry dated 26.10.2010 the assessee was asked to produce the details of security deposits. On perusal of the details of the security deposits as produced by the assessee, it was noticed that the assessee co. had claimed 'unclaimed receipts....
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....oncern we wish to submit that the section covers the cases where recovery is made of the payments or expenses which were allowed as deduction while computing the taxable income of the earlier year(s). In the case of the co. the unclaimed receipt does not represent any allowance or a deduction that the co. claimed while computing its taxable income for the subject year." The reply of the assessee co. has been considered carefully and carries no force. Despite of the above reply, the assessee had just filed a list of these receipts which shows that these unclaimed receipts were received during the period of Sep'07 to Mar'08 in assessee's account code GL010000. The assessee in its reply had stated that the cheques received for security deposit were banked but the party from whom it was received was not known to the accounting team and due to which the amount received was accounted for as unclaimed receipt. In view of the above facts, it can be safety held that the assessee had failed to discharge its onus by substantiating the claim of these receipts with supporting documentary evidences even though specifically sought at the time of asstt. proceedings Si....
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....ch are in the denomination of more than 50,000/- as mandatory requirement. The assessee had failed to prove the deposits in the absence of any documentary evidence to prove the same. To sum up the facts and events of the case as described above the assessee co. has failed to discharge the onus u/s of the I.T. Act, 1961. It is evident from the sequence of events narrated above that the assessee co. has been provided sufficient time and opportunity to produce other details/ documents/ evidences to substantiate its claim. The assessee co. intentionally avoided to furnish complete records and evidences to the department on false ground. As merely submitting the list of depositors/creditors is not sufficient to discharge the onus and burden of proof cast on the assessee. Vide questionnaire entry dated 30.11.2010 the assessee was show caused as why the amounts received from the above parties be not treated as unexplained credit and added to your income u/s 68 of the I.T. Act, 1961. The provisions of section 68 of the I.T. Act, 1961 are as under:- "Cash Credits -Where any sum is found credited in the books of an assessee maintained for any previous year, and the....
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.... persons who are giving cheques/drafts through banking channel have no standing of their own. They do not have their own profits making apparatus other then by earning commission on such illegal activity. They do not manufacture or produce anything. They do not render any services other than its services for laundering of money. Their bank account reflects their creditworthiness. The moneys that come to its account by way of cash or by way of other similar accounts seldom rest for a day. It immediately finds its destination. The source of money is not explainable by the entry operators, However, the beneficiary, who enjoys the benefit of such money ever after, does not ever give back any dividend or any share in profit or interest to the entry operators. The volume of transactions undertaken is not visible in their balance sheet/ P/L Account. They are only available in the bank statements in a definite pattern. The profit motive in the entire transaction of the entry operators is conspicuously absent. They give the money to the beneficiary and never bother to ask for the benefit of providing so much money to the beneficiary. In vase of share capital, in most of the cases, ....
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....isement by the assessee co. There are any number of decisions of the Apex Court and various other courts including the celebrated judgment of the Apex Court in the case of McDowell Co. Ltd. 154 ITR 148 on the issue of using dubious means by the assessee for tax evasion. Various other decisions superiority of substances over form have in the public domain. These decisions undisputedly conclude that adopting of dubious means for resorting tax evasion is clearly not permissible. Present case is classic example of utilization of dubious means for the purpose of tax evasion, which should not be allowed to be perpetuated. In the above backdrop, the assessee was required to produce the person to verify its claim of genuineness. Reliance has been placed in the Following cases:- 1. CIT vs. Sophia Finance Ltd., 205 ITR 98 2. CIT vs. Steller Investment Ltd. In the case of CIT vs. Ruby Traders And Exporters Ltd. 263 ITR 300, the Hon'ble Calcutta High Court while reversing the order of the ITAT has considered the decision in CIT vs. Korlay Trading Co. Ltd. 1998, 232 ITR 820 (Cal) and observed as follows:- '........... In the sai....
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....a cash credit in his books of accounts and held that the assessee is not only required to prove the identity of the creditor, but also his creditworthiness and the genuineness of the transactions." The Hon'ble Rajasthan High Court in the case of Rajshree Synthetics Pvt. Ltd. vs. CIT 256 ITR 331 has held "that section 68 of the Act, gives a statutory recognition to the principle that cash credits which are not satisfactorily explained, may be assessed as income. ......... If he is satisfied that these entries are not genuine, he has every right to add its amounts as income from other sources. The satisfaction of the AO is the basis for invocation of power under section 68 and the satisfaction must be derived from the relevant factors on the basis of proper enquiry. It is well settled that the assessee is required to prove prima facie the transactions, which result in cash in his books of accounts. Such proof includes the proof of identity of his creditors, the capacity of such creditors to advance the money and lastly, the genuineness of the transaction, .......... Mere filing of confirmatory letters does not discharge the onus that lies on the assessee. Similarly, mere....
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....o be assessed as an undisclosed income of the assessee co. alone. The assessee failed to discharge its onus of proving the genuineness and creditworthiness of the person who have deposited money with the assessee. The assessee has completely failed in discharging its onus of proving the genuineness and creditworthiness of the entities from where the credits have been appearing in the books of the assessee. As per the show cause the assessee co. was required to prove the creditworthiness and genuineness of the transactions in order to discharge the onus u/s 68 of the Act which it has failed to do. It opted not to furnish any details or clarification to this office though it was given sufficient opportunities to do so. Accordingly, the amount Rs. 2,44,40,054/- is being added to the income of the assessee co. as 'unexplained' credits/deposits u/s 68 of the I.T. Act, 1961. (Addition:- Rs. 2,44,40,054/-) For the above mentioned reasons, I am satisfied that assessee company concealed the income/filed in accurate particulars, hence penalty proceedings u/s 271(1)(c) of the I.T. Act 1961 have been initiated separately. COMPUTATION OF TOTAL INCOME:- Loss a....
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....t and in making an addition of Rs. 24,440,054 completely disregarding the documentary evidence submitted by the Appellant with regard to the security deposits received by it. 4.3 That on facts and circumstances of the case and in law, the AO has erred in alleging that the Appellant has intentionally avoided furnishing records and evidences to the tax department and in not appreciating that adequate time was not available to the appellant to provide confirmations from all the depositors. 4.4 That on facts and circumstances of the case and in law, the AO has erred in making the addition under section 68 the Act purely on the basis of conjectures and surmises and in holding the appellant had not been able to prove the identity and genuineness of mg depositors. 2.1 Facts of the case; a. The Appellant, incorporated on 25th October. 2005, is inter alia engaged in the business of distribution of mutual fund products and providing business auxiliary services viz. marketing & business promotional services. The Appellant is registered with Association of Mutual Funds in India ("AMFI"). Apart from this, the Appellant is also a registered sub-broker of Relig....
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....ived securities deposits, aggregating to Rs. 30,091,531, from the said business partners. g The Appellant during the course of Assessment proceedings has submitted following details/documentary evidences to the AO in relation to security deposits received during the year: • The Appellant has apprised the business model of the Company to the AO vide its submissions dated December 10, 2010 wherein it was categorically mentioned that in the Appellant's line of business, which is dealing in stocks and securities, acceptance of security deposits is imperative since it provides a safely net and thus minimizes the risk of any possible default in payment by the customers. The copy of the submissions is attached as Annexure 2. • The list of parties from whom security deposits have been received during the year along with their addresses. The copy of the list is enclosed as Annexure 3. • Copy of confirmations received from 71 parties out of 178 parties from whom security deposits of more than Rs. 100,000 has been received. The same is enclosed us Annexure 4. We are attaching with 22 additional confirmations. The same is enclosed as Annexure....
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....s of accounts before AO for verification which had the ledger accounts of all the parties from whom security deposit was received and which also had details of regular business transactions with them. In addition to this the Appellant filed its bank statement containing details of all its transactions including receipt of security deposits. It also submitted certificates of tax deducted at source on payments made to various business partners, who had given security deposit, on account of commission paid to them. It may be pertinent to mention here that the TDS certificates issued contains the PAN numbers of the respective parties. The AO has however rejected all such details put forth by the Appellant. He has treated security deposit Rs. 24,440,054 received by the Appellant as unexplained cash credit chargeable to tax under section 68 of the Act based on the following allegations: (a) The Appellant has not been able to prove the genuineness and creditworthiness of the parties from whom the security deposits have been received by the Appellant (exceeding Rs. 1 lakhs). (b) The Appellant has failed to furnish even the basic details of depositors fro....
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....ing more sales, it had appointed more than 270 agents across India during the AY under consideration. It was further submitted that the said agents give a security deposit which was to be adjusted against possible default by the client who traded in securities through the Appellant. In addition, the Appellant has submitted the copy of ledger accounts of parties from whom security deposits have been received, bank statements evidencing the receipt of security deposits, TDS certificates issued to them, copy of confirmations and all other documents / details listed under 1 (g) above. However, the AO without appreciating the business model of the Appellant and without considering the documentary evidences submitted by the Appellant erroneously treated the security deposits of Rs. 24,440,054 received by the Appellant from business partners appointed during the year as unexplained credit/deposits thereby invoking the provisions of Section 68 the Act and added such security deposits to the income of the Appellant. In this regard, it is respectfully submitted that the addition made by the AO is bad in law and liable to be quashed. The same is on account of following reaso....
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....ed since the transaction under consideration i.e. receipt of security deposits is not included in the list of transactions prescribed by the Board in Rule 114B of the Income Tax Rules, 1962, wherein quoting of PAN is a mandatory requirement. Hence, there is no mandatory requirement of quoting of PAN at the time of receipt of security deposit from the depositors. The same is without prejudice to the fact the Appellant has duly submitted the certificates of the deducted at source on payments made to various business partners, who had given security deposit, on account of commission paid to them wherein the PAN numbers of the depositors were duly disclosed. 2.3.2 Genuineness of the transaction was proved: The AO while invoking the provisions of Section 68 has also alleged that the genuineness of the transaction under consideration has not been proved by the Appellant. This contention is also incorrect since: • The Appellant has furnished ledger accounts of said parties in the books of accounts of the Appellant which also had details of regular business transactions with them. • It was further submitted the AO that the security depos....
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....is various business partners had disassociated themselves with the Appellant therefore getting confirmations from them was not possible. In view of the above, it is respectfully submitted that the Appellant has not been provided reasonable time and opportunity to furnish the confirmations from all the depositors, 2.4 Provisions of Section 68 of the Act: Section 68 of the Act provides as under: "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source Thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year." Thus, Section 68 has following essential ingredients; • Any sum is found credited in the books of the Assessee. • The Assessee offers no explanation about the nature and source of such credit • In case the Assessee offers explanation which is not satisfactory in the opinion of Assessing officer • Then, such sum credited in the books o....
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....erefore, treated the entire amount of Rs. 1,50,000 as unproved cash credit and added the same to the income of the assessee. The Hon'ble Supreme Court held as under: "In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under section 131 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 creditworthy 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 assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has 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 is based on some evidence on which a conclusion could be arrived at, no question of law as such arises." ....
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....(copy attached as Annexure 13), wherein the Division Bench of Bombay High Court enunciated the position as under: "When however, in a case where the entry stands in the name of the third party, the assessee satisfies the ITO as to the identity of the third party and also supplies such other evidence which will show, prima facie, that the entry is not fictitious, the initial burden which lies on him can be said to have been discharged by him. It will not, thereafter, be for the assessee to explain further how or in what circumstances the third party obtained money and how or why he came to make a deposit of the same with the assessee. The burden will then shift on to the Department to show why the assessee's case cannot be accepted and why it must be held that the entry, though purporting to be in the name of a third party, still represents the income of the assessee from a suppressed source. In order to arrive at such a conclusion, however, the Department has to be in possession of sufficient and adequate material." • The above legal position was followed and reiterated by the Gujarat High Court in the case of DCIT v Rohini Builders. 256 ITR 360 (Guj.) (copy a....
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....y the account payee cheques which were encashed by the assessee through his own bank. Not only, this assessee had also submitted the copy of a certificate of the bank to the effect that the cheques given by the creditors were honoured in favour of the assessee. Even the brokerage amount was paid through cheques. Thus, the assessee had not only disclosed the identity of the creditors but also the sources of income. The assessee, thus, having discharged the primary onus and the onus having shifted to the department, the latter could not add the amount as income from undisclosed sources without resorting to verification. The Tribunal was, therefore, right in deleting the addition and allowing the interest on the same...." • Reliance is placed on the decision of Jabalpur Tribunal in the case of Rewa Group vs ITO 109 TTJ 657 (Jab) (copy attached as Annexure 17): In the instant case, the Tribunal has held as under: "..... We have carefully considered the rival submissions of the parties and perused the material available on record. We find that the assessee has taken deposit of Rs. 18,000 to Rs. 19,000 from 202 salesmen as a security deposit as it is impera....
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....ich demand draft in favour of the assessee was made. The Assessing Officer added the sum of Rs. 1.5 lakhs under section 68 holding that the assessee had introduced his own money which was unaccounted, in the name of the creditor, i.e., 'OP'. The Commissioner (Appeals), under the appeal from the assessee had confirmed the order of the Assessing Officer holding that the assessee had not been able to establish the creditworthiness of the creditor. On further appeal, to the Tribunal, the Judicial Member allowed the appeal of the assessee and deleted the addition of Rs. 1.5 lakhs holding that the amount of Rs. 1.50 lakhs could not be regarded to be an unexplained cash credit. The Accountant Member, however, did not agree with the Judicial Member and had dismissed the appeal of the assessee. HELD (AS PER THIRD MEMBER) "From the reading of the section 68, it is apparently clear that the section lays down rule of evidence that when any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source of such credit found in the books of the assessee, or the expl....
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.... 21] In view of aforesaid discussion, the view taken by the Judicial Member was agreed with, that under the given facts and circumstances of the case, the impugned cash credit 1.50 lakhs was genuine [Para 22] The legal position enunciated in the above case laws is summarized hereunder:- • Section 68 places the initial burden of proof on the taxpayer to explain the nature and source of any credit found its books. • The initial burden is said to be discharged once the Assessee proves the identity, bonafides and genuineness of the transaction. • Once the initial burden is discharged, the onus shifts upon the AO to show as to why the explanation given by the Assessee cannot be accepted. • The AO cannot reject the explanation given by Assessee in an arbitrary manner without proper appreciation of the material and other surrounding circumstances available on record. In the instant case, the Appellant has duty discharged its onus of proving the nature and source of deposits received by furnishing following details / documentary evidences with the AO as mentioned in Para 2.1 (g) above: • Complete de....
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....iable to be quashed 2.4.2 Explanation given by Assessee to be considered objectively.: It is a settled law that an explanation given by the assessee in relation to the nature and source of receipt should be considered objectively by the officer before he takes a decision to accept it or reject it. In this context, if is necessary to enunciate the following propositions: (i) If the explanation given by the assessee shows that the receipt not on income nature, the department cannot "convert good proof into no proof" or otherwise act unreasonably and reject it. Reliance in this regard is placed on the decision of Supreme Court in the case of Sreelekha Banerjee vs Commissioner of Income-tax (1963) 49 ITR 112 (copy attached as Annexure 19). In the instant case, the apex court held that if there was an entry in the account books of the assessee which showed the receipt of a sum on conversion of high denomination notes tendered for conversion by the assessee himself, it is necessary for the assessee to establish, if asked what the source of that money was and to prove that it was not income. The Department was not at that stage required to prov....
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....es and on a pre-conceived notion Without appraising the business of the Appellant and supporting documents submitted by the Appellant towards receipt of security deposit. iii) The explanation cannot be rejected merely on the ground that the department is unable to verify its correctness. Were the Assessee furnishes full details regarding the creditors, it is up to the department to pursue the matter further to trace these and examine their creditworthiness. Reliance in this regard is placed on the decision of CIT v Orissa Corporation Pvt. Ltd 159 ITR 78(SC) mentioned supra. Reliance is also placed on the decision of Supreme Court in the case of Lovely Exports (2008) 216 ITR 195 2008 (SC) (copy attached as Annexure 20): In the said case, the Hon'ble Supreme Court while answering the question that whether the amount of share money received during the year can be regarded as undisclosed income under section 68 of the IT Act, 1961 has held that: "We find no merit in this special leave petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose name are given to the ....
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.... "We have heard the parties and have perused the material on record. A perusal of the assessment order shows that the assessee had filed before the AO, complete details of the share applicants, giving their names and addresses details of Income Tax assessment, acknowledgement of Income Returns, particulars of PAN and details of their bank accounts, mentioning the respective bank account numbers, names of the banks and their branches and the details of the cheques through which the share application money had been paid by the share applicants. The initial burden cast on the assessee u/s 68 of the Act was thus duly discharged. The identity of the shareholders stood established. The factum of the shareholders having invested money in the purchase of shares also stood proved. Per contra, the AO could not point out any discrepancy in the copious evidence filed by the assessee. No evidence in contra-distinction had been brought on record by the AO. The documents filed by the assessee have not been stated, in the assessment order, as having been even attempted to be verified. No independent enquiry or verification in this regard was carried out. Moreover, as rightly observed by the ld. ....
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....pellant appointed business partners on PAN India basis and getting the confirmations from various places across the country is a time consuming process. Despite of the same, the Appellant has been able to provide confirmations of 71 parries out of 178 depositors from whom security deposits have been received during the year. The Appellant has further pleaded before the AO that in case more rime is provided to the Appellant, it will be able to produce the balance confirmations also. In view of the above, it is respectfully submitted that the Appellant has not been provided reasonable time to furnish the balance confirmations and thus the AO has erred in invoking provisions of Section 68 in the instant case. 2.4.5 Unexplained cash credit "may" be charged to income-tax: Without prejudice to the fact that the Appellant has duly discharged its onus by explaining the nature and source of transaction, even for argument sake, though not submitting, it is assumed that the Appellant has failed to provide the satisfactory explanation to the AO then also it does not automatically result in deeming the amount credited in the books as income of the Appellant. ....
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....rity deposits. Further, the deposits were received through normal banking channels. Also, the said deposits were refunded / adjusted in subsequent years through account payee cheques only. Apart from the above, the Appellant has also submitted the confirmations from 71 parties out of 178 parties and requested time to file the rest. Hence, the bonafide-ness and genuineness of the transaction was proved to the satisfaction of AO. (iv) The AO has not produced any documentary evidences while contradicting the explanation given by Appellant. Thus, the AO did not acted objectively while disregarding the explanation put forth by the Appellant. Thus, the Appellant has duly discharged its onus of proving the nature and source of transaction as required under provisions of Section 68 of the Act and accordingly the onus had shifted to the AO to contradict the explanation furnished by the Appellant in case he wishes to add the amount as undisclosed income of the Appellant which has not been discharged by the AO. Thus, the addition made by AO is bad in law and liable to be quashed. We request you to take the above submissions on record. We would be pleased to furnish ....
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....with the Petitioner. The said deposit is taken as a security against any possible default committed by the client introduced by the said business partners who traded in securities through the RSL platform provided by Petitioner Company. f. During the assessment year under consideration the Petitioner has appointed more than 270 business partners on pan India basis. Further, the Petitioner has received securities deposits, aggregating to Rs. 30,091,531 from the said business partners. g. During the course of assessment proceeding the AO sought details of the parties from whom security deposits of more than Rs. 100,000 was received by the Portioner with copy of their accounts and confirmations from the respective parties that they have actually given security deposit. h. To prove the genuineness and bona fides of the receipt of security deposit, the Petitioner submitted the details of the parties from whom security deposit of more than Rs. 100,000 was received. Out of 178 parties, spread across India, which had given security deposit of more than Rs. 100, 000, the Petitioner filed duly signed confirmation letters received from 71 parties from whom security ....
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.... produced by him during the course of proceedings before the [Assessing officer] except in the following circumstances, namely;- (a) Where the Assessing Officer refused to admit evidence which ought to have been admitted; or (b) where the Petitioner was prevented by sufficient cause from producing the evidence which he was called upon to produce by the Assessing Officer; or (c) where the Petitioner was prevented by sufficient cause from producing before the Assessing Officer any evidence which is relevant to any ground of appeal; or (d) where the Assessing Officer has made the order appealed against without giving sufficient opportunity to the Petitioner to the adduce evidence relevant to any ground of appeal. The Petitioner wishes to submit that it is evident from the facts explained above that the Petitioner was given reasonable time and opportunity by the AO to furnish additional confirmations from the business partners, which gave security deposit of more than Rs. 100,000, other than the 71 confirmations filed by the Petitioner during the assessment proceedings. Therefore, in terms of clause (d) of Rule 46A(l) of the Income tax Rules....
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....nish any documents in this regard, vide order sheet entry dated 29.11.2010, the assessee was again required to furnish the documentary evidences in this regard. In response to this the assessee filed confirmation from 71 parties only. The assessee did not file the PAN details of these 71 parties. Since the assessee did not furnished the PAN details, which is mandatory for providing the identity and genuineness of the party. In the absence of PAN details the A.O. did not considered the confirmations from 71 parties as genuine as the A.O. could not verify the transactions. Hence, the A.O. treated Rs. 24440054/- as unexplained credits/deposits and added the same to the income of the assessee. Now, the assessee company has requested for furnished of additional evidence under Rule 46A of the I.T. Rules 1962 by way of PAN of 71 parties along with additional confirmations from 22 more parties. The relevant provisions of the Rule 46A are reproduced hereunder:- "(i) The appellant shall not be entitled to produce before the DCIT (A) or, as the case may be, the CIT (A), any evidence, whether oral documentary, other than the evidence produced by him during the course....
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.... In view of the above, the submissions of the assessee may not be accepted and admitted at the appellate stage during appellate proceedings before your goodself." 3.3 Copy of the remand report of the AO was provided to the A/R or appellant for his rejoinder, if any. The A/R of the appellant in his rejoinder dated 29.08.2014 submitted: - "For the Assessment year ("AY") under consideration the Appellant filed its return of income on September 29, 2008 declaring a total loss of Rs. 893,051. The said return was selected for scrutiny assessment. The Assessing Officer ("AO") passed an assessment order, dated December 13, 2010, under section 143(3) of the Act. As per the said order, the AO has assessed the total loss of the Appellant at Rs. 25,097,000 after making the following additions / disallowances: Sr. No. Nature of Disallowance Amount (Rs.) 1. Disallowance under section 41 of the Act on account of unclaimed receipts 1,550,000 2. Treatment of security deposits received by the appellant as unexplained credit / deposits under section 68 of the Act 24,440,054 Aggrieved by the above additions the Appellant has preferred this....
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....AO that in case more time is provided to the Appellant, it will be able to produce the balance confirmations also. - However, the AO has disregarded the submissions filed by the Appellant and alleged that the Appellant has not been able to prove the genuineness and creditworthiness of the parties from whom the security deposits have been received by the (exceeding Rs. 1 lakhs). The AO has further stated that the confirmations of 71 parties filed by the Appellant have no credence in eyes of law since even the Permanent Account Numbers (PANs) have not been mentioned in such confirmations. - Thus the AO has treated security deposits of Rs. 24,440,054 received by the Appellant as unexplained credit / deposits under section 68 of the Act and has added the same to the returned income of the Appellant. - The Appellant has fled 22 additional confirmations which had PANs of the parties out of 178 parties from whom security deposits of more than Rs. 100,000 has been received with your office during the course of hearing before your respective predecessors. In addition, the Appellant has also submitted PANs of 71 confirmations that were filed before AO during the co....
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....with confirmations. In response, the Appellant vide submissions dated December 10, 2010 submitted the details of the parties from whom security deposit of more than Rs. 100,000 was received along with their names and complete addresses. Further, out of 178 parties, spread across India, which had given security deposit of more than Rs. 100,000, the Appellant filed duly signed confirmation letters received from 71 parties from whom security deposit was received and sought time to file the rest. The AO while passing the assessment order has asserted that the Appellant must have the PAN numbers of the depositors at the time of receiving security deposits since quoting of PAN number is a mandatory requirement in case the transaction value exceeds Rs. 50,000. It is submitted that under section 206AA of the Act, receipt of security deposit is nor a transaction which is liable to deduction of tax at source and in relation to which the payer is liable to furnish PAN number. It is also submitted that such an assertion of the AO is also misplaced since the transaction under consideration i.e. receipt of security deposits is not included in the list of transactions prescribed....
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....efore the A.O. any evidence which relevant to any ground of appeal; or (d) Where the A.O. has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal." (3) Thus from the above, it is clear that the assessee is entitled to produce additional evidence before the appellate authorities only in those cases where the assessee was denied opportunity by the A.O. or the assessee was prevented by sufficient cause for producing such evidence before the A.O. Here the assessee has provided sufficient opportunity by issue of notice and the assessee's AR attended the proceedings and filed details except the confirmations/evidence for security deposits received. (4) No evidence was produced by the assessee that he was prevented by sufficient cause for not being able produce the evidence which he has now produced at the appellate stage. (5) Therefore none of the conditions mentioned in Rule 46A is satisfied as : (1) The Assessing Officer has not refused to admit evidence which ought to have been admitted. (2) The appellant was not prevented by sufficient cause....
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....ence under Rule 46A of the Income Tax Rule 1962 by way of confirmation with PAN details of 71 parties alongwith additional confirmation from 22 more parties. Out of the above 93 parties who have advanced security deposit money to the above names assessee co., address/PAN details in respect of 11 parties are either not available on the confirmations or is not legible at all. Information u/s 133 (6) of the Income Tax Act, 1961 was called from all the remaining 82 persons, vide this office letter dated 27.02.2015, at the addresses provided in the confirmations furnished by the assessee. All the above persons had been directed to furnish the requisite information by 09.03.2015. Out of the above, letters from 4 parties have returned unserved. Till date, confirmation and other details have been received from only one party i.e., S. Mohit Bhatia r/o B-517, Sudarshan Park Narela, New Delhi-110015, who had advanced security deposits amount of Rs. 1,00,000/- but has not provided the bank statement showing the transaction. One of the parties, Sh. Ravi Kumar Batra, r/o near Ravi Glass House, Patel Marg, Kotdwara has denied having advanced security deposits amount to Rs. 1,04,....
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....ercentage share in brokerage income earned by RSL from trading done by the said clients. • As per the terms of the agreement entered between the Appellant and business partners, the Appellant took refundable security deposit from its business partners at the time of their association with the Appellant. said deposit is taken as a security against any possible default committed by the client introduced by the said business partners who traded in securities through the RSL platform provided by the Appellant. • During the assessment year under consideration the Appellant has appointed more than 270 business partners on pan India basis. Further, the Appellant has received securities deposits, aggregating to Rs. 30,991,531/- from the said business partners. • During the course of assessment proceeding the AO sought details of the parties from whom security deposits of more than Rs. 100,000 was received by Ike Appellant with copy of their accounts and confirmations from the respective parities that they have actually given security deposit • To prove the genuineness and bona fides of the receipt of security deposit, the Appellant submit....
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....ence before the appellate authorities only in those cases where the assessee was denied opportunity by the AO or the assessee was prevented by sufficient cause for producing such evidence before the AO. The assessee failed to bring out on record even a single instance where the evidence sought to be furnished by the assessee was refused to be entertained by the AO. No evidence was produced by the assessee that he was prevented by sufficient cause for not being able to produce the evidence which he has now produced at the appellate stage." Therefore as per AO, none of the conditions mentioned in Rule 46A are satisfied. Hence, as per AO additional evidence i.e. confirmations having PANs of the parties submitted by the Appellant should not be accepted and admitted at the appellate stage during appellate proceedings before your goodself. 3. The Appellant in its rejoinder dated August 29, 2014 to the aforesaid remand report submitted that the following: • The Appellant did not consider the PAN as additional evidence which requires a petition under Rule 46A of the Income Tax Rules, because PAN is given by the Revenue Authorities and whether a party. which g....
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...., 2015 which the AO has issued pursuant to the directions issued by Your Honor. me Appellant is not aware of what information was requested by Your Honor from the AO pursuant to which the report has been issued. However, in the report the AO has made the following observations: a. PAN details/ addresses of 11 parties are either not legible or not available on the confirmation. Our submission We request that list of these 11 parties may kindly be provided to us so that we can provide the necessary details related to PAN and addresses b. Information under section 133(6) of the Act was called for all the parties and that till date reply to such notice under section 133(6) has come only from 1 party which has confirmed that the security has been given however he has not provided the bank statement showing the transaction and that one other party has dented giving such security deposit. Our submission We wish to submit that the Company has provided that confirmation from 93 parties and has also given their PANs. It is further submitted that the receipt of security deposit was in FY 2007-08 which is 7 years back therefore the....
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.... to its income u/s 41 of the Act. In reply the appellant filed a list of these receipts which shows that these unclaimed receipts were received during the period Sep'07 to Mar'08 in the appellant's account code GL010000. The appellant also submitted that the cheques received for security deposit were banked but the parties from whom they were received were not known to the accounting team, due to which the amount received was accounted for as unclaimed receipt. As the appellant filed to discharge its onus regarding the unclaimed receipts, the AO disallowed and added Rs. 15,50,000 to the total income of the appellant. In appeal before me, the appellant has contended that all these 'unclaimed receipts' were reconciled in the subsequent year. In other words, in the next financial year the appellant was able to identify the parties from whom these amounts were received and accordingly they were shifted from the head 'unclaimed receipts'. However, the appellant has not provided the details of the persons to whom these receipts of Rs. 15,50,000/- were attributable - their names, addresses, PANs, etc. to prove their identities or copies of their I.T. returns, b....
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....y (approximately two months' time Starting from end of October, 2010) to the appellant to furnish details which were to be gathered from as many as 178 parties all over the country. Hon'ble ITAT, Bench D, New Delhi, have held in the case of ACIT Vs. Shri Joginder Singh in ITA No. 2942 (Del) of 2011, that powers of first appellate authority are co-terminus with those of the assessing officer, and that it is incumbent on him to exercise the same if the facts and circumstances justify. Further, Hon'ble Delhi High Court in the case of CIT vs. Virgin Securities Credit P. Ltd. (2011) 332 ITR 396 (Del) have held that evidence which is crucial in disposing a case can be admitted. Since the documents filed by the appellant as additional evidences are crucial in nature and go to the root of the matter, in order to adjudicate the issues involved in an effective manner, and in the interest of natural justice, and also because an opportunity has been provided to the AO to examine and comment on them, the same need to be admitted and considered. Therefore, the documents filed as additional evidence in the course of appeal proceedings are admitted for consideration md adjudication of ....
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....suming that identities of 93 parties were established by the appellant (confirmations of 71 parties having been filed the assessment proceedings and 22 parties during appellate proceedings, alongwith PANs either at assessment or appellate stage), the appellant is silent throughout about their creditworthiness. Simply furnishing PAN does not prove the creditworthiness of a party, unless copy of its I.T. return(s), balance sheet and bank statement are also filed to prove that it had the income/net worth to invest. These documents which could establish the creditworthiness of the parties have not been furnished even at the appellate and remand stage. Not only this, the appellant had ample time during appeal proceedings to file the confirmations of the balance 107 (178-71) parties but chose to do so only in case of 22 more parties. Thus out of 178 parties from whom security deposits of Rs. 1 lac or more were received by the appellant during the year, confirmations of only 93 (71+22) parties could be provided. It is noteworthy that the appeal pertains to the A.Y. 2008-09 and was filed as far back as on 18.01.2011 but in more than five and a half years' time the appellant could not e....
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....e factual and legal position discussed in the preceding paras, it is clear that the appellant has not been able to discharge the initial onus which lay on it as per section 68 respect to the security deposits aggregating Rs. 2,44,40,054/- to and the ratios of the judicial decisions relied upon by it do not apply to its case. Hence, the action of the Assessing Officer in adding these amounts to the appellant's income u/s 68 is confirmed. Grounds of appeal nos. 4 to 4.4 of the appeal are dismissed." [D] This present appeal has been filed by the assessee against the aforesaid impugned appellate order dated 08.08.2016 of the Ld. CIT(A). At the time of hearing, Revenue was represented by Shri Dheeraj Garg, the learned Senior Departmental Representative ("Ld. Sr. DR", for short). However, none was present from the assessee's side. In the absence of any representation from assessee's side, at the time of hearing before us, we heard the Ld. Sr. DR; who relied upon the order of the Assessing Officer and the aforesaid impugned order dated 08.08.2016 of the Ld. CIT(A). After perusal of the materials on record, including the order of the AO and the aforesaid impugned order dated 08.08.2....