TaxTMI 
TaxTMI 
2020 (1) TMI 462
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....er 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 the appellant to prove the same considering the nature of business and fa....
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.... 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' amounting to Rs. 15,50,000/- by debiting it in 'detail of security deposits shown as 'others' in the annexure-II'. Therefore, vide note ....
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.... 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 Since the assessee could not prove the genuineness of the depositors of the unclaimed receipts, the same is being disallowed u/s 41 of the I.T. Act, 1961 and added back to the total income of the assessee. (Addition....
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....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 assessee offers no explanation about the nature and source thereof or the explanation offered by him Is not, in the opinion of the income tax officer, satisfactory the sum so credited may be charged to Income tax as the income of the assessee of that previous year." ....
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....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, subsequently the shares are purchased back at nominal amount, otherwise the shares keep on lying in the name of the entry operators. But in fact no profit is received from having invested so much ever in all cases including the present case. This in itself reflects that the transactions ....
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....ons 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 said decision, it was held that mere furnishing of income tax file numbers is not sufficient. In fact, once these materials have been produced, it is incumbent on the AO to enquire into the same .......... except disclosing the list of subscribers nothing has been produced before the authority either for establishing the identity of the ....
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....tion 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 furnishing of particulars is not enough." In the case of Oceanic Products Exporting Co. vs. CIT, 241 ITR 497, the Hon'ble High Court has observed that "it is trite law that when there is non-consideration of a relevant material and/or non-consideration of a plea not given up, or consideration of irrelevant material, a question of law may arise. But, in the case ....
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....see. 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 as declared by the assessee:- Rs. 893051/- Less:- Disallowance of Unclaimed Receipts:- Rs. 1550000/- Unexplained credit/deposits u/s 68:- Rs. 24440054/- Total Assessed Income Rs. 25097003/- Rounded Off Rs. 25097000/- Assessed at taxable income of Rs. 2,50,97,000/-. Credit of pre-paid taxes is given. Demand notice and challan issued. Interest charged as per the provisions of the I.T. Act 1961. Pena....
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....nd 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 Religare Securities Limited ("RSL") for Bombay Stock Exchange & National Stock Exchange. b. RSL is a company engaged in the business of providing stock broking and depository services. It appoints different sub brokers who collect the trade orders for purchase and sale of securities from their individual clients and these order are executed using RSL's trading platform. RSL earns the commission income from such clients, which is shared with CSPL c. The Appellant being a sub broker of RSL utilizes the trading platform provided by RSL f....
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....ative 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 5. * The copy of bank statement of the Appellant for AY under consideration evidencing receipt of security deposits through normal banking channels. The same is enclosed as Annexure 6. * The Appellant also produced complete books of accounts before AO for verification which had the ledger accounts of all the parties from whom security deposit was received along with the cheque details and which also had details of regular business transactions with them. The copy of ledger accounts of the parties is enclosed as Annexure 7. * Copy of certificates of tax deducted at source on payments m....
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....ejected 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 from whom security deposits have been received during the year. (c) The Appellant has failed to furnish documentary evidence for proving the receipt of security deposits. (d) The Appellant must have received PAN numbers of the depositors at the time of receipt of security deposits. the same being a mandatory requirement. (e) The Appellant has intentionally avoided furnishing records and evidences to the tax department. 2.3 Legal Submissions: At the outset the Appellant wishes to submit that the allegations made by the AO in his assessment order are totally baseless and without any merit. As mentioned above, the Appellant is engaged in the business of acting as sub-b....
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....ant 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 reasons: 23.1 Complete details of the parties from whom security deposits have been received were furnished with the AO: The AO while invoking the provisions of Section 68 of the Act has alleged that the Appellant has failed to furnish the basic details of the depositors from whom security deposits have been received during the year. The said contention of the AO if highly misplaced on account of following reasons: As mentioned in Para 2.1(g) above, during the course of Assessment proceedings, the Appellant has furnished following details with the AO:- * The list parties from whom security deposits have been received during the year along with their addresses. * Copy of confirmations received from 71 parties out of 178 parties fr....
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....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 deposits have been received through normal banking channels. To substantiate the same, the Appellant has submitted copy of bank statements evidencing receipt of security deposits from the aforesaid parties. * Apart from the above, the Appellant has also submitted copy of confirmations from 71 out of 178 parties stating that the security deposits have been given by them to the Appellant and has sought time to file the rest. Thus, the Appellant has duly discharged its onus of proving the bonafideness and genuineness of the transaction under consideration. Merely because the Appellant could not furnish balance confirmations of parties spread across the country on account of paucity of time could not be a ground to reject the genuineness of the transaction, Hence, the allegation made by the AO that the genuineness of the transaction has not been proved is in....
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....re 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 of Assessee may be treated as its income in the previous year Thus, Section 68 places the burden on the taxpayer to explain the nature and source of any credit found in the books. The expression "nature and source" has to be understood as a requirement of identification of the source and its genuineness. Further, the onus on the assessee has to be understood with reference to the facts of each case and proper inference drawn from the facts. 24.1 Discharge of Onus by the Assessee. Where the statute places the burden of proof in income tax cases on the taxpayer, it is to be understood that it is only the initial burden. The initial burden is a prima facie one in that, where the explanation is prima facie credible, the burden will shift to the other party. Where the prima facie inference on the facts is that the assessee's explanation is probable, the onus will shift to the revenue. It is in this context, that where an assessee explains the credit by giving evidence of identity of the investors....
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....If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises." * Reliance is also placed on the decision of jurisdictional Delhi High Court CIT vs. Dwarkashish Investment (P) Limited 239 CTR 478 2010 (copy atgytached as Annexure 12): In the instant case Assessee was engaged in the business of financing and trading of shares. The Assessee filed return declaring NIL income. The case was selected for scrutiny and notice under Section 143(2) of Act, 1961 was issued to the respondent- assessee. On scrutiny of accounts, the Assessing Officer found an addition of Rs. 71,75,000/- in the share capital of the assessee. The AO sought an explanation of the assessee about this addition in the share capital. The assessee offered a detailed explanation. However, according to the AO, the assessee failed to explain the addition share application money from five of its subscribers. Accordingly, AO made an addition of Rs. 35,50,000/- with the aid of Section 58 of Act, 1961 on account of unexplained cash credits appearing in the books of the assessee. However, in appeal, the Commissioner of Income Tax (Appeals) [in short "CIT(A)"] delet....
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....ujarat High Court in the case of DCIT v Rohini Builders. 256 ITR 360 (Guj.) (copy attached as Annexure 14) which has been upheld by Hon'ble Supreme Court in 254 ITR 276. In the said case it has been held that where the assessee has proved the identity of the creditors and the amounts were received by account payee cheques, the initial burden on the Assessee is discharged * Similar reliance is placed on the following judicial precedents: * CIT v Nilchem Capital Limited 18 Taxman 350 (Guj) (copy attached as Annexure 15) * Sarogi Credit Corporation vs. CIT (1976) 103 ITR 344 (Pat): * Ashok Pal Daga vs. CIT (1996) 220 ITR 452(MP); * CIT vs. Pragati Co. op. Bank Ltd., (278 ITR-170) (Guj.) * Nirma Industries Ltd. vs. DCIT (2006) 283 ITR 402 (Guj.) * Reliance placed on the decision of Patna High Court in the decision of CIT v Bahri Bros. (P.) Ltd. 154 ITR 244 (Pat.) (copy attached as Annexure 16) In the instant case, for the assessment year 1964-65, the ITO, having found certain deposits in the assessee's books in the names of certain parties, required assessee to explain the nature and source of these amounts. The assessee submitted that these amounts repr....
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....he same in this liquor business. The AO without pointing cut any substantial discrepancy in me statements recorded by him added the same in the Income of the assessee. We further find that the learned CIT(A) after considering the assessee's submission, however. deleted the addition made by the AO with the following finding appearing at p. 15 of his order : ".......... As a matter of fact, their statements proved the claim of the appellant and, therefore, such addition was not called for. Accordingly, addition of Rs. 37.46 lakhs is hereby deleted." In the absence of any contrary material brought on record by the Revenue against the finding of the learned CIT(A) and keeping in view that the assessee has discharged his burden and also considering the general trade of the assessee's business, we are of the view that there is no error in the order of the learned CIT(A) in deleting the addition of Rs. 37.46 lakhs and accordingly, the ground taken by the Revenue is rejected." * In ITO v Suresh Kalmadi 32 TTJ (Pune) TM 300 it was held that where identity of creditor is established and entry shown to be not fictitious, the burden shifts on to the department to show as to wh....
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.... so credited may be charged to Income-tax as the income of the assessee of that previous year. [Para 7] Before charging the credit as the income of the assessee, the Assessing officer has to form an opinion. This opinion is subjective, but it has to be judicious and based on material on record. An opinion is an inference of facts from observed facts. It is not an impression. It is a conviction based on appraisal of evidence on record. Thus. before the Assessing Officer forms an opinion, he must consider the material submitted by the assessee while giving an explanation. then he must collect his own material as an enquiry officer, weigh the explanation furnished by the assessee is authority form an opinion as to whether explanation furnished by the assessee is satisfactory or not. If the Assessing Officer does not apply his mind in examining the documents furnished by the assessee and does not find any substantive error in them nor he collects any material by exercising powers under Income-Tax Act, then the claim of the assessee cannot be straightway rejected. If he does, it would be a violation of principles of natural justice and provisions of section 68. [Para 8] The exp....
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....osits of more than Rs. 100,000 has been received. The copy of bank statement of the Appellant for under consideration evidencing receipt of security deposits through normal banking channels. The Appellant also produced complete books of accounts before AO for verification which had the ledger accounts of all the parties from whom security deposit was received along with the cheque details and which also had details of regular business transactions with them. Copy of 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. * In addition, the business model of the Appellant was also apprised to the AO wherein it was categorically mentioned that in the Appellant's line of business, acceptance of security deposits is imperative since it provides a safety net and thus minimizes the risk of any possible default in payment by the customers Thus, the appellant has proved the identity, bonafides and genuineness of the transaction to the satisfaction of th....
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....t could not act unreasonable and reject that explanation to hold that it was income. If, however, the evidence was unconvincing, then such rejection could be made. The Department cannot by merely rejecting a good explanation unreasonably, convert good proof into no proof In the Appellant's ease, the Appellant during the course of Assessment proceedings has explained to the AO that the acceptance of security deposits from the business partners is mandatory in the Appellant's line of business as it provides a safety net and thus minimizes the risk of any possible default in payment by the customers; hence the same is not of income nature. Further, the said security deposits were refunded / adjusted at the time of disassociation with the business partners. Hence, the same is not and cannot be of income character. (ii) The explanation given by the assessee cannot be rejected arbitrarily or capriciously, without sufficient grounds, on suspicion or imaginary or irrelevant grounds. The true view is that while the Assessing officer is not bound to accept as true any possible explanation which the Assessee may put forth, he cannot also arbitrarily reject the Assessee's ....
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.... deposits have been received during the year. Once the initial onus of the Appellant was discharged, it was upto the department to pursue the matter and trace the parties and examine their creditworthiness and the security deposits received cannot be added to the income of the Appellant. 2.4.3 No contrary evidence has been produced by the AO: The AO while invoking the provisions of Section 68 has merely acted on presumptions and surmises and rejected the explanation put forth by Appellant without producing any cogent evidence on record. The same is evident from following facts: * No evidence in contra-distinction has been placed on record by the AO while disregarding the explanation/documentary evidences furnished by the Appellant in relation to security deposits received during the year. * No independent enquiry verification was made by the AO from the depositors for verifying the correctness of Appellant's explanation despite the fact that the name and addresses of the depositors were duly furnished by the Appellant. * The AO has not made any effort to verify the assessment records of parties despite the fact that the PAN numbers of the parties were available w....
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....re taken to get the assessment records of the share applicants examined by the respective AO's having jurisdiction over them." Thus, it is abundantly clear that where the Assessee has submitted the complete details of credits received during the year and has proved the genuineness of the transaction, the onus shifts on the AO to place evidences to contradict the explanation/evidences filed by the Assessee. In case he failed to do so, provisions of Section 68 of the Act cannot be invoked. In the Appellant's case, as mentioned in Para 2.1(g) above, the Appellant has submitted the details of the depositors including their names, addresses and PAN numbers and proved the genuineness of the transaction. Thus, the onus shifted on the AO to contradict the evidences/explanation given by the AO which he fatted to do so. Hence, provisions of Section 68 cannot be invoked in the instant case. 24.4 Assessee must be given fair opportunity to explain the credit within a reasonable time: The inferences should be drawn after giving the assessee a fair opportunity to explain the credits. After the lapse of a decade an assessee should not be placed upon the rack and called upon to expl....
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....ture has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. The legislative mandate is not in terms of the words "shall be charged do income-tax as the income of the assessee of that previous year". In CIT v. Smt. P.K. Noorjahan (1999) 155 CTR (SC) 509, the Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word "may" and not "shall". Thus, the unsatisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee. 3. Conclusion: In view of the above facts and Judicial precedence's, it is respectfully submitted that the addition made by the AO by invoking provisions of Section 68 of the Act is had in law and liable to be quashed account of following reasons: (i) The AO acted purely on conjectures and surmises and on a preconceived notion while invoking provisions of Section 68 of the Act without appreciating the business model of the Appellant and the documentary evidences furn....
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.... engaged in the business of distribution of mutual fund products and providing business auxiliary services viz, marketing & business promotional services. The Petitioner is registered with Association of Mutual Funds in India ("AMFI"). Apart from this, the petitioner is also a registered sub-broker of Religare Securities Limited ("RSL")) for Bombay Stock Exchange & National Stock Exchange. b. RSL is a company engaged in the business of providing Stock broking and depository services. It appoints different sub brokers who collect the trade orders for purchase and sale of securities from their individual clients and these order are executed using RSL's trading platform. RSL earns the commission, income from such clients, which is Shared with CSPL c. The Petitioner being a sub broker of RSL utilizes the trading platform provided by RSL for execution of trade orders placed by its clients. In return, the Petitioner earns commission in the form of percentage share in brokerage income earned by RSL from trading done by the said clients. d. In order to expand and diversify its business, the Petitioner appointed business partners/agents on pan India basis. These business partne....
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.... filed by the Petitioner have no credence in eyes of law since even the PAN numbers have not been mentioned in such confirmations. k Thus the AO has treated security deposits of Rs. 24,440,054 received by the Petitioner as unexplained credit / deposits under section 68 of the Act and has added the same to the returned income of the Petitioner. The AO has not appreciated the fact that the Petitioner appointed business partners on pan India basis and getting the confirmations from various places across the country is a time consuming process. Thus, adequate lime was not available to the Petitioner to provide confirmations from all the depositors spread across various parts of the country. In addition to this various business partners had disassociated themselves with the Petitioner therefore getting confirmations from them was not possible. In view of the above, if is respectfully submitted that the Petitioner has not been provided reasonable time and opportunity to furnish the confirmations from all the depositors. In light of the aforementioned facts, the Petitioner requests your Honor to admit the following S. No. Particulars Annexure No. 1 Copy of 22 additional co....
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....regard, it is submitted that the PAN numbers of the business partners were not available at that time and hence the Petitioner was prevented by sufficient cause from providing the same to the Assessing Officer. The Petitioner now therefore, in terms of clause (c) of Rule 46A(1) of the Income tax Rules, requests Your Honor to kindly admit the additional evidence viz. copy of 71 confirmations mentioning PAN details of business partners (enclosed as Annexure 2) and kindly consider the same for [udlc.ous disposal of the appeal." 3.2 The additional evidences along with submission of the appellant were sent to the AO under Rule 46A for his comments, if any. The AO in the remand report dated 09.07.2014 opposed the admission of additional evidences under Rule 46A and submitted as under:- "Brief facts of the case are that the assessment in this case was completed u/s 143 (3) on 14.12.2010, after making the additions/disallowance on account of disallowance of unclaimed receipts (Rs. 1550000) and unexplained credit/deposits u/s 68 (Rs. 24440054). During the course of assessment proceedings, the assessee was vide order sheet entry dated 26.10.2010 was required to produce the details o....
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....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. The assessee has 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 A.O. 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. In this case, the assessee has not furnished the complete details in spite of being specifically asked to furnish address, copy of account and confirmations vide order sheet entries dated 22.11.2010 and 29.11.2010. The assessee had been provided time of more than three weeks and since the matter was getting barred by limitation on 31.12.2010 the A.O. had complete the proceedings and passed the order 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 suf....
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....hare 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. 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 'he Appellant. - During the assessment year under consideration the Appellant appointed more than 270 business partners on pan India basis. Further, the Appellant has received securities deposits, aggregating to Rs. 30,091,531/-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 the Appellant with copy of their accounts and confirmations from the respective parties that they have actually given security deposit. - To prove the genuineness and bona fides of the receipt of security deposit, the Appellant submitted the details of the parties from whom securi....
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....ssee 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 he accepted and admitted at the appellate stage during appellate proceedings before your goodself. 3. Appellant's rejoinder Without prejudice to the fact that the Appellant was directed by your respective predecessor to file a petition under Rule 46A % of the Rules, our rejoinder to the remand report issued under section 250(4) of the Act dated 3rd July 2014 is as follows: During the course of assessment proceeding, vide order sheer entry dated 26.10.2010 the AO sought details of the parties from whom security deposits were received. Vide submission....
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.... parties. This report is based on the information available on Government of India website i.e. https://www.tdscpc.gov.in/ded/panverify.xhtml. Please refer Annexure-I. We request you to take the above submissions on record. We would be pleased to furnish any additional details/documents which you may require." 3.4 Further, the CIT(A) again directed the AO to furnish complete details u/s 68 of the Act amounting to Rs. 2,44,40,054/-. The appellant submitted a list of 89 persons who had given loans in cash to the appellant company. AO examined only 34 loan creditors. Therefore, the CIT(A) asked the AO to examine the rest of the loan creditors and submit his report. The AO in his report submitted as under:- "The relevant provisions of the furnishing of Additional Evidence under 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 or documentary, other than the evidence produced by him during the course of proceedings before the A.O. except in the following circumstances, namely: - (a) Where the A.O. has refused to admit evidence which ought to have been a....
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.....10.10, the assessee was requested the details of security received. Vide reply dated 10.11.10, the assessee the details of security deposits received from various parties/individual amounting to Rs. 3,00,91,531/-. Out of the above sum of Rs. 3,00,91,531/- assessee has received security deposits above Rs. 1 lakhs from 178 parties and a total amount of Re 56,51,477/-from parties with an amount less than Rs. 1 lac. Further vide order sheet entry dated 22.11.10, assessee was required to produce complete address of the parties from whom securities received with their copy of account and confirmation. Since, the assessee did not furnish any documents in this regard, vide order sheer entry dazed 29.11.10, the assessee was again requested 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, which is mandatory for providing the identity and genuineness of the party. In 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 Credit/depos....
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.... the said order, the AO has assessed the total income 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 unclaimed receipts 1,550,000 2. Treatment of security deposits received by the Appellant as unexplained credit / deposits under 68 of the Act 24,440,054 Aggrieved by the above additions the Appellant has preferred this appeal before your predecessor. Detailed written submission dated 5th March 2012 and 23rd April 2012 on the respective grounds of appeal has been filed with your office during the course of hearing before your respective predecessors. 2. Issue in appeal with respect to addition of Rs. 24,440,054 made by the AO to the returned income * The Appellant is inter alia engaged in the business of distribution of mutual fund products and providing business auxiliary services viz. marketing & business promotional services. It is also a sub-broker of Religare Securities Limited ("RSL"). As part of its sub-broking business, it has appointed large number of agents / business partners which have referred clients for trad....
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....as added the same to the returned income of the Appellant. * The Appellant has filed 22 additional confirmations which had PANs of the parries 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 curse of assessment proceeding, * Your Honor's respected predecessor treated such confirmations which had the PAN of the respective parties as an additional evidence and directed the Appellant to a petition under Rule 46A of the Income Tax Rules, 1962 ("the Rules"), so that such confirmations can be re-examined by the AO. The Appellant, as directed filed a petition dated 12th November 2013 under Rule 46A of the Rules. * On such petitioner AO has issued a Remand Report under Section 250(4) of the Act dated 3rd July 2014. The AO in its remand report has challenge the additional evidence filled under the direction of your respective predecessor on the legal ground stating: "That the assessee is entitled to produce additional evidence before the appellat....
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.... misplaced 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 Rules, wherein quoting of PAN number is a mandatory requirement. Hence, there was no obligation either on the payer to provide its PAN number or on the Appellant to obtain PAN number at the time of receipt of security deposit. Therefore the assertion of the AO is without any basis. 4. The Appellant with the above referred rejoinder attached a report showing the correctness of such PAN numbers provided by its business partners/ parties for Your Honor's respected predecessor. This report based on the information available on Government of India website i.e. http://www.tdscpc.gov.in/app/ded/panverify.xhtml. The same report is attached as Annexure-I. 5. However Your Honor's respected predecessor informed us that she has written to the AO to check the correctness or otherwise of the PAN. We are not aware whether the AO has responded to this request. 6. We have been given a copy of the report dated March 11, 2015 which the AO has issued pursuant to the directions issued by Your Honor. me Appellant i....
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....'s rejoinder thereto. The appellant company filed its return of income on 27.09.2008 declaring loss of Rs. 8,93,051/-. The ease was selected for scrutiny. The appellant company was engaged in the business of mutual fund distribution and marketing & promotional services during the year under consideration. Grounds nos. 3 to 3.2 of the appeal are directed against the addition u/s 41 of the Act of Rs. 15,50,000/- shown as unreconciled/unclaimed receipts by the appellant at the end of the year. The AO in the assessment proceedings observed that the company had shown "security deposits" under Schedule-G: Current Liabilities. AO asked the appellant to produce the details of these security deposits and from the details filed, the AO observed that the appellant had shown 'unclaimed receipts' amounting to Rs. 15,50,000/- among the details of security deposits. The AO asked the appellant to furnish details of unclaimed receipts of Rs. 15,50,000 shown among security deposits and to show cause as to why the same be not added 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 perio....
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....le to produce confirmations from 71 parties. Even in the case of these latter 71 parties, Permanent Account Numbers (PANs) were not mentioned in all the confirmations. Accordingly, the Assessing Officer added the entire amount of these deposits as unexplained cash credits u/s 68 of the Act. During appellate proceedings, the appellant contended that it was not provided sufficient time by the Assessing Officer to obtain the requisite details from as many as 178 parties spread all over the country and therefore requested for admission of additional evidence by way of confirmations of 22 more parties as well as PANs of those of the 71 parties which were not furnished before the A.O. Although the Assessing Officer has objected to the admission of this additional evidence stating that none of the conditions laid down in Rule 46A (1) wags fulfilled, I am of the opinion that the appellant's case falls under clause (d) of Rule 46A (1) since the Assessing Officer passed the order without giving sufficient time and opportunity (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 al....
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.... 89 parties and accordingly a second remand report was called for by the CIT (A) vide letter no. CIT (A)-Vi/Report/14-15/722 dated 21.10.2014 with the directions inter-alia to examine and verify the creditworthiness of the creditors. In pursuance of the directions of the CIT (A), the A.O. issued notices to those parties who had filed confirmations with complete/legible addresses (82 such patties), which elicited positive response from only one party, a denial of any transaction with the appellant by another party and no response at all from the other parties. In the remaining cases, it was not possible for the A.O. to conduct any enquiry, for want of details from the appellant company. 4.2.3 The law regarding cash credits is very clear. The onus is on the assessee in whose books an amount is credited to explain the nature and source of the same. Otherwise the amount is liable to be added to the assessee's income u/s 68 of the I.T. Act. Even presuming 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....
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....r further. However, in the appellant's cases as discussed above, full details of the parties giving the security deposits were lacking. As long as those details were not the onus did not shift upon the A.O./Revenue. Before me, the appellant has also filed copies of TDS certificates as proof that the parties from whom security deposits were received were agents of the appellant and that tax had been deducted at source from payments made to them. But this, in no way proves the source of the security deposits claimed to have been received. It may be possible that a relatively small payment, say Rs. 10,000/- was made to an agent from whom security deposit of substantial amount e.g. Rs. 1 lac was shown to have been received. In other words, payment to an agent and deduction of tax from such payment docs not prove the creditworthiness of that agent or the genuineness of the purported security deposit from that agent. 42.5 In view of the 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 ....