TaxTMI 
TaxTMI 
2020 (6) TMI 634
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....lender and genuineness of the transaction. 3. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in overlooking the fact that the assessee failed to prove the "nature" of credit in the absence of any agreement or M.O.U between the Assessee and the lender, in respect of the alleged proposed Joint Venture towards which the amount was claimed to have been received. 4. The appellant prays that the order of CIT(A) on the above ground be set-aside and that of the assessing officer be restored. The assessee has filed cross-objections by raising following grounds: - 1. The Ld. CIT(A) erred in holding that the A.O. has reason to believe that income has escaped assessment and has rightly issued notice u/s. 148 whereas reopening u/s. 147 is illegal as it is based on only conjecture and surmises. 2. We have carefully heard the arguments advanced by both the representatives and perused relevant material on record including documents placed in paper book. We have also deliberated upon judicial pronouncements cited before us during the course of hearing. Our adjudication to the subject matter of appeal would be as given in succeeding paragraphs. 3.1 Briefly....
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.... placed on the decision of Hon'ble Bombay High Court in Orient Trading Co. V/s CIT (49 ITR 723) for the submissions that the assessee was not required to prove the source of source of credits appearing in its books of account. In the above background, the assessee submitted that primary ingredients as envisaged by Sec.68 were fulfilled by the assessee and therefore, the additions were unjustified. 3.5 The assessee, vide another submission dtd. 16/12/2016 submitted following documents relating to M/s MSPL in support of the transactions:- (i) Copy of ITR for A.Y.2011-12 showing returned income at NIL, filed on 30-09-2011; (ii) Copy of Directors Report, Auditors Report, Balance Sheet as at 31-03-2011; Profit and Loss Account for the year ending 31-03-2011 along with few schedules; (iii) Confirmation of ledger account of the assessee as appearing in the books of Minaxi Suppliers Pvt. Ltd. for the year ending 31-03-2011 showing payments on various dates between May and October 2010 and amount outstanding as at 31-03-2011 at Rs. 10,20,00,000. (iv) Copy of assessment orders u/s.143(3) a. dated 26-03-2013 for A.Y.2010-11 assessing total income at Rs. 8,23,220 and b. dated 1....
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....d end (31-03-2011) of the year, stood at Rs. 3,31,00,000. Profit & Loss Account for the year ending 31-03-211 revealed that the only income of Rs. 2,40,000 of the assessee company was by way of Consultancy fees, against which it claimed expenses to the extent of Rs. 1,48,479, which included w/off of Miscellaneous Expenses to the extent of Rs. 86,709. Other expenses largely comprised of salary of Rs. 36,000, Audit Fees of Rs. 16,545 and other charges including bank charges of Rs. 3,864. The only asset appearing in the Balance Sheet was Computer amounting to Rs. 2,15,887. This computer was also purchased only during second half of the year under assessment, as the assessee claimed depreciation of Rs. 64,766, being @ 30% of Rs. 2,15,887. Despite this poor performance in business, Unsecured loans of the assessee increased from Rs. 4,22,45,712 (as on 01-04-2010) to Rs. 28,26,30,000 (as on 31-03-2011), which included loan from Meenaxi Suppliers Pvt. Ltd. The loan amount increased from Rs. 29,00,000 (as on 01-04-2010) to Rs. 10,20,00,000 (as on 31-03-2011). 5.4.4 From the Balance Sheet as at 31-03-2011 of Minaxi Suppliers Pvt. Ltd., it is observed that there is no increase in the amount....
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.... by Ld.AO as to the nature of projects, the assessee submitted that it was exploring various business opportunities. The proposed project could not take off since the land was declared as private forest by the government and projects were stalled. 4.3 The aforesaid factual matrix as well as assessee's submissions find favor with Ld.CIT(A) who concluded the matter in assessee's favor with following observations: - 6.3 Decision I have considered the facts of the case and submissions made by the assessee. The brief facts of the case are Kolkata Investigation Wing of the department carried out an in-depth enquiry in the case of M/s KJM International whose proprietor is Shri Sanjay Kumar. Shri Kumar had a large value of cash transactions in his personal savings bank account. It was found by the Kolkatta wing that monies were routed through various entities controlled by another person namely Shri Anand Sharma who was raided by the Department and admitted to have indulged in hawala operations through various paper companies not doing any real business. M/s Minaxi Suppliers Pvt. Ltd was one of such paper companies and the assessee was reported to have received Rs. 10.2 Crores from ....
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....ounts to enable it to offer the loan. Once these documents are produced, the assessee would have satisfactorily discharged the onus cast upon him. Thereafter, it is for the A.O. to scrutinize the same and in case he nurtures any doubt about the veracity of these documents, to probe the matter further. Reference is invited to the decision of Hon'ble Delhi High Court in the case of CIT vs Himalaya International Ltd, 214 CTR Del 437 (2008) in which Hon'ble Court has held vide its order dated 30.07.2007 that if the Assessing officer harbours doubt of the legitimacy of any loan, he is empowered, and duty bound to carry out thorough investigation u/s 68 of Income-tax Act, 1961. The assessee has to prima facie prove (1) the identity of the creditor (2) the genuineness of the transaction (3) Financial capacity of the person, i.e. the credit worthiness of the creditor. Further, reference is also invited to the decision of Hon'ble Calcutta High Court in the case of CIT Vs M/s Precision Finance Pvt Ltd (208 ITR 465). In this case the appellant has produced a valid confirmation letter proving the identity of the creditor. Similarly, ledger account and bank statements prove the ....
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....have been produced to prove the three ingredients of Sec 68 of the Act, no evidentiary value is attached to the copy of Joint Venture agreement undertaken between the assessee and MSPL. The AO has also brought on record that the appellant failed to produce the Director of MSPL as his witness to prove the genuineness of the unsecured loan transaction. However, when an assessee submits all the documents, and if the AO rejects those documents, the next course of action for the AO is to put in efforts to gather evidences by conducting enquiry to examine the truth in respect of the cash credit which has not been done. As explained earlier, Hon'ble Delhi High Court in the case of CIT vs Himalaya International Ltd, 214 CTR Del 437 (2008) held vide its order dated 30.07.2007 that if the Assessing officer harbours doubt of the legitimacy of any loan, he is empowered and duty bound to carry out thorough investigation u/s 68 of Income-tax Act, 1961. The AO has analysed the financial strength of the appellant company and also the creditor M/s. HSPL to disprove the genuineness of the transaction and has presumed that the transaction was not as per business prudence. It is already mentione....
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....he assessee is deemed to have discharged his onus and no further responsibility lies on the assessee to prove the source from where the creditor has acquired the amounts advanced to the assessee. ! ii. Hon'ble Patna High Court in the case of Sarogi Credit Corporation V/s. CITI1976 103 ITR 344 (Pat) and Bombay High Court in the case of Shantilal Jain ITXA/687/2004 decided on31.7.2007: When loan is accepted through normal banking channels, the identity of the creditor stands proved. However, merely because amounts have been received through banking channels, it is not sufficient to prove the genuineness of the credits. But the existence of a bank account of the creditor itself proves the existence of the creditor. The reason is very simple. Where the amounts are owned by the creditors, then even if it be presumed that the creditor had advanced the amounts from his undisclosed sources, still it would become the income of the said creditor and not that of the debtor (the assessee). iii. Hon'ble Gauhati High Court in the case of Nermi Chand Kothari V/s. GIT (2003) 264 ITR 254 (Gau.): The assessee cannot be called upon to prove the source-ofsource. iv. Hon'ble Karnataka....
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....tly, in the case in hand, the amounts received are not share investment and further this proviso would apply only from A.Y. 2013-14. However, the said proviso was inserted because, sec.68 (unamended) was incapable of obliging the assessee to prove the source-of-source and hence the proviso was required to be inserted. It follows that where the proviso doesn't apply, the sec.68 does not put the burden on the assessee to prove the source-of-source. viii. Hon'ble Supreme Court in the case of GIT V/s. Daulat Ram Rawaltmull 87 ITR 349 (SC): It is not the business of the assessee to find out the source of the money of his creditors. ix. Hon'ble Apex Court in the case of GIT vs Orissa Corporation Pvt. Ltd: 158 ITR 78 (SO: It is also possible that a creditor may have advanced funds from out of his exempted income. For eg. If the creditor has agricultural income which is exempt, then merely because the creditor is not assessed to tax, it does not follow that the credits are assessee's income." From the above factual and the decisions of the Hon'ble Courts, it is summed up as a transaction which is supported by documentary evidences and could not be treated as bogus....
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.... sum so credited consists of share application money, share capital, share premium etc., the explanation furnished by the assessee shall be deemed to be not satisfactory unless the person in whose name such credit is recorded also offers an explanation about nature and source of sum so credited and such explanation is found to be satisfactory. However, this proviso is applicable only from AY 2013-14 and the same is not retrospective in nature as held by Hon'ble Bombay High Court in the case of CIT Vs. Gagandeep Infrastructure Private Limited [80 Taxmann.com 272]. The said position has also been reiterated by Hon'ble Bombay High Court in its recent decision tilted as Gaurav Triyugi Singh V/s ITO (ITA No.1750 of 207, dated 22/01/2020) which also consider its earlier decision of Pr.CIT V/s Veedhata Towers Pvt. Ltd. (2018 403 ITR 415). More pertinently, the said proviso is not, at all, applicable in case of unsecured loans or deposits, which is the case of the assessee. 5.2 It is settled position of law that to avoid the rigors of Section 68, the assessee must prove the identity, creditworthiness of the lenders / investors to advance such monies and genuineness of the transactions. O....
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....preme Court in its recent decision titled as Pr.CIT Vs. NRA Iron & Steel Pvt. Ltd. [412 ITR 161]. 5.3 Keeping in mind the aforesaid legal position, we find that the assessee, in support of the stated transactions, furnished following documentary evidences with respect to M/s MSPL during assessment proceedings: - (i) Copy of ITR for A.Y.2011-12 showing returned income at NIL, filed on 30-09-2011; (ii) Copy of Directors Report, Auditors Report, Balance Sheet as at 31-03-2011; Profit and Loss Account for the year ending 31-03-2011 alongwith few schedules; (iii) Confirmation of ledger account of the assessee as appearing in the books of Minaxi Suppliers Pvt. Ltd. for the year ending 31-03-2011 showing payments on various dates between May and October 2010 and amount outstanding as at 31-03-2011 at Rs. 10,20,00,000. (iv) Copy of assessment orders u/s.143(3) a. dated 26-03-2013 for A.Y.2010-11 assessing total income at Rs. 8,23,220 and b. dated 11 -02-2015 for A.Y.2012-13 assessing total income at Rs. 1,32,500. (v) Company master Data showing details of Minaxi Suppliers P. Ltd., showing Jashmin Ramesh Bhayani and Sagar Pankaj Bhayani as its directors The Ld. AO, in its ....
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.... the genuineness and creditworthiness of the transactions. Therefore, the matter was set aside by Hon'ble Court to the file of Ld. CIT(A) for fresh consideration / adjudication. The same is not the case here since the assessee has filed sufficient documentary evidences to establish the fulfillment of three primary ingredients of Sec. 68. 5.8 The case law of Hon'ble Supreme Court in Pr.CIT Vs. NRA Iron & Steel Pvt. Ltd. [412 ITR 161] has already been considered by Hon'ble Bombay High Court in its recent decision titled as Pr. CIT V/s Ami Industries (India) Pvt. Ltd. [ITA No. 1231 of 2017, dated 29/01/2020) and after considering the same, Hon'ble Court has taken the view favorable to the assessee. The relevant observations were as under: - 10. Mr. Suresh Kumar, learned standing counsel, revenue has taken us through the assessment order and submits therefrom that it cannot be said that assessee had discharged the burden to prove credit worthiness of the creditors. His further contention is that the assessee is also required to prove the source of the source. In this connection, he has placed reliance on a decision of the Supreme Court in Pr. CIT Vs. NRA Iron & Steel Pvt Ltd. He, t....
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....ed considerable judicial attention through various pronouncements of the Courts. It is now well settled that under Section 68 of the Act, the assessee is required to prove identity of the creditor; genuineness of the transaction; and credit worthiness of the creditor. In fact, in NRA Iron & Steel (P) Ltd (supra), Supreme Court surveyed the relevant judgments and culled out the following principles: "11. The principles which emerge where sums of money are credited as Share Capital/Premium are: i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the credit-worthiness of the creditor / subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii. If the inquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuine....
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....itors: a) PAN number of the companies; b) Copies of Income Tax return filed by these three companies for assessment year 2010-11; c) Confirmation Letter in respect of share application money paid by them; and d) Copy of Bank Statement through which cheques were issued. 20. Tribunal noted that Assessing Officer had referred the matter to the investigation wing of the department at Kolkata for making inquiries into the three creditors from whom share application money was received. Though report from the investigation wing was received, Tribunal noted that the same was not considered by the Assessing Officer despite mentioning of the same in the assessment order, besides not providing a copy of the same to the assessee. In the report by the investigation wing, it was mentioned that the companies were in existence and had filed income tax returns for the previous year under consideration but the Assessing Officer recorded that these creditors had very meager income as disclosed in their returns of income and therefore, doubted credit worthiness of the three creditors. Finally, Tribunal held as under: "5.7 As per the provisions of Section 68 of the Act, for any cash credit ap....
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....ation wing of the department at Kolkata and collected all the materials which proved source of the source. 22. In NRA Iron & Steel (P) Ltd (supra), the Assessing Officer had made independent and detailed inquiry including survey of the investor companies. The field report revealed that the shareholders were either non-existent or lacked credit-worthiness. It is in these circumstances, Supreme Court held that the onus to establish identity of the investor companies was not discharged by the assessee. The aforesaid decision is, therefore, clearly distinguishable on facts of the present case. 21. Therefore, on a thorough consideration of the matter, we are of the view that the first appellate authority had returned a clear finding of fact that assessee had discharged its onus of proving identity of the creditors, genuineness of the transactions and creditworthiness of the creditors which finding of fact stood affirmed by the Tribunal. There is, thus, concurrent findings of fact by the two lower appellate authorities. Appellant has not been able to show any perversity in the aforesaid findings of fact by the authorities below. 22. Under these circumstances, we find no error or in....
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....he bench could fix a future date of pronouncement of the order which shall not ordinarily be a day beyond a further period of 30 days. Thus, a period of 60 days has been provided under the extant rule for pronouncement of the order. This period could be extended by the bench on the ground of exceptional and extraordinary circumstances. However, the extended period shall not ordinarily exceed a period of 30 days. 7.2 Although the order was well drafted before the expiry of 90 days, however, unfortunately, on 24/03/2020, a nationwide lockdown was imposed by the Government of India in view of adverse circumstances created by pandemic covid-19 in the country. The lockdown was extended from time to time which crippled the functioning of most of the government departments including Income Tax Appellate Tribunal (ITAT). The situation led to unprecedented disruption of judicial work all over the country and the order could not be pronounced despite lapse of considerable period of time. The situation created by pandemic covid-19 could be termed as unprecedented and beyond the control of any human being. The situation, thus created by this pandemic, could never be termed as ordinary circum....
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....s in the similar lines as are laid down by the Apex Court in the case of Anil Rai (supra) and to issue appropriate administrative directions to all the benches of the Tribunal in that behalf. We hope and trust that suitable guidelines shall be framed and issued by the President of the Appellate Tribunal within shortest reasonable time and followed strictly by all the Benches of the Tribunal. In the meanwhile (emphasis, by underlining, supplied by us now), all the revisional and appellate authorities under the Income-tax Act are directed to decide matters heard by them within a period of three months from the date case is closed for judgment". In the ruled so framed, as a result of these directions, the expression "ordinarily" has been inserted in the requirement to pronounce the order within a period of 90 days. The question then arises whether the passing of this order, beyond ninety days, was necessitated by any "extraordinary" circumstances. 9. Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, Hon'ble Prime Minister of India took the bold step of imposing a nationwide lockdown, for 21 days, to prevent the spread of Covid 19 epidemic, ....
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....mic has been notified as a disaster under the National Disaster Management Act, 2005, and also in the light of the discussions above, the period during which lockdown was in force can be anything but an "ordinary" period. 10. In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only in consonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Und....