TaxTMI 
TaxTMI 
2020 (6) TMI 634
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....der, does not prove identity and creditworthiness of the 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....
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....ed that the payments were received from M/s MSPL though regular banking channels. Reliance was 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. (i....
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....para 5.4.3 & 5.4.4, as under: - 5.4.3 Analysis of Balance Sheet of the assessee as at 31-03-2014, revealed that its Share Capital at the beginning (01-04-2010) and 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....
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....mitted by it in support of the transactions, asserted that it had discharged the primary onus of proving identity, genuineness and creditworthiness of the lenders. Regarding the apprehension raised 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 i....
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....worthiness or financial strength of the creditor is concerned that can be proved by producing the bank statement of the creditor or copy of return of income and balance sheet, showing it had sufficient balance in its accounts 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 t....
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.... The addition has been made on the ground of genuineness and it is an undisputed fact that the assessee produced the documents which comply all the three ingredients of Sec 68 of the Act. When confirmation letter, financial statements and bank statements 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....
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.... the assessee to prove the genuineness of the same and on failure of the assessee, the presumption u/s. 68 becomes absolute and the credits are treated as 'income1 of the assessee. The assessee can discharge the onus by producing confirmation from the creditor and proving the source of the credits. When the creditor accepts/owns the loan, the 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 ....
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....ot ask the Source of the Source for years prior to 2013-14. vii. Bombay High Court in the case of Ganqadeep Infrastructure 394 ITR 680 (Bom.): This proposition can be had from the proviso inserted in sec.68 by Finance Act, 2012 from A.Y. 2013-14. Under this proviso, where the assessee receives share application monies/premium, the assessee is expected to prove source of-source as well. Firstly, 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 hav....
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....ere any sum is found credited in the assessee's books and assessee offers no explanation about the nature and source thereof or the explanation furnished is found to be unsatisfactory, the sum so credited may be charged to Income-Tax as the income of the assessee of that previous year. A proviso has been inserted to the said section by Finance Act, 2012 w.e.f. 01/04/2013 to provide that where the assessee is a company and the 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 earl....
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....h in Pr. CIT V/s Chain House International Pvt. Ltd. [98 Taxmann.com 47] against which revenue's Special Leave Petition has been dismissed by Hon'ble Supreme Court on 18/02/2019 which is reported at 103 Taxmann.com 435. Similar is the recent decision of Hon'ble Bombay High Court in Pr. CIT V/s Ami Industries (India) Pvt. Ltd. [ITA No. 1231 of 2017, dated 29/01/2020) which has been rendered after considering the principles laid down by Hon'ble Supreme 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 payme....
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....heques were issued to the respondent assessee. The same is not the case here since Ld. AO records a fact that loans were sourced by liquidating the unquoted investments. 5.7 The case law of Hon'ble Delhi High Court in the case of CIT V/s Jansampark Advertising & Marketing Pvt. Ltd. [2015 56 Taxmann.com 286], would also not apply since upon perusal of para-41 of the judgment, it is quite discernible that the assessee had come up with the proof of identity of some of the entities in question but failed to establish 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 ....
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....dited may be charged to income tax as the income of the assessee of that previous year. Simply put, the section provides that if there is any cash credit disclosed by the assessee in his return of income for the previous year under consideration and the assessee offers no explanation for the same or if the assessee offers explanation which the Assessing Officer finds to be not satisfactory, then the said amount is to be added to the income of the assessee to be charged to income tax for the corresponding assessment year. 14. Section 68 of the Act has received 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 o....
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....o facto mean that the creditors had no credit worthiness. In such circumstances, the first appellate authority held that where all material evidence in support of explanation of credits in terms of identity, genuineness of the transaction and creditworthiness of the creditors were available, without any infirmity in such evidence and the explanation required under Section 68 of the Act having been discharged, Assessing Officer was not justified in making the additions. Therefore, the additions were deleted. 19. In appeal, Tribunal noted that before the Assessing Officer, assessee had submitted the following documents of the three creditors: 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 inves....
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....tity of the creditors were not in doubt. Assessee had furnished PAN, copies of the income tax returns of the creditors as well as copy of bank accounts of the three creditors in which the share application money was deposited in order to prove genuineness of the transactions. In so far credit worthiness of the creditors were concerned, Tribunal recorded that bank accounts of the creditors showed that the creditors had funds to make payments for share application money and in this regard, resolutions were also passed by the Board of Directors of the three creditors. Though, assessee was not required to prove source of the source, nonetheless, Tribunal took the view that Assessing Officer had made inquiries through the investigation 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 invest....
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....d see no reason to deviate from the findings of Ld.CIT(A), in the impugned order, in this regard. Resultantly, the cross-objections stands dismissed. Reasons for delay in pronouncement of order 7.1 Before parting, we would like to enumerate the circumstances which have led to delay in pronouncement of this order. The hearing of the matter was concluded on 19/02/2020 and in terms of Rule 34(5) of Income Tax (Appellate Tribunal) Rules, 1963, the matter was required to be pronounced within a total period of 90 days. As per sub-clause (c) of Rule 34(5), every endeavor was to be made to pronounce the order within 60 days after conclusion of hearing. However, where it is not practicable to do so on the ground of exceptional and extraordinary circumstances, the 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 Althou....
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....future day for pronouncement of the order, and such date shall not ordinarily (emphasis supplied by us now) be a day beyond a further period of 30 days and due notice of the day so fixed shall be given on the notice board. 8. Quite clearly, "ordinarily" the order on an appeal should be pronounced by the bench within no more than 90 days from the date of concluding the hearing. It is, however, important to note that the expression "ordinarily" has been used in the said rule itself. This rule was inserted as a result of directions of Hon'ble jurisdictional High Court in the case of Shivsagar Veg Restaurant Vs ACIT [(2009) 317 ITR 433 (Bom)] wherein Their Lordships had, inter alia, directed that "We, therefore, direct the President of the Appellate Tribunal to frame and lay down the guidelines 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 Tribun....
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....erate shall be added and time shall stand extended accordingly", and also observed that "arrangement continued by an order dated 26th March 2020 till 30th April 2020 shall continue further till 15th June 2020". It has been an unprecedented situation not only in India but all over the world. Government of India has, vide notification dated 19th February 2020, taken the stand that, the coronavirus "should be considered a case of natural calamity and FMC (i.e. force majeure clause) maybe invoked, wherever considered appropriate, following the due procedure...". The term 'force majeure' has been defined in Black's Law Dictionary, as 'an event or effect that can be neither anticipated nor controlled' When such is the position, and it is officially so notified by the Government of India and the Covid-19 epidemic 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 pronounceme....