TaxTMI 
TaxTMI 
2022 (7) TMI 537
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....uiness of transaction & creditworthiness is discharged by the assessee filling confirmation, PAN, copy of Return of Income, bank statements along with audited report of depositor companies. 2. Ld. CIT(A) erred in law and on facts in confirming addition made by assessing officer treating cash credits as bogus simply relying on statement of some depositors without opportunity of cross examination to the assessee. Ld. CIT(A) ought to have appreciated that any addition behind the back of the assessee relying on generalized statement is not legally tenable. Ld. CIT(A) ought to have deleted addition made without any basis. 3. Ld. CIT(A) erred in law and on facts in holding that the assessee failed to prove identity of depositors since they were not traceable at address as per the inquiry conducted by investigation wing. Ld. CIT(A) ought to have deleted addition when all the depositors responded to the notice under section 133(6) by assessing officer confirming transaction with documentary evidences. 4. Ld. CIT(A) erred in law and on facts in concurring with assessing officer that the depositor companies having meager income 7 low bank balances acted as a condui....
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....ource of funds were share capital/share premium. The assessing officer on the basis of the information received from Investigation Wing Kolkata found that enquiries made by the Investigation Wing Kolkata revealed that these companies do not exist at the given addresses and no proper business activities is carried out by these companies. The Investigation Wing, Kolkata had recorded the statement on oath of the operators of the 3 companies namely Indralok Tie-up Pvt. Ltd., Seven Star Trader and Services Pvt. Ltd. and Vikash Chaudhary who admitted to be entry operators and merely providing entries on a commission basis. The assessing officer vide letter dated 27.02.2015 directed the assessee to produce the Principal Officers of the 12 lender companies but no compliance was made by the assessee. The assessing officer on examination of the financial statements of these 12 companies observed that these are 'paper companies' not actually doing any genuine business activities and therefore the assessing officer held that these 12 companies did not have capacity to make investments in the unsecured loans of Rs.2,44,00,000/-, therefore, assessing officer made addition u/s 68 of the A....
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.... Mr. Vikas Chaudhary have admitted in their statements given before the Department that they are mere entry providers and no regular activity has even been carried out by them except providing entries for a commission. Copies of their statements have been provided to the assessee for perusal. They neither have the capacity nor the creditworthiness to advance such substantial loans, therefore addition made by the assessing officer may be confirmed. 7. We have heard both the parties and gone through the material available on record, we note that Assessee -Company has miserable failed to prove identity, as explained by ld DR that assessing officer vide letter dated 27.02.2015 directed the assessee to produce the Principal Officers of the 12 lender companies but no compliance was made by the assessee, therefore identity of these Lender Companies has not been proved. We note that out of twelve lender companies, none appeared before assessing officer. We also find merit in the submission of ld DR to the effect that the fact that loan has been repaid in subsequent years, has not been examined by the assessing officer That is, ld DR argued before us that the said issue may be remitted b....
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.... justice. The assessee other contention that the assessing officer did not provide the opportunity to cross examine the persons whose statement were recorded by Kolkata Investigation Wing, regarding the Accommodation Entry Providers is also misplaced. The assessing officer provided the copy of the statement on oath of these persons during the assessment proceedings. The assessing officer has not blindly relied upon these statements to draw a conclusion. He has made a reference only of these statements but has relied upon his own analysis and findings on the basis of the examination of the Tax returns, financial statements, bank account statements etc. to hold that these lenders are mere paper companies with no genuine business activities. In fact the assessing officer provided the assessee an opportunity during the assessment proceedings to produce the Principal Officer/Directors the lending companies on 27/02/2015 but the assessee chose not to produce them. 6.1.7. On the examination of the various details furnished by the assessee in each of the 12 investors companies, which are briefly enumerated as following: Sr. No. Name Address Date of Filling Return of In....
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....ss Trading and Interest Income Trading and Interest Income No Fixed Assets 12 Wellman Tielp Pvt. Ltd. A Block Flat No. 21, Gagandeep Apartment, 493/B/2, G.T. Road (s) Shibpur, Howarah, West Bengal 23/08/2012 10040 Interest Income Interest Income No Fixed Assets 6.1.8. The above facts show the following noticeable anomalies of the investor companies: * The 12 companies are operating from the common addresses but none of them own the premises nor pay any rentals. * No fixed assets have been shown in the balance sheet. * The total income as per return of income is very meager, Loss or Nil income. * No rental payment shown for its registered office premises. * No real source of income or actual business activity but various persons have invested into equity shares of the company and the same has been transferred to other companies in form of investment/loans. * Nil or very meager accumulated profits with very nominal turnover or interest income to justify such huge investments. * These companies have not carried out any business activity since its incorporation. * The natur....
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....s for verification of their existence and identity. The onus was on the assessee to prove the existence of the lenders which could not be discharged as the lenders are non-existent and non-traceable on the given addresses. 6.1.11. When the Assessing Officer asked the assessee to furnish the details, the assessee produced details like bank statement, copy of acknowledgment of return, confirmations, etc. The assessing officer issued notices u/s 133(6) of the Act which came back unserved/ or non-compliance as the investor companies were found to be non-traceable on the given addresses. Subsequently, when the Assessing Officer got inquiry conducted at the stated addresses through the Investigation Wing, Kolkata, the parties were found to be non-existent. The assessee failed to produce the promoters/ directors of these investor companies before the assessing officer during the assessment proceedings. Thereafter, the assessee except producing the papers could not prove existence or availability of the lenders. When the identity of the person is required to be proved so as to examine whether in fact they have provided the unsecured loans, the existence itself is not proved. The e....
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.... represents unaccounted money of the person in whose books of account the money has been credited as share capital/ loan and the lender company is only a conduit for routing the money back to the books of account of that person. However, despite having knowledge of this fact and knowing the techniques and methods used by the taxpayers for this purpose, it remains a huge challenge for the tax authorities to bring all material facts and evidences on record so as to prove which in his opinion is a fact, beyond doubt. In an economy where unaccounted income is a big menace, there are always efforts made by the tax evaders to bring their unaccounted income back to their books of account without paying any tax on the same. Numerous methods and techniques are used for this purpose and there are lots of techniques that authorities know about and probably countless others that have yet to be uncovered. Routing the unaccounted income back to the books of account disguised as loan or share capital is one of such methods widely used by the tax evaders in our country. The method is most prevalent and perhaps also one of the most organized one to bring the unaccounted money back to the books of a....
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.... expose the whole chain of money deposited and 'layers' through which it is routed back to the beneficiary. The biggest problem is that there is no effective deterrence to curb the activities of these entry operators. Even conducting search and seizure operations against them have not really worked as deterrence and such operations often ended up in disclosure of 'unaccounted commission income' of these entry operators which definitely could not be the purpose of conducting search and seizure operations against these operators. 6.2.3 An important question arises- 'While dealing with doubtful cash credits, is it necessary for the assessing officer to establish that the money came back to the books of the assessee as 'entry' actually emanated from the coffers of the assessee?' This issue has been decided by the Hon'ble Delhi High Court in a decision dated 20.07.2012 in the case of Commissioner of Income-tax v/s Independent Media (P.) Ltd. 210 TAXMANN 14(Delhi)(2012), which is significant as the observation made by the Hon. Court in this decision regarding the cases where 'entries' have been taken from paper companies. In this case ....
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....case the receipts are shown in the account books of a firm of which the appeilant and Govindaswamy Mudaliar were partners. When he was called upon to give explanation he put forward two explanations, one being a gift of Rs.80,000/- and the other being receipt of Rs.42,000/- from business of which he claimed to be the real owner. When both these explanations were rejected, as they have been it was clearly upon to the Income-tax Officer to hold that the income must be concealed income. There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipt are of an assessable nature. The conclusion to which the Appellate Tribunal came appears to us to be amply warranted by the facts of the case. There is no ground for interfering with that finding, and these appeals are accordingly dismissed with costs." 6.2.5. The identity, capacity and genuineness aspects are not water tight compartments. An assessee's explanation of the nature and source of the credits cannot be entertained and held by th....
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.... observed thus:..."...The doubtful nature of the transaction and the manner in which the sums were found credited in the books of accounts maintained by the assessee have been duly taken into consideration by the authorities below. The transactions though apparent were held to be not real one. May be the money came by way of bank cheques and paid through the process of banking transaction but that itself is of no consequence." The overall circumstances is to be taken into consideration and in the present case, mere transactions being made through banking channels do not make the transactions genuine as in the instant case where the bank accounts of the lenders do not show any genuine activities as discussed in the aforesaid paras. 6.2.7. In another judgment of the Supreme Court in Vijay Kumar Talwar Vs. CIT (2011) 1 SCC 673 the same principle was applied in the following observations:"....All the authorities below, in particular the Tribunal, have observed in unison that the assesses did not produce any evidence to rebut the presumption drawn against him under Section 68 of the Act, by producing the parties in whose name the amounts in question had been credited by the ass....
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....shall emerge. Prima facie proof of the three ingredients and that too cumulatively shall have to be examined at three different stages one after the other but if an assessee fails to establish at the first stage, the identity of the creditor itself, there is no question of an Assessing Officer examining the matter at the second stage of ensuring and satisfying himself of the capacity of the creditor to advance the moneys and nor therefore, the Assessing Officer examining the matter at the second stage of ensuring and satisfying himself of the capacity of the creditor to advance the moneys, even then the onus lay on the assessee to further establish certain things because non-production of documentary evidence of corroborative value invites adverse inference against the person who ought to have produced. 6.2.10 Prima facie onus is always on the assessee to prove the cash credit entry found in the books of account of the assessee. In land mark cases like Kale Khan Mohammad Hanif v CIT[19631 50 ITR 1 (SC) and Roshan Di Hatti v CIT [1977] 107 ITR (SC), it has been held that the law is well settled that the onus of proving the source of a sum of money found to have been receive....
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....artment cannot, however, act unreasonably." 6.2.11 The onus, of establishing the, nature of a cash credit is on the assessee and, if he fails to offer a reasonable explanation, the assessing officer may presume that it represents an 'income receipt'. So too, the onus of proving that such income receipt did not fall under the head 'income from other sources' was on the assessee. If the assessee did not place any satisfactory material before the assessing officer to enable him to arrive at a contrary conclusion, the assessing officer might presume that the cash credit fell under the head 'Income from other sources'. The presumption that an unexplained cash credit is an 'income from other sources' are presumptions which flow naturally from the circumstances that all facts which can establish the nature and source of the cash credit are peculiarly within the knowledge of the assessee. It may be that the onus of displacing the presumptions may be heavy in some cases and light in others, depending on the facts and circumstances of the case. But, the presumptions are there and the burden of rebutting the presumptions is on the assessee. Commissione....
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.... of the transaction lies upon the assessee which has upheld in the following cases also: • CIT v. W.J. Walker and Co. [1979] 117ITR 690,694 (Cal); • Sajan Dass and Sons v. CIT [2003] 264 ITR 435 (Delhi) ; • SumatiDayalv.CIT[1995]214ITR801(SC); and • Jaspal Singh v. CIT [2006] 290 ITR 306 (P&H). • Dhanalaxmi Steel Re-rolling Mills 57ITD 361 (HYD.) 6.2.15. It is not the case where the assessing officer has not made any efforts regarding the examination of the identity/ existence of the investors, source of income of these lenders to find out whether they were creditworthy or were such who could provide to such huge money towards unsecured loans in the assesseecompany. The facts of the present case is not a case of public issue of shares rather it is a case of unsecure loans from private lenders who are supposedly closely known to the assessee. Therefore in the light of the observation of the Hon'ble Court in the case of Lovely Exports, the legal regiment will be different as compared to the public issue. Whereas in the case of public issue, the company concerned cannot be expected to know every detail perta....
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....e and as discussed in detail above, the amounts claimed to be received by the assessee do not in any way appear to be genuine unsecured loans. They are nothing but arranged affairs being pre-ordained series of transactions and tax evasion device where money laundering transactions have been camouflaged as unsecured loans. Hence no credence can be placed on the copies of various documents filed to support such claim of unsecured loans and addition of Rs.2,40,60,000/- is hereby confirmed and grounds of appeal is dismissed." 8. We have gone through the above findings of ld CIT(A) and noted that ld CIT(A) has passed reasoned and speaking order covering both sides arguments. We note that ld Counsel made the submission before the Bench that loan has been repaid in subsequent years therefore addition made be deleted. However, we note that said fact has not been examined by the assessing officer. Besides, we note that assessee company has failed to prove the identity of these 12 lender companies, as explained by ld DR that assessing officer vide letter dated 27.02.2015 directed the assessee to produce the Principal Officers of these 12 lender companies but no compliance was made by the ....