TaxTMI 
TaxTMI 
2022 (4) TMI 1501
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....ny from these six company was proved and also whose nature and source is not explained." 2. On the facts and in the circumstances of the case and in Law, the Ld.CIT(A) erred holding that the assessee has proved the identify and genuineness of transaction of cash deposit, ignoring the recent decision of the Hon"ble Supreme court in the case of Novodaya Castle (P) Ltd. (2015) 56 Taxmann.com 18(SC) wherein the Apex Court has held that certificate of incorporation, PAN etc. were not sufficient for purpose of the identification of subscriber Company transaction when there is material to show that concrete evidence available in the form of ITD system data. 3. The Grounds raised by the assessee in cross objection are reproduced as under: 1. The Ld. AO has failed to appreciate that the provisions of section 147 & 148 of the Income-tax Act, 1961 (Act) are not applicable when assessment is to be on the basis of search initiated on a third party. The same is governed by section 153C of the Act which contains a non-obstante clause, thereby overriding section 139, 147 and 148, 151 and 153 of the Act. 2. The Id. AO has erred in passing an assessment Order under section 1143(3) read wi....
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....as agitated the finding of the Ld. CIT(A) of deleting the addition on account of cash credit under section 68 of the Act on the ground that identity and creditworthiness of the loan parties were not established, particularly in view of the decision of the Hon'ble Supreme Court in the case of Navodaya Castle (P) ltd (supra). 7. The brief facts qua the issue in dispute are that in the books of accounts of the assessee for the year under consideration, loans from following parties have been shown: S. No. Name of the Party Amounts 1. Alishan Estates Pvt. Ltd. 25,00,000/- 2. Azopen Pvt. Ltd. 22,79,000/- 3. Chintan P. Shah 3,00,740/- 4. Elgins Sales Promotion Pvt. Ltd. 50,00,000/- 5. Pushpanjali Commotrade Pvt. Ltd. 50,00,000/- 6. Secunderabad Healthcare Limited 25,00,000/- Total 1,75,79,740/- 8. The Assessing Officer asked the assessee to justify the above loan entries in terms of section 68 of the Act and substantiate the identity, creditworthiness and genuineness of transactions. The assessee, in response filed certain documents in respect of each parties which inter alia include copy of bank statement of the assessee highlighting receipt of loan throu....
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....ssing Officer has recorded in the assessment order that he issued notice under section 133(6) of the Act in the case of Secunderabad Healthcare Ltd. for verification of the party however same returned back unserved. In view of the failure on the part of the assessee in substantiating creditworthiness of the unsecured loan parties, returned back of notice under section 133(6) of the Act and background of the information received in the case of Sh Shirish C Shah, he held the unsecured loans under reference as unexplained cash credit in terms of section 68 of the Act. The relevant finding of the Ld. Assessing Officer is reproduced as under: 5.2 It needs no elaboration that through a catena of decisions of the Courts including the Hon'ble Apex Court have held that the three fundamental tests which have to be established by the assessee to discharge the burden under section 68 of the Act are (i) Identity of the creditor; (ii) Creditworthiness of the creditor; and ill) Genuineness of the transaction. "5.3 It is imperative to mention here the background of reopening of assessment in the present case before proceeding further. A search & survey action was carried out in the case of Sh....
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....t the funds received in the companies managed and controlled by Shri Shirish Chandrakant Shah were mere layering transactions, wherein cash was received from the clients of Shri Shirish Chandrakant Shah for obtaining various types of accommodation entries which were finally routed into the bank accounts of the beneficiaries as share capital/premium, unsecured loans/payout on sale of shares of the listed companies managed and controlled by Shri Shirish Chandrakant Shah. 5.5 In view of the above discussion and facts of the case, it is clear that the assessee company has not been able to prove the creditworthiness of the concerns advancing the loans and genuineness of the transactions. The assessee company has not offered any satisfactory explanation about the nature and source of the amount credited in its books of accounts. Recently the Hon'ble Supreme Court has in the case of Navodaya Castle (P) Ltd. v. CIT (2015) 230 Taxman 268, upheld the order of the Hon'ble High court, wherein it is held that certificate of incorporation, PAN etc., is not sufficient for purpose of identification of subscriber company when there was material to show that subscriber was a paper company....
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.... the assessee company made in respect of the sums found credited to the books of the assessee during the year under consideration are found to be unsatisfactory and the sum of Rs.1,75,79,740/- admittedly credited in the books as detailed above is brought to tax as income under the provisions of section 68 of the IT. Act, 1961. Penalty proceedings under the provisions of section 271(1)(c) of the I.T. Act, 1961 are initiated concealment of income by furnishing of inaccurate particulars in respect of the same." 10. Before the Ld. CIT(A) the assessee filed certain additional documents to substantiate his claim of loans as genuine. The list of relevant documents in the form of a table, reproduced by the Ld. CIT(A) is extracted as under: Name of the Loan Creditors Details Alishan Estate Pvt. Ltd. Confirmation letter in original - Page 31 ITS of the loan creditor -Page 32 Bank statement copy of the loan creditor highlighting the debit entries in their bank statement with immediate sufficient fund available with the loan creditor and Interest payout page no 33., Audited accounts page no 36. Azofen Private Limited Confirmation letter in original -Page 37 38 Pushpanjai Commo Trade ....
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....investors were available on the records of the Ld A.O. 2.4.1.4 The Ld. AR further argued inalit was also brought to the novice of the Ld.O hat Shri Shirish Chandrakant Shah has retracted his statement given during the search and hence no cognizance of the same can be taken and in view of this retraction also the addition made us 68 of the Act was not justified. He has also submitted that the only basis of coming to conclusion that the impugned unsecured loans were not genuine, was the statement of Shri Shirish Chandrakant Shah. 2.4.1.5 During the course of Assessment Proceedings the learned AO asked the Appellant to produce investors before him for verification. As against this the Appellant submitted having filed the requisite details as regards loans, the primary onus that lay upon him to prove the genuineness of the loans was already discharged. However, the AO did not accept the contentions of the appellant and after discussing the modus operandi explained by Shri Shirish Chandrakant Shah. during the course of search proceedings, based on the statement of Shri Shirish Chandrakant Shah & his associates recorded in the course of Search & Seizure Proceedings wherein they hav....
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....by filing an affidavit. The validity of such retraction has also been settled judicially that any person who has made any statement can retract from the same with corroborative evidence. 2.4.1.7 This is also settled law that no addition/disallowance can be made solely on the basis of statement made u/s 132(4) of the Act without bringing any corroborative evidence on record. The Hon'ble Andhra Pradesh High Court in its decision dated 09.09.2014 in ITAT No. 112 of 2003 in the case of CIT vs. Naresh Kumar Agarwal has held that "10. Assuming that a statement, which fits into sub-section (4) of Section 132 of the Act was recorded from the respondent, it needs to be seen as to how far that can constitute the basis for the appellant to proceed against the respondent. Subsection (4) of Section 132 of the Act itself, is to the effect that the statements recorded shall be treated as piece of evidence in the proceedings under the Act. That would be so, as long as the statement is not retracted. If the assessee comes forward with a plea that his statement was recorded under threat or coercion, the evidentiary value of the statement suffers a serious dent. 11. The mandate under sub-se....
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....e hands of his employee and this was verifiable from the books of accounts. In the circumstances, it was unsafe for the AO to proceed to make additions solely on the basis of the statement made under Section 132(4) of the Act, which was subsequently retracted. 16. Consequently, the Court is unable to find any legal infirmity in the conclusion reached by the ITAT that the addition of Rs. 86 lakhs to the income of the Assessee was not justified. Question (B) is answered in the affirmative, i.e., in favour of the Assessee and against the Revenue." Similarly, the Hon'ble ITAT, Mumbai vide its decision dated 04 11 2015 in the case of Tribhovandas Bhimji Zaveri in ITA No. 2250 and 2251/Mum/2013 has held as under. "25. The Ld D.R as well as the assessing officer has reiterated that the admission was made in the sworn statement recorded u/s. 132(4) and the same is admissible in evidence. A careful perusal of provisions of sec. 132(4) as well sec. 292C would show that the said provisions state that the statement taken u/s 132(4) may be used in evidence in any proceeding under the Act". Thus, this provision; gives discretion to the assessing officer not to use the statement in e....
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....uant to the statement recorded u/s 132(4) of the Act. The assessee has retracted from the said disclosure which has not been accepted by the revenue. It is required to be borne in mind that the revenue ought to have collected enough evidence during the search in support of the disclosure statement. It is a settled position of law that if an assessee, under a mistake, misconception or on not being properly instructed, is over assessed, the authorities are required to assist him and ensure that only legitimate taxes are collected. The Assessing Officer cannot proceed on presumption u/s 132(4) of the Act and there must be something more than bare suspicion to support the assessment or addition. In the present case, though the revenue's case is based on disclosure of the assessee stated to have been made during the search u/s 132(4) of the Act, there is no reference to any undisclosed cash, jewellery, bullion, valuable article or documents containing any undisclosed income having been found during the search. 5.1 In the case of KailashbenManharla/Chokshi (supra), this Court has held as under:- "22. We have heard learned counsels appearing for the respective parties at great l....
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....he said order. Learned advocate for the revenue is not in a position to produce any material on record so as to warrant interference by this Court. The deletion of addition on account of household expenses and cloth transaction has been rightly confirmed by the Tribunal. We also find that the Tribunal has rightly applied the principles of telescoping for reducing additions made by the Assessing Officer. We thus find that all the questions raised in the present appeals are required to be answered in favour of the assessee and against revenue." Similar law was laid down by the Hon'ble Gujarat High Court in the case of Chetnaben J Shah vs. ITO in Tax Appeal No. 1437 of 2007, after considering the CBDT Circular in F. No. 286/2/2003-IT(In) dated 10.03.2003 and letter in F.No. 286/98/2013- IT(Inv.I) dated 18.12.2014, wherein the emphasis has been made that no attempt should be made to obtain confession as to the undisclosed income, vide its decision dated 17.07.2016 has held as under. "We have heard learned Counsel for the respective parties and perused the records of the case. We are of the view that the C1T (Appeals) has rightly appreciated the case based on the sound princip....
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....ion. Once the onus that lay under Section 68 of the Act is discharged, the addition u/s 68 of the Act cannot sustain. As per the provisions of the section 68 of the Act the appellant is required to establish the identity, genuineness and creditworthiness of the share applicant concerns. Several Hon'ble Courts have settled the issue of onus of the assessee uls 68 of the Act and it has been held that where any assessee submits the details of investors, submit confirmation of share capital from them, submit the assessment details of the investors and prove that the transaction under considerations have been made through proper banking channel it can be said that the assessee has discharged its onus of proving identity,genuineness and creditworthiness of the investors within the meaning of provisions of section 68 of the Act. It is important to note that the Hon'ble Courts have held that the assessee is not required to prove source of the source as held in the case of Tolaram Daga vs CIT reported in 59 IT 632. The Hon'ble High Court in the case of Addl. CIT vs Hanuman Agarawal reported in 151 IT 150 held that it can never be within the exclusive knowledge of the debtor t....
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....aid section according to which aperson is in the best position to know the relevant facts related to him. Treating the cash credits as income of the assessee is not a new concept introduced by the Act. The position under the 1922 Act, in respect of income from undisclosed sources was that such income from an undisclosed source could be assessed by making an assessment on the basis that the previous year for such an income would be the financial year. The effect of section 68 of the Act is that asum found credited in the books of the assessee can be charged to income-tax as his income. Over the years law regarding cash credits have evolved and has taken a definite shape. A few important aspects of the law with regard to Section 68 can be enumerated here- (i) Section 68 can be invoked when following three conditions aresatisfied. (a) when there is credit of amounts in the books maintained by the assessee (b) such credit has to be a sum of money during the previous year (c) either the assessee offers no explanation about the nature and source of such credits found in the books or the? explanation offered by the assessee, in the opinion of the AO, is not satisfactory. It is on....
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....d a proof against him. He can prove the identity of the creditors by either furnishing their PANs or assessment orders. Similarly, genuineness of the transaction can be proved by showing that the money was received by an account payee cheque or by draft. Credit worthiness of the lender can be established by attending circumstances. Once the assessee produces evidences about identity, genuineness and credit worthiness of the lender onus of proof shifts to the Revenue. if above referred principles are applied to the facts and circumstances of the case under consideration, it becomes absolutely clear that the CIT(A) had rightly deleted the additions made u/s.68 of the Act by the AO. Assessee had filed PANs, bank statements and return acknowledgements of the creditors. We are of the opinion that by furnishing above details the assessee had discharged his burden of proof. if AO had any doubt about the credit worthiness or identity of the creditors, he had all the rights under the Act to hold further inquiry and confront the assessee with such inquiry. AO did not make any attempt to discharge his burden to rebut the evidences produced by the assessee. AO cannot brush aside the evidenc....
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.... Being aggrieved the revenue carried the issue in the appeal to the Tribunal. The impugned order of the tribunal holds that the respondent assessee had established the identity genuineness and capacity of the shareholders who had subscribed to its shares. The identity was established by the very fact that the detailed names address of the shareholders PAN numbers bank details and confirmatory letters were filed. The genuineness of the transaction was established by filing a copy of share application form, the form filed with the registrar of companies and as also bank details of the shareholders and their confirmations which would indicate both the genuineness as also the capacity of the shareholders to subscribe to the shares. Further the Tribunal while upholding the finding of CIT(A) also that the amount received on issue of share capital alongwith the premium received thereon would be on capital and not in the revenue field. Further reliance was also placed upon the decision of Apex Court in Lovely Exports P. Ltd. to uphold the finding of the CIT(A) and dismissing the revenue's appeal. Now in the present case of the assessee the main crux of the facts that the assessee ....
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....hare premium has also to be judged on the touchstone of section 68 of the Act which provides for cash credit being charged to tax. The impugned order of the Tribunal allowed the issue to be raised before it for the first time overruling the objection of the respondent assessee. b) The impugned order examined the applicability of section 68 of the Act on the parameters of the identity of the subscriber to the share capital genuineness of the transaction and the capacity of the subscribe to the share capital. It found that the identity of the subscribers was confirmed by virtue of the AO issuing a notices us. 133(6) of the Act to them. Further, it hold that the revenue itself makes no grievance of the identity of the subscribers. So far as the genuineness of the transaction of share subscriber is concerned, it coucludes as the entire transaction is recorded in the books of accounts and reflected in the financial statements of the assessee since the subscription was done through the banking channels as evidenced by bank statements which were examined by the Tribunal. With regard to the capacity of the subscribers the impugned order records a finding that 98% of the shares is held b....
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....nd it is the wisdom of the shareholders whether they want to subscribe to such a heavy premium. The revenue authorities cannot question the charging of such of huge premium without any bar from any legislated law of the land. The said decision has been affirmed by Hon'ble Jurisdictional High Court in case of Green Infra Ltd. (supra)." The various courts have held that if the identity of the creditors proved and the transaction is through cheque and the income tax assessment particulars are provided then it can be held that the assessee has discharged its onus of proving the genuineness of the transactions. In the absence of any contrary corroborative evidence brought on record by the Assessing Officer, I am of the considered opinion that_ the Ld. AO was not justified making addition of Rs.1,75,79,740/- u/s 68 of the Act. Hence, the addition made to that extent is deleted. Accordingly these grounds are allowed. 2.5 In the result, the appeal is allowed." 14. Before us, the Ld. counsel of the assessee submitted that the Assessing Officer has made the addition on sole basis of statement of Sh. Shirish C Shah, which has been retracted by him and therefore no cognizance shoul....
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.... creditworthiness and genuineness of the transaction is established but according to the Ld. DR confirmation of the unsecured loan parties have been filed for the first time before the Ld. CIT(A) , and relying on which the Ld. CIT(A) has allowed relief to the assessee, which is in violation to Rule 46A of the Income Tax Rules. 17. We have reproduced summary of the submission of the assessee before the Assessing Officer as well as before the Ld. CIT(A). Before the Ld. CIT(A), the assessee has filed supplementary papers in the form of confirmation of the unsecured loan parties, bank statement of unsecured parties and in some cases audited financial statement of loan parties. Evidently, these documents were filed for the first time before the Ld. CIT(A), however Ld. CIT(A) in para 2.4.1.3 has wrongly recorded that these documents were filed before the Assessing Officer. On this wrong presumption, the Ld. CIT(A) concluded that complete details of investors were available with the assessing officer. Regarding the documents filed first time before the Ld. CIT(A), he was required to follow the procedure laid down in Rule 46A of the Rules and send those documents to the Ld. Assessing Offi....
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....o demonstrate, the identity, creditworthiness and genuineness of the transaction. But the assessee has emphasized only on the point that transactions have been made through banking channel and therefore genuineness of the transaction is established, whereas on perusal of the bank statement of Secunderabad Healthcare Private Limited available on page 16 of the paperbook, we find that there is no substantial bank balance and money is received in lakhs of rupees and after a lapse of one or two days same has been transferred out. The said party has filed return of income declaring nil income for assessment year 2011-12 (PB-18). Bank transactions on similar pattern have been observed in the case of 'Pushanjali Commotrade Private Limited' (PB-110 to PB 112). Similarly, the 'Elgin Sales Promotion Ltd.' has also filed return of income declaring nil income (PB-115). On perusal of profit and loss account, we find that small amount of profit of Rs.8,841/- (PB-122) has been declared in the profit and loss account. Thus, above loan provider companies are merely paper companies, without having capacity of their own to provide huge loan to the assessee. In such circumstances, it cannot be said th....
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....mitation when there is evidence and material to show that the subscriber was a paper company and not a genuine investor. It is in this context, the Supreme Court in CIT Vs. Durga Prasad More [1971] 82 ITR 540 (SC) had observed:- "Now we shall proceed to examine the validity of those grounds that appealed to the learned judges. It is true that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find ....
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....hich 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." (emphasis supplied) Section 68 recognizes the aforesaid legal position. The view taken by the Tribunal on the duty cast on the Assessing Officer by section 68 is contrary to the law laid down by the Supreme Court in the judgment cited above. Even if one were to hold, albeit erroneously and without being aware of the legal position adumbrated above, that the Assessing Officer is bound to show that the source of the unaccounted monies was the coffers of the assessee, we are inclined to think that in the facts of the present case such proof has been brought out by the Assessing Officer. The statements of Mukesh Gupta and Rajan Jassal, the entry providers, explaining their modus operandi to help assessee's having unaccounted monies convert the same into accounted monies affords sufficient material on the basis of which the Assessing Officer can be said to have discharged the duty. The statements refer to the practice of taking cash and issuing cheques in the guise of subscripti....
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....ster etc. it would constitute acceptable proof or acceptable Explanation by the assessed. (5) The Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessed nor should the AO take such repudiation at face value and construe it, without more, against the assessed. (7) The Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation." 17. Nova Promoters and Finlease (P) Ltd. (supra) after referring to the dismissal of SLP against Divine Leasing case (supra) observed as under:- "...............So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, income tax file numbers, their creditworthiness, share application forms and share holders' register, share transfer register etc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no m....
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....ed would depend upon facts and circumstances of each case. In case of private limited companies, generally persons known to directors or shareholders, directly or indirectly, buy or subscribe to shares. Upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call money, dividends, warrants, etc. have to be sent and the relationship remains a continuing one. Therefore, an assessee cannot simply furnish some details and remain quiet when summons issued to shareholders remain un-served and uncomplied. As a general proposition, it would be improper to universally hold that the assessee cannot plead that they had received money, but could do nothing more and it was for the Assessing Officer to enforce shareholders' attendance in spite of the fact that the shareholders were missing and not available. Their reluctance and hiding may reflect on the genuineness of the transaction and creditworthiness of the creditor. It would be also incorrect to universally state that an Inspector must be sent to verify the shareholders/subscribers at the available addresses, though this might be required in some cases. Similarly, it would be incorrect to state that the Ass....
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....h means deposits by way of cash and issue of cheques. The bank accounts, therefore, did not reflect their creditworthiness or even genuineness of the transaction. The beneficiaries, including the respondentassessee, did not give any share-dividend or interest to the said entry operators/subscribers. The profit motive normal in case of investment, was entirely absent. In the present case, no profit or dividend was declared on the shares. Any person, who would invest money or give loan would certainly seek return or income as consideration. These facts are not adverted to and as noticed below are true and correct. They are undoubtedly relevant and material facts for ascertaining creditworthiness and genuineness of the transactions. 30. What we perceive and regard as correct position of law is that the court or tribunal should be convinced about the identity, creditworthiness and genuineness of the transaction. The onus to prove the three factum is on the assessee as the facts are within the assessee's knowledge. Mere production of incorporation details, PAN Nos. or the fact that third persons or company had filed income tax details in case of a private limited company may not be suff....
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....nt should have been made under section 153C of the Act . This objection has been raised by way of an additional ground on oral plea as the Ld. DR did not object for admitting the said plea of the assessee. 25 The contention of the Ld. counsel that assessment is consequent to search in the case of Sh. Shirish C Shah therefore the Assessing Officer was bound to issue notice under section 153C of the Act and thereafter proceed to assess income under section 153A of the Act. He submitted that provision of section 153C contains non-obstance clause, which specifically exclude the operation of section 147 of the Act and therefore, the Assessing Officer has erred in invoking section 147 of the Act. He submitted that if action under section 147 of the Act is permitted on the basis of the material found in the course of the search, then the provision of section 153A would become redundant. 26. In support of his contention he relied on the decision of Tribunal Delhi bench in the case of Rajat Shubra Chatterji Vs ACIT ITA No. 2430/Del/2015 dated 20th May, 2016, wherein it is held that provisions of section 153C are not non-obstantive provisions and especially exclude the operation of section....
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....rdance with the provisions of section 153A." 30. On perusal of the above provisions it is evident that for invoking section 153C in the case of other person, prime requirement is that the material found from the searched person should be belonging to the third person. If said condition is satisfied, then irrespective of the provision of section 147, the assessment in the case of other person has to be carried out as per provision of section 153C of the Act. 31. But in the instant case before us the assessee has not established that the material found from the search in the case of Sh Shirish C Shah belongs to the assessee. During the course of the search in the case of Sh Shrish Shah, he stated to have been engaged in providing bogus accommodation entries through the companies controlled by him including M/s Secunderabad Healthcare Private Limited. The DCIT, central circle found that said entity has given accommodation entry of the loan to the assessee and accordingly he provided said information to the Assessing Officer. This fact is evident from the reasons recorded by the Assessing Officer reproduced in the assessment order, which is extracted as under for ready reference: ....