AI Drafter 
TaxTMI 
TaxTMI 
2022 (4) TMI 1501
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....of unsecured loans raised by the assessee company 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 ....
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....upon. 6. In the ground Nos. one and two of the appeal, the Revenue has 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....
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....t. Ledger a/c in assessee book 9. In view of above submission filed before the Assessing Officer, the Authorized Representative of the assessee stated that loans received by the assessee were genuine loan. The Ld. Assessing 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; a....
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....s were not genuine. The investment in share capital/premium have been made by companies/entities controlled by Shri Shirish Chandrakant Shah after layering the cash received by him for providing accommodation entries. Thus, it was established that 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 26....
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.... explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: For the detailed reasons recorded herein above, it is held that the submissions of 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....
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....the investor for the relevant assessment year. c. Copy of annual audit accounts of the concerned parties for the assessment years. d. Copy of relevant pages of bank statements evidencing that the said transaction were carried out through proper banking channel. From the aforesaid submissions it is evident that the complete details of 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 genuine....
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....e. The Hon'ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd vs State of Kerala reported in 91 ITR 18 has held that and admission is an extremely piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect. It is also admitted fact that Praveen Kumar Jain has retracted from his statement 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 Secti....
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....was under some coercion to make the statement in the first place, or where the retraction is not followed by the Assessee producing material to substantiate his defense, the AO might be justified in make additions on the basis of the retracted statement. 15. In the present case, the Assessee had an explanation for not retracting the statement earlier. He also furnished an explanation for the cash that was found in the 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....
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....mind to the facts disclosed in the return and assess the assessee keeping in mind the law holding the field." Similarly, the Hon'ble Gujarat High Court in the case of DCIT vs Narendra Garg & Ashok Garg (AOP) in Tax Appeal No. 1531 and 1532 of 2007 vide its decision dated 28.07.2016 held as under. "5. We have duly considered the rival contentions made by learned advocates for both the sides. It is true that the addition was made by the Assessing Officer pursuant 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 c....
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.... is no reason not to disbelieve the retraction made by the Assessing Officer and explanation duly supported by the evidence. We are, therefore, of the view that the Tribunal was not justified in making addition of Rs. 6 lacy on the basis of statement recorded by the Assessing Officer under Section 132(4) of the Act. The Tribunal has committed an error in ignoring the retraction made by the assessee." 6. We have gone through the order passed by the Tribunal and we do not find any infirmity in the 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,....
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....dence cannot be made the foundation of the decision. Coniecture is not 2 substitute for legal proof, suspicion, however strong cannot take the place of the proof. The Ld AO was not justified in making addition of Rs.1,75,79,740/- u/s.68 of the Act upon his own suspicion or upon mere supposition after discarding the evidence produced by the appellant. 2.4.1.10 At this Juncture, it is worthwhile to refer to various Judgments delivered in respect of additions u/s 68 of the Act as both the provisions of Section 68 as well Section. 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....
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....d both the parties and perused the documents produced before us. Question to be decided, in this matter, is whetherFAA was justified in allowing appeal filed before her by the assessee. Additions to the income of the assessee were made u/s.68 of the Act, as the AO was not satisfied with the details filed by the assessee. It will be useful to understand the provisions of sec. 68 of the Act in right perspective. While dealing with the taxation laws Courts have regularly invoked Section 106 of the Evidence Act, 1872. Section 68 of the Act is the statutory recognition of the said 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 ....
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....basis for deciding the cases falling under Section 68. (v) Confirmatory letters or A/c payee cheques do not prove that the amount in question is properly explained for the purpose of section 68. Assessee has to establish identity and creditworthiness of the creditor as well as the genuineness of the transaction. All the three ingredients are cumulative and not exclusive. (vi) In matters regarding cash credit the onus of proof is not a static one. As per the provisions of the section the initial burden of proof lies on the assessee. Amount appearing in the books of accounts. of the assessee is considered 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 co....
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....agandeep (supra) the Hon'ble Bombay High Court considered the factual matrix of the case wherein it was observed that the taxpayer satisfied the three ingredients of section 68 of the Act which stood proved namely identity and creditworthiness of shareholders and genuineness of the transaction and on that factual matrix decision of the tribunal was accepted wherein tribunal ruled in favour of the assessee by holding that the taxpayer did satisfied all the three ingredients of section 69 of the Act. Now let us go through the decision relied on by the assessee of Hon'ble Bombay High Court in case of Gagandeep (supra) which reads as under:- 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 wit....
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....to decide the premium amount and 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 tribunal after examining the ingredients of section 68 of the Act held that the addition of share premium under section 68 of the Act cannot be sustained. We hereunder reproduce the relevant paragraph of the decision of Hon'ble Jurisdictional High Court is ease of Green Infra (supra) for ready reference. Regarding question no. (ii) a) Before the Tribunal the revenue raised a new plea viz that the so called share 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 ....
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....e it was the department which claimed that the share premium is not in fact so, despite the statutory forms viz. Form 2 for return of allotment and form 20B for annual return filed with the ROC all show the nature as share premium. If the department wants to contend that what is apparent is not real, it is the onus of the department to prove that it was assessee's own money which was routed through a third party. Only then can the provisions of section 68 of the Act be invoked. This aspect is considered in the decision of Mumbai Tribunal in case of Green Infra Ltd. Vs. IT (2013) 145 ITD 240, wherein Tribunal has held that it is a prerogative of the Board of Directors of a company to decide the premium amount and 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 ....
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.... 133(6) of the Act were not complied by the unsecured loan parties. On being asked by the Assessing Officer to produce those parties, the assessee could not comply. The Ld. DR submitted that in above circumstances the finding of the Ld. CIT(A) that the assessee has discharged onus is devoid of merit. Accordingly he submitted that order of the Ld. CIT(A) should be set aside. 16. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. It is undisputed that loan received from above six parties are duty reflected in books of accounts of the assessee. The contention of the assessee that in view of the documents filed before the Assessing Officer and the Ld. CIT(A), identity, 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). ....
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.... in view of all the equity details filed by the assessee and onus of the assessee was already discharged. In our opinion, the Assessing Officer issued notice under section 133(6) for verification of the identity i.e. addresses, but same returned unserved, and therefore in such circumstances, the Assessing Officer is justified in asking the presence of the unsecured loan parties before him and the onus was on the assessee to produce those parties before him. In failure to do so, it is obvious that assessee failed in discharging his onus to substantiate his claim of unsecured loan parties as genuine. 20. Further it is not the case that Assessing Officer has only relied on the statement of Sh. Shirish C Shah, but he has asked the assessee to 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 la....
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....lder company was only a paper company having no source of income, but had made substantial and huge investments in the form of share application money. The assessing officer has referred to the bank statement, financial position of the recipient and beneficiary assessee and surrounding circumstances. The primary requirements, which should be satisfied in such cases is, identification of the creditors/shareholder, creditworthiness of creditors/shareholder and genuineness of the transaction. These three requirements have to be tested not superficially but in depth having regard to the human probabilities and normal course of human conduct. 14. Certificate of incorporation, PAN number etc. are relevant for purchase of identification, but have their limitation 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 t....
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....t case the receipts are shown in the account books of a firm of which the appellant 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." (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 lai....
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....ee should not be harassed by the Revenue. A delicate balance must be maintained between the two interests. In Divine Leasing (supra), the following proposition was elucidated:- "In this analysis, a distillation of the precedents yields the following propositions of law in the context of Section 68 of the IT Act. The assessed has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber. (4) If relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Share Application Forms, Share Transfer Register 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 t....
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....the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence ormaterial in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary." 18. Lovely Exports Pvt. Ltd. (supra) was also considered and distinguished in N.R. Portfolio Pvt. Ltd. (supra) and it was held that the entire evidence available on record has to be considered, after relying upon CIT Vs. Nipun Builders and Developers, [2013] 350 ITR 407 (Delhi), wherein it has been held that a reasonable approach has to be adopted and whether initial onus stands discharged 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 ....
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....neness have to be established. PAN numbers are allotted on the basis of applications without actual de facto verification of the identity or ascertaining active nature of business activity. PAN is a number which is allotted and helps the Revenue keep track of the transactions. PAN number is relevant but cannot be blindly and without considering surrounding circumstances treated as sufficient to discharge the onus, even when payment is through bank account. 19. On the question of creditworthiness and genuineness, it was highlighted that the money no doubt was received through banking channels, but did not reflect actual genuine business activity. The share subscribers did not have their own profit making apparatus and were not involved in business activity. They merely rotated money, which was coming through the bank accounts, which 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, ....
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....sel is not correct. The learner Assessing Officer issued notice under section 133(6) of the Act, but there was no compliance on the part of the unsecured loan party. The Ld. CIT(A) has also noticed that Assessing Officer asked that assessee to produce those unsecured loan parties, but assessee failed in doing so. 23.1 In view of above facts as circumstances, we are of the opinion that assessee failed to discharge his onus required in terms of section 68 of the Act. The finding of the Ld. CIT(A) on the issue in dispute is accordingly set aside and addition in dispute made by the Assessing Officer is hereby sustained. The grounds of the appeal of the Revenue are accordingly allowed. 24. In the cross objection, the assessee has mainly raised that assessment under section 147 of the Act has been made wrongly in the case of the assessee and assessment 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 Asse....
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....ion 153C of the Act rather than section 147 of the Act. For deciding the controversy, it is relevant to reproduce the section 153C of the act, during relevant, as under: "75. "Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and the Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance 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....