TaxTMI 
TaxTMI 
2024 (4) TMI 1357
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....y was a shell company, and consequently the genuineness and creditworthiness of the transaction could not be sustained." 3. Brief fact of the case are that the return in this case was filed on 25.09.2014 declaring an income of Rs. 87,54,230/-. The case was selected under scrutiny though CASS. Accordingly, notice u/s 143(2) was issued on 31.08.2015 which was duly served upon the assessee as per record. Notice u/s 142(1) was issued on 24.05.2016 for providing ITR, computation of income and audit report. The assessee derives his income from transportation under the name & style of M/s Jain Carrying Corporation. After submission, verification and discussion observed that the assessee has issued unsecured loan on which interest has been paid by the assessee to the entity of M/s Magapode Vyaapar P. Ltd. The assessee was produced the confirmation from the above party but when the ld. AO issued notice u/s 133(6) of the Act, the notice was returned with the remark "not know". Thereafter, a summons u/s 131 was issued to the directors of the above company Mr. Shanti lal Baid and Mr. Rajkaran Daga. The ld. AO noted that both these directors reside in Bikaner even though notices were served ....
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....8;ैद का नोटिस तामील करा दिया। 3.1 The ld. AO noted that both the directors are related to M/s Jain Carrying Corporation. The ld. AO further noted that M/s S.L. Baid received salary from M/s Jain Carrying Corporation is an employee therein and so was Mr. Raj Karan Daga even show cause notice u/s 127(1) was sent to both the directors of the said company but there is no respond to receive from any of them on 10.11.2016. A letter was received from M/s Daga stating that 'he is stranded on account of demonetization and unable to appear.' There after 3rd and 4th and 5th opportunities were granted but none was appeared from the said company in this case information was received from Investigation Wing, Kolkata regarding the company M/s Megapode Vyaapar P. Ltd., its former director Mr. Amit Agarwal and an entry operator Mr. Deepak Patwari and the statement of Mr. Deepak Patwari was recorded u/s 131 on four different dates were recorded wherein he stated that he was engaged in the business of providing accommodation entries to various entities by operating a ....
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.... of the AO's made in the assessment order u/s. 143(3) for AY 2013-14 & 2014-15 to emphasize that this entity was a bogus entity and had indulged in sham transactions to reduce its income. The AO's suspicion was more so because both the Directors Sh. Rajkaran Daga and Sh. S. L. Baid, were related to the assessee did not turn up during the course of assessment proceeding to confirm the fact of lending money to the assessee. The appellant has vehemently contested this action of the AO by submitting that the AO merely on the basis of statement of third parties and without giving proper opportunity of cross-examination treated the old loan as well as fresh loan of Rs. 1,17,00,000/- as unexplained cash credits and disallowed the interest paid thereon. It was claimed by the appellant that it had duly produced all the relevant evidences so as to discharge the burden as laid down in sec. 68 of the Act. The appellant therefore, requested that the addition made by the AO may be directed to be deleted. At this juncture, it would be imperative to reproduce the section 68 of the Act, which reads as under- "Cash Credits. Where any sum is found credited in the books of an....
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....e what that source is, which from the nature of the case must be known only to the assessee. 3.3.2. The three essential ingredients which the assessee must establish to the satisfaction of the AO in respect of any sum found credited in its books of accounts are 1) proof of identity of creditor, 2) capacity and creditworthiness of creditor to advance the money and 3) genuineness of the transaction 3.3.3. This information must be provided prima facie by the assessee and only when the assessee adduces evidence to establish the aforesaid, the onus shifts to the revenue to prove that what assessee has furnished is not correct. Now, coming to the facts of the instant case, let us examine whether the above three essential ingredients for treating a cash credit as genuine were established to the satisfaction of the AO by the appellant. Identity of the creditors: The appellant furnished the name, PAN and addresses of M/s Megapode Vyaapar (P) Ltd, the statement of Director, namely Sh. Amit Agarwal was recorded on oath. Thus, the identity of the creditors stood clearly established. Capacity of the creditors to advance/dep....
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....transaction is still not genuine If the AO does so then the onus will again shift back on the assessee to prove the genuineness of the transaction by rebutting the material brought on record by the AO. If assessee fails to do so, then the burden placed by section 68 cannot be said to be discharged by the assessee and it could not be held that the assessee had explained the credits satisfactorily. Under these circumstances, the AO can make addition of the amount credited under section 68. However, neither the nature and extent of material required to be brought on record by a party, nor the circumstances under which it should be brought are fixed, they will vary according to the issue involved. the nature of the evidence required to be produced, the time period elapsed since the event generating evidence took place, and the position and competence of the parties required to produce the evidence. Looking to this aspect of vulnerability of discharge of onus the law has given enough discretion to the AO by putting the word "May" and not "shall" before he draws any adverse inference against the assessee. Merely because an assessee is not able to discharge the onus shifted back on him sh....
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....tisfactorily discharged. Thereafter, it is for the AO to scrutinize the same and in case he nurtures any doubt about the veracity of these documents, to probe the matter further. However, to discredit the documents produced by the assessee on the aforesaid aspects, there has to be some cogent reasons and materials for the AO and he cannot go into the realm of suspicion. The AO cannot burden the assessee with tax liability merely on the ground that summons issued to the creditors were returned back with the endorsement 'not traceable'. 3.4.1. In the instant case, once the appellant had produced all documents establishing the identity and capacity of M/s Megapode Vyaapar (P) Ltd and genuineness of transaction, the initial onus cast upon the appellant was discharged and the onus shifted to the AO to bring material on record to the effect that in spite of identity and creditworthiness of the creditor being proved, the transaction was still not genuine. However, the AO has not made any further inquiries and has not brought any material on record to controvert the documentary evidences submitted by the appellant. She was only influenced by the statements recorded by the ....
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....redits need not be proved. The head note is reproduced as under:- "Section 68 of the Income-tax Act, 1961- Cash credits Assessing Officer made addition of Rs. 12.85,000 as unexplained cash credits in respect of loans taken by assessee from 21 parties Assessee had discharged initial onus by providing identity of all creditors by giving their complete addresses, GIR numbers/permanent account numbers and copies of assessment orders wherever readily available Assessee had also proved capacity of creditors by showing that amounts were received by account payee cheques drawn from bank accounts of creditors Repayment of loans and interest thereon was also made by account payee cheques by assessee and tax also had been deducted at source on interest payments and remitted Whether assessee was not expected to prove genuineness of cash deposited in bank accounts of creditors, because under law, assessee can be asked to prove source of credits in its books of account but not source of source Held, yes Whether merely because summons issued to some of creditors could not be served or they failed to appear before Assessing Officer, could not be ground to treat those credits as non-genuin....
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....ndelivered-No effort was made to examine as to whether these companies were filing the IT return and if they were filing the same, then what kind of returns these companies were filing-If there was no return, this could be another factor leading towards the suspicion nurtured by the AO-Likewise, when the bank statements were filed, the AO could find out the address given by those applicant companies in the bank, who opened the bank accounts and are the signatories, who introduced those bank accounts and the manner in which transactions were carried out and the bank accounts operated-This kind of inquiry would have given some more material to the AO to find out as to whether the assessee can be convicted with the transactions which were allegedly bogus and/or companies were also bogus and were created for namesake-Mere failure of the creditors to respond to Department's notices could not be a basis to conclude that the assessee has invested its undisclosed income and invoke provisions of s. 68 against assessee-AO failed to carry his suspicion to logical conclusion by further investigation-More steps which should have been taken by the Revenue in order to find out causal connecti....
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.... portion of which has also been reproduced in the assessment order, I find that nowhere in these statements either a question regarding advance, more particularly advance given to the assessee has been asked or that the deponent has stated that advance given was accommodation entry against receipt of cash from the recipient of advance, as has been rightly pointed out by the appellant in his written submission. Thus, I find that as has been rightly pointed out by the appellant, Sh. Deepak Patawari and Sh. Amit Agarwal were neither asked to explain the real nature of money advanced by company nor they divulged any particular modusoperendi with regard to such advance. The statement recorded during the search is the sole basis for the conclusion of the AO that the advance / credit was assessee's own unaccounted income does not contain any material at all to justify such a conclusion. There is no evidence or indication that either the assessee had given cash in lieu of such advance or the creditor had received such cash. It is indeed true, as has been pointed out by the appellant that the AO had failed to make any inquiry to ascertain the source of cash deposited in the account from....
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.... on the Department to prove with the documentary evidence that the transactions entered into by the appellant are not genuine and what is apparent is not substantial. Except narrating a modus operandi which may be true in some cases in the assessment order of the appellant's case, without substantiating by documentary evidences. the Assessing Officer was not correct in holding that transaction entered by the assessee with M/s. Megapode Vyaapar P. Ltd. were sham or bogus and in treating the same as unexplained cash credit u/s, 68 of the Act. 3.10. The Assessing Officer has referred decision of Hon'ble Supreme Corut in the case of Sumati Dayal vs. CIT, reported in 214 ITR 801 and ITO vs. Durga Prasad More 82 ITR 540 for the proposition that apparent must be considered real only if it is shown that there are the reasons to believe that the apparent is not real and that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities There is no denial of proposition laid down by the Hon'ble Supreme Court but in every case it has to be judged on the....
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....ne to one correlation established by the appellant. In relation to M/s Dimensional Securities Ltd, it was stated by the AO that the broker company was penalized by the SEBI Ltd on the matter involving technical defaults during financial year 2007-08 to 2009-10. However in my view such penalty cannot have any implication on the creditworthiness of the concern in the year under review. The technical defaults are the offshoot of human follies and they do not narrate any story of the financial health unless expressly stated. Further, the appellant submitted that the concern M/s Dimensional Securities Ltd has been exonerated by the appellate body at the SEBI and penalties imposed were quashed vide order no.93/2009 dated 20.02.09 and ISD 09 dated 20.02.09, which gets duly proved from the details available at the same portal. The AO has to apply his mind to each and every individual entry when an explanation is offered by the assessee as observed by in CIT v. R.S. Rathore (RHC) 212 ITR 390. The income alone cannot be the source of deposit. The funds received from the varied sources can be channelized for making advances. Therefore, the endeavor of AO to judge the creditworthiness of cash ....
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....ed by A, in whose name the money is lying in deposit, has been found to be false, it would be a remote and far-fetched conclusion to hold that the money belongs to B There would be in such a case no direct nexus between the facts found and the conclusion drawn therefrom. The onus to prove that the apparent is not the real is on the party who claims it to be so. As it was the department which claimed that the amount of fixed deposit receipt belonged to the respondent firm even though the receipt had been issued in the name of Biswanath, the burden lay on the department to prove that the respondent was the owner of the amount despite the fact that the receipt was in the name of Biswanath. 3.11.1. The Hon'ble Apex Court in the case of Kishanchand Chellaram Vs. CIT reported in 125 ITR 713 observed as below:- "...........But before the income-tax authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross-examine the manager of the bank with reference to the statements made by him. ..............The burden was on the dep....
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....und that the material indicated that big business houses and industrialists were using Sikkim as a base for rerouting their unaccounted money and a search revealed that SD was controlling a few Sikkim companies for laundering such black money. On appeal, the Appellate Tribunal affirmed the finding of the Commissioner (Appeals) on the ground that the departmental enquiries pointed to a person to whom such unaccounted money might be long and yet it was attempting to tax the income in the hands of the assessee company. The Appellate Tribunal rejected the Department's applications for reference on the ground that the finding of the Tribunal was one of fact, and the High Court dismissed the Department's applications under s.256(2) of the Income-tax Act, 1961, for orders directing the Tribunal to state a case. The Department preferred appeals to the Supreme Court, and the Supreme Court dismissed the appeals". 3.11.5. In the decision in the case of Heirs of Vrajlal J. Ganatra Vs.. Heirs of Parshottam S. Shah reported in 222 ITR 391, the Hon'ble Apex Court observed as below- "The question whether a particular sale is benami or not is largely one of fact. Thoug....
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....dverse finding. 3.15. Further, non compliance of the notices issued by the AO u/s 133(6), cannot lead to conclusion that the transactions entered with M/s Megapode Vyaapar (P) Ltd by the appellant firm were bogus. Had the AO harboured any doubt regarding creditworthiness of this company, he could have made enquiry from the respective AO's of the above company as all the income tax particulars in respect of above company are placed on record. As regards the AO's observation that M/s. Megapode Vyapaar Pvt. Ltd. had shown meager income in the returns of income filed for AY 2011-12 to 2014-15, hence, its capacity of giving loan could not be established, I find that these observations have no relevance as far as giving loan of Rs. 1,17,00,000/- is concerned for the reason that loan of Rs. 1,17,00,000/- was not given out of the income, but was actually given out of the fund/amount received by it from IT refund and Dimensional Securities Ltd and Sanjay Jain & Co. through proper banking channel. It is settled that the appellant is not supposed to explain the source of source. Most importantly, the AO has failed to record any adverse findings that interest paid by the asses....
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....ompany A request of assessee to Assessing Officer to issue summons against said investors under section 131 for their production at assessment stage was not considered and Assessing Officer passed assessment order on next day Whether since assessee at assessment stage had produced sufficient evidences before Assessing Officer so as to discharge its initial onus to prove identity of investor companies, their creditworthiness and genuineness of transactions, Impugned additions under section 68 were unjustified-Held, yes [Paras 5,5.2,5.9] [In favour of assessee] Though the above judgment relates to issue of share premium, however, the ratio specifically applicable to the facts of the present case, where the assessee had brought on sufficient evidence to discharge its initial onus to prove identity of investor companies, their creditworthiness and genuineness of transactions. 3.18. The Hon'ble Bombay High Court in the case of CIT vs. Haresh D. Mehta [2017] 86 taxmann.com 22 (Bombay) held that where assessee proved loan transactions from various parties by producing details like copy of PAN card, copy of return of income, balance sheet and copy of bank accounts of ....
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....its unaccounted money in the shape of bogus accommodation entries and subsequently any money/profit ever returned back or received by the appellant company. Thus, it is wrong to allege that the appellant firm was the real beneficiary of the amount received from this company. 3.20. Considering the facts and circumstances of the case and various judicial pronouncements as discussed above, it is held that the appellant has fully discharged the onus of establishing the identity, creditworthiness and genuineness of transaction in the instant case and therefore, the AO was not justified in holding that the loans obtained by the appellant from M/s. Megapode Vyaapar Pvt. Ltd. were not genuine and therefore, further not justified in disallowing the interest paid thereon. Under these facts and circumstances, the addition Rs. 97,30,208/- being the interest paid on loan and addition of Rs. 1,17,00,000/- treating is bogus cash credit u/s. 68, are hereby deleted. The ground nos. 1 and 2 regarding these issue are allowed." 5. Feeling dissatisfied from the above order of the ld. CIT(A). The revenue has preferred the present appeal on the ground as stated hereinabove in para 2. Apropos ....
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....heard the rival contentions, perused the material placed on record. During the assessment proceeding the ld. AO noted that the assessee has unsecured loan on which interest has been paid by the assessee to the entity named M/s Magapode Vyaapar P. Ltd. The assessee was produced the confirmation from the above party but when the ld. AO issued notice u/s 133(6) of the Act, the notice was returned with the remark "not know". Thereafter, a summons u/s 131 was issued to the directors of the above company Mr. Shanti lal Baid and Mr. Rajkaran Daga. The ld. AO noted that both these directors reside in Bikaner even though notices were served by the personal service wherein both the directors refused to take the notices and the notice server was informed to serve the same to Jain Carrying Corporation. Thus, the ld. AO noted that both the directors are related to M/s Jain Carrying Corporation. The ld. AO further noted that M/s S.L. Baid received salary from M/s Jain Carrying Corporation is an employee therein and so was Mr. Raj Karan Daga even show cause notice u/s 127(1) was sent to both the directors of the said company but there is no response to receive from any of them on 10.11.2016. A le....
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....sessee paid interest amounting to Rs. 97,30,208/- on loans taken obtained from the entity M/s Megapode Vyaapar (P) Ltd. The interest was paid on old loans as well as on fresh loan of Rs. 1,17,00,000/-. The AO doubted the genuineness of these loans and interest paid thereon by observing that M/s Megapode Vyaapar (P) Ltd was a bogus dummy company, controlled and managed by Shri Deepak Patwari, who was a bogus accommodation entry operator. The ld. AO quoted the statements of Shri Deepak Patwari and Shri Amit Agarwal, Director of M/s Megapode Vyaapar(P) where both these persons accepted that they controlled and managed the dummy companies for providing bogus accommodation entries. The ld. AO noted that the income declared by M/s Megapode Vyaapar (P) for the years surrounded with the year under consideration were quite meagre. The ld. AO's suspicion was more so because both the Directors Shri Rajkaran Daga and Shri S. L. Baid, were related to the assessee did not turn up during assessment proceeding to confirm the fact of lending money to the assessee. The ld. AR of the assessee contested this action of the ld. AO by submitting that the ld. AO merely based on the statement of third ....
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....e number of judicial precedence that the assessee is not supposed to prove the source of the source. Once the assessee is able to establish that it has in fact received money from third party, it cannot be burdened with a further onus of establishing the source from which such third party had been able to obtain the money. Therefore, the assessee discharged the capacity to advance the amounts to the assessee. Now the third requirement is about the genuineness of the transaction as one of Directors of this company and Shri Deepak Patawari admitted in their statements recorded by Investigating Wing, Kolkata that he had indulged in providing bogus accommodation entries. thus, the AO linked transactions entered by this company with the assessee and considered them as bogus transactions. Regarding this, the assessee submitted they never admitted that transactions entered with the assessee company were bogus transactions. The company M/s Megapode Vyaapar (P) Ltd filed its confirmation regarding advances deposited with the assessee company as loan. Thus, in view of the categorical confirmation of the transaction being made by the creditor, the genuineness of this transaction is establishe....
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....T v Rathi Finlease Ltd. [2008] 215 CTR 429 (M.P.). The creditworthiness or financial strength of the creditor can be proved by producing the bank statement of the creditor showing that it had sufficient balance in its accounts to enable it to advance money to the assessee. Genuineness of the transaction is to be demonstrated by showing that the assessee had, in fact, received money from the said creditor and it came from the coffers of that very creditor. The Division Bench of Delhi High Court in the case of CIT vs. Kamdhenu Steels and Alloys Ltd. 361 ITR 220 (Del.) held that when the money is received by cheque and is transmitted through banking or other indisputable channels, genuineness of transaction would be proved. Once these documents are produced, the onus cast on the assessee can be said to have been satisfactorily discharged. Then it is the ld. AO who has to bring the contrary evidence on the record to counter the records of the assessee, no such records evidence produced to counter the finding of the ld. CIT(A). In the order of the ld. CIT(A) he has discussed all these aspect of the matter and also noted that merely on the ground that summons issued to the creditors were....
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....bility of fund with the creditor at the time when the money was advanced to the assessee, which he was duty bound to do in view of his allegation that the loan reflected in the books of the assessee was nothing but an accommodation entry representing the assessee's own unaccounted income. We also noted that the ld. AO failed to effectively rebut the contention of the assessee regarding genuineness of the transactions by producing before the AO the confirmation, copy of accounts and bank account, as has been mentioned in the assessment order. Both the person whose statement recorded merely discussed modus operandi of providing bogus entries without mentioning assessee's name in particular. More particularly, in absence of any specific reference to the assessee or transactions undertaken by him, these statements cannot be used for drawing any conclusion regarding advance deposit with the assessee. This view finds support from the decision of the Calcutta High Court in the case of S. P. Agarwala vs ITO (140 ITR 1010 Cal) in which it has been held that a mere confessional statement by a third party (who is a lender of the assessee) that he was mere name lender and that all his ....
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....td., the immediate source of that cash credit is the Income Tax refund of Rs. 1220070/- credited in the Axis bank account on 21.05.2013. The assessee received amount of Rs. 2000000/- on 18.03.2014 from M/s Megapode Vyapaar Pvt Ltd., the immediate source of that cash credit is the amount received from M/s Dimensional Securities Ltd. of Rs. 2015434/- credited in the Axis bank account on 12.03.2014. It may be noted that M/s Dimensional Securities Ltd. is duly registered with SEBI and having membership of National Stock Exchange and Bombay Stock Exchange Ltd. The assessee received amount of Rs. 3000000/- on 19.03.2014 from M/s Megapode Vyapaar Pvt Ltd., the immediate source of that cash credit is the amount received from M/s Dimensional Securities Ltd. of Rs. 3069526/- credited in the Canara bank account on 18.03.2014. The assessee received amount of Rs. 5500000/- on 31.03.2014 from M/s Megapode Vyapaar Pvt Ltd., the immediate source of that cash credit is the amount received from M/s Sanjay Jain & Co. of Rs. 5553991/- credited in the Canara bank account on 29.03.2014. The concern M/s Sanjay Jain & Co. is a regular assessee of Income Tax. 7.6 There is no observation on these each en....