* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment Reserved on September 03 , 2014
Judgment Delivered on September 16, 2014
+ ITA No. 1270/2011
COMMISSIONER OF INCOME TAX-VI .....Appellant
Through: Mr.Sanjeev Sabharwal,
Sr.Standing Counsel/Sr.Advocate
with Mr.Ruchir Bhatia, Ms.Swati
Thapa, Advocates
versus
M/S. T.S.KISHAN & CO. LTD. ..... Respondent
Through: Mr.Ved Jain, Advocate with
Ms.Pranjal Srivastava, Advocate
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE V.KAMESWAR RAO
V.KAMESWAR RAO, J.
1. This appeal by the Revenue under Section 260A of the Income
Tax Act, 1961 (Act, for short) pertains to assessment year 2005-06 and
emanates from order dated June 14, 2011 passed by the Income Tax
Appellate Tribunal, Delhi (`Tribunal', for short) in ITA No.
4938/DEL/2010, whereby the Tribunal while dismissing the appeal filed
by the Revenue, confirmed the order of the CIT(A), wherein, it
concluded as under:-
"6. We have heard the rival contentions in
light of the material produced and precedent
ITA No. 1270/2011 Page 1 of 16
relied upon. We find that assessee has duly
submitted that the loans were received by cheque
and were paid in subsequent assessment years
and necessary, evidence in this regard has also
been submitted in the shape of the affidavit, bank
statement. In these circumstances, we find that
the Ld. Commissioner of Income Tax (Appeals)'s
action in deleting the addition is justified.
Hence, we do not find any infirmity or illegality
in the order of the Ld. Commissioner of Income
Tax (Appeals) and hence, we uphold the same".
2. The following substantial question of law was framed by this
Court on 26.03.2012:
"Whether the Income Tax Appellate Tribunal was
right in dismissing the appeal of the Revenue
upholding deletion of addition of Rs. 28,00,000/-
under Section 68 of the Income Tax Act, 1961".
3. The relevant facts, as emerged from the Assessment order dated
December 28, 2007, are that the respondent assessee, i.e., M/s. T.S.
Kishan & Co. Ltd., (hereinafter referred to as `respondent assessee), filed
its return of income declaring a loss of Rs. 44,70,307/-. The return was
processed under Section 143(1) of the Act and thereafter, a notice was
issued under Section 143(2) of the Act, initiating scrutiny assessment
proceedings.
ITA No. 1270/2011 Page 2 of 16
4. The Assessment officer vide its order dated December 28, 2007,
assessed the total loss of Rs. 16,70,307/-, while reducing the returned
loss by making an addition of Rs. 28,00,000/- pertaining to unsecured
loans credited in the books of account of the assessee being income from
undisclosed sources under Section 68 of the Act. Relevant portion of the
Assessment order is reproduced hereunder:
"4. Keeping in view the above position, the
assessee was required vide order sheet entry dated
20.12.2007 to prove identification, genuineness and
creditworthiness as per the provisions of Sec. 68 of
the IT Act, 1961 in respect of both the aforesaid
firms i.e. M/s. Shila Textile and M/s. Rajesh
Upadhyay & Co. Case was adjourned to 24/12/2007.
5. On 24/12/2007, Shri Dinesh Aggarwal, CA
attended the office. But, he could not provide PAN,
Address or confirmation of loan taken from M/s.
Shila Textile and M/s. Rajesh Upadhyay & Co. The
assessee submitted that the subject roans were taken
by cheque and the amount of loan was repaid by
cheque in the next year i.e. FY 2005-06. The
assessee sought time to try again in contacting the
aforesaid firms. Proceedings were adjourned to
28.12.2007.
6. On 28/12/2007, the assessee filed an affidavit in
which he provided the particulars of loan obtained
by cheque and also returned by cheques. I have
considered the affidavit as well as other submissions
made by the assessee in this regard. But, the fact
remains that the assessee has not discharged the
onus cast upon it to identify the persons and prove
their creditworthiness of having advanced the loan
to the assessee. This is the requirement of law as per
the provisions contained in Sec. 68 of the IT Act,
ITA No. 1270/2011 Page 3 of 16
1961.
7. Hence, reference is invited to the recent decision
of Hon'ble Delhi High Court in the case of CIT Vs
Himalaya International Ltd., in which Hon'ble Court
has held vide its order dated 30.07.2007 that if the
Assessing Officer harbours doubts of the legitimacy
of any subscription, he is empowered, nay duty-
bound to carry out thorough investigation u/s 68 of
the IT Act, 1961. The assessee has to prima facie
prove (1) the identity of the credit/subscriber (2) the
genuineness` of the transaction (3) the credit
worthiness. Further, reference is also invited to the
decision of Hon'ble Calcutta High Court in the case
of CIT Vs M/s. Precision Finance Pvt. Ltd. (208 ITR
465) & CIT Vs M/s. Korloy Trading Co. Ltd. (232
ITR 820) on the issue in hand.
8. Keeping in view the above discussion, sum of Rs.
28,00,000/- pertaining to unsecured loans credited
in the books of account of the assessee during the FY
2004-05 is treated as undisclosed income u/s 68 of
the IT Act, 1961."
5. On appeal filed by the assessee, CIT(A) has framed two issues,
first being whether the Assessing Officer has erred in law and on facts
and was justified in treating unsecured loans of Rs. 28,00,000/- as
income of the assessee, and the second being the initiation of penalty
proceedings u/s 271(1)(c).
6. CIT(A) vide its order dated September 01, 2010, allowed the
above appeal. The findings of the CIT(A) are reproduced hereunder:
"10. In view of the above, the identity of both the
parties i.e. M/s Sheela Textile and Rajesh
Upadhyaya & Co stands proved.
ITA No. 1270/2011 Page 4 of 16
11. The Ld. AO has obtained the bank
statements of both the parties. From the bank
statement it is clear evident that the loan amount is
flowing from the above bank accounts of the parties
to the account of the assessee by account payees
cheque only. Similarly, the repayments by the
assessee from its bank account with the Indian
Overseas bank are flowing back to both the parties
account with Bank of Baroda by account payee
cheques only. While issuing the cheques to the
assessee, both the parties have the bank account
balance with them out of which the money was
received by the assessee. In view of this credit
worthiness and genuineness also stand proves.
12. Further from the close scrutiny of the above
bank statement, it would be observed that there are
the frequent transaction in the bank account
whereby regular amounts are being deposited and
withdrawals made, both by cheque and cash. This
shows that both the firms are having some regular
business and the money tended to the assessee is out
of this business only. The assessee has submitted a
detailed affidavit before the learned AO a copy of
which is enclosed herewith as Annexure I. This
affidavit contains the factual position, copy of ledger
accounts of the parties appearing in the books of the
assessee, bank statement of the assessee showing
receipt and repayment of loans, confirmation from
the assessees bank for the repayment of loans and
other supporting documents.
13. In a recent Judgment, Honorable Delhi
High Court in the case of CIT v/s Dwarkadhish
Investment Pvt. Ltd. ITA 9011/2010 dated August 2,
2010 (2010) 6 Taxmann.com 84 (delhi) (A Copy of
the order is attached herewith as Annexure IV) held
that though in Section 68 proceedings, the initial
burden of proof lies on the assessee yet he once
proves the identity of the creditors/share applicants
by either furnishing their PAN or Income Tax
ITA No. 1270/2011 Page 5 of 16
assessment no. and shows the genuineness of
transaction by showing money in his books either by
way of account payee cheque or by draft or by any
other mode than the onus of proof would shift to the
revenue. It was also held that just because
creditor/share applicant could not be found at
address given, and it would not give Revenue right to
invoke section 68. Moreover, it was held that it is a
settled law that the assessee need not to prove the
"source of source".
14. In this case of the assessee though it is not
able to provide the PAN of the Parties who have lent
the money but had been able to provide all the other
material to prove the identity of the party by
furnishing the account opening form mentioning the
address, photo of one of the lender and the PAN of
the introducer of the account. Today when the bank
are supposed to follow the KYC norms as stipulated
by the Reserve Bank of India, the existence of bogus
parties does not arise and that too for an account
running since 2001 that is almost for 10 years now.
The address as given by the assessee is same as has
been mentioned in the bank account opening form
and all the parties do exist even today at these
address though it has been denied to the inspectors
who had gone for the inspection.
15. The genuineness of the transaction is
proved by the fact that the money has been received
by the assessee from the bank account of the lenders
by account payee cheque only as evident from the
bank statement of both the parties and assessee. A
certificate from the bank has also been submitted
before the AO which is forming a part of the affidavit
submitted by the assessee.
In view of above it is prayed that the appeal of the
assessee may kindly be allowed by deleting the
addition of Rs. 28 lacs on account of unexplained
credits u/s 68 of Income Tax Act."
ITA No. 1270/2011 Page 6 of 16
8. I have gone through the assessment order
and the detailed written submissions filed by the AR
in this regard.
9.1 The assessee has shown receipt of Rs.
28,00,000/- as loans from the following two parties:
1. Sheela Textiles Rs. 5,00,000/-
2. Rajesh Kumar Upadhaya & Co. Rs. 23,00,000/-
9.2 The AO disbelieved the credits on the
grounds that identity and creditworthiness of the
transactions are not proved. The contentions of the
AR are that the amounts were received by way of
cheques and the amounts were repaid in the
subsequent assessment years apart from stating that
necessary evidence was furnished before the AO by
way of Affidavit and Bank Statements.
9.3 The AO has not disputed the repayment of
loans in subsequent assessment year/s. in the case of
ITO vs. Shyam Sunder Jajodia (2008) 26 SOT 541
(Delhi), the Hon'ble Tribunal has held that
repayment of loan confirms the earlier acceptance of
loan.
9.4 After careful consideration of the facts
brought on record, the identity, creditworthiness 86
genuineness of the transactions as envisaged u/s 68
are adequately proved. In the light of the above
discussion, the action of the AO is not upheld."
7. Aggrieved by the order dated September 01, 2010 passed by the
CIT(A), the Revenue filed ITA No. 4938/Del/2010 before the Tribunal
i.e. Income-Tax Appellate Tribunal, New Delhi, wherein the issue raised
by the Revenue was that whether the Ld. CIT(A) erred in deleting the
ITA No. 1270/2011 Page 7 of 16
addition of Rs. 28,00,000/- on account of unexplained receipts of
unsecured loans.
8. The Tribunal vide its order dated June 14, 2011, dismissed the
appeal of the Revenue while justifying the findings found by the CIT(A)
in its order. The relevant finding of the order passed by the Tribunal are
hereunder:
"6. We have heard the rival contentions in light of
the material produced and precedent relied upon.
We find that assessee has duly submitted that the
loans were received by the cheque and were paid in
subsequent assessment years and necessary,
evidence in this regard has also been submitted in
the shape of the affidavit, bank statement. In these
circumstances, we find that Ld. Commissioner of
Income Tax (Appeals)'s action in deleting is
justified. Hence, we do not find any infirmity or
illegality in the order of the Ld. Commissioner of
Income Tax (Appeals) and hence, we uphold the
same."
9. Aggrieved by the order passed by the Tribunal, revenue filed the
present appeal inter alia on the following grounds:
a. Order of CIT(A) as well as the Tribunal is a non
speaking order.
b. The Tribunal as well as CIT(A) erred in coming to the
conclusion that the assessee had discharged the initial
onus which lay upon him in terms of Section 68 of the
Act.
ITA No. 1270/2011 Page 8 of 16
c. The Tribunal as well as the CIT(A) completely failed
to take note of the fact that no credible evidence in
respect of these firms was brought on record to
establish their identity, genuineness of the transaction
and credit worthiness of such firms.
d. The Tribunal as well as CIT(A) erred in relying upon
the affidavit filed by the assessee which was a self
serving evidence and placing too much reliance on the
bank statement produced of the firms to prove identity
and genuineness.
10. Mr.Sanjeev Sabharwal, learned counsel for the appellant-Revenue
would submit that the assessee has failed to discharge the onus in
proving the identity, genuineness of the transactions and
creditworthiness of the parties. According to him, the Assessing Officer
has rightly treated the income from other sources and made an addition.
He would further state that the CIT(A) and the Tribunal have not
appreciated the facts in proper prospective while concluding in favour of
the assessee. According to him, the finding of the CIT(A) and the
Tribunal that the assessee has repaid the loan in subsequent year was
without ascertaining whether interest was paid by the assessee for the
loans; the reliance placed by the CIT(A) on the affidavit of the assessee
which is a self-serving evidence, was untenable. The reliance on the
bank statements of the parties by the CIT(A) could not prove the
ITA No. 1270/2011 Page 9 of 16
identity, genuineness on the transactions; the parties were found to be
non-existent at the given address. According to him, the tests laid down
by this Court in the case of CIT Vs. Oasis Hospitalities (Pvt.) Ltd., ITA
No. 2093/2010, decided on 31.01.2011 have not been satisfied.
11. On the other hand, Mr. Ved Jain, learned counsel for the
respondent-assessee supports the conclusion of the CIT(A) and the
Tribunal. He would state that the assessee could able to prove the
identify and genuineness of the transactions through the account details
of the parties from where the loan was advanced. He relied upon
affidavit filed by the assessee with regard to the transactions. He would
further state that the genuineness of the loan of Rs. 42,05,000/- which
was also arranged by Mr. Bharat Kaushik has been accepted by the
Assessing Officer and there was no reason for the Assessing Officer to
reject loans for Rs. 28 lakhs.
12. Having heard the learned counsel for the parties, before we deal
with the rival submissions, the position of law is as under:
13. Section 68 of the Income Tax Act, 1961 (`Act' in short),
empowers the Assessing Officer to treat the income credited in the books
of accounts of the assessee for any previous year if there is no plausible
explanation by the assessee about the nature and source of such income
or if the explanation given is not satisfactory. Once it is explained, it is
ITA No. 1270/2011 Page 10 of 16
for the Assessing Officer to consider the same and form an opinion about
the genuineness of the whole transactions. Such an opinion must be
based on cogent evidence i.e. material produced by the assessee. In
A.Govinda Rajulu Mudaliar Vs. CIT, [1958] 34 ITR 807 (SC), it was
held that it is not necessary for the department to adduce evidence to
show from which sources the income was derived and as to why it
should be treated as undisclosed income. If the assessee fails to prove
satisfactory the source and nature of certain amount of cash received
through the accounting year, the ITO is entitled to draw an inference that
the receipts are of an assessable nature. Therefore, the burden of proving
the source of such income is on the assessee.
14. In CIT Vs. Durga Prasad More, [1971] 82 ITR 540 (SC), it was
held that the discharge of onus is dependent on the facts and
circumstances of each case. Whether the initial onus is discharged or not
that has to be ascertained from the materials on record. Once the initial
onus is discharged, the onus shifts on the Revenue. Then, it is for the
Revenue to act on it and until it comes to a finding that the explanation is
insufficient and unsatisfactory, it could either ask for further explanation
or could come to a decision on the basis of such material, but it is also a
necessity or incumbent on the taxing authority to discharge their duty
before fastening liability on the assessee. Therefore, when the materials
ITA No. 1270/2011 Page 11 of 16
are placed before it, the Revenue is duty bound to look into the same.
15. In the present case, it is seen insofar as the identity is concerned,
the assessee could not produce the PAN Number of both the parties. The
Assessing Officer, using his power under Section 131 of the Act, had
called upon the bankers of the parties to produce the necessary
particulars. The banks could only produce the account opening forms
and bank statements of the parties. We do not think that the efforts made
by the Assessing Officer and the fact that he was able to procure the
bank statement would justify the finding and conclusion that identity,
creditworthiness and genuineness of the transactions stands established.
The findings recorded by the Assessing Officer and which remained
unnoticed are telling and unequivocal. Attempts made by the Assessing
Officer to serve the parties at 17/4, Mathura Road, New Delhi proved
futile. This position is admitted and it is accepted by the counsel for the
respondent that the address mentioned was correct. Mr. Bharat Kaushik,
who acted as an introducer while opening the accounts and who is said
to be the son of an old friend and was instrumental for arranging funds,
was not produced on the pretext that the assessee was not in best
relations with him. This appears to be a ploy for not producing him. His
presence definitely would have thrown light on the identity of the
parties. We also note, at the same time, the Assessing Officer should
ITA No. 1270/2011 Page 12 of 16
have invoked Section 131 of the Act to ensure his presence. The parties
who had given loans of Rs.28 lacs namely Sheela Textile and Rajesh
Upadhyaya & Co. were not produced. That apart, we note the Account
Numbers being 51706, 51921 are in close proximity and have been
opened around the same time. It is surprising that the bank had not even
cared to seek the complete details of the parties at the time of the
opening of the account like their PAN Number. It is also not disputed by
the learned counsel for the assessee that the assessee had not paid any
interest to the parties for advancing such huge loans. It has also come on
record that the parties were not known to the assessee so as to oblige the
assessee by advancing interest free loan of substantial amounts. The
purpose for which the loans were taken, have not been spelt out by the
assessee in his affidavit or otherwise. The Paying back of the so called
loans by way of an Account payee cheque is not conclusive, moreso, if
the aspects narrated above, are considered cumulatively. The facts have
to be seen in the context of Section 68 of the Act. Suffice to state, the
identity of the parties have not been proved, their creditworthiness not
established and genuineness of transactions not demonstrated. In this
context the respondent assessee was unable to file/give PAN number,
details of income tax returns etc.
16. The Calcutta High Court in the case of CIT Vs. Precision Finance
ITA No. 1270/2011 Page 13 of 16
(P) Ltd., [1994] 208 ITR 465 (Cal) has held that it is for the assessee to
prove the identity of the creditors, their creditworthiness and
genuineness of the transactions. Mere furnishing of particulars is not
enough. It was found, in that case, on enquiry by the ITO that the
assessee was not traceable and there was no such file. The first
ingredient as to the identity was not established. Similar view was taken
by the same High Court in the case of CIT Vs. Korley Trading Co. Ltd.,
[1998] 232 ITR 820 (Cal) wherein, the High Court held the creditors
should be identified; there should be creditworthiness, genuineness of
the transactions. The furnishing of income tax file number is not enough
to prove the genuineness of cash credit.
17. We also note in agreement the judgment of this Court as relied
upon by Mr. Sanjeev Sabharwal in support of his case in CIT Vs. Oasis
Hospitalities (Pvt.) Ltd (supra), wherein, this Court has held as under:
"11. It is clear from the above that the initial
burden is upon the Assessee to explain the nature
and source of the share application money received
by the Assessee. In order to discharge this burden,
the Assessee is required to prove:
(a) Identity of shareholder;
(b) Genuineness of transaction; and
(c) Credit worthiness of shareholders.
12. In case the investor/shareholder is an
individual, some documents will have to be filed or
ITA No. 1270/2011 Page 14 of 16
the said shareholder will have to be produced
before the AO to prove his identity. If the
creditor/subscriber is a company, then the details in
the form of registered address or PAN identity, etc.
can be furnished.
13. Genuineness of the transaction is to be
demonstrated by showing that the Assessee had, in
fact, received money from the said shareholder and
it came from the coffers from that very shareholder.
The Division Bench held that when the money is
received by cheque and is transmitted through
banking or other indisputable channels,
genuineness of transaction would be proved. Other
documents showing the genuineness of transaction
could be the copies of the shareholders register,
share application forms, share transfer register,
etc.
14. As far as creditworthiness or financial strength
of the credit/subscriber is concerned, that can be
proved by producing the bank statement of the
creditors/subscribers showing that it had sufficient
balance in its accounts to enable it to subscribe to
the share capital. This judgment further holds that
once these documents are produced, the Assessee
would have satisfactorily discharge the onus cast
upon him. 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."
18. The CIT(A) and the Tribunal, in our view, have committed an
error in not properly approaching the issue which fell for their
consideration out of the findings rendered by the Assessing Officer. In
ITA No. 1270/2011 Page 15 of 16
such a situation, it has to be held that they have committed substantial
error of law in interfering with the order of the Assessing Authority
without any proper basis.
19. In view of the aforesaid, we are therefore convinced that
interference is required by this Court in this appeal. We accordingly set
aside the order of the Tribunal and restore the order of the Assessing
Officer. The question of law is accordingly decided in favour of the
appellant-Revenue and against the respondent-assessee.
20. The appeal is disposed of.
21. No costs.
(V.KAMESWAR RAO)
JUDGE
(SANJIV KHANNA)
JUDGE
SEPTEMBER 16, 2014
akb
ITA No. 1270/2011 Page 16 of 16
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