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Income Tax Appellate Tribunal, Circuit Bench, Varanasi
Before: Shri B.R. Baskaran (AM) & Shri Amit Shukla (JM)
The assessee has filed this appeal challenging the order dated 18.1.2023 passed by the learned CIT(A), Luknow-3 and it relates to A.Y. 2012-13. The assessee is aggrieved by the decision of the learned CIT(A) in confirming the addition of Rs. 50 lakhs made by the Assessing Officer under section 68 of the I.T. Act.
Facts relating to the issue are stated in brief. The assessee is engaged in the business of manufacturing of MS bars and also wheat products such as atta, maida, suji and bran. The assessee was subjected to search on 27.2.2014. Consequent thereto, the assessee filed a petition before the Income Tax Settlement Commission, which was disposed of on 18.7.2017. The total income of the assessee for the year under consideration was determined by the Settlement Commission at Rs. 47,50,000/- in the order
2 Gallantt Ispat Ltd. passed under section 245D(4) of the Act. Subsequently, the Assessing Officer received information from the Investigation Wing, Kolkata that the assessee has availed accommodation entry of Rs. 50 lakhs from M/s. Patridge Mercantile (P) Ltd., which is a paper company not doing any business. Based on this information the Assessing Officer reopened the assessment by issuing notice under section 148 of the Act on 29.3.2019.
In this regard the Assessing Officer referred to the report given by the Investigation Wing in the case of another alleged paper company named M/s. Anjali Suppliers Pvt. Limited. Since the investigation wing has reported that the assessee has availed accommodation entry of Rs. 50 lakhs, the Assessing Officer asked the assessee to prove the cash credit of Rs. 50 lakhs taken from M/s. Patridge Mercantile (P) Ltd in terms of section 68 of the Act.
The assessee submitted that the above said amount of Rs.50.00 lakhs represent advance received for sale of a commercial space belonging to the assessee. It was submitted that it has entered into an agreement with M/s. Patridge Mercantile (P) Ltd in that regard and has received an advance of Rs.50.00 lakhs from the above said company on 4.1.2012. It was submitted that the above said amount was received through banking channel by way of transfer under two RTGS of Rs. 25 lakhs each. It was submitted that the above said advance of Rs. 50 lakhs has been duly disclosed in the books of account as “other current liability”. In order to prove the genuineness of the advance amount received by the assessee, it submitted following documents before the Assessing Officer :-
a) Copy of bank statement of the assessee b) Copy of bank statement of M/s. Patridge Mercantile (P) Ltd. c) Confirmation letter signed by both the parties d) Audited balance sheet of the assessee and the above said company
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Accordingly it was submitted that the assessee has proved all the three ingredients, viz., identity of the creditor, creditworthiness of the creditor and genuineness of the transactions. Accordingly it was contended that the above said amount of Rs. 50 lakhs cannot be added under section 68 of the Act.
The Assessing Officer, however, did not accept explanations and documents furnished by the assessee. The Assessing Officer examined the Balance sheets of M/s. Patridge Mercantile (P) Ltd for various years and noticed (the details are extracted at page No. 6 of the assessment order):-
(a) that it has shown nil income from A.Y. 2012-13 to 2016.17, (b) that it has started operation only from A.Y. 2012-13, (c) that it did not have accumulated profit or fixed asset, (d) that it has not carried on any actual business.
Since the above said company did not carry on any business, the Assessing Officer took the view that the assessee has used the above said company as conduit to receive its own money generated from undisclosed sources by way of advance. Accordingly the Assessing Officer took the view that the assessee has failed to prove the cash credit of Rs. 50 lakhs and accordingly assessed the same as income of the assessee under section 68 of the Act.
Before the learned CIT(A), the assessee reiterated the facts that were submitted before the Assessing Officer. It was also submitted that the sale consideration for sale of office space was determined at Rs. 80 lakhs and the above said company has paid advance of Rs. 50 lakhs. As per the terms and condition of the Agreement for sale, the sale should be concluded before December 2012. The terms and conditions also specified that, if the is not so concluded, the Agreement for sale shall be terminated and the assessee shall refund the advance amount to the buyer by the end of March 31st, 2013. The assessee also furnished copy of the sale agreement to the learned CIT(A). It was also submitted that the buyer did not pay balance amount and hence
4 Gallantt Ispat Ltd. the assessee has returned the advance amount of Rs. 50 lakhs to it. Accordingly it was contended that the receipt of advance of Rs. 50 lakhs was a genuineness commercial transaction and there is no reason to suspect the same on the basis of investigation report. Accordingly, it was prayed that the addition of Rs. 50 lakhs should be deleted.
We heard the rival contentions and perused the record. In the instant case, the addition has been made u/s 68 of the Act, wherein cash credits in the nature of advance received by the assessee for sale of an office space belonging to the assessee, has been added. Sec. 68 enables assessment of such types of cash credits, if the assessee fails to prove the nature and source of cash credits. “Nature of cash credit” would mean that the assessee is required to show that it is not of revenue nature. In order to prove the sources, the assessee should discharge initial burden to prove the cash credits placed upon his shoulders of the assessee u/s 68 of the Act, i.e., the assessee is required to prove three main ingredients, viz., the identity of the creditor, the genuineness of the transactions and the credit worthiness of the creditor. If the assessee discharges the initial burden, then the burden would shift to the shoulders of the assessing officer, i.e., it is the responsibility of the AO to disprove the claim of the assessee by bringing evidences on record.
We shall examine the facts prevailing in the instant case. In the instant case, the cash credit transaction is in the nature of receipt of advance of Rs.50.00 lakhs for sale of a property belonging to the assessee. We notice that the there is no dispute with regard to the identity of the creditor, since the said company has been identified by the investigation wing as an alleged paper company. Hence it is required to be seen as to whether the credit worthiness of the creditor and genuineness of transactions are proved. With regard to the credit worthiness, we have seen that the assessee has furnished financial statements of creditor. There is no dispute that the advance given
5 Gallantt Ispat Ltd. by them to the assessee company is duly reflected in its Balance Sheet. The AO has also noticed that the above said company has received huge capital and share premium, meaning thereby, M/s. Patridge Mercantile (P) Ltd was having sufficient funds at that point of time to give advance money to the assessee. Since the payments have been made from the funds available with the buyer, in our view, the credit worthiness would also stand proved. We notice that the AO has observed that the buyer has not carried on business and was showing NIL income. However, there is no bar under the law that a person could not make investments out of borrowed funds or own funds generated by way of issuing share capital. In the instant case, it is not the case of the AO that the buyer did not have funds available with it for giving the advance of Rs.50.00 lakhs to the assessee company. It is also noticed by the AO that the said payments have been routed through the bank accounts of both the parties. Hence genuineness of transactions also stand proved. The assessee has also furnished bank account copies of both the assessee and buyer, Balance sheets of both the parties, confirmation obtained from them, copies of Agreement to sell. We notice that the tax authorities have not found fault with any of the documents, meaning thereby, the AO did not discharge the onus shifted upon his shoulders. Instead, the AO has simply placed reliance upon general investigation report given by the Investigation wing, i.e., no material was brought on record by the AO to show that the impugned transaction of receipt of advance for sale of property was bogus one. Accordingly, we are of the view that the AO was not justified in making the addition on the basis of investigation report by disregarding evidences furnished by the assessee.
The Hon’ble Bombay High Court has held in the case of CIT vs. Orchid Industries (P) Ltd (397 ITR 136)(Bom) that the addition u/s 68 could not be made, once the assessee had produced the documents to prove the cash credits. Accordingly, we are of the view that the Ld CIT(A) was not justified in confirming the addition of Rs.50.00 lakhs made by the AO.
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Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to delete the addition of Rs.50.00 lakhs made u/s 68 of the Act.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on 21.11.2023.