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Income Tax Appellate Tribunal, “ SMC” BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI PRADIP KUMAR KEDIA
आदेश / O R D E R
PER PRADIP KUMAR KEDIA - AM: The captioned appeal has been filed at the instance of the Assessee against the appellate order of the Commissioner of Income Tax(Appeals)-6, Ahmedabad [CIT(A) in short] dated 30/11/2016 arising in the assessment order passed under s. 143(3) of the Income Tax Act, 1961 (hereinafter
ITA No.140/Ahd/2017 Dilavarhusai R.Farasta vs. ITO Asst.Year – 2013-14 - 2 - referred to as "the Act") dated 18/01/2016 relevant to Assessment Year (AY) 2013-14.
The assessee has agitated the action of the CIT(A) in confirming the addition of Rs.5 lakhs originally made by the Assessing Officer under s.68 of the Act by way of its ground of appeal.
Briefly stated, the assessee filed its return of income for AY 2013-14 which was subjected to scrutiny assessment. In the course of scrutiny assessment, it was noticed that the assessee has taken loan of Rs5 lakhs from one Shri Vrajlal Chagnial Sorthiya. The aforesaid lender had not filed return of income for AY 2013-14. To verify the genuineness of the loan, the lender was examined on oath under s.131(1) of the Act on 08/12/2015. It transpired that lender is a retired government employee and drawing pension and claims to have 6.4 hectors agricultural land. However, on enquiry, the assessee could support the holding of land to the extent of 1.38 hectors only. The Assessing Officer made further enquiry with the lender in the proceedings under s.131 of the Act and found that the lender is withdrawing Rs.25,000/- to Rs.30,000/- per month out of pension regularly. It was further found that the lender had deposited cash of Rs.5 lakhs immediately before lending the same to the assessee. The Assessing Officer found that the aforesaid deposit of cash was not out of the known sources of the lender and therefore drew inference that the deposit in cash in the account of the
ITA No.140/Ahd/2017 Dilavarhusai R.Farasta vs. ITO Asst.Year – 2013-14 - 3 - lender remains unproved. The source of loan in the hands of the assessee therefore was found to be unsatisfactory as contemplated under s.68 of the Act. The Assessing Officer accordingly rejected the explanation of the assessee towards nature and source of loan received and added the aforesaid amount to the total income of the assessee while completing the assessment under s.143(3) of the Act.
Aggrieved, the assessee preferred appeal before the CIT(A). The CIT(A) after taking note of the various submission made on behalf of the assessee also opined against the assessee and confirmed the action of the Assessing Officer by the following decision making process:
“ 8. I have carefully considered the assessment order and the submission of the appellant. Brief fact of the case is that the appellant has taken loan of Rs. 5,00,000/- from Vrajlal Chhagniai Sorathia, a retired government employee. He was getting megar pension out of which he used to withdraw Rs..25,000/- to 30,000/- for household expenditure. He was also having 40 Vigha of agricultural land in his name and his wife's name. His statement was recorded before the son of the appellant. He stated in reply of question no. 1 that he received agricultural income of Rs. 4 to 5 lacs per annum, However he could not give any evidence to prove the genuineness of agriculture income. 8.1 It is observed that agricultural income was not shown either in the earlier years or subsequent year by the lender. The receipt from agriculture income of Rs. 5,00,000/- was deposited in the bank account first time and the bank account was opened in this year only. The appellant merely relied on the bank statement of the lender. However in view of the facts mentioned by the AO in the assessment order and in the statement recorded it is evident that that the lender did not have regular source of income and the cash deposit of Rs. 5,00,000/- was also an isolated transaction. Therefore the contention of the appellant that loan was given out of explained source of income cannot be accepted hence not tenable. Considering the above facts I am of the view that the apparent is not real and the
ITA No.140/Ahd/2017 Dilavarhusai R.Farasta vs. ITO Asst.Year – 2013-14 - 4 -
cash was deposited to provide accommodation entry of unsecured loan. Thus, in view of the above, the appellant's plea of loan received through account payee cheque cannot justify the genuineness of the loan.
8.2 Transaction through account payee cheque is not conclusive/ sufficient to decide the genuineness of the transactions. The ratio has been laid down in various judgments/decisions as under:
8.2.1 The Hon'ble Supreme court in the case of Commissioner of Income-tax v. P. Mohanakaia [2007] 161 TAXMAN 169 (SC) held that
"We are unable to persuade ourselves to accept the submission. The findings of fact arrived at by the authorities below are based on proper appreciation of the facts and the material available on record and surrounding circumstances. The doubtful nature of the transaction and the manner in which the sums were found credited in the books of account maintained by the assessee have been duly taken into consideration by the authorities below. The transactions though apparent were held to be not real one. May be the money came by way of bank cheques and paid through the process of banking transaction but that itself is of no consequence." 8.2.2 In case of CIT v Precision Finance (P.) Ltd. [1995] 82 TAXMAN 31 (CAL.) the Hon'ble Calcutta High Court held that –
"It was for the assesses to prove the identity of the creditors, their creditworthiness and the genuineness of the transactions. On the facts of this case, the Tribunal did not take into account all these ingredients which had to be satisfied by the assessee. Mere furnishing of the particulars was not enough. The enquiry of the ITO revealed that either the assessee was not traceable or there was no such file and, accordingly, the first ingredient as to the identity of the creditors had not been established. If the identity of the creditors had not been established, consequently, the question of establishment of the genuineness of the transactions or the creditworthiness of the creditors did not and could not arise. The Tribunal did not apply its mind to the facts of this particular case and proceeded on the footing that since the transactions were through the bank account, it was to be presumed that the transactions were genuine. It was not for the ITO to find out by making investigation from the bank accounts unless the assessee proved the identity of the creditors and their creditworthiness. Mere payment by account payee cheque was not sacrosanct nor could it make a non-genuine transaction genuine." Reliance is also placed on the following case laws-
8.2.3 In the case of K. Ramaswarny vs. CIT - 261 !TR 358 (Mad) the Hon'ble Madras High Court followed the ratio laid down by the Supreme Court in the case of Juggilal Kamlapat v. CIT [1969] 73 ITR 702 held that in cases where the
ITA No.140/Ahd/2017 Dilavarhusai R.Farasta vs. ITO Asst.Year – 2013-14 - 5 - same persons entered into transactions though by introducing a corporate personality into some of those transactions, the income-tax authorities are entitled to pierce of veil of corporate personality and look at the reality of the transaction. The Court in that case observed: ". . .It is true that from juristic point of view the company is a legal personality entirely distinct from its members and the company is capable of enjoying rights and being subjected to duties which are not the same as those enjoyed or borne by its members. But in certain exceptional cases the Court is entitled to lift the veil of the corporate entity and to pay regard to the economic realities behind the legal facade...." (p. 710) 8.2.4 In the case of Hindustan Tea Trio - 263 ITR 289 (Cal) the Hon'ble Calcutta High Court has held as under – The power of the Assessing Officer under section 68 is not an absolute one. It is subject to his satisfaction where explanation is offered. The power is absolute where the assessee offers no explanation. The satisfaction with regard to explanation is in effect an in-built safeguard in section 68 protecting the interest of the assesses. It provides for an opportunity to the assessee to explain the nature and source of the fund. Once it is explained, it is incumbent on the Assessing Officer to consider the same and form an opinion whether the explanation is satisfactory or not. The expression used in the section clearly lays the burden on the assessee to explain the nature and source of the fund. Unless explanation is offered, the Assessing Officer is free to treat the fund as income of the assessee from undisclosed sources chargeable to tax. Once explanation is offered, the Assessing Officer is bound to consider the same. Such consideration is guided by sound principle of law. The opinion so formed must be reasonable and based on materials and shall not be perverse. The extent of the power of the Assessing Officer while considering the materials produced by the assesses is very wide. It is a question of examining as to whether the apparent is real. The Assessing Officer is empowered to lift the corporate veil and examine the real nature of the transaction. In the process, it may exercise its power of examining the materials. It may require the assessee to produce further materials if so required. It may seek information from other sources on the basis of the material produced. In the process of enquiry, the assessee has no right of hearing. But the assessee has a right to challenge the conclusion arrived at on the basis of the enquiry made. The assessee may point out
ITA No.140/Ahd/2017 Dilavarhusai R.Farasta vs. ITO Asst.Year – 2013-14 - 6 - the perversity in the finding. It may question the validity of the process undertaken. It may point out that a particular material was not considered. It may also point out that the enquiry made was not reasonable or was half-heartedly done. The process of enquiry Is such that the assessee has to offer the explanation and produce the material in support of such explanation and then it can do no further. The onus then shifts on the revenue to scrutinize the materials and form an opinion on the basis thereof. For the purpose of scrutinizing the materials, it may utilize its powers to seek attendance of any witnesses or disclosure of any information in exercise of its power under section 131. It may seek information from other sources in exercise of its power under section 133. Once a reasonable enquiry is made, then the Assessing Officer can do no further except arriving at a conclusion on the basis of such materials. If the conclusion is adverse wholly or in part to the interest of the assesses, it is incumbent on the Assessing Officer to intimate or inform the conclusion arrived at to the assessee. When such information or intimation is received by the assessee, the onus shifts on the assesses. He may furnish further explanation or information to support its contention. If further information or materials are furnished, the Assessing Officer is bound to examine the same and form its final opinion and pass an appropriate order. Such opinion is also subject to examination by the Commissioner (Appeals) or the Tribunal and if it involves a Question of law, it is also subject to scrutiny by the High Court under section 256. Findings of fact may also form a basis of a question of low if the inference drown from the facts found is not in consonance with the legal principles or the findings are perverse. In such a case, the High Court may interfere. If two views are possible, even if the High Court is of the other view, it cannot interfere with the view taken by the taxing authority. [Para 6]. 8.2.5 In the case of CIT vs. Indian Express News Papers 238 ITR 70 (Mad) the Hon'ble Madras High Court held as under – The fact that the money was not paid directly but was shown as having been invested in the subsidiary company was not decisive of the true character of the transact/oh. The mere fact that the investment company was a distinct legal entity did not by itself establish that the purported investment was a genuine investment which assessee-company had made for securing benefits to Itself by way of trading or carrying on business through that subsidiary. The impugned sum was paid to the Bombay
ITA No.140/Ahd/2017 Dilavarhusai R.Farasta vs. ITO Asst.Year – 2013-14 - 7 - company on the same day on which it was paid to the investment company. Though the investment company was purported to charge interest in the first year, subsequently no interest at all was charged to the Bombay company on that sum. It was not the assessee's case that the money was returned by the investment company subsequently with interest or that the assessee received dividends from out of the investments made by it in that company. It is well-settled that the corporate veil of a company can be lifted for the purpose of ascertaining the real character of a transaction, if that transaction was a fraudulent one or was intended to evade payment of tax. While legitimate tax avoidance is always permissible, the devices adopted to evade payment of tax, however, are not permissible; though the dividing line is not always easy to draw, such a line does exist. The true character of the transaction here clearly was one of an advance of Rs. 10 lakhs by the assessee to the Bombay company for whose benefit that sum was obviously intended and had only been channelled through the investment company. The Tribunal had failed to notice the facts and had also erred in adopting the wrong approach for the purpose of deciding as to whether the amount disallowed was a sum which could properly fall within the ambit of section 36(1)(iii). The amount disallowed was the amount paid on amounts borrowed, but not used for the purpose of business or profession of the assessee, Rs. 10 lakhs 'invested' in the investment company, being in substance and reality an amount advanced to the Bombay company for financing the construction undertaken by it at Bombay, could not be said to be an amount which formed part of the capital borrowed for the purpose of the assessee's business. 9. Considering the above, I am of the view that the appellant could not establish the genuineness and creditworthiness of the loan taken therefore the AO is justified in treating Rs. 5,00,000/- as unexplained cash credit u/s. 68 of the Act. The ground is dismissed.”
Further aggrieved, the assessee preferred appeal before the Tribunal.
ITA No.140/Ahd/2017 Dilavarhusai R.Farasta vs. ITO Asst.Year – 2013-14 - 8 - 6. The Ld.AR for the assessee referred to the bank statement of the lender and submitted that the loan of Rs.5 lakhs taken on 26/03/2013 was also repaid on 02/04/2013 and, therefore, there is no reason to doubt the bonafides of the lending. The Ld.AR also submitted that the lender himself attended the proceedings before the Assessing Officer and confirmed the act of giving loan to the assessee. Under these circumstances, it was contended, the ingredients of section 68 of the Act is not fulfilled. On a query from the Bench, however, that the lender has again entered into similar transaction in the subsequent period with some other person without any financial capacity (bank balance ordinarily less than Rs.1,000/- on a continued basis), the Ld.AR for the assessee drew blank but however observed that it concerns state of affairs of the lender with which the assessee is not privy to. The Ld.AR for the assessee however submitted that a benign view should be taken and the assessee should be absolved from the additions made by the revenue authorities.
The Ld.DR, on the other hand, relied upon the orders of the authorities below and stridently opposed the contentions raised on behalf of the assessee. It was submitted that the bank statement of the lender says it all that he has no financial capacity nor has any wherewithal to deposit such large amount of cash immediately prior to the issue of cheque to the assessee. The Ld.DR submitted that the aforesaid amount of cash deposit in the bank account of the lender clearly appears to be unaccounted income of
ITA No.140/Ahd/2017 Dilavarhusai R.Farasta vs. ITO Asst.Year – 2013-14 - 9 - the assessee herein for which he was accommodated by way of lending. The Ld.DR supported the observations made by the Assessing Officer that the lender was withdrawing money in cash of Rs.25,000/- to Rs.30,000/- per month out fo pension regularly to meet his expenditure. No prudent person will withdraw such money when he has accumulated funds of Rs.5 lakhs in cash as claimed. The Ld.DR thus submitted that the entire story of the assessee is a make belief and has no credibility in the eyes of law. The Ld.DR further submitted that return of loan to the lender is of no consequence for the purposes of nature in source of loan received. The Ld.DR thus submitted that the concurrent findings of the Assessing Officer and the CIT(A) should not be interfered in a lighthearted manner.
We have carefully considered the rival contentions and perused the record. The short issue in controversy is maintainability of additions of Rs.5 lakhs under s.68 of the Act towards unexplained cash credit in the hands of the assessee. As emerging from the record narrated in earlier para, the creditworthiness of the lender is in serious doubt and could not be demonstrated to the satisfaction of the Assessing Officer when seen on the touchstone of preponderance of probabilities. We observe that the Assessing Officer has rightly recorded its conclusion against the assessee on the ground that deposit of cash in the account of the lender prior to its lending to the assessee is not supportable with the worth and conduct of the lender. Therefore, the primary onus placed on the assessee, in our view,
ITA No.140/Ahd/2017 Dilavarhusai R.Farasta vs. ITO Asst.Year – 2013-14 - 10 - could not be discharged. The CIT(A), in our view, has rightly analysed the factual matrix and answered the appeal of the assessee in negative. We find no infirmity in the order of the CIT(A) and thus decline to interfere therewith.
In the result, appeal of the assessee is dismissed.
This Order pronounced in Open Court on 26/03/2019
Sd/- Sd/- ( RAJPAL YADAV) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 26 / 03 /2019 ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS True Copy आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-6, Ahmedabad �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad