VERMA SERVICE STATION,FIROZABAD vs. ACIT, FIROZABAD

Per Dr. M.L. Meena, A.M.:

This appeal by the assessee is directed against the order dated 29.12.2017

passed by the Commissioner of Income Tax (Appeals)-2, in respect of A.Y. 2009-

10 wherein the assessee has raised the following grounds of appeal:

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deposit made by the partners despite necessary evidence already on record. The appellant having proved identity, genuineness and creditworthiness of both the partners, the addition sustained by the Ld. CIT (A) is wholly arbitrary, illegal and in utter disregard to the established judicial principles laid down by the various courts including jurisdictional High Court.

29.09.2009 declaring total income of Rs. 4,86,270/-. Subsequently, the case was

taken up for scrutiny under CASS and the assessment was completed at a total

income of Rs.1,01,55,498/-. In the process of making additions, the AO disallowed

a sum of Rs 92,00,000/- unexplained capital of the partner of the firm and that in

the assessment order the appellant conceded for the addition. The AO also

disallowed interest of Rs.2,85,984/- and Rs.1,83,248/- for which, it was stated that

the authorized representative of the assessee conceded.

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In the 2nd round of assessment,the assessee again could not explain the 4. source of capital introduction of Rs.92,00,000/- and hence the same was again treated as unaccounted income of the assessee under section 68 and added to the total income of the assessee. 5. Aggrieved by such addition in total income of the assessee, assesses has filed this appeal before CIT(A) -II, Agra in 2nd round where she has after going through the affidavit of both the partners regarding source of receipts of deposits and written submissions filed by the assessee confirmed the addition of Rs.92,00,000/- unexplained capital introduction by observing as follows:

5.3 I have gone through the assessment order, submissions of the assessee and legal position in this regard. It is seen that the two partners Sri Naveen Chandra Verma & Smt. Bharti Verma have deposited

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Rs.65,00,000/- and Rs.27,00,000/- in cash. It was explained that this cash has been received against advance for sale of land in individual hands. During the course of assessment proceedings AO has specifically asked for the evidence of holding of land, agreement with the purchasers and date / mode / source of receipts. However, the assessee could not furnish any details before the assessing officer, it was further seen that AO has issue summons dated 10.05.2016 for attendance on 18.05.2016 and thereafter, on 14,07.2016 and 23.08.2016 but no compliance to any summons was made and no documents in support of contention that these amounts are received from sale of land were filed.

5.4 During the course of appellate proceedings assessee was again asked that the partner should be produced with all these documentary proofs for receipt of cash against advance for sale of land. However, during the appellate proceedings also could not file any evidence regarding cash received against advance as also the partners were not produced to give their statement. In this connection, emphasis on production of the partners during appellate proceedings was made as before the ITAT, the counsel of the assessee has accepted that these are unaccounted income in the hands of the assessee but it was held that the confession of the counsel of the assessee is not valid in law and the case has been set aside to the file of the Assessing Officer.

5.5 In this connection, in the case of Venus Auto which is a sister company of the assessee, it is seen that in the A.Y. 2009-10 that is the same assessment year the transactions that were explained by the assessee before the AO were that the M/s Venus Auto has transferred

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Rs.62,00,000/- to M/S Krishna Bulk Movers (P) Ltd. and thereafter M/s Krishna Bulk Movers (P) Ltd. has transferred this amount to M/s Verma Service Station (P) Ltd. Copy of all these accounts were available in the case of Venus Auto and hence, assessee's contention that this amount has now come from some advance for land sold seems to be after thought not supported by any documentary evidence. Under these circumstances, AO is correct in holding these credits as unexplained in the hands of the assessee.

5.6 In the context of cash deposits in the bank account, when the Assessing Officer starts enquiry, specifically to satisfy himself of the source of such cash credit, and if during the enquiry, he is satisfied that the entries are not genuine, then he has every right to add the said sum represented by such credit entry as income of the assessee. The satisfaction of the assessing officer is the basis of invocation of provisions of Section 68.

Under Section 68, the onus is on the assessee to offer explanation where any sum is found credited in the books of account and where the assessee fails to prove to the satisfaction of the Assessing Officer, the source and nature of the amount of cash credits, he is entitled to draw an inference that the credit entries represent income taxable in the hands of the assessee. It is not the duty of the Assessing Officer to locate the exact source of the cash credits. The burden to identify the source lies upon the assessee and he is required to explain the genuineness of the credit entry.

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5.6.1 The issue of cash credit has always been a matter of vexed litigation. Section 68 enacts a golden rule of evidence which is not in dispute, i.e., if any sum is found credited in the books of account of an assessee, the onus is on him to explain the said entry. The principle embodied in Section 68 is only a statutory recognition of what was always understood to be the law based upon the rule that the burden of proof is on the taxpayer to prove the genuineness of borrowings since the relevant facts are exclusively within his knowledge. Even before the enactment of Section 68, this rule of evidence was applicable vide Kale Khan Mohammed Hanif v. CIT [1963] 50 ITR 1(SC).

The expression "nature and source" in Section 68 has to be understood together as a requirement of identification of the source and the nature of the source, so that the genuineness or otherwise could be inferred.

5.6.2 The onus does not get discharged merely by such confirmatory letters as found in CIT Vs. United Commercial and Industrial Co. (Pvt.) Ltd, (1991) 187 ITR 596 (Cal), nor is the fact that the amount is received by account payee cheques is sacrosanct as was pointed out in CIT vs. Precision Finance Pvt. Ltd. (1994) 208 ITR 465 (Cal). This view was further held in the case of Nemi Chand Kothari v. CIT [2003] 264 ITR 254 (Gau.) where in it was held that it cannot be said that a transaction, which takes place by way of cheque, is invariably sacrosanct. Once the assessee has proved the identity of his creditors the genuineness of the transactions, and the creditworthiness of his creditors vis-a-vis the transactions which he had with the creditors, his burden stands discharged and the burden then shifts to the revenue to show that though

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covered by cheques, the amounts in question, actually belonged to, or was owned by the assessee himself. Even the particulars from assessment records, where the creditor is assessed, may not be sufficient as observed in CIT vs. Korlay Trading Co., Ltd. (1998) 238 ITR 820 (Cal).

Further, in the case of Kamal Motors v. CIT [2003] 131 Taxman 155 (Raj.). It was held that the responsibility is on the assessee to discharge the onus that the cash creditor is a man of means to allow the cash credit. The burden to prove the source of receipt is in respect of each entry as held in the case of CIT v. R.S. Rathore [1995] 212 ITR 390 (Raj.), that while explaining the various credits and investments, it is possible that the assessee may be successful in explaining some of them, but that does not by itself mean that the entire investments has to be considered as explained. It is each and individual entry on which the mind has to be applied by the taxing authority when an explanation is offered by the assessee. 5.6.3 On the issue of burden of proof a very specific and illustrious decision was from the Hon. Calcutta High Court in CIT vs. Precision Finance Pvt. Ltd. (1994) 208 ITR 465 (Cal) where in it was laid down that the assessee is expected to establish:-

As to the issue of genuineness of transaction, it was further held in the above decision that the transaction is not genuine, simply because some,

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out of many, of the transactions are by cheque. Where certain sum of money claimed by the assessee to have been borrowed in has bank from earlier advances from certain persons, it is for the assessee to prove, by cogent and proper evidence, that they are the genuine deposits for the reason that the facts are exclusively within the assessee's knowledge.

In fact, the principle of onus, that the assessee is required to establish the identity, prove the genuineness of the transaction and establish the creditworthiness of the donor, has been reiterated even in a recent decision of Hon. Delhi High Court in the case of CIT vs. Oasis Hospitalities Pvt. Ltd., 333 ITR 119 (Delhi)(201 1). In this case it was held by the Hon. Court that “The initial onus is upon the assessee to establish three things necessary to obviate the mischief of Section 68. Those are: (i) identity of the investors; (ii) their creditworthiness/investments: and (ii) genuineness of the transaction. Only when these three ingredients are established prima facie, the department is required to undertake further exercise.

5.6.4 A decision of Hon. ITAT Agra Bench in the case of Smt. Suman Gupta vs. Income-tax Officer, Ward 1, Aligarh [2012] 25 taxmann.com 220 (Agra) may also be referred to on this issue. In this case the assessee was found to have received Rs. 13 lakh as loans from six persons. Assessing Officer noted that immediately before amounts were lent to assessee, identical amounts were deposited in bank accounts of said persons. Assessee could produce only one lender for examination. Assessing Officer found that lenders had no creditworthiness to give loan as they had very small bank balances and were earning small

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income. In the given facts, it was held by the Tribunal that it was money of assessee which was routed through bank accounts of lenders for purpose of giving credits to assessee and entries were only accommodation entries and as such, could not be considered as genuine transactions.

As discussed in the foregoing paragraphs, it is held in a number of case laws that if any sum is found credited in the bank accounts or in the books of accounts of the assessee, the onus to prove the nature and source of such deposits with supporting documentary evidence is on the assesses.

5.7 In this case initially when assessee could not explain the nature and source of these cash deposits, the counsel of the assessee has accepted in the first round of the assessment that this is unaccounted income of the assessee. Thereafter he explained that it is by sale of lands in the hands of the partners, but could not produce ant documentary evidence to that effect. It is noted that in the case of M/s Venus Auto, assessee has himself mentioned it as amount from M/s Krishna Bulk Movers (P) Ltd., who has transferred this amount to M/s Verma Service Station (P) Ltd. Thus apsessee is changing his explanation at different places.

In spite of AO issuing summons to partners, they did not attend to show the real nature of these transactions. Hence when partners have not attended on issue of summons under section 131, the onus is on the assessee to show the real transactions.

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Since assessee could not explain the nature and source of cash deposits in the account, AO is correct in law treating the same as undisclosed income of the assessee under section 68 of the Income Tax Act. Hence addition of Rs. 92,00,000/- made by the AO on this account is hereby confirmed.

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CIT(A). He has urged to delete the addition. The counsel of the assessee has placed reliance on the Plethora of Judgment as follows:

Chandra Verma partner of the firm emphasizing that though he has meagre income

of Rs.4,21,280/- and opening balance with Rs.1,00,000/- to deposit in the firm as on 01.04.2008 and further payment of Rs.50,00,000/- to the credit of following

accounts as on 06.05.2008has been made detailed as under:

Debit Credit

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Verma Service Station Ch. No. 258042, From Rama Rama Rs.8 lacs Rs.50,00,000/- Hara Hara Rs.12, lacs 06.05.2008 KrashnaKrashna Rs.10 lacs Venus Automative Services Pvt. Ltd. Rs.10 lacs Verma Service Station Pvt. Rs.10 lacs

The ld. DR contended that Sh. Naveen Chandra Verma has meagre income

as per income return is only from interest on ostensible deposits in the firm is to be

held unexplained.

7.1 The ld. DR while referring to the copy of balance sheet APB page no. 7,

pointed out that assessee has shown an agricultural land for Rs.10,07,560/- as per

sale deed shown on the asset side of the balance sheet whereas he has shown

advances sale of land at Rs.68,50,000/-. Thus, there was a discrepancy in the

amount of consideration shown against the sale of agricultural land which cannot

be more than Rs. 10,07,560/- the value as per the registered sale deed of the

property and thereby the difference of Rs.Rs.68,50,000/- (-) Rs.10,07,560/- =

Rs.58,42,440/- remained unexplained liability against sale of land as per the

balance sheet in the hands of the assessee. Copy of balance sheet is reproduced for

ready reference:

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L i a b i l i t i e s as at 31 -Mar-2009 A s s e t s as at 31-Mar-2009 Capital Account 21,27,025.52 Fixed Assets 34,81,684.00 Capital Account 21,27,024.27: Building Under Cons. 23,32,637.00 Shri Mahaveer Ji 1.25 Container UP83B9621 44,867.00 Gold 83,870.00 Loans (Liability) 1,57,60,726.00 Land 10,07,560.00. Secured Loans 28,01,674.00 Mobile (Nokia 6670) 12,750.00 Unsecured Loans 52,72,065.00 Advance Against Sale of Land 68,50,000.00 Investments 50,23,797.06 Vibhav Kumar 8,36,987.00 Flate at Parshvnath at Panorma.G.Noida 42,07,621.00 Gh'aziabad Dev. Authority 500.00 Current Liabilities 8,55,290.00 Jay Pee Infratech Limited. (Klassic) 2,00,000.00 8,55,290.00 Shares VSS (P) Ltd. 25,000.00 Venus Automotive Service Indie (P) Ltd. SNG Devlopers 4,23,938.00 Suspense A/c Tata Finance Ltd. 12,603.81 UPSIDC 1,54,134.25 Profit & Loss A/c Opening Balance Current Assets 1,02,37,560.46 Current Period , Cash-in-hand 1,29,006.14 Bank Accounts 26,069.34 Nannurrial Verma 3,00,000.00 . RAMA RAMA Infratech (P) Ltd. 5,00,000.00 S. S. Constructions 17,19,744.00 JVerma Service Station 75,62,740.98_ T o t a l 1,87,43,041.52 T o t a I 1,87,43,041.52

7.2 The ld. DR further argued that APB 3 and APB 15, is an affidavit filed by

Sh. Naveen Chandra Verma and Smt. Bharti verma W/o Sh. Naveen Chandra

Verma respectively, wherein vide point no. 2, both states to have deposited in cash,

a sum of Rs. 65 lacs and Rs.27 lacs in their respective accounts with the firm on

different dates pertaining to F.Y. 2008-09. These deposits were made out of cash in

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hand available with the deponent although as per their return income they have disclosed a returned income of Rs.4,21,280/- and Rs.2,30,590/- respectively for the relevant assessment year. The ld. DR had contended that the explanation has to be accompanied by ‘evidence’.

7.3 The ld. DR in support rely on the following judgments:

7.4 The Ld. DR contended that the assessee has itself conceded in the original assessment that Rs.92,00,000/- as its unexplained income in respect of unexplained capital deposit made by the partner; that in the 2nd round of assessment proceeding’s in compliance to the directions of the Agra Bench, the assessee failed to explain source of deposit of partners’ capital of Rs. 92, 00,00,000/- and in turn substantiate the credit in the books of assessee appellant firm in terms of provisions of sections 68 of the act. Merely, filing of an affidavit of the partner would not sufficient to discharge the assessees primary onus of credit liability to verify the three ingredient the identity, credit worthiness and genuineness of the transaction.

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upon in support. On enquiry being conducted by the AO in compliance to the

directions by ITAT, Agra Bench noted that during the year Sh. Naveen Chandra

Verma and Smt. Bharti Verma partner of the firm have cash deposited worth Rs.65

lacs and Rs.27 lacs respectively with the appellant assessee M/s Verma Service

Station, Firozabad. The AO has made addition of said deposit made by both the

partners in absence of corroborative documentary evidences to explain the source

of deposits excepts self-certified affidavits.

assessee, self-certified affidavits and copy of ledger accounts produced. The ld.

CIT(A) has noted that the assessee has explained that the two partners Sh. Naveen

Chandra Verma and Smt. Bharti Verma have deposited Rs.65 lacs and Rs.27 lacs

in cash out of the cash receipts against advanced sale of land in individual hence

however, the assessee could not furnish any details evidence of holding of land,

agreement with the purchasers and date/mode of source of receipts either before

the AO or before the ld. CIT(A). Moreover, the assessee had made no compliance

to the summons issued dated 10,5.2016 for attendance on 18.05.2016 and thereon

14.07.2016 and 23.08.2016. No documents have been furnished before the

Authorities below in support of the contention that these amounts received for the

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sale of lands. The ld. CIT(A) further noted that during the appellate proceedings also the assessee could not file any evidence regarding cash receipts against advance of sale of land as also the partners were not produced to give their statements.

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provisions and the presumption provided u/s 68 and 69 of the Act has to be given the partnership firm and the partners being treated as separate assessees under the Act, assessment of income at the hands of different assessees under different provisions of Act is permissible.” 11. The case law referred by the ld. AR for the assessee does not apply to the peculiar facts of the present case. The facts involved therein a credits appearing on the very first day of accounting year whereas in the present case the credits have been introduced by the partners during the year being explained by the assessee before the AO that the assessee sister concern M/s Venus Auto has transferred Rs.62 lacs to M/s Krishna Bulk Movers (P) Ltd. and thereafter M/s Krishna Bulk Movers P. Ltd. has transferred this amount to M/s Verma Service Station P. Ltd. In the first round of proceedings and in the second round proceedings assessee’s contention has changed to have received some advanced for land sold was not supported by any documentary evidence except self-certified evident of advance receipts against sale of land which are contrary to the value of the sale of land shown in the balance sheet as above. None of the cases relied by the ld. AR are applicable to the peculiar facts of the case at hands.

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the argument and contentions raised before us. It is worthy mention that in the first

round of proceeding the assessee has explained the source of such cash credits that

the M/s Venus Auto has transferred Rs.62,00,000/- to M/S Krishna Bulk Movers

(P) Ltd. and thereafter M/s Krishna Bulk Movers (P) Ltd. has transferred this

amount to M/s Verma Service Station (P) Ltd. Copy of all these accounts were

available in the case of Venus Auto and hence, assessee's contention that this

amount has now come from some advance for land sold held to be after thought

were being not supported by any documentary evidence and these concerns were

having zero sales turnover. Again, the value of the land has been shown to be sold

as Rs.10 lacs as evident from the balance sheet of the firm M/s Verma Service

Station as above. Under these circumstances, AO was correct in holding these

credits as unexplained in the hands of the assessee and the ld. CIT(A)was justified

in confirming the addition as unexplained capital of the assessee firm u/s 68 of the

Act.

considered opinion that the facts of case on hand demonstrate unexplained cash

deposit in the books of account of M/s Verma Service Station P. Ltd. for which

neither the assessee firm nor the partners could give any evidence or satisfactory

explanation regarding identity and source of such deposits and therefore,

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disbelieving the contrary explanation offered by the appellant assessee in the two

round of proceedings before the Tribunal and the Authorities below without

substantiating with corroborative documentary evidences, the addition of

Rs.92,00,000/- is confirmed as unexplained capital u/s 68 of the Act in the hands of

the firm.

Following the jurisdictional Hon’ble Allahabad High Court in the case of 14.

Jagmohan Ram Chandra Vs. CIT (supra), we hereby upheld the order the ld.

CIT(A) and confirmed the addition of Rs.92,00,000/-.

Order pronounced in the open court on 11/09/2019.

Sd/- Sd/- (Laliet Kumar) (Dr. M.L. Meena) JUDICIAL MEMBER ACCOUNTANT MEMBER *AKV* Copy forwarded to: 1. Assessee 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT Sr. Private Secretary, ITAT, Agra