C I T JAIPUR vs. M/S MORANI AUTOMOTIVES P LTD

DATE OF ORDER ::: 23-10-2013 PRESENT HON'BLE MR. JUSTICE DINESH MAHESHWARI HON’BLE MR. JUSTICE NARENDRA KUMAR JAIN-II Mr.R.B.Mathur for the appellant <><><> BY THE COURT: (Per Dinesh Maheshwari,J.) By way of this appeal under Section 260A of the Income Tax Act, 1961 ['the Act'], the Revenue seeks to question the order dated 31.05.2011 passed by the Income Tax Appellate Tribunal, Jaipur Bench, Jaipur ['ITAT’] in ITA No.1218/JP/2010 for the assessment year 2006-2007 whereby, the ITAT has affirmed the order dated 03.08.2010 passed by the Commissioner of Income Tax (Appeals-II), Jaipur ['CIT(A)'] partly allowing the appeal preferred by the assessee and deleting the additions made by the Assessing Officer (‘AO’) in the assessment order dated 24.11.2008 to the tune of Rs.13,15,000/- on account of unexplained share capital contribution and Rs.39,40,000/- on account of unexplained unsecured loans.

Put in brief, the relevant background aspects of the matter are as follows: The respondent-assessee is engaged in trading and service of two wheelers. During the year under consideration, the assessee had shown gross profit of Rs.30,43,890/- against a turn over of Rs.2,92,65,368/-. During the course of assessment proceedings, the assessee was provided with opportunities to attend the hearing and to present the requisite details in support of the income declared and to respond to the queries of the AO; and, on its failure to respond, a final show cause notice dated 05.11.2008 containing the proposed grounds of concluding the assessment was issued and served upon the assessee. However, on the date fixed, neither the assessee nor its authorized representative attended the assessment proceeding nor any details of books of account were produced. In the given circumstances, the AO proceeded to conclude the assessment proceedings ex-parte wherein, inter alia, the AO made the additions of Rs.13,15,000/- on account of unexplained share capital contribution; and Rs.39,40,000/- on account of unexplained unsecured loans. In the appeal before the CIT(A), the assessee, however, submitted the details, confirmations, returns, affidavits, bank statements etc. from various persons for share capital contribution as also for loans advanced, which could not be collected during the course of assessment proceedings; and prayed for admission of additional evidence. The CIT(A) proceeded to admit the additional evidence with the following observations: - “After considering the facts of the case and report of assessing officer it is seen that at the appellate stage various confirmations, affidavits, copies of return of income and copies of statement of computation of total income alongwith bank account copies from various persons for share capital contribution as well as for loans advanced to the appellant were furnished, which could not be collected during the course of assessment proceedings. Since this information was to be collected from number of the persons and therefore, in my considered view relying upon various judicial decisions on the admission of additional evidence keeping in view the provisions of Rule 46A(1)(c) of I.T. Rules the additional evidence furnished in the appellate proceedings are required to be admitted to decide various grounds of appeal judiciously and these are hereby admitted.” Thereafter, the CIT(A) proceeded to consider the question about justification in regard to various additions. In relation to the addition of Rs.13,15,000/- on account of share capital contribution, the CIT(A) referred to the fact that the contributors were all the income tax assesses and their returns of income and copies of confirmation alongwith PA numbers had been furnished. After taking note of various relevant decisions including those of this Court and of the Hon'ble Supreme Court, the CIT(A) found that the requisite particulars as regards the persons concerned having been furnished, there remained no justification for the said addition; and proceeded to delete the same with the following observations: “I have considered facts of the case and arguments taken by Sh. Pandeya and Sh. Poddar quite carefully. On the issue of share capital contribution in the case of the company keeping in view the latest decision of Hon'ble Supreme Court in the case of Lovely Exports Ltd. 216 CTR 195 and Hon'ble Rajasthan High Court judgment in the case of CIT v/s Sh. Barkha Synthetics Ltd. 182 CTR 175 and in the case of CIT v/s AKJ Granites Pvt. Ltd. 212 CTR 25 in my considered view when the shareholders has submitted confirmation, made the payment by cheque, having their PAN, filing their return of income and furnished copies of return of income in the appellate proceedings and therefore, now there is no justification for the said addition of Rs.13,15,000/- on account of addition for new share capital contribution and the same is hereby deleted.”

Similarly, in relation to the addition of Rs.39,40,000/- on account of unsecured loans received in the year, the CIT(A) again found that all the requisite confirmations with particulars of the creditors had been furnished; and the identity of cash creditors was not in doubt. Hence, the CIT(A) proceeded to delete such an addition too with reference to several decisions of this Court while observing as under: - “…..On this issue recently Hon'ble Rajasthan High Court in the case of Labhchand Bohra v/s ITO dated 28.4.2008 reported in 8 DTR 44 has held that when the amount has been advanced by account payee cheque through bank then requirement on the part of asessee to prove identity and genuineness of the transaction is satisfied. Further, capacity of lender to advance money to the asesee was not a matter which could be required of the assessee to be established as that would amount to calling upon him to establish source of the source. Further, on the issue of cash credit Hon'ble Rajasthan High Court in the case of CIT v/s Heeralal Changanlal 257 ITR 281 has held that where the identity of the credit is established and the creditor has confirmed the loan no addition can be made. Hon'ble Rajasthan High Court in another case of Kanhiyalal Jangid v/s ACIT 217 CTR 354 has held that assessee having filed confirmations from the creditor and where the creditors affirmed advancement of the loan, no addition u/s 68 could be made on the ground that creditor could not satisfactory explain the source of loan. Burden in such case does not extend to prove source of the creditor from where he has made the advances to the assessee. Recently, Hon'ble ITAT Jaipur Bench in the case of Rajkumar Mehta v/s ITO Ward 3 Sikar in ITA No.935/JP/08 dt.29.8.2008 relying upon Rajasthan High Court judgment in the case of Kanhiyalal Jangid has held that while it was asesee’s burden to furnish explanation relating to cash credit but burden does not extend beyond proving the existence of the creditor and proving that such creditors owns to have advanced amount credited in the account of assessee. However, burden does not go beyond to put assessee under an obligation further to prove that where from the creditor has procured the money to be deposited or advanced to the assessee. The fact that explanation furnished by the creditor about his source of such advance has not been accepted by revenue authorities cannot lead to any presumption that source of such advance by creditor emanated from assessee and therefore, such addition for unexplained cash credit were not sustained where the confirmations were filed. Further, Hon'ble ITAT Jaipur Bench in the case of Mahendra Kumar Sethi v/s ITO Ward 5(2) Jaipur in ITA No.814/JP/2008 DT.31.3.2009 has held that in case of cash credit the assessee has discharged his owns by filing confirmation letters and affidavit of cash creditors and the owns is shifted to the department to prove that deposits made by the creditor is money belonging to assessee himself. They have referred Rajasthan High Court judgment in the case of Aravali Trading Co. v/s ITO 8 DTR 199 in which it was held that once the existence of the creditor is proved and such persons owns the credit, the assesse’s onus stands discharged and assessee is not required to prove the source from which the creditor could have acquired the money deposited with him. When identity of the cash creditor is not in doubt and assessee has filed confirmation letter where said creditor owned the credit and under these circumstances the addition made u/s 68 as unexplained cash credit were deleted. Considering the aforesaid factual and legal

analysis of submission and evidence in my considered view the assessing officer was not justified in making aforesaid addition of RS.39,40,000/- u/s 68 of I.T. Act and AO is hereby directed to delete the same.” In the appeal preferred by the revenue, the ITAT, in its impugned order dated 30.05.2011, found the approach of the CIT (A) justified and proceeded to dismiss the appeal with the following observations:

“10. After considering the orders of the AO and ld. CIT(A) and various details in shape of confirmations from the share applicants as well as from the creditors who also directors of the company, copies of returns of income and computation along with their Balance Sheets, we find that all necessary requirement to prove the loan as genuine has been satisfied. Assessee has filed confirmations of respective parties, all the parties are assessed to tax, bank statement is also placed in the compilation, copies of returns along with Balance Sheet is also placed on record. Therefore, this is not a case that identity of the person, transaction of the amount concerned, and source of funds are not proved. Therefore, we hold that neither addition could have been made on account of share application money nor addition on account of loans could have been made. The ld. CIT (A) has taken into consideration all these facts and has also considered various cases of the Hon'ble jurisdictional High Court and Hon'ble Apex Court. Therefore, we see no reason to interfere with the finding of ld. CIT (A) in respect to both the additions deleted by him. Accordingly, the order of ld. CIT(A) is confirmed.”

Seeking to question the orders so passed by the appellate authorities, the learned counsel for the appellant-revenue has contended that the appellate authorities have not considered and appreciated the well reasoned order passed by the AO; and have acted illegally in granting relief to the assessee without cogent reasons. The learned counsel submitted that deletion of the addition of Rs.13,15,000/- on account of unexplained share capital contribution merely on the basis of confirmation is not justified particularly when credit worthiness and genuineness of the transaction of capital contribution from at least 3 of the alleged contributors were not found. The learned counsel further submitted that the AO had rightly made the addition of Rs.39,40,000/- on account of unexplained unsecured loans particularly when the assessee failed to furnish the requisite details such as confirmations, names, addresses, PA numbers of the creditors concerned despite repeated notices. According to the learned counsel, when the genuineness, creditworthiness, and identity of those creditors could not be verified for want of requisite details, the AO had not committed any error in making the additions. The learned counsel submitted that the appellate authorities have failed to consider that the onus was on the assessee to prove that the creditors were the persons of means and about genuineness of the transaction; and deletion of addition merely on the basis of confirmation cannot be considered justified. In this matter, where the appellate authorities have dealt with the issues in accordance with law and have returned the findings after examining the explanations offered by the assessee and by the creditors, we are of opinion that no interference is called for in appeal. The points as sought to be raised by the appellant-revenue in the present case are all the matters relating to appreciation of evidence. The relevant factors have been taken into account and considered by the appellate authorities before returning the findings in favour of the assessee. Even as regards the three referred share capital contributors, it is noticed that they are existing assessees having PA numbers; and are being regularly assessed to tax. The appellate authorities cannot be said to have erred in deleting the additions in their regard too at the hands of assessee-company. Ultimately, the question as to whether the source of investment or of credit has been satisfactorily explained or not remains within the realm of appreciation of evidence; and the Courts have consistently held that such a matter does not give rise to any substantial question of law. In the case of Commissioner of Income Tax Vs. Orissa Corporation (P) Ltd.: (1986) 159 ITR 78 (SC), the Hon'ble Supreme Court held as under:- “13. In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under s. 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans.There was no effort made to pursue the so- called alleged creditors. In those circumstances, the assessee could not do any thing further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises.” Prakash Rana: (2001) 48 DTR (Raj.) 271, this Court noticed similar nature grounds urged on behalf of the revenue and found the same not leading to any substantial question of law. This Court noticed, observed, and held as under:- “7. Learned counsel for the appellant (Revenue) contended that firstly Tribunal erred in accepting the explanation offered by assessee in relation to source of income. His second submission was that what was offered by assessee was no explanation and hence should not have been accepted and lastly learned counsel made sincere attempt on his part after taking us through factual scenario of the explanation and contended that it can never be taken as satisfactory explanation for deleting the addition made by AO. We do not agree to this submission for more than one reason.

C.P.GOYAL P.A.