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Facts
The assessee's case was reopened under Section 147 based on information that funds were routed through accommodation entries. The Assessing Officer (AO) added Rs. 1,26,00,000 as unexplained cash credit, doubting the creditworthiness and economic rationale of the parties from whom the loan was received.
Held
The Tribunal held that for Assessment Year 2011-2012, the assessee was only required to explain the nature and source of the credit, not the source of the source. The assessee had discharged its onus by establishing the identity of the creditors and the genuineness of the transactions. The AO's addition based on not establishing the source of the source was unsustainable.
Key Issues
Whether the addition made by the AO under Section 68 for unexplained cash credit was justified when the assessee had established the identity and genuineness of the transaction, and the 'source of source' was not required to be explained for the relevant assessment year?
Sections Cited
147, 148, 133(6), 68, 115BBE, 271(1)(c), 274, 234A, 234B, 234C, 234D, 143(3)
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Income Tax Appellate Tribunal, MUMBAI “C” BENCH, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY, JM & SHRI PRABHASH SHANKAR, AM
आदेश / O R D E R
PER NARENDER KUMAR CHOUDHRY, JM:
This appeal has been preferred by the assessee against the order dated 17.09.2024, impugned herein, passed by the Ld. Commissioner of Income Tax (Appeals)-50, Mumbai (in short Ld. Commissioner) under section 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2011-2012.
In the instant case, the case of the assessee was reopened u/s.147 of the Act on the basis of information/letter dated 07.02.2018 received from the Assistant Director (Investigation), Unit-3(4) Kolkata to the effect that during the course of investigation it has been found that 2.1 Thus on the basis of such information, case of the Assessee was reopened by recording the reasons for reopening of the assessment proceedings and issuing the notice dated 14th March, 2018 u/s.148 of the Act to the Assessee, who in response filed its return of income on 12.05.2018 declaring total income at 'Rs.Nil' and also objected to the reopening proceedings vide letter dated 10.04.2018, which was disposed off by the AO vide dated 19.07.2018. Thereafter various statutory notices were issued to the assessee, however, the Assessee made no compliance and therefore the AO while considering the data available in the CD provided by the Investigation Wing, observed that the Assessee has received loan from three parties, which have no creditworthiness and are without any economic rationale, details of the same are as under: - 2.2 The AO in order to verify the veracity of the said transactions, issued notice u/s.133(6) of the Act to the above creditors through Speed Post and sought following information:- 1. "Copy of ledger a/c and books of account of M/s. Pooja Equiresearch Pvt. Ltd. having loan payment and re payment, if any to you.
2. Copy of Bank statement with narration for justify source of fund.
Interest charged by you.
4. Audited B/s & P & L Account.
5. Source of fund for giving advance.
6. How do you know M/s. Pooja Equiresearch Pvt. Ltd. The name address & Telephone No. of persons of your office who communicate to the M/s. Pooja Equiresearch Pvt. Ltd.
7. Name, address & Mobile No. of persons of M/s. Pooja Equiresearch Ltd. to whom you contacted.
Mode of communication and details of the same.
9. Had you given loan in past to M/s. Pooja Equiresearch Pvt. Ltd., If yes please give details.
10. Name & Address of the present director and directors during F.Y.2010-11.
11. Name & Address of the official signatory of making payment for this transaction. 2.3 In the meantime, the AO also informed the Assessee about the notices sent u/s. 133(6) of the Act to the creditors and show caused the Assessee to justify the aforesaid loan amounts/transactions.
2.4 The Assessee in response to the showcase, filed its reply vide letter dated 19.12.2018 along with copy of the confirmation of amounts, bank statement of the relevant entries, audited balance sheets, ledger copies of the above entities, in order to prove the identity and creditworthiness of the above parties and genuineness of the transactions.
2.5 Subsequently on dated 24.12.2018, the replies from the aforesaid creditors/parties have also been received in “TAPAL” .
2.6 On verifying the documents filed by the assessee and the aforesaid creditors/parties, the AO though got satisfied with the action of the assessee in establishing the identity of the creditors by submitting loan confirmation, copy of the acknowledgement of the ITRs etc., however, still doubted the creditworthiness of the creditors on the various factors and thus ultimately held the amount of Rs.1,26,00,000/- as unexplained cash credit and consequently added the same in the income of the Assessee u/s.68 of the Act by observing and holding as under:
In response to the same, assessee filed reply vide letter dated 19.12.2018 in which the assessee submitted copy of confirmation of accounts, Banks statement of relevant entry, Audited Balance Sheets, ledger copy of the above three entities and claimed to prove the identity, genuineness and creditworthiness of the above three parties On 24th Dec 2018 replies to the notice issued u/s 133(6) was received in Tapal from M/s Spring Enclave (P) Ltd and M/s Harsharatna Finance & Inv (P) Ltd. On 18th Dec 2018 reply from M/s Brotex Vanijya (P) Ltd was received. As per the speed post tracking portal notice issued u/s 133(6) to Spring Enclave (P) Ltd is not served. In the back drop of above mentioned things; the following facts are emerged from the verification of submission made by assessee and findings of Investigation wing. (i) Notices u/s 133(6) of the Act were issued to the M/s Spring Enclave Pvt Ltd. M/s Harsharatna Finance And Investment on 14.12.2018 and M/s Brotex Vanijya Pvt Ltd on 28.11.2018, the delivery of the same was checked by "track consignment" on internet, the notices to the M/s Spring Enclave Pvt Ltd is not delivered to the address, however reply of the same is received in this office.. (ii) The information received in response to the notice issued u/s 133(6) and submission made by assessee is mainly financial statement, copy of acknowledgment of ITR and copy of confirmation. Details of repayment was asked but same is not provided by anyone. Being both the parties, assessee and loaner are artificial entities the following questions asked are vital but same are unanswered.
(a) How do you know M/s. Pooja Equiresearch Put. Ltd. The name, address & Telephone No. of persons of your office who communicated to the M/s. Pooja Equisearch Pvt. Ltd. (b) Name, address & Mobile No. of persons of M/s. Pooja Equisearch Put. Ltd. to whom you contacted. (C) Mode of communication and details of the same. (iii) All the three entities are having bank account in one branch, at UCO bank, Barbourne Road, Kolkata IFSC: UCBA0000190 (iv) No loaner entity had charged any interest on such a huge loan. (v) Brotex Vanijya (P) Ltd has made investment of Rs. 2,39,00,000/- in Spring Enclave (P) Ltd by purchasing 59750 shares of Rs. I each. (Premium Rs. 399/-) (vi) Brotex Vanijya (P) Ltd has made investment of Rs. 3,00,00,000/-in Wipro Suppliers (P) Ltd by purchasing 60,000 shares of Rs. 10 each (Premium Rs.490) (vii) Brotex Vanijya (P) Ltd had replied that share application money of Rs. 50,00,000 received from Wipro Suppliers (P) Itd is used for loan to assessee. (viii) Spring Enclave (P) Ltd has made investment of Rs. 52,00,000/- in Deserve Trexim (P) Ltd by purchasing 13,000 shares of Rs. I each ( Premium Rs. 399). (ix) Harshavardhan Finance & Investments (P) Ltd had made investment of Rs. 5,00,000/- by purchasing 1250 shares of M/s Deserve Trexim (P) Ltd of Rs. 1 each (Premium Rs.399), Rs. 52,00,000 by purchasing 52,000 shares of Brotex Vanijya (P) Ltd of Rs. leach ( Premium Rs.99)and Rs. 2,00,000 in Spring Enclave (P) Ltd by purchasing 500 shares of Rs. 1 each (Rs.399/-). (x) As per the information received from the Investigation wing, the Inspector deputed to locate M/s Brotex Vanijya (P) Ltd, at 14C, M.D.Road, Kolkata, 700007 also could not find the company at given address. (xi) Following chart is prepared on the basis of Bank statement, acknowledgement of ITR and financial statement.
The analysis of the Balance sheet shows that there is merely any income from that loan advance and investment activities. There is no fixed asset. On perusal of the bank statement of the creditor, it is seen that the amount are transferred immediately after the credit in their bank accounts. (xii) The information gathered from the submission of assessee and replies received from the loaner parties shows that the allegation, findings of the investigation wing i.e "There have been movement of large rounded amount within many accounts with bank in a day having no economic rationale. Large amount in round figures of lacs of deposits either in cash or clearing frequently flows through a series of accounts and finally the whole amount mover out through clearing on the same day." is found to be correct. (xiii) Assessee had established the transactions entries. Every transaction has debit and credit entry in double accounting system. Mere accounting entry does't mean transaction is genuine. The explanation offered by assessee must have the following three ingredients for proving the cash credits in the books of accounts: (i) Identity of the creditors (ii) Creditworthiness of the creditor i.e capacity of the creditor to advance the money (iii) Genuineness of the transactions. The assessee is able to establish the identity of creditors by submitting loan confirmation and copy of Acknowledgement of ITR. However, other two ingredients i.e creditworthiness and genuineness of the transactions is not proved considering the above discussion in para 9(i) to 9(xiii). Therefore, explanation offered by the assessee regarding cash credit of Rs. 1,26,00,000/- is not satisfactory and hence not accepted.
Subject to the above discussions, the amount of Rs1,26,00,000/-credited in the account of the assessee from the accounts of M/s Brotex Vanijya Pvt Ltd, M/s Spring enclave Pvt Ltd. and M/s Harsharatna Finance and Investment Pvt Ltd. is remained unexplained, the same is added u/s 68 of the 1.T Act 1961 as unexplained cash credit in books of account, to the total income of the assessee. (Addition u/s 68, Rs. 1,26,00,000/-) In view of the above addition, the total income of the assessee is computed as under:
Sr.No. Particulars Amount 1 Loss of current year to (-)5,71,88,123 be carried forward 2 Addition u/s.68 of the 1,26,00,000 Act 3 Total income as per this 1,26,00,000 order No business loss is set off against the addition made u/s 68 of the Act being deemed income which was not recorded in books of accounts. Reliance is placed on decision of Hon'ble Gujarat High Court "Fakir Mohmed Haji Hasan Vs. CIT[2001] 247 ITR 290/[2002] 120 Taxman 11 and decision on Hon'ble ITAT Chennai (ITA No 325/Mds./2015 dated 06.04.2016 DCIT Vs M/s Shree Karthik Papers Ltd.). Tax has to be calculated as per the provision of section of 115BBE of the Act. Penalty u/s 271(1)(c) of the Act is initiated for concealment of income.
Assessed u/s 143(3) r.w.s. 147 of the Act, Charge interest u/s. 234A, 234B, 234C and 234D of the Income Tax Act, 1961 as applicable. Give credit for prepaid taxes after verification. The computation of tax payable is annexed as per separate sheet and forms the part of assessment order. Issue demand notice and challan and penalty notice u/s 274 r.w.s 271(1)(c) of the Act accordingly.
3. The assessee being aggrieved challenged the said addition before the ld. Commissioner on legal grounds as well as on merits, however could not succeed, as the Ld. Commissioner vide impugned order affirmed the aforesaid addition on the same footing as of the AO, by dismissing the appeal of the assessee.
The assessee being aggrieved is in appeal before us and controverted the findings of the authorities below, whereas the ld. Sr. DR supported the orders passed by the authorities below.
Heard the parties and perused the material available on record. The Assessee, at the outset, has submitted that as per the old provisions of Section 68 of the Act as applicable to the instant case which pertains to A.Y.2011-2012, the Assessee was under obligation to offer the explanation about the nature and source of the sum found credited in the books of the Assessee maintained for previous year, but not the source of source. It is not in controversy that in the instant case, as observed by the authorities below as well, specifically by the AO in para No.9 (bottom) that the Assessee has been able to establish the identity of the creditors by submitting the copy of loan confirmations and acknowledgement of ITR etc., and thus in our considered view the Assessee has discharged its prima facie onus casts on it u/s. 68 of the Act, as applicable.
5.1 Admittedly, after the amendment in section 68 of the Act vide Finance Act, 2012, w.e.f. 1st April, 2013, the parameters for establishing the credited amount in the books of the Assessee, have further expanded. According to post amended provision of section 68 of the Act, where any sum is found credited in the books of the assessee, then the Assessee is also under obligation to offer an explanation about the nature and source of such sums so credited. In simple wording , the 5.2 From the order passed by the Authorities below, it appears that both Authorities infact has applied the latest provisions of Section 68 of the Act to the case of the Assessee, which at all are not applicable to the instant, as made applicable from 1st April 2013 but not retrospectively as held by the Hon'ble Jurisdictional High Court in the case of CIT-1 Vs. Gagandeep Infrastructure (P) Ltd. (2017) 18 taxmann.com 272(Bom), which reads as under :-
(e) We find that the proviso to section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced "for removal of doubts" or that it is "declaratory". Therefore, it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre-proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P.) Ltd. (supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit. 5.3 Further the Hon'ble Jurisdictional High Court in the case of Gaurav Triyugi Vs. ITO, Mumbai (2020) 121 taxmann.com 86 (Bom) also dealt with the latest provisions of Section 68 of the Act and held that according to the previous provision of Section 68 of the Act, the Assessee was not required to explain the source of money provided by the creditor. For ready reference and completeness, the conclusion drawn by the Hon'ble High Court is reproduced herein below: -
At this stage, it would be apposite to advert to section 68 of the Act, relevant portion of which reads as under: "68. Where any sum is found credited in the books of an assessee maintained from any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income -tax as the income of the assessee of that previous year................ 12.1 From a reading of section 68, as extracted above, it is seen that if an amount is credited in the books of an assessee maintained from any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory. the sum so credited may be charged to income tax, as the income of the assessee of the relevant previous year.
Section 68 of the Act has received considerable attention of the courts. It has been held that it is necessary for an assessee to prove prima facie the transaction which results in a cash credit in his books of account. Such proof would include proof of identity of the creditor, capacity of such creditor to advance the money and lastly, genuineness of the transaction. Thus, in order to establish receipt of credit in cash, as per requirement of section 68, the assessee has to explain or satisfy three conditions, namely: (1) identity of the creditor; (ii) genuineness of the transaction; and (iii) credit-worthiness of the creditor.
In Pr. CIT v. Veedhata Towers (P.) Ltd. [2018] 403 ITR 415 (Bom), this court has held that assessee is only required to explain the source of the credit. There is no requirement under the law to explain the source of the source. In the instant case, there is no dispute as to the identity of the creditor. There is also no dispute about the genuineness of the transaction. That apart, the creditor has explained as to how the credit was given to the assessee. Thus assessee had discharged the onus which was on him as per the requirement of section 68 of the Act. What the Assessing Officer held was that sources of the source were suspected; he suspected the two sources Shri Rajendra Bahadur Singh and Smt. Sarojini Thakur of the source Smt. Savitri Thakur 15. In view of discharge of burden by the assessee, burden shifted to the revenue; but revenue could not prove or bring any material to impeach the source of the credit. Though Mr. Walve, learned standing counsel, has pointed out that the creditor had no regular source of income to justify the advancement of the credit to the assessee, we are of the view that the assessee had discharged the onus which was on him to explain the three requirements, as noted above. It was not required for the assessee to explain the sources of the source. In other words, he was not required to explain the sources of the money provided by the creditor Smt. Savitri Thakur Le. Shri Rajendra Bahadur Singh and Smt. Sarojini Thakur.
Considering the above, we are of the view that the Tribunal was not justified in sustaining the addition of Rs. 14 lakhs to the total income of the assessee as undisclosed cash credit under section 68 of the Act. {highlighted by us for clarity} 5.4 From the judgments referred to above, it is clear that prior to insertion of new provisions in Section 68 of the Act, vide amendment by the Finance Act, 2012 w.e.f. 1st April, 2013, the Assessee was not supposed to establish the source of source. As observed above, the Assessee has admittedly been able to establish the identity of the creditors and the source of the credits in its books of accounts and, has 68 of the Act. Thus, on the aforesaid reasons and dictum laid down by the Jurisdictional High Court in the cases referred to above and relevant provisions of Section 68 of the Act as applicable to the instant case, the addition under consideration which is based on non-establishing the source of source, is un-sustainable and, thus, the same is deleted.
As we have deleted the addition on legal ground itself, hence, not delving into merits of the case, as adjudication of the same would prove futile exercise.
In the result, appeal of the assessee stands allowed. Order pronounced in the open court on 25/02/2025.