M/S. WAVES DATA MANAGEMENT PVT. LTD.,NEW DELHI vs. ITO, NEW DELHI

However, the ld. Assessing Officer accepted the cheque amount but regarding cash payments, he held that assessee could not prove the source of the same and even the information called u/s.133(6) from various parties could not be received in time, were returned back, therefore, he added the entire cash payment of Rs.90 lacs.

Before the Ld. CIT (A), the assessee preferred an appeal on the addition of Rs.90 lac in respect of advance paid in cash for the purchase of land. It was submitted that the Assessing Officer has wrongly observed that the assessee company has deposited cash amount of Rs.90 lacs within 15 days between 31.01.2011 to 14.02.2011 stating that amount was lying in the house and deposited in different dates, but the fact of the case is that, assessee never deposited cash in the bank account instead he has withdrawn the said cash from the bank account and immediately thereafter the cash was paid to the sellers and in this regard cash book, bank book and bank statement highlighting the transaction was also brought. To substantiate this fact, all the necessary documents and records were provided before the Assessing Officer. Ld. CIT (A) called for the remand report from the Assessing Officer. In response, Assessing Officer submitted his remand report, wherein instead of verifying the contention of the assessee that amount of Rs.90 lac was withdrawn from the bank account and same was given as cash payment to various persons as advance for purchase of land, he noted that in the bank statement of the assessee it transpired that assessee had received Rs.1.65 crore by two different transactions of:- i) Rs.15 lac on 17.1.2011; and ii) Rs.1.5 crore on 25th January, 2011, out of which Rs.90 lacs was withdrawn from the bank account of the assessee through cash by four different transactions. Ld. CIT (A) directed the Assessing Officer to give comments after making inquiry in this case and Assessing Officer asked for furnishing various information, like cash payment, transaction for purchase of land, bank statement and the payment in cash to the property owner and the source of amount deposited in the bank account. In response, assessee provided the bank statement and the copy of cash book showing that payment of Rs.90 lac was made after withdrawing from the same bank account. Regarding source of investment, he submitted that amount of Rs.1.56 crore was received through Directors of the company, as under: S. Name of Director Amount Date of transaction No. 1. Renu Agarwal Rs.15,00,000/- 17.01.2011 2. Arun Agarwal Rs.1,50,00,000 25.01.2011

Accordingly, notice u/s. 133(6) were issued to both the Directors seeking information regarding source of transaction along with documents. In response, Shri Arun Agarwal submitted that Rs.1.50 crores was given by him as share application money and Smt. Renu Agarwal has made payment of Rs.15 lac as repayment of loan. The source of Rs.1.5 crore given by Shri Arun Agarwal was not found to be satisfactory by the Assessing Officer, because according to the Assessing Officer his annual income as per the ITR was only Rs.6,80,382/-.

The assessee before the ld. CIT (A) had submitted confirmation of Shri Arun Agarwal along with copy of his PAN, bank statement and also the source of deposit, etc. It was submitted that remand report was without any corroborative evidence and without any adverse information and all the payments were routed through banking channels. Ld. CIT (A) after detailed discussion held that assessee could not prove the creditworthiness of Shri Arun Agarwal and made enhancement of Rs.60 lac after observing and holding as under:-

Before us, ld. counsel, Ms. Rano Jain submitted that the only issue challenged before the Ld. CIT (A) was addition of Rs.90 lac on account of cash payment made to various parties for purchase of land. It was clearly brought on record before the Assessing Officer that these cash payments were made after withdrawing the cash from the bank account, and to substantiate the same, the assessee has filed copy of sale deed, copy of cash book, ledger account, copy of bank statement, copy of cash flow, etc. The Assessing Officer without ascertaining the correct facts and material on record has wrongly made the addition. It is not a case of cash deposit where cash was found lying in the house after withdrawing from the bank, albeit there was cash withdrawal from the bank which was immediately paid to the sellers, and therefore, the addition made by the Assessing Officer was unwarranted. The assessee during the course of assessment proceedings has also explained the source of these money in detail among other documents and also filed the following documents for establishing identity, creditworthiness of Shri Arun Agarwal as well as genuineness of the transaction, viz., confirmation, copy of his bank account, PAN details, etc. He further submitted that Assessing Officer had issued notice u/s.133(6) to Shri Arun Agarwal which was duly responded by him, wherein he has confirmed the transaction and also filed copy of income tax return, copy of bank statement, etc. The Assessing Officer did not draw any adverse inference on these documents during the course of assessment proceedings. Thereafter, assessee went in appeal before the ld. CIT(A) and reiterated the same submissions and the Ld. CIT(A) did not made any adverse inference regarding addition of Rs.90 lac but has in fact made enhancement of Rs.1.50 crore u/s.68 on the ground that share application money received from Shri Arun Agarwal was remained unexplained. She submitted that such an enhancement was beyond the scope and power of Ld. CIT (A), because the subject matter of appeal before the Ld. CIT(A) is addition of Rs.90 lac made under the head ‘income from other sources’. But Ld. CIT (A) had now taken the new source of income which is not permissible. In support, she relied upon the following judgments:- 1. Gurinder Mohan Singh Nindrajog vs. CIT, (2012) 348 ITR 170 (Del)

On merits, she submitted that the assessee has filed all the necessary documents to prove the identity and creditworthiness of Shri Arun Agarwal, the Director of the Company and the genuineness of the transaction was duly established. Further, here the Director himself has accepted the transaction and given all the documentary evidences. Merely, the lender was shown less return of income that does not lead to any adverse inference when he has availability of funds, disclosed in the balance-sheet. In support, he relied upon the judgment of Hon’ble Delhi High Court in the case of CIT vs. Vrindavan Farms (P) Ltd., ITA 71/2015, ITA 72/2015, ITA 84/2015 dated 12.08.2015 and PCIT vs. M/s. Goodview Trading Pvt. Ltd. dated 21st November, 2016.

On the other hand, ld. DR relying upon order of the Ld. CIT(A) submitted that, first of all, issue before the Ld. CIT(A) was examining the source of cash withdrawal and the cash payment made by the assessee. During the course of such an examination, Ld. CIT (A) took note of the fact that the source of deposit in the bank statement was coming from the Director who was unable to explain the source properly as his creditworthiness could not be established. Thus, under these circumstances, Ld. CIT (A) was justified in making an enhancement as there is no new source of income as this issue was considered and examined by the Assessing Officer and it is from the same examination of the transaction, the Ld. CIT (A) has made the enhancement Thus, there is no infirmity in the enhancement made by the Ld. CIT (A). On merits, she submitted that the assessee has only tried to prove the genuineness of the share application money but not the creditworthiness and mere filing of income tax return does not prove the creditworthiness. Here, in this case, the return of income of the Director was only Rs.6,80,382/- and he was not in a position to prove the source of such amount and the burden of proof lied upon the assessee could not be discharged. Thus, there was a lack of evidence, proving the creditworthiness of the share applicant. She also relied upon the judgment of Hon’ble Delhi High Court in the case of CIT vs. NR Portfolio Pvt. Ltd., (2014) 42 Taxmann.com 339.

We have heard the rival submissions and also perused the relevant findings given in the impugned orders as well as material referred to before us. As stated above, the only addition made by the Assessing Officer was with regard to the amount of Rs.90 lac, on the ground that assessee could not prove the source of cash payments made to the various farmers. That addition prima facie was unsustainable in the wake of various material placed on record before the Ld. CIT (A) and also before the Assessing Officer that the amount of Rs.90 lac was withdrawn from the bank account and thereafter, it was immediately paid to the seller and this was proved by way of sale deed, copy of bank statement, copy of cash book and ledger account. Even, the Ld. CIT (A) has finally not made any adverse inference, and in this manner such an addition stood deleted. Now, the issue before us is, the addition of Rs.1.5 crore made u/s.68 on account of share application money received from the Director of the assessee company, Shri Arun Agarwal. The addition was made on the back ground that while examining the bank statement and the source of withdrawal of Rs.90 lac, it was found that sum of Rs.1.5 crore have been deposited in the bank account of the assessee which was received by two Directors of the assessee company, namely Smt. Renu Agarwal who has repaid her loan back at Rs.15 lac and Shri Arun Agarwal who has given amount of Rs.1.50 lac as share application money. Before the Assessing Officer, the assessee was confronted with this fact and in response, assessee had filed the details of share application money received from various persons including the Director was filed not only during the assessment proceedings as well as before the Ld. CIT(A). The assessee has filed the confirmation from the Director, copy of his PAN and income tax return and bank statement from where he has given the payment to the assessee company. Further, notice u/s.133(6) was issued to Shri Arun Agarwal, in response to which he has submitted the copy of account of assessee company as shown in his books of account; confirmation of share application money, copy of bank statement with entire narration, etc. Thereafter, no further inquiry or material was brought on record to prove that the documents furnished by the Director of the assessee company were deficient or could not substantiate the transaction. The entire case of the Revenue hinges upon the fact that in the return of income Shri Arun Agarwal has shown income of more than Rs.6 lac. Nowhere, the Assessing Officer or Ld. CIT(A) analyzed the bank statement of the Director, which reflect that there was huge availability of funds at the time of issuing cheques and there was no cash deposits on or before the date of issuance of cheque to the assessee company. This is evident from the bank statement appearing from pages 40 to 43. All the amounts have come through clearance. Ld. CIT(A) did not even asked to prove the source of such credit amount in his bank account if the creditor/share applicant who has furnished his bank statement and if the creditor is not confronted about the source, then assessee cannot be expected to prove the source of the source or explain the credit entries of the creditor, because same can only be proved by the creditor himself which in this case both Assessing Officer and Ld. CIT(A) have failed to do so and has simply gone by the fact that the income returned is less. The other material fact of availability of fund has not been inquired into, when Director of the assessee company was duly responding and complying with the notices and therefore, merely on such presumption, the addition cannot be made, because in so far as assessee is concerned it has not only established the identity and genuineness of the transaction but also the creditworthiness by providing the entire bank statement and the source wherefrom the amount have been received. It is not a case of any information or material coming on record that the share application money has been received through any accommodation entry or by an entry provider or by any conduit manner. Therefore, such an addition of Rs.1.50 crore cannot be sustained and same is directed to be deleted.