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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI S.S. GODARA & DR. DIPAK P. RIPOTE
PER S.S. GODARA, JM : This assessee‟s appeal for AY 2013-14 arises against the CIT(A)-1, Nashik‟s order dated 29-03-2017 passed in case No. Nsk/CIT(A)-1/737/2015-16 involving proceedings under Section 143(3) of the Income Tax Act, 1961, in short „the Act‟.
Heard both the parties. Case file perused.
The assessee‟s first and foremost substantive ground raised in the instant appeal challenges correctness of both the lower
authorities action making section 68 unexplained cash credit addition of Rs.78 lacs representing share capital and share premium. The CIT(A)‟s detailed discussion affirming the assessment findings to this effect reads as under: “6.3 I have considered the facts of the case, the order of the Assessing Officer and the submission of the appellant. The fact discernible from record, are : 1) The assessee company has received share capital and share premium from 2 directors as under : Name of the Directors Share Capital Share premium Nivrutti Bhadane 12,00,000 37,00,000 Rajni Nivrutti Bhadane 12,00,000 37,00,000 Total 24,00,000 74,00,000 2) Total contribution by appellant on account of share capital and premium during the year is Rs.98 lacs. 3) The directors have explained the source of share capital and share premium out of agriculture income. 4) The Assessing Officer on verification of record found that the directors are regular return filers and have not shown any agriculture income in their Return of Income from A.Ys. 2009-10 to A.Y. 2013-14. 5) On examination of 7/12 extracts the Assessing Officer has found that name of person on 7/12 extract is of Shri Jaganath Waman Bhadane (brother of Nivrutti Bhadane) and Shri Ramkrsihan Mali. The land is held in individual capacity. Therefore there is no question of any income being generated in HUF. 6) Further the appellant co. is a retail business of computers and peripherals which the Director’s are running it. The Directors are having individual proprietorship concerns. Thus there is no question of land being cultivated by Directors which is situated at Dhule more than 200 kms away from Nashik. 7) The Assessing Officer after considering the entire source of income of directors concluded that Directors creditworthiness is only to the tune of Rs.20,00,000/- and added balance Rs.78,00,000/- u/s 68 as appellant was not able to prove the creditworthiness of Rs.78,00,000/- of the Directors nor the genuineness of the transaction.
4 The assessee inspite of giving adequate opportunity has not produced the sources of share premium & share capital. The identity of the lender is established but the creditworthiness of lender and genuineness of transaction is not proved.
5 It is a settled law that the onus is on the assessee to prove the identity, creditworthiness of the person and genuineness of transaction cumulatively genuineness of any sum credited in books of accounts.
6 I have perused the copy of return filed by the assessee of Shri Nivrutti Bhadane and Smt. Rajani Nivrutti Bhadane. On perusal of the returns of Directors, it is found that the returns does not depict that Shri Nivrutti Bhadane and Smt. Rajani Nivrutti Bhadane had the credit-worthiness to subscribe of the share capital of Rs.24,00,000/- and share premium of Rs.74,00,000/- together. Thereafter, a letter was issued to the appellant as under:
This letter was served by hand to the appellant by the Assessing Officer through his Ward Inspector. Till date no reply is furnished. Similarly, the appeal of Smt. Rajni Nivrutti Bhadane for A.Y. 2013-14 is also being adjudicated by me. A letter was also issued to Smt. Rajni Nivrutti Bhadane as under :
This letter was also served by the AO through his ward Inspector on 21/03/2017. However, till date no reply is received. This shows that the appellant is not able to prove the creditworthiness of the subscribers of share capital and share premium. The Assessing Officer
as evident from the Assessment Order, has considered the entire source of income of Directors and has held that creditworthiness of only Rs.20,00,000/- can be proved. The Assessing Officer has granted credit for the same while making addition u/s 68 of the Act.
7 The principle in section 68 is a statutory recognition of what was always understood to be the law based upon the rules of evidence that it is for the taxpayer to prove the genuineness of borrowings or other credit in his books, since the relevant facts are exclusively within his knowledge.
8 It is well settled that it is for the assessee to give a satisfactory explanation in regard to the cash credits in his books, if the explanation furnished by assessee is found to be not acceptable the entries may be taken to represent income that has accrued to the assessee during the year of the account. The burden of proof however rests squarely on the shoulder of the assessee to establish the truth and tenability of his explanation.
9 It is a well established by a series of decisions of the Supreme Court, namely Kale Khan Mohammad Hanif V. CIT, Govindarajulu Mudaliar (A) V CIT, CIT v Devi Prasad Vishwanath Prasad, that the onus of proving the source of any money received by the assessee is upon him. It is the responsibility of the assessee to adduce the necessary evidence to prove the source and nature of the cash credit. In Sreelekha Banerjee V. CIT, the Supreme Court has held that if there is an entry in the account books of the assessee which shows the receipt of a sum, it is necessary for the assessee to establish, if asked what the source of that money is and to prove that it does not bear the nature of come. The department is not at this stage required to prove anything. It can ask the assessee to produce any books of account or other documents or evidence pertaining to the explanation, if one is furnished, and examine the evidence and the explanation. If, however, the explanation is unconvincing and one which deserves to be rejected, the department can reject and draw the inference that the amount represents income either from the sources already disclosed by the assessee or from some undisclosed sources. The department does not then proceed on no evidence, because the fact that there was receipt of money is itself evidence against the assessee which he fails to rebut and, being rebutted, that evidence can be used against him by holding that it was a receipt of an income nature. The very words, “an undisclosed source” show that the disclosure must come from the assessee and not from the department.
10 Section 68 provides that where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income-tax as the income of the assessee of the previous year if the explanation offered by the assessee about the nature and source of such sums found credited in the books of the assessee is, in the opinion of the Assessing Officer, not satisfactory. Such opinion formed itself constitutes a prima facie evidence against the assessee relating to the receipt of money, and if the assessee fails to rebut the said evidence, the same can be used against the assessee by holding that it was a receipt of income nature. Adverting to the fact in the instant case, it clearly emerges that the so called introduction of share application and share premium to the extent of Rs.78 lacs were not bona fide transactions.
11 The law as regards to burden of proof on the subject is relevant not merely for section 68, but also in all matters, where the law places esponsibility on the assessee to prove what is best known to him, since facts relating to him are in his custody and it is, therefore, for the assessee to establish the facts relating to the claim, whether a particular receipt or investment has income character. The Supreme
12 The Hon’ble Supreme Court in the case of P. Mohan Kala & Others 291 ITR 278 has observed as follows : “15…. When and in what circumstances Section 68 of the Act would come into play? That a bare reading of Section 68 suggests that there has to be credit of amounts in the books maintained by an assessee; such credit has to be of a sum during the previous year; and the assessee offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the assesses in the opinion of the Assessing Officer is not y satisfactory. It is only then the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The expression "the assessee's offer no explanation" means where the assessee's offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assesses. It is true the opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion." The Court further observed thus : "25..... The doubtful nature of the transaction and the manner in which the sums were found credited in the books of accounts 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."
13 The Hon’ble Supreme Court in the case of Roshan Di. Hatti Vs. CIT, 107 ITR 938 has held that the law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him. Where the nature and source of a receipt, whether it be of money or of other property, cannot be satisfactorily explained by the assessee, it is open to the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that income is from any particular source. The Hon’ble 50 ITR 1, held that “it is well established that the onus of proving the source of a sum of money found to have been received by the assessee is on him. If he disputes liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provision of Income Tax Act. In the absence of such proof, the ITO is entitled to treat it as taxable income.
14 It is to be stated that AO has all the right to examine the creditworthiness of the lender and genuineness of the transaction. There are plethora of case laws and catena of decisions of Hon’ble
16 The Hon’ble Delhi High Court in the case of Tulip Engineering Pvt. Ltd. (2015) 92 CCH 60 has held inter-alia as under:- "So far as the last ground, i.e. the merits as to the addition of Rs. 4,84,000/- goes, the basis for introducing Section 68 is understood in C1T v. Lovely Exports, 216 CTR 195 to say that the assessee not only has to establish the identity of the share applicant or investor, as the case may be, but also of the third party. It has to be prima facie established that such third party was credit worthy and the transaction was genuine. Whilst the acquisition of the shares of Galaxy Commercial was not doubted by the AO, what ultimately fell for his consideration was the sale consideration. The AO's discussion in paragraph 3 of his order is significant in this regard; both the purchasers did not respond to notices issued by the income authorities. Furthermore, the AO's enquiry reveal that these purchasers had insubstantial means and could not reasonably be said to possess the means to make the investments that they did, in purchasing the assessee's shares for the amounts reported by it. Besides, us to whether the transaction was genuine or not is a pure finding of fact which has concurrently been rendered against the assessee.”
17 Reference is invited to the decision of Hon’ble Delhi High Court in the case of Riddhi Promoters Pvt. Ltd. 232 Taxman 430 dated 27th March, 2015 wherein it is held inter-alia as under:- "It is not sufficient that the identity of the share applicant or the creditor should be established for the assessee to discharge the initial onus, which is upon the assessee. Under the requirement of Section 68, the assessee has to further satisfy the Revenue as to the genuineness of the transaction and the creditworthiness of the share applicant or the individual who is advancing amounts. The assessee's reliance upon the CIT (Appeals) order to contend that the sources of the funds were in essence as Directors, is in this context of no avail. The assessee has contended that it was incorporated just before the end of the financial year. However, the assessee had to necessarily show that the amount which it indicated as borrowed from the six applicants in fact belonged to them. It is not sufficient for the assessee to just raise such contentions on the basis of certain observations of the CIT (Appeals) in this regard. The creditworthiness of the share applicants had to be seen in e context of the assertion made by them or the materials presented before the AO at the relevant time. The materials on cord disclosed that some information from at least two 'individuals indicated that the money had not been given by them. In mew of the fact that concurrently the lower authorities held against the assessee and given the intensive factual nature of the evidence, no substantial question of law arises. The appeal is accordingly dismissed."
18 Reference is invited to the decision of Hon’b;e Delhi High Court in the case of Nipun Builder and developers Pvt. Ltd. 214 Taxman 429 dated 7th January 2013 wherein it is held inter-alia as under : Onus is upon the assessee to prove the identity and creditworthiness of subscribers and the genuineness of transactions under section 68. • Under section 68 the onus is on the assessee to prove the three ingredients, i.e., identity and creditworthiness of the person from whom the monies were taken and the genuineness of the transaction. As to how the onus can he discharged would depend on the facts and circumstances of each case. It is expected of both the sides - The assessee and the assessing authority - to adopt a reasonable approach. • The assessee was a private limited company, which cannot issue shares in the same manner in which a public limited company does. It has to generally depend on persons known to its directors or shareholders directly or indirectly to buy its shares. Once the monies are received and shares are issued, it is not as if the share- subscribers and the assessee-company lose touch with each other and become incommunicado. It is a continuing relationship. • The share-subscribers in the present case have each invested substantial amounts in the assessee's shares. Most of them, barring two or three, are themselves private limited companies. The assessee-company received the share monies; it even says that the communications sent by it at the addresses did not return unserved, yet when the Assessing Officer requested it that too only after trying
to serve the summons unsuccessfully to produce the principal officer of the subscribing companies, the assessee developed cold feet and said it cannot help if those companies did not appear and that it was for the Assessing Officer to enforce their attendance. • It was not open to the assessee, given the facts of this case, to direct the Assessing Officer to go to the website of the company law department/ROC and search for the addresses of the share- subscribers and then communicate with them for proof of the genuineness of the share-subscription. That is the onus of the assessee, not of the Assessing Officer. [Para 7] • So far as creditworthiness of the share subscribers is concerned, difficulty may be faced by the assessee to unimpeachably establish the creditworthiness of the share-subscribers, but at the same time mere furnishing of the copies of the bank accounts of the subscribers is not sufficient to prove their creditworthiness. There must be some positive evidence to show the nature and source of the resources of the share-subscriber himself. • If the assessee was serious enough to establish its case, it ought to have produced the principal officers of the subscribing companies before the Assessing Officer so that they could explain the sources from which the share-subscription was made. That would also have taken care of the difficulty of the assessee in proving the creditworthiness of the subscriber companies. • Instead , the assessee took an adamant, attitude and failed to comply with the direction of the Assessing Officer. It also challenged the Assessing Officer's finding that the summons sent to the companies came back unserved with the remark 'no such company', which was also supported by the report of the inspector who made a visit to the addresses. • The assessee thus took a very extreme stand which was not justified; certainly it did nothing worthwhile to discharge the onus to prove the creditworthiness of the subscribing companies. [Para 8] Tribunal did not seriously appraise the facts and circumstances of the case.
• A perusal of the order of the Tribunal shows that it has gone on the basis of the documents submitted by the assessee before the Assessing Officer and has held that in the light of those documents, it can be said that the assessee has established the identity of the parties. It has further been observed that the report of the investigation wing cannot conclusively prove that the assessee's own monies were brought back in the form of share application money. • It is not the burden of the Assessing Officer to prove that connection. There has been no examination by the Tribunal of the assessment proceedings in any detail in order to demonstrate that the assessee has discharged its onus to prove not only the identity of the share applicants, but also their creditworthiness and the genuineness of the transactions. • No attempt was made by the Tribunal to scratch the surface and probe the documentary evidence in some depth, in the light of the conduct of the assessee and other surrounding circumstances in order to see whether the assessee has discharged its onus under section 68. • A perusal of the order of the Tribunal shows that it has gone on the basis of the documents submitted by the assessee before the AO and has held that in the light of those documents, it can be said that the assessee has established the identity of the parties. It has further been observed that the report of the investigation wing cannot conclusively prove that the assessee's own monies were brought back in the form of share application money. As noted in the earlier paragraph, it is not the burden of the AO to prove that connection. There has been no examination by the Tribunal of the assessment proceedings in any detail in order to demonstrate that the assessee has discharged its onus to prove not only the identity of the share applicants, but also their creditworthiness and the genuineness of the transactions. No attempt was made by the Tribunal to scratch the surface and probe the documentary evidence in some depth, in the light of the conduct of the assessee and other surrounding circumstances in order to see whether the assessee has discharged its onus under Section 68. With respect, it appears to us that there has only been a mechanical reference to the case-law on the subject without any serious appraisal of the facts and circumstances of the case, [para 12]
• In view of above, it has to be held that the Tribunal was not right in law in upholding the order of the Commissioner (Appeals) deleting the addition made under section 68 on the ground that the assessee had proved the nature and source of the share subscription money and had established the identity and creditworthiness of the share-subscribers and the genuineness of the transactions. [Para 13]
Reference is invited to the Hon’ble Delhi High court decision in the case of Arvind Khanna (2015) 93CCH18 dt 15th April 2015 wherein it has been held that while entities certificate and notarized statement of the- entities by themselves indicate, prima facie, the identity of such entities who have generated credit, the creditworthiness of the creditor has to be independently established by other materials such as bank statement and other supporting evidence to say that had the economic capacity to enter into such transaction.
20 Reference is invited to the Hon’ble Delhi High court decision in the case of Onassis Axles Pvt. Ltd 364 ITR 53 dt 13 Feb 2014 wherein it is held inter-alia as under:- “Lovely Exports (P.) Ltd. (supra) is an authority for the proposition that the assessee is under an obligation to dispel any doubts regarding the genuineness of an investor and the genuineness of the transaction. Here, though the assessee furnished particulars relating to three share applicants, the further inquiry made by the AO raised more questions than answers. The share applicants' lack of resources, the assessee's position vis-a- vis share amounts received and its commercial condition all pointed to the amount received by it falling within the mischief of Section 68 as unexplained amounts. That the AO or ITAT chose to treat the amount, as bogus share capital, is a matter of inference which the Court would be loath to interfere with.
For the above reasons, this Court answers the question framed, in favour of the revenue and affirms the view of the ITAT. The appeal is, therefore, dismissed, with no order as to costs. ”
21 Reference is invited to the Hon’ble Delhi High court
221 TaxmaN14 dated 28th November, 2013 wherein it is held inter-alia as under:- FACTS • On basis of some information from the Investigation Wing that assessee was identified as one of beneficiaries who had received bogus entries, notice under section 148 was issued to the assessee and the assessee was required to furnish information in respect of persons who had been allotted shares. • The assessee filed confirmation from the respective persons who had subscribed to the share capital. • The Assessing Officer noticed that the extracts of bank accounts of concerned parties submitted by the assessee during the original assessment proceedings had been fabricated. They Assessing Officer had requisitioned the bank statements from the banks which established that immediately before the issuance of cheques for the purpose of making pay order or demand draft, there was a deposit of cash. Deposits were mostly by cash or transfer entries from the same bank of the entry providers. The Assessing Officer held that the said companies had no creditworthiness, financial worth or regular resources to justify their subscription of share capital money in the assessee company. He held that the assessee had failed to discharge the onus is proving the identity of the creditors/subscribers, genuineness of the transactions and the creditworthiness and, accordingly, made an addition in the hands of the assessee. • The Commissioner (Appeals) noted that the assessee had filed confirmation letters which contained the addresses, PAN numbers and other details, and, thus, assessee had discharged its burden of proving basic details that were required for verification to fulfil the conditions i.e. identity of creditors, creditworthiness of the creditors and genuineness of transactions. He held that the assessee could not be penalized for the mistakes/faults committed by the share applicants and that the Assessing Officer had not found any discrepancy in the bank accounts maintained by the assessee. The Tribunal confirmed the said order.
• On further appeal. HELD • The orders of the Commissioner (Appeals) and the Tribunal in deleting the additions made by the Assessing Officer under section 68 are perverse and are clearly unsustainable. [Para 23] • PAN Numbers are allotted on the basis of applications without actual de facto verification of the identity or ascertainment of the active nature of business activity. PAN number is allotted as a facility to revenue to keep track of transactions and thus, the PAN number cannot be blindly and without consideration of surrounding circumstances treated as sufficiently disclosing identity of the individual. The mere filing of share application is not enough as the .said application is not an unimpeachable document and does not on its own prove the genuineness or authenticity of the transaction. It can at best be treated as a corroborative document. Since the share application form is not an unimpeachable document, it cannot on its own be treated as sufficient for cross-verification of the transaction. Mere production of PAN number or assessment particulars does not establish the identity of a person. The identification of a person includes the place of work, the staff and the fact that it was actually carrying on business and further recognition of the said company individual in the eyes of public. [Para 27] • The Assessing Officer had requisitioned the Bank Statements of the share applicants as there was a doubt about the correctness of the bank statements furnished by the assessee during the original assessment proceedings. The bank statements equisitioned from the banks established that immediately before the issuance of heques for the purpose of making pay order or demand draft, there was a deposit of 'cash. The entry by transfer shown in the bank account (furnished by the assessee in the original assessment proceedings) was fabricated. [Para 28] • The bank statements of the investors furnished by the assessee during the original assessment proceedings were fabricated and misleading. They omitted to show that there
was deposit of cash immediately prior to issuance of cheques for preparation of pay orders or DDs in favour of the assessee regarding subscription of its share capital. False evidence had been adduced by the assessee during the original proceedings to get undue advantage of giving colour of genuineness to bogus entries through the bank accounts. The deposits were mostly by cash. With regard to the share the Assessing Officer has noticed that the pay order/DDs in respect of both the companies were made out of the bank account of one of said companies. The Assessing Officer has held that the transactions in the bank accounts showed that there was a corresponding withdrawal of the amount in cash on the very same day of the crediting of cheques and there was immediate issuance of cheques/DDs on deposit of cash. [Para 29] • Assessee had not been able to discharge the initial onus and had not been able to establish the identity, and creditworthiness of the share applicants and the genuineness of the transaction and surrounding circumstances and inquiries made by the Assessing Officer were significant but the said finding though not disturbed had been ignored. Further the Tribunal has failed to take holistic view and has relied upon neutral and general evidence without noticing other evidence, which are : (a) The - Assessee is a private limited company. (b) The subscribers were unknown persons, not related or friends. (c) The subscribers bank account statements furnished were forged and fabricated as there were corresponding cash deposits in the bank accounts before issue of share application cheques. (d) The subscriber companies it has been shown were carrying on effective and day-to-day business or were angle investors. (e) The subscribers did not bother and ensure protection of their investment. [Para 31] In view of the above, the assessee has not discharged the onus satisfactorily and the additions made by the Assessing Officer was justified and sustainable and the order of the Tribunal ignoring and not dealing with the factual findings recorded by the Assessing Officer is perverse. [Para 32]
22 Adverting to the fact in the instant case, it is evident that the explanation offered by appellant is not satisfactory. In appeal before me the appellant's A.R. has basically reiterated on the submission made before the assessing Officer. He has further submitted that the Directors were also assessed with the same Assessing Officer, therefore the Assessing Officer should have verified the share capital and share premium from the Return of Directors. I have verified the documents filed before me. They do not reflect that the Directors had the capability to subscribe to the share capital and share premium. The Assessing Officer has examined this issue in detail and has held them to be creditworthy of only Rs.20 lacs. As reproduced supra, inspite of opportunity granted the appellant has not proved the creditworthiness of the Directors, nor the genuineness of the transaction.
23 I do not agree with the contention of the Authorised Representative. It is settled law that u/s 68, the onus is on the assessee to prove the identity and creditworthiness of the lenders/subscribers and genuineness of transaction. It is not the case that the Assessing Officer has made addition u/s 68 indiscriminately without application of mind. The Assessing Officer has analysed the full facts of the case, the creditworthiness of the Directors and genuineness of the transaction. The Assessing Officer has also analysed the7/12 extracts, made necessary enquiries verified the Return of Income of Directors from A.Ys. 2009-10 to 2013-14, where no agriculture income was shown, and then has arrived at the amount of Rs.20,00,000/- for which both the Directors were creditworthy. The argument of appellant’s A.R. that Directors are filing Return of Income so the share application and share premium given by them are genuine cannot be accepted. Filing of the Return only proves the identity but does not prove the creditworthiness of the lender nor the genuineness of the transaction. Merely proving the identity of the lender does not discharge the onus of the assessee if the capacity or creditworthiness of the lender is not proved. A harmonious construction of section 106 of the Indian Evidence Act and Section 68 of the IT Act will be that though apart from establishing the identity of the creditor the assessee must establish the genuineness of the transaction as well as the creditworthiness of the creditor. In view of this fact, though the appellant is able to establish the identity of the creditor, it cannot be said that the assessee was able to prove the creditworthiness of the creditor or the genuineness of transaction, there by the source of introduction of share capital and share premium by Shri Nivruti Bhadane and Smt. Rajani Bhadane to the extent of Rs.78,00,000/- remains to be proved.
24 A letter No.1159 dated 21/03/2017 was issued to the appellant company to furnish the source of share capital and share premium contributed by the 2 directors Shri Nivrutti Bhadane and Smt. Rajni Nivrutti Bhadane. The appellant did not reply to the letter nor produced any document which could prove the creditworthiness of the Directors or genuineness of the transaction.
25 In view of the aforesaid discussion, the factual and legal matrix of the case, since the appellant is not able to prove the creditworthiness of the lender and genuineness of the transaction in my considered view, the AO had rightly added the sum of Rs.78,00,000/- u/s 68 to the appellant’s income and held it to be subject to tax. The action of the Assessing Officer is upheld. Ground is dismissed.”
We have given our thoughtful consideration to the vehement rival arguments against and in support of impugned addition. There is hardly any dispute between the parties that the assessee had in fact received the impugned share capital / premium from its directors Shri Nivrutti Bhadane and Smt. Rajni Nivrutti Bhadane to the tune of Rs.24 lacs and Rs.74 lacs; respectively, which in turn has been treated as genuine to the tune of Rs.20 lacs only. There is further no quarrel between the parties that these directors had duly
filed all their respective details before the lower authorities. They are also assessed in the same juri iction. We thus find force in assessee‟s stand that such share capital / premium; as the case may be, could not have been treated as creditworthy qua Rs.20 lacs only and the rest of the same herein i.e. Rs.78 lacs deserves to be added u/s 68 of the Act. This is for the sole reason that such a bifurcation is nowhere provided in section 68 of the Act.
Coupled with this, we find that similar issue of share capital / premium coming from related group entities had arisen before hon‟ble Gujarat high court in PCIT vs. Gyscoal Alloys Ltd. 2018 (10 TMI 1725 (Guj) as follows: “Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal, Ahmedabad Bench {"Tribunal" for short} raising the following substantial question for our consideration : "Whether Appellate Tribunal has erred in law and on facts in deleting the addition made by the Assessing Officer on account of Rs. 9,99,99,900/= as per the provision of Section 68 of the Income-tax Act, without properly appreciating the facts of case and the material brought on record ?" The issue pertains to the share application money received by the respondent-assessee-company. The Assessing Officer added a sum of Rs. 9.99 Crores [rounded off] in the hands of the assessee with the aid of Section 68 of the Income-tax Act, 1961 ["the Act" for short]. CIT [A] deleted such addition primarily on the ground that the assessee had established the source, genuineness of the transactions and the creditworthiness of the investors. In further detailed consideration, the Tribunal confirmed the view of CIT [A], making the following observations :- "I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The appellant has received an amount of Rs. 9,99,99,900/- on account of share capital and share premium from M/s. General Capital and Holding Co. Pvt. Ltd, Ahmedabad during the year. The AO held that the creditworthiness and the genuineness of the transaction were not proved by the appellant and accordingly made the addition under Section 68 of the Act for the above amount. The appellant has submitted that all three ingredients such as, credit worthiness, genuineness and the identity of the share applicant have been proved and therefore, the addition should not have been made by the AO. During the course of appellate proceedings, the assessment records were also obtained from AO and the same have also been examined by me to ascertain the facts correctly. The share applicant company M/s. General Capital has been duly confirmed the fact of making investment in the appellate company. The amounts have been received through banking channel. The same are duly reflected in the annual accounts of that company. The extracts of the bank statement which have been filed before me during the course of appellate proceedings as well as before the AO clearly show that there are no cash deposits as mentioned by the AO in the assessment order. The observation of the AO that the cash has been deposited and subsequently cheques were issued is factually incorrect. The director of the company also attended before AO and confirmed the fact. It is also noted that both the companies, that is the appellant company as well as the share applicant are managed by the same group of persons. Honourable High Court of Gujarat has consistently held that if the assessee has given sufficient proof in respect of the share application, no addition can be made in the hands of the assessee. If the AO has any doubt about the source of the share applicant further investigation can be made in the hands of the share applicant, but not in the case of the appellant. ."
It can thus be seen that the entire issue is based on appreciation of material on record. CIT [A] and the Tribunal concurrently came to the conclusion that the assessee had discharges its basic onus. The investors have confirmed the transactions. Such transactions were carried out through the banking channel. The director of the investing company had also appeared before the Assessing Officer and also confirmed the transactions. The CIT [A] and the Tribunal also did not confirm the Assessing Officer's finding that the assessee failed to establish the creditworthiness or genuineness of the transactions. No question of law arises. Tax Appeal is dismissed.”
Faced with this situation, we conclude that both the learned lower authorities have erred in law and on facts in making the impugned unexplained cash credit addition of Rs.78 lacs. The same is directed to be deleted.
Next comes commission expenditure of Rs.29,54,313/- disallowed by both the learned lower authorities. The CIT(A)‟s detailed discussion affirming the same reads as under:
“4. Briefly the facts of the case are that the appellant is a Pvt. Ltd. Company engaged in trading in computer hardware and peripherals. The appellant has filed a return of income declaring total income of ₹12,23,215/- on 27/09/2013. The Assessing Officer scrutinized the return of income and made the following additions: -
Nature of addition Amount On account of commission expenses paid 29,54,313/- On account of share capital and share 78,00,000/- premium Out of printing and stationery, repairs & 4,82,440/- maintenance, travelling expenses and shop expenses
The appellant is aggrieved and has filed the present appeal.
Ground No.1:- On the facts and in law the AO has erred in making addition of ₹29,54,313/- on account of disallowance of commission paid.
1 It is observed by AO:- "On verification of the profit and loss account, it is seen that the assessee has claim to paid commission of ₹ 29,54,313/- to 661 agents. During the course of verification, the A.R. of the assessee appeared on 30/01/2016 and he has been requested to submit the details of commission paid such as address, PANs on 05/02/2016,in response to this, the assessee filed names of the parties, to whom it had claimed to paid commission. However, the assessee has not furnished PANs, address, etc. in respect of these parties. Further, a show cause notice dated 12/02/2016 was also issued and duly served on the assessee, with request to submit the address, PANs in respect of these parties for verification, however, the assessee has not submitted any details called for, till date. The A.R. of the assessee was asked whether TDS has been deducted from the commission paid to these parties as per the provisions of sec. 194H of the Act. In this context, the assessee on 07/03/2016 filed letter stating that it has lots of sale agents since the payment made to individual agent during the financial year 2012-13 is below ₹ 5,000/-, therefore tax has not been deducted on commission payments. As commission payment did not attract TDS provisions, it had also not maintained any details of the individual agent other than name of agent. During the course of assessment proceedings, the assessee has not correlated the amount of commission paid vis-a-vis nature of services render and sales. On 11/03/2016, the assessee has filed letter stating that due to shortage of time it could not obtain confirmation of accounts from those persons and requested to grant few days time. The assessee's above contention is not acceptable considering the fact of the case. During the course of assessment proceedings, the assessee's A.R. vide order sheet entry dated 30/01/2916 (Sr.No 06) was asked to give addresses of the parties to whom commission paid on before 05/02/2016. However, no details have been filed. Further, vide this office
notice issued under section 142(1) of the Act dated 12/02/2016, assessee was requested to give details of the same upto 17/02/2016, however, no details have been filed. Again, vide order sheet entry dated 24/02/2016 and 03/03/2016, the assessee was requested to furnish the same, however, the assessee has not filed addresses, PAN, etc. in respect of the parties for verification. From the above discussion, it is seen that multiple opportunities were given to the assessee to substantiate its claim of commission paid as genuine, however, the assessee has not file same, till date. The assessee vide letter dated 11/03/2016 requested to grant few days time which is- not acceptable. It is to be noted here that the assessee has been conveyed that if the information is not file, assessment will be finalized accordingly. In the light of the above, it is clear that the assessee is unnecessary prolonging the proceedings, for the reason best known to- it. It is pertinent to mention here that in the case of director Smt. Ranjani Bhadane, she has claimed to paid Commission to 185 parties, which is too below ₹5000/- in each case. The assessee has taken identical stand in that case that commission paid is below ₹5,000/- twice not maintained any individual details of the agents. In the instant case, it is seen that the commission paid to all 661 parties is ranging from ₹ 2,000/- to ₹4,987/-. It is not acceptable that none the party to whom commission paid is above ₹ 5,000/- out of 661 parties. It is established beyond doubt that the assessee in order to avoid the provisions of TDS has claimed to paid commission in each case below ₹ 5,000/-. It is to be noted here that out of 846 parties, 661 parties in the case of assessee and 185 parties in the case of individual director, no address, PANs maintained by the assessee. Further, the assessee is carrying on the same business as on date. Considering the fact that the commission paid is below ₹ 5,000/- and the assessee has not given any details of identities of these parties such as PAN, address, etc. inference can be drawn that these parties are not genuine and assessee has inflated expenditure on this count. Further, the assessee has not submitted any details in respect of nature of work carried by these agents vis-à-vis commission paid, services rendered in respect of these parties. Since the assessee has not proved the genuineness, identification, etc. in respect of the parties to whom it had paid commission, an amount of ₹ 29,54,313/- is hereby disallowed and added to the total income of the assessee.
2 I have considered the facts of the case and the order of the Assessing Officer and available material on record. The assessee has not produced any documentary or corroborative evidence, inspite of sufficient opportunity granted, to whom the commission was paid. The expenses are claimed by the assessee. Hence the onus lies on him to prove the genuineness of the expenses. By not producing any detail to prove the genuineness of the expenses claimed, the assessee has not discharged its onus. Further vide order sheet entry dated 08/03/2017 the assessee was asked to file proof of commission paid by 15/03/2017. None appeared on the said date nor, any proof of commission paid was filed. It was also not explained that for what purpose commission is being paid.
3 Sub section (1) of Section 37 of the Act provides that, any expenditure not being expenditure of the nature described in Sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee laid down or expanded wholly and exclusively for the purpose of business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Thus any expenditure barring those excluded under sub section (1) of Section 37 of the Act laid out or expanded exclusively for the purpose of business or profession would be allowable expenditure. In this context, no limitation is imposed in the said provision on any commission paid by the assessee, if it is otherwise demonstrated that the same was expended wholly or exclusively for the purpose of business or profession.
4 In the case of CIT v. Transport Corporation of India (2002) 256 ITR 701/123 Taxman 806(AP) the Division Bench of Andhra Pradesh High Court observed that mere payment by the assessee itself would not entitle him to deduction of expenditure unless the same was proved to be paid for commercial considerations. It was observed that in such a situation, the burden of proof is on the assessee and not for the department to independently collect evidence and prove that the deduction claimed by the assessee is baseless.
5 The assessee has failed to adduce satisfactory evidence to show that the commission payments were actually made. The names and addresses of the persons and the purpose for which commission was paid was not produced either before AO or me. The assessee failed to establish that the commission paid were wholly and exclusively for the purpose of business. To me it appears that commission paid by the assessee and shown in books of accounts is merely a subterfuge to reduce its tax liability.
6 In view of this fact, I do not find any infirmity and illegality in the order of the AO. The disallowance of ₹ 29,54,313/- stands confirmed.”
A perusal of the case file and more particularly the Assessing Officer‟s assessment order dated 18.03.2016 suggests that the assessee had claimed the impugned expenditure as paid to 15 parties involving sum(s) of less than Rs.5,000/- in each case. This made the learned Assessing Officer to further take note of the fact that the total recipients herein numbered 661 parties wherein there was no nexus proved vis-à-vis with the corresponding business activities carried in the relevant previous year. We thus conclude that both the learned lower authorities have rightly disallowed the assessee‟s impugned commission payments by disputing the genuineness thereof in light of overwhelming suspicious circumstances. The same stands confirmed.
Lastly comes adhoc disallowance of Rs.2,41,220/- out of Rs.4,82,414/- involving various heads claimed at the assessee‟s behest. We note with the able assistance coming from both the parties that the Assessing Officer had disallowed 10% of assessee‟s total claim of Rs.48,24,400/-; coming to Rs.4,82,440/- which has been further reduced to 5% only in the CIT(A)‟s order. This is indeed coupled with the fact that the assessee has not been able to prove each and every item of corresponding expenditure by leading its detailed supportive evidence. Faced with this situation, we uphold the impugned disallowance made @ 5%.
This assessee‟s appeal is partly allowed in above terms.
Order pronounced in the Open Court on 14th July, 2022. (DIPAK P. RIPOTE) JUDICIAL MEMBER पुणे Pune; ददिधांक Dated : 14th July, 2022 GCVSR
आदेश की प्रतिलिपि अग्रेपिि/Copy of the Order is forwarded to: अपीऱधर्थी / The Appellant; 1. प्रत्यर्थी / The Respondent;
The CIT(A)-1, Nashik
The Pr.CIT-1, Nashik 5. विभागीय प्रविविवि, आयकर अपीलीय अविकरण, पुणे “B” / DR „B‟, ITAT, Pune गार्ड फाईल / Guard file 6. आदेशानुसार/ BY ORDER, //// Senior Private Secretary आयकर अपीलीय अविकरण ,पुणे / ITAT, Pune
Date
Draft dictated on 05-07-2022 Sr.PS
Draft placed before author 08-07-2022 Sr.PS
Draft proposed & placed before the JM second member
Draft discussed/approved by Second JM Member.
Approved Draft comes to the Sr.PS/PS Sr.PS
Kept for pronouncement on Sr.PS
Date of uploading order Sr.PS
File sent to the Bench Clerk Sr.PS
Date on which file goes to the Head Clerk
Date on which file goes to the A.R.
Date of dispatch of Order.