RAM NITESH KOTAK,MUMBAI vs. ITO 1(2)(4), MUMBAI

The captioned appeal by assessee for Assessment Year [AY] 2009-10 contest the order of Ld. Commissioner of Income-Tax (Appeals)- 2 [CIT(A)], Mumbai Appeal No.CIT(A)-2/IT/323/2011-12 dated 15/07/2016 qua confirmation of certain additions. The assessment Ram Nitesh Kotak Assessment Year 2009-10 for impugned AY was framed by Ld. Income Tax Officer-1(2)(4) on 26/12/2011 u/s 143(3) of the Income Tax Act, 1961. 2.1 Facts leading to the same are that the assessee being resident individual and director of a corporate entity namely Kashi Infotech Private Limited [KIPL] was assessed for impugned AY at Rs.1,21,99,430/- after certain additions / disallowances as against returned income of Rs.8,84,133/- filed by the assessee on 31/03/2010. The assessee has suffered quantum addition of Rs.56,96,750/- on account of unproved liabilities with respect to the following parties and the same are the subject matter of this appeal:- No. Name Amount (Rs.) 1. Tijarat Impex 39,50,000/- 2. B.Datwani 12,46,750/- 3. Infodrive Software Ltd. 5,00,000/- Total 56,96,750/- 2.2 During assessment proceedings, upon perusal of statement of assessee’s assets and liabilities, it was noted that the above liabilities were new liabilities and therefore, the onus was on assessee to file necessary confirmations and documentary evidences to substantiate the same. With respect to first two parties, the assessee pointed out that these liabilities were transferred by way of book / journal entries from KIPL to the assessee in the impugned AY and the said amounts were actually payable by the assessee. The assessee, in support of balance of third party namely Infodrive Software Private Ltd., filed a letter dated 01/12/2011 confirming the remittance of Rs.5 Lacs in the personal Ram Nitesh Kotak Assessment Year 2009-10 account of the assessee towards unsecured loan to be advanced to KIPL. However, not convinced with assessee’s explanation, Ld. AO concluded that the assessee could neither produce any confirmation nor any other documentary evidences to prove the liability from the respective parties and the primary ingredients viz. identity creditworthiness and genuineness of the transactions have remained unfulfilled which called for addition thereof as unproved liabilities. The stand of revenue, upon being confirmed by Ld. CIT(A) vide impugned order dated 15/07/2016, is being contested before us by the assessee.

The Ld. Authorized Representative for Assessee [AR] drawing out attention to documents placed in the paper book submitted that the impugned additions could be made by the revenue only u/s 68 since the provisions of Section 41(1) and Section 56 were clearly not applicable on the facts of the case. It was further submitted that the assessee took over the liabilities of KIPL by way of journal entries in the books of accounts and therefore, there was no unexplained cash credit within the meaning of Section 68 and therefore, the impugned additions could not be sustained. Our attention is drawn to the assessment order of KIPL for impugned AY to submit that no such additions have been made therein against these items and therefore, the said additions in the hands of the assessee were not justified. Per Contra, Ld. Departmental Representative [DR] submitted that complete onus was on assessee to prove the transactions with documentary evidences and therefore, the failure to do so has rightly resulted into the impugned additions.

We have carefully heard the rival contentions and perused relevant material on record. Prima facie, it appears that the provisions of Section Ram Nitesh Kotak Assessment Year 2009-10 41(1) or Section 56 do not apply to the facts of the case since the impugned amounts have been shown as loans (liabilities) in the books of the assessee as placed before us. However, so far as the provisions of Section 68 are concerned, we agree with the submission of the revenue that onus to demonstrate the fulfillment of primary conditions viz. identity, creditworthiness and genuineness of the transactions completely lie on the assessee, whatever is the case. The Ld. AR has stressed the point that the assessee has taken over the liabilities of KIPL by way of journal entries and therefore, the impugned additions could not be sustained in terms of Section 68. We do not agree with the same since upon perusal of the ledger extracts of KIPL in assessee’s books, we find that the assessee is carrying numerous transactions including Cash & Bank transactions on behalf of KIPL though his personal accounts whereas the assessee and KIPL are separate legal / taxable entities in the eyes of law and the onus to substantiate the transactions carried out in their respective accounts lies on them. Moreover, it is not the case that the assessee has simply taken over the liabilities of KIPL under any contractual terms. To that extent, we do not find any strength in the submissions of Ld. AR.

Having found that the complete onus to substantiate the impugned transactions through documentary evidences rested on the assessee, we find that the assessee has miserably failed to demonstrate the same even during remand proceedings and assailing the additions merely harping on the point that the said liabilities belonged to KIPL which has been taken over by the assessee and therefore, the additions thereof in the hands of the assessee could not be made.

Resultantly, the assessee’s appeal stands allowed for statistical purposes. Order pronounced in the open court on 21st March, 2018.