M/S. KAMAL INDUSTRY HUF,REWARI vs. DCIT, NEW DELHI

This appeal by the assessee is directed against the order dated 08/03/2013 of Ld. Commissioner of Income Tax (Appeals)(Central), Gurgaon, raising sole ground of appeal, which is as under:

“That on the facts as well as in law the learned CIT(Appeals) Central, Gurgaon, was not justified in confirming the addition of Rs.2,19,59,977/- under section 68 of the Income Tax Act, 1961.”

Sl. No. Name of the creditors Amount 1. Yamuna Traders 15,05,000/- 2. Ganpati Traders 19,80,000/- 3. Shiwalik Enterprises 18,46,64,977/- Total Rs.2,19,59,977/-

“6.2 The addition of Rs. 2,19,59,977/- has been made u/s 68 which lays down three basic ingredients* to be met by the assessee viz. the proving of the identity, the genuineness of the transaction and credit-worthiness of the creditors. Now going by the contention of the assessee that an ITI had been deputed to make necessary inquiry, to my mind merely points the existence of the concerned party. In other words identity of the concerned party can be said to be proved, even though no details of PAN; copy of return income/ balance-sheet etc were provided. The - other ingredients, whether fulfilled or not, requires to be seen from the facts as emerging from the records. The Inspector of Income

Tax had obtained bank statements and other documents. The AO noted that from the bank statements it was apparent that withdrawals were made in cash consequent to the deposit of the cheques. In addition the rationale of the creditor operating bank accounts in Rewari while residing 500 km away was neither tenable nor practical. Furthermore why account payee cheques were not drawn to safe guard misuse as feared by the parties concerned defied logic too. But 1 find the assessee has not tried to repudiate the observations which formed the basis of the impugned addition by filing documentary evidences. The explanation put forth during appellate proceedings does not in any way give any confidence. It is for the assessee to furnish convincing reasons with material substantiation to controvert the findings of the AO. Thus I am afraid the credit worthiness as well as the genuineness of the transactions remains unsubstantiated. By merely showing transactions through banking channels and entries in the books of accounts cannot be said to be sufficient proof on the part of the assessee. The assigning of blank signed cheques with the assessee by the creditor cannot be considered a normal business practice. In fact, no prudent business man would resort to assigning not only one but many loose signed blank cheques with any other person. Needless to say the three ingredients of Sec.68 are to complement: each other, which is not so in the case at hand Thus the assessee has hailed to discharge the initial onus cast upon him as required under the provisions Sec.68. The cases relied upon do riot help the assessee either as the facts are different and the AO was right in raising a presumption as the explanations put forth by the assessee was not satisfactory. Therefore, considering the facts of the case, the addition made by the AO is confirmed.”

“7. We have heard the rival submissions of the parties and perused the material on record. We would like to first deal the fourth proposition of the learned AR. The learned AR states that the assessee has already discharged its Burdon of proof regarding identity of the creditor, genuineness of the transaction and creditworthiness of the creditor, however, the learned CIT(DR) has disputed this statement of the AR. We find from the order of the ld. CIT(A) that as regards to the identify, even permanent account number (PAN) or was balance sheet etc. of the assessee were not provided. As regards to genuiness of the transaction, , the same was in doubt from the observation of the AO that cash used to be withdrawn after deposit of cheque by the assessee. We find that no documents have been submitted by the assessee in support of the creditworthiness of the creditor. Thus according to us the assessee has failed to discharge its Burdon of proof for requirement of section 68 of the Act regarding the creditor. In view of the facts and circumstances, we are of the opinion that in the interest of justice, the assessee should be provided one more opportunity to discharge its burden of proof in respect of the creditor. Accordingly, we restore the matter to the file of the Assessing Officer for deciding the issue afresh in accordance to law. Needless to mention that the assessee shall be provided sufficient opportunity of being heard. As regards to the third proposition of the Id AR that the provision of section 68 of the Act are not applicable over the purchases, in view of the judgment of the CIT Vs Panchamdas Jain (supra), is concerned , we find that the fact in the case of CIT Vs Panchamdas Jain (supra) purchases were not held bogus by the AO and thus the Hon’ble Court held that in absence of holding the purchases as bogus , the was not correct in holding the purchases on credit as unexplained u/s 68 of the Act. But, whether purchases have been doubted in the case of the assessee or not is not clear from the facts before us and, thus we hold that as we have already restored the matter to the file of the Assessing Officer, the AO is directed to examine whether the purchases in the case have been found bogus or not and thereafter, he is directed to take action in view of the judgment of the CIT Vs Panchamdas Jain (supra) accordingly. As regards , the second proposition of the Id AR that part of the purchases from the creditor are only held as unexplained, we hold that the issue of examination whether the purchases in dispute are explained or not has been restored to the file of the AO for determination afresh, the proposition is thus rendered infructuous and not require our adjudication. As regards to the first proposition that the purchases in dispute pertained to earlier assessment year is concerned, we find that the issue has already been restored to the file of the Assessing officer for examination afresh, we direct the Assessing Officer to examine the issue as in which year the purchases in question were credited.……………………………”