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Income Tax Appellate Tribunal, DELHI BENCH “G”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI O.P. KANT
Date of Hearing : 21-09-2016 Date of Order : 06-10-2016
ORDER PER H.S. SIDHU : JM This Appeal filed by the Assessee is directed against the Order passed by the Ld. Commissioner of Income Tax, Karnal u/s 263 of the Income Tax Act, 1961 (hereinafter referred as the Act) relevant for the assessment year 2009-10.
The grounds raised in the Appeal read as under:-
On the facts and circumstances of the case, the order passed by the learned Commissioner of Income lax (CIT) under Section 263 of the Act is bad, both in the eye of law and on facts.
2. On the facts and circumstances of the case, the learned CIT has erred in ignoring the contention of the appellant that for invoking the powers under Section 263 both the conditions, i.e., that the assessment order being erroneous as well as prejudicial to the interest of Revenue, need to be fulfilled and in the absence of the same in the present case, the powers vested under Section 263 cannot be exercised.
3. On the facts and circumstances of the case, the order passed by the learned CIT under Section 263 of the Income tax Act without there being any finding about the order passed by the AO being erroneous as well as prejudicial to the interest of the Revenue is bad in law and liable to be quashed.
4. On the facts and circumstances of the case, the learned CIT has erred, both on facts and in law, in setting aside the order for the purpose of re- verification without giving any finding haw the order is erroneous.
5. On the facts and circumstances of the case, the learned CIT has erred, bath an facts and in law, in _ indulging in surmises and conjunction while invoking his revisionary power under Section 263 without bringing any material .or evidences about any error in the order passed by the AO.
6. On the facts and circumstances of the case, the learned CIT has erred, bath an facts and in law, in exercising his jurisdiction mainly on the allegation of inadequate enquiry ignoring the fact that power under Section 263 can be invoked only when there is lack of enquiry not an the basis of inadequate enquiry.
7. That in the alternative and without prejudice to the above, the learned CIT has erred in setting aside the entire assessment to be framed de-novo by passing a fresh assessment order.
8. On the facts and circumstances of the case, the learned CIT has erred, both on facts and in law, in setting aside the order under section 263 of the Act without there being any adverse material either at the stage of assessment or in the revisionary proceedings.
10. On the facts and circumstances of the case, the learned CIT has erred in ignoring the contention of the appellant that the proceeding under Section 263 cannot be used for substituting opinion of the AO by that of the CIT.
11. On the facts and circumstances of the case, the learned CIT has erred, both on facts and in law, in invoking revisionary power under Section 263 of the Act despite the fact that even after thorough examination, no specific findings have been given on the issue of how the order is erroneous and prejudicial to the interest of Revenue.
12. That the appellant craves leave to add, amend or alter any of the grounds of appeal.
The brief facts of the case are that assessee filed his return of income at Rs. 3,63,640/- on 25.9.2009 which was processed u/s. 143(1) of the Income Tax Act, 1961 on 21.1.2011. Later on, the case was selected for scrutiny through CASS as per CBDT’s guidelines. Accordingly, a notice u/s. 143(2) was issued on 25.8.2011. Thereafter, statutory notices were issued alongwith questionnaire from time to time. In response thereto, the proceedings were attended by the Counsel of the assessee and the case was discussed with him by the AO.
Necessary details as called for from time to time were furnished. Thereafter, the income of the assessee was assessed at Rs. 5,97,550/- thereby making various additions vide assessment order dated 29.11.2011 passed u/s. 143(3) of the Act. Thereafter, a notice dated 24.1.2013 was issued to the assessee by the AO regarding the audit objection raised, whereby the assessee was asked to explain the source of cash deposited in his bank account. In reply to the said notice, assessee submitted his reply dated 4.7.2013, wherein the assessee duly stated that the said amount was a loan received from his wife which has been duly accounted for in the books of accounts and the details regarding the same were submitted to the AO during the course of assessment proceedings.
4. However, the Ld. CIT disregarded the submissions of the assessee and issued notice u/s. 263(1) of the Act on 9.12.2013, requiring the assessee to show cause as to why the assessment may not be cancelled. In reply to the said notice, assessee submitted its reply dated 14.2.2014, wherein it was stated that the details regarding the unsecured loans received during the year were duly submitted to the AO in the original assessment proceedings u/s. 143(1) of the Act. However, the Ld. CIT ignored the explanation offered by the assessee and set aside the assessment order and directed the AO to make fresh assessment vide his order dated 24.2.2014 passed u/s. 263 of the I.T. Act, 1961.
Against the aforesaid order of the Ld. CIT passed u/s. 263 of the Act dated 24.2.2014, assessee is in appeal before the Tribunal.
6. Ld. Counsel of the assessee has stated that complete details regarding the unsecured loans were submitted by the assessee during the assessment proceedings. The details regarding the unsecured loans alongwith the source of the same were asked by the AO vide its questionnaire dated 28.10.2010. He further stated that assessee submitted before the AO that the cash deposits made were on account of loan received from the wife on the assessee, Smt. Sunita Jain. In order to prove the source of funds available with the wife of the assessee, an affidavit was filed by Smt. Sunita Jain confirming the unsecured loan given to the assessee and further giving details and documentary evidences with regard to the source of funds available with her alongwith her income tax return and computation clearly declaring capital gain. Thus, the AO during assessment proceeding has examined this issue. He further stated that the AO, after obtaining the details and other evidences, was satisfied and hence accepted the contention of the assessee. It is important to note that issue was a cash credit under section 68 talks about satisfaction of the AO. Thus AO being satisfied after the reply, the Ld. CIT cannot sit on the judgment of the AO to review the order under section 263. It is not the case of no or lack of enquiry. Inadequate enquiry cannot be a subject matter and trigger for invoking the provisions of section 263. To support his contention, Ld. Counsel of the assessee relied upon the following judgments/decisions:- i) Hon’ble Jurisdictional High Court in the case of ITO vs. DG Housing Projects Ltd. (2012) 343 ITR 329. ii) Hon’ble High Court of Delhi in the case of CIT vs. New Delhi Television Ltd. (2014) 360 ITR 44 (Delhi) iii) ITAT Delhi in the case of Tirupati Infraprojects Pvt. Ltd. vs. Principal CIT in iv) ITAT Delhi in the case of CGG Marine Resources vs. DCIT (2012) 51 SOT 141 (Delhi) 6.1 Ld. Counsel of the assessee further stated that under section 68 of the Act assessee is required to establish the source of cash credit. Assessee is not required to prove source of source. In the present case assesee has established the source. What Ld. CIT is trying to do in 263 proceedings, is to ask assessee to establish source of source, which is not required under section 68. Moreover the issue which is arising is at best against the creditors and not against the assessee. The creditors having accepted and confirmed the deposit, having filed the return of income declaring capital gain in the year under consideration and being assessed under the same ward and has been accepted, no adverse view can be taken against the assessee. He further stated that Ld. CIT in 263 proceedings cannot substitute his view upon the view of AO. Section 68 is about the satisfaction of AO. The AO being satisfied with the explanation given by the assessee, Ld. CIT cannot substitute his view. He further stated that it is a case where creditors have duly reflected the transactions in their ITRs and has confirmed the amount advanced to the assessee. No adverse inference can be drawn against the assessee on the ground that assessee has failed to prove source of source. Assessee cannot be asked to prove source of source. To support this contention, he relied upon the Hon’ble Jurisdictional High Court in the case of CIT vs. Shiv Dhooti Pearls & Investments (ITA No. 429/2003 dated 21.12.2015). Ld. Counsel of the assessee has stated that in view of the above, judgments, and keeping in mind the facts of the case, the action of the Ld. CIT in directing the AO for a fresh assessment is bad in law and thus, the order of the Ld. CIT deserves to be quashed.
On the other hand, Ld. CIT(DR) controverted the various submissions and arguments advanced by the Ld. AR of the Assessee. He has strongly relied upon the impugned Order passed u/s. 263 by the Ld. CIT and has invited our attention to the various findings recorded by the learned CIT in his impugned order. Accordingly, he stated that the order passed by the AO is erroneous as well as prejudicial to the interest of the Revenue. Accordingly, he requested that the impugned order passed u/s. 263 of the Act passed by the Ld. CIT may be upheld and appeal of the assessee may be dismissed.
We have carefully considered the rival submissions and perused the relevant records available with us, especially the impugned order passed by the Ld. CIT u/s. 263 of the Act alongwith the legal position on the relevant issues which emanates from the various decisions cited before us. 9. In this case the income of the assessee was assessed at Rs. 5,97,550/- thereby making various additions vide assessment order dated 29.11.2011 passed u/s. 143(3) of the Act. Thereafter, a notice dated 24.1.2013 was issued to the assessee by the AO regarding the audit objection raised, whereby the assessee was asked to explain the source of cash deposited in his bank account. In reply to the said notice, assessee submitted his reply dated 4.7.2013, wherein the assessee duly stated that the said amount was a loan received from his wife which has been duly accounted for in the books of accounts and the details regarding the same were submitted to the AO during the course of assessment proceedings. However, the Ld. CIT disregarded the submissions of the assessee and issued notice u/s. 263(1) of the Act on 9.12.2013, requiring the assessee to show cause as to why the assessment may not be cancelled. In reply to the said notice, assessee submitted its reply dated 14.2.2014, wherein it was stated that the details regarding the unsecured loans received during the year were duly submitted to the AO in the original assessment proceedings u/s. 143(1) of the Act. However, the Ld. CIT ignored the explanation offered by the assessee and set aside the assessment order and directed the AO to make fresh assessment vide his order dated 24.2.2014 passed u/s. 263 of the I.T. Act, 1961 by adjudicating as under:-
“2. On perusal of assessment records, it is noticed that the assesses Smtv Suntia Rani w/o Sh. Surinder Kumar Jain (ussessee) has deposited an amount of Rs.56,85,000/- as unsecured loans with the assessee on diffetent dates during the FY 2008-09. The modus operandi of giving loan to the assessee was that Smt. 10 Sunita Jain was depositing heavy cash on different dates in her bank account. The source of this amount has been explained by the assessee that Smt. Sunita Jain (wife of assessee) has received Rs.34 lacs from sale consideration of land and remaining from the amount accumulated with her out of income income/capital receipts/loan raised in the past year.
2.1 From the assessment record, it is noticed that Smt. Sunita Jain, wife of the assesses, has claimed that she has said land for consideration of Rs.34 Lacs to Smt Raj Rani W/o Sh. Surjeet Kumar during the year. In support of the claim, asessee furnished a zerox copy of affidavit claiming an agreement (Iqrarnama) which is neither registered with any authority nor notarized or attested by Oath Commissioner. The said agreement claimed has been executed on 01.12.2008 and as per that Smt. Sunita Jain received cash of Rs. 10 lacs on 27.11.2008 and Rs. 24 lacs on 1.12.2008. But Rs. 24 lacs on 1.12.2008. But perusal of the assessment records reveals that Smt. Sunita Jain instead of selling the said 11 land to Smt. Raj Rani executed GPA in her favour on 18.11.2009 i.e. after about one year of so agreement.
In other words, Smt. Sunita Jain did not sell any land to Smt. Raj Rani in real sense on 1.12.2008 and the agreement (Iqrarnama) executed on 1.12.2008 was prepared only to generate the fake cash in hand with Smt. Sunita Jain. Further perusal of copy of bank account of Smt. Sunita Jain reveals that Rs. 10 lacs has been deposited on 27.11.2008 in her account and remaining amount has been deposited as per convenience of the assessee (her husband) and there was no single entry of depositing cash of Rs. 24 lacs in her account. In this way, the AO has failed to examine the sources of cash deposit in bank account of the wife of the assessee.
3. As the assessment completed by AO was found to be erroneous and prejudicial to the interest of revenue, a notice u/s. 263 of the Act was issued to the assessee on 9.12.2013, fixing the case for 23.12.2013, requiring the assessee to show cause as to why an appropriate order u/s. 263(1) of the I.T. Act may not be passed by cancelling the assessment order passed by the AO on 23.12.2013, requiring the assessee to show cause as to why an appropriate order u/s. 263(1) of the I.T. Act may not be passed by cancelling the assessment order passed by the AO on 12 23.12.2013. Sh. Viney Goel, CA attended the proceedings and the case was adjourned to 8.1.2014 on the request of the assessee. Again, the case was fixed for 14.2.2014. On 14.2.2014, Sh. Viney Goel, CA attended and filed written reply, which has been considered. The Assessee has mainly contended that all the aspects of the case were examined by the AO before passing the assessment order and the order passed by the AO is not erroneous and prejudicial to the interest of revenue.
Thus, from the discussions above, it emerges that in this case substantial income has escaped assessment due to non-application of mind by the AO to the facts of the case, thereby rendering the assessment under consideration erroneous and prejudicial to the interest of revenue. These conditions are satisfied as the impugned assessment order has been passed, without proper investigation and without applying mind to the facts of the case as discussed earlier. Consequently, due to the said erroneous order of the AO, the revenue lost tax lawfully payable by the assessee. Non application of mind by the AO, to the facts of the instant case renders the assessment order liable to be dealt with as contemplated u/s. 263 of the Act, as held in by the Hon’ble Supreme Court in the landmark case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 13 ITR 83 (SC). The word erroneous in section 263 of the Act includes failure to make such enquiry as warranted by the facts of the case, as held in the case of Gee Vee Enterprises vs. ADDL. CIT (1975) 99 ITR 375 (Delhi).
Further, failure to make enquiries making the order without evidence or enquiry renders the order erroneous and prejudicial held in the case of Addl. CIT vs. Mukur Corporn. (1978) 111 ITR 312 (Guj) and Ram Pyari Devi Saraogi vs. CIT (1968) 67 ITR 84 (SC). In this regard, the following observations of the Andhra Pradesh High Court in CWT Vs. NT Rama Rao [2003] 261 ITR 611 made after applying the 'decisions of the Supreme Court in Malabar Industrial Company Ltd. Vs. CIT 243 TTR 83, are relevant:
What is an error? "A mistaken judgement or incorrect belief as to the or effect of matter of fact, or a false or mistaken conception or application of the law to the facts of a cause as will furnish ground for a review of the proceedings upon a writ. A mistake of law, or false or irregular application of it, such as vitiates the proceedings and warrants the reversal of the judgement. An act involving a departure from truth or accuracy; a mistake; inaccuracy, as an error of calculation" (see Black's Law Dictionary page 542,}.
'Prejudice’ according to Black's Law Dictionary is nothing but "a leaning towards one side of a cause for some reason other than a conviction of its prejudice.”
In our considered opinion, an erroneous order resulting in prejudice to the interests .of revenue need not be a motivated or malaria's cue. Decisions / order* of subordinate authorities which are erroneous mean not only when erroneous in point of Law but erroneous in any sense and m that order error results in causing prejudice to the interest of the Revenue, it is susceptible to the corrected by the Commissioner.’ The above conditions, i.e. mistaken judgements or incorrect belief as lo the cc or effect of matters of fact/mistaken conception or application of law to the given facts are met in the instant case. The AO has completed assessment without carrying out necessary enquiries end investigations to verify the creditworthiness of the creditor. Smt. Sunita Jain (wife of the assessee). This act of omission has resulted in revenue loss of at least over Rs. 25 Lacs, as discussed above. These acts of incorrect appreciation of fact and mistaken conception and application of law have clearly rendered the order of assessment passed by the AO, both erroneous and prejudicial to the interest of revenue in the light of the landmark decisions cited above.
5. I have carefully considered the submissions mode on behalf of the assesses but these are devoid of any merit. Undisputedly. no evidence was produced to prove the source of detail of cash into the bank accounts find also credit worthiness of the parties referred to above. Therefore, the onus of proving the credit worthiness of the creditors which is an essential ingredient of section 68 of the I.T. Act has not been discharged by the assessee. The assessee has no doubt filed affidavits confirming the advance of money received from the party concerned but the onus cannot be said to have been discharged unless the source of cash deposited in the bank accounts of the party concerned is proved with documentary evidence. Such a practice of accepting deposits although through cheques by making cash deposits into the bank accounts and then obtaining cheques has not been recognized by various judicial pronouncements including recent judgement of Hon'ble Punjab & Haryana High Court dated 23.11.2010 in the case of M/s Saraswiiti Tractors Corporation, Kaithal Vs. Commissioner of income Tax, Karnal in of 2014, the genuineness of source of cash deposits in the creditors account has to be established before the assessing authority and mere furnishing of confirmation letters and copy of ITR of the creditors are not sufficient to prove the credit worthiness of the creditors. So long as the definite source of advances to assessee is not disclosed during the assessment, the enquiries regarding the cash credits cannot be treated as complete.
Coming back to the facts of the case of the assesses it is apparent from assessment record that the assessment order u/s 143(3} has been passed by the AO without application of mind in respect of point raised in the preceding paragraphs. Therefore, taking into consideration all the facts and circumstances of the case, it can be inferred that the AO has failed to scrutinize the case properly and as such failure of the AO, to carry out the desired enquiries during the assessment proceedings, has rendered the assessment order erroneous and prejudicial to the interest of revenue. Accordingly, the assessment order passed in the case is set aside to be made afresh on the above issue and the AO is directed to complete the assessment in accordance with law after carrying out necessary enquiries and providing a reasonable opportunity of being heard to the assessee.”
After perusing the aforesaid order of the Ld. CIT, we are of the considered opinion that the order passed by the learned CIT u/s. 263 totally fails to meet the jurisdictional requirements of section 263 of the I.T. Act, 1961, Because the very basis for audit objection and initiation of 263 proceedings is due to non-reading the documents correctly. We note that power of attorney was executed on 18-11-2009, whereas the amount has been deposited on 27-11-2008 and 1-12-2008. For correct understanding of the fact one need to be read the agreement date as 01-12-2008 in entirety. As per the agreement executed the assessee has sold the land and has handed over the possession also. The buyer has got the request to get it registered in his name and the seller is bound to get the same registered. Thus in terms of section 2(47) of the Income Tax Act read with section 53A of the Transfer of Property Act, the property got transferred on 01-12-2008, when agreement was executed into and possession handed over to the buyer in consequent to the sale agreement. The seller (Mrs. Sunita Rani) has duly declared the capital gain arising on such transfer under the agreement dated 01-12-2008 in AY 2009-10 as is evident from her statement and accepted as such. The Audit Party and CIT has failed to appreciate the agreement and provisions of Income Tax Act and indulging into surmises and conjectures have ignored the agreement and on the basis of GPA executed later on 18-11-2009 has held that previous agreement is after thought ignoring the very fact that return by Mrs. Suntia Rani declaring the capital gain was filed on 31-03-2010 much before the AO initiated enquiry on 28-10-2010. Ld. CIT has initiated the revisionary proceedings pursuant to the audit objection raised. A perusal of the show cause notice dated 09.12.2013 issued by the AO and the copy of the audit objection notice dated 24.01.2013 clearly show that the Ld. CIT has only relied upon the objection raised in the audit. This indicates the non- application of mind of the Ld. CIT to the facts of the case before issuing the show cause notice u/s 263 of the Act. The audit objection raised cannot be a basis of revision of assessment orders. Therefore, the revision proceedings as initiated by the Ld. CIT are invalid, bad in law and liable to be quashed. To support our view, we rely upon the judgment of Hon'ble Jurisdictional High Court of Punjab and Haryana in the case of CIT v. Sohana Woollen Mills [2008] 296 ITR 238, wherein the Hon'ble High Court has held as under:
Mere audit objection and merely because a different view could be taken, are not enough to say that the order of the Assessing Officer was erroneous or prejudicial to the interest of the revenue. The jurisdiction could be exercised if the Commissioner 19 audit is satisfied that the basis for exercise of jurisdiction existed. No rigid rule could be laid down about the situation when the jurisdiction can be exercised. Whether satisfaction of the Commissioner for exercising jurisdiction is called for or not, has to be decided having regard to a given fact situation.
10.1 Further on the similar facts and circumstances of the case, the following judgment was passed by the ITAT, Chandigarh in the case Jaswinder Singh v. CIT [2013] 56 SOT 85 (Chandigarh - Trib.)
“The audit objections under no circumstances can be called as record empowering the Commissioner to exercise jurisdiction under section 263 of the Act. Further it is apparent that the Commissioner has initiated the revision proceedings only on the basis of audit objection. Such exercise of power under section 263 is not tenable in law. Accordingly, the order passed by the Commissioner under section 263 is to be set aside. [Para 23] 10.2 We further find that complete details regarding the unsecured loans were submitted by the assessee during the assessment proceedings. The details regarding the unsecured loans along with the source of the same were asked by the AO vide its questionnaire dated 28.10.2010 which was duly submitted by the assessee before the AO, that the cash deposits made were on account of loan received from the wife on the assessee, Smt. Sunita Jain. In order to prove the source of funds available with the wife of the assessee, an Affidavit was filed by Smt. Sunita Jain confirming the unsecured loan given to the assessee and further giving details and documentary evidences with regard to the source of funds available with her along with her income tax return and computation clearly declaring capital gain. Thus in our considered opinion, the AO during assessment proceeding has examined this issue. It is not a case where AO has not applied his mind. The AO, after obtaining the details and other evidences, was satisfied and hence accepted the contention of the assessee. It is important to note that issue was a cash credit under section 68 talks about satisfaction of the AO. Thus AO being satisfied after the reply, the CIT cannot sit on the judgment of AO to review the order under section 263. It is not the case of no or lack of enquiry. Inadequate enquiry cannot be a subject matter and trigger for invoking the provisions of section 263. In order to support our aforesaid view, we draw support from the Hon'ble Jurisdictional High Court in the case of ITO v. D. G. Housing Projects Ltd. [2012] 343 ITR 329, wherein the Hon'ble High Court has held as under:
This distinction must be kept in mind by the Commissioner while exercising jurisdiction under section 263 and in the absence of the finding that the order is erroneous and prejudicial to the interest of revenue, exercise of jurisdiction under section 263 is not sustainable. In most cases of alleged 'inadequate investigation', it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without Commissioner conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. Commissioner cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the Commissioner to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the Commissioner hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore, the 22 Commissioner must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the Commissioner must come to the conclusion that the order is erroneous and is unsustainable in law. It may be noticed that the material which the Commissioner can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record. Nothing bars/prohibits the Commissioner for collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous. [Para 17] 10.3 Further on the similar facts and circumstances of the case, the Hon’ble High Court of Delhi in the case of CIT v. New Delhi Television Ltd. [2014] 360 ITR 44 (Delhi) has held as under:-
In the present case, jurisdictional pre-conditions stipulated in section 263 are not satisfied. The Assessing Officer did conduct investigation and accepted the claim under section 80HHF on being satisfied that the conditions stipulated in the said section are satisfied. It is not the case of 'no investigation'. It is also not a case where per se further investigation was required. Commissioner in his order, as noticed above, has been tentative and hesitant and did not decide whether the claim under section 80HHF has been rightly allowed by the Assessing Officer. He has noted the stand of the assessee, before him and before the Assessing Officer, but refrained from forming any opinion as to whether the acceptance of the claim by the Assessing Officer was erroneous or not. Power of review under section 263 can be invoked only if the order is erroneous and for this the Commissioner must record the reason that the order was erroneous and the claim under section 80HHF was wrongly allowed. Once the said claim under section 80HHF was considered and examined by the Assessing Officer, Commissioner cannot set aside the order without recording contrary finding. This will be contrary to section 263.
The Commissioner had used the expressions 'erroneous and prejudicial to the interest of revenue' but did not cite any reason or ground for the said conclusion. Use of the words without elucidation indicates that the said observation are presumptive 24 or a suspicion and mere repetition of words but this does not satisfy the requirements under section 263. Order under section 263 must be clear and must set out logical ground and reason as to why the assessment is erroneous and prejudicial to the interest of the revenue. [Para 18] 10.4 We further note that under section 68 assessee is required to establish the source of cash credit. Assessee is not required to prove source of source. In the present case assessee has established the source. What CIT is trying to do in 263 proceedings, is to ask assessee to establish source of source, which is not required under section 68. Moreover the issue which is arising is at best against the creditors and not against the assessee. The creditors having accepted and confirmed the deposit, having filed the return of income declaring capital gain in the year under consideration and being assessed under the same ward and has been accepted, no adverse view can be taken against the assessee.
10.5 Further CIT in 263 proceedings cannot substitute his view upon the view of AO. Section 68 is about the satisfaction of AO. The AO being satisfied with the explanation given by the assessee, CIT cannot substitute his view.
10.6 It is a case where creditors have duly reflected the transactions in their ITRs and has confirmed the amount advanced to the assessee. No adverse inference can be drawn against the assessee on the ground that assessee has failed to prove source of source. Assessee can't be asked to prove source of source. Our aforesaid view is fully supported by the following Jurisdictional High Court decision in the case of CIT vs. Shiv Dhooti Pearls & Investments Ltd. (ITA No. 429/2003 dated 21.12.2015) and held as under:-
"11. Mr. Raghvendra Singh, learned standing counsel for the Revenue, relied on tne decision of the Gauhati High Court in Nemi Chand Kothari v. Commissioner of Income Tax (2003) 264 ITR 254 (Gau) and urged that it was incumbent on the Assessee to prove the creditworthiness of TL which in turn hinged upon the genuineness, identity and credit worthiness of TCL. Mr. Singh submitted that TlL having failed to establish the genuineness and creditworthiness of TCL, the burden shifted to the Assessee to do so.
12. The Court has examined the decision of the Gauhati High Court in Nemi Chand Kothari (supra). Therein the Gauhati High Court referred to Section 68 lof the Act and observed that the onus of the Assessee "to the extent of his proving the source whom which he has received the cash credit." The High Court held that the AO had ample 'freedom' to make inquiry "not only into the source(s) of the creditor, but also of his (creditor's) sub-creditors and prove, as a result, of such inquiry, that the money received by the Assessee, in the form of loan from the creditor, though routed through the sub- creditors, actually belongs to, or was of, the assessee ,himself." Thereafter, the High Court, on a harmonious construction of Section 106 of the Evidence Act and Section 68 of the Act, held as under:
What, thus, transpires from the above discussion is that while Section 106 of the Evidence Act limits the onus of the Assessee to the extent of his proving the source from which he has received the cash credit, Section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the sources of the creditor, but also of his (creditor's) sub- creditors and prove, as a result, of such inquiry, that the money received by the 27 Assessee, in the form of loan from the creditor, though routed through the sub- creditors, actually belongs to, or was of, the Assessee himself. In other words, while Section 68 gives the liberty to the Assessing Officer to enquire into the source/sources from where the creditor has received the money, Section 106 makes the Assessee liable to disclose only the source(s) from where he has himself received the credit and it is not the burden of the Assessee to show the source(s) of his creditor nor is it the burden of the Assessee to prove the creditworthiness of the source(s) of the sub-creditors. If Section 106 and Section 68 are to stand together, which they must, then! the interpretation of Section 68 has to be in such a way that it does not make Section 106 redundant. Hence, the harmonious construction of Section 106 of the Evidence Act and Section 68 of the income Tax Act will be that though apart from establishing the identity of the creditor, the Assessee must establish the gem- fineness of the transaction as well as the creditworthiness of his creditor, the burden of the Assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the Assessee and the creditor. What follows, as a corollary, is that it is not the burden of the Assessee to prove the genuineness of the transactions between his creditor and sub- creditors nor is it the burden of the Assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been, eventually, received by the Assessee. It, therefore, further logically follows that the creditor's creditworthiness has to be judged vis-a-vis the transactions, which have taken place between the Assessee and the creditor, and it is not the business of the Assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub-creditors, for, these aspects may not be within the special knowledge of the Assessee.
The above observations, far from supporting the case of the Revenue, does the opposite. In the subsequent decision of this Court in Mod. Creations Pvt. Ltd. v. Income Tax Officer (2013) 354-ITR 282 (Del), the position was clarified by the Court and it was held:
It will have to be kept in mind that Section 68 of the I. T. Act only sets up a presumption against the Assessee whenever unexplained credits are found in the books of accounts of the Assessee. It cannot but be gainsaid that the presumption is rebuttable. In refuting the presumption raised, the initial burden is on the Assessee. This burden, which is placed on the Assessee, shifts as soon as the Assessee establishes the authenticity of transactions as executed between the Assessee and its creditors. It is no part of the Assessee's burden to prove either the genuineness of the transactions executed between the creditors and the sub-creditors nor is it the burden of the Assessee to prove the credit worthiness of the sub-creditors.
In Modi Creations Pvt. Ltd. (supra) this Court negatived the case of the Revenue that the onus was on the Assessee to prove the source of the sub-creditor. It was observed as under:
"14. With this material on record in our view as far as the Assessee was concerned, it had discharged initial onus placed on it. In the event the revenue still had a doubt with regard to the genuineness of the transactions in issue, or as regards the credit worthiness of the creditors, it would have had to discharge the onus which had shifted on to it. A bald assertion by the A. O. that the credits were a circular route adopted by the Assessee to plough back its own undisclosed income into its accounts, can be of no avail. The revenue was required to prove this allegation. An allegation by itself which is based on assumption will not pass muster in law. The revenue would be required to bridge the gap between the suspicions and proof in order to bring home this allegation. The ITAT, in our view, without adverting to the aforementioned principle laid stress on the fact that despite opportunities, the Assessee and/or the creditors had not proved the genuineness of the transaction. Based on this the ITAT construed the intentions of the Assessee as being mala fide. In our view the ITAT ought to have analyzed the material rather than be burdened by the fact that some of the creditors had chosen not to make a personal appearance before the A.O. If the A.O. had any doubt about the material placed on record, which was largely bank statements of the creditors and their income tax returns, it could gather the necessary information from the sources to which the said information was attributable to. No such exercise had been conducted by the A. O. In any event what both the A.O. and the ITAT lost track of was that it was dealing with the assessment of the company, i.e., the recipient of the loan and not that of its directors and shareholders or that of the sub-creditors. If it had any doubts with regard to their credit worthiness, the revenue could always bring it to tax in the hands of the creditors and/or sub- creditors. [See CIT vs. Divine Leasing & Finance Ltd. (2008) 299 ITR 268 (Delhi) and CIT v. Lovely Exports (P) Ltd. (2008) 216 CTR 195
In view of the legal position explained in the above decisions, the Court holds that as far as the present case is concerned, the Assessee has indeed discharged its onus of proving the creditworthiness and genuineness of the lender (TlL). There was no requirement in law for the Assessee to prove the genuineness and credit worthiness of the sub-creditor, which is in this case was TCL. 33
Consequently, the question (i) framed
by the Court is answered in the affirmative, and questions (ii) and (iii) in the negative i.e., in favour of the Assessee and against the Revenue.”
In the background of the aforesaid discussions and respectfully following the precedents, as referred above, we hold that the impugned order passed by the learned CIT u/s.263 of the I.T. Act is without jurisdiction and not sustainable in the eyes of law. Accordingly, the impugned order is hereby quashed.
In the result, the Appeal filed by the Assessee stands allowed.
Order pronounced in the Open Court on 06/10/2016.