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Income Tax Appellate Tribunal, DELHI BENCH: ‘C’: NEW DELHI
Before: SHRI I.C.SUDHIR & SHRI O.P. KANT
ORDER PER O.P. KANT, A.M.:
This appeal of the assessee is directed against order dated 23.01.2012 of the CIT(A)-XVIII, New Delhi, for assessment year 2006-07, raising following grounds of appeal :- “1. That the Ld. CIT(A) has made gross error in facts and law in sustaining the additions of share capital & unsecured loans taken during the year of incorporation of the company before commencement of the business of the company.
2. That the Ld. CIT(A) has made gross error in law in sustaining the additions of unsecured loans holding that assessee has failed to mentioned the source of the source.
3. That the Ld. CIT(A) has failed to observe that the assessee had already furnished the addresses of all share holders & unsecured loans to the assessing officer and despite repeated requests of the assessee, the assessing officer did not examine them for their creditworthiness, identity Goel & Jain Moulds Pvt. Ltd. or genuineness. The assessing officer failed to do so even after the matter was remanded to him twice by Ld. CIT(A).
4. That the Ld. CIT(A) has made gross errors in facts & law in observing that the identity of shareholders are doubtful on the basis of PAN or Voter ID Cards. As a matter of facts, both are prescribed as identity proofs by Govt. Of India. Quite intriguingly, Ld. CIT(A) has cast a shadow of doubt on authenticity of the identity proof of PAN Card issued by Income Tax Department itself.
5. That the Ld. CIT(A) has made gross errors in law in sustaining the loans which were returned through banking channels after the company ran into heavy losses and its business was discontinued.
6. That the Ld. CIT(A) & the assessing officer has dealt all loans & share capitals in a cumulative manner without discussing individual cases and made high pitched additions without justification.
7. That under the facts & circumstances of the case, the Ld. CIT(A) had made gross errors in facts & law in sustaining the additions made by the assessing officer.
8. That the Ld. CIT(A) has sustained the additions in violation of the binding precedents of superior Courts of law.
9. That under the facts & circumstances of the case, the order u/s 250 of Ld. CIT(A) and the assessment orders of the assessing officer are bad in alw and liable to be quashed.
10. That under the facts & circumstances of the case, the additions of Rs. 13,00,000/- & Rs. 58,54,200/- made by the assessing officer and confirmed by the Ld. CIT(A) on account of share capital & unsecured loans respectively are bad in law and liable to be deleted.”
2. The facts in brief are that the assessee filed return of income on 9.11.2006 declaring a loss of Rs. 1,31,959/-, however, tax was paid on the book profit Rs. 27,620/-. The case was selected for scrutiny and in the course of scrutiny the Assessing Officer observed that share capital of Rs. 13,00,000/- was introduced by the assessee company during the year. The Assessing Officer asked documents in respect of identity and creditworthiness of the share applicant/holder and genuineness of the transactions. In response, the assessee filed only name and address of the share applicants/ share holders and other documents including confirmations were not filed. The Assessing Officer observed from the ledger statement of the assessee company that the share application Goel & Jain Moulds Pvt. Ltd. money was received in cash from the share holders and the share holders were stated to be relatives of the Directors. In view of the facts, the Assessing Officer held the share capital of Rs. 13,00,000/- credited as unexplained cash credit u/s 68 of the Act. Similarly, the Assessing Officer noticed unsecured loans of Rs. 62,09,200/- received from eight parties. In respect of the two parties, the assessee submitted proof in support of identity, bank statement and their Income Tax Returns. The Assessing Officer accepted their creditworthiness and in absence of documents in respect of the other parties, he held the balance unsecured loan of Rs. 58,54,200/- as unexplained cash credit. Aggrieved, the assessee filed appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee filed copy of Voter Identity Card / Permanent Account Number( PAN) Card in case of addition of Rs. 13,00,000/- u/s 68 of the Act and submitted that in view of the judgment of the Supreme Court in the case of CIT vs. Lovely Export Pvt. Ltd., 2008, 216 CTR, 195 (SC) that the department was free to proceed to reopen their individual assessment but this amount of share application money cannot be regarded undisclosed income of the assessee company u/s 68 of the Act. The CIT(A) forwarded all the documents , which were submitted before him as additional evidence in the Rule 46A of the Income Tax Rules, to the Assessing Officer for his comments. The Assessing Officer though objected to the admission of additional evidences, however, sent remand report stating that the assessee was neither fulfilled the requirements of section 68 of the Act before the AO nor before the CIT(A) and therefore, the addition need to be sustained. The CIT(A) after providing opportunity of hearing to the assessee sustained the addition of 13,00,000/-. Similarly the CIT(A), after forwarding the additional evidence in respect of unsecured loans to the Assessing Officer and getting his report and providing opportunity to the assessee, sustained the addition of Rs.
58,54,200/- for unexplained loan as cash credit. Aggrieved, the assessee is before us. 3.1 In respect of ground No. 1 , the ld. Authorised Representative ( in short AR) submitted that the assessee company was incorporated in the concerned year only and therefore the assessee could not have earned such a huge profit shown after commencing its manufacturing activities. In support of his contention, he relied on the judgement of Hon’ble Supreme Court in the case of Commissioner of income tax versus Bharat Engineering And Construction Company (1972) 4 SCC 401. He, further submitted that even advances to the suppliers of machinery and pre- operative expenses have also been added as unexplained loans without application of mind. Whereas, the ld. Senior DR on the other hand submitted that in Bharat Engineering And Construction Company ( Supra), it was held that findings of the Tribunal that the cash credits was capital in nature and such a huge profit cannot be earned in 1st year, was a question of fact and no substantial question of law arose. He further relying on the judgment of the Hon’ble Delhi High Court in the case of Indus Valley Promoters Ltd. Vs. CIT (2008), 305 ITR 202 submitted that where there is an un-explained cash credit, it was open to the Assessing Officer to hold that it was the income of the assessee and no further burden lies on the assessing officer to show that income in question comes from any particular source. 3. 2 We have heard the rival submissions and perused the material on record. We find that the Hon’ble Supreme Court in the case of Commissioner of income tax v/s Bharat Engineering And Construction Company (supra) has held as under:
“The controversy in this appeal is whether a question of law arises from the order of the Tribunal. The Tribunal came to the conclusion that the cash credit entries totalling Rs. 2,50,000 brought to tax by Goel & Jain Moulds Pvt. Ltd. the ITO on the ground that they represented the income of the assessee-respondent from undisclosed sources was not correct. It came to the conclusion that, though the explanation given by the assessee in respect of those cash credit entries is not true, yet from the proved circumstances those cash credits could not be the income of the assessee. Aggrieved by the decision of the Tribunal, the CIT moved the Tribunal under s. 66(1) of the Indian IT Act, 1922, to refer certain questions to the High Court for its opinion. The Tribunal rejected the application on the ground that its findings are findings of fact and that no question of law arose from them. Thereafter, the assessee moved the High Court under s. 66(2). That application was rejected by the High Court. Against that decision this appeal has been brought by special leave.
The assessee-company is an engineering construction company. It commenced business in May, 1943. In their account books, there are several cash credit entries in the first year of its business. We are concerned with only five of those cash credit entries. On 1st June, 1943, there is a cash credit entry of Rs. 1,00,000. On 6th July, 1943, there is a cash credit entry of Rs. 50,000. On 30th Aug., 1943, there is a cash credit entry of Rs. 50,000. On 2nd Dec., 1943, there is a cash credit entry of Rs. 15,000 and on 15th March, 1944, there is a cash credit entry of Rs. 35,000. These cash credit entries total up to Rs. 2,50,000. The ITO called upon the assessee to explain those cash credit entries. The explanation given by the assessee was found to be false by the ITO, the AAC and the Tribunal. But, all the same, the Tribunal felt that these cash credit entries could not represent the income or profits of the assessee-company as they were all made very soon after the company commenced its activities. In our opinion, though the order of the Tribunal is not happily worded, its finding appears to be that in the very nature of things the assessee could not have earned such a huge amount as profits very soon after it commenced its activities. A construction company takes time to earn profits. It could not have earned a profit of Rs. 1,00,000 within a few days, after the commencement of its business. Hence, it is reasonable to assume that those cash credit entires are capital receipts though for one reason or other the assessee had not come out with the true story as regards the person from whom it got those amounts. It is true that in the absence of satisfactory explanation from the assessee the ITO may assume that cash credit entries in its books represent income from undisclosed sources. But what inference should be drawn from the facts proved Goel & Jain Moulds Pvt. Ltd. is a question of fact and the Tribunal's finding on that question is final.
The High Court after careful examination of the various findings reached by the Tribunal has come to the conclusion that the Tribunal's findings are findings of fact. We agree with that conclusion 3.3 We find that the Hon’ble Supreme Court has not laid down any ratio in the judgement and the appeal was dismissed affirming the High Court judgement that the findings of the Tribunal were finding of facts only. Further, in the case of Indus Valley promoters Ltd the issue of share capital under sections 68 of the IT act was involved and the jurisdictional High Court while delivering that this judgement held as under:
It is well settled that the assessee must discharge the burden of proving the identity of the creditors and also to give the source of the deposits. In other words, the creditworthiness of the depositors must be established to the satisfaction of the AO. Where there is an unexplained cash credit, it is open to the AO to hold that it is income of the assessee and no further burden lies on the AO to show that income in question comes from any particular source. ( emphasis supplied) 3.4. Thus, respectfully following the judgement of the Hon’ble jurisdictional High Court, we hold that once the assessee failed in explaining the share capital and unsecured loans received, there was no option before the Assessing Officer except making addition in the hands of the assessee until and unless, the assessee would have come forward with the name of the person to whom the unexplained cash credit belonged. Accordingly, this ground of the assessee is dismissed. 4. In ground Nos. 2 to 10, the assessee has raised issue of holding share capital of Rs. 13,00,000/- and unsecured loans of Rs. 58,54,280/- as unexplained by the Assessing Officer and confirmed by the CIT(A). In respect of the grounds, the ld. AR submitted that the assessee could not Goel & Jain Moulds Pvt. Ltd. be asked to furnish source of source. Further, he submitted that the assessee had supplied addresses of the share holders and persons who provided unsecured loans to the AO, despite that, the AO did not examine the creditworthiness, identity and genuineness of the share holders and unsecured loan providers. The Ld. AR relying on the judgments CIT vs. Orissa Corporation 1986, 159 ITR 78 submitted that the Assessing Officer was required to conduct inquiry in the particulars of the creditors furnished by the assessee. The ld. AR further submitted that the PAN Card or the voter ID is one of the valid identity proof but same was not accepted by the Ld. CIT(A) in support of the identity. The ld. AR also submitted that all the loans were received and returned through banking channel, which confirmed the genuineness of the transaction. He also reiterated the grounds of appeal
raised in the appeal. Further he relied on the judgment of Hon’ble Apex Court in in the case of CIT Vs M/s Divine Leasing & Finance Ltd in S.L.P.(C) / 2008 (CC 375/2008), wherein it is held that if the share application money is received by the assessee company from alleged bogus share holders, whose names are given to the AO, then the department is free to proceed to reopen their individual assessments in accordance with law. He, thus, submitted that the instant case names and address were made available to the Assessing Officer , hence, no addition could be sustained in the hands of the assessee. On the other hand, ld. Sr. DR relied on the orders of the lower authorities.
5. We have heard the rival submissions and perused the material on record including the paper book of the assessee containing pages 1 to 76. We find that in the grounds, the assessee has agitated with two additions. The first addition is in respect of unexplained share capital of Rs. 13,00,000/- and the second addition is in respect of unexplained unsecured loans of Rs. 58,54,200/- . The facts in respect of share capital of Rs. 13,00,000/- are that it was received in cash from the friends and Goel & Jain Moulds Pvt. Ltd. relatives of the promoters/ directors of the assessee company and before the Assessing Officer no confirmations, proof in support of the identity, genuineness of the transaction and creditworthiness of the creditor were filed. Before the CIT(A), the assessee filed proof in support of identity like copy of PAN card or voter card only and no documents in support of creditworthiness of genuineness of the transactions were filed . Even before the Ld. CIT(A), the assessee only repeated his submission that the department could conduct necessary inquiry or take action in the hands of the individual share holders rather than the assessee, Before the CIT(A), the assessee also stated that the income of the share holders was below taxable limit during the relevant period, however, no evidence in support of the source of income in their hand or the creditworthiness of those persons were filed. It is evident from the above facts that the primary onus was on the assessee to file documents in support of identity, genuineness of the transaction and creditworthiness of the shareholders, however, the assessee has filed only document in support of identity. In absence of documents, the burden of assessee has not been discharged and thus the ratio of the judgment of the Hon’ble Court in the case of CIT vs. Orissa Corporation (supra) does not apply to the facts of the assessee. Similarly the facts of the case of Divine Leasing and Finance ltd (supra) are also different as that was the case of a public limited company, where the share applicants were not related to the assessee and mostly applied through public subscription, where as in the case of the assessee all the share holders are relative and friends of the assessee and they have applied in cash. In view of above facts and circumstances, we are of the opinion that the assessee has failed to discharge its onus to establish identity of the shareholders, genuineness of the transactions and creditworthiness of the shareholders in relation to the addition of Rs. 13 lakh made by the assessing officer. Thus we hold Goel & Jain Moulds Pvt. Ltd. that there is no infirmity in the findings of the Commissioner of income tax (Appeals) on the issue in dispute.
6. The second additions is in respect of unsecured loan of Rs. 5854200/- held as unexplained, out of unsecured loans of Rs. 62,09,200/- received by the assessee during the year. The Assessing officer held that no evidence in support of genuineness of the transaction or creditworthiness of the unsecured loan creditors were filed except two persons Smt. Poonam Goel and Shri Jai Prakash Goel, therefore, credits in respect of those two persons were accepted and the credit from the balance persons of Rs. 58,54,200/- was held as unexplained in terms of section 68 of the Act. Before the ld. CIT(A), the assessee filed copy of bank statement of the unsecured loan creditors, however, no document in support of creditworthiness were filed. The relevant finding of the ld. CIT(A) on the issue of addition of unsecured loan creditors is as under : “The appellant has been unable to explain the creditworthiness of the creditors who have advanced loans to the appellant company. While giving the copy of the bank statements the appellant has not mentioned anything regarding the source from which the amounts have been advanced. The capital account of the creditors filed by the appellant are unsigned, they show huge loans from other parties whose creditworthiness is itself in doubt. The deposits are not in consonance with the income returned by the creditors. As the explanation offered by the assessee about the nature and source of the sums found credited in the books was not satisfactory there was, prima facie, evidence against the assessee, viz., the receipt of money. The burden was on the assessee to rebut the same, and, he failed to rebut it, it can therefore be held against the assessee that it was a receipt of an income nature. The appellant has failed to discharge its onus to produce legally acceptable evidence of creditworthiness of the creditor. The expression “the assessee offers no explanation” means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. In this case the appellant has offered no creditable explanation about the unsecured loans credited in his books., the receipt of Rs. Goel & Jain Moulds Pvt. Ltd. 58,54,200/-, therefore cannot be treated as explained. Considering the above facts, the addition of Rs. 58,54,200/- made by the AO u/s 68 is confirmed.”
7. Thus, we find that though the CIT(A) doubted the identity of the creditors in beginning paras of his order, but finally, he affirmed the unexplained cash credits in view of lack of creditworthiness of the creditors. In hearing before us also the ld. AR could not brought any evidence so as to establish the creditworthiness of the creditors and therefore in our opinion, the assessee has failed to discharge its primary onus of satisfying the requirements of provisions of section 68 of the Act. In view of the facts and circumstances of the case, we find that the CIT(A) has passed a well reasoned order on the issue in dispute and no interference by us is required. Accordingly, we uphold the finding of the CIT(A) in confirming the addition of Rs. 58,54,200/- towards unexplained unsecured loan and dismiss ground Nos. 2 to 10 of the appeal of the assessee.
8. Ground no. 11 of the appeal being general in nature, it is not required to adjudicate upon and therefore dismissed as infructuous. 9. In the result, appeal of the assessee is dismissed.
The decision is pronounced in the open court on 11th March, 2016.