BARNUNEI ROLLER FLOUR MILLS PVT. LTD.,BHUBANESWAR vs. ACIT, BHUBANESWAR

This is an appeal filed by the assessee against the order of CIT(A)-1,

Bhubaneswar, dated 27.2.2015, for the assessment year 2007-08. 2. The assessee has raised the following grounds of appeal:

“1. On the facts and circumstances of the case and in law, Commissioner of Income Tax (Appeals) erred by not considering the funds advanced and material supplied by Maa Built Mart and Chandrakant Sahoo as unsecured loan for Rs.6,26,910/- although the same were from genuine and explained sources.

Rs.2,03,090/- although the same was from genuine and explained sources.

the A.R. of the assessee requested for adjournment of the hearing, which was granted and both parties were informed about the next date of hearing

i.e. 12.4.2017. However, when the case was called for hearing, none was present on behalf of the assessee and neither any adjournment application

was filed. It is observed from the record that the appeal was adjourned at the request of ld Authorised Representative of the assessee on 20.10.2016,

adjournments were granted to the assessee, I reject the adjournment

petition and the appeal was heard exparte qua the assessee and disposed

of considering the submission of ld Departmental Representative and materials available on record.

of lower authorities and materials available on record. The undisputed facts

of the case are that the Assessing Officer found from the balance sheet that Asse ssment Year : 20 07- 08

the assessee has shown interest free unsecured loan amounting to Rs.23,67,000/- as on 31.3.2007 from 88 parties.

details of the loan creditors for Rs.23,67,000/- who have given interest free

unsecured loans to the assessee. The Assessing Officer found that most of the receipts were in cash and below Rs.19,000/- in each of the case. The assessee filed confirmations from the parties. Thereafter, the Inspector

was directed to make enquires, who reported that out of 88 parties, only

20 parties were traceable in the given address and out of same, only 6

persons confirmed the transactions. The Inspector also reported that the persons did not have capacity to lend the money. In view of above, the Assessing Officer required the assessee to produce the creditors for examination. However, the creditors were not produced before the Assessing Officer by the assessee. Therefore, the Assessing Officer

considered that the identity of the creditors, genuineness of the transactions and creditworthiness of the lenders have not been established.

Therefore, the Assessing Officer added Rs.23,67,000/- as unexplained cash

credit u/s.68 of the Act.

some additional evidence, wherein, it was claimed that out of receipt of Rs.23,67,000/-, interest free loan of Rs.8,80,000/- was in the form of DD

and materials. The Demand drafts for Rs.53,800/-, Rs.2 lakhs were paid

diretly to Havels by M/s. Maa Build Mart on behalf of the assessee. The Asse ssment Year : 20 07- 08

Demand draft of Rs.2,03,090/- was paid to CESCO directly by Sanatan

Sahoo on behalf of the assessee and demand draft for Rs.50,000/- was paid directly to Havels by Prasanna Kumar Sahoo on behalf of the assessee.

The materials worth Rs.3,73,110/- was received from Maa Build Mart. The CIT(A) accordingly called for a remand report from the Assessing Officer,

which was received by the CIT(A).

Officer and also the submission of the assessee confirmed addition of Rs.23,67,000/- by observing as under:

“I have considered the matter. In respect of interest free loan of Rs.23,67,000/-, the identity of the creditors except for Rs.8,80,000/- have not been established. The genuineness of transaction and creditworthiness of the creditors have not been established for the entire amount of Rs.23,67,000/- as pointed out by the AO in the remand report. Substantial cash deposits have been made in the account of Maa Build Mart before issue of drafts and the sundry debtor as per the balance sheet is less than the loan given to the appellant. It is also unusual and not believable that interest free loans have been given to the appellant without any valid reason which defies normal human behaviour. The provisions of section 68 of the Act requires an assessee to prove the credits appearing in his books of account, as to the nature and source of such amounts, so that if the explanation furnished is not satisfactory, the AO can treat it as the assessee's income. The assessee is required to prove three important conditions, namely, (i) the identity of the creditor, (ii) capacity of the creditor to advance the money, and (iii) the genuineness of transaction. What evidence would be sufficient to establish the said conditions what material would be relevant in a particular case, would depend on the facts each case.

As per the decision in the case of Ram Lai Agrawal v. CIT (All) (2006) 280 ITR 0547, that u/s.68 of the Income-tax Act, 1961, if any amount is found credited the books of account of the assessee, the burden lies upon the assessee to prove nature and source. While proving the same the assessee has to prove the identity the person, genuineness Asse ssment Year : 20 07- 08

of the transactions and creditworthiness of the person, who has given the money.

Held; that in the present case though the identity of the person, wh had given the money had been established the appellant had failed to prove the creditworthiness of those persons making the payment of such amount C the appellant. All the authorities found that both the persons, who wen alleged to have made the payment, had no source and capacity to make such payments. Learned counsel for the appellant was not able to make out any case to the contrary. The assessment of the amounts under section 68 was valid."

The Delhi High Court in the case of CIT v. Oasis Hospitalities Pvt Ltd, 333 IT) 119(Delhi)/(2011) 198 TAXMAN 247 (Delhi), had to consider whether the addition made by the AO u/s.68 on account of unexplained share application money was justified. After a comprehensive review of all the important cases on s. 68, the following principles were laid down:

(i) S.68 provides that if the assessee is not able to give satisfactory explanation as to the "nature and source" of a sum found credited in his books, the sum may.be treated as the "undisclosed income" of the assessee The initial burden is on the assessee to explain the "nature and source" of the credit and to do so, the assessee is required to prove (a) Identity of the shareholder; (b) Genuineness of transaction; and (c) credit worthiness of shareholders.

In the case of CIT v. N.R. Portfolio pvt. Ltd, 263 CTR 456(Delhi)/ (2013) 29 taxmann.com 291 (Delhi) the Hon'ble Delhi High Court held that despite PAN & Bank details, addition of share allotment money vaiid u/s.68 if applicants do not respond to summons. In this case both the CIT(A) and Tribunal relied on Lovely Exports 216 CTR 195 (Del) & Divine Leasing 299 ITR 268 (SC) held that as the assessee had furnished the PAN, bank details and other particulars of the share applicants, it had discharged the onus of proving the identity and credit-worthiness of the investors and that the transactions were not bogus. However the High Court, reversing the CIT(A) & Tribunal has held as under;

"Though in previous decisions (Lovely Exports) it was held that the assessee cannot be faulted if the share applicants do not respond to summons and that the Revenue authorities have the wherewithal to compel anyone to attend legal proceedings, this is merely one aspect. An assessee's duty to establish the source of the funds does not cease by merely furnishing the names, Asse ssment Year : 20 07- 08

addresses and PAN particulars, or relying on entries in the