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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI PAWAN SINGH, JM &DR. A.L.SAINI, AM
सुनवाईकीतारीख/ Date of Hearing : 16/12/2022 घोषणाकीतारीख/Date of Pronouncement : 30/01/2023 आदेश / O R D E R PER DR. A. L. SAINI, ACCOUNTANT MEMBER: Captioned appeal filed by the Revenue, pertaining to assessment year 2017-18, is directed against the order passed by the Learned National Faceless Appeal Centre (‘NFAC’ for short”/Ld. CIT(A) dated 20.12.2021, which in turn arises out of an assessment order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as the “Act”] dated 24.12.2019.
Grounds of appeal raised by the Revenue are as follows:
“1. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition made by the assessing officer of Rs.1,48,25,000/- on account of unexplained credit entries in capital account u/s 68 of the I.T. Act.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate the fact that the assessee failed to establish the genuineness of transaction and creditworthiness of the lender parties from whom partners of the firm have received unsecured loan. On perusal of ITR, confirmation and bank account of lenders it is evident that they had no creditworthiness and no balance for providing the unsecured loan. The cash had been found deposited in bank account of these parties immediately before providing the unsecured loan. The A.Y. 17-18 M/s Galaxi Filaments source of the cash deposits was not explained by the assessee, its partners or by the lenders and remained unexplained.
3. On the facts and circumstances of the case and in law, the Ld. CIT(A), Surat ought to have upheld the order of the Assessing Officer. It is therefore, prayed that the order of the Ld. CIT(A) maybe set aside and that of the Assessing Officer’s order may be restored.”
Succinct facts are that during the assessment proceedings the assessing officer noted that two partners of the assessee firm namely Sh. Jignesh J. Vaghani and Nilesh A. Patel, had introduced Rs.2,74,86,097/- and Rs.1,83,78,648/- respectively as capital in the firm. During the scrutiny proceedings, the assessee explained the assessing officer stating that source of capital introduced by the partners were unsecured loans from friends and relatives, capital withdrawn from partnership firm and sale proceeds of agricultural produce. However, this claim of the assessee was not accepted by the assessing officer by doubting the creditworthiness of persons who gave unsecured loans to the partners. The assessing officer mentioned that both these person brought their unaccounted money through depositing cash in bank account of various parties and then the same in their bank account and in the end introduced money as capital in the firm. Accordingly, the assessing officer treated the capital introduced to the extents of Rs.53,50,000/- and Rs.94,75,000/- by Sh. Nirav V. Patel and Sh. Jigneshbhai J. Vaghani respectively as unexplained cash credit u/s 68 of the Act. Therefore, a total addition of Rs.1,48,25,000/- (Rs.53,50,000 + Rs.94,75,000) was made by the assessing officer.
Aggrieved by the order of Assessing Officer, the assessee carried the mater in appeal before the Ld. CIT(A) who has deleted the addition made by the Assessing.
5.Aggrieved by the order of Ld. CIT(A), the Revenue is in appeal before us.
Learned Sr.DR for the Revenue, argued that during the assessment proceedings, the assessee was asked to explain the source of introduction of capital of the partners in firm and was also requested to establish the identity, genuineness and A.Y. 17-18 M/s Galaxi Filaments creditworthiness of the lenders who have advanced the loan to these two partners. However, assessee has filed a detailed explanation regarding the source of loan as well as introduction of capital before the assessing officer, which is not sufficient, thus assessee has failed to prove identity, creditworthiness and genuineness of the transactions, therefore findings of the assessing officer may be upheld.
On the other hand, Shri Rasesh Shah, Learned Counsel for the assessee begins by pointing out that assessee has proved the source and there is no burden on the assessee to prove source of the source. Therefore, assessee has satisfied the three limbs prescribed in section 68 of the Act, i.e Identity, creditworthiness of the payee and genuineness of the transaction, as the assessee had submitted details of their lenders along with necessary information such as PAN, copies of Balance sheet, confirmation account and return of income. However, after verification of these details, the assessing officer was partly satisfied with the explanation of the assessee. However, the assessing officer was not satisfied with regard to the details filed for the amount of Rs. 94,75,000/- in the hands of Jignesh Vaghani and Rs. 53,50,000/- in the hands of Nilesh Patel. The ld Counsel has submitted that assessee has filed necessary details of capital introduced by the partners in the firm and their respective source of investment. The ld Counsel by discussing the relevant provisions of section 68 and various case-laws, contended that assessee had duly discharged its duty by establishing identity, creditworthiness of the lenders and genuineness of the transactions and assessee cannot be asked to prove the source of the source. This way, ld Counsel defended the order passed by ld CIT(A).
We have heard both the parties and perused the materials available on record. We note that out of the total capital introduced of Rs.2,74,86,097/- and Rs.1,83,78,648/- by Sh. Jignesh J. Vaghani and Sh. Nilesh A Patel respectively, the assessing officer doubted the source of Rs.94,75,000/- and Rs.53,50,000/-. It means that the assessing officer was satisfied with the capital introduced to the tune of Rs.1,80,11,097/- and Rs.1,30,28,648/- by Sh. Jignesh J. Vaghani and Sh.
A.Y. 17-18 M/s Galaxi Filaments Nilesh A Patel respectively. From the chart / tables given in the assessment order at page nos. 10 to 13, it is clear that the assessing officer only doubted the unsecured loans taken from some parties by the two partners. That is, the assessing officer treated the capital introduced to the extents of Rs.53,50,000/- and Rs.94,75,000/- by Sh. Nirav V. Patel and Sh. Jigneshbhai J. Vaghani respectively as unexplained cash credit u/s 68 of the Act. The ld CIT(A) observed that Shri Nirav Patel had taken an unsecured loan of Rs.86,00,000/- from friends and relatives and prove the genuineness of these transactions, he submitted that bank details showing that these transactions took place through proper banking channel,(i) i.e., account payee cheques, RTGS & NEFT only and various other details like, Confirmation ledger account of the lenders, (ii). Contra - Confirmation ledger account of the lenders, (iii). Income tax return of the lenders, i.e. Bank Statement of the lenders were furnished before the assessing officer. Similarly, Shri Jigneshbhai J. Vaghani contributed capital of Rs.2,53,85,000/-; out of various sources like unsecured loan taken from friends and relatives, invested capital withdrawn from partnership firm, past savings and earlier income. Shri Jigneshbhai J. Vaghani had taken loan of Rs.1,52,25,000/- from friends and relatives and prove the genuineness of these transactions, he submitted that bank details showing that these transactions took place through proper banking channel, i.e., account payee cheques, RTGS and NEFT only and various other details like. (i) Confirmation ledger account of the lenders, (ii). Contra - Confirmation ledger account of the lenders, (iii). Income tax return of the lenders, i.e., Bank Statement of the lenders were furnished before the assessing officer.
The three essential ingredients which the assessee must establish to the satisfaction of the assessing officer in respect of any sum found credited in its books of accounts are as follows: 1) proof of identity of creditor, 2) capacity and creditworthiness of creditor to advance the money and 3) genuineness of the transaction. Page | 4
A.Y. 17-18 M/s Galaxi Filaments This information must be proved prima facie by the assessee and only when the assessee adduces evidence to establish the aforesaid, the onus shifts to the revenue to prove that what assessee has furnished is not correct. Now, coming to the facts of the instant case, let us examine whether the above three essential ingredients for treating a cash credit as genuine are established in the case of the assessee.
(i)Identity of the creditors:- The assessee has not only furnished the names, full addresses, PANs and confirmations of two partners who introduced their capital in the firm but also names, full addresses, PANs and confirmations of all the persons from whom them obtained unsecured loans. Thus, the identity of the creditors has been established. (ii)Capacity of the creditors to advance the money: The assessee has furnished the copies of Income Tax Return (ITR) returns filed by the partners as well as their lenders for the past years. The assessee has also filed computations of income and balance-sheets of these partners/ creditors, thus their capacity to introduce capital and advance loans to the partners has been established with sufficient documentary evidences.
(iii).Genuineness of Transactions:- The assessee has filed copies of bank accounts of these partners as well as their loan creditors wherein the loan amounts advanced during the year are reflected, all loans have been advanced through banking channel. Thus, the genuineness of transaction has been established beyond doubt.
Thus, ld CIT(A) observed that it is an established proposition of law that onus is never static but goes on shifting as and when the two contesting parties lay down evidence in support of their stand. The law in section 68 puts burden of proof, which is fixed on the assessee, to prove nature and source of credit appearing in its books. The Courts have explained the nature and source as identity of the creditor, his creditworthiness land genuineness of the transaction. If assessee is able to discharge the initial onus by submitting evidence to prove the Page | 5
A.Y. 17-18 M/s Galaxi Filaments identity of the creditor, and his creditworthiness and genuineness of the transaction then onus will shift to the assessing officer to put material on record to the effect that in spite of identity of the creditor and its creditworthiness being proved the transaction is still not genuine. If the assessing officer does so, then the onus will again shift back on the assessee to prove the genuineness of the transaction by rebutting the material brought on record by the assessing officer. If assessee fails to do so, then the burden placed by section 68 cannot be said to be discharged by the assessee and it could not be held that the assessee had explained the credits satisfactorily. Under these circumstances, the assessing officer can make addition of the amount credited under section 68. However, neither the nature and extent of material required to be brought on record by a party,| nor the circumstances under which it should be brought are fixed, they will vary according to the issue involved, the nature of the evidence required to be produced, the time period elapsed since the event generating evidence took place, and the position and competence of the parties required to produce the evidence. Looking to this aspect of vulnerability of discharge of onus the law has given enough discretion to the assessing officer by putting the word "May" and not "shall" before he draws any adverse inference against the assessee. Merely because an assessee is not able to discharge the onus shifted back on him should not make the assessing officer to jump to the conclusion that addition is required to be made. He has to give weightage to the underlying circumstances under which the assessee is not able to discharge the onus. Hon'ble Supreme Court in CIT v. Smt. P.K. Noorjahan [1999] 103 Taxman 382 held that word "shall" was substituted by the word 'may' on the recommendation of the Select Committee. "This clearly indicates that the intention of the Parliament in enacting section 69 was to confer a discretion on the ITO in the matter of treating the source of investment which has not been satisfactorily explained by the assessee as the income of the assessee and the ITO is not obliged to treat such source of investment as income in every case where the explanation offered by the assessee is found to be not satisfactory".
A.Y. 17-18 M/s Galaxi Filaments Same principle applies to section 68. For taxing loan creditors u/s 68, the assessee is required to prove: (a) Identity of creditor (b) Genuineness of transaction; and (c) Creditworthiness of creditor. Once an assessee has submitted the documents such as (i) PAN, (ii) income-tax returns of creditors, (iii) the details of bank accounts through and to which the loan amount has passed, (vi) confirmations of creditors etc., then initial onus lying on the assessee-company would stand discharged. It is so held in several judgments such as CIT v. Dwarkadhish Investment (P.) Ltd. [2010] 194 Taxman 43 (Delhi), CIT v. Sophia Finance Ltd. [1994] 205 ITR 98 /[1993] 70 Taxman 69 (Delhi), CIT v. Kundari Investment Ltd. [2003] 263 ITR 626/130 Taxman 689 (Cal.) and CIT v. Rathi Finiease Ltd. [2008] 215 CTR 429 (M.P.). The Creditworthiness or financial strength of the creditor can be proved by producing the bank statement of the creditor showing that it had sufficient balance in its accounts to enable it to advance money to the assessee. The Genuineness of the transaction is to be demonstrated by showing that the assessee had, in fact, received money from the said creditor and it came from the coffers of that very creditor. The Division Bench of Delhi High Court in the case of CIT vs. Kamdhenu Steels and Alloys Ltd. 361 ITR 220 (Del.) held that when the money is received by cheque and is transmitted through banking or other indisputable channels, genuineness of transaction would be proved. Once these documents are produced, the onus cast on the assessee can be said to have been satisfactorily discharged. Thereafter, it is for the assessing officer to scrutinize the same and in case he nurtures any doubt about the veracity of these documents, to probe the matter further. However, to discredit the documents produced by the assessee on the aforesaid aspects, there has to be some cogent reasons and materials for the assessing officer and he cannot go into the realm of suspicion. The assessing officer cannot burden the assessee with tax liability merely on the ground that summons issued to the creditors were returned back with the endorsement not traceable.
Thus, ld CIT(A) noted that in the assessee`s case, once the assessee had produced all documents establishing the identity and capacity of creditors of creditors and genuineness of transactions, the initial onus cast upon the assessee Page | 7
A.Y. 17-18 M/s Galaxi Filaments was discharged and the onus shifted to the assessing officer to bring material on record to the effect that in spite of identity and creditworthiness of the creditor being proved, the transaction was still not genuine. However, the assessing officer has not made any further inquiries and has not brought only material on record to controvert the documentary evidence submitted by the assessee.
Therefore, considering the legal and factual matrix of the case, as stated above, the ld CIT(A) noted that Assessing Officer was not justified in treating of Rs.1,48,25,000/- as unexplained cash credit. The assessee has satisfactory explained the source of the introduction of capital of Rs.1,48,25,000/-. Hence, the addition made by the assessing officer was deleted by ld CIT(A). That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.
In the result, the appeal of the Revenue is dismissed. Order is pronounced on 30/01/2023 by placing the result on the Notice Board.