NEW LEAF HOME P.LTD,FARIDABAD vs. ITO, WARD-18(2), NEW DELHI

Assessee by: Shri Salil Aggarwal, Sr. Advocate Shri Shailesh Gupta, Advocate, Shri Madhur Aggarwal, Advocate Department by: Ms. Anita Meena, Sr.DR Date of Hearing: 04.09.2023 Date of 21.11.2023 pronouncement: O R D E R PER ASTHA CHANDRA, JM

The appeal filed by the assessee is directed against the order dated 01.02.2018 of the Ld. Commissioner of Income Tax (Appeals)-28, New Delhi (“CIT(A)”) pertaining to Assessment year (“AY”) 2014-15.

“1. That the learned Commissioner of Income Tax (Appeals) has grossly erred both in law and, on facts in sustaining an addition of a sum of Rs. 90, 26, 067/- on account of alleged unexplained money received from investors/ customers/ creditors under section 68 of the Act and the said addition was sustained on mere assumptions, suppositions, conjectures, surmises and without bringing on record any material on record to establish that the money received as advance by assessee appellant was unexplained. 1.1 That in doing so, the learned Commissioner of Income Tax (Appeals) has failed to appreciate the fact that the assessee appellant had duly furnished the addresses and confirmations of the respective prospective customers, which were arbitrarily disregarded by learned AO without conducting any enquiry or investigation, what so ever, and as such, the addition so made and sustained should have been deleted. 1.2 That the learned Commissioner of Income Tax (Appeals) while sustaining the instant addition, has proceeded to record findings against assessee appellant, on irrelevant and extraneous considerations and by disregarding the material evidence furnished by the appellant, therefore, the addition so sustained is wholly untenable either on facts or in law. 1.2 That the adverse findings recorded by the learned Commissioner of Income Tax (Appeals) are perverse and have been recorded with preconceived notions and without considering the submissions/evidences/material produced on record and hence such findings are vitiated and deserves to be deleted. 1.3 That the learned Commissioner of Income Tax (Appeals) has further erred in sustaining the addition without providing to the appellant, a fair, proper and meaningful opportunity of being heard, violating the principles of natural justice and thus such an order is vitiated both on facts and in law.

2. That the learned Commissioner of Income Tax (Appeals) has grossly erred both in law and, on facts in sustaining an addition of a sum of Rs. 16, 29,,743/- on account of alleged difference in cash withdrawal from Kotak Mahindra Bank and cash in hand as per books of accounts under section 68 of the Act and the said addition was sustained in disregard to the reconciliation/ submission filed by the assessee appellant, wherein, the assessee appellant had duly explained that there was no difference as regards to the cash withdrawals from bank accounts and cash in hand as per the books of accounts. 2.1 That the learned Commissioner of Income Tax (Appeals) while sustaining the instant addition, has proceeded to record findings against assessee - appellant, on irrelevant and extraneous considerations and by disregarding the material evidence furnished by the appellant, therefore, the addition so sustained is wholly untenable either on facts or in law.

2.2 That the adverse findings recorded by the learned Commissioner of Income Tax (Appeals) are perverse and have been recorded with preconceived notions and without considering the submissions/evidences/material produced on record and hence such findings are vitiated and deserves to be deleted. 2.3 That the learned Commissioner of Income Tax (Appeals) has further erred in sustaining the addition without providing to the appellant, a fair, proper and meaningful opportunity of being heard, violating the principles of natural justice and thus such an order is vitiated both on facts and in law. 3 That the learned Commissioner of Income Tax (Appeals) has grossly erred both in law and, on facts in sustaining a disallowance of a sum of Rs. 4, 93, 176/- on account of travelling expenses paid to M/s Yadav Taxi Services. 3.1 That the learned Commissioner of Income Tax (Appeals) while sustaining the instant addition, has proceeded to record findings against assessee appellant, on irrelevant and extraneous considerations and by disregarding the material evidence furnished by the appellant, therefore, the addition so sustained is wholly untenable either on facts or in law. 4 That the learned Commissioner of Income Tax (Appeals) has grossly erred both in law and, on facts in sustaining a disallowance of a sum of Rs. 5, 100/- and 14, 400/- on account of membership fees and preliminary expenses. That the learned Commissioner of Income Tax (Appeals) while sustaining the instant addition, has proceeded to record findings against assessee appellant, on irrelevant and extraneous considerations and by disregarding the material evidence furnished by the appellant, therefore, the addition so sustained is wholly untenable either on facts or in law.”

“3.2 I have considered the facts of the issue basis of addition made by AO and submission of appellant. As discussed by AO in the assessment order, he requested several times to furnish the relevant details to establish the Identity, creditworthiness of loan creditors and genuineness of transactions and also to produce the creditors along with their books of account to examine the nature and source of funds received by it. But, neither the relevant details, except the copies of ledger accounts and PAN Cards, were filed nor the creditors could be produced by appellant during the assessment proceedings. Similarly, the creditworthiness of these creditors also could not be proved as, no details were filed by appellant in this regard during the assessment proceedings. The genuineness of transactions also could not be proved by appellant as bank statements were not produced before AO despite of several requests made by him to examine the flow of the funds in the accounts of the creditors. It has to mentioned here that the assessed company is a private limited company and in the case of such companies which are mostly family controlled closely held companies and they raise their funds from their family members, relatives and friends and in these companies since funds are received from the close knit circles who are mostly known to the companies/promoters, the onus as cast upon u/s 68 of. the Act is very heavy to prove the capacity of the share holders or lenders and genuineness of the transactions. Since such companies are closely held companies, unlike of public limited companies, and share capital or funds in the form of loans are mostly raised from family, close relatives and friends, the assessee is expected to know the loans providers and the burden is very heavy on the assessee to satisfy cumulatively the ingredients of section 68 of the Act as to identify and establish the creditworthiness and genuineness of the transactions to the satisfaction of the AO, otherwise he shall be free to proceed against the assessee company and make addition u/s 68 of the Act as unexplained cash credit. In the case of appellant also, being a private limited company, heavy onus is on it to establish the identity, creditworthiness and genuineness of transactions in the cases of its creditors. 3.3 This onus has now been made heavier by the Legislation from A.Υ. 2013- 14, as to check this pernicious practice of conversion of unaccounted money through masquerade of Investment in the share capital of companies, the provisions of section 68 have been further strengthened by inserting the Proviso w.e.f 01.04.2013, applicable from A.Y. 2013-14, of casting a higher onus on such companies requiring them to prove the source of money in the hands of such share holders or persons making payments towards issue of shares before such sum is accepted as genuine credit and if the company falls to discharge the additional onus, the sum shall be treated as income of the company and added to its income. 3.4 Now it has to be seen as to what extent, appellant has been able to satisfy all three conditions, I.e., identity of creditor, creditworthiness and genuineness of transactions in its case. So far as the word identity is concerned, Hon'ble jurisdictional High Court in the case N.R. Portfolio Pvt. Ltd., (2014] 2 ITR-OL 68, has defined that 'the identification of the person would include the place of work, the staff, the fact that it was actually carrying on business and recognition of the said company in the eyes of public. Merely producing PAN or assessment particulars did not establish the Identity of the person. The actual and the true identity of the person or a company was the business undertaken by them. In the case of appellant, It has failed to establish the identity of creditor companies. Despite of asking by AO to produce the creditors, it falled to produce them. The aforesald view is supported in the other decisions also of Hon'ble Jurisdictional High Court. Hon'ble jurisdictional High Court in the case CIT vs. Youth Construction Pvt. Ltd., 357 ITR 197 and CIT vs. Nipun Bullders and Developers Pvt. Ltd., 350 ITR 407, has held that onus is on assessee to prove the identity of share applicants, failing which it has to be concluded that the assessee company has Introduced its own money through non-existing companies using the banking channels in the shape of share application money. In view of above, It is clear that the appellant has failed to establish the identity of creditors in its case. The other evidence given by appellant to establish the identity have no relevance here as the physical presence of the creditor companies is not proved. Thus, the first condition as stipulated in section 68 of the Act is not satisfied. 3.5 As regards the other conditions, i.e., creditworthiness and genuineness, Hon'ble jurisdictional High Court in the case N.R. Portfolio Pvt. Ltd. (supra) has held that The bank accounts do not reflect the creditworthiness or even genuineness of the transaction. The beneficiaries, including the respondent- assessee, did not give any share dividend or interest to the sald entry operators/subscribers. The profit motive is normal In case of investment, was entirely absent. In the present case, no profit or dividend was declared on the shares. Any person, who would invest money or give loan would certainly seek return or income as consideration. These facts are not adverted to and as noticed below are true and correct. They are undoubtedly relevant and 5 material facts for ascertaining the creditworthiness and the genuineness of the transactions. It is further held by Hon'ble Court that 'mere production of incorporation details, PANs or the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, are deeper and obtrusive. Companies no doubt are artificial or juristic person but they are soulless and are dependent upon the Individuals behind them to run them and manage them. It is the persons behind the company who take the decision, control and manage them. In the case of appellant company, though the soulless Juristic entities are existent on paper but the appellant failed to produce them to establish their physical existence. Since the creditors are non- existing, their creditworthiness is also not established. Moreover, as discussed by AO, the creditors have no source of funds with them for the purpose of Introducing the same to the appellant company to prove their creditworthiness. Similarly, the genuineness of transactions in the case of appellant has also not been proved for the reason that the appellant failed to give the complete details of transactions with the creditors. Thus, the onus cast upon by the provisions of the 68 of the Act has not been discharged by appellant to treat the cash credits as genuine. 3.6 Thus, the appellant company failed to discharge the initial burden of establishment the identity, creditworthiness and genuineness of transaction in the case of its applicants/creditors, leave alone the source of funds of those creditor companies. In view of above discussion, it can be seen that none of the conditions as per section 68 of the Act are satisfied in the case of appellant company, therefore, the addition on account of unexplained share application money was liable to be made in the hands of the appellant company. 3.7 In such situation, the appellant has failed to discharge the onus cast upon it by the substantive provisions of section 68 of the Act or its proviso. Thus the appellant has failed on both the counts. In view of this, I hold that the AO was justified in treating the aforesaid sum of Rs. 90,26,067/- as unexplained cash credits in the hands of appellant. I therefore confirm the addition made by AO and dismiss the ground taken by appellant.”

4.1 On the issue of addition of Rs. 16,29,743/- as unexplained cash in hand, the submission of the assessee is recorded in para 4.1 by the Ld. CIT(A) who after rejecting the explanation of the assessee upheld the addition by observing in para 4.2 of his appellate order reproduced below:

“4.2 I have considered the facts of the issue, basis of addition made by AO and submissions of appellant. As can be seen from the assessment order, the AO has given a chart of self withdrawals of cash amounts by appellant company and arrived at the aggregate amount of Rs. 99,57,120/- against the total cash in hand of Rs. 115,86,863/- shown by appellant in the balance sheet. However, during the appellate proceedings, appellant tried to explain the source of cash in hand through withdrawals made by it from the bank The appellant has given the details of such withdrawals, as per Annexure-D of its submissions, as under :- Details of cash withdrawal from bank a/c Kotak Mahindra Bank Ltd in the financial year 2013-14- Date Amount Particulars 23.04.2013 700000 Cash withdrawal from bank a/c 27.04.2013 500000 Cash withdrawal from bank a/c 07.05.2013 900000 Cash withdrawal from bank a/c 10.05.2013 800000 Cash withdrawal from bank a/c 13.05.2013 900000 Cash withdrawal from bank a/c 14.05.2013 800000 Cash withdrawal from bank a/c 15.05.2013 900000 Cash withdrawal from bank a/c 20.05.2013 900000 Cash withdrawal from bank a/c 22.05.2013 500000 Cash withdrawal from bank a/c 06.06.2013 800000 Cash withdrawal from bank a/c 20.06.2013 500000 Cash withdrawal from bank a/c 25.06.2013 900000 Cash withdrawal from bank a/c 08.07.2013 300000 Cash withdrawal from bank a/c 09.07.2013 500000 Cash withdrawal from bank a/c 10.07.2013 800000 Cash withdrawal from bank a/c 06.08.2013 550000 Cash withdrawal from bank a/c 04.10.2013 300000 Cash withdrawal from bank a/c Gross total 11550000

In view of aforesaid chart, appellant has claimed that the appellant had sufficient cash withdrawals to show them as cash in hand in its balance sheet. However, the details given by appellant has many discrepancies. In many cases, the figures shown in the chart of AO and appellant do not match each other. Moreover, at least three cash withdrawals which do not find place In the chart of AO, but claimed by appellant to explain the cash in hand, have been made by the person other than the appellant. For example, the cash withdrawals of Rs. 8,00,000/-, Rs. 8,00,000/- and Rs. 5,50,000/- on 06.06.2013, 10.07.2013 & 06.08.2013 respectively have been made by the persons namely Shri Ramesh Chand Saxena (first withdrawal) and Kuldeep Kumar (remaining two withdrawals). There are many other entries also of the source of cash in hand through withdrawals made by it from the bank The appellant has given the details of such withdrawals, as per Annexure-D of its submissions, as under Details of cash withdrawal from bank arc Ketas Mahindra Bank Ltd. in the financial year 2013-14:-

Date Amount Particulars 23.04.2013 700000 Cash withdrawal from bank a/c 27.04.2013 500000 Cash withdrawal from bank a/c 07.05.2013 900000 Cash withdrawal from bank a/c 10.05.2013 800000 Cash withdrawal from bank a/c 13.05.2013 900000 Cash withdrawal from bank a/c 14.05.2013 800000 Cash withdrawal from bank a/c 15.05.2013 900000 Cash withdrawal from bank a/c 20.05.2013 900000 Cash withdrawal from bank a/c 22.05.2013 500000 Cash withdrawal from bank a/c 06.06.2013 800000 Cash withdrawal from bank a/c 20.06.2013 500000 Cash withdrawal from bank a/c 25.06.2013 900000 Cash withdrawal from bank a/c 08.07.2013 300000 Cash withdrawal from bank a/c 09.07.2013 500000 Cash withdrawal from bank a/c 10.07.2013 800000 Cash withdrawal from bank a/c 06.08.2013 550000 Cash withdrawal from bank a/c 04.10.2013 300000 Cash withdrawal from bank a/c Gross total 11550000

In view of aforesaid chart, appellant has claimed that the appellant had sufficient cash withdrawals to show them as cash in hand in its balance sheet. However, the details given by appellant has many discrepancies. In many cases, the figures shown in the chart of AO and appellant do not match each other. Moreover, at least three cash withdrawals which do not find place In the chart of AO, but claimed by appellant to explain the cash in hand, have been made by the person other than the appellant. For example, the cash withdrawals of Rs. 8,00,000/-, Rs. 8,00,000/- and Rs. 5,50,000/- on 06.06.2013, 10.07.2013 & 06.08.2013 respectively have been made by the persons namely Shri Ramesh Chand Saxena (first withdrawal) and Kuldeep Kumar (remaining two withdrawals). There are many other entries also of cash withdrawal wherein cash is withdrawn by different persons and the cash amounts have not been taken into account to explain the cash balance. Thus, it is clear that the appellant has failed to satisfactorily explain the source of cash amounts as shown in the balance sheet as cash in hand. In view of this, I uphold the addition made by AO and dismiss the ground taken by the appellant.”

4.2 The Ld. CIT(A) discussed the disallowance of Rs. 4,93,176/- under section 40(a)(ia) and disallowance of Rs. 5100/- and Rs. 14,400/- aggregating to Rs. 5,12,676/- together in para 5 and submission of the assessee before him in para 5.1. He recorded his findings in para 5.2 upholding the above said disallowances as under:-

5.2 I have considered the facts of issue and found that AO was justified in making the aforesaid disallowances. As it is clear from the facts that the appellant was liable for deduction of tax at source as per provisions of section 194C of IT Act on the payment of Rs. 4,93,176/- made to Yadav Taxi Services for the purpose of hiring the taxies and getting other services. The appellant has failed to give any worthwhile explanation for non-deduction of tax at source on the payments made to Yadav Taxi Services. In view of this, AO was justified in Invoking the provisions of section 40(a)(la) of IT Act and disallowing the expenses. Similarly, in respect of expenses on account of membership fee and preliminary expenses, even during appellate proceedings, appellant failed to give any justification supported with any evidence to justified claims that the said expenses are genuine for business purposes. In view of this, I uphold the disallowances made by AO and dismiss the grounds taken by the appellant.

10 October 2022 Before, Hon'ble Income Tax Appellate Tribunal, Delhi Bench "E New Delhi In the matter of Leaf Homes Pvt. Ltd. Assessment year: 2014-15 Subject: PERMISSION FOR ADMISSION OF ADDITIONAL EVIDENCE UNDER RULE 29 OF ITAT RULES 1063.

Hon'ble Sir(s),

3. It is thus, most respectfully submitted that the aforesaid additional evidences be admitted, as the same goes to the root of the matter and is of paramount importance for deciding the captioned appeals. Reference is also being made to the judgment of Hon'ble High Coned of Calcutta in the case of Sanjay Kumar Modi vs DIT reported in 278 ITR 374, wherein, it has been held that "It has now become an elementary principle of law that the subsequent development having nexus to the original cause of action can be brought in the present proceeding to cut short the litigation and to meet the ends of justice." 4 It is prayed accordingly.