2009 (12) TMI 951 - HC - Income Tax

Unexplained cash credit - transansaction of shares unexplained - bogus and sham transaction -Addition made as assessee had failed to discharge its onus to prove the genuineness of the transaction - HELD THAT - We find ourselves in favour of the submission made as the assessee had produced confirmations which would clearly demonstrate it has discharged its initial burden. The identity of M/s. Yadav and Company, by filing their confirmation and their assessment particularly Genuineness of the transaction by pointing out that the assessee had sold shares to M/s. Yadav and Company in the immediately preceding year (which has been accepted by the Department) and that the payment received during the relevant previous year was against the debt due from M/s. Yadav and Company and Creditworthiness of the creditor by pointing out that the amount was received by way of cheques drawn on the bank account. The initial burden thus discharged, it was for the revenue to establish that the transaction in question was bogus. This would be so even if there is a denial by the creditors that the credits were not genuine as held by the Supreme Court in CIT v. Orissa Corpn. (P.) Ltd. 1986 (3) TMI 3 - SUPREME COURT - Mere denial by Yadavs that account in question was not operated by them would not automatically lead to the inference that assessee deposited in the said account and, therefore, it became its unaccounted income. When the premises of M/s. Yadav and Company were searched by the Department in 2002 and the statements of aforesaid two persons were recorded, it is clear that Yadav and Company was very much in existence. More interestingly, M/s. Yadav and Company even assessed to Income-tax. In the case of assessee, the assessment was completed in December, 2003. In such a scenario, it would not have been difficult for the Assessing Officer to find the whereabouts of Yadavs particularly having regard to the statement of the assessee that it had no dealing with M/s. Yadav and Company after assessment year 2000-01 and was thus unaware of its present whereabouts. Live link between the bank account of M/s. Yadav and Company and the assessee has not been established. - Decided in favour of assessee Whether the ITAT should have remitted the matter back to the Assessing Officer, if it was of the view that proper opportunity was not afforded to the assessee? - We feel that there was a bona fide confusion in the mind of the Assessing Officer regarding the onus viz., whether it was obligation of the assessee or the Assessing Officer to produce Sh. O.P. Yadav and Sh. Mohinder Singh Yadav. Therefore, in the interest of justice matter needs to be remitted back to the Assessing Officer to enable him to produce the Yadavs for cross-examination by the assessee. AO shall undertake fresh exercise as per the observations contained in the order of ITAT and this order and addition would be made only if those conditions are satisfied.

Issues Involved:
1. Deletion of addition under Section 68 of the Income-tax Act on account of unexplained cash credit.
2. Application of mind by ITAT to the specific observations made by the Assessing Officer.
3. Remittance of the matter back to the Assessing Officer for fresh examination.

Detailed Analysis:

1. Deletion of Addition under Section 68 of the Income-tax Act:
The core issue revolves around the deletion of an addition of Rs. 49,41,030 made by the Assessing Officer (AO) under Section 68 of the Income-tax Act. The AO had treated this amount as unexplained cash credit, alleging that the assessee introduced its own unaccounted cash through transactions with M/s. Yadav and Company. The AO's conclusion was based on statements from M/s. Yadav and Company's proprietors denying ownership of the bank account from which the cheques were issued.

2. Application of Mind by ITAT to Specific Observations by AO:
The ITAT affirmed the CIT(A)'s order, which deleted the addition. The CIT(A) found that the amount received by cheques represented sales proceeds from shares sold in an earlier year. The assessee had provided confirmations and assessment particulars of M/s. Yadav and Company, and the amounts were received through account payee cheques. The CIT(A) held that the AO should have made efforts to ascertain the whereabouts of M/s. Yadav and Company and that the mere denial of the bank account ownership by M/s. Yadav and Company was insufficient to draw adverse inferences against the assessee. The ITAT concurred with these findings, which were based on facts and evidence, and thus dismissed the revenue's appeal.

3. Remittance of the Matter Back to AO for Fresh Examination:
The court observed that the assessee had discharged its initial burden by providing the identity, genuineness, and creditworthiness of the creditor. The initial burden was on the assessee to substantiate these elements, and once discharged, the onus shifted to the revenue to prove the transaction was bogus. The court noted that the AO failed to conduct a thorough investigation and merely relied on the statements of the Yadavs without further probing. The court found that the necessary exercise to establish a live link between the bank account and the assessee was not carried out by the AO.

The court recognized a bona fide confusion regarding the onus of producing the Yadavs for cross-examination. Therefore, in the interest of justice, the matter was remitted back to the AO to enable him to produce the Yadavs for cross-examination by the assessee. The AO is directed to undertake a fresh exercise as per the observations contained in the ITAT's order and the court's order, and an addition would be made only if the conditions are satisfied.

Further Judgments:
In two other related cases (ITA 633/2008 and ITA 467/2008), similar additions were made based on the statements of the Yadavs. The court found these cases to be similar to the primary case discussed and remitted them back to the AO for fresh examination following the same directions.

Conclusion:
The court concluded that the findings of the CIT(A) and ITAT were not perverse and that the initial burden of proof was discharged by the assessee. The matter was remitted back to the AO for fresh examination to ensure proper opportunity for cross-examination and to establish the genuineness of the transactions conclusively.

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