2014 (7) TMI 591 - AT - Income Tax

Addition made u/s 68 of the Act - Genuineness and creditworthiness of the transaction Assessee contended that the amount received against the sale of shares Held that - AO has given clear finding that cash of ₹ 2,50,000/- and ₹ 2,34,000/- was deposited in the Saving Bank Accounts of Smiranjeet Kaur and Shri Raghubir Singh respectively on 18.10.2008 when the cheque issued to the assessee company was cleared- onus lies on the assessee to establish the genuineness and creditworthiness of the transaction CIT(A) was of the view that the AO had made efforts to ascertain the correctness of assessee s debt and came to the conclusion that both the persons did not have the capacity to give these amounts to the assessee - the transaction was not genuine and represented bogus accommodation entries - The assessee had claimed to have received huge amounts by sale of shares - identity of the purchasers was established but that per se can not take out the transaction from the relm of inquiry about genuineness of transaction and creditworthiness of the purchaser - AO has clearly demonstrated, considering the creditworthiness of purchasers, that the cash was deposited in their accounts which had its source from the assessee as he had benefitted by the deposit of cash and adverse inference has to be drawn against the assessee Decided against Assessee.

Issues Involved:
1. Validity of initiation of proceedings under Section 148 of the Income Tax Act.
2. Addition made under Section 68 of the Income Tax Act regarding unexplained cash credits.
3. Burden of proof regarding the genuineness and creditworthiness of transactions.

Detailed Analysis:

1. Validity of Initiation of Proceedings under Section 148:

The assessee contested the initiation of proceedings under Section 148. The notice was issued based on investigations by the Directorate of Investigation, which revealed that the assessee was a beneficiary of bogus/accommodation entries. The Ld. CIT(A) upheld the initiation of proceedings, relying on the decisions in CIT V. Safetag International India (P.) Ltd. and A.G. Holdings (P.) Ltd. V. ITO. The Tribunal confirmed that the initiation of proceedings was justified as the assessee failed to fully disclose all material facts necessary for assessment.

2. Addition Made under Section 68 Regarding Unexplained Cash Credits:

The assessee received Rs. 2,34,000 from Shri Raghubir Singh and Rs. 2,50,000 from Smt. Simranjeet Kaur, claimed as proceeds from the sale of shares. The Assessing Officer (AO) found that cash deposits in the bank accounts of these individuals coincided with the issuance of cheques to the assessee. Summons issued to these parties were either returned or not complied with. The AO noted their limited financial means, raising doubts about their capacity to lend such amounts. Consequently, an addition of Rs. 4,84,000 was made under Section 68, which was upheld by the Ld. CIT(A) on the grounds that the transactions were not genuine and represented bogus accommodation entries.

3. Burden of Proof Regarding Genuineness and Creditworthiness:

The Tribunal emphasized that the onus lies on the assessee to establish the genuineness and creditworthiness of the transactions. The AO's findings highlighted the improbability of individuals with modest incomes making substantial cash deposits before purchasing shares. The Tribunal noted that mere identity proof of the purchasers was insufficient; the assessee needed to prove the genuineness of the transactions and the creditworthiness of the purchasers. The Tribunal distinguished the present case from earlier years where no inquiries were made by the AO, thus justifying the addition made under Section 68.

Supporting Case Laws:

The Tribunal referred to several decisions, including Sumati Dayal V. CIT, CIT Vs. Nova Promotors & Finlease (P.) Ltd., and CIT v. Gold Leaf Capital Corpn Ltd., which stress the importance of examining evidence in depth and considering human probabilities and normal conduct. The Tribunal also distinguished the present case from the decision in CIT Vs. Medshave Health Care Ltd., where the facts were different, and the transactions were found genuine.

Conclusion:

The Tribunal confirmed the order of the Ld. CIT(A), holding that the assessee failed to discharge the onus of proving the genuineness and creditworthiness of the transactions. The appeal was dismissed, and the addition made under Section 68 was upheld. The order was pronounced in the open court on 30th June 2014.

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