2014 (2) TMI 1383 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - assessee has only proved the identity of the company and the details of flow of money through the banking channels and it has failed to prove the credit worthiness of M/s Great Valley P Ltd in terms of sec.68 - contentions of the Ld A.R was that the provisions of sec. 68 cannot be applied to an International Transaction - HELD THAT - In the case of Pondu Metal and Rolling Mill 2007 (2) TMI 652 - DELHI HIGH COURT , the issue related to the Share Application Money received by the assessee therein. In the instant case, the assessee has received loans in the form of Debentures and hence, in our view, the ratio of the said decision cannot be applied to the facts of the instant case. In the case of Russian Technology Centre 2013 (4) TMI 659 - ITAT DELHI the issue was related to Share Application money received from a foreign parent company.However in the instant case, there was no prior approval of Indian Government authorities (if required) and further the assessee has miserably failed to prove the source available with M/s Great Valley Co. Pvt Ltd, i.e., the credit worthiness of the said company with supporting evidences. In fact, the submission of the Ld A.R was that the assessee could not enforce the above said company to furnish the financial details, which appears to be very strange to us. Hence, in our view, the assessee cannot take support of this decision also. The issue considered in the case of Smt. Susila Ramasamy 2009 (4) TMI 554 - ITAT CHENNAI was about the applicability of provisions of sec. 69 of the Act on an assessee, who was a Non- Resident Indian. In the instant case, we are concerned with the applicability of the provisions of sec. 68 to an Indian assessee on the loan received by it. Hence, in our view, the assessee cannot take support of the case of Smt. Susila Ramasamy (supra) also. In the instant case, it is a fact that the assessee did not furnish any material to prove the credit worthiness before the AO. However, before the Ld CIT(A), the assessee has furnished a certificate obtained from M/s Barclays Bank to the effect that the funds were transferred to the assessee company from out of the balance available in a Bank account. It is pertinent to note that the said certificate is very bald in nature, i.e., it did not give any detail about the Bank account, i.e., the Bank account number, the account holder name, when the account was opened, details of dates and amounts of deposit in the said bank account etc. Be that as it may, the fact remains that the said certificate has not been examined by the Ld CIT(A) or by the AO (in the remand proceedings). Whatever may be the worth, the assessee has furnished a certificate obtained from M/s Barclays bank in order to prove the credit worthiness of the foreign company, referred above and hence, in our view, the tax authorities should have examined the same and there after, they should have taken a decision. Hence, in our view, the issue before us needs to be examined afresh at the end of the assessing officer - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Applicability of Section 68 of the Income Tax Act to international transactions.
2. Proof of identity, genuineness, and creditworthiness of the creditor.
3. Consideration of additional evidence by the CIT(A).
4. Reliance on prior case laws and legal precedents.

Detailed Analysis:

1. Applicability of Section 68 of the Income Tax Act to International Transactions:
The assessee argued that Section 68 of the Income Tax Act is intended to apply only to transactions with residents, citing the first proviso inserted in Section 68 effective from 1.4.2013. The Tribunal, however, found that the provisions of Section 68 apply universally and do not distinguish between resident and non-resident transactions. The Tribunal referenced the case of Finlay Corporation, which clarified that the onus is on the assessee to explain the source of money under Section 68, irrespective of whether the transaction is domestic or international.

2. Proof of Identity, Genuineness, and Creditworthiness of the Creditor:
The assessee had issued debentures worth Rs. 21.76 crores to M/s Great Valley P Ltd., a foreign company. The AO and CIT(A) accepted the identity and genuineness of the transaction but found the assessee failed to prove the creditworthiness of the creditor. The assessee provided a certificate from Barclays Bank stating the funds were transferred from a bank account, but the certificate lacked detailed information about the account. The Tribunal emphasized that proving identity and genuineness alone is insufficient; the assessee must also prove the creditworthiness of the creditor.

3. Consideration of Additional Evidence by the CIT(A):
The assessee submitted additional evidence, including a certificate from Barclays Bank, to the CIT(A). However, the CIT(A) did not consider this evidence or seek comments from the AO. The Tribunal noted that the CIT(A) should have examined the additional evidence and allowed the AO to comment on it. The Tribunal directed the AO to re-examine the issue, considering the Barclays Bank certificate and any other material provided by the assessee.

4. Reliance on Prior Case Laws and Legal Precedents:
The Tribunal reviewed several case laws cited by both parties. The assessee relied on cases like Smt. Susila Ramasamy vs ACIT and CIT vs M/s Pondy Metal & Rolling Mill to argue that Section 68 should not apply to international transactions. However, the Tribunal found these cases distinguishable as they involved share application money, not debentures. The Tribunal also referenced the Supreme Court's decision in CIT vs P R Ganapathy, which emphasized the necessity of proving the creditworthiness of the creditor.

Conclusion:
The Tribunal concluded that the assessee must discharge the initial burden of proof under Section 68, even for international transactions. The Tribunal set aside the CIT(A)'s order and remanded the case to the AO for fresh examination, considering the additional evidence provided by the assessee. The appeal was allowed for statistical purposes, and the AO was directed to take an appropriate decision in accordance with the law.