2020 (4) TMI 762 - HC - Income Tax

Recovery proceedings - stay applications - Addition u/s 68 - genuineness of the transaction and creditworthiness of the investors/loan depositors - HELD THAT - The present matter is not a case of mechanical reliance on circulars/office memorandums. It is a case where proof of identity of the loan depositors, capacity of the creditors to advance loans and genuineness of transaction is in serious dispute. Further, this Court finds that the stay application has been decided on merits and all the submissions made hereinabove by the petitioner have been considered by the statutory authorities below. Undoubtedly, as held by the Supreme Court in LG Electronics (India) Pvt. Ltd. 2018 (7) TMI 1905 - SC ORDER it is open to the statutory authorities to grant relief to deposit an amount lesser than twenty per cent if the facts of the case so warrant. However, on the facts of the present case, as determined by the Assessing Officer, a prima facie case is not made out and such a relief is not warranted. Consequently, the present writ petition and application being bereft of merits are dismissed. However, respondent No. 3 is directed to decide the appeal filed by the petitioner within thirty days from the date the Lockdown ends.

Issues Involved:
1. Quashing of the orders dated 11th March 2020 and 28th February 2020.
2. Recovery and collection of tax based on a "high pitched" assessment order.
3. Interpretation of Section 68 of the Income Tax Act.
4. Assessment of the genuineness of transactions and creditworthiness of investors under Section 68.
5. Consideration of stay applications and the requirement of a pre-deposit of twenty per cent of the outstanding amount.

Detailed Analysis:

1. Quashing of the Orders:
The petitioner sought the quashing of the orders dated 11th March 2020 by the Principal Commissioner of Income Tax-5 and 28th February 2020 by the Deputy Commissioner of Income Tax. The petitioner argued that the assessment order dated 29th December 2019 was made on a "high pitched basis," and therefore, the recovery and collection of tax should be held in abeyance until the disposal of the appeal against the assessment order.

2. Recovery and Collection of Tax:
The petitioner contended that the respondents erroneously assumed that a pre-deposit of twenty per cent of the outstanding amount was mandatory based on CBDT instructions and office memorandums. The petitioner argued that these guidelines could not override the basic tenets to be followed in the consideration and disposal of stay applications, emphasizing the need to consider the financial stringency faced by an assessee and the balance of convenience.

3. Interpretation of Section 68 of the Income Tax Act:
The court noted that the present case involved the interpretation of Section 68 of the Income Tax Act, which deals with cash credits. Section 68 requires the assessee to offer a satisfactory explanation about the nature and source of any sum credited in their books. If the explanation is not satisfactory, the sum may be charged to income-tax as the income of the assessee.

4. Assessment of Genuineness and Creditworthiness:
The court highlighted that the initial onus is on the assessee to establish the genuineness of the transaction and the creditworthiness of the investors or loan depositors. Citing the Supreme Court's decision in Principal Commissioner of Income Tax vs. NRA Iron and Steel Private Ltd., the court emphasized the need for the assessee to prove the genuineness of the transaction, the identity of the creditors, and the creditworthiness of the investors.

5. Consideration of Stay Applications:
The court observed that the stay application had been decided on merits, and all submissions made by the petitioner had been considered by the statutory authorities. The court referred to the detailed findings of the Assessing Officer, which questioned the identity and creditworthiness of M/s Glebe Trading Pvt. Ltd. and the genuineness of the transactions involving unsecured loans.

The court acknowledged that, as per the Supreme Court's ruling in Principal Commissioner of Income Tax vs. LG Electronics (India) Pvt. Ltd., statutory authorities could grant relief to deposit a lesser amount than twenty per cent if warranted by the facts of the case. However, in the present case, the court found that a prima facie case was not made out, and such relief was not warranted.

Conclusion:
The court dismissed the writ petition and application, finding them bereft of merits. However, it directed respondent No. 3 to decide the appeal filed by the petitioner within thirty days from the end of the lockdown. The court clarified that its observations were only for the adjudication of the present writ petition and would not bind the appellate authority while deciding the appeal.

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