S.68- not applicable in case of banking transactions done digitally with names appearing in bank statement – illustrative submission before the AO.

[DEV KUMAR KOTHARI]

Enquiries by Ld. AO:

Ld Ao are making many enquiries and posing many questions to the assessee about loans, capital or gift received by assessee. They ask for identity, and capacity of person paying and source of his funds. Many also ask assessee to furnish ROI of person paying for last many years.

A person receiving money from other has limitations to explain about his sources. He cannot ask much to the person paying.

These enquiries are due to bias, and presumption of assessee as tax evader. Additions are made due to the same. This is not at all justified.

Digital payment:

An illustrative explanation in case of digital payment received is appended below which can e suitably modified for submissions before the tax authorities.

Before the Ld. AO  … / CIT(A)

In the case of  …..   PAN                 AY …..

EXPLANATION ABOUT SUMS DIGITALLY CREDITED BY BANK – BANK STATEMENT SHOWING NAMES OF FUND TRANSMITTERS –Section 68 is not at all applicable.

When funds are remitted by one party to other by way of digital modes, the baker of remitter check the account of remitter and only after being fully satisfied about funds available, and genuineness and proper execution of transfer instrument transfer funds.

In case of RTGS/ NEFT/ Transfers etc. banker of transmitter of fund (Payer) debits his customers account and then only funds are transferred to the bank of transferee (payee).

In books of account of payee, sums realised and credited by banker of payee, are then credited in books of account by way of receipt voucher. The basis of credit is sums already  realised and credited  by banker of payee.

Therefore, in such situation S.68 is not at all applicable.  

This is not a case of cash credit.

There are credits in account of assesse by way of RTGS or NEFT OR TRANSFERS which are in nature of e-cheques issued by Other party ( payer).

 No cash is  deposited in account of payee / assesse.

Ld. AO is required to reasonably consider explanation.

 Assessee received  various sums remitted by loan creditors / partners/ customers   through net banking and names of person who remitted  are clearly mentioned in bank statement of assessee, this shows that  loan creditor  / partner or other person as the case may be  had available  funds in their bank  account against which e-cheque (RTGS / NEFT/ TRANSFER) was issued by creditor/ remitter  and the same were honored by drawee bank after debiting account of drawee of e-instruments.

 The amount has been realized from bank account of drawer and then only it has been credited in bank account of PAYEE /  assesse by the bank in normal course of e- banking.

 Thus, onus about nature and source of sums actually received by way of credit in bank account and then credited in books of account of assessee are satisfactorily discharged by assessee by evidence of banking document and other statutory documents like confirmation from concerned parties.

 Ld. AO  is also required to consider provisions of  negotiable Instrument Act, Evidence Act and banking practices about KYC, and digital payments and remittances etc. as per norms and in a reasonable manner.

We have received information from creditors and provided their names,  addresses and  PAN of creditors. PAN is one of recognized proof of identity. In banking circles also PAN , AADHAR / Voters card / driving license are furnished by account holders to meet KYC requirements of banks.

Sums have been realized by our banker and that has been debited in the bank account of creditor. Therefore, source of funds is amount available in bank accounts of creditors. Their banker has honored instruments like RTGS/ NEFT / transfer  after full satisfaction of the bank about funds available, and genuineness of document executed and  then only transferred funds to banker of assessee for credit to the account of assesse.

Name of payee also appears in bank statement of payer and nature of transaction is shown therein.

In RTGS/ NEFT remittance all details of account of person paying and person receiving are confirmed by bankers through their systems.

As a borrower of money or person receiving capital in any manner and for any purpose, the person receiving money cannot ask more than details and  PAN of creditor, particularly so when funds are transferred through banking channel.

The matter is to be considered according to the position of person receiving money.  If a person receiving money, particularly as a borrower insist for anything more, no one will lend money.

The issue need to be considered with ground reality and capacity, in which a borrower or receiver of money  find himself when he asks for money to be lent to him or payment to be made to him.

In any old reported judgment cases u.s. 68 , digital  payment received by RTGS or NEFT  or transfer on a duly registered account etc. were not considered. In those cases either cash was received or chequ  was received (which were vaguely mentioned in bank statements  like clg. or transfer and names of persons were not mentioned in bank statements.) Therefore, any of such cases are not applicable in view of our facts and circumstances.

Therefore, assesse, as a business person has satisfactorily explained nature and source of sums received through banking channels.

In such situation S. 68  is not at all applicable, because sums credited in books of account are after banker of assesse has credited account of assesse which is based on funds transferred by the banker of creditor. Such sums credited in books of account cannot be called ‘ cash  credit’ to which S.68 can be applied.

Any person like assesse receiving capital as loan will not acknowledge a liability and credit account of creditor without receiving money. A sum found credited in books of account of assesse, in name of other person is an acknowledgement thereof, and is one of evidence in favor of person who paid money and whose account has been credited.

We had already filed confirmations / copy of account and also our bank statement highlighting sums received by our bankers from bankers of the creditor, the names of creditors are clearly mentioned in our bank statement.

We need co-operation of creditors from time to time to borrow money and we can also have other business transactions. Asking their balance sheets and bank statements by us will be against all principals of business co-operations and privacy.  The balance sheets and bank statements can contain information not relevant to our transactions, therefore, to maintain business decency and privacy and to maintain good relations, it is not possible for us to ask creditors to provide such information and documents.

Why any creditor will share all such information and document with debtor?  

We as a business man cannot ask our creditors for more documents.

You as AO can make enquiry and ask for documents as your honor deem fit.

Judgments-

As per our information and on reading of reported judgments by our consultants, we did not find any reported case in which sum was credited by digital modes and name of creditor is mentioned in bank statement.

This is because in such cases, hopefully tax authorities have accepted the bank statements and did not made addition and no disputes arose.

  In case your honor has any information about such a case, kindly share details and provide us opportunity to further explain our case.

Any addition will not be justified:

We hope on consideration of all documents furnished by us, your honor will not invoke S. 68 and will not make any addition.

If any additions are made, due to our inability to provide  documents and information, which as a borrower/ debtor / capital receiver  we cannot provide,  but which have been asked by you , then the addition will be due to bias, conjecture and surmise and against principal of natural justice- asking assessee information or documents which assessee  cannot produce and cannot ask the creditor to provide considering his situation  as businessman  or as a debtor or person receiving money, and ground realities of business where transactions are done in good faith and with  mutual confidence.

We hope the matter will be considered reasonably and not with a prejudiced mind to brands any transaction as bogus/ fake or accommodation, as has been done in past in many cases.