2014 (9) TMI 704 - HC - Income Tax

Unexplained cash credits u/s 68 - Whether the Tribunal was right in deleting the addition u/s 68 by applying correct principles Held that - There is a big divergence on the aspect of PAN details, income tax returns, etc. as recorded and as per the findings recorded by CIT(A) and the Tribunal relying upon Govindarajulu Mudaliar (A.) versus CIT 1958 (9) TMI 3 - SUPREME Court - there were ample authorities for the proposition that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during an accounting year, the AO is entitled to draw inference that the receipts are of an assessable nature - Proof or evidence to show the circulation in money was clearly rejected in view of the statutory provision of Section 68 of the Act and on the question of doctrine of source of source or origin of origin - The onus to prove the three factum is on the assessee as the facts are within the assessee s knowledge - Mere production of incorporation details, PAN Nos. or the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up - These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, identity are deeper and obtrusive - Companies are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who run and manage the companies - It is the persons behind the company who take the decisions, controls and manage them - The apparent, patent, and conspicuous facts were ignored by the first appellate authority and the Tribunal - section 68 of the Act was rightly invoked and is applicable Decided in favour of revenue.

Issues Involved:
1. Whether the Income Tax Appellate Tribunal was right in deleting the addition of Rs. 55,66,995 under Section 68 of the Income Tax Act, 1961 by applying correct principles.
2. Whether the impugned decision is perverse.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68:

The appeal by the Revenue pertains to the assessment year 2002-03 and revolves around the deletion of an addition of Rs. 55,66,995 under Section 68 of the Income Tax Act, 1961 by the Income Tax Appellate Tribunal (Tribunal). The Tribunal upheld the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which deleted the addition on the grounds that the assessee had successfully discharged the onus of proving the identity, creditworthiness of the share applicants, and the genuineness of the transactions. This was substantiated by providing copies of PAN numbers, income tax returns, and bank details, invoking the ratio of the Supreme Court decision in CIT vs. Lovely Exports P. Ltd. and the Delhi High Court decision in CIT vs. Rockford Metal & Minerals Ltd.

2. Divergence in Details Provided:

The assessment order dated 18th December 2007 highlighted a significant divergence in the details provided during the assessment proceedings. The assessee was asked to provide comprehensive details regarding business activities, share capital raised, investments made, loans and advances, job work income, shareholding pattern, and bank accounts of directors. However, the details furnished were incomplete and non-exhaustive. Consequently, the assessment was conducted under Section 144 read with Section 147 of the Act, resulting in a best judgment assessment due to the assessee's lack of cooperation.

3. Findings of CIT(A) and Tribunal:

The CIT(A) noted that the authorized representative of the assessee had provided confirmations from share applicants, their income tax returns, PAN cards, and election cards. The Tribunal based its findings on those recorded by the CIT(A). However, it was acknowledged that these details might not have been filed during the reassessment proceedings but were available during the original assessment proceedings.

4. Non-cooperation by Assessee:

The reassessment order recorded that the assessee failed to cooperate and furnish the required details. Summons issued to the directors under Section 131 of the Act were not complied with. The bank account statements of Tashi Contractors (P) Ltd. and Baldev Harish Electrical Pvt. Ltd. indicated suspicious transactions, including immediate withdrawals/transfers of money. The statement of Mukesh Gupta revealed that cash received from third parties was deposited and transferred by charging a commission, which came to the Revenue's knowledge post the original assessment order.

5. Ignorance of Best Judgment Assessment by CIT(A) and Tribunal:

The CIT(A) and Tribunal ignored the facts recorded in the reassessment order, including the assessee's failure to cooperate and furnish details, leading to a best judgment assessment. The reluctance to respond to summons and produce documents indicated an intentional obstruction of inquiries.

6. Lack of Business Activity and Unexplained Share Premium:

The assessee, incorporated in March 2000, did not conduct any business in the first year and declared minimal taxable income in the assessment year in question. Despite this, unrelated third parties invested significantly, raising questions about the genuineness of the transactions. The justification for issuing shares at a premium was missing, and it was implausible that unknown investors would invest in a company without a proven record.

7. Legal Interpretation of Section 68:

Section 68 of the Act requires credit of amounts in the books, and if the assessee fails to satisfactorily explain the nature and source of such credit, it can be treated as income. The onus is on the assessee to provide a reasonable explanation. The case references, including CIT vs. Lovely Exports P. Ltd. and Nova Promoters and Finlease Private Limited, highlighted the need for the Assessing Officer to investigate the creditworthiness and genuineness of transactions.

8. Tribunal's Decision and Remand:

Given the clear factual position and substantial material, the court decided not to remand the matter to the Tribunal for a fresh decision. The facts were deemed clear and not debatable, warranting no further elucidation.

9. Conclusion:

The court concluded that the unmistakably apparent facts were ignored by the first appellate authority and the Tribunal. Section 68 of the Act was rightly invoked, and the addition of Rs. 55,66,995 by the Assessing Officer was confirmed. The Tribunal's order affirming the CIT(A)'s deletion of the addition was set aside, and the appellant was entitled to costs as per High Court Rules.

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