2020 (10) TMI 1028 - HC - Income Tax

Unaccounted cash receipts - material on record that this amount was paid to M/s. Good Earth Developers and M/s. Raj Hospitality Pvt. Ltd - HELD THAT - Nature of such amounts can be very well assessed in the hands of said recipients and need not be assessed in the hands of the assessees.Since, there is material on record, that this amount of ₹ 11.26 crores or thereabouts was paid by the assessee to the aforesaid two entities and since there is evidence on record that the aforesaid two entities had admitted to the receipt of the said amount, the Commissioner (Appeals), was quite right in taking the view that such amounts are best assessed in the hands of the two entities and not in the hands of the assessee. Unable to satisfy us that there was any illegality in the view taken or any perversity in the approach of the Commissioner (Appeals) in so far as the treatment of this amount was concerned. Accordingly, the first substantial question of law needs to be answered against the Revenue and in favour of the assessees. This question is answered against the Revenue only because we agree with the view taken by the Commissioner (Appeals) that it is only appropriate that this amount is assessed in the hands of the two recipient entities as aforesaid and not the assessee - Decided in favour of assessee. Addition u/s 68 - Unexplained cash credit - HELD THAT - Even if we were to accept that the assessee by pointing out to Mr. Siraj Sheikh, Vijay Kumar Rao, and M/s. Prasad Properties had discharged the initial burden cast upon them by Section 68 we find that the onus which had shifted upon the Revenue, has been appreciably discharged by the Revenue. This is not a case where the Revenue, halted its probe soon after the so-called sources were indicated by the assessee. Revenue, in these matters, probed further and unearthed quality material to establish that the socalled sources completely lacked the capacity or credit-worthiness to advance such a huge amount of ₹ 8.49 crores to the assessees.Revenue, in these matters, established that there was no genuineness in the transactions sought to be projected on behalf of the assessees. Therefore, the Revenue, in these matters, has discharged the onus, assuming that such onus had indeed shifted upon the revenue. Again, this is an aspect, which was ignored by the ITAT. The finding recorded by the ITAT in these matters is based upon the wholly erroneous view of law and perversity on account of ignoring completely, vital and relevant circumstances emanating from the record. Such a finding can be interfered in an appeal under Section 260A of the said Act. The legal position is quite settled that where the findings arrived at by the Tribunal are based upon the wholly erroneous view of the law or are vitiated by perversity, a substantial question of law indeed arises and is required to be addressed in an appeal under Section 260A of the said Act. If at all, any authority is necessary for this proposition, then reference can be usefully made to Nemi Chand Kothari 2003 (9) TMI 62 - GAUHATI HIGH COURT relied upon by the assessees themselves. We answer the second substantial question of law in favour of the Revenue and against the assessee .

Issues Involved:
1. Deletion of ?11,26,50,112 towards unaccounted cash receipts.
2. Deletion of ?8,49,49,888 towards unaccounted cash receipts.

Detailed Analysis:

Issue 1: Deletion of ?11,26,50,112 towards unaccounted cash receipts

18. At the outset, we may deal with the first substantial question of law, which relates to the deletion of the amount of ?11,26,50,112 towards unaccounted cash receipts. This will have to be answered against the Revenue and in favour of the assessees by accepting the reasoning of the Commissioner (Appeals) in his order dated 27.03.2013. The Commissioner (Appeals), has not held that this amount was accounted for by the assessees but the Commissioner (Appeals) has held that no inferences need to be drawn about this amount simply because there is material on record that this amount was paid to M/s. Good Earth Developers and M/s. Raj Hospitality Pvt. Ltd. Therefore, the nature of such amounts can be very well assessed in the hands of said recipients and need not be assessed in the hands of the assessees.

19. Since, there is material on record, that this amount of ?11.26 crores or thereabouts was paid by the assessees to the aforesaid two entities and since there is evidence on record that the aforesaid two entities had admitted to the receipt of the said amount, the Commissioner (Appeals), was quite right in taking the view that such amounts are best assessed in the hands of the two entities and not in the hands of the assessees.

20. Ms. Linhares was unable to satisfy us that there was any illegality in the view taken or any perversity in the approach of the Commissioner (Appeals) in so far as the treatment of this amount of ?11.26 crores was concerned. Accordingly, the first substantial question of law needs to be answered against the Revenue and in favour of the assessees. However, by clarifying that such an answer ought not to be construed to mean that the assessees have explained satisfactorily the nature and source of this amount. This question is answered against the Revenue only because we agree with the view taken by the Commissioner (Appeals) that it is only appropriate that this amount is assessed in the hands of the two recipient entities as aforesaid and not the assessees.

Issue 2: Deletion of ?8,49,49,888 towards unaccounted cash receipts

21. The answer to the second substantial question of law depends upon the application of the provisions of Section 68 of the said Act to the facts and circumstances as borne out of the record in this case.

22. Section 68 of the said Act, inter alia provides that where any sum is found credited in the books of assessees maintained for any previous year, and the assessees offer no explanation about nature and source thereof or explanation offered by him is, not found to be satisfactory, the sum so credited may be charged to income tax as the income of the assessees of that previous year. Two provisos are dealing with the share application money and venture capital fund, with which we are not concerned in these appeals.

23. The record, in this case, indicates that hardly any explanation as such was offered by the assessees when called upon to explain the transactions leading to the transfer of this huge amount of ?8.49 crores into their bank accounts on 10.03.2007. Even the source was not indicated by the assesses but the same was unearthed by the Revenue by probing the bank accounts and the money trail.

24. The assessees neither cooperated nor were they candid. It is only as the probe deepened, the assessees and their alleged sources began to offer some halfhearted explanations, which, as found by the AO and the Commissioner (Appeals) were far from satisfactory.

25. The ITAT, in its impugned order dated 31.07.2013, has, however, purported to accept the assessee's so-called explanation relying almost entirely upon the following three circumstances:-

(a) That this amount of ?8.49 crores was transferred into the assessees' bank account at Development Credit Bank, Panaji Goa on 10.03.2007. The ITAT regards this as a transfer through a "normal banking channel".

(b) That this amount of ?8.49 crores was transferred from out of the bank accounts of Siraj Sheikh (assessees' brother/brother in law) and Vijay Kumar Rao (assessees' close friend) held in the same bank. The ITAT has held that the identity of the source was thus established.

26. Based almost entirely upon the aforesaid three circumstances and virtually ignoring all other circumstances emanating from the record, the ITAT, in its impugned order dated 31.07.2013, has rather abruptly concluded that ".......therefore, in our opinion, the requirement u/s 68 is proved beyond any doubt by the Assessee. Therefore we are of the view that no addition is required/sustainable". The ITAT, by reference to the rulings in Tania Investment P. Ltd. (supra), Aravali Trading Co. (supra), and Nemi Chand Kothari (supra), has held that if the identity of the creditor is established and the monies are received through banking channel, then, the assessees are not required to prove the source of the source in such matters.

27. According to us, the ITAT, in this case, has grievously erred both on facts as well as in law, in interfering with the well-reasoned analysis reflected in the orders of the AO and Commissioner (Appeals) in these matters.

28. The three circumstances relied upon by the ITAT in the impugned judgment may not be irrelevant circumstances, But they were certainly not the only circumstances on basis of which and by ignoring other numerous circumstances, the ITAT could have abruptly concluded that the assesses had proved the so-called explanation beyond the reasonable doubt for Section 68 of the said Act.

29. In Oceanic Products Exporting Co. v. CIT – 241 ITR 497 (Ker) it is held that after the enactment of Section 68, the burden is placed on the assessees to prove a credit appearing in its books of accounts. That burden has to be discharged with positive material. When it is contended that a person had advanced money or had given a loan, it has to be established that the person was not a man of straw and had the capacity to give the money.

30. In CIT v. Bikram Singh – 399 ITR 407, it is held that each of the three conditions i.e. identity of the creditor, capacity of the creditor, and genuineness of the transaction had to be fulfilled cumulatively. Merely because the transactions were through banking channels, it cannot be said that such transactions were genuine when the assessees were not in a position to show the credit-worthiness of the creditors, there was no question of accepting the explanation of the assessees.

31. In CIT v. P. Mohanakala – 291 ITR 278 (SC), it is held that the mere furnishing of particulars or the mere fact of payment by an account payee cheque or mere submissions of a confirmatory letter by the creditor, is, by itself, not enough to shift the onus on the Revenue.

32. To the same effect are the observations in Yashpal Goel v. CIT – 310 ITR 75 and Mangilal Jain v. CIT – 315 ITR 105, CIT v. United – 187 ITR 596.

33. Even in Tania Investments P. Ltd. (supra) upon which reliance was placed by the ITAT and by Mr. Kantak before us, this court has tacitly accepted the legal position that in case of cash credit entries in the books of account, the assessee has to establish (i) identity of the party; (ii) capacity, and (iii) the genuineness of the transaction. In the said case, the assessee had established the identity and perhaps the genuineness of the transaction. On the aspect of 'capacity', this court agreed with the finding of the ITAT in the said case, that books of account of the said party were very much available with the AO. Such books of account itself would indicate the capacity of the party to advance loans. Therefore, without examining such books of account the AO could not have rejected the assessees' explanation.

34. Tania Investment P. Limited (supra) is not an authority for the omnibus proposition relied upon by the ITAT and Mr. Kantak. In fact, even this decision accepts that to discharge the burden which Section 68 of the said Act casts upon an assessee, the assessee has to not only establish the identity of the source but also establish at least prima facie the capacity of such source and the genuineness of the transaction.

35. In the present matters, the assessees quite reluctantly, may have indicated, but not established the identity of the source. In any case, the assessees have failed to establish the capacity of the source and the genuineness of the transaction. Therefore it is clear that Tania Investments P. Limited (supra) was quite mechanically relied by the ITAT to accept the assessees' so-called explanation in these matters. It is possible that the ITAT merely went by the headnotes which, at times, may not accurately represent the ratio of the decision.

36. Similarly, even Nemi Chand Kothari (supra) rendered by learned Single Judge of the Gauhati High Court has laid down the following propositions, which, support the case of the Revenue than the assessees:-

(i) The inquiry under Section 68 need not necessarily be confined by the Assessing Officer to the transactions, which took place between the assessee and his creditor, but that same may be extended to the transactions, which may have taken place between the creditor and his sub-creditor;

(ii) There can be no doubt that to establish the receipt of cash credit as required under Section 68, the assessee must satisfy three important conditions, namely,

(a) identity of the creditor,

(b) the genuineness of the transaction, and

(iii) Once, the assessee fulfills the aforesaid two conditions, thereafter there is no further burden upon the assessee to establish the creditworthiness of the sub creditor or the creditor's creditor. The onus then shifts upon the Revenue.

37. In the present matters, the assessees have failed to discharge the burden of establishing the creditworthiness of the creditors i.e. Siraj Sheikh and Vijay Kumar Rao. The assessees have miserably failed to establish the genuineness of the transaction between said Siraj Sheikh and Vijay Kumar Rao on one hand and the assessees on the other. In fact, there is no reference to any transaction between these apparent sources/creditors and the assessees. These apparent sources at one stage chose to call themselves

← Previous Next →