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TMI Blog2011 (8) TMI 476X X X X Extracts X X X X X X X X Extracts X X X X ..... to have given sufficient time to the said noticees to produce relevant material before him. These are aspects which the ITAT did not examine. - - ITA No. 1158/2007 - - - Dated:- 29-8-2011 - Sanjay Kishan Kaul and Rajiv Shakdher, JJ S. Krishnan, Adv., for the Appellant Sanjeev Sabharwal, Adv., for the Respondent JUDGEMENT Rajiv Shakdher: 1. The learned counsels for both parties agree that the appeal can be admitted and heard on the basis of the pleadings and material on record. 2. Admit. 2.1. The only question of law which arises for our adjudication is as follows: "Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal (for short 'ITAT') was justified in sustaining Rs. 8,24,000.00 on account of unexplained cash credit under the provisions of Section 68 of the Income Tax Act, 1961 (hereinafter referred to as the 'IT Act')?" 3. In the captioned appeal, we are concerned with the Assessment Year 2002-2003. The assessee has filed this appeal as it is aggrieved by the judgment dated 27.4.2007 passed by the ITAT. As indicated hereinabove the only issue which arises for our consideration is as to wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- received from Shally Summon Productions on 22.6.01. 16.2.02 Rs. 74,000/- Commission of Rs. 74,680/- received from Designer's Point India (P) Ltd. on 28.1.02. 5. Smt. Ranjana Kumari 28.3.02 Rs. 1,30,000/- Commission of Rs. 1 lac received in March, 2002. 4.2 On receiving the reply, the AO followed it up with a notice under Section 131 of the IT Act. The said notice under Section 131 of the IT Act was issued to, one such Director of the assessee, i.e., Mr. Krishan Lal Johar. 4.3 Mr. Krishan Lal Johar attended the proceedings before the AO. In the course of proceedings certain questions were put to Mr. Krishan Lal Johar. It is not disputed that the other four (4) creditors, that is, one (1) Director, Mr. Anil Kumar Malik; and three (3) shareholders Mrs. Meenu Malik, Mrs. Shashi Malik and Mrs. Ranjana Kumari, did not personally appear before the AO. It is also not in dispute that the assessee company was also issued a notice under Section 142(1) of the IT Act, on 12.1.2005. Pursuant to this notice, the assessee filed a reply on 24.1.2005. 4.4 It is also not in dispute that in so far as the other creditors were co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee to explain credits found in his books of accounts are as follows: (i) Identity of the creditors; (ii) The credit worthiness of the creditors; and (iii) the genuineness of the creditors. 6.1 Mr Krishnan elaborated the aforementioned submission by submitting before us that in so far as the identity of the creditors was concerned, there was a concurrent finding of fact, which is not in dispute. The finding records that creditors in this case are directors and shareholders of the assessee. 6.2 In so far as the creditworthiness of the said creditors is concerned, Mr. Krishnan submits that the bank statements as well as the income tax returns of the said creditors had been filed with the AO. The said creditors, as has been found by the authorities below, were assessable to tax. It is his submission that even though the assessee was not required to give explanation vis- -vis the sub-creditors; the identity as well as addresses of the sub creditors were available on record. 6.3 As regards the genuineness of the transaction, Mr. Krishnan submits that all transactions had been routed through banks, and necessary material has been placed before the authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was made by the A.O. broadly for the following reasons: (i) At the point in time when loans were advanced to the assessee, the aforesaid creditors did not have sufficient balance to their credit in their respective bank accounts. (ii) Cheques were issued from the creditors bank accounts in favour of the assessee in close proximity to the date when monies were received by the creditors in the form of commission/gifts. De hors these receipts, the creditors would not have had sufficient money to advance to the assessee in the form of loan. (iii) The statement made by Sh. K.L. Johar, director of the assessee under Section 131 of the I.t. Act, showed that he was unaware of some of the aspects related to his earnings and receipt of gifts etc. Therefore, the entries in the books of accounts of the assessee were in the nature of accommodation entries. (iv) Out of five (5) creditors, four (4) creditors did not personally appear before him in response to the summons issued to them. (v) The said creditors had paid small amounts as tax qua their individual returns and that tax had not been deducted at source in respect of commission received by them. 9. We may note at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of five creditors. (ii) The genuineness of the transaction was also established as all transactions routed through bank accounts and monies were paid by the assessee through cross-cheques. In other words payments were made through banking channels and were thus verifiable. (iii) The assessee had filed copies of bank accounts of the creditors, who showed not only the transactions related to the cheques issued to the assessee but also those related to other entries in the said account. Therefore, the genuineness of the transaction could not be doubted. (iv) As regards credit worthiness of the creditors, the reliance was placed on the returns filed by the creditors for the relevant year and the fact that they were assessed to tax. (v) The fact that the creditors Permanent Account Number (in short 'PAN') as well as the credit entries made in their bank accounts were available with the A.O., was also noticed. It was also noticed that PAN of other parties, who had made the payments to the creditors, were also available. The details of the two donors, who had given gifts of Rs. 1 lac to the two creditors, were also available with the A.O. 10. With these materials o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... soon as the assessee establishes the authenticity of transactions as executed between the assessee and its creditors. It is no part of the assessee's burden to prove either the genuineness of the transactions executed between the creditors and the sub-creditors nor is it the burden of the assessee to prove the credit worthiness of the sub-creditors. [See Nemi Chand Kothari (supra)]. 13. In the light of the above principle, let us examine as to what the authorities below found vis-a-vis the genuineness of the transactions and the creditworthiness of their creditors. (i) The fact that there was sufficient balance available with the creditors when cheques have been issued to the assessee company was established. (ii) It was also established that the funds available at the relevant point in time were not infused into the bank accounts of the creditors by way of cash but were in fact credited to their account again by way of cheques largely on account of commissions received by them save and except two transactions of Rs. 1 lac each received by two creditors from verifiable donors. (iii) The bank accounts as well as returns filed by the creditors who were assessable to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 299 ITR 268 (Delhi) and CIT vs. M/s. Lovely Exports (P) Ltd. (2008) 216 CTR 195 (SC). 15. This also answers the observations made by the A.O. with regard to some of the queries raised by the A.O. with Mr. K.L. Johar. Having regard to the answers given by Mr. K.L. Johar, we are not persuaded to hold that the answers by itself diluted the veracity of the material on record to explain the impugned credits in the assessee's books of accounts. 16. This brings us to the last aspect of the matter with regard to the non-appearance of the sub-creditors to whom the notices have been issued under Section 131 of the I.T. Act by the A.O. As observed above, notices had been issued to the sub-creditors on 24.02.2005. The A.O. without giving sufficient time for the services to be effected on the said noticees, within a period of four days proceeded to frame the assessment order. As a matter of fact the A.O. quite curiously, has observed in the assessment order, that the said noticees have preferred not to reply to the summons issued to them. There is no observation whatsoever as to the date on which the said notices were dispatched and thereafter served on the said noticees. It is not un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of such credit found in the books; or the explanation offered by the assessees in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income-tax as the income of the assessees of that previous year. The expression "the assessees offer no explanation" means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. It is true the opinion of the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion." 18. Before we part with the judgment we may only notice that this court vide its order dated 23.09.2009 had directed the counsel for parties to inform the court "as to whether the five directors who had given loan to the company had shown cash deposited in their bank accounts in their respec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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