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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 ..... es for our consideration is as to whether the ITAT erred, in the given facts and circumstances of the case in sustaining the addition of sum of Rs. 8,24,000.00 in the income of the assessee. 4. In order to decide the aforementioned issue the following facts are required to be noticed. 4.1 The assessee is engaged in the business of trading in imported tailoring accessories like buttons etc. During the relevant assessment year, the assessee had raised unsecured loans from its Directors and shareholders. The total amount of loan raised was, in fact, added to its income, i.e. Rs. 8,24,000.00. The persons, who had lent money to the assessee company were five (5) in number. Out of the five (5) persons, two (2) persons were at the relevant time the Directors of the assessee, while the other three (3) persons were, its shareholders. 4.2 The Assessing Officer (for short 'AO') while carrying out the assessment sought information from the assessee vide notice dated 10.10.2003 qua the credits found in its books of accounts, vis-a-vis the loans extended by the five (5) persons, who were its Directors and shareholders. In response to the notice issued by the AO, a reply d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent order that the said creditors filed with him their income tax returns as well as their bank statements. 4.5 It may be noted at this stage that the AO after perusing the reply of the creditors as well as that of the assessee issued summons under Section 131 of the IT Act, on 24.2.2005, even to the entities which evidently had paid commission and given gifts to the five (5) creditors (hereinafter referred to as sub creditors) which formed the source of funds available with the said creditors. The notices under Section 131 of the IT Act were issued to the following entities/persons: i) M/s. Vasu Apparels (P) Ltd. ii) Mr. Ramesh Kumar Goel. iii) Mr. Deepak Gupta. 4.6 It is important to note that even though these notices had been sent to the aforementioned entities/persons only on 24.2.2005, the AO proceeded to pass the assessment order within four (4) days of the issuance of notice, that is, on 28.2.2005. 4.7 Suffice it to say at this stage that, the AO after perusing the material placed before him and explanation given by the assessee came to the conclusion that both the genuineness of the transactions as also the creditworthiness o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on to the revenue, and if the revenue contended that the monies which the sub-creditors gave to the creditors was that of the assessee then, the revenue would have to prove the same by placing on record the necessary material and cogent evidence in that regard. In this case, Mr. Krishnan submits, no such material has been placed on record nor is there any finding to that effect. 6.5 In support of the aforesaid submissions Mr Krishnan relied upon the following judgments. CIT vs Value Capital Services P. Ltd. (2008) 307 ITR 334 (Del) and Nemi Chand Kothari vs CIT and Anr. (2003) 264 ITR 254. 7. As against this, Mr. Sabharwal before us submits that the details supplied by the assessee would show that the source of funds of the creditors was by way of commissions and gifts. Mr. Sabharwal further submits that in this case the assessee impeded the inquiry of the AO inasmuch as the assessee neither produced the creditors for examination before the AO (except Mr. Krishan Lal Johar) nor did the sub-creditors appear before the AO, despite notice having been issued under Section 131 of the IT Act. 7.1 It was, therefore, Mr Sabharwal's submission that the A.O. had cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cussion with respect to the response received from the assessee on these aspects. Broadly, the CIT(A) recorded the fact that in so far as the credit worthiness of the aforementioned creditors was concerned they had in support of their submission disclosed that their source of funds were largely commissions (except two instances where gifts were received), in support of which certificates have been submitted from parties who had paid the commission. It is also observed in the CIT(A)'s order that parties which paid the commission, as also donors of gifts, were assessed to tax and confirmations in respect of commission as well as gift deeds were also alluded to. 9.1 As regards the creditors which included the four creditors who had not appeared before the A.O., following documents were filed: (i) Acknowledgements of returns filed for assessment year 2002-03; (ii) Computation of income for assessment years 2002-03; (iii) Statement of bank accounts; and (iv) Affidavits stating that monies have been advanced to the assessee. 9.2 Apart from the above in the order of CIT(A) there is a reference to a letter dated 28.02.2005 issued on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord, a finding was returned that credit worthiness of the aforementioned creditors was established. The CIT(A) thus came to the conclusion that in these circumstances non-appearance of the remaining four creditors before the A.O. was not material and that in the wake of the material before the A.O. the onus had shifted on to the revenue to prove, if it disputed, as it did, the genuineness of the loans extended to the assessee. The CIT(A) also disagreed with the A.O.'s observation that since the creditors had paid small amounts as tax against their individual assessments, it would demonstrate that the loans advanced to the assessee were not genuine. 11. In our view, with the findings of fact recorded by the CIT(A), the ITAT ought not to have reversed the said findings unless it come to the conclusion that they were perverse based on tenable reasoning. On the other hand, the ITAT has reversed the order of the CIT(A), as observed in paragraph 18 of the impugned judgment passed by the ITAT, solely on the ground that despite opportunities having been granted to the assessee/directors/shareholders, the assessee had done "nothing substantial" to prove the genuineness of the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were assessable to tax alongwith their PANs were also available with the A.O. (iv) The assessee in turn had received the monies by way of cheques in respect of which credits were made in their books of accounts. (v) The creditors had also placed on record receipts of commission as well as the gift deeds in respect of gifts made to the donors. (vi) The identity and addresses of sub creditors was also available. 14. With this material on record in our view as far as the assessee was concerned, it had discharged initial onus placed on it. In the event the revenue still had a doubt with regard to the genuineness of the transactions in issue, or as regards the credit worthiness of the creditors, it would have had to discharge the onus which had shifted on to it. A bald assertion by the A.O. that the credits were a circular route adopted by the assessee to plough back its own undisclosed income into its accounts, can be of no avail. The revenue was required to prove this allegation. An allegation by itself which is based on assumption will not pass muster in law. The revenue would be required to bridge the gap between the suspicions and proof in order to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er served on the said noticees. It is not uncommon that notice issued by the revenue get dispatched much later than the date mentioned on the notice and as a matter of fact get served on the noticee either on the date of appearance or thereafter. The aforesaid circumstances, according to us, show that the A.O. framed the assessment in haste. If the A.O. was genuinely interested in establishing the allegations made in the assessment order, which is, that the assessee had routed its own money through the device of creditors and sub-creditors, it ought to have given sufficient time to the said noticees to produce relevant material before him. These are aspects which the ITAT did not examine. 17. As regards the judgment cited by Mr Sabharwal is concerned in our view the same is distinguishable on facts. In the case of P. Mohanakala (supra) the assessees evidently had received gifts from two foreign agents by the name of Ariavan thotan and Suprotoman, who were, according to the revenue, aliases of one Sampat Kumar. In the course of scrutiny the A.O. recorded the submissions of the assessees who were before him. The statements of the said Sampat Kumar were also recorded. It appea ..... 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