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TMI Blog2012 (10) TMI 601X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue and in adding to the amount to the income of the assessee. Where the source is the assessee himself, he is required to prove the source of the source to verify the transactions. It will be open to the Income Tax department to proceed against the trusts in accordance with the law. The questions of law are decided in favour of revenue and against the assessee. In favour of revenue X X X X Extracts X X X X X X X X Extracts X X X X ..... The AO found that all the cash deposits in bank account of the trusts were out of petty donations received during the year. The last year's cash balance was kept as cash in hand in imprest account with trustee and some loans and advances. It was observed that the amount of cash in hand and petty donations, as shown in the balance sheet and Income & Expenditure account, is not by any means sufficient for advancing unsecured loans to the extent as shown by the assessee/trusts. The cash was kept in imprest account and for loans & advances, no evidence was produced. In absence of books of account, the availability of funds with the trusts to advance the same as unsecured loans to assessee company was not established and thus the assessee failed to prove the capacity and genuineness of the transactions. The AO did not accept the genuineness of the unsecured loans of Rs. 17, 83, 571/- and added it back to the income of the assessee. The AO also found an adhoc disallowance of Rs. 1, 00, 000/- on account of machinery repairs with which we are not concerned in this appeal. 5. The CIT(A) in the appeal filed by the respondent-company considered the submissions, and recorded findings as foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 280 ITR 512 (Guj.) (c) ITO v. M.S. Advance (P) Ltd. ITAT, Amritsar "SMC" Bench.." 6. The CIT(A) thereafter found as follows:- "On careful consideration of the facts placed hereinabove, it is seen that the diversion theory of the AO apparently has sufficient basis because independent existence of the trusts has not been proved. Neither the Author of the trust, nor the object/beneficiary has been given before the AO or during the appellant proceedings. The accounts of the trusts given does not throw light on independent existence of these trusts. The AO has brought on record various facts, which clearly suggest that Shri Rakesh Kumar Agarwal is the common trustee of these trusts and is also the Director of the appellant company. The fund flow from the trusts to the appellant company through the same person Shri Rakesh Kumar Agarwal has been established. The independent existence of these trusts, however, has not been proved. The AO has rightly pointed out that the Income Tax Returns in respect of these trusts have been processed in summary manner and have not been subjected to scrutiny and hence merely because Income Tax Returns have been filed, it does not conclusively prove ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the C.A. These balance sheets have been filed with the income tax department and more particularly with the same AO assessing the assessee company. These evidences and material on record clearly prove that assessee had discharged initial onus to prove identity of the creditor, their financial capacity to advance loan and genuineness of the transaction in the matter. 9. The authorities below have rejected the claim of the assessee precisely on the reasons that there were cash deposits in the accounts of the trusts prior to the issue of cheques to the assessee company. However, it is settled law that an assessee could not be asked to prove the source of the source. The assessee could not be directed to prove the source of deposits in its books of accounts. Therefore, objection of the authorities below cannot be sustained. Moreover as noted above the opening capital balances with the 8 trusts were found sufficient out of which loans could have been advanced to the assessee irrespective of the cash deposits in their bank accounts. The authorities below have also noted that the director of the assessee company is also sole trustee of these trusts. Therefore, independent status of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of the creditor. We accordingly set aside the orders of the authorities below and delete the entire addition. As a result ground nos. 1 and 2 of the appeal of the assessee are allowed." 9. Shri Dhananjai Awasthi, appearing for the revenue, submits that ITAT has committed gross error of law in accepting the genuineness of the transaction in the matter. All the eight trusts, even if their returns were accepted under Section 143(1)(a), were fictitious. In all these eights trusts Shri Rajesh Kumar Agarwal was the common managing trustee. He did not produce the copy of the trust deeds before the authorities to prove the genuineness and existence of the trusts. Neither the author of the trusts nor the object of the trusts was shown. In all the trusts cash amounts were deposited, and on the same day these amounts were transferred to the company managed by Shri Rajesh Kumar Agarwal, by way of cheque. The details of these cash deposits in the trusts and the date of transfer to the assessee-company have been given in the order of AO as follows:- LORD SHANKER JI TRUST Date of cash deposit Amount Date of transfer to Hindon forge Amount 17.4.2002 15,000/- 17.4.2002 14,000/- 29.4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 14.8.2002 80,000/- 24.8.2002 22,000/- 24.8.2002 22,000/- 10. Shri Dhananjai Awasthi submits that under Section 68 of the Act, where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source of the same or the explanation offered by him is not satisfactory in the opinion of A.O., the sum so credited may be charged to income tax as the income of the assessee of that previous year. He submits that the burden is upon the assessee to explain the nature and source from which the credits were obtained. In this case the AO and CIT(A) have found after making investigation that it was Mr. Rajesh Kumar Agarwal, who was the director of the assessee-company and was managing of all the eight trusts. He had created these trusts for money laundering. He kept on depositing the cash amounts in the trusts and thereafter transferring the same on the same date to the company. All the dates of donations and loan taking from these trusts are the same. The assessee did not produce the trust deeds; the object and the beneficiaries of the trusts. In the entire transactions Shri Rajesh Kumar Agarwal was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax v. United Trading And Construction Co [2001] 247 ITR 819 has only held that there is nothing in Section 24 of the Finance (no 2) Act which prevents the Income Tax Officer, if he is no satisfied with the explanation of the assessee about the genuineness of sources of amounts found credited in his books to add them to the assessee's income amount in spite of these having already been made the subject matter of the declaration made by the depositors/creditors. There is no quarrel about the preposition of law laid down by the Apex Court which was relating to the case of declaration of the income under the Voluntary Disclosure Scheme introduced by the Finance (No. 2) Act, 1965' 12. Section 68 and 69 of the Income Tax Act reads as follows: "68 Cash Credits-. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous years. 69. Unexplained investments.- Where in the financial year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner of Income Tax, 103 ITR 344 Patna.) 17. In the case of Jallan Timbers v. CIT reported in 223 I.T.R, 11, the Division Bench of Gauhati High Court held that under Section 68 of the Income Tax Act, the assessee has to prove three important conditions (1) Identity of the person (2) Genuineness of the transaction and (3) capability of the person giving cash credit. On the explanation being given the assessing authority can reject the explanation by cogent grounds and if the ground are based on no ground, presumption against the assessee does not arise. 18. In Sreelekha Banerjee v. CIT reported in 43 ITR page 112, Apex Court held that "if there was an entry in the account books of the assessee which showed the receipt of a sum on conversion of high denominations notes tendered for conversion by the assessee himself, it is necessary for the assessee to establish it asked, what the source of that money was and to prove that it was not income The Department was not at that stage required to prove anything. It could ask the assessee to produce any books of account or other documents or evidence pertinent to the explanation if one was furnished and examine the evidence and the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of Parliament in enacting Section 69 was to confer a discretion on the Income Tax Officer In the matter of treating the source of investment which has not been satisfactorily explained by the assessee as the income of the assessee and the Income Tax officer is not obliged to treat such source of investment as income in every case where the explanation offered by the assessee is found to be not satisfactory. The question whether the source of the investment should he treated as income or not under Section 69 has to he considered in the light of the facts of each case. In other words, a discretion has been conferred on the Income Tax Officer under Section 69 of the Act to treat the source of investment as the income of the assessee if the explanation offered by the assessee is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case." 12. In the present case, we find that the assessee could not prove the genuineness of the transactions before the assessing officer. The identity of the creditor (the eight trusts) in the present case was that of the assessee himself. Shri Rajesh Kumar Agarwal-the man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 54 ITR 148 (SC), the Court observed: "The court nowhere said that every action or inaction on the part of the taxpayer which results in reduction of tax liability to which he may be subjected in future, is to be viewed with suspicion and be treated as a device for avoidance of tax irrespective of legitimacy or genuinness of the act; an inference which unfortunately, in our opinion, the Tribunal apparently appears to have drawn from the enunciation made in Mc. Dowell's case (1958) 154 ITR 148 (sc). The ratio of any decision has to be understood in the context if has been made. The facts and circumstances which lead to Mc Dowell's decision leave us in no doubt that the principle enunciated in the above case has not affected the freedom of the citizen to act in a manner according to his requirements, his wishes in the manner of doing any trade, activity or planning his affairs with circumspection, within the framework of law, unless the same fall in the category of colourable device which may properly be called a device or a dubious method or a subterfuge clothed with apparent dignity. This accords with our own view of the matter." 15. In the present case, we have no doubt that Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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