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TMI Blog2014 (8) TMI 835X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance u/s 14A is not sustainable – Decided in favour of assessee. Unexplained cash credit u/s 68 – Held that:- The opinion of the AO for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on the record - The burden is on the assessee to rebut the same, and, if he fails to rebut it, it can be held against the assess1e that it was receipt of an income nature - assessees received foreign gifts from one common donor - The payments were made to them by instruments issued by foreign banks and credited to the respective account of the essessees by negotiation through a bank in India – assessee has been unable to explain the creditworthiness of the persons who have made this investment - As the explanation offered by the assessee about the nature and source of the sums found credited in the books was not satisfactory there was, prima facie, evidence against the assessee, viz., the receipt of money. The burden was on the assessee to rebut the same, and, it failed to rebut it, it can therefore be held against the assessee that it was a receipt of an inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer shall determine the amount of expenditure with respect to actual expenditure incurred and if the claim of the assessee that no expenditure was incurred is rejected the Assessing Officer has to give cogent reasons for rejecting such claim. He further relied upon the case law of Hero Cycles Ltd. as decided by Hon'ble High Court of Punjab Haryana reported at 323 ITR 518 wherein the Hon'ble Court has rejected the contention of the Revenue that directly or indirectly, some expenditure is always incurred and he invited our attention to Ld. CIT(A) s order which had upheld the disallowance u/s 14A on the same pretext. Continuing his arguments he submitted that the assessee had not made any investment during the year and in support of his argument, he invited our attention to paper book page 4 where the same amount of investment was reflected in the financial year ended 31.03.2008 and 31.03.2009. It was submitted that investments were made in earlier years and, therefore, no disallowance was to be made in the year under consideration. Reliance in this respect was placed on the case law of G D Matsteel P. Ltd. Vs CIT 47 SOT 62 (Mum.) wherein, it was held that when an inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e applicants. He further submitted that the assessment in this case was completed after reopening under the provisions of Section 147/148 but the reasons recorded were not made available to the assessee. He submitted that as per paper book page 1, there is a copy of notice u/s 148 of the Act wherein, it has been mentioned that the reasons recorded u/s 148 are enclosed however, these were never provided to the assessee. Inviting our attention to page 8 of the paper book, Ld. A.R. submitted that in respect of all share applicants, all documents including PAN, Bank Statement, Balance Sheet, copy of return, identity proof etc. were enclosed but the Assessing Officer without considering the above documentary evidence, proceeded to disallow the claim on the basis of assumptions that these were bogus share capital arranged from entry operators. He further submitted that Ld. CIT(A) has also not considered his submissions and, therefore, it was prayed that appeal of the assessee be allowed. 4. Ld. D.R. on the other hand heavily relied upon the findings of the Assessing Officer and Ld. CIT(A) in respect of both appeals. 5. We have heard rival parties and have gone through the material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer and thus disallowance was justified is not sustainable. In view of finding of the Tribunal, it is clear that the expenditure on interest was set off against the income from interest and the investments in the share and funds were out of the dividend proceeds. In view of this finding of fact, disallowance under s.14A was not sustainable. Whether, in a given situation, any expenditure was incurred which was to be disallowed, is a question of fact. The contention of the Revenue that directly or indirectly some expenditure is always incurred which must be disallowed under s.14A and the impact of expenditure so incurred cannot be allowed to be set off against the business income which may nullify the mandate of s.14A, cannot be accepted. Disallowance under s.14A requires finding of incurring of expenditure; where it is found that for earning exempted income no expenditure has been incurred, disallowance under s.14A cannot stand. In the present case finding on this aspect, again the Revenue, is not shown to be perverse. Consequently, disallowance is not permissible CIT Vs Winsome Textile Industries Ltd. (IT appeal No.504 of 2008, dt. 25th Aug., 2009) followed. 6. We fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and after approval of competent authority. In this connection reference is also placed on the following judicial pronouncements. In CIT Vs. India Terminal Connector Systems Ltd. dated 21.03.2012, the Hon'ble Delhi High Court has held that assessment can be reopened on the basis of information provided by the DIT(investigation) which was not available with the AO during the course of original proceeding. The Hon ble High Court thus held as under: In the present case it cannot be disputed at a/l that the material present before the Assessing Officer at the time of recording reasons for reopening the assessment did show link between M/s. Shivam Softech Ltd., described as an entry provider, with the petitioner herein. Not only was there a link between the two names, but the met-riel a/s,) disclosed the date on which the entry was taken the cheque or DD number, the name of the bank and branch and the account number With such precise material before the Assessing Officer, the existence of which is beyond challenge, can hardly be said that the Assessing Officer could not have had even a prima facie belief that income chargeable to tax had escaped assessment in the hands of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances that the inspector dispatched the notice dated March 25, 2008 by speed post on March 29, 2008 to the Lucknow address furnished to her. On a writ petition on the ground that there was no proper service of notice: Held,_ dismissing, he petition, that it was evident that the assessee declined to accept the notice, firstly at Humayun Road, New Delhi, secondly at Nehru Road, Cantonment, Lucknow, Uttar Pradesh and, thirdly, at Kalidas Marg, Lucknow, Uttar Pradesh. All the three addresses belonged to 'the assessee at the relevant time. The notice must be presumed to have been served on the- addressee by virtue of the provisions of section ::'7 of the General Clauses Act. Further, the appellant has not raised any objection during the course of assessment proceedings regarding issue of notice under section 148. Grounds of appeal directed against assumption of jurisdiction under section 148 are, therefore, rejected. In regard to the action of the Assessing Officer in treating ₹ 12,00,000/- share application money as income of the assessee under section 68, as per the assessment order, the same has been done on the basis of: Information received from the Inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment reflected by them. It is also surprising that in response to summons issued by the Assessing Officer, there was no compliance by the various Companies and in fact, one of the summons i.e. of Deepchand Gupta was received back, but inspite of that the confirmations were received from all the parties including Shri Deepchand Gupta. This shows a preconceived plan on part of the appellant to file the confirmations. The entire transaction is against human probability. Thus there is enough material to raise a very strong suspicion, to question the authenticity of the transaction and reject the paper trail created by the appellant and require the assessee to show that the transaction is really one which is above board which the appellant has failed. Hon ble Supreme Court in the case of Sumiti Dayal 214 ITR 801 has held that the genuineness of t. re transaction is to be considered on the basis of surrounding circumstances, humun probabilities and the conduct of the connected parties. A transaction does nor become genuine merely because a paper trail has been created/filed. The AO while exercising his power as an investigating officer has a right to go beyond what is apparent. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.82 lakhs had been deposited in the account of the director. He further noticed that no shares were allotted during the previous year and in the year under consider: lion and that the share application money retained the same form and character even in two subsequent years. Thus the Assessing Officer. treated this amount as unsecured amount and not as share application money. As the assessee had r)t produced any evidence in respect of the source of the deposits, the Assessing Officer added the sum of ₹ 11.82 and also added ₹ 5 lakhs as shown in the company's books as deposits made against bookings for flats in the scheme of the company but which were cancelled by the parties. The Commissioner (Appeals) as well as the Tribunal dismissed the appeal filed by the assessee. On further appeal: Held,_ dismissing the appeal, (i) that as no shares were allotted to the director during the year in question and for the subsequent two assessment years and the shares were allotted after enquiry done by the Assessing Officer, the amount of ₹ 11.82 lakhs could be treated as unsecured loan. The amount had been deposited in cash and in spite ct enquiry; the source of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held against the assess1e that it was receipt of an income nature. The burden is on the assessee to take the plea that, even if the explanation is not acceptable, the material and attending circumstances available 6n record do not justify the sum found credited in the books being treated as a receipt of income nature. The assessees received foreign gifts from one common donor. The payments were made to them by instruments issued by foreign banks and credited to the respective account of the essessees by negotiation through a bank in India. Most of the cheques sent from abroad were drawn on the Citibank, N. A. Singapore. The evidence indicated that the donor was to receive suitable compensation from the assessees. On this material the Assessing Officer held that the gifts though apparent were not real and accordingly treated all those amounts which were credited in the account books of the assessees as their income applying section 68 of the Income-tax Ad, 1961. The assessees did not contend that even if their explanation was not satisfactory the amounts were not of the nature of income. The Commissioner (Appeals) confirmed the assessment. On further appeal, there was a diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statements recorded from persons confirming the facts, that the assessee had obtained accommodation entries of ₹ 1,18,50,000 from these persons if' the garb of share application monies during the relevant year, the Assessing Officer issued notice under section 148 of the Act reopening the assessment of the assessee. In the course of the reassessment proceedings, the Assessing Officer issued a questionnaire to the assessee, The assessee sought copies of the documents / material in the possession of the Assessing Officer and opportunity to cross-examine the person in charge of the 16 companies with regard to the contents of the statements recorded from them, The Assessing Officer issued summons to two individuals and to the companies, some of which were received back un-served and the other summons remained uncomplied with. The Assessing Officer sent an Inspector to the addresses to which summons Were issued, The Inspector reported that no such person or company was available or existing at the addresses to which summons were issued, on the basis of the report of the Inspector, the Assessing Officer issued notice to the assessee to produce the persons and companies from who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also found to be involved. The Tribunal had recorded, while dealing with the assesee s cross objections challenging the jurisdiction of the Assessing Officer to reopen the assessment, that the information was specific, not general or vague, and referred to transactions entered into by the assessee during the year under consideration, that as per the information of the investigation wing, the names of the persons issuing the cheques, the cheque amounts, dates, etc., were also mentioned providing a link between the entry providers and the assessee. In the statements recorded from R and M by the investigation wing, they had implicated the assessee- company also, inter alia. A perusal of the names of the entities from whom the assessee had received share application monies showed that 15 names appeared in the list of 22 companies mentioned in the letter of M and R to the Additional Commissioner. This established the link between the materials which was present before the Assessing Officer both at the tim1e when reasons for reopening the assessment were recorded and when the reassessment proceedings were made. In finding fault with the Assessing Officer for not accepting the identically ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gain a neutral fact. That these companies were complying with such formalities did not add any credibility or evidentiary Value. In any case, it did not ipso facto prove 'hat the transactions were genuine. Material was gathered by the investigation wing and made available to the Assessing Officer, who in turn had made it available to me assessee. The Tribunal had ignored relevant material. The Tribunal also erred in law in holding that the Assessing Officer ought to have proved that the monies emanated from the coffers of the assessee-company and came back as share capital Section 68 permits the Assessing Officer to add the credit appearing in the books of account of the assess1ee if the latter offers no explanation regarding the nature. and source of the credit or the explanation offered is not satisfactory. It places no duty upon him to point to the source from which the money was received by the assessee. Even if one were to hold that the Assessing Officer was bound to show that the source of the unaccounted monies was the coffers of the assessee, in the facts of the present case such proof had been brought it by the Assessing officer... The statements of the entry providers ..... 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