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TMI Blog2018 (6) TMI 1449X X X X Extracts X X X X X X X X Extracts X X X X ..... olation of mandatory jurisdictional conditions stipulated under the Act; 1.1 That on the facts und in the circumstances of the case and in law, ld CIT-A erred in sustaining the order passed by Ld AO uls 1471143(3) without appreciating that "rubber stamp" reasons in present case are based on borrowed satisfaction and are without independent application of mind; 1.2 That on the facts and in the circumstances of the case and in law, ld CIT-A erred in sustaining the order passed by Ld AO uls 147/143(3) without appreciating that no back material was confronted to. assessee thus invalidating entire reopening. 1.3 That on the facts and in the circumstances of the case and in law, ld CIT-A erred in sustaining the order passed by Ld AO uls 1471143(3) without appreciating that Ld AO has exceeded his jurisdiction by incorporating the inadmissible documents in impugned order outside the reasons supplied, which have no evidentiary value uls 292C of the Act; 1.4 That on the facts and in the circumstances of the case and in law, ld CIT-A erred in sustaining the order passed by Ld AO uls 147/143(3) as none of the assessee submission is appreciated while adjudicating the appeal; 2. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the circumstances of the case and in law, ld CIT-A erred in not restoring the returned income declared by assessee in its return of income. 4. That on the facts and in the circumstances of the case and in law, ld CIT-A erred In not deleting the addition made by Ld AO which was also unlawful and made in violation of principles of natural justice. 5. That on the facts and in the circumstances of the case and in law, ld CIT-A erred in sustaining the- order passed by Ld AO U/S 147/143(3) in-bare violation of principles of natural justice. That the appellant craves leave to add add/alter any/all grounds of appeal before or at the time of hearing of the appeal. 2. At the threshold, I find that the facts of this appeal are totally similar to case decided in matter of Moti Adhesives P. Ltd. decided in ITA No. 3133/Del/2018 (AY 2009-10) vide order dated 25.06.2018. As evident from the fact that orders passed by AO in both the cases were on the basis of search proceedings on Jain Brothers and only ground here also to make subject addition of ₹ 505,000 & ₹ 10,100 is stated non production of Director of shareholder company (refer internal page 2 &3 of assessment order) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill end has not brought on records the statement of searched person as recorded by investigation wing during their search action u/s 132 of the Act much less offered their cross examination to assessee herein to justify the allegations leveled in detailed reasons recorded which would in my opinion make the reopening as invalid (refer Apex court leading decision in case of Andaman Timber Industries reported at 127 DTR 241 order dated 02/09/2015 and Bombay high court decision in case of H.R.Mehta reported at 387 ITR 561) This violation of natural justice in my view is a serious flaw and goes to the root of the matter and nullifies the entire proceedings. 5.2 Be that as it may, once assesseee places all the reliable and trustworthy documentary evidences to support the veracity of transaction u/s 68 of the Act, it is the duty of AO to dispassionately consider the same with objective standards and not to make the additions simply reproducing at length from the internal report of investigation wing prepared at the time of search (here on Jain Brothers). That is AO cannot make addition u/s 68 on mere basis of ifs and buts only and some credible incriminating material must be brought on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed AO of share holder company which itself is sufficient to knock off the addition made. On basis of this I have no hesitation to delete the additions of ₹ 25,00,000 and ₹ 45,000 made u/s 68 by AO in reopened proceedings u/s 148 of the Act, as alleged accommodation entry obtained, on sole and mere basis of non production of directors of share holder company which in my considered view is plainly incorrect and unjustified. Notably, there is no statutory presumption that all cash credits and share capital are deemed to unexplained unless otherwise proved. My aforesaid view is fortified by the following decisions - - Hon'ble Delhi High Court decision in case of Softline Creations Pvt. Ltd., order dated 31.08.2016 (ITA 504/2016) (387 ITR 636) Relevant Extract: "The revenue is aggrieved by the order dated 10.02.2016 of the Income Tax Appellate Tribunal (ITAT) which confirmed the Commissioner of Income Tax (Appeals)'s order [hereafter "CIT(A)"]. The CIT(A) had ruled in favor of the assessee, i.e. the additions under Section 68 of the Income Tax Act, 1961 [hereafter "the Act"] were unwarranted. It is urged on behalf of the revenue that the AO's order, adding the amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain date and then substantial amounts were deposited either by cash or cheque to increase the balance and thereafter invariably withdrawn within a day or two. Since the process was shown to be repeated over and over in the P&L Account of the Assessee, the AO concluded that there was no business activity worthy of mention. Concluding that the Assessee had failed to discharge the onus to prove the genuineness or the creditworthiness of the companies which had made the payments, the AO held that the share application money received from the companies should be treated as income in the hands of the Assessee. He accordingly ordered an addition of ₹ 60 lakhs. The Court is essentially called upon to consider whether on the facts of the present case, the view taken by CIT(A) as confirmed by the ITAT could be said to be plausible or is it so perverse as to require interference by the Court? A perusal of the order of the AO shows that its foundation is the report of the DIT (Investigation). Admittedly, the Assessee was not confronted with that material in the course of the reassessment proceedings. The Assessee was also not confronted with the statements recorded in the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d showing that they had sufficient funds for investing in the shares of the Assessee. The learned counsel relies on the judgment of the Division Bench of this Court in case of Commissioner of Income Tax vs. Gagandeep Infrastructure (P.) Ltd., reported in [2017] 80 Taxmann 272 (Bombay) and the order of the Apex Court in case of Commissioner of Income Tax vs. Lovely Exports (P.) Ltd., reported in [2008] 216 CTR 195 (SC). 4] We have considered the submissions. 5] The Assessing Officer added ₹ 95 lakhs as income under Section 68 of the Income Tax Act only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account. 6] The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. vs. ITO reported in (2012) 20 taxman.com 797 (Del.). The Hon'ble High Court has observed that as there is no reference to any document or statement except the annexure which has been quoted by the Assessing Officer a prima facie nexus or link cannot be made to have been established which shows that income has escaped assessment. The Hon'ble High Court held that from the reasons recorded by the Assessing Officer it does not appear that the Assessing Officer has applied his mind to the information and has independently arrived at a belief on the basis of material which he had before him that the income had escaped assessment. In the facts of the present case, the assessee had furnished the names and all the relevant details of the companies, with which it had entered into transaction, and that the Assessing Officer was made aware of the situation. I observe from the records placed before me that the Assessing Officer has not disputed the bank accounts and the payments that were made to the assessee by the applicant companies. Nowhere in the assessment order the Assessing Officer has brought into existence any material to show that the company Victory Software P. Ltd. is a non-e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... list of documents submitted on 09.03.2015 are as follows : 1. Sony Financial Services Ltd. - CIN U74899DL1995PLC068362- Date of Registration 09/05/1995 a) Memorandum of Association and Article of Association b) Certificate of Incorporation c) Certificate of Commencement of Business d) Acknowledgment of the Return of Income AY 08-09 e) Affidavit of the Director confirming the investment f) Application for allotment of shares g) Photocopy of the share certificate h) Audited account and Directors report thereon including balance sheet, Profit and Loss Account and schedules for the year ended 31.03.2009. i) Audited account and Directors report hereon including balance sheet, Profit and Loss Account and schedules for the year ended 31.03.2010 j) The Bank Statement highlighting receipt of the amount by way of RTGS. k) Banks certificate certifying the receipt of the amount through Banking channels." On going through the documents which have been produced which are basically from the public offices, which maintain the records of the Companies. The documents also include assessment Orders for last three preceding years of such Companies. The Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apsulated below for sake of ready reference: 2. The following substantial questions of law have been framed while admitting TCA.No.435 of 2013 on 25.2.2014 : "(i) Whether the Appellate Tribunal is correct in confirming the assessment of share capital contributions as unexplained credit/investment within the scope of Section 68/69 of the Act in spite of the material evidence filed before them and the lower authorities establishing clearly/discharging of initial burden/onus statutorily vested on the appellant company to provide the source ? (ii) Whether the Appellate Tribunal is correct in law in confirming the assessment of share capital contributions as the income of the appellant company even though there were no materials in their possession of the respondent/Assessing Officer establishing such facts apart from mere suspicion as well as establishing perversity both on facts and in law in rendering their decision? and (iii) Whether the Appellate Tribunal is correct in law in sustaining the assessment of share capital contributions as the income of the appellant company on the application of the deeming provisions in Section 68/69 of the Act even though there was no leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affected by the irrelevant material used by it in arriving at its finding. Such a finding is vitiated because of the use of inadmissible material and thereby an issue of law arises. Likewise, if the Court of fact bases its decision partly on conjectures, surmises and suspicions and partly on evidence, in such a situation, an issue of law arises [Dhirajlal Girdharilal Vs. CIT [1954] 26 ITR 736 (SC)]. The Court went on to hold that a person can still be held to be the owner of a sum of money even though the explanation furnished by him regarding the source of that money is found to be not correct. Thus, the explanation regarding the source of money furnished by the person was not satisfactory does not automatically lead to a conclusion that that the money does not belong to that particular person, but belongs to the other automatically. 17. More importantly, the Supreme Court, in Daulat Ram, has laid down the following principle, which has a direct bearing upon the controversy at issue and it reads as under: "The onus to prove that the apparent is not the real is on the party who claims it to be so. As it was the department which claimed that the amount of fixed deposit receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self, it is necessary for the assessee to establish, if 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 explanation. If the explanation showed that the receipt was not of an income nature, the Department could not act unreasonably and reject that explanation to hold that it was income. If, however, the evidence was unconvincing, then such rejection could be made. The Department cannot by merely rejecting a good explanation unreasonably, convert good proof into no proof." 20. Again in the case of Sumati Dayal Vs. CIT [reported in 214ITR 801], at page 805, the Supreme Court has clearly explained the point of approach to be followed both by the assessee and the Department, in the context of Section 68 of the Act, in the following words: "It is no doubt true that in all cases, in which, a receipt is sought to be taxed as income, the burden lies upon the Department to prove that it is within the taxing provision and if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. The Assessing Officer has adopted a totally unreasonable attitude and was acting unreasonably. That was exactly what was frowned upon by the Supreme Court in Sreelekha Banerjea's case, (1963) 49 ITR (SC) 112. Even when the investor of the assessee demonstrated its resources, the Assessing Officer still has suspicion. 24. Thus, the assessee company has completely explained the sources of investments received by it. It has also disclosed the identity of such investors. The Assessing Officer traced out and reached all the four investors of the assessee. He also found as a fact that all the payments have been received through banking channels. Hence, the burden cast on the assessee stood discharged. But yet, the Assessing Officer disallowed and added the amount to income of the assessee. In this context, it is apt to take note of the crisply worded order of the Supreme Court in the case of CIT Vs. Lovely Exports (P) Ltd. [reported in (2008) 216 CTR 195 (SC)], which runs as follows : "Can the amount of share money be regarded as undisclosed income under Section 68 of IT Act, 1961 ? We find no merit in this special leave petition for the simple reason that if the share appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sibility. The assessee cannot call upon its investors to disclose all such business transactions that carried on in the immediate past and as to how much they made from their respective business enterprises. The assessee cannot also call upon its investors to prove their good business sense in investing in the assessee company, as such investors cannot gain any controlling stake. 43. In the result, the questions of law framed in TCA.No.435 of 2013 are answered in favour of the assessee and against the Revenue. Hence, TCA.No.435 of 2013 is allowed. Consequently, MP.No.1 of 2014 is closed." 5.4 In a case where the issue was whether the assessee availed cash credit as against future sale of product, the AO issued summons to the creditors who did not turn up before him, so AO disbelieved the existence of creditors and saddled the addition, which was overturned by Ld. CIT(A). However, the Tribunal reversed the decision of the Ld. CIT(A) and upheld the AO's decision, which action of Tribunal was challenged by the Hon'ble High Court, Calcutta in the case of Crystal Networks (P.) Ltd. v. Commissioner of Income-tax 353 ITR 171 wherein the Tribunal's decision was overturned and dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mining of all other materials and documents, viz., confirmatory statements, invoices, challans and vouchers showing supply of bidis as against the advance. Therefore, the attendance of the witnesses pursuant to the summons issued, in our view, is not important. The important is to prove as to whether the said cash credit was received as against the future sale of the product of the assessee or not. When it was found by the Commissioner of Income tax (Appeals) on facts having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this -fact finding. Indeed the Tribunal did not really touch the aforesaid fact finding of the Commissioner of Income-tax (Appeals) as rightly pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 464, the Supreme Court has observed as follows: "The Income-tax Appellate Tribunal performs a judicial function under the Indian Income-tax Act; it is invested with authority to determine finally all questions of fact. The Tribunal must, in deciding an ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness" of transaction through account payee cheque has been established. We find that both the Commissioner of Income Tax (Appeal) and the Tribunal below followed the well-accepted principle which are required to be followed in considering the effect of Section 68 of the Act and we thus find no reason to interfere with the concurrent findings of fact recorded by both the authorities." 6. Keeping in view of the facts and circumstances of the case and respectfully following the aforesaid decisions, I held that mere non production of Director of said share holder company cannot justify adverse inference u/s 68 of the Act. Even if there was any doubt if any regarding the creditworthiness of the share applicants was still subsi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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