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TMI Blog2019 (6) TMI 1253X X X X Extracts X X X X X X X X Extracts X X X X ..... e allegation of AO about enquiries about address of company is found wrong beside there is no material against the mass evidences/material placed on record and accepted other loans Id. AO failed to discharge the shifted onus lay upon him even after remanding case twice. 3. That in addition to above, learned CIT(A) failed to appreciate that loans was taken long before the start of activities hence neither there was any possibility to have earned so much of income and failed to follow the ration of apex / jurisdictional courts etc. on the issue. 4. That without prejudice to above and without any dilution in above grounds but in alternative, learned CIT(A) failed to follow the ratio of jurisdictional/other courts holding that provisions of s. 68 has no applicability where deemed income u/s 68 is applied for charitable purposes. 2. The brief facts of the case shows that the assessee is a charitable trust assessed as Association of Persons, running an educational institute, filed its return of income on 12.10.2010 showing total income of Rs. Nil. 3. During the course of assessment proceedings, it was found that the assessee has obtained unsecured loan of Rs. 30 lakhs from M/s. Ato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The facts of the case, submissions made by the appellant, remand report of the AO and rejoinder of the appellant have been considered. The appellant is a society which is not registered u/s 12Aof the Act during the year under consideration. The AO has required the appellant to prove identity, creditworthiness‟ 'and genuineness in respect of above unsecured loans. The appellant has received loan of Rs. 30 lac from M/s Atoll Vyapaar Pvt. Ltd., registered at 19, Ilnd Floor, Main Building, R.N. Mukerjee Road, Calcutta. Similar loans have been raised in the case of Society for Institute of Professional Studies for 2010-11 where trustees are common with the appellant and being assessed with the same AO. It was found by the AO that its director is Sh. Sunil Kumar Gupta whose address as per the ROC/MCA records is 234, DDA Office Complex, Jhandewalan Extension, New Delhi. The AO has issued notice u/s 131 of the Act on 16-04-2012 in the case of Sh. Sunil Kumar Gupta in the case of Society for Institute of Professional Studies to verify the unsecured loans taken by the appellant from 3 companies including M/s Atoll Vyapaar. The Inspector Income Tax deputed to serve the said no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .56 lac with huge premium of Rs. 7.81 crore. The available funds have been parked into unquoted shares investments and loans advances from which there is no income. In the profit & loss account it has shown petty interest receipts of Rs. 78082/- with net profit of Rs. 37989/-. It has no fixed asset. The loan has been repaid on 02-04-2014 without paying any interest and much after the completion of the assessment proceedings on 15-03-2013. From the above analysis, it is noted that the above entity is not doing any real business activities to support the availability such large funds of getting share capital, huge share premium at their disposal to make such investment with the appellant. This entity has been found to be a paper company. In the view of the above facts, it is noted that identity, creditworthiness and genuineness of the above entity is not established from the above documents and results of enquiries made by the AO. The above entity has been found to have been existing only on papers without having any real or physical worth to support the alleged investments made with the appellant. Therefore, appellant has failed to explain/ prove-the identity, creditworthiness and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification but have their limitation when there is evidence and material to show that the subscriber was a paper company and not a genuine investor. The SLP against the ruling of the Hon‟ble High Court has been dismissed by the Hon‟ble Supreme Court. Further, it has been held by Hon‟ble Delhi High Court in the case of Youth Construction Pvt. Ltd. 357 ITR 197 (Delhi) that mere proof of identity without genuineness and creditworthiness is not enough. Further, it has been held by the Hon‟ble Delhi High Court in the case of N.R. Portfolio Pvt. Ltd. 87 DTR 0162 (Del) that the onus to prove the three factum is on the assessee as the facts are within his knowledge. Mere furnishing names address and PAN particulars or relying on entries in the ROC website is not enough. If upon verification or during the proceedings, the AO cannot contact the share applicant or information becomes unverifiable or there are further doubts in pursuit of such details, onus shifts back to the assessee to explain the same. The relevant part of the order of the Hon‟ble Delhi High Court is reproduced as under:- 30. What we perceive and regard as correct positon of law is that the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged depends upon facts of each case. It depends on whether the two parties are related or known to each; the manner or mode by which the parties approached each other, whether the transaction was entered into through written documentation to protect the investment, whether the investor professes and was an agnel investor, the quantum of money, creditworthiness of the recipient, the object and purpose for which payment/investment was made etc. These facts are basically and primarily in knowledge of the assessee and it is difficult for revenue to prove and establish the negative. Certificate of incorporation of company, payment by banking channel, etc cannot in all cases tantamount to obvious. What is unmistakably visible and apparent, cannot be spurred by formal but unreliable pale evidence ignoring the patent and what is plain and writ large. 32. In view of the aforesaid discussion the substantial question of law framed in the two appeals is answered in favour of appellant-Revenue and against the Respondent. Further reliance is put on the decisions of the Hon‟ble High Courts in the cases of Titan Securities Ltd. (2013) 357 ITR 184 (Delhi), Empire Builtech Pvt. Ltd. 36 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant has been required by the AO to produce the Director of Atoll Vyapaar during the assessment proceedings on 12- 03-2013. However, no compliance has been made. As per the requirement of section 68 of the Act, onus has been shifted back on the appellant by confronting the appellant on the basis of adverse findings as a result of enquiries conducted to verify the genuineness of documents submitted by the appellant and about non-existence of company at the address given by the appellant. The documents furnished by the appellant have thus remained unverifiable. Therefore, the appellant has failed to discharge the onus cast upon it u/s 68 of the Act to explain the credits. The various adverse observations made above in the cases of this alleged depositor entity is corroborating to infer that their identity, genuineness and creditworthiness has not been proved. 16. The appellant has relied upon the fact that these loans have been repaid in the subsequent years. However, this fact is not relevant as the unsecured loans have not been explained in the year in which the same have been received by the appellant as required u/s 68 of the Act. It is relevant to mention here that the loans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t ITA No.3848/Del/2009. The appellant has not submitted any evidence that it is registered u/s 12A/12AA of the Act for the year under consideration. Therefore, this submission is not based upon documentary evidence without prejudice to this, It is noted that in the case of Uttranchel Welfare Society the unverified donations of Rs. 96.5 lac added by the AO u/s 68 of the Act were already a part of income & expenditure account and were declared as income in the hands of the assessee whereas in the present case unverified loans which have been added by the AO u/s 68 of the Act are not part of income & expenditure statement of the appellant The said decision has been given by the Hon‟ble Allahabad High Court after considering the ratio of Hon‟ble Delhi High Court in the case of DIT vs. Keshav Social & Charitable Foundation in which it has been held that section 68 has no application in a case where the assessee has disclosed the donations as its income. Further, it is also mentioned that provisions of section 11 are applicable in respect of income derived from the property held for charitable purposes. Whereas, in the facts of the case it has been found that these unexplai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. He further relied upon the following judicial precedents for each of the above arguments as under:- "A. Where loan is supported with confirmation/ITR etc. and loan is received and refunded back the. banking channel - Can‟t be added in the hands of assessee u/s 68: CIT V Rahul Vineet Traders[2014] 41 taxmann.com 86 (All) 01-03 CIT V Kapoor Chand Mangesh Chand[2013]38 taxmann.com 239 (AIL) 04-05 CIT v ABT ITD. (2015)370 ITR 159 (Madras) 06-06 B. Where loan is supported with confirmation/ITR/address and loan is received th. banking channel and no cash is deposited in depositor a/c-Onus discharged. AO may add in the hands of depositor or has to conduct enquiry to bring material to reject loan CIT V Shalimar Buildwell Pvt. Ltd. [2013] 40 taxmann.com 285 (All) 07-09 CIT VSURENDRA CHAND BANSAL [2014) 42 TAXMANN.COM 201 (ALL) 10-10 CIT S. Kamaljeet Singh (2005) 147 Taxmann 18 (ALL) CIT vGangeshwari Metals P. LTD [2014] 361 ITR 10 (DEL) 11-12 ACIT V Shyam Indus Power solutions P Ltd. (2018) 90 taxmann.com 424(DEL-B) 11A-11Q C. When loan is received before or even at the time of starting of business, addition cant be made in the hands of assessee: CIT V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irmed. He further referred to the decision of the Hon'ble Supreme Court in case of NRA Iron and Steel Co. and the decision of the Hon'ble Delhi High Court in case of NDR Promoters Pvt. Ltd. On the issue of making addition when the activities of the trust has not started, He stated that during the year the assessee has already started its activities and constructed building on the land purchased and further obtained unsecured loan of Rs. 70 lakhs, which clearly shows that assessee has setting up its activities therefore, it cannot be stated that assessee has not carried out its activities during the year. He further stated that the trust is registered by 12.01.2009 and has already commenced its activities, therefore it has made application for registration u/s 12 AA and 80G (5) of the act, therefore, it cannot be said that it has not set up its business. He further referred to the trust deed of the assessee wherein, the assessee has started receiving the donation. Therefore, he submitted that the trust has already been set up, obtained substantial unsecured loan, purchased huge land, constructed building thereon, applied for registration u/s 12AA and 80 G (5) and after that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. he noted that there was a heavy debit and credit in the bank statement which did not commensurate with the return of income of the assessee, he therefore, asked the assessee to produce the directors of the lender company which the assessee neither produce before the ld AO nor before the ld CIT(A). Therefore, the ld AO got the enquiry conducted and found that the company does not exist at the given address. The ld AO further noted lender has also given loan to an another trust Society For Institute And Professional Studies for FY 2010-11 which is having common trustees as of the assessee and assessed by the same AO. In that case also lender was fond to be nonexistent but a paper company as its directors were not traceable. Summons u/s 131 issued on 16.04.2012 to Mr. Sunil Kumar Gupta, director of the lender company was not complied with the summons. The inspector was deputed, who found that such company did not exist at the given address. The local enquiry revealed that directors never lived at the given address as given in MCA records. Therefore, the ld AO asked the assessee to produce those directors before the ld AO for examination. The assessee did not comply with this requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not have a fixed asset of single rupee. Further, the balance sheet produced before the lower authorities was also not accompanied with the schedules and the profit and loss account but a stray paper giving the list of various loans and advances etc was given . For example the assessee has not produced schedule 5, 6 and 4 attached with the balance sheet. It has not also produced the profit and loss account of the above company. It has not shown that bank balance and cash on hand company was having. Balance sheet does not show in which bank the lender company was having its accounts. Therefore, we are of the view that assessee has failed to produce the annual accounts of the above company. Merely producing stray list of advances without producing original schedules to annual accounts, speaks lot about the functioning of the lenders and the genuineness of the transaction entered into by the assessee with that company. Hence we reject the argument of the assessee that it has produced the annual accounts of the lender. Further the bank account of the lender which is given for 9/1/2009 to 12/1/2009 to the AO does not show the name of the bank to which it pertains to similarly bank statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court. The fact of that case does not apply in the present case before us as assessee has not received any donation but has received unsecured loan. Therefore the reliance placed by the assessee on that decision is incorrect and hence rejected. 15. The learned authorised representative has also stated that non-production of the depositors are not following the source of source cannot result into the addition u/s 68 of the income tax act. We have carefully considered the several decisions relied upon by the learned authorised representative and found that the facts of those cases are not applicable to the present case as in the present case the assessee has failed to prove the identity, creditworthiness of the depositor as well as the genuineness of the transaction. The assessee has failed to discharge its initial onus. The annual accounts of the lender produced by the assessee were also incomplete. The bank statement shown of the lender was also for part of the year. Hence, reliance placed by the assessee on those decisions is rejected. 16. The assessee further relied upon the series of decisions to substantiate its case that funds were received before starting of the business, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at if a sum is found credited in the books of an assessee maintained for any previous year (which might be different from the financial year), the cash credit might, in cases where it is assessed as undisclosed income, be treated as the income of that previous year, and the financial year may not be taken as the previous year for such a cash credit even if the undisclosed income was not found to be from the assessee's regular business for which the books were maintained. The cash credit might be assessed either as business profits or as income from other sources. Under the 1922 Act, where a large amount of cash was found credited on the very first day of the accounting year, and considering the extent of the business, it was not possible that the assessee earned a profit of that amount in one day, the amount could not be assessed as the income of the year on the first day on which it was credited in the books. Under this section, even in such a case, the unexplained cash credit might be assessed as the income of the accounting year for which the books are maintained. See, in this connection, the observations in Kanga and Palkhivala's Income Tax, Seventh Edition, Vol. I, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision has not considered the decision of the Hon'ble Supreme Court in 159 ITR 78. Further the facts show that in that particular case the sum of Rs. 9232000/- was explained to have been received from the constituents of the AOP in cash. In the present case the same is not received from the constituents but from an outside party, identity of which it has not been proved by the assessee. In those case it was also noted that no material or evidence have been produced on record by the revenue to rebut the evidence produce by the assessee. In the present case before us the revenue has conclusively proved that the amount of loan taken by the assessee is not genuine. Further in all those cases the sum was deposited on the first day of the business, Whereas in the present case the assessee trust was formed on 12.01.2009 and amount of loan was taken from that company on 04.03.2010 i.e. almost after a year of the formation of the trust. In view of this the reliance placed by the assessee on those decisions is also devoid of any merit. 21. Further the decision of Chandigarh Bench of Tribunal in 83 Taxmann. Com 333 wherein, interest was paid to the borrowers and assessee was a partne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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