9911796707
TMI Blog2020 (1) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 24 of Income Tax (Appellate Tribunal), Rules, 1963. If the assessee does approach ITAT for restoration of the appeals in ITAT, the matter will be considered in accordance with law having regard to the facts and circumstances. - ITA No:- 6352/Del/2016 (Assessment Year: 2008-09) - - - Dated:- 6-1-2020 - SHRI K.N. CHARY, JUDICIAL MEMBER AND SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER Assessee by: None Revenue by: Shri Dheeraj Garg, Sr. DR ORDER PER ANADEE NATH MISSHRA, AM [A] This appeal has been filed by the Assessee against the impugned appellate order dated 08.08.2016 passed by Learned Commissioner of Income Tax (Appeals)-2, New Delhi, [in short, Ld.CIT(A) ] pertaining to Assessment Year 2008-09. The Assessee has raised following grounds of appeal:- 1. That the Commissioner of Income Tax (Appeals) ( CIT(A) ) erred on facts and in law in confirming the addition of ₹ 2,59,90,054 under section 68 of the Income Tax Act, 1961, ( the Act ) earlier made by the assessing officer ( the AO ) under section 41(1) of ₹ 15,50,000 and section 68 of the Act of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue to show that the impugned amount has been originated form the appellants own coffers and not received from the Business Partners/Agents of appellant. 3.5 That the CIT(A) erred in upholding the addition made by assessing officer without appreciation the fact that none of the PAN/Conformation put on record by the appellant found to be false, collusive and fictious by the Revenue authorities. Therefore the explanation given by the appellant cannot be rejected on the basis of surmises and conjectures. 3.6 That the CIT(A) erred in facts in not appreciating that merely because the 76 depositors are not responding the notices issued under section 133(6) of the Act, it can-not be inferred that PAN, address and confirmations filed by the appellant are incorrect inasmuch as the nonreceipt back of un-served letters to 76 depositors by Revenue authorities itself means that the letters have been served upon them and the address provided by the appellant is correct. Without Prejudice 4. CIT(A) erred on facts and in law in not following the binding precedent of Hon ble Delhi High Court in the case of CIT v. Kinetic Capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a default by the client who traded in securities through the co. b. The team which appointed the agent was responsible for executing the documentation and collection of cheques towards security deposit did not work in coordination with accounting which responsible for banking such cheques and accounting for them. This lead to a situation where the cheques received for security deposit were banked but the part from whom it was received was not known to the accounting team. As respective parties were assigned specific codes/account number, parties having same name added to the confusion due to which the amount received was accounted for as unclaimed receipt. c. We are enclosing herewith a copy of the account of unclaimed receipts as annexure-V which will show that throughout the year 2007-08 there were security deposit receipts which were not identifiable with the respective parties. Therefore as part of overall accounting process an accounting team reconciled the unclaimed security deposit receipts in coordination with the operations team. d. We wish to submit that the closing balance of unclaimed security deposit receipt outst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2007-08. Further, the assessee vide sheet entry dated 22.11.2010 was required to produce complete address of the parties from whom securities received with their copy of a/c, and. confirmation. The assessee did not produce any address, copy of a/c anc confirmation of the parties. Therefore, again vide note sheet entry dated 29.11.2010 the assessee was required to produce the complete address of the parties from whom securities received with their copy of a/c and confirmation (above one lac). It is seen that assessee had received a total security deposit of ₹ 3,00,91,531/- out of which assessee has received security deposits above ₹ 1 lac from 178 parties and a total of ₹ 5651477/- from parties at amount less than ₹ 1 lacs. The assessee had filed the alleged confirmation from the 11 parties only. The confirmation letter filed by the assessee from the depositor has no credence in the eye of law since even the PA N had not been mentioned in all such cases. The genuineness of the depositors and the creditworthiness of the depositor had not been proved by the assessee. In remaining 107 cases, even no confirmati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son has to have some sign of identification other than merely on paper. These signs could be the place of work, staff members, actual transactions, reorganization in the eye of public, signboard, and premises anything, which can prove that some actual activity is going on. The creditworthiness essentially means capacity in financial dealings or capacity to pay. The creditworthiness of a person is something that is assessed by somebody while giving loan to the said person or arm's length basis. The bank assesses the creditworthiness of the person while lending loan. The creditworthiness is reflected in the balance sheet of the person and also in the profit making capacity. Can it be said that the bank will give loan of the same amount to the entry operators who are receiving money in its account. The entry operators are certainly not receiving the money in its accounts as sale consideration or as part of actual business activity. The nature of deposits in its accounts can never be explained except by the truth that these amounts represent the money of the beneficiary routed through it. The argument that the money has come through banking channel hence the same is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor. The contention that the co. was incorporated and hence its identity is established cannot be accepted. In appropriate cases, law permits looking beyond the corporate veil. The corporate veil can be lifted or pierced where the only actual activity the alleged corporate entity is found to be engaged in is evading the obligations imposed by law, more particularly in tax matters to see whether the entire facade has been put up to evade payment of taxes. Reliance in this context is placed on the decision of Hon ble Supreme Court in the case of Juggilal Kamlapat vs. CIT (1969) 73 ITR 702. The assessee co. is Ltd. Company. In the case of such companies, there is close and proximate relationship between the promoter/directors and the shareholders. The closely held companies are permitted to accept the subscriptions of share capital or deposits only from the friends or relatives of the promoters/directors and such companies are not allowed to accept subscriptions or deposits from the public. As such, there should have been no difficulty on the part of the assessee to produce somebody from the said entity, had the whole apparatus not been merely a conduit to plough bac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2003 263 ITR 289 (Cal). On failure to do so, section 68 Would visit the assessee with all its consequences. In the instant case, since the identity of the shareholders has not been established by way of the exercise carried out and as the assessee filed to offer any reply in the rejoinder filed by it with reference to this issue, it is held that the assessee was not able to establish the identity of the persons which is one of the primary conditions on the part of the assessee. The reply of the assessee co. shows that the assessee has nothing to prove the Creditworthiness/genuineness of the shareholders and substantiate the claim that money credited to the bank account of the assessee co. by way of cheques/draft are exclusively relating to the share application money received from those persons. In the case of Diza Holdings (P) Ltd. 255 ITR 573 , the Hon'ble Kerala High Court has held that the burden was on the assessee to offer a satisfactory explanation about the nature and source of the amount found credited in the books of the assessee. Mere furnishing of particulars was not enough and the mere fact that the payment was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account. That burden has to be discharged with positive material. When it is contended that a person had advanced money or had given a loan, it has to be established that the person was not a man of straw and had the capacity to give the money. A conclusion regarding creditworthiness or otherwise of a person is essentially one of facts. It does not give rise to a question of law unless it established that the conclusion was contrary, to the materials on records. Section 68 gives statutory recognition to the principle that cash credits, which are not satisfactorily explained, may be assessed as income. Where an assessee has failed to prove satisfactorily the source and nature of certain amounts of cash received during the accounting year, the AO is entitled to draw the inference that the receipts are of an income nature. In view of the above detailed discussion, based on the language used under section 68 of the Act, and the various decisions of different High Court and the Apex Court discussed above, the only conclusion which could be arrived at is: (i) that the onus or burden to prove the identity, capacity and genuineness has to be on the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 097000/- Assessed at taxable income of ₹ 2,50,97,000/-. Credit of pre-paid taxes is given. Demand notice and challan issued. Interest charged as per the provisions of the I.T. Act 1961. Penalty proceedings u/s 271(1)(c) of the I.T. Act 1961 have been initiated separately. [C] The Assessee filed appeal before the Ld. CIT(A). Vide impugned appellate order dated 08.08.2016, the Ld. CIT(A) dismissed the assessee s appeal. The relevant portion of the order dated 08.08.2016 of the Ld. CIT(A) is reproduced as under: 3.0 The written submission of the appellant is as under:- With regard to captioned subject matter we wish to submit as under- 1. Background For the Assessment year ( AY ) under consideration the Appellant filed its return of income on September 29, 2008 declaring a total loss of ₹ 893,051. The said return was selected for scrutiny assessment. The Assessing Officer ( AO ) passed an assessment order, dated December 23, 2010, under section 143(3) of the Income Tax Act, 1961 ( Act ). As per the said order, the AO has assessed the total loss of the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iz. marketing business promotional services. The Appellant is registered with Association of Mutual Funds in India ( AMFI ). Apart from this, the Appellant is also a registered sub-broker of Religare Securities Limited ( RSL ) for Bombay Stock Exchange National Stock Exchange. b. RSL is a company engaged in the business of providing stock broking and depository services. It appoints different sub brokers who collect the trade orders for purchase and sale of securities from their individual clients and these order are executed using RSL s trading platform. RSL earns the commission income from such clients, which is shared with CSPL c. The Appellant being a sub broker of RSL utilizes the trading platform provided by RSL for execution of trade orders placed by its clients. In return, the Appellant earns commission in the form of percentage share in brokerage income earned by RSL from trading done by the said clients. d. In order to expand and diversify its business, the Appellant appointed business partners/agents on pan India basis. These business partners / agents referred new clients who can trade in securities through the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Copy of confirmations received from 71 parties out of 178 parties from whom security deposits of more than ₹ 100,000 has been received. The same is enclosed us Annexure 4. We are attaching with 22 additional confirmations. The same is enclosed as Annexure 5. The copy of bank statement of the Appellant for AY under consideration evidencing receipt of security deposits through normal banking channels. The same is enclosed as Annexure 6. The Appellant also produced complete books of accounts before AO for verification which had the ledger accounts of all the parties from whom security deposit was received along with the cheque details and which also had details of regular business transactions with them. The copy of ledger accounts of the parties is enclosed as Annexure 7. Copy of certificates of tax deducted at source on payments made to various business partners, who had given security on account of commission paid to them. The copy of certificates issued to 123 parties is enclosed herewith as Annexure 8. It may be pertinent to mention here that the TDS certificates issued contains the PAN numbers of the respective partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 68 of the Act based on the following allegations: (a) The Appellant has not been able to prove the genuineness and creditworthiness of the parties from whom the security deposits have been received by the Appellant (exceeding ₹ 1 lakhs). (b) The Appellant has failed to furnish even the basic details of depositors from whom security deposits have been received during the year. (c) The Appellant has failed to furnish documentary evidence for proving the receipt of security deposits. (d) The Appellant must have received PAN numbers of the depositors at the time of receipt of security deposits. the same being a mandatory requirement. (e) The Appellant has intentionally avoided furnishing records and evidences to the tax department. 2.3 Legal Submissions: At the outset the Appellant wishes to submit that the allegations made by the AO in his assessment order are totally baseless and without any merit. As mentioned above, the Appellant is engaged in the business of acting as sub-broker for sale and purchase of securities, mutual fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant erroneously treated the security deposits of ₹ 24,440,054 received by the Appellant from business partners appointed during the year as unexplained credit/deposits thereby invoking the provisions of Section 68 the Act and added such security deposits to the income of the Appellant. In this regard, it is respectfully submitted that the addition made by the AO is bad in law and liable to be quashed. The same is on account of following reasons: 23.1 Complete details of the parties from whom security deposits have been received were furnished with the AO: The AO while invoking the provisions of Section 68 of the Act has alleged that the Appellant has failed to furnish the basic details of the depositors from whom security deposits have been received during the year. The said contention of the AO if highly misplaced on account of following reasons: As mentioned in Para 2.1(g) above, during the course of Assessment proceedings, the Appellant has furnished following details with the AO:- The list parties from whom security deposits have been received during the year along with their a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itors were duly disclosed. 2.3.2 Genuineness of the transaction was proved: The AO while invoking the provisions of Section 68 has also alleged that the genuineness of the transaction under consideration has not been proved by the Appellant. This contention is also incorrect since: The Appellant has furnished ledger accounts of said parties in the books of accounts of the Appellant which also had details of regular business transactions with them. It was further submitted the AO that the security deposits have been received through normal banking channels. To substantiate the same, the Appellant has submitted copy of bank statements evidencing receipt of security deposits from the aforesaid parties. Apart from the above, the Appellant has also submitted copy of confirmations from 71 out of 178 parties stating that the security deposits have been given by them to the Appellant and has sought time to file the rest. Thus, the Appellant has duly discharged its onus of proving the bonafideness and genuineness of the transaction under consideration. Merely because the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny 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 year. Thus, Section 68 has following essential ingredients; Any sum is found credited in the books of the Assessee. The Assessee offers no explanation about the nature and source of such credit In case the Assessee offers explanation which is not satisfactory in the opinion of Assessing officer Then, such sum credited in the books of Assessee may be treated as its income in the previous year Thus, Section 68 places the burden on the taxpayer to explain the nature and source of any credit found in the books. The expression nature and source has to be understood as a requirement of identification of the source and its genuineness. Further, the onus on the assessee has to be understood with reference to the facts of each case and proper inference drawn from the facts. 24. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises. Reliance is also placed on the decision of jurisdictional Delhi High Court CIT vs. Dwarkashish Investment (P) Limited 239 CTR 478 2010 (copy atgytached as Annexure 12): In the instant case Assessee was engaged in the business of financing and trading of shares. The Assessee filed return declaring NIL income. The case was selected for scrutiny and notice under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try is not fictitious, the initial burden which lies on him can be said to have been discharged by him. It will not, thereafter, be for the assessee to explain further how or in what circumstances the third party obtained money and how or why he came to make a deposit of the same with the assessee. The burden will then shift on to the Department to show why the assessee s case cannot be accepted and why it must be held that the entry, though purporting to be in the name of a third party, still represents the income of the assessee from a suppressed source. In order to arrive at such a conclusion, however, the Department has to be in possession of sufficient and adequate material. The above legal position was followed and reiterated by the Gujarat High Court in the case of DCIT v Rohini Builders. 256 ITR 360 (Guj.) (copy attached as Annexure 14) which has been upheld by Hon'ble Supreme Court in 254 ITR 276. In the said case it has been held that where the assessee has proved the identity of the creditors and the amounts were received by account payee cheques, the initial burden on the Assessee is discharged Similar reliance is placed on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he brokerage amount was paid through cheques. Thus, the assessee had not only disclosed the identity of the creditors but also the sources of income. The assessee, thus, having discharged the primary onus and the onus having shifted to the department, the latter could not add the amount as income from undisclosed sources without resorting to verification. The Tribunal was, therefore, right in deleting the addition and allowing the interest on the same . Reliance is placed on the decision of Jabalpur Tribunal in the case of Rewa Group vs ITO 109 TTJ 657 (Jab) (copy attached as Annexure 17): In the instant case, the Tribunal has held as under: .. We have carefully considered the rival submissions of the parties and perused the material available on record. We find that the assessee has taken deposit of ₹ 18,000 to ₹ 19,000 from 202 salesmen as a security deposit as it is imperative for the assessee to obtain the same in this liquor business. The AO without pointing cut any substantial discrepancy in me statements recorded by him added the same in the Income of the assessee. We further find that the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his own money which was unaccounted, in the name of the creditor, i.e., OP . The Commissioner (Appeals), under the appeal from the assessee had confirmed the order of the Assessing Officer holding that the assessee had not been able to establish the creditworthiness of the creditor. On further appeal, to the Tribunal, the Judicial Member allowed the appeal of the assessee and deleted the addition of ₹ 1.5 lakhs holding that the amount of ₹ 1.50 lakhs could not be regarded to be an unexplained cash credit. The Accountant Member, however, did not agree with the Judicial Member and had dismissed the appeal of the assessee. HELD (AS PER THIRD MEMBER) From the reading of the section 68, it is apparently clear that the section lays down rule of evidence that when 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 such credit found in the books of the assessee, or the explanation offered by the assessee, in the opinion of the Assessing Officer is not satisfactory, the sum so cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Judicial Member was agreed with, that under the given facts and circumstances of the case, the impugned cash credit 1.50 lakhs was genuine [Para 22] The legal position enunciated in the above case laws is summarized hereunder:- Section 68 places the initial burden of proof on the taxpayer to explain the nature and source of any credit found its books. The initial burden is said to be discharged once the Assessee proves the identity, bonafides and genuineness of the transaction. Once the initial burden is discharged, the onus shifts upon the AO to show as to why the explanation given by the Assessee cannot be accepted. The AO cannot reject the explanation given by Assessee in an arbitrary manner without proper appreciation of the material and other surrounding circumstances available on record. In the instant case, the Appellant has duty discharged its onus of proving the nature and source of deposits received by furnishing following details / documentary evidences with the AO as mentioned in Para 2.1 (g) above: Complete details of pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the AO by invoking provisions of Section 68 of the Act is bad in law and liable to be quashed 2.4.2 Explanation given by Assessee to be considered objectively.: It is a settled law that an explanation given by the assessee in relation to the nature and source of receipt should be considered objectively by the officer before he takes a decision to accept it or reject it. In this context, if is necessary to enunciate the following propositions: (i) If the explanation given by the assessee shows that the receipt not on income nature, the department cannot convert good proof into no proof or otherwise act unreasonably and reject it. Reliance in this regard is placed on the decision of Supreme Court in the case of Sreelekha Banerjee vs Commissioner of Income-tax (1963) 49 ITR 112 (copy attached as Annexure 19). In the instant case, the 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 denomination notes tendered for conversion by the assessee himself, it is necessary for the assessee to establish, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n capricious or arbitrary grounds. In the Appellant's case, the AO has rejected the explanation given by the Appellant arbitrarily merely on presumptions and surmises and on a pre-conceived notion Without appraising the business of the Appellant and supporting documents submitted by the Appellant towards receipt of security deposit. iii) The explanation cannot be rejected merely on the ground that the department is unable to verify its correctness. Were the Assessee furnishes full details regarding the creditors, it is up to the department to pursue the matter further to trace these and examine their creditworthiness. Reliance in this regard is placed on the decision of CIT v Orissa Corporation Pvt. Ltd 159 ITR 78(SC) mentioned supra. Reliance is also placed on the decision of Supreme Court in the case of Lovely Exports (2008) 216 ITR 195 2008 (SC) (copy attached as Annexure 20): In the said case, the Hon'ble Supreme Court while answering the question that whether the amount of share money received during the year can be regarded as undisclosed income under section 68 of the IT Act, 1961 has held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions made by the AO are bad in law and liable to be quashed. Reliance in this regard is placed on the decision of Delhi Tribunal in the case of ITO v Jyoti Estate Pvt Ltd ITA No 4603/2009 (copy attached as Annexure 21) wherein the Hon'ble ITAT has observed as under; We have heard the parties and have perused the material on record. A perusal of the assessment order shows that the assessee had filed before the AO, complete details of the share applicants, giving their names and addresses details of Income Tax assessment, acknowledgement of Income Returns, particulars of PAN and details of their bank accounts, mentioning the respective bank account numbers, names of the banks and their branches and the details of the cheques through which the share application money had been paid by the share applicants. The initial burden cast on the assessee u/s 68 of the Act was thus duly discharged. The identity of the shareholders stood established. The factum of the shareholders having invested money in the purchase of shares also stood proved. Per contra, the AO could not point out any discrepancy in the copious evidence filed by the assessee. No ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge thereof by them. In the Appellant's case, the AO has contended that the Appellant has intentionally avoided furnishing records and evidences to the tax department and has not appreciating that adequate time was not available to the Appellant to provide confirmations from all the depositors. The AO has failed to appreciate the Appellant appointed business partners on PAN India basis and getting the confirmations from various places across the country is a time consuming process. Despite of the same, the Appellant has been able to provide confirmations of 71 parries out of 178 depositors from whom security deposits have been received during the year. The Appellant has further pleaded before the AO that in case more rime is provided to the Appellant, it will be able to produce the balance confirmations also. In view of the above, it is respectfully submitted that the Appellant has not been provided reasonable time to furnish the balance confirmations and thus the AO has erred in invoking provisions of Section 68 in the instant case. 2.4.5 Unexplained cash credit may be charged to income-tax: Without pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued to the said parties which were duly submitted with the AO. Thus, the identity and source of security deposits received during the year were disclosed to the AO during the course of assessment proceedings. (iii) The genuineness of the transaction was also proved since the copy of parties from whom security deposits have been received was submitted with the AO along with the copy of bank statements evidencing receipt of security deposits. Further, the deposits were received through normal banking channels. Also, the said deposits were refunded / adjusted in subsequent years through account payee cheques only. Apart from the above, the Appellant has also submitted the confirmations from 71 parties out of 178 parties and requested time to file the rest. Hence, the bonafide-ness and genuineness of the transaction was proved to the satisfaction of AO. (iv) The AO has not produced any documentary evidences while contradicting the explanation given by Appellant. Thus, the AO did not acted objectively while disregarding the explanation put forth by the Appellant. Thus, the Appellant has duly discharged its onus of proving the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In return, the Petitioner shared its commission received from RSL with such business partners / agents which was paid as a commission/referral fees as per the mutually agreed terms. Such commission referral fee was a percentage share in brokerage income earned from the clients referred by the business partners / agents. e. As per the terms of the agreement entered between Petitioner and business partners, the Petitioner took refundable security deposit from its business partners at the time of their association with the Petitioner. The said deposit is taken as a security against any possible default committed by the client introduced by the said business partners who traded in securities through the RSL platform provided by Petitioner Company. f. During the assessment year under consideration the Petitioner has appointed more than 270 business partners on pan India basis. Further, the Petitioner has received securities deposits, aggregating to ₹ 30,091,531 from the said business partners. g. During the course of assessment proceeding the AO sought details of the parties from whom security deposits of more than ₹ 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Particulars Annexure No. 1 Copy of 22 additional confirmations received from business partners from whom security deposits of more than ₹ 100,000 has been received by the petitioner 1 2 Copy of 71 confirmations (submitted before AO) mentioning PAN details of business partners. 2 Rule 46A which deals with production of additional evidence before the Commissioner (Appeals) reads as fallows - 46A. (1) The Petitioner shall be entitled to produce before the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)], any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the [Assessing officer] except in the following circumstances, namely;- (a) Where the Assessing Officer refused to admit evidence which ought to have been admitted; or (b) where the Petitioner was preve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Rule 46A and submitted as under:- Brief facts of the case are that the assessment in this case was completed u/s 143 (3) on 14.12.2010, after making the additions/disallowance on account of disallowance of unclaimed receipts (₹ 1550000) and unexplained credit/deposits u/s 68 (₹ 24440054). During the course of assessment proceedings, the assessee was vide order sheet entry dated 26.10.2010 was required to produce the details of security deposits received. Vide reply dated 10.11.2010 the assessee furnished the details of security deposits received from various parties/individual amounting to ₹ 300,91,531/- out of the above sum of ₹ 300,91,531/- an amount of ₹ 56,51,477/- were parties at amount less than ₹ 1 lakhs. Further vide order sheet entry dated 22.11.2010, assessee was required to produce compete address of the parties from whom securities received with their copy of account and confirmation. Since the assessee did not furnish any documents in this regard, vide order sheet entry dated 29.11.2010, the assessee was again required to furnish the documentary evidences in this regard. In response to this the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this case, the assessee has not furnished the complete details in spite of being specifically asked to furnish address, copy of account and confirmations vide order sheet entries dated 22.11.2010 and 29.11.2010. The assessee had been provided time of more than three weeks and since the matter was getting barred by limitation on 31.12.2010 the A.O. had complete the proceedings and passed the order Therefore none of the conditions mentioned in Rule 46A is satisfied as:- (1) The assessing officer has not refused to admit evidence which ought to have been admitted. (2) The appellant was not prevented by sufficient cause from producing the evidence which he was called upon to produce by the assessing officer. (3) The appellant was prevented by sufficient cause from producing before the assessing Officer any evidence which is relevant to any ground of appeal. (4) The assessing Officer has not made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal. In view of the above, the submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of the agreement entered between the Appellant and business partners, the Appellant took refundable security deposit from its business partners at the time of their association with the Appellant. The said deposit is taken as a security against any possible default committed by the client introduced by the said business partners who traded in securities through the RSL platform provided by 'he Appellant. - During the assessment year under consideration the Appellant appointed more than 270 business partners on pan India basis. Further, the Appellant has received securities deposits, aggregating to ₹ 30,091,531/-from the said business partners. - During the course of assessment proceeding, the AO sought details of the parties from whom security deposits of more than ₹ 100,000 was received by the Appellant with copy of their accounts and confirmations from the respective parties that they have actually given security deposit. - To prove the genuineness and bona fides of the receipt of security deposit, the Appellant submitted the details of the parties from whom security deposit of more than ₹ 100,000 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es where the assessee was denied opportunity by the AO or the assessee was prevented by sufficient cause for producing such evidence before the AO. The assessee failed to bring out on record even a single instance where the evidence sought to be furnished by the assessee was refused to be entertained by the AO. No evidence was produced by the assessee that he was prevented by sufficient cause for not being able to produce the evidence which he has now produced at the appellate stage. Therefore as per AO, none of the conditions mentioned in Rule 46A are satisfied. Hence, as per AO additional evidence i.e. confirmations having PANs of the parties submitted by the Appellant should not he accepted and admitted at the appellate stage during appellate proceedings before your goodself. 3. Appellant's rejoinder Without prejudice to the fact that the Appellant was directed by your respective predecessor to file a petition under Rule 46A % of the Rules, our rejoinder to the remand report issued under section 250(4) of the Act dated 3rd July 2014 is as follows: During the course of assessment proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich are filed before the AO during the assessment proceedings, we are attaching herewith, for Your Honor 's kind reference a report showing the correctness of such PAN numbers provided by its business partners/ parties. This report is based on the information available on Government of India website i.e. https://www.tdscpc.gov.in/ded/panverify.xhtml. Please refer Annexure-I. We request you to take the above submissions on record. We would be pleased to furnish any additional details/documents which you may require. 3.4 Further, the CIT(A) again directed the AO to furnish complete details u/s 68 of the Act amounting to ₹ 2,44,40,054/-. The appellant submitted a list of 89 persons who had given loans in cash to the appellant company. AO examined only 34 loan creditors. Therefore, the CIT(A) asked the AO to examine the rest of the loan creditors and submit his report. The AO in his report submitted as under:- The relevant provisions of the furnishing of Additional Evidence under Rule 46A are reproduced hereunder: (i) The appellant shall not be entitled to produce before the DCIT (A) or, as the case may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- Ground No. 1 The A.O. has erroneously made disallowance u/s 68 amounting to ₹ 44,40,054/- as unexplained credits/deposits. Brief facts of the case are that the assessment in this case completed u/s 143 (3) on 14.12.10, after making the additions/disallowance on account of disallowance of unclaimed receipts (₹ 1550000) and unexplained credit/deposits u/s 68 (₹ 24440054). During the assessment proceedings, vide order sheet entry dated 26.10.10, the assessee was requested the details of security received. Vide reply dated 10.11.10, the assessee the details of security deposits received from various parties/individual amounting to ₹ 3,00,91,531/-. Out of the above sum of ₹ 3,00,91,531/- assessee has received security deposits above ₹ 1 lakhs from 178 parties and a total amount of Re 56,51,477/-from parties with an amount less than ₹ 1 lac. Further vide order sheet entry dated 22.11.10, assessee was required to produce complete address of the parties from whom securities received with their copy of account and confirmation. Since, the assessee did not furnish any documents in this regard, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.5 Copy of the above remand report of the AO was provided to the A/R of the appellant for his rejoinder, if any. The A/R of the appellant in his rejoinder dated 30.03.2015 submitted:- With regard to captioned subject matter we wish to submit as under: 1. Background For the Assessment year ( AY ) under consideration the Appellant filed its return of income on September 29, 2008 declaring a total loss of ₹ 893,051. The said return was selected for scrutiny assessment. The Assessing Officer ( AO ) passed an assessment order, dated December 13, 2010, under section 143(3) of the Act. As per the said order, the AO has assessed the total income of the appellant at ₹ 25,097,000 after making the following additions / disallowances: Sr. No. Nature of Disallowance Amount (Rs.) 1. Disallowance under section 41 of the Act on account unclaimed receipts 1,550,000 2. Treatmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 78 parties, spread across India, which had given security deposit of more than ₹ 100,000, the Appellant filed duly signed confirmation letters received from 71 parties from whom security deposit was received. The Appellant vide its submissions dated December 10, 2010 has further requested before the AO that in case more time is provided to the Appellant, it will be able to produce the balance confirmations also. However, the AO has disregarded the submissions filed by the Appellant and alleged that the Appellant has not been able to prove the genuineness and creditworthiness of the parries from whom the security deposits have been received by the Appellant (exceeding ₹ 1 lakhs). The AO has further stated that the confirmations of 71 parties filed by the Appellant have no credence in eyes of law since even the Permanent Account Numbers (PANs) have not been mentioned in such confirmations. Thus the AO has treated security deposits of 24,440,054 received by the Appellant as unexplained credit / deposits under section 68 of the Act and has added the same to the returned income of the Appellant. The Appellant has filed 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a PAN or nor can be found from the website / database of the Revenue Authorities. Further, the correctness or otherwise of the PAN assuming that the same is not available on website / database of the Revenue Authorities can be checked by the Revenue Authorities. However, the Appellant was directed by your respective predecessor a petition under Rule 46A of the Income Tax Rules. The Appellant, following the direction issued by the AO to submit details of the parties which had given security deposit, submitted confirmations from 71 parties spread across India, which had given security deposit of more than ₹ 100,000. These confirmations were duly signed confirmation letter received from these 71 parties from whom security deposits was received and it sought time to file the rest. The AO however rejected these confirmations on the ground that PAN was not mentioned. It was clarified in the rejoinder that under section 206AA of the Act, receipt of security deposit is not a transaction which is liable to deduction of tax at source and in relation to which the payer is liable to furnish PAN number. It was also submitted that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of security deposit was in FY 2007-08 which is 7 years back therefore the fact that various parties have not responded to 133(6) notices is possible. The Company vide its submission dated March 05, 2012 has submitted copies of the ledger accounts of such parties showing broking transactions with them, ledger accounts and bank statements showing the refund of security deposit to the parties alongwith the cheque details. Considering the details that the Company has submitted to prove the genuineness of the security deposits received, the fact that the ledger accounts as submitted contains the details of various broking related transactions with these parties and also the fact that the Company has earned broking income through these parties in the subject AY, we request Your Honor to kindly decide the appeal based on the merits of the case as discussed in our written submission dated 5th March 2012 and 23rd April 2012 filled with your office during the course of hearing before your respective predecessors. We request you to take the above submissions on record. We would be pleased to furnish any additional details/documents which you require. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 15,50,000/- were attributable - their names, addresses, PANs, etc. to prove their identities or copies of their I.T. returns, bank statements and balance sheets in support of their creditworthiness and the genuineness of the transactions. In the absence of these details, the three necessary ingredients of section 68 have not been established by the appellant, who cannot simply get away by stating that the deposits shown under the head 'unclaimed receipts' were ultimately reconciled and the parties from whom they were received were identified. The onus was on the appellant to establish the identities and creditworthiness of these parties as also the genuineness of the transactions which it failed to do both at the assessment and appellate stage. Accordingly, the impugned addition to income made by the Assessing Officer is upheld, but under a different section, namely, section 68 of the I.T. Act, Grounds nos. 3 to 3.2 of the appeal are dismissed. 4.2.1 Coming to grounds of appeal nos. 4, to 4.4, the issue is regarding security deposits exceeding ₹ 1 lac received by the appellant during the year, aggregating to ₹ 2,44,40,054/-. The Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and considered. Therefore, the documents filed as additional evidence in the course of appeal proceedings are admitted for consideration md adjudication of the issues on merit. 4.2.2 Perusal of the confirmations of the parties from whom deposits in excess of ₹ 1 lac were received by the appellant during the year, whether such confirmations were filed at the assessment or the appellate stage, reveals that these confirmations give very sketchy/minimal details. One such confirmation is reproduced below:- Carol Securities Pvt. Ltd. Flat No. 903A, 6 Devika Tower, Nehru Place, New Delhi-110019. Sub:- Confirmation of the Security Deposit given to Carol Securities Pvt. Ltd. ( the Company ) Dear Sir, It is hereby confirmed that I/we have given the security deposit to the company and as on March 31, 2008 the balance of the security deposit with company was ₹ 1,50,000/-. Name:- S ARJUN KUMAR Address:- #596, B/H GOVT MIDDLE SCHOOL NEW EXTN. KADUGODI BANGALORE-560067 PAN:- AVIPK 5020B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the appellant during the year, confirmations of only 93 (71+22) parties could be provided. It is noteworthy that the appeal pertains to the A.Y. 2008-09 and was filed as far back as on 18.01.2011 but in more than five and a half years' time the appellant could not even provide confirmations of all the parties, what to talk of proof of their creditworthiness. With the transactions with as many as 89 parties admittedly having taken place in cash and the parties not replying to the A.O's notices (one party actually denied having had any transaction with the appellant), the genuineness of the transactions is in doubt as well. 4.2.4 The judgements relied upon by the appellant are not applicable to the facts of its case. Many of them, for instance CIT vs. Dwarkashish Investment (P) Limited 239 CTR 478 2010 and M/s. Lovely Exports (2008) 216 CTR 195 2008(SC) pertain to receipt of share application money/share capital by assessees whereas in the case of the appellant it is not share capital but security deposits which are stated to have been received from its partners /agents by the appellant whom the appellant must have quite well. In another case relied upon b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from assessee s side, at the time of hearing before us, we heard the Ld. Sr. DR; who relied upon the order of the Assessing Officer and the aforesaid impugned order dated 08.08.2016 of the Ld. CIT(A). After perusal of the materials on record, including the order of the AO and the aforesaid impugned order dated 08.08.2016 of the Ld. CIT(A), we find that the Ld. CIT(A) has passed speaking order on merits. Relevant portion of the impugned order of the Ld. CIT(A) has already been reproduced in foregoing paragraph [C] of this order. We find that the Ld. CIT(A) has given detailed reasons for his decision on merits in the aforesaid impugned appellate order dated 08.08.2016 of Ld. CIT(A). During appellate proceedings in Income Tax Appellate Tribunal ( ITAT , for short) no material has been brought for our consideration to persuade us to take a view different from the view taken by the Ld. CIT(A) in the impugned order on merit. After hearing the Ld. Sr. DR and after perusal of materials on record, and further, in view of the foregoing discussion, we decline to interfere with the aforesaid impugned appellate order dated 08.08.2016 of Ld. CIT(A), and accordingly, this appeal is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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