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TMI Blog2022 (2) TMI 1183X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) is clearly superficial and it does not need our judicial approval. Just because the money is received the through banking channels and the confirmations are on record, such facts by itself do not establish genuineness of transactions. We therefore deem it fit and proper to remit the matter to the file of the CIT(A) for fresh consideration in the light of the above legal position. While re-examining the matter learned CIT(A) will categorically deal with the stand of the Assessing Officer with respect to genuineness of the transaction and pass a speaking order and accordance with the law by way of speaking order on this point as well. - Decided in favour of Revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 following amounts as loans: Sr. No Name of the concern Total amount received as unsecured loan during A.Y 2010-11 Total interest accrued on the loan during AY 2010-11 1. BloomdaleFinvest Pvt. Ltd. 45,00,000 2,54,022 2. Divyadhwani Investment Pvt. Ltd. 20,00,000 66,871 3. Jai Hind Mercantile Pvt. Ltd. 65,00,000 2,65,561 4. Lalita Exports Pvt. Ltd. 60,00,000 4,60,406 5. Kuvam International Pvt Ltd. 1,40,00,000 7,20,000 6. Plumetti Exports Pvt. Ltd. 95,00,000 6,17,376 7. Tinal Pharmaceuticals Pvt. Ltd. 20,00,000 1,61,581 Total 4,45,00,000 1,61,581 5. When the matter was probed further and the assessee was required to furnish documentary evidences to prove identity creditworthiness and financial capacity of the investors. The assessee declined to comply with the requisition on the ground that the time given to the assessee was too short. The assessee was further given some time the complied with the requisition and in the meantime notices u/s. 133 sub section 6 were issued to the persons from whom the assessee had borrowed the above funds. In response of these notices one person filed the details by way of bank statements and ITR's etc. The Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to the assessee company and in the case of other party as well. Merely routing transactions through banking channel without justifying the nature of these deposits with the regular sources of income would not lead to conclusion that the share applicant has creditworthiness. 4.5 Therefore in view of these specific observations and without prejudice to the fact that the assessee company has not been able to discharge its onus to establish the creditworthiness, genuineness as well as identity of the alleged share applicant with the credible documentary evidence. 4.6 In view of above adverse findings and observations, was asked to show cause as to why the amount received from the above parties should not be treated as unexplained cash credit u/s 68 of the Act and added to its total income to personally produce the alleged the persons from whom loans borrowed before the undersigned for verification as the onus lies upon it to prove the genuineness of the transactions with the identity as well as creditworthiness of the persons from whom loans borrowed. 4.7 In response to the above show cause, the assessee company has not filed any further details or explanations till date. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g fully with the terms of the statutory notices issued, specific query raised vide order sheet notings and show cause issued to it. It is settled law that mere furnishing of particulars is not enough. Mere payment by account payee cheque is not sacrosanct nor can it make a non-genuine transaction genuine. Documentary façade created by the assessee company cannot be accepted as being genuine in view of the surrounding facts and circumstances of the case discussed in detail above. 4.11 Sections 68 of Income-tax Act, 1961 reads as under:- "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the assessing officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year." 4.12 Thus, the conditions for applicability of section 68 are (i) Existence of books of account; (ii) A credit of sum in the books of account of an assessee; and (iii) Absence of a satisfactory explanation or no explanation by the assessee about the nature and so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .15 In Bharti P. Ltd. Vs. CIT -111 IT 951; CIT vs. W J Walker & Co 117 IT 690; CIT Vs. United Commercial Co. 187 IT 596; the Hon'ble Calcutta High Court has held that mere filing of confirmatory letters does not discharge the onus that lies on the assessee. 4.16 In CIT Vs. Precision Finance Pvt. Ltd. 208 IT 465; Nizam Wool Agency Vs. CIT 193 ITR 318; the Hon'ble Courts have held that mere furnishing of particulars is not enough. Mere payment by account payee cheque is not sacrosanct nor can it make a non-genuine transaction genuine. 4.17 In SumatiDayal V. CIT ((1995) 214 IT 801,806, 808-809 (SC)], the Apex Court has observed that - apparent must be considered real until it is shown that there are reasons to disbelieve that the apparent is not the real and that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and matter has to be considered by applying the test of human probabilities. 4.18 DCIT vs. Smt. Phoolwati Devi (2009) 314 ITR AT1 (Delhi) wherein the Hon'ble ITAT, Delhi Bench held that "despite the documentation supporting the claim of the assessee superficially, the evidence could not be accepted i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and added back to the total income of the assessee. 4.26 In view of above discussion, the total unsecured loans received by the assessee amounting to ₹ 3,05,00,000 /- is added back to the total income of the assessee. Further total interest debited to the P & L account amounting to ₹ 17,80,807 /- is disallowed and added back to the total income of the assessee company. Penalty proceedings u/s 271(1) (c) of the Act are separately initiated for furnishing inaccurate particulars of income and concealment of income. 6. Aggrieved assessee carried the matter in appeal before the learned CIT(A). Learned CIT(A) referred to several judicial precedents and taking note of the fact that the amounts were received through banking channels and were supported by confirmation of account deleted the above addition and disallowance. While doing so learned CIT(A) observed as follows:- Thus, respectfully following the judicial decision of Hon'ble Apex Court and Hon'ble High Courts and Hon'ble ITAT and considering the fact that entire loans have been received though banking channel and supported with confirmation of account, bank statement, I.T. ack. Receipts and also considering the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of that assessee for that previous year. The burden is thus on the assessee to prove the nature and source thereof, to the satisfaction of the Assessing Officer. Everything thus hinges on the explanation given by the assessee and on how acceptable is the explanation so given by the assessee. The next question is as to what is the kind of explanation that the assessee is expected to give. As noted by Hon'ble Delhi High Court, in the context of issuance of share capital and in the case of CIT v. Youth Construction (P.) Ltd. [2014] 44 taxmann.com 364/[2013] 357 ITR 197, "it involves three ingredients, namely, the proof regarding the identity of the share applicants, their creditworthiness to purchase the shares and the genuineness of the transaction as a whole". That is the approach adopted by Hon'ble Courts above all along. In the case of CIT v. United Commercial & Industrial Co. (P.) Ltd. [1991] 56 Taxman 304/187 ITR 596, Hon'ble Calcutta High Court has held that under the scheme of Section 68 "it was necessary for the assessee to prove prima facie t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rading, manufacturing or service activity, or with high volume low margin transactions- to give it colour of a normal business entity, used as a vehicle for various financial manoeuvres. A shell entity, by itself, is not an illegal entity, but it is their act of abatement of, and being part of, financial manoeuvring to legitimise illicit monies and evade taxes, that takes it actions beyond what is legally permissible. These entities have every semblance of a genuine business- its legal ownership by persons in existence, statutory documentation as necessary for a legitimate business and a documentation trail as a legitimate transaction would normally follow. The only thing which sets it apart from a genuine business entity is lack of genuineness in its actual operations. The operations carried out by these entities, are only to facilitate financial maneuvering for the benefit of its clients, or, with that predominant underlying objective, to give the colour of genuineness to these entities. These shell entities, which are routinely used to launder unaccounted monies, are a fact of life, and as much a part of the underbelly of the financial world, as many other evils. Even laymen, mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents". As a final fact finding authority, this Tribunal cannot be superficial in its assessment of the genuineness of a transaction, and this call is to be taken not only in the light of the face value of the documents sighted before the Tribunal but also in the light of all the surrounding circumstances, the preponderance of human probabilities and ground realities. There may be a difference in subjective perception on such issues, on the same set of facts, but that cannot be a reason enough for the fact-finding authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neness did come up for examination in a very limited perspective and in the times when shell entities were virtually non-existent. 11. The above approach has met the judicial approval as recently as 2018 when one of the decisions of this Tribunal, authored by one of us (i.e. the Vice President), in the case of Pavankumar M Sanghvi (supra) came up for consideration before Hon'ble Gujarat High Court, and Their Lordships of Hon'ble Gujarat High Court, in the judgment reported as Pavankumar M Sanghvi v. ITO [2018] 90 taxmann.com 386/404 ITR 601 approved the said approach and declined to interfere in the matter by observing that "the Tribunal has minutely examined the position of the lenders, the circumstances under which, the amounts were allegedly loaned to come to the conclusion that the transactions were not genuine". The genuineness of the transactions and examination of circumstances in which money was received was thus approved to be the determinative factor. The matter did not end there. The assessee brought the matter before Hon'ble Supreme Court in a special leave petition, and Their Lordships of Hon'ble Supreme Court, in the judgment reported as Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO, failure of which, would justify addition of the said amount to the income of the assessee". When we take into account these words of guidance of Their Lordships, clearly a superficial and pedantic approach would not suffice, and the approach so adopted in Pavankumar M Sanghvi's case (supra) will be all the more justified. We have no reasons to deviate from this path. It is in this backdrop that we proceed to examine the facts of the case and take a call on the genuineness of these transactions. 10. Viewed thus the approach of the learned CIT(A) is clearly superficial and it does not need our judicial approval. Just because the money is received the through banking channels and the confirmations are on record, such facts by itself do not establish genuineness of transactions. We therefore deem it fit and proper to remit the matter to the file of the CIT(A) for fresh consideration in the light of the above legal position. While re-examining the matter learned CIT(A) will categorically deal with the stand of the Assessing Officer with respect to genuineness of the transaction and pass a speaking order and accordance with the law by way of speaking order on this point as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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