9911796707
TMI Blog2012 (8) TMI 1210X X X X Extracts X X X X X X X X Extracts X X X X ..... any or more ground or ground of appeal as may be deemed fit at the time of hearing of appeal. 4. That the decision of learned CIT(A) Agra being erroneous in law on facts deserve to be quashed that of A.O. deserves to be restored. The brief facts of the case are that the assessee derives income from Cold Storage. The assessee company was incorporated w.e.f. 03.06.2003. The Cold Storage was constructed and installed during the year. During the assessment proceedings, the Assessing Officer (A.O.) noticed that the assesses has shown receipt of share money amounting to Rs.90,00,000/-from 140 persons. Rs.12,62,000/-from 5 Directors, namely Shri Bhagwan Singh, his wife Smt. Sheela Devi, his son Shri Bhupendra Singh and Shri Pawan Kumar and his daughter-in-law Smt. Geeta Devi, and balance amount has been received from 135 persons, all are agriculturists. In addition to share application money, the assessee has shown receipts of Rs.25,51,000/-by way of unsecured loan from Directors and share holders. The A.O. asked the assessee to furnish details of name address of persons who had given share application money, copy of application filed by them for allotment of shares, date and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has failed to prove the capacity to advance sum of Rs.1,10,000/-or Rs.3,94,000/-by way of share money. The A.O., after considering the facts of the case, made the addition of Rs. 3,94,000/-on account of share application money and loan of Rs.1,10,000/-treating the same as unexplained. 3. Regarding share money of Rs.3,67,000/-and loan of Rs.6,60,700/-from Shri Bhupendra Singh, S/o. Shri Bhagwan Singh: The A.O. noticed that Shri Bhupendra Singh is aged about 28 years, his source of income is agriculture, his annual income is Rs.48,000/-. The A.O. observed that after considering the household expenses, it is not possible to save anything. The A.O. also examined Bank account and noted that bank account was opened on 13.05.2003 by depositing cash of Rs.2,00,000/-and 2,50,000/-on 12.06.2003, Rs.1,99,500 on 07.07.2003 and Rs.1,00,000/-on 17.07.2003. The A.O. noted that immediately after depositing the amount the entire amount was given as loan to the assessee. 4. Regarding share money of Rs.48,000/-and loan of Rs.2,00,000/-from Shri Girraj Singh. The A.O. noticed that Shri Girraj Singh is aged about 48 years, his source of income is agriculture. There are 7 members in hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed about 56 years and his source of income is agriculture. There are 4 members in his family, his annual income is Rs.42,000/-. After examining the bank account, the A.O. made addition of Rs.2,00,000/-and Rs.49,000/-on the ground that the assessee has failed to prove the capacity of Shri Sahab Singh. 10. Regarding loan of Rs.3,00,000/-and share money of Rs.49,000/-of Shri Shiv Kumar Singh: Shri Shiv Kumar Singh is aged about 35 years and his source of income is agriculture. The A.O. examined his bank account and made addition of Rs.3,00,000/-and Rs.49,000/-on the ground that the assessee has failed to prove the capacity of Shri Shiv Kumar Singh. 11. The A.O. further noticed that similar is the position with regard to share money received from other persons. The A.O. examined Smt. Barphi Devi and Shri Pradeep Kumar. On examination of them, it has been found that they are almost completely ignorant as to what the share is and how they have acquired the shares. They failed to give satisfactory explanation. The A.O. on the basis of statement of these two persons gathered that the entire affairs regarding investment in share was carried by Shri Bhupendra Singh, Director of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ends of the promoters/directors of the company. The A.O. examined two such persons who have confirmed their investment in the assessee company. None of the shareholders and lenders has denied his investment in the assessee company. The lenders/shareholders have used the Cold Storage in the subsequent year for preserving their agricultural produce. The list attached with Balance Sheet shows that their names appear under - II. Application of Fund - 3. Current Assets, Loans Advances - Sch. I - Rs.39,60,000/-Schedule - I : Loans Advances - Advance to Farmers - 39,60,000/-. The CIT(A) noted the details of parties at page no. 8 of his order. It has also been noted by the CIT(A) that in support of genuineness of the share application money and unsecured loan, the assessee has furnished complete address of the parties, copies of their accounts in the books of the assessee, duly confirmed by respective parties, Kisan Bahis as the lenders are agriculturists, copy of Ration Card, copies of their bank pass book copies of Income Tax returns. All the share holders have filed affidavits before the A.O. Similarly, confirmation letters of all the lenders along with photocopies of their ratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their alleged savings were not advanced or were excessive or unreasonable, (c) that the said creditors had routed the unaccounted funds of the appellant company through their own bank accounts. The AO examined 2 shareholders who confirmed their investments. However, on the strength of these 2 statements, the AO treated the entire share application money amounting to Rs.79,22,000/-received from 140 shareholders as bogus and hence the appellant company's deemed income. As for the unsecured loans of Rs.25,51,000/-received from 9 creditors, the AO treated the same as bogus without examining even a single creditor and without establishing that the appellant had failed to prove the identity of the creditors, their creditworthiness and the genuineness of the transactions. Thus, the adverse conclusion was drawn by the AO on the basis of general and vague observations rather than concrete material and cogent evidence. There is also a contradiction in the finding of the AO insomuch that he has accepted the advanced given by the appellant company to 21 farmers but rejected the receipts from the same farmers by way of share application money/loans. The AO has highlighted and drawn a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that in respect of other parties, there are no bank accounts. Ld. Departmental Representative drew our attention on the affidavits filed by the assessee and pointed out that the parties did not know about what is the company and they are not aware of share certificates. In the affidavits they submitted that they do not have Bank Accounts. Therefore, such affidavits cannot be relied upon. The ld. Authorised Representative clarified that the said clause of affidavit was with reference to agriculture land bank. 18. The ld. Authorised Representative, on the other hand, relied upon the order of CIT(A) and submitted that the assessee company was incorporated on 03.06.2003. Ld. Authorised Representative submitted that the A.O. is not correct in making the addition as held by the Apex Court in the case of CIT vs. Bharat Engineering Construction Company, 83 ITR 187 and amount received before the commencement of assessee's business cannot be added as assessee's business income. Ld. Authorised Representative also relied upon the order of I.T.A.T. Agra Bench in the case of DCIT vs. Sugandhi Cold Storage (P) Ltd. in ITA No. 368/Agr/2010 order dated 20.04.2012 wherein it has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the judgement of Hon'ble Delhi High Court in the case of CIT vs. Kamadhenu Steel Alloys Ltd. Others, 248 CTR 30 (Del). 20. Ld. Authorised Representative submitted that the assessee has furnished affidavits of depositors and share applicants and the contents of the affidavits cannot be disbelieved without rejecting the same. ld. Authorised Representative in support of his contention relied upon the judgement of Hon'ble Supreme Court in the case of Mehta Parekh, 30 ITR 181 (SC) and ACIT vs. S.S. Pharmaceuticals (P) Ltd., 87 ITD 119 (All). Ld. Authorised Representative has also relied upon the judgment of Hon'ble Supreme Court in the case of CIT vs. Orissa Corporation P. Ltd., 159 ITR 78 (SC). 21. Ld. Authorised Representative submitted that the A.O. cannot ask the assessee to prove the source of the source. Ld. Authorised Representative in support of his contention relied upon the judgement of Hon'ble Allahabad High Court in the case of CIT vs. Jauharimal Goel, 201 CTR 54 (All) and DCIT vs. Rohini Builders, 256 ITR 360 (Guj.). Ld. Authorised Representative has also relied upon the judgement of Hon'ble Rajasthan High Court in the case of Aravali Tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credited may be charged to income-tax as the income of the assessee of that previous year. The expression 'the assessee offers no explanation' means where the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. It is true that the opinion of the A.O. for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the A.O. is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion. 23. As regards the burden of proof, it is settled position of law in respect of cash credit that the burden is on the assessee to explain the three ingredients namely, identity, creditworthiness genuineness of the transaction. 24. With the above background of general discussion in respect of section 68 of the Act, now we come to have discussion regarding section 68 of the Act and share application money. Where the matter concerns money receipts by way of share applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e must be a further finding that in fact the shareholders were mere name-lenders and the money allegedly invested by them really belonged to the directors of the assessee-company. In the absence of a finding that the persons to whom the share certificates were issued on receipt of consideration as per the book entries were in fact dummies or stooges of the directors of the assessee-company, the same cannot be treated as unaccounted income of the assessee. There was no such finding by the assessing authority. 27. Hon'ble Karnataka High Court in the case of Tam Pedda Guruva Reddy vs. JCIT (Assessments) Another, 291 ITR 44 (Karn) held as under :-(headnote page 45) Held, allowing the appeal, (i) that the affidavit filed by R showed that he had income from agriculture and from business and that he had two fixed deposits which had matured during the said period. Therefore, the source of income had been clearly spelt out and this credit could not be treated as unexplained credit in terms of section 68. The finding of the authority that the said amount was unexplained income could not be accepted. 28. The Hon'ble Patna High Court in the case of Sarogi Credit Corporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es the third party obtained the money or how or why he came to make an advance of the money as a loan to the assessee. Once such identity is established and the creditors, as in the present case, have pledged their oath that they have advanced the amounts in question to the assessee, the burden immediately shifts on to the department to show as to why the assessee's case could not be accepted and as to why it must be held that the entry, though purporting to be in the name of a third party, still represented the income of the assessee from a suppressed source. And, in order to arrive at such a conclusion, even the department has to be in possession of sufficient and adequate materials. The Income tax officer's rejection, not of the explanation of the assessee, but of the explanation regarding the source of income of the depositors, could not by itself lead to any inference regarding the no genuine or fictitious character of the entries in the assessee's books of account. The Appellate Assistant Commissioner clearly pointed out that the findings recorded by the Income Tax Officer were not positive findings. Further, the Tribunal had partly accepted the source to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leged 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. (Page no. 276) Sumati Dayal v. CIT [1995] 214 ITR 801 (SC) a succinct yet complete precis on the essentials of income tax liability can be discerned from these words (headnote): In all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provision and if the receipt is in the nature of income, the burden of proving that it is not taxable because it falls within the exemption provided by the Act lies upon the assessee. This decision is adequate authority for the proposition that by virtue of section 68 of the Income Tax Act the assessee is obliged to establish that amounts credited in the accounts do not represent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision in CIT v. Achal Investment Ltd. [2004] 268 ITR 211(Delhi) is also on the same lines. There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should not be harassed by the Revenue's insistence that it should prove the negative. In the case of a public issue, the company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The company must, however, maintain and make available to the Assessing Officer for his perusal, all the information contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of sections 68 69 of the Income Tax Act. The burden of proof can seldom be discharged to the hilt by the assessee; if the Assessing Officer harbours doubts of the legitimacy of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ney. The broker was found not to have maintained regular accounts. However, the court refused to draw an inference adverse to the assessee's interests. Instead the Calcutta High Court observed that the Income Tax Officer ought to have investigated the matter more thoroughly to controvert the claim of the assessee, and concurred with the conclusion of the Tribunal that the latter had discharged the initial burden that lay on it. The High Court set aside the decision of the Tribunal which had reversed the findings of the Income Tax Officer as well as the Commissioner of Income Tax (Appeals) since the assessee had supplied the income tax file number of the creditor before it. The High Court noted that the mere filing of the income tax number was not sufficient to establish the identity and creditworthiness of the creditor and genuineness of the transaction. Although Orissa Corporation [1986] 159 ITR 78 (SC) was referred to the decision of the Full Bench of this court in Sophia Finance [1994]: 205 ITR 98 was not even cited. Korlay Trading [1998] 232 ITR 820 (Cal.) as well as Sophia Finance [1994] 205 ITR 98 (Delhi) was applied by the same Division Bench of the Calcutta High Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Income Tax Act. CIT v. Anwar Ali [1970] 76 ITR 696 was decided by the Apex Court holding that, if there is no evidence on record except the explanation of the assessee, which explanation has been found to be false, it still does not follow that the receipt constitutes taxable income. This decision was followed by the Apex Court in Anantharam Veerasinghaiah and Co. v. CIT [1980] 123 ITR 457 opining that the (headnote) mere falsity of the explanation given by the assessee is insufficient without there being, in addition, cogent material or evidence from which the necessary conclusion attracting a penalty could be drawn. However, as has been noted in Addl. CIT v. Jeevan Lal Sah [1994] 205 ITR 244 (SC); [1995] Supp. (4) SCC 247 amendments were incorporated by the Finance Act, 1964, into section 271 which had deleted the word deliberately in its sub-section (1)(c), thereby shifting the onus of proof onto the assessee, rendering Anwar Ali [1970] 76 ITR 696 (SC) ineffectual. Nevertheless, in CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14 it has been enunciated by the Supreme Court that though the explanation shifts the burden to the assessee to show absence of fraud, this onus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspect of the matter is whether addition under section 68 of the Act can be made before start of business by the assessee. In this regard, we would like to refer the following judgements: 32. The Hon'ble Supreme Court in the case of CIT vs. Bharat Engineering Construction Co., 83 ITR 187 (SC) held as under :-(page nos.188 189) The assessee-company is an engineering construction company. It commenced business in May, 1943. In their account books, there are several cash credit entries in the first year of its business. We are concerned with only five of those cash credit entries. On 1st June, 1943, there is a cash credit entry of Rs.1,00,000. On 6th July, 1943, there is a cash credit entry of Rs.50,000. On 30th Aug, 1943, there is a cash credit entry of Rs.50,000. On 2nd Dec., 1943, there is a cash credit entry of Rs.15,000 and on 15th March, 1944, there is a cash credit entry of Rs.35,000. These cash credit entries total up to Rs.2,50,000. The ITO called upon the assessee to explain those cash credit entries. The explanation given by the assessee was found to be false by the ITO, the AAC and the Tribunal. But, all the same, the Tribunal felt that these cash credit entr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posits represented the capital contribution of the partners. It was for the partners to explain the source of deposits and if they failed to discharge the onus then such deposits could be added in the hands of the partners only. These deposits could in no case be the income of the assessee-firm because the firm started its business after the credits had been made in its books. 34. In the light of above discussions, if we consider the facts of the case under consideration, we find that the assessee has discharged the burden in respect of share application money by furnishing complete details in the form of share certificate, affidavit, khasra khatauni, kisan bahi, KCC ledger account, bank accounts and others. The assessee has filed a chart in which details were furnished along with relevant page nos. of Paper Book of each and every party. The CIT(A) before deleting the addition incorporated detailed chart of the evidence filed by the assessee which he has reproduced at page nos.3 to 5 of his order. In the light of the law laid down by the Apex Court in the case of Lovely Exports, (319 ITR (Statutes) page nos.5 6), we find that the CIT(A) has rightly deleted the addition of Rs.7 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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