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TMI Blog2025 (3) TMI 211X X X X Extracts X X X X X X X X Extracts X X X X ..... see. Since none of these companies has any other business activity except circulation of money from one company to another and by subscribing to or purchasing shares of other companies at a huge premium, there can be no justification of such a huge premium. This shows that the shareholder companies of one company become investee companies of other companies and in turn such other company whose shares are purchased, further invest in the shares of other companies and in turn such other company, whose shares are purchased, further invest in the shares of other company and so on. It can' be seen as a sheer coincidence that many companies brought into existence, having link with each other and none of them doing any worthwhile business activity come together to issue shares at such a huge premium. This when considered on overall basis is nothing but a smokescreen and beneficiary from this arrangement is the assessee. 3. On the facts and circumstances of the case, the learned CIT(A) erred in deleting the above mentioned addition as the assessee was not able to substantiate the genuineness of loan received of Rs 5,85,00,000/- from M/s Magnificient Realcon Private Limited (MRPL). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the file of the assessing officer." A.Y. 2016-17 "1. On the facts and circumstances of the case, the learned CIT(A) erred in deleting the addition of Rs. 8,31,00,000/- made by the AO u/s 68 of the IT Act, 1961 2. On facts and circumstances of the case, the learned CIT(A) erred not appreciating that an elaborate structure with many layers was created to obscure and hide the source of money received by the assessee. Since none of these companies has any other business activity except circulation of money from one company to another and by subscribing to or purchasing shares of other companies at a huge premium, there can be no justification of such a huge premium. This shows that the shareholder companies of one company become investee companies of other companies and in turn such other company whose shares are purchased, further invest in the shares of other companies and in turn such other company, whose shares are purchased, further invest in the shares of other company and so on. It can be seen as a sheer coincidence that many companies brought into existence, having link with each other and none of them doing any worthwhile business activity come together to issue shares at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of brevity, we are taking appeal for Assessment Year 2015-16 and the decision taken for Assessment Year 2015-16 shall apply mutatis mutandis for Assessment Year 2016-17. 3. Briefly stated, the facts of the case are that assessee filed its return of income on 29.09.2015 declaring total income at Rs. 19,16,960/-. While completing the assessment under section 143(3) of the Act for the Assessment Year 2016-17 on 13.12.2018, it was noticed that the assessee has received cash credit of Rs. 8.31 Crores from the entity M/s. Mangal trading and clothing LLP during the relevant previous year and listed the entity as sundry creditors. However, on the basis of detailed enquiry carried out, the AO established that the above said entity was a part of the multiple layers of shell entities for providing accommodation entry. During the course of assessment proceedings, assessee failed to discharge the onus to substantiate the credit entries appeared in the name of M/s. Mangal trading and clothing LLP. Accordingly, AO held that the genuineness of sum credited in the name of said entity was not established during the year in terms of section 68 og the Act. resultantly Rs. 8.31 Crore under section 68 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make a non-genuine transaction genuine. If the assessee has not proved the three ingredients as per section 68 of the Act, the cash credit appearing in the books of accounts is bogus. He further noted that in the case of MRPL, that the MRPL having no taxable income and no evidences are submitted about the activity of MRPL and in the absence of financial statement, the genuineness of transactions, source of loan and credit worthiness of the depositors could not be verified. Further, it was noticed that the assessee has received loan from Sumitra Bai of Rs. 75,000/- and from Ramesh Kumar Sancheti the assessee received Rs. 1,50,000/- on 17.05.2014 but the assessee is unable to prove in terms of section 68 of the Act. During the course of proceedings, the assessee was requested to furnish the details of source in the hands of MRPL which was transferred in the bank account of the assessee as loan but the assessee has never submitted the same. As per the details furnished, the AO noticed that after verification of the bank account of MRPL, various companies have granted loan to MRPL amounting to Rs. 6,08,50,000/-. On verification of the details furnished, the total addition was worked o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g all the relevant and material evidence. The identity of the loan creditor is established as the entity is having PAN, CIN and is regularly filing return of income. The creditworthiness of the loan creditor is established from the audited balance sheets and profit and loss accounts, which show that the lender entity has adequate own funds (share capital and reserves). The source of funds in the hands of the loan creditor is explained by way of further loan credits received from various companies. The identity and lending capacity of these companies is also established from their ITRs, audited balance sheets and profit and loss accounts, which show that these other companies have adequate own funds (share capital and reserves), and are also having substantial operating revenue, during the relevant period, to in turn advance the funds to MRPL. The genuineness of the transaction is established form the fact that both the acceptance and repayment of loan has been through banking channel, as evidenced from the bank statements of the loan creditor and the appellant, and interest has been paid by the appellant to the loan creditor, in respect of the loan transaction, for the relevant per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borrowings etc., the "source of source of such credits" is also. required to be explained satisfactorily. This amendment, however, is applicable to the Assessment Year 2023-24 and subsequent assessment years, hence does not apply to the year under consideration. 8.17 It is well-established that the onus lies on the assessee to adduce necessary documentary evidence so as to prove all the three ingredients of section 68 viz. identity and creditworthiness of the creditor, and genuineness of the transaction, as the relevant facts are within the special knowledge of the assessee. It has also been held that the evidence adduced by the assessee have to be examined not superficially but in depth and having regard to the test of the human probabilities and normal course of human conduct. 8.18 Hon'ble ITAT, Mumbai Bench, Mumbai in case of ITO v. Anant Shelters Pvt Ltd (20 taxmann.com 153) (2012) (Mum) has enumerated certain legal principles regarding taxation of cash credits under section 68 as under :- "(1) Section 68 can be invoked when following three conditions are satisfied (a) when there is credit of amounts in the books maintained by the assessee, (b) such credit has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusive. (vi) In matters regarding cash credit the onus of proof is not a static one. As per the provisions of the section the initial burden of proof lies on the assessee. Amount appearing in the books of a/cs. of the assessee is considered a proof against him. He can prove the identity of the creditors by either furnishing their PANs or assessment orders. Similarly, genuineness of the transaction can be proved by showing that the money was received by an account payee cheque or by draft. Credit worthiness of the lender can be established by attending circumstances. Once the assessee produces evidences about identity, genuineness and credit worthiness of the lender onus of proof shifts to the Revenue. " 5. Further the ld CIT (A) has relied on the following judgements and deleted the additions made by the Assessing Officer :- * Rushabh Enterprises Vs. ACIT (60 taxmann.com) [2015] (Bombay) * Pr.CIT Vs. Ojas Tarmake (P.) Ltd., [2023] (156 taxmann.com 75) * Pr.CIT (Central) Vs. Naresh Nemchand shah [2023] (156 taxmann.com 346) (Gujarat) * ITO Vs. Mega Collections (p.) Ltd., [2023] (151 taxmann.com 403) (Surat - Trib.) * Pr.CIT Vs. Wel Intertrade (P.) Ltd., [2023] (152 taxm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eparation and submission of these documents, undermining the claim of independent and bona fide transactions. The learned DR contended that the CIT(A) erred in deleting the additions of Rs. 1,50,000 received from Shri Ramesh Kumar Sancheti and Rs. 75,000 received from Mrs. Sumitra Bai during assessment year 2015-16. He argued that the assessee failed to substantiate these transactions during the assessment proceedings by furnishing sufficient evidence to establish the identity of the creditors, the genuineness of the transactions, and the creditworthiness of the lenders. The DR emphasized that the onus to prove the nature and source of these credits' rests squarely upon the assessee under Section 68 of the Act. In the absence of a satisfactory explanation and supporting documentation before the AO, the deletion of the additions by the CIT(A) is not proper. 9. The ld. Authorized Representative (AR) for the assessee contended that the CIT(A)'s order was justified on merits and requires no interference, as the assessee had provided substantial evidence to establish the genuineness of the transactions. The assessee submitted all necessary details and supporting documentation, incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hree years. The AR argued that the Revenue's contention that the amounts received by the assessee represent its own unaccounted money lacks merit as the significant time gap between M/s. MRPL's receipt of share capital/premium and the assessee's receipt of amounts from M/s. MRPL undermines the Revenue's claim of a direct nexus between the two transactions. 12. The AR for the assessee vehemently argued that the requirement to substantiate the 'source of source' of funds is applicable only for share capital, share premium and share application and not for unsecured loans and he placed reliance on the Supreme Court decisions in CIT vs. Daulat Ram Rawatmall, 87 ITR 349 & CIT vs. Lovely Exports Pvt Ltd, 216 CTR 195. The AR submitted that the provisions of section 68 of the Act were amended by the Finance Act, 2022 by inserting the first proviso with effect from 01.04.2023. This proviso stipulates that where the sum credited consists of loans, borrowings, or any such amounts, the "source of the source" of such credits must also be satisfactorily explained. However, the AR emphasised that, this amendment is applicable to the Assessment Year 2023-24 and subsequent assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his order reveals that MRPL issued 1,57,200 shares at a face value of Rs. 1 to raise a capital of Rs. 15.64 crores. We note that in order to verify the share capital issued, the Assessing Officer issued notices under Section 133(6) of the Act to the share applicants/allottees. Following a detailed examination and recording of the statements of the directors of the investors of M/s. MRPL, the assessment was concluded by accepting the return of income. 15. The AR for the assessee pointed out that subsequent to the conclusion of the assessment in the case of M/s. MRPL order dated 31.03.2014 completed u/s 143(3) of the I T Act, no adverse action was taken against the said company. There is sufficient reserve and surplus ( Net Worth) had the company in the financial year ending 31.03.2012 and out of this reserve the MRPL ha given loan to the assessee company. According to the AR, this inaction on the part of the Revenue implies an implicit acceptance of the transactions in question. 16. In respect of the loan credits of Rs. 75,000/- received from Mrs. Sumitra Bai and Rs. 1,50,000/- received from Mr. Ramesh Kumar Sancheti during the assessment year 2015-16, the learned AR submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble Supreme Court in the case of Roshan Di Hatti v. CIT [1977] 107 ITR 938 that onus of proving the source of sum of money found to have been received by the assessee, is of assessee. Once the assessee has submitted the documents relating to identity, genuineness of transactions and creditworthiness, then ld. AO must conduct enquiry and call for more details before invoking section 68 of the Act. If the assessee is not able to provide a satisfactory explanation of the nature and sources, the credit shown in the books of accounts in the assessment year under consideration is open to the lower authorities to hold that it is the income of the assessee and there would be no burden on the revenue to show that the income is from any particular sources. It is to be noted that once the assessee has produced the documents relating to identity, genuineness of transactions and creditworthiness of the lender, then the lower authority is duty bound to conduct an independent enquiry to verify the same. In the present case, the assessee not only disclosed the source of the credits reflected in its books of accounts but also furnished the assessment records of the creditor, demonstrating that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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