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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 ..... tant Member And Shri Soundararajan K, Judicial Member For the Assessee : Shri. Prashanth GS, AR. For the Revenue : Shri. Subramanian, JCIT(DR)(ITAT), Bengaluru. ORDER PER LAXMI PRASAD SAHU, ACCOUNTANT MEMBER These two appeals have been filed by the Revenue against separate Orders passed by CIT(A) vide Orders DIN ITBA/NFAC/S/250/2023- 24/1059725539(1) and DIN ITBA/NFAC/S/250/2023-24/1059815854(1) dated 15.01.2024 and 17.01.2024 respectively. The grounds of appeal for both the years are as under:- A.Y. 2015-16 "1. On the facts and circumstances of the case, the learned CIT(A) erred in deleting the addition of Rs. 5,87,25,000/- made by the AO u/s 68 of the IT Act, 1961 2. On facts and circumstances of the case, the learned CTT(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 compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he IT Act, 1961 states that in failure of satisfactory explanation of the identity, creditworthiness and genuineness of the transaction, the assessing officer can invoke section 68 of the IT Act, 1961. In this case, the assessee failed to discharge the onus of proving the identity, creditworthiness and genuineness of the transaction thereby unexplained credits were added as Income by the assessing officer by invoking the section 68 of the IT Act, 1961. Hence, Ld. CIT(A) ought not to have deleted the addition made under section 68 of the IT Act, 1961. 8. In the assessment order passed, the assessing officer has discussed total disallowance of Rs 6,13,95,000/- u/s 68 of the IT Act, 1961, but inadvertently in the computation, addition for Rs 5,87,25,000/- was considered. Thus, the issues in regard to addition of Rs 26,70,000/- shall be decided on merits or may be set aside to 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 elab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d addition as section 68 of the IT Act, 1961 states that in failure of satisfactory explanation of the identity, creditworthiness and genuineness of the transaction, the assessing officer can invoke section 68 of the IT Act, 1961. In this case, the assessee failed to discharge the onus of proving the identity, creditworthiness and genuineness of the transaction thereby unexplained credits were added as Income by the assessing officer by invoking the section 68 of the IT Act, 1961. Hence, Ld. CIT(A) ought not to have deleted the addition made under section 68 of the IT Act, 1961." 2. Since in both the appeals, the issue involved are similar regarding addition made by the AO under section 68 of the Income Tax Act and deleted by the CIT(A). The assessment was completed for the AY 2015-16 U/s 147/143(3) and for the AY 2016-17 was completed u/s 143(3) of the I T Act. For the sake 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/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , copy of bank statements highlighting the transactions, income tax returns for Assessment Year 2015-16 and 2016-17 and furnish copy of complete detail transactions with supporting documentary evidence. In this response, the MRPL (M/s. Mangal trading and clothing LLP) has uploaded its reply on 26.01.2022 and it was noticed that the MRPL furnished the ITR for Assessment Years 2013-14 to 2016-17 declaring meagre income of Rs. 350/-, 730/- Rs. -12,650 and loss of Rs. 115/- and other details were also furnished but AO noticed that the MRPL has not furnished complete details viz., entire set of return of income, bank details highlighting the transactions and supporting documents. He further noted that merely filing of income tax returns / PAN, etc., of the creditors is not enough to prove the genuineness of cash credits and similarly payment by cheque is also questioned nor can it 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 acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re received from MRPL, I find that the appellant, in the course of assessment proceedings, has brought on record the particulars of loan creditor including name, complete address and PAN, the mode of receipt of loan. the bank statement of the appellant, supporting documents relating to the loan creditor viz. loan confirmation, explanation as to source of funds, copies of ITRs, audited financial statements, and banks statement of the loan creditor. The appellant has also substantiated source of funds in the hand of the loan creditor (i.e. MRPL) by submitting copies of ITRs and audited financial statements of several companies from whom MRPL has in turn received loan credits during the year. On a careful perusal thereof, I find that the appellant has satisfactorily discharged the primary onus last upon it to substantiate the unsecured loan transactions during year, by furnishing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly so when the loans have subsequently been repaid. In this context, it is pertinent to refer to the relevant provisions of section 68. The second proviso to section 68 (inserted by the Finance Act 2012, with effect from 1st April 2013), which provides that in cases where assessee is a closely held company, and any sum is found credited by way of share capital, share application money, share premium etc., the "source of source of such credits" is also required to be explained satisfactorily. It is noteworthy that this statutory obligation to explain not only the credit in the hands of the assessee, but also source of such credit in the hands of the creditor, is applicable only for credits in the nature of share capital, share application money etc., where it is reasonable to presume a continued relationship with the creditor; and not in respect of credits by way of loans or 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brushed aside in a causal manner. Assessee cannot be asked to prove impossible. Explanation about 'source of source' or 'origins of the origin' cannot and should not be called for while making inquiry under section. (iv) In the matters related to section 68, burden of proof cannot be discharged to the hilt -such matters are decided on the particular facts of the case as well as on the basis of preponderance of probabilities. Credibility of the explanation, not the materiality of evidences, is the basis for deciding the cases falling under Section 68. (v) Confirmatory letters or A/c payee cheques do not prove that the amount in question is properly explained for the purpose of section 68. Assessee has to establish identity and creditworthiness of the creditor as well as the genuineness of the transaction. All the three ingredients are cumulative and not exclusive. (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 ei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tities which indicates that the entire arrangement lacked commercial rationale. 8. The DR further contended that mere filing of Income-tax file numbers of the creditors is not enough to prove the genuineness of cash credit and similarly payment by account payee cheque is also not sacrosanct nor can it make a non-genuine transaction genuine. The DR pointed out that the assessee, in an attempt to establish the identity of the creditors, had merely submitted copies of the ITR acknowledgments. However, this evidence alone is inadequate to substantiate the identity and independent existence of the purported creditors. He further stated that the confirmation letters submitted by the assessee, from the creditors followed a uniform pattern and appeared to have been prepared by the same individual in all cases. This uniformity indicates that the assessee exercised control over the preparation 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 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the creditor, as well as the genuineness of the transactions in question. A meticulous examination of the Bank Statements of the creditor reveals that there were no cash deposits made immediately prior to the encashment of the cheques issued in favour of the assessee, thereby foreclosing the possibility of any accommodation entries. Furthermore, he also stated that, a perusal of the financial statements of the creditor discloses that it possessed sufficient financial wherewithal, as evidenced by its substantial reserves and surplus, to extend the advances to the assessee, thereby lending credence to the genuineness of the transactions. 11. The AR for the assessee pointed out that M/s. MRPL received the share capital/premium in question during the A.Y. 2012-13. However, the assessee received amounts from M/s. MRPL during A.Y. 2015-16 and 2016- 17, which is after a gap of three 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 Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITRs, which establish that the creditor entity has duly acknowledged & recorded the transactions in its books of accounts. 14. The assessee has submitted all requisite details and supporting documentary evidence before the authorities below as well. We observe that the assessee has provided confirmation letters from creditors, which can be found on pages 127 and 305 of the Paper Book. Furthermore, the incorporation certificates of MRPL are located on pages 328-331, while the income tax returns and audited financial statements of MRPL span from pages 332 to 492. Notably, the balance sheet of MRPL for the year ended March 31, 2012, which is found on page 351 of the Paper Book, discloses reserves and surplus of Rs. 15.62 crores. Additionally, the assessment order passed in the case of MRPL for the assessment year 2012-13 by the ITO, Ward-5(4), Kolkata, is located on page 505. This 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o income-tax as the income of the assessee for that previous year. In the present case, the assessee was not required to explain the source of funds in the hands of M/s. MRPL, since the MRPL has sufficient own funds which is clear from the financial statements and it was received in the AY 2012-13. The Assessing Officer's assertion that MRPL received share capital from unknown companies is unfounded and contrary to the facts on record. It is pertinent to note that these companies are filling Income Tax Return. Furthermore, the assessee has placed on record the copies of the income tax returns and audited financial statements of the investors of M/s. MRPL, thereby established the authenticity and credibility of the investors. The assessee has provided a clear explanation regarding the source of the credit in its books of account as unsecured loan. 18. It was held by Hon'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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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