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2020 (12) TMI 339 - AT - Income TaxUnexplained cash credit u/s 68 - Unexplained cash credit u/s 68 - there was no actual transaction of cash credit in the books of accounts which were based on fake entries having no substance. - assessee has used fraudulent device to show the share capital in the books of accounts in order to comply the SEBI Guidelines for bringing the public issue. - whether the share capital increased in the respective years under consideration represents the unexplained cash credit within the meaning of Section 68? - HELD THAT:- There was no actual transaction cash inflow carried out by the assessee for enhancing the share capital in the years under consideration - enhancement in the share capital represents merely a book entry which was based on the manipulation of the accounts with collaboration of bank staff. This fact has not been addressed by the authorities below despite such contention was pleaded by the assessee before them. Thus, in the absence of any doubt on the contention of the assessee which is also supported from the report of the bank and the SEBI, it is concluded that the impugned cash credit in dispute is nothing but represents the bogus/fictitious entries after manipulation in the accounts. Whether book entry can attract the provisions of Section 68 ? - There was no iota of doubt expressed by the authorities below on the explanation furnished by the assessee regarding the entries showing the alleged unexplained cash credit - there was no actual transaction of cash credit in the books of accounts which were based on fake entries having no substance. As such the assessee has used fraudulent device to show the share capital in the books of accounts in order to comply the SEBI Guidelines for bringing the public issue. There is a legal fiction created under Section 68 and on the basis of such legal fiction an entry in the books of accounts is deemed to be income of the assessee chargeable to tax in the event the assessee fails to discharge the onus imposed upon it under Section 68 - such legal fiction can be applied in the case of actual transactions incorporated in the books and not be applied on the transactions which are merely book entries and representing the fake transactions, having no substance. Admittedly it is the set-aside proceedings before us. The ITAT on the earlier occasion has set aside the matter to the file of the AO with the direction to verify the identity, credit worthiness and genuineness of the transactions and to adjudicate the issue afresh. Undisputedly, the scope for deciding the issue in the set-aside proceedings is very limited. As such, it is limited to the extent of the direction provided by the higher authority. Question of identity, creditworthiness of the parties and genuineness of transaction arises where there is a real transaction, then the assessee is under the obligation to discharge the onus imposed under Section 68 of the Act. Once it has been established beyond doubt that impugned cash credit entries represents the bogus/fake entries after manipulating the accounts, then in such a situation, in our considered opinion the question of discharging the onus as imposed under Section 68 of the Act does not arise. It is because and for the simple reason that it is beyond the capacity of the assessee to comply the direction of the ITAT as discussed above. Accordingly, a question arises, should the assessee be penalized due to the non-compliance of the conditions imposed under Section 68 of the Act in the given facts and circumstances. It is well-settled that an obligation gets discharged due to impossibility of performance. The law of impossibility of performance does not necessarily require absolute impossibility, but also encompass the concept of severe impracticability. In our humble opinion, the doctrine of impossibility of performance applies in this case. Due to uncontrollable circumstances, the performance of the obligation as specified under Section 68 of the Act became impossible to perform for the assessee. The impossibility of performance releases the assessee from its obligation for the non-compliance of the conditions imposed under Section 68. The assessee cannot be penalized if it fails to furnish the details of the parties to justify the identity, creditworthiness and genuineness of the transaction in the given facts and circumstances. Accordingly, we set aside the finding of the Learned CIT(A) and direct the AO delete the addition - Decided in favour of assessee.
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