TMI Blog2012 (10) TMI 601X X X X Extracts X X X X X X X X Extracts X X X X ..... d to prove the source of the source to verify the transactions. It will be open to the Income Tax department to proceed against the trusts in accordance with the law. The questions of law are decided in favour of revenue and against the assessee. In favour of revenue - IT APPEAL DEFECTIVE NO. 288 OF 2009 - - - Dated:- 30-7-2012 - SUNIL AMBWANI AND ADITYA NATH MITTAL, JJ. Dhananjay Awasthi for the Petitioner. R.R. Agrawal and Suyash Agrawal for the Respondent. ORDER 1. We have heard Shri Dhananjay Awasthi, learned counsel appearing for the revenue. Shri Suyash Agrawal appears for the respondent-assessee. 2. This Income Tax Appeal has been filed with a delay of 2 days. The delay has been sufficiently explained in the affidavit of Shri Lala Ram, Income Tax Inspector, Circle-I, C.I.T. Office, Ghaziabad and is accordingly condoned. The appeal is treated to be filed within limitation. With the consent of parties, it was heard on the following questions of law, as follows:- "(1) Whether on the facts and circumstances of the case the Hon'ble ITAT was justified in deleting the entire addition of Rs. 17, 83, 571/- by holding that the assessee has proved the ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposits in bank account of the trusts were out of petty donations received during the year. The last year's cash balance was kept as cash in hand in imprest account with trustee and some loans and advances. It was observed that the amount of cash in hand and petty donations, as shown in the balance sheet and Income Expenditure account, is not by any means sufficient for advancing unsecured loans to the extent as shown by the assessee/trusts. The cash was kept in imprest account and for loans advances, no evidence was produced. In absence of books of account, the availability of funds with the trusts to advance the same as unsecured loans to assessee company was not established and thus the assessee failed to prove the capacity and genuineness of the transactions. The AO did not accept the genuineness of the unsecured loans of Rs. 17, 83, 571/- and added it back to the income of the assessee. The AO also found an adhoc disallowance of Rs. 1, 00, 000/- on account of machinery repairs with which we are not concerned in this appeal. 5. The CIT(A) in the appeal filed by the respondent-company considered the submissions, and recorded findings as follows:- "3.4 The submissions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 512 (Guj.) (c) ITO v. M.S. Advance (P) Ltd. ITAT, Amritsar "SMC" Bench.." 6. The CIT(A) thereafter found as follows:- "On careful consideration of the facts placed hereinabove, it is seen that the diversion theory of the AO apparently has sufficient basis because independent existence of the trusts has not been proved. Neither the Author of the trust, nor the object/beneficiary has been given before the AO or during the appellant proceedings. The accounts of the trusts given does not throw light on independent existence of these trusts. The AO has brought on record various facts, which clearly suggest that Shri Rakesh Kumar Agarwal is the common trustee of these trusts and is also the Director of the appellant company. The fund flow from the trusts to the appellant company through the same person Shri Rakesh Kumar Agarwal has been established. The independent existence of these trusts, however, has not been proved. The AO has rightly pointed out that the Income Tax Returns in respect of these trusts have been processed in summary manner and have not been subjected to scrutiny and hence merely because Income Tax Returns have been filed, it does not conclusively prove gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the C.A. These balance sheets have been filed with the income tax department and more particularly with the same AO assessing the assessee company. These evidences and material on record clearly prove that assessee had discharged initial onus to prove identity of the creditor, their financial capacity to advance loan and genuineness of the transaction in the matter. 9. The authorities below have rejected the claim of the assessee precisely on the reasons that there were cash deposits in the accounts of the trusts prior to the issue of cheques to the assessee company. However, it is settled law that an assessee could not be asked to prove the source of the source. The assessee could not be directed to prove the source of deposits in its books of accounts. Therefore, objection of the authorities below cannot be sustained. Moreover as noted above the opening capital balances with the 8 trusts were found sufficient out of which loans could have been advanced to the assessee irrespective of the cash deposits in their bank accounts. The authorities below have also noted that the director of the assessee company is also sole trustee of these trusts. Therefore, independent status of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thiness of the creditor. We accordingly set aside the orders of the authorities below and delete the entire addition. As a result ground nos. 1 and 2 of the appeal of the assessee are allowed." 9. Shri Dhananjai Awasthi, appearing for the revenue, submits that ITAT has committed gross error of law in accepting the genuineness of the transaction in the matter. All the eight trusts, even if their returns were accepted under Section 143(1)(a), were fictitious. In all these eights trusts Shri Rajesh Kumar Agarwal was the common managing trustee. He did not produce the copy of the trust deeds before the authorities to prove the genuineness and existence of the trusts. Neither the author of the trusts nor the object of the trusts was shown. In all the trusts cash amounts were deposited, and on the same day these amounts were transferred to the company managed by Shri Rajesh Kumar Agarwal, by way of cheque. The details of these cash deposits in the trusts and the date of transfer to the assessee-company have been given in the order of AO as follows:- LORD SHANKER JI TRUST Date of cash deposit Amount Date of transfer to Hindon forge Amount 17.4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer to Hindon forge Amount 17.4.2002 15,000/- 17.4.2002 14,000/- 14.08.2002 15,000/- 14.8.2002 15,000/- 24.8.2002 40,000/- 24.8.2002 40,000/- 04/01/03 6,000/- 04/01/03 6,000/- 08/01/03 30,000/- 08/01/03 30,000/- 10/01/03 15,000/- 10/01/03 15,000/- LORD VISHNU JI TRUST Date of cash deposit Amount Date of transfer to Hindon forge Amount 17.4.2002 15,000/- 17.4.2002 14,000/- 29.4.2002 10,000/- 29.4.2002 10,000/- 14.08.2002 15,000/- 14.8.2002 15,000/- 19.8.2002 1,00,000/- 19.8.2002 1,00,000/- 24.8.2002 18,000/- 24.8.2002 18,000/- 08/01/03 30,000/- 08/01/03 30,000/- 10/01/03 15,000/- 10/01/03 15,000/- SATYAM SHIVAM SUNDERAM TRUST Date of cash deposit Amount Date of transfer to Hindon forge Amount 10/08/02 2,75,000/- 10/08/02 1,75,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere not genuine. Such a burden is to be discharged, if the trusts were not genuine and transactions were not made through channels of the bank. He has relied upon Deputy Commissioner of Income-Tax v. Rohini Builders [2002] 256 ITR 260 against which, according to Shri Suyash Agrawal, the Special Leave Petition was dismissed. He has relied upon the judgment to establish that when the assessee has discharged the initial onus, which lay on it in terms of Section 68 of the Act by proving the identity of creditors by giving their complete address, permanent account numbers, copy of the assessment orders and their capacity, the genuineness of the transactions cannot be doubted and the amount could not have been added to the income of the company. Shri Suyash Agrawal has also relied upon the judgment in Anil Rice Mill v. CIT [2006] 282 ITR 236 in which this Court also held that in case of cash credits, the assessee has to prove three things: (1) identity of the creditor; (2) capacity of such creditor to advance money; and (3) genuineness of the transactions. If all these are proved the burden shifts to the revenue to prove that the amounts belonged to the assessee. The Court held in paragr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration before the various High Courts. The Court has held that assessee has to prove three conditions; 1) identity of the creditor; 2) capacity of such creditor to advance money; and 3) genuineness of the transactions; (vide Shankar Industries v. CIT, Central, (Calcutta), 114 ITR 689, C. Kant And Co. v. CIT-III, West Bengal, 126 ITR 63, Calcutta, Prakash Textile Agency v. CIT-III, West Bengal, 121 ITR 890, Calcutta, Oriental Wire Industries (P) Ltd. v. CIT, 131 ITR 688 Calcutta, CIT v. Baishnab Charan Mohanty, 212 ITR 199 Orissa, Jalan Timbers v. CIT, 223 ITR, 11 Gauhati and CIT v. Korlay Trading Co. Ltd., 232 ITR 820 Calcutta. 15. If all the aforesaid three conditions are proved the burden shift on the revenue to prove than the amount belong to the assessee. (vide CIT v. United Commercial And Industrial Co. (P) Ltd. 187 ITR 596, Calcutta, M.A. Unneeri Kutty v. CIT, 198 ITR 147 SLP dismissed 2001 ITR (ST) 23, CIT v. Precision Finance Pvt. Ltd., 208 ITR 465. 16. It has been held by the various High Courts that the assesses cannot be asked to prove source of source or the origin of origin (vide S. Hastimal v. CIT, Madras, 49 ITR 273 Madras, Tolaram Daga v. CIT, Assam, 59 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose 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, [hen it could not he said that such a conclusion was unreasonable or perverse or based on no evidence, " 20. The Apex Court in the case of CIT v. P.K. Noorjahan (Smt) while interpreting similar language used in Section 69 has held as follows: "Shri Ranbir Chandra, the learned counsel appearing for the Revenue has urged that the Tribunal as well as the High Court were in error in their interpretation of Section 69 of the Act, The submission is that once the explanation offered by the assessee far the sources of the investments are found to be unacceptable the only course open to the Income Tax Officer was to treat the value of the investments to be the income of the assessee. The submission is that the word "may" in Section 69 should be read as "shall". We are unable to agree. As pointed out by the Tribunal, in the corresponding clause in the Hill, which was introduced in Parliament, the word "shall" had been used but during the course of consideration of the Bill and on the recommendation of the Selec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iples of law are not to be applied in isolation, devoid of facts to upset the findings of the adjudicating officer and the appellate authority. 13. In the absence of accounts of the trusts and its scrutiny by the Income Tax department in any of the assessment years in which these trusts had filed returns, it could not be proved by the assessee that the trusts had any other sources of fund, or that it had given credits to any other person or company. The manner, in which the trusts were spending the amounts received by way of donations, created strong doubt on the genuineness, which was not clarified and removed by the assessee. The findings of the AO, are that the trusts were nothing but instruments of which Shri Rajesh Kumar Agarwal, who was transferring his own money, or the moneys of the company which he had deposited by cash to the company. The genuineness of the transactions were thus not established at all and thus there was no question of shifting the burden under Section 68 of the Act on the revenue. 14. In UOI v. Azadi Bachao Andolan [2003] 263 ITR 706 the Supreme Court held as follows:- "We may also refer to the judgment of the Gujarat High Court in Banyan and Berry ..... X X X X Extracts X X X X X X X X Extracts X X X X
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