9911796707
TMI Blog2012 (10) TMI 601X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and all deposits were made in cash and the trusts instead of utilizing these deposits for the aims and objectives of the trusts, loaned out to the assessee company, which proves that these trusts had no independent identity and acted as a tool in the hands of the assessee-company. (2) Whether on the facts and circumstances of the case the Hon'ble ITAT was justified in holding that the credit worthiness of 8 trusts was established when the source of funds with all of them was not proved by the assessee, which fact is further fortified by ill placed utilization of trust funds. (3) Whether on the facts and circumstances of the case the Hon'ble ITAT was justified in holding that the genuineness of transaction was established when the whole transaction apparently is a colourable device just to hoodwink the revenue. These eight trusts were managed by sole and same trustee, who was also managing and controlling the assessee company and the funds deposited in cash in the trusts were simply taken out by the Managing Director of the assessee company to use in the hands of the company." 3. For the assessment year 2003-04 the assessee-company filed return declaring income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order as well as in his reported, referred to above. The facts emerges out from the material on record are as follows:- (i) Shri Rajesh Kumar Agarwal the Director of the Appellant Company is the sole trustee in respect of the 8 trusts. (ii) The ld. A.R. has pointed out that the said trusts are assessed to tax and the AO has informed that the returns of the trusts are not subjected to scrutiny. (iii) The AO has also reported that neither the books of account have been produced nor any evidence furnished in respect of the petty charity received. (iv) A perusal of bank statement shows that these so called trusts are receiving money in cash on regular basis and identical amount is being given away by cheque. (v) From the entries in the bank pass book apparently there is neither any expenditure shown nor any application of fund towards objective of the trust nor any outgoing towards beneficiary of the trust. (vi) The appellant has neither furnished copy of trust deed before AO nor before me to prove the genuine existence of the trusts. Shri Rajesh Kumar Agarwal is the common trustee in respect of all the 8 trusts. Neither the author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The appeal was dismissed. 8. The Income Tax Appellate Tribunal has allowed the appeal with the findings, as follows:- "8. Considering the facts of the case in the light of these above decisions and decisions cited by both the parties, we are of the view that assessee has discharged the initial onus which lay upon it in terms of S. 68 of the I.T. Act by proving the identity of the creditors, their credit worthiness and genuineness of the transaction in the matter. The assessee has filed copies of the balance sheets and income & expenditure/ac of all the 8 trusts in the paper book. It is not in dispute that the assessee received loans/advances from these 8 trusts through cheques and banking channels. On perusal of the balance sheet of these trusts, we find that these trusts were having initial capital brought from preceding A.Ys which is more than the amount advanced by these Trusts to the assessee. All these 8 trusts are income tax assessee with the same AO (ACIT, Circle-I Ghaziabad) who is also A.O. in the case of the assessee company. The details of the PAN no. of these Trusts are also given in the paper book. All these 8 trusts are therefore assesseed by the same AO who has m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he authorities below is also not legally sustainable because assessee is registered under the Companies Act and is a legal entity. All the Trusts are assessed to income tax separately and their returns have been accepted by the AO. Therefore, there is no bar for the M.D. of the assessee company to become trustee in other organizations like the trust in question. The assessee has therefore proved that the assessee company and the 8 trusts are independent legal entities. The authorities below have also noted that books of accounts of the assessee are not produced before them. It was submitted by the assessee that during the A.Y. in question the 8 trusts were having only interest income and no business is carried on by the trusts. Therefore for non-production of the books of the trusts would not be a ground for rejecting the explanation offered by the assessee. If the income tax returns of all the 8 trusts are processed only u/s 143(1)(a) by the same AO, there is no fault on the assessee company in this way. The assessee company cannot control the wisdom of the AO whether to process the income tax returns or to make a scrutiny assessment. Such objection would not be valid to reject th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 002 20,000/- 14.8.2002 20,000/- 19.8.2002 1,10,000/- 19.8.2002 1,10,000/- 08/01/03 30,000/- 08/01/03 30,000/- 10/01/03 15,000/- 10/01/03 15,000/- GODDESS BHAWANI 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 15,000/- 29.4.2002 15,000/- 14.08.2002 20,000/- 14.8.2002 20,000/- 08/01/03 30,000/- 08/01/03 30,000/- 10/01/03 20,000/- 10/01/03 20,000/- GODDESS LAXMI 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 15,000/- 29.4.2992 15,000/- 14.08.2002 15,000/- 14.8.2002 15,000/- 24.8.2002 1,20,000/- 24.8.2002 1,20,000/- 08/01/03 30,000/- 08/01/03 30,000/- 10/01/03 20,000/- 10/01/03 20,000/- LORD GANPATI 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 15,000/- 29.4.2002 15,000/- 14.08.2002 15,000/- 14.8.2002 15,000/- 08/01/03 30,000/- 08/01/03 30,000/- 10/01/03 20,000/- 10/01/03 20,000/- LORD HANUMAN JI TRUST Date of cash deposit Amount Date of transfer to Hindon fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neficiary. He could not explain satisfactorily to the assessing officer that these trusts were genuine and give explanation about the genuineness of the credits in the accounts of the assessee company. 11. Shri Suyash Agrawal, on the other hand, submits that the respondent-assessee is not required to prove the source of the source. There was no dispute that all the eight trusts were subjected to assessments and that they were not called for any scrutiny. Their returns were accepted under Section 143(1)(a) of the Act. Their PAN numbers also given the the balance sheets were produced. It was not denied that these trusts had the capital, which were carried forward to the next year and that funds in their account were genuine. The Income-tax department has not taken any action against the trusts and thus under Section 68, after having proved the nature and source of the credits, it was not open to the AO to question the genuineness of the transactions. The assessee had proved the source of the credits on which the burden shifted on the revenue to prove that these transactions were not genuine. Such a burden is to be discharged, if the trusts were not genuine and transactions were not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by It in for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year." 13. Under Section 68 of the Act if any sum is found credited in the books of account of the assessee and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer satisfactory, the sum so credited maybe charged to income-tax as the income of the assessee of that previous year. Therefore what has to be enquired into by the Assessing Authority is about the nature and source of the deposit. If the explanation with regard to nature and source is found unsatisfactory only then the amount so credited may be treated as income. 14. Section 68 came up for consideration before the various High Courts. The Court has held that assessee has to prove three conditions; 1) ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... showed that the receipt was not of an income nature, the Department could not Act unreasonably and reject that explanation to hold that it was income. If however. the evidence was unconvincing, then such rejection could be made The Department cannot by merely rejecting a good explanation unreasonably, corvert good prod into no proof. 19.In the case of Commissioner of Income Tax v. Orissa Corporation P. Ltd. reported in 159 I.T.R., 78. the Apex Court observed as follows;- "In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income tax assesses. Their Index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under Section 131 at the instance of the assesses did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee-company, with majority shareholdings along with his close associates, was the common managing trustee of all the trusts. He did not produce the trust deeds, its objects, and the beneficiaries of the trusts to establish that though the trusts were registered, there were beneficiaries other than him and his associates. The capacity of the creditors was built up by the assessee himself as he could not explain the sources for which he has received the money. It was found by the AO and the CIT(A), that the trusts were receiving cash donations, which were transferred on the same date to the company. The dates of donations to the trusts and advance of loans by the trusts to the assessee are the same. In the absence of the trust deeds, the object of the trusts and its beneficiaries, the conclusions drawn by the AO and CIT(A) that the trusts were fictitious trusts and were created only for the purpose of creating the capital of the company, is a finding of fact with which the Tribunal interfered only on inferences in law. The law is to be applied on facts. The principles of law are not to be applied in isolation, devoid of facts to upset the findings of the adjudicating officer and the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated these trusts and was depositing the amount in cash to be given to the company as loans. He did not produce the trust deeds, the author of the trusts or beneficiaries of the trusts. The method and manner, in which he was depositing the amount in the accounts of the trusts, and was transferring the same on the same day by way of cheques to the company, of which he was majority shareholdings along with his associates, clearly establishes that he was playing a fraud with the revenue, and thus the AO and CIT(A) fully justified in finding that the burden of proof did not shift on the revenue and in adding to the amount to the income of the assessee. Where the source is the assessee himself, he is required to prove the source of the source to verify the transactions.
16. On the facts and circumstances, we find that the ITAT grossly erred in law in allowing the appeal and reversing the judgment of CIT(A) and AO. The questions of law are decided in favour of revenue and against the assessee. The department will compute the tax accordingly. It will be open to the Income Tax department to proceed against the trusts in accordance with the law. X X X X Extracts X X X X X X X X Extracts X X X X
|
