TMI Blog2013 (8) TMI 755X X X X Extracts X X X X X X X X Extracts X X X X ..... e cheque was not sacrosanct nor could it make a non-genuine transaction as genuine. As per the judgment in the case of CIT vs. United Commercial and Industrial Co. (P) Ltd.[1989 (5) TMI 18 - CALCUTTA High Court], wherein it was held that The primary onus lies on the assessee to prove the nature and source of credits in its accounts. It is necessary for the assessee to prove prima facie the identity of his creditors, the capacity of such creditors to advance the money and lastly the genuineness of the transactions. Only when these things are proved by the assessee prima facie and only after the assessee has adduced evidence to establish the aforesaid facts does the onus shift on to the Department. - Decided against the assessee. Additin where fixed deposits taken during the earlier years - fixed deposits renewed during the year - Held that:- In the instant case, fixed deposits which were renewed during the year - In fact these fixed deposits were taken in earlier year, therefore, to that extent addition is not warranted - The assessee has furnished a chart of such 244 depositors amounting to Rs.29,84,000/- which has been placed in the Paper Book – Accepted the contention of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmations were received in few cases and FDRs to the extent of Rs.56,35,000/- were remained unconfirmed, list of which has been given by the A.O. in his order in paragraph no.2.3. The A.O., in absence of proof regarding creditworthiness of the creditors and genuineness of the transactions, made addition of Rs.56,35,000/- under section 68 of the Act. 4. The CIT(A) has allowed relief of Rs.2,53,000/- and confirmed the addition for the balance amount. Before the CIT(A), it was contended by the assessee that the fact of non-reply of confirmation from depositors was not confronted to the assessee in view of the fact the CIT(A) forwarded the assessee's submission to the A.O. for comments. The A.O. submitted his report on 06.09.2010. The A.O.'s remand report has been reproduced by the CIT(A) at page nos.3 to 6 of his order. After considering the assessee's submission and remand report of the A.O., the CIT(A) held as under :- (Page no.6) "3.4 I have considered the rival contentions and find that even after the matter was remanded to the AO, the assessee failed to submit confirmations except in 10 cases which are as under :- Anil Kumar Rs.13,000 Anil Kumar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her submitted that there was fixed deposit scheme which was open to public at large. The amounts were received through banking channel and assessee has to accept the particulars given in the application form as correct. It was further submitted that the address of the depositors were not doubted as per record of the assessee but case of the A.O is that he did not receive any response or letters sent came back un-served, he did not confront the assessee or make any further effort to contact the depositors by issuing summon under section 131 of the Act. In the absence of all these, the assessee cannot be held liable for addition under section 68. It is also submission of the ld. Authorised Representative that these fixed deposits were through brokerage and the assessee has paid brokerage of Rs.4,00,000//-. Ld. Authorised Representative submitted that the assessee has submitted complete details of these depositors including FDR numbers, names and addresses, Scheme of FDR, amount, maturity date and maturity amount etc. These details have been placed at page nos.89 to 154 of the assessee's Paper Book. Ld. Authorised Representative submitted that the assessee vide letter dated 14.12.2010 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the transaction, the A.O. made the addition invoking section 68 of the Act. The ld. Departmental Representative submitted that the assessee was not co-operating with the Department and every time seeking adjournment. Ld. Departmental Representative submitted that the A.O. in his order as well as in Remand Report before the CIT(A) submitted that the assessee was specifically asked to submit proof regarding creditworthiness of the creditors and genuineness of the transactions vide query dated 30.05.2008, paragraph no.5. The ld. Departmental Representative submitted that in para no.5, the A.O. asked the assessee to file confirmation of all unsecured loans/creditors/lenders/depositors with evidence of their identity, PAN, address of the A.O. with whom they have filed their return of income and copies of the return of income filed along with enclosing document in support of their creditworthiness. Ld. Departmental Representative submitted that before the CIT(A), the A.O. in his Remand Report clearly stated that the assessee has failed to furnish any proof regarding creditworthiness of the creditors/depositors neither at the time of assessment proceeding nor at the time of remand pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndividual, partnership firm. or company may be private or public limited. Ld. Departmental Representative submitted that section 68 is squarely covered for a company accepting fixed deposits. Ld. Departmental Representative submitted that the CIT(A) has fairly considered the confirmation received and accordingly relief of Rs.2,53,000/- was granted. Ld. Departmental Representative submitted that the order of CIT(A) is most reasonable order as he confirmed the addition made by the A.O. to the extent where the assessee even failed to furnish confirmation from the creditors. Thus, the assessee has failed to establish the identity, creditworthiness and genuineness of the transaction wherein the CIT(A) has confirmed the addition. As regards the contention of the ld. Authorised Representative that there are certain fixed deposits which were renewed during the year under consideration is not liable to be added. The ld. Departmental Representative submitted that the Revenue Authorities did not get occasion to verify this contention of the ld. Authorised Representative, such submission of the ld. Authorised Representative is subject to verification. He accordingly submitted that the matter m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal by the device aforesaid. Sometimes, the credit entry introducing the money is cancelled by a corresponding debit entry--showing the alleged loan as repaid--either in the same accounting year or in a subsequent accounting year, when the need for the moneys has abated and the moneys can be withdrawn. Where the cancellation occurs in the same accounting year, the alleged liability will not appear in the balance sheet of the business and will escape assessment unless there is a very close scrutiny and copies of all accounts are obtained by the officer. 12. The group of six sections starting from section 68 to section 69D has been introduced into the taxing enactment step by step in order to plug loopholes and in order to place certain situations beyond doubt even though there were judicial decisions covering some of the aspects. For example, even long prior to the introduction of section 68 in the statute book, courts had held that where any amounts were found credited in the books of an assessee in a previous year and the assessee offered no explanation about the nature and source thereof or the explanation offered was, in the opinion of the Assessing Officer, not satisfactory, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year. This section has application where any sum is found credited in the books of an assessee maintained for any previous year. If the amount credited in the books of the assessee maintained for any previous year is not the business income of the assessee but is held to be income from undisclosed sources, the income so discovered will, under Section 68, be deemed to be the income of that previous year for which the accounts were maintained. The position in this respect under the 1922 Act was different as such income from undisclosed sources under that Act could be assessed only on the basis that the previous year for such income was the relevant financial year. That the effect of section 68 is that, statutorily, a sum which is found credited in the books of the assessees maintained for any previous year in respect of which either the assessee offers no explanation or the explanation offered by him is not accepted by the Assessing Officer is to be charged to income- tax as the income of the assessee of that previous year. Accordingly, section 68 has been held to be a charging provision insofar as the particular sum, which is the subject of legislation, is concerned. 14. This sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available carefully and objectively. 17. To further appreciate the scheme of the Act, we would like to refer certain judicial pronouncements which are as under:- 17.1 Oriental Wire Industries (P.) Ltd. vs. Commissioner of Income tax[1981] 131 ITR 688 (CAL.). The court held that in a case like this where the alleged loan appeared in the books of account of the assessee, it is for him to prove that the transaction was genuine and that would entail production of evidence as to the, (i) source of the loan, (ii) capacity of the person who is supposed to have given the loan, and (iii) also the evidence about the fact that the loan was in fact given by the person concerned on the date mentioned. 17.2 Bharati (P) Ltd. vs. Commissioner of Income-tax [1978] 111 ITR 951 (CAL.). The brief facts of this case were in the course of the assessment proceedings, the ITO found that the assessee had shown certain amount as loan in its books, taken from two parties. The assessee produced the alleged confirmatory letters from those parties before the ITO in support of those two loans. The ITO served notices under section 131 on the alleged creditors but those notices came back un served. The ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the creditor was not in a position to advance the loan. On reference, the assessee reiterated, inter alia, (i) that its only burden was to establish (a) identity of the creditor, and (b) the genuineness to the transaction represented by the entry; (ii) that it was not required to establish the source of the loan advanced by the creditor and even if the latter's explanation as to his income was not accepted, the same could not be held to be its income as there was no direct nexus between the two; and (iii) that the creditor had duly explained to the Tribunal the reasons for recording in the books the payment of interest and not the loan. The High Court held that the question in the present reference was wide enough so as to enable the High Court to go into the question as to whether the assessee had established all the ingredients necessary to prove or substantiate the genuineness of the loan and whether the finding of the Tribunal was perverse. It is necessary for the assessee to prove, prima facie, the transaction which results in cash credit in his books of account. Such proof includes (i) proof of the identity of his creditor; (ii) the capacity of such creditor to advance t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hers, to tax as the assessee's income from undisclosed sources. On appeal, the AAC confirmed the additions being the credits in the names of 'A', and 'B'. He, however, directed that 'C' should be examined by the ITO. Pursuant to such directions one 'E' appeared before the ITO and claimed to be the karta of 'C', a HUF. In his deposition given before the ITO, he stated that the said HUF had advanced the sum to the assessee and said amount was advanced out of the augmented cash balance. The AAC concluded that the source of the loan to the family was not proved and held that this party did not have sufficient cash to advance the loan to the assessee. The AAC thus, upheld the addition made by the ITO in respect of this item also. On further appeal, the Tribunal confirmed the said additions .On reference the high court held that in the case of each of the alleged creditors it appeared that there was some material before the Tribunal to reject the case of the assessee. In the case of 'A' such materials were, (a) initial confession of 'V' that his transaction was not genuine; (b) his non-committal statement before the ITO in the proceedings for assessment and (c) the unsatisfactory natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion deleted by the AAC. 17.6 Commissioner of Income-tax vs. Precision Finance (P.) Ltd.208 ITR 465 [1995] 82 TAXMAN 31 (CAL.). The facts of the case are that the assessee- company was doing the business of loan financing. In course of the assessment for the assessment year 1978-79, the Assessing Officer found several cash credits in the assessee's books of account for which the assessee gave the income-tax file numbers of the creditors. On investigation, it was found that except in two cases either the files did not exist as per details furnished by the assessee or the records did not tally with the details mentioned by the assessee. The Assessing Officer, therefore, made an addition of Rs.4,45,000 as cash credits and also disallowed interest relatable to those loans for the assessment year 1978-79. For the assessment year 1979-80, he made similar addition as income from other sources as the Assessing Officer found similar defects in respect of cash credits. He also added interest relatable to those fictitious loans. On second appeal, the Tribunal held that the assessee-company had proved the identity of the creditors and their creditworthiness and the genuineness of the transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undisclosed sources and also disallowed the interest of Rs. 1,996 thereon on the grounds, inter alia, (i) that the credits were not verifiable and that the letters of confirmation alone did not establish the genuineness of the loans; and (ii) that the capacity of the alleged creditors to advance the loans was not proved. The AAC and the Tribunal sustained the ITO's order. The Tribunal also negative assessee's contention that section 68 had no application in the case of commercial loans. The court held that Section 68 does not make any distinction between Commercial and non-commercial loans. In the case of cash credit entry, it is necessary for the assessee to prove not only the identity of the creditors but also to prove their capacity to advance money and genuineness of the transactions. The court held that the Tribunal had material on record to reach its conclusion on account of the assessee's failure to discharge its onus of proof. Hence, addition of impugned cash credit and disallowance of interest thereon was justified in computing the taxable income. 17.8 Nanak Chandra Laxman Das vs. Commissioner of Income-tax, 140 ITR 151[1982] 9 Taxman 252 (All.). The brief facts of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the ITO, the sum so credited can be treated as the assessee's income from undisclosed sources. It is not necessary for the ITO to locate the exact source of the credits. The initial onus is on the assessee to offer an explanation and that explanation has to be to the satisfaction of the ITO. The assessee has to prove that the credit entry is genuine and that fact can be proved by establishing from some plausible evidence the identity of the creditor and his creditworthiness. In the instant case, the only material on record in regard to the impugned transaction was the so-called confirmation letter from the creditor. That alone could not have served the purpose. Apart from this, the assessee itself foreclosed any further enquiry in the matter by agreeing to the decision of this question on the basis of the material already on the record. The finding of the Tribunal in this behalf was a pure finding of fact. Accordingly, on the facts found by the Tribunal, the disputed amount was rightly treated as the assessee's income from undisclosed sources. 17.9 Gumani Ram Siri Ram vs. CIT, 98 ITR 337 (P H). In this judgement it has been held that provision of section 68 applies to all credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 CIT vs. United Commercial and Industrial Co. (P) Ltd., 187 ITR 596 (Cal). The relevant head note is reproduced under :- "The primary onus lies on the assessee to prove the nature and source of credits in its accounts. It is necessary for the assessee to prove prima facie the identity of his creditors, the capacity of such creditors to advance the money and lastly the genuineness of the transactions. Only when these things are proved by the assessee prima facie and only after the assessee has adduced evidence to establish the aforesaid facts does the onus shift on to the Department. It is not enough to establish the identity of the creditors. Mere production of the confirmation letters before the Income-ax Officer would not by itself prove that the loans have been obtained from those loan creditors or that they have credit-worthiness. Held, that, in the instant case, the Tribunal misdirected itself in holding that the transactions were genuine simply because some of the transactions were made by cheques. The assessee had failed to prove the credit-worthiness of the alleged lenders. A number of other assessees had also admired that loans obtained from these bankers against hun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that where the nature and source of receipt cannot be satisfactorily explained by the assessee, it is open to the Revenue to hold that it is the income of the assessee and no further burden lies on the Revenue to show that the income is from any particular source. Thus, even before enactment of Section 68 that was the law. In the light of above discussion, the contention of the ld. Authorised Representative does not help to the assessee. 20. The other contention of the assessee was that the assessee has furnished voluminous details in the form of application forms for fixed deposit and others of depositor about 459. The addresses of the depositors were given but confirmation of remaining depositors could not be furnished as the matter became very old. These contentions of the ld. Authorised Representative are also not supporting the case of the assessee as in respect of section 68 of the Act it is settled law that the assessee is to prove identity, capacity of depositor and genuineness of the transaction. A mere filing of voluminous detail, which is not proving and pertaining to capacity of depositor and genuineness of the transaction, does not help to the assessee. It is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d deposits are not credit of this year, therefore, addition cannot be made in the year under consideration. However, we also find force in the submission of the ld. Departmental Representative that Revenue Authorities did not get opportunity to verify the alternate contention of the ld. Authorised Representative. After considering the facts of the case, we think it proper to send back the matter, to the extent of Rs.29,84,000/- of 244 depositors of which chart has been given by the ld. Authorised Representative and has been placed in the Paper Book, to the file of the A.O. with direction to verify the alternate contention of the ld. Authorised Representative and if it is found correct, the addition to the extent of Rs.29,84,000/- or the other amount which was found in accordance with the contention of the ld. Authorised Representative that some of fixed deposits were renewed, therefore, no credit during the year, the addition to that extent may be deleted. Accordingly, we are sending the issue back to the file of the A.O. with the limited purpose as discussed above. 22. In the light of above discussion, the balance addition of Rs.23,98,000/- (Rs.53,82,000.00 - Rs.29,84,000.00) su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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