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2016 (4) TMI 354 - ITAT AHMEDABAD

2016 (4) TMI 354 - ITAT AHMEDABAD - TMI - Addition made u/s. 68 - as per AO depositors were not financially capable to give loans/deposits, most of the depositors had interest income that too received from the Assessee and they did not have any other source of income or their income was very small and thus according to the A.O mere receipt of loans by account payee cheques did not make the loans as genuine - Held that:- CIT(A) while granting the relief has given a finding that most of the credit .....

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ipt etc. before the A.O but A.O did not made any further inquiry of the concerned creditor nor had issued summons u/s. 131 of the Act, nor made any spot inquiries on the addresses of the creditors. He thus held that Assessee had discharged the initial onus cast upon it and the evidences and explanations furnished by the Assessee have not been found to be untrue and while deleting the addition he also placed reliance on the various decisions cited in the order. Before us, Revenue has not brought .....

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d out from the material on record are as under. 3. Assessee is an HUF and stated to be engaged in the business of Shroff in the name and style of Shree Ambica Shroff. Assessee electronically filed its return of income for A.Y. 2009-10 on 30-03-2009 declaring total income at ₹ 1,62,360. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 29.12.2011 and the total income was determined at ₹ 3,27,48,040/-. Aggrieved by the ord .....

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isted at page 3 to 13 of the Assessment Order) and the aggregate amount received was ₹ 3,04,47,991/-. The Assessee was asked to prove the identity, genuineness and creditworthiness of the depositors. On analyzing the details furnished by the Assessee, A.O concluded that none of the depositors was financially capable to give loan to Assessee, most of the returned filed by the depositors was for claiming return of TDS, the depositors had interest income that too received from the Assessee an .....

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5,85,682/- (comprising of ₹ 3,04,47,991 being deposits and ₹ 21,37,691/- being interest paid on the aforesaid deposits to the 27 parties) as non genuine loans and accordingly made addition of the aggregate amount u/s. 68 of the Act. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who deleted the addition by holding as under:- 6. I have carefully considered the submissions made by the appellant and have gone through the various judicial decisions relied u .....

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n a tabular form. This clearly establishes the fact that all the creditors are assessed to tax. Further, on perusal of the ledger account, it is evident that all the deposits and withdrawals have been received by way of account payee cheques only. The details of cheque No. and the bank are clearly recorded in the copy of ledger account in respect of each of the depositors. Since the appellant is a shroffs, it obtains loan deposits from various parties. On perusal of accounts of all these credito .....

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sideration, deposits as well as withdrawals have been made from the said account. The tax has been deducted at source on payment of interest on these deposits to the various creditors. The AO has made the addition in respect of the deposits received from each of the 27 creditors during the year under consideration without taking into consideration the amount of withdrawals made from each of the accounts during the year under consideration. Even if credits received during the year are held to be .....

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such interest amount relates to entire deposits including opening deposit with the appellant on day to day product basis and such interest is not relatable only to deposits received during the year. It is further noted that in the assessment order passed u/s 143(3) of the Act for assessment year i.e. AY 2007-08, the same depositors have been treated as genuine and no addition has been made u/s 68 of the Act. Majority of these depositors are maintaining their current accounts with the appellant f .....

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k name are duly recorded in the copy of account duly submitted. 6.3 Section 68 itself provides that where any sum is found credited in the books of the assessees for any previous year, the same may be charged to income tax as the income of the assessees of the previous year, if the explanation offered by the assessees, about the nature and source of such sums found credited in the books of the assessees, is in the opinion of the Assessing Officer not satisfactory. It has been held by the Hon' .....

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sum so credited may be charged to income-tax as the income of the assessees of that previous year The expression 'the assessees offer no explanation' means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. It is true that the opinion of the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation of m .....

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ima facie prove; (i) The identity of the creditor; (ii) The capacity of the creditor to advance money; and (iii) The genuineness of the transactions The assessee is required to discharge this initial onus. The law is equally settled that if the initial burden is discharged by the assessee by producing sufficient material in support of the loan transactions, the onus shifts upon the AO. However, after making necessary inquiry and verification, the AO can call for further explanation from the asse .....

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heque No. name of banks etc. have also been indicated in the copies of accounts. It is a matter of record that no further inquiry has been made by the AO. Just on the basis of documents submitted by the appellant, the AO has come to conclusion that the creditors have no financial capacity to make deposits with the appellant without considering the fact that current accounts maintained; with the appellant by the creditors have huge opening deposit / balance in respect of each of the creditors and .....

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AO as is evident from the records. The AO could have issued summons u/s. 131 of the I.T. Act to the creditors or inquiries could have been made from the assessment records of these creditors as well as spot inquiries could have been made on the given addresses of the creditors. Once the appellant has furnished all the necessary details and documents, as in the present case, it has discharged the initial burden which lay on him u/s 68 of the Act. Once the appellant produces the basic records of t .....

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ecord, it is clearly established that the appellant has proved all the ingredients such as genuineness of the transactions, identity of the depositors, creditworthiness and capacity of the depositors by providing the copy of P.A. no. and complete income tax details coupled with the fact that all the transactions were through A/c Payee cheques. The onus now shifts to the AO for disputing the appellant's claim, explanation and evidences. Once the AO fails to discharge the onus lying on him, th .....

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dex number was in the file of the revenue. The revenue, apart from issuing notices under section 131 at the instance of the assessee, 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 credit-worthy 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 any further. In the premises, if the Tri .....

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individual creditors, wherever available, and copies of returns filed by the creditors in the remaining cases. All loans were received and repaid by assessee by account payee cheques along with interest. Thus, assessee has discharged the initial onus which lay on it in terms of sec. 68. Assessee is not further expected to prove the genuineness of cash deposited in the bank accounts of the creditors. Merely because summons issued to some of the creditors could not be served or they failed to appe .....

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was on it by offering explanation that deposits were made by third parties, viz., customers of bank, and said explanation had not been found to be incorrect or false in any manner, addition was to be deleted." (iv) In the case of CIT vs. Ranchod Jivabhai Nakhava in Tax Appeal No.50 of 2011the Hon'ble High Court of Gujarat has held as under: "Once the assessee has established that he has taken money by way of accounts payee cheques from the lenders who are all income tax assessees w .....

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ore verifying of such fact from the Assessing Officer of the lenders of the assessee, the Assessing Officer decides to examine the lenders and asks the assessee to further prove the genuineness and creditworthiness of the transaction, in our opinion, the Assessing Officer did not follow the principle laid down under Section 68 of the Income Tax Act." 6.6 So far as the assertion of the AO that the creditors are not financially capable for making deposits with the appellant is concerned, it i .....

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creditors or loan taken from sub-creditors. In respect of majority of the creditors, it is noted that they have received huge funds by account payee cheques from the firm M/s R. M. Tobacco Co. during the year under consideration. Once a creditor is a regular income-tax assessee since long, it cannot be said that he is not a man of means. Moreover, the fact that all the creditors are filing their returns of income through one CA firm only, also does not prove the non-genuineness of transactions u .....

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gifts were not real in nature in view of the surrounding circumstances which were based on the material available on record and not on any conjectures and surmises. (ii) So far as the reliance on the case of ITO vs. Diza Holdings (P.) Ltd. [2002] 255 ITR 573 (KER.) is concerned, the facts of the case are that the Assessing Officer found that deposits for various amounts in name of 11 persons were credited in books of assessee. Not satisfied with the assessee's explanation and source of thes .....

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the Court that - "Even the bank transactions clearly indicated that the transactions were done after deposits were made only on the previous dates and on the next date it was given as bearer cheque and it was also not explained why a new account was opened when already there existed another account. Merely because the loan transaction was sought to be relied upon by the assessee on the ground that the transaction was given by cheque, that by itself will not prove the genuineness of the tran .....

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dis. He also filed copies of accounts to show that receipts and payments were made by cheques. The ITO, however, called upon the assessee to produce the parties but the assessee did not do that. The ITO issued notices under section 131 to the hundi creditors but the same were received back unserved. Even those on whom notices could be served did not appear in response to the said notices. The ITO held that all those parties being bogus hundiwallas, the said loans were not genuine. The ITO, accor .....

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's income from undisclosed sources. (vi) Similarly in the case of Blowell Auto Pvt. Ltd. vs. ACIT, Faridabad [2009] 177 Taxman 261 (Pun. & Har.) it has been held that where assessee had established identity of creditors by producing their affidavits, but had failed to prove their capacity and genuineness of transactions, addition made by Assessing Officer as unexplained cash credit was justified. 6.8 In view of the above, it is quite obvious that the facts of all the judicial decisions r .....

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ith the appellant in respect of the creditors is duly accepted as genuine in earlier years. 6.9 Considering the entire facts and circumstances of the case, I am of the considered opinion that there is no justification for making any addition u/s 68 of the Act in respect of any of the creditors. Accordingly, the addition made by the AO of ₹ 3,25,85,682/- is. hereby deleted. 5. Aggrieved by the order of ld. CIT(A), Revenue is now in appeal before us. 6. Before us, ld. D.R. pointed to the var .....

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e C.A. and considering the detailed analysis made by A.O the addition made by A.O needs to be upheld. He also relied on the decisions in the case of Blessing Construction vs. ITO (2013) 32 Taxman.com 366 (Guj), Gayathri Associates vs. ITO (2014) 41 taxmann.com 526 (Andhra Pradesh) and in the case of CIT vs. Jansampark Advertising & Marketing (P.) Ltd. (2015) 56 taxmann.com 286 (Del). In the alternate the ld. D.R. submitted that the matter may be set aside to the file of A.O to make the neces .....

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nts. He further submitted that since the Assessee had discharged the primary onus and unless the explanation and evidences furnished by the Assessee are found to be untrue, no addition could be made u/s. 68. He thus supported the order of ld. CIT(A). 7. We have heard the rival submissions and perused the material on record. The issue in the present case is about addition made u/s. 68 of the Act. The primary reason for making the addition by the A.O u/s. 68 was that the depositors were not financ .....

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