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2016 (10) TMI 967 - ITAT DELHI

2016 (10) TMI 967 - ITAT DELHI - TMI - Revision u/s 263 - addition u/s 68 - Held that:- Under section 68 assessee is required to establish the source of cash credit. Assessee is not required to prove source of source. In the present case assessee has established the source. What CIT is trying to do in 263 proceedings, is to ask assessee to establish source of source, which is not required under section 68. Moreover the issue which is arising is at best against the creditors and not against the a .....

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s a case where creditors have duly reflected the transactions in their ITRs and has confirmed the amount advanced to the assessee. No adverse inference can be drawn against the assessee on the ground that assessee has failed to prove source of source. Assessee can't be asked to prove source of source. Thus we hold that the impugned order passed by the learned CIT u/s.263 of the I.T. Act is without jurisdiction and not sustainable in the eyes of law. - Decided in favour of assessee. - I.T.A. No. .....

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al read as under:- 1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income lax (CIT) under Section 263 of the Act is bad, both in the eye of law and on facts. 2. On the facts and circumstances of the case, the learned CIT has erred in ignoring the contention of the appellant that for invoking the powers under Section 263 both the conditions, i.e., that the assessment order being erroneous as well as prejudicial to the interest of Revenue, need to be .....

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acts and in law, in setting aside the order for the purpose of reverification without giving any finding haw the order is erroneous. 5. On the facts and circumstances of the case, the learned CIT has erred, bath an facts and in law, in _ indulging in surmises and conjunction while invoking his revisionary power under Section 263 without bringing any material .or evidences about any error in the order passed by the AO. 6. On the facts and circumstances of the case, the learned CIT has erred, bath .....

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h on facts and in law, in setting aside the order under section 263 of the Act without there being any adverse material either at the stage of assessment or in the revisionary proceedings. 10. On the facts and circumstances of the case, the learned CIT has erred in ignoring the contention of the appellant that the proceeding under Section 263 cannot be used for substituting opinion of the AO by that of the CIT. 11. On the facts and circumstances of the case, the learned CIT has erred, both on fa .....

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Tax Act, 1961 on 21.1.2011. Later on, the case was selected for scrutiny through CASS as per CBDT s guidelines. Accordingly, a notice u/s. 143(2) was issued on 25.8.2011. Thereafter, statutory notices were issued alongwith questionnaire from time to time. In response thereto, the proceedings were attended by the Counsel of the assessee and the case was discussed with him by the AO. Necessary details as called for from time to time were furnished. Thereafter, the income of the assessee was assess .....

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has been duly accounted for in the books of accounts and the details regarding the same were submitted to the AO during the course of assessment proceedings. 4. However, the Ld. CIT disregarded the submissions of the assessee and issued notice u/s. 263(1) of the Act on 9.12.2013, requiring the assessee to show cause as to why the assessment may not be cancelled. In reply to the said notice, assessee submitted its reply dated 14.2.2014, wherein it was stated that the details regarding the unsecur .....

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assessee has stated that complete details regarding the unsecured loans were submitted by the assessee during the assessment proceedings. The details regarding the unsecured loans alongwith the source of the same were asked by the AO vide its questionnaire dated 28.10.2010. He further stated that assessee submitted before the AO that the cash deposits made were on account of loan received from the wife on the assessee, Smt. Sunita Jain. In order to prove the source of funds available with the w .....

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the assessee. It is important to note that issue was a cash credit under section 68 talks about satisfaction of the AO. Thus AO being satisfied after the reply, the Ld. CIT cannot sit on the judgment of the AO to review the order under section 263. It is not the case of no or lack of enquiry. Inadequate enquiry cannot be a subject matter and trigger for invoking the provisions of section 263. To support his contention, Ld. Counsel of the assessee relied upon the following judgments/decisions:- .....

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uired to establish the source of cash credit. Assessee is not required to prove source of source. In the present case assesee has established the source. What Ld. CIT is trying to do in 263 proceedings, is to ask assessee to establish source of source, which is not required under section 68. Moreover the issue which is arising is at best against the creditors and not against the assessee. The creditors having accepted and confirmed the deposit, having filed the return of income declaring capital .....

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nd has confirmed the amount advanced to the assessee. No adverse inference can be drawn against the assessee on the ground that assessee has failed to prove source of source. Assessee cannot be asked to prove source of source. To support this contention, he relied upon the Hon ble Jurisdictional High Court in the case of CIT vs. Shiv Dhooti Pearls & Investments (ITA No. 429/2003 dated 21.12.2015). Ld. Counsel of the assessee has stated that in view of the above, judgments, and keeping in min .....

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at the order passed by the AO is erroneous as well as prejudicial to the interest of the Revenue. Accordingly, he requested that the impugned order passed u/s. 263 of the Act passed by the Ld. CIT may be upheld and appeal of the assessee may be dismissed. 8. We have carefully considered the rival submissions and perused the relevant records available with us, especially the impugned order passed by the Ld. CIT u/s. 263 of the Act alongwith the legal position on the relevant issues which emanates .....

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13, wherein the assessee duly stated that the said amount was a loan received from his wife which has been duly accounted for in the books of accounts and the details regarding the same were submitted to the AO during the course of assessment proceedings. However, the Ld. CIT disregarded the submissions of the assessee and issued notice u/s. 263(1) of the Act on 9.12.2013, requiring the assessee to show cause as to why the assessment may not be cancelled. In reply to the said notice, assessee su .....

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ds, it is noticed that the assesses Smtv Suntia Rani w/o Sh. Surinder Kumar Jain (ussessee) has deposited an amount of ₹ 56,85,000/- as unsecured loans with the assessee on diffetent dates during the FY 2008-09. The modus operandi of giving loan to the assessee was that Smt. Sunita Jain was depositing heavy cash on different dates in her bank account. The source of this amount has been explained by the assessee that Smt. Sunita Jain (wife of assessee) has received ₹ 34 lacs from sale .....

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authority nor notarized or attested by Oath Commissioner. The said agreement claimed has been executed on 01.12.2008 and as per that Smt. Sunita Jain received cash of ₹ 10 lacs on 27.11.2008 and ₹ 24 lacs on 1.12.2008. But ₹ 24 lacs on 1.12.2008. But perusal of the assessment records reveals that Smt. Sunita Jain instead of selling the said land to Smt. Raj Rani executed GPA in her favour on 18.11.2009 i.e. after about one year of so agreement. In other words, Smt. Sunita Jain .....

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t. In this way, the AO has failed to examine the sources of cash deposit in bank account of the wife of the assessee. 3. As the assessment completed by AO was found to be erroneous and prejudicial to the interest of revenue, a notice u/s. 263 of the Act was issued to the assessee on 9.12.2013, fixing the case for 23.12.2013, requiring the assessee to show cause as to why an appropriate order u/s. 263(1) of the I.T. Act may not be passed by cancelling the assessment order passed by the AO on 23.1 .....

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case were examined by the AO before passing the assessment order and the order passed by the AO is not erroneous and prejudicial to the interest of revenue. 4. Thus, from the discussions above, it emerges that in this case substantial income has escaped assessment due to non-application of mind by the AO to the facts of the case, thereby rendering the assessment under consideration erroneous and prejudicial to the interest of revenue. These conditions are satisfied as the impugned assessment or .....

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243 ITR 83 (SC). The word erroneous in section 263 of the Act includes failure to make such enquiry as warranted by the facts of the case, as held in the case of Gee Vee Enterprises vs. ADDL. CIT (1975) 99 ITR 375 (Delhi). Further, failure to make enquiries making the order without evidence or enquiry renders the order erroneous and prejudicial held in the case of Addl. CIT vs. Mukur Corporn. (1978) 111 ITR 312 (Guj) and Ram Pyari Devi Saraogi vs. CIT (1968) 67 ITR 84 (SC). In this regard, the f .....

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or false or irregular application of it, such as vitiates the proceedings and warrants the reversal of the judgement. An act involving a departure from truth or accuracy; a mistake; inaccuracy, as an error of calculation" (see Black's Law Dictionary page 542,}. 'Prejudice according to Black's Law Dictionary is nothing but "a leaning towards one side of a cause for some reason other than a conviction of its prejudice. In our considered opinion, an erroneous order resulting i .....

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lication of law to the given facts are met in the instant case. The AO has completed assessment without carrying out necessary enquiries end investigations to verify the creditworthiness of the creditor. Smt. Sunita Jain (wife of the assessee). This act of omission has resulted in revenue loss of at least over ₹ 25 Lacs, as discussed above. These acts of incorrect appreciation of fact and mistaken conception and application of law have clearly rendered the order of assessment passed by the .....

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ion 68 of the I.T. Act has not been discharged by the assessee. The assessee has no doubt filed affidavits confirming the advance of money received from the party concerned but the onus cannot be said to have been discharged unless the source of cash deposited in the bank accounts of the party concerned is proved with documentary evidence. Such a practice of accepting deposits although through cheques by making cash deposits into the bank accounts and then obtaining cheques has not been recogniz .....

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of the creditors. So long as the definite source of advances to assessee is not disclosed during the assessment, the enquiries regarding the cash credits cannot be treated as complete. 6. Coming back to the facts of the case of the assesses it is apparent from assessment record that the assessment order u/s 143(3} has been passed by the AO without application of mind in respect of point raised in the preceding paragraphs. Therefore, taking into consideration all the facts and circumstances of th .....

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a reasonable opportunity of being heard to the assessee. 10. After perusing the aforesaid order of the Ld. CIT, we are of the considered opinion that the order passed by the learned CIT u/s. 263 totally fails to meet the jurisdictional requirements of section 263 of the I.T. Act, 1961, Because the very basis for audit objection and initiation of 263 proceedings is due to non-reading the documents correctly. We note that power of attorney was executed on 18-11-2009, whereas the amount has been de .....

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-12-2008, when agreement was executed into and possession handed over to the buyer in consequent to the sale agreement. The seller (Mrs. Sunita Rani) has duly declared the capital gain arising on such transfer under the agreement dated 01-12-2008 in AY 2009-10 as is evident from her statement and accepted as such. The Audit Party and CIT has failed to appreciate the agreement and provisions of Income Tax Act and indulging into surmises and conjectures have ignored the agreement and on the basis .....

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y relied upon the objection raised in the audit. This indicates the non- application of mind of the Ld. CIT to the facts of the case before issuing the show cause notice u/s 263 of the Act. The audit objection raised cannot be a basis of revision of assessment orders. Therefore, the revision proceedings as initiated by the Ld. CIT are invalid, bad in law and liable to be quashed. To support our view, we rely upon the judgment of Hon'ble Jurisdictional High Court of Punjab and Haryana in the .....

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e jurisdiction can be exercised. Whether satisfaction of the Commissioner for exercising jurisdiction is called for or not, has to be decided having regard to a given fact situation." 10.1 Further on the similar facts and circumstances of the case, the following judgment was passed by the ITAT, Chandigarh in the case Jaswinder Singh v. CIT [2013] 56 SOT 85 (Chandigarh - Trib.) The audit objections under no circumstances can be called as record empowering the Commissioner to exercise jurisdi .....

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along with the source of the same were asked by the AO vide its questionnaire dated 28.10.2010 which was duly submitted by the assessee before the AO, that the cash deposits made were on account of loan received from the wife on the assessee, Smt. Sunita Jain. In order to prove the source of funds available with the wife of the assessee, an Affidavit was filed by Smt. Sunita Jain confirming the unsecured loan given to the assessee and further giving details and documentary evidences with regard .....

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s AO being satisfied after the reply, the CIT cannot sit on the judgment of AO to review the order under section 263. It is not the case of no or lack of enquiry. Inadequate enquiry cannot be a subject matter and trigger for invoking the provisions of section 263. In order to support our aforesaid view, we draw support from the Hon'ble Jurisdictional High Court in the case of ITO v. D. G. Housing Projects Ltd. [2012] 343 ITR 329, wherein the Hon'ble High Court has held as under: "Th .....

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conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. Commissioner cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the Commissioner to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the Commissioner hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the A .....

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ecord. Nothing bars/prohibits the Commissioner for collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous. [Para 17] 10.3 Further on the similar facts and circumstances of the case, the Hon ble High Court of Delhi in the case of CIT v. New Delhi Television Ltd. [2014] 360 ITR 44 (Delhi) has held as under:- In the present case, jurisdictional pre-conditions stipulated in section 263 are not satisfied. The Assessing Offic .....

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e, before him and before the Assessing Officer, but refrained from forming any opinion as to whether the acceptance of the claim by the Assessing Officer was erroneous or not. Power of review under section 263 can be invoked only if the order is erroneous and for this the Commissioner must record the reason that the order was erroneous and the claim under section 80HHF was wrongly allowed. Once the said claim under section 80HHF was considered and examined by the Assessing Officer, Commissioner .....

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r and must set out logical ground and reason as to why the assessment is erroneous and prejudicial to the interest of the revenue. [Para 18] 10.4 We further note that under section 68 assessee is required to establish the source of cash credit. Assessee is not required to prove source of source. In the present case assessee has established the source. What CIT is trying to do in 263 proceedings, is to ask assessee to establish source of source, which is not required under section 68. Moreover th .....

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th the explanation given by the assessee, CIT cannot substitute his view. 10.6 It is a case where creditors have duly reflected the transactions in their ITRs and has confirmed the amount advanced to the assessee. No adverse inference can be drawn against the assessee on the ground that assessee has failed to prove source of source. Assessee can't be asked to prove source of source. Our aforesaid view is fully supported by the following Jurisdictional High Court decision in the case of CIT v .....

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ng failed to establish the genuineness and creditworthiness of TCL, the burden shifted to the Assessee to do so. 12. The Court has examined the decision of the Gauhati High Court in Nemi Chand Kothari (supra). Therein the Gauhati High Court referred to Section 68 lof the Act and observed that the onus of the Assessee "to the extent of his proving the source whom which he has received the cash credit." The High Court held that the AO had ample 'freedom' to make inquiry "not .....

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is that while Section 106 of the Evidence Act limits the onus of the Assessee to the extent of his proving the source from which he has received the cash credit, Section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the sources of the creditor, but also of his (creditor's) subcreditors and prove, as a result, of such inquiry, that the money received by the Assessee, in the form of loan from the creditor, though routed through the subcreditors, actually belongs .....

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Section 106 and Section 68 are to stand together, which they must, then! the interpretation of Section 68 has to be in such a way that it does not make Section 106 redundant. Hence, the harmonious construction of Section 106 of the Evidence Act and Section 68 of the income Tax Act will be that though apart from establishing the identity of the creditor, the Assessee must establish the gemfineness of the transaction as well as the creditworthiness of his creditor, the burden of the Assessee to pr .....

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cash credit has been, eventually, received by the Assessee. It, therefore, further logically follows that the creditor's creditworthiness has to be judged vis-a-vis the transactions, which have taken place between the Assessee and the creditor, and it is not the business of the Assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub-creditors, for, these aspects may .....

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und in the books of accounts of the Assessee. It cannot but be gainsaid that the presumption is rebuttable. In refuting the presumption raised, the initial burden is on the Assessee. This burden, which is placed on the Assessee, shifts as soon as the Assessee establishes the authenticity of transactions as executed between the Assessee and its creditors. It is no part of the Assessee's burden to prove either the genuineness of the transactions executed between the creditors and the sub-credi .....

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e transactions in issue, or as regards the credit worthiness of the creditors, it would have had to discharge the onus which had shifted on to it. A bald assertion by the A. O. that the credits were a circular route adopted by the Assessee to plough back its own undisclosed income into its accounts, can be of no avail. The revenue was required to prove this allegation. An allegation by itself which is based on assumption will not pass muster in law. The revenue would be required to bridge the ga .....

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