TMI Blog2019 (6) TMI 1253X X X X Extracts X X X X X X X X Extracts X X X X ..... out the activities therefore, its directors who are not found at the given address and further even they did not respond to the summons. The assessee could not produce them before the lower authorities and in case of some other assessee also it itself proves that the lender is nonexistent shell company. The lenders which has an asset base of ₹ 8.18 crores has earned a meager income of ₹ 37000/- and the income tax payable for Assessment Year 2009-10 is a meager sum of ₹ 108/- and ₹ 11739/- for the current year. Further this company does not have a fixed asset of single rupee. Further, the balance sheet produced before the lower authorities was also not accompanied with the schedules and the profit and loss account but a stray paper giving the list of various loans and advances etc was given . Further the bank account of the lender which is given for 9/1/2009 to 12/1/2009 to the AO does not show the name of the bank to which it pertains to similarly bank statement for repayment period was also 18/2/2010 to 05/3/2010 has the similar story to tell. The above conduct and the balance sheet of the lender clearly shows that the lender alleged to have deployed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material against the mass evidences/material placed on record and accepted other loans Id. AO failed to discharge the shifted onus lay upon him even after remanding case twice. 3. That in addition to above, learned CIT(A) failed to appreciate that loans was taken long before the start of activities hence neither there was any possibility to have earned so much of income and failed to follow the ration of apex / jurisdictional courts etc. on the issue. 4. That without prejudice to above and without any dilution in above grounds but in alternative, learned CIT(A) failed to follow the ratio of jurisdictional/other courts holding that provisions of s. 68 has no applicability where deemed income u/s 68 is applied for charitable purposes. 2. The brief facts of the case shows that the assessee is a charitable trust assessed as Association of Persons, running an educational institute, filed its return of income on 12.10.2010 showing total income of Rs. Nil. 3. During the course of assessment proceedings, it was found that the assessee has obtained unsecured loan of ₹ 30 lakhs from M/s. Atoll Vyapaar Pvt ltd, Kolkata, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and application of section 11/12 of the Act. 11. The facts of the case, submissions made by the appellant, remand report of the AO and rejoinder of the appellant have been considered. The appellant is a society which is not registered u/s 12Aof the Act during the year under consideration. The AO has required the appellant to prove identity, creditworthiness‟ 'and genuineness in respect of above unsecured loans. The appellant has received loan of ₹ 30 lac from M/s Atoll Vyapaar Pvt. Ltd., registered at 19, Ilnd Floor, Main Building, R.N. Mukerjee Road, Calcutta. Similar loans have been raised in the case of Society for Institute of Professional Studies for 2010-11 where trustees are common with the appellant and being assessed with the same AO. It was found by the AO that its director is Sh. Sunil Kumar Gupta whose address as per the ROC/MCA records is 234, DDA Office Complex, Jhandewalan Extension, New Delhi. The AO has issued notice u/s 131 of the Act on 16-04-2012 in the case of Sh. Sunil Kumar Gupta in the case of Society for Institute of Professional Studies to verify the unsecured loans taken by the appellant f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tty income of ₹ 37989/- for AY- 2010-11. From its balance sheet as on 31-03-2010 it is noted that it has shown share capital of ₹ 33.56 lac with huge premium of ₹ 7.81 crore. The available funds have been parked into unquoted shares investments and loans advances from which there is no income. In the profit loss account it has shown petty interest receipts of ₹ 78082/- with net profit of ₹ 37989/-. It has no fixed asset. The loan has been repaid on 02-04-2014 without paying any interest and much after the completion of the assessment proceedings on 15-03-2013. From the above analysis, it is noted that the above entity is not doing any real business activities to support the availability such large funds of getting share capital, huge share premium at their disposal to make such investment with the appellant. This entity has been found to be a paper company. In the view of the above facts, it is noted that identity, creditworthiness and genuineness of the above entity is not established from the above documents and results of enquiries made by the AO. The above entity has been found to have been existing only on papers without having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edits. It has been held by Hon‟ble Delhi High Court in the case of Navodaya Castle Pvt. Ltd. in ITA No.320/2012 that certificate of incorporation, PAN etc. are relevant for the purpose of identification but have their limitation when there is evidence and material to show that the subscriber was a paper company and not a genuine investor. The SLP against the ruling of the Hon‟ble High Court has been dismissed by the Hon‟ble Supreme Court. Further, it has been held by Hon‟ble Delhi High Court in the case of Youth Construction Pvt. Ltd. 357 ITR 197 (Delhi) that mere proof of identity without genuineness and creditworthiness is not enough. Further, it has been held by the Hon‟ble Delhi High Court in the case of N.R. Portfolio Pvt. Ltd. 87 DTR 0162 (Del) that the onus to prove the three factum is on the assessee as the facts are within his knowledge. Mere furnishing names address and PAN particulars or relying on entries in the ROC website is not enough. If upon verification or during the proceedings, the AO cannot contact the share applicant or information becomes unverifiable or there are further doubts in pursuit of such details, onus s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tail a deeper scrutiny. It would be incorrect to state that the onus to prove the genuineness of the transaction and creditworthiness of the creditor stands discharged in all cases is payment is made through banking channels. Whether or not onus is discharged depends upon facts of each case. It depends on whether the two parties are related or known to each; the manner or mode by which the parties approached each other, whether the transaction was entered into through written documentation to protect the investment, whether the investor professes and was an agnel investor, the quantum of money, creditworthiness of the recipient, the object and purpose for which payment/investment was made etc. These facts are basically and primarily in knowledge of the assessee and it is difficult for revenue to prove and establish the negative. Certificate of incorporation of company, payment by banking channel, etc cannot in all cases tantamount to obvious. What is unmistakably visible and apparent, cannot be spurred by formal but unreliable pale evidence ignoring the patent and what is plain and writ large. 32. In view of the aforesaid discussion the substantial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the above that the above adverse finding have been made on the strengthen of enquiries conducted by the AO and by making independent analysis of the documents to arrive at the conclusion that the appellant has failed to prove identity, creditworthiness and genuineness in respect of unsecured loan as discussed above. The appellant has been required by the AO to produce the Director of Atoll Vyapaar during the assessment proceedings on 12- 03-2013. However, no compliance has been made. As per the requirement of section 68 of the Act, onus has been shifted back on the appellant by confronting the appellant on the basis of adverse findings as a result of enquiries conducted to verify the genuineness of documents submitted by the appellant and about non-existence of company at the address given by the appellant. The documents furnished by the appellant have thus remained unverifiable. Therefore, the appellant has failed to discharge the onus cast upon it u/s 68 of the Act to explain the credits. The various adverse observations made above in the cases of this alleged depositor entity is corroborating to infer that their identity, genuineness and creditworthiness has not been proved. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther stated that provision of section 68 are not applicable in this case as it is covered u/s 11/12 of the Act and even if income u/s 68 is added the same is eligible for exemption u/s 11/12 of the Act. The AR has relied upon the decision of CIT vs. Uttranchel Welfare Society (supra) and Hon‟ble ITAT, Delhi in the case of Dayanand Pushpa Devi Charitable Trust ITA No.3848/Del/2009. The appellant has not submitted any evidence that it is registered u/s 12A/12AA of the Act for the year under consideration. Therefore, this submission is not based upon documentary evidence without prejudice to this, It is noted that in the case of Uttranchel Welfare Society the unverified donations of ₹ 96.5 lac added by the AO u/s 68 of the Act were already a part of income expenditure account and were declared as income in the hands of the assessee whereas in the present case unverified loans which have been added by the AO u/s 68 of the Act are not part of income expenditure statement of the appellant The said decision has been given by the Hon‟ble Allahabad High Court after considering the ratio of Hon‟ble Delhi High Court in the case of DIT vs. Keshav Social Charitabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stands discharged. He further submitted that merely low income returned by the depositor does not prove that the transactions are not genuine. 6. Further, referring ground No. 3 of the appeal, he submitted that both the lower authorities have failed to appreciate that the loan was taken long before the start of the activities, hence, there was any possibility of the trust having earned so much of income and therefore, the addition cannot be made in the hands of the assessee u/s 68 of the Act. He further relied upon the following judicial precedents for each of the above arguments as under:- A. Where loan is supported with confirmation/ITR etc. and loan is received and refunded back the. banking channel - Can‟t be added in the hands of assessee u/s 68: CIT V Rahul Vineet Traders[2014] 41 taxmann.com 86 (All) 01-03 CIT V Kapoor Chand Mangesh Chand[2013]38 taxmann.com 239 (AIL) 04-05 CIT v ABT ITD. (2015)370 ITR 159 (Madras) 06-06 B. Where loan is supported with confirmation/ITR/address and loan is received th. banking channel and no cash is deposited in depositor a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as well as genuineness of the transaction. He vehemently referred to the order of the ld CIT (A) who has carefully considered all these aspects and confirmed the addition. He further submitted that despite repeated requests the assessee could not produce the directors of the above company. He further stated that investigation conducted by ld AO through Kolkata clearly shows that the company does not exist at the given address and is a shell company. He further stated that repayment of the loan by the cheque is not excuse to establish that the provision of section 68 of the Act does not apply. He referred to the provision of section 68 of the act and stated that it does not say that if the loan is repaid provisions of section 68 does not apply. He further relied upon the decision of the coordinate bench in ITA No. 4778/Del/2013 dated 08.03.2019 where the addition u/s 68 in the hands of that assessee is confirmed. He further referred to the decision of the Hon'ble Supreme Court in case of NRA Iron and Steel Co. and the decision of the Hon'ble Delhi High Court in case of NDR Promoters Pvt. Ltd. On the issue of making addition when the activities of the trust h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders of the lower authorities. The facts of the case shows that the assessee is a charitable trust formed w.e.f. 12.01.2009, filed its return of income wherein, it was found that it has obtained an unsecured loan from 9 persons amounting to ₹ 7030000/- out of which one of the lender Attol Vypaar Pvt. Ltd has also given unsecured loan of ₹ 30 lakhs to the assessee. The assessee has shown above unsecured loan in its balance sheet on liabilities side. During the course of assessment proceedings the assessee was asked to prove the identity, creditworthiness of this party as well as genuineness of the transaction. Assessee submitted the copy of the account of the above party, its return of income, bank statement of this lender vide letter dated 14.03.2013. The ld AO found that income shown the return of income of the lender is only ₹ 37989/-. Further, the bank account submitted by the lender was only for the part of the year from 09.03.2010 to 12.03.2010. he noted that there was a heavy debit and credit in the bank statement which did not commensurate with the return of income of the assessee, he therefore, asked the assessee to produce the directors of the lender c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uts are not known, the company s address shows that it never existed at that address. Mere filing of the paper does not establish even the identity of the lender company. The depositors is a private limited company which has existed and carried out the activities therefore, its directors who are not found at the given address and further even they did not respond to the summons. The assessee could not produce them before the lower authorities and in case of some other assessee also it itself proves that the lender is nonexistent shell company. 11. Further, the balance sheet of the company itself shows it is having net worth of ₹ 8.18 cores as share capital and reserves and surpluses, but is locked in advances and investment of the identical amounts in private limited company. The lenders which has an asset base of ₹ 8.18 crores has earned a meager income of ₹ 37000/- and the income tax payable for Assessment Year 2009-10 is a meager sum of ₹ 108/- and ₹ 11739/- for the current year. Further this company does not have a fixed asset of single rupee. Further, the balance sheet produced before the lower authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as cast upon it u/s 68 of the Act. The assessee was asked to produce the director which was found to be not traceable at the given address and further the assessee has also not produced the complete balance sheet. In view of this the reliance on the above decision and on 38 Taxmann.com 239, 370 ITR 159 is placed. 13. The other set of the decisions were also with respect to the fact that whether the loan is supported with the evidence and no cash is deposited in the account of the depositor, onus is discharged. In the same set of decisions it has also held that the ld AO has to conduct enquiry to prove the material on record. In the present case the ld AO has conducted the enquiry, confronted the assessee and directed the assessee to produce the directors which were not complied with. Therefore that decision does not help the case of the assessee. 14. Further the decision cited by the learned authorised representative that addition u/s 68 cannot be made for unapproved donation et cetera were some are utilized for charitable purposes relying on the decision of 364 ITR 398 of honourable above High Court. The fact of that case does not apply in the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hands of the assessee has been negated by the Hon'ble Supreme Court in (1986) 159 ITR 78 CIT VS. ORRISA CORPORATION P LTD, wherein, noting the new section 68 of the 1961, it was held that :- It was argued that in view of the provisions of section 68 of the Act, the onus in these types of cases was on the assessee and, in this case, the assessee had not discharged that onus and in the premises, questions of law as indicated above arose. Section 68 of the 1961 Act was introduced for the first time in the Act. There was no provision in the 1922 Act corresponding to this section. The section states that where any sum is found Page No : 0082 credited in the books of an assessee maintained for any previous year 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 Income-tax Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The section only gives a statutory recognition to the principle that cash credits which are not satisfactorily explained might be assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that question was final. A construction company took time to earn profits and it could not have earned a huge profit within a few days after the commencement of its business. Hence, it was reasonable to assume that the cash credit entries represented capital receipts though for one reason or another assessee had not come out with the true story as regards the source of the receipts. This decision of Honourabel supreme court was on the Income tax Act 1922 and not Income tax Act 1961. The Honourabel Supreme court in case of Orrisa Corporation (supra) has noted that Section 68 of the 1961 Act was introduced for the first time in the Act. There was no provision in the 1922 Act corresponding to this section. Therefore reliance on the decision of supreme court in 83 ITR 187 By the assessee is misplaced. 19. Despite the above decision of Honourable Supreme court in case of Orissa Corporation Limited ( Supra) categorical holding that provision of section 68 of The Income tax Act applies even if the sum is credited on the first day of the commencement of the business, even otherwise we deal with the various judicial precedents raised by the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xemption)* v. Keshav Social Charitable Foundation has held that :- 11. Section 68 of the Act has no application to the facts of the case because the assessee had in fact disclosed the donations of ₹ 18,24,200 as its income and it cannot be disputed that all receipts, other than corpus donations, would be income in the hands of the assessee. There was, therefore, full disclosure of income by the assessee and also application of the donations for charitable purposes. It is not in dispute that the objects and activities of the assessee were charitable in nature, since it was duly registered under the provisions of section 12A of the Act. In the present case before us the issue is not about the donation but about the unsecured loan. The unsecured loan has also not been credited naturally to the income and expenditure account as income of the assessee but showed as an unsecured loan in the balance-sheet. The honourable Delhi High Court in the above case has held that the provisions of section 68 does not apply to the facts of that particular case because of the reason that assessee itself has credited the donation to the income and expend ..... X X X X Extracts X X X X X X X X Extracts X X X X
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