TMI Blog2016 (10) TMI 1274X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction entered into with the creditor. As confessed / admitted by the partners of M/s Moxdiam in the statement recorded on oath u/s 131 of the Act that they are persons of meager financial means/resources and several bank accounts were opened by Moxdiam to provide accommodation bills and accommodation entries to various parties in lieu of commission income. Assessee had stated before us that the admission of the partners of the firm M/s Moxdiam is restricted to providing of accommodation bills for purchase and sale invoices of diamonds and it cannot be extended towards accommodation entries of the nature of loans as are extended by Moxdiam to the assessee. We are afraid that this contention of the assessee cannot be accepted as it is admitted by partners of Moxdiam that the firm is engaged in providing accommodation entries and accommodation bills in lieu of commission income and we cannot give a hyper technical restricted meaning to the words of the partners recorded in the statement as the partners clearly stated and meant that the firm M/s Moxdiam is engaged in activities of providing accommodation entries and accommodation bills to various parties and hair splittin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Assessing Officer (hereinafter called the AO ) u/s 143(3) of the Income-tax Act,1961 (Hereinafter called the Act ). 2. The grounds of appeal raised by the assessee firm in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) read as under:- 1) On the facts and in the circumstances of the case the Learned Commissioner of Income (Appeals) [CIT(A)] erred in fact and in law in confirming the addition of ₹ 1.00 crore made by the Learned Assessing Officer alleging the loan taken by the appellant from one M/s Moxdiam, during the previous year relevant to A.Y.2007-08, as fictitious. 2) On the facts and in the circumstances of the case the learned CIT(A) erred in fact and in law in confirming the disallowance of interest of ₹ 93,000/- made by the Learned Assessing Officer on the alleged unproved/fictitious loan. 3) On the facts and in the circumstances of the case the learned CIT(A) erred in fact and in law in not adjudicating the disallowance of ₹ 25,000/- made out of sundry expenses by the Learned Assessing Officer. 4) On the facts and in the circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd hawala entries to various parties. Sh. Nitesh Jain, Partner of Moxdiam and Mr. Ramesh Jain, Director of M/s. Morewel Impex Private Limited also confessed to the same, wherein it was admitted that main business of these entities was to provide accommodation bills and hawala entries and these entities were never involved in regular and commercial genuine businesses. The only remuneration which the business generated for these entities was by way of commission income which was received when the transactions of providing Hawala bills/ entries were effected with the parties. With respect to two parties who were beneficiaries of these accommodation transactions against whom survey action u/s 133A of the Act was also carried out namely M/s Combined Diamonds Limited and Stargems confessed to having entered into fictitious transactions with the above entities including Moxdiam and offered income of ₹ 1.80 crores and ₹ 2.25 crores for the assessment year 2007-08 to 2009-10 respectively. The partner of the firm M/s Moxdiam, Mr. Nitesh Jain vide letter dated 10- 07-2008 expressed that during the course of survey carried out u/s 133A of the Act on Moxdiam, certain books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their family and personal problem but will be available before the AO after their personal and family problems are over. It was submitted that the said party Moxdiam has sent fresh confirmation of account for the year ended 31-03- 2009 reconfirming dealing with the assessee together with copy of their bank statement of ING Vysya Bank for the period September 2008 to March 2009 to show the repayment made by the assessee which was duly credited in their bank account along with acknowledgment for filing of Return of Income by Moxdiam for assessment year 2008-09 and 2009-10. The AO issued detailed show cause notice to the assessee which was replied by the assessee wherein the afore-said contentions were reiterated by the assessee. The AO rejected the contentions of the assessee by holding that Moxdiam creditworthiness is not proved., its financial capacity and its business background is dubious. It was observed by the AO that the M/s Moxdiam is not carrying out any genuine business but was established to earn mere commission on its hawala dealings. The AO relied upon decision of Hon ble Supreme Court in the case of CIT v. Durga Prasad More 82 ITR 540(SC), Hon ble Calcutta Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Real Estate Market had availed of accommodation entries for possible adjustments in their project/loan accounts with the purpose of covertly introducing their unaccounted income earned from undisclosed sources into their business, through accommodation entries from the aforesaid parties. Statement of Sh. Basant D. Jain, partner of Moxdiam, was recorded u/s 131 of the Act on 09- 07-2008, wherein he admitted that the aforesaid entities are providing hawala entries to various parties. This statement was further endorsed by Sh. Nitesh Jain, Partner of Moxdiam and Mr Ramesh Jain, Director of Morewel Impex Private Limited, wherein they admitted that the only income generated by them through this activity is by way of commission income. Consequent to survey action on these entities, two parties viz. M/s Combine Diamonds Private Limited and M/s Star Gems Private Limited admitted to fictitious transactions with M/s Moxdiam and offered for taxation unaccounted income of ₹ 1.80 crores and ₹ 2.25 crores for the assessment year 2007-08 to 2009-10. The assessee was asked to produce the partners of M/s Moxdiam for examination which the assessee could not produce before the AO during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Balance Sheet of M/s Moxdiam as at 31-03-2007, it was observed that total capital of the firm was ₹ 1,00,000/- whereas aggregate of current account was deficit (-) ₹ 12,02,375/-. The amount payable to creditors was shown at ₹ 16,29,83,032/- and an amount of ₹ 10,40,12,58/- was shown as receivable from debtors. There is no bank loan or any other loan taken by Moxdiam which indicates that the loans have been paid by Moxdiam out of alleged creditors appearing in Balance Sheet. In response, the assessee submitted before the AO in Remand Report proceedings that the above loans were not an accommodation entries but genuine loan transactions duly reflected in bank accounts of both the parties and also recorded in books of accounts. The notices u/s 133(6) of the Act and summons u/s 131 of the Act were issued by the AO in remand report proceedings and in response Mr. Basant D. Jain, partner of Moxdiam appeared before the AO on 23/06/2011 and filed letter dated 22/06/2011 enclosing details of transaction of Moxdiam with the assessee, copy of ledger, bank statement and copy of acknowledgment of return of income filed for assessment year 2007-08, 2008-09 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. Both these parties are located at Surat and had dealing with Moxdiam and Morewel Impex Private Limited was the observations of the AO during remand report proceedings. The AO observed that in both the cases, loans are advanced out of sundry creditors.. The proprietor s capital is meager of both these entities and there are no secured or unsecured loans taken by these entities which indicated that these entities were also engaged in providing accommodation entries and their bank accounts form a part of chain of movement of funds from one concern to another which is indicative of the circular movement of hawala entries through bank accounts of various entities, including the entries referred to above. The AO in remand report proceedings observed that the loan of ₹ 1.0 crores advanced by Moxdiam to the assessee is accommodation entry. The AO observed that : a) The affidavit of Sh Basant D. Jain retracting the earlier statement is dated 18/02/2011, which is about 2 years and 8 months after the survey action conducted on 07/07/2008. The averments in affidavit are clearly an afterthought and contradictory to facts and material on record and the facts tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to discharge the burden of proving creditworthiness of the alleged lender. The assessed income of the alleged lender M/s Moxdiam is as under: AY 2007-08 ₹ 2,49,530/- AY 2008-09 ₹ 1,64,596/- AY 2009-10 upto the date of survey (-) ₹ 9,936/- The capital of the partner was ₹ 1,00,000/- and the aggregate current account of the partner was to the tune of deficit/debit (-) ₹ 12,02,374/- and learned CIT(A) disbelieve the assertion/contention of the assessee that the loan of ₹ 1.0 crore was given by M/s Moxdiam to the assessee as the alleged lender did not had capacity to advance the loan of ₹ 1.0 crore to the assessee ( the total loan advanced being ₹ 5.14 crores as at 31-03-2007) as the said Moxdiam is not having genuine business and also the only source of income is commission income for arranging accommodation entries as the said Moxdiam does not have resources to advance loan of ₹ 1.0 crore to the assessee ( the total loan advanced being ₹ 5.14 crores as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that these repayments are not from genuine resources of the assessee firm but through alleged loans taken by it from Rising Star and Seven Star Jewels. It was observed by learned CIT(A) that enquiries with these two concerns namely Seven Star Jewels and Rising Star have also brought out that these two entities do not have financial standing to give the alleged loan to Moxdiam. It was observed by the learned CIT(A) that web of entries/ credit has been created by these two entities in their books of accounts to justify the availability of funds whereas capital of these two proprietary concerns/ entities is only a meager sum of ₹ 2,83,409/- of Rising Star and ₹ 3,70,874/- of Seven Star Jewels. These entities have shown huge credits in their books to the tune of ₹ 17.36 crores and ₹ 53.19 crores respectively to create an illusion that these entities have the necessary funds from which it give loan to the assessee which was utilized by the assessee for repaying the loan to Moxdiam. Thus, it was held by the learned CIT(A) that the loan of ₹ 1.0 crore given by Moxdiam to the assessee is not a genuine transaction. The learned CIT(A) further observed that ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xdiam of the statements recorded during survey proceedings whereby they retracted and denied that the firm M/s. Moxdiam is engaged in providing accommodation bills and accommodation entries. The learned counsel submitted that additions have been made based on the statement of third party which also was retracted. The affidavit of the partners of Moxdiam retracting their statements recorded during survey proceedings and post survey enquiries whereby vide affidavit dated 22-08-2008, Mr Nitish Jain retracted from his statement that Moxdiam was engaged in accommodation entries were brought to our attention which is placed at page 95-98/paper book. The assessee also brought to our attention Affidavit of Mr. Basant D. Jain dated 18-02-2011 whereby he retracted from his statements given to the department that Moxdiam was engaged in giving accommodation entries, the said affidavit is placed in paper book page 99-102. The learned counsel for the assessee drew our attention to page 392/pb whereby vide question no 9 vide statement recorded of Mr. Nitesh Jain under oath u/s 131 on 07-07- 2008, he was asked to produce the books of accounts of Moxdiam and he stated that the books of accounts wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read with Section 147 of the Act in the case of M/s Moxdiam for the assessment year 2007-08 which is placed at page 213-217/paper book, assessment order for assessment year 2008-09 of Moxdiam is paced at page 219-221/paper book.The audited accounts and acknowledgement of income tax return of Moxdiam are also placed in paper book/page 146-212 for the assessment year 2007-08 to 2009-10.It was submitted that the assessee raised loans from Rising Star and Seven Star Jewel to repay Moxdiam and copies of their ledger accounts, confirmations, income tax return acknowledgement, bank statements are placed in paper book page 223-274. The attention was drawn to page 6- 7/written submission and it was submitted that the said Moxdiam was allegedly engaged in alleged accommodation entries related to sale and purchase of material and not of loans as were granted to the assessee.The assessee relied on decision of Mumbai Tribunal in ACIT v. G V Sons, ITA No. 2239-40/Mum/2012 dated 05-12-2014 and our attention was drawn to para 17 whereby transaction of the tax-payer G V Sons with Moxdiam was held not to be sham transaction and the Tribunal upheld decision of the learned CIT(A) in deleting the addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned counsel distinguished the case of DCIT v. Smt Phoolan Devi(2009) 314 ITR 1(trib) and submitted that in the said case cash was deposited in the bank, no interest was paid, not assessed to tax while in the instant case, interest was paid, TDS was deducted, huge transaction of purchase and sale and assessments were completed. Thus, the judgment of Phoolwati Devi(supra) cannot be applied. Similarly it was submitted that the decision of CIT v. Durga Prasad More(1971) 82 ITR 540(SC) and CIT v. Emarald Commercial Limited(2001) 250 ITR 539(Cal.HC) are distinguishable and not applicable. The learned counsel for the assessee moved an application under Rule 29 of Income-Tax (Appellate Tribunal) Rules, 1963 wherein additional evidences are submitted before the Tribunal and prayer is made for admission of these additional evidences which are mainly in the form of MVAT audit report of Moxdiam, Rising Star and Seven Star Jewels, income-tax assessment orders of lenders, and also details of sources to advance loans by these entities, page 291-356 of paper book.The assessee has prayed that these additional evidences are produced before the Tribunal for the first time as the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... list of beneficiaries of accommodation entries. The parties admitted of having engaged in the business of providing accommodation entries and there is a retraction after a gap of more than two years. The genuineness and creditworthiness of transactions is not proved and ingredients of Section 68 of the Act are not fulfilled. There is a meager capital of partners invested in Moxdiam which is rather deficit/debit after considering current account of partners, and returned income of Moxdiam does not justify the grant of huge loans to the tune of ₹ 5.14 crore in aggregate as at 31-03-2007 advanced by Moxdiam which did not stood proved to be genuine and creditworthiness did not stood proved. The learned DR relied upon the decision of Hon ble Delhi High Court in the case of CIT v. N R Portfolio Private Limited (2014) 42 taxmann.com 339(Delhi). The ld DR relied upon the orders of the authorities below and also opposed the admission of additional evidences filed by the assessee. The learned counsel for the assessee on the other hand submitted in rejoinder that there was retraction within a month by Nitish T. Jain, whereby he drew our attention to an affidavit dated 22.08.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d assessment year and the additions have been made by the AO u/s 68 of the Act which was sustained by learned CIT(A) in the first appeal as the assessee failed to prove genuineness of the loan transaction as well could not prove creditworthiness of the lender. It will be profitable at this stage to reproduce Section 68 of the Act as applicable for the relevant assessment year under consideration reads as under:- Cash credits. 68. Where any sum is found 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 [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. Section 68 of the Act cast obligation on the tax-payer where any sum is found credited in the books of an tax-payer maintained for any previous year, and the tax-payer offers no explanation about the nature and source of credit thereof or the explanation offered by the tax-payer is found not satisfactory in the opinion of the AO, the sum so credited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... returns, Balance Sheet/statement of affairs, bank statement of the lender is not sufficient as the AO is to be satisfied as to the identity and creditworthiness of creditor as well as to the genuineness of the transaction entered into with the creditor. We have observed that the assessee has raised a loan of ₹ 1.0 crores from the firm M/s Moxdiam during the previous year relevant to the impugned assessment year which was raised through crossed account payee cheques . The said firm Moxdiam was stated to be in the business of diamond trade. The said firm Moxdiam was subject to survey action u/s. 133A of the Act on 07-07-2008 wherein the partners of the said firm, Moxdiam has confessed/admitted in the statement recorded on oath u/s 131 of the Act during survey operations and also during post survey enquiries conducted by Revenue that the said firm M/s Moxdiam is engaged in the business of providing accommodation bills and accommodation entries on commission basis. It is also confessed / admitted by the partners of M/s Moxdiam in the statement recorded on oath u/s 131 of the Act that they are persons of meager financial means/resources and several bank accounts were op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond available which is a strong indication that the partners of Moxdiam were not aware of the traits of diamond perse and also of tarde/business of diamond industry which knowledge is a minimum pre-requisite expected from the owners for carrying on any business. Perusal of Balance Sheets of Moxdiam as at 31-03-2007 will reveal that there is no capital assets such as plant, machineries, equipments, tools, furniture, fixture and other infrastructure held by Moxdiam as per Balance Sheet of Moxdiam as at 31- 03-2008 which are bare necessary for carrying on diamond trade. The only fixed asset appearing in Balance Sheet of Moxdiam as at 31-03-2007 is Computer of value ₹ 23,800 and no other plant, machinery, equipment, tools, furniture, fixture and other infrastructure as are necessary for carrying on business of diamond trade are appearing in Balance Sheet of Moxdiam as at 31-03-2007. On being asked by the Revenue officers of survey team, no proper explanation was submitted by the partners of Moxdiam and rather evasive replies were given by them. It was confessed/admitted by the partners of the Moxdiam that import of diamond were made at the behest of importers and the said impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng survey action on 07-07-2008 and post survey enquiries by Revenue that Moxdiam was engaged in business of providing accommodation bills and accommodation entries were filed as an additional evidences under Rule 46A of Income-tax Rules, 1962 before learned CIT(A) vide letter dated 23-02-2011 filed on 24-02-2011 which is almost after 2 years and 8 months from the date of survey u/s 133A of the Act on Moxdiam on 07-07-2008 (page 92-102/pb). The affidavit dated 22.08.2008 executed by Mr Nitish T. Jain retracting the admission of Moxdiam being accommodation entry provider was denied by the Revenue to be before them at that stage of its execution in August 2008, which in-fact was brought before Revenue for the first time vide letter dated 23-02-2011 filed on 24-02-2011 before learned CIT(A) and in any case in the finalized and accepted assessment of Moxdiam u/s 143(3) read with Section 147 of the Act vide assessment orders dated 12- 03-2010 for assessment year 2007-08 (page 213-217/pb), the afore-stated retractions of the partners were rejected by Revenue and assessment was framed in the hands of Moxdiam by bringing to tax commission income on these accommodation entries and accommodat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bviously the assessee will not get MVAT Audit done incriminating itself and secondly sources for loan were stated to be receipts from Debtors but the perusal of Balance Sheet reveals that there is no investments by partner in the firm neither any loans were raised by Moxdiam and the sale and purchase of diamonds were admitted to be accommodation bills and in our considered view keeping in view the financial position of Moxdiam as indicated above and admission of partners to be of meager resources, it is highly improbable that the Moxdiam had capacity to advance genuine and bonafide loans of ₹ 5,14,54,247/- which included loan of ₹ 1.0 crore to the assessee(page58/pb). Further, while making repayment of loan to Moxdiam during September 2008 to March 2009, the assessee raised loans from Rising Star and Seven Star Jewels to repay loans to Moxdiam. The financial statements of the said concerns for the year ended 31-03-2009 also reveal similar pattern as of Moxdiam that the said concerns also have meager financial investment by their proprietors and there are huge sundry debtors and creditors reflected in their accounts, no loans raised and huge loans being raised out of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntity and creditworthiness of the creditors along with the genuineness of the transaction to the satisfaction of the AO. All the constituents are required to be cumulatively satisfied. If one or more of them is absent, then the AO can make the additions u/s 68 of the Act as an income. The burden is very heavy on the assessee to satisfy cumulatively the ingredients of Section 68 of the Act as to identity and establish the credit worthiness of the creditors and genuineness of the transaction to the satisfaction of the AO, otherwise the AO shall be free to proceed against the assessee company and make additions u/s 68 of the Act as unexplained cash credit. The use of the word any sum found credited in the books in Section 68 indicates that it is widely worded and the AO can make enquiries as to the nature and source thereof. The AO can go to enquire/investigate into truthfulness of the assertion of the assessee regarding the nature and the source of the credit in its books of accounts and in case the AO is not satisfied with the explanation of the assessee with respect to establishing identity and credit worthiness of the creditor and the genuineness of the transactions, the AO is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... September 2008 to March 2009. This arguments with due respect cannot be accepted as the said firm Moxdiam was surveyed on 07/07/2008 i.e. prior to start of repayment of loan to Moxdiam in September 2008 and secondly as per the assessment order passed in the case of the assessee by the AO u/s 143(3) of the Act dated 26.11.2009, the first notice u/s 143(2) of the Act was issued to the assessee on 06.08.2008 commencing scrutiny proceedings prior to start of repayment of loan to Moxdiam in September 2008 and hence argument of the assessee are rejected. Even otherwise, if we eschew the statements of the partners of Moxdiam, then also after considering the entire background of the said firm Moxdiam and based on their financial parameters as emerging from Moxdiam financial statements as discussed above in details, we are of considered view that the capacity of lender M/s Moxdiam to grant loan and genuineness of the said loan transaction of ₹ 1.0 crore is not proved by the assessee, as in our considered view based on the financial statements of Moxdiam as at 31-03- 2007 it does not have the financial capabilities to grant loans of the magnitude of ₹ 1.0 crore to the assessee( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and how or why he came to make a deposit of the same with the tax-payer. The burden will then shift on to the department to show why the tax-payer's case cannot be accepted and why it must be held that the entry, though purporting to be in the name of a third party, still represents the income of the assessee from a suppressed source. In order to arrive at such a conclusion, however, the department has to be in possession of sufficient and adequate material. While in the instant case before us support the proposition of Revenue as they have doubted the capacity of lender Moxdiam to lend loan of ₹ 1.0 crore to the assessee as well genuineness of the transaction was doubted by Revenue owing to statements of partners of Moxdiam admitting indulging in clandestine accommodation entries and accommodation bills as well the financial statements of Moxdiam does not support the capacity of Moxdiam to lend such a huge sum of money as loan to the assessee, and under these circumstances then the burden got shifted to assessee to prove vide cogent evidences that the apparent is real and is not merely smoke screen to introduce assessees own money by this apparent loan transaction. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by Revenue owing to statements of partners of Moxdiam admitting indulging in clandestine accommodation entries and accommodation bills as well the financial statements of Moxdiam does not support the capacity of Moxdiam to lend such a huge sum of money as loan to the assessee, and under these circumstances then the burden got shifted to assessee to prove vide cogent evidences that the apparent is real and is not merely smoke screen to introduce assessees own money by this apparent loan transaction. f) CIT v. ABT Limited (2015) 370 ITR 159(Mad.)- In this case, the taxpayer was able to produce documents and the details of repayment made through cheque. Even the bank confirmations were filed by the tax-payer showing that the cheques issued by the tax-payer were encashed by the respective parties. The tax-payer had also furnished identity of persons with complete details of addresses and the FD applications showing details. While in the instant case before us support the proposition of Revenue as they have doubted the capacity of lender Moxdiam to lend loan of ₹ 1.0 crore to the assessee as well genuineness of the transaction was doubted by Revenue owing to stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue owing to statements of partners of Moxdiam admitting indulging in accommodation entries and accommodation bills as well the financial statements of Moxdiam does not support the capacity of Moxdiam to lend such a huge sum of money as loan to the assessee, and under these circumstances then the burden got shifted to assessee to prove vide cogent evidences that the apparent is real and is not merely smoke screen to introduce assessees own money by this apparent loan transaction. i) CIT v. Smt Sanghamitra Bharali (2014) 361 ITR 481(Gauhati HC) In this case the tax-payer discharged its primary burden as cast u/s. 68 of the Act whereby identity, creditworthiness and genuineness of the transaction stood proved. Now, the burden shifted to Revenue to prove the contrary. While in the instant case before us support the proposition of Revenue as they have doubted the capacity of lender Moxdiam to lend loan of ₹ 1.0 crore to the assessee as well genuineness of the transaction was doubted by Revenue owing to statements of partners of Moxdiam admitting indulging in clandestine accommodation entries and accommodation bills as well the financial statements of Moxdiam does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merely smoke screen to introduce assessees own money by this apparent loan transaction l) CIT v. Shiv Dhooti Pearls and Investment Limited (2016) 237 Taxman 104(Delhi) - In this case also it was held that the assessee is not required to prove source of source and once primary onus is discharged by the assessee as to establishing identity and creditworthiness of the creditor and genuineness of the loan transaction, then it is for Revenue to disprove the same. While in the instant case before us support the proposition of Revenue as they have doubted the capacity of lender Moxdiam to lend loan of ₹ 1.0 crore to the assessee as well genuineness of the transaction was doubted by Revenue owing to statements of partners of Moxdiam admitting indulging in accommodation entries and accommodation bills as well the financial statements of Moxdiam does not support the capacity of Moxdiam to lend such a huge sum of money as loan to the assessee, and under these circumstances then the burden got shifted to assessee to prove vide cogent evidences that the apparent is real and is not merely smoke screen to introduce assessees own money by this apparent loan transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a particular case has been discharged or not. It all depends on the facts and circumstances of each, case. In some cases, the onus may be heavy whereas, in others, it may be nominal. There is nothing rigid about it. Herein the assessee was receiving some income. He says that it is not his income but his wife's income. His wife is supposed to have had two lakhs of rupees neither deposited in banks nor advanced to others but safely kept in her father's safe. Assessee is unable to say from what source she built up that amount. Two lakhs before the year 1940 was undoubtedly a big sum. It was said that the said amount was just left in the hands of the father-in-law of the assessee. The Tribunal disbelieved the story, which is, prima facie, a fantastic story. It is a story that does not accord with human probabilities. It is strange that the High Court found fault with the Tribunal for not swallowing that story. If that story is found to be unbelievable as the Tribunal has found, and in our opinion rightly, then the position remains that the consideration for the sale proceeded from the assessee and, therefore, it must be assumed to be his money. 10. It is surprising th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities. Human minds may differ as to the reliability of a piece of evidence. But in that sphere the decision of the final fact finding authority is made conclusive by law. 14. The fact that the assessee kept a separate account in respect of the income and expenditure relating to the premises in question is of little evidentiary value if one takes into consideration the past history of the case. At any rate what value should be attached to that circumstance is for the final fact finding body. 15. The circumstance that the assessee had at the very outset produced the sale deed and the trust deed before the Income-tax Officer is of no significance. Those documents formed the sheet anchor of the assessee s case. There was no particular virtue in the assessee s producing those documents before the Income-tax Officer. 16. In our opinion, no question of law arose from the order of the Tribunal and, therefore, the High Court was not justified in directing the Tribunal to state a case and we are further of opinion that the answer given by the High Court to the question referred to it is unsustainable. We, accordingly, discharge that answer and answer that questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, Madras and Hyderabad. The said amount was shown by the appellant in the capital account in the books. The appellant filed a return on 27-3-1972 declaring an income of ₹ 27,829. The appellant also made a sworn statement on 6- 1-1973 before the ITO and on the basis of the said statement the ITO made an assessment order dated 27-3-1974 wherein he held that the sum of ₹ 3,11,831 is not winnings in races and he treated the said receipts as income from undisclosed sources and assessed the same as income from other sources. For the assessment year 1972-73, the appellant showed receipts of ₹ 93,500 as race winnings in two Jackpots at Bangalore and Madras and the said amount was credited in the capital account in the books. The appellant filed a return declaring an income of ₹ 3,827 on 3-2-1973. In his assessment order dated 31-8-1974 the ITO included the amount of ₹ 93,500 - as income from other sources and assessed the income of the appellant on that basis. The appeals filed by the appellant against the assessment orders were disposed of by the AAC by order dated 12-12-1975 whereby the assessment of ₹ 3,11,831 as income under the head 'Income fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ented from the said view. 3. Shri B.K. Mehta, the learned senior counsel appearing for the appellant, has submitted that the source of the receipt of the amounts has been established by the appellant by placing on record the certificates from the various race clubs which show that the said amounts were received by way of winnings from races and the burden lay on the department to show that the said amounts were not winnings from races but was an income from other sources. The submission of Shri Mehta is that in the present case the department has not adduced any evidence to discharge the said burden which lay on it and the majority view of the Settlement Commission is unsustainable inasmuch as it is based on no evidence and is founded on mere suspicion and surmises. According to Shri Mehta, the Chairman of the Settlement Commission, in his dissenting opinion, has correctly applied the law. Shri Mehta has placed reliance on the decisions of this Court in Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532 ; Sreelekha Banerjee v. CIT [1963] 49 ITR 112; and CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78. Shri J. Ramamurthy, the learned senior counsel appearing for the reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lieve that the apparent is not the real and that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities - CIT v. Durga Prasad More [1971] 82 ITR 540, at pp. 545, 547 (SC). 7. In this context it would be relevant to mention that in order to give effect to the recommendations of the Direct Taxes Enquiry Committee (under the Chairmanship of Justice K.N. Wanchoo, retired Chief Justice of India) the definition of 'income' in section 2(24) of the Act was amended with effect from 1-4-1972 by the Finance Act, 1972 so as to include within its ambit, winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever. The reason underlying the said amendment was that exemption from tax that was enjoyed in respect of such winnings had provided scope for conversion of 'black' money into 'white' income. The said exemption from tax available in respect of such winnings during the assessment years 1971-72 and 1972-73. 8. Dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut at three different centres, namely, Madras, Bangalore and Hyderabad appears, prima facie, to be wild and contrary to the statistical theories and experience of the frequencies and probabilities. (iii)The appellant's books do not show any drawings on race days or on the immediately preceding days for the purchase of Jackpot combination tickets, which entailed sizable amounts varying generally between ₹ 2,000 and ₹ 3,000. The drawings recorded in the books cannot be corelated to the various racing events at which the appellant made the alleged winnings. (iv)While the appellant's capital account was credited with the gross amounts of race winnings, there were no debits either for expenses and purchases of tickets or for losses. (v)In view of the exceptional luck claimed to have been enjoyed by the appellant, her loss of interest in races from 1972 assumes significance. Winnings in racing became liable to income-tax from 1-4-1972 but one would not give up an activity yielding or likely to yield a large income merely because the income would suffer tax. The position would be different, however, if the claim of winnings in races was fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect evidence about such purchase would be rarely available. An inference about such a purchase has to be drawn on the basis of the circumstances available on the record. Having regard to the conduct of the appellant as disclosed in her sworn statement as well as other material on the record an inference could reasonably be drawn that the winning tickets were purchased by the appellant after the event. We are, therefore, unable to agree with the view of the Chairman in his dissenting opinion. In our opinion, the majority opinion after considering surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winning from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amounts has been rejected unreasonably and that the finding that the said amounts are income of the appellant from other sources is not based on evidence. 13. In the circumstances, no case is made out for interference with the order passed by the Settlement Commission. The appeals, therefore, fail and arc accordingly dismissed with costs. Thus it is fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax Act, 1961 (Act, for short) of ₹ 1,2,34,100/- and ₹ 75,60,200/- for the assessment years 2002-03 and 2003-04 on account of share application money. 2. The contention of the Revenue is that the Income Tax Appellate Tribunal (tribunal) has dealt with the issue superficially and has failed to notice the money laundering indulged into and the clandestine manner in which unaccounted and black money had been brought into books by this dubious method. It is contended that the decision in the case of CIT v. Lovely Exports Ltd. [2008] 299 ITR 268/[2007] 158 Taxman 440 (Delhi) is being misunderstood and misinterpreted resulting in a spate of matters wherein assessees have adopted this surreptitious method to convert unaccounted for money into share application money. 3. Revenue has relied upon the decision of this Court in the case of CIT v. Nova Promoters Finlease (P.) Ltd. [2012] 342 ITR 169/206 Taxman 207/18 taxmann.com 217. 4. By order dated 13th August, 2013, the following substantial question of law was framed in the two appeals:- Whether the Income Tax Appellate Tribunal was right in deleting the additions of ₹ 63,80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provided only after return of income was filed but yet in the interest of justice and for the purpose of proceedings it was stated that as per information available, the share capital was received during the years from the persons who had been identified as entry operators. Thus, the respondent-assessee had received accommodation entries which were likely to be hit under Section 68 as unexplained cash credit. Details and manner in which entries were made in the books of account and the clandestine manner of circulation, was stated in detail in the show cause notice. 7. On 4th December, 2007, no one appeared at the time of hearing. Subsequently, a request for adjournment was received by way of courier from M/s Prakash K. Prakash Chartered Accountants and they were allowed time up to 10th December, 2007, but on the said date also, no one appeared and no written request was received. Accordingly, ex-parte or best judgment assessment orders both dated 17th December, 2007 were passed for the two assessment years. We shall be referring to the details/contents of the assessment orders subsequently. 8. The respondent-assessee, however, preferred appeals and substantia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as it is an established fact that in absence of any intimation with regard to change of registered office address from the appellant company, the assessing officer has left with very little option except getting the same served through affixture. It is beyond doubt that the assessing officer took pains to locate the authorized representative M/s Prakash K. Prakash, CAs and served show- cause notice on them meaning thereby that the appellant was fully in known of the things that the assessment proceedings are going on and it is required to file information with regard to the various points on the basis which the case was reopened u/s 147/148 of the Act. It is matter of record that after the authorized AR could be located by the assessing officer, the AR filed a letter dated nil' along with POA dated 1-11-2007 but still the appellant chose not to intimate the address to the assessing officer except vaguely stating that the Department have been informed about the change of address from time to time. In these circumstances, I do not see any justification on the part of the appellant to either raise the issue of non- service of notices or improper procedure of substituted service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that the respondent-assessee had wrongly claimed that they had informed the department about change of their registered office address, as not even a single intimation was presented before the Assessing Officer or him. 12. The contention of the Ld. AR for the appellant, that they had intimated change of address to Registrar of Companies, and the Assessing Officer should have ascertained the said address, it was rightly observed could not cut any ice in the facts of the present case. It was the obligation and responsibility of the respondent- assessee to intimate change of address to the Assessing Officer as no return with the new address was furnished or even filed. Further, the conduct of the respondent, when they did not give the latest address in spite of the fact that M/s Prakash K. Prakash, Chartered Accountants were served and informed about the proceedings, speaks for itself. Their conduct in not responding and appearing before the Assessing Officer was adversely commented upon by the Commissioner (Appeals) and the said finding has not been disturbed by the tribunal. However, this fact and the conduct of the respondent before the Assessing Officer was not notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material and evidence and can withstand the challenge in appellate proceedings. Principle of preponderance of probabilities applies. What is stated and the said standard, equally apply to the Tribunal and indeed this Court. The reasoning and the grounds given in any decision or pronouncement while dealing with the contentions and issues should reflect application of mind on the relevant aspects. 14. When an assessee does not produce evidence or tries to avoid appearance before the Assessing Officer, it necessarily creates difficulties and prevents ascertainment of true and correct facts as the Assessing officer is denied advantage of the contention or factual assertion by the assessee before him. In case an assessee deliberately and intentionally fails to produce evidence before the Assessing Officer with the desire to prevent inquiry or investigation, an adverse view should be taken. We shall now come to the merits and the findings recorded by the Commissioner (Appeals), which as noted above, have been simply affirmed by the tribunal without verifying or referring to the facts. 15. In the present case, the undisputed position is that the respondent had received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to attend the assessment proceedings, explain and put forward their stand and stance. To this extent, there is contradiction in the order passed by the Commissioner (Appeals), which was ignored and not taken note of by the tribunal. 17. The Commissioner (Appeals) thereafter proceeded on the basis that even if the subscribers to the share capital were not genuine, the amount received cannot be regarded as undisclosed income of the respondentassessee. Reference was made to the decision of the Delhi High Court in Lovely Exports (P.) Ltd. (supra). Reference was made to some decision of the tribunal. It would be here relevant to highlight and note what was recorded by the Assessing Officer in the assessment order. The Assessing Officer has mentioned that the subscribers belonged to Mahesh Garg group of entry operators, which included 51 companies/ persons, who were operating more than 100 bank accounts in different banks/branches. Their modus operandi was to provide accommodation entries to different persons/beneficiaries. Reference was made to the bank statements of the entry operators that showed substantial deposit of cash in the bank accounts and subsequent issue of cheq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19. On the question of creditworthiness and genuineness, it was highlighted that the money no doubt was received through banking channels, but did not reflect actual genuine business activity. The share subscribers did not have their own profit making apparatus and were not involved in business activity. They merely rotated money, which was coming through the bank accounts, which means deposits by way of cash and issue of cheques. The bank accounts, therefore, did not reflect their creditworthiness or even genuineness of the transaction. The beneficiaries, including the respondent-assessee, did not give any sharedividend or interest to the said entry operators/subscribers. The profit motive normal in case of investment, was entirely absent. In the present case, no profit or dividend was declared on the shares. Any person, who would invest money or give loan would certainly seek return or income as consideration. These facts are not adverted to and as noticed below are true and correct. They are undoubtedly relevant and material facts for ascertaining creditworthiness and genuineness of the transactions. 20. Vicky Chaurasia, additional director of the respondent c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm/company/person or a few Left without address and a very few Refused to accept . Remaining 9 parties neither attended and filed any application for adjournments nor filed details. Thus, it was observed that the identities had been only proved on paper, i.e., in form of neutral documents like PAN number, ITR, Registrar of Companies registration, but without full details as to the actual business activities undertaken by these companies, the reason why these companies had made investment in a private limited company etc. This coupled with the fact that there was cash deposits in their bank accounts and withdrawals were highlighted. 22. In the rejoinder filed to the remand report, it was stated that the share applicants were required to appear in person on 17th November, 2008 in response to summons under Section 131 dated 23rd October, 2009. Subsequently, fresh summons dated 30th October, 2009 were issued requiring compliance by 7th November, 2009, but the Assessing Officer had sent the remand report on 6th November, 2009 without waiting for compliance of summons. The said submission is without merit as we notice that the order of the Commissioner (Appeals) is dated 1s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 68 was inserted in the I.T. Act, 1961, only to provide statutory recognition to a principle which had been clearly adumbrated in judicial decisions. 24. We are conscious of the doctrine of 'source of source' or 'origin of origin' and also possible difficulty which an assessee may be faced with when asked to establish unimpeachable creditworthiness of the share subscribers. But this aspect has to be decided on factual matrix of each case and strict or stringent test may not be applied to arms length angel investors or normal public issues. Doctrine of source of source' or origin of origin' cannot be applied universally, without reference to the factual matrix and facts of each case. The said test in case of normal business transactions may be light and not vigorous. The said doctrine is applied when there is evidence to show that assessee may not be aware, could not have knowledge or was unconcerned as to the source of money paid or belonging to the third party. This may be due to the nature and character of the commercial/business transaction relationship between the parties, statutory postulates etc. However, when there is surrounding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot decided. The standard of proof might be rigorous and stringent and was dependent upon nature of the transaction and where there was evidence that the source of investment cannot be manipulated, it was material. Similarly, it was observed that assessee could scarcely be heard to say that he did not know the particulars of a donor in case of a gift. It was held:- There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should not be harassed by the Revenue's insistence that it should prove the negative. In the case of a public issue, the Company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The Company must, however, maintain and make available to the Assessing Officer for his perusal, all the information contained in the statutory share application documents. In the case of private placement the lega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pudiation. 27. The decision in the case of Lovely Exports Ltd. (supra) was considered in Nova Promoters and Finlease (P) Ltd. (supra) and it was elucidated:- '38. The ratio of a decision is to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, income tax file numbers, their creditworthiness, share application forms and share holders' register, share transfer register etc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in the hands of the company under sec.68 and the remedy open to the revenue is to go after the share applicants in accordance with law. We are afraid that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self-confessed acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividends, warrants etc. have to be sent and the relationship is/was a continuing one. In such cases, therefore, the assessee cannot simply furnish details and remain quiet even when summons issued to shareholders under Section 131 return unserved and uncomplied. This approach would be unreasonable as a general proposition as the assessee cannot plead that they had received money, but could do nothing more and it was for the assessing officer to enforce share holders attendance. Some cases might require or justify visit by the Inspector to ascertain whether the shareholders/subscribers were functioning or available at the addresses, but it would be incorrect to state that the assessing officer should get the addresses from Registrar of Companies' website or search for the addresses of shareholders and communicate with them. Similarly, creditworthiness was not proved by mere issue of a cheque or by furnishing a copy of statement of bank account. Circumstances might require that there should be some evidence of positive nature to show that the said subscribers had made a genuine investment, acted as angel investors, after due diligence or for personal reasons. Thus, finding or a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorrect to state that the onus to prove the genuineness of the transaction and creditworthiness of the creditor stands discharged in all cases if 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 angel 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 satisfactory discharge of onus. The facts of the present case noticed above speak and are 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 afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t above, we are of considered view that the additions made by the AO and sustained by learned CIT(A) are to be affirmed as we do not find any infirmity in the order of learned CIT(A) which we with due respect affirm with respect of raising of loan of ₹ 1.0 crore by the assessee from Moxdiam which is held to be income of the assessee as an unexplained cash credit u/s. 68 of the Act. Consequentially, interest of ₹ 93,000/- provided by the assessee on the said loan also cannot be held to be genuine interest and is ordered to be disallowed as deduction claimed by the assessee. This disposes of all the grounds raised by the assessee in the memo of appeal filed with the tribunal, except ground no. 3 which we have already disposed off in this order in preceding paras . We order accordingly. 11. In the result, appeal filed by the assessee in ITA No. 800/Mum/2012 for the assessment year 2007-08 is dismissed as indicated above. 12. Our above decision in ITA No. 800/Mum/2012 for the assessment year 2007-08 shall apply mutatis mutandis to the decision in ITA No. 6314/Mum/2012 for the assessment year 2008-09 as the facts are identical. We order accordingly. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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