TMI Blog2020 (12) TMI 339X X X X Extracts X X X X X X X X Extracts X X X X ..... edit in dispute is nothing but represents the bogus/fictitious entries after manipulation in the accounts. Whether book entry can attract the provisions of Section 68 ? - There was no iota of doubt expressed by the authorities below on the explanation furnished by the assessee regarding the entries showing the alleged unexplained cash credit - there was no actual transaction of cash credit in the books of accounts which were based on fake entries having no substance. As such the assessee has used fraudulent device to show the share capital in the books of accounts in order to comply the SEBI Guidelines for bringing the public issue. There is a legal fiction created under Section 68 and on the basis of such legal fiction an entry in the books of accounts is deemed to be income of the assessee chargeable to tax in the event the assessee fails to discharge the onus imposed upon it under Section 68 - such legal fiction can be applied in the case of actual transactions incorporated in the books and not be applied on the transactions which are merely book entries and representing the fake transactions, having no substance. Admittedly it is the set-aside proceedings before us. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Respondents : Dileep Kumar, Sr. DR ORDER Waseem Ahmed, Member (A) In this bunch of appeals three appeals have been filed by the Assessee for A.Ys. 1995-96 to 1997-98 which are arising from the order of the CIT(A)-III, Baroda orders dated 28.10.2014, in the assessment proceedings under Section 143(3) r.w.s. 147 r.w.s. 254 of the Income Tax Act, 1961 (in short the Act ). ITA No. 186/Ahd/2015 (A.Y. 1995-96):- 2. The assessee has raised the following grounds of appeal: 1. The Learned CIT(A) has erred in law in confirming the action of AO in reopening the assessment proceedings u/s. 147 of the Act. The entire reassessment proceedings are bad in law and without jurisdiction and therefore invalid. 2. On the facts and in the circumstances of the case and in law, the Commissioner of Income tax (Appeals)-III ( CIT(A) ) erred in upholding the order of Assessing Officer in confirming the additions u/s. 68 of the Act towards share capital made by the Learned Assessing Officer. 3. As a matter of fact there is no cash which has come to the appellant so as to invoke the provisions of sec. 68 of the act, therefore the Appellant humbly prays that the said addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further erred in not appreciating the facts and law in their proper perspective. 5. At the outset, the Learned AR for the assessee submitted that he has been instructed by the assessee not to press ground No. 1 challenging the validity of the assessment framed under Section 147 of the Act. Accordingly, we dismiss the same as not pressed. 6. The issues raised by the assessee in all the appeals are common and interconnected to each other. Therefore, we have combined all the appeals filed by the assessee together for the sake of brevity and convenience. 7. The interconnected issue raised by the assessee in remaining grounds of appeal is that the Learned CIT(A) erred in confirming the addition made by the AO under Section 68 of the Act on account of unexplained cash credit amounting to ₹ 50,50,000/-, ₹ 11,77,000/- and ₹ 1,22,34,000/- for the Assessment Years 1995-96, 1996-97 and 1997-98 respectively. 8. The facts in brief are that the assessee in the present case is a limited company and engaged in the business of manufacturing of paints. The assessee in the years under consideration has shown the addition in the share capital as detailed under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om these persons in the form of share application money. 12. The AO also found that similar direction was also issued by the ITAT with respect to the A.Ys. 1996-97 and 1997-98. In view of the above, the AO was of the opinion that the assessee was under the obligation to provide the details of the parties who have subscribed the shares of it (the assessee company). These details include present address, confirmations, PAN and other evidences of the persons in support of the deposits/share application money/share capital received by the assessee. But the assessee failed to discharge its onus. Accordingly, the AO treated the sum of ₹ 50,50,000/-, ₹ 11,77,000/- and ₹ 1,22,34,000/- as unexplained cash credit in the respective years under consideration and added to the total income of the assessee. 13. Aggrieved assessee preferred an appeal to the Learned CIT(A). 14. The assessee before the Learned CIT-A submitted that it was to show promoters contribution amounting to ₹ 205.06 Lacs in order to float the public issue for ₹ 323.81 lakhs. Accordingly, it in connivance with the bank officer had shown promoters contribution in the books of accounts w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted the contention of the assessee by observing that it is the set-aside proceedings and the scope in such proceedings was limited to the extent of the direction issued by the ITAT. As per the direction of the ITAT the assessee was to establish the identity creditworthiness and genuineness of the transactions. But the assessee failed to do so. 19. The Learned CIT(A) also observed that the contention of the assessee that the transactions for the addition of share capital represents the bogus/sham entries after manipulating the accounts has already been considered by the ITAT in the original proceedings before it. As such the ITAT in the original proceeding, after considering the contention of the assessee, directed the assessee to furnish the identity, creditworthiness of the parties and genuineness of the transactions. Accordingly, the Learned CIT(A) was of the view that such contention of the assessee cannot be entertained in the set-aside proceedings. 20. In view of the above the Learned CIT(A) confirmed the addition made by the AO with respect to all the assessment years under consideration. 21. Being aggrieved by the order of the Learned CIT(A) the assessee is in appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtent of ₹ 122.34 lakhs prior to opening of subscription to the public. The investigations further revealed that the alleged promoter's contribution was shown to be brought in only by means of fraudulent manipulation of accounts. Although it was shown that applications were received from the friends and relatives of the promoters, in reality no such persons applied for the shares. The share application amount to the extent of ₹ 122.34 lakhs was ostensibly received from these applicants in cash which was deposited in the company's current account of Dena Bank, Ajwa Road Account. On the same day the company withdrew the amount (exactly what was shown to be deposited in cash) by issuing payments to some fictitious parties. The payments were made by bearer cheques which were actually encashed by its own employee M/s. Majumdar. It was gathered during the investigations that neither any person mentioned in the promoters quota existed who had applied for shares (out of the list of share applicants worth ₹ 122.34 lakhs) nor any person existed to whom alleged payments by bearer cheques (worth ₹ 122.34 lakhs) were made. The account was deliberately falsified t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and (ii) Secondly, either there is no explanation regarding the said entries by the assessee or the explanation, if any, is not found to be satisfactory by the Assessing Officer. 30. In the case at hand, there was no iota of doubt expressed by the authorities below on the explanation furnished by the assessee regarding the entries showing the alleged unexplained cash credit. Accordingly, we hold that there was no actual transaction of cash credit in the books of accounts which were based on fake entries having no substance. As such the assessee has used fraudulent device to show the share capital in the books of accounts in order to comply the SEBI Guidelines for bringing the public issue. 31. We also note that there is a legal fiction created under Section 68 of the Act and on the basis of such legal fiction an entry in the books of accounts is deemed to be income of the assessee chargeable to tax in the event the assessee fails to discharge the onus imposed upon it under Section 68 of the Act. However, to our understanding such legal fiction can be applied in the case of actual transactions incorporated in the books and not be applied on the transactions which are mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction, then the assessee is under the obligation to discharge the onus imposed under Section 68 of the Act. Once it has been established beyond doubt that impugned cash credit entries represents the bogus/fake entries after manipulating the accounts, then in such a situation, in our considered opinion the question of discharging the onus as imposed under Section 68 of the Act does not arise. It is because and for the simple reason that it is beyond the capacity of the assessee to comply the direction of the ITAT as discussed above. Accordingly, a question arises, should the assessee be penalized due to the non-compliance of the conditions imposed under Section 68 of the Act in the given facts and circumstances. 34. It is well-settled that an obligation gets discharged due to impossibility of performance. The law of impossibility of performance does not necessarily require absolute impossibility, but also encompass the concept of severe impracticability. In our humble opinion, the doctrine of impossibility of performance applies in this case. Due to uncontrollable circumstances, the performance of the obligation as specified under Section 68 of the Act became impossible to per ..... X X X X Extracts X X X X X X X X Extracts X X X X
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