TMI Blog2020 (12) TMI 1198X X X X Extracts X X X X X X X X Extracts X X X X ..... it stands held that once it is established that it is the creditors' money that has found its way in the books of the assessee, no adverse inference u/s. 68 could be drawn in its respect in the case of the assessee. The said establishment, it may be though clarified, is to be, in terms of the settled law, not on the basis the creditors' identity alone, as where the sum credited is shown to originate from his bank account, but also his capacity as well as the genuineness of the credit transaction. Assessment is bad in law inasmuch as the same is not u/s. 153C as the filing of the return of income for the year on 26/9/2015 was followed by a search u/s. 132(1) at the premises of Sh. Tara Chand Khatri, loose papers and documents from whose residence relating to the assessee were found and seized - We are wholly unable to appreciate the assessee's case in this regard. A seizure of a document pertaining to the assessee would not by itself give rise to the jurisdiction to the AO to proceed u/s. 153C by issuing notice u/s. 153A. The same could only be on the AO being positively satisfied as to the said material having a bearing on the assessee's income for a specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to AY 2014-15), which did not agree with the credits under reference, required to be proved by the assessee on the parameters of identity, capacity and genuineness. The assessee was accordingly required by him to produce the said creditors, which it failed to. He, accordingly, relying on Roshan Di Hatti vs. CIT [1977] 107 ITR 938 (SC); CIT vs. Korlay Trading Co. Ltd. [1998] 232 ITR 820 (Cal); and CIT v. Precision Finance P. Ltd. [1994] 208 ITR 465 (Cal), assessed the said credits as the assessee's income on account of unexplained credit u/s. 68 for want of necessary satisfaction toward the creditworthiness of the creditors. 2.2 In appeal, the assessee furnished the source of each of the several sums comprising the impugned credits in a tabular form, stating their sources as the refund of the amounts advanced earlier by the creditors to different firms/persons, viz. Jai Mata Di Arts and Creation, MBK Traders Pvt. Ltd., Shanti Devi Khatri (related parties) and Harish Chandra Yadav (unrelated), at an aggregate of ₹ 160.74 lacs and ₹ 44 lacs respectively, i.e., their existing capital. Another ₹ 154.16 lacs was, again, a capital receipt by way of sale of capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espite being called for, did not produce the creditors. In this regard, ld. CIT(A) stating that the creditors were the Department's witnesses is an incorrect appreciation of facts and of law. The calling of the creditors by the AO is only in support of the confirmations filed by them, or an enquiry about any of the entries in their bank accounts. 3.2 The matter, therefore, boils down to proving the creditworthiness of the creditors toward explaining satisfactorily the source of the sums found credited in it's books by the assessee, which, therefore, has to be proved w.r.t. the total sum credited. The matter, as would be apparent, is purely factual, to be decided upon examining the stated source, by issuing definite finding/s of fact. No such exercise was done by the AO, who merely went by the income-tax returns of the creditors, while a credit/s could equally be from a creditors' accumulated capital or, as also sought to be made out before us, his non-taxable income, so that the sole reliance on their taxable income by the AO, as a measure of their creditworthiness, is clearly incorrect. On the assessee's part also, we are afraid to say, there has been no correla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ast on it in its respect. (ii) Jetha Nand Khatri: (a) The creditors' receipt and payment (as per his bank statement insofar as it relates to the credits in the assessee's accounts during the relevant year) is at ₹ 241.68 lacs and ₹ 252.50 lacs respectively. A perusal of the bank statement of the creditor (PB pg. 43), however, shows an omission to record the deposit of ₹ 19,70,536 on 13.3.2015, stated to be by way of (tax-free) capital gain, as also ₹ 28,91,159, stated as, again, on sale of shares, tax-exempt u/s. 10(38), in the receipt/payment chart (reproduced at pgs. 11-12 of the IO). Considering these two receipts, the receipt side of the creditor shall be at ₹ 261.39 lacs, fully covering the credits for ₹ 252.50 lacs in the assessee's accounts ascribed to this creditor. (b) Toward the sale of shares afore-stated, the ld. counsel for the assessee, Shri Bardia, would adduce during hearing the computation of income (for AY 2015- 16), stated to have been omitted to submitted along with the acknowledgment of his return of income for that year (at PB pg. 100). (c) A perusal of the balance-sheet of the creditor as on 31.03.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r with explanation/s furnished, leads to a satisfactory explanation of the nature and source of the credits in its' books of account in terms of identity, creditworthiness (of the creditor/s) and the genuineness of the credit/s, of which only the capacity was doubted by the AO in the instant case. Inasmuch as the capacity is to be for the entire sum credited, i.e., including that already credited to a creditors' account, the same shall therefore have to be with reference to the entire sum found credited. This represents trite law, and for which, beginning with Kale Khan Mohammad Hanif [1963] 50 ITR 1 (SC), affirming the decision by the Hon'ble jurisdictional High Court (reported at [1958] 34 ITR 669 (MP)), the case law by the Apex Court is legion. A perusal of the material on record shows that the entire sum credited stands explained with reference the creditor's existing capital and/or current income. No verification of the same was however done by the AO. In fact, as explained by Sh. Bardia during hearing, the production of the creditors by the assessee was sought by the AO in the assessment proceedings as an alternate to the submission of an explanation in writin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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