9911796707
TMI Blog2022 (1) TMI 848X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd. [hereafter referred to as "assessee"], while the remaining six appeals were preferred by the appellant [hereafter referred to as "revenue"]. 1.2 The impugned order concerned six assessment years [in short "AYs"] i.e., 2012-2013, 2013-2014, 2014-2015, 2015-2016, 2016-2017 and 20172018. 2. The record shows that the Tribunal was, principally, grappling with three broad issues. These issues concerned additions/deletions made to the declared/returned income of the assessee under the following broad heads: (i) Additions qua amounts received by the assessee in the form of share capital/share premium under Sections 68 of the Act. (ii) Deletions made on account of alleged bogus purchase transactions. Under this head, the Assessing Officer ruled that 25% of the bogus purchases in value should be added to the assessee's declared/returned income. (iii) Addition made, under Section 68 of the Act, in respect of monies deposited by the assessee with its banker during the demonetization period. 2.1. Insofar as issue nos. (i) and (ii) are concerned, they were common to all six AYs, referred to hereinabove. However, insofar as issue no. (iii) is concerned, it arises only in AY 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income Amount Declared/Returned as Income 2015-2016 30.03.2017 Rs. 15,87,75,950/- 2016-2017 29.12.2017 Rs. 35,50,09,894/- 2017-2018 29.12.2017 Rs. 68,18,55,980/- 3.4. Thus the position which emerged qua each of the six AYs, once additions/deletions were made by the AO, and thereafter, when some of these were deleted/scaled down by CIT(A), is set forth hereafter: Particulars Assessment Years 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 ITA No. 69/2021 71/2021 72/2021 73/2021 70/2021 68/2021 Date of filing of return of income 31.10.2013 11.03.2015 01.04.2015 31.03.2017 29.12.2017 29.12.2017 Addition u/s 68 on a/c of share capital/premium: (i) Unrelated parties 48,19,87,000 NA NA NA NA NA (ii) From alleged associated parties: - M/s. Mahalaxmi Traders 14,92,00,000 NA NA NA NA NA -M/s. Sri Balaji Enterprise NA 15,20,00,000 NA NA NA NA - M/s. Vishal Traders NA 34,79,50,000 65,30,99,000 24,81,49,800 17,86,74,750 NA - Rustagi Exim P. Ltd NA NA 09,55,55,000 11,60,00,100 37,60,99,650 52,23,87,900 - M/s. Vikas International NA NA 06,48,90,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to above) was retracted by him on 24.03.2017, that is, within two days. 4.2. What is of some significance is that a deviation report dated 20.12.2018 was prepared by the AO, which was, markedly different from the assessment orders passed by him. This aspect of the matter has been adverted to at great length by the Tribunal in the impugned order and shall also be alluded to by us in the latter part of the judgment. 4.3. Suffice it to state that the Deputy Director of Investigation Wing had submitted a written appraisal report on 04.01.2018. Despite the stand taken by the Deputy Director (Investigation) in the appraisal report and the communication dated 24.12.2018, at the meeting held on 28.12.2018, the AO and the Assistant Commissioner of Income Tax (ACIT) reiterated the position taken in the deviation report. 4.4. Briefly, in the deviation report, the AO concluded that since the source of the cash movement concerning receipt of money by the assessee in the form of share capital/share premium amounting to Rs. 365.28 crores was traceable directly to the assessee's bank accounts, the addition of the said sum was not justified. 4.5. Likewise, insofar as the issue concernin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant to note that the revenue, upon queries being raised by the Tribunal concerning various issues including the basis on which the deviation report had been prepared in the instant matter, was told in no uncertain terms that preparation of a "deviation note" is part of the assessment proceedings as per the guidelines envisaged in the Income Tax Manual of Office Procedure: Vol.-II (Technical, Chapter-3, paragraph 4 at page 44) (see paragraph 51 of the impugned order passed by the Tribunal). 5.1. Furthermore, the Tribunal, in paragraph 92 of the impugned order, after perusal of the appraisal report prepared by the Investigation Wing, has made the following observations : "Appraisal report was produced before the bench and it was found that in para no.4.3.7, the Investigation Wing has mentioned that the above addition made with respect to bogus purchases is required to be made in order to protect the interest of the revenue...." 5.2. The Tribunal, however, via the impugned order, even deleted the scaled-down addition made by the CIT(A) of Rs. 73.13 crores concerning AY 2017-2018 in respect of cash deposits made with the bank during the demonetization period. Consequently, the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the investor entities had returned borrowed funds, as claimed by the assessee, did not add to their creditworthiness. (vi) Although the Tribunal relied upon certain parts of the deviation report to set aside the conclusions reached by the A.O. and the CIT(A), it erroneously chose to ignore the conclusion arrived at in the deviation report that the assessee had not been able to account for Rs. 99.04 crores which had been deposited by it, in the wake of demonetization. (vii) Likewise, the Tribunal also failed to take note of the observations made in the deviation report that instead of adding the entire share premium received by the assessee, only that share premium ought to be added under Section 68 of the Act where money was not sourced from the assessee. In support of this plea, reliance was placed on paragraph 3(ix) of the deviation report. (viii) The deviation report categorically rejected the assessee's books of accounts while considering the issue regarding bogus purchases. In this context, the deviation report also emphasized the fact that stock worth Rs. 450 crores, was short, as against that which was recorded in the assessee's books of accounts. (ix) The Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 SCC 197.] (iii) In this context, it is important to note that the A.O. had prepared the deviation report dated 20.12.2018, after perusing the appraisal report generated by the investigation wing pursuant to the search and seizure operation carried out vis-a-vis the assessee on 21.03.2017. The deviation report prepared by the A.O. had received the approval of the ACIT, despite which the A.O. reversed its position while passing the assessment orders, as alluded to above, at the say-so of his superiors who were part of the investigation wing. In this context, reliance was placed on the letter dated 24.12.2018 addressed by the Deputy Director of Income Tax (Investigation) to the ACIT. (iv) Insofar as the merits of the matter are concerned, it was submitted that the addition made by the A.O. on account of share capital/share premium (along with supposed commissions paid by the assessee), was rightly deleted by the Tribunal as it concluded that the monies invested in the assessee were its own money, which had been advanced to the investor entities, who, in turn, had invested the same in the assessee in the form of share capital/share premium. A finding of fact has been returned by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad not been demonetized. The Tribunal also noted, in this context, that the A.O. had failed to take into account that the period in issue spanned between 9.11.2016 and 30.12.2016, and, therefore, the total amount worked out to Rs. 175.57 crores and not 180.53 crores, which was the sum that the A.O. sought to add to the assessee's declared/returned income. Thus, in effect, the Tribunal concluded that no addition could be made even under this head. Analysis and Reasons:- 10. We have heard the learned counsel for the parties and perused the record. 10.1. According to us (as noted at the very outset), there are three heads under which the authorities below have dealt with the assessee's case concerning the six AYs, in issue. But before we move further, as noted by us right at the beginning of our discussion, amongst the six AYs, in three AYs i.e., 2012-2013, 2013-2014 and 2014-2015, assessment orders were passed under Section 143(3) of the Act. Insofar as AY 2012-2013 was concerned, the A.O. had sought to add Rs. 18.50 crores towards unexplained share capital/share premium; an addition which was set aside by the CIT(A), vide order dated 31.03.2016. Therefore, insofar as these AY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares was concerned- that the said documents constituted incriminating material, the Tribunal noted the following : (i) Firstly, out of the 36 shareholders, photocopies were found only qua 12 shareholders. (ii) Secondly, that such transfer forms and documents even when recovered in original, as per its [i.e., the Tribunal] own precedents1, had not been considered as incriminating material to unravel a concluded assessment. (iii) Thirdly, photocopies do not constitute primary evidence and, in the absence of any other material, it could not be treated as secondary evidence as well. Importantly, it was not the stand of the revenue that the photocopy had been made from an original document. (iv) Lastly, the revenue ought to have summoned all those investors who ostensibly had executed the documents, whose photocopies were produced, to substantiate its stand that they constituted incriminating material. 10.7 Based on the aforesaid, the Tribunal concluded that since for AYs 2012-2013, 2013-2014 and 2014-2015, no incriminating material concerning the share capital was found, no additions could have been made by the revenue. 10.8 As noted above, a coordinate bench of this court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material was found. 11.4. Besides this, on merits, the Tribunal, after detailing out in paragraph 76 of the impugned order the trail of the money received from various entities in the form of share capital/share application money, concluded that the assessee had been able to place before the A.O. sufficient documentary evidence which established that the money which the assessee had paid to the investor entities was routed back to it in the form of share capital/share premium. 11.5. That being the position, the Tribunal concluded that the assessee had been able to prove the identity of the investors, their creditworthiness and genuineness, which are the ingredients of Section 68 of the Act. The relevant observations made in paragraph 86 by the Tribunal read as follows : "86. Considering the facts of the case in the light of material on record in voluminous paper books and confirmations of the parties and the summary of transfer of funds reproduced above, it is clear that assessee produced sufficient documentary evidences before the A.O. to prove that money routed from the assessee itself which came back to the assessee in the form of share capital/premium, therefore, assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its own money (which was given to the investor entities in the form of loan, etcetera) as an investment in share capital/share premium has not been adverted to therein. That motivation is not the basis for attracting the provisions of the Income Tax Act, if otherwise, an assessee does not fall within its net, is a well-established principle. This principle, in our view, should also apply to Section 68 of the Act. [See Aruna Group of Estates, Bodinayakanur v. State of Madras, 1961 SCC OnLine Mad 2522 ; Commissioner of Income-tax v. A. Raman & Co. [1968] 67 ITR11 (SC)3; Commissioner of Income-Tax v. T.K.E. Ibrahimsa Routher, 1928 SCC OnLine Mad 214 ; S. Raghbir Singh Sandhawalia v. Commissioner of Income-tax [1958] 34 ITR 719 (Punjab & Haryana)5.] 11.8. It may well be that the assessee, by wrongly padding his accounts, has violated other Statutes but that by itself cannot be the reason to make addition under section 68 of the Act. Mr Sharma was not able to demonstrate as to how such a transaction, though rather curious, would come within the ambit of Section 68 of the Act. 12. The other argument of the revenue that once photocopies of documents such as blank share transfer forms, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not retracted. 13.1. As noticed in the instant matter, the Tribunal found that it was the assessee's money which was routed back to it, albeit, through banking channels. The director of the assessee i.e., Mr Arpesh Garg retracted his statement, within 48 hours. More importantly, the AO in the deviation report, inter alia, made the following observations : "b) About 50% of the purchases made by the assessee from different persons have been verified by issuing notices u/s 133(6) of the IT Act and on account of confirmatory letters as well as copies of ledger accounts presented by the assessee and no any variation has been found so far." 13.2. In the backdrop of this, the Tribunal made the following observations: "86. Considering the facts of the case in the light of material on record in voluminous paper books and confirmations of the parties and the summary of transfer of funds reproduced above, it is clear that assessee produced sufficient documentary evidences before the A.O. to prove that money routed from the assessee itself which came back to the assessee in the form of share capital/premium, therefore, assessee proved identity of the Investors, their creditworthines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Ld. CIT (A) after examination of the details filed by the assessee. Since the Ld. CIT (A) being a higher authority had duly examined the amount of Share Capital of Rs. 18.50 Crs and allowed relief thereof against which no appeal was preferred by the department before the Income Tax Appellate Tribunal. Therefore, the addition of this amount on the grounds of bogus share capital/premium can only be made in the light of incriminating seized material. iii) On verification from the balance sheet, the chart prepared is factually incorrect since it has been prepared on the basis of Share Capital allotted in each year in respect of the share capital received for such allotment. After verification the corrected Share application details and share capital received covered during the period are as under: Assessment Year Amount 2012-13 63,12,00,000 2013-14 49,99,50,000 2014-15 81,35,44,000 2015-16 32,36,88,800 2016-17 55,47,74,400 2017-18 52,23,87,900 iii) Out of the total sum for the Assessment Year 2012-13 an amount of Rs. 14,92,00,000/- was received from M/s. Mahalakshmi Traders being the proprietorship concern of Shri Manoj Gupta. The assessee has filed details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oblige them. Commission payment @2% is to be restricted only to cases where share capital/premium is held to be bogus. ix) As the source of share capital/premium can be traced directly to the bank account of the assessee company and there is no cash movement, addition of entire share capital/premium of Rs. 365.28 Crs is not justifiable and may lead to allegation of high pitch assessment. Only where there is no direct trail of money being sourced from the bank account of the assessee, the introduced share capital/premium needs to be added to the income of the assessee." 14.3. As noted by the AO in the deviation report, in AY 2012-13, the revenue attempted to make an addition on account of share capital/share premium which was reversed by the CIT(A). The revenue did not carry the matter further, and, therefore, what is important to underscore in this case is the finding of fact returned by the Tribunal that it was the assessee's own money which was routed back to it, and not that these were paper entries, where there was no banking trail. 14.4. In the context of M/s Mahalaxmi Traders, the submission advanced on behalf of the revenue that because Mr Manoj Gupta had, in his statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on made on account of bogus purchases was not sustainable. (iv) In the remand report, the A.O. had dropped the issue concerning the purported shortage of the stock of the assessee amounting to Rs. 450 crores. (v) Because there was dissonance in the AO's views, as recorded in the deviation report and the remand report when compared to the additions/disallowance made in the assessment orders, the appraisal report generated pursuant to the search and seizure action was called for by the Tribunal and perused. A perusal of the report by the Tribunal revealed that addition/disallowance concerning bogus purchase was made only to protect the interest of the revenue. (vi) The Tribunal also found the following: the entire purchase and sales had been duly recorded in the regular books of accounts of all parties; the transactions were routed through regular banking channels; the purchase and sales were duly supported by quantitative details; copies of bank statements showing sales and purchases were placed before the A.O., and no incriminating documents concerning sales and purchases were found in the course of search and seizure actions. (vii) The Tribunal also found that in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, according to the Tribunal, was fortified by the fact that no addition in respect of any excess or shortage of stock had been made in the assessment orders of any of the years. In effect, according to the Tribunal, the stock found in the books reconciled with the stock which was found physically. 15.4. Insofar as the CIT(A)'s approach with regard to bogus purchases was concerned, the Tribunal noted that it had concentrated on related parties and attempted to quantify the disallowance by applying the gross profit ratio in respect of transactions entered by the assessee with unrelated parties. The Tribunal, however, returned a finding of fact that the approach adopted by the CIT(A) was not consistent. In this context, the Tribunal made the following observations : "99. When the matter reached before the learned CIT - A, he rejected the action of the learned assessing officer so far as addition with respect to the alleged bogus purchases are concerned. He applied the provisions of section 145 (3) of the income tax act. He segregated the transactions of purchase and sales from the alleged bogus parties and applied the gross profit ratio, which is earned by the assessee from transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal was concerned, the rejection of books of accounts by the CIT(A) did not meet the legal standards. 15.7. Given this background, thus, in effect, the Tribunal held that the books of accounts were rejected without crystalizing the defect in the books of accounts, which could have been done only after examining the same. Furthermore, according to the Tribunal, even if it is assumed that the books of accounts could be rejected, the profit had to be estimated based on proper material. As noted above, the Tribunal recorded the inconsistent approach adopted by the CIT(A) in applying the gross profit ratio concerning nonrelated parties to purported bogus transactions i.e., those involving related parties, resulting in unsustainable conclusions. 15.8. According to us, the observations made by the Tribunal are pure findings of fact, which cannot be interdicted by us in appeal. The inconsistency in the approach adopted by the A.O., while preparing the deviation report and framing the assessment order with regard to purported bogus purchases is an aspect, which cannot be ignored and has been correctly highlighted by the Tribunal. 15.9. If the revenue chooses to disallow bogus purchases, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 (3) of the income tax act by rejecting the books of accounts of the assessee partially, without even looking at the books of accounts is also incorrect........" Third Issue 16. Insofar as the third issue is concerned, the revenue's stand has been that the cash deposits made post demonetization represented unaccounted income of the assessee qua AY 2017-2018. 16.1. According to the revenue, the average cash deposited by the assessee with its bankers before demonetization was, approximately, Rs. 42.35 crores, whereas the actual sum deposited during the demonetization period was Rs. 180.53 crores. The assessee's explanation was, broadly, that deposits were made out of cash sales and, during Diwali, cash sales increase; especially in the business in which the assessee is i.e., dry fruits. 16.2. Thus, according to the assessee, in October 2016, there was an increase in cash sales, which resulted in increased cash deposits. The revenue, however, appears to have taken the position that the assessee increased the cash sales to manipulate its gross profits so that it could adjust, in the process, its unaccounted cash income. This was vigorously countered by the assessee, and, in suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cash Sales Cash Deposits Cash Sales Cash Deposits Total Rs.(Cr.) 237.44 242.65 412.52 428.19 633.86 633.74 16.6. Besides this, the Tribunal also noted the increase in sales between FYs 2014-2015, 2015-2016 and 2016-2017, both in absolute and percentage terms. Insofar as the increase in sales between FYs 2014-2015 and 20152016 was concerned, it was found that in absolute terms, sales had increased by Rs. 175.08 crores, which, in percentage terms amounted to an increase of 73.74%. Likewise, the cash sales between FYs 2015-2016 and 2016-2017 had increased in absolute terms by Rs. 221.34 crores, but, in percentage terms, the increase was only 53.66 %. Based on these figures, the Tribunal concluded that, in the year in which demonetization kicked in i.e., F.Y. 2016-2017, the increase in sales in percentage terms was less than the earlier year. The Tribunal, thus, held that it could not be said that the assessee had booked non-existing sales in its books post demonetization. 16.7. Similarly, the Tribunal examined the cash sales figures for November of the following three years to see if there were any anomalies. The Tribunal noticed that the cash sales made in November 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neous, inasmuch as the A.O. had failed to notice the fact that part of the stock was available at the assessee's godown at Sonipat, Haryana, which had not been covered during the search action. In this context, the following observations made by the Tribunal are relevant and the same are extracted hereafter : ".............The stock lying at the said premises was not taken into consideration while arriving at the physical stock as on the date of search, thus resulting in the alleged difference of Rs. 450 crores. Though originally at the time of recording of the statement of the managing director on the date of such there were certain discrepancies in the stock however later on it is stated by the learned authorised representative that they were reconciled after inclusion of the stock at Sonipat and ultimately there was no discrepancy in the physical stock found during the course of search as well as stock at Gurgaon at Sonipat with the book stock. There was thus actually no difference in the stock physically lying with the Assessee vis-à-vis the stock as per books of accounts as on the date of search. This submission of the assessee is not controverted by the learned asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % respectively. The sense that the Tribunal derived from the data presented to it, which was based on documentary evidence, was that there was no substantial variation in either the gross profit or net profit in the relevant year i.e., A.Y. 2017-2018, as compared to the previous years. 17.3. Furthermore, based on details furnished by the assessee for the AY 2017-2018 concerning its closing stock, list of debtors, details of purchases and sales made, list of creditors, copies of bank statements and books of accounts-the Tribunal concluded that it was not a case where it could be said that the assessee had purchased or sold goods to unidentified parties. 17.4. The CIT(A)'s emphasis on the fact that, although the assessee had undertaken liabilities in the form of loans, it chose to keep a large amount as cash in hand was repelled by the Tribunal, while, broadly, accepting the explanation given by the assessee that the long-term loans taken by it had to be repaid at regular intervals, which obliged the assessee had to bear commitment charges, and, thus, repayment of loans, as suggested by the revenue, was not a viable option. 17.5. Insofar as short-term borrowings was concerned, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013 to 2014-2015 vis-àvis share capital/share premium, the addition under Section 68 could not have been made, apart from the fact that the revenue was unable to dislodge the conclusion arrived by the Tribunal that the money invested in the assessee was the assessee's own money. 18.2. Insofar as the submission made by Mr Sharma that, one Mr Praveen Agarwal i.e., the purported accommodation entry provider had denied making any investment in the assessee, and, therefore, it was a factor that the Tribunal ought to have taken into account, is a submission which fails to appreciate the following facts: (i) That Mr Praveen Aggarwal's statement was recorded in a separate search action on 12.11.2012; which, as is obvious from the record, occurred before the search action that was carried out vis-à-vis the assessee on 21.03.2017. (ii) Share capital was received from three companies controlled by Mr Praveen Agarwal i.e., Abhilasha Exports Pvt. Ltd., Subhshree Hirise Pvt. Ltd. and Pushpanjali Commotrade Pvt. Ltd. in AY 2012-2013. (iii) The total amount, which the assessee received, as share capital/share premium in AY 2012-2013 amounted to Rs. 48.20 crores, which include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposits made post demonetization were in line with the cash deposits made in the earlier years, against corresponding cash sales. 18.6. As regards the other observations made in the deviation report on which Mr Sharma has placed reliance i.e., that addition on account of share premium should be made under Section 68 of the Act, in cases where money was not sourced from the assessee is answered by the Tribunal after noticing the fact that investments from unrelated parties were received only in AY 2012-2013. The addition made by the A.O. for AY 2012-2013, as observed above, was deleted by CIT(A) in the assessee's appeal. It would be relevant to note that, insofar as related parties were concerned, the deviation report clearly stated in paragraphs 3(iii) to (ix) that the ultimate source of money was the assessee itself. As a matter of fact, the observation made by the A.O., in paragraph 3(ix) of the deviation report, was different from what was understood by the revenue: "ix) As the source of share capital/premium can be traced directly to the bank account of the assessee company and there is no cash movement, addition of entire share capital/premium of Rs, 365.28 Crs is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment in a manner that would protect the revenue's interest. The A.O. performs a quasi-judicial function while framing an assessment. The revenue cannot dictate the manner, in which, the A.O. frames the assessment order. In this case, the investigation wing appears to have crossed the Rubicon, when it advised the A.O. to frame the assessment to protect the interest of the revenue. [See CIT v. Greenworld Corpn., (2009) 7 SCC 6998; P. Palaniswami case9] 20. Accordingly, for the aforesaid reasons, the appeals are dismissed. 20.1. Pending applications shall also stand closed. 21. There shall be, however, no order as to costs. -------------- Note: 1. See ACIT, Central Circle-5, New Delhi vs M/s Gee Ispat Pvt. Ltd., A-28, Sector 19, Rohini, Delhi-110085, passed in ITA Nos. 4256-59/Del/2014, dated 31/5/2018; M/s Brahmaputra Realtors (P) Ltd. vs Dy. Commissioner Of Income-Tax 2018 (3) TMI 1598 - ITAT Delhi; M/s M.L. Singhi & Associates (P) Ltd. vs Deputy Commissioner Of Income Tax, Central Circle-7, New Delhi, 2018 (10) TMI 50 - ITAT Delhi; M/s Galaxy Rice Industries Pvt. Ltd. vs. D.C.I.T., Central Circle, Karnal, passed in ITA Nos.1451-53/Del/2013, dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith him. These are Incidents which are outside the scope of partnership arrangement and have no bearing on the truth or reality of the partnership as such..." 3. "....Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the Income-tax Act. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented....." 4. "......There can be no question also in this case of the motives of the assessee in bringing about a particular arrangement, because as has been pointed out by the House of Lords in more than one case it is not proper to take such motives or objects into consideration, and a subject is entitled, if he can in any legal manner, to circumvent the incidents of a particular taxing or financing Act. .....No doubt as indicated in the question itself the land subject to the mortgage is leased back again by the mortgagee to the mortgagor and therefore even reading both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year. 14. Section 68 of the Act has received considerable judicial attention through various pronouncements of the Courts. It is now well settled that under section 68 of the Act, the assessee is required to prove identity of the creditor; genuineness of the transaction; and credit worthiness of the creditor. In fact, in NRA Iron & Steel (P.) Ltd. (supra), Supreme Court surveyed the relevant judgments and culled out the following principles:- "11. The principles which emerge where sums of money are credited as Share Capital/Premium are : i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the credit-worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii. If the inquiries and investigations reveal that the identity of the creditors to be dubious or do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or lacked credit-worthiness. It is in these circumstances, Supreme Court held that the onus to establish identity of the investor companies was not discharged by the assessee. The aforesaid decision is, therefore, clearly distinguishable on facts of the present case." 7. "7. .... A decision on fact of the Tribunal can be gone into by the High Court only if a question has been referred to it which says that the finding of the Tribunal on facts is perverse, in the sense that it is such as could not reasonably have been arrived at on the material placed before the Tribunal. In this case, there was no such question before the High Court. Unless and until a finding of fact reached by the Tribunal is canvassed before the High Court in the manner set out above, the High Court is obliged to proceed upon the findings of fact reached by the Tribunal and to give an answer in law to the question of law that is before it. 8. The only jurisdiction of the High Court in a reference application is to answer the questions of law that are placed before it. It is only when a finding of the Tribunal on fact is challenged as being perverse, in the sense set out above, that a question of law can be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll such directions. But since the Government Order purported to give directions in respect of matters which had been entrusted to the authorities constituted under the Act and which have to be dealt with in quasi-judicial manner the Government Order to that extent was outside the purview of Section 43-A. The result was that the decisions of the Transport Authorities which were based upon the Government Order and not on an independent assessment of the matters referred to in Section 47 of the Motor Vehicles Act were liable to be set aside......' xxx xxx xxx 8. .....When there is a Government Order in existence and parties applying for permits come to know that the authorities under the Motor Vehicles Act, were disposing of their applications for permits in accordance with the Government Order, matters not referred to in the Government Order but which may be very germane for consideration under Section 47 get automatically excluded during the hearings. The Government Order, instead of Section 47, becomes the last word on the subject. That is the real vice of such Government instructions. The authorities feel bound by these instructions and the parties before them feel equally ..... X X X X Extracts X X X X X X X X Extracts X X X X
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