TMI Blog2022 (2) TMI 1183X X X X Extracts X X X X X X X X Extracts X X X X ..... and the confirmations are on record, such facts by itself do not establish genuineness of transactions. We therefore deem it fit and proper to remit the matter to the file of the CIT(A) for fresh consideration in the light of the above legal position. While re-examining the matter learned CIT(A) will categorically deal with the stand of the Assessing Officer with respect to genuineness of the transaction and pass a speaking order and accordance with the law by way of speaking order on this point as well. - Decided in favour of Revenue. - ITA Nos. 3561 to 3565/Mum/2019 (Assessment years: 2010-11 to 2014-15) - - - Dated:- 23-12-2021 - Pramod Kumar (Vice President) And Amarjit Singh (Judicial Member) Himanshu Sharma for the appellant None for the respondent ORDER Per Pramod Kumar, VP: 1. These five appeals pertains to the same assessee, arises out of materially similarly set of facts and heard together. As the matter of convenience therefore all the five appeals are being disposed of by way of this common order. 2. We first take up the appeal for the assessment year 2010-11 which is lead appeal. 3. By way of this appeal the Assessing Officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans: Sr. No Name of the concern Total amount received as unsecured loan during A.Y 2010-11 Total interest accrued on the loan during AY 2010-11 1. BloomdaleFinvest Pvt. Ltd. 45,00,000 2,54,022 2. Divyadhwani Investment Pvt. Ltd. 20,00,000 66,871 3. Jai Hind Mercantile Pvt. Ltd. 65,00,000 2,65,561 4. Lalita Exports Pvt. Ltd. 60,00,000 4,60,406 5. Kuvam International Pvt Ltd. 1,40,00,000 7,20,000 6. Plumetti Exports Pvt. Ltd. 95,00,000 6,17,376 7. Tinal Pharmaceuticals Pvt. Ltd. 20,00,000 1,61,581 Total 4,45,00,000 1,61,581 5. When the matter was probed further and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferred on the same day on which the amount was deposited. For example, on verification of the details field it is seen that M/s. Plumetti Exports Pvt Ltd has filed its return of income for A.Y. 2010-11 declaring total income at ₹ 9,96,502/- and on further verification of bank statement, it is seen that there is a deport of ₹ 27.25 lacs on 02.05.2009 and on the same day the amount was transferred to the assessee company, which is not in line with the income declared by it in the return of income. The same is the case for other payments of the above party to the assessee company and in the case of other party as well. Merely routing transactions through banking channel without justifying the nature of these deposits with the regular sources of income would not lead to conclusion that the share applicant has creditworthiness. 4.5 Therefore in view of these specific observations and without prejudice to the fact that the assessee company has not been able to discharge its onus to establish the creditworthiness, genuineness as well as identity of the alleged share applicant with the credible documentary evidence. 4.6 In view of above adverse findings and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try providers and it does not have any credible sources to invest such huge sums of money in the assessee company. Therefore, the assessee company does not want to subject them to examination on oath by the undersigned to unearth the true state of their affairs. 4.10 The onus lies on the assessee company to establish the identity, creditworthiness of the parties and genuineness of the transaction with necessary and sufficient documentary evidence. In absence of the same, it clearly suggests that the assessee company is deliberately avoiding furnishing of requisite details by not complying fully with the terms of the statutory notices issued, specific query raised vide order sheet notings and show cause issued to it. It is settled law that mere furnishing of particulars is not enough. Mere payment by account payee cheque is not sacrosanct nor can it make a non-genuine transaction genuine. Documentary fa ade created by the assessee company cannot be accepted as being genuine in view of the surrounding facts and circumstances of the case discussed in detail above. 4.11 Sections 68 of Income-tax Act, 1961 reads as under:- Where any sum is found credited in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1958] 34 IT 807 (SC)] 4.14 As a matter of fact, Section 68 is a statutory recognition of what was previously established by judicial decisions to the effect that where certain sums of money were claimed by the assessee to have been borrowed from certain persons, it was for the assessee to prove by cogent and proper evidence that there were genuine borrowings as the facts are exclusively within the assessee's knowledge. This has been noted in the decisions of [Sikri Co. P. Ltd V. CIT 106 IT 682,688; CIT Vs. KulwantKaur 121 IT 914; CIT Vs. Sahibganj Electric Cables P Ltd, 115 IT 408,414]. 4.15 In Bharti P. Ltd. Vs. CIT -111 IT 951; CIT vs. W J Walker Co 117 IT 690; CIT Vs. United Commercial Co. 187 IT 596; the Hon'ble Calcutta High Court has held that mere filing of confirmatory letters does not discharge the onus that lies on the assessee. 4.16 In CIT Vs. Precision Finance Pvt. Ltd. 208 IT 465; Nizam Wool Agency Vs. CIT 193 ITR 318; the Hon'ble Courts have held that mere furnishing of particulars is not enough. Mere payment by account payee cheque is not sacrosanct nor can it make a non-genuine transaction genuine. 4.17 In SumatiDaya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the transaction of funds. 4.24 In view of above discussion, it is held that amount of ₹ 3,05,00,000 /- is treated as unexplained cash credit within the meaning of section 68 of the Act and added to the total income of the assessee company. Penalty proceedings u/s 271(1)(c) of the Act are separately initiated for furnishing inaccurate particulars of income and concealment of income. 4.25 Since the assessee have not proved the genuineness of transaction and creditworthiness of the loan creditors. However, in view of the above specific observations, the interest paid to these parties and debited to the P L account is disallowed and added back to the total income of the assessee. 4.26 In view of above discussion, the total unsecured loans received by the assessee amounting to ₹ 3,05,00,000 /- is added back to the total income of the assessee. Further total interest debited to the P L account amounting to ₹ 17,80,807 /- is disallowed and added back to the total income of the assessee company. Penalty proceedings u/s 271(1) (c) of the Act are separately initiated for furnishing inaccurate particulars of income and concealment of income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the hands of the assessee, and the most critical thing to be examined in this regard is explanation of the assessee with respect to these credits. There is no, and there cannot be any, dispute on the fundamental legal position that the onus is on the assessee to prove 'bonafides' or 'genuineness' of the share application money credited in his books of accounts. This approach finds support from the scheme of Section 68, which provides that 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 that assessee for that previous year. The burden is thus on the assessee to prove the nature and source thereof, to the satisfaction of the Assessing Officer. Everything thus hinges on the explanation given by the assessee and on how acceptable is the explanation so given by the assessee. The next question is as to what is the kind of explanation that the assessee is expected to give. As noted by Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case vis- -vis the ground realities. The facts of the case cannot be considered in isolation from the ground realities. The allegation of the revenue is that the assessee has received share application money through a complex web of shell entities and multiple layering of the transfers from one company to another. It will, therefore, be useful to understand as to how the shell entities, which the share applicants are alleged to be, typically function, and then compare these characteristics with the facts of the case and in the light of well settled legal principles. A shell entity is generally an entity without any significant trading, manufacturing or service activity, or with high volume low margin transactions- to give it colour of a normal business entity, used as a vehicle for various financial manoeuvres. A shell entity, by itself, is not an illegal entity, but it is their act of abatement of, and being part of, financial manoeuvring to legitimise illicit monies and evade taxes, that takes it actions beyond what is legally permissible. These entities have every semblance of a genuine business- its legal ownership by persons in existence, statutory documentation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been rejected unreasonably . We will be superficial in our approach in case we examine the claim of the assessee solely on the basis of documents filed by the assessee and overlook clear the unusual pattern in the documents filed by the assessee and pretend to be oblivious of the ground realities. As Hon'ble Supreme Court has observed, in the case of Durga Prasad More (supra), it is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surroundin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edifice of facts where the judicial lamp plays the legal flame. Beyond those walls and de hors the milieu we cannot impart eternal vernal value to the decisions, exalting the precedents into a prison house of bigotry, regardless of the varying circumstances and myriad developments. Realism dictates that a judgment has to be read, subject to the facts directly presented for consideration and not affecting the matters which may lurk in the dark . Genuineness of transactions thus cannot be decided on the basis of inferences drawn from the judicial precedents in the cases in which genuineness did come up for examination in a very limited perspective and in the times when shell entities were virtually non-existent. 11. The above approach has met the judicial approval as recently as 2018 when one of the decisions of this Tribunal, authored by one of us (i.e. the Vice President), in the case of Pavankumar M Sanghvi (supra) came up for consideration before Hon'ble Gujarat High Court, and Their Lordships of Hon'ble Gujarat High Court, in the judgment reported as Pavankumar M Sanghvi v. ITO [2018] 90 taxmann.com 386/404 ITR 601 approved the said approach and declined to interf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has, in the case of Pr. CIT v. NRA Iron Steel (P.) Ltd. [2019] 103 taxmann.com 48/262 Taxman 74/412 ITR 161 observed that The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the assessee since the information is within the personal knowledge of the assessee. The assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the assessee . When we take into account these words of guidance of Their Lordships, clearly a superficial and pedantic approach would not suffice, and the approach so adopted in Pavankumar M Sanghvi's case (supra) will be all the more justified. We have no reasons to deviate from this path. It is in this backdrop that we proceed to examine the facts of the case and take a call on the genuineness of these transactions. 10. Viewed thus the approach of the learned CIT(A) is clearly superficial and it does not need our judicial ..... X X X X Extracts X X X X X X X X Extracts X X X X
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