TMI Blog2022 (7) TMI 537X X X X Extracts X X X X X X X X Extracts X X X X ..... er accommodation entry. The expression 'burden of proof really means two different things. It means sometimes that a party is required to prove an allegation before judgment can be given in his favour. It also means that on a contested issue, one of the two contending parties has to introduce evidence. In the first sense, if the burden is not discharged, the party must eventually fail. In the second case, where the parties have joined issue and have led evidence and the conflicting evidence can be weighed to determine which way to issue can be decided, the question of burden of proof becomes an abstract question and is therefore academic. The section 101 to 114 of Indian Evidence Act, 1872 deals with burden of proof. The section 102 of the Evidence Act provides that the burden of proof lies on that party who would fail if no evidence at all were given on either side. Thus, if an assessee claims that money or bullion found in his possession at the time of the search or survey does not belong to him but someone else, the onus is on him to establish it because the ordinary presumption is that he is the owner as the money etc. was found in his possession. Similarly, in al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n behind the back of the assessee relying on generalized statement is not legally tenable. Ld. CIT(A) ought to have deleted addition made without any basis. 3. Ld. CIT(A) erred in law and on facts in holding that the assessee failed to prove identity of depositors since they were not traceable at address as per the inquiry conducted by investigation wing. Ld. CIT(A) ought to have deleted addition when all the depositors responded to the notice under section 133(6) by assessing officer confirming transaction with documentary evidences. 4. Ld. CIT(A) erred in law and on facts in concurring with assessing officer that the depositor companies having meager income 7 low bank balances acted as a conduit to circulate unaccounted income of assessee by providing loan entries. Ld. CIT(A) ought not to have made such observations on conjectures surmises without any cogent proof or evidences simply on the basis of uncontroverted statements. 5. Ld. CIT(A) erred in law and on facts in not appreciating that assessee satisfied primary onus cast under law for acceptance of unsecured loan establishing identity, creditworthiness and genuiness of transaction along with details of repay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer issued the notices u/s 133(6) of the Act and noticed that these companies had meager income or losses, with no regular business activity and the only source of funds were share capital/share premium. The assessing officer on the basis of the information received from Investigation Wing Kolkata found that enquiries made by the Investigation Wing Kolkata revealed that these companies do not exist at the given addresses and no proper business activities is carried out by these companies. The Investigation Wing, Kolkata had recorded the statement on oath of the operators of the 3 companies namely Indralok Tie-up Pvt. Ltd., Seven Star Trader and Services Pvt. Ltd. and Vikash Chaudhary who admitted to be entry operators and merely providing entries on a commission basis. The assessing officer vide letter dated 27.02.2015 directed the assessee to produce the Principal Officers of the 12 lender companies but no compliance was made by the assessee. The assessing officer on examination of the financial statements of these 12 companies observed that these are 'paper companies' not actually doing any genuine business activities and therefore the assessing officer held that these 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the operators of the companies in the list, viz Indraloke tie-up Pvt. Ltd., Seven Star Traders Services Pvt. Ltd. and Mr. Vikas Chaudhary have admitted in their statements given before the Department that they are mere entry providers and no regular activity has even been carried out by them except providing entries for a commission. Copies of their statements have been provided to the assessee for perusal. They neither have the capacity nor the creditworthiness to advance such substantial loans, therefore addition made by the assessing officer may be confirmed. 7. We have heard both the parties and gone through the material available on record, we note that Assessee -Company has miserable failed to prove identity, as explained by ld DR that assessing officer vide letter dated 27.02.2015 directed the assessee to produce the Principal Officers of the 12 lender companies but no compliance was made by the assessee, therefore identity of these Lender Companies has not been proved. We note that out of twelve lender companies, none appeared before assessing officer. We also find merit in the submission of ld DR to the effect that the fact that loan has been repaid in subsequent yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confronted to the assessee fulfills the conditions of confronting the evidences under the principles of natural justice. The assessee other contention that the assessing officer did not provide the opportunity to cross examine the persons whose statement were recorded by Kolkata Investigation Wing, regarding the Accommodation Entry Providers is also misplaced. The assessing officer provided the copy of the statement on oath of these persons during the assessment proceedings. The assessing officer has not blindly relied upon these statements to draw a conclusion. He has made a reference only of these statements but has relied upon his own analysis and findings on the basis of the examination of the Tax returns, financial statements, bank account statements etc. to hold that these lenders are mere paper companies with no genuine business activities. In fact the assessing officer provided the assessee an opportunity during the assessment proceedings to produce the Principal Officer/Directors the lending companies on 27/02/2015 but the assessee chose not to produce them. 6.1.7. On the examination of the various details furnished by the assessee in each of the 12 investors companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 167, Marshael House, 33/1, Neta ji Subhas Road, Burrabazar, Kolkata, West Bengal 27/08/2012 (19833 7) Loss Trading and Interest Income Trading and Interest Income No Fixed Assets 8 Redlily Enterprises Private Limited Flat No. 167, Marshael House, 33/1, Neta ji Subhas Road, Burrabazar, Kolkata, West Bengal 27/08/2012 (10229 5) Loss Trading and Interest Income Trading and Interest Income No Fixed Assets 9 Seven Star Trades and Private Limited 3 rd Floor, R.N 31, Radha Bazar Street, Dalhouse, Kolkata, West Bengal 11/08/2012 20430 Interest Income Interest Income No Fixed Assets 10 Uday Overseas Private Limited Flat No. 167, Marshael House, 33/1, Neta ji Subhas Road, Burrabazar, Kolkata, West Bengal 27/08/2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... met, how they met, copies of all communications entered with all prospective investors including calling for investment, applications, installment of money called, received, round of negotiations, correspondence about interest or any other matter etc.. along with mode of communication etc. The assessee submitted vide his reply dated 10.02.2016 that he had business transactions in Kolkatta and through its business clients, he came in contact with these companies. But the assessee could not submit any documentary evidence regarding the correspondence made with the lenders for the investments in form of unsecured loans. Not a single piece of paper or email could be furnished as a proof of the discussions for unsecured loans along with the terms and conditions, rate of interest, paper work etc. It is important to point out that these 12 companies had never made any transactions earlier with the assessee company which could explain the conduct of the lenders in unsecured loans. 6.1.10. The assessing officer during the course of the assessment proceedings made all efforts to locate the existence of the 12 companies. He issued notice u/s 133(6) of the Act but few of these notices co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 1 ITR (TRIB.) 529 (DELHI) Dhingra Global Credence (P.) Ltd. 6.1.12.. Now coming to issue of the creditworthiness and genuineness of the transactions, the assessing officer noticed that in the bank accounts of the lender companies meager balances were maintained in the accounts and the deposits were made immediately two or three days before or on the same day in the bank accounts of the lenders and that amount of deposit was utilized for investment in the form of unsecured loans. During the assessment proceedings, the assessing officer carried out an analysis of the Bank Statements which revealed that money was getting credited in these accounts and on the same day or next day the amount was being debited through transfer/withdrawals by clearing/RTGS transfers etc. No business transactions have been carried out and at no point of time any substantive balance is seen. The bank statements transactions reveal that these accounts are not being used for any business transactions. It is noticed that in these bank accounts of the lenders meager balances were maintained in the accounts and the deposits were made immediately two or three days before or on the same day in the bank acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrolled by these operators. These companies are incorporated by taking care of all formalities such as registering with ROC but having only postal addresses with no real office or employees. The directors of such companies are again individuals who are mostly illiterate or semiliterate and work for the entry operators for small salaries or commission. At first sight, most of these companies would pass of as finance, investment or technology companies. But as the entry operators have admitted in large number of cases that these are only paper companies used to route the unaccounted income and, at the same time, clean hoards of unaccounted income for their clients. These companies used for routing the unaccounted money are basically fake companies that exist for no other reason than to 'layer' the entries or pass it onto the beneficiary as loan or share capital. They take in unaccounted money as loan or share capital and pass it on to either another such paper company for 'layering' of the transaction or directly to the beneficiary as loan or share capital. They simply create the appearance of legitimate transactions through fake entries of loans or share capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptable for valid reasons, Assessing Officer could make addition under Section 68 and for that purpose he would not be under any duty to further show or establish that monies emanated from coffers of assessee-company. The Hon. Court further observed that We are unable to uphold the view of the Tribunal that it is incumbent upon the Assessing Officer, on the facts and circumstances of the case, to establish with the help of material on record that the share monies had come or emanated from the assessee's coffers. Section 68 of the Act casts no such burden upon the Assessing Officer. This aspect has been considered more than 50 years back by the Supreme Court in the case of A Govindarajulu Mudaliar v.CIT [1958] 34 ITR 807 where precisely the same argument was advanced before the Supreme Court on behalf of assesses. The argument was rejected by the Court. 6.2.4 The Hon'ble Court further referred that in the above case,(A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807) Shri Venkatarama lyer, J. speaking for the Court observed as under: - Now the contention of the assessee is that assuming that he had failed to establish the case put forward by him, it does not fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances section 68 of the Act would come into play? That a bare reading of Section 68 suggests that there has to be credit of amounts in the books maintained by an assessee; such credit has to be of a sum during the previous year; and the assessees offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessees in the opinion of the Assessing Officer is not satisfactory. It is only then the sum so credited may be charged to income-tax as the income of the assessees of that previous year. The expression the assessees offers no explanation means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. It is true the opinion of the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit to be undisclosed income of the taxpayer is that proper enquiry must be made by A.O before making any addition u/s 68, In Khandelwal Constructions v. CIT 227 ITR 900 (Gau.) It has been held that section 68 of Income Tax Act, 1961, empowers the Assessing officer to make enquiry regarding cash credit, if he is satisfied that these entries are not genuine he has every right to add these as income from other sources. But before rejecting the assessee's explanation A.O. must make proper enquiries and in the absence of proper enquiries, addition cannot be sustained. In the instant case, the assessing officer had made proper inquiries to establish that the investors were paper companies for accommodation entries as evident from the following facts: Not traceable on the addresses as per the enquiry conducted by Investigation Wing. The promoters/ directors not produced before the assessing officer in spite of several opportunities Nature of business not known; No known source of income; Meager income to justify such investments; No fixed assets; No rental payments; Miniscule expenses; Very low balances in the bank accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs his onus is discharged. Section 68 of the Income Tax Act 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 the assessee of that previous year. The Supreme Court held in Sumati Dayal vs. CIT 214ITR 801 (SC) in applying the test of human probabilities as follows: It is no doubt true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee. [See: Parimisetti Seetharamamma [1965] 57 ITR 532 at page 536). But, in view of Section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income-tax as the income of the assessee of that previous year if the explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. In deciding an issue of this nature, there cannot be one general or universal proposition of law which could be the guiding yardstick in the matter. Each case has got to be decided on the facts and circumstances of that case. The surrounding circumstances to be considered must, however, be objective facts, evidence adduced before the authorities, presumption of facts based on common human experience in life and reasonable conclusions. In holding a particular receipt to be income from undisclosed source, the fate of the assessee cannot be decided by the authorities on the basis of surmises, suspicions or probabilities. Hon'ble Supreme Court's decision in the case of CIT v. Durga Prasad More [1971] 82 ITR 540 which is as follows-at page 546 of the decision: Science has not yet invented any instrument to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged the onus the moment it has furnished the permanent account number of shareholders, shareholder register, share application form, share transfer register, etc. But in the case of private placement it has to satisfy the Assessing Officer about the genuineness of the transaction which in the instant case is highly doubtful as all the applicants are not traceable. Thus the Assessing Officer had reached a dead end of the enquiry and the onus had shifted on the assessee to produce the persons for verification. 6.2.16. The Assessing Officer has brought certain facts on record to highlight that the loan received actually represents an accommodation entry. It could be proved that the company providing loan exists only on paper, it has no employees, the address given is only a postal address and the company does not have any physical set up at the given address, the same address is possibly being used as postal address for multiple companies indulging in to the same activity of providing accommodation entries The assessee was trying to press into service only the legal or de-jure identity of a creditor and could not adduce any evidence of the de-facto existence of the creditor compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided, the question of burden of proof becomes an abstract question and is therefore academic. The section 101 to 114 of Indian Evidence Act, 1872 deals with burden of proof. The section 102 of the Evidence Act provides that the burden of proof lies on that party who would fail if no evidence at all were given on either side. Thus, if an assessee claims that money or bullion found in his possession at the time of the search or survey does not belong to him but someone else, the onus is on him to establish it because the ordinary presumption is that he is the owner as the money etc. was found in his possession. Similarly, in all cases where a particular receipt is sought to be taxed as income, the initial onus is on the Assessing Officer to prove that it is taxable. Where, however, the assessee claims exemption, the burden is on the assessee to prove it to be exempt. Same is the position in case of allowances, deductions, or claims of loss, etc. Similarly, where there is a statutory rebuttable presumption against the assessee, as in case of cash credits etc., u/s 68 or unexplained investment u/s 69, the initial burden of proof is on the assessee to show that the cash credit is genuin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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