DCIT vs M/s Hightec Propcon Private Limited

“7.1

Ground No. 3: This ground is against addition of Rs.4,00,00,000/-u/s 68 of the Income Tax Act on account of share application money.

I have considered the submissions filed by the appellant and order passed by the AO. In the present case AO treated the credit of share application money (later converted in to loan) as unexplained cash credit u/s 68 of the Act. The entire thrust of the AO for treating the Share application money as unexplained cash credit was the search proceeding in the case of Shri Shirish C Shah and his statement recorded during search.

During appeal proceeding it was contented by the appellant that along with various notices issued by the AO, only “information” received from Investigation wing was provided, but the primary documents/bank account material was not made available to appellant. It is a settled position of law that not providing the material used against assessee for rebuttal is against the principal of natural justice.

On other hand, it was found that appellant, in support of genuineness of share application money (later converted in to loan) furnished all documents, such as ledger of party, confirmation. Even AO issued notice u/s 133(6) of the Act. All relevant documents were produced by the Empower India Limited. During assessment proceedings it was also submitted by the appellant that the share application money of INR 4 Crore was received from empower during F.Y-2009-10 through Bonding channel. The said money was towards on Infrastructure project which was subsequently not materialized.

Consequently, the management of the appellant returned the share application money so received to empower during financial Year, 2013-14 through banking channel.

However in the instant case AO did not give cognizance to the fact to the entire Share application money was returned back by banking channel. AO in the assessment order Page-10 last paragraph held:

“Also the assessee is unable to produce direct nexus between the amount received by the appellant and which was refunded back. There is no proof that the money was paid.”

However during the assessment proceeding copy of bank statement was produced by appellant showing refund of money.

Further AO just proceeded on the basis on information received from investigation wing and no independent inquiries were concluded. In the identical facts and circumstances, Hon’ble Supreme court in the case of CIT v/s Odeon Builders Pvt. Ltd. has confirmed the finding of CIT(A), ITAT and H.C in favour of Appellant by observing as under:

3.

However, on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of Rs. 19,39,60,866/- was based solely on third party information, which was not subjected to any further scrutiny.

Thus, the CIT (Appeals) allowed the appeal of the assessee stating:

"Thus, the entire disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AD who has not provided the copy of such statements to the appellant, thus denying opportunity of cross examination to the appellant, who has prima facie discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, & VAT Registration of the sellers & their Income Tax Return. In view of the above discussion in totality, the purchases made by the appellant from M/s Padmesh Realtors Pvt. Ltd. is found to be acceptable and the consequent disallowance resulting in addition to income made for Rs. 19,39,60,866/-, is directed to be deleted."

4.

The ITAT by its judgment dated 16th May, 2014 relied on the self-same reasoning and dismissed the appeal of the revenue. Likewise, the High Court by the impugned judgment dated 5th July, 2017, affirmed the judgments of the CIT and ITAT as concurrent factual findings, which have not been shown to be perverse and, therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of the ITAT.

Be that as it maybe, the issue on hand has bearing on the provision of section 68 of the Act. The provision of section 68 of the Act suggests that if there is any sum credited in books of account maintained for the any previous year, then the assessee is required to offer proper and reasonable explanation regarding nature and sources of such credit to the satisfaction of the AO. Thus, the primary onus lies with the assessee to explain the source of credit in the books. Over the period, the Hon’ble Courts have laid down that the assessee to discharge its onus is required to furnish evidence with respect to identity of the creditors, genuineness of transaction and credit worthiness of the creditor. If the assessee fails to discharge the primary onus cast or the explanation and evidence submitted by the assessee was not found satisfactory by the AO, then the sum credited in the books shall be deemed as income of the assessee. The Hon’ble Supreme court in case of CIT vs. P. Mohanakala reported in 291 ITR 278 while dealing with scope of provision of the section 68 of the Act held that “the opinion of the AO that the explanation furnished by the assessee 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.” In other words, once the assessee submits primary evidence with regard to identity and credit worthiness of creditor and the genuineness of the transaction the onus shifts on the AO to consider the material provided and make independent inquiry in order to find out genuineness of the evidence or bring material contrary to fact explained by the assessee. The AO cannot reject the primary evidence furnished by the assessee without appreciating the facts available on record or without bringing contrary material to form the belief that primary document or explanation furnished by the assessee is not satisfactory.

9.3

Undeniably, the assessee during the assessment proceeding in support of genuineness of credit of unsecured loans has furnished ledger of parties, contra ledger from the parties and confirmation, ITRs, bank statements and annual report of parties along with their affidavit. The AO in assessment order nowhere referred to any independent inquiry of whatsoever made to disprove the primary evidence provided by the assessee and not pointed out any infirmity in those evidence. As such, the AO merely on the basis of statement of Shri Sirish shah held the share capital (later converted into unsecured loan) as unexplained cash credit. In my considered opinion the approach taken by the AO is not justified. As such the AO failed to appreciate the facts, and primary evidences provided , by the assessee company. It is pertinent mentioned that the assessee company has taken Share application money (converted into loan) through banking channel and repaid the same in FY 2013-14 through banking channel . Thus, the loan amount of cannot be made subject to addition under the provisions of section 68 of the Act in view of the judgment of Hon’ble High Court in the case of PCIT vs. Ojas Tarmake (P) Ltd. reported in 156 taxmann.com 375 where it was held as under: What is evident is that the Tribunal found on facts that the amount of loan received by the assessee was returned to the loan party during the year itself and all transactions were carried out through banking channel (though in the present case it was returned back in FY 13-14 but fact remains that it was returned). The Tribunal on the decision of Dy. CIT v. Rohini Builders [2003] 127 Taxman 523/[2002] 256ITR360 (Guj.), held in favour of the assessee. [Para 3] . In view of the above detailed discussion, hereby direct the AO to delete the addition made by him.Hence, the ground of appeal of the appellant is hereby allowed. 10. In the result, appeal partly allowed.”

“1 Whether on the facts & in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition amounting to Rs. 4,00,00,000/ made u/s 68 of the Act despite the fact that the addition was made based on specific information regarding receipt of the above amount through the companies managed & controlled by the entry operator and thus, the source of credit remained unexplained?

2.

Whether on the facts & in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition amounting to Rs. 4,00,00,000/- made u/s 68 of the Act by holding that no enquiry was conducted by the AO whereas due enquiry was made by the AO by issuing notice u/s 133(6) of the Act?

3.

Whether on the facts & in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition amounting to Rs. 4.00,00,000/- made u/s 68 of the Act based on the fact that the transaction were made through banking channel ignoring the judgement in the case of CIT vs Nipun Builders & Developers (P.) Ltd. In which it is held that simply passing through banking channel is not sufficient to prove their creditworthiness?

4.

That the department craves to add or amend the grounds of appeal before Hon’ble ITAT is finally heard or disposed of.”