Income Tax Appellate Tribunal - Mumbai
Hotel Markaz P. Ltd , Mumbai vs Assessee
1
ITA 4705/Mum/09, M/s Hotel Markaz P. Ltd.
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "H"
BEFORE SHRI P.M. JAGTAP, A.M. AND SHRI R.S. PADVEKAR, JM
ITA No. 4705/Mum/09
Assessment Year 2005-06
M/s Hotel Markaz Pvt. Ltd., ITO Ward 8(2)(4),
C-109, Fatimid Co-Op. HSL, Aaykar Bhawan,
Behram Baug, Jogeshwari (W), M.K. Road,
Mumbai -400102. Vs. Mumbai- 20.
Appellant Respondent
Appellant by Shri Dr. P. Daniel
Shri M.P. Makhija
Respondent by Shri R.S. Srivastava
ORDER
PER P.M. JAGTAP, A.M.
This appeal by the assessee is directed against the order of ld. CIT(A)- VIII, Mumbai dated 23.6.09.
2. The main issue raised by the assessee in this appeal as per the revised ground No. 1 to 3 relates to the addition made by the A.O. u/s 68 and confirmed by the ld. CIT(A) on account of share capital of ` 4,70,000/- and unsecured loans of ` 72,07,000/- received by the assessee treating the same as unexplained cash credit.
3. The assessee in the present case is a company incorporated with the main object to carry on the hotel business. The return of income for the year under consideration was filed by it on 6.1.07 declaring a loss of ` 56,969/. In the said year, the assessee company had only purchased the hotel premises and there was no business activity carried on by it during that year. As per the balance sheet filed along with the return of income, the 2 ITA 4705/Mum/09, M/s Hotel Markaz P. Ltd.
assessee company had shown to have received unsecured loans of ` 72,07,000/- and share capital of ` 4,70,000/- from 22 parties during the period from October to December, 2005. As required by the A.O., confirmation letters of all the 22 parties were filed by the assessee along with copies of their Income Tax return acknowledgments for the relevant year as well as balance sheet and P&L A/c. On perusal of the said documents, the A.O. noticed that most of the said persons were having very nominal income of around ` 1 lac and after having made withdrawals of ` 40,000/- to 50,000/-, they were hardly left with any surplus amount to advance loans to the assessee. He also noticed that some of the persons had deposited cash in their bank A/c before making payments to the assessee on account of unsecured loans and share capital. He, therefore, issued a notice to the assessee pointing out therein such instances and seeking explanation of the assessee thereon. Along with the said notice, Annexure was also attached by the A.O. summarizing all the relevant details noted by him in respect of each creditors as under:-
ANNEXURE TO THE NOTICE DATED 18.12.2008 Details of 22 parties in respect of credits for loans & share capital.
Sl Name of person Name Nature Total Withdra Loans Loan to Cash
No. of income wal O/S hotel deposits
bank Markaz
1 Mustakali Hasan DCB Brokerage 99260 64116 250000 400000 90000
Palsania
2 Habid Dawood BOM Partner 116191 48000 100000 340000 -
Sunsara In firms
3 Mehndiali BMC Business 104580 45000 178000 299000 100000
Habib Sunesara
4 Abbasali Habib BMC Business 105580 45000 178000 299000 100000
Sunesara
5 Abdul CBI Salary & 135772 58330 - 250000 160000
Yarmohamed Business
Kadiwala
6 Abidali DCB - 66436 - 186720 340000 -
Abdulbhai
Kadiwala
7 Sajeed Abdul BMC Business 100163 33525 - 109000 195000
Sunsara
8 Fizza BOM Business 101972 30000 178000 360000 115000
Valimohammed
3
ITA 4705/Mum/09, M/s Hotel Markaz P. Ltd.
Sunsara
9 Abdul Dawood BOM - 95170 30000 100000 360000 90000
Sunsara
10 Valimohd BOM - 81200 54000 178000 360000 55000
Dawood Sunsara
11 Sirinben BOM - 99230 54000 149521 180000 15000
Sabbirali Seliya
12 Sheliya Hajarben BOM Business 81221 60000 167651 180000 30000
Stitching
13 Moriya Miyaji SBI - 90790 64000 690000 450000 106000
Nasir
14 Usman Valimohd SBI - 182040 48000 283580 450000 -
Loriya
15 Juned usman BHA Commissi 134496 42000 152000 450000 300000
Loriya RA on
16 Raisa Junaid MCB Stitching 144725 45000 57000 450000 378000
Loriya
17 Zaid Usman MSC Business 126640 57625 215000 450000 131500
Loriya Labour
18 Haiderali BMC Taxi 87102 41150 240000 450000 205000
Dawood
Kadiwala
19 Ismail Yusuf DCB Labour 134270 36000 200000 400000 262000
Sunasara
20 Gulam Husain DCM Polishing 88466 114000 370000 450000 -
Yuduf Sunsara
21 Ahmed Abbas - Labour 105835 50000 100000 220000 N.A.
Gulam Hussain Bank
Sunesara
22 Abidali Yusuf - Brokerage 105705 50000 278000 420000 N.A.
Sunesara Bank
Total 7677000
4. In reply to the notice issued by the A.O. along with the said Annexure, it was submitted on behalf of the assessee that the confirmations of the creditors having already been filed by it along with other relevant documents such as Income Tax return acknowledgments, Balance sheet etc., it had already discharged the onus that lay on it to examine the relevant cash credits u/s 68. The A.O. did not find this submission of the assessee to be acceptable. He also made direct enquiry with the banks of the concerned creditors which confirmed the cash deposits found to be made by the creditors in their bank accounts before issuing cheques to the assessee. He also found that atleast in case 4 ITA 4705/Mum/09, M/s Hotel Markaz P. Ltd.
of three creditors, the bank accounts were opened by them just before issuing cheques to the assessee. Keeping in view the said information received by him directly from the concerned banks and having regard to all other findings recorded by him, the A.O. treated all the unsecured loans and share capital aggregating to ` 76,77,000/- received by the assessee company as unexplained cash credits on the ground that the capacity of the concerned creditors as well as genuineness of the relevant transactions was not satisfactorily established by the assessee. Accordingly, he added the said amount of ` 76,77,000/- to the total income of the assessee u/s 68 in the assessment completed u/s 143(3) vide an order dated 31.12.08.
5. Against the order passed by the A.O. u/s 143(3), an appeal was preferred by the assessee before the ld. CIT(A) challenging therein the addition of ` 76,77,000/- made by the A.O. u/s 68. During the course of assessment proceedings before the ld. CIT(A), the following submissions were made on behalf of the assessee:
" 2.4"The facts of the case in brief are that appellant a private limited company was incorporated on 06/10/2005 and for the year under consideration which was its first year filed its return of income declaring loss of Rs.56,969/- after debiting the initial administrative expenses incurred by it during the year, to the profit & loss A/c. It may, however, be submitted that during the year, assessee company has not carried on any business activity and has only purchased a Hotel property / premises.
In the course of assessment proceedings from the audit report filed assessing officer noticed that assessee company had received an amount of Rs.76,77,000 from 22 parties out of which an amount of Rs.4,70,000/- was converted into share capital and the balance amount of Rs.72,07,000/- was shown as unsecured loans as on 31/3/2006 in the balance sheet filed. The Assessing Officer vide his letter dated 12/6/2008 asked the assessee to furnish loan confirmations containing names, addresses, copies of returns of income filed by the loan creditors, copies of their bank statements, explanation of source of funds for advancing loans, details of interest paid and also the copies of the ledger extracts of the said parties as appearing in the books of the assessee company. In response to the said letter, assessee company vide its letter dated 26/6/2008 replied to all the queries raised by the ld. Assessing Officer and also furnished / enclosed all the details called for by him ...............5
ITA 4705/Mum/09, M/s Hotel Markaz P. Ltd.
..........................1) The assessee company has come into existence during the year under consideration i.e. on 6/10/2005 and hence the question of there being any unaccounted income of any previous period which it was trying to route into the books of accounts does not arise.
2) The assessee company has duly discharged the onus cast upon it by not only filing the loan confirmations, bank statements and copies of returns of income of the loan creditors but by providing the same in time so that if at all the learned Assessing Officer wanted to verify anything independently he could have done in absence of which it can be inferred that initially Assessing Officer was satisfied with the submissions made by the assessee company but subsequently changed his mind without following the law and the procedure laid down by various courts and has arbitrarily made the addition.
3) The learned Assessing Officer has asked Assessee Company to prove the source of source which is not only beyond the control of the assessee but is also against the principles of law as held by various judicial forums.
4) It is not only that the learned Assessing Officer is asking the assessee company to prove what it has not done i.e. an alleged negative act of not committing the wrong but has not even done what he himself was supposed to do under the law.
5) The learned Assessing Officer has also relied upon some information collected from the banks of loan creditors behind assessee's back without confronting the assessee with the said information which also being against the principles of natural justice makes the addition untenable in the eyes of law.
6) The learned Assessing Officer has placed reliance upon some judgments, facts of which are totally distinguishable from the facts of assessee company's case."
6. The ld. CIT(A) did not find merit in the above submissions made on behalf of the assessee before him and proceeded to decide the issue against the assessee for the following reasons given in 2.5 of his impugned order:
"2.5 "I have considered the submissions of the appellant company, order of the Assessing Officer and the facts of the case carefully. The appellant company has purchased a hotel during the year and has not made any business activity. The company has shown unsecured loans of Rs.72,07,000/- and share capital of Rs.4,70,000/- received from 22 parties totalling to Rs.76,77,000/-. All the loans and share capital money has been received during the months of October 2005 and December 2005. During the assessment proceedings, the Assessing Officer has made enquiries from the banks and also asked the appellant company to submit the details of 22 parties specifically to prove the identity of the persons, genuineness of the transactions and creditworthiness. In response to the show cause notice of the Assessing Officer, the appellant submitted confirmations and income tax particulars 6 ITA 4705/Mum/09, M/s Hotel Markaz P. Ltd.
of the 22 parties. The provisions of section 68 have given wide powers to the Assessing Officer to make enquiry in order to prove the identity, genuineness and creditworthiness of the creditors. The investigation made by the Assessing Officer has revealed that 22 persons who have advanced the loans and invested in share capital of the company, were men of no means as they are earning annual income ranging from Rs.80,000/- to Rs.1,00,000/-. Their household withdrawals are from Rs.30,000/- to Rs.1,00,000/- annually which means they have no savings for advancing the loans to the company and investing in the share capital of the company. The above chart given shows the financial position of these 22 parties. These people have no bank accounts earlier. Only before advancing the loans to the company, they have opened the bank accounts in the year 2005. there was no saving. They have deposited cash in their bank accounts before issuing cheques to the appellant company. The Authorised Representative of the company has submitted confirmations along with income tax particulars of these persons to prove the identity, creditworthiness and genuineness of transactions but the Assessing Officer has rejected the same because investigation has proved that all these parties are labour class having no source of income and just living hand to mouth and men of no means. It is impossible by stretch of any imagination that a person having income of Rs.80,000/- annually will advance a loan of Rs.4,50,000/- to the company. Merely filing of confirmations and income tax particulars will not prove the creditworthiness of the concerned person. The onus is on the assessee to prove the genuineness of the transactions. The A.O. has rightly invoked the provisions of section 68 and reliance is placed on the following decisions of Hon'ble courts where it is held that the onus is on the assessee to prove the identity, creditworthiness and genuineness of transactions.
7. For the reasons given above and relying on various case laws discussed in his impugned order, the ld. CIT(A) confirmed the addition of ` 76,77,000/- mad by the A.O. u/s 68 on account of unsecured loans and share capital received by the assessee treating the same as unexplained cash credits. Aggrieved by the order of the ld. CIT(A), the assessee has preferred this appeal before the Tribunal.
8. The learned counsel for the assessee submitted that the assessee company was incorporated only in the year under consideration on 6.10.05 and in the absence of any business activity carried on in the said year, there was no possibility of earning any income much less an undisclosed income which could be introduced in the form of unexplained cash credits. He submitted that all the amounts on account of un-secured loans and deposits were received by the assessee company from 22 creditors by A/c payee cheques and the same were deposited in its bank account. He submitted that all 7 ITA 4705/Mum/09, M/s Hotel Markaz P. Ltd.
these creditors were duly assessed to income tax and their confirmation letters giving all the relevant details were duly furnished before the A.O. He invited our attention to the copies of the said confirmations placed on record before us and pointed out that all the relevant details including the Permanent Account Numbers of the creditors, their names and complete addresses were given therein. He further submitted that even the copies of their relevant income tax return acknowledgements along with balance sheet and P& L account as well as bank account extracts for the relevant period were furnished by the assessee before the A.O. He invited our attention to the copies of the said documents placed in his paper book and contended that the same were sufficient to discharge the primary onus that lay on the assessee to establish the genuineness of the transactions as well as identity and capacity of the concerned creditors. He submitted that the A.O., however, doubted the capacity of the concerned creditors merely going by the quantum of income disclosed by them in the relevant year ignoring completely that the said creditors had raised the funds from other sources also such as loans etc. He contended that even the other objections of the A.O. regarding cash deposited by the concerned creditors in their bank accounts prior to the issue of cheques to the assessee is not sustainable since such cash deposits were only small amounts as compared to loans given by the concerned creditors to the assessee. In this regard, he pointed out from the relevant details given by the A.O. in the Annexure that Shri Mustqali Hasam Palsania had given a loan of Rs. 4 lacs to the assessee whereas cash deposit in his bank account was only to the extent of Rs. 90,000/-. He also pointed out other instances wherein similar position was there. He contended that all the creditors in any case were regularly assessed to tax and the loan amounts given to the assessee having been duly disclosed by them in their returns, there was no reason for the authorities below to treat the said loans as unexplained cash credits in the hands of the assessee merely because there were some cash deposits in the accounts of the creditors. He further contended that when all the relevant documentary evidence was filed by the assessee to discharge the primary onus that lay on it to establish the identity and capacity of the concerned creditors and the genuineness of the relevant transaction, the A.O. should have made enquiries with the said creditors or atleast with 8 ITA 4705/Mum/09, M/s Hotel Markaz P. Ltd.
the Income Tax Offices where the said creditors were regularly assessed to tax before drawing any adverse inference against the assessee. He contended that the A.O., however, has neither made any such enquiry nor asked the assessee to produce the concerned creditors for their examination. He contended that in the absence of any such enquiry made by the A.O. with the concerned creditors, the addition made by the A.O. and confirmed by the ld. CIT(A) treating the loans given by the said creditors to the assessee company as unexplained cash credits u/s 68 is not sustainable. In support of this contention, he relied, inter alia, on the decision of Third Member decision of Agra Bench of ITAT in the case of Kalyan Memorial and Charitable Trust vs. CIT 121 ITD 525 and that of Hon'ble Bombay High Court in the case of Orient Trading Company vs. CIT 49 ITR 723.
9. The learned D.R., on the other hand, submitted that specific adverse findings have been recorded by the A.O. to justify his action of treating the relevant cash credits as unexplained u/s 68. He contended that as pointed out by the A.O. in this regard, the factual position in case of most of the creditors is similar in as much as the quantum of income declared by them in the relevant year was inadequate to give the corresponding amounts of loan to the assessee. He submitted that cash was also found to be deposited by most of the creditors in their bank accounts before giving the loans to the assessee. He contended that when the assessee was aware of the fact that the loans and share money received by it in the year under consideration were being examined by the A.O. during the course of assessment proceedings, it could have produced the concerned creditors for the examination. He contended that if at all such examination of the creditors is found to be necessary by the Tribunal, the matter may be sent back to the A.O. for such examination.
10. We have considered the rival contentions and also perused the relevant material on record. It is observed that the confirmation letters in respect of all the loans and share capital received by the assessee from 22 creditors were furnished before the A.O. during 9 ITA 4705/Mum/09, M/s Hotel Markaz P. Ltd.
assessment proceedings and all the relevant details such as their full names, complete addresses, Permanent Account Numbers and mode of payment were also furnished. Even the copies of income tax return acknowledgements of the said creditors were filed by the assessee along with copies of balance sheet and P&L accounts as well as copies of their bank pass book/bank statements. The primary onus that lay on the assessee to explain the cash credits representing loan amounts and share capital in terms of section 68 thus was duly discharged by the assessee by establishing the identity and capacity of the concerned creditors as well as genuineness of the relevant transaction. The onus thereafter was shifted to the Revenue and it was for the A.O. to bring on record to show why the explanation offered by the assessee was not acceptable. In this regard, it is observed that nothing has been brought on record by the A.O. to discharge this onus and the relevant cash credits were treated by him as unexplained merely going by the quantum of income declared by the concerned creditors and some cash deposits found to be made by them in their bank accounts before giving loans to the assessee. As rightly contended by the learned counsel for the assessee in this regard, the capacity of the creditors to give the loans to the assessee cannot be always ascertained only on the basis of income declared by the concerned creditors which is just one source of income. The concerned creditors may also other sources to generate funds like the creditors in the present case who had generated substantial amount by way of loans availed as is evident from the details given by the A.O. himself in the Annexure which is reproduced hereinabove. As regards the cash deposits found to be made by the concerned creditors before giving loans to the assessee, we find merit in the arguments of the learned counsel for the assessee that the said deposits being in small amounts as compared to the loan amount given by the concerned creditors to the assessee and the said loans as well as the concerned bank accounts from which the said loans were given having been duly declared by the concerned creditors in their income tax returns, no adverse inference against the assessee can be drawn on the issue of cash credits in terms of section 68 on the basis of such cash deposits. The reasons given by the A.O. thus were not sufficient to discharge the onus that lay on the Revenue for treating the relevant cash credits as unexplained when 10 ITA 4705/Mum/09, M/s Hotel Markaz P. Ltd.
confirmations of the concerned creditors as well as other documentary evidences were filed by the assessee to explain the said cash credits in terms of section 68.
11. It is also observed that no enquiry whatsoever was made by the A.O. either directly with the concerned creditors or even with the income tax offices where they were regularly assessed to tax to ascertain the genuineness of cash credits in question. The assessee company was also not called upon by the A.O. to produce the concerned creditors for examination. In the case of Kalyan Memorial and Charitable Trust (supra), evidence in the shape of confirmations, copy of bank account and acknowledgements of income tax returns were filed by the assessee in the case of cash credits. In all the confirmations, Permanent Account Numbers had been mentioned along with names addresses of the concerned creditors. Although summons were issued by the A.O. to the creditors, the same could not be served. The A.O., therefore, treated the relevant cash credits as income of the assessee u/s 68 and added the amount of such cash credits to the total income of the assessee u/s 68 which was upheld by the ld. CIT(A). When the matter reached to the Tribunal, it was held by the Third Member agreeing with the Judicial Member that the A.O. could have verified either from the income tax record or from the record of bank the identity of the concerned creditors. It was also held that the A.O. could have asked the assessee to produce the concerned creditors which he failed to do. It was held that the assessee by filing evidence in the shape of confirmations copies of bank accounts and acknowledgments of income tax returns had discharged the initial burden to explain the cash credits in terms of section 68 and the burden thus was shifted on the Revenue to show that what was explained by the assessee was not a correct state of affairs. It was held that there was, however, no material whatsoever that had been brought on record by the Department to discharge the said burden and the evidence filed by the assessee remaining un-rebutted, addition u/s 68 could not be made. In the case of Orient Trading Co. Ltd. (supra) it was held by the Hon'ble Bombay High Court that if the cash credit entry stands in the name of third party and the assessee satisfies the Income Tax 11 ITA 4705/Mum/09, M/s Hotel Markaz P. Ltd.
Officer as to the identity of the third party and also supplies such other evidence which will show, prima facie, that the entry is not fictitious, the initial burden which lies on him can be said to be discharged by him. It was held that the burden will then shift on to the department to show why the assessee's case cannot be accepted and why it must be held that the entry though purporting to be in the name of a third party still represents the income of the assessee from a suppressed source. It was held that in order to arrive at such a conclusion, the department has to be in possession of sufficient and adequate material.
12. Keeping in view the provision propounded in the aforesaid judicial pronouncements and having regard to all the facts of the case as discussed above, we are of the view that sufficient evidence was filed by the assessee in the form of confirmations, copies of bank accounts, acknowledgement of Income Tax returns and financial statements of the concerned creditors to discharge the initial burden to explain the cash credits representing the loans and share capital in terms of section 68 and the said evidence filed by the assessee remaining un-rebutted by the department, the addition made by the A.O. and confirmed by the ld. CIT(A) treating the loans and share capital as unexplained cash credits is not sustainable. We, therefore, delete the said addition and allow ground No. 2 & 3 of the assessee's appeal.
13. The remaining grounds raised by the assessee in this appeal are not pressed by the learned counsel for the assessee at the time of hearing before us. The same are, therefore, dismissed as not pressed.
12ITA 4705/Mum/09, M/s Hotel Markaz P. Ltd.
14. In the result, appeal of the assessee is partly allowed.
Order pronounced on 10th December, 2010.
Sd/- sd/-
(R.S. PADVEKAR) (P.M. JAGTAP)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, dated 10th December , 2010.
RK
Copy to...
1. The appellant
2. The Respondent
3. The CIT(A) VIII - Mumbai
4. The CIT- 8, Mumbai
5. The DR Bench, H
6. Master File
// Tue copy//
BY ORDER
DY/ASSTT. REGISTRAR
ITAT, MUMBAI
13
ITA 4705/Mum/09, M/s Hotel Markaz P. Ltd.
Date Initials
1. Draft dictated 2.12.10, 8.12.10 Sr.P.S./P.S.
2. Draft placed before 8.12.10, 9.12.10 Sr.P.S./P.S.
author
3. Draft proposed & - J.M./A.M.
placed before the
second member.
4.Draft discussed/ J.M./A.M.
approved by second
Member.
5. Approved draft Sr.P.S./P.S.
comes to the
Sr.P.S./P.S.
6. Kept for Sr.P.S./P.S.
pronouncement on
7. File sent to the Sr.P.S./P.S.
Bench Clerk
8. Date of which file
goes to the Head
clerk.
9. Date of dispatch
of order.