Income Tax Appellate Tribunal - Ahmedabad
Saiyed Paper Mills Ltd.,, Vapi vs Assessee on 30 November, 2006
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "D"
[BEFORE SHRI MAH AVIR SINGH,JM AND SHRI A N P AHUJ A, AM]
ITA Nos.1544 and 1545/Ahd/2007
(Assessment Year:-1993-94)
Saiyed Paper Mills Ltd., V/s Assistant Commissioner of
Plot No.162, Phase-II, Income-tax, Vapi Circle,
GIDC, Vapi Vapi
[PAN:
[Appellant] [Respondent]
Assessee by :- Shri S N Soparkar,AR
Revenue by:- Smt. Neeta Shah, DR
O R D E R
A N Pahuja: These two appeals by the assessee -one against the quantum addition and the other against levy of penalty u/s 271(1)(c) of the Income-tax Act,1961[hereinafter referred to as the 'Act'] are directed against two separate orders dated 30-11-2006 of the ld. CIT(Appeals),Valsad for the AY 1993-94.
2. Adverting first to the quantum appeal in ITA No.1544/Ahd/2007, ground no.1 relates to confirmation of the addition of Rs.32,56,138/- made by the AO u/s 68 of the Act. Facts, in brief, as per relevant orders are that return declaring loss of Rs.29,68,769/- filed on 31.12.1993 by the assessee, engaged in the business of manufacturing M G Kraft Paper, was taken up for scrutiny with the issue of notice u/s 143(2) of the Act. During the course of assessment proceedings, the Assessing Officer[AO in short] noticed that the assessee received following amounts towards share capital and unsecured loans from various persons detailed as under:-
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Sr. Particulars Share Unsecured Total No. capital loan
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1 NRIs. 45,50,000 9,80,000 55,30,000 2 Assessees 20,84,500 17,36,700 38,21,200 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 3 Agriculturists 1,00,000 6,17,000 7,17,000 4 Non-assessees 17,17,500 24,97,100 42,14,600
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84,52,000 58,30,800 1,42,82,800
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To a query by the AO, seeking list of share-holders and share-
application forms, the assessee submitted vide letter dated 11-1- 1996 as under:-
"Ours is a private limited company and most of our shareholders are relatives and friends of the promoters. They have accordingly not made any applications for shares and therefore the company does not possess any applications on record."
2.1 The AO further pointed out that the details of loans given by the persons, who are assessees, revealed that the following persons stated to have invested the amount mentioned against their names out of their own resources:-
Sr. No. Name of the persons Amount invested
out of own resources
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i) Shri Amin Yasin Saiyed Rs.6,18,900/-
ii) Shri Saukat Amin Saiyed Rs.5,00,000/-
iii) Shri Mohmedali A Saiyed Rs.3,25,000/-
iv) Shri Ayub Y Saiyed Rs. 18,300/-
v) Shri Hanif Y Saiyed Rs. 90,000/-
The details filed by the assessee further revealed NRI gifts of Rs.4,70,000/- received in the case of Shri Amin Yasin Saiyed, Rs.4,00,000/- in the case of Shri Saukat Amin Saiyed and Rs.2,00,000/- in the case of Shri Mohmedali A Saiyed, were not supported by any evidence. Even the balance amount stated to have been brought in by these three persons as also by the other two persons in their own account stated to be out of savings or loans received from other persons, was not supported by any evidence. The AO also observed that even when the assessee was asked to produce just one Shri Amin Yasin Saiyed out of the aforesaid five persons for cross verification, he was not produced & hence no 2 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 verification could be made. In the absence of any evidence in support of the alleged savings and loans received from other persons, the AO added the following amounts u/s 68 of the Act:-
Sr. Name of the persons Amount out of NRI Self
No. own account investment
out of savings
etc.
i) Shri Amin Yasin Saiyed 6,18,900 5,00,000 1,18,900
ii) Shri Saukat Amin 5,00,000 4,00,000 1,00,000
Saiyed
iii) Shri Mohmedali A 3,25,000 2,00,000 1,25,000
Saiyed
iv) Shri Ayub Y Saiyed 18,300 - 18,300
v) Shri Hanif Y Saiyed 90,000 - 90,000
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15,52,200 = 11,00,000 + 4,52,200
2.2 As regards following amounts stated to have been brought in
by agriculturalists
Sr. No. Name of person Share Loans Total Sources (own
capital funds)
1 Mr.Yasin Hussain 1,00,000 1,25,000 225000 Agri. income
Saiyed
2 Mr. Sharif Jamal Nil 2,00,000 200000 "
3 Mr. Yunus Sharif Nil 1,39,000 139000 "
4 Mr. Thakurbhai Nil 44,000 44000 "
5 Mr. Ayub Nil 69,000 69000 "
Mohmedhusain
6 Mr. Amin Sadiq Nil 40,000 40000 "
Qureshi
1,00,000 + 6,17,000 = 717000
though the assessee submitted confirmatory letters of the aforesaid persons, no evidence was furnished regarding the sources of these investments or even of any agricultural income. Even when the assessee was asked to produce Mr. Yasin Hussain Saiyed and Shri Yunus Sharif for cross verification, they were not produced nor any supporting evidence was filed to establish the genuineness of the 3 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 credits or the creditworthiness of these persons. Accordingly, the investment in share capital and loans from these persons were not accepted as genuine and added u/s 68 of the Act.
2.3 Regarding investment by non-assessees, the AO asked the assessee to produce the following persons for cross verification:-
1) Shri Amin Yasin Saiyed
2) Shri Khalik A Saiyed
3) Shri Ayub A Saiyed
4) Shri Salim Yasin Saiyed
5) Shri Yasin H Saiyed
6) Shri Hanif Saiyed
7) Shri V Prabhakaran
8) P A holder of Shri Abdul Tanver
9) Shri Mohmed Safi Belhasa
10)Shri Solanki Ishaque Yasin
11)Shri Jahid Salim Saiyed
12)Smt. Rukaiya Ayub Saiyed
13)Shri Yunus Sarif
14)Shri Liyakat Amin Saiyed
15)Shri Khaliq Rafiq Saiyed
16)Smt. Hamida Salim Saiyed 2.31 However, the assessee produced only the following three persons:-
1) Shri Manif Yasin Saiyed.
2) Shri Liyakat Amin Saiyed.
3) Shri Ayub Yasin Saiyed.
Even these three persons did not produce any evidence in support of the investment made by them either in the form of share capital or loans to the assessee company nor they were aware of the terms and conditions of the loan given to the assessea-company. In view of these facts, the credits in the name of those persons were not accepted as genuine. As regards the remaining persons, despite sufficient opportunity allowed to the assessee, they were not produced for cross verification. Confirmatory letters filed by the assessee-company in respect of these persons could also not be verified. The AO further observed that many of 4 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 the confirmatory letters filed by the assessee were accompanied by written notes, which revealed that the investments were made by these persons after taking loans or gifts from some other persons, whose identity was also not established. The written notes were stereotyped and signed by persons whose address was not given nor any other supporting evidence to prove the genuineness of transactions. The terms and conditions on which loans were given, were also not explained in any of the said notes. In these circumstances, the investment of Rs.42,14,688/- made by these persons was added u/s 68 of the Act. Inter alia, penalty proceedings u/s 271(1)(c) of the Act were also initiated for the aforesaid unexplained investment.
3 On appeal, the ld.CIT(A)vide order dated 03-10-1996 deleted three additions of Rs. 4,52,200,Rs. 7,17,000 &Rs.42,14,600,inter alia, on the ground that this was first year of the business of the company.
4 On appeal by the Revenue, the ITAT Ahmedabad Bench vide their order dated 04-12-2002 in ITA No.5155/Ahd/1996, restored the matter to the file of the AO in the following terms:
"2. At the time of hearing, learned departmental representative submitted that various deletions have been made by CIT(A) by admitting new evidences for the first time in violation of provisions of sub-rule 3 of Rules 46A of the IT Rules. The learned authorized representative fairly conceded to the objections raised by learned departmental representative.
3. In view of above submission of the learned departmental representative and concession by learned authorized representative, in the interest of justice, we restore this issue to the file of AO with the direction to decide the whole appeal afresh after providing opportunity of being heard to the assessee."
5 In pursuance to the aforesaid directions of the ITAT, the AO In the revised assessment reduced the addition of Rs.7,17,000/-by Rs. 44,000,since one of the depositor Shri Thakorbhai N Patel in his statement accepted that he had invested Rs.44,000/- in the assessee-company for purchase of shares. Accordingly,addition was reduced to Rs. 6,73,000, the assessee having failed to establish the 5 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 genuineness of the transactions and the creditworthiness of the remaining creditors.
5.1 As regards addition of Rs.42,14,600/-, as mentioned in para V of the assessment order, the assessee produced the following persons out of 57 for examination u/s 131 of the Act:-
01. Liyakat Ali Amin Saiyed 225000
10. Khalil Rafiq Saiyed 300000
16. Ahid Hanif Saiyed 115000
17. Jahid Hanif Saiyed 115000
27. Saif Ali Khan 19000
34. Vinod Kumar 19000
36. N S Rani 19000
42. Hasmukhbhai B Patel 19000
45. Amir Khaya 19000
46. Jayantibhai M Patel 25000
53. Abdul R Shaikh 19000
54. Dineshbhai K Ahair 19000
56. Yusuf Saiyed 19000
57. Vasimbhai Shaikh 19550
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836550 After verification, the AO concluded that the assessee proved the genuineness of some of the aforesaid share applicants assessed to tax while the others, who were not assessed to tax ,the assessee established their credit worthiness and mode of transactions. Accordingly, the AO reduced the addition to Rs.33,78,138/- [42,14,600 - 8,36,550],the assessee having failed to establish the genuineness of transactions and creditworthiness of Sajid Salim Saiyed(Rs. 3,00,000/-),Jahid Hanif Saiyed(Rs.1,15,000/-),Mehmood Amin Saiyed (Rs.2,10,000/-)& Ramjan Ayub Saiyed(Rs.1,70,000/-), who were minors and not assessed to tax nor the assessee submitted any evidence about sources of their income oreven in respect of their income having been taxed in the hands of their guardians. Further ,on examination of the ladies Smt. Sehwaz Saukat Saiyed(Rs.2,17,500/-),Smt. Kulsum Mohemdali Saiyed(Rs.2,25,000/-), Smt. Noorbanu Amin Saiyed(Rs.2,00,000/-
6IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 ),Smt. Hazra Rafio Saiyed(Rs.1,70,000/-), Smt. Noorjahan Ayub Saiyed(Rs.2,10,000/-), Smt. Safiya Yasin Saiyed(Rs.2,25,000/-), Smt. Hamida Salim Saiyed(Rs.2,00,000/-), Miss Firos Ayub Saiyed(Rs.1,40,000/-),and Smt. Aklima Hanif Saiyed(Rs.1,40,000/-), the AO concluded that the assessee could not establish either genuineness of the transactions or creditworthiness of these ladies. Accordingly, the AO added Rs.17,27,500/- u/s 68 of the Act, inter alia, on the ground these ladies did not have any source of income and had shown deposits out of loans and transfer from Shri Amin Yasin Saiyed..assessee. Since the assessee did not produce the remaining persons mentioned on page 14 & 15 of the assessment order nor their addresses were given while even their creditworthiness was not established nor the genuineness of transactions, the AO added the amount shown against their names u/s 68 of the Act, relying inter alia, on the decisions in the case of A Govindrajulu Mudailiar vs. CIT,34 ITR 807(SC),CIT Vs. Precision Finance (P) Ltd.,208 ITR 465(Cal.),CIT Vs. United Commercial & industrial Co. (P) Ltd.,187 ITR 596(Cal.),Oriental W ire Industries (P) Ltd.,131 ITR 688(Cal.), C Kant & Co. vs. CIT,126 ITR 63(Cal.),Prakash Textile Agency Vs. CIT,121 ITR 890(Cal.) , Shankar industries vs. CIT,114 ITR 689(Cal.) and MA Uneeri Kutty vs. CIT,198 ITR 147(Ker),affirmed by Supreme Court in 201 ITR 23(st.) apart from decision in Veltra Deoraj & Co. vs. CIT,68 ITR 708(Bom.) and CIT Vs. Kundan Investment Ltd.,25 SITC 266.In nutshell , original amount added u/s 68 of the Act was reduced to Rs. 6,73,000/- and Rs. 33,78,138/- ,totalling to 40,51,138/-. Here it may be pointed that nowhere the AO pointed out the component of share capital or unsecured loans while making the addition of 33,78,138/-.
6 On appeal, the assessee surrendered an amount of Rs.7,95,000/- attributed to the minors as mentioned in para 4.1 of the appellate order dated 8.12.2004. After considering the 7 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 submissions of the assessee, the ld. CIT(A) upheld the findings of the AO in the following terms:-
"3 The appellant company was set up to manufacture craft paper. Sources of investment include cash credits and share deposits from persons of insubstantial means. The assessing officer made an addition of Rs.55,83,868/- in respect of unproved cash credits and share deposits. In reassessment this addition has been brought down to Rs.40,51,138/-.
4.1 The case in appeal is represented by Shri V.V.Bhagal, Advocate. Shri Bhagat has filed a letter before me conceding an addition of Rs.7,95,000/- representing the following:
Sajid Salim Saiyed Rs. 3,00,000/-
VahidHanifSaiyed Rs. 1,15,000/-
Mehmoob AminSaiycd Rs. 2,10,000/-
Rajman Ayub Saiyed Rs. 17,000/-
-----------------
Rs. 7,95,000/-
These share applicants were minor at the lime the shares were shown Io have been purchased. No evidence at all was filed in support of their genuineness. After considering these additions which are now admitted as non-genuine, the disputed additions work out to Rs.32,37,050/- [Rs.6,73,000 + Rs.25,64,050].
4.2 Shri Bhagat further submits as follows vide his letter dated 07-12- 2004:
The details regarding the present position of share holders creditors are yet to be worked out. This could not be worked out as there was a occasion of marriage in family of directors.
5 The assessment order discusses facts relating to the deposits representing the addition. I agree with the AO that the genuineness of the cash credits / share deposits has not been established. The appertaining facts are fairly indicative of non-genuineness. For instance, Shri Yasmin Saiyed who made a share deposit of Rs.1,00,000/- as per record, made the deposit out of gifts received. The agriculturist depositors have claimed unrealistic receipts from agriculture. Some others too have shown investments out of gifts. The assessment order gives adequate justification for the disallowance. The observations of the AO in the context of share deposits of Rs.17,27,500/- made in the names of nine ladies are reproduced below:8
IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 From examination of the above u/s 131 of the Act, it come to my notice as under:
01 Most of the ladies are of family members of the Saiyed Group.
02 Though the assessee has shown identity of the lenders, it is not proved credit worthiness and mode of transaction by the assessee.
03 No bank account has been produced. All the transactions are in cash only.
04 All the lady members has shown to have been deposited out of loan and transfer from Shri Amin Yasmin Saiyed.
However, no account of Amin Yasmin Saiyed is produced before me.
05 They have not earned any income in the past.
06 No creditworthiness has been proved.
07 The above said deposits is nothing but unaccounted money of the assessee company introduced in the books of accounts by way of share application money through family members to have been received by them as loan.
08 No proof of returning loan to have been established nor proof of share allotted have been produced.
Considering the above facts the assessee has not proved genuineness of the share application money credited in the books of account and no creditworthiness of the lenders and transaction have been found genuine.
6 The genuineness of the cash credits / share deposits has not been established in course of the appellate proceedings too. I am therefore satisfied that the additions have bee made for sufficient cause. The additions are upheld."
7 On further appeal by the assessee, the ITAT Ahmedabad Bench-C vide their order dated 03-03-2006 in ITA
No.3933/Ahd/2004, restored the matter back to the file of the ld. CIT(A) with the following observations:-
"6. The ld. AR submitted that the CIT(A) has not considered all facts. The CIT(A) did not provide sufficient opportunity of hearing. The AR drew our attention on assessee's letter dated 7-12-2004 which has been reproduced by the CIT(A) in his order as under:-
"Shri Bhagat further submits as follows vide his letter dated 7-12- 2004:9
IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 The details regarding the present position of share holders creditors are yet to be worked out. This could not be worked out as there was a occasion of marriage in family of directors."
7. The ld. AR further submitted that a discretion has been conferred on the A.O. under Section 69 of the Act to treat the source of investment as the income of the assessee if the explanation offered by the assessee is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case. The ld. AR in support of his contention relied upon the judgement of Apex Court in the case of CIT Vs.S;m.P.K.Noorjahan 237 JTR 570 (SC). The ld. AR has also relied upon the decision of the Gujarat High Court in the case of Mitesh Rolling Mills (P) Ltd. Vs. CIT (258 ITR 278) (Guj.) and decision of Rajasthan High Court in the case of Baroda Synthetics Ltd. Vs. ACIT (2005) 197 CTR (Raj.) 432.
8. The Id. DR on the other hand relied upon the order of CIT(A) and submitted that the assessee has failed to., discharge its burden. He relied upon the decision reported in 47 ITD 374 (Delhi), 126 ITR 663, 148 ITR 689, 208 ITR 465. The Id. DR further submitted that decision relied upon by the ld. AR in cast of CIT Vs. Smt.P.K.Noorjahan (supra) is distinguishable on facts.
9. We have considered the rival submissions and perused the record and gone through the decision cited. It has been noticed that the assessee did not work out the details regarding present position of shareholders, creditors on account of marriage in the family Of Directors. Thus, assessee could be provided sufficient time to put their case. We find that the C1T(A) has confirmed the addition whereat considering the explanation and, details in individual case, he simply relied upon a consolidated view. In this regard, we would" like to refer the finding of Hon'ble Gujarat High Court in the case of Mitesh Rolling Mills (P) Ltd. Vs. CIT (supra), which is asunder:-
''In the instant case, the Tribunal did not at all consider any of aforesaid aspects. After considering the finding which weighed with the Tribunal in confirming the order of the Commissioner of Income- tax (Appeals), it appears that the Tribunal proceeded on the footing that since the assessee did not offer any explanation for the cash credit entries, the amounts in question had to be treated as income under section 68 of the Act. Since that approach is not in consonance with the law laid down by the apex court in Smt.P.K.Noorjahan's case [1999J 237 ITR 570, we are of the view that the matter is required to be remanded, to the Tribunal for taking a fresh decision in the matter in accordance with law after applying the test laid down by the apex court in CIT Vs. Smt.P.K.Noorjahan [1999] 237ITR 570; Roshan Di Hatti V. CIT [1977] 107 ITR 939 (SC) 10 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 and CIT Vs. Bharat Engineering and Construction Co. [1972] 83 ITR 187 (SC)."
10 In the light of above discussion and keeping in view the above finding of jurisdictional High Court, we find it appropriate to send back this matter to the file of CIT(A) to decide the matter a fresh in accordance with law after providing reasonable opportunity of hearing to both sides."
8 In pursuance to the aforesaid directions of the ITAT, the CIT(A) in the impugned order concluded in the following terms:
2. In response to the notice of hearing, Shri V. V. Bhagat, Advocate attended and filed written submission which is placed on record. The case is discussed with him.
3. The only issue raised before the Hon'ble ITAT and the contention raised by the appellant are such that the share deposits and loans taken by the appellant company are genuine and CIT(A) ought to have accepted the same. The essence of the contention is narrated below:
"Out of total addition of shares deposits and loans of Rs.6,73,000/--
+ Rs.33,78,138/- = 40,51,138/-, Rs.7,95,000/- has been conceded by your appellant at C1T(A) stage and hence the addition of Rs.6,75,000/- + Rs.25,83,138/- = Rs.32,56,138/- is in dispute.
For various reasons and based on evidences produced before the ACIT and CIT(A), the share deposits and loans are genuine and therefore the addition of Rs.32,56,138/- made u/s. 68 and remaining in dispute may be allowed."
4 Since the issue involved requires consideration of pertinent facts and appreciation of evidences, a remand report was asked from the AO vide this office letter No.CIT(A)/VLS/l55/06-07 dated 30.5.2006. In response to the same, the AO has sent remand report vide her office letter No.ACIT/V.C./Vapi/SPML/2005-06 dated 17.7.2006.
5 While giving a fresh opportunity to the appellant, the AO requested the appellant vide her letter dated 15.6.2006 to furnish the following details:
1. confirmation letters from the depositors along with detailed name and address.
2. Assessment details in respect of the depositors such a copy of the return of the relevant year in which the deposits were made along with copies of balance sheet and capital account.11
IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7
3. Copy of bank account for the year in which the deposits were made by the depositors.
Since the above details are vital to examine the issue at hand the AO rightly required the same.
The appellant, even during the remand report proceedings could not file details to the satisfaction of the AO. The appellant's submission is reproduced below:
1. "The copy of confirmation of the depositors -with name & address are filed here with.
2. Since almost 13 years have been passed now, it is difficult to get the assessment record of the depositors.
3. Copy of bank account of depositors could not be obtained as they say that it is their private matter and they cannot disclose to us.
However, we have produced our copy of bank a/c. All the deposits are a/c. pay order or draft or by a/c payee cheques only. All these details are place at the time of original assessment also"
6. It is obvious that even when the opportunity given at the remand report stage the appellant has nothing new to offer by way of evidence except what has already been filed during the original assessment proceedings which were rejected after detailed examination by the then assessing officer. The AO has rightly pointed out that the appellant's plea that it is a matter that is 13 years old and therefore, he does not have the relevant information is an insupportable argument as the onus to prove the genuineness of the unexplained loans/share deposits is upon the appellant. It is quite clear that the onus to prove its case is upon the appellant as the appellant is in appeal and not the department. Therefore, in the instant case the appellant has failed to discharge his onus. In that case it would not be unfair to conclude that the appellant has failed to prove that the unexplained loans/share deposits are genuine.
There is no merit in the appellant's argument that the depositors now refused to give details as they think it is a private matter. Looking to the totality of facts the AO has rightly recommended in the remand report to uphold the addition after placing her reliance on the decision of Hon'ble Courts where in a ratio has been laid down that, it is for the assessee to establish the genuineness of all the depots in his books. Hon'ble Gujarat High Court in the case of Bomin P. Ltd. V/S. OIT 160 ITR 477 has ruled out that that section 68 enjoins the assessee to offer an explanation about nature and source of any sum found credited in the books of accounts for any previous year. And if there is no explanation or if the explanation is unsatisfactory in the opinion of assessing officer, the sum so credited is to be treated as income and brought to tax accordingly. The assessee has to 12 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 prove the identity of the creditor, credit worthiness of the creditor and genuineness of the transaction. It has been rightly held that any transaction even though bank is not conclusive evidence about its genuineness. As held by the Hon'ble Calcutta High Court in the ease of M/S. Precision Finance P. Ltd. 208 ITR 465, loans through bank also cannot be accepted as genuine unless the identity and credit worthiness of the creditor is established and genuineness of the transaction is proved.
8 On the basis of the above factual matrix of the case, I am constrained to hold that the AO is justified in making and the then CIT(A) has rightly upheld the addition of Rs.32,56,138/- out of total addition of shares deposits and loans of Rs.6,73,000/- + Rs.33,78,138/- =Rs.40,51,138/-The appellant has grossly failed to discharge his burden to prove the genuineness of the transaction as well as the credit worthiness of these depositors or share depositors. The appellant's contentions are therefore rejected.
9 In the result, the appeal is dismissed after careful appreciation of facts and having held that the appellant failed to discharge his legal onus in spite of giving reasonable opportunity to prove its case."
9 The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). The learned AR on behalf of the assessee while carrying us through pages 1 to 6, 23, 49 , 66 & 114 of the paper book submitted that the dispute relates to the addition of Rs.32,56,138/- u/s 68 of the Act. The said addition comprises three amounts; Rs.6,73,000/- of which Rs.1,00,000/- is on account of share capital and Rs.5,73,000/- on account of unsecured loans; Rs.8,55,550/- was on account of share capital and Rs.17,27,500/- on account of unsecured deposits. It was pleaded that though the ld. CIT(A) referred to the observations of the ITAT in the impugned order, he did not consider the decision of the Hon'ble Gujarat High Court in the case of Mitesh Rolling Mills P. Ltd. vs. CIT (2002) 258 ITR 278 (Guj). As regards share capital, the learned AR contended that in view of the decision in the case of CIT Vs. Lovely Exports Ltd.,216 CTR(SC) 195, Uma Polymers (P) Ltd. vs. DCIT (2006) 100 ITD 1 (Jodhpur) (TM), CIT vs. Pragati Co-operative Bank Ltd. (2005) (2005), 278 ITR 170 (Guj), and Murlidhar Lahorimal Vs. CIT,280 ITR 512 (Guj), the addition u/s 68 of the Act was not justified. On the 13 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 other hand, the learned DR while referring to page 2 of the impugned order of the ld. CIT(A) contended that the ITAT had restored the issue to the file of the CIT(A) on the plea of the assessee that details regarding the present position of the shareholders and creditors could not be submitted due to the marriage in the family of the directors. Since the assessee did not furnish any further details, there was no ground for interference with the findings of the CIT(A). W hile referring to the decision of the Hon'ble Gujarat High Court in the case of Bomin P. Ltd. vs. CIT (1986) 160 ITR 477 (Guj), C. Kant & Co. vs. CIT (1980) 126 ITR 63 (Cal) and Addl. CIT vs. Hanuman Agarwal (1985) 151 ITR 150 (Pat), the learned DR contended that the assessee having failed to establish the creditworthiness of any of the depositors, the addition upheld by the CIT(A) should be sustained, especially when no new facts have been brought to the notice of the CIT(A).In his rejoinder, the learned AR contended that this being the first year of the operations of the company, no addition could have been made u/s 68 of the Act since all the relevant details and confirmations were duly filed before the AO as pointed out in reply of the assessee placed at pages 220 to 225 of the paper book
10. W e have heard both the parties and gone through the facts of the case as also the decisions relied upon. As is apparent from the earlier order dated 3.3.2006 of the ITAT, matter was remanded to the ld. CIT(A) on the plea on behalf of the assessee that the details regarding the present position of share holders & creditors could not be worked out as there was a marriage in the family of directors. In these circumstances, the ITAT directed the ld. CIT(A) to consider the decision of the Hon'ble jurisdictional High Court in the case of Mitesh Rolling Mills (P) Ltd. Vs. CIT (258 ITR 278) (Guj.) and decide the matter afresh in accordance with law after providing reasonable opportunity of hearing to both the sides. Though the asseesse, undisputedly, did not place any further material before the ld. CIT(A), the latter also did not advert to the observations of the Hon'ble jurisdictional 14 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 High Court in the case of Mitesh Rolling Mills (P) Ltd.(supra), referred to by the ITAT in their order. In the instant case, we find that the aforesaid amount of Rs. 32,56,128/- includes an amount of Rs. 1 lac towards share capital by shri Yasin Hussain Saiyed, embedded in the addition of Rs.6,73,000/-. Though there is no specific finding in the assessment order dated 8.3.1996 as to whether amounts of Rs.8,55,550/- & Rs.17,27,500/- were towards unsecured loans or share capital, in the subsequent assessment order in pursuance to directions of the ITAT, these two have been attributed to share capital by the AO and consequently, the ld. CIT(A) also upheld the additions ,treating the amount towards share capital. Even in the impugned order , the ld. CIT(A) have not recorded his findings as to whether or not the amount Rs. 33,78,138/- was towards share capital. However, before us, the ld. AR on behalf of the assessee while inviting our attention to the relevant page 66 & 113 of the paper book submitted that the amount of Rs.8,55,550/- was on account of share capital and Rs.17,27,500/- on account of unsecured deposits.
10.1 As regards share capital, Hon'ble Delhi High Court in CIT Vs. Sophia Finance Ltd.,205 ITR 98(Del)(FB),enunciated that s. 68 reposes in the AO, the jurisdiction to inquire from the assessee, the nature and source of the sum found credited in its books of account. If the explanation offered by the assessee is found not to be satisfactory, further enquiries can be made by the AO himself, both in regard to the nature and the source of the sum credited by the assessee in its books of account, since the wording of s. 68 is very wide. The Full Bench opined that- "If the shareholders exist then, possibly, no further enquiry need be made. But if the ITO finds that the alleged shareholders do not exist then, in effect, it would mean that there is no valid issuance of share capital. Shares cannot be issued in the name of non-existing persons........ If the shareholders are identified and it is established that they have invested money in the purchase of shares then the amount received by the company would be regarded as a capital receipt but if the assessee offers no explanation at all or the explanation offered is not satisfactory then, the provisions of s. 68 may be invoked". It is 15 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 apparent that the Court had not reflected upon the question as to whether the burden of proof rested entirely on the assessee, and at which point, if any, this burden could justifiably be shifted to the AO. The Full Bench, in fact ,clarified that they were not deciding as to whom and to what extent is the onus to show that an amount credited in the books of account is share capital and when does that onus stand discharged. This will depend on the facts of each case. Recently, Hon'ble Apex Court while affirming the order of the Hon'ble Delhi High Court in CIT Vs. Lovely Exports (Pvt. ) Ltd. & CIT Vs. Divine Leasing & Finance Ltd.,299 ITR 268(Del.) in 216 CTR (SC) 195 held that if the share application money is received by the assessee company from the alleged bogus shareholders, whose names are given to the AO, then the Department is free to reopen their individual assessments in accordance with law. Thus, the Hon'ble Apex Court held that in such circumstances, the amount received towards share capital of the company cannot be regarded as undisclosed income of the company. This view was later reiterated by the Hon'ble Apex Court in another decision dated 21.1.2008 in CIT Vs. Shipra Retailers(P) Ltd. in civil appeal no.CC451 of 2008. The said decision in Lovely Exports (P) Ltd.(supra) has recently been followed by the Hon'ble Chhatisgarh High Court in ACIT Vs. Venkateshwar Ispat P Ltd.,319 ITR 393 & by Hon'ble Delhi High Court in Bhavshakti Steel Mines P Ltd.,320 ITR 619(Del.).
10.11 In the instant case undisputedly, an amount of Rs. 1 lac embedded in the addition of Rs. 6,73,000/-, was attributed to the share capital[page 49 of the PB] and there is no dispute that the shareholder is not identifiable. As regards the addition of 8,55,550/-, though the ld. AR contended before us that the amount is towards share capital, a bare perusal of confirmations placed at pages 66 to 112 of the PB reveal that only an amount of Rs. 3 lacs attributed to persons at sl. no. 1 to 6 appears to be towards share capital while remaining amount is towards unsecured loans. Like wise, only an amount of Rs. 7.12 lacs embedded in the addition of Rs. 17,27,500/- appears to be towards share capital and the remaining towards unsecured loans as appearing from confirmations placed at page 114 to 217 of the PB. Since the appeal pertains to the AY 1993-94 and twice the ITAT have remanded the matter on earlier occasions, we do not think it proper to restore the matter again to the file of the AO or the ld. CIT(A) in order 16 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 to identify share capital and unsecured loans embedded in the additions of Rs. 8,55,500/- and Rs. 17,27,500/- and record their findings, accordingly. In these circumstances, the matter is being decided in accordance with facts brought to our notice by the respective parties and as we understood on perusal of the relevant documents in the paper book submitted before us. As is apparent from the confirmations of the respective parties, only an amount of Rs. 3 lacs out of Rs. 8,55,500 & Rs. 7.12 lacs out of Rs. 17,27,500 is towards share capital. In these facts and circumstances, in the light of view taken in the aforesaid decisions by the Hon'ble Apex Court, ,especially when the existence of aforesaid shareholders has not been doubted, we have no alternative but to vacate the findings of learned CIT(A) and delete the aforesaid additions on account of share capital .
10.2 As regards the aforesaid remaining addition of Rs.5,73,000/-, we find that the this amount comprises loan amounts in the names of following persons:
1. Yasin Hussain Saiyed Rs.1,25,000
2. Sharif Jamal Rs.2,00,000
3. Yunus Sharif Rs.1,39,000
4. Ayub Mohid Husain Rs. 69,000
5. Amin Sadiq Qureshi Rs. 40,000 The aforesaid amounts were stated to be brought in by Yasin Husain Saiyed, Shri Sharif Jamal & Shri Amin Sadiq Qureshi on various dates between 15.9.1992 to 30.3.93 through pay orders/cheques out of their agricultural income and their confirmations are placed on page 51 to 64 of the paper book. However, neither the dates nor the mode of receipt nor any confirmation or the source of receipt and the evidence thereof in respect of amount of Rs. 1,39,000/- in the name of Yunus Sharif & Rs. 69,000/- in the name of Ayub Mohid Husain appears to have been submitted before the lower authorities nor even before us any material has been referred to .17
IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 10.3 As regards addition of Rs. 8,55,550/-, as already pointed out, an amount of Rs. 3 lacs is attributed to share capital in respect of persons mentioned at sl. no.1 to 6 on page 66 of the paper book and the remaining amount of Rs.5,55,550 in respect of persons mentioned at sl. no.1 & & 7 to 31 has been brought in between 27.11.1992 to 30.3.1993 by way of unsecured loans and their confirmations are placed in the paper book.
10.4 Likewise in respect of amount of Rs. 17,27,500/- brought in on various dates between 17.12.1992 to 12.3.1993 through POs/Cheques and even in cash, in the name of following nine ladies [page 113 of the paper book] :
Sr. Name of the person Amount Remarks Pages of the
No. Paper Book
1 Smt. Sehwax 217500 Confirmation 114 to 123
Saukat Saiyed Attached
2 Smt. Kulsum 225000 " 124 to 133
Mohemadali Saiyed
3 Smt. Norrbanu 200000 " 134 to 146
Amin Saiyed
4 Smt. Hajra Rafiq 170000 " 147 to 159
Saiyed
5 Smt. Noorjahan 210000 " 160 to 172
Ayub Saiyed
6 Smt. Safiya Yasin 225000 " 173 to 186
Saiyed
7 Smt. Hamida Salim 200000 " 187 to 199
Saiyed
8 Miss. Firdos Ayub 140000 " 200 to 205
Saiyed
9 Smt. Aklima Hanif 140000 " 206 to 217
Saiyed
1727500
Even though the ld. AR stated that the said amount is on account of unsecured loans, we find from their confirmations placed in the paper book that an amount of Rs. 7.12 lacs has been attributed to share capital while remaining amount of Rs.10,15,500/- is on account of unsecured loans.
18IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 10.5 The ld. AR argued that this being the first year of operations of the company and turnover being only Rs. 88,000/-, addition on account of share capital or unsecured loans,having recourse to provisions of sec. 68 was not justified, inter alia, in the light of view taken by the Hon'ble Gujrat High Court in Mitesh Rolling Mills P. Ltd.(supra). W e find that despite directions of the ITAT in their order dated 3.3.2006, the ld. CIT(A) without adverting to the aforesaid decision of the Hon'ble jurisdictional High Court, upheld the addition of Rs. 32,56,138/- besides the amount Rs. 7,95,000/ surrendered by the assessee before the ld. CIT(A) as mentioned in the appellate order dated 8.12.2004. As already pointed out , in the case CIT vs. Sophia Finance Ltd. (1993) 113 CTR (Del)(FB) 472 :(1994) 205 ITR 98 (Del)(FB), the Full Bench of the Hon'ble High Court did not lay down any norms for deciding the extent of onus of proof of the amounts credited, when they observed :
'We make it clear that we are not deciding, nor it is our intention to decide as to on whom and to what extent is the onus to whom that an amount credited in the books of account is share capital and when does that onus stand discharged. This will depend upon on the facts of each case.' This significant observation of the Court clearly points out a subtle distinction between an ordinary cash credit and a credit by way of share capital. Apparently, the Court had in its mind the comprehensive law contained in the Companies Act, 1956, on the acceptance of share application money and allotment of shares in consideration therefor. While in the case of ordinary loans obtained, there are overwhelming judicial decisions to say that the onus is on the assessee to prove not only the identity of the creditor, but also to establish the genuineness of the transaction and the creditworthiness of the creditors. These things have to be proved prima facie by the assessee and only after the assessee has adduced evidence to establish prima facie the aforesaid ,the onus shifts on to the Department. Merely establishing the identity of creditor is not enough[Shankar Industries,114 ITR 689(Cal),C.Kant & Co. vs. CIT,126 ITR 63(cal.) & CIT Vs. Precision Finance Pvt. Ltd.,208 ITR 465(Cal.).Further the assessee is not required to explain the source of source as has been held in the case of Sarogi 19 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 Credit Corporation vs. CIT 1975 CTR (Pat) 1 : (1976) 103 ITR 344 (Pat). In the said case it has been held that once the identity is established and the creditor pledged with oath that they have advanced the amount in question to the assessee, the burden shifts to the Department to show as to why it must be held that entry, though purporting to be in the name of third party, still represented the income of the assessee from suppressed sources. However, in the instant case there is no material to show that share application money or for that matter unsecured loans in the name of persons whose confirmations were submitted before the AO were of the assessee-company. The fact that some of the investors got the pay orders and loans from different persons, is a matter for enquiry in the hands of the said investors and not in the case of the assessee- company. Similarly, the discrepancies found in the account of some of investors is a cause to make enquiry in their cases. Further, the fact that all the unsecured loans from the creditors, whose confirmations were filed before the AO were received by the assessee before the commencement of the business or immediately thereafter, has not been disputed by the Revenue. In CIT v. Bharat Engineering and Construction Co. [1972] 83 ITR 187 , the assessee was an engineering construction company, which commenced its business in May, 1943 but there were several cash credit entries in the first year of its business amounting to Rs. 2.5 lakhs The assessee was called upon to explain such credit entries. The explanation of the assessee did not find favour with the AO, the CIT(A) nor the Tribunal. However, the Tribunal deleted the addition by taking the plea that such cash credit entries could not represent the income or profit of the assessee as they were all made very soon after the company commenced its activities. In this manner, the Tribunal took the view that in the very nature of things the assessee could not have earned such huge amount of profit very soon after it commenced its activities. The Apex Court, in the above background inferred that it was reasonable to assume that such credit entries were capital receipts although for one reason or another, the assessee had not come out with the true story as regards the persons from whom such amounts were received. The Apex Court, thus, approved the findings of the Tribunal.20
IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 10.51 In CIT v. Smt. P. K. Noorjahan [1999] 237 ITR 570, Hon'ble Apex Court while construing section 69 of the Act observed that the intention of Parliament in enacting section 69 was to confer a discretion on the Income-tax Officer in the matter of treating the source of investment which has not been satisfactorily explained by the assessee as the income of the assessee and the Income-tax Officer is not obliged to treat such source of investment as income in every case where the explanation offered by the assessee is found to be not satisfactory.
The question whether the source of the investment should be treated as income or not under section 69 has to be considered in the light of the facts of each case.
10.52 Even after rejecting the explanation given by the assessee, if found unacceptable, the crucial aspect whether on the facts and circumstances of the case it should be inferred that the sums credited in the books of the assessees constituted income of the previous year, must receive the consideration of the authorities provided the assessee rebut the evidence and the inference drawn to reject the explanation offered as unsatisfactory. Section 68 of the Act itself provides, 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 the previous year if the explanation offered by the assessee about the nature and source of such sums found credited in the books of the assessee is in the opinion of the Assessing Officer not satisfactory. Such opinion formed itself constitutes a prima facie evidence against the assessee, viz., the receipt of money, and if the assessee fail to rebut the said evidence, the same can be used against the assessee by holding that it was a receipt of an income nature. In the case in hand, the authorities concurrently found the explanation offered by the assessee unacceptable. The ld. CIT(A) upheld the opinion formed by the Assessing Officer that the explanation offered was not satisfactory.
10.53 In the light of observations of the Hon'ble jurisdictional High Court in Mitesh Rolling Mills P Ltd. vs. CIT,258 ITR 278(Guj), as extracted in the order dated 3.3.2006, which the ld. CIT(A) did not even consider in the impugned order despite specific directions, as also in the light of observations of the Apex Court in Smt. P. K. Noorjahan's case [1999] 237 ITR 570 (SC) and CIT v. Bharat 21 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 Engineering and Construction Co. [1972] 83 ITR 187 (SC), we are of the opinion that although as a legal proposition, the provisions of the s. 68 do apply to each and every credit entry in the books of account to be maintained but the explanation of the assessee has to be considered depending on the facts and circumstances of each case in their entirety. Where source for the credit is identified by the assessee, however, the satisfaction is not proved by such persons, the attendant circumstances namely the absence of any commercial activity is a factor which cannot be said to be de hors while exercising the discretion of making an addition in terms of s. 68. In the instant case, we find that there is no denying the fact that certain amounts have been received by the assessee as share capital or as loan credits before the start of its commercial operations or even immediately thereafter and confirmations of such shareholders and creditors was placed before the AO and there being no material on record that such amounts were income of the company for the year under consideration, we are of the opinion that the ld. CIT(A) was not justified in upholding the addition made u/s 68 of the Act in respect of those creditors, whose confirmations were placed before the AO.
11. In view of the foregoing, out of impugned addition of Rs. 32,56,138/-, addition of Rs. 1,39,000/- in the name of Yunus Sharif & Rs. 69,000/- in the name of Ayub Mohid Husain, whose confirmations or even date when amount was brought in or the nature of receipt or any material/evidence in respect of sources of the amount, have not been placed before us, is confirmed while the remaining is deleted.
12. As regards ground no. 2 relating to levy of interest u/s 234A,234B and 234C of the Act, the ld. AR on behalf of the assessee did not make any submissions on this ground. The levy of interest u/s 234A,234B & 234C of the Act being mandatory [Commissioner Of Income Tax. vs Anjum M. H. Ghaswala And Others,252 ITR 1(SC), affirmed by Hon'ble Apex Court in the case of CIT v. Hindustan Bulk Carriers [2003] 259 ITR 449(SC) and in the case of CIT v. Sant Ram Mangat Ram Jewellers [2003] 264 ITR 564(SC)], this ground is dismissed.
22IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 However, the AO may allow consequential relief ,if any, while giving effect to this order.
13. As regards ground no.3 in the appeal, since no appeal lies against mere initiation of penalty proceedings nor any submissions having been made before us on this ground, we have no alternative but to reject the said ground
14. No additional ground having been raised in terms of the residuary ground, this ground is also dismissed ITA No.1545/ Ahd/2007:
15. In this appeal filed by the assessee against an order dated 30-11-2006 of the ld. CIT(A), following ground has been raised:
"The ld. CIT(A) has erred in law and on facts in confirming penalty levied u/s 271(1)(c) by AO of Rs.23,29,404/- on the addition of cash credit u/s 68 of the Act that is wholly unsustainable in law and on facts and as such when the Appellant has discharged the onus of having established the genuineness of the transaction by submitting the identity and confirmation of the depositors. Both the lower authorities have failed to appreciate the fact that the Appellant has neither furnished inaccurate particulars nor concealed any income and held that simply because addition is sustained, penalty is leviable. The penalty levied being without any merits and justification requires to be quashed."
16. Facts, in brief, have already been narrated in the quantum appeal as aforesaid. W hile completing the assessment vide order dated 29.1.2004 , the AO added the following two amounts u/s 68 of the Act:-
1. Investment in Share Capital Rs.673000/-
by the Agriculturists not treated as genuine
2. Investment in Share Capital Rs.3378138/-
by others treated as cash credit
-----------------
Rs.4051138/-
23IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 Inter alia, the AO initiated penalty proceedings u/s 271(1)(c) of the Act on the ground that the assessee furnished inaccurate particulars of income in respect of the aforesaid two amounts. After dismissal of appeal of the assessee by the learned CIT(A)-I, Surat vide his order No. CIT(A)/VLS/339/03-04 dated 8-12-2004, in response to a showcause notice before levy of penalty ,the assessee vide their letter dated 18-2-2005 replied as under:-
"As regards addition of Rs.673000/- we have to state that there are loans and share depositors from the confirmation and evidences produced, it is proved that the depositors are genuine, their identity is also proved. The disbelieving the explanation and taking the same u/s.68, would not amount to furnishing concealing the particulars of Income or filing inaccurate particulars of income. The onus is discharged by us. As regards addition of Rs.1727500/- the depositors were examined by the ACIT, on summons and they have categorically confirmed the share deposits. Thus the identity of the lender have been proved. They have purchased the shares of the company. They have accepted the position and acted as member. As regards addition of Rs.855550/-, the deposits could not be produced in persons as 10 years have lapsed. However they have confirmed that they have given the deposit for purchase of share and shares certificates have been issued. Their identity is proved by confirmation they have filed. They have accepted the position. As regards addition of Rs.795000/- we have conceded the addition at appeal stage for peace."
17. In the light of aforesaid reply on behalf of the assessee, the AO rejected the contentions of the assessee and levied a penalty of Rs. 23,29,404/- u/s 271(1)(c) of the Act, on the ground that the assessee furnished inaccurate particulars of income, the assessee having not discharged the onus either during the assessment proceedings and even during the penalty proceedings, in respect of genuineness of the transactions and creditworthiness of the creditors/ shareholders in respect of amount of Rs.40,51,138/-.
18. On appeal, the assessee contended that the deposits of Rs.6,73,000/- were genuine, the depositors having confirmed the same and their identity is also proved. The assessee further explained that the share deposit amounts of Rs.17,27,500 & Rs. 8,55,550/- were confirmed by the shareholders.The share holders for an amount of Rs.8,55,550/- could not be produced in person as 24 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 13 years had elapsed. Since the deposits were confirmed, there was no room for penalty of Rs.23,29,404/- and the same may be deleted, the assessee pleaded.However, the ld. CIT(A) rejected the contentions of the assessee, in the following terms:
"5.3 It is obvious from the above that even when the opportunity given at the remand report stage, the appellant has nothing new to offer by way of evidence except what has already been filed during the original assessment proceedings which were rejected after detailed examination by the then assessing officer. The AO has rightly pointed out that the appellant's plea that it is a matter that is 13 years old and therefore, he does not have the relevant information is an insupportable argument as the onus to prove the genuineness of the unexplained loans/share deposits is upon the appellant. It is quite clear that the onus to prove its case is upon the appellant as the appellant is in appeal and not the department. Therefore, in the instant case the appellant had failed to discharge his onus. In that case it would not be unfair to conclude that the appellant has failed to prove that the unexplained loans/share deposits are genuine. 5.4 One can clearly infer from the facts stated above that there is no merit in the appellant's argument that the depositors now refused to give details as they think it is a 'private matter'. It was held in the quantum appeal order that the AO has rightly made the addition after placing her reliance on the decision of Hon'ble Courts where in a ratio has been laid down that, it is for the assessee to establish the genuineness of all the deposits hi his books. Hon'ble Gujarat High Court in the case of Bomin P. Ltd. V/S. CIT 160 ITR 477 has ruled out that that section 68 enjoins the assessee to offer an explanation about nature and source of any sum found credited in the books of accounts for any previous year. And if there is no explanation or if the explanation is unsatisfactory hi the opinion of Assessing Officer, the sum so credited is to be treated as income and brought to tax accordingly. The assessee has to prove the identity of the creditor, credit worthiness of the creditor and genuineness of the transaction. It has been rightly held that any transaction even though bank is not conclusive evidence about its genuineness. As held by the Hon'ble Calcutta High Court in the case of M/S. Precision Finance P. Ltd. 208 ITR 465, loans through bank also cannot be accepted as genuine unless the identity and credit worthiness of the creditor is established and genuineness of the transaction is proved.
5.5 Since the appellant had failed to establish genuineness of the transactions and prove worthiness of the creditors, the addition was made as the appellant failed to discharge its onus. The AO therefore had reasons to believe that cash credit of Rs.40,51,138/- is nothing but income of the assessee, which has been credited in 25 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 the guise of bogus cash credits without making payment of taxes thereon. The AO therefore imposed penalty after having been satisfied in concluding that the appellant had filed inaccurate particulars of income and thereby concealed the income and therefore, minimum penalty of Rs.23,29,404/-was imposed. 5.6 During the appellate proceedings, the AR argued before me that the appellant had filed confirmations and affidavit from the depositors. The AR also argued that the appellant had filed proofs for identity of these depositors and Share depositors. The AR further argued that it is not open to the AO to levy penalty only because addition is sustained. The AR also argued that the AO should have proved positive act or deliberate act of biding or holding something back. Merely because the cash credits are disbelieved, no penalty can be imposed. The AO should have brought out on record that the appellant's own unaccounted monies were introduced in the guise of Cash credits and Share deposits. The AR argued that the AO has not appreciated these facts and imposed penalty. Penalty can not be imposed only because it is lawful to do so. According to the AR it is a matter of believing or not believing the explanation offered by the appellant and not adducing any evidences against the appellant. The AR contended that the appellant's case is not a fit case for levying the concealment penalty as the matter involves appreciation or otherwise of the evidences filed and placed on record.
5.7 I have considered the arguments of the appellant as well as the observation of the AO in the penalty order. On the basis of the above factual matrix of the case, I am of the considered view that the AO is justified in imposing penalty of Rs.23,29,404/- as the appellant has grossly failed to defend the quantum addition by filing credible evidences. The appellant has failed to discharge the onus cast upon it in proving the genuineness of the transactions and in proving the worthiness of the depositors. It is definitely a case where in the conclusive analysis of facts do suggest that the appellant had introduced certain cash credits and share deposits and unsecured loans, which were later on not substantiated or explained-by it. It very well goes to lead an evidence to the effect that the what appellant did have as a cash credit of Rs.40,51,138/-, is nothing but income of the appellant, which has been credited in the guise of bogus cash credits without making payment of taxes thereon. After considering the totality of facts, I am satisfied that the AO has rightly imposed penalty u/s. 271(l)(c) of the Act, in case of the appellant. The appellant's Ground No-1 and 5 are Dismissed.
6. In Ground No.3 and 4, the appellant has raised such contention that the depositors have confirmed the deposit of Rs.6,73,000/- and share depositors have confirmed the share deposits of Rs.17,27,500/-. The appellant contented that these depositors are identified and they have confirmed their deposits.26
IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 6.1. The Ground No. 3 and 4 stated above have more relevance in the quantum appeal and have been separately dealt with while deciding the quantum appeal. These grounds do not find place in an appeal against the order passed u/s. 271(l)(c), which has been identified as a separate independent proceedings under the Act. Since these grounds have factual relevance with the quantum appeal, these grounds are summarily rejected. The appellant's Grounds No.3 and 4 are Dismissed."
19. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. AR on behalf of the assessee while relying upon the decision of the Hon'ble Gujarat High Court in the case of National Textiles v CIT 249 ITR 125 (Guj) and judgment dated 17.3.2010 of the Hon'ble Supreme Court in CIT Vs. Reliance Petro Products, arising out of SLP (C) No.27161 of 2008, contended that no penalty can be levied in this case on account of addition u/s 68 of the Act. On the other hand, the learned DR supported the findings of the CIT(A).
20. W e have heard both the parties and gone through the facts of the case as also the decisions relied upon. At the outset, we may point out that in an appeal against quantum addition in ITA no 1544/Ahd./2007, we have reduced the addition of Rs. 32,56,138 /- to Rs.2,08,000/- ,since in respect of the amount of Rs. 1,39,000/- in the name of Yunus Sharif & Rs. 69,000/- in the name of Ayub Mohid Husain, their confirmations or even date when amount was brought in or nature of receipt and any material/evidence in respect of sources of the amount have not been placed before us. In these circumstances, since the addition to the extent of Rs.30,48,138, forming the basis for levy of penalty, has been deleted by us vide our aforesaid order, penalty levied by the AO does not survive in relation to the said amount. Hon'ble Delhi High Court in the case of CIT Vs. R.Dalmia,(1992)107 Taxation 107, held that no penalty survives after deletion of additions, forming the basis for the levy of penalty. Hon'ble Supreme Court in the case of K.C.Builders Vs. ACIT,265 ITR 562(SC) held that ordinarily, penalty cannot stand if the assessment itself is set aside. Where an order of 27 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 assessment or reassessment on the basis of which penalty has been levied on the assessee, has itself been finally set aside or cancelled by the Tribunal or otherwise, the penalty cannot stand by itself and the same is liable to be cancelled. Accordingly, penalty in relation to the aforesaid amount of Rs. 30,48,138/- is cancelled ,since the very basis upon which the penalty has been imposed does not exist in view of our aforesaid order in ITA no.1544/Ahd./2007 .
21. As regards penalty in relation to the amount of Rs. 7,95,000/- on account of investment in the name of four minors surrendered before the ld. CIT(A), as pointed out in his order dated 8.12.2004 and on the aforesaid amount of Rs. 2,08,000/- comprising Rs. 1,39,000/- in the name of Yunus Sharif & Rs. 69,000/- in the name of Ayub Mohid Husain, the assessee merely submitted a general reply that they have discharged the onus laid down upon them. As regards the amount of Rs. 2,08,000/- it has merely been submitted that it was on account of their agricultural income, neither the date nor any evidence in respect of source of amount is on records nor this has been placed either before the AO/CIT(A) in assessment and penalty proceedings nor even before us. Regarding amount of Rs. 7,95,000/- in the name of minors, it was pleaded that this was surrendered in order to buy peace. The surrender of an amount relating to the AY 1993-94 in the second round of appellate proceedings before the ld. CIT(A), by no stretch of imagination can be said to be to buy peace. What is the basis and material for such an explanation, has not been explained before us by the ld. AR on behalf of the assessee, who merely relied upon a decision of the Hon'ble Gujrat High Court in the case of National Textiles(supra) in support of their contentions that no penalty can be levied in respect of an amount added u/s 68 of the Act. We are not convinced by this plea on behalf of the assessee. In terms of provisions of sec. 271(1)(c) of the Act read with explanation 1 thereto and the judicial pronouncements in the case of B.A. Balasubramaniam & Bros. Co. v. CIT [1999] 157 CTR 556(SC), CIT v. B.A. Balasubramaniam & Bros. [1984] 40 CTR (Mad.)/[1985] 152 ITR 529 (Mad.) , CIT v. Mussadilal Ram Bharose [1987] 60 CTR (SC) 34/[ 1987] 165 ITR 14 (SC); TC 28 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 50 R. 474; CIT v. K.R. Sadayappan [1990] 86 CTR (SC) 120; [1990] 185 ITR 49 (SC); TC 50 R. 795, Addl. CIT v. Jeevan Lal Sah [1994] 117 CTR (SC) 130; [1994] 205 ITR 244 (SC); TC 50 R. 973 and K.P.Madhusudanan vs. CIT,251 ITR 99(SC), it is well established that whenever there is difference between the returned and assessed income, there is inference of concealment. The explanation 1 to sec. 271(1)(c) of the Act raises a presumption that can be rebutted by the assessee with reference to facts of the case. Thus, the onus is on the assessee to rebut the inference of concealment. The absence of explanation itself would attract penalty. The explanation offered by the assessee should not be false. The onus laid down upon the assessee to rebut the presumption raised under explanation 1 would not be discharged by any fantastic or fanciful explanation. It is not the law that any and every explanation has to be accepted while mere offer of income by the assessee can not justify cancellation of penalty. Undisputedly, no cogent explanation has been given on account of difference of Rs. 7,95,000+ 2,08,000=10,03,000/- between the returned and assessed income and thus, onus laid down upon the assessee in terms of explanation 1 to sec. 271(1)(c) of the Act remains undischarged. Even other wise explanation of the assessee during the assessment proceedings that the amount of deposit of Rs. 2,08,000/-was out of agricultural income of the creditors, has not been substantiated nor it was bonafide and there is no evidence on record in this behalf. There is nothing to suggest that the assessee discharged their onus even during penalty proceedings. In nutshell , except making general statements regarding discharging of onus without even submitting the basic details either during the assessment proceedings or even in penalty proceedings, no acceptable explanation has been furnished before the AO or before the learned CIT(A) during the course of appellate proceedings in respect of the aforesaid amount of Rs.10,03,000/-, while there is no material before us to take a contrary view in the matter. Thus, it cannot be said that in such a case, there could be no scope for saying that the assessee is guilty of furnishing of inaccurate particulars of income of Rs. 10,03,000/-., warranting penalty under section 271(1)(c) of the Act.
29IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 21.1 The expression 'has concealed the particulars of income' and 'has furnished inaccurate particulars of income' have not been defined either in section 271 or elsewhere in the Act. However, notwithstanding the difference in the two circumstances, it is now well established that they lead to the same effect namely, keeping off a certain portion of the income from the return. According to Law Lexicon, the word "conceal" means:
"to hide or keep secret. The word 'conceal' is con+celare which implies to hide. It means to hide or withdraw from observation; to cover or keep from sight; to prevent the discovery of ; to withhold knowledge of. The offence of concealment is, thus, a direct attempt to hide an item of income or a portion thereof from the knowledge of the income-tax authorities."
In Webster's Dictionary, "inaccurate" has been defined as :
"not accurate, not exact or correct; not according to truth; erroneous ; as an inaccurate statement, copy or transcript."
21.2 Here we may refer to a decision of the Hon'ble Supreme court in the case of K.P.Madhusudanan vs. CIT,251 ITR 99(SC) , wherein it was held that "We find it difficult to accept as correct the two judgments aforementioned. The Explanation to section 271(1)(c) is a part of section 271. When the Income-tax Officer or the Appellate Assistant Commissioner issues to an assessee a notice under section 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation. By reason of the Explanation, where the total income returned by the assessee is less than 80 per cent. of the total income assessed under section 143 or 144 or 147, reduced to the extent therein provided, the assessee is deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, unless he proves that the failure to return the correct income did not arise from any fraud or neglect on his part. The assessee is, therefore, by virtue of the notice under section 271 put to notice that if he does not prove, in the circumstances stated in the Explanation,, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof and, consequently, be liable to the penalty provided by that section. No express invocation of the Explanation to section 271 in the notice under section 271 is, in our view, necessary before the provisions of the Explanation therein are applied. The High Court at Bombay was, therefore, in error in the view that it took and the Division Bench in the impugned judgment was right."
30IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 21.3 Moreover, it is a settled law that in economic offences, the statutory liability to pay either duty or tax is nothing but a strict liability where the question of proving beyond the shadow of doubt one's existence of bona fide belief that amount is not taxable does not arise. It goes without saying that any violation of the law or rules relating to economic offences, either relating to the payment of duty or tax as the case may be, the theory of mensrea is not attracted. In such matters, the rules of interpretation contemplate a strict interpretation rather than a liberal and wider interpretation. The breach of civil obligation which attracts a penalty under the provisions of an Act would immediately attract the levy of penalty irrespective of the fact whether the contravention was made by the defaulter with any guilty intention or not, vide Chairman, SEBI v. Shriram Mutual Fund [2006] 131 Comp Cases 591 (SC) ; [2006] 5 SCC 361. This view has been reiterated by the Hon'ble Supreme Court in their decision dated 29.9.2008 in the case of Union of India and others Vs. Dharmendra Textile Processors and others, in civil appeal nos.10289 -10303 of 2003, now reported in 306 ITR 227 (SC) 21.4 In Commissioner Of Income Tax.vs P. K. Narayanan.,238 ITR 905(Kerala), it was held that "So far as the legal proposition is concerned, there cannot be two opinions that under Explanation 1, a presumption will arise that if any addition made by the Assessing Officer is sustained by the appellate authority, then that will represent the concealed income of an assessee and the onus will be on the assessee to rebut the presumption. A presumption under Explanation 1 is obviously available, when an assessee fails to offer an explanation or offers an explanation which is found by the Assessing Officer to be false or if the assessee offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him.
................................................................................................
So far as the onus is concerned, we have already pointed out that under Explanation 1, additions/disallowances made by the Assessing Officer and sustained by the appellate authorities, will represent the concealed income of the assessee, provided no explanation is furnished or the explanation furnished is found to be false or the assessee is not able to substantiate the explanation or the explanation is not bona fide."
31IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 21.5 In the instant case ,since the assessee failed to establish the source of the aforesaid amount of Rs. 7,95,000/- and accordingly surrendered the amount after more than 10 years of filing of the return while in respect of amount of Rs. 2,08,000/,the assessee failed to substantiate their explanation during the assessment proceedings and even during penalty proceedings and the addition having been sustained by us,apparently, explanation 1 to sec. 271(1)(c) is attracted and the assessee has failed to discharge the onus laid down under this explanation.
21.6 In the case of CIT v. Ganpatrai Gajanand [1977] 108 ITR 403 (Ori.), the Assessing Officer added a sum found credited in the books of the assessee to this income by rejecting the explanation of the assessee unsatisfactory. The Assessing Officer also imposed penalty under section 271(1)(c). The Orissa High Court held that there is no distinction between the income arising on account of section 68 and income earned otherwise. Section 68 dwells on deeming provision which applies when the assessee's explanation is rejected as unsatisfactory. The amount which is deemed to be income by operation of law is also income to which provisions of section 271(1)(c) will apply.
21.7 In the case of CIT v. Prathi Hardware Stores [1993] 203 ITR 641 (Ori.), the facts of the case were that the cash credits of Rs. 20,000 were found in the assessee's accounts in the name of Shri R.V.P. Ganapathi Rao ,who admitted to have advanced the loan and explained that this amount was saved out of commission which he had earned as commission agent. According to him, the said amount was not kept in the bank because of an apprehension that, if the facts of his having the amount was known to his brother, he would have been forced to use the same in his brother's business which he did not want to do. The AO did not accept the explanation and treated the amount as assessee's income from undisclosed sources by the application of section 68 of the Act. Proceedings under section 271(1)(c) were initiated in respect of the said addition. The addition made by the ITO was sustained by the AAC. The AO imposed penalty of Rs. 10,000/- under section 271(1)(c) after rejecting the assessee's explanation. It was 32 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 claimed by the assessee before the ITO that the creditor having admitted the advance of loan, the burden placed on it has been discharged and therefore, no case for imposition of penalty was made out. On appeal AAC deleted the imposition of penalty and the ITAT upheld his order. The ITAT observed that the assessee did not go further in appeal when the AAC confirmed the addition of Rs. 20,000 and one does not know whether the said addition would have been confirmed before the Tribunal. It was further observed that disbelieving the explanation does not prove concealment. After considering the legislative history in so far as section 271(1)(c) is concerned and further amendments brought by the Taxation Laws (Amendment) Act, 1975 as well as Explanation introduced by Finance Act, 1964, the Hon'ble Orissa High Court at page 647 held as under:-
"...The position of law on or after April 1, 1976 is that where, in respect of any item of credit, (a) the assessee fails to offer an explanation, or (b) the assessee offers an explanation which the taxing officer considers to be false, or (c) the assessee offers an explanation but no material or evidence to substantiate it, he shall be deemed to have concealed such income within the meaning of section 271(1)(c). What sections 68, 69, 69A and 69C deem for the purpose of assessment was injected for the purpose of the penalty by operation of a deemed provision. A proviso was added to the new Explanation. It concerns cases where the assessee offers an explanation which he is not able to substantiate. Consequently, the provision intended to save such amount from imposition of penalty, although the same had been added to the assessee's explanation is found to be bona fide and all facts relating to the same and material to the computation of his total income have been disclosed by him."
Their Lordships further held at pages 648 to 650 as under:
"A conspectus of the Explanation added by the Finance Act, 1964, and the subsequent substituted Explanation makes it clear that the statute visualised the assessment proceedings and penalty proceedings to be whole distinct and independent of each other. In essence, the Explanation (both after 1964 and 1976) is a rule of evidence. Presumptions which are rebuttable in nature are available to be drawn. The initial burden of discharging the onus of rebuttal is on the assessee. The rationale behind this view is that the basic facts are within the special knowledge of the assessee. Section 106 of the Indian Evidence Act, 1872, gives statutory recognition to this universally accepted rule of evidence.
There is no discretion conferred on the Assessing Officer as to whether he can invoke the Explanation or not. Explanation I which primarily concerns the case at hand, automatically comes into operation when, in respect of any facts material to the computation of total income of any person, there is failure to offer an explanation or an explanation is offered which is found to be false by the Assessing Officer or the first appellate authority, or an explanation is offered 33 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 which is not substantiated. In such a case, the amount added or disallowed in computing the total income is deemed to represent the income in respect of which particulars have been concealed. As per the provisions of Explanation 1, the onus to establish that the explanation offered was bona fide and all facts relating to the same and material to the computation of his income have been disclosed by him will be on the person charged with concealment. Mere failure to substantiate the explanation is not enough to warrant penalty. The Revenue has to establish that the explanation offered was not substantiated. The provision of Explanation 1 is concerned only with cases coming under clause (B) of the Explanation, where the assessee offered an explanation which he was not able to substantiate. The explanation of the assessee for the purpose of avoidance of penalty must be an acceptable explanation; it should not be a fantastic or fanciful one. As indicated above, the consequence follows as a matter of law. The burden is on the assessee. If he fails to discharge that burden the presumption that he had concealed the income of furnished inaccurate particulars thereof is available to be drawn.
The principal logical import of the explanation is to shift the burden of proof from the Revenue on to the assessee. The rebuttal must be on materials relevant and cogent. It is for the fact-finding body to judge the relevancy and sufficiency of the materials. If such a fact-finding body, bearing the aforesaid principles in mind, comes to the conclusion that the assessee has discharged the onus, it becomes a conclusion of fact, and no question of law arises. As observed earlier, the initial burden is on the assessee. Once the initial burden is discharged, the assessee would be out of the mischief unless further evidence is adduced. It is plain on principle that it is not the law that the moment any fantastic or unacceptable explanation is offered, the burden placed would be discharged and the presumption rebutted. As pointed out by the Apex Court in Mussadilal Ram Bharose (165 ITR 14) the burden placed upon the assessee is not discharged by any fantastic explanation. It must be an explanation acceptable to the fact-finding body.
The position on and after April 1, 1976 is clear that where, in respect of any item of credit, the assessee had offered an explanation which the taxing officer has considered to be false or the assessee has offered an explanation but not material or evidence to substantiate it, he shall be deemed to have concealed such income within the meaning of section 271(1)(c).
A further condition was imposed with effect from September 10, 1986, with which we are not concerned. In the case at hand, the explanation of the assessee so far as the genuineness of credit of the lender was concerned was not accepted. The assessee's appeal before the AAC failed. It was observed that the assessee offered an explanation but no material or evidence to substantiate the same. The Tribunal came to a presumptuous conclusion that the assessee may have succeeded in the appeal had it come before the Tribunal against the addition. No basis or reason has been indicated for such conclusion. A narration of facts would go to show that the AAC and the Tribunal did not consider the case of the assessee keeping in view the new Explanation 1 applicable on and after April 1, 1976. By operation of the Explanation, the onus lay on the assessee and findings 34 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 given at the time of assessment are relevant and have probative value where the assessee offered nothing beyond the explanation offered at the assessment stage. In such cases, it cannot be said that the assessee had discharged the onus given by a preponderance of liabilities. The initial burden which lay on the assessee was not discharged. There was total absence of material to rebut the presumption. The assessee's plea does not stand the test of preponderance of probabilities."
21.8 Therefore, in the above case the Hon'ble Orissa High Court had laid down the following proposition of law:
i). explanation to section 271(1)(c) is the rule of evidence.
ii) . the initial burden of rebuttal is on the assessee because the basic facts are within the special knowledge of the assessee. Section 106 of the Indian Evidence Act., 1872 gives statutory recognition to this universally accepted rule of evidence.
iii). there is no discretion on the Assessing Officer as to whether he can invoke the Explanation or not.
21.9 Similarly in the case of CIT v. Shama Magazine [1995] 213 ITR 64/82 Taxman 614, it was held by the Hon'ble Delhi High Court that whenever there was a failure on the part of the assessee in the circumstances referred to in Explanation to section 271(1)(c), the statutory presumption automatically followed and it had to be deemed that the assessee had concealed the particulars of his income. Though the said decision of the Delhi High Court relates to the assessment year 1964-65, the proposition of law and the ratio laid down in that case is equally applicable to Explanation 1 to section 271(1)(c) inserted by Taxation Laws (Amendment) Act, 1975, w.e.f. 1-4-1976.
21.10 Hon'ble Allahabad High court held in the case of Sangam Enterprises Vs. CIT,288 ITR 396(All) that "Having given our anxious consideration to the contention raised by Shri Mahajan, we find that after the insertion of Explanation 1 to section 271(1)(c) of the Act by the Taxation Laws (Amendment) Act, 1975, if the explanation offered by the assessee regarding the additions is either found to be false and remained unsubstantiated, the additions so made are deemed to be the concealed income, 35 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 and therefore, the penalty provisions are attracted. The decision relied upon by the Tribunal relates to the assessment years prior to April 1, 1976, when the present Explanation was not in the statute book, and, therefore, they are not applicable in the present case. We are therefore, of the considered opinion that the Tribunal has completely misdirected itself in cancelling the penalty."
21.11 As regards reliance on decision in the case of National Textiles vs Commissioner Of Income-Tax, 249 ITR 125(Guj) on behalf of the assessee, the said decision related to AY 1974-75,before insertion of explanation 1 to sec 271(1)(c) of the Act relevant for the year under consideration. In the said case, Hon'ble Gujrat High Court deleted the penalty since that was a case where there was no circumstance to lead to a reasonable and positive inference that the assessee's case-that the cash credits were arranged as temporary loans, was false. But in the case under consideration, assessee failed to discharge initial onus of proving the genuineness of cash credits and instead, surrendered the amount of Rs. 7,95,000/- while in respect of an amount of Rs. 2,08,000 did not even furnish the date or confirmation nor any material/evidence of source of the amount either during the assessment/penalty proceedings and even before us. Moreover, Hon'ble Supreme Court in a later decision in the case of K.P.Madhusdanan,251 ITR 99 held that the explanation to section 271(1)(c) is a part of section 271. When the Income-tax Officer or the Appellate Assistant Commissioner issues to an assessee a notice under section 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation. By reason of the Explanation, the assessee is deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof in the circumstances stated in the Explanation. Thus, reliance on behalf of the assessee on the said decision is misplaced.
21.12 In a later decision in the case of Usha Fertilisers vs. CIT,269 ITR 591(Guj), the aforesaid decision in the case of National Textiles was cited. Hon'ble jurisdictional High Court, while upholding the levy of penalty observed that The Supreme Court in the case of Mussadilal Ram Bharose [1987] 165 ITR 14 has specifically laid down the scope of the Explanation in the following words:
36IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 "The position, therefore, in law is clear. If the returned income is less than 80 per cent, of the assessed income, the presumption is raised against the assessee that the assessee is guilty of fraud or gross or willful neglect as a result of which he has concealed the income but this presumption can be rebutted. The rebuttal must be on materials relevant and cogent."
As to what could be the explanation by which the assessee can rebut the presumption raised against it, is stated by the apex court in the same decision in the following words while confirming the view expressed by the Full Bench of the Patna High Court in the case of CIT v. Nathulal Agarwala and Sons [1985] 153 ITR 292:
"The Patna High Court emphasised that as to the nature of the explanation to be rendered by the assessee, it was plain on principle that it was not the law that the moment any fantastic or unacceptable explanation was given, the burden placed upon him would be discharged and the presumption rebutted we agree. We further agree that it is not the law that any and every explanation by the assessee must be accepted. It must be an acceptable explanation, acceptable to a fact- finding body.
We are aware that it would not be possible for the High Court to enter into a fact- finding exercise or reappreciate the evidence and we do not propose to do so. However, at the same time, it is apparent that the burden which is cast on the assessee remains undischarged when one applies the principles laid down by the apex court. As observed, the explanation has to be one which is not fantastic or unacceptable. It is not the law that any and every explanation by the assessee must be accepted. ......................"
21.13. In Commissioner Of Income-Tax.vs Vidyagauri Natwarlal And Others.,238 ITR 91(Guj),Hon'ble jurisdictional High Court held Coming to penalty proceedings, at the outset, we may say that it is not the case of even the assessee that in no case, where such disclosed cash credit amount is treated as income and assessed as income of that year, it cannot be subjected to penalty proceedings. Accepting the principle on which the Tribunal has acted would render the penalty proceedings for concealment in such case even if it is established from the evidence that entries made in the books of account were bogus to the knowledge of the assessee, no penalty proceedings under section 271(1)(c) can be sustainable because as soon as entries in the books of account have been disclosed to the Revenue showing the cash credit entered with particulars thereof, there cannot be any concealment of particulars of income or furnishing of inaccurate particulars thereof. The expression of the principle that mere rejection of the explanation is not sufficient to sustain penalty is not backed up by necessary enquiry. It may be noticed that as per rule of evidence, there is distinction between set of facts "not proved" and facts disproved and facts proved. Benefit of the principle that mere non-satisfactory nature of explanation furnished cannot amount to proof of falsity of explanation furnished can apply in case the fact-finding authority reaches to a stage where it can only conclude that 37 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 the fact alleged is "not proved" which would result that except rejection of the explanation furnished by the assessee, there is no material to sustain the plea of concealment. But, on the other hand, if the state of affairs reveals a stage where one can positively reach a conclusion that the fact alleged is proved or disproved, the principle that mere rejection of explanation cannot result in levy of penalty will have no application. To reach this stage also, inquiry will have to be undertaken of the disclosure made in the return or in the statement annexed to the return and to arrive at a finding whether the particulars disclosed are truthful, or false or not proved to be satisfactory. The principle to which the Tribunal has referred would apply in the last case. In the first case, it would be a positive case of no concealment, in the second stage, it would be a positive case of concealment and in the third case, benefit of doubt will go in favour of the assessee. But in either case, inquiry must proceed from the stage the alleged disclosure has taken place and not stop at that stage and close the inquiry at the threshold on the abstract principle that mere rejection of explanation does not result into levy of penalty. The Tribunal has obviously erred in stopping at that stage and not considering the material before it on the basis of which the authority levying penalty has come to a positive finding as noticed by us.
The assessee before us has not disclosed the address of the depositors during the course of assessment proceedings and during the course of penalty proceedings. In the absence of details of creditors and other facts to prove the genuineness of the deposits, the onus lies on the assessee. As per Explanation 1 to section 271(1)(c), the onus is not discharged by the assessee. The burden lies on the assessee is not discharged by convincing explanation nor it is law that any explanation by the assessee must be accepted. We, therefore, confirm the order of the CIT (Appeals) insofar as concealment of income of Rs. 1,02,000."
21.14 In the instant case also the assessee having failed to discharge the onus, surrendered an amount of Rs. 7,95,000/- after ten years of filing of return while neither date nor even confirmation of the depositors for an amount of Rs. 2,08,000/- has been submitted .
21.15 As regards relienace on the decision in the case of Reliance Petroproducts(supra), the ld. AR did not demonstrate as to how this decision is of any help to the assessee. We are of the opinion that the said decision is not applicable to the facts of the case under consideration, since in the cited decision, the Hon'ble Apex Court found that there was no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false and as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. In such circumstances, 38 IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7 Hon'ble Court held that merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). But such are the facts in the instant case, as already pointed out. Thus, reliance on the said decision is misplaced.
21.16 In view of the foregoing, especially when the assessee before us failed to substantiate the cash credits of Rs. 7,95,000/- and accordingly ,surrendered the amount while in respect of Rs. 2,08,000/- received from the aforesaid two creditors even did not substantiate his explanation during assessment/penalty proceedings before the AO/ld. CIT(A) and even before us , despite sufficient opportunity allowed and thus ,neither the creditworthiness of two creditors nor genuineness of transactions was proved. Since in terms of Explanation 1 to section 271(1)(c) of the Act, the onus is not discharged by the assessee, despite sufficient opportunity allowed by the AO/ld. CIT(A), levy of penalty on the aforesaid amount is justified.[CIT Vs. Altron Electronics India Ltd.,301 ITR 66(Kar)]. In the light of view taken in the aforesaid decisions of Hon'ble jurisdictional High Court and Hon'ble Apex Court as also of Hon'ble Delhi, Allahabad and Orissa High Courts, the burden that lies on the assessee is not discharged by convincing explanation nor it is law that any explanation offered by the asseessee must be accepted. We, therefore, have no alternative but to uphold the order of the ld. CIT (Appeals) insofar as levy of penalty on the amount of Rs. 7,95,000+2,08,000/-=10,03,000/- is concerned, the assessee having not been able to discharge the burden that lay upon it by Explanation 1 to s. 271(1)(c) of the Act. Thus, ground no.1 in the appeal is dismissed..
22. No additional ground having been raised in terms of the residuary ground, this ground is ,accordingly, dismissed.
39IT A Nos . 15 4 4 an d 1 5 4 5/ A hd / 20 0 7
23. In the result, both these appeals are partly allowed.
Order pronounced in the open court today on 30-04-2010 Sd/- Sd/-
(MAH AVIR SINGH) (A N P AHUJA) JUDICI AL MEMBER ACCOUNTANT MEMBER Date : 30-04-2010 Copy of the order forwarded to :
1. Saiyed Paper Mills Ltd., Plot No.162, Phase-II, GIDC, Vapi
2. The ACIT, Vapi Circle, Vapi
3. CIT concerned
4. CIT(A) Valsad
5. The DR, ITAT,'D' Bench Ahmedabad
6. Guard File BY ORDER Deputy Registrar Assistant Registrar ITAT, AHMEDABAD 40