PCIT Vs Skylark Build (Bombay High Court)
The Bombay High Court considered an appeal filed by the Revenue challenging concurrent findings of fact relating to additions made under Section 68 of the Income Tax Act, 1961. The Revenue contended that the essential requirements of Section 68—establishing the identity of the cash creditor, the creditor’s creditworthiness, and the genuineness of the transaction—had not been properly examined by the Tribunal. It argued that the Tribunal had relied upon the subsequent repayment of the borrowed amounts without examining whether these statutory requirements had been fulfilled and had failed to independently endorse the findings of the Commissioner (Appeals).
The High Court noted that the assessment pertained to Assessment Year 2008-09. The assessee had filed its return of income, which was processed under Section 143(1), and the case was subsequently selected for scrutiny. During the assessment proceedings, the assessee furnished details of advances amounting to ₹125,66,09,180 along with bank statements and other supporting documents. Despite these materials being on record, the Assessing Officer concluded that the essential ingredients under Section 68 had not been established and treated ₹23.05 crore and ₹10 crore as unexplained cash credits, adding them to the assessee’s income and initiating penalty proceedings.
The Court observed that the Commissioner (Appeals) had undertaken a detailed examination of the evidence. The assessee, a builder and developer, had received an advance of ₹23 crore from M/s. Akshata Mercantile Private Limited, of which ₹13 crore had been directly paid by that company and accepted by the Assessing Officer as satisfactorily explained. The remaining ₹10 crore had been paid by M/s. Maheep Marketing Private Limited on behalf of M/s. Akshata Mercantile Private Limited. During assessment proceedings, summons were issued to M/s. Akshata Mercantile Private Limited, which furnished documents including the bank account of M/s. Maheep Marketing Private Limited. Although the Assessing Officer remained unconvinced regarding the identity and creditworthiness of M/s. Maheep Marketing Private Limited and made the addition, the Commissioner (Appeals), after considering the record and admitting additional evidence, concluded that the identity of the creditors, their creditworthiness, and the genuineness of the transactions had all been established. The Commissioner referred to affidavits, confirmations, particulars such as incorporation details and PAN, bank records, and explanations regarding the source of the advances. The Commissioner also considered the circumstances surrounding the directors of M/s. Akshata Mercantile Private Limited, who were stated to have been in police custody during the assessment proceedings.
The High Court held that the Tribunal had not failed in its duty as the final fact-finding authority. It observed that, in light of the detailed findings recorded by the Commissioner (Appeals), the Tribunal was not required to reproduce every finding in its order. The Tribunal had found that the Commissioner had correctly applied the applicable legal principles to the facts of the case. The Tribunal also took note of the subsequent repayment of the amounts advanced by the creditors and considered this relevant in demonstrating the existence of genuine creditors with available funds. However, instead of finally relying upon this aspect, the Tribunal remanded the matter to the Assessing Officer for verification of whether the repayments had in fact been made.
The High Court found no error of law or perversity in the Tribunal’s approach. It held that, once the Tribunal was satisfied regarding the essential ingredients of Section 68 on the basis of the Commissioner’s findings, it was justified in directing verification of the repayment to ensure the factual correctness of that subsequent development. The Court emphasised that it could not reappreciate concurrent findings of fact in the absence of perversity or an apparent error of law.
The Revenue relied upon the Supreme Court’s decision in Commissioner of Income Tax vs. P. Mohanakala, contending that the Court should independently examine every aspect of the transactions and that payments through banking channels alone did not establish genuineness. The High Court accepted that the legal principle laid down in that decision was applicable but observed that its application depended upon the facts of each case. It noted that, in the present matter, the authorities had examined the surrounding circumstances, found the transactions to be genuine, and also verified the repayment of the borrowed amounts while giving effect to the Tribunal’s order. Accordingly, the Court held that the principles relied upon by the Revenue did not warrant interference.
Holding that the proposed question of law was academic and that no substantial question of law arose, the High Court dismissed the Revenue’s appeal without any order as to costs.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. The Revenue has brought this appeal to challenge a concurrent finding of fact.
2. Mr. Mohanty would submit that the ingredients of section 68 have to be established and only then the case of the assessee should be accepted. In the instant case, section 68 demanded that identity of the cash credit must be established, thereafter his creditworthiness and finally the genuineness of the transaction with him. All this has not been examined and yet, relying upon a subsequent development, namely of repayment of the amounts borrowed, the assessee has been let off. The Tribunal has dismissed the appeal by not examining fulfillment of essential. ingredients of section 68 of the Income Tax Act, 1961. It has also not endorsed the finding of fact rendered by the Commissioner. In appealing against the order of the Tribunal and submitting that the questions proposed are substantial questions of law, Mr. Mohanty invited our attention to paragraph 7 of the impugned order.
3. We are unable to agree with Mr. Mohanty and for more than one reason. The Assessment Year in question is 2008-09. In the assessment order there is a reference to the return of income dated 30th September, 2008, declaring total income at Rs.88,61,058/-. The return was duly processed under section 143(1) and thereafter the case was picked up for scrutiny. After statutory compliances and issuance of questionnaire, an explanation of the assessee was available. His Chartered Accountant attended the proceedings before the Assessing Officer and he pointed out that there were transactions, in the sense, there were entities whose details were brought before all of them including the Tribunal. There are advances received and in the sum of Rs.125,66,09,180/-. The details of these advances were sought and the assessee provided them. The details were then examined and the Assessing Officer had before him the bank statements. The bank statements and other details, though on record, the Assessing Officer, held that the essential ingredients have not been satisfied. In these circumstances, the Assessing Officer came to the conclusion that the explanation of the assessee does not inspire confidence. Hence, an amount of Rs.23.05 crores and Rs.1O crores were treated by him as unexplained cash credit under section 68 of the Income Tax Act, 1961. In the absence of documentary evidence, it was added back to the total income of the assessee. Penalty was also sought to be levied.
4. Aggrieved by such an assessment order, an appeal was preferred by the assessee to the Commissioner of Income Tax. In the appellate order and grounds of decision, copy of which is at Exhibit-C of the paper-book, the First Appellate Authority found that the entire record was before the Assessing Officer. The assessee is a builder and developer. The assessee- firm derives income from this business. An advance of Rs.23 crores was taken from M/s. Akshata Mercantile Private Limited. Out of this Rs. 23 crores, a sum of Rs.13 crores has been directly paid by the company and the source thereof was satisfactorily explained, as held by the Assessing Officer. The balance amount of Rs.1O crores was paid by M/s. Maheep Marketing Private Limited on behalf of the said M/s. Akshata Mercantile Private Limited. A summons was issued during the course of the assessment proceedings to the said M/s. Akshata Mercantile Private Limited asking them to explain the source of the advances of Rs.23 crores. The said M/s. Akshata submitted various documents, including the bank account of M/s. Maheep Marketing Private Limited. It was held by the Assessing Officer that M/s. Akshata Mercantile Private Limited failed to prove the identity and creditworthiness of M/s. Maheep Marketing Private Limited in respect of the amount paid by M/s. Maheep Marketing Private Limited to the assessee. A letter was issued dated 9th December, 2010, to which the assessee replied but the Assessing Officer was not satisfied with this reply. That is how he made an addition of Rs.10 crores in relation to this transaction and thereafter of Rs.23.05 crores in case of the transaction with M/s. Space Mercantile Private Limited.
5. When this issue was examined by the Commissioner in his detailed analysis culminating in the conclusion recorded from paragraph 2.4.12, he comes to the conclusion that the record, including the additional evidence admitted by him denotes that identity of the cash creditor, creditworthiness and genuineness of the transaction has all been established by the assessee. There is a doubt entertained by the Assessing Officer about the creditworthiness but that is totally dispelled, according to the Commissioner, and he opines as under :
`2.4.16 In respect of AMPL, Ld. A.O. has already accepted the advance of Rs.13 cr. as explained and therefore, creditworthiness of that party was never in doubt, more so, when the source of the credit was explained being money received from M/s. Maheep Marketing P Ltd. whose confirmation was also filed during the course of assessment proceedings. Now an affidavit of the Director of M/s. Maheep Marketing P Ltd. giving full particulars of date of incorporation, PAN etc. has also been filed. It has also been stated in the affidavit of M/s. AMPL that the advance of Rs.23 cr. (Rs.13 cr. paid directly by M/s. AMPL and Rs.10 cr. by M/s. Maheep Marketing R Ltd. on behalf of M/s. AMPL) was paid to the appellant as advance for purchasing and acquiring 50000 sq. ft. of property for a lumpsum consideration of Rs.100 cn and that M/s. Maheep Marketing P Ltd. had advanced a sum of Rs.10 crores to the appellant on their behalf by way of two pay orders of Rs. 5 cr. drawn on Bank of India, Mandvi Branch, Mumbai. As regards the evidence of Rs.23,05,00,000/- from M/s. SMPL, it has been stated by Ld. A.O. that the said party had filed copies of bank statements (overdraft account) which did not serve any purpose according to him in deciding the creditworthiness of the party. He further stated at page 8 of the order that even though the source for the advance was proved, creditworthiness of the transaction(sic) was not proved by M/s. SMPL and hence, the burden of proof was on the appellant to give sufficient evidence. In this regard, the appellant had informed the Ld. AO. That the Directors of M/s. AMPL were searched and arrested by CBI in connection with some action in Pen Co-op Urban Bank Ltd. Therefore, they, being in police custody, could not attend before the Ld. A.O. This fact has been mentioned by the Ld. A.O. in the assessment oder also.”
6. It is in these circumstances, he concludes that the creditworthiness of the cash creditor is fully vouched and hence the action of the Assessing Officer in rejecting the explanation of the assessee was not tenable in the eyes of law. We do not think that in endorsing this finding of fact, the Tribunal has not performed its obligation and duty as a last fact-finding authority. When such detailed findings of the Commissioner were on record supported by case laws, then, every single line in this 31 page order of the Commissioner was not required to be reproduced by the Tribunal. The Tribunal found that the Commissioner’s order cannot be faulted for he applied the correct legal principles that were applicable to the facts and circumstances of the assessee’s case. In addition, there is a subsequent development and namely that each of these creditors from whom the assessee borrowed moneys or who advanced it the moneys, were repaid the sums borrowed. This would establish that there were indeed real creditors; that they had indeed the funds available with them and that the transactions were genuine. In the circumstances, the finding of fact by the Commissioner was endorsed by the Tribunal. Instead of endorsing it fully and dismissing the Revenue’s appeal in its entirety, the Tribunal, in paragraph 7, deems it fit and proper to send the matter back to the Assessing Officer so as to verify and examine whether indeed there is any repayment.
7. We do not think that the Tribunal committed any error of law nor its finding, as above, is perverse. Once it was satisfied with regard to the essential ingredients of the section and the manner in which the whole case was approached by the Commissioner, then, with regard to the assertion of repayment and styling it as a subsequent development relevant and germane to the case in hand, the Tribunal deemed it fit and proper to send the matter back to the Assessing Officer. That is to make it doubly sure as to whether indeed there was a repayment of the amount borrowed and claimed as advances from these parties.
8. We do not think that we should entertain a further appeal to this Court for it is not possible to re-appreciate and reappraise such factual findings. They are not demonstrably perverse nor vitiated by any error of law apparent on the face of the record.
9. Mr. Mohanty’s reliance on the judgment in the case of Commissioner of Income Tax vs. P Mohanaka1a rendered by the Hon’ble Supreme court of India and reported in (2007) 291 ITR 278 is apposite to the extent of the legal principle. The legal principle and heavily relied upon, according to Mr. Mohanty, is that the Court must examine every single aspect and by a proper process. The doubtful nature of the transaction and the manner in which the sums were found credited in the books of account maintained by the assessee may be taken into consideration, according to Mr. Mohanty, but that was not enough Even the money being paid by cheques is of no consequence according to Mr. Mohanty. It may be so, but when these principles are invoked, their application would depend upon the facts and circumstances in each case. There, the Hon’ble Supreme Court endorsed the findings and dismissed the Revenue’s Appeal. While relying upon paragraph 26 of this judgment in P. Mohanakala (supra) what Mr. Mohanty submits is that in that paragraph the Hon’ble Supreme Court was referring to its prior decisions. The reliance thereon was to the extent of the Revenue’s submissions and to give support to it. The argument was that the issue relating to the propriety of the legal conclusion that could be drawn on the basis of the proved facts gives rise to a question of law and, therefore, the High Court is justified in interfering in the manner since the authorities below failed to draw a proper and logical inference from the proven facts. The Hon’ble Supreme Court expressly rejects this submission and says that findings of fact are arrived at on a proper appreciation of the material available on record and the surrounding circumstances. The doubtful nature of the transaction and the manner in which the sums were found credited in the books of account maintained by the assessee have been duly taken into consideration by the authorities even in the case before us. The transactions were found to be genuine. It is not only that the moneys came by way of cheques and through proper banking channels, but even the repayment has been verified and the Assessing Officer, while giving effect to the Tribunal’s order records that this is not a transaction which can be said to be hit by the principles relied upon.
10. In the above circumstances, the question as proposed by the Revenue is really academic. Still, Mr. Mohanty says it is not so and that is why we examined the matter in its entirety and after having examined it in this manner, we do not see any reason to entertain this appeal. It is dismissed but without any order as to costs.
