Manoj Sethia, FCA, ACS, ACMA
Stay on demand should be granted till the disposal of appeal where assessment was framed exparte u/s 144 of the Act. Whose fault was, for passing ex-parte order is immaterial for the proceedings of stay. ACIT vs. Anirban Transport Services (ITAT Kolkata)ITA No.821/Kol/2013.
Sec 68: Cash credits-Share capital – Identity disclosed – Deletion was held to be justified.
Once the identity and other relevant particulars of shareholders are disclosed, it is for those shareholders to explain the source of their funds and not for the assessee company to show wherefrom these shareholders obtained funds. It was held that Tribunal was justified in deleting addition in the hands of assessee company. CIT vs. Nishan Indo Commerce Ltd. (2014)101 DTR 413 (Calcutta High Court).
Sec 68: Cash credits-–Unsecured loan-Name, address, PAN, copy of IT Returns, balance sheet, profit and loss account of all creditors/lenders as well as their confirmation had been furnished, A.O could not make addition on account of unsecured loan and interest thereon.
When full particulars, inclusive of the confirmation with name, address and PAN Number, copy of the Income Tax Returns, balance sheet, profit and loss accounts and computation of the total income in respect of all the creditors/lender were furnished and when it has been found that the loans were received through cheques / banking channels and the loan account were duly reflected in the balance sheet, the A.O was not justified in making the addition on account of Cash Credit u/s. 68 of the Income Tax Act, 1961 (AY. 2007-08). CIT vs. Apex Therm Packaging (P.)Ltd. (2014)222 Taxman 125(Mag.) (Gujrat High Court).
Sec 68: Cash credits–Booking of flats-Address and PAN of concerned persons discharged its primary onus addition of said amount to income – without making proper inquiries u/s. 133(6) was not justified.[ Sec 133(6)].
Assessee received certain amount from four persons on account of booking of flats. A.O. rejected assessee’s explanation and added said amount to its taxable income. Tribunal opined that since assessee had discharged primary onus cast on it, A.O should have made inquiry u/s. 133(6). On issuance of notice, the assessee claimed that these were not deposits, but were booking amounts for flat purchased. The identity with the address and PAN numbers had been supplied to the A.O but the A.O was not satisfied with the documents. The Hon’ble High court held that the onus which was required to be discharged on the part of the assessee respondent was duly done. Not only the identity of the persons concerned but also the PAN numbers were before the Assessing Officer. In the event of any further inquiry, it was open to the A.O. to make inquiry under section 13 3(6) of the Act. On its choosing not to exercise such powers, it was erroneous on the part of the Assessing Officer to make addition of a sum of Rs. 23,00,000/-, despite such cogent evidences having been put-forth by the assessee. No question of law, therefore, arises and hence in absence of any such enquiry the addition made by the A.O. u/s. 68 was deleted. (AY. 2008-09). CIT vs. Chanakya Developers (2014)222 Taxman 164 (Gujrat High Court).
Sec 68: Cash credits–loan -Books of account, bank statement and income-tax return of lender was on record – loan could not be regarded as bogus.
The addition on basis that four depositors furnished requisite details to prove their identity and showed the place of their residence. The loan was received through account payee cheques, copies of bank statement was given and the details of PAN were available. All these materials duly proved the genuineness of the transaction of loan as well as the creditworthiness of the depositors. Hence, the Addition u/s. 68 cannot be made. (AY. 2005-06). CIT vs. Patel Ramniklal Hirji (2014)222 Taxman 15(Mag.) (Gujrat High Court)
Sec 68: Assessment proceedings under the Income Tax Act are not a game of hide and seek. If A.O does not conduct proper inquiry, the obligation to do so is on the CIT(A) & ITAT.
The A.O here may have failed to discharge his obligation to conduct a proper inquiry to take the matter to logical conclusion. But CIT (Appeals), having noticed want of proper inquiry, could not have closed the chapter simply by allowing the appeal and deleting the additions made. It was also the obligation of the first appellate authority, as indeed of ITAT, to have ensured that effective inquiry was carried out, particularly in the face of the allegations of the Revenue that the account statements reveal a uniform pattern of cash deposits of equal amounts in the respective accounts preceding the transactions in question. CIT vs. Jansampark Advertising & Marketing (P) Ltd. (Delhi High Court)
Sec 68: Cash credits-Share Application money –Bank accounts were fabricated- Addition was held to be justified.
The addition was made u/s 68 with respect to share application money received by the assesse. The A.O held that assesse had failed to discharge the onus to prove the creditworthiness of the said investors in terms of u/s 68 as the extracts of bank statements furnished by assesse was fabricated and further held that assesse had filed to discharge the onus in proving the identity of the creditors/ subscribers, genuineness of the transactions and held that even if the transaction were not required to be fulfilled in respect of share application money / share capital once identity is established. On appeal in Tribunal, Tribunal confirmed the finding of the CIT (A) relying on CIT V. Lovely Exports(P)Ltd. 216 CTR (SC) 195. On further appeal in HC, the court reversed the order of Tribunal and held that bank statements of the investors furnished by the assesse during the original assessment proceedings were fabricated and misleading. They omitted to show that there was deposit of cash immediately prior to issuance of cheques for preparation to pay orders or DDs in favour of the assessee regarding subscription of its share capital. Court further held that false evidence had been adduced by the assesse during the original proceedings to get undue advantage of giving colour of genuineness to bogus entries through the bank accounts and the deposits were mostly by cash, the A.O was justified in making addition u/s 68. (AY. 2001-02).
SLP of assesse was rejected. SPL no 7784 of 2014 dt 26-09-2014 N. Tarika Property Investment (P) Ltd v.CIT (2014) 227 Taxman 373 (SC). CIT vs. N. Tarika Properties Investment (P) Ltd (2014)264 CTR 472 (Delhi High Court).
Sec 68: Cash credits–Share application–Genuine applications.
The assessee had furnished material which included income-tax returns, balance-sheets, Registrar of Companies particulars and bank account statements. On the basis of these, the Commissioner (Appeals) held that the share application money or the source of the share application money had been satisfactorily explained. The Tribunal was of the opinion that no interference was warranted having regard to the facts of this case. This was a pure finding of fact. Sec 68 was not applicable. (AY. 2000-2001). CIT .v. Expo Globe India Ltd. (2014)361 ITR 147 (Delhi High Court).
Sec 68: Cash credits –Share application money-No addition shall be made in the hands of the assessee where transactions related to the receipt of share application money are genuine and are fully recorded by the share applicants.
The assessee had received share application money from 11 different companies. The A.O proposed an addition on the ground that the assessee could not discharge the onus and prove the genuineness of the receipt. The first appellate authority observed that the assessee had placed on record various documents in support of the share application money received. The Tribunal restored the matter to the A.O since it was not evident that the impugned amounts were assessed in the hands of share applicants, in which case they could not be assessed in the hands of the assessee and vice versa. The High Court upheld Tribunal’s order clarifying that the A.O should objectively examine the whole issue and in case he found that the transactions were genuine and fully recorded by the share applicants, no addition would be made in the hands of the respondent assessee. In other words, the two conditions had to be satisfied. First the transaction should be genuine, true and not a camouflaged, and secondly the transaction should be duly recorded in the books of the share applicants. In case any of the two conditions were not satisfied, it would be open to the A.O to act in accordance with the law and make appropriate additions if justified and mandated by Statute (AY. 200 1-02). CIT vs. Kansal Fin cap Ltd. (2014)221 Taxman 151 (Mag.) (Delhi High Court).
Sec 68: Cash credits – Where in support of receipt of share application money – assessee produced names, addresses and PAN of depositors which were sufficient to prove their identity and creditworthiness – it was not justified in making addition u/s. 68 in respect of amount in question.
The A.O found that the assessee had reflected amount in the balance sheet under the head “share application money pending allotment” as on 31.3.2005. During the assessment proceedings the assessee could not file confirmation of share applications and therefore addition of the entire amount is made in the hands of the assessee. The CIT (A) dismissed the appeal confirming the findings of the A.O. Share application money had deposited the cash in their respective bank accounts before cheques in the name of the assessee for share allotment. The High Court observed that the A.O made the addition for the reason that the assessee did not file confirmation from the share applicants. However, he did not doubt either the identity or the creditworthiness of the share applicants because no such discussion has been made in the assessment order. The explanation of the assessee as regards to the inability in filing the confirmation before the Assessing Officer was that the sufficient time was not provided. It is noticed that the learned CIT (A) confirmed the addition for the reason that the creditworthiness was not proved. High Court held that, the assessee had discharged the onus by furnishing the name, address and Permanent Account Number of the share applicants and if the A.O was having any doubt he could have issued the summons to the persons who were claimed to be assessed to income tax and were having Permanent Account Number. (AY. 2005-06). CIT vs. Som Tobacco India Ltd (2014)222 Taxman 58(Mag.) (Allahabad High Court).
Sec 68: Despite documentary evidence and broker’s confirmation, genuineness of penny stock transactions has to be determined on the basis of ‘preponderance of human probabilities’. If assessee is unable to explain ‘intriguing’ facts and circumstances, genuineness of transaction cannot be accepted
Firstly, documentary evidences, in the face of unusual events, as prevailing in the instant case, and without any corroborative or circumstantial evidence/s, cannot be regarded as conclusive. Two, the preponderance of probabilities only denotes the simultaneous existence of several ‘facts’, each probable in itself, albeit low, so as to cast a serious doubt on the truth of the reported ‘facts’, which together make up for a bizarre statement, leading to the inference of collusiveness or a device set up to conceal the truth, i.e., in the absence of credible and independent evidences. ITO vs. Shamim M. Bharwani (ITAT Mumbai).
Sec 68: Only credits received during the year can be assessed as unexplained cash credits. Credits of earlier years, even if unexplained, cannot be assessed.
Though the assessee could not furnish the confirmation of the loan and other evidences but such a loan could not have been added in the A.Y. 2005-06 as the same was taken in the earlier years and is being carried forward. In this year it is appearing balance of the current year. Thus, legally such an addition could not sustained in this year. Rita Stephen Pinto vs. ITO (ITAT Mumbai).
Sec 147: Reopening (even of s. 143(1) assessment) on the ground that a specific aspect requires verification is not permissible.
In the present case, the A.O does not state that any income chargeable to tax has escaped assessment. All that the Revenue desires is verification of certain details and pertaining to the gift. That is not founded on the belief that any income which is chargeable to tax has escaped assessment and hence, such verification is necessary. That belief is not recorded and which alone would enable the Assessing Officer to proceed. Nivi Trading Limited vs. UOI (Bombay High Court).
Sec 147: Sec 143(3) assessment order is not a scrap of paper & A.O is expected to have applied his mind. Reopening on ground of “oversight, inadvertence or mistake” is not permissible.
The assessee made a claim for deduction for bad debts which was allowed by the A.O u/s 143(3). Subsequently, within four years from the end of the assessment year, the A.O reopened the assessment u/s 148 on the ground that the amount written off as bad debts was a capital loss and could not allowed as a deduction. The Tribunal allowed the assessee’ s appeal and quashed the reassessment proceedings. Before the High Court, the department urged that the reopening was valid because (a) the A.O acted on an audit objection which constitutes “tangible material” and (b) as the A.O had not dealt with the issue in the original assessment order, he had jurisdiction as held in Kalyanji Mavji & Co 102 ITR 287 (SC), New Light Trading Co256 ITR 391 (Del) and Dr. Amin’s Pathology Laboratory 252 ITR 673 (Bom). HELD by the High Court dismissing the appeal:
(i) The Tribunal has rendered a finding of fact that the A.O raised a query with regard to the issue which was responded to by the assessee and on satisfaction of the same the A.O passed the assessment order. Therefore, reopening of assessment on an issue in respect of which a query was raised and responded to by the assessee would amount to a change of opinion;
(ii) The argument that the tangible material is the audit objections received by the A.O is not acceptable because there is no mention of any tangible material in the reasons recorded. A reopening notice can be sustained only on the basis of grounds mentioned in the reasons It is not open to the Revenue to add and/or supplement later the reasons recorded at the time of issuing reopening notice;
(iii) The argument that the A.O has been careless in bringing to tax a particular amount which is chargeable to tax and that the Revenue should not be precluded from issuing notice u/s 148 overlooks the fact that power to reopen is not a power to review an assessment order. At the time of passing assessment order, it expected of the A.O that he will apply mind and pass an order. An assessment order is not a mere scrap of paper. To accept the submission of the department would mean to negate the well settled position in law as stated by the Supreme Court in CIT Vs. Kelvinator of India Ltd 256 ITR 1 (Delhi)(FB) that the concept of ‘change of opinion’ brought in so as to have in built test to check abuse of power;
(iv) Kalyanji Mavji & Co 102 ITR 287 (SC), where it was held that “oversight, inadvertence or mistake” in passing assessment order will give the A.O jurisdiction to reopen the assessment, is not good law in view of the subsequent decision in Indian and Eastern Newspaper Society Vs. CIT 119 ITR 996. An error discovered on a reconsideration of the same material (and no more) does not give him that power. The aforesaid view on the above proportion has been reiterated by the Apex Court in A.L.A.Firm vs. CIT 183 ITR 285. New Light Trading Co 256 ITR 391 (Del) and Dr. Amin’s Pathology Laboratory 252 ITR 673 (Bom) are also distinguishable on facts. CIT vs. Jet Speed Audio Pvt. Ltd (Bombay High Court).
Sec 263: Fact that assessment order is silent on a point does not mean that there is no application of mind by A.O if he has raised a query during the assessment proceedings and assessee has replied.
This Court has followed the case of “Idea Cellular Ltd. Vs. Deputy Commissioner of Income Tax & Ors., [(2008) 301 ITR 407 (Bom.)]” wherein it was held that if a query is raised during assessment proceedings and responded to by the assessee, the mere fact that it is not dealt with in the assessment Order would not lead to a conclusion that no mind had been applied to it. CIT vs. Fine Jewellery (India) Ltd (Bombay High Court).