A)In The Case Of Cit v. Orissa Corporationp. Ltd. In [1986] 159 Itr 78 (Sc) Wherein Heldthat

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HON'BLE DR. JUSTICE VINEET KOTHARI ANDTHE HON'BLE MR.JUSTICE M.S.RAMESHTAX CASE (APPEAL) NO.630 OF 2017AND CMP NO.15965 OF 2017 C.V.Ravi PAN – AAAPR5253LFlat No.7, Sivagami Apartments, Raja Street, T.Nagar, Chennai – 600 017. ..Appellant -vs-..Respondent The Income Tax Officer Business Ward – II (4) Chennai – 600 034. PRAYER: Tax Case Appeal filed under Section 260A of Income TaxAct, 1961, against the order of the Income Tax AppellateTribunal, “A” Bench, Chennai, dated 26.04.2017, passed in ITANo.3051/Mds/2016 against the order of the Commissioner of IncomeTax (Appeals)-2, Chennai dated 29/07/2016 passed inITA.No.331/CIT(A)-2/2013-14 against the order of the Income TaxOfficer, Business Ward II(4), Chennai 34 dated 29/12/2011 videPAN/GIR No.AAAPR5253L. For Appellant: Mr.K.G.Raghunath For Respondent: Mr.T.Ravi Kumar Senior Standing Counsel The present Tax Case Appeal has been filed by theAssessee Mr.C.V.Ravi, aggrieved by the order of the learnedIncome Tax Appellate Tribunal, “A” Bench, Chennai, dated26.04.2017, for AY 2009-10, where the learned Tribunal dismissedthe Appeal of the Assessee and hold the addition under Section68 of the Income Tax Act, 1961, in the hands of the Assessee tothe extent of Rs.3.05 Crores, alleged to have been taken as loanfrom one M/s.AR.Com. The findings of the learned Tribunal,discussing the entire matter, are quoted below for readyreference: https://hcservices.ecourts.gov.in/hcservices/ “3.We have heard both the parties andperused the material on record. The Id.A.R.Submitted that there was a repayment of Rs.3.05Crores in the subsequent assessment year andsustaining the addition of Rs.3.05 Crores bythe Ld. CIT (A) is not justified. The Id. A.R.Relied on the following judgments:- a)In the case of CIT v. Orissa CorporationP. Ltd. In [1986] 159 ITR 78 (SC) wherein heldthat “in this case the respondent had given thenames and addresses of the alleged creditors.It was in the knowledge of the Revenue that thesaid creditors were income-tax assessees. Theirindex numbers were in the file of the Revenue.The Revenue, apart from issuing notices undersection 131 at the instance of the respondent,did not pursue the matter further. The Revenuedid not examine the source of income of thesaid alleged creditors to find out whether theywere credit worthy. There was no effort made topursue the so-called alleged creditors. Inthose circumstances, the respondent could notdo anything further. In the premises, if theTribunal came to the conclusion that therespondent had discharged the burden that layon it, then it could not be said that such aconclusion was unreasonable or perverse orbased on no evidence. If the conclusion wasbased on some evidence on which the conclusioncould be arrived at, no question of law as sucharose. The High Court was right in refusing tostate a case.” b)in the case of DCIT v. Rohini Buildersin [2002] 256 ITR 360 (Guj) “The Tribunal found that the assessee haddischarged the initial onus which lay on it interms of section 68 by proving the identity ofthe creditors by giving their completeaddresses, GIR numbers / permanent accountnumbers and the copies of assessment orderswherever readily available, that it had alsoproved the capacity of the creditors by showingthat the amounts were received by the assesseeby account payee cheques drawn from bankaccounts of the creditors and the assessee wasnot expected to prove the genuineness of the cash deposited in the bank accounts of thosecreditors because under law the assessee can beasked to prove the source of the credits in itsbooks of account but not the source of thesource.” 3.1.On the contrary, the Id. D.R. Reliedon the judgment of CIT Vs. P.Mohanakala in[2007] 291 ITR 278 (SC) wherein held that: cash deposited in the bank accounts of thosecreditors because under law the assessee can beasked to prove the source of the credits in itsbooks of account but not the source of thesource.” 3.1.On the contrary, the Id. D.R. Reliedon the judgment of CIT Vs. P.Mohanakala in[2007] 291 ITR 278 (SC) wherein held that: “Reversing the decision of the High Court,that the findings of the Assessing Officer, theCommissioner (Appeals) and the Tribunal werebased on the material on record and not on anyconjectures and surmises. That the money cameby way of bank cheques and was paid through theprocess of banking transaction was not byitself of any consequences. The High Courtmisdirected itself and erred in disturbing theconcurrent findings of fact.” The Id. D.R submitted that the assesseehas not discharged the burden cast upon theassessee regarding identity of the parties,genuineness of the transactions and capacity ofthe lenders to advance the amount to theassessee. According to the ld. D.R the entireaddition was made by the AO to be sustained. 3.2. The Id. A.R drew our attention to theloan confirmation letters from M/s.MSGAssociates for Rs.50 Lakhs and Mr.BharatChandan for Rs.25 lakhs placed at page No.21 &19 of paper books respectively. As seen fromthe orders of the lower authorities, assesseecould not prove the source for the loan amountof Rs.3.05 crores received from M/s.AR.Com.Regarding the loan received from Mr.BharatChandan – for Rs.25 lakhs, M/s.MSG Associatesfor Rs.50 lakhs, the assessee had producedconfirmation letters and credit worthiness wasproved by providing bank accounts. The loanaccount was squared off in the same assessmentyear through payment by M/s.Forsee Financial &Consultancy Services and its associated concernthrough M/s.Aurobindo Finance & Hire PurchasePvt. Limited, which was paid on behalf ofassessee, namely Mr.C.V. Ravi. Similarcontention of the ld. A.R. was that loanoutstanding from M/s.AR.Com was repaid onbehalf assessee by M/s.Aurobindo Finance & Services Limited and M/s.Forsee Financial &Consultancy Services. The said repayments weremade by these group concerns for the assesseeon different dates during the financial years2008-09, 2009-10 and 2010-11 by the firm whichis not in existence. Out of the said amount ofRs.3.80 crores in total, a sum of Rs.2.55crores was settled by these entities towardsloan. But the fact remains that only a sum ofRs.23,93,000 is shown as outstanding as againsta sum of Rs.2.55 Crores paid by M/s.ForseeFinancial Services Ltd. The said figure ofRs.23.93 lakhs is not tallying with any of theentries in the books or in the bank statement.Since the said amount of Rs.2.55 crores is notfiguring in the name of Shri C.V. Ravi and itwas also observed that mere book transfers bymeans of journal entries were made between theground concerns. From the ledger extract, itcannot be treated as a genuine repayment onbehalf of Shri C.V. Ravi. The assessment yearunder consideration is Asst Year 2009-10. Hencethe remaining payments made in the subsequentfinancial years might have an impact in therespective assessment years. As far as thisassessment year is concerned, repayment of loanto the extent of Rs.2.55 crores standsunexplained since Ravi is not figuring asdebtor in the books of Forsee FinancialServices Ltd to the extent of Rs.2.55 Crores.Remaining amount of loan i.e., Rs.1.25 Croreswhich were repaid by way of sale of shares bythe assessee which was only during thefinancial years relevant to Asst Years 2010-11and 2011-12. 3.3.Thus, as far this year is concerned,the repayment of loan of Rs.2.55 crores standsunexplained since the said sum is stated to berepaid in the same year. On the remainingamount of Rs.1.25 crores, the said amount isnot figuring as loan in the books of C.V. Ravias he had stated that he did not maintain booksof accounts. Further it was also clearly provedthat the assessee was also not in a position toprove the source for the said loan viz.,M/s.A.R. Com. It is also pertinent to mentionthat a separate OD account was opened withOriental Bank of Commerce by M/s.Sri AurobindoFinance & Hire Purchase Ltd., to settle the loan amount of Rs.2.15 crores during thefinancial year 2008-09 and the entire amount ofRs.2.15 crores given by Oriental Bank ofCommerce was squared off by Sanguine MediaLtd., and Term Deposit Closure Proceeds of Rs.2crores in the same year. The OD account startsfrom 12.10.2008 and on 28.10.2008 there wasclosure proceeds of Rs.2 Crores. Other thanthis credit entry in the OD account all othercredit entries were only from M/s.SanguineMedia Ltd., in which the assessee was adirector. The payments in the OD accounts were,made only to M/s.AR.Com and M/s.ForseeFinancial Service Ltd., and no othertransactions are figuring in the OD account,the OBC (OD) account shows a closing balance ofRs.7920 for a period of three years. Based onthis elaborate analysis, the Assessing Officerhas come to the conclusion that the loan amountof Rs.3.8 crores unexplained, as on 31.03.2009.3.4.It is also to be noted that Inspectorvide his report dated 08.12.2011 and 09.12.2011stated that M/s.AR.Com is bogus entity and theaddress of the two partners are also fake /bogus. The assessee had completely failed toprove the genuineness of the transaction eitherway i.e., at the stage of “loan advanced” byM/s.AR.Com to the assessee and at the stage ofso-called “repayment” of the said loan, by theassessee to M/s.AR.Com. Further, the assesseehas also completely failed to show / establishthe nexus between the loans stated to be repaidby M/s.Forsee and M/s.Aurobindo on behalf ofthe assessee, and the flow of funds, if any,from the hands of the assessee himself to thesaid entities, as clearly highlighted in theRemand Report. 3.5.Being so, the loan standing the nameof M/s.AR.Com cannot be considered, as agenuine loan. The assessee, even failed toprove the identity of the creditors andgenuineness of the transactions. The burdencast on assessee would shift to assessee onlywhen assessee proved the identity of thecreditors. Then only the AO could probe thematter further and investigate the materialavailable before him to come to an independentconclusion before rejecting the explanationoffered by the assessee. In the present case, https://hcservices.ecourts.gov.in/hcservices/ 3.5.Being so, the loan standing the nameof M/s.AR.Com cannot be considered, as agenuine loan. The assessee, even failed toprove the identity of the creditors andgenuineness of the transactions. The burdencast on assessee would shift to assessee onlywhen assessee proved the identity of thecreditors. Then only the AO could probe thematter further and investigate the materialavailable before him to come to an independentconclusion before rejecting the explanationoffered by the assessee. In the present case, https://hcservices.ecourts.gov.in/hcservices/ the assessee has not proved all the aboveingredients stated above and the assessee beingfailed to discharge primarily burden cast uponit, the assessee cannot say “catch me if youcan”. The only contention of the assessee isthat the amount was borrowed by cheque and paidby cheque. However, it is to be noted thatrepayment was not by the assessee, but by thethird party. By appreciating all the materialon record, the AO came to the conclusion thatthe assessee's explanation, regarding this cashcredit could not be accepted in the case ofM/s.AR.Com. In such circumstances, we are notin a position to disturb the findings of thelower authorities in respect of credit in thename of M/s.AR.Com. Accordingly, the additionof Rs.3.05 crores in the name of M/s.AR.Com tobe considered as unexplained credit in thehands of the assessee, the addition sustainedby the Ld. CIT (A) is justified. Hence, thisground raised by the assessee stands rejected.3.6.Coming to the credit in the name ofM/s.MSG Associates for Rs.50 lakhs and ofMr.Bharat Chandan for Rs.25 lakhs, it wasstated by the AO in his Remand Report that theidentity of these two parties are proved byfiling confirmation letters. The contention ofthe ld.D.R is that the assessee has not repaidthe loan, but repayment by the third party. Inour opinion, when the AO himself given in theremand report that assessee had produced theconfirmation letters and credit worthiness ofthese parties, were also proved through bankaccounts, it is not appropriate on the part ofthe Departmental Representative to arguecontrary to the Remand Report submitted by theAO before the Ld. CIT (A), which is produced bythe Ld. CIT (A) in para 8.2 of his order. Beingso, we are not in a position to interfere withthe above findings of the Ld. CIT (A) indeleting these two additions. Accordingly,deletion is justified and confirmed the orderof Ld. CIT (A) on this issue.” 2.ThelearnedcounselfortheAssesseeMr.K.G.Raghunath made emphatic submissions before us that thelearned Tribunal erred in upholding the said additions, in thehands of the Assessee, where the Assessee had taken threegenuine loans from three persons viz., M/s.AR.Com, M/s.MSGAssociates and Mr.Bharat Chandan for subscribing to the Rights https://hcservices.ecourts.gov.in/hcservices/ Issue of the Company M/s.Sanguine Media Limited, in the saidprevious year, which was paid off substantially through bankingchannels and merely because the Assessee failed to produce theconfirmation and the person, the owner of M/s.AR.Com, an adverseinference against the Assessee could not have been drawn by theAuthorities below to make such additions. He further emphasizedthat the same financial company through whom the advance of theother two Creditors was repaid namely, M/s.Aurobindo Finance &Hire Purchase Private Limited and M/s.Forsee Financial &Consultancy Services and those credits and repayments werebelieved by the Assessing Authority, there was no reason not tobelieve a similar advance and repayment with regard toM/s.AR.Com. also. He therefore submitted that the learnedTribunal has erred in drawing such conclusion and the findingsof facts, therefore, are perverse and the question of law doesarise from the order of the learned Tribunal. 3. Per contra, learned Senior Standing Counsel for theRevenue supported the impugned order and even drew our attentionto the statements of the Assessee recorded under Section 131 ofthe Income Tax Act, 1961, which has been quoted in theAssessment order dated 20.12.2011, by the learned AssessingAuthority, while passing the orders under Section 143(3) of theAct and read with Section 147 of the Act. The said statement asaccepted by the learned Assessing Authority from Question No.7to Question No.14, as quoted in the statement under Section 131of the Act, dated 01.02.2010, are quoted herein below for readyreference: “Q.7. Please state whether you haveadvanced any loan to anybody or taken any loanfrom anybody?Ans: No, I have not advanced any loan toanybody. I have taken loan from the followingpersons: (1)M/s.A.R.ComRs.3,05,00,000/- on 04-09-2008(2)M/s.BharathRs. 25,00,000/- on 04-09-2008(3)M/s.MSG AssociatesRs. 50,00,000/- on04-09-2008Total Rs.3,80,00,000/-Q.8. Please state the purpose for which theabove loans have been taken? Ans: M/s.Sanguine Media Limited, came witha Rights Issue in September 2008, SEBI fixed theprice at Rs.23 for the 10 rupees share. Tosubscribe the promote share of 16.50 lakhs ofshares the above loans have been taken andutilized. Q.9.Please furnish the full details of the above loan transactions, such as present addressof the above persons, details of interest,repayment, mode of receipt etc? Ans: The above loan amounts have beenreceived through banking channels. At present, Ido not remember the addresses of Mr.Bharat andM/s.MSG Associates. The same will be furnishedtomorrow. The address is of M/s.AR.Com is notknown to me. Q.10.What is the balance amount payable toM/s.A.R.Com? Ans: There is no balance amount to be paidto M/s.A.R.Com since the present whereabouts ofM/s.A.R.Com and its proprietor is not known tome. I have not paid any interest for the loantaken. Q.11.Did you execute any agreement /document for obtaining loan amount of Rs.3.05crores from M/s.A.R.Com. If so, please furnishcopy of the same. Ans: I have not executed any agreement /document for obtaining loan amount of Rs.3.05crores from M/s.A.R.Com. Q.12.What is the business activity ofM/s.A.R.Com and who is the proprietor? Ans: I am neither aware of the businessactivity of M/s.A.R.Com nor the proprietor. Q.13.In answer to question No.10, you havestated that your are not aware of the businessactivity carried out by M/s.AR.Com, nor theproprietor. Then, please state that how did youprocured the loan amount of Rs.3.05 crores? Ans: I am unable to furnish the informationas the entire transaction an arranged one. Atthat time to subscribe the promoters issue of16.25 lakhs number of shares of M/s.SanguineMedia Limited, I needed a source in bank forsubscribing the same. Hence I approached myfriends, and they suggested that if I would givethe money in cash they would arrange cheques forthe same. Hence I paid the cash of Rs.3.05crores to one of my friend who arranged thecheques for the above amount. As the entiremoney is belonging to me I have not executed anyloan agreement / document for the abovetransaction. Hence I have not repaid the moneyto M/s.AR.Com. As I stated earlier that I nevermet anybody from M/s.AR.Com, in fact, I do notknow whether it is a company or proprietorshipconcern or Partnership firm. Q.14.In answer to question No.11, you havestated that you have paid cash amounting toRs.3.05 crores for obtaining cheques, Pleasestate what is your source for this amount ofRs.3.05 crores ? Ans: The above amount of Rs.3.05 Crores isout of my earnings as well as fund mobilizedfrom my friends and relatives. Now I am unableto give the names and address of the personsfrom whom I have mobilized funds. Q.15.When will you furnish the names andaddress of the persons from whom you have statedto have mobilized funds along with their incometax assessment details. Q.14.In answer to question No.11, you havestated that you have paid cash amounting toRs.3.05 crores for obtaining cheques, Pleasestate what is your source for this amount ofRs.3.05 crores ? Ans: The above amount of Rs.3.05 Crores isout of my earnings as well as fund mobilizedfrom my friends and relatives. Now I am unableto give the names and address of the personsfrom whom I have mobilized funds. Q.15.When will you furnish the names andaddress of the persons from whom you have statedto have mobilized funds along with their incometax assessment details. Ans: I am not able to produce names andaddress of anypersons and the entire money isreceived by me in cash from these persons.Hence, I admit the above amount of Rs.3.05crores as income in my hands. I undertake to paythe taxes on the above amount within a week'stime.” 4. The learned Senior Standing Counsel for the Revenuefurther submitted that though the said statement was later onretracted by the Assessee, but the time gap between the suchretraction and the said statement is more than one year. Thenext statement, which was recorded by the Assessing Authority,in which the said retraction was made and which was relied uponby the learned counsel for the Assessee also is of dated20.12.2011, which too is quoted in the Inspector's report dated09.12.2011 and the same is again extracted below for readyreference: “In continuation assessment proceedingssummon u/s. 131 of the Income-Tax Act, 1961dated 20-12-2011 was issued to the assessee. Thecopy of Sworn statement deposed by the assesseeon 01.02.2010, the copies of Inspectors enquiryreport furnished in respect of M/s.AR.Com andits partners Mr.ASRATH and Mr.Mohamed Kasim wereshown to the assessee. The copies were perusedby the assessee and sworn statement was recordedu/s.131 of the Income-Tax from him. Copy of the sworn statement is reproducedbelow: Q.1. Have you been told about theconsequences of giving false information underoath? Ans: Yes, I have been told about theconsequence of giving false information underoath. Q.2. Please identity yourself? Ans:IamC.V.Ravi,S/o.LateC.K.Varadhachari, Aged 60 years residing in theabove address. I am a post graduate inEconomics. I am married and my wife ishousewife, Mrs.R.Subhadra. I have one dautherwho is married, presently at USA. Q.3.Will you go through your swornstatement deposed u/s.131 of Income Tax Act,1961 before Shri K.V.Dillibabu, Income TaxOfficer, Investigation, Unit-III, Chennai – 34on 01.02.2010? Ans: OK Q.4.Have read the sworn statement deposedby you? Ans: YesQ.5.Have you gone through your confirmationgiven by your in your own handwriting about themode of recording of your sworn affidavit. Ans: Yes, I have gone through confirmationgiven by me on 01.02.2010. Q.6.Why at present you are retracting yourstatement? Ans: At that time under stress and I gavethat statement now I am in clear better state ofmind to retract the statement deposed by me. “ 5. The learned Senior Standing Counsel for the RevenueMr.T.Ravi Kumar, therefore submitted that on account of failureof the Assessee to produce any confirmation or the Assesseehimself, the additions made in the hands of the Assessee withregard to the alleged loan of M/s.AR.Com is justified and thefindings of facts do not deserve to be disturbed by this Courtand they are binding on this Court under Section 260A of theIncome Tax, 1961. 6. Having heard the learned counsel for the parties atlength and having perused the materials on record, we aresatisfied that no question of law, arises in the present appealfiled by the Assessee. On account of failure of the Assessee toproduce any confirmation from the said alleged creditorM/s.AR.Com and producing the Assessee in person before theAssessing Authority for cross examination, the Assessee hasobviously failed to establish even the identity of the Creditor https://hcservices.ecourts.gov.in/hcservices/ 6. Having heard the learned counsel for the parties atlength and having perused the materials on record, we aresatisfied that no question of law, arises in the present appealfiled by the Assessee. On account of failure of the Assessee toproduce any confirmation from the said alleged creditorM/s.AR.Com and producing the Assessee in person before theAssessing Authority for cross examination, the Assessee hasobviously failed to establish even the identity of the Creditor https://hcservices.ecourts.gov.in/hcservices/ much less the genuineness of the alleged loan transaction. Thereseems that a Survey had taken place at the place of the Assesseeand during that Survey, the statements recorded by the AssessingAuthority, the Assessee has not only admitted his ignorance ofeven knowing the said Creditor M/s.AR.Com, from whom he hasalleged to have been taken Rs.3.5 Crores as loan itself wasenough to draw an adverse inference against the Assessee and thebelated retraction, at a much later stage was of little help tothe Assessee. If at all the original statement was recorded bythe Assessing Authority, under duress of coercion, the Assesseecould have retracted the same at the earliest availableopportunity, after such statement was recorded. Taking a periodof more than one year and again except such retraction ofstatement, in the course of second round of recording statementsunder Section 131 of the Act only, retraction of such statement,without adducing any cogent evidence to establish the identityof the said Creditor and genuineness of the alleged loantransaction, the Assessee seems to have done nothing toestablish the genuineness of the entire loan transaction. It isnot even believable that from a person, from whom the loan ofRs.3 Crores is taken, is not even known to the Assessee and onlythe banking channels are relied upon to establish thegenuineness of the so called transaction, which banking channelscan be used even for fake transactions of circulating one's ownunaccounted money in fake names. 7. It is not unknown in the Income Tax field that suchbanking transactions can always be “created” by creating eventhe shell companies for the circulation of the black money. Itis the burden cast upon the Assessee to establish, not only theidentity of the Creditor, but also to establish the genuinenessof the loan transaction itself, including the capacity of theperson, for giving the loan, for a specified purpose. Neitherany written contract nor any identity of the Creditor, havingbeen established in the present case, we cannot find any faultwith the findings concurrently rendered by the three authoritiesbelow, that the said addition deserves to be made under Section68 of the Act. Merely because other two loan transactions, withtwo other persons was believed to be genuine and additions wereset aside, that is not a sufficient ground to hold that asimilar treatment should have been given with respect to thealleged loan transaction of M/s.AR.Com also. 8. In these view of the facts, we are satisfied thatthe findings of facts rendered by the learned Tribunal, do notcall for any interference by this Court under Section 260A ofthe Income Tax Act, 1961, and no question of law arises in the https://hcservices.ecourts.gov.in/hcservices/ present Appeal and the Appeal filed by the Assessee is found tobe devoid of any merit and the same is liable to be dismissed.Accordingly, the Tax Case Appeal is dismissed. No costs. Sd/- Assistant Registrar(CS VII)//True Copy// Sub Assistant Registrar TKTo1.The Income Tax Officer Business Ward – II (4) Chennai – 600 034. 2.Income Tax Appellate Tribunal 'A' Bench, Chennai.3.The Commissioner of Income Tax Appeals-2,Chennai.+1cc to Mr.T.Ravikumar, Advocate, S.R.No.38138TAX CASE (APPEAL) NO.630 OF 2017NRL(CO)KKV/31/12/2020