Commissioner Of Income Tax, Jaipur v. M/S Sideways Investment Pvt. Ltd

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR. (1) D.B. Income Tax Appeal No.55/2000 Commissioner of Income Tax, Jaipur Vs. M/s Sideways Investment Pvt. Ltd. (2) D.B. Income Tax Appeal No.43/2001 M/s Sideways Investment Pvt. Ltd. Vs. Union of India & ors. DATE OF ORDER ::: 25[th] October, 2016 HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE MAHENDRA MAHESHWARI Mr. R.B. Mathur with Mr. K.D. Mathur, for the appellant.Mr. Sunil Nath, Mr. Shivangshu Naval & Mr. Archit Bohra, forthe respondent. BY THE COURT:- (Per Hon'ble Jhaveri, J.) 1.Both these appeals since involve identical substantialquestions of law, therefore heard together & are beingdecided by this common judgment. 2.Both these appeals are preferred one by the Departmentagainst the order of the Tribunal whereby the Tribunal hasreversed the order of the CIT(A) & AO and other by the assesseeagainst the additions made by the tribunal. 2.1This court while admitting the matter on 19.11.2001framed following substantial questions of law:- "(i)whether in the facts and circumstances ofthe case, the learned ITAT was justified indeleting the additions made by the AssessingOfficer and confirmed by the worth CIT(A)without there being any contrary evidence? (ii)Whether on the facts and circumstances ofthe case, the learned ITAT was right in holdingthat the credits can be taxed only at the firstpoint and not in the hands of the assessee inwhose books, the credit has been shown? (iii)Whether on the facts and circumstances ofthe case, merely filing of confirmation letters bythe creditors is enough or assessee has to furthershow the credit worthiness and genuiness of thecreditors? (iv)Whether in the facts and circumstances ofthe case, the onus is discharged by the assesseemerely by filing the confirmation letter regardingthe credits and he has not to show further creditworthiness and genuineness of the credit? (v)Whether on the facts and circumstances ofthe case, the worthy ITAT was justified in holdingthat the creditors companies were geuninecompanies and were not only a paper companies,as they were juristic persons and were beingassessed in their individual capacity? (vi)Whether on the facts and circumstances ofthe case, the learned Tribunal was justified inholding that a company being a juristic person,cannot be treated as paper companies even ifevidence suggests that these are bogus offictitious entries? (vii) Whether the facts and circumstances of thecase, the order of the learned Tribunal isperverse. In as much as it has failed to take intoaccount that the assessee company was afictititous and bogus company being a part ofwide spread fraud and scam of formation ofbogus investment companies for converting blackmoney to white? (viii) Whether on the facts and circumstances ofthe case, the worthy ITAT was justified in holdingthat the cases of companies namely M/s SartajMachines Pvt. Ltd. and M/s Garima Machines Pvt.Ltd. were assessed after proper enquiries, thoughthe assessment of M/s Sartaj Machines Pvt. Ltd.was merely proceessed under section 143(1) (a)of the Act? (ix)Whether on the facts and circumstances ofthe case, the worthy ITAT was justified in holdingthat the advance received by the assesseecompany from M/s Sartaj Machines Pvt. Ltd. wassatisfactorily explained? (x)Whether on the facts and circumstances ofthe case, the fidings of the worty ITAT were correct in view of the law laid by ITR 148 and157 ITR 77?" 3.The only point which came for our consideration is that the Tribunal while considering the matter in paragraph no.8observed as under:- (ix)Whether on the facts and circumstances ofthe case, the worthy ITAT was justified in holdingthat the advance received by the assesseecompany from M/s Sartaj Machines Pvt. Ltd. wassatisfactorily explained? (x)Whether on the facts and circumstances ofthe case, the fidings of the worty ITAT were correct in view of the law laid by ITR 148 and157 ITR 77?" 3.The only point which came for our consideration is that the Tribunal while considering the matter in paragraph no.8observed as under:- "we have heard the rival parties and haveperused the material available on record. Theundisputed facts are that the appellant companyreceived Rs. 2,30,75,000/- from M/s. SartajMachines Pvt. Ltd. is assessed to tax atJullundhar. Before the AO at Jullundhar, thiscreditor company has filed its Profit & LossAccount and Balance-Sheet. The advance somade duly appears in the Balance Sheet. Theadvance so made duly appears in the BalanceSheet. M/s Sartaj Machines Pvt. Ltd. not onlytransferred the amount through account payeecheque but also confirmed the fact of makingadvance Shri R.P. Sharma of the creditorcompany was interrogated and examined by theAO on oath Shri Sharma, Director of theCompany, has accepted and confirmed havingadvanced this amount to the appellant company.We, therefore, feel that the assessee hasdischarged its primany onus of establishing theidentity of the creditor proving the genuinenessof the transaction and also the source of thecreditor appearing in his books of account. TheAO is doubting the creditworthiness of M/s SartajMachines Pvt. Ltd., Jullundhar on the ground thatthis company has no capacity to advance such anamount and the amount so advanced was out ofloan raised from various parties. The CIT(A) hastreated the creditor company as well as M/s.Garima Machines Pvt. Ltd as paper companies onthe ground that both these companies are notcarrying on any business activities. According tohim, mereby because the amount was receivedthrough account payee cheque, transactionwould not become genuine. He even doubted thereceipt of amount by M/s. Sartaj Machines Pvt.Ltd. from M/s. Garima Machines Pvt. Ltd. as amade us affair. We do not agree with thecontentions and arguments raised by the ld.CIT(A), which were strongly followed by the ld.D.R. On the ground that assessee is not supposed to know or prove the source of hiscredits. Besides, the credit can be taxed if notgenuine at the first point where it wasintroduced. The AO as well as the CIT(A) acceptthat the amount was received by M/s. GarimaMachines Pvt. Ltd. from third party. This veryamount was transferred to M/s. Sartaj MachinesPvt. Ltd. and M/s. Sartaj Machines Pvt. Ltd., inturn, advanc ed the same amount to theappellant companies. We are, therefore, of theconsidered opinion that if this amount is requiredto be added as not genuine, it can be only at thetime when the same was received by M/s.Garima Machines Pvt. Ltd. and not after thirdgeneration transactions in the hands of theappellant company. We also do not subscribe tothe view that all these companies are papercompanies. They are juridical persons and wereassessed in their individual capacity by therespective Assessing Officers. We also observethat assessments of M/s. Sartaj Machines Pvt.Ltd. and M/s. Garima Machines Pvt. Ltd. werecompleted after the enquiries made by DDIT,Jaipur. This proves the fact that nothing adversewas found by the AO in these two firms." 4.The amount of Rs.2,30,75,000/- which has beenreceived from M/s Sartaj Machines Pvt. Ltd., Jullundhar wasnot a bonafide transaction it is only a paper company for thepurpose of transaction. 4.The amount of Rs.2,30,75,000/- which has beenreceived from M/s Sartaj Machines Pvt. Ltd., Jullundhar wasnot a bonafide transaction it is only a paper company for thepurpose of transaction. 5.Counsel for the appellant Mr. Mathur has taken usthrough the findings of the AO and CIT(A) and hascontended that the observations which are made inparagraph no.5 by the Tribunal was for the subsequent yearbeing one of the member is common. In both the matters asin paragraph no.5 this Court framed following question inthe appeal preferred by the assessee No.43/2001 vide orderdated 9.8.2016 as under:- "whether on the facts and circumstances of thecase in law the Tribunal was justified in law inconfirming the addition, when the assessee hasdischarged its primary burden of proving theidentity and capacity of the creditor andgenuineness of the transaction and the onusshifts to the revenue to show by materialevidence that the amount standing in the nameof third party does not belong to him but theassessee." 6.We have heard counsel for the parties. 7.Taking into consideration the requirement by the assessee that he has proved identity, transactions and thesame is reflected in the balance sheet of M/s SartajMachines Pvt. Ltd. was established, in that view of thematter, the tribunal has not committed any error inaccepting the transactions which were made. 8.In the first matter, the issues are required to beanswered in favour of the assessee against the Department. 9.In the second matter, the tribunal has rightlydistinguished since for the earlier transactions, nomachinery was supplied, and therefore, observed as under:- "No portion of the amount so received has beenshown utilised for the purpose of the transactionclaimed to have been entered. The notes appendedto the Balance Sheet of the company state at NoteNo. 5 that the company deals in sale, purchases,allotment of shares/warrants, hence quantitativedetails are not furnished. It did not say that thecompany was doing the business of material forwhich the alleged credits are standing in theiraccounts. In fact the investments have been madepurchase of shares of Usha Group of companies". 6 10.In that view of the matter, we are in completeagreement with the view taken by the tribunal. The issueanswered in favour of the department against assessee. 11.Both the appeals are required to be dismissed and thesame are dismissed. (Mahendra Maheshwari), J. (K.S. Jhaveri), J. Brijesh5.