Commissioner Of Income Tax v. M/S Ametak Auto Ltd

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. Commissioner of Income Tax Vs. M/s Ametak Auto Ltd. I.T.A. No.131 of 2007 Date of decision: 7.12.2010 -----Appellant. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:-Ms. Urvashi Dhugga, Standing Counselfor the appellant. Mr. Lokesh Sinhal, Advocatefor the respondent. --- ADARSH KUMAR GOEL, J. 1. This appeal has been preferred by the revenue underSection 260-A of the Income Tax Act, 1961 (for short, “the Act”)against the order of the Income Tax Appellate Tribunal, NewDelhi dated 16.6.2006 in I.T.A. No.519/DEL/02 for theassessment year 1998-99 proposing to raise following substantialquestion of law:- “On the facts and circumstances of the case, whetherthe Hon’ble ITAT was right in upholding the order ofLd. CIT(A) deleting the addition of Rs.2,09,37,000/-made by the Assessing Officer u/s 68 of the IncomeTax Act, 1961, even though the assessee had notdischarged its burden of proving the identity,genuineness and crediworthiness of the creditors.” 2. The assessee is a private limited company. Duringassessment, the Assessing Officer found that the assessee had made cash credit entries of huge amount of unsecured loans,genuineness of which was doubtful. Accordingly, the assesseewas called upon to prove the identity, creditworthiness andgenuineness of the transactions and after consideration of theexplanation of the assessee, addition was made, treating thedeposits as income of the assessee. It was held that theassessee failed to discharge the burden under Section 68 of theAct about the nature and sources of deposits. The relevantobservations are:- “...... In spite of providing repeated opportunities as isclear from the order-sheet, the assessee has failed tofile confirmation/explanation/justification/ producedany thing well supported any corroborative evidencein respect of unsecured loans of Rs.2,09,37,000/-(2,12,00,000 minus 2,63,000/-. The depositors as perlist filed and placed on records are not assessed toIncome tax and the assessee company also could notprove their identification, creditworthiness andgenuineness of transaction. Under thesecircumstances, a sum of Rs.2,09,37,000/- is treatedthe assessee’s income earned from undisclosedsources and is added in the income of the assessee.”clear from the order-sheet, the assessee has failed tofile confirmation/explanation/justification/ producedany thing well supported any corroborative evidencein respect of unsecured loans of Rs.2,09,37,000/-(2,12,00,000 minus 2,63,000/-. The depositors as perlist filed and placed on records are not assessed toIncome tax and the assessee company also could notprove their identification, creditworthiness andgenuineness of transaction. Under thesecircumstances, a sum of Rs.2,09,37,000/- is treatedthe assessee’s income earned from undisclosedsources and is added in the income of the assessee.” 3. On appeal of the assessee, the CIT(A) deleted theaddition with the following observations:- “13. Ground No.4 is regarding aggregate addition ofRs.2,09,37,000/- being the amount of public depositaccepted u/s 58A of the Companies Act. I agree withthe submissions of the Ld. Counsel quoted above thatRs.2,09,37,000/- being the amount of public depositaccepted u/s 58A of the Companies Act. I agree withthe submissions of the Ld. Counsel quoted above that all the deposits have since been repaid by accountpayee cheques which are evidenced by the receiptsissued by the bankers of the depositors, as such theidentification, creditworthiness and genuineness of thedepositors are automatically proved. Moreover, therequirements of the provisions of Section 58A of theCompanies Act were complied with and accepted bythem. Accordingly, in view of the explanation given bythe Ld. Counsel in the rejoinder quoted above, theaddition made by the AO is hereby deleted. “ all the deposits have since been repaid by accountpayee cheques which are evidenced by the receiptsissued by the bankers of the depositors, as such theidentification, creditworthiness and genuineness of thedepositors are automatically proved. Moreover, therequirements of the provisions of Section 58A of theCompanies Act were complied with and accepted bythem. Accordingly, in view of the explanation given bythe Ld. Counsel in the rejoinder quoted above, theaddition made by the AO is hereby deleted. “ 4. Appeal of the revenue against the order of CIT(A) hasbeen dismissed by the Tribunal. The relevant finding is asunder:- “8....... The assessee, as is evident from ourdiscussion from the earlier paragraph, could notsubmit confirmation from each of the creditors.Certainly in our view, seeking a confirmation fromeach and every individual creditor was not an easytask. Nevertheless, it also cannot be disregarded thatthe credits in question certainly fall within the scope ofthe provisions of section 68 of the Act. Section 68 ofthe Act authorizes an Assessing Officer to verify thenature and source of the credits appearing in thebooks of account of the assessee and in case theassessee does not furnish an explanation or furnishesan explanation which is not to the satisfaction of theAssessing Officer, the credits in question can beassessed as income in the hands of the assessee.The parameters to explain the nature and source of acredit are regarding the identity, creditworthiness ofthe creditor and the genuineness. However, the abovesaid conventional parameters have to (?) formswhereby it had received deposits for Rs.2,63,000/-which have been accepted as explained. The factthat the Assessing Officer was satisfied about thenature and source of the credit on the basis of theapplication forms in the case of three creditors itselfshows an inconsistency in his approach. If accordingto him, the vetting of the application form was enoughto discharge the onus cast on the assessee undersec.68 of the Act, he ought not to have made anyaddition. It is starkly evident that if the AssessingOfficer was satisfied that the assessee haddischarged the onus cast under section 68 on thebasis of the application forms of three depositors,nothing prevented him from being satisfied with therest of the deposits also. This is for the reason thatthere is no denying the fact that the entire deposits inquestion have been received by the assessee on thebasis of the application forms submitted by thedepositors. 10. Further it is clear from the assessee’scommunication to the lower authorities that only threeapplication forms were submitted merely to illustratethe manner in which the transaction has been carriedout. Moreover, for none of the deposits had theAssessing Officer taken any unexplained. Therefore,considering the overall gamut of facts andcircumstances of the issue, we are inclined to affirmthe conclusion of the CIT(Appeals) in deleting theaddition made by the Assessing Officer. 12. The plea of the revenue that the order of the CIT(Appeals) is non-speaking, we do not find anyjustifiable reasons to interfere on this count. We find 10. Further it is clear from the assessee’scommunication to the lower authorities that only threeapplication forms were submitted merely to illustratethe manner in which the transaction has been carriedout. Moreover, for none of the deposits had theAssessing Officer taken any unexplained. Therefore,considering the overall gamut of facts andcircumstances of the issue, we are inclined to affirmthe conclusion of the CIT(Appeals) in deleting theaddition made by the Assessing Officer. 12. The plea of the revenue that the order of the CIT(Appeals) is non-speaking, we do not find anyjustifiable reasons to interfere on this count. We find that the CIT(Appeals), after getting the submissionsand the material from the assessee, sent the same tothe Assessing Officer and called for a remand report.The Assessing Officer duly submitted his report.Even at this stage, it was open for the AssessingOfficer to have conducted further inquiries. But nosuch opportunity has been utilized. Nevertheless, theCIT(Appeals), after having considered the rivalsubmissions has made the decision to delete theaddition. While it may show an absence of a detaileddiscussion on the part of the CIT(Appeals) inconcluding the issue, nevertheless the CIT(Appeals)has, in extensor referred to the submissions of theassessee as also the remand report of the AssessingOfficer in this regard. Therefore, merely because theorder of the CIT(Appeals) in brief, cannot be a reasonto interpret it as a non-speaking order...” 5. We have heard learned counsel for the parties. 6. Learned counsel for the revenue submitted that inabsence of satisfactory explanation, the Assessing Officer wasjustified in treating the amount of cash deposits as income of theassessee and the CIT(A) as well as the Tribunal erred in holdingthat the assessee had given sufficient explanation only onaccount of the fact that the deposits had been accepted inaccordance with Section 58A of the Companies Act, 1956. Merefact that procedure under Section 58A of the Companies Act wasfollowed, was not conclusive of genuineness of the depositsmade. 7. Section 68 of the Act is intended to check undisclosedincome being shown as deposits, so that real income does notescape assessment. Whenever cash deposits are found in theaccount books, burden is placed on the assessee to explainnature and source thereof and if no explanation is furnished orthe explanation furnished is not satisfactory, the amount creditedcan be charged as income of the assessee. Mere fact thatprocedure under Section 58A of the Companies Act was followed,cannot be conclusive of genuineness of the deposits. Thestatutory procedure under the Companies Act is merely intendedto safeguard the interest of the depositor and the company isrequired to act in accordance with the guidelines issued by theCentral Government in consultation with the Reserve Bank ofIndia. Inspite of such guidelines having been followed, theAssessing Authority can go into the genuineness or otherwise ofthe deposit made. In the present case, the Assessing Officergave due opportunity to the assessee to prove identity andcreditworthiness of the depositors as well as the genuineness ofthe transaction. It was not difficult for the assessee to proveidentity and status of the depositors. No effort was made by theassessee to discharge the burden statutorily placed on it in thatregard. No doubt, the assessee furnished the list of depositorswith their addresses but mere furnishing of the said material wasnot enough to discharge the burden. The assessee could haveproduced documents taken from the depositors at the time deposit, which could establish their identity and status and alsoinspire confidence about the genuineness of the depositors. Thishaving not been done, as held by the Assessing Officer, the CIT(A) could either give further opportunity or drawn adverseinference against the assessee for withholding material availablewith it. While deleting the addition, only ground which the CIT(A)has mentioned is that the deposits were as per Section 58A of theCompanies Act, which in our view could not be conclusive. TheTribunal also failed to appreciate the patent error in the viewtaken by the CIT(A). Question of law as to perversity of finding ofthe CIT(A) and the Tribunal does arise for consideration and hasto be answered in favour of the revenue. 8. Accordingly, the appeal is allowed to the extent of theissue raised and discussed hereinabove. The orders of the CIT(A) and the Tribunal are set aside and the matter is remanded toCIT(A) for fresh decision in accordance with law. 9. The assessee may appear before the CIT(A) forfurther proceedings on 9.2.2011. (ADARSH KUMAR GOEL) JUDGE December 07, 2010ashwani (AJAY KUMAR MITTAL) JUDGE