Hon’ble Sri Justice v. Eswaraiahand

HON’BLE SRI JUSTICE V. ESWARAIAHAND HON’BLE SRI JUSTICE K.G. SHANKAR ITTA NO. 110 OF 2012 DATED 13.04.2012 BETWEEN: M/s. Sri Chakra Cements Ltd … Appellant And The Income Tax Officer,Ward 3 (1), Hyderabad … Respondent JUDGMENT:(per Hon’ble Sri Justice V. Eswaraiah) This Appeal, under Section 260A of the Income Tax, 1961(for short ‘the Act’) arising out of the assessment year 1996-97,is sought to be filed alleging that the following are thesubstantial questions of law that arise for consideration: “1. Whether on the facts and circumstances of thecase, the Hon’ble Tribunal is right in upholding the orderof the Commissioner of Income Tax (Appeals) whosustained an addition of Rs.50 lakhs under Section 68 ofthe Income Tax Act, 1961 on the ground that theappellant has failed to prove the identity of the party andthe genuineness of the transaction? 2. Whether on the facts and circumstances of thecase, it could be concluded that the appellant has notdischarged the primary onus cast on it by section 68 ofthe Act and no duty is cast on the assessing office tomake further enquiries specially in the absence of anyfinding that the investor company was a mere namelender?” The facts of the case are that the appellant is a companycarrying on the manufacture of sale of cement. The appellantfiled a return of income on 29.11.1996 admitting “Nil” incomeafter setting off of brought forward losses. The AssessingOfficer originally completed the assessment on 30.3.1999under Section 143 (3) of the Act and determined the totalincome at Rs.3,96,59,292/-. Therefrom, the Assessing Officerreduced the unabsorbed depreciation of a similar amount. While determining the said income, the Assessing Officeradded the increase in the share capital of Rs.3,19,50,000/-. The appellant filed an appeal before the Commissioner ofIncome Tax (Appeals), who set aside the assessment andremanded the matter to the Assessing Officer. The AssessingOfficer completed the re-assessment on 28.10.2002 underSection 143 (3) r/w Section 251 of the Act. It is stated that on remand, the appellant was addressedvarious letters for furnishing the information about theinvestment and in response to the letters and notices issued tothe Chartered Accountant and also to the Manager (Accounts)of the appellant, they appeared and furnished the details withregard to Rs.3,19,50,000/- of the share capital. The appellantwas able to furnish the material about the investment in sharecapital through Demand Drafts, which were reflected in thebooks of accounts of the respective companies as well as theindividuals, which were routed through official channels andaccordingly the relief was granted to the appellant forinvestment of the share capital of Rs.2,69,50,000/-, but insofaras Rs.50,00,000/- is concerned, it was added as cash credit ofthe appellant on the ground that the investment ofRs.50,00,000/- is said to have been invested by Gold CrestFinance (India) Limited. With regard to the said investment byGold Crest Finance (India) Limited, the appellant could notproduce any information about the whereabouts of the saidcompany in spite of addressing letters on 23.9.2002. In computing the said income of Rs.50 lakhs of theappellant, the appellant filed an appeal before the In computing the said income of Rs.50 lakhs of theappellant, the appellant filed an appeal before the Commissioner of Income Tax (Appeals) IV, Hyderabad, who byorder dated 5.1.2004 held that the amount of Rs.50 lakhs byDemand Drafts said to have been received by the Gold CrestFinance (India) Limited towards inter corporate deposit payableon demand was not able to be established. It is stated that thesaid Rs.50 lakhs was said to have been received as intercorporate deposit payable on demand but not towards theshare capital. The Commissioner also stated that the appellantalso admitted that the whereabouts of the said investor M/sGold Crest Finance (India) Limited, are not known and theidentity of the creditor has not been established by theappellant. The creditworthiness itself is not established. Theappellant merely states that creditor is a limited company andassessed to tax but no evidence is furnished like P & LAccount, balance sheet or evidence regarding creditworthinessof the creditor. Merely because the amount was received byway of Demand Draft through the banking channels, it cannotbe said that the said amount is not a cash credit as theexistence of the creditor itself is not established. Admittedly, theonus is on the appellant to prove the genuineness of the saidtransaction. The appellant has failed to establish the identity ofthe creditor and, it’s creditworthiness as well as thegenuineness of the transaction. Accordingly, the Commissioner of Income Tax dismissedthe appeal holding that the Assessing Officer correctly addedRs.50 lakhs as unexplained credit under Section 68 of the Act. As against the said order, the appellant filed ITANo.181/Hyd/2004, on the file of the Income Tax Appellate Tribunal, Hyderabad, and the Tribunal by the impugned orderdated 28.6.2006, dismissed the appeal. After going through the facts and circumstances of thecase, it is to be seen as to whether the questions raised by theappellant before this Court are the substantial questions of lawthat arise for consideration or not? We are of the opinion that insofar as the first question isconcerned, we do not see any substantial question of lawarising for consideration as admittedly the appellant failed toprove the identity of the party and the genuineness of thetransaction and therefore the Assessing Officer, the AppellateCommissioner as well as the Income Tax Appellate Tribunalrightly sustained the addition of Rs.50 lakhs under Section 68 ofthe Act. Insofar as the second question is concerned, we are ofthe opinion that the appellant has failed to discharge theprimary onus cast on it by Section 68 of the Act and it cannot besaid that a duty is cast on the Assessing Officer to make furtherenquiry, especially when the appellant has failed to dischargehis initial burden. This Court is also of the opinion that when the existenceof the investor-company itself is established, merely becausethe entry was entered in the books of accounts as if the amountwas received by demand draft, it cannot be said that theappellant has no legal obligation to explain the nature andsource of the credit. He failed to tender any evidence regardingthe said cash credit and therefore the Assessing Officer isjustified in rejecting the claim of the appellant as he has failed todischarge the burden in explaining the said investment. Further, mere furnishing of the particulars of the investor is notenough and payment of the said amount by way of demanddraft is not sacrosanct nor can it make a non-genuinetransaction as genuine. The onus is on the appellant to offerexplanation as to the nature and source of the said credit andhe has failed to establish the identify of the creditor andtherefore we are of the opinion that the Tribunal rightlydismissed the appeal. Further, mere furnishing of the particulars of the investor is notenough and payment of the said amount by way of demanddraft is not sacrosanct nor can it make a non-genuinetransaction as genuine. The onus is on the appellant to offerexplanation as to the nature and source of the said credit andhe has failed to establish the identify of the creditor andtherefore we are of the opinion that the Tribunal rightlydismissed the appeal. Under Section 68 of the Act, mere furnishing of the nameof the creditor and the particulars of the demand draft to whichthe said amount of Rs.50 lakhs was received is not a sufficientexplanation about the nature and source of the said Rs.50lakhs and therefore the appellant has failed to explain the cashcredit of Rs.50 lakhs and which was rightly charged to incometax as income of the assessee. The said investment of Rs.50lakhs is rightly added as income of the previous years. In our opinion, the Tribunal rightly rejected the contentionof the appellant with regard to the contentions that theAssessing Officer ought to have conducted a further probe byissuing a notice or summons in examining the creditor. Whenthe existence of the creditor itself was not established by theappellant and when he has failed to discharge the primaryburden, which lies on him, the question of conducting furtherenquiry or probe does not arise. Therefore, we do not see anysubstantial questions of law arising for consideration to admitthe appeal. The appeal is accordingly dismissed. No order as tocosts. As the appeal is dismissed, miscellaneous petitions shallstand closed. __________________________ JUSTICE V. ESWARAIAH __________________________ JUSTICE K.G. SHANKAR DATE: 13.04.2012 CVM