Ita/81/2012 Of P.d.abraham Alias Pappachan v. The Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC &THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU TUESDAY, THE 19TH DAY OF SEPTEMBER 2017/28TH BHADRA, 1939 ITA.No. 81 of 2012------------------- APPELLANT/APPELLANT:-------------------- P.D.ABRAHAM ALIAS APPACHAN: 'SWARGACHITHRA”: JAIL ROAD, CALICUT. BY ADVS.SRI.P.RAGHUNATH SRI.PREMJIT NAGENDRAN RESPONDENTS:------------ THE COMMISSIONER OF INCOME TAX KOZHIKODE. R BY ADV. SRI.JOSE JOSEPH, SC FOR INCOME TAX R1 BY ADV. SRI.P.K.R.MENON, SR.COUNSEL, GOI(TAXES) THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 19-09-2017,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ANTONY DOMINIC, J. & DAMA SESHADRI NAIDU, J. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - I.T.A.No.81 of 2012 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 19[th] day of September, 2017 Antony Dominic, J. JUDGMENT This appeal is filed by the assessee impugning the order passed by the Income Tax Appellate Tribunal, Cochin Bench in ITA 172/09concerning the assessment year 2003-2004. 2. The assessee is a film producer. He claims to have availedloans from various sources. On the ground that the assessee failed tosatisfy the source or genuineness of the loans availed, by Annexure Aassessment order, Rs.1,76,82,500/- was added to the income of theassessee as unexplained credits under Section 68 of the Income Tax Act.The assessee carried the matter in appeal. Before the AppellateAuthority, assessee had produced certain accounts, confirmation lettersand PAN cards of some of the lenders. The 1[st] Appellate Authoritysought a Remand Report from the assessing officer. Annexure O is theremand report furnished, the relevant portion of which reads thus: “In this connection, it may be submitted that theassessee has submitted confirmation letter in respect of theloans added under Section 68 except in the following cases:- Sl.No. Name of the Party Amount Since no proper loan confirmations have been filed inrespect of the above 10 parties, the identity of the party,genuineness of transaction and credit worthiness of the saidparties have not been established and hence it appears thatthe above said loans are not genuine. Confirmations have been furnished by the AR of theassessee in respect of the following parties: Although the parties mentioned above at Sl.Nos.1 to 4have submitted confirmation letters directly also, none ofthe said parties have either submitted any bank accountextracts or any evidence regarding the nature and source ofthe money paid to the assessee as loan. Though theassessee's AR was specifically requested for to produce theparties for personal examination, the assessee did notproduce any of them. Hence the genuineness of thetransaction and creditworthiness of the above said partieshave not been proved and as such it appears that the saidloans are not genuine. The loans taken from Sundaram Finance ofRs.450,000/- and Rs.600,000/- respectively and from VijayaBank of Rs.500,000/- are towards financing car purchasesand the statements of the loan from the respective partieshave been furnished.” 3. After receipt of the Remand Report and hearing the assessee, the 1[st] Appellate Authority partly allowed the appeal as per Annexure Porder whereby the appeal to the extent of credits of Rs.15,50,000/-availed from Sundaram Finance and Vijaya Bank was allowed. Theassessee carried the matter in appeal before the Tribunal. ByAnnexure S order, the Tribunal confirmed the addition to the extent ofRs.159.475 lakhs. It is in these circumstances, the assessee has filedthis appeal and the questions of law framed are the following: The loans taken from Sundaram Finance ofRs.450,000/- and Rs.600,000/- respectively and from VijayaBank of Rs.500,000/- are towards financing car purchasesand the statements of the loan from the respective partieshave been furnished.” 3. After receipt of the Remand Report and hearing the assessee, the 1[st] Appellate Authority partly allowed the appeal as per Annexure Porder whereby the appeal to the extent of credits of Rs.15,50,000/-availed from Sundaram Finance and Vijaya Bank was allowed. Theassessee carried the matter in appeal before the Tribunal. ByAnnexure S order, the Tribunal confirmed the addition to the extent ofRs.159.475 lakhs. It is in these circumstances, the assessee has filedthis appeal and the questions of law framed are the following: 1. Whether, in a case where an assessee takes loans fromFinanciers/Money Lenders through account payee chequesin compliance with the provisions of Sec.269 Ss of the IT Act,the assessee has the burden of proving the “source” fromwhich the Creditor has given such loan/s? 2. Whether the appellant is right in claiming that he hasdischarged the burden cast on him under Sec.68 of theIncome Tax Act when he established the identity of theCreditors and proved that the loans have been received asper Account Payee Cheques? 3. Whether in view of the provisions of Sec.106 of the IndianEvidence Act, it is not correct to state that the burden caston the assessee under Sec.68 is “limited” and is restricted toshowing that the loans have been taken by way of AccountPayee Cheques and establishing the identity of the creditor? 4. Whether in the facts and circumstances of the case, theappellant is not right in submitting that he has dischargedthe burden cast on him under Sec.68 by submitting theCopies of Ledger Folios maintained by the Creditors in theirbooks of accounts, in respect of the appellant? 4. We heard the counsel for the assessee and the learned Senior Counsel for the Revenue. 5. While according to the counsel for the assessee, the assessee having produced the entire materials available at his possession it wasfor the assessing officer to have made enquiries and on that basisdecided the claim of the assessee, on the other hand, the learned Senior Counsel for the Revenue contended that the assessee having notdischarged his burden in proving the three requirements of Section 68,namely, identity of the creditors, source and genuineness of thetransaction, the assessing officer was justified in making the addition. 6. We have considered the submissions made. Section 68 of theIncome Tax Act, provides that where any sum is found credited in thebooks of an assessee maintained for any previous year, and the assesseeoffers no explanation about the nature and source thereof or theexplanation offered by him is not, in the opinion of the Assessing officer,satisfactory, the sum so credited may be charged to income tax as theincome of the assessee of that previous year. This provision has comeup for interpretation before various courts and it has been held that it isfor the assessee to prove the identity of the creditors, theircreditworthiness and the genuineness of the transactions. 7. Insofar as this case is concerned, the answer to the questionsframed for the consideration of this court would depend upon ourconclusion as to whether the assessee has proved the identity of thecreditors, their creditworthiness and the genuineness of the 7. Insofar as this case is concerned, the answer to the questionsframed for the consideration of this court would depend upon ourconclusion as to whether the assessee has proved the identity of thecreditors, their creditworthiness and the genuineness of the transactions. Facts as disclosed from the materials, including theRemand Report of the assessing officer, show that apart from thecontention of the assessee that the amount was received throughbanking channels and producing the accounts, confirmation letters andPAN cards of some of the lenders, the assessee has not taken any stepsfor proving the creditworthiness of the lenders or the genuineness ofthe transactions. In other words, even if the documents produced bythe assessee are taken at its face value, those documents at best provedthe identity of the creditors and nothing more. Law is also trite that thefact that the amounts have been received by the assessee throughbanking channels or that amounts received by the assessee is reflectedin the accounts of the lender are of no moment insofar as the dischargeof burden under Section 68 of the Income Tax Act is concerned. 8. Learned counsel for the assessee contended that the assesseehaving produced the aforesaid materials before the assessing officer, itwas for the assessing officer to make enquiries and satisfy himself of thecreditworthiness and genuineness of the transaction. According to us,this submission is totally misconceived and has been directly answered by Calcutta High Court in its judgment in Commissioner of Income Tax v. Precision Finance Private Limited [1994] 208 ITR 465, where it has beenheld thus: “5. It is for the assessee to prove the identity of thecreditors, their creditworthiness and the genuineness of thetransactions. In our view, on the facts of this case, theTribunal did not take into account all these ingredientswhich have to be satisfied by the assessee. Mere furnishingof the particulars is not enough. The enquiry of the Income-tax Officer revealed that either the assessee was nottraceable or there was no such file and, accordingly, the firstingredient as to the identity of the creditors had not beenestablished. If the identity of the creditors had not beenestablished, consequently the question of establishment ofthe genuineness of the transactions or the creditworthinessof the creditors did not and could not arise. The Tribunaldid not apply its mind to the facts of this particular case andproceeded on the footing that since the transactions werethrough the bank account, accordingly, it is to he presumedthat the transactions were genuine. It was not for theIncome-tax Officer to find out by making investigation fromthe bank accounts unless the assessee proves the identity ofthe creditors and their creditworthiness. Mere payment byaccount payee cheque is not sacrosanct nor can it make anon-genuine transaction genuine. In that view of the matter,the question before us is answered in the negative and infavour of the Revenue.” 9. Learned counsel for the assessee relied on the judgments of the Delhi High Court in Commissioner of Income Tax v. Divine Leasing and Finance Ltd. and others [2008] 299 ITR 268 (Delhi)which has confirmedby the Apex Court by dismissing the Special Leave Petitions and thejudgments of the Bombay High Court in Commissioner of Income Tax v.Gagandeep Infrastructure Private Limited [2017] 394 ITR 680 (Bom)andCommissioner of Income Tax v. Orchid Industries Private Limited [2017]397 ITR 136 (Bom). 9. Learned counsel for the assessee relied on the judgments of the Delhi High Court in Commissioner of Income Tax v. Divine Leasing and Finance Ltd. and others [2008] 299 ITR 268 (Delhi)which has confirmedby the Apex Court by dismissing the Special Leave Petitions and thejudgments of the Bombay High Court in Commissioner of Income Tax v.Gagandeep Infrastructure Private Limited [2017] 394 ITR 680 (Bom)andCommissioner of Income Tax v. Orchid Industries Private Limited [2017]397 ITR 136 (Bom). 10. However, a reading of these judgments would show that inthese cases the court was concerned with the orders of the Income Taxofficers making additions of the share application money received bythe assessee companies. In those cases, considering the fact that theassessee would not have any knowledge about source of the respectiveapplicant or even their identity and the assessee having produced theshare application form, the share certificates, the PAN card of theapplicants was taken to have discharged their burden under Section 68of the Income tax Act. According to us, such a factual situation is totallyincomparable with the case of the assessee who has borrowed moneyfrom few known lenders whose creditworthiness and genuineness ofthe transaction were matters for the assessee to prove. : 9 : 11. The assessee having failed to discharge the burden of proof, the assessing officer, the 1[st] appellate authority and the Tribunal werefully justified in making the additions and confirming the same. Therefore, answering the questions of law framed in favour of theRevenue and against the assessee the appeal is dismissed. sd/- ANTONY DOMINIC JUDGE jes sd/- DAMA SESHADRI NAIDU JUDGE