S.68 Assessee only required to provide evidence of identity & transactions

Case Law Details
Case Name : ACIT vs. M/s Dhanlaxmi Equipment Pvt. Ltd. (ITAT Jaipur)
Appeal Number : ITA No.1103/JP/2011
Date of Judgement/Order : 21.03.2016
Related Assessment Year : AY 2008-09
Brief of the case:

The Jaipur bench of ITAT in the above cited case held that the assessee is only expected to produce the documentary evidences regarding the transaction and identity of the persons from whom it has accepted the deposits. Assessee is not required to offer an explanation regarding the source of the income in the hands of lender.

Facts of the case:

The assessee is engaged in the business of manufacturing and trading of transformers. The assessee for AY 2008-09 filed its return of income on 30/09/2008 declaring total income of Rs. 6,34,790/-. During the scrutiny proceedings , AO observed that the assessee had introduced fresh cash capital of Rs. 6,11,50,000/- in three different heads, Rs. 80,00,000/- as unsecured loan, Rs. 2,25,00,000/- in Reserve and Surplus and Rs. 3,06,50,000/- as share application money. All these amounts were found credited in the name of various private limited companies registered in Kolkata.
A letter was sent to ADIT (Inv.), Unit-3(III), Kolkata to verify the source of cash capital introduction in the case of assessee during the F.Y. 2007-08.ADIT , Kolkata after making an inquiry issued an interim report. As per that report, in some cases the parties were not traceable and the parties which were traced failed to explain the source of the fund advanced to the assessee.
AO held that the parties not traceable are fake and amount as shown received from them to be added as unexplained and also in case of other parties since the source of their income remain unexplained that amount also to be added to the total income.Accordingly AO made addition of Rs. 2.16 crores u/s 68 of the Act.
On appeal to CIT(A) , he held that assessee has given sufficient documentary evidences in the form of confirmation, affidavit, PAN No., copy of return of income, R.O.C. paper showing existence and addresses of investing company etc., to establish the identity and genuineness of such companies. Further , it is settled position of law that the assessee need not to prove the source of income in the hands of lender as laid down by the Hon’ble Supreme Court in the case of Lovely Exports Private Limited.
Contention of the Assessee:

The learned counsel for the assessee contended that when the identity has been established by the assessee, there is no need to establish the source of money infused by the creditors.
It was also argued that Section 68 amended by the Finance Act 2012 w.e.f 1.4.2013 goes to confirm that prior to this amendment the person in whose name such credit was recorded in the books of the company was not expected to offer any explanation about the nature and source of such sum. Reliance was placed on the decision of Hon’ble Supreme Court in the case of Sun Engineering Works (P.) Ltd.[1992] 198 ITR 297 (SC).
Contention of the Revenue:

The learned DR contended that AO before coming to conclusion on genuineness of loan transactions made a reference to ADIT , Kolkata and obtained a report wherein it was found that some creditors are not traceable and others when inquired were not found financially capable to lend money to assessee.The  CIT(A) had deleted the addition without satisfying all three basic ingredients i.e. identity, capacity and genuineness of the transaction.
It is further argued that the affidavit of the creditors were contrived and orchestrated and are lacked of validity in the facts and circumstances of the assessee. All the companies had been indulging in providing accommodation entries to various parties in lieu of the commission charges.
Held by ITAT Jaipur:

The ITAT observed that all the assessee company produced all the required documents to prove the identity, genuineness and creditworthiness of the companies invested in the assessee company.All the parties are private limited company duly regulated by the stringent provisions of the Companies Act, 2013 and their complete details could be verified from the MCA website.These companies are regularly assessed to tax. Thus, the onus, on the part of the assessee company, stood fully discharged.
The argument of DR that parties were providing accommodation entries to one another in lieu of commission is not acceptable because no survey/search has been carried out on the such parties to prove that these companies are habitual to provide loan/share application money as accommodation entries.
Therefore, assessee discharged its primary burden by filing the requisite evidences before the Assessing Officer and shifted on the Assessing Officer to disprove the cash creditors transactions are not genuine or bogus. On the other hand AO failed to prove the same as bogus and framed assessment solely relying on interim report of ADIT Investigation, Kolkata.
In result the appeal of revenue was dismissed.
Author’s Note:

The above judgment is not applicable w.e.f April 1,2013 because Finance Act,2013 specifically amended Sec 68 to provide that any amount credited in the name of Share Application or Share Capital in the books of a private limited company would be deemed as unexplained unless the company accepting the same proves the source of the same in the hands of lender to the satisfactions.

CA Saurabh Chokhra