Commissioner of Income-tax v. Shiv Dhooti Pearls & Investment Ltd
[Citation -2015-LL-1221]

Citation 2015-LL-1221
Appellant Name Commissioner of Income-tax
Respondent Name Shiv Dhooti Pearls & Investment Ltd.
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 21/12/2015
Assessment Year 1994-95
Judgment View Judgment
Keyword Tags cash credit • initial burden • interest accrued • interest payment • lending of money • registered post • undisclosed income • unexplained income • unsecured loan • books of accounts
Bot Summary: From the chart of lending to the Assessee and from the confirmation given by TIL it was noted by the AO that the cheques issued by TCL were later than the dates on which the cheques were issued by TIL in favour of the Assessee. The CIT found that the following documents were also placed before the AO: confirmation of account of the Assessee in the books of TIL; copy of the bank statement of the Assessee with Central Bank of India showing the receipt of loans raised from TIL; copy of the bank statement of TIL showing both the receipt of monies and the encashment of cheques issued by it to the Assessee; audited balance sheets of TIL as on 31st March 1994, 31st March 1995 and 31st March 1996; certificate of incorporation of TCL including a photocopy of Form No. 18 filed with the Registrar of Companies, West Bengal. Mr. Raghvendra Singh, learned standing counsel for the Revenue, relied on the decision of the Gauhati High Court in Nemi Chand Kothari v. Commissioner of Income Tax 264 ITR 254 and urged that it was incumbent on the Assessee to prove the creditworthiness of TIL which in turn hinged upon the genuineness, identity and credit worthiness of TCL. Mr. Singh submitted that TIL having failed to ITA No. 429/2003 Page 5 of 9 establish the genuineness and creditworthiness of TCL, the burden shifted to the Assessee to do so. The High Court held that the AO had ample freedom to make inquiry not only into the source(s) of the creditor, but also of his sub-creditors and prove, as a result, of such inquiry, that the money received by the Assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself. Thereafter, the High Court, on a harmonious construction of Section 106 of the Evidence Act and Section 68 of the Act, held as under: What, thus, transpires from the above discussion is that while Section 106 of the Evidence Act limits the onus of the Assessee to the extent of his proving the source from which he has received the cash credit, Section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s) of the creditor, but also of his sub- creditors and prove, as a result, of such inquiry, that the money received by the Assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the Assessee himself. ITA No. 429/2003 Page 6 of 9 Hence, the harmonious construction of Section 106 of the Evidence Act and Section 68 of the Income Tax Act will be that though apart from establishing the identity of the creditor, the Assessee must establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the Assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the Assessee and the creditor. What follows, as a corollary, is that it is not the burden of the Assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the Assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been, eventually, received by the Assessee.


$ * IN HIGH COURT OF DELHI AT NEW DELHI R-182 + ITA 429/2003 COMMISSIONER OF INCOME TAX Appellant Through: Mr. Raghvendra Singh, Advocate. versus SHIV DHOOTI PEARLS & INVESTMENT LTD. ..... Respondent Through: Mr. C.S. Aggarwal, Senior Advocate with Mr. Prakash Kumar, Advocate. CORAM: JUSTICE S.MURALIDHAR JUSTICE VIBHU BAKHRU ORDER % 21.12.2015 Dr. S. Muralidhar, J.: 1. This appeal by Revenue under Section 260A(1) of Income Tax Act, 1961 ( Act ) is directed against impugned order dated 30th April 2003 passed by Income Tax Appellate Tribunal ( ITAT ) in ITA No. 222/Del/2000 for Assessment Year ( AY ) 1994-95. 2. While admitting this appeal, Court by its order dated 25th May 2004 framed following questions of law for consideration: 1. Whether ITAT has correctly interpreted and applied Section 68 of Income Tax, 1961 while upholding deletion of Rs. 38 lakhs and Rs. 1,01,007 made by Assessing Officer by applying said section? 2. Whether ITAT has erred in deleting addition of Rs. 38 lakhs and Rs.1,01,007 without going into and examining credit worthiness of M/s. Tuq Credits Ltd. and genuineness of transaction with reference to availability of funds with said ITA No. 429/2003 Page 1 of 9 company? 3. Whether order of ITAT is perverse as it ignores reasons and grounds mentioned by Assessing Officer for failure of Assessee and M/s. Tom Investment Limited to furnish details and information with regard to Tuq Credits Limited source of funds available with Tuq Credits Limited genuineness of transaction and credit worthiness of Tuq Credits Ltd. 3. facts leading to filing of present appeals are that Assessee, Shiv Dhooti Pearls & Investment Limited, filed its annual return of income on 29th November 1994 for AY in question declaring Rs. 13,68,440. return was accompanied by tax audit report under Section 44AB of Act and audited final accounts. return was picked up for scrutiny and notices were issued under Section 143 (2) of Act on 22nd August 1995. 4. In assessment order dated 28th February 1997 Assessing Officer ( AO ) noted that Assessee continued to derive its business income, as in earlier years, from trading in gold and diamond ornaments. It was noted by AO, inter alia that balance sheet of Assessee showed receipt of unsecured loans of Rs. 38 lakhs and sum of Rs. 1,01,007 on account of interest accrued on above amount. Assessee was asked to furnish evidence regarding identity, creditability and genuineness of source of its income. 5. Pursuant thereto, Assessee disclosed that amount was borrowed from Tom Investment Limited ( TIL ), 9, Ezra Street, Calcutta. acknowledgement of return filed by TIL showed that it had returned income of Rs. 2,904 in AY in question and loss of Rs. 18,677 in AY 1996-97 which created doubts about TIL's creditworthiness. ITA No. 429/2003 Page 2 of 9 Accordingly, TIL was asked to furnish source of its lending. 6. Authorised Representative ( AR ) of TIL attended proceedings and intimated that amount lent to Assessee had in turn been borrowed from M/s. Tuq Credits Limited ( TCL ), address of which was same as TIL, i.e., 9, Ezra Street, Calcutta. AR of TIL was then requested to prove genuineness and credibility of TCL. However, AR of TCL expressed his difficulty in furnishing that information. Thereafter, summons were issued under Section 131 of Act to TCL asking it to furnish, inter alia, certificate of incorporation, its PAN/GIR No and ward/circle/range, audited copies of balance sheet, profit & loss account and auditor s report for period ending 31 st March 1994, 31st March 1995 and 31st March 1996, bank statement showing lending of money to TIL, confirmation of parties and their complete addresses, if any, from whom further loans have been obtained. 7. letter containing summons sent by registered post (speed post) to TCL was received back unserved with remarks not available. AO then concluded that TCL was not genuine party which could have lent money to TIL, which in turn lent said amount to Assessee. It was, therefore, concluded that entire chain of lending and borrowing is bogus. From chart of lending to Assessee and from confirmation given by TIL it was noted by AO that cheques issued by TCL were later than dates on which cheques were issued by TIL in favour of Assessee. This, according to AO, further corroborated fact that transactions were not genuine. Accordingly, sum of Rs. 38 lakhs as unsecured loan was treated as unexplained income of Assessee under Section 68 of Act. sum of Rs. 1,01,007 shown as interest payable on said loan was also disallowed as expenditure. ITA No. 429/2003 Page 3 of 9 income of Assessee was computed as Rs. 52,84,439. 8. appeal was filed by Assessee before Commissioner of Income Tax (Appeals) [ CIT (A) ]. By order dated 24th October 1997 CIT (A) allowed Assessee s appeal and held that as long as TIL had confirmed loan advanced by it to Assessee, Assessee had discharged onus on it under Section 68 of Act to prove identity, genuineness and creditworthiness of creditor. It was further found that repayments had also been made by Assessee to TIL of borrowed amount by cheques and tax at source of Rs. 30,171 had been deducted from interest payment of Rs. 1,31,178. By its letter dated 27th and 31st January 1997 TIL had clarified facts pertaining to said loan. CIT (A) found that following documents were also placed before AO: (a) confirmation of account of Assessee in books of TIL; (b) copy of bank statement of Assessee with Central Bank of India showing receipt of loans raised from TIL; (c) copy of bank statement of TIL showing both receipt of monies and encashment of cheques issued by it to Assessee; (d) audited balance sheets of TIL as on 31st March 1994, 31st March 1995 and 31st March 1996; (e) certificate of incorporation of TCL including photocopy of Form No. 18 filed with Registrar of Companies, West Bengal. 9. CIT (A) also noted that from chart in regard to encashment of cheques issued in favour of Assessee it was clear that corresponding amounts had been received from TCL by TIL. Therefore, finding of AO that entire chain of lending and borrowing was bogus, was unsubstantiated. CIT (A), therefore, allowed appeal ITA No. 429/2003 Page 4 of 9 and deleted additions made by AO. 10. Revenue then appealed to ITAT. By impugned order dated 30th April 2003 ITAT dismissed appeal. In addition to factors already noticed by CIT (A), ITAT examined details furnished by Department Representative ( DR ) on 11th February 2003 with regard to return filed by TIL (lender) for AYs 1997-98 and 1998-99. For AY 1997-98, refund of Rs. 2,98,408 was obtained and refund was issued to TIL which was on account of tax deducted at source by M/s. Mehra Sons, Jewellers and Assessee. letter of TIL issued to Assistant Commissioner of Income Tax ( ACIT ), Calcutta showing complete address of Assessee, along with address of AO of Assessee was also furnished. It was clear that amount was advanced to Assessee by TIL and interest was paid year after, on which tax was deducted at source and same was deposited in government account. After verifying genuineness of tax deducted and paid, then refund was issued to TIL. Apart from showing that Department had accepted genuineness of AO of Assessee who was regularly assessed to income tax, Department has also accepted return filed by TIL. It was therefore, held that all three ingredients for proving identity, genuineness and creditworthiness of creditor were present in case. 11. Mr. Raghvendra Singh, learned standing counsel for Revenue, relied on decision of Gauhati High Court in Nemi Chand Kothari v. Commissioner of Income Tax (2003) 264 ITR 254 (Gau) and urged that it was incumbent on Assessee to prove creditworthiness of TIL which in turn hinged upon genuineness, identity and credit worthiness of TCL. Mr. Singh submitted that TIL having failed to ITA No. 429/2003 Page 5 of 9 establish genuineness and creditworthiness of TCL, burden shifted to Assessee to do so. 12. Court has examined decision of Gauhati High Court in Nemi Chand Kothari (supra). Therein Gauhati High Court referred to Section 68 of Act and observed that onus of Assessee to extent of his proving source whom which he has received cash credit. High Court held that AO had ample freedom to make inquiry not only into source(s) of creditor, but also of his (creditor s) sub-creditors and prove, as result, of such inquiry, that money received by Assessee, in form of loan from creditor, though routed through sub-creditors, actually belongs to, or was of, assessee himself. Thereafter, High Court, on harmonious construction of Section 106 of Evidence Act and Section 68 of Act, held as under: What, thus, transpires from above discussion is that while Section 106 of Evidence Act limits onus of Assessee to extent of his proving source from which he has received cash credit, Section 68 gives ample freedom to Assessing Officer to make inquiry not only into source(s) of creditor, but also of his (creditor's) sub- creditors and prove, as result, of such inquiry, that money received by Assessee, in form of loan from creditor, though routed through sub-creditors, actually belongs to, or was of, Assessee himself. In other words, while Section 68 gives liberty to Assessing Officer to enquire into source/sources from where creditor has received money, Section 106 makes Assessee liable to disclose only source(s) from where he has himself received credit and it is not burden of Assessee to show source(s) of his creditor nor is it burden of Assessee to prove creditworthiness of source(s) of sub- creditors. If Section 106 and Section 68 are to stand together, which they must, then, interpretation of Section 68 has to be in such way that it does not make Section 106 redundant. ITA No. 429/2003 Page 6 of 9 Hence, harmonious construction of Section 106 of Evidence Act and Section 68 of Income Tax Act will be that though apart from establishing identity of creditor, Assessee must establish genuineness of transaction as well as creditworthiness of his creditor, burden of Assessee to prove genuineness of transactions as well as creditworthiness of creditor must remain confined to transactions, which have taken place between Assessee and creditor. What follows, as corollary, is that it is not burden of Assessee to prove genuineness of transactions between his creditor and sub-creditors nor is it burden of Assessee to prove that sub-creditor had creditworthiness to advance cash credit to creditor from whom cash credit has been, eventually, received by Assessee. It, therefore, further logically follows that creditor's creditworthiness has to be judged vis-a-vis transactions, which have taken place between Assessee and creditor, and it is not business of Assessee to find out source of money of his creditor or of genuineness of transactions, which took between creditor and sub-creditor and/or creditworthiness of sub-creditors, for, these aspects may not be within special knowledge of Assessee. (emphasis supplied) 13. above observations, far from supporting case of Revenue, does opposite. In subsequent decision of this Court in Mod. Creations Pvt. Ltd. v. Income Tax Officer (2013) 354 ITR 282 (Del), position was clarified by Court and it was held: It will have to be kept in mind that Section 68 of I.T. Act only sets up presumption against Assessee whenever unexplained credits are found in books of accounts of Assessee. It cannot but be gainsaid that presumption is rebuttable. In refuting presumption raised, initial burden is on Assessee. This burden, which is placed on Assessee, shifts as soon as Assessee establishes authenticity of transactions as executed between Assessee and its creditors. It is no part of Assessee's burden to prove either genuineness of transactions executed between creditors and sub-creditors nor is it burden of Assessee to prove credit worthiness ITA No. 429/2003 Page 7 of 9 of sub-creditors. 14. In Mod. Creations Pvt. Ltd. (supra) this Court negatived case of Revenue that onus was on Assessee to prove source of sub-creditor. It was observed as under: 14. With this material on record in our view as far as Assessee was concerned, it had discharged initial onus placed on it. In event revenue still had doubt with regard to genuineness of transactions in issue, or as regards credit worthiness of creditors, it would have had to discharge onus which had shifted on to it. bald assertion by A.O. that credits were circular route adopted by Assessee to plough back its own undisclosed income into its accounts, can be of no avail. revenue was required to prove this allegation. allegation by itself which is based on assumption will not pass muster in law. revenue would be required to bridge gap between suspicions and proof in order to bring home this allegation. ITAT, in our view, without adverting to aforementioned principle laid stress on fact that despite opportunities, Assessee and/or creditors had not proved genuineness of transaction. Based on this ITAT construed intentions of Assessee as being malafide. In our view ITAT ought to have analyzed material rather than be burdened by fact that some of creditors had chosen not to make personal appearance before A.O. If A.O. had any doubt about material placed on record, which was largely bank statements of creditors and their income tax returns, it could gather necessary information from sources to which said information was attributable to. No such exercise had been conducted by A.O. In any event what both A.O. and ITAT lost track of was that it was dealing with assessment of company, i.e., recipient of loan and not that of its directors and shareholders or that of sub-creditors. If it had any doubts with regard to their credit worthiness, revenue could always bring it to tax in hands of creditors and/or sub-creditors. [See CIT v. Divine Leasing & Finance Ltd. (2008) 299 ITR 268 (Delhi) and CIT v. Lovely Exports (P) Ltd. (2008) 216 CTR 195 (SC)]." ITA No. 429/2003 Page 8 of 9 15. In view of legal position explained in above decisions, Court holds that as far as present case is concerned, Assessee has indeed discharged its onus of proving creditworthiness and genuineness of lender (TIL). There was no requirement in law for Assessee to prove genuineness and credit worthiness of sub- creditor, which is in this case was TCL. 16. Consequently, question (i) framed by Court is answered in affirmative, and questions (ii) and (iii) in negative i.e., in favour of Assessee and against Revenue. 17. appeal is accordingly dismissed but, in facts and circumstances of case, with no order as to costs. S. MURALIDHAR, J VIBHU BAKHRU, J DECEMBER 21, 2015 Rk ITA No. 429/2003 Page 9 of 9 Commissioner of Income-tax v. Shiv Dhooti Pearls & Investment Ltd
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