1 Court No. - 35 Case :- INCOME TAX APPEAL No. - 9 of 2015 Appellant :- Commissioner Of Income Tax Kanpur Respondent :- M/S Lal Mohar And Others 2st Group Counsel for Appellant :- S.S.C. I.T.,Praveen Kumar Counsel for Respondent :- Amit Mahajan,Rishi Raj Kapoor With Case :- INCOME TAX APPEAL No. - 349 of 2016 Appellant :- Commissioner Of Income Tax Kanpur Respondent :- M/S Rajendra Kumar And Others Iiird Group, Kanpur Counsel for Appellant :- S.S.C. I.T.,Gaurav Mahajan,Praveen Kumar Counsel for Respondent :- R.R. Kapoor,Amit Mahajan With Case :- INCOME TAX APPEAL No. - 350 of 2016 Appellant :- Commissioner Of Income Tax Kanpur Respondent :- M/S Rajendra Kumar And Others Ist Group, Kanpur Counsel for Appellant :- S.S.C. I.T.,Gaurav Mahajan Counsel for Respondent :- R.R. Kapoor,Amit Mahajan Hon. Bharati Sapru, J. Hon. Saumitra Dayal Singh, J. Heard Sri Praveen Kumar, learned counsel for revenue and Sri R.R. Agarwal, Senior Advocate assisted by Sri Amit Mahajan, learned counsel for assessee. Since facts and issue involved in all these three appeals is identical, all appeals are being heard together and disposed of by common order which is being passed in Income Tax Appeal No.9 of 2015, treating as leading case. This appeal under Section 260A of Income Tax Act, (hereinafter referred to as 'Act') has been filed by department against order of Income Tax Appellate Tribunal, Lucknow Bench, Lucknow dated 21.08.2014 for 2 assessment year 2001-02. appeal has been admitted on following questions of law:- 1. Whether members of AOP have distinct identity vis-a-vis as its constituent firm as in case of partners & firm u/s 184. 2. Whether unexplained capital introduced by member of AOP can be assessed as unexplained capital of constituent firm. 3. Whether AOP by merely providing PAN/GIR and Income Tax Return its members establish their creditworthiness and also discharge its onus u/s 68." At outset learned counsel for revenue states that question no.2 infact covers entire controversy involved in present appeal. brief facts of case are that assessee was constituted as association of persons ('AOP' in short) on 1st of April 2000. It commenced it's business in previous year 2000-01. On first day of that accounting period cash credit entries of Rs.92,32,000/- appeared in books of account of assessee. During assessment proceedings, assessee explained said entries to have arisen against deposits received from constituent members. While there are about 25 constituents of AOP, each has contributed varying amount such that total contribution of all constituents taken together comes to Rs.92,32,000/-. Assessing Officer took up assessment proceedings of assessee under Section 143(3) of Act and vide its assessment order dated 31.03.2004 disbelieved cash credit entries of Rs.92,32,000/- and added same to income of assessee. assessee carried matter in appeal up to Tribunal. Tribunal vide its order dated 31.01.2007 in I.T.A No.873 of 2006 allowed appeal and remitted matter to Assessing Officer specifically on 3 issue of disallowance of cash credit entries. Tribunal provided that Assessing Officer shall give adequate opportunity of hearing to assessee and pass fresh order accordingly. It appears that in proceedings thus remanded to Assessing Authority, assessee produced its books of account wherein aforesaid cash credit entries were found recorded. assessee further filed copies of confirmation of accounts issued by constituent members of AOP, their PAN numbers, copies of assessment orders of such constituents, copies of Income Tax return of such constituents and also copies of withdrawal made by such constituents from earlier firms to explain source of money deposited by them with assessee. Affidavits of respective constituents are also stated to have been filed confirming fact of their having made deposit with assessee. However, Assessing Officer proceeded to again rejected claim of cash credit entries standing in books of accounts of assessee and added same to its income. assessee again carried out matter in appeal to CIT (Appeals), who vide its order dated 21.08.2009 allowed appeals of assessee. According to CIT(Appeals), identity of persons making deposit was not in doubt inasmuch as those persons were very same persons who constituted AOP/assessee. As to genuineness of transactions, CIT (Appeals) found that assessee had filed 4 affidavits/confirmation of all its constituents who had made contribution to capital which was found existing by way of cash credit entries. CIT (Appeals) also noted that revenue had got conducted third party inquiry and no adverse report or inference had been brought on record either by Assessing Officer or in any other manner in respect of subject matter of those inquiries. CIT (Appeals) further noted that there was no evidence to disbelieve documentary evidence in shape of income tax return and assessment orders filed by assessee in support of claim that cash credit entries represented genuine transactions performed by persons who had necessary capacity. CIT (Appeals) also noted fact that this was first year of business of AOP and that cash credit entries had arisen on first day of accounting period. CIT (Appeals) therefore, on one hand accepted contentions of assessee as to identity of depositors, genuineness of transactions and also creditworthiness of depositors and on other hand he also took note of fact that entries had arisen on first day of business of assessee and therefore, same could not have been unaccounted money of assessee itself. On such finding CIT (Appeals) allowed assessee's appeal and deleted addition of Rs.92,32,000/- made by Assessing Officer under Section 68 of Act. revenue carried out matter in appeal to 5 Tribunal wherein it raised three grounds of appeal that have also been quoted by Tribunal in its order in following words as below - 1(1) learned Commissioner of Income Tax (Appeals)-I, Kanpur has erred in law and on facts in deleting addition of Rs.92,32,000/- made by Assessing Officer, on account of unexplained capital introduced in books of AOP in name of its members, without appreciating facts of case and material brought on record by Assessing Officer. 1(2) In doing so, Ld. Commissioner of Income Tax (Appeals)-I, Kanpur has erred in law and on facts in wrongly relying decision of jurisdictional High Court, given in case of CIT Vs. Jaiswal Grain Stores (2005) 272 ITR without appreciating that facts of present case are distinguishable from facts of aforesaid decision inasmuch as assessee failed to establish that cash in fact been received from members of AOP as it had failed to furnish dates and amounts of such cash contributions and also avoided to produce books of accounts before Assessing Officer. 1(3) In doing so, Ld. Commissioner of Income Tax (Apeals)-1 Kanpur has erred in Law and on facts in not appreciating that assessee AOP had failed to proved that cash credits standing in name of members in books of firm actually belong to partners and as such ration of decision of Hon'ble High Court, Allahabad in case of CIT Vs. Kapoor Bros. reported in 118 ITR 741 and decision of Hon'ble Patna High court reported in 142 ITR 133." Then in paragraph 4 of order, Tribunal noted that revenue supported assessment order on strength of two judgments; one of this Court in case of Commissioner of Income Tax Vs. Kapur Bros. [1979] 118 ITR 74(All) and also on decision of Hon'ble Patna High Court rendered in case of Commissioner of Income Tax Vs. Anupam Udyog reported in [1983] 142 ITR 133(Pat.). No other argument had been noted by Tribunal as having been made by revenue in appeal before Tribunal and there is no dispute raised in present appeal in that regard. In aforesaid factual background, learned counsel for revenue submits that assessee had failed to establish 6 genuineness of transactions as also creditworthiness of depositors inasmuch as assessee never produced liquor contract entered into with Government of U.P. He therefore submits that contract would have revealed whether any payment had been made by assessee prior to beginning of previous year. It yes, then case set up by assessee would stand disproved. It has also been submitted that creditworthiness of depositors was not established. Opposing such argument, learned counsel for assessee submits, while Commissioner of Income Tax (Appeals) had recorded findings to effect that identity of creditors, genuineness of transactions and creditworthiness of creditors had been established; that authority had also recorded finding that no addition could be made in hands of assessee being that too on first day of it's business of assessee/AOP. Also, revenue pressed only one ground before Tribunal which was confined to second finding of CIT (Appeals) that additions could not be made in hands of assessee in first year of business. He submits that finding of cash credit entries being genuine had not been questioned by revenue in appeal before Tribunal and therefore, that issue is not open to challenge in present appeal. Even otherwise, it has been submitted that findings recorded by CIT (Appeals) to accept cash credit 7 entries are based on material and evidence; both documentary and oral, which exist on record. No material or evidence has been brought on record by revenue to rebut or disbelieve evidence relied upon by CIT (Appeals). Therefore, findings recorded by CIT (Appeals) were in any case concluded findings of fact warranting no interference by this Court. As to argument raised by revenue in appeal before Tribunal relying on judgment of this Court in case of Kapur Bros. (Supra), learned senior counsel submits that judgment in case of Kapur Bros. (supra) is wholly distinguishable inasmuch as in that case deposits had been received by assessee at fag end of accounting period, only about three weeks prior to end of accounting period. In such facts, after rejecting explanation furnished by assessee, finding had been recorded that such cash credit entries represented unaccounted income of assessee. However, in instant case cash credit entries have arisen on first day of business itself. It can never be said that they represent unaccounted or undisclosed income of assessee as no business had been conducted till that date and no income could have, therefore, arisen to assessee. This distinguishing features has been considered in subsequent judgment of this Court wherein Kapur Bros. case was distinguished on that count. Reliance in this regard has been placed on two judgments of this Court in case of Abhyudaya Pharmaceuticals Vs CIT reported in 350 ITR 8 358 (All.) and India Rice Mills Vs. CIT reported in 218 ITR 508 (All.). Having considered arguments so advanced by learned counsel for parties, we find, in case of Abhyudaya Pharmaceuticals (supra), this Court considered decision in case of CIT Vs. Jaiswal Motor Finance [1983] 141 ITR 706 (All) as also Kapur Brothers.(supra) and thereafter concluded that authorities below had committed error as they failed to take into account fact that it being first year of business, no addition could have been made to undisclosed income of assessee, that was partnership firm. Similarly, in case of India Rice (supra) also, this Court has held that Tribunal had fallen into serious error in making addition under Section 68 of Act in hands of firm with reference to amount that was found credited in its account before commencement of business. In view of aforesaid discussions, it cannot be disputed that no addition can be made under Section 68 of Act in hands of firm or any artificial person in first year of business that too on day which is first day of its business. underlying reason for such conclusion is self apparent that no undisclosed investment can arise in absence of any activity or business which may provide source to generate such income. judgment in case of Kapur Brothers (supra) and Anupam Udyog (supra) are, therefore, clearly 9 distinguishable. issue involved in present case is squarely covered by decisions of this Court in case of Abhyudaya Pharmaceuticals Vs. CIT (supra) and India Rice Vs. CIT (supra). In view of fact that it was first year of business of AOP, and no business activity having been shown to have been conducted by it that could lead to generation of Rs. 92,32,000/- on first day of relevant accounting period, Tribunal has not committed any error in deleting addition of that amount under Section 68 of Act at hands of assessee. alternative submission made by learned counsel for revenue is that genuineness of transaction and creditworthiness of creditors was not established, also does not merit serious consideration in view of fact that neither that issue appears to have been raised before Tribunal at time of argument nor even otherwise same requires any further consideration in absence of revenue having led any evidence to rebut or disapprove evidence led by assessee and relied upon by CIT (Appeals) while recording finding that cash credit entries were genuine. In view of above, question of law no.2 is answered in favour of assessee and against revenue. appeal is accordingly dismissed. No order as to costs. Order date: 28.11.2017 pks/ Commissioner of Income-tax, Kanpur v. Lal Mohar and Other