M/s. Parvati Fabrics Ltd., Surat V. The Asstt. Commissioner of Income Tax, Circle-2(1)(1), Surat

ITA 1564/AHD/2016

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1972 (ITAT-SURAT)
• Duration Of Justice: 6 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 03-04-2022
• Assessment Year: 2012-2013
• Appeal Filed On: 09-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SINGLA
• Assessee Lawyers: PROVIDING LOAN ENTRIES
• Keywords: Unexplained cash credit; Unexplained investment; Gift; Income from undisclosed sources; Search and seizure; Principle of natural justice; Opportunity of cross examination; Source of fund; Question of law; Initiation of penalty proceedings; Accommodation entries; Onus to prove
• Section: 68; 271(1)(c); 143(3); 133(6); 264; 72; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकरअपीलसं./ITA No.1564/AHD/2016 (Ǔनधा[रणवष[ / Assessment Years: (2012-13) (Virtual Court Hearing) M/s. Parvati Fabrics Ltd., F-Tower, Shree Kuberji Textile Park, B/h Belgium Square, Delhi Gate, Surat-395003. Vs. The ACIT, Circle-2(1)(1), Surat. èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AABCP4170E (Appellant) (Respondent) Assessee by : Shri Aaditya Nemani, CA Revenue by : Shri Anupama Singla, Sr. DR स ु नवाईकȧतारȣख/ Date of Hearing : 04/04/2022 घोषणाकȧतारȣख/Date of Pronouncement : 24/06/2022 आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2012-13, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-II, Surat [in short “the ld. CIT(A)”] in Appeal No. CAS/2/205/2014-15 dated 03.03.2016, which in turn arises out of an assessment order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as the “Act”] dated 28.03.2015. 2. The grounds of appeal raised by the assessees are as follows: “1. Ld. CIT(A) erred in law and on facts in confirming addition made by assessing officer of Rs.2,40,00,000/- in respect of unsecured loan u/s 68 of the Act. Ld. CIT(A) ought to have deleted addition since primary onus cast by law to establish identity, genuiness of transaction & creditworthiness is discharged by the assessee filling confirmation, PAN, copy of Return of Income, bank statements along with audited report of depositor companies. 2. Ld. CIT(A) erred in law and on facts in confirming addition made by assessing officer treating cash credits as bogus simply relying on statement of some depositors without opportunity of cross examination to the assessee. Ld. CIT(A) ought to have appreciated that any addition behind the back of the assessee relying on generalized statement is not legally tenable. Ld. CIT(A) ought to have deleted addition made without any basis. Page | 2 ITA.1564/AHD/2016/AY.2012-13 M/s. Parvati Fabrics Ltd. 3. Ld. CIT(A) erred in law and on facts in holding that the assessee failed to prove identity of depositors since they were not traceable at address as per the inquiry conducted by investigation wing. Ld. CIT(A) ought to have deleted addition when all the depositors responded to the notice under section 133(6) by assessing officer confirming transaction with documentary evidences. 4. Ld. CIT(A) erred in law and on facts in concurring with assessing officer that the depositor companies having meager income 7 low bank balances acted as a conduit to circulate unaccounted income of assessee by providing loan entries. Ld. CIT(A) ought not to have made such observations on conjectures & surmises without any cogent proof or evidences simply on the basis of uncontroverted statements. 5. Ld. CIT(A) erred in law and on facts in not appreciating that assessee satisfied primary onus cast under law for acceptance of unsecured loan establishing identity, creditworthiness and genuiness of transaction along with details of repayment of the deposits. Ld. CIT(A) ought to have deleted addition made u/s 68 of the Act. 6. Levy of interest u/s 234A/B/C & D of the Act is unjustified. 7. Initiation of penalty proceedings u/s 271(1)(C) of the Act is unjustified. The assessee craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.” 3. Succinct facts are that during the assessment proceedings, the assessing officer noted that assessee -company has obtained unsecured loans from the following parties: Sr. No. Name of the party Amount of loans (Rs.) 1. Ayush Business Pvt. Ltd. 30,00,000/- 33/1, Netaji Subhash Road, Kolkata 2 Baba Metallics Pvt. Ltd. 30,00,000/- 3 Indraloke Tie-up Pvt. Ltd. 10,00,000/- 4 Jama/ Commercial Pvt. Ltd. 29,00,000/- 5 Kejriwal Mercantile Pvt. Ltd. 13,00.000/- 6 Moon Light Suppliers Pvt. Ltd, 5,00,000/- 7 Pragya Traders Pvt. Ltd., 33/1, Netaji Subhash Road, Kolkata 25,00,000/- 8 Redlily Enterprises Pvt. Ltd., 33/1, Netaji Subhash Road, Kolkata 53,00,000/- 9 Seven Star Traders & Services Pvt. Ltd. 63, Radha Bazar Street, Kolkata 5,00,000/- 10 Uday Overseas Pvt. Ltd., 33/1 Netaji Subhash Road, Kolkata 70,00,000/- 11 Unitex Commercial Pvt. Ltd. 25,00,000/- 12 Wellman Tie-up Pvt. Ltd. 5,00,000/- Total 2,40,00,000/- Page | 3 ITA.1564/AHD/2016/AY.2012-13 M/s. Parvati Fabrics Ltd. During the course of the assessment proceedings, the assessing officer observed that assessee has received unsecured loans at premium amount of Rs.2,40,00,000/- during the year from 12 Kolkata based companies, as noted above, therefore, assessing officer issued the notices u/s 133(6) of the Act and noticed that these companies had meager income or losses, with no regular business activity and the only source of funds were share capital/share premium. The assessing officer on the basis of the information received from Investigation Wing Kolkata found that enquiries made by the Investigation Wing Kolkata revealed that these companies do not exist at the given addresses and no proper business activities is carried out by these companies. The Investigation Wing, Kolkata had recorded the statement on oath of the operators of the 3 companies namely Indralok Tie-up Pvt. Ltd., Seven Star Trader and Services Pvt. Ltd. and Vikash Chaudhary who admitted to be entry operators and merely providing entries on a commission basis. The assessing officer vide letter dated 27.02.2015 directed the assessee to produce the Principal Officers of the 12 lender companies but no compliance was made by the assessee. The assessing officer on examination of the financial statements of these 12 companies observed that these are 'paper companies' not actually doing any genuine business activities and therefore the assessing officer held that these 12 companies did not have capacity to make investments in the unsecured loans of Rs.2,44,00,000/-, therefore, assessing officer made addition u/s 68 of the Act. 4. On appeal, ld CIT(A) confirmed the action of the assessing officer. Aggrieved, the assessee is in further appeal before us. 5. Learned Counsel for the assessee submitted that assessee submitted bank statements, PAN Card and audited financial statements. It was contended that the transactions have been made through proper banking channels and the investor companies are registered with ROC and are active companies as per ROC records. The Ld. Counsel also stated that these loans were repaid in subsequent years, therefore addition made by the assessing officer may be deleted. Page | 4 ITA.1564/AHD/2016/AY.2012-13 M/s. Parvati Fabrics Ltd. 6. On the other hand, Learned Departmental Representative (ld. DR) for the Revenue submits that all the parties are based at Kolkata and assessee has failed to prove the identity, creditworthiness and genuineness of these parties. The assessing officer vide letter dated 27.02.2015 directed the assessee to produce the Principal Officers of the 12 lender companies but no compliance was made by the assessee, therefore identity of these Lender Companies remain unproved. Besides, the fact that loan has been repaid in subsequent years, has not been examined by the assessing officer therefore the said issue may be remitted back to the file of the assessing officer to examine whether loan has been repaid out of own sources or by taking further accommodation entry. The ld DR further pointed out that following common things were observed by the assessing officer: (i) These all Companies are having extremely miniscule income in thousands, Nil or losses, (ii) The sources of funds are share capital/share premium received. (iii) Investments are either in loan or share capital share premium of unlisted companies. (iv) Bank accounts do not reflect any proper activity but the common trend is receipt of fund from somewhere and its immediate transfer. (v) The credit balances at the end of the day is always miniscule. (vi) The companies are unrelated to the assessee company and based in Kolkata. The ld DR also pointed out that an Inspectors of Investigation Wing, Kolkata visited the premises of these Companies and had reported that these companies do not exist at the given addresses and no activity is carried out, and the operators of the companies in the list, viz Indraloke tie-up Pvt. Ltd., Seven Star Traders & Services Pvt. Ltd. and Mr. Vikas Chaudhary have admitted in their statements given before the Department that they are mere entry providers and no regular activity has even been carried out by them except providing entries for a commission. Copies of their statements have been provided to the assessee for perusal. They neither have the capacity nor the creditworthiness to advance such Page | 5 ITA.1564/AHD/2016/AY.2012-13 M/s. Parvati Fabrics Ltd. substantial loans, therefore addition made by the assessing officer may be confirmed. 7. We have heard both the parties and gone through the material available on record, we note that Assessee -Company has miserable failed to prove identity, as explained by ld DR that assessing officer vide letter dated 27.02.2015 directed the assessee to produce the Principal Officers of the 12 lender companies but no compliance was made by the assessee, therefore identity of these Lender Companies has not been proved. We note that out of twelve lender companies, none appeared before assessing officer. We also find merit in the submission of ld DR to the effect that the fact that loan has been repaid in subsequent years, has not been examined by the assessing officer That is, ld DR argued before us that the said issue may be remitted back to the file of the assessing officer to examine whether loan has been repaid out of own sources or by taking further accommodation entry. We note the ld CIT(A) has passed the order observing as follows: “6.1.5. On the perusal of the details, it is observed that the assessee had received unsecured loans of Rs.2,40,00,000/- during the year from 12 companies of Kolkata. The assessing officer on the basis of the information received from Investigation Wing Kolkata found that enquiries made by the Investigation Wing, Kolkata, revealed that these companies do not exist at the given addresses and no proper business activities is carried out by these companies. The Investigation Wing Kolkata had recorded the statement on oath of the operators of the 2 companies namely Indralok Tie-up Pvt. Ltd., Seven Star Trader and Services Pvt. Ltd. and one Vikash Chaudhary who admitted to be entry operators and merely providing entries on a commission basis. The assessing officer vide letter dated 27.02.2015 directed the assessee to produce the Principal Officers of the 12 lender companies but no compliance was made by the assessee. The assessing officer on examination of the financial statements of these 12 companies found that these are 'paper companies' not actually doing any genuine business activities and therefore the assessing officer held that these 12 companies did not have capacity to give unsecured loans of Rs. 2,40,00,000/-. The assessing officer found that these 12 companies were not having any revenue generation activity and therefore the unsecured loans/premium given was treated as a colourable device to bring back the unaccounted money of the assessee in the books. The assessing officer found that these 12 companies are actually doing any genuine business activities and therefore did not have capacity to give the unsecured loans of Rs. 2,40,00,000/- and therefore added this amount u/s 68 of the Act. 6.1.6. The contention of the assessee that he was not provided the report of the Investigation Wing, Kolkata, is misplaced in law and facts as the assessing officer provided the assessee the findings of the Investigation Wings enquiry report regarding the non-traceability of the 12 parties on the given address. This finding Page | 6 ITA.1564/AHD/2016/AY.2012-13 M/s. Parvati Fabrics Ltd. being confronted to the assessee fulfills the conditions of confronting the evidences under the principles of natural justice. The assessee other contention that the assessing officer did not provide the opportunity to cross examine the persons whose statement were recorded by Kolkata Investigation Wing, regarding the Accommodation Entry Providers is also misplaced. The assessing officer provided the copy of the statement on oath of these persons during the assessment proceedings. The assessing officer has not blindly relied upon these statements to draw a conclusion. He has made a reference only of these statements but has relied upon his own analysis and findings on the basis of the examination of the Tax returns, financial statements, bank account statements etc. to hold that these lenders are mere paper companies with no genuine business activities. In fact the assessing officer provided the assessee an opportunity during the assessment proceedings to produce the Principal Officer/Directors the lending companies on 27/02/2015 but the assessee chose not to produce them. 6.1.7. On the examination of the various details furnished by the assessee in each of the 12 investors companies, which are briefly enumerated as following: Sr. No. Name Address Date of Filling Return of Income Total Income / Loss as per ROI Source of incom e Nature of Business Assets in the Balanc e Sheet 1 Ayush Business Private Limited Flat No. 167, Marshael House , 33/1, Netaji Subhas Road , Burrabazar, Kolkata, West Bengal 27/08/2012 246255 Sale of Oil/int erest Incom e Sale of Oil No Fixed Assets 2 Baba Metalics Private Limited Flat No. 167, Marshael House , 33/1, Neta ji Subhas Road , Burrabazar, Kolkata, West Bengal 27/08/2012 334482 Interes t Incom e Interest Income No Fixed Assets 3 Indraloke Tieup Pvt Ltd. 3 RD Floor, 63, Radha Bazar Street, Dalhouse, Kolkata , West Bengal 30/10/2012 1488 Interes t Incom e Interest Income No Fixed Assets 4 Jamal Commerica! Prv. Ltd. 3 RD Floor, 63, Radha Bazar Street, Dalhouse, Kolkata , West Bengal 17/10/2012 19156 Interes t Incom e Interest Income No Fixed Assets 5 Kejariwal Mercantiles Co Pvt Ltd. 3 RD Floor, R.N 36, Radha Bazar Street, Dalhouse, Kolkata , West Bengal 11/08/2012 35525 Interes t Incom e Interest Income No Fixed Assets Page | 7 ITA.1564/AHD/2016/AY.2012-13 M/s. Parvati Fabrics Ltd. 6 Moonlight Suppliers Pvt. Ltd. 3 RD Floor, R.N 31, Radha Bazar Street, Dalhouse, Kolkata , West Bengal 17/10/2012 24262 Interes t Incom e Interest Income No Fixed Assets 7 Pragya Traders Private Limited Flat No. 167, Marshael House , 33/1, Neta ji Subhas Road , Burrabazar, Kolkata, West Bengal 27/08/2012 (19833 7) Loss Tradin g and Interes t Incom e Trading and Interest Income No Fixed Assets 8 Redlily Enterprises Private Limited Flat No. 167, Marshael House , 33/1, Neta ji Subhas Road , Burrabazar, Kolkata, West Bengal 27/08/2012 (10229 5) Loss Tradin g and Interes t Incom e Trading and Interest Income No Fixed Assets 9 Seven Star Trades and Private Limited 3 rd Floor, R.N 31, Radha Bazar Street, Dalhouse, Kolkata , West Bengal 11/08/2012 20430 Interes t Incom e Interest Income No Fixed Assets 10 Uday Overseas Private Limited Flat No. 167, Marshael House , 33/1, Neta ji Subhas Road , Burrabazar, Kolkata, West Bengal 27/08/2012 (22888 6) Loss Tradin g and Interes t income Trading and Interest income No Fixed Assets 11 Untex Commerical Private Ltd. Flat No. 167, Marshael House , 33/1, Neta ji Subhas Road , Burrabazar, Kolkata, West Bengal 27/08/2012 (22187 3) Loss Tradin g and Interes t Incom e Trading and Interest Income No Fixed Assets 12 WellmanTielp Pvt. Ltd. A Block Flat No. 21, Gagandeep Apartment , 493/B/2, G.T. Road (s) Shibpur, Howarah, West Bengal 23/08/2012 10040 Interes t Incom e Interest Income No Fixed Assets 6.1.8. The above facts show the following noticeable anomalies of the investor companies:  The 12 companies are operating from the common addresses but none of them own the premises nor pay any rentals.  No fixed assets have been shown in the balance sheet.  The total income as per return of income is very meager, Loss or Nil income.  No rental payment shown for its registered office premises. Page | 8 ITA.1564/AHD/2016/AY.2012-13 M/s. Parvati Fabrics Ltd.  No real source of income or actual business activity but various persons have invested into equity shares of the company and the same has been transferred to other companies in form of investment/loans.  Nil or very meager accumulated profits with very nominal turnover or interest income to justify such huge investments.  These companies have not carried out any business activity since its incorporation.  The nature of business is not known.  Investment only in shares/securities in such companies where no dividend has been earned and the value of the shares have been below par. All these facts clearly show that the all these companies have been created as a facade to provide accommodation entries which is reflected in the strange anomalies noted above, showing common intention of mind and conduct and in reality no business activity exists. 6.1.9. During the appellate proceedings, the assessee was asked vide query letter issued dated 23.12.2015, to furnish the details regarding that how he came into contact with these 12 companies, where they met, how they met, copies of all communications entered with all prospective investors including calling for investment, applications, installment of money called, received, round of negotiations, correspondence about interest or any other matter etc.. along with mode of communication etc. The assessee submitted vide his reply dated 10.02.2016 that he had business transactions in Kolkatta and through its business clients, he came in contact with these companies. But the assessee could not submit any documentary evidence regarding the correspondence made with the lenders for the investments in form of unsecured loans. Not a single piece of paper or email could be furnished as a proof of the discussions for unsecured loans along with the terms and conditions, rate of interest, paper work etc. It is important to point out that these 12 companies had never made any transactions earlier with the assessee company which could explain the conduct of the lenders in unsecured loans. 6.1.10. The assessing officer during the course of the assessment proceedings made all efforts to locate the existence of the 12 companies. He issued notice u/s 133(6) of the Act but few of these notices could not serve on the given addresses. The assessing officer issued commission u/s 131(1)(d) of the Act to Investigation Wing, Kolkata. But again these 12 parties were not found at the given addresses when enquires were conducted by the Investigation Wing, Kolkata. The assessing officer vide letter dated 27.02.2015 directed the assessee to produce the Principal Officers of the 12 lender companies but no compliance was made by the assessee. The assessee did not produce the directors/principal officers of the investor companies for verification of their existence and identity. The onus was on the assessee to prove the existence of the lenders which could not be discharged as the lenders are non-existent and non-traceable on the given addresses. 6.1.11. When the Assessing Officer asked the assessee to furnish the details, the assessee produced details like bank statement, copy of acknowledgment of return, confirmations, etc. The assessing officer issued notices u/s 133(6) of the Act which came back unserved/ or non-compliance as the investor companies were found to be non-traceable on the given addresses. Subsequently, when the Assessing Page | 9 ITA.1564/AHD/2016/AY.2012-13 M/s. Parvati Fabrics Ltd. Officer got inquiry conducted at the stated addresses through the Investigation Wing, Kolkata, the parties were found to be non-existent. The assessee failed to produce the promoters/ directors of these investor companies before the assessing officer during the assessment proceedings. Thereafter, the assessee except producing the papers could not prove existence or availability of the lenders. When the identity of the person is required to be proved so as to examine whether in fact they have provided the unsecured loans, the existence itself is not proved. The existence of a person is not merely on paper. Particularly when the Assessing Officer required the assessee to produce the lenders/ share applicants and particularly when at the stated address the lenders/share applicants are not found to be existing, it cannot be said that the amount received by the assessee is proved to be towards unsecured loan/share capital. The transaction cannot be proved merely on paper. Therefore, when the identity of the person itself is not proved, the amount received by the assessee cannot be considered to be genuinely received. Similar view has been expressed in the case of Amtrac Automotive India (P.) Ltd. ITR (TRIB.) 649 (DELHI) 2010] and 1 ITR (TRIB.) 529 (DELHI) Dhingra Global Credence (P.) Ltd. 6.1.12.. Now coming to issue of the creditworthiness and genuineness of the transactions, the assessing officer noticed that in the bank accounts of the lender companies meager balances were maintained in the accounts and the deposits were made immediately two or three days before or on the same day in the bank accounts of the lenders and that amount of deposit was utilized for investment in the form of unsecured loans. During the assessment proceedings, the assessing officer carried out an analysis of the Bank Statements which revealed that money was getting credited in these accounts and on the same day or next day the amount was being debited through transfer/withdrawals by clearing/RTGS transfers etc. No business transactions have been carried out and at no point of time any substantive balance is seen. The bank statements transactions reveal that these accounts are not being used for any business transactions. It is noticed that in these bank accounts of the lenders meager balances were maintained in the accounts and the deposits were made immediately two or three days before or on the same day in the bank accounts of the lenders and that amount of deposit was utilized for investment in share capital/loans. 6.2.1 Before going into the details on the issue of accommodation entries in form of unsecured loans/ share capital through paper/shell companies, it is important to delve briefly into the whole concept of accommodation entry and its scenario in the country. When reference is made to an entry of loan transaction as 'fake loan' received from a 'paper company', it invariably means that such entry represents unaccounted money of the person in whose books of account the money has been credited as share capital/ loan and the lender company is only a conduit for routing the money back to the books of account of that person. However, despite having knowledge of this fact and knowing the techniques and methods used by the taxpayers for this purpose, it remains a huge challenge for the tax authorities to bring all material facts and evidences on record so as to prove which in his opinion is a fact, beyond doubt. In an economy where unaccounted income is a big menace, there are always efforts made by the tax evaders to bring their unaccounted income back to their books of account without paying any tax on the same. Numerous methods and techniques are used for this purpose and there are Page | 10 ITA.1564/AHD/2016/AY.2012-13 M/s. Parvati Fabrics Ltd. lots of techniques that authorities know about and probably countless others that have yet to be uncovered. Routing the unaccounted income back to the books of account disguised as loan or share capital is one of such methods widely used by the tax evaders in our country. The method is most prevalent and perhaps also one of the most organized one to bring the unaccounted money back to the books of account without paying any tax on the same. 6.2.2 The method of providing accommodation entry entails breaking up large amounts of money into smaller, less-suspicious amounts. This smaller amount has to be below Rs. 50,000/-as deposit of cash below this amount does not require providing PAN of the depositors. The money is then deposited into one or more bank accounts either by multiple people or by a single person over an extended period of time. Also, even larger amounts are deposited in the banks with PAN numbers of individuals who are mostly illiterate and work for these entry operators for small salary or commission. The money is then routed through paper companies controlled by these operators. These companies are incorporated by taking care of all formalities such as registering with ROC but having only postal addresses with no real office or employees. The directors of such companies are again individuals who are mostly illiterate or semiliterate and work for the entry operators for small salaries or commission. At first sight, most of these companies would pass of as finance, investment or technology companies. But as the entry operators have admitted in large number of cases that these are only paper companies used to route the unaccounted income and, at the same time, clean hoards of unaccounted income for their clients. These companies used for routing the unaccounted money are basically fake companies that exist for no other reason than to 'layer' the entries or pass it onto the beneficiary as loan or share capital. They take in unaccounted money as "loan or share capital" and pass it on to either another such paper company for 'layering' of the transaction or directly to the beneficiary as loan or share capital. They simply create the appearance of legitimate transactions through fake entries of loans or share capital in their books of account. This has been exposed from time to time through search and seizure operations by the department, such entry operators controls hundreds of bank accounts for depositing cash and hundreds of companies for routing the entries. Limited resource and infrastructure of the Registrar of Companies (ROC) perhaps makes it easier for them to incorporate large number of such paper companies without any difficulty. The process, prima facie, may appear very simple but it is extremely difficult to expose the whole chain of money deposited and 'layers' through which it is routed back to the beneficiary. The biggest problem is that there is no effective deterrence to curb the activities of these entry operators. Even conducting search and seizure operations against them have not really worked as deterrence and such operations often ended up in disclosure of 'unaccounted commission income' of these entry operators which definitely could not be the purpose of conducting search and seizure operations against these operators. 6.2.3 An important question arises- 'While dealing with doubtful cash credits, is it necessary for the assessing officer to establish that the money came back to the books of the assessee as 'entry' actually emanated from the coffers of the assessee?' This issue has been decided by the Hon'ble Delhi High Court in a decision dated 20.07.2012 in the case of Commissioner of Income-tax v/s Independent Media (P.) Ltd. 210 TAXMANN 14(Delhi)(2012), which is significant Page | 11 ITA.1564/AHD/2016/AY.2012-13 M/s. Parvati Fabrics Ltd. as the observation made by the Hon. Court in this decision regarding the cases where 'entries' have been taken from paper companies. In this case it was alleged by the Investigation Wing that the assessee-company received share capital from those persons who had given statements before Investigation wing that they were entry providers giving accommodation entries after receiving cash and after charging their commission. Assessee furnished PAN of subscriber-companies, share application forms, board resolutions, copy of bank statement, pay orders, confirmation from subscribers, their income-tax returns, copies of their balance sheets, etc. However it was held by the Hon. Court that if explanation adduced by assessee with regard to identity and creditworthiness of subscriber-companies and genuineness of transactions was not acceptable for valid reasons, Assessing Officer could make addition under Section 68 and for that purpose he would not be under any duty to further show or establish that monies emanated from coffers of assessee-company. The Hon. Court further observed that "We are unable to uphold the view of the Tribunal that it is incumbent upon the Assessing Officer, on the facts and circumstances of the case, to establish with the help of material on record that the share monies had come or emanated from the assessee's coffers. Section 68 of the Act casts no such burden upon the Assessing Officer. This aspect has been considered more than 50 years back by the Supreme Court in the case of A Govindarajulu Mudaliar v.CIT [1958] 34 ITR 807 where precisely the same argument was advanced before the Supreme Court on behalf of assesses. The argument was rejected by the Court." 6.2.4 The Hon'ble Court further referred that in the above case,(A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807) Shri Venkatarama lyer, J. speaking for the Court observed as under: - "Now the contention of the assessee is that assuming that he had failed to establish the case put forward by him, it does not follow as a matter of law that the amounts in question were income received or accrued during the previous year, that it was the duty of the Department to adduce evidence to show from what source the income was derived and why it should be treated as concealed income. In the absence of such evidence, it is argued, the finding is erroneous. We are unable to agree. Whether a receipt is to be treated as income or not, must depend very largely on the facts and circumstances of each case. In the present case the receipts are shown in the account books of a firm of which the appeilant and Govindaswamy Mudaliar were partners. When he was called upon to give explanation he put forward two explanations, one being a gift of Rs.80,000/- and the other being receipt of Rs.42,000/- from business of which he claimed to be the real owner. When both these explanations were rejected, as they have been it was clearly upon to the Income-tax Officer to hold that the income must be concealed income. There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipt are of an assessable nature. The conclusion to which the Appellate Tribunal came appears to us to be amply warranted by the facts of the case. There is no ground for interfering with that finding, and these appeals are accordingly dismissed with costs." 6.2.5. The identity, capacity and genuineness aspects are not water tight compartments. An assessee's explanation of the nature and source of the credits Page | 12 ITA.1564/AHD/2016/AY.2012-13 M/s. Parvati Fabrics Ltd. cannot be entertained and held by the Assessing Officer as satisfactory unless and until the ground reality i.e. the de-facto existence of the creditor is first established prima facie paving the way for the Assessing Officer to examine further the capacity and genuineness aspects. Merely based on arranged affairs and supporting documents, the identity cannot be said to be established, and in many case not the capacity and genuineness of the transaction. In this aspect it would be necessary to advert to two decisions of the Supreme Court, the first being in Commissioner of Income Tax vs. P. Mohanakala AIR 2007 SC 2116. While considering the scope of Section 68, the Supreme Court observed as follows: "...When and in what circumstances section 68 of the Act would come into play? That a bare reading of Section 68 suggests that there has to be credit of amounts in the books maintained by an assessee; such credit has to be of a sum during the previous year; and the assessees offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessees in the opinion of the Assessing Officer is not satisfactory. It is only then the sum so credited may be charged to income-tax as the income of the assessees of that previous year. The expression "the assessees offers no explanation" means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. It is true the opinion of the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion." In the instant case, the assessing officer has arrived at the conclusion based on the material available on record which showed the lenders to be paper companies. 6.2.6. The Supreme Court noted, following the earlier decision in Commissioner of Income Tax Vs. Orissa Corporation Pvt. Ltd. [1986] 159ITR 78 that where the conclusion of the Tribunal was not unreasonable or perverse or based on no evidence, no question of law as such would arise for consideration. The Court further observed thus:..."...The doubtful nature of the transaction and the manner in which the sums were found credited in the books of accounts maintained by the assessee have been duly taken into consideration by the authorities below. The transactions though apparent were held to be not real one. May be the money came by way of bank cheques and paid through the process of banking transaction but that itself is of no consequence." The overall circumstances is to be taken into consideration and in the present case, mere transactions being made through banking channels do not make the transactions genuine as in the instant case where the bank accounts of the lenders do not show any genuine activities as discussed in the aforesaid paras. 6.2.7. In another judgment of the Supreme Court in Vijay Kumar Talwar Vs. CIT (2011) 1 SCC 673 the same principle was applied in the following observations:"....All the authorities below, in particular the Tribunal, have observed in unison that the assesses did not produce any evidence to rebut the presumption drawn against him under Section 68 of the Act, by producing the parties in whose name the amounts in question had been credited by the assesses in his books of account. In the absence of any cogent evidence, a bald explanation Page | 13 ITA.1564/AHD/2016/AY.2012-13 M/s. Parvati Fabrics Ltd. furnished by the assesses about the source of the credits in question viz., realisation from the debtors of the erstwhile firm, in the opinion of the assessing officer, was not satisfactory. It is well settled that in view of Section 68 of the Act, where any sum is found credited in the books of the assesses for any previous year, the same may be charged to income tax as the income of the assesses of that previous year, if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the assessing officer, not satisfactory." 6.2.8. The only requirement for establishing the cash credit to be undisclosed income of the taxpayer is that proper enquiry must be made by A.O before making any addition u/s 68, In Khandelwal Constructions v. CIT 227 ITR 900 (Gau.) It has been held that section 68 of Income Tax Act, 1961, empowers the Assessing officer to make enquiry regarding cash credit, if he is satisfied that these entries are not genuine he has every right to add these as income from other sources. But before rejecting the assessee's explanation A.O. must make proper enquiries and in the absence of proper enquiries, addition cannot be sustained. In the instant case, the assessing officer had made proper inquiries to establish that the investors were paper companies for accommodation entries as evident from the following facts: • Not traceable on the addresses as per the enquiry conducted by Investigation Wing. • The promoters/ directors not produced before the assessing officer in spite of several opportunities • Nature of business not known; • No known source of income; • Meager income to justify such investments; • No fixed assets; • No rental payments; • Miniscule expenses; • Very low balances in the bank accounts; • The bank accounts have been used to transfer funds from one account to other accounts; • No proof regarding how the lenders of Kolkata came in contact with the assessee; 6.2.9 If the above principles of statutory onus on an assessee u/s 68 and of the shifting of such onus from the assessee on to the Assessing Officer are applied to any case including the present assessee's case, the following position shall emerge. Prima facie proof of the three ingredients and that too cumulatively shall have to be examined at three different stages one after the other but if an assessee fails to establish at the first stage, the identity of the creditor itself, there is no question of an Assessing Officer examining the matter at the second stage of ensuring and satisfying himself of the capacity of the creditor to advance the moneys and nor therefore, the Assessing Officer examining the matter at the second stage of ensuring and satisfying himself of the capacity of the creditor to advance the moneys, even then the onus lay on the assessee to further establish certain things because non-production of documentary evidence of corroborative value invites adverse inference against the person who ought to have produced. Page | 14 ITA.1564/AHD/2016/AY.2012-13 M/s. Parvati Fabrics Ltd. 6.2.10 Prima facie onus is always on the assessee to prove the cash credit entry found in the books of account of the assessee. In land mark cases like Kale Khan Mohammad Hanif v CIT[19631 50 ITR 1 (SC) and Roshan Di Hatti v CIT [1977] 107 ITR (SC), it has been held that the law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee, is on him. Where the nature and source thereof cannot be explained satisfactorily, it is open to the revenue to hold that it is the income of the assessee and no further burden is on the revenue to show that the income is from any particular source. It may also be pointed out that the burden of proof is fluid for the purposes of sec. 68 of the Act. Once assessee has submitted basic documents relating to identity, genuineness of transaction and creditworthiness then assessing officer must do some inquiry to call for more details to invoke section 68. An assessee can discharge his onus of proof by proving three things: Identity of the creditor, capacity of the creditor and the genuineness of the transaction. Once the assessee proves al! three things his onus is discharged. Section 68 of the Income Tax Act provides that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. The Supreme Court held in Sumati Dayal vs. CIT 214ITR 801 (SC) in applying the test of human probabilities as follows: "It is no doubt true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee. [See: Parimisetti Seetharamamma [1965] 57 ITR 532 at page 536). But, in view of Section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such a case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut it, the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably." 6.2.11 The onus, of establishing the, nature of a cash credit is on the assessee and, if he fails to offer a reasonable explanation, the assessing officer may presume that it represents an 'income receipt'. So too, the onus of proving that such income receipt did not fall under the head 'income from other sources' was on the assessee. If the assessee did not place any satisfactory material before the assessing officer to enable him to arrive at a contrary conclusion, the assessing officer might presume that the cash credit fell under the head 'Income from other sources'. The presumption that an unexplained cash credit is an 'income from other sources' are presumptions which flow naturally from the circumstances that all facts which can establish the nature and source of the cash credit are peculiarly within the knowledge of the assessee. It may be that the onus of displacing the presumptions may be heavy in some cases and light in others, depending on the facts and circumstances of the case. But, the presumptions are Page | 15 ITA.1564/AHD/2016/AY.2012-13 M/s. Parvati Fabrics Ltd. there and the burden of rebutting the presumptions is on the assessee. Commissioner of Income-tax v. Devi Prasad Vishwanath Prasad [1969] 72 ITR 194,196,197 (SC). 6.2.12 In Sreelekha Banerjee v. Commissioner of Income-tax [1969] 49 ITR (SC) 114, 120; [1964] 2 SCR 552 (SC), the Supreme Court observed: “The very words” an undisclosed source' show that the disclosure must come from the assesses and not from the department." 6.2.13. Section 68 of the Act clearly shows that any sum found credited in the books of an assessee maintained for a previous year may be charged to income- tax as the income of the assessee of that previous year, if (a) the assessee offers no explanation about the nature and source of such sum, or (b) the explanation offered by him is, in the opinion of Assessing Officer, not satisfactory. As a matter of fact, section 68 is a statutory recognition of what was previously established by judicial decisions to the effect that where certain sums of money were claimed by the assessee to have been borrowed from certain persons, it was for the assessee to prove by cogent and proper evidence that there were genuine borrowings as the facts are exclusively within the assessee's knowledge. In deciding an issue of this nature, there cannot be one general or universal proposition of law which could be the guiding yardstick in the matter. Each case has got to be decided on the facts and circumstances of that case. The surrounding circumstances to be considered must, however, be objective facts, evidence adduced before the authorities, presumption of facts based on common human experience in life and reasonable conclusions. In holding a particular receipt to be income from undisclosed source, the fate of the assessee cannot be decided by the authorities on the basis of surmises, suspicions or probabilities. Hon'ble Supreme Court's decision in the case of CIT v. Durga Prasad More [1971] 82 ITR 540 which is as follows—at page 546 of the decision: "Science has not yet invented any instrument to test the reliability of the evidence placed before a court or Tribunal. Therefore, the Courts and Tribunals have to judge the evidence before them by applying the test of human probabilities. Human minds may differ as to the reliability of a piece of evidence. But in that sphere the decision of the final fact finding authority is made conclusive law." 6.2.14 The onus to prove the genuineness of the transaction lies upon the assessee which has upheld in the following cases also:  CIT v. W.J. Walker and Co. [1979] 117ITR 690,694 (Cal);  Sajan Dass and Sons v. CIT [2003] 264 ITR 435 (Delhi) ;  SumatiDayalv.CIT[1995]214ITR801(SC);and  Jaspal Singh v. CIT [2006] 290 ITR 306 (P&H).  Dhanalaxmi Steel Re-rolling Mills 57ITD 361 (HYD.) 6.2.15. It is not the case where the assessing officer has not made any efforts regarding the examination of the identity/ existence of the investors, source of income of these lenders to find out whether they were creditworthy or were such who could provide to such huge money towards unsecured loans in the assessee- company. The facts of the present case is not a case of public issue of shares rather it is a case of unsecure loans from private lenders who are supposedly closely known to the assessee. Therefore in the light of the observation of the Page | 16 ITA.1564/AHD/2016/AY.2012-13 M/s. Parvati Fabrics Ltd. Hon'ble Court in the case of Lovely Exports, the legal regiment will be different as compared to the public issue. Whereas in the case of public issue, the company concerned cannot be expected to know every detail pertaining to the identity as well as the financial worth of each of its subscribers but same cannot be said in the case of private placement. As per the observation of the Hon'ble High Court, a very strict approach to the burden has to be adopted and the same is laid almost entirely on the assessee which receives the share subscription. It is, highly improbable in the case of the assessee that it is not knowing the latest address of all these shareholders and is not in touch with them from whom such a huge amount has been received as unsecured loans especially when all these lenders are claimed to be known through the customers. The assessee was able to produce documents/ papers when required but failed to produce the promoters/ directors before the assessing officer. In a case of public issue, it can be said that the assessee has discharged the onus the moment it has furnished the permanent account number of shareholders, shareholder register, share application form, share transfer register, etc. But in the case of private placement it has to satisfy the Assessing Officer about the genuineness of the transaction which in the instant case is highly doubtful as all the applicants are not traceable. Thus the Assessing Officer had reached a dead end of the enquiry and the onus had shifted on the assessee to produce the persons for verification. 6.2.16. The Assessing Officer has brought certain facts on record to highlight that the loan received actually represents an accommodation entry. It could be proved that the company providing loan exists only on paper, it has no employees, the address given is only a postal address and the company does not have any physical set up at the given address, the same address is possibly being used as postal address for multiple companies indulging in to the same activity of providing accommodation entries The assessee was trying to press into service only the legal or de-jure identity of a creditor and could not adduce any evidence of the de-facto existence of the creditor company. The de-jure existence is a mere convenient facade of the de-facto existence of the creditor company. Such de-jure existence is self-serving one, having been obtained through application and other forms and formalities unilaterally filed before the ROC etc. 6.2.17. Thus, on overall consideration of facts and circumstances of the case and as discussed in detail above, the amounts claimed to be received by the assessee do not in any way appear to be genuine unsecured loans. They are nothing but arranged affairs being pre-ordained series of transactions and tax evasion device where money laundering transactions have been camouflaged as unsecured loans. Hence no credence can be placed on the copies of various documents filed to support such claim of unsecured loans and addition of Rs.2,40,60,000/- is hereby confirmed and grounds of appeal is dismissed.” 8. We have gone through the above findings of ld CIT(A) and noted that ld CIT(A) has passed reasoned and speaking order covering both sides arguments. We note that ld Counsel made the submission before the Bench that loan has been repaid in subsequent years therefore addition made be deleted. However, we note Page | 17 ITA.1564/AHD/2016/AY.2012-13 M/s. Parvati Fabrics Ltd. that said fact has not been examined by the assessing officer. Besides, we note that assessee company has failed to prove the identity of these 12 lender companies, as explained by ld DR that assessing officer vide letter dated 27.02.2015 directed the assessee to produce the Principal Officers of these 12 lender companies but no compliance was made by the assessee, that is, out of twelve lender companies, none appeared before assessing officer. We note that primary onus is on the assessee to prove the source of cash credits supported with evidences. The burden of proof lies on the assessee to support his contention that the explanation regarding source of the cash credits. The expression 'burden of proof really means two different things. It means sometimes that a party is required to prove an allegation before judgment can be given in his favour. It also means that on a contested issue, one of the two contending parties has to introduce evidence. In the first sense, if the burden is not discharged, the party must eventually fail. In the second case, where the parties have joined issue and have led evidence and the conflicting evidence can be weighed to determine which way to issue can be decided, the question of burden of proof becomes an abstract question and is therefore academic. The section 101 to 114 of Indian Evidence Act, 1872 deals with burden of proof. The section 102 of the Evidence Act provides that the burden of proof lies on that party who would fail if no evidence at all were given on either side. Thus, if an assessee claims that money or bullion found in his possession at the time of the search or survey does not belong to him but someone else, the onus is on him to establish it because the ordinary presumption is that he is the owner as the money etc. was found in his possession. Similarly, in all cases where a particular receipt is sought to be taxed as income, the initial onus is on the Assessing Officer to prove that it is taxable. Where, however, the assessee claims exemption, the burden is on the assessee to prove it to be exempt. Same is the position in case of allowances, deductions, or claims of loss, etc. Similarly, where there is a statutory rebuttable presumption against the assessee, as in case of cash credits etc., u/s 68 or unexplained investment u/s 69, the initial burden of proof is on the assessee to show that the cash credit is genuine or the investment is not unexplained. The AO should, therefore, always examine as to who has to discharge the burden of proof. Therefore, based on these facts and circumstances, Page | 18 ITA.1564/AHD/2016/AY.2012-13 M/s. Parvati Fabrics Ltd. we remit the lis back to the file of the assessing officer for fresh adjudication in accordance with law. 9. In the result, appeal filed by the assessee is allowed for statistical purposes. Order is pronounced in the open court on 24/06/2022 by placing the result on the Notice Board as per Rule 34(5) of the Income Tax (Appellate Tribunal) Rule 1963. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat / Ǒदनांक/ Date: 24/06/2022 SAMANTA Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr.CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat