ASST. CIT 2(1), MUMBAI V. H PARSON P. LTD, MUMBAI

ITA 6969/MUM/2010

• Counselvise Citation: 696919914 RSA 2010
• Duration Of Justice: 4 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 09-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 07-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR BORA
• Assessee Lawyers: ARATI VISSANJI; AJIT C SHAH
• Keywords: Unexplained cash credit; Business income; Earning of tax free income; Accommodation entries; Onus to prove
• Section: 68; 14A

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MU MBAI - H BENCH , ! ! ! ! '' '' '' '' , ! ! ! ! BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & S HRI SANJAY GARG, JUDICIAL MEMBER /. ITA NO.6808/MUM/2010, # # # # $ $ $ $ / ASSESSMENT YEAR-2007-08 H. PARSON PRIVATE LIMITED, ASIA BUILDING, NICOL ROAD, BALLARD ESTATE,MUMBAI-400038 PAN:AAACH1326D # VS. ASST. CIT(OSD) 2(1), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 ( %& / APPELLANT) ( '(%& / RESPONDENT) /. ITA NO.6969/MUM/2010, # # # # $ $ $ $ / ASSESSMENT YEAR-2007-08 DCIT- 2(1),AAYAKAR BHAVAN, R.NO. 575, 5TH FLOOR, M.K. ROAD, MUMBAI-400020 # VS. H. PARSON PRIVATE LIMITED, ASIA BUILDING, NICOL ROAD, BALLARD ESTATE, MUMBAI-400038 ( %& / APPELLANT) ( '(%& / RESPONDENT) #)* + / ASSESSEE BY : SMT. ARATI VISSANJI & SHRI AJIT C. SHAH ! , + / REVENUE BY :SHRI VIJAY KUMAR BO RA # , *- / DATE OF HEARING :09-12-2014 ./$ , *- / DATE OF PRONOUNCEMENT 31 -12-2014 # # # # , 1961 , ,, , 254(1) *'* *'* *'* *'* 0 0 0 0 ORDER U/S.254(1)OF THE INCOME-TAX AC T,1961(ACT) PER RAJENDRA, A.M. ! ! ! ! # # # # : CHALLENGING THE ORDER DATED 16.07.2010 OF THE CIT(A )-4,MUMBAI,THE ASSESSEE AND THE ASSESSING OFFICER (AO) HAVE FILED CROSS APPEALS.THE ASSESSEE HAD RAISED FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED COMMISSIONER. OF INCOME TAX (APPEALS ) IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT AND IN LAW ERRED IN- 1.1 CONFIRMING THE DISALLOWANCE OF RS.96,323/- U/S. 14A READ WITH RULE 8D THOUGH THE SAID RULE 8D WAS NOT APPLICABLE IN RESPECT OF ASSESSMENT YEAR 2007-2008. 1.2 CONFIRMING AN ADDITION OF RS.25,00,000/ - AS IN COME BY APPLYING SECTION 68 OF THE ACT IN RESPECT OF LOAN FROM M/S. SATYA TRADERS PVT. LTD., THOUGH THE SAID LOAN WAS NOT TAKEN BY THE APPELLANT IN THE IMPUGNED ASSESSMENT YEAR AND FURTH ER CONFIRMING THE SAID ADDITION UNDER THE PROVISIONS OF SECTION 68 OF THE ACT THOUGH THE LEAR NED ASSESSING OFFICER HAD APPLIED SECTION 41(1) OF THE ACT. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT AND IN LAW OUGHT TO HAVE - 2.1 NOT DISALLOWED RS.96,323/- BY APPLYING RULE 8D THOUGH THE SAID RULE 8D WAS NOT APPLICABLE TO THE IMPUGNED ASSESSMENT YEAR. 2.3 NOT TAXED RS.25,00,000/- U/S.68 OF THE ACT IN R ESPECT OF UNPAID LOAN PAYABLE TO M/S. SATYA TRADERS PVT. LTD., THOUGH THE SAME WAS NOT OBTAINED BY THE APPELLANT IN THE IMPUGNED ASSESSMENT YEAR AND FURTHER NOT TAXED THE SAID LOAN U/S.68 OF THE ACT AS THE LEARNED ASSESSING OFFICER HAD APPLIED THE PROVISIONS OF SECTION 41(1) OF THE ACT TO ADD THE SAME AMOUNT. 3. IT IS HUMBLY PRAYED THAT THE RELIEFS AS PRAYED F OR HEREINABOVE AND/OR SUCH OTHER RELIEFS AS MAY BE JUSTIFIED BY THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS MAY MEET THE ENDS OF JUSTICE SHOULD BE GRANTED. 2 ITA NO. 6808 & 6969/MUM/2010 H. PARSON PRIVATE LTD. 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND, WHICH MAY BE NECESSARY. ITA NO./6969/MUM/2010 GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UND ER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) HAD ERRED IN ALLOWING RELIEF TO THE ASSESSEE TO THE EXTENT IMPUG NED IN THE GROUNDS ENUMERATED BELOW: 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FA CTS OF THE CASE. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN ALLOWING THE AMOUNT OF RS.98.11 LACS ON ACCOUNT OF DISCOUNT AND COMMISSION INSPITE OF THE FACT THAT ASSESSEE FAILED TO EXPLAIN THE EXPENSES. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF THE CIT(A) MAY BE SET-ASIDE AND THAT OF THE AO RESTORED. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF TRADING IN INDIAN MADE FOREIGN LIQUOR,FILED ITS RETURN OF INCOME ON 30.10.2007,DECLARING TOTAL INCO ME AT RS.NIL/-.ASSESSING OFFICER(AO) FINALISED THE ASSESSMENT U/S.143(3) OF THE ACT,ON 2 2.12.2009,DETERMINING THE TOTAL INCOME AT RS. 61,29.907/-. ITA NO.6808/MUM/2010: 2. FIRST GROUND OF APPEAL PERTAINS TO DISALLOWANCE OF RS.96,323/- MADE U/S.14A OF THE ACT READ WITH RULE 8D OF INCOME-TAX RULES,1962(RULES).DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT THE ASSESSEE HAD CLAIMED EXEMPTION ON DIVIDEND INCO ME OF RS.1.64 LAKHS AND HAD NOT DISALLOWED ANY EXPENDITURE FOR EARNING THE SAID TAX FREE INCOM E.APPLYING THE RULE 8D OF THE RULES,HE HELD THAT A DISALLOWANCE OF RS. 96,233/- SHOULDBE MADE F OR THE YEAR. 2.1. AGAINST THE ORDER OF THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE AND THE ASSESSMENT ORDER,HE HELD THAT THE ASSESSEE HAD SHOWN EXEMPT INCOME BUT DID NOT DISALL OW ANY EXPENSE.HE FOLLOWED THE DECISION DELIVERED BY THE SPECIAL BENCH OF THE TRIBUNAL IN T HE CASE OF DAGA CAPITAL MANAGEMENT. 2.2. BEFORE US,AUTHORISED REPRESENTATIVE(AR)STATED THAT PROVISIONS OF RULE 8D WERE NOT APPLICAB- LE FOR THE YEAR UNDER CONSIDERATION,THAT DISALLOWAN CE MADE SHOULD BE DELETED.DEPARTMENTAL REPRESENTATIVE(DR) ARGUED THAT PROVISIONS OF SECTIO N 14A OF THE ACT WERE APPLICABLE FOR THE YEAR UNDER APPEAL. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.DURING THE YEAR UN DER APPEAL,THAT THE AO HAD APPLIED THE RULE 8 D AND MADE DISALLOWANCE.AS PER THE JUDGMENT OF TH E HONBLE JURISDICTIONAL HIGH COURT,DELIVER -ED IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD.(3 28ITR81)NO DISALLOWANCE CAN BE MADE UNDER RULE 8D FOR THE AY.2007-08,THAT A REASONABLE SUM CA N BE DISALLOWED FOR EARNING INCOME THAT DOES NOT FORM PART OF THE TOTAL INCOME AFTE CONSIDERING THE FACTS OF THE CASE.IN THIS BACKGROUND,IN THE INTEREST OF JUSTICE,WE ARE RESTORING BACK THE MATTE R TO THE FILE OF THE AO FOR FRESH ADJUDICATION,WHO WILL DECIDE THE ISSUE AFTER AFFORDING A REASONABLE OPPORTUNITY TO THE ASSESSEE. GROUND NO.1 IS ALLOWED FOR STATISTICAL PURPOSES. 3. NEXT GROUND PERTAIN TO ADDITION OF RS.25,00,000/-.D URING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD DECLARED INTER-CORPORAT E DEPOSITS OF RS 25,00,000/- AS ON 31.03.2006 AS WELL AS ON 31.03.2007.THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF THE SAME.IT WAS NOTICED, BY THE AO,FROM THE DETAILS FILED BY THE ASSESSEE TH AT IT HAD A LOAN OUTSTANDING RS.25 LACS FROM PROMOTERS.HE ASKED THE ASSESSEE TO FURNISH THE DETA ILS OF THE SAME AND THE DATE SINCE WHICH THE LOAN WAS OUTSTANDING, PURPOSE FOR WHICH THE LOAN WA S TAKEN, WHY THE LOAN HAD NOT BEEN REPAID.HE ALSO DIRECTED THE ASSESSEE TO FILE THE CONFIRMATION OF THE EXISTING LIABILITY OF THE SAME AND TO EXPLAIN AS TO WHETHER THE LOAN HAD BEEN SUBSEQUENTL Y SETTLED OR NOT.THE ASSESSEE ,VIDE LETTER DATED 23.10.2009, FILED THE LEDGER ACCOUNT OF THE SAME.TH E AO NOTICED THAT THE LOAN HAD BEEN TAKEN FROM M/S SATYA TRADERS PVT. LTD (STPL)AND IT HAD BE EN OUTSTANDING IN THE BOOKS OF ASSESSEE SINCE 3 ITA NO. 6808 & 6969/MUM/2010 H. PARSON PRIVATE LTD. 1999,THAT THERE HAD BEEN NO SUBSEQUENT REPAYMENT,TH AT THE ASSESSEE FAILED TO FURNISH ANY CONFIR - MATION FROM THE LENDER REGARDING THE EXISTING LIABI LITY.THE ASSESSEE WAS FURTHER ASKED TO SHOW- CAUSE THAT WHY THE SAME AMOUNT SHOULD NOT BE ADDED BACK TO THE BUSINESS INCOME AS CESSATION OF LIABILITY TO PAY.IN RESPONSE,THE ASSESSEE DID NOT F ILE ANY SUBMISSIONS OR OBJECTIONS TO THE SAME NOR A CONFIRMATION WAS FILED REGARDING EXISTING LIABILI TY.CONSIDERING THE ABOVE THE AO HELD THAT THE ASSESSEE-COMPANY HAD CLAIMED TO HAVE RECEIVED LOAN AMOUNTS STPL,THAT IT HAD NOT PAID THE LOAN AMOUNT TO THE CREDITOR FOR THE LAST 10 YEARS,THAT T HE LOANS AMOUNTS HAD BECOME BARRED BY LIMITA - TION,BEING MORE THAN 3 YEARS OLD,THAT AMOUNTS HAD C HANGED CHARACTER AND BECOME ASSESSEE'S OWN MONEY,THAT NO CONFIRMATION REGARDING THE EXISTENCE OF LIABILITY HAD BEEN FILED,IT HAD NOT FILED ANY SUBMISSION OR OBJECTION AGAINST THE SHOW-CAUSE.BASE D ON THE ABOVE DISCUSSIONS, AN AMOUNT OF RS.25,00,000/-, BEING THE OUTSTANDING LOAN IN RESPE CT OF STPL WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE COMPANY U/S 41(1) OF THE. 3.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FAA. BEFORE HIM,THE ASSESSEE ARGUED THAT THE AO WAS IS NOT JUST IFIED IN MAKING THE ADDITION OF RS. 25,00,00/ - ON ACCOUNT OF UNSECURED LOAN RECEIVED BY THE ASSESS EE FROM STPL,THAT SECTION 41 (1) WAS NOT APPLICABLE TO THE FACTS OF THE CASE,THAT IT WOULD A PPLY ONLY WHEN THERE WAS A LIABILITY WHICH HAD BEEN REMITTED,THAT THERE WAS NO REMISSION OF LIABIL ITY,THAT IT HAD NOT REPAID THE LOAN SO FAR TAKEN FROM STPL,THAT THERE WAS NO APPLICATION OF SECTION 41 (1).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER HE HELD THAT THE ASSESSEE HAD NOT FILED ANY CONFIRMATION FROM THE LENDER,THAT FOR WANT OF ANY EVIDENCE TO SH OW THAT THE AMOUNT WAS A LIABILITY FROM STPL THE AO WAS JUSTIFIED IN MAKING THE ADDITION TO THE TOTAL INCOME OF THE ASSESSEE.HE FURTHER HELD THAT INSTEAD OF APPLYING SEC. 41 (1) THE AO SHOULD HAVE APPLIED SECTION 68 WHICH IS REGARDING CASH CREDIT.REFERRING TO THE PROVISIONS OF SECTION 68 HE HELD THAT THE ASSESSEE HAD NOT EXPLAINED THE NATURE AND SOURCE OF INCOME FOR THE AMOUNT OF C REDIT FOUND IN THE BOOKS OF ACCOUNTS,THAT THE EXPLANATION OFFERED BY THE ASSESSEE WITHOUT ANY SUP PORTING EVIDENCE HAD BEEN FOUND BY THE AO AS NOT SATISFACTORY,THAT SECTION 68 WOULD APPLY AND TH E ADDITION WAS REQUIRED TO BE SUSTAINED AS UNEXPLAINED CASH CREDIT. HE DISMISSED THE GROUND FI LED BY THE ASSESSEE. 3.2. BEFORE US,AUTHORISED REPRESENTATIVE(AR) STATED THAT NO ADDITION COULD BE MADE U/S.41(1) OF THE ACT FOR THE DISPUTED DEMAND,AS THERE WAS NO CES SATION OF LIABILITY,THAT THE AO HAD MADE ADDITION U/S.41(1)OF THE ACT,THAT THE FAA HAD HELD THAT ADDITION WAS TO BE MADE AS PER THE PROVISIONS OF SEC.68 OF THE ACT.ON A SPECIFIC QUERY BY THE BENCH IT WAS ADMITTED THAT TILL THE DATE OF HEARING MONEY HAD NOT BEEN RETURNED TO THE CREDI TOR,THAT THE CREDITOR HAD NOT CONTACTED THE ASSESSEE FOR LAST SO MANY YEARS TO PAY BACK THE AMO UNT IN QUESTION,THAT NO INTEREST WAS BEING PAID TO THE LENDER OF THE SUM.THE DEPARTMENTAL REPRESENT ATIVE(DR)SUPPORTED THE ORDER OF THE AO. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.UNDISPUTED FACT OF THE MATTER ARE THAT THE ASSESSEE HAD RECEIVED A LOAN OF RS.25 LAKHS FROM STPL IN 1999,THAT DURING THE YEAR UNDER CONSIDERATION THE AO DIRECTED THE ASSESS EE TO FILE CONFIRMATION ABOUT EXISTING LIABILITY,THAT THE ASSESSEE DID NOT FILE ANY EVIDEN CE TO PROVE THE CLAIM MADE BY IT EXCEPT THE COPY OF HIS LEDGE,THAT THE AO MADE AN ADDITION OF THE DI SPUTED DEMAND U/S.41(1)OF THE ACT,THAT IN APPELLATE PROCEEDINGS THE FAA HELD THAT PROVISIONS OF SECTION 68 WOULD BE APPLICABLE TO THE DISPUTED TRANSACTION AND THE AMOUNT HAD TO CONSIDER ED AS UNEXPLAINED CASH CREDIT.FROM THE ORDER OF THE AO IT TRANSPIRES THAT LOAN WAS RECEIVED FROM A CORPORATE ENTITY AND IT WAS CLAIMED TO BE PROMOTER. SECTION 68 OF THE ACT ENVISAGES THAT IF A SUM IS FO UND CREDITED IN THE BOOKS OF AN ASSESSEE,IT CAN BE CHARGED TO TAX AS HIS INCOME IN CERTAIN CIRCUMST ANCES.OVER THE YEARS LAW REGARDING CASH CREDITS HAVE EVOLVED AND HAS TAKEN A DEFINITE SHAPE.WE WOUL D LIKE TO REFER TO SOME OF THE CASES DEALING WITH PROVISIONS OF SECTION 68 OF THE ACT.ONE OF TH EM IS THE MATTER OF MAF ACADEMY P.LTD. (361 ITR258) OF THE HONBLE DELHI HIGH COURT.IN THAT MAT TER FOLLOWING WAS HELD: IN THE CONTEXT OF UNEXPLAINED CASH CREDITS,WHEN AN ASSESSEE DOES NOT PRODUCE EVIDENCE OR TRIES TO AVOID APPEARANCE BEFORE THE AO, IT NECESSARILY CREA TES DIFFICULTIES AND PREVENTS ASCERTAINMENT OF 4 ITA NO. 6808 & 6969/MUM/2010 H. PARSON PRIVATE LTD. THE TRUE AND CORRECT FACTS AS THE AO IS DENIED THE ADVANTAGE OF THE CONTENTION OR FACTUAL ASSERTION BY THE ASSESSEE BEFORE HIM. IF AN ASSESSEE DELIBERA TELY AND INTENTIONALLY FAILS TO PRODUCE EVIDENCE BEFORE THE ASSESSING OFFICER WITH THE DESIRE TO PRE VENT INQUIRY OR INVESTIGATION, AN ADVERSE INFERENCE SHOULD BE DRAWN.MERE PRODUCTION OF PERMAN ENT ACCOUNT NUMBER OR ASSESSMENT PARTICULARS DOES NOT ESTABLISH THE IDENTITY OF A PE RSON. THE IDENTIFICATION OF A PERSON INCLUDES THE PLACE OF WORK, THE STAFF AND THE FACT THAT THAT PER SON WAS ACTUALLY CARRYING ON BUSINESS AND FURTHER RECOGNITION OF THE COMPANY OR INDIVIDUAL IN THE EYE S OF PUBLIC. PERMANENT ACCOUNT NUMBERS ARE ALLOTTED ON THE BASIS OF APPLICATIONS WITHOUT ACTUA L DE FACTO VERIFICATION OF THE IDENTITY OR ASCERTAINMENT OF THE ACTIVE NATURE OF BUSINESS ACTI VITY. PERMANENT ACCOUNT NUMBERS ARE ALLOTTED AS A FACILITY TO THE REVENUE TO KEEP TRACK OF TRANSACT IONS.THE PERMANENT ACCOUNT NUMBER CANNOT BLINDLY AND WITHOUT CONSIDERATION OF SURROUNDING CI RCUMSTANCES BE TREATED AS SUFFICIENTLY DISCLOSING THE IDENTITY OF THE PERSON. IN A CASE OF ACCOMMODATION ENTRIES, IN VIEW OF THE LINK BETWEEN THE ENTRY PROVIDERS AND INCRIMINATING EVIDE NCE, THE MERE FILING OF PERMANENT ACCOUNT NUMBERS, ACKNOWLEDGMENT OF INCOME-TAX RETURNS OF TH E ENTRY PROVIDERS AND BANK ACCOUNT STATEMENTS, IS NOT SUFFICIENT TO DISCHARGE THE ONUS ON THE ASSESSEE. THE COURT OR TRIBUNAL SHOULD BE CONVINCED ABOUT THE IDENTITY, CREDITWORTH INESS AND GENUINENESS OF THE TRANSACTIONS. THE ONUS TO PROVE THE THREE FACTUM IS ON THE ASSESSEE A S THE FACTS ARE WITHIN THE PERSONAL KNOWLEDGE OF THE ASSESSEE.MERE PRODUCTION OF INCORPORATION DETAI LS, PERMANENT ACCOUNT NUMBERS OR INCOME-TAX RETURNS MAY NOT BE SUFFICIENT WHEN SURROUNDING AND ATTENDING FACTS PREDICATE A COVER-UP. THE PRODUCTION OF INCORPORATION DETAILS, PERMANENT ACCO UNT NUMBERS OR INCOME-TAX DETAILS MAY INDICATE COMPLETION OF PAPER WORK OR DOCUMENTATION BUT THE GENUINENESS, CREDITWORTHINESS AND IDENTITY OF THE INVESTMENT AND THE INVESTORS ARE DE EPER AND OBTRUSIVE THAN MERE COMPLETION OF PAPER WORK OR DOCUMENTATION.COMPANIES NO DOUBT ARE ARTIFICIAL OR JURISTIC PERSONS BUT THEY ARE SOULLESS AND ARE DEPENDENT UPON THE INDIVIDUALS BEH IND THEM WHO RUN AND MANAGE THE SAID COMPANIES. IT IS THE PERSONS BEHIND THE COMPANY WH O TAKE THE DECISIONS, CONTROLS AND MANAGE THEM.' ONE OF THE OLD CASE,DEALING WITH THE SUBJECT WAS DE LIVERED BY THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF SRIRAM JHABARMULL (KALIMPONG)LTD.(64ITR 314),WHEREIN FOLLOWING WAS HELD: IT IS NOT CORRECT TO SAY THAT AS SOON AS THE INITIA L BURDEN OF PROOF ON THE PART OF THE ASSESSEE IS DISCHARGED, THE AO IS NOT ENTITLED TO REJECT THE AS SESSEE'S EXPLANATION WITHOUT SOME OTHER POSITIVE EVIDENCE FALSIFYING THE ASSESSEE'S CASE.IT CANNOT B E TRUE THAT ANY POSSIBLE EXPLANATION WHICH AN ASSESSEE PUTS FORTH FOR CLARIFYING THE SOURCE AND N ATURE OF A CASH RECEIPT MUST HAVE TO BE ACCEPTED BY THE INCOME-TAX DEPARTMENT NOR CAN IT BE LAWFULLY URGED THAT THE AO CAN ARBITRARILY REJECT THE ASSESSEE'S EXPLANATION. ADOGMATIC ASSERTION ON THE PART OF EITHER THE ASSESSEE OR THE REVENUE AUTHORITIES CANNOT DETERMINE THE ISSUE. OBJECTIVELY IT MUST BE FOUND OUT THAT THE ASSESSEE'S EXPLANATION SUFFERS FROM INHERENT INFIRMITY OR IS I NCONSISTENT WITH MORE RELIABLE EVIDENCE ADDUCED BY THE DEPARTMENT, BEFORE THE ASSESSEE'S EXPLANATIO N IS REJECTED. BEFORE THAT THE HONBLE MADRAS HIGH COURT HAD,IN TH E MATTER OF P. V. RAGHAVA REDDI,(29ITR942) OBSERVED AS UNDER : ' WE DO NOT THINK THAT THE QUESTION OF BURDEN OF PR OOF CAN BE MADE TO DEPEND EXCLUSIVELY UPON THE FACT OF A CREDIT ENTRY IN THE NAME OF THE ASSESSEE OR IN THE NAME OF A THIRD PARTY. IN EITHER CASE, TH E BURDEN LIES UPON THE ASSESSEE TO EXPLAIN THE CREDIT ENTRY, THOUGH THE ONUS MIGHT SHIFT TO THE INCOME-TAX OFFICER UNDER CERTAIN CIRCUMSTANCES. OTH ERWISE A CLEVER ASSESSEE CAN ALWAYS THROW THE BURDEN OF PROOF ON THE INCOME-TAX AUTHORITIES BY MA KING A CREDIT ENTRY IN THE NAME OF A THIRD PARTY EITHER REAL OR PSEUDONYMOUS. ' FINALLY,WE WOULD LIKE TO REFER TO THE MATTER OF NOR THERN BENGAL JUTE TRADING CO. LTD. (70 ITR 407)THAT ALSO DEALS WITH PRINCIPLES GOVERNING THE C ASH CREDIT.HONBLE COURT HAS HELD AS FOLLOW: WHEN A CASH CREDIT ENTRY APPEARS IN THE ASSESSEE'S BOOKS OF ACCOUNT IN AN ASSESSEE, HE HAS THE LEGAL OBLIGATION TO EXPLAIN THE SOURCE OF SUCH RECE IPT. THE INITIAL ONUS IS ENTIRELY ON THE ASSESSEE, BUT THE QUESTION WHETHER SUCH ONUS HAS BEEN DULY DI SCHARGED BY THE ASSESSEE OR HAS BEEN SHIFTED TO THE REVENUE CAN ONLY BE DETERMINED AFTER THE EVALUA TION OF ALL THE SURROUNDING CIRCUMSTANCES. THERE CANNOT BE ONE GENERAL OR UNIVERSAL PROPOSITIO N OF LAW WHICH COULD BE THE GUIDING YARDSTICK IN THE MATTER. EACH CASE HAS GOT TO BE DECIDED ON T HE FACTS AND CIRCUMSTANCES OF THE CASE.THE SURROUNDING CIRCUMSTANCES TO BE CONSIDERED MUST,HOW EVER,BE OBJECTIVE FACTS, EVIDENCE ADDUCED 5 ITA NO. 6808 & 6969/MUM/2010 H. PARSON PRIVATE LTD. BEFORE THE TAXING AUTHORITIES, PRESUMPTION OF FACTS BASED ON COMMON HUMAN EXPERIENCE IN LIFE AND REASONABLE CONCLUSION. FROM THE ABOVE IT IS CLEAR THAT UNTIL AND UNLESS ID ENTITY AND CREDITWORTHINESS OF THE LENDER AND GENUINENESS OF THE TRANSACTION IS PROVED,THE AO CAN INVOKE THE PROVISIONS OF SECTION 68 OF THE ACT,THAT THE EVIDENCE PRODUCED BY THE ASSESSEE CANN OT BE BRUSHED ASIDE IN A CAUSAL MANNER,THAT AN ASSESSEE CANNOT BE ASKED TO PROVE IMPOSSIBLE,THAT E XPLANATION ABOUT SOURCE OF SOURCE OR ORIGINS OF THE ORIGIN CANNOT AND SHOULD NOT BE CALLED FOR WHILE MAKING INQUIRY UNDER THIS SECTION,THAT IN SUCH CASES BURDEN CANNOT BE DISCHARGED TO THE HILT AND THESE MATTERS ARE DECIDED ON THE PARTICULAR FACTS OF THE CASE AS WELL AS ON THE BASIS OF PREPON DERANCE OF PROBABILITIES. THE EXPRESSION THE ASSESSEE OFFERS NO EXPLANATION M EANS THE ASSESSEE OFFERS NO PROPER,REASONA - BLE AND ACCEPTABLE EXPLANATION AS REGARDS THE SUMS FOUND CREDITED IN THE BOOKS MAINTAINED BY THE ASSESSEE.THE OPINION OF THE AO FOR NOT ACCEPTING TH E EXPLANATION OFFERED BY THE ASSESSEE AS NOT SATISFACTORY IS REQUIRED TO BE BASED ON PROPER APPR ECIATION OF MATERIAL AND OTHER ATTENDING CIRCUMSTANCES AVAILABLE ON THE RECORD. THE OPINION OF THE AO IS REQUIRED TO BE FORMED OBJECTIVELY WITH REFERENCE TO THE MATERIAL ON RECORD FILE. ONCE THE EXPLANATION OF THE ASSESSEE IS FOUND UNBELIEVABLE OR FALSE THE AO IS NOT REQUIRED TO BRI NG POSITIVE EVIDENCE ON RECORD TO TREAT AMOUNT IN QUESTION AS INCOME OF THE ASSESSEE.WHILE CONSIDE RING THE EXPLANATION OF THE ASSESSEE, THE AO HAS TO ACT REASONABLY-APPLICATION OF MIND IS THE SI NE QUA NON FOR FORMING THE OPINION. CONFIRMATORY LETTERS OR A/C PAYEE CHEQUES DO NOT PR OVE THAT THE AMOUNT IN QUESTION IS PROPERLY EXPLAINED FOR THE PURPOSE OF SECTION 68.ASSESSEE HA S TO ESTABLISH IDENTITY AND CREDITWORTHINESS OF THE CREDITOR AS WELL AS THE GENUINENESS OF THE TRAN SACTION.ALL THE THREE INGREDIENTS ARE CUMULATIVE AND NOT EXCLUSIVE. IN MATTERS REGARDING CASH CREDIT THE ONUS OF PROOF IS NOT A STATIC ONE.AS PER THE PROVISIONS OF THE SECTION THE INITIAL BURDEN OF PROOF LIES ON THE ASS ESSEE.AMOUNT APPEARING IN THE BOOKS OF A/CS. OF THE ASSESSEE IS CONSIDERED A PROOF AGAINST HIM.HE C AN PROVE THE IDENTITY OF THE CREDITORS BY EITHER FURNISHING THEIR PANS OR ASSESSMENT ORDERS.SIMILARL Y,GENUINENESS OF THE TRANSACTION CAN BE PROVED BY SHOWING THAT THE MONEY WAS RECEIVED BY AN ACCOUNT PAYEE CHEQUE OR BY DRAFT. CREDITWORTHINESS OF THE LENDER CAN BE ESTABLISHED B Y ATTENDING CIRCUMSTANCES. ONCE THE ASSESSEE PRODUCES EVIDENCES ABOUT IDENTITY,GENUINENESS AND C REDIT WORTHINESS OF THE LENDER ONUS OF PROOF SHIFTS TO THE REVENUE. MATTER BEFORE US IS THE ONE THAT IS REQUIRED TO BE DECIDED BY DRAWING REASONABLE CONCLUSION ON THE BASIS OF HUMAN PROBABILITY.HUMAN PROBABILITY CANNOT BE IGNORED ABOUT THE PERSONS WHO ARE READY TO FORGO NOT ONLY PRINCIPAL BUT ALSO INTEREST FOR Y EARS TOGETHER AND THE BORROWER WHO DOES NOT KNOW THE CREDITOR EVEN THOUGH IT IS CLAIMED TO BE A CORPORATE ENTITY AND PROMOTER.NONE WOULD LEAVE HARD EARNED MONEY CONTINUOUSLY FOR SO MANY YE ARS.HAD THE TRANSACTION BEEN A CHARITY OR DONATION IT WOULD HAVE BEEN ACCEPTED,BUT IT IS CLAI MED TO BE A COMMERCIAL TRANSACTION.RULES GOVERNING COMMERCIAL WORLD DO NOT APPROVE NON PRODU CTION OF CONFIRMATION LETTER OF EXISTING LIABILITY OR NON FURNISHING ADDRESS OR THE ASSESSEE FOR VERIFICATION PURPOSES.PRINCIPLES OF BUSINESS DEMAND PAYMENT OF INTEREST TO THE CREDITOR AND DEDU CTION OF TAX AT SOURCE FOR INTEREST PAYMENT. NONE OF THE FACTORS THAT ARE PART OF A NORMAL BUSIN ESS TRANSACTION ARE EXISTING IN THE CASE BEFORE US. FACT OF THE CASE IS THAT THOUGH THE ASSESSEE IS SH OWING AN AMOUNT OF RS.25 LAKHS AS CREDIT,YET IT FAILED TO PRODUCE EVEN A SINGLE PIECE OF PAPER WHEN DIRECTED BY THE AO TO DO SO.DURING THE ASSESSMENT PROCEEDINGS THE AO HAD DIRECTED IT TO FI LE TO FILE THE CONFIRMATION OF THE EXISTING LIABILITY. IT WAS UPON THE APPELLANT TO DISCHARGE T HE ONUS,BUT IT CHOOSE NOT TO COMPLY WITH IT.WE DO NOT THINK THAT THE ASSESSEE HAS DISCHARGED THE ONUS IN THE INSTANT CASE.THE ASSESSEE'S BOOKS OF ACCOUNT SHOW THAT THERE IS INHERENT WEAKNESS IN THE EVIDENCE ADDUCED BY IT.APART FROM THE COPY OF LEDGER ACCOUNT PRODUCED BY THE ASSESSEE AS APPEARIN G IN ITS BOOKS OF ACCOUNTS, THERE IS NOT ONE SINGLE DOCUMENT TO SUBSTANTIATE ITS SUBMISSION. UND ER THESE CIRCUMSTANCES, THE FAA HAS RIGHTLY HELD THAT THE ASSESSEE HAS FAILED TO PROVE THE GENU INENESS OF THIS DEPOSIT AND THE DEPARTMENT WAS JUSTIFIED IN BRINGING THE AMOUNT TO TAX. THEREFORE CONSIDERING THE FACTS-NON SUBMISSION OF C ONFIRMATION OF EXISTING LIABILITY,NON AVAILABI - LITY OF ADDRESS OF THE ASSESSEE THOUGH IT IS A COMP ANY AND HAD ADVANCED A LOAN OF RS. 25 LAKHS, 6 ITA NO. 6808 & 6969/MUM/2010 H. PARSON PRIVATE LTD. NON-PAYMENT OF INTEREST OR PRINCIPAL AMOUNT FOR LAS T SO MANY YEARS-WE ARE OF THE OPINION THAT THE TRANSACTION FAILS ON ALL THE THREE COUNTS I.E.HUMA N BEHAVIORPREPONDERANCE OF PROBABILITY AND SURROUNDING CIRCUMSTANCES.CONFIRMING THE ORDER OF THE FAA,WE DECIDE GROUND NO.2 AGAINST THE ASSESSEE. ITA NO. 6969/MUM/2010 : 4. EFFECTIVE GROUND OF APPEAL,FILED BY THE AO,DEALS WI TH DISCOUNT AND COMMISSION PAYMENT OF RS. 98.11 LAKHS.DURING THE ASSESSMENT PROCEEDINGS THE A O FOUND THAT THE SALES FIGURE FOR THE YEAR UNDER APPEAL AS PER THE AUDITOR'S REPORT WAS RS.38, 05,27,429/-(42667532 +33,78,59,897/-),WHERE - AS THE SALES REFLECTED IN THE P&L ACCOUNT WAS RS.35 ,14,08,358/-,THAT THERE WAS A DISCREPANCY AMOUNTING TO RS.2,91,19,071/-.IN RESPONSE TO THE DI RECTION OF THE AO TO FILE DETAILS OF DISCREPANCY FILED FOLLOWING DETAILS: PARTICULARS SALES AMOUNT PURCHASE AMOUNT IMFL 42667532.19 37145309.75 BEER 33785999480 290850621.18 WINES 2628360 - SALE OF VENDOR SHOP 2445380.03 PURCHADE OF VENDOR 221916339 FREE DISCOUNT (31333760.13) SCHEME FREE ON IMFL (2,38,298.49) SCHEME FEE WINES (18,77400) SCHEME RECEIVED (61,67,648.32) TOTAL 35,14,08,358 32,40,47,446 IT WAS FURTHER STATED THAT THE ASSESSEE HAD GIVEN D ISCOUNT AGGREGATING TO RS.3,13,33,760,THAT IT HAD ALSO RECEIVED DISCOUNT OF RS.2,32,77,083/ FROM THE SUPPLIERS .THE BREAK UP GIVE BY THE ASSESSEE READ AS UNDER: DISCOUNT FROM PURCHADE FROM UNITED BREWERIES LIMITE D WHICH IS IN BUILT INTO THE SCHEME I.E. THE PURCHADE PRICE IS REDUCED TO THE EXTENT OF THE SAID DISCOUNT - RS.1,71,0 9,435/- ADD: DISCOUNT WHICH APPEARS SEPARATELY IN THE LEDGE R RS. 61,68,648/- TOTAL RS.2,32,77,083/- THE AO DIRECTED THE ASSESSEE TO EXPLAIN THE DIFFERE NCE OF RS.80,56,677/- IN THE DISCOUNT GIVEN VIS- A-VIS DISCOUNT RECEIVED.AFTER CONSIDERING THE REPLY OF THE ASSESSEE,THE AO HELD THAT THE ASSESSEE HAD NOT BEEN ABLE TO SPECIFICALLY IDENTIFY AND QUAN TIFY HOW THE DIFFERENCE IN SALES RATES ARISES, WHICH ARE THE SPECIFIC BILLS RELATING TO PURCHASE A ND SALES WHICH CAN JUSTIFY THE BALANCE DISCOUNT OF RS.80,56,677/-,THAT IT HAD GIVEN A GENERALISED SUBM ISSIONS BY SAYING THAT CERTAIN DISCOUNTS WERE ALSO GIVEN FOR PROMOT -ING THE COMPANY'S SALES AT T HE TIME OF CERTAIN EVENTS,THAT THERE WERE NO SPECIFIC DETAILS FILED BY REGARDING SUCH DISCOUNTS AND SUCH PROMOTIONAL EVENTS,THAT THE ASSESSEE HAD ALSO ALREADY DEBITED AN AMOUNT OF RS. 1.30 CROR ES IN THE P&L ACCOUNT UNDER THE HEAD DISCOUNTS AND REBATES COMPRISING OF CASH DISCOUNT ( RS. L,05,01,946/-),OTHER DISCOUNT (RS.4,77, 938/-), SCHEME DISCOUNT (RS.11, 61,907/-),BREAKAGES (RS.8,06,687/-),TDV RET-SCHEME DISCOUNT (RS.1,15,139/-),THAT BESIDES CASH DISCOUNT,IT HAD ALSO DEBITED SCHEME DISCOUNTS,OTHER DISCOUNT WORTH RS.11,61,907/- & RS. 11, 5139/-,RS.477938/- R ESPECTIVELY AGGREGATING TO RS.17,54, 984/-., THAT IT HAD CLAIMED THAT THE AGGREGATE SCHEME DISCO UNTS GIVEN BY IT AMOUNT TO RS. 3,13,33, 760/- OUT OF WHICH RS.17,54,984/- OF SCHEME DISCOUNTS HAD ALREADY BEEN DEBITED IN THE P&L ACCOUNT, THAT THE ASSESSEE HAD NOT BEEN ABLE TO EXPLAIN HOW THE SCHEME DISCOUNT DEBITED IN P&L ACCOUNT IS DIFFERENT FROM OVERALL SCHEME DISCOUNTS,THAT IT HAD SUBMITTED THE DETAILS OF SUCH DISCOUNTS AGGREGATING TO MORE THAN RS.3.00 CRORES ONLY WHEN T HE DISCREPANCY WAS POINTED OUT,THAT THE ASSESSEE HAD NOT BEEN ABLE TO EXPLAIN THE AGGREGATE DISCOUNT OF RS.98,11,661/- (RS.17,54,984/ - 7 ITA NO. 6808 & 6969/MUM/2010 H. PARSON PRIVATE LTD. AND RS. 80,56,677/ -), THAT IF ONE LOOKED AT THE PR EVIOUS YEARS FIGURES THE AGGREGATE OF SALES AS MENTIONED IN THE AUDITOR'S REPORT MATCHED WITH THE SALES-FIGURE,THAT IF A DIFFERENT ACCOUNTING METHODOLOGY HAD BEEN ADOPTED IN THE NOTES TO ACCOUN T BY THE AUDITORS, IT HAD NOT BEEN SPECIFICALLY DISCLOSED OR MENTIONED ANYWHERE.HE ADDED THE SAID S UM TO THE OVERALL SALES FIGURE FOR THE ASSESSEE. 4.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FAA.BEFORE HIM IT WAS CONTENDED THAT THE AO WAS NOT JUSTIFIED IN M AKING THE ADDITION OF RS. 98,11,661/-,THAT LOT OF INCENTIVES AND DISCOUNTS HAVE TO BE GIVEN TO THE BU YERS OF THE SAID PRODUCTS,THAT APART FROM THE PASSING THE DISCOUNT RECEIVED FROM THE MANUFACTURER S, ADDITIONAL DISCOUNTS AND COMMISSION HAD ALSO TO BE GIVEN TO THE BUYERS AND CONSUMERS OF THE PRODUCTS WITH A VIEW TO GAIN HIGHER VOLUME OF BUSINESS, THAT THE SAID DISCOUNTS AND SCHEME DISCOU NTS HAD BEEN DEBITED BY REDUCING SALES OR BY DEBITING P & L ACCOUNT AS EXPENDITURE WHICH WERE FU LLY ACCOUNTED AND COULD NOT BE CONSTRUED THE SUPPRESSION OF SALES AS THE SALE HAD BEEN FULLY ACC OUNTED FOR AND THEREFORE, NO PART OF THE SAME COULD BE DISALLOWED AS 'SUPPRESSION OF SALES.',THAT THE SAID DISCOUNTS AND SCHEME DISCOUNT GRANTED BY THE ASSESSEE AGGREGATING TO RS. 98,11,661/ -SHOU LD NOT BE DISALLOWED AND THE DISALLOWANCE SHOULD BE DIRECTED TO BE DELETED. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE ASSESSMENT ORDER,HE HELD THAT THAT THE DETAILS OF DISCOUNTS RECEIVED AND PAID HAD BEEN FUR NISHED WERE FURNISHED BY THE ASSESSEE FILING THE LEDGER ACCOUNT OF THE PARTIES TO WHOM THE DISCOUNTS WERE GIVEN,THAT THE ASSESSEE HAD RECEIVED LESS DISCOUNT AND GIVEN MORE DISCOUNT TO ITS PURCHASERS, THAT NO ADDITION COULD BE MADE SIMPLY ON THE GROUND THAT THE ASSESSEE HAD GIVEN MORE DISCOUNTS T HAN WHATEVER HE HAD RECEIVED,THAT IT HAD EXPLAINED THE DIFFERENCES IN DISCOUNT BY FILING THE ACCOUNT COPIES OF THE PARTIES CONCERNED,THAT THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITIONS ON ACC OUNT OF DISCOUNTS AND COMMISSION. 4.2. BEFORE US,DEPARTMENTAL REPRESENTATIVE(DR) SUPPORTED THE ORDER OF THE AO.THE AUTHORISED REPRESENTATIVE(AR) STATED THAT THE ASSESSEE HAD FIL ED ALL THE NECESSARY DETAILS OF DISCOUNTS AND COMMISSION BEFORE THE AO,THAT NO DEFECT WAS POINTED OUT BY THE AO IN THE BOOKS OF THE ASSESSEE. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE AO HAD MADE THE DISALLOWANCE BECAUSE HE FOUND THAT THE ASS ESSEE HAD GIVEN MORE DISCOUNT THAN IT RECEIVED.BUT,IN OUR OPINION,ONLY ON THAT BASIS NO F INAL CONCLUSION CAN BE DRAWN.IT IS A GOOD STARTING POINT FOR MAKING FURTHER INVESTIGATION,BUT IS NOT AN EVIDENCE IN ITSELF.THE ASSESSEE HAD FILED DETAILS OF DISCOUNT RECEIVED AS WELL AS DISCO UNT PAID,THAT LEDGER COPIES WERE MADE AVAILABLE TO THE AO AND HE HAS NOT POINTED OUT ANY DEFECT IN THE BOOKS OF THE ASSESSEE MAINTAINED BY IT.IT IS A KNOWN FACT THAT SALES PROMOTION DISCOUNT ON CASH SALES IS PREVALENT IN THE LINE OF BUSINESS OF THE ASSESSEE.WE FIND THAT THE AO HAD ALSO IGNORED THE F ACT THAT THE DISCOUNTS WERE GIVEN BY REDUCING THE RATES IN THE BILLS TO STOCKIST AND RETAILERS.IN THESE CIRCUMSTANCE,IN OUR OPINION THE ALLEGED DIFFERENCE POINTED OUT BY THE AO STANDS LOGICALLY E XPLAINED.THE FAA HAD ARRIVED AT A FACT BASED CONCLUSION THAT THE AO WAS NOT JUSTIFIED IN MAKING ADDITION ON ACCOUNT OF DISCOUNTS AND COMMI - SSIONS.AS HIS ORDER DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY,SO,WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND APPEAL OF THE AO STANDS DISMISSED. 1*2 #)* 3 4 , ' 0*2 6 , * 78 #)* - , #6 , * 78 . ORDER PRONOUNCED IN THE OPEN COURT ON 31ST, DECEMBE R,2014. 0 , ./$ 9 : # 31 : ,2014 / , ' ; SD/- SD/- ( '' '' '' '' / SANJAY GARG) ( / RAJENDRA) ! / JUDICIAL MEMBER ! / ACCOUNTANT MEMBER / MUMBAI, : # /DATE: 31.12.2014 SK 8 ITA NO. 6808 & 6969/MUM/2010 H. PARSON PRIVATE LTD. 0 , '*< =<$* / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / %& 2. RESPONDENT / '(%& 3.THE CONCERNED CIT(A)/ > ? , 4.THE CONCERNED CIT / > ? 5. DR H BENCH, ITAT, MUMBAI / <@' '*# ,P , . . . 6. GUARD FILE/ ' 1 (<* '* //TRUE COPY// 0# / BY ORDER, A / 7 DY./ASST. REGISTRAR , /ITAT, MUMBAI