The Commissioner of Income Tax IV, Hyderabad V. Nava Bharat Ferro Alloys Ltd.

ITTA/395/2013

AI Insights

The case involves the Commissioner of Income Tax IV, Hyderabad, as the appellant, and M/s. Nava Bharat Ferro Alloys Ltd., Hyderabad, as the respondent. The core issue was whether the Income Tax Appellate Tribunal was justified in overturning the findings of the Commissioner of Income Tax (Appeals), which had accepted the assessee's explanation regarding a loan of Rs. 10,00,000. The Tribunal found discrepancies in the financial credibility of the creditors and the genuineness of the transactions, leading to the dismissal of the appeal by the High Court.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 808069 (HC-HYDERABAD)
• Appeal Type: Others
• Pronouncement Date: 05-09-2013
• Assessment Year: misc
• Other Referred Cases: Crystal Networks P. Ltd. vs. Commissioner of Income Tax, Commissioner of Income Tax vs. Dwarkadhish Investment P. Ltd., & Others
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: A V A SHIVA KARTIKEYA
• Keywords: Creditworthiness; Genuineness of transactions; Income Tax; Unsecured loans; Systematic and Organized Manner
• Section: 68

Judgement Text

" THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE SRI JUSTICE K.C. BHANU I.T.T.A. No.395 OF 2013 DATED:5.9.2013 Between: The Commissioner of Income Tax IV, Hyderabad. … Appellant And M/s. Nava Bharat Ferro Alloys Ltd., Hyderabad. ….Respondent THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE SRI JUSTICE K.C. BHANU I.T.T.A. No.395 OF 2013 Judgment: (per the Hon’ble the Chief Justice Sri Kalyan Jyoti Sengupta) We have heard Mr. A.V.A. Shiva Kartikeya, learned counsel for the appellant and have gone through the impugned judgment and order of the learned Tribunal dated 7.12.2012. This appeal is sought to be admitted on the following suggested question of law: 1) Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in setting aside the well considered order of the 1st appellate authority and sustaining the additions to an extent of 10,00,000/- ignoring the assessee’s explanation ? It appears that the Assessing Officer added a sum of Rs,10,00,000/- to the income of the assessee, which was not shown in the income tax returns of the assessee. The Commissioner of Income Tax (Appeals) however, upset the finding of the Assessing Officer and held that the assessee has received the income by way of loan from two creditors. The Commissioner of Income Tax (Appeals) having noted the bank account of the respective creditors as well as the income tax returns filed by the assessee, believed in his own way that the transaction is a genuine one. It is settled position of law that in a case of this nature, the identity and credit worthiness of the creditor have to be established. So, the Commissioner of Income Tax (Appeals) accepted and believed that the transaction is genuine. The Appellate Tribunal, however, upset those findings. Mr. A.V.A. Siva Kartikeya, learned counsel for the appellant submitted that the learned Tribunal ought not to have reversed the fact finding of the Commissioner of Income Tax (Appeals). According to him, the assessee has been able to discharge his burden to prove that the transaction is a genuine one and the materials were sufficiently placed. He contends further that the burden shifts upon the Revenue to disprove the same and the Revenue did not make any attempt to do so. Under the circumstances, this appeal is required to be admitted as to whether the aforesaid finding can be upset by the Tribunal on the suggested question of law. In support of this contention, he has referred to two reported judgments, one of the Kolkata High Court in the case of Crystal Networks P. Ltd., vs. Commissioner of Income Tax[1] and another of the Delhi High Court in the case of Commissioner of Income Tax vs. Dwarkadhish Investment P. Ltd., & Others[2] and two un- reported judgments of this Court dated 25.6.2013 and 27.6.2013 respectively, rendered in Income Tax Tribunal Appeal Nos. 79 of 2013 and 123 of 2013. The whole question is whether the learned Tribunal has any reason or material to upset the fact finding of the Commissioner of Income Tax (Appeals). Therefore, we need to record what the learned Tribunal has recorded in this regard, while upsetting the findings of the Commissioner of Income Tax (Appeals), which is as follows: “From the materials on record, we find that immediately prior to the issuance of the cheque by the concerned creditors to the assessee, cash deposits of even amounts were made into the respective bank accounts of the creditors. The incomes disclosed in the returns filed for the assessment year 2007-08 by the concerned creditors, Shri Somraj and Smt. Hema Soni, were very meager, i.e., Rs.1,03,150 and Rs.1,30,708 and the same do not infuse confidence as to the creditworthiness of those two creditors, so as to enable them to advance huge amounts of Rs.5,00,000/- each to the assessee. It is also a fact taken note of by the Assessing Officer that excepting the aforesaid cash deposits in the bank accounts of the creditors, no other deposits of such magnitude were found to have been made in their bank accounts. It is evident from the material on record that the assessee and his other family members have indulged in availing unsecured loans from certain persons in a systematic and organized manner, so as to explain away the unexplained investments made by them in the purchase of the immovable property. As for the case law relied upon by the learned counsel for the assessee, it is pertinent to note that the ratio of a decision is applicable in respect of the facts decided in that case.” The Tribunal has further recorded a finding, which is as follows: “In the present case, there is serious doubt raised regarding the creditworthiness of the concerned creditors and the genuineness of the transactions. In the absence of satisfactory explanation from the assessee to fulfill the aforesaid two ingredients for proving the genuineness of a credit, the Assessing Officer was justified in making the addition under Section 68 of the Act. The CIT(A) by merely considering the fact that the creditors have filed the returns of income, declaring the loan transactions in question, has deleted the addition made by the Assessing Officer. This approach of the CIT(A), in our considered view, is not correct and hence cannot be accepted.” In view of the aforesaid fact finding recorded by the Tribunal, we have to see whether the decisions cited by the learned counsel are helpful in this case or not. It is well established that in a case of this nature, the initial burden is upon the assessee to show prima facie (1) the identity of the creditor or subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor or subscriber; (4) if relevant details of the address or PAN Identity of the creditor or subscriber are furnished to the Department, then it would constitute acceptable proof or acceptable explanation by the assessee. The aforesaid position of law has been explained by the Delhi High Court in the case of Dwarkadhish Investment P. Ltd., in paragraph-8 of the said judgment. So, who has to discharge the burden and under what circumstances has also been explained in the said judgment. We are of the view that the assessee has to fulfill all the conditions mentioned above. Once the aforesaid conditions are fulfilled by the assessee by adducing evidence, then a heavy burden is cast upon the Revenue to disprove it with cogent materials. The unreported decision of this Court in I.T.T.A. No. 123 of 2013, has accepted the same principle. Though, initially, the burden lies on the assessee, once he has proved the identity of the creditors by either furnishing their PAN number or income tax assessment number and shows the genuineness of the transaction by showing money in his books either by account payee cheque or by draft or by any other mode, then the onus of proof would shift to the Revenue. Further, in the reported judgment of the Kolkata High Court in the case of Crystal Networks P. Ltd., it has been held in the same line. According to us, once those materials have been produced, then the revenue officials have to examine whether the creditor had creditworthiness or not. The existence of the creditor’s creditworthiness is one of the most important factors. The learned Tribunal, in this case, after analyzing the materials produced by the assessee, found that the so-called two creditors had no creditworthiness and this is reflected from the accounts as well as from the tax returns. It is impossible to accept that this transaction is genuine when the income tax returns show a meager amount of Rs.1.00 lakh and odd and how the creditors could advance huge sums of Rs. 5.00 lakhs each; and wherefrom these huge amounts have come is not clear. Moreover, it was not also clear from the bank records that there has been any transaction subsequently. Therefore, the materials produced before the revenue officials by the assessee were not sufficient to adjudge that the assessee has discharged his burden. Learned counsel further says that the said two creditors have been summoned by the revenue officials to verify whether they have advanced any amount or not. According to us, when the material produced before the revenue officials are good enough to come to conclusion that there is no genuine transaction of lending and borrowing of money, we feel that no further or other material is required. We hold that in this case, the assessee has not been able to discharge his burden to prove the creditworthiness of the creditors. Hence, question of shifting the burden upon the Revenue does not arise. This case entirely depends upon the fact finding of the genuineness of the transactions and this fact finding has been reached with required degree of accuracy by the Tribunal. This Court is not meant for recording further fact finding as it is not a case of perversity. Hence, we do not find any reason to admit this appeal. The appeal is accordingly dismissed. ___________________ K.J. SENGUPTA, CJ ____________ K.C. BHANU, J 5.9.2013 PNB in case of Smt. Basanti Devi Toshniwal, immediately prior to the issuance of the cheque to the assessee, she has deposited cash of Rs.6 lakhs into her back account except for this, there was no other cash deposit of such magnitude made into her bank account. The incomes disclosed in the returns filed for the assessment year 2007- 08 by Smt. Basanti Devi Toshniwal and Ms. Vanitha Agarwal, were so meager that the same do not infuse confidence as to the creditworthiness of those creditors, so as to enable them to advance huge amounts of Rs.5,00,000/- and Rs.6,00,000/- to the assessee. So far as loan taken from Janata Construction Co., is concerned, nothing was produced before the Assessing Officer to prove the credit- worthiness of the concerned creditor. It is evident from the material on record that the assessee and his other family members have indulged in availing unsecured loans from certain persons in a systematic and organized manner, so as to explain away the unexplained investments made by them in the purchase of the immovable property. As for the case- law relied upon by the learned counsel for the assessee, it is pertinent to note that the ratio of a decision is applicable in respect of the facts decided in that case.” The CIT(A) by mainly considering the fact that the creditors have filed the returns of income, declaring the loan transactions in question and the assessee has repaid the loan amounts by cheque, has deleted the addition made by the Assessing Officer. These factors alone do not establish either the genuineness of the transactions or the creditworthiness of the concerned creditors” [1] [2013] 353 ITR 171 [2] [2011] 330 ITR 298 "